Suppressed v. Suppressed
Filing
309
MEMORANDUM Opinion and Order Signed by the Honorable John J. Tharp, Jr on 7/31/2014:Mailed notice(air, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES ex rel. BERNARD
LISITZA, et al.,
Plaintiffs,
v.
PAR PHARMACEUTICAL COMPANIES,
INC.,
Defendant.
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No. 06 C 06131
Judge John J. Tharp, Jr.
MEMORANDUM OPINION AND ORDER
This case involves an alleged prescription-switching scheme in which defendant Par
Pharmaceutical Companies allegedly caused pharmacies to submit false claims to avoid
Medicaid reimbursement caps, resulting in overpayment by the federal and various state
governments. 1 The claims are brought as a qui tam action under the federal False Claims Act, 31
U.S.C. § 3729 et seq. (“FCA”), and parallel state statutes, by the relator Bernard Lisitza, various
states, 2 and the federal government, which has intervened with respect to Par. The alleged false
claims consist of the pharmacies’ certifications, as a condition of Medicaid reimbursement, that
they complied with all applicable federal and state laws when in fact they had illegally
substituted the form (e.g. capsule or tablet) or dosage of certain drugs, not for a medically
necessary reason but in order to avoid the reimbursement caps and in violation of regulations
requiring cost efficiency and prohibiting drug substitutions.
1
“[C]laims submitted to state Medicaid agencies are considered claims presented to the federal
government and may serve as the basis for FCA liability.” United States ex rel. Watson v. KingVassel, 728 F.3d 707 (7th Cir. 2013).
2
Two states, Indiana and Michigan, have intervened against Par and are directly participating as
plaintiffs; the rest of the plaintiff-states’ claims are brought via the relator.
According to Par, the parties have gone down—or should have gone down—this same
road in a prior qui tam action that covered Par’s marketing of the same drugs during the same
time period, sought the same damages, and pertained to the very same claims for Medicaid
reimbursement. Par therefore pleaded the affirmative defense of res judicata. The plaintiffs now
move for judgment on the pleadings as to that defense; Par cross-moves for summary judgment.
The issues have been fully briefed, and for the reasons set forth below, the plaintiffs’ motion is
granted and Par’s motion is denied.
BACKGROUND
The prior case (against Par 3) began in 2005, when a Florida-based pharmacy, in its
capacity as relator, sued Par and several other generic drug manufacturers under the FCA in the
District Court for the District of Massachusetts. See United States ex rel. Ven-A-Care of the Fla.
Keys v. Actavis Mid Atlantic, LLC et al., No. 08 CV 10852. The complaint was further amended
and unsealed on May 21, 2008. The Ven-A-Care plaintiffs alleged that Par manipulated and
falsely reported three pricing benchmarks—Average Wholesale Price, Wholesale Acquisition
Cost, and Direct Price—in order to cause the Medicaid Program to set higher reimbursement
amounts for its drugs than would have been assigned if Par had published accurate benchmarks.
Because the affected Par drugs were reimbursed at an artificially inflated rate, Par was able to
market its products to pharmacy customers based upon the increased profit potential compared to
other manufacturers’ drugs. Among the Par drugs implicated in the Ven-A-Care lawsuit were its
150 mg and 300 mg ranitidine (heartburn medication) capsules and its 10mg and 20mg
3
The Ven-A-Care lawsuit originated before 2005. See United States ex rel. Ven-A-Care of the
Florida Keys, Inc. v. Dey et al., No. 00-CV-10698 (D. Mass, Apr. 10, 2000). Par was made a
defendant for the first time in the sealed Third Amended Complaint, filed on February 13, 2005.
2
fluoxetine (an antidepressant) tablets. This case pertains to those same four products plus Par’s
7.5 mg tablets of buspirone, an anti-anxiety drug.
The Ven-A-Care case against Par was a sliver of a much larger multidistrict litigation,
MDL No. 1456, entitled In Re Pharmaceutical Industry Average Wholesale Price Litigation, and
consolidated under Case No. 01 C 12257 in the District of Massachusetts. Multiple actions by
Ven-A-Care were further subcategorized as In Re Ven-A-Care Cases, No. 06 CV 11337. The
Judicial Panel on Multidistrict Litigation created the AWP MDL after concluding that the cases
involved “common questions of fact concerning whether (either singly or as part of a conspiracy)
the pharmaceutical defendants engaged in fraudulent marketing, sales and/or billing schemes by
unlawfully inflating the average wholesale price of their Medicare covered prescription drugs in
order to increase the sales of these drugs to health care professionals and thereby boost the
pharmaceutical companies’ profits.”
Ultimately, Par reached a settlement with the Ven-A-Care plaintiffs, which led to the
dismissal of the claims against Par on August 26, 2011. The settlement covered everything
except the State of Illinois’ claims for overpayment of Medicaid program reimbursements;
accordingly, the dismissal was without prejudice to those claims and with prejudice as to all the
others. By its terms, the settlement agreement was between the relator, Ven-A-Care, four
individual plaintiffs, the “Settling States” of Texas, Florida, Kentucky, Alaska, and South
Carolina, and Par. According to the agreement’s express terms, “The United States is not a
party,” although the agreement was conditioned upon the United States’ consent to the dismissal
of the claims against Par. See Settlement Agreement (“SA”), Dkt. # 205 Tab 3 at 1.
The settlement agreement defines as “the Federal Qui Tam Proceedings” the Ven-A-Care
case initiated by the original complaint of April 10, 2000, and thereafter amended three times
3
and unsealed. SA ¶ B. The “Federal Covered Conduct” is defined as the allegations in the
complaint that: “[B]etween January 1, 1991 and the Effective Date of this Agreement, Par
knowingly set, reported and/or maintained, or caused to be set, reported and/or maintained, false,
fraudulent and/or inflated prices for certain of the Covered Drugs, including prices reported to, or
published by, price publishing services (“Reported Prices”) used by State Medicaid Programs to
establish reimbursement rates, and that Par submitted, or caused to be submitted, false claims to
the State Medicaid Programs based on the Reported Prices.” SA ¶ J. Par denied any wrongdoing
in connection with the Federal Covered Conduct as well as the Covered Conduct alleged by each
respective Settling State. SA ¶ P. As relevant here, the Settlement Agreement was “intended to
fully and finally resolve any and all claims against, and the liability of Par, arising under the
Federal Qui Tam Proceedings, for the Federal Covered Conduct, except for claims for the Illinois
Federal Share and Illinois State Share with respect to the Covered Drugs.” SA ¶ S. By the terms
of the Settlement Agreement, Par would pay $154 million in exchange for dismissal of the
federal and related state proceedings and a release. See generally SA ¶¶ 1-12.
The settlement agreement contained releases by each of the Settling States and, as
relevant here, the relator and the individual plaintiffs. The terms of the release for the Federal
Covered Conduct are as follows:
[The Relator and Indivdual Plaintiff Releasors] fully and finally,
irrevocably and unconditionally release, acquit and forever
discharge Par as well as its predecessors, successors and assigns,
and its and their current and former direct and indirect parents,
affiliates, subsidiaries, divisions, and related business entities, and
its and their current and former officers, directors, shareholders,
agents, employees, managers, partners, servants, attorneys,
advisors and other representatives (collectively, the “Par
Releasees”) from any and all civil, regulatory and/or administrative
claims, complaints, actions, suits, demands, grievances,
controversies, allegations, accusations, rights, causes of action,
liabilities, judgments, damages or proceedings of any kind or
4
nature, as well as all forms of relief (including all remedies, losses,
debts, attorneys’ fees, penalties, punitive damages, costs, and
expenses of every kind and however denominated), whether sealed
or unsealed, known or unknown, foreseen or unforeseen, which
have been asserted, could have been asserted or could be asserted
in the future under any source of law, contract, in equity or other
right against any of the Par Releasees based upon or arising out of
the Federal Covered Conduct (the “Federal Released Claims”),
including but not limited to the Federal Share of any claim brought
by or on behalf of the District of Columbia or any of the states,
excluding Illinois, or any United States territory for, or arising out
of, the Federal Covered Conduct. Without limiting the generality
of the foregoing, and to the fullest extent that the Relator and the
Individual Plaintiffs are capable under applicable law, this release
fully discharges and releases Par from (i) any obligation to pay
Medicaid-related damages, restitution, fines and/or penalties
arising from the Federal Covered Conduct; and (ii) any civil
obligation to the Relator or its attorneys, including any Relator’s
share, expenses, attorneys’ fees, and costs associated with the Civil
Actions to which Relator or its attorneys may be entitled.
SA ¶ 6. The relator’s release extended to its own claims and “to the extent it is capable under the
law all qui tam claims brought on behalf of the United States in the Federal Qui Tam
Proceedings.” Id.
The United States consented to the dismissal of the claims against Par and acknowledged
that its share of the settlement, $90,950,000, was fair and adequate. Consent, Dkt. #205 Tab 4.
Thereafter, the settlement agreement was incorporated into the district court’s order dismissing
all claims but those of Illinois against Par with prejudice. Order, Dkt. # 205 Tab 5. The dismissal
was entered on August 26, 2011.
In the meantime, the Lisitza case, filed on November 9, 2006, was underway in this
Court, although it would be unsealed only on August 30, 2011. 4 The claims in this case are
brought on behalf of the relator Bernard Lisitza individually and on behalf of the United States
4
The parties have given the Court no indication that the unsealing of this matter on the heels of
the dismissal in Ven-A-Care is anything but a coincidence.
5
and the States of Illinois, California, Delaware, Florida, Hawaii, Indiana, Louisiana,
Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Mexico, Tennessee, Texas,
Virginia, New York, Oklahoma, Wisconsin, New Jersey, Georgia, Rhode Island, and the District
of Columbia,. The United States, Indiana, and Michigan have intervened against Par. The
complaint of the United States alleges: “Starting in April 1999 through December 31, 2006,
defendant Par, which markets and sells generic drugs, increased its sales through an illegal
switching scheme to fill Medicaid and other government third party payor health insurance
program prescriptions with Par’s higher-priced products rather than the specific drug that the
doctor had prescribed, a scheme specifically designed to evade price limits on generic drugs.”
Compl. Dkt # 77 ¶ 20. The complaint alleges that Par caused pharmacies to switch prescriptions
for Zantac™ and generic ranitidine tablets with Par’s 150 mg and 300 mg ranitidine capsules
(¶ 20); to switch prescriptions for Prozac™ or generic 10 mg and 20 mg fluoxetine capsules to
Par’s tablets (¶ 51); and to substitute twice as many of Par’s 7.5 mg buspirone tablets when 15
mg tablets were prescribed (¶ 94). The complaint does not contain any allegations relating to
Par’s manipulation of reimbursement amounts through the scheme alleged in Ven-A-Care;
namely, the false reporting of pricing data used as benchmarks by the Medicaid Program. Rather,
the Lisitza complaint alleges that Par’s prescription-switching scheme was a ruse to avoid
reimbursement caps (price ceilings) altogether. According to the complaint, the scheme caused
the submission of false claims including false certifications of compliance with Medicaid rules
that require providers to furnish services economically and only to the extent medically
necessary and false certifications of compliance with state and federal laws and regulations,
several of which prohibit prescription substitutions.
6
Months after the Ven-A-Care settlement was final and the claims against it dismissed, Par
filed a motion in this Court to “transfer” the Lisitza case to the District of Massachusetts so that
Judge Saris could determine the res judicata effect, if any, of the Ven-A-Care settlement on this
case. See Dkt. #112. Finding no basis for such a “transfer,” Judge Gottschall, the predecessor
judge in this district, denied the motion. Order, Dkt. # 141 (May 16, 2012). Par never applied to
the MDL panel for a transfer of this case to the AWP MDL in the District of Massachusetts (of
which Ven-A-Care was part).
After its transfer motion was denied, Par answered the amended Lisitza complaint and
asserted the affirmative defense of res judicata. Dkt. # 160. The plaintiffs moved to strike that
affirmative defense (see Dkt. ## 168, 170); rather than “strike” the defense, however, the Court
ordered briefing on the merits of the res judicata defense. Order, Dkt. # 188 (Mar. 8, 2013).
Thereafter, the plaintiffs moved for judgment on the pleadings, and Par cross-moved for
summary judgment, on the issue of whether the claims in this case are barred by the judgment in
the Ven-A-Care case. Those motions have been fully briefed and are ripe for ruling.
DISCUSSION
The sole task before the Court is to determine whether the FCA claim against Par can go
forward in light of the settlement and judgment in the Ven-A-Care case. Par contends that the
claim is barred by some blend of the contractual release and res judicata. The plaintiffs, on the
other hand, argue that this claim was not released in the Ven-A-Care case and that res judicata
does not apply to the different claim alleged in this case.
Perhaps as a result of how the affirmative defense was pleaded, the parties at times
conflate the separate defenses of res judicata and release. See Fed. R. Civ. P. 8(c)(1). But in the
Court’s view, if the legal claim in this case was released by contract (the prior settlement
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agreement), then it would be barred whether or not all elements of res judicata are satisfied. And
unless the settlement agreement contained some explicit waiver of res judicata, for example, the
application of that defense does not turn on the intent of the parties with respect to the release.
The Court therefore approaches the two defenses separately.
A.
Res Judicata/ Claim Preclusion
Par’s primary argument is that the Ven-A-Care judgment bars the plaintiffs’ claim. The
preclusive effect of a federal court judgment is determined by federal common law. Taylor v.
Sturgell, 553 U.S. 880, 891 (2008). In federal court, res judicata (claim preclusion) has three
elements: “(1) an identity of the parties or their privies in the first and second lawsuits; (2) an
identity of the cause of action; and (3) a final judgment on the merits in the first suit.” Adams v.
City of Indianapolis, 742 F.3d 720, 736 (7th Cir. 2014). The parties appear to agree that there
was a final judgment on the merits in the Ven-A-Care litigation, so that element will not be
addressed further. 5 Par contends that every requirement for res judicata is satisfied; the plaintiffs
primarily dispute the identity of the causes of action and further contend that the plaintiffs here
are not the same or in privity with the Ven-A-Care plaintiffs. 6 Because Par raised the affirmative
defense, it bears the burden of proof. Taylor, 553 U.S. at 907.
5
A settlement can have preclusive effect only when it is incorporated into the terms of a
judgment or consent decree. Carver v. Nall, 172 F.3d 513, 515 (7th Cir. 1999). The dismissal
order in Ven-A-Care incorporates the settlement agreement. Order, Dkt. # 205 Tab 5.
6
The plaintiffs also argue that the Lisitza claims could not have been brought in Ven-A-Care
because of the FCA’s first-to-file bar, which provides: “When a person brings an action under
this subsection [referring to subsection (b), “Action by private persons”], no person other than
the Government may intervene or bring a related action based on the facts underlying the
pending action.” 31 U.S.C. § 3730 (b)(5). The government did not bring, or intervene in, the
Ven-A-Care action. Thus the relator in Ven-A-Care could not have proceeded on a later-filed
claim if it was “based on the facts underlying” the pending Lisitza case against Par: in the First
Circuit, where Ven-A-Care was pending, the first-to-file bar is jurisdictional and “exception
free.” United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 117 (1st Cir.
8
Whether there is an identity of the cause of action depends on “‘whether the claims
comprise the same core of operative facts that give rise to a remedy.’” Adams, 742 F.3d at 736
(citation omitted). This means that the current matter and the previously litigated matter are
based on the same, or nearly the same, factual allegations arising from the same transaction or
occurrence. Bernstein v. Bankert, 733 F.3d 190, 226 (7th Cir. 2013); Matrix IV, Inc. v. American
Nat. Bank and Trust Co. of Chi., 649 F.3d 539, 547 (7th Cir. 2011); Johnson v. Cypress Hill, 641
F.3d 867, 874 (7th Cir. 2011); Andersen v. Chrysler Corp., 99 F.3d 846, 852 (7th Cir. 1996). 7 In
order to provide meaningful notice to litigants and “to yield predictable results,” the transactional
test must be applied to the facts of a case “at a sufficient level of specificity.” Andersen, 99 F.3d
at 852-53. If the transactional test is met (along with the other elements of res judicata), then the
bar applies not only to those issues decided in the prior suit but all other issues that could have
been brought in the prior case. Matrix IV, Inc., 649 F.3d at 547.
In this case, Par insists that the identity-of-claims element is met because both lawsuits
accuse Par of “taking advantage of increased Medicaid reimbursements,” and the two alleged
fraud schemes had “common goals, common results, and common injuries.” See Mem., Dkt.
# 204 at 2. According to Par, the very same false claims for the very same prescriptions are at
issue in both cases. And each case targets “the same price and reimbursement related marketing
2014). But Par points out that the plaintiffs are wrong about the timing: the Lisitza claims against
Par were filed on November 9, 2006; in Ven-A-Care, however, Par was first made a defendant on
February 15, 2005. The Ven-A-Care claims against Par therefore came first, and so the plaintiffs
here are wrong to invoke the first-to-file provision. (In their reply, the plaintiffs do not respond to
Par’s argument to this effect.) Of course, the provision is wholly irrelevant if the cases are not
based upon the same facts.
7
To the extent that Par, citing Okoro v. Bohman, 164 F.3d 1059, 1062 (7th Cir. 1999) argues that
the Seventh Circuit uses a “broader test” than that cited by the plaintiff (relying primarily on
Andersen) and set forth by the Court in the text above, the case law, including Okoro, does not
support the existence of any “broader” formulation of the transactional test than that outlined in
Andersen and applied consistently thereafter, including in the recent cases cited infra.
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practices.” Id. at 18. In other words, the legal claims in the two cases are the same because the
underlying false claims are the same, albeit for different reasons.
For their part, the plaintiffs argue that the two lawsuits target two distinct fraud schemes
based on different facts: one involving the manipulation of reported average prices and one
involving the unlawful substitution of drugs. Each type of conduct, plaintiffs say, is wholly
distinct, and each constitutes an independent violation of the FCA that caused different damages.
Par succeeds in establishing that the legal allegations of the two complaints are the same:
that Par caused the submission of false claims at the expense of the Medicaid program by, as it
euphemistically states, “taking advantage” of certain increased Medicaid reimbursements. But
the factual allegations—the focus of the res judicata inquiry—are identical only if one accepts
the view that the transaction at issue is the submission of a false claim (irrespective of how or
why it was false), rather than the conduct that caused the claim to be false. For when it comes to
what Par allegedly did—how it defrauded the government—there are very few common facts
between the two complaints. The Lisitza complaint says nothing about the falsification of the
published prices for the drugs at issue. The Ven-A-Care complaint says nothing about Par’s
practice of encouraging pharmacies to automatically substitute dosage forms regardless of
medical need and cost efficiency. The factual comparisons that Par attempts to draw—for
example, as to Par’s marketing based upon the profit potential its schemes created—are not
persuasive; these are a but a fraction of the allegations in Lisitza, and clearly there were separate
alleged schemes with different financial incentives. The material factual allegations in the two
complaints are simply not the same except at an extreme level of generality.
But the fact remains that both lawsuits target the submission of false claims for some of
the same drugs during the same time period. Should it matter for purposes of res judicata that
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those claims were false for different reasons? Par says no, relying almost exclusively on United
States ex rel. Barajas v. Northrop Corp., 147 F.3d 905 (9th Cir. 1998). In that case, the relator
alleged that a defense contractor had submitted false test certifications for flight data transmitters
and fraudulently provided fluid in the transmitters that would freeze at 50 degrees below zero
rather than the contractually specified 65 degrees below zero. The government intervened and
took over the case, but pursued only the false-certification portion in its amended complaint; the
fluid claim was severed, and the relator pursued it separately from the government. The qui tam
case “based on the fraudulent certifications of tests,” id. at 907, was settled. The government
released all of its FCA claims, but the relator preserved his right to pursue claims that the
damping fluid did not meet cold temperature performance requirements. The relator indeed
continued the lawsuit based on those allegations, but it ultimately was dismissed on res judicata
grounds. The Ninth Circuit affirmed that result, holding that the settlement of the falsecertification claim was res judicata as to the fluid claim. Id. at 910. The court reasoned: “While
Barajas is plainly correct that it is one thing to have fluid that gums up in the cold, and another to
lie about whether the fluid was tested for gumming up, both wrongful acts arise out of the same
attempt to get paid for flight data transmitters not up to specifications.” Id.
Barajas supports Par’s argument that it is irrelevant that the certified claims were false
for multiple reasons, but the Court finds that case so factually distinguishable from this one that
its persuasive effect is minimal. 8 In Barajas, the court was addressing the res judicata effect of
the judgment on one claim as to another claim that originated in the same cause of action. Unlike
in this case, moreover, the relator was the same in both cases, so there was no question of
8
Furthermore, it is far from clear that the Ninth Circuit’s “same transactional nucleus” test is
applied to the same level of factual specificity that the Seventh Circuit requires. See Andersen,
99 F.3d at 852-53
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adequate notice to the parties of the potentially preclusive result. And unlike in this case, it could
be said unequivocally that the same set of false claims—the very same invoices—was at issue in
both cases, and the damages were clearly the same in both. Thus it made sense to view the
common transaction as the submission of “false invoices for the flight data transmitters.” Id. at
910.
By contrast, Ven-A-Care and Lisitza involve two relators who separately brought suit
based on vastly different facts and, as far as can be determined, had knowledge only of the facts
underlying the frauds alleged in their respective cases. These lawsuits originated separately,
unlike in Barajas, where the claims were brought together only to be severed later. More
importantly, this case is distinguishable from Barajas because, although it is likely that some
portion of the false claims at issue in this case were the same false claims at issue in Ven-A-Care,
it is far from clear that the overlap is as total as Par suggests. For example, although some of the
same drugs were at issue in both cases, the two sets of drugs do not completely overlap;
buspirone was not one of the drugs at issue in Ven-A-Care. And because the universe of
plaintiffs, particularly the participating states, is not identical in both cases, there are many
allegedly false claims submitted to state Medicaid programs for reimbursement that are not at
issue in both cases. With so many more states participating in this case, it stands to reason that
more claims are at issue.
Furthermore, to the extent that the two lawsuits do pertain to some of the same false
claims, the plaintiffs have persuasively argued that the damages nevertheless differ. See Mem.,
Dkt. 212 at 9-12. The damages in Ven-A-Care were simply the amount by which Par caused the
reimbursement amounts to be inflated, whereas in this case, the damages might be the entire
amount of the reimbursement (less any portion already paid as damages), if the plaintiffs prove
12
that claims for the particular drug forms and dosages at issue should not have been submitted at
all because they were not authorized by a physician or were not the most cost-efficient option.
Par should not have to pay the same damages twice, 9 but if the plaintiffs prove liability in this
case, they will be entitled to damages for false claims that are unique to this case as well as
whatever additional damages they can prove are owing on the false claims that were also at issue
in Ven-A-Care. Therefore, it cannot be said in this case, as it was Barajas, that proving the
second claim would have been “a waste of time.” See 147 F.3d at 910.
Given the material factual distinctions, Barajas is not the silver bullet Par imagines. The
mere fact that Par’s divergent fraud schemes intersected at the point where the claims were
submitted for Medicaid reimbursement is insufficient to trigger res judicata. See, e.g., Colonial
Penn Life Ins. Co. v. Hallmark Ins. Adm’rs, Inc., 31 F.3d 445, 451 (7th Cit. 1994) (res judicata
did not bar second suit arising from same loan); In Re Stoecker, 5 F.3d 1022, 1031 (7th Cir.
1993) (res judicata did not apply where both claims “arise ultimately out of” the same loan and
bankruptcy, because “conduct giving rise to the two claims occurred at different times and
involved different acts by different parties”). Also to the point are cases in which separate
lawsuits arising from the same plaintiffs’ purchase of the same securities were permitted because
the alleged frauds involved different conduct. E.g., Lindelow v. Hill, 2001 WL 830956, at *10
(N.D. Ill. 2001).
Finally, although claim-splitting is often inappropriate and barred by res judicata, it is not
absolutely prohibited; under certain circumstances, “[l]itigants who want to split a claim among
different suits can do so.” Arrow Gear Co. v. Downers Grove Sanitary District, 629 F.3d 633,
638 (7th Cir. 2010). The very fact that the defense can be waived—for example in an agreement
9
Whether this is accomplished by a set-off or some other means remains to be seen.
13
settling related litigation—illustrates this principle. See id. And although the institutional
concerns behind res judicata, not just the private parties’ interests, must be honored, at times it is
simply not feasible resolve all claims arising from similar events at once. Thus, in Arrow Gear
Co., lawsuits arising from the contamination of groundwater by various polluters proceeded
separately, and the settlement of the residents’ class action did not bar the government’s ongoing
regulatory action concerning the same incident. Where the federal government’s investigation of
the contamination was ongoing at the time of the first settlement, it “made sense” to claim-split
and allocate the initial liability among the polluters until additional liability was determined. Id.
at 638-39. So too, here: if the government’s investigation into Par’s fraudulent practices was
ongoing as of the time of the Ven-A-Care settlement, there seems little reason that it should have
been required to reject the settlement just to preserve its right to continue the investigation and
uncover further misconduct and damages brought to light by another relator with knowledge of a
different scheme.
The legal claims raised in Ven-A-Care, for purposes of res judicata, did not arise from a
common factual nucleus with those raised here, unless the facts are viewed at a level of
generality that is inconsistent with Seventh Circuit precedent and principles of fair notice to
potential litigants regarding the need to combine lawsuits. Therefore, res judicata does not bar
this suit. The Court need not address the parties’ arguments about whether the parties to the two
suits are identical or in privity and whether the claim in this case could have brought in the VenA-Care suit.
14
B.
Waiver
As should be clear from its decision on the merits of the res judicata defense, the Court
rejects the plaintiffs’ argument that Par waived it, but a few points merit explanation.10 The
plaintiffs argued that Par’s acquiescence to the separate litigation of these cases, and its failure to
seek transfer of this case to the MDL comprising many lawsuits premised on Par’s alleged
fraudulent pricing schemes (including Ven-A-Care) estop it from raising a res judicata defense in
this case. See Restatement (Second) of Judgments § 26(1)(a) & cmt. a. There is some support for
the idea that when two cases based upon similar facts are proceeding simultaneously, the
defendant should bear the burden of objecting to the claim-splitting or losing the benefit of the
res judicata defense. See, e.g., Charles Alan Wright, Arthur R. Miller, et al., 18 Fed. Prac. &
Proc. § 4415 (2d ed.) (“Few defendants are apt to request that additional demands be made
against them. A rule that failure to object waives claim preclusion benefits would go far toward
general destruction of claim preclusion. On the other hand, a defendant who is defending two
simultaneous actions has little to lose and much to gain by an objection to the splitting. Thus it
makes sense to require objection only if two actions are pending simultaneously.”). Nevertheless,
the Court is reluctant to find a waiver here based upon the mere failure to object, because Par
raised res judicata as a defense as soon as it became viable—once there was an enforceable
judgment in the other case. The plaintiffs do not contend that the defense is untimely, and
10
Par fails to meaningfully engage with the plaintiffs’ argument that Par’s course of conduct
throughout this litigation demonstrates acquiescence to claim-splitting. And Par’s further
argument that this Court has already rejected the waiver argument is simply wrong. This Court’s
prior order denied the relator’s motion to strike the res judicata defense without prejudice to
raising all arguments against it in a motion for judgment on the pleadings or motion for summary
judgment. That order did not substantively address any of the plaintiffs’ arguments, including its
waiver argument.
15
“acquiescence” is not an appropriate descriptor of how Par has proceeded, based on its quick
assertion of the defense.
Although Par’s conduct falls short of the acquiescence that could constitute a waiver, its
course of conduct is still illuminating in that in underscores the dissimilarity of the facts
underlying this case the Ven-A-Care case. Clearly, the res judicata defense could not have been
raised here before a final judgment in Ven-A-Care, but the same interests could have been
enforced through other means if the cases were truly parallel. Most notably, Par never applied to
the MDL panel for transfer of this case to the MDL of which Ven-A-Care was part. Under 28
U.S.C. § 1407, actions involving “one of more common questions of fact” pending in different
districts “may be transferred” to a single district, and such transfers “shall be” made by the MDL
panel—not by the judge in one of the disparate lawsuits. Par’s motion in this Court to transfer
this case to the District of Massachusetts—after Par had already litigated to settlement in the
Ven-A-Care case, and six years into the life of this case—was a feeble substitute for an earlier
motion to transfer to the MDL, if in fact Par believed that the cases shared a common core of
facts. In other words, by the time Par brought its motion to transfer, it was already too late to
prevent the main harm res judicata is meant to guard against: the duplicate litigation of similar
claims. See, e.g., Allen v. McCurry, 449 U.S. 90, 94 (1980) (“[R]es judicata and collateral
estoppel relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources,
and, by preventing inconsistent decisions, encourage reliance on adjudication.”); Bernstein, 733
F.3d at 225 (Claim preclusion “operates to conserve judicial resources and promote finality”);
Palka v. City of Chicago, 662 F.3d 428, 437 (7th Cir. 2011) (“Res judicata promotes
predictability in the judicial process, preserves the limited resources of the judiciary, and protects
litigants from the expense and disruption of being haled into court repeatedly.”).
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Under federal law, a general equitable exception to res judicata has been met with much
skepticism. See Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394 (1981); Horwitz v. Alloy
Automotive Co., 992 F.2d 100, 105 (7th Cir. 1993). This Court is not applying such an exception
here; the elements of res judicata simply are not met. But Par’s course of conduct reinforces the
Court’s view that this matter and Ven-A-Care do not present identical claims for purposes of res
judicata.
C.
Release
The factual disparities between the two cases also compel the conclusion that the claim in
this case cannot fairly be considered part of the Ven-A-Care “Federal Covered Conduct” for
purposes of the release. Ordinary principles of contract law govern the interpretation of the
release. JPMorgan Chase Bank, N.A. v. Asia Pulp & Paper Co., Ltd., 707 F.3d 853, 863 (7th Cir.
2013). Here, the parties fail to identify the governing substantive law or cite any applicable
authority, but the settlement agreement itself provides that the law of the State of New York
controls. See SA ¶ 18(a). Under New York law, a contract must be construed in accordance with
the parties’ intent, which is generally discerned from the document itself. IDT Corp. v. Tyco
Group, 918 N.E. 2d 913, 916 (N.Y. 2009) (internal quotation marks and citation omitted). An
agreement that is clear and unambiguous must be enforced according to the plain meaning of its
terms. Id.
Here, the plaintiffs argue that the “Federal Covered Conduct” to which the Ven-A-Care
release applies refers solely to the false price reporting at issue in that litigation, and, moreover,
the settlement agreement expressly excluded from the release any conduct other than the false
price reporting. Par, on the other hand, argues the release is broad and applies to all false-claims
claims within the applicable time period.
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Based on the plain language of the release, recounted above, the plaintiffs’ arguments
must prevail; the claims at issue in this litigation were not released as part of the Ven-A-Care
settlement. The “Federal Covered Conduct” pertained only to allegations set forth in, or arising
from, the Ven-A-Care complaint, which related exclusively to Par’s scheme to manipulate
reimbursement amounts by falsely reporting pricing benchmarks. As explained with respect to
the res judicata argument, that “conduct” is not implicated by the complaint in this case, which is
based on a distinct drug-switching scheme. The plain language of the release does not indicate
the parties’ intent to release claims unrelated to the pricing scheme. That is not to say that the
plaintiffs’ entire argument holds water; in particular, its reliance on Paragraph 14, the express
exemption, is the product of circular reasoning. Paragraph 14 provides: “Notwithstanding any
other term of this agreement, including the release . . . , any and all of the following are
specifically reserved and excluded from the scope and terms of this Agreement, and from the
scope and terms of the releases, as to any entity or person: . . . (i) Liability to the United States
for any conduct other than the Federal Covered Conduct, and liability any state for any conduct
other than [the Covered Conduct of each Settling State].” This paragraph adds no additional
force to the plaintiffs’ arguments, because it turns entirely on how “Federal Covered Conduct” is
defined. As the Court has concluded, the Federal Covered Conduct pertains solely to the price
manipulation scheme as alleged in the Ven-A-Care complaint; it is for that reason that Paragraph
14’s exemption is relevant here.
Par’s interpretation of “Federal Covered Conduct” is unpersuasive and inconsistent with
the plain language of the settlement agreement. The release does not, as Par contends, apply to
all “claims that could have been brought for the allegedly false claims that Par submitted or
caused to be submitted.” Mem., Dkt. # 204 at 23. There is no way to read the definition of
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“Federal Covered Conduct” so broadly. The claims “based upon or arising out of the Federal
Covered Conduct” do not include claims predicated on the drug-switching scheme alleged in the
Lisitza complaint. In an effort to blur the distinctions between the reported price scheme at issue
in Ven-A-Care and the drug-switching scheme at issue in this case, Par describes the facts at a
level of generality and abstraction that would apply to almost any fraudulent scheme. That both
schemes “centered on increasing sales of Par’s drugs and its own profits,” Dkt. # 204 at 18, is not
a similarity between the schemes but a truism applicable to virtually any scheme to defraud
Medicaid and Medicare. The same could be said, for example, of a scheme to promote off-label
uses of Par’s drugs (e.g., United States ex rel. Nathan v. Takeda Pharmaceuticals N.A., Inc., 707
F.3d 451, 455, (4th Cir. 2013)), yet it would not be reasonable to construe the release to extend
to that conduct.
Nor does the fact that many of the claims that were false by virtue of one scheme were
also false by virtue of the other bring the drug-switching scheme within the scope of the Ven-ACare release, which is expressly limited to claims asserting that “Par knowingly set, reported
and/or maintained . . . false, fraudulent, and/or inflated prices for certain of the Covered Drugs,
including prices reported to, or published by, price publishing services (‘Reported Prices’).” As
such, the release speaks to the conduct underlying the submission of false claims. And to the
extent that the release refers to the submission of reimbursement claims, it makes plain that the
claims included in the release are those “based on the Reported Prices,” which were deemed to
be inflated by virtue of the alleged price manipulation by Par and other manufacturers—conduct
that had nothing to do with the drug substitution scheme alleged in this case.
Par’s attempt to attribute the profits derived from the drug switching scheme to the
allegations of price manipulation in Ven-A-Care also falls short. According to Par, the plaintiffs
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allege that the drug-switching scheme is profitable because “the cause for [the] reimbursement
disparity [between drugs subject to reimbursement caps and those that are not] is that
‘infrequently-prescribed drugs tend to be reimbursed at a higher level according to a rate
established by the manufacturer’s pricing.” True enough, but the complaint in this case contains
no allegation whatsoever that Par or other manufacturers falsely reported their prices in order to
create that disparity, so there is no link alleged between the reported price scheme and the drug
switching scheme.
Because the release applies only to such claims “based upon or arising out of” conduct
that is expressly defined to include only the facts alleged in the Ven-A-Care complaint pertaining
to the scheme to inflate reimbursement amounts by falsely reporting pricing data, the release
does not apply to the claim asserted in this case.
***
Because this case does not raise the same claim litigated to judgment in Ven-A-Care, the
plaintiffs’ motion for judgment on the pleadings as to the defense of res judicata is granted, and
the defendant’s cross-motion for summary judgment is denied. Par’s affirmative defenses of res
judicata and release have been adjudicated and are no longer at issue in this case.
John J. Tharp, Jr.
United States District Judge
Date: July 31, 2014
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