In an opinion issued on March 31, 2017, District Judge Jesse M. Furman of the Southern District of New York substantially denied defendant Allergan, Inc.’s motion to dismiss claims arising under the False Claims Act (“FCA”) and state statutory analogs, in litigation captioned United States ex rel. Wood v. Allergan, Inc., No. 10-cv-5645 (JMF) (S.D.N.Y). This decision (Dkt. 112) let stand a former employee’s whistleblower claims that Allergan, between 2003 and 2011, provided hundreds of millions of dollars’ worth of illegal kickbacks to induce prescribing of its cataract surgery drugs. In a thorough 89 page ruling, the Court addressed numerous issues in applying the provisions of the FCA.
Factual Background of Relator’s Claims
Relator Wood, a former Allergan sales representative, alleges that, from 2003 to 2011, Allergan engaged in a kickback scheme intended to induce physicians across the country to prescribe Allergan’s brand name cataract surgery-related prescription drugs, which included the topical steroid Pred Forte®, anti-infectives such as Zymar® and Zymaxid®, and non-steroidal anti-inflammatories such as Acular®, Acular LS® and Acuvail®.
The federal Anti-Kickback Statute (“AKS”) prohibits the offering of any type of incentive to a doctor in order to influence his or her prescribing behavior. Relator Wood alleges that, during the years at issue, Allergan used free patient instruction sheets, cataract surgery Custom Care Kits (CCKs) containing “free” prescriptions of multiple Allergan eye care products, and pre-printed prescription pads for Allergan drugs that advertised the ophthalmologists’ clinics to induce them to prescribe the company’s brand name drugs instead of either competing brand name drugs or generics. Relator Wood was fired by Allergan after blowing the whistle on the kickback scheme in 2010. When his FCA case was filed that same year, it was third-filed; however, the first- and second-filed cases were under seal at the time and were subsequently dismissed after the Government declined to intervene.
Certain Highlights of the Court’s Ruling
- The Court rejected Allergan’s argument that Relator Wood’s Third Amended Complaint should be dismissed under the public disclosure bar, holding that there could not be a “public” disclosure where the two earlier-filed cases were under seal. 112 at 15-16.
- With regard to the “first-to-file” bar, the Court ruled that the Wood action is “related” to the two earlier-filed (and already dismissed) actions for purposes of the FCA’s first-to-file bar, 31 U.S.C. § 3730(b)(5) but found that bar is non-jurisdictional. The Court held that “[t]he more sensible approach, supported by the language and structure of the FCA, is to treat the first-to-file rule as a non-jurisdictional (albeit mandatory) rule.” 112 at 24. The Court rejected defendant’s arguments that Wood must dismiss and refile his complaint, holding that “the structure and purpose of the FCA generally, and the first-to-file rule specifically, call for allowing a relator in Wood’s circumstances to avoid dismissal by amending or supplementing his complaint” because “[t]here can be no dispute that the primary purpose of the FCA is to permit the Government to recover for fraud inflicted upon it.” Id. at 27. According to the Court, “[t]he text and structure of the statute thus suggest that the primary, if not sole, purpose of the first-to-file rule is to help the Government uncover and fight fraud.” Id. at 29. The Court further held that “the first-to-file defect in the original [Wood] complaint was cured by the filing of the Third Amended Complaint after the earlier-filed actions had been dismissed.” Id. at 88.
- In ruling on the applicable statute of limitations, the Court adopted the reasoning of Judge Lamberth in United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 474 F. Supp. 2d 75, 85 (D.D.C. 2007) and held that the FCA permits claims by private relators to be brought for up to ten years depending on when the relevant facts are known or should be known to the official of the United States charged with responsibility to act. 112 at 34-37, 88 (citing 31 U.S.C. § 3731(b)(2)).
- The Court also rejected Allergan’s argument that Wood’s initial complaint should be treated as a “legal nullity” because it was filed in violation of the first-to-file rule and that for statute of limitations purposes Wood’s Third Amended Complaint filed in 2016 could not relate back to his initial complaint filed in 2010. 112 at 39. The Court reasoned that Fed. R. Civ. P. 15(c)(1)(B) applies to the question of whether the Third Amended Complaint “relates back” to the original complaint. Thus, even though the original complaint was filed under seal and in violation of the “first-to-file” rule, none of Wood’s claims would be dismissed as time barred “because [the Third Amended Complaint] merely expands on the claims alleged in the initial pleading.” Id. at 88.
- The Court rejected Allergan’s contention that the free drugs, surgical kits and office supplies provided to ophthalmologists were not actionable “remuneration” under the AKS, holding that “the Court cannot say as a matter of law, let alone at this stage of the litigation, that Allergan’s provision of millions of free samples [as well as medical supplies, free patient instruction sheets and prescription pads] to cooperating physicians did not constitute ‘remuneration.'” 112 at 45.
- The Court rejected Allergan’s interpretation of the Supreme Court’s recent decision in Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). Among other things, the Court found that “Wood alleges at least two viable theories of liability under the FCA: express certification of compliance with the AKS for Medicare Part D claims and implied certification of compliance with the AKS for non-Part D Medicare, Medicaid, and TRICARE/CHAMPUS claims.” 112 at 88. The Court also rejected out of hand Allergan’s argument that there could be no false claims submitted by unwitting pharmacists, cautioning that it “borders on frivolous.” Id. at 62.
- The Court held that Wood’s allegations met the specificity requirements of Fed. R. Civ. P. 9(b) for pleading fraud with specificity, finding that Wood had identified a “multitude of specific physicians and healthcare centers who received alleged kickbacks from Allergan, including the type and amount of remuneration, and – for many physicians – the corresponding number of Allergan drug prescriptions written.” 112 at 69. Wood’s allegations thus establish “a relationship between the kickbacks and the prescription of Allergan drugs.” Id. at 72. Specifically, the Court held that “Wood’s core claims under 31 U.S.C. § 3729(a)(1)(A) and (a)(1)(B) satisfy the heightened pleading requirements of Rule 9(b) with respect to Medicare, Medicaid, and TRICARE/CHAMPUS and may proceed.” Id. at 88. In addition, the Court rejected Allergan’s argument that Wood had failed to allege a multi-state, multi-year scheme with particularity, finding that the Third Amended Complaint “includes evidence that the alleged scheme was implemented nationwide by Allergan’s sales team and corporate officials ….” Id. at 77. To the extent that Wood was required by Escobar to have alleged that violations of the AKS were “material to the Government’s payment decisions, the allegations of the Third Amended Complaint plainly suffice. Allergan certainly knew that violation of the statute carried substantial penalties, and Allergan’s own internal documents required employees to comply with the statute.” Id. at 78.
- With regard to Wood’s twenty-four state law claims, the Court denied Allergan’s motion in its entirety, except that it limited claims under nine states to Allergan’s conduct after the effective date of the statutes at issue (a position Wood did not oppose). 112 at 86, 89. The Court also allowed Wood’s retaliation claims to go forward, holding he had alleged a plausible claim of unlawful retaliation under 31 U.S.C. § 3730(h), “as he was terminated just after internally reporting purported violations of federal law.” Id. at 89.
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