FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

Since 1986, the False Claims Act has required qui tam relators, who file FCA lawsuits on behalf of the Government, to file the complaints secretly. The FCA provides that the complaint will remain “under seal” for 60 days. During this 60-day period, the Government is supposed to investigate the alleged fraud and decide whether to intervene in the lawsuit. However, at the end of the 60-day period, the Government can request additional time to investigate, which it frequently does. There have been FCA complaints sealed for years and even more than a decade. The American Civil Liberties Union (ACLU) sought a declaratory judgment from the United States District Court for the Eastern District of Virginia that these seal provisions violate the First Amendment and Constitutional separation of powers. The District Court rejected the ACLU’s arguments and a divided Fourth Circuit affirmed the District Court’s opinion. See American Civil Liberties Union v. Holder, Case No. 1:09-cv-00042-LO-TRJ, 2011 WL 1108252 (4^th Cir. Mar. 28, 2011).

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Yesterday, a federal district court for the District of Maryland issued an opinion dismissing without prejudice the indictment against former GSK in-house attorney Lauren Stevens accusing her of obstruction and making false statements in connection with an FDA inquiry concerning the company's marketing practices for Wellbutrin.  Although the dismissal is without prejudice, it is difficult to see how the government will be able to obtain a new indictment given the court's holding that the prosecutor must provide any new grand jury with an instruction to this effect:  "if Stevens relied in good faith on the advice of counsel, after fully disclosing to counsel all relevant facts, then she would lack the wrongful intent to violate the law and could not be indicted for the crimes charged in the proposed indictment."  (Opinion, p. 17).  Also attached is a copy of the recently unsealed motion and declaration submitted by Stevens' attorney that led to the favorable decision.

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In civil False Claims Act cases in which the government has intervened, the government will often try to shield some documents from discovery based on a variety of privileges, including privileges generally asserted only by government agencies, such as the investigatory law enforcement privilege, the joint prosecutorial privilege, and the deliberative process privilege. Earlier this month, a federal district court for the Northern District of Texas issued an opinion that contains three important holdings limiting the government’s use of the investigatory law enforcement and work product privileges to shield certain documents from discovery in civil FCA cases. See United States ex rel. Becker v. Tools & Metals, Inc. Todd Loftis, Lockheed Martin Corporation et al., 3:05-CV-627-L (March 11, 2011).  A copy of the magistrate's prior decision can be found here.

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Two relators, Bernard Lisitza and David Kammerer, filed separate False Claims Act qui tam actions against Johnson & Johnson, Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Johnson & Johnson Health Care System (collectively, “J & J”).  The relators allege that J & J “unlawfully induced Omnicare, the nation’s largest supplier of pharmaceutical drugs to nursing homes, to promote J & J’s branded drugs over less costly alternatives, in violation of the False Claims Act, 31 U.S.C. § 3729 (FCA), the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (AKS), and various state consumer protection laws.”  The United States intervened in the Lisitza action and argued that J & J caused Omnicare to submit false claims to Medicaid by falsely certifying reimbursement claims as compliant with the Anti-Kickback Statute.  The Court denied J & J’s motion to dismiss, holding that false certification of compliance with the Anti-Kickback Statute can be a basis for False Claims Act liability.  See United States ex rel. Lisitza v. Johnson & Johnson, et al., Civil Action Nos. 07-10288-RGS, 05-11518-RGS, 2011 WL 673925 (D. Mass. Feb. 25, 2011).  The Court also rejected J & J’s Rule 9(b) arguments, but granted J & J’s motion to dismiss relator Kammerer’s claims and certain of relator Lisitza’s claims based on the public disclosure and first-to-file bars.

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Recently, in United States ex rel. Banigan et al. v. Organon USA Inc. et al., a court in the District of Massachusetts was asked to consider whether a relator may use information obtained by the government through a government subpoena to bolster the relators’ complaint. See U.S. ex rel. Banigan, et al. v. Organon USA Inc., et al. Civil Action No. 07-12153, 2011 WL 794915 (D. Mass. Feb. 28, 2011). Relators brought a lawsuit against several pharmaceutical companies under the FCA and state false claims acts, alleging that the companies participated in a scheme to offer unlawful enticements to third parties to proscribe Remeron SolTab to patients, including patients on Medicaid. While the United States and various states declined to intervene, during the investigative stage, Texas subpoenaed documents from several of the defendants and shared those documents with relators. The defendants had produced the documents subject to a protective order which prevented the documents’ use after Texas concluded its investigation, subject to certain exceptions. After the investigation had concluded, the relators informed defendants that they intended to use information from the subpoenaed documents to bolster their allegations in a yet-to-be-filed third amended complaint.

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In United States v. Caremark, Inc., Case Nos. 09-50727 and 09-51053, the Fifth Circuit held that a pharmacy benefits manager may be found liable under Section 3729(a)(7) of the federal FCA under a theory of “indirect reverse false claims.”  In 1999, a former employee of pharmacy benefit manager, Caremark, Inc., filed a qui tam suit on behalf of the United States, Arkansas, California, Florida, Illinois, Louisiana, Tennessee and Texas. The complaint alleged that Caremark had improperly denied reimbursement requests for patients that were eligible for dual coverage under the private health plan administered by Caremark as well as under Medicaid. Although states generally receive at least 50% of their funding from the federal government for Medicaid expenditures, federal regulations also require the states to seek reimbursement from private insurers for dual-eligible patients and do not provide for federal funding in such instances. Thus, Caremark’s rejection of coverage to otherwise eligible patients allegedly caused the federal and state governments to pay claims that should have been paid by Caremark. The United States and the various states intervened in this action in 2005 and 2006.
 

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The False Claims Act is well known for the rewards that successful whistleblowers may receive pursuant to 31 U.S.C. § 3730(d)(1). Much less attention, however, is directed to § 3730(d)(2) of the FCA, which provides for the award of reasonable expenses and attorney’s fees in cases where a relator prevails and the Government has not intervened. A recent decision in United States ex rel. Feldman v. Van Gorp, et al., (Feb. 9, 2011 S.D.N.Y.) demonstrates why the availability of attorney’s fees is an important consideration that FCA defendants should keep in mind.

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This is Part II of our post on Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-1888, a case in which the U.S. Supreme Court heard oral argument last week. At issue in Schindler is whether a federal agency’s response to a Freedom of Information Act request (“FOIA request”) is a “report . . . or investigation” within the meaning of the False Claims Act’s public disclosure bar, 31 U.S.C. § 3730(e)(4).

Part I of our post provided factual background about the FOIA request at issue in Schindler, the Second Circuit’s decision in the case, and the circuit court split on the issue. Today, we discuss some of the key arguments made in the amicus brief submitted jointly by the American Hospital Association (“AHA”) and Pharmaceutical Research and Manufacturers of America (“PhRMA”) and highlights of the oral argument before the Supreme Court.

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On March 1, 2011, the United States Supreme Court heard oral argument in Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-1888. The Schindler case is the third time since 2007 that the Supreme Court has addressed the scope of the False Claims Act’s public disclosure bar. See Graham County Soil & Water Conservation Dist. v. United States ex. rel. Wilson, 130 S. Ct. 1396 (2010); Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). At issue in Schindler is whether a federal agency’s response to a Freedom of Information Act request (“FOIA request”) is a “report . . . or investigation” within the meaning of the False Claims Act’s public disclosure bar, 31 U.S.C. § 3730(e)(4).

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• The government settled 21 cases involving allegations of off-label marketing of drugs between 2004 and 2010.
   
• 95% of the government’s investigations in these 21 instances were initiated by a qui tam complaint filed pursuant to the False Claims Act.
   
• The government recovered $7.9 billion in criminal fines and civil settlements in these 21 cases.
   
• 52% of the settlements were in excess of $100 million each.
   
• The U.S. Attorney’s offices for the District of Massachusetts and the Eastern District of Pennsylvania were responsible for 13 of the 21 settlements, for which $7 billion (or 89% of the total proceeds) was recovered.
   
• Drug companies were required to enter into Corporate Integrity Agreements in 81% of the cases.
   
• Criminal pleas were made in 72% of the cases.
  
  
  • felony pleas were made in 29% of the cases
     
  • misdemeanor pleas were made in 43% of the cases

• 80% of the criminal pleas were made in cases handled by the U.S. Attorney's offices for the District of Massachusetts and the Eastern District of Pennsylvania.

On March 31st, I will be speaking about the types of conduct that are likely to trigger an off-label marketing investigation by the government at ACI’s 11th National Forum on Fraud and Abuse in the Sale and Marketing of Drugs, taking place at the Millennium UN Plaza. If you are interested in attending this conference, please click here.  For more FCA statistics, click here and here.
 

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On February 10, 2011, the United States District Court for the Eastern District of Virginia denied defendant MedStar Health Visiting Nurse Association’s (“MedStar”) motion to dismiss the relator’s second amended complaint, finding that the relator had pled sufficient facts to demonstrate scienter and shared intent to defraud the government for purposes of surviving dismissal. See United States ex rel. Decesare, et al. v. Americare In Home Nursing, et al., No. 1:05cv696, 2011 WL 607390 (E.D. Va Feb. 10, 2011).  The relator alleged that MedStar and Americare paid kickbacks to a referral agency in exchange for referrals. The relator further alleged that MedStar and other defendants violated the False Claims Act, the Virginia Fraud Against Taxpayers Act, and the District of Columbia Procurement Reform Amendment Act in connection with certifications of Medicare and Medicaid cost reports that stated, among other things, they were not obtaining services procured through the payment of a kickback. The government declined to intervene in the action.

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