Posted by Nicole Ryan and Christopher Rendall-Jackson
On March 9, 2015, in United States ex rel. Bumbury v. Med-Care Diabetic & Medical Supplies, Inc., a court in the Southern District of Florida disqualified the relators’ counsel for having a conflict of interest in violation of the Florida Rules of Professional Conduct.
In 2009, one of the defendants, Med-Care Diabetic & Medical Supplies, Inc. (“Med-Care”), had engaged the law firm Broad and Cassel (“B&C”) to provide legal advice concerning compliance with Medicare regulations. At that time, Parker Eastin was an associate at B&C, and he was involved in at least two matters regarding B&C’s representation of Med-Care. On October 29, 2010, Mr. Eastin left B&C and formed Nicholson & Eastin, LLP (“N&E”), with another former B&C associate, Robert Nicholson. In December 2010, one of the relators decided to retain Mr. Nicholson to file the instant qui tam action. At some point before the initial complaint was filed, Mr. Eastin told Mr. Nicholson that he did not believe that he would have a conflict of interest in representing the relators in the qui tam action, and he remained fully and completely involved in all aspects of the matter.
On January 16, 2015, the defendants filed a motion to disqualify Mr. Eastin and N&E from representing the relators after Med-Care’s attorney recognized Mr. Eastin’s name on historical billing records. On March 9, 2015, after two evidentiary hearings and supplemental briefing by the parties, Magistrate Judge Hopkins granted the motion to disqualify Mr. Eastin and N&E, holding that they had a conflict of interest under federal common law and that this conflict of interest violated the standards of the Florida Rules of Professional Conduct. Regarding Mr. Eastin, the court held that Mr. Eastin’s former representation of Med-Care and his current representation of the relators are substantially related because Mr. Eastin could be required to attack the regulatory advice that he had admitted previously providing to Med-Care and because Mr. Eastin was at B&C when B&C had advised Med-Care on other matters that are relevant to the allegations of illegal conduct made against Med-Care in the qui tam action. As a result, the court held that Mr. Eastin had been pursuing the instant matter under an actual conflict of interest in violation of Florida Rule of Professional Conduct 4-1.9(a). Regarding N&E, the court held not only that there is an irrebuttable presumption that confidential information had been disclosed to Mr. Eastin because the matters are substantially related, but also that Mr. Eastin was actually privy to confidential information because he had access to Med-Care’s files and had participated in two conference calls with Med-Care while working at B&C. As a result, the court held that N&E had been representing the relators in violation of Florida Rule of Professional Conduct 4-1.10(b).
Magistrate Judge Hopkins further held that, although a conflict of interest does not necessarily require the “drastic remedy” of disqualification, Mr. Eastin and N&E must be disqualified in this case. Regarding Mr. Eastin, the court found that it was necessary to disqualify Mr. Eastin in light of the following factors: that, within two months of advising Med-Care on compliance with Medicare regulations, Mr. Eastin began representing the relators regarding claims to sue Med-Care for failing to comply with some of the same Medicare regulations; that Mr. Eastin began representing the relators without performing any meaningful conflicts analysis; that it is “no small factor” that Mr. Eastin’s “ethical violation only serves to perpetuate the perception that lawyers elevate their self-interests above those of their clients”; that prejudice to the defendants can be presumed because the matters are substantially related; and that any prejudice to the relators and any tactical advantage gained by the defendants will be temporary. Regarding N&E, the court held that it was necessary to disqualify N&E because the firm had represented Med-Care in spite of Mr. Eastin’s conflict of interest and without performing any meaningful conflicts check.
A copy of the opinion can be found here. The relators and the defendants have submitted objections to portions of the Magistrate Judge’s rulings, and we will continue to monitor the case for any significant developments.
Posted by Nicole Ryan and Sarah Hemmendinger
In a December 2, 2014 opinion in United States ex rel. Doe v. Staples, Inc., No. 13-7071 (D.C. Cir. Dec. 2, 2014), the D.C. Circuit affirmed the dismissal of a relator’s FCA action under the public disclosure bar because the facts underlying the claim were already in the public domain through an online database and administrative reports.
This qui tam action arose out of the alleged importation of Chinese-made pencils to the United States. An anonymous relator, “a self-styled pencil-industry insider,” alleged that Staples, OfficeMax, Target, and Industries for the Blind made false statements to U.S. Customs in order to avoid paying antidumping duties imposed on Chinese-made pencils. The relator claimed that the defendants knowingly purchased Chinese-made pencils yet falsely declared to Customs that the pencils originated in countries other than China.
The government declined to intervene, and the defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The district court concluded that the relator’s FCA claim was based on publicly disclosed information and that he failed to show that he qualified as an original source of the information. Thus, it dismissed the case for lack of subject matter jurisdiction. The D.C. Circuit affirmed.
The court began by reviewing the principles it outlined in United States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994). The court reiterated that where both elements of a fraudulent transaction – “the misrepresentation and the truth of the matter” – are already in the public domain, the public disclosure bar applies. This is the case even if a relator sets forth “additional evidence incriminating the defendant.” Here, both parties agreed that the Customs declarations were the alleged misrepresentations and that these statements were publicly disclosed in an online database. The appeal therefore turned on whether “the truth of the matter” – the question of whether the pencils “actually were made in China” – was also in the public domain. The D.C. Circuit agreed with the defendants on this point, finding that public reports by the International Trade Commission (“ITC”), which constituted administrative reports under the FCA, had already described many of the distinguishing physical characteristics of Chinese pencils (such as off-center leads and inferior finishing), which “form[ed] the basis of Relator’s charge that the pencils were made in China.”
The court rejected the relator’s argument that the public disclosure bar did not apply because his complaint identified distinctive features of Chinese-made pencils in addition to those listed by the ITC. The court explained that the information on the characteristics of Chinese-made pencils already in the public sphere was sufficient to “set government investigators on the trail of fraud.” Likewise, the court rejected the relator’s argument that his allegations concerning the pencils’ telltale characteristics were intended to show only the element of knowledge on the part of the defendants, not that the pencils were in fact made in China. The court held that if these publicly-known features of Chinese pencils were sufficient to put the defendants on notice of the pencils’ origins, they were also “sufficient to enable the government adequately to investigate the case and to make a decision whether to prosecute.” The court also emphasized that the ITC reports stated that U.S. pencil makers had identified three of the four defendants – Staples, Target, and OfficeMax – as “possible” importers of Chinese pencils, concluding that this information, combined with the defendants’ declarations that their pencils were made only in countries other than China, likewise could “have alerted law-enforcement authorities to the likelihood of wrongdoing.”
Therefore, the court held, the relator’s suit was “based upon” publicly disclosed “allegations or transactions” within the meaning of the FCA’s public disclosure bar. The court concluded that it did not matter whether the ITC had conducted a physical inspection of the defendants’ pencils: the relator’s allegations stemmed from a conclusion about the pencils’ origins “based on their physical characteristics,” which were already publicly described through the ITC reports.
Finally, the court held that the relator had waived the argument that he qualified as an original source of the information because he did not raise the argument below.
A copy of the court’s decision can be found here.
Posted by Nicole M. Ryan and Ryan G. Fant
In United States ex. rel. Lisitza v. Par Pharmaceutical Cos., Inc., No. 06 C 06131 (N.D. Ill. July 31, 2014), a federal district court in Illinois rejected a drug manufacturer’s argument that the doctrine of res judicata barred an FCA suit based on many of the same underlying false claims involved in a previously-settled FCA suit. The Court held that res judicata did not apply because the fraudulent schemes alleged in each case were different and there were elements of damage available in the second suit that were not resolved by the first suit.
In 2005, Ven-A-Care, a Florida-based pharmacy, in its capacity as relator, sued Par Pharmaceutical Companies, Inc. (“Par”) and other generic drug manufactures under the FCA, with the case ultimately becoming consolidated as part of a much larger multidistrict litigation, In Re Ven-A-Care Cases, No. 06 CV 11337 (D. Mass.). The suit alleged that Par had manipulated and falsely reported pricing benchmarks so as to cause Medicaid to set higher reimbursement amounts for its drugs than would have been set if Par had published accurate benchmarks. Par ultimately settled these claims in 2011 for $154 million, and the case against it was dismissed.
In 2006, another relator, Bernard Lisitza, filed an FCA suit against Par alleging that Par had engaged in an illegal prescription-switching scheme that substituted its own higher-priced products in place of the specific drug that the doctor had prescribed in order to evade Medicaid price limits on generic drugs.
After the settlement and dismissal of the Ven-A-Care case, Par asserted the affirmative defense of res judicata in the Lisitza case. Par argued that res judicata applied because both lawsuits accused Par of “taking advantage of increased Medicaid reimbursements,” involving the “very same false claims for the very same prescriptions.” Although the Court acknowledged that some of the claims submitted were the same in both cases, it rejected the application of res judicata. It found that were very few common facts between the two complaints regarding “what Par allegedly did—how it defrauded the government.” The Ven-A-Care case accused Par of manipulating price benchmarks, whereas the Lisitza complaint accused it of a prescription-switching scheme. As a result of this difference, the Court determined that the “material factual allegations in the two complaints are simply not the same except at an extreme level of generality” and thus were insufficient to establish res judicata. In particular, the Court noted that in the original case, the damages at issue were the difference between what Medicaid paid and Par’s “inflated” prices, while in the second case, the court held, “the damages might be the entire amount of the reimbursement (less any portion already paid as damages), if the plaintiffs prove that claims for the particular drug forms and dosages at issue should not have been submitted at all because they were not authorized by a physician or were not the most cost-efficient option.” “Par should not have to pay the same damages twice,” the court continued, “but if the plaintiffs prove liability in this case, they will be entitled to damages for false claims that are unique to this case as well as whatever additional damages they can prove are owing on the false claims that were also at issue in Ven-A-Care.”
The Court also rejected Par’s argument that the scope of the release in the Ven-A-Care case covered all false claims submitted within the applicable time period and thus was broad enough to bar the Lisitza complaint. The Court held that the release encompassed only claims “based upon or arising out of” the conduct alleged in the Ven-A-Care complaint regarding false reporting of pricing benchmarks and therefore did not apply in the Lisitza case.
A copy of the opinion can be found here.
In United States ex rel. Worsfold v. Pfizer Inc., No. 09-11522-NMG (D. Mass. Nov. 22, 2013), a federal district court in Massachusetts recently dismissed an FCA suit brought against Pfizer based on purported off-label marketing, holding that the relator could not rely simply on allegations of unlawful off-label marketing and purported statistical evidence but instead needed to plead a specific false claim submitted to the government, which he failed to do.
The case was brought by a former District Manager of Western Florida in Pfizer’s Anti-Infectives Division who was responsible for the sale of two anti-fungal drugs, Vfend and Eraxis. The relator alleged that Pfizer promoted Vfend and Eraxis for a number of off-label uses, including use in cancer centers with neutropenic patients and use by children under 12 years old. The relator alleged that by engaging in these off-label promotions, Pfizer violated Section 3729(a)(1) of the FCA both by submitting false claims for reimbursement to the government directly and by causing physicians to submit false claims. He further alleged that Pfizer violated Section 3729(a)(2) by knowingly creating false statements to be submitted to the government.
In dismissing the case, the court confirmed that the heightened pleading standard set forth in Federal Rule of Civil Procedure 9(b) applies to FCA claims and concluded that the standard was not met in the case. The court found the relator’s allegations that Pfizer submitted false claims directly to the government to be “exceedingly vague.” “Nowhere does Relator allege details evidencing how Pfizer itself, rather than intermediary physicians, submitted a false claim to the government.” Accordingly, the court found the relator’s allegations of direct false claims insufficient to withstand dismissal.
The court also found the relator’s allegations of indirect false claims insufficient due to his failure to “identify a single false claim for reimbursement actually presented to a federal or state government based upon an identified, purportedly off-label use of Vfend or Eraxis.” The court held that the violation of federal regulations governing off-label promotion is not itself sufficient to support a claim under the FCA. The court rejected the relator’s argument that he satisfied Rule 9(b) by identifying “factual or statistical evidence” to support the inference that Pfizer caused physicians to submit a false claim for reimbursement. The court concluded that, in practice, courts in other cases had only found Rule 9(b) satisfied under such an “extrapolation” approach where the relators actually alleged at least some specific false claims. The court also found the relator’s purported statistical evidence insufficient to create the requisite inference of fraud.
Finally, the court held that the relator failed to state a claim under Section 3729(a)(2) because he failed to allege Pfizer’s intent to defraud the government and because his allegations of off-label marketing did not include any allegations of materially false statements or records by Pfizer.
On these bases, the court dismissed the relator’s fourth amended complaint without leave to amend.
Posted by Nicole Ryan and Jennifer Gaspar
United States v. Halliburton, No. 12-1011 (4th Cir. Mar 18, 2013)
Over a vigorous dissent, the United States Court of Appeals for the Fourth Circuit recently held that the Wartime Suspension of Limitations Act (WSLA) tolls the False Claims Act’s (FCA) six-year statute of limitations in a case brought by a qui tam plaintiff involving alleged fraudulent billing for services provided to U.S. military forces in Iraq. United States ex rel. Carter v. Halliburton, No. 12-1011 (4th Cir. Mar. 18, 2013). The court’s decision could have significant implications for future FCA defendants by curtailing the statute of limitations as a defense against claims based on wartime conduct.
Benjamin Carter, a former employee of Kellogg Brown & Root Services (KBR), sued Halliburton and its subsidiaries, including KBR, alleging that the company submitted false claims for services provided to the military in Iraq during his employment at KBR from January through April 2005. The complaint alleged that KBR charged the government for water purification services that it had not actually performed and that it instructed employees to bill twelve hours of work per day regardless of time actually worked.
Carter filed his original complaint in February 2006. After several dismissals, Carter filed his fourth and most recent complaint on June 2, 2011. The district court dismissed that complaint, finding that it was barred by the FCA’s “first to file” requirement and by the six-year statute of limitations. It rejected Carter’s argument that the WSLA tolls the statute of limitations in civil FCA actions where the government has not intervened.
Originally enacted in 1942, the WSLA provides:
When the United States is at war or Congress has enacted specific authorization for the use of Armed Forces, … the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States … shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.
18 U.S.C. § 3287 (2006). The tolling period was extended to five years by the 2008 Wartime Enforcement of Fraud Act, which amended the WSLA. Pub. L. No. 110-417 § 855, codified at 18 U.S.C. § 3287 (2011).
The district court held that the WSLA’s tolling provision is limited to war-related suits filed by the government or to qui tam actions in which the government has intervened. The court also found that the complaint was barred by the “first to file” requirement because similar claims, since dismissed, had been pending at the time Carter’s most recent case was filed. The district court dismissed Carter’s complaint with prejudice.
The Fourth Circuit reversed. It held that the WSLA applies to allegations of fraud, including civil fraud, against the United States during wartime regardless of whether the United States filed or intervened in the action and that, as a result, the FCA’s statute of limitations was tolled as applied to Carter’s claim. The Court further held that the FCA does not require a formal declaration of war and that the United States was “at war” in Iraq for purposes of the WSLA from October 11, 2002, when Congress authorized the President to use military force in Iraq. The Court did not directly address whether the WSLA suspends the statute of limitations for FCA claims brought during a time of war where the claims are unrelated to the war.
The Fourth Circuit also held that the district court erred in dismissing Carter’s complaint with prejudice due to the pending, related claims. The Court agreed with other circuit courts that have adopted a “same material elements test” and concluded that Carter’s claim was sufficiently similar to then-existing actions to warrant dismissal. However, Carter was now free to re-file because the other cases had since been dismissed.
In dissent, Judge Agee disagreed with the majority’s application of the WSLA to actions in which the government is not a party. The dissent argues that it constitutes an unprecedented expansion of the WSLA and that the original purpose of the Act was to free the government from engaging in fact-intensive fraud investigations during wartime. He concludes that no such reasoning applied to private actors, expressing serious concern that the court’s interpretation may result in a near-indefinite statute of limitations and create financial incentives for relators to delay filing in order to increase potential recovery.
The case was reversed and remanded to the district court to consider whether plaintiff’s suit was barred by original source provisions of the FCA because the allegations were publicly disclosed. Defendants have since filed a petition seeking rehearing en banc.