WASHINGTON (Legal Newsline) - The Department of Justice's recent effort to toss lawsuits it says it wasted hundreds of hours investigating is emblematic of a strategy under President Donald Trump to rein in trial lawyers who are using a federal whistleblower law to seek millions of dollars.
Meanwhile, one of those lawyers, Mark Lanier of Houston, has never been one to let criticism against him go unanswered. He recently attacked the Justice Department’s “inexplicable” decision to seek dismissal of nearly a dozen False Claims Act lawsuits brought by shell companies that Wall Street financiers formed for the sole purpose of collecting whistleblower bounties.
Those shell companies, like all FCA whistleblowers, allege the federal government has been ripped off by companies that seek payment from federal programs like Medicaid. The U.S. Government has the option to join FCA cases after they are filed, and whistleblowers are entitled to a substantial portion of any eventual recovery.
In a 2012 memo, the government said it intervened in fewer than 25% of these cases, although it must investigate all of them. The Granston memo of 2018 said 12 new whistleblower, or qui tam, cases a week were filed in fiscal 2017 and vowed action on the "parasitic" among them.
“These cases aren’t free, even when the government doesn’t intervene,” said John Boese, a former DOJ attorney who is of counsel to Fried Frank. “So the government should be more proactive in seeking to dismiss these cases."
The Trump Administration formally announced it would take a more skeptical look at FCA suits last January in the memo from Michael Granston, director of the Fraud Section of the DOJ Commercial Litigation Branch. In that memo, Granston cited the increase in "meritless" and "parasitic" qui tam suits and directed staff attorneys to consider dismissal under a provision of U.S. Code 3730.
The DOJ said recently it took in $2.8 billion from FCA lawsuits in fiscal year 2018, about half of what was recovered in the record year of 2014 by the Obama DOJ.
In filings around the country last month, the DOJ asked courts to throw out 11 qui tam lawsuits against Bayer, Amerisource Bergen and other pharmaceutical companies by entities formed by New Jersey lawyer John Meninno and his partners.
In those filings, the government said it wasted more than 1,500 hours of attorney time investigating the lawsuits, only to determine they “lacked sufficient merit” to pursue further. The government also accused plaintiffs like Health Choice Group, which hired Lanier and other lawyers to represent it, of using “false pretenses” to obtain information from potential witnesses.
Lanier rejected the government’s claims and questioned the Justice Department’s motives. The lawsuits he helped file allege kickbacks in the form of drug companies paying nurses and specialists to provide services to prescribers in exchange for recommendations of their products.
"These lawsuits shine a light on underhanded tactics being used to infiltrate medical offices with Big Pharma-funded nurses and billing staff acting as undercover sales agents for these companies,” he said in an emailed statement. “This case is about protecting taxpayers from fraud and abuse …and it’s inexplicable that our co-plaintiffs – the Department of Justice – would seek to drop these questions at this time. This fight is not over, and we hope Congress is watching."
The government’s move reflects the tougher stance by the Trump Administration against marginal qui tam suits, which can be filed by anyone in the name of the government. Under the FCA, whistleblowers – called relators – must file their claims under seal. The government has 60 days to investigate and decide whether to intervene in the litigation.
The investigative burden on the government increased after the U.S. Supreme Court’s 2016 decision in Universal Health Services v. Escobar, under which courts must determine if the fraud was material and whether the government was aware of the alleged conduct and paid similar claims in the past anyway.
The Granston memo may be related to a particularly egregious qui tam suit against Trinity Industries over supposedly defective guardrails in which the “whistleblower” actually was a competitor that had previously sued Trinity for patent infringement and defamation.
The U.S. Court of Appeals for the Fifth Circuit threw out a $175 million jury verdict – trebled to more than $600 million with civil penalties – in 2017, noting the federal government had urged the trial court to dismiss the case because the guardrails in question were not defective. The U.S. Supreme Court this week declined to review the Fifth Circuit’s reversal of the jury verdict.
Justice Department lawyers filed their briefs against National Health Care Analysis Group on December 17, asking courts in Washington, Texas, Illinois, Pennsylvania and Massachusetts to dismiss lawsuits the firm filed through a number of shell companies with names like SMSF LLC, SMPF LLC and Cimznhca LLC.
The lawsuits were “essentially cloned complaints” accusing Bayer and its accomplices of bribing physicians by providing free “nurse services." After investigating the claims, the government said they “lacked sufficient factual and legal support.”
Other investors in National Health Care Analysis Group’s parent Venari Partners include former Wall Street analysts and financiers Peter and Joseph Riccardo, Brad Blaschak and Michael and Jerry Callaghan.
National Health Care Analysis Group isn’t the first profit-seeking entity formed to file lawsuits – and draw criticism for it. Dallas hedge-fund operator Kyle Bass made headlines a couple of years ago when he established the Coalition for Affordable Drugs to press patent challenges under a streamlined process Congress had created called inter partes review.
Judges looked askance at Bass’ tactics, however, and his group wound up winning far less than half the cases it brought. Intellectual Ventures, founded by former Microsoft executive Nathan Myhrvold, also has turned in disappointing results from pursing patent lawsuits for profit.
National Health Care Analysis Group allied with well-known attorneys to file its qui tam suits. The Lanier Law firm last year hired former Solicitor General Kenneth Starr, for example, who also criticized the DOJ for seeking to dismiss the lawsuits.
“The practices exposed in these lawsuits raise real concern about influence-peddling inside medical offices across the nation,” Starr said in an e-mailed statement. “At a time when health care costs are absolutely out of control, the DOJ is instead trying to shoot the messenger.”
Private lawyers may turn to Congress for help if the Trump Administration continues to intervene in their qui tam suits. In additional comments, Lanier Firm attorney Chris Gadoury said legislators should reject proposed changes to the Anti-Kickback Statute now under consideration.
Doctors and hospitals say the changes are needed to modernize compensation systems that encourage physicians to practice preventive care and control costs.
Congress should amend the statute, Gadoury said, codifying any exceptions and preventing the Trump Administration from overriding them with agency regulations. Congress also should amend the False Claims Act to create statutory standards for dismissing qui tam suits, he said.
Now, most courts allow the government to dismiss claims as long as the action isn’t arbitrary and capricious, although the Ninth Circuit has adopted a stricter standard under which the government must show dismissal serves a “valid government purpose.”
The FCA could be vulnerable to constitutional challenge if Congress makes it harder for the DOJ to have cases dismissed, Boese said. The Supreme Court in 2000 upheld the standing of private citizens to sue in the name of the government, but only because the government ultimately controls the fate of the litigation, he said.
“If Congress restricts the ability of the Justice Department to dismiss qui tam cases that it believes are inappropriate,” he said, “this will bring front and center the constitutional question many thought was resolved 15 years ago.”
Prominent qui tam lawyers are now questioning the nomination of William Barr as attorney general, citing comments he made nearly 30 years ago questioning the constitutionality of private relators under the FCA. Some of the lawyers who signed a recent letter to U.S. Sen. Chuck Grassley criticizing Barr, including Harvard Law School Professor Nancy Gertner, participated in litigation against Celgene that the government declined to join but nevertheless generated $280 million in settlements and more than $30 million in legal fees.