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United States ex rel. Ven-A-Care of Florida Keys, Inc. v. Baxter Healthcare Corp.

United States Court of Appeals, First Circuit

December 1, 2014

UNITED STATES, EX REL. VEN-A-CARE OF THE FLORIDA KEYS, INC., Plaintiff, Appellee,
v.
BAXTER HEALTHCARE CORPORATION, Defendant, Appellee,
v.
LINNETTE SUN AND GREG HAMILTON, Appellants. UNITED STATES, EX REL. LINNETTE SUN; UNITED STATES, EX REL. GREG HAMILTON, Plaintiffs, Appellants,
v.
BAXTER HEALTHCARE CORPORATION, Defendant, Appellee

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. Patti B. Saris, U.S. District Judge.

David J. Chizewer, with whom Courtney R. Baron, Goldberg Kohn LTD., Lauren John Udden, Frederick M. Morgan, Jr., Jennifer M. Verkamp, Morgan Verkamp, LLC, and Mark Allen Kleinman were on brief, for appellants.

Steven J. Roman, with whom Merle M. DeLancey, Jr., Dickstein Shapiro LLP, Peter E. Gelhaar, and Donnelly, Conroy & Gelhaar, LLP were on brief, for Baxter Healthcare Corporation, appellee.

James J. Breen, with whom The Breen Law Firm, Rand J. Riklin, John E. Clark, and Goode Casseb Jones Riklin Choate & Watson were on brief, for Ven-A-Care of the Florida Keys, Inc., appellee.

Before Howard, Lipez and Barron, Circuit Judges.

OPINION

Page 933

BARRON, Circuit Judge.

This appeal involves a lawsuit against a pharmaceutical company for allegedly defrauding the federal Medicaid and Medicare programs. The suit is based on the False Claims Act, 31 U.S.C. § § 3729-3733, an unusual federal statute that allows private parties, called " relators," to stand in for the United States and bring what are known as qui tam actions.[1] Because qui

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tam actions let private individuals recover damages for wrongs done to the United States, a special threshold bar -- the " first-to-file" rule -- sometimes stands in their way. It is that bar that is in dispute here.

The first-to-file rule is so named because it blocks qui tam suits that are filed while similar enough ones are already pending. In this case, the District Court ruled appellants' qui tam suit could not go forward because a Florida pharmacy years before had brought one a lot like it. We agree with the District Court on that point and thus affirm the dismissal of appellants' suit. Because that decision takes care of this appeal, we do not decide the other issues the parties discuss.

I.

To understand why we are only now considering the first-to-file rule in a case that began nine years ago, we need to describe the two qui tam actions involved, the alleged fraud each identified, and the complicated procedural path that led the District Court to decide their similarities required the later suit's dismissal. To do all of that, though, we first need to go back nearly two decades, to 1995.

That was when Ven-A-Care of the Florida Keys, Inc., the pharmacy, filed the first of the two qui tam actions involved here. Ven-A-Care alleged a number of pharmaceutical companies had fraudulently inflated the prices of their drugs, thus securing higher reimbursements through Medicare and Medicaid than they deserved. Among the many companies named in Ven-A-Care's complaint was Baxter Healthcare Corporation.

Baxter's status as a defendant was kept from public view for more than a decade because Ven-A-Care filed its qui tam suit under seal. See 31 U.S.C. § 3730(b)(2), (3) (False Claims Act complaints must be filed in camera and may be kept under seal at the government's behest). But in 2010, the United States decided not to intervene in Ven-A-Care's case, and that led to the complaint's unsealing.[2] See id. § 3730(b)(4)(B). The Judicial Panel on Multidistrict Litigation then consolidated Ven-A-Care's suit with nearly one hundred similar actions -- most filed under laws other than the False Claims Act -- in the United States District Court for the District of Massachusetts. See In re Pharm. Indus. Average Wholesale Price Litig., 491 F.Supp.2d 20 (D. Mass. 2007); In re Pharm. Indus. Average Wholesale Price Litig., 230 F.R.D. 61 (D. Mass. 2005).

About a year later, in October of 2011, Baxter and Ven-A-Care reached a settlement agreement. Baxter agreed to pay tens of millions of dollars to be shared between Ven-A-Care and the United States. In return, the Settlement Agreement and Release purported to " fully and finally release[], acquit[], and forever discharge[]" Baxter from " any and all civil, regulatory, and/or administrative claim, action, suit, demand, right, cause of action, liability, judgment, damage, or proceeding . . . which has been asserted, could have been asserted, or could be asserted in the future . . . for or arising from any of the Covered Conduct." The agreement defined

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" Covered Conduct" as Baxter's submission of inflated price and cost figures, and its subsequent receipt of higher-than-deserved reimbursements, for " any and all drugs manufactured, marketed and/or sold by or on [its] behalf."

Despite that agreement, the False Claims Act prevented Ven-A-Care from voluntarily dismissing its action against Baxter without the federal government's consent. See 31 U.S.C. § 3730(b)(1). But Ven-A-Care soon did get that consent, and the District Court then entered judgment dismissing Ven-A-Care's action against Baxter, thus seemingly ending Baxter's role in the case. Baxter's involvement in False Claims Act litigation, however, was not over. Instead, a new front of litigation had opened.

Years before the dismissal of Ven-A-Care's suit, Linnette Sun, one of Baxter's former employees, and Greg Hamilton, an employee of one of its longtime customers,[3] had teamed up to file a qui tam action of their own against Baxter, and that action was still pending when Baxter settled with Ven-A-Care.[4] Ven-A-Care and Baxter were aware of Sun and Hamilton's suit when they concluded their settlement talks, but they did not directly alert Sun and Hamilton to their impending agreement.[5] Instead, after the United States signed off on Baxter's settlement with Ven-A-Care and that suit had been dismissed, Baxter moved for partial[6] summary judgment in Sun and Hamilton's case.

In doing so, Baxter argued the Ven-A-Care settlement released not only the pharmacy's claims against it, but also Sun and Hamilton's claims as well. Sun and Hamilton countered they were not parties to the Ven-A-Care action and the United States's consent to the settlement was, as the government put it, " to the dismissal with prejudice only of claims pled in relator Ven-A-Care's complaint against [Baxter]." Statement of the United States Regarding the Consent of the United States to the Dismissal with Prejudice of Claims Pursuant to 31 U.S.C. § 3730(b)(1) in a Related Matter, In re Pharm. Indus. Average Wholesale Price Litig., No. 1:01-cv-12257-PBS (D. Mass. Nov. 14, 2011), ECF No. 7897 (emphasis added). Sun and Hamilton thus argued the Ven-A-Care settlement agreement should not be read to release their claims. The District Court disagreed, however, and granted summary judgment.

But Baxter was still not free and clear. Sun and Hamilton argued in a motion for

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reconsideration that even if the Ven-A-Care settlement did cover their claims, the agreement could not release those claims until Sun and Hamilton got a hearing on whether " the proposed settlement is fair, adequate, and reasonable under all the circumstances." 31 U.S.C. ยง 3730(c)(2)(B). Their argument depended on their characterization of the settlement as an " alternate remedy" the ...


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