Second Circuit Will Decide Whether Relators Can Avoid Dismissal Under The First-to-File-Rule by Amending Their Complaints

September 18, 2017Insight
Dinsmore on FCA

The Second Circuit Court of Appeals recently granted a petition for interlocutory review to decide whether a violation of the FCA’s first-to-file rule can be cured by filing an amended pleading.  Both the D.C. Circuit and Fourth Circuit1 recently addressed this issue, concluding that the plain language of the first-to-file rule precludes amending around the rule.2  Given the growing circuit split on this issue, it will be interesting to see if the Second Circuit follows the D.C. Circuit’s and Fourth Circuit’s well-reasoned textual analysis or sides with courts that have come out differently, such as the First Circuit and Seventh Circuit.3

In United States ex. Rel. Wood v. Allergan, Inc., No. 10-CV-5645 (S.D.N.Y.), Relator John Wood brought FCA claims against Allergan, Inc. (Allergan) alleging that Allergan provided free drugs to physicians to induce the physicians to prescribe Allergan drugs to their patients, most of whom were Medicare and Medicaid recipients.  However, Wood was not the first relator to bring FCA claims against Allergan – two prior actions were pending under seal when Wood filed his complaint (as well as a first amended and second amended complaint). By the time the Wood complaint was unsealed, the prior two actions had been dismissed. The government decided not to intervene, and Wood subsequently filed a third amended complaint. Thus, there was a pending action when Wood filed his complaint but not when Allergan sought dismissal under the first-to-file rule.

The FCA’s first-to-file rule states “[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  31 U.S.C. § 3730(b)(5).  Allergan filed a motion to dismiss on several grounds, including that the Wood complaint violated the first-to-file rule because two prior actions were pending when Wood initially filed his claims. Notably, the statute of limitations had expired on most of Wood’s claims while his case was under seal; thus, if the district court granted Allergan’s motion to dismiss and dismissed the action without prejudice, Wood would effectively be precluded from re-filing due to the expired statute of limitations.

At the district court level, determining whether the first-to-file rule required dismissal of Wood’s action involved consideration of whether the first-to-file rule is jurisdictional, and whether a violation of the first-to-file rule can be cured through an amended or supplemental pleading under Rule 15. First, the district court concluded that the first-to-file rule is not jurisdictional, noting that this holding conflicts with a majority of circuits that have already addressed this issue. (However, the district court’s holding was legitimized soon after when the Second Circuit also ruled that the first-to-file rule is not jurisdictional).  Second, the district court found that a violation of the first-to-file rule does not require dismissal and can be cured through an amended or supplemental pleading.  The district court reasoned that other courts’ holdings that a first-to-file rule violation cannot be cured were premised on the belief that first-to-file rule is jurisdictional in nature. Since the district court had already held that the first-to-file rule was non-jurisdictional, it concluded that amendment should be allowed because courts routinely allow plaintiffs to cure non-jurisdictional defects by filing amended or supplemental pleadings. The district court also cited policy considerations, noting that the primary purpose of the FCA is to assist the government in fighting fraud and in its view barring Wood’s complaint undermined that goal.  (Note: other courts, including the D.C. Circuit in Shea, focused on the text of the first-to-file rule not whether it is jurisdictional, reasoning that the bar on bringing a related “action” when an earlier-filed suit is pending makes that later-filed action “incurably flawed” when it is filed and therefore unsuitable for amendment.)

The district court ultimately denied Allergan’s motion to dismiss. However, recognizing the divide among federal courts regarding whether a violation of the first-to-file rule could be cured by an amended pleading, the district required the parties to meet and confer to discuss whether an interlocutory appeal would be appropriate. Allergan subsequently moved for interlocutory certification of the court’s order, culminating in the Second Circuit’s recent decision to consider the issue.

1 United States ex rel. Carter v. Halliburton Co., 866 F.3d 199, 2017 U.S. App. LEXIS 13867, at *22 (4th Cir. 2017); United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923 (D.C. Cir. 2017).

2 We wrote about the D.C. Circuit case.

3 See U.S. ex rel. Chovanec v. Apria Healthcare GRP Inc., 606 F.3d 361, 362 (7th Cir. 2010); U.S. ex rel. Gadbois v. Pharmerica Corp., 809 F.3d 1, 6 (1st Cir. 2015).