Opinion
CIVIL ACTION NO: 99-3807, SECTION: "I" (4)
March 23, 2004
ORDER AND REASONS
On January 21, 2004, the State of Louisiana ("State"), through its Attorney General, Charles C. Foti, Jr., filed a Motion for Leave to File Complaint-in-Intervention (Rec. Doc. No. 64) seeking to intervene in this matter pursuant to Federal Rule of Civil Procedure 24(a) and (b). The State is seeking retribution for its share of the excess Medicaid expenditures against the defendant, among other damages to the citizens of the State of Louisiana and violations of state law. A hearing on the motion was held on March 3, 2004.
During the hearing, the State argued that it should be allowed to intervene in this matter because it has an interest directly related to the pending matter. The State seeks to assert claims pursuant to Louisiana's Unfair Trade Practices and Consumer Protection Law, La. R. S. 1401, et seq.; Louisiana's Anti-Trust Statute, La. R.S. 51:121, et seq.; Louisiana's Medical Assistance Programs Integrity Law, La. R.S.46:437.1, et seq.; and Louisiana's law on fraud and unjust enrichment. The State further argued it filed its motion for leave to intervene in a timely fashion.
The defendant, Merck Co., Inc. ("Merck"), argued that the False Claims Act expressly prohibits the State from intervening in a pending qui tam action. Merck further argued that the State's motion is untimely and does not satisfy the requirements to intervene as of right or permissively under Rules 24(a) and (b) of the Federal Rules of Civil Procedure. Merck finally argued that to allow intervention would be fufile because the Court issued a Report and Recommendation, recommending dismissal of LaCorte's ("Relator") claims under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure.
Although Merck argues that the False Claims Act bars intervention in pending qui tam actions by anyone other than the federal government, the Court's decision is limited to the issue before it, which is whether the State should be allowed to assert its claims in this action pursuant to the above mentioned state law provisions.
Rec.Doc. No. 52.
I. Factual and Procedural Background
On February 7, 2003, William St. John LaCorte, M.D. filed this qui tam action on behalf of himself and the United States of America seeking money damages and civil penalties from alleged violations of the False Claims Act, Title 31 U.S.C. §§ 3729- 3733, Title 42 U.S.C. § 1396 r-8, Title 42 U.S.C. § 1320a-7b. He has also asserted violations of the Food, Drug and Cosmetic Act, Title 21 U.S.C. § 301 et. seq., and the Medicaid/Medicare Anti-Kickback Statute, Title 42 U.S.C. § 1320a-7.
"Qui tam" is shorthand for the Latin phrase " qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means `who pursues this action on our Lord the King's behalf as well as his own.'" Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 768 n. 1 (2000). In practice, the phrase means "an action under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive." Garner, A Dictionary of Modern Legal Usage at 728 (2d ed. 1995). Practitioners and courts refer to such suits by the abbreviated title "qui tam." Qui tam actions under the False Claims Act are authorized by 31 U.S.C. § 3730(b)(1).
Rec. Doc. No. 27.
LaCorte is a physician who practices medicine in Louisiana. He filed the instant suit contending that Merck, a pharmaceutical company that participates in the Medicaid Program, is required by the Medicaid Program to "charge the lowest price that other prudent and cost conscious buyers would incur for a given drug." LaCorte claims that Merck, however, fails to adhere to this requirement regarding its drug, Famotidine, which is marketed under the brand name "Pepcid". LaCorte alleges that Merck sells Pepcid to hospitals and other related institutions for $0.10 per tablet, but does not offer the same price to the Medicaid Program or other federal programs.
Medicaid, codified at 42 U.S.C. § 1396 et seq., is a cooperative federal-state program through which the federal government provides financial assistance to assist States in furnishing health care to the poor. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990). State governments administer Medicaid, but they function under detailed federal statutory and regulatory controls in exchange for fifty percent federal financing. Participating States must develop a state plan for medical assistance, develop cost-based payment rates to reimburse medical providers for services rendered to eligible recipients, designate a single agency to evaluate cost reports submitted by private vendors of health services, and reimburse vendors for allowed expenses. See 42 U.S.C. § 1396a(a); 42 C.F.R. § 431.10(b)(1).
Pepcid is used for the relief of heartburn, associated with acid indigestion, and sour stomach. See Physician's Desk Reference at 3536 (57th ed. 2003).
Lacorte alleges that this practice occurs nationwide and that participating hospitals include the Medical Center of Louisiana in New Orleans, River Parishes Hospital (a Universal System Hospital), Chalmette Medical Center (a Universal System Hospital), Memorial Medical Center, Mercy and Baptist Campuses (a Tenet Health Systems Hospital), Touro Infirmary, East Jefferson General Hospital, and LifeCare Hospitals (LifeCare System Hospitals).
Instead, since 1993 the Medicaid Program and their discharged participants have allegedly been charged $1.65 per tablet, and higher amounts for 20 mg. vials of IV Pepcid. (¶ 8, Consolidated Complaint) LaCorte claims that several hospitals prefer Pepcid because of its lower price and often provide Pepcid even when their physicians order an H2 blocker other than Pepcid. He further alleges that Pepcid is not available on the market in its generic name, and because of the price offered by Merck, hospitals switch or substitute Pepcid for other H2 blockers prescribed by treating physicians without the physicians' consent. According to LaCorte, the switch has occurred during the course of his treatment of patients who were admitted to various hospitals. As a result of the switching scheme, both discharged patients and various federal programs are allegedly paying higher prices for medication that hospitals receive for much less.
On August 26, 2003, the undersigned judge issued a Report and Recommendation in this matter, recommending the dismissal of the Relator's complaint under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. The Court found that several of LaCorte's claims failed to satisfy the requirements of Rule 9(b) and/or failed to state a claim for which relief may be granted. Further, the Court recommended that LaCorte be allowed to amend his complaint as to the pricing scheme theory claim and the misbranding claim.
On September 9, 2003, LaCorte filed an objection to Magistrate Judge Roby's Report and Recommendation. To date, District Judge Africk has not ruled on LaCorte's objections.
The State of Louisiana, through attorney general, Charles C. Foti, Jr., filed the instant Motion for Leave to File Complaint-In-Intervention.
II. Analysis A. Intervention as of Right
The Federal Rule of Civil Procedure 24(a) governs interventions of right. It states in pertinent part:
Upon timely application anyone shall be permitted to intervene in an action . . . when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.
"Federal courts should allow intervention where no one would be hurt and the greater justice could be attained." Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994). Thus, a party is entitled to an intervention of right if (1) the motion to intervene is timely; (2) the potential intervenor asserts an interest that is related to the property or transaction that forms the basis of the controversy in the case into which she seeks to intervene; (3) the disposition of that case may impair or impede the potential intervenor's ability to protect her interest; and (4) the existing parties do not adequately represent the potential intervenor's interest. Ford v. City of Huntsville, 242 F.3d 235, 239 (5th Cir. 2001).
1. Timeliness
When determining whether a motion to intervene is timely, a court must consider the following four factors: (1) how long the potential intervenor knew or reasonably should have known of her stake in the case into which she seeks to intervene; (2) the prejudice, if any, the existing parties may suffer because the potential intervenor failed to intervene when she knew or reasonably should have known of her stake in that case; (3) the prejudice, if any, the potential intervenor may suffer if the court does not let her intervene; and (4) any unusual circumstances that weigh in favor of or against a finding of timeliness. Ford, 242 F.3d at 239.
"The requirement of timeliness is not a tool of retribution to punish the tardy would-be intervenor, but rather a guard against prejudicing the original parties by the failure to apply sooner." Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994). "[A motion to intervene's] timeliness is to be determined from all the circumstances." Doe v. Glickman, 256 F.3d 371, 376 (5th Cir. 2001). "This analysis is contextual; absolute measures of timeliness should be ignored." Id. A court should ignore "[h]ow far the litigation has progressed when intervention is sought, . . . the amount of time that may have elapsed since the institution of the action . . . and the likelihood that intervention may interfere with orderly judicial processes." Id.
a. Reasonably knew or should have known
In the instant case, Merck contends that the State's motion is untimely because it waited two years after learning of its interest in the case, and six months after it officially announced its intent to intervene. The Attorney General has been aware of this case since around March or April of 2002. The Court notes that even though the Attorney General was aware of this matter as early as 2002, the case remained under seal until January 21, 2003. Therefore, for purposes of determining whether this motion is timely, the Court will only consider the time period after the January date, roughly 14 months, because the State could not have intervened prior to that time.
Rec. Doc. No. 51, Transcript of 7/23/03 hearing on motion to dismiss, p. 48.
Rec. Doc. No. 21.
On May 2, 2003, Merck filed a motion to dismiss the plaintiff's consolidated complaint. On May 29, 2003, District Judge Africk referred the motion to Magistrate Judge Roby, and a hearing was conducted, with oral argument on July 23, 2003.
Rec. Doc. No. 31.
Michelle L. Maraist, counsel for the State, was present at the hearing and represented to the Court that the State intended on filing an Intervention within ten days to two weeks from the date of the hearing. Further, Maraist filed a Notice of Intent to file for leave to intervene on July 21, 2003.
Rec. Doc. No. 51, Transcript of 7/23/03 hearing on motion to dismiss, p. 47.
Rec. Doc. No. 46.
The State asserts that it filed its Motion for Leave to Intervene when the issues raised in the underlying complaint were investigated by the Attorney General's office. The State further asserts that any earlier intervention would have rightfully been premature. Because the State did not address the reason/s why it waited six months to file this motion after filing a notice of intent to intervene, the Court, on March 1, 2004, orally directed the State to supplement its brief to address those issues.
In its Supplemental Memorandum to the Motion for Leave to Intervene, the State asserts that former Attorney General, Richard Ieyoub instructed counsel for the State to file a Notice of Intent to Intervene in order to place the Court and parties on notice. However, the State points out that after the Notice of Intent was filed, this Court issued a Report and Recommendation on the motion to dismiss, which caused the Attorney General to have additional concerns and questions over the implications of the motion to dismiss. Additionally, the State contends that the decision of whether to intervene entailed public policy determinations and considerations, and the former Attorney General never made the final decision to intervene.
Rec. Doc. No. 67., The State of Louisiana's Supplemental Memorandum in Support of Motion for Leave to File Complaint in Intervention, pp. 1-2.
The State ultimately received the authorization to go forward with the instant motion from Attorney General, Charles C. Foti, Jr., who took office in January of 2004. The State contends that this case is complex and the Medicaid Fraud Control Unit has made diligent efforts to obtain information regarding the basis for the claims asserted in the Complaint in Intervention.
The Court has fully contemplated Merck's assertions that the State's delay in attempting to intervene makes the proposed intervention untimely. However, the Court must consider all four timeliness factors together to make an ultimate decision regarding timeliness.
b. Prejudice to existing parties
As pointed out by the State, prejudice "must be measured by the delay in seeking intervention, not the inconvenience to the existing parties of allowing the intervenor to participate in the litigation." Heaton v. Monogram Credit Card Bank of Ga., 297 F.3d 416, 424 (5th Cir. 2002) (citing Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994)). Although the State asserts that Merck would suffer no prejudice by the State's failure to file for intervention earlier, Merck contends otherwise.
Merck essentially argues that it would be highly prejudicial to subject the defendant to re-litigating another motion to dismiss when the State could have intervened before the motion to dismiss was fully briefed and argued and submitted to the District Judge for consideration. The Court, however, points out that on July 21, 2003, the State submitted its position statement regarding the motion to dismiss indicating that it adopted the arguments asserted by the Relator in its Brief in Opposition to Defendant's Motion to Dismiss. Therefore, allowing the State to intervene in this matter would not likely cause Merck to fully re-litigate this matter.
Rec. Doc. No. 47.
Although the State reserved the right to supplement and/or amend its position, the Court notes that any amendment and/or supplementation may result in some inconvenience to all parties involved, but this inconvenience does not rise to prejudice to the existing parties. This factor therefore weighs in favor of granting leave to intervene.
c. Prejudice to the potential intervenor
If the State is not allowed to intervene, it could potentially be prejudicial depending on the asserted interests in the matter. As discussed below, the Court finds that the State has asserted interests in this case, not opposed by Merck, and it would prejudice the State if it is not allowed to pursue its claims. This factor weighs in favor of allowing the State's intervention.
d. Unusual circumstances
Merck asserts that the only unusual circumstance in this matter is the fact that the State made known its notice to file for leave to intervene in July of 2003, but failed to do so until January 21, 2004. six months later. Further, Merck argues that the State has offered no explanation for this delayed filing.
The Court was initially concerned for the same reasons asserted by Merck, thus ordering the State to supplement its brief requesting leave to intervene. The State notified the Court in July of 2003 of its intent to intervene.
However, considering the arguments of the parties, written and oral, the complexity of this matter and the change in the Attorney General position, the Court is of the opinion that the motion has been timely filed.
2. The State's Interests in the Action
A potential intervenor asserts an interest that is related to the property or transaction that forms the basis of the controversy in the case into which she seeks to intervene, if the potential intervenor has a "direct, substantial, and legally protectable" interest in the property or transaction that forms the basis of the controversy in the case into which she seeks to intervene. Id at 379. In the context of intervention, the Fifth Circuit has warned against defining "property or transaction" too narrowly. Ford, 242 F.3d at 240.
The State asserts that it has an interest directly related to the transactions which form the basis of this suit. Specifically, the State claims that because of the unlawful actions of Merck, the State and its citizens have sustained damages compensable under state law. The State further asserts an interest in the regulation and administration of its Medicaid Program and the overpayments made for the drug, Pepcid. The State claims a sovereign interest in seeing that Merck is in compliance with state law. It further claims an interest, as the legal representative of the Louisiana Medicaid Fraud Unit, in seeing that participants in the Medicaid Program are in full compliance with federal and state requirements and law. Finally, the State contends it has an interest in the physical and economic health and well-being of the citizens directly affected by Merck's pricing scheme and false reports.
Merck does not conduct an analysis of or oppose the asserted interests of the State. Further, "since the interest test is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process," Doe, 256 F.3d at 379, the State asserts an interest related to the transaction.
3. Impairment of Ability to Protect Interest
Thirdly, the potential intervenor must be situated so that the disposition of the case into which she seeks to intervene may impair or impede her ability to protect her interest. See id Again, Merck does not contend that the State's ability to protect its interests will not be unimpaired if the state is precluded from intervening. The State contends that Merck's activities and pricing scheme have a direct bearing on the State of Louisiana in that the State contributes to the Medicaid Program. Therefore, if the State is not allowed to participate in these proceedings, its ability to protected the asserted interest may be impaired.
4. Existing Parties
The potential intervenor has the burden of proving that the existing parties do not adequately represent her interest. Espy, 18 F.3d at 1207; Trbovich v. United Mine Workers, 404 U.S. 528, 538 n. 10, 92 S.Ct. 630, 636, 30 L.Ed.2d 686 (1972). This burden, however, is "minimal." Id. "The potential intervenor need only show that the representation may be inadequate." Id.
Merck did not address this issue in its memorandum. However, the State asserts and it appears, that the Relator does not represent the interests of the State. The State contends that it is seeking retribution for its share of the excess Medicaid expenditures against Merck, among other damages to the citizens of the State. Further, during oral argument, the State conceded that it was strictly attempting to assert state law claims. Because the Relator seeks retribution for fraud committed upon the federal government, the Court finds that the interests are divergent, and it does not appear that the Relator will adequately represent the State's interests.
The Court is of the opinion that the State has satisfied the requirements of Rule 24(a) and should be allowed to intervene as of right. Further, because the Court has determined that the State should be granted leave to intervene as of right, there is no need to continue with an analysis of permissive intervention under Rule 24(b). The Court must next turn to a discussion of whether the False Claims Act bars the State's proposed intervention.
B. False Claims Act Intervention Bar
Merck contends that the State is not entitled to intervene because the False Claims Act unequivocally bars intervention in a pending qui tam action by anyone other than the Federal government.
The State, on the other hand, contends that the intervention bar found in this section only extends to the private relator. The State additionally argues that because the Medicaid Fraud Control Unit in the Louisiana Attorney General's Office is a federally chartered arm of the United States Office of the Inspector General and a majority of its funding comes from the federal government, to deny intervention would be to provide a windfall to Merck and penalize the taxpayers. Lastly, the State urges that it is attempting to assert state law claims, and Merck does not cite any cases stating whether a State may intervene to assert State law claims in a False Claims Act case.
The pertinent language upon which the Court must make the determination of whether the False Claims Act bars intervention by the State of Louisiana is found in 31 U.S.C. § 3730(b)(5), which states:
When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action. (Emphasis added).
It is important here to note, that to qualify as an "action under this subsection" the person/entity subject to liability must:
(1) knowingly present, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false of fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
(4) has possession, custody, or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
(5) authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge the property; or
(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid. See 31 U.S.C. § 3729(a)(1)-(7).
The distinctive bar on intervention in pending qui tam actions reflects Congress' concern that subsequent interventions in these types of suits are parasitic in nature. See United States ex rel. LaCorte v. Smithkline Beechum Clinical Laboratories, Inc., 149 F.3d 227, 235-36 (3d. Cir. 1998). Through this bar, Congress sought to prevent "class actions or multiple separate suits based on identical facts and circumstances." S. Rep. 99-345 at 25 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5290.
The policy concerns are obvious here. Subsequent intervenors in these types of actions would be allowed to possibly recover partial awards based on information haphazardly learned after an action has already been initiated. Qui tam relators receive part of any award from an action, in part, because of their efforts in uncovering, investigating and reporting fraud committed upon the federal government. See United States ex rel Newsham v. Lockheed Missiles Space Co., 722 F. Supp. 607, 609 n. 3 (N.D. Cal. 1989).
It would be unfair to allow subsequent intervenors to receive part of an award for fraud they did not uncover on their own. This is so because allowing suits or interventions based on information that the Department of Justice is already aware of, does nothing to further the purpose behind qui tam actions, which is bringing to light fraudulent claims and actions the federal government has been made privy to via the original relator. Id.
However, both the State and Merck agree that the State is not attempting to intervene in this action to bring federal False Claims Act types of claims, such as those listed in 31 U.S.C. § 3729. Rather, the State's claims are purely reliant on Louisiana's law.
The State should be allowed to intervene in this action because 31 U.S.C. § 3732(b) provides the district court with jurisdiction to consider "any action brought under the laws of any State for the recovery of funds paid by a State or local government if the action arises from the same transaction or occurrence as an action brought under § 3730."
Here, the State of Louisiana is seeking to intervene in this action to recover overpayments of State money for the drug, Pepcid. More specifically, the State seeks to assert claims for violations of Louisiana's Unfair Trade Practices and Consumer Protection Law, La. R.S. 1401, et seq.; Louisiana's Anti-Trust Statute, La. R.S. 51:121, et seq.; Louisiana's Medical Assistance Programs Integrity Law, La. R.S. 46:437.1, et seq.; and under Louisiana's law on fraud and unjust enrichment. Section 3732 clearly allows the district court to entertain state law claims based on similar circumstances found in actions arising under § 3730, and the State should be allowed to intervene in the instant matter to assert these claims.
Rec. Doc. No. 67., The State of Louisiana's Supplemental Memorandum in Support of Motion for Leave to File Complaint in Intervention, pp. 5-6.
The concerns expressed by Congress regarding parasitic lawsuits resulting from persons intervening to take part in qui tam awards based on information already learned and reported to the Department of Justice are not implicated in this type of situation. The State of Louisiana is not attempting to take credit for alleged false claims uncovered by LaCorte, the Relator, and reported to the federal government. The State is only attempting to assert claims to recover money allegedly lost from the State of Louisiana based on the same transactions or occurrences as the instant matter.
The Court is not aware of any case law, and none has been cited by Merck, that indicates States cannot be allowed to intervene in these types of actions for those very narrow purposes, to assert state law claims. Further, it would serve judicial economy to finalize the matter, if possible, in one action as opposed to requiring the State to file a separate action in this Court based on the same facts.
C. Futility of Intervention
Finally, Merck asserts that the Court should not allow intervention here because it would be fufile. Merck argues that the State's Complaint-in-Intervention, which makes the same allegations as the Relator's complaint, is deficient for the same reasons set out by the Court in its Report and Recommendation issued on August 26, 2003, However, to date, the District Judge has not adopted the opinion as set out by the undersigned, finding that the Relator's complaint fails to satisfy Rules 9(b) and 12(b)(6). Therefore, the Court is of the opinion that allowing intervention at this time would not qualify as fufile.
Rec. Doc. No. 52.
Accordingly,
IT IS ORDERED that the Motion for Leave to File Complaint-in-Intervention (Rec. Doc. #64) is GRANTED.
To obtain a transcript of the proceedings for the Court's findings, the parties should contact Gaynell Banta, Court Recorder Supervisor, at 589-7720.