UNITED STATES OF AMERICA, EX REL., HEALTH CHOICE ALLIANCE, L.L.C., on behalf of UNITED STATES OF AMERICA AND 31 STATES (AR; CA; CO; CT; DE; DC; FL; GA; HI; IL; IN; IA; LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK; RI; TN; TX; VT; VA; WA) v. ELI LILLY AND COMPANY, INCORPORATED; VMS BIOMARKETING; COVANCE, INCORPORATED; UNITED BIOSOURCE CORPORATION; HEALTHSTAR CLINICAL EDUCATION SOLUTIONS, L.L.C.; COVANCE MARKET ACCESS SERVICES, INCORPORATED
No. 19-40906
United States Court of Appeals for the Fifth Circuit
July 7, 2021
FILED July 7, 2021 Lyle W. Cayce Clerk
United States of America, Ex Rel., Health Choice Alliance, L.L.C., on behalf of United States of America and 31 States (AR; CA; CO; CT; DE; DC; FL; GA; HI; IL; IN; IA; LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK; RI; TN; TX; VT; VA; WA), Plaintiffs-Appellants, versus Eli Lilly and Company, Incorporated; VMS Biomarketing; Covance, Incorporated; United Biosource Corporation; Healthstar Clinical Education Solutions, L.L.C.; Covance Market Access Services, Incorporated, Defendants-Appellees, United States of America, Appellee,
United States of America, Ex Rel., Health Choice Group, L.L.C., on behalf of United States of America and 31 States (AR; CA; CO; CT; DE; DC; FL; GA; HI; IL; IN; IA; LA; MD; MA; MI; MN; MT; NV; NH; NJ; NM; NY; NC; OK; RI; TN; TX; VT; VA; WA), Plaintiff-Appellant, versus Bayer Corporation; Amgen, Incorporated; Onyx Pharmaceuticals, Incorporated; Amerisourcebergen Corporation; Lash Group, Defendants-Appellees, United States of America, Appellee.
Appeals from the United States District Court for the Eastern District of Texas USDC No. 5:17-CV-123 USDC No. 5:17-CV-126
Before HIGGINBOTHAM, ELROD, and HAYNES, Circuit Judges.
The appellants Health Choice Alliance and Health Choice Group brought qui tam actions under the False Claims Act on behalf of the United States alleging violations of the Anti-Kickback Statute by pharmaceutical companies. The United States moved to dismiss the actions, and the district court granted the motion. Because the actions were properly dismissed, we AFFIRM.
I.
Health Choice Alliance and Health Choice Group (collectively Health Choice) are both entities created by the National Health Care Analysis Group for the purpose of filing qui tam actions alleging instances of fraud in medicine and pharmaceuticals. Health Choice and affiliated entities brought eleven qui tam actions under the False Claims Act against a total of thirty-eight defendants alleging similar violations of the Anti-Kickback Statute.
Health Choice filed two similar complaints against Eli Lilly and (initially) four other defendants and against Bayer and four other defendants in the United States District Court for the Eastern District of Texas.2 Prior to filing these complaints, Health Choice submitted pre-filing notices to and met with attorneys from the United States Attorney‘s Office for the Eastern
Health Choice then amended each of its complaints. Shortly thereafter, Eli Lilly, Bayer, and the other defendants filed motions to dismiss for failure to state a claim. See
In October of 2018, approximately a year after declining to intervene in the Eli Lilly and Bayer cases, the government sent notice to Health Choice that it intended to move to dismiss the complaints. See
On December 17, 2018, the government notified Health Choice that it intended to proceed with its motions to dismiss, and it filed those motions the same day. In its notice to Health Choice, the government cited to its own two-year investigation and the supplemental information provided by Health Choice—including documents purportedly supporting Health Choice‘s theory of the cases and letters from Health Choice concerning the merits and costs and benefits of the cases—as the basis of its decision to seek dismissal.
In response to the government‘s motions to dismiss, Health Choice first asserted that the government supported its motions primarily with ”ad hominem attacks” against Health Choice. Health Choice then argued that the district court should not afford the government unfettered discretion to dismiss and instead should hold that the government has not made the “proper showing” to warrant dismissal.
In reply, the government said it had “concluded that, not only do the allegations lack factual and legal support, but further litigation will impose burdens and costs on the government that are not justified and will undermine practices that benefit federal healthcare programs by providing patients with greater access to product education and support.”
On May 14, 2018, the magistrate judge held a consolidated hearing on the government‘s motions to dismiss both cases. The magistrate judge recommended that the district court grant both motions. The district court adopted the recommendations and granted the government‘s motions to dismiss. Health Choice timely appealed.
II.
Before turning to the merits, we must determine whether we have jurisdiction to hear this case. The district court had federal question jurisdiction over Health Choice‘s federal claims and supplemental
We have “jurisdiction of appeals from all final decisions of the district courts of the United States.”
There is a potential jurisdictional issue concerning the chronology of two events: the plaintiff‘s voluntary dismissal and the district court‘s granting of a motion to dismiss. Health Choice voluntarily dismissed, without prejudice, its claims against certain defendants in the lawsuit against Eli Lilly. Eight months later, the district court granted the United States’ motion to dismiss and entered final judgment. This circuit has not decided how the finality rule of Williams and Ryan would apply where the [voluntary, without-prejudice] dismissal occurred before the adverse, interlocutory order.” Firefighters’ Ret. Sys. v. Citco Grp. Ltd., 963 F.3d 491, 492 n.1 (5th Cir. 2020). This case squarely presents that question. We decline to create a circuit split and conclude that the prior without-prejudice dismissals did not deprive the district court‘s subsequent decision of finality. See Schoenfeld v. Babbitt, 168 F.3d 1257, 1265–66 (11th Cir. 1999) (holding that this sequence of events results in a final decision).
Unlike Ryan, this case involves a final decision. In Ryan, the district court granted a motion to dismiss certain paragraphs of plaintiff‘s complaint against the lone defendant. See Ryan, 577 F.2d at 300. Then, the plaintiff voluntarily dismissed without prejudice the remaining substantive allegation and requested certification under Federal Rule of Civil Procedure 54(b). This court saw the plaintiff‘s actions for what they were: a transparent attempt to obtain immediate appellate review over rulings that did “not amount to a termination of the litigation between the parties.” Id. at 302. This case, by contrast, involves the plaintiff dismissing all claims against certain defendants “without prejudice before the district court entered the order [granting the government‘s motion to dismiss] and entered a final judgment.” See Schoenfeld, 168 F.3d at 1265. Instead of manufacturing an appealable decision like the plaintiff in Ryan, Health Choice‘s dismissal brought about a swifter termination of the litigation.
The district court‘s order on the motion to dismiss was final because it “adjudicated all the claims against all the remaining parties in the action at the time it was entered.” Id. at 1266; cf. Cook v. City of Tyler, 974 F.3d 537, 539 (5th Cir. 2020) (“For purposes of Section 1291 a decision is final only if it ‘ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.‘” (quoting Sealed Appellant 1 v. Sealed Appellee, 199 F.3d 276, 278 (5th Cir. 2000))). The prior voluntary dismissal does not alter that conclusion.
Satisfied that we have appellate jurisdiction, we now turn to the merits of Health Choice‘s appeal.
Health Choice brought its Anti-Kickback claims against Eli Lilly and Bayer on behalf of the government under the False Claims Act.
The Anti-Kickback Statute proscribes “offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) ... to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program.”
In this case, as with every False Claims Act qui tam lawsuit, the “real party in interest” is the United States.
The government moved to dismiss Health Choice‘s claims in the Eli Lilly and Bayer cases, and the district court granted both motions. Health Choice challenges the dismissals on appeal. To address Health Choice‘s arguments, first, we lay out the tests other circuits have adopted to assess a motion by the government to dismiss a qui tam action. Second, we construe the term “hearing” in
A.
At oral argument, Health Choice focused mainly on the hearing requirement attendant to the government‘s right to “dismiss the action notwithstanding the objections of the person initiating the action.”
Health Choice argues that the district court erred by not affording it an evidentiary hearing before dismissing both cases. Health Choice further contends that a hearing necessarily entails the exercise of judicial power, and so the district court must engage is some meaningful review of the government‘s decision to dismiss.
We have not yet had an opportunity to determine what is required for the government to dismiss a case under
In Swift, the D.C. Circuit read
Conversely, Sequoia Orange articulates a rational-relation test to scrutinize motions to dismiss filed by the government. Recognizing that “[t]he qui tam statute itself does not create a particular standard for dismissal,” the Ninth Circuit approved of the “two step” burden-shifting test applied by the district court in that case. Sequoia Orange Co., 151 F.3d at 1145. First, the government must identify: (1) “a valid government purpose“; and (2) “a rational relation between dismissal and accomplishment of that purpose.” Id. Second, if the government satisfies its burden, “the burden switches to the relator ‘to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.‘” Id. (quoting United States
ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1347 (E.D. Cal. 1995)).
The Tenth Circuit adopted this rational-relation test from Sequoia Orange because it “construe[d] the hearing language of
The Seventh Circuit has also weighed in on this issue, refusing to wholly adopt either the Sequoia Orange rational-relation test or the unfettered-discretion standard from Swift, criticizing both. UCB, 970 F.3d at 839, 850, 853. Instead, the Seventh Circuit treated the government‘s motion to dismiss as a motion to intervene and then “appl[ied] a standard for dismissal informed by Federal Rule of Civil Procedure 41.” Id. at 839. The Seventh Circuit used the phrase “[s]ubject to ... any applicable federal statute” to apply
Health Choice urges us to adopt the rational-relation test from Sequoia Orange and argues that the district court erred in dismissing the Eli Lilly and Bayer cases. In doing so, however, it focuses on the relator‘s burden and insists that the Sequoia Orange test “marches under the banner of arbitrary and capricious review, a foundational limitation on government action.” The government, conversely, urges us to adopt the unfettered discretion standard from Swift and argues that both the Eli Lilly and Bayer cases were properly dismissed. Alternatively, the government contends that the district court was correct in concluding that the government satisfied both the unfettered-discretion standard from Swift and the more burdensome Sequoia Orange standard.
B.
The meaning of the term “hearing” holds the key to the question of the court‘s role in assessing the government‘s decision to dismiss under
Congress introduced the hearing requirement in
The Black‘s definition hinges on the issues tried at the hearing, and the Webster‘s definition hinges on the argument or proofs presented at the hearing. Both definitions, then, necessarily involve something to be decided. These definitions cast doubt on the government‘s notion of a
While some type of actual hearing is required, we need not decide the precise bounds of the government‘s discretion to dismiss qui tam lawsuits. Cf. United States v. Gonzales, 520 U.S. 1, 11 (1997) (“We are hesitant to reach beyond the facts of this case to decide a question that is not squarely presented for our review.“). For the reasons explained below, it is clear that Health Choice had a hearing and that dismissal was, in the very least, not arbitrary and capricious.
C.
At oral argument, counsel for Health Choice repeatedly stressed that there had been an absence of “an evidentiary hearing, as required by procedural due process” and
Health Choice‘s statutory argument fails because a review of the record demonstrates that Health Choice did get a hearing, and the magistrate judge did not prevent Health Choice from presenting evidence at that hearing. Health Choice simply chose not to present its evidence.6
We said, “We are prepared to prove our case,” but we felt, honestly... that there was no need for an evidentiary hearing because the government‘s affidavits and declarations had been thoroughly rebutted. But now that we are where we are we would like an evidentiary hearing to show that—
. . . .
I want to be very precise. We asked—We represented to the court we have John Mininno here prepared to testify. The magistrate judge did not respond at all. That was our submission. And why was that our submission? Because the fundamental thrust of the motion to dismiss was “NHCA [Health Choice‘s parent organization] is bad” and “NHCA” which is wrong ... and the second thing that we said is the
Anti-Kickback statute is so vitally important and the challenge that was mounted in the motion to dismiss to our methodology with respect to interviewing witnesses is wrong. And the magistrate judge did not respond to that.
. . . .
I want to be very clear with the court. We did not say to the court in open court “We need an evidentiary hearing.” But please don‘t suggest that in any way contemplates or suggests waiver. The government hasn‘t argued it, and if that is the case, then the government has waived a waiver argument.
Oral Argument at 7:55–8:15, 8:40-9:45, 11:00–20.
Waiver is not at issue in this case. Rather, the oral argument aptly demonstrates why there was no error here. Health Choice had a hearing before the magistrate judge.7 It had a witness available to testify at that hearing, and the witness was not prohibited from testifying. Health Choice declined to call the witness to testify and the magistrate judge did not prevent Health Choice from presenting the witness. Health Choice‘s statements at oral argument suggest that it consciously and strategically chose not to offer evidence because it believed it had already won the motion. Oral Argument at 8:15-30. Even assuming that
Health Choice‘s constitutional argument also fails. Health Choice argues that procedural due process entitled it to an evidentiary hearing, citing
to Hamdi v. Rumsfeld, 542 U.S. 507 (2004), Goldberg v. Kelly, 397 U.S. 254 (1970), and Thibodeaux v. Bordelon, 740 F.2d 329 (5th Cir. 1984) for support. Oral Argument at 6:10; 56:04. In Health Choice‘s view—and in its own words—“a qui tam relator surely should enjoy the modicum of protections asserted by a welfare benefits recipient.” Cf. Goldberg v. Kelly, 397 U.S. 254 (1970). Health Choice quotes Vermont Agency of Natural Resources for the proposition that “the [Anti-Kickback Statute] gives the relator himself an interest in the lawsuit, and not merely the right to retain a fee out
Even assuming that procedural due process requires an evidentiary hearing when the government seeks to terminate a qui tam lawsuit brought under the False Claims Act, Health Choice‘s procedural-due-process argument fails for the same reason that the statutory argument failed. Health Choice had a hearing. Health Choice brought a witness, John Mininno, to that hearing. Health Choice simply chose not to call the witness or offer any other evidence. To emphasize this point, it is worth repeating Health Choice‘s counsel‘s statement at oral argument: “[W]e felt, honestly ... that there was no need for an evidentiary hearing because the government‘s affidavits and declarations had been thoroughly rebutted. But now that we are where we are we would like an evidentiary hearing.” Oral Argument at 7:55-8:15. Assuming arguendo that Health Choice had a property interest in the Eli Lilly and Bayer qui tam lawsuits, its property interests were adequately protected by the procedures in the district court. There was no procedural-due-process error in this case.
D.
Finally, we consider Health Choice‘s argument that the government failed to satisfy its burden to dismiss under
Under the Sequoia Orange test, the government must first show that there is: (1) “a valid government purpose; and (2) a rational relation between dismissal and accomplishment of that purpose.” Sequoia Orange Co., 151 F.3d at 1145. To show a rational relation, “there need not be a tight fitting relationship between [dismissal and the stated purpose]; it is enough that there are plausible, or arguable, reasons supporting the [decision to dismiss].” Ridenour, 397 F.3d at 937 (quoting Sequoia Orange Co., 912 F. Supp. at 1347); see also Jackson Water Works, Inc. v. Pub. Util‘s Comm‘n of the State of Cal., 793 F.2d 1090, 1094 (9th Cir. 1986). If the government makes its showing, the burden shifts to the qui tam relator to show that “dismissal is fraudulent, arbitrary and capricious, or illegal.” Sequoia Orange Co., 151 F.3d at 1145 (quoting Sequoia Orange Co., 912 F. Supp. at 1347).
1.
The government made its required showing.
The government offered two valid purposes to justify dismissal. First, “the allegations ... lack sufficient merit to justify the cost of investigation and prosecution.” Second, “further litigation ... will undermine practices
that benefit federal healthcare programs by providing patients with greater access to product education and support.”
Health Choice alleged violations spanning a six-year period involving Medicare, Medicaid, and TRICARE. For Medicare Part D alone, the Eli Lilly allegations involve more than 32,000,000 prescriptions, from more than 400,000 physicians, for more than 1,000,000 Medicare beneficiaries. Similarly, the Bayer allegations involve
The government has shown a rational relation between dismissal and its cost-saving purpose. The government concluded that the litigation costs were not justified by the expected value of recovery against Eli Lilly and Bayer, particularly given the government‘s concerns about the merit of the underlying allegations. It reasoned that its litigation expenses would not be recouped by pursuing the case further. In that sense, dismissal is rationally related to the purpose of avoiding litigation costs.
The government also asserted in the district court that the product education services provided by Eli Lilly and Bayer “benefit[ed] federal healthcare programs” and were lawful. According to the government, federal healthcare programs have a strong interest in ensuring that benefits recipients have access to education about their prescriptions. Further, the government had previously concluded in a different context that patient-education services alone do not constitute illegal remuneration. Thus, the government concluded that the services provided by Eli Lilly and Bayer are not only beneficial but also lawful. Promoting beneficial and lawful programs is plainly a legitimate government interest. Dismissal is rationally related to that interest because it removes an impediment to providing those services. In short, the government has satisfied its burden of showing a rational relation between dismissal and legitimate government interests.
2.
Because the government made its required showing, the burden shifts to Health Choice to show that the government‘s motion to dismiss is “fraudulent, arbitrary and capricious, or illegal.” Sequoia Orange Co., 151 F.3d at 1145 (quoting Sequoia Orange Co., 912 F. Supp. at 1347). Health Choice does not meet this burden. Health Choice offers little more than unsupported allegations of animus against John Mininno and the National Health Care Analysis Group, Health Choice‘s parent organization, to support its assertion that dismissal is arbitrary and capricious. See Oral Argument at 9:30.
Health Choice devotes much of its opening brief to the government‘s interest in the National Health Care Analysis Group‘s corporate structure and its apparent misunderstanding of Health Choice‘s claims. The government‘s letter to Health Choice, its motion to dismiss, and its arguments before the magistrate judge, however, show that National Health Care Analysis Group‘s corporate structure played no part in the government‘s rationale for dismissal. Moreover, to support its claim of the government‘s apparent misunderstanding of its claims, Health Choice offers little more than a single question asked by a government attorney.
Health Choice further offers the conclusory assertion that the one-year time period between the government‘s declination notice and its notice of intent to dismiss amounted to arbitrary and capricious conduct. Health Choice cites to a Department of Justice document, referred to as the “Granston Memo,” to bolster this point. The memo states that “if one waits until the close of discovery or trial [to move to
Finally, Health Choice insists that dismissal was arbitrary and capricious because the government failed to conduct a cost-benefit analysis. This argument, however, fails to acknowledge the government‘s position that Health Choice‘s allegations “lack sufficient merit to justify the cost of investigation and prosecution.” This is a cost-benefit analysis of sorts. As explained above, the government considered the expected benefit of Health Choice‘s lawsuit given the government‘s assessment of the merits of the case.
Considering Health Choice‘s arguments and the record as a whole, we hold that Health Choice did not show that dismissal was “fraudulent, arbitrary and capricious, or illegal” under the strict Sequoia Orange standard. Cf. Chang, 938 F.3d at 387 (determining that relator failed to establish fraud, arbitrariness and caprice, or illegality); Ridenour, 397 F.3d at 937-38 (“The district court correctly concluded the Relators failed to meet their burden to show the Government‘s motion to dismiss was fraudulent, arbitrary and capricious, or illegal.“).
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For the reasons set forth above, the judgment of the district court is AFFIRMED.
PATRICK E. HIGGINBOTHAM, Circuit Judge, concurring:
While this appeal touches on an unsettled area of law, the outcome here is straightforward. Under Congress‘s qui tam regulatory scheme, the government may assume the prosecution of a claim filed by a relator with full control over its course, or it may allow the relator to press the claim alone.1 Where, as here, the government follows the latter course but returns to the litigation at a later stage,2 the government‘s control over its prosecution is less certain, including its authority to dismiss the case, and this uncertainty has divided our sister courts.
The hearing requirement in
In this case, it suffices that the relator, through able counsel, had the opportunity to engage the government‘s stated reasons and did so without apparent restriction on its response, including its ability to put on evidence. In sum, it is not apparent that the district court could reasonably have denied the government‘s motion to dismiss
leaves a relator at risk, it signifies that the risk is inherent in pursuing litigation under this statutory scheme, which also offers the possibility of large returns. The government could have prevented the relators from being involved at the start; it could have said it was aware of, but never defrauded by, the practices alleged. The government did neither here, but when it chose to dismiss, it gave legitimate reasons for doing so, ones which sound mostly in policy choices, belonging to the political branches. On these facts, I agree that the statutory prerequisites for dismissal were satisfied.