The perils of substituting relators in the midst of a qui tam were the highlight of this week’s decision by the Delaware Supreme Court on certification from the Third Circuit Court of Appeals in United States v. Sanofi-Aventis United States Llc, No. 256, 2019, 2020 Del. LEXIS 97 (Mar. 17, 2020), on certification from In re: Plavix Marketing, Sales Practices and Products Liability Litigation, 19-2472 (3d Cir. June 12, 2019) [hereinafter Certification].
Three individuals (two physicians and a Sanofi sales representative) formed a Delaware limited liability partnership to act as Relator, that is, “to file and prosecute” a whistleblower action under the federal False Claims Act (“FCA”), 31 U.S.C. §3729 et seq, and state analogs, against several defendants. Sanofi-Aventis 2020 Del. Lexis at *2. The three individuals’ partnership agreement contained the following provision: “the Partnership shall not be a separate legal entity distinct from its Partners.” Id. at 4. The Third Circuit explained the likely reason for this provision: if the original partnership was a separate legal entity, the fact that it did not exist at the time the alleged fraud occurred would prevent it from being an “original source” with direct knowledge of the fraud under the pre-amendment FCA. Sanofi-Aventis 2020 Del. Lexis at *4-5, citing In re: Plavix Marketing, Sales Practices and Products Liability Litigation (No. II), 315 F.Supp. 3d 817 at 381(D.N.J. 2018), appeal docketed, No. 19-2472 (3d Cir. July 3, 2018) [hereinafter Opinion].
Nine days after its formation, the relator partnership filed the qui tam complaint against Sanofi-Aventis U.S. LLC, Sanofi-Aventis U.S. Services, Inc., Aventis, Inc., Aventis Pharmaceuticals, Inc., Bristol-Myers Squibb Company, and Bristol-Myers Squibb Pharmaceuticals Holding Partnership. In their complaint, the relator partnership alleged that each of the original partners was an “original source” of the information upon which their allegations were based. While the case was pending, one of the partners left the partnership and was replaced by another physician partner. The District Court, then, “sua sponte, requested that the parties brief the question of whether JKJ was a proper relator capable of continuing the litigation in light of the replacement.” Sanofi-Aventis 2020 Del. Lexis at *6. The defendants moved to dismiss the reconstituted partnership’s amended complaint, arguing that the amended complaint violated the first-to-file rule under the FCA because the earlier complaint has been filed by a separate relator. The United States District Court for the District of New Jersey agreed with the defendants and dismissed the case. Opinion at 836. Relators appealed to the Third Circuit, which later certified three questions to the Supreme Court of Delaware to determine unsettled issues under Delaware law. Certification.
On certification from the Third Circuit, the Supreme Court of Delaware addressed three legal questions, which had arisen on appeal. Sanofi-Aventis 2020 Del. Lexis at *10. The Delaware court, in agreeing with the defendants’ theory, found: (1) the change in membership of the limited liability partnership relator created a new partnership and caused a dissolution of the original partnership under the Delaware Revised Uniform Partnership Act (DRUPA) because the partnership agreement provided that the partnership was not a distinct legal entity from its partners. Id at *34-35; (2) although the Court held that the “new” partnership filed the amended complaint, the statement of undisputed facts provided to the Delaware Court did not resolve the inquiry as to whether the new partnership possessed the qui tam lawsuit (“litigation asset”). Id at 35-36; and (3) the original partnership could not continue to bring the qui tam “action as a part of its winding up process, because to do so would be inconsistent with …the Partnership Agreement, and because the action is in its beginning phases and is the sole purpose for which [the original partnership] was established.” Id. at 36.
Questions of substituting or adding relators, dismissing earlier actions, and forming corporations to act as relators are fact-specific and often dependent on state law. This case is another example of the complexities of the FCA’s so-called “first-to-file” rule which provides: “no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This provision bars a later case based on the essential facts of a previously-filed whistleblower case involving the same elements of a fraud scheme alleged in an earlier-filed FCA case.
 Under the pre-amendment language an “Original Source” must “either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B).