In our February article, Will Sunshine Data Help Qui Tam Whistleblowers and Their Attorneys?, we mentioned that while the Sunshine Act will indeed give whistleblowers valuable information, Rule 9(b) of the Federal Rules of Civil Procedure will still remain a hurdle for plaintiffs getting into court. Rule 9(b) generally requires that whistleblowers plead their fraud claim with particularity. How much particularity is currently the basis of a circuit split—a split which the Supreme Court denied to resolve this past month.
Nathan v. Takeda Pharmaceuticals
In the case of Nathan v. Takeda Pharmaceuticals, Noah Nathan, a sales manager for Takeda Pharmaceuticals brought a qui tam action against Takeda, alleging they caused false claims to be presented to the government for payment under Medicare. The FCA's qui tam provisions allow private citizens—known as "relators"—to file suit on behalf of the government and share the settlement (usually 15-30 percent).
Nathan argued that Takeda marketed its stomach acid drug Kapidex for off-label uses. Two of Takeda's marketing practices, Nathan argued, caused presentations of false claims to the government: (1) Takeda's promotion of Kapidex to rheumatologists, who don't normally treat patients having conditions for which Kapidex has been approved; and (2) Takeda's practice of marketing high doses of Kapidex for the treatment of conditions for which only a lower dose has been approved by the FDA.
Many FCA cases have involved similar claims against pharmaceutical companies. A relator will claim that a company marketed drugs to Medicare and Medicaid beneficiaries for uses that have not been approved by the FDA, and are thus not reimbursable.
The district court dismissed the amended complaint on two independent grounds: (1) it failed to allege the "presentment" of a false or fraudulent claim to the government for payment and (2) it failed to allege adequately that Takeda "caused" the issuance of off-label prescriptions.
On appeal, Nathan asked the Fourth Circuit to relax the pleading standard adopted by the lower court. Nathan argued that his complaint need only allege the existence of a "fraudulent scheme" supporting the inference that false claims were presented to the government. According to the petition, 93 percent of all prescriptions for Kapidex were written for higher-than-approved doses, which Nathan contended showed such a fraudulent scheme.
Takeda argued that Rule 9(b) requires a higher standard—that a relator must plead facts alleging that specific false claims were actually presented to the government for payment.
The court sided with Takeda. They rejected Nathan's plea for a lenient application of Rule 9(b). Where a complaint alleges the defendant's actions "could have led, but need not necessarily have led, to the submission of false claims," the Court said, "a relator must allege with particularity that specific false claims actually were presented to the government for payment."
The court concluded that Rule 9(b) exists to give notice to the defendants, stop suits in which facts are only learned after discovery, and protect defendants from frivolous suits that would harm the defendant's reputation. The court emphasized that these gatekeeping functions were especially important given the potentially huge consequences flowing from fraud allegations against companies doing business with the government.
In deciding to dismiss Nathan's case, the Fourth Circuit joined the Sixth, Eighth, and Eleventh Circuits' strict approach to FCA cases. These Circuits have held that Rule 9(b) requires dismissal of a FCA complaint unless it identifies at least one false claim that was submitted to the government.
On the other hand, the First, Fifth, Seventh, and Ninth Circuits have all held that it is sufficient to allege a fraudulent scheme with an "indicium of reliability supporting an inference that false claims were submitted." While qui tam relators are often employees of the defendant who know the details of their employer's scheme to defraud the government, they often lack access to the particular false claims submitted to the government prior to filing the complaint.
The more relaxed Circuit have held that it is not essential for a relator to produce in the complaint the "specific request for payment." The First Circuit case of Duxbury v. Ortho Biotech Products, for example, held that a plaintiff may survive a motion to dismiss "by providing factual or statistical evidence to strengthen the inference of fraud beyond [mere] possibility without necessarily providing details as to each false claim."
Petition to the Supreme Court
Given the discrepancy in Circuits, a particular FCA complaint could survive in the federal court sitting in Virginia, but not in Georgia. Nathan argued that "application of a federal statute and the ability of the United States to recover for fraud committed against it should not turn on the happenstance of geography."
In light of the Circuit Split, Nathan appealed to the Supreme Court.
At the encouragement of the Solicitor General Donald Verrilli, however, the Supreme Court decided to deny cert on this case. The Court was likely swayed by the Solicitor General's argument that the relator's action would not pass any Circuits' test: "Because the complaint failed not merely for lack of specificity, but also for lack of plausibility, this suit could not go forward even under the pleading standard most favorable to relators."
The Solicitor General echoed many sentiments that Takeda had written in the Brief in Opposition of Supreme Court review. Takeda stressed that Nathan's characterization of a "deepening" Cirucit Split is inaccurate. "As the Court of Appeals emphasized," Takeda argued, "the shortcomings in the Third Amended Complaint would have resulted in its dismissal under any circuit's pleading standard." Furthermore, Nathan "concedes his failure to identify an actual false claim and, as two courts have already held, the assorted statistics and generalized allegations included in his Complaint do not offer sufﬁcient 'indicia of reliability' to demonstrate that a false claim was presented to the government for payment. At best, Petitioner has alleged that Takeda's actions might have led to the submission of a false claim. Such allegations are inadequate under any standard or any reasonable application of Rule 9(b)."
A number of attorneys have offered their take on the Solicitor General's reply:
Ellyn Sternield of Mintz Levin speculated that "[i[t may be that the federal government was less concerned about the existing 'inconsistencies' between the circuits and more concerned [ ] about the lack of specifics in this case as plead by the relator. The government may have feared the potential for a Supreme Court ruling that would go even farther than the Fourth Circuit in defining necessary pleading specificity in false claims cases."
The False Claims Act blog of Nolan Auerbach & White notes:
The real spotlight should be on the rest of the salient arguments found in the SG's brief. Most notably, the SG states that the Rule 9(b) confusion may be capable of resolution without the Court's intervention." For support, the SG points out that "even those circuits that initially endorsed the per se rule [adopted by the Fourth Circuit] have issued subsequent decisions that appear to adopt a more nuanced approach." However, the SG stressed that if this perceived circuit split continues, the Supreme Court's "review to clarify the applicable pleading standard may ultimately be warranted in the appropriate case."
It will be interesting to see how other Federal Courts respond. As the FCA Blog points out, there are hundreds of pending FCA qui tam actions based on allegations that a pharmaceutical company caused false claims to be presented to government healthcare programs by promoting one of its drugs for unapproved off-label uses. The Solicitor General noted that the Supreme Court should pass on granting certiorari, '[p]articularly because the issue continues to percolate in the lower courts" and that the Supreme Court's "consideration should await a case in which it would be outcome-determinative." We will keep you up to date on whether such a case shows up.