Tag Archives: fraud

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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 →

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From the Waning Days of 2012, Five Developments You May Have Missed

dec12Before fully moving forward into 2013, The Legal Pulse offers five late December developments our readers may have missed during the holiday season:

1. Administration’s Regulatory Plan Released.  The federal government waited until late December to release its Spring 2012 Unified Agenda of Regulatory and Deregulatory Actions. This is the list of regulatory plans that the Office of Information and Regulatory Affairs at the Office of Management and Budget requires all federal agencies to submit to it by April of each year. As noted by the House Oversight Committee, the Unified Agenda has traditionally been issued between April and July. We’re in the process of reviewing it, but one item from the EPA’s priorities list jumped off the screen: “Expanding the Conversation on Environmentalism and Working for Environmental Justice.” We’ve consistently raised red flags about environmental justice here at The Legal Pulse, and will keep an even closer eye on that going forward.

2. FTC Issues Report on “Child-Directed” Food Advertising. What a difference a year makes. At the end of 2011, we were still talking about the threat posed to free speech and freedom of choice by the Interagency Working Group’s (IWG)  Nutrition Principles to Guide Industry Self-Regulatory Efforts. As that Legal Pulse post explained, Congress all-but terminated that effort by requiring a cost-benefit analysis. Last March, FTC Chairman Leibowitz told a congressional panel that it was “time to move on” from the IWG “self-regulatory” effort.On December 21, the Commission released what it termed a “follow-up” study on food ads directed at children. FTC’s study credited the food industry for expanding its self-regulatory efforts, but remained critical of the amount of money devoted to advertising foods the FTC deemed less-than-nutritious. The study has one major flaw: it is based on data that is three years old. It’s fair to say that a significant amount of improvement in the nutritional value of foods has occurred in those three years. Continue reading →

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Spot the Conflict of Interest? Federal Courts Can’t in Expanding Qui Tam Suits

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 →

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Time for Supreme Court Review of Corporate “Status Crime” Legal Doctrine

Cross-posted by Forbes.com at WLF contributor site

Two weeks ago in Friedman v. Sebelius, a divided U.S. Court of Appeals for the District of Columbia Circuit largely upheld what amounts to the lifetime exclusion of three senior pharmaceutical executives from any further involvement in the industry.  Their offense:  pleding guilty to misdemeanor charges that they were executives of Purdue Frederick Co., at a time when (unbeknownst to them) some company employees engaged in the improper promotion of Purdue Frederick drugs.

Criminal prosecution of corporate executives not shown to have a guilty state of mind (or even to have acted negligently) has long been controversial.  Such prosecutions—under what is known as the “Responsible Corporate Officer” (RCO) doctrine—have twice survived constitutional challenges in the Supreme Court by razor-thin 5-4 margins in 1943 and 1975.  The Supreme Court reasoned that the RCO doctrine allows society to make a strong statement regarding its disapproval of corporate misbehavior without unduly punishing largely blameless senior executives, because penalties in RCO cases “commonly are relatively small, and conviction does no grave danger to the person’s reputation.”  Morisette v. United States.  There is serious reason to question whether the lifetime exclusion largely upheld by the D.C. Circuit fits the Supreme Court’s definition of a “relatively small” penalty.  In light of federal officials’ determination to bring more such prosecutions, the Supreme Court ought to revisit the RCO doctrine and decide whether it is being applied in a manner that comports with due process of law. Continue reading →

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Will Supreme Court Review Flawed 9th Circuit Securities Class Action Ruling?

Guest Commentary

By Amanda McKinzie, a 2012 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

Forcing defendants to settle securities fraud class actions regardless of the claims’ merits will likely be the consequence of the U.S. Court of Appeals for the Ninth Circuit’s decision in Amgen, Inc. v. Connecticut Retirement Plans & Trust Funds. Not only did the decision lower the standard for invoking the fraud-on-the-market presumption, but it also barred defendants during the certification phase from providing evidence negating materiality to rebut the presumption. Two other circuits, the Third and Seventh, have rendered similar opinions, whereas decisions from the First, Second, and Fifth Circuits were contrarily decided. The Supreme Court has been asked to grant review in this case to resolve this circuit split. The Court is expected to announce its decision on Amgen’s request on Monday, June 11. Continue reading →

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Settlement with Oregon AG Reflects States’ Authority Over Prescription Drugs

Cross-posted by Forbes.com at WLF’s contributor page

Pharmaceutical companies’ promotions of their products continues to be an area of intense activity for several federal government agencies.  Such focused federal attention makes it easy for all interested parties, perhaps including drug makers themselves, to overlook the states’ involvement in the area of pharmaceutical promotion.  A settlement last month between the Oregon Department of Justice and Pfizer, which has received very little attention, is a stark reminder that many states are also keenly interested in pharmaceutical promotions.

The March 20, 2012 “Assurance of Voluntary Compliance” document arose out of Oregon’s involvement in a federal investigation of, and eventual settlement with, Pfizer regarding off-label “promotion” and other promotional activities.  The September 2009 $2.3 billion settlement stemmed from Pfizer’s promotion of a number of drugs, including painkiller Bextra and Zyvox, an antibiotic.

An Oregon DOJ press release relates that a two-year investigation indicated that Pfizer was relying on “unreliable and unsubstantiated claims” to promote Zyvox as being more effective than a competing product.  As the state investigation’s leader noted to a reporter, “Our investigation was aggressive, detailed, went places that the federal settlement didn’t and provided additional settlement to the state of Oregon.”   Continue reading →

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Focus of Chevron-Ecuador Litigation Shifts to Court Systems World-Wide

The major players have now all spoken in Chevron’s high-stakes litigation battle against plaintiffs who seek to enforce an $18.2 billion judgment issued by an Ecuador court based on charges that Chevron is responsible for environmental damages in the Ecuadorean Amazon.  The action is now likely to shift to court systems around the world, where plaintiffs have vowed to attempt seizure of Chevron assets to collect on the judgment.  One can only hope that in the interests of preserving the rule of law, those court systems will rebuff enforcement efforts based on overwhelming evidence that the judgment was the product of a massive fraud.

Soon after the Ecuadorean judgment was issued early last year, Chevron took its case before a federal judge in New York.  After an extensive hearing, the judge issued preliminary findings that both the plaintiffs and their lawyers had defrauded and corrupted the trial court in Ecuador.  Among the judge’s findings: Continue reading →

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SEC’s Strict Liability Claw Strikes Again

Oooo, the Claw

Cross-posted by Forbes.com at WLF’s contributor page

In a July 2011 Legal Pulse post, SEC to Join HHS in Effort to Drop the Claw of Strict Liability on Business Managers, we decried the federal punishment of business executives based solely on their status, rather than on whether they actually violated the law. Such status crimes, we argued, do nothing to deter law breaking and by punishing blameless people, cheapen the concept of punishment.

The Securities and Exchange Commission has once again dropped “the claw” on a business manager who broke no law. SEC deployed its authority under § 304 of the Sarbanes-Oxley Act to “claw back” a $450,000 bonus from a medical product company’s former CEO, Brian Moore. Mr. Moore received the bonus during a time when four company finance executives were fraudulently misstating revenues and assets. Mr. Moore played no part in the fraud, which the finance execs actively hid from him and other senior company leaders. He was an executive at the wrong place and the wrong time. As the SEC cavalierly said in a press release about a previous clawback target, Mr. Moore was “captain of the ship and [he]profited.” Continue reading →

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Second Circuit Ruling: All Is Not Lost for Chevron in Ecuador Battle

Cross-posted by Forbes.com at WLF contributor site

Chevron Corp. suffered a setback yesterday in its efforts to prevent enforcement of a $17.2 billion judgment issued by an Ecuadorian court based on charges that Chevron is responsible for environmental damages in the Ecuadorian Amazon. The U.S. Court of Appeals for the Second Circuit in New York issued an opinion explaining its decision to overturn a district court injunction barring enforcement of the judgment outside of Ecuador. But while yesterday’s decision is a setback for Chevron, it still has numerous effective means of resisting enforcement efforts.

Chevron filed suit in federal district court in New York in February 2011, alleging that the Ecuador judgment was the product of a fraud perpetrated by the Ecuadorean plaintiffs and their lawyers and that the Ecuadorian courts are corrupt. Chevron seeks damages from the defendants – who include all of the Ecuadorian plaintiffs; many of their lawyers; and the Amazon Defense Front (ADF), the group slated to collect and administer any funds collected on the Amazon judgment. Chevron charged the defendants with, among other things, fraud and violation of the federal anti-racketeering law. Chevron also included a claim under New York’s Recognition Act. Pursuant to that claim, Chevron sought an injunction barring the defendants from attempting to collect their Ecuadorian judgment. Continue reading →

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Michigan’s Balkanizing Bottle Redemption Law Treads on Commerce Clause

NBC-Universal

Cross-posted by Forbes.com on WLF’s Contributor Page

For those who, like me, spent much of the 1990s watching Thursday night’s “must see TV,” much of what happens in our lives can be related to an episode of “Seinfeld.”  Sometimes, the same can even be said about legal policy disputes. The U.S. Court of Appeals for the Sixth Circuit will soon hear oral arguments on a case that evokes memories of the 1996 two-part Seinfeld episode “The Bottle Deposit.”

In that episode, Newman hatches a scheme along with Kramer to collect bottles and cans and drive them in a truck to Michigan, which offered 10 cents for each returned container, compared to New York’s 5 cents. In states such as Michigan and New York, consumers pay 5 or 10 cents more than retail price for each container, but can get that money back by returning the bottles. In Michigan, the amount of bottle fees which remain unredeemed by consumers at the end of the year “escheats” to the state (i.e. they seize it as “unclaimed” property). The state keeps 75% and gives 25% to beverage retailers.  Continue reading →