440 P.3d 727
Utah Ct. App.2019Background
- Utah sued multiple pharmaceutical companies, alleging they reported inflated Average Wholesale Prices (AWP) to Medicaid, causing over-reimbursements and marketing of the resulting "spread." The Watson defendants (three related corporate entities) were among those sued.
- After the Utah Supreme Court’s decision in State v. Apotex (which relaxed the Rule 9 particularity standard for widespread fraud claims but required particularized allegations against each defendant), the State was allowed to replead its claims.
- In its Third Amended Complaint the State identified hundreds of drugs by name and NDC in Exhibit A and provided “representative examples” charts; for the Watson defendants, however, the State combined entries under a single label, "Defendant Watson," rather than separately attributing claims to each corporate defendant.
- The Watson defendants moved to dismiss under Utah R. Civ. P. 9(c) and 12(b)(6). The district court found the pleading met the standard as to other defendants but dismissed the claims against the three Watson entities for failing to particularize allegations as to each entity, and it dismissed with prejudice.
- The State sought leave to amend to separate representative examples for the Watson subsidiaries; the district court denied leave as untimely or moot, and the State appealed only the dismissal of the Watson defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the State met Utah R. Civ. P. 9(c)/Apotex particularity for claims against the three Watson entities | The complaint satisfied Apotex because NDC numbers (which contain labeler codes) identify each Watson entity, so further detail was unnecessary | The Complaint grouped the Watson entities as one, failing to particularize representative examples or provide reliable indicia tying each named Watson entity to specific false claims | The court held the State failed to meet 9(c)/Apotex as to the Watson defendants: pleading was collective and did not particularize allegations for each entity |
| Whether the district court abused its discretion by dismissing the Watson claims with prejudice | Dismissal with prejudice was disproportionate; the State could cure defects if allowed to amend | The State had multiple prior opportunities (including guidance from Apotex) and still failed to particularize; dismissal with prejudice was within the court’s discretion | The court held there was no abuse of discretion: repeated chances to amend and continued collective pleading justified dismissal with prejudice |
Key Cases Cited
- State v. Apotex Corp., 282 P.3d 66 (Utah 2012) (relaxed Rule 9 standard for widespread fraud but requires particularized allegations and reliable indicia tying each defendant to false claims)
- America West Bank Members, LC v. State, 342 P.3d 224 (Utah 2014) (pleading review — accept allegations as true but do not accept extrinsic facts; guidance on dismissal and amendment)
- Institutional Laundry, Inc. v. Utah State Tax Comm’n, 706 P.2d 1066 (Utah 1985) (corporate separateness: parent and subsidiaries have distinct legal identities)
- Pang v. Int’l Document Servs., 356 P.3d 1190 (Utah 2015) (standard for accepting pleaded facts on motion to dismiss)
- Bonneville Tower Condo. Mgmt. Comm. v. Thompson Michie Assocs., 728 P.2d 1017 (Utah 1986) (standard of review for dismissal with prejudice: abuse of discretion)