Written by: David B. Honig
Appellate Court Cases
Three appellate-level FCA cases were reported in January and February 2013. Only one, U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., 1 was selected for publication. All three cases addressed Rule 9(b)’s requirement that allegations of fraud be lead “with particularity.” The cases, read together, highlight the differences among Circuits in how they interpret Rule 9(b) pleading requirements. Some Circuits, including the D.C. Circuit that ruled in Takeda, require pleading with individual claim specificity, while others, including the Fifth Circuit, below in Jajdelski, allow pleading with scheme detail plus “strong inference” that false claims were submitted.
U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc.
In Takeda, the whistleblower, a former Takeda sales manager, alleged that Takeda caused doctors to submit false claims through its marketing of the drug Kapidex. He alleged that marketing Kapidex to rheumatologists, who typically do not treat patients with conditions for which the FDA has approved the drug, so encouraged the use of the drug that “off label” prescriptions would be false claims caused by Takeda. He also alleged Takeda caused doctors to submit false claims by improperly prescribing large doses for unapproved conditions. Takeda allegedly caused such claims by providing 60 mg samples rather than 30 mg samples of the drug. Kapidex was only approved in 60 mg doses for one specific condition, erosive esophagitis.
The Fourth Circuit Court of Appeals affirmed dismissal of Nathan’s Third Amended Complaint, as well as the trial court’s refusal to allow him to file a Fourth Amended Complaint. The Court rejected his plea for a lenient application of Rule 9(b) that would allow him to allege the existence of a fraudulent scheme without identifying any actual false claims presented for payment. Where the relator alleges the defendant’s actions “could have led, but need not necessarily have led, to the submission of false claims,” the Court said, “a relator must allege with particularity that specific false claims actually were presented to the government for payment.” 2 On the issue of allowing a Fourth Amended Complaint, the Court noted that Nathan was fully aware of the failures of his pleadings when filing the Third Amended Complaint, that the case had been ongoing for two years and that the trial court properly exercised its discretion, given the court’s interest in finality and unduly subjecting Takeda to continued time and expense.
U.S. ex rel. Bender v. North American Telecommunications Inc. 3
In another Rule 9(b) case, the D.C. Court of Appeals rejected the relator’s attempt to plead an FCA case “on information and belief” for his lack of access to documents needed to plead fraud with particularity. The Court noted that a relator may, in some circumstances, plead an FCA case “on information and belief” “if he provides the factual basis for the charges leveled against the defendant and some factual basis for the claim that the defendant is in control of the information that the relator requires in order to plead with particularity.” 4 Bender, though, offered such vague allegations that he failed to meet that standard.
U.S. ex rel. Jajdelski v. Kaplan, Inc. 5
In another Rule 9(b) case, the Fifth Circuit Court of Appeals reversed dismissal of an FCA Complaint that failed to identify specific false claims submitted. In the Fifth Circuit, the Court wrote, it is sufficient “to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” 6 The Court did uphold the trial court’s refusal to allow Jajdelski to add claims to his Fourth Amended Complaint that occurred more than six years prior to its filing, rejecting the argument those claims “related back” to the original Complaint. Those claims could not relate back, the Court concluded, as they did not arise “out of the conduct, transaction, or occurrence, set out—or attempted to be set out—in the original pleading.” 7
Trial Court Cases of Interest
U.S. ex rel. Conrad v. Abbott Laboratories, Inc. 8
In Conrad, the court considered a relatively complex public disclosure question. FCA whistleblowers may not bring cases based upon information that has been publicly disclosed. The public policy purpose behind this jurisdictional rule is to encourage people with inside information to come forward, not to encourage people to read the front page of The New York Times and then file suit to get a slice of the qui tam pie. Congress referred to such actions as “parasitic” qui tam suits and amended the FCA in 1943 to prevent them.
In Conrad, there was not a single source that affirmatively pointed out a fraud. Rather, five different sources, when considered together, contained all the information necessary for a person of sufficient expertise to find the alleged fraud. The court also considered the question whether CMS 9 data files qualified as “reports” under the public disclosure bar, as they were collections of data sans conclusions or discussions. The court, bound by the recent Supreme Court decision in Schindler Elevator Corp. 10 considering the same question for a FOIA 11 response, determined that the CMS data files qualified as “reports” under the public disclosure bar.
U.S. ex rel. Griffith v. Conn 12
In Griffith, the United States, after four extensions to consider intervention and after declining to intervene, moved for a 60-day stay of proceedings. The lawsuit was against an attorney and a Social Security Administration administrative law judge alleged to have coordinated sham proceedings. The court refused to grant the stay. It noted that the statute, at §3730(c)(4), allows for 60-day stays of discovery where such discovery “would interfere with the Government’s investigation or prosecution of a criminal or civil matter arising out of the same facts.” However, the statute does not allow for a stay of the entire proceeding.
Deck v. Miami Jacobs Business College Co. 13
Students of Miami Jacobs filed a putative class action alleging breach of contract, violation of RICO, several Ohio statutes, common law torts, equitable claims and the False Claims Act. The students’ enrollment agreements included arbitration as the exclusive remedy for claims related to their enrollment. They argued they could not be forced to arbitration, based upon their FCA claims and the ruling in Ngyuen v. City of Cleveland. 14 The court noted that it, along with other courts, had uniformly rejected the reasoning of Ngyuen. As the government had declined intervention 15, the court found the FCA claims fell within the arbitration clause signed by the students.
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- — F.3d —, 2013 WL 136030 (4th Cir. (Va.) 2013) ↩
- Id. at *5. ↩
- 2013 WL 597657 (D.C.Cir. No. 10-7176, Jan. 25, 2013) ↩
- citing Kowal v. MCI Communications Co., 16 F.3d 1271, 1279 n. 3 (D.C.Cir. 1994). ↩
- 2013 WL 520418 (9th Cir. (Nev.) Case No. 11-16651, Feb. 13, 2013) ↩
- Id. at *2, citing U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009). ↩
- Id. at *2, citing Fed.R.Civ.P. 15(c)(1)(B). ↩
- 2013 WL 682740 (D.Mass. Case No. 02-11738-RWZ, Feb. 25, 2013). ↩
- Centers for Medicare & Medicaid Services. ↩
- Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S.Ct. 1885 (2011). ↩
- Freedom of Information Act. ↩
- 2013 WL 620259 (E.D.Ky. Civil No. 11-157-ART, Feb. 16, 2013). ↩
- 2013 WL 394875 (S.D.Ohio Case No. 3:12-cv-63). ↩
- 120 F.Supp.2d 643, 647 (N.D.Ohio 2000). ↩
- The government, not a party to the arbitration agreement and therefore not bound by it, indicated that it would consider the arbitrator’s ruling “a non-binding recommendation.” Id. at *6. ↩