Ninth Circuit Validates Value of Government-Action Bar Against Parasitic Qui Tam Suits

In a matter of first impression, the Ninth Circuit recently interpreted the “government-action bar,” one of the defenses to a parasitic False Claims Act (“FCA”) action, to offer meaningful protection to defendants who resolve one action from having to defend a whistleblower’s effort to capitalize on claims not previously litigated. See United States ex rel. Bennett v. Biotronik, Inc., 876 F.3d 1011 (9th Cir. 2017).  The government-action bar prohibits a relator from bringing a qui tam suit “based upon allegations or transactions which are the subject of a civil suit . . . in which the Government is already a party.”  31 U.S.C. § 3730(e)(3).  Until recently, the temporal and substantive reach of the government-action bar was unclear because of two unanswered questions:  First, no court had made clear whether the government-action bar applied to suits that had been dismissed or otherwise resolved. Second, it was unclear whether there was a bar to a whistleblower action where the government intervened to settle some, but not all, of the “allegations and transactions” asserted in a complaint, and the subsequent suit asserted claims based on the uncovered conduct that was dismissed without prejudice as part of the earlier settlement.  In a two-to-one decision, the Ninth Circuit provided settling defendants with some better assurances that when they settle an intervened qui tam suit with the government, they will not later be subject to a parasitic money grab by a different relator based upon the same allegations and transactions.  

On December 31, 2009, relator Brian Sant filed a qui tam suit against a medical device supplier, Biotronik, alleging that it committed government fraud by promoting unnecessary medical devices, bribing physicians, and using sham clinical studies as a means to provide kickbacks to physicians.  The government investigated Sant’s claims for four years before intervening on May 14, 2014, settling the claims based on the promotion of unnecessary medical devices and bribery, which were deemed “covered conduct” for purposes of the settlement.  Notably, the “covered conduct” did not include the alleged sham clinical studies, and these claims were dismissed without prejudice.

Three months after Sant filed his complaint, relator Max Bennett filed a separate qui tam suit against Biotronik that “substantially mirrored the complaint” filed by Sant.  The government did not intervene in Bennett’s suit, and on April 30, 2014, Bennett voluntarily dismissed his case without prejudice, presumably because it was barred by the first-to-file rule and possibly the public disclosure bar.  Subsequently, on October 14, 2014, Bennett filed a new qui tam suit based on the alleged sham clinical studies, which were “un-covered conduct” in the Sant settlement.  Biotronik moved to dismiss the complaint on several grounds, including the government-action bar.  The District Court granted the motion on that ground, and Bennett appealed.

On appeal, Bennett argued that the District Court erred in dismissing his complaint because the government-action bar is written in the present tense and therefore only applies to pending actions in which the government “is” a party.  The Ninth Circuit disagreed, ruling that the case does not “hinge on what the definition of the word ‘is’ is.”  Rather, the case hinges on the definition of the entire statutory phrase “is already a party.”  The Court reasoned that “[o]ur legal system instructs that a party remains a party even after litigation ends.”  The Court concluded that “Bennett’s interpretation would be the radical one, as a party maintains rights in civil actions which actions can no longer be described as ‘pending’ or ‘ongoing.’”  For instance, a party to a concluded action may move for relief under a final judgment pursuant to Rule 60 of the Federal Rules of Civil Procedure.  Moreover, when Congress desires a statutory bar to apply only to “pending” suits, it expressly uses the word “pending,” as it did in the “first-to-file bar.”   Congress’s decision to omit the word “pending” from the government-action bar suggests that it was not meant to be so limited.  “As a result . . . the Government ‘is a party’ to lawsuits which have concluded.”

Bennett also argued that the sham clinical studies allegations are not barred because the government was not a “party” to claims it did not settle and instead dismissed without prejudice.  The Court rejected this argument as well, explaining that “[t]here is nothing in the FCA which indicates that, upon joining and settling a lawsuit, the government becomes a party to the suit with respect only to those claims which it settles, but is not a party to the suit with respect to those claims which it does not settle.”  “[T]he government becomes a ‘party’ to the suit as a whole when it intervenes,” and as a result the government-action bar applies to all of the claims asserted therein.

While the government filed an amicus brief arguing that legitimate whistleblowers who are the original source of information should not be precluded from bringing qui tam matters addressing claims otherwise unaddressed by the government, the Ninth Circuit made clear that the relevant issue is whether the government has been put on notice of potential claims, not whether someone who has information about potential wrongdoing will be deprived of an opportunity to capitalize on that knowledge.  The Court recognized that the government action bar fills the gap where a first filed case is no longer pending and information may not have been publicly disclosed (and discounted the impact of both the public disclosure bar and the government action bar being equally available defenses).

Judge Siler of the Sixth Circuit, sitting by designation, dissented, finding that the government-action bar is phrased in the present tense. Judge Siler also agreed with the government that “there is no reason to read the government-action bar to preclude a relator who is an original source, not parasitic, from proceeding on claims that were not resolved before the government was dismissed as a party.”

Given the dissent and the government’s position, courts in the future may weigh in differently.   But for now, defendants who settle qui tam cases may take some comfort that even if the government is unwilling to release certain alleged conduct, the risk will only remain as to the government and not that some other potential whistleblower will try to cash in on the gap left by a previous settlement.

A copy of the court’s opinion can be found here.