En Banc Fourth Circuit Affirms Dismissal of False Claims Act Lawsuit and Vacates Panel Opinion

Posted by on October 14, 2022
False Claims Act

We previously reported that the Fourth Circuit, via a 2-1 decision in United States ex rel. Sheldon v. Allergan Sales, LLC, 24 F.4th 340 (4th Cir. 2022), affirmed the dismissal of a False Claims Act (“FCA”) qui tam lawsuit against Forest Laboratories, LLC (“Forest”). The plaintiff alleged that Forest had underpaid states by over $680 million under the Medicaid Rebate Statute by failing to aggregate all the discounts it offered in a distribution channel for its drugs. Instead, Forest had indicated that the best price it offered was the largest discount provided among the entities in that same distribution channel. How a manufacturer calculates its best price is critical in determining what Medicaid rebates it sends to states, affecting how much the federal government sends in Medicaid payments to states. For a full breakdown of the calculation under the Statute, please see our prior post.

Notably, the question before the 3-judge panel of the Fourth Circuit was what standard to apply in assessing a party’s knowledge under the FCA: is it an objective or subjective standard? Siding with several courts, the panel majority—over a vigorous dissent from Judge Wynn—agreed that the FCA requires an objective standard of knowledge. And under that standard, the requisite analysis is whether there is an objectively reasonable interpretation of the statute at issue and whether there are any authoritative guides that provide insight. In applying that standard, the panel majority held that because Forest’s calculation under the Medicaid Rebate Statute was objectively reasonable and there was no authoritative guidance that addressed the calculation, Forest did not have the requisite scienter to be held liable.

In May, the Fourth Circuit granted the plaintiff’s request for a rehearing by the entire Fourth Circuit. After holding contentious oral arguments on September 15, 2022, the full Fourth Circuit issued a per Curiam decision almost a week later, reflecting an evenly split court on the issue. Because of that split, the Fourth Circuit vacated the panel’s opinion and affirmed the district court’s dismissal of the lawsuit.

Despite the even split, the five other circuit courts that have considered the issue are in full agreement: the scienter element of the FCA is an objective standard. This unanimous position notwithstanding, there is a possibility that the Supreme Court will address the FCA’s framework for deciding a party’s knowledge. Recently, in August, the Supreme Court asked the Solicitor General to weigh in on a pending petition for certiorari related to the Seventh Circuit’s view on the issue. See United States ex rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021).

Does the even split among the Fourth Circuit tilt in favor of the Supreme Court’s inclination to crystallize the matter? Or are there too many circuit court decisions in favor of the objective standard that stifles the need for such an opinion? Time will tell.

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