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FCA Qui Notes
December 4, 2018

Materiality Will Have to Wait as Granston Dismissal Comes to the Supreme Court

Qui Notes: Unlocking the False Claims Act

The Granston Memo made an unexpected appearance in the Supreme Court on Friday. FCA watchers were waiting eagerly for the government to weigh in on the pending certiorari petition in Gilead Sciences, Inc. v. U.S. ex rel. Campie, hoping that the case might be the vehicle for the Supreme Court to provide guidance on just what materiality means in a post-Escobar world. On that front, the government's CVSG brief disappoints, sticking to the narrow view of Escobar the government has pressed in lower courts and urging the Supreme Court to deny certiorari. But the government's brief comes with a silver lining for FCA defendants as the government takes the unusual (and we believe unprecedented) step of committing to voluntarily dismiss the case over relators' objections if and when it returns to district court.

In Gilead, relators alleged that a pharmaceutical company violated the FCA by seeking payment for an HIV medication that was made in China using non-FDA approved materials. The Ninth Circuit reversed the district court's dismissal, resisting Escobar's call for increased focus on the government's actual conduct in paying claims and holding that relators adequately pleaded materiality despite the government's continued payment after learning of the alleged wrongdoing. The defendant sought certiorari, asking the Court to resolve a circuit split on whether continued payment after learning of alleged non-compliance with statutory, regulatory, or contractual requirements defeats materiality at the pleading stage.

The Supreme Court called for the government's view as to whether it should hear the case. In urging the Court to deny certiorari, the government predictably stood firm on its narrow view of Escobar, arguing that continued payment may be evidence of immateriality only where the government has actual knowledge of fraud, as opposed to knowledge of fraud allegations. The government further argued that continued payment is but one factor in a holistic materiality inquiry that also looks at whether the requirement goes to the "essence of the bargain" and whether the defendant's alleged noncompliance was "minor or insubstantial."

Not so predictably, the government responded to Gilead's argument that the Ninth Circuit decision "would allow juries to second-guess the expert judgments of agencies like the FDA" by observing that the United States is authorized to dismiss qui tam suits over a relator's objection. It then committed to do exactly that upon remand. Without providing any details, the government explained that its decision was based on a "thorough investigation of [the relators'] allegations and the merits thereof," which presumably indicates that the government has seen no merits develop since it declined to intervene. The government also expressed concern that "both parties might file burdensome discovery and Touhy requests…,which would distract from the [FDA's] public-health responsibilities." While almost certainly a death knell for Gilead's certiorari petition, the government's CVSG brief marks a promising development for FCA defendants.

As we have previously reported, the government has been sparing in voluntarily dismissing qui tam suits over relators' objections despite the Granston Memo's encouragement to do so when appropriate. And in the handful of cases where the government has moved to dismiss, courts have reached mixed results about how to assess those motions. Gilead will return to the Northern District of California, where the Ninth Circuit's decision in U.S. ex rel. Sequoia Orange Co. v. Gaird-Neece Packing Corp., 151 F.3d 1139 (1998) will govern the government's promised motion to dismiss. As we have written, while other circuits (in particular the D.C. Circuit in Swift v. United States, 318 F.3d 250 (2003)) have characterized the government's discretion to dismiss qui tam suits as "unfettered," Sequoia demands judicial scrutiny over requested dismissals, requiring the government to show both a valid government purpose and a rational relationship between that purpose and dismissal. Although the prediction business is always a risky one, the rationale for dismissal provided in the government's CVSG brief hews closely to Sequoia and is likely to carry the day on remand.

One unanswered question, of course, is why the government waited until this stage of the proceedings to contemplate a dismissal request. The government completed its investigation long ago, and the threat that the case might interfere with the FDA's mission has been ever present. It should not require escalation to the Supreme Court for the government to dismiss meritless cases that disrupt rather than further the public interest.

Stay tuned to Qui Notes for further updates on this case.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.