Southern District of New York Rejects Washington State’s Attempt to Amend Qui Tam Complaint

Posted by Gordon Todd and Paul Sampson

The Rule 15(a)(2) threshold for amending a complaint – that “[t]he court should freely give leave when justice so requires” – is not a high one. But from time to time even a State intervenor manages to miss it, as was the case in U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 1:11-cv-08196, 2015 WL 1650767 (S.D.N.Y. Apr. 10, 2015).

In January 2014, the State of Washington filed a complaint-in-intervention naming only Novartis Pharmaceuticals Corp. (“Novartis”) as a defendant, even though a little over a year earlier the relator’s complaint—which alleged that Accredo Health Group, Inc. (“Accredo”), a specialty pharmacy through which Novartis sells its pharmaceutical products, participated with Novartis in an illegal kickback scheme—was unsealed. Id. at *5. Almost a full year later, in January 2015, Washington filed a motion to amend its complaint, seeking to add claims against Accredo for the alleged kickback scheme. Id.

The district court denied the motion for two principal reasons. First, the district court held that Washington delayed moving for leave to amend without an adequate explanation, noting that “a lengthy delay without a reasonable explanation justifies denying leave to amend.” Id. The district court rejected Washington’s “excuse” that Novartis had produced upwards of 50,000 documents beginning in March 2014, reasoning that “the State should be expected to receive and promptly review large volumes of documents in a complex case such as this one.” Id. at *6. The district court also rejected Washington’s assertion that it did not obtain certain audio recordings of phone calls between Accredo staff and Novartis patients until December 2014, and that those phone recordings “solidified” the extent of the kickback scheme. Id. at *7. The district court explained that “[t]he fact that a party later uncovers additional evidence supporting a theory that it could have raised earlier does not excuse delay in moving to amend.” Id.

Second, the district court held that “Accredo would be prejudiced by granting Washington’s motion to dismiss” because “granting the motion would prolong the disposition of this case and require additional time for discovery.” Id. Among other things, additional discovery would be needed regarding a forum selection clause contained in Accredo’s Medicaid core provider agreement with Washington. Id. at *8. Thus, “granting the motion would burden both Novartis and Accredo with added litigation time and expense—well-established forms of prejudice.” Id. at *7.

The Kester case reminds qui tam litigants that a Rule 15(a)(2) motion to amend a pleading is not automatic, and that plaintiffs must seek to amend their pleadings in a timely manner so as not to unnecessarily delay the expeditious resolution of qui tam actions.