United States v. Sanofi-Aventis U.S. LLC

226 A.3d 1117

UNITED STATES of America, State of California, State of Colorado, State of Connecticut, State of Delaware, District of Columbia, State of Florida, State of Georgia, State of Illinois, State of Indiana, State of Iowa, State of Louisiana, Commonwealth of Massachusetts, State of Michigan, State of Minnesota, State of Montana, State of Nevada, State of New Jersey, State of New York, State of North Carolina, State of Oklahoma, State of Rhode Island, State of Tennessee, Commonwealth of Virginia, State of Washington, State of Wisconsin, ex rel. JKJ Partnership 2011 LLP, Relator Below, Appellant,

v.SANOFI-AVENTIS U.S. LLC, Sanofi-Aventis U.S. Services, Inc., Aventis, Inc., Aventis Pharmaceuticals, Inc., Bristol-Myers Squibb Company, Bristol-Myers Squibb Pharmaceuticals Holding Partnership, Defendants Below, Appellees.

No. 256, 2019

Supreme Court of Delaware.

Submitted: January 15, 2020

Decided: March 17, 2020

Jessica Zeldin, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware; Of Counsel: William H. Narwold, Esquire, Mathew P. Jasinski, Esquire (argued), Motley Rice LLC, Hartford, Connecticut; W. Scott Simmer, Esquire, Baron & Budd, P.C., Washington, District of Columbia for Appellants.

Kenneth J. Nachbar, Esquire (argued), Coleen W. Hill, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; Of Counsel: Anand Agneshwar, Esquire, Arnold & Porter Kaye Scholer LLP, New York, New York; John P. Elwood, Esquire, Kirk Ogrosky, Esquire, Daniel S. Pariser, Esquire, Murad Hussain, Esquire, Anna K. Thompson, Esquire, Arnold & Porter Kaye Scholer LLP, Washington, District of Columbia for Appellees.

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR and MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

VALIHURA, Justice:

We are asked by the United States Court of Appeals for the Third Circuit to answer three questions of law certified to us in accordance with Delaware Supreme Court Rule 41 (the "Questions"):

1. A limited liability partnership is formed to file and prosecute a specific lawsuit. Its formational documents say both that the partnership is not "a separate legal entity distinct from its Partners" under 6 Del. Code § 15-201(a) and that the "withdrawal of a Partner shall not cause a dissolution of the Partnership." If one of the partners leaves the partnership and a new partner joins, does it stay the same partnership? Or is it a new partnership?

2. If a "new" partnership was created upon the limited liability partnership's change in membership, was the "old" partnership terminated immediately such that it was actually the "new" partnership that filed the second amended complaint? Or did the "old" partnership continue to exist long enough in the winding-up process to file the second amended complaint?

3. If the "old" limited liability partnership did not survive the membership change, may the original partners continue to prosecute the lawsuit as part of the "winding up" process?

The Questions arise in connection with the prosecution of a qui tam action under the False Claims Act ("FCA"),¹ In re: Plavix Marketing, Sales Practices and Products Liability Litigation (No. II) ,² brought against Sanofi-Aventis U.S. LLC, Sanofi-Aventis U.S. Services, Inc., Aventis, Inc., Aventis Pharmaceuticals, Inc., Bristol-Myers Squibb Company, and Bristol-Myers Squibb Pharmaceuticals Holding Partnership (together, the "Defendants"). The relator bringing the action, on behalf of the United States and several states, is JKJ Partnership 2011 LLP, a Delaware limited liability partnership. The partnership consists of three individuals who allegedly are each an "original source" of knowledge upon which the allegations against Defendants are based.

The Questions arose when one of the partners was replaced by another partner, and an amended complaint was filed shortly thereafter. Upon the filing of the amended complaint, the Defendants moved to dismiss, alleging, in-part, that replacing the partner was impermissible the under the FCA's "first-to-file" bar. The United States District Court for the District of New Jersey (the "District Court") granted the motion on that ground. The partnership appealed to the Third Circuit, which, in turn, certified the Questions that relate to the "construction or application of" a Delaware statute "which has not been, but should be, settled by" this Court.³

This is the opinion of the Court on the certified questions.

I. Factual and Procedural Background

A. The Qui Tam Litigation

Under our Rule 41, we rely only upon the undisputed facts. However, we provide some background from the District Court's May 30, 2018 Opinion (the " Opinion"),⁴ as supplemented by the record before us, purely to provide context for the reader.

On October 26, 2011, two doctors and a Sanofi sales representative formed JKJ 2011 Partnership LLP ("JKJ"), a Delaware limited liability partnership. According to JKJ's Partnership Agreement (the "Partnership Agreement"), JKJ was formed "to file and prosecute" a whistleblower action against the Defendants.⁵

Section 1.03 of the Partnership Agreement states that "the Partnership shall not be a separate legal entity distinct from its Partners."⁶ The District Court explained the likely reason for this provision:

Although the Third Circuit has not resolved the issue, the consensus of persuasive precedent suggests that, were JKJ a separate legal entity, the fact that it did not exist at the time the alleged fraud occurred would prevent it from being an "original source" with direct knowledge of the fraud under the pre-amendment FCA.⁷

On November 4, 2011, nine days after it was formed, JKJ filed the original qui tam complaint (the "Complaint") in the District Court, alleging that the Defendants failed to disclose, as required by law, certain information regarding Plavix,® an antiplatelet drug used to prevent heart attacks and strokes. The Complaint kept the partners' identities anonymous, identifying them as "Partner A," "Partner B," and "Partner C." The Partnership Agreement identified the partners as Jeffrey Stahl, Kelly Wood, and John Venditto.⁸

On February 22, 2017, JKJ filed a second amended complaint (the "SAC"), further developing its claim of Plavix's ® ineffectiveness for certain patients based on their genetic makeup. JKJ alleges that Defendants made affirmative misrepresentations by "systematically and deliberately promot[ing] Plavix through false and misleading advertising [and other marketing materials] that overstated [the drug's] efficacy, and minimized critical adverse event and risk information. Defendants would brand this their ‘Expand and Protect’ strategy."⁹ JKJ alleges that Defendants created a logo used on Sales and Marketing material to reflect this strategy.¹⁰ According to JKJ, based upon this strategy, "Defendants ‘protected’ Plavix by selling the drug's safety and efficacy in all patients in spite [of] the fact that Defendants knew it was false."¹¹

After filing the Complaint, but before filing the SAC, Partner B (John Venditto) withdrew from JKJ, and was replaced by Dr. Paul A. Gurbel ("Partner G"). On August 9, 2017, the District Court, sua sponte , requested that the parties brief the question of whether JKJ was a proper relator capable of continuing the litigation in light of the replacement of Partner B with Partner G.

In response to the Court's inquiry, on October 11, 2017, Defendants filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and Fed. R. Civ. P. 12(b)(6). In their motion, Defendants argued that, (i) if JKJ is deemed to be the relator in its own right, the FCA's public disclosure bar precludes JKJ's claims, (ii) if JKJ is deemed to be a pass-through entity for its members, who are the real relators in this action, then JKJ lacks Article III associational standing to proceed as the plaintiff in this case, (iii) JKJ's continuation as the plaintiff after the substitution of Partner G for Partner B is prohibited by the FCA's first-to-file bar, and (iv) any curative amendment to add JKJ's members as plaintiff relators is also prohibited by the first-to-file bar. JKJ filed a cross-motion for leave to file a third amended complaint to name its current members, as well as JKJ, as the relator plaintiffs in this action.

On May 30, 2018, the District Court dismissed the SAC under Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction. It also denied JKJ's cross motion for leave to amend. In determining whether the first-to-file bar applied, the District Court considered whether the substitution of Partner G for Partner B brought about an intervention of a new private party into the case.¹² It held that because the JKJ that filed the SAC was a different partnership from the JKJ partnership that had filed the Complaint, there had been an "intervention" of a new private party in contravention of the first-to-file bar.

The District Court analyzed Delaware partnership law in reaching its conclusion. It examined Delaware's previous partnership law regime, the Delaware Uniform Partnership Act ("DUPA"), and the current statute, the Delaware Revised Uniform Partnership Act ("DRUPA"), and how they aligned with the "aggregate theory" and the "entity theory" of partnerships. It explained that although membership changes do not create a new partnership under DRUPA (which follows the entity model as a default), the DUPA embraced the aggregate theory, and thus, "the addition or subtraction of members from the partnership created new partnerships."¹³ The court concluded that because the partners expressly opted out of the entity model in Section 1.03 of the Partnership Agreement, as permitted by DRUPA under 6 Del. C. § 15-201, "the partnership necessarily became the aggregate form; that is, the members of the partnership are legally indistinct from the partnership entity itself."¹⁴ It explained that, "[s]uch an aggregate partnership, which exists as an association of individuals rather than a separate legal entity, does not survive changes in...