Qui Tam Actions: Managing Whistleblower Suits for Class Action Counsel

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Qui Tam Actions: Managing Whistleblower Suits for Class Action Counsel Navigating the False Claims Act, Government Interventions, and Plaintiff/Defense Motions and Negotiating Favorable Settlements THURSDAY, FEBRUARY 7, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: David L. Douglass, Partner, Sheppard Mullin Richter & Hampton, Washington, D.C. Hayden A. Coleman, Counsel, Skadden Arps Slate Meagher & Flom, New York Reuben A. Guttman, Director, Grant & Eisenhofer, Washington, D.C. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 Qui Tam Actions: Managing Whistleblower Suits for Class Action Counsel Sheppard, Mullin, Richter & Hampton LLP 2013 Thursday, February 7, pm (e.s.t.) David Douglass Washington, D.C. ddouglass@sheppardmullin.com

5 Overview of the False Claims Act The False Claims Act, 31 U.S.C et. seq., imposes civil liability on any person that submits to the government a false claim for payment for goods or services. Civil War Era statute, also known as Lincoln s Law enacted to combat civil war profiteering. The qui tam provisions authorize private citizens, relators, to file suit on behalf of the government and to receive a share of any recovery. Qui tam who as well qui tam pro domino rege quam pro se ipso in hac parte sequitur - he who brings a case on behalf of our lord the King, as well as for himself ). Deputizes private attorney generals use a rogue to catch a rogue 5

6 Overview of the False Claims Act Main Elements Claim and/or statement in support of a claim The FCA is sufficiently broad to reach all types of conduct that result in the submission of a false claim for payment but it is not an all purpose anti-fraud statute Exception Reverse false claim retention of a wrongly received overpayment That is false An objective falsehood; a lie. That is material to the government s decision to pay i.e., capable of influencing the payment decision Causes harm to the government Remedies (see below) 6

7 The Qui Tam Provisions of the FCA Basic Procedure Relator files Complaint ; United States ex. rel. [relator] v. defendant. Under seal Initial disclosure to the government that provides factual support for allegations in the complaint Statute allows the case to remain under seal while government investigates the allegations Government may choose to intervene and assume responsibility prosecuting the case or Decline to intervene and allow relator to prosecute the case on the government s behalf. Relator receives a share of the recovery 7

8 The Qui Tam Provisions of the FCA Amendments Public Disclosure Bar- generally bars suits based on publicly disclosed information Original Source exception one who has direct and original knowledge of the allegations First to File Bar the first relator to file bars actions by subsequent relators for the same conduct Key question: Defining the scope of the conduct? 8

9 False Claims Act Remedies Liability Three times the damages suffered by the government In limited instances damages may be reduced to double damages $5,000 to $11,000 monetary penalties per claim Relator s Attorneys fees 9

10 The False Claims Act Today 1986 Amendments United States ex. rel. Robert Merena v. SmithKline Beecham Corporation and SmithKline Beecham Clinical Labs (SBCL) Merena alleged that SBCL was unbundling SMAC tests for purposes of defrauding government reimbursement programs. February 1997 SmithKline settles with the government for $325,000,000 Merena and other whistleblowers receive $52 million. Over the Government s objection! Combatting alleged health care fraud becomes a top law enforcement priority 10

11 The Impact of the False Claims Act Since 1997 the Government has used the FCA, often in conjunction with parallel criminal proceedings and administrative remedies, to recover over a billion dollars from government contractors and to reform industry practices. Especially the health care industry Clinical Laboratory Practices Mental Health Providers Nursing Homes and Rehabilitation Providers Hospitals Pharmaceutical and Medical Device Companies 11

12 Important Related Statutes Criminal False Claims Act State False Claims Acts Elements may vary Deficit Reduction Act of incentivizes states to adopt false claims act statutes as least as effective as the federal statute by increases the state s share of any recovery by 10% As determined by the HHS Office of Inspector General Anti-Kickback Statute (criminal) Self-referral statute ( Stark Law ) Exclusion/Debarment Authority 12

13 Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates Skadden Recent Trends in Qui Tam Litigation Hayden A. Coleman 4 Times Square New York, New York (212) hayden.coleman@skadden.com

14 800 The Number of Qui Tam Actions Continues to Increase New FCA Matters (Investigations, Referrals, and Qui Tam) Qui Tam Non-Qui Tam Source: U.S. DEPARTMENT OF JUSTICE, FRAUD STATISTICS OVERVIEW (Oct. 24, 2012).

15 Settlements and Judgments under the FCA Are at Record-High Levels > Settlements and judgments in all FCA actions (including qui tam and non-qui tam) totaled a record $5 billion in 2012 > In the last three years ( ), settlements and judgments in all FCA actions totaled more than $10 billion 15

16 FCA Cases Brought by Qui Tam Relators Continue to Increase > Relators are initiating a record number of new matters (647 in 2012) > Relators earn large share awards ($439 million in 2012) > 60% of government recovery stemmed from cases that began under the FCA s qui tam provisions 16

17 Government Intervention Strongly Corresponds to FCA Recoveries Settlements or Judgments in Actions Where Government Declined Intervention, as Percentage of Total FCA Recoveries 17

18 Government Intervention in Qui Tam Actions Is the Exception > For every 10 cases filed by relators, the government ultimately intervenes in only 2 > In 2012, settlements and judgments in actions where the government declined intervention totaled $29.3 million, or 0.06% of recovery across all FCA actions Source: Press Release, Office of Pub. Affairs, U.S. Dep t of Justice, Acting Assistant Attorney General Stuart F. Delery Speaks at the American Bar Association s Ninth National Institute on the Civil False Claims Act and Qui Tam Enforcement (June 7, 2012). 18

19 FCA Recoveries in the Health Care Industry Continue to Grow In millions of dollars FCA Settlements & Verdicts by Industry 19

20 Judgments, Settlements, and Actions Filed for Off-Label Promotion Have Been Growing > 2012 settlements with DOJ for off-label marketing totaled $2.628 billion - $1.5 billion settlement with Abbott Labs to resolve offlabel promotion of anti-epileptic drug Depakote (May 2012) - $762 million settlement with Amgen for off-label promotions of anemia drug Aransep (December 2012) - Largest FCA settlement involving biotechnology company in U.S. history 20

21 Same Allegations Increasingly Give Rise to Clusters of Litigation > Off-label promotion gives rise to several areas of litigation: - Personal injury/product liability - Third-party payor - Securities litigation - FCA - Antitrust > Examples: Nexium, Prilosec 21

22 First Amendment May Protect Off- Label Promotion > U.S. v. Caronia, 2012 WL (2d Cir. Dec. 3, 2012) - Held that First Amendment protects speech promoting the lawful, off-label use of an FDA-approved drug - FDA has declined to seek Supreme Court review (Jan. 23, 2013) > U.S. v. Harkonen, 2010 WL (N.D. Cal. July 27, 2010), argued and submitted for decision to Ninth Circuit 22

23 First Amendment-Protected Off- Label Promotion May Not Alter FCA Landscape > DOJ: Government still able to pursue underlying conduct, even if the speech is protected - When I think of all the prosecutions we ve done in my office, I can t think of any that would be covered by the Caronia decision. Carmen Ortiz, U.S. Attorney for D. Mass. Source: Erica Teichert, Drug Misbranding Investigations Remain Top Priority: DOJ, Law360.com (Jan. 29, 2013). 23

24 2010 Amendments to FCA: Restricted Definition of Public Disclosure > Only federal sources are public disclosures and barred (31 U.S.C. (e)(4)(a)) > Administrative reports and proceedings are not public disclosures and are not barred > Only hearings where the Government or an agency is a party is public disclosure - Future litigation trend: Defining which government agents bind the government 24

25 2010 Amendments to FCA: Broader Definition of Original Source Rule > Relator can survive public disclosure bar if: - Relator disclosed the information on which allegations or transactions in qui tam are based before public disclosure; OR - Relator has knowledge that is independent of and materially adds to the publicly disclosed allegations (31 U.S.C. (e)(4)(b)) - May further incentivize professional relators 25

26 2010 Amendments to FCA: Potential Elimination of Public Disclosure as Jurisdictional Bar > 3734(e)(4) language changed from No court shall have jurisdiction based upon public disclosure to The court shall dismiss where public disclosure - Former public disclosure bar may instead now be an affirmative defense 26

27 2010 Amendments to FCA: DOJ May Prevent Dismissal of Qui Tam Actions > Courts may dismiss qui tam actions based on information that has already been publicly disclosed, unless opposed by the government ( 3734(e)(4)(A)) - Allows government to influence or guide FCA actions brought under qui tam provision without directly intervening 27

28 Unsettled Approaches in Applying Implied False Certification Theory > Allows qui tam plaintiffs to be private attorney generals where claim is request for payment after contractor failed to meet standards - Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir. 2011) (recognizing potential for a false certification but noting that relators must allege that compliance with the standard was required to obtain payment ) - New York ex rel. Westmoreland et al. v. Amgen, Inc., 652 F.3d 103, 111 (1st Cir. 2011) (indicating that the false certification may apply only after a fact-intensive and context-specific inquiry ) 28

29 Bids for Government Contracts May Be False Claims > United States ex rel. Hopper v. Lockheed Martin Corp., 688 F.3d 1037, 1049 (9th Cir. 2012) - Held that defendant violated the FCA by submitting a fraudulently low bid for an Air Force contract. Id. 29

30 Qui Tam Standing for Federal Employees Who Investigate Fraud > U.S. ex rel. Little v. Shell Exploration & Production Co., 690 F.3d 282 (5th Cir. 2012) - Federal employees with job responsibilities to investigate fraud are persons under the FCA and have standing to bring a qui tam action. Id. at

31 First-to-File Bar Prevents the Same Relator from Bringing Successive, Related Qui Tam Actions > U.S. ex rel. Shea v. Verizon Business Network Services, Inc., F. Supp. 2d, 2012 WL (D.D.C. Nov. 12, 2012) - Held that the first-to-file bar applies to successive related actions brought by the same relator because plain language of statute prohibits any person other than the government to bring successive, related action. Id. at *5. 31

32 Filing Qui Tams Reuben A. Guttman (202)

33 Client Intake Due Diligence o o Filing Qui Tams Review Documents Interview Client Disclosure Statement File the Complaint o Rule 9(b) in light of Twombly & Iqbal Strip out conclusory allegations Look at the facts Apply the plausibility analysis 33

34 Rule 9(b) In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person s mind may be alleged generally. 34

35 Twombly & Iqbal A plaintiff s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level Twombly, 550 U.S. 544, 555 (2007) Determining whether a complaint states a plausible claims for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the wellpleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged but it has not shown that the pleader is entitled to relief. Iqbal, 556 U.S. 662, 679 (2009) 35

36 The Government s Investigation Investigating Agencies Department of Justice (Main Justice) United States Attorney for the District where filed FBI The relevant program agency e.g., HHS, DOD, FDA, DOE, etc. Purpose of the investigation Test the allegations Inform the intervention decision Investigative Tools Civil Investigative Demands Documents Testimony Experts Search Warrants 36

37 The Target Company s Response Conduct a parallel internal investigation Educate the government Applicable regulations Agency policy and practice Industry Practices Engage the government in a dialogue To focus the investigation Influence the intervention decision 37

38 Conclusion of the Investigation The government elects to intervene or decline Case is unsealed, partially or fully, (unless dismissed) Pre-litigation negotiations Complaint is served (unless dismissed) Litigation commences Defendant gets discovery 38

39 Trying the Case Role of the real client: the agency Experts Damages o Treble and Civil Damages Not Consequential o Benefit-of-the-Bargain v. Disgorgement Quantifiable Materiality 39

40 U.S. v. SAIC, 626 F.3d 1257 (D.C. Cir. 2010) In a case where the defendant agreed to provide goods or services to the government, the proper measure of damages is the difference between the value of the goods or services actually provided by the contractor and the value of the goods and services would have had to the government had they been delivered as promised. 626 F.3d at In some cases, such as where the defendant fraudulently sought payments for participating in programs designed to benefit third-parties rather than the government itself, the government can easily establish that it received nothing of value form the defendant and that all payments made are therefore recoverable as damages. 626 F.3d at