Rehearing Urged for Bad Ninth Circuit Decision

By Anne K. Walsh

In July, as reported here, the Ninth Circuit reversed the lower court’s decision to dismiss a False Claims Act (FCA) case against Gilead Sciences, Inc. Not surprisingly, Gilead timely filed a petition for rehearing or rehearing en banc with the Ninth Circuit, and several groups submitted briefs in support of Gilead, including Pharmaceutical Research and Manufacturers of America, Biotechnology Innovation Organization, the U.S. Chamber of Commerce, and the Washington Legal Foundation.

In its July ruling, the Ninth Circuit determined that the complaint alleged sufficient facts to show “materiality” of the underlying violations to the reimbursement decision. Unlike other appellate courts, the Ninth Circuit did not find FDA’s continued approval of Gilead’s drugs determinative that the alleged violations were not material to reimbursement.

In its petition, Gilead argues that the Ninth Circuit’s ruling is inconsistent with the materiality test set forth by the U.S. Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar. In Escobar, the Court determined that FCA liability does not exist unless the relator demonstrates that the alleged misrepresentation likely induced the government to pay the claim. Thus, according to Gilead, a regulatory violation is not material if the government continues to reimburse for products after knowledge of the violation. Gilead urges the Ninth Circuit to grant the petition for rehearing because its ruling is inconsistent with five circuits (First, Third, Fifth, Seventh, and Tenth), and the Fourth Circuit’s caution against using regulatory violations to support FCA liability.

Gilead and amici also argue that companies would be forced to decide between two impossible choices: 1) continue marketing products that have minor regulatory violations and face potential steep damages and penalties under the False Claims Act; or 2) discontinue those products and deprive patients of important medicines. And if the Ninth Circuit permits the case to proceed, Relators (and their counsel) will file suit against any company with “even inconsequential violations of federal regulatory requirements.” WLF brief, at 19.

According to the Rules of Appellate Procedure, no response may be filed to a petition for an en banc consideration unless the court orders a response. And no timing is set for when the court must decide on the petition. Even if the Ninth Circuit denies the petition to rehear the matter, the lower court may still dismiss the action based on a failure to satisfy the Rule 9(b) heightened pleading standard, which the Ninth Circuit specifically declined to decide.