United States Ex Rel. Schumann v. Astrazeneca Pharmaceuticals L.P. , 769 F.3d 837 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 13-1489
UNITED STATES OF AMERICA, EX REL.
KARL S. SCHUMANN, AND ON BEHALF OF THE
STATES OF CALIFORNIA, DELAWARE, THE DISTRICT
OF COLUMBIA, FLORIDA, HAWAII, ILLINOIS,
LOUISIANA, MASSACHUSETTS, NEVADA,
TENNESSEE, TEXAS AND VIRGINIA;
KARL S. SCHUMANN
v.
ASTRAZENECA PHARMACEUTICALS L.P.;
ASTRAZENECA LP; BRISTOL-MYERS SQUIBB
COMPANY; E.I. DUPONT DE NEMOURS & COMPANY;
DUPONT PHARMACEUTICALS COMPANY
Karl S. Schumann,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D. C. No. 2-03-cv-05423)
District Judge: Honorable J. William Ditter, Jr.
Argued on November 6, 2013
Before: GREENAWAY, JR., VANASKIE and ROTH,
Circuit Judges
(Opinion filed: October 20, 2014)
W. Scott Simmer, Esquire
Paul M. Honigberg, Esquire (Argued)
Thomas J. Poulin, Esquire
Blank Rome LLP
600 New Hampshire Avenue, N.W.
Washington, D.C. 20037
Stephen M. Orlofsky, Esquire
Nicholas C. Harbist, Esquire
Blank Rome LLP
301 Carnegie Center, Third Floor
Princeton, New Jersey 08540
Counsel for Appellant
Mark E. Haddad, Esquire (Argued)
Collin P. Wedel, Esquire
Sidley Austin LLP
555 West Fifth Street
Suite 4000
Los Angeles, CA 90013
2
Michael P. Doss, Esquire
Sidley Austin LLP
One South Dearborn Street
Suite 1250
Chicago, IL 60603
Counsel for Appellees AstraZeneca LP
and AstraZeneca Pharmaceuticals L.P.
Catherine E. Stetson, Esquire (Argued)
Jessica L. Ellsworth, Esquire
David M. Ginn, Esquire
Hogan Lovells US LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Thomas M. Gallagher, Esquire
Pepper Hamilton
Suite 1250
18th & Arch Streets
3000 Two Logan Square
Philadelphia, PA 19103
Counsel for Appellees Bristol-Myers
Squibb Company,
DuPont Pharmaceuticals, Company, and
E.I. Du Pont
De Nemours & Company
3
OPINION
ROTH, Circuit Judge:
Plaintiff Karl S. Schumann, proceeding as a qui tam
relator under the False Claims Act (FCA), 31 U.S.C. § 3729et seq., and corresponding state laws, appeals the District
Court’s orders granting motions to dismiss by defendants
Bristol-Meyers Squib Company, E.I. du Pont de Nemours and
Company, and DuPont Pharmaceuticals Company (together,
BMS), and defendants AstraZeneca Pharmaceuticals LP and
AstraZeneca LP (together, AZ). Schumann alleges
defendants (1) improperly induced Medco Health Solutions,
Inc., his employer, to offer certain of defendants’ drugs in its
mail-order pharmacies and in health plans it managed; (2) did
not include those inducements when calculating the best price
for their drugs, and thus submitted inaccurate best price
reports to the government; (3) overcharged the government
based on those inaccurate best prices; and (4) underpaid
rebates owed based on those inaccurate best prices.
The District Court found it lacked subject matter
jurisdiction over Schumann’s claims because he did not have
the requisite direct and independent knowledge to satisfy the
original source exception to the FCA’s public disclosure bar.
As a result, the court dismissed Schumann’s claims with
prejudice. We will affirm.
4
I. Background
A. FCA Statutory Framework
As we have previously explained in great detail, the
FCA makes it unlawful to knowingly submit a fraudulent
claim to the government. See, e.g., United States ex rel.
Paranich v. Sorgnard, 396 F.3d 326, 331-32 (3d Cir. 2005);
United States ex rel. Dunleavy v. Cnty. of Del., 123 F.3d 734,
738 & n.6 (3d Cir. 1997); United States ex rel. Stinson,
Lyons, Gerlin & Bustamante, P.A. v. Prudential Ins. Co., 944
F.2d 1149, 1153-54 (3d Cir. 1991). “The qui tam provision
of the [FCA], permits, in certain circumstances, suits by
private parties on behalf of the United States against anyone
submitting a false claim to the Government. Prior to 1986,
such suits were barred if the information on which they were
based was already in the Government’s possession.” Hughes
Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939,
941 (1997).
In 1986, Congress amended the FCA to encourage
private plaintiffs—relators, in FCA parlance—to bring civil
cases if they had information that someone had defrauded the
government. See False Claims Amendments Act (FCAA),
Pub. L. No. 99-562, 100 Stat. 3153 (codified at 31 U.S.C. §
3729-33 (1988)); Graham Cnty. Soil & Water Conservation
Dist. v. United States ex rel. Wilson, 559 U.S. 280, 293-95,
298 (2010). But, “to strike a balance between encouraging
private persons to root out fraud and stifling parasitic
lawsuits,” Graham Cnty., 559 U.S. at 295, Congress added
the public disclosure bar to withdraw jurisdiction over, among
other things, suits based on information that had been
5
previously disclosed unless “the person bringing the action is
an original source of the information.” FCAA § 3 (codified at
31 U.S.C. § 3730(e)(4)(A));1 see also United States ex rel.
Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 518-19 &
n.20 (3d Cir. 2007) (describing purpose behind FCAA and
public disclosure bar). Congress defined an “original source”
as “an individual who has direct and independent knowledge
of the information on which the allegations are based and has
voluntarily provided the information to the Government
before filing an action under this section which is based on
the information.” FCAA § 3 (codified at 31 U.S.C. §
3730(e)(4)(B)).
1
In full, the FCAA’s public disclosure bar provided:
No court shall have jurisdiction over an action
under this section based upon the public
disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a
congressional, administrative, or Government
Accounting Office report, hearing, audit, or
investigation, or from the news media, unless
the action is brought by the Attorney General
or the person bringing the action is an original
source of the information.
In 2010, Congress amended Section 3730(e)(4). See Patient
Protection and Affordable Care Act (PPACA), Pub. L. No.
111-148, § 10104(j)(2), 124 Stat. 119, 901-02 (2010).
Because that amendment does not apply retroactively to
Schumann’s 2003-filed case, see Graham Cnty., 559 U.S. at283 n.1, we will discuss the now-superseded version of the
FCA in the present tense and refer to that version as if it were
still in force.
6
B. Medicaid and Related Statutory Framework
Under the Medicaid Drug Rebate Program, a
participating drug manufacturer agrees to pay rebates to state
Medicaid programs in exchange for those programs covering
the cost of a manufacturer’s drugs. See Omnibus
Reconciliation Act of 1990, Pub. L. No. 101-508, § 4401, 104
Stat. 1388 (1990) (codified as amended at 42 U.S.C. § 1396r-
8 (2012)); see also Astra USA, Inc. v. Santa Clara Cnty, 131
S. Ct. 1342, 1345-46 (2011). The Department of Health and
Human Services (HHS) determines the amount of the rebate
using a statutory formula based on a manufacturer’s average
and best prices for a particular drug. See, e.g., 42 U.S.C. §
1396r-8(c). Each manufacturer calculates these prices—
which is “a complex enterprise requiring recourse to detailed
information about the company’s sales and pricing,” Astra,
131 S. Ct. at 1346 (citing 42 U.S.C. § 1396r–8(k); 42 C.F.R.
§§ 447.500–520) (2010)2—and submits them to HHS each
quarter, 42 U.S.C. § 1396r–8(b)(3). HHS may not disclose a
manufacturer’s reported prices except in certain
circumstances. Astra, 131 S. Ct. at 1346 (citing 42 U.S.C. §
1396r-8(b)(3)(D) (2010)).
2
Subject to certain exceptions, the reported best price is “the
lowest price available from the manufacturer during the
rebate period to any wholesaler, retailer, provider, health
maintenance organization, nonprofit entity, or governmental
entity within the United States.” 42 U.S.C. § 1369r-
8(c)(1)(C)(i). Among other things, the best price must
account for certain cash discounts, free goods, volume
discounts, and rebates. Id. § 1396r-8(c)(1)(C)(ii).
7
Pertinent here, a drug maker participating in Medicaid
must also comply with Section 340B of the Public Health
Service Act, 42 U.S.C. § 256b(a). That section prohibits a
manufacturer from charging certain state-operated programs
that receive federal funds more than the average price for its
drugs, as defined by the Medicaid Drug Rebate Program, less
a specified rebate percentage. See Astra, 131 S. Ct. at 1346.
In addition, the federal anti-kickback statute (AKS) prohibits
a drug maker from knowingly offering any remuneration to
induce others to cause the government to pay for its drugs.
Medicare and Medicaid Patient Protection Act, Pub. L. No.
92-603, 86 Stat. 1419, 1454 (codified at 42 U.S.C. § 1320a-
7b(b)) (1972).3
At all relevant times, BMS participated in Medicaid’s
Drug Rebate Program with regard to its anticoagulant
Coumadin, and AZ participated in the program with regard to
its proton pump inhibitors (PPIs) Nexium and Prilosec. Both
companies also participated in the Section 340B program
with those drugs, and sold those drugs to government health
care programs. Therefore, the companies were prohibited
from, and subject to liability under the FCA for, misreporting
their average and best prices for those drugs, over-charging or
under-rebating the government based on those prices, and
improperly inducing others to cause the government to pay
for their drugs. See, e.g., United States ex rel. Wilkins v.
United Health Grp., Inc., 659 F.3d 295, 311-13 & n.19 (3d
Cir. 2011) (finding FCA claim properly pleaded where
plaintiff alleged defendant’s claim for payment was false due
3
Congress’s 2010 amendment of the AKS, see PPACA §
6402(f), 124 Stat. at 759, also does not apply retroactively
here. See Graham Cnty., 559 U.S. at 283 n.1.
8
to a violation of the pre-PPACA AKS); Hutchins v. Wilentz,
Goldman & Spitzer, 253 F.3d 176, 182-83 (3d Cir. 2001)
(noting FCA liability attaches to conduct that causes or would
cause government economic loss).
C. Facts and Procedural History
From 1999 to 2003, Schumann was Vice President of
Pharmaceutical Contracting for Medco, a large national
pharmacy benefit manager (PBM). As a PBM, Medco
manages mail-order pharmacies and pharmacy benefits for
health plans, including those offered by various federal and
state government entities to qualifying employees, and
contracts with drug makers, including BMS and AZ, to offer
their products in the health plans Medco manages. Health
plans retain PBMs such as Medco “to efficiently manage their
benefit plans and to achieve cost savings” by “negotiating
discounts or rebates from drug manufacturers, providing mail
order prescription service to plan members, contracting with
retail pharmacies for reimbursement when prescriptions are
filled for plan members, and electronic processing and paying
of claims.” In re Pharmacy Benefit Mgrs. Antitrust Litig.,
582 F.3d 432, 434 (3d Cir. 2009). As a result, Medco had the
power to determine whether BMS’s and AZ’s products would
be available to patients covered by plans it managed, to
negotiate the price at which such products would be available,
and to influence the average and best prices for BMS and AZ
products.
Schumann filed his initial Complaint under seal in the
Eastern District of Pennsylvania on September 26, 2003, on
behalf of the federal government, eleven states, and the
District of Columbia. Schumann subsequently filed under
9
seal a First Amended Complaint on November 9, 2005, and a
Second Amended Complaint on November 22, 2006. On
June 15, 2009, after the government declined to intervene, the
District Court lifted the seal for all matters occurring on or
after that date and accepted Schumann’s Third Amended
Complaint (TAC) for filing.
BMS moved to dismiss the TAC under Federal Rules
of Civil Procedure 12(b)(1) and 12(b)(6), arguing Schumann
was not an original source under the FCA and had failed to
state a claim upon which relief could be granted. Schumann
responded by seeking leave to further amend his complaint to
address the issues in BMS’s motion and to avoid any delay
resulting from a dismissal without prejudice. The court
granted Schumann’s request and denied BMS’s motion as
moot. Schumann then filed the Corrected Fourth Amended
Complaint (CFAC), the operative pleading.
In the CFAC, Schumann alleges that, from December
1997 until March 2003, BMS induced Medco to make
Coumadin the exclusive anticoagulant in its mail-order
pharmacies by paying sham data fees and rebates up to 63%
off Coumadin’s wholesale price. Schumann further alleges
BMS improperly omitted those payments when calculating
Medco’s cost for Coumadin, thereby avoiding setting a new
best price for the drug and inaccurately reporting its best price
to the government.
Schumann states that he learned of BMS’s conduct
through his job at Medco. More precisely, he pleads facts
indicating that he reviewed confidential agreements between
Medco and BMS providing for data fees and rebates,
discussed the history of those agreements with Medco and
10
BMS officials, and negotiated extensions of those agreements
(including an increase in Medco’s rebate). He further asserts
that BMS paid Medco such high rebates and fees because it
intended to provide kickbacks while evading applicable best-
price reporting statutes.
Schumann further alleges that from 1996 through
2007, AZ used improper rebates and payments to induce
Medco to offer Prilosec and Nexium as the exclusive PPIs in
Medco’s mail-order pharmacies, and to prefer those drugs in
the formularies of two health plans Medco managed.
Specifically, Schumann alleges AZ withheld Prilosec rebates
unless Medco placed Nexium on its preferred formulary, paid
post-patent rebates on Prilosec if Medco preferred Nexium
over generic PPIs, reduced Medco’s cost of Prilosec and
Nexium to match the cost of generics, and charged Medco the
cost of a generic if Medco substituted Prilosec for a generic
prescription. In addition, Schumann alleges AZ improperly
paid Medco and health plans it managed $100 million under
two disease-management agreements, $500,000 via an
educational grant to “push Prilosec,” $1.2 million to market
Nexium, and $200,000 to subsidize use of the AZ data-
analysis program RationalMed. Finally, Schumann alleges
AZ improperly failed to incorporate these rebates and
payments into its best-price calculations, and thereby
submitted false best-price reports and caused the government
to overpay for AZ drugs.
Schumann states that he learned about AZ’s improper activity
in his role at Medco. Specifically, he says he gained the
knowledge by reviewing contracts between Medco and AZ
and internal Medco documents describing the history of the
companies’ dealings; discussing rebates, formulary
placement, disease-management agreements, and other
11
payment vehicles with Medco colleagues and AZ officials;
negotiating extensions of various agreements and structuring
them to entice health plans managed by Medco to favor AZ
PPIs; and, at AZ’s behest, encouraging those plans to favor
AZ PPIs. In addition, he asserts that it was AZ’s intent to
bribe Medco and plans it managed to favor AZ PPIs and to
structure deals to evade best-price reporting obligations.
Based on these allegations, the CFAC brings four FCA
claims against each defendant, under AKS-violation and
inaccurate best-price theories of liability.4 First, Schumann
contends defendants knowingly presented or caused to be
presented to the government false claims for payment. See 31
U.S.C. § 3729(a)(1). Second, he contends defendants
knowingly made or used, or caused to be made or used, false
records or statements that caused false claims to be paid or
approved by the government. See id. § 3729(a)(2). Third, he
contends defendants knowingly conspired with Medco and
others to violate Sections 3729(a)(1) and (2). See id. §
3729(a)(3). Finally, he contends defendants avoided or
decreased their obligations to pay the government by
knowingly making or using false records or statements, or by
causing such records to be made or used. See id. §
3729(a)(7).
4
In 2009, Congress amended the FCA and re-designated 31
U.S.C. §§ 3729(a)(1)-(7) as 31 U.S.C. §§ 3729(a)(1)(A)-(G).
Fraud Enforcement and Recovery Act of 2009 (FERA), Pub.
L. No. 111–21, § 4, 123 Stat. 1617, 1621-22 (2009). Because
Schumann’s claims arose before 2009, the CFAC properly
cites the pre-FERA version of the FCA. See Wilkins, 659
F.3d at 303. We do so as well.
12
Defendants separately moved to dismiss the CFAC
with prejudice. BMS again moved under Rule 12(b)(1),
arguing the FCA’s public disclosure bar divested the court of
jurisdiction, and both BMS and AZ moved under Rule
12(b)(6), arguing Schumann had not pleaded the facts
underlying his claims with sufficient particularity. Schumann
opposed both defendants’ motions. The court granted BMS’s
motion, finding that Schumann’s claims against BMS were
substantially similar to prior public disclosures and that
Schumann lacked the requisite knowledge to be an original
source under the FCA. The court also found that amending
the CFAC would be futile and therefore dismissed
Schumann’s claims with prejudice. The court denied AZ’s
motion, however, because it found that Schumann had alleged
AZ’s fraud with sufficient particularity.
Schumann timely moved for reconsideration as to
claims against BMS, arguing that he satisfied the FCA’s
original source exception.5 In support of his motion,
Schumann submitted a twelve-page declaration purporting to
add facts that he had omitted from the CFAC. In pertinent
part, he stated he had learned of BMS’s conduct by reviewing
existing agreements and internal documents in Medco files,
discussing them with Medco colleagues, negotiating rebate
and data fee agreements with BMS, and comparing the terms
of those agreements with others he had seen in his years in
the pharmacy-benefits industry. He further stated that in
negotiations that had occurred before he arrived at Medco,
and in those in which he participated, BMS officials had
5
Schumann did not challenge the court’s finding that his
claims against BMS were based on publicly disclosed
information.
13
expressed concern about setting a new best price for
Coumadin. Finally, he stated that he had deduced, based on
his “cumulative knowledge” and the supposed irrationality of
the terms to which BMS had agreed, that BMS was illegally
paying kickbacks to Medco and misreporting Coumadin’s
best price. In a written decision, the court declined to
consider Schumann’s supplemental declaration, because it
was not new evidence, and denied his motion for
reconsideration.
AZ then moved to dismiss the CFAC under Rule
12(b)(1). Schumann opposed the motion and submitted a
thirty-five page declaration to further explain his duties at
Medco and how he learned about AZ’s allegedly
inappropriate conduct. Specifically, he described reviewing
internal files and documents; speaking with Medco colleagues
and officials from AZ and plans managed by Medco;
participating in rebate and formulary negotiations with AZ
and those plans; and encouraging those plans to accept AZ’s
inducements and to prefer its PPIs. He also added that his
knowledge of AZ’s dealings and his experience in the
industry led him to conclude that AZ was paying kickbacks to
Medco and health plans it managed, and skirting its best-price
obligations. The court granted AZ’s motion, finding that
Schumann’s claims against AZ, like those against BMS, were
based on publicly disclosed information and that he was not
an original source under the FCA. The court also dismissed
Schumann’s claims against AZ with prejudice because it
found further amendment of the CFAC would be futile.
Schumann timely appealed dismissal of all claims in the
CFAC.
14
II. Discussion
A. Jurisdiction
Schumann brought his FCA claims in federal court
pursuant to 31 U.S.C. § 3732. We have jurisdiction to review
the District Court’s final orders under 28 U.S.C. § 1291.
B. Standard of Review
This Court exercises plenary review over a district
court’s dismissal for lack of subject matter jurisdiction.
Paranich, 396 F.3d at 331 (citing Stinson, 944 F.2d at 1152).
The parties agree that AZ’s motion to dismiss was a
factual attack on jurisdiction, but they disagree about whether
BMS’s motion to dismiss was a facial or factual attack. The
distinction is theoretically important because a court may
consider matters outside the pleadings in a factual challenge,
but must take the complaint at face value and construe it as
true in a facial challenge. See Atkinson, 473 F.3d at 514
(citing Gould Electronics Inc. v. United States, 220 F.3d 169,
176-78 (3d Cir. 2000)). Here, however, the distinction makes
no difference: as we detail below, neither the CFAC’s
allegations alone, nor those allegations plus Schumann’s
supplemental declarations, meet his burden to satisfy that he
is an original source of his claims against either BMS or AZ.
See Atkinson, 473 F.3d at 515 (noting relator’s burden to
plead or prove jurisdiction).
15
C. Original Source Exception6
We have previously expounded on what it means to
have both “direct and independent knowledge” under the
original source exception to the FCA’s public disclosure bar.
See Stinson, 944 F.2d at 1160 (noting conjunctive “and”
indicates “direct” and “independent” each impose distinct
requirements). “‘Direct knowledge’ is knowledge obtained
without any ‘intervening agency, instrumentality, or
influence: immediate.’” Atkinson, 473 F.3d at 520 (quoting
Stinson, 944 F.2d at 1160). Such knowledge has also been
described as “first-hand, seen with the relator’s own eyes,
unmediated by anything but [the relator’s] own labor, and by
the relator’s own efforts, and not by the labors of others, and .
. . not derivative of the information of others.” Paranich, 396
F.3d at 336 & n.11 (internal quotation marks and citations
omitted); see also Stinson, 944 F.2d at 1161 (citing with
approval cases finding information is not direct if learned
from “a whistleblowing insider” or by “stumbl[ing] across an
interesting court file”). The independent knowledge
requirement means that “knowledge of the fraud cannot be
merely dependent on a public disclosure.” Paranich, 396
F.3d at 336 (quoting United States ex rel. Hafter v. Spectrum
Emergency Care, Inc., 190 F.3d 1156, 1160 (10th Cir. 1999)).
In other words, “a relator who would not have learned of the
information absent public disclosure [does] not have
‘independent’ information” under the FCA. Stinson, 944 F.2d
at 1160.
6
Schumann does not appeal the finding below that all of his
claims are based on publicly disclosed information, and are
thus barred unless he is an original source under the FCA.
16
We have also described the type of information a
relator must know directly and independently. In Stinson, for
example, we explained that:
Undoubtedly, it is not necessary for a relator
to have all the relevant information in order to
qualify as “independent.” Nonetheless, the
relator must possess substantive information
about the particular fraud, rather than merely
background information which enables a
putative relator to understand the significance
of a publicly disclosed transaction or
allegation. If the latter were enough to qualify
the relator as an “original source,” then a
cryptographer who translated a ciphered
document in a public court record would be an
“original source,” an unlikely interpretation of
the phrase.
Id. (internal citation omitted). We expanded on Stinson eight
years later, holding that a relator was “not an ‘original source’
because it did not have ‘direct and independent knowledge’ of
the most critical element of its claims, viz., that the
[defendant] had made the alleged misrepresentations to [the
government] . . ..” United States ex rel. Mistick PBT v.
Housing Auth. of the City of Pitt., 186 F.3d 376, 388 (3d Cir.
1999) (citing Stinson, 944 F.2d at 1160).7 Stated differently,
7
Accord In re Nat. Gas Royalties, 562 F.3d 1032, 1046 (10th
Cir. 2009) (relator needs direct and independent knowledge of
“substantial” portion of allegations); United States v. N.Y.
Med. Coll., 252 F.3d 118, 121 (2d Cir. 2001) (relator must be
original source of “core information”); United States ex rel.
17
although a relator need not “‘have all the relevant information
in order to qualify as “independent,”’ a relator cannot be said
to have ‘direct and independent knowledge of the information
on which [its fraud] allegations are based,’ if the relator has
no direct and independent knowledge of the allegedly
fraudulent statements.” Id. at 389 (quoting Stinson, 944 F.2d
at 1160).
Although not previously discussed in the original
source context, the algebraic expression we have used to aid
our analysis of whether the information underlying a relator’s
claim has been publicly disclosed also serves as a helpful
guidepost for understanding what information a relator must
know directly and independently. As we laid out in Atkinson:
“[I]f X + Y = Z, Z represents the allegation
of fraud and X and Y represent its essential
elements. In order to disclose the fraudulent
transaction publicly, the combination of X
and Y must be revealed, from which readers
or listeners may infer Z, i.e., the conclusion
that fraud has been committed.” To draw
an inference of fraud, both a misrepresented
[X] and a true [Y] state of facts must be
publicly disclosed. So, if either Z (fraud) or
both X (misrepresented facts) and Y (true
facts) are disclosed . . . then a relator is
barred from bringing suit under §
Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 657
(D.C. Cir. 1994) (requiring direct and independent knowledge
of “any essential element of the underlying fraud
transaction”).
18
3730(e)(4)(A) unless he is an original
source.
Atkinson, 473 F.3d at 519 (quoting Dunleavy, 123 F.3d at
741). Extending this reasoning into the analysis under
Section 3730(e)(4)(B), a relator must have direct and
independent knowledge of either Z, the alleged fraud, or both
X and Y, the false and true sets of facts, to qualify under the
FCA’s original source exception. See Atkinson, 473 F.3d at
519; see also Springfield Terminal, 14 F.3d at 657.
D. Application
Having outlined the contours of the original source
exception, we now apply that law to the facts at bar to
determine whether Schumann is an original source of the
information underlying each of his claims. See Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 476 (2007) (“Section
3730(e)(4) does not permit jurisdiction in gross just because a
relator is an original source with respect to some claim.”); see
also United States ex rel. Merena v. SmithKline Beecham
Corp., 205 F.3d 97, 101-02 (3d Cir. 2000) (noting FCA’s
reference to “action” may reasonably be read to mean “claim”
because the statute envisions a single-claim complaint).
1. Claims Against BMS
Schumann alleges he obtained direct and independent
knowledge of his AKS and best-price claims against BMS in
the same fashion. Specifically, he states in the CFAC that he
learned of BMS’s allegedly improper conduct by reviewing
confidential data fee and rebate agreements, discussing them
with his Medco colleagues and BMS officials, and
19
negotiating their extension. In his supplemental declaration,
Schumann repeats the bases for his knowledge mentioned in
the CFAC, and adds that he reviewed confidential documents
in Medco’s negotiation files, discussed them with colleagues,
and understood that BMS was concerned the agreements
would set a new best price for Coumadin. He also states that
his experience led him to conclude that BMS could not have
afforded to enter into the rebate and data fee agreements if it
was complying with applicable anti-kickback and best-price
statutes.
None of these allegations is sufficient for Schumann to
plead that he is an original source of the key components of
his claims against BMS. First, knowledge of a scheme is not
direct when it is gained by reviewing files and discussing the
documents therein with individuals who actually participated
in the memorialized events. See Paranich, 396 F.3d at 335-
36; Stinson, 944 F.2d at 1160-61. Second, Schumann’s
description of his involvement in Medco’s business with
BMS, including negotiating rebate and data fee agreements
and recognizing that BMS was aware of its best-price
reporting obligations, does not evince direct and independent
knowledge of any improper kickback or inaccurate best-price
report. See Paranich, 396 F.3d at 336 & n.11 (noting such
knowledge gained when relator’s involvement constituted
filing false claims on defendant’s behalf); Houck on behalf of
the United States v. Folding Admin. Comm., 881 F.2d 494,
505 (7th Cir. 1989) (finding relator’s knowledge direct when
he was involved by helping others file false claims); see also
In re Pharmacy Benefit Mgrs. Antitrust Litig., 582 F.3d at 434(explaining PBMs negotiate discounts and rebates from drug
makers). Finally, Schumann’s conclusions that BMS
intended to pay kickbacks to Medco and to submit false
20
claims to the government, based on his experience in and
understanding of the PBM industry, do not qualify as
independent knowledge under the FCA. See, e.g., United
States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228,
240 (3d Cir. 2013) (“[W]e have repeatedly rejected the
argument that a relator’s knowledge is independent when it is
gained through the application of expertise to information
publicly disclosed under § 3730(e)(4)(A).” (citing Atkinson,
473 F.3d at 526 n.27; Stinson, 944 F.2d at 1160)); see also
Rockwell, 549 U.S. at 475-76 (rejecting FCA claim premised
on relator correctly predicting submission of a false claim);
United States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 353
(4th Cir. 2009) (“[M]ere suspicion that there must be a false
or fraudulent claim lurking around somewhere simply does
not carry [relator’s] burden of proving that he is entitled to
original source status.”).
At bottom, then, the facts alleged in Schumann’s
CFAC and supplemental declaration do not indicate he has
direct and independent knowledge of BMS’s actual best price
for Coumadin or how it was calculated; the inaccurate best
price BMS reported to the government or how it was
calculated, or any improper payments made to Medco or its
health plans; or any false or fraudulent claim submitted or
caused to be submitted by BMS. See Atkinson, 473 F.3d at
519-20. Therefore, Schumann does not qualify as an original
source of his FCA claims against BMS.
2. Claims Against AZ
Schumann also purports to show direct and
independent knowledge of the information underlying his
AKS and best-price claims against AZ. In the CFAC, he
21
pleads that he learned of AZ’s alleged kickback and best-
price-misreporting schemes by reviewing confidential
agreements and internal documents reflecting the history of
relations between Medco and AZ; discussing formularies,
rebates, various fee arrangements, and best-price implications
with Medco colleagues and AZ officials; negotiating
extensions of those agreements and arrangements; and
encouraging health plans managed by Medco to favor AZ
PPIs. Schumann repeats these factual bases in his
supplemental declaration in opposition to AZ’s motion to
dismiss, and adds that, based on his years of experience, AZ
paid kickbacks to Medco and health plans it managed, and
failed to incorporate those payments into applicable best-price
reports.
Under the now-familiar case law, these allegations are
insufficient to plead original source status. As discussed
above, Schumann’s knowledge is not direct because it came
from reviewing documents and discussing them with
colleagues who participated in the underlying events. See
Paranich, 396 F.3d at 335-36; Stinson, 944 F.2d at 1160-61.
In addition, although he has direct and independent
knowledge of AZ’s business strategies, and of certain
payments made by AZ to Medco and health plans it managed
(which he pejoratively terms “Special Deals”), he does not
have such knowledge that those strategies or payments
involved kickbacks or submission of inaccurate best-price
reports. And his knowledge that AZ was aware of its best-
price obligations does not indicate AZ intended to evade such
obligations. Instead, Schumann substitutes experience-based
belief that misconduct was occurring for the requisite direct
and independent knowledge. This is plainly insufficient to
qualify as an original source under the FCA. See, e.g., Zizic,
22
728 F.3d at 240 (citing Atkinson, 473 F.3d at 526 n.27;
Stinson, 944 F.2d at 1160-61); see also Rockwell, 549 U.S. at
475-76.
Therefore, Schumann fails to aver facts indicating he
has direct and independent knowledge of any improper
kickbacks from AZ to Medco or to health plans Medco
managed; AZ’s actual best price for Prilosec or Nexium;
AZ’s reported best price for those drugs; how AZ calculated
the actual or reported best prices for Prilosec or Nexium; or
any false or fraudulent claim submitted or caused to be
submitted by AZ. See Atkinson, 473 F.3d at 519-20.
Accordingly, he is not an original source of the information
underlying his FCA claims against AZ.8
E. Denial of Schumann’s Motion For
Reconsideration As To BMS
The Court reviews “a denial of a motion for
reconsideration for abuse of discretion, but we review the
District Court’s underlying legal determinations de novo and
factual determinations for clear error.” Howard Hess Dental
Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 246 (3d Cir.
2010).
“The purpose of a motion for reconsideration ... is to
8
Because we find Schumann lacked the requisite knowledge
to qualify as an original source of any of his claims, we need
not decide whether he “voluntarily provided the information
[underlying his claims] to the Government before filing” his
claims. 31 U.S.C. § 3730(e)(4)(B).
23
correct manifest errors of law or fact or to present newly
discovered evidence.” Max’s Seafood Café v. Quinteros, 176
F.3d 669, 677 (3d Cir. 1999). “Accordingly, a judgment may
be altered or amended if the party seeking reconsideration
shows at least one of the following grounds: (1) an
intervening change in the controlling law; (2) the availability
of new evidence that was not available when the court
granted the motion for summary judgment; or (3) the need to
correct a clear error of law or fact or to prevent manifest
injustice.” Id. (citation omitted).
In support of his motion for reconsideration,
Schumann submitted his twelve-page supplemental
declaration in an attempt to plead the facts the District Court
had found the CFAC lacked. The court followed Third
Circuit precedent and declined to consider such “new”
evidence, which Schumann could have submitted in
opposition to BMS’s motion to dismiss. See id. The court
therefore did not abuse its discretion in disregarding
Schumann’s supplemental declaration. See Howard Hess
Dental Labs., 602 F.3d at 251-52 (citing Harsco Corp. v.
Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985)).9 And it did not
abuse its discretion in denying Schumann’s reconsideration
motion, which was not based on a change in law, newly
available evidence, or manifest injustice. See Max’s Seafood
Café, 176 F.3d at 677.
9
In any event, as discussed above, the District Court would
have been correct in denying Schumann’s motion for
reconsideration even if it had accepted the statements in
Schumann’s supplemental declaration.
24
F. Dismissal With Prejudice
Finally, we review the District Court’s denial of leave
to amend for abuse of discretion, and review de novo its
determination that amendment would be futile. In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d
Cir. 1997).
Under Rule 15(a), “the court should freely give leave
when justice so requires.” A district court may deny leave to
amend a complaint where it is apparent from the record that
“(1) the moving party has demonstrated undue delay, bad
faith or dilatory motives, (2) the amendment would be futile,
or (3) the amendment would prejudice the other party.” Lake
v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000) (citing Foman v.
Davis, 371 U.S. 178, 182 (1962)). In addition, “[a] District
Court has discretion to deny a plaintiff leave to amend where
the plaintiff was put on notice as to the deficiencies in his
complaint, but chose not to resolve them.” Krantz v.
Prudential Invs. Fund Mgmt. LLC, 305 F.3d 140, 144 (3d Cir.
2002) (citing Rolo v. City Investing Co. Liquidating Trust,
155 F.3d 644, 654 (3d Cir. 1998)).
Schumann was on notice of the deficiencies in the
CFAC after BMS moved to dismiss the TAC with prejudice,
and he has had many opportunities over the seven-plus years
and five iterations of the complaint to plead facts indicating
he was an original source; if he could plead such facts, he
would have already done so. See Gasoline Sales, Inc. v. Aero
Oil Co., 39 F.3d 70, 74 (3d Cir. 1994) (noting, where plaintiff
sought to add facts to a twice-amended complaint, “three
attempts at a proper pleading is enough”); see also Atkinson,
473 F.3d at 517 (“Repleading is futile [after dismissal for lack
25
of subject matter jurisdiction] because the legal inadequacy
cannot be solved by providing a better factual account of the
alleged claim.”). Accordingly, we affirm dismissal of
Schumann’s claims with prejudice because further
amendment would be futile.
III. CONCLUSION
For the foregoing reasons, we will affirm the judgment
of the District Court.
26