United States of America v. McKesson Corporation

Background

Qui tam relators Carl Kelley and Michael McElligott brought one claim under the False Claims Act on behalf of the United States. They alleged that McKesson did extensive business with the federal government, including serving as the prime pharmaceutical supplier for the Department of Veterans Affairs. They claimed that McKesson’s federal contracts required compliance with applicable federal and state laws governing pharmaceutical distribution, but that McKesson violated those laws while submitting claims for payment without disclosing its noncompliance.

The alleged violations involved the Controlled Substances Act, the Drug Supply Chain Security Act, federal acquisition rules, and California’s Uniform Controlled Substances Act. The court had previously granted McKesson’s motion to dismiss the first amended complaint. The relators then filed a second amended complaint, which McKesson moved to dismiss.

Legal standards

The court applied Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. It also applied Rule 9(b), which requires fraud allegations to describe the circumstances of the alleged fraud in detail, including who made the statement, what was said, when and where it was said, how it was misleading, and why it was false. Because the claim arose under the False Claims Act, the relators had to satisfy Rule 9(b)’s heightened pleading requirement.

The court explained that False Claims Act liability requires a false statement or fraudulent conduct, made knowingly, that is material and causes the government to pay money or lose money owed to it. The relators relied on both express and implied false-certification theories. An express theory involves an entity expressly certifying compliance when submitting a payment claim. An implied theory can apply when a claim makes specific representations about goods or services and the defendant’s failure to disclose a material legal, regulatory, or contractual violation makes those representations misleading.

Court’s analysis

McKesson argued that the relators had not adequately alleged that it made false compliance statements, submitted claims for payment to the government, or made statements material to government payment. McKesson also argued that Carl Kelley and his claims were barred by the False Claims Act’s first-to-file rule. The court decided that the relators had failed to adequately plead that McKesson submitted false claims for payment and therefore did not reach the remaining arguments.

For the express-certification theory, the court found no allegation that McKesson expressly certified compliance with the applicable laws each time it submitted a claim. The fact that McKesson’s contract required compliance with applicable laws did not establish that the contract required an express certification of compliance with every claim. The relators’ suggestion that discovery might reveal such certifications was hypothetical and did not provide the factual basis required at the pleading stage.

For the implied-certification theory, the court relied on Supreme Court and Ninth Circuit decisions requiring allegations that the claims made specific representations about the goods or services provided. The relators did not identify specific claims for payment, explain what forms McKesson used, or identify the language those forms contained. Their allegations instead assumed that any payment claim necessarily represented compliance with the relevant legal and contractual requirements. The court held that this theory was not sufficient under the controlling authority.

The court distinguished cases in which relators identified specific misleading language on particular claim forms or specific product names that conveyed information about regulatory approval. It also explained that relators do not always need to identify the exact claims submitted, but they must allege specific representations connected to claims and reliable indications that claims were actually submitted. The court found that the relators had not explained how McKesson submitted its claims, what specific representations it made, or how those representations were false or misleading.

Disposition

The court concluded that the allegations described possible contract breaches, legal and regulatory violations, and receipt of money allegedly not owed to McKesson, but did not adequately allege false claims for payment. Judge Donna Ryu granted McKesson’s second motion to dismiss. The court dismissed the second amended complaint with prejudice, directed the clerk to enter judgment for McKesson and against the relators, and ordered the case closed.