Recent First Circuit Decision Discussing the False Claims Act’s “Many Moving Parts” Serves As a Reminder of the Statute’s Complexity

August 18, 2009

By JP Ellison

With the seemingly endless flow of news reports announcing yet another unsealed False Claims Act (“FCA”) case, and the regular announcement of FCA settlements for what would have only a few years ago been unheard of amounts, it is easy to lose sight of the complexity of the FCA and the issues that plaintiffs and defendants must navigate in such cases.  The 1st Circuit’s recent decision in United States ex rel Duxbury v. Ortho Biotech Products serves as a reminder that prosecuting and defending FCA cases raises a host of complicated factual and legal issues.

The Duxbury case concerned allegations of unlawful promotion of the drug Procrit.  The qui tam relators alleged that the unlawful promotion included publication of an “inflated” average wholesale price (“AWP”), marketing the “spread,” offering kickbacks to providers, and promoting the drug for off-label use.

The complicated factual and procedural history of the case (and related FCA cases) implicated several provisions of the FCA.  First, the court addressed the FCA’s jurisdictional public disclosure bar, and the distinct but related issue of whether the relators fit within the original source exception to the public disclosure bar.  In resolving this issue, the 1st Circuit joined the 4th Circuit in holding that the plain language of the FCA requires a relator to provide information to the government before filing an action that is based on the information, but did not adopt more stringent requirements imposed by other circuits. 

In reaching this conclusion, the 1st Circuit discussed the alternative interpretations adopted by the 2nd and 9th Circuits (relator must be the source to entity that publicly disclosed) and the D.C. and 6th Circuits (information must be provided before any public disclosure).  In explaining the basis for its decision, the 1st Circuit examined the structure and history of the FCA along with the statute’s plain language and in the process identified several of the public policy issues raised by the FCA.

The second issue that the court addressed was whether the amended complaint met the requirement of pleading fraud with particularity as required under Federal Rule of Civil Procedure 9(b).  On this point, the Court distinguished its recent ruling in United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 733 (1st Cir. 2007).  See our prior postings discussing the Rost case herehere, and here.  Beyond distinguishing Rost, and ruling in Duxbury that the complaint met the fraud with particularity requirement, without identifying specific claims, the Court offered little guidance for the future.  Indeed, the Court specifically stated that it was “‘limit[ing its] holding to the facts.’”

The last issue addressed by the court was whether the FCA’s’ “first to file” bar required the dismissal of off-label allegations contained in an amended complaint.  In concluding that the off-label allegations were barred by the first to file rule, the court compared the original and amended complaints filed by the relators and also looked at another complaint filed by a different relator that had been filed after the original complaint but before the amended complaint.  Based on this analysis, the court held that the original complaint did not contain the essential facts of the alleged off-label promotion scheme, and as a result, such allegations in the amended complaint were barred by an earlier filed complaint in another action.

In light of the intensely fact specific analysis in Duxbury, the case raises more questions than it answers.  Those questions are present in many FCA cases and warrant careful attention from any counsel handling such a case.

Categories: Enforcement