The State of Utah V. APOTEX CORPORATION

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2010 The tS ate of Utah v. APOTEX CORPORATION; BAXTER HEALTHCARE CORPORATION; BOEHRINGERINGELHEIM CORPORATION; MALLINCKRODT INC.; CSL BEHRING; FOREST ABORATORIES, INC.; MORTON GROVE PHARMACEUTICALS, INC.; MUTUAL PHARMACEUTICAL COMPANY, INC.; NOVARTIS PHARMACEUTICALS CORPORATION; OTSUKA AMERICA, INC.; PFIZER, INC.; QUALITEST PHARMACEUTICALS, INC.; SCHERING- PLOUGH CORPORATION; SCHWARZ

Recommended Citation Reply Brief, Utah v. Apotex Corporation, No. 20100257 (Utah Court of Appeals, 2010). https://digitalcommons.law.byu.edu/byu_ca3/2258

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Original Brief Submitted to the Utah Court of Appeals; digitized by the Howard W. Hunter Law Library, J. Reuben Clark Law School, Brigham Young University, Provo, Utah; machine-generated OCR, may contain errors. R. James DeRose III; Locke, Lord, Bissell and Liddell; Counsel for Appellees. Joseph W. Steele; David C. Biggs; Steele and Biggs; Special Assistant Attorneys General; Counsel for Appellant. IN THE SUPREME COURT OF THE STATE OF UTAH

THE STATE OF UTAH,

Plaintiff/Appellant, vs. APOTEX CORPORATION; BAXTER HEALTHCARE CORPORATION; Supreme Court Case No: 20100257-SC BOEHRINGERINGELHEIM CORPORATION; MALLINCKRODT INC.; CSL BEHRING; FOREST Third District Case No: 080907678 ABORATORIES, INC.; MORTON Judge Tyrone E. Medley GROVE PHARMACEUTICALS, INC.; MUTUAL PHARMACEUTICAL COMPANY, INC.; NOVARTIS PHARMACEUTICALS CORPORATION; OTSUKA AMERICA, INC.; PFIZER, INC.; QUALITEST PHARMACEUTICALS, INC.; SCHERING-PLOUGH CORPORATION; SCHWARZ PHARMA USA HOLDINGS, INC; TARO PHARMACEUTICALS USA, INC.; FILED UPSHER-SMITH, INC.; and UTAH APPELLATE COURT* WYETH, INC. W J S 208 Defendants/Appellees.

REPLY BRIEF OF APPELLANT

THE STATE OF UTAH,

Plaintiff/Appellant, vs.

APOTEX CORPORATION; BAXTER HEALTHCARE CORPORATION; Supreme Court Case No: 20100257-SC BOEHRINGERINGELHEIM CORPORATION; MALLINCKRODT INC.; CSL BEHRING; FOREST Third District Case No: 080907678 ABORATORIES, INC.; MORTON Judge Tyrone E. Medley GROVE PHARMACEUTICALS, INC.; MUTUAL PHARMACEUTICAL COMPANY, INC.; NOVARTIS PHARMACEUTICALS CORPORATION; OTSUKA AMERICA, INC.; PFIZER, INC.; QUALITEST PHARMACEUTICALS, INC.; SCHERING-PLOUGH CORPORATION; SCHWARZ PHARMA USA HOLDINGS, INC; TARO PHARMACEUTICALS USA, INC.; UPSHER-SMITH, INC.; and WYETH, INC.

Defendants/Appellees.

REPLY BRIEF OF APPELLANT

R. James DeRose, III Joseph W. Steele (Bar No. 9697) LOCKE LORD BISSELL & LIDDELL David C. Biggs (Bar No. 0321) 855 Third Avenue, 26th Floor Special Assistant Attorneys General New York, NY 10022 Steele & Biggs, LLC National Counsel for Apotex 5664 South Green Street, Suite 300 Corporation Salt Lake City, UT 84123 Jonathan E. Pickhardt W. Daniel "Dee" Miles, III Andy Berdon Roman A. Shaul Faith E. Gay H. Clay Barnett, III QUINN EMANUEL URQUHART J. Paul Lynn OLIVER & HEDGES LLP Timothy Robert Fielder 51 Madison Avenue, 22nd Floor Special Assistant Attorneys General New York, NY 10010 BEASLEY, ALLEN, CROW, National Counsel for Mutual METHVIN, PORTIS & MILES, P.C. Pharmaceutical Company, Inc. 272 Commerce Street P.O. Box 4160 Montgomery, AL 36103-4160

Scott A. DuBois Robert E. Steed (Bar No. 6036) SNELL&WILMERLLP Assistant Attorney General 15 West South Temple, Suite 1200 Utah Medicaid Fraud Control Unit Salt Lake City, UT 84101 5272 College Drive, Suite 200 Attorneys for Qualitest Salt Lake City, UT 84123-2772 Pharmaceuticals, Inc. Attorneys for Plaintiff/Appellant John T. Montgomery Steven A Kaufman ROPES & GRAY LLP One International Place Boston, MA 02110-2624 National Counsel for Schering-Plough Corporation

Amy S. Sorenson SNELL & WlLMER LLP 15 West South Temple, Suite 1200 Salt Lake City UT 84101-1004 Attorneys for Qualitest Pharmaceuticals, Inc.

Matthew Campbell WINSTON & STRAWN, LLP 1700 K Street, N.W. Washington, D.C. 20006-3817 Attorneys for Otsuka America, Inc. Erica Smith-Klocek John C. Dodds Kathryn Potalivo MORGAN, LEWIS & BOCKIUS, LLP 1701 Market Street Philadelphia PA 19103 Attorneys for Pfizer, Inc.

Phillip S. Ferguson Geoffrey C. Haslam Christensen & Jensen, PC 15 West South Temple, Suite 800 Salt Lake City UT 84101 Attorneys for Baxter Healthcare Corporation

Brian P. Miller Derek J. Williams SNOW, CHRISTENSEN & MARTINEAU 10 Exchange Place, Eleventh Floor P.O. Box 45000 Salt Lake City, Utah 84145-5000 Attorneys for Apotex Corporation

Matthew A. Steward Robert D. Andreasen CLYDE SNOW SESSIONS & SWENSON One Utah Center, 13th Floor 201 South Main Street Salt Lake City UT 84111-2216 Attorneys for Morton Grove Pharmaceuticals

Melanie Vartabedian Wesley D. Felix HOWREY LLP 170 South Main Street, Suite 400 Salt Lake City UT 84101 Attorneys for Boehringer Ingelheim Corporation Bryon J. Benevento SNELL & WlLMER LLP 15 West South Temple, Suite 1200 Gateway Tower West Salt Lake City UT 84101 Attorneys for Novartis Pharmaceuticals Corp

Ryan M. Harris JONES WALDO HOLBROOK & MCDONOUGH 170 South Main Street, Suite 1500 Salt Lake City, UT 84101 Attorneys for Forest Laboratories

Jordan M. Heinz 300 North LaSalle Chicago, IL 60654 Attorney for Boehringer Ingelheim Corporation

Peter W. Billing Timothy K. Clark FABIAN & CLENDENIN, P.C. 215 South State Street, Ste. 1200 Salt Lake City, UT 84151 Attorneys for CSL Behring

Johnathan T. Rees HOGAN & HARRISON, LLP Columbia Square, 555 Thirteenth Street, NW Washington, DC 20004 Attorneys for CSL Behring

Scott A. Stempel MORGAN LEWIS & BOCKIUS LLP 111 Pennsylvania Avenue, N.W. Washington, D.C. 20004 National Counsel for Pfizer, Inc. Thomas R. Karrenberg Heather M. Sneddon ANDERSON & KARRENBERG 50 West Broadway, Suite 700 Salt Lake City,UT 84101 Local Counsel for Schering-Plough Corporation

Matthew Solum KIRKLAND& ELLIS Citigroup Center 153 East 53rd Street New York, NY 10022 Attorneys for Qualitest Pharmaceuticals, Inc.

George M. Haley David Parkinson HOLME ROBERTS & OWEN 299 South Main Street, Suite 1800 Salt Lake City, UT 84111 Attorneys for Pfizer, Inc.

James P. Ellison HYMAN, PHELPS & MCNAMARA 700 Thirteenth Street, N.W., Suite 1200 Washington, D.C. 20005 Attorneys for Mallinckrodt Inc. and Taro Pharmaceuticals USA, Inc.

Merle M. DeLancey, Jr. Jason D. Wallach DICKSTEIN SHAPIRO LLP 1825 Eye Street, NW Washington DC 20006-543 Attorneys for Baxter Healthcare Corporation Richard A. Vazquez SNOW CHRISTENSEN & MARTINEAU 10 Exchange Place, Eleventh Floor P O Box 45000 Salt Lake City, UT 84145 Attorneys for Mallinckrodt Inc. and Taro Pharmaceuticals USA, Inc.

John P. Harrington Cecilia M. Romero J. Simon Cantarero HOLLAND & HART 60 East South Temple, Suite 2000 Salt Lake City UT 84111 Attorneys for Mutual Pharmaceutical Company, Inc.

Frederick R. Ball David I. Curkovic DUANE MORRIS LLP 190 South LaSalle Street, Suite 3700 Chicago IL 60603 Attorneys for Morton Grove Pharmaceuticals, Inc.

Jane W. Parver Saul P. Morgenstern Mark Godler Sam Lonegan KAY SCHOLER LLP 425 Park Avenue New York NY 10022 Attorneys for Novartis Pharmaceuticals Corp

Camille N. Johnson SNOW CHRISTENSEN & MARTINEAU 10 Exchange Place, Eleventh Floor P O Box 45000 Salt Lake City UT 84145 Attorneys for Wyeth, Inc. Peter J. Veneglia Cynthia L. Ebbs Martin Barna DORNBUSH SCHAEFFER STRONGIN & VENAGLIA, LLP 747 Third Avenue New York, NY 10017 Attorneys for Forest Laboratories

Janna J. Hansen BrienT. O'Connor ROPES & GRAY, LLP One International Place Boston, MA 02110 Attorneys for Schwarz Pharma USA Holdings, Inc.

Attorneys for Defendants/Appellees

Oral Argument is Requested LIST OF PARTIES TO THE ACTION

THE STATE OF UTAH, PLAINTIFF AND APPELLANTS

APOTEX CORPORATION; BAXTER HEALTHCARE CORPORATION;

BOEHRINGERINGELHEIM CORPORATION; MALLINCKRODT INC.; CSL

BEHRING; FOREST ABORATORIES, INC.; MORTON GROVE

PHARMACEUTICALS, INC.; MUTUAL PHARMACEUTICAL COMPANY, INC.;

NOVARTIS PHARMACEUTICALS CORPORATION; OTSUKA AMERICA, INC.;

PFIZER, INC.; QUALITEST PHARMACEUTICALS, INC.; SCHERING-PLOUGH

CORPORATION; SCHWARZ PHARMA USA HOLDINGS, INC; TARO

PHARMACEUTICALS USA, INC.; UPSHER-SMITH, INC.; and WYETH, INC.

i TABLE OF CONTENTS

Argument 1

Introduction 1

I. The State Does Not Have, And Cannot Plead, The Details Required By The

District Court 4

A. The automation of the Medicaid reimbursement program prevents the State

from discovering details of individual reports 5

B. Other state Medicaid actions around the country confirm the widespread

pricing scheme engaged in by Defendants 8

II. The State's Claims Satisfy Rule 9(b) 10

A. Defendants' Cited Cases Are Not Applicable To The State's Claims 11

B. Rule 9(b)'s Purpose and Satisfaction in This Case 14

C. The State's Second Amended Complaint Satisfied Rule 9(b) Under This

Standard 18

i. Defendants have fair notice of the nature of and basis for the claims against

them 18

ii. Defendants have fair notice of the type of litigation involved 18

III. The District Court's Ruling Under Rule 12(b)(6) Was Improper And Should

Be Overturned 20

A. Rule 12(b)(6) permits dismissal only when a plaintiff is not entitled to relief

under any state of facts which could be proved in support of its claims 20

ii B. Relief can be granted under the State's alleged claims as pled in the Second

Amended Complaint 21

i. The Second Amended Complaint adequately pled the elements of the State's

claims 21

IV. The Applicable Statute Of Limitations 25

A. The One-Year Statute Of Limitations For Civil Penalties To The State Does

Not Include Claims For Restitution 25

B. The One-Year Statute Of Limitations For Civil Penalties To The State Does

Not Include Claims For Restitution 25

C. This Court has already created recent authority supporting the State's

proposition that the applicable statute of limitations begins to run anew every

time a violation occurs 27

Conclusion 28

Addendum (Bound Separately)

iii Table of Authorities

Cases

Armed Forces Ins. Exchange v. Harrison, 70 P.3d 35 (Utah 2003) 12

Bingham v. Roosevelt City Corp., 235 P.3d 730 (Utah, 2010) 28

Bly-Mageev. California, 236 F.3d 1014 (9th Cir. 2001) 12

Cabanessv. Thomas, 232 P.3d 486 (Utah, 2010) 28

Cheney v. Rucker, 381 P.2d 86, 91 (Utah, 1963) 15, 18

City ofCudahy ex rel. Monforton v. Sheppard, 2009 WL 323761 (Cal.App. 2 Dist. 2009)

Colmanv. Utah State LandBd, 795 P.2d 622, 624 (Utah 1990) 20

Cook v. Zions First Nat. Bank, 645 F.Supp. 423 (D.Utah 1986) 12

Ebeidexrel. U.S. v. Lungwitz, 616 F.3d 992 (9th Cir. 2010) 12

Elgin Sweeper Co. v. Melsonlnc, 884 F.Supp. 641 (N.D.N.Y., 1995) 17

Eufala Drugs, Inc. v. TDI Managed Care Services, 250 F.R.D. 670, 674-5 (M.D. Ala.,

2008) 5

Feltmeier v. Feltmeier, 798 N.E.2d 75 (111., 2003) 28

FSLIC v. Shearson-American Exp., Inc., 658 F.Supp. 1331, 1337 (D. Puerto Rico,

1987) 12, 15,16

General Ace. Ins. Co. of America v. Fidelity and Deposit Co. of Maryland, 598 F.Supp.

1223 (D.C.Pa, 1984) 12,15

Gold v. Morrison-Knudsen Co., 68 F.3d 1475 (2nd Cir., 1995) 12

Gonzales v. Lloyds TSB Bank, PLC, 532 F. Supp.2d 1200 (CD. Cal., 2006) 17

iv Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir., 1999) 12

Hill v. Alfred, 2001 UT 16, ^j 14; 28 P.3d 1271 (Utah 2001) 11, 14, 18

In re Pharm. Indus. Average Wholesale Price Litig., 263 F.Supp.2d 172, 194 (D. Mass.

2003) 13

In re Pharmaceutical Industry Average Wholesale Price Litigation, Federal District

Court of Massachusetts, Civil Action No. 01-12257-PBS; MDL No. 1456 2

In re Pharmaceutical Industry Average Wholesale Price Litigation, 460 F. Supp.2d 277,

286-287 (D. Mass. 2006) 2

In re Pharmaceutical Industry Average Wholesale Price Litigation, 685 F.Supp.2d 186

(D.Mass.,2010) 9, 10

Johnson v. State, 945 P.2d 673 (Utah, 1997) 27

Karvelas v. Melrose WakefieldHosp., 360 F.3d 220, 228 (1st Cir. 2004) 10, 12

Mackeyv. Cannon, 2000 UTApp 36, \ 13, 996 P.2d 1081 20

Massachusetts v. Mylan Laboratories, et al, Federal District Court of Massachusetts,

Civil Action No. 03-11865-PBS 7,23,24

Mitchell v. Beverly Enterprises, Inc., 248 Fed. Appx 73 (11th Cir. 2007) 12

Montana v. Janssen, et al, No. CDV-2008-164 17

Neilson v. Union Bank of Calfornia, N.A., 290 F.Supp.2d 1101 (CD. Cal., 2003)

Norton Steel Co., Ltd. V. Melsonlnc, 1995 WL 363715 (N.D.N.Y., 1995) 17

Pearsons' Pharmacy, Inc. v. Express Scripts, Inc., 2009 WL 3623395, p. 4 (M.D.Ala.,

2009) 5

v Retherford v. AT&T Communications, 844 P.2d 949, 975 (Utah, 1992) 28

Sikkenga v. Regence BCBS of Utah, 472 F.3d 702 (10th Cir. 2006) 12

U.S. v. CAP Quality Care, Inc., 2006 WL 1030101 (D.Me. 2006) 17

U.S. exrel.Hebertv.Dizney, 295 Fed.Appx. 717 (5th Cir. 2008) 12

U.S. ex rel. Lacy v, New Horizons, Inc., 348 Fed.Appx. 421 (10th Cir. 2009) 12

US. ex rel. Totten v. Bombardier Corp., 286 F.3d 542 (C.A.D.C., 2002) 12

US. ex rel. LaCorte v. SmithKline Beecham, 149 F.3d 227 (3rd Cir. 1998) 12

U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997)

Williams v. State Farm Ins. Co., 656 P.2d 966, 970 (Utah 1982) 14, 18

Yuhaszv. Brush Wellman, Inc., 341 F.3d 559 (6th Cir. 2003) 12

Statutes

42U.S.C. § 1396r-8(a)(l) 5,7

Utah Code Annotated § 26-20-1, et seq 9

U.C.A. 26-20-9.5(2) 25

U.C.A. 78B-2-302 24,25,26

U.C.A. 78B-2-307 24,26

U.C.A. 78B-2-309 24,26

Regulations

47 CFR§ 447.331-332 23

Rules

Rule 9(b) 1,3, 10, 11, 12, 14, 15, 17, 18, 19

VI Rule 11 19

12(b)(6) 1,3,20,21,24

Vll ARGUMENT

INTRODUCTION

Defendants ask this Court for a decision that would prevent the State from ever enforcing the Utah False Claims Act against systemic pricing abuses of the Medicaid program. According to Defendants, unless the State files a complaint that is thousands of pages long, containing detailed descriptions of hundreds of thousands - perhaps millions

- of false pricing reports, Rule 9(b) will forever protect them from liability. Moreover, they illogically ask the Court to find that Rule 12(b)(6) requires the pleading of non- elements to the State's claims before those claims can move forward. This was clearly not the intent of the legislature in creating the False Claims Act and is not the purpose of the Rules of Civil Procedure.

This case is simple, and is about the "average wholesale price" of Defendants' drugs - a phrase that must be interpreted by its plain language.1 As explained in the

State's opening brief, when Defendants agreed to sell their drugs through the State's

Medicaid program, they agreed to provide regular reports of the "average wholesale prices" of those drugs to First DataBank - a third-party compendium. First DataBank then reports those compiled "average wholesale prices" to the State, which in turn uses

See In re Pharmaceutical Industry Average Wholesale Price Litigation, 460 F. Supp.2d 277, 286-287 (D. Mass. 2006). ("Determining the plain language meaning of the regulatory and statutory term 'average wholesale price' is a straightforward exercise that begins with the dictionary.") 2 See Medicaid Plan / Provider Manual, Attachment 4.19-B, p. 19, attached as Addendum F to the State's opening brief. In some cases, prices by some other name were reported by Defendants, from which First Databank would calculate "average wholesale prices" using a metric known only to Defendants. 1 them to calculate its own reimbursement price - a practice in place for many years and well-known by each Defendant. As such, Defendants are effectively on an "honor system/' in that they self-report prices that determine, almost exclusively, what the State pays for those drugs. If they are accurate, then the State pays accurate prices; if they are inflated, then the State, in turn, pays inflated prices.

The claims brought by the State therefore revolve around a simple question: Did

Defendants report the accurate prices of their drugs? The State alleges that Defendants did not, but instead reported inflated prices over a fifteen-year period, thereby causing the

State to grossly overpay for those drugs.

The State's claims are not novel or unique. In the past seven years, at least 52 different state and local Medicaid agencies have filed lawsuits against a large number of drug companies3 - including the majority of Defendants - pleading essentially the same allegations. In fact, such a large number of cases have been filed that a multi-district litigation (MDL) has been established in the Federal District of Massachusetts under

Judge Patti Saris.4

Despite the State's clear allegations and the ample public record of dozens of virtually identical cases, Defendants now want to cloud and confuse this case in order to avoid responsibility for their abuses of the State and its citizens. They argue, against reason, that the State's second amended complaint does not provide sufficient notice of the claims against them. They insist that before they can be held accountable for their

3 See Addendum A, attached. 4 In re Pharmaceutical Industry Average Wholesale Price Litigation^ Federal District Court of Massachusetts, Civil Action No. 01-12257-PBS; MDL No. 1456. 2 false reports, the State's complaint must plead details the State does not have,5 such as the "who, what, when, where, and how" of each of the unknown hundreds of thousands of reported prices from each Defendant. They attempt to muddy the waters with unneeded particularity of the various pricing formulas - FUL, MAC, WAC, etc. - obscuring the fact that every one of those formulas is based on Defendants' price reports.

See Second Amended Complaint, *{ 107 (R. at 1135).

Defendants try to get the Court to focus on peripheral questions which are not elements of the State's claims, such as whether they received benefits directly from the

State, communicated prices directly to the State, or specifically directed others to make

Medicaid drug claims. Defendants argue that the State's alleged failure to sufficiently describe these non-elements is fatal to the case. Defendants were successful in distracting the District Court with this school of red herrings, and are now attempting to do the same to this Court. Indeed, Defendants say in their brief that the State "will never be able to plead"6 the level of specificity it asks this Court to require, tacitly admitting that their goal is to bind justice and restitution in a Gordian Knot of pleading requirements.

The State's Second Amended Complaint is pled with enough particularity to give

Defendants sufficient notice of the nature of the State's case and claims against them, regardless of the applicability of Rule 9(b). Moreover, Rule 12(b)(6) does not require a plaintiff to plead non-elements to a claim to avoid dismissal. Finally, the applicable

5 Including the true "average wholesale prices," which are closely guarded secrets, as discussed below. 6 Appellees' Brief, p. 30.

3 statute of limitations is not one year, but either four or six years under the clear language of the statutes involved. The State respectfully asks this Court to rule in its favor and allow this case to proceed.

I. The State Does Not Have, And Cannot Plead, The Details Required By The District Court.

Defendants argue that in order to satisfy the applicable pleading requirements, the

State must plead the specifics of every allegedly inflated report by every individual defendant. According to the Defendants, as well as the District Court, this includes the

"who, what, when where, and how" of each report, as well as what the State believes should have been the reported average wholesale price of each drug.

The State does not have this information because it did not receive Defendants' false pricing reports; those reports were made to First DataBank, which then compiled and published pricing based on Defendants' reporting. See Second Amended Complaint, tt 118-119 (R. at 1139). Further, the State was never privy to the true - and often far- lower - accurate average wholesale price. See Id., ffi[ 121 (R. at 1140). Those accurate prices are closely guarded secrets, enshrouded by Defendants in a dense corporate veil.

In short, the State has no way of knowing the detail demanded by the District Court, without of the discovery process which will force back Defendants' veil of secrecy.

Moreover, even if the State had this information, there is no way of practically pleading it. Drug companies can and do report regular price changes - often several

4 times per day - which can lead to a thousand or more "prices" for a single drug in any given year. This is true for the nearly two thousand different drugs that Defendants have provided through Medicaid during the fifteen year period covered by the State's complaints.8 Even if the prices were changed only monthly, the State's claims still contemplate approximately 347,000 pricing reports amongst all Defendants; if the prices are changed weekly, the number of reports involved jumps to over 1.5 million; if the prices change daily, more than 10 million reports would have been made by Defendants during the period at issue.9 For this reason, the State's Second Amended Complaint pleads the scheme of the abuse, not the individual instances.

A. The automation of the Medicaid reimbursement program prevents the State from discovering details of individual reports.

Under federal law, drug companies who wish to have their drugs reimbursed by state Medicaid plans are required to sign a rebate agreement with the Department of

Health and Human Services. See 42 U.S.C. § 1396r-8(a)(l). This rebate agreement is the

n See Pearsons' Pharmacy, Inc. v. Express Scripts, Inc., 2009 WL 3623395, p. 4 (M.D.Ala., 2009). (Explaining the daily nature of drug company pricing reports through First DataBank.); Eufala Drugs, Inc. v. TDI Managed Care Services, 250 F.R.D. 670, 674-5 (M.D. Ala., 2008) (Explaining the "daily, weekly, or monthly" pricing report updates from drug companies.) Second Amended Complaint, Exhibit A (listing approximately 1,929 different drugs provided by the Defendants). To illustrate the pleading needed to include the basic particular details requested by the District Court of these reports, consider this: If the State were able to fit the "who, what, when, where, and how" of each individual report into a single line of text - with 37 lines of single-spaced text in a page of 13-point type - then 9,379 pages would be needed to plead 347,000 monthly reports over the 15-year period; 40,541 pages would be needed to plead 1.5 million weekly reports; and 270,271 pages would be needed to plead 10 million daily reports. Such a complaint would require 541 reams of paper and fill over 77 file boxes. 5 only gateway to participation; however, it is also the only requirement, and once it has been fulfilled, the states have little discretion in whether or not they will pay for the manufacturer's drugs. As such, when Defendants signed their rebate agreements with the federal government, the State was effectively locked into paying for their drugs under its reimbursement system.

Due to the enormous volume of price reports, the Medicaid drug reimbursement system is largely automated.10 Indeed, the only non-automated part of the system is when a drug company issues its price reports. Those reports are made to third parties, such as

First DataBank; the State is not and never has been a party to those communications. See

Second Amended Complaint, ffl[ 121 (R. at 1140). First DataBank then electronically conveys the price to the State's database computers as the reported "average wholesale price" for that drug. When a pharmacy then provides an order for the drug to a Medicaid recipient, the pharmacy bills the State electronically through the same system. Payment is then issued automatically as well, without human involvement.11

The State developed this automated process for the sake of efficiency in handling the massive volume of data and transactions. However, such a system - without human oversight - lends itself to abuse. Defendants knew this. They knew that inflated reports to First DataBank would be compiled and given to the State automatically. They knew that the State's computers would calculate inflated prices based upon those reports, and

10 In fiscal year 2005, there were 3,474,297 prescriptions reimbursed by Utah Medicaid - 66,813 per week. 11 See Addendum B, attached. Utah Medicaid Pharmacy Provider Manual, Section 6-1, describing the automated payment process. 6 that no one would ask questions. They knew that the State's system would then pay those prices for those drugs without fail. They knew that they would likely never get caught, because no one was watching. Indeed, twelve years passed before the State began to suspect that Defendants were abusing the system and its Medicaid program.

In 2003, Massachusetts filed an action against several drug companies for inflated pricing reports. Within a short time, a number of other states filed suit as well. This was the first indication to the State of Utah that Defendants might be abusing the price reporting system, and the State began an investigation into the reporting to see if it, like the other states, had been cheated.

As already noted, the State could not do this through the pricing data of the reimbursement program alone, because it only had the information provided by

Defendants through First DataBank. Instead the State turned to the drug rebate system, using it to cross-check against samples of Defendants' pricing reports.

The rebate system operates in the opposite direction of the reimbursement system.

In essence, the drug companies agree that whenever the State pays for a drug, the manufacturer of that drug will give the State a rebate for a certain percentage of the price. i ^ For example, the rebate percentage for generic drugs is 11% of the "average manufacturer's price"14 that the company confidentially reports to the federal rebate system. In theory, assuming honest price reports, this should result in the rebate being at

Massachusetts v. Mylan Laboratories, et al, Federal District Court of Massachusetts, Civil Action No. 03-11865-PBS. 13 See 42 U.S.C. § 1396r-8 "Average manufacturer's price" and "average wholesale price" are essentially equivalent. 7 least approximately equal to 11% of the reported average wholesale price. However, the

State's investigation revealed the reality of the situation was far different.

The State's reimbursement system and the federal rebate system are completely separate; they do not share data, and drug companies have to report their prices to both systems separately. The State took random samples of pricing from each defendant and compared them to Utah's estimate of the federal rebate prices;15 in every case, it was found that the reported "average wholesale price" was significantly higher than the estimated rebate price. Through this investigation, the State confirmed that all

Defendants had been reporting inflated prices to First DataBank, and thus to the State's reimbursement system to induce the State to pay more for their drugs. Then, Defendants reported far lower prices to the federal rebate system, enabling them to minimize rebates to the State while at the same time maximizing the prices paid by the State. In essence, the State was being cheated by at least the pricing system, and perhaps the federal rebate system as well.

The State filed suit against Defendants in 2007 under the Utah False Claims Act.

In the meantime, it did not have the discretion to stop reimbursing for drugs provided to

Medicaid recipients. Thus, the State continued to pay Defendants' inflated pricing, and it will continue to do so, until it can force Defendants' honesty through the False Claims

Act. The State is here now, before this Court, in good faith to enforce that law and stop these abuses of its Medicaid system and taxpayers.

15 The State made this estimation by taking the rebate amount and dividing it by the known rebate percentage (e.g. 11% in the case of generic drugs), yielding the prices which Defendants almost certainly reported to the federal rebate system. 8 B. Other state Medicaid actions around the country confirm the widespread pricing scheme engaged in by Defendants.

Since Massachusetts filed its action against a group of drug companies for price inflation in 2003, at least fifty-two other state and local Medicaid agencies have filed suit against the many drug manufacturers for similar schemes. The State is aware of over sixty instances where various Defendants have been named in those actions.16

Judge Patti Saris of the multi-district litigation in the District of Massachusetts has overseen much of this litigation and had opportunity to review Defendants' conduct in great detail. It is therefore telling that in February of 2010, Judge Saris entered summary judgment against a group of thirteen defendants - including three defendants in this case:

Boehringer Ingelheim, Schering-Plough, and Wyeth - for issuing inflated price reports to induce higher payments from government programs, including various Medicaid agencies. In re Pharmaceutical Industry Average Wholesale Price Litigation, 685

F.Supp.2d 186 (D.Mass., 2010).

The specific case at issue in that decision arose out of New York State. New

York's false claims act is somewhat more exacting than Utah's, as it requires an attempt to obtain payment from public funds - a requirement that is not present in the Utah False

Claims Act. See. Even with that heightened standard, Judge Saris granted summary judgment to New York. "Under [the New York false claims act], Plaintiffs must show that Defendants knowingly made false statements or representations on behalf of themselves or others to attempt to obtain payment from public funds. Even viewing the

See Addendum C, attached, listing all other Medicaid programs and agencies of which the State is aware that have filed suit against Defendants. 9 facts in the light most favorable to the Defendants, and drawing all reasonable inferences in their favor, the Plaintiffs have proved that Defendants, by submitting false AWPs and

WACs that were used by CMS in setting FULs, have done just that." In re

Pharmaceutical Industry, 685 F.Supp.2d at 207.

The State understands that being named in multiple lawsuits does not prove

Defendants' liability, nor does the State presume that the MDL order on summary judgment is controlling. However, the State refers to these other cases and Judge Saris' opinion to demonstrate that, at the very least, Defendants are well-aware of this type of litigation. Their arguments to the contrary ring hollow.

II. The State's Claims Satisfy Rule 9(b).17

The District Court ruled, and Defendants argue, that the State failed to satisfy the requirements of Rule 9(b). In so doing, the lower court and Defendants ignore the central purpose and requirement of the Rule, which is to give sufficient notice of the claims at hand. Instead, they argue that the State must specify the "who, what, when, where, and how" of each inflated price report with particularity, ignoring the practical impossibility of such a pleading. The State does not have access to these details, nor could such details

The State maintains its position, explained in its opening brief, that Rule 9(b) does not apply to the Utah False Claims Act. Defendants' are unable to cite any controlling opinion to the contrary, and rely exclusively upon foreign decisions that have nothing to do with the Utah False Claims Act. See Karvelas v. Melrose Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004) (a qui tarn action under the federal false claims act); Nevertheless, should this Court find that Rule 9(b) does apply to the False Claims Act, the State continues to argue that its Second Amended Complaint satisfied the Rule, as set forth herein. 10 of perhaps a million or more misrepresentations be pled with the shortness or plainness required by Rule 8(a).

The District Court's ruling that this failure is fatal to the State's claims invites unchecked exploitation of state programs and funds. Under the opinion of the lower court, abusers of the Medicaid program can hide behind Rule 9(b), so long as they conceal the fine details of their actions to prevent the State from ever being able to plead them. Defendants scoff at the State's claim that such use of Rule 9(b) is a legal technicality; however, use of a legal rule to avoid responsibility for such clear abuse is the very definition of the term. It is not the purpose of Rule 9(b) to act as a shield for

Defendants' behavior when there is ample evidence of their wrongdoing, nor was it the intent of the legislature to have the False Claims Act rendered impotent by the very acts of deception it proscribes.

The State's Second Amended Complaint satisfies Rule 9(b)'s purpose of providing adequate notice to the Defendants of the nature and basis for the claims against them and the type of litigation involved. See Hill v. Alfred, 2001 UT 16, If 14; 28 P.3d 1271 (Utah

2001). As such, the District Court's decision should be overturned.

A. Defendants' Cited Cases Are Not Applicable To The State's Claims.

The District Court and Defendants rely upon case law that does not consider how the exacting details they demand could be pled by a plaintiff that does not have them, especially in a case involving an enormous number of misrepresentations over more than a dozen years. Defendants cite cases that involve only one or a few incidents of

11 fraudulent conduct, instead of the broad schemes at issue in this case. As a practical matter, pleading only a few incidents with particular detail is one thing; pleading hundreds of thousands - perhaps even millions - of misrepresentations to a third party is another, and merits different treatment under Rule 9(b). See General Ace. Ins. Co. of

America v. Fidelity and Deposit Co. of Maryland, 598 F.Supp. 1223 (D.C.Pa, 1984)

(Holding that in cases of fraud over an extended period of time or a series of transactions, it is not necessary to recite, in detail, the facts of each transaction of the fraudulent scheme.); FSLIC v. Shear son-American Exp.y Inc., 658 F.Supp. 1331, 1337 (D. Puerto

Rico, 1987) (Holding that pleading specific facts of individual transactions in a broad, fraudulent scheme is not required and may in fact be impossible.).

Similarly, the cases employed by Defendants to argue that the Utah False Claims

Act is subject to the strictest reading of Rule 9(b) are significantly distinct from this case in both type and factual background.19 All such cases involved qui tarn actions brought by "whistle blower" relators who had worked inside those defendants' operations. This

Armed Forces Ins. Exchange v. Harrison, 70 P.3d 35 (Utah 2003); Cook v. Zions First Nat. Bank, 645 F.Supp. 423 (D.Utah 1986); Coroles v. Sabey 19 Sikkenga v. Regence BCBS of Utah, All F.3d 702 (10th Cir. 2006); U.S. ex rel. Lacy v, New Horizons, Inc., 348 Fed.Appx. 421 (10th Cir. 2009); U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.2d 220 (1st Cir. 2004); Mitchell v. Beverly Enterprises, Inc., 248 Fed. Appx 73 (11th Cir. 2007); U.S. ex rel Hebert v. Dizney, 295 Fed.Appx. 717 (5th Cir. 2008); Ebeidex rel. U.S. v. Lungwitz, 616 F.3d 992 (9th Cir. 2010); City of Cudahy ex rel Monforton v. Sheppard, 2009 WL 323761 (Cal.App. 2 Dist. 2009); Yuhasz v. Brush Wellman, Inc., 341 F.3d 559 (6th Cir. 2003); U.S. ex rel. Totten v. Bombardier Corp., 286 F.3d 542 (C.A.D.C, 2002); Bly-Magee v. California, 236 F.3d 1014 (9th Cir. 2001); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir., 1999); U.S. ex rel LaCorte v. SmithKline Beecham, 149 F.3d 227 (3rd Cir. 1998); U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997); Gold v. Morrison-Knudsen Co., 68 F.3d 1475 (2nd Cir., 1995). 12 gave those insider plaintiffs first-hand knowledge of the wrongs committed, which made the pleading of details a realistic requirement.

The position and knowledge of the State in this action stands in stark contrast to that of the relator plaintiffs in those cases. This is not a qui tarn action, but rather an attorney general enforcement action, where the State does not have the insider, first-hand knowledge of a relator. The State was not a party to the reports but only received compiled prices through First DataBank. Moreover, if the standard set forth in

Defendants' cited cases did apply to the State's claims, then other courts would have specifically applied it in the myriad other AWP cases that have been filed around the country. Defendants' failure to cite any authority to that effect is a glaring hole in their argument.

Defendants do cite an opinion by Judge Saris in the AWP MDL given on a motion to dismiss, which requires "(1) the specific drug or drugs that were purchased from defendant, [and] (2) the allegedly fraudulent AWP for each drug..." In re Pharm. Indus.

Average Wholesale Price Litig, 263 F.Supp.2d 172, 194 (D. Mass. 2003). The State agrees that this case is more analogous to its claims than the other cases cited by

Defendants. However, noticeably absent is the requirement that an AWP plaintiff must plead the "who, what, when, where, and how" of each specific price report. Instead,

Defendants focus on Judge Saris' requirement that the "allegedly fraudulent AWP for each drug" be pled.

However, Judge Saris' request for an allegedly fraudulent AWP is inapplicable to the facts of the present case, and in any event does nothing to further the requirements of

13 Rule 9(b) under Utah law. As outlined above, the State does not have access to the reported prices or what the actual prices should have been. However, the adequacy of the

State's complaint should not turn on its ability to plead information that Defendants have labored to conceal, especially in light of the ample evidence of Defendants' abuses. Even if the State were to plead a "snapshot" of prices at a single given time by providing a single AWP for each drug, it would not cover the enormous number of reports that were actually made during the 15-year period. Because of this, any such pleading would not be reliably accurate to cover the entirety of the State's claims.

Moreover, other states have filed similar claims without pleading the allegedly fraudulent AWPs of the drugs at issue. The State is not aware that any of those cases were dismissed for failing to do so. Many of these complaints are notably similar to

Utah's. As such, the requirement that the allegedly fraudulent AWPs be pled is not universal, and should not be applied here and reward Defendants for their efforts to obscure that information.

B. Rule 9(b)'s Purpose and Satisfaction in This Case.

The State therefore asks this Court to consider the substance of its claims, rather than the impossible form focused on by the District Court. As explained by the State in its opening brief, Rule 9(b)'s purpose is to give defendants "fair notice of the nature of and basis or grounds for the claim and general indication of the type of litigation

See Addendums D through J, which include the AWP complaints of the states of Alabama, Alaska, Idaho, Kansas, Kentucky, Mississippi, and Texas - none of which contain the allegedly fraudulent AWP for each drug at issue in those cases. At least one of the Defendants in this case was named in the complaints of Alabama, Alaska, Mississippi, and Texas. 14 involved. " Hill v. Allred, 2001 UT 16, H 14; 28 P.3d 1271 (Utah 2001). Under Utah law, a Rule 9(b) complaint must give "notice of the issues raised and an opportunity to meet them." Williams v. State Farm Ins. Co., 656 P.2d 966, 970 (Utah 1982). "When this is accomplished, that is all that is required." Cheney v. Rucker, 381 P.2d 86, 91 (Utah,

1963).21

Providing notice in a case such as this can be done broadly. In cases involving numerous misrepresentations over an extended period of time, "it is not necessary to recite, in detail, the facts of each transaction of the fraudulent scheme." General Ace. Ins.

Co. of America v. Fidelity and Deposit Co. of Maryland, 598 F.Supp. 1223 (D.C.Pa,

1984). The reasoning employed in the case of Federal Savings and Loan Insurance

Corp. v. Shear son-American Exp., Inc. is instructive:

All that is required to fulfill the particularity requirement of Rule

9(b) is that a complaint set forth the substance of plaintiffs claim with

sufficient detail to evoke the defendant's answer, since Rule 9 is not to be

applied with draconian strictness. The purpose of Rule 9(b) is to protect

defendants from unfair surprise and to give a defendant notice of the nature

of the claims against it.

In their brief, Defendants attempt to claim a broader purpose for Rule 9(b) - to protect their reputation from "spurious charges" and avoid "fishing expeditions" by plaintiffs. Brief of Appellees, p. 10. However, Defendants provide no controlling Utah authority to support such expansion of the Rule's intent. Moreover, these other purposes have no bearing on this case, as the State is not in the habit of legal "fishing expeditions," and Defendants' reputations will not be harmed by Utah joining the dozens of other states making claims against them - claims which are clearly not "spurious." 15 FSLIC v. Shearson-American Exp., Inc., 658 F.Supp. 1331, 1337 (D. Puerto Rico, 1987)

(internal citations omitted). Thus, Rule 9(b) is to be applied for the purpose of providing sufficient notice and nothing more; it does not require particularity merely for its own sake. The court then went on:

Even though in some situations the identification of the time, place

and content of an alleged fraudulent representation may be required to

fulfill the rule's purpose to give notice of the conduct charged and to

protect a defendant from spurious charges, nothing in the rules requires it.

Also, less particularity is required where the plaintiff is not asserting that

the fraud was committed against it but against a third party. Indeed, in

some situations specificity may never even be possible, as when fraudulent

representations may have been made over a long period of time. If the

fraud involved either a course of conduct occurring over an extended

period of time or a series of transactions, it is not necessary to recite in

detail the facts of each transaction of the fraudulent scheme.

Id., (emphasis added; internal citations omitted).

In another analogous case involving government claims against drug companies for fraud, a Montana court found that broadly pleading a scheme of fraud was sufficient to satisfy Rule 9(b). There, the State of Montana was suing the manufacturers of the drugs Risperdal and Seroquel for fraudulent claims made in the marketing of those drugs.

16 The defendant drug manufacturers insisted that Montana must plead the specific details of every fraudulent misrepresentation.

Citing the Montana Supreme Court, the court reasoned that "[t]he sufficiency of a particular pleading under Rule 9(b) depends upon a number of variables... Perhaps the most basic consideration in making a judgment as to the sufficiency of a pleading is the determination of how much detail is necessary to give adequate notice to an adverse party and enable him to prepare a responsive pleading'" Memorandum and Order on

Defendants' Motion to Dismiss and Parties Agreement to Sever, Montana v. Janssen, et aL, No. CDV-2008-164, p. 7 (Mont. 1st Dist. Ct, Nov. 3, 2010) (emphasis added).22

Employing this reasoning, the court concluded "that the degree of specificity contemplated by most decisions involving fraud allegations is lacking here. Nonetheless,

Plaintiff has given Defendants notice of the specific types of wrongful conduct being alleged... If the Court accepts Defendants' contentions that the requirements of Rule

9(b) are not met by Plaintiffs complaint, such finding would necessarily assume that

Defendants have not been provided adequate notice of the allegations against them to formulate a proper responsive pleading. Given the arguments advanced by Defendants in their motion to dismiss, such does not appear to be the case." Id.

These cases demonstrate that Rule 9(b) does not require the pleading of all fine details of every misrepresentation when a broader, long-running scheme is the subject of

Attached hereto as Addendum K. 17 the case, or when the misrepresentations were made to a third party. The key consideration is whether the allegations have been pled with enough particularity to give a defendant notice of the type of claims involved. Such is the case here.

C. The State's Second Amended Complaint Satisfied Rule 9(b) Under This Standard,

The question then under this Court's previous decisions in Hill, Williams, and

Cheney is whether defendants a) have fair notice of the nature of and basis for the claims against them, and b) understand the type of litigation involved. See Hill, supra. If the answer to these questions is "yes," then Rule 9(b) has been satisfied.

i. Defendants have fair notice of the nature of and basis for the claims against them.

As explained above, Defendants are familiar with the State's Medicaid drug reimbursement program. Each defendant participates in price reporting and is well-aware of the State's reliance on its reporting of accurate "average wholesale prices" for their drugs. The State claims that Defendants have instead been reporting inflated prices over a fifteen-year period, and that all of Defendants' pricing reports were inflated during that time. See Second Amended Complaint, ffi[ 9-103 (R.l 120-1134). Despite defendants' protestations, this makes for a profoundly simple case: either Defendants gave honest and accurate reports or they did not. Each defendant may wish to qualify its actions with details of certain reports, but there is no mistaking the State's allegation under the False

23 See also Gonzales v. Lloyds TSB Bank, PLC, 532 F. Supp.2d 1200 (CD. Cal., 2006); Neilson v. Union Bank of Calfornia, N.A., 290 F.Supp.2d 1101 (CD. Cal., 2003); U.S. v. CAP Quality Care, Inc., 2006 WL 1030101 (D.Me. 2006); Norton Steel Co., Ltd. V. Melsonlnc., 1995 WL 363715 (N.D.N.Y., 1995); Elgin Sweeper Co. v. Melsonlnc., 884 F.Supp. 641 (N.D.N.Y., 1995). 18 Claims Act. Defendants therefore clearly have notice of the nature of and basis for the claims against them.

ii. Defendants have fair notice of the type of litigation involved.

Again, as already explained, at least fifty-two other similar lawsuits have been filed by state and local Medicaid agencies around the country, including those consolidated in the multi-district litigation in the District of Massachusetts. The majority of Defendants have been named in those suits. Indeed, Defendants point out that only two of their number - Morton Grove and Qualitest Pharmaceuticals - have not been named in a similar litigation. As noted above, the evidence of widespread price inflation is so damning that the MDL court granted summary judgment on the issue.

Defendants argue that they cannot be charged with their own knowledge of those cases when considering the sufficiency of the State's pleadings. However, they fail to explain why. Defendants have not provided any authority stating that each and every case is pled in a vacuum. Indeed, the very nature of notice pleadings depends in large part upon the putative defendant's own knowledge.

Here, however, we need not rely upon Defendants' knowledge alone; the public record is replete with myriad examples of the Defendants already embroiled in the type of litigation at issue. As two of the few drug companies around the country who have escaped litigation for their actions until now, Morton Grove and Qualitest

Pharmaceuticals can hardly plead ignorance of these cases when the majority of their industry is involved. Therefore, an argument that any Defendant does not have notice of the type of litigation involved is beyond belief. Moreover, in their briefs, Defendants are

19 not willing to certify under Rule 11 that they have no knowledge or notice of the State's

allegations. They are well-aware of the type of litigation involved in this action.

The State's allegations are clear. Either Defendants are guilty of providing

inflated price reports over the given fifteen-year period, or they are not. They cannot reasonably or believably argue that they do not understand such claims and have not

received fair notice of them. As such, Rule 9(b) has been satisfied, and no more is

required under this Court's previous rulings. The State therefore respectfully asks that

the Court overturn the District Court's order, and reinstate this action.

III. The District Court's Ruling Under Rule 12(b)(6) Was Improper And Should Be Overturned.

Defendants argue that dismissal of the State's claims was proper under Rule

12(b)(6). Defendants' arguments, as well as the ruling of the District Court, misapply

Rule 12(b)(6) as having a higher standard than it actually does. Defendants claim that

the State did not adequately plead the elements of those claims. However, as explained

in the State's opening brief, the State did plead the elements of its claims to a level that, if

true, would entitle it to relief. This is the standard of Rule 12(b)(6).

A. Rule 12(b)(6) permits dismissal only when a plaintiff is not entitled to relief under any state of facts which could be proved in support of its claims.

Dismissal under rule 12(b)(6) of the Utah Rules of Civil Procedure is warranted

"only in cases in which, even if the factual assertions in the complaint were correct, they

provide no legal basis for recovery." Mackey v. Cannon, 2000 UT App 36, \ 13, 996

P.2d 1081. "A dismissal is a severe measure and should be granted by the trial court only

20 if it is clear that a party is not entitled to relief under any state of facts which could be proved in support of its claim." Id. at *f 9 (citing Colman v. Utah State LandBd., 795 P.2d

622, 624 (Utah 1990)). "The courts are a forum for settling controversies, and if there is any doubt about whether a claim should be dismissed for the lack of a factual basis, the issue should be resolved in favor of giving the party an opportunity to present its proof."

Id. at \ 12 (citing Colman, 795 P.2d at 624). Rule 12(b)(6), therefore, is not a basis for dismissal if there is any way that a plaintiff can make a case under the allegations pled in its complaint.

B. Relief can be granted under the State's alleged claims as pled in the Second Amended Complaint

Defendants argue that the State did not properly plead facts to support the elements of its claims. Specifically, Defendants argue that under fraudulent misrepresentation, the State failed to plead reasonable reliance and inducement to act.

Under the False Claims Act, Defendants argue that the State failed to plead the causation of false claims, the receipt of any benefit by Defendants, or that Defendants' price reports affected the State's payments. All of this is inaccurate; the State pled facts sufficient to set forth the elements of its claims. Moreover, the receipt of a benefit is not an element of the False Claims Act. As such, dismissal under Rule 12(b)(6) was improper and should be overturned

i. The Second Amended Complaint adequately pled the elements of the State's claims.

The State's Second Amended Complaint, attached as Addendum G to the State's opening brief, set forth the following allegations: 21 • "Utah Medicaid reimburses medical providers, including physicians and

pharmacists, for drugs prescribed for, and dispensed to, Utah Medicaid recipients

pursuant to statutory and administrative formulas. Second Amended Complaint, ^f

106 (R. at 1135).

• "Reimbursement for pharmacy-dispensed prescription drugs under the Utah

Medicaid program is based on information supplied by Defendants to industry

reporting services." Second Amended Complaint, ^f 107 (R. at 1135).

• "At all relevant times to this action, Utah Medicaid relied upon [the price reports]

provided by Defendants to the industry reporting services in determining the

amount Utah Medicaid reimburses providers." Id., ^[ 119 (R. at 1139).

• The State reasonably relied upon that information under federal guidelines. See

Id., ffll 109 and 111 (R. at 1136 and 1137); 47 CFR § 447.331-332.

• "The Defendants' inflated AWPs were the only variable in the formulas used by

the State to reimburse brand name drugs. Thus, had the Defendants' AWPs been

lower, the amounts the State would have pad for brand name drugs would have

been correspondingly lower." Second Amended Complaint, f 115 (R. at 1138).

• "Defendants' AWPs were [also] an essential variable in deciding what the lowest

price was in the formula for reimbursing generic drugs..." Id., ^f 116 (R. at 1138).

• "The State would have reimbursed [for generic drugs] on the basis of 'estimated

acquisition cost' if that cost had been the lowest of these three measures. But

because the estimated acquisition cost was inflated by Defendants' AWPs, the

22 State lost the chance to make that comparison and save itself money." Id., f 117

(R. at 1139).

• "Furthermore, the Defendants concealed the true prices knowing that Utah

Medicaid relied upon the false reported prices." Id., If 121 (R. at 1140).

• "The claims at issue were made for the medical benefit of Utah Medicaid

recipients. By injecting false prices into Utah's reimbursement process, the

Defendants directed others to submit claims which led to false

reimbursements..." f 128 (R. at 1142).

• "The false prices reported by Defendants caused to be made or presented to

an employee or officer of the State a claim for a medical benefit in violation

of U.C.A. § 26-20-7(1). Specifically, the Defendants knew their false

prices would result in the presentation of claims that are wholly or partially

false, fictitious, or fraudulent, in violation of U.C.A. § 26-20-7(a)(l)." Id.,

1129 (R. at 1142).

• "Each and every Defendant derived benefits directly from the State, in that

the State's Medicaid expenditures ultimately ended up in the pockets of the

Defendants." Id., ^ 128 (R. at 1142).

In these allegations, the State has clearly pled facts to support claims that the State reasonably relied upon Defendants price reports, and had to do so under federal regulation.24 See 47 CFR § 447.331-332. Similarly, these allegations set forth that

24 In considering the question of reasonable reliance in the case of Massachusetts v. Mylan Laboratories, another AWP case administered by Judge Saris, the court ruled that the 23 Defendants reports induced the State to pay prices based upon those reports, as they were the "only variable" in the price of brand name drugs, and an "essential variable" in the price or generic drugs. Thus, these elements of the State's claim for fraudulent misrepresentation were properly pled.

Moreover, the State clearly alleged that Defendants' false pricing reports caused medical providers and pharmacies to make claims for drug benefits at false price levels.

Additionally, the State alleged throughout these statements that Defendants' price reports directly affected the State's price levels. Thus, these elements of the False Claims Act were plainly pled.

With respect to Defendants' receipt of a benefit from the State, the Second

Amended Complaint clearly alleges that such a benefit was received because the money used by the State to pay for the drugs ultimately ended up in the hands of Defendants.

However, this is immaterial, as the receipt of a direct benefit from the State is not an element of the False Claims Act. It is not necessary to receive a benefit from the State to violate the Act; only the making or causation of the false claim alone is required. See mere fact that a state "expended untold millions paying for the drugs at issue" was ample evidence of reliance upon the pricing reports, and that "reasonableness" was a question for a factfinder to decide. Massachusetts v. Mylan Labs, 608 F.Supp.2d 127, 157 (D.Mass., 2008). 25 The federal court in Massachusetts v. Mylan Labs also found that "the defendants reported false prices to MassHealth [Massachusetts' Medicaid program] via the publishing compendium knowing that pharmacies would present claims to MassHealth which will be reimbursed based on a formula that utilizes the inflated price to determine the appropriate reimbursement amount. Thus, although the manufacturers do not themselves submit claims to the Commonwealth...th claims here were predicated on an underlying fraudulent pricing scheme. The defendants are thus chargeable with causing false claims to be presented to the Commonwealth. Massachusetts v. Mylan Labs, 608 F.Supp.2d 127, 145 (D.Mass., 2008). 24 U.C.A. 26-20-7(1).

The State therefore properly pled the elements of its claims. Dismissal under Rule

12(b)(6) is therefore improper and should be overturned.

IV. The Applicable Statute Of Limitations

The Court must determine the applicable statute of limitation to the State's claims.

Defendants argue that the applicable statute of limitations is one year, per Utah Code §

78B-2-302, and that said statute has expired on all claims regarding conduct prior to

April 30, 2006. Defendants dismiss the State's arguments concerning the application of the catch-all statute found in § 78B-2-307(3), and the six-year statute for writings under §

78B-2-309(2). Defendants also claim that there is no authority to support the State's argument that every new false claim restarts the limitations period. However,

Defendants' position is based upon erroneous or incomplete reading of the applicable statutes and case law.

A. The One-Year Statute Of Limitations For Civil Penalties To The State Does Not Include Claims For Restitution.

Defendants over-read the limitations period found in Utah Code § 78B-2-302(3), which places a limit of one year "upon a statute... for a forfeiture or penalty to the state."

The State does not dispute that this applies to the specific "civil penalty" under the Act.

Defendants neglect to consider, however, that the False Claims Act provides not only for a civil penalty of treble damages, but also for "full and complete restitution to the state" and the "costs of enforcement of this chapter." Utah Code § 26-20-9.5(2). As the wording of § 78B-2-302(2) is limited to "forfeiture or penalty," that limitation does not

25 cover the State's other claims under the False Claims Act, nor under its claims for fraudulent misrepresentation.

B, A Four- or Six-Year Statute Of Limitations Should Be Applied To the State's Claims For Restitution And Costs.

The four- or six-year statutes of limitation should be applied to the State's claims for restitution and costs of enforcement under Utah Code § 78B-2-307 and 309(2), respectively. Defendants argue that the four-year catch-all statutory period should not apply because, per their previous argument, a one-year statute applies under § 78B-2-

302(3). However, as just pointed out, that statute is limited to penalties to the State, not restitution or costs. As such, the four-year statute would be applicable.

The State suggested a different applicable statutory period under § 78B-2-309(2) for "any contract, obligation, liability founded upon an instrument in writing."

Defendants scoff at the State's position as "facially ridiculous," since the State did not technically file a breach of contract claim. However, Defendants are once again guilty of misreading the quoted statute. The statute does not limit its application to "breach of contract" claims; rather, it states quite clearly that it applies to "any...liability founded upon an instrument in writing."

Defendants' liabilities are founded upon the instrument in writing that is the Utah

Medicaid Plan. Defendants agreed to abide by that plan when they became Medicaid providers. The plan required Defendants to provide accurate pricing information. See

Addendum F to the State's opening brief, Utah state Medicaid Plan, attachment 4.19-B, section S: Prescribed Drugs, 19-19b. Defendants' failure to do so therefore violated the

26 agreement embedded in this writing. As such, by its own plain language, § 78B-2-309(2) applies to this action.

C. This Court has already created recent authority supporting the State's proposition that the applicable statute of limitations begins to run anew every time a violation occurs.

In its opening brief, the State noted that a cause of action does not accrue until the final element of the cause of action has been committed. As such, a violation of the False

Claims Act has not been committed until a false claim is made or caused. Ignoring the

State's citation to Johnson v. State, 945 P.2d 673, Defendants claim that the State provided no authority for this position. Then, ignoring the basic legal principle that all elements of a claim must be present before an action can be brought, Defendants argue that the State's "reasoning is illogical."

It is a foundational tenet of the legal system that a valid claim must have all elements present before it is actionable. The limitations period begins when such a claim becomes actionable, and not before. As such, the State's claims for fraudulent misrepresentation begin to run not when Defendant's made their false price reports, but when the State was damaged by them by paying falsely inflated prices. Whenever a new such payment was made under the prices established with Defendants' inflated reports, a new cause of action accrued. Similarly, under the False Claims Act, the statutory period did not begin with Defendants' false price reports, but when a claim for payment by a pharmacist was made or caused to be made, as proscribed by that Act. Therefore, every time such a claim was made or caused, a new cause of action accrued under that Act.

Defendants ask for authority to support such a basic principle, and this Court has already

27 obliged. "Under Utah law, the statute of limitations begins to run when the cause of action accrues." Retherfordv. AT&T Communications, 844 P.2d 949, 975 (Utah, 1992).

The State's position is not unlike the "continuing tort doctrine," which this Court has recently had opportunity to review in two cases of ongoing tortious conduct.

Cabaness v. Thomas, 232 P.3d 486 (Utah, 2010) (applying the doctrine to claims of intentional infliction of emotional distress); Bingham v. Roosevelt City Corp,, 235 P.3d

730 (Utah, 2010) (applying the doctrine in a case of ongoing negligence). That rule provides for "tolling the statute of limitations while the tortious conduct continues unabated" {Bingham, 235 P.3d at 745), and "involves viewing the defendant's conduct as a continuous whole..." {Feltmeier v. Feltmeier, 798 N.E.2d 75 [111., 2003]). In Bingham, this Court stated that it had "recognized the continuing tort rule in a variety of situations, including nuisance, trespass, intentional infliction of emotional distress, and continuous medical treatment." Id. The Court then went on to apply the rule to instances of negligence as well.

This case is not dissimilar from these holdings, in that a cause of action accrues only when all elements have been fulfilled, and for the last time. Defendants' conduct constitutes such a pattern of abuse against the State and its Medicaid program. As such, a similar ruling from the Court would be proper in this case.

CONCLUSION

Defendants' abused the State's Medicaid program for fifteen years by reporting inflated drug prices, thereby causing the State to overpay for those drugs. The State now seeks to recover those overpayments as provided and required by Utah law. The State's

28 Second Amended Complaint adequately set forth the State's claims with sufficient particularity to give the Defendants notice of the basis and grounds for the claims against them and the type of litigation involved. The Second Amended Complaint also adequately pled the State's claims, including facts showing each necessary element. The

State therefore respectfully asks the Court to overturn the District Court's decision and reinstate this case with the appropriate statutory limitation period.

DATED this /^f^day of November, 2010.

Jojfcphfa. Steele^Bar No. 9697) Dfavjd C. Biggs (Bar No. 0321) Special Assistant Attorneys General Steele & Biggs, LLC 5664 South Green Street, Suite 300 Salt Lake City, UT 84123 Telephone: (801) 266-0999 Fax: (801)266-1338

W. Daniel "Dee" Miles, III (admitted Pro Hac Vice) Roman A. Shaul {admitted Pro Hac Vice) H. Clay Barnett, III (admitted Pro Hac Vice) J. Paul Lynn (admitted Pro Hac Vice) Timothy Robert Fielder (admitted Pro Hac Vice) Special Assistant Attorneys General Beasley, Allen, Crow, Methvin, Portis & Miles, P.C. 272 Commerce Street P.O. Box 4160 Montgomery, AL 36103-4160 Telephone: (334) 269-2343 Fax: (334) 954-7555

29 Robert E. Steed (Bar No. 6036) Assistant Attorney General Utah Medicaid Fraud Control Unit 5272 College Drive, Suite 200 Salt Lake City, UT 84123-2772 Telephone: (801) 281-1258 Fax:(801)281-1250

Attorneys for Plaintiff/Appellant CERTIFICATE OF SERVICE

I hereby certify that on the of November, 2010,1 served the attached REPLY BRIEF OF APPELLANT and ADDENDUM TO REPLY BRIEF OF APPELLANT by U.S. mail, postage paid, on the following:

W. Daniel "Dee" Miles, III Johnathan T. Rees Roman A. Shaul [email protected] Special Assistant Attorneys General HOGAN & HARRISON, LLP [email protected] Columbia Square, 555 Thirteenth Street, [email protected] NW BEASLEY, ALLEN, CROW, METHVIN, Washington, DC 20004 PORTIS & MILES, P.C. Attorneys for CSL Behring 272 Commerce Street PO Box 4160 Montgomery, AL 36103-4160

Robert E. Steed Peter W. Billing Assistant Attorney General Timothy K. Clark [email protected] [email protected] Utah Medicaid Fraud Control Unit [email protected] 5272 College Drive, Suite 200 FABIAN & CLENDENIN, P.C. Salt Lake City, UT 84123 215 South State Street, Ste. 1200 Salt Lake City, UT 84151 Attorneys for CSL Behring

R. James DeRose, III Scott A. Stempel LOCKE LORD BISSELL & LIDDELL [email protected] 855 Third Avenue, 26^tlJh Floor MORGAN LEWIS & BOCKIUS LLP New York, NY 10022 111 Pennsylvania Avenue, N.W. National Counsel for Apotex Corporation Washington, D.C. 20004 National Counsel for Pfizer, Inc.

31 Jonathan E. Pickhardt Thomas R. Karrenberg Andy Berdon Heather M. Sneddon Faith E. Gay [email protected] Andrewberdon@quinnemanuel. com hsneddon@aklawfirm. com [email protected] ANDERSON & KARRENBERG faithgay@quinnemanuel .com 50 West Broadway, Suite 700 QUINN EMANUEL URQUHART Salt Lake City, UT 84101 OLIVER & HEDGES LLP Local Counsel for Schering-Plough 51 Madison Avenue, 22nd Floor Corporation New York, NY 10010 National Counsel for Mutual Pharmaceutical Company, Inc.

Scott A. DuBois Carisa A. Klemeyer [email protected] ROPES & GRAY LLP [email protected] One International Place SNELL & WILMER LLP Boston, MA 02110 15 West South Temple, Suite 1200 Counsel for Schwarz Pharma USA Salt Lake City, UT 84101 Holdings, Inc. Attorneys for Qualitest Pharmaceuticals, Inc.

John T. Montgomery Matthew Solum Steven A Kaufman msolum@kirkland. com ROPES & GRAY LLP KIRKLAND & ELLIS One International Place Citigroup Center Boston, MA 02110-2624 153 East 53rd Street National Counsel for Schering-Plough New York, NY 10022 Corporation Attorneys for Qualitest Pharmaceuticals, Inc.

Amy S. Sorenson George M. Haley [email protected] David Parkinson SNELL & WILMER LLP [email protected]; 15 West South Temple, Suite 1200 [email protected] Salt Lake City UT 84101-1004 HOLME ROBERTS & OWEN Attorneys for Qualitest Pharmaceuticals, 299 South Main Street, Suite 1800 Inc. Salt Lake City, UT 84111 Attorneys for Pfizer, Inc. Matthew Campbell James P. Ellison [email protected] [email protected] WINSTON & STRAWN, LLP HYMAN, PHELPS & MCNAMARA 1700 K Street, N.W. 700 Thirteenth Street, N.W. Washington, D.C. 20006-3817 Suite 1200 Attorneys for Otsuka America, Inc. Washington, D.C. 20005 Attorneys for Mallinckrodt Inc. and Taro Pharmaceuticals USA, Inc.

Erica Smith-Klocek Merle M. DeLancey, Jr. John C. Dodds Jason D. Wallach Kathryn Potalivo [email protected] [email protected] wallachi @dicksteinshapiro.com j dodds@mor ganlewis. com DICKSTEIN SHAPIRO LLP [email protected] 1825 Eye Street, NW MORGAN, LEWIS & BOCKIUS, LLP Washington DC 20006-543 1701 Market Street Attorneys for Baxter Healthcare Philadelphia PA 19103 Corporation Attorneys for Pfizer, Inc.

Phillip S. Ferguson Richard A. Vazquez Geoffrey C. Haslam [email protected] Phillip. fer guson@chrisj en. com SNOW CHRISTENSEN & MARTINEAU [email protected] 10 Exchange Place, Eleventh Floor Christensen & Jensen, PC P O Box 45000 15 West South Temple, Suite 800 Salt Lake City, UT 84145 Salt Lake City UT 84101 Attorneys for Mallinckrodt Inc. and Taro Attorneys for Baxter Healthcare Pharmaceuticals USA, Inc. Corporation

Brian P. Miller John P. Harrington Derek J. Williams Cecilia M. Romero [email protected] J. Simon Cantarero djw@scmlaw^.com [email protected] SNOW, CHRISTENSEN & MARTINEAU [email protected] 10 Exchange Place, Eleventh Floor [email protected] P.O. Box 45000 HOLLAND & HART Salt Lake City, Utah 84145-5000 60 East South Temple, Suite 2000 Attorneys for Apotex Corporation Salt Lake City UT 84111 Attorneys for Mutual Pharmaceutical Company, Inc. Matthew A. Steward Frederick R. Ball Robert D. Andreasen David I. Curkovic [email protected] [email protected] [email protected] dicurkovic@duanemorris .com CLYDE SNOW SESSIONS & SWENSON DUANE MORRIS LLP One Utah Center, 13th Floor 190 South LaSalle Street, Suite 3700 201 South Main Street Chicago IL 60603 Salt Lake City UT 84111-2216 Attorneys for Morton Grove Attorneys for Morton Grove Pharmaceuticals, Inc. Pharmaceuticals, Inc.

Melanie Vartabedian Jane W. Parver Wesley D. Felix Saul P. Morgenstern VartabedianM@howrey. com Mark Godler [email protected] Sam Lonegan HOWREY LLP jpar\^[email protected] 170 South Main Street, Suite 400 [email protected] Salt Lake City UT 84101 [email protected] Attorneys for Boehringer Ingelheim [email protected] Corporation KAYSCHOLERLLP 425 Park Avenue New York NY 10022 Attorneys for Novartis Pharmaceuticals Corp

Bryon J. Benevento Camille N. Johnson [email protected] cnj @scmlaw.com SNELL & WILMER LLP SNOW CHRISTENSEN & MARTINEAU 15 West South Temple, Suite 1200 10 Exchange Place, Eleventh Floor Gateway Tower West P O Box 45000 Salt Lake City UT 84101 Salt Lake City UT 84145 Attorneys for Novartis Pharmaceuticals Attorneys for Wyeth, Inc. Corp

Ryan M. Harris Peter J. Veneglia [email protected] Cynthia L. Ebbs JONES WALDO HOLBROOK & Martin Barna MCDONOUGH DORNBUSH SCHAEFFER STRONGIN & 170 South Main Street, Suite 1500 VENAGLIA, LLP Salt Lake City, UT 84101 747 Third Avenue Attorneys for Forest Laboratories New York, NY 10017 Attorneys for Forest Laboratories

34 Jordan M. Heinz Janna J. Hansen 300 North LaSalle Brien T. O'Connor Chicago, IL 60654 ROPES & GRAY, LLP Attorney for Boehringer Ingelheim One International Place Corporation Boston, MA 02110 Attorneys for Schwarz Pharma USA Holdings, Inc.

Paul K. Dueffert WILLIAMS & CONNOLLY, LLP 725 Twelfth Street, N.W. Washington, D.C. 20005