July 17, 2019 / 10:01 PM / 2 months ago

N.Y. judge grants DOJ motion to toss false claims case, ducking debate over proper test

(Reuters) - On Tuesday, U.S. District Judge Jesse Furman of Manhattan granted the Justice Department’s motion to dismiss a False Claims Act suit alleging a multibillion-dollar conspiracy in which drug manufacturers and “pharmacy benefit managers” teamed up to defraud a federal prescription-drug program. Despite objections from the whistleblower, a physician and former investment fund executive named John Borzilleri, that DOJ failed to investigate his allegations, Judge Furman decided that the government was not obliged to continue to sink resources into a case it considered hopeless.

His ruling is the latest win for the DOJ in its recent campaign to cull FCA whistleblower suits. As you know, after private whistleblowers file suits on behalf of the U.S. government, DOJ conducts an investigation of their allegations before deciding whether to intervene to prosecute the litigation. If DOJ declines to intervene, the FCA permits whistleblowers and their lawyers to press on with their suits, funding their own investigation and litigation.

But beginning in January 2018, DOJ resolved to police FCA cases more aggressively – and to move for the dismissal of some cases that whistleblowers want to pursue on their own. The Justice Department acknowledged in an internal memo that it had previously used its power to seek the dismissal of FCA suits only sparingly, but noted that filings have been on the rise and DOJ was being forced to expend resources even in cases in which the government had declined to intervene. Under Justice’s new policy, prosecutors are encouraged to consider asking judges to dismiss whistleblower suits DOJ has deemed to be unfounded and those brought by “opportunistic” or “parasitic” whistleblowers.

There’s ongoing debate in the federal circuits about how much discretion the courts should afford DOJ when the government wants to drop an FCA suit. In 1998, the 9th U.S. Circuit Court of Appeals held in United States ex rel. Sequoia Orange Co v. Baird-Neece Packing Corp (151 F.3d 1139) that the Justice Department must show a “valid government purpose” for dismissing an FCA case. The 10th Circuit has adopted that standard as well. But in 2003’s Swift v. U.S. (318 F.3d 250), the D.C. Circuit held that DOJ’s authority is nearly unfettered. The 5th and 8th Circuits use the Swift test.

Since DOJ adopted its more aggressive policy, trial judges in other circuits have weighed which test to apply and how to interpret the strictures of each. Perhaps the most vivid illustration of the difficulty of that task is a pair of contrary rulings by judges in parallel suits by the same FCA plaintiff, a data mining firm called National Health Care Analysis Group. In April, U.S. District Judge Timothy Savage of Philadelphia granted DOJ’s motion to dismiss one of NHCA’s suite of a dozen FCA suits alleging kickbacks by pharma companies. Two weeks later, U.S. District Judge Staci Yandle of Benton, Illinois, refused to toss (2019 WL 1598109) a similar suit, holding that the government made a seemingly arbitrary decision to dismiss the case because it disapproved of the whistleblower’s business model. (If you’re really interested in fallout from DOJ’s revitalized dismissal policy, Gibson Dunn & Crutcher just published a great review of developments in the first half of 2019.)

Judge Furman ducked the debate over the proper standard of review. The 2nd Circuit, he said, hasn’t decided whether it favors the D.C. Circuit’s permissive Swift test or the 9th Circuit’s more stringent Sequoia test – but he said it didn’t matter in the Borzilleri case because DOJ easily met the tougher standard.

“The government demonstrates at least one ‘valid government purpose’ for seeking dismissal: Borzilleri’s continued prosecution of the case — assuming it would survive the other motions to dismiss pending before the court — would impose substantial burdens on government resources” from the Justice Department and the Department of Health and Human Services, the judge wrote.

To keep the suit alive, Furman said, Borzilleri would have to show that DOJ’s rationale for dismissing it was fraudulent, arbitrary or illegal. But the judge said the government had provided evidence of a deep and costly probe of Borzilleri’s claims. “Borzilleri’s subjective disagreement with the government’s investigative strategy and ultimate decision does not provide the court with a basis to second-guess the government’s decision to dismiss the case,” Judge Furman wrote.

Borzilleri counsel Mary Ann Smith did not respond to an email requesting comment. A spokeswoman for the Justice Department declined to comment.

In addition to his FCA suit in Manhattan federal court, Borzilleri filed an overlapping case in federal court in Rhode Island. The Justice Department has moved to dismiss that suit as well. Among its arguments in both the New York and Rhode Island cases is that Borzilleri refused a DOJ proposal to consolidate the suits. In his brief opposing dismissal, Borzilleri said DOJ didn’t give him enough notice of its consolidation suggestion. He said there were important differences between the suits, which name different panoplies of defendants and raise allegations about different drugs.

DOJ also argued in both the New York and Rhode Island dismissal motions that Borzilleri is not a good steward of the government’s interests because his former employer, the wealth management firm Shepherd Kaplan Kruchuk, accused him of short-selling pharmaceutical companies named as defendants in his FCA suits. According to SKK allegations repeated by the Justice Department, Borzilleri took short positions before issuing public statements about the FCA suits he had filed.

Borzilleri said in his brief opposing dismissal that the short-selling allegations were an “ad hominem attack.” He said he had done nothing wrong and was terminated by SKK, despite a spotless record, because his former employer did not want to be associated with his whistleblower suits. He has countersued SKK for retaliation.

The views expressed in this article are not those of Reuters News.

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