28 September 2012

Dismissal of FCA Claims Based on Release Bars Claims By Subsequent Relator

On September 14, 2012, a federal district court in West Virginia dismissed a qui tam complaint against a pharmaceutical manufacturer on the ground that the claims were barred by the doctrine of res judicata (claim preclusion). The complaint, filed by relators Steven May and Angela Radcliffe, alleged that the defendant pharmaceutical manufacturer made false and misleading claims about one of its drugs. Radcliffe’s husband, Mark Radcliffe, had previously filed a separate qui tam complaint against the manufacturer containing similar allegations. The Fourth Circuit upheld the dismissal of the first suit on the ground that Mark Radcliffe’s FCA claims were barred by a Release Agreement he had signed in connection with his severance from the manufacturer.

In the second suit, the manufacturer argued that the Fourth Circuit’s decision barred the subsequent complaint filed by Mark Radcliffe’s wife on the grounds of res judicata because (1) the Fourth Circuit’s decision was a final judgment on the merits, (2) the causes of action in both suits were identical, and (3) the United States, as the real party in interest, and the relators seeking to assert claims on its behalf, are bound by the judgment in the first suit. The relators did not contest the second and third points, and it does not appear from the docket that the United States took any position concerning those issues. Rather, the relators argued that the dismissal of the prior case based on the employment release constituted a release based on lack of Article III standing (which would preclude the application of res judicata), rather than a dismissal on the merits. The district court disagreed, holding that dismissal of the previous case based on a settlement release constituted a dismissal on the merits, and therefore concluded that application of res judicata was appropriate and that the second-filed complaint should be dismissed. A copy of the decision can be found here.

Though the relators in the first and second cases were married, it does not appear that that relationship played a role in the court’s analysis. Indeed, in evaluating whether it was appropriate to bar the later suit based on the dismissal of the first suit, the Court appropriately recognized (as both the defendant and relators agreed) that the fact that the United States was the real party of interest in both suits, rather than any relationship between the relators in the two suits, is the key fact to be considered in determining whether application of claim preclusion is appropriate. Accordingly, this case supports the proposition that when a qui tam is dismissed based on a release agreement, such dismissal may serve to bar subsequent qui tams containing similar allegations, even where the first-to-file bar might not apply.

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