United States v. Rite Aid Corp., 2:12-cv-1699-KJM-EFB

UNITED STATES OF AMERICA,and the STATE OF CALIFORNIA, et al., ex relLOYD F. SCHMUCKLEY, JR., Plaintiffs, v. RITE AID CORPORATION, Defendant.

No. 2:12-cv-1699-KJM-EFB

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

January 14, 2020

ORDER

In this qui tam action, Relator Lloyd F. Schmuckley, Jr. and the State of California ("plaintiffs") move to strike defendant's affirmative defenses under Federal Rule of Civil Procedure 12(f). Defendant opposes. For the below reasons, plaintiffs' motion is GRANTED in part and DENIED in part.

I. BACKGROUND

Under the False Claims Act (FCA), a private individual can bring an action known as a qui tam action on behalf of the United States government against any individual or company who has knowingly presented a false or fraudulent claim to the government. United States ex rel. Anderson v. Northern Telecom, 52 F.3d 810, 812-13 (9th Cir. 1995). Here, relator Loyd F. Schmuckley alleges Rite Aid has submitted false claims for reimbursement in prescribing "Code 1" drugs, which may not be reimbursed unless certain requirements are met. First Am. Compl. (FAC) ¶¶ 3, 21, ECF No. 79. Specifically, these Code 1 drugs have restrictions based on patient age or diagnosis that must be met before the appropriate government entity, here Medi-Cal, will reimburse for prescriptions for that medication. Id. ¶ 23. According to Schmuckley, "California regulations explicitly state that the pharmacist must have documentation of the patient's diagnosis, in order for Medi-Cal to reimburse the prescription." Id. ¶ 24.

California intervened in this case on claims under the California FCA (CFCA) and filed its Complaint-In-Intervention, alleging Rite Aid failed to comply with "Code 1 restrictions." Complaint-In-Intervention (CII) ¶ 4, ECF No. 75. More specifically, California alleges that "[f]rom 2007 to 2014, [Rite Aid] knowingly submitted false pharmacy claims to Medi-Cal and expressly and impliedly made false certifications through the Medi-Cal electronic claims submission and reimbursement process." Id. ¶ 6.

Defendant filed a First Amended Answer to Relator's First Amended Complaint ("Relator Answer"), ECF No. 146, and a First Amended Answer to California's Complaint-In-Intervention ("State Answer"), ECF No. 147. Plaintiffs jointly moved to strike all affirmative defenses under Rule 12(f). Mot., ECF No. 158. Defendant opposed, ECF No. 173, and plaintiffs replied, ECF No. 186. The court heard oral argument on the motion on January 25, 2019, and issued a bench order granting plaintiffs' motion to strike the following affirmative defenses (numbered according to defendant's Answer to Relator's Complaint): 5th (good faith), 7th (no treble damages), 8th (no attorney's fees), 10th (denial of actual injury), 13th (compliance with industry standards), and 14th (not willful or knowledgeable). See ECF No. 187. In a joint statement submitted after hearing, the parties asked the court to allow them until July 15, 2019 to meet and confer and prepare a stipulation regarding the 11th affirmative defense in defendant's Answer to Relator's Complaint. ECF No. 188. The court later extended this deadline to February 28, 2020. ECF No. 260. Because the parties are still attempting to agree on this issue, the court declines to resolve it in this order, but instead resolves the remainder of the issues raised in plaintiffs' motion and not addressed at hearing, below.

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II. LEGAL STANDARD

The court may strike "from a pleading an insufficient defense or any redundant, immaterial, impertinent or scandalous matter." Fed. R. Civ. P. 12(f). "A defense may be insufficient as a matter of pleading or as a matter of law." Cal. Brewing Co. v. 3 Daughters Brewing LLC, No. 2:15-cv-02278-KJM-CMK, 2016 WL 4001133, at *1 (E.D. Cal. Jul. 26, 2016) (citation omitted).

A. Affirmative Defenses Generally

"[A]n affirmative defense, under the meaning of Federal Rule of Civil Procedure 8(c), is a defense that does not negate the elements of the plaintiff's claim, but instead precludes liability even if all of the elements of the plaintiff's claim are proven." Barnes v. AT & T Pension Ben. Plan-Nonbargained Program, 718 F. Supp. 2d 1167, 1173 (N.D. Cal. 2010) (citation omitted). "It is a defense on which the defendant has the burden of proof." Id. at 1174. On the other hand, "[a] defense which demonstrates that plaintiff has not met its burden of proof is not an affirmative defense," but a negative defense. Zivkovic v. S. California Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002) (citation omitted). While courts rarely grant Rule 12(f) motions to strike affirmative defenses, if an affirmative defense is, in actuality, a negative defense and should instead be included as a denial in the answer, the motion to strike will be granted. See Barnes, 718 F. Supp. 2d at 1173-1174.¹

B. Insufficiency as a Matter of Pleading

Consistent with the nomenclature, a party must affirmatively state its affirmative defenses. Fed. R. Civ. P. 8(c)(1). Generally, the pleading standard is met if the affirmative defense provides "fair notice." Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979)("The key to determining the sufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense."), overruled on other grounds by Castro v. County of Los Angeles, 833 F.3d 1060 (9th Cir. 2016) (en banc). To provide fair notice, the defendant must "identify the nature and grounds for the affirmative defense, rather than plead a detailed statement of facts upon which the defense is based." Dodson v. Munirs Co., No. CIV. S-13-0399 LKK/DAD, 2013 WL 3146818, at *2 (E.D. Cal. June 18, 2013) (citation omitted). The fair notice standard is a "low bar" that does not require great detail, but requires "some factual basis" for the affirmative defense. Gomez v. J. Jacobo Farm Labor Contractor, Inc., 188 F. Supp. 3d 986, 992 (E.D. Cal. 2016) (citations omitted). Merely referring to the doctrine or statute generally does not provide "fair notice" to the other party, though some courts will accept such references where the defense is well-established. Id. at 992-93 (collecting cases).

Some courts have applied a heightened pleading standard to affirmative defenses since the Supreme Court's articulation of heightened pleading standards for claims in complaints in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), while others apply the more lenient fair notice standard reviewed above. Compare Gencarelli v. Twentieth Century Fox Film Corp., No. 2:17-02818-ODW (AJW), 2018 WL 376664, at *2 (C.D. Cal. Jan. 11, 2018) (Twombly/Iqbal apply to affirmative defenses), and Wang v. Golf Tailor, LLC, No. 17-cv-00898-LB, 2017 WL 5068569, at *4 (N.D. Cal. Nov. 3, 2017) (Twombly and Iqbal apply to affirmative defenses), with Am. GNC Corp. v. LG Electronics Inc., No. 17-cv-01090-BAS-BLM, 2017 WL 4792373, at *2 (S.D. Cal. Oct. 24, 2017) ("fair notice" applies to affirmative defenses), and Neylon v. Cty. of Inyo, No. 1:16-cv-0712 AWI JLT, 2017 WL 3670925, at *2 (E.D. Cal. Aug. 25, 2017) ("fair notice" applies to affirmative defenses). Plaintiffs urge this court to apply the former. See Mot. at 12-13.

Consistent with its previous determinations, the court declines to apply the heightened standard. See, e.g., L.F. by & through Brown v. City of Stockton, No. 2:17-CV-01648-KJM-DB, 2018 WL 3817558, at *2 (E.D. Cal. Aug. 10, 2018) (clarifying court's reasoning regarding decision not to apply heightened standard). The "fair notice" standard therefore guides the court's analysis below.

C. Insufficiency as a Matter of Law

As noted, a motion to strike an affirmative defense is appropriate as a matter of law if the affirmative defense is redundant, immaterial, impertinent or scandalous. Fed. R. Civ. P. 12(f). An allegation is "redundant" if it is needlessly repetitive or wholly foreign to the issues involved in the action. Cal. Dep't. of Toxic Substances Control v. Alco Pac., Inc., 217 F. Supp. 2d 1028, 1033 (C.D. Cal. 2002) (citation omitted). An allegation is "immaterial" if there is no essential or important relationship to the pleaded claims or defenses. Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1528 (9th Cir. 1993) (quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382, at 706-07 (1990)), overruled on other grounds, Fantasy v. Fogerty, 510 U.S. 517 (1994). An allegation is "impertinent" if it consists of statements "that do not pertain, and are not necessary, to the issues in question." Id. An allegation is "scandalous" if it casts a "cruelly derogatory light on a party or other person." In re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 965 (C.D. Cal. 2000). The court applies these standards in evaluating each affirmative defense.

III. DISCUSSION

A. First Affirmative Defense: Failure to State a Claim

Defendant's first affirmative defense states that plaintiffs' complaints "fail[] to state a claim upon which relief may be granted under Federal Rules of Civil Procedure 8 and 9(b)." Relator Answer at 9; State Answer at 25. However, affirmative defenses are meant to "plead matters extraneous to the plaintiff's prima facie case, which deny plaintiff's right to recover, even if the allegations of the complaint are true." Federal Deposit Ins. Co. v. Main Hurdman, 655 F. Supp. 259, 262 (E.D. Cal. 1987) (citing Gomez v. Toledo, 446 U.S. 635, 640-41 (1980)). As plaintiffs correctly asserts, defendant's first affirmative defense challenges plaintiffs' prima facie case and therefore is not properly raised as an affirmative defense. See J & J Sports Prods., Inc. v. Angulo, 2015 WL 5020725, at *2 ("Failure to state a claim is not an affirmative defense, rather it is an assertion of a defect in a plaintiff's prima facie case.") (citation omitted). Additionally, defendant raised this argument in its motion to dismiss, and the court denied themotion on the merits. See ECF Nos. 101, 134. Accordingly, pl...