was obligated under the contracts to mect certain turn-round time goals or it would be penalized,
3rd Am, Compl. at { 151. Plaintiffs contend Caremark shipped orders between its own facilities,
altered the dates prescription orders were received, and cancelled “old” orders to positively impact
average turn-around times. Jd. at Jf] 154, 155, According to plaintiffs, Caremark directed its
employees to commit fraud “on a national basis” to cnsure it met contractual] guarantees and did not
incur penalties. /d. at 153. Plaintiffs rely on approximately ten individual and summary cxamples
in support of its allegations. Jd. at {f 159-71, Exs. 120-136, 151, 174. Each example identifies the
date the prescription order was received, the date it was sent to another facility, and the subsequent
“false” received date. See e.g., id, at § 168, Ex. 129.

After reviewing the exhibits, it is clear the third amended complaint does not plead the turn-

around time scheme with particularily. The most glaring deficiency is plaintiffs’ failure to identify

any false invoices submitted to the government. Plaintiffs have failed to cure this defect from the
prior complaint. See Fowler IZ, 2006 WL 2425331, at *7. Instead, plaintiffs attach “Guarantee
Analysis” reports and allege they demonstrate a “pattern of fraud.” 3rd Am, Compl. at 9170. But

only two reports are tied to substantive allegations, and they relate to only one insurance plan. Id.

at 99164, 170, Exs. 124, 134. Two examples relating to onc plan cannot support allegations of
company-wide fraud. ‘The additional examples are referred to only summarily, making it impossible
to determine what specifically is false about the reports and why. Jd. at $f 170, 171, Exs. 135, 136,
151-60, Without particularized information regarding the false claims, i.¢., when they were made,
by whom, and what false information they contain, plaintiffs cannot establish the necessary link
between the fraudulent scheme and the false claims. See Crews, 460 F.3d at 857; Gross, 415 F.3d

at 605.

14


complaint would serve any purpose other than drawing another
motion to dismiss on the same grounds.

id. ai *7 (internal citations and footnote omitted). Despite the admonition, the court determined
plaintiffs’ allegations were not factually frivolous. /d. Therefore, the second amended complaint
was dismissed without prejudice, and plaintiffs were required to file a motion for leave to file a third
amended complaint. /d. The court warned that the motion for leave would be granted only if the
proposed complaint complied with Rules 8(a) and 9(b). /d. On November 16, 2006, plaintiffs filed
their motion for leave to amend, attaching a “streamlined” third amended complaint.
DISCUSSION

Legal Standards

A. Motion for Leave to Amend

Leave to amend a complaint “shall be freely given when justice so requires.” Fep. R. Civ.
P. 15(a). However, “a district court may deny leave to amend on the grounds of unduc delay, bad
faith, dilatory motive, prejudice, or futility.” Guise v. BMW Mortgage, LLC, 377 F.3d 795, 801 (7th
Cir. 2004). Amending a complaint is futile if the proposed complaint fails to state a claim upon
which relief could be granted. General Elec. Capital Corp. v, Lease Resolution Corp., 128 F.3d
1074, 1085 (7th Cir, 1997) (“|t]his standard is (he same standard of legal sufficiency that applies

under Rule 12(b)(6)"). A court need not grant leave to amend where a plaintiff has repeatedly failed

to cure the same deficiencies. Jd. This is especially truc when a court provides “detailed analyses

of the deficiencies of the prior complaints and explicit guidance for curing those deficiencics.”
Airborne Beepers & Video, Inc. v. Southwestern Bell Mobile Sys., LLC, No. 02 C 9134, 2006 WL

951877, at *2 (N.D. Ill. Apr. 11, 2006) (Grady, J.).



33, 213 (alleging single claim is false because Caremark knew drugs returned when made; alleging

omitting credits in filed claim makes single claim false). But the substance of the allegations make
clear that the frauds depend on an initial and subsequent claim, ‘Therefore, plaintiffs must
specifically allege “two separate charges for the same [drugs]” and “the link between [the] two.”
Crews, 460 I'.3d at 857. While plaintiffs’ examples are more detailed than the summary exhibits
attached to the previous complaint, they still fall short of providing the necessary allegations under
Rule 9(b). /d.; see also Garst, 328 F.3d at 378 (although relator had “come closer to specific
allegations of deccit,” the complaint was dismissed because he “fail[ed] to link them to any claim
for payment”).

Plaintiffs’ allegations are deficient for the additional reason that they do not specifically
identify which regulation or contractual provision Caremark violated. There is an initial question
whether plaintiffs could ever allege a violation because the contracts are silent on whether Caremark
is allowed to bill for returned drugs, 3rd Am. Compl. at Exs. 1, 2, 4-7, 9, 11, 13, and there is no
regulatory requirement to reverse a claim once a drug is returned. See Crews, 460 F.3d at 858
(agreeing with analysis in Quinn that holds “there is no regulatory requirement of the reversal of a
claim once a medication has been retuned”); Quinn, 382 F.3d at 438, Even assuming the existence
ofan obligation by Caremark, plaintiffs have not particularly alleged the basis of the obligation. The
complaint generally alleges it is legal under state law to bill for restocked prescriptions, 3rd Am.
Compl. at #¥ 24, 26, and failing to credit returns violated the contracts, id. at 213. But Rule 9(b)
is not satisfied by generalized allegations. See Gross, 415 F.3d at 605 (general reference to the
“regulatory framework” was insulficient “to clarify the causal connection between false certifications

and government payouts”); United States ex rel. Raymer v. Univ. of Chicago Uosps., No. 03 C 806,

10


insufficient links between the alleged schomes and the claims submitted to the government.
Caremark requests plaintiffs’ motion for leave to amend be denied and the case be dismissed with
prejudice,

Before turning to whether the alleged schemes are pled with particularity, the court is
compelled to address plaintiffs’ contention that it “streamlined” the third amended complaint. Mot.
at 3. The present version contains 234 paragraphs covering 119 pages. It references 174 exhibits,
comparable in mass to the 1000-plus pages of exhibits attached to the second amended complaint.
While there are 59 fewer pages and 280 fewer paragraphs (demonstrating the bloatedness of the
second amended complaint), plaintiffs add entirely new fraud schemes and recharacterize others.
Many paragraphs contain run-on sentences with so many clauses they are confusing. See e.g., Mot.
at Ex. 1, 99 35, 150, 173. The third amended complaint is not a “streamlined version” of its
predecessor. Plaintiffs continue to ignore Rule 8(a)’s requirement that pleadings be “short and
plain.” Fep. R. Clv. P. 8(a); Garst, 328 F.3d at 378 (upholding dismissal of 155-page complaint with
99 exhibits because “judges and adverse parties need not try to fish a gold coin from a bucket of
mud”). However, the court need not address Rule 8(a) in light of the discussion below.

A. Improperly Reselling Returned Drugs

‘The first scheme alleged in the third amended complaint is that Caremark restocked and
resold returned prescription drugs.' Prescriptions were retumed to Caremark fora variety of reasons.
3rd Am. Compl. at { 23. Pursuant to Caremark’s “national practices and procedures,” the returns

were restocked and resold to plan members. Jd. at { 24. Plaintiffs contend this violated Caremark’s

‘Plaintiffs’ factual allegations are taken as true; all reasonable inferences arc drawn in their
favor. See DeWalt v. Carter, 224 F.3d 607, 612 (7th Cir. 2000),

7



B. False Claims Act and Rule 9(b)

Leave to file a third amended complaint turns on whether the proposed complaint states a
claim under the False Claims Act. The pertinent provisions of the act impose liability on any person
who:

(1) knowingly presents, or causes to be presented, to an officer or

employee of the United States Government . . . a [alse or fraudulent

claim for payment or approval; (2) knowingly makes, uses, or causes

to be made or used, a false record or statement to get a false or

fraudulent claim paid by the Government; [or] (7) knowingly makes,

uses, or causes to be made or used, a false record or statement to

conceal, avoid, or decrease an obligation to pay or transmit moncy or

property to the Government.
31 U.S.C. § 3729(a)(1), (2), and (7). The False Claim Act is an anti-fraud statute; therefore, it is
subject to the heightened pleading standards of Fed, R. Civ. P. 9(b). Gross, 415 F.3d at 604. Under
Rule 9(b), fraud must be alleged with particularity. Fraud claims must identify: (1) the person who
made the alleged misrepresentation; (2) the time, place, and content of the misrepresentation; and
(3) the method by which the misrepresentation was communicated. General Elec, Capital, 128 F.3d
at 1078 (plaintilfs must plead the “who, what, when, where, and how” of the alleged fraud). In the
context of the False Claims Act, plaintiffs must link specific allegations of deceit to claims for
government payment. Garst v. Lockheed-Martin Corp,, 328 F.3d 374, 378 (7th Cir. 2003).
TI. Insufficiency of the Third Amended Complaint

Plaintiffs proposed complaint alleges Caremark violated the False Claims Act by commilling
the following schemes: (a) improperly resclling returned drugs; (b) making unauthorized changes

to prescriptions; (c) fraudulently altering turn-around times; (d) fraudulently reporting “CCR”

savings; (e) refusing to provide generic drugs; and (f) misrepresenting prescriptions as “lost-in-

transit.” Caremark asserts the complaint fails to plead fraud with particularity because there are

6



Id. at 857; see also Quinn v, Omnicare, Inc., 382 F.3d 432, 440 (3d Cir. 2004), The burden was on

the plaintiff to “show the link between two vouchers that represent two separate charges for the same

pill.” Jd. The failure-to-credit allegations suffered the same fate because “Crows failfed] to point

to a specific voucher, one which billed for drugs that were later returned, with no credit given.” Id.
at 857-58. The fraud failed for the additional rcason that the plaintiff had not identified a federal
regulation prohibiting the sale of returned drugs. /d. at 858. Crews makes clear that to allege a False
Claims Act violation, a plaintiff must link specific allegations of deceit to claims for government
payment. id. at 857-58; see also Gross, 415 F.3d at 605; Garst, 328 F.3d at 378.

Plaintiffs’ restock/resale allegations must be viewed in the context of Crews. Plaintiffs allege
two distinct frauds as part of the scheme, i.e., billing for returned drugs and failing to credit for
returns. Both frauds are supported by examples that detail only the return and resale of prescriptions.
See eg., 3rd Am. Compl. at Exs, 24-26 (the “Return Goods Memos,” claim data, and invoices all
relate to the resale of returned prescriptions). There are no specific allegations and no examples of
claims regarding the initial purchase of the drugs. Plaintiffs arc required to specifically allege a
claim relating to the initial purchase, a second claim relating to the resale, and allegations of deccit
linking the two. See Crews, 460 F.3d at 857.

This requirement applies to both alleged frauds. Submitting a claim to the government for
the resale of returned prescription drugs is not fraud unless a claim was already submitted for the
same drugs. /d@. Submitting a claim that omits credits for returns is not fraud unless the government
already paid for the returns. /d. at 858. In other words, the claims alleged to be false in both frauds
are only false based on prior claims submitied to the government. Plaintiffs’ allegations attempt to

characterize the frauds so only one claim is required to allege a violation. 3rd Am. Compl. at ff 28,



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES OF AMERICA ex rel.
MICHAEI], FOWLER, PEPPI FOWLER,
VICTOR CORTES, and DANNY NEVAREZ,

as relators under the FALSE CLAIMS ACT, Civil Action No.: 03 C 8714

Plaintiffs, Suzanne B. Conlon, Judge

v.

CAREMARK RX, INC., a Delaware
corporation, and CAREMARK, INC., a
Delaware corporation,

)
)
)
)
)
)
)
)
)
)
)
)
)
)

Defendants.

MEMORANDUM OPINION AND ORDER

Michael Fowler, Peppi Fowler, Victor Cortes, and Danny Nevarez brought a gui tam action
against their former cmployer, Caremark, Inc., and its parent, Caremark Rx, Inc. (collectively
“Caremark”), alleging fraud involving the distribution of prescription drugs to federal health
insurance plan members. Plaintiffs initially filed a four-count amended complaint under the False
Claims Act, 31 U.S.C. § 3729, et seq., and state false claims statutes. ‘The amended complaint was
dismisscd for failure to plead fraud with particularity and to comply with state gui tam procedures.
United States ex rel. Fowler vy. Caremark Rx, Inc., No. 03 C 8714, 2006 WL 1519567, at *6 (N.D.
Ill. May 30, 2006) (“/owler J”), Plaintiffs filed a second amended complaint, dropping the state
claims, Again, the court dismissed the complaint for failure to adequately plead fraud. United States
ex rel. Fowler vy. Caremark Rx, Inc., No. Civ.A. 03C8714, 2006 WL 2425331, at *7 (N.D. Il. Aug.

21, 2006) (“Fowler IT’), The court required plaintiffs to seek leave before filing a third amended



were made without prescriber approval. Plaintiffs repeatedly allege that “further investigation,
including, inter alia, telephonic contact with [the plan member]; the obtaining of a Release from | the
member] for her prescriber’s medical records; and contact with the prescriber’s oflice, has revealed
that refill elimination was made without prescriber approval.” See e.g., id. at Jf 80, 96. Plaintiffs
do not identify who at Caremark called the prescriber's office, who at the office approved the
change, or whether that person was authorized to do so, Plaintiffs" entire scheme is premised on
unauthorized prescription changes being incorporated into false claims. But plaintiffs have not
alleged the changes or the false claims with enough detail to put Caremark on notice of the fraud.
See Garst, 328 F.3d at 378 (essential to link allegations of deceit with claims); DiLeo v. Ernst &
Young, 901 F.2d 624, 627 (7th Cir, 1990), Plaintiffs’ previous complaints failed to provide this
detail; the third amended complaint does not rectify the deficiency. See Mowler I, 2006 WL
2425331, *2.

The allegations supported by faxed authorization forms are similarly deficient. First, each

allegation partially relies on the same boilerplate language described above. 3rd Am. Compl. at {|

115, 125, 142, 145. Second, only three of the four faxes provided indicate no prescription change
should be made, and they only relate to one insurance plan. /d. at 114, 124, 141, Exs. 91,95, 101.
In other words, the alleged fraud, which plaintiffs contend afflicts every insurance plan, is supported
by three examples pertaining to a single plan. Rule 9(b) does not require “a detailed description of
each and every false claim when the fraud took place over many years;” however, plaintiffs must
give Caremark adequate notice of the alleged fraud. See Inre Cardiac Devices Qui Tam Litig.,221

F.R.D. 318, 334 (D. Conn. 2004) (citing United States ex rel. Pogue v, Diabetic Treatment Ctrs.,238



2006 WL 516577, at *8 (N.D, Ill, Feb. 28, 2006) (Deryeghiayan, J.) (“without knowing which

regulations are at issue, we cannot determine whether [the] alleged violations of unidentified
regulations . . . affected NICU infants amounted to fraudulent misreprcsentations”). Without
particularived allegations, plaintiffs cannot properly plead a fraudulent restock/resale scheme.

B Prescription Drug Changes

Plaintiffs next allege Caremark submitted false claims by misrepresenting that it obtained
proper authorization to change plan members’ prescriptions, The alleged scheme centers around
Caremark’s “intervention” programs, which had the purpose of generating savings for the
government by reducing inefficiencies in the insurance plans. 3rd Am. Compl. at 61, 65. The
programs ate supposed to operate as follows: Caremark analyzes a plan member’s prescriptions and
identifies possible savings; the prescriber is contacted and gives approval to change the prescriptions;
the government saves money over the life of the prescriptions; and Caremark is paid for generating
savings, Id. at {| 61-68. According to plaintiffs, Caremark made drug changes without prescriber
approval, relying instead on authorization from nurses and receptionists. Id. at | 73. Plaintiffs
contend Caremark “billed and collected millions of dollars” from the government by claiming it
properly obtained savings. Jd. at 774. Plaintiffs provide approximately 20 cxamples they contend
establish a “pattern and practice” of fraud. Jd. at ff] 80-148, 150. The examples include quarterly
savings reports that allegedly incorporate unauthorized prescription changes. See ¢.g., id. at [ff 88-
90, Ex. 67. Plaintiffs also provide facsimile correspondence allegedly showing that Caremark made
changes even though prescribers objected. See ¢.g., id, at ] 119, Ex. 95.

Neither plaintiffs’ allegations nor the attached examples mect the pleading requircments of

Rule 9(b). The majority of allegations contain boilerplate descriptions of how prescription changes

aT


contracts with the government and was illegal under state law. Jd. at 924, 33,213. According to

plaintiffs, Caremark submitted false claims by billing the government for prescriptions it knew were
returned. fd. at §] 28, 57, 213. Caremark committed a further fraud by failing to credit the
government for the returns, /d. al {J 29, 57, 213. Plaintiffs offer ten examples to support its
allegations. Jd. at 944-54. The examples follow the same pattern: a “Return Goods Memo” shows
the dates a specific prescription was sent to a plan member, returned to Caremark, and restocked;
excerpts of claim data show a federal insurance plan is billed for the restocked drug shortly atier the
Tetum; and that bill is included in a larger invoice sent to the government for payment, See ¢.g., id.
at 4 44, Exs, 20-22. Based on these examples, plaintiffs contend Caremark made false claims for
“every known returned drug.” Jd. at § 43, Exs. 18, 19 (identifying over 20,000 prescriptions),
The Seventh Circuit recently addressed the sufficiency of an alleged restock/resale scheme

under the False Claims Act, In United States ex rel. Crews v. NCS Healthcare, the plaintiff alleged
prescription drugs were returmed to the defendant’s pharmacy, dumped in large bins, and then reused
to fill future prescriptions. 460 F.3d 853, 855 (7th Cir. 2006). According to the plaintiff, the
defendant submitted false claims by double-billing (he government for the recycled medications and
failing to credit the government for the returns. /d, The complaint was deficient under Rule 9(b)
because the plaintiff had not identified the alleged double-billed claims submitted for the drugs”
initial purchase and resale:

Crews needs to point to at least two vouchers to meet her burden: one

voucher in which the [government] is billed for certain pills, and then

a second voucher in which the [government] is billed again for at

least one of the same pills. Without more, the [vjoucher standing
alone proves nothing.


retumed drugs after only a cursory inspection and resold them without regard to plan members’
safety. /d. at *3. The government was never credited for the returns; instead, Caremark charged the
government again when it resold the returned drugs. Jd. In support of their claims, plaintiffs
attached annual guarantee analyses, savings reports, and invoices identifying over 20,000
prescription orders allegedly filled with returned drugs. Jd. at *2-3.

Once again, Caremark moved to dismiss based on Rule 9(b), and the second amended
complaint was dismissed. The court found the latest complaint claborated on plaintiffs’ personal
knowledge of the alleged schemes, added lists of culpable Caremark employees, and identified
invoices containing purported false claims. Fowler 11, 2006 WL 2425331, at *6. However, the
complaint “d[id] not identify a single prescription through which Caremark perpetrated the alleged
fraud. Nor d[id] [it] tic a specific fraudulent transaction to an invoice submitted to the government,”
dd. The deficiencies pervaded the complaint. Jd. at *2-3 (plaintiffs had not identified “a single order
with [a] falsified tum-around time;” none of the savings reports identified “an instance of improper
authorization;” and plaintiffs did not allege “a single instance when drags were improperly
testocked”). Accordingly, plaintiffs had not “satis{[ied] Rule 9(b)’s requirement to give Caremark
notice of the alleged fraud.” /d, at *6.

The court also expressed dissatisfaction with the complaint’s prolixity:

When the first amended complaint was dismissed for failure to
comply with Rule 9(b), plaintiffs were given an opportunity to cure
pleading defects. Tn response, they submitted a 178-page complaint
and over a thousand pages of exhibits. Laden with baffling acronyms,
their sprawling pleadings raised questions whether they complied
with Rule 8(a)’s requirement of a “short and plain” statement. And
despite receiving clear instructions, they failed again to plead fraud

with particularity. Plaintiffs’ repeated failure to comply with Rule
9b) instills little confidence that a blank check to amend the



The allegations also fail because plaintiffs provide no specifics regarding how Caremark’s

alleged fraud impacted average turn-around times, Fraudulent turn-around times are at the heart of
the fraud scheme, Yet Caremark is left to speculate what the target averages were, which
prescription orders negatively affected (hose averages, and how much the averages were inflated by
Caremark’s fraud, ie., the extent of the alleged fraud. In addition, the target averages differ
depending on the type of action required by Caremark, but the complaint does not separately address
the targets or the reported savings attributed to each action. 3rd Am. Compl. at Exs. 1, 2, 4-6, 9.
Further, Caremark’s atgument is well taken that an extraordinary number of prescriptions exceeding
the turn-around time averages would be necessary to materially alter those averages. Objections at
7 (pointing out that plaintiffs assert there are 13 million prescriptions at issue). But plaintiffs provide
only a limited number of substantive examples relating to one insurance plan with no explanation
of how the averages are affected, 3rd Am. Compl. at 99164, 170, Exs, 124, 134. Plaintiffs simply
do not carry their burden to fink the fraudulent turn-around time scheme to specific false claims. See
Crews, 460 F.3d at 857 (plaintiff’s burden, especially when it is statistically possible that fraud had
no effect on allegedly false claim).

D. Reported “CCR” Savings, Generic Prilosec, and Drug Orders “Lost-In-Transit”

Plaintiffs allege three additional schemes in which Caremark defrauded the government: (1)
Caremark misrepresented the amount of savings caused by its “CCR” cost-saving services, 3rd Am.
Compl. at §{] 172-91; (2) it refused to provide plan members with a generic version of Prilosce, id.
at { 192-98; and (3) it improperly billed the government for refills when members’ prescription drugs
were lost or stolen in the mail, id, at 4 199-210.

All three alleged schemes fail for the same rcason: the conclusory allegations do not link the

alleged frauds with false claims. Plaintiffs rely on phrases such as “each one of the monthly

15



instructions, plaintiffs’ latest proposed complaint fails to cure the highlighted defects. Each new

complaint requires Caremark and the court to invest considerable time and resources culling through
the claims, drafting motions to dismiss, and responding to objections. At some point, the court must
“throw up [its] hands” and dismiss the case. See Garst, 328 F.3d at 376. Now is that point.
Plaintiffs have had ample opportunity, time, and direction by the court over the past three years to
draft a valid cause of action. They have simply failed to do so. Future attempts to state a fraud claim
adequately would be futile. ‘Therefore, plaintiffs’ motion for leave file a third amended complaint
is denied, and the case is dismissed with prejudice, See Garst, 328 F.3d at 376; General Elec.
Capital, 128 F.3d at 1085 (the court has discretion to dismiss a claim with prejudice alter denying

a plaintiffs’ Rule 15(a) motion).

ENTER:

November 30, 2006 United States District Judge

17


members. /d. at *2. According (o plaintiffs, these acts were not isolated; Caremark implemented

national policies and procedures to systematically defraud the government. Jd. at *1.

Although the amended complaint consisted of 250 paragraphs and 49 pages, it was short on
substance. Caremark moved to dismiss the complaint for failure to plead fraud with particularity.
The court agreed, holding that Caremark failed to “sct forth facts identifying the ‘who, what, when,
where and how’ requirements for pleading fraud.” Fowler J, 2006 WL 1519567, at *3 (quoting
United States ex rel. Gross v, Aids Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005).
Plaintiffs’ “brief sketch” of the alleged fraud did not meet Rule 9(b)’s heightened pleading standards.
4d, The court granted Carcmark’s motion and dismissed the amended complaint without prejudice.
Td. at *6.

Plaintiffs filed a second amended complaint in Junc 2006. The complaint made its
predecessor look anemic by comparison. It consisted of 514 paragraphs covering 178 pages, with
over a thousand pages of exhibits. Fowler I/, 2006 WI. 2425331, at *3. Plaintifls dropped the state
law claims, focusing instead on three alleged schemes violating the False Claims Act. First,
Caremark fraudulently concealed its failure to mect turn-around times for filling drug orders. Jd. at
*2. Caremark accomplished this three ways: falsifying receipt dates of prescription orders, shipping
aging orders to other Caremark facilities to be processed as newly-received, and seeking unnecessary
confirmations from plan members (o process orders as a way to restart the fulfillment clock. /d.
Second, Caremark overcharged the government for “intervention services” designed to reduce waste
in the insurance plans. /d, Caremark obtained authorization to change patients’ prescriptions [rom
persons other than the prescribing doctors, and then used these unauthorized “switches” to generate

savings for the insurance plans and performance bonuses. fd. Third, Carcmark restocked all



complaint. Plaintiffs now move to do so under Fed. R. Civ. P. 15(a). Caremark objects. For the
reasons set forth below, plaintiffs’ motion is denied and the case is dismissed.
BACKGROUND

Plaintiffs filled this lawsuit in December 2003. Pursuant to 31 U.S.C. § 3730, the complaint
remained under seal while the United States Attorney’s Office conducted an investigation to
determine whether it would intervene, The government declined intervention in January 2006. The
court vacated the sealing order shortly thereafter.

While the case was under scal, plaintiffs filed an amended complaint. The amended
complaint alleged that Caremark, a pharmaccutical services company with revenues of $8 billion,
submitted millions of dollars in false claims to the federal government in violation of federal and
state falsc claims statutes. See Fowler I, 2006 WT. 1519567, at *1. The alleged false claims arose
from five government contracts obligating Caremark to provide prescription drugs to members of
federal health insurance plans. /d. According to plaintiffs, the fraud was extensive. First, Caremark
falsified the dates when prescription drug orders were received from thousands of plan members,
Id. Caremark did this because it was inundated with orders and unable to mcct contractual
fulfillment deadlines. Jd. By falsifying the date orders were reccived, Caremark gave itself more

processing and delivery time and avoided non-performance penalties. Jd. Second, Caremark

routinely double-billed the government for prescription drugs returned by plan members. /d. When

drugs were returned, Caremark restocked and resold them but failed to credit the government for the
returns. /d. Third, Caremark committed various other frauds, including falsifying prescription dates,
fraudulently altering existing prescriptions, delaying and cancelling drug orders without notice,

manipulating internal records, and refusing to make less-expensive generic drugs available to plan



F, Supp. 2d 258, 268 (D.C. Cir. 2004). Three faxes over a four year period that relate to one federal

plan do not provide sufficient notice.”

Even assuming plaintiffs provided more examples, they have not alleged a false claim with
the requisite particularity. Plaintiffs allege certain year-end savings reports are false because of
Caremark’ s “pattern or practice” of misrepresenting that it obtained authorized prescription changes.
3rd Am. Compl. at 4 150. But plaintiffs do not specifically allege what the reported savings were,
how those savings were inaccurate, whether Caremark would have met savings targets without the
unauthorized changes, or the government's financial loss from the fraud. Instead, plaintiffs generally
allege the false savings reports “were used by Caremark to avoid paying monetary obligations
(‘penaltics’) that it otherwise owed to those plans.” /d. Plaintiffs fail to provide any specifics
regarding the savings targets or the “monetary obligations.” Their conclusory allegations fail to
plead fraud with particularity. See Veal v, First American Sav, Bank, 914 F.2d 909, 913 (7th Cir,
1990) (“[c]onclusory allegations do not satis(y the requirements of Rule 9(b) and subject the pleader
to dismissal”).

Cc Turn-Around Times

Plaintiffs’ proposed complaint alleges Caremark committed a scheme to defraud the

government by misrepresenting the lime in which it “turned around” prescription orders. Caremark

rhe paucity of examples is highlighted by the extensive discovery plaintiffs conducted in
this and related cases, including reviewing over 100,000 Caremark documents received from the
United States Attorney’s Office, Fowler I, 2006 WL 2425331, at *3, analyzing over 20,000
invoices, 3rd Am. Compl, ai Exs, 18, 19, manually reviewing more than 13 million prescriptions,
Mot. at 3, and contacting prescribers’ offices to obtain plan members’ medical records, see e.g.,
3rd Am. Compl. at 9145. Plaintiffs’ argument that they are unable to provide more detail because
Caremark controls certain information lacks merit. See Fowler I, 2006 WL 1519567, at *4
(exceptions to Rule 9(b) relaxing pleadings standards do not apply).

13


invoices,” id. at 181, “each and every one of those CCR Quarterly Reports,” id, at 183, “each and

every occasion,” id. at § 194, “[eJach and every time,” id. at 203, and “regular practices and
procedures,” id. at ] 207, to support its claims. Plaintiffs also rely on hypothetical allegations. Jd.
at {4 177, 201 (alleging Caremark “might” do something and stating “if Caremark sent an order for
drug ‘X’ to Federal Plan Member ‘Z.Z”). Further, the examples provided are summary in nature or
heavily excerpted. See e.g., Ex. 148 (one document attached as a group exhibit listing only nine
prescriptions without explanation). ‘There are few, if any, substantive allegations identifying
contractual provisions or state laws Caremark purportedly violated. There are even fewer identifying
false invoices or bills submitted to the government. In fact, in 38 paragraphs alleging three separate
schemes, there is not one concrete allegation describing the who, what, when, where, why, and how
of the alleged frauds. See General Elec, Capital, 128 F.3d at 1078, Plaintiffs fail to tie
particularized allegations of wrongdoing to specific false claims. See Crews, 460 F.3d at 858. This
is exactly what caused the dismissal of plaintiffs’ second amended complaint, and it warrants denial
of plaintiffs’ motion for leave to amend.
CONCLUSLON

‘rhe original complaint was filed in December 2003. Since then, plaintiffs have attempted
three more times to plead a False Claims Act violation with particularity. While the amended
complaints have grown in size (from 70 paragraphs to as large as 514 paragraphs with over 1000
pages of exhibits) and complexity, each have failed to plead a fraud scheme with sufficient detail to
satisfy Rule 9(b). Over the past year, the court granted two of Caremark’s motions to dismiss,
issuing detailed opinions alerting plaintiffs to the deficiencies in their allegations. See Fowler 1,

2006 WL 1519567, at *2-4; Fowler II, 2006 WL 2425331, at *2-3, 6-7. Despite the court’s

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