Judicial Notice of Internet Evidence: 12(b)(6) Motion: While Doctrine of Completeness Applies to Docs Fraud Claims Are ”Based On”, It Doesn’t Apply If Doc. Merely Cited in Complaint — No Notice of Def. Corp’s Own Website
Sturgeon v. Pharmerica Corp., 2020 U.S. Dist. LEXIS 21935, 2020 WL 586978 (E.D. Pa. Feb. 5, 2020) (note: a different portion of this Opinion is excerpted in our Feb. 10, 2020 post):
Relators Lena Sturgeon, Anthony Ferrante, Anthony Sciole, and Nathan Niles bring this qui tam action against PharMerica Corporation alleging violations of the federal False Claims Act1 and the false claims statutes of twenty-six states.2 Relators allege that PharMerica, a long-term care [*2] pharmacy, submitted false claims for government reimbursement for prescriptions it illegally altered without physician consent. Relator Sturgeon also alleges that PharMerica retaliated against her after she attempted to bring to its attention alleged instances of fraudulent activity. The state and federal governments declined to intervene and PharMerica has moved to dismiss the Amended Complaint.
A. PharMerica Is a Long-Term Care Pharmacy
PharMerica is the second largest institutional pharmacy in the United States.4 It fills prescription orders only for nursing homes and other long-term care facilities and is not open to the general public.5
Nursing home physicians submit prescriptions to PharMerica electronically through a "widely-used nursing home platform" called PointClickCare.6 PharMerica also uses its own "proprietary medicine dispensing system known as the LTC400" to fill prescriptions received through PointClickCare.7 Prescription data transmitted via PointClickCare is not migrated automatically to the LTC400 to create an order for filling a prescription. Instead, when a prescription is received through the PointClickCare system, a pharmacy technician [*3] or data entry clerk at PharMerica manually inputs the prescription information into the LTC400.8
B. Overview of Medicare Part D
"Medicare is a federally funded and administered health insurance program for certain groups, primarily elderly and disabled persons."9 "The Department of Health and Human Services ('HHS') administers the Medicare program through the Centers for Medicare and Medicaid Services ('CMS')."10 Relevant here are two components of the Medicare program: Part A, the hospital insurance benefits program,11 and Part D, the voluntary prescription drug benefit program.12
"Medicare Part D is based on a private market model, wherein Medicare contracts with private entities, known as Part D 'sponsors,' to administer prescription drug plans."13 "Part D [p]lan sponsors subcontract with many entities to provide drugs to the Medicare Part D beneficiaries enrolled in their plans."14 PharMerica is one such subcontractor.15 Its contracts with Part D plan sponsors "require PharMerica to comply with applicable federal laws, regulations, and CMS instructions."16 This is also true of PharMerica's contracts under the analogous state Medicaid programs.17
PharMerica certifies its compliance [*4] with applicable laws and regulations each time it submits a claim for reimbursement. When a pharmacy like PharMerica "dispenses drugs to a Medicare beneficiary, it submits an electronic claim to the beneficiary's Part D plan and receives reimbursement from the plan sponsor for the costs not paid by the beneficiary."18 That claim submission must be accompanied by a certification of compliance with applicable laws and regulations,19 including compliance with the requirement that drugs be dispensed only pursuant to a valid prescription.20 This is also true of PharMerica's claims under the analogous state Medicaid programs.21 PharMerica also receives direct payments from nursing home facilities using Medicare Part A funds with analogous requirements.22
C. Relator Sturgeon's Investigation
Reliant Health Management Services is the owner and operator of more than twenty nursing homes in Pennsylvania.23 In June 2013, Reliant began using PharMerica as its institutional pharmacy.24 Soon after Reliant switched to PharMerica, it noticed that its "nursing home facilities experienced a significant increase in pharmacy costs ranging from $2.00-$3.00 per patient per day."25 Reliant complained.26 PharMerica's [*5] Senior Vice President for Sales and Marketing Mark Lindemoen asked Sturgeon, who by that time was working at PharMerica as its Executive Vice President, to review the issue.27
As she reviewed Reliant's complaint, Sturgeon began to notice "significant discrepancies" between prescription order data received via PointClickCare and prescription fill data in the LTC400.28 That is, it appeared to Sturgeon that on some occasions PharMerica had dispensed medications different from those prescribed. These discrepancies "consistently favored PharMerica's bottom line."29 Sturgeon brought her findings to Lindemoen, who "refused to acknowledge the problems" or investigate further.30 When Sturgeon raised the issue with him again after returning from a brief medical leave, Lindemoen "shut down the meeting and ordered Sturgeon to stop her investigation."31 Other senior-level management executives responded similarly.32
After Sturgeon reported her findings to management, "there was an unexplained and sudden diminution of Sturgeon's duties and responsibilities."33 Sturgeon was "removed from the Mid-Atlantic region sales and marketing strategies and development initiatives" and stripped [*6] of her authority to negotiate and terminate contracts and to review and approve capital expenditures and development projects and of her responsibility for "all customer relationships in Florida."34 This diminution in her job responsibilities was "retaliatory."35 Sturgeon resigned her position.36
After leaving PharMerica, Sturgeon began working as a consultant in the nursing home and pharmacy industries.37 Reliant retained her to audit its relationship with PharMerica.38 Relators Ferrante, Sciole, and Niles are corporate officers at Reliant and appear to have been involved in the audit.39 In conducting the audit, Sturgeon confirmed the discrepancies she had identified while employed at PharMerica and discovered the source of those discrepancies: an alleged scheme to alter prescriptions systematically so as to increase reimbursements.40
D. Alleged Prescription Alteration Scheme
Relators' audit revealed that PharMerica systematically altered prescriptions "and did so to enhance its profit margins and increase its rebates from manufacturers and suppliers."41 The use of both the PointClickCare system and the LTC400 made this possible in two ways. First, the system of manually entering [*7] prescription data received via PointClickCare allowed PharMerica to direct its clerks to alter the data intentionally.42 That is, in some instances, the data as originally entered in the LTC400 did not match the prescription data received via PointClickCare. Second, the LTC400 itself was programmed so that whenever an ordered drug was out of stock, the platform would prompt clerks to replace it with the most profitable alternative, even if the data was correctly transcribed.43 In either case, PharMerica did not comply with applicable laws and regulations requiring that pharmacists get the prescribing physician's consent before altering any essential element of a prescription.44
Relators allege that PharMerica illegally altered prescriptions in this manner for both controlled and non-controlled substances, sometimes altering the drug's dosage and other times altering its form (i.e., tablet vs. capsule) or the drug itself (i.e., brand name vs. generic).45 Specifically, Relators allege that their audit turned up at least 5,687 instances of PharMerica altering dosages without notice to the prescribing physician;46 10,540 instances of PharMerica altering drug forms without notice; [*8] 47 and an unspecified number of instances of PharMerica dispensing a brand-name drug instead of the prescribed generic drug.48
C. Materials from the PointClickCare Website
Courts may consider documents "'integral to or explicitly relied upon in the complaint' . . . 'without converting the motion [to dismiss] into one for summary judgment.'"79 Although generally [*14] courts avoid looking at evidence outside the complaint at the motion-to-dismiss stage, an exception can be made where a plaintiff would be "able to maintain a claim of fraud by extracting an isolated statement from a document and placing it in the complaint, even though if the statement were examined in the full context of the document, it would be clear that the statement was not fraudulent."80 In that case, fairness would require examining the whole document, even if the plaintiff did not attach it as an exhibit to the complaint. This narrow exception is limited, however, to cases where "the claims in the complaint are 'based' on an extrinsic document," and does not apply where the complaint merely cites an extrinsic document.81 For example, in In re Burlington Coat Factory Securities Litigation, the plaintiffs alleged that the company had omitted material information from its annual financial report.82 Even though the plaintiffs had not attached the report to the complaint or explicitly cited it, the report could be considered in ruling on a motion to dismiss because the claims in the complaint were necessarily based on the report.83
PharMerica requests judicial notice of three documents [*15] it argues fall into this category.84 The three documents appear to be promotional brochures from the PointClickCare website that explain how the PointClickCare platform works. PharMerica argues that these brochures are "integral" to Relators' claims, which are "premised on their analysis of information contained in" the PointClickCare platform.85 As PharMerica acknowledges, however, Relators do not cite these (or any) PointClickCare brochures in the Amended Complaint.86 Nor can Relators' claims be said to be "based on" the brochures. This is unlike Burlington, where the court looked to the document that constituted the alleged fraud in order to place the statements quoted in the complaint in their proper context. Of course, the existence of the PointClickCare system and the way it functions are relevant to Relators' claims—but Relators base their allegations on their first-hand knowledge of the platform, not on PointClickCare's promotional brochures.
Moreover, the Third Circuit warned in Victaulic against taking judicial notice of exactly this kind of information.87 There, the court held that it was improper for the district court to take judicial notice of facts found on a company's website [*16] for several reasons. First, "[a]nyone may purchase an internet address," so authentication of internet materials was particularly important.88 Second, "a company's website is a marketing tool" and the information found therein might well be "full of imprecise puffery that no one should take at face value."89 Finally, the court was particularly troubled that such materials were judicially noticed at the motion-to-dismiss stage.90
These concerns apply squarely to the PointClickCare brochures, which are promotional business materials from PointClickCare's corporate website. Such "private corporate websites, particularly when describing their own business, generally are not the sorts of 'sources whose accuracy cannot reasonably be questioned' that our judicial notice rule contemplates."91 This is especially true when a party seeks to use promotional materials found online for their truth, as PharMerica does here.92 Accordingly, the Court will not take judicial notice of the PointClickCare website materials.
2 Cal. Gov't Code §§ 12650-56 (West 2019); Colo. Rev. Stat. §§ 25.5-4-303.5 to -310 (West 2019); Conn. Gen. Stat. §§ 4-274 to -289 (West 2019); Del. Code Ann. tit. 6, §§ 1201-11 (West 2019); Fla. Stat. Ann. §§ 68.081-.092 (West 2019); Ga. Code Ann. §§ 49-4-168 to -168.6 (West 2019); Haw. Rev. Stat. Ann. §§ 661-21 to -31 (West 2019); 740 Ill. Comp. Stat. Ann. 175/1-175/8 (West 2019); Ind. Code Ann. §§ 5-11-5.5-1 to 5-11-5.5-18 (West 2019); Iowa Code Ann. §§ 685.1-.7 (West 2019); La. Stat. Ann. §§ 46:437.1-440.16 (2019); Mass. Gen. Laws Ann. ch. 12, §§ 5A-5O (West 2019); Mich. Comp. Laws Ann. §§ 400.601-.615 (West 2019); Minn. Stat. Ann. §§ 15C.01-.16 (West 2019); Mont. Code Ann. §§ 17-8-401 to -416 (West 2019); Nev. Rev. Stat. Ann. §§ 357.010-.250 (West 2019); N.H. Rev. Stat. Ann. §§ 167:61-A to -E (2019); N.J. Stat. Ann. §§ 2A:32C-1 to -18 (West 2019); N.M. Stat. Ann. §§ 44-9-1 to -14 (West 2019); N.C. Gen. Stat. Ann. §§ 1-605 to -618 (West 2019); Okla. Stat. Ann. tit. 63, §§ 5053-54 (West 2019); 9 R.I. Gen. Laws Ann. §§ 9-1.1-1 to -1.1-9 (West 2019); Tenn. Code Ann. §§ 4-18-101 to -108, 71-5-181 to -185 (West 2019); Tex. Hum. Res. Code Ann. §§ 36.001-.132 (West 2019); Va. Code Ann. § 8.01-216.1 to -216.19 (West 2019); Wash. Rev. Code Ann. § 74.66.005-.130 (West 2019). Relators also brought claims under the Maryland False Claims Act. Md. Code Ann., Health—Gen. § 2-601 to -611 (West 2019). That statute requires that claims be dismissed if the state does not elect to intervene. See Doc. No. 81. Accordingly, Relators' claims under Maryland's false claims statute were dismissed by stipulation of the parties. See Doc. No. 82.
3 The facts set forth below are drawn from the Amended Complaint and assumed true for purposes of resolving this Motion to Dismiss.
4 See Amend. Compl. ¶ 38.
5 See id. ¶ 37; see PharMerica Mem. Supp. Mot. to Dismiss [Doc. No. 51-1] at 2.
6 Amend. Compl. ¶ 46.
7 Id. ¶ 48.
8 Id. ¶¶ 48-49.
15 Amend. Compl. ¶¶ 138-40.
16 Id. ¶ 138.
17 Id. ¶ 144.
19 Amend. Compl. ¶ 141.
20 Id. ¶ 142.
21 Id. ¶ 144.
22 Id. ¶¶ 138, 141.
23 Id. ¶¶ 24, 33.
24 Id. ¶ 33.
25 Id. ¶ 67.
27 Id. ¶¶ 29, 67.
28 Id. ¶¶ 68-69.
29 Id. ¶ 68.
30 Id. ¶¶ 70-71.
31 Id. ¶¶ 72-74.
32 Id. ¶¶ 75-76, 80-81.
33 Id. ¶ 83.
34 Id. ¶ 86.
35 Id. ¶ 89.
36 Id. ¶¶ 85, 87-88.
37 Id. ¶ 100.
39 Id. ¶¶ 33, 101.
40 Id. ¶ 101.
42 Id. ¶ 59.
43 Id. ¶¶ 54-56.
44 Id. ¶¶ 150-53; see, e.g., 55 Pa. Code § 1121.52(c).
45 Amend. Compl. ¶ 101-03, 110, 118, 127.
46 Id. ¶ 106.
47 See id. ¶ 119.
48 Id. ¶ 127.
81 Id. (emphasis added).
84 See PharMerica's Mem. Supp. Mot. for Judicial Notice [Doc. No. 52] at 3-4. As noted above, PharMerica provided only hyperlinks to online PDFs of these documents and the Court ordered it to provide copies filed as exhibits.
85 Id. at 7-8.
86 Id. at 7.
90 Id. at 236-37. It is certainly true that taking judicial notice of internet materials has become vastly more common and more accepted over the years, and even since the Third Circuit decided Victaulic in 2007. See Joseph, supra note 74, at 1-2 [Gregory P. Joseph, Judicial Notice of Internet Evidence, 82 U.S. Law Week No. 34, at 2 (Mar. 11, 2014)]. But concerns about puffery in promotional business materials remain valid, and courts are just as cautious now as they were in 2007 about looking to materials outside the complaint in deciding a motion to dismiss.
92 See PharMerica's Mem. Supp. Mot. to Dismiss [Doc. No. 51] at 28-29 & n.14 (citing pamphlets from PointClickCare website as evidence that the PointClickCare platform "is specifically designed to assist the nursing home in complying with [regulatory] requirements"); cf. Joseph, supra note 74, at 3 ("Pages of a corporate website offered by the corporation to prove the truth of self-serving advertising claims are inherently dubious, but the same pages may be appropriate for judicial notice when offered or used to show that the claims were made . . . .").
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