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United States ex rel. Wlochowski v. Merck & Co., Inc.

United States District Court, E.D. Pennsylvania

September 5, 2014

UNITED STATES OF AMERICA, ex rel. STEPHEN A. KRAHLING AND JOAN A. WLOCHOWSKI, Relators,
v.
MERCK & CO., INC., Defendant

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For UNITED STATES OF AMERICA, EX REL. (2:10-cv-04374-CDJ), Plaintiff: GERALD B. SULLIVAN, LEAD ATTORNEY, ASSISTANT U.S. ATTORNEY - U.S. ATTY'S OFFICE, PHILADELPHIA, PA; JOEL M. SWEET, MARGARET L. HUTCHINSON, LEAD ATTORNEYS, U.S. ATTORNEY'S OFFICE, PHILADELPHIA, PA; JOEL C. MEREDITH, MEREDITH & NARINE, PHILADELPHIA, PA.

For STEPHEN A. KRAHLING, JOAN A. WLOCHOWSKI (2:10-cv-04374-CDJ), Plaintiffs: DANIEL B. ALLANOFF, LEAD ATTORNEY, MEREDITH COHEN GREENFOGEL & SKINICK PC, PHILADELPHIA, PA; GORDON SCHNELL, MARLENE KOURY, LEAD ATTORNEYS, PRO HAC VICE, CONSTANTINE CANNON LLP, NEW YORK, NY; JASON ENZLER, LEAD ATTORNEY, PRO HAC VICE, CONSTANTINE CANNON LLP, WASHINGTON, DC; JEFFREY F. KELLER, KATHLEEN R. SCANLAN, LEAD ATTORNEYS, PRO HAC VICE, KELLER GROVER LLP, SAN FRANCISCO, CA; JOEL C. MEREDITH, LEAD ATTORNEY, MEREDITH & NARINE, PHILADELPHIA, PA; ROBERT L. BEGLEITER, LEAD ATTORNEY, PRO HAC VICE, SCHLAM STONE & DOLAN, NEW YORK, NY.

For MERCK & CO. (2:10-cv-04374-CDJ), Defendant: DINO S. SANGIAMO, LEAD ATTORNEY, SALLY W. BRYAN, LEAD ATTORNEY, PRO HAC VICE, VENABLE LLP, BALTIMORE, MD; ERIC W. SITARCHUK, LISA DYKSTRA, MORGAN LEWIS & BOCKIUS LLP, PHILADELPHIA, PA.

For CHATOM PRIMARY CARE, P.C., ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED (2:12-cv-03555-CDJ), Plaintiff: ANDRA WANIEK, LEAD ATTORNEY, PRO HAC VICE, LABATON SUCHAROW LLP, NEW YORK, NY; BERNARD PERSKY, LEAD ATTORNEY, ELIZABETH L. FRIEDMAN, HOLLIS L. SALZMAN, KELLIE LERNER, LEAD ATTORNEYS, PRO HAC VICE, ROBINS KAPLAN MILLER & CIRESI LLP, NEW YORK, NY; JAMES B. ZOURAS, RYAN F. STEPHAN, LEAD ATTORNEYS, STEPHAN ZOURAS LLP, CHICAGO, IL; M. STEPHEN DAMPIER, LEAD ATTORNEY, THE DAMPIER LAW FIR PC, FAIRHOPE, AL; RICHARD M. GOLOMB, LEAD ATTORNEY, STEVEN D. RESNICK, GOLOMB & HONIK PC, PHILADELPHIA, PA; JAYNE A. GOLDSTEIN, POMERANZ LLP, WESTON, FL; JEFFREY L. KODROFF, SPECTOR ROSEMAN KODROFF & WILLIS, P.C., PHILADELPHIA, PA; LEE ALBERT, GLANCY BINKOW & GOLDBERG LLP, NEW YORK, NY; NATALIE FINKELMAN BENNETT, SHEPHERD FINKELMAN MILLER & SHAH LLC, MEDIA, PA; ROBERT S. KITCHENOFF, WEINSTEIN KITCHENOFF & ASHER LLC, PHILADELPHIA, PA.

For DR. ANDREW KLEIN (2:12-cv-03555-CDJ), Plaintiff: JAMES B. ZOURAS, RYAN F. STEPHAN, LEAD ATTORNEYS, STEPHAN ZOURAS LLP, CHICAGO, IL; JOHN A. MACORETTA, MARY ANN GEPPERT, WILLIAM G. CALDES, LEAD ATTORNEYS, SPECTOR ROSEMAN KODROFF & WILLIS, P.C., PHILADELPHIA, PA; BRIAN D. PENNY, GOLDMAN SCARLATO KARON & PENNY PC, WAYNE, PA; HOLLIS L. SALZMAN, ROBINS KAPLAN MILLER & CIRESI LLP, NEW YORK, NY; JAYNE A. GOLDSTEIN, POMERANZ LLP, WESTON, FL; ALBERT, GLANCY BINKOW & GOLDBERG LLP, NEW YORK, NY; NATALIE FINKELMAN BENNETT, SHEPHERD FINKELMAN MILLER & SHAH LLC, MEDIA, PA.

For JOHN I. SUTTER, M.D. (2:12-cv-03555-CDJ), Plaintiff: JAMES B. ZOURAS, RYAN F. STEPHAN, LEAD ATTORNEYS, STEPHAN ZOURAS LLP, CHICAGO, IL; JEFFREY L. KODROFF, LEAD ATTORNEY, SPECTOR ROSEMAN KODROFF & WILLIS, P.C., PHILADELPHIA, PA; KEVIN PETER RODDY, LEAD ATTORNEY, WILENTZ GOLDMAN & SPITZER, PA, WOODBRIDGE, NJ; HOLLIS L. SALZMAN, ROBINS KAPLAN MILLER & CIRESI LLP, NEW YORK, NY; NATALIE FINKELMAN BENNETT, SHEPHERD FINKELMAN MILLER & SHAH LLC, MEDIA, PA.

For MERCK & CO., INC. (2:12-cv-03555-CDJ), Defendant: DINO S. SANGIAMO, LEAD ATTORNEY, SALLY W. BRYAN, LEAD ATTORNEY, PRO HAC VICE, VENABLE LLP, BALTIMORE, MD; ERIC W. SITARCHUK, LISA DYKSTRA, LEAD ATTORNEYS, MORGAN LEWIS & BOCKIUS LLP, PHILADELPHIA, PA; EYITAYO ST. MATTHEW-DANIEL, LEAD ATTORNEY, PRO HAC VICE, MORGAN LEWIS & BOCKIUS, NEW YORK, NY; SCOTT A. STEMPEL, LEAD ATTORNEY, PRO HAC VICE, MORGAN LEWIS & BOCKIUS, WASHINGTON, DC.

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AMENDED MEMORANDUM

C. DARNELL JONES, II, United States District Judge.

In Civil Action No. 10-4374, Relators Stephen A. Krahling and Joan A. Wlochowski (" Plaintiffs" ) bring this qui tam action in accordance with the False Claims Act (" FCA" ), pursuant to 31 U.S.C. § § 3729-33. Relators allege that their former employer, Defendant Merck & Co., Inc. (" Merck" ) fraudulently misled the government and omitted, concealed, and adulterated material information regarding the efficacy of its mumps vaccine in violation of the FCA. The United States declined to intervene in this action, filing a Notice of Election to Decline Intervention before this Court on April 27, 2012. (Dkt. No. 14). Defendant moves to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6), 8(a)and 9(b). (Dkt. No. 45).

In Civil Action No. 12-3555, Chatom Primary Care, P.C., Andrew Klein, M.D., John I. Sutter, M.D. (the " Plaintiffs" ) bring this putative class action alleging monopolization in violation of the Sherman Act under 15 U.S.C. § 2 and violations of various state laws. (Dkt. No. 26.) Defendant moves to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). (Dkt. No. 40).

For purposes of deciding the Motions to Dismiss, this memorandum takes as true facts as alleged in the Amended Complaints. See Phillips v. County of Allegheny,

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515 F.3d 224, 233 (3d Cir. 2008). For the reasons that follow, Defendant's Motions regarding all claims for both cases are granted in part and denied in part.

I. BACKGROUND

A. The Parties

Stephen A. Krahling and Joan A. Wlochowski (the " Relators" ) bring this qui tam action against Merck & Co., Inc. (" Defendant" ). Relators were employed as virologists in the Merck lab and allegedly witnessed first-hand the allegedly fraudulent efficacy testing. (Dkt. No. 12 ¶ 3, 8-9.)

Chatom Primary Care, P.C., Andrew Klein, M.D., John I. Sutter, M.D. (the " Plaintiffs" ) bring this putative class action alleging monopolization in violation of the Sherman Act under 15 U.S.C. § 2 and violations of various state laws. (Dkt. No. 26.)

Defendant is a New Jersey corporation with its vaccine division based in West Point, Pennsylvania. (Dkt. No. 12 ¶ 10.) Defendant is the sole manufacturer licensed by the FDA to sell Mumps Vaccine (M-MR® II and ProQuad® ) (" Mumps Vaccine" ) in the United States. (Dkt. No. 12 ¶ 11.)

B. Relators' and Plaintiffs' Alleged Facts

The Court recites the facts in the light most favorable to the nonmoving parties and draws all reasonable inferences in their favor. According to Relators' Amended Complaint, in 1999, Defendant initiated new efficacy testing of its Mumps Vaccine. (Dkt. No. 12 ¶ ¶ 22, 25.) Relators allege that Defendant first tested their vaccine with a Mumps Plaque Reduction Neutralization assay comparing pre and post vaccinated blood to test whether the vaccine neutralized the virus. (Dkt. No. 12 ¶ 25-29). Relators note that rather than using the " gold standard" approach and testing the vaccine against a " wild-type mumps virus," Defendant tested it against the attenuated virus strain that had created the vaccine in the 1960s. (Dkt. No. 12 ¶ 29). Relators allege that comparing a vaccine to its originator virus strain would likely overstate the vaccine's effectiveness. (Dkt. No. 12 ¶ 29.) According to the Amended Complaint, the results of this first test did not result in the " desired 95 percent threshold," so Defendant abandoned this methodology in subsequent tests. (Dkt. No. 12 ¶ ¶ 30-32.)

Defendant created a second testing methodology: Enhanced Mumps Plaque Reduction Neutralization Assay. (Dkt. No. 12 ¶ 33.) Defendant allegedly told Relators that the " objective" of this new methodology was to " [i]dentify a mumps neutralization assay format...that permits measurement of a [> =] 95% seroconversion rate in MMR® II vaccines." (Dkt. No. 12 ¶ 34.) Defendant continued to test the vaccine against the virus strain that originated the vaccine. (Dkt. No. 12 ¶ 35.) In addition, Defendant added animal antibodies to pre and post vaccinated blood samples. (Dkt. No. 12 ¶ 35.) Relators allege that this addition was " for the singular purpose of altering the outcome of the test by boosting the amount of virus neutralization counted in the lab." (Dkt. No. 12 ¶ ¶ 35-39.) Relators claim that the use of animal antibodies created a high number of pre-vaccinated positive results, which Defendant systemically destroyed or falsified in order to legitimize the use of animal antibodies. (Dkt. No. 12 ¶ ¶ 40-51.) Relators also allege that senior management was aware, complicit, and in charge of this testing. (Dkt. No. 12 ¶ ¶ 52-58.)

Relators reported these alleged infractions to the FDA, leading to an FDA visit. (Dkt. No. 12 ¶ ¶ 59-64.) After the FDA visit, Relators were barred from participating

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in the mumps vaccine testing. (Dkt. No. 12 ¶ 66.) Relators assert that Defendant continued to make the false representations of its inflated 95 percent efficacy rate to the government, while deliberately covering up the results of the tests showing a diminished efficacy.

C. Relators' Allegations

Relators allege two overall counts of violations of the FCA. First, Plaintiffs allege that Defendant billed the CDC for purchase of its mump vaccines when Defendant knew of the vaccine's diminished efficacy. (Dkt. No. 12 ¶ 152.) Plaintiffs' theory is that because the vaccine's efficacy was diminished, the vaccine was mislabeled and was not the product for which the government paid. (Dkt. No. 12 ¶ 152.) As such, Plaintiffs allege that Defendant knowingly presented a fraudulent claim for payment to the U.S. government in violation of 31 U.S.C. § 3729(a)(1)(A).

Second, Plaintiffs allege that Defendant falsified, abandoned, and manipulated testing data that should have been shared with the government in order to fraudulently mislead the government into purchasing the mumps vaccine. (Dkt. No. 12 ¶ 155.) As such, Plaintiffs allege that Defendant knowingly incorporated falsified records material to their fraudulent claims for payment for the vaccine. 31 U.S.C. § 3729(a)(1)(B).[1]

D. Plaintiffs' Allegations

Plaintiffs based their Complaint on the qui tam action filed by the Relators. (Dkt. No. 26, p. 5.) Based on the same allegations, Plaintiffs allege that Defendant's manipulation and misrepresentation of the seroconversion rate of the Mumps Vaccine to the United States government, led to Defendant's monopoly of the relevant market in violation of the Sherman Act and violations of various state laws. Plaintiffs allege six counts:

1. Count I: Monopolization in violation of the Sherman Act. 15 U.S.C. § 2. (Dkt. No. 26 ¶ ¶ 151-55.) In this Count, Plaintiffs allege that Defendant falsified the seroconversion rate of its Mumps Vaccine in its products and to the FDA. (Dkt. No. 26 ¶ 152.) Plaintiffs argue that because of this falsification, Defendant was effectively excluding competition from the relevant market. (Dkt. No. 26 ¶ 154.)
2. Count II: Violation of state consumer protection laws in twenty-four states. (Dkt. No. 26 ¶ 156-69.) Plaintiffs state that Defendant engaged in false or deceptive conduct in making statements about the efficacy of the Mumps Vaccine with the intention of misleading consumers. (Dkt. No. 26 ¶ ¶ 163-66.)
3. Count III: Breach of contract. (Dkt. No. 26 ¶ ¶ 170-75.) Plaintiffs allege that Defendant entered a contract to provide Mump Vaccine to Plaintiffs and the Class and that part of this standardized contract included the falsified representation of the inflated efficacy rate. (Dkt. No. ¶ ¶ 171-74.) Plaintiffs allege suffering for the purchase price they paid for the Mumps Vaccine because of this alleged breach of contract. (Dkt. No. ¶ 174.)
4. Count IV: Violation of Pennsylvania's Express Warranty Law. Pa. Stat. Ann. Tit. 13 § 2313. (Dkt. No. 26 ¶ ¶ 176-87.) Plaintiffs allege that Defendant acted as a Merchant under the Pennsylvania

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Uniform Commercial Code, made a contract with Plaintiffs and class members to sell the Mumps Vaccine. (Dkt. No. 26 ¶ ¶ 177-80.) Plaintiffs allege that because the vaccine did not have an efficacy rate of 95, as represented by Defendant, Defendant breached an express warranty. (Dkt. No. 26 ¶ ¶ 181-87.)
5. Count V: Violation of Pennsylvania's Implied Warranty Law. Pa. Stat. Ann. Tit. 13 § 2315. (Dkt. No. 26 ¶ ¶ 188-97.) Plaintiffs allege that Defendant violated the warrant of merchantability at the time of the Mumps Vaccine's sale to Plaintiffs because the Vaccine was not 95 percent efficacious as represented by Defendant. (Dkt. No. 26 ¶ ¶ 188-97.)
6. Count VI: Unjust enrichment. (Dkt. No. 26 ¶ ¶ 198-205.) Plaintiffs allege that Defendant has benefitted financially because of its " deceptive and wrongful conduct" in misrepresenting the efficacy of the Mumps Vaccine at the expense of Plaintiffs. (Dkt. No. 26 ¶ ¶ 199-203.) Plaintiffs request compensatory and punitive damage. (Dkt. No. 26 ¶ 204.)

E. Procedural Posture

Relators first filed this Complaint under seal on August 27, 2010. (Dkt. No. 20.) The Compliant, docket entries, and related filings were kept under seal until June 20, 2012 during the period to intervene requested by the United States. On April 27, 2012, the United States declined to intervene in the Relators' case. (Dkt. No. 54 at 3.) Relators filed an amended complaint and request for jury trial on April 27, 2012, unsealed on June 21, 2012. (Dkt. No. 12.) The original, unredacted complaint remains under seal. On August 31, 2012, Defendant moved to dismiss Relators' Amended Complaint with prejudice. (Dkt. No. 45.)

On September 20, 2012, Plaintiffs filed a Consolidated Amended Class Action Complaint against Defendant. (Dkt. No. 26.)

II. LEGAL STANDARDS

This Court has jurisdiction pursuant to 28 U.S.C. § 1331 and 31 U.S.C. § 3732(a).

A. 12(b)(6)

In deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief. Id. (internal quotation and citation omitted). Complaints that contain only " [t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The facts must demonstrate that the Plaintiff is entitled to relief, not just show a " mere possibility of misconduct." Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) (quoting Iqbal at 679). This standard asks that the complaint " 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. " Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Iqbal, 556 U.S. at 679 (quoting Twombly, 550 U.S. at 557). In Ashcroft

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v. Iqbal, the Supreme Court clarified that this standard applies to all civil cases. Iqbal, 129 S.Ct. at 1949.

When deciding a motion to dismiss under 12(b)(6), the " court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010). Assessing the sufficiency of a complaint is " a context-dependent exercise" because " [s]ome claims require more factual explication than others to state a plausible claim for relief." W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir. 2010) (cited in United States ex rel. Galmines v. Novartis Pharms. Corp., (E.D. Pa. Aug. 23, 2013)) (citations omitted).

B. 9 (b)

Fed. R. Civ. P. 9(b) states " [i]n alleging fraud or mistake, 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." Fed.R.Civ.P. 9(b). The aim of this heightened pleading standard 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). This standard " requires, at a minimum, that plaintiffs support their allegations of . . . fraud with all of the essential factual background . . . that is, the who, what, when, where and how of the events at issue." United States of America ex rel. Ronald J. Streck v. Allergan, Inc., 894 F.Supp.2d 584, 601 (E.D. Pa. 2012) (citing In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002)).[2]

III. DISCUSSION

Defendants seek dismissal pursuant to Federal Rules of Civil Procedure 9(b) and

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12(b)(6) on the grounds that Relators have failed to plead fraud with the requisite particularity and failed to state a claim upon which relief can be granted.

A. Relators' Claims (Case No. 10-4374)

Relators make out two counts for violations of the FCA. Relators' Complaint alleges that Defendants submitted test results to the government that contained falsifications, or omissions, of relevant testing data. These omissions and falsifications were reflected in their labeling, their submissions for approvals, and their requests for payment for purchase of the medications.

Defendant argues that the Relators' claim is dependent upon a finding that the MMR Product label is false, representing a 95 percent efficacy rate. (Dkt. No. 45 at 13.) Defendant alleges that labeling changes are solely within the purview of the FDA and that the FCA is not an avenue to dispute inaccurate labeling. Plaintiffs counter that their Complaint alleged more than a false labeling issue. Rather, Relators argue that it alleged that Defendant violated multiple duties to the government across multiple instances of reports and claims that failed to disclose the veracity of testing results and that deliberately obfuscated information about the vaccine's lessening efficacy.

a. FCA in General

Count One of the Complaint alleges a violation of § 3729(a)(1)(A) of the FCA, and Count Two alleges violations of § 3729(a)(1)(B).[3](Compl. ¶ ¶ 152-55.) These sections of the statute impose liability on:

[A]ny person who--
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a ...

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