Court Rules Breach of Fiduciary Duty Counterclaim in False Claims Act Case Impermissibly Seeks Indemnification

 

In United States ex rel. Nehls v. Omnicare, Inc., 2013 U.S. Dist. LEXIS 102543 (E.D. Ill. July 23, 2013), the Eastern District of Illinois dismissed an FCA defendant’s state-law breach of fiduciary duty counterclaim against a relator because it implicitly and impermissibly sought a contribution from the relator in the event that the defendant was found liable.

Allegations and Procedural History

While employed as Vice President of Operations at a pharmacy owned by defendant Omnicare, the relator uncovered evidence that the long term care pharmacy provider was violating the Anti-Kickback Statute. Without reporting the apparent wrongdoing to her supervisors, the relator filed an FCA action against the pharmacy company and two of its officers. One of the individuals filed a breach of fiduciary duty counterclaim against her based on her failure to report the FCA violations to the company.

The Court’s Holding

Judge Tharp dismissed the counterclaim because it was “predicated on [the individual’s] own liability for an FCA violation” and “would therefore shift the costs of that violation to the relator in the event he is found liable.” 2013 U.S. Dist. LEXIS 102543, at *61. The state-law counterclaim was analogous to a claim for contribution or indemnification from the relator; courts universally agree that such claims are invalid under the FCA because they would discourage relators from bringing suits. Id. at *59–60. Thus, because the counterclaim was inextricably linked with the defendant’s own liability under the FCA, the court dismissed it. Id. at *61.