In a major victory for two False Claims Act whistleblowers, the Ninth Circuit Court of Appeals reversed a Northern District of California District Court ruling on July 7, 2017 and held that Gilead Sciences, Inc. (Gilead) must face the whistleblowers’ allegations that Gilead violated the False Claims Act by making false statements in the approval process for three of its’ HIV drugs – Atripla, Emtriva and Truvada. The whistleblowers, Jeff and Sherilyn Campie, both former Gilead employees alleged that Gilead knowingly made false statements about the ingredients used in the drugs to illegally gain FDA approval and then Gilead defrauded the United States by selling billions of dollars of the drugs to government health care programs.

The Alleged Fraud

In order for a drug to be approved by the FDA, a drug maker must submit a “new drug application” (NDA) stating the chemical composition of the drug, the facilities where the drug will be produced, and the methods and controls that will be used in the production process.  In its submission to the FDA, Gilead claimed it would procure emticitabine (commonly known as FTC) an active ingredient in the HIV drugs from facilities in Canada, Germany, the United States and South Korea.  Based on the FDA’s approval of Gilead’s new drug applications for these drugs, the federal government purchased more than $5 billion worth of drugs in 2008 and 2009 alone.

However, the whistleblowers allege that beginning in 2007, Gilead imported unapproved FTC from facilities in China in order save money.  Gilead later sought FDA approval to use FTC imported from the Chinese supplier in 2008 – but the whistleblowers allege that Gilead had already been using FTC from this Chinese supplier for over two years by the time the FDA approved the supplier in 2010.  Furthermore, the whistleblowers accuse Gilead of falsifying data used in its submissions to gain FDA approval for the Chinese supplier.  Gilead allegedly claimed that it had received three batches of FTC from the Chinese supplier and it passed Gilead’s internal testing and was equivalent to FTC provided by other suppliers.  Although, the whistleblowers contend this representation was false because two of the three batches failed internal testing and one batch was found to contain arsenic, chromium, nickel and a microbial contamination.  In 2014, Gilead issued two recalls of contaminated products but never disclosed the internal test results showing contamination to the FDA.

Whistleblower’s False Claims Act Employment Retaliation Claim Revived

Marking another victory for the whistleblowers, the Court also reversed the District Court’s dismissal of Relator Jeff Campie’s False Claims Act retaliation claim, finding Campie alleged a sufficient False Claims Act retaliation claim.  Relator Jeff Campie was employed as Gilead’s Senior Director of Global Quality Assurance from July 2006 to July 2009 and made several efforts to prevent and correct the alleged fraud perpetrated by Gilead.  According to his complaint, in March 2009, Campie made clear that he expected Gilead to stop its deceptive practices and threatened to inform the FDA if Gilead continued its’ fraudulent conduct.  After being rebuffed by Gilead, Campie then initiated a quarantine to prevent non-approved ingredients from entering the drugs’ supply chain in April 2009.  Despite being chastised by management, Campie continued to voice concerns and was terminated in June 2009.  Analyzing these facts, the Court found that Campie’s pleading showed that he was discriminated against because he engaged in protected activity as defined under the False Claims Act.  Such protected activity is generally defined as actions taken to prevent conduct which the plaintiff reasonably believes constitutes a violation of the False Claims Act.  Based on Gilead’s discriminatory conduct, Jeff Campie could be entitled to double his lost wages incurred since he was terminated as well as other damages he has incurred based on Gilead’s discrimination.

Impact and Precedent of the Court’s Ruling

In its’ 34 page order the Court ruled that the Relator’s claims should be revived because the claims satisfied several important standards of developed False Claims Act precedent.  First, the Court rejected the District Court’s assessment of the Relator’s claims under the inappropriate “worthless services” analysis.  Essentially, the Relators claimed because Gilead’s HIV drugs were not manufactured at an approved facility and thus were not approved by the FDA, the sale of those medicines to the government constituted a false statement which was material to the government’s decision to pay Gilead for the drugs.  The District Court incorrectly dismissed this argument under the notion that because the government received some value for the drugs it purchased, the Relators did not state a viable claim.  However, the Ninth Circuit appropriately rejected the “worthless services” assessment and analyzed this claim as one of nonconforming goods.  Under the established precedent of False Claims Act cases where defendants have deliberately misled the government regarding the products being sold, the fact that the goods supplied had some value or were not worthless is immaterial to a fraud because the government received nonconforming goods.  See United States v. Nat’l Wholesalers, 236 F.2d 944, 950 (9th 1956); See also United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 305 (3d Cir. 2011); United States v. Aerodex, Inc., 469 F.2d 1003, 1007–08 (5th Cir. 1972).  For instance, in Aerodex, the Court held “[t]he mere fact that the item supplied under contract is as good as the one contracted for does not relieve defendants of liability if it can be shown that they attempted to deceive the government agency.” United States v. Aerodex, Inc., at 1007–08 (5th Cir. 1972).

The Ninth Circuit also found that the Relator’s claims satisfied the Escobar “implied false certification theory” under the recent and much debated Supreme Court decision in Universal Health Servs., Inc. v. United States, ___ U.S. ___, 136 S. Ct. 1989 (2016)(Escobar).  It should be noted the District Court’s decision was issued in 2015, prior to the Supreme Court deciding Escobar.  However, with the benefit of the Supreme Court’s Escobar decision, the Ninth Circuit found that the Relators’ claims satisfied the Escobar standard and the alleged conduct could be an “implied false certification” because Gilead not only requested payment for the non-conforming drugs but also made “specific representation about the goods or services provided.”   In this case, the specific representations were that Gilead represented that it was providing the government with drugs that were approved by the FDA, that were manufactured at approved facilities and were not adulterated or misbranded.  Because, as the Relators allege, these specific representations were false, Gilead made an implied false certification for payment and thus violated the False Claims Act under the Escobar standard.

Overall, the Ninth Circuit’s decision in United States ex rel. Campie v. Gilead Sciences is a major victory for the United States, the Campies and their counsel – which could result in over $15 billion being returned to United States taxpayers.  The decision is also a significant application of False Claims Act precedent that evokes the policies behind the False Claims Act’s establishment in the midst of the Civil War.  In the Courts’ thoughtful opinion, Judge Donald W. Malloy discussed the purpose of the False Claims Act and why the fundamentals of the law continue to be paramount, holding the False Claims Act “was enacted during the Civil War with the purpose of forfending widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government.  That core purpose would not be served if a defendant could escape liability for delivering nonconforming goods merely because the goods retained some value or in the absence of a bilateral contract.”  This foundational interpretation of the False Claims Act refreshingly adheres to the Act’s purpose of protecting the public from fraud which materially impacts and injures the United States taxpayers.

Frohsin Barger & Walthall would like to thank and congratulate the Campies for their brave perseverance in bringing this case as well as their counsel Tejinder Singh  and Thomas C. Goldstein, of Goldstein & Russell P.C. in Bethesda, Maryland; Andrew S. Friedman and Francis J. Balint, Jr. of Bonnett Fairbourn Friedman & Balint P.C. in Phoenix, Arizona and Ingrid M. Evans and Michael A. Levy of Evans Law Firm Inc. in San Francisco, California.  Frohsin Barger & Walthall would also like to thank and congratulate the United States and its attorneys, Douglas N. Letter, Benjamin Schultz, and Michael S. Raab, who submitted an amicus brief and argued for the United States in this case.

Read the Ninth Circuit’s full opinion here.

For more information on the False Claims Act, click here.