Recent Developments on “Materiality” Requirements in Qui Tam Lawsuits

jonathan-perez-409943-copy-300x200Recently, the Supreme Court requested that the Department of Justice (DOJ) file a brief regarding a qui tam or whistleblower lawsuit brought under the False Claims Act (FCA) as regards a clarification of what, in fact, constitutes a “material” misrepresentation under the law. The response from the DOJ is controversial, to say the least.

False Claims Act

The False Claims Act allows private citizens to bring lawsuits against companies for defrauding the federal government. In such a suit, known as a qui tam, or whistleblower action, the person who brings the suit is known as a relator and the government is given the opportunity to prosecute the suit on behalf of the relator, decline to prosecute the action and allow the relator to continue on his or her own, or dismiss the action entirely. One of the requirements of the law and one which is frequently at issue in lawsuits is that of materiality. The Court has said that, in order to be considered as illegal under the FCA, ”a misrepresentation about compliance with a statutory, regulatory or contractual requirement must be material to the Government’s payment decision in order to be actionable.” The law itself defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”

The Case at Issue

The Supreme Court invited the DOJ to file a brief in the case of Gilead Sciences v. United States ex rel. Campie et al. In this case, a pharmaceutical company made the business decision to source ingredients in their drugs from sources that were not vetted by the Food and Drug Administration. The manufacturer then sought to have the source of the ingredients be approved by the FDA, but the relators alleged that this application was made using false information.  Federal law requires that no adulterated or misbranded drugs are allowed to be sold in the US. The relators blew the whistle on the drug company and said that the since the source of the drugs was approved through the use of false information and data, the drugs were therefore not approved by the FDA and that the manufacturer received payments for the drugs through various government sources in violation of the FCA. The relators alleged that the FDA would not have approved the source if it had not been misled as to the facts.  The district court dismissed the complaint since the false information was given to the FDA and not necessarily to the agencies that paid for the drugs and were therefore not material to the payment. The Court of Appeals reversed the decision based on the idea that the falsehood was within the chain of causality that resulted in payment being made for drugs that were not approved for use.

The DOJ Brief

In its brief to the Supreme Court, however, the DOJ agreed that since the government had continued to pay for the drugs even after finding out about the falsehood that there were strong questions about the materiality of the falsehood in relation to the payments. Furthermore, DOJ points out that allegations of fraud are not the same as the actual knowledge of the fraud and therefore, in this case, the payment decisions were not materially influenced by the fraudulent information. The DOJ then goes on to add that if the case was sent back to the District Court, it would act by formally dismissing the relator’s case. The Supreme Court declined to hear the case on January 7, 2019.

The Impact of DOJ’s Brief

The impact of the brief on pending qui tam claims is as yet unknown. However, several things are clear. First, in order to intervene in a case, DOJ appears to be looking for clear-cut evidence that the government’s payment actions were materially predicated on false or misleading behavior. Second, in keeping with a policy declared in 2018, DOJ fully intends to clamp down on qui tam cases that they view as ambiguous.

This case shows how complicated qui tam litigation can be and that relators have a heavy burden of proof to carry. However, an experienced qui tam attorney can help relators navigate the complexities of a case. Willoughby Brod LLP has years of experience in helping claimants in these types of actions. If you are in the San Francisco, Oakland, or Santa Rosa area, give them a call today at 800-427-7020 or click here to set up your initial consultation to see how their skilled legal professionals can help preserve your rights.

(image courtesy of Jonathan Perez)