David Smart | Shutterstock

The district court denied the defendants’ motions to dismiss a qui tam case alleging they submitted fraudulent claims for reimbursement for prescriptions that were never filled or provided to patients. The court found the complaint alleged the time, place, and contents of the false representations and described in detail the structure of the fraud schemes. The relator also showed that the individually named defendant was both the owner and manager of the pharmacy, and therefore created an inference that he participated in the schemes. The defendants also argued the complaint did not say whether the pharmacy owner had actual or only implied knowledge, but the court explained that a plaintiff need not choose one theory of knowledge over the other, but may plead them in the alternative. The defendants also argued the relator had failed to allege conspiracy and that the conspiracy claims could not be argued in conjunction with claims against the parent company. However, the court found the complaint sufficiently alleged that the pharmacy owner and one of his employees agreed to engage in the fraud and that both benefited financially. Finally, the court declined to dismiss the parent company as a defendant, finding it reasonable to infer that the individually named defendants also acted to benefit their employer. The court also explained that the intracorporate immunity doctrine does not apply where a corporate officer has an independent personal stake in achieving the corporation’s illegal objectives. The allegation that two employees engaged in a conspiracy did not preclude claims being brought against the employer.

Defendants All Medicines Inc. d/b/a Townsend’s Pharmacy and James Craig Bell moved to dismiss a qui tam complaint alleging they submitted false claims to Medicaid and Medicare for pharmacy services.

Relator Bronson Lowery was employed by Townsend’s Pharmacy as a licensed pharmacist. Defendant Bell also is a licensed pharmacist and was owner of All Medicines and pharmacy manager of Townsend’s.

In his complaint, Lowery alleged that the defendants billed Medicaid and Medicare for prescriptions that were never filled, picked up, or provided to a patient. According to Lowery, the defendants kept a file of printed medication labels for prescriptions that had been billed to Medicaid and Medicare but never provided to any customer. A label would be pulled from the bin and the prescription filled only if the patient came into the pharmacy to pick up medication that was already billed. Lowery alleged Bell halted the practice and discarded the saved labels after questions were raised about possible fraudulent billing.

In addition to filing claims for prescription drugs that were often not dispensed, the complaint alleged that the pharmacy often dispensed a medication that was cheaper than the one billed. Lowery alleged that Bell admitted that prescription drugs were not being provided as billed.

In total, the complaint alleged that the defendants falsely billed: (1) for prescription drugs that were not in the pharmacy inventory; (2) for more expensive extended release medications rather than cheaper generic immediate release medications that had been dispensed; (3) for prescription drugs based on fake prescriptions; and (4) for name brand prescription drugs rather than the generic drugs actually dispensed.

First, the defendants argued that the complaint made only conclusory allegations about Bell’s involvement in the alleged fraud. The court disagreed, finding the complaint establish sufficient facts to survive a motion to dismiss. The complaint alleged the time, place, and contents of the false representations. Further, the contents of the false representations were alleged with detail, as the relator provided examples and described the structure of each of the schemes.

The relator also alleged that the pharmacy was a closely-held business, which allowed an inference that the representations were made by pharmacy employees, with defendant Bell causing those representations to be made by virtue of his management and supervision over them. Specifically, the relator showed that Bell was a licensed pharmacist who both owned and managed the pharmacy, and therefore it was reasonable to infer that he oversaw, authorized, or approved the pharmacy’s billings.

The complaint also alleged that Bell personally created fake prescriptions, acknowledged that prescription drugs were not being provided as billed, and attempted to cover up the scheme by discarding saved labels. Lowery also alleged that he was personally instructed to fill prescriptions in the manner described and that he witnessed physical inventories that showed the pharmacy did not have medications for which it billed. The court found these allegations more than sufficient.

The defendants argued that Bell was an absentee owner and that the relator had been hired to run the pharmacy during the period in question. However, the court declined to consider this argument at the motion to dismiss stage.

The defendants next argued that the complaint lacked factual detail about Bell’s involvement in the fraud. According to the defendants, the alleged fact the Bell directed a physical count of medications, which obviously would memorialize the fraud, undercut the relator’s case.

The court noted this argument drew inferences in the defendants’ favor while ignoring plausible inferences to the contrary. While it was conceivable that Bell did not know about the fraud when he ordered the inventory, the court found it equally plausible that he directed the physical count to portray responsiveness or cooperation with an audit. The court also found this action evidence of his personal involvement in managing the pharmacy.

The defendants also argued the complaint did not take a firm position on whether Bell had actual or only implied knowledge of the fraud. However, the court explained that a plaintiff need not choose one theory of knowledge over the other, but may plead them in the alternative.

The defendants also challenged Bell’s alleged admission of the fraud, arguing that the complaint did not state when Bell allegedly made this admission, the contents or circumstances of this alleged admission, or any additional factual detail supporting that this admission occurred at all or at a relevant time. Accordingly, the defendants argued this allegation need not be accepted as factual under Iqbal and Twombly.

However, the court noted that Iqbal and Twombly do not require factual allegations to meet this standard. Rather, the standard is that the court accepts allegations of factual matters and factual content, as opposed to legal conclusions, unwarranted inferences, or unreasonable conclusions. The court found that the alleged admission did not make a legal conclusion but was a fact alleged by the opposing party. Therefore, the court could not disregard it.

The defendants also moved to dismiss the conspiracy claim, arguing the complaint failed to alleged any conspiratorial agreement. However, the court disagreed, finding that the relator alleged that Bell directed the false claims and statements by employees of his pharmacy, including another co-defendant, and that they thus together agreed to engage in fraud.

The defendants also argued that 40 percent of the portion of the complaint outlining the fraud was based “upon information and belief,” and failed to explicitly state the fraud. However, the court disagreed, finding multiple specific allegations pertinent to the submission of false statements and claims. Moreover, the allegations not made on information and belief provided sufficient factual support for the remaining allegations made on information and belief. Thus, the court declined to dismiss the claims against Bell.

Next, the defendants argued that All Medicines should be dismissed as a defendant because the complaint failed to allege facts imputing the alleged fraudulent conduct to the company. However, the court found the employees of All Medicine, including Bell and his co-defendant, caused the submission of false claims, and that it was reasonable to infer that they engaged in this conduct to benefit the company as well as themselves. Because the employees acted in the course of their responsibilities to benefit the company, the court found the complaint alleged sufficiently claims against All Medicines.

The defendants also argued that by alleging a conspiracy, the complaint appeared to acknowledge that the conduct was not committed by persons acting as agents of the corporation. According to the defendants, if the conduct were conducted by corporate agents, the conspiracy count would be barred by the intracorporate conspiracy doctrine.

The court disagreed, first noting that the intracorporate immunity doctrine does not apply where a corporate officer has an independent personal stake in achieving the corporation’s illegal objectives. In this case, the relator specifically alleged that Bell and his co-defendant withdrew proceeds for their personal use. Second, the court explained that corporate liability may attach where employees act both in the interest of the corporation and in their own personal interest. Accordingly, the court held that the plaintiffs’ assertion of a conspiracy claim did not necessarily preclude other claims against All Medicines.