Written by: Drew B. Howk
On December 1, the First Circuit Court of Appeals released a decision denying two Relators’ appeal of their False Claims Act action due to its failure to satisfy the Act’s first-to-file bar. Though the procedural path of the case is convoluted, the result is clear and the decision sound.
The facts of this case are winding. Nine years ago, two qui tam actions were filed by a Florida pharmacy against several pharmaceutical companies, including the Defendant in this case. The alleged fraudulent scheme was that the pharmaceutical companies were artificially inflating the prices of prescription drugs in order to be paid a higher amount by Medicare and Medicaid. The actions were filed and remained under seal until 2010. During the government’s investigation of the pharmacy’s action, the two Relators in the present case filed their own qui tam action. The Relators – one a former executive for the Defendant and the other a longtime customer – alleged the same fraudulent conduct as the pharmacy but with more detail and for violations alleged to have continued beyond the time period of the original action.
The pharmacy’s action was settled with the government’s consent. The Defendant successfully moved for summary judgment in the second action due to the release included in the pharmacy action’s settlement agreement. The Relators then convinced the District Court that presided over the original action to reconsider its approval of the first settlement. In response, the Defendant argued the motion should be denied because the Relators’ complaint alleged a fraud previously articulated by the pharmacy and therefore subject to the FCA’s first-to-file bar.
The court agreed, denying the motion and dismissing the Relators’ action. They appealed to the First Circuit which upheld the dismissal of the action.
The First Circuit clarified its first-to-file jurisprudence. It held that the original complaint provided enough information to allow the government to adequately investigate the allegations. Therefore, under the FCA, the second action was barred. Relators argued that their complaint, which provided more detailed descriptions of the allegations, could not be barred by vague allegations in the pharmacy’s complaint. The court disagreed, holding that more detailed complaints do not always survive a first-to-file challenge:
[t]he first-to-file rule does not necessarily protect more detailed, later-filed complaints . . . So long as the first complaint sets forth the ‘essential facts’ of the fraud alleged in the second complaint, it does all it needs to do under the first-to-file rule. (Decision at 16-17).
The court similarly rejected the Relators’ argument that their complaint alleged conduct outside the time period of the original allegations. The government, according to the court, was sufficiently on notice of the alleged conduct and therefore the bar excluded the Relators’ claims.
This case is a clear articulation of the first-to-file bar. More importantly, the analysis rejects the Relators’ more detailed and familiar knowledge of the alleged conduct as a sufficient basis for permitting a second bite at the apple. Congress intended to incentivize whistleblower actions, not multiple lawsuits based upon the same allegations. Once the government has been sufficiently alerted to the alleged conduct, the bar is firmly in place.
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