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United States v. Pharmerica Corp.

United States District Court, D. South Carolina, Columbia Division

April 2, 2015

United States of America, et al., Plaintiffs,
PharMerica Corp.; and Kindred Healthcare Inc., Defendants. Ex rel. Frank Kurnik Plaintiff-Relator,


JOSEPH F. ANDERSON, Jr., District Judge.


In this qui tam action, brought under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., as well as under similar laws in twenty-eight states, the District of Columbia, and the city of Chicago under their respective state and local false claims acts, Frank Kurnik ("Kurnik") asserts claims of fraud on the Government by PharMerica Corp ("PharMerica") and Kindred Healthcare Inc. ("Kindred") (collectively "Defendants")[1]. Kurnik filed his original complaint on June 14, 2011 and his operative amended complaint on April 24, 2014. Kurnik alleges that Defendants solicited and received illegal kickbacks from Amgen, Inc. ("Amgen")-in multiple forms of remuneration-to induce physicians to switch patients from the drug Procrit to the drug Aranesp. This alleged kickback scheme resulted in false claims to the Government when PharMerica failed to disclose the true nature of its Amgen arrangements to Medicare and Medicaid; and as a result, the arrangements were not protected by the discount safe harbor to the Medicare Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (the "Anti-Kickback Statute"). Kurnik further alleges that Defendants assisted Amgen in its systematic and illegal misbranding of the drug Aranesp through off-label marketing and violations of continuing medical education rules and regulations, inter alia, by controlling speaker programs. According to Kurnik, the misbranding of Aranesp, in violation of the Food, Drug, and Cosmetics Act, 21 U.S.C. §§ 301, et seq., caused unlawful prescriptions of Aranesp to be submitted for payment by federal, state and municipal health care payors.

On January 13, 2015, Defendants filed the instant motion to dismiss alleging for the first time that the Court lacks subject-matter jurisdiction over Kurnik's claims under the first-to-file rule of the FCA, 31 U.S.C. § 3730(b)(5), which states "[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." The Defendants argue that a qui tam action in Wisconsin, filed by relator Jennifer Denk, was pending when Kurnik filed his complaint and alleged the same material elements of fraud against PharMerica.[2]

On March 18, 2015, the Court heard oral arguments on the motion to dismiss. For the reasons that follow, the Court denies the Defendants' Motion to Dismiss and finds that the Court possesses subject-matter jurisdiction over Kurnik's claims.


a. The Denk Complaint

On July 23, 2009, relator, Jennifer Denk ("Denk"), filed a qui tam action against PharMerica in the United States District Court for the Eastern District of Wisconsin styled United States ex rel. Denk v. PharMerica Corp., Civil Action No. 09-cv-00720-CNC (E.D. Wis.), alleging violations of the FCA (the "Denk Action"). Denk's original complaint alleged, inter alia, that PharMerica dispensed medications without a legally valid prescription from a physician, which Denk maintained resulted in PharMerica's submission of false claims to Medicare Part D and Medicaid.

Denk filed an amended complaint ("the Denk Complaint") on January 1, 2010. The Denk Complaint added new allegations that PharMerica "arranged for access/performance rebates from drug manufacturers" and accepted lavish meals in exchange for steering patients to pharmaceutical products, both inducing PharMerica to prefer the manufacturer's product. Denk explained that upon information and belief, PharMerica failed to disclose the details of its rebate arrangements and dinner events to "Part D Sponsors, Medicare, Medicaid, the patients receiving the drugs or the doctors prescribing the drugs." As a result, the arrangements were not protected by the discount safe harbor to the Anti-Kickback Statute and resulted in the submission of false claims to the Government.

The Defendants represent to the Court that in 2010, after Denk filed her complaint, and before Kurnik initiated this action, the Government began to conduct an investigation into PharMerica's rebate arrangements with pharmaceutical manufacturers and its recommendation of preferred products through therapeutic interchange programs. On May 28, 2013, after almost a three-year investigation, the Government notified the Wisconsin court of its decision not to intervene with respect to Denk's kickback claims, but to intervene with respect to Denk's claims related to dispensing medicine based on inadequate prescriptions. The Government filed its Complaint in Intervention against PharMerica with respect to these claims on August 9, 2013. Importantly, Denk voluntarily dismissed her kickback claims without prejudice on November 20, 2013. The Wisconsin court administratively closed the Denk Acton on September 26, 2014.[3]

b. The Kurnik Complaint

Kurnik filed his original complaint in this action under seal on June 14, 2011. The Government declined to intervene as to PharMerica and the complaint was unsealed on November 26, 2013. Kurnik filed the operative amended complaint (the "Kurnik Complaint") on April 24, 2014.

In short, the Kurnik Complaint alleges fraudulent schemes carried out by the Defendants that (1) included accepting and soliciting kickbacks from Amgen for switching nursing home patients from Procrit to Aranesp in violation of the Anti-Kickback Statute; and (2) aiding and/or conspiring with Amgen to misbrand Aranesp, in violation of the Food, Drug, and Cosmetics Act, 21 U.S.C. §§ 301, et seq., causing unlawful prescriptions of Aranesp to be submitted for payment by federal, state and municipal health care payors.

Concerning the kickback claims, the Kurnik Complaint alleges more than just rebates and dinners, as alleged in the Denk Complaint, and informs the Government that Defendants "solicited and received remuneration from Amgen Inc. in the form of purported discounts, purported market-share rebates, grants, honoraria, speakers fees, consulting services, dinners, travel, or fees for the purchase of data" and this remuneration induced PharMerica to prefer Aranesp over Procrit.


The FCA imposes civil liability on persons who knowingly submit false claims to the Government. 31 U.S.C. §§ 3729, et seq. To that end, the FCA establishes a process that permits a private citizen, who becomes a relator, to initiate a civil action known as a qui tam against perpetrators of fraud. See 31 U.S.C. § 3730(b). While encouraging whistleblowers, however, the FCA also "seeks to prevent parasitic lawsuits based on previously disclosed fraud." U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 184 (4th Cir. 2013) cert. granted sub nom. Kellogg Brown & Root Servs., Inc. v. U.S. ex rel. Carter, 134 S.Ct. 2899, 189 L.Ed.2d 853 (2014) (hereinafter " Carter II "). "To reconcile these conflicting goals, the FCA has placed jurisdictional limits on its qui tam provisions, " including the first-to-file rule, 31 U.S.C. § 3730(b)(5), which parties raise under a Rule 12(b)(1) motion to dismiss. Id.

Under the first-to-file rule, "[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5). In other words, if one person "brings an action" then no one other than the Government may "bring a related action" while the first is "pending." The Fourth Circuit has described the first-to-file bar as "an absolute, unambiguous exceptionfree rule." Carter II, 710 F.3d at 181. "Therefore, whoever wins the race to the courthouse prevails and the other case must be dismissed" if application of the first-to-file rule commands. Id.

Subject-matter jurisdiction of an FCA claim through a Rule 12(b)(1) motion to dismiss may be challenged in one of two ways. First, a party may launch a facial attack by contending "that a complaint simply fails to allege facts upon which subject-matter jurisdiction can be based." Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). If a complaint is attacked facially for lack of subject-matter jurisdiction, "all the facts alleged in the complaint are assumed to be true and the plaintiff, in effect, is afforded the same procedural protection as he would receive under a Rule 12(b)(6) consideration." Id.

Alternatively, one may contend that the complaint's jurisdictional allegations simply are not true or that other facts, outside the four corners of the complaint, preclude the exercise of subject-matter jurisdiction. See id.; see also Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009). In such a factual attack of the complaint's jurisdictional allegations, the plaintiff carries the burden of proving subject-matter jurisdiction. Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). In that situation, a court may "go beyond the allegations of the complaint and in an evidentiary hearing determine if there are facts to support the jurisdictional allegations." Adams, 697 F.2d at 1219. Further, the presumption of truthfulness does not apply, and this Court may decide disputed issues of fact related to subjectmatter jurisdiction. Kerns, 585 F.3d at 192.

Here, the Defendants launch a factual attack on the Kurnik Complaint's jurisdictional allegations. Defendants argue that because of the first-to-file rule of the FCA, other facts outside the four corners of the Kurnik Complaint preclude the Court's exercise of subject-matter jurisdiction. Therefore, whether the first-to-file rule bars Kurnik's claims depends on a comparison of the date and content of the Kurnik pleadings with the date and content of the Denk pleadings. See U.S. ex rel. Palmieri v. Alpharma, Inc., 928 F.Supp.2d 840, 848 (D. Md. 2013) (emphasis added); In re Natural Gas Royalties Qui Tam Litig. (CO2 Appeals), 566 F.3d 956, 964 (10th Cir. 2009) ("The first-to-file bar is designed to be quickly and easily determinable, simply requiring a side-by-side comparison of the complaints."); see also Anderson v. Fed. Deposit Ins. Corp., 918 F.2d 1139, 1141 n.1 (4th Cir. 1990) (stating, in context of Rule 12(b)(1) motion to dismiss, "a district court should properly take judicial notice of its own records").

Additionally, when determining whether the first-to-file rule bars a subsequently filed complaint, the Court must examine both complaints on a "claim by claim" basis. U.S. ex rel. LaCorte v. SmithKlineBeecham Clinical Labs., Inc., 149 F.3d 227, 235-36 (3rd Cir. 1998); U.S. ex rel. Davis v. Prince, 753 F.Supp.2d 569, 579 (E.D. Va. 2011).


a. Temporal Analysis under the FCA First-to-File Rule

To determine if a claim is barred by the first-to-file rule, this Court first must determine if the earlier filed claim was "pending" when the later filed claim was brought. U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 920 (4th Cir. 2013). The Fourth Circuit has stated that the "pending" analysis focuses on "facts as they existed when the claim was brought to determine whether an action is barred by the first-to-file bar." Carter II, 710 F.3d at 183.

Courts commonly find it helpful to consider the rulings of sister courts when those rulings address issues nearly identical to issues pending before this Court; and, while they carry no precedential value, such determinations can offer persuasive reasoning. For that reason, the Court finds extremely persuasive the FCA first-to-file analysis of our sister court in Maryland, U.S. ex rel. Palmieri v. Alpharma, Inc., 928 F.Supp.2d 840 (D. Md. 2013).

The Palmieri court held that it had subject-matter jurisdiction over Mr. Palmieri's FCA action because the first-to-file rule no longer barred his claims when he filed an amended complaint after similar claims were voluntarily dismissed in the first-filed United States ex rel. Littlewood v. King Pharmaceuticals, Inc., Civ. No. ELH-10-973 (D. Md.). Palmieri, 928 F.Supp.2d at 850. Specifically, the Littlewood relator voluntarily dismissed the relevant claims on August 17, 2011 and Mr. Palmieri amended his complaint on October 25, 2011; thus, Mr. Palmieri persuasively argued that his claims in his amended complaint were not barred because the Littlewood relator, after the Government declined to intervene, chose not to exercise her right to individually litigate the claims. Id. at 849.

The Palmieri defendants countered and argued that "by the plain text of 31 U.S.C. § 3730(b)(5), the first-to-file rule applies at the time when a second relator brings' an action that is related to a pending qui tam case." Id. at 850. Therefore, they continued, the jurisdiction of the [c]ourt depends upon the state of things at the time of the action brought, ' [and] a court determines whether the first-to-file rule bars a qui tam action by looking at the facts as they existed at the time that action was brought.' Id. (quoting Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 (10th Cir. 2004)); see also Carter II, 710 F.3d at 183 (The Fourth Circuit decided Carter thirteen days after the Maryland court issued its Palmieri decision).

The Palmieri court disagreed with the defendants. To begin, Judge Ellen Lipton Hollander acknowledged that if Mr. Palmieri did not file an amended complaint after the Littlewood first-filed claims were dismissed, then the first-to-file rule would bar Mr. Palmieri's claims.[4] Id. Nevertheless, Judge Hollander explained that the amended complaint was a subsequent event of jurisdictional significance. Id. Primarily relying on a Seventh Circuit case, Judge Hollander continued and reasoned that the first-to-file bar "applies only while the initial complaint is pending." Id. (quoting U.S. ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 365 (7th Cir. 2010)). Further,

[i]n Chovanec, the Seventh Circuit approved the district court's dismissal of a qui tam suit because of the first-to-file bar, but held that the dismissal should have been without prejudice.... [T]he appellate court... [stated that] because the firstfiled qui tam action was no longer pending the relator is entitled to file a new qui tam complaint-entitled, that is, as far as § 3730(b)(5) goes.... [B]ecause Chovanec may be able to frame a new complaint that would survive a motion to dismiss... the current proceeding should have been dismissed without prejudice. Indeed, on remand the district court in Chovanec permitted the relator to file an amended complaint, in lieu of dismissal of the suit.

Id. (internal citations omitted) (emphasis in original).[5]

Judge Hollander also found the Tenth Circuit's discussion in In re Natural Gas Royalties, 566 F.3d at 964, persuasive and quoted:

[i]f the first-to-file bar had been meant simply as a more draconian public disclosure bar, Congress would not have limited it to "pending" actions. While filing the complaint might put the government on notice, and while the government might remain on notice while the action is pending, the government does not cease to be on notice when a relator withdraws his claim or a court dismisses it. And yet, if that prior claim is no longer pending, the first-to-file bar no longer applies. The "pending" requirement much more effectively vindicates the goal of encouraging relators to file; it protects the potential award of a relator while his claim remains viable, but, when he drops his action another relator who qualifies as an original source may pursue his own.

Id. at 851. Finally, Judge Hollander held that an amended complaint is jurisdictionally relevant in the context of the first-to-file rule and explained that:

[T]he Supreme Court, in a False Claims Act case... has indicated that an amended complaint is jurisdictionally relevant. In Rockwell International Corp. v. United States, 549 U.S. 457, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007), the Court held that an amended complaint had to satisfy the jurisdictional requirement that a qui tam claim not be based on publicly disclosed material unless the relator is an original source, regardless of whether the original complaint had cleared the public disclosure bar. The Court said that, "when a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts look to the amended complaint to determine jurisdiction." Id. at 473-74, 127 S.Ct. 1397. It added: "The rule that subject-matter jurisdiction depends on the state of things at the time of the action brought, ' does not suggest a different interpretation." Id. at 473, 127 S.Ct. 1397 (internal citation omitted).


Importantly, Palmeiri distinguished United States ex rel. Carter v. Halliburton Co., No. 1:11cv602, 2011 WL 6178878 (E.D. Va. Dec. 12, 2011) (hereinafter " Carter I ") by explaining that the prior case that barred Carter I was dismissed before the court ruled, and the relator had not filed an amended complaint. Carter I was reversed and remanded on other grounds by the Fourth Circuit thirteen days after the Palmieri decision. See Carter II, 710 F.3d at 184. However, Palmieri 's distinguishing characteristics of Carter I remain constant despite the procedural history. On another relevant note, in Carter II, the Fourth Circuit relied both on Chovanec and on In Re Natural Gas Royalties; however, Carter I/II did not involve the same procedural history present in Palmieri and in the instant action.

Here, following the holding in Palmieri, Kurnik filed his operative amended complaint, the Kurnik Complaint, on April 24, 2014, a time when Denk's kickback claims were no longer pending, as she dismissed these claims on November 20, 2013. If this Court were to dismiss Kurnik's kickback claims, it would do so without prejudice, and the FCA first-to-file rule would not preclude Kurnik from filing an identical pleading under a new case number tomorrow, as Carter II, [6] Chovanec, and In Re Natural Gas Royalties make clear. Chovanec is especially persuasive in the instant action because it is binding on the Denk Action, as Wisconsin falls under the Seventh Circuit. And, as noted above, on remand, the district court in Chovanec permitted the relator to file an amended complaint in lieu of dismissal. Furthermore, this Court finds that allowing Kurnik's claims to survive does not run afoul of the policy behind the FCA because it does not threaten Defendants with double recovery, as Denk voluntarily dismissed her kickback claims and thus, never recovered from PharMerica on such claims.

b. Material elements of fraud

In light of the Court's resolution of the instant motion to dismiss under the "pending" analysis, discussed supra, a comparison of the Denk Complaint with the Kurnik Complaint is not necessary.[7]


Accordingly, the Court DENIES Defendants' Motion to Dismiss, ECF No. 187. In light of the fact that this case has been pending for more than three years, the parties shall continue to comply with all deadlines in accordance with the scheduling order issued by this Court on December 23, 2014.


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