First Circuit Holds That First-to-File Rule Bars Qui Tam Complaints Based on Same “Essential Facts” as Prior Complaint, Even if Prior Complaint Offers Significantly Less Detail

Posted by Kristin Graham Koehler and Brian P. Morrissey

Earlier this week, the First Circuit held that the FCA’s first-to-file provision barred a qui tam action against a pharmaceutical manufacturer that was premised on the same “essential facts” as an earlier-filed qui tam complaint, even though the second complaint provided “far more detail[ed]” allegations than the first. United States ex rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare Corp., Nos. 13-1732, 13-2083, 2014 WL 6737102, *6 (1st Cir. Dec. 1, 2014). This decision, paired with the First Circuit’s recent ruling in United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111, 117 (1st Cir. 2014)—which we previously have discussed—emphasizes that the First Circuit will rigorously enforce the FCA’s first-to-file bar to preclude qui tam complaints that allege the same fraudulent scheme as a previously-filed action, even if the second complaint contains different, and more detailed, supporting allegations.

The case has a long and complex history, aspects of which we have covered before. In brief, Linnette Sun and Greg Hamilton, a former employee and a former customer of Baxter Healthcare, respectively, filed a qui tam suit against the Company, alleging that it had fraudulently inflated the prices of its drugs, including the anti-hemophilic drugs Advate and Recombinate, and secured higher-than-deserved Medicare and Medicaid reimbursements as a result.

Years earlier, a pharmacy, Ven-A-Care of the Florida Keys, Inc., had filed a similar qui tam complaint against a number of pharmaceutical manufacturers, including Baxter, alleging that all of them had fraudulently inflated their drug prices in order to obtain higher reimbursements. Baxter and Ven-A-Care ultimately settled that case, with the Government’s consent.

After the Ven-A-Care settlement, Baxter moved for summary judgment in Sun and Hamilton’s case, arguing that the settlement released Baxter from Sun and Hamilton’s similar claims. In response, Sun and Hamilton argued—and the District Court agreed—that the Ven-A-Care settlement could not release their claims until they were granted a fairness hearing, pursuant to 31 U.S.C. § 3730(c)(2)(B), to test the adequacy of that settlement as applied to their allegations. In a novel ruling, the District Court allowed Sun and Hamilton to file a Rule 60(b) motion to reopen the Ven-A-Care judgment for the purpose of conducting this hearing.

In the reopening proceedings, Baxter argued that the FCA’s first-to-file rule, 31 U.S.C. 3730(b)(5), barred Sun and Hamilton’s complaint because it alleged the same “essential facts” as Ven-A-Care’s prior complaint. Engaging in a side-by-side comparison of the two complaints, the District Court agreed, and denied Sun and Hamilton’s Rule 60(b) motion on this ground. The First Circuit affirmed.

The First Circuit readily acknowledged that Sun and Hamilton’s complaint “included many details about the underlying scheme that the first relator (Ven-A-Care) did not supply.” 2014 WL 673102, *8. Indeed, Sun and Hamilton’s later-filed complaint “offer[ed] far more detail than Ven-A-Care about particular actors within Baxter and the role those actors played” in the alleged fraud, and “showed greater familiarity with how Baxter pulled off the supposed fraud,” which was attributable to the “inside knowledge” that Sun and Hamilton possessed but Ven-A-Care lacked. Id. at *6.

Despite Sun and Hamilton’s use of “comparatively greater detail” than Ven-A-Care in describing the alleged fraud, the First Circuit held that this is “not what matters for the first-to-file rule.” Id. at *8. Repeatedly invoking its recent decision in Wilson, the Court declared that “[s]o long as the first complaint sets forth the ‘essential facts’ of the fraud alleged in the second complaint, it does all it needs to do under the first-to-file rule.” Id. at *6 (quoting Wilson, 750 F.3d at 117).

To satisfy this “essential facts” test, the First Circuit explained that the first complaint need not disclose every detail of the alleged fraud. Rather, it must only include information that “‘provide[s] . . . the government sufficient notice to initiate an investigation into [the] allegedly fraudulent practices.'” Id. at *4 (quoting United States ex rel. Heineman–Guta v. Guidant Corp., 718 F.3d 28, 36–37 (1st Cir.2013)). Importantly, the First Circuit held that a first-filed qui tam complaint can satisfy this “essential facts” test even if it does “not contain the kind of detailed and particularized allegations of fraudulent conduct . . . required to fulfill the heightened pleading standard for fraud cases set forth in Federal Rule of Civil Procedure 9(b).” Id. at *6.

Applying this standard, the First Circuit concluded that Ven-A-Care’s complaint provided the Government with sufficient notice of the “essential facts” alleged in Sun and Hamilton’s subsequent complaint to bar Sun and Hamilton’s later-filed action. The Ven-A-Care complaint named Baxter as a defendant, specified a date-range in which Baxter’s alleged misconduct occurred, and a “separate section” of the Complaint “devoted solely to Baxter” (rather than the other named defendants) specifically alleged that Baxter “knowingly made false representations about the price and costs of its drugs” and submitted “false records” to Medicare and Medicaid to further this scheme. Id. at *6, *9. In addition, that section of the complaint specifically referenced Recombinate as one of the drugs for which Baxter inflated its prices, and ‘disclosed a pricing spread for Recombinate'” to support this allegation. Id. at *6.

The First Circuit held that these allegations by Ven-A-Care were sufficient to put the Government on notice of the alleged fraud, even though Sun and Hamilton’s subsequent complaint offered considerably greater detail.

Paired with Wilson, this decision strongly demonstrates that the First Circuit will broadly enforce the first-to-file bar against new FCA actions premised on alleged frauds that already have been adequately disclosed to the Government, even in cases in which the new complaint provides significantly more particularized allegations than the first complaint that was filed.