United States District Court, S.D. New York
UNITED STATES, et al. ex rel. OSWALD BILOTTA, Plaintiffs and Relator,
NOVARTIS PHARMACEUTICALS CORPORATION, Defendant
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For United States Of America, Plaintiff: Christopher Blake Harwood, LEAD ATTORNEY, United States Attorney's Office, Southern District Of New York, New York, NY; James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Jeannette Anne Vargas, U.S. Attorney's Office, SDNY (86 Chambers St.), New York, NY; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT; Mara Emet Trager, U.S. Attorney's Office, SDNY (Chambers Street), New York, NY; Natalie Ann Priddy, Department of Justice (Civil Division), Washington, DC.
For the State of California, ex rel. the State of Colorado, ex rel., the State of Connecticut, ex rel., the State of Delaware, ex rel., the State of Florida, ex rel., the State of Georgia, ex rel., the State of Hawaii, ex rel., the State of Illinois, ex rel., the State of Indiana, ex rel., the State of Louisiana, ex rel., the State of Massachusetts, ex rel., the State of Michigan, ex rel., the State of Minnesota, ex rel., the State of Montana, ex rel., the State of Nevada, ex rel., the State of New Hampshire, ex rel., the State of New Jersey, ex rel., the State of New Mexico, ex rel., the State of North Carolina, ex rel., the State of Oklahoma, ex rel., the State of Rhode Island, ex rel., the State of Tennessee, ex rel., the State of Virginia, ex rel., the State of Wisconsin, ex rel., District of Columbia, ex rel., The City of Chicago, ex rel., Plaintiffs: James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT; Scott R. Shepherd, PRO HAC VICE, Shepherd, Finkelman, Miller & Shah LLC, Media, PA.
For the State of New York, ex rel., Plaintiff: Andrew Jerome Gropper, LEAD ATTORNEY, New York State Office of the Attorney General, New York, NY; James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT; Scott R. Shepherd, PRO HAC VICE, Shepherd, Finkelman, Miller & Shah LLC, Media, PA.
For Oswald Bilotta, Plaintiff: Brandon Joshua Lauria, Eric Leighton Young, LEAD ATTORNEYS, PRO HAC VICE, Young Law Group, P.C., Philadelphia, PA; James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT; Scott R. Shepherd, PRO HAC VICE, Shepherd, Finkelman, Miller & Shah LLC, Media, PA.
For Texas, Plaintiff: James Burnley Adkins, Jr., Texas Attorney General, Medicaid Fraud Control Unit, Austin, TX; James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT.
For the State of Texas, the State of Washington, Plaintiffs: James Edward Miller, Shepherd, Finkelman, Miller & Shah, LLP, Chester, CT; Karen M. Leser-Grenon, Laurie Rubinow, Patrick Anthony Klingman, Shepherd, Finkelman, Miller & Shah, LLC, Chester, CT.
For Novartis Pharmaceuticals Corporation, Defendant: Evan R Chesler, LEAD ATTORNEY, Benjamin Gruenstein, Rachel G Skaistis, Cravath, Swaine & Moore LLP, New York, NY; Manvin Singh Mayell, Michael A. Rogoff, LEAD ATTORNEYS, United States Attorney's Office, Southern District of New York, New York, NY; Nina M. Dillon, Cravath, Swaine & Moore LLP, U.S. District Court E.D.N.Y., Brooklyn, NY.
For United States of America, Intervenor Plaintiff: Christopher Blake Harwood, LEAD ATTORNEY, United States Attorney's Office, Southern District Of New York, New York, NY; Jeannette Anne Vargas, U.S. Attorney's Office, SDNY (86 Chambers St.), New York, NY.
For The State of New York, Intervenor Plaintiff: Andrew Jerome Gropper, New York State Office of the Attorney General, New York, NY.
MEMORANDUM OPINION & ORDER
Paul G. Gardephe, United States District Judge.
In this qui tam action, Relator Oswald Bilotta alleges that Defendant Novartis Pharmaceuticals Corporation (" Novartis" ) violated the False Claims Act (" FCA" ), 31 U.S.C. § § 3729(a)(1)(A)-(B) and related state laws by (1) causing false claims for reimbursement for patient prescriptions -- that were written in exchange for kickbacks in violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b and related state laws -- to be submitted to federal and state health care programs (" the kickback claims" ); and (2) promoting the drug Valturna for off-label use, thereby causing the submission of false claims to federal and state health care programs (" the off-label promotion claims" ). The United States (the " Government" ) and the State of New York (collectively, the " Government Entities" or " Plaintiffs" ) have intervened as to the kickback claims.
Novartis has moved to dismiss the Government's Amended Complaint-in-Intervention, New York's Complaint-in-Intervention, and the Relator's Third Amended Complaint. For the reasons stated below, Novartis's motions will be denied in part and granted in part.
A. The Alleged Kickback Scheme
Plaintiffs allege that from January 2002 through at least November 2011, Novartis systematically bribed doctors to induce them to prescribe drugs from Novartis's cardiovascular division for their patients. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 1, 66; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 2, 3, 57) These drags include Lotrel, Diovan, Diovan HCT, Tekturna, Tekturna HCT, Exforge,
Exforge HCT, Valturna, Tekamlo, and Starlix. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 66; N.Y. Cmplt. (Dkt. No. 61) ¶ 57) Novartis sold these drugs through a network of sales representatives who met with health care professionals throughout the United States. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 67; N.Y. Cmplt. (Dkt. No. 61) ¶ 58)
Novartis induced doctors to prescribe these drugs primarily through the use of " sham" speaker events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 1-3; N.Y. Cmplt. (Dkt. No. 61) ¶ 2-4) According to Novartis's internal policies, speaker events were intended to be educational programs; Novartis would pay doctors to educate other doctors and health care professionals about Novartis drugs by presenting slides prepared by Novartis. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 2; N.Y. Cmplt. (Dkt. No. 61) ¶ 4) These events were organized and conducted by Novartis sales representatives. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 72; N.Y. Cmplt. (Dkt. No. 61) ¶ 69) They chose the speaker, topic, and venue for the events, as well as the attendees. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 72-73, 81; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 6, 69)
Novartis held thousands of speaker events at which few or no slides were shown, however, and at which the attendees spent little or no time discussing the drugs that were allegedly the focus of the programs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 2, 95; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 4, 82) These events thus served as little more than upscale social outings designed to induce doctors to write prescriptions for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 1, 77, 121, 135-36; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 2, 4, 82, 86-87)
According to Plaintiffs, the sham nature of these events was apparent from the attendees, speakers, subject matter, and venues. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 95; N.Y. Cmplt. (Dkt. No. 61) ¶ 82) Frequently, groups of the same doctors would repeatedly attend speaker events on the same topic within a short period of time, with the doctors taking turns in the roles of attendees and " speakers." (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 95-120, 126; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 82-85) For example, one doctor attended the same presentation ten times between July 2010 and October 2011, and the same three doctors were consistently present at nine of those events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 97; N.Y. Cmplt. (Dkt. No. 61) ¶ 84) Moreover, Novartis hosted many of its speaker events at high-end restaurants or sports bars without private rooms, making it difficult or impossible to hear the speaker or show slides; it was common for no slides to be shown at such events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 121, 125-28, 130, 133-34; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 86-90) Other venues were similarly inappropriate for the types of " educational" events that Novartis purported to be hosting, such as " round table" programs at Hooters restaurants and fishing trips. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 122-24)
Sales representatives frequently asked speakers who they should invite as attendees to these events, and doctors used this as an opportunity to invite their friends. (Id. ¶ 136; N.Y. Cmplt. (Dkt. No. 61) ¶ 91) Often the drug that was supposed to be the subject of the speaker program was
never discussed. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 137; N.Y. Cmplt. (Dkt. No. 61) ¶ 92)
The doctors who Novartis designated as " speakers" for these events were paid " honoraria" by Novartis, even though they spent little or no time discussing the drugs that were supposedly the subject of the programs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 3, 78; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 4, 92) " Speakers" were paid between $750 and $1500 for each event, with some speakers being paid as much as $3000. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 79; N.Y. Cmplt. (Dkt. No. 61) ¶ 67) In some instances, speaker events reflected in Novartis records never took place, or doctors recorded as attending were not, in fact, present; nevertheless, the designated " speakers" were compensated for these non-existent events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 138-44; N.Y. Cmplt. (Dkt. No. 61) ¶ 93)
Novartis's internal analysis showed that its speaker programs had a high " return on investment," as doctors who attended the events -- as either speakers or attendees -- wrote an increased number of prescriptions for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 3, 145-48; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 94-96) Novartis found that the more incentives doctors received in the form of meals, entertainment, and honoraria from these events, the more Novartis prescriptions the doctors would write. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 147; N.Y. Cmplt. (Dkt. No. 61) ¶ 95) The highest return on investment came from doctors who were paid to " speak" at the events. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 3) Novartis considered its speaker programs to be a " key component of [Novartis's] promotional activities aimed at increasing its sales of drugs" from 2002 to at least 2011. (Id. ¶ 71; N.Y. Cmplt. (Dkt. No. 61) ¶ 61) Novartis spent more than $65 million for more than 38,000 speaker programs ostensibly about Lotrel, Starlix, and Valturna between January 1, 2002 and November 2011. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 71; N.Y. Cmplt. (Dkt. No. 61) ¶ 61)
Novartis intended its speaker programs to increase prescription-writing, and doctors knew this. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 147-50; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 97-99) Doctors were chosen to be speakers if they wrote a high number of prescriptions for Novartis cardiovascular division drags, and they had to maintain or increase that level of prescription-writing in order to be invited to appear as a " speaker" again. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 149; N.Y. Cmplt. (Dkt. No. 61) 98) Accordingly, once they began receiving honoraria, many doctors significantly increased the number of prescriptions that they wrote for Novartis drags, or started prescribing Novartis drags if they had not done so before. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 150-58; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 99-124) Doctors often continued to increase their prescription-writing as the amount of honoraria they received increased. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 150-58; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 99-124) Novartis placed no limit on the number of programs a doctor could attend or how often a doctor could attend the same program. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 84; N.Y. Cmplt. (Dkt. No. 61) ¶ 71)
Novartis also encouraged sham events by creating incentives for its sales representatives to host them. Sales representatives in the cardiovascular division were compensated based upon the number of prescriptions that doctors wrote for Novartis drugs. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 75; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 6, 64) They were given budgets to use on speaker events, and they were pressured to exhaust their budgets for such events.
(U.S. Am. Cmplt. (Dkt. No. 62) ¶ 76) Although Novartis policies provided for caps on the price per meal for attendees at these events, sales representatives could avoid these caps by attributing costs that exceeded the caps to " unmet minimums," i.e., the difference between a restaurant's minimum spending requirement for an event and the amount that sales representatives were permitted to spend per attendee under the caps. (Id. ¶ ¶ 87-88; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 74-75) By inviting few attendees and attributing the excess to a restaurant's " unmet minimum" cost, speakers could spend lavishly on food and alcohol well beyond the caps. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 88; N.Y. Cmplt. (Dkt. No. 61) ¶ 75) Accordingly, spending for dinners frequently exceeded the caps, with hundreds of dollars being spent on each individual attendee's meal. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 88, 130-32; see N.Y. Cmplt. (Dkt. No. 61) ¶ 75)
Novartis also turned a blind eye as to whether its speaker programs were being used for illegitimate purposes. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 5; N.Y. Cmplt. (Dkt. No. 61) ¶ 6) Novartis did not require signatures on attendance sheets at speaker events, and it was the sales representatives themselves who were responsible for reviewing the accuracy of receipts from speaker event venues. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 91-92; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 78-79) There was no system in place to prevent sales representatives from repeatedly selecting the same doctors as attendees at speaker programs on the same topics, or to prevent them from arranging for the same doctors to take turns speaking and attending each other's programs repeatedly. (U.S. Am. Cmplt. (Dkt, No. 62) ¶ 84; N.Y. Cmplt. (Dkt. No. 61) ¶ 71) When sales representatives were reported for misconduct, Novartis's only punishment was a " slap on the wrist," such as placing a " conduct memo" in the employee's file. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 5, 169-71; N.Y. Cmplt. (Dkt. No. 61) ¶ 6) In some circumstances, sales representatives who were reported for non-compliance were even later promoted. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 5; N.Y. Cmplt. (Dkt. No. 61) ¶ 6)
When doctors wrote increased prescriptions for Novartis drugs as a result of kickbacks -- which pharmacies then filled, submitting claims for reimbursement to federal and state healthcare programs -- they violated federal and state anti-kickback laws. According to Plaintiffs, compliance with these laws is a precondition for reimbursement. (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 17-18, 175-82; N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 135-44) Accordingly, as a result of the kickbacks it offered to physicians, Novartis caused thousands of false claims to be submitted for payment to federal healthcare programs -- including Medicare, Medicaid, TRICARE, and the Veterans Administration healthcare program, (U.S. Am. Cmplt. (Dkt. No. 62) ¶ ¶ 6, 20-56, 175) -- and state healthcare programs, including New York Medicaid. (N.Y. Cmplt. (Dkt. No. 61) ¶ ¶ 7, 135-46)
B. Alleged Off-Label Promotion
Novartis allegedly promoted one of its cardiovascular -- Valturna -- for off-label use. (Relator Third Am. Cmplt. (" TAC" ) ¶ ¶ 104-25)
Prior to June 2010, Novartis had been selling Diovan, a " blockbuster" hypertension drug. (See id. ¶ ¶ 104, 108) Diovan generated more than $4 billion for Novartis in 2009. (Id. ¶ 104) Novartis's patent for Diovan was set to expire in 2012. (Id.)
To make up for anticipated losses resulting from the expiration of the Diovan patent, Novartis sought to build the market share of Valturna. (Id. ¶ 105) Novartis's strategy was to market Valturna to
diabetic patients who might experience high blood pressure, as opposed to hypertensive patients who were already adequately controlled on existing therapies. (Id. ¶ 106) Novartis did so by training sales representatives in off-label sale and marketing practices, and using promotional materials and speaker events to suggest that hypertensive diabetics would benefit from Valturna, even though the drug was not indicated for that particular patient population. (Id. ¶ ¶ 109-11, 113) Novartis's promotional materials also included data from trials on rodents; sales representatives were instructed to present the data in such a way that doctors would assume that the data reflected results in humans. (Id. ¶ 112)
When healthcare providers prescribed V altuma and subsequently submitted claims for payment, they were required to certify -- as a pre-condition to payment -- that the services for which they were billing were " medically indicated and necessary for the health of the patient." (Id. ¶ 114) Relator alleges that Novartis's off-label promotion of Valturna caused healthcare providers to submit claims for reimbursement that were false, because the drug was neither medically indicated nor necessary for the treatment of diabetic patients. (Id.)
C. Novartis's 2010 Settlement
In September 2010, Novartis entered into an agreement with the United States Department of Justice and several states, including New York, to settle a number of FCA claims that had been brought against it. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5) In the settlement agreement, Novartis acknowledged that it had " provided illegal remuneration, through mechanisms such as speaker programs, advisory boards, and gifts (including entertainment, travel and meals), to health care professionals to induce them to promote and prescribe the [Novartis] drugs Diovan, Zelnorm, Sandostatin, Exforge, and Tekturna, in violation of the Federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b)." (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 63; N.Y. Cmplt. (Dkt. No. 61) ¶ 54) By offering kickbacks to health care professionals, Novartis had caused false claims -- in the form of claims for reimbursement for prescriptions for those drugs -- to be submitted to federal and state healthcare programs. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5)
In connection with the 2010 settlement, Novartis signed a Corporate Integrity Agreement (" CIA" ) with the U.S. Department of Health and Human Services Inspector General's Office in which Novartis agreed to implement a rigorous compliance program to comply with the Anti-Kickback Statute and the FCA. (See U.S. Am. Cmplt. (Dkt. No. 62) ¶ 4; N.Y. Cmplt. (Dkt. No. 61) ¶ 5) The CIA required Novartis to " ensure that [its] Policies and Procedures address . . . appropriate ways to conduct Promotional Functions in compliance with all applicable Federal healthcare program requirements, including, but not limited to the federal anti-kickback statute . . . and the False Claims Act," and to enact polices and procedures that " address . . . programs to educate sales representatives, including but not limited to presentations by [health care professionals]" in order " to ensure that the programs are used for legitimate and lawful purposes. . . ." (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 64; N.Y. Cmplt. (Dkt. No. 61) ¶ 55) The CIA further required Novartis to enact compliance policies that " address . . . compensation (including . . . salaries, bonuses, and contests) for . . . sales representatives" " to ensure that financial incentives d[id] not inappropriately motivate such individuals to engage in improper promotion,
sales, and marketing of Novartis'[s] Government Reimbursed Products." (U.S. Am. Cmplt. (Dkt. No. 62) ¶ 65; N.Y. Cmplt. (Dkt. No. 61) ¶ 56)
II. PROCEDURAL HISTORY
Relator Oswald Bilotta -- a former Novartis sales representative -- filed the qui tam Complaint in this action on January 5, 2011. (Relator Cmplt. (Dkt. No. 1)) According to Bilotta, in paying kickbacks to doctors, Novartis caused the submission of false claims in relation to drugs other than those named in the 2010 settlement, and Novartis did not disclose this fact during the settlement negotiations. Bilotta further claims that Novartis continued its unlawful practices even after the 2010 settlement, with respect to drugs that were named in the settlement, as well as additional drugs. Bilotta also alleges that Novartis caused false claims to be submitted by promoting Valturna for off-label use.
Bilotta -- as Relator -- asserted claims on behalf of the United States, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, Washington, Wisconsin, the District of Columbia, the City of Chicago, and the City of New York.
On April 26, 2013, the United States elected to intervene as a plaintiff in this case -- but only as to the kickback claims -- and filed a Complaint-in-Intervention. (Dkt. Nos. 13, 16) On July 10, 2013, Relator filed a Third Amended Complaint (" TAC" ) asserting both the kickback and off-label promotion claims. (Dkt. No. 50) On August 26, 2013, New York State filed a Complaint-in-Intervention, electing to intervene as to the kickback claims only. (N.Y. Cmplt. (Dkt. No. 61)) All other states and municipalities declined to intervene.
In July 2013, Novartis submitted a pre-motion letter indicating that it intended to move to dismiss the Government's Complaint-in-Intervention. A pre-motion conference was held on July 18, 2013. Although it had not yet intervened, New York attended this conference. The Court questioned whether the Government's Complaint-in-Intervention satisfied the pleading requirements of Fed.R.Civ.P. 9(b), because the pleading did not " contain any allegations about who submitted the [false or fraudulent] claims, how they were submitted and paid, or when they were submitted, and in particular when they were paid within the 11-year time frame cited in the complaint." (July 18, 2013 Tr. (Dkt. No. 53) at 11). This Court granted the Government leave to amend its pleading. (Dkt. No. 51)
After this conference, the Government filed an Amended Complaint-in-Intervention. (U.S. Am. Cmplt. (Dkt. No. 62)) The Amended Complaint includes 316 pages of spreadsheets that list allegedly false or fraudulent claims for reimbursement -- relating to prescriptions that were written for Novartis drugs -- that were submitted by pharmacies to specific federal programs. (See U.S. Am. Complt. (Dkt. No. 62), Exs. A-O) The Government asserts claims for violations of Sections 3729(a)(1)(A) and (a)(1)(B) of the FCA, as well as a common law claim for unjust enrichment. (Id. ¶ ¶ 183-92)
On August 26, 2013, New York filed its Intervenor Complaint (the " New York Complaint" ). (N.Y. Cmplt. (Dkt. No. 61)) New York asserts claims for (1) violation of the New York False Claims Act (" N.Y. FCA" ), N.Y. State Fin. Law § 189(1)(a), relating to the filing of false claims for Medicaid reimbursement; (2) violation of
the N.Y. FCA, N.Y. State Fin. Law § 189(1)(b), involving use of false records; (3) violation of New York Social Services Law § 145-b), (4) violation of New York Executive Law § 63(12) by engaging in repeated and persistent fraud; (5) violation of New York Executive Law § 63-c; and (6) unjust enrichment. (Id. ¶ ¶ 148-67) The New York Complaint includes 249 pages of spreadsheets that list allegedly false or fraudulent claims, " certification statements" executed by doctors who had written the prescriptions that resulted in the submission of those false claims, and signed certification statements for the pharmacies that submitted those claims. (See id., Exs. A-C)
On October 24, 2013, Novartis moved to dismiss the Government's Amended Complaint and the New York Complaint. (Dkt. Nos. 79, 81) On December 20, 2013, Novartis moved to dismiss the Relator's TAC. (Dkt. No. 98)
I. LEGAL STANDARD
A. Pleading Standards on Motion to Dismiss
1. Fed.R.Civ.P. 12(b)(6) Standard
" To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, 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)). " In considering a motion to dismiss . . . the court is to accept as true all facts alleged in the complaint," Kassner v. 2nd Ave. Delicatessen Inc,. 496 F.3d 229, 237 (2d Cir. 2007) (citing Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir. 2002)), and must " draw all reasonable inferences in favor of the plaintiff." Id. (citing Fernandez v. Chertoff, 471 F.3d 45, 51 (2d Cir. 2006)).
A complaint is inadequately pled " if it tenders 'naked assertion[s]' devoid of 'further factual enhancement,'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557), and does not provide factual allegations sufficient " to give the defendant fair notice of what the claim is and the grounds upon which it rests." Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555). " In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint." DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); Hayden v. Cnty. of Nassau, 180 F.3d 42, 54 (2d Cir. 1999)).
2. Fed.R.Civ.P. 9(b) Standard
" Because the False Claims Act is an anti-fraud statute, 'claims brought under the FCA fall within the express scope of Rule 9(b).'" United States v. New York Soc. for the Relief of the Ruptured & Crippled, Maintaining the Hosp. for Special Surgery, No. 07 Civ. 292 (PKC), 2014 WL 3905742, at *7 (S.D.N.Y. Aug. 7, 2014) (quoting Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1477 (2d Cir. 1995)). Rule 9(b) provides that " [i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). " The purpose of Rule 9(b) is threefold -- it is designed to provide a defendant with fair notice of a plaintiff's claims, to safeguard a defendant's reputation from 'improvident
charges of wrongdoing,' and to protect a defendant against the institution of a strike suit." O'Brien v. Nat'l Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991) (quoting Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990)).
" Rule 9(b) does not impose a 'one size fits all' list of facts that must be included in every FCA complaint." U.S. ex rel. Kester v. Novartis Pharm. Corp., 23 F.Supp.3d 242, 88 Fed.R.Serv.3d 1261, at *15 (S.D.N.Y. May 29, 2014) (quoting In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 337-38 (D. Conn. 2004)). " Ultimately, whether a complaint satisfies Rule 9(b) 'depends upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.'" Id. (quoting United States v. Wells Fargo Bank, N.A., 972 F.Supp.2d 593, 616 (S.D.N.Y. 2013)). This " is a fact-specific inquiry." Id.
B. False Claims Act
1. Federal False Claims Act
" The FCA facilitates restitution to the federal government when money is fraudulently taken from it." New York Soc., 2014 WL 3905742, at *8. " The FCA permits a relator to bring a qui tam action 'for a violation of section 3729 for the person and for the United States Government. The action [is] brought in the name of the Government.'" Id. (quoting 31 U.S.C. § 3730(b)(1)). " [W]hile the False Claims Act permits relators to control the False Claims Act litigation, the claim itself belongs to the United States." United States ex rel. Mergent Services v. Flaherty, 540 F.3d 89, 93 (2d Cir. 2008). " At the same time, 'the United States is a " party" to a privately filed FCA action only if it intervenes in accordance with the procedures established by federal law.'" New York Soc., 2014 WL 3905742, at *8 (quoting United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 933, 129 S.Ct. 2230, 173 L.Ed.2d 1255 (2009)).
" If the United States declines to intervene, and the relator successfully pursues the action, the relator may receive between 25 and 30 percent of any recovery." Id. (citing 31 U.S.C. § 3730(d)(2)). " If the Government proceeds with an action . . . [the relator] shall . . . receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action." 31 U.S.C. § 3730(d)(1).
" The relator may bring an action [under the FCA] against any person who 'knowingly presents, or causes to be presented, to an officer or employee of the United States . . . a false or fraudulent claim for payment or approval . . . New York Soc., 2014 WL 3905742, at *9 (quoting 31 U.S.C. § 3729(a)(1)(A)). " A relator also may bring claims against any person who 'knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." Id. (quoting 31 U.S.C. § 3729(a)(1)(B)). " Claim" means " any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that . . . is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest, and if the United States Government --  provides or has provided any portion of the money or property requested or demanded; or  will reimburse such contractor, grantee, or
other recipient for any portion of the money or property which is requested or demanded." 31 U.S.C. § 3729(b)(2).
2. New York False Claims Act
" The N.Y. FCA, enacted on April 1, 2007, is closely modeled on the federal FCA." U.S. ex rel. Pervez v. Beth Israel Med. Ctr., 736 F.Supp.2d 804, 816 (S.D.N.Y. 2010). It " provides for liability with respect to any person who, inter alia, (1) knowingly presents a false or fraudulent claim to the State or a local government for payment, [or] (2) knowingly makes a false statement to get a false claim paid. . . ." Id. " New York courts rely on federal FCA precedents when interpreting the NYFCA." New York Soc., 2014 WL 3905742, at * 11.
II. STANDARD FOR PLEADING FALSE CLAIMS
The parties dispute the degree of particularity that is required to plead the false or fraudulent claims that form the basis of an FCA cause of action. The United States, New York, and Relator argue that the Fifth Circuit's relaxed pleading standard -- set forth in U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009) -- should apply here. The Grubbs court held that " to plead with particularity the circumstances constituting fraud for a False Claims Act § 3729(a)(1) claim, a relator's complaint, if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Id.
Courts in this District have rejected Grubbs, concluding that it violates Second Circuit precedent requiring that fraud claims be pled with particularity. See New York Soc., 2014 WL 3905742, at *15 (" Grubbs would likely not be accepted as the law of this Circuit." ); Kester, 23 F.Supp.3d 242, 254, 88 Fed.R.Serv.3d 1261, at *11 (" [T]he Grubbs standard borders on requiring no particularity for the 'claim' element at all. It allows the plaintiff to make fairly conclusory allegations that claims were submitted for medical services pursuant to a standard billing practice. . . . A complaint's description of a fraudulent scheme paired with information about a defendant's standard billing practice is not enough 'particular' information to fulfill the purposes of Rule 9(b); the plaintiff must provide a detailed factual basis to support his allegation that the defendant submitted a false claim in this specific instance, not just that the defendant had a custom of submitting claims." ) (emphasis in original).
Courts in this Circuit have held that " to satisfy Rule 9(b), an FCA claim must allege the particulars of the false claims themselves, and that allegations as to the existence of an overall fraudulent scheme do not plead fraud with particularity." New York Soc., 2014 WL 3905742, at *11 (emphasis added); see also Kester, 23 F.Supp.3d 242, 255, 88 Fed.R.Serv.3d 1261, at *12 (" [A] plaintiff must plead both the particular details of a fraudulent scheme and 'details that identify particular false claims for payment that were submitted to the government.'" (quoting U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 232 (1st Cir. 2004) (emphasis in Kester). Accordingly, " both the fraudulent scheme and the submission of false claims must be pled with a high degree of particularity." Kester, 23 F.Supp.3d 242, 255, 88 Fed.R.Serv.3d 1261, at * 12.
In reaching this conclusion, courts have looked to the pleading requirements of Rule 9(b) and the intent of the FCA. " Generally speaking, Rule 9(b) requires a
plaintiff alleging fraud to: '1) specify the statements that the plaintiff contends were fraudulent; 2) identify the speaker; 3) state where and when the statements were made; and 4) explain why the statements were fraudulent.'" U.S. ex rel. Polansky v. Pfizer, Inc., No. 04-CV-0704 (ERK), 2009 WL 1456582, at *4 (E.D.N.Y. May 22, 2009) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)). Under the FCA, liability attaches '" not to the underlying fraudulent activity or to the government's wrongful payment, but to the claim for payment.'" [WL] at *5 (United States v. Rivera, 55 F.3d 703, 709 (1st Cir. 1995)). Accordingly, FCA pleadings are " inadequate unless they are linked to allegations, stated with particularity, of actual false claims submitted to the government that constitute the essential element of an FCA qui tam action." Karvelas, 360 F.3d at 232; see also Polansky, 2009 WL 1456582, at *5 (collecting cases). As the Eleventh Circuit explained in United States ex rel. Clausen v. Laboratory Corporation of America, Inc.,
[t]he submission of a claim is . . . the sine qua non of a False Claims Act violation.
As such, Rule 9(b)'s directive that " the circumstances constituting fraud or mistake shall be stated with particularity" does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government. . . . [I]f Rule 9(b) is to be adhered to, some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.
290 F.3d 1301, 1311 (11th Cir. 2002) (emphasis in original) (quoting Fed.R.Civ.P. 9(b)).
Accordingly, in this Circuit, courts have held that the complaint must
provide details that identify particular false claims for payment that were submitted to the government. . . . [D]etails concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services for which the government was billed, the individuals involved in the billing, and the length of time between the alleged fraudulent practices and the submission of claims based on those practices are the types of information that may help a [plaintiff] to state his or her claims with particularity. These details do not constitute a checklist of mandatory requirements that must be satisfied by each allegation included in a complaint. However, . . . some of this information for at least some of the claims must be pleaded in order to satisfy Rule 9(b).
Polansky, 2009 WL 1456582, at *5; (quoting Karvelas, 360 F.3d at 232-33); see also
Kester, 23 F.Supp.3d 242, 257, 88 Fed.R.Serv.3d 1261, at * 12-13 (" In line with the weight of authority in this Circuit, I adopt the Karvelas standard -- plaintiffs asserting subsection (a)(1)(A) and (a)(1)(B) claims must plead the submission of a false claim with a high enough degree of particularity that defendants can reasonably 'identify particular false claims for payment that were submitted to the government.'" ) (quoting
Karvelas, 360 F.3d at 232).
This Court joins the other courts in this Circuit that have rejected Grubbs, and holds that in order to sufficiently plead violations of the FCA, Plaintiffs must allege the false claims themselves with sufficient
particularity to satisfy Fed.R.Civ.P. 9(b); merely alleging a fraudulent underlying scheme with particularity is not enough.
III. KICKBACK CLAIMS
A. Effect of Government's Intervention on Relator's Federal Kickback Claims
Given the Government's intervention in this action, the status of Relator's federal FCA claims related to the kickback scheme must be addressed. Novartis has moved to dismiss these claims, arguing that " [w]here the government partially intervenes in a qui tam action, a relator may proceed only with those claims in which the government declined to intervene." (Def. MTD-Relator Br. (Dkt. No. 99) at 6)
Relator claims that " it is more accurate to deem the federal kickback claims asserted in the TAC to be superseded by the Government's intervention (as opposed to dismissed) as a technical matter." (Relator Br. (Dkt. No. 105) at 7) " Relator acknowledges that the Government's Complaint supersedes the Relator's Complaint for all intervened claims[,] [and] [t]hus, . . the Government has primary responsibility for prosecuting the claims upon which it has intervened, while the Relator's role and position becomes essentially derivative to the claims upon which the Government has intervened." (Id. at 7 n.5 ) While Relator acknowledges that he may not " engage in any disruptive, repetitious or otherwise counterproductive actions," he objects to any limitation on his participation in this action with respect to the federal kickback claims. (Id.)
Novartis responds that its " present motion does not pertain in any way to Relator's ability to continue to participate in the Government action. Rather, it relates to whether the Relator has standing to maintain, separate from the Government, any kickback claims alleged in his Complaint." (Def. MTD-Relator Reply Br. (Dkt. No. 102) at 2)
The Government takes the position that its claims have superseded Relator's federal kickback claims, but acknowledges that Relator remains a party as to these claims. (See Jan. 17, 2014 U.S. Ltr. (Dkt. No. 96)) Neither the United States nor New York seeks to limit Relator's participation in this action. (Jan. 17, 2014 U.S. Ltr. (Dkt. No. 96); Jan. 17, 2014 N.Y. Ltr. (Dkt. No. 97))
The False Claims Act provides that " [i]f the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to [certain] limitations set forth in [the Act]." 31 U.S.C. § 3730(c)(1). Accordingly, courts have held that " by automatic operation of the statute, the Government's
complaint in intervention becomes the operative complaint as to all claims in which the government has intervened." United States ex rel. Sansbury v. LB& B Associates, Inc., No. CV 07-251 (EGS), F.Supp.2d, 2014 WL 3509789, at *6 (D.D.C. July 16, 2014); see also U.S. ex rel. Feldman v. City of New York, 808 F.Supp.2d 641, 648 (S.D.N.Y. 2011) (" [W]hen the Government decides to intervene in a qui tam action, the Government's claims become the operative claims insofar as they are duplicative of those of the relator." ). " However, a relator's . . . complaint continues to be the operative complaint for all non-intervened claims[,] and relators remain a party to the Government's intervened claims and continue to have rights to participate in those claims under 31 U.S.C. § 3730(c)(1) and to receive any relator's recovery permitted by 31 U.S.C. § 3730(d), subject to the limitations of the FCA and the facts and circumstances of a particular case." Sansbury, 2014 WL 3509789, at *6; see also Feldman, 808 F.Supp.2d at 648 (" [I]f the Government only partially intervenes in an action, a relator may retain standing to prosecute those aspects of his or her complaint as to which the Government has not intervened." ).
In FCA qui tam cases in which the Government has intervened, a number of courts have dismissed the relator's claims on which the Government intervened. See, e.g., U.S. ex rel. Badr v. Triple Canopy, Inc., 950 F.Supp.2d 888, 895 n.1 (E.D. Va. 2013) (" Count I of Relator's Complaint is superseded by the Government's Complaint and therefore dismissed. . . ." ); U.S. ex rel. Robinson-Hill v. Nurses' Registry & Home Health Corp., No. Civ. A. 5:08-145-KKC, 2012 WL 4598699, at *9 (E.D. Ky. Oct. 2, 2012), reconsideration denied, No. Civ. A. 5:08-145-KKC, 2013 WL 1184370 (E.D. Ky. Mar. 20, 2013) (" [T]he qui tam Complaint's FCA claims must be dismissed to the extent that the Government's Complaint supersedes those claims. . . . Dismissal of the qui tam Complaint's FCA claims does not, however, diminish the Relators' statutory rights under § 3730. . . ." ); Feldman, 808 F.Supp.2d at 649 (" [T]he Court can identify no material aspect of the Relator's Amended Complaint not covered by the Government's Amended Complaint. The Court concludes that Feldman's Amended Complaint is superseded in its entirety by the Government's Amended Complaint and therefore dismisses Feldman's Amended Complaint for want of standing. The Court notes, however, that this dismissal in no way diminishes Feldman's continuing statutory rights delineated in § 3730 of the FCA. . . ." ). These decisions provide little insight as to why the procedural mechanism of dismissal was chosen, however.
The District Court for the District of Columbia recently considered the question and concluded that dismissal is unnecessary, because the Government's claims automatically supersede identical claims asserted by the relator. See Sansbury, 2014 WL 3509789, at *6-7. The court observed that " dismissal is by no means required especially where, as here, Defendants have made no showing that the Relators' participation during the course of the litigation will cause them undue burden or expense that would justify limiting their participation." [WL] at *7. Rather than dismiss the relator's claims, the court concluded that " because the Government's complaint in intervention supersedes Relators' complaint with respect to the intervened claims, and because Relators have the right to continue as parties to this action, the Court will deny Defendants' motion to dismiss Relators' claims, to the extent that they are duplicative of the Government's claims, as moot." Id.
Although the procedural mechanism adopted here will make no practical difference, the D.C. District Court's approach is logical. All of the parties agree that the Government's federal kickback claims have superseded Relator's federal kickback claims, and no party seeks to limit the Relator's participation as to those claims. By definition, " superseded" means " [t]o annul, make void, or repeal by taking the place of." Black's Law Dictionary (9th ed. 2009). Because Relator's kickback claims under the federal FCA have already been superseded by the Government's kickback claims under the federal FCA, there is -- as to the Relator's federal kickback claims -- nothing to dismiss. Accordingly, Defendant's motion to dismiss Relator's kickback claims under the federal False Claims Act will be denied as moot.
B. Whether the Government Entities' FCA Kickback Claims Have Been Pled with Sufficient Particularity Under Rule 9(b)
Novartis moves to dismiss the kickback claims under the FCA and New York FCA in the Government's Amended Complaint and in the New York Complaint, respectively, for failure to plead with sufficient particularity under Fed.R.Civ.P. 9(b). (Def. MTD-U.S. Br. (Dkt. No. 80) at 6-22; Def. MTD-N.Y. (Dkt. No. 82) at 5-18) Because Novartis makes essentially the same arguments as to each pleading, the two complaints will be considered together.
1. Pleading of the Underlying Anti-Kickback Statute Violations
Novartis contends that the Government Entities have failed to plead the anti-kickback violations underlying their FCA and New York FCA claims with sufficient particularity. (Def. MTD-U.S. Br. (Dkt. No. 80) at 6-13; Def. MTD-N.Y. (Dkt. No. 82) at 5-11) In particular, Novartis claims that the pleadings are deficient in that they (1) rely on only a handful of sham speaker events as examples of the alleged nationwide kickback scheme, (2) improperly premise the alleged anti-kickback violations on violations of Novartis's internal policies and the Pharmaceutical Research and Manufacturers of America's Code on Interactions with Healthcare Professionals (the " PhRMA Code" ), and (3) do not plead facts adequate to demonstrate the requisite scienter.
a. Federal and New York Anti-Kickback Statutes
Where an FCA claim is premised on violations of the anti-kickback statute, plaintiff must " plead with particularity the 'who, what, when, where and how' of the fraudulent . . . scheme." U.S. ex rel. Mooney v. Americare, Inc., No. 06-CV-1806 (FB) (VYP),
2013 WL 1346022, at *4 (E.D.N.Y. Apr. 3, 2013).
" The [federal Anti-Kickback Statute] 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."
Kester, 23 F.Supp.3d 242, 262, 88 Fed.R.Serv.3d 1261, at *19 (quoting 42 U.S.C. § 1320a-7b(b)(2)). " The [Statute] defines 'remuneration' as including 'transfers of items or services for free or for other than fair market value.'" U.S. ex rel. Fair Lab. Practices Assocs. v. Quest Diagnostics Inc., No. 05 Civ. 5393 (RPP), 2011 WL 1330542, at *2 (S.D.N.Y. Apr. 5, 2011), aff'd sub nom., United States v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013) (quoting 42 U.S.C. § 1320a-7a(i)(6)). " [T]he [Statute] [also] outlaws 'knowingly and willfully solicit[ing] or receiv[ing] any remuneration (including any kickback, bribe, or rebate)' 'in return for purchasing . . . or recommending purchasing' a drag covered by a federal health care program." 
Kester, 23 F.Supp.3d 242, 262, 88 Fed.R.Serv.3d 1261, at *19 (quoting 42 U.S.C. § 1320a-7b(b)(1)). " Thus, the [Statute] forbids offering, paying, soliciting, or receiving kickbacks in exchange for recommending drugs covered by [federal health care programs]." Id.
" A 2010 amendment to the Anti-Kickback Statute, which became effective on January 1, 2011, states that a claim for services that violates the Anti-Kickback ...