In a published opinion last week, the Fifth Circuit sent a reminder to would-be False Claims Act (“FCA”) relators that they better think carefully before filing suit because while they may be seeking treble damages, they may ultimately be held liable for significant taxable costs should their complaint fail to survive summary judgment.
In John King, et al v. Solvay Pharmaceuticals, Inc., No. 16-20259 (5th Cir. Sept. 12, 2017), the relators appealed the district court’s grant of summary judgment as well as the court award of $232,809.92 in taxable costs to the defendants. The relators alleged that Solvay Pharmaceuticals, Inc. (“Solvay”) engaged in a nationwide off-label marketing and kickback scheme that induced false Medicaid claims.
In ruling against the relators, the Court of Appeals made several instructive findings. First, the Court agreed with the district court that several of the relators’ claims were subject to the FCA’s public disclosure bar that prohibits FCA claims that arise from public disclosure of allegations unless the person bringing the action is the “original source” of the information. The Court emphasized that requiring “relators to have direct and independent knowledge of information that, when viewed in context, suggest the filing of false claims is also consistent with the FCA’s dual goals of ‘preventing parasitic suits by opportunistic late-comers who add nothing to the exposure of fraud.’” Id. at 7 (quoting United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 174 (5th Cir. 2004). At best, the Court found the relators were the original source of alleged Food, Drug and Cosmetic Act violations, but because they failed to present any evidence that those purported violations induced false claims to the government, they were not FCA ones.
Second, the Court rejected relators’ argument that Solvay’s alleged lobbying of state pharmaceutical and therapeutic committees to place their drugs on state preferred lists constituted a FCA violation due to lack of causation. The Court held that even assuming this activity was improper, the relators failed to specify how placement on the preferred drug list caused false claims to be submitted to Medicaid for reimbursement.
Third, the Court affirmed the district court’s ruling that merely alleging that physicians who participated in Solvay’s compensated marketing programs and who subsequently prescribed Solvay’s drugs to patients failed to create a genuine issue of fact as to causation. The Court held that while “it is not an unreasonable inference that Solvay intended these programs to boost prescriptions, it would be speculation to infer that compensation . . . actually caused the physicians to prescribe Solvay’s drugs to Medicaid patients.” Id. at 17.
Finally, after affirming the fatal shortcomings in the relators’ claims, the Court of Appeals sustained the district court award of over $200,000 in taxable costs. Under Federal Rule of Civil Procedure 54(d)(1), a prevailing party may be awarded costs (excluding attorney fees) associated with the litigation. Taxable costs may include discovery expenses, e.g., copying, transcripts, that were incurred for “use in the case.” The relators argued that taxable costs were limited to those documents that were actually used at trial or as a summary judgment exhibit. The Court of Appeals rejected that limitation and, giving deference to the district court, failed to find the district court abused its discretion in validating these expenses.
This case is an illustration of the fact that while our adversarial system is not a loser-pays system (also called the “English rule”), a poorly thought through FCA complaint may expose the relator to much of the defendant’s expense of litigating the matter to a successful conclusion.
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