United States ex rel. Wood v. Allergan, Inc., 10–CV–5645 (JMF)

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Writing for the Court: JESSE M. FURMAN, United States District Judge
• Citation: 246 F.Supp.3d 772
• Docket Number: 10–CV–5645 (JMF)
• Decision Date: 31 March 2017
• Parties: UNITED STATES of America EX REL. John A. WOOD, et al., Plaintiffs, v. ALLERGAN, INC. and Allergan plc, Defendants.

246 F.Supp.3d 772

UNITED STATES of America EX REL. John A. WOOD, et al., Plaintiffs,
v.
ALLERGAN, INC. and Allergan plc, Defendants.

10–CV–5645 (JMF)

United States District Court, S.D. New York.

Signed March 31, 2017

246 F.Supp.3d 781

Sherrie Raiken Savett, Arthur M. Stock, Lane Lanier Vines, Berger & Montague, P.C., Philadelphia, PA, Jeremy Lawrence Reiss, Leonard D. Steinman, Blank Rome LLP, New York, NY, W. Scott Simmer, Thomas J. Poulin, Simmer Law Group PLLC, Washington, DC, for Plaintiffs.

Stephen C. Payne, Trent Benishek, Gibson, Dunn & Crutcher, LLP, Washington, DC, John D.W. Partridge, Gibson, Dunn & Crutcher, LLP, Denver, CO, for Defendants.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

TABLE OF CONTENTS

INTRODUCTION...782

BACKGROUND...782

A. Relevant Statutes...783

B. The Alleged Scheme...784

C. Other Cases and Procedural History...786

LEGAL STANDARDS...787

DISCUSSION...788

A. The Public Disclosure Bar...788

B. The First–to–File Bar...790

1. Related Actions...790

2. Whether the First–to–File Bar Requires Dismissal...792

C. Statute of Limitations...800

D. The Anti–Kickback Statute...805

1. Drug Samples and Patient Care Kits...806

2. Patient Instruction Sheets and Prescription Pads...808

E. The False Claims Act...809

1. The PPACA...812

2. Express Certification...813

3. Implied Certification...815

4. Third–Party Claim Submissions...818

F. Rule 9(b)...819

1. FERA...820

2. Counts I and II: Subsections (a)(1)(A) and (a)(1)(B)...821

3. Count III: Subsection (a)(1)(C)...825

4. Count IV: Subsection (a)(1)(G)...826

5. The Scope of the Scheme and Scienter...827

G. The Retaliation Claim...830

H. State Law Claims...831

1. Wisconsin...831

2. Delaware, New Mexico, and Texas...832

246 F.Supp.3d 782

3. Retroactivity and Timeliness...833

CONCLUSION...834

INTRODUCTION

In this qui tam proceeding, Plaintiff–Relator John A. Wood brings claims under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq. , and state analogues against Defendant Allergan, Inc. ("Allergan"), a pharmaceutical company that develops and manufactures eye care prescription drugs.¹ Wood alleges, among other things, that Allergan violated the FCA and the Anti–Kickback Statute ("AKS"), 42 U.S.C. § 1320a–7b(b), by providing substantial quantities of free drugs and other goods to physicians in exchange for their prescribing to beneficiaries of Medicare, Medicaid, and other government programs the company's brand name drugs. (Docket No. 38 ("Third Am. Compl.") ¶¶ 1–12). Wood also brings parallel claims under state law on behalf of twenty-five states (id. ¶¶ 291–473), and alleges that he was unlawfully terminated in retaliation for his whistleblowing actions. (Id. ¶¶ 258–274; 288–290). Now pending is Allergan's motion, pursuant to Rules 9(b) and 12(b) of the Federal Rules of Civil Procedure, to dismiss the Third Amended Complaint.

Allergan's motion confirms that, when the Supreme Court observed last year that the FCA's "qui tam provisions present many interpretive challenges," it was, if anything, engaging in rhetorical understatement. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter , ––– U.S. ––––, 135 S.Ct. 1970, 1979, 191 L.Ed.2d 899 (2015). The motion presents several issues that neither the Supreme Court nor the Second Circuit has addressed and upon which other federal courts have divided, including whether the FCA's bar on actions brought while a related action is pending (the so-called "first-to-file" rule) is a jurisdictional or non-jurisdictional rule and, relatedly, whether a violation of the rule compels dismissal or can be cured through the filing of a new pleading; and whether a relator can rely on a subsection of the statute that permits claims to be brought up to ten years after they accrued where the relevant facts are not known to "the official of the United States charged with responsibility to act." It also calls upon the Court to interpret and apply the Supreme Court's recent decision in Universal Health Servs., Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016), which partially altered the FCA landscape.

The issues are too complicated and the Court's holdings are too numerous to usefully summarize here. For now, it suffices to say that, for the lengthy reasons discussed below, Allergan's motion to dismiss is largely denied.

BACKGROUND

Generally, in considering a motion to dismiss, a court is limited to the facts alleged in the complaint and is required to accept those facts as true. See, e.g. , LaFaro v. N.Y. Cardiothoracic Grp., PLLC , 570 F.3d 471, 475 (2d Cir. 2009). A court, however, may also consider documents attached to the complaint; statements or documents incorporated into the complaint by reference; and, more relevant here, matters of which judicial notice may be taken, such as public records. See, e.g. ,

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McBeth v. Porges , 171 F.Supp.3d 216, 221 (S.D.N.Y. 2016). Accordingly, the following facts are taken from the Third Amended Complaint, materials incorporated by reference therein, and documents of which the Court may take judicial notice.²

A. Relevant Statutes

The statutes at the heart of this case are discussed in more detail below, but a brief introduction to them is warranted at the outset. As noted, Wood brings claims under the FCA. To the extent relevant here, the FCA imposes significant penalties on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or any person who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(A)–(B) ; see also Escobar , 136 S.Ct. 1989. Under Second Circuit law, a claim can be "factually" false or "legally" false. See Mikes v. Straus , 274 F.3d 687, 696 (2d Cir. 2001), abrogated in part by Escobar , 136 S.Ct. at 2001. Factually false claims involve "an incorrect description of goods or services provided or a requirement for goods or services never provided," Mikes , 274 F.3d at 697, whereas legally false claims are "predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term," id. at 696. An "expressly" false claim is one that "certifies compliance with a particular statute, regulation, or contractual term, where compliance is a prerequisite to payment." Id. at 698. By contrast, "implied" false claims occur where a defendant makes or causes to be made "representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements," so long as those omissions "render the defendant's representations misleading with respect to the goods or services provided." Escobar , 136 S.Ct. at 1999.

As a qui tam statute, the FCA permits private persons, known as "relators," to bring actions to recover damages on behalf of the United States. 31 U.S.C. § 3730(b). The statute includes other procedural quirks as well, several of which loom large in this case. First, the statute provides that a relator must file his or her complaint under seal so as to permit the government to decide whether it wants to intervene. See id. § 3730(b)(2). At the Government's request, the seal can remain in effect indefinitely; moreover, even if the Government declines to intervene at the outset, it may do so at any point later in the litigation upon a showing of good cause. See id. § 3730(b)(3). Second, certain provisions of the statute provide incentives for relators to file quickly, while balancing the Government's interest in notice with concerns about parasitic or opportunistic law suits. The "first-to-file" bar, for instance, states that once an action has been brought, "no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." Id. § 3730(b)(5). Relatedly, the "public disclosure" bar generally requires courts to "dismiss an action" if "substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed" at an earlier date. Id. § 3730(e)(4)(A). In isolation, each of these requirements presents interpretive challenges; taken together, they create a veritable thicket of complexity.

The gravamen of Wood's FCA claims, as discussed below, is that Allergan induced

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physicians to prescribe its drugs to recipients of federal benefits (such as Medicare and Medicaid) by providing unlawful remuneration—including free drug samples—in violation of the AKS, 42 U.S.C. § 1320a–7b(b). To the extent relevant here, the AKS imposes criminal liability on any person who "knowingly and willfully offers or pays any remuneration ... to induce [any] person" to prescribe a drug "for which payment may be made in whole or in part under a Federal health care...