A recent decision in the U.S. District Court for the Southern District of New York provides fair warning to qui tam relators who assert erroneous claims under the False Claims Act (“FCA”) that they could be hit with legal fees and expenses pursuant to 31 U.S.C. § 3730, which permits such an award “upon a finding that the . . . claims were objectively frivolous, irrespective of plaintiff’s subjective intent.” Mikes v. Straus, 274 F.3d 687, 705 (2d Cir. 2001).
On December 1, 2014, in U.S., et al., ex rel. Fox Rx, Inc., 1:12-cv-00275, defendant Managed Health Care Associates Long Term Care Network, Inc. (“MHA”), was awarded attorneys’ fees and expenses because the relator’s, Fox Rx, Inc.’ (“Fox”), claim that MHA, which negotiates reimbursement rates, among other things, on behalf of a network of pharmacies, allegedly (i) failed to substitute generic drugs for named brand drugs, and (ii) dispensed drugs beyond their termination date, was objectively frivolous given that the plain language of the very agreement Fox attached to its second amended complaint demonstrated that MHA did not itself dispense drugs, and exercised no control or supervision of its network pharmacies’ dispensing.
Influential in the Court’s decision was a meeting the parties conducted after the initial complaint and first amended complaint were filed, but before Fox filed its second amended complaint, where MHA presented information demonstrating that Fox’s claims were erroneous and provided Fox with a draft motion for sanctions that would be filed if the claims were not withdrawn. Fox, which the Court referred to as a “serial qui tamrelator,” persisted nonetheless, including by filing its second amended complaint.
An application for an award of fees and expenses should not be expected in every dismissed FCA case. The meeting between the parties and the draft Rule 11 motion, however, demonstrate steps an FCA defendant can take to better position itself for such an award, and to optimize the leverage of such a threat.