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United States ex rel. Schimelpfenig v. Dr. Reddy's Laboratories Ltd.

United States District Court, E.D. Pennsylvania

March 27, 2017

UNITED STATES OF AMERICA, et al. ex rel. SALLY SCHIMELPFENIG and JOHN SEGURA, Plaintiffs,
v.
DR. REDDY'S LABORATORIES LIMITED, et al., Defendants.

          MEMORANDUM

          C. DARNELL JONES, II J.

         Plaintiffs bring state and federal anti-fraud claims against Defendants on behalf of the United States, alleging that Defendants fraudulently submitted claims for federal reimbursement of prescription medication packaged and labeled in violation of federal statutes. Defendants move to dismiss Plaintiffs' Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, this Court will GRANT Defendants' Motions to Dismiss the Second Amended Complaint.

         BACKGROUND

         Plaintiffs are qui tam relators who bring the present action on behalf of the United States under the False Claims Act and related state statutes pursuant to 31 U.S.C. § 3729. In their Second Amended Complaint, relators Sally Schimelpfenig and John Segura allege Defendants collectively dispensed prescription drugs that were in violation of the Poison Prevention Packaging Act and the Consumer Product Safety Improvement Act of 2008. (Dkt No. 26, ¶ 2). For the purposes of the present action, the defendants (collectively “Defendants”) are divided into two distinct categories. Manufacturing Defendants - Defendant Dr. Reddy's Laboratories and its United States subsidiaries - are responsible for the manufacture of the allegedly noncompliant prescription drugs at issue in this case. (Dkt No. 26, ¶ 14). Retail Defendants - CVS, Walgreens, and Walmart - are the pharmacies who received the noncompliant prescription drugs from Manufacturing Defendants, provided said drugs to the ultimate beneficiaries, and thereafter sought reimbursement for the drugs from one of numerous federal health care programs. (Dkt No. 26, ¶ 15). All Defendants are approved federal health care providers subject to federal statutes and regulations. (Dkt No. 26, ¶ 16-21).

         The Poison Prevention Packaging Act (15 U.S.C. §§1471-77) (hereinafter “PPPA”) was enacted in 1970 to “provide for special packaging to protect children from serious personal injury or serious illness resulting from handling, using, or ingesting, household substances.” (Dkt No. 26, ¶ 25). The PPPA requires that any prescription drug for human use that is in dosage form intended for oral administration be packaged in special packaging designed to make it difficult for young children to open and ingest the contents. (Dkt No. 26, ¶32-36). With the passage of the Consumer Product Safety Act of 1970 (hereinafter “CPSA”), Congress created the Consumer Protection Safety Commission (hereinafter “CPSC”), which was charged with the administration and enforcement of the PPPA and related regulations. (Dkt No. 26, ¶27-30). In 2008, Congress passed the Consumer Product Safety Improvement Act (hereinafter “CPSIA”) to supplement and amend the CPSA. (Dkt No. 26, ¶ 74). The CPSIA requires manufacturers of imported goods to certify that their products comply with all rules and regulations enforced by the CPSC - which includes the PPPA. (Dkt No. 26, ¶75). Products without the requisite certification cannot be imported or distributed in commerce in the United States. (Dkt No. 26, ¶ 80).

         As a corporation based out of India, Defendant Dr. Reddy's Laboratories is subject to the CPSIA. (Dkt No. 26, ¶ 75). As approved federal health care program participants, all Defendants are subject to the PPPA. (Dkt No. 26, ¶ 113). Manufacturing Defendants did not test the packaging of the drugs imported and distributed in America for child resistance. (Dkt No. 26, ¶ 135). For years, Manufacturing Defendants failed to issue general conformity certificates for the prescription drugs imported and distributed in America, in violation of the CPSIA. (Dkt No. 26, ¶ 172). Thereafter, Manufacturing Defendants made false express representations to Retail Defendants that their drugs were in compliance with all federal laws. (Dkt No. 26, ¶ 208). Manufacturing Defendants did not disclose their drugs' noncompliance with the PPPA and CPSIA to the Retail Defendants. (Dkt No. 26, ¶ 176). Retail Defendants were responsible for ensuring that Manufacturing Defendants' products complied with the relevant packaging and certification statutes. (Dkt No. 26, ¶ 48-50). As a result of Defendants' collective noncompliance with the PPPA and CPSIA prescription drugs that were not packaged according to federal requirements were dispensed to federal health care recipients. (Dkt No. 26, ¶ 116). As a result of Defendants collective noncompliance with the PPPA and CPSIA, Retail Defendants submitted claims to Government payers for federal reimbursement of the noncompliant drugs dispensed to patient-beneficiaries. (Dkt No. 26, ¶ 116).

         Based on the above-described conduct, the Second Amended Complaint brings claims against Manufacturing and Retail Defendants under the False Claims Act and related state laws. Presently before this Court are Manufacturing Defendants' and Retail Defendants' individually filed Motions to Dismiss and all respective responses and replies thereto.

         The United States of America declined to intervene in the present action. (Dkt No. 27).

         LEGAL STANDARD

         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.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (internal quotation marks omitted). After the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), “[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, 678 (2009). “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. at 678 (citing Twombly, 550 U.S. at 556). This standard, which applies to all civil cases, “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. at 678; accord Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (“[A]ll civil complaints must contain more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”) (internal quotation marks omitted).

         Because the False Claims Act and related state law claims allege fraud, they are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). United States ex rel. Whatley v. Eastwick Coll., 657 F. App'x. 89, 94 (3d Cir. 2016). “In 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., 7742 F.2d 786 (3d Cir. 1984). “Rule 9(b) requires, at minimum, that plaintiffs support their allegations of…fraud with all of the essential background facts 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. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002) (internal citations omitted).

         DISCUSSION

         The first four of the thirty-four total claims against Defendants allege violations of the False Claims Act (hereinafter “FCA”). (Dkt No. 26, ¶ 206-217). As these are the only claims over which the Court has original jurisdiction, the Court begins its analysis there. “The primary purpose of the FCA is to indemnify the government - through its restitutionary penalty provisions - against losses caused by a defendant's fraud.” United States ex rel. Wilkins v. United Health Grp. Inc., 659 F.3d 295, 304 (3d Cir. 2011). “The FCA makes it unlawful to knowingly submit a fraudulent claim to the [G]overnment.” United States ex rel. Whatley v. Eastwick Coll., 657 F. App'x. 89, 93 (3d Cir. 2016). “To that end, the Act contains a qui tam provision that permits private parties (known as ‘relators') to bring suit on behalf of the United States against anyone submitting a false claim to the Government, ” and where the qui tam suit is successful, the relator can share in any recovery. Id. “In order to establish a prima facie FCA violation under [§] 3729(a)(1), [a plaintiff] must prove that (1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.” Wilkins 659 F.3d at 304-305 (internal citations omitted).

         For the reasons that follow, this Court finds that Plaintiffs fail to plead sufficient facts to allege violations of the FCA, and this Court declines to exercise ...


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