On July 7, 2017, the U.S. Court of Appeals for the Ninth Circuit reversed a federal district court’s dismissal of a False Claims Act (FCA) whistleblower suit in United States ex rel. Campie v. Gilead Sciences, explaining that the district court did not have “the benefit of” the Supreme Court’s 2016 decision in Escobar at the time the suit was dismissed for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
In Campie, two former Gilead employees filed a qui tam FCA suit alleging in part that Gilead manufactured key ingredients in certain anti-retroviral drugs at an unapproved facility and then made false representations to the Food and Drug Administration (FDA) concerning (1) its manufacture of the drugs and (2) subsequent instances of drug contamination. According to the complaint, the defendant’s false statements and fraudulent conduct caused the government to submit payments and reimbursements for drugs that did not meet the criteria for FDA approval, which is a prerequisite for valid payment under government programs, and therefore submitted and caused to be submitted claims for payment in violation of the FCA.
A unanimous panel of the Ninth Circuit found that the relators had sufficiently pled claims for FCA liability for factually false certifications and implied false certifications made to the FDA. Of particular relevance, the court reinstated the suit despite applying the “rigorous” and “demanding” materiality standard emphasized by the Supreme Court in Escobar. The court initially observed that FDA approval of drugs is the sine qua non of reimbursement under federal health care programs, and because the drugs at issue were approved by the FDA at all relevant times, the relators therefore faced an “uphill battle” to sufficiently allege materiality under Escobar. But the court stated that “mere FDA approval cannot preclude” FCA liability, and noted that there are many reasons why the FDA may not withdraw drug approval. Moreover, the court observed that the defendant had stopped using unapproved and contaminated drugs, so this was not a case where the government continued to pay claims despite continued noncompliance. Ultimately, the court held that by alleging “more than the mere possibility that the government would be entitled to refuse payment if it were aware of the violations,” the relators had met Escobar’s materiality threshold.
The Ninth Circuit’s materiality determination in Campie is particularly notable as compared to a recent Third Circuit holding in Petratos that also concerned alleged noncompliance related to claims for payment for FDA-approved drugs. In Petratos the Third Circuit cited the “heightened” materiality standard under Escobar to dismiss a qui tam FCA suit (see our analysis of that decision here). In Campie, Gilead urged the Ninth Circuit to follow Petratos and uphold the district court’s dismissal in part because the FDA did not withdraw its approval of the drugs in question after learning of the alleged noncompliance. The Ninth Circuit rejected this approach, and distinguished the cases by noting that the relator in Petratos conceded that the government would pay the claims in question despite full knowledge of the alleged noncompliance, whereas in Campie the relator did not make such a concession.
The Ninth Circuit’s divergence from the Third Circuit creates a potential split among circuits that could lead to Supreme Court review on the issue of post-Escobar FCA materiality.