On The Case

Start worrying, whistleblower bar: DOJ moves to toss long-running Gilead case

(Reuters) - If you’re a lawyer who represents whistleblowers with potential evidence of fraud against the United States, you should be fretting about a Justice Department motion filed Friday in a long-running False Claims Act suit against Gilead in federal court in San Francisco.

The government asked U.S. District Judge Edward Chen to dismiss the suit filed on its behalf, even though the former Gilead employees who brought the case back in 2011 want to keep litigating – and even though the 9th U.S. Circuit Court of Appeals ruled in 2017 that the whistleblowers’ complaint met pleading standards.

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In January, the U.S. Supreme Court rejected Gilead’s petition to review the 9th Circuit opinion. The whistleblowers, represented by Bonnett Fairbourn Friedman & Balint and the Evans Law Firm, claim that Gilead defrauded the Food and Drug Administration and government insurance programs by obtaining a key ingredient for three of its drugs from an unapproved Chinese manufacturer. Gilead, represented by Sidley Austin, said its products were FDA approved and effective and that the fraud theories don’t hold up.

DOJ’s new motion to dismiss the case puts teeth in a policy the Justice Department announced internally in January 2018. In a memo to the DOJ lawyers who review and prosecute FCA suits filed by private whistleblowers acting on behalf of the government, the head of the Justice Department’s civil fraud division, Michael Granston, described an intensifying flood of FCA filings – more than 600 new suits filed in the last couple of years – and laid out a plan to stanch the flow.

The Justice Department, as you know, has to make a choice when whistleblowers file FCA cases. After investigation, the government can opt to intervene, effectively assuming responsibility for litigating the fraud claim initiated by the whistleblower. Or DOJ can decline to get involved. A decade ago, when DOJ rejected a case, that was pretty much a death knell.

But over the past several years, whistleblower lawyers have become more aggressive about continuing to litigate cases in which the government has declined to intervene, with occasionally spectacular results. In 2017, for example, the pharmaceutical company Celgene agreed to a $280 million settlement to resolve allegations that it falsely promoted two cancer drugs for unapproved uses. The whistleblower who litigated the case was awarded $78 million as a bounty.

Granston said in that January 2018 memo that Justice Department lawyers should be more aggressive about blocking whistleblowers from continuing to litigate FCA suits when the government decides not to intervene. The law, as Granston explained, includes a provision that authorizes DOJ to move to dismiss cases over objections by whistleblowers who want to move ahead. Historically, Justice has used that power “sparingly,” the memo said. But FCA litigation, even in cases in which the government does not intervene, demands the time of DOJ lawyers, who have to monitor discovery and file statements of interest addressing legal issues.

So Granston instructed Justice lawyers to be on the lookout for “meritless” or “parasitic” cases, as well as suits that could impinge on national security interests or the rights of federal agencies. “The Department plays an important gatekeeper role in protecting the False Claims Act,” he wrote. “That is why the FCA provides us with the authority to dismiss cases.”

The Granston policy got a splashy public debut when the Justice Department moved last December to toss nearly a dozen FCA suits initiated by a healthcare data company called National Health Care Analysis Group. But the circumstances of the NHCA cases, as I’ve reported, were quite unusual. DOJ’s dismissal motions, filed in courts across the country, described NHCA as an FCA opportunist, a “shell company” controlled by “investors and former Wall Street investment bankers.” The coordinated DOJ campaign against NHCA’s suits, only one of which had progressed beyond a defendant’s motion to dismiss, seemed like an attack on “professional” whistleblowers who regard anti-fraud litigation as a business opportunity. (NHCA vehemently disputes DOJ's characterization and points out that it has previously worked with FCA whistleblowers whose cases have brought the government about $50 million in settlements.)

The Gilead litigation, by contrast, was brought by traditional whistleblowers, former corporate employees who brought alleged misconduct to the attention of the government. DOJ took their claims seriously enough to have conducted a two-year investigation of the allegations, according to a declaration by an agent from the U.S. Department of Health and Human Services. He said the government had collected 600,000 pages of documents, met with both sides and exhaustively reviewed particular lots of drugs allegedly affected by the involvement of the Chinese manufacturer.

And though DOJ declined in 2013 to intervene in the case, the Justice Department has spent six years defending the legal theories underlying the claims against Gilead, albeit without expressing a view on the merits of the whistleblowers’ claims (until last week, of course). The government filed statements of interest backing legal arguments by the former Gilead employees in the trial court and at the 9th Circuit in 2014, 2015 and 2016. In none of its briefs did the government contend that the suit should be dismissed.

The first public indication that DOJ wanted the case to go away came in an amicus brief the solicitor general filed in November 2018 at the request of the justices. The brief once again sided with the Gilead whistleblowers on a disputed legal issue - this time, whether the government’s continued payment for a product that is the subject of an FCA suit means any alleged misrepresentations about the product are not material – and urged the Supreme Court not to grant review of the 9th Circuit decision to revive the suit. But DOJ said that when the case returned to the trial court, the government would itself move to dismiss the suit in order to avoid burdensome discovery from FDA officials and to preserve the agency's discretion.

Similarly, in Friday’s motion to dismiss, DOJ argued that it has already poured resources into this case, from its investigation through Supreme Court briefing, and does not believe the litigation merits any more of its time. DOJ also said that under 9th Circuit precedent, it has broad authority to end FCA cases even if whistleblowers want to proceed.

Essentially, DOJ is saying it doesn’t matter that these whistleblowers and their lawyers have been litigating this case for eight years, including a trip to the Supreme Court, with DOJ’s full knowledge and support on legal principles. The Justice Department doesn’t say in its motion to dismiss that the Gilead suit is frivolous or that the former employees are unsuitable to bring it. The government simply argues that despite a 9th Circuit ruling that the suit can move forward, it has the power to kill the case.

That should be a frightening proposition for lawyers pushing FCA claims after DOJ declines to intervene.

I reached out to the Justice Department, which declined to comment, and to the Gilead whistleblowers’ lawyers, who did not immediately respond. Gilead counsel Robert Raskin of Sidley referred me to the company, which did not respond to a query.