Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 1 of 13 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS UNITED STATES OF AMERICA ex rel. James Banigan and Richard Templin, et. al., v. Plaintiffs, ORGANON USA INC., et. al, CIVIL ACTION NO. 07-12153-RWZ [ LEAVE TO FILE GRANTED ON SEPTEMBER 22, 2011 ] Defendants. REPLY MEMORANDUM IN FURTHER SUPPORT OF DEFENDANT PHARMERICA LONG-TERM CARE, LLC'S MOTION TO DISMISS Date: October 31, 2011 James D. Smeallie (BBO #467380) Elizabeth M. Mitchell (BBO #638146) Michael Manthei (BBO #656176) Benjamin M. McGovern (BBO #661611) HOLLAND & KNIGHT LLP 10 St. James Avenue Boston, MA 02116 (617) 523-2700 jd.smeallie@hklaw.com elizabeth.mitchell@hklaw.com michael.manthei@hklaw.com benjamin.mcgovern@hklaw.com Attorneys for Defendant Pharmerica Long-Term Care, LLC
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 2 of 13 INTRODUCTION PharMerica 1 hereby submits this Reply Memorandum in response to arguments raised by the Relators for the first time in their Consolidated Response to Defendants' Motions to Dismiss the Third Amended Complaint (the "Response"). As discussed more fully below, the claims being advanced in this case against PharMerica were predicted in all essential respects ten years ago by the LaCorte II 2 litigation. Unlike many of the previously-filed lawsuits discussed in the Relators' Response, where there was no identity of defendants or preferred drugs with those in this action, LaCorte II and the instant action involve the same defendant (PharMerica), the same causes of action (violations of the FCA and AKS), the same preferred drug (Remeron), the same drug manufacturer (Merck/Organon), and the same scheme to increase the market share of preferred drugs through therapeutic interchange and the payment of rebates. Accordingly, the Relators' claims must be dismissed with prejudice under the first-to-file and public disclosure bars of the FCA. I. LaCorte II Precludes the Relators' Claims Against PharMerica Under the First-To- File and Public Disclosure Bars Similarity is the touchstone for application of both the first-to-file and public disclosure bars. The first-to-file bar precludes claims that merely repeat essential facts or elements of fraud that already have been described in an earlier-filed suit, while the public disclosure bar precludes claims that are substantially similar to allegations of fraud that already have been disclosed to the public. See, e.g., U.S. ex rel. Duxbury v. Ortho Biotech Products, L.P. ("Duxbury II"), 579 F.3d 13, 32 (1st Cir. 2009); U.S. ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st Cir. 2009). 1 Capitalized terms shall be defined in this Reply Memorandum as those same terms are defined in the Memorandum in Support of Defendant PharMerica Long-Term Care LLC's Motion to Dismiss. See Dkt. No. 124. 2 For the sake of consistency, PharMerica will adopt in this Reply Memorandum the "LaCorte II" shorthand utilized by the Relators in their Response to refer to the civil action styled United States ex rel. LaCorte v. AmerisourceBergen Corp., et. al., Civil Action No. 02-3168 (E.D. La.). 1
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 3 of 13 Here, the Relators do not dispute that their claims share numerous similarities with the claims advanced in LaCorte II. As mentioned above, both lawsuits involved the same defendant, causes of action, preferred drug, drug manufacturer, and alleged rebate scheme. Rather, in an effort to distract from these overwhelming similarities, the Relators argue, in essence, that their claims should survive because they are more Remeron-centric. Specifically, the Relators assert only that the LaCorte II complaints "made no reference to Remeron SolTab," while Remeron is mentioned in only "one sentence in the Original Complaint in LaCorte II." See Response (Dkt. No. 141), at pp. 31, 39. According to the Relators, this lack of singular focus on Remeron nullifies application of the first-to-file and public disclosure bars because, in the Relators' opinion, LaCorte II fails the specificity requirement of Rule 9(b) and does not predict the essential elements of their own Remeron-based claims. Not only is this argument factually inaccurate, it also misconstrues completely the degree of similarity that is required to trigger application of the first-to-file and public disclosure bars. A. All of the LaCorte II Complaints Include Allegations Related to Remeron and Remeron Sol Tab Three complaints were filed in the LaCorte II litigation - an original, first amended, and second amended complaint. The Relators concede that Remeron is identified as one of PharMerica's preferred drugs in the original LaCorte II complaint, but suggest, without citation to any source, that the initial mention of Remeron amounted to an "opportunistic claim" that was dropped from the first and second amended complaints "for lack of evidence." See Response, at p. 31. In fact, Remeron and Remeron Sol Tab were part of LaCorte II from start to finish. As set forth in PharMerica's Memorandum in Support of its Motion to Dismiss (the "Opening Memorandum") (Dkt. No. 124), the original LaCorte II complaint which attaches no exhibits alleges that Remeron was one of the preferred drugs promoted in exchange for rebates 2
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 4 of 13 as part of PharMerica's therapeutic interchange program. See Original Compl., LaCorte II, 9, 31 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit A). Later, as the LaCorte II complaints became lengthier and more sophisticated, the references to Remeron, and the introduction of Remeron Sol-Tab, were simply shifted to exhibits. For example, the first and second LaCorte II complaints allege that in order "[t]o achieve these agreed upon market share targets [for rebates], the Defendants created a Select Formulary and placed on that list as 'preferred drugs' the pharmaceutical products for which they received these financial inducements in exchange for achieving and maintaining the agreed upon market shares for such products and supplies. See [Exhibits E and 7] attached and incorporated by reference." 3 See First Am. Compl., LaCorte II, 63 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit B); Second Am. Compl., LaCorte II, 123 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit C). Exhibits E and 7, in turn, are comprised of a "PharMerica Senior Select Drug Formulary," that lists numerous "Formulary Preferred Products," including Remeron SolTab. See First Am. Compl., LaCorte II, at Exh. E; Second Am. Compl., LaCorte II, at Exh. 7. Similarly, both the first and second amended LaCorte II complaints allege that PharMerica represented to physicians that it had generated a "Select Formulary" consisting of preferred products that were selected through a three-tier evaluation process as the most appropriate drugs for elderly residents. See First Am. Compl., LaCorte II, 64-65; Second Am. Compl., LaCorte II, 124-25. Both complaints then attach examples of these communications, including a September 2002 letter from PharMerica to health care professionals explaining the 3 Paragraph 123 of the second amended LaCorte II complaint is identical in all relevant respects to paragraph 63 of the first amended complaint, save for the fact that the second amended complaint attaches the PharMerica Senior Select Drug Formulary as Exhibit 7, while the first amended complaint attaches that same document as Exhibit E. 3
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 5 of 13 three-tier evaluation process, identifying Remeron SolTab as one of PharMerica's preferred products, and stating that Remeron SolTab could present an effective choice for elderly residents requiring treatment for clinical depression. See First Am. Compl., LaCorte II, at Exh. X; Second Am. Compl., LaCorte II, at Exh. 28. See also First Am. Compl., LaCorte II, at Exh. X (listing information regarding strength, cost and "LA Medicaid pays" for Remeron and Remeron Sol- Tab); Second Am. Compl., LaCorte II, at Exh. 28 (same). Accordingly, far from dropping out of the case "for lack of evidence," all three LaCorte II complaints invoke Remeron and Remeron Sol-Tab consistently and specifically as part of their allegations against PharMerica. It makes no difference that the original complaint mentions Remeron within the body of its numbered allegations, while the first and second amended complaints use exhibits to reference Remeron and Remeron Sol-Tab. In either instance, in all three of the LaCorte II complaints PharMerica was accused squarely of violating the FCA and AKS by implementing a therapeutic interchange program involving Remeron, Remeron Sol-Tab and the payment of market share rebates. No more is required to invoke application of the firstto-file or public disclosure bars. 4 See, e.g., Duxbury II, 579 F.3d at 32 (first-to-file bar precludes later suit "if it states all the essential facts of a previously-filed claim, or the same elements of fraud described in an earlier suit."); Ondis, 587 F.3d at 57 (public disclosure bar precludes later suit if "the relator's allegations are substantially similar to information disclosed publicly...") 4 The fact that the Relators also include tangential allegations in the Third Amended Complaint relating to best pricing and off-label marketing does not distinguish this case from LaCorte II. First, the Relators have alleged only that PharMerica's co-defendant, and not PharMerica itself, engaged in purportedly fraudulent practices with respect to best pricing and off-label marketing. Second, even if the Relators' best pricing allegations were relevant to PharMerica, that aspect of their claims likewise would be barred because the LaCorte II relators advanced the very same allegations. See, e.g., Second Am. Compl., LaCorte II, 131 ("Because neither the true 'best price' nor the data from which it can be determined is ever accurately reported to the DHHS and CMS, the United States government is caused a financial loss, and both the pharmaceutical manufacturers and the Defendants reap a financial windfall at the government's expense by receiving inflated reimbursements or unauthorized reimbursements."). 4
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 6 of 13 B. The LaCorte II Complaints Disclosed Adequately the Remeron-Based Allegations Against PharMerica In their Response, the Relators also maintain that the LaCorte II complaints fail the specificity requirements of Rule 9(b) and the disclosure requirements of the first-to-file and public disclosure bars because they do not focus enough of their allegations on Remeron. See Relators Opp'n, at pp. 30-31, 39. Putting aside the factual inaccuracies inherent in this argument, see Section I.A, supra, the Relators' position also fails as a matter of law because the first-to-file and public disclosure bars do not require anywhere near the level of specificity suggested by the Relators. The first-to-file bar does not mandate complete identity between claims, but rather precludes "a later claim even if that claim incorporates somewhat different details." See Duxbury II, 579 F.3d at 33. See also United States ex rel. Poteet v. Lenke ( Poteet I ), 604 F. Supp. 2d 313, 318 (D. Mass. 2009) ("[A] relator who merely adds details to a previously exposed fraud does not help 'reduce fraud or return funds to the federal fisc,' because 'once the government knows the essential facts of a fraudulent scheme, it has enough information to discover related frauds.'"). Similarly, the public disclosure bar requires only substantial similarity, and not complete identity, between claims. See U.S. ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009). See also United States ex rel. Poteet v. Bahler Medical, Inc. ("Poteet II"), 619 F.3d 104, 115 (1st Cir. 2010) (holding that even where details in a later suit "undoubtedly add some color to the [prior] allegation, the allegation ultimately targets the same fraudulent scheme. That is enough to trigger the public disclosure bar."). Accordingly, it is simply beside the point that the Relators focus their allegations exclusively on Remeron, while LaCorte II involves numerous drugs in addition to Remeron. All that matters is that the LaCorte II complaints came first, and disclosed the essential elements of a broad-based scheme in which PharMerica received 5
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 7 of 13 rebates in exchange for attempting to increase the market share of numerous preferred drugs including Remeron and Remeron Sol-Tab. That the Relators now may be alleging additional details regarding the Remeron-specific attributes of that scheme, including the "related fraud" involving best pricing and/or off-label marketing applicable to another defendant, does not save their claims. Nor does Rule 9(b) have any bearing on application of the first-to-file bar. The First Circuit has recognized repeatedly that the first-to-file bar is "exception free." See Duxbury II, 579 F.3d at 33. No court in the First Circuit has held, as the Relators suggest here, that independent compliance with Rule 9(b) is a prerequisite for an earlier-filed lawsuit to be considered for purposes of the first-to-file bar. Moreover, the dicta from the Sixth Circuit Poteet decision relied on by the Relators for this proposition, see Response, at p. 30, has been criticized by courts from around the country as creating an exception to the first-to-file bar that was not intended by Congress. See U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 n.10 (5th Cir. 2009) (declining to endorse Rule 9(b) prerequisite because sufficiency of firstfiled complaint under Rule 9(b) is a matter for the court in which it was filed "to decide in the first instance"); U.S. ex rel. Folliard v. Synnex Corp., No. 07-cv-719, 2011 WL 2836372, at 5 (D.D.C. July 19, 2011) (holding that a "rule of 9(b) non-preclusion does not further the policy goals of the FCA... A broad non-preclusive rule would not minimize duplicative claims, would encourage opportunistic behavior, and would have a negligible impact on desirable whistleblowing."); U.S. ex rel. Piacentile v. Sanofi Synthelabo, Inc., Civ. Action No. 05-2927, 2010 WL 5466043, at *5 (D.N.J. December 30, 2010) (noting the "peculiarity of a court opining on the sufficiency of a pleading pending before another court" and holding that a Rule 9(b) prerequisite would "undermine the first-to-file rule") (finding that "unique procedure" of FCA obviates any 6
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 8 of 13 risk that earlier-filed suits would fail to provide government with notice of fraud, because FCA provides government with at least sixty days to investigate even threadbare allegations independently before deciding whether to intervene). Even assuming, arguendo, that the logic of the Sixth Circuit's Poteet decision were applicable here, which PharMerica disputes, that case also is readily distinguishable from the instant circumstances. In that case, after noting explicitly that its discussion of the first-to-file bar was dicta, the Sixth Circuit observed that an earlier-filed action might fall outside the auspices of the first-to-file bar if it were "jurisdictionally precluded" or "legally incapable of serving as a complaint." See United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009). Importantly, however, the Poteet court went on to note that "if the first-filed qui tam action has been dismissed on its merits or on some other grounds not related to its viability as a federal action, it can still preclude a later-filed, but possibly more meritorious, qui tam complaint under the first-to-file rule." Id. at 516-17. Indeed, that is precisely what occurred in LaCorte II. There, the question of whether the first amended LaCorte II complaint satisfied the specificity requirements of Rule 9(b) was the subject of a motion to dismiss filed by the LaCorte II defendants. See Joint Motion to Dismiss First Amended Complaint (Dkt. No. 16), LaCorte II, at pp. 10-15 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit D). The LaCorte II court denied that motion without prejudice. See February 17, 2005 Order (Dkt. No. 29), LaCorte II, at p. 1 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit E). Later, the entire LaCorte II litigation was dismissed with prejudice as to the relators by stipulation of the parties entered on January 14, 2008. See January 14, 2008 Stipulated Order of Dismissal With Prejudice (Dkt. No. 70), at p. 1 7
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 9 of 13 (a true and accurate copy of which is attached to the Affidavit of Benjamin M. McGovern, filed herewith, as Exhibit F). Accordingly, even by the logic of Poteet, the LaCorte II case would not be disqualified from triggering the first-to-file bar because the trial court did not dismiss the claims pursuant to Rule 9(b) when it had the opportunity, and the entire case was subsequently resolved on grounds that were not related to its viability as a federal action. There is therefore no merit to the Relators' contention that LaCorte II is somehow incapable of precluding their own claims under the first-to-file bar. II. Relators Templin and Banigan Are Not Original Sources The Relators' protestations in their Response notwithstanding, there is nothing "deceitful" about PharMerica's citation to paragraph 270 of the Third Amended Complaint. That paragraph states explicitly that Banigan was "not involved directly with the creation of the Medicaid scheme..." See Third Am. Compl., 270 (emphasis supplied). Because the FCA requires a relator to have "direct" knowledge of fraud, see, e.g., Rockwell Int'l Corp. v. United States, 549 U.S. 457, 470-71 (2007), Banigan's own admission is fatal to his attempt to qualify as an original source. It is irrelevant that the Relators now may wish they had chosen different language for their Third Amended Complaint, or that they now believe this Court should interpret the term "direct" according to something other than its plain meaning. Equally unavailing is the Relators' effort to distort the holding of In re AWP Litigation II in an effort to lower the threshold for original source status in the First Circuit. It is wellestablished that an original source must possess both direct and independent knowledge of fraud, with direct knowledge being defined as "marked by absence of an intervening agency, instrumentality, or influence: immediate." See Ondis, 587 F.3d at 59. Nothing about the In re AWP Litigation II decision alters this straightforward standard. In that case, a different judge of 8
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 10 of 13 this Court concluded that Greg Hamilton, an employee of the defendant's customer, qualified as an original source because he had been approached as part of an ongoing business relationship by Kay Morgan, an employee of a drug industry compendia, for "ideas and advice" about Morgan's concern that the defendant was attempting to report its average wholesale price for drugs fraudulently. See In re AWP Litigation II, Civil Action No. 01-12257, 2010 WL 1375298, at *1, 4-5 (D. Mass. March 25, 2010). According to the court, although "Hamilton's case is a close one," he qualified as an original source because he was a "close observer" with direct knowledge of the fraud who had been "consulted as part of a professional relationship by one of the critical players in the alleged fraud regarding the fraud's very nature as the fraud was occurring." See id., at *5. In reaching this conclusion, the court found it important, however, that Hamilton "did not get his information after the fact through collateral research and investigation." See id. (emphasis supplied). It is precisely because of this last observation that Hamilton can qualify as an original source where Templin and Banigan can not. The holding in In re AWP Litigation II makes clear that Hamilton possessed direct knowledge of fraud because, while he was not employed by the defendant, he still acquired contemporaneous first-hand knowledge of the fraud as an organic part of his day-to-day job responsibilities. See id., at *4-5. No matter how the Relators may attempt to exaggerate their proximity to the fraud alleged in the Third Amended Complaint, they simply were not in a position to acquire the sort of contemporaneous first-hand knowledge required of original sources. Indeed, the Relators' reliance on the "close observer" language from In re AWP Litigation II is particularly ironic because their own allegations illustrate that their knowledge of the purported fraud was acquired through the very same "collateral research and investigation" that 9
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 11 of 13 would have been deemed insufficient to confer original source status in that case. As set forth in PharMerica's Opening Memorandum at pages 21 through 24, Templin was not hired by Organon until after the alleged market share rebate scheme had ended, and Banigan's own description of his job responsibilities indicates that he had no direct contact with PharMerica or other long-term care pharmacy providers while the alleged fraud was ongoing. Lacking direct contemporaneous exposure to the alleged fraud, it was only because Templin and Banigan consulted with McKenna, Maddox and Vorrius as part of an after-the-fact investigation performed in 2007 that they have knowledge of the fraud alleged in the Third Amended Complaint. In these circumstances, no matter whether the appropriate touchstone is phrased as "direct knowledge" or "close observation," the point remains the same Templin and Banigan do not qualify as original sources under the FCA because their knowledge of the fraud alleged here is indirect and secondhand at best. CONCLUSION The arguments raised in the Relators' Response do nothing to undermine the conclusion that LaCorte II is completely dispositive of the claims raised here against PharMerica, where it is undisputed that the two lawsuits involve the same defendant, same causes of action, same preferred drug, same drug manufacturer and same alleged rebate scheme. Congress enacted the first-to-file and public disclosure bars in order to prevent precisely this type of parasitic action "in which a relator, instead of plowing new ground, attempts to free-ride by merely repastinating previously disclosed badges of fraud." See Ondis, 587 F.3d at 53. Therefore, at least with regard to the claims against PharMerica, this Court should end the Relators' attempt to free-ride on the back of the ten-year old allegations of fraud disclosed in LaCorte II. 10
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 12 of 13 WHEREFORE, for the foregoing reasons, and for the reasons set forth in PharMerica's Opening Memorandum, PharMerica respectfully requests that this Court dismiss all claims asserted against it in the captioned action with prejudice and without further leave to amend. Respectfully submitted, PHARMERICA LONG-TERM CARE, LLC, f/k/a PHARMERICA, INC., By its attorneys, /s/ James D. Smeallie James D. Smeallie (BBO #467380) Elizabeth M. Mitchell (BBO #638146) Michael Manthei (BBO #656176) Benjamin M. McGovern (BBO #661611) HOLLAND & KNIGHT LLP 10 St. James Avenue Boston, MA 02116 (617) 523-2700 jd.smeallie@hklaw.com elizabeth.mitchell@hklaw.com michael.manthei@hklaw.com benjamin.mcgovern@hklaw.com Date: October 31, 2011 11
Case 1:07-cv-12153-RWZ Document 151 Filed 10/31/11 Page 13 of 13 CERTIFICATE OF SERVICE I, James D. Smeallie, hereby certify that this document filed through the ECF system will be sent electronically to the registered participants as identified on the Notice of Electronic Filing (NEF) and paper copies will be sent to those indicated as non-registered participants on this 31st day of October 2011. Dated: October 31, 2011 /s/ James D. Smeallie James D. Smeallie 12 #10411339