23-726-cv United States, et al., ex rel. Hart v. McKesson Corp., et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2023

(Argued: November 28, 2023 Decided: March 12, 2024)

Docket No. 23-726-cv

UNITED STATES OF AMERICA, ET AL., EX REL. ADAM HART,

Plaintiffs-Appellants,

— v. —

MCKESSON CORPORATION, MCKESSON SPECIALTY DISTRIBUTION LLC, MCKESSON SPECIALTY CARE DISTRIBUTION CORPORATION,

Defendants-Appellees.*

* The Clerk of Court is respectfully directed to amend the official caption in this case to conform with the caption above.

1 B e f o r e:

LYNCH and PARK, Circuit Judges, and WILLIAMS, District Judge.**

__________________

Adam Hart brought a qui tam action under the federal False Claims Act (the “FCA”) and the FCA analogues of several states and the District of Columbia against a pharmaceutical distributor, McKesson. Hart alleged that McKesson provided two business management tools to its customers without charge, in exchange for those customers’ commitments to purchase drugs from McKesson, conduct that he argues violated the federal anti-kickback statute (the “AKS”) and several analogous state anti-kickback statutes. The district court (Abrams, J.) dismissed Hart’s FCA claim because it concluded that Hart failed to allege sufficient facts to suggest that McKesson acted “willfully,” as required under the AKS. It dismissed the remaining claims under the state FCA analogues on the ground that those claims were premised solely on a violation of the federal AKS. We hold that the district court correctly concluded that to act “willfully” under the federal AKS, a defendant must act knowing that its conduct is in some way unlawful, and that Hart failed to plead sufficient facts to meet that standard. We also hold, however, that the district court erred in concluding that Hart’s remaining claims were premised solely on a violation of the federal AKS. Accordingly, we AFFIRM the district court’s dismissal of Hart’s federal FCA claim, VACATE the dismissal of the remaining claims, and REMAND for further proceedings.

ANDREW C. SHEN, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C. Washington, DC (James M. Webster, David L. Schwarz, Bradley E. Oppenheimer, Grace W. Knofczynski, Kellogg, Hansen, Todd,

** Judge Omar A. Williams of the United States District Court for the District of Connecticut, sitting by designation.

2 Figel & Frederick, P.L.L.C., Washington, DC; Stephen S. Hasegawa, Phillips & Cohen LLP, San Francisco, CA; Ari Yampolsky, Constantine Cannon LLP, San Francisco, CA, on the brief), for Plaintiffs-Appellants.

MARK MOSIER, Covington & Burling LLP, Washington, DC (Krysten L. Rosen Moller, Ethan M. Posner, Nicholas Pastan, Covington & Burling LLP, Washington, DC; S. Conrad Scott, Covington & Burling, New York, NY, on the brief), for Defendants-Appellees.

GERARD E. LYNCH, Circuit Judge:

In this qui tam action, Adam Hart sued McKesson Corporation, McKesson

Specialty Distribution LLC, and McKesson Specialty Care Distribution

Corporation (together, “McKesson”) under the federal False Claims Act (the

“FCA”),

et seq., and the FCA analogues of 27 states and the

District of Columbia. Hart, a former McKesson Business Development Executive,

alleges that McKesson, a pharmaceutical wholesaler, offered its customers free

access to two valuable business management tools to induce those customers to

purchase drugs from McKesson. He argues that McKesson’s use of the tools

operated as a kickback under the federal Anti-Kickback Statute (the “AKS”), 42

U.S.C. § 1320a-7b, and similar anti-kickback laws of various states and the

District of Columbia.

3 The United States District Court for the Southern District of New York

(Ronnie Abrams, J.) dismissed Hart’s federal claim, concluding that Hart had

failed to allege that McKesson acted with the requisite scienter under the AKS. It

dismissed his remaining claims on the ground that they were all premised on a

violation of the federal AKS.

As explained below, we agree with the district court that to violate the

federal AKS, a defendant must act knowing that its conduct is, in some way,

unlawful, and that Hart failed to allege facts sufficient to satisfy that standard.

We disagree, however, with the district court’s conclusion that Hart’s claims

under the FCA analogues of several states and the District of Columbia were

premised solely on a violation of the federal AKS. Accordingly, we AFFIRM the

district court’s dismissal of Hart’s federal claim, VACATE the dismissal of Hart’s

remaining claims, and REMAND for further proceedings consistent with this

opinion.

4 BACKGROUND

I. Factual Background1

McKesson is a large wholesale pharmaceutical distributor that sells

products across the United States. It provides drugs and other medical supplies

to various health care providers, including oncology providers. McKesson

includes two divisions that serve oncology customers – the U.S. Oncology

Network (“USON”), which offers tools and services to member health care

practices in exchange for management fees, and the Open Market Division,

which operates as a traditional drug wholesaler that purchases drugs from

manufacturers and sells them at a markup to health care practices.

Oncology practices often obtain specialty drugs from wholesalers like

McKesson. When an oncology practice buys a specialty drug from a wholesaler,

it bills its patient’s insurer for the cost of the drug. Medicare and Medicaid are

federally funded health insurance programs that are major payors for oncology

drugs procured in that fashion. Those programs reimburse health care providers

1 When reviewing the district court’s grant of a motion to dismiss, we – like the district court – take the plaintiff’s well-pleaded allegations as true and draw all reasonable inferences in his favor. United States ex rel. Foreman v. AECOM,

(2d Cir. 2021).

5 for such drugs at standardized rates set by Medicare. Because the reimbursement

rates do not change based on what a given provider paid for the drugs, each

provider bears the risk that the reimbursement rate for a given drug will fall

below its costs. If the reimbursement rate exceeds a provider’s costs, however, the

provider can profit from the difference.

McKesson offers two tools (the “Business Management Tools”) to help

providers maximize their profits and mitigate the risk that the reimbursement

rate will fall below the actual cost they paid for drugs. The first tool, the Margin

Analyzer, evaluates sets of “therapeutically interchangeable” drugs by

comparing McKesson’s price for each drug to publicly available Medicare

reimbursement rates for that drug. App’x 277–78, ¶¶ 63, 65. Using the Margin

Analyzer, a medical provider can thus compare drugs that McKesson categorizes

as interchangeable to determine which treatment option provides the highest

profit margin based on how each drug’s reimbursement rate measures up to

McKesson’s prices. The Margin Analyzer does not evaluate the comparative

medical benefits of the drugs that it analyzes, nor does it evaluate which drug

would provide the least expensive option for a given patient. Instead, according

to Hart, the tool’s “sole function is to identify which among several purportedly

6 equivalent drugs will earn a physician practice – and, not coincidentally,

McKesson – the most money.” Id. at 279, ¶ 67. The second tool, the Regimen

Profiler, is similar to the Margin Analyzer, but it provides profit-margin

information for an entire course of treatment, as opposed to information only for

specific drugs. Several of McKesson’s Open Market Division customers who had

received the Business Management Tools submitted millions of dollars in

Medicare reimbursement claims from 2012 to late 2017.

But according to Hart, while the Business Management Tools led to

increased costs for insurers, they were hugely valuable tools for McKesson and

for health care providers, and McKesson understood as much. Hart alleges, for

example, that multiple internal and external analyses determined that the Margin

Analyzer and Regimen Profiler possessed significant value. Further, the Business

Management Tools formed a central component of McKesson’s national

marketing and sales strategy, and McKesson often won new business by touting

the benefits of the tools to health care providers.

Hart’s objection to the Business Management Tools is that McKesson’s

Open Market Division offered them for free to induce providers to buy drugs

7 from McKesson.2 The Open Market Division offered providers two basic

purchase arrangements. Under one arrangement, providers could purchase

individual drugs without making any additional commitments to McKesson,

leaving those providers free to purchase other drugs from McKesson

competitors. Under the other arrangement, providers promised to use McKesson

as their primary wholesale supplier of branded and generic drugs. In exchange

for that promise, McKesson granted providers free access to the Business

Management Tools. Only providers enrolled in the second type of purchase

arrangement could access those tools; McKesson refused to offer them on a

standalone basis, even when providers expressly requested as much and offered

to pay. Thus, according to Hart, McKesson provided the valuable Business

Management Tools as an unlawful kickback to induce customers to buy from

McKesson.

Hart further contends that McKesson acted willfully. He points out that

sales executives and other customer-facing employees at McKesson received

regular training on the AKS and that those training sessions emphasized that

2 Unlike McKesson’s Open Market Division, USON provides customers with the Business Management Tools, along with other tools and services, in exchange for a management fee.

8 providing anything of value to induce a sale of pharmaceuticals violates federal

law. Hart also alleges that he and other McKesson employees often discussed

concerns that McKesson’s sales practices (including its use of the Business

Management Tools) were improper. He further alleges that McKesson destroyed

several documents after this litigation began to conceal its wrongful conduct.

II. Procedural History

Hart filed his complaint on February 6, 2015. Because Hart asserted a qui

tam action under the FCA,3 the United States was given an opportunity to

intervene in the case. See

(b)(2), (b)(4). After the government

declined to intervene, Hart filed his first amended complaint (the “FAC”) on June

3, 2020. The defendants moved to dismiss the FAC, and the district court granted

that motion on May 5, 2022. The district court reasoned that the plaintiff failed to

plausibly plead that the defendants acted with the requisite scienter under the

AKS. Nonetheless, the court gave the plaintiff leave to amend his complaint a

3 A private individual may bring a qui tam action under the FCA for violations of the AKS. The FCA prohibits, as relevant here, “knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval” to the federal government.

(a)(1)(A). The AKS, in turn, provides that “a claim that includes items or services resulting from a violation” of the AKS “constitutes a false or fraudulent claim for purposes of” the FCA. 42 U.S.C. § 1320a-7b(g).

9 second time to add more allegations regarding McKesson’s scienter, and Hart

filed his second amended complaint (the “SAC”) roughly one month later.

McKesson moved to dismiss the SAC, and on March 28, 2023, the district court

again granted the motion. United States ex rel. Hart v. McKesson Corp., No. 15-CV-

0903 (RA),

, at *13 (S.D.N.Y. Mar. 28, 2023).

In its opinion on the motion to dismiss the SAC, the district court

concluded that to act “willfully,” as required for liability under the AKS, a

defendant must act knowing that its conduct was unlawful.

. The court

then concluded that Hart’s allegations, including the new allegations that he

added to the SAC, did not plausibly plead that McKesson acted willfully under

that standard.

at *8–12. The district court also dismissed Hart’s claims under

the FCA analogues of several states and the District of Columbia, reasoning that

those claims were premised only on “a violation of the federal AKS,” which Hart

had not plausibly alleged.

(emphasis in original). The court again granted

Hart leave to amend his complaint because it was “conceivable” that Hart could

state a claim under the anti-kickback laws of one or more states, which may have

a lower scienter requirement than the federal AKS.

.4 4 The court noted, however, that it was “skeptical that it would retain jurisdiction” over a third amended complaint that raised exclusively state-law

10 On April 7, 2023, Hart filed a notice of intent not to amend his complaint

and requested that the court enter a final judgment. The district court did so on

April 17. This appeal followed.

DISCUSSION

Hart argues on appeal that the district court erred in dismissing his federal

FCA claim because he alleged sufficient facts to show that McKesson acted with

the requisite scienter under the federal AKS. He also argues that the district court

erred in dismissing his remaining claims because, contrary to the district court’s

conclusion, they were not premised solely on a violation of the federal AKS. As

explained below, we agree with the district court’s dismissal of Hart’s federal

FCA claim but disagree with its dismissal of the remaining claims.

I. Standard of Review

We review de novo a district court’s grant of a motion to dismiss. Meyer v.

Seidel,

(2d Cir. 2023). “To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

(2009), quoting Bell Atl. Corp. v. Twombly,

(2007).

claims.

11 “Claims under the FCA are subject to the particularity requirement of

Federal Rule of Civil Procedure 9(b).” United States v. Strock,

(2d

Cir. 2020). Accordingly, a plaintiff bringing an FCA claim “must state with

particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). To do so,

plaintiffs must “plead the factual basis which gives rise to a strong inference of

fraudulent intent.” Strock,

(internal quotation marks omitted),

quoting O’Brien v. Nat’l Prop. Analysts Partners,

, 676 (2d Cir. 1991).

II. The Federal AKS Claim

A. Willfulness

The primary issue on appeal is whether the SAC plausibly alleges that

McKesson acted with the mens rea applicable under the federal AKS. That statute

provides, in pertinent part, that

[w]hoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person . . . to purchase . . . any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony . . . .

12 42 U.S.C. § 1320a-7b(b)(2)(B). A defendant convicted under the AKS may be

subject to significant penalties, including ten years’ imprisonment and fines of up

to $100,000. See id.

When interpreting a statute, “[w]e begin with the text.” Facebook, Inc. v.

Duguid,

(2021). The statute here requires, inter alia, that a

defendant act “willfully” to be liable, but it does not define that term.

Interpreting the term “willfully” has long “bedeviled” courts, United States

v. George,

(2d Cir. 2004), because it is “‘a word of many

meanings’ whose construction is often dependent on the context,” Bryan v. United

States,

(1998), quoting Spies v. United States,

(1943). “Most obviously it differentiates between deliberate and unwitting

conduct, but in the criminal law it also typically refers to a culpable state of

mind.” Bryan,

. Thus, “[a]s a general matter, when used in the

criminal context, a willful act is one undertaken with a bad purpose.” United

States v. Kosinski,

(2d Cir. 2020) (alterations in original) (internal

quotation marks omitted), quoting Bryan,

. “In other words, in

order to establish a willful violation of a [criminal] statute, the Government must

prove that the defendant acted with knowledge that his conduct was unlawful.”

13 United States v. Kukushkin,

(2d Cir. 2023) (internal quotation

marks omitted), quoting Bryan, 524 U.S. at 191–92.

At the same time, it is well settled that “ignorance of the law or a mistake

of law is no defense to criminal prosecution.” Cheek v. United States,

(1991). Accordingly, with few exceptions, “a person who acts willfully need

not be aware of the specific law that his conduct may be violating.” United States v.

Henry,

(2d Cir. 2018) (emphasis added). “Rather, ‘knowledge

that the conduct is unlawful is all that is required.’”

quoting Bryan,

.5

Drawing on that background understanding of willfulness, our only

opinion to address the AKS’s mens rea requirement suggested that to violate the

AKS, a defendant must act knowing that his conduct is unlawful, even if the

defendant is not aware that his conduct is unlawful under the AKS specifically.

5 The Supreme Court has applied a heightened standard of willfulness to certain “highly technical statutes,” requiring not only that a defendant understand that her conduct is unlawful but also that she “have knowledge of the law” that she is alleged to have violated. Bryan, 524 U.S. at 194–95, citing Cheek,

, and Ratzlaf v. United States,

(1994). McKesson does not argue for such a standard here. Nor could it. The AKS expressly provides that “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of [the AKS]” to be criminally liable. 42 U.S.C. § 1320a-7b(h).

14 Pfizer, Inc. v. U.S. Dep’t of Health & Hum. Servs.,

(2d Cir. 2022). In

that case, we explained that the “bad purpose” required for willful violations of

criminal statutes is best “understood as ‘a voluntary, intentional violation of a

known legal duty.’”

quoting United States v. Bishop,

(1973).

Thus, we reasoned that an individual who “accidentally violate[s] the statute”

because he is “unaware” that a given payment arrangement is prohibited by law

cannot be held criminally liable under the AKS.

But a person can “willfully”

violate a criminal statute like the AKS, “as long as he knows that his conduct is

illegal, even if he is not aware of the exact statutory provision that his conduct

violates.”

at 77 n.8.

Although Pfizer addressed a slightly different issue than the one we now

face, its discussion of the term “willfully” in the AKS is evidence that we have

understood that term as it is typically interpreted in federal criminal law.

Moreover, the interpretation suggested in Pfizer aligns with the approach to the

AKS taken by several of our sister circuits, which have held or implied that to be

liable under the AKS, defendants must know that their particular conduct was

wrongful. See, e.g., United States v. Montgomery, No. 20-5891,

, at

*12 (6th Cir. June 23, 2022); United States v. Nora,

(5th Cir. 2021);

15 United States v. Hill,

, 815–16 (11th Cir. 2018); United States v.

Nagelvoort,

(7th Cir. 2017); United States v. Goldman,

, 174–75 (3d Cir. 2015); United States v. Yielding,

(8th

Cir. 2011).

Pfizer’s interpretation also makes sense given the text and structure of the

statute. The AKS forbids “offer[ing] or pay[ing] any remuneration . . . directly or

indirectly, overtly or covertly, in cash or in kind to any person to induce such

person” to make certain purchases. 42 U.S.C. § 1320a-7b(b)(2)(B). Thus, the

statute’s plain language is expansive. To cabin the statute’s broad reach,

Congress defined twelve exceptions to the AKS’s criminal penalties, some of

which are themselves quite broad. See, e.g., id. § 1320a-7b(b)(3)(A) (criminal

penalties shall not apply to “a discount or other reduction in price obtained by a

provider of services or other entity under a Federal health care program if the

reduction in price is properly disclosed and appropriately reflected in the costs

claimed or charges made by the provider or entity under a Federal health care

program”). Moreover, Congress created a robust regime through which the

Department of Health and Human Services (“HHS”) can establish safe harbors

that exempt certain arrangements from the AKS and issue advisory opinions

16 explaining whether the AKS reaches particular arrangements. Id. §§ 1320a-

7c(a)(1)(D), 1320a-7d.

All of that suggests that Congress understood that the precise contours of

the AKS would evolve over time. Thus, interpreting “willfully” to require that a

defendant act understanding that his conduct is unlawful (if not necessarily

under the AKS) accords with the general goal of criminal law to punish only

those who act with a “vicious will.” Ruan v. United States,

(2022)

(internal quotation marks omitted), quoting Morissette v. United States,

(1952). A more expansive interpretation would risk creating a trap for

the unwary and deter socially beneficial conduct. See id. at 459; United States v.

Pineda,

(2d Cir. 1988) (rejecting challenge to sentencing

enhancement “because the statute requires proof that a defendant knowingly and

intentionally possessed a controlled substance”).

The legal landscape that has emerged through HHS’s safe harbors and

advisory opinions only strengthens that conclusion. HHS has codified over 35

safe harbor provisions and continues to add new safe harbors and modify

existing ones. See

(a)–(kk). Thus, the reach of the AKS is far

from settled. In addition, HHS has acknowledged that the existence of its safe

17 harbor provisions may not resolve whether a particular arrangement is

permissible under the AKS. See Medicare and State Health Care Programs: Fraud

and Abuse; OIG Anti-Kickback Provisions,

, 35,954 (July 29,

1991). Specifically, it has explained that a business arrangement that does not

satisfy a safe harbor could be (1) outside the ambit of the AKS altogether, (2) a

clear violation of the AKS that also fails to satisfy a safe harbor, or (3) an

arrangement that “violate[s] the statute in a less serious manner” but that is also

not “in compliance with a safe harbor provision,” in which case “there is no way

to predict the degree of risk” of prosecution.

As a result, even a well-

counseled defendant who has taken every effort to comply with the AKS and all

other relevant laws could still find herself accidentally in violation of the statute.

The same is true for HHS’s advisory opinions. A defendant could innocently rely

on a published advisory opinion to conclude that her conduct is lawful, even if

she is ultimately incorrect. Again, defining “willfully” to require that a defendant

act knowing that her conduct is in some way unlawful avoids sweeping in such

innocent conduct.6 6 We do not suggest that the defendants in this case relied on an advisory opinion or safe harbor to conclude that their conduct was lawful. Rather, our discussion of the legal landscape that has arisen from HHS’s advisory opinions and safe harbors merely illustrates that understanding the reach of the AKS is a difficult

18 The historical evolution of the AKS also supports that interpretation.

Congress amended the AKS to add the term “knowingly and willfully” in 1980.

Medicare and Medicaid Amendments of 1980, Pub L. No. 96-499, tit. IX, § 917,

, 2625 (1980). The drafters of the amendment added the term

“knowingly and willfully” out of a “concern[] that criminal penalties may be

imposed under current law to an individual whose conduct, while improper, was

inadvertent.” H.R. Rep. No. 96-1167, at 59 (1980), as reprinted in 1980 U.S.C.C.A.N.

5526, 5572 (emphasis added).

Several years later, the Ninth Circuit held that “knowingly and willfully”

required not only that a defendant act knowing that her conduct was unlawful in

general, but also that she act with specific knowledge of the AKS. Hanlester

Network v. Shalala,

(9th Cir. 1995). Other circuits rejected that

interpretation, concluding that “ignorance of the law is no excuse” and that

“knowledge that conduct is unlawful is all that is required.” E.g., United States v.

endeavor. A defendant could innocently conclude in light of a safe harbor provision or advisory opinion that its conduct is lawful under the AKS and all other applicable laws. The possibility that such a defendant would draw that conclusion and turn out to be incorrect supports interpreting willfulness to require knowledge of wrongdoing.

19 Starks,

(11th Cir. 1998) (internal quotation mark omitted),

quoting Bryan,

.

In 2010, Congress resolved the conflict. It amended the statute to provide

that, to violate the AKS, “a person need not have actual knowledge of [the AKS]

or specific intent to commit a violation of [the AKS].” Patient Protection and

Affordable Care Act,

(f)(2),

, 759 (2010)

(codified at 42 U.S.C. § 1320a-7b(h)). Thus, Congress rejected the Ninth Circuit’s

heightened standard of willfulness, but it left intact the AKS’s willfulness

requirement, even as other circuits interpreted that term to require a defendant to

know that her conduct was in some way unlawful. See also 155 Cong. Rec.

S10,852, S10,853 (2009) (statement of Sen. Edward Kaufman) (explaining that “the

Ninth Circuit Court of Appeals has read the term to require proof that the

defendant not only intended to engage in unlawful conduct, but also knew of the

particular law in question and intended to violate that particular law”). The

retention of the willfulness requirement in that context suggests that Congress

still intended the term to protect against criminal liability for unwitting

defendants by requiring that a defendant act with knowledge that her conduct is

20 somehow unlawful, even though it eschewed any requirement that a defendant

know about the AKS specifically.7

Finally, a comparison between the criminal provision at issue in this case

and its civil counterpart lends further support to our interpretation. The AKS is

abutted by a provision that imposes civil liability against, inter alia, those who

“knowingly” make false representations in certain health care contexts. See, e.g.,

42 U.S.C. § 1320a-7a(a)(3). The material difference between the term “knowingly”

7 Our determination is also consistent with the scienter requirement for health care fraud. In developing the 2010 amendment, Congress addressed the AKS and the health care fraud statute concurrently. See 155 Cong. Rec. at S10,853 (statement of Sen. Edward Kaufman) (“Both the anti-kickback statute and the health care fraud statute include the term ‘willfully.’ The heightened mental state [required by the Ninth Circuit] . . . is inappropriate for these crimes.”). Thus, logically, both statutes now require that a defendant act “knowingly and willfully” to be criminally liable. Compare 42 U.S.C. § 1320a-7b(b)(2)(B) with

(a). At least one of our sister circuits has explained that a defendant acts “knowingly and willfully” under the health care fraud statute “when he acts with ‘knowledge that his conduct was unlawful.’” United States v. Clay,

(11th Cir. 2016), quoting United States v. Dominguez,

(11th Cir. 2011). Similarly, in United States v. Jafari,

(2d Cir. 2016), we determined that the mens rea requirement of the health care fraud statute was satisfied where the government established that the defendant knew she was committing fraud.

. In other words, we found that the scienter requirement was satisfied when evidence established that the defendant knew she was committing an unlawful act. The inquiry in Jafari stopped before determining whether the defendant knew that she was violating the health care fraud statute specifically.

21 in § 1320a-7a and the phrase “knowingly and willfully” in the AKS suggests that

Congress intended to require knowledge of illegality for liability under the latter.

See Bishop,

; see also Rehaif v. United States, 588 U.S. ----,

(2019) (Alito, J., dissenting).

Accordingly, we hold that the term “willfully” in the AKS means what it

typically means in federal criminal law. To act willfully under the AKS, a

defendant must act with a “bad purpose,” Bryan,

. In other words,

the defendant must act “with knowledge that his conduct was unlawful.”

Kukushkin,

(internal quotation mark omitted), quoting Bryan, 526

U.S. at 191–92.

None of this is to say, however, that a defendant must know of the AKS

specifically or intend to violate that statute. Such a requirement would conflict

with the plain language of the 2010 amendment. A person may be criminally

liable under the AKS without knowing of that statute or having a specific intent

to violate it, provided that the person acts with knowledge that her conduct is, in

some way, unlawful. Our interpretation of the AKS’s willfulness requirement

thus protects those (and only those) who innocently and inadvertently engage in

prohibited conduct.

22 Hart asks us to adopt either of two alternative interpretations of the term

willfully, but neither interpretation is satisfactory. First, seizing on the portion of

our opinion in Pfizer explaining that a “bad purpose” means a voluntary and

intentional violation of a known legal duty, Pfizer,

, Hart asks us to

adopt a two-factor interpretation of willfulness. He argues that the willfulness

requirement may be satisfied through evidence that the defendant

“(1) intentionally provid[ed] something of value in connection with a medical

purchase reimbursed by the government, (2) while knowing that it is illegal to

provide things of value in connection with such purchases.” Appellant’s Br. at 31.

We disagree. At the outset, Hart’s proposal is based on a misreading of our

opinion in Pfizer. Although that opinion explained that a “bad purpose” is

“accurately understood as ‘a voluntary, intentional violation of a known legal

duty,’” Pfizer,

, quoting Bishop,

, it also made clear that

“a person can ‘willfully’ violate a statute as long as he knows that his conduct is

illegal, even if he is not aware of the exact statutory provision that his conduct

violates,”

at 77 n.8 (emphasis added). The full context of the opinion thus

indicates that the relevant knowledge that a defendant must possess is

knowledge that “his conduct” is illegal; according to Pfizer, a defendant’s

23 knowledge of his general legal obligations is not enough if he does not also know

that his actions violate those obligations.

Second, Hart’s two-factor definition would criminalize too much innocent

conduct. Suppose that a pharmaceutical company creates a free 24/7 customer

support hotline to allow providers to ask questions about the company’s

products. Even if the company is generally aware of the AKS’s prohibition on

kickbacks, the company still could create the hotline out of a good-faith desire to

help doctors treat their patients more effectively, without knowing that the

hotline violated the AKS or any other law. In such circumstances, one could

hardly say that the company acted with the “vicious will” that “our criminal law

seeks to punish,” Ruan,

(internal quotation marks omitted),

quoting Morissette,

. But under Hart’s proposed definition, the

company could suffer criminal penalties anyway if the hotline was deemed

prohibited remuneration.

Third, although Hart cites a handful of out-of-circuit opinions to support

his two-factor test, those opinions do not help him. In the first, United States v.

Sosa,

(11th Cir. 2015), the defendant engaged in conduct that was

plainly illegal – writing checks to a “recruiter” who, in exchange, paid patients in

24 cash to encourage them to visit a certain medical clinic for treatment.

at

1287–88, 1293–94. Indeed, the defendant in Sosa admitted to law enforcement that

“he knew that [the recruiter] was in charge of bringing patients to the clinic,” that

the checks the defendant wrote the recruiter were “payment for bringing those

patients to the clinic,” “that the patients were being paid,” and “that it was illegal

to pay the patients.”

. Sosa therefore had no occasion to consider

whether a defendant whose actions are closer to the perimeter of the AKS’s

proscriptions must understand that his specific conduct was unlawful. Although,

as Hart points out, Sosa stated in passing that a “defendant need not have known

that a specific referral arrangement violated the law” to be liable under the AKS,

that statement paraphrased another Eleventh Circuit opinion.

, citing

United States v. Vernon,

(11th Cir. 2013). That opinion stated

more precisely that a defendant does not need to know “that a specific ‘referral

arrangement violated the Anti-Kickback statute in order to be convicted’” because

the Eleventh Circuit correctly rejected the argument that a defendant needs to be

specifically aware of the AKS to be criminally liable. Vernon,

(emphasis added), quoting United States v. Starks,

(11th Cir.

1998). Thus, the law in the Eleventh Circuit is consistent with our holding here –

25 to act willfully, a defendant need not be aware of the AKS or have a specific

intent to violate that statute, but she must act knowing that her conduct is in

some way unlawful. Indeed, Sosa itself explained that willfulness under the AKS

requires that the defendant “acted ‘voluntarily and purposely, with the specific

intent to do something the law forbids, that is with a bad purpose, either to disobey or

disregard the law.’” Sosa,

(emphases added), quoting Vernon,

.

Hart’s other primary authorities are likewise inapplicable. As with Sosa,

those cases all involved kickback schemes that were plainly illegal. See United

States v. Goodwin,

(8th Cir. 2020) (defendant shared profits of

medical testing company in exchange for referring patients to the company);

United States v. Moshiri,

(7th Cir. 2017) (defendant was aware

that his teaching contract with a hospital was a sham designed to disguise

kickbacks for patient referrals); United States v. Nowlin,

(5th Cir. 2016) (defendant received commissions from medical equipment

company in exchange for referring clients to the company). And, as with Sosa,

those cases all come from circuits that have elsewhere held or implied that

willfulness under the AKS requires knowledge that the defendant’s specific

26 conduct is wrongful. See, e.g., Yielding,

; Nagelvoort,

; Nora,

. Thus, we decline to adopt Hart’s two-factor approach

to defining willfulness.

Hart’s second proposed definition derives from an outlier opinion from the

Fifth Circuit, United States v. St. Junius,

(5th Cir. 2013). We reject that

definition, too. In St. Junius, the court stated that to show a criminal violation of

the AKS, the government “must prove that the defendant willfully committed an

act that violated” that statute.

. It rejected the argument that the

government must prove that the defendant acted knowing that her conduct was

unlawful.

at 210 n.19. In other words, the Fifth Circuit ruled that as long as a

defendant intentionally performed an act, and that act in fact violated the AKS,

the defendant violated the law even if she had no idea that her conduct was

unlawful in any way. In so ruling, the court relied exclusively on the portion of

the AKS that provides that to violate the AKS, “a person need not have actual

knowledge of [the AKS] or specific intent to commit a violation of [the AKS],” 42

U.S.C. § 1320a-7b(b). St. Junius,

n.19.

St. Junius’s reasoning is unpersuasive. As we have established above, there

is a distinction between knowledge of unlawfulness in general and knowledge of

27 a particular statute. The provision of the AKS relied on by St. Junius addresses the

latter, not the former.8 St. Junius’s use of that provision to conclude that

defendants need not have any knowledge of unlawfulness to act willfully under

the AKS is therefore not well supported. Perhaps for that reason, the Fifth Circuit

has failed to follow the reasoning of St. Junius in several subsequent published

opinions. See, e.g., United States v. Shah,

, 239–40 (5th Cir. 2023)

(“Willfulness, under the AKS, means acting with specific intent to do something

the law forbids.”); Nora,

(similar); United States v. Ricard,

(5th Cir. 2019) (similar). We therefore decline to apply St. Junius here.

Accordingly, neither of Hart’s proposed definitions has merit. Instead, to

act “willfully” under the AKS’s criminal provisions, a defendant must act

knowing that his conduct is unlawful, even if he is not aware of the AKS

8 Hart briefly argues that the AKS is the only federal statute that prohibits offering remuneration in connection with medical purchases that are reimbursed by the federal government. So, he continues, when Congress clarified that a defendant need not have knowledge of the AKS to be criminally liable, it also removed any requirement that a defendant have general knowledge of illegality. That argument fails out of the gate. Contrary to Hart’s suggestion, conduct underlying an AKS conviction can easily implicate other crimes including, among others, wire fraud, health care fraud, and bribery. Thus, the statutory language providing that a defendant need not know about the AKS to act willfully does not mean that a defendant need not have any knowledge of unlawfulness.

28 specifically.

B. Sufficiency of Hart’s Allegations

Having established the proper definition of willfulness, we now turn to

whether Hart has alleged sufficient facts pertinent to that definition to survive a

motion to dismiss. Hart points to three categories of allegations that he contends

give rise to a plausible inference of willfulness as we have defined it – allegations

that McKesson destroyed certain documents after receiving notice that its

conduct may be unlawful, that Hart himself suggested to certain McKesson

employees that McKesson’s use of the Business Management Tools violated the

company’s compliance policies or was otherwise inappropriate, and that one

McKesson executive sent an email to another executive that attached a document

that included a reference to the Business Management Tools and stated, “You

didn’t get this from me . . . . ok?”. We hold that none of those allegations alone or

together gives rise to a plausible inference that McKesson acted willfully.9

9 Hart spends much of this section of his brief arguing that he plausibly alleged willfulness by alleging that McKesson was aware of the AKS’s prohibitions and still offered the Business Management Tools for free, even though McKesson knew that those tools were valuable. That argument fails, as it is nothing more than an attempt to resuscitate his proposed two-factor definition of willfulness, which we have already rejected. Hart also suggests that the district court erred by imposing a “heightened pleading standard,” Appellant’s Br. 42, by listing certain

29 First, Hart points to McKesson’s alleged destruction of certain documents.

Hart alleges, for example, that after the Department of Justice sent McKesson a

Civil Investigative Demand seeking documents related to Hart’s qui tam action,

McKesson asked Hart to return the laptop he used when he worked there. He

further alleges that, although the laptop contained “a trove of relevant

documents,” App’x 321, ¶ 168, McKesson scrubbed the laptop of its contents after

Hart returned it. According to Hart, that allegation plausibly suggests that

McKesson attempted to conceal its alleged prior misconduct, which in turn

suggests that McKesson acted willfully.

Under the circumstances, we disagree. At most, the allegation suggests that

at some point during this litigation, McKesson determined that its use of the

Business Management Tools may have been improper. But courts that have

found concealment probative of wrongful intent have typically done so when the

concealment happened concurrently with the violation. See, e.g., Vernon, 723 F.3d

kinds of allegations that could plausibly suggest willfulness under the AKS. But by including an illustrative list of potentially relevant allegations, the district court did not hold Hart to a more stringent pleading standard. Rather, the district court considered Hart’s allegations on their own terms and concluded, as we do, that they failed to create a plausible inference of willfulness under the typical federal pleading standards.

30 at 1269 (defendant concealed kickback payments through “a sham job title” given

to the kickback recipient while the payments were ongoing); Ricard, 922 F.3d at

648–49 (defendant concealed her monthly income while receiving unlawful

kickbacks); see also United States ex rel. Schutte v. SuperValu Inc.,

(2023) (whether, under the FCA, a defendant acted “knowingly” in submitting a

false claim turns on “what the defendant thought when submitting the false

claim – not what the defendant may have thought after submitting it”). Hart does

not allege that McKesson took any efforts to conceal its alleged wrongdoing

before the litigation began.10

Hart also alleges that McKesson removed a customer testimonial video

about the Margin Analyzer from its website and claims to have lost or destroyed

the video and the footage used to make that video. But there is nothing to suggest

that McKesson attempted to conceal the testimonial video other than the fact that

McKesson currently does not possess that video or the footage used to make it.

Hart does not allege that McKesson had an obligation to preserve those materials

10 We note, moreover, that Hart does not allege that it was not standard practice for McKesson to reclaim, scrub, and recycle company-owned laptops previously used by former employees. Nor does Hart suggest that laptops of his colleagues were scrubbed, even though he alleges that McKesson was engaged in a “nationwide” scheme. App’x 298, ¶ 120.

31 or that McKesson would have normally retained the materials under other

circumstances. Accordingly, the document destruction allegations are

insufficient.

Second, Hart relies on a handful of allegations that, while he was still

employed at McKesson, he discussed his concerns about the propriety of

McKesson’s use of the Business Management Tools. He relies, for example, on a

message that he sent to his supervisor while both of them attended a training

session on McKesson’s compliance policies that included a presentation on the

AKS. During the session, Hart told his supervisor that he felt that McKesson’s

current sales practices violated the policies discussed at the session. Even

interpreting that allegation in the light most favorable to Hart, it suggests only

that Hart believed that McKesson’s use of the Business Management Tools

violated the AKS.11 Hart does not allege that his supervisor agreed with him or

11 Even that is a generous interpretation of Hart’s allegations, which are peculiarly indirect. Hart, who can presumably recall his own concerns with the Business Management Tools, does not allege outright that he told his supervisor that he thought McKesson’s use of the Business Management Tools violated the law. Instead, he says that he told his supervisor that he thought McKesson’s “sales practices” violated “the compliance policies that were presented in the training session.” App’x 320, ¶ 164. He suggests that because McKesson’s sales practices included the use of the Business Management Tools to secure purchase agreements and the training session included a presentation on the AKS, we should infer that the supervisor would have concluded that Hart meant that

32 even expressed any concern that Hart may have been right. Hart’s own belief that

McKesson’s use of the Business Management Tools was unlawful does not help

show that McKesson believed the same.

Hart similarly alleges that he had “frequent conversations” with the creator

of the Margin Analyzer, during which the two employees “discussed concerns

that McKesson was inappropriately exploiting the value-added business tool . . .

by giving the tool for free to open market customers.” App’x 320, ¶ 166. Again,

Hart does not allege that the tool’s creator shared Hart’s concerns. Even assuming

that he did, however, Hart does not allege that the belief was shared by others on

McKesson’s sales team or that the views of the tool’s creator can be imputed to

McKesson as a whole.

Finally, Hart points to his allegation that one of McKesson’s senior sales

executives sent another McKesson executive an email that stated, “You didn’t get

this from me . . . . ok?” and attached three documents. The attached documents

total 170 pages and cover a host of topics, including valuations of over 150

making the Business Management Tools available to certain Open Market Division customers was illegal. We assume for purposes of this discussion, without deciding, that such an inference in Hart’s favor is reasonable.

33 services provided by McKesson.12 The documents mention the Business

Management Tools only five times, buried in discussions and analyses of

numerous other topics that have nothing to do with Hart’s case. To whatever

extent that the email suggests that the sender acted surreptitiously in providing

the documents to the recipient, there is nothing to connect that sentiment to the

references to the Business Management Tools, or even to suggest that the reason

for secrecy involved revelations of corporate misconduct. Thus, Hart has not

plausibly alleged that the sender of the email intended to convey any information

about the Business Management Tools – still less, that the email’s sender or

recipient believed that McKesson’s use of the Business Management Tools was

unlawful or that McKesson as a whole shared such a view.

The district court noted that the SAC lacked allegations similar to those

that other courts have found support an inference of willfulness. For example,

12 The SAC does not attach the three documents, but the district court concluded that it could consider the documents in deciding the motion to dismiss because they were incorporated by reference in the complaint and the complaint relied heavily on their terms and effect. See Hart,

, at *9; see also, e.g., Clark v. Hanley,

(2d Cir. 2023) (courts reviewing a motion to dismiss pursuant to Rule 12(b)(6) may review, inter alia, documents that are incorporated in the complaint by reference or are integral to the complaint). Hart does not argue on appeal that the district court erred in considering those documents.

34 Hart did not allege that McKesson took steps to conceal its behavior, had notice

that its sales practices might be unlawful, stopped offering the Business

Management Tools for no charge out of a concern that doing so might be

unlawful, or believed that the Business Management Tools were shams.

Although no such allegations are necessary to plead willfulness, Hart’s inability

to raise any similar allegations underscores that it is implausible to infer that

McKesson believed that offering the Business Management Tools was unlawful.

Accordingly, none of Hart’s allegations, alone or in combination with each

other, plausibly suggests that when McKesson offered its Business Management

Tools to encourage customers to commit to purchasing from McKesson, it

believed that its conduct was unlawful under the AKS or any other law. As a

result, the district court did not err in dismissing Hart’s federal FCA claim for

failure to state a claim.13

13 Hart’s federal FCA claim is based solely on McKesson’s alleged violation of the federal AKS; he does not argue that he has a claim under the federal FCA that is premised on a violation of one or more state anti-kickback laws. Instead, the only state-law theories that he has articulated arise under various state false claims acts. Accordingly, to the extent that a federal FCA claim could exist based on a violation of a state anti-kickback statute, Hart has abandoned such a claim.

35 III. The State-Law Claims

Finally, we turn to Hart’s remaining claims under the laws of 27 states and

the District of Columbia (the “State-Law Claims”).14 The district court dismissed

those claims on the ground that Hart brought his claims under the state FCA

analogues only “by way of a violation of the federal AKS.” Hart,

,

at *8 (emphasis in original). That conclusion was erroneous.

To be sure, the focus of the SAC is Hart’s contention that McKesson’s

conduct violated the federal AKS. But he alleges that “[t]he States also have

enacted statutes prohibiting kickbacks in connection with State Medicaid

services,” App’x 265, ¶ 37, and that “McKesson’s conduct violates the federal

AKS and similar State laws,”

(emphasis added). Indeed, Hart even

listed the various state anti-kickback statutes that he contends McKesson

14 McKesson contends that we should not address Hart’s argument that the State- Law Claims survived the motion to dismiss because he forfeited that argument by not raising it below. But McKesson’s memorandum supporting its motion to dismiss below discussed only the federal AKS. Thus, in his responsive memorandum, Hart addressed McKesson’s arguments about the federal claim, while also pointing out that McKesson “ha[d] not moved to dismiss any of [his] state law claims.” App’x 876. McKesson contends that Hart’s response on the State-Law Claims is too cursory to preserve his argument that those claims should survive. But we conclude that Hart’s failure to develop an opposition to an argument that McKesson did not make does not amount to a forfeiture by Hart.

36 violated.15 Thus, the district court erred in dismissing Hart’s State-Law Claims on

the basis that they were premised solely on violations of the federal AKS.

Importantly, Hart argues that many of the state anti-kickback laws have no

scienter requirement or a lesser requirement than willfulness. Thus, even though

his complaint is insufficient to state a federal FCA claim based on the federal

AKS, it may be sufficient to state a state-law claim under one or more of the state

anti-kickback laws cited in his complaint.16 Accordingly, we vacate the district

15 In general, the “[f]ederal pleading rules . . . do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” Johnson v. City of Shelby,

, 11 (2014). McKesson argues, however, that Hart’s state qui tam claims are subject to Rule 9(b), Fed. R. Civ. P., and therefore he must plead with particularity “the circumstances constituting fraud.” According to McKesson, that requires specifying what law McKesson allegedly violated and how it violated that law. Hart argues that the rule that McKesson argues for applies only in cases implicating the Private Securities Litigation Reform Act. We need not resolve the dispute, however, because even assuming that McKesson is correct, Hart’s allegations are adequate. Hart expressly listed the state laws that he contends McKesson violated and explained at length how McKesson allegedly violated those laws – by using the Business Management Tools to induce customers to make purchase commitments with McKesson. 16 McKesson briefly argues that Hart fails to state a claim under two of the state anti-kickback statutes cited in the SAC. We decline to address that argument, as McKesson did not move to dismiss Hart’s claims on that basis below, nor was it the reason for the district court’s decision. We thus express no opinion on whether Hart’s SAC adequately alleges a claim under any of the relevant FCA or AKS analogues.

37 court’s dismissal of the State-Law Claims and remand the case for further

proceedings.17

CONCLUSION

For the reasons stated above, we hold that to act willfully under the AKS, a

defendant must act knowing that its conduct is unlawful under either the AKS or

other law. Because Hart’s allegations do not plausibly suggest that McKesson

acted with such knowledge of illegality, his federal FCA claim based on the

federal AKS must be dismissed. But since he also brought state-law claims under

other false claims and anti-kickback statutes that may not have the same mens rea

requirements, the district court should not have dismissed those claims on the

ground that they were premised only on the federal AKS. Accordingly, we

AFFIRM the district court’s dismissal of Hart’s federal FCA claim, VACATE the

dismissal of the State-Law Claims, and REMAND for further proceedings

consistent with this opinion.

17 We in no way intimate that the district court should retain jurisdiction over the State-Law Claims; that matter is left to the district court’s sound discretion. The point is merely that the dismissal of the state FCA claims on the merits, based on an incorrect understanding of the nature of those claims, was error.

38