District Court Holds Industry-Wide Allegations in Prior Qui Tam Can Trigger Public Disclosure Bar as to Other Defendants

A district court recently took a broad view of the public disclosure bar in holding that where previously unsealed qui tam suits take a scattershot approach to broad industry allegations of misconduct, even companies not named in those suits can successfully invoke the public disclosure bar during later litigation.

In United States ex rel. Ambrosecchia v. Paddock Labs., LLC, No. 12-cv-2164 (E.D. Mo. Sept. 23, 2015), the relator alleged that defendants violated the FCA by making fraudulent misrepresentations to CMS about FDA approval dates for drugs and providing false Drug Efficacy Study Implementation (“DESI”) codes indicting defendants’ products were safe and effective, which the federal healthcare programs then relied upon to pay for drugs ineligible for reimbursement.  The defendants moved to dismiss, arguing that the claims were substantially the same as those in a suit filed prior to the relator’s, and therefore the public disclosure bar applied.  The relator attacked the application of the public disclosure bar both procedurally and substantively.

As a procedural matter, the relator argued that the defendants were required to raise the public disclosure bar first as an affirmative defense, rather than in a motion to dismiss.  The Affordable Care Act amended the public disclosure bar, and courts are currently divided over the procedural implications of these amendments, including whether the public disclosure bar remains a jurisdictional issue (as discussed here).  The majority of courts to have considered the question have ruled that the public disclosure bar is no longer jurisdictional.  Although the district court did not make a ruling on the issue, it rejected the proposition that the public disclosure bar categorically cannot be raised for the first time in a motion to dismiss.  The district court cited a recent Eighth Circuit case declining to rule on whether the public disclosure bar is an affirmative defense and noting that even if it were, “technical failure to comply with Rule 8(c) is not fatal when the defense is raised in the trial court in a manner that does not result in unfair surprise.”

Addressing the relator’s substantive arguments, the court turned to whether the public disclosure bar applied to the relator’s suit.  Two years before the relator filed her original complaint, complaints in another, similar case, United States ex rel. Conrad v. Abbott Laboratories, Inc., had been unsealed.  That suit also involved allegations of drug companies reporting false information to CMS, which resulted in their products incorrectly appearing eligible for reimbursement by the federal healthcare programs.  The court concluded those allegations were “substantially the same” as those alleged by the realtor in Ambrosecchia.  The relator argued, however, that only one of the defendants had been named in an early, and subsequently repeatedly amended, Conrad complaint, and that her complaint included other drugs not mentioned in Conrad.  Even the relator acknowledged that Conrad alleged “industry-wide conduct,” though, and the Ambrosecchia court cited Third and Seventh Circuit cases for the proposition that industry-wide allegations will work as public disclosures “against any defendant who is directly identifiable,” even if not specifically named.  Furthermore, the court ruled that the relator was relying on the same public sources of information as in Conrad, such as the FDA’s Orange Book and CMS data files.  The Ambrosecchia court therefore concluded that the public disclosure bar applied to the relator’s allegations.

Finally, the court considered whether the relator nonetheless qualified as an original source.  Although the relator, a former employee at one of the defendant companies, emphasized her personal experience with the alleged fraudulent conduct, the court viewed her “conclusory allegations” as “merely add[ing] some color” to earlier allegations, while failing materially to add new information.  Furthermore, the relator did not meet the statutory requirement to have voluntarily provided the government with this supposed first-hand information prior to either the public disclosures or the relator’s filing of her own qui tam suit.

The district court thus dismissed the FCA claims with prejudice.  A copy of the court’s opinion can be found here.