United States District Court, E.D. Pennsylvania
UNITED STATES OF AMERICA ex rel. SHAWN BATES et al.
DENTSPLY INTERNATIONAL, INC
HARVEY BARTLE, III, District Judge.
Plaintiffs-relators Shawn Bates, Edward Josefoski, and Roberta Lesser ("relators") have sued defendant Dentsply International, Inc. ("Dentsply") in this qui tam action on behalf of the United States for violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729, as well as on behalf of numerous states and municipalities under their respective false claims statutes. Relators also include claims for conspiracy and retaliation and under the Pennsylvania Whistleblower Law, 43 Pa. Cons. Stat. Ann. § 1421. Finally, two of the relators allege wrongful termination under Pennsylvania law.
Before the court is the motion of Dentsply to dismiss relators' second amended complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim.
When ruling on a Rule 12(b)(6) motion to dismiss generally, the court must accept as true all factual allegations in the complaint and draw all inferences in the light most favorable to the plaintiff. Phillips v. Cnty. of Allegheny , 515 F.3d 224, 233 (3d Cir. 2008); Umland v. Planco Fin. Servs., Inc. , 542 F.3d 59, 64 (3d Cir. 2008). We must then determine whether the pleading at issue "contain[s] sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570 (2007)). A claim must do more than raise a "mere possibility of misconduct.'" Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir. 2009) (quoting Iqbal , 556 U.S. at 679). Under this standard, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 578.
Under Rule 9(b), if a complaint alleges fraud, "a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." The purpose of Rule 9(b)'s particularity requirement is to "place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southmost Mach. Corp. , 742 F.2d 786, 791 (3d Cir. 1984). To meet this burden, our Court of Appeals has explained that the complaint must supply "all of the essential factual background that would accompany the first paragraph of any newspaper story'- that is, the who, what, when, where and how' of the events at issue." In re Rockefeller Ctr. Props., Inc. Sec. Litig. , 311 F.3d 198, 217 (3d Cir. 2002) (quoting In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1422 (3d Cir. 1997)).
However, as it pertains to allegations under the FCA, our Court of Appeals recently concurred with the First, Fifth, and Ninth Circuits in holding that it is sufficient for a plaintiff to allege "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Foglia v. Renal Ventures Management, LLC, No. 12-4050, 2014 U.S.App. LEXIS 10549, *8 (3d Cir. June 6, 2014); contra United States ex rel. Noah Nathan v. Takeda Pharms. N. Am., Inc. , 707 F.3d 451, 455-56 (4th Cir. 2013); United States ex rel. Bledsoe v. Cmty. Health Sys., Inc. , 501 F.3d 493, 510 (6th Cir. 2007). The court explained that requiring "representative samples' of the alleged fraudulent conduct, specifying the time, place, and content of the acts and the identity of the actors" "would be one small step shy of requiring production of actual documentation with the complaint, " and would "undermin[e] the FCA's effectiveness as a tool to combat fraud against the United States. Id . at *7 (citing Grubbs v. Kanneganti , 565 F.3d 180, 190 (5th Cir. 2009) and Brief for the United States as Amicus Curiae at 10-11, United States ex rel Noah Nathan v. Takeda Pharms. N. Am., Inc., Civil Action No. 12-1349, 2014 WL 1271321 (2014)).
In Foglia, the qui tam plaintiff was a registered nurse previously employed by the defendant, a dialysis care services company. The plaintiff alleged that the defendant violated the FCA by falsely certifying that it was in compliance with state regulations regarding quality of care when it falsely submitted claims for reimbursement for the drug Zemplar and reused single-use Zemplar vials. The trial court ruled that Foglia's claims must be dismissed because he failed to "provide a representative sample' or to identify representative samples of specific false claims made to the Government.'" Id . at *3. Our Court of Appeals, reversing the District Court's ruling, held that the more "nuanced" approach to Rule 9(b) followed by the First, Fifth, and Ninth Circuits was appropriate. As such, Foglia provided sufficient facts to meet the requirements under Rules 9(b) and 12(b)(6) when he alleged that the defendant's inventory logs showed that less Zemplar was used than would be required if it were used in the single use fashion and that the defendant did not follow the proper procedures to reuse extra Zemplar from the already-opened vials.
We accept the following factual allegations contained in the second amended complaint as true and draw all inferences in the light most favorable to relators.
Defendant Dentsply is the world's largest designer, developer, manufacturer, and marketer of a broad range of professional dental products including laboratory and specialty products. Dentsply serves a full array of dental product needs, including preventive, orthodontics, restorative, endodontics, prosthetics and implants. Dentsply's net sales exceeded $2.5 billion in 2011.
Relator Shawn Bates was employed by Dentsply in its Implant Sales Division as a Senior Regional Sales Manager in Virginia. Bates, a decorated military veteran, at all times maintained an excellent job performance rating. In 2012, shortly after becoming a Senior Regional Sales Manager, Bates approached the company's management with concerns about the improper use of rewards and incentives to induce dental professionals to purchase Dentsply products. In May, 2013, Bates was terminated by the company.
Relator Edward Josefoski was employed by Dentsply in its Implant Sales Division as a District Sales Manager in Pennsylvania. At all times he maintained an excellent job performance rating. In 2012 Josefoski reached out to the company's management to address certain concerns relating to inaccuracies in Dentsply's sales data. In August, 2013, Josefoski resigned from his job.
Relator Roberta Lesser is currently employed by Dentsply. She is in its Implant Sales Division as a District Sales Manager in Massachusetts.
The federal and state governments, through the Medicare and Medicaid programs, are among the principal purchasers of Dentsply's products. Numerous hospitals run by the United States Veterans Administration likewise buy products and goods from Dentsply. In fact, Dentsply has a division that is solely dedicated to addressing government sales called the Dentsply Federal Government Division.
In June, 2013, a Dentsply manager circulated an email which stated that the attached flyer featuring the entire Dentsply portfolio of products would be circulated to 2, 500 government contacts. Relators allege that Dentsply has signed at least hundreds of contracts with the United States government for various products and services, including a recently-announced $35 million contract modification to provide general dental supplies to the United States military. According to relators, a large proportion of dental patients for whom Dentsply products are used are insured by Medicare, Medicaid, or other government-sponsored programs.
Relators maintain that in order to increase its profits, Dentsply created a complex array of monetary incentives, including cash payments, free travel, and other benefits, for dental healthcare providers, such as dentists, who use its products. None of the incentives, according to relators, is intended to produce, and none of them does produce, any scientific information or research. For example, the second amended complaint asserts that a Dentsply promotional brochure from October 2011 advertised to dental professionals that if they purchased 100 dental implants at full price from Dentsply, they would receive an all-expenses paid trip to a symposium in Hamburg, Germany. Moreover, at ...