United States Ex Rel. Fowler v. Caremark RX, L.L.C.United States Ex Rel. Fowler v. Caremark RX, L.L.C.
The plaintiff—Relators are employees of Caremark. They filed a qui tam action under the False Claims Act.
I. HISTORY
The United States government, like many employers, provides health insurance benefits to its employees. The government contracts with various private health insurance plans. Federal employees are able to choose among these private health insurance plans. Both the United States and individual federal employees make premium payments to the plans for the health coverage.
Many health plans provide prescription drug coverage as part of their benefit package for the participating federal employees. In turn, a number of these plans contract with Caremark to provide the
The Relators, (we call them Relators, they call themselves Whistleblowers), were employed by Caremark at two of its prescription drug processing facilities. The Relators brought a False Claims Act suit on behalf of the United States alleging that Caremark engaged in six fraudulent schemes: (1) failing to provide a credit for returned prescription drugs; (2) changing prescriptions without proper approval; (3) misrepresenting the savings obtained from its recommendations; (4) failing to substitute a generic version of “Prilosec;” (5) failing to credit for prescriptions lost in the mail; and (6) manipulating the mandatory times for filing prescriptions.
The Relators filed their original complaint under seal in December 2003. An amended complaint was also filed under seal in March 2004. In July 2004, the United States Attorney‘s Office for the Northern District of Illinois contacted Caremark and asked it to cooperate in an investigation of Caremark‘s business practices. From October 2004 through January 2006, Caremark disclosed in excess of 113,000 pages of documents to the U.S. Attorney‘s Office. These documents included Caremark‘s contracts with the health insurance plans serving federal employees, invoices, quarterly reports, Caremark‘s internal reports, memoranda and training procedures. In January 2006, the government declined to intervene in this case and the case was unsealed by the district court in February 2006. In April and May 2006, the Relators obtained discovery materials from both Caremark and the U.S. Attorney‘s Office.
In May 2006, the district court granted Caremark‘s motion to dismiss the first amended complaint holding that the complaint failed to meet the heightened pleading requirements of
Caremark then argued that case should be dismissed pursuant to the jurisdictional bar contained in
However on the merits, the district court held that despite increasing in size, the second amended complaint failed to meet the heightened pleading requirements of
The Relators were then given an opportunity to seek leave to file a third amended complaint. However, the district court
II. ANALYSIS
A. The Jurisdictional Bar of 31 U.S.C. § 3730(e)(4)
Caremark argues that the district court lacked subject matter jurisdiction, pursuant to the jurisdictional bar set forth in
Title 31, United States Code, Section 3730(e)(4) states:
(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.
Before we begin the analysis, it should be noted that there are three types of information in the Relators’ possession in this case. First is the Relators’ “inside” information that they obtained during their work at Caremark. Second is the information disclosed by Caremark directly to the Relators. Third is the information disclosed by Caremark to the U.S. Attorney‘s Office and then passed from the U.S. Attorney‘s Office to the Relators.1
Issue 1: Have the Allegations made by the Plaintiff been “Publicly Disclosed“?
“A ‘public disclosure’ exists under
“Disclosure of information to a competent public official about an alleged false claim against the government [is a] public disclosure within the meaning of
Caremark‘s disclosure of information to the U.S. Attorney‘s Office during the government‘s investigation of Caremark‘s business practices qualifies as a public disclosure of the Relators’ allegations. The scope of the investigation involved whether Caremark defrauded the federal government through its participation in the federal employee health insurance programs. The U.S. Attorney is the primary legal
Issue 2: Is the Lawsuit “Based Upon” that Publicly Disclosed Information?
“[A] lawsuit is based upon pub[licly] disclose[d information] when it ‘both depends essentially upon publicly disclosed information and is actually derived from such information.‘” Feingold, 324 F.3d at 497 (quoting Mathews, 166 F.3d at 864). Caremark notes that our standard conflicts with the standard adopted by the majority of circuits and argues that we should reconsider our position in light of this conflict.
The majority of circuits apply the standard “that a qui tam action is ‘based upon’ a public disclosure when the supporting allegations are ‘the same as those that have been publicly disclosed ... regardless of where the relator obtained his information.‘” Mathews, 166 F.3d at 863 (quoting United States ex rel. Doe v. John Doe Corp., 960 F.2d 318, 324 (2d Cir.1992)) (citing United States ex rel. Kreindler & Kreindler v. United Tech. Corp., 985 F.2d 1148, 1158 (2d Cir.1993); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 652-55 (D.C.Cir.1994); United States ex rel. McKenzie v. BellSouth Telecomm., Inc., 123 F.3d 935, 940 (6th Cir.1997); Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, 1417 (9th Cir.1992); United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir.1992); United States ex rel. Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 566-67 (11th Cir.1994)); see also United States ex rel. Paranich v. Sorgnard, 396 F.3d 326, 334-35 (3d Cir.2005); Federal Recovery Servs. v. United States, 72 F.3d 447, 451 (5th Cir.1995); United States ex rel. Minnesota Assoc. of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1044-47 (8th Cir.2002). In Mathews, we declined to adopt the majority standard and instead adopted our current standard from the Fourth Circuit‘s decision. See Mathews, 166 F.3d at 863 (citing 21 F.3d 1339, 1347-48 (4th Cir.1994)).
In Mathews, we explained that the Fourth Circuit‘s standard of “‘based upon’ is ... better on the grounds both of plain meaning and public policy.” Id. The plain language argument is that “‘based upon’ does not mean ‘similar (even identical) to’ but ‘derived from.‘” Id. (quoting Siller, 21 F.3d at 1347-48). The public policy justification is that “information which happens to be similar or identical to publicly disclosed allegations or transactions, but which derives from some other source than the public disclosure, is not parasitic, and should not be barred by a provision meant to bar parasitic lawsuits.” Id. (quoting Siller, 21 F.3d at 1348).
In United States ex rel. Mistick PBT v. Housing Auth. of the City of Pittsburgh, the Third Circuit analyzed the circuit split and concluded that there was “merit” on both sides of the split. 186 F.3d 376, 386 (3d Cir.1999) (Alito, J.). According to the Mistick court, although the minority standard was a more faithful plain language interpretation, the interpretation would render the “original source” exception largely superfluous. Id. Thus, the circuit split was framed as “a clash between two textual arguments concerning the meaning of
Then-Chief Judge Becker dissented from the Mistick decision. He noting that (1) traditionally courts defer to the plain language interpretation of statutes, (2) there were several plausible situations in which the plain meaning interpretation would not make the “original source” clause superfluous, (3) the plain meaning interpretation was consistent with how Congress had used “based upon” in another statute, and (4) the plain language interpretation was consistent with both the False Claims Act‘s underlying policy and legislative history. Id. at 395-403 (Becker, C.J., dissenting).
We reject Caremark‘s invitation to alter our position and reaffirm our adherence to the standard that “[a] lawsuit is based upon public[ly] disclose[d information] when it both depends essentially upon publicly disclosed information and is actually derived from such information.” Feingold, 324 F.3d at 497. “In a statutory construction case, the beginning point must be the language of the statute, and when a statute speaks with clarity to an issue judicial inquiry into the statute‘s meaning, in all but the most extraordinary circumstances, is finished.” Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 475, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992) (citing Demarest v. Manspeaker, 498 U.S. 184, 190, 111 S.Ct. 599, 112 L.Ed.2d 608 (1991)). Both the majority and minority standard have rallied powerful arguments to their respective sides, but the minority standard holds the trump card, the plain language interpretation. We may be in the minority, but we will not jettison a standard when that standard includes an appropriate plain language interpretation of the statute.
Returning to the jurisdictional analysis, we must determine whether the Relators’ proposed third amended complaint (1) depends essentially upon publicly disclosed information and (2) is actually derived from such information. Feingold, 324 F.3d at 497. The Relators’ proposed third amended complaint will not meet the jurisdictional bar of
In its review of the second amended complaint, the district court determined that the Relators based their complaint on their “inside” information and information obtained directly from Caremark‘s direct disclosure to the Relators. Thus, jurisdiction was present, according to the district court because there was no evidence of information being used from the U.S. Attorney‘s Office‘s disclosure. Of course, the proposed third amended complaint is the controlling document to be considered because the district court has dismissed the second amended complaint on
Caremark has not pointed to specific items in the complaint that it says comes from the U.S. Attorney‘s Office‘s disclosure. Instead, Caremark‘s position is that the U.S. Attorney‘s Office disclosure, and the discovery disclosure it made directly to the Relators, consist essentially of identical information. Thus, Caremark argues that it is irrelevant whether the Relators faithfully limited themselves to the discovery disclosures that they received directly from Caremark and abstained from including the U.S. Attorney‘s Office material in the complaint. Ultimately, according to Caremark, it is all the same material, regardless of which copy was used by the Relators in preparing their proposed third amended complaint.
At first glance, there is logic to Caremark‘s position. The argument raises the question of what is the legal importance of whether the Relators took their information for the complaint from Caremark‘s disclosure or the U.S. Attorney‘s Office‘s disclosure? It is the same material after all. However, what this argument really does is return us to Caremark‘s prior argument that we should abandon our current standard and instead adopt the standard from the majority of other circuits. And as we discussed above, we are unwilling to do this.
Congress said that, “No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions ...”
This is more than a mere blind adherence to the plain language of the statute. Congress is trying to balance two policies in this statute. On one side, Congress wants insiders to come forth with information about fraudulent claims when this information is not otherwise publicly available. On the other hand, Congress does not want self-serving opportunists, who do not possess their own insider information, to get in on the action and try to collect on parasitic claims when the allegations have already been publicly disclosed and the opportunists have nothing new to add. The “based upon” language in
B. The Merits
The district court determined that the Relators’ proposed third amended complaint did not meet the heightened pleading requirements of
We review a dismissal for failure to comply with
The False Claims Act imposes civil liability for a series of actions under
The first alleged fraud involves billing for returned prescriptions. The Relators allege that a percentage of federal employees who received prescription drugs under their respective health plans returned the drugs unused to Caremark. Despite receiving the returned merchandise, the Relators allege that Caremark continued to bill the government for the cost of these medications or failed to provide a refund if the government had already paid before the return was made by the federal employee. The Relators also argue they have identified specific transactions with particularity as they identified individual prescriptions that were returned to Caremark and corresponding invoices in which Caremark continued to bill for this returned merchandise.
We recently addressed a similar type of alleged scheme in Crews. Crews involved a false claims suit brought by a pharmacist who worked at a pharmacy providing pharmaceutical services to nursing homes in the local area. 460 F.3d at 854. Approximately 60% of the nursing home patients served by the pharmacy were on Illinois Medicaid—which is jointly funded by the State of Illinois and the Social Security Administration—thus implicating the False Claims Act. Id. Prescriptions would often be returned unused to the pharmacy, for example when a nursing home patient died. Id. at 855. The returned medicine would then be recycled and reused by the pharmacy. Id. However, the pharmacy, which we characterized as “shoddy,” id. at 854, did not properly restock the returned medicine but instead commingled the returned drugs in garbage cans. Id. at 855. In turn, the labels for the reissued medicine did not properly reflect the lot number or expiration date. Id. This type of mislabeling is a violation of federal law and the pharmacy was eventually shut down by the government. Id.
After the pharmacy was shut down, Crews decided to do a little math. She saw that 60% of the pharmacy‘s patients were on Medicaid and that 10 to 20% of the dispensed medications were returned, recycled and reissued by the pharmacy. Id. at 856. Consequently, Crews concluded that 6% to 12% of the recycled medications would have been redistributed to Medicaid patients, resulting in double billing and therefore false claims. Id. However, we rejected this argument because Crews had failed to provide two vouchers representing two separate charges for the same pill. Id. at 857.
The Relators present arguments as to Caremark‘s billing for returned prescriptions fail for the same reason. The Relators allege that they have particularized evidence demonstrating that Caremark billed for prescriptions despite the fact that they were returned. However, like the situation in Crews, the Relators only have one-half of the evidence they need to survive under
The core of the Relators’ failure in this case is caused by their misunderstanding of what is required to bring a cause of action under
Furthermore, a person must knowingly present a false claim to the government for payment or knowingly make a statement in order to receive payment from the government.
It is also important to stop at this point of the discussion and note the scope of our review. We are reviewing the Relators’ proposed third amended complaint to determine whether the Relators have met the requirements of the federal rules. As to this alleged scheme, and as we shall see with all the alleged schemes, the Relators have failed to meet the
The Relators next argue that their proposed third amended complaint satisfies
This allegation also fails because the Relators do not provide any information to satisfy the knowledge requirement of the False Claims Act. There is no evidence in the proposed third amended complaint that Caremark had actual knowledge of this issue or otherwise ignored or disregarded this situation. At best, the “scheme” as currently alleged by the Relators merely rises to a breach of contract dispute between the health plans, the government and Caremark. The Relators’ position taken in relation to this scheme, and permeating throughout this entire case, is effectively that any allegedly inaccurate claim is by definition a false claim. This standard would transform every inaccurate claim into a false claim and consequently replace the Act‘s knowledge requirement with a strict liability standard.
Finally, the Relators alleged three other schemes. They argue that Caremark committed fraud when it refused to substitute a generic for the name brand drug “Prilosec.” The Relators also allege a “Lost in Transit” scheme and a “Turnaround” scheme. The Relators take issue with the district court, arguing that the district court dismissed these claims with a minimal amount of explanation. Yet, the Relators’ brief before this court discusses each scheme over one page each for a total of three pages for all three schemes. The total citation to authority in the three pages of briefing consists of one case from the Eastern District of Pennsylvania. “We repeatedly have made clear that perfunctory and undeveloped argument, and arguments that are not supported by pertinent authority, are waived.” United States v. Hook, 471 F.3d 766, 775 (7th Cir.2006) (citations omitted). As such the Relators’ arguments on these three schemes are waived. Additionally, should we reach the merits, consistent with our previous discussion, the Relators have failed to provide any indication that Caremark knowingly engaging in a fraud.
In conclusion, the Relators’ proposed third amended complaint does not meet the requirements of the federal rules. Therefore, the district court properly exercised its discretion in denying the Relators’ motion to amend their pleading and in dismissing the case.
III. CONCLUSION
The judgment of the district court is AFFIRMED.