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Gilead Suit Tests Government’s Authority to Dismiss Fraud Cases

Aug. 23, 2019, 12:40 AM

The Justice Department is attempting to dismiss a case against Gilead Sciences, Inc., in which whistleblowers accuse the company of using contaminated pharmaceutical ingredients from China in some of its HIV drugs.

The case—U.S. ex rel. Campie v. Gilead—will be a test of the DOJ’s authority to dismiss fraud cases brought by whistleblowers on behalf of the government under the False Claims Act.

The government made the unusual move to dismiss the case in April, stating that it would be a costly burden on the DOJ, according to court documents. At the request of the judge, it filed a cost-benefit analysis with the court Aug. 22, restating that the agency has weighed the costs associated with monitoring the case and responding to discovery, as well as the fact that the government has made its own decisions in how to address the alleged conduct by Gilead.

The government’s filing didn’t include any specific dollar amounts in regards to the anticipated cost or windfall that could result from the case proceeding—which may not satisfy the judge overseeing the litigation, said Derek M. Adams, a former DOJ trial attorney and partner with Feldesman, Tucker, Leifer and Fidell LLP in Washington, D.C.

Lawyers for the whistleblowers have until Sept. 5 to file their response.

The DOJ moved to dismiss the case even though Edward Crooke, assistant director of the DOJ’s civil fraud section, acknowledged the case has some potential.

“It’s clear from the case law it could be a meritorious case,” Crooke told Judge Edward M. Chen of the U.S. District Court for the Northern District of California on Aug. 1, according to court transcripts.

But Crooke also said the DOJ “investigated diligently” with the Food and Drug Administration and the Department of Health and Human Services before seeking dismissal. The FDA never issued a violation against Gilead based on the allegations.

Gilead, which also previously moved to dismiss, declined to comment. DOJ officials did not respond to requests for comment.

The Whistleblowers

Two former Gilead employees, Jeff and Sherilyn Campie, allege that the company imported and manufactured drugs sourced from a Chinese plant before obtaining FDA approval of the facility, and therefore defrauded the government by charging it for the medications through the Medicare system.

“We felt blindsided and betrayed” by the government’s motion to dismiss, said Andrew Friedman, an attorney with Bonnett, Fairbourn Friedman & Balint PC in Phoenix, who represents the couple acting as whistleblowers, or “relators,” in the case.

The case, originally filed in December 2011, nearly made it to the U.S. Supreme Court, which ultimately declined to take up the issue in January after the DOJ stated its intention to seek dismissal.

“Mr. and Mrs. Campie zealously prosecuted this case on behalf of the government for nine long years,” Friedman said. “The government consistently supported our legal positions over the years and then with no prior warning abruptly sought to kill our case.”

The Allegations

The Campies were employees of Gilead when they reported alleged violations of FDA regulations, specifically that the company did not properly vet a subcontractor providing them with active drug ingredients.

They also alleged that the company failed to correct the violations and sought to conceal them—resulting in the sale of “misbranded, adulterated drugs,” and that some of the batches of drugs tested positive for microbial contamination and arsenic, chromium, and nickel contaminants, according to court documents.

The Campies alleged that Gilead had been including products from the China-based company for two years prior to getting government approval to work with that source.

Gilead has argued that the case should be dismissed because the Campies could not prove “materiality.” In other words, the government didn’t stop paying for the drugs—for example, through Medicare or Medicaid—or stop the drug’s production once the allegations became known.

“The government’s decision to give Gilead a free pass for selling tainted drugs sourced from an unreliable Chinese manufacturer undermines the private enforcement mechanism of the False Claims Act and the public’s right to expect that all pharmaceuticals sold in commerce are safe and pure,” Friedman said.

Friedman estimates that the case, if successful, could require Gilead to repay more than $100 million in improper charges for contaminated drugs. The Campies stand to receive as much as 30% of any payout.

Authority to Dismiss

The FCA grants the government broad authority to dismiss cases brought on its behalf, said attorney John Boese of Fried Frank in Washington, D.C.

“There is no provision in the statute that says the government has to have a reason,” he said. “It’s very easy. It simply says they have the right to dismiss the case.”

The FCA states the government may dismiss a whistleblower’s action “notwithstanding the objections of the person initiating the action if the person has been notified by the government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”

While other courts have held that the government has virtually unfettered discretion to dismiss FCA cases, the Ninth Circuit, where this case is housed, has adopted a less deferential standard.

In addition, the presiding judge in the case was the first ever to deny a government motion to dismiss, said Adams, the former DOJ trial lawyer.

That “bodes well for the relators in the sense that they’re in front of one of the best audiences they could have for this issue,” he said.

Why Dismiss a Meritorious Case?

The government has long been understood to have the authority to dismiss FCA cases brought on its behalf, but it was a rare occurrence prior to a DOJ memo written by Michael Granston, director of the agency’s civil fraud section.

The January 2018 memo recommended government dismissal of FCA cases brought by whistleblowers when the cases lack merit, were “parasitic” efforts by whisteblowers to obtain a windfall, or were likely to impose a disproportionate cost on the government, among other factors.

“Even in non-intervened cases, the government expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate,” he wrote.

Granston also said a decision not to intervene “may be based on factors other than merit, particularly in light of the government’s limited resources.”

Since the Granston memo, the government has moved to dismiss at least 14 cases involving pharmaceuticals, according to a Bloomberg Law analysis. This includes 11 brought by the National HealthCare Analysis Group alleging violations of anti-kickback laws that prohibit improper marketing of drugs to medical professionals.

The group has been criticized for being “professional relators”—whistleblowers who don’t have independent, inside information and instead rely on publicly available or data-mined information to bring their cases in the hopes of a windfall.

Despite the Granston memo, Friedman said his clients “remain fully committed to pursuing the relators’ claims in order to obtain reimbursement of the amounts paid by the taxpayers for the adulterated drugs.”

The case is U.S. ex rel. Campie v. Gilead Sciences, Inc., N.D. Cal., No. 15-16380, government brief filed 8/22/19

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Randy Kubetin at rkubetin@bloomberglaw.com