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Solicitor General Wants to Close Door, Open Window For False Claims Act Defendants

The United States Solicitor General recently filed an amicus brief with the Supreme Court in a False Claims Act (“FCA”) case arising out of the Ninth Circuit in which it recommended that the Court leave in place a lenient standard of materiality articulated by the Ninth Circuit. But, in a surprising move, the Solicitor General told the Court that the Department of Justice (“DOJ”) would move to dismiss the case if it was remanded. The Solicitor General’s move suggests that, while the DOJ wants to protect what appears to be a lenient precedent for materiality — perhaps with a mind toward its own FCA suits — the DOJ will be taking a more proactive approach to dismissing FCA claims, even over the relators’ objections.

Solicitor General Argues to Keep in Place Ninth Circuit’s Lenient Standard

In the underlying case, United States ex rel. Campie v. Gilead Sciences, Inc., the Ninth Circuit held that plaintiffs must show that the false claim was “material” to the government’s decision to make payments. The materiality element of the FCA has been subject to much court interpretation since the Supreme Court took up the question of the appropriate standard in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

In Escobar, the Court rejected the lower court’s determination that a statutory, regulatory, or contractual violation “is material so long as the defendant knows that the government would be entitled to refuse payment were it aware of the violation.” The Court instead held that the “materiality standard is demanding” and “rigorous” and requires evidence that the government in fact would not have paid — rather than just being entitled not to pay — if it had known about the violation.

In Campie, the Ninth Circuit purported to apply Escobar’s “rigorous” and “demanding” standard, but disregarded the relators’ allegations that the government continued to pay on Gilead’s claims even after knowing that Gilead had used noncompliant materials and facilities in the drugs for which it had billed Medicare. Gilead petitioned the Supreme Court for a writ of certiorari, arguing that the Ninth Circuit misapplied Escobar by letting the case proceed despite a lack of showing that the FCA claim was material. In its amicus brief, the Solicitor General argued that Campie is consistent with Escobar and that certiorari is unwarranted.

If the Supreme Court agrees with the Solicitor General, FCA defendants in the Ninth Circuit likely will have a more difficult time getting FCA cases dismissed for lack of materiality. More recently, a different Ninth Circuit panel decided United States ex rel. Rose v. Stephens Institute, in which the Ninth Circuit held that relators had offered sufficient evidence to have the FCA claim proceed to trial.1 In Rose, the defendant had an incentive compensation system that rewarded its admissions staff for enrolling an increased number of students, a practice banned by the Department of Education (“DOE”) for its grant recipients. As with Campie, the Rose court claimed to be applying Escobar’s “rigorous,” “demanding” standard but allowed the case to go forward with only general evidence of the DOE’s enforcement of its incentive compensation ban.

Of course, the Solicitor General’s position in its amicus brief would close the door for defendants hoping to have certainty about the proper interpretation of the Escobar standard going forward. With Campie and Rose still in place, the government (as well as relators) will continue to have more leniency in the Ninth Circuit to satisfy the materiality element.

Glimmer of Hope in DOJ’s Desire to Dismiss Case on Remand

FCA defendants may be able to take some comfort in the DOJ’s intention to dismiss Campie upon remand to the district court. The Solicitor General’s stated justification for dismissing the case — even over the relators’ objections — was that allowing it to move forward “would impinge on agency decisionmaking [sic] and discretion and would disserve the interests of the United States.” The Solicitor General further asserted that if the suit proceeded “both parties might file burdensome discovery and Touhy requests for [agency] documents and [agency] employee discovery (and potentially trial testimony)” to uncover the timeline of the government’s knowledge of violations. According to the Solicitor General, those requests would “distract from the agency’s public-health responsibilities.”

The Solicitor General’s move appears to follow the directives outlined in the recent Granston Memo, a memorandum released in January 2018 by the Department of Justice to its Civil Fraud Section. The Granston Memo encourages government attorneys to not only evaluate FCA qui tam actions to make a determination about whether to intervene but also to decide whether to dismiss cases as lacking “substantial merit.” Similar to the argument set forth in the Solicitor General’s amicus brief, the Granston Memo reasons that dismissal is appropriate where “the need to monitor or participate in ongoing litigation, including responding to discovery requests” outweighs any potential recovery.

The Solicitor General’s reasoning in Campie is likely an effort to satisfy the Ninth Circuit’s requirements for the government to dismiss a private FCA case. Under Ninth Circuit precedent, the government must show that it has a “valid government purpose” that has a “rational relation” to the dismissal.2 Notably, the Ninth Circuit’s standard represents a split from other circuit courts that have held that the government has an “unfettered right” to dismiss FCA actions.3 A DOJ that is more proactive in dismissing FCA cases may set up a future Supreme Court case regarding the appropriate standard for dismissal. V&E will have updates on how that issue develops.

In the meantime, the DOJ’s dismissal in Campie, if it comes to fruition, offers a potential roadmap for companies facing meritless FCA suits, especially in light of the Supreme Court’s Escobar decision. Under Escobar, FCA plaintiffs (government or relators) must show that the particular misrepresentation induced the government to act in a manner differently than it would have if the government had known the truth. Early in the case, companies should identify the types of government agency discovery and possible government witnesses they would need, keeping in mind Escobar’s instruction. Companies should consider communicating their discovery needs in filings with the Court to ensure that government attorneys who are monitoring the case are aware of the possible burden from discovery inquiries. Making clear to the government that defending against a meritless FCA suit will tax agency resources could result in an exercise of the government’s dismissal powers.

Disclaimer: Vinson & Elkins, LLP filed an amicus brief on behalf of the Chamber of Commerce of the United States in Campie and Rose.

Visit our website to learn more about V&E’s False Claims Act/Qui Tam Litigation practice. For more information, please contact Vinson & Elkins lawyer Jessica Heim.

1 United States ex rel. Rose v. Stephens Institute, — F.3d —, 2018 WL 6165627 (9th Cir. Aug. 24, 2018).

United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).

Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003).

 

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.