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District Court Tosses Complaint After Finding of Misconduct

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.

Recent Central District of California Opinion Confirms that Adding Fraud Allegation Is Insufficient to Overcome Public Disclosure Bar

In a decision last week in United States v. Scan Health Plan, 2:09-cv-05013-JFW (C.D. Cal. June 1, 2015), the United States District Court for the Central District of California ruled that a State of California Controller’s Office (SCO) audit concluding that Scan Health Plan “appeared to be receiving duplicative or overlapping payments” from Medicare and Medi-Cal for the same services, qualified as a public disclosure under the False Claims Act (FCA). In so ruling, the court held that the relator’s claim was at least partially based upon the audit, and, thus, he was not entitled to any portion of the existing settlement unless he could prove he was an original source under the FCA. This is particularly relevant as the relator’s allegations differed in some ways from the conclusions of the SCO audit.

The relator in this case was a former Scan employee who learned in 2006 and 2007, after he left the company, that Scan had potential overpayments from its Medi-Cal contract. The relator provided this information to a California state senator, who initiated the SCO audit. The SCO completed its audit, which included an interview of the relator, in 2008. The relator received a copy of the SCO audit prior to July 13, 2009, and sent that copy to the Office of Inspector General (OIG). On July 13, 2009, relator filed a qui tam complaint against Scan. In 2012, Scan settled a U.S. Department of Justice investigation for $322 million.

The relator filed a summary judgment motion seeking a determination the public disclosure bar did not apply (and thus that he would be entitled to a portion of the settlement)—he did not seek a ruling on whether he was an original source of the information. The government opposed the motion, arguing that the SCO audit was clearly a public disclosure on which the relator based his allegations.

The court agreed that the SCO audit met all of the requirements of the public disclosure bar. Most pertinently, the court agreed that the relators claim was “based upon” the audit despite the fact that the relator added an allegation of fraud, including that Scan was responsible for certain acts that the SCO audit had attributed to others. However, the judge ruled that because the relator’s complaint was “at least partially based upon the SCO Report, the additional fraud allegation does not support the conclusion that [relator’s] Complaint is not ‘based upon’ the SCO Report.”

After the ruling, the court held that the parties could have additional time to file cross-motions relating to whether the relator was an original source. In this case, the court has yet to determine whether the relator will be able to make any showing that he was an original source, and thus share in the already-determined settlement. However, the ruling demonstrates that adding a fraud allegation—regardless of small factual differences from any public documents—does not allow a relator to overcome the first step in the public disclosure inquiry. In such a situation, a relator must satisfy [...]

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