Two recent court decisions ruled in favor of relators on the issue of materiality under the standard set forth in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2001 (2016). On May 7, 2019, the Fifth Circuit reversed a decision by the Southern District of Texas, which had held that relators had failed to sufficiently plead materiality. And on May 8, 2019, the Eastern District of California denied a motion to dismiss premised on failure to adequately plead materiality.
A district court granted summary judgment to Solvay Pharmaceuticals on claims that it influenced the public body of scientific research in order to manipulate the compendia DrugDex into supporting off-label uses of its products. U.S. ex rel. King v. Solvay S.A., No. H-06-2662 (S.D. Tex. Dec. 14, 2015). The opinion provides helpful guidance on the high bar that relators must satisfy to pursue FCA claims based on alleged manipulation of scientific research so that ordinary disputes about the weight to be given to scientific research are not challenged as “fraud” under the FCA.
Posted by Kristin Graham Koehler and Brian P. Morrissey
A federal district court opinion issued last week could prove highly useful to defendants seeking to avoid unduly burdensome discovery in qui tam litigation. In United States ex rel. King v. Solvay S.A., No. H-06-2662, 2013 WL 820498 (S.D. Tex. Mar. 5, 2013), the Court granted a motion for a protective order prohibiting qui tam relators from obtaining discovery of documents generated after they had left the defendant’s employment and after government investigations of their allegations had ceased.
In 2002, a pair of former Solvay sales representatives filed a qui tam complaint alleging, inter alia, that Solvay violated the FCA by engaging in off-label promotion of the pharmaceutical products Aceon®, Luvox®, and AndroGel®. The DOJ and Attorneys General of several states investigated these allegations over the following years, but all declined to intervene and the case was unsealed.
Moving forward with the litigation on their own, relators filed numerous iterations of their complaint and the District Court ultimately denied Solvay’s motion to dismiss their fifth amended version. When the case moved to discovery, relators became quite zealous, alleging “ongoing fraud” at the company and demanding that the company produce documents generated as late as 2012, even though relators had no personal knowledge of Solvay’s operations since 2002 and even though the last governmental subpoena arising from relators’ allegations was issued to Solvay in 2008. Solvay moved for a protective order, arguing that (1) relators’ complaint failed to allege fraud after 2007 with sufficient particularity to warrant discovery after that date; (2) Solvay had no document preservation obligations beyond the date of the last governmental subpoena issued in early 2008; and (3) Solvay was not obligated to preserve documents post-dating its acquisition by Abbott Products LLC in 2010.
The District Court agreed with Solvay on all counts and adopted the discovery and preservation cut-off dates Solvay proposed. The Court held that, although relators had made sufficiently particularized allegations of fraud up until the cut-off dates, their complaint merely contained a handful of “generalized” allegations that the fraud continued beyond those dates “to the present” and that this was too vague to allow discovery into that time period. Id. at 4 n.2 (refusing to allow “generalized claims of ongoing conduct to form the basis for a fishing expedition into conduct that post-dates the filing of the original complaint and relators’ personal knowledge by more than a decade”). Equally important to the Court’s holding was Solvay’s evidence demonstrating that relators’ sought-after discovery would have been exceedingly expensive. Id. at *1 (citing Solvay’s evidence that review of the requested documents alone could cost $2.3 million, exclusive of any quality control, privilege log, production, or processing costs). When the District Court weighed the combination of the relators’ vague allegations and the costly nature of the discovery they sought, it found the discovery unduly burdensome and thus prohibited under Federal Rule of Civil Procedure 26. See Id. at *4 (“A few generalized allegations that conduct continued ‘to the present’ in a 267-page complaint containing more than 786 paragraphs does not justify the burden and expense associated with unfettered discovery ‘to the present’ in a case in which discovery is already going to be incredibly expensive and time-consuming.”).
The Court’s decision establishes two helpful guideposts for defendants seeking to limit burdensome discovery. First, the Court’s ruling emphasizes the principle that discovery into defendant’s conduct during a particular time period should be supported by specific allegations directly related to that period. Second, the ruling demonstrates that defendants seeking to limit discovery into a particular time period should be prepared to muster clear evidence of the costs and burdens associated with that discovery. If a court is already weighing allegations of dubious specificity, proof that discovery into those allegations would be highly expensive could very well tip the balance in the defendant’s favor.
Last month, a federal district court in Texas held that the United States’s FCA suit could proceed, even though it was filed outside the six-year statute of limitations, because the Wartime Suspension of Limitations Act (“WSLA”) served to toll the limitations period based upon the ongoing conflicts in Iraq and Afghanistan. United States v. BNP Paribas SA, 2012 WL 3234233 (S.D. Tex. Aug. 6, 2012). The underlying facts have nothing to do with war or military contracting—they concern claims filed by BNP to recover on USDA guarantees that had been issued to commodity exporters sending goods to Mexico. Id. at *1-2. Because the relevant conduct ended in September 2005, more than six years before the complaint was filed in October 2011, BNP moved to dismiss the suit as time-barred. Id. at *5-6.
The district court denied the motion, agreeing, most notably, with the government’s contention that the WSLA suspended the FCA’s statute of limitations. Id. at *5-15. The WSLA is located in Title 18, among the criminal provisions of the United States Code, and postpones the running of statutes of limitations for “any offense … involving fraud or attempted fraud against the United States.” 18 U.S.C. § 3287. It originally applied only to times when the country is “at war,” but was amended in 2008 to apply as well when “Congress has enacted a specific authorization for the use of the Armed Forces.” 2012 WL 3234233 at *8-9. In order to find this statute applicable to an FCA case about USDA commodity guarantees, the court maneuvered as follows. First, it rejected defendant’s argument that the WSLA is applicable only to criminal offenses, finding persuasive two district court cases from the 1950s. Id. at *11-13. Next, the court found that the Iraq and Afghanistan conflicts were sufficient to extend the WSLA’s reach to cover the 2005 conduct at issue. In that regard, the court found that the United States was (and remains) “at war” in both countries despite no formal declaration of war, id. at *13-14, and that, in the alternative, the 2008 WSLA amendments “recogniz[ing] specific authorization for the use of Armed Force … as sufficient to trigger the WSLA” applied retroactively to sweep up defendants’ 2005 conduct, id. at *15.
Although this is just one decision, its potential ramifications are enormous. If the ruling is followed elsewhere—or even if it just emboldens the government to continue to invoke its novel theory in other FCA cases—it would upend settled expectations and signal open season on FCA allegations pertaining to years-old conduct that defendants thought to be time-barred. By the court’s own acknowledgment, the Iraq and Afghanistan conflicts continue to this day; thus, in the court’s view, the FCA’s statute of limitations has been suspended since 2001 and will continue as such until at least five years after those conflicts conclude. With settlement pressure especially high under the FCA, that is surely a startling prospect for industries and companies within the FCA’s purview.