United States v. Kmart Corp.

• Decision Date: 18 September 2013
• Docket Number: Case No. 12–CV–0881–MJR–PMF
• Parties: United States of America, et al., ex. rel., James Garbe, Plaintiff, v. Kmart Corporation, Defendant.
• Court: U.S. District Court — Southern District of Illinois

968 F.Supp.2d 978

United States of America, et al., ex. rel., James Garbe, Plaintiff,

v.Kmart Corporation, Defendant.

Case No. 12–CV–0881–MJR–PMF

United States District Court, S.D. Illinois.

Filed September 18, 2013

Aaron M. Zigler, Robert L. King, Stephen M. Tillery, Korein Tillery, St. Louis, MO, George A. Zelcs, Korein Tillery, Chicago, IL, Gerald M. Burke, Assistant U.S. Attorney, Fairview Heights, IL, Erika A. Kelton, Phillips & Cohen LLP, Washington, DC, Larry P. Zoglin, Phillips and Cohen LLP, San Francisco, CA, for Plaintiffs.

John F. Farraher, Jeffrey W. Greene, Greenberg Traurig, LLP, Boston, MA, Adam Siegler, Greenberg Traurig LLP, Los Angeles, CA, John F. Gibbons, Kimberly M. Deshano, Greenberg Traurig, Chicago, IL, Robert P. Charrow, Greenberg Traurig, LLP, Washington, DC, for Defendant.

MEMORANDUM AND ORDER

REAGAN, District Judge:

Pending before the Court is Defendant Kmart Corporation's Motion to Dismiss Relator's Complaint for failure to state a claim (Doc. 102). In the motion, Defendant Kmart Corporation (“Kmart”) seeks to dismiss all 32 counts of the Second Amended Complaint (“SAC”), pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6) and 9(b). Plaintiff–Relator James Garbe has filed a brief in opposition (Doc. 106). For the reasons set forth below, this motion is DENIED.

Relator has brought qui tam¹ claims on behalf of the United States under the False Claims Act, 31 U.S.C. § 3729(a)(1), § 3729(a)(2), § 3729(a)(7) (Count I) (“FCA”) and the related false claims acts of twenty-six states (Counts II, IV–VIII, XI, XIII–XXXI), and four other related state statutes (Counts III, IX, X and XII).² The Second Amended Complaint (Doc. 98) alleges that Defendant Kmart violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729(a)(1), (a)(2) and (a)(7), by misrepresenting its usual and customary drug prices on standardized claim forms and over-charging private insurers, prescription benefit managers, state Medicaid programs and certain federal programs for certain generic drugs sold at retail.³

Relevant Legal Standards

I. Pleading Standards

Defendant premises its motion upon Federal Rules of Civil Procedure 12(b)(1), 12(b)(6) and 9(b).

A motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges a court's subject matter jurisdiction. “Federal courts are not courts of general jurisdiction; they have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto.” Bender v. Williamsport Area School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). Therefore, the objection presented by a Rule 12(b)(1) motion challenging the Court's subject matter jurisdiction is that the Court has no authority or competency to hear and decide the case before it. International Union of Operating Engineers Local 150, AFL–CIO v. Ward, 563 F.3d 276, 280–82 (7th Cir.2009). It is also “well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction.” SeeBell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946).⁴

In deciding a motion to dismiss for failure to state a claim on which relief can be granted under Rule 12(b)(6), the district court's task is to determine whether the complaint includes “enough facts to state a claim to relief that is plausible on its face.” Khorrami v. Rolince, 539 F.3d 782, 788 (7th Cir.2008), quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Court of Appeals for the Seventh Circuit has clarified that, even after Twombly, courts must still approach Rule 12(b)(6) motions by construing the complaint in the light most favorable to the non-moving party, accepting as true all well-pleaded facts alleged, and drawing all possible inferences in the non-moving party's favor. Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir.2009), cert. denied, 558 U.S. 1148, 130 S.Ct. 1141, 175 L.Ed.2d 973 (2010) (quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008)).

Legal conclusions and conclusory allegations that merely recite the elements of a claim are not entitled to the presumption of truth afforded to well-pled facts. SeeMcCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir.2011). Therefore, after excising the allegations not accepted as true, the Court must decide whether the remaining factual allegations plausibly suggest entitlement to relief. Id. In other words, the complaint must contain allegations plausibly suggesting—not merely consistent with—an entitlement to relief. Id. (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955). This determination is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” McCauley, 671 F.3d at 616 (citing Ashcroft v. Iqbal, 556 U.S. 662, 663–64, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)).

Federal Rule of Civil Procedure 9(b) requires an elevated pleading standard for fraud claims, such as the claims asserted in this action. “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b) (emphasis added). See alsoTricontinental Industries, Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir.2007). Rule 9 is aimed at: “(1) protecting a defendant's reputation from harm; (2) minimizing ‘strike suits' and ‘fishing expeditions;’ and (3) providing notice of the claim to the adverse party.” Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir.1994). The Court of Appeals for the Seventh Circuit has explained that the complaint must plead “who, what, when, where, and how.” Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 569 (7th Cir.2012) (citing Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Services, Inc., 536 F.3d 663, 668 (7th Cir.2008)); United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 605 (7th Cir.2005). With that said, Rule 9(b) does not require a relator to plead evidence and is to be read in conjunction with Federal Rule of Civil Procedure 8, which requires a short and plain statement of the claim. SeeTomera v. Galt, 511 F.2d 504, 508 (7th Cir.1975).

II. The False Claims Act Standard

Under the federal FCA, “private individuals ... referred to as ‘relators,’ may file civil actions known as qui tam actions on behalf of the United States to recover money that the government paid as a result of conduct forbidden under [the False Claims] Act.” United States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 822 (7th Cir.2011) (citations omitted). “To establish civil liability under the False Claims Act (“FCA”), a relator generally must prove (1) that the defendant made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false.” Yannacopoulos, 652 F.3d at 822 (citing United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 604 (7th Cir.2005)).

Analysis

Kmart argues that Relator has failed to state a claim by (1) failing to identify a specific contract, statute or regulation that was breached or any other misrepresentation that was made, (2) failing to allege the requisite “presentment” of the claim, and, (3) due to the fact that a public disclosure was made, failing to meet the jurisdictional prerequisite that Relator be the original source of his own allegations.

I. Identification of a False Statement

Kmart asserts that the SAC does not identify any statement that was false with regard to any contract, statute or regulation under Rule 9(b). Relator responds that the SAC does allege false statements when he states in the SAC that Kmart submitted reimbursement claim forms containing false information regarding its “usual and customary” generic drug prices.

A qui tam plaintiff must allege that the defendant actually submitted a claim for payment to the government, and that the claim was knowingly false. SeeUnited States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741–42 (7th Cir.2007) (specific evidence “at an individualized transaction level” is required to be pleaded), overruled in part on other grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 909–10 (7th Cir.2009); United States ex rel. Garst v. Lockheed–Martin Corp., 328 F.3d 374, 376 (7th Cir.2003) (Relator must “identify specific false claims for payment or specific false statements made in order to obtain payment”).

Viewing Relators' SAC as a whole and drawing all reasonable inferences in his favor (as required by the Court on a Rule 12(b)(6) motion), the Court finds that the SAC sufficiently alleges a false claim. A review of the portions of the SAC cited by Relator–Paragraphs 144, 156 and 167(a)–(f) are specific examples of the false claims submitted. For example, Relator alleges that Kmart “consistently billed public and private insurers more for RMP drugs ⁵ than Kmart billed the cash-paying public. Moreover, in the field for the ‘usual and customary’ price on the claim forms, Kmart consistently reported a price that was higher than its true usual and customary price, i.e., the RMP price offered to the general public.” (Doc. 98, ¶ 156). Relator further explains that “Kmart's reporting of false and inflated usual and customary prices on its claim form renders those claims false and fraudulent” (Doc. 98, ¶ 144). Relator alleges that Kmart was obligated to treat its RMP members as “[members of the] general public” and its RMP prices as the U & C ⁶ prices for those drugs. Instead, Kmart ignored RMP purchases when determining its U & C and its U & C, therefore, was higher than it ought to have been (Doc. 98, ¶ 42). Contrary to Defendant's assertions, the Court finds that Relator's claim that Kmart submitted to the government invoices that contain false information falls neatly within the FCA. SeeU.S. v....