A recent appellate court decision provides guidance on the limits of permissible discovery in a qui tam action filed under the False Claims Act (FCA). In United States ex rel. Duxbury v. Ortho Biotech Products, L.P., Case No. 12-2141 (1st Cir., Jun. 12, 2013), the United States Court of Appeals for the First Circuit held that the district court properly limited discovery in the relator’s qui tam action to only those time periods and regions of the country as to which the relator could be considered an "original source."1

The FCA’s qui tam provisions authorize private persons (called "relators") to bring civil enforcement actions on behalf of the United States against any person alleged to be in violation of section 3729 of the Act. 31 U.S.C. § 3730(b). Qui tam complaints are initially filed under seal, and relators must allow the government sixty days to intervene and assume primary responsibility for prosecuting the action. Id. § 3730(b)(2)-(3),(c). If the government declines to intervene, a relator may continue to pursue the action on the government’s behalf. Id. at § 3730(b)(4). "Either way, the relator is eligible to collect a portion of any damages awarded." United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 53 (1st Cir. 2009).

"Although this financial incentive encourages would-be relators to expose fraud," United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 107 (1st Cir. 2010), it also attracts "’parasitic’ relators who bring FCA damages claims based on information within the public domain or that the relator did not otherwise discover," United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007). "Accordingly, Congress has amended the FCA several times ‘to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior.’" United States ex rel. Duxbury v. Ortho Biotech Products, L.P., (Duxbury I) 579 F.3d13,16. To qualify as an "original source" of information in a qui tam action, a relator must (1) have "direct and independent" knowledge of the information supporting his/her claims that (2) he/she "provided . . . to the Government before filing an action." 31 U.S.C. § 3730(e)(4)(B) (2006).

In Duxbury, the relator, Mark Duxvury, had been terminated by Ortho Biotech Products, L.P. ("OBP") on July 20, 1998. Several years after the termination, he initiated a lawsuit alleging OBP had and continued to offer illegal kickbacks to healthcare providers across the United States to encourage them to prescribe Procrit to their patients. These alleged kickbacks included free Procrit, off-invoice discounts and cash in the form of rebates, consulting fees, educational grants, payments to participate in studies or trials, and advisory board honoraria. The amended complaint further alleged that these purported kickbacks caused providers and hospitals to submit false claims for payment to Medicare for Procrit. While his complaint asserted that these activities were occurring nationwide, Mark Duxvury’s allegations of kickbacks only concentrated on eight healthcare providers in the State of Washington.

Following Mark Duxbury’s death in October 2009, the district court permitted his surviving spouse, Chinyelu Duxbury, to substitute herself as the relator. After Chinyelu Duxbury became the relator, the district court imposed limitations on the scope of discovery based upon the FCA’s statute of limitations and the FCA provision limiting the court’s subject matter jurisdiction to those claims as to which the relator was the "original source" with "direct and independent knowledge." Specifically, discovery was limited to the time period of Mark Duxbury’s employment at OBP between November 1997 and July 1998 and to the geographical area in the state of Washington. After the limitation ruling and at the conclusion of discovery, the parties entered a joint stipulation stating that the relator had not identified any admissible evidence to support the remaining claims. Accordingly, the district court granted OBP’s motion for summary judgment on that basis. United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., Civil No. 03-12189-RWZ, 2012 WL 3292870 (D. Mass. Aug. 13, 2012). Chinyelu Duxbury then appealed the district court’s limited discovery ruling regarding "original source."

On appeal, the First Circuit held that the limitations imposed by the district court were well within its "broad discretion in managing discovery." Specifically, the First Circuit found the district court was not required to "expand the scope of discovery based upon the amended complaint’s bald assertions that the purported kickback scheme continued after [relator’s] termination or was ‘nationwide’ in scope." Moreover, the district court acted within its discretion in declining to issue Duxbury a license to undertake a "fishing expedition" into the amended complaint’s purely speculative allegations of fraud through further discovery. Accordingly, the Court found that relator’s claims "evaporated" with the failure to uncover any admissible evidence to support the allegations in the complaint by the close of discovery, and upheld the grant of summary judgment for the defendant.

For a copy of the court’s order please click here.