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United States ex rel. Lisitza v. Par Pharm. Cos., Inc.

United States District Court, N.D. Illinois, Eastern Division

July 31, 2014

UNITED STATES ex rel. BERNARD LISITZA, et al., Plaintiffs,

Page 744

For United States of America ex rel., Plaintiff: Linda A. Wawzenski, LEAD ATTORNEY, United States Attorney's Office (NDIL), Chicago, IL.

For State of Indiana ex rel., Plaintiff: Kristen M Kemp, PRO HAC VICE, Office Of The Indiana Attorney General, Indianapolis, IN; Roberta Hirsch, PRO HAC VICE, Office Of The Indiana Attorney General, Hobart, IN.

For State of Michigan ex rel., Plaintiff: Linda A. Wawzenski, LEAD ATTORNEY, United States Attorney's Office (NDIL), Chicago, IL; Elizabeth Valentine, PRO HAC VICE, Assistant Attorney General for the State of Michigan, East Lansing, MI; Susan I Hellerman, PRO HAC VICE, State Of Mi-office Of The Attorney General-health Care Fraud, East Lansing, MI.

For State of Texas ex rel., Plaintiff: Richard E. Salisbury, PRO HAC VICE, Office Of The Attorney General Of Texas, Austin, TX.

For Bernard Lisitza, (ex rel), individually, Plaintiff: Michael I Behn, LEAD ATTORNEY, Daniel R. Hergott, Linda Wyetzner, William W Thomas, Behn & Wyetzner, Chartered, Evanston, IL; David Joel Chizewer, Meredith S. Kirshenbaum, Roger Andrew Lewis, Goldberg Kohn Ltd., Chicago, IL.

For PAR Pharmaceutical Companies, Inc., Defendant: John C. Ellis, LEAD ATTORNEY, Richar J. Prendergast, Ltd., Chicago, IL; Michael Thomas Layden, Richard J. Prendergast, LEAD ATTORNEYS, Richard J. Prendergast, Ltd., Chicago, IL; Adam G Yoffie, Benjamin Eric Vaughn, David Keith Clouser, Jennifer Sasso, Jennifer G Wicht, Julianne C. Johnston, Katherine Carney Hayes, Marcus Powell Smith, Paul K Dueffert, PRO HAC VICE, Williams & Connolly LLP, Washington, DC; Rick C Shea, Swanson, Martin & Bell, Chicago, IL.

For Walgreen Co., Respondent: Robert M. Andalman, LEAD ATTORNEY, Loeb & Loeb LLP, Chicago, IL.

Page 745


John J. Tharp, Jr., United States District Judge.

This case involves an alleged prescription-switching scheme in which defendant Par Pharmaceutical Companies allegedly caused pharmacies to submit false claims to avoid Medicaid reimbursement caps, resulting in overpayment by the federal and various state governments.[1] The claims are brought as a qui tam action under the federal False Claims Act, 31 U.S.C. § 3729 et seq. (" FCA" ), and parallel state statutes, by the relator Bernard Lisitza, various states,[2] and the federal government, which has intervened with respect to Par. The alleged false claims consist of the pharmacies' certifications, as a condition of Medicaid reimbursement, that they complied with all applicable federal and state laws when in fact they had illegally substituted the form ( e.g. capsule or tablet) or dosage of certain drugs, not for a medically necessary reason but in order to avoid the reimbursement caps and in violation of regulations requiring cost efficiency and prohibiting drug substitutions.

According to Par, the parties have gone down--or should have gone down--this same road in a prior qui tam action that covered Par's marketing of the same drugs during the same time period, sought the same damages, and pertained to the very same claims for Medicaid reimbursement.

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Par therefore pleaded the affirmative defense of res judicata. The plaintiffs now move for judgment on the pleadings as to that defense; Par cross-moves for summary judgment. The issues have been fully briefed, and for the reasons set forth below, the plaintiffs' motion is granted and Par's motion is denied.


The prior case (against Par [3]) began in 2005, when a Florida-based pharmacy, in its capacity as relator, sued Par and several other generic drug manufacturers under the FCA in the District Court for the District of Massachusetts. See United States ex rel. Ven-A-Care of the Fla. Keys v. Actavis Mid Atlantic, LLC et al., No. 08 CV 10852. The complaint was further amended and unsealed on May 21, 2008. The Ven-A-Care plaintiffs alleged that Par manipulated and falsely reported three pricing benchmarks--Average Wholesale Price, Wholesale Acquisition Cost, and Direct Price--in order to cause the Medicaid Program to set higher reimbursement amounts for its drugs than would have been assigned if Par had published accurate benchmarks. Because the affected Par drugs were reimbursed at an artificially inflated rate, Par was able to market its products to pharmacy customers based upon the increased profit potential compared to other manufacturers' drugs. Among the Par drugs implicated in the Ven-A-Care lawsuit were its 150 mg and 300 mg ranitidine (heartburn medication) capsules and its 10mg and 20mg fluoxetine (an antidepressant) tablets. This case pertains to those same four products plus Par's 7.5 mg tablets of buspirone, an anti-anxiety drug.

The Ven-A-Care case against Par was a sliver of a much larger multidistrict litigation, MDL No. 1456, entitled In Re Pharmaceutical Industry Average Wholesale Price Litigation, and consolidated under Case No. 01 C 12257 in the District of Massachusetts. Multiple actions by Ven-A-Care were further subcategorized as In Re Ven-A-Care Cases, No. 06 CV 11337. The Judicial Panel on Multidistrict Litigation created the AWP MDL after concluding that the cases involved " common questions of fact concerning whether (either singly or as part of a conspiracy) the pharmaceutical defendants engaged in fraudulent marketing, sales and/or billing schemes by unlawfully inflating the average wholesale price of their Medicare covered prescription drugs in order to increase the sales of these drugs to health care professionals and thereby boost the pharmaceutical companies' profits."

Ultimately, Par reached a settlement with the Ven-A-Care plaintiffs, which led to the dismissal of the claims against Par on August 26, 2011. The settlement covered everything except the State of Illinois' claims for overpayment of Medicaid program reimbursements; accordingly, the dismissal was without prejudice to those claims and with prejudice as to all the others. By its terms, the settlement agreement was between the relator, Ven-A-Care, four individual plaintiffs, the " Settling States" of Texas, Florida, Kentucky, Alaska, and South Carolina, and Par. According to the agreement's express terms, " The United States is not a party," although the agreement was conditioned upon the United States' consent to the dismissal of the claims against Par. See

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Settlement Agreement (" SA" ), Dkt. # 205 Tab 3 at 1.

The settlement agreement defines as " the Federal Qui Tam Proceedings" the Ven-A-Care case initiated by the original complaint of April 10, 2000, and thereafter amended three times and unsealed. SA ¶ B. The " Federal Covered Conduct" is defined as the allegations in the complaint that: " [B]etween January 1, 1991 and the Effective Date of this Agreement, Par knowingly set, reported and/or maintained, or caused to be set, reported and/or maintained, false, fraudulent and/or inflated prices for certain of the Covered Drugs, including prices reported to, or published by, price publishing services (" Reported Prices" ) used by State Medicaid Programs to establish reimbursement rates, and that Par submitted, or caused to be submitted, false claims to the State Medicaid Programs based on the Reported Prices." SA ¶ J. Par denied any wrongdoing in connection with the Federal Covered Conduct as well as the Covered Conduct alleged by each respective Settling State. SA ¶ P. As relevant here, the Settlement Agreement was " intended to fully and finally resolve any and all claims against, and the liability of Par, arising under the Federal Qui Tam Proceedings, for the Federal Covered Conduct, except for claims for the Illinois Federal Share and Illinois State Share with respect to the Covered Drugs." SA ¶ S. By the terms of the Settlement Agreement, Par would pay $154 million in exchange for dismissal of the federal and related state proceedings and a release. See generally SA ¶ ¶ 1-12.

The settlement agreement contained releases by each of the Settling States and, as relevant here, the relator and the individual plaintiffs. The terms of the release ...

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