Court Allows Second FCA Suit Alleging Different Fraudulent Scheme in Connection With The Same Underlying False Claims As A Previously-Settled Suit

Posted by Nicole M. Ryan and Ryan G. Fant

In United States ex. rel. Lisitza v. Par Pharmaceutical Cos., Inc., No. 06 C 06131 (N.D. Ill. July 31, 2014), a federal district court in Illinois rejected a drug manufacturer’s argument that the doctrine of res judicata barred an FCA suit based on many of the same underlying false claims involved in a previously-settled FCA suit. The Court held that res judicata did not apply because the fraudulent schemes alleged in each case were different and there were elements of damage available in the second suit that were not resolved by the first suit.

In 2005, Ven-A-Care, a Florida-based pharmacy, in its capacity as relator, sued Par Pharmaceutical Companies, Inc. (“Par”) and other generic drug manufactures under the FCA, with the case ultimately becoming consolidated as part of a much larger multidistrict litigation, In Re Ven-A-Care Cases, No. 06 CV 11337 (D. Mass.). The suit alleged that Par had manipulated and falsely reported pricing benchmarks so as to cause Medicaid to set higher reimbursement amounts for its drugs than would have been set if Par had published accurate benchmarks. Par ultimately settled these claims in 2011 for $154 million, and the case against it was dismissed.

In 2006, another relator, Bernard Lisitza, filed an FCA suit against Par alleging that Par had engaged in an illegal prescription-switching scheme that substituted its own higher-priced products in place of the specific drug that the doctor had prescribed in order to evade Medicaid price limits on generic drugs.

After the settlement and dismissal of the Ven-A-Care case, Par asserted the affirmative defense of res judicata in the Lisitza case. Par argued that res judicata applied because both lawsuits accused Par of “taking advantage of increased Medicaid reimbursements,” involving the “very same false claims for the very same prescriptions.” Although the Court acknowledged that some of the claims submitted were the same in both cases, it rejected the application of res judicata. It found that were very few common facts between the two complaints regarding “what Par allegedly did—how it defrauded the government.” The Ven-A-Care case accused Par of manipulating price benchmarks, whereas the Lisitza complaint accused it of a prescription-switching scheme. As a result of this difference, the Court determined that the “material factual allegations in the two complaints are simply not the same except at an extreme level of generality” and thus were insufficient to establish res judicata. In particular, the Court noted that in the original case, the damages at issue were the difference between what Medicaid paid and Par’s “inflated” prices, while in the second case, the court held, “the damages might be the entire amount of the reimbursement (less any portion already paid as damages), if the plaintiffs prove that claims for the particular drug forms and dosages at issue should not have been submitted at all because they were not authorized by a physician or were not the most cost-efficient option.” “Par should not have to pay the same damages twice,” the court continued, “but if the plaintiffs prove liability in this case, they will be entitled to damages for false claims that are unique to this case as well as whatever additional damages they can prove are owing on the false claims that were also at issue in Ven-A-Care.”

The Court also rejected Par’s argument that the scope of the release in the Ven-A-Care case covered all false claims submitted within the applicable time period and thus was broad enough to bar the Lisitza complaint. The Court held that the release encompassed only claims “based upon or arising out of” the conduct alleged in the Ven-A-Care complaint regarding false reporting of pricing benchmarks and therefore did not apply in the Lisitza case.

A copy of the opinion can be found here.