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Second Circuit U.S. Court of Appeals for the Second Circuit. (Photo: ALM)

The U.S. Court of Appeals for the Second Circuit ruled Tuesday that the U.S. Justice Department was justified in dismissing a whistleblower lawsuit targeting some of the country’s largest drug manufacturers over an alleged Medicare kickback scheme. 

A three-judge panel of the Manhattan based appeals court, in a nine-page order, upheld a lower court’s decision from 2019 holding that the Justice Department had a “valid government purpose” in moving to dismiss the qui tam suit due to a lack of resources.

The Second Circuit, however, declined to weigh in on a circuit split over what standard should apply to such government motions under the False Claims Act.

The appeal, lodged on behalf of relator John Borzilleri, challenged the Justice Department’s rationale for terminating the suit after two years of investigating his claims. The April 2018 complaint alleged a complex conspiracy by pharmacy benefit managers and drugmakers, including Bayer Health Pharmaceuticals Inc., Biogen Inc. and Aetna Inc., to defraud Medicare Part D by charging excessive fees in order to keep prices high.

According to court documents, officials declined to intervene in the suit and later determined in December 2018 that would be expensive and was unlikely to result in a significant recovery for the federal government. The Justice Department also said that that Borzilleri, a physician turned securities analyst, was not an appropriate advocate for the government, court filings showed.

U.S. District Judge Jesse M. Furman of the Southern District of New York last July credited the government’s decision for backing off the case, finding that it was likely to create “substantial burdens” for attorneys in multiple offices during third-party discovery. His decision, however, did not address the question of what test district courts should employ in reviewing motions to dismiss.

The Ninth and Tenth circuits have both adopted the two-step Sequoia analysis, which requires officials to show a ”valid government purpose,” as well as a “rational relation between dismissal and accomplishment of [that] purpose.”

 The D.C. circuit, meanwhile, has opted for a far less stringent standard in the case Swift v. U.S., holding that the government’s right to dismiss a relator’s action is “unfettered” and essentially unreviewable, absent constitutional violations.

During oral arguments in October, Borzilleri’s lawyer, Idaho-based attorney Mary Ann Smith, cited the Justice Department’s reversal in dropping criminal charges against Michael Flynn, the former national security adviser to President Donald Trump, in arguing that the district court was required to “look into the veracity” of the government’s determination before dismissing a suit.

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Tom McParland

Tom McParland of New York Law Journal can be contacted at [email protected] Follow him on Twitter @TMcParlandALM.

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