First Circuit Affirms District Court’s Discretion to Limit the Scope of Discovery in False Claims Act Case

by Ropes & Gray LLP
Contact

Last month, the United States Court of Appeals for the First Circuit in United States ex rel. Duxbury v. Ortho Biotech Products, L.P., No. 12-2141, 2013 WL 2501930 (1st Cir. June 12, 2013) (“Duxbury II”) affirmed the district court’s limitation of discovery concerning publicly disclosed False Claims Act (“FCA”) allegations to the time period and geographic region over which relator qualified as an original source. Notably, however, the court deflected the question of whether the pre-amendment[1] original source exception to the public disclosure bar applied and instead chose to rule on the alternate ground that the district court’s actions fell well within its broad discretion to manage discovery. By declining to rule on jurisdictional grounds, the court reaffirmed the power of district courts to exercise considerable discretion to limit the scope of discovery in FCA cases, regardless of whether the public disclosure bar applies.

Background and Procedural History

Prior to 2010, the FCA’s public disclosure bar stated that “[n]o court shall have jurisdiction over an action . . . based upon the public disclosure of allegations . . . unless the person bringing the action is an original source of the information.” 31 U.S.C. 3730 (e)(4)(A) (2006). To qualify as an original source, the relator must have “direct and independent knowledge of the information on which the allegations are based and [have] voluntarily provided the information to the Government before filing an action . . . .” 31 U.S.C. 3730 (e)(4)(B) (2006).

In 1992, Ortho Biotech Products, L.P. (“OBP”) hired Mark Duxbury as a sales manager. Duxbury was responsible for marketing OBP’s drug Procrit to health care providers in the western United States, particularly in the state of Washington. In July 1998, OBP terminated Duxbury. In 2003, Duxbury filed his original complaint and amended his complaint in 2006 after the government declined to intervene. The amended complaint contained three counts relating to OBP’s allegedly improper efforts to market Procrit; only Count I, however, was the subject of this recent appeal to the First Circuit. Count I alleged that, from 1992 to the present, OBP engaged in a nationwide kickback scheme that caused healthcare providers and hospitals to submit false claims to Medicare.

In January 2007, OBP filed a motion to dismiss relator’s amended complaint, which the district court granted. With respect to Count I, the district court found that: 1) all of the kickback allegations had already been publicly disclosed in a prior suit; 2) relator qualified as an original source of the allegations concerning the time while he was employed by OBP (1992 to 1998); 3) none of these allegations had been pled with particularity pursuant to Fed R. Civ. P. 9(b). On appeal, the First Circuit agreed with the district court’s first two findings, but determined that relator’s allegations concerning the eight accounts that he had serviced in the state of Washington during his tenure at OBP were adequately pled with the specificity required by Rule 9(b). United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 21-32 (1st Cir. 2009) (“Duxbury I”). The court specifically noted that these allegations were based on relator’s personal knowledge and direct communications with the accounts, supported by his furnishing of the dates and amounts of the false claims allegedly submitted by these providers to Medicare. See Id. at 30.

On remand, the district court entered an order limiting discovery to those allegations over which relator qualified as an original source. The district court reasoned that, in light of Duxbury I, the law of the case dictated that relator was an original source only as to the claims arising during his employment by OBP. Next, because relator could qualify as an original source only with respect to claims of which he had direct and independent knowledge, the district court narrowed the scope of discovery to the region relator serviced as a sales manager for OBP. The parties also agreed that the FCA’s six-year statute of limitations barred relator’s claims prior to 1997. As such, the district court’s order limited discovery to relator’s claims between November 1997 and July 1998 that pertained to the region in the western United States of which he had direct and independent knowledge. See United States ex rel. Duxbury v. Ortho Biotech Products, L.P., No. 03-12189-RWZ, 2010 WL 3810858, at *3 (D. Mass. Sept. 27, 2010).

After eight months of discovery, the parties filed a joint stipulation explaining that relator could not proffer any evidence to support his allegations that OBP had engaged in any kickbacks during the time period and in the geographic region outlined by the court’s discovery order. The district court, therefore, granted summary judgment in favor of OBP. Relator appealed both the grant of summary judgment and the propriety of the district court’s discovery order.

First Circuit Decision

In both his briefing and at oral argument, relator primarily attacked the district court’s discovery order. First, he argued that the district court incorrectly found that it lacked subject-matter jurisdiction over relator’s allegations of a common, nationwide kickback scheme based upon a misapplication of the original source exception and the Supreme Court’s decision in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). Second, relator contended that the district court’s discovery order contradicted the First Circuit’s ruling in Duxbury I. The court’s decision in Duxbury II did not address the merits of relator’s argument concerning the original source exception. The court, instead, held that, even assuming arguendo that the district court had subject matter jurisdiction over all of relator’s kickback claims, the limitations imposed on discovery were consistent with the holding in Duxbury I and within the district court’s “broad discretion in managing discovery.” Duxbury II, 2013 WL 2501930, at *6.

In addressing Duxbury’s claims, the court explained that relator misread Duxbury I. According to the court, the only portion of Count I that survived on remand were those claims from the years 1992 to 1998; the decision never addressed the scope of discovery and explicitly declined to consider the applicability of the statute of limitations. Likewise, the court emphasized that Duxbury I’s conclusion that the allegations in Count I were adequately pled rested upon a single paragraph in the complaint consisting entirely of allegations relating to Washington-based accounts. Therefore, the court concluded, the district court’s discovery order was perfectly consistent with Duxbury I’s holding.

The court further held that the district court’s decision to limit the scope of discovery to the western United States was well within its “considerable latitude” in managing discovery. Id. at *7 (internal citations omitted). Citing to the Sixth Circuit’s decision in United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 515, 523-24 (6th Cir. 2007), the court explained that the district court appropriately limited discovery to only those portions of the complaint that satisfied Rule 9(b). The court also observed that this case did not present a situation in which relator had uncovered evidence which might provide the basis for expanding discovery. Rather, relator was seeking to engage in a “fishing expedition” into “purely speculative allegations” of nationwide fraud despite the fact that he was not even able to muster any evidence within the narrow geographic area in which he actually worked. Duxbury II, 2013 WL 2501930, at *7 (internal citations omitted).

* * *

In Duxbury II, the First Circuit declined the opportunity to address the scope of the pre-amendment original source exception and instead offered FCA defendants a victory with potentially longer-term impact. In particular, the court reaffirmed that district courts have considerable latitude in limiting discovery in FCA cases to allegations that were well-pled under Rule 9(b). If the district courts take up the First Circuit’s invitation here, this may lead to more limited, or staged discovery in those FCA cases that do survive a motion to dismiss.


[1] Congress amended the FCA’s public disclosure rule and its original source exception in 2010. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, tit. X, § 10104(j)(2), 124 Stat. 119, 901-02 (2010). However, the First Circuit noted that the statute’s pre-amendment language governed this case.

 

Written by:

Ropes & Gray LLP
Contact
more
less

Ropes & Gray LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!