Last month, the Eighth Circuit Court of Appeals addressed the scope of “fraud-in-the-inducement” liability under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, and, in doing so, reversed the dismissal of a claim related to the marketing of a pharmaceutical product. While “fraud in the inducement” is not a new theory of liability, the Eighth Circuit ruled that, in this particular case, allegations of specific false claims being submitted for payment were not required to support the claim of “fraud in the inducement.”
In U.S. ex rel. Simpson v. Bayer Healthcare, et al, No. 12-2979 (8th Cir., Oct. 15, 2013), Simpson, a former employee, alleged that Bayer defrauded the U.S. government through its marketing of Baycol, a cholesterol-lowering drug. Specifically, she alleged that Bayer fraudulently caused the government to make reimbursements for Baycol prescriptions through federal health insurance programs such as Medicare and Medicaid. She further alleged that Bayer fraudulently induced the Department of Defense to enter into two contracts for the purchase of Baycol.
Bayer moved to dismiss Simpson’s amended complaint pursuant to Rules 9(b) and 12(b)(6), asserting that Simpson’s allegations were deficient because there were no representative examples of false claims submitted for payment to the government. The District Court agreed, finding that Simpson’s allegations of Bayer’s alleged fraud were not tied to specific fraudulent claims for payment submitted to the government. The claims were, therefore, dismissed.
Simpson appealed to the Eighth Circuit. In reviewing the appeal, the Eighth Circuit affirmed the dismissal of Simpson’s allegation that Bayer fraudulently caused the government to make reimbursements for Baycol prescriptions through federal health insurance programs. The Court explained that Simpson failed to plead at least some representative examples of actual reimbursement claims submitted to the government pursuant to the underlying allegedly fraudulent marketing scheme, or to establish how such reimbursement claims were false in and of themselves. Instead, Simpson relied on general allegations that the government would not have paid any of the reimbursement claims had it known of Bayer’s underlying allegedly fraudulent marketing scheme.
The Eighth Circuit’s analysis of Simpson’s fraudulent inducement argument is of more interest. In this claim, it was generally alleged that Bayer made false or fraudulent statements during contract negotiations with the Department of Defense that induced it to enter into the contract. As is typically required, Simpson did not allege that any particular claim for payment submitted was false. Instead, it was claimed that all subsequent reimbursement submissions were based on a contract induced through fraud. The Eighth Circuit reversed dismissal of this claim and explained that, when a relator alleges liability under a theory of fraud in the inducement, claims for payment subsequently submitted under a contract initially induced by fraud do not have to be false or fraudulent in and of themselves in order to state a cause of action under the FCA. As a result, there is no need to allege that any particular claim for payment submitted was false. Ultimately, this pleading was held to be sufficient by the court because Simpson identified the who, what, where, when and why of the alleged fraud – the fraudulent inducement to enter into the contract – and that was enough to satisfy Rule 9(b)’s requirements.
While “fraud in the inducement” is not a new theory of liability in the context of the FCA, the Eighth Circuit’s determination that this relator did not need to allege specific false claims being submitted for payment to support the claim is a new a different twist on the pleading required to establish such a claim.