US ex rel. Barry Rostholder v. Omnicare, Incorporated
2014 U.S. App. LEXIS 3269
4th Cir.2014Background
- Relator Barry Rostholder, a pharmacist, sues Omnicare and affiliates under the FCA alleging FDA penicillin CGMP violations rendered drugs adulterated and ineligible for Medicare/Medicaid reimbursement.
- Heartland Repack Services repackaged non-penicillin drugs in Toledo; a nearby Omnicare pharmacy processed penicillin; the two operations shared a building and spaces.
- From 1997–2006 Rostholder worked at Heartland, raising concerns about penicillin handling; he prepared memos and informed management and the FDA of penicillin exposure.
- In 2006 the FDA found penicillin in the Toledo facility during inspections; Omnicare disposed of about $19 million worth of inventory and did not recall implicated drugs.
- The district court dismissed the complaint for failure to plead a false statement or fraudulent conduct; relator sought leave to amend, which was denied; the court later addressed jurisdiction under the public disclosure bar.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the public disclosure bar divested jurisdiction | Rostholder as original source; disclosures did not base the complaint | Public disclosures (warning letter, Form 10-K) bar suit | Public disclosure bar did not apply; original source status established |
| Whether relator adequately pleaded a false statement or fraudulent conduct | Noncompliance with CGMPs makes drugs adulterated and claims for reimbursement false | Medicare/Medicaid do not require CGMP compliance as a condition of payment; no false statement | Relator failed to plead a false statement or fraudulent conduct under the FCA |
| Whether relator adequately pleaded materiality and scienter | CGMP noncompliance is material to reimbursement; relator had knowledge | Medicare/Medicaid payment not conditioned on CGMP compliance; no scienter | No causation/false statement; insufficient scienter; materiality not shown |
| Whether the district court abused its discretion in denying a third amended complaint | Rule 15 should permit amendment to cure deficiencies | Noncompliance with local rules and futility of amendment | No abuse of discretion; amendment denied; futile given FCA pleading holding |
Key Cases Cited
- U.S. ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist., 528 F.3d 292 (4th Cir. 2008) (public disclosure bar requires independent source unless original source)
- U.S. ex rel. Vuyyuru v. Jadhav, 555 F.3d 337 (4th Cir. 2009) (detailing original-source and public-disclosure analysis)
- U.S. v. Grayson v. Advanced Mgmt. Tech., Inc., 221 F.3d 580 (4th Cir. 2000) (jurisdictional considerations for FCA actions)
- Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724 (4th Cir. 2010) (FCA elements and materiality standards)
- Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) (elements of FCA claim: false statement, scienter, materiality)
- Francis v. Giacomelli, 588 F.3d 186 (4th Cir. 2009) (amendment and Rule 9(b) considerations; pleading standards)
- U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011) (FDA enforcement powers and non-regulatory FCA liability limits)