Federal District Court Holds That Former Employee Qualifies As “Original Source” Of Allegations Regarding Company Conduct That Occurred After His Departure

Posted by Kristin Graham Koehler and Brian Morrissey

A federal district court in Pennsylvania recently held that a former employee of Novartis Pharmaceutical Corporation was an original source of allegations regarding company conduct that occurred after his termination, and that he could overcome the FCA’s public disclosure bar on that ground. See United States ex rel. Galmines v. Novartis Pharmaceuticals Corp., No. 06-3213, 2015 WL 851837 (E.D. Pa. Feb. 27, 2015).

Donald Galmines, a Novartis senior sales consultant, filed a qui tam complaint two months after leaving the company in 2006. Galmines alleged that Novartis violated the FCA by promoting the eczema treatment Elidel for various off-label uses. The complaint remained under seal for over four years. Ultimately, the United States did not intervene, and Galmines proceeded with the litigation.

A dispute between the parties emerged as to whether Galmines could obtain discovery regarding conduct that occurred after he filed his complaint. The district court ruled that, to obtain such discovery, Galmines would be required to specifically allege that the fraudulent scheme continued past the date his complaint was filed.

Galmines sought leave to file a fourth amended complaint to add these new allegations. Novartis opposed the amendments on various grounds, including that the new allegations were prohibited by the public disclosure bar. By that time, the district court already had decided that, although Galmines’ allegations regarding conduct that occurred during his employment were based on public disclosures, Galmines overcame the public disclosure bar because he qualified as an “original source” of those allegations. See 31 U.S.C. § 3730(e)(4)(A). Galmines’ motion to amend his complaint required the court to decide whether Galmines could be an original source of allegations regarding conduct that occurred after his departure, and without his independent knowledge. Finding “little law on point” and acknowledging that it was “a close question,” the Court held that Galmines was an original source of the new allegations because they were based on Galmines’ assertion that the same “underlying scheme” he observed during his employment “continu[ed]” after he left. 2015 WL 851837, *3.

Rejecting Novartis’s counterarguments, the district court refused to “read a strict time limitation into the original source exception, such that a relator’s status as an original source begins and ends strictly when her direct and independent knowledge begins and ends.” Id. The district court acknowledged that Third Circuit precedent requires a qui tam relator to have “direct and independent knowledge” of the “most critical elements” of an alleged fraud. United States ex rel. PBT v. Housing Auth., 186 F.3d 376, 388–89 (3d Cir. 1999). But the court ruled that “[t]he precise start and end dates of a fraudulent scheme are not ‘critical elements'” of an FCA claim. 2015 WL 851837, at *3 (emphasis added). Rather, in the court’s view, the “precise duration of a fraudulent scheme goes not to liability but to damages—and not even to the existence of damages, but to the quantum.” Id. The court reasoned further that “[b]arring the relator . . . from bringing a claim for the entire fraudulent scheme would not comport with common sense, the general principles of law, or the . . . False Claims Act,” including the first-to-file requirement, which allows only the first relator to bring a qui tam suit regarding the scheme.

The district court’s ruling conflicts with the District of Massachusetts’ decision in United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., No. 03-12189, 2010 WL 3810858 (D. Mass. Sept. 27, 2010), which held that a relator could only serve as an original source for the period of time he was employed by the defendant. Id. at *2–3. The court in Galmines recognized this conflict, but found “the line drawn in Duxbury . . . untenable.” 2015 WL 851837, at *5. According to Galmines, once a relator qualifies as an “original source for a fraudulent scheme,” he or she should be permitted to “pursue the full extent of that fraudulent scheme,” even those portions of the scheme that occurred after his or her direct and independent knowledge ceased. Id.

As the district court’s opinion notes (and as we have discussed previously), the law on this issue is still developing. However, if Galmines’ approach prevails over Duxbury, it could substantially impact qui tam defendants in litigation with former employees. By conferring “original source” status on relators for allegations that continue past their employment, Galmines entitles relators to significantly more discovery—and, potentially, greater damages—than the Duxbury approach would allow.