Victor Stanley, Inc. v. Creative Pipe, Inc. A Lesson in the Consequences of Spoliation of Evidence

A recent series of decisions in the case Victor Stanley, Inc. v. Creative Pipe, Inc. in the U.S. District Court for the District of Maryland, demonstrate the serious consequences that can arise when parties engage in the intentional spoliation of evidence. The decisions stem from numerous incidents of spoliation of evidence by the defendant over a four year period in a case involving alleged violations of copyrights and patents and unfair competition. The decisions provide a lesson not only in the severity of the possible sanctions associated with severe spoliation of evidence but also provide a chart which breaks down important spoliation decisions at the district and circuit court levels.

In the initial ruling on the plaintiffs motion for sanctions, U.S. Magistrate Judge Paul Grimm concluded that the spoliation of evidence was a direct result of the defendants willful permanent destruction of electronically stored information. As a result of the defendants actions the Court granted the plaintiff partial default judgment. Additionally, the court concluded that because the defendant acted willfully in destroying the evidence, the defendant would be held in civil contempt. The court ordered the individual defendant who destroyed the evidence be imprisoned for a period not to exceed two years unless and until he paid the plaintiffs attorney fees and costs related to the spoliation. Additional sanctions included all attorney fees and costs associated with the plaintiffs motion for sanctions. A copy of the courts September 9, 2010 Order can be read here.

Following this ruling, the defendant appealed. On appeal, the District Court modified the sanctions to remove the possible jail sentence. U.S. District Court Judge Marvin Garbis, writing for the court, found that jail was not an appropriate sanction “for a future possible failure to comply” with payment. Additionally, the court ordered the defendants to pay an “agreed minimum amount” of $337,796.36 to the plaintiff within four days of the order.

Fuerst Ittleman has built a reputation for getting results in wide variety of complex litigation cases in federal, state, local, and appellate courts. Contact a complex litigation attorney from Fuerst Ittleman at contact@fidjlaw.com.

Revision to Federal Rule of Civil Procedure 26 Broadens Work Product Protections for Expert Communications with Attorneys

On December 1, 2010, revisions to Federal Rule of Civil Procedure 26 took effect which will have significant implications on the attorney-expert witness relationship. The new changes will limit the amount of expert discovery that is available and should provide for more efficient and cost effective litigation.

Under the former version of Rule 26, experts were required to disclose draft reports and information regarding communications between themselves and the attorney who retained them. The practical effect of the old rule was the development of litigation strategies where experts would consciously avoid sharing drafts of their opinions with counsel and the frequent use of two experts, a testifying expert who would share limited information with counsel and a consulting expert who would be used to provide much needed expert analysis while preparing for trial.

With the changes to Rule 26, draft reports of expert witnesses will no longer be discoverable and will be protected under the work product doctrine. Additionally, communications between counsel and the expert witness will be protected expect for communications that: 1) relate to compensation for the experts study or testimony; 2) identify facts or data that the partys attorney provided and that the expert considered in forming the opinions to be expressed; or 3) identify assumptions that the partys attorney provided and that the expert relied on in forming the opinions to be expressed. The rule also provides that if an expert is not providing a report, but testifying at trial, then the attorney must disclose the facts and opinions to which the expert is expected to testify.

This practical rule change of extending the work product privilege to expert reports and communications should result in reduced costs and more effective and efficient litigation. The attorneys at Fuerst Ittleman have a deep understanding of the mechanics of complex litigation and they can apply that knowledge to a variety of complex litigation cases. Fuerst Ittleman has built a reputation for getting results in wide variety of complex litigation cases in federal, state, local, and appellate courts. Contact a complex litigation attorney from Fuerst Ittleman at contact@fidjlaw.com.

Three Pharmaceutical Manufacturers Agree To Pay $421.2 Million In False Claims Act Settlement

On December 7, 2010, the United States Department of Justice announced that it had reached a $421.2 million settlement agreement with three pharmaceutical manufacturers for alleged violations of the False Claims Act. The violations stem from allegations that the drug manufacturers published false and inflated prices of numerous medicines to defraud Medicare and Medicaid. A copy of the Department of Justice press release can be read here.

Authorities allege that the manufacturers, Abbott Laboratories, Inc., Roxane Laboratories, Inc., and B. Braun Medical, Inc., falsely published inflated average wholesale prices of numerous pharmaceuticals in an effort to market, promote, and sell the drugs to existing and potential customers. According to the Department of Justice, the scheme involved an agreement between healthcare providers and the manufacturers to falsely adjust the “spread” on the price of pharmaceuticals in order to create larger profits for the healthcare providers. The “spread” is the difference between the inflated published price, which the government reimburses at, and the actual price paid by the healthcare provider for drugs. The larger the “spread” the more profit the healthcare provider makes in reimbursements from the federal government.

Authorities alleged that providers would purchase pharmaceuticals from the companies at prices lower than the reported average wholesale price. Medicare and Medicaid would then reimburse healthcare providers at those higher prices and the providers would pocket the difference. The scheme was designed to allow the healthcare providers to make more profits and for the drug manufacturers to retain the providers as customers for the future. As a result of the scheme, federal healthcare programs paid millions more too healthcare providers than they would have had the manufacturers been truthful.

Under the settlement agreements, though each company denied wrongdoing, Roxane will pay $280 million, Abbott will pay $126.5 million, and B. Braun Medical will pay $14.7 million in civil fines. The settlements resolve allegations brought by a whistleblower under the qui tam provisions of the False Claims Act.

The False Claims Act allows for private persons to file suits to provide the government information about wrongdoing. Under the statute, if it is established that a person has knowingly submitted or caused others to submit false or fraudulent claims to the United States, the government can recover treble damages and $5,500 to $11,000 for each violation of the statute. If the government is successful in resolving or litigating its claims, the whistle blower who initiated the action can receive a share of between 15 percent to 25 percent of the amount recovered. In this case, the False Claims Act suits were brought by Ven-A-Care, a Florida home infusion company. As a result of its whistle blowing efforts, Ven-A-Care will receive approximately $88.4 million.

If you have any questions regarding qui tam actions, or for information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Freight Forwarder and Oil Service Companies Pay Huge Fines For Violating The Foreign Corrupt Practices Act

In another example of the recent enhancement in enforcement of the Foreign Corrupt Practices Act, (FCPA) a global freight forwarder and five oil and gas service companies resolved FCPA investigations conducted by the Department of Justice and the Securities and Exchange Commission by agreeing to pay $156,565,000 in criminal penalties and civil disgorgement, interest and penalties in the sum of $80,000,000.

A criminal information was filed on November 4 charging Panalpina World Transport (Holdings) Ltd., the global freight forwarding company based in Switzerland , (“Panalpina”)with conspiring to violate the anti-bribery provisions of the FCPA. In a deferred prosecution agreement and a plea agreement filed in federal court in the Southern District of Texas, Panalpina, and its U.S. subsidiary Panalpina, Inc., admitted that they engaged in a scheme to pay bribes to numerous foreign government officials on behalf of their many customers in the oil and gas industry. These bribes allowed them to circumvent local rules and customs regulations governing the importation of cargo into numerous foreign countries. Panalpina admitted paying bribes totaling $27,000,000 to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.

Panalpinas customers, Shell Nigeria Exploration and Production Company Ltd., Transocean Inc. and Tidewater Marine International, Inc. admitted in deferred prosecution agreements that they knew of and condoned the bribes paid on their behalf. These companies recorded the bribes as legitimate business expenses in their corporate books and records. These companies agreed to pay criminal fines in excess of $50,000,000 . Under the terms of the deferred prosecution agreements, Panalpina and its customers are required to cooperate fully with U.S. and foreign authorities in any ongoing investigations of the companies corrupt payments. Each company is also required to implement and adhere to a set of enhanced corporate compliance and reporting obligations.

In recent years, the Department of Justice has made FCPA prosecutions a priority, allocating substantial resources to a team of FBI agents and prosecutors dedicated solely to bringing FCPA cases against companies and their executives. Compliance with the FCPA, along with expanded due diligence, anti-bribery prevention programs and regular auditing of foreign payments are now essential for businesses with international operations and sales. As shown in this case, failure to abide by the FCPA can have catastrophic consequences and is at a companys (and its executives) peril.

Pharmaceutical Company Lawyer Indicted For Obstructing FDA Investigation Into Promotions of Unapproved Uses of Prescription Drug

An in-house counsel for a large pharmaceutical company was indicted for obstruction of justice and making false statements in relation to an FDA investigation into promotions of “off-label” uses of the companys prescription drugs. According to the indictment, the in-house counsel sent a series of letters to the FDA in response to FDA inquiries that falsely denied that the company had promoted the drug for “off-label” uses, even though the attorney knew that the company had sponsored numerous such promotions. The lawyer also knew that the company had paid physicians to give promotional talks that included information about unapproved uses of the drug. One physician had been paid to speak at more than 500 promotional events and another at 488 such events.

The indictment also alleges that the lawyer did not provide the FDA with certain slides used by the physicians in their presentations even though the FDA specifically requested them. With knowledge that the slide sets contained incriminating evidence, the lawyer wrote the FDA, and instead of producing the slide sets, informed FDA that the responses made to FDA were “final” and “complete”. According to the U.S. Attorney for the District of Massachusetts, “there is a difference between legal advocacy based on the facts and distorting the facts to cover up the truth. Federal agencies such as the FDA cannot protect the public health if the entities and individuals they regulate provide false information and conceal the true facts”.

Each of the obstruction of justice charges carry a maximum penalty of 20 years imprisonment upon conviction. Each of the false statement charges carry a maximum penalty of 5 years imprisonment. The pharmaceutical company for whom the lawyer worked was not charged with a crime and was not identified in the indictment.

Whistleblower Lawsuit Results in $750 million Settlement for GlaxoSmithKline

Facing criminal and civil charges relating to the manufacturing and distribution of certain adulterated drugs made at its Cidra Manufacturing Plant in Puerto Rico, GlaxoSmithKline (GSK) has pleaded guilty and agreed to pay the United States $600 million in settlement of criminal charges and $150 million for civil violations.

The Cidra Manufacturing Plant had been cited by the FDA for manufacturing violations as early as 2002. GSK had instructed Cheryl Eckard and a team of scientists to fix these manufacturing violations. According to Eckards lawyers, she and her team found additional problems than those already cited by the FDA, including mixed-up products, contaminated water systems, and air-handling systems that misdirected the flow of product powder. She recommended GSK shut down the plant, advice which GSK ignored. Her lawyers indicate that she was fired in 2003 after she had, on numerous occasions, requested GSK to address the problems at the Cidra Manufacturing Plant.

Eckard then instituted a qui tam lawsuit in federal court in the District of Massachusetts under the False Claims Act in 2004. The qui tam, or whistleblower, lawsuit permits private citizens to bring suits on behalf of the United States and share in any recovery. In a press release dated October 26, 2010, the Justice Department discussed the effectiveness of the False Claims Act in cases involving fraud against federal health care programs, indicating total recoveries since January 2009 of $5.4 billion. The whistleblower in this case, Cheryl Eckard, will receive approximately $96 million as her share of the settlement amount.

Among the drugs manufactured at the closed Cidra facility were Kytril, a sterile anti-nausea medicine, and Bactroban, a topical anti-infection ointment. The criminal information alleges that GSK failed to ensure that these products were free of contamination from microorganisms. Additionally, it is alleged that manufacturing deficiencies resulted in Paxil CR, a two-layer tablet which is the controlled-release formulation of the popular anti-depressant drug, Paxil, to split apart. Also, Avandemet, a combination Type II Diabetes drug, allegedly was not always composed of the FDA approved mix of active ingredients, and potentially contained too much or too little of the ingredient with the therapeutic effect. The Cidra facility also allegedly suffered numerous product mix-ups.

Commenting on the settlement, Mark Dragonetti, Special Agent in Charge of the FDA New York Field Office, stated:

FDA expects pharmaceutical companies to abide by these manufacturing standards and correct deficiencies in an expedited manner. FDA and its law enforcement partners will continue to aggressively pursue those companies that place the public health at risk by distributing products that do not comply with all FDA requirements.

U.S. Attorney Carmen Ortiz expressed his views that the industry must comply with all of the rules and regulations or face these severe consequences. “To do less erodes public confidence and compromises patient safety.”

If you have any questions regarding qui tam actions, FDA manufacturer requirements or any other FDA regulations, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

U.S. Attorney’s Office For the Southern District Of Florida Increasing Training And Expanding To Combat Fraud

The U.S. Department of Justice has granted the request of the US Attorney for the Southern District of Florida, Wifredo Ferrer, for additional resources and manpower as the US Attorneys office struggles with its efforts to combat rampant fraud in South Florida.

As South Florida has experienced increased amounts of health-care, mortgage and financial fraud, the U.S. Attorneys Office has found it increasingly difficult to prosecute offenders due to the strain on the offices staff of 280 attorneys and their resources. As a result of the large caseload and limited resources, the offices efforts at prosecuting fraud have been stifled. U.S. Attorney Ferrer hopes this will change based upon the news he received last month from the Department of Justice that his request to hire four new prosecutors was granted.

The new prosecutors and their support staff will focus on the voluminous amounts of Medicare fraud that occur in South Florida. South Florida currently has the reputation as being ground zero for the $60 billion a year that is bilked from Medicare as a result of fraud. The four new prosecutors follow Ferrers recent hire of 10 “top-flight” attorneys since June in the offices major crime division and the hiring of four prosecutors by the previous U.S. Attorney Jeff Sloman.

Ferrer also announced that the U.S. Attorneys office is focused on increasing training for all of the districts Assistant U.S. Attorneys. Recently, Ferrer appointed Assistant U.S. Attorney Dawn Bowen as the districts first training director. The new training will emphasize the importance of effective advocacy during the sentencing phase of criminal trials. As a result of the U.S. Supreme Courts landmark decision in United States v. Booker, 543 US 220 (2005), which declared that the U.S. Sentencing Guidelines were advisory rather than mandatory, the role of the prosecutor at the sentencing phase has changed. Federal prosecutors must now advocate what the right sentence for a particular crime is and why. In May, U.S. Attorney General Eric Holder issued a memo explaining the governments new policy that proposed sentences be weighed on a case-by-case basis.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Arizona Aviation Company Indicted for Violating Arms Export Control Act

On October 28, 2010, a federal grand jury indicted Floyd Stilwell, president and CEO of Marsh Aviation Co., an Arizona company for violating the Arms Export Control Act. The indictment charges that Stilwell and his company were part of a conspiracy to ship arms to Venezuela from November 2005 until February 2008.

The indictment alleges that Stilwell and his company shipped military engines to the Venezuelan air force and provided training on how to maintain them in violation of federal law. The engines sold are listed on the United States Munitions List. Under federal law, the export of arms on the US Munitions List is illegal without a federal export license or written authorization issued by the Department of State. Since 2006, the U.S. government has forbidden the export of military hardware to Venezuela because Venezuela does not cooperate with United States anti-terrorism efforts. Additionally, the Office of Foreign Assets Control also issues regulations regarding the import and export of goods to countries which do not comply with U.S. counter-terrorism efforts. These regulations can be found at the OFAC Website.

According to the indictment, Stilwell and Marsh Aviation agreed to upgrade turboprop engines for use on Venezuelan air force reconnaissance planes. The indictment further alleges that Stilwell agreed to disassemble the upgraded engines, disguise them as civilian models when exporting them, and that Marsh Aviation sent employees to Venezuela to reassemble the engines once they had arrived.

U.S. Authorities also allege that Stilwell received $1.8 million in his personal bank account for his role in the arms exporting scheme. If convicted, Stilwell faces up to 15 years in federal prison for the arms violations and conspiracy charges.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, as well as information regarding OFAC and strategies on maintaining compliance with federal customs regulations please contact us at contact@fidjlaw.com.

Cargolux Executives Indicted In Rate Fixing Conspiracy

On October 28, 2010, a federal grand jury in Miami indicted two executives with Luxembourg based Cargolux Airlines on charges of conspiring to fix surcharge rates on air cargo shipments to and from the United States.

According to the indictment, Cargoluxs president and CEO, Ulrich Ogiermann, and its senior vice president of sales, Robert Van de Weg, conspired with others to eliminate competition by fixing and coordinating fuel and security surcharges billed to their customers for air cargo shipments to and from the US. Ogiermann and Van de Weg, along with their co-conspirators, entered into surcharge agreements and accepted payments at noncompetitive and collusive rates. The conspirators also agreed not to pay commissions on those surcharges. A copy of the United States Department of Justices press release announcing the indictment can be read at: US DOJ Press Release.

Ogiermann and Van de Weg are charged with price fixing in violation of the Sherman Act. If convicted, both executives could be sentenced to up to 10 years in prison and a $1 million fine, though the fine could increase if either the amount of money made by the conspirators or the amount of money lost by the victim exceeds $1 million.

Ogiermann and Van de Wegs indictment comes during increased investigations by the U.S. Department of Justice into price fixing in the air transportation industry. In a separate case, four former airline executives were indicted on charges of conspiring to fix fuel surcharges. In that case, the indictment alleges that the conspirators agreed to increase their fuel surcharges on air cargo shipments to Central and South America after Hurricanes Katrina and Rita. Additionally, in September, six international freight forwarding companies plead guilty to price fixing and paid $50.3 million in criminal fines. To date, over $1.6 billion in criminal fines have been imposed on a total of 18 airlines and 14 executives for price fixing activities.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

More News on the Coming Wave of FDA Enforcement Actions

Yesterday we reported the comments of Eric Blumberg, FDA Deputy Chief Counsel for Litigation, who said that the FDA will increase misdemeanor criminal prosecutions for pharmaceutical executives whose companies are promoting off-label uses of their products. At this same conference, sponsored by the Food and Drug Law Institute, additional guidance was provided for the pharma industry with respect to coming trends in FDA enforcement and how companies can achieve compliance now.

In addition to prosecuting off-label marketing of pharmaceutical products, Blumberg also warned that criminal investigations will increase and be focused on the distribution of unapproved new drugs as well as the failure to report unexpected adverse events caused by these products.

Eugene Thirolf, Director of the Office of Consumer Litigation at the Department of Justice (the FDAs government prosecutor), echoed Blumbergs comments stating that he foresees more criminal prosecutions arising from safety issues related to pharmaceutical products; e.g., distribution of defective products, adverse event reporting failures and fraudulent use or reporting of testing data.

This increased emphasis on criminal investigations and prosecutions by the FDA and the Justice Department are not just confined to consumer issues, however. Blumberg, Thirolf and several other speakers also discussed holding pharma companies accountable for regulatory issues arising from manufacturing. Company executives were admonished to adhere to current Good Manufacturing Practice (cGMP) regulations and standards, and cautioned not to ignore (or cover-up) safety issues discovered in the manufacturing and testing of pharmaceutical products. Thirolf stated that criminal prosecutions could arise from false documentation of manufacturing processes and procedures.

Much of the impetus for these new investigations and prosecutions will come from the FDAs Office of Criminal Investigations, which the agency has pledged to revamp and refocus.

The message from the FDA is clear “ not only for pharmaceutical companies, but for dietary supplement companies, medical device manufacturers, food producers, cosmetic companies and other FDA regulated industries as well:

Now is the time to proactively implement FDA compliance programs, to perform audits of your existing compliance programs, and to review your manufacturing processes, distribution networks, advertising, websites, and promotional activities to ensure compliance with FDA laws and regulations. Failure to do so now will result in even greater problems “ including criminal investigations and prosecutions “ later.