First Circuit Sides With Greene LLP Over $34 Million Whistleblower Award

Reversing a District Court decision that had found a different False Claims Act relator first to file, the First Circuit Court of Appeals on Monday issued a decision agreeing with Greene LLP client Mark McGuire that he was the first relator to file the essential facts of two drug testing laboratory schemes that resulted in a $227 million settlement with Millennium Laboratories. The 2015 settlement reached by the United States and several states with Millennium had required McGuire and relators in six other False Claims Act cases to dismiss their claims, but it did not resolve which of the relators was entitled to a 15% relator share from the settlement.

The 2015 settlement resolved claims that Millennium had caused physicians to order confirmation urine drug testing from Millennium without individualized assessments of need, and that Millennium had provided free point-of-care testing cups to providers as kickbacks in violation of the Anti-Kickback Statute. McGuire had argued that his case was the first of the seven False Claims Act cases to have alleged the essential facts of the fraudulent scheme, even though one of the cases had been filed in 2009, more than two years before McGuire filed suit in January 2012. Ultimately, the First Circuit agreed with McGuire’s position.

“The First Circuit’s ruling is consistent with the goals of the False Claims Act, which is carefully balanced to provide the United States with the maximum number of actionable cases,” said Greene. The False Claims Act encourages those with knowledge of fraud on the government to bring it to the government’s attention, authorizing private persons to file suit on the government’s behalf and providing for an award of 15% to 30% of any resulting recovery. “The first to file bar gives teeth to the statute’s award provisions, protecting the interest of the relator who is first to plead the essential facts of a fraudulent scheme,” said Greene. “Without that protection, relators may be less willing to file suit, or less willing to vigorously investigate and prosecute False Claims Act cases.”

The First Circuit agreed, ruling that the incentive to dig out facts and launch a False Claims Act action is weakened by allowing follow-on filers to siphon off the first-filed suit’s proceeds. The litigation shows that the statute’s first to file bar and the “essential facts” test used by the First Circuit to apply the bar serves as a yardstick for comparing False Claims Act suits brought by different relators. It can be used to determine that an earlier-filed case, like the 2009 suit against Millennium filed by Robert Cunningham, is not responsible for a later recovery. It can also be used to protect the interests of a whistleblower like McGuire, whose allegations about Millennium were echoed in later-filed cases by other whistleblowers, at least to a degree.

At the time he filed his case in January 2012, McGuire was the director of a large laboratory that conducted 1.1 million tests a year for a network of hospitals in Massachusetts. Millennium attempted to solicit the lab’s business from McGuire in October 2011, meeting with him regularly and detailing how it could help increase the lab’s testing and revenue with so-called “custom profiles.” McGuire alleged that Millennium encouraged or required health care providers to execute these “custom profiles” with a battery of a minimum number of confirmation tests that Millennium would run on any urine samples sent to it by providers—with no assessment of which tests, if any, were appropriate confirmation tests for particular patients. McGuire also alleged that Millennium provided point-of-care testing cups to providers in order to solicit confirmation tests, in violation of the Anti-Kickback Statute.

McGuire’s complaint and later-filed complaints, including the United States’ complaint in intervention, alleged that after a change in CMS regulations that was effective January 2011, Millennium sought to make up for lost revenue with these two schemes: custom profiles with a required minimum of tests, and kickbacks in the form of point-of-care testing cups. They alleged that the schemes were enacted around August 2011 at the company’s highest levels.

The First Circuit’s decision in U.S. ex rel. McGuire, et al. v. Millennium Laboratories, Inc. was the culmination of a three-and-a-half year effort for McGuire, who had sought a declaration that he was the first to file relator on the United States claims and the claims on behalf of all but one state. Ultimately, the First Circuit determined that McGuire’s suit was not blocked by the earlier-filed Cunningham suit, that the Cunningham suit did not include the essential elements of the fraud alleged by McGuire, and that “the fraud the government pursued was that alleged by McGuire.”

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