Wednesday, October 09, 2013

Strictly Business: The Ugly Side of Qui Tam Actions


Over the years, more than a few colleagues have told us that the Godfather movies contain every bit of wisdom needed to conduct business or practice law.  Whenever we are involved in tough negotiations (with our clients, with our adversaries, with our teen-aged children), we cannot help but think of that moment in Godfather 2 when a U.S. Senator is trying to shake down Michael Corleone.  The Senator agrees to pull a few strings to get a Nevada casino gaming license for the Family, but his price is way, way above the standard $20,000 license fee. Why is the Senator asking for so much more?  Because he can.  And because he makes no bones about how much he despises Corleone for his criminality and, perhaps even more, for his ethnicity.  The Senator wants a response to his extortionate offer by noon the next day.  Before the Senator can walk out the door, Michael Corleone (Pacino at his most chilling – so much better than the hoo-haa-ing bellower he later became),  calmly tells the Senator that he can have the answer right now:  “My offer is this: nothing.  Not even the fee for the gaming license, which I would appreciate if you would put up personally.”  The Senator ends up complying. But only after Corleone sets him up in a scenario reminiscent of that boast by Edwin Edwards that the only way he wouldn’t be re-elected as Governor of Louisiana was if he was found in bed with a “dead girl or a live boy.”

 

We do not usually have that sort of leverage available in our negotiations.  But when we prosecuted cases we often had decent ammo.  Fingerprints, recordings, and FBI agents knocking on doors at 6 am can all be very persuasive.  Sometimes our hand was strengthened in more unusual ways.  Once we secured a guilty plea by threatening to dismiss the case.  The defense lawyer knew that if we dismissed the case, the matter would go stateside, where California’s three-strikes rule would likely produce a much longer sentence.  Plus, state prisons are nastier than the federal ones.

 

We wonder how much fun the feds had in their negotiations with the whistleblowers in the qui tam case of U.S. ex. rel. Piacentile v. Amgen Inc., et al., 2013 U.S. Dist. LEXIS  141073 (E.D.N.Y. Sept. 30, 2013).  That case involved ten qui tam actions alleging claims under the False Claims Act against a pharmaceutical company.  Two of the relators were Piacentile and Kilcoyne.  They claimed to be whistleblowers and they wanted a big part of the settlement of the matter.  What’s that phrase about pigs getting fat and hogs getting slaughtered?  Piacentile and Kilcoyne wanted to get very, very fat off the qui tam settlement, but they ended up getting … er, disappointed.  The Piacentile case offers a little window into the ugly side of the qui tam business.

 

Piacentile alone filed the initial complaint in this action.  The court tells us early on that Piacentile is a physician previously convicted of one count of conspiracy to make false statements in claims against Medicare, and one count of income tax evasion.  After his convictions, Piacentile “gained notoriety as a repeat whistleblower.  According to the government, Piacentile has filed at least 14 qui tam actions since 2004.”  Piacentile, 2013 U.S. Dist. LEXIS 141073 at *2.  Piacentile was not ever employed by Amgen.  So how could he qualify as a whistleblower?  Through enterprise and hubris.  “For the last seven years, Piacentile has operated a website, whistleblowersagainstfraud.com, through which he allegedly ‘partners’ with other relators.”  Id. at *3.   In 2007, Piacentile joined Kilcoyne, a former company sales representative, as a relator in April of 2007.  Why does the court tell us about the strange and messy background of Piacentile?  Possibly because it did not like the idea of the qui tam statute being turned into a shakedown operation.  Guess what -- a lot of litigation against our clients ends up being a shakedown operation.  But we digress.   

  

The case and the investigation took several years.  In 2011, the company, the government, and others arrived at a settlement totaling $780,000,000 in civil and criminal penalties.  The government offered Piacentile/Kilcoyne approximately $1.8 million of this amount.  Piacentile and Kilcoyne rejected that offer.  They wanted more.  At this point, the government pulled a Michael Corleone.  At least, that is how we imagine it.  The counteroffer was now this:  nothing.

 

The government brought a motion to dismiss the Third Amended Complaint, arguing that (1) it simply has the unqualified right to do that and, (2) even if it needed good cause, it had such good cause because Piacentile/Kilcoyne did not bring viable claims, or other people brought them first, or the Piacentile/Kilcoyne allegations failed to provide the government with a fruitful lead.  In other words, the “de minimus” amount offered (and the court acknowledged the weirdness of calling $1.8 million “de minimus”) was more than fair considering the low value of what Piacentile/Kilcoyne had done.

 

The government had a big hammer in its hands, and that hammer was the clear language of Section 3730 (c)(2)(4), entitled “Rights to the parties to qui tam actions.”  That section provides that “The Government may dismiss the 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.”  There is no good cause requirement in that language.  The court was persuaded that the inquiry could end there.  The government wanted to end the qui tam action.  It gave notice to the relators.  There was a hearing.  That’s it.  No further explanation is required.  Once again, we feel like quoting Michael Corleone:  “Don't ask me about my business.” 

 

The Piacentile court did the smart thing and supplied an alternative basis for its ruling, just in case Piacentile/Kilcoyne decide to file one of those pesky appeals.  The government had excellent grounds for ending this case, no matter what Piacentile/Kilcoyne wanted or said.  To begin with, the government was sick of expending resources on the case.  The first of these qui tam actions was filed in 2004, and an eight year investigation ensued, involving a review of over  9,000,000 documents and interviews of more than 250 people.  Id. at *10.  The court showed an acute sensitivity to economic reality:  “The vise of budget sequestration has had the federal government’s agencies in its grip for the past six months and it is tightening.  People are being laid off, fewer people are being hired, mandatory furloughs have been imposed, and wages have been reduced….  In this age of austerity, the coffers from which the government drew in order to investigate Amgen for eight years are no more.”  Id. at *10-11.  Moreover, the government also determined that claims by Piacentile/Kilcoyne were unsupportable.  “Simply put, that is enough.”  Id. at *10.  Even if the government’s right to dismiss ought to be conditioned on a demonstrable nexus to a valid government purpose, that nexus was present.

 

Piacentile and Kilcoyne did not put up any sort of opposition that troubled the court even a little bit.  Kilcoyne conclusorily argued that the government’s actions have been “arbitrary and capricious.”  Id. at *11.  But Kilcoyne cited precious little evidence or case law in support of that argument.  It amounted to not much more than “I don’t like it.”  Piacentile and Kilcoyne also argued that the government cannot dismiss qui tam claims that have settled.  One problem with that:  in the settlement document the government carved out the conduct alleged by Piacentile and Kilcoyne.  Basically the government told Piacentile and Kilcoyne that it didn’t see any substance to their allegations, but they could knock themselves out and pursue them on their own to their heart’s content.  If something was ever substantiated, the government could reinstate the action.  Could happen.  But don’t bet on it. 

  

In the meantime, the court granted the government’s motion to dismiss, “and to the extend [sic] Relators with to amend the Third Amended Complaint, that motion is denied as futile.”  Id. at *13.    

 

Maybe the  government made the Relators an offer they shouldn’t have refused.     

 

 

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