In an interesting opinion interpreting the FCA’s alternate remedy provision, the D.C. Circuit recently held that a relator who filed a False Claims Act (FCA) case that was ultimately settled was not entitled to a share of the monetary relief that the government obtained through the settlement of a separate Food, Drug, and Cosmetic Act (FDCA) enforcement action against the defendant pharmaceutical manufacturer despite the fact that the enforcement action was based on similar underlying facts. The court explained that whether a separate government action is an “alternative remedy” in which a relator may share turns not on the commonality of facts between the government’s action and the FCA action, but on the type of claim brought and whether that claim could have been brought by the relator under the FCA.
The relator in this case, Elizabeth Kennedy, filed a False Claims Act case alleging that a pharmaceutical manufacturer caused the submission of false claims when it marketed a diabetes drug for off-label pre-diabetes uses and instructed its sales representatives to minimize the warning from the Food and Drug Administration (FDA) that the drug created an unknown risk of contracting a specific type of cancer. The United States intervened in the case and, in its intervention notice, stated that the United States and the parties had reached a $46.5 million settlement. The government specified that it was intervening only “as to the Covered Conduct as that term is defined in Paragraph K of the Settlement Agreement,” which included the alleged off-label promotion of the drug for pre-diabetes and training of sales representatives to minimize the FDA’s warning.
Days after this settlement was reached, the United States filed a separate complaint against the manufacturer in the same court, alleging that it had misbranded the same drug and introduced it into interstate commerce in violation of the Food, Drug, and Cosmetic Act (FDCA). At the same time, the United States disclosed that the manufacturer had agreed to pay the government $12.15 million to settle the FDCA claims. Kennedy was not involved in the FDCA lawsuit or settlement, but subsequently filed a motion alleging that she was entitled to a share of the FDCA settlement under the “alternate remedy” provision of the False Claims Act, 31 U.S.C. § 3730(c)(5). The district court denied Kennedy’s request, following similar decisions of the Third, Sixth, and Ninth Circuits that a relator cannot recover a share of a subsequent settlement where, as here, the government intervened in the relator’s FCA lawsuit.
The D.C. Circuit affirmed the district court’s decision on other grounds. The D.C. Circuit held that, regardless of the government’s decision to intervene in Kennedy’s FCA litigation, the FDCA settlement was not an “alternate remedy” under the False Claims Act because it did not involve the “type of claim” that could have been brought under the FCA. The court’s analysis hinged on the statutory text of the alternative remedy provision of the False Claims Act, which states:
Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternative remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.
31 U.S.C. § 3730(c)(5).
The court held that the statute’s use of the singular “claim” limits the alternative remedy to “only the one [claim] that otherwise could be prosecuted through a qui tam suit under subsection 3730(b) of the False Claims Act.” In other words, the alternative remedy must be for the “same type of false or fraudulent claim” that the government could have pursued through a qui tam action. Additionally, the alternative remedy must be for the same type of false or fraudulent claim that a relator could have “initiat[ed]” and “continued” under the FCA. Here, the court held that because the government could not have pursued its FDCA claim of introducing a misbranded drug into interstate commerce under the FCA, and because the relator could not have brought such a claim to begin with, the FDCA settlement was not an alternative remedy in which Kennedy was entitled to share. The court found additional support for this conclusion in the fact that a misbranding claim seeks to protect the public from being misled, while an FCA claim seeks to protect the government and recover any money or property withheld from the government through false claims.
In conclusion, the D.C. Circuit held that “it is the nature of the legal claim—the fraudulent or false deprivation of a monetary or property interest—and not the commonality of facts that determines a relator’s right to share in an alternative recovery.”
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