Second Relator to File Wins First-to-File Fight in First Circuit

After Millennium Health agreed in 2015 to pay $227 million plus interest to settle claims that it submitted false claims bills for excessive urine testing, $34 million – 15% of the total – was set aside to resolve the competing claims of more than seven different relators who had filed qui tam cases against Millennium that were dismissed as part of the settlement.  Since that time, several of the relators have been litigating their rights to that $34 million, with cross-claims between relator Robert Cunningham, who filed his Millennium cases in 2009 and 2010, and relator Mark McGuire, who filed his cases in 2012.

On May 6th, the United States Court of Appeals for the First Circuit held that McGuire, the second to file claims against Millennium, was entitled to the award.  In reaching its decision, the  court held that the False Claims Act’s (“FCA”) “First-to-File” provision was not jurisdictional, reversing several prior decisions in the Circuit that had treated the bar as jurisdictional, and joining the First Circuit joins the Second and D.C. circuits. The court then turned to the merits, holding that McGuire’s later-filed complaint was not barred.

The Millennium Health Case

Millennium Health was and remains one of the country’s largest drug testing laboratories.  The 2015 settlement arose from allegations that its practices resulted in billings for medically unnecessary tests and violated the Anti-Kickback Statute and the Stark Law. Specifically, the government, when it intervened, alleged that Millennium used “standing orders” from doctors for multiples tests without an individualized assessment of patient need and provided physicians with free testing supplies.

The cases originated from multiple complaints filed under the qui tam provisions of the FCA. The FCA’s “first-to-file” rule aims to prevent follow-on lawsuits by prohibiting relators other than the first to file from “bring[ing] a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This means that if multiple qui tam cases are filed by different Relators at different times, the first filed case in time will be considered the first filed case and that Relator would be entitled to the Relator share award.

In the dispute before the First Circuit, Cunningham argued that he was the first to file. And, indeed, Cunningham was the first to FCA claims against Millennium for excessive and unnecessary testing.

But, the court wrote, the analysis did not end there. “We must look to the actual mechanism (the ‘essential facts’) of the fraud that Cunningham alleged,” and compare them to the claims that were pursued by the government.

In this analysis, McGuire prevailed.  While his claims against Millennium were filed after Cunningham’s, it was McGuire who was the first to file claims that alleged the particular schemes – standing orders for confirmatory testing and the provision of no-cost Millennium supplies – that led to the government’s recovery.

The court rejected Cunningham’s argument that his earlier complaint provided “sufficient notice” to the government to cause it to investigate Millennium’s practices.  “Mere notice – particularly of a different fraud than the government chose to pursue – is not enough. . . . [W]e must ask not merely whether the first-filed complaint provides some evidence from which an astute government official could arguably have been put on notice, but also whether the first complaint contained all of the essential facts of the fraud it alleges.”

Lessons for Relators

First-to-file disputes are not uncommon. Far-reaching fraud schemes will almost certainly become apparent to multiple parties, which may lead to multiple qui tam complaints.  With cases filed under seal, it is not possible to know whether an earlier case has been filed before. This is one of the critical reasons that we advise relators: the earlier you file, the better.

But, as the court’s decision in McGuire also makes clear, being the second to file is not a death knell.  The details of the schemes alleged in the different complaints matter greatly, whether you are the first relator trying to hold your place in line, or the second relator trying to claim a place in line.  In either position, relators benefit from having experienced whistleblower counsel help them navigate the different arguments available.

A footnote in the First Circuit decision points to an additional option available in some cases:  McGuire reached a settlement with some of the competing relators.  Although no details of this settlement are provided, it is not surprising to see such an agreement mentioned.  Sharing agreements between relators not only avoid risky and costly litigation, they can also give competing relators incentives to pool resources and present a stronger case to the government and defendants than either could present alone. However, sharing agreements are complex, and may present pitfalls depending on the stage of the proceedings. Again, experienced whistleblower attorneys are critical in helping to negotiate relator share agreements.

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