Health Law Daily Motion to dismiss in qui tam action does not negate first-to-file rule
Friday, October 5, 2018

Motion to dismiss in qui tam action does not negate first-to-file rule

By Rebecca Mayo, J.D.

A second-in-line qui tam action must be dismissed even if there are pending challenges to a qui tam action that was filed first. A district court dismissed a false claims action against 13 named defendants who allegedly participated in a scheme to defraud the United States and the states of Oklahoma and Tennessee after finding that another related qui tam action had already been filed in another jurisdiction. The court held that although the first action was pending and could possibly be dismissed, the statute commands that a second related qui tam action must be dismissed (U.S. ex rel. Phillips v. Steven L. LaFrance Holdings, Inc., October 4, 2018, Eagan, C.).

The claims. A pharmacist was employed by a drug store in Oklahoma from 2009 through 2012. During that time the ownership of the store changed several times. One owner had a practice of matching discounted prices on generic prescription drugs offered by competitors, but the price matching program was not extended to third party payers or governmental health plans. The pharmacist alleges that when the pharmacy was bought out by Walgreens, the practice of matching competitor prices for generic prescription drugs for cash customers and reporting higher prices to third party payers, such as government health plans continued. The pharmacist filed a qui tam action as a relator, alleging that the pharmacies concealed the discounted prices offered to cash customers and reported inflated prices as the usual and customary (U & C) price to government health plans.

Prior to the filing of this action, an owner and operator of several pharmacies filed a qui tam action alleging that many of the same defendants named in the other complaint defrauded government health plans in violation of the FCA. The pharmacy owner sold his business in 2008 and after it changed hands several times it became owned by Walgreens. The pharmacy owner alleged a similar scheme as the other relator, alleging that pharmacies were directed to override higher prices in the system with discounted prices for cash customers so that the higher prices could be reported as the U & C charge.

First-to-file. Upon filing, both cases were sealed. The government notified both relators that they would decline to intervene and both cases were unsealed at the same time. The relator filed a motion asking the court to transfer the case to the venue the pharmacy owner’s case was filed in so the cases could be consolidated. The defendants filed a motion to dismiss in the first action arguing that the pharmacy owner failed to provide adequate notice of his claims and filed a motion to dismiss in the relator’s action under the first-to-file rule because the pharmacy owner filed first and the claims are based on the same facts against the same defendants. The relator argued that the defendants’ argument in the first action that they were not put on adequate notice, is at odds with the argument that the relator brought an impermissible second qui tam action and defendants could not have it both ways. According to the relator, the pharmacy owner’s case could not be considered a related action until the court ruled on the pending motions to dismiss.

Decision. The court determined that both cases were clearly based on the same alleged scheme to overcharge governmental health plans in comparison to the prices paid by cash customers for generic prescription drugs, both cases assert the same essential claim, and they are related actions. There is no requirement that the court certify that the plaintiff in the earlier-filed case has stated a claim upon which relief can be granted. The statute provides an express statutory command that no person may bring a second qui tam action based on the same or related facts once a case has already been filed, and the appropriate remedy is dismissal of the later-filed action. However, a qui tam plaintiff may refile a case that had been dismissed on first-to-file grounds if the earlier-filed qui tam action is dismissed, so the court dismissed the claim without prejudice.

The case is No. 14-CV-0567-CVE-PJC.

Attorneys: Andy Mao, U.S. Department of Justice, for The United States. Arun Subramanian (Susman Godfrey LLP) for Chris Phillips. Don William Danz (Holden & Montejano) and Frederick Robinson (Reed Smith LLP) for Stephen L. LaFrance Holdings, Inc., Stephen L. LaFrance Pharmacy, Inc. and Walgreen Co. Jason Alan McVicker (McAfee & Taft) and John C. Eason (Bass, Berry & Sims PLC) for Arcadia Valley Drug Co., Daleco, Inc. and USA Drug & Beauty Market Franchising System, Inc.

Companies: Stephen L. LaFrance Holdings, Inc.; Stephen L. LaFrance Pharmacy, Inc.; Walgreen Co.; Arcadia Valley Drug Co.; Daleco, Inc.; USA Drug & Beauty Market Franchising System, Inc.

MainStory: TopStory CaseDecisions CMSNews FCANews FraudNews ProgramIntegrityNews QuiTamNews OklahomaNews

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