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
Off-Label Speech After U.S. v. Caronia: Implications for Drug & Device Regulation and the First Amendment, a Washington Legal Foundation Web Seminar program, is now available for on-demand viewing.
Our program featured analysis and commentary from Coleen Klasmeier of the Sidley Austin law firm and WLF’s Chief Counsel, Richard Samp. Coleen and Rich make reference to a Powerpoint slide deck, which due to a technical problem wasn’t available to viewers during the program. The slide deck can be downloaded here.
For her presentation, Coleen coined the term “Sorrellonia” because the U.S. Court of Appeals for the Second Circuit two-judge majority in Caronia became the first court to fully apply the holding and rationale of the U.S. Supreme Court’s 2011 Sorrell v. IMS Health opinion.
Coleen’s and Rich’s presentations drew upon their combined years of experience in dealing with FDA’s application of its off-label speech restrictions and the Justice Department’s prosecution of cases where criminal violations of those rules allegedly occurred.
While they both saw great promise in the opinion for greater freedom in the exchange of critical medical information, they also offered firm notes of caution that the ruling not be interpreted as a green light for businesses’ promotion of off-label uses. Great peril still exists in this area they warned, a fact that is all the more apparent today with the announcement of another nearly $1 billion Justice Department settlement with a pharmaceutical company.
Cross-posted at WLF’s Forbes.com contributor site
Federal and state governments are clearly “feeling their oats” in the area of False Claims Act (FCA) enforcement. FCA enforcement has never been more lucrative, with recoveries doubling to $9 billion over the last year. A large bulk of that profit has come from settlements, meaning that prosecutors’ theories and tactics face no judicial scrutiny. Big profits + little oversight = aggressive pursuit of increasingly novel FCA claims.
Challenges to government’s FCA theories and positive outcomes are increasingly few and far between, so we will actively assess and promote them whenever they arise. The U.S. Court of Appeals for the Sixth Circuit’s October 5 U.S. ex rel Williams v. Renal Care Group opinion firmly rejected federal efforts to expand key aspects of the FCA and offers some important lessons for FCA targets.
Background. The Justice Department intervened in a FCA qui tam action against a kidney dialysis provider (RCG), which had a wholly-owned subsidiary to offer dialysis equipment for home care. RCG created this subsidiary to take advantage of a particular method of Medicare reimbursement. The qui tam relator, and subsequently DOJ, argued that RCG’s creation of a subsidiary was a knowingly false and fraudulent attempt to claim federal Medicare reimbursement. A district court agreed, granting DOJ’s summary judgment motion and imposing nearly $83 million in fines. On appeal, the Sixth Circuit reversed the lower court and remanded the case. The unanimous decision provides four important takeaways: Continue reading
Last week, we wrote about two federal appellate court decisions regarding qui tam suits under the False Claims Act (FCA). Those decisions 1) opened qui tam suits to government officials—even those tasked with investigating fraud, and 2) deemed underbidding on government contracts an actionable “false claim.” Today, we focus on two other FCA/qui tam appellate court rulings, both of which concerned employee suits against former employers. In both cases, the Third and Seventh Circuits rejected the would-be relator’s qui tam claims. The outcomes are small victories for those who believe that the FCA has been expanded beyond its original purpose.
In U.S. ex rel. Repko v. Guthrie Clinic et al., the Third Circuit held that an individual who discloses FCA allegations to the government pursuant to a plea agreement cannot be said to have “voluntarily” disclosed those contentions. Four years after leaving employment, Repko, a former employee of Guthrie, stole $2 million by forging the names of Guthrie employees on loan documents. As part of his plea agreement with the government, Repko agreed to give the government information relating to the “unlawful activities of others.” After providing the government with various allegations, Repko tried to bring a qui tam action based on that same information.
Because similar allegations had previously been disclosed on websites and in prior litigation, Repko could only bring a qui tam action if he was an “original source” of the information. To be an original source, an individual must voluntarily disclose their information to the government. Repko’s disclosure was far from voluntary: he provided the information “only after he pleaded guilty to bank fraud, faced a substantial sentence, and bargained for a lower sentence.” Thus, he did not qualify as an original source and his claims were dismissed. Continue reading
Two recent federal appellate court opinions have expanded the availability of qui tam suits under the False Claims Act (FCA), and created new incentives for abuse. Briefly, the FCA’s qui tam provisions incentivize private parties, called relators, to bring litigation on behalf of the government by providing a relator with a share of the recovery. Like private attorney general suits, this mechanism has been criticized for its abuse by politically unaccountable individuals seeking personal gain–monetary, political, or otherwise–and the Act’s vast expansion beyond its original Civil War era purpose.
In United States ex rel. Little v. Shell Exploration & Production Co., the Fifth Circuit, addressing “who may sue,” determined that government employees–even those whose job is to investigate fraud for the government–can bring a private qui tam suit under the FCA. The court dismissed the obvious conflict of interest problems as “extraneous” to the legal interpretation of the FCA, and found no textual basis for excluding government employees from the scope of “person[s]” eligible to bring a qui tam suits.
The court noted that in cases where allegations are first publicly disclosed by another party, government officials cannot bring suit because of the FCA’s “original source” rule. Such sources must voluntarily disclose allegations to the government. Government officials, of course, cannot be said to voluntarily disclose allegations to the government because, well, that’s their job. Continue reading
Abbott & Costello
Cross-posted by Forbes.com in WLF contributor site
In a March 26 opinion, U.S. District Court Judge Tanya Walton Pratt (S.D. Indiana) made plaintiffs’ lawyers pay for bringing a frivolous whistleblower suit under the federal False Claims Act (FCA). U.S. ex rel. Leveski v. ITT Educational Services. Judge Pratt held three law firms and one lawyer jointly and severally responsible for paying nearly $395,000 of ITT’s attorney’s fees.
The decision is especially notable for three reasons: 1) The judge’s application of Federal Rule of Civil Procedure 11; 2) the context in which sanctions were imposed – a qui tam suit, one of the plaintiffs’ bar’s favorite tools; and 3) Judge Pratt’s strongly worded description of the sanctioned attorney’s lawsuit manufacturing tactics.
Ms. Leveski, who left ITT in 2006, had filed an employment suit against the company in 2005. A qui tam plaintiffs’ lawyer discovered the suit and contacted Ms. Leveski to discuss his belief that ITT was in violation of federal law for falsely certifying to the Department of Education that ITT’s compensation practices were proper. Ms. Leveski testified that prior to this conversation, she had no knowledge of or belief that ITT was defrauding the government.
After talking to the lawyer, and “armed with a newfound perspective on FCA claims,” as the court put it, Ms. Leveski filed suit in 2007. Continue reading
Robert T. Rhoad and Jonathan R. Cone, Crowell & Moring
Did you hear that? It was a collective sigh of relief from companies contracting with the federal government thanks to the U.S. Court of Appeals for the Fifth Circuit’s decision in United States ex rel. Steury v. Cardinal Health, Inc. In Steury, the Fifth Circuit found that a company that contracts with the government cannot be punished under the False Claims Act – the government’s primary anti-fraud statute, and a potent one at that – by merely violating a contractual provision or federal statute or regulation. (N1) To be liable under the FCA, the court wrote, a company must falsely certify compliance with a contractual provision, statute, or regulation that is a prerequisite to payment. Unless the government’s payment was conditioned on adherence to a specific provision, statute or regulation, the “crucial distinction” between punitive FCA liability and ordinary breaches of contract would be lost. Continue reading
Our friends at the FDA Law Blog have a quality summary this afternoon of the U.S. Supreme Court’s denial of review in two cases involving the use of the Federal False Claims Act in the context of off-label “promotion.” The Court denied cert to Hopper v. Solvay Pharms, Inc. and United States, ex rel. Mark Eugene Duxbury v. Ortho Biotech Products, L.P. WLF filed an amicus brief in support of Ortho Biotech’s petition, and also recently published a paper on off-label case defendants’ efforts to dismiss False Claims Act suits where both cases were examined.