The defense response to so many plaintiff allegations amounts to: so what? What difference did the complained of conduct make? Think of medical causation. Or think of warning causation in the context of a learned intermediary. In securities cases or, closer to our DDL hearts, False Claims Act cases, the ‘so what’ arrives dressed in the garb of materiality.
The recent False Claims Act case of United States ex rel. Yu v. Grifols, USA, LLC, 2021 U.S. Dist. LEXIS 235240 (S.D.N.Y. Dec. 8, 2021), turns on materiality. The plaintiff — really the relator, as will be explained below — was a former quality assurance manager at the defendant’s Los Angeles facility, which manufactured a drug that was used to treat chronic autoimmune disorders. He morphed into a whistle-blower, alleging that there were a number of “discrepancies” in the company’s system, that those discrepancies deviated from current Good Manufacturing Practices (cGMP), that those discrepancies could lead to inaccurate testing and adulterated product, and that the company’s failure to disclose the discrepancies cheated the government out of money. He filed a False Claims Act. He was listed as the Relator who was bringing the case on behalf of the government. That is why the case is titled “United States ex rel. Yu.” But the government declined to intervene, which usually signals a weakness in the case. The court seemed to agree that the case was weak. It was so weak, in fact, that it was dismissed.
First, the court held that the relator had failed to allege that any claims for governmental reimbursement or payment contained statements material to the allegedly fraudulent claims. The court followed the 2016 Escobar case, in which SCOTUS discussed the “demanding” materiality standard that applied when a plaintiff asserted the “implied certification” theory. Under that theory, when a defendant submits a claim to the government, it impliedly certifies compliance with all conditions of payment. The relator in ex rel. Yu pointed to the defendant’s noncompliance with cGMP. But the court in ex rel. Yu held that any payment by the government was not conditioned on GMP compliance, but, rather, on overall FDA approval of the facility, which was always present. Moreover, materiality was undermined by the fact that the FDA had known all about the relator’s claims for years and never acted on them. While at one point some of the product in question was recalled, the dots were not connected with cGMP noncompliance, and the complaint failed to tie the recall to anything the relator was alleging. All that the False Claims complaint offered was speculation that cGMP violations “may” or “could” have negative consequences. That is not sufficient. (We have written many blogposts about plaintiffs who propped their product liability claims on vague allegations of cGMP violations. See here and here, for example.)
Second, the court rejected the relator’s theory that the defendant had fraudulently induced the FDA’s approval of the Los Angeles manufacturing facility. That theory looks and quacks like the sitting duck that courts routinely shoot down: claims of fraud on the FDA. Whether traveling in a cause of action for product liability or the False Claims Act, fraud on the FDA is not something courts are well positioned to decide. Rather, that determination is within the competence of the FDA itself. The concern about stepping on the FDA’s competence was particularly profound in this case, where the FDA had not withdrawn the allegedly fraudulently induced approval of the facility. Further, “[g]iven that Relator alleges only speculative harms resulting from the alleged cGMP violations, the Court sees no basis in Relator’s allegations to supplant the FDA’s decision-making with that of a court or jury.” In addition, fraudulent inducement is solely a contract-based theory under the FCA. But here, the relator’s allegations of contractual relations between the defendant and the FDA were vague. Actually, it appeared that the FDA was not a contracting party, but rather an independent regulator. In any event, there was no basis in law or policy to permit the relator to launch a collateral attack on the FDA’s approval of the facility.
Finally, the ex rel. Yu court dismissed the “reverse false claim.” Such a cause of action seeks redress, not for funds paid by the government based on some fraud, but for funds that should have been paid to the government but weren’t because the party owing money to the government dodged the payment via fraud. That claim was dismissed here as being circular because the alleged repayment allegations were dependent on the initial fraud allegations that were already dismissed. All of those fraud allegations were greeted with a “so what?” The relator did not muster up an adequate answer.