Courts Freeze Out Late-Filing Whistleblowers

Two recent court wins by False Claims Act defendants shows the perilous position in which late-filing whistleblowers can find themselves if they want to share in any potential fraud recovery.

Pharmacy services company PharMerica and device maker Biotronik both bested FCA lawsuits filed by whistleblowers bringing allegations that at least in part overlapped with other, earlier filed FCA lawsuits. The whistleblowers, both company insiders, were foiled by the governmental action bar, a provision of the FCA that the U.S. District Court for the District of Rhode Island and U.S. Court of Appeals for the Ninth Circuit said blocked the later-filed lawsuits.

The Department of Justice’s intervention and settlement in the earlier FCA suits barred subsequent whistleblower lawsuits involving similar allegations of fraud, the courts said. The Ninth Circuit said the bar applied even to whistleblower allegations concerning which the DOJ didn’t intervene because the government became a “party” to the entire first whistleblower lawsuit upon intervention.

It’s no surprise that these later filed lawsuits wouldn’t be in the best position to share in any eventual FCA recovery, as the law has a “first-to-file” bar that generally limits subsequent FCA lawsuits containing allegations similar to those in a previously filed FCA action.

The U.S. Supreme Court cracked open the first-to-file bar a bit though when it ruled in 2015 that the bar no longer applies to a second action raising similar allegations if the original FCA lawsuit is dismissed or is no longer pending. PharMerica and Biotronik both faced FCA lawsuits from whistleblowers whose allegations were already the subject of prior lawsuits, and settled with the DOJ for $31.5 million and $4.9 million, respectively.

Megan Mocho Jeschke, a partner with Holland & Knight LLP in McLean, Va., represented Biotronik and told me that the decision by the federal court in Rhode Island in United States ex rel. Estate of Gadbois v. PharMerica Corp. was evidence that the interpretation of the governmental action bar in United States ex rel. Bennett v. Biotronik, Inc. “resonates” with courts across the country. Interestingly, the DOJ filed an amicus brief against Biotronik’s position, arguing that dismissing the second whistleblower lawsuit would generally discourage whistleblowers from coming forward with new fraud allegations.

FCA whistleblower lawsuits can remain under seal for years while the DOJ investigates allegations of fraud against Medicare, Medicaid, or other government programs, so later filing whistleblowers might have no inkling that the DOJ is preparing to intervene in claims similar to their own. The two recent rulings are further evidence of just how important it can be for whistleblowers to win the race to the courthouse.

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