Recently, a district court in the Southern District of Florida dismissed with prejudice a qui tam complaint premised on the alleged sale of products adulterated and misbranded under the Food Drug and Cosmetic Act (“FDCA”). United States ex rel. Crocano v. Trividia Health Inc., No. 22-CV-60160-RAR (S.D. Fla. July 18, 2022). In so doing, the court declined to embrace the arguments asserted in a Statement of Interest filed by DOJ and reiterated that “the False Claims Act is not the proper avenue for holding [companies] accountable” for violations of the FDCA, because “the FDA’s use of its regulatory enforcement powers may be exercised fully to ensure further compliance.”
As discussed here, DOJ declined to intervene, but filed a Statement of Interest last month arguing that “deficiencies in [an] affected product resulting from FDCA violations may, in certain circumstances, be material to the government’s decision whether to pay for the affected product, and thus relevant in an FCA case.” In particular, DOJ encouraged the court to conclude that where fraudulent statements or omissions would have caused FDA to recall a product, claims for that product are “false” under the FCA. This so-called “fraud-on-the-FDA” theory has been received with mixed success in courts, as discussed here and here.
In the order granting the defendant’s motion to dismiss, the court agreed that “a regulatory violation can rise to the level of creating liability” under the FCA. However, the court explained that regulatory violations under the FDCA cannot create FCA liability where the “connection to claims for payment by the government is tenuous at best.” And here, the relator’s argument “falls apart” because even if the defendant’s products were misbranded, the court explained that the relator could not “clos[e] the circuit between misbranding and claims for reimbursement from the government.” To support this conclusion, the court relied heavily on the Fourth Circuit’s reasoning in Rostholder (discussed here and here). The district court concluded that as in Rostholder, the relator in this case failed adequately to plead falsity because she could not identify a connection between adverse event reporting rules and eligibility for reimbursement; there was no express false certification submitted by the defendant because “compliance with FDA regulations is not required for payment by Medicare and Medicaid”; and the relator did not identify “any false statement or other fraudulent misrepresentation that Defendant made to the government.”
The district court also refused to allow the relator to proceed under a “worthless services” theory of FCA liability. In its Statement of Interest, DOJ encouraged the court to conclude that “manufacturing deficiencies violating the FDCA or FDA regulations could materially affect the safety, efficacy, or performance of a device such that the product is essentially ‘worthless’ and not eligible for payment by the government.” But the district court pointed out that neither the Eleventh Circuit, nor any other Court of Appeals, had expanded the “worthless services” theory “into the realm of ‘worthless products,’” and the court declined to do so here.
As highlighted by arguments made in this case under the public disclosure bar, the defendant’s alleged misconduct was publicly disclosed and well known to FDA. FDA’s knowledge seemingly fueled the district court’s significant reservations over allowing relators and DOJ to usurp FDA’s enforcement powers through the FCA. This decision represents an important development in the evolving landscape around the intersection between FDCA violations and the False Claims Act.
A copy of the court’s opinion is available here.
This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.