United States v. Forest Labs.

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UNITED STATES ex rel. DEBORAH SHELDON, Plaintiffs, v. FOREST LABORATORIES, LLC, et al. Defendants.

Civil Action No. ELH-14-2535

United States District Court, D. Maryland

October 22, 2024

MEMORANDUM OPINION

ELLEN LIPTON HOLLANDER UNITED STATES DISTRICT JUDGE

This qui tam case concerns an allegedly fraudulent reporting scheme under the Medicaid Drug Rebate Statute (the “Rebate Statute”). See 42 U.S.C. § 1396r-8.

Pursuant to the False Claims Act (“FCA” or the “Act”), 31 U.S.C. §§ 3729 et seq., and analogous State statutes, Troy Sheldon, as Relator,^[1] filed suit on behalf of the United States as well as numerous states and the District of Columbia (collectively, the “Qui Tam States”),^[2] against his former employer, Forest Laboratories, LLC, as well as Forest Pharmaceuticals, Inc. (collectively, “Forest”). See ECF 16 (“Amended Complaint”).^[3] Sheldon filed the initial Complaint (ECF 1), under seal, on August 11, 2014. See 31 U.S.C. § 3730(b)(2). The Amended Complaint followed on August 30, 2016, and was also filed under seal. ECF 16.

In the 179-page Amended Complaint (ECF 16), Sheldon alleges that between 2005 and 2014, Forest, “a leading manufacturer of pharmaceutical drugs,” defrauded the government and the Qui Tam States of more than $680 million. Id. at 6. In particular, Sheldon claims that Forest failed to include certain customer price concessions in its calculation of “Best Price,”^[4] as that term is defined at 42 U.S.C. § 1396r-8(b)(3)(A)(i)(II) and in related regulations. Id. According to the Relator “Forest paid rebates to two separate customers on the same dispensed drug units provided to the same patient.” Id.; see also id. ¶¶ 60, 61, 66-68. The Relator argues that Forest was obligated to calculate “Best Price” by aggregating, or adding, the two rebates. Id. at 6-7.

The government conducted a lengthy investigation of the allegations, and the suit remained sealed during that period of time. See ECF 17; ECF 21; ECF 23; ECF 24; ECF 26; ECF 30; ECF 33; ECF 35; ECF 37; ECF 39.^[5] Eventually, on September 17, 2019, the United States and the Qui Tam States declined to intervene. ECF 41. Thereafter, on October 16, 2019, the suit was unsealed. ECF 42.

Defendant moved to dismiss the suit, pursuant to Fed.R.Civ.P. 12(b)(6) and Fed.R.Civ.P. 9(b). ECF 72. By Memorandum Opinion and Order of November 6, 2020, I dismissed the Amended Complaint for failure to state a claim. See ECF 86; ECF 87; ECF 92; United States ex rel. Sheldon v. Forest Labs LLC, 499 F.Supp.3d 184 (D. Md. 2020) (Sheldon I).^[6] I concluded that the Relator failed to plead falsity and scienter, as required under the FCA. ECF 92 at 43.^[7]

Forest noted an appeal to the Fourth Circuit. ECF 88. For nearly three years thereafter, the suit wended a tortuous way through the appellate process. The judgment of dismissal was affirmed twice by the Fourth Circuit, first by a divided panel, see United States ex rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 340 (4th Cir. 2022) (Sheldon II), and then, after a rehearing en banc, “by an equally divided court.” United States ex rel. Sheldon v. Allergan Sales, LLC, 49 F.4th 873 (Mem) (4th Cir. 2022) (Sheldon III). On June 30, 2023, the Supreme Court granted certiorari, vacated the judgment of dismissal, and remanded the case to the Fourth Circuit “for further consideration in light of United States ex rel. Schutte v. Supervalu, Inc., 598 U.S. [739] (2023),” which the Supreme Court had decided on June 1, 2023. See United States ex rel. Sheldon v. Allergan Sales, LLC, 143 S.Ct. 2686 (2023) (Sheldon IV).^[8] By Order of August 2, 2023, the Fourth Circuit remanded the case to the District Court, with instructions to reconsider the suit “in light of” Schutte. ECF 100.

Forest has again moved to dismiss the Amended Complaint. ECF 112. The motion is supported by a memorandum (ECF 112-1) and eight exhibits. ECF 112-2 to ECF 112-7 (collectively, the “Motion”). Sheldon opposes the Motion. ECF 117 (“Opposition”). The Opposition is supported by 299 pages of exhibits. ECF 117-1 to ECF 117-8 (collectively, the “Opposition”). Forest has replied. ECF 118 (“Reply”). The Reply is supported by four exhibits. ECF 118-1 to ECF 118-4 (collectively, the “Reply”).

In addition, Forest filed a “Notice of Supplemental Authority,” drawing the Court's attention to a recent announcement by the Centers for Medicare & Medicaid Services (“CMS”). ECF 121 (“Notice”). The Notice is supported by an exhibit containing the announcement by CMS. ECF 121-1 (“Press Release”). Sheldon responded. ECF 122 (“Notice Response”).

In their respective submissions, both sides reference the Supreme Court's decision in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, 467 U.S. at 837 (1984). See, e.g., ECF 112-1 at 23-24; ECF 117 at 27. However, on June 28, 2024, the Supreme Court announced that “ Chevron is overruled.” See Loper Bright Enterprises v. Raimondo, ___ U.S. ___, 144 S.Ct. 2244, 2273 (2024). Therefore, by letter of July 3, 2024 (ECF 125), I invited the parties to address the impact of Loper, if any, on their positions. On July 10, 2024, both parties filed a response addressing the significance of Loper. ECF 126 (Forest); ECF 127 (Sheldon). And, on July 15, 2024, each side filed a reply to the opposing party's supplemental submission. ECF 128 (Forest); ECF 129 (Sheldon).

No hearing is necessary to decide the Motion. See Local Rule 105.6. For the reasons that follow, I shall again grant the Motion and dismiss the case.

I. Factual Background

The Amended Complaint (ECF 16), which was considered by this Court in the Memorandum Opinion of November 6, 2020 (Sheldon I, ECF 86; ECF 92), contains 133 counts.^[9]It remains the operative complaint. Therefore, I shall generally restate here the factual summary presented in my Memorandum Opinion of November 6, 2020. See ECF 86; ECF 92. However, when necessary, I replace citations to exhibits to correspond with the exhibits pertaining to the current Motion.

A. The Parties

Forest was a Delaware limited liability company with its principal place of business in New Jersey. ECF 16, ¶ 9. It manufactured, sold, and distributed prescription drug products in the United States. Id. ¶ 10.

According to the parties, as of January 1, 2018, Forest Laboratories, LLC and Forest Pharmaceuticals, Inc. merged into Allergan Sales, LLC (“Allergan”), and “no longer exist.” ECF 71, ¶ 3. Allergan is the successor in interest to the two Forest entities. Id. By Order of March 3, 2020, Allergan was “substituted as a named defendant” for the Forest entities. ECF 75.^[10] Mr. Sheldon worked for Forest from the 1990s until he was terminated in 2014. ECF 16, ¶ 55. He served “in managerial roles and had responsibilities over billions in revenues [sic] streams, overseeing many sales representatives, and overseeing Pharmacy Provider and GPO [group purchasing organization] account managers.” Id. Moreover, Mr. Sheldon was “directly involved in the launch, marketing and sale of Forest['s]” drugs, which included negotiating discounts, rebates, and other incentives to drug purchasers. Id. Mr. Sheldon claimed that he “ha[d] direct, personal knowledge of the drug rebates and other discounts given to Forest customers that impact the reported Best Price for each drug.” Id. ¶¶ 55, 62.

B. Medicaid Drug Rebate Program

Medicaid is a joint federal-state program that pays for medical expenses for low-income individuals. ECF 16, ¶ 13; see Pharm. Rsch. & Mfrs. of Am. v. Walsh, 538 U.S. 644, 650 (2003). The expenses include prescription drugs. Id.; see 42 U.S.C. § 1396d(a)(12).

Congress enacted the Rebate Statute in 1990^[11] in order “[t]o make sure that Medicaid programs receive ‘the benefit of the best price for which a manufacturer sells a prescription drug to any public or private purchaser.'” Sheldon II, 24 F.4th at 345 (citation omitted); see ECF 16, ¶ 26; Omnibus Budget Reconciliation Act of 1990, 104 Stat. 1388-145 (Nov. 5, 1990). According to the Relator, “the overarching purpose of the Best Price rebate mechanism is to reduce total Medicaid expenditures by giving the government the benefit of purchasing a drug at the lowest price per unit that a manufacturer has actually realized (i.e., received) in selling that drug on the open market.” ECF 16, ¶ 26.

The Rebate Statute defines “Best Price” as follows, 42 U.S.C. § 1396r-8:^[12]

The term “best price” means, with respect to a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for any such drug of a manufacturer that is sold under a new drug application approved under section 505(c) of the Federal Food, Drug, and Cosmetic Act), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States ....

Forest was a participant in the Medicaid Drug Rebate Program (“Rebate Program”). ECF 16, ¶ 12. The Rebate Program implements the provisions of the Rebate Statute. See Medicaid Drug Rebate Program (MDRP), MEDICAID.GOV (February 12, 2024), https://perma.cc/LQ99-E2G9. “Approximately 780 drug manufacturers currently participate in th[e] program.” Id.

State Medicaid programs reimburse health care providers for prescription drugs. ECF 16, ¶ 15. On a quarterly basis, each state submits a claim to the Department of Health and Human Services (“HHS”) “for payment of the federal share of the state's Medicaid spending, including prescription drug reimbursements.” Id.

Drug manufacturers such as Forest usually do not submit claims for reimbursement directly to Medicaid. Id. ¶ 18. Rather, “Forest markets its drug products to its customers, who then purchase the products either directly or through...