This transcript has been auto generated
00;00;00;00 - 00;00;25;25
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. We did a podcast a couple of years ago about a really, really, really big jury verdict in the false claims. That case, this is the Janssen Products, a $1.6 billion jury verdict that happened in the District of New Jersey a couple of years ago.
00;00;25;27 - 00;00;46;16
Jonathan Porter
This is a big deal for a lot of people, for a lot of people who care a lot about the False Claims Act. It is now under appeal. And earlier this month, the Third Circuit heard oral argument in this appeal. And it's a it's a again, this is a big deal in the False Claims Act world because these issues continue to come up.
00;00;46;16 - 00;01;07;05
Jonathan Porter
So we're going to talk today about all the big issues that are going on with this billion dollar case. And so that's what we're going to talk about today on the podcast is the Third Circuit oral argument in the Janssen Products case. Joining me to talk about this big appeal is my Husch Blackwell colleague, Abe Souza. Abe has been on the podcast several times before.
00;01;07;05 - 00;01;27;17
Jonathan Porter
Listeners probably know him, but as a quick refresher, Abe is a former Assistant United States Attorney in the Chicago U.S. Attorney's Office. He's now with hush Blackwell St. Louis office and one of my favorites when it comes to all things False Claims Act. And so, Abe, welcome back to the podcast. Thanks for telling our listeners a little bit about this ongoing appeal.
00;01;27;18 - 00;01;29;23
Abe Souza
Hey, Jonathan, my pleasure. Thanks for having me.
00;01;29;23 - 00;01;49;08
Jonathan Porter
So we did a podcast on this case two years ago when the, when the jury came back with its verdict and it was looking like this was going to be $1 billion case. I did that podcast with my friends Tynan Kugler of PYA and Mara Smith Kouba from Bristol-Myers Squibb. And so people they can go back to listen to that episode if they want to.
00;01;49;08 - 00;01;58;18
Jonathan Porter
But, Abe, we've got you here so you can catch us up on what's going on in this case. So, hey, why don't you start by setting the stage for our listeners, remind us what this trial was all about.
00;01;58;18 - 00;02;25;11
Abe Souza
Yeah. So this case involves reimbursement for HIV medications, which, for obvious reasons, are considered life sustaining treatment and are largely covered by federal health care programs. This was a decline qui tam. There was no DOJ involvement in the trial. And there were two theories that the relators pursued. One was an anti kickback statute theory. The other was an off label marketing theory.
00;02;25;13 - 00;02;51;00
Abe Souza
Now the jury sided with the defense with Janssen on the anti kickback theory. Briefly, that theory involved allegations that Janssen used a speaker program and paid speaker fees to incentivize physicians to prescribe its HIV drugs, but the jury agreed with the relators on the off label marketing. And that theory is really Jonathan, where the rubber meets the road for purposes of this appeal.
00;02;51;02 - 00;03;21;29
Abe Souza
I'm sure we'll talk more about that today. But real quick, let's talk about the math leading to the $1.6 billion judgment, which is astronomical. As you mentioned, there were 120 million, in compensatory damages for almost 160,000 claims that were deemed to be false. Those were trebled, for a total of about 360 million. And then the court imposed a penalty of about $8,000 for each false claim.
00;03;22;01 - 00;03;43;03
Abe Souza
And all told, that added up to about $1.2 billion in penalties. Those penalties exceeded the compensated damages award by a ratio of more than 10 to 1. And if you add it all up, it results in a jury verdict of more than 1.6 billion, which is just a enormous sum.
00;03;43;06 - 00;04;01;22
Jonathan Porter
Thanks, Abe. Yeah, that's an enormous sum to me. I certainly can't cover that. And I would imagine for the shareholders of Janssen Products parent company, they're probably not too happy about that either. But so let's actually dig into that math because I think this is important. I know this really hasn't come up in the appeal very much, and it could be because of that ratio that you just mentioned.
00;04;01;22 - 00;04;29;17
Jonathan Porter
But I think it's important to talk about the numbers behind this. So Tanner Cook joined the podcast about a year ago to talk in detail about the excessive fines clause. And just briefly to recap. So Tanner told us that in some cases, judges, they tally up all the penalties and they find no constitutional issues, but that in others, judges say that a significantly greater penalty relative to actual damages that could violate the excessive fines clause.
00;04;29;18 - 00;04;37;00
Jonathan Porter
So, Abe, tell us about that issue and what the Third Circuit panel said about it. I don't know that it came up, but tell us what that issue would be.
00;04;37;03 - 00;04;59;23
Abe Souza
Yeah, absolutely. So first of all, I would encourage everyone to go back and listen to that episode with Tanner. That was a great episode. I found it really informative and helpful. And let's face it, this is a big issue for the defense in the False Claims Act space. Obviously these damages awards, which have been increasing over the years, are a big problem for companies, including in the health care space, and we need to be aware of it.
00;04;59;25 - 00;05;32;10
Abe Souza
There are two different approaches we've seen that lead to very different outcomes in these cases. In terms of the constitutional analysis. To give you an example, there was a Georgia case in 2023 where it was determined that there were 1.1 million in improper payments relating to collection therapy, which is usually used for mercury poisoning. That led to a $27 million judgment when you added in all the statutory penalties, but the judge found there was no excessive fines clause problem there.
00;05;32;12 - 00;06;05;07
Abe Souza
Let's contrast that with a Texas case from last year, 2025. There were $2.7 million in improper payments that would have resulted in 448 million in penalties given the number of claims. But the judge reduced that down to 16 million because of excessive fines clause concerns. So you're seeing very different approaches here in how this works. Some judges are looking at a ratio much like what is used in the due process context for evaluating damages awards.
00;06;05;09 - 00;06;27;02
Abe Souza
Other judges are saying, look, this is a statutory scheme imposed by Congress. We're not going to meddle with that as long as the penalties are within the statutory range, as adjusted for inflation on a regular basis. In this case, in the District of New Jersey, the judge expressed significant deference to Congress and the penalty scheme that is laid out in the statute.
00;06;27;04 - 00;06;49;06
Abe Souza
The judge declined to impose a penalty below the minimum range. Again out of legislative deference, but did observe that there was a lack of evidence about patient harm in this case, and ended up imposing a penalty in the middle of the applicable rule range, which again relates to when the fraud occurred and when the penalties are imposed. So it depends.
00;06;49;09 - 00;07;08;18
Abe Souza
But in this case, the judge landed on $8,000 per claim. Now, in terms of the appeal here, Jonathan, as you mentioned, this is not something that really came up in oral argument. There are a lot of other issues under consideration. And frankly, I think that the panel really ran out of time, but it would be very interesting to see how this turns out.
00;07;08;18 - 00;07;32;00
Abe Souza
Jansen, unsurprisingly, is urging a ratio based analysis akin to the due process realm that we've seen there. The government is saying, as I described, that type of analysis is not necessary when you have a statutory penalty framework in place, much like you do here. So we will see what happened. Frankly, the district court didn't spend much time on this either.
00;07;32;02 - 00;07;38;20
Abe Souza
And hopefully from a defense bar perspective, the Third Circuit really digs in because I think we could use some guidance, especially from an appellate court.
00;07;38;26 - 00;07;56;13
Jonathan Porter
Yeah, I think that's right. But I'm with you. I don't think this is the case to do that in, because the ratio is not as extreme. I know in the Texas case that you just talked about the ratio there would have been I'm bad at math, but like almost 200 to 1. So that's a really, really big number.
00;07;56;16 - 00;08;13;18
Jonathan Porter
And the way that those numbers work is it just depends on the type of claim being submitted. If you got a low dollar claim that is submitted over and over and over again, you're still getting that per claim penalty added on. And so that's how you get that really big ratio. And that's where the constitutional concerns come in.
00;08;13;20 - 00;08;34;21
Jonathan Porter
It sounds like here in the Jansen products case it just didn't happen that way. So maybe this is not the right vehicle for that. But I know that the thing that Tanner and I talked about on that last podcast was part of the issue that I have with the False Claims Act and how it's just designed is people really can't go to trial because you have this concern about these thermonuclear verdicts.
00;08;34;23 - 00;08;58;01
Jonathan Porter
If you've got a chance of a 200 X day, a trial, you really don't want to go to trial. It's not worth the risk. Yeah, I tend to think that trials are good for our litigation system to test out these facts. And see what happened. I, for one, think it's super valuable that we know that the relator in this case went to trial on the ax sham speaker program theory, and the jury agreed with the defense.
00;08;58;01 - 00;09;13;20
Jonathan Porter
And so those are things that are good for us. That's how we sort of figure out what the law should be and how juries would view these things. So I like trials. I wish we could have more false claims I trials it's the penalties is the penalties that really prevent that. And so that's the part of this that I personally find interesting.
00;09;13;23 - 00;09;32;24
Jonathan Porter
It's interesting it didn't come up at oral argument, but I get it. There are other big issues going on here. And Abe, let's talk about those big issues. You mentioned at the beginning the jury found False Claims Act violations on the off label marketing part of it. I don't think we've really explored that premise as an FCA violation on this podcast.
00;09;32;24 - 00;09;40;25
Jonathan Porter
And so, Abe, could you tell our listeners what off label marketing is and why it causes FCA issues? So at a high level.
00;09;40;25 - 00;10;06;28
Abe Souza
Off label marketing is the promotion of FDA approved drugs for unapproved uses, doses, age groups, conditions, that kind of thing. But the crucial nuance here, Jonathan, is that while off label marketing is prohibited, off label prescription by a medical provider is not, and drugs that are prescribed off label can be eligible for reimbursement by federal health care programs.
00;10;06;28 - 00;10;32;25
Abe Souza
And that's because physicians can use their medical judgment to prescribe a drug for off label uses. Super common example trazodone is FDA approved for a major depressive disorder for adults, but it's commonly prescribed for insomnia and helps patients in that regard. In this case, which deals with HIV medications, it's a little more complicated than that, but at a high level.
00;10;32;25 - 00;11;01;21
Abe Souza
The relator is alleged that Janssen engaged in off label marketing for its HIV medications, and thus cause claims that were not eligible for reimbursement to be reimbursed by federal health care programs. On appeal, Janssen is basically arguing that there's a disconnect between alleged off label marketing, which is prohibited again, and reimbursement for off label uses, which is not.
00;11;01;24 - 00;11;27;23
Abe Souza
And Janssen is saying that health care claims can't be false or material to the government's payment decisions merely because Janssen engaged in off label marketing, even assuming that occurred, which I think they would dispute. Interestingly, the government indicates in its brief and this came up in oral argument that the district court likely aired in two respects, particularly on falsity.
00;11;27;25 - 00;12;00;27
Abe Souza
So the district court suggests that, according to the government, in a jury instruction that FDA approval of a drug is necessary for the drug to be reimbursable. Obviously that's not true. So that's a big problem. Now, as it turns out, Janssen may have waive that issue by failing to preserve it. So we'll see how that turns out. The issue that they may have done a better job of preserving is that in ruling on a motion for judgment as a matter of law, after the trial was complete, the district court again suggested that off label marketing alone is a sufficient predicate for making claims false.
00;12;00;27 - 00;12;21;24
Abe Souza
Under the False Claims Act. And there's some suggestion by the government. And again, this came up in oral argument that perhaps there should be a limited remand so that the district court can clarify that. I think where the panel was more skeptical was on Janssen's argument about materiality and how off label marketing relates to materiality. Judge, maybe he's a Trump appointee.
00;12;21;24 - 00;12;43;15
Abe Souza
There were two Biden appointees on the panel. He has some questions indicating that he really views materiality as a fact question for the jury. So we'll have to see how that plays out. But these are very interesting issues. Obviously, there is a disconnect, frankly, between off label marketing and then ultimately prescriptions and reimbursement that takes place. So we'll have to see how the panel handles that issue.
00;12;43;23 - 00;13;06;11
Jonathan Porter
Thanks, Abe. Yeah. Off label marketing is, to me, a fascinating area of FCA enforcement. I keep going back to why the False Claims Act was developed in the first place, going back to the Civil War and defense contractors ripping off the federal government. And back then it was very clear what they were talking about and just the nature of our society.
00;13;06;11 - 00;13;23;23
Jonathan Porter
We've come a long way in close to 200 years, and now there's just things are a lot more complicated. So this seems like something where the Third Circuit may look at this and say, there needs to be some sort of rethinking of what exactly is a violation of the False Claims Act. To me, this could be a big decision.
00;13;23;23 - 00;13;47;05
Jonathan Porter
And so, Abe, thanks for writing that. To ground. I understand the point on materiality. At the end of the day, that is very much a question of fact. Some other courts have put some interesting guardrails on that, and I'll be curious to see what the Third Circuit does here. Abe, another thing that we've talked about on the podcast, I know this has come up in the appeal, is the ongoing challenges to unconstitutionality of qui tams.
00;13;47;07 - 00;14;02;20
Jonathan Porter
It's a big issue. It is slowly making its way through the appellate courts. And it's come up here in the Third Circuit, too. So if you don't mind, briefly recap the issue there for our listeners and then tell us what we can glean from the Third Circuit on how seriously they're they're taking the argument there.
00;14;02;26 - 00;14;28;18
Abe Souza
Yeah. This has been a fascinating issue for us all to follow for the last several years. It dates back to Justice Thomas's dissent in the Polanski case back in 2023, and he noted that article two of the Constitution vests the executive power, and the president alone, and he indicated that there were serious questions about whether relator could vindicate public rights without being appointed pursuant to the Appointments Clause.
00;14;28;21 - 00;14;58;10
Abe Souza
Interestingly, Justice Kavanaugh, joined by Justice Barrett, concurred in that. Then we saw a really interesting case out of the mill district of Florida. That is a fear of case. And it found, following up on that opinion by Justice Thomas, that FCA's key provisions are unconstitutional under the Appointments Clause. It did not address arguments under the Take Care investing clauses, but that decision was appealed to the 11th Circuit.
00;14;58;10 - 00;15;25;13
Abe Souza
It was recently argued it's still pending for a decision. It's going to be fascinating to see how that turns out. And I remember, Jonathan, you had a podcast episode right after oral argument that folks should listen to, a couple other developments on this front. There was another Supreme Court case called Wisconsin Battle last year where Kavanaugh again concurred, indicating joined by Thomas, again expressing concerns about the constitutionality of this mechanism.
00;15;25;13 - 00;15;44;22
Abe Souza
Justice Barrett did not join that concurrence, even though she had and Polanski. It's hard to know what that means exactly, but suffice it to say that we are all watching very closely for the moment when this ultimately winds its way back to the Supreme Court and to see what coalition emerges there. As I mentioned, it's not just the appointments clause.
00;15;44;25 - 00;16;11;07
Abe Souza
There are challenges to take care investing clauses. There have been a couple opinions out of the Fifth Circuit indicating that individual judges have concerns under both of those prongs, even though there is on bond authority and the Fifth Circuit upholding the constitutionality. So there's been a lot of movement here in this case. In the Third Circuit, the argument has been raised under both Rationales Appointments clause and take care investing clauses.
00;16;11;07 - 00;16;31;21
Abe Souza
I will say based on oral argument, the pale did not seem particularly receptive to this. Under the vesting and take care clause. Is the consensus certainly the argument the government made, which the panel seemed relatively receptive to, is that you may have a constitutional issue in a vacuum, but there's a lot of historical precedent here for qui tam litigation.
00;16;31;21 - 00;16;53;05
Abe Souza
And so it's hard to say if this has been going on in some form or another, all the way back to the founding, that there's really a constitutional issue. Janssen would push back on that, as well as the chamber of Commerce, which was an amicus in the appeal. And I think they would say, look, the history dating back to the founding is actually much more fragmented than the government suggests on the appointments clause.
00;16;53;05 - 00;17;18;04
Abe Souza
I think the big issue that came up at argument was that the office of a relator may not be a continuing office for purposes of the appointments clause. It's not like special counsel or something that can be filled. It's more of an office that is personal to the relator, and that matters a lot for appointments. Clause analysis. So based on argument alone, I don't know that the Third Circuit is going to side with Janssen on this, but it will be interesting in any event to see what they say in the opinion.
00;17;18;04 - 00;17;34;24
Jonathan Porter
Thanks, Abe. As we're recording this, we're still waiting on the 11th Circuit to come out with their opinions. If you're of I think we're several months away from them doing anything there, we'll just have to see. But I think this is heading towards the Supreme Court at some point is probably necessary to get some clarification on this front.
00;17;34;27 - 00;17;53;01
Jonathan Porter
So we'll see what the Third Circuit does. But thanks for telling our listeners where things stand after oral argument. There today. What else came up in the oral argument that our listeners need to know about? And then why don't you close this out by giving our listeners some takeaways from this huge judgment and where things seem to stand after the appeal?
00;17;53;08 - 00;18;16;12
Abe Souza
Yeah, it was really a substance rich oral argument overall. Again, I think they probably could have allotted more time to both sides. There was pretty extensive discussion of falsity. As I mentioned, the government seems to actually favor a remand there, a limited remand. There was some, I think, that Janssen tried to characterize the government's position as really supporting theirs in its entirety.
00;18;16;12 - 00;18;38;20
Abe Souza
I think the government took some umbrage at that and had to correct the record. Those were all very interesting dynamics that were going on. So we'll see. We'll be watching this one in terms of takeaways from this big judgment and the ongoing appeal. You said it earlier, Jonathan, that trials are a good thing for the FCA. I agree, we're both former AUSA has both tried cases, both like trying cases.
00;18;38;25 - 00;18;56;28
Abe Souza
I think trials are important to the justice system, and they're important because a defendant, if they feel like they've done nothing wrong, they shouldn't be brought to the table merely because they're facing the prospect on the seismic judgment that really doesn't have much of a relation at all to patient harm or harm to federal health care programs or anything else.
00;18;56;28 - 00;19;22;17
Abe Souza
And I think, unfortunately, that's where we've ended up here. When you're considering a trial as a defense lawyer, as a company that has undergone an investigation, it's very difficult on the risk calculus side to determine that a trial is in your interests. And I think that's too bad. And the more that courts wade into the excessive fines issue and other issues and limit the statute in a way that makes sense, I think that would be a good thing.
00;19;22;24 - 00;19;43;28
Abe Souza
The other takeaway, though, and it's related, is that this has become an incredibly broad tool both to pursue fraud, but things that don't really seem like fraud either. And I think this is a good case, showing just how far out the tentacles are on the False Claims Act. Again, Janssen is not submitting the claims themselves, so they're a step removed already.
00;19;44;04 - 00;20;10;13
Abe Souza
There's an emphasis on their marketing. Again, we're getting a little bit attenuated from the Civil War era, as you mentioned, Jonathan, and maybe the purpose of the statute. So in any event, it is what it is. This is where we are. And I think it's always a great time for companies to be careful to get in front of these issues, to have great compliance programs and think through all the angles and stay up to date on the recent developments so that they can ward off danger before it crops up.
00;20;10;15 - 00;20;27;19
Jonathan Porter
Thanks, Abe. Those are excellent takeaways. The firm is great having a fellow former AUSA to talk these issues through, because my brain still things like an essay from time to time. And I get that it's fun always comparing notes with you, Abe. So thanks for coming on the podcast and telling our listeners all about this interesting appeal. It's like you said, it's high stakes.
00;20;27;19 - 00;20;29;09
Jonathan Porter
So, Abe, thanks for coming on the podcast.
00;20;29;13 - 00;20;31;29
Abe Souza
Thanks so much, Jonathan. This was a lot of fun to close.
00;20;31;29 - 00;20;58;01
Jonathan Porter
This trial was huge. This appeal is huge. We only just scratched the surface on what's going on. But there's the entire different side where the defense one is. Abe just said trials are good. We should want trials in this space. And one of the good things that came out of this trial was that we know that juries hear this sham speaker program theory, and at least in this case, they said that it was not an anti kickback statute violation.
00;20;58;01 - 00;21;19;02
Jonathan Porter
That's a really important thing because a lot of companies, they have these programs. They're educational. And it's sometimes it requires flying a doctor to hear about this new drug or product. And so a lot of people say is this okay. You know, there was an era where those conferences happened to take place on fancy islands, but what about when it's not a fancy island?
00;21;19;10 - 00;21;38;19
Jonathan Porter
I'll tell you. I've read the anti kickback statute. There's no carve out for something that takes place at the Toledo airport. That could still be something of value. And so it's really good here for this case that we knew that the jury didn't think that a speaker program the way that Janssen had it designed wasn't any kickback statute violation.
00;21;38;19 - 00;21;55;25
Jonathan Porter
So these are all things where we're going to continue to stay on top of things like this that are really important to big industries that come under the scrutiny of the False Claims Act. And so, to our listeners, thanks for listening to us. And we'll see you next time.