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United States ex rel. Kester v. Novartis Pharms. Corp.

United States District Court, S.D. New York

August 7, 2014

UNITED STATES OF AMERICA ex rel. DAVID M. KESTER, STATE OF CALIFORNIA ex rel. DAVID M. KESTER, STATE OF COLORADO ex rel. DAVID M. KESTER, STATE OF CONNECTICUT ex rel. DAVID M. KESTER, STATE OF DELAWARE ex rel. DAVID M. KESTER, DISTRICT OF COLUMBIA ex rel. DAVID M. KESTER, STATE OF FLORIDA ex rel. DAVID M. KESTER, STATE OF GEORGIA ex rel. DAVID M. KESTER, STATE OF HAWAII ex rel. DAVID M. KESTER, STATE OF ILLINOIS ex rel. DAVID M. KESTER, STATE OF INDIANA ex rel. DAVID M. KESTER, STATE OF LOUISIANA ex rel. DAVID M. KESTER, STATE OF MARYLAND ex rel. DAVID M. KESTER, STATE OF MASSACHUSETTS ex rel. DAVID M. KESTER, STATE OF MICHIGAN ex rel. DAVID M. KESTER, STATE OF MINNESOTA ex rel. DAVID M. KESTER, STATE OF MONTANA ex rel. DAVID M. KESTER, STATE OF NEVADA ex rel. DAVID M. KESTER, STATE OF NEW JERSEY ex rel. DAVID M. KESTER, STATE OF NEW MEXICO ex rel. DAVID M. KESTER, STATE OF NEW YORK ex rel. DAVID M. KESTER, STATE OF NORTH CAROLINA ex rel. DAVID M. KESTER, STATE OF OKLAHOMA ex rel. DAVID M. KESTER, STATE OF RHODE ISLAND ex rel. DAVID M. KESTER, STATE OF TENNESSEE ex rel. DAVID M. KESTER, STATE OF TEXAS ex rel. DAVID M. KESTER, STATE OF VIRGINIA ex rel. DAVID M. KESTER, and STATE OF WISCONSIN ex rel. DAVID M. KESTER, Plaintiffs and Relator,
v.
NOVARTIS PHARMACEUTICALS CORPORATION, ACCREDO HEALTH GROUP, INC., BIOSCRIP CORPORATION, CURASCRIPT, INC., CVS CAREMARK CORPORATION, Defendants

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For United States of America, ex rel. DAVID M. KESTER, Plaintiff: Tara Marie La Morte, LEAD ATTORNEY, Li Yu, Rebecca C. Martin, Robert William Yalen, U.S. Attorney's Office, SDNY (Chambers Street), New York, N.Y. USA; Ellen Melissa London, U.S. Attorney's Office, SDNY, New York, N.Y. USA.

For State of California, ex rel. DAVID M. KESTER, Plaintiff: David B. Zlotnick, Nicholas N. Paul, Steven U Ross, California Attorney General's Office, Bureau of Medi-Ca, San Diego, CA USA; Rachel Coles, Office of The Attorney General, Sacramento, CA USA.

For State of Georgia, ex rel. DAVID M. KESTER, Plaintiff: Elizabeth White, PRO HAC VICE, Georgia Attorney General's Office, Atlanta, GA USA.

For State of Illinois, ex rel. DAVID M. KESTER, Plaintiff: Clemon D Ashley, PRO HAC VICE, Assistant Attorney General, Illinois Attorney General Office Medicaid Fraud Control Unit, Chicago, IL USA; Elisa Cervantes Hamilton, Office of The Illinois Attorney General, Chicago, IL USA.

For State of Indiana, ex rel. DAVID M. KESTER, Plaintiff: Lawrence Joseph Carcare, II, Office of IN Attorney General, Indianapolis, IN USA.

For State of Maryland, ex rel. DAVID M. KESTER, Plaintiff: Jeremy Dykes, PRO HAC VICE, Maryland Attorney General, Baltimore, MD USA.

For State of Michigan, ex rel. DAVID M. KESTER, Plaintiff: Deborah J Harper, PRO HAC VICE, Assistant Attorney General, Health Care Fraud Division, East Lansing, MI USA; Deborah J. Harper, State of Michigan/Attorney General/Health Care Fraud Divisio, East Lansing, MI USA.

State of Minnesota, ex rel. DAVID M. KESTER, Plaintiff, Pro se.

For State of Oklahoma, ex rel. DAVID M. KESTER, Plaintiff: Niki Suzanne Batt, LEAD ATTORNEY, Oklahoma Office of The Attorney General, Oklahoma City, OK USA; Christopher P Robinson, Niki S Batt, PRO HAC VICE, Assistant Attorney General, Medicaid Fraud Control Unit Oklahoma Office Of Attorney General, Oklahoma City, OK USA.

For State of Wisconsin, ex rel. DAVID M. KESTER, Plaintiff: Katie M Wilson, PRO HAC VICE, Assistant Attorney General, Wisconsin Department Of Justice, Madison, WI USA.

For State of New York, Plaintiff: Diana Elkind, LEAD ATTORNEY, Office of the New York State Attorney General, New York, N.Y. USA; Christopher Yates Miller, New York State Office of the Attorney General (NYC), New York, N.Y. USA.

For David M. Kester, ex rel, Relator, Plaintiff: Robert Lawrence Vogel, LEAD ATTORNEY, Vogel, Slade & Goldsteinm LLP, Washington, DC USA; Arun Srinivas Subramanian, William Christopher Carmody, Susman Godfrey LLP (NYC), New York, N.Y. USA; Janet Lyn Goldstein, PRO HAC VICE, Vogel, Slade & Goldstein, Washington, DC USA; Jonathan Bridges, PRO HAC VICE, Susman Godfrey LLP, Dallas, TX USA; Kristin Malone, Susman Godfrey LLP, Seattle, WA USA; Shawn Raymond, PRO HAC VICE, Susman Godfrey LLP, Houston, TX USA; Shelley R. Slade, PRO HAC VICE, Vogel, Slade & Goldstein, LLP, Washington, DC USA; Steven M. Shepard, PRO HAC VICE, Susman Godfrey LLP (NYC), New York, N.Y. USA.

For Novartis Pharmaceuticals Corporation, Defendant: Evan R Chesler, LEAD ATTORNEY, Benjamin Gruenstein, Rachel G Skaistis, Cravath, Swaine & Moore LLP, New York, N.Y. USA; Manvin Singh Mayell, Michael A. Rogoff, LEAD ATTORNEYS, United States Attorney's Office, Southern District Of New York, New York, N.Y. USA; Faith E. Gay, Quinn Emanuel, New York, N.Y. USA; Manisha M. Sheth, Quinn Emanuel Urquhart & Sullivan LLP, New York, N.Y. USA; Nina M. Dillon, Cravath, Swaine & Moore LLP, U.S. District Court E.D.N.Y.., Brooklyn, N.Y. USA.

For State of Washington, Intervenor Plaintiff: Carrie L. Bashaw, Douglas D. Walsh, PRO HAC VICE, Washington State Attorney General's Offic, Medicaid Fra, Olympia, WA USA; Paul F. James, Steve Edwin Dietrich, PRO HAC VICE, Wa Attorney General's Office, Olympia, WA USA.

For State of Washington, Office of the Attorney General State of Washington, Interpleader Plaintiff: Carrie L. Bashaw, Douglas D. Walsh, PRO HAC VICE, Washington State Attorney General's Offic, Medicaid Fra, Olympia, WA USA.

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MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTIONS TO DISMISS

Colleen McMahon, UNITED STATES DISTRICT JUDGE.

In this qui tam action under the False Claims Act (" FCA" ), 31 U.S.C. § 3729 et seq., the United States government (" the

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Government" ) intervened as a plaintiff against Novartis Pharmaceuticals Corporation (" Novartis" ). The Government alleges that Novartis violated the FCA and the Anti-Kickback Statute (" AKS" ), 42 U.S.C. § 1320a-7b(b), in connection with a kickback scheme.

Pending before the Court are Defendant Novartis's motions to dismiss the Government's Amended Complaint-in-Intervention (" Complaint" ) for failure to state a claim pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. For the reasons discussed below, these motions are granted in part and denied in part.[1]

BACKGROUND

The reader is presumed to be familiar with this Court's previous order denying Novartis's motion to dismiss the Complaint pursuant to Rule 9(b). See U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 11 Civ. 8196 (CM), 23 F.Supp.3d 242, 2014 WL 2324465 (S.D.N.Y. May 29, 2014) (hereafter " Novartis I " ).

The Government alleges that Novartis violated the FCA because it paid kickbacks to several pharmacies for promoting two drugs (Myfortic and Exjade) to physicians and patients in violation of the AKS. These pharmacies included Baylor Hospital, Bryant's Pharmacy, Kilgore's Medical Pharmacy, Transcript Pharmacy, Twenty-Ten Pharmacy, and BioScrip Corporation (collectively, " the pharmacies" ). None of these pharmacies is a defendant in the Government's case.[2]

The AKS makes it illegal to " knowingly and willfully offer[] or pay[] any remuneration (including any kickback, bribe, or rebate). . . to any person to induce such person" to " purchase or . . . recommend purchasing" a drug that is covered by a federal health care program. 42 U.S.C. § 1320a-7b(b)(2). Likewise, the AKS proscribes " knowingly and willfully solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate)" " in return for purchasing . . . or recommending purchasing" a drug covered by a federal health care program. Id. § 1320a-7b(b)(1). Thus, the AKS forbids offering, paying, soliciting, or receiving " remuneration" ( i.e., kickbacks) in exchange for recommending drugs covered by Medicare and Medicaid--which Myfortic and Exjade are (for patients eligible for those programs).

The Complaint alleges that Novartis paid kickbacks to the pharmacies to get them to recommend to physicians or patients that they prescribe/use Myfortic or Exjade. The Government alleges that Novartis paid the pharmacies two types of kickbacks during the course of the kickback schemes: (1) cash " rebates" [3] for each sale of Myfortic or Exjade, and (2) patient referrals (a form of " remuneration" under the AKS) in exchange for pharmacies' efforts to promote Exjade. Accordingly, the Government contends that both Novartis and the kickback-receiving pharmacies violated the AKS in connection with their dealings in Myfortic and Exjade; it argues that their noncompliance with the law rendered " false" all claims for those drugs that were submitted to Medicare and Medicaid programs.

Based on these events, the Government asserts nine causes of action against Novartis. It asserts two counts under each

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of three different FCA subsections; one of the counts under each section is for the Myfortic scheme, and one count is for the Exjade scheme. Counts 1 and 5 assert causes of action under FCA subsection (a)(1)(A), Counts 2 and 6 assert causes of action under FCA subsection (a)(1)(B), and Counts 3 and 7 assert causes of action under FCA subsection (a)(1)(C).[4] See 31 U.S.C. § § 3729(a)(1)(A)-(C). The Government also brings related state law claims: two counts of unjust enrichment (Counts 4 and 8)--one for each scheme--and one count of payment by mistake of fact (Count 9).

Novartis has moved twice to dismiss all claims; once under Rule 9(b) for failure to plead fraud with particularity, and once under Rule 12(b)(6) for failure to state a claim. In Novartis I, the Court effectively deferred decision on Novartis's Rule 9(b) motion until I could test the sufficiency of the Government's theory of " falsity" under the FCA. See Novartis I, 2014 WL 2324465, at *22.[5] This opinion addresses the sufficiency of the Government's theory.

DISCUSSION

I. Standard of Review

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court must liberally construe all claims, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. See Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 44 (2d Cir. 2003); see also Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007).

However, to survive a motion to dismiss, " a complaint must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). " While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotations, citations, and alterations omitted). Thus, unless a plaintiff's well-pleaded allegations have " nudged [its] claims across the line from conceivable to plausible, [the plaintiff's] complaint must be dismissed." Id. at 570; see also Iqbal, 556 U.S. at 680.

This liberal pleading standard is modified by Rule 9(b), which requires a plaintiff asserting fraud claims to meet a heightened pleading standard. While Rule 8(a) usually requires only a " short and plain statement of the claim showing that the

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pleader is entitled to relief," Fed.R.Civ.P. 8(a), a plaintiff asserting fraud must " state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Rule 9(b) applies to claims brought under the FCA. See Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995).

II. The 2010 AKS Amendment Did Not Supersede the False Certification Theory of Claim " Falsity."

A. Legal " Falsity" Under Mikes

The Government's causes of action under the FCA require it to show that the Myfortic and Exjade claims the pharmacies submitted to government programs were " false or fraudulent."

As explained in Novartis I, subsection (a)(1)(A) of the FCA provides for liability where the defendant " knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A) (emphasis added). To prove a claim under this subsection, a plaintiff must show that: (1) there was a false or fraudulent claim, (2) the defendant knew it was false or fraudulent, (3) the defendant presented the claim, or caused it to be presented, to the United States, and (4) it did so to seek payment from the federal treasury. See Mikes v. Straus, 274 F.3d 687, 695 (2d Cir. 2001); U.S. ex rel. Pervez v. Beth Israel Med. Ctr., 736 F.Supp.2d 804, 811 (S.D.N.Y. 2010).

Subsection (a)(1)(B) provides for liability where the defendant " 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)(B) (emphasis added). To prove a claim under this subsection, a plaintiff must show that: (1) the defendant made (or caused to be made) a false statement, (2) the defendant knew it to be false, and (3) the statement was material to a false or fraudulent claim. See Pervez, 736 F.Supp.2d at 811.

Subsection (a)(1)(C) provides for liability where the defendant " conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G)" --meaning conspires to commit a substantive FCA violation. 31 U.S.C. § 3729(a)(1)(C). In this case, the Government alleges that Novartis conspired with several pharmacies to violate subsections (a)(1)(A) and (a)(1)(B). To prove its subsection (a)(1)(C) claims, the Government must show: (1) an unlawful agreement by the defendant to violate the FCA, and (2) at least one overt act performed in furtherance of that agreement. See U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 193 (5th Cir. 2009); US. ex rel. Sterling v. Health Ins. Plan of Greater New York, Inc., No. 06 Civ. 1141 (PAC), 2008 WL 4449448, at *4 (S.D.N.Y. Sept. 30, 2008).

Thus, all three subsections of the FCA at issue in this case require either the existence of " false or fraudulent" claims or a conspiracy involving " false or fraudulent" claims.

Defendant Novartis argues that the Government has not adequately pled that the claims at issue in this case were " false or fraudulent" within the meaning of the FCA. The question then becomes what makes a claim " false or fraudulent" for the purposes of the FCA; the ...


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