This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.
The Delaware Supreme Court recently advised a federal appeals court that the state’s partnership law bars a limited liability partnership formed by three Sanofi-Aventis U.S. LLC employees from continuing a whistleblower action over allegedly false Plavix blood thinner marketing because one of them dropped out, in United States of America, et al. v. Sanofi-Aventis U.S. LLC, et al., No. 256-2019, certified questions answered (Del. March 17, 2020).
The March 17 opinion answered several certified questions of Delaware law posed by the United States Court of Appeal for the Third Circuit to help it decide whether to uphold the dismissal of an amended federal qui tam complaint against Sanofi, Bristol-Meyers Squibb Co. and Aventis, Inc. under the False Claims Act 31 U.S.C. § 3729.
A New Jersey District Court tossed the suit, agreeing with three defendant drug developers that the original plaintiff partnership died when a member left and that a revised partnership that filed a second amended complaint in the qui tam suit could not step into its shoes because it would be a “new party” in violation of the FCA’s “first-to-file” rule. In re: Plavix Marketing, Sales Practices and Products Liability Litigation (No. II) 315 F. Supp. 3d 817 (D.N.J. 2018), appeal docketed, No. 19-2472 (3d Cir. July 3, 2018)
The central appeal issue
A central appeal issue that the justices were asked to resolve was whether the state’s current partnership statute, the Delaware Revised Uniform Partnership Act, viewed the partnership as legally indistinct from its three members for all purposes because of its unique charter language.
Justice Karen Valihura’s opinion on behalf of the en banc high court ruled that:
· The membership change caused the dissolution of the original partnership, which is not entitled to continue to prosecute the whistleblower action as part of a “winding up” process.
· The second amended complaint was filed by a new plaintiff partnership, which appears to be now prosecuting the action.
· It is not possible to determine, from the undisputed facts of the case, whether the new partnership inherited the litigation asset that might entitle it to file that second amended complaint in the underlying action.
If the Third Circuit adopts the position taken by the Delaware justices, the current qui tam plaintiffs could face an uphill battle to overturn the dismissal because the FCA’s first-to-file rule bars the “intervention” of a new private party to replace the original relator.
Blowing the whistle
Justice Valihura said two doctors and a Sanofi sales representative, acting as JKJ 2011 Partnership LLP, filed a November 2011 whistleblower complaint claiming the defendant pharmas hid key information about antiplatelet drug Plavix’s limited ability to prevent heart attacks and strokes.
A second amended complaint filed February 22, 2017 added new allegations of marketing misrepresentations, but by that time a new member had replaced one of the originals and the court asked the parties to brief the issue of whether JKJ was now a new partnership without standing.
The federal judge said although the DRUPA, under 6 Del. C. § 15-201, employed an “entity” approach that normally allowed membership changes without creating a new partnership, JKJ had expressly opted out of that provision and chose to be legally identical to its members under the “aggregate” form.
The District court therefore granted the defendants’ dismissal motion, reasoning that the new partnership that filed the second amended complaint was an intervenor.
Living with their choice
In their appeal, the plaintiffs argued that even if the new partnership had no standing, the original partnership’s members could continue the action as part of the winding up of its business, but in answer to the Third Circuit’s certified question on that issue, the high court said JKJ chose “not to be distinct from its members” and must live — or die — with that choice.
Besides, the underlying suit appears to have been taken over — validly or not — by the new partnership, the justices said. But whether the right to litigate transferred to the new partnership “is a fact-based question that we cannot determine based on the undisputed facts” and “the dearth of case law in this area.”