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United States Court of Appeals for the Fourth Circuit
October 28, 2021, Argued; January 25, 2022, Decided
WILKINSON, Circuit Judge:
Plaintiff Troy Sheldon filed a False Claims Act qui tam suit against his employer, Forest Laboratories, LLC. He alleged that Forest engaged in a fraudulent price reporting scheme under the Medicaid Drug Rebate Statute, 42 U.S.C. § 1396r-8, by failing to aggregate discounts given to separate customers for purposes of reporting "Best Price." Because Forest's reading of the Rebate Statute [*3] was at the very least objectively reasonable and because it was not warned away from that reading by authoritative guidance, it did not act "knowingly" under the False Claims Act. As a result, we affirm the district court's dismissal of Sheldon's complaint.
We thank our friend for his thoughtful dissent. We do of course agree with him that "[t]he False Claims Act is the government's primary litigative tool for the recovery of losses sustained as the result of fraud against the government." Dissenting Op. at 32 (quoting Avco Corp. v. U.S. Dep't of Just., 884 F.2d 621, 622, 280 U.S. App. D.C. 182 (D.C. Cir. 1989)). Regrettably, despite all protestations, the dissent nullifies the whole concept of scienter about which the Supreme Court has shown an especial solicitude. The FCA unquestionably has a punitive aspect, and the kinship between civil scienter and criminal mens rea in this case is closer than Sheldon or the dissent is willing to acknowledge.
Sheldon's position takes the FCA a very long step toward a strict liability statute. It conflates factual fraud and legal fraud, thereby facilitating steep liability for those whose factual representations are not alleged to be either false or duplicitous and those whose legal position is not only arguable but correct. Sheldon does not so much as allege reckless [*4] disregard or deliberate indifference or nefarious knowledge here with respect to, in the operative word of the statute, the "information." 31 U.S.C. § 3729(b)(1)(A). Yet the relator's position instead makes sinister actors out of parties who have followed the law in every respect and sought administrative guidance where none was ever provided. Given the veritable thicket of Medicaid regulations, it is not too much to expect something more in the way of clarity and direction than was ever offered here. To reward the state with treble damages for this treatment of parties in the private sector is something no court should do.
Sheldon would disregard Judge Hollander's sound counsel that the Rebate Statute's "plain and natural reading" did not require aggregating discounts, along with her sensible conclusion that there was not "a single example where CMS explicitly state[d] that manufacturers must aggregate discounts to different customers along the supply chain in a given sale." United States ex rel. Sheldon v. Forest Laboratories, LLC, 499 F. Supp. 3d 184, 209, 211 (D. Md. 2020). Sheldon in addition recommends we ignore all our sister circuits which have followed the framework that the Supreme Court has set forth in Safeco Insurance Co. of America v. Burr, 551 U.S. 47, 127 S. Ct. 2201, 167 L. Ed. 2d 1045 (2007), thus opening wide a stark circuit split. See United States ex rel. Schutte v. SuperValu Inc., 9 F.4th 455, 459 (7th Cir. 2021); United States ex rel. Streck v. Allergan, Inc., 746 F. App'x 101, 106 (3d Cir. 2018); United States ex rel. McGrath v. Microsemi Corp., 690 F. App'x 551, 552 (9th Cir. 2017); United States ex rel. Donegan v. Anesthesia Assocs. of Kansas City, PC, 833 F.3d 874, 879-80 (8th Cir. 2016); United States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 290-91, 420 U.S. App. D.C. 176 (D.C. Cir. 2015). Moreover, Sheldon proposes to disregard [*5] the Supreme Court's insistence that the concept of scienter be given "rigorous" application, Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 136 S. Ct. 1989, 2002, 195 L. Ed. 2d 348 (2016), and the dissent dismisses as "dictum" Supreme Court guidance which it finds inconvenient, Dissenting Op. at 31. All this—at all three levels of the judicial system—Sheldon and the dissent would overturn, in deference to a view that is not sustainable under law or under any notion of notice and due process with which we are familiar.
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2022 U.S. App. LEXIS 2310 *; 24 F.4th 340
UNITED STATES EX REL. DEBORAH SHELDON, Executrix of the Estate of Troy Sheldon, United States of America, ex rel., Plaintiff — Appellant, v. ALLERGAN SALES, LLC, Defendant — Appellee.UNITED STATES OF AMERICA; TAXPAYERS AGAINST FRAUD EDUCATION FUND, Amici Supporting Appellant. WASHINGTON LEGAL FOUNDATION; CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA, Amici Supporting Appellee.
Prior History: [*1] Appeal from the United States District Court for the District of Maryland, at Baltimore. (1:14-cv-02535-ELH). Ellen L. Hollander, Senior District Judge.
United States ex rel. Sheldon v. Forest Labs., LLC, 2020 U.S. Dist. LEXIS 249501 (D. Md., Nov. 5, 2020)
rebates, manufacturer, best price, entities, discounts, majority opinion, scienter, warned, recklessness, Medicaid, aggregate, prices, regulation, knowingly, customers, lowest price, deliberate, violations, scienter requirement, wholesaler, objectively reasonable, reckless disregard, district court, calculating, damages, false claim, common law, authoritative, ignorance, actual knowledge
Public Health & Welfare Law, Providers, Payments & Reimbursements, Drug Companies & Pharmacies, Medicaid, Coverage, Pharmaceutical Services, Labor & Employment Law, Employer Liability, False Claims Act, Burdens of Proof, Business & Corporate Compliance, Public Contracts Law, Voiding Contracts, Fraud & Whistleblowing, Governments, Federal Government, Claims By & Against, Remedies, Costs & Attorney Fees, Scope & Definitions, Qui Tam Actions, Civil Procedure, Appeals, Standards of Review, De Novo Review, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Legislation, Interpretation, Scope & Definitions, Courts, Authority to Adjudicate, Patent Law, Jurisdiction & Review, Standards of Review, Protected Activities, Constitutional Law, Fundamental Rights, Procedural Due Process, Scope of Protection, Local Governments, Judicial Precedent, Administrative Law, Agency Rulemaking, State Proceedings