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United States ex rel. Palmieri v. Alpharma, Inc.

United States District Court, D. Maryland

December 16, 2016

UNITED STATES, et al., Plaintiffs, ex rel. JEROME PALMIERI, Relator,
ALPHARMA, INC., et al., Defendants.


          Ellen Lipton Hollander United States District Judge.

         Jerome Palmieri filed a qui tam action on April 20, 2010, on behalf of the United States and various states (collectively, the “Qui Tam States”), pursuant to the False Claims Act (“FCA” or the “Act”), 31 U.S.C. §§ 3729 et seq., and analogous state statutes. ECF 2.[1] Initially, Palmieri sued Alpharma, Inc. and its subsidiary, Alpharma Pharmaceuticals, LLC (collectively, “Alpharma”) as well as King Pharmaceuticals, Inc. (“King”). Palmieri added Pfizer, Inc. (“Pfizer”) as a defendant in his First Amended Complaint (sometimes referred to as “FAC”), filed on October 25, 2011. ECF 43.[2]

         The Act “imposes liability on individuals and entities who defraud government programs.” United States ex rel. Bunk and Ammons v. Government Logistics N.V., 842 F.3d 261, 2016 WL 6695787, at *2 n. 3 (4th Cir. Nov. 15, 2016). It permits a private party, as relator, to sue on behalf of the United States to recover damages from a defendant who has caused fraudulent claims for payment to be submitted against the public fisc. As an incentive to bring such suits, a successful relator is entitled to share in the government's recovery from the defendant. See generally Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 404 (2011); ACLU v. Holder, 673 F.3d 245, 246-51 (4th Cir. 2011) (describing history and current provisions of FCA).[3]

         On April 26, 2011, about a year after suit was filed, the government and the Qui Tam States gave notice of their decision not to intervene. ECF 11. Palmieri elected to pursue the suit on his own, and the case was unsealed on July 5, 2011.[4] As noted, Palmieri filed his FAC on October 25, 2011. He filed his Second Amended Complaint (sometimes referred to as “SAC”) on April 2, 2013. ECF 77. The SAC includes conduct that allegedly occurred before and after 2010 - the year that the Act was amended. See Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 283 n.1 (2010).

         In an opinion issued on March 21, 2014, I dismissed the suit, concluding that the SAC failed to plead fraud with the particularity required by the heightened pleading standard under Fed.R.Civ.P. 9(b). See ECF 88 (Memorandum Opinion); ECF 89 (Order); see also N. Am. Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d 8, 13 (1st Cir. 2009); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999).

         Thereafter, Palmieri noted an appeal to the United States Court of Appeals for the Fourth Circuit. On April 26, 2016, the Fourth Circuit vacated and remanded. U.S. ex rel. Palmieri v. Alpharma, Inc., 647 F. App'x 166 (4th Cir. 2016) (per curiam); see also ECF 94; ECF 98 (Mandate). In its ruling, the Fourth Circuit determined that I erred because I “did not address Defendants' arguments that Palmieri's claims were precluded by the FCA's first-to-file bar . . . and public-disclosure bar, ” and “[u]nder the pre-2010 version of § 3730 that governs Palmieri's action…both the first-to-file and public disclosure defenses are jurisdictional in nature…” Palmieri, 647 F. App'x at 166 (citations omitted).[5] Accordingly, the Fourth Circuit remanded to this Court for “consideration in the first instance of whether the FCA's first-to-file bar or public-disclosure bar deprived the district court of subject-matter jurisdiction.” Id. at 167 (emphasis added).

         I. Factual Background[6]

         Defendants manufacture and market Flector Patch, a transdermal patch that delivers, via absorption through the patient's skin, a topical pain application of 1.3% diclofenac epolamine. See SAC, ECF 77, ¶¶ 88-89. The Food and Drug Administration (“FDA”) approved Flector Patch for prescription use in December 2007 (id. ¶ 93) as a “‘topical treatment of acute pain due to minor strains, sprains, and contusions.'” Id. ¶ 95 (citation omitted in original). However, the use was approved only for up to fourteen days. Id. ¶¶ 102, 115-16. Flector Patch carries risks of cardiovascular and gastrointestinal side effects that increase with drug usage. Id. ¶ 91. Therefore, Flector Patch's FDA-approved label contains a warning that a patient should use only “‘the lowest effective dose for the shortest duration consistent with individual treatment goals.'” Id. (citation omitted in original).

         In 2001, Palmieri began working for Alpharma, and later King and Pfizer, as a sales representative to market prescription pain medications, including Flector Patch, to physicians who treat patients with chronic pain. SAC, ECF 77, ¶ 23.

         Federal law does not prohibit a physician from prescribing an approved drug for a non-approved, or “off-label, ” use. See 21 U.S.C. § 396. However, “it is unlawful for a manufacturer to introduce a drug into interstate commerce with an intent that it be used for an off-label purpose, and a manufacturer illegally ‘misbrands' a drug if the drug's labeling includes information about its unapproved uses.” Washington Legal Found. v. Henney, 202 F.3d 331, 332-33 (D.C. Cir. 2000) (internal citations omitted). “[A] manufacturer's direct advertising or explicit promotion of a product's off-label uses is likely to provoke an FDA misbranding or ‘intended use' enforcement action.” Id. at 333; see also 21 C.F.R. § 202.1(e)(4)(ii) (stating that an advertisement for an FDA-approved prescription drug generally “may recommend and suggest the drug only for those uses contained in the [FDA-approved] labeling thereof”). Moreover, government-funded health care programs, such as Medicare and Medicaid, generally do not permit reimbursement for off-label uses. See 42 U.S.C. § 1396r-8(k)(2)-(3), (6).

         Palmieri alleges that defendants engaged in an illegal scheme to promote off-label use of Flector Patch. According to the Relator, defendants instructed their sales representatives to market Flector Patch aggressively to physicians, such as pain management specialists, rheumatologists, and neurologists, who by the nature of their specialties treated only chronic pain and not the acute, localized pain for which Flector Patch was approved. See SAC, ECF 77, ¶¶ 200-07. In addition, defendants allegedly promoted Flector Patch for continuous use, rather than for short-term use. See Id. ¶¶ 212-28. Defendants also allegedly instructed their sales representatives to discourage shorter prescriptions as “subtherapeutic, ” and to cease promotional efforts toward emergency room and urgent care physicians, who routinely treat patients for acute pain and who often resisted prescribing Flector Patch at the 60-patch level. See Id. In addition, defendants allegedly marketed Flector Patch as an alternative to other prescription medications that are FDA-approved only for the treatment of chronic pain. See Id. ¶¶ 239-54. According to the Relator, some of these prescriptions were submitted to federal and state government agencies for reimbursement, thereby causing the presentment of false claims. See generally SAC, ECF 77. Furthermore, Palmieri alleges that some of defendants' promotional activities with respect to Flector Patch violated the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b). Id. ¶¶ 305-14.

         In the Second Amended Complaint (ECF 77), the Relator added allegations concerning prescriptions provided by two Pennsylvania doctors to nine patients. Specifically, the Relator alleged that for eight Medicare patients, Dr. Daniel Rubino prescribed Flector Patch off-label and, “upon information and belief, ” these eight persons “filled their prescriptions which were submitted to Medicare for payment because they returned to Dr. Rubino for one or more refills.” Id. ¶ 274. Similarly, the Relator alleges that a Medicare patient of Dr. Kenan Aksu received an off-label Flector Patch prescription and, based on a subsequent refill request, it would have been submitted to Medicare for reimbursement. See Id. ¶ 285.[7]

         Additional facts are included in the Discussion.

         II. Procedural Background

         As indicated, Palmieri filed suit on April 20, 2010. In April 2011, about a year after the suit was filed, the government declined to intervene. Palmieri filed his First Amended Complaint in October 2011, which defendants moved to dismiss. ECF 70 (the “First Motion”). In particular, they argued that the first-to-file rule, 31 U.S.C. § 3730(b)(5), deprived this Court of subject matter jurisdiction. In addition, they contended that, in light of the heightened pleading requirements applicable to fraud claims under Fed.R.Civ.P. 9(b), the FAC failed to state a claim.

         With respect to the first-to-file rule, the defense pointed to the case of United States ex rel. Littlewood, ELH-10-973 (D. Md.) (“Littlewood”), which alleged essentially the same fraudulent scheme set forth by Palmieri. Littlewood was filed four days before Palmieri filed his suit.[8] But, as in this case, the government declined to intervene in Littlewood. Id., ECF 16; ECF 18. And, the relator chose not to exercise her right to litigate the suit on her own. Rather, on August 17, 2011, she voluntarily dismissed the case, with the government's consent, and without prejudice. Id., ECF 19; ECF 21; see also United States ex rel. Littlewood, 806 F.Supp.2d 833 (D. Md. 2011). Palmieri filed his First Amended Complaint in October 2011, after Littlewood had been voluntarily dismissed.

         In United States ex rel. Palmieri v. Alpharma, Inc., 928 F.Supp.2d 840 (D. Md. 2013) (ECF 75, “Palmieri I”), I concluded that the first-to-file rule in § 3730(b)(5) did not bar the Relator's claim. I relied, inter alia, on United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361 (7th Cir. 2010) (Easterbrook, J.). See Palmieri I, 928 F.Supp.2d at 847; 849; 850-51. Because Littlewood was no longer pending when Palmieri filed his FAC, I recognized that Palmieri could simply file a new action if I dismissed the case. Given that circumstance, I concluded that it would “elevate form over substance” to require dismissal, only to have Palmieri refile his case. Id. at 851-52. Instead, I allowed the case to proceed, as amended, and I then considered the merits of defendants' First Motion in the context of the FAC. I determined that Palmieri failed to state a claim, because he did not satisfy the Rule 9(b) standard for pleading fraud with particularity. Id. at 851-52, 857.[9]

         In light of the pleading deficiencies, I granted the First Motion and dismissed the FAC, without prejudice. ECF 76 (Order). I also directed the Clerk to close the case, with the right to reopen if plaintiff submitted an amended complaint. Id. However, I did not require plaintiff to file an entirely new suit. Palmieri I, at 857-58.

         On April 2, 2013, the Relator filed his Second Amended Complaint, using the original case number. ECF 77. As noted, the SAC included new allegations regarding prescriptions written for nine patients by two Pennsylvania physicians, Dr. Rubino and Dr. Aksu. See SAC, ECF 77, ¶¶ 275-85. Although the Complaint, the FAC, and the SAC referred to conduct that occurred prior to 2010, the SAC also referred to conduct that occurred after 2010. See SAC, ECF 77, ¶¶ 274-295 (including allegations as early as 2008 and as late as fall 2011).

         Defendants moved to dismiss the SAC (ECF 84), supported by a memorandum (ECF 84-1), (collectively, the “Second Motion”). They challenged the SAC on jurisdictional grounds, based on the “first-to-file” bar under 31 U.S.C. § 3730(b)(5), and also based on the public disclosure bar under 31 U.S.C. § 3730(e)(4)(A). In addition, they argued that the SAC did not satisfy the Rule 9(b) heightened pleading standard. See ECF 84. The Relator filed an Opposition (ECF 85, “Opposition”), and defendants submitted a Reply. ECF 86.

         In United States ex rel. Palmieri v. Alpharma, Inc., ELH-10-1601, 2014 WL 1168953 (D. Md. Mar. 21, 2014) (ECF 88) (“Palmieri II”), I concluded that the SAC failed to satisfy the Rule 9(b) standard. I also said that, “[b]ecause the relator's allegations fail under Rule 9(b), it is unnecessary to reach defendants' arguments concerning the first-to-file rule and the public disclosure bar.” ECF 88 at 4 n.8. Cf. United States ex rel. Brooks v. Lockheed Martin Corp., 423 F.Supp.2d 522, 528 (D. Md. 2006) (stating that because a relator “failed to satisfy the requirements of Rule 9(b), it is not necessary to examine [defendants'] arguments” related to the first-to-file rule), dismissed in part, aff'd in part on other grounds, 237 Fed. App'x 802 (4th Cir. 2007). Thus, by Memorandum Opinion (ECF 88) and Order (ECF 89) of March 21, 2014, I granted the Second Motion and dismissed the case, with prejudice, as to the FCA claims, and without prejudice as to the related state law claims. Palmieri noted an appeal.

         As indicated, on April 26, 2016, the Fourth Circuit vacated Palmieri II It concluded that both the first-to-file bar and the public disclosure bar are jurisdictional under the “pre-2010 version” of the FCA, and that the pre-2010 version of the Act “governs” this case. Palmieri, 647 F. App'x at 166. Moreover, it concluded that I should have determined whether this Court has jurisdiction before deciding the Rule 9(b) issue. Accordingly, the Fourth Circuit remanded to this Court for a determination as to jurisdiction.

         By Order of the same date (April 26, 2016), I directed counsel to inform the Court as to “whether I should review the [jurisdictional claims] based on existing filings or, instead, whether the parties wish to supplement and update their submissions.” ECF 95. In a status report filed on May 16, 2016, the parties advised that “they jointly believe that the Court should evaluate these jurisdictional issues based on the pre-existing briefing and that no evidentiary hearing is necessary to resolve these jurisdictional issues.” ECF 97. The parties referred the Court to the following submissions and case law, id. at 1-2:

• Memorandum of Law in Support of Defendants' Motion to Dismiss Second Amended Complaint, ECF 84-1 at 14-26
• Relator's Memorandum of Law in Opposition to Defendants' Motion to Dismiss Second Amended Complaint, ECF 85 at ...

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