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False Claims Act Developments

Posted in FDA, Fraud and Abuse, Hospitals and Institutions, Legislation and Public Policy, Life Sciences, Litigation, Medical Devices, Pharmaceuticals, White Collar

The November edition of Day Pitney’s White Collar Roundup included three items on the False Claims Act (FCA). 

Attorneys Can’t Just Blow the Whistle

Attorneys cannot breach their ethical duties and become False Claims Act (FCA) relators, according to the Second Circuit in Fair Laboratory Practices Assocs. v. Quest Diagnostics Inc. In that case, Mark Bibi, former general counsel of Quest’s wholly owned subsidiary, Unilab Corp., along with two former executives created Fair Laboratory Practices Associates (FLPA) to bring an FCA claim against Quest and Unilab. Bibi had been Unilab’s only in-house lawyer from 1993 to 2000, during the time of the alleged false claims. The defendants moved to dismiss the FCA complaint, alleging Bibi had breached his ethical duties by bringing the suit. The district court agreed and dismissed the complaint. FLPA appealed. The Second Circuit held that the FCA does not pre-empt state ethics rules and that Bibi had violated N.Y. Rule 1.9(c) by disclosing protected client confidences.

Millions Paid for Violating the False Claims Act

The U.S. Department of Justice (DOJ) announced a settlement with Boston Scientific Corp. to settle pending FCA litigation. According to the DOJ press release, Boston Scientific agreed to pay $30 million to settle allegations that between 2002 and 2005 its subsidiaries “knowingly sold defective heart devices to health care facilities that in turn implanted the devices into Medicare patients.” One of Boston Scientific’s subsidiaries pleaded guilty in February 2010 to criminal charges of “misleading the [Food and Drug Administration (FDA)] and failing to submit a labeling change to the FDA relating to the defective devices.”

And for a Hat Trick on the False Claims Act…

The Eighth Circuit endorsed a fraud theory in FCA cases that might expand the act’s reach. In Simpson v. Bayer Healthcare, the plaintiff-relator alleged Bayer Healthcare had fraudulently induced the Department of Defense (DOD) to enter two contracts for the purchase of its cholesterol-lowering drug, Baycol. The relator claimed Bayer misrepresented the risks and efficacy of Baycol. She alleged Bayer therefore fraudulently induced the DOD to contract to use Baycol, but in her complaint she did not identify any individual false claims paid under the contract. The district court dismissed the complaint, and the relator appealed. The Eighth Circuit (in a 2-1 decision) reversed, holding the relator had adequately pleaded a claim under the FCA by using a fraud-in-the-inducement theory, which the court said the U.S. Supreme Court endorsed long ago in United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943). The dissenter in Simpson claimed the majority in its opinion overlooked the pleading requirements for fraud.

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