Monday, April 21, 2014

First to File Bar Based on Comparing Complaints and Not Settlements

Speaking of the first-to-file rule, 31 USC 3730(b)(5), a first-to-file relator in Texas sought to share in the qui tam settlement of a subsequent relator who filed suit against the same defendant as the first realtor but alleged a different scheme. See U.S. ex rel Smart v. Christus Health, et al, 2014 WL 1474282 (5th Cir. April 16 2014). In a case that was not selected for publication, the 5th Circuit, not surprisingly, rebuffed the first relator's attempt, pointing out that the two suits were very different with the exception that they named the same defendant: the first suit alleged that the hospital engaged in a scheme to induce doctors to refer patients to it by renting the doctors office space at below market, and the second suit alleged that the same hospital committed billing fraud by improperly using inpatient codes for outpatient procedures.

What is interesting about this case is that the first relator sought a share of the settlement proceeds because the settlement in the second filed suit released the defendant from any claims the government may have, including Stark/Anti-Kickback type of claims similar to those raised in the first filed suit (though not the same claims). The 5th Circuit noted, however, that "[w]hen deciding whether the first-to-file bar applies, this Court compares the complaints -- not the settlement agreements."

The first-to-file relator had also sought discovery to demonstrate that he was entitled to a share of the proceeds from the second filed suit, but the 5th Circuit was having none of that.

Though the 5th Circuit gave short shrift to the first relator, I think the relator deserves some sort of prize for creative argument.

A. Brian Albritton
April 21, 2014

The False Claims Act and the First to File Bar: DC Circuit Breaks with 10th, 7th, and 4th Circuits

I commend to you the recent post by Scott Stein and Catherine Kim of Sidley's Original Source blog and their article, "DC Circuit Opens Circuit Split on FCA's First-to-File Bar," addressing the D.C. Circuit's recent ruling in United States ex re Shea v. Cellco Partnership d/b/a Verizon Wireless, 2014 WL 1394687 (D.C. Cir. April 11, 2014). As they so ably explain, the Shea case is the first circuit court decision to adopt "the position that the first-to-file bar applies to an earlier-filed related suit, even after the original action is no longer 'pending.'" Applying a common sense construction to the "first-to-file" rule of 31 USC 3730(b)(5), the D.C. Circuit held in a 2-1 decision that the first-to-file rule bars relators from bringing subsequent suits alleging the same scheme as the first filed suit, even if the first filed suit is no longer pending and was not dismissed on the merits. Applying a plain language construction of the first-to-file rule, the 4th, 10th, and 7th Circuits have held that as long as a first filed qui tam suit is no longer pending, a subsequent relator may bring a qui tam on the same scheme as long as the second (or third) relator is an original source for the information contained in the second (or third) qui tam. See  In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).

As Mr. Stein and Ms. Kim point out, "the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims."

A. Brian Albritton
April 21, 2014