United States ex rel. May v. Purdue Pharma L.P.

• Decision Date: 12 December 2013
• Docket Number: No. 12–2287.,12–2287.
• Citation: 737 F.3d 908
• Parties: UNITED STATES ex rel. Steven MAY and Angela Radcliffe, Plaintiff—Appellant, v. PURDUE PHARMA L.P., a limited partnership, and; Purdue Pharma, Incorporated, Defendants—Appellees. United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

737 F.3d 908

UNITED STATES ex rel. Steven MAY and Angela Radcliffe, Plaintiff—Appellant,

v. PURDUE PHARMA L.P., a limited partnership, and; Purdue Pharma, Incorporated, Defendants—Appellees.United States of America, Amicus Curiae.

No. 12–2287.

United States Court of Appeals, Fourth Circuit.

Argued: Sept. 20, 2013.

Decided: Dec. 12, 2013.

ARGUED:Mark Tucker Hurt, Abingdon, Virginia, for Appellant. Howard Morris Shapiro, Wilmerhale LLP, Washington, D.C., for Appellees. Henry C. Whitaker, United States Department of Justice, Washington, D.C., for Amicus Curiae. ON BRIEF:Paul W. Roop, II, Roop Law Office, LC, Beckley, West Virginia, for Appellant. Jennifer M. O'Connor, Christopher E. Babbitt, Daniel Winik, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Appellees. Beth S. Brinkmann, Acting Assistant Attorney General, Michael S. Raab, Civil Division, United States Department of Justice, Washington, D.C., for Amicus Curiae.

Before TRAXLER, Chief Judge, DIAZ, Circuit Judge, and GINA M. GROH, United States District Judge for the Northern District of West Virginia, sitting by designation.

Vacated and remanded by published opinion.

Chief Judge TRAXLER wrote the opinion, in which Judge DIAZ and Judge GROH joined.

TRAXLER, Chief Judge:

Appellants Steven May and Angela Radcliffe brought this action under the False Claims Act, 31 U.S.C. §§ 3729–33 (the “FCA”), against Purdue Pharma L.P. and Purdue Pharma, Inc. (together, “Purdue”). Giving preclusive effect to this court's decision in United States ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir.2010), the district court dismissed the action on res judicata grounds. Because we agree with the appellants that this action is not barred by res judicata, we vacate the decision of the district court and remand for further proceedings.

I.

Mark Radcliffe, the husband of appellant Angela Radcliffe, was a district sales manager for Purdue. Radcliffe was laid off as part of a reduction in force in June 2005, and he subsequently executed a general release (the “Release”) of all claims against Purdue in order to receive an enhanced severance package. Radcliffe thereafter filed an FCA action against Purdue (“ Qui Tam I ”) ¹ in which he alleged that Purdue falsely marketed its narcotic pain medication OxyContin to physicians as being twice as potent as MS Contin (a cheaper, off-patent drug also manufactured by Purdue), thus making it appear that OxyContin was cheaper per dose than MS Contin. The government investigated Radcliffe's allegations and declined to intervene in his action.

The district court eventually dismissed Qui Tam I with prejudice, concluding that Radcliffe's amended complaint did not satisfy the heightened pleading requirements of Rule 9. SeeFed.R.Civ.P. 9(b) (“In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake....”). On appeal, we affirmed the with-prejudice dismissal on alternate grounds, concluding that the Release barred Radcliffe's FCA claims. See Radcliffe, 600 F.3d at 333.

After we issued our opinion in Radcliffe, Steven May and Angela Radcliffe (the “Relators”) commenced this FCA action against Purdue (“ Qui Tam II ”) setting forth allegations nearly identical to those advanced by Mark Radcliffe in Qui Tam I. As noted, Angela Radcliffe is Mark Radcliffe's wife; Steven May was formerly a sales representative for Purdue under Mark Radcliffe's supervision.

Purdue moved to dismiss the Relators' complaint on res judicata grounds, arguing that our decision in Radcliffe barred the Relators from proceeding with Qui Tam II. See, e.g., Martin v. Am. Bancorporation Retirement Plan, 407 F.3d 643, 650 (4th Cir.2005) (“Res judicata ... precludes the assertion of a claim after a judgment on the merits in a prior suit by the parties or their privies based on the same cause of action.”). Purdue also argued that the FCA's public-disclosure bar, see31 U.S.C. § 3730(e)(4), divested the district court of jurisdiction over the action and that the complaint did not allege fraud with the particularity required by Rule 9.

As to the res judicata question, Purdue contended that Radcliffe was a judgment on the merits because it affirmed a with-prejudice dismissal; that the claims asserted in Qui Tam I and Qui Tam II were identical; and that the parties were identical because Qui Tam I was “brought on behalf of the United States as the real party in interest,” such that the government “and any other relators seeking to allege identical claims are bound by its judgment.” J.A. 83. The Relators argued that Radcliffe was not a decision on the merits for res judicata purposes, but they did not directly dispute Purdue's contention that the parties were identical.

Citing Adkins v. Allstate Insurance Co., 729 F.2d 974 (4th Cir.1984), the district court held that Radcliffe was necessarily a decision on the merits because it affirmed the grant of a summary-judgment motion. See Adkins, 729 F.2d at 976 n. 3 (“For purposes of res judicata, a summary judgment has always been considered a final disposition on the merits.”). And because the Relators did not challenge the other res-judicata requirements, the district court held without further analysis that “the instant case is barred by the doctrine of res judicata.” J.A. 225. The district court therefore dismissed the action withoutconsidering the other issues raised by Purdue. This appeal followed.

II.

The Relators argue on appeal that the district court erred by giving preclusive effect to Radcliffe and dismissing their action on res judicata grounds. The preclusive effect of a judgment issued by a federal court is a legal question governed by federal common law and subject to de novo review. See Taylor v. Sturgell, 553 U.S. 880, 891, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008) (federal common law determines preclusive effect of federal-court judgment); Clodfelter v. Republic of Sudan, 720 F.3d 199, 210 (4th Cir.2013) (district court's application of res judicata reviewed de novo).

Generally speaking, whether res judicata precludes a subsequent action “turns on the existence of three factors: (1) a final judgment on the merits in a prior suit; (2) an identity of the cause of action in both the earlier and the later suit; and (3) an identity of parties or their privies in the two suits.” Clodfelter, 720 F.3d at 210 (4th Cir.2013) (internal quotation marks omitted).

A.

The Relators contend that Radcliffe was not a “judgment on the merits” because the decision was premised on a determination that Mark Radcliffe lacked standing to pursue the FCA claims. Because Article III standing requirements are jurisdictional, see, e.g., United States v. Day, 700 F.3d 713, 721 (4th Cir.2012), cert. denied,––– U.S. ––––, 133 S.Ct. 2038, 185 L.Ed.2d 887 (2013), and jurisdictional dismissals are not “judgment [s] on the merits for purposes of res judicata,” Goldsmith v. Mayor of Balt., 987 F.2d 1064, 1069 (4th Cir.1993),² the Relators argue that Radcliffe is not entitled to preclusive effect.

We disagree with the Relators' reading of our decision in Radcliffe. Standing principles require the plaintiff to have suffered an “injury in fact.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks omitted). In the context of the FCA, however, it is the government, not the private-citizen relator, that has been injured by the defendant's fraud. FCA relators nonetheless have standing to bring an FCA action because the FCA “effect[s] a partial assignment of the Government's damages claim” and thus statutorily vests private citizens with standing. Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 773, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).

In Radcliffe, we discussed FCA standing principles in the course of rejecting one of Radcliffe's arguments against enforcement of the Release. As we explained, “Radcliffe had a statutory [FCA] claim, and the necessary legal standing as partial assignee” once the government suffered an injury and Radcliffe became aware of the fraud. Radcliffe, 600 F.3d at 329 (emphasis added). We did not conclude that Radcliffe lost standing when he executed the Release, but instead simply held that his execution of the Release effected a waiver of his right to sue Purdue. See id. at 329 (explaining that Mark Radcliffe “had the right ” to bring an FCA action before he signed the Release, “a right he waived under the terms of the Release”).

B.

Although we reject the Relators' assertion that Radcliffe was a jurisdictionaldismissal, we nonetheless agree with their bottom-line position that the district court erred by giving Radcliffe preclusive effect.

As the government notes in its amicus brief, the traditional res-judicata inquiry is modified in cases where the earlier action was dismissed in accordance with a release or other settlement agreement. See Keith v. Aldridge, 900 F.2d 736, 740–41 (4th Cir.1990). A judgment entered “based upon the parties' stipulation, unlike a judgment imposed at the end of an adversarial proceeding, receives its legitimating force from the fact that the parties consented to it.” Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d 1285, 1288 (11th Cir.2004). Thus, where a dismissal is “based on a settlement agreement, ... the principles of res judicata apply (in a somewhat modified form) to the matters specified in the settlement agreement, rather than the original complaint.” Id. That is, given the contractual nature of consent decrees and settlement agreements, the preclusive effect of a judgment based on such an agreement can be no greater than the preclusive effect of the agreement itself.³See Keith, 900 F.2d at 740 (“When a consent judgment entered upon settlement by the parties of an earlier suit is invoked by a defendant as preclusive of a later action, the preclusive effect of the earlier judgment is determined by the intent of the parties...