United States ex rel. Blaum v. Triad Isotopes, Inc.

• Citation: 104 F.Supp.3d 901
• Decision Date: 15 May 2015
• Docket Number: Case No.: 11–cv–8098
• Parties: United States of America, State of Illinois, and Cook County ex rel. Matthew Blaum, Relator, Hot Shots NM, LLC, Plaintiff, v. Triad Isotopes, Inc.; Covidien, Inc.; Todd Giba; Donald Trepashko, M.D.; and Sami Distributors, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

104 F.Supp.3d 901

United States of America, State of Illinois, and Cook County ex rel. Matthew Blaum, Relator,Hot Shots NM, LLC, Plaintiff,

v.Triad Isotopes, Inc.; Covidien, Inc.; Todd Giba; Donald Trepashko, M.D.; and Sami Distributors, Inc., Defendants.

Case No.: 11–cv–8098

United States District Court, N.D. Illinois, Eastern Division.

Signed May 15, 2015

Daniel Moore Twetten, Loevy & Loevy, Boulder, CO, Anand Swaminathan, Arthur R. Loevy, Jonathan I. Loevy, Loevy & Loevy, Chicago, IL, for Relator/Plaintiff.

John Francis Grady, Lauren F. Catlin, Grady Bell LLP, Laura Gaffney Hoey, Ropes & Gray LLP, John Joseph Rock, Cory D. Anderson, James Bryan Novy, Patrick William Chinnery, Rock Fusco & Connelly, LLC, Patrick John Cotter, Greensfelder, Hemker & Gale, P.C., Keevan David Morgan, Alanna G. Morgan, Morgan & Bley, Ltd., Diane Green–Kelly, David Ackland Maas, Reed Smith LLP, Chicago, IL, Andrew J O'Connor, Kirsten Valerie Mayer, Ropes & Gray LLP, Boston, MA, for Defendant.

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr., United States District Judge

Before the Court are Defendants' motions to dismiss [94, 96, 99, 102, 103] Relator's and Plaintiff's amended complaint [88]. Defendants' motions are denied as to Counts I–IV and granted as to Counts V–VII. Counts V–VII of the amended complaint are dismissed without prejudice. Relator and Plaintiff should inform the court within 14 days as to whether they intend to file a second amended complaint repleading Counts V–VII, at which time the Court will set a status hearing to discuss scheduling moving forward.

I. Background¹

On November 11, 2011, Relator Matthew Blaum brought this qui tamaction on behalf of the United States and the State of Illinois, alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq.(“FCA”),²and the Illinois Whistleblower Reward and Protection Act, 740 ILCS 175/1 et seq.(“IWRPA”). In addition, Plaintiff Hot Shots NM, LLC alleged that Defendants violated state and federal antitrust laws, and tortiously interfered with its prospective business opportunities. The federal government declined to intervene [15] on October 28, 2013, prompting the court to unseal the complaint [16]. In April 2014, Defendants filed individual motions to dismiss the complaint, which were mooted three months later when Relator Blaum and Plaintiff Hot Shots filed an amended complaint [88]. Now before the Court are Defendants' motions to dismiss the amended complaint.

Originally there were seven named Defendants in this case. On January 12, 2015, Relator and Plaintiff filed a Rule 41 stipulation of voluntary dismissal with prejudice of individual Defendants Faisal Sami and Sarah Faisal (keeping as a Defendant Sami Distributors, Inc.), and the Court subsequently entered an order dismissing only those two defendants [126].³Each of remaining five Defendants filed an individual motion to dismiss the amended complaint: Dr. Trepashko [95], Covidien [97], Triad Isotopes [100], Mr. Giba (adopting Covidien and Triad Isotopes' arguments) [102], and Sami Distributors [104]. Relator and Plaintiff filed a single response brief [110], and each Defendant filed an independent reply [115, 117, 119, 120, 121].

A. Cook County Health and Hospital System and Radiopharmaceuticals

Relator alleges that from at least 2008 through 2011, Defendants defrauded Cook County, Illinois and the Cook County Health and Hospitals System (“CCHHS”) by making false statements and false claims regarding the sale of radiopharmaceutical drugs. CCHHS, formerly known as the Cook County Bureau of Health Services, oversees a comprehensive and integrated healthcare system covering Chicago and suburban Cook County, composed of hospitals, ambulatory and community health network clinics, a public health department, a correctional healthcare facility, and an outpatient infectious disease center. Specific facilities within the healthcare conglomerate include John H. Stroger Jr. Hospital, Provident Hospital, Oak Forest Hospital, Cook County Department of Public Health, Cermak Health Services, the Ruth Rothstein CORE Center, and 16 ambulatory and Community Health Network clinics.

CCHHS's annual revenues exceed $900 million. The majority of that revenue comes from patient services, and approximately 39 percent of CCHHS's patient revenue comes from the federal Medicare and Medicaid programs. Because CCHHS serves all patients, it has a substantial shortfall each year between its expenses and the revenue generated by patient care, and that shortfall is made up with funding from Cook County. In 2011, for example, Cook County provided CCHHS with approximately $368 million in funding. CCHHS spends approximately $2 million per year on radiopharmaceutical drugs.

Radiopharmaceutical drugs, which fall within the nuclear pharmacy industry, are used to treat certain medical conditions (such as cancer) and to perform radiological testing (such as CT scansand MRIs). The purchase, storage, and sale of these drugs are highly regulated by several federal and state industries, and distributors must hold a license to provide radiopharmaceuticals.

B. 2008 and 2010 Contracts

Defendant Dr. Trepashko is a nuclear radiologist for CCHHS. As head of the Nuclear Medicine department at CCHHS, he has substantial control over the awarding of CCHHS's annual contract for nuclear medicine. Dr. Trepashko had a close relationship with Defendant Mr. Giba, a sales representative for global healthcare-products provider Covidien, Inc. (which also is a Defendant here). Relator alleges that in 2008—when Relator himself was a Sales Specialist at Covidien—Dr. Trepashko provided Mr. Giba with insider information about how to ensure that Covidien obtained CCHHS's 2008 radiopharmaceutical contract. Specifically, Dr. Trepashko formulated a plan that would have Sami Distributors—a Minority- or Woman–Owned Business Entity (“M/WBE”) with no experience or qualifications in providing radiopharmaceutical drugs—submit a bid on its own behalf, when in fact the plan was to have Covidien fulfill the terms of the contract. In that scenario, Sami was slated to be a “pass-through” entity that would handle some paperwork (e.g.,billing CCHHS), but would provide no commercially useful functions regarding the purchase, storage, or sale of radiopharmaceuticals. All parties benefitted from this arrangement: Sami won (on paper) the contract, earning it a cut of the proceeds; Covidien won (in reality) the contract, earning it the bulk of the proceeds; CCHHS was a step closer to complying with Cook County's aspirational goal that 35 percent of all contracts for professional and consulting services be with M/WBEs; and Dr. Trepashko was in the good graces of Covidien and Sami, who rewarded him with expensive dinners and lucrative speaking engagements.

According to the amended complaint, Dr. Trepashko passed the torch to Mr. Giba to carry out the scheme. Just prior to the 2008 bid submissions, Mr. Giba met with Faisel Sami of Sami Distributors at Mr. Sami's home to secure his participation in the plan. After reaching an agreement, Mr. Giba went to a nearby restaurant, where—utilizing insider information provided to him by Dr. Trepashko—he prepared the bid form that Sami would ultimately submit to CCHHS. The bid form itself listed a number of radiopharmaceutical drugs and the quantities of those drugs that CCHHS anticipated using in the upcoming year. Bidders were required to provide a per-dose price for each drug and, if awarded the contract, a bidder would be required to honor its contract price regardless of the quantities actually ordered by CCHHS during the contract term. Mr. Giba's tactic, informed by Dr. Trepashko, was to lower Sami's bid price for one specific drug, which had the effect of making Sami the overall lowest bidder in the lot. Sami approved and submitted this bid on August 11, 2008, and CCHHS awarded Sami the 2008 radiopharmaceutical contract on December 5, 2008.

In addition to this price-fixing scheme, Sami made a number of misrepresentations calculated to ensure that it would win the contract, including (1) that it would maintain an inventory allowing same-day delivery (or one-hour delivery in emergency situations), (2) that it would meet certain transportation and delivery requirements relating to radiopharmaceuticals as dictated by Illinois law, (3) that it would pick-up expended radioactive syringes, (4) that it would maintain a current license from the State of Illinois, Department of Nuclear Safety, Radioactive Material License pursuant to the Illinois Radiation Protection Act and Regulations for Radiation Protection, allowing it to receive, acquire, own, possess, and transfer radioactive materials, (5) that it would not subcontract the CCHHS radiopharmaceutical contract, and (6) that it would spend $625,000.00 of the contract funds with other M/WBE contractors (specifically, MedRx Distributors, Inc. and Beverly A. Simpson, Inc.). Relator alleges that Sami never intended to perform any of these functions; instead, it was the conspirators' plan all along to have Covidien execute all radiopharmaceutical services directly with CCHHS, with Sami acting only as a pass-through entity. Nonetheless, after obtaining the contract, Sami proceeded to submit hundreds of invoices to CCHHS for the sale of radiopharmaceuticals as if it were performing under the contract, even though the bulk of those proceeds were funneled to Covidien.

On December 17, 2009, Sami submitted a bid to retain the CCHHS radiopharmaceutical contract. The bidding process did not change, and the conspirators put forth a nearly identical bid. Two months later, CCHHS again awarded Sami the radiopharmaceutical contract. One key difference is that in the 2010 bid, Sami represented that its earnings under the contract would satisfy the county's M/WBE ordinance (which requires the entity to perform a “commercially useful function”). Because Sami maintained its passive role as a pass-through entity, it didn't perform any...