In a series of orders issued at the opening of its term yesterday, the Supreme Court denied certiorari in several FCA cases that have impacted FCA jurisprudence in recent months. Perhaps most significantly, the Court decided not to take on an Eighth Amendment Excessive Fines Clause challenge to the Fourth Circuit’s imposition of FCA penalties. Separately, the Court passed on petitions involving FCA pleading issues. As a result of yesterday’s actions, only one prominent FCA decision remains on the Court’s docket this term: United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), cert. granted, 134 S. Ct. 2899 (U.S. 2014) (No. 12-1497) (raising both first-to-file and Wartime Suspension of Limitations Act issues). See FraudMail Alert No. 14-07-01 (July 1, 2014).
Excessive Fines Question. By declining to review the Fourth Circuit’s decision in United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390 (4th Cir. 2013), cert. denied, No. 13-1399 (U.S. Oct. 6, 2014), the Court let stand a ruling that directed the trial court to impose a $24 million FCA penalty in a case in which the relator pursued only penalties and where the relator did not establish that there was any economic harm to the government. That Fourth Circuit decision jettisoned decades of Supreme Court rulings and reasoning, including the traditional excessive fines analysis that looks toward the proportionality between penalties and economic harm. Instead, the Fourth Circuit rationalized the extraordinary penalty result on noneconomic factors—specifically, the deterrent effect of the penalty on the defendants and others. See FraudMail Alert No. 13-12-20 (Dec. 20, 2013). It could be years before the Supreme Court has another opportunity to consider this constitutional question, and, while the analysis in Bunk is not binding outside the Fourth Circuit, its effect still is potentially far-reaching given the concentration of government contractors (defense, healthcare, grantees) and other entities subject to the FCA’s punitive penalty regime—let alone government entities—operating in that circuit, leaving multitudes of businesses at risk of harsh and disproportionate FCA penalties in the interim.
Pleading Questions. Another closely watched FCA case out of the Fourth Circuit, United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694 (4th Cir.), cert. denied, No. 13-1411 (U.S. Oct. 6, 2014), turned on the sufficiency of relator’s allegations of regulatory noncompliance as the basis for false claims in the absence of allegations of a false statement or a fraudulent course of conduct that was a prerequisite to the government’s payment. While the relator had alleged that Omnicare had submitted false claims for payment because certain drugs had been adulterated (having been re-packaged in a facility that allegedly permitted cross-contamination), the Fourth Circuit held that the complaint must plead that the lack of regulatory compliance was a clear prerequisite to payment. See FraudMail Alert No. 02-27-14 (Feb. 27, 2014). The Supreme Court’s election to not review Rostholder leaves in place yet another decision holding that a regulatory violation alone cannot provide the basis for FCA liability and provides defendants with an early defense to “false certification” allegations. See FraudMail Alert No. 11- 08-31 (Aug. 31, 2011).
The Supreme Court also rejected a relator’s petition in United States ex rel. Ge v. Takeda Pharmaceutical Co., 737 F.3d 116 (1st Cir. 2013), cert. denied, No. 13-1236 (U.S. Oct. 6, 2014), where the relator sought to overturn the dismissal of a complaint alleging that the defendant misreported adverse drug events. While the First Circuit affirmed the dismissal on Rule 9(b) grounds, the relator’s certiorari petition was based on the denial of a Rule 15(a) request for leave to amend the complaint after judgment, claiming error in the First Circuit’s ruling that the trial court acted within its discretion in denying leave to amend. In denying certiorari, the Supreme Court properly elected not to consider the relator’s arguments for a more “liberal” interpretation of Rule 15(a) that would have allowed post-judgment amendments to overcome Rule 9(b) pleading deficiencies.