United States District Court, E.D. Pennsylvania
UNITED STATES OF AMERICA ex rel. BRUCE BOISE, et al.
CEPHALON, INC., et al.
Plaintiffs Bruce Boise, Keith Dufour and Andrew Augustine bring this action against defendants Cephalon, Inc. and John Does #1-100 to recover damages and civil penalties on behalf of the United States as qui tam relators pursuant to the False Claims Act, 31 U.S.C. §§ 3729, et seq. (FCA) and analogous state laws. This matter comes before me on Cephalon’s motion to dismiss relators’ 31 U.S.C. § 3729(a)(1)(G) claims contained in their third amended complaint (Dkt. No. 126), relators’ response (Dkt. No. 128) and Cephalon’s reply (Dkt. No. 130). For the following reasons, I will deny Cephalon’s motion.
In September 2008, Cephalon entered into a corporate integrity agreement (CIA) with the federal government. The CIA provides that Cephalon must notify the Office of the Inspector General (OIG) of the Department of Health & Human Services of any “reportable events” including any “matter that a reasonable person would consider a probable violation of criminal, civil, or administrative laws applicable to any Federal health care program and/or applicable to any FDA requirements relating to the promotion of Cephalon products for which penalties or exclusion may be authorized.” See Dkt. No. 121-1 at ECF 23, § III.H.1.a. Cephalon must also regularly certify that the company has an effective compliance program and is in compliance with all the applicable requirements set forth in the CIA. See id. at ECF 5, § III.A. 3-4.
The CIA states that “as a contractual remedy, Cephalon and the OIG hereby agree that failure to comply with certain obligations as set forth in this CIA may lead to the imposition of . . . monetary penalties.” Dkt. No. 121-2 at ECF 6, § X.A. The OIG may “exercise its contractual right to demand payment” of the penalties by “demand letter” after “finding that Cephalon has failed to comply with any of the obligations described in Section X.A and after determining that Stipulated Penalties are appropriate.” Id. at ECF 8, § X.C.1. Among the stipulated penalties the CIA provides are a $2, 500 daily penalty for failure to implement the disclosure program, a $5, 000 penalty for each false certification made pursuant to required annual reports and $1, 000 daily penalties for failure to fully comply with the obligations of the CIA. See id. at ECF 7, § X.A.1.g, k; A.6; A.7.
On April 15, 2015, I granted in part Cephalon’s motion to dismiss relators’ second amended complaint having found that relators did not adequately allege a violation of an obligation to pay the federal government under § 3729(a)(1)(G) because relators did not specifically allege Cephalon violated an obligation to pay stipulated penalties under the CIA. See Dkt. Nos. 118, 119.
Relators filed their third amended complaint on May 1, 2015. See Dkt. No. 121. Relators allege that Cephalon promoted Provigil and Nuvigil off label and paid unlawful kickbacks in violation of the CIA. See id. at ¶¶ 385-404. They allege that Cephalon did not report illegal kickback and off-label promotion schemes, and submitted false reports to the OIG. Id. The third amended complaint describes the requirements of the CIA, including the stipulated penalties, id. at ¶¶ 387-398, and details Cephalon’s alleged breaches of the CIA. See id. at ¶¶ 399-404, ¶¶ 120-256. Relators allege these breaches entitled the OIG to collect the stipulated penalties as set forth in the CIA, but that Cephalon’s failure to report and false certifications of compliance allowed it to improperly avoid its obligation to pay those penalties. See id. at ¶¶ 394-398.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Typically, “a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ” though plaintiff’s obligation to state the grounds of entitlement to relief “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all of the allegations in the complaint are true (even if doubtful in fact).” Id. (citations omitted). This “simply calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of” the necessary element. Id. at 556. The Court of Appeals has made clear that after Ashcroft v. Iqbal, 556 U.S. 662 (2009), “conclusory or ‘bare-bones’ allegations will no longer survive a motion to dismiss: ‘threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.’ To prevent dismissal, all civil complaints must now set out ‘sufficient factual matter’ to show that the claim is facially plausible.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), quoting Iqbal, 556 U.S. at 678. The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal:
First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint’s well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a “plausible claim for relief.”
Id. at 210-11, quoting Iqbal, 556 U.S. at 679. The Court explained, “a complaint must do more than allege the plaintiff’s entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts.” Id., citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged–but it has not ‘show[n]’–‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679, quoting Fed.R.Civ.P. 8(a)(2).
Section 3729(a)(1)(G) makes liable any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G). Conduct prohibited by § 3729(a)(1)(G) is known as a “reverse false claim” because “the action of the defendant results not in improper payment to the defendant from the Government, but rather no payment to the Government when payment is otherwise obligated.” U.S. ex rel. Branch Consultants, L.L.C. v. Allstate Ins. Co., 668 F.Supp.2d 780, 811-12 (E.D. La. 2009) (citations omitted). “A prerequisite for liability under [a reverse false claim] theory is a legal obligation” to pay or credit the government. U.S. ex rel. Quinn v. Omnicare Inc., 382 F.3d 432, 444 (3d Cir. 2004). Under the 2009 Fraud Enforcement and Recovery Act (FERA) amendments to the FCA, “obligation” is defined in § 3729(b)(3) as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment . . . .” 31 U.S.C. § 3729(b)(3).
Relators allege that Cephalon made reverse false claims in violation of § 3729(a)(1)(G) by falsely certifying compliance with the CIA’s reporting requirements in order to avoid its obligation to pay stipulated penalties under the CIA. Cephalon argues that it incurs an obligation to pay stipulated penalties under the CIA only if the OIG decides to demand payment of the penalties. Since relators do not allege the OIG has demanded payment of penalties under the CIA, Cephalon contends that relators have failed to state a claim under § 3729(a)(1)(G). Relators contend that Cephalon’s ...