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Health Choice Alliance LLC v. Eli Lilly And Company, Inc.

United States District Court, E.D. Texas, Texarkana Division

September 27, 2019

HEALTH CHOICE ALLIANCE LLC, EX REL ON BEHALF OF UNITED STATES OF AMERICA AND 31 STATES AR; CA; CO;CT; DE; DC; FL; GA; HI; IL; IN; IA; LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK; RI; TN; TX; VT; VA; WA; Plaintiff,
v.
ELI LILLY AND COMPANY, INC., VMS BIOMARKETING, COVANCE, INC., UNITED BIOSOURCE CORPORATION, HEALTHSTAR CLINICAL EDUCATION SOLUTIONS LLC, COVANCE MARKET ACCESS SERVICES, INC., Defendants. HEALTH CHOICE GROUP, LLC, ON BEHALF OF UNITED STATES OF AMERICA AND 31 STATES AR;CA;CO;CT;DE;FL;GA;HI;IL;IN;IA;L A;MD;MA;MI;MN;MT;NV;NH;NJ;NM;N Y;NC;OK;RI;TN;TX;VT;VA;WA; Plaintiff,
v.
BAYER CORPORATION, AMGEN INC., ONYX PHARMACEUTICALS, INC., AMERISOURCEBERGEN CORPORATION, LASH GROUP, Defendants.

          ORDER

          ROBERT W. SCHROEDER III UNITED STATES DISTRICT JUDGE

         Health Choice Alliance LLC, on behalf of the United States of America and 31 States, filed the above-titled qui tam actions under 31 U.S.C. §§ 3729 and 3730(b)(1)-the False Claims Act-and various state false claim statutes. This Court referred the case to the United States Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1) and (3) and the Amended Order for the Adoption of Local Rules for the Assignment of Duties to United States Magistrate Judges.

         The United States (the “Government”) moved to dismiss under 31 U.S.C. § 3730(c)(2)(A). Docket No. 192.[1] In its Amended Report and Recommendation-Docket No. 241-the Magistrate Judge recommended granting the United States’ Motion. Health Choice objected. Docket No. 243. The Court hereby ADOPTS AS MODIFIED the Magistrate Judge’s Recommendations and OVERRULES Health Choice’s objections. Also, the Court hereby DISMISSES WITH PREJUDICE Health Choice’s claims on behalf of the United States, DISMISSES WITHOUT PREJUDICE Health Choice’s claims on behalf of the 31 States and DISMISSES WITHOUT PREJUDICE the FCA claims as to the United States.

         BACKGROUND

         Health Choice alleges the Defendants knowingly induced the submission of false claims for reimbursement to government healthcare programs using unlawful remuneration. See False Claims Act, 31 U.S.C. §§ 3729–33 (“FCA”). Specifically, Health Choice claims Defendants violated the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b(b), and various state statutes through three alleged schemes: free nurse services, white coat marketing and reimbursement support services.

         Initially, per 31 U.S.C. § 3730(b)(2), Health Choice filed its complaints under seal. Docket No. 1. But, after the Government declined to exercise its statutory right to intervene, § 3730(b)(2), those complaints were unsealed. Docket No. 9. Before Defendants answered, Health Choice filed its First Amended Complaints, which were dismissed without prejudice under Federal Rule of Civil Procedure 12(b)(6). Docket No. 164. Health Choice again amended its complaints, adding factual support. Docket No. 172. The Government now moves to dismiss all FCA claims with prejudice as to Health Choice and without prejudice as to the United States pursuant to 31 U.S.C. § 3730(c)(2)(A). Docket No. 192.

         REPORT AND RECOMMENDATION

         The Magistrate Judge initially entered her Report and Recommendation recommending the Court dismiss Health Choice’s claims under § 3730(c)(2)(A). Docket No. 232. But, Health Choice moved for clarification of the Magistrate Judge’s recommendation, particularly whether the Magistrate Judge recommended dismissing Health Choice’s state-law claims with prejudice. Docket No. 235. Granting that motion, the Magistrate Judge amended its Report and Recommendation, clarifying that it only recommended dismissing the state-law claims without prejudice. Docket No. 241. As amended, the Reports and Recommendations make three moves: (1) reviewing case law interpreting § 3730(c)(2)(A), (2) finding the Government has “unfettered discretion” to dismiss an FCA claim under § 3730(c)(2)(A), and (3) in the alternative, finding the Government satisfied the more rigorous Sequoia Orange review standard.

         I. Legal Background

         The Magistrate Judge first walked through the fractured landscape of cases interpreting § 3730(c)(2)(A). Id. at 9–21. Primarily, the Magistrate Judge identified a circuit split over the § 3730’s dismissal standard. Id. at 9–16. On one hand, the United States Court of Appeals for the District of Columbia Circuit held the Government has “unfettered discretion” to dismiss FCA claims. Id. at 12–14 (citing Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)). To that court, § 3730(c)(2)(A)’s text-providing the Government “may dismiss” an FCA qui tam action after a hearing without additional qualification-and the executive branch’s well-established prosecutorial discretion preclude judicial review. Id. And that court held that legislative history- suggesting a relator can object to the Government “dropping . . . false claims cases without legitimate reasons”-was not to the contrary because that suggestion related to an unenacted version of § 3730. Id. at 13.

         On the other hand, the United States Courts of Appeal for the Ninth and Tenth Circuits held that Government must “identify a valid government purpose and a rational relation between dismissal and accomplishment of the purpose.” Id. at 9–12, 12–15 (citing Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925, 935 (10th Cir. 2005); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Co., 151 F.3d 1139 (9th Cir. 1998)). Then, the burden shifts to the relator to show the Government’s dismissal is “arbitrary, capricious, or illegal.” Id. The Ninth Circuit found support in § 3730’s legislative history and dismissed separation of powers concerns based on “the district court . . . respect[ing] the executive branch’s prosecutorial authority by requiring no greater justification of the dismissal motion than is mandated by the Constitution itself.” Id. at 11. The Tenth Circuit similarly found Sequoia Orange’s standard “comports with legislative history and protects the right of relator to judicial review of a government motion to dismiss.” Ridenour, 397 F.3d at 936. No. other circuit-the United States Court of Appeals for the Fifth Circuit included-has directly addressed this issue.

         Fleshing out the fractured legal landscape, the Magistrate Judge reviewed similarly divided district court opinions. Docket No. 241 at 16–21. Some courts-like this Court in United States ex rel. Wright v. AGIP Petroleum Co., No. 5:03-CV-264-DF, 2005 WL 8167952, at *2 (E.D. Tex. Feb. 3, 2005)-have declined to address the issue, finding the Government met the more arduous Sequoia Orange burden. Id. at 16–17. Some have followed Swift, see United States ex rel. Sibley v. Delta Reg'l Med. Ctr., No. 4:17-CV-53, 2019 WL 1305069, at *4 (N.D. Miss. Mar. 21, 2019), applying the unfettered discretion standard. And others have followed Sequoia Orange, see United States v. EMD Serono, Inc., 370 F.Supp.3d 483, 488 (E.D. Pa. 2019) (substantially the same allegations as here), applying the rational relationship standard. Id. at 17–19.

         II. Dismissal Standard

         With this background established, the Magistrate Judge next addressed the proper standard for dismissal under § 3730(c)(2)(A). Id. at 21–27. Ultimately, she concluded that the Fifth Circuit would likely follow the D.C. Circuit and hold that the Government has “unfettered discretion” to dismiss FCA claims. Id. at 24. For support, the Magistrate Judge looked to the text and structure of § 3730, related Fifth Circuit precedent and general separation-of-powers principles. Id. at 22– 23.

         The Magistrate Judge found that the text of § 3730(c)(2)(A) supports the Government’s unfettered discretion. Id. at 21–22. Section 3730(c)(2)(A), in relevant part, provides the Government authority to dismiss a FCA qui tam action “notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” To the Magistrate Judge, the statute’s failure to set a standard for dismissal-other than requiring “an opportunity for a hearing”-suggests that the Government has unfettered discretion to dismiss an action under § 3730(c)(2)(A). Id. at 21–22. The Magistrate Judge also noted that hearing would not be rendered superfluous under an unfettered discretion framework. Id. at 19 n.9. The absence of a standard in subsection (c)(2)(A) is further highlighted by the presence of standards in other subsections of § 3730. Id. at 23–24. For example, 31 U.S.C. § 3730(c)(2)(B) provides “[t]he Government may settle the action . . . notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.”

         Additionally, the Magistrate Judge relied on related Fifth Circuit precedent. Id. at 24–27. Twice, the Fifth Circuit has mentioned the Government’s “unilateral” power to dismiss an FCA qui tam action. Searcy v. Philips Electronics N. Am. Corp., 117 F.3d 154, 160 (5th Cir. 1997); Riley v. St. Luke’s Episcopal Hosp., 262 F.3d 749, 754 (5th Cir. 2001). In Searcy, the Fifth Circuit used § 3730(c)(2)(A)’s language to support a less “radical” exercise of governmental control over a qui tam action: the Government’s veto power over settlements, without intervention. Searcy, 117 F.3d at 160. And, in Riley, the Fifth Circuit used the Government’s dismissal power-also calling that power “unilateral”-to establish the Government’s control over qui tam action, obviating separation of powers concerns. Riley, 262 F.3d at 754. The Magistrate concluded this precedent suggests the Fifth Circuit would hold § 3730(c)(2)(A) provides the Government with a standard-less right to dismiss. Docket No. 241 at 24–26.

         Finally, the Magistrate Judge found the “unfettered discretion” standard to be consistent with the Government’s prosecutorial and executive discretion. Id. at 26–27. Traditionally, prosecutorial decisions are unsuitable for judicial review. Id. And the Government’s decision to dismiss a qui tam action-given that the Government does not initially file that action-is analogous to a decision not to bring the action at all-that is, prosecutorial discretion. Id. So, the Government’s decision to dismiss under § 3730(c)(2)(A) should similarly be unsuitable for judicial review, giving the Government “unfettered discretion.” Id.

         Applying Swift’s unfettered discretion analysis, the Magistrate Judge recommended dismissal. Health Choice was provided notice and an opportunity to be heard. Docket No. 227 (minute entry for April 24, 2019 hearing). And that satisfies the statutory test. Docket No. 241 at 27 n.15.

         III. Sequoia ...


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