Kellogg Brown & Root Services Inc v. United States ex rel. Carter
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When a Bar is Not a Bar: First Circuit Denies En Banc Rehearing of First-To-File Bar Ruling

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) – [...]

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On Remand, Eastern District of Virginia Narrowly Construes Supreme Court’s KBR Holding

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 [...]

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