Caremark Faces Florida Setback

The state's efforts to intervene in a whistleblower lawsuit are rejected by a judge.
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Caremark

(CMX)

has suffered a relapse.

The company's preferred treatment of awhistleblower lawsuit was rejected by a Florida courtthis week. The

Tallahassee Democrat

reported onTuesday that Leon Circuit Judge P. Kevin Davey denieda motion by the Florida attorney general to obtaincontrol of a whistleblower complaint that accusesCaremark of defrauding state customers. In an unusualmove, the company last month actually invitedprosecution by the state.

But the whistleblowers provided evidence thatwell-connected Florida officials may be moreinterested in protecting Caremark than in pursuing thecompany. And the Florida attorney general's officefailed to convince the judge on Monday that it is bestsuited to handle the case.

"If they show good cause, they can come in later,"Davey said, according to the Tallahassee newspaper."However, I don't think they've shown good causehere."

Former Caremark pharmacists Michael and PeppiFowler have accused Caremark of harming Floridacustomers by, among other things, changing theirprescriptions and selling them drugs that werereturned through the mail but never tested forpossible damage. The plaintiffs claim that Caremarkthen improperly pocketed bonuses for "saving" thestate money and even profited twice by reselling thesame drugs. Their attorney, Michael Leonard, haspreviously estimated the resulting damages at more than $100million in Florida alone.

Leonard declined to comment on the case Tuesday.

For its part, Caremark has denied any wrongdoingand taken aim at the whistleblowers instead. Caremarkalso managed to convince a state prosecutor -- whountil last year worked for the law firm nowrepresenting the company -- to intervene in the case.

In its unusual motion last month, the Floridaattorney general argued that it should take over thelawsuit due to a possible conflict with thewhistleblowers. Caremark has since elaborated bysaying that the Fowlers may soon face anadministrative hearing before the state pharmacy boardfor improperly obtaining non-narcotic painkillers.

But the whistleblowers have highlighted somepotential conflicts as well. They claim that theFlorida attorney general originally declined to getinvolved in the case last summer after Richard Barnum,a well-placed state official, expressed satisfactionwith Caremark's services. Moreover, the plaintiffsrecently obtained emails indicating that Barnum -- astate division head who has served in the past as aCaremark adviser -- learned about the company's drugrestocking strategy but sounded no alarm to stateprosecutors. The same emails show that Barnumrecommended that assistant Dee Fort, who didn'tnecessarily agree with Caremark's practices, followhis lead.

"I wish to avoid making any additional comment tothe

Florida attorney general's office at this time,"Barnum wrote to Fort after reviewing restockinginformation from Caremark itself. "If you do feeldifferently, please withhold taking any action.Regardless of which option you choose, I trust yourjudgment."

In a court filing last week, the whistleblowersstated that both Barnum and Fort claimed "they did notknow and had never been told by Caremark" about thecompany's restocking practices in sworn depositions. They sought to depose Barnum again but saw that particular motion denied by the judge on Monday.

John Kuczwanski, a spokesman for the Florida agency where Barnum and Fort both work, said the state "needs to look into the full context of the emails before we can comment" on the matter. The state is already examining whether Barnum may have violated Florida's strict ethics code by accepting expensive trips to special Caremark advisory boardmeetings. The whistleblowers claim in court filings that Fortaccepted "gratuities" from the company as well.

The plaintiffs are now seeking to unseal thedepositions of Barnum and others. Meanwhile, they havealready shared some of their discovery findings insworn statements filed with the court.

One former Caremark staffer, Yesenia Garcia,indicated that the company not only restocked drugsbut also attempted to cover its tracks. Garcia, anhourly worker once employed in Caremark's "returnedgoods" room, said that she was ordered to falsifycomputer records to conceal the restocked drugs bysaying they were destroyed instead.

"You get used to putting 'restocked'

for over ayear," she said. "And then all of a sudden, boom, youhave to put 'destroyed' ... even though we wererestocking it and shipping it out."

According to Garcia's testimony, not until lastyear -- after the whistleblowers filed their suit --did Caremark finally stop restocking drugs altogether.Caremark has said in the past that it restocked only atiny fraction of its drugs and no longer engages inthe activity. It has also consistently defended itsbusiness practices and portrayed the entirewhistleblower lawsuit as baseless in nature.

It followed up on Tuesday by downplaying the newcourt ruling that bars Florida from intervening in thecase.

"Yesterday's ruling is unrelated to the underlyingcase," said Caremark spokesman Gerard Carney. "And wewill continue to vigorously defend our case in thecourtroom and, as previously stated, will not try itin the press."

Caremark's stock fell 15 cents Tuesday afternoonto $30.20. The shares recovered after briefly dippingbelow $30 -- a level they last breached when Caremarkannounced a multistate probe of its business practicesin early July.