Ninth Circuit Overturns Dismissal Of False Claims Case Against Gilead, Clarifies Types Of Falsity That Give Rise To Liability

In Campie, former employees of defendant Gilead Sciences alleged Gilead made false claims in regards to its compliance with Food and Drug Administration regulations about certain HIV drugs.  Id. at *3.  They alleged these HIV drugs were not eligible to receive payment or reimbursement from the government due to the defendant’s alleged fraud in receiving FDA approval.  Id. at *3-4. 

For a drug to be approved for sale in the United States, a drug manufacturer must submit a new drug application stating the chemical composition of the drug, the facilities at which it will be manufactured, and the methods used in its production.  Id. at *4-5.  In its NDA, Gilead stated it would source the drugs from specific registered facilities in Canada, Germany, the United States, and South Korea.  Id. at *5.  However, relators allege that Gilead contracted to manufacture the drug at unregistered facilities, and brought the illicit product into the United States claiming it had come from an approved manufacturer in South Korea.  Id. at *5-6. 

The Ninth Circuit identified three theories for pleading violations of the FCA:  (1) Factual Falsity; (2) Implied False Certification; and (3) Promissory Fraud.  It found the complaint plausibly alleged a claim under each theory.  Id. at *14-15.

First, the claims were factually false because the complaint plausibly alleged that Gilead supplied “misbranded goods.”  Id. (citing United States v. Nat'l Wholesalers, 236 F.2d 944, 950 (9th 1956)).  Stating the active ingredient had been manufactured in an approved and registered facility, when that was not true, was a factual false certification.  The court noted the difference between a claim for worthless services, which turns dispositively on the value of the goods at issue, and a claim for nonconforming goods, under which the value of the goods provided is immaterial.  Campie, 2017 U.S. App. LEXIS 12163 *16.  “A claim for nonconforming goods is not limited to situations where there is an express specification in a payment contract.”  Id. at *17.  According to the court, the FCA’s “core purpose would not be served if a defendant could escape liability for delivering nonconforming goods merely because the goods retained some value.”  Id. at *18.  Where the claim is for worthless goods or services, there is no requirement of a false certification or statement.  Id. However, if the claim is for nonconforming goods, the complaint must include allegations of “an intentionally false statement or fraudulent course of conduct that was material to the government’s decision to pay.”  Id.

Second, the court explained the requirements for an implied certification claim in light of the Supreme Court’s 2016 decision in Universal Health Servs., Inc. v. United States (Escobar), __ U.S. __, 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016).  Applying Escobar, the Ninth Circuit held the relators adequately satisfied the falsity requirement under a theory of implied false certification.  Campie, at *21.

The Ninth Circuit also held an implied certification claim can be plausibly alleged even if the fraud is not directed at the payer agency because the False Claims Act “imposes no such limitation.  It is not the distinction between agencies that matters, but rather the connection between the regulatory omissions and the claim for payment.”  Campie at *25.

The Ninth Circuit also rejected Gilead’s claim an implied false certification cannot be made where the product actually provided is approved by the FDA.

Third, the court found the relator adequately alleged a promissory fraud claim under the False Claims Act “because Gilead committed either factually false or impliedly false certification through its representations to the FDA and labeling of its products.”  Id. at *28.  Thus, “each claim was fraudulent even if false representations were not made” in the claims for reimbursement themselves.  Id.

The False Claims Act offers a broad array of legal tools to combat fraud against taxpayers.  The Act is designed to stop all types of schemes which result in the fraudulent receipt of government funds, and Campie is an important case in explaining the reach of the various theories of falsity under the statute.

Thank you to Derek Monte, a summer law clerk at CPM, for his contributions to this post.


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