United States of America v. McKesson Corporation

Background

Qui tam plaintiffs and relators Carl Kelley and Michael McElligott brought the action on behalf of the United States. They alleged that McKesson violated the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., by failing to comply with security requirements for controlled substances and by failing to disclose that alleged noncompliance when submitting claims for payment under federal programs.

The relators alleged that McKesson’s distribution centers had security weaknesses that created opportunities for theft and diversion of Schedule II opioids. They also alleged that McKesson knew about security problems but did not implement many recommendations made by a security expert. Their FCA theory was based on implied false certification: the theory that a request for government payment can be misleading when the requester has an obligation to comply with a law or regulation but does not disclose noncompliance.

Motion to Dismiss

McKesson moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Because an FCA claim involves fraud, the complaint also had to satisfy Rule 9(b), which requires the circumstances of the alleged fraud to be stated in detail, including who made the statement, what was said, when and where it was said, and why it was false.

Falsity

The court held that the relators had not adequately alleged that McKesson violated the Controlled Substances Act (CSA) or made false representations about CSA compliance. The cited security regulations did not prescribe particular security measures in every situation. Instead, they allowed substantial compliance and gave the Drug Enforcement Administration discretion to evaluate a registrant’s overall security system using multiple factors.

The court concluded that the allegations—such as the alleged number and qualifications of security personnel at one distribution center—did not identify a specific regulatory violation or explain why the alleged conditions showed that McKesson failed to substantially comply with the CSA. Because the applicable requirements were imprecise and subject to government discretion, the court found that the allegations did not establish a false certification under the FCA.

The relators also relied in their opposition on alleged certifications involving a Department of Veterans Affairs contract and federal contractor ethics requirements. The court stated that it could not consider allegations appearing only in the opposition rather than in the complaint. It further concluded that, even if those allegations had appeared in the complaint, statements about compliance with imprecise standards could not be judged false in a way that allowed empirical verification.

Claims for Payment and Materiality

The court separately held that the relators had not pleaded with particularity that McKesson submitted claims for payment to the federal government. The complaint referred generally to several federal programs but did not explain the basis for the relators’ knowledge, identify claims, or clarify whether McKesson submitted claims directly or merely sold pharmaceuticals to third parties that submitted claims.

The court stated that it therefore did not need to reach the additional arguments about materiality. It nevertheless explained that materiality under the FCA requires a misrepresentation capable of influencing the government’s payment decision, and that the relators’ materiality theory depended on allegations that McKesson was ineligible to register as a controlled-substance distributor. The court found that the existing allegations did not establish that point because the registration determination rested within the Drug Enforcement Administration’s discretion.

Public Disclosure Bar

McKesson argued that the FCA’s public disclosure bar prevented the action. That rule generally requires dismissal when substantially the same fraud allegations were publicly disclosed before the qui tam action, unless the relator qualifies as an original source.

The court rejected McKesson’s argument. It found that the 2008 and 2017 settlement agreements addressed suspicious-order reporting, customer due diligence, and related conduct, while the relators’ claim concerned the adequacy of security protocols at McKesson’s distribution centers. The court held that the public disclosure bar did not apply, but this did not save the claim because the complaint failed to adequately allege false certifications connected to government payment claims.

Disposition

The court granted McKesson’s motion to dismiss. It also granted the relators leave to file a second amended complaint addressing the deficiencies identified in the order, with that complaint due by September 8, 2020.