First-to-File Bar Not Jurisdictional, Does Not Preclude Relators From Adding New Party to Complaint; United States Court of Appeals for the Third Circuit No. 18-2472, U.S. et al. ex rel. JKJ Partnership 2011 LLP v. Sanofi-Aventis U.S. LLC, et al.


The Third Circuit vacated and remanded a district court decision dismissing a qui tam complaint under the first-to-file bar. Before the district court, the defendants successfully argued that when the original relator—an LLC formed to pursue the lawsuit—substituted one LLC partner for a new partner, the change created a new legal entity that was not the original relator. The district court agreed this change triggered the first-to-file bar. The Third Circuit overruled, first holding that the first-to-file bar is not jurisdictional, based on the Supreme Court’s decision in Eisenstein. On the merits, the Circuit Court held that the first-to-file bar prohibits some methods of adding nonparties to a lawsuit, but does not block an existing party from adding a nonparty. Assuming that the change in membership created a new legal entity, the court found the original LLC was not precluded from adding the new partnership as a relator.

The relators in a qui tam case alleging healthcare fraud appealed the district court’s dismissal of their complaint under the first-to-file bar after the substitution of one relator for another.

In 2011, Jeffrey Stahl, Kelly Evans, and John Venditto formed JKJ Partnership 2011 LLP for the purpose of filing a False Claims Act complaint against Sanofi-Aventis and Bristol-Myers Squibb, two pharmaceutical companies that developed and marketed the anti-clotting drug Plavix. Venditto and Stahl were doctors, and Evans was a former sales representative at Sanofi-Aventis.

Generally, the relators alleged that Sanofi and Bristol had promoted Plavix to treat a broad range of patients, even though they knew that many of them would reap little if any benefit. The relators asserted the misrepresentations resulted in the submission of many false claims for payment to federal and state healthcare programs.

The complaint named the LLC as the sole plaintiff-relator, without naming the three LLC partners, except by way of background information. After the complaint was filed, one of the JV partners left and was replaced by another individual. The second amended complaint named all three of these new partners, but retained JKJ as the sole relator. The relators viewed the new LLC partnership as the same entity as the first one. However, various proceedings tested this theory.

In district court, the defendants moved to dismiss under the first-to-file bar, arguing that the substitution of an LLC partner created a new legal entity that was no longer the original relator. According to the defendants, the “new” LLC’s effort to pursue the suit as the relator amounted to an intervention, which is banned by the first-to-file bar. After analyzing Delaware’s partnership laws, the district court agreed and dismissed the case under the first-to-file bar.  

In its holding, the district court relied on a Supreme Court decision, U.S. ex rel. Eisenstein v. City of New York, which the district court interpreted as meaning that whenever a nonparty tries to join a qui tam False Claims Act suit, it is “intervening” within the meaning of the first-to-file bar. The court also relied on a Tenth Circuit decision that read Eisenstein the same way.

The relators appealed. The Third Circuit certified three questions to the Delaware Supreme Court, which filed a reply. First, the Delaware Supreme Court agreed that the two LLCs were distinct partnerships. Second, the court could not say whether the first LLC survived long enough to file the complaint at issue, but noted that the second complaint named the second group of partners. Therefore, the complaint must have been filed by the new LLC. Third, the court explained that the first LLC could not keep prosecuting the litigation as part of the winding-up process. The court reasoned that liquidation of the first LLC was inconsistent with carrying on the business for which the LLC was established.

The circuit court then began its own analysis. First, the parties disputed whether the first-to-file bar is jurisdictional. The defendants argued it is. The relators argued that a qui tam complaint that violates §3730(b)(5) merely fails to state a claim and thus that the motion falls under Rule 12(b)(6).

The court noted that the former argument places the burden of persuasion on the plaintiff, while the latter places it on the defendants. Second, a defendant challenging subject-matter jurisdiction may sometimes submit evidence, while on Rule 12(b)(6) the court must take the complaint’s well-pleaded allegations as true. Finally, jurisdiction may be challenged any time, but a failure to state a claim defense is waived if not raised before the close of trial.

The court found the circuits are split on the issue, but agreed that the first-to-file bar is not jurisdictional. The court noted the Supreme Court has recently instructed that unless Congress states clearly that a rule is jurisdictional, it is not. The Third Circuit noted that circuit decisions to the contrary mostly predated the SCOTUS case that resulted in this holding.

Relying on the principles of Article III standing, the defendants argued that Article III injury is suffered not by the relator, but by the government, and therefore the first-to-file bar shows which parties have standing to sue on behalf of the United States. However, the Third Circuit explained that the first-to-file bar is a matter of statutory authorization, not constitutional standing, and asks only whether the relator falls within the class of plaintiffs authorized to sue. Because the first-to-file bar is not jurisdictional, the court dismissed the motion to dismiss under Rule 12(b)(6) for failure to state a claim.

Next, the court turned to the merits. The court noted that in civil litigation, nonparties can become parties to a suit by intervening or filing their own related suit based on the same facts, both of which are barred by the first-to-file bar. However, nonparties can also be added to an existing suit by the court or existing parties. This method is not precluded by the first-to-file bar. Provided the new party is named in an amended complaint, the court found no issue. The court found this interpretation supported by the plain language meaning of the term “intervene,” and by Congress’ own use of the narrower legal term “intervention” in crafting the statute. According to the court, beyond barring intervention, the first-to-file bar itself says nothing about other ways in which third parties may enter an existing suit.

The court also found Eisenstein silent on this question. Eisenstein addressed the time limit for filing a notice of appeal in False Claims Act suits, and whether the government is a party when it declines to intervene. The Supreme Court held it is not, and the first-to-file bar was never before the court in that case. Further, the case did not turn on the meaning of intervention. The circuit court also rejected the defendants’ attempt to interpret Eisenstein as holding that intervention is the only way for a non-party to become party to a lawsuit, finding that too broad a reading of the Supreme Court’s statements. Again, the court noted that the first-to-file bar was not before the Supreme Court in that case.

The court concluded that the first-to-file bar reaches intervention under Rule 24 or the bringing of a new action on the same facts, but not other methods of joining an existing case like joinder, substitution of parties, or amendment of a complaint. Therefore, the bar did not preclude the new LLC’s participation as a relator in this case.

The Third Circuit declined to resolve most of the residual matters, sending the case back to the district court for further consideration. For example, deciding whether the new LLC is properly a relator would depend on record materials and recent developments the district court never had the chance to consider.

The court raised several issues for the district court to consider on remand. First, the defendants argued that the allegations in the SAC were so different from those that appeared earlier that they make the amendment improper. Second, the Delaware Supreme Court found that both the new and old LLCs are aggregate partnerships, which cannot sue or be sued in their own names. The court left these matters to the district court to decide. The court also left it to the district court to decide whether the new or old LLC owns this lawsuit.

Finally, the defendants argued that the Anti-Assignment Act bars a qui tam relator from ever assigning its interest in a suit, such as its share of recovery in a successful action. The Third Circuit disagreed, explaining that the claim is against the defendant, not against the United States.

FCA - Plavix v Sanofi-Aventis