District Court denies motion to dismiss defective pricing qui tam

by Ben Vernia | May 2nd, 2010

In an April 26 decision District Judge Thomas Savage of the Eastern District of Pennsylvania denied the motion of Siemens Medical Solutions, USA, Inc. (“SMS”), to dismiss a declined qui tam. Judge Savage did, however, dismiss the relator’s claims against two corporate parents.

In his suit, the whistleblower alleged that SMS, its U.S. and German corporate parents withheld price discounts on capital medical equipment it provided to the Veterans Administration. As a consequence, the relator alleged, the VA negotiated a contract discount on terms that were not as favorable as the company gave to some of its commercial customers.

SMS argued that it was required to report only “contractual” discounts and not “transactional” ones. Judge Savage reasoned that the relator had sufficiently pleaded a False Claims Act violation to survive the 12(b)(6) motion, and that what was required to be disclosed was a question of fact that required a factfinder to resolve. He noted that a plain reading of the requirement was contrary to the company’s interpretation, and he rejected its argument that the First Circuit case of United States v. Data Translation, Inc., 984 F.2d 1256 (1st Cir. 1992), applied, because that case was decided after a jury trial at which a General Services Administration official testified about what the discount disclosure language required. He likewise found that issues of fact precluded dismissing the case on materiality or knowledge grounds. The complaint, he concluded adequately pleaded violations of 31 U.S.C. 3729(a)(1) and (a)(2).

Judge Savage did, however, reject the relator’s “reverse false claim” allegation (under 31 USC 3729(a)(7)), concluding that this was just a restatement of his direct false claims allegations. He also dismissed claims against the parent corporations. The relator had not alleged the parent’s involvement adequately to pierce the veil, and he had failed to serve the German parent because he had not translated the complaint’s exhibits, as the German government required under the Hague Convention.

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