District Court, Salt Lake Department The Honorable Matthew
Bates The Honorable Kate A. Toomey No. 070913719
D. Reyes, Robert E. Steed, W. Daniel Miles III, Alison D.
Hawthorne, Joseph W. Steele, and Kenneth D. Lougee, Attorneys
Richard A. Vazquez, James W. Matthews, and Katy E. Koski,
Attorneys for Appellees
Jill M. Pohlman authored this Opinion, in which Judges David
N. Mortensen and Diana Hagen concurred.
After observing a trend of allegedly fraudulent
pharmaceutical prices being submitted to the State Medicaid
program, the State of Utah brought civil actions against a
number of pharmaceutical companies for fraud and alleged
violations of the Utah False Claims Act (the UFCA). Utah Code
Ann. §§ 26-20-1 to -15 (LexisNexis 2013). Watson
Pharmaceuticals Inc. and two of its subsidiaries, Watson
Laboratories Inc. and Watson Pharma Inc. (collectively, the
Watson Defendants), were among the named
defendants. The district court dismissed the claims
against the Watson Defendants because the State failed to
plead its claims against each defendant separately and
instead identified them collectively in the complaint as
"Defendant Watson." We affirm.
Under Utah's Medicaid program, medical providers are
reimbursed for drugs prescribed to Medicaid recipients.
Reimbursement is set by state and federal rules, and the
amount a medical provider receives is calculated by looking
at, among other things, the Average Wholesale Price (AWP)
reported by drug wholesalers or manufacturers. The Watson
Defendants each allegedly reported inflated AWPs, resulting
in the State over-reimbursing physicians and pharmacists for
drugs prescribed for and dispensed to Utah Medicaid
recipients. The over-reimbursement in turn allowed the Watson
Defendants to market the "spread" between their
inflated AWPs and the actual AWPs, thereby increasing sales
by inducing doctors to buy their drugs.
¶3 The State found a widespread practice of inflated AWP
reporting and brought civil actions against numerous
pharmaceutical companies. In three separate actions against
three different groups of defendants, the State alleged
violations of the UFCA and claims for fraudulent
misrepresentation. While each case followed a different
procedural path, the complaints were virtually identical.
One of these companion cases found its way to the Utah
Supreme Court, and the current case was stayed during the
pendency of that appeal. See generally State v. Apotex
Corp., 2012 UT 36, 282 P.3d 66. In Apotex, the
district court had dismissed the State's complaint with
prejudice for failing to plead its claims with particularity
under rule 9(c) of the Utah Rules of Civil
Procedure. Id. ¶ 11; see also
Utah R. Civ. P. 9(c) ("In alleging fraud . . ., a party
must state with particularity the circumstances constituting
fraud . . . ."). The district court concluded that the
State had "failed to identify each defendant's
allegedly fraudulent misrepresentations and UFCA violations
with particularity" and instead "offered only broad
conjecture of alleged false or fraudulent statements that the
Defendants made as a group." Apotex, 2012 UT
36, ¶ 12 (quotation simplified).
On appeal, the supreme court held that, while rule 9(c)
applied to the State's UFCA and fraudulent
misrepresentation claims, "a relaxed standard is
appropriate where a plaintiff asserts a widespread fraudulent
scheme that involves the submission of many false claims over
a lengthy period." Id. ¶ 20. This relaxed
standard provides that "if a plaintiff cannot allege the
details of an actually submitted false claim, the plaintiff
may nevertheless survive [rule 9(c)] by alleging particular
details of a scheme to submit false claims paired with
reliable indicia that lead to a strong inference that claims
were actually submitted by each defendant." Id.
¶ 29 (quotation simplified). "[I]n the interest of
justice," the court remanded the case to the district
court to allow the State an opportunity to meet the new
standard. Id. ¶¶ 31, 39.
The State here was similarly given the opportunity to replead
its claims to satisfy Apotex. In its Third Amended
Complaint (the Complaint),  the State alleged that the
defendants had each "made false publications" for
the prescription drugs identified in Exhibit A to the
Complaint. In that exhibit, the State identified hundreds of
drugs, listing each by product name and National Drug Code
(NDC). The State also identified the specific defendant
associated with each drug, except for the drugs associated
with the Watson Defendants. For those drugs, the State
alleged that the Watson Defendants collectively "made
false publications" for the drugs identified in Exhibit
A as being jointly associated with the three entities.
The State also embedded in the Complaint charts purporting to
show "representative examples" of alleged false
claims. See id. ¶ 35 (listing
"representative examples" of alleged false claims
as an example of "reliable indicia that lead to a strong
inference that false claims were actually submitted"
(quotations simplified)). For each prescription drug listed
in the charts, the State identified the drug by name and NDC,
along with each drug's reported AWP, actual AWP, and the
spread between the two. Again, the State provided separate
charts for each defendant except for the Watson Defendants.
The representative examples for the three Watson Defendants
were combined without distinction in a single chart under the
name "Defendant Watson."
Under rules 9(c) and 12(b)(6) of the Utah Rules of Civil
Procedure, all of the named defendants, including the Watson
Defendants, filed a joint motion to dismiss the Complaint,
alleging that the State failed to satisfy the Apotex
pleading standard. The district court ruled that the State
pleaded its facts with sufficient particularity except as to
the Watson Defendants, which the court recognized "is
not a single defendant, but instead, is comprised of three
distinct entities." The court noted that the State was
"not required to identify the minutia related to each
alleged bad act," but that Apotex required that
each defendant must be "individually ...