339 F.Supp.2d 165 (2004) | Cited 2 times | D. Massachusetts | September 30, 2004



Defendants have moved to dismiss the Amended Complaint filed bythe County of Suffolk in New York in this multi-districtlitigation involving allegations of fraud against variouspharmaceutical companies.1 Suffolk alleges that Defendant pharmaceutical manufacturers have fraudulently inflated thepublished average wholesale prices ("AWP's") of their drugs, andthat these fraudulent AWP's have caused the State to overpayretail pharmacists for Medicaid drugs. Because New York bills theCounty for twenty-five percent of the State's Medicaidexpenditures, the County claims it has been harmed by thefraudulent drug pricing. Suffolk also alleges that Defendantsfiled false "Best Prices" reports with the federal government,thereby reducing the rebates paid by the pharmaceuticalmanufacturers to the State and, consequentially, from the Stateto Suffolk. Suffolk has asserted federal racketeering claimsunder 18 U.S.C. § 1962(c), a claim for breach of contract as athird-party beneficiary of the contract between the federalgovernment and each Defendant, an implied cause of action underthe federal Best Prices statute, 42 U.S.C. § 1396r-8, as well assix claims under various state law theories.2 Pointing out that Suffolk is only one of fifty-eight countiesin New York State and that New York State itself has sued severalmanufacturers, Defendants collectively argue that Suffolk, as anindirect purchaser of the Medicaid drugs, has no standing to suebecause its claim is entirely derivative of the State's, thatcounties are not third-party beneficiaries of the Best Pricescontracts, and that the other claims fail substantively and underFederal Rule of Civil Procedure 9(b).

After hearing and review of the briefs, the Court ALLOWS themotion to dismiss Counts I, II, VI, and VIII and DENIES theremainder of the motion, subject to a forthcoming opinionaddressing the issues raised in the individual briefs oftwentytwo Defendants.


The Court assumes close familiarity with the discussion of thealleged AWP scheme in its prior opinions, which set forth thefactual background of the allegations as well as the appropriatelegal standards. See, e.g., In re Pharm. Indus. AverageWholesale Price Litig., 263 F. Supp. 2d 172 (D. Mass. May 13,2003) (Saris, J.) ("Pharm. I"); In re Pharm. Indus. AverageWholesale Price Litig., 309 F. Supp. 2d 165 (D. Mass. Jan. 9,2004) (Saris, J.) ("Pharm. II"); In re Pharm. Indus. Average Wholesale Price Litig., 307 F. Supp. 2d 190 (D. Mass. Jan. 9,2004) (Saris, J.) ("Pharm. III"); In re Pharm. Indus. AverageWholesale Price Litig., 307 F. Supp. 2d 196 (D. Mass. Feb. 24,2004) (Saris, J.) ("Pharm. IV"); In re Pharm. Indus. AverageWholesale Price Litig., 321 F. Supp. 2d 187 (D. Mass. June 10,2004) ("Pharm. V"). The details of this particular disputeinvolve aspects of New York's Medicaid system.

In New York, the State reimburses providers directly forpharmaceuticals under its Medicaid system, N.Y. Soc. Serv. L. §367-b (McKinney 2004) (transferring payment responsibility fromlocalities to State), and bills each county for twenty-fivepercent of the costs associated with the citizens of that county(Am. Compl. at ¶¶ 1, 315 (citing N.Y. Soc. Serv. L. § 368-a(McKinney 2004))).3 Under the New York Medicaid statute,physician-administered drugs are billed by the physician at "theactual cost of the drugs to practitioners." N.Y. Soc. Serv. L. §367-a(9)(a). Pharmacist-provided drugs for which no upper limithas been set by the federal Centers for Medicare & MedicaidServices (formerly known as the Health Care FinancingAdministration) that are either multiple source prescription drugs (i.e., generic drugs) or brand name prescription drugs arereimbursed at the lower of the providers' usual and customarycharge to the general public or the Estimated Acquisition Cost("EAC") of the drug, plus a reasonable dispensing fee. N.Y. Soc.Serv. L. § 367-a(9)(b). Estimated Acquisition Cost is defined as"the average wholesale price of a prescription drug . . . asreported by the prescription drug pricing service used by thedepartment, less twelve percent. . . ."4 Id. Suffolkalleges that New York law defines "average wholesale price" formultisource drugs or biologicals as "equal to the lessor of themedian AWP for all of the generic forms of the drug orbiological, or the lowest brand name product AWP." (Am. Compl. at¶ 95.) As a practical matter, "usual and customary" charge datais impossible to obtain, so reimbursement for drugs usually isbased on the EAC of a drug, which in turn is based on theinflated AWP of that drug less the percentage discount. (Am.Compl. at ¶¶ 71-73.)

New York is a participant in the federal "Best Prices" program,under which pharmaceutical manufacturers pay rebates to thestates pursuant to rebate agreements between each manufacturerand the Secretary of Health and Human Services. (Am. Compl. at ¶¶8, 76-80.) See also 42 U.S.C. § 1396r-8 (establishing Best Prices program); Pharm. V,321 F. Supp. 2d at 195-97 (describing Best Prices program).

Suffolk claims that while the passage of Section 367-b in 1978centralized administrative control over the claims payingprocess, counties (called, along with certain cities, "socialservices districts") still routinely play a role in recoveringMedicaid overpayments. (Opp. at 10 n. 9.) Several public welfarestatutes explicitly empower counties to file suits for the costof medical treatment in certain situations. See, e.g., N.Y.Soc. Serv. L. § 104-b (McKinney 2004) (authorizing county to filea lien on personal injury recovery of person receiving publicassistance); N.Y. Soc. Serv. L. § 369 (McKinney 2004) (allowingcounty to file lien on interest in trust to recover cost ofmedical assistance). Additionally, New York Social Services LawSection 145-b grants counties as well as the State the right torecover treble damages for false statements made to obtainpayments from public funds authorized under the chapter of theNew York statutes concerning "Assistance and Care." N.Y. Soc.Serv. L. § 145-b (McKinney 2004).



Suffolk pleads manufacturer-publisher enterprises similar tothose dismissed from the Amended Master Consolidated Complaint("AMCC") action in Pharm. IV, 307 F. Supp. 2d at 203-05. In one paragraph, however, Suffolk's pleading differs from the AMCC, inthat publishers are alleged to play more of a role in settingAWP's. Rather than simply listing AWP's reported to them bymanufacturers, publishers receive "WACs [Wholesale AcquisitionCost Data] that are converted to AWPs." (Am. Compl. at ¶ 81.)This account is consistent with descriptions in recent briefssubmitted by the plaintiffs in the AMCC action.

However, Suffolk does not plead this fact in relation to theRICO count (see Am. Compl. ¶¶ 332 — 55), and specificallypleads, as did the plaintiffs in the AMCC, that "[e]ach defendanthas directly controlled the false and inflated AWPs that arereported in the Redbook. . . ." (Am. Compl. ¶ 343.) Suffolkalso provides no details about the interaction between thepublishers and the manufacturers sufficient to meet Federal Ruleof Civil Procedure 9(b). Therefore, Suffolk's RICO claim isdismissed without prejudice for the reasons given in Pharm. IV,307 F. Supp. 2d at 203-05.

B. Preemption

The parties refer the Court to the briefing on the issue ofpreemption as argued in the motions to dismiss the AMCC. Theissue was, therefore, resolved by Pharm. V,307 F. Supp. 2d at 198-201, and Suffolk's claims are not preempted by42 U.S.C. § 1396r-8. C. Standing

Defendants generally argue that Suffolk, although an injuredparty, lacks standing to pursue its claims because a plaintiff"must assert his own legal rights and interests, and cannot resthis claim to relief on the legal rights or interests of thirdparties." McInnis-Misenor v. Me. Med. Ctr., 319 F.3d 63, 68(1st Cir. 2003).

"Numerous courts, including the United States Supreme Court. . . have recognized that the type of secondary standing claimedby [plaintiff] here [(indirect standing)] is disfavored preciselybecause it can lead to double recovery, as well as because thenecessary causal link between the actions of the primary violatorand the party claiming injury is too remote." Jackson Nat'l LifeInsur. Co. v. Ligator, 949 F. Supp. 200, 204 (S.D.N.Y. 1996). Ofspecial concern are the "difficulties inherent in calculation ofthe damages owed to a remotely injured party." Id. (citingHolmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 273 (1992)).

Defendants assert that the standing requirement of directinjury applies to all of Suffolk's claims. The Second Circuit hasheld that "[t]hese principles [of RICO standing, proximate causeand direct injury requirement] also apply in general terms to thefraud and special duty causes of action asserted by plaintiffsunder New York common law." Laborers Local 17 Health & BenefitFund v. Philip Morris, Inc., 191 F.3d 229, 242-43 (2d Cir. 1999) (finding that funds providing supplemental medicalbenefits lacked standing to sue cigarette company under New Yorkcommon law of fraud and assumption of special duty because funds'injury was derivative of smokers' physical injuries). However,the Second Circuit has also acknowledged that state statutes mayreject common law proximate cause requirements and may providethe basis for allowing suit on such derivative claims. SeeBlue Cross & Blue Shield of N.J., Inc. v. Philip Morris USAInc., 344 F.3d 211, 219 (2d Cir. 2003) (finding that health careplan had standing to sue generally under New York GeneralBusiness Law Section 349 despite not being a consumer, butcertifying to the Court of Appeals the question of whether it maysue for damages resulting from injuries to consumers caused bysmoking).

Suffolk pays money to and receives money from the State,following State requirements which set the applicablereimbursement rate, and it is therefore an indirectly-harmedparty. However, the main concerns motivating this standingrequirement, the prevention of double-recoveries and thedifficulty in allocating damages, are not at issue here, since bystatute Suffolk has suffered twenty-five percent of the damagessuffered by the State, and damage calculations could be madeaccording to the payment formulae whether or not the State is aparty. Additionally, Social Services Law Section 145-b gives bothcounties and the State a right to sue, indicating that the New York legislature was not overly-concerned with the issue ofdouble-recovery. Defendants have not asserted a challenge tostanding under each state cause of action individually, butrather launched a general attack. I will address standing underparticular statutes later should the issue be raised.

D. Implied Cause of Action Under the Best Prices Statute

Suffolk argues that it has an implied cause of action under thefederal Best Prices Statute, 42 U.S.C. 1396r-8.

The Supreme Court set forth the standards for implying a causeof action recently in Alexander v. Sandoval, 532 U.S. 275(2001): Like substantive federal law itself, private causes of action to enforce federal law must be created by Congress. The judicial task is to interpret the statute Congress has passed to determine whether it displays an intent to create not just a private right but also a private remedy. Statutory intent on this latter point is determinative.Id. at 286-87 (citations omitted). See also Rolland v.Romney, 318 F.3d 42, 52 n. 9 (1st Cir. 2003) (noting holding ofsome courts that Sandoval's focus on intent replacesmulti-factor test of Cort v. Ash, 422 U.S. 66 (1975), but notdeciding the issue); Bonano v. E. Caribbean Airline Corp.,365 F.3d 81, 84-85, 86 n. 4 (1st Cir. 2004) (applying test of whetherCongress intended to create both a right and a remedy withoutmentioning Cort, and noting that "[t]he Supreme Court'sdecision in Sandoval changed the legal landscape," moving awayfrom Cort's multi-factor test). The terms of the statute may demonstrate statutory intent."[F]or a statute to create private rights of action, `its textmust be phrased in terms of the class protected.'" Bonano,365 F.3d at 85 (quoting Gonzaga Univ. v. Doe, 536 U.S. 273, 284(2002)). Additionally, "[t]he express provision of one method ofenforcing a substantive rule suggests that Congress intended topreclude others." Sandoval, 532 U.S. at 290. See alsoBonano, 365 F.3d at 85 ("To cinch matters, the scheme ofenforcement actually spelled out in the Act counsels persuasivelyagainst implying a private right of action.").

While Suffolk arguably falls within a class of entities forwhose benefit the Best Prices Statute was enacted, as agovernmental entity obliged to pay for prescription drugs,Suffolk does not point to any provisions demonstrating aCongressional intent to create a remedy. Suffolk argues thatintent is shown in § 1396r-8(b)(3)(C)(ii), entitled "Penalties. . . False information," which states: Any manufacturer with an agreement under this section that knowingly provides false information is subject to a civil money penalty in an amount not to exceed $100,000 for each item of false information. Such civil money penalties are in addition to other penalties as may be prescribed by law.42 U.S.C. § 1396r-8(b)(3)(C)(ii) (emphasis added). However, thisprovision merely shows that Congress intended not to excludeother remedies under federal and state law. See Pharm. V,321 F. Supp. 2d at 199. It does not show an intent to imply remedies for others. Similarly, the fact that Medicare is a cooperativefederal-state system that allows for extensive state enforcement,see Pharm. V, 321 F. Supp. 2d at 198, does not show an intentto imply a remedy in the Best Prices Statute specifically.Finally, the Best Prices Statute contains an extensive remedialscheme, see Pharm. V, 321 F. Supp. 2d at 196, cementing theconclusion that Congress did not intend to create an impliedprivate remedy for a county.

E. Third-Party Beneficiary of the Rebate Agreements

Suffolk brings a claim as a third-party beneficiary of therebate agreements between the manufacturers and the Secretary ofHealth and Human Services. The Model Rebate Agreement ("MRA")provides that federal law controls the interpretation of thecontract, and "federal common law [generally] governs thecontracts of the United States." Roedler v. Dep't of Energy,255 F.3d 1347, 1351 (Fed. Cir. 2001). "This does not mean thatstate law is an irrelevancy. In general, federal courtsdeveloping federal common law are free to borrow from state law,unless there is either a demonstrated need for a uniform nationalrule or a significant conflict between state law and somediscernible federal policy." McCarthy v. Azure, 22 F.3d 351,356 (1st Cir. 1994).

"[T]he crux in third-party beneficiary analysis . . . is theintent of the parties." McCarthy, 22 F.3d at 362. The Court "must approach this threshold with care since the law requires`special clarity' to support a finding `that the contractingparties intended to confer a benefit' on a third party."Intergen, 344 F.3d at 146 (quoting McCarthy, 22 F.3d at 362)."The intended party need not be specifically or individuallyidentified in the contract, but must fall within a class clearlyintended by the parties to benefit from the contract." Klamath,204 F.3d at 1211. "One way to ascertain such intent is to askwhether the beneficiary would be reasonable in relying on thepromise as manifesting an intention to confer a right on him orher." Id. "When the intent to benefit the third party is notexpressly stated in the contract, evidence thereof may beadduced. For determination of contractual and beneficial intentwhen, as here, the contract implements a statutory enactment, itis appropriate to inquire into the governing statute and itspurpose." Roedler, 255 F.3d at 1352.

Suffolk first contends that the issue of the intent of theparties is fact-based and so inappropriate for resolution at themotion to dismiss phase. See, e.g., Newman & Schwartz v.Asplundh Tree Expert Co., Inc., 102 F.3d 660, 662-63 (2d Cir.1996) (reversing order dismissing third-party beneficiary claimbecause "[t]he district court ought to have construed the factsand the law in favor of N & S for purposes of the motion todismiss"); Schuerman v. United States, 30 Fed. Cl. 420, 422(Fed. Cl. 1994) (recharacterizing motion to dismiss as motion forsummary judgment).

However, to show the possibility of a fact dispute regardingintent, Suffolk must first show a clear indication on the face ofthe contract of an intent either to benefit Suffolk or to benefita class that includes Suffolk. See Klamath, 204 F.3d at 1211.See also id. at 1210 (where the party claiming third partybeneficiary status relied on the language of the contract,leaving no facts in dispute, "[t]he plain language of theContract is sufficient to rebut the contention that theIrrigators are intended third-party beneficiaries"); Intergen,N.V. v. Grina, 344 F.3d 134, 147 (1st Cir. 2003) ("The criticalfact is that the purchase orders neither mention nor manifest anintent to confer specific legal rights upon InterGen."); Town ofMoriah v. Cole-Layer-Trumble Co., 200 A.D.2d 879, 880 (N.Y.App.Div. 1994) ("Both the contract itself and the surroundingcircumstances indicate that the promisee — the County — intendedto give plaintiff and the other towns in the County the benefitof CLT's promised performance. . . ."). Absent such anindication, the claims must be dismissed.5

There is no mention of counties anywhere in the MRA. The MRA isto be signed by the federal government and a manufacturer, although it provides substantial benefits to the States andincludes duties for the States to perform in order to obtain thebenefits. (See, e.g., MRA at II(b) (stating that themanufacturer must "make such rebate payments for each calendarquarter within 30 days after receiving from the State theMedicaid Utilization Information defined in this agreement")).The word "States" is defined as "the 50 states and the Districtof Columbia" (MRA at I(aa)), and "State Medicaid Agency" means"the agency designated by a State under Section 1902(a)(5) of theAct to administer or supervise the administration of the Medicaidprogram" (MRA at I(bb)). The agreement also provides that theterm "State Medicaid Agency . . . incorporate[s] any contractorswhich fulfill responsibilities pursuant to the agreement unlessspecifically provided . . .", but Suffolk has not alleged that itfulfills responsibilities "pursuant to the agreement." WhileSuffolk reimburses the State for twenty-five percent of thecosts, there is no allegation that this requirement is containedin the rebate agreements.

Suffolk maintains that it is still "within a class of partiesintended to benefit from the contract," as a government entitythat pays for drugs and obtains money from rebates. Suffolkpoints to the structure of the enabling statute and itslegislative history, which shows that Section 1396r-8 is a"cost-saving statute, passed `[i]n response to increasing Medicaid expenditures for prescription drugs. . . ." Pharm. V,321 F. Supp. 2d at 195 (quoting Pharm. Research & Mfrs. of Am.v. Walsh, 538 U.S. 644, 649 (2003)). Suffolk also notes thatMedicaid depends on cooperative federalism, and the Best PricesStatute does not provide for exclusive federal enforcement.

While Suffolk is in a class of "government agencies paying fordrugs under Medicaid," the MRA specifically defines "the 50states" as the parties to be benefitted. (MRA at I(aa).) There isno "clear indication" that counties (as opposed to states) werein the class of intended beneficiaries from the vantage point ofeither the pharmaceutical manufacturers or the federal governmentor in the text of the MRA.

F. Section 145-b (Count V)

New York Social Services Law Section 145-b provides: 1.(a) It shall be unlawful for any person, firm or corporation knowingly by means of a false statement or representation, or by deliberate concealment of any material fact, or other fraudulent scheme or device, on behalf of himself or others, to attempt to obtain or to obtain payment from public funds for services or supplies furnished or purportedly furnished pursuant to this chapter. (b) . . . "[S]tatement or representation" includes, but is not limited to: a claim for payment made to the state . . .; an acknowledgment, certification, claim, ratification, or report of data which serves as the basis for a claim or a rate of payment. . . . (c) . . . [A] corporation has attempted to obtain or has obtained public funds when . . . any public funds are used to reimburse or make prospective payment to an entity from which payment was attempted or obtained. . . .N.Y. Soc. Serv. L. § 145-b (emphasis added). The language of this provision encompasses the AWP schemealleged by Suffolk, that is, that a pharmaceutical company make afraudulent statement regarding AWP in order to get a higherreimbursement rate for providers who purchase its drugs. Thescheme fits into 1(a) and (b), because Defendants attempted toobtain, "on behalf of" providers, payment from public fundsthrough means of reporting of false data (the AWP's) that servedas the basis for the claims of the providers. Alternatively,under 1(c), Defendants arguably obtained public funds when publicfunds were used to reimburse providers, from whom Defendantsobtained payment. Defendants rely on New York v. PharmaciaCorp., et. al, Index Nos. 905-04, 905-03, 1150-03, slip op. at10 (N.Y. Sup. Ct. June 1, 2004), a recent unpublished case from atrial court in New York holding that similar AWP allegationsfailed to state a claim under Section 145-b because undersubsection (a), "there is no allegation that defendants receivedany public funds as a result of their actions." The court did notaddress whether a fraudulent statement made "on behalf of others"to assist them in procuring funds was a violation or addressarguments under subsection 1(c). Plaintiffs assert a colorableclaim under this statute with respect to the alleged AWP fraud.Plaintiffs' Best Prices claim fails, however, because Suffolk hasnot provided any support for the notion that Section 145-bencompasses statements made to lower payments made to the State, as opposed to statements made to receive payments from theState.

Defendants also argue that this provision, which was enacted in1975, was preempted when the State took control of theadministrative process of paying claims in 1978. Defendants citeto a 1980 letter from the State Comptroller stating that countiesneed not be concerned with auditing of provider claims, despiteexisting laws to the contrary, since the State was receiving thevouchers. See N.Y. State Comptroller, Op. No. 80-294 (Sep. 12,1980). Putting aside the fact that the letter contains adisclaimer that it may not be applicable later in time, theComptroller's letter says nothing about Section 145-b. Defendantsadmit that Section 369(1) states that "[a]ll provisions of thischapter not inconsistent with this title shall be applicable tomedical assistance for needy persons and the administrationthereof by the social services districts," N.Y. Soc. Serv. L. §369(1), and there is no obvious conflict, given that Section145-b explicitly gives both the State and the county the right tosue.

Finally, New York courts have held that under the prior system,pursuant to which the county paid providers directly, thelanguage of Section 145-b (in conjunction with other statutes andregulations) allowed the State to bring a claim without joiningthe county. See, e.g., State v. Estate of Frankel, 410N.Y.S.2d 321 (N.Y.App. Div. 1978) (rejecting argument that county must bejoined to bar future claims against the defendants for the samemoney); State v. Belt Parkway Nursing Home, 407 N.Y.S.2d 800(N.Y.App. Div. 1978) (holding that although the City of New Yorkpaid the providers, the State may recover). This caselaw supportsthe notion that the party need not be the payer to haveenforcement power where the right to recover is explicitlyprovided by statute, as in Section 145-b.

G. Common Law Fraud

Defendants move to dismiss the common-law fraud claim on twogrounds: (1) Suffolk was or should have been aware of the AWPfraud; and (2) Suffolk cannot bring a claim because it is athird-party to the alleged misrepresentations, which were reliedupon by the State of New York when the State set thereimbursement procedures with no input from Suffolk.

While the first argument presents a factual issue inappropriatefor resolution at this stage, the second argument is a strongone. In Cement & Concrete Workers Dist. Council Welfare Fund,Pension Fund, Legal Serv. Fund & Annuity Fund v. Lollo,148 F.3d 194, 196 (2d Cir. 1998), the Second Circuit held that "aplaintiff does not establish the reliance element of fraud forpurposes of ERISA or New York law by showing only that a thirdparty relied on a defendant's false statement." Id. But seeN.B. Garments (Pvt.) Ltd. v. Kids Int'l Corp., No. 03-8041, 2004 U.S. Dist. LEXIS 3774, at *9-12 (S.D.N.Y. March 10, 2004)("Further, the fact that the First and Second Departments have,subsequent to the Second Circuit's decision in Cement & ConcreteWorkers, altered their stance, and held in accord with theEaton line — even citing to the century old Court of Appealsdecisions, lends further support for the determination that NewYork law has, since the 1800's, allowed for fraud claims based onthird-party reliance."). The Court dismisses the fraud claims.

H. Unjust Enrichment

In New York, unjust enrichment "applies in situations where nolegal contract exists, `but where the person sought to be chargedis in possession of money or property which in good conscienceand justice he should not retain, but should deliver toanother.'" Indyk v. Habib Bank Ltd., 694 F.2d 54, 57 (2d Cir.1982) (quoting Matarese v. Moore-McCormack Lines, 158 F.2d 631,634 (2d Cir. 1946)).

The essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered. . . . Generally, courts will look to see if a benefit has been conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant, if there has been otherwise a change of position by the defendant, and whether the defendant's conduct was tortious or fraudulent.Paramount Film. Distrib. Corp. v. State, 30 N.Y.2d 415, 421(N.Y. 1972) (citations omitted). "The enrichment may either bethe receipt of money or its equivalent or by being saved fromexpense or loss." Baratta v. Kozlowski, 94 A.D.2d 454, 464 (N.Y.App.Div. 1983).

Defendants do not address Suffolk's Best Prices unjustenrichment claims, but rather argue only that Suffolk cannotrecover from the AWP fraud because it was doctors, notmanufacturers, who were benefitted by over-billing. Leaving asidethe thorny issue of whether Suffolk may recover from Defendantsto the extent that the AWP fraud boosted their sales, the Courtnotes that Suffolk's claim that Defendants were "saved fromexpense" when they fraudulently underpaid Best Prices rebates tothe State, and consequentially Suffolk, suffices to state aclaim.6

I. Consumer Fraud Statute, Section 349

New York General Business Law Section 349 provides: (a) Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful. . . . (h) In addition to the right of action granted to the attorney general pursuant to this section, any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section. The court may award reasonable attorney's fees to a prevailing plaintiff.N.Y. Gen. Bus. Law § 349 (McKinney 2004).

"A plaintiff under section 349 must prove three elements:first, that the challenged act or practice was consumer-oriented;second, that it was misleading in a material way; and third, thatthe plaintiff suffered injury as a result of the deceptive act."Stutman v. Chemical Bank, 731 N.E.2d 608, 611 (N.Y. 2000)."[T]he deceptive practice must be `likely to mislead a reasonableconsumer acting reasonably under the circumstances.'" Id. at612 (citation omitted); see also Cruz v. NYNEX Info.Resources, 263 A.D.2d 285, 290-91 (N.Y.App. Div. 2000) (holdingthat alleged unfair practices in distribution of Yellow Pages didnot state a claim under Section 349 because only businesses couldadvertise in the Yellow Pages, not consumers, and so the practicewas not "consumer oriented"); Securitron Magnalock Corp. v.Schnabolk, 65 F.3d 256, 264-65 (2d Cir. 1995) (holding thatpublic interest was harmed where false statements of defendantsin regard to safety of lock system caused public safety agency toundertake unnecessary investigations, caused unnecessarycancellations of contracts, and diverted attention of publicagency from normal activities). "[R]eliance is not an element ofa section 349 claim." Stutman, 731 N.E.2d at 612. "[A] partyhas standing under Section 349 when its complaint alleges a`consumer injury or harm to the public interest,'" regardless of whether theplaintiff is a consumer. Blue Cross & Blue Shield of N.J.,344 F.3d at 218-19.

Defendants argue first that the reporting of AWP's was not"consumer oriented" within the meaning of Section 349. The Courtdisagrees. The Defendants made the representations (the AWP's)understanding that consumers would be making payments based onthose representations. While government agencies also used theAWP's as the basis for reimbursement, this does not change thefact that the Defendants' conduct affected the public interestthrough harm to consumers. Additionally, harm to public agenciesimpacts the public interest. See Securitron, 65 F.3d at 264(harm to public interest established by "interference with[public safety agency's] decisionmaking process" and distractionof agency by false reports).

Defendants also argue that the false Best Prices reports werenot consumer oriented. This is a tougher claim, as there iscaselaw to support either side. Compare Securitron,65 F.3d at 264 (harm to public agencies constitutes harm to publicinterest) with Oswego Laborers' Local 214 Pension Fund v.Marine Midland Bank, N.A., 85 N.Y.2d 20, 24-25 (N.Y. 1995)("[P]laintiffs claiming the benefit of Section 349 . . . mustcharge conduct of the defendant that is consumer-oriented.").Having found that the Best Prices claims survive under an unjustenrichment theory, the Court need not decide this question now. Defendants second argue that there can be no harm because theexistence of the AWP spread was common knowledge. This presents afactual issue inappropriate for resolution at this stage.

Defendants third argue that Suffolk cannot recover becauseSuffolk's injury is derivative of that of the State. The Courtmay revisit the issue when the Court of Appeals answers thequestion of indirect standing under General Business Law Section349 certified to it by the Second Circuit. See Blue Cross &Blue Shield of N.J., Inc. v. Philip Morris USA, 769 N.Y.S.2d 196(2003) (accepting certification). Accordingly, the Court declinesto dismiss the claims.

J. Other State Causes of Action

Defendants have moved to dismiss the other state law causes ofaction. As the briefing has been terse, and resolution will notaffect the scope of litigation, the Court declines to address theremaining state law issues at this time.


Defendants' motion to dismiss Count I (RICO) is ALLOWEDwithout prejudice to amendment. Defendants' motion to dismissCount II (implied cause of action under the federal Best PricesStatute), Count VI (breach of Best Prices rebate agreements), andCount VIII (fraud) is ALLOWED. The remainder of the motion isDENIED. The Court will address the individual, company-specific motions to dismiss in separate orders.

1. The named Defendants are: Abbott Laboratories, Inc.;Agouron Pharmaceuticals, Inc.; Amgen, Inc.; AstraZenecaPharmaceuticals L.P.; AstraZeneca US; Aventis Behring L.L.C.;Aventis Pharmaceuticals Inc.; Barr Laboratories, Inc.; BayerCorporation; Berlex Laboratories, Inc.; Biogen, Inc.;Bristol-Myers Squibb Company; Chiron Corporation; Eli Lilly andCompany; Forest Pharmaceuticals Inc.; Fujisawa Healthcare, Inc.;Genentech, Inc.; Glaxo Wellcome, P.L.C.; GlaxoSmithKline P.L.C.;Immunex Corporation; Ivax Corporation; Ivax Pharmaceuticals Inc.;Janssen Pharmaceutical; Johnson & Johnson; MedImmune, Inc.; Merck& Co., Inc.; Novartis Pharmaceuticals Corporation; Ortho McNeilPharmaceuticals; Ortho Biotech; Pfizer Inc.; PharmaciaCorporation; Purdue Pharma, L.P.; Reliant Pharmaceuticals;Sanofi-Synthelabo, Inc.; Schering-Plough Corp.; TAPPharmaceutical Products, Inc.; SmithKline Beecham Corporation;Warrick Pharmaceuticals Corporation; and Wyeth. The AmendedComplaint also describes unknown "Doe" Defendants, in categoriessuch as individuals, partnerships, sole proprietors, businessentities, companies, corporations, independent pharmacies,dispensers, and other medical providers. Although Suffolk is theonly plaintiff in this action, other counties in New York havefiled similar suits.

2. Suffolk brings claims for violations of 18 U.S.C. § 1962(c)(Count I); violation of 42 U.S.C. § 1396r-8 (Count II); violationof New York Social Services Law § 367(A)(7)(d) (Count III);violation of New York Department of Health Regulations, N.Y.Comp. Codes R. & Regs. tit. 18 §§ 512.2(b)(4) and (5) (Count IV);violation of New York Social Services Law § 145-b (Count V);breach of the Best Prices rebate agreements (Count VI); unfairtrade practices in violation of New York General Business Law §349 (Count VII); common law fraud (Count VIII); and unjustenrichment (Count IX).

3. Prior to the passage of N.Y. Soc. Serv. L. § 367-b in 1978,each local agency made payments for the Medicaid costs of itscitizens directly to providers. N.Y. Hosp. — Westchester Div. v.Krauskopf, 98 A.D.2d 667, 668 (N.Y.App. Div. 1983). Defendantsassert that under the current system, money owed to the State isoften set-off against money the State would have paid the countyunder other programs, rather than paid directly.

4. For the time period from the start of the conduct leadingto the claims until May 15, 2003, the reimbursement formula wasAWP — 10%. (Opp. at 7 n. 8 (citing N.Y. Soc. Serv. L. §367a(9)(b)(ii) as amended by Act of May 15, 2003).)

5. The Court ordered the rebate agreements produced toSuffolk, which has not disputed that the MRA is the same as theactual agreements in all relevant points.

6. While Defendants make reference to the issue of whetherSuffolk has standing, as mentioned earlier, Defendants fail toargue the issue with any specificity to a particular cause ofaction.

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