Monday, November 26, 2012

Government May Not Issue Civil Investigative Demand After Underlying False Claims Act Case Dismissed With Leave to Amend

Ben Vernia at False Claims Counsel blog has highlighted a recent False Claims Act case involving a matter of first impression: whether a District Court may quash a Government’s Civil Investigative Demand (CID) that was issued after the underlying case was dismissed without prejudice. United States v. Kernan Hospital, 2012 WL 5879133 (November 20, 2012, D. Md).   

“[B]efore commencing a civil proceeding” pursuant to the False Claims Act, section 3733 of the False Claims Act (31 U.S.C. 3733(a)(1)) permits the Attorney General or his designee to issue a CID to a person and/or entity “who may be in possession of information relevant to a false claims investigation.” The CID may compel the recipient to “produce information that is in the form of documents, answers to interrogatories, or oral testimony.” The question before the Kernan Hospital Court was whether the Court's previous dismissal of a False Claims Act case, though without prejudice to the Government to file an amended complaint, puts the Government “in the same position as though [a] suit had not been filed” -- as if it had not commenced a civil proceeding. 

For three years prior to filing suit, the Government investigated Kernan Hospital for allegedly violating the False Claim Act as well as committing other common law torts. As part of its investigation, the Government obtained thousands of pages of documents from Kernan pursuant to a subpoena issued by the Office of Inspector General and, pursuant to a CID, testimony from Kernan Hospital’s Director of Health Information Management. After filing suit, Kernan Hospital moved to dismiss due to the Government’s failure to plead fraud with particularity pursuant to Fed. R. Civ. P. 9(b) and the Court agreed, dismissing the case, though with leave for the Government to amend to restate its claims. After its suit was dismissed, the Government issued another CID requesting additional documents from Kernan.

The Court found that section 3733 did not permit the Government to serve a CID after the False Claims Act case has been filed, even though it was later dismissed with leave to amend. The Court observed that “the civil investigative demand is a prefiling investigative tool that Congress created to aid the Government in deciding whether to file suit in the first place.”  Additionally, the Court rejected the Government’s argument that quashing its most recent CID “would prevent it from obtaining the information it needs to cure pleading deficiencies.” Essentially, the Court found that the Government had a complete and thorough opportunity to investigate the case before it filed suit, and that the Government had taken “full advantage” of its powers to investigate pre-suit. Hence, while the Government may amend its complaint, the Court noted that “this opportunity does not grant the Government the right to rehash the prefiling investigation that it conducted for over three years.”

A. Brian Albritton 
November 26, 2012

Thursday, November 22, 2012

Court Rejects Attempt to Stretch Off-Label Marketing Liability to Prescriptions Outside Drug Label Guidelines

In US ex rel. Polansky v. Pfizer, 2012 WL 5595933 (E.D.N.Y., Nov. 15, 2012), U.S District Judge Cogan rejected a relator’s attempt to stretch False Claims Act liability for the “off-label marketing” of drugs to include instances where physicians prescribe prescription drugs to patients outside of the drug label guidelines.

In Polansky, the relator brought a qui tam pursuant to the False Claims Act alleging that Pfizer illegally marketed its cholesterol lowering drug, Lipitor, to patients whose “risk profiles fell outside” the recommended parameters for using cholesterol lowering drugs that are set forth in the National Cholesterol Education Program Guidelines (NCEP Guidelines) and which are referenced in Lipitor’s “label". Simply stated, the relator contended that the label which accompanied Lipitor (which the Court described as the size of a “pamphlet” or “brochure”) “restricts the prescription of Lipitor to patients within the NCEP Guideline range.”

The relator, stated the Court, appeared to be arguing that “any marketing of the drug for patients outside the Guidelines’ range is ‘off-label marketing,’ resulting in the filing of false claims . . .” Applying the relator’s theory, the Court explained:  

Thus, if a Pfizer representative told a doctor that he should prescribe Lipitor to any of his patients who smoke and have a bad family cardiac history (i.e., two risk factors) and LDL levels of 131 mg/dl or more that advice would be proper because that patient falls within the Guideline range. However, change the number in the sales pitch to 125 mg/dl, or even 129 mg/dl, and any prescription issued by a doctor who relied on that advice, and which Medicare or Medicaid subsequently reimbursed, would constitute a false claim. 
Dismissing the relator’s 5th Amended Complaint with prejudice, the Court held that the "False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit. . . . . . Off-guideline does not equate to off-label.” The Court provided three chief reasons in support of its holding. First, the Court noted that the NCEP Guidelines are, in fact, non-compulsory, advisory, guidelines: there is nothing in the drug’s label or the Guidelines themselves which transforms the NCEP Guidelines into a mandatory limit. “[A]s long as Pfizer markets the drug to lower cholesterol,” the Court observed, “it is doing what the label permits.” Second, the Court observed that the FDA could have very easily included restrictive language in its label –as it “commonly requires” -- limiting the use of Lipitor only to those patients who fall within the Guidelines, but it did not. Third, the Court found that other regulatory authorities such as Medicare and state Medicaid programs had not passed any regulations or restrictions that prevented a physician from prescribing statins when he or she finds that a patient would benefit from lowered cholesterol.

As we saw in the Renal Care Group case, the Polansky case is another instance where courts apply a common sense analysis and refuse to permit the False Claims Act to be used as a “back-door regulatory regime.”

A. Brian Albritton 
November 22, 2012

Tuesday, November 13, 2012

Wells Fargo Seeks to Enforce Forclosure Settlement and Stop Government False Claims Act Suit

In October of this year, the U.S. Attorney for the Southern District of New York (SDNY) sued Wells Fargo Bank, N.A. pursuant to the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the suit, the government alleged that for 10 years while participating in the Federal Housing Administration (“FHA”) Direct Endorsement Lender Program, Wells Fargo falsely certified thousands of loans to be eligible for FHA insurance and that as a result of Wells Fargo’s false certifications, “FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.” Specifically, the suit alleges that “between May 2001 and October 2005 . . . . . although Wells Fargo certified to Housing and Urban Development (HUD) that its retail FHA loans met HUD’s requirements for proper origination and underwriting, and were therefore eligible for FHA insurance, the bank knew that a very substantial percentage of those loans – nearly half in certain months – had not been properly underwritten, contained unacceptable risk, did not meet HUD’s requirements, and were ineligible for FHA insurance.  . . . . . The extremely poor quality of Wells Fargo loans was a function of management’s nearly singular focus on increasing the volume of FHA originations – and the bank’s profits – rather than on the quality of the loans being originated." According to the Complaint, the bank further compounded its misconduct by failing to comply with HUD self reporting requirements and reporting only 300 of the 6,558 “seriously deficient loans that it was required to report.” The case is U.S. v. Wells Fargo Bank N.A.,12-cv-7527, U.S. District Court, Southern District of New York, and a copy of the complaint is found here.
In an interesting twist just last week, Wells Fargo sought to forestall the SDNY’s False Claims Act case by filing a Motion to Enforce Consent Judgment in a case previously brought by the Department of Justice and 49 attorneys general against Wells Fargo and other banks alleging abusive foreclosure practices. That case was settled in April of this year, and Wells Fargo reported that it “committed over $5 billion and, in exchange, obtained a broad written release which the court entered as part of its Consent Judgment. According to Wells Fargo, the release provided, among other things, that the government “cannot bring a claim against Wells Fargo based on conduct covered by Wells Fargo’s annual certifications to HUD regarding its FHA program participation, such as conduct related to Wells Fargo’s quality control (including self-reporting), underwriting, and due diligence programs,” which would include the conduct at issue in the New York case. The Motion argues that the government violated the terms of its settlement by filing the False Claims Act suit against it. Wells Fargo filed its Motion in U.S. v. Bank of America Corp., et al., 12- cv-00361 (U.S. District Court, District of Columbia). A copy of the motion and memorandum authored in part by Douglas Baruch of Fried, Frank are found here and here.

A. Brian Albritton
November 13, 2012

Sunday, November 11, 2012

Whistleblower Counsel Going International: Focus on FCPA and Pharmaceutical Cases

Corporate Crime Reporter recently published an interview with Neil Getnick, a well known and successful plaintiff's attorney whose firm, Getnick and Getnick LLP, specializes in, among other things, federal and state whistleblower (qui tam) cases on behalf of relators and whistleblowers. The interview notes that Mr. Getnick seeks to catch the "next wave" of whistleblower cases: cases arising internationally. Getnick and Getnick is launching a "global anti-fraud and corruption unit focusing on international whistleblower cases."

In part, Mr. Getnick was referring to "Foreign Corrupt Practices Act (FCPA) whistleblower cases." The Foreign Corrupt Practices Act, 15 U.S.C. sec. 78dd-1 et seq, makes it unlawful to bribe or pay foreign officials to obtain or retain business, and according to the U.S. Department of Justice, requires that public companies "(a) make and keep books and records that accurately and fairly reflect the transactions of the corporation, and (b) devise and maintain an adequate system of internal accounting controls." The Securities and Exchange Commission's whistleblower program instituted in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) rewards individuals who assist the SEC in uncovering securities violations including violations of the FCPA. 

Mr. Getnick's anticipated focus on FCPA whistleblower cases should not come as a surprise. For example, in an article discussing the ramifications of the Dodd-Frank Act, the Arent Fox firm predicted that the passage of the Dodd-Frank whistleblower provisions will "likely result in the development of a 'cottage industry' with law firms and consultants stepping up to solicit potential FCPA whistleblowers." "To put this in context," the firm explained, "the fees collected worldwide in the recent Siemens FCPA investigation amounted to approximately $1.6 billion. Accordingly, a qualified whistleblower could have potentially received up to $480 million under this new program. The substantial financial incentives to potential whistleblowers will likely result in a significant increase in FCPA investigations initiated by the government as employees or informants perceive a big pay-off for information."

Along with the FCPA, Mr. Getnick predicted more "international cases targeting pharmaceutical manufacturing practices" such as the 2010 case against GlaxoSmithKline (GSK). In that case, the Getnick firm "successfully targeted [GSK's] largest pharmaceutical plant in the world for violating FDA current good manufacturing practices and selling adulterated drugs." "Pharmaceutical manufacturing companies are moving their plants overseas," Mr. Getnick observed, and if those pharmaceuticals are manufactured in a manner that violates FDA regulations and subsequently sold to the Medicare or Medicaid programs in the U.S., then "there is a sufficient nexus to assert jurisdiction in the United States" pursuant to the False Claims Act.

A. Brian Albritton
November 11, 2012