United States of America et al v. Walgreen Company

Filing 52

REPORT AND RECOMMENDATION: The Court respectfully RECOMMENDS that Walgreens's motion to dismiss (DE 44) be GRANTED. Signed by Magistrate Judge Barbara D. Holmes on 3/2/2016. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

UNITED STATES OF AMERICA,
ex rel. ANDREW HIRT,
v.
WALGREEN COMPANY.

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No. 3:13-0870

To: The Honorable William J. Haynes, Senior District Judge

REPORT AND RECOMMENDATION
By Order entered October 31, 2014 (Docket Entry No. 27),1 this action was referred to the
Magistrate Judge under 28 U.S.C. § 636(b)(1)(A) and (B) and Rule 72 of the Federal Rules of Civil
Procedure. Presently pending is Defendant’s motion to dismiss (DE 44), to which Plaintiff has filed
a response (DE 47) and Defendant has filed a reply (DE 51). For the reasons set forth below, the
Court recommends that Defendant’s motion be GRANTED.

I. BACKGROUND
Relator Andrew Hirt filed this qui tam action against Defendant Walgreen Company
(“Walgreens”) in August of 2013 alleging violations of 42 U.S.C. § 1320a-7b(b) (“Anti-Kickback
Statute”) and 31 U.S.C. § 3729, et seq. (“False Claims Act”). DE 1. Relator is a resident of
Tennessee who owns and operates two pharmacies in the middle Tennessee area. DE 1 at ¶ 4. In

1

Docket Entry references will hereinafter be identified as “DE” followed by the
corresponding Docket Entry number.

his initial complaint, Relator alleged that Walgreens has defrauded the United States by offering
$25.00 gift cards to Medicare and Medicaid beneficiaries in the middle Tennessee area in an attempt
to induce said beneficiaries to switch pharmacies, specifically from Relator’s pharmacies to
Walgreens pharmacies. DE 1 at ¶¶ 3, 32-33. In response, Walgreens filed a motion to dismiss based
on six defenses, including failure to state a claim upon which relief may be granted under Fed. R.
Civ. P. 12(b)(6), failure to plead with specificity under Fed. R. Civ. P. 9(b), preclusion under the
doctrine of res judicata, and preclusion pursuant to three separate provisions of the False Claims Act.
DE 24. After Relator filed an amended complaint in which he (1) added a specific time frame in
which Walgreens allegedly induced Medicare and Medicaid beneficiaries to switch pharmacies,
November 19, 2012 through August 25, 2014, (2) included the name of his competing pharmacy,
Andy’s Pharmacy, and (3) cited to the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”),2 DE 29, Walgreens renewed its motion to dismiss on the same six grounds.3 DE 44.
As an initial matter, the parties dispute a fact that Relator alleges to be true in his amended
complaint. Relator alleges that Walgreens entered into a Corporate Integrity Agreement (“CIA”)
with the Department of Health and Human Services (“HHS”) in April of 2012, which he claims
resolved two separate qui tam lawsuits previously brought against Walgreens, DE 29 at ¶ 10, and
that Walgreens subsequently violated this CIA. Id. at ¶¶ 30-31. Walgreens confirms that it settled
two previous qui tam actions with the U.S. government, one filed in the Eastern District of Michigan

2

Relator incorrectly identifies this act as “HIPPA.” DE 4 at ¶ 17.

3

Relator amended his complaint to include a specific time frame and the name of his
pharmacy after Walgreens filed its initial motion to dismiss, ostensibly in response to Walgreens’s
statements in its motion that Relator “alleges no additional facts related to the alleged noncompliance” of Walgreens, and that Relator’s complaint “lacks any references to dates or time
frames.” DE 25 at 8-9.
2

in 2008 and one filed in the Central District of California in 2009, both of which similarly alleged
that Walgreens discounted prescription drugs to Medicare and Medicaid beneficiaries by offering
$25.00 gift cards to said beneficiaries.4 DE 45 at 2-3. Notably, the Michigan complaint dismissed
with prejudice the following claims:
[A]ll civil or monetary claims against Walgreens that the United States has under the
False Claims Act, 31 U.S.C. §§ 3729-3733; the Civil Monetary Penalties Law,
42 U.S.C. § 1320a-7a; the Program Fraud Civil Remedies Act, 31 U.S.C. §§ 38013812; or the common law theories . . . for the following conduct: Walgreens’
allegedly offering and/or providing improper inducements, in the form of gift cards,
gift checks, and similar promotions, to the beneficiaries of four government health
plans . . . to influence the beneficiaries’ decision to transfer prescriptions to
Walgreens pharmacies between January 1, 2005 and June 11, 2010[.]
DE 45 at 4; DE 45-3 at ¶ 4; DE 45-4. However, contrary to Relator’s assertion, Walgreens states
that it did not enter into any CIA as a result of these two qui tam claims. DE 45 at 9-10. Walgreens
notes that it instead entered into a CIA with the Office of the Inspector General (“OIG”) in June of
2008, nearly four years before it settled the Michigan and California qui tam claims, in an unrelated
case involving allegations that Walgreens “substituted different versions of prescribed drugs.” Id.
Walgreens provides a link to the publicly-available CIA that it entered into with the OIG, which
shows that the CIA was executed on June 2, 2008, DE 45 at 9, n.7, and attaches to its brief the
accompanying Department of Justice (“DOJ”) press release that references the CIA. DE 45-6 at 3.
Despite this evidence, Relator maintains in his response, without any citation, that Walgreens entered
into a CIA as part of its 2012 settlement of the Michigan and California qui tam claims. DE 47 at
2-3. Relator fails to respond to Walgreens’s claim that there was no CIA entered into as part of the
4

Walgreens emphasizes that the Michigan qui tam complaint is unsealed and publicly
available, while the California complaint remains under seal. DE 45 at 3; DE 45 at 4, n.3.
Walgreens points out, however, that the allegations contained in the California complaint are
described in a government press release issued on April 20, 2012. DE 45 at 4, n.3; DE 45-1.
3

April 2012 settlement, and instead states broadly that the allegations in his amended complaint “all
relate to [Walgreens’s] actions following this settlement and its breach of the CIA.”5 Id. at 5.
Regardless, because it is undisputed that Walgreens settled the Michigan and California qui tam
actions in April of 2012, and Relator argues that Walgreens violated this settlement agreement, it
is irrelevant for purposes of the Court’s analysis whether a CIA was entered into as part of the 2012
settlement.
Walgreens moves to dismiss Relator’s amended complaint based on six grounds: (1) the
“public-disclosure” rule of the False Claims Act divests this Court of jurisdiction in light of the
government’s public resolution of the aforementioned Michigan and California qui tam cases against
Walgreens, both of which contain the same allegations against Walgreens that Relator presents in
the instant case; (2) the “first-to-file” rule of the False Claims Act divests this Court of jurisdiction
in light of the filing of the Michigan and California qui tam cases; (3) the “government-action” rule
of the False Claims Act bars Relator’s claim because the Michigan and California qui tam cases
contained the same allegations; (4) res judicata bars the instant action because these claims have
already been litigated, pursuant to the resolution of the Michigan and California qui tam claims;
(5) Relator’s allegations fail to meet the specificity requirements of Fed. R. Civ. P. 9(b) in light of
Relator’s failure to allege an actual false claim; and (6) Relator fails to state a claim upon which
relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). DE 44 at 1.

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The Court also notes with interest that Relator fails to cite or reference any specific
provisions from the alleged 2012 CIA, even though he claims that the CIA “contains provisions
specifically designed to ensure [Walgreens’s] compliance with Medicare and Medicaid anti-kickback
provisions.” DE 29 at ¶ 30
4

In response, Relator alleges that none of Walgreens’s arguments with respect to the False
Claims Act or res judicata apply to the instant case because Walgreens continued to engage in the
$25.00 gift card operation after the April 2012 resolution of the Michigan and California cases,
thereby making the instant action a separate set of allegations. DE 47 at ¶¶ 1-4. Relator also argues
that his claims meet the specificity requirement of Fed. R. Civ. P. 9(b), and that his amended
complaint properly states claims upon which relief can be granted. Id. at ¶¶ 5-6.

II. STANDARD OF REVIEW
Plaintiffs filing suit under the False Claims Act must meet Fed. R. Civ. P. 9(b)’s heightened
pleading standard. U.S. ex rel. Pogue v. Am. Healthcorp, Inc., 977 F. Supp. 1329, 1332 (M.D. Tenn.
1997) (citations omitted). At a minimum, the plaintiff must “allege the time, place, and content of
the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent
of the defendants; and the injury resulting from the fraud.” Id. (quoting Coffey v. Foamex L.P.,
2 F.3d 157, 161-62 (6th Cir. 1993)). The “overarching purpose” of Fed. R. Civ. P. 9(b) is to provide
the subject defendant with “fair notice of the claims against [it], in order that [it] may prepare an
adequate responsive pleading.” Id. (citing Michaels Bldg. Co. v. Ameritrust Co., 848 F.2d 674, 679
(6th Cir. 1988)).
With respect to the public disclosure bar of the False Claims Act, 31 U.S.C. § 3730(e)(4)(a)
states in relevant part that the court “shall dismiss an action or claim . . . unless opposed by the
Government, if substantially the same allegations or transactions as alleged in the action or claim”
were publicly disclosed: (1) in a Federal criminal, civil, or administrative hearing in which the
Government or its agent is a party; (2) in a congressional, Government Accountability Office, or
5

other Federal report, hearing, audit, or investigation; or (3) from the news media, unless the person
bringing the action is an “original source” of the information. This section denies jurisdiction in qui
tam actions when publicly disclosed allegations or transactions form the basis for the complaint.
Dingle v. Bioport Corp., 388 F.3d 209, 212 (6th Cir. 2004). An allegation “connotes a conclusory
statement implying the existence of provable supporting facts.” Id. (quoting United States ex rel.
Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 653-54 (D.C. Cir. 1994)). A transaction can
be represented by a formula crafted by the D.C. Circuit, which holds:
If X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential
elements. In order to disclose the fraudulent transaction publicly, the combination
of X and Y must be revealed from which readers or listeners may infer Z, i.e., the
conclusion that fraud has been committed.
Id. (quoting Quinn, 14 F.3d at 654). Additionally, qui tam actions “are barred only when enough
information exists in the public domain to expose the fraudulent transaction (the combination of X
and Y), or the allegation of fraud (Z).” Id. (quoting Quinn, 14 F.3d at 655). An “original source”
is an “individual who has direct and independent knowledge of the information on which the
allegations are based and has voluntarily provided the information to the Government before filing
an action under this section which is based on the information.” 31 U.S.C. § 3730(e)(4)(B). If a qui
tam relator cannot establish himself as an original source of the information at issue, he has no
standing to proceed with the action. U.S. ex rel. Antoon v. Cleveland Clinic Found., 788 F.3d 605,
614 (6th Cir. 2015).
When determining whether the public disclosure bar applies, the Court considers, (1) whether
there has been any public disclosure of fraud, and (2) whether the allegations in the instant case are
“based upon” the previously disclosed fraud. U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503,

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511 (6th Cir. 2009) (citations omitted). If the answer to either of these is “no,” the inquiry is over
and the qui tam action may proceed. Id. (citation omitted). If the answer to each of these questions
is “yes,” however, the Court must then determine whether the relator nonetheless qualifies as an
“original source” under 31 U.S.C. § 3730(e)(4)(B), in which case the qui tam action may proceed.
Id. (citation omitted).
Notably, the Patient Protection and Affordable Care Act of 2010 (“PPACA”) amended the
public disclosure provision, with the post-PPACA language emphasizing that the disclosure must
involve “substantially the same allegations or transactions,” while the pre-PPACA language
emphasized that the allegations must be “based upon the public disclosure.” U.S. v. ChattanoogaHamilton Cty. Hosp. Auth., 958 F. Supp. 2d 846, 856 (E.D. Tenn. 2013). However, prior to the
enactment of the PPACA, the Sixth Circuit held that when “making this determination of whether
an action is ‘based upon’ a public disclosure, a court should look to whether substantial identity
exists between the publicly disclosed allegations or transactions and the qui tam complaint.” Id.
(quoting United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 332 (6th Cir.
1998)). As such, general case law involving the public disclosure bar is still applicable even if such
cases were decided prior to enactment of the PPACA. Id.
In determining the sufficiency of a complaint against a motion to dismiss under Rules 9(b)
and 12(b)(6) of the Federal Rules of Civil Procedure, the Court must accept as true all facts alleged
in the complaint. Merritt v. Mountain Laurel Chalets, Inc., 96 F. Supp. 3d 801, 811 (E.D. Tenn.
2015) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed.2d 929
(2007)); see also Chesbrough v. VPA, P.C., 655 F.3d 461, 467 (6th Cir. 2011) (“Construing the
complaint in the light most favorable to the plaintiff and accepting all factual allegations as true, we
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determine whether the complaint contains ‘enough facts to state a claim to relief that is plausible on
its face.’”) (citing Twombly, 550 U.S. at 570). The Court is not required, however, to accept as true
any proffered legal conclusions. Merritt, 96 F. Supp. 3d at 811 (citing Papasan v. Allain, 478 U.S.
265, 286, 106 S. Ct. 2932, 92 L. Ed.2d 209 (1986)).

III. ANALYSIS
Walgreens’s primary argument for dismissal under the False Claims Act emphasizes that
Relator’s claims allege a system of fraud that was previously disclosed by way of the aforementioned
qui tam actions filed in Michigan and California in 2008 and 2009, respectively. DE 45 at 6.
Walgreens relies on the complaint filed in the 2008 Michigan case, which states, in pertinent part:6
Pharmacies that provide discounts as incentives for customers to transfer pharmacies
leads to customers “pharmacy hopping” with the goal that the pharmacy providing
the discount will retain the customers’ future business.
Walgreens engaged in providing customers discounts through such means as a
Prescription Savings Discount Club, $10 discount checks, $20 discount checks, $25
gift card coupons, and $50 coupon brochures.
...
[W]algreens gave discounts on prescription drugs that it provided to Medicare and
Medicaid recipients through discount checks, gift cards and other coupons.
...
[Walgreens] allowed Medicare and Medicaid recipients to benefit from discounts at
the expense of Medicare and Medicaid.
DE 45-2 at 6 (emphasis added). Walgreens also notes that the press release issued by the DOJ in
April of 2012, attached to its memorandum, describes the settlement of the fraud allegations made
6

The Court does not discuss the allegations contained in the 2009 California case because
the relevant complaint remains under seal, DE 45 at 4, and is unnecessary to the Court’s analysis in
light of the existence of the unsealed Michigan complaint.
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against Walgreens in the Michigan and California lawsuits, which are nearly identical to the fraud
alleged by Relator in the instant case. Id. at 6-7. The press release describes the alleged fraud in part
as follows:
The settlement resolves allegations that Walgreens offered illegal inducements to
beneficiaries of government health care programs, including Medicare, Medicaid . . .
in the form of gift cards, gift checks and other similar promotions that are prohibited
by law, to transfer their prescriptions to Walgreens pharmacies. The government
investigation alleged that Walgreens had offered government health beneficiaries $25
gift cards when they transferred a prescription from another pharmacy to Walgreens.
DE 45-1 at 2. Walgreens also points out that the U.S. government has declined to intervene in this
matter, DE 45 at 2; DE 16, although such an election “does not necessarily indicate that . . . the [qui
tam] case ha[s] no merit.” Thompson v. Quorum Health Res., LLC, 485 F. App’x 783, 790 (6th Cir.
2012) (internal citation omitted).
In comparison, Relator’s amended complaint alleges that Walgreens “has defrauded the
United States through a systemic pattern and practice of offering incentives in the form of $25.00
gift cards to switch pharmacies as an inducement to beneficiaries of the Medicaid and Medicare
programs.” DE 29 at ¶ 3. Relator does not dispute that its allegations are “similar,” but instead
argues that the previous settlements between Walgreens and the government in the Michigan and
California cases are inapplicable because Walgreens “continued to carry out the same prohibited
actions it promised to stop.” DE 47 at 3-4. The Court rejects this argument, however, because it
goes against the clear language of the False Claims Act and corresponding case law. As noted supra,
the public disclosure bar specifically precludes qui tam actions involving disclosure of fraud that was
previously alleged in a “criminal, civil, or administrative hearing, in a congressional, administrative,

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or Government Accounting Office report, hearing, audit, or investigation, or from the news media.”
31 U.S.C. § 3730(e)(4)(A).
Both the 2008 Michigan complaint and the 2012 DOJ press release represent the types of
public disclosures contemplated by 31 U.S.C. § 3730(e)(4)(A): the Michigan complaint is a civil
complaint, while the DOJ press release represents “news media,” as it is information found on a
readily accessible public website that constitutes public disclosure. See U.S., ex rel. Osheroff v.
HealthSpring, Inc., 938 F. Supp. 2d 724, 733 (M.D. Tenn. 2013) (internal citations omitted); see also
Jones, 160 F.3d at 331 (“‘[P]ublic disclosure’ includes filing documents with a court, such as a
complaint.”) (citation omitted). Additionally, the allegations in the instant case are clearly
substantially the same as the allegations of fraud previously disclosed by the Michigan complaint
and the DOJ press release, as they all involve Walgreens’s issuance of $25.00 gift cards to induce
Medicare and Medicaid beneficiaries to transfer their business to Walgreens pharmacies.
Nevertheless, Relator argues that although the allegations in his amended complaint “are
similar in that [Walgreens] continued to induce Medicare and Medicaid beneficiaries in the form of
$25 gift cards,” they are not based upon these prior public disclosures, and that the 2012 settlement
between Walgreens and the government “failed to alter or deter [Walgreens’s] conduct.” DE 47 at
4. This does not, however, save his action from dismissal pursuant to the public disclosure bar. In
determining whether an action is based upon a prior public disclosure, the Court must “look to
whether substantial identity exists between the publicly disclosed allegations or transactions and the
qui tam complaint.” Poteet, 552 F.3d at 514 (quoting Jones, 160 F.3d at 332).

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In Poteet, the Sixth Circuit cited language from several cases indicating that Relator’s
reliance on Walgreens’s alleged violation of its 2012 settlement agreement does not preclude
application of the public disclosure bar:
Not a single circuit has held that a complete identity of allegations, even as to time,
place, and manner is required to implicate the public disclosure bar; rather all have
held, at a minimum, that dismissal is warranted where the plaintiff seeks to pursue
a claim, the essence of which is ‘derived from’ a prior public disclosure.
Id. (quoting United States ex rel. Boothe v. Sun Healthcare Group, Inc., 496 F.3d 1169, 1174 (10th
Cir. 2007)) (emphasis in original). The Poteet Court also noted that the Sixth Circuit’s “broad
construction of the public disclosure bar . . . precludes individuals who base any part of their
allegations on publicly disclosed information from bringing a later qui tam action.” Id. (quoting
United States ex rel. McKenzie v. BellSouth Telecommunications, Inc., 123 F.3d 935, 940 (6th Cir.
1997)) (emphasis in original). Moreover, an individual “who bases any part of an FCA claim on
publicly disclosed information is effectively precluded from asserting that claim in a qui tam suit.”
Id. (quoting U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 646 (6th Cir. 2003)).
Thus, contrary to Relator’s arguments, the issue is not whether the allegations in his amended
complaint are sufficiently different from those alleged in the Michigan and California cases; the issue
is instead whether Relator’s amended complaint is “even partly” based on these previous disclosures.
Id. (citation omitted). The answer to this inquiry is clearly “yes,” as the amended complaint asks for
relief based on Walgreens’s use of the $25.00 gift card system, as well as its alleged violation of its
2012 settlement with the U.S. government with respect to the $25.00 gift card system. DE 29 at
¶¶ 10, 17, 30-38.

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Relator claims that his amended complaint is different from the Michigan and California
cases because Walgreens continued to engage in the $25.00 gift card scheme after the April 2012
settlement. However, the fact that the arrangements and transactions alleged in Relator’s amended
complaint occurred subsequent to those mentioned in the Michigan and California public disclosures
does not make the public disclosure inapplicable. Chattanooga-Hamilton Cty. Hosp. Auth., 958 F.
Supp. 2d at 863. Similar to the instant case, the relator in Poteet argued that the defendant in
question had changed its methods of committing fraud in response to the government’s discovery
of fraud attributed to the defendant in a prior complaint, in order to continue committing the
fraudulent scheme. Poteet, 552 F.3d at 515, n.7. The Sixth Circuit rejected this argument, however,
noting that a complaint “based even partly upon public disclosures” is jurisdictionally barred. Id.
(citation omitted) (emphasis in original). Because at least some parts of the relator’s complaint were
based upon the prior public disclosure, the entire complaint was jurisdictionally barred. Id.; see also
Chattanooga-Hamilton Cty. Hosp. Auth., 958 F. Supp. 2d at 863 (citing Tenth Circuit’s rejection of
relator’s argument that public disclosure bar did not apply because the disclosures from prior
litigation involved earlier time frame than that alleged by relator, and involved different affiliates
of the defendant). In the instant case, there is no reasonable dispute that at least some parts of
Relator’s amended complaint are based on the $25.00 gift card scheme publicly disclosed by both
the 2008 Michigan complaint and the 2012 DOJ press release.
Relator must therefore demonstrate that he qualifies as an “original source” under 31 U.S.C.
§ 3730(e)(4)(B) in order to survive dismissal. Regarding this issue, Relator states the following:
[Relator] . . . is an original source of information because he suffered financial losses
at his pharmacy as a direct and proximate result of [Walgreens’s] violations of the
False Claims Act by providing illegal incentives to customers of [Relator’s]
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pharmacies. [Relator] is also a source of information for the Department of Justice
in the Middle District of Tennessee.
DE 47 at 4. However, this argument falls short of the standard required for status as an original
source. 31 U.S.C. § 3730(e)(4)(B) states that an original source is:
an individual who either (i) prior to a public disclosure under subsection (e)(4)(a),
has voluntarily disclosed to the Government the information on which allegations or
transactions in a claim are based, or (2) who has knowledge that is independent of
and materially adds to the publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before filing an action under
this section.
(Emphasis added).
As Walgreens notes in its brief, Relator has not alleged that he voluntarily provided
information to the government regarding the alleged fraud before filing his lawsuit. DE 45 at 10.
Relator still failed to allege that he provided such information before filing his lawsuit even after
Walgreens specifically asserted in its brief that he failed to do so, instead stating simply that,
“Relator is an original source exposing [Walgreens’s] conduct.” DE 45 at 10; DE 47 at 6. Relator
thus failed to allege that it provided this information to the government prior to filing this action on
three separate occasions (complaint, amended complaint, and response to Walgreens’s motion).
Therefore, even accepting all factual allegations set forth by Relator as true, Relator has failed to
satisfy a requirement of 31 U.S.C. § 3730(e)(4)(B); see also Chattanooga-Hamilton Cty. Hosp.
Auth., 958 F. Supp. 2d at 864 (holding that plaintiff was not an “original source” in part due to her
failure to allege that she had provided the relevant information to the government prior to filing
action).
Additionally, Relator’s allegations “add[] nothing that . . . materially adds to[] the disclosures
that had already been made” by way of the Michigan complaint and 2012 DOJ press release.
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Osheroff, 938 F. Supp. 2d at 735. The two previous qui tam cases and the 2012 DOJ press release
describing the settlement of such cases clearly demonstrate the government’s knowledge of the
$25.00 gift card system implemented by Walgreens well before the filing of Relator’s complaint in
August of 2013. DE 1. Relator states broadly that Walgreens offered “multiple customers of
[Relator’s pharmacy] $25.00 gift cards” between November of 2012 and August of 2014. DE 29 at
¶ 17. However, Relator fails to identify a specific instance of fraud that would add anything material
to the prior disclosure.
This is relevant to another argument set forth by Walgreens, which submits that Relator’s
amended complaint should be dismissed for failure to meet the heightened pleading requirements
of Fed. R. Civ. P. 9(b). DE 45 at 20-23. The minimum pleading standards under Rule 9(b) require
that the plaintiff identify: (1) the time, place, and content of the alleged fraud; (2) the fraudulent
scheme; (3) the defendant’s fraudulent intent; and (4) the resulting injury. Chesbrough, 655 F.3d
at 467.

The Sixth Circuit has also utilized the Eleventh Circuit’s more specific pleading

requirements for qui tam actions, which require that the plaintiff’s complaint identify:
(1) precisely what statements were made in what documents or oral representations
or what omissions were made, and (2) the time and place of each such statement and
the person responsible for making (or in the case of omissions, not making) same,
and (3) the content of such statements and the manner in which they misled the
[government], and (4) what the defendants obtained as a consequence of the fraud.
Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 877 (6th Cir. 2006) (quoting United States
ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1310 (11th Cir. 2002)).
In the instant case, Relator “does not identify any specific claims that were submitted to the
United States . . . and relied [instead] exclusively on conclusory allegations” regarding the $25.00
gift card system, Id. (citation omitted), a system which was already known by the government.
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Relator’s amended complaint provides a broad date range that spans nearly two years, the name of
a local Walgreens store, and the name of the Relator’s pharmacy, all of which were added after
Walgreens filed its initial motion to dismiss based partially on Relator’s failure to provide dates on
which the alleged fraud was committed. However, as Walgreens notes, Relator’s amended
complaint fails to identify any specific fraudulent claim. DE 45 at 21. The Sixth Circuit has clearly
held that “pleading an actual false claim with particularity is an indispensable element of a complaint
that alleges a [False Claims Act] violation in compliance with Rule 9(b).” U.S. ex rel. Bledsoe v.
Cmty. Health Sys., Inc., 501 F.3d 493, 504 (6th Cir. 2007). This includes a “strict requirement that
relators identify actual false claims.” Chesbrough, 655 F.3d at 472.
Relator argues in his response that disclosing the names of customers “lured away by
[Walgreens’s] illegal conduct” would violate HIPAA. DE 47 at 8. However, the Court finds the
case law submitted by Walgreens persuasive, and agrees that “[o]nce medical records have been
appropriately redacted and de-identified, patient privacy concerns dissipate and HIPAA poses no
obstacle to the production of the redacted records.” Roth v. Sunrise Senior Living Mgmt., Inc.,
No. 2:11-CV-4567, 2012 WL 748401, at *2 (E.D. Pa. Mar. 8, 2012); see also Miller v. Allstate Fire
& Cas. Ins. Co., No. CIV.-07-260, 2009 WL 700142, at *4 (W.D. Pa. Mar. 17, 2009) (holding that
submission of redacted documents “would obviate any of the patient privacy interests potentially at
stake”). Additionally, as demonstrated by the Michigan qui tam complaint, the identity of the
individual does not need to be revealed in order to allege a specific instance of fraud purportedly
perpetuated by Walgreens. The relator in the Michigan case utilized two-letter initials to describe
instances in which patients filled prescriptions from Walgreens pharmacies. DE 45-2 at ¶ 72.
Furthermore, the Michigan complaint described numerous instances of the alleged fraud, and
15

included specific dates and the physicians prescribing the medication being filled. Id. Relator’s
amended complaint provides no such specificity.
Relator makes no argument in its response for “relaxing” the heightened pleading
requirements of Rule 9(b), even though Walgreens presented its argument against relaxing the
standard in its motion to dismiss. DE 45 at 23. Regardless, the Court finds that Relator’s amended
complaint does not merit relaxation of Rule 9(b)’s pleading requirements. The Sixth Circuit has
stated that the pleading standard could be relaxed “in circumstances where a relator demonstrates
that he cannot allege the specifics of actual false claims that in all likelihood exist, and the reason
that the relator cannot produce such allegations is not attributable to the conduct of the relator.”
Bledsoe, 501 F.3d at 504, n.12. However, such circumstances have typically involved relators who
had “personal knowledge” that fraudulent bills were being submitted. See, e.g.,U.S. ex rel. Lane v.
Murfreesboro Dermatology Clinic, PLC, No. 4:07-CV-4, 2010 WL 1926131, at *4-5 (E.D. Tenn.
May 12, 2010) (finding that plaintiff, as former billing specialist for defendant, had “personal
knowledge” of allegedly fraudulent claims); Hill v. Morehouse Med. Associates, Inc., No. 02-14429,
2003 WL 22019936, at *1, 5 (11th Cir. Aug. 15, 2003) (finding that former billing department
employee had personal knowledge of allegedly fraudulent bills that were submitted).
Here, Relator owns a competing pharmacy and has no such personal knowledge of
Walgreens’s billing practice, and has failed to allege facts that “support a strong inference” that
fraudulent claims were submitted. Chesbrough, 655 F.3d at 471. Relator instead uses the privacy
provisions of HIPAA to relieve himself of any duty under Rule 9(b) to allege fraud with specificity.
In light of this failure, the Court finds that Relator has failed to meet the pleading standards of
Rule 9(b), thus warranting dismissal of his amended complaint.
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Although the False Claims Act encourages whistleblowing, it also “abjures parasitic
lawsuits, that is, suits in which ‘would-be relators merely feed off a previous disclosure of fraud.’”
Osheroff, 938 F. Supp. 2d at 732 (quoting Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970
(6th Cir. 2005)). Because Relator has failed to even allege that he provided the information at issue
to the government prior to filing this action, and because the allegations in his complaint fail to
materially add anything to the public disclosures contained in the Michigan and California cases, his
claim should be dismissed pursuant to the public disclosure bar contained in the False Claims Act.
See Chattanooga-Hamilton Cty. Hosp. Auth., 958 F. Supp. 2d at 864; see also Antoon, 788 F.3d at
614 (“After a public disclosure of the basis of the lawsuit, if a qui tam relator cannot establish
himself as an original source of the information, he has no standing to proceed with the action.”).
Relator’s amended complaint should also be dismissed due to his failure to meet the heightened
pleading standards of Fed. R. Civ. P. 9(b), as discussed supra. Because Relator’s qui tam claim is
determined to be precluded by the public disclosure bar and fails to meet the heightened pleading
requirements of Fed. R. Civ. P. 9(b), the Court need not consider Walgreens’s additional arguments
for dismissal. See Poteet, 552 F.3d at 515.

IV. RECOMMENDATION
For the above stated reasons, the Court respectfully RECOMMENDS that Walgreens’s
motion to dismiss (DE 44) be GRANTED.
ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of
Court within fourteen (14) days of service of this Report and Recommendation and must state with
particularity the specific portions of this Report and Recommendation to which objection is made.
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Failure to file written objections within the specified time can be deemed a waiver of the right to
appeal the District Court’s Order regarding the Report and Recommendation. See Thomas v. Arn,
474 U.S. 140, 106 S. Ct. 466, 88 L. Ed.2d 435 (1985); United States v. Walters, 638 F.2d 947 (6th
Cir. 1981).

Respectfully Submitted,

BARBARA D. HOLMES
United States Magistrate Judge

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