United States of America, et al v. Omnicare, Inc. et al

Filing 113

OPINION & ORDER...MHA LTC's August 26, 2014 motion for attorneys' fees and costs is granted in an amount to be determined. (Signed by Judge Denise L. Cote on 12/1/2014) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------X
:
UNITED STATES OF AMERICA, et al., ex
:
rel. Fox Rx, Inc.,
:
Plaintiff,
:
:
-v:
:
OMNICARE, INC., NEIGHBORCARE, INC.,
:
PHARMERICA CORP., and MANAGED HEALTH
:
CARE ASSOC., INC.,
:
Defendants.
:
:
--------------------------------------- X

12cv275 (DLC)
OPINION & ORDER

APPEARANCES:
For relator Fox Rx, Inc.:
Michael I. Leonard
LEONARD LAW OFFICES
203 N. LaSalle, Suite 1620
Chicago, IL 60601
Paul A. Traina
ENGSTROM, LIPSCOMB & LACK, PC
10100 Santa Monica Blvd., 12th Fl.
Los Angeles, CA 90067
Dennis J. Doody
120 White Plains Rd., Ste. 125
Tarrytown, NY 10591
For defendant Managed Health Care Associates Long Term Care
Network Inc.:
Daniel S. Ruzumna
Adam Blumenkrantz
PATTERSON BELKNAP WEBB & TYLER LLP
113 Ave. of the Americas
New York, NY 10036

DENISE COTE, District Judge:
Fox Rx, Inc. (“Fox”), a serial qui tam relator and former
Medicare Part D plan sponsor, has brought at least a half-dozen
actions under the False Claims Act, 31 U.S.C. § 3729 et seq.
(“FCA”), around the country against entities with which it once
worked, among others.

This is one such action, which was

dismissed on August 12, 2014.

See United States ex rel. Fox Rx,

Inc. v. Omnicare, Inc., --- F. Supp. 2d ---, 2014 WL 3928780
(S.D.N.Y. Aug. 12, 2014) (the “August 12 Opinion”).
have been dismissed as well.

Five others

Defendant MHA Long Term Care

Network (“MHA LTC”) now moves for an award of attorneys’ fees
and costs pursuant to 31 U.S.C. § 3730, which authorizes such an
award in certain FCA actions where “the court finds that the
claim . . . was clearly frivolous, clearly vexatious, or brought
primarily for purposes of harassment.”

For the reasons stated

below, the Court finds MHA LTC is entitled to fees and costs
incurred since January 10, 2014.
BACKGROUND
I.

Fox’s Claims
Fox filed this action on January 12, 2012 on behalf of the

United States, the District of Columbia and twenty-one states.
Fox’s Second Amended Complaint (“SAC”), filed on February 10,
2014, contained twenty-five counts.

In broad strokes, the SAC

asserted that the defendants had engaged in two illegal

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practices: (1) defendants failed to substitute generic drugs for
brand-name drugs in states that have laws mandating such
substitution, and (2) defendants dispensed drugs after the
termination date of a national drug code in states that have
laws prohibiting pharmacies from dispensing drugs beyond their
shelf-life expiration dates.

Fox asserted that, by engaging in

such practices, defendants falsely indicated in “submissions” to
a federal agency that the drugs they dispensed were “covered” by
Medicare, and overcharged Medicare and Medicaid.
II.

The ProCare Provider Agreement
MHA LTC contracts with independent long-term care

pharmacies to, inter alia, negotiate reimbursement rates on
their behalf and manage Medicare Part D claims.

MHA LTC enters

into agreements with Pharmacy Benefits Managers (“PBMs”) on
behalf of the pharmacies in its network (the “Network
Pharmacies”) that allow the PBMs to provide claims adjudication
services when claims are submitted to Medicare and Medicaid for
payment.

MHA LTC is not itself a pharmacy, does not itself

dispense drugs, and exercises no control or supervision of the
Network Pharmacies’ dispensing.
One such agreement, executed by MHA LTC and ProCare PBM
(“ProCare”) (the “ProCare Provider Agreement”), was attached as
an exhibit to the SAC.

In that document MHA LTC agreed, on

behalf of the Network Pharmacies, that the “Pharmacy Provider”

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had certain obligations.

A “Pharmacy Provider” was defined in

that agreement as the “dispenser of drug products and/or
services, acting either as, but not limited to, a single
(independent) or multiple (chain) entity that has entered into
this Agreement with ProCare PBM.”

The Procare Agreement also

defined a “Drug Product or Service” as “[a]ny drug medication or
consultation service (required to be given in connection with a
drug medication) rendered to a Covered Person by Pharmacy
Provider.”
The ProCare Agreement sets out certain obligations of
Pharmacy Providers, including
[the] obligation to ensure that any pharmacist
who is performing on behalf of the Pharmacy
Provider shall use his or her professional
judgment when filling prescript orders, and will
comply with all legal, professional and ethical
obligations applicable to pharmacists under the
laws of the jurisdiction in which the
prescription service is received.
(Emphasis added.)

In addition, the “Pharmacy Provider agrees to

inform [prescription drug plan] Part D enrollees at the point of
sale of any differential between the price of the lowest-priced
therapeutically equivalent and bio-equivalent generic drug
unless the lowest price drug is being purchased in accordance
with 42 CFR § 423.132(a).”
In support of its motion to dismiss, MHA LTC submitted an
agreement MHA LTC signed on its own behalf with ProCare setting

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forth MHA LTC’s own obligations (the “MHA LTC-ProCare
Agreement”).

That agreement imposes no compliance or oversight

obligations on MHA LTC with respect to the Network Pharmacies.
III. August 12 Opinion’s Holding Concerning MHA LTC1
Fox recognized that MHA LTC signed the ProCare Provider
Agreement on behalf of the Network Pharmacies, but argued that,
by signing, MHA LTC had undertaken to supervise and ensure
compliance with the ProCare Provider Agreement -- and through a
promise to comply with all applicable laws, compliance with all
such laws -- on behalf of the Network Pharmacies.

Fox pointed

to no provision of the ProCare Provider Agreement, any other
agreement, or any authority that would render MHA LTC
responsible for the Network Pharmacies’ compliance.

Fox argued

that the commitments recited in the ProCare Provider Agreement
were made by MHA LTC as opposed to the Pharmacy Provider.

The

August 12 Opinion explained as follows:
The claims against MHA merit additional
discussion. As described in the SAC, MHA is not a
pharmacy. It does not fill prescriptions or make
judgments about how they should be filled. It
provides services that connect independent pharmacies
providing [long-term care facility] services with
PBMs. It receives a payment for each reimbursed
prescription, but is not involved in submitting any
claims for reimbursement.
The SAC attempts to plead a claim against MHA
premised on MHA’s purported failure to abide by its
contractual obligation to oversee its network of
pharmacies and to ensure that those pharmacies comply
1

In the August 12 Opinion, MHA LTC is referred to as “MHA.”
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with the law. But, in doing so the SAC misdescribes
the terms in a form contract that MHA executed with a
PBM named ProCare PBM. An examination of the ProCare
PBM agreement, which is attached as an exhibit to the
SAC, shows that the commitments described within the
agreement that are pertinent to Fox’s claim are duties
imposed on pharmacies and not duties assumed by
MHA. . . .
Fox argues in opposition to this motion that it
is premature to dismiss its claims against MHA since
MHA has raised nothing more than a factual dispute
over the terms of the ProCare PBM agreement, and
specifically whether that agreement may be read to
define MHA as a “pharmacy provider.” Fox points to
the prologue to the agreement, which explains that it
is an agreement made between ProCare PBM and the
undersigned [long-term care] “Pharmacy Provider.” The
signatory is MHA. Fox argues that by signing the
agreement, MHA “expressly assumed certain compliance
obligations of its network pharmacies and then failed
in those obligations.” It argues that this
constitutes more than a “simple agency relationship.”
Fox cannot avoid the plain and unambiguous
meaning of the agreement by pointing to MHA’s
signature on the agreement. The agreement has a
definition of “Pharmacy Provider” that excludes MHA.
It is undisputed, and acknowledged in the SAC, that
MHA is not a pharmacy and does not dispense
medication. The agreement defines the “Pharmacy
Provider” as the entity that dispenses drugs. MHA’s
signature on behalf of its network of pharmacies does
not convert MHA into a dispenser of drugs. All of the
obligations in the agreement to which Fox points apply
solely to the entities that dispense drugs.
Because MHA is not a pharmacy and did not
dispense medication it is not surprising that Fox has
also failed to allege the fraud claims against MHA
with particularity. The SAC does not allege with
particularity any act by MHA that resulted in a
branded drug being dispensed instead of a generic, in
a pharmacist dispensing a medication beyond its
expiration date or even its [national drug code]
termination date, or in the submission of any
inaccurate information. There is also no allegation
from which MHA’s fraudulent intent may be inferred.
For each of these reasons as well, the claims against
MHA must be dismissed.

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August 12 Opinion, 2014 WL 3928780, at *13.
IV.

MHA’s Meeting With Fox
Fox’s initial and first amended complaints were brought

against MHA LTC’s parent (“MHA”) rather than MHA LTC and made a
number of erroneous factual allegations concerning MHA’s
business, including a number of allegations concerning its
purported dispensing practices -- despite the fact that MHA and
MHA LTC are not pharmacies and do not dispense drugs.

Counsel

for the MHA entities arranged an in-person meeting with Fox’s
principal and its counsel on January 10, 2014.

At that meeting,

counsel for MHA presented a detailed PowerPoint presentation
(the “MHA Presentation”) concerning the business of both
entities, which MHA LTC has submitted in support of the instant
motion.

In particular, the MHA Presentation included the

following bullet points:


MHA LTC has no involvement whatsoever in pharmacies’
decisions regarding dispensing of drugs or the
submissions of claims;



MHA LTC receives the same fee whether a branded or
generic drug is dispensed;



MHA LTC has no role in the submission of claims by a
pharmacy to a PBM;



MHA LTC has no role in the payment of a claim by the
[Part D sponsor];



MHA LTC has no role in the submission of [claim data
for reimbursement from Medicare Part D];



Neither MHA nor MHA LTC is a long-term care pharmacy;
they provide none of the services that a pharmacy
provides; [and]

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

Claims against MHA are legally baseless; MHA has no
legal responsibility for claims submitted on drugs
dispensed by pharmacies.

The MHA Presentation also cited to key provisions in the
relevant agreements between MHA LTC and long-term care
pharmacies and between MHA LTC and PBMs like ProCare, including
the MHA LTC-ProCare Agreement.

Counsel for MHA provided Fox

with copies of those agreements, the MHA Presentation, and a
motion for sanctions under Rule 11, Fed. R. Civ. Pro., that MHA
planned to file if Fox’s allegations against MHA were not
withdrawn.
On February 10, Fox filed the SAC, substituting MHA LTC for
MHA and revising its allegations to reflect that MHA LTC did not
dispense drugs.

As noted in the August 12 Opinion, “the SAC

does not allege with particularity any act by MHA that resulted
in a branded drug being dispensed instead of a generic, in a
pharmacist dispensing a medication beyond its expiration date or
even its NDC termination date, or in the submission of any
inaccurate information.”
*13.
V.

August 12 Opinion, 2014 WL 3928780, at

The SAC was dismissed in its entirety on August 12.
MHA LTC’s Motion for Fees
On August 26, 2014, MHA LTC filed the instant motion for

attorneys’ fees and costs incurred since January 10, 2014.

MHA

LTC “estimates the value of services and related expenses . . .
to be approximately $140,000.”

MHA LTC has not submitted

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contemporaneous time records or other evidence substantiating
the requested fees and costs.
DISCUSSION
The “American Rule” ordinarily requires each party to bear
its own litigation costs.

Castillo Grand, LLC v. Sheraton

Operating Corp., 719 F.3d 120, 123 (2d Cir. 2013) (quoting
Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240,
245 (1975)).

Congress may displace this rule by statute, id.,

as it has done for certain civil actions for false claims.
31 U.S.C. § 3730(d)(4),
If the Government does not proceed with the action and
the person bringing the action conducts the action,
the court may award to the defendant its reasonable
attorneys’ fees and expenses if the defendant prevails
in the action and the court finds that the claim of
the person bringing the action was clearly frivolous,
clearly vexatious, or brought primarily for purposes
of harassment.
A court may award fees pursuant to § 3730 “upon a
finding that the . . . claims were objectively frivolous,
irrespective of plaintiff’s subjective intent.”
Straus, 274 F.3d 687, 705 (2d Cir. 2001).

Mikes v.

“A claim is

frivolous when, viewed objectively, it may be said to have
no reasonable chance of success, and present no valid
argument to modify present law.”

Id.

The Second Circuit has affirmed an award of fees where
the defendant had no financial incentive to engage in the

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Per

alleged misconduct and plaintiff cited no evidence that
that misconduct occurred.

Id.

Applying a similar

standard, the Second Circuit has affirmed where the
defendant “had nothing to do with the alleged [misconduct]
underlying Plaintiffs’ complaint.”

Carter v. Inc. Vill. of

Ocean Beach, 759 F.3d 159, 166 (2d Cir. 2014) (Section 1988
case); see Mikes, 274 F.3d at 705 (“The Act’s legislative
history suggests that the standard of § 3730(d)(4) is
analogous to that used for claims for attorneys’ fees
brought under 42 U.S.C. § 1988.”)
Fox’s claims against MHA LTC here were “clearly
frivolous.”

As Fox well knew, MHA LTC had nothing to do

with the dispensing of drugs, and thus had nothing to do
with the two drug dispensing schemes alleged by Fox.

Nor

did it have any financial incentive to engage in these
schemes, as it received a flat fee unrelated to whether the
dispensed drug was generic or branded or to the drug’s
national drug code termination date.

Instead of dropping

MHA from this action following the January 10, 2014
meeting, Fox concocted a theory of liability against MHA
LTC based wholly on an obvious misreading of the ProCare
Provider Agreement.

Fox had no reasonable basis to assert

that MHA LTC had undertaken the responsibility of
supervising its Network Pharmacies’ compliance with all

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applicable laws.

Viewed objectively, Fox’s claims against

MHA LTC had no reasonable chance of success, and Fox
presented no valid argument to modify the governing law.
See Mikes, 274 F.3d at 705.

Accordingly, MHA LTC’s motion

for fees and costs since January 10, 2014 is granted in an
amount to be determined following the submission of
supporting documentation by MHA LTC.

The schedule for such

submissions is set out in an accompanying Order.
In its opposition to the present motion, Fox
reiterates its argument concerning its misreading of the
ProCare Provider Agreement, which was rejected in the
August 12 Opinion that found the ProCare Provider Agreement
unambiguous on this point.

Fox also points to certain

evidence that Fox suggests indicates that MHA LTC is a
pharmacy -- for example, the fact that, in Appendix C to
the ProCare Provider Agreement, where MHA LTC provided
“Credentialing Information,” MHA LTC “checked a box as its
‘Pharmacy Type’ being ‘LTC’ [long-term care], despite its
claim of not [being a] ‘pharmacy’ or similar.”

There can

be no serious dispute that MHA LTC is not a pharmacy.
Indeed, Fox revised its pleadings to remove its allegation
that MHA was a pharmacy, and the SAC does not allege MHA
LTC is a pharmacy.

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Second, Fox points to MHA LTC’s supposed “inability to
ever explain why it inserted itself into the ProCare
Agreement” and “into the compliance process.”

Fox fails to

recognize -- as the ProCare Provider Agreement expressly
states -- that MHA LTC was acting as an agent for its
Network Pharmacies and signing on their behalf.
Third, Fox complains that, since January 10, MHA LTC
has “run up enormous legal fees towards the now apparent
ultimate goal of a ‘gotcha.’”

This argument is

disingenuous, to say the least, given that MHA and MHA LTC
invited Fox to the MHA Presentation in order to convince
Fox to drop its claims against the MHA entities.

In any

event, this argument relates to the amount of fees to be
awarded and does not suggest that MHA should be denied an
award of a reasonable amount of fees.
Finally, Fox argues that it “presented matters of
first impression in this Circuit,” referring to regulations
that obligated Part D sponsors and downstream entities to
“comply with all applicable Federal laws [and]
regulations.”

42 C.F.R. § 423.505(i)(3)(iv).

It is true

that the Second Circuit has not yet considered whether
these regulations impose “conditions of participation” in a
federal health care program or “prerequisites to receiving
reimbursement.”

Mikes, 274 F.3d at 701-02.

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This does not

alter the fact that Fox alleged no misconduct by MHA LTC,
and its proposed basis for MHA LTC’s liability for the
conduct of the Network Pharmacies was objectively
frivolous.
CONCLUSION
MHA LTC’s August 26, 2014 motion for attorneys’ fees and
costs is granted in an amount to be determined.

SO ORDERED:
Dated:

New York, New York
December 1, 2014
__________________________________
DENISE COTE
United States District Judge

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