CHICAGO – K-Mart can’t argue that customers in its pharmacy
discount programs belonged to an organization that qualified for lower prices
than the government paid, Seventh Circuit appellate judges ruled in a case from
“We are given no reason to think that there was any
meaningful selectivity for the people who joined K-Mart’s programs, and thus
that they could be distinguished in any way from the general public,” Chief
Judge Diane Wood wrote on May 27.
“Few of K-Mart’s customers would consider themselves as
belonging to a particular group or members of a particular organization just
because they accepted K-Mart’s offer of a discount.”
Wood called the discount programs a flimsy device to
frustrate a requirement that pharmacies charge the usual and customary price to
Justices Frank Easterbrook and David Hamilton concurred.
They affirmed U.S. District Judge Nancy Rosenstengel, who denied
summary judgment to K-Mart but certified her decision for review.
Plaintiff James Garbe, a former K-Mart pharmacist in Ohio, seeks
70 percent recovery for the U.S. government and 26 states under the False
He seeks 30 percent for himself and his lawyers at Korein
Tillery in St. Louis.
California lawyers Erika Kelton and Larry Zoglin filed the
suit in 2008, in the Central District of California.
The court sealed the case while the government decided
whether to intervene.
The government declined intervention in 2010, and District
Judge Jacqueline Nguyen unsealed the case.
The government and K-Mart asked her to stay the case while negotiations
continued, and she granted 180 days.
The government and K-Mart held a settlement conference in
2011, and asked Nguyen to extend the stay.
They told her, “The areas for potential disagreement are
vast, but the parties are working together to identify where the real disputes
K-Mart told her the data spanned 1,300 pharmacies in 46
states over four years, and that the volume of transactions exceeded 10
In 2012, Nguyen ordered reports on the procedural posture of
the case and set a scheduling conference.
Then she retired, and the case passed to District Judge
Two weeks later K-Mart moved to transfer the case to
The motion connected Garbe’s suit to one that K-Mart
pharmacist Michael Yarberry of Kentucky filed in Southern Illinois.
Lawyers from Illinois, Texas and Ohio filed Yarberry’s suit
in 2009, under seal, and the government declined intervention in 2011.
Three weeks after K-Mart asked for Illinois, Yarberry moved
to amend his Illinois complaint so he could allege kickbacks instead of
The distinction didn’t matter to Fitzgerald, who granted
transfer in August 2012.
“Even if Yarberry will focus on the alleged kickback scheme
and not the alleged overcharging, the court agrees with K-Mart that a
sufficient nexus nevertheless remains between the cases,” Fitzgerald wrote.
He wrote that both actions alleged that K-Mart’s pharmacy
business defrauded government health care programs.
He also wrote that almost all witnesses lived in Illinois or
elsewhere in the Midwest, and that most relevant records were in Illinois or
He wrote that four of seven witnesses K-Mart identified in
initial disclosures for Garbe were also identified in initial disclosures for
Fitzgerald predicted significant overlap throughout
discovery if not on the merits; he
deferred to Southern Illinois judges on consolidation.
Southern Illinois District Judge Michael Reagan, already
presiding over Yarberry, took the Garbe case.
On Oct. 4, 2012, Kelton and Zoglin represented Garbe by
telephone in a scheduling conference with Magistrate Judge Philip Frazier.
They chose to keep their distance.
On Oct. 24, Aaron Zigler and Robert King of Korein Tillery
Tillery entered an appearance that November.
Christopher Hoffman of Korein Tillery later entered an
When Rosenstengel joined the court, the Garbe assignment switched
She set trial for April 2015.
Rosenstengel denied summary judgment to K-Mart in November
2014, certified her order to the Seventh Circuit in January 2015, and canceled
She can resume planning the trial as soon as the mandate
arrives from Chicago.