A Major Fraud Scheme is Important to the State

When the State of California is Plaintiff Case Cannot be Removed to Federal Court

When a defendant in a qui tam – whistle blower – suit brought for violation of the California Insurance Frauds Prevention Act (IFPA) moved the case to federal court because of diversity the State, as the entity for whom the suit was brought, moved to take the case back to state court, judge James Donato was required to decide the appropriate jurisdiction and did so in State of California et al. v. Abbvie Inc., Case No. 18-cv-06392-JD, United States District Court Northern District of California (July 25, 2019).


The case alleged a campaign of kickbacks and other inducements by defendant AbbVie Inc. to inflate sales of its Humira drug, which is used to treat autoimmune disorders such as arthritis and colitis. The complaint is based on AbbVie’s conduct in California with California patients and California healthcare providers. Plaintiffs are the State of California, by and through the California Insurance Commissioner (“Commissioner”), and relator-plaintiff Lazaro Suarez. The complaint states a single claim under the California IFPA which prohibits the use of “runners, cappers, steerers, or other persons to procure clients or patients to perform or obtain services or benefits” covered by insurance. [Cal. Ins. Code § 1871.7(a)] (“IFPA”).

AbbVie removed the case to the US District Court on the argument that it has complete diversity with Suarez and that the State of California should be disregarded as a nominal party for jurisdictional purposes. Plaintiffs ask for the matter to be remanded to state court.

Suarez is a registered nurse and former AbbVie employee, and has sued as a whistleblower based on his experiences as a “nurse educator” and “patient ambassador” with the company. Suarez lives in Florida and alleges that he helped train AbbVie personnel in California.

The State of California and Suarez sued AbbVie only for its conduct in California. The plaintiffs claimed AbbVie pursued two illicit schemes to pump up the sales of Humira in California: (1) a scheme that involved “classic kickbacks” in the form of substantial cash payments, gifts, trips and vacations, meals at “fancy restaurants” and wineries, and other bribes given to California healthcare providers, including providers employed by the University of California; and (2) AbbVie’s “Ambassador Program,” which was a network of nurses AbbVie made available at no cost to healthcare providers who prescribed Humira for their patients.

Plaintiffs contend that the Ambassador Program was “wildly successful” and “dramatically increased the number of prescriptions for Humira that are filled and refilled” in California. Plaintiffs say that these illicit sales practices were particularly pernicious because Humira is an expensive drug with serious potential health hazards.

The State of California and Suarez have brought a single claim against AbbVie for insurance fraud under the IFPA. Violations of the IFPA are subject to a “civil penalty of not less than five thousand dollars ($5,000) nor more than ten thousand dollars ($10,000), plus an assessment of not more than three times the amount of each claim” paid by an insurer. Equitable and injunctive relief may also be ordered.

The State of California exercised its right to intervene by and through the Commissioner. Suarez is staying on as a relator-plaintiff, but the Commissioner has primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action.


California Is a Real Party in Interest

Judge Donato fount that the crucial issue for the remand motion is whether the State of California is a real party to this action for jurisdictional purposes and that the better approach to determining California’s stake in this case is to understand its role under the plain language of the IFPA. If the IFPA establishes a “‘substantial state interest’ separate and distinct from the relief sought on behalf of the individual,” then California is the real party in interest.

California has a well-defined and tangible interest in eliminating insurance fraud that makes it a real party in this case and not a mere bystander. Whistleblowers are a key component in effecting the purposes of the IFPA. They are essential for providing the inside evidence of insurance fraud that the government typically would not be able to access or act on. The IFPA invites whistleblowers to step forward with information uniquely in their possession and to thus aid the Government in ferreting out fraud.

California’s interest in defeating insurance fraud is substantial in that fraudulent claims can impose extraordinary costs on insurers and insureds through wrongful conduct that is largely hidden from plain view. California’s interest is immediate and tangible because the state stands to recover significant amounts of money in civil penalties and assessments that are expressly earmarked by the IFPA for use in government insurance fraud investigations. This allows California to fight insurance fraud, without creating expensive new bureaucracies and breaking the bank.

The suit effectuates the IFPA’s goals. It is an enforcement action by the State of California against a drug manufacturer that is alleged to have engaged in pervasive insurance fraud in California through illicit schemes intended to generate insurance claims and coverage for Humira prescriptions. If California prevails on the merits, it stands to recover from AbbVie tens of millions of dollars, or more, in civil penalties and potentially trebled claim-based assessments, along with attorney’s fees and costs. By any measure, these stakes make California a real party in interest in this case. As a relator under the IFPA, Suarez is suing in the name of the state and has no personal claim or right to vindicate, and no possibility of recovering personal damages for himself.

The conclusion that California is the real party is consonant with state court case law.

Judge Donato refused to find judicial holdings in the ether (as presented by AbbVie) is more spiritualism than sound legal argument. AbbVie’s suggestion that the state is not really a party here because it is acting through the Commissioner is untenable. The state is the named plaintiff; it holds the interests conferred by the IFPA and will hold any monetary recovery that is awarded.

The Commissioner is the state’s living and breathing representative for the practical purpose of handling the litigation. AbbVie has not proffered any evidence of untoward gamesmanship or abusive litigation tactics. Even if it had, which is not the case, diversity jurisdiction is not granted as a sanction against an allegedly wayward party.

This action was removed improvidently and without jurisdiction, and is remanded to the Superior Court of California for the County of Alameda. 28 U.S.C. § 1447©.


Insurers faced with an insurance fraud scheme like that discovered by nurse Suarez should consider acting under the insurance code and bring suit in the name of the state against the fraudsters. Prosecutors have little time to prosecute the thousands of insurance fraud cases brought to their attention. A proactive, anti-fraud, insurance industry can have an effect by use of qui tam to take the profit out of fraud. The qui tam action gives insurers, as well as the state, a financial weapon against fraud perpetrators whether they are drug manufacturers, auto insurance gangs, arson schemers, or any other perpetrators of insurance fraud.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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