United States of America v. Exeltis USA, Inc.
MEMORANDUM Opinion and Order: For the reasons stated in the attached order, Defendants' motion to dismiss, R. 46 , is granted. The case is dismissed without prejudice. However, Lupinetti may not immediately file an amended complaint. If Lupinet ti believes he can cure the deficiencies described by the order, he should file a brief of no more than five pages explaining how he would amend his complaint, attaching his proposed amended complaint as an exhibit. Based on this submission, the Cour t will determine whether to permit Lupinetti to file an amended complaint. Lupinetti's counsel should contact the Courtroom Deputy by November 23, 2021 to state whether and when they plan to make this submission, or instead that the case should be dismissed. Defendants should not respond unless ordered by the Court. Signed by the Honorable Thomas M. Durkin on 11/19/2021. Mailed notice. (ecw, )
Case: 1:19-cv-00825 Document #: 62 Filed: 11/19/21 Page 1 of 13 PageID #:429
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
No. 19 C 825
Judge Thomas M. Durkin
EXELTIS USA, INC.; AVION
PHARMACEUTICALS, LLC; MISSION
PHARMACAL COMPANY; VERTICAL
PHARMACEUTICALS, LLC; and WOMEN’S
CHOICE PHARMACEUTICALS LLC,
MEMORANDUM OPINION AND ORDER
Defendants manufacture prenatal vitamins. Patrick Lupinetti alleges that
Defendants “mislabel and mispresent their [prenatal vitamins] as ‘Rx’ or
prescription only” to ensure coverage under Medicaid, and that these alleged
misrepresentations violate the False Claims Act. Defendants have moved to dismiss
for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 46.
That motion is granted.
A Rule 12(b)(6) motion challenges the “sufficiency of the complaint.” Berger v.
Nat. Collegiate Athletic Assoc., 843 F.3d 285, 289 (7th Cir. 2016). A complaint must
provide “a short and plain statement of the claim showing that the pleader is entitled
to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with “fair notice” of
the claim and the basis for it. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
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This standard “demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While “detailed
factual allegations” are not required, “labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.
The complaint must “contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly,
550 U.S. at 570). “‘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.’” Boucher v. Fin. Sys. of Green Bay, Inc., 880 F.3d
362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In applying this standard,
the Court accepts all well-pleaded facts as true and draws all reasonable inferences
in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d 634, 646 (7th Cir. 2018).
The Center for Medicare & Medicaid Services (“CMS”) administers Medicaid.
For Medicaid to cover a certain drug, the drug manufacturer must enter into a rebate
agreement with CMS. Drugs covered by Medicaid are known as “covered outpatient
drugs,” or “CODs.”
States participating in Medicaid are permitted to exclude or restrict coverage
of certain CODs. See 42 U.S.C. § 1396r-8(d). However, states are prohibited from
excluding “prescription . . . prenatal vitamins” from coverage. Id. § 1396r-8(d)(2)(E).
Lupinetti alleges that Defendants falsely label and identify their prenatal
vitamins as requiring prescriptions so that state Medicaid programs cannot exclude
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them from coverage. He alleges Defendants make these false statements by including
the mark “Rx” or phrase “prescription only” on their products and by reporting them
as such to CMS, causing the government to pay for their coverage under Medicaid.
Lupinetti also alleges that Defendants falsely state their prenatal vitamins are
approved by the U.S. Food and Drug Administration. He alleges Defendants make
these false statements by: (1) identifying their products with “National Drug Codes,”
which are allegedly only available for FDA-approved products; (2) identifying their
products to CMS with the “Drug Type Indicator” of “1 = Rx,” again to claim
prescription status; and (3) reporting an FDA “approval date” for their prenatal
vitamins. Lupinetti alleges that the FDA prohibits the use of these identifiers on any
product that is not an FDA-approved drug.
Lupinetti does not explain how Defendants would benefit by misrepresenting
that their prenatal vitamins are FDA-approved. Indeed, he argues in his brief that
this “case is not about ‘FDA-approval’ status.” R. 52 at 16.
Lastly, Lupinetti alleges that Defendants also make these misrepresentations
about prescriptions and FDA approvals to private companies that compile
“compendia” of information about drugs. According to Lupinetti, “Medicaid and other
government healthcare programs rely on drug compendia companies for obtaining
drug information, electronically processing claims, and automatically calculating
reimbursement amounts.” R. 20 ¶ 66.
Lupinetti worked for a compendia company called First Databank. Prior to
working for First Databank, Lupinetti was an Assistant Attorney General in the New
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York Medicaid Fraud Control Unit for more than 20 years. Lupinetti alleges that he
was able to discover Defendants’ alleged misrepresentations regarding prenatal
vitamins by applying his experience as a Medicaid fraud investigator to the
information Defendants submitted to First Databank.
The False Claims Act permits private citizens to file a civil action on behalf of
the government to recover money that the government paid based on false or
fraudulent claims. 31 U.S.C. § 3730(b)(1). “To establish civil liability under the [FCA],
[a plaintiff] generally must prove (1) that the defendant made a statement in order
to receive money from the government; (2) that the statement was false; and (3) that
the defendant knew the statement was false.” U.S. ex rel. Yannacopoulos v. Gen.
Dynamics, 652 F.3d 818, 822 (7th Cir. 2011). 1
Public Disclosure Bar
An FCA complaint must be dismissed if:
substantially the same allegations or transactions as
alleged in the action or claim were publicly disclosed . . . in
a congressional, Government Accountability Office, or
other Federal report, hearing, audit, or investigation [or]
from the news media, unless . . . the person bringing the
action is an original source of the information. . . .
“[O]riginal source” means an individual who . . . has
knowledge that is independent of and materially adds to
the publicly disclosed allegations or transactions, and who
Specifically, these statutes prohibit “knowingly present[ing], or caus[ing] to be
presented, a false or fraudulent claim for payment,” and “knowingly mak[ing] or
us[ing] . . . a false record or statement material to a false or fraudulent claim” paid
by the government. See 31 U.S.C. §§ 3729(a)(1)(A), (B); 740 ILCS 175/3(a)(1)(A), (B).
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has voluntarily provided the information to the
Government before filing an action under this section.
31 U.S.C. § 3730(e)(4). The Seventh Circuit has explained that applying this “public
disclosure bar” requires the following three-step analysis:
[F]irst examine whether the allegations in the complaint
have been “publicly disclosed” through one of the
enumerated channels. If so, . . . . determine whether the . .
. lawsuit is “based upon,” i.e., “substantially similar to,”
those publicly disclosed allegations. If it is, the publicdisclosure bar precludes the action unless “[the plaintiff] is
an ‘original source’ of the information upon which [the]
lawsuit is based.”
Cause of Action v. Chi. Trans. Auth., 815 F.3d 267, 274 (7th Cir. 2016). “The [plaintiff]
bears the burden of proof at each step of the analysis.” Id. The public disclosure bar
“is a jurisdictional requirement that must be addressed before a court can reach the
merits of the FCA claims.” Bellevue v. Universal Health Servs. of Hartgrove, Inc., 867
F.3d 712, 716-17 (7th Cir. 2017).
The “allegations in a complaint are publicly disclosed when the critical
elements exposing the transaction as fraudulent are placed in the public domain.”
Cause of Action, 815 F.3d at 274. “[M]aterial is in the public domain when the
information is open or manifest to the public at large,” or “where the facts disclosing
the fraud itself are in the government’s possession.” Id. The Seventh Circuit has
explained that “the public-disclosure bar removes jurisdiction only where one can
infer, as a direct and logical consequence of the disclosed information, that the
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defendant knowingly—as opposed to negligently—submitted a false set of facts to the
Government.” Id. at 279.
Defendants argue that the statements Lupinetti alleges are false were all
made expressly in reports to the government or in public product labels and
advertising. Defendants cite CMS and FDA websites they contend published
Defendants’ statements about prescription requirements and that their vitamins
were not FDA approved. See R. 47 at 10. The Court cannot decipher the information
in these websites. But that is of no moment because Lupinetti does not dispute that
Defendants’ labels and descriptions of their products are in the public domain. See R.
52 at 21-28 (Lupinetti’s arguments against application of the public disclosure bar do
not include an argument that Defendants government reports, advertising, and
product labels were not in the public domain.)
Lupinetti argues, however, that these reports, advertisements, and labels do
not disclose Defendants’ fraud because “[n]one of Defendants’ purported ‘disclosures’
actually disclose that Defendants’ products should not have been labeled ‘Rx’ or ‘Rx
Only.” R. 52 at 24. In other words, Lupinetti concedes that Defendants’ statements
about their products were made publicly but argues that knowledge of the statements’
falsity requires information not contained in the statements themselves.
The problem with this argument is that the only information not contained in
Defendants’ statements necessary to reveal their alleged falsity is readily available
in the relevant statutes and regulations. Under the Federal Food, Drug, and Cosmetic
Act, Defendants’ prenatal vitamins are categorized as “dietary supplements,” as
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opposed to “drugs.” See 21 U.S.C. §§ 321(g), (ff) (separate definitions for “drugs” and
“dietary supplements”); see also R. 20 ¶ 39 (Lupinetti expressly alleges that
Defendants’ vitamins are “dietary supplements,” not “drugs.”). Lupinetti argues that
the relevant law permits only “drugs” to be labeled as “prescription only” or “FDAapproved,” and prohibits application of such terms to “dietary supplements” like
Defendants’ prenatal vitamins. But Lupinetti offers no reason why CMS, an agency
tasked with administering reimbursement for drugs as well as dietary supplements,
would not be aware of relevant statutes and regulations. See Cause of Action, 815
F.3d at 279 (finding public disclosure because “the regulatory scheme here does not
involve any qualitative judgments”). CMS is just as capable as Lupinetti, if not more
so, of understanding that prenatal vitamins are not FDA-approved drugs. See
Bellevue, 867 F.3d at 719 (“There is no reason that the government could not have
made the same inference[.]”). The potential falsity of Defendants’ statements can be
gleaned simply by viewing the information Defendants included on their product
labels and submitted to the government in light of the relevant statutes and
regulations. Lupinetti’s knowledge adds nothing. Thus, his allegations were publicly
Lupinetti argues that even if the allegations were publicly disclosed, he is an
“original source” of the allegations because his analysis was necessary to reveal the
falsity of Defendants’ statements that was “hidden in plain sight.” R. 52 at 27 (citing
U.S. ex rel. Osheroff v. Tenet Healthcare Corp., 2012 WL 2871264, at *3 (S.D. Fla.
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July 12, 2012), and U.S. ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1017 (7th
Cir. 1999)). Unlike the plaintiffs in Osheroff and Lamers, however, Lupinetti does not
allege that he uncovered any hidden information.
In Osheroff, the plaintiff alleged that a healthcare company was providing
doctors with below market-rate office space and other financial benefits in exchange
for referrals that the healthcare company then billed to federal healthcare programs.
The plaintiff analyzed “otherwise innocuous, garden-variety real estate/financial
information” to uncover the alleged kickbacks. 2012 WL 2871264, at *3.
In Lamers, the plaintiff alleged that a municipality was using its transit
system to provide school bus service in violation of federal law. The plaintiff walked
the bus routes and observed the buses following routes that revealed the violations.
168 F.3d at 1017.
In both cases, the underlying facts were in the public domain: i.e., the financial
transactions in Osheroff, and the bus routes in Lamers. But work was necessary to
show that those facts constituted violations of federal law: the Osheroff plaintiff had
to examine the financial relationships between the doctors and the hospitals and
determine that the rental agreements were below-market, among other analysis; the
Lamers plaintiff literally had to walk the streets.
Lupinetti has not taken any comparable actions. The plaintiffs in both Osheroff
and Lamers added new information to the facts that were already disclosed. Lupinetti
has not added any new information to the already disclosed facts. He merely opines
that the already disclosed facts constitute a violation of federal law. He argues that
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his ability to recognize the violations is the work he has done to reveal the fraud. But
the Seventh Circuit has explained that a plaintiff who merely “references . . . the
statutes and regulations that support its legal theory of fraud” has made allegations
that “are substantially similar to the publicly disclosed allegations,” and thus such a
plaintiff cannot be an original source. See Cause of Action, 815 F.3d at 282-83; see also
Bellevue, 867 F.3d at 721 (7th Cir. 2017) (“In [Cause of Action], we found that because
the plaintiff’s allegations were ‘substantially similar to’ the publicly disclosed
allegations, the plaintiff did not ‘materially add’ to the public disclosure and could not
be an original source.”). Lupinetti’s opinion that Defendants’ product labels and
descriptions violate federal law does not make him an original source.
Therefore, the public disclosure bar requires dismissal of Lupinetti’s
Even if the public disclosure bar does not require dismissal here, Lupinetti has
failed to plausibly allege scienter. “A party who submits a false claim to the
government is on the hook for FCA liability only if it acted knowingly.” United States
v. Supervalu Inc., 9 F.4th 455, 463 (7th Cir. 2021) (citing 31 U.S.C. § 3729(a)(1)(A)).
The FCA defines knowingly to “mean that a person, with respect to information (i)
has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth
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or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of
the information.” 31 U.S.C. § 3729(b)(1)(A).
In Supervalu, the Seventh Circuit applied this standard to allegations that
pharmacies had improperly reported the “usual and customary” price of certain drugs
to Medicaid as required by regulation. The court held that in the context of an FCA
claim alleging violation of a regulatory regime, a defendant can show it lacked the
requisite scienter if: “(a) it has an objectively reasonable reading of the statute or
regulation and (b) there was no authoritative guidance warning against its erroneous
view.” 9 F.4th at 468; see also id. at 470 (“The FCA establishes liability only
for knowingly false claims—it is not enough that a defendant suspect or believe that
its claim was false.”).
Lupinetti cites no statute or regulation preventing Defendants from labeling
their prenatal vitamins as “prescription only.” Indeed, CMS guidance expressly
anticipates that some prenatal vitamins will be prescription only. In 2011, CMS
issued guidance explaining that “non-prescription [over-the-counter] prenatal
vitamins do not appear to meet the definition of a covered outpatient drug as set forth
in section [1396r-8],” but “prescription prenatal vitamins continue to meet the
definition of a covered outpatient drug and are rebate-eligible.” CMS, Release No. 159
(Dec. 28, 2011), at 2. 2 Further, in 2014, CMS issued a “covered outpatient drug” code,
Code 7, for prescription prenatal vitamins. See R. 55 at 3. CMS has instructed
Available at https://www.medicaid.gov/medicaid-chip-program-information/bytopics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-159.pdf.
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manufacturers to use Code 7 in their rebate agreements when seeking Medicaid
coverage for prescription prenatal vitamins. See National Drug Rebate Agreement
Reference Guide (Dec. 22, 2020). 3 It is objectively reasonable for Defendants to
interpret this guidance to permit them to label prenatal vitamins as “prescription
Lupinetti argues regardless of the CMS guidance, the FDA restricts the use of
“prescription only,” citing the Federal Food, Drug, and Cosmetic Act. That requires
“drugs” to be “dispensed” only with a doctor’s prescription if:
(A) because of its toxicity or other potentiality for harmful
effect, or the method of its use, or the collateral measures
necessary to its use, [it] is not safe for use except under the
supervision of a practitioner licensed by law to administer
such drug; or
(B) it is limited by an approved application under section
355 of this title to use under the professional supervision
of a practitioner licensed by law to administer such drug[.]
21 U.S.C. § 353(b)(1). The Act also provides that the “act of dispensing a drug contrary
to the provisions of this paragraph shall be deemed to be an act which results in the
drug being misbranded while held for sale.” Id. Lupinetti contends that Defendants’
prenatal vitamins do not meet the statutory requirements to be prescription only, and
so marking them as such constitutes “misbranding.”
The problem with this argument is that, as discussed, the Act expressly
distinguishes “drugs,” which must be approved by the FDA, from “dietary
supplements” like Defendants’ prenatal vitamins. See 21 U.S.C. §§ 321(g), (ff). The
Available at https://www.medicaid.gov/medicaid/prescription-drugs/downloads/
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foregoing provision restricts what “drugs” can be labeled as prescription only. But it
says nothing about “dietary supplements” like Defendants’ prenatal vitamins.
Lupinetti cites several other provisions of the Federal, Food, Drug, and
Cosmetic Act and its regulations restricting use of “National Drug Codes,” the “Drug
Type Indicator” of “1 = Rx,” and FDA “approval dates.” To the extent these provisions
can be interpreted as limiting the use of these identifiers to “drugs,” and prohibiting
their use on non-drug products, CMS has instructed manufacturers to use them
anyway. See CMS, Release No. 159 (Dec. 28, 2011), at 2 (referring to NDCs); CMS,
Drug Product Data: Web File Structure and Definitions (Aug. 2018), at 2 (referring to
manufacturers to report an ‘Approval Date’ for their products, which is defined as
‘The NDC or monograph approval date,’” and that “CMS instructed prenatal vitamin
manufacturers to use a proxy date of September 30, 1990 for the FDA approval date.”
R. 20 ¶ 61 and n.5 (emphases added). And Lupinetti concedes that CMS has “for
years” been reimbursing payments for prescription prenatal vitamins identified with
this information. See id. ¶ 96.
All of these facts taken together show that Defendants had an objectively
reasonable belief that they were legally permitted to describe their prenatal vitamins
as “prescription only” and using FDA identifiers, and that there was no “authoritative
guidance” to the contrary. These allegations, regulations, and reports show that
Available at https://www.medicaid.gov/medicaid-chip-program-information/bytopics/prescription-drugs/downloads/recordspecficationanddefinitions.pdf.
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Lupinetti has failed to plausibly allege that Defendants submitted claims for
payment to the government knowing they were based on false statements. Indeed,
there is an objectively reasonable argument that Defendants’ statements were
truthful or at least that they were made in accordance with express instructions from
Therefore, Defendants’ motion to dismiss, R. 46, is granted. The case is
dismissed without prejudice. However, Lupinetti may not immediately file an
amended complaint. If Lupinetti believes he can cure the deficiencies described by
the order, he should file a brief of no more than five pages explaining how he would
amend his complaint, attaching his proposed amended complaint as an exhibit. Based
on this submission, the Court will determine whether to permit Lupinetti to file an
amended complaint. Lupinetti’s counsel should contact the Courtroom Deputy by
November 23, 2021 to state whether and when they plan to make this submission, or
instead that the case should be dismissed. Defendants should not respond unless
ordered by the Court.
Honorable Thomas M. Durkin
United States District Judge
Dated: November 19, 2021
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