United States ex rel. Hirt v. Walgreen Co.

UNITED STATES OF AMERICA, ex rel. ANDREW HIRT, v. WALGREEN COMPANY.

No. 3:13-0870

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION

March 2, 2016

To: The Honorable William J. Haynes, Senior District Judge

REPORT AND RECOMMENDATION

By Order entered October 31, 2014 (Docket Entry No. 27),¹ this action was referred to the Magistrate Judge under 28 U.S.C. § 636(b)(1)(A) and (B) and Rule 72 of the Federal Rules of Civil Procedure. Presently pending is Defendant's motion to dismiss (DE 44), to which Plaintiff has filed a response (DE 47) and Defendant has filed a reply (DE 51). For the reasons set forth below, the Court recommends that Defendant's motion be GRANTED.

I. BACKGROUND

Relator Andrew Hirt filed this qui tam action against Defendant Walgreen Company ("Walgreens") in August of 2013 alleging violations of 42 U.S.C. § 1320a-7b(b) ("Anti-Kickback Statute") and 31 U.S.C. § 3729, et seq. ("False Claims Act"). DE 1. Relator is a resident of Tennessee who owns and operates two pharmacies in the middle Tennessee area. DE 1 at ¶ 4. Inhis initial complaint, Relator alleged that Walgreens has defrauded the United States by offering $25.00 gift cards to Medicare and Medicaid beneficiaries in the middle Tennessee area in an attempt to induce said beneficiaries to switch pharmacies, specifically from Relator's pharmacies to Walgreens pharmacies. DE 1 at ¶¶ 3, 32-33. In response, Walgreens filed a motion to dismiss based on six defenses, including failure to state a claim upon which relief may be granted under Fed. R. Civ. P. 12(b)(6), failure to plead with specificity under Fed. R. Civ. P. 9(b), preclusion under the doctrine of res judicata, and preclusion pursuant to three separate provisions of the False Claims Act. DE 24. After Relator filed an amended complaint in which he (1) added a specific time frame in which Walgreens allegedly induced Medicare and Medicaid beneficiaries to switch pharmacies, November 19, 2012 through August 25, 2014, (2) included the name of his competing pharmacy, Andy's Pharmacy, and (3) cited to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),² DE 29, Walgreens renewed its motion to dismiss on the same six grounds.³ DE 44.

As an initial matter, the parties dispute a fact that Relator alleges to be true in his amended complaint. Relator alleges that Walgreens entered into a Corporate Integrity Agreement ("CIA") with the Department of Health and Human Services ("HHS") in April of 2012, which he claims resolved two separate qui tam lawsuits previously brought against Walgreens, DE 29 at ¶ 10, and that Walgreens subsequently violated this CIA. Id. at ¶¶ 30-31. Walgreens confirms that it settled two previous qui tam actions with the U.S. government, one filed in the Eastern District of Michiganin 2008 and one filed in the Central District of California in 2009, both of which similarly alleged that Walgreens discounted prescription drugs to Medicare and Medicaid beneficiaries by offering $25.00 gift cards to said beneficiaries.⁴ DE 45 at 2-3. Notably, the Michigan complaint dismissed with prejudice the following claims:

[A]ll civil or monetary claims against Walgreens that the United States has under the False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 3801-3812; or the common law theories . . . for the following conduct: Walgreens' allegedly offering and/or providing improper inducements, in the form of gift cards, gift checks, and similar promotions, to the beneficiaries of four government health plans . . . to influence the beneficiaries' decision to transfer prescriptions to Walgreens pharmacies between January 1, 2005 and June 11, 2010[.]

DE 45 at 4; DE 45-3 at ¶ 4; DE 45-4. However, contrary to Relator's assertion, Walgreens states that it did not enter into any CIA as a result of these two qui tam claims. DE 45 at 9-10. Walgreens notes that it instead entered into a CIA with the Office of the Inspector General ("OIG") in June of 2008, nearly four years before it settled the Michigan and California qui tam claims, in an unrelated case involving allegations that Walgreens "substituted different versions of prescribed drugs." Id. Walgreens provides a link to the publicly-available CIA that it entered into with the OIG, which shows that the CIA was executed on June 2, 2008, DE 45 at 9, n.7, and attaches to its brief the accompanying Department of Justice ("DOJ") press release that references the CIA. DE 45-6 at 3. Despite this evidence, Relator maintains in his response, without any citation, that Walgreens entered into a CIA as part of its 2012 settlement of the Michigan and California qui tam claims. DE 47 at 2-3. Relator fails to respond to Walgreens's claim that there was no CIA entered into as part of theApril 2012 settlement, and instead states broadly that the allegations in his amended complaint "all relate to [Walgreens's] actions following this settlement and its breach of the CIA."⁵ Id. at 5. Regardless, because it is undisputed that Walgreens settled the Michigan and California qui tam actions in April of 2012, and Relator argues that Walgreens violated this settlement agreement, it is irrelevant for purposes of the Court's analysis whether a CIA was entered into as part of the 2012 settlement.

Walgreens moves to dismiss Relator's amended complaint based on six grounds: (1) the "public-disclosure" rule of the False Claims Act divests this Court of jurisdiction in light of the government's public resolution of the aforementioned Michigan and California qui tam cases against Walgreens, both of which contain the same allegations against Walgreens that Relator presents in the instant case; (2) the "first-to-file" rule of the False Claims Act divests this Court of jurisdiction in light of the filing of the Michigan and California qui tam cases; (3) the "government-action" rule of the False Claims Act bars Relator's claim because the Michigan and California qui tam cases contained the same allegations; (4) res judicata bars the instant action because these claims have already been litigated, pursuant to the resolution of the Michigan and California qui tam claims; (5) Relator's allegations fail to meet the specificity requirements of Fed. R. Civ. P. 9(b) in light of Relator's failure to allege an actual false claim; and (6) Relator fails to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). DE 44 at 1.

In response, Relator alleges that none of Walgreens's arguments with respect to the False Claims Act or res judicata apply to the instant case because Walgreens continued to engage in the $25.00 gift card operation after the April 2012 resolution of the Michigan and California cases, thereby making the instant action a separate set of allegations. DE 47 at ¶¶ 1-4. Relator also argues that his claims meet the specificity requirement of Fed. R. Civ. P. 9(b), and that his amended complaint properly states claims upon which relief can be granted. Id. at ¶¶ 5-6.

II. STANDARD OF REVIEW

Plaintiffs filing suit under the False Claims Act must meet Fed. R. Civ. P. 9(b)'s heightened pleading standard. U.S. ex rel. Pogue v. Am. Healthcorp, Inc., 977 F. Supp. 1329, 1332 (M.D. Tenn. 1997) (citations omitted). At a minimum, the plaintiff must "allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud." Id. (quoting Coffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993)). The "overarching purpose" of Fed. R. Civ. P. 9(b) is to provide the subject defendant with "fair notice of the claims against [it], in order that [it] may prepare an adequate responsive pleading." Id. (citing Michaels Bldg. Co. v. Ameritrust Co., 848 F.2d 674, 679 (6th Cir. 1988)).

With respect to the public disclosure bar of the False Claims Act, 31 U.S.C. § 3730(e)(4)(a) states in relevant part that the court "shall dismiss an action or claim . . . unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim" were publicly disclosed: (1) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (2) in a congressional, Government Accountability Office, orother Federal report, hearing, audit, or investigation; or (3) from the news media, unless the person bringing the action is an "original source" of the information. This section denies jurisdiction in qui tam actions when publicly disclosed allegations or transactions form the basis for the complaint. Dingle v. Bioport Corp., 388 F.3d 209, 212 (6th Cir. 2004). An allegation "connotes a conclusory statement implying the existence of provable supporting facts." Id. (quoting United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 653-54 (D.C. Cir. 1994)). A transaction can be represented by a formula crafted by the D.C. Circuit, which holds:

If X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.

Id. (quoting Quinn, 14 F.3d at 654). Additionally, qui tam actions "are barred only when enough information exists in the public domain to expose the fraudulent transaction (the combination of X and Y), or the allegation of fraud (Z)." Id. (quoting Quinn, 14 F.3d at 655). An "original source" is 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." 31 U.S.C. § 3730(e)(4)(B). If a qui tam relator cannot establish...