DC Circuit Clarifies Standard For Determining When A Relator Is Entitled To Recover Under FCA’s “Alternate Remedy” Provision
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.
Supreme Court Appears Poised To Extend FCA Statute of Limitations to 10 Years In Non-Intervened Cases
On March 19, 2019, the Supreme Court heard oral argument in Cochise Consultancy v. United States ex rel. Hunt, a case that appears likely to resolve a circuit split on an issue of critical importance: in non-intervened FCA cases – which comprise the vast majority of FCA cases – are relators entitled to invoke the FCA’s alternative 10 year statute of limitations set forth in 31 U.S.C. § 3731(b)(2)? That provision provides for a ten year statute of limitations if the action is brought no more than three years after “the official of the United States charged with responsibility to act” knows, or should know, the material facts of the violation. While an opinion is not expected until later this year, the tenor and content of the Justices’ questions suggest that the Court’s answer to that question is likely to be yes.
District Court Rejects Relators’ Pursuit of Independent Claims After Government Intervention, and Finds Government’s Allegations of Knowledge Insufficient
When a relator brings a civil action for a violation of the FCA, the Government “may elect to intervene and proceed with the action,” and, thereafter, the Government “shall have the primary responsibility for prosecuting the action.” 31 U.S.C. 3730(b)(2), (c)(1). In United States ex rel. Brooks, et al. v. Stevens-Henager College, Inc., et al., No. 2:15-cv-00199, 2019 WL 186663 (D. Utah Jan. 14, 2019), a judge in the District of Utah addressed the issue of “whether a relator retains an independent right to maintain the non-intervened portion of an action” in which the Government only partially intervened. The district court held that, under the plain language and legislative history of the statute, the relator has no right to litigate the non-intervened portions of the case. (more…)
District Court Invalidates Relators’ Pre-Filing Releases on Public Policy Grounds
We have previously discussed (here and here) the enforceability of a relator’s pre-filing release of FCA claims—an issue on which the FCA is silent. Recently, in United States ex rel. Susan Class et al., v. Bayada Home Health Care Inc., No. 2:16-cv-00680 (E.D. Pa. Sep. 24, 2018), a district judge in the Eastern District of Pennsylvania weighed in on the enforceability of pre-filing releases and held that, as a matter of public policy, these releases are unenforceable where “the Government did not have sufficient knowledge of the Relators’ allegations prior to the signing of Relators’ releases.” (more…)
Massachusetts Prohibits Entities From Being Relators
We are increasingly seeing the use of entities as relators, in lieu of individuals. In some instances these relator entities are actual businesses, though frequently they are special purpose entities formed for the sole purpose of pursuing qui tam litigation. There are a number of reasons for this trend, including that the use of an entity may be used to keep secret the names of individual relator-plaintiffs secret even after unsealing, and the belief that by using a corporate entity, individual whistleblowers can be added or replaced in the event of jurisdictional problems. (more…)
Tenth Circuit Bars Attorney’s Attempt To Step In As A Relator To Save Complaint Barred By First-to-File
Last month, in United States ex rel. Little et al. v. Triumph Gear Systems, Inc., the Tenth Circuit answered in important question about the interplay between Federal Rule of Civil Procedure 15 regarding leave to amend parties, and the FCA’s first-to-file bar. The specific question before the court was whether the FCA’s first-to-file rule precludes a non-party from intervening in a pending qui tam action by seeking leave to amend under Rule 15. The Tenth Circuit held that it does. (more…)
Unethical Investigative Work By Relator’s Counsel Leads to Dismissal of FCA Claims
On April 28, 2017, the District Court for the District of Massachusetts dismissed a qui tam complaint alleging off-label promotion against a pharmaceutical manufacturer. Dismissal was a sanction for relator’s counsel having devised and implemented what the Court called “an elaborate scheme of deceptive conduct in order to obtain information from physicians about their prescribing practices, and in some instances about their patients.”
Relator filed his initial complaint in 2012, alleging that the manufacturer was promoting off-label use of two drugs and paying physicians kickbacks for prescribing those drugs. While the case was under seal, the relator filed an amended complaint adding detail to his allegations and including a reference to a third drug. After the United States declined to intervene and the case was unsealed in April 2014, relator filed a second amended complaint that focused only on alleged off-label promotion of the third drug.
Supreme Court Rules That Violation of the FCA’s Seal Provision Does Not Mandate Dismissal
On December 6, 2016 the Supreme Court ruled that violation of the FCA’s seal provisions does not mandate dismissal of a relators’ complaint. Rather, while Section 3730(b)(2) requires relators to file under seal, the text of the statute is silent as to the remedy for violating this requirement. The Court left to the District Court’s discretion to determine the appropriate remedy for violations of the seal provision. Slip Op. at 10.
SEC Fines Company that Used Severance Agreements to Discourage Whistleblowing
Last week, the U.S. Securities and Exchange Commission reached at $265,000 settlement with BlueLinx Holdings Inc. The SEC alleged that BlueLinx violated federal securities law by using severance agreements that required outgoing employees to waive their rights to SEC whistleblower awards. As we previously reported here, the SEC has taken action against other employment agreements that arguably impair whistleblowing activity in the past.
Relator Not Entitled to a Portion of Funds Voluntarily Repaid by FCA Defendant
The False Claims Act allows relators to share in a recovery even where the United States pursues an “alternative remedy” rather than direct FCA litigation. In a recent decision, the District of Massachusetts determined that where an entity voluntarily repays stolen funds and takes action to do so as soon as the theft was discovered, that repayment does not constitute an “alternative remedy” requiring a relator’s share.