PharMerica to seek Supreme Court review of First Circuit's "next-to-file" False Claims Act ruling

February 09, 2016

Government Investigations & White Collar Defense Alert

Author(s): Ronaldo Rauseo-Ricupero, Hannah Bornstein

Defendant’s bid to have the high Court overturn the Gadbois decision on the use of supplementation to cure defects in a later-filed relator’s complaint could substantially affect the FCA landscape if granted.

Last week, after losing its bid to the First Circuit for en banc rehearing, PharMerica Corp., appellee in U.S. ex rel. Gadbois v. PharMerica Corp., 14-2164, disclosed that it would seek a writ of certiorari to the U.S. Supreme Court of the First Circuit’s panel opinion regarding the False Claims Act’s (FCA) first-to-file bar. The First Circuit’s decision in Gadbois is the first major federal appellate decision interpreting the Supreme Court’s 2015 ruling Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S.Ct. 1970 (May 26, 2015). PharMerica’s effort to seek further review will ask the high Court for clarification of how to treat a “next-to-file” whistleblower’s claim when the “first-filed” complaint is dismissed. A grant of certiorari by the high Court would have the potential to substantially affect the FCA landscape.

In Kelloggthe Supreme Court altered the framework for FCA actions when it changed the previous requirement that only the “first-to-file” relator claimant could proceed with a qui tam action. In interpreting the FCA (31 U.S.C. § 3730(b)(5)), the Court held that those “next-to-file” relators may see their actions survive if the “first-filed” plaintiff’s action is dismissed. This held out the prospect of “next-to-file” complaints being dismissed without prejudice, subject to re-filing once the “first-to-file” complaint was dismissed for any reason, significantly curtailing the prospects of finality for defendants who defeat an alleged whistleblower complaint through litigation.

In Gadbois, the First Circuit was presented with a case in which such a “next-to-file” complaint remained pending when the “first-filed” plaintiff’s complaint was dismissed. As the First Circuit noted, the “tectonic” ruling in Kellogg shifted the landscape in Gadbois’ favor when it was issued by the Supreme Court in the middle of the briefing of the First Circuit appeal. Interpreting Kellogg, the First Circuit found that the FCA did not preclude Gadbois, as “next-to-file” relator, from using the supplementation rule (Fed.R.Civ.P. 15) as a vehicle for bolstering his complaint against PharMerica Corp. with the allegation that the “first-filed” complaint had been dismissed, thereby curing his complaint’s jurisdictional defect. The First Circuit’s ruling effectively allows still-live “next-to-file” FCA complaints to escape a dismissal and re-filing requirement that could have placed such complaints in jeopardy of failing to satisfy statutes of limitations bars.  While “next-to-file” claimants may face still numerous challenges to their complaints—including issue preclusion, claim preclusion, or the public disclosure bar—the ability to adjust a complaint by supplement could be a benefit to plaintiffs.

PharMerica has stated that it plans to present to the Supreme Court the question of whether “the FCA’s first-to-file bar requires dismissal of a follow-on qui tam case that is brought when a related action is pending, or [whether] a follow-on case filed during the pendency of a related action can evade the first-to-file bar by delaying the requisite dismissal until after the first-filed action is resolved.” Appellee’s Motion for Stay of Mandate, at 1. PharMerica argues that Gadbois encourages “next-to-file” plaintiffs to try to keep their actions alive, “in hopes that, through delay and groundless appeals such as this, their action might outlast the first-filed action.” Id. at 5.

By directly challenging Kellogg’s application to pending FCA actions rather than limiting the question presented to the use of the supplementation rule, PharMerica’s prospects for obtaining a grant of certiorari may be limited, as less than a year has passed since the Supreme Court issued its decision in Kellogg and no clear circuit split has yet developed on this question. Even if the Supreme Court does not grant its petition for a writ of certiorari, PharMerica’s position signals the profound impact that Kellogg already has made on critical FCA questions.

Whether Gadbois causes the First Circuit to become a more attractive forum for potential relators concerned about “first-to-file” issues, or whether Gadbois’ reasoning will extend to other circuits is yet to be seen, but by seeking Supreme Court review of Gadbois, the issue of “first-to-file” complaints and still-pending FCA claims promises to remain a hotly contested FCA question over the coming year.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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