Silbersher v. Valeant Pharm. Int'l, Inc.

76 F.4th 843

Zachary SILBERSHER, Relator, Plaintiff-Appellant,andUnited States of America, ex rel.; State of California; State of Colorado;State of Connecticut; State of Delaware; State of Florida; State of Georgia;State of Hawaii; State of Illinois; State of Indiana; State of Iowa;State of Louisiana; State of Maryland; State of Michigan; State of Minnesota;State of Montana; State of Nevada; State of New Hampshire; State of New Jersey;State of New Mexico; State of New York; State of North Carolina;State of Oklahoma; State of Rhode Island; State of Tennessee;State of Texas; State of Vermont; State of Washington;Commonwealth of Massachusetts; Commonwealth of Virginia; District of Columbia, Plaintiffs, v. VALEANT PHARMACEUTICALS INTERNATIONAL, INC.;Valeant Pharmaceuticals International; Salix Pharmaceuticals, Ltd.;Salix Pharmaceuticals, Inc.; Falk Pharma GmbH, Defendants-Appellees.

No.20-16176

United States Court of Appeals, Ninth Circuit

Argued and Submitted June 10, 2022 Portland, Oregon

Filed August 3, 2023

Appeal from the United States District Court for the Northern District of California, James Donato, District Judge, Presiding, D.C. No. 3:18-cv-01496-JD

Tejinder Singh (argued), Sparacino PLLC, Washington, D.C.; Bret D. Hembd, Herrera Kennedy LLP, Burbank, California; Nicomedes S. Herrera and Andrew M. Purdy, Herrera Kennedy LLP, Oakland, California; Warren T. Burns, Burns Charest LLP, Dallas, Texas; Christopher J. Cormier, Burns Charest LLP, Washington, D.C.; for Plaintiff-Appellant.

Michelle Lo, Assistant United States Attorney; Office of the United States Attorney; San Francisco, California; for Plaintiffs United States of America, States of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Washington, the Commonwealth of Massachusetts, the Commonwealth of Virginia, and District of Columbia.

Moez M. Kaba (argued), Padraic W. Foran, Daniel C. Sheehan, and Haoxiaohan Cai, Hueston Hennigan LLP, Los Angeles, California; for Defendants-Appellees Valeant Pharmaceuticals International Inc., Valeant Pharmaceuticals International, Salix Pharmaceuticals Ltd., and Salix Pharmaceuticals Inc.

Christian E. Mammen (argued), Womble Bond Dickinson (US) LLP, San Francisco, California; Mary W. Bourke and Kristen Cramer, Womble Bond Dickinson (US) LLP, Wilmington, Delaware; for Defendant-Appellee Dr. Falk Pharma GmbH.

Justin T. Berger, Cotchett Pitre & McCarthy LLP, Burlingame, California; Jacklyn DeMar, Taxpayers Against Fraud Education Fund, Washington, D.C.; for Amicus Curiae Taxpayers Against Fraud Education Fund.

Gordon D. Todd, Kimberly A. Leaman, Christopher S. Ross, and Katy (Yin Yee) Ho, Sidley Austin LLP, Washington, D.C.; Jack E. Pace III and Peter J. Carney, White & Case LLP, New York, New York; for Amici Curiae Johnson & Johnson and BTG International Ltd.

Before: Mary M. Schroeder and Gabriel P. Sanchez, Circuit Judges, and John Antoon II,^* District Judge.

OPINION

SANCHEZ, Circuit Judge:

This appeal presents the question whether the public disclosure bar to the False Claims Act ("FCA") applies to Zachary Silbersher's claims against Dr. Falk Pharma GmbH and drugmaker Valeant Pharmaceuticals International, Inc. (collectively, "Valeant").¹ Silbersher alleges that Valeant fraudulently obtained two sets of patents related to the anti-inflammatory drug Apriso and asserted these patents to stifle competition from generic drugmakers. Silbersher further alleges that defendants defrauded the government by charging an artificially inflated price for Apriso while falsely certifying that the drug's price was fair and reasonable. The district court dismissed Silbersher's qui tam action under the public disclosure bar. See 31 U.S.C. § 3730(e)(4)(A). This case requires us to examine Congress's 2010 amendments to the FCA's public disclosure bar and to determine whether Silbersher's claims are "substantially the same" as information that was publicly disclosed in one of three enumerated channels under the FCA. See id. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse.²

I. BACKGROUND

A. False Claims Act

The False Claims Act imposes civil liability on anyone who "knowingly presents" a "fraudulent claim for payment" to the federal government. 31 U.S.C. § 3729(a)(1)(A); accord United States ex rel. Mateski v. Raytheon Co., 816 F.3d 565, 569 (9th Cir. 2016). Known as "Lincoln's Law," Congress passed the Act at President Lincoln's request to combat fraud by Civil War defense contractors. See United States ex rel. Bennett v. Biotronik, Inc., 876 F.3d 1011, 1013 n.1 (9th Cir. 2017). The Act allows private citizens, referred to as "relators," to bring fraud claims on the government's behalf against those who have violated the Act's prohibitions. United States ex rel. Silbersher v. Allergan, 46 F.4th 991, 994 (9th Cir. 2022); see 31 U.S.C. § 3730(b)(1).³ If the government declines to proceed, the relator may prosecute the action and, if successful, recover up to thirty percent of the damages. 31 U.S.C. §§ 3730(b)(4), (d)(2).

The promise of bounty has sometimes incentivized relators to bring dubious claims. The Supreme Court's decision in United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), provides the paradigmatic example of a "parasitic" qui tam suit. Hess brought a qui tam action alleging that electricians colluded to inflate prices by coordinating their bids on government contracts. Id. at 539, 63 S.Ct. 379. Before Hess's qui tam action, the government had already indicted the electricians for the same scheme and the electricians entered a plea bargain requiring them to pay $54,000 in fines. Id. at 545, 63 S.Ct. 379. Spotting an opportunity, Hess copied the government's indictment and brought a qui tam action against the electricians seeking hundreds of thousands of dollars in damages. Id. The Court allowed Hess's suit to stand, reasoning that the action advanced "one of the purposes for which the [FCA] was passed" because it promised "a net recovery to the government of $150,000, three times as much as the fines imposed in the criminal proceedings." Id. at 545, 63 S.Ct. 379.

"Hess inspired public outcry over the liberality of the qui tam provisions that prompted speedy congressional response." United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 650 (D.C. Cir. 1994). In 1943, President Roosevelt signed amendments to the FCA that barred qui tam claims "based upon evidence or information in the possession" of the federal government. 31 U.S.C. § 232(C) (1945). Congress later determined, however, that this "government knowledge" bar prevented too many relators from bringing potentially meritorious claims. See Mateski, 816 F.3d at 570. In 1986, Congress replaced the government knowledge bar with the "public disclosure" bar. 31 U.S.C. § 3730(e)(4)(A) (1986). The change reflected Congress's effort "to encourage suits by whistle-blowers with genuinely valuable information, while discouraging litigation by plaintiffs who have no significant information of their own to contribute." Mateski, 816 F.3d at 570.

The 1986 public disclosure bar prevented qui tam claims "based upon" public disclosures "in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media," unless the relator was an "original source" of the disclosure.⁴ 31 U.S.C. § 3730(e)(4)(A) (1986); see Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 412, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011). The public disclosure bar applied when three conditions were met: "(1) the disclosure at issue occurred through one of the channels specified in the statute; (2) the disclosure was 'public'; and (3) the relator's action is 'based upon' the allegations or transactions publicly disclosed." United States ex rel. Solis v. Millennium Pharms., Inc., 885 F.3d 623, 626 (9th Cir. 2018) (quoting Mateski, 816 F.3d at 570) (analyzing the 1986 version of the public disclosure bar).

Congress made important changes to the public disclosure bar in 2010. As amended, the bar precludes qui tam actions if:

substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—

(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

(ii) in a congressional, Government Accountability Office, or other Federal Report, hearing, audit, or investigation; or

(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.⁵

31 U.S.C. § 3730(e)(4)(A) (2010). We recently concluded in Allergan that our three-part test for determining whether the public disclosure bar applies to a qui tam action remains good law after the 2010 amendments. See Allergan, 46 F.4th at 996.

The 2010 amendments narrowed the requirements for triggering the public disclosure bar in several important respects. Previously, the public disclosure bar was triggered if the qui tam action was based upon information publicly disclosed in any "criminal, civil, or administrative hearing." See 31 U.S.C. § 3730(e)(4)(A) (1986); see also A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1243-44 (9th Cir. 2000) (applying public disclosure bar to information disclosed in county public bidding proceeding). Now, only a "Federal criminal, civil, or administrative hearing" qualifies as a specified channel (i) disclosure. 31 U.S.C. § 3730(e)(4)(A)(i) (2010) (emphasis added); see also Allergan, 46 F.4th at 998-99. Likewise, for a "report, hearing, audit, or investigation" to trigger the public disclosure bar under channel (ii), it must now be "Federal." Compare 31 U.S.C. § 3730(e)(...