United States: Federal Judge Awards Attorneys’ Fees To Defendant In Dismissed Qui Tam Case, Calls Whistleblower A "Serial Relator"

In November 2013 and this past October, Mintz Levin's Health Care Qui Tam Update highlighted three separate qui tam False Claims Act (FCA) cases filed by Fox RX, Inc. (Fox), a former Medicare Part D plan sponsor.  Fox filed one of those cases against OmniCare, Inc., PharMerica Corp., and Managed Health Care Associates, Inc. and its wholly owned subsidiary (MHCA), alleging that the defendants (1) failed to substitute generic drugs for brand-name drugs in states with laws requiring such substitution; and (2) dispensed expired drugs.  The federal government, twenty-one states, and the District of Columbia declined to intervene.  On August 12, 2014, Federal District Court Judge Denise Cote granted the defendants' Motions to Dismiss the suit, finding in part that Fox had failed to state a claim under the FCA.

On December 1, 2014, Judge Cote granted a motion filed by MHCA for attorneys' fees and costs.  Judge Cote based her decision in large part on a meeting between Fox and MHCA that had taken place on January 10, 2014.  At this meeting, MHCA's legal counsel presented a PowerPoint presentation that explained MHCA's business model and demonstrated not only that MHCA could not possibly have committed the acts that Fox alleged, but that due to its compensatory structure, MHCA did not even have a motive to commit the acts alleged.   

But instead of dismissing the case, Fox proceeded to file a Second Amended Complaint in February 2014, which revised but did not withdraw its allegations against MHCA.  In her August opinion dismissing Fox's suit, Judge Cote found that the Second Amended Complaint did not "allege with particularity any act by [MHCA] that resulted in a branded drug being dispensed instead of a generic, in a pharmacist dispensing a medication beyond its expiration date...or in the submission of any inaccurate information."  Two weeks later, MHCA filed its motion for attorneys' fees and costs incurred since its meeting with Fox on January 10, 2014.

In awarding MHCA's the fees and costs it incurred subsequent to the January 10^th meeting, Judge Cote observed that Fox was a "serial qui tam relator" that had brought at least a half-dozen actions under the FCA (six of which had been dismissed) against entities with which it had once worked.  She further found that Fox's claims against MHCA were "clearly frivolous" and that Fox "well knew [that MHCA] had nothing to do with the dispensing of drugs, and thus had nothing to do with the two drug dispensing schemes alleged by Fox.  Nor did [MHCA] have any financial incentive to engage in these schemes...." 

Furthermore, Judge Cote wrote, "[i]nstead of dropping [MHCA] from this action following the January 10, 2014 meeting, Fox concocted a theory of liability against [MHCA] based wholly on an obvious misreading of [an agreement MHCA had provided to Fox and that]...[viewed] objectively, Fox's claims against [MHCA] had no reasonable chance of success...." 

Defense practitioners often debate the utility of these types of early meetings, in which they volunteer information about their practices in the hopes of putting an early end to litigation.  While here the meeting did not put an end to the litigation, it clearly persuaded the Judge in the award of costs.  Whether that award will deter other serial relators like Fox remains to be seen.

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