On April 28, 2017, the United States District Court for the District of Massachusetts dismissed a relator’s qui tam complaint in United States ex rel. Leysock v. Forest Laboratories, Inc. after concluding that the complaint relied on information obtained resulting from deceptive conduct by the relator’s counsel.

In Leysock, the relator alleged that the defendant caused the submission of false claims to Medicare by promoting Forest’s dementia drug, Namenda, for off-label label use. After the United States declined to intervene, Forest filed a motion to dismiss, which the Court denied, largely based upon detailed allegations about eight prescribing physicians who prescribed Namenda for off-label use by Medicare beneficiaries. These allegations, the Court reasoned, were sufficient to satisfy Federal Rule of Civil Procedure 9(b), which in False Claims Act cases typically requires plaintiffs to plead specific allegations regarding the alleged fraud, tying alleged misconduct to the submission of false claims to a government payor.

Through discovery, Forest subsequently learned that relators’ counsel had obtained the information underlying these detailed allegations from a survey conducted by an individual whom relators’ counsel had contracted. This contractor misled the physicians about why he was conducting the survey (not disclosing that he had been retained by the relators in a False Claims Act action) and coaxed the physicians into turning over detailed patient information to the contractor.

In response, the Court concluded that this deception violated Massachusetts Rules of Professional Conduct Rule 4.1(a), which prohibits a lawyer or his agent from knowingly making a false statement of material fact or law to a third person. Consequently, the court concluded, this conduct violated Local Rule 83.6.1 of the United States District Court. As a remedy, the Court struck these allegations, noting that “[the contractor’s] study was conducted solely for the purpose of ensuring that the complaint survived a motion to dismiss,” i.e., to ensure that the complaint satisfied Rule 9(b)’s particularity requirement.

Although the relators’ conduct in this case is unlikely to be repeated in future cases, this case underscores the challenges relators can face in meeting Rule 9(b)’s particularity requirement. These challenges are particularly acute in non-intervened qui tam cases, where the government fails to provide the relator with information about specific false claims that the defendant allegedly submitted or caused to be submitted. Imposing these challenges will continue to chill would-be relators, without firsthand knowledge of wrongdoing, from bringing meritless qui tam cases.

This April, providers cheered when a federal district court in the Middle District of Florida found insufficient evidence to support a relator’s theory that a hospital had provided free parking to physicians, in violation of the Stark Law and Anti-Kickback Statute (AKS). In the Report and Recommendation for United States ex rel. Bingham v. BayCare Health Systems, 2017 WL 126597, M.D. Fla., No. 8:14-cv-73, Judge Steven D. Merryday of the Middle District of Florida endorsed magistrate judge Julie Sneed’s recommendation that Plaintiff Thomas Bingham’s Motion for Partial Summary Judgment be denied and that Defendant BayCare Health System’s Motion for Summary Judgment be granted. However, as we discussed in a previous FCA blog post regarding these allegations, this type of case encapsulates a worrying and costly trend where courts allow thinly pleaded relator claims in which the government opted not to intervene, to survive past the motion to dismiss stage into the discovery phase of the litigation.

Bingham is a serial relator who practices as a certified real estate appraiser in Tennessee and was unaffiliated with BayCare. In his latest attempt, Bingham alleged that BayCare Health System had violated the Stark Law and the AKS by providing affiliated physicians free parking, valet services and tax benefits to induce physicians to refer patients to the health system. Continue Reading A Hospital’s Deserving Stark and AKS Victory—But At What Cost?

Companies may think their documents are safe from disclosure based on confidentiality agreements with employees, but a recent decision in the Northern District of Illinois highlights the risk that courts will permit a relator to keep company documents after a False Claims Act (FCA) suit is filed — even potentially privileged documents — and not enforce contractual restrictions that relators have violated. Upon unsealing of the FCA complaint in U.S. ex rel. Shmushkovich v. Home Bound Healthcare, Inc., the defendant placed the relator on administrative leave and requested the return of its property. Despite the defendant’s request, the Northern District of Illinois allowed the relator to retain the defendant’s documents relevant to his FCA claims, even though he had not obtained them in discovery.

Noting its broad discovery discretion, the wide range of activity protected by the FCA and the public policy favoring facilitation of FCA claims, the court did not order the return of the documents, though it required the relator to provide the defendant with a list of the documents he retained and to destroy any documents not relevant to his claims. Furthermore, the court did not order return of potentially privileged documents, though the court held that the relator’s possession was not by itself a waiver of privilege. The court stated that if relator’s counsel reviewed any documents later deemed improperly held, it would hold a hearing to determine whether the defendant was injured by relator’s counsel’s access to privileged documents.

In support of its decision, the court noted that a number of courts have recognized a public policy exception to enforcement of nondisclosure agreements where the information is used in a FCA investigation. The court defended this protection of self-help discovery by noting that courts only permit retention where the documents reasonably relate to the formation of an FCA case, and that ordering return of documents is inefficient, as documents will “inevitably be recovered” in discovery.

The decision highlights the importance of companies keeping a tight rein on access to attorney-client privileged documents and highly sensitive business documents, even where strong non-disclosure agreements seem to afford protection. Because, according to this court, a relator can retain company documents relevant to FCA claims, this shifts control over relevance and privilege decisions from the defendant to the relator. Necessarily, the views of a company and a relator will differ on these issues. Thus, companies should take steps to limit the number of employees who have access to privileged and highly sensitive documents – which is also a good strategy to demonstrate the company’s intent to keep the materials confidential in the first place, in the event there is subsequent litigation over privilege and business sensitivity issues.