EDNY False Claims Act Overfill Decision Highlights Importance of Timely Naming All Defendants
February 18, 2019
EDNY Judge Nina Gershon analyzed several False Claims Act issues in United States ex rel. Omni Healthcare Inc. v. McKesson Corp., ruling on first-to-file, Rule 9(b), and statute of limitations issues.
Relator Omni Healthcare alleged that defendants improperly used “overfill” in vials of injectable drugs. “Overfill” is the amount of a drug in excess of the amount indicated on the label, typically included so the provider can withdraw a full dose from the vial. Relator alleged that defendants wrongfully broke into the vials, harvested the overfill, and then sold syringes with the overfill to providers who then billed the government.
Identify of Defendants Drives First-To-File Ruling
The Court initially addressed whether relator’s second amended complaint should be dismissed under the first-to-file rule, based on an earlier-filed case that also addressed alleged fraudulent repackaging of overfill. The Court reviewed Second Circuit law holding that a later-filed action is related and therefore barred if it “incorporate[s] the same material elements of fraud as the earlier action.” The Court concluded that the Omni Healthcare allegations were only related as to the one defendant that was a defendant in the earlier action, and dismissed the complaint only as against that defendant. The Court held that “the first-to-file bar would not reach a subsequent qui tam action otherwise alleging the same material elements of fraud, but alleging those elements concerning different defendants.” A later complaint is related if the earlier complaint equips the Government to investigate the fraud, and the Court determined that to be “‘equipped’ to investigate a fraud, the government must know whom to investigate.”
2017 Chorches Decisions Defeats Rule 9(b) Challenge
Defendants next asserted that the complaint did not satisfy the particularity requirement for pleading fraud under Rule 9(b), because it lacked allegations about the content of the false claims, who submitted them, and when they were submitted. Judge Gershon denied this argument based on the 2017 Second Circuit decision in United States ex rel. Chorches v. Am. Med. Response, Inc., which was discussed here. The Court held that “such information is not required where, as here, the relator’s allegations create a strong inference that specific false claims were submitted.”
Statute of Limitations Bars Claims Against Added Defendants
Omni Healthcare conceded that, to satisfy the False Claims Act six year statute of limitations, the new allegations in its second amended complaint would be timely only if they related back to its earlier-filed first amended complaint. The Court noted that the False Claims Act specifically allows a timely complaint to satisfy the statute of limitations even though the named defendants were deprived of notice while the complaint was sealed. New claims against defendants named by Omni Healthcare in the first amended complaint were therefore timely. The second amended complaint, however, had added five additional defendants, and the Court held that claims against these defendants were untimely. “The statute of limitations, like the first-to-file rule, encourages relators to come forward promptly with information to help the government uncover fraud … This purpose would be undermined if a relator were permitted to add additional defendants years later—and potentially after the government has declined to intervene.”
Judge Gershon’s rulings highlight the importance of naming all False Claims Act defendants as early as possible to avoid procedural dismissals.