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Diminishing Returns:
Dealing with Declined Qui Tam Actions
CWAG 2012 Annual Meeting
Jonathan L. Diesenhaus, Partner
July 24, 2012
Litigation / Washington, D.C.
Qui Tam Provisions
•
Private persons (known as relators) bring a civil action for violation of a
State or Federal civil False Claims Act on behalf of the Government
–
For each violation, complaints seek:
$5,500 - $11,000 per claim per statute
Treble damages
•
In a Medicaid case, state claims are pendant claims filed and litigated in
one federal court
•
Relators file a Sealed Complaint, serve the State and U.S. Attorneys
General, provide statement of material evidence and cooperate in
investigation
•
Potential for significant rewards to relator
–
–
–
If Government intervenes, the relator can receive 15 - 25 % of the proceeds
If the Government does not intervene, the relator can receive 25 -30 % of the
proceeds
Relator entitled to attorney’s fees and costs if case settles or defendant loses
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The State Statutes
• 29 states and D.C. now have qui tam statutes
– Changing landscape due to the incentive included in the
Federal Deficit Reduction Act of 2005
• 13 pre-existing qui tam statutes amended since 2005
– CA, DE, FL, IL, IN, LA, MI, MT, NH, NV, TN, TX, VA
• 13 states passed qui tam statutes since 2005
– CO, CT, GA, IA, MD, MN, NC, NJ, NY, OK, RI, WI, WA
– New Mexico passed a second statute, without repealing the first
• 23 qui tam states to watch for legislation
– CA, HI, IL, IN, MA, MI, NV, NY, RI, TX, VA, WI
•
No longer DRA-compliant; states have two years to amend
– CO, DE, FL, LA, MN, MT, NC, NH, NJ, NM, OK
•
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Have yet to be deemed DRA-compliant
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Qui Tam Declinations
•
Most qui tam actions are declined.
– As of September 2010, 78% of federal qui tam actions were declined.
– 86% of those declined cases were ultimately dismissed.
•
But declining without also moving to dismiss keeps meritless cases afloat
– to the detriment of state and federal authorities and defendants alike
•
DRA incentive requires state statutes allow relators to litigate declined
qui tam claims
•
Issue: Balancing the risk and reward of declined qui tam
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Scenario 1
• Qui tam as License to Second-Guess State
– U.S. ex rel. Tessitore v. Infomedics, Inc. (D. Mass. 2012)
•
Relator alleges FDA would have withheld drug approval, or ordered “more
timely” warnings, had it known of adverse events
•
Government declines; notes “allegations are not sufficiently pled” and that
“FDA was [already] aware” of the information relator provided “but did not
then take the actions that [relator] hypothesizes it could have”
– But rather than move to dismiss, submits statement of interest
requesting that any dismissal be without prejudice to the Government
•
Court ultimately dismisses; finds relator’s “fraud-on-the-FDA” theory
“unsubstantiated” and “without factual support”
• Relator knows best?
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Scenario 2
•
Costly Discovery
–
U.S. ex rel. King v. Solvay (S.D. Tex.)
•
•
Relator files qui tam against pharmaceutical company under the federal FCA and
every existing state FCA
–
Alleges that company colluded with state Medicaid advisory committee
members to get products included on state “Preferred Drug Lists”
–
Does not identify any of the “colluding” members
All states and federal government decline
–
•
Some states do not list the drugs at all
Fishing expedition?
–
If case proceeds past motion to dismiss, discovery of state deliberations will
be inevitable
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Is it worth it?
Does a “DRA Compliant” Qui Tam Statute Really Bring in More Money? (Example: $100,000 Settlement)
Washington
- $2K
Idaho
+ $2K
Oregon
+ $0.6K
Montana
+ $1.2K
North Dakota
- $1K
Maine
+ $0.6K
Minnesota
-$2K
South Dakota
- $0.2K
Wisconsin
+ $0.2K
Wyoming
-$2K
Nebraska
- $0.6K
California
- $2K
Nevada
- $0.8K
Utah
+ $2.2K
Arizona
+ $1.4K
Colorado
- $2K
New Mexico
+ $1.8K
Iowa
+ $0.2K
Illinois
- $2K
Kansas
- $0.6K
Oklahoma
+ $0.8K
Missouri
+0.6K
Michigan
+ $1.2K
New York
- $2K
Pennsylvania
- $1K
Ohio
Indiana + $0.8K
+ $1.4K
Virginia
Kentucky
- $2K
+ $2.2K
Massachusetts
- $2K
Rhode Island
- $1.6K
New Jersey
- $2K
Connecticut - $2K
Delaware - $1.2K%
Maryland
- $2K
South Carolina
+ $2K
Arkansas
+ $2.2K
Alabama
+$1.8K
New Hampshire
- $2K
District of Columbia
+ $2K
North Carolina
+ $1K
Tennessee
+ $1.2K
Mississippi
+ $2.8K
Texas
- $0.4K
Vermont
- $0.4k
Georgia
+ $1.2K
Louisiana
+ $0.2K
Florida
- $0.8K
Alaska
- $2K
Hawaii
- $2K
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Things to Consider
•
“The Government may dismiss the action notwithstanding the objections of the
person initiating the action if the person has been notified by the Government of
the filing of the motion and the court has provided the person with an opportunity
for a hearing on the motion.” 31 U.S.C § 3730(c)(2)(A)
–
Two prevailing standards for Government’s broad power to dismiss:
•
Swift v. U.S. (D.C. Cir. 2003) – unfettered right to dismiss; presumption that decision not to
prosecute is “unreviewable”
•
U.S. ex rel. Sequoia Orange Co. v. Sunland Packing Co. (9th Cir. 1998) – “rational relation”
between dismissal and “valid governmental purpose”
•
Traditional reluctance to invoke dismissal authority needs to be reconsidered
•
Suggestions for Discussion
–
–
–
–
Share investigative findings and conclusions with relator’s counsel
Open door policy to hear defense arguments in favor of AG dismissals
Coordinated response to unfounded and poorly plead suits
Ease the burden on over-taxed agencies and courts
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Questions?
For questions about this presentation, or about federal or
state qui tam legislation or litigation, please contact:
Jonathan L. Diesenhaus
jonathan.diesenhaus@hoganlovells.com
(202) 637-5416
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