As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator. Continue Reading DOJ Issues Memorandum Outlining Factors for Evaluating Dismissal of Qui Tam FCA Cases in Which the Government Has Declined to Intervene
On September 18, 2017, the Tenth Circuit reversed a decision of the US District Court for the District of Utah in United States ex rel. Little v. Triumph Gear Sys., Inc. In doing so, the Tenth Circuit concluded that the False Claims Act’s first-to-file bar extends to situations where relators’ counsel substitute parties prior to the initial complaint even being unsealed.
In this case, relator Joe Blyn brought a qui tam action against a government contractor, alleging that he witnessed instances of fraud. The initial complaint named Blyn and three John Does as relators. The following year, Blyn and the John Does “vanished” from the action with Blyn’s counsel, David Little, instead naming himself, and Kurosh Motaghed as the sole relators. After the court unsealed the action, Triumph moved to dismiss the amended complaint, arguing that the substitution of parties triggered the “first-to-file” bar, which prevents private parties from intervening in existing actions or filing related actions based on the facts of the underlying action. The district court denied Triumph’s motion to dismiss, ruling that replacing the relator in this manner did not contemplate an “intervention” for purposes of 31 U.S.C. § 3730(b)(5).
The Tenth Circuit reversed. The court noted that had Little merely added himself and Motgahed as relators and maintained Blyn as a third relator, such an addition would have merely been an amendment permissible under Federal Rule of Civil Procedure 15, which would not have triggered the first-to-file bar. As it happened, however, Blyn did not amend the complaint – Little and Motaghed did. And because amendments under Rule 15 may only be made by parties, the Tenth Circuit concluded that Little’s and Motaghed’s actions constituted an “intervention.”
Once Blyn was removed from the complaint, the court determined, the district court lacked jurisdiction over the case. Consequently, Little’s subsequent reinstatement of Blyn as a relator was ineffective. This case thus demonstrates the power and breadth of the first-to-file bar, and how defendants can use it effectively to address follow-on complaints.
On February 27, 2017, the US District Court for the Southern District of Mississippi granted a defense motion to dismiss False Claims Act (FCA) claims in United States ex rel. Dale v. Lincare Holdings, Inc., on the grounds that the claims were precluded by the FCA’s first-to-file bar.
The defendant, Lincare Holdings, Inc., is a national respiratory care provider that serves Medicare Part B patients via the sale and rental of medical oxygen supplies. The relator, a former salesperson for a Lincare subsidiary, filed his complaint on February 23, 2015, under seal, alleging that Lincare implemented a scheme to falsify and manipulate medical necessity testing in order to generate false reports that would allow it to sell oxygen and other Medicare-covered services to patients who were not medically qualified for coverage. The relator alleged that an office manager and nurse instructed employees to direct patients to take a variety of steps, such as raising their arms while attached to an oxygen sensor, in order to generate falsely low arterial oxygen saturation levels. The relator further claimed retaliatory discharge under the FCA. The United States declined to intervene on August 17, 2015, and the complaint was unsealed on August 24, 2015.
Granting a nearly year-old motion to dismiss, the court held that the relator’s FCA claims were precluded by the FCA’s first-to-file bar, finding that the “fraudulent scheme depicted in Relator’s complaint is largely based on the same underlying facts as the [United States ex rel. Robins v. Lincare, Inc.] scheme.” The first-to-file bar prohibits plaintiffs from being a “related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5). The Robins suit was filed first in the US District Court for the District of Massachusetts and the court found that there was a “substantial overlap in material facts” underlying the schemes alleged in each case such that the complaints are sufficiently related for purposes of the first-to-file bar. Continue Reading Medicare Part B Provider Secures Dismissal of FCA Claims Under First-to-File Bar
After a First Circuit Court of Appeals panel restored a relator’s False Claims Act (FCA) suit against PharMerica, a long-term care pharmacy, the First Circuit denied the company’s petition for rehearing and rehearing en banc on Monday, January 25, 2016 in U.S. ex rel. Gadbois v. PharMerica Corp. As a result, the relator will have another day in district court to pursue his allegations that the company submitted false Medicare and Medicaid claims by seeking reimbursement for drugs provided without a legal prescription– this time to argue for a chance to supplement his pleading to cure a lack of subject matter jurisdiction under the first-to-file bar.
The December First Circuit panel decision, and the decision to let it stand, is significant because the court addressed a matter of first impression to the First Circuit, deciding that that Federal Rule of Civil Procedure 15(d) is available to cure most defects in subject matter jurisdiction. Here, the defect in question is triggered by the FCA’s first-to-file rule, which provides that if a lawsuit involving the same subject matter is already pending, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The First Circuit stated that dismissals under the first-to-file rule should be without prejudice, allowing the claim to be refiled once the first-filed action is no longer pending. By allowing relators in such situations to supplement their original pleadings, relators can now overcome the lack of subject matter jurisdiction and resuscitate their FCA claims.
In the district court, PharMerica sought to dismiss the amended complaint filed in 2011. The district court agreed that the first-to-file bar barred the relator’s claims because a pending action in the Eastern District of Wisconsin was filed earlier, and thus dismissed the case for lack of subject matter jurisdiction. During the appeal briefing, however, as the First Circuit stated, “the tectonic plates shifted”; two events completely changed the legal landscape. First, the Supreme Court announced its decision in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), interpreting the phrase “pending action” used in the first-to-file bar. The Supreme Court interpreted the statute to mean that “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Id. Second, the Wisconsin lawsuit – the first-filed action that had served as the bar to the relator’s amended complaint under the first-to-file bar – was dismissed.
These two events, according to the First Circuit panel, “dissolved the jurisdictional bar that the court below found dispositive. Under the circumstances, it would be a pointless formality to let the dismissal of the second amended complaint stand — and doing so would needlessly expose the relator to the vagaries of filing a new action.” The court thus held that Federal Rule of Civil Procedure 15(d) – which allows a party to supplement a pleading to address “any transaction, occurrence, or event that happened after the date of the pleading to be supplemented” – could address subject matter jurisdiction defects, and stated that the relator could seek to supplement his complaint to address the dismissal of the Wisconsin case. Given the discretion granted to the district court under Rule 15, however, the panel remanded the case to the district court to decide whether to allow the relator to supplement the complaint.
This decision extends the reach of the Supreme Court’s decision in Carter weakening the first-to-file bar. Cases dismissed on the basis of the first-to-file bar can potentially be revived months or years later after the first-filed case is dismissed. The First Circuit’s decision thus increases the lack of finality that companies often face in FCA cases. On a more general note, it shows the somewhat unique challenges that companies face defending against FCA cases. Given that cases are often pending for years, the governing rules of the game can change at any point. Relators are highly incentivized to litigate procedural and jurisdictional issues because of the huge potential recovery that awaits a successful FCA relator. For this reason, defense against FCA claims should rarely proceed on a singular strategic focus, such as a procedural challenge to the relator’s complaint.
In a November 12, 2015 decision in a long running qui tam suit under the False Claims Act (FCA), the U.S. District Court for the Eastern District of Virginia dismissed a relator’s case pursuant to the first-to-file bar (31 U.S.C. § 3730(b)(5)) for the second time. The case, including the meaning of the first-to-file bar, was the subject of a May 26, 2015 Supreme Court decision on which we previously reported. (Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015) (“KBR”)). In that decision, the Supreme Court interpreted the word “pending” in the first-to-file bar to mean that the bar is inapplicable if the first-filed suit has been dismissed.
On remand in the district court, the defendants again moved to dismiss on first-to-file grounds. The relator argued that although there were prior actions asserting similar claims pending at the time he filed his case, the fact that such actions had since been dismissed meant that, under the Supreme Court’s decision, the first-to-file bar was inapplicable. The district court explained, “Carter believes the dismissal of the earlier actions automatically advanced him to the first-filer position, even though he filed this case when those actions were pending in 2011. For the following reasons, Carter interprets [KBR] too broadly.” The district court found that whether the first-to-file bar applies depends on whether the prior action is pending at the time the second case is filed; subsequent dismissal of the prior action is irrelevant. The first-to-file bar is not assessed “mid-course whenever an earlier suit is dismissed.”
The district court held that this result does not conflict with the Supreme Court’s holding, which was narrow and only concerned whether “new claims” would be barred by dismissed cases. According to the district court, the Supreme Court did “not purport to address what effect a dismissal has on existing claims that were previously barred.” The district court thus held that because the prior cases were pending when the relator filed his suit, the relator’s claims were barred, and the subsequent dismissal of those suits did not “automatically advance” the relator to first-filer position.
Moreover, in response to the relator’s request for leave to amend, the district court held that amendment would not cure the preclusive effect of the first-to-file bar, rejecting the relator’s assertion that a court should look at the facts in existence at the time an amended complaint is filed. The district court observed that “[i]n the first-to-file context, however, the timing of the [initial] filing carries the weight of jurisdictional relevance.”
The court did not dismiss the relator’s claims with prejudice, however, despite defense arguments that refiling would be foreclosed by the statutes of limitations and repose. The district court determined that doing so before any such refiling would effectively be issuing an advisory opinion, which it declined to do. Accordingly, there may be yet another chapter in this long-running litigation. But the district court’s rejection of the broad interpretation of the Supreme Court’s KBR holding advocated by the relator is certainly heartening for FCA defendants. In the Eastern District of Virginia, at least, defendants seeking dismissal of a case on first-to-file grounds can rely on the facts in existence at the time the case was filed.