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Rule 9(b)

31 March 2014

Supreme Court Denies Certiorari In Nathan

Posted by Jaime Jones and Nirav Shah

Today, the Supreme Court denied certiorari in U.S., ex rel. Nathan v. Takeda Pharmaceuticals, et al. As we previously reported, this case involved the pleading requirements for qui tam cases brought under the FCA. Earlier this month, the Solicitor General filed a brief urging the Court not to grant certiorari.

At issue is whether Rule 9(b) requires a complaint to “allege with particularity” that certain claims false claims were submitted for payment. Circuits are split on the issue, with the Fourth, Sixth, Eight, and Eleventh Circuits requiring stricter pleading while the First, Fifth, Seven, and Ninth adopting a more permissive approach. The Court’s denial of certiorari means that the Fourth Circuit’s ruling that the relator’s complaint “failed to plausibly allege that any false claims had been presented to the government for payment” will stand.

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20 March 2014

Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases

A. Brian Albritton at the False Claims Act and Qui Tam Law blog has an interesting post titled “Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases.” The post discusses a recent opinion in U.S. ex rel. Rigsby v. State Farm Fire and Casualty Co., Civil No. 1:06CV433-HSO-RHW (S.D. Miss. Feb. 21, 2014), in which relators who had succeeded at trial on their FCA claims sought post-verdict discovery to look for evidence of other false claims. As the post explains, “the court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. . . .[T]he Court noted that satisfying Rule 9(b) with ‘sufficient detail’ and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be ‘targeted’ only to ‘the claims alleged, avoiding a search for new claims.'”

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06 March 2014

Solicitor General Weighs In On Pleading Requirements For FCA Cases

We previously reported on the Supreme Court’s invitation to the Solicitor General to weigh in on whether the Court should grant certiorari in an important case involving the pleading standards in FCA cases. U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., et al., Dkt. No. 12-1349 (Oct. 7, 2013). In a recent brief, the Solicitor General argued that since the issue of whether a relator must identify specific false claims in order to meet the pleading requirements of 9(b) is still being considered by various lower courts, the Court should decline to grant certiorari at this time.

The brief sheds light on the government’s view of the overarching role of 9(b) and the FCA. The government’s central position is that adoption of a per se rule that a relator must plead the details of particular false claims—rather than plead allegations supporting a “plausible inference” that false claims were submitted—could undercut the FCA’s role as a fraud-fighting tool. The Solicitor General argued that asking relators to identify specific claims is neither plausible or useful, conceding that many relators may not be aware of specific claims. Rather, the Solicitor General argued, the role of a relator is properly to “bring[] to light other information that shows those claims to be false.”

Thus, the government’s position appears to be 9(b) should be construed so as to aid the government’s fraud-fighting efforts. This approach is difficult to square with the longstanding view of 9(b) as a means to provide notice to defendants of potential fraud claims and prevent frivolous or vexatious litigation. We will continue to monitor this important case.

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06 February 2014

Sidley lawyers publish article, Circuit Court Affirms High Pleading Standard For “Induced” False Claims Qui Tam Actions, as part of Washington Legal Foundation’s Counsel’s Advisory series

Posted by Kristin Graham Koehler and Brian P. Morrissey

Sidley lawyers Kristin Graham Koehler and Brian Morrissey have authored an article as a part of the Washington Legal Foundation’s Counsel’s Advisory series, entitled “Circuit Court Affirms High Pleading Standard For ‘Induced’ False Claims Qui Tam Actions.” The article examines the First Circuit’s recent ruling in United States ex rel. Ge v. Takeda Pharmaceutical Co., 737 F.3d 116 (1st Cir. 2013), a closely-watched case in which the relator alleged that a pharmaceutical manufacturer violated the FCA by failing adequately to comply with the FDA’s adverse-event reporting rules for pharmaceutical products. The First Circuit punted on the key issue that drew so much attention to the case, declining to decide whether a violation of FDA’s adverse-event reporting rules can be the basis for FCA liability. The Court nonetheless used the case as an opportunity to reemphasize the important principle that a qui tam relator cannot rely on a mere inference that false claims “necessarily follow” from a defendant’s alleged violation of a federal law or regulation; the relator must present specific “factual or statistical evidence” to justify that inference. Holding that the relator failed to carry that burden, the First Circuit affirmed dismissal of the case on Rule 9(b) grounds.

The article is available for download on the Washington Legal Foundation’s website: http://www.wlf.org/publishing/publication_detail.asp?id=2417.

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16 December 2013

First Circuit Affirms Ge, Holds The Line On Requiring FCA Claims To Be Pleaded With Particularity

We previously reported on the district court decision in United States ex rel. GE v. Takeda Pharmaceutical Co. Ltd., Case No. 10-cv-11043 (D. Mass, Nov. 1, 2012), in which a federal district court in Massachusetts dismissed a relator’s complaint on Rule 9(b) and 12(b)(6) grounds for failure to either plead specific false claims with particularity or to plead sufficiently that all claims submitted in violation of FDA requirements could be deemed false under an implied certification theory. On December 6, the First Circuit affirmed that dismissal, emphasizing that in cases in which a defendant is alleged to have caused third parties to submit false claims – for example, when a pharmaceutical manufacturer is alleged to have caused pharmacies to submit false claims – the relator must allege specific facts demonstrating that “false claims” were submitted; allegations of a fraudulent scheme are not sufficient. The Court’s opinion can be found here.

Relator Helen Ge, a former employee of the defendant manufacturer, alleged that her former employer misrepresented and misclassified adverse events for four of its products to avoid reporting them to the FDA. Had the adverse events been reported, Ge alleged, the FDA may have required amendments to the products’ approved labeling or additional entries in FDA databases that may have resulted in physicians disfavoring and decreasing prescription of the products. Furthermore, relator alleged, had the defendant reported the adverse events, the FDA may have withdrawn approval for the products, rendering all claims for reimbursement of the product ineligible for reimbursement under federal healthcare programs. The court dismissed the complaint under Rule 12(b)(6), holding that the relator could not prove that compliance with the FDA’s adverse event reporting requirements is a material precondition of payment under federal healthcare programs. The court explained that the FDA not only has the discretion to determine when to prosecute violations of adverse event reporting requirements, but also has a range of potential civil and criminal fines to impose when it decides to pursue violators, including withdrawal of the product’s approval, injunctive orders, monetary fines and imprisonment for individual defendants, and that not all of these potential remedies would lead to the denial of claims for the manufacturer’s drug. The court also held that the complaint did not satisfy Rule 9(b) because the relator produced only aggregate government expenditure data on the defendant’s drugs, rather than information about any specific false claims.

On appeal, the First Circuit affirmed the dismissal on 9(b) grounds. The Court began by affirming some basic principles: that “[r]elators are required to set forth with particularly the ‘who, what, when, where, and how’ of the alleged fraud,” and that there is no “relaxed” 9(b) pleading standard for FCA cases. The relator is also required to include allegations specific enough to demonstrate the existence of false claims. “In an qui tam action in which the defendant is alleged to have induced third parties to file false claims with the government,” the court explained, “a relator can satisfy this requirement by providing factual or statistical evidence to strengthen the inference of fraud beyond possibility without necessarily providing details as to each false claim.” Even accepting as true the allegations that the manufacturer engaged in “fraud on the FDA,” the court concluded, that was not a sufficient basis on which to infer the false claims were submitted. The court contrasted Ge’s allegations with those in another case in which the relator identified “eight specific medical providers who allegedly submitted false claims, plus rough time periods, locations, and amounts of the claims, and the specific government programs to which the claims were made” – detailed that were “just enough” to constitute a pleading of fraud with particularity.”

Notably, the First Circuit quoted with approval the Fourth Circuit’s January 2013 opinion in U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc. (which we reported about here), in which the Fourth Circuit held that evidence of specific false claims was required to satisfy Rule 9(b). The First Circuit’s citation to Nathan is significant because the relator in the Fourth Circuit case has filed a petition for a writ of certiorari from the Supreme Court, arguing in part that the standard set forth by the Fourth Circuit is more stringent than that required in other circuits – including the First Circuit. (A copy of the petition for writ of certiorari can be found here.) The Ge decision, including in particular the approving citation to the Fourth Circuit’s opinion in Nathan, suggests that the circuit split cited by the petitioners in Nathan is not as wide as suggested, and provides further support for the principle that relators should not be permitted to skirt Rule 9(b)’s stringent pleading requirements by arguing that the submission of false claims was an inevitable consequence of the defendant’s conduct.

Because it found the affirmed the dismissal of the complaint under Rule 9(b), the First Circuit did not rule on the district court’s alternative basis for dismissing the complaint under Rule 12(b)(6). Thus, the Court declined disturb (or affirm) the district court’s ruling that compliance with FDA post-marketing requirements, including timely adverse event reporting, could not support an FCA claim.

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10 December 2013

District Court Dismisses Conclusory Allegations in Off-Label Marketing Suit

Posted by Nicole M. Ryan and Jaime A. Bartlett

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.

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22 October 2013

Whistleblower Complaint Dismissed For Failure To Identify Actual False Claims

Posted by Jaime Jones and Brenna Jenny

An Eastern District of New York judge recently declined to apply a relaxed pleading standard to qui tam claims, dismissing an FCA suit based on alleged violations of the Anti-Kickback Statute for relator’s failure to plead facts sufficient to identify false claims that were actually submitted to the government. In United States ex rel. Moore v. GlaxoSmithKline PLC, No. 1:06-cv-06047 (E.D.N.Y. Oct. 18, 2013), a former employee of GlaxoSmithKline (“GSK”) alleged that GSK induced doctors to prescribe its HIV drugs by offering honoraria and educational grants. The relator urged the district court to relax the Rule 9(b) pleading standard and require merely “an adequate basis for the Court to reasonably infer that false claims were submitted.” Slip op. at 7. The relator alleged the submission of false claims could be inferred from the fact that many patients who use GSK’s HIV products are federal healthcare program beneficiaries and allegations of one doctor’s supposed awareness of the alleged scheme.

In declining to relax the requirements of Rule 9(b), the District Court noted that the Second Circuit Court of Appeals has not yet weighed in on the issue, which has led to a Circuit split. However, the district court observed that the majority of lower courts in the circuit have rejected relators’ attempts to utilize a lower pleading standard. Siding with those courts, the Moore court required both the underlying scheme and the submission of a false claim to be pled with the particularity required by Rule 9(b). With respect to the latter, the court noted that it is not enough to portray the submission of a false claim as “merely conceivable or even likely.” Id. at 8. Instead, relators must allege with particularity “details of either a specific claim for payment that was submitted to the Government by either a medical provider or a pharmacist, or the specific details of an actual Medicaid/Medicare provider certification form signed by a particular physician.” Id. The court dismissed the claims because the relator failed to establish a connection between any alleged kickback and any actual claims for reimbursement.

As we recently reported, the Supreme Court recently expressed an interest (see related post here) in the government’s view of the pleading requirements for FCA claims. The Moore decision emphasizes not only the significance of the ongoing Circuit split on the issue, but the critical importance of Rule 9(b)—at least in some Circuits—to the pleading and defense of whistleblower FCA actions.

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11 October 2013

Supreme Court Invites Solicitor General To Weigh In On The Pleading Requirements For FCA Cases

Posted by Jaime Jones and Nirav Shah

This week, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States on the pleading standards in FCA cases. U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., et al., Dkt. No. 12-1349 (Oct. 7, 2013). This move signals that the Court may soon decide whether to grant certiorari and hear a case that has significant implications for the efforts of the whistleblower bar and federal government to leverage the FCA for billions of dollars in recoveries each year.

In the decision at issue, the Fourth Circuit dismissed a complaint by the qui tam plaintiff for his failure to “allege with particularity that specific false claims were presented to the government for payment,” which the court held was necessary to satisfying the heightened pleading requirements of Rule 9(b). Circuits are split on this issue, with the Sixth, Eight, and Eleventh Circuits adopting the standard articulated by the Fourth Circuit, while the First, Fifth, Seventh, and Ninth Circuits have allowed qui tam claims to survive based only on “reliable indicia that lead to a strong inference that claims were actually submitted.” See, e.g., U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

It is unclear for which approach the Solicitor General may advocate. In a case involving similar issues three year ago, the Solicitor General merely noted that the First Circuit’s more-relaxed pleading requirement “deepens an existing circuit conflict.” There, the Solicitor General recommended that the Court answer the fundamental pleading question raised by the Circuit split—albeit not in that particular case. See Ortho Biotech Prods., L.P. v. U.S. ex rel. Duxbury, Dkt. No. 09-654.

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09 September 2013

Fifth Circuit Dismisses Conclusory Allegations and Rejects Implied False Certification Theory

Posted by Gordon Todd and Jeff Beelaert

The Fifth Circuit recently had good news for government contractors when, in Steury v. Cardinal Health, Inc., No 12-20314 (5th Cir. Aug. 20, 2013) (per curiam), it rejected the contention that an alleged false certification of merchantability, without more, does not support an FCA claim unless payment was specifically conditioned on the certification. “Not every breach of a federal contract is an FCA problem,” the Court held, because the FCA “is not a general enforcement device for federal statutes, regulations, and contract.” Slip op. at 5 (quoting U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 268 (5th Cir. 2010) (“Steury I“).

The relator alleged the defendant had sold medical devices to the federal government despite being aware of a potential defect. Moreover, she contended that the defendant had “expressly warranted that the [devices] were merchantable,” that the contracts “required the [devices] be merchantable,” and merchantability was “a martial contractual requirement.” The District Court dismissed the Complaint for failure to satisfy Rule 9(b), and the Fifth Circuit affirmed.

The court held the relator had failed to “set forth the who, what, when, where, and how of the alleged fraud.” Because the complaint did not identify how the devices deviated from any required specification or contractual obligation, the court held that the pleadings were insufficient to support an “implied false certification” theory. The Fifth Circuit refused to recognize the “implied certification of an implied contract provision that is an implied prerequisite to payment.”

Moreover, the relator failed to show that in the absence of the merchantability provision the government would not have paid for the devices. The court had previously held that the government “may accept (and pay) for noncompliant commercial items.” Steury I, 625 F.3d at 270. In stark contrast to the relator’s allegations, this analysis confirms that the government’s payment is not conditioned on a warranty of merchantability. Even if the relator sought to rely on an “implied warranty of merchantability,” her argument fails because she would be asking the court to find a knowingly false claim from an implied certification of an implied contract provision—something the court refused to “reckon actionable.”

The Fifth Circuit did not address the relator’s “worthless goods” theory because her complaint similarly failed to plead it with the requisite particularity. She did not point to a single device that was sold to the government over a period of nine years that was ever found to be deficient or worthless.

In his concurring opinion, Judge Higginson urged the court to restore Congress’s statutory distinction between falisity and fraud and apply the “common-sense” understanding of those terms. Because the relator failed to allege that an invoice presented by defendant “contained, on its face, a factual assertion capable of confirmation or contradiction that was untrue when made,” the claim was not “false” under the FCA. Nor was the claim “fraudulent” under the FCA because the relator failed to allege that the defendant knew about the device’s defects but, intending to deceive, sold them anyway.

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12 July 2013

Broadband Provider Faces FCA Liability for Fraudulently Procuring Stimulus Funds

Posted by Kristin Graham Koehler and Samuel M. Singer

A federal judge has refused to dismiss a False Claims Act suit against a Missouri telecommunications company accused of fraudulently procuring a federal stimulus grant for providing broadband services in underserved areas. The case, Schell v. Bluebird Media LLC (W.D. Mo. June 28, 2013), provides further evidence that the False Claims Act (“FCA”) is playing an important role in rooting out fraud in the procurement of economic stimulus funds.

In Schell, Bluebird Network LLC (“Bluebird”), a Missouri-based broadband provider, faces allegations that it fraudulently procured a three-year, $45 million federal stimulus grant for broadband services. Administered by the National Telecommunications and Information Administration, the broadband program is part of the American Reinvestment and Recovery Act (“ARRA”) and aims to provide broadband internet services to underserved rural areas across the United States. Bluebird procured a grant for the purpose of constructing and operating a fiber optics cable network in northern Missouri.

The relator is Steven Schell, the former vice president of operations at Bluebird, and one of the key managers of the northern Missouri project. Schell alleges that Bluebird fraudulently procured the stimulus grant by misrepresenting its eligibility for the program. Among other things, Schell alleges that Bluebird exaggerated the need for broadband in the area the company proposed to service, misrepresented the company’s access to matching funds, and falsely claimed that it could create a viable business model. With respect to the first allegation, according to Schell, the “underserved” area targeted by Bluebird is actually saturated with service providers and covered by a 3,000-mile fiber optics network “that weaves in and out of the 59 counties” in the proposed territory. Schell also claims that Bluebird fired him, in violation of the FCA’s anti-retaliation provisions, when he objected to the company’s misrepresentations.

Bluebird moved to dismiss the action, arguing that Schell’s complaint was conclusory and lacking in detail. Bluebird argued that because Schell had not defined “underserved” or specified who made the alleged misrepresentations, the court had no plausible basis for concluding that the company’s statements were false, much less knowingly false. The Court disagreed. “Contrary to defendant’s argument,” the Court explained, “Schell does not need to provide a legal argument for what constitutes “under-served” at this stage of the pleadings or go into detail about who made the statement or which companies provided the services.” Schell, 12-cv-04019, at 7. The Court concluded that Schell’s complaint was sufficient, even under the heightened pleading requirements in Rule 9(b), to state a plausible claim for fraud.

When Congress enacted ARRA, it was with the expectation that the FCA would help the government keep a tight rein on the $800 billion stimulus package by deterring waste and abuse. In 2010, FCA recoveries under ARRA, the Troubled Asset Relief Program, and other economic stimulus funds constituted 11 percent of the government’s recoveries, totaling roughly $327 million in settlements and judgments. As awarded funds continue to circulate through the economy, and as new stimulus money goes out the door, FCA lawsuits should be expected to continue apace.

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