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Oles Morrison

That’s a Wrap—When the United States tells the Supreme Court Your Qui Tam Suit is a Goner

By on December 20, 2018 | Posted in Procurement Issues

Following Escobar, the issue of materiality remains at the forefront of False Claims Act motion practice at both the pleadings and judgment stage. Escobar emphasized that the FCA materiality requirement is demanding. In the case of Gilead Sciences, Inc. v. United States Ex Rel. Jeffrey Campie, et al. the respondents, qui tam relators, learned that the United States might agree on the law, but not the merits of the claim.

In Gilead Sciences, respondents pled that petitioner misrepresented the source of certain drugs used to treat HIV by manufacturing drugs in unregistered facilities and falsely telling the Federal Drug Administration that the drugs came from an approved manufacturer. The petitioner eventually obtained approval of the unregistered facility, which respondents allege was based on falsified and concealed data. Petitioner later stopped using the facility due to contamination issues. Respondents allege that because the drugs were adulterated or misbranded, they were not FDA approved and not eligible for payments under government programs.

The district court dismissed the second amended complaint on the basis that petitioner’s alleged misrepresentation to the FDA, rather than the paying agencies, could not establish a false claim for payment. The Court of Appeals for the Ninth Circuit reversed finding that respondents adequately alleged materiality. In applying the multi-factor materiality inquiry, the Ninth Circuit held that the government’s continued payment of the petitioner, despite alleged knowledge of the misrepresentations to the FDA, was not solely dispositive on the issue of materiality at the pleading stage. 

Petitioners filed a writ of certiorari. The Supreme Court invited the Solicitor General to a file a brief expressing the views of the United States.

The amicus brief addressed the following question presented:

Whether the government’s continued payment for a product, after learning of allegations that the manufacturer had made misrepresentations to the government regarding that product, requires dismissal at the pleading stage of a suit under the False Claims Act, 31 U.S.C. 3720 et seq., on the ground that any misrepresentations were not material as a matter of law.

The government agreed with respondents that continued payment cannot independently trigger dismissal noting that importance of the multi-factor test discussed in Escobar. The government, however, dealt respondents a fatal blow by stating that the Department of Justice will move to dismiss the suit if the case is remanded under its plenary dismissal power.  Under the FCA, the Department of Justice, in its sole discretion, has the authority to dismiss a qui tam case.  Although such dismissals have been rare to date, pursuant to the policy initiative articulated in the so-called “Granston Memorandum” by Michael Granston, the Director of the Commercial Litigation Branch of the Fraud Section of DOJ, the government has committed to take a hard look at cases that may lack merit and be unduly burdensome on government programs and on contractors, among other potential grounds for dismissal, and move to dismiss such cases in order to fulfill the government’s role as a gatekeeper to ensure that only meritorious cases proceed through litigation.

The government reasoned that dismissal was appropriate to prevent burdensome discovery on the FDA and because the suit would impinge on agency decision-making. The amicus brief was another reminder to qui tam relators that the DOJ is seeking a more active role in dismissing suits.