United States v. Purdue Frederick Co.

• Decision Date: 05 August 2013
• Docket Number: Case No. 1:07CR00029.
• Parties: UNITED STATES of America v. The PURDUE FREDERICK COMPANY, INC., d/b/a The Purdue Frederick Company, Defendant.
• Court: U.S. District Court — Western District of Virginia

963 F.Supp.2d 561

UNITED STATES of America

v.The PURDUE FREDERICK COMPANY, INC., d/b/a The Purdue Frederick Company, Defendant.

Case No. 1:07CR00029.

United States District Court,

W.D. Virginia,

Abingdon Division.

Aug. 5, 2013.

Chilton Davis Varner, Stephen B. Devereaux, Eric M. Wachter, and Merritt E. McAlister, King & Spalding LLP, Atlanta, GA, and Wm. W. Eskridge, Penn, Stuart & Eskridge, Abingdon, VA, for The Purdue Frederick Company, Inc.

Mitchel T. Denham, S. Travis Mayo, and C. David Johnstone, Assistant Attorneys General, Office of the Attorney General, Frankfort, KY, on behalf of the Attorney General of Kentucky.

OPINION

JAMES P. JONES, District Judge.

In this criminal case, concluded over six years ago, defendant The Purdue Frederick Company, Inc. (“Purdue”), requests the court to enjoin the Attorney General of Kentucky (the “Attorney General”) from litigating certain claims on behalf of the Commonwealth of Kentucky (the “Commonwealth”) in a civil action pending in that state's courts.¹ Purdue argues that its guilty plea in this case, as well as an associated civil settlement it reached with the federal government over Medicaid payments, conclusively determined certain aspects of the Attorney General's suit in state court. Purdue contends that the Attorney General's attempt to introduce evidence as to damages for claims that have already been resolved threatens the integrity and finality of the outcome over which this court presided in 2007, warranting the issuance of an injunction pursuant to the All Writs Act, 28 U.S.C.A. § 1651 (West 2006). The Attorney General ² opposes the motion, asserting among other things, that such an injunction would exceed the power of this court under the Anti–Injunction Act, 28 U.S.C.A. § 2283 (West 2006).

For the reasons that follow, I will deny Purdue's request for an injunction.

I. Background.

The facts surrounding Purdue's motion are matters of record and are undisputed.

Purdue manufactures OxyContin® Tablets (“OxyContin”), a prescription opioid pain medication. Between 2002 and 2007, the United States Attorney for this district, along with other state and federal authorities, conducted an extensive investigation into Purdue's conduct in marketing and promoting the sale of this drug. This investigation culminated in Purdue's guilty plea in this court to an Information charging it with misbranding OxyContin with the intent to defraud or mislead a felony under the Food, Drug and Cosmetic Act. 21 U.S.C.A. §§ 331(a), 333(a)(2) (West 1999 & Supp.2013). ³ In connection with the plea, Purdue entered into a written Plea Agreement pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C), in which it agreed to pay substantial monetary amounts totaling $600 million, of which a portion—$160 million—was to settle state and federal health care program claims pursuant to a Civil Settlement Agreement.

As a part of its plea, Purdue consented to an Agreed Statement of Facts. The government alleged, and Purdue agreed, that Purdue had marketed and promoted OxyContin as less addictive, less subject to abuse and diversion, and less likely to cause patients to develop tolerance or experience withdrawal than other narcotic pain relievers. Purdue agreed that it had made these representations to its own sales personnel, as well as to healthcare providers, while knowing that they were not true, and thereby violated federal law.

Before accepting Purdue's Plea Agreement as submitted, I ordered both Purdue and the government to submit additional documents and answer a number of specific questions. I inquired, among other issues, about the financial status of the corporation, the means employed to calculate recoverable damages, and the effect the agreement might have on the ability of affected persons to recover individual damages. Ultimately, I accepted the Plea Agreement over the objections of certain putative victims of the crime, finding that it imposed adequate punishment on the defendant. United States v. Purdue Frederick Co., 495 F.Supp.2d 569, 576–77 (W.D.Va.), mandamus denied,264 Fed.Appx. 260 (4th Cir.2007) (unpublished).

A final criminal Judgment was entered on July 25, 2007, in which Purdue was adjudicated guilty of the felony charged in the Information and placed on probation for a term of five years. As a condition of that probation, Purdue was ordered to pay the financial sanctions set forth in the Plea Agreement.

Medicaid was among the governmental health care programs the United States claimed had suffered loss on account of Purdue's conduct. Medicaid is a cooperative venture of the federal government and the states that pays for medical care for lower-income persons. When a Medicaid claim is filed, the state initially pays the entire cost to the medical provider. The federal government must then reimburse each participating state on a quarterly basis “an amount equal to the Federal medical assistance percentage ... of the total amount expended during such quarter as medical assistance under the State [Medicaid] plan.” 42 U.S.C.A. § 1396b(a)(1) (West 2012). The federal medical assistance percentage (“FMAP”), which is set periodically and varies by state, is the percentage reimbursement the state will receive for its Medicaid expenditures. 42 U.S.C.A. § 1396d(b) (West 2012 & Supp.2013); see Federal Financial Participation in State Assistance Expenditures, 77 Fed.Reg. 71420–02 (Nov. 30, 2012) (fixing FMAP for each state for period October 1, 2013, through September 30, 2014). For a state in which the FMAP is 70 percent, therefore, the federal government will reimburse 70 cents of every dollar the state spends on Medicaid.

In recognition of Medicaid's cost sharing structure, the Civil Settlement Agreement required Purdue to place $60 million in escrow for those states wishing to settle claims against Purdue. Forty-nine states opted into the settlement, each receiving a distribution from this fund in satisfaction of any claims that state might have had against Purdue for its share of Medicaid expenditures that resulted from the fraudulent marketing and promotion of OxyContin.

The Commonwealth was the only state that chose to opt out of the settlement. Instead, on October 4, 2007, the Attorney General, together with Pike County, filed suit ⁴ in the Circuit Court of Pike County, Kentucky (the “State Court Action”).⁵ The factual foundation for the State Court Action is the same as in the United States' prosecution of Purdue. In fact, the Attorney General attached the Agreed Statement of Facts to his First Amended Complaint in the State Court Action. As in this case, the central allegation in the State Court Action is that:

Beginning on or about December 12, 1995, and continuing until on or about June 30, 2001, certain Purdue supervisors and employees, with the intent to defraud or mislead, marketed and promoted OxyContin to medical care providers as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other pain medications....

(Purdue's Brief in Supp., Ex. F ¶ 42.)

The Attorney General emphasizes in his First Amended Complaint in the State Court Action that the Commonwealth “is responsible for the costs of prescription, health care and medical costs for Medicaid recipients pursuant to the State Medicaid Program and statute administered by the Kentucky Cabinet for Health and Family Services.” ( Id. at ¶ 106.) He alleges that Kentucky's Medicaid program has spent “millions of dollars each year to pay for excessive prescriptions costs, health care and medical costs and to provide necessary services and programs on behalf of indigents and other eligible citizens who have used or will use OxyContin and have suffered or will suffer deleterious health effects therefrom.” ( Id. at ¶ 87.) The Attorney General specifically alleges that between 1998 and the first quarter of 2006, the Kentucky Medicaid program spent over $22 million paying for OxyContin prescriptions.

Seeking reimbursement for these Medicaid expenditures, the Attorney General's First Amended Complaint states claims for violations of the Kentucky Medicaid Fraud Statute and the Kentucky False Advertising Statute. The Attorney General also asserts state law claims for disgorgement, continuing public nuisance, unjust enrichment, indemnity, negligence, antitrust, fraud, conspiracy, and punitive damages. None of these claims specify the amount of damages owed to the Commonwealth. In his prayer for relief in the First Amended Complaint, however, the Attorney General requests “restitution and reimbursement sufficient to cover all prescription costs the Commonwealth has incurred related to OxyContin due to Defendants' wrongful conduct, with said amount to be determined at trial.” ( Id. at ¶ H.)

In its initial filing regarding its motion for an injunction, Purdue argued that the Attorney General was seeking to recover all prescription drug costs and other monies the Kentucky Medicaid program expended as a result of Purdue's conduct in marketing OxyContin. According to Purdue, this amount included the roughly 70 percent of Kentucky's Medicaid expenditures for which the state has already received reimbursement from the federal government. Ordinarily, a state may pursue clams in which both the state and federal government have an interest, so long as the state remits to the federal government the percentage of any monetary damages recovered for which the state received reimbursement. See42 U.S.C.A. § 1396k(d) (2012). In this case, however, the federal government has already released any claim it might have had for damages to the Medicaid program in the Civil Settlement Agreement.

Purdue expresses concern that the State Court Action threatens to unsettle the complex disposition the parties negotiated in this case by allowing the Attorney General to relitigate in state court claims that have already been resolved. The Attorney General has since made clear, however, that ...