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United States v. Ukranian Village Pharmacy, Inc.

United States District Court, Seventh Circuit

November 7, 2013

UNITED STATES OF AMERICA; STATES OF ILLINOIS and GEORGIA; and the COMMONWEALTH OF MASSACHUSETTS, ex rel YURY GRENADYOR, Plaintiffs,
v.
UKRANIAN VILLAGE PHARMACY, INC.; BUCKHEAD PHARMACY, INC.; MEI SERVICES, INC.; STORCHAK, PHARMACY, LLC; GLOBAL PHARMALIFE, LLC; BUCKHEAD PHARMACEUTICAL ASSOCIATION, INC.; PHARMALIFE MASSACHUSETTS, INC.; MIKHAIL BOGACHEK a/k/a MICHAEL BOGACHEK; EDUARD BOGACHEK a/k/a EDWARD BOGACHEK; VLADAMIR STORCHAK; SEMEN DINKEVICH; SVITLANA KHARLAMOVA; VASILY SHEVCHUK; and JOHN DOES 1-100, Defendants.

AMENDED MEMORANDUM OPINION AND ORDER

HARRY D. LEINENWEBER, District Judge.

Before the Court are multiple Motions to Dismiss filed by Defendants. For the reasons stated herein, these Motions are granted, and the Third Amended Complaint is dismissed with prejudice.

I. BACKGROUND

The Court presumes familiarity with its September 5, 2012 Order granting Defendants' Motions to Dismiss Relator Yury Grenadyor's (the "Relator") Second Amended Complaint. See, ECF No. 267. As many of the allegations in the new Complaint are the same as in its predecessor, the Court will provide only a brief summary of the allegations before discussing some that differ from the earlier Complaint.

Relator worked as a pharmacist at Defendant Ukrainian Village Pharmacy ("UVP") in Chicago, Illinois from April 2006 to October 2008. He dispensed prescription medication to customers and billed government healthcare programs, including Medicaid and Medicare, for those prescriptions. Relator claims that while he was employed at UVP, he learned that Defendants violated the federal Anti-Kickback Statute (the "AKS"), 42 U.S.C. § 1320a-7b(b)(2)(B), and the False Claims Act (the "FCA"), 31 U.S.C. §§ 3729-3733, through a scheme to defraud that involved providing inducements to customers (such as expensive food or waived co-payments) and billing the government for medicine that was never provided to the intended recipient.

UVP is a privately-held corporation owned jointly by Defendants Mikhail Bogachek ("M. Bogachek"), his uncle Semen Dinkevich ("Dinkevich"), Svitlana Kharlamova ("Kharlamova") and Vasily Shevchuk ("Shevchuk"). The other corporate Defendants are pharmacies or entities that Relator claims are involved with purchasing pharmaceuticals for the pharmacy Defendants. Unlike in his previous Complaints, Relator makes it clear that there is no direct parent/subsidiary relationship between UVP and the other corporate Defendants.

Despite this lack of corporate relationship, Relator reasserts his allegations that Eduard Bogachek and Mikhail Bogachek (collectively, "the Bogacheks") are the architects of the alleged scheme to defraud the government. As in his previous Complaint, Relator alleges that the Bogacheks control all of the corporate Defendants through threats and intimidation, as well as through control of each pharmacy's inventory purchasing. So thoroughly do the Bogacheks control the corporate Defendants that Relator claims that each is an alter ego of the Bogacheks and thus, the corporate Defendants are liable for the Bogacheks' acts and vice-versa.

Relator filed this qui tam action on December 21, 2009. He submitted this action to the United States and the State of Illinois for review around that time, and both declined to intervene. Since then, Relator's Complaint has gone through several iterations. Relator has dropped voluntarily a number of Defendants, and causes of action, as the case has progressed.

The Court dismissed Relator's Second Amended Complaint on September 5, 2012 after the Defendants moved to dismiss, as that Complaint suffered from a number of deficiencies. ECF No. 267. Among other shortcomings, the Court found that the Second Amended Complaint: (1) failed to allege that UVP or its agents certified in writing, prior to billing Medicaid or Medicare, that it would abide by the AKS; (2) failed to plead the alleged fraud with particularity; and (3) failed to allege clearly the relationship of UVP to the other Defendants. Id. at 2, 5, 13-15, 17-19. The Court made it clear to Relator that repeated failure to cure pleading deficiencies was grounds to deny amendment, and that he should be diligent about addressing such issues. Id. at 21.

Relator, to his credit, has narrowed his Third Amended Complaint by dropping several categories of claims, such as his retaliation claims and conspiracy allegations. Indeed, Relator even dropped some claims in his opposition brief. Relator also attempted to supplement his allegations regarding the Bogacheks' control over the corporate Defendants.

Generally, Relator's alleged fraudulent scheme is comprised of two types of unlawful conduct. As in the previous Complaint, Relator alleges that Defendants provided kickbacks to patients. These alleged kickbacks took two forms: (1) gifts of gourmet food and medicine to patients and (2) waiver of patients' required co-payments. The second component of the alleged scheme involves Defendants submitting claims for medication that never reached the intended recipients. As they did with the Second Amended Complaint, Defendants filed a number of Motions to Dismiss contesting the sufficiency of Relator's allegations on a variety of grounds.

II. LEGAL STANDARD

For purposes of a Motion to Dismiss under Rule 12(b)(6), the Court accepts as true all well-pleaded facts in the complaint and draws all inferences in a plaintiff's favor. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th Cir. 2011). A plaintiff need not allege "detailed factual allegations, " but must offer more than conclusions or "a formulaic recitation of the elements of the cause of action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

However, the False Claims Act is an anti-fraud statute, and as such, claims made pursuant to the act are held to the higher pleading standard of Federal Rule of Civil Procedure 9(b). United States ex. rel Kennedy v. Aventis Pharms., Inc., 610 F.Supp.2d 938, 941 (N.D. Ill. 2009). Rule 9(b) requires a party to state with particularity the circumstances constituting fraud. Id. Thus, a plaintiff must plead the "who, what, where, when and how" of the alleged fraud. Id. Heightened pleading is also required for state law fraud claims brought in federal court. Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 470 (7th Cir. 1999). A plaintiff who pleads a fraudulent scheme involving numerous transactions over a period of years need not plead specifics with respect to every instance of fraud, but he must at least provide representative examples. Mason v. Medline Indus., 731 F.Supp.2d 730, 735 (N.D. Ill. 2010).

III. ANALYSIS

A. FCA Claims ...


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