968 F. Supp. 2d 978
S.D. Ill.2013Background
- Relator James Garbe brought qui tam claims under the False Claims Act (31 U.S.C. §§ 3729(a)(1), (a)(2), (a)(7)) and parallel state statutes, alleging Kmart submitted reimbursement claim forms that inflated its “usual and customary” (U&C) prices for certain generic drugs.
- Alleged scheme: Kmart charged lower Retail Member Price (RMP) cash customers but reported higher U&C prices on insurer/Medicaid/Medicare/Tricare claims, causing over-reimbursement.
- SAC includes specific examples with dates, drugs, reported prices, insurer reimbursements, and Relator’s own experience as a Medicare Part D beneficiary and former Kmart pharmacist.
- Kmart moved to dismiss all 32 counts under Rules 12(b)(1), 12(b)(6), and 9(b), arguing Relator failed to identify false statements tied to a contract/regulation, failed to plead presentment/payment to the government, and that the public-disclosure bar eliminates jurisdiction.
- The government declined to intervene; the court evaluated sufficiency of pleading (including Rule 9(b) particularity), presentment to federal programs, materiality intent under Allison Engine, and whether earlier public disclosures barred the suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SAC identifies false statements sufficient for FCA fraud pleading | Garbe: Kmart reported inflated U&C prices on claim forms and gave specific examples (who/what/when/where/how) | Kmart: Relator fails to identify a false statement tied to a contract/statute and lacks Rule 9(b) particularity | Court: Allegations, including specific instances and amounts, satisfy Rule 9(b) and state a plausible FCA false-statement claim |
| Whether Relator pleaded presentment/payment to the government under § 3729(a)(1) | Garbe: Examples show claims submitted to Medicare/Medicaid/Tricare and specific reimbursements | Kmart: Link to government attenuated via private intermediaries; no direct presentment shown | Court: Given program funding structures and examples, presentment to government agents and resulting payments adequately pleaded |
| Whether statements were material and intended to induce payment under § 3729(a)(2) | Garbe: Reporting inflated U&C was intended and naturally tended to increase government reimbursements | Kmart: Federal payment/approval chain too indirect; no allegation that government actually paid on Kmart’s statements | Court: Alleged misreporting is material (capable of influencing payment) and Relator alleges Kmart knew false prices would cause inflated government payments; claim survives |
| Whether public-disclosure bar (31 U.S.C. § 3730(e)(4)) deprives court of jurisdiction | Garbe: His case (filed earlier and unsealed in 2010) was the first public disclosure of the U&C fraud; later Yarberry allegations are not new transactions but overlapping detail | Kmart: Similar allegations were publicly disclosed in Yarberry (unsealed 2011) triggering the bar | Court: Garbe’s unsealing preceded Yarberry; the disclosure in Yarberry did not create a new bar and the public-disclosure rule does not preclude Garbe’s claims |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; legal conclusions not presumed true)
- Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (materiality requirement for § 3729(a)(2))
- United States v. Pecore, 664 F.3d 1125 (false invoices and FCA applicability)
- United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374 (need to identify specific false claims/statements)
- United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492 (public-disclosure bar guidance)