United States ex rel. Deborah Sheldon v. Allergan Sales, LLC
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Opinion
USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 1 of 38
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 24-1793
UNITED STATES EX REL. DEBORAH SHELDON, Executrix of the Estate of Troy Sheldon, United States of America, ex rel.,
Plaintiff - Appellant, v.
ALLERGAN SALES, LLC,
Defendant - Appellee.
------------------------------
THE ANTI-FRAUD COALITION,
Amicus Supporting Appellant.
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA; CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA,
Amici Supporting Appellee.
Appeal from the United States District Court for the District of Maryland, at Baltimore. Ellen Lipton Hollander, Senior District Judge. (1:14-cv-02535-ELH)
Argued: September 10, 2025 Decided: March 13, 2026
Before BENJAMIN and BERNER, Circuit Judges, and KEENAN, Senior Circuit Judge. USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 2 of 38
Reversed and remanded by published opinion. Judge Berner wrote the opinion, which Judge Benjamin joined. Judge Keenan wrote a dissenting opinion.
ARGUED: Joseph M. Callow, Jr., CALLOW + UTTER LAW GROUP, Cincinnati, Ohio, for Appellant. John Patrick Elwood, ARNOLD & PORTER KAYE SCHOLER LLP, Washington, D.C., for Appellee. ON BRIEF: Gregory M. Utter, CALLOW + UTTER LAW GROUP, Cincinnati, Ohio; Joel D. Hesch, THE HESCH FIRM, LLC, Lynchburg, Virginia, for Appellant. Michael E. Rogoff, Paul R. Ramer, New York, New York, Jeffrey L. Handwerker, Christian D. Sheehan, Elliot S. Rosenwald, ARNOLD & PORTER KAYE SCHOLER LLP, Washington, D.C., for Appellee. Jacklyn DeMar, THE ANTI-FRAUD COALITION, Washington, D.C.; Samuel J. Buffone, Jr., Michael DeJesus, BUFFONE LAW GROUP PLLC, Washington, D.C., for Amicus The Anti-Fraud Coalition. James C. Stansel, Melissa B. Kimmel, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Washington, D.C., for Amicus Pharmaceutical Research and Manufacturers of America. John C. O’Quinn, Caroline S. Milner, KIRKLAND & ELLIS LLP, Washington, D.C., for Amici Pharmaceutical Research and Manufacturers of America and the Chamber of Commerce of the United States of America. Andrew R. Varcoe, Mariel A. Brookins, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C., for Amicus the Chamber of Commerce of the United States of America.
2 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 3 of 38
BERNER, Circuit Judge:
This case calls upon us to interpret two statutes that serve a common
purpose: conserving the public fisc. Though enacted over a century apart, the Medicaid
Rebate Statue and the False Claims Act were passed by Congress in response to concerns
about misuse and abuse of government funds. The Medicaid Rebate Statute of 1990 was
meant to address the rapid rise in drug prices that threatened to bankrupt Medicaid—the
joint federal and state program that provides medical care to poor and disabled
Americans—by requiring drug manufacturers to report rebates and other discounts they
provide to private companies. This reporting requirement was to ensure that Medicaid
receives the benefit of the lowest prices that manufacturers charge private companies.
The False Claims Act, passed shortly after the Civil War, was designed to deter and
punish fraud in federal government contracting by incentivizing whistleblowers to assist in
recovering taxpayer dollars by filing lawsuits—referred to as qui tam actions. The False
Claims Act serves as a powerful tool for recovering fraudulently obtained government
funds.
In response to growing concern that courts were improperly narrowing the scope of
conduct prohibited by the False Claims Act, Congress amended the Act in 1986 to
strengthen its scienter requirement. Scienter refers to the degree of knowledge an individual
must possess in order to be held liable under the Act. The 1986 amendments made clear
that liability can found if a defendant acted with one of three states of mind: actual
knowledge of, deliberate ignorance to, or reckless disregard of, the truth or falsity of the
claim. In a recent decision, the Supreme Court held that this scienter standard is a subjective
3 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 4 of 38
one. Accordingly, the False Claims Act prohibits the submission of a false claim to the
federal government if the defendant either subjectively believed the claim to be false or
was substantially aware of the risk of it being so.
Troy Sheldon brought this qui tam action against his former employer, Forest
Laboratories, LLC. Sheldon alleges that Forest falsely reported the lowest price it charged
private companies for its pharmaceuticals, thereby leading to Forest’s overcharging the
federal government and state governments for drugs purchased for Medicaid recipients.
Sheldon alleges that Forest acted with, at a minimum, reckless disregard for the truth or
falsity of its reported lowest prices when it submitted these reports because it had been
warned that its interpretation of the Medicaid Rebate Statute was not correct. The district
court dismissed Sheldon’s complaint, concluding that the facts as pled—even if true—
could not satisfy the scienter requirement of the False Claims Act. We conclude that
Sheldon’s allegations that Forest acted with reckless disregard in reporting its lowest prices
under the Medicaid Rebate Statute satisfy the requisite pleading standards. Accordingly,
we reverse and remand to the district court for further proceedings.
I. Relevant Statutes
Because this case concerns both the False Claims Act and the Medicaid Rebate
Statute, we begin by describing these two statutory frameworks.
A. False Claims Act
Congress enacted the False Claims Act (FCA) in 1863 to provide a mechanism for
the government to redress fraud in government procurement during the Civil War. United
4 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 5 of 38
States ex rel. Wheeler v. Acadia Healthcare Co., Inc., 127 F.4th 472, 479 (4th Cir. 2025).
The FCA is the “government’s primary litigative tool for the recovery of losses sustained
as the result of fraud against the government.” Avco Corp. v. U.S. Dep’t of Just., 884 F.2d
621, 622 (D.C. Cir. 1989) (citing S. Rep. No. 99-345, 99th Cong., 2d Sess. 2 (1986)). The
purpose of the FCA is to incentivize whistleblowers “to come forward when they become
aware of fraud against the government, and to protect them from retaliation when they do.”
Wheeler, 127 F.4th at 479. The FCA both “punishes companies that have committed fraud
in government contracts and serves an important function in deterring other companies
from doing the same.” Id.
The FCA “imposes liability on those who ‘knowingly presen[t] . . . a false or
fraudulent claim for payment or approval’” to the government. United States ex rel. Schutte
v. SuperValu Inc., 598 U.S. 739, 747 (2023) (quoting 31 U.S.C. § 3729(a)(1)(A)). A claim
is defined as “any request or demand” for money or property presented to either an officer,
employee, or agent of the United States or, as relevant here, a grantee or other recipient of
federal funds if, among other things, the United States government will reimburse the
grantee or recipient for the funds requested. 31 U.S.C. § 3729(b)(2). The phrase “false or
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USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 1 of 38
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 24-1793
UNITED STATES EX REL. DEBORAH SHELDON, Executrix of the Estate of Troy Sheldon, United States of America, ex rel.,
Plaintiff - Appellant, v.
ALLERGAN SALES, LLC,
Defendant - Appellee.
------------------------------
THE ANTI-FRAUD COALITION,
Amicus Supporting Appellant.
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA; CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA,
Amici Supporting Appellee.
Appeal from the United States District Court for the District of Maryland, at Baltimore. Ellen Lipton Hollander, Senior District Judge. (1:14-cv-02535-ELH)
Argued: September 10, 2025 Decided: March 13, 2026
Before BENJAMIN and BERNER, Circuit Judges, and KEENAN, Senior Circuit Judge. USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 2 of 38
Reversed and remanded by published opinion. Judge Berner wrote the opinion, which Judge Benjamin joined. Judge Keenan wrote a dissenting opinion.
ARGUED: Joseph M. Callow, Jr., CALLOW + UTTER LAW GROUP, Cincinnati, Ohio, for Appellant. John Patrick Elwood, ARNOLD & PORTER KAYE SCHOLER LLP, Washington, D.C., for Appellee. ON BRIEF: Gregory M. Utter, CALLOW + UTTER LAW GROUP, Cincinnati, Ohio; Joel D. Hesch, THE HESCH FIRM, LLC, Lynchburg, Virginia, for Appellant. Michael E. Rogoff, Paul R. Ramer, New York, New York, Jeffrey L. Handwerker, Christian D. Sheehan, Elliot S. Rosenwald, ARNOLD & PORTER KAYE SCHOLER LLP, Washington, D.C., for Appellee. Jacklyn DeMar, THE ANTI-FRAUD COALITION, Washington, D.C.; Samuel J. Buffone, Jr., Michael DeJesus, BUFFONE LAW GROUP PLLC, Washington, D.C., for Amicus The Anti-Fraud Coalition. James C. Stansel, Melissa B. Kimmel, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Washington, D.C., for Amicus Pharmaceutical Research and Manufacturers of America. John C. O’Quinn, Caroline S. Milner, KIRKLAND & ELLIS LLP, Washington, D.C., for Amici Pharmaceutical Research and Manufacturers of America and the Chamber of Commerce of the United States of America. Andrew R. Varcoe, Mariel A. Brookins, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C., for Amicus the Chamber of Commerce of the United States of America.
2 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 3 of 38
BERNER, Circuit Judge:
This case calls upon us to interpret two statutes that serve a common
purpose: conserving the public fisc. Though enacted over a century apart, the Medicaid
Rebate Statue and the False Claims Act were passed by Congress in response to concerns
about misuse and abuse of government funds. The Medicaid Rebate Statute of 1990 was
meant to address the rapid rise in drug prices that threatened to bankrupt Medicaid—the
joint federal and state program that provides medical care to poor and disabled
Americans—by requiring drug manufacturers to report rebates and other discounts they
provide to private companies. This reporting requirement was to ensure that Medicaid
receives the benefit of the lowest prices that manufacturers charge private companies.
The False Claims Act, passed shortly after the Civil War, was designed to deter and
punish fraud in federal government contracting by incentivizing whistleblowers to assist in
recovering taxpayer dollars by filing lawsuits—referred to as qui tam actions. The False
Claims Act serves as a powerful tool for recovering fraudulently obtained government
funds.
In response to growing concern that courts were improperly narrowing the scope of
conduct prohibited by the False Claims Act, Congress amended the Act in 1986 to
strengthen its scienter requirement. Scienter refers to the degree of knowledge an individual
must possess in order to be held liable under the Act. The 1986 amendments made clear
that liability can found if a defendant acted with one of three states of mind: actual
knowledge of, deliberate ignorance to, or reckless disregard of, the truth or falsity of the
claim. In a recent decision, the Supreme Court held that this scienter standard is a subjective
3 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 4 of 38
one. Accordingly, the False Claims Act prohibits the submission of a false claim to the
federal government if the defendant either subjectively believed the claim to be false or
was substantially aware of the risk of it being so.
Troy Sheldon brought this qui tam action against his former employer, Forest
Laboratories, LLC. Sheldon alleges that Forest falsely reported the lowest price it charged
private companies for its pharmaceuticals, thereby leading to Forest’s overcharging the
federal government and state governments for drugs purchased for Medicaid recipients.
Sheldon alleges that Forest acted with, at a minimum, reckless disregard for the truth or
falsity of its reported lowest prices when it submitted these reports because it had been
warned that its interpretation of the Medicaid Rebate Statute was not correct. The district
court dismissed Sheldon’s complaint, concluding that the facts as pled—even if true—
could not satisfy the scienter requirement of the False Claims Act. We conclude that
Sheldon’s allegations that Forest acted with reckless disregard in reporting its lowest prices
under the Medicaid Rebate Statute satisfy the requisite pleading standards. Accordingly,
we reverse and remand to the district court for further proceedings.
I. Relevant Statutes
Because this case concerns both the False Claims Act and the Medicaid Rebate
Statute, we begin by describing these two statutory frameworks.
A. False Claims Act
Congress enacted the False Claims Act (FCA) in 1863 to provide a mechanism for
the government to redress fraud in government procurement during the Civil War. United
4 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 5 of 38
States ex rel. Wheeler v. Acadia Healthcare Co., Inc., 127 F.4th 472, 479 (4th Cir. 2025).
The FCA is the “government’s primary litigative tool for the recovery of losses sustained
as the result of fraud against the government.” Avco Corp. v. U.S. Dep’t of Just., 884 F.2d
621, 622 (D.C. Cir. 1989) (citing S. Rep. No. 99-345, 99th Cong., 2d Sess. 2 (1986)). The
purpose of the FCA is to incentivize whistleblowers “to come forward when they become
aware of fraud against the government, and to protect them from retaliation when they do.”
Wheeler, 127 F.4th at 479. The FCA both “punishes companies that have committed fraud
in government contracts and serves an important function in deterring other companies
from doing the same.” Id.
The FCA “imposes liability on those who ‘knowingly presen[t] . . . a false or
fraudulent claim for payment or approval’” to the government. United States ex rel. Schutte
v. SuperValu Inc., 598 U.S. 739, 747 (2023) (quoting 31 U.S.C. § 3729(a)(1)(A)). A claim
is defined as “any request or demand” for money or property presented to either an officer,
employee, or agent of the United States or, as relevant here, a grantee or other recipient of
federal funds if, among other things, the United States government will reimburse the
grantee or recipient for the funds requested. 31 U.S.C. § 3729(b)(2). The phrase “false or
fraudulent claim” is to be construed broadly. Harrison v. Westinghouse Savannah River
Co., 176 F.3d 776, 788 (4th Cir. 1999).
As in this case, the FCA is often invoked to seek redress for fraud committed against
government healthcare programs, the largest of which is the Medicaid program. In the 2024
fiscal year alone, the Justice Department reported over $2.9 billion recovered through False
Claims Act settlements and judgments. U.S. Dep’t of Justice, Press Release: False Claims
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Act Settlements and Judgments Exceed $2.9B in Fiscal Year 2024,
https://www.justice.gov/archives/opa/pr/false-claims-act-settlements-and-judgments-
exceed-29b-fiscal-year-2024 [https://perma.cc/K2FR-HKRK]. Nearly two thirds of these
recovered funds derived from health-care related matters. Id.
The FCA requires a relator—a private individual who brings a lawsuit on behalf of
the United States—to adequately allege four elements: 1) the defendant made a false
statement or engaged in a fraudulent course of conduct; 2) such statement or conduct was
carried out with the requisite scienter; 3) the statement or conduct was material; and 4) the
statement or conduct caused the government to pay out money or to forfeit money due.
Wheeler, 127 F.4th at 487; see 31 U.S.C. § 3729(a)(1)(A), (B). A defendant can only be
held liable under the FCA, therefore, if the defendant possessed the requisite scienter and
the claim submitted was objectively false.
The FCA scienter standard requires the defendant to have acted with actual
knowledge, deliberate ignorance, or reckless disregard as to the truth or falsity of the claim.
31 U.S.C. § 3279(a)(1)(A). The scienter standard is purposefully broad to combat the
“‘ostrich-like’ conduct which can occur in large corporations [that] poses insurmountable
difficulties for civil false claims recoveries.” S. Rep. 99-345, at 7. Proof of “specific intent
to defraud” is not required. 31 U.S.C. § 3729(b)(1)(B).
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In United States ex rel. Schutte v. SuperValu Inc., the Supreme Court held that the
FCA scienter standard is subjective. 598 U.S. at 749.1 The Court explained that what
matters is the defendant’s “knowledge and subjective beliefs—not what an objectively
reasonable person may have known or believed.” Id. This is the first time our court has had
occasion to consider the application of this subjective scienter standard following Schutte.
B. Medicaid Rebate Statute
Medicaid provides health care to millions of low-income Americans through a
cooperative federal and state program. 42 U.S.C. § 1395 et seq. The federal government
distributes financial assistance directly to state Medicaid programs which in turn provide
healthcare coverage to low-income Americans. Children’s Hosp. of the King’s Daughters,
Inc. v. Azar, 896 F.3d 615, 617 (4th Cir. 2018). This assistance includes reimbursing states
for the cost of prescription drugs. See generally Pharms. Rsch. & Mfrs. of Am. v. Walsh,
538 U.S. 644, 650–51 (2003).
1 Prior to Schutte, several federal circuit courts of appeal, including our own, applied an objective scienter standard in FCA cases. See, e.g., United States ex rel. Proctor v. Safeway, Inc., 30 F.4th 469, 652–53 (7th Cir. 2022). Under this objective scienter standard, a defendant could escape liability if the defendant acted under a reasonable interpretation of the statute. Whether the defendant subjectively believed or was aware of a substantial risk that the claims were false or misleading was irrelevant. The initial district court decision and Fourth Circuit decisions in this case applied this standard. See United States ex rel. Sheldon v. Forest Laboratories, 499 F. Supp. 3d 184 (D. Md. 2020), judgment vacated by United States, ex rel. Sheldon v. Allergan Sales, LLC, 143 S. Ct. 2686 (2023), and United States ex rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 240 (4th Cir. 2022), vacated on rehearing en banc by United States ex rel. Sheldon v. Allergan Sales, LLC, 2022 WL 1467710 (4th Cir. May 10, 2022). In Schutte, the Supreme Court unanimously rejected the argument that an objective scienter standard applies under the FCA. 598 U.S. at 749. 7 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 8 of 38
Prior to 1990, Medicaid saw a significant increase in the cost of prescription drugs
in part because Medicaid routinely paid more for these drugs than private entities paid. See
136 Cong. Rec. S. 12954 (1990); H.R. Rep. No. 101-881, 96 (1990). In response, in 1990,
Congress enacted the Medicaid Rebate Statute which requires drug manufacturers to pay
rebates to states on their Medicaid purchases. See Pharms. Rsch. & Mfrs. Of Am., 538 U.S.
at 649. These rebates are calculated based on the rebates that drug manufacturers provide
to private entities, thereby preventing the manufacturers from charging Medicaid more. Id.
Congress thus tied the cost of drugs prescribed to Medicaid patients to the lowest price
offered by the manufacturers for drugs on the private market.
For a drug manufacturer to be eligible to sell drugs to state Medicaid agencies, the
Rebate Statute requires it first to enter into a standardized rebate agreement with the federal
government. 42 U.S.C. § 1396r-8(a)(1). See Medicaid Program; Drug Rebate Agreement,
56 Fed. Reg. 7049, 7050 (Feb. 21, 1991) (Rebate Agreement). Under the Rebate
Agreement, drug manufacturers must provide states with rebates on drugs that the states
purchase for Medicaid beneficiaries. Id. § 1396r-8(b)(1)(A). The federal government also
benefits from these rebates because it correspondingly reduces its payments to states in
step with the states’ savings from manufacturers’ rebates. Id. § 1396r-8(a)(1)–(c). This
rebate process is designed to give Medicaid the “benefit of the best price” for prescription
drugs. H.R. Rep. No. 101-881, at 96 (1990).
The Rebate Statute sets forth a two-step process through which these rebates are
calculated. At the first step, the manufacturer is required to report the “Average
Manufacturer Price” and the “Best Price” for its covered drugs to the Centers for Medicare
8 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 9 of 38
and Medicaid (CMS). 42 U.S.C. § 1396r-8(a)(1), (b)(3)(A). At the second step, CMS then
calculates the rebate that the manufacturer is required to pay to the states for each drug. Id.
§ 1396r-8(c)(1). The required rebate is the greater of either 1) the statutory minimum rebate
percentage or 2) the difference between the Average Manufacturer Price and the Best
Price. Id.
The Rebate Statute defines the Best Price as the “lowest price available from any
manufacturer during the rebate period to any wholesaler, retailer, provider, health
maintenance organization, nonprofit entity, or governmental entity.” Id.
§ 1396r-8(c)(1)(C)(i). The Best Price includes “cash discounts, free goods that are
contingent on any purchase requirements, volume discounts, and rebates.”
Id. §1396r-8(c)(1)(C)(ii)(I). The Rebate Agreement between the drug manufacturer and
Medicaid further requires the manufacturer to adjust the Best Price “if cumulative
discounts, rebates, or other arrangements subsequently adjust the prices actually realized.”
56 Fed. Reg. at 7050. In recognition of the complexity of these calculations, the Rebate
Agreement provides that “[i]n the absence of specific guidance,” manufacturers can “make
reasonable assumptions in [their] calculations of . . . Best Price, consistent with the intent
of [the Rebate Statute], Federal regulations, and the terms of this agreement.” Id. at 7052.
II. Sheldon’s Allegations
Because this is an appeal from an order granting a motion to dismiss, we accept as
true the factual allegations in the complaint and draw all reasonable inferences in favor of
the plaintiff. Shook v. NCG Acquisition, LLC, 114 F.4th 242, 248 (4th Cir. 2024). Troy
9 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 10 of 38
Sheldon, acting as a relator, filed this qui tam action under the FCA against his former
employer, Forest, in 2014, on behalf of the United States as well as numerous states 2 and
the District of Columbia. Sheldon amended his complaint in 2016, and it is from this
amended complaint that we recite the facts.3
During the relevant period, Forest was one of the nation’s leading pharmaceutical
drug manufacturers. It sold a number of commonly prescribed drugs.4 Dating back to the
time period of the allegations in the complaint, 2005-2014, Forest’s net sales for these
drugs totaled billions of dollars annually. Medicaid sales constituted at least 20% of
Forest’s annual sales for each drug.
Troy Sheldon worked in managerial roles at Forest starting in the 1990s until he was
fired in 2014. In these roles, Sheldon was directly involved in the sale of drugs, including
the negotiation of discounts, rebates, and other incentives. Through this work, Sheldon had
2 The relevant states include California; Colorado; Connecticut; Florida; Georgia; Hawaii; Illinois; Indiana; Iowa; Louisiana; the Commonwealth of Massachusetts; Michigan; Minnesota; Montana; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; Oklahoma; Rhode Island; Tennessee; Texas; Vermont; the Commonwealth of Virginia; Washington; and Wisconsin. 3 Troy Sheldon passed away after he filed this action. Sheldon’s widow and the executor of his estate, Deborah Sheldon, has been substituted as the plaintiff. Forest Laboratories was acquired by Actavis, PC (which subsequently changed its name to Allergan Sales, LLC), in 2014. Actavis, PC has been substituted as the defendant. For clarity, we continue to refer to Troy Sheldon rather than Deborah and to Forest rather than Actavis, PC/Allergan, as those are the parties named in the amended complaint. 4 The Forest drugs relevant to this appeal include Celexa, Lexapro, Namenda, Namenda XR, Bystolic, Savella, Viibryd, Fetzima, Tudorza, Daliresp, Saphris, Linzess, Campral, Armour Thyroid, Levothyroid, Thyrolar, Tiazac, and Combunox. Namenda, Forest’s top selling drug, netted over $1.5 billion in the 2014 fiscal year, the year Sheldon filed his original complaint. 10 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 11 of 38
“direct, personal knowledge of the drug rebates and other discounts given to Forest
customers that impact[ed] the reported Best Price for each drug” that Forest reported to
Medicaid. Parties’ Joint Appendix (J.A.) 64.
Sheldon’s 2016 amended complaint alleges the following. First, Forest submitted a
false claim under the FCA by reporting its Best Prices to CMS without including
cumulative discounts it provided to different entities for a single drug. In so doing, Sheldon
alleges, Forest’s reported Best Prices did not accurately reflect the “price[ ] actually
realized” by Forest. 56 Fed. Reg. at 7050. Second, Forest possessed the requisite scienter
because it knew, deliberately ignored, or acted with reckless disregard in submitting these
false claims. Third, Forest’s false claims were material. Fourth, Forest unlawfully avoided
paying Medicaid $686.64 million over the course of nearly ten years by basing the rebates
it paid to the states on its falsely reported Best Prices.
We begin by describing the alleged false claims before discussing Sheldon’s
allegations of scienter.
A. Alleged False Claims
In 2004, Sheldon became aware that Forest was paying rebates and discounts to two
separate customers on the same dispensed drug that was ultimately provided to the same
patient. The rebates and discounts that drug manufacturers provide play a significant role
in generating sales. In the commercial market, for example, Forest “negotiates with [a]
private insurance compan[y] to have its drugs placed on the private insurance company’s
drug formulary,” a list of the company’s preferred drugs. J.A. 65. In exchange, Forest pays
the insurance company a rebate or other discount for each drug that the private insurance
11 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 12 of 38
company purchases from Forest. Forest is then required to account for these rebates and
other discounts in its calculation of the Best Price for each drug.
During the time period of the amended complaint, Forest routinely conducted
business with multiple entities on a single drug transaction. For example, Forest often sold
drugs indirectly through a third-party wholesaler. The wholesaler would act as a
middleman and then sell the drugs to other customers “at a discount, which it then charge[d]
back to Forest.” J.A. 66. The wholesalers frequently sold drugs manufactured by Forest to
entities known as Pharmacy Providers and group purchasing organizations (GPOs), which
collectively purchase drugs for a variety of individual facilities.
Forest also negotiated rebates and other discounts directly with Pharmacy Providers
and GPOs for the purchase of drugs to be “disbursed by long term care,
rehabilitation/transitional, short term stay and group home facilities, as well as through
home delivery.” J.A. 66. Multiple rebates and discounts, therefore, were often provided for
a single drug through these transactions when a Pharmacy Provider or GPO purchased
Forest’s drugs from a middleman, including for example: 1) the discount that the
wholesaler provided and then charged back to Forest; and 2) the negotiated rebate claimed
by the Pharmacy Provider or GPO. To encourage both the wholesaler and the Pharmacy
Provider or GPO to use its products, Forest provided a rebate or discount to each entity for
the same drug.
Sheldon alleges that, through these multiple transactions to different purchasers,
Forest essentially “stacked” rebates and other discounts for the same drug. When reporting
its Best Price to CMS, however, Forest would report only the highest rebate or other
12 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 13 of 38
discount it gave to a single entity for each individual drug, rather than combining the total
amount of rebates and discounts provided to all entities on the same drug.
To illustrate how this works, Sheldon offers an example in which a patient with
private insurance was staying at a care facility (“Pharmacy Provider Facility”). The
Pharmacy Provider Facility determined that the patient needs an antidepressant. To
incentivize both the Pharmacy Provider Facility and the patient’s private health insurer to
prescribe and pay for an antidepressant manufactured by Forest rather than a competitor,
Forest provided rebates to both the Pharmacy Provider Facility and to the private insurance
company. Forest gave the Pharmacy Provider Facility a 15% rebate for the drug and then
paid an additional 18% rebate to a private insurance company for the same drug prescribed
to the same patient. Thus, all told, Forest provided 33% worth of rebates for the same drug.
The price “actually realized” by Forest for the individual drug was therefore only 67% of
the total market price. In reporting its Best Price for that drug to CMS, however, Forest
reported the price after applying only the larger of the two rebates (i.e., the 18% rebate).
Because Forest reported its Best Price to Medicaid based on this calculation, Medicaid
received only an 18% rebate, not the combined rebate of 33% of the total market price.
Thus, Sheldon alleges that Forest submitted false claims under the FCA by reporting
its Best Prices to CMS without stacking rebates and other discounts provided to different
entities on the same drug.
B. Alleged Scienter
Sheldon alleges that Forest “knowingly, with deliberate ignorance, or with reckless
disregard engaged in a systemic false and fraudulent scheme” through its “willful failure
13 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 14 of 38
to report accurate Best Price to state Medicaid programs, resulting in lower Medicaid drug
rebates being paid by Forest to each state[.]” J.A. 63. In support of his assertion that Forest
acted with the requisite scienter, Sheldon alleges that Forest was subjectively aware that
CMS interpreted the statute to require aggregation of all discounts as evidenced by its
statements during a 2006–2007 CMS rulemaking regarding the definition of Best Price. He
further alleges that, after becoming aware of CMS’s interpretation, Forest sought to
eliminate most of its double rebates and other discounts following the promulgation of
CMS’s final rule. He alleges that Forest decided to nonetheless continue paying such
rebates and other discounts to certain customers to preserve important business
relationships and maximize revenue. Finally, he asserts that, despite being aware of the risk
that its own interpretation of the statute was incorrect—or at the very least, that its
interpretation differed from CMS’s interpretation—Forest continued to report its Best Price
calculations without aggregating the rebates and discounts it provided to different
customers. Because the sufficiency of Sheldon’s allegations regarding Forest’s scienter is
central to this dispute, we describe them in detail.
i. Forest’s Response to the 2006-2007 CMS Rulemaking
In 2006 and 2007, CMS undertook rulemaking to further clarify the definition of
Best Price. When an agency promulgates a new rule, it must generally first provide public
notice of the proposed rule to allow the public to submit comments on the rule before it
becomes final. North Carolina Growers Ass’n, Inc. v. United Farm Workers, 702 F.3d 755,
765 (4th Cir. 2012). In this case, CMS issued its proposed rule in 2006. Medicaid Program;
Prescription Drugs, 71 Fed. Reg. 77,174 (proposed Dec. 22, 2006) (hereinafter 2006
14 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 15 of 38
Proposed Rule). It published its final rule in July 2007. 72 Fed. Reg. 39,142 (July 17, 2007)
(codified at 42 C.F.R. pt. 447) (hereinafter 2007 Final Rule). It also published guidance
accompanying the 2007 Final Rule. 72 Fed. Reg. 39,164 (hereinafter 2007 Guidance).
Sheldon alleges that Forest’s communication to CMS in response to the 2006 Proposed
Rule evidences that Forest “knew exactly what was required” by CMS for the Best Price
calculations “when the final regulations were promulgated” in 2007. J.A. 61.
The 2006 Proposed Rule defined Best Price as “the lowest price available from the
manufacturer during the rebate period to any entity in the United States in any pricing
structure,” including “all sales and associated discounts and other price concessions
provided by the manufacturer to any entity unless . . . specifically excluded by statute or
regulation.” 2006 Proposed Rule, at 77,197. It further clarified that Best Price “shall be the
[net] of cash discounts . . . and any other discounts or price reductions and
rebates . . . which reduce the price available from the manufacturer.” Id. at 77,198. In its
preamble to the proposed rule, CMS noted that “any price adjustment which ultimately
affects those prices which are actually realized by the manufacturer . . . should be included
in the calculation of best price.” Id. at 77,182 (emphasis added).
Sheldon attached to the amended complaint a copy of a letter that Forest submitted
in response to CMS’s proposed rule (the “McKenna letter”). In the McKenna letter, Forest
expressed its concern that the 2006 Proposed Rule improperly required aggregation of the
rebates and other discounts provided to multiple entities. Forest asserted that the “statutory
definition of best price has always been interpreted to mean the single lowest price to a
particular customer.” J.A. 401. Under this view, “prices to unrelated entities in the chain
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of distribution should not be aggregated . . . even if they concern the same unit of a drug.”
Id. at 401–02. Forest expressed concern that “language in the preamble to the proposed
rule suggests that CMS views best price as the net amount realized by the manufacturer on
a sale rather than the lowest price to a particular customer.” Id. at 401. Forest urged CMS
to change this language in the final rule to “clarify that only discounts and price concessions
to the same entity to which a drug is sold should be included in the computation of best
price to that entity.” Id. “In sum, prices to unrelated entities in the chain of distribution
should not be aggregated in determining the single lowest price to an entity, even if they
concern the same unit of a drug.” Id. at 401–02.
When it issued its final rule in 2007, CMS declined to modify the Best Price
language that Forest had urged it to change. 2007 Final Rule, at 39,242. Instead, CMS
reiterated that the Best Price means “the lowest price available from the manufacturer
during the Rebate period to any entity in the United States in any pricing structure . . . [and]
shall be calculated to include all sales and associated rebates, discounts, and other price
concessions provided by the manufacturer to any entity” unless specifically excluded. Id.
at 39,242. It affirmed that “[b]ecause best price represents the lowest price available from
the manufacturer to any entity . . . any price concession associated with that sale should be
netted out of the price received by the manufacturer in calculating best price and best price
should be adjusted the manufacturer if other arrangements subsequently adjust the price
actually realized.” Id. at 39,150. Sheldon alleges that the fact that “CMS did not change
the regulation or the requirements of the Rebate Statute and Rebate Agreement by adopting
any new qualifying and limiting language like that suggested by Forest, but instead enacted
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the regulation as proposed without substantive changes” demonstrates that Forest was
aware—when the rule was promulgated—that CMS interpreted the regulation to require
aggregation. J.A. 61 (emphasis in original).
In his amended complaint, Sheldon further alleges that “CMS’s published guidance
and comments accompanying the regulations le[ft] no doubt that all rebates and price
concessions among all entities must be aggregated[.]” Id. at 57. Sheldon points to two
relevant CMS comments. First, CMS responded to one commenter’s request that “when
best price is determined,” discounts provided to wholesalers should not be aggregated with
discounts provided to the end-customer. 2007 Guidance, at 39,199. In response, CMS
stated, “[w]e do not agree.” Id. Rather, these discounts must be aggregated. Id. In the
example provided by CMS, however, the wholesaler and end-customer that both received
rebates and other discounts were the same entity, not separate entities. Id.
In a second comment, CMS addressed the provision of rebates and other discounts
to Pharmacy Benefit Managers (PBMs), which serve as intermediaries that commonly
receive a rebate in addition to the end customer. Several commenters had raised concerns
that the proposed rule suggested that “manufacturers may be obligated to add concessions
paid to PBMs to the concessions paid to customers of the PBMs in calculating best price.”
Id. at 39,198. Echoing the concerns raised by Forest in the McKenna letter, the commenters
feared that this “would effectively call for the combining of two separate prices, one offered
to a PBM and the other to a customer of a PBM.” Id. The commenters argued that “if
Congress had intended anything other than a customer-to-customer analysis of separate
prices, the statute would have combined each customer with the word ‘and’ instead of the
17 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 18 of 38
disjunctive ‘or.’” Id. As Forest urged in the McKenna letter, the commenters “requested
that CMS reaffirm that best price is the lowest price available from the manufacturers” to
a single customer. Id. In response, CMS stated, “we do not agree with the
commenters . . . [b]est price is designed to reflect the lowest price available from the
manufacturer to any purchaser, inclusive of rebates, discounts, or price concessions that
adjust the price realized.” Id. Sheldon alleges that the CMS Guidance “made clear that,”
contrary to Forest’s own interpretation of Best Price, CMS interpreted the Rebate Statute
to require “that rebates between multiple entities [ ] be aggregated together to the extent
that they affect the ultimate price actually realized by the manufacturer[.]” J.A. 59
(emphasis in original).
ii. Forest’s 2008 Data Audit
Sheldon alleges that, after CMS issued the 2007 Final Rule, “top level managers at
Forest held meetings and prepared reports” to address situations in which Forest would
grant rebates and other discounts to multiple different entities on the same drug dispensed
to a single patient. J.A. 69. According to Sheldon, Forest was “[a]ware of [its] potential
Best Price violation based upon double rebate claims from its customers, [and therefore]
implemented a data audit process for all rebate claims submitted” by certain customers to
identify any such stacked rebate claims. J.A. 70. Forest changed its rebate practices for
these customers following its audit. Moving forward, Forest would only provide rebates
and other discounts to one entity in each individual drug’s distribution chain and report the
resulting price as the Best Price.
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Sheldon alleges that Forest purposefully excluded Pharmacy Providers and GPOs
from this data audit. Forest did so, according to Sheldon, to “avoid negatively impacting
its relationships with” these major customers to “preserve shareholder profits.” Id. at 71.
Forest therefore continued paying rebates and other discounts to the Pharmacy Providers
and GPOs, as well as others in the same chain of distribution. Yet, Forest also did not
aggregate these stacked rebates and discounts in reporting its Best Price to CMS. Sheldon
alleges that by excluding these stacked rebates and other discounts, Forest “pa[id] less in
Medicaid drug rebates to state Medicaid programs[.]” Id. at 68. As a result, the federal
government reimbursed more “to the states than it would have had Forest accurately
reported Best Price and states are similarly damaged because they [were] not receiving
their proper rebates.” Id.
Sheldon alleges that, through this scheme, Forest either intentionally or with
reckless disregard underpaid Medicaid by $686.64 million.
III. Procedural Background
This case has traveled a long and circuitous journey before returning to this court
for the fourth time. Sheldon filed this qui tam action under seal in 2014 and filed his
amended complaint under seal in 2016.5 When a private party sues under the FCA, the
government is given an opportunity to investigate the claims and decide whether it wishes
5 In his amended complaint, Sheldon alleges violations of the FCA and various state false claims statutes. State false claims statutes generally track, and are thus construed in accordance with, the FCA. See e.g., New York v. Amgen, 652 F.3d 103, 109 (1st Cir. 2011). 19 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 20 of 38
to intervene. See 31 U.S.C. § 3730(b)(2–4). During this period, the case remains under seal.
Id. In 2019, after a lengthy investigation, the United States and the state governments
declined to intervene, and the amended complaint was unsealed. Subsequently, Forest
moved to dismiss the action pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6).
In 2020, the district court granted Forest’s motion and dismissed Sheldon’s
amended complaint for failure to state a claim on the ground that Sheldon did not
adequately plead scienter and falsity. United States ex rel. Sheldon v. Forest Lab’ys, LLC,
499 F. Supp. 3d 184 (D. Md. 2020). The district court applied an objective reasonableness
standard for scienter and found that a defendant cannot knowingly make a false statement
when the defendant’s interpretation of a legal issue is “objectively reasonable.” Id. at 207–
09. The district court determined that Forest could not have acted with the requisite scienter
nor could the claims themselves have been false because Forest’s interpretation of the Best
Price reporting requirement was objectively reasonable. Id. at 209–13.
Two years later, on Sheldon’s first appeal, a panel of this court affirmed the ruling
of the district court. See United States ex rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 340
(4th Cir. 2022). There, the majority adopted the district court’s objective scienter standard.
Id. at 350–51. The dissent would have applied a subjective standard to scienter and
reversed, concluding that Sheldon plausibly alleged scienter under that standard. Id.
at 375–76. The dissent also maintained that the best reading of the Rebate Statute required
the aggregation of stacked rebates and other discounts in the calculation of Best Price—
though relying on now disfavored Chevron deference. Id. at 372–75.
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Sheldon petitioned for rehearing en banc, which this court granted. This court en
banc entered a per curiam opinion vacating the panel opinion and affirming the district
court. United States ex rel. Sheldon v. Allergan Sales, LLC, 49 F.4th 873 (4th Cir. 2022).
Sheldon then petitioned to the Supreme Court for a writ of certiorari. While Sheldon’s
petition was pending, the Supreme Court decided United States ex rel. Schutte v. SuperValu
Inc., unanimously adopting the subjective scienter standard for FCA claims rather than the
objective standard that this court had previously applied. 598 U.S. at 749. The Supreme
Court granted Sheldon’s petition for certiorari, vacated the district court’s order, and
remanded to the Fourth Circuit for further consideration in light of Schutte. See United
States ex rel. Sheldon v. Allergan Sales, LLC, 143 S. Ct. 2686 (2023). This court then
remanded to the district court.
On remand, this time applying the Supreme Court’s Schutte holding, the district
court once again dismissed Sheldon’s amended complaint. United States ex rel. Sheldon v.
Forest Laby’s, 754 F. Supp. 3d 615 (D. Md. 2024). The district court found that, even under
the subjective intent standard, Sheldon failed to plausibly allege scienter. We review the
district court’s second dismissal on this appeal.
IV. Analysis
We review de novo the district court’s grant of a motion to dismiss for failure to
state a claim, construing factual allegations in the light most favorable to the plaintiff.
United States v. Walgreen Co., 78 F.4th 87, 92 (4th Cir. 2023). For dismissals at this early
pleading stage, we accept all allegations in the complaint as true and draw all reasonable
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inferences in favor of the plaintiff. Shook, 114 F.4th at 248. We first clarify the legal
standard for scienter under the FCA and its application at the motion to dismiss stage. We
then analyze the sufficiency of Sheldon’s allegations of scienter under this standard,
finding that Sheldon has plausibly alleged scienter. We conclude by clarifying the
implications of our opinion on remand.
A. The FCA Scienter Standard
The FCA takes a broad approach to the level of knowledge necessary for liability.
A defendant can act with actual knowledge, with deliberate ignorance, or with reckless
disregard of the truth or the falsity of the information contained in the claims. 42 U.S.C.
§ 3729(b)(1)(A). Actual knowledge refers to information of which a defendant is actually
aware. Schutte, 598 U.S. at 751. Deliberate ignorance “encompasses defendants who are
aware of a substantial risk that their statements are false, but intentionally avoid taking
steps to confirm the statement’s truth or falsity.” Id. Reckless disregard “captures
defendants who are conscious of a substantial and unjustifiable risk that their claims are
false, but submit the claims anyway.” Id. Tracking the common-law scienter requirement,
a party acts with reckless disregard when a claim is submitted carelessly with respect to its
truth or falsity. Id. at 752 (citing the Restatement (Second) of Torts, § 526, Comment e).
Under the FCA, the scienter standard is a subjective one that focuses on the
defendant’s thoughts and beliefs. Id. at 749. Ambiguities in the law are therefore not
dispositive. Neither is a defendant’s objectively reasonable interpretation of the law. Under
the subjective standard, “ambiguity” in the language of a statute “does not preclude [a
22 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 23 of 38
company] from having learned [the statute’s] correct meaning—or, at least, becoming
aware of a substantial likelihood of the terms’ correct meaning.” Id. at 753.
In Schutte, the Supreme Court offered an example to illustrate this conclusion. A
medical doctor must submit payments for only “customary” medical tests. Id. at 742–43.
Many doctors might be confused by the meaning of “customary,” and some might
“honestly mistake what that term means[.]” Id. at 743. Doctors who make an honest
mistake might nonetheless submit a false claim—but may not necessarily violate the FCA.
That is because liability under the FCA requires both scienter and falsity. Doctors who lack
the requisite scienter therefore cannot be held liable for false statements. Conversely, other
doctors “might correctly understand whatever ‘customary’ meant in this context—and
submit claims that were inaccurate anyway.” Id. These doctors, subjectively aware of the
risk that their interpretation of “customary” is contrary to its intended meaning, can be held
liable under the FCA.
The complexity of the Medicaid statute is well-recognized. As evidenced by the
lengthy procedural history of this case, the requirements for the Best Price calculation are
“less than perfectly clear.” Id. at 752. Companies should not be held liable for making
honest mistakes in interpreting ambiguous statutory language. Indeed, the Medicaid Rebate
Agreement explicitly recognizes the right of manufacturers to “make reasonable
assumptions” in calculating Best Price given this complexity. J.A. 361. Schutte counsels,
however, that a company cannot exploit such ambiguities by relying on an objectively
reasonable interpretation if the company is subjectively aware of the risk that such an
interpretation is incorrect. 598 U.S. at 753–54.
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The underlying purpose of the FCA supports this reasoning. “Protection of the
public fisc requires that those who seek public funds act with scrupulous regard for the
requirements of law.” Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S.
51, 63 (1984). Indeed, “those who deal with the Government are expected to know the law”
and “to familiarize [themselves] with the legal requirements for cost reimbursement.” Id.
at 63–64. Thus, a defendant who becomes aware that the government’s interpretation of
what a statute requires differs from its own yet continues to rely on its interpretation in
submitting claims may be found to have been subjectively aware of the risk that its
interpretation was incorrect.
B. Pleading Requirements for Scienter
To withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),
the complaint must allege facts sufficient to state a plausible claim for relief. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible when the facts pled allow “the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. Like most claims arising under the FCA, Sheldon’s claims are fraud-based and
therefore must also satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading
standard. Wheeler, 127 F.4th at 485. Rule 9(b) requires a plaintiff alleging fraud or mistake
to “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ.
P. 9(b). These circumstances include the “who, what, when, where, and how” of the alleged
fraud. United States ex rel. Taylor v. Boyko, 39 F.4th 177, 189 (4th Cir. 2022) (internal
citation omitted).
24 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 25 of 38
Even in these fraud-based claims, scienter may be alleged generally. Fed. R. Civ. P.
9(b) (stating that “[m]alice, intent, knowledge, and other conditions of a person’s mind
may be alleged generally”). The FCA does not require scienter to be pled with specificity
for good reason. As the district court correctly observed, “direct proof of scienter is often
unavailable.” J.A. 953. This is particularly true at the pleading stage before the parties have
had an opportunity to engage in discovery. Courts must not impose a higher bar for
pleading scienter.
In the aftermath of Schutte, motions to dismiss for failure to plausibly allege scienter
under the FCA have overwhelmingly been denied, further demonstrating this low
threshold. See, e.g., United States ex rel. Jacobs v. Pac. Dermatology Inst., Inc., 2024 WL
3086586, at *7 (C.D. Cal. May 16, 2024) (“The scienter standard is met where certain facts
should have tipped off the defendants and should have suggested that something was
amiss.” (internal citation and quotation marks omitted)); United States ex rel. Nunnelly v.
Regeneron Pharms., Inc., 780 F. Supp. 3d 336, 348 (D. Mass. 2025) (finding that whether
“the [statutory provision] is ambiguous and [whether the defendant’s] current interpretation
is reasonable” are irrelevant considerations under Schutte); United States ex rel.
McCullough v. Anthem Ins. Cos., Inc., 2025 WL 2782576, at *9 (S.D. Ind. Sept. 30, 2025)
(rejecting defendant’s arguments that a plaintiff must adequately allege scienter with more
than circumstantial evidence because it would mean that “even the most blatant of FCA
violations would be stifled at the motion to dismiss stage”). Indeed, a number of courts
have reopened cases previously dismissed for failure to adequately plead scienter. See, e.g.,
United States ex rel. Ocean State Transit, LLC v. Infante-Green, 2023 WL 6199183, at *2
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(D.R.I. Sept. 22, 2023) (reopening an FCA action previously dismissed for failure to state
a claim on the ground that, following Schutte, “a dearth of clarity as to the [relevant
statutory phrase] is not—at the pleadings stage—itself a reason that an FCA action must
fail”).
C. Sufficiency of Sheldon’s Pleading
The relevant question for purposes of FCA liability, therefore, is whether Forest was
subjectively aware of a substantial risk that CMS interpreted the Rebate Statute to require
drug manufacturers to aggregate rebates and other discounts provided to multiple entities
on the same drug in reporting Best Price. If Forest was aware, then it may have acted with
reckless disregard under the FCA scienter requirement in continuing to report its Best Price
pursuant to its own interpretation. To survive a motion to dismiss, Sheldon need only have
plausibly alleged facts to support an inference that Forest possessed such a scienter. We
find that Sheldon has done so.
First, Sheldon alleges that Forest’s McKenna letter to CMS shows that Forest
understood CMS’s proposed rule to require aggregation of discounts to multiple entities in
reporting its Best Price.6 In the McKenna Letter, Forest articulated its legal interpretation
that such stacking was not and should not be required by the Rebate Statute. Despite
Forest’s urging that it was “critical” that CMS change that language to avoid imposing such
a requirement, J.A. 401, CMS declined to do so in the final rule. 2007 Final Rule, at 39,150.
We may reasonably infer from these facts that Forest’s interpretation of the language of
6 The amended complaint does not contain any allegations that would support an inference that Forest acted with reckless disregard prior to the 2006–2007 rulemaking. 26 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 27 of 38
the rule remained the same as it articulated in the McKenna letter—that CMS required
aggregation of all rebates and other discounts.
Furthermore, Sheldon alleges that Forest’s decision to undertake an audit further
demonstrates Forest’s subjective awareness that CMS expected it to either 1) report the
stacked rebates and other discounts in its Best Price or 2) provide only one customer in the
chain with rebates and other discounts. Specifically, Sheldon alleges that Forest conducted
the audit with the purpose of eliminating stacked rebates and other discounts for most of
its customers in the aftermath of CMS’s rulemaking so that only one customer in the chain
received a rebate moving forward. Sheldon alleges that Forest continued, however, to pay
double rebates to certain preferred customers in order to preserve these relationships.
Viewed in the light most favorable to Sheldon, the timing of this audit, the decision to
provide only one rebate in most situations, and Sheldon’s personal knowledge of these
events support a reasonable inference of the requisite scienter. Finally, despite this
subjective awareness, Sheldon alleges that Forest continued to report its Best Price for the
remainder of the period of the amended complaint without stacking the discounts provided
to multiple entities in its Best Price calculations.
Taken together, Sheldon’s allegations regarding scienter, including: 1) that Forest’s
letter to CMS, CMS’s decision not to change the offending language, and CMS’s response
in the guidance demonstrate subjective awareness; 2) that Forest subsequently undertook
an audit for the purpose of adopting CMS’s approach for most clients, with the exception
of a select group of preferred clients; and 3) that Forest continued to report the Best Price
27 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 28 of 38
without aggregation after the 2006-2007 rulemaking, suffice to withstand a motion to
dismiss.
Forest argues that these allegations are insufficient because CMS failed to respond
directly to the McKenna letter and because, according to Forest, CMS’s 2007 Guidance
was unclear. From this, Forest asserts, it could not have known of a substantial risk that
CMS interpreted the Rebate Statute to require aggregation. Forest also asserts that the post-
rulemaking audit was conducted for purely business reasons. Forest’s arguments to this
effect misapprehend the pleading requirement for the subjective scienter element of an
FCA claim at this stage. In considering a motion to dismiss, we look only to the allegations
in the operative complaint and must accept them as true.7 The allegations contained in
Sheldon’s amended complaint ably allege what is required.
7 Rather than limiting its review to Sheldon’s allegations, the district court took judicial notice of and considered as part of its analysis information contained in several voluminous documents beyond the amended complaint including: 1) the Rebate Agreement; 2) Medicaid Drug Rebate Program Release No. 2; 3) Medicaid Drug Rebate Program Release No. 14 ; 4) several letters to CMS; 5) the May 26, 2023 proposed rule (88 Fed. Reg. 34238); 6) the Government’s Brief; 7) a Press Release; and 8) the contents of the Federal Register and the Code of Federal Regulations. J.A. 943. The ability of district courts to consider matters outside of pleadings on a motion to dismiss is limited. Bosiger v. U.S. Airways, 510 F.3d 442, 450 (4th Cir. 2007). When materials outside the pleadings are considered in ruling on a 12(b)(6) motion, unless the materials are integral to and explicitly relied on in the complaint, the court must generally convert that motion to “one for summary judgment under Rule 56” and provide all parties “a reasonable opportunity to present all material that is pertinent to the motion.” Fed. R. Civ. P. 12(d). See e.g., E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir. 2011).
28 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 29 of 38
D. Statutory Ambiguity and Falsity
In addition to finding that Sheldon failed to adequately plead scienter, the district
court also suggested that Forest could not have submitted false claims because the statute
is ambiguous. We disagree. The ambiguity of a statute is relevant to both the scienter and
falsity analyses, but for different reasons.
Indeed, as we have discussed, Schutte expressly rejected the argument that a
company cannot be found to have acted with the requisite scienter under the FCA simply
because a Medicaid statute is ambiguous. 598 U.S. at 752–54. Certainly, the ambiguity of
a statute may be a defense to scienter. It is not generally appropriate to consider such
defenses at the motion to dismiss stage, however, unless the plaintiff fails to allege facts
beyond the plain text of the statute to support an inference of the requisite scienter. That is
not the case here. Sheldon sufficiently alleges, through the McKenna letter and subsequent
audit, that Forest was subjectively aware of the risk that it was reporting false claims. These
allegations go well beyond the plain text of the statute.
Falsity is a distinct element of an FCA claim. Unlike for purposes of the scienter
analysis, ambiguity in a statute is not a defense to the falsity of the claim. United States ex
29 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 30 of 38
rel. Drakeford v. Tuomey, 792 F.3d 364, 383–84 (4th Cir. 2015); 8 see also United States
v. Elfenbein, 144 F.4th 551, 566 (4th Cir. 2025) (“[T]he possibility of reasonable
disagreement doesn’t rule out falsity.”) Rather, falsity is an objective inquiry. Drakeford,
792 F.3d at 384. Even reasonable interpretations of a regulation can be false as a matter of
law for purposes of the FCA. United States ex rel. Streck v. Eli Lilly & Co., 152 F.4th 816,
839–41 (7th Cir. 2025). When considering whether a plaintiff sufficiently alleges the
element of falsity, the district court must determine whether the claims were objectively
false by interpreting the relevant statute. Because the district court has yet to reach this
issue, we remand for consideration in the first instance.9
8 Rather than relying on Drakeford’s objective falsity test, Forest urges us instead to take the approach of this court in Wilson v. Kellog Brown & Root, Inc., 525 F.3d 370 (4th Cir. 2008). There, the alleged false claim stemmed from a dispute about whether a party had complied with the requisite maintenance and safety requirements that had been agreed to by contract. Id. at 375. The dispute in Wilson did not turn on an “either/or proposition” of the objective meaning of a statute, however. It instead turned on the subjective interpretations of contractual duties. See Drakeford, 792 F.3d at 384, n.14 (describing and distinguishing Wilson). Under such circumstances, the objective falsity test may not be appropriate. In contrast here, like in Drakeford, the dispute turns on the objective meaning of a statute and the district court must determine whether reporting Best Price without aggregating all rebates and other discounts was false as a matter of law. 9 The district court granted Forest’s motion to dismiss on the basis that Sheldon failed to adequately plead scienter. It did not reach the issue of objective falsity, nor did it determine whether the Medicaid Rebate Statute obligates a manufacturer to report stacked discounts to multiple entities. We decline to exercise our discretion to reach this issue and leave this question in the district court’s able hands for consideration in the first instance. 30 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 31 of 38
V. Conclusion
In Schutte, the Supreme Court underscored the breadth of conduct addressed by the
FCA. The subjective scienter standard prevents wrongdoers from taking advantage of
arguable ambiguity in a statute to exploit the public fisc for private gain. Sheldon
adequately alleged that his former employer Forest acted with reckless disregard when it
reported its Best Prices without aggregating rebates and other discounts after becoming
aware that CMS interpreted the Rebate Statute to require such aggregation. These
allegations suffice to withstand Forest’s motion to dismiss.
The district court’s order granting Forest’s motion to dismiss is reversed, and we
remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED
31 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 32 of 38
BARBARA MILANO KEENAN, Senior Circuit Judge, dissenting:
The majority provides a thorough discussion of scienter in a False Claims Act case
but fails to address the central issue raised by the parties, namely, whether rebates must be
stacked across different entities in a distribution chain when determining “best price” under
the Rebate Statute, 42 U.S.C. § 1396r-8. I write separately because, in my view, the
unambiguous meaning of the statutory term “best price” does not require such stacking
and, thus, resolves this case as a matter of law based on Troy Sheldon’s failure to
sufficiently allege the element of falsity.
Applying familiar principles of statutory interpretation, I would conclude that “best
price” is the single lowest price available from the manufacturer to a single purchaser.
Given this interpretation, I would further hold that in determining “best price,” Forest
Laboratories, LLC (Forest)1 was not required to combine discounts2 provided to multiple
purchasers and, thus, Forest could not have violated the False Claims Act, 31 U.S.C. §
3729, by failing to do so. For this reason, I would affirm the district court’s judgment
dismissing Sheldon’s complaint.
Medicaid, a joint federal and state program, provides health care coverage for
millions of low-income individuals. Seeking to ensure that “Medicaid [has] the benefit of
1 Forest has been acquired by another corporate entity. And the plaintiff, Troy Sheldon, as relator, died after filing this action. The executor of his estate, Deborah Sheldon, has been substituted as the named plaintiff. I continue to refer to the parties as originally named in the complaint. 2 For simplicity, I use the term “discounts” broadly to include all sorts of price concessions, rebates, and price reductions. USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 33 of 38
the best price for which a manufacturer sells a prescription drug to any public or private
purchaser,” Congress enacted the Rebate Statute in 1990. H.R. Rep. No. 101-881 (1990).
Under that statute, drug manufacturers are required to enter “rebate agreements”
with the Secretary of Health and Human Services in which the manufacturers must provide
quarterly rebates to states for their purchases of covered prescription drugs for Medicaid
patients. 42 U.S.C. § 1396r-8(a)(1), (b)(1)(A). The Rebate Statute sets forth the formula
for establishing the rebate amounts, requiring calculation of “the difference between the
‘average manufacturer price’ and the ‘best price,’”3 which difference manufacturers must
report to the Centers for Medicare and Medicaid Services (CMS). 42 U.S.C. § 1396r-
8(a)(1), (b)(3)(A), (c)(1)(A).
Once the rebate amount is calculated by CMS, the manufacturer applies the rebate
to the state’s Medicaid drug costs and, in turn, the federal government reimburses the states
for the discounted cost. So, this reimbursement system necessarily involves the submission
of claims to be paid by the federal government, giving rise to a potential violation of the
False Claims Act. See United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694,
700 (4th Cir. 2014) (setting forth the elements for an FCA claim as (1) making a false
statement, (2) with the required scienter, (3) that was material, and (4) caused the federal
government to pay money).
3 There is also a minimum rebate figure that will apply when the difference between the “average manufacturer price” and the “best price” is lower than the stated minimum rebate. 42 U.S.C. § 1396r-8(c)(1)(A)(ii), (c)(1)(B)(i).
33 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 34 of 38
The present case involves a narrow question of statutory interpretation and the
method by which drug manufacturers account for discounts when calculating the “best
price” for use by CMS in determining the rebate amount. The parties agree that the Rebate
Statute requires manufacturers to include in their determination of “best price” all discounts
afforded to an individual purchaser. But Sheldon submits that the “best price”
determination requires an aggregation of discounts provided to multiple entities along the
distribution chain, and that Forest failed to do so.
As with any case involving statutory interpretation, I begin with the text of the
Rebate Statute. Copley v. United States, 959 F.3d 118, 123 (4th Cir. 2020) (citing Desert
Palace, Inc. v. Costa, 539 U.S. 90, 98 (2003)). When a statute’s plain meaning is clear and
unambiguous, our job “is to enforce [that language] according to its terms.” Lamie v. U.S.
Tr., 540 U.S. 526, 534 (2004) (quoting Hartford Underwriters Ins. Co. v. Union Planters
Bank, N.A., 530 U.S. 1, 6 (2000)). In considering plain meaning, “the words of a statute
must be read in their context and with a view to their place in the overall statutory scheme.”
Gundy v. United States, 588 U.S. 128, 141 (2019) (quoting Nat’l Ass’n of Home Builders
v. Defs. of Wildlife, 551 U.S. 644, 666 (2007)).
The Rebate Statute defines the “best price” as “the lowest price available from the
manufacturer . . . to any wholesaler, retailer, provider, health maintenance organization,
nonprofit entity, or governmental entity,” including “cash discounts, free goods that are
contingent on any purchase requirement, volume discounts, and rebates.”
§ 1396r-8(c)(1)(C)(i), (c)(1)(C)(ii)(I) (emphasis added). The straightforward reading of
this language indicates that “best price” is “the lowest price available,” meaning a singular
34 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 35 of 38
cost at which the drug can be obtained by a purchaser from a manufacturer.4 By using the
phrase “lowest price available,” the statute contemplates an actual, established price paid
by an individual purchaser, not a theoretical price that no purchaser pays. Quite simply, a
“price” cannot be considered “available” to an entity if the manufacturer must construct
that figure by aggregating discounts as the drug moves through the distribution chain to the
end user. Thus, “best price,” unambiguously, is the lowest price actually offered by the
manufacturer to a single purchaser, which could include any one entity among the
categories provided: “any wholesaler, retailer, provider, health maintenance organization,
nonprofit entity, or governmental entity.” 42 U.S.C. § 1396r-8(c)(1)(C)(i).
Sheldon, however, takes issue with this plain meaning of “best price” in the Rebate
Statute by contending that it must be read “through the lens” of the rebate agreement
between CMS and Forest. According to Sheldon, the language of the Rebate Agreement
clarifies that “best price” means “the price actually realized by a drug manufacturer for a
single drug unit after aggregating any and all price concessions to all entities.” I disagree.5
4 “Price” means “the cost at which something is obtained.” Merriam-Webster, https://www.merriam-webster.com/dictionary/price; https://perma.cc/4AHQ-JSZV. “Available” means “accessible, obtainable.” Merriam-Webster, https://www.merriam- webster.com/dictionary/available; https://perma.cc/325V-3AQD. 5 I also disagree with Sheldon’s assertion that the “average manufacturer price” (AMP) ultimately “paid to” the manufacturer, must always be larger than the “best price” “available from” the manufacturer. See 42 U.S.C. § 1396r-8(k)(1)(A). The Rebate Statute provides that the rebate amount is set at the “greater” between the statutory minimum rebate percentage and the difference between AMP and “best price.” Id. § 1396r- 8(c)(1)(A)(ii). The statute does not require that the difference between AMP and best price be a positive figure. 35 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 36 of 38
As an initial matter, I observe that CMS is required to draft rebate agreements that
conform with the Rebate Statute, including the determination of rebate amounts. See 42
U.S.C. § 1396r-8(b)(1)(A) (referencing subsection (c) of the Rebate Statute); see Astra
USA Inc. v. Santa Clara Cnty., 563 U.S. 110, 118 (2011) (explaining that such agreements
“serve as the means by which drug manufacturers opt into the statutory scheme” and that
the statutory and contractual obligations “are one and the same”). Thus, the language of
the rebate agreement cannot transform or override the unambiguous plain meaning of “best
price” in the Rebate Statute.6
Nonetheless, the language in the rebate agreement reinforces the plain meaning of
“best price” in the Rebate Statute. The rebate agreement defines “best price” as “the lowest
price at which the manufacturer sells the [drug] to any purchaser in any pricing structure.
[And b]est price includes prices to wholesalers, retailers, nonprofit entities, or
governmental entities.” J.A. 357 (emphasis added). The rebate agreement further states
that “best price” “shall be adjusted by the manufacturer if cumulative discounts, rebates or
other arrangements subsequently adjust the prices actually realized.” J.A. 357 (emphasis
added).
6 When statutory language is unambiguous, courts enforce its plain meaning, and any contrary agency regulation is irrelevant. See Loper Bright Enters. v. Raimondo, 603 U.S. 369, 398-99 (2024) (reaffirming that courts independently determine the meaning of unambiguous statutes). For this reason, I do not address Sheldon’s arguments relying on CMS’s regulations or statements made in rulemaking that “interpret” the Rebate Statute.
36 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 37 of 38
The only notable variations in the rebate agreement’s language defining “best price”
are the phrases “any pricing structure” and “prices actually realized.” But “any pricing
structure” neatly describes the requirement, agreed upon by the parties, that all discounts
applied to an individual purchaser must be aggregated, whether that discount is provided
at the time of sale or provided in the form of a lagged price concession. And the phrase
“prices actually realized” refers to the final, net amount a seller receives from a purchaser
after aggregating all discounts to that purchaser. Nothing in this language suggests a
requirement to calculate an aggregated amount that is not actually available to any
individual purchaser.
I acknowledge that applying the plain meaning of “best price” may produce results
that restrict the amount of the pricing benefit that the government receives under the Rebate
Statute. But that perceived severity reflects Congress’s choice to structure the Rebate
Statute to ensure that the government receives the benefit of the lowest price actually
“available from the manufacturer” to an individual purchaser in the private or public
market. By focusing on the lowest price available to an actual market participant, rather
than to a theoretical purchaser, the statute ensures that the government receives the same
price benefit obtained by the actual market participant. If Congress had intended that “best
price” account for complex, multi-party commercial arrangements, Congress would not
have defined “best price” as “the lowest price available” to any entity.
In sum, the allegations of Sheldon’s complaint, and his entire False Claim Act theory
of recovery, depend on an interpretation of the Rebate Statute that would require Forest to
aggregate discounts offered to multiple entities in a distribution chain when computing
37 USCA4 Appeal: 24-1793 Doc: 59 Filed: 03/13/2026 Pg: 38 of 38
“best price.” In failing to decide whether Sheldon’s interpretation of the Rebate Statute is
correct, the majority sends the district court back to the very beginning of the inquiry.
Instead, I would conclude as a matter of law that Sheldon misinterprets the plain language
of the Rebate Statute, which does not require a manufacturer to aggregate discounts across
multiple entities in computing its “best price.” So, in my view, Sheldon has failed to
sufficiently allege the element of falsity in his complaint against Forest, and I would affirm
the district court’s dismissal of Sheldon’s complaint.
Related
Cite This Page — Counsel Stack
United States ex rel. Deborah Sheldon v. Allergan Sales, LLC, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-ex-rel-deborah-sheldon-v-allergan-sales-llc-ca4-2026.