Schimelpfenig et al v. Dr. Reddy's Laboratories Limited et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

E.D. Pa.June 19, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA United States of America ex rel. Sally Schimelpfenig, et al. Plaintiffs/Relators, vs. Dr. Reddy’s Laboratories Limited, et al. Defendants. Docket No. 2:11-cv-4607-CDJ Honorable C. Darnell Jones, II JURY TRIAL DEMANDED DEFENDANTS’ DR. REDDY’S LABORATORIES LIMITED AND DR. REDDY’S LABORATORIES, INC. MOTION TO DISMISS RELATORS’ THIRD AMENDED COMPLAINT PURSUANT TO RULES 8, 9(b), & 12(b)(6) For the reasons set forth in the accompanying memorandum of law, Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc., by and through their undersigned counsel, hereby move, pursuant to Federal Rules of Civil Procedure 8, 9(b) and 12(b)(6), to dismiss with prejudice Relators’ Third Amended Complaint. Date: June 19, 2017 Respectfully submitted, /s/ Lisa Dykstra MORGAN, LEWIS & BOCKIUS LLP Lisa C. Dykstra (PA Bar No. 67271) ldykstra@morganlewis.com Shevon L. Scarafile (PA Bar No. 206552) sscarafile@morganlewis.com 1701 Market Street Philadelphia, PA 19103-2921 Tel.: 215-963-5000 Fax: 215-963-5001 Attorneys for Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Case 2:11-cv-04607-CDJ Document 89 Filed 06/19/17 Page 1 of 1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA United States of America ex rel. Sally Schimelpfenig, et al. Plaintiffs/Relators, vs. Dr. Reddy’s Laboratories Limited, et al. Defendants. Docket No. 2:11-cv-4607-CDJ Honorable C. Darnell Jones, II JURY TRIAL DEMANDED MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ DR. REDDY’S LABORATORIES LIMITED AND DR. REDDY’S LABORATORIES, INC. MOTION TO DISMISS RELATORS’ THIRD AMENDED COMPLAINT PURSUANT TO RULES 8, 9(b), & 12(b)(6) /s/ Lisa C. Dykstra MORGAN, LEWIS & BOCKIUS LLP Lisa C. Dykstra (PA Bar No. 67271) ldykstra@morganlewis.com Shevon L. Scarafile (PA Bar No. 206552) sscarafile@morganlewis.com 1701 Market Street Philadelphia, PA 19103-2921 Tel.: 215-963-5000 Fax: 215-963-5001 Attorneys for Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 1 of 45 TABLE OF CONTENTS Page i I. INTRODUCTION ............................................................................................................. 1 II. PROCEDURAL HISTORY............................................................................................... 3 III. THE ALLEGATIONS ....................................................................................................... 4 A. Overview ................................................................................................................ 4 B. The PPPA, CPSIA, and FDCA .............................................................................. 5 C. The False Claims Act ............................................................................................. 6 IV. STANDARD OF REVIEW ............................................................................................... 9 V. ARGUMENT ................................................................................................................... 10 A. Relators Fail to Plead a Factually False Claim Against Dr. Reddy’s (Count I) ............................................................................................................... 11 B. Relators Again Fail to Plead a Legally False Claim Against Dr. Reddy’s (Count I) ............................................................................................... 12 1. Relators Do Not Assert an Express Certification Theory of Liability .................................................................................................... 12 2. Relators’ Implied Certification Theory of Liability Fails ........................ 13 a. Escobar and its Progeny Delineated the Narrow Circumstances in Which an Implied Certification Theory of Liability Is Viable ........................................................................ 13 b. Relators Cannot Satisfy Any of the Escobar Requirements ........ 15 (i) No Viable Specific Representations Were Made............. 15 (ii) Even if Viable Specific Representations Were Made, They Were Not Material to the Government’s Decision to Pay ........................................ 20 c. Even if Relators Could Satisfy Escobar, their TAC as Plead Does Not Sufficiently Allege a Violation of the PPPA ............... 25 C. Relators’ Pre-July 21, 2005 Claims Are Barred By the Statute of Limitations ........................................................................................................... 26 D. Relators’ State Law Claims Should Be Dismissed (Counts V- XXXIII)................................................................................................................ 27 1. The State Law Claims Should Be Dismissed for the Same Reasons as the Federal Claims; Alternatively, the Court Should Decline to Exercise Supplemental Jurisdiction. ....................................................... 27 VI. CONCLUSION ................................................................................................................ 35 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 2 of 45 TABLE OF AUTHORITIES ii Page(s) CASES Ashcroft v. Iqbal, 556 U.S. 662 (2009) ...................................................................................................................9 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) .....................................................................9 Burns v. Lavender Hill Herb Farm, Inc., No. Civ. A. 01-7019, 2005 WL 1006321 (E.D. Pa. Apr. 28, 2005), aff’d per curiam, 167 F. App’x 891 (3d Cir. 2006) ................................................................................27 City of Monticello v. Adams, 200 N.W.2d 522 (Iowa 1972) ..................................................................................................31 Cole v. Silverado Foods, Inc., 78 P.3d 542 (Okla. 2003) .........................................................................................................31 Densley v. Dept. of Ret. Sys., 173 P.3d 885 (Wash. 2007)......................................................................................................31 Direct Action for Rights & Equality v. Gannon, 819 A.2d 651 (R.I. 2003) .........................................................................................................31 Eastern Enters. v. Apfel, 524 U.S. 498 (1998) .................................................................................................................30 Enfield Fed. Sav. & Loan Ass’n v. Bissell, 440 A.2d 220 (Conn. 1981) .....................................................................................................31 Foglia v. Renal Ventures Mgmt., LLC, 830 F. Supp. 2d 8 (D.N.J. 2011) ..............................................................................................28 Fowler Props., Inc. v. Dowland, 646 S.E.2d 197 (Ga. 2007).......................................................................................................31 Fowler v. UPMC Shadyside, 578 F.3d 203 (3rd Cir. 2009) .....................................................................................................9 Graham Cnty. Soil & Water Conserv. Dist. v. U.S. ex rel. Wilson, 559 U.S. 280 (2010) .................................................................................................................30 In re Estate of DeWitt, 54 P.3d 849 (Colo. 2002) .........................................................................................................31 In re Rockefeller Ctr. Props. Sec. Litig., 311 F.3d 198 (3d Cir. 2002).....................................................................................................10 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 3 of 45 iii Knudsen v. Sprint Commc’ns Co., No. C13-04476 CRB, 2016 WL 4548924 (N.D. Cal. Sept. 1, 2016) ................................21, 23 Kusner v. Hepburn, Willcox, Hamilton & Putnam, No. 00-6313, 2001 WL 34368779 (E.D. Pa. Nov. 21, 2001) ..................................................27 Morse v. Lower Merion School Dist., 132 F.3d 902 (3d Cir. 1997).......................................................................................................9 People v. Ramsey, 735 N.E.2d 533 (Ill. 2000) .......................................................................................................31 Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199 (2015) .............................................................................................................25 Sikora v. Am. Can Co., 622 F.2d 1116 (3d Cir. 1980)...................................................................................................30 State ex rel. Hayling v. Corr. Med. Servs., Inc., 28 A.3d 1246 (N.J. Super. Ct. 2011) .......................................................................................31 State v. Ordunez, 283 P.3d 282 (N.M. 2011) .......................................................................................................31 U.S. Bank, Nat. Ass’n v. Miller, 44 N.E.3d 730 (Ind. Ct. App. 2015) transfer denied sub nom. U.S. Bank, N.A. v. Bank of Evansville, 43 N.E.3d 1278 (Ind. 2016) .................................................................31 U.S. Dep’t of Transp. ex rel. Arnold v. CMC Eng’g, 564 F.3d 673 (3d Cir. 2009).......................................................................................................6 U.S. ex rel. Bergman v. Abbot Labs., 995 F. Supp. 2d 357 (E.D. Pa. 2014) .......................................................................................29 U.S. ex rel. Campie v. Gilead Sciences, Inc., No. C-11-0941 EMC, 2015 WL 106255 (N.D. Cal. Jan. 7, 2015) ..........................................22 U.S. ex rel. Doe v. Health First, Inc., No. 6:14-cv-501-Orl-37DAB, 2016 WL 3959343 (M.D. Fla. July 22, 2016).........................13 U.S. ex rel. Garg v. Covanta Holding Corp., 478 F. App’x 736 (3d Cir. 2012) .............................................................................................27 U.S. ex rel. Kelly v. Serco, Inc., 846 F.3d 325 (9th Cir. 2017) ...................................................................................................20 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 4 of 45 iv U.S. ex rel. King v. Solvay S.A., 823 F. Supp. 2d 472 (S.D. Tex. 2011), order vacated in non-relevant part on reconsideration by, 2012 WL 1067228 (S.D. Tex. Mar. 28, 2012)...................................30, 31 U.S. ex rel. Petratos v. Genentech Inc., 855 F.3d 481 (3d Cir. 2017)............................................................................................. passim U.S. ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694 (4th Cir. 2014) .............................................................................................22, 24 U.S. ex rel. Scharff v. Camelot Counseling, 13-cv-3791 (PKC), 2016 WL 5416494 (S.D.N.Y. Sept. 28, 2016) ...................................21, 23 U.S. ex rel. Schimelpfenig v. Dr. Reddy's Labs. Ltd., No. CV 11-4607, 2017 WL 1133956 (E.D. Pa. Mar. 27, 2017) ...................................... passim U.S. ex rel. Schumann v. AstraZeneca PLC, No. 03-5423, 2010 WL 4025904 (E.D. Pa. Oct. 13, 2010), aff’d, 769 F.3d 837 (3d Cir. 2014) ...........................................................................................................................27 U.S. ex rel. Simpson v. Bayer Corp., No. 05-3895, 2012 WL 3600302 (D.N.J. Aug. 21, 2012) .......................................................27 U.S. ex rel. Simpson v. Bayer Corp., No. 05-3895 (JLL), 2014 WL 1418293 (D.N.J. Apr. 11, 2015) ..............................................22 U.S. ex rel. Streck v. Allergan, Inc., 894 F. Supp. 2d 584 (E.D. Pa. 2012) .......................................................................................28 U.S. ex rel. Tessler v. City of N.Y., No. 14-CV-6455 (JMF), 2016 WL 7335654 (S.D.N.Y. Dec. 16, 2016) .................................13 U.S. ex rel. Whatley v. Eastwick College, 657 F. App’x 89 (3d Cir. 2016) ...............................................................................................13 U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295 (3d Cir. 2011).....................................................................................7, 10, 11, 12 U.S. v. Juvenile Male, 255 P.3d 110 (Mont. 2011) ......................................................................................................31 Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) ..................................................................................................... passim Wilson v. Triangle Oil Co., 566 A.2d 1016 (Del. Super. Ct. 1989), aff’d sub nom. Clark v. Sun Ref. & Mktg., 584 A.2d 1228 (Del. 1990) ...........................................................................................28 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 5 of 45 v STATUTES 15 U.S.C. § 1473(a) .......................................................................................................................25 15 U.S.C. § 1473(b) .............................................................................................................5, 22, 25 15 U.S.C. § 2064(b) .........................................................................................................................8 21 U.S.C. § 352(p) .........................................................................................................................22 28 U.S.C. § 1367(c)(3) ...................................................................................................................27 31 U.S.C. § 3729(a)(1)(A) .........................................................................................................7, 26 31 U.S.C. § 3731(b)(1) ..................................................................................................................26 42 U.S.C. § 1395y ..........................................................................................................................21 42 U.S.C. § 1395w-102(e) .............................................................................................................22 740 Ill. Comp. Stat. 175/5 (1992), (2010)......................................................................................32 2009 Del. Laws Ch. 166 § 10 ........................................................................................................28 Colo. Rev. Stat. §§ 25.5-4-303.5-25.5-4-310 (2010) ....................................................................30 Colo. Rev. Stat. § 25.5-4-307(a)(1) (2010) ....................................................................................31 Conn. Gen. Stat. §§ 17b-301 through 17b-301p ............................................................................34 Consumer Product Safety Improvement Act of 2008 ............................................................ passim D.C. Code Ann. § 1-1188.17 (1998) ..............................................................................................34 D.C. Code Ann. § 2.308.17 (2001) ................................................................................................34 D.C. Code Ann. § 2.381.05 ............................................................................................................34 Del. Code. Ann. Tit. 6 § 1203(b)(4)(b) (2000) ..............................................................................28 Del. Code Ann. Tit. 6, § 1209(a) (2000) ........................................................................................32 Federal Food Drug and Cosmetic Act ................................................................................... passim Fla. Stat. Ann. § 68.089 (2007) ......................................................................................................32 Ga. Code Ann. § 49-4-168.1(a)(1) (2007) .....................................................................................30 Ga. Code Ann. § 49-4-168.5 (2007) ..............................................................................................32 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 6 of 45 vi Haw. Rev. Stat. § 661-24 (2000) ...................................................................................................32 Ind. Code Ann. § 5-11-5.5-2 - 9 (2005) ..................................................................................30, 32 Iowa Code §§ 685.1-685.7 (2010) ..........................................................................................30, 32 La. Rev. Stat. Ann. § 46:439.1B (2009) ........................................................................................32 Mass. Gen. Laws Ann. ch. 12, § 5K (2000)...................................................................................32 Md. Code Ann., Health-Gen. § 2-604(a)(7) .................................................................................29 Mich. Comp. Laws Ann. § 400.614(1) (2009) ..............................................................................33 Mont. Code Ann. § 17-8-401 - 404 (2005) .............................................................................30, 33 N.J. Stat. Ann. § 2A:32C-3a (2008)...............................................................................................30 N.J. Stat. Ann. § 2A:32C-11 (2008) ..............................................................................................33 N.M. Stat. Ann. §§ 27-14-13(A), 37-1-4 (2007) ...........................................................................33 N.M. Stat. § 27-14-7 ................................................................................................................29, 30 N.Y. State Fin. Law § 187 (2007) ..................................................................................................30 Nev. Rev. Stat. Ann. § 357.170 (2011) ..........................................................................................33 Okla. Stat. Ann. Tit. 63, § 5053.6(B) (2007) .................................................................................33 Okla. Stat. § 63-5053.1 (2007).......................................................................................................30 Poison Prevention Packaging Act of 1970............................................................................. passim R.I. Gen. Laws § 9-1.1-3(a)(1) (2007) .....................................................................................30, 33 Tenn. Code Ann. § 71-5-184(b) (1993) .........................................................................................33 Tex. Hum. Res. Code Ann. § 36.104 (1997) .................................................................................33 Tex. Hum. Res. Code § 36.001 et seq. .................................................................................... 29, 30 Va. Code Ann. § 8.01-216.9 (2003)...............................................................................................33 Wash. Rev. Code § 74.66.005 (2012) ............................................................................................30 Wis. Stat. § 20.931(2)(a) ................................................................................................................34 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 7 of 45 vii RULES Federal Rule of Civil Procedure 8(a) ...............................................................................................1 Federal Rule of Civil Procedure 9(b) ...............................................................................1, 9, 10, 27 Federal Rule of Civil Procedure 12(b)(6) ....................................................................................1, 9 OTHER AUTHORITIES 16 C.F.R. § 1700.14(a)(10) ........................................................................................................5, 25 16 C.F.R. § 1701.1 .....................................................................................................................5, 25 19 C.F.R. § 141.85 .........................................................................................................................19 19 C.F.R. § 141.86 .........................................................................................................................19 19 C.F.R. § 142.3 .......................................................................................................................8, 19 21 C.F.R. § 207.33(b)(1)(i)-(iii).....................................................................................................15 21 C.F.R. § 207.33(b)(1)(iii) ..........................................................................................................16 21 C.F.R.. § 207.33(b)(2) ...............................................................................................................16 21 C.F.R. § 207.37(a)(2) ................................................................................................................17 21 C.F.R. § 207.77(b) ....................................................................................................................16 42 C.F.R. § 447.510(d) ..................................................................................................................16 2007 Sess. Laws of N.Y. Ch. 59 (S. 2108-C) ...............................................................................31 https://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/ drugregistrationandlisting/ucm078801.htm; ............................................................................16 https://www.fda.gov/drugs/informationondrugs/ucm ....................................................................17 Illinois Code of Ordinances § 1-22-010 - 40 (2004) ...................................................30, 33, 34, 35 N.Y., Code § 7-803 (2005) ......................................................................................................30, 34 N.Y., Code §7-804(b)(1) ................................................................................................................35 N.Y., Code § 7-806(a)....................................................................................................................33 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 8 of 45 viii U.S. Food & Drug Administration, FDA Affirmations of Compliance for the Automated Commercial Environment (2016), available at https://www.fda.gov/downloads/ForIndustry/ImportProgram/EntryProcess/Im portSystems/UCM487261.pdf .................................................................................................19 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 9 of 45 1 Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. (collectively “Dr. Reddy’s”) submit this Memorandum of Law in Support of Their Motion to Dismiss, filed pursuant to Rules 8, 9 & 12(b)(6), the Third Amended Complaint (“TAC”) of Plaintiff-Relators Sally Schimelpfenig and John Segura (“Relators”). Dr. Reddy’s respectfully requests that the Court dismiss with prejudice Relators’ TAC because it fails to state a claim for relief. I. INTRODUCTION This is Relators’ Third Amended Complaint and fourth attempt to plead a False Claims Act (“FCA”) case. But, no matter how many times Relators amend their complaint, they cannot transform alleged packaging violations into a case that constitutes fraud on the government in violation of the FCA. Indeed, this Court’s reasons for dismissing Relators’ Second Amended Complaint (“SAC”) apply with equal force here and Relators’ TAC should be dismissed with prejudice. As this Court is aware, the FCA has long served as a tool for combatting fraud on the government. As they did in the SAC, Relators allege that, at certain unspecified times over an eight-year period, Dr. Reddy’s, a generic drug manufacturer, caused the Defendant Retail Pharmacies to submit fraudulent claims for reimbursement to federal payers such as Medicare and Medicaid. According to Relators, Dr. Reddy’s sold its drugs to the Retail Pharmacies in non-child-resistant packaging in violation of the Poison Prevention Packaging Act of 1970 (“PPPA”) and the Consumer Product Safety Improvement Act of 2008 (“CPSIA”). They also surmise that these alleged transgressions rendered Dr. Reddy’s drugs “misbranded” in violation of the Federal Food Drug and Cosmetic Act (“FDCA”). And, they further contend, because the Dr. Reddy’s drugs for which the Retail Pharmacies submitted claims for reimbursement were not Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 10 of 45 2 packaged in compliance with the PPPA and CPSIA, Dr. Reddy’s caused them to submit fraudulent claims for payment to the government. Relators have brought this case under an implied certification theory of FCA liability. Under this theory, Relators must allege that through the submission of claims for payment to the government, the Retail Pharmacies and Dr. Reddy’s implicitly certified that they had complied with a statutory or regulatory requirement relating to the claims, when, in fact, they had not. The Supreme Court recently and specifically clarified the limitations of an FCA claim based on this theory of liability in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). Escobar and its Third Circuit progeny make clear that Relators must establish that, as part of the relevant claims for reimbursement, the Defendants made specific representations about the drugs that were misleading half-truths because they failed to disclose noncompliance with a statutory or regulatory requirement. And even then, Relators must still show that these misrepresentations were material to the government’s decision to pay-i.e., that compliance with these legal requirements was so central to the bargain that it would have affected the government’s decision whether to pay the claims. In Escobar, the Court described this materiality standard as “rigorous” and “demanding.” Id. at 2002-03. After all, it is hardly a fraud if the alleged misrepresentations had no impact on the government’s decision to pay. For the same reasons articulated by this Court in dismissing Relator’s SAC, Relators again cannot state a claim under the FCA. First, Dr. Reddy’s made no false statements and told no misleading half-truths to the government about PPPA compliance. Second, even if Dr. Reddy’s had, Relators have not alleged facts sufficient to demonstrate that any such misrepresentation about PPPA compliance was material to the government’s payment decision. They have identified nothing that conditions reimbursement on compliance with the statutes at Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 11 of 45 3 issue. Nor have they alleged a single instance where the government refused to reimburse a claim based on noncompliance with these statutes, or anything else that would satisfy Escobar’s demanding materiality standard. Moreover, an FCA case brought by Relators is not the proper mechanism or forum for addressing the alleged packaging violations, no matter how Relators spin them. Relators also purport to assert an FCA theory of factual falsity, but this too is untenable. A claim is factually false where the claimant either submits an incorrect description of the goods or services provided or requests reimbursement for goods or services never provided. Relators have not alleged that any Defendant dispensed drugs that were different than those for which they sought reimbursement or sought reimbursement for drugs that were never provided. As this Court held in the first instance, their theory of factual falsity is really just an implied certification theory. For these reasons, which are explained in more detail below, Dr. Reddy’s respectfully requests that this Court dismiss Relators’ TAC with prejudice because any further amendment would be futile. II. PROCEDURAL HISTORY Relators filed their original Complaint under seal on July 21, 2011. (Dkt. No. 26 fn.1). Relators filed their SAC1 under seal on September 11, 2015. (Dkt. No 26). After a thorough investigation, on September 18, 2015, the federal government and states at issue declined to intervene in the FCA case (Dkt. No. 27) and on November 10, 2015, Relators’ SAC was unsealed. (Dkt. No. 28). On February 23, 2016, Dr. Reddy’s and the Retail Pharmacies each filed a Motion to Dismiss the SAC. (Dkt. Nos. 50, 51). After considering each Motion to 1 Dr. Reddy’s is not privy to the initial Complaint, nor the First Amended Complaint, both of which remain under seal. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 12 of 45 4 Dismiss and the responses and replies thereto and all supplemental briefing, the Court issued an Order on March 27, 2017, dismissing the SAC in full without prejudice. (Dkt. No. 84). Relators filed their TAC with the Court on April 20, 2017. (Dkt. No. 86). The parties stipulated to a Scheduling Order, which the Court entered on April 25, 2017, setting the deadline for Defendants to file a motion to dismiss the TAC as June 19, 2017. (Dkt. 87). III. THE ALLEGATIONS A. Overview With this 320-paragraph, 114-page TAC, Relators have attempted to repackage the same allegations from their SAC, with a few unremarkable additions, into a form that fits the implied certification theory as articulated by the Supreme Court in Escobar. Relators still allege that at certain unspecified times between 2004 and 2012, Dr. Reddy’s, an India-based manufacturer of generic drugs, produced certain products and (1) failed to test the packaging for them for compliance with the PPPA regulations, (2) failed to package them in child-resistant packaging in purported violation of the PPPA, and (3) failed to certify that they were in child-resistant packaging in violation of the CPSIA (for the time period 2010-2012). (TAC ¶¶ 2, 12, 14, 134, 136, 137, 139, 171, 174, 175).2 As a result of Dr. Reddy’s alleged non-compliance, Relators also claim that certain drugs have been “misbranded” in violation of the FDCA. (Id. ¶¶ 3, 17, 71, 73, 115, 251(2), 254(2), 257(A)(2), 260(A)(2)). Relators further allege that Dr. Reddy’s contracted with the Retail Pharmacies-CVS Pharmacy, Inc., Walgreen Co., and Wal-Mart Stores, Inc.-to distribute its drugs in the United States. (Id. ¶ 122). As part of these contracts, Dr. Reddy’s purportedly misrepresented to the Retail Pharmacies that its drugs were not misbranded and were in compliance with all federal 2 Relators concede that in 2011, Dr. Reddy’s “implemented a testing program to ensure that the drugs’ packaging going forward met the child resistance specifications set forth in the PPPA.” (Id. ¶ 151). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 13 of 45 5 laws and regulations. (Id. ¶¶ 124, 125, 128, 131). The Retail Pharmacies then allegedly dispensed these drugs to consumers and submitted claims for reimbursement to federal healthcare programs including Medicare, Medicaid, TRICARE, and FEHBP (collectively the “Federal Payers”) and several states, even though the drugs’ packaging was not in compliance with the PPPA and CPSIA. (Id. ¶¶ 88-96, 127, 130, 133). According to Relators, Dr. Reddy’s thus caused the Retail Pharmacies to submit “false” or fraudulent claims for reimbursement to the government. (Id. ¶¶ 20, 114, 241, 243, 251). B. The PPPA, CPSIA, and FDCA3 The PPPA requires prescription drugs to be dispensed in child-resistant packaging unless the physician or other healthcare provider or the consumer specifies to the pharmacist at the time of dispensing to use non-child-resistant packaging, which they are permitted to do. (Id. ¶¶ 47-48, 50) (citing 16 C.F.R. § 1700.14(a)(10); 15 U.S.C. § 1473(b); 16 C.F.R. § 1701.1(b), (c)). In the TAC, Relators allege that the pharmacy and the pharmacist are directly responsible for dispensing the drug in the proper package, which includes ensuring that “all prescription drugs subject to a special packaging standard are dispensed to the consumer in special packaging.” (Id. ¶¶ 3, 51, 52, 55, 57, 58, 123 (citing, inter alia, 16 C.F.R. § 1701.1(b), (d) (These are not regulations, but rather statements of policy and interpretation.)). The PPPA regulations also set forth the method by which product packaging that is claimed to be child-resistant is to be tested to determine whether it actually is. (Id. ¶ 59 (citing 16 C.F.R. § 1700.20 et seq.)). Relators allege that Dr. Reddy’s violated the PPPA because its drugs were not packaged and tested as required by this statute (Id. ¶¶ 6, 155, 177), and that the Retail Pharmacies violated the PPPA because they dispensed the drugs in this noncompliant packaging (Id. ¶¶ 3, 51-58). Thus, 3 The references to Relators’ legal conclusions are to note what Relators alleged. Relators’ legal conclusions and proposed interpretations of law are entitled to no deference. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 14 of 45 6 Relators contend, Dr. Reddy’s caused the Retail Pharmacies to submit claims for reimbursement to the Federal Payers that were false because the Dr. Reddy’s drugs for which the Retail Pharmacies sought payment were not packaged in compliance with the PPPA. (Id. ¶¶ 249-51, 254(B), 257(B), 259(B)). Notably, though, Relators cannot allege how the products were actually dispensed (for example, whether they were repackaged by the Retail Pharmacies in child-resistant packaging and/or whether the prescriber or consumer requested non-child- resistant packaging), because they do not know. In addition to the other points noted herein, this is fatal to their claims. The CPSIA, which was passed in 2008 and became effective February 10, 2010, requires drug manufacturers to issue general certificates of conformity affirming compliance with the rules and regulations enforced by the Consumer Product Safety Commission (“CPSC”). (Id. ¶¶ 81-83 (citing 15 U.S.C. §§ 2051, 2063(a)(1))). Relators allege that Dr. Reddy’s violated the CPSIA because between February 10, 2010 and 2011, it chose not to issue the certificates. (Id. ¶¶ 2, 174-75). They further allege that Dr. Reddy’s then sold these drugs to the Retail Pharmacies, which caused them to submit false claims for reimbursement to the Federal Payers because they did not disclose this noncompliance. (Id. ¶¶ 127, 130, 133, 196, 254(B)(2), 257(B)(2), 260(B)(2)). Under the FDCA, prescription drug products with packaging that violates the PPPA are “misbranded.” (Id. ¶ 71 (citing 21 U.S.C. § 352(p))). As a result, Relators assert-incorrectly- that Dr. Reddy’s drugs were not “covered for reimbursement by [the Federal Payers].” (Id. ¶ 69; see also id. ¶ 251(2)). C. The False Claims Act The FCA is a statutory cause of action that is “intended . . . to combat[] ‘fraud against the Government.’” U.S. Dep’t of Transp. ex rel. Arnold v. CMC Eng’g, 564 F.3d 673, 678 (3d Cir. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 15 of 45 7 2009) (quoting Allison Engine Co., Inc. v. U.S. ex rel. Sanders, 553 U.S. 662, 669 (2008)). Specifically, it provides a remedy where a defendant “knowingly” presents or causes to be presented to the United States a “false or fraudulent” claim for payment. (TAC ¶ 97 (citing 31 U.S.C. § 3729(a)(1)(A)). Thus, to state a claim under § 3729(a)(1)(A), a relator must show that there was “(1) a false or fraudulent claim; (2); which was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with the knowledge that the claim was false.” (Id. ¶ 250); see also U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 304-05 (3d Cir. 2011) (articulating these three elements). There are two categories of false claims under the FCA: a factually false claim and a legally false claim. (TAC ¶ 106 (citing Wilkins, 659 F.3d at 305)). A factually false claim occurs when the goods or services for which the claimant seeks reimbursement are misrepresented or never provided at all. (Id. ¶ 107). The words “factual falsity” are alleged in very few of the 320 paragraphs of the TAC. (See id. ¶¶ 245, 251(3), 254(A)(3), 257(A)(3), 260(A)(3)). As for legal falsity, there are two types: express false certification and implied false certification. (Id. ¶ 109). Relators have not alleged an express certification claim, which is viable when a defendant explicitly certifies to a government payer that it is in compliance with a regulation that is a requirement for payment. (Id. ¶ 110). Rather, they allege an implied certification claim, contending that Dr. Reddy’s caused the Retail Pharmacies to submit claims for reimbursement that implicitly certified compliance with the PPPA and CPSIA. (See, e.g., id. ¶ 111, 245). Under this theory, liability can attach when a claimant “makes specific representations about the goods or services provided[] and the [claimant’s] failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 16 of 45 8 representations misleading half-truths.” Escobar, 136 S. Ct. at 2001; (TAC ¶¶ 111, 217-20, 224- 27, 230 (citing Escobar, 136 S. Ct. at 1989)). To attempt to satisfy Escobar’s requirement regarding specific representations, Relators allege that Dr. Reddy’s made three “implicit representations.” (TAC ¶¶ 192-216). First, Relators allege that the “National Drug Code” numbers assigned to Dr. Reddy’s drugs implicitly represented that these drugs were in packages that complied with the PPPA and CPSIA. (Id. ¶¶ 4, 8, 192-98, 246, 251(5)). Second, Relators allege that, as part of the import process, Dr. Reddy’s implicitly represented compliance with the PPPA and CPSIA through the “entry notice” documentation it submitted to the U.S. Customs and Border Protection Agency (which is not a Federal Payer). (Id. ¶¶ 199-209). Third, and also through the import process, Relators allege that Dr. Reddy’s “may” have submitted an Affirmation of Compliance to the FDA (also not a Federal Payer), which allegedly affirmed compliance with all U.S. laws and regulations. (Id. ¶¶ 210-216). Relators’ allegations regarding Dr. Reddy’s alleged import obligations are largely their own conclusions unsupported by legal citations. (Id. ¶¶ 200-202, 204-205, 209-211, 213- 214, 216). Those allegations that do contain legal citations have nothing to do with whether Dr. Reddy’s made specific or implied representations about PPPA compliance. (See, e.g. id. ¶¶ 207 (citing 19 C.F.R. § 142.34), 208 & 215 (citing 15 U.S.C. § 2064(b)5)). Furthermore, Relators claim that compliance with the PPPA and CPSIA was material to the Federal Payers’ decision to pay the claims for reimbursement. In short, they allege that, in deciding whether to reimburse for Dr. Reddy’s drugs, these payers “would attach importance” to 4 19 C.F.R. § 142.3 lists the entry documentation required to secure the release of merchandise upon import. Relators cite it for the proposition that the “presentment of the required ‘entry notice’ documentation . . . constitutes an implicit representation that the FDA-regulated products . . . that are being imported into the U.S., comply with all FDA laws and regulations.” (TAC ¶ 207). Nothing in the regulation speaks to whether the entry documentation contains a representation, implicit or otherwise, that the product being imported was compliant with FDA laws and regulations. 5 15 U.S.C. § 2064(b) does not require Dr. Reddy’s to include in its entry documentation any information regarding whether its products were in compliance with the PPPA. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 17 of 45 9 whether Dr. Reddy’s had complied with the PPPA and CPSIA, because Congress has chosen to legislate this area and many lives have been saved as a result. (Id. ¶¶ 225-40). But these bare legal conclusions are insufficient. As will become clear below, Relators have not stated a plausible FCA claim. IV. STANDARD OF REVIEW Federal Rule of Civil Procedure 12(b)(6) mandates dismissal of a complaint where there is a “failure to state a claim upon which relief can be granted.” In deciding a motion to dismiss under Rule 12(b)(6), even though all well-pleaded facts are accepted as true, the court should disregard any legal conclusions. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3rd Cir. 2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A claim has to be facially plausible, which means there must be “more than a sheer possibility that a defendant has acted unlawfully.” Id. The “‘unadorned, the-defendant-unlawfully-harmed-me accusation’” is insufficient. Fowler, 578 F.3d at 210 (quoting Iqbal, 556 U.S. at 678). Furthermore, “legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.” Morse v. Lower Merion School Dist., 132 F.3d 902, 906 n.8 (3d Cir. 1997) (citation omitted); see also id. (noting that courts should reject “legal conclusions, unsupported conclusions, unwarranted inferences, unwarranted deductions, footless conclusions of law, or sweeping legal conclusions cast in the form of factual allegations” (internal quotation marks omitted)). In addition, “[b]ecause the False Claims Act and related state law claims allege fraud, they are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).” U.S. ex rel. Schimelpfenig v. Dr. Reddy's Labs. Ltd., No. CV 11-4607, 2017 WL 1133956, at *2 (E.D. Pa. Mar. 27, 2017) (Jones, J.) (citation omitted); see also Wilkins, 659 F.3d at 301 n.9 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 18 of 45 10 (“[P]laintiffs must plead FCA claims with particularity in accordance with Rule 9(b).”). “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “The aim of this heightened pleading standard is to ‘place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior.’” Dr. Reddy's, 2017 WL 1133956, at *2 (citation omitted). “Rule 9(b) requires, at minimum, that plaintiffs support their allegations of . . . fraud with all of the essential factual background that would accompany ‘the first paragraph of any newspaper story’-that is, the ‘who, what, when, where, and how’ of the events at issue.” In re Rockefeller Ctr. Props. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002) (citation omitted). V. ARGUMENT This Court should dismiss with prejudice Relators’ FCA claim against Dr. Reddy’s (Count I) and every state and city false claims act cause of action against it (Counts V-XXXIII) because nothing Relators have added changes this Court’s original analysis. First, Relators have not alleged a plausible factually false FCA claim. Second, they have not alleged a plausible legally false claim, as they have not asserted an express certification claim, and their implied certification claim fails. Their alleged implied certification claim fails to satisfy both the specific representation requirement set forth in Escobar and the factors from the heightened materiality standard that the Court established in that case. Lastly, and for the same reasons, this Court should dismiss with prejudice every state and city false claims act cause of action. If not, this Court should either decline to exercise supplemental jurisdiction over these claims or limit them in the various ways described below. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 19 of 45 11 A. Relators Fail to Plead a Factually False Claim Against Dr. Reddy’s (Count I). Relators make a strained and futile attempt at asserting a factually false FCA claim. To assert such a claim, a relator “must generally show that the [G]overnment payee has submitted an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.” Dr. Reddy's, 2017 WL 1133956, at *3 (citation omitted); see also Wilkins, 659 F.3d at 305 (“A claim is factually false when the claimant misrepresents what goods or services that it provided to the Government . . . .”). Here, Relators have again failed to make such a showing because they “neither allege that Defendants dispensed drugs different than that for which Defendants sought federal reimbursement, nor do [they] allege that Defendants sought reimbursement for drugs or services that were not at all provided.” Dr. Reddy's, 2017 WL 1133956, at *4; see also U.S. ex rel. Petratos v. Genentech Inc., 855 F.3d 481, 486 n.1 (3d Cir. 2017) (“Although Petratos halfheartedly argues that the claims at issue are factually false, he is incorrect. There is no dispute that the physicians actually provided the claimed good (Avastin) in the claimed doses.”). Rather, as before, they allege that the claims were factually false because Dr. Reddy’s failed to package the drugs in compliance with the PPPA. (See TAC ¶ 251(3) (“The claims were factually false in that there were both important physical and functional differences in the packaging of the product that caused an implicit misrepresentation of the goods to the Federal Payers, who are paying, in part, because they expect that the drug is packaged in conformance with the PPPA.”); see also id. ¶ 245). But, as this Court previously concluded, “Defendants’ failure to disclose their drugs’ lack of compliance with the PPPA and CPSIA . . . is quintessentially legal falsity under the FCA,” and Relators “cannot circumvent the requirements for proving legal falsity under the FCA by repurposing their claims as ones for factual falsity.” Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 20 of 45 12 Dr. Reddy's, 2017 WL 1133956, at *4. For these reasons, the Court should again dismiss Relators’ factual falsity claim. B. Relators Again Fail to Plead a Legally False Claim Against Dr. Reddy’s (Count I). As to their allegations of legal falsity, Relators claim that Dr. Reddy’s sold the Retail Pharmacies drugs that did not comply with the PPPA and CPSIA and were thus misbranded under the FDCA, which caused these pharmacies to submit false claims for reimbursement to the Federal Payers. (TAC ¶¶ 11, 22, 117, 127, 130, 133, 243, 251(2)). As explained above, there are two types of legally false claims: express false certification claims and implied false certification claims. Relators’ allegations do not state a claim under either theory. 1. Relators Do Not Assert an Express Certification Theory of Liability. “Under the ‘express false certification’ theory, an entity is liable under the FCA for falsely certifying that it is in compliance with regulations which are prerequisites to Government payment in connection with the claim for payment of federal funds.” Wilkins, 659 F.3d at 305 (citation omitted). Similar to the SAC, Relators fail to allege any express warranties or misrepresentations that Dr. Reddy’s6-or the Retail Pharmacies-made to the Federal Payers in connection with a claim for reimbursement. As in the SAC, Relators have failed to plead facts sufficient to support an express false certification theory. See Dr. Reddy’s, 2017 WL 1133956, at *4 (“Plaintiffs do not allege that Defendants expressly certified compliance with all federal statutes and regulations in their claims for reimbursement . . . .”). 6 To the extent that Relators allege that Dr. Reddy’s falsely and expressly represented to the Retail Defendants that the drugs complied with all federal laws (TAC ¶¶ 125, 128, 131), it is irrelevant because the relevant inquiry is “whether warranties of statutory and regulatory compliance were made to the Government payer.” Dr. Reddy’s, 2017 WL 1133956, at *4 n.1 (citing Wilkins, 659 F.3d at 305). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 21 of 45 13 2. Relators’ Implied Certification Theory of Liability Fails. a. Escobar and its Progeny Delineated the Narrow Circumstances in Which an Implied Certification Theory of Liability Is Viable. Relators’ principal theory of FCA liability here is an implied certification claim. The Court in Escobar concluded that an implied certification claim can be viable, but in doing so it circumscribed the scope of this theory in two ways. First, it articulated the limited circumstances under this theory in which a claim submitted to the government for payment can be considered “false or fraudulent.” Escobar, 136 S. Ct. at 1999. Second, it established a “heightened materiality standard.” See Petratos, 855 F.3d at 492-93 (“[W]e now join the many other federal courts that have recognized the heightened materiality standard after [Escobar].”). The Escobar Court clarified that the implied certification theory can be a basis for FCA liability “at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” Escobar, 136 S. Ct. at 2001. After Escobar, the Third Circuit in Whatley and this Court held that both conditions must be satisfied for Relators to state an implied certification claim. See U.S. ex rel. Whatley v. Eastwick College, 657 F. App’x 89, 94 (3d Cir. 2016); Dr. Reddy’s, 2017 WL 1133956, at *6 (citing Whatley, 657 F. App’x at 94); see also, e.g., U.S. ex rel. Tessler v. City of N.Y., No. 14- CV-6455 (JMF), 2016 WL 7335654, at *4 (S.D.N.Y. Dec. 16, 2016) (concluding that relators asserting an implied certification claim “must show, among other things, that the claim ‘makes specific representations about the goods or services provided.’” (quoting Escobar, 136 S. Ct. at 1995)); U.S. ex rel. Doe v. Health First, Inc., No. 6:14-cv-501-Orl-37DAB, 2016 WL 3959343, Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 22 of 45 14 at *3 (M.D. Fla. July 22, 2016) (concluding that under Escobar these “two conditions must exist to impose liability under the [implied certification theory]”). But even if Relators can satisfy these two conditions, they must still allege facts sufficient to show that any such “misrepresentation[s] about compliance with [the PPPA and CPSIA]” were “material to the Government’s payment decision.” Escobar, 136 S. Ct. at 2002. Relators fail to do so. “The Court described this standard as ‘demanding’ and ‘rigorous,’ and explained that a material misrepresentation is one that goes ‘to the very essence of the bargain.’” Petratos, 855 F.3d at 489 (quoting Escobar, 136 S. Ct. at 2002-03 & n.5). It “also provided guidance as to how the materiality requirement should be enforced.” Id. “It explained that a misrepresentation is not material ‘merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment . . . [or because] the Government would have the option to decline to pay if it knew of the defendant’s noncompliance.’” Id. (quoting Escobar, 136 S. Ct. at 2003). It also made clear that “[m]ateriality may be found where ‘the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement.” Id. (quoting Escobar, 136 S. Ct. at 2003). “On the other hand, it is ‘very strong evidence’ that a requirement is not material ‘if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated.’” Id. (quoting Escobar, 136 S. Ct. at 2003). Significantly, “[t]he Court also rejected the argument that materiality is ‘too fact intensive’ to allow dismissal at the pleading stage, explaining that plaintiffs must ‘plead[] facts to support allegations of materiality.’” Id. at 489 n.2 (quoting Escobar, 136 S. Ct. at 2004 n.6). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 23 of 45 15 b. Relators Cannot Satisfy Any of the Escobar Requirements. (i) No Viable Specific Representations Were Made. Relators have alleged three representations that they claim satisfy the “specific representations” requirement of an implied certification claim. But, these allegations include nothing that should change this Court’s previous conclusion that Relators have failed to “allege that Defendants made specific representations about their products that would, in conjunction with Defendants’ failure to disclose noncompliance with the PPPA and CPSIA, render their claims ‘misleading half-truths’ subject to FCA liability.” Dr. Reddy’s, 2017 WL 1133956, at *6. First, in an attempt to identify specific representations, Relators cite to the National Drug Code (“NDC”) numbers that are assigned to drugs. (TAC ¶¶ 192-98). This is not a new allegation. Relators’ SAC referred to the NDCs (SAC ¶ 113) and in their post-Escobar supplemental briefing, Relators argued that the NDC numbers implicitly represented that the drugs were packaged in compliance with the PPPA and CPSIA. (Dkt. No. 73 at 5-7). Considering all this, though, the Court still correctly held that Relators had not “allege[d] that Defendants made specific representations about their products that would, in conjunction with Defendants’ failure to disclose noncompliance with the PPPA and CPSIA, render their claims ‘misleading half-truths’ subject to FCA liability.” Dr. Reddy’s, 2017 WL 1133956, at *6. Even so, the NDC numbers are not, in any way, statements about regulatory compliance or child-resistant packaging. Rather, the NDC numbers assigned to drugs, which the FDA uses to identify and trace manufacturers’ products, consist of three segments that denote, respectively, the labeler (manufacturer or distributor), the product (drug formulation, i.e., dosage form and strength of the particular drug), and the package type and size. See 21 C.F.R. § 207.33(b)(1)(i)- (iii). For example, one of the NDC codes Relators refer to in the TAC is “55111-0125-06.” Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 24 of 45 16 (TAC ¶ 134). This is a reference to Dr. Reddy’s Laboratories Limited (55111) - Ciprofloxacin Tablets, USP 100 mg (125) - Cystitis Pack 6 Tablets (06). Relators allege that the third segment, the “package code,” “constitutes an implicit representation” that the drug is being dispensed in child-resistant packaging in compliance with the PPPA. (Id. ¶ 194). But this number denotes only the type of package, such as whether it is a bottle or tube, and the number of units in the package, such as 6 or 12 or 100, etc. See 21 C.F.R. § 207.33(b)(1)(iii) (stating that the package code only “differentiates between different quantitative and qualitative attributes of the product packaging”). The package code indicates the package that the manufacturer sells its customers, but the drug may or may not be dispensed in that package, which is why Medicaid typically uses only the first two portions of the code without regard to the package code when reimbursing pharmacies for prescriptions of multiple- source drugs. See 42 C.F.R. § 447.510(d) (calculation of monthly AMP); id. § 447.514(b) (upper limit for multiple-source drugs based on weighted average AMPs). Further, there is no standard meaning attributable to the package code numbers. The FDA specifies only the number of characters in the product and package code segments of the NDC. 21 C.F.R.. § 207.33(b)(2). Manufacturers themselves are responsible for creating the package codes and defining what they mean. See id. Accordingly, the package codes do not in any way implicitly represent that the package is in compliance with statutes such as the PPPA. Indeed, the FDA makes clear that “assignment of a NDC number does not in any way denote approval of the company or its products.” https://www.fda.gov/drugs/guidancecomplianceregulatoryinformation/drugregistrationandlisting/ ucm078801.htm; see also 21 C.F.R. § 207.77(b) (“[A]ssignment of an NDC does not denote approval of the establishment or the drug . . . nor does it mean that the drug may be legally Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 25 of 45 17 marketed.”); 21 C.F.R. § 207.37(a)(2) (stating that a product is deemed to be misbranded if an NDC number is used to “denote or imply FDA approval of a drug”). And, the FDA further warns that NDCs may not be relied on to indicate “that a product is covered or eligible for reimbursement by Medicare, Medicaid, or other payers.” https://www.fda.gov/drugs/informationondrugs/ucm142438.htm. In addition, nothing about Dr. Reddy’s failure to disclose non-compliance with the PPPA makes the NDC number a misleading half-truth. Accordingly, none of the Federal Payers would or could infer from an NDC number listed in a payment claim any representation regarding compliance with the PPPA because the descriptors assigned to the NDC numbers make clear that they make no representations-implicit or explicit-about child-resistant packaging. Relators do not allege, because they cannot, that there is any distinction between the NDC number for a product that is required to be in a child-resistant package and for the same product that is exempt from such requirements-for example, because it is not “intended for household use” (TAC ¶ 49), or because “the prescription calls for non-child resistant packaging” or “the consumer requests non-child resistant packaging.” (Id.). They also do not and cannot allege that any other prescription data provided to the Federal Payers indicates whether a product is dispensed in child-resistant packaging. For the other two alleged “specific representations,” Relators focus on the process by which foreign manufacturers like Dr. Reddy’s import their drugs into the United States and the paperwork that is submitted as part of it. Relators contend that Dr. Reddy’s implicitly represented compliance with the PPPA to the U.S. Customs and Border Protection Agency (“CBP”) through the “entry notice” documentation that it submitted to this agency while importing its drugs. (Id. ¶¶ 203, 207). They also rely on “Affirmation of Compliance codes” Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 26 of 45 18 that Dr. Reddy’s “may” have submitted to the FDA while importing its drugs. (Id. ¶ 212). But, these allegations cannot form the basis of an implied false certification claim because such submissions were allegedly made to the CBP and FDA-not to any of the Federal Payers as part of a claim for payment. See Escobar, 136 S. Ct. at 1995 (holding that the implied false certification theory is viable “when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement” (emphasis added)); Dr. Reddy’s, 2017 WL 1133956, at *6 (“This Court therefore interprets the language of Whatley to mean the Third Circuit intended to present the Escobar standard-requiring proof of specific representations made to the Government payer regarding the goods or services provided-as being the only one available for proving FCA liability for legally false claims under the implied certification theory.” (emphasis added)). This is a dispositive flaw; but, even setting this flaw aside, Relators’ alleged “representations” are still insufficient. Although they claim that Dr. Reddy’s made certain representations to the CBP in “entry notices” and through “invoice[s] accompanying the importation” (TAC ¶¶ 203, 206-07), they cite nothing specific in these documents that would implicitly represent compliance with the PPPA. This would be like the relators in Escobar asserting a specific representation by citing only the reimbursement forms and not identifying the payment codes and the National Provider Identification numbers. See Escobar, 136 S. Ct. at 2001 (requiring “specific representations about the goods or services provided”). To be sure, Relators allege that, by regulation, Dr. Reddy’s had to include certain “information” about the products in the entry notices and invoices. (TAC ¶¶ 203, 206-07). But none of the information Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 27 of 45 19 required by these regulations conveys anything that would suggest-implicitly or otherwise- compliance with the PPPA, and Relators’ say-so cannot change this fact.7 Equally deficient are Relators’ allegations concerning “Affirmation of Compliance codes” that Dr. Reddy’s “may” have submitted to the FDA as part of the import process. (Id. ¶ 212). According to Relators, to “speed FDA’s review” that it conducts of a drug being imported, manufacturers can submit to the FDA “Affirmation of Compliance codes.” (Id. ¶ 212). They further allege that, “[b]y using an A of C code, the filer affirms that product meets the requirements specific to each code,” which “is intended to cover all U.S. laws that such product is subject to, which in this case is the applicable consumer product safety rule or any rule or regulation enforced by the CPSC.” (Id. ¶ 213). Relators are wrong. These two- or three-letter codes are used by a manufacturer only to affirm that it has submitted to the FDA the information required by the particular A of C code, which the FDA uses to access its records and trace product to the foreign manufacturer. See U.S. Food & Drug Administration, FDA Affirmations of Compliance for the Automated Commercial Environment (2016), available at https://www.fda.gov/downloads/ForIndustry/ImportProgram/EntryProcess/ImportSystems/UCM 487261.pdf. All imported drug products, whether or not in finished form, are identified using the foreign manufacturer’s Drug Listing Number (A of C code DLS). Additionally, as Relators acknowledge, for finished drugs, the A of C requires manufacturers to provide the registered 7 19 C.F.R. § 142.3 requires entry documentation such as completion of CBP form 3461 (requesting information like arrival date, port, ultimate consignee name, importer of record name, etc.), a “[c]ommercial invoice” for the merchandise being imported, and a “packing list.” 19 C.F.R. § 141.85 merely conveys the information to be included on a “pro forma invoice,” such as the “[n]ame of shipper,” “[n]ame of seller,” “[n]ame of purchaser,” and the “price” of the merchandise. Lastly, while 19 C.F.R. § 141.86 does, as Relators latch on to (TAC ¶ 206), require “[a] detailed description of the merchandise,” that description must include only “the name by which each item is known, the grade or quality, and the marks, numbers, and symbols under which sold by the seller or manufacturer to the trade in the country of exportation, together with the marks and numbers of the packages in which the merchandise is packed.” None of these descriptors conveys anything that would in any way suggest compliance with the PPPA. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 28 of 45 20 NDC (A of C code NDC), and by using this code, a manufacturer like Dr. Reddy’s affirms that it has submitted the correct “NDC” number for the drug being imported. Id. at 8; (TAC ¶ 213 & n.34). As discussed above, the NDC number represents nothing but the labeler (manufacturer or distributor), the product (drug formulation), and the package type and size. And so just as listing the NDC number in a claim for reimbursement cannot represent compliance with the PPPA, providing this number to the FDA at import cannot represent such compliance. Indeed, affirmation of a drug’s NDC to the FDA as a false representation of PPPA compliance is even further attenuated from a pharmacy claim, as the FDA neither approves nor pays the claim. This Court should therefore conclude, as it did in dismissing the SAC, that Relators have not alleged that Dr. Reddy’s “made specific representations about [its] products that would, in conjunction with Defendants’ failure to disclose noncompliance with the PPPA and CPSIA, render their claims ‘misleading half-truths’ subject to FCA liability.” Dr. Reddy’s, 2017 WL 1133956, at *6. (ii) Even if Viable Specific Representations Were Made, They Were Not Material to the Government’s Decision to Pay. Relators have also added nothing to their complaint that should change this Court’s previous conclusion that they “cannot demonstrate materiality by any of the means described in Escobar.” Id. at *7. As the Third Circuit and other courts have recognized, the Court in Escobar established “a heightened materiality standard” that turns not on whether a “reasonable person would attach importance” to the omitted information, as Relators allege (TAC ¶¶ 219-20, 224, 225, 226, 227, 230), but on whether a relator can plead facts showing that the information would have an impact on the government’s payment decision. See Petratos, 855 F.3d at 489-90, 493; see also, e.g., U.S. ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 333 (9th Cir. 2017) (affirming summary judgment for defendant after applying the factors from Escobar’s “rigorous standard Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 29 of 45 21 for materiality”); Knudsen v. Sprint Commc’ns Co., No. C13-04476 CRB, 2016 WL 4548924, at *14 (N.D. Cal. Sept. 1, 2016) (dismissing relator’s complaint after applying factors from Escobar’s “rigorous standard for pleading materiality”). Like Relators’ SAC, the TAC does not satisfy these rigorous pleading requirements. Indeed, the new section of the TAC devoted to materiality contains legal argument, but no new factual allegations concerning the government’s assessment of its payment decision. (See TAC ¶¶ 217-30). The underlying factual allegations remain the same. (Compare, e.g., TAC ¶ 223 (“The drugs could have been refused entry and importation by Customs officials . . . .”), with SAC ¶ 3 (same); TAC ¶ 225 (“children accessing drugs . . . has resulted in overdoses”), with SAC ¶ 8 (same); TAC ¶ 228 (“Packaging in prescription medication has been effective in saving lives.”), with SAC ¶ 192 (same); TAC ¶¶ 231-40 (discussing child safety research), with SAC ¶¶ 192-201 (same). As before, Relators do not even attempt to establish materiality through the methods described in Escobar. See 136 S. Ct. at 2001-04. First, Relators still “do not identify a single statutory, regulatory, or contractual provision identifying compliance with federal packaging requirements as a condition of Government payment.” Dr. Reddy’s, 2017 WL 1133956, at *7; see Escobar, 136 S. Ct. at 2001 (“Whether a provision is labeled as a condition of payment is relevant to but not dispositive of the materiality inquiry.”); U.S. ex rel. Scharff v. Camelot Counseling, 13-cv-3791 (PKC), 2016 WL 5416494, at *8 (S.D.N.Y. Sept. 28, 2016) (finding lack of materiality under Escobar in part because the complaint did “not cite any express condition for reimbursement applicable to Camelot”). That is because they cannot. For example, under Medicare Parts A and B, coverage of a prescription drug is conditioned on whether the drug is “reasonable and necessary.” 42 U.S.C. § 1395y. Relators cannot and do not allege that Dr. Reddy’s drugs were not “reasonable and necessary” because of noncompliance Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 30 of 45 22 with the statutes at issue. Under Medicare Part D and Medicaid, a covered drug is one that is used “for a medically accepted indication” and that is “approved for safety and effectiveness.” See 42 U.S.C. § 1395w-102(e); id. § 1396r-8(k)(2)(A)(i), (k)(3). Relators cannot and do not allege that any of Dr. Reddy’s drugs failed to comply with these criteria because of noncompliance with the statutes at issue. Relators do, however, persist with their allegations that the drugs would not have been covered by the Federal Payers because they were “misbranded” under the FDCA. (TAC ¶ 69; see also id. ¶ 251(2)). As support, they again cite only 15 U.S.C. § 1473(b) and 21 U.S.C. § 352(p)-provisions this Court has already concluded do not “speak[] to noncompliant or misbranded drugs’ eligibility for federal reimbursement.” Dr. Reddy’s, 2017 WL 1133956, at *7 n.2. This theory has also been soundly rejected by other courts in addition to this one. See, e.g., U.S. ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 701 (4th Cir. 2014) (stating that the “Medicare and Medicaid statutes do not expressly prohibit reimbursement for drugs that have been adulterated . . . . [and] those statutes do not require compliance with the CGMPs or any other FDA safety regulations as a precondition to reimbursement”); U.S. ex rel. Campie v. Gilead Sciences, Inc., No. C-11-0941 EMC, 2015 WL 106255, at *13 (N.D. Cal. Jan. 7, 2015) (agreeing that “reimbursement requests for drugs that, while approved by the FDA, were subsequently ‘adulterated’ or ‘misbranded’ as a result of ‘having been proceeded in violation of FDA safety regulations’ would not give rise to FCA liability.’” (quoting Omnicare, 745 F.3d at 701)); U.S. ex rel. Simpson v. Bayer Corp., No. 05-3895 (JLL), 2014 WL 1418293, at *2-6 (D.N.J. Apr. 11, 2015) (holding that promotion of product’s safety and efficacy that resulted in misbranding was not an FCA violation because compliance with misbranding provisions was not a condition of payment from Medicare, Medicaid, CHAMPVA, and FEHBP, and TRICARE). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 31 of 45 23 Second, Relators still have not alleged “an instance wherein the Government refused payment of a claim on the basis of noncompliance with federal packaging requirements.” Dr. Reddy’s, 2017 WL 1133956, at *7; see Escobar, 136 S. Ct. at 2003 (“[P]roof of materiality can include . . . evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement.”); Sprint Commc’n Co., 2016 WL 4548924, at *14 (holding that relator “fail[ed] to adequately plead materiality” because his complaint lacked details “such as allegations that the government consistently refuses to pay claims that violate [the contract at issue]”); Camelot, 2016 WL 5416494, at *8 (finding lack of materiality under Escobar in part because the complaint did not “allege whether the government has refused to reimburse clinics that have engaged in conduct similar to Camelot’s”). Nor do Relators “allege an instance wherein the Government initiated an action to recover monies paid for goods noncompliant with federal requirements.” Dr. Reddy’s, 2017 WL 1133956, at *7. Moreover, Relators filed their original complaint in July 2011, and they have not alleged in the TAC that since that time the government has ever refused to pay any claim for reimbursement on the basis that Dr. Reddy’s products did not comply with the PPPA.” See Petratos, 855 F.3d at 489 (“[I]t is ‘very strong evidence’ that a requirement is not material ‘if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated.’” (quoting Escobar, 136 S. Ct. at 2003)). Third, nothing Relators can allege will negate the fact that the Government has a separate means of enforcing the packaging requirements, a consideration that “is also relevant to the materiality inquiry.” Dr. Reddy’s, 2017 WL 1133956, at *7 (citing Wilkins, 659 F.3d at 310). As this Court previously acknowledged, there are federal agencies, namely the CPSC, with Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 32 of 45 24 “well-established regulatory procedures in place” for remediating violations of consumer product safety rules and regulations. Id. “To allow [Relators] to bring suit based on Defendants’ noncompliance with federal packaging requirements would mean to ‘short-circuit the very remedial process the Government has established to address noncompliance with those regulations.’” Id. (quoting Wilkins, 659 F.3d at 310). At bottom, Relators continue to “merely plead an abundance of research highlighting the importance of child-proofing prescription medications and note Congress’s decision to regulate the issue of child safety in drug manufacturing.” Id.; see also (TAC ¶¶ 225-240). And, as this Court previously concluded, that is plainly insufficient to state materiality under Esocbar because “the relevant inquiry is whether the Government’s payment decision was influenced by claimant’s purported compliance with a particular requirement, not whether a given issue has been deemed worthy of regulation.” Dr. Reddy’s, 2017 WL 1133956, at *7. “After all, the False Claims Act is not ‘a blunt instrument to enforce compliance with all . . . regulations.’” Petratos, 855 F.3d at 490 (quoting Wilkins, 659 F.3d at 307); see also OmniCare, 745 F.3d at 702 (“Were we to accept relator’s theory of liability based merely on a regulatory violation, we would sanction use of the FCA as a sweeping mechanism to promote regulatory compliance, rather than a set of statutes aimed at protecting the financial resources of the government from the consequences of fraudulent conduct.”). This Court should therefore conclude, as it did before, that Relators cannot demonstrate materiality by any of the means described in Escobar. c. Even if Relators Could Satisfy Escobar, Their TAC as Plead Does Not Sufficiently Allege a Violation of the PPPA. Even if Relators could satisfy Escobar, they fail to sufficiently allege a violation of the PPPA. As noted above, the PPPA requires prescription drugs to be dispensed in child-resistant Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 33 of 45 25 packaging unless the practitioner prescribes otherwise or the consumer requests non-child- resistant packaging at the time of dispensing from the pharmacist. 16 C.F.R. § 1700.14(a)(10); 15 U.S.C. § 1473(b).8 Relators do not cite any statutory or regulatory authority for the allegations that: (1) “[d]rug manufacturers distributing prescription drugs in packages intended to be dispensed directly to the consumer . . . must use child-resistant packaging” (TAC ¶ 50); (2) the “pharmacy and the pharmacist . . . must be and are responsible for dispensing the drug in the proper package” and the “PPPA requires that the pharmacist dispense regulated drugs in special packaging” (Id. ¶¶ 51, 56); and (3)“Dr. Reddy’s did not . . . meet the specifications for child resistant packaging set forth in the PPPA,” (Id. ¶ 177). Relators cite only to 16 C.F.R. § 1701.1 (Id. ¶¶ 50, 51, 55) in support of these allegations, which is not a regulation but a “statement of policy,” and, as such, it “do[es] not have the force and effect of law” and does not create any enforceable legal obligation. See Perez v. Mortg. Bankers Ass’n, 135 S. Ct. 1199, 1204 (2015) (citation omitted). Moreover, the statutory and regulatory language and the Relators’ allegations demonstrate that the violation does not occur until the product is dispensed from the pharmacy to the consumer in non-compliant packaging (if it is not otherwise ordered or requested). Relators’ sole allegation regarding the moment of violation states: “As a result of Dr. Reddy’s failure to comply with the child resistant packaging specifications of the PPPA, pharmacists illegally dispensed drugs in non-child resistant packages to consumers who had not requested non-child resistant packaging . . . .” (TAC ¶ 178). Notably, Dr. Reddy’s is neither a pharmacy nor a pharmacist and is not present at the time of dispensing. In addition, this allegation is a “bare 8 Relators cite to 15 U.S.C. § 1473(a) for the proposition that the “PPPA expressly precludes a manufacturer of prescription drugs intended to be dispensed directly to the consumer to opt out of child-resistant packaging by placing a warning label on the package.” (TAC ¶ 53). Section 1473(a) neither says this nor applies to prescription products. See 15 U.S.C. § 1473(a); 16 C.F.R. § 1701.1. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 34 of 45 26 assertion” that does not raise a “right to relief above a speculative level.” Relators request that this Court rely upon this and other allegations that contain suppositions and assumptions, but no actual facts. For example, the TAC is devoid of any description of when the products were dispensed, whether there were prescriptions that required non-child-resistant packaging, whether consumers requested non-child-resistant packaging at the point of receiving the drug, or whether the pharmacists repackaged the products in child-resistant packaging. Indeed, the TAC fails to identify any single instance in which non-compliant products were dispensed, any single consumer who received non-compliant products, or any particulars of an individual circumstance in which there was a violation of the PPPA or related regulations, much less any instance in which any such prescription was paid by a government health plan. Relators’ allegations thus do not provide a sufficient indicia of reliability that an actual violation of the PPPA occurred at any point, including the time the products were dispensed. C. Relators’ Pre-July 21, 2005 Claims Are Barred By the Statute of Limitations. Relators’ claims that attempt to allege a violation of the FCA by Dr. Reddy’s prior to July 21, 2005 are barred by the FCA’s statute of limitations. See 31 U.S.C. § 3731(b)(1). The FCA’s statute of limitations bars a claim that is brought “more than 6 years after the date on which the violation of section 3729 is committed.” Id. Relators’ claims under the TAC are based on alleged violations of § 3729. (TAC ¶¶ 249- 50). Relators filed their original complaint under seal on July 21, 2011. (Id. at n.1). Thus, any claim of an alleged violation that occurred more than 6 years prior to the date of the original complaint, or prior to July 21, 2005, is barred by the FCA. Relators allege that between 2004 and 2012, Dr. Reddy’s manufactured and imported to the United States blister packages and bottle packages that it never tested for child resistance, and were thus noncompliant with the PPPA and CPSIA. (Id. ¶¶ 134-139, 171). These allegations include claims prior to the July 21, Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 35 of 45 27 2005 cutoff imposed by the statute of limitations. These claims, and any additional claims based on an alleged violation of the FCA prior to July 21, 2005, must be dismissed. D. Relators’ State Law Claims Should Be Dismissed (Counts V-XXXIII). 1. The State Law Claims Should Be Dismissed for the Same Reasons as the Federal Claims; Alternatively, the Court Should Decline to Exercise Supplemental Jurisdiction. In addition to one count against Dr. Reddy’s based on the federal FCA, Relators attempt to plead 27 state law counts, a count based on the City of Chicago FCA, and one based on the City of New York FCA. Relators’ state law claims are based upon the same factual allegations as the federal FCA claims and should therefore be dismissed with prejudice for the same reasons. In the alternative, the Court should use its discretion to decline supplemental jurisdiction over these state law claims if the federal claims are dismissed. See 28 U.S.C. § 1367(c)(3); see also Burns v. Lavender Hill Herb Farm, Inc., No. Civ. A. 01-7019, 2005 WL 1006321, at *5 (E.D. Pa. Apr. 28, 2005) (“Where ‘the claim over which the district court has original jurisdiction is dismissed before trial, the district court must decline to decide the pendent state law claims unless considerations of judicial economy, convenience, and fairness to the parties provide an affirmative justification for doing so.’” (citation omitted)), aff’d per curiam, 167 F. App’x 891 (3d Cir. 2006); Kusner v. Hepburn, Willcox, Hamilton & Putnam, No. 00-6313, 2001 WL 34368779, at *5 (E.D. Pa. Nov. 21, 2001); U.S. ex rel. Simpson v. Bayer Corp., No. 05-3895, 2012 WL 3600302, at *5 (D.N.J. Aug. 21, 2012). Courts in this Circuit routinely decline to exercise jurisdiction over state FCA claims after dismissing the federal FCA claims. See, e.g., U.S. ex rel. Garg v. Covanta Holding Corp., 478 F. App’x 736, 737, 739 (3d Cir. 2012); U.S. ex rel. Schumann v. AstraZeneca PLC, No. 03-5423, 2010 WL 4025904, at *7 (E.D. Pa. Oct. 13, 2010), aff’d, 769 F.3d 837 (3d Cir. 2014). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 36 of 45 28 In addition to defects in common with the federal FCA claims, Relators’ state-law claims also fail the Rule 9(b) test because they do not specify any wrongdoing in connection with any of the subject states or municipalities. The TAC “alleges no facts demonstrating that Defendant[s] made false statements or misrepresentations, or concealed or failed to disclose information, in seeking to obtain an unauthorized payment or benefit” from any of the states. See Foglia v. Renal Ventures Mgmt., LLC, 830 F. Supp. 2d 8, 22 (D.N.J. 2011) (dismissing state law claims where relator had not sufficiently alleged fraudulent conduct in connection with those states). Furthermore, there are additional reasons mandating dismissal for several of these claims based on state law. 2. Relators’ State Law Claims Should Be Dismissed for Independent Reasons. a. Where the State Statute Requires Intervention or Action by the State, Relators’ Claims Must be Dismissed. Counts VI, XVII, XXII, and XXX should be dismissed because the states of Delaware, New Mexico, Texas, and Maryland have not intervened in this action. Under the prior Delaware False Claims and Reporting Act, a relator may continue a qui tam action in which the state does not intervene only when the Delaware Attorney General issues a “written determination” that there is “substantial evidence” of a violation. See Del. Code. Ann. Tit. 6 § 1203(b)(4)(b) (2000);9 see also U.S. ex rel. Streck v. Allergan, Inc., 894 F. Supp. 2d 584, 603 (E.D. Pa. 2012). Relators do not allege or assert that the Delaware Attorney General issued written determinations of “substantial evidence that a violation” occurred. Thus, this Court should dismiss Count VI to the extent that it involves conduct pre-dating July 16, 2009. 9 This requirement was eliminated from the Delaware Act in a July 16, 2009 amendment. 2009 Del. Laws Ch. 166 § 10 (S.B. 115). “[A]bsent a clear legislative intent, Delaware courts will not infer an intention to make an act retroactive.” Wilson v. Triangle Oil Co., 566 A.2d 1016, 1018 (Del. Super. Ct. 1989), aff’d sub nom. Clark v. Sun Ref. & Mktg., 584 A.2d 1228 (Del. 1990). Accordingly, this requirement applies to conduct alleged prior to July 16, 2009. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 37 of 45 29 Similarly, the Texas Medicaid Fraud Prevention Act (“TMFPA”), Tex. Hum. Res. Code § 36.001 et seq., required the dismissal of qui tam lawsuits in which the state did not intervene within 60 days after being served with the suit, until its amendment on May 4, 2007. Thus, claims under Count XXII alleging a violation of the TMFPA prior to May 4, 2007 must be dismissed. See U.S. ex rel. Bergman v. Abbot Labs., 995 F. Supp. 2d 357, 378 (E.D. Pa. 2014) (dismissing TMFPA claims for allegations prior to May 4, 2007 when the state did not intervene). The New Mexico False Claims Act allows a qui tam action to proceed only if the state determines “that there is substantial evidence” of a statutory violation. N.M. Stat. § 27-14- 7(E)(2) (if the state declines to intervene, “the person bringing the action shall have the right to conduct the action if the department determined that there is substantial evidence that a violation of the Medicaid False Claims Act [27-14-1 NMSA 1978] has occurred”). Relators have not alleged that New Mexico has made such a determination, so Count XVII should be dismissed. The Maryland False Claims Act affirmatively requires state intervention and does not allow a relator to proceed without it. Md. Code Ann., Health-Gen. § 2-604(a)(7) (“If the State does not elect to intervene and proceed with the action…, before unsealing the complaint, the court shall dismiss the action.”). Thus, Count XXX should be dismissed. b. Where the State Statute Requires the Person Bringing the Claim to be an “Affected Person,” Relators’ Claims Must be Dismissed. The New Mexico False Claims Act allows only “affected persons” to bring a civil action under the statute. N.M. Stat. § 27-14-7(B). The term “affected persons” is not defined under New Mexico law; however, federal courts have unambiguously found that residents of states other than New Mexico are not “affected persons.” See U.S. ex rel. King v. Solvay S.A., 823 F. Supp. 2d 472, 520-21 (S.D. Tex. 2011), order vacated in non-relevant part on reconsideration Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 38 of 45 30 by, 2012 WL 1067228 (S.D. Tex. Mar. 28, 2012). Schimelpfenig is a resident of South Carolina. (TAC ¶ 18). The TAC does not state where Segura resides. Because Relators have not alleged that either Relator is a resident of New Mexico, they cannot be considered “affected persons” and thus they both lack standing to assert a claim under the New Mexico False Claims Act. Count XVII should be dismissed. c. Where the State Statute Became Effective After the Time Period Alleged in Relators’ Claims and the Statute Does Not Apply Retroactively, Relators’ Claims Must be Dismissed. This Court should dismiss the claims for Colorado (Count XXXII),10 Georgia (Count VIII),11 Indiana (Count XI),12 Iowa (Count XXXIII),13 Montana (Count XIV),14 New Jersey (Count XVI),15 New Mexico (Count XVII),16 New York (Count XVIII),17 Oklahoma (Count XIX),18 Rhode Island (Count XX),19 Washington (Count XXXI),20 Chicago (Count XXVII),21 and New York City (Count XXVIII)22 to the extent that the TAC alleges conduct occurring prior to the effective date of those false claims acts. “Retroactivity is generally disfavored in the law.” Eastern Enters. v. Apfel, 524 U.S. 498, 532 (1998). Absent express legislation to the contrary, statutes generally apply prospectively only. Sikora v. Am. Can Co., 622 F.2d 1116, 1125 (3d Cir. 1980). This presumption against retroactivity applies equally to state FCA claims. See, e.g., Graham Cnty. Soil & Water Conserv. Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 283 n.1 (2010). The states listed above endorse a 10 Colo. Rev. Stat. §§ 25.5-4-303.5-25.5-4-310 (effective May 26, 2010). 11 Ga. Code Ann. § 49-4-168.1(a)(1) (effective May 24, 2007). 12 Ind. Code Ann. § 5-11-5.5-2 (effective July 1, 2005). 13 Iowa Code §§ 685.1-685.7 (effective July 1, 2010). 14 Mont. Code Ann. § 17-8-401 (effective May 1, 2005). 15 New Jersey FCA § 2A:32C-3a (effective March 13, 2008). 16 N.M. Stat. § 27-14-7(B) (effective July 1, 2007). 17 N.Y. State Fin. Law § 187 (effective April 1, 2007). 18 Okla. Stat. § 63-5053 (effective Nov. 1, 2007). 19 R.I. Gen. Laws § 9-1.1-3(a)(1) (effective July 1, 2007). 20 Wash. Rev. Code § 74.66.005 (effective June 7, 2012). 21 Illinois Code of Ordinances §1-22-010 (effective December 15, 2004). 22 New York City, N.Y., Code § 7-803 (effective August 17, 2005). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 39 of 45 31 presumption against retroactivity, and the state FCA does not state it is to be applied retroactively.23 Thus, where the counts that arise under these states’ laws allege any claims based on conduct occurring prior to the effective dates of the relevant statues, these claims should be dismissed. d. Some of Relators’ Claims are Barred by the States’ Statutes of Limitations. This Court should dismiss the state claims for Colorado (Count XXXII),24 Delaware (Count VI),25 Florida (Count VII),26 Georgia (Count XIII),27 Hawaii (Count IX),28 Illinois (Count 23 See In re Estate of DeWitt, 54 P.3d 849, 854 (Colo. 2002) (“Absent legislative intent to the contrary, a statute is presumed to operate prospectively, meaning it operates on transactions occurring after its effective date.”); Enfield Fed. Sav. & Loan Ass’n v. Bissell, 440 A.2d 220, 221 (Conn. 1981) (holding that there is a presumption to apply legislation prospectively, unless it is an amending statute that is procedural in its impact); Fowler Props., Inc. v. Dowland, 646 S.E.2d 197, 200 (Ga. 2007) (“[L]egislation which affects substantive rights may only operate prospectively.”); People v. Ramsey, 735 N.E.2d 533, 539 (Ill. 2000) (analyzing historical presumption against retroactive application of statutes, and noting an exception when the legislature has shown its intent to apply the statute retroactively); U.S. Bank, Nat. Ass’n v. Miller, 44 N.E.3d 730, 743 (Ind. Ct. App. 2015) transfer denied sub nom. U.S. Bank, N.A. v. Bank of Evansville, 43 N.E.3d 1278 (Ind. 2016) (“A general rule of statutory construction is that, unless there are strong and compelling reasons, statutes will not be applied retroactively.”) (internal citations and quotation marks omitted); City of Monticello v. Adams, 200 N.W.2d 522, 525 (Iowa 1972) (“The courts have evolved a strict rule of construction against a retrospective operation.”); U.S. v. Juvenile Male, 255 P.3d 110, 113 (Mont. 2011) (noting there is a presumption against applying statutes retroactively) (citing Mont. Code Ann. § 1-2- 109 (“No law contained in any of the statutes of Montana is retroactive unless expressly so declared.”)); State v. Ordunez, 283 P.3d 282, 285 (N.M. 2011) (“New Mexico law presumes a statute to operate prospectively unless a clear intention on the part of the legislature exists to give the statute retroactive effect”) (internal citations and quotation marks omitted)); State ex rel. Hayling v. Corr. Med. Servs., Inc., 28 A.3d 1246, 1250-51 (N.J. Super. Ct. 2011) (applying “general rule of statutory construction that favors prospective application of statutes” to New Jersey False Claims Act); U.S. ex rel. King v. Solvay S.A., 823 F. Supp. 2d 472, 526 (S.D. Tex. 2011), order vacated in part on reconsideration, 2012 WL 1067228 (S.D. Tex. Mar. 28, 2012) (“The New York FCA was approved on April 9, 2007, and the New York Legislature noted that it was to ‘take effect immediately and [was] deemed to have been in full force and effect on and after April 1, 2007.’ … There is thus no reason to apply the statute to claims arising before April 1, 2007.” (quoting 2007 Sess. Laws of N.Y. Ch. 59 (S. 2108-C) (McKinney)); Cole v. Silverado Foods, Inc., 78 P.3d 542, 546 (Okla. 2003) (“Absent a plain legislative intent to the contrary, statutes are generally presumed to operate prospectively only.”); Direct Action for Rights & Equality v. Gannon, 819 A.2d 651, 658 (R.I. 2003) (“Ordinarily, this Court presumes that statutes and their amendments operate prospectively . . . .”); Densley v. Dept. of Ret. Sys., 173 P.3d 885, 891 (Wash. 2007) (“A statute is presumed to operate prospectively unless the Legislature indicates that it is to operate retroactively.”). 24 Colo. Rev. Stat. § 25.5-4-307(a)(1) (2010) (a civil action may not be brought after the later of (1) more than six years after the date on which the violation is committed or (2) more than three 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 state charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed.). 25 Del. Code Ann. tit. 6, § 1209(a) (2000) (a civil action may not be brought: (1) more than six years after the date of the violation; or (2) more than three 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 Government charged with responsibility to act in the Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 40 of 45 32 X),29 Indiana (Count XI),30 Iowa (Count XXXIII),31 Louisiana (Count XII),32 Maryland (Count XXX),33 Massachusetts (Count XXIV),34 Michigan (Count XIII),35 Montana (Count XIV),36 circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last.”). 26 Fla. Stat. Ann. § 68.089 (2007) (for claims filed after June 30, 2007, a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) “more than three years after the date when facts material to the right of action are known or reasonably should have been known by the state official charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last.”). 27 Ga. Code Ann. § 49-4-168.5 (2007) (for claims filed between May 24, 2007 and June 30, 2012, a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) “three years after the date when facts material to the right of civil action are known or reasonably should have been known by the state official charged with the responsibility to act in the circumstances, whichever occurs last; provided, however, that in no event shall any civil action be filed more than ten years after the date upon which the violation was committed.”). 28 Haw. Rev. Stat. § 661-24 (2000) (an action for false claims must be brought “within six years after the false claim is discovered or by exercise of reasonable diligence should have been discovered, and, in any event, no more than ten years after the date on which the violation of section 661-21 is committed.”). 29 740 Ill. Comp. Stat. 175/5 (1992), (2010) (a civil action may not be brought: (1) more than six years after the violation occurred; or (2) “more than three 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 State charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last.”). 30 Ind. Code Ann. § 5-11-5.5-9 (2005) (a civil action may not be brought: (1) more than six years after the date the violation is committed; or (2) “later than three years after the date when facts material to the cause of action are discovered or reasonably should have been discovered by a state officer or employee who is responsible for addressing the false claim. However, an action is barred unless it is commenced not later than ten years after the date on which the violation is committed.”). 31 Iowa Code Ann. § 685.4 (2010) (a civil action may not be brought more than six years after the date on which the violation was committed, or more than three years after the date when facts material to the right of action are known or reasonably should have been known by the official of state charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last.). 32 La. Rev. Stat. Ann. § 46:439.1B (2009) (for claims filed after August 14, 2009, a qui tam action may not be brought: (1) more than six years after the date the violation is committed; or (2) “more than three years after the date the facts material to the right of action are known or reasonably should have been known by the official of the state of Louisiana charged with the responsibility to act in the circumstances, but no more than ten years after the date on which the violation is committed, whichever occurs last.”). 33 Md. Code Ann., Health-Gen. § 2-609(a) (2010) (a civil action may not be brought: (1) 6 years after the date on which the underlying violation occurred or (2) 3 years after the date when facts material to the right of action are known by the relator, the State’s Inspector General, or the Director of the State’s Medicaid Fraud Control Unit or reasonably should have been known, but in no event more than ten years after the date of the underlying violation.). 34 Mass. Gen. Laws Ann. ch. 12, § 5K (2000) (a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) “more than three years after the date when facts material to the right of action are known or reasonably should have been known by the official within the office of the attorney general charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last.”). 35 Mich. Comp. Laws Ann. § 400.614(1) (2009) (a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) “more than three 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 state of Michigan charged with responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation was committed.”). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 41 of 45 33 Nevada (Count XV),37 New Jersey (Count XVI),38 New Mexico (Count XVII),39 Oklahoma (Count XIX),40 Rhode Island (Count XX),41 Tennessee (Count XXI),42 Texas (Count XXII),43 Virginia (Count XXV),44 Chicago (Count XXVII),45 New York City (Count XXVIII),46 and 36 Mont. Code Ann. § 17-8-404 (2005) (a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) “three 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 governmental entity charged with responsibility to act in the circumstances.”) 37 Nev. Rev. Stat. Ann. § 357.170 (2011) (for claims filed after June 30, 2007, a civil action may not be brought: (1) more than six years after the violation occurred; or (2) “more than three years after the date on which the Attorney General discovers, or reasonably should have discovered, the fraudulent activity.”). 38 N.J. Stat. Ann. § 2A:32C-11 (2008) (a civil action may not be brought: (1) more than six years after the date the violation occurred; or (2) more than three years “after the date when facts material to the right of action are known or reasonably should have been known by the State official 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.”). 39 N.M. Stat. Ann. §§ 27-14-13(A), 37-1-4 (2007) (a civil action under the Act must be brought within the limitations set forth in section 37-1-4, which provides a four-year statute of limitation). 40 Okla. Stat. Ann. tit. 63, § 5053.6(B) (2007) (a civil action may not be brought: (1) more than six years after the date on which the violation of the Act is committed; or (2) more than three years after the date when facts material to the right of action are known or reasonably should have been known by the state official charged with the responsibility to act in the circumstances, but in no event more than ten years after the date on which the violation is committed, whichever occurs last). 41 R.I. Gen. Laws Ann. § 9-1.1-5(b) (2007) (a civil action may not be brought: (1) more than six years after the date on which the violation is committed; or (2) more than three 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 state charged with responsibility to act in the circumstances). 42 Tenn. Code Ann. § 71-5-184(b) (1993) (a civil action may not be brought: (1) more than six years after the date on which the violation is committed; or (2) more than three 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 state charged with responsibility to act in the circumstances). 43 Tex. Hum. Res. Code Ann. § 36.104 (1997) (“A person proceeding under this subsection may recover for an unlawful act for a period of up to six years before the date the lawsuit was filed, or for a period beginning when the unlawful act occurred until up to three years from the date the state knows or reasonably should have known facts material to the unlawful act, whichever of these two periods is longer, regardless of whether the unlawful act occurred more than six years before the date the lawsuit was filed.”). 44 Va. Code Ann. § 8.01-216.9 (2003) (a civil action under section 8.01-216.5 may not be brought: (1) more than six years after the date the violation occurred; or (2) “more than three 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 Commonwealth charged with responsibility to act in the circumstances.”). 45 Chicago, Illinois Code of Ordinances § 1-22-040 (a civil action may not be brought (1) more than six years after the date on which the violation is committed or (2) more than three 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 city 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.). 46 New York City, N.Y., Code § 7-806(a) (a civil action shall be commenced no later than the latest following date: (1) six years after the date on which the violation is committed or (2) three years after the date when material to the right of action are known or reasonably should have been known by the corporation counsel or the department of investigation, not to exceed ten years after the date on which the violation is committed.). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 42 of 45 34 Washington D.C. (Count XXVI)47 to the extent that the TAC alleges conduct that was not brought within the statute of limitations. e. Relators’ Count XXIII and Count XXIX Must Be Dismissed. In Count XXIII, Relators plead a violation of the Wisconsin FCA under Wis. Stat. § 20.931(2)(a). This statute was repealed on July 14, 2015. Thus, Count XXIII must be dismissed. In Count XXIX, Relators plead a violation of the Connecticut FCA under Conn. Gen. Stat. §§ 17b-301 through 17b-301p. The relevant portions of this statute that allowed a private individual to bring a claim were repealed on June 13, 2014. The only section of this statute that was not repealed permits the State of Connecticut to recover any payments. Conn. Gen. Stat. Ann. § 17b-301 (“Any payment made by the state on behalf of an enrollee as a result of any false statement, misrepresentation or concealment of or failure to disclose income or health insurance coverage by an applicant responsible for maintaining insurance may be recovered by the state.”). Thus, Relators cannot bring a claim under Count XXIX, and it should be dismissed. f. Count XXVII and Count XXVIII Should Be Dismissed. Relators have failed to allege any facts that would amount to a violation of either the Chicago or New York City Municipality Codes. See Chicago, Illinois Code of Ordinances § 1- 22-020; New York City, N.Y., Code § 7-803. Both codes require a false statement to be made to an official or employee of the city. Relators have not alleged any facts in the TAC that Dr. Reddy’s submitted any claims to an official or employee of either Chicago or New York City. Furthermore, the Chicago Code requires a private person bringing a claim under the code to serve on the city a “copy of the complaint and written disclosure of substantially all material 47 D.C. Code Ann. § 2.381.05 (formerly cited as D.C. Code Ann. § 2.308.17 (2001), D.C. Code Ann. § 1- 1188.17 (1998)) (a civil action may not be brought: (1) more than six years after the violation occurred; or (2) “three years after the date when facts material to the right of action are known or reasonably should have been known by an official of the Office of Corporation Counsel.”). Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 43 of 45 35 evidence and information the person possesses.” Chicago, Illinois Code of Ordinances § 1-22- 030(b)(2). The New York City code similarly allows a private individual to “submit a proposed civil complaint to the city alleging violations [which] shall be signed and verified and shall include all material evidence and information possessed by such person in support of the allegations in such proposed civil complaints.” New York City, N.Y., Code §7-804(b)(1). The City will then investigate the allegations. Relators have not alleged that they followed the procedures for either city’s municipality code. Thus, Counts XXVII and XXVIII must be dismissed. VI. CONCLUSION As the TAC makes clear, Relators cannot state an FCA claim, no matter how many times they amend their complaint. Indeed, as discussed above, they have failed to overcome any of the specific deficiencies that the Court identified in their SAC. As a result, any further amendment would be futile, and Dr. Reddy’s respectfully requests that the Court dismiss their TAC with prejudice. See Alston v. Parker, 363 F.3d 229, 235 (3d Cir. 2004) (stating that a court should not “permit a curative amendment” if such amendment would be “inequitable or futile”). Date: June 19, 2017 Respectfully submitted, /s/ Lisa Dykstra MORGAN, LEWIS & BOCKIUS LLP Lisa C. Dykstra (PA Bar No. 67271) ldykstra@morganlewis.com Shevon L. Scarafile (PA Bar No. 206552) sscarafile@morganlewis.com 1701 Market Street Philadelphia, PA 19103-2921 Tel.: 215-963-5000 Fax: 215-963-5001 Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 44 of 45 36 Attorneys for Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Case 2:11-cv-04607-CDJ Document 89-1 Filed 06/19/17 Page 45 of 45 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA United States of America ex rel. Sally Schimelpfenig, et al. Plaintiffs/Relators, vs. Dr. Reddy’s Laboratories Limited, et al. Defendants. Docket No. 2:11-cv-4607-CDJ Honorable C. Darnell Jones, II ORDER AND NOW, this __________ day of ___________, it is hereby ORDERED that Defendants’ Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Motion to Dismiss Relators’ Third Amended Complaint is GRANTED and Relators’ Third Amended Complaint is DISMISSED WITH PREJUDICE. BY THE COURT: ________________________ C. Darnell Jones, II, U.S.D. Case 2:11-cv-04607-CDJ Document 89-2 Filed 06/19/17 Page 1 of 1 CERTIFICATE OF SERVICE I, Lisa C. Dykstra, hereby certify that the Defendants’ Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Motion to Dismiss Relators’ Third Amended Complaint, the accompanying memorandum of law, and a proposed order were filed with the Clerk of Court by means of the Court’s ECF system, which sent notice electronically to all parties. /s/ Lisa Dykstra MORGAN, LEWIS & BOCKIUS LLP Lisa C. Dykstra (PA Bar No. 67271) ldykstra@morganlewis.com 1701 Market Street Philadelphia, PA 19103-2921 Tel.: 215-963-5000 Fax: 215-963-5001 Attorneys for Defendants Dr. Reddy’s Laboratories Limited and Dr. Reddy’s Laboratories, Inc. Date: June 19, 2017 Case 2:11-cv-04607-CDJ Document 89-3 Filed 06/19/17 Page 1 of 1