Wednesday, January 30, 2013

The Fourth Circuit Strictly Applies Rule 9 to Off-Label Drug Cases: U.S. ex rel. Nathan v. Takeda Pharmaceuticals

I commend to readers the recent blog posts at Sidley's Original Source blog and Ben Vernia's False Claims Counsel blog that discuss U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., (4th Cir. Jan. 11, 2013). In that case, the 4th Circuit recently upheld the District Court's dismissal of a qui tam alleging that a pharmaceutical company engaged in the "off-label" promotion of two different drugs that, in turn, allegedly resulted in prescriptions for medical uses that were not reimbursable under federal health insurance programs. The relator's complaint and amended complaints did not identify any specific false claims that were presented to the government. Rather, the relator argued that the defendant's scheme to promote off-label uses of its pharmaceuticals must inevitably have resulted in false claims for payment being presented to the government. The Court based its ruling affirming the dismissal of the relator's amended complaint on the combination of the "plausibility" standard for initial pleading found in Ashcroft v. Iqbal, 556 U.S.662, 678 (2009) and of Rule 9(b), Fed. R. Civ. P., which requires that a party plead fraud in the complaint with particularity.

The Court rejected the relator's argument that Rule 9(b) only required the relator to allege in his complaint "the existence of a fraudulent scheme that supports the inference that false claims were presented to the government for payment." Instead, the Court emphasized that the "critical question is whether the defendant caused a false claim to be presented to the government" since liability under the False Claims Act "attaches only to a claim actually presented to the government for payment, not to the underlying fraudulent scheme." Though it acknowledged cases where Rule 9's requirement to plead fraud with particularity was satisfied "in the absence of particularized allegations of specific false claims," the Court noted that in those cases, the "nature of the schemes alleged" and "specific allegations of fraudulent conduct necessarily led to the plausible inference that false claims were presented to the government." (emphasis added). Such cases are the exception, however. Rejecting a "relaxed construction" of Rule 9(b), the Court held "that when a defendant’s actions, as alleged and as reasonably inferred from the allegations, could have led, but need not necessarily have led, to the submission of false claims," then "a relator must allege with particularity that specific false claims actually were presented to the government for payment." (emphasis added).  

Thus, the 4th Circuit joins the 11th Circuit in finding that to survive a motion to dismiss, a relator must do far more than simply plead in his or her complaint that a scheme to defraud might have or could have resulted in false claims being presented to the government. The relator must allege that "specific identifiable claims" were presented to the government for payment or plead the scheme with sufficient particularity that it necessarily follows that false claims were presented to the government for payment.

A. Brian Albritton
January 30, 2013

Friday, January 18, 2013

DOJ Officials Reportedly Recommended Intervening in Qui Tam Against Lance Armstrong

The Wall Street Journal reports that U.S. Department of Justice "officials recommended joining" the sealed qui tam False Claims Act filed against former cyclist Lance Armstrong by his former teammate, Floyd Landis. Mr. Landis was the Tour de France winner in 2006, but was stripped of his title due to doping charges.

Though widely discussed in the press, the qui tam suit has not been unsealed, and neither DOJ nor Landis have confirmed its existence. The Wall Street Journal reports that a source who has seen the suit states that Landis alleges that Armstrong and team managers of the U.S. Postal Cycling Team "defrauded the U.S. government when they accepted money from the U.S. Postal Service." From what can be gleaned, the suit appears to be based on a false certification theory because the U.S. Postal Team contract "required that the team refrain from using performance enhancing drugs." Landis and other former team members are alleged to have testified that "Armstrong was at the center of a sophisticated doping ring and knowingly flouted the contract." The Journal reports further that the U.S. Postal Team received $30.6 million in sponsorship funds from the Postal Service, and the contract is reported to have provided that "negative publicity due to alleged possession, use or sale of banned substances by riders or team personnel would constitute an event of default as would a failure to take action if a rider violates a morals or drug clause."

According to the Wall Street Journal, Armstrong's legal team has been in settlement negotiations" with DOJ, but have been unable to reach an agreement thus far. Along with Armstrong, Landis also allegedly sued Johan Bruyneel, the U.S. Postal Team's director, and Thom Weisel, the former chair of the management company that owned the U.S. Postal Cycling Team.

This is an interesting suit. On the one hand, DOJ purportedly alleges that the Postal Service was defrauded because the Team promised not to let cyclists dope and failed to do so, while continuing to collect sponsorship money. On the other hand, the events at issue occurred many years ago -- the Postal Service sponsorship of the team ended in 2004 -- and given the success of the Team at the time, the Postal Service reaped the benefits and good will of its sponsorship during that period. According to U.S. ex rel Davis v. District of Columbia, did the government in fact receive the benefit of its bargain at the time?

A. Brian Albritton
January 17, 2013

False Claims Act Complaint Against Armstrong Unsealed

Kudos to the Pietragallo firm blog that first posted the Landis qui tam/False Claims Act Complaint against Lance Armstrong:  US ex rel Floyd Landis v. Tailwind Sports Corporation, et al, Case 1:0-cv-976 (D. D.C.).  Here is the complaint.  The complaint does not reflect that the U.S. Department of Justice has intervened.    Along with Lance Armstrong, the complaint lists 8 other defendants, including unidentified defendants, "Does 1 -50."

A. Brian Albritton
January 18, 2013

Thursday, January 3, 2013

Using the False Claims Act to Enforce Antidiscrimination Laws Against Local Governments

Relator counsel are continuing to find creative applications for the False Claims Act and to expand its reach. A recent Note by University of Texas law student Ralph C. Mayrell, Blowing the Whistle on Civil Rights: Analysing the False Claims Act as an Alternative Enforcement Method for Civil Rights Laws, 91 Tex. L. Rev. 449 (2012), advocates the use of the False Claims Act (FCA) to enhance the enforcement of antidiscrimination laws against local governments. In this thoughtful Note, the author asserts that the "FCA provides civil rights litigators with another avenue for enforcing antidiscrimination laws," and he sets out to "explain the legal theory through which civil rights litigators can effectively litigate claims against local government discriminators using the FCA." The author explains that civil rights laws frequently limit damages from local governments and require that a litigant be injured by a discriminatory practice in order to obtain standing. The FCA, he notes, is not hampered by such limitations.

It should come as no surprise that the article advocates basing FCA liability against local governments on the certifications of compliance with antidiscrimination laws that are commonly found in federal grants to local governments. As a concrete example, the Note focuses on "Community Oriented Policing Services" (COPS) grants that are given by the U.S. Department of Justice to local governments for the hiring of police officers and the creation of crime prevention programs. As is common with most federal grants, the COPS grants require that the grantee will not deny benefits or employment or discriminate against any person based on "race, color, religion, national original, gender, disability, or age" and make compliance with this condition a basis for termination of the grant or suspending funding. The grantee's failure to adhere to these conditions serves as the basis for the false claim, i.e., the relator alleges that the grantee defrauded the federal government of grant funds when it falsely certified that it was in compliance with the grant's antidiscrimination provision. 

The Note observes that in a "few limited situations, litigators have attempted to use the FCA, with varying degress of success" to enforce civil rights and antidiscrimination laws. The largest settlement to date appears to be a $52 million Fair Housing Act case against a local municipality, but that appears to be the high point thus far in these cases. Still, the author argues that "FCA liability based on violations of antidiscrimination laws gives another tool to litigators both for individually injured plaintiffs as well as groups interested in institutional-change litigation."

Overall, the Note rightfully points out that the FCA may be employed in the fight against discrimination by local governments. At the same time, it also illustates the common complaint by the defense bar that the FCA is becoming an heavy handed enforcement mechanism for compelling compliance with governmental regulations.

A. Brian Albritton
January 3, 2013