Judge Denny Chin of the U.S. Court of Appeals for the Second Circuit. Photo: David Handschuh/NYLJ

A federal appeals court Thursday dealt a blow to a whistleblower alleging a wide-ranging kickback scheme at the pharmaceutical company Allergan Inc., ruling the former sales representative is barred from bringing claims because he was not the first to bring the allegations.

The U.S. Court of Appeals for the Second Circuit said a whistleblower who isn’t the first to make allegations under the federal False Claims Act cannot later proceed with a subsequent, amended complaint after the first case is no longer pending. The appeals court overturned a lower judge and instructed the trial court to dismiss whistleblower John Wood’s complaint without prejudice.

The ruling was novel, marking the first time the Second Circuit had addressed the issue. The FCA, as the law is commonly known, permits private individuals to bring fraud claims against companies that are accused of bilking the federal government. The FCA generally prohibits any secondary claims after an earlier whistleblower brings a case. The prohibition is called the “first-to-file bar.”

“We conclude that a first‐to‐file violation cannot be cured by amending or supplementing a complaint, even when the first‐filed case is no longer pending, and that actions brought in violation of that rule should be dismissed without prejudice,” Judge Denny Chin of the Second Circuit wrote for the unanimous panel.

Wood, a former Allergan employee, alleged the Ireland-based company was providing free medical products to doctors to entice them into prescribing Allergan medication. He filed his claims in 2010 on behalf of the U.S. government, 25 states and the District of Columbia. Wood claimed Allergan provided hundreds of millions of dollars in illegal kickbacks, according to his lawyers at Berger Montague.

The U.S. did not intervene to take over the case from Wood, a move that permitted him to conduct the litigation on his own. The government supported Wood in the U.S District Court for the Southern District of New York but changed its stance on appeal, urging dismissal of his claims.

Derek Ho of Kellogg, Hansen, Todd, Figel & Frederick argued for Wood in the Second Circuit. Wood’s lawyers said his claims were broader and more detailed than the earlier-filed claims against Allergan. The appeals court concluded Wood’s suit and the earlier case “in essence alleged very similar kickback schemes.”

The appeals court also rejected any concern that its block against Wood’s suit would deter future whistleblowers from bringing claims. The panel noted that FCA suits are often under seal for years, adding a level of uncertainty any time a tipster goes to court.

“Because many claims remain under seal for a long time, relators are aware that their claims may very well be barred by the time they get to the courthouse, and our answer to the question before us today does not significantly alter the incentive structure to which would‐be relators have become accustomed,” Chin wrote. “The FCAʹs scheme is difficult for relators, who may substantially invest in claims, only to find out that a recently unsealed complaint blocks their action, months if not years down the road.”

The U.S. Chamber of Commerce, represented by Vinson & Elkins, filed a friend-of-the-court brief in support of Allergan, which was represented in the Second Circuit by King & Spalding appellate partner Jeffrey Bucholtz in Washington.

“The already high cost of litigation and risk of stale evidence of old allegations are compounded when, as often happens, multiple relators bring separate lawsuits making essentially the same allegations against the same defendant,” Vinson & Elkins partner John Elwood wrote in the Chamber’s amicus brief. “Congress mitigated the risk of such duplicative cases with the first-to-file bar and by providing protection from old allegations with statutes of limitations and repose.”

The Second Circuit’s ruling is posted below:

 


C. Ryan Barber contributed reporting from Washington.