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Two partnerships and infighting between relators recently produced a series of difficult questions addressed by the U.S. Court of Appeals for the Third Circuit in In re Plavix Mktg., Sales Practices & Prod. Liab. Litig. (No. II). Three individuals formed a limited liability partnership, JKJ, to bring a qui tam action against Sanofi-Aventis and Bristol-Myers Squibb, pharmaceutical companies that developed and marketed the anti-clotting drug Plavix.

After JKJ filed its qui tam complaint, however, its members had a falling out. One member left the partnership, and the two remaining members created a new partnership, also named JKJ, with a new third member. The old JKJ partnership was dissolved, and the new JKJ partnership filed an amended qui tam complaint.

The defendants moved to dismiss the amended qui tam complaint based on the False Claims Act’s (FCA) first-to-file bar. The first-to-file bar provides that “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The defendants argued that filing the amended complaint violated the first-to-file bar because the new JKJ partnership was a new party to the action.
Continue Reading Corporate Maneuvering Leads to Thorny First-to-File Bar Issues

The Delaware Supreme Court recently affirmed a decision by the Delaware Court of Chancery addressing a plaintiff’s ability to acquire key documents from a defendant company based on allegations against that company in an ancillary False Claims Act (FCA) complaint.  See UnitedHealth Group Incorporated v. Amalgamated Bank as Tr. for Longview Largecap 500 Index Fund, 2018 WL (Del.).

The Underlying FCA Allegations

In two separate federal districts, UnitedHealth Group Incorporated (United) faced unsealed, factually similar FCA complaints brought by two different relators. See United States ex rel. Swoben v. Secure Horizons, No. CV 09-5013 (C.D. Cal.) (Swoben Action); United States ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697 (W.D.N.Y.) (Poehling Action). (The Swoben and Poehling Actions previously were discussed here, here, here and here.)

 Both relators alleged that United engaged in a scheme whereby it overbilled Medicare through the use of improper diagnostic codes that were not supported by patients’ medical charts and failed to reimburse Medicare once learning of improper diagnostic coding. After its investigation, the government filed complaints in intervention in both the Swoben and Poehling Actions.

Based on the government’s complaints, several shareholders of United brought suit under Delaware law (8 Del. C. § 220) seeking corporate books and records from United relating to the fraud alleged in the government’s complaints. To inspect corporate books and records under Delaware law, a plaintiff must show, among other things, “a proper purpose for conducting the inspection.” One “proper purpose” for an inspection of books and records is “to investigate wrongdoing or mismanagement,” but that purpose must be supported by a “credible basis” to infer possible wrongdoing or mismanagement warranting further investigation.Continue Reading Adding Insult to Injury: When an FCA Complaint Begets Follow-On Corporate Litigation

The U.S. Court of Appeals for the Sixth Circuit recently heard oral argument in connection with a decision by the U.S. District Court for the Eastern District of Tennessee that primarily raised two FCA questions:

  1. Did the relator’s amended complaint satisfy the FCA’s first-to-file rule?
  2. Did the amended complaint adequately plead fraud under Rule 9(b) of the Federal Rules of Civil Procedure? U.S. ex rel. Armes v. Garman, 2016 WL 3562062 (E.D. Tenn. June 24, 2016).

Continue Reading Sixth Circuit Hears Oral Argument in FCA Appeal

On August 18, 2017, the U.S. Court of Appeals for the Sixth Circuit reversed the denial of a FCA defendant’s request for attorney’s fees and expenses under the Equal Access to Justice Act (EAJA) and held the government accountable for an unreasonable damages demand.

Background

In U.S. ex. rel. Wall v. Circle C Construction, LLC, a subcontractor for the defendant, Circle C Construction, failed to pay $9,900 in wages for electrical work performed in the construction of warehouses. The subcontractor’s paid wages thus failed to meet the requirements of the Davis-Bacon Act. As a result, Circle C Construction’s subsequent statements of compliance with federal regulations, including the Davis-Bacon Act, were false.Continue Reading Sixth Circuit Reverses Denial of Attorney’s Fees and Expenses, Maintains Cost Recovery for Unreasonable Government Demands

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From the Bass, Berry & Sims Blog Network

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