Justin A. Chiarodo and Stephanie M. Harden
The Department of Justice’s (“DOJ”) bombshell statement last month that it would seek dismissal of the Gilead False Claims Act (“FCA”) suit—a qui tam suit alleging misrepresentations and concealments regarding active ingredient sources and quality for HIV medications—surprised many in the government contracts community. Though DOJ had signaled earlier last year in the so-called “Granston memo” that it may seek dismissal of certain FCA cases, the fact that DOJ sought to do so while a case was on appeal to the Supreme Court—and without consulting relators—was unexpected.
The latest development in this evolving saga is that the Supreme Court has now denied Gilead’s petition for certiorari, leaving the Ninth Circuit’s ruling in place. U.S. ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017). This again delays the return of the Escobar decision for further consideration by the Supreme Court. A key aspect of the Ninth Circuit’s ruling was its holding that the Government’s continued payment for the HIV medications following its alleged knowledge of misrepresentations by Gilead did not foreclose the possibility of establishing materiality under Escobar, despite Escobar’s instruction that payment of a claim following actual knowledge of a violation is “very strong evidence” that the requirement in question is not material.
Gilead now heads back to the lower courts, where DOJ will presumably seek dismissal of the case—consistent with its professed intentions and the public interest concerns it cited before the Supreme Court. We anticipate continued litigation over potential limits on the extent of DOJ’s (considerable) discretion to dismiss False Claims Act cases.
Had the Supreme Court taken the case, Gilead would have provided it an opportunity to clarify the materiality standard set forth in its Escobar decision—and, in particular, how the Government’s continued payment following knowledge of a violation impacts materiality. DOJ’s late-breaking decision to seek dismissal of the case could reflect its view that Gilead was not a favorable vehicle to revisit Escobar, and could have led to an even higher materiality standard.
DOJ also sought to dismiss 11 other FCA cases last month against various drug manufacturers—fueling speculation that the Government will more aggressively seek dismissal of qui tam cases going forward. While it remains too early to say whether these developments reflect a wholesale shift in DOJ practice, the use of this policy on such a major stage shows it should be taken seriously.