In this issue:
- A settlement involving a construction company that improperly claimed credit for using disadvantaged business entities on federally-funded New Jersey construction contracts that did not actually perform the work.
- An Anti-Kickback Statute case where the district court denied defendant’s motion to compel certain Medicare claims data and rejected the “benefit of the bargain” approach to damages for AKS-tainted Medicare claims.
- An FCA case involving a motion to stay discovery during the pendency of a dispositive motion.
NJ Construction Co. Settles Out of Turnpike FCA Suit
Topics: Subcontractor liability, Disadvantaged Business Entities Program
A New Jersey construction company, C. Abbonizio Contractors (C. Abbonizio), settled a False Claims Act lawsuit alleging that the company misrepresented the amount of subcontract work performed by socially and economically disadvantaged business entities (DBEs) in connection with a federally-funded New Jersey Turnpike project.
C. Abbonizio received a $39 million subcontract from PKF Mark II (PKF) to perform earthwork and pipe installation in support of PKF’s prime construction project. PKF’s prime contract required PKF to make a good faith effort to subcontract 15% of the total contract value to DBE subcontractors. As a result, as part of its subcontract, C. Abbonizio agreed to use DBEs to complete 15% of its work. According to the Government, C. Abbonizio, however, circumvented this requirement and paid DBEs to serve as “middlemen” and purchase materials from other businesses while creating invoices that made it appear as though the DBEs were actually performing the work. The government alleged that one of the companies that C. Abbonizio used as an intermediary put magnetic signs with its own logo on another company’s truck. C. Abbonizio transmitted information to PKF asserting that these pass-through entities were performing work in order for PKF to claim DBE participation credit. In turn, PKF included this information in reports to New Jersey Department of Transportation claiming DBE credit.
Takeaway: This settlement serves as a reminder that subcontractors are also subject to FCA liability where they mislead prime contractors and cause false claims to be passed on to the government.
United States v. Teva Pharms. USA, Inc., No. 20-CV-11548 (NMG), 2022 WL 6820648 (D. Mass. Oct. 11, 2022)
Topics: Anti-Kickback Statute, Discovery Issues
In one of the numerous ongoing enforcement efforts out of the US Attorney’s Office in Boston relating to the pharma industry’s funding of patient assistance foundations, the District of Massachusetts last week overruled defendant Teva Pharmaceuticals’ (Teva) objection to a magistrate judge’s denial of Teva’s motion to compel the production of Medicare claims data to assess and rebut the Government’s allegations that Teva’s program, which donated $328 million to two third-party foundations to cover patients’ copays for Copaxone, a multiple sclerosis drug manufactured by Teva, violated the FCA as violations of the Anti-Kickback Statute (AKS).
Prior to Teva’s filing of the motion to compel, the government produced “all data concerning Medicare Part D Copaxone claims from January 1, 2006 to December 31, 2017.” In its motion to compel, however, Teva sought additional data, including all claims for drugs and medical services submitted by Medicare patients with multiple sclerosis, and all records describing the timeframes during which Medicare beneficiaries diagnosed with multiple sclerosis had Medicare coverage, as well as the types of coverage.
The magistrate judge denied Teva’s motion, finding that the requested data was irrelevant to (1) Teva’s price increases for Copaxone, (2) Teva’s intent to induce purchases, (3) the government’s conspiracy claim, (4) additional penalties, and (5) calculation of damages. Teva objected to the magistrate judge’s ruling, asserting that framing the denial on relevance grounds rather than Federal Rule of Civil Procedure 26(b)(1) proportionality standards was erroneous. Teva asserted that the requested data was proportional and relevant to damages and liability. Teva also objected to the magistrate judge’s order, claiming that the requested claims data would allow Teva to develop evidence of the government’s true loss, and the data was necessary to show which patients received assistance from the two foundations for non-Copaxone drugs that were reimbursed.
Applying the “clearly erroneous” standard of deference to the magistrate judge’s ruling, the court overruled Teva’s objections.
First, the court held that the parties briefed the Rule 26(b)(1) factors and that it was not clearly erroneous for the magistrate to conclude that producing this data would be a significant burden to the government, and the application of a relevance rather than proportionality standard was not clearly erroneous.
Second, the court rejected Teva’s contention that it required data showing which patients received assistance from the two foundations, because, to be liable under the FCA’s AKS provision, it is only relevant that Teva intended to induce patients to purchase Copaxone through its donations.
Third, relatedly, the court found that the data also was not relevant to Teva’s argument that price increases were due to market forces and not Teva’s donations because Teva’s drug pricing could not be based on the requested Medicare data that Teva never had access to.
Fourth, the court agreed with the magistrate that the evidence related to the reimbursement of non-Copaxone claims was irrelevant to the government’s conspiracy allegation because that data “is not indicative of the existence of a conspiracy.”
Fifth, the court only briefly addressed Teva’s allegation that the requested data was relevant to FCA penalties. The court, however, held the order was not clearly erroneous because Teva did not adequately demonstrate the relevancy of the data.
Finally, the court rejected Teva’s argument that it required sales cost data to respond to the government’s calculation of damages and determine damages under a “benefit of the bargain” approach. The court, however, explained that there was no authority to support the “benefit of the bargain” approach to calculating damages for AKS-tainted Medicare claims. Rather, the damages are equal to the full value of the AKS-tainted Medicare claim – an approach not yet adopted by the First Circuit but adopted by other circuits.
Takeaways: This case reiterates that any requests for production in civil False Claims Act cases must request information directly relevant to an element of the alleged violation. Teva failed because the overly-expansive document request could not relate to the elements of the claim. This decision also is significant in its rejection of a “benefit of the bargain” theory of damages, opting instead to treat claims tainted by kickbacks as having zero value for damages purposes, adding further to the disagreement among courts as to the appropriate measure of damages for AKS-tainted claims.
United States v. Physician Surgical Network, Inc., No. 6:20-cv-1582 (WWB-EJK), 2022 WL 6163122 (M.D. Fla. Oct. 7, 2022):
Topic: Discovery Issues
The District Court for the Middle District of Florida recently issued a decision denying a defendant’s motion to stay discovery in an FCA lawsuit, despite a pending motion to dismiss. The court reasoned that a pending dispositive motion alone does not justify staying discovery. Rather, the court explained that the movant must show good cause and reasonableness, and the court must look to the merits of the pending dispositive motion to see if its meritorious and truly case dispositive.
The defendant argued that the plaintiff’s complaint was defective and that the plaintiff sought “overbroad and expansive” discovery that would be unduly burdensome and, if the motion to dismiss was granted, result in unnecessary costs to the litigants and the court. In reviewing the defendant’s motion, the court weighed the harm of delay against the possibility that the pending motion to dismiss would be granted, obviating the need for discovery.
Ultimately, while acknowledging that discovery can be costly and time-consuming, the court rejected the defendant’s argument. First, the court concluded that the motion to dismiss could not be considered “likely meritorious,”— meaning that there was not a likelihood that the motion to dismiss would be granted based on a preliminary review of the motion’s merits. Second, the court held that with the discovery deadline of February 2, 2023, a stay would cause management issues by “condensing the time to engage in discovery and to resolve any resulting motions.” The court, however, noted that the defendant could prepare a separate motion to address any unduly burdensome discovery requests.
Takeaways: If a court deems a dispositive motion not likely to be meritorious, then the court is unlikely to stay discovery during the pendency of the dispositive motion even though discovery might be costly to a party and ultimately obviated if the motion.
 The government included C. Abbonizio’s president in the initial suit, but the court ultimately dismissed the president from the case in March 2021 finding that the government failed to show a direct connection between the president and the company’s scheme.
 The terms of the settlement have not been made public.
 See, e.g., United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 386 (4th Cir. 2015) (noting in an illegal referral case that the “the government has suffered injury equivalent to the full amount of the payments”); United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) (stating in a case involving kickback-tainted Medicare claims that the damages constituted the entire amount of the claims at issue).