A recent settlement reinforces the potential liability facing private equity investors in the life sciences industry. As we previously reported, late last year The Gores Group (“Gores”) entered into a $1.5 million settlement agreement with the United States to resolve claims that the alleged off-label promotion by its portfolio company of combination drug-medical device systems for pediatric patients resulted in the submission of false claims to federal healthcare programs. Last month, Gores entered into a separate $1.5 million settlement agreement with certain states to resolve claims that the same alleged conduct resulted in the submission of false claims to state Medicaid programs. See U.S. ex rel. Johnson v. Therakos, Inc., Case No. 12-cv-1454 (E.D. Pa., filed Mar. 22, 2012). The participating states in the more recent settlement have sixty days to agree to the terms of that agreement; thus far at least California has joined. The claims resolved in these settlements arose from a qui tam suit.
A federal district court recently issued a rare order denying the Department of Justice’s (DOJ) motion to intervene in a qui tam suit after the government’s initial declination months earlier. See United States ex rel. Odom v. Southeast Eye Specialists, PLLC, 3:17-cv-00689 (M.D. Tenn. Feb. 24, 2021). The False Claims Act allows the government to intervene in a case in which it previously declined to intervene upon “a showing of good cause.” Although DOJ does so not frequently seek to intervene after previously declining to do so, courts are generally deferential to the government’s shift in position. This decision provides important precedent for defendants in the position of arguing that a late intervention by DOJ is not appropriate.