United States v. Express Scripts Inc , 602 F. App'x 880 ( 2015 )


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  •                                                         NOT PRECEDENTIAL
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    ________________
    No. 14-1029
    ________________
    UNITED STATES OF AMERICA; STATE OF CALIFORNIA;
    STATE OF DELAWARE; STATE OF FLORIDA; STATE OF GEORGIA;
    STATE OF HAWAII; STATE OF ILLINOIS; STATE OF INDIANA;
    STATE OF LOUISIANA; COMMONWEALTH OF MASSACHUSETTS;
    STATE OF MICHIGAN; STATE OF MONTANA; STATE OF NEVADA;
    STATE OF NEW HAMPSHIRE; STATE OF NEW MEXICO; STATE OF NEW
    YORK; STATE OF OKLAHOMA; STATE OF RHODE ISLAND;
    STATE OF TENNESSEE; STATE OF TEXAS; COMMONWEALTH OF VIRGINIA;
    STATE OF WISCONSIN; DISTRICT OF COLUMBIA; EX REL. DAVID MORGAN
    v.
    EXPRESS SCRIPTS, INC; CVS CAREMARK CORPORATION;
    MEDCO HEALTH SOLUTIONS, INC; FIRST DATABANK INC;
    *CLINICAL DRUG INFORMATION LLC; MCKESSON CORPORATION;
    CARDINAL HEALTH, INC.; AMERISOURCEBERGEN CORPORATION;
    JOHN DOE CORPORATIONS 1-20
    David Morgan,
    Appellant
    * Amended as per the Clerk’s 02/19/14 Order
    ________________
    Appeal from the United States District Court
    for the District of New Jersey
    (D. C. No. 2-05-cv-01714)
    District Judge: Honorable Dennis M. Cavanaugh
    ________________
    Argued November 21, 2014
    Before: AMBRO, SCRICA and ROTH, Circuit Judges
    (Opinion filed February 20, 2015)
    William L. Hurlock, Esq.
    Mueller Law
    363 Bloomfield Avenue
    Suite 2C
    Montclair, NJ 07042
    Robert A. Magnanini, Esquire     (Argued)
    David S. Stone, Esq
    Stone & Magnanini
    150 John F. Kennedy Parkway
    4th Floor
    Short Hill, NJ 07078
    Counsel for Appellant
    Enu Mainigi, Esq.                (Argued)
    Kannon K. Shanmugam, Esq.
    Craig D. Singer, Esq.
    Jennifer G. Wicht, Esq.
    Williams & Connolly
    725 12th Street, N.W.
    Washington, DC 20005
    Counsel for Appellees Express Scripts, Inc. and
    Medco Health Solutions, Inc.
    Jonathan R. Donnellan, Esq.      (Argued)
    Eva M. Saketkoo, Esq.
    Hearst Corporation
    300 West 57th Street
    New York, NY 10019
    Counsel for Appellee First Databank, Inc.
    Allyson N. Ho, Esq
    Morgan, Lewis & Bockius
    1717 Main Street
    Suite 3200
    2
    Dallas, TX 75201
    Meredith S. Auten, Esq.
    Marie E. Donovan, Esq.
    John P. Lavelle, Jr., Esq.
    Jane M. Manchisi, Esq.
    Eric W. Sitarchuk, Esq.            (Argued)
    Morgan, Lewis & Bockius
    1701 Market Street
    Philadelphia, PA 19103
    Counsel for Appellee Americourcebergen
    John A. Boyle, Esq.
    Kevin H. Marino, Esq.              (Argued)
    Marino, Tortorella & Boyle
    437 Southern Bulevard
    Chatham, NJ 07928
    Counsel for Appellee CVS Caremark Corp
    Matt D. Basil, Esq.
    Craig C. Martin, Esq.              (Argued)
    Jenner & Block
    353 North Clark Street
    Chicago, IL 60654
    Counsel for Appellee Clinical Drug Information LLC
    ________________
    OPINION*
    ________________
    ROTH, Circuit Judge
    *
    This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
    constitute binding precedent.
    3
    David Morgan, proceeding as a qui tam relator, appeals the District Court’s
    dismissal of his claims under the False Claims Act1 and corresponding state laws. The
    District Court dismissed the claims, under Federal Rule of Civil Procedure 12(b)(1), for
    lack of subject matter jurisdiction since they were based on publicly disclosed allegations
    whose “original source” was not Morgan. We will affirm.2
    Morgan was not the “original source” of his allegations that various
    pharmaceutical industry defendants profited from artificially inflated Average Wholesale
    Prices (AWPs) for brand-name drugs, as he had no “direct and independent knowledge of
    the information on which the allegations are based.”3 In fact, Morgan was further
    removed from the alleged unlawful conduct than the relator in United States ex rel.
    Schumann v. Astrazeneca Pharm. L.P.,4 who was the vice president of a purported co-
    conspirator.
    Morgan was never employed by any of the entities that allegedly profited from the
    conspiracy. Morgan is a pharmacist who says he discovered the widespread price
    inflation of brand-name drugs “[t]hrough his diligence,” which amounted to an eyeball
    comparison of two publicly available price listings. After noticing the pricing
    discrepancy, Morgan says he became aware, while conducting an audit, of
    communications between wholesaler First Databank, Inc., and price listing publisher
    1
    31 U.S.C. § 3729 et seq.
    2
    We have jurisdiction to consider Morgan’s appeal under 28 U.S.C. § 1291.
    3
    31 U.S.C. § 3730(e)(4)(B) (2006) (amended 2010, without retroactive effect); see 31
    U.S.C. § 3730(e)(4)(A) (divesting federal courts of jurisdiction over FCA claims based
    on publicly disclosed allegations “unless . . . the person bringing the action is an original
    source of the information”).
    4
    
    769 F.3d 837
    , 842 (3d Cir. 2014).
    4
    AmerisourceBergen Corp., which indicated that First Databank knew of the price
    differential. As the District Court correctly pointed out, Morgan’s Third Amended
    Complaint “does not demonstrate that Morgan had any direct knowledge of any alleged
    wrongdoing” as to the myriad other defendants.
    We held in Schumann that “knowledge of a scheme is not direct when it is gained
    by reviewing files.”5 Yet that was the full extent of Morgan’s “diligence.” Moreover,
    Morgan’s knowledge of the pharmaceutical industry does not make him an original
    source.6 Albeit informed by his years of experience, Morgan’s assessment of publicly
    available information and allegedly conspiratorial communications to which Morgan was
    not a party is not sufficient to demonstrate the “direct and independent knowledge”
    required under the FCA’s original source exception.7
    The District Court lacked subject matter jurisdiction because Morgan’s allegations
    were “based upon the public disclosure of allegations” in the news media, other civil
    proceedings, and a Congressional report.8 Applying our “twofold analysis,” we first note
    that the allegations that pharmacy benefit managers, including Express Scripts, Inc., and
    MedCo Health Solutions, Inc., profited from inflated AWPs and secret spread pricing
    5
    
    Id. at 847.
    6
    See 
    id. (quoting United
    States ex rel. Zizic v. Q2Administrators, LLC, 
    728 F.3d 228
    , 240
    (3d Cir. 2013)).
    7
    See 31 U.S.C. § 3730(e)(4)(B).
    8
    See 31 U.S.C. § 3730(e)(4)(A).
    5
    “was disclosed via [multiple] sources listed in § 3730(e)(4)(A).” 9 Second, we may
    deduce that Morgan’s allegations are “based on” the public disclosures predating his
    complaint even without resort to algebraic representation,10 because Morgan forwarded
    one such news article to a colleague with the caption, “Gotta love this!!” While public
    disclosures “need only be ‘supported by’ or ‘substantially similar to’ the disclosed
    allegations” to bar suit under the FCA,11 here Morgan demonstrated actual familiarity
    with disclosures that describe substantially the same price-related misconduct identified
    in the complaint.
    Morgan’s central allegation—that the pharmacy benefit manager defendants knew
    First Databank fraudulently inflated their profits but nonetheless chose First Databank as
    their exclusive pricing source—also echoes allegations from previously filed lawsuits,
    9
    See United States ex rel. Atkinson v. PA. Shipbuilding Co., 
    473 F.3d 506
    , 519 (3d Cir.
    2007). News media disclosures included a March 31, 2003, Wall Street Journal article
    entitled “Pharmacy-Benefit Firms Profit on Generic Drugs,” that paraphrased a
    pharmaceutical benefit manager pricing expert’s observation, “it’s an open secret in the
    industry that AWPs often are severely inflated” and that “industry veterans joke that
    AWP ought to stand for ‘Ain’t What’s Paid.’” J.A. at 568-72. The Journal article also
    noted that pharmacy benefit firms were “trying to take advantage of the ‘spread’ between
    pharmacy prices and what corporate and government clients pay. Express Scripts says
    most of its contracts now include spread pricing.” J.A. at 570. See also, e.g., William
    Sherman, Rx Ripoffs Hard to Swallow: State Probing Drug Pricing and Sales Tactics,
    N.Y. Daily News (July 27, 2003), J.A. at 1030-34; Pharmacy Benefit Managers Charged
    with Inflating, PR Newswire (Mar. 18, 2003), J.A. at 1036-40.
    10
    See United States ex rel. Dunleavy v. Cnty. of Del., 
    123 F.3d 734
    , 741 (3d Cir. 1997)
    (quoting United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 
    14 F.3d 645
    , 654
    (D.C. Cir. 1994)).
    11
    
    Atkinson, 473 F.3d at 519
    .
    6
    including one where Morgan served as a paid expert.12 The mere fact that Morgan
    quantified the AWP differential does not remove his allegations from the public
    disclosure realm. Morgan’s 4.16% differential simply indicates an AWP based on a 25%
    markup over wholesale acquisition cost, a markup disclosed in a Congressional report
    predating Morgan’s complaint.13 The report’s disclosure of a specific, industry-wide
    markup shift provided Morgan with all the “essential elements” needed to arrive at a
    4.16% price differential.14 Since Morgan was not the original source of the allegations
    contained in his complaint, the public disclosure bar precludes his FCA claims.
    For the foregoing reasons, we will affirm the District Court’s order granting the
    defendants’ motion to dismiss Morgan’s FCA and corresponding state law claims.15
    12
    See, e.g., Compl., Brown v. Express Scripts, Inc., No. 3:04-cv-01822-AWT (D. Conn.
    filed Oct. 28, 2004) (alleging Express Scripts “pockets the difference between the actual
    cost of the prescription paid to the pharmacy and the higher (inflated) price charged to the
    Fund,” thereby benefiting from a “secret differential or ‘spread’”); Second Am. Compl.,
    Fidelity Ins. Co. v. Express Scripts, Inc., No. 4:03-CV-1521-SNL (E.D. Mo. filed Aug.
    16, 2004).
    13
    See Medicaid Prescription Drug Reimbursement: Why the Government Pays Too
    Much, Hearings before Subcomm. on Oversight and Investigations, H.R. Comm. on
    Energy and Commerce, 108th Cong. 12, 13-71 (2004).
    14
    See 
    Dunleavy, 123 F.3d at 741
    . As the District Court noted, “the percentage difference
    between an AWP based on a 20% markup,” the previous industry norm, “and one based
    on a 25% markup will always be 4.16%.”
    15
    We will also affirm the District Court’s order granting the defendants’ motion to
    dismiss Morgan’s allegations of “other pricing schemes,” including “duplicate billing,”
    “refilling violations,” and “overbilling for professional fees,” since Morgan fails to state
    those claims “with particularity,” as required under Rule 9(b).
    7