Straightforward Information & Insight on Qui Tam Lawsuits

A sales manager at Takeda Pharmaceuticals brought a qui tam action against his employer under the False Claims Act. (United States ex rel. Nathan v. Takeda Pharmaceuticals America Inc., No. 11-2077 (4th Cir. 2013)).

The whistleblower claimed that his employer violated § 3729(a)(1)(A) of the Act by causing false claims to be presented to the government for payment.

However, to trigger liability under the Act, a claim for payment must have actually been submitted to the federal government. In dismissing the whistleblower’s suit, the Fourth Circuit determined that the whistleblower failed to point to any specific reimbursement claims submitted to the Government that related to the company’s alleged off-label marketing of its drugs.

The whistleblower said that Takeda was seeking reimbursement for the costs of prescriptions targeted at off-label use, which are typically not subject to government reimbursement. To prove his claim, the whistleblower utilized statistical evidence and made general allegations that Takeda engaged in a “scheme” to defraud the government. However, the whistleblower failed to point to even one specific reimbursement claim by Takeda.

The court stressed that while the whistleblower’s claim show that a false claim could have been filed, liability under the False Claims Act attaches only to false claims that were actually submitted to the government for reimbursement.

In ruling for Takeda, the court added that general allegations do not identify with particularity any claims that would trigger liability under the Act.

To learn more about whistleblowers and the False Claim Act, visit the Nolan Auerbach website.

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Recent amendments to the False Claims Act corrected legislative deficiencies that fraudfeasors had used and abused to drain billions of dollars from the U.S. Treasury. Perhaps most importantly, the amendments modernized the Act’s liability provisions so as to explicitly and fully protect government dollars even when the federal government relies on others to make payment decisions for the federal Government. The need for such legislation was heightened by Allison Engine Co. v. United States ex rel. Sanders, a 2008 U.S. Supreme Court decision that narrowed the Act to only apply to false claims that were potentially reviewable by the “Government itself” and that were “material to the Government’s decision to pay.”

To effectively erase this limiting court decision from the books, Congress drafted a corrective liability amendment so that it applied to all “claims” pending two days before the Supreme Court released its Allison Engine decision. While the congressional intent was clear, circuit courts have struggled with how to retroactively apply the new liability provision.

The problem stems with the language of the retroactivity provision, found in § 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (“FERA”). FERA states that the new liability provision applies to “all claims under the False Claims Act” that were pending two days prior to Allison Engine. However, while Congress intended “claims” to mean cases, “claims” is specifically defined in the False Claims Act to mean “demands for payment.” Thus, two circuits–the Ninth and Eleventh Circuits–have held that the new liability provision only applies to “demands for payment” that were pending two days before Allison Engine. Conversely, the Second and Seventh Circuits have held that the provision applies to cases pending two days before Allison Engine.

 Recently, the Sixth Circuit broke the circuit tie when it held that the amendment applies to cases pending two days before Allison Engine. Ironically, the Sixth Circuit waded into these unsettled waters in the very case that catalyzed the False Claims Act amendments, United States ex rel. Sanders v. Allison Engine, which had worked its way back up the appellate pipeline. Of particular note, the Sixth Circuit held that the retroactive application of the new liability provision was not violative of the U.S. Constitution’s Ex Post Facto Clause.

Therefore, while Congress passed FERA to unmuddy the False Claims Act waters, the deepening circuit splits around retroactivity have, once again, stirred up confusion. Given the Supreme Court’s recent track record of limiting the reach of the False Claims Act, fraudsters are surely hoping this confusion generates another trip to the Supreme Court.

More information for whistleblowers is located at the Nolan Auerbach website.

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For years, the United States Justice Department has argued that government employees cannot bring qui tam actions under the federal False Claims Act. For support, the Justice Department has maintained that the Act’s public disclosure bar is trigger when the government employees disclose the fraud allegations to themselves, private citizens. Furthermore, because the government employee is required to report fraud as a condition of employment, the employees do not “voluntarily” supply the information to the government, as required by the public disclosure bar’s original source exception.

Courts have almost uniformly rejected this argument. In addition to spotlighting the disconnect with the False Claims Act’s statutory language, the courts have stressed the important role government employee-relators play in ferreting out fraud, particularly when a governmental agency is captured by a corrupt industry.

Recently, the Third Circuit joined the chorus, when it held that government employees can file qui tam actions. Even more noteworthy, the court held that government investigators can file actions based on information they uncover during the course of their employment.

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.

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The False Claims Act qui tam provisions encourage and incentivize individuals to report fraudulent business practices that drain funds from the federal government. Oftentimes, current and former employees of dishonest companies are in the best position to expose such corporate behavior. However, companies regularly seek to silence would-be whistleblowers by requiring departing employees to sign nondisclosure agreements and restrictive severance agreements that ostensibly derail potential qui tam actions. Fortunately, many courts are now invalidating these agreements when they are used to gag qui tam relators.

For example, in an ongoing qui tam case in California, the district court refused to strike evidence, which the relators had copied and moved from their hard drives after quitting their employment with the defendant. While recognizing that such behavior arguably violated their signed non-disclosure agreements, the court stressed that the relators took this action only for the purpose of providing the exhibits to the government and corroborating their claims of alleged fraud on the part of their former employer. The court stressed that there is a “strong public policy in favor of protecting whistleblowers who report fraud against the government. . . . Obviously, the strong public policy would be thwarted if [Defendants] could silence whistleblowers and compel them to be complicit in potentially fraudulent conduct.”

This issue has even percolated up to a federal court of appeals, where the Ninth Circuit stated that public policy merits finding such individuals to be exempt from liability for violation of their nondisclosure agreements. Similarly, an Illinois district court held that a relator was exempt from liability for breach of a confidentiality agreement when he disclosed documents to the government that showed that his employer had engaged in fraudulent healthcare billing practices.

This recent trend in the False Claims Act case law signals that non-disclosure agreements and restrictive severance agreements may not preclude qui tam actions. However, with that being said, other courts have not yet joined this growing chorus. Therefore, potential whistleblowers should seek experienced counsel before throwing caution into the wind by downloading documents from their current or former employers’ servers.

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.

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The False Claims Act includes a so-called “first-to-file bar,” 31 U.S.C. 3730(b)(5), which bars subsequent whistleblowers from recovering a reward. They are barred if their complaint is sufficiently similar to prior complaints. However, because the federal rules require whistleblowers to sufficiently detail the alleged fraud, questions have emerged over whether a deficiently pled complaint can still derail a later-filed complaint. There is a widening split in the courts on this issue.

For years, the qui tam bar and the U.S. Department of Justice have advocated the position embraced by the Sixth Circuit Court of Appeals, in United States ex rel. Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir. 2005). In Walburn, the Court imposed a heightened pleading requirement on complaints for first-to-file purposes. Such an interpretation strikes the appropriate balance between the first-to-file rule’s twin purposes—to encourage whistleblowers to come forward with allegations of fraud and to prevent copycat actions that do not provide additional material information to the Government. Requiring a complaint to meet the Rule 9(b) standards would ensure the complaint provides the Government sufficient information to pursue an investigation, as well as prevent an overly-broad complaint from barring a more detailed, later-filed complaint.

Recently, however, some courts have gone off track and adopted a reading of the first-to-file bar that undermines the government’s enforcement of the False Claims Act. For example, a few months ago, the D.C. Circuit Court of Appeals, affirming a lower court decision, held that a later-filed qui tam action can be barred even when the first-filed suit failed to sufficiently plead the details of the fraud, as required under Federal Rule of Civil Procedure 9(b). All that matter for the D.C. Circuit was that the earlier-filed barebones suit was still “pending” when the later-filed suit was filed.

The District Court of Massachusetts recently echoed the D.C. Circuit, when it held that an earlier-filed qui tam suit could derail a later-filed qui tam suit, even when the first suit failed to clear Rule 9(b). United States ex rel. Heineman-Guta v. Guidant, Civ. No. 09-11927 (D. Mass. July 5, 2012). According to the court, “The purpose of a qui tam action is to provide the government with sufficient notice that it is the potential victim of a fraud worthy of investigation.”

While this is certainly a worthy goal, it conflicts with the statutory language, which dictates that only a “pending action” triggers the first-to-file bar. Thus, the Sixth Circuit correctly noted that “in order to preclude later-filed qui tam actions, the first-filed qui tam complaint must not itself be jurisdictionally or otherwise barred.” Walburn, 431 F.3d at 972. In short, a first-filed action is not really an “action” unless it satisfies the requisite pleading and jurisdictional requirements.

Moreover, by embracing this wayward reading of the Act, such courts are injecting additional uncertainty into the qui tam practice, discouraging well-pled and well informed qui tam actions. Under either reading of the first-to-file-bar, the import is the same for qui tam practitioners’: expeditious preparation of cases in one key to success.

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.

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Struggling to decipher the False Claims Act’s public disclosure bar, a 2008 district court decision aptly summed up the prevailing sentiment: “The Court sympathizes with anyone litigating under the False Claims Act. Perhaps Congress will elect at some point to give legislative attention to the FCA to resolve some of the still unresolved questions about the Act’s application.” United States ex rel. Montgomery v. St. Edward Mercy Medical Center, 2008 WL 110858 (E.D. Ark. 2008). In 2009 Congress amended the FCA and removed much of the confusion surrounding the much-litigated public disclosure bar.

With no explicit retroactive provision in the 2009 amendments, courts are still wrestling with the old public disclosure bar language.  Undoubtedly, courts have dissected every single word in the old public disclosure bar. In fact, there are over 300+ published and unpublished rulings in well over 150 separate cases concerning the meaning of the “public disclosure” bar. A large percentage of these decisions have marinated on the “based upon” language found in provision.

With the exception of the Fourth Circuit, all of the courts have interpreted “based upon” to mean “substantially similar.” In other words, a qui tam action is “based upon” a public disclosure when the allegations are “substantially similar.” Of particular importance, this interpretation was cemented into the new public disclosure bar when Congress replaced “based upon” with “substantially similar.”

Recently, the Seventh Circuit clarified the “substantially similar” language interpreted into the old public disclosure bar and, by extension, codified into the new public disclosure bar. Specifically, in United States ex rel. Goldberg v. Rush University Medical Center, No. 10-3785 (7th Cir. May 21, 2012), the Court stressed that qui tam allegations are not “substantially similar” to publicly disclosed allegations unless they both disclose a particular fraud by particular defendant.  The Court emphasized that “a very high level of generality is appropriate, because then disclosure of some frauds could end up blocking private challenges to many different kinds of frauds.” Id. at 5.

The Goldberg decision properly encourages insiders to step forward with detailed information. Hopefully the other circuits will embrace this commonsense reading.

For more information about qui tam law and healthcare fraud, contact Nolan & Auerbach, P.A.

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The highly influential D.C. Circuit Court of Appeals recently held that courts must hold fairness hearings when a relator challenges the adequacy of a False Claims Act settlement. See United States ex rel. Schwizer v. Océ N.V., No. 11-7030 (D.C. Cir. April 20, 2012). The Court simply applied the explicit statutory language of the Act:

The settlement agreement here falls squarely within § 3730(c)(2)(B): the government reached an agreement with the defendant to “settle the action . . . notwithstanding the objections of the person initiating the action.” In that circumstance, the statute required the district court to “determine, after a hearing, [whether] the proposed settlement [was] fair, adequate, and reasonable under all the circumstances.” 31 U.S.C. § 3730(c)(2)(B)

Id. at 10.

In turn, the D.C. Circuit followed the mandates of Congress and determined that it could not simply tune out the voiced concerns of the relator when it comes to adequacy of a False Claims Act settlement.

As for the constitutional concerns, the D.C. Circuit noted the courts regularly play a role in scrutinizing settlement agreements. For example, in the criminal context, under Federal Rule of Criminal Procedure 48(a), the government can only “dismiss an indictment, information, or complaint” “with leave of the court.” Moreover, the Court noted that in this particular case, the government invoked the court’s supervisory powers by urging the district court to “retain jurisdiction to . . . enforce the terms of the settlement agreement by and between the parties.”

More information for healthcare fraud whistleblowers is located at the Nolan & Auerbach, P.A. website.

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