Mar 17, 2015

“Request for Payment” Link Reinforced By Recent Federal Ruling

Written by Allison L. Murphy

Partner


On January 7, 2015, a California federal judge granted an FCA defendant’s Motion to Dismiss premised on allegations that it failed to comply with Good Manufacturing Practices (“cGMPs”) regulations. See U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-cv-00941 (N.D. Cal. Jan. 7, 2015).

In this case, two former Gilead employees with quality control responsibilities filed a Qui Tam action against their previous employer alleging various violations of cGMP requirements. The relators asserted in their Complaint that they discovered and reported to Gilead officials numerous violations of Federal Food and Drug Administration (“FDA”) regulations, but that Gilead concealed those violations resulting in the sale of misbranded, adulterated drugs. According to relators, each sale of an affected drug was “false” for purposes of FCA liability.

The Court went through each of the relators’ theories and dismissed them. The theories included: (1) using an unregistered manufacturing facility; (2) distributing adulterated drugs; (3) making false statements in New Drug Applications (“NDA”); (4) submitting false certificates of analysis that an active pharmaceutical ingredient was in compliance with cGMPs; and (5) using adulterated drugs in clinical trial products.

The Court noted in its opinion that even when companies make a purported false certification to a regulatory agency such as the FDA, asserting that the company is in compliance with provisions of the FDA Act, that certification cannot in and of itself serve as a basis for an FCA action. Rather, there must be a link between the alleged false statement and the resulting request for payment, namely that the payment must be conditioned on the falsity. Here, the Court did not find the requisite link and granted Gilead’s Motion to Dismiss.

This case can be seen as a step in the right direction in terms of limiting the reach of the FCA and reinforcing that the FCA is not intended to police minor technical and/or regulatory violations unrelated to the contractor’s receipt of federal funding. This case should be cited to by Defendants when faced with an FCA claim based on alleged regulatory non-compliance as it provides additional support and reasoning behind the “Request for Payment” link required before FCA liability should attach.