United States ex rel. Schnupp v. Blair Pharm., Civil Action ELH-17-2335

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
Writing for the CourtEllen L. Hollander, United States District Judge
PartiesUNITED STATES ex rel. TIMOTHY SCHNUPP Relator v. BLAIR PHARMACY, INC., et al., Defendants.
Docket NumberCivil Action ELH-17-2335
Decision Date09 December 2022



BLAIR PHARMACY, INC., et al., Defendants.

Civil Action No. ELH-17-2335

United States District Court, D. Maryland

December 9, 2022


Ellen L. Hollander, United States District Judge

In this qui tam action, Timothy Schnupp, the Relator, has sued his former employer, Blair Pharmacy, Inc. (“Blair Pharmacy” or “Pharmacy”), and its director and principal, Matthew Blair, pursuant to the False Claims Act (“FCA”), 31 U.S.C. §§ 3728 et seq. See ECF 30 (First Amended Complaint). The suit contains two counts. Count I asserts false claims under 31 U.S.C. § 3729(a)(1)(A) and Count II asserts false claims under § 3729(a)(1)(B).

Schnupp alleges, inter alia, that defendants knowingly submitted false claims to the Medicare Program, 42 U.S.C. § 1395 et seq. (“Medicare”), a federally funded health insurance program for people ages 65 and older and for certain people with disabilities (ECF 30, ¶ 11), and to the Department of Defense TRICARE health insurance program. Id. ¶ 20.[1] According to the Relator, defendants knowingly submitted false claims to Medicare and TRICARE for certain compound drugs, by substituting a less expensive drug for a more expensive drug; by billing for medication that was not provided; by overcharging for certain medication; and by committing violations of the Anti-Kickback Statute, 42 U.S.C. § 13209-7b(b). See ECF 30, ¶¶ 28-43.


Defendants have moved to dismiss (ECF 38), pursuant to Fed.R.Civ.P. 12(b)(6). The motion is supported by a memorandum of law (ECF 38-1) (collectively, the “Motion”) and several exhibits. ECF 38-2 to ECF 38-9. They argue that portions of the Relator's qui tam action are barred by the public disclosure provision of the FCA, 31 U.S.C. § 3730(e)(4). In addition, defendants contend that, in light of the heightened pleading requirements applicable to fraud claims under Fed.R.Civ.P. 9(b), the Amended Complaint fails to state a claim on which relief can be granted. And, defendants assert that because they have paid restitution to the government in connection with Blair's criminal case, ELH-19-410, the Amended Complaint must be dismissed under the doctrine of res judicata.

Defendants have also moved to seal two of the exhibits submitted with their Motion. ECF 39 (the “Sealing Motion”). And, they have asked the Court to take judicial notice of the exhibits attached to the Motion. ECF 40 (the “Judicial Notice Motion”).

The Relator opposes the Motion (ECF 47, the “Opposition”), supported by one exhibit. ECF 47-1. Defendants have replied. ECF 50. On September 22, 2022, the Relator sought leave to file a surreply. ECF 51. That motion was granted. ECF 53. The surreply is docketed at ECF 54.

No hearing is necessary to resolve the motions. See Local Rule 105.6. For the reasons that follow, I shall grant the Judicial Notice Motion. But, I shall deny the Motion and the Sealing Motion.

I. Background

The Relator filed his initial Complaint (ECF 1), with exhibits, on August 15, 2017, on behalf of the United States. Pursuant to the FCA, the suit was filed under seal to afford the United States an opportunity to decide whether to intervene. See 31 U.S.C. § 3730(b)(2). About two


years later, on August 27, 2019, while the government was still considering whether to intervene, a federal grand jury returned a ten-count Indictment against Blair. ECF 38-4; see United States v. Matthew Blair, ELH-19-410, ECF 1. Then, on March 3, 2020, Blair was charged in a thirty-six count Superseding Indictment. ELH-17-2335, ECF 38-5; ELH-19-410, ECF 20.

On December 3, 2021, Blair entered a plea of guilty to Count Thirty-One of the Superseding Indictment (ELH-17-2335, ECF 38-5; ELH-19-410, ECF 178), which charged him with payment of illegal remunerations, in violation of 42 U.S.C. § 1320a-7b(b)(2)(A). The plea was tendered pursuant to a Plea Agreement (ELH-19-410, ECF 181) under Fed. R. Crim. P. 11(c)(1)(C). Id. ¶ 9; see also ELH-17-2335, ECF 38-6. In accordance with the C plea, Blair was sentenced on February 10, 2022 (id., ECF 188) to a term of twelve months and one day of incarceration and ordered to pay restitution of $3,176,470.83. See ELH-17-2335, ECF 38-7; ELH-19-410, ECF 189 (Judgment).

As to the qui tam case, the government apparently undertook a lengthy investigation to determine whether to intervene. See ELH-17-2335, ECF 4; ECF 6; ECF 8; ECF 10; ECF 13; ECF 16; ECF 18; ECF 20; ECF 22; ECF 24; ECF 26. In that time, the case was effectively stayed. However, by order of October 15, 2019, the Court partially lifted the seal to permit the government to disclose the case to defendants. ECF 15. Eventually, on May 2, 2022, the United States declined to intervene. ECF 28. Soon after, on May 4, 2022, the civil suit was unsealed. ECF 29. And, on May 11, 2022, the Relator filed an Amended Complaint (ECF 30), which is the operative pleading.

As noted, the suit is premised on the Federal False Claims Act, 31 U.S.C. §§ 3729(a)(1)(A) and (a)(1)(B). It provides, in part, that “any person who-(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is


liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 . . . plus 3 times the amount of damages which the Government sustains because of the act of that person.”

The FCA protects the government fisc by “impos[ing] civil liability on persons who knowingly submit false claims for goods and services to the United States.” United States ex rel. Beauchamp v. Academi Training Center, 816 F.3d 37, 39 (4th Cir. 2016); see, e.g., United States ex rel. Citynet, LLC v. Gianato, 962 F.3d 154, 157 (4th Cir. 2020) (complaint alleged that defendant billed the federal government for “material and labor it did not provide, and for [projects] that were not constructed”); Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 959 F.3d 634, 636 (4th Cir. 2020) (complaint alleged that defendant “submitted reimbursement claims for resident services that were never provided”); see also United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014), cert. denied, 574 U.S. 819 (2014). Under the FCA permits a private party, a whistleblower known as a relator, may sue for himself and on behalf of the government to recover damages against defendants who have caused the submission of fraudulent claims for payment injuring the public fisc. 31 U.S.C. § 3730(b)(1). As an incentive to bring such suits, a successful relator is entitled to share in the government's recovery from the defendants. See United States ex rel. Bunk & Ammons v. Gov't Logistics N.V., 842 F.3d 261, 265 n.3 (4th Cir. 2016); see also Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 404 (2011); ACLU v. Holder, 673 F.3d 245, 246-51 (4th Cir. 2011) (describing history and current provisions of FCA).

The Motion implicates several provisions of the FCA. They are discussed, infra.


II. Factual and Procedural Summary

A. Relator's Allegations

Schnupp, the Relator, is a Doctor of Pharmacy, a Maryland Licensed Pharmacist, and a former employee of Blair Pharmacy. ECF 30, ¶ 1. Blair Pharmacy is a Maryland corporation that previously operated as a compounding pharmacy. Id. ¶ 2. “Compounding” is a practice in which pharmacists combine, mix, or alter ingredients to create a customized medication for an individual patient in response to a licensed practitioner's prescription. Id. ¶ 24. Blair is the founder of Blair Pharmacy, as well as a director and a principal, and he serves as the Pharmacy's resident agent. Id. ¶ 3.

The Amended Complaint (ECF 30) alleges five separate fraud schemes in which defendants submitted false claims to Medicare and TRICARE, both of which are federally funded health insurance programs: (1) substituting less expensive Lipoderm cream for more expensive SteraBase cream, but billing for compound drugs that supposedly contained SteraBase cream (id. ¶ 28); (2) billing for medication not provided by billing for compound drugs that supposedly contained 360 grams of product when only 300 grams were dispensed (id. ¶ 29); (3) overcharging for Gabapentin by billing for compound drugs containing 10% Gabapentin when only 6% was provided (id. ¶ 30); (4) using pre-paid gift cards or “burner cards” to pay coinsurance and/or deductible amounts for beneficiaries to induce them to use the Pharmacy “to fill lucrative compound medication prescriptions” (id. ¶ 34), in violation of the Anti-Kickback statute, 42 U.S.C. § 1320a- 7b(b) (id. ¶¶ 34, 35); and (5) payment to independent contractors of commissions equal to 50% of reimbursements paid to the Pharmacy by Medicare and TRICARE for compounded prescriptions that were marketed by the independent contractors to physicians, in violation of the


Anti-Kickback statute. ECF 30, ¶¶ 36-43. Schemes 1-4 were raised in the initial Complaint (ECF 1); scheme 5 was first raised in the Amended Complaint. ECF 30.

In regard to scheme 5, Relator alleges that Blair recruited the Atlas Group, LLC (“Atlas”), an independent contractor, to market the Pharmacy's compound drug prescriptions to physicians treating Medicare and TRICARE beneficiaries. Id. ¶ 36. Defendants entered a Distributor Agreement with Atlas in November 2014. Id. ¶ 37. It provided that Atlas would market the pharmacy's compounded drug prescriptions to physicians treating patients who received Medicare or TRICARE benefits, and use the Pharmacy to fill the prescriptions. Id. ¶¶ 36, 38. Atlas was to receive commissions equal to 50% of the reimbursements paid to Blair by Medicare and TRICARE, based on Atlas's efforts to market the compounded pain and...

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