United States: Putting The False In False Claims Act Cases

Last Updated: November 15 2016
Article by Eric Alexander

People send us things to consider discussing in our posts. Usually, those things are court decisions in drug and device cases. Sometimes, they are so far afield from our comfort zone that we do not give them much consideration. This week, we received a motion from a False Claims Act case that we thought was interesting enough to enlist a colleague to add some subject matter expertise while we fretted about the election, work, the election, and some other stuff (i.e., the election). Much of the credit for this post goes to Andy Bernasconi, a fine lawyer for a crazy Red Sox and Patriots fan.

While we do dabble in the FCA on this blog, we lean on Andy for a quick primer on the FCA's provisions. Congress originally passed the FCA in 1863 as a way to deter and punish government contractors' fraud against the U.S. and Union troops during the Civil War. The statute (as amended) generally creates liability for any person who knowingly submits a materially false claim demanding payment from the United States. See 31 U.S.C. § 3729(a)(1). An FCA violation is punishable by treble damages, civil penalties of up to $21,563 for each false claim, and an award of attorneys' fees. Id. §§ 3729(a)(1) &(3); id. § 3730(d)(1); 81 Fed. Reg. 42491 (June 30, 2016).

One of the most notable aspects of the FCA is that it contains unique qui tam provisions that permit a private whistleblower, also known as a "relator," to file FCA claims on behalf of the federal government. Id. § 3730(b)(1). In doing so, the relator files the case under seal, at which point the Justice Department investigates the allegations and decides whether the government will intervene and take over the case to litigate for itself. Id. §§ 3730(b)(2), (4). If the government declines to intervene in the case, the relator may litigate the case in the name of, and on behalf of, the government. Id. § 3730(c)(3).

To encourage whistleblowers with personal knowledge of fraud against the government to come forward, the statute provides a "bounty" or relator's share of up to 30% of a settlement or judgment in an FCA case filed by a whistleblower. The relator's bounty varies depending on whether the government intervenes in the case, and the extent of the relator's efforts in bringing the case to successful resolution. The relator thus is entitled to between 25-30% of any settlement or judgment in the case when the government declines to intervene and the relator litigates the case on its own, and is entitled to 15-25% of the recovery if the government intervenes and litigates the case on its own. Id. §§ 3730(d)(1)-(2).

These numbers can and do add up quickly due to the trebling of damages and per-claim civil penalties. Cases against health care providers, drug and device companies, and other government contractors have resulted in recoveries of hundreds of millions, and even billions, of dollars. Considering the relator's bounty in that context, it is easy to see that there can be an enormous incentive to bring FCA claims, convince the government to intervene, and get past the motion to dismiss stage—often the point when such cases resolve.

The problem is that these incentives bring out of the woodwork not only legitimate whistleblowers with facts about actual fraud, but also relators without real facts who are simply seeking a financial windfall. Any regular reader would be shocked that we would be suspicious of the motives of plaintiffs and their counsel, but the allegations—just allegations at this point, which we have seen in a redacted form—in U.S. ex rel Leysock v. Forest Laboratories LLC et al., Case No. 12-cv-11354-FDS (D. Mass.), seemed to be worth sharing. The relator in Leysock originally filed in 2012 with broad allegations that the defendant violated the FCA by improperly marketing certain of its drugs. After the government declined to intervene, the relator filed an amended complaint that abandoned the prior claims and asserted new FCA allegations that defendants improperly caused the submission of Medicare claims for the off-label use of one of its drugs (indicated for moderate-to-severe Alzheimer's Disease). The defendants moved to dismiss the complaint, arguing that the complaint failed to state a claim and failed to allege fraud with the particularity required by Rule 9(b). The court denied the motion in most respects and explicitly relied on allegations about specific patients to hold that the complaint satisfied the Rule 9(b) pleading requirements. U.S. ex rel Leysock v. Forest Labs., Inc., 55 F. Supp. 3d 210, 218-219 (D. Mass. 2014) (finding that allegations as to eight specific patients were sufficient to satisfy Rule 9(b) pleading standards).

Rather than just settle, the defendants pursued discovery and successfully moved to compel on where the relator came up the information about specific patients. Apparently, relator's counsel had retained a physician (a former National Institutes of Health researcher) to help counsel obtain medical records for use in the litigation. However, according to the motion to dismiss, that physician – at counsel's direction – misled other physicians into turning over confidential patient information, medical records, and data under the guise of conducting a research study concerning dementia patients, and under the further guise that the information would not be disclosed to any third party and would be used only for research purposes; misled a healthcare consulting firm with physician databases into identifying physicians from whom to seek information; and asked physicians compound and ambiguous questions – developed by relator's counsel – about their prescribing practices so the ambiguous answers could be used to support the FCA claims crafted by counsel. In reality, there was no research study, and it appears that the confidential information collected was designed and intended to be used as factual allegations in the complaint, for the purpose of helping relator's counsel survive a motion to dismiss – and some of the information collected ended up in relator's amended complaint. As relator probably hoped, these allegations were precisely what the court relied upon in ruling that the amended complaint was sufficient to deny a motion to dismiss.

This was the end of the story, with an alleged crime going not only unpunished, but potentially richly rewarded. On October 10, 2016, defendants filed another motion to dismiss, asking the court to dismiss the case in its entirety on the grounds that relator's counsel's "deceit" in obtaining confidential information for use in the amended complaint resulted in violations of legal ethics, bioethical rules and laws, and patient privacy principles. Without the information obtained through relator counsel's deceit, the motion reasons, the case would not have survived a motion to dismiss in the first instance; and in any event, permitting relator's claims to proceed would encourage similar abuses in the future. We will be looking to see what relator has to say and whether the court here is as annoyed at having been duped (allegedly) as we might expect.

If counsel for relators in FCA cases are pursuing tactics like this, then maybe these tactics are being pursued in other cases and maybe defense lawyers should be on the lookout for them. It is certainly true that the purported conduct described in the pending motion underscores the flaws with the qui tam bounty scheme: it creates extraordinary financial incentives for relators and counsel alike to burden defendants' and courts' resources with meritless FCA claims. Due to the risk of enormous litigation exposure and the burdens of litigating complex cases of alleged fraud, numerous defendants have settled FCA cases because they could not justify the potential costs to litigate the case and roll the dice at trial. See Ohio Hosp. Ass'n v. Shalala, 978 F. Supp. 735, 740 n.6 (N.D. Ohio 1997), aff'd in part, rev'd in part, 201 F.3d 418 (6th Cir. 1999) ("[T]he risk of loss in a False Claim[s] Act case carries potentially devastating penalties, ... unlike most litigation or even an administrative recoupment action. . . ."); see also Sharon G. Finegan, The False Claims Act and Corporate Criminal Liability: Qui Tam Actions, Corporate Integrity Agreements and the Overlap of Criminal and Civil Law, 111 Penn St. L. Rev. 625, 674-675 (2007) (observing that "[t]he potential for the imposition of significant penalties is enough to cause many defendants to think twice about taking a case to trial, even if the plaintiff's case is unlikely to succeed. Thus, many qui tam cases are not adjudicated before a judge, but decided in negotiations between lawyers"); Joan H. Krause, Twenty-Five Years of Health Law Through the Lens of the Civil False Claims Act, 19 Annals Health L. 13, 15 (2010) ("Faced with potential exposure in the tens or hundreds of millions of dollars, it is no wonder that most defendants choose to settle FCA allegations rather than testing their luck at trial."). Thus, a relator or relator's counsel has an enormous incentive to obtain sufficient information to survive a motion to dismiss an FCA complaint, which they may well be able to leverage into a settlement. The FCA's qui tam incentives thus are strong enough to encourage relators/counsel to cut corners, violate ethical rules, and even to fabricate evidence; indeed, the U.S. Chamber Institute for Legal Reform in 2013 proposed statutory amendments to the FCA that would "decreas[e] unhealthy incentives for frivolous litigation and coercive out-of-court settlements." See U.S. Chamber Institute for Legal Reform, Fixing the False Claims Act at 8 (Oct. 2013), available at http://www.instituteforlegalreform.com/research/fixing-the-false-claims-act-the-case-for-compliance-focused-reforms .

In drug and device product liability cases, we have seen our share of sleazy conduct from the other side. It takes committed clients and open-minded judges to make them pay for conduct, even if it takes ancillary proceedings to do it. As we said, we do not know if the Leysock counsel and their "researcher" did what has been alleged. If they did, however, then dismissal of the relator's case, costs and sanctions assessed against his counsel, and loss of licenses for the counsel and their "researcher" may be coming. And, maybe, anyone considering a fraudulent scheme to pursue a FCA case may think twice.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions