NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 14-1029
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UNITED STATES OF AMERICA; STATE OF CALIFORNIA;
STATE OF DELAWARE; STATE OF FLORIDA; STATE OF GEORGIA;
STATE OF HAWAII; STATE OF ILLINOIS; STATE OF INDIANA;
STATE OF LOUISIANA; COMMONWEALTH OF MASSACHUSETTS;
STATE OF MICHIGAN; STATE OF MONTANA; STATE OF NEVADA;
STATE OF NEW HAMPSHIRE; STATE OF NEW MEXICO; STATE OF NEW
YORK; STATE OF OKLAHOMA; STATE OF RHODE ISLAND;
STATE OF TENNESSEE; STATE OF TEXAS; COMMONWEALTH OF VIRGINIA;
STATE OF WISCONSIN; DISTRICT OF COLUMBIA; EX REL. DAVID MORGAN
v.
EXPRESS SCRIPTS, INC; CVS CAREMARK CORPORATION;
MEDCO HEALTH SOLUTIONS, INC; FIRST DATABANK INC;
*CLINICAL DRUG INFORMATION LLC; MCKESSON CORPORATION;
CARDINAL HEALTH, INC.; AMERISOURCEBERGEN CORPORATION;
JOHN DOE CORPORATIONS 1-20
David Morgan,
Appellant
* Amended as per the Clerk’s 02/19/14 Order
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Appeal from the United States District Court
for the District of New Jersey
(D. C. No. 2-05-cv-01714)
District Judge: Honorable Dennis M. Cavanaugh
________________
Argued November 21, 2014
Before: AMBRO, SCRICA and ROTH, Circuit Judges
(Opinion filed February 20, 2015)
William L. Hurlock, Esq.
Mueller Law
363 Bloomfield Avenue
Suite 2C
Montclair, NJ 07042
Robert A. Magnanini, Esquire (Argued)
David S. Stone, Esq
Stone & Magnanini
150 John F. Kennedy Parkway
4th Floor
Short Hill, NJ 07078
Counsel for Appellant
Enu Mainigi, Esq. (Argued)
Kannon K. Shanmugam, Esq.
Craig D. Singer, Esq.
Jennifer G. Wicht, Esq.
Williams & Connolly
725 12th Street, N.W.
Washington, DC 20005
Counsel for Appellees Express Scripts, Inc. and
Medco Health Solutions, Inc.
Jonathan R. Donnellan, Esq. (Argued)
Eva M. Saketkoo, Esq.
Hearst Corporation
300 West 57th Street
New York, NY 10019
Counsel for Appellee First Databank, Inc.
Allyson N. Ho, Esq
Morgan, Lewis & Bockius
1717 Main Street
Suite 3200
2
Dallas, TX 75201
Meredith S. Auten, Esq.
Marie E. Donovan, Esq.
John P. Lavelle, Jr., Esq.
Jane M. Manchisi, Esq.
Eric W. Sitarchuk, Esq. (Argued)
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellee Americourcebergen
John A. Boyle, Esq.
Kevin H. Marino, Esq. (Argued)
Marino, Tortorella & Boyle
437 Southern Bulevard
Chatham, NJ 07928
Counsel for Appellee CVS Caremark Corp
Matt D. Basil, Esq.
Craig C. Martin, Esq. (Argued)
Jenner & Block
353 North Clark Street
Chicago, IL 60654
Counsel for Appellee Clinical Drug Information LLC
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OPINION*
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ROTH, Circuit Judge
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
3
David Morgan, proceeding as a qui tam relator, appeals the District Court’s
dismissal of his claims under the False Claims Act1 and corresponding state laws. The
District Court dismissed the claims, under Federal Rule of Civil Procedure 12(b)(1), for
lack of subject matter jurisdiction since they were based on publicly disclosed allegations
whose “original source” was not Morgan. We will affirm.2
Morgan was not the “original source” of his allegations that various
pharmaceutical industry defendants profited from artificially inflated Average Wholesale
Prices (AWPs) for brand-name drugs, as he had no “direct and independent knowledge of
the information on which the allegations are based.”3 In fact, Morgan was further
removed from the alleged unlawful conduct than the relator in United States ex rel.
Schumann v. Astrazeneca Pharm. L.P.,4 who was the vice president of a purported co-
conspirator.
Morgan was never employed by any of the entities that allegedly profited from the
conspiracy. Morgan is a pharmacist who says he discovered the widespread price
inflation of brand-name drugs “[t]hrough his diligence,” which amounted to an eyeball
comparison of two publicly available price listings. After noticing the pricing
discrepancy, Morgan says he became aware, while conducting an audit, of
communications between wholesaler First Databank, Inc., and price listing publisher
1
31 U.S.C. § 3729 et seq.
2
We have jurisdiction to consider Morgan’s appeal under 28 U.S.C. § 1291.
3
31 U.S.C. § 3730(e)(4)(B) (2006) (amended 2010, without retroactive effect); see 31
U.S.C. § 3730(e)(4)(A) (divesting federal courts of jurisdiction over FCA claims based
on publicly disclosed allegations “unless . . . the person bringing the action is an original
source of the information”).
4
769 F.3d 837, 842 (3d Cir. 2014).
4
AmerisourceBergen Corp., which indicated that First Databank knew of the price
differential. As the District Court correctly pointed out, Morgan’s Third Amended
Complaint “does not demonstrate that Morgan had any direct knowledge of any alleged
wrongdoing” as to the myriad other defendants.
We held in Schumann that “knowledge of a scheme is not direct when it is gained
by reviewing files.”5 Yet that was the full extent of Morgan’s “diligence.” Moreover,
Morgan’s knowledge of the pharmaceutical industry does not make him an original
source.6 Albeit informed by his years of experience, Morgan’s assessment of publicly
available information and allegedly conspiratorial communications to which Morgan was
not a party is not sufficient to demonstrate the “direct and independent knowledge”
required under the FCA’s original source exception.7
The District Court lacked subject matter jurisdiction because Morgan’s allegations
were “based upon the public disclosure of allegations” in the news media, other civil
proceedings, and a Congressional report.8 Applying our “twofold analysis,” we first note
that the allegations that pharmacy benefit managers, including Express Scripts, Inc., and
MedCo Health Solutions, Inc., profited from inflated AWPs and secret spread pricing
5
Id. at 847.
6
See id. (quoting United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 240
(3d Cir. 2013)).
7
See 31 U.S.C. § 3730(e)(4)(B).
8
See 31 U.S.C. § 3730(e)(4)(A).
5
“was disclosed via [multiple] sources listed in § 3730(e)(4)(A).” 9 Second, we may
deduce that Morgan’s allegations are “based on” the public disclosures predating his
complaint even without resort to algebraic representation,10 because Morgan forwarded
one such news article to a colleague with the caption, “Gotta love this!!” While public
disclosures “need only be ‘supported by’ or ‘substantially similar to’ the disclosed
allegations” to bar suit under the FCA,11 here Morgan demonstrated actual familiarity
with disclosures that describe substantially the same price-related misconduct identified
in the complaint.
Morgan’s central allegation—that the pharmacy benefit manager defendants knew
First Databank fraudulently inflated their profits but nonetheless chose First Databank as
their exclusive pricing source—also echoes allegations from previously filed lawsuits,
9
See United States ex rel. Atkinson v. PA. Shipbuilding Co., 473 F.3d 506, 519 (3d Cir.
2007). News media disclosures included a March 31, 2003, Wall Street Journal article
entitled “Pharmacy-Benefit Firms Profit on Generic Drugs,” that paraphrased a
pharmaceutical benefit manager pricing expert’s observation, “it’s an open secret in the
industry that AWPs often are severely inflated” and that “industry veterans joke that
AWP ought to stand for ‘Ain’t What’s Paid.’” J.A. at 568-72. The Journal article also
noted that pharmacy benefit firms were “trying to take advantage of the ‘spread’ between
pharmacy prices and what corporate and government clients pay. Express Scripts says
most of its contracts now include spread pricing.” J.A. at 570. See also, e.g., William
Sherman, Rx Ripoffs Hard to Swallow: State Probing Drug Pricing and Sales Tactics,
N.Y. Daily News (July 27, 2003), J.A. at 1030-34; Pharmacy Benefit Managers Charged
with Inflating, PR Newswire (Mar. 18, 2003), J.A. at 1036-40.
10
See United States ex rel. Dunleavy v. Cnty. of Del., 123 F.3d 734, 741 (3d Cir. 1997)
(quoting United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 654
(D.C. Cir. 1994)).
11
Atkinson, 473 F.3d at 519.
6
including one where Morgan served as a paid expert.12 The mere fact that Morgan
quantified the AWP differential does not remove his allegations from the public
disclosure realm. Morgan’s 4.16% differential simply indicates an AWP based on a 25%
markup over wholesale acquisition cost, a markup disclosed in a Congressional report
predating Morgan’s complaint.13 The report’s disclosure of a specific, industry-wide
markup shift provided Morgan with all the “essential elements” needed to arrive at a
4.16% price differential.14 Since Morgan was not the original source of the allegations
contained in his complaint, the public disclosure bar precludes his FCA claims.
For the foregoing reasons, we will affirm the District Court’s order granting the
defendants’ motion to dismiss Morgan’s FCA and corresponding state law claims.15
12
See, e.g., Compl., Brown v. Express Scripts, Inc., No. 3:04-cv-01822-AWT (D. Conn.
filed Oct. 28, 2004) (alleging Express Scripts “pockets the difference between the actual
cost of the prescription paid to the pharmacy and the higher (inflated) price charged to the
Fund,” thereby benefiting from a “secret differential or ‘spread’”); Second Am. Compl.,
Fidelity Ins. Co. v. Express Scripts, Inc., No. 4:03-CV-1521-SNL (E.D. Mo. filed Aug.
16, 2004).
13
See Medicaid Prescription Drug Reimbursement: Why the Government Pays Too
Much, Hearings before Subcomm. on Oversight and Investigations, H.R. Comm. on
Energy and Commerce, 108th Cong. 12, 13-71 (2004).
14
See Dunleavy, 123 F.3d at 741. As the District Court noted, “the percentage difference
between an AWP based on a 20% markup,” the previous industry norm, “and one based
on a 25% markup will always be 4.16%.”
15
We will also affirm the District Court’s order granting the defendants’ motion to
dismiss Morgan’s allegations of “other pricing schemes,” including “duplicate billing,”
“refilling violations,” and “overbilling for professional fees,” since Morgan fails to state
those claims “with particularity,” as required under Rule 9(b).
7