Attorneys as Qui Tam Relators?: False Claims Act Doesn’t Preempt Ethics Laws and Cannons

ethicsGuest Commentary

by Tara Parker, a 2015 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

A federal district judge in the Southern District of Mississippi recently reaffirmed something that should be intuitively obvious to most attorneys:  the federal False Claims Act (FCA) does not relieve a lawyer who brings a qui tam action under the law of his ethical obligations. The court in United States ex rel. Holmes v. Northrop Grumman Corporation disqualified the attorney from serving as a relator because he had violated his duties of loyalty, candor, and confidentiality, as well as the duty to obey court orders. The case stands as not only a monument to unethical attorney behavior, but it also provides yet another example of how laws that delegate enforcement authority to individuals inspire abuses with the lure of financial profit.

The attorney in question, Donald Holmes, represented Munich Re (Munich), an insurance company, in arbitration proceedings with Northrop Grumman Corporation (Northrop), the insured, in April 2010. Northrop had contracted with the United States Navy to construct ships, some of which were damaged as a result of Hurricane Katrina in August 2005. Holmes, along with a co-counsel, sought to obtain documents from the Navy professedly for use in the arbitration. Holmes and his co-counsel turned around and used the information to file an FCA suit against Northrop. Continue reading

Sixth Circuit Applies Sanctions Appropriately in Frivolous FCA Case

6th CircuitGuest Commentary

by Spencer Salmon, a 2015 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

On May 1, 2015, the U.S. Court of Appeals for the Sixth Circuit affirmed sanctions imposed by a lower court in a suit filed under the False Claims Act (FCA). The decision, United States ex rel. Jacobs v. Lambda Res., Inc., is an encouraging development given the ease with which the FCA can be abused and the federal judiciary’s general aversion to punishing frivolous plaintiffs and their lawyers. Continue reading

WLF Media Briefing Program Focuses on Government’s Regulation of Information on “Off-Label” Drug Uses

Coleen Klasmeier, a partner with Sidley Austin LLP, Geoffrey M. Levitt, Senior Vice President and Associate General Counsel of Pfizer, Inc., and Jonathan L. Diesenhaus, a partner with Hogan Lovells US LLP discussed the impact of the Second Circuit’s December, 2013 Caronia decision on federal health product regulation and identify the latest developments and trends to follow in 2014 for public and private law enforcement targeted at off-label speech.

Court Ruling Recalls Injudicious Average Wholesale Price Litigation Crusade

Cross-posted by at WLF’s contributor site

A little over a decade ago, federal regulators and state attorneys general initiated a litigation campaign to alter how government health care programs reimbursed doctors for prescription drugs. Like most “regulation by litigation” efforts, this campaign seized upon laws of broad application such as the False Claims Act (FCA) and encouraged private lawsuits of questionable merit. Government enforcers have long since moved on to other crusades, but as a federal court decision last month reflects, some private suits still drag on, burdening American businesses with needless legal expenses.

AWP. In the early 2000s, the federal government reimbursed health care providers based in part on a drug’s average wholesale price, or “AWP.” Some likened AWP to the sticker price, or MSRP, of a new car: an inflated number which almost no one actually paid. Everyone involved in health care was aware of the illusory nature of AWP, and federal and state regulators urged legislative change, but Congress resisted reform. So unelected officials and their brethren in the plaintiffs’ bar sought to impose change. As this 2002 WLF Working Paper explains, they devised legal theories which branded AWP as an overcharging scheme, and accused drug makers, price publishers, and other entities such as pharmacy benefit managers (PBMs) of perpetrating a fraud. State attorneys general filed billion-dollar fraud actions and plaintiffs’ lawyers teamed up with “whistleblowers” to file qui tam suits under the FCA.

The ensuing litigation crusade provided moderate returns at best to the plaintiffs’ lawyers and state AGs who jumped on board. For instance, in 2009, the Alabama Supreme Court dashed the state’s (and its contingent-fee lawyers’) dreams of a huge payday, dismissing two AWP cases, finding no fraud existed. Continue reading

High Court Fails To Act On Major Business Case Cert Petitions

supreme courtCross-posted at’s WLF contributor page

Washington Legal Foundation, along with other organizations, business, and individuals with an interest in the Supreme Court and free enterprise cases before it, watched with great anticipation this morning as the justices issued their first new list of certiorari grants since the Court adjourned last June (the so-called Long Conference). We came away from the big cert grant morning, as likely did many other interested parties, wanting more.

The orders list is here. The grants include a tax case, United States v. Quality Stores  addressing whether severance payments made to employees whose employment was involuntarily terminated are taxable. Two other grants relate to the standard of review the U.S. Court of Appeals for the Federal Circuit uses when assessing a district court’s determination that a case is “exceptional” for purposes of imposing attorneys’ fees and other sanctions. Those cases are Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Management Systems Inc.

The final cert grant impacting free enterprise is Petrella v. MGM, which involves the movie Raging Bull and the defense of laches against claims of copyright infringement. Marcia Coyle at National Law Journal discussed the interesting facts of the case in a September 16 story.

The bigger story from the big cert grant morning was which petitions the Court did not act on. WLF filed amicus briefs in support of review in a number of the cases, which we’ll indicate below (all noted on SCOTUSblog’s “Petitions we Are Watching” page).

Failure to act on these and other petitions does not mean that the Court cannot reconsider them in a future “conference,” and it does not mean that they have been denied. The Court will be issuing an order list on First Monday, October 7, but that order traditionally has only contained cert denials.

Update: Seventh Circuit Reverses Trial Court’s Qui Tam Ruling and Attorney Sanctions

US-CourtOfAppeals-7thCircuit-SealLast March, we published a post applauding a U.S. District Court for the Southern District of Indiana ruling which dismissed a qui tam relator’s False Claims Act (FCA) suit on the grounds that the relator wasn’t the “original source” of the information motivating the claims. The judge also imposed sanctions against the relator’s lawyers, peppering her especially forceful justification of the financial penalty with pop culture and literary references.  U.S. ex rel. Leveski v. ITT Educational Services.

It came to our attention today that the U.S. Court of Appeals for the Seventh Circuit reversed the district court’s ruling on its lack of subject matter jurisdiction (based on the FCA’s original source rule) and its attorney sanctions order, and then remanded the case back to the Southern District of Indiana for further proceedings.

The Seventh Circuit acknowledged that relator Leveski’s lawyers had unsuccessfully filed previous FCA suits against for-profit education businesses in situations where the lawyer “appears to have recruited relators who possessed little to no knowledge beyond what was already in the public domain.” The panel concluded, however, that

Leveski has added new facts and new details to this general knowledge that were not previously in the public domain. Even though prior relators . . . were not able to add new facts and new details, Leveski is different.  Through her deposition testimony and her affidavit, Leveski has informed the public about a new method of violating the HEA prohibition against incentive compensation—a method much more difficult to detect than outright commission and bonus schemes.

The appeals court thus found that Leveski had provided enough original information to inform her suit that she was an “original source.”

The court very briefly addressed the sanctions issue, writing, “Our lengthy discussion of Leveski’s case has shown that Leveski’s case appears to be substantial, not frivolous.” “Of course,” the court added,

if it becomes clear later in the course of litigation that Leveski has made up all of her allegations and all of her supporting evidence, then sanctions may be warranted. But for now, the truth of Leveski’s allegations is not appropriately resolved on a  motion to dismiss for lack of subject-matter jurisdiction.

4th Circuit Demands Greater Particularity in False Claims Act Suit Pleading

Mayer_Kirsten_72Hallward-Driemeier_Douglas_72ppiGuest Commentary

by Kirsten V. Mayer and Douglas Hallward-Driemeier, Ropes & Gray LLP

Last month, the U.S. Court of Appeals for the Fourth Circuit reaffirmed that False Claims Act relators must plead presentment of a false claim with particularity.  The decision in United States ex rel. Nathan v. Takeda Pharmaceuticals N.A. Inc. requires that relators proceeding under Section 3729(a)(1)(A) of the False Claims Act offer concrete details that plausibly allege—not just speculate—that actual presentment of a false claim occurred.  By requiring that relators plead false claims with particularity, the Fourth Circuit strikes a blow against relators who would prefer simply to allege a fraudulent scheme and proceed directly to costly discovery.  The holding should be particularly useful to defendants in “off-label” promotion cases, where relators often only speculate that ineligible claims were submitted for reimbursement to government-funded programs.

In Nathan, a Takeda sales manager alleged that Takeda’s Kapidex marketing caused false claims to be presented to the government in two main ways: (1) Takeda allegedly promoted Kapidex to rheumatologists, who do not typically treat patients with conditions that can be treated by Kapidex on-label; and (2) Takeda allegedly promoted Kapidex use at higher doses than FDA had approved.

Liability under Section 3729(a)(1)(A) requires that a defendant actually presented false claims to the government for payment.  Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 789 (4th Cir. 1999).  Nonetheless, the Nathan relator urged the Fourth Circuit to adopt a relaxed application of Rule 9(b) that would rely on inferring from an alleged “fraudulent scheme” that false claims essentially must have been presented to the government.  In support, the relator pointed to a Fifth Circuit decision, United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009).   In Grubbs, the relator had alleged with detail that doctors fraudulently recorded medical services that were never performed, and the Fifth Circuit held that this satisfied Rule 9(b), even though the complaint did not provide specific allegations that those records caused the hospital’s billing system to present fraudulent clams to the government.  Id. at 192. Continue reading