UNITED STATES OF AMERICA et al v. OMNICARE, INC. et al

Filing 131

OPINION FILED. Signed by Judge Noel L. Hillman on 9/29/14. (js)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

:
UNITED STATES OF AMERICA, ex
:
rel. MARC SILVER, et al.,
:
:
Relators,
:
:
v.
:
:
OMNICARE, INC., et al.,
:
:
Defendants.
:
:
______________________________ :

Civil Action No.
11-1326

OPINION

LISA J. RODRIGUEZ
NICOLE M. ACCHIONE
Schnader Harrison Segal & Lewis LLP
Woodland Falls Corporate Park
220 Lake Drive East
Suite 200
Cherry Hill, NJ 08002-1165
SHAUNA BRIE ITRI
BERGER & MONTAGUE PC
1622 LOCUST STREET
PHILADELPHIA, PA 19103
Attorneys for Relators
JUDITH H. GERMANO
GERMANO LAW LLC
460 BLOOMFIELD AVENUE
SUITE 200
MONTCLAIR, NJ 07043
Attorney for Defendant PharMerica Corp.

1

HILLMAN, District Judge:
Relator, Marc Silver, filed a qui tam action for violations
of the False Claims Act (“FCA”) against defendants alleging that
defendants engaged in a scheme that violated the Anti-Kickback
Statute by offering nursing homes below market prices for drugs
to patients insured by Medicare Part A in exchange for referrals
of prescriptions for nursing home patients insured by Medicare
Part D or by Medicaid.

Defendant PharMerica Corp.

(“PharMerica”) filed a motion to dismiss Relators’ third amended
complaint.

For reasons explained below, PharMerica’s motion

will be denied in part and granted in part.

PharMerica’s motion

will be granted as to the statute of limitations on Relator’s
federal FCA claims because federal FCA liability cannot extend
to claims submitted to the government earlier than March 4,
2005.

On all other issues raised in PharMerica’s motion to

dismiss, the motion is denied.
I.

FACUTUAL AND PROCEDURAL BACKGROUND

On March 4, 2011, Relator filed a complaint, under seal,
against several defendants for violations of the FCA.

Marc

Silver filed the complaint as a qui tam relator on behalf of the
United States under the FCA, as well as 27 states and the
District of Columbia under their respective state false claims
acts.
2

The United States and all 27 states have declined to
intervene in this matter.

The matter was then unsealed and

Relator has amended his complaint three times.

The operative

complaint is the third amended complaint.
In the third amended complaint, 1 Relator alleges defendants
created an illegal kickback scheme which involved a practice
known as “swapping.”

Specifically, that defendant “offered

commercially unreasonable, below fair-market-value prices for
prescription drugs to nursing homes for the nursing homes’
Medicare Part A patients, in exchange for the opportunity to
provide the same drugs, at a substantially higher, market-driven
cost, to the nursing home’s Medicaid and Medicare Part D
patients.”

2

The complaint further alleges that the kickbacks

1
For reasons of brevity, hereinafter, the third amended
complaint will be referred to in this Opinion as the complaint.
2
As described by Relator, Title XVIII of the Social Security
Act, 42 U.S.C. § 1395 et seq., established the Medicare program.
Part A of the Medicare program ("Part A") covers inpatient
services furnished to Medicare beneficiaries by participating
providers, including hospitals and nursing homes. 42 U.S.C.S. §
1395d(a). Nursing homes are reimbursed under Part A. Since
July 1, 1998, Medicare Part A pays nursing homes a flat rate to
provide medical care and prescription drugs to residents. Under
Medicare Part D, the federal government pays institutional
pharmacies, and the states are required to reimburse the federal
government for the states’ portion of the obligation, or
“clawback” payment.
Title XIX of the Social Security Act, 42 U.S.C.S. § 1396 et
seq., established Medicaid. Medicaid is a cooperative federal3

involved inducements to nursing homes in exchange for the
revenue provided by other government payors.

Relator alleges

that the kickbacks were provided in various forms, such as: 1)
steeply discounted per diem prices for drugs, 2) steeply
discounted average wholesale prices (“AWP”) for drugs, and 3)
free drugs.

Relator alleges the scheme was nationwide and ran

from 1998 to the present and that kickbacks were paid to skilled
nursing facilities (“SNF”) in New Jersey and California.
Defendant PharMerica argues that the third amended
complaint must be dismissed because a FCA claim must be plead
with particularity and Relator fails to adequately plead fraud
with specificity as required under Federal Rule of Civil
Procedure 9(b).

PharMerica also argues that the complaint fails

to state a claim for conspiracy and fails to plead facts that
show PharMerica can be held liable for the acts of its
subsidiaries Kindred or Chem Rx.

PharMerica also raises a

statute of limitations defense and argues that the state law
claims should be dismissed.
II.

JURISDICTION

Relator has alleged that defendant violated the federal

state program through which the federal government provides
financial assistance to states so that they may furnish medical
care to needy individuals. The Medicaid programs of all states
reimburse for prescription drugs.
4

False Claims Act, 31 U.S.C. § 3729, et seq., and the federal
Anti-Kickback Statute, 42 U.S.C.A. § 1320a-7b, et seq.
Therefore, this Court exercises subject matter jurisdiction
pursuant to 28 U.S.C. § 1331 (federal question jurisdiction)
and exercises supplemental jurisdiction over Relator’s related
state law claims pursuant to 28 U.S.C. § 1367.
III. DISCUSSION
A. Standard for 12(b)(6) Motion to Dismiss
When considering a motion to dismiss a complaint for
failure to state a claim upon which relief can be granted
pursuant to Fed. R. Civ. P. 12(b)(6), a court must accept all
well-pleaded allegations in the complaint as true and view them
in the light most favorable to the Relator.
423 F.3d 347, 351 (3d Cir. 2005).

Evancho v. Fisher,

It is well settled that a

pleading is sufficient if it contains “a short and plain
statement of the claim showing that the pleader is entitled to
relief.”

Fed. R. Civ. P. 8(a)(2).

Under the liberal federal

pleading rules, it is not necessary to plead evidence, and it is
not necessary to plead all the facts that serve as a basis for
the claim.

Bogosian v. Gulf Oil Corp., 562 F.2d 434, 446 (3d

Cir. 1977).

However, “[a]lthough the Federal Rules of Civil

Procedure do not require a claimant to set forth an intricately
detailed description of the asserted basis for relief, they do
5

require that the pleadings give defendant fair notice of what
the Relator’s claim is and the grounds upon which it rests.”
Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 149-50 n.3
(1984) (quotation and citation omitted).
A district court, in weighing a motion to dismiss, asks
“‘not whether a Relator will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claim.’”
Bell Atlantic v. Twombly, 127 S. Ct. 1955, 1969 n.8 (2007)
(quoting Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see also
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (“Our decision
in Twombly expounded the pleading standard for ‘all civil
actions’ . . . .”); Fowler v. UPMC Shadyside, 578 F.3d 203, 210
(3d Cir. 2009) (“Iqbal . . . provides the final
nail-in-the-coffin for the ‘no set of facts’ standard that
applied to federal complaints before Twombly.”).
Following the Twombly/Iqbal standard, the Third Circuit has
instructed a three step approach in reviewing a complaint under
Rule 12(b)(6).
(3d Cir. 2010).

Santiago v. Warminster Tp., 629 F.3d 121, 130
“First, the court must ‘tak[e] note of the

elements a Relator must plead to state a claim.’”
Iqbal, 129 S.Ct. at 1947).

Id. (citing

Second, the factual and legal

elements of a claim should be separated; a district court must
accept all of the complaint's well-pleaded facts as true, but
6

may disregard any legal conclusions.

Id.; Fowler, 578 F.3d at

210 (citing Iqbal, 129 S. Ct. at 1950).

Finally, a district

court must then determine whether the facts alleged in the
complaint are sufficient to show that the Relator has a
“‘plausible claim for relief.’”
at 1950).

Id. (quoting Iqbal, 129 S. Ct.

A complaint must do more than allege the Relator's

entitlement to relief.

Id.; see also Phillips v. County of

Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (stating that the
“Supreme Court's Twombly formulation of the pleading standard
can be summed up thus: ‘stating . . . a claim requires a
complaint with enough factual matter (taken as true) to suggest’
the required element.

This ‘does not impose a probability

requirement at the pleading stage,’ but instead ‘simply calls
for enough facts to raise a reasonable expectation that
discovery will reveal evidence of’ the necessary element”).

A

court need not credit either “bald assertions” or “legal
conclusions” in a complaint when deciding a motion to dismiss.
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 142930 (3d Cir. 1997).

The defendant bears the burden of showing

that no claim has been presented.

Hedges v. U.S., 404 F.3d 744,

750 (3d Cir. 2005) (citing Kehr Packages, Inc. v. Fidelcor,
Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)).
Finally, a court in reviewing a Rule 12(b)(6) motion must
7

only consider the facts alleged in the pleadings, the documents
attached thereto as exhibits, and matters of judicial notice.
Southern Cross Overseas Agencies, Inc. v. Kwong Shipping Group
Ltd., 181 F.3d 410, 426 (3d Cir. 1999).

A court may consider,

however, “an undisputedly authentic document that a defendant
attaches as an exhibit to a motion to dismiss if the Relator’s
claims are based on the document.”

Pension Benefit Guar. Corp.

v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993).

If any other matters outside the pleadings are presented

to the court, and the court does not exclude those matters, a
Rule 12(b)(6) motion will be treated as a summary judgment
motion pursuant to Rule 56.

Fed. R. Civ. P. 12(b).

B. Standard Pursuant to Fed. R. Civ. P. 9(b)
The parties do not dispute that Relator’s claims of
violations of the federal FCA require that such allegations must
satisfy the heightened pleading requirements of Fed. R. Civ. P.
9(b).

United States ex rel. LaCorte v. SmithKline Beecham

Clinical Labs., Inc., 149 F.3d 227, 234 (3d Cir. 1998).
Accordingly, Relator must plead “with particularity the
circumstances constituting fraud [,]” but “[m]alice, intent,
knowledge, and other conditions of a person's mind may be
alleged generally.”

Fed.R.Civ.P. 9(b); Iqbal, 556 U.S. at 686.

The Third Circuit has held that “Fed.R.Civ.P. 9(b) requires
8

Relators to plead the circumstances of the alleged fraud with
particularity to ensure that defendants are placed on notice of
the precise misconduct with which they are charged, and to
safeguard defendants against spurious charges of fraud.”
Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir.
1989)).

Although Rule 9(b) allows conditions of the mind to be

alleged “generally,” the allegations must still meet the
pleading requirements of Rule 8(a).

Iqbal, 556 U.S. at 686-87.

There is some relaxation of Rule 9(b) when factual information
is peculiarly within the defendant’s knowledge or control.
Craftmatic, 890 F.2d at 645.
Recently, in Foglia v. Renal Ventures Management, LLC, 754
F.3d 153, 155-56 (3d Cir. 2014), the Third Circuit further
clarified the Rule 9(b) standard applied in FCA cases.

In order

for a relator to satisfy the standards of Rule 9(b) in a FCA
case, “... he must provide ‘particular details of a scheme to
submit false claims paired with reliable indicia that lead to a
strong inference that claims were actually submitted.’”

Id. at

157-58 (rejecting a standard that would require relator to
provide a representative sample of the alleged fraudulent
conduct, specifying the time, place, and content of the acts and
the identity of the actors).
fraud will not suffice.”

“Describing a mere opportunity for

Id. at 158.
9

“Sufficient facts to

establish ‘a plausible ground for relief’ must be alleged.”

Id.

The Third Circuit acknowledged in Foglia that the relator’s
false claim was not presented clearly, but deduced what seemed
to be the Relator’s argument.

Id. (recognizing that the

relator’s assumed hypothesis could be challenged but concluding
that it gave defendant notice of the charges, and that only the
defendant has access to the documents that could prove relator’s
claim one way or the other).
C. PharMerica’s Motion to Dismiss
1. Rule 9(b)
PharMerica argues that all but 13 of the 326 paragraphs of
the complaint contain generalized allegations regarding conduct
of "the Pharmacy Defendants," "institutional pharmacies," or
other defendants and fails to specifically allege as to
PharMerica details concerning the dates of the claims, the
content of the forms or bills submitted, identification numbers,
the amount of money charged to the government, the particular
goods or services for which the government was billed, the
individuals involved in the billing, and the length of time
between the alleged fraudulent practices and the submission of
claims based on those practices.
Under the recently promulgated Foglia standard, Silver has
alleged sufficient facts under Rule 9(b) to support his FCA
10

claim against PharMerica.

Silver has alleged enough particular

details of a scheme to submit false claims paired with reliable
indicia that leads to a strong inference that claims were
actually submitted.

See id. at 157-58.

Silver is not required

at the pleading stage to specify dates of the claims, the
content of the forms or bills submitted, identification numbers,
the amount of money charged to the government, the particular
goods or services for which the government was billed, the
individuals involved in the billing, or the length of time
between the alleged fraudulent practices and the submission of
claims based on those practices.

See id.

Therefore, the

allegations in the complaint against PharMerica satisfy Rule
9(b).
2. Anti-Kickback Statute
PharMerica argues that the complaint fails to allege facts
to support the allegation that the per diem prices that Kindred
and Chem Rx offered nursing homes were remuneration under the
AKS because it fails to specify how Kindred or Chem Rx arrived
at those prices or about how they negotiated those prices with
the nursing homes.

PharMerica also argues that the complaint

does not allege any facts showing what the fair market value was
in the relevant markets and does not specify Kindred's or Chem
Rx's costs at the time, or what their costs might have been for
11

the specific drugs covered by the per diem prices in the
contracts identified in the complaint.
In addition, PharMerica argues that the complaint fails to
allege facts to support that PharMerica (through Kindred or Chem
Rx) offered the per diem prices in the contracts to induce the
referral of prescriptions for patients covered by Medicare Part
D or by Medicaid.

PharMerica also argues that the complaint

alleges no facts to show that PharMerica was billing Medicare
Part D or Medicaid at a "much higher rate."
PharMerica further argues that the complaint does not
allege facts showing that PharMerica knowingly submitted claims
for payment to the government for drugs that PharMerica
dispensed as a result of the alleged kickbacks.

Specifically,

PharMerica argues that the complaint fails to identify any
patients insured by any federal healthcare program, as opposed
to private insurance, to whom Kindred or Chem Rx provided
services as a result of the alleged kickbacks, such as how many
patients resided there or the percentage of patients insured by
Medicare Part D or Medicaid.

Finally, PharMerica argues that

the complaint fails to identify any claim that PharMerica
submitted to the government, or any claim that arose from the
alleged kickbacks.
Based on the allegations in the complaint, Silver has
12

adequately alleged a kickback scheme in which PharMerica
knowingly offered lower priced drugs to Part A nursing home
patients in exchange for the opportunity to provide the same
drugs at a higher cost to the nursing home’s Medicaid and
Medicare Part D patients.
The AKS, in relevant part, provides that
(2) whoever knowingly and willfully offers or pays any
remuneration (including any kickback, bribe or rebate)
directly or indirectly, overtly or covertly, in cash
or in kind to any person to induce such person—
(A) to refer an individual to a person for
the furnishing or arranging for the
furnishing of any time or service for which
payment may be made in whole or in part
under a Federal health care program, or
(B) to purchase, lease, order, or arrange
for or recommend purchasing, leasing, or
ordering any good, facility, service, or
item for which payment may be made in whole
or in part under a Federal health care
program,
shall be guilty of a felony upon conviction thereof,
shall be fined not more than $25,000 or imprisoned for
not more than five years, or both.

U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295,
311 (3d Cir. 2011 (citing 42 U.S.C. § 1320a–7b(b)(2)).
Silver alleges that PharMerica offered commercially
unreasonable, below fair-market-value prices for prescription
drugs to nursing homes for the nursing homes’ Part A patients,
13

in exchange for the opportunity to provide the same drugs, at a
substantially higher, market-driven cost, to the nursing home’s
Medicaid and Medicare Part D patients, and that PharMerica
offered prices to nursing homes which fell far below its own
acquisition costs, and even further below its own total costs.
Silver also alleges that PharMerica provided value in the
form of discounts for Part A services that were not justified by
normal business considerations with the purpose of inducing
referral of patients to whom it provides Part B services.
Specifically, Silver alleges “[a]lthough the form of the
discount was not always the same, the goal was always to induce
nursing homes with steep discounts in order to obtain the
higher-paying business from other government payors.”
Compl. ¶5.

See

He also alleges “[t]hrough the schemes alleged in

this complaint, nursing homes are choosing institutional
pharmacies based upon the biggest inducement they can get,
instead of basing their choices on the quality of the goods and
services provided by the pharmacies.”

See Compl. ¶71.

He

further alleges that the kickbacks involved “... inducements to
nursing homes in exchange for the revenue provided by other
government payors.”

See Compl. ¶72.

With regard to government payment, Silver alleges that
“defendant PharMerica’s government reimbursements rose
14

consistently from 2006 through 2012 ($308.4 million to $1.2
billion).

The percentage of its sales that came from government

payors also rose precipitously (47.2% to 56.7%).”

See Compl.

¶11 (providing a table indicating PharMerica's total sales and
its approximate payor mix (as a percentage of annual sales) from
2005 through 2012).

Silver also details in his complaint the

general government payment scheme to pharmacies such as
PharMerica for drugs provided to patients insured by Medicare
Part A and by Medicare Part D or by Medicaid.
Silver also has provided sufficient facts regarding how
Medicare Part A and Part D payments are made for drugs provided
to nursing home to show that nursing homes would want to receive
the lowest price they could for Part A drugs, and how a pharmacy
could in turn receive other business from higher paying
government payors to recoup any loss from the Part A discounts.
Although Silver has not provided the exact price PharMerica
charged a particular nursing home, or the amount of other
business PharMerica received in return, such exact figures are
not required under the Foglia standard.

Rather, Silver provided

sufficient details of the “swapping” scheme and paired such
details with reliable indicia of the Medicare payment system and
revenue received by PharMerica leading to a strong inference
that such Medicare claims were actually submitted.
15

See Foglia

754 F.3d at 157-58.

As such, Silver has plead the circumstances

of the alleged fraud with particularity so that PharMerica is
placed on notice of the precise misconduct with which it is
charged. 3

See Craftmatic, 890 F.2d at 645.

3. Conspiracy
PharMerica argues that Count III of the complaint, which
alleges a conspiracy to violate the FCA under 31 U.S.C.
§ 3729(a)(1)(C), must be dismissed because it does not allege
any agreement between PharMerica and its nursing home customers
to submit false claims to the government, or an overt act in
furtherance of such an agreement.
Silver has adequately plead a claim for conspiracy.

See 31

U.S.C. § 3729(a)(1)(C) (any person who “conspires to commit a
violation of [the false claims act]” shall be liable under the
act).

He has alleged that PharMerica executed a scheme to

defraud the government and paid kickbacks to SNFs.

See Allison

Engine Co., Inc. v. U.S. ex rel. Sanders, 553 U.S. 662, 128
S.Ct. 2123 (2008) (concluding that it must be shown that the
conspirators intended “to defraud the Government.”); U.S. ex
rel. Repko v. Guthrie Clinic, P.C., 557 F.Supp.2d 522, 527

Having declined to dismiss the federal claims, the Court need
not address defendant’s additional argument that it should
refrain from exercising supplemental jurisdiction over the state
claims in this matter.
16
3

(M.D.Pa. 2008) (In order to establish a conspiracy claim under
the FCA, the relator must allege that “1) the defendant
conspired with one or more persons to get a false or fraudulent
claim allowed or paid by the United States and 2) that one or
more of the coconspirators performed any act to get a false or
fraudulent claim allowed or paid.”).

Silver has alleged

PharMerica conspired with SNFs with the intent to defraud the
government by paying kickbacks.

Accordingly, he has alleged

sufficient facts to support a claim of conspiracy.
4. Kindred or Chem Rx
PharMerica argues that the conduct alleged in the 13
paragraphs of the complaint pertaining to PharMerica is conduct
of Kindred or of Chem Rx, which are separate corporate entities
from PharMerica.

PharMerica denies that it merged with Kindred

or purchased Chem Rx.

PharMerica states that in 2010, Chem Rx

sought relief under Chapter 11 of the Bankruptcy Code and a
subsidiary of PharMerica, Chem Rx, LLC, purchased the assets of
Chem Rx free and clear of all liabilities.

It also argues that

it is not liable for the conduct of its subsidiaries absent a
piercing of the corporate veil.
Relator responds that in 2007, PharMerica and Kindred
merged to “form defendant PharMerica.”

Relator also states

that according to PharMerica’s 2008 10-K, filed with the
17

Securities and Exchange Commission, the companies “combined
their respective institutional pharmacy businesses, . . . into a
new, stand-alone publicly traded company,” and that PharMerica’s
2013 10-K, which contains a “list of subsidiaries” makes no
mention of Kindred.

Relator argues that PharMerica provided no

support for its argument that Kindred is a subsidiary.
In addition, Relator argues that PharMerica purchased Chem
Rx’s assets pursuant to an agreement between PharMerica and Chem
Rx dated September 26, 2010.

Relator also argues that liability

exists on the part of PharMerica for Chem Rx’s conduct under
three principles: 1) PharMerica’s de facto merger and/or
consolidation of Chem Rx into its core business created
successor liability; 2) traditional concepts of successor
liability; and 3) veil-piercing standards.
The resolution of whether PharMerica retains liability for
the acts of Kindred or Chem Rx involves a determination of
certain facts which go beyond what the Court can review on a
motion to dismiss.

See Southern, 181 F.3d at 426 (a court

reviewing a Rule 12(b)(6) motion must only consider the facts
alleged in the pleadings, the documents attached thereto as
exhibits, and matters of judicial notice).

Determination of the

business relationship among PharMerica, Kindred and Chem Rx
would require the parties to submit additional evidence.
18

Thus,

consideration of this matter would require the Court to analyze
documents beyond pleadings and require the Court to convert this
portion of the motion to dismiss into a motion for summary
judgment.

See Fed. R. Civ. P. 12(b).

At this juncture, the

Court declines to convert this portion of the motion into a
motion for summary judgment.

Accordingly, the Court will deny

this portion of the motion to dismiss without prejudice.

The

parties may file a motion for summary judgment, according to any
pertinent scheduling order, on this issue and attach properly
attested documents, affidavits, or testimony regarding the
business arrangement among PharMerica, Kindred and Chem Rx.

See

Fed. R. Civ. P. 56(c).
5. Statute of Limitations
a. Federal FCA Claims
PharMerica argues that since FCA claims are limited by a
six-year statute of limitations where, as here, the government
declines to intervene, FCA liability cannot extend to claims
submitted to the government earlier than March 4, 2005.
Relator responds that the limitations period is 10 years,
pursuant to 31 U.S.C. § 3731(b)(2).

He states that he filed his

original complaint March 4, 2011 and his first amended complaint
setting forth the AWP based and free drug claims on April 19,
2012, and that facts material to the right of action were not
19

known or reasonably known by the official of the United States
charged with responsibility to act in the circumstances ten
years from these dates, March 4, 2001 and April 19, 2002,
respectively.

Relator argues that only claims for the period

before March 4, 2001 and April 19, 2002 should be time-barred.
Relator further argues that if the ten year statute of
limitations does not apply then the Wartime Suspension of
Limitations Act ("WSLA") (18 U.S.C. § 3287) applies to extend
the statute of limitations back to October 11, 2002, the date on
which hostilities with Iraq were initiated.
The time limitation for filing a FCA action is outlined in
Section 3731(b) which states:
A civil action under section 3730 may not be brought-(1)

more than 6 years after the date on which the
violation of section 3729 is committed, or

(2)

more than 3 years after the date when facts
material to the right of action are known or
reasonably should have been known by the official
of the United States charged with responsibility
to act in the circumstances, but in no event more
than 10 years after the date on which the
violation is committed,

whichever occurs last.
31 U.S.C.A. § 3731.
A plain reading of the statute compels the conclusion that
a FCA claim must be filed within six years, or if the U.S.
20

government intervenes, the limitations period is extended for
three years.

This is the conclusion reached by courts in this

District and this Circuit.

See U.S. ex rel. Simpson v. Bayer

Corp., No. 05-3895, 2014 WL 1418293, at *12 n.15 (D.N.J. Apr.
11, 2014) (“The three-year tolling period set forth in 31 U.S.C.
§ 3731(b) (2) applies only when the Government elects to
intervene in a qui tam action.... When the Government declines
to intervene the six-year statute of limitations set forth in 31
U.S.C. § 3731(b)(1) applies.”) (citing U.S. ex rel. Bauchwitz v.
Holloman, 671 F.Supp.2d 674, 692–95 (E.D.Pa. 2009)); U.S. ex
rel. Bergman v. Abbot Laboratories, 995 F.Supp.2d 357, 377
(E.D.Pa. 2014) (“The Eastern District has ... held that the
FCA's own tolling provision does not apply to cases where the
government has chosen not to intervene.”) (collecting cases);
accord United States ex rel. Eisenstein v. City of New York, 556
U.S. 928, 937, 129 S.Ct. 2230, 2237 (2009) (finding that when
the United States declines to intervene in a FCA action, it is
not a party to the litigation).
Likewise, the statute of limitations is not tolled for the
relator under the WSLA in cases where the government declines to
intervene.

See Bergman, 995 F.Supp.2d at 377 (“the WSLA does

not toll the FCA's statute of limitations for relators without
the government's intervention, especially when those cases do
21

not involve military or war-related contracts”); Hericks v.
Lincare Inc., No. 07-387, 2014 WL 1225660, at *14 n.16 (E.D.Pa.
Mar. 25, 2014) (finding the WSLA does not toll the statute of
limitations in a FCA case).
Accordingly, the six year statute of limitations applies
and FCA liability cannot extend to claims submitted to the
government earlier than March 4, 2005.
b. State FCA Claims
PharMerica also argues that the state claims should be
dismissed to the extent that they rely upon conduct that
predates the effective date of the state fraud statutes (enacted
after 1999) or the applicable statutes of limitation.
Relator states that 15 of the 28 state FCA statutes at
issue in this case were enacted before the fraudulent conduct
commenced in this case or expressly provide for retroactivity of
the statute, specifically, California, Delaware, Florida,
Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Michigan,
Nevada, Tennessee, Texas, Virginia, Wisconsin, and the District
of Columbia.

For the remaining states, Relator argues that he

is entitled to pursue claims under the relevant state FCA
provisions for all false claims submitted after each statute’s
respective effective date, as follows: Connecticut (effective
10/5/09), Georgia (effective 5/24/07), Indiana (effective
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5/11/05), Montana (effective 10/1/05), New Hampshire (effective
1/1/05), New Jersey (effective 3/13/08), New Mexico (effective
5/19/04), New York (4/1/07), Oklahoma (11/1/07), and Rhode
Island (effective 2/15/08).

Relator maintains that the state

FCAs that are silent on the issue of retroactivity should be
applied retroactively so long as doing so is not contrary to
express legislative history or does not result in any manifest
injustice.
PharMerica replies that any retroactive application of the
state statutes to conduct predating their enactment would be
unconstitutional under the Ex Post Facto clause of the United
States Constitution.
For the reasons explained below, PharMerica has not shown
that the Ex Post Facto clause is applicable here, and has not
shown how the language in each state’s fraud statute prohibits
retroactive application prior to its enactment date.
“The States are prohibited from enacting an ex post facto
law.”

Garner v. Jones, 529 U.S. 244, 249, 120 S.Ct. 1362, 146

L.Ed.2d 236 (2000)(citing U.S. Const., Art. I, § 10, cl. 1).
“One function of the Ex Post Facto Clause is to bar enactments
which, by retroactive operation, increase the punishment for a
crime after its commission.”

Id.

To determine if a “law

constitutes retroactive punishment forbidden by the Ex Post
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Facto Clause,” it is necessary to “ascertain whether the
legislature meant the statute to establish civil proceedings.”
Smith v. Doe, 538 U.S. 84, 92, 123 S.Ct. 1140, 155 L.Ed.2d 164
(2003) (internal quotation marks omitted).

If “the intention of

the legislature was to impose punishment, that ends the
inquiry.”

Id.

However, if the intent was to enact a civil and

nonpunitive regulatory scheme, then further examination is made
as to “whether the statutory scheme is so punitive either in
purpose or effect as to negate the State's intention to deem it
civil.”

Id. (internal quotation and editorial marks omitted).

A relator bringing a FCA claim is a civil proceeding.

See

U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc., 608
F.3d 871, 878-79 (C.A.D.C. 2010); Sanders v. Allison Engine Co.,
Inc., 703 F.3d 930, 942-43 (6th Cir. 2012).

PharMerica has not

presented evidence that all or any of the state statutes’
schemes are so punitive as to warrant deeming them penal in
nature.

As a general matter, retroactive application of civil

state statute prohibiting fraud claims would not violate the Ex
Post Facto Clause of the U.S. Constitution.

See Miller, 608

F.3d at 878-79 (finding that the Ex Post Facto Clause of the
Constitution applies only to penal legislation and FCA is not
penal).

However, in order to decide whether a state statute is

barred from retroactive application, or if it is penal in
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nature, it is necessary to review the language of the statute to
determine the intent of the lawmakers.

There can be no blanket

proclamation as to all of the state’s statutes.

PharMerica has

not outlined the pertinent language in each state’s statute,
noted the date of enactment (in relation to the date of alleged
fraudulent conduct), or explained the proposed scheme in each
that would render it punitive.

As such, PharMerica’s motion

will be denied without prejudice on this issue and the Court
will not reach the merits on the retroactivity of each state’s
FCA law at this time. 4
6. State Law Procedures
PharMerica alleges that the complaint fails to allege that
Silver provided required information related to the alleged
false claims to a specific state government official or entity
when he filed his Complaint in March, 20ll or immediately
thereafter.

Relator argues that no federal or state qui tam

statute requires that a relator plead compliance with the
procedural requirements of state FCAs, such as service of the
complaint and disclosure statements on the state government.
Relator further argues that all of the states were properly

4 The Court has not ruled that any particular state statute can
be applied retroactively. Rather, this is PharMerica’s motion
and, therefore, its burden to prove that the state statutes
cannot be applied retroactively.
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served, and because no state complained that it did not have
sufficient time to conduct an investigation under seal, Relator
has met the applicable service requirements.
PharMerica has not shown that Relator’s complaint should be
dismissed for failure to allege that he properly served
government officials, or even that it is a requirement that he
provide such allegations in his complaint.

Therefore,

PharMerica’s motion to dismiss on this ground will be denied
without prejudice.

IV.

CONCLUSION

For reasons explained above, PharMerica’s motion to dismiss
will be granted in part and denied in part.

PharMerica’s motion

will be granted as to the statute of limitations on Relator’s
federal FCA claims which predate March 4, 2005.

On all other

issues raised in PharMerica’s motion to dismiss, the motion is
denied.

s/Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.

At Camden, New Jersey
Dated:

September 29, 2014

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