United States District Court, C.D. Illinois, Springfield Division
UNITED STATES OF AMERICA, and THE STATES OF CALIFORNIA, COLORADO, DELAWARE, HAWAII, ILLINOIS, MONTANA, NEVADA, NEW JERSEY, NEW MEXICO, VIRGINIA, and the DISTRICT OF COLUMBIA, ex rel. THOMAS PROCTOR, Plaintiffs and Relator,
SAFEWAY, INC., Defendant.
RICHARD MILLS, U.S. District Judge:
a qui tam action.
Relator alleges that Defendant Safeway, Inc. and all
pharmacies under its operation and control knowingly
perpetrated a false “usual and customary” pricing
fraud scheme against government health programs as company
policy to increase profits.
Plaintiffs and Relator assert violations of the Federal False
Claims Act (“FCA”), 31 U.S.C. §§ 3729
et seq., and related acts under the applicable state
is Safeway's Motion to Dismiss.
an action for damages and civil penalties on behalf of the
United States of America and the Plaintiff States by the
Relator against Defendant Safeway, Inc., arising from
Safeway's alleged fraudulent pricing scheme perpetrated
in its pharmacies nationwide against government health
to the Complaint, Relator Thomas Proctor is a resident of the
State of Texas. The Relator holds a BS in Pharmacy and
Masters in Healthcare Administration and is a licensed
pharmacist in the States of Texas, Oklahoma, Arkansas,
Louisiana, Kentucky, Virginia, Arizona and Nebraska. The
Relator has knowledge of, and experience in, the retail
pharmacy industry through his many years of working as a
is one of the largest food and drug retailers in the United
States. At the time of the events in this case, Safeway
operated under the trade name Safeway or through various
Safeway-affiliated store banners across the United States
including but not limited to: Vons, Pavilions,
Dominick's, Genuardi's, Randalls, Tom Thumb,
Pak'n'Save Foods and Carrs Quality Centers. In
Illinois, for example, Safeway operated under the
Dominick's banner. The Relator alleges that the policies,
practices and procedures for all of the pharmacies are
centrally managed and controlled by the national
administration and upper corporate management.
the Defendant's stores include a pharmacy department. At
the end of 2013, the Defendant operated 1041 pharmacies
across 20 states and the District of Columbia. The Relator
was employed as a pharmacist at Safeway's Tom Thumb #3625
in Grapevine, Texas between June and October of 2011.
Relator alleges Safeway violated the FCA and caused its
subsidiaries to violate the FCA by routinely charging
government health programs more than the general public for
the same drugs. The scheme was conceived and directed by
Safeway to fraudulently report inflated prices for
prescription drugs sold to government health plan
beneficiaries. Safeway knowingly failed to report its actual
low drug prices in order to obtain higher reimbursements from
government health programs than Safeway was legally and
contractually entitled to receive.
Relator alleges that Safeway's fraud scheme was carried
out nationwide at its affiliated pharmacies which are located
in multiple states and jurisdictions, several of which are
Plaintiffs in this case. The scheme began in or around 2007
and continues to the present. The Relator asserts Safeway
administered the scheme in a uniform and consistent manner
across the country through centralized policies and
pharmaceutical pricing, using interconnected pharmacy and
claims-processing computer systems shared by its
Relator further contends that through this usual and
customary pricing fraud scheme, Safeway submitted false
claims and caused its subsidiaries and third parties to
submit false claims in violation of the Federal False Claims
Act, 31 U.S.C. § 3729 et seq., as amended
(Count I). Moreover, Safeway's conduct violated the
analogous false claims acts and health care fraud remedial
statutes of the ten Plaintiff States and the District of
Columbia (Counts II - XII). Like the FCA, the state statutes
impose liability for defined conduct in the nature of fraud,
for the submission of false claims, the use of false records
and documents and the failure to disclose material
information in presenting claims to each respective
sovereign's Medicaid programs.
Relator asserts that Safeway has knowingly submitted or
caused to be submitted fraudulent, inflated pricing
information on tens of thousands of prescription drug
reimbursement claims to government health plans, including
Medicare, Medicaid, TRICARE, the Federal Employees Health
Care Benefits Program (“FEHBP”) and other federal
health care programs for the purpose of unlawfully obtaining
reimbursement payments higher than those authorized by law.
Relator alleges venue is appropriate in this district
pursuant to 31 U.S.C. § 3732(a) because the Defendant
committed acts proscribed by 31 U.S.C. § 3729 in this
judicial district. The material events pled here include
Safeway causing the submission of false Illinois Medicaid
claims, which are processed in this judicial district in
amended complaint states that the Relator believes there has
been no prior public disclosure of the allegations and
transactions on which the action is based. If the Court
determined otherwise and the question arises, however, the
Relator is an original source of the information on which the
allegations and transactions in the Complaint are based,
pursuant to 31 U.S.C. § 3730(e)(4)(B).
federal and state government health programs at issue,
including Medicare, Medicaid, TRICARE and the FEHBP, among
others, offer pharmaceutical benefits to their respective
beneficiaries. These programs do not buy drugs. Instead, they
reimburse providers who dispense covered drugs to program
Relator alleges the reimbursement methodologies for different
government health programs are functionally equivalent. The
amended complaint generically refers to the usual and
customary fraud scheme, which encompasses pricing fraud
affecting Medicaid, TRICARE, FEHBP and Medicare. The Relator
asserts truthful determination and reporting of the usual and
customary or negotiated price by the pharmacy provider is a
material component of the government health program's
payment calculation. When a dispensing pharmacy knowingly
charges above the usual and customary or negotiated price to
government health plan beneficiaries, the reported pricing
information is fraudulent since the lower usual and customary
or negotiated prices were not provided to the government
health plans. That is the gravamen of the Relator's
Defendant contends the amended complaint suffers from a
number of deficiencies and, therefore, must be dismissed.
lengthy investigation, the federal government declined to
intervene in this case. When the United States declines to
intervene in a qui tam FCA suit, the relator may
pursue the case on his own, though the action is still
technically on behalf of the United States. See Thulin v.
Shopko Stores Operating Co., 771 F.3d 994, 998 (7th Cir.
2014) (citing 31 U.S.C. § 3730(c)(3)).
United States also advised that the States of Maryland and
Colorado decline to intervene. Accordingly, all claims
asserted on behalf of Maryland and Colorado have been
dismissed with prejudice.
first contends the amended complaint must be dismissed
because venue is improper in this district and service of
process is flawed.
applicable statute provides:
Any action under section 3730 may be brought in any judicial
district in which the defendant or, in the case of multiple
defendants, any one defendant can be found, resides,
transacts business, or in which any act proscribed by section
3729 occurred. A summons as required by the Federal Rules of
Civil Procedure shall be issued by the appropriate district
court and served at any place within or outside the United
31 U.S.C. § 3732(a). Safeway does not transact business
in this judicial district and has never done so. Neither
Safeway nor any of its subsidiaries has ever operated a
Safeway store in this judicial district. Although Safeway
once operated 72 Dominick's stores under its banner, all
of those stores were located in the Northern District of
Illinois. Because Safeway is not found and does not reside or
transact business in the Central District of Illinois, venue
would be improper under the first part of § 3732(a).
question thus is whether this judicial district is one
“in which any act proscribed by section 3729
occurred.” The Relator alleges Safeway's scheme to
defraud government health programs was carried out at 72
Dominick's stores in Illinois. The Relator also asserts
Dominick's pharmacies submitted Illinois Medicaid claims.
Paragraph 33 of the amended complaint provides that false
claims for payment submitted by the Dominick's stores to
Illinois Medicaid are sent to and processed in Springfield,
Illinois. An individual who “knowingly presents, or
causes to be presented, a false or fraudulent claim for
payment” is liable under the FCA. 31 U.S.C. §
the allegations in the amended complaint, the Relator has
sufficiently asserted that Safeway violated the FCA by
causing false claims to be submitted in this district. Based
on the plain language of § 3729, that is enough under
the venue provision. This Court recently held that the
Central District of Illinois was an appropriate forum for FCA
actions under similar circumstances. See U.S. ex rel.
Dismissed Relator v. Wilder, No. 11-cv-3286, 2012 WL
2503098, at *2 (C.D. Ill. June 28, 2012) (noting that the
material events included the processing of allegedly false
Medicaid claims in Springfield, Illinois, thus making the
Central District a more convenient (and necessarily proper)
forum.). Safeway has cited no controlling authority which
holds that causing the submission of false claims in this
district is insufficient to establish venue.
the Court will deny the motion to dismiss for improper venue.
Because the motion to dismiss for insufficient summons and
insufficient service of process is based on the alleged lack
of venue, the motion will be denied to that extent as well.
Failure to state a claim
reviewing a motion to dismiss, the Court generally accepts
the truth of the factual allegations of the complaint.
Vinson v. Vermilion County, Illinois, 776 F.3d 924,
925 (7th Cir. 2015). In order to avoid dismissal under Rule
12(b)(6), “the complaint must state a claim that is
plausible on its face.” Id. at 928.
the FCA is an anti-fraud statute, however, the “claims
under it are subject to the heightened pleading requirements
of Rule 9(b).” United States ex rel. v. AIDS
Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir.
2005). Therefore, “a party must state with
particularity the circumstances constituting fraud.”
Fed.R.Civ.P. 9(b). “The requirement of pleading fraud
with particularity includes pleading facts that make the
allegation of fraud plausible.” U.S. ex rel.
Grenadyor v. Ukranian Village Pharmacy, Inc., 772 F.3d
1102, 1106 (7th Cir. 2014). “The complaint must state
the identity of the person making the misrepresentation, the
time, place and content of the misrepresentation, and the
method by which the misrepresentation was communicated to the
plaintiff.” Id. (internal quotation marks and
HIPAA disclosure and alleged violation
Defendant claims that Count I is fundamentally flawed.
Paragraphs 186 to 188 of the amended complaint provide
descriptions of 18 claims for drugs dispensed in Colorado.
Safeway alleges these are the only relevant transaction-level
details provided in support of Count I. Safeway asserts these
transactions which rely on personal health information were
obtained and disclosed in violation of the Health Insurance
Portability and Accountability Act of 1996
(“HIPAA”) and cannot be used for that reason.
Safeway moves to strike under Federal Rule of Civil Procedure
12(f) on that basis.
Relator claims he is protected by the HIPAA Whistleblower
exception, which provides in part:
(1) Disclosures by whistleblowers. A covered entity is not
considered to have violated the requirements of this subpart
if a member of its workforce or a business associate
discloses protected health information, provided that:
(i) The workforce member or business associate believes in
good faith that the covered entity has engaged in conduct
that is unlawful or otherwise violates professional or
clinical standards, or that the care, services, or conditions
provided by the covered entity ...