Court Opinion

ID: 9946782
Source: CourtListenerOpinion
Date Created: 2024-03-01 15:18:18.45704+00
Date Added: 2024-06-11T14:23:42.282060
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-2736-20

THE STATE OF NEW JERSEY
ex rel. HEALTH CHOICE
ADVOCATES, LLC,

          Plaintiff-Appellant,

v.

GILEAD SCIENCES, INC.,

     Defendant-Respondent.
____________________________

                   Argued November 14, 2023 – Decided March 1, 2024

                   Before Judges Gilson, Berdote Byrne, and Bishop-
                   Thompson.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Middlesex County, Docket No. L-2424-20.

                   Radu A. Lelutiu (McKool Smith PC) of the New York
                   bar, admitted pro hac vice, and Ruby Khallouf argued
                   the cause for appellant Health Choice Advocates, LLC
                   (Florio Perrucci Steinhardt Cappelli Tipton & Taylor,
                   LLC, W. Mark Lanier (The Lanier Law Firm) of the
                   Texas bar, admitted pro hac vice, Zeke DeRose III (The
                   Lanier Law Firm) of the Texas bar, admitted pro hac
                   vice, and Eric B. Halper (McKool Smith PC) of the
            New York bar, admitted pro hac vice, attorneys; Brian
            R. Tipton, Ruby Khallouf, W. Mark Lanier, Zeke
            DeRose III, Eric B. Halper, and Radu A. Lelutiu, of
            counsel and on the briefs).

            John M. Potter (Quinn Emanuel Urquhart & Sullivan,
            LLP) of the California bar, admitted pro hac vice,
            argued the cause for respondent (Marino, Tortorella &
            Boyle, PC, John M. Potter, Manisha M. Sheth (Quinn
            Emanuel Urquhart & Sullivan, LLP) of the New York
            bar, admitted pro hac vice, and Suong Nguyen (Quinn
            Emanuel Urquhart & Sullivan, LLP) of the California
            bar, admitted pro hac vice, attorneys; John M. Potter,
            Manisha M. Sheth, and Suong Nguyen, of counsel and
            on the brief; Kevin H. Marino and John A. Boyle, on
            the brief).

PER CURIAM

      Plaintiff Health Choice Advocates, LLC (plaintiff or Relator) filed a qui

tam action on behalf of the State of New Jersey under the New Jersey False

Claims Act (the NJFC Act), N.J.S.A. 2A:32C-1 to -15, -17 to -18. Plaintiff

alleged that defendant Gilead Sciences, Inc. (defendant or Gilead) had engaged

in unlawful schemes to induce healthcare providers to prescribe Gilead's drugs,

which resulted in the submission of false claims for payment from government

healthcare programs, primarily Medicaid and Medicare.

      Plaintiff appeals from an order dismissing its complaint with prejudice.

We affirm because plaintiff's claims are barred by principles of res judicata

under the federal two-dismissal rule set forth in Fed. R. Civ. P. 41(a)(1)(B).

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                                        2
                                        I.

      Plaintiff is a subsidiary of the National Health Care Analysis Group

(NHCA Group), a partnership comprised of limited liability companies

established by investors and former investment bankers "for the purpose of filing

qui tam actions alleging instances of fraud in medicine and pharmaceuticals."

United States ex rel. Health Choice All., L.L.C. v. Eli Lilly & Co., 4 F.4th 255,

259 (5th Cir. 2021) (italicization omitted).

      Plaintiff alleges that Gilead engaged in two unlawful marketing schemes,

which caused the submission of false claims. In the first scheme, which plaintiff

calls the "White Coat Marketing Scheme," plaintiff contends that Gilead paid a

third-party company to hire registered nurses to promote and recommend

Gilead's medications.      In that regard, plaintiff asserts that Gilead paid

"kickbacks" to the third-party company for the nurses' recommendations. In the

second scheme, which plaintiff calls the "Support Services Scheme," plaintiff

alleges that Gilead offered free reimbursement support services to prescribers

who wrote prescriptions for Gilead's medications. Plaintiff alleges that those

schemes caused government-administered programs to pay for millions of

dollars in false claims.

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                                        3
      Based on those allegations, plaintiff filed a series of qui tam actions

against Gilead. In June 2017, plaintiff filed a sealed qui tam action against

Gilead and four other defendants in the United States District Court for the

Eastern District of Texas (the First Federal Texas Action). The complaint was

unsealed after the United States and thirty-one named plaintiff States, including

New Jersey, declined to intervene.

      Gilead moved to dismiss the First Federal Texas Action after it learned

that another relator had previously filed a sealed qui tam action against Gilead

in the United States District Court for the Eastern District of Pennsylvania in

March 2017 (the EDPA Action). Gilead argued that the EDPA Action was filed

first and, therefore, the First Federal Texas Action should be dismissed under

the first-to-file rule, which prohibits any person or entity, other than the

government, from bringing "a related action based on the facts underlying the

[first] pending action." 31 U.S.C. § 3730(b)(5).

      A federal magistrate judge recommended that the portion of Gilead's

motion to dismiss based on first-to-file grounds be granted. Before the district

court judge acted on that recommendation, plaintiff moved to voluntarily

dismiss the First Federal Texas Action pursuant to "Federal Rule of Civil

Procedure 41(a)(1)[(A)](i) and 31 U.S.C. § 3730(b)(1)."

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                                       4
      On July 27, 2018, the federal court entered an order dismissing the First

Federal Texas Action without prejudice. The court order stated that the motion

was made "pursuant to Federal Rule of Civil Procedure 41(a)(1)[(A)](i) and 31

U.S.C. § 3730(b)(1)." Section 3730(b)(1), which is part of the federal False

Claims Act, states that an action by a private person "may be dismissed only if

the court and the [United States] Attorney General give written consent to the

dismissal and their reasons for consenting." 31 U.S.C. § 3730(b)(1). The order

also stated that the court had received "the United States' and [p]laintiff-States'

[n]otice of [c]onsent to [d]ismissal."

      In July 2018, plaintiff, together with another relator, filed a second qui

tam action against Gilead and two other defendants in the United States District

Court for the Eastern District of Texas (the Second Federal Texas Action). Like

the First Federal Texas Action, the Second Federal Texas Action was filed on

behalf of the United States and numerous states, including New Jersey. The

Second Federal Texas Action asserted violations of the federal and state False

Claims Acts based on the same marketing schemes alleged in the First Federal

Texas Action.

      Before serving the complaint, plaintiff moved to voluntarily dismiss the

Second Federal Texas Action "[p]ursuant to Federal Rule of Civil Procedure

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                                         5
41(a)(1)(A)(i) and 31 U.S.C. § 3730(b)(1)." Plaintiff requested that the federal

claims and all claims based on state statutes, other than those of Texas and New

Jersey, be dismissed with prejudice as to plaintiff but without prejudice as to the

United States or the plaintiff States. Plaintiff also requested that its claims filed

on behalf of Texas and New Jersey be dismissed without prejudice. Plaintiff

represented:     "Counsel for Relators have discussed this motion with

representatives for the United States of America and the [p]laintiff States, who

have indicated that they do not oppose the relief sought herein."

      On March 11, 2020, the federal court entered an order dismissing the

Second Federal Texas Action. The order provided that the dismissal was with

prejudice as to plaintiff's claims filed on behalf of the United States and all states

other than Texas and New Jersey. The order also stated that "[p]laintiffs' claims

on behalf of Texas and New Jersey" were dismissed without prejudice. Finally,

the order stated that the dismissal was without prejudice as to the United States

or "the relevant state[s]."

      Less than a month later, on April 9, 2020, plaintiff filed this qui tam action

on behalf of New Jersey against Gilead in the Law Division (the New Jersey

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                                          6
Action).1 The New Jersey Action alleges that Gilead submitted false claims in

violation of the NJFC Act based on the same schemes plaintiff had alleged in

the First and Second Federal Texas Actions.

      Gilead moved to dismiss the New Jersey Action under Rule 4:6-2 and Rule

4:5-8(a). Gilead contended that the New Jersey Action should be dismissed for

five separate reasons: (1) it was barred by res judicata and the federal two-

dismissal rule; (2) it was barred by the NJFC Act's first-to-file provision,

N.J.S.A. 2A:32C-5(i); (3) it was barred by the NJFC Act's public disclosure bar,

N.J.S.A. 2A:32C-9(c); (4) it failed to allege facts to support plaintiff's

contention that Gilead knew its operations were resulting in false claims being

submitted to New Jersey; and (5) it failed to allege fraud with specificity as

required by Rule 4:5-8(a).

1
   At approximately the same time, a related plaintiff filed a qui tam action
against Shire PLC, Baxter International, Inc., Baxalta Incorporated, and
Viropharma, Inc. (collectively, Shire) on behalf of New Jersey in the Law
Division. The Law Division dismissed the claims against Shire at the same time
that it dismissed the claims against Gilead. The plaintiff in that action had filed
an appeal, but thereafter, Shire and the plaintiff resolved their disputes, and that
appeal was dismissed. See State ex rel. Health Choice Advisory, LLC v. Shire
PLC, No. A-2735-20 (App. Div. Nov. 8, 2023).
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                                         7
      After hearing argument, on April 22, 2021, the trial court issued a written

opinion and order granting Gilead's motion and dismissing plaintiff's complaint

with prejudice. The trial court accepted all five of Gilead's arguments.

      Plaintiff now appeals from the order dismissing the New Jersey Action

with prejudice.

                                          II.

      On appeal, plaintiff makes four arguments. It contends that the trial court

erred in its rulings on (1) the federal two-dismissal rule; (2) the first-to-file rule;

(3) the public disclosure bar; and (4) the sufficiency of plaintiff's allegations.

      Because we hold that the claims in the New Jersey Action were barred by

the federal two-dismissal rule, we affirm on that basis. Given that ruling, we

need not address the alternative grounds for dismissing plaintiff's complaint

against Gilead.

      A.     Res Judicata.

      Whether res judicata applies is a question of law, which we review de

novo. See Rowe v. Bell & Gossett Co., 239 N.J. 531, 552 (2019); Walker v.

Choudhary, 425 N.J. Super. 135, 151 (App. Div. 2012). Moreover, as the issue

arose on a motion to dismiss, we use a de novo standard of review. Baskin v.

P.C. Richard & Son, LLC, 246 N.J. 157, 171 (2021) (citing Dimitrakopoulos v.

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                                          8
Borrus, Goldin, Foley, Vignuolo, Hyman & Stahl, P.C., 237 N.J. 91, 108

(2019)); Stop & Shop Supermarket Co. v. County of Bergen, 450 N.J. Super.

286, 290 (App. Div. 2017); Rezem Fam. Assocs. v. Borough of Millstone, 423

N.J. Super. 103, 114 (App. Div. 2011).

      Under principles of res judicata, a "cause of action between parties that

has been finally determined on the merits by a tribunal having jurisdiction

cannot be relitigated by those parties or their privities in a new proceeding."

Velasquez v. Franz, 123 N.J. 498, 505 (1991) (citing Roberts v. Goldner, 79 N.J.

82, 85 (1979)). There are three basic elements that must be met for res judicata

to apply:

            (1) [T]he judgment in the prior action must be valid,
            final, and on the merits; (2) the parties in the later action
            must be identical to or in privity with those in the prior
            action; and (3) the claim in the later action must grow
            out of the same transaction or occurrence as the claim
            in the earlier one.

            [McNeil v. Legis. Apportionment Comm'n, 177 N.J.
            364, 395 (2003) (quoting Watkins v. Resorts Int'l Hotel
            & Casino, Inc., 124 N.J. 398, 412 (1991)).]

      "When the prior action is the subject of a prior federal court judgment, the

binding effect of that judgment, whether applying principles of res judicata or

collateral estoppel, is determined by the law of the jurisdiction that rendered it."

In re Liquidation of Integrity Ins. Co., 214 N.J. 51, 67 (2013). Here, a federal

                                                                              A-2736-20
                                         9
court rendered the orders that Gilead seeks to enforce; we, therefore, look to

federal law, and specifically to the law as applied in the United States Court of

Appeals for the Fifth Circuit, to determine the prior orders' preclusive effect.

Ibid.; see also Gannon v. Am. Home Prods., Inc., 211 N.J. 454, 471 (2012);

Watkins, 124 N.J. at 411.

      Plaintiff does not dispute that it and Gilead were parties to the First and

Second Federal Texas Actions. It also does not dispute that the New Jersey

Action is based on the same transactions and occurrences raised in the First and

Second Federal Texas Actions. Instead, the issue in dispute is whether the two

orders in the First and Second Federal Texas Actions constitute an adjudication

on the merits barring those claims from being refiled. That issue, in turn,

requires us to analyze the federal two-dismissal rule.

      B.    The Federal Two-Dismissal Rule.

      Fed. R. Civ. P. 41 sets forth several ways an action in federal court may

be dismissed. Under subsection (a)(1)(A), a plaintiff can voluntarily dismiss an

action without a court order by filing "(i) a notice of dismissal before the

opposing party serves either an answer or a motion for summary judgment; or

(ii) a stipulation of dismissal signed by all parties who have appeared. " Fed. R.

Civ. P. 41(a)(1)(A)(i) to (ii). Fed. R. Civ. P. 41(a)(1)(B) states that "if the

                                                                            A-2736-20
                                       10
plaintiff previously dismissed any federal- or state-court action based on or

including the same claim, a notice of dismissal operates as an adjudication on

the merits." That provision is known as the "two-dismissal rule" and if it is

applicable, it has res judicata effect and precludes a plaintiff from filing a new

action based on the same claims that were twice previously voluntarily

dismissed. See Yesh Music v. Lakewood Church, 727 F.3d 356, 363 (5th Cir.

2013) (noting that "the well-known legal consequence of two voluntary

dismissals is an inability to re-file the complaint"); see also Shaver v. Barrett

Daffin Frappier Turner & Engel, L.L.P., 593 F. App'x 265, 275 (5th Cir. 2014).2

      Fed. R. Civ. P. 41(a)(2) also provides that an action may be dismissed by

court order. That provision states:

            Except as provided in Rule 41(a)(1), an action may be
            dismissed at the plaintiff's request only by court order,
            on terms that the court considers proper. If a defendant
            has pleaded a counterclaim before being served with the
            plaintiff's motion to dismiss, the action may be
            dismissed over the defendant's objection only if the
            counterclaim can remain pending for independent
            adjudication. Unless the order states otherwise, a
            dismissal under this paragraph (2) is without prejudice.

            [Fed. R. Civ. P. 41(a)(2).]

2
   Although opinions published in the Federal Appendix are not precedential,
they are reported opinions and we cite to them as persuasive authority.
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                                       11
      Gilead argues that the orders entered in the First and Second Federal Texas

Actions were entered under Fed. R. Civ. P. 41(a)(1)(A)(i). So, it contends that

the two-dismissal rule applies, and plaintiff's New Jersey Action is barred by

principles of res judicata. Plaintiff, in contrast, maintains that both dismissals

were brought by way of motion and two orders were entered.              Therefore,

plaintiff argues that the dismissals were pursuant to Fed. R. Civ. P. 41(a)(2), and

they were without prejudice. In that regard, plaintiff points out that the dismissal

order in the Second Federal Texas Action expressly stated that plaintiff's claims

based on the NJFC Act were dismissed without prejudice.

      We must determine what the federal court intended in issuing its two

dismissal orders. Both orders were issued based on plaintiff's motions, which

both expressly stated that the dismissals were being sought "[p]ursuant to

Federal Rule of Civil Procedure 41(a)(1)(A)(i)." 3 In the order dismissing the

First Federal Texas Action, the court expressly cited to "Federal Rule of Civil

Procedure 41(a)(1)[(A)](i)" as the basis for its dismissal. In the order dismissing

the Second Federal Texas Action, the court expressly referenced plaintiff's

"Motion for Voluntary Dismissal." The court then granted the motion and

3
  Plaintiff's motion in the First Federal Texas Action referred to "Federal Rule
of Civil Procedure 41(a)(1)(i)," but the correct rule is Fed. R. Civ. P.
41(a)(1)(A)(i).
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                                        12
tracked the language of Fed. R. Civ. P. 41(a)(1)(A)(i) by stating it was granting

the dismissal "because no defendant has served an answer or motion for

summary judgment."

      Given that plaintiff expressly moved for the voluntary dismissal of both

actions based on Fed. R. Civ. P. 41(a)(1)(A)(i), and that the court expressly

referenced the basis of plaintiff's grounds for dismissal in the orders, we

conclude that those orders are governed by the two-dismissal rule.

Consequently, the second order acted as an adjudication on the merits and

precludes plaintiff from reasserting the same or similar claims.

      In reaching this conclusion, we recognize that the result may seem harsh.

The United States Court of Appeals for the Fifth Circuit, however, has

acknowledged that the two-dismissal rule is a "potentially harsh rule, but the

language [of Fed. R. Civ. P. 41(a)(1)] is clear." Cabot Golf CL-PP 1, LLC v.

Nixon Peabody, LLP, 575 F. App'x 216, 219 (5th Cir. 2014). In that regard, the

Fifth Circuit has held that the "effect of [the] second dismissal is determined by

Rule 41(a)(1)(B)'s two-dismissal rule," which must be strictly enforced when it

applies. Id. at 218.

      Moreover, quoting the Seventh Circuit, the Fifth Circuit has explained that

Fed. R. Civ. P. 41(a)(1)(B)'s two-dismissal rule should be enforced because,

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                                       13
             the [Federal Rules of Civil Procedure] are carefully-
             crafted instruments designed to achieve, by their
             uniform application, fairness and expedition in the
             conduct of federal litigation. Therefore, when a party
             contends that a court should disregard the express
             language of a carefully-drawn rule of procedure, that
             party bears a heavy burden of showing that a departure
             from the plain language is justified.

             [Cabot Golf, 575 F. App'x at 219 (quoting Sutton Place
             Dev. Co. v. Abacus Mortg. Inv. Co., 826 F.2d 637, 640
             (7th Cir. 1987)).]

      The Fifth Circuit has also held that the controlling consideration is

whether a plaintiff acts pursuant to Fed. R. Civ. P. 41(a)(1). Williams v. Ezell,

531 F.2d 1261, 1263 (5th Cir. 1976). In Williams, the Fifth Circuit explained

that even if a plaintiff filed a motion to dismiss, rather than a notice of dismissal,

that distinction was "without a difference." Ibid. In other words, how a plaintiff

"styled" its motion was not dispositive; rather, the controlling fact was whether

the plaintiff sought the dismissal under Fed. R. Civ. P. 41(a)(1) as opposed to

Fed. R. Civ. P. 41(a)(2). Ibid.

      Other federal appellate circuit courts have applied that same reasoning.

The Ninth Circuit has held that "the label a plaintiff attaches to a second Rule

41(a)(1) dismissal is irrelevant if a subsequent action is filed 'based on or

including the same claim,' because Rule 41(a)(1) itself instructs that such a

dismissal 'operates as an adjudication upon the merits.'" Com. Space Mgmt. Co.

                                                                               A-2736-20
                                         14
v. Boeing Co., 193 F.3d 1074, 1080 (9th Cir. 1999) (quoting Fed. R. Civ. P.

41(a)(1)). The Seventh Circuit, citing an Eighth Circuit case discussing the

same issue, has noted that:

            [T]here are circumstances when due regard for the
            underlying policy concerns of [Fed. R. Civ. P. 41(a)(1)]
            may require that the court depart from the precise
            language of the Rule. See, e.g., Gioia v. Blue Cross
            Hosp. Serv., Inc., 641 F.2d 540 (8th Cir. 1981)
            (although dismissal granted by court order, totality of
            circumstances established that dismissal was pursuant
            to Rule 41(a)(1) rather than 41(a)(2)).

            [Sutton Place Dev. Co., 826 F.2d at 640 (citations
            reformatted).]

      Moreover, our holding is consistent with cases from other jurisdictions

recognizing that qui tam suits brought under the federal False Claims Act may

be dismissed pursuant to Fed. R. Civ. P. 41(a)(1), even though a court order is

required. See, e.g., Forshey v. Airborne Freight Corp., 755 N.E.2d 969, 974

(Ohio Ct. App. 2001).

      In summary, we are required to look to federal law for the res judicata

effect of the dismissals of the First and Second Federal Texas Actions. As we

read federal law, the controlling fact is the rule plaintiff relied on in moving for

dismissal. Plaintiff expressly relied on Fed. R. Civ. P. 41(a)(1) both times when

it dismissed the First and Second Federal Texas Actions. Therefore, we affirm

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                                        15
the dismissal of the New Jersey Action based on the res judicata effect of the

two-dismissal rule.

      Having determined that the New Jersey Action is barred by principles of

res judicata, we normally would decline to discuss the other issues because to

do so would effectively render an advisory opinion. Nevertheless, we point out

there is an alternative ground that supports the affirmance of the dismissal of

plaintiff's New Jersey Action. Plaintiff's New Jersey Action is also barred by

the public disclosure bar in the NJFC Act. See N.J.S.A. 2A:32C-9(c). We have

discussed the public disclosure bar and how it precludes similar qui tam actions

filed by two relators who were affiliated with plaintiff and sued two other

pharmaceutical companies. See State ex rel. Health Choice Grp., LLP v. Bayer

Corp., ___ N.J. Super. ___ (App. Div. 2024).

      Affirmed.

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