United States Ex Rel. Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare Corp. , 772 F.3d 932 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1732
UNITED STATES, EX REL. VEN-A-CARE OF THE FLORIDA KEYS, INC.,
Plaintiff, Appellee,
v.
BAXTER HEALTHCARE CORPORATION,
Defendant, Appellee,
v.
LINNETTE SUN AND GREG HAMILTON,
Appellants.
No. 13-2083
UNITED STATES, EX REL. LINNETTE SUN;
UNITED STATES, EX REL. GREG HAMILTON,
Plaintiffs, Appellants,
v.
BAXTER HEALTHCARE CORPORATION,
Defendant, Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Howard, Lipez and Barron,
Circuit Judges.
David J. Chizewer, with whom Courtney R. Baron, Goldberg Kohn
LTD., Lauren John Udden, Frederick M. Morgan, Jr., Jennifer M.
Verkamp, Morgan Verkamp, LLC, and Mark Allen Kleinman were on
brief, for appellants.
Steven J. Roman, with whom Merle M. DeLancey, Jr., Dickstein
Shapiro LLP, Peter E. Gelhaar, and Donnelly, Conroy & Gelhaar, LLP
were on brief, for Baxter Healthcare Corporation, appellee.
James J. Breen, with whom The Breen Law Firm, Rand J. Riklin,
John E. Clark, and Goode Casseb Jones Riklin Choate & Watson were
on brief, for Ven-A-Care of the Florida Keys, Inc., appellee.
December 1, 2014
BARRON, Circuit Judge. This appeal involves a lawsuit
against a pharmaceutical company for allegedly defrauding the
federal Medicaid and Medicare programs. The suit is based on the
False Claims Act, 31 U.S.C. §§ 3729-3733, an unusual federal
statute that allows private parties, called "relators," to stand in
for the United States and bring what are known as qui tam actions.1
Because qui tam actions let private individuals recover damages for
wrongs done to the United States, a special threshold bar -- the
"first-to-file" rule -- sometimes stands in their way. It is that
bar that is in dispute here.
The first-to-file rule is so named because it blocks qui
tam suits that are filed while similar enough ones are already
pending. In this case, the District Court ruled appellants' qui
tam suit could not go forward because a Florida pharmacy years
before had brought one a lot like it. We agree with the District
Court on that point and thus affirm the dismissal of appellants'
suit. Because that decision takes care of this appeal, we do not
decide the other issues the parties discuss.
1
"Qui tam is short for the Latin phrase qui tam pro domino
rege quam pro se ipso in hac parte sequitur, which means 'who
pursues this action on our Lord the King's behalf as well as his
own.'" Vt. Agency of Natural Res. v. United States ex rel.
Stevens, 529 U.S. 765, 768 n.1 (2000).
-3-
I.
To understand why we are only now considering the first-
to-file rule in a case that began nine years ago, we need to
describe the two qui tam actions involved, the alleged fraud each
identified, and the complicated procedural path that led the
District Court to decide their similarities required the later
suit's dismissal. To do all of that, though, we first need to go
back nearly two decades, to 1995.
That was when Ven-A-Care of the Florida Keys, Inc., the
pharmacy, filed the first of the two qui tam actions involved here.
Ven-A-Care alleged a number of pharmaceutical companies had
fraudulently inflated the prices of their drugs, thus securing
higher reimbursements through Medicare and Medicaid than they
deserved. Among the many companies named in Ven-A-Care's complaint
was Baxter Healthcare Corporation.
Baxter's status as a defendant was kept from public view
for more than a decade because Ven-A-Care filed its qui tam suit
under seal. See 31 U.S.C. § 3730(b)(2), (3) (False Claims Act
complaints must be filed in camera and may be kept under seal at
the government's behest). But in 2010, the United States decided
not to intervene in Ven-A-Care's case, and that led to the
complaint's unsealing.2 See id. § 3730(b)(4)(B). The Judicial
2
By that point, Ven-A-Care had amended its complaint on four
occasions. The operative Ven-A-Care complaint for purposes of this
appeal is the Fourth Amended Complaint, which was filed on December
-4-
Panel on Multidistrict Litigation then consolidated Ven-A-Care's
suit with nearly one hundred similar actions -- most filed under
laws other than the False Claims Act -- in the United States
District Court for the District of Massachusetts. See In re Pharm.
Indus. Average Wholesale Price Litig., 491 F. Supp. 2d 20 (D. Mass.
2007); In re Pharm. Indus. Average Wholesale Price Litig., 230
F.R.D. 61 (D. Mass. 2005).
About a year later, in October of 2011, Baxter and
Ven-A-Care reached a settlement agreement. Baxter agreed to pay
tens of millions of dollars to be shared between Ven-A-Care and the
United States. In return, the Settlement Agreement and Release
purported to "fully and finally release[], acquit[], and forever
discharge[]" Baxter from "any and all civil, regulatory, and/or
administrative claim, action, suit, demand, right, cause of action,
liability, judgment, damage, or proceeding . . . which has been
asserted, could have been asserted, or could be asserted in the
future . . . for or arising from any of the Covered Conduct." The
agreement defined "Covered Conduct" as Baxter's submission of
inflated price and cost figures, and its subsequent receipt of
higher-than-deserved reimbursements, for "any and all drugs
manufactured, marketed and/or sold by or on [its] behalf."
11, 2002 -- more than two years before the other relators in this
case brought their suit against Baxter in 2005.
-5-
Despite that agreement, the False Claims Act prevented
Ven-A-Care from voluntarily dismissing its action against Baxter
without the federal government's consent. See 31 U.S.C.
§ 3730(b)(1). But Ven-A-Care soon did get that consent, and the
District Court then entered judgment dismissing Ven-A-Care's action
against Baxter, thus seemingly ending Baxter's role in the case.
Baxter's involvement in False Claims Act litigation, however, was
not over. Instead, a new front of litigation had opened.
Years before the dismissal of Ven-A-Care's suit, Linnette
Sun, one of Baxter's former employees, and Greg Hamilton, an
employee of one of its longtime customers,3 had teamed up to file
a qui tam action of their own against Baxter, and that action was
still pending when Baxter settled with Ven-A-Care.4 Ven-A-Care and
Baxter were aware of Sun and Hamilton's suit when they concluded
their settlement talks, but they did not directly alert Sun and
3
Sun was a research director for Baxter, and in that capacity
was responsible for pricing one of the drugs listed in her and
Hamilton's complaint. Hamilton worked for a pharmacy that
purchased Baxter's products and used one of the commercial
reporting compendia allegedly crucial to the fraud Baxter carried
out.
4
Partly as a result of the fact that Sun and Hamilton filed
their action before Ven-A-Care's was publicly disclosed, this case
does not implicate the False Claims Act's "public disclosure" bar,
31 U.S.C. § 3730(e)(4). See generally United States ex rel.
Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 20-28 (1st Cir.
2009) (analyzing text, history, and structure relevant to "public
disclosure" bar). The parties do not argue otherwise.
-6-
Hamilton to their impending agreement.5 Instead, after the United
States signed off on Baxter's settlement with Ven-A-Care and that
suit had been dismissed, Baxter moved for partial6 summary judgment
in Sun and Hamilton's case.
In doing so, Baxter argued the Ven-A-Care settlement
released not only the pharmacy's claims against it, but also Sun
and Hamilton's claims as well. Sun and Hamilton countered they
were not parties to the Ven-A-Care action and the United States's
consent to the settlement was, as the government put it, "to the
dismissal with prejudice only of claims pled in relator
Ven-A-Care's complaint against [Baxter]." Statement of the United
States Regarding the Consent of the United States to the Dismissal
with Prejudice of Claims Pursuant to 31 U.S.C. § 3730(b)(1) in a
Related Matter, In re Pharm. Indus. Average Wholesale Price Litig.,
No. 1:01-cv-12257-PBS (D. Mass. Nov. 14, 2011), ECF No. 7897
(emphasis added). Sun and Hamilton thus argued the Ven-A-Care
settlement agreement should not be read to release their claims.
5
Ven-A-Care did file the Settlement Agreement and Release on
the docket that applied for the entire multidistrict litigation
against all the pharmaceutical-company-defendants, but Ven-A-Care
did not provide Sun and Hamilton with any further notice of the
agreement.
6
Sun and Hamilton had previously amended their complaint to
add retaliation and employment discrimination claims not now before
us, but Baxter's summary judgment motion was brought with respect
to the False Claims Act claims only.
-7-
The District Court disagreed, however, and granted summary
judgment.
But Baxter was still not free and clear. Sun and
Hamilton argued in a motion for reconsideration that even if the
Ven-A-Care settlement did cover their claims, the agreement could
not release those claims until Sun and Hamilton got a hearing on
whether "the proposed settlement is fair, adequate, and reasonable
under all the circumstances." 31 U.S.C. § 3730(c)(2)(B). Their
argument depended on their characterization of the settlement as an
"alternate remedy" the United States had chosen to pursue for
Baxter's fraud. See id. § 3730(c)(5).
The District Court agreed with Sun and Hamilton that the
settlement was an "alternate remedy" under the Act, but that
presented a procedural puzzle about how Sun and Hamilton could get
the fairness hearing. After all, the Ven-A-Care suit had already
been dismissed, and thus that case was over. The District Court
suggested a possible solution might be available through an
arguably novel construction of Federal Rule of Civil Procedure
60(b), which allows parties to move to reopen judgments in certain
limited circumstances. In response, Sun and Hamilton filed a
motion in Ven-A-Care's case against Baxter -- to which Sun and
Hamilton were not parties -- that argued they had a right to a
fairness hearing under the False Claims Act that required reopening
the Ven-A-Care judgment.
-8-
That motion, in turn, led to the first-to-file ruling we
now focus on in this appeal. In responding to Sun and Hamilton's
Rule 60(b) motion, Baxter for the first time argued that, wholly
apart from the settlement agreement with Ven-A-Care, Sun and
Hamilton could not proceed with their suit. The reason, Baxter
argued, was that Ven-A-Care's qui tam action -- which was pending
when Sun and Hamilton filed theirs -- stated all the essential
facts of the fraud alleged by Sun and Hamilton. As a result,
Baxter contended, the Ven-A-Care complaint had triggered the False
Claims Act's first-to-file bar -- and thus, Sun and Hamilton's suit
could not go forward.
The District Court agreed, and denied the Rule 60(b)
motion solely for that reason, entering identical orders in both
Sun and Hamilton's own lawsuit and the Ven-A-Care case in which
they sought to intervene. The Court thus left unaddressed the
issues about the statutory right to a fairness hearing Sun and
Hamilton might enjoy and its potential bearing on reopening the
Ven-A-Care case. The District Court then dismissed Sun and
Hamilton's suit.
Sun and Hamilton now appeal that judgment of dismissal.
They challenge not only the District Court's first-to-file ruling
but also its earlier summary judgment decision finding that Ven-A-
Care's settlement with Baxter also released Sun and Hamilton's
-9-
claims against Baxter. Baxter and Ven-A-Care defend both rulings
as appellees.
II.
The "first-to-file" rule is, at least in this Circuit,
jurisdictional. United States ex rel. Wilson v. Bristol-Myers
Squibb, Inc., 750 F.3d 111, 117 (1st Cir. 2014) ("The FCA
first-to-file rule is jurisdictional . . . ."). But cf. United
States ex rel. Shea v. Cellco P'ship, 748 F.3d 338, 345-46 (D.C.
Cir. 2014) (Srinivasan, J., concurring in part and dissenting in
part) (noting that D.C. Circuit has not definitively ruled on
first-to-file bar's jurisdictional character). If we affirm on
that ground, therefore, we would not reach whether Baxter's
settlement agreement with Ven-A-Care independently released Sun and
Hamilton's claims, as the District Court initially held. Nor would
we reach whether the government, by consenting to the Ven-A-Care
settlement, secured an "alternate remedy" for Baxter's alleged
fraud, such that Sun and Hamilton were entitled to a fairness
hearing before that settlement agreement could take effect, as the
District Court later determined. Nor, further, would we reach
whether Sun and Hamilton, as non-parties, could move to reopen the
Ven-A-Care judgment, as the District Court also ruled. And so we
skip over these various issues -- the District Court acknowledged
they presented a "procedural pretzel" -- so we may focus on an
-10-
issue that precedes them all: whether the District Court was right
to accept Baxter's first-to-file defense.
We begin with the portion of the False Claims Act that
gives rise to the first-to-file rule: 31 U.S.C. § 3730(b)(5). It
states that, when a private party files a qui tam action under the
False Claims Act, "no person other than the Government may
intervene or bring a related action based on the facts underlying
the pending action."7
Of course, lawsuits, like anything else, may be "related"
along many dimensions. And the ways in which a subsequent filing
might be "based on the facts" of an earlier one are many as well.
But this Circuit has explained that what matters, given this
statutory language and the Act's underlying purposes, are two
things: (1) the relationship between the fraud alleged in the two
qui tam actions, and (2) the extent to which the facts alleged in
the first-filed qui tam action suffice to provide the government
with notice of the fraud that has been alleged by the second. See
Wilson, 750 F.3d at 117-19; United States ex rel. Heineman-Guta v.
7
Because Sun and Hamilton filed this action against Baxter
while Ven-A-Care's was still under seal -- and thus was still
"pending" -- the first-to-file rule applies to this action even
though the earlier-filed action has now been dismissed. See United
States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 34 n.7
(1st Cir. 2013); cf. United States ex rel. Carter v. Halliburton
Co., 710 F.3d 171, 182-84 (4th Cir. 2013) (allowing a related
action to be filed after the original action was dismissed), cert.
granted sub nom. Kellogg Brown & Root Servs., Inc. v. United States
ex rel. Carter, 134 S. Ct. 2899 (2014).
-11-
Guidant Corp., 718 F.3d 28, 35-36 (1st Cir. 2013); United States ex
rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 32-33 (1st
Cir. 2009).
This focus makes good sense. By limiting when follow-on
qui tam suits may be brought, the Act in section 3730(b)(5) does
not guarantee that anyone with useful information about fraudulent
conduct against the United States may recover damages by bringing
a suit based on such knowledge. Rather, the Act seeks to ensure
the federal government receives the information it needs to launch
a meaningful investigation into fraudulent conduct. Wilson, 750
F.3d at 117. That "purpose of the qui tam action under § 3730(b)
is satisfied" when the government receives a complaint that
contains "'genuinely valuable information'" of sufficiently notice-
supplying quality. Heineman-Guta, 718 F.3d at 35-36 (quoting
United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs.,
Inc., 149 F.3d 227, 234 (3d Cir. 1998)). And treating such a
first-filed complaint as precluding a similar enough later-filed
one furthers the Act's purposes in another way. Such treatment
"provide[s] incentives to relators to promptly alert the
government" of any fraud. Wilson, 750 F.3d at 117 (citation and
internal quotation marks omitted). There is thus no reason to read
section 3730(b)(5) to let later-filing relators sue merely because
they offer additional information that might also help the
government carry out its investigation.
-12-
Against this background, the first-to-file rule requires
that we check to see whether the complaint in the first qui tam
suit provided enough detail to ensure that "the government knows
the essential facts of a fraudulent scheme" -- for once the
government knows that much, "it has enough information to discover
related frauds." Id. at 118 (quoting United States ex rel. Branch
Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 (5th Cir.
2009)). Or, as we have put the point elsewhere, "to provide
sufficient notice to the government of the alleged fraud and bar a
later-filed complaint under § 3730(b)(5)[,] earlier-filed
complaints must provide only the essential facts to give the
government sufficient notice to initiate an investigation into
allegedly fraudulent practices" also alleged in the later-filed
action. Heineman-Guta, 718 F.3d at 36-37.
In this way, the statement in Heineman-Guta that a
first-filed complaint need provide only "sufficient notice to
initiate an investigation into allegedly fraudulent practices," id.
at 36-37, informs the "essential facts" test, it does not supplant
it. Before barring a second complaint, we must ask not merely
whether the first-filed complaint provides some evidence from which
an astute government official could arguably have been put "on
notice," id. at 35, 38, but also whether the first complaint
contained "all the essential facts" of the fraud it alleges, id. at
34 (citation omitted).
-13-
Under this "essential facts" standard, a later-filed
claim cannot go ahead if it "'states all the essential facts of a
previously-filed claim' or 'the same elements of a fraud described
in an earlier suit.'" Wilson, 750 F.3d at 117 (quoting Duxbury,
579 F.3d at 32). It follows that there need not be identity
between the two complaints to trigger the first-to-file rule.
"[T]he first-to-file rule 'still bar[s] a later claim even if that
claim incorporates somewhat different details.'" Id. at 118(alteration in original) (quoting Duxbury, 579 F.3d at 32).
With this legal framework in mind, we compare the Ven-A-
Care complaint to the Sun and Hamilton complaint. See In re
Natural Gas Royalties Qui Tam Litig. (CO2 Appeals), 566 F.3d 956,
964 (10th Cir. 2009) ("The first-to-file bar is designed to be
quickly and easily determinable, simply requiring a side-by-side
comparison of the complaints."); United States ex rel. Poteet v.
Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009) ("In order to
determine whether a relator's complaint runs afoul of . . .
§ 3730(b)(5)'s first-to-file bar, a court must compare the
relator's complaint with the allegedly first-filed complaint.").
In doing so, we review de novo whether the first complaint meets
the "essential facts" test, as that test presents a question of law
about the statutorily required threshold for notifying the
government of the fraud alleged in the later-filed suit. Wilson,
750 F.3d at 117.
-14-
A.
In many qui tam suits involving the first-to-file rule,
a central question is whether the two actions concern the same
fraud or distinct ones. But Sun and Hamilton lead with a different
contention. They claim the Ven-A-Care complaint was so vague and
conclusory when it came to Baxter's conduct that it was as if the
complaint alleged no fraud at all. Thus, they argue that only they
"provided the type of information necessary to give the Government
a meaningful head start on its investigation" into Baxter's fraud.
They stress they identified "names, meetings, statements, and
documents" specific to Baxter's fraudulent scheme, while, they
argue, Ven-A-Care set forth none.
But Sun and Hamilton are not fair to the Ven-A-Care
complaint. The Ven-A-Care complaint did lack the detail Sun and
Hamilton's sets forth, but it was not bereft of facts specific to
Baxter's allegedly fraudulent conduct. The Ven-A-Care complaint
did at numerous points attribute the fraud to the defendants
through the use of plural indefinite pronouns, such as "each" or
"all." But that way of identifying the defendants does not make
the Ven-A-Care complaint any less useful to the federal government.
Baxter was covered by those same words, and the False Claims Act
surely should not be read to discourage a relator from alleging a
fraud perpetrated by many defendants.
-15-
In any event, Ven-A-Care's complaint contained a separate
section devoted solely to Baxter. In that section, Ven-A-Care
alleged Baxter knowingly made false representations about the price
and cost of its drugs in order to receive fraudulently inflated
reimbursements from Medicare and Medicaid and "further made or used
false records or statements regarding its prices and costs of the
drugs . . . and submitted same to [Medicare and Medicaid]." Ven-A-
Care also alleged Baxter got reimbursed for a number of drugs --
including the anti-hemophilia drug Recombinate, which Baxter
manufactured -– above their true costs and prices. Indeed, even
Sun and Hamilton acknowledge Ven-A-Care "disclosed a pricing spread
for Recombinate." The contention that Ven-A-Care's complaint
entirely lacked Baxter-specific allegations, therefore, is simply
wrong.
Sun and Hamilton are on stronger ground in saying their
complaint showed greater familiarity with how Baxter pulled off the
supposed fraud. By drawing on their inside knowledge as a former
employee of Baxter and a former employee of a longstanding customer
of Baxter, respectively, Sun and Hamilton did offer far more detail
than Ven-A-Care about particular actors within Baxter and the role
those actors played. Whether that matters, however, is a different
issue.
We have made clear the first-to-file rule does not
necessarily protect more detailed, later-filed complaints from less
-16-
detailed, earlier-filed ones. See Wilson, 750 F.3d at 118-19. So
long as the first complaint sets forth the "essential facts" of the
fraud alleged in the second complaint, it does all it needs to do
under the first-to-file rule. Id. at 117. Thus, Sun and Hamilton
must show not only that they provided more detail than Ven-A-Care,
but also that Ven-A-Care did not provide enough detail -- even if
it provided some.
Exactly how specific a complaint must be to provide the
"essential facts" is not something we have previously described
with precision. And precision may be too much to ask, given the
context-specific nature of the inquiry. Still, important guidance
may be found in our decision in Heineman-Guta.
There, we explained that, for purposes of 31 U.S.C.
§ 3730(b)(5), a complaint need not contain the kind of detailed and
particularized allegations of fraudulent conduct -- such as the
names of the particular persons responsible for carrying out
certain aspects of an alleged fraud -- required to fulfill the
heightened pleading standard for fraud cases set forth in Federal
Rule of Civil Procedure 9(b).8 See Heineman-Guta, 718 F.3d at 36-
8
Rule 9(b) -- which commands that "a party must state with
particularity the circumstances constituting fraud or mistake" --
requires a complaint making such an allegation to "specify the
time, place, and content of an alleged false representation."
Heineman-Guta, 718 F.3d at 34 (quoting United States ex rel. Rost
v. Pfizer, Inc., 507 F.3d 720, 731 (1st Cir. 2007)). The
specificity needed to make out a claim of liability against a
particular defendant, however, may be greater than the amount of
detail needed to ensure the government has what it needs to launch
-17-
37. We also addressed an argument much like the one Sun and
Hamilton now press -- that an earlier-filed qui tam complaint was
too unspecific to bar a later-filed qui tam suit, even if Rule 9(b)
did not establish the minimum amount of detail a qui tam complaint
must provide to trigger the False Claims Act's first-to-file bar.
Heineman-Guta involved a relator who brought a qui tam
action that claimed her employer and one of its affiliates had
engaged in a kickback scheme to promote the sale and use of cardiac
devices they manufactured. Id. at 29. Thirteen months before that
relator sued, however, another former employee had filed a qui tam
complaint against the same company. Id. at 30, 32. The second
relator argued the complaint filed by the first, which the parties
agreed "disclosed a fraudulent scheme nearly identical to the one
alleged in [the second relator's] complaint," id. at 34 n.8,
"fail[ed] the essential facts test because it lack[ed] allegations
that the scheme actually caused physicians to implant [the
employer's] devices or that those devices were covered by
Medicare," id. at 38 n.12. We rejected that argument because a
complaint "need not contain a detailed play-by-play narration of
how the scheme led to the submission of false claims" to trigger
the first-to-file rule. Id. Instead, we found "sufficient" for
a meaningful investigation into the alleged fraud. See id. at 35
("[T]he allegations of a preclusive first-filed complaint under
§ 3730(b)(5) need not comport with Rule 9(b)'s pleading
requirements to provide the government with sufficient notice of
potential fraud.").
-18-
purposes of section 3730(b)(5) the first complaint's allegations
that the company "caused false statements and claims to be made to
the government for reimbursement under Medicare" "through multiple
forms of kickbacks designed to induce physicians and hospitals to
use [their] devices." Id.
Ven-A-Care's complaint, too, did not offer a "play-by-
play" of events or a detailed narration of how the alleged fraud
played out. But the complaint did identify the key highlights
about how Baxter conducted the supposed fraud. The complaint
detailed the particular pricing mechanism Baxter used for carrying
out the alleged fraud (leveraging the knowledge that Medicare and
Medicaid based their reimbursement payments on cost and price
estimates that were reported by various commercially available drug
pricing compendia, and thus entering into special "charge-back"
arrangements with select wholesalers in order to artificially
inflate the estimates that were supplied to the compendia and then
reported by them). The complaint specified the drugs involved
(including, among many others, the anti-hemophilic Recombinate).
The complaint described the time period during which the scheme
occurred ("the period starting from on or before December 31, 1993
and continuing through" the date on which it was filed, December
11, 2002). And the complaint set forth what Ven-A-Care contended
was corroborating evidence of Baxter's fraud (namely, a chart
listing various reported costs and prices).
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Ven-A-Care's complaint thus hardly resembles the example
Sun and Hamilton cite in their brief of a complaint they contend
could not possibly trigger the first-to-file bar: "a one-sentence
complaint stating nothing more than: 'Baxter is committing pricing
fraud against the Government.'" Nor is the Ven-A-Care complaint
the kind of "overly broad and speculative complaint" we have
indicated cannot suffice "to notify the government of a fraudulent
scheme." Id. at 38. Instead, Ven-A-Care's complaint contained
"the essential facts" of Baxter's alleged fraud, and thus gave "the
government sufficient notice to initiate an investigation into
allegedly fraudulent practices." Id. at 36-37.
This conclusion is consistent with our other first-to-
file precedents, even though Sun and Hamilton say otherwise. Sun
and Hamilton rely in particular on our decision in Duxbury. There,
we held an earlier-filed qui tam complaint about an allegedly
fraudulent scheme involving drug pricing did not bar a second
relator's later-filed suit alleging the same defendant had engaged
in an off-label promotion scheme.9 579 F.3d at 32-33. Standing on
9
In Duxbury, the original complaint filed by the first
relator contained two counts, one alleging "substantive" False
Claims Act violations, and the other alleging conspiracy. 579 F.3d
at 17. In support of the "substantive" violations, the complaint
alleged (1) that the defendant had published a fraudulently
inflated average wholesale price for Procrit, an anemia drug; (2)
that it had marketed the "spread" between the inflated price and
the true price as a way of inducing healthcare providers to
purchase the drug; and (3) that it had undertaken "phony drug
studies" in encouraging healthcare providers to prescribe Procrit
for non-approved uses. Id.-20-
its own, Duxbury might be read to support Sun and Hamilton's
position. Duxbury did say the later-filed complaint "contained a
number of allegations that discuss, in significant detail," the
alleged off-label promotion scheme, and Duxbury did allow that
second, more detailed complaint to survive the first-to-file bar.
Id. at 33 (emphasis added).
But our decision to allow the second suit to go forward
in Duxbury did not rest on the greater detail in the later
complaint. Instead, as we later explained in Wilson, the key
difference was that the later-filed complaint "alleged a complex
off-label promotion and direct marketing scheme," while the
original complaint focused on kickbacks and in fact "'nowhere
The later-filed complaint -- which, like the first one, was
filed by a former sales representative of the defendant company --
also alleged the company had paid kickbacks to healthcare providers
in order to induce them to write prescriptions for Procrit that
would otherwise not have been written. Id. at 18. But the new
complaint additionally alleged that the company had engaged in a
comprehensive scheme to promote "a dosing regimen of 40,000 units
once per week even though it had not received approval from the FDA
for such a high dosage," and that the company's widespread
"promotion of this off-label use caused the filing of false claims
for reimbursement with Medicare and Medicaid, insofar as the
providers sought reimbursement for nonreimburseable uses." Id.(internal quotation marks omitted).
In support of this latter allegation, the second complaint
enumerated a number of promotion efforts the defendant allegedly
had undertaken, detailing the many ways in which the company
carried out the off-label promotion scheme. See id. at 33. By
contrast, the first complaint referenced only a single drug study
"in which [the defendant] allegedly paid physicians to dose Procrit
at 40,000[ units] in a once per week dose instead of the FDA
approved dosage of 10,000[ units] three times per week dosage in
cancer-chemotherapy patients." Id. at 17.
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refer[red] to an off-label promotion scheme.'" Wilson, 750 F.3d at
119 (alteration in original) (quoting Duxbury, 579 F.3d at 33).
Thus, even if the initial complaint in Duxbury provided some
evidence relevant to the "complex off-label promotion and direct
marketing scheme," it still did not provide the "essential facts"
about the complex fraud because that fraud was described and
identified only in the later-filed complaint and "nowhere" in the
earlier one. Id.So understood, Duxbury is a very different case from this
one. With one possible caveat we address below, Sun and Hamilton
and Ven-A-Care do not dispute that their respective complaints each
focused on the same fraudulent scheme. And, as we have explained,
each described that scheme in significant detail. The only
divergence in their complaints, therefore, is the same one we
thought too slight in Wilson. As there, the later relators here
(Sun and Hamilton) included many details about the underlying
scheme the first relator (Ven-A-Care) did not supply. But the use
of comparatively greater detail in describing the same underlying
fraud is not what matters for the first-to-file rule. Otherwise,
the "essential facts" test would be reduced to an "identical facts"
test. See Wilson, 750 F.3d at 118-19. And, as we explained in
Wilson, such an understanding of the "essential facts" test cannot
be right because "once the government knows the essential facts of
a fraudulent scheme, it has enough information to discover related
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frauds."10 750 F.3d at 118 (quoting Branch Consultants, 560 F.3d
at 378).
Simply put, once the government gets sufficiently
valuable information from a qui tam complaint about the same fraud
alleged by a follow-on complaint, the purposes of the first-to-file
rule have been fully served.11 And here, both complaints focused
on the very same fraud Baxter allegedly committed, and the first of
the complaints, Ven-A-Care's, provided enough specific information
about the alleged fraud to satisfy the first-to-file rule.
B.
Sun and Hamilton do make one final argument. This one
does not focus on the comparatively greater detail they supplied
about the fraud in question, or on the supposedly insufficient
detail Ven-A-Care offered. Instead, Sun and Hamilton argue their
complaint -- and theirs alone -- sketched out the inner workings of
Baxter's fraudulent scheme after the year 2000, and that Baxter's
post-2000 conduct resulted in a fraudulent scheme separate from the
fraud Ven-A-Care identified. Thus, at least as to Baxter's post-
2000 conduct, Sun and Hamilton portray themselves to be like the
10
All other Circuits to have addressed the issue have thus
rejected an "identical facts" test. See United States ex rel.
Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 363 (7th Cir.
2010) (collecting cases).
11
At least, this is true so long as the first relator's suit
remains pending. See generally Carter, 710 F.3d at 182-84, cert.
granted sub nom. Kellogg Brown & Root Servs., Inc. v. United States
ex rel. Carter, 134 S. Ct. 2899 (2014).
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second relator in Duxbury -- the only one who sufficiently alleged
the complex off-label promotion scheme.12
This argument would have some force if true. But Sun and
Hamilton's complaint suggests Baxter's fraud did not change much
after 2000 -- or, at least, not enough to distinguish it from the
fraud described in the Ven-A-Care complaint.
According to Sun and Hamilton, in 2000 the New York
Medicaid Fraud Control Unit apprised various pharmacy directors of
a pattern of misrepresentations by drug manufacturers of the
average wholesale prices and acquisition costs of their drugs. As
a result, Sun and Hamilton alleged, some of the industry reporting
compendia agreed to stop reporting average wholesale price values
published by drug manufacturers and to instead report figures on
the basis of true market prices.
Sun and Hamilton alleged Baxter got around this new
practice by providing the compendia with what Baxter called "list
sales prices." Although they went by a different name, these "list
sales prices" -- like the manufacturer-provided average wholesale
prices the compendia now refused to accept -- also reflected
artificially inflated amounts paid by only a few select wholesalers
12
At oral argument, Sun and Hamilton expressly disclaimed that
their complaint alleged a new scheme by virtue of the fact that
only they made allegations with respect to Baxter's pricing of
Advate, a drug Baxter released only after Ven-A-Care filed its
operative complaint but that both parties agree is, as the District
Court found, very closely related to the other Baxter drug at issue
in Sun and Hamilton's complaint, Recombinate.
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with whom Baxter had entered into special "charge-back" deals.13
Sun and Hamilton further claimed that, by supplying as "list sales
prices" only what the few "charge-back" wholesalers paid, Baxter
provided the compendia values that "bore no relationship to the
price charged in the marketplace." And because the compendia
ultimately accepted these "list sales prices" and then reported
them, Sun and Hamilton alleged Baxter was able to obtain "a
substantial spread" between the prices it charged the overwhelming
majority of its buyers and the amounts it received in
reimbursements from the government.
According to Sun and Hamilton, they alone described this
post-2000 fraud. And, to bolster that contention, Sun and Hamilton
argue Ven-A-Care's complaint could not possibly have provided the
"essential facts" about Baxter's post-2000 fraud because that
earlier-filed complaint "contain[ed] no allegations relating to
[Baxter's] post-1999 conduct." But the section of Ven-A-Care's
complaint specific to Baxter began by alleging that, "[t]hroughout
the period starting from on or before December 31, 1993 and
continuing through the present date," Baxter "knowingly caused
13
Although Sun and Hamilton referred to these deals frequently
in their complaint, they did not explain the nature of the "charge-
back" deals. By contrast, Ven-A-Care did. Its complaint stated
the "charge-back" deals involved select wholesalers purchasing
drugs from manufacturers at far-above-market prices, knowing the
manufacturers would repay them (and pay them a service fee for
their troubles) after they sold the products to retailers at market
value.
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Medicare/Medicaid to pay false or fraudulent claims for
prescription drugs and biologicals." Since Ven-A-Care's
last-amended complaint was filed on December 11, 2002, Ven-A-Care's
allegations covered nearly three years' worth of "post-1999
conduct" specific to Baxter. So, on the timing point, Sun and
Hamilton are simply wrong.14
Sun and Hamilton also argue Ven-A-Care's complaint,
regardless of the time-span it addresses, said too little about
what Baxter did to adjust to the compendia's change in practice
after 2000. But this argument, too, is not right. Ven-A-Care's
complaint stated the named defendants (Baxter included) frequently
provided cost and price figures to the reporting compendia in terms
of "List Price" instead of true market prices. And the complaint
alleged each or all of the named defendants provided the compendia
with cost and price figures from the "charge-back" wholesalers,
thereby obtaining the problematic gains. These are the very same
mechanisms Sun and Hamilton identify in their complaint. In fact,
Ven-A-Care's complaint offered more details about the "charge-back"
mechanism than did Sun and Hamilton's complaint.
14
The Seventh Circuit has explained that the fact that an
earlier-filed complaint covers a time period prior to the period
covered in a later-filed complaint does not in and of itself render
the two complaints unrelated for first-to-file purposes, see
Chovanec, 606 F.3d at 363, but we need not resolve that question
since the Ven-A-Care complaint does describe a fraud that extended
well past 2000.
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Thus, while Sun and Hamilton in most respects provided
more detail about exactly what Baxter did after the compendia
shifted their reporting practices, any meaningful differences
between Baxter's pre-2000 and post-2000 fraud were ones about which
Ven-A-Care's complaint provided the "essential facts." This
conclusion follows because a review of Ven-A-Care's complaint shows
that, whatever it may have left out, it did give the federal
government sufficient notice to launch a meaningful investigation
of Baxter's alleged misconduct both before and after the reporting
practices changed in 2000. See Heineman-Guta, 718 F.3d at 36-37
(explaining that "to provide sufficient notice to the government of
the alleged fraud and bar a later-filed complaint under
§ 3730(b)(5)[,] earlier-filed complaints must provide only the
essential facts to give the government sufficient notice to
initiate an investigation into allegedly fraudulent practices").
III.
In asking us to reverse the District Court, Sun and
Hamilton make an intuitively appealing contention. The Supreme
Court has explained that "[s]eeking the golden mean between
adequate incentives for whistle-blowing insiders with genuinely
valuable information and discouragement of opportunistic plaintiffs
who have no significant information to contribute of their own" is
one central purpose of the False Claims Act's qui tam provisions.
Graham Cnty. Soil & Water Conservation Dist. v. United States ex
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rel. Wilson, 559 U.S. 280, 294 (2010) (quoting United States ex
rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C.
Cir. 1994)). And here, Sun and Hamilton -- a former high-ranking
employee of Baxter and an employee of one of Baxter's longtime
customers, respectively -- are "whistle-blowing insiders," not
"opportunistic plaintiffs who have no significant information to
contribute of their own." Furthermore, Sun and Hamilton warn that,
if we apply the first-to-file rule to bar their suit, insiders like
them will be discouraged from coming forward with valuable
information about potential fraud for fear a less knowledgeable
relator already beat them to the door.
But considered more fully, Sun and Hamilton's contention
is not so powerful. Although achieving that "golden mean" is
certainly one key purpose of the False Claims Act's first-to-file
rule, we have previously explained that another is "to provide
incentives to relators to promptly alert[] the government to the
essential facts of a fraudulent scheme." Wilson, 750 F.3d at 117
(alteration in original) (quoting Duxbury, 579 F.3d at 24). Sun
and Hamilton's preferred approach might well frustrate that goal.
If adopted, insiders who knew more about a fraud might have less
reason to come forward quickly. They would face less risk that
diligent relators who did not know as much, but still knew enough
to permit the government to launch a meaningful investigation into
that same fraud, would beat them to court. It is not clear why the
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provision of the Act that establishes the first-to-file rule should
be read to discourage insiders from acting promptly on their
knowledge.
But however one might choose to make the tradeoff between
speed and quality in the abstract, our precedents make clear how we
must make it here. Section 3730(b)(5) of the False Claims Act
prevents Sun and Hamilton's suit from going forward. Their
complaint merely provides "additional facts and details about the
same scheme" pled in Ven-A-Care's earlier-filed complaint,
Heineman-Guta, 718 F.3d at 36, which already provided the
"essential facts" about that same scheme. The decision dismissing
Sun and Hamilton's suit is therefore AFFIRMED.
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