By Jeffrey H. Brochin, J.D.
The first-to-file rule (FTF) under the False Claims Act is jurisdictional, and if a later claim is filed by a separate qui tam relator based on the facts underlying a pending case brought by a previous relator, then the court is without subject matter jurisdiction and the second case must be dismissed, a federal court in Maryland has ruled. The ultimate fate of an earlier action does not determine whether it bars the later action (Palmieri v. Alpharma, Inc., December 16, 2016, Hollander, E.).
Background. The relator began working as a pharmaceutical sales representative in 2001. He marketed prescription pain medications to physicians who treat patients with chronic pain, including a pain-relieving transdermal patch which delivered a drug approved by the FDA as a topical treatment of acute pain due to minor injuries. The FDA approved such use for up to 14 days. Due to risks of cardiovascular and gastrointestinal side effects, the FDA-approved label contained a warning that a patient should use the lowest effective dose for the shortest duration consistent with individual treatment goals. Although federal law does not prohibit a physician from prescribing an approved drug for a non-approved or "off-label" use, it is unlawful for a manufacturer to introduce a drug into interstate commerce with an intent that it be used for an off-label purpose, and a manufacturer illegally ‘misbrands’ a drug if the drug’s labeling includes information about its unapproved uses. A manufacturer’s direct advertising or explicit promotion of a product’s off-label uses is likely to provoke an FDA misbranding or ‘intended use’ enforcement action. Moreover, government-funded health care programs, such as Medicare and Medicaid, generally do not permit reimbursement for off-label uses.
In April, 2010, the relator filed a suit against certain drug manufacturers alleging an illegal scheme to promote off-label use of the pain patch. He alleged that the manufacturers instructed their sales representatives to market the patch aggressively to physicians, who by the nature of their specialties treated only chronic pain and not the acute, localized pain for which the patch was approved. He also alleged that they promoted the patch for continuous rather than short-term use. They allegedly instructed their sales representatives to discourage shorter prescriptions as "subtherapeutic," and to cease promotional efforts toward emergency room and urgent care physicians, who routinely treat patients for acute pain and who often resisted prescribing the patch at the 60-patch level.
Procedural background. Just four days before the relator filed his FCA suit, another relator who was also a sales representative for one of the same manufacturers filed her suit based on the same allegations of a scheme to promote off-label marketing of the patch. In October, 2011, he filed his First Amended Complaint (FAC), and in April, 2013, he filed his Second Amended Complaint (SAC.) The SAC alleged conduct which occurred both before and after the March 23, 2010, statutory amendment which amended the public disclosure bar of the FCA. It is important to note that the FAC was filed after the first relator voluntarily dismissed her FCA claim, and it was therefore no longer pending at the time the district court judge granted him leave to amend his pleadings. On March 21, 2014, the district court judge dismissed his suit without prejudice concluding that the SAC failed to plead fraud with the requisite particularity required by the FRCP (see Drug rep’s claims of illegal marketing by employer lack critical components, March 24, 2014). The relator appealed, and the appellate court vacated and remanded in order to determine the manufacturers’ arguments that the relator’s claims were precluded by the first-to-file (FTF) bar and the public disclosure bar, and specifically whether the FTF bar or the public disclosure bar deprived the court of subject-matter jurisdiction.
First case no longer pending. The district court judge had reasoned that because the first relator’s claim was no longer pending when the FAC was filed, if his case were dismissed, he could simply now file a new case. Rather than ‘elevate form over substance’, the judge allowed the case to proceed as amended, subsequently dismissing it without prejudice as noted above. After the SAC was filed, the manufacturers challenged it based on jurisdictional grounds based on the FTF rule and the public disclosure bar. Because the judge ordered a dismissal of the SAC due to pleading deficiencies, the FTC and public disclosure bar issues were never ruled upon.
First-to-file rule. The FCA FTF rule provides that when one person brings an FCA action, no person other than the government may intervene or bring a related action based on the facts underlying the pending action. The FTF rule was intended to strike a balance between adequate incentives for whistle-blowers possessing genuinely valuable information and the discouragement of opportunistic relators who have no significant information to contribute of their own. In sum as long as a first-filed complaint remains pending, no related complaint may be filed: "whoever wins the race to the courthouse prevails and the other case must be dismissed." The federal courts have consistently viewed the FTF rule as a jurisdictional bar which limits a district court’s subject matter jurisdiction over qui tam actions.
Meaning of a related action. The statutory phrase ‘a related action based on the facts underlying a pending action’ has been construed to mean an action based on the same material facts or the same essential facts as the pending action, rather than identical facts. The ‘material’ or ‘essential’ facts have been held to be those on which the original relator is entitled to compensation if the suit prevails. Such facts are determined based on a comparison of the date and content of the pleadings in the pending case with the date and content of the other pleadings.
An absolute, exception-free rule. The manufacturers relied on a March 18, 2013, Fourth Circuit decision which characterized the FTF bar as an ‘absolute, unambiguous exception-free rule’ in arguing for dismissal of the FCA suit because a similar action was pending when the second relator filed his suit. The relator countered that the FTF bar allowed a person to bring a claim later because that is what a dismissal without prejudice allows. However, upon remand, the district court judge held that a qui tam action will be barred if an earlier case was pending when the second case was filed, if it is based upon the same material elements of fraud. The ultimate fate of an earlier-filed action does not determine whether it bars a later action, rather the only question is whether the earlier case was pending at the time the later action was filed.
Public disclosure bar. The public disclosure bar, although no longer jurisdictional, will often bar second-filed qui tam suits even when the FTF bar does not, being grounds for a motion to dismiss. The public disclosure bar disqualifies private suits based on fraud which was already disclosed in particular settings—such as hearings, government reports, or news reports—unless the relator meets the definition of an ‘original source.’ It is intended to strike a balance between encouraging private persons to root out fraud and stifling ‘parasitic lawsuits’ in which a relator attempts to merely piggyback on a previous FCA action by reiterating previously disclosed fraudulent acts. However, because the FTF rule deprived the court of jurisdiction, the public disclosure bar issue became moot.
Because the first relator’s case was pending when the second case began in 2010, and because the first case and the second case alleged essentially the same fraudulent scheme to promote the pain patch, the second case was barred at its inception by the FTF rule, and the district court was deprived of subject matter jurisdiction.
The case is No. ELH-10-1601.
Attorneys: Thomas F. Corcoran, U.S. Attorney's Office, for the United States. Brigham Cannon (Kirkland & Ellis, LLP) for Alpharma, Inc., Alpharma Pharmaceuticals LLC, King Pharmaceuticals, Inc. and Pfizer, Inc.
Companies: Alpharma, Inc.; Alpharma Pharmaceuticals, LLC; King Pharmaceuticals, Inc.; Pfizer, Inc.
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