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Plumbers' Local Union No. 690 Health Plan v. Sanofi, S.A.

United States District Court, D. New Jersey

May 4, 2017

PLUMBERS' LOCAL UNION NO. 690 HEALTH PLAN and DELAWARE VALLEY HEALTH CARE COALITION, Plaintiffs,
v.
SANOFI, S.A., et al., Defendants.

          OPINION

          KEVIN MCNULTY United States District Judge

         This matter comes before the Court on motions to dismiss the Second Amended Complaint ("2AC", ECF no. 92) for lack of standing under Fed.R.Civ.P. 12(b)(1) and for failure to state a claim upon which relief may be granted under Fed.R.Civ.P. 12(b)(6). Plumbers' Local Union No. 690 Health Plan ("Local 690") and newly-added plaintiff Delaware Valley Health Care Coalition ("DVHCC") bring this action against Sanofi S.A., Sanofi U.S. Services Inc., Sanofi-Aventis U.S., LLC (collectively, "Sanofi"), Fidia Farmaceutici S.p.A. ("Fidia Italy"), Fidia Pharma USA Inc. ("Fidia USA"; together with Fidia Italy, "Fidia"), Accenture PLC(ACN) ("Accenture"), Deloitte LLP, Christopher Viehbacher, Dennis Urbaniak, Raymond Godleski, and Thomas C. Valentine. The plaintiffs claim that they or their members have been caused to pay inflated reimbursements for a Sanofi drug, Hyalgan, as a result of two fraudulent schemes. The first involves the distribution of free samples of Hyalgan, which resulted in artificially high costs; the second involves kickbacks that induced retail pharmacies to switch customers to high cost Sanofi diabetes drugs. I earlier found that the First Amended Complaint ("1AC") failed to allege facts sufficient to link those schemes to any adverse effect on Local 690 or its members. That defect persists, and there are others as well. I will therefore dismiss most of this Second Amended Complaint for lack of standing, and in the alternative for failure to state a claim.

         Like the parties, I find Constitutional standing to be a useful lens through which to view the allegations. But particularly where, as here, the standing challenge is a facial one, the distinction between a jurisdictional Rule 12(b)(1) analysis and a Rule 12(b)(6) analysis may blur. Such conundrums need not be solved definitively, because either way the analysis comes out much the same. For example, the lack of a concrete injury for purposes of Rule 12(b)(1) would, a fortiori, support a dismissal on 12(b)(6) grounds for failure to allege causation. To assist in review, however, I discuss standing under Rule 12(b)(1) in Section III, infra, and then more briefly discuss the same quasi-standing issues under Rule 12(b)(6) in Section IV, infra.

          I. BACKGROUND

         Familiarity with my prior Opinion (ECF No. 89 ("Op.")) and Order (ECF No. 90) dismissing Local 690's 1AC for failure to state a claim is assumed. (ECF No. 89 ("Op.")) Indeed, this opinion must be read in conjunction with the earlier one. Because the First and Second Amended Complaints are in most respects identical, I address here only those facts pertinent to the incremental question presented here: Do the new allegations of the 2AC remedy the deficiencies of the 1AC? I conclude that they do not, and therefore grant these renewed motions to dismiss.

          A. Facts

         Plaintiff Local 690 is a third-party payor ("TPP") that reimburses its members for the cost of prescription drugs. Its members reside in Pennsylvania, New Jersey, North Carolina, South Carolina, and Florida. (2AC ¶¶ 3, 5) Co-plaintiff DVHCC is a "coalition of union funds who negotiates prescription drug benefit contracts with pharmacy benefit managers ("PBMs") for use by its members." [Id. ¶ 6) DVHCC's constituent TPPs, which include Local 690, are located in the District of Columbia and 12 additional states, including California, Colorado, Delaware, Indiana, Kentucky, Massachusetts, Maryland, Michigan, New York, Ohio, West Virginia, and Wisconsin. (Id. ¶ 8)

         Sanofi manufactures, markets, and sells prescription pharmaceuticals. (Id. ¶¶ 11-20) Fidia owns the rights to Hyalgan, an osteoarthritis drug; until 2011, Fidia licensed the right to sell and market Hyalgan to Sanofi. (Id. ¶¶ 21-26) Three of the individual defendants- Viehbacher, Godleski, and Urbaniak-were senior Sanofi officers[1] (collectively, the "Individual Sanofi Defendants, " and together with Sanofi, "the Sanofi Defendants"). The fourth individual, Valentine, was a Sanofi sales representative and district sales manager in Orange County, California. (2AC ¶¶ 36-45)

         As it did in the 1AC, Local 690, joined now by DVHCC, alleges that Sanofi and Fidia engaged in two fraudulent practices: the "free samples scheme" and the "diabetes drug scheme." The basic mechanics of each have not changed since the 1AC, see Op. 5-9, but I provide a brief overview for context.

         The gist of the free samples scheme is that Sanofi caused plaintiffs to pay an inflated price for Hyalgan by manipulating federal health care program reimbursement rates from 2005 to 2009.[2] The scheme worked like this: A doctor would purchase Hyalgan direct from Sanofi (or Fidia, after 2011) and administer it to a patient. The doctor then billed a federal health program, such as Medicare or Medicaid, for reimbursement.[3] (2AC ¶ 94) Medicare reimbursed the doctor in an amount that was based in whole or in part on Hyalgan's average sales price ("ASP");[4] a TPP like Local 690, the patient, or both would pay the difference.[5] (Id. ¶¶ 83, 89, 95) From 2005 to 2009, Sanofi allegedly gave doctors free samples of Hyalgan as an incentive to prescribe Hyalgan instead of the drug's lower-cost competitor. (Id. ¶ 110, 113) Although Sanofi was required by law to figure those zero-cost samples into Hyalgan's ASP, it didn't; Hyalgan's ASP was therefore artificially high, (e.g., Id. ¶¶ 85, 87-88, 95, 103) Since Sanofi pegged the price of Hyalgan to its ASP, plaintiffs claim, Medicare and its co-payors paid more for the drug than they should have.[6] [Id. ¶¶ 112, 182-83)

         The 2AC alleges that the scheme operated nationwide and involved "hundreds of [] thousands" of unreported free samples of Hyalgan. From 2005 through 2009, Sanofi allegedly distributed at least 168, 000 unreported samples, each worth in excess of $70. (Id. ¶ 115, 161) The 2AC also alleges that Sanofi sales representatives entered into rebate-type arrangements (e.g., conditioning the receipt of free samples on the purchase of a certain number of Hyalgan units). These quasi-rebates involved doctors in eight states, including California, New York, Texas, Rhode Island, North Carolina, Indiana, Florida, and Georgia. (Id. ¶ 149a-k) No specific example of a Local 690 beneficiary paying an inflated price for Hyalgan is alleged; for the most part, the complaint only avers generally that Local 690 and DVHCC members reimbursed beneficiaries for Hyalgan treatments in 2005 and beyond. [E.g. ¶¶ 9, 151-53, 2AC Ex. C)

         The second fraudulent practice, the diabetes drug scheme, involved kickback arrangements between Sanofi, Deloitte, and Accenture. The object of the kickback was to induce pharmacies, such as Walgreens and Rite Aid, to switch plaintiffs' beneficiaries from competitors' diabetes drugs to those of Sanofi. From 2012 to 2013, Sanofi, through Viehbacher, Urbianiak, and Godleski, allegedly entered into three such contracts. These contracts were allegedly miscoded in Sanofi's internal project management systems to avoid legal review. (Id. ¶ 212, 216-17) In 2014, Diane Ponte, a former Sanofi paralegal, discovered nine such contracts, totaling $34 million, and filed a whistle blower suit in New Jersey state court. [Id. ¶¶ 221-22) The 2AC alleges on information and belief that two unnamed Local 690 beneficiaries' diabetes prescriptions were switched in October 2009 and June 2011, resulting in an increased cost to Local 690. [Id. ¶¶ 249-250) It is similarly "believed and therefore averred" that DVHCC and its members paid for Sanofi's expensive diabetes drugs as a result of kickback contracts, although no specific instance is identified. (Id. ¶ 251)

          B. Procedural History

         Local 690 filed the original complaint in New Jersey state court on December 18, 2014. On February 6, 2015, defendants removed the case to this Court under the Class Action Fairness Act, 28 U.S.C. 1332(d). (ECF No. l) where, and how" of the free samples scheme, and "fails to provide the necessary minimal support of its information-and-belief allegations." (Op. 16) Absent from the 1AC was any example of a "doctor's billing or mis-billing anyone (let alone billing Local 690) for a Hyalgan sample (let alone one the doctor received for free)." Also absent was any allegation of "the existence or amount of any [lower] payment that Local 690 would have made but for the alleged free sample scheme." In short, I could not discern from the 1AC "any allegedly unlawful conduct that had any effect on Local 690 and its New Jersey or Pennsylvania beneficiaries." (Id. 17)

         I found the factual allegations concerning the diabetes drug scheme similarly "skimpy." (Id. 21) Stripped of conclusory or speculative allegations, what remained of the 1AC was "a portmanteau allegation that some twelve contracts, contents unknown, broke a number of rules and laws and constituted improper kickbacks to induce Accenture and Deloitte to perform acts that may or may not have occurred, and may or may not have affected Local 690 and its members." (Id. 23) For these reasons, among others, I dismissed Local 690's claims under New Jersey's Consumer Fraud Act and Pennsylvania's Unfair Trade Practices and Consumer Protection Law, as well as its claims for disgorgement, unjust enrichment, and conspiracy. The dismissal was without prejudice, however, because "[i]f this misconduct occurred, and if it affected Local 690 and its beneficiaries . . ., it should be possible through reasonable investigation to uncover specific facts and examples of it." (Id. 3)

         On July 11, 2016, Local 690 filed the 2AC. For the most part, its allegations are cut-and-pasted from the 1AC. There are a few stylistic and structural innovations, however. Some allegations are dropped: The 2AC abandons all claims against the Genzyme Corporation, and it also drops the disgorgement claim against all defendants. On the other hand, the 2AC adds DVHCC as a plaintiff, and adds claims under three more states' consumer protection and unfair practice statutes. The 2AC also now includes allegations in which plaintiffs disclaim knowledge of what they formerly alleged as true, stating for example that "only Sanofi knows the specifics of its sampling conduct" and "only discovery will reveal such specifics to Plaintiffs." (E.g., 2AC ¶¶ 154-56)

         On September 12, 2016, defendants filed these renewed motions to dismiss the 2AC. (ECF Nos. 104, 105, 106, 107, 108) Accenture and the Sanofi Defendants move to dismiss for lack of standing and failure to state a claim. Deloitte and Fidia move to dismiss for failure to state a claim. Valentine moves to dismiss for lack of personal jurisdiction and failure to state a claim.

          C. Claims

         The alleged free samples scheme involves defendants Sanofi, Fidia, and Valentine. The alleged diabetes drug scheme involves Deloitte, Accenture, and the Sanofi Defendants (i.e., Sanofi plus Viehbacher, Urbaniak, and Godleski). The following claims, asserted against all defendants and encompassing both schemes, are common to the 1AC and 2AC:

1) violations of New Jersey's Consumer Fraud Act ("NJCFA"), N.J. Stat. Ann. § 56:8-1, et seq;
2) violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 P.3. § 201-1, et seq;[7]
3) unjust enrichment; and
4) conspiracy, concert of action, or aiding or abetting.

To these, the 2AC adds four claims:

1) violations of New York's General Business Law ("NYGBL"), § 349, et seq;
2) violations of California's Unfair Competition Law Business 8b Professions Code ("CUCL"), § 17200, et seq;
3) violations of California's Consumer Legal Remedies Act ("CLRA"), California Civil Code §§ 1750, et seq;[8] and
4) violations of Maryland's Consumer Protection Act ("MCPA"), §§ 13-101, et seq.[9]

The 2AC requests damages and unspecified injunctive relief.

          II. STANDARDS

          A. Rule 12(b)(1) Motion to Dismiss

         Section III of this Opinion analyzes the motions insofar as they seek to dismiss the complaint for lack of standing under Fed.R.Civ.P. 12(b)(1). A Rule 12(b)(1) motion, because it implicates the Court's subject matter jurisdiction, may be raised at any time. Iowana v. Ford Motor Co., 67 F.Supp.2d 424, 437-38 (D.N.J. 1999). Rule 12(b)(1) challenges may be either facial or factual attacks. See 2 Moore's Federal Practice § 12.30[4] (3d ed. 2007); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).

         A facial Rule 12(b)(1) asserts that the allegations of the complaint do not set forth sufficient grounds to establish subject matter jurisdiction. Iwanowa, 67 F.Supp.2d at 438. "In reviewing a facial attack, the court must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff." Lincoln Ben. Life Co. v. AEI Life, LLC, 800 F.3d 99, 105 (3d Cir. 2015) (citing Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000)). A facial Rule 12(b)(1) motion assumes that the allegations of the complaint are true. Cardio-Med. Assoc, Ltd. v. Crozer-Chester Med. Ctr., 721 F.2d 68, 75 (3d Cir. 1983); Iwanowa, 67 F.Supp.2d at 438. "With respect to 12(b)(1) motions in particular, '[t]he plaintiff must assert facts that affirmatively and plausibly suggest that the pleader has the right he claims (here, the right to jurisdiction), rather than facts that are merely consistent with such a right.m In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 244 (3d Cir. 2012) (quoting Stalley v. Catholic Health Initiatives, 509 F.3d 517, 521 (8th Cir. 2007)). See also Lincoln Ben. Life Co. 800 F.3d at 105 (further discussing distinctions between facial and factual attack).

          B. Rule 12(b)(6) Motion to Dismiss

         Section IV of this Opinion analyzes the motions insofar as they seek to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in part, if it fails to state a claim upon which relief can be granted. The moving party, ordinarily the defendant, bears the burden of showing that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). For purposes of a motion to dismiss, the well-pleaded factual allegations of the complaint must be taken as true, with all reasonable inferences drawn in plaintiffs favor. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) ("reasonable inferences" principle not undermined by Federal Rule of Civil Procedure 8(a) does not require that a complaint contain detailed factual allegations. Nevertheless, "a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The factual allegations must be thus sufficient to raise a plaintiffs right to relief above a speculative level. The claim, in other words, must be "plausible on its face." See Id. at 570; see also Umland v. PLANCO Fin. Servs., Inc., 542 F.3d 59, 64 (3d Cir. 2008). A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). While "[t]he plausibility standard is not akin to a 'probability requirement'... it asks for more than a sheer possibility." Iqbal, 556 U.S. at 678. All of this has been distilled by the Third Circuit in a three-step process:

To determine whether a complaint meets the pleading standard, our analysis unfolds in three steps. First, we outline the elements a plaintiff must plead to a state a claim for relief. See [Iqbal, 556 U.S.] at 675; Argueta [v. U.S. Immigration & Customs Enforcement, 643 F.3d 60, 73 (3d Cir. 2011)]. Next, we peel away those allegations that are no more than conclusions and thus not entitled to the assumption of truth. See Iqbal, 556 U.S. at 679; Argueta, 643 F.3d at 73. Finally, we look for well-pled factual allegations, assume their veracity, and then "determine whether they plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679; Argueta, 643 F.3d at 73. This last step is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.

Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012). Accord Carpenters Health and Welfare Fund of Philadelphia v. Management Resource Systems, Inc., 837 F.3d 378, 382 (3d Cir. 2016) (citing Bistrian).

          C. Rule 9(b)

         To analyze the Rule 12(b)(6) motion, I must determine whether the ordinary Rule 8(a) or the more stringent Rule 9(b) pleading standard applies to plaintiffs' state law consumer protection and unfair practice claims. With the exception of the NYGBL claim, I resolve this issue as I did in my prior Opinion: I will apply Rule 9(b) "[t]o the extent the scheme rests on falsehoods or misrepresentations-e.g., about the true price of the drugs, about the nature of the contracts, or the bona fides of the pharmacies' prescription practices;" contrariwise, I will apply Rule 8(a) "[t]o the extent the claims may be viewed in the alternative as alleging, e.g., regulatory violations or unconscionable business practices." (Op. 14)

         For claims of fraud, Federal Rule of Civil Procedure 9(b) imposes a heightened pleading requirement, over and above that of Rule 8(a). Specifically, it requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). "Malice, intent, knowledge, and other conditions of a person's mind, " however, "may be alleged generally." Id. That heightened pleading standard requires the plaintiff to "state the circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of the precise misconduct with which it is charged." Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007) (internal quotation and citation omitted).

         In general, "[t]o satisfy this heightened standard, the plaintiff must plead or allege the date, time, and place of the alleged fraud or otherwise inject precision or some measure of substantiation into a fraud allegation." Id. "Plaintiff must also allege who made the misrepresentation to whom and the general content of the misrepresentation." hum v. Bank of Am., 361 F.3d 217, 224 (3d Cir. 2004) (internal citation omitted); In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 276-77 (3d Cir. 2006) ("Rule 9(b) requires, at a 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.") (internal quotation and citation omitted)).

         While the plaintiff must provide allegations sufficient to provide defendants "notice of the 'precise misconduct' with which defendants are charged, " Rule 9(b) does not "require plaintiffs to plead issues that may have been concealed by the defendants." Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 658 (3d Cir. 1998) (quoting Seville Indus. Machinery v. Southmost Machinery, 742 F.2d 786, 791 (3d Cir. 1984) and citing Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d 96, 99 (3d Cir. 1983)). The particularity requirement, for example, can be relaxed in cases of corporate fraud because plaintiffs cannot be expected to have personal knowledge of the details of corporate internal affairs. Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989). Even so, a plaintiff must still allege that facts based on information and belief are in the exclusive control of a defendant and "must accompany such an allegation with a statement of facts upon which their allegation is based." Shapiro v. UJB Fin. Corp., 946 F.2d 272, 285 (3d Cir. 1992); see also Zavala v. Wal-Mart Stores, Inc. 393 F.Supp.2d 295, 314 (D.N.J. 2005), affd sub nom. Zavala v. Wal-Mart Stores, Inc., 691 F.3d 257 (3d Cir. 2012). In other words:

A complaint must delineate at least the nature and scope of plaintiffs' effort to obtain, before filing the complaint, the information needed to plead with particularity. This requirement is intended to ensure that plaintiffs thoroughly investigate all possible sources of information, including but not limited to all publicly available relevant information, before filing a complaint.

Shaprio, 964F.2d at 285.

         The state consumer protection and unfair practice statutes under which plaintiffs sue encompass fraud, but also a range of other unconscionable or deceptive business practices. As this issue relates to the NJCFA[10] and UTPCPL, [11] I have already ruled: Rule 9(b) applies to the extent each such claim "rests on falsehood or misrepresentations"; Rule 8(a) applies to the extent it rests on "regulatory violations or unconscionable business practices." (Op. 14) (citing Smajlaj, 782 F.Supp. at 98 n.9; Belmont, 708 F.3d at 498 n.33)) Plaintiffs offer no reason to adopt any different approach with respect to the MCPA, [12] CUCL, and CLRA claims.[13] "I will therefore, in the course of the analysis, advert to both" the Rule 8 and 9 standards. (Op. 14)

         I will, however, apply the ordinary pleading standard to plaintiffs' NYGBL claims. "Section 349 [of the NYGBL] extends Veil beyond common law fraud to cover a broad range of deceptive practices, ' and as such, claims under § 349 are not subject to the heightened pleading standard of Fed.R.Civ.P. 9(b)." Argabright v. Rheem Mgf. Co.,201 F.Supp.3d 578, 607 (D.N.J. 2016) (quoting Pelman ex rel. Pelman v. McDonald's Corp., 396 F.3d 508, 511 (2d Cir. 2005)); see also City of New York v. Smokes-Spirits.com, Inc.,541 F.3d 425, 455 (2d Cir. 2008) ("[A]n action under § 349 is not subject to the pleading-with-particularity requirements of Rule 9(b), Fed. R. Civ. P., but need only meet the bare-bones notice-pleading requirements of Rule 8(a).") (quoting P ...


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