Alternate Reality: DC Circuit Limits Recovery Through the FCA’s “Alternate Remedy” Provision

The DC Circuit recently limited the ability of a relator to recover a share of the monetary relief that the government receives in a non-FCA enforcement action based on the same underlying facts as an FCA action where the relator has also received a share of the government’s settlement of the qui tam action.

In United States v. Novo A/S, No. 20-7062, 2021 WL 3043297 (D.C. Cir. July 20, 2021), the relator filed an FCA action relating to the defendant’s alleged off label marketing of a diabetes drug. Id. at *3. In 2017, the United States intervened in the case and advised the court that the United States, the defendant and the relator had reached a settlement in which the defendant agreed to pay $46.5 million to resolve the matter. Id. at *4.

Four days later, the government filed a separate complaint against the same company under the Food, Drug, and Cosmetic Act (FDCA). Id. In this new complaint, the government alleged that the diabetes drug was misbranded and the company provided its sales force with “certain messages and tactics” that created the “false or misleading impression” that the drug’s labeling was “erroneous, irrelevant, or unimportant.” Id. Simultaneous with the filing of the complaint, the government disclosed that it had settled the FDCA claims, which included a payment of $12.15 million to the government. Id. The relator was not a party to the FDCA litigation or the settlement. Id.

The relator then moved for a share of the FCA settlement and was awarded 18% of the FCA recovery. Id. at *5. The relator also moved for a share of the FDCA settlement on the grounds that the FDCA settlement was an “alternate remedy” under subsection 3730(c)(5) of the FCA. Id. This subsection allows the government to “pursue its claim” through an “alternate remedy” if it does not wish to press an action under the FCA. As relevant here, that subsection provides:

Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.

31 U.S.C. § 3730(c)(5).

The district court denied the relator’s request for a share of the FDCA settlement proceeds, and the DC Circuit affirmed the decision. Id. at *5.

In its opinion, the DC Circuit conducted a close textual analysis of the FCA and took a narrow view of the alternate remedies provision, finding that an “alternate remedy” must be for the same types of fraud for which an FCA action could have been brought. Id. at *6-*10. “Section 3730’s alternate-remedy provision authorizes the government, when confronted with a qui tam complaint, to choose to vindicate its legal claim arising from the fraud and falsity that Section 3729 proscribes through either (i) the qui tam action, or (ii) an alternate remedy for that same type of false or fraudulent claim.” Id. at *7 (citing 31 U.S.C. § 3730(a), (b) & (c)(5)). The court found that the FCA “does not reward relators any time the government pursued any ‘alternate claim or cause of action’ arising from the same set of facts and circumstances . . . . [I]t is the nature of the legal claim—the fraudulent or false deprivation of a monetary or property interest—and not the commonality of facts the determines a relator’s right to share in the alternate recovery.” Id. at *8.

Applied to the facts of this case, the court found that the FDCA’s misbranding claim bore little resemblance to the types of fraudulent behavior that are covered by the FCA because the misbranding claim does not seek to recover damages for any use of falsity or fraud to deprive the government of its money or property, which is the hallmark of an FCA claim. Id. at *8. As a result, the court found that the relator could not recover a share of the government’s proceeds from its FDCA settlement. Id.

Under the court’s narrow reading of the “alternate remedies” provision, it would be extremely difficult for a relator to recover from the government’s settlement of a separate case the government had chosen to pursue based on the same set of facts. Indeed, in its decision the court provided one example of an “alternate remedy” for which a relator could recover—“an administrative proceeding for the remediation of false or fraudulent money claims.” Id. at *7. That example only further serves to underscore how narrowly the court viewed the “alternate remedies” provision and the difficulty relators will face in trying to use that provision to claim a share of the government’s proceeds in a separate but related action.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.