Another District Court Dismisses Improperly Pled Implied Certification Claims

By on April 28, 2017
Posted In Materiality

On March 27, 2017, the United States District Court for the Eastern District of Pennsylvania dismissed a False Claims Act (FCA) complaint due to failure to satisfy the Supreme Court’s pleading standards for implied certification claims.

In U.S. ex rel. Schimelpfenig v. Dr. Reddy’s Labs. Ltd., the relators alleged that defendant Dr. Reddy’s Labs violated the False Claims Act (FCA) by causing the submission of claims for prescription drugs, which allegedly did not comply with two federal statutes; the Poison Prevention Packaging Act of 1970 (PPPA) and Consumer Product Safety Improvement Act of 2008 (CPSIA). As alleged by the relators, the defendants that manufactured the drugs failed to issue general conformity certificates for the prescription drugs imported and distributed in the United States, in violation of the CPSIA, and failed to test the packaging of the drugs for child-resistance in violation of the PPPA. The relators alleged that as a result of the noncompliance, drug retailers (also joined as defendants) submitted claims to government payers for federal reimbursement of noncompliant drugs.

The court recognized that under the Supreme Court’s decision in Universal Health Services, Inc. v. Escobar, to defeat a motion to dismiss, the relators needed to have alleged specific representations about the goods or services provided, as well as the defendants’ failure to disclose noncompliance with material legal obligations. In applying this standard, the court reached two conclusions.

First, the court concluded that the complaint failed to sufficiently allege that the defendants made or caused others to make specific representations. The court characterized the Supreme Court as having “an unwillingness to adopt a broad rule that holds all claims for Government payment constitute an implicit representation by the claimant that the claimant is legally entitled to the payment it seeks.” In the absence of any other specific representations other than the claims themselves, the court concluded that the relators’ complaint failed to satisfy the pleading standard for implied certification claims.

Second, the court concluded that compliance with the PPPA and CPSIA was not material to payment. The court noted that other than “broad conclusory statements,” the complaint failed to allege any legal obligation expressly tied to payment or any instance in which the government refused payment of a claim on the basis of noncompliance with the PPPA or CPSIA. Instead, the relators alleged only the importance of compliance with these statutes to patient safety. The court concluded that this was insufficient to allege materiality. Thus, Schimelpfenig is another case in which a court has rejected attempts to spin FCA claims out of alleged violations of other statutes or regulations, without more.