In Victory For WLF, Seventh Circuit Joins Other Circuits In Applying Safeco Test for Willfulness In FCA Cases
—John Masslon, WLF Senior Litigation Counsel
WASHINGTON, DC—The United States Court of Appeals for the Seventh Circuit today affirmed a decision dismissing False Claims Act claims premised on the defendants’ mere negligence. The ruling was a victory for Washington Legal Foundation, which filed an amicus curiae brief urging the court—like every court of appeals to consider the issue— to hold that the test for willfulness announced by the Supreme Court in Safeco Insurance Company of America v. Burr applies in FCA actions.
Two pharmacists sued their former employer—Supervalu—alleging that Supervalu “knowingly” submitted false claims for reimbursement by state and federal healthcare programs. According to the pharmacists, the Supreme Court’s ruling in Safeco, interpreting the Fair Credit Reporting Act’s scienter requirement, does not apply in False Claims Act cases. The Seventh Circuit rejected that argument and held that “the scienter standard articulated in Safeco applies to the FCA.”
As WLF’s brief showed, applying the Safeco standard protects defendants’ due-process rights. Core due-process principles require fair notice of prohibited conduct. The brief explained that Safeco ensures “due process by not penalizing” government contractors “for mere negligence. It does so while accomplishing Congress’s goal of ensuring that companies do not bury their heads in the sand when submitting claims for reimbursement.” WLF therefore applauds the Seventh Circuit for ensuring that companies are not held liable under the FCA for mere negligent conduct.
Celebrating its 43rd year, WLF is America’s premier public-interest law firm and policy center advocating for free-market principles, limited government, individual liberty, and the rule of law.
Digesting a concurring opinion by The Honorable Paul V. Niemeyer
U.S. Court of Appeals for the Fourth Circuit, No. 20-2184, decided August 4, 2021
Opinion Topic: Class Action Numerosity Requirement
Judge Niemeyer had no role in WLF’s selecting or editing this opinion for our Circulating Opinion feature. The full opinion is available HERE.
Introduction: The plaintiffs, a group of pharmaceutical-product purchasers, filed suit under the Sherman Act alleging a patent-settlement agreement between branded and generic drug manufacturers constituted an anticompetitive “reverse payment.” The federal district court certified a class of 32 members, all of which were sophisticated companies with large claims. The Fourth Circuit granted the defendants’ appeal and analyzed the lower court’s application of Federal Rule of Civil Procedure 23(a). The three-judge panel held that the district court “rested its numerosity analysis”—under Rule 23(a)(1), which requires a class must be “so numerous that joinder of all members is impracticable”—“on faulty logic.” The district court incorrectly based its numerosity reasoning on the impracticability of individual suits rather than joinder.
In his concurrence, Judge Niemeyer wrote separately to “identify some factors that might be considered in determining ‘numerosity.’” He acknowledges that the Fourth Circuit has not articulated a definitive test for when the class size renders joinder impractical, but offers lower courts and litigants valuable guidance on the “nonexclusive factors” that could tip the balance in a Rule 23(a)(1) analysis.
NIEMEYER, Circuit Judge, concurring:
I am pleased to join the court’s opinion. I write separately only to identify some factors that might be considered in determining “numerosity” under Federal Rule of Civil Procedure 23(a)(1). See Anderson v. Weinert Enters., Inc., 986 F.3d 773, 775 (7th Cir. 2021) (“Ample ink has been spilled discussing class action litigation and Federal Rule of Civil Procedure 23. Rare are the cases analyzing the Rule’s numerosity requirement”).
While a district court’s nuanced discretion is especially important in determining whether a proposed class is “so numerous that joinder of all members is impracticable,” Fed. R. Civ. P. 23(a)(1) (emphasis added), we have recognized that a definitive test has not been articulated to assist in the exercise of that discretion, see Kelley v. Norfolk & W. Ry. Co., 584 F.2d 34, 35 (4th Cir. 1978) (per curiam) (noting that “[t]here is no mechanical test for determining whether in a particular case the requirement of numerosity has been satisfied”). Nonetheless, I believe we can point to a few nonexclusive factors that a district court might consider.
First and perhaps most important is simply the number of members defined to be in the class. Generally, courts have presumed that a class with more than 40 members is sufficiently numerous while a class that numbers 20 or fewer is presumably too small to certify. See 5 James Wm. Moore et al., Moore’s Federal Practice § 23.22[b] (3d ed. 2020); 1 William B. Rubenstein, Newberg on Class Actions § 3.12 (5th ed. 2021); see also Kennedy v. Va. Polytechnic Inst. & State Univ., No. 7-08-CV-00579, 2010 WL 3743642, at *3 (W.D. Va. Sept. 23, 2010) (“A nationwide survey of federal court decisions signals that it is exceedingly rare to certify classes with less than 25 members. … [C]ourts seem much more willing to certify a class if it has more than 40 members” (citations omitted)). For me, a class fewer than even 30 members should be exceptional.
But other factors must be considered to give flesh to the numbers inquiry. Leading treatises have typically summarized the relevant factors as (1) judicial economy resulting from avoidance of joined or independent actions, (2) geographic dispersion of putative class members, and (3) the ability and motivation of class members to bring suit absent class certification. See Moore’s, supra, § 23.22[a]; Rubenstein, supra, §§ 3.11, 3.12; cf. In re Modafinil Antitrust Litig., 837 F.3d 238, 253 (3d Cir. 2016). The weight to be given any relevant factor, however, will be influenced by the particular facts of the case. For example, geographic dispersion, or the lack thereof, may have extra importance when a putative class’s members are either especially scattered or notably concentrated. See, e.g., Anderson, 986 F.3d at 777 (noting that geographic dispersion cut against certification where “[a]ll but two of the class members lived within a 50-mile radius of the courthouse”). And class members’ motivation gains importance where there is reason to believe that those members would otherwise refrain from a joint suit out of “fear of possible reprisals” by the defendant or for other reasons cutting both for and against certification. Cypress v. Newport News Gen. & Nonsectarian Hosp. Ass’n, 375 F.2d 648, 653 (4th Cir. 1967) (en banc) (certifying a small class of Black physicians in an employment discrimination suit).
Judicial economy as a broad category appears to be the factor on which courts have relied most heavily. See Modafinil, 837 F.3d at 253–54 (stating that “both judicial economy and the ability to litigate as joined parties are of primary importance”); see also McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 427 (1st Cir. 2007) (“Among the primary rationales behind the class action mechanism are judicial economy and efficiency”). One aspect of judicial economy is docket management. See Modafinil, 837 F.3d at 257 (“[Judicial economy] primarily involves considerations of docket control, taking into account practicalities as simple as that of every attorney making an appearance on the record”). All members of a putative class suing on their own — even if joined under Rule 20 — will naturally place a greater strain on a district court than having just two or three class members represent the whole. See Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir. 1993); see also Rubenstein, supra, § 3.11 (“Where many individuals have similar claims, there may be a flood of litigation. With so many litigants proceeding individually, the courts would be overrun with claims. Yet the vast quantity of individual litigants makes joinder impracticable”).
Another facet of judicial economy is courtroom space and correlated staffing. For example, more parties joined to an action means, in most cases, more attorneys, each of which must be present in court for hearings and conferences. In this case, there may be a substantial gap between the number of attorneys currently needed to represent the 3 named class representatives and the number that would be needed to represent 35 joined parties, if that many were to consent, even if one assumes that each joined party has only 2 or 3 attorneys present. A court could reasonably recognize the demands on physical space and staffing necessary to accommodate so many individuals. See Town of New Castle v. Yonkers Contracting Co., 131 F.R.D. 38, 41 (S.D.N.Y. 1990) (“[T]he impracticability of joinder is best seen by noting the difficulties involved in having thirty-five intervenors, all with their respective attorneys, attempt to go through the formal motions required for entrance into and participation in the suit” (cleaned up)).
As a further aspect of judicial economy, a district court may consider the differential in costs of discovery between a class action and an action with many joined parties. The court could consider whether, in the action of joined parties, “discovery would be repetitive and unduly expensive.” Ballard v. Blue Shield of S.W. Va., Inc., 543 F.2d 1075, 1080 (4th Cir. 1976). But while a district court may give weight to this consideration as to future discovery, it should not succumb to the sunk-cost fallacy and certify a class merely because a great deal of effort has already been expended in discovery. Noteworthy about discovery is the fact that it represents civil litigation’s largest cost. See generally John S. Beckerman, Confronting Civil Discovery’s Fatal Flaws, 84 Minn. L. Rev. 505 (2000); Nicholas M. Pace & Laura Zakaras, RAND Inst. for Civ. Just., Where the Money Goes: Understanding Litigant Expenditures for Producing Electronic Discovery (2012).
And an aspect of broader practicality, and also, perhaps, judicial economy, might relate to the ability to identify class members. See Baltimore v. Laborers’ Int’l Union of N. Am., 67 F.3d 293, 1995 WL 578084 at *1 (4th Cir. 1995) (unpublished table decision); Ballard, 543 F.2d at 1080 (noting that “the number of [class members] and knowledge of their identity … should be considered”). It has been observed that if a “majority of the members of the proposed class were identified” by the court, and especially if those members “reside within an established jurisdictional boundary,” joinder may be more practicable. Baltimore, 67 F.3d 293, 1995 WL 578084 at *1. On the other hand, when absent class members “are not specifically identifiable,” joinder might become more impracticable. Doe v. Charleston Area Med. Ctr., Inc., 529 F.2d 638, 645 (4th Cir. 1975).
These factors are, to be sure, not exhaustive. But they exemplify the nature of what should be considered in determining the numerosity requirement of Rule 23(a)(1). At bottom, “all the circumstances of the case should be taken into consideration” in a district court’s numerosity analysis. Ballard, 543 F.2d at 1080 (emphasis added). Moreover, an appellate court’s review of a certification order should remain mindful that certification is ultimately determined by the district court — not the appellate court — and that it is the district court which will be saddled with the burdens that flow from a decision. Cf. Brown v. Nucor, 785 F.3d 895, 922 (4th Cir. 2015) (Agee, J., dissenting) (noting that this court “typically tread[s] lightly when reviewing a class certification decision”).
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The Bayh-Dole Act’s (“Bayh-Dole” or the “Act”) impact on U.S. innovation has been so meaningful as to lead some to opine that the Act is “[p]ossibly the most inspired piece of legislation to be enacted in America” since the 1950s. Innovation’s Golden Goose, The Economist, Dec. 14, 2002. Bayh-Dole fundamentally changed the nature of technology transfer in the United States by shifting the paradigm of ownership of Bayh-Dole inventions to the university or small business that did the actual inventing, rather than providing for funding agencies to obtain ownership. This immensely effective change on technology transfer programs at research institutions has significantly increased the licensing of early-stage research to commercial entities that have the knowledge and resources required to transform research into market-ready products that span across many sectors.
Bayh-Dole has been both praised and criticized. The expansion and success of the biopharmaceutical industry and increasing concerns over the cost of U.S. healthcare and drug spending has heightened these contrasting views. Innovators and economists argue that the Act works exactly as intended by encouraging private industry to partner with public or publicly funded institutions to ensure that inventions make it to the American marketplace, increasing both technological innovation and economic development. Some researchers and policy commenters argue that the insertion of commercial interests into academic research and development creates inevitable conflicts that threaten to insert bias into the research process. Other policy makers focused on the cost of healthcare and prescription medicines argue that the taxpayers who fund research grants to academic institutions should not have to pay for inventions resulting from such early investment, and state that the government should retain, and use, greater “march-in” rights in resulting inventions for the benefit of the public.
There are differing views among academics, scientists, and policy makers on the legislative purpose of the Bayh-Dole Act and the scope to which is applies. Lawmakers and drug-pricing activists concerned over the cost of prescription drugs have argued that Section 203 of the Bayh-Dole Act can be exercised when an invention subject to the Bayh-Dole Act needs to be practiced in connection with a product that is considered too expensive. Section 203 provides the government the right to “march-in” on the inventor’s exclusive right to her invention and issue a non-exclusive, partially exclusive, or exclusive license in exceptional circumstances. However, the Act does not mention price in its bases for march-in, leaving those with knowledge of the legislative history to explain that the Act’s requirement for benefits of the Bayh-Dole invention to be “available to the public on reasonable terms,” 35 U.S.C. §§ 201(f) and 203(a)(1), was never intended to cover the price of the invention. Birch Bayh, Statement of Senator Birch Bayh to the National Institutes of Health at 3 (May 15, 2004).
The purpose of this Contemporary Legal Note is to examine the Bayh-Dole Act and the “march-in rights” it grants to the government in limited situations. To do so, it will examine the goals and purposes of the Act as stated within the legislative history, and the language of the Act itself as it lays out the rights and obligations of stakeholders.
To continue reading, click on the PDF button above for the full text.
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By Christopher H. Marraro, a partner with BakerHostetler in the firm’s Washington, DC office, and Gary C. Marfin, who was Associate Dean of the School of Engineering at Rice University and Manager of Government Relations with Conoco.
In 2018, ProPublica and The Washington Post published a research paper on Congress in which they observed:
For more than 200 years, Congress operated largely as the country’s founders envisioned — forging compromises on the biggest issues of the day while asserting its authority to declare war, spend taxpayer money and keep the presidency in check.
Today, on the eve of a closely fought election (2018) that will determine who runs Capitol Hill, that model is effectively dead.1
It was a portentous finding. The demise of the Congressional “model” has had ramifications for the other branches, for politics appears to abhor a vacuum, no less than nature. Into the void, the Executive Branch has increasingly relied upon its own Executive Orders to set policy and actualize changes in the structure of government itself, altogether dispensing with the messy process of bicameralism.
Our aim in this Legal Backgrounder is to show 1) how Executive Orders and the administrative state have been, and are being, weaponized; 2) how such orders are usurping the policy-making role of the legislative branch; and, 3) how federal courts might play a role in returning policy matters to the legislative branch.
We note at the outset, we are not interested in what might be termed Executive Orders issued for internal administrative purposes. Some of these may ultimately be important. President Joe Biden’s order establishing a Commission to examine the Supreme Court comes to mind. But our interest is in those Executive Orders issued with the aim of creating U.S. policy, or those Executive Orders aimed at revoking Executive Orders issued by previous administrations.
One of President Donald Trump’s primary objectives both as a presidential candidate and early in his administration was to diminish the administrative state. If Trump had in mind a specific agency, set of regulations, or policy area to deconstruct, he did not disclose it. The president’s aspiration seemed simply to reduce the administrative state’s size and scope and the cost associated with it, both its operating cost and the cost to the regulated community. Steve Bannon, President Trump’s chief strategist during the early days of the Administration, used the word “deconstruction,” but either way he and the President were aligned on the policy objective if not on the eschatological rhetoric. The willingness to deconstruct affected the administration’s selection of Cabinet appointees. As Bannon explained:
Every business leader we’ve had in is saying not just taxes, but it is – it is also the regulation. … Cabinet appointees, they were selected for a reason and that is the deconstruction, the way the progressive left runs, is if they can’t get it passed, they’re just gonna put it in some sort of regulation in – in an agency. That’s all gonna be deconstructed and I think that that’s why this regulatory thing is so important.2
What does it mean to say ”that’s all gonna be deconstructed?” We would come to learn that, at minimum, deconstruction referred to Executive Orders, issued in the early days of Trump’s administration, which were designed to reduce the size, scope, and cost of the administrative state. Emblematic of the deconstruction Orders was 13771. This Order, published in March of 2017, gained more prominence than any other targeting the administrative state.3 The Order reads in part:
Sec. 2. Regulatory Cap for Fiscal Year 2017. (a) Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.4
Four years later, after the rhetorical smoke cleared, the administrative state, far from being deconstructed, was, at best, selectively diminished. When the Office of Management and Budget5 reported on the results of Trump’s deregulatory efforts, it found a total of $198.6 billion in savings government-wide from FY2017 to 2020. Agencies issued 538 deregulatory actions and 97 regulatory actions for a ratio of 5.5 to 1.0 over the period. Comparing significant deregulatory to significant regulatory actions in 2020 yielded a ratio of 1.3 to 1, short of the 2 for 1 objective, but a slight decline in regulations just the same.
Although Trump referenced the administrative state as a whole, the “deconstructions” were rather confined. Remarkably, the vast bulk of the savings, as illustrated in the chart below, came from two agencies: the Department of Transportation and the Environmental Protection Agency. Together these Agencies accounted for $189.7 billion, or 95.5% of the total $198.6 billion, in savings over the period.
Taking a more granular look at deregulatory activity under Trump, Cary Coglianese and others from the University of Pennsylvania Law School, examined data from the semiannual edition of the regulatory agenda from Fall 2017 to Spring 2020. They were interested not in regulations that were withdrawn at the proposal stage, such as regulations having imposed no prior compliance costs, but on actions completed by promulgation. In addition, they focused on regulations that were categorized as economically significant under the long-standing designation for such regulations. They found that “those actions designated as ‘deregulatory’ make up only one quarter of the overall number of completed actions within the regulatory agency,” leading them to conclude:
This means that, rather than there being more deregulatory actions than other actions, as the Trump Administration’s claims have implied, there was, in fact, just the opposite. Overall about three completed actions in the regulatory agenda appear for every action designated as deregulatory.6
Trump’s deconstruction efforts may have put a dent in the administrative state, but little more. As Clyde Wayne Crews Jr., a policy director at the Competitive Enterprise Institute, observed: “when all is said and done the administrative state cannot be said to have fundamentally changed under Trump.”7 Similarly, Stuart Shapiro, Professor and Associate Dean of Faculty at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, maintains that, “all in all, the impact of the deregulatory actions of this Administration is quite likely to be negligible on balance.”8
More ink may have been spent trying to determine if Trump satisfied his two-for-one target than in whether the target was worth attaining in the first place. Consider first what E.O. 13771 and Trump’s overall deconstruction efforts neglected: specifically the existence of benefits. Trump’s sole focus on cost in the deconstruction calculus might well have been the result of the Administration’s discussions with the business community, the members of which are likely much more aware of the costs imposed by regulations than any benefits gained from them.
A second problem confronted Trump’s deconstruction efforts: like other administrations before him, Trump’s administration needed the administrative state. The war on the administrative state was partly real, but partly rhetorical. Presidents invariably rely on the administrative state. Trump certainly did. As Crews puts it: Trump “sported regulatory impulses of his own” in immigration, antitrust and elsewhere.9 In fact, Trump, rather than taking aim at the totality of the administrative state, could have been much more selective in identifying targets for deconstruction, as we’ll see below.
This brings us to the final obstacle on the road to deconstruction. While the effort to deconstruct the administrative state was no doubt applauded in some quarters, it was never embraced as a nationwide campaign; there was no national mandate. This is partly because not all parts of the administrative state are viewed as equally problematic by all members of any given party. Exactly which parts of the administrative state are problematic can vary along partisan lines and within partisan groups. As Jacobs, King, and Milkis observed:
Consequently, while liberals seek to build administrative capacity to design and implement social welfare policies, conservatives have sought to redeploy and extend that power in pursuit of their own partisan goals: enhancing national defense, homeland security, border-protection, and local policing; and establishing more market-oriented policies in education, climate change, and government service.10
As we have seen, a wide range of different groups may have, at some level, supported deconstruction, but is a majority of the electorate willing to dismantle the whole edifice? While deconstruction may have garnered its share of applause at political rallies, it’s quite likely that different people were applauding the fall of different elements of the administrative state, even as they appeared to applaud in support of the state’s overall demise.
An Executive Order can be issued quickly and, apart from internal reviews, virtually unilaterally. The unilateral attribute is especially advantageous during periods of significant partisan divisions. The dilemma, of course, is that Executive Orders issued by one President can be revoked by subsequent President(s) and, for all practical purposes, revoked just as easily as they were issued. In his first 100 days, for example, President Biden signed “more than 60 executive actions, 24 of which are direct reversals of Trump’s policies.”11
One of the principal policy divisions between Biden and Trump concerned the role of the administrative state itself. Trump viewed the administrative state as little more than a cost center, a burden on the business community and the economy. Hence, E.O. 13771 and the accompanying orders aimed at deconstruction. Far from President Trump’s declaration that the administrative state should be deconstructed, if not outright destroyed, President Biden claimed that the administrative state was essential in addressing the challenges facing the nation:
To tackle these challenges effectively, executive departments and agencies must be equipped with the flexibility to use robust regulatory action to address national priorities. This order revokes harmful policies and directives that threaten to frustrate the Federal Government’s ability to confront these problems and empowers agencies to use appropriate regulatory tools to achieve these goals.12
These differing perceptions of the administrative state cannot be resolved through Executive Orders. Admittedly, it’s possible that reconciling differing perceptions of the administrative state is a fool’s errand anyway; the administrative state is so large that its deconstruction, while it may resonate with some voters, is not a practical national goal. Nevertheless, assuming these differing perceptions merit examination, such an examination requires a broad-based debate, dialogue, and discussion, and involve a far broader range of stakeholders than can be found in a single presidential administration. Executive Orders, in contrast, are “temporarily definitive” statements. They are orders from the President; as such, they are not in the marketplace of ideas.
In issuing his various Executive Orders, Biden apparently did not view himself as creating policy. Cognizant of the Executive Orders he had issued that revoked prior Orders, Biden explained:
And I want to make it clear — there’s a lot of talk, with good reason, about the number of executive orders that I have signed — I’m not making new law; I’m eliminating bad policy.
The obvious question is: bad policy according to whom? Or, as the philosopher John Locke asked of the exercise of political authority in general, “Who shall be judge when this Power is made right use of?”
Judicial Moats Protecting the Agencies
One structural criticism of the administrative state is that it thwarts the Constitution by replacing legislative action with agency rulemaking.
Fortunately, the Administrative Procedure Act (APA)13 and its attendant “arbitrary and capricious” standard of judicial review has propelled the development of a body of law that constrains “free for all” and irrational agency decision making by imposing a duty on agencies to “examine relevant data” and to “articulate” a “rational connection between the facts found” and the agency’s policy choice.14 But nearly thirty years ago the U.S. Supreme Court held that a President’s Executive Orders are not subject to the protections of the APA.15
That does not mean that Executive Orders are insulated from judicial review. They are not. The Supreme Court has long held that Executive Orders are subject to review under the Due Process Clause of the Fifth Amendment. Although Executive Orders are subject to judicial review, a crucial question given that they lie beyond the reach of the APA is what should be the appropriate standard under which a court reviews the reasonableness of Executive Orders. Should it be mere “rationality” as when a court reviews the reasonableness of legislation and upholds its reasonableness if the court can conceive of a rationale, or should review entail the more exacting “arbitrary and capricious” standard. At a time of proliferating Executive Orders resulting from a legislative stalemate in Congress, this critically important issue surprisingly has received only scant debate and sparse scholarly review.16 Judicial review of Executive Orders even has been described by some commentators as “disordered.”17
We contend that courts should subject Executive Orders to the more exacting “arbitrary and capricious” reasonableness standard. They should ensure that policy should be clearly explained in the Executive Order and the policy choice made there should be rationally related to facts and consistent with any operative statutes. We think that the recent preliminary injunction issued against President Biden’s Executive Order 1408 and the Department of Interior’s oil and gas lease “Pause” is exactly the type of prudent judicial review required. There, Judge Terry A. Doughty found that Executive Order 1408 failed to provide “any explanation for the Pause.”18 It seems to us that in this highly charged political environment where Congress is more often than not deadlocked on enacting social and economic legislation, the federal courts should stand as a strong arbiter of whether the rationale of Executive Order’s policy is based on sufficient explanation, adequate facts and is supported by the statute under which it is issued. Only then can we have confidence that such executive action in the absence of Congressional action is not an evasion of statutory policy or the product of irrational decision making.
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- Matt Wetzel
- William Jackson
Ed. Note: This is Matt Wetzel’s debut commentary as a featured expert contributor in a new topic area for the WLF Legal Pulse. Prior to joining Goodwin Proctor, Matt held several executive positions in the life-sciences industry, including Vice President and Deputy General Counsel at the trade group AdvaMed; Associate General Counsel & Chief Compliance Officer of GRAIL, Inc.; and Senior Counsel, Global Compliance & Ethics, Boston Scientific. Welcome aboard, Matt!
Many of us in the life-sciences regulatory world are awaiting an impending decision in a recent federal lawsuit brought by Pfizer. Pfizer is challenging federal government limits on drug makers’ ability to offer assistance to help the uninsured and underinsured, including Medicare and Medicaid beneficiaries, obtain prescription medications that may be otherwise too expensive for them. Drug makers’ assistance can come in a number of different forms, but often can be a copay coupon or payment voucher that helps reduce or eliminate a patient’s copay obligations. Other financial support programs involve drug makers donating funds to independent non-profit charities that, in turn, pay for qualified patients’ copays and provide other types of tangible support. These independent non-profits—also known as patient assistance programs, or PAPs—regularly aid patients with rare diseases or who face particularly significant costs and other challenges in connection with a diagnosis.
The U.S. Department of Health & Human Services Office of Inspector General, or OIG, has made it clear: cost-sharing support like copay assistance for Medicare beneficiaries is not permissible except in limited circumstances. The government views cost-sharing and copays as creating a natural economic restraint on drug prices. The idea is that if patients have skin in the game, so to speak, the government believes they will think twice before opting for the most expensive brand name drug, especially when a cheaper generic is available. The government’s theory is that, by providing copay assistance, the prescription manufacturers are engaging in a kickback scheme—in which the lack of a copay causes the patient to opt for the more expensive product, thereby generating a sale that wouldn’t have occurred without the copay assistance. Pfizer’s suit tests these limits.
The government’s stance can be found in a number of different locations. For decades, OIG has informed providers, pharmacies, drug makers, PAPs, and others how they can support financially needy patients without running afoul of these restrictions. OIG’s position can be found across dozens of advisory opinions on the topic, three “Special Advisory Bulletins” addressing cost-sharing and copay waivers, and numerous integrity agreements with drug companies and PAPs that have settled kickback cases, agreeing to adopt stricter internal controls around PAP-related activities. OIG has gone so far as to revise and update past advisory opinions related to PAPs to keep track with its own evolving guidance.
But despite this guidance, the last several years has seen the government settling kickback case after kickback case against drug makers and PAPs. In these cases, the government alleges that drug makers and independent PAPs have conspired to pay kickbacks. Put another way, donations paid from drug makers to charities, according to the government, were intended to cover only the cost-sharing obligations of Medicare beneficiaries who were taking the donor’s own products and not another product that could have been prescribed instead. Because payment was routed through the independent PAP, all patients, even those who might not qualify to have their co-pays waived due to financial need, were able to access the drug at no cost or much lower cost.
This is not just a simple case of bad actors refusing to comply with the law. Part of the problem is that the government’s direction on the topic, while plentiful, is also complicated and spread across a series of evolving informal guidance documents. There is no established set of authoritative guidelines on which stakeholders can rely. Instead, the government’s stance is detailed through a number of advisory opinions, bulletins, and settlement agreements. But stakeholders are told that, for example, only the party seeking an OIG advisory opinion can rely on it. Adding to the confusion are government settlements and corporate integrity agreements, which contain detailed descriptions of controls for PAP-related arrangements that the government finds to be acceptable—even desirable. But these controls are found in dense settlement agreements that few bother to read, and the government’s press releases about those settlement agreements provide no additional direction or support. In short, companies seeking to fund PAPs in a compliant way must trudge through a morass of opinion letters, bulletins, and settlement agreements to distill for themselves any kind of common principles.
While claims that a Pfizer win in its current case would destroy or decimate the government’s controls on Medicare spending are likely over-dramatized, one point is clear: the government’s efforts to date at regulating the practice have been driven not by clear regulations subject to comment and rulemaking but instead by responding to requests for advisory opinions, as well as costly and lengthy investigations. As such, from the companies’ perspective, the process is overly complicated and insufficiently clear. In fact, the best result from the Pfizer case would be a commitment from OIG to reevaluate the maze of informal guidance that it has issued over the years and provide clear instruction to stakeholders.
The next generation of challenges is on its way: additional private litigation. In July 2021, Humana sued Regeneron in federal court. The insurance company alleges that the drug company’s copay assistance program amounted to fraud. The suit leverages DOJ’s allegations that charity payments from Regeneron to the Chronic Disease Fund (a PAP) were kickbacks to cover cost-sharing obligations of Regeneron’s Eylea product (vs. competitor products). Humana is essentially piggybacking on the DOJ’s investigation in an effort to recoup money Humana paid for Regeneron over time. As such, the next round of challenges will involve private parties fighting amongst themselves about the scope and import of the government’s position that these programs are improper.
Each year, OIG issues a public request for suggested new safe harbors to the Anti-Kickback Statute. Safe harbors are regulations that describe arrangements that could be shielded from Anti-Kickback Statute liability. Those regulations would be subject to standard notice-and-comment rulemaking, and could provide companies in one place a clear set of guidelines on the permissible scope of PAPs. The time is now for OIG to consider a safe harbor for drug maker support of independent patient assistance programs. A new safe harbor could—in one place and with uniformity—describe the extent to which funding can be used towards Medicare beneficiaries’ cost-sharing obligations. A new safe harbor could establish specific criteria and structural considerations for drug makers and others to follow in providing grants to independent PAPs. It could address things like the appropriate duration of cost-sharing support and how to define “financially indigent.” It could describe controls around funding single disease or single drug funds. It could also establish the rules and controls that PAPs must put in place to help the uninsured and underinsured while staying free from any external influences. A formal safe harbor would allow manufacturers and PAPs an opportunity to structure funds in a way that balances the strong public policy need for supporting financially needy patients, including Medicare beneficiaries, against the increased risk of running afoul of the kickback statute.
Finally, and perhaps most importantly, a new safe harbor—promulgated through notice-and-comment rulemaking—would help ensure that all stakeholders’ voices are taken into account, including those of the drug makers and of the patients who require financial support.
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WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., ranking member of the Senate Committee on Commerce, Science, and Transportation, today sent a letter to the Bureau of Industry and Security (BIS) inquiring about the implementation of a Final Rule restricting access by Huawei to U.S. technologies. This letter is part of Wicker’s ongoing oversight focused on probing compliance with the rule from leading hard disk drive suppliers and its enforcement by the Department of Commerce.
Excerpt from the letter:
Dear Acting Under Secretary Pelter:
The BIS plays a critical role in combatting threats to national security posed by Chinese companies and protecting the U.S. technology industry. To that end, the Department of Commerce issued a Final Rule further restricting access by Huawei to U.S. technologies by adding additional non-U.S. affiliates of Huawei to the Entity List, removing the Temporary General License for Huawei and replacing it with a more limited authorization, and expanding the scope of Foreign Direct Product Rule to tighten Huawei’s ability to procure items that are the direct product of specified U.S. technology or software.
My staff contacted the BIS seeking details about the licensing component of the rule as part of ongoing oversight about compliance with this rule by leading hard disk drive suppliers. Following an informal briefing, officials claimed that the information sought by staff is subject to Section 1761(h) of the Export Control Reform Act of 2018, which allows the Bureau to withhold certain information based on confidentiality concerns. However, the information requested neither focused on any particular company’s compliance nor could have resulted in a breach of confidentiality for a company under investigation.
My staff has reviewed evidence suggesting possible non-compliance with this rule. As part of my investigation, I request responses to the following questions so my staff can ensure Huawei is not gaining unlawful access to U.S. technologies:
- How many companies have sought a license to ship to Huawei or its affiliates under this Final Rule?
- How many of those applications have been processed and granted?
- How many applications have been denied?
Click here to read the full letter.
John M. Reeves, the founder and owner of Reeves Law LLC, is an appellate attorney based in St. Louis, Missouri. He has briefed and argued cases in the Missouri Court of Appeals, the Missouri Supreme Court, and the United States Court of Appeals for the Eighth Circuit. He also regularly briefs cases in the Supreme Court of the United States, and has submitted briefs in the United States Court of Appeals for the D.C. Circuit and the United States Court of Appeals for the Eleventh Circuit. Mr. Reeves authored an amicus brief on behalf of the Missouri Organization of Defense Lawyers in support of upholding the statutory caps at issue in Velazquez. The opinions expressed in this article are his own.
Today—August 10, 2021—Missouri celebrates its bicentennial as a state. But there are additional reasons to celebrate the Show-Me-State. Traditionally a plaintiff-friendly venue, Missouri appears to have finally dropped its judicial hostility towards tort reform. This past July, its supreme court upheld a statutory cap on noneconomic damages for actions against health care providers, finding that the cap does not violate one’s right to a jury trial under the Missouri Constitution. See Ordinola v. Univ. Physician Assoc., — S.W.3d –, 2021 WL 3119063 (Mo. July 22, 2021). This ruling most likely brings to an end a decades-long, contentious battle between the Missouri General Assembly and the Missouri Supreme Court over the imposition of statutory caps. Nor is that all—the opinion provides a roadmap to other state legislatures on how to overcome judicial hostility to such statutory caps.
As discussed in my previous WLF Legal Pulse post,1 in 2012 the Missouri Supreme Court invalidated a statutory cap on common-law medical malpractice causes of action. Watts v. Lester E. Cox Med. Ctrs., 376 S.W.3d 633, 640-41 (Mo. 2012). According to Watts, such caps violated the Missouri Constitution’s guaranty of a right to a trial by jury as it was understood at the time Missouri became a state in 1821, in that such caps interfered with the jury’s factfinding mission. In coming to this ruling, Watts overlooked the fact that while juries have traditionally determined factual issues, they have never had the authority to determine the legal consequences of such factual findings. Authority to determine the legal consequences has always resided with the courts, applying either the common law or statutory law as promulgated by the legislature.
The Missouri Supreme Court appeared to recognize the problems several years later when it affirmed the validity of statutory caps as applied to wrongful death actions. Dodson v. Ferrara, 491 S.W.3d 542 (Mo. 2016). The court concluded that because wrongful death actions were unknown at common law, and instead are statutory creations, the legislature had the authority to define the legal remedies in such causes of action.
The Missouri General Assembly decided to call the Missouri Supreme Court’s bluff by passing a series of laws that abrogated common law negligence/malpractice actions by health care providers and substituted statutory causes of action with the same elements. It also established statutory caps of $400,000 on noneconomic damages for such actions. See Mo. Rev. Stat. §§ 1.010.2 and 538.210.
Not surprisingly, the plaintiff’s bar was unhappy with these statutory enactments, and accordingly in Ordinola brought a constitutional challenge claiming that the statutory caps violated the Missouri Constitution’s guarantee of a jury trial. In doing so, the plaintiff’s bar made the case about far more than tort reform: it also went to the heart of the state legislature’s authority to modify or abrogate common law actions, thus raising serious separation-of-powers issues.
Thankfully, and as I cautiously predicted, the Missouri Supreme Court upheld the statutory caps in a 5-1 decision. While declining to overrule Watt’s dubious holding that the state legislature could not impose statutory caps on common law causes of action, it nevertheless acknowledged that the General Assembly had the authority to abrogate common law causes and replace them with statutory claims. “It is undisputed that the General Assembly possesses the authority to abolish common law causes of action.” Ordinola, 2021 WL at *3. Adopting an argument made in an amicus brief I filed in the case on behalf of the Missouri Organization of Defense Lawyers, the court likened the statutory caps to the General Assembly abolishing common law negligence claims against employers and substituting it with a statutory workers’ compensation scheme. See id.
Unfortunately, Ordinola’s discussion of this matter is rather brief and perfunctory; one would have hoped for a more elaborate opinion from the court, but nevertheless its holding is clear. It appears to mark the end of hostility towards statutory caps based on the notion that they somehow violate the right to a jury trial. Hopefully other jurisdictions will take note of the Missouri Supreme Court’s decision and arrive at similar conclusions.
The post Statutory Caps Vindicated: The Triumph of Tort Reform in Missouri appeared first on Washington Legal Foundation.
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Stephen A. Wood is a Partner with Chuhak & Tecson, P.C. in Chicago, IL and serves as the WLF Legal Pulse’s Featured Expert Contributor on the False Claims Act.
The United States Court of Appeals for the Fifth Circuit has recently become the latest appellate court to confront the question of what standard should govern the United States Government’s motion to dismiss a qui tam action under 31 U.S.C. § 3730 (c)(2)(A). In United States ex rel. Health Choice Alliance LLC v. Eli Lilly & Co., No. 19-40906, 2021 WL 2821116 (5th Cir. July 7, 2021), the court affirmed dismissal of the relator’s action in a case factually similar to United States v. UCB, Inc., 970 F.3d 875 (7th Cir. 2020). In Health Choice, as in UCB, investors created an LLC for the sole purpose of bringing a qui tam action against pharmaceutical industry defendants alleging fraud in connection with the provision of certain drug and insurance education services.
In Health Choice, the Fifth Circuit held that the Government’s motion to dismiss the relator’s action was rightly granted over the relator’s strenuous objection. In coming to this result, the court did not expressly embrace either of the (c)(2)(A) standards crafted by other courts of appeals. In fact, all three members of the panel agreed only on the result, not necessarily on the reasoning, indicating that jurisprudential divergence on this issue continues. As the law on this issue continues to develop, a recent announcement from key senators indicates that Congress may intercede in an effort to settle disagreements over the appropriate standard, although it remains to be seen whether the proposed legislation provides a useful solution. Finally, Health Choice suggests an alternative that would relieve the Government of the burden of contested (c)(2)(A) motion practice where the qui tam cases lack merit.
United States ex rel. Health Choice Alliance LLC v. Eli Lilly & Co.—The Facts
The relators in this case, Health Choice Alliance and Health Choice Group, were limited liability companies created by the National Health Care Analysis Group for the sole purpose of filing qui tam actions against pharmaceutical companies alleging fraud and violations of various federal statutes including the False Claims Act. The two cases at issue in this appeal, one brought against Eli Lilly, the other against Bayer Corporation, were among eleven similar cases filed in various district courts by related entities against pharmaceutical manufacturers and distributors alleging violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b).1 In each of these cases, the relators alleged that the defendants provided free product education services (nurse educator and insurance reimbursement assistance) in an unlawful effort to induce health care providers to prescribe the defendants’ products. A little more than four months after the filing of the qui tam complaint under seal, the United States Government declined to intervene in the case.
The defendants moved to dismiss the complaints arguing, among other things, that the pleadings failed to meet the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure and the complaints failed to state a plausible claim for relief. These motions were granted in part and denied in part leading relators to amend their complaints. About one year after the United States declined to intervene, federal prosecutors notified relators that the Government was intending to move for dismissal under 31 U.S.C. § 3730 (c)(2)(A). In subsequent discussions with the relators, government lawyers raised several concerns about the actions including that they lacked proof, they would impose a discovery burden on the government, and relators’ legal theories might conflict with federal health care program policy objectives.
The government moved for dismissal, supporting the motions with a declaration and various exhibits which revealed information about the relators’ organizational structure, ownership, objectives, and methods. The relators were special purpose entities expressly created by a group of investors and speculators for the purpose of bringing a series of qui tam cases. In paid interviews of various industry employees, they represented that they were conducting a “research study” to gain a better understanding of the pharmaceutical industry and that they had “no bias one way or the other.”2 In truth, they were attempting to collect statements supporting their qui tam claims. The motions were fully briefed and on April 24, 2019 the magistrate judge assigned to the case heard extended oral argument on the government’s motions.3 The magistrate’s report and recommendation proposed granting the government’s motion and the district court adopted the recommendation.
The Fifth Circuit’s Analysis—Which Standard Applies and Was It Met
On appeal, the court noted that varying standards have been established for government motions to dismiss under 3730(c)(2)(A), and that the Fifth Circuit had yet to adopt a particular standard. The first court to do so required the government to meet a two-part test: (1) identification of a valid government purpose, and (2) a rational relation between dismissal and accomplishment of the purpose. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998). The second standard, announced in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), rejected the Sequoia Orange test, holding that the decision to dismiss is akin to the exercise of prosecutorial discretion, a matter not subject to judicial review for separation of powers reasons. The Fifth Circuit also noted that the Seventh Circuit recently considered the issue and rejected both Swift and Sequoia Orange in favor of its own approach which rests largely on application of Rule 41 of the Federal Rules of Civil Procedure. See United States v. UCB, Inc., 970 F.3d 875 (7th Cir. 2020).
The Health Choice court turned first to the statutory requirement for a “hearing,” noting that “[t]he meaning of the term ‘hearing’ holds the key to the question of the court’s role in assessing the government’s decision to dismiss under § 3730(c)(2)(A). . . . We are persuaded by Health Choice’s argument that the term ‘hearing’ means what is says. It includes judicial involvement and action.” Further, turning to both Black’s Law Dictionary and Webster’s for guidance, the appellate court concluded that the word involved “something to be decided,” contrary to the government’s argument that the hearing was not substantive. “[A] hearing that leaves nothing for the court to decide or do is inconsistent with the notion that the function of federal courts is to decide actual cases and controversies.”
Yet, despite its apparent rejection of the Swift standard, the appellate court concluded that the relator had received everything required under the statute, and the district court properly granted the government’s motion. At a two-hour hearing before a magistrate judge, the parties argued the merits of the government’s motion. What’s more, relators represented that they had a witness prepared to testify, but chose not to present live testimony because the Government’s proof, consisting of affidavits, had been “thoroughly rebutted.” Taking its measure of the record, the appellate court concluded that relators had been given a full opportunity to present their case. If they declined to put on evidence it was because they chose not to do so, not because the court precluded it.4
Lastly, the court rejected relator’s argument that the Government had failed to meet its burden under 3730(c)(2)(A). The decision analyzed the Government’s and relators’ arguments in light of the Sequoia Orange standard. “Assuming without deciding” that the Sequoia Orange test applied, the court held that the Government’s proof met that test. The Government explained relators’ claims lacked merit, and the costs involved in monitoring the litigation were not justified. Furthermore, the patient-education services provided by the defendants actually benefitted federal health care programs and did not violate the Anti-Kickback Statute.5 Having offered this evidence of valid purpose and rational relation between the purpose and dismissal, the burden shifted to the relator to show that the motion to dismiss was “fraudulent, arbitrary and capricious, or illegal.” Relators argued unsuccessfully that the Government was motivated by a disdain for the relators’ corporate structure and dislike for its primary witness. Relators also argued arbitrariness because the Government did not conduct a cost-benefit analysis, and delayed in bringing its motion in arguable contravention of stated department policy. These arguments were easily rejected by the court.
Judge Higginbothem wrote separately in a concurring opinion, noteworthy, for one, because he seems to assume that Sequoia Orange provides the more appropriate standard: “At a minimum, the statute compels the government to stand in open court and state for the record the reasons for its judgment that the case should not proceed. . . . [T]his statutory requirement . . . affords a measure of public accountability.” Judge Haynes, the third member of the panel, concurred in the judgment only. One can only presume that he did not agree with the majority’s analytical approach to affirming the district court’s dismissal.
Takeaways from Health Choice
The Health Choice decision stops short of expressly adopting any particular standard for 3730(c)(2)(A) dismissals. That said, two of the three judges seem ready to embrace the Sequoia Orange rational-relationship standard. As with other courts, the statute’s requirement of “a hearing on the motion” gave the Fifth Circuit pause leading two of the three judges to conclude that this requirement mandated some form of “judicial involvement and action.” The opinion makes no mention of the very first clause of the section, which states: “The Government may dismiss the action notwithstanding the objections of the person initiating the action . . . .” This text logically and plainly states that whatever the relator’s objections, the government may dismiss the action, subject to two procedural requirements—notice and an opportunity for a court hearing.
As several reviewing courts have now recognized, the statute is completely silent on the parameters of this “hearing” or what factors should control the Government’s dismissal of a qui tam action. But these omissions are in fact significant in respect to judicial review. Even though the statute permits private parties to sue, such actions, not unlike criminal cases, are brought in the name of the United States.6 Whether to proceed with an enforcement action, either criminal or civil, is left to discretion of the executive branch and is typically unreviewable by the judicial branch. See Heckler v. Chaney, 470 U.S. 821, 832-33 (1985) (decisions not to enforce are presumptively unreviewable). The presumption against judicial review may usually be rebutted only where the substantive statute has provided guidelines for the agency to follow in exercising its enforcement authority. Id.; see also United States v. Armstrong, 517 U.S. 456, 464 (1996) (whether to prosecute is special province of the executive; in the absence of clear evidence to the contrary, courts presume prosecutors properly discharge their duties). Because the False Claims Act is silent on how the Attorney General or his delegees should exercise their discretion in determining whether to dismiss a qui tam case, and because prosecutors are presumed to act properly absent clear contrary evidence, the decision to dismiss ought to be beyond the purview of the courts. As the Seventh Circuit in its recent decision noted: “If Congress wishes to require some extra-constitutional minimum of fairness, reasonableness, or adequacy of the government’s decision under §3730(c)(2)(A), it will need to say so.” United States v. UCB, Inc., 970 F.3d at 853.
Particularly timely in light of Health Choice and other recent decisions is a press announcement on July 26, 2021. A bipartisan group of senators introduced legislation that will codify the Sequoia Orange standard and mandate a hearing on 3730(c)(2)(A) motions where the government must explain its rationale for seeking dismissal and the relator shall be given an opportunity to show that the government’s reasons are “fraudulent, arbitrary and capricious, or contrary to law.”7 In addition, the bill also imposes an unusual burden-shifting scheme regarding the element of materiality, requiring defendants to offer clear and convincing evidence of non-materiality when the government (or relator) has established that element by a preponderance of the evidence.8
Lastly, Judge Higginbothem deserves credit for identifying an alternative to 3730(c)(2)(A) motion practice. In his concurrence, he pointed out what should be obvious to everyone, that the government could have saved everyone the trouble and avoided (c)(2)(A) litigation altogether by stating early in the case that “it was aware of, but never defrauded by, the practices alleged.” By offering this sort of evidence in a case, the Government should be relieved of the burden of prosecuting a contested 3730(c)(2)(A) dismissal. And in most cases, one would expect this evidence to accomplish the same result by providing the defendant with exculpatory proof that would be dispositive.
As we have seen in the past, however, this may not always be the case, at least not immediately. In another Fifth Circuit case, United States ex rel. Harman v. Trinity Industries Inc., 872 F.3d 645 (5th Cir. 2017), the relator brought an action against the manufacturer of highway guardrail systems, claiming that the defendant had altered the guardrail design without federal regulatory approval and that these redesigned guardrails were allegedly responsible for a number of accidents. A few months before trial, the Justice Department, in response to a Touhy request, produced a memorandum stating that the redesigned guardrails remained eligible for reimbursement throughout the time period relevant to the litigation. In other words, there was no material fraud. Despite this evidence, the district court denied the defendant’s subsequent motion for summary judgment from the bench without opinion.9 The case proceeded to a trial of the claims which resulted in a jury verdict for the relator in the amount of $663,360,750. On appeal, the court of appeals vacated the verdict and ordered judgment for the defendant on grounds of a lack of materiality. Id. at 667. It can only be hoped that Harman is an outlier and that, as Judge Higginbothem noted, when the government says there has been no fraud, false claim, or material violation, the relators and the courts will listen.
Notably, in closing, the Harman court stated that “the demands of materiality adjust tensions between singular private interests and those of government and cabin the greed that fuels it. As the interests of the government and relator diverge, this congressionally created enlistment of private enforcement is increasingly ill served.” Id. at 669-70. This prudent counsel should guide the judgments not only of courts but of legislators who may be considering whether to amend the current law. In contested 3730(c)(2)(A) litigation like the sort in Health Choice, we see a dramatic divergence between the interests of government and private relators, in this case backed by Wall Street speculators motivated by one thing—money. Whatever happens with the proposed legislation and in future litigation, the courts’ approach to (c)(2)(A) litigation must continue to defer to the Government’s decisions in exercising its historic prerogative over statutory and regulatory enforcement.
—John Masslon, WLF Senior Litigation Counsel
Click here for WLF’s brief.
WASHINGTON, DC— Washington Legal Foundation (WLF) today urged the U.S. Court of Appeals for the Third Circuit to overturn a class-certification order on Article III standing grounds. In an amicus brief, WLF argues that the Third Circuit should properly apply the Supreme Court’s recent Thole decision and require named plaintiffs to establish standing before asserting claims for a class.
The case arises from a lawsuit against Employee Retirement Income Security Act fiduciaries. The plaintiffs argue that the fiduciaries paid excessive investment fees for thirty-seven different investment options that 401(k) participants invested in. Yet the named plaintiffs invested in only seven of the thirty-seven options. Still, the District Court certified a class of all 401(k) participants who invested in any of the thirty-seven options.
In its brief supporting the defendants, WLF argues that the District Court erred in certifying the class because the named plaintiffs lacked standing to assert claims about thirty of the investment options. In a near identical case involving pension plans, the Supreme Court held that plaintiffs have standing only if they suffered a financial injury because of an ERISA fiduciary’s mismanagement of plan assets. The named plaintiffs here did not suffer a financial injury stemming from the fees charged for investment options in which they did not participate.
WLF’s brief also explains why the District Court’s contrary analysis is unpersuasive. Just because plaintiffs have standing to assert some claims, they do not automatically have standing to bring related claims. And grouping multiple claims in a single count does not solve this jurisdictional problem. WLF therefore urges the Third Circuit to properly apply Thole and hold that the plaintiffs lacked Article III standing to bring some of their claims.
Celebrating its 44th year, WLF is America’s premier public-interest law firm and policy center advocating for free-market principles, limited government, individual liberty, and the rule of law.
The post WLF Urges Third Circuit To Require Named Plaintiffs To Establish Standing appeared first on Washington Legal Foundation.
The post Free Market Group Backs Axon’s High Court Challenge Of FTC appeared first on Washington Legal Foundation.
—John Masslon, WLF Senior Litigation Counsel
Click here for WLF’s brief.
WASHINGTON, DC— Washington Legal Foundation (WLF) today urged the U.S. Supreme Court to hear an appeal from an order dismissing an important separation-of-powers case. WLF argues that the U.S. Court of Appeals for the Ninth Circuit erred in holding that federal courts lack statutory jurisdiction to consider Axon’s claims.
The case arises from Axon’s acquisition of a failing competitor. The Federal Trade Commission alleges that the acquisition was anticompetitive and violated the antitrust laws. Axon sued in federal court, arguing that the FTC’s structure and procedures are unconstitutional. Later that day, the FTC began administrative proceedings. The District Court held that it lacked subject-matter jurisdiction over Axon’s claims because Congress intended for the FTC to decide those issues and the Ninth Circuit affirmed.
In its amicus brief supporting Axon, WLF argues that defendants have a right to have their constitutional challenges to an agency’s structure adjudicated by an Article III tribunal. In Thunder Basin, the Supreme Court announced three factors that courts must consider when analyzing whether Congress stripped district courts of jurisdiction to hear pre-enforcement challenges. But lower courts have ignored two of those factors—whether a claim is wholly collateral to the merits of a case and whether the agency has expertise on the question—and focused solely on whether the defendant can obtain meaningful judicial review of an adverse agency decision. Lower courts have then impermissibly allowed illusory review to satisfy the meaningful-judicial-review factor.
WLF’s brief also explains why the Ninth Circuit’s decision continues the trend of improperly applying the Thunder Basin factors. It held that Axon could seek meaningful judicial review of the FTC’s decision despite such review occurring only twice over the past twenty-five years. The ruling also glossed over the harm that could not be remedied by a petition for review. Finally, the Ninth Circuit improperly ignored the FTC’s lack of expertise in constitutional law. The case thus offers the Supreme Court a chance to give proper guidance on applying Thunder Basin.
Celebrating its 44th year, WLF is America’s premier public-interest law firm and policy center advocating for free-market principles, limited government, individual liberty, and the rule of law.
The post WLF Urges Supreme Court To Clarify When Parties May Challenge Agencies’ Structures appeared first on Washington Legal Foundation.
WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., ranking member of the Senate Committee on Commerce, Science, and Transportation, today released the following statement on the Surface Transportation Board’s (STB) decision to proceed with Amtrak’s application to reinstate Gulf Coast passenger rail service.
“After years of in-depth planning, it is time for Amtrak services on the Gulf Coast to restart,” said Wicker. “I thank the STB for recognizing the importance of this issue by moving to consider Amtrak’s case. Implementing twice-daily service between New Orleans and Mobile will increase access to jobs, boost tourism, provide a safe alternative to highway travel, and reduce roadway congestion. It will also continue to grow the coastal economy as it emerges from the pandemic, improving the overall quality of life in Mississippi.”
Gregory A. Brower is Chief Global Compliance Officer for Wynn Resorts. He also serves on WLF Legal Policy Advisory Board and is the WLF Legal Pulse’s Featured Expert Contributor, White Collar Crime and Corporate Compliance.
Over the past few years, U.S. companies with operations abroad have increasingly focused on mitigating potential risk under the Foreign Corruption Practices Act (“FCPA”), and with very good reason. FCPA enforcement has been a focus for both the DOJ and the SEC in recent years, with 2020 seeing 32 combined cases, and a record $2.7 billion in corporate fines and penalties. While FCPA risk mitigation should continue to be a priority for U.S. companies operating overseas, an ongoing domestic bribery prosecution in Ohio serves as a reminder that corruption risk is not limited to foreign business activity.
Back in July of 2020, a federal grand jury indicted the then-Speaker of the Ohio House of Representatives on federal racketeering conspiracy charges involving an eye-popping $60 million in allegedly corrupt payments. The alleged scheme centered around a controversial piece of legislation known as House Bill 6 which was introduced in the Ohio House in April of 2019 and would have benefited certain subsidiaries of FirstEnergy Corp., a large electric utility. A few months later, both chambers passed the bill by narrow margins and the governor signed into law. Almost immediately, opponents of the new law initiated an effort to put a referendum on the ballot to allow voters to stop it from taking effect, claiming it was a corporate bailout that would harm consumers. The referendum effort ultimately did not obtain the number of signatures required under Ohio law and failed to make it on to the ballot.
Now, FirstEnergy has acknowledged its role in the scheme. According to a deferred prosecution agreement (“DPA”) between DOJ and FirstEnergy announced July 22, House Bill 6 wasn’t enacted simply because a majority of legislators in each house believed it was good public policy. Instead, the DPA’s statement of facts reveals that FirstEnergy, through its officers, employees, and other agents, conspired to pay millions of dollars for the benefit of certain public officials, including “Public Official A,” otherwise described in the DPA’s statement of facts as the former Speaker of the Ohio House, in exchange for ensuring passage of the bill. According to the statement of facts, these payments were facilitated by the creation of a bogus 504(c)(4) which allowed FirstEnergy executives and their co-conspirators to conceal the scheme.
While the case against the former Speaker and several other alleged co-conspirators continues, last week’s DPA resolves the matter for FirstEnergy, at least for now. According to the agreement, DOJ will file an information charging FirstEnergy with one count of conspiracy to commit honest services wire fraud, and then dismiss the information after three years if FirstEnergy meets certain conditions. These conditions include payment of a monetary penalty of $230,000,000, forfeiture of approximately $6,000,000, FirstEnergy’s cooperation in the ongoing investigation, and implementation of certain corporate reforms including: (a) establishing an Executive Director position for the board of directors; (b) separating the Chief Legal Officer (“CLO”) and Chief Ethics and Compliance Officer (“CECO”) functions, and hiring both a new CLO and a new CECO who reports directly to the board’s audit committee; (c) creating a Compliance Oversight Subcommittee of the audit committee; (d) reviewing and revising political activity and lobbying/consulting policies and disclosures; and (e) working to establish a culture of ethics, integrity, and accountability at every level of the organization.
While public corruption schemes approaching this scale are exceedingly rare in the U.S., virtually all companies that operate in the U.S. are at some risk of exposure to such domestic public corruption. Companies that engage in lobbying at the local, state, or federal levels, or are required to have permits or licenses in order to operate are theoretically at risk. Although the FirstEnergy case includes evidence that company executives actually participated in the corrupt activity, FCPA enforcement history tells us that it is typically third-party agents—consultants, lobbyists, lawyers—that engage in such illegal conduct on behalf of their company client. And, as we also know from the FCPA context, such third-party illegality can create significant liability for the company even when the illegal conduct is not directed by or even known to the company.
In light of this reality, any company that has interaction with government officials should ensure that programs, policies, and training are appropriately focused on both domestic and foreign corruption risks as may be appropriate given the company’s business model and footprint. Corporate anti-corruption policies should address more than just the FCPA, and contracts with third-parties who could create such risks should include robust anti-corruption provisions. Finally, while it is generally legal for companies to make political and charitable contributions, appropriate scrutiny should be applied to both.
The post First Energy DPA: A Reminder That Not All Corruption is Foreign appeared first on Washington Legal Foundation.
WASHINGTON, D.C.—U.S. Senator Maria Cantwell (D-WA), the Chair of the Senate Committee on Commerce, Science, and Transportation, will convene an executive session at 10:00 a.m. on Wednesday, August 4, 2021, to consider the following measures and nominations:
- S. 451, Composites Standards Act of 2021; Sponsors: Sens. Capito (R-WV), Gary Peters (D-MI)
- S. 1790, Secure Equipment Act of 2021; Sponsors: Sens. Marco Rubio (R-FL), Edward Markey (D-MA)
- S. 1880, Protecting Indian Tribes from Scams Act; Sponsors: Sens. Ben Ray Lujan (D-NM), Jerry Moran (R-KS)
- S. 2068, Minority Business Development Act of 2021; Sponsors: Sens. Benjamin Cardin(D-MD), Tim Scott (R-SC), Maria Cantwell (D-WA), Roger Wicker (R-MS), Tammy Baldwin (D-WI), Sen. John Cornyn (R-TX)
- S. 2299, CADETS Act; Sponsors: Sens. Gary Peters (D-MI), Todd Young (R-IN), Tammy Baldwin (D-WI), Ted Cruz (R-TX), Edward Markey (D-MA), Mike Braun (R-IN)
- S. 2333, Equal Pay for Team USA Act of 2021; Sponsors: Sens. Maria Cantwell (D-WA), Shelley Capito (R-WV), Amy Klobuchar (D-MN), Cynthia Lummis( R-WV)
- S.2424, Restoring Brand USA Act; Sponsors: Sens. Amy Klobuchar (D-MN), Roy Blunt (R-MO)
- Nomination of Hon. Jennifer L. Homendy, of Virginia, to be Chair of the National Transportation Safety Board (PN573)
- Nomination of Ms. Karen J. Hedlund, of Colorado, to be a Member of the Surface Transportation Board (PN535)
- Nomination of Mr. Robert C. Hampshire, of Michigan, to be an Assistant Secretary of Transportation (PN436)
- Nomination of Ms. Carol A. Petsonk, of the District of Columbia, to be Assistant Secretary of Transportation (PN438)
*Agenda items subject to change
Executive Session Details:
Wednesday, August 4, 2021
10:00 a.m. EDT
Full Committee (No Remote Option)
Executive Session #10
Watch LIVE at www.commerce.senate.gov
Due to current limited access to the Capitol complex, the general public is encouraged to view this executive session via the live stream. Social distancing is now lifted for vaccinated members of the press who wish to attend. The Office of the Attending Physician recommends that all individuals wear masks while in interior spaces and other individuals are present.
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WASHINGTON, D.C. – The U.S. Senate Committee on Commerce, Science, and Transportation today approved six bills and three nominations, which are now all subject to approval by the full Senate.
“First, I want to discuss the Minority Business Development Act of 2021,” Chair Cantwell said. “That was introduced by Senators Cardin, Scott, Wicker, Baldwin, and Cornyn. This bill would make the Minority Business Development Agency permanent in statute and would create a presidential-appointed, Senate-confirmed Undersecretary of Commerce for Minority Business Development. This bill would authorize the Minority Business Development Agency's current Business Center Program, create new rural Minority Business Centers… and most importantly, it would authorize $110 million per year for five years to the Minority Business Development Agency organization to carry out this mission. I want to thank Senator Wicker for his work on this.”
Below is the full list of the legislation and nominees advanced out of committee today:
- S. 451, Composites Standards Act of 2021
- S. 2299, CADETS Act;
- S. 2068, Minority Business Development Act of 2021
- Nomination of Hon. Jennifer L. Homendy, of Virginia, to be Chair of the National Transportation Safety Board (PN573)
- Nomination of Ms. Karen J. Hedlund, of Colorado, to be a Member of the Surface Transportation Board (PN535)
- Nomination of Ms. Carol A. Petsonk, of the District of Columbia, to be Assistant Secretary of Transportation (PN438)