Issue of Whether Government Must Allege Specific False Claims in FCA Case Predicated on Alleged Kickbacks is Teed up in Southern District of New York
A motion to dismiss in United States et al. v. Novartis Pharmaceuticals Corp. ("Novartis"), 11 Civ. 0071 (PGG), fully briefed as of December 23, 2013, could have significant consequences for the application of Federal Rule of Civil Procedure 9(b) to cases brought under the False Claims Act ("FCA") in the Southern District of New York. The case, a qui tam in which the United States intervened, alleges that for 10 years, Novartis engaged in a nationwide scheme of fraudulent speaker programs to induce doctors to prescribe Novartis pharmaceuticals in violation of the Anti-Kickback Statute ("AKS"). After the Government filed an amended complaint on August 26, 2013, Novartis moved to dismiss based primarily on Rule 9(b), which requires that fraud be pled with particularity. A key issue raised by the motion to dismiss is whether, in an action brought under the FCA based on AKS violations, the Government is required at the pleading stage to identify particular false claims that were submitted for payment by federal health care programs as a result of the alleged kickback scheme. That issue, which has not yet been decided by the Second Circuit, is one of the most frequently contested in FCA jurisprudence today.
The original qui tam complaint in the Novartis case was filed under seal by Oswald Bilotta, a former sales representative at Novartis, on January 5, 2011. On April 26, 2013, the Government intervened in part and filed a complaint alleging that from 2002 through 2011, Novartis "systematically paid doctors to speak about certain of its drugs, including its cardiovascular drugs Lotrel and Valturna and its diabetes drug Starlix, at events that were often little or nothing more than social occasions for the doctors," including dinners. The Government alleged that "[t]he payments to the doctors, and the dinners, were kickbacks to the speakers and the attendees to induce them to write prescriptions for Novartis drugs."
After Novartis notified the court of its intention to move to dismiss the complaint, the court held a pre-motion conference on July 18, 2013. At the conference, the court indicated that it had "concerns" about whether the Government's complaint satisfied Rule 9(b). The court stated that "while the complaint contains substantial details about the alleged kickback scheme, [the court was] concerned that it may not satisfy Rule 9(b) because it lacks sufficient detail about the claims submission process and does not provide examples of specific fraudulent claims that were submitted." Citing United States ex rel. Polansky v. Pfizer, Inc., 2009 WL 1456583, at *5 (E.D.N.Y. May 27, 2009), the court noted that "[u]nder the FCA liability attaches 'not to the underlying fraudulent activity or to the government's wrongful payment, but to the claim for payment.'" The court further noted that "[a]ccordingly, many courts have held that FCA pleadings are 'inadequate unless they are linked to allegations, stated with particularity, of actual false claims submitted to the government that constitute the essential element of an FCA qui tam action.'" The court stated that:
As the Eleventh Circuit stated in the much-[cited] case of United States ex rel. Clausen v. Laboratory Corporation of America, Inc., "the submission of a claim [is] the sine qua non of a false claims act violation." As such, Rule 9(b)'s directive that "the circumstances constituting fraud or mistake shall be stated with particularity" does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his plea that claims requesting illegal payments must have been submitted, were likely submitted, or should have been submitted to the government. "If Rule 9(b) is to be adhered to, some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the government." 290 F.3d 1301, 1311 (11th Cir. 2002).
The court gave the Government the option of amending its complaint within 30 days following the conference.
The Motion to Dismiss
On August 26, 2013, the Government filed an amended complaint. Novartis moved to dismiss it on October 24, 2013. Novartis argued, among other things, that "[a]lthough the Amended Complaint now identifies (by their initials) fifteen doctors and attaches spreadsheets of each doctor's total prescriptions of the NPC drugs at issue during the challenged time period, it makes no attempt to tie those prescriptions (and the resulting allegedly false claims) to an allegedly sham speaker event—something it clearly must do in order to meet the requirements of Rule 9(b)." Citing United States ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220 (1st Cir. 2004), Novartis argued that "Rule 9(b) requires an FCA complaint to allege 'with particularity' 'the actual false claims submitted to the government' in addition to the '[u]nderlying schemes and other wrongful activities that result[ed] in the submission of fraudulent claims.'"
In its opposition to the motion, the Government took a diametrically opposed position on whether Rule 9(b) requires a plaintiff to particularize false claims in a case brought under the FCA for AKS violations. The Government argued that:
To plead FCA claims based on an AKS violation, the Government "need not identify particular claims resulting from the kickback scheme." Parikh, 2013 WL 5304057, at *7. Rather, Rule 9(b) requires only that the Government "plead with particularity that [Novartis] made kickbacks with the intent of inducing [prescriptions], and … plead "particular details of a scheme … paired with reliable indicia that lead to a strong inference that claims were actually submitted." Id. (quoting Grubbs, 565 F.3d at 190); see United States ex rel. Simpson v. Bayer Corp., No. 05-3895, 2013 WL 4710587, at *13-14 (D.N.J. Aug. 30, 2013).
Moreover, the Government argued that it had "gone further," claiming that "[t]he Complaint … identifies thousands of tainted prescriptions that were submitted for reimbursement and resulted in false claims."
The Government disagreed with Novartis's position that "the Complaint must connect a particular sham event with a particular fraudulently induced prescription to satisfy Rule 9(b)." The Government maintained that once it "shows that a doctor received remuneration in violation of the AKS during a particular period, all claims for reimbursement from federal health care programs associated with that doctor during that period are false because payment by the Government is contingent upon the doctor's continued compliance with the AKS." Furthermore, the Government argued that "[e]ven if the Government were required to establish a causal link between particular sham events and particular prescriptions—which it is not—the Government would not have to plead such a link." According to the Government, "courts have concluded that '[a plaintiff] need not allege a relationship between the alleged AKS violations and the claims … submitted to the Government.'"
In its reply, Novartis contends that the Government's "proposed pleading standard is based on caselaw from other jurisdictions; those cases are flatly inconsistent with Second Circuit precedent; and they all involve a private relator plaintiff, not the government, which is empowered to conduct pre-suit investigations." Novartis argues that the Government's reliance on United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009), was misplaced because "[n]ot only did Grubbs involve a relator plaintiff (and not the government), but it has been expressly rejected by courts in the Second Circuit." Novartis asserts that decisions by the Eastern District of New York, United States ex rel. Moore v. Gaxosmithkline, LLC, No. 06-cv-6047, slip op. at 7-8 (E.D.N.Y. Oct. 16, 2013), United States ex rel. Mooney v. Americare, Inc., No. 06-cv-1806, 2013 WL 1346022 (E.D.N.Y. Apr. 3, 2013), and United States ex rel. Piacentile v. Novartis AG, No. 04-cv-4265, slip op. (E.D.N.Y. Feb. 7, 2011), support its argument that Rule 9(b) requires particularized allegations of false claims.
As the parties' briefing in the Novartis action reflects, courts have differed on whether or not, in a case brought under the FCA based on alleged kickback violations, a plaintiff is required to identify specific false claims resulting from the alleged kickback scheme that were presented for payment by federal health care programs. In Grubbs, relied on by the Government in its opposition to Novartis's motion to dismiss, the Fifth Circuit held that a relator is not required to identify specific false claims at the pleading stage in order to survive a Rule 9(b) challenge. The court stated that:
[T]o plead with particularity the circumstances constituting fraud for a False Claims Act … claim, a relator's complaint, if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.
By contrast, in United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 504 (6th Cir. 2007), cited by Novartis, the Sixth Circuit held that "pleading an actual false claim with particularity is an indispensable element of a complaint that alleges a FCA violation in compliance with Rule 9(b)." The First, Fourth, Seventh, Eighth, Ninth, and Tenth Circuits have also issued decisions on the issue.
The Second Circuit has not yet ruled on the issue. Moreover, neither Novartis nor the Government has argued in the motion to dismiss briefing that the issue of whether the Government is required to plead specific false claims that resulted from the alleged kickback scheme has previously been decided by any judge in the Southern District of New York.
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 Id. at 18.
 Id. at 8.
 Id. at 9.
 Id. at 18.
 Id. at 3.
 Id. at 7.
 Id. at 10-11.
 Id. at 11.
 Id. (citing Simpson, 2013 WL 4710587, at *14 (quoting Wilkins, 659 F.3d at 313)) (internal quotations omitted).
 Id. at 3 (citing United States v. Wells Fargo Bank, N.A., No. 12-cv-7527, 2013 WL 5312564, at *18 n. 17 (S.D.N.Y. Sept. 24, 2013).
 Id. at 7, n. 6.
 565 F.3d at 190.
 See United States ex rel. Duxbury v. Ortho Biotech Prods., L.P. 579 F.3d 13, 29 (1st Cir. 2009) (in qui tam alleging defendant induced third parties to file false claims with the government, "relator could satisfy Rule 9(b) by providing factual or statistical evidence to strengthen the inference of fraud beyond [mere] possibility without necessarily providing details as to each false claim") (internal quotations omitted), cert. denied, 130 S.Ct. 3454 (2010); United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854-55 (7th Cir. 2009) (relator not required by Rule 9(b) to allege "specific request for payment"); United States ex rel. Joshi v. St. Luke's Hospital, Inc., 441 F.3d 552, 556-57 (8th Cir.) (affirming dismissal under Rule 9(b) where relator "did not allege any details concerning false claims actually submitted for payment"), cert. denied, 549 U.S. 881 (2006); United States ex rel. Cafasso v. General Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055-56 (9th Cir. 2011) ("[a]n actual false claim is the sine qua non of an FCA violation;" complaint failed to satisfy Rule 9(b) where it did not plead false claim or "warrant an inference that false claims were part of the scheme alleged"); Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998-999 (9th Cir.) (relator not required by Rule 9(b) to identify "representative examples of false claims," if complaint provides "reasonable indicia that false claims were actually submitted"), cert. denied, 131 S.Ct. 801 (2010); United States ex rel. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010) ("claims under the FCA need only show the specifics of a fraudulent scheme and provide an adequate basis for a reasonable inference that false claims were submitted as part of that scheme"); United States ex rel. Sikkenga v. Regence BlueCross BlueShield, 472 F.3d 702, 727 (10th Cir. 2006) (Rule 9(b) not satisfied where complaint lacks "allegations, stated with particularity, of the actual false claims submitted to the government") (internal quotations omitted); Hopper v. Solvay Pharmaceuticals, Inc., 588 F.3d 1318, 1326 (11th Cir. 2009) (affirming dismissal of complaint that "d[id] not allege the existence of a single actual false claim"), cert. denied, 130 S.Ct. 3465 (2010); United States ex rel. Clausen v. Lab. Corp. of America, Inc., 290 F.3d 1301, 1311-12 (11th Cir. 2002) (Rule 9(b) requires dismissal of FCA complaint unless it identifies actual false claims for payment), cert. denied, 537 U.S. 1105 (2003).
Recently, in a non-intervened qui tam case, United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., 707 F.3d 451 (4th Cir. 2013), petition for cert. filed on May 10, 2013, the Supreme Court requested the views of the Solicitor General on a petition for certiorari where the relator's question presented is "[w]hether Rule 9(b) requires that a complaint under the False Claims Act 'allege with particularity that specific false claims actually were presented to the government for payment.'" In response to a prior request for views, in Duxbury, the Solicitor General advised the Supreme Court that the courts of appeals were divided on the issue.