Our Litigators of the Week are Kirkland & Ellis partners James Hurst and Andrew Kassof, who saved national grocery chain Albertsons from a potentially enormous False Claims Act suit.

When the duo took over defense of the long-running case 10 months ago, things looked grim. Albertsons was headed towards an FCA trial after a federal judge in the Central District of Illinois found that the grocer, which operates in-store pharmacies in 34 states, had charged the government the wrong, higher price for prescription drugs for nearly 10 years. 

In a remarkable turnaround, Hurst and Kassof won summary judgment on June 12. In a 65-page opinion, U.S. District Judge Richard Mills adopted Kirkland's arguments in full, holding that Albertsons "could not recklessly or knowingly violate the law … when the law relating to the impact of membership discount and price matching programs" was "not clear" at the time of the alleged violation.

Hurst and Kassof discussed the case with Lit Daily.

Lit Daily: Who is your client and what was at stake?

Jim Hurst:  The stakes were massive.  Our client is Albertsons, a grocery chain with in-store pharmacies operating in thirty-four states. Like many other pharmacies, Albertsons' subsidiary Safeway offered discounts to uninsured customers through a membership club and a price-match program. The "whistleblower," a former pharmacist, filed a False Claims Act suit. He argued that our client "defrauded" the federal government for nearly a decade by giving those discounts to uninsured customers, while charging the government the regular prices for Medicare and Medicaid customers. 

Andrew Kassof:  So what was at stake was not only a challenge to discount programs that helped the uninsured, but also compensatory and treble damages plus civil penalties on each of tens of millions of claims.

What challenges did you face taking on the case only 10 months ago and how did you respond?

AK:  Just before we were retained, the court had granted partial summary judgment against our client relating to the FCA's falsity element. Falsity is so important at trial. It asks whether the company submitted the right price. The court here held that we submitted prices that were wrong and too high. That ruling forced a complete shift in trial strategy, witness work, and motion practice because Safeway now needed to focus on what it knew, understood, and believed to be the right price for all those years, even if the court later came out differently.

JH:  And all of that had to happen before a trial potentially only months away. The record in the nine-year-old case was staggering, and now we needed to devise new themes, new trial strategies, and a new approach to narrow or beat the claims. On the legal side, the court's falsity holding rested on a 2016 Seventh Circuit opinion called Garbe. We recognized the court's holding implicated the Supreme Court's decision in Safeco, which essentially holds that a party cannot knowingly or recklessly violate a statute if the law is unsettled.  The argument, then, was that before Garbe in 2016, the law was too unsettled for our client to violate the FCA.

You've successfully handled several large FCA cases, including a billion-dollar trial win in Texas a few years ago. What are some of the secrets to your success?

AK:  These are scary cases for our clients, particularly because of the potential for trebling and statutory penalties. But aggressive plaintiff's attorneys are constantly trying to stretch the FCA beyond its intended purpose, which is designed to capture outright fraud against the government, like falsified invoices. By stretching the FCA so far, plaintiff's attorneys are bringing cases with vulnerabilities. We've learned to relentlessly focus on and exploit those vulnerabilities as part of both our legal and trial strategy.  Putting a huge spotlight on a vulnerability often produces a win, as it did in this case.

What was your overarching message or strategic approach to this case?

JH:  Our clients always did the right thing. They were trying to compete in the marketplace with programs that offered special discounts for uninsured consumers paying cash. And they continuously monitored the regulatory and legal landscape and industry practices, and proactively inquired to resolve uncertainties. Always striving to comply with the law is not the sort of conduct that justifies an FCA violation.

Jim and Andrew, as members of the management committee, you're both firm leaders and first-chair litigators. What was it like working together? How did you divide up the work?

JH:  Andrew's not only fun to work with, but also a phenomenally talented and creative trial lawyer. We work well together, and typically team up on the biggest cases where it makes sense to have two leads.  We then split duties to avoid inefficiencies and duplication. For clients, the benefit is that we share a hyper-competitive drive to figure out ways to win. That has paid huge dividends in, for instance, jury research, where we go up against each other with gloves off, trying to rip each other's heart out.  Over and over, the result has been winning trial themes and strategies.

AK:  I love working with Jim, except in jury testing. Jim could convince my family that I misled them and couldn't be trusted. He is as gifted a trial lawyer as there is anywhere in the country. I've never seen anything like his ability to connect with a jury. I try to steal something new from him every time we work together.

Who were the other members of your team and what individual strengths did they bring to the representation? 

JH:  We had a rock-star team supporting us, including superb writers and exceptional trial lawyers. Brent Rogers, John O'Quinn and Dan Siegfried took the laboring oar on the successful briefing. John and Dan started developing this argument years ago in other FCA cases. Brent then refined that work to fit the facts here and drafted the winning briefs. At the same time, Sierra Elizabeth, James Hileman and Diana Watral, all incredibly talented trial lawyers, helped develop our core trial themes and evidence. 

Who was opposing counsel?

AK:  The lead counsel for the other side were Tim Keller and Dale Aschemann from Aschemann Keller.  There were a number of additional lawyers involved on their side.

Tell us a bit about the court's "falsity" ruling. Did it increase the likelihood of an imminent, high-stakes trial?

JH:  Yes, it did, because it removed a major hurdle that stood in the way of a trial. Both parties had been focusing their arguments and trial preparation on the price that pharmacies were required to submit to the government. The court resolved that issue as a matter of law, holding that the Garbe decision meant that "lower matched prices" our client sometimes gave to uninsured customers were the prices Albertsons should have submitted to the government.

AK:  A lot of the work that had been done in discovery—focusing on proving that price matches were not the right prices to charge the government—would no longer be the focus. With the court's ruling in hand, the likelihood of a high-stakes dice roll by the "whistleblower" increased dramatically.

How did you persuade the court to decide your newly-filed Safeco motion before over half a dozen already-pending motions in both cases? 

JH:  The case had been pending for about nine years. Trial had been moved several times. When we took over the case, the court had hundreds of pages of pending motions on so many different issues in two related cases. We thought the Safeco issue could resolve everything quickly. So we filed our Safeco motion the day we entered our appearance in the case, and then filed a "case management" motion saying that resolving the Safeco issue would "short-circuit" the "high volume of briefs pending before the Court." The court agreed, and issued a methodical, thorough, and thoughtful opinion vindicating our client.

What makes the court decision significant and what impact will it have on future False Claims Act litigation?

AK:  The opinion is a watershed in FCA cases generally and discount prescription drugs specifically. The Department of Justice has argued against the application of Safeco—a case decided under the Fair Credit Reporting Act—to the FCA in courts across the country. The district court here followed the law in other circuits and became the first within the Seventh Circuit to apply Safeco to the FCA, and the first anywhere to apply it in the discount prescription drug context.

JH:  By applying Safeco to the FCA, this case significantly reduces the impact of the Garbe opinion on the many pharmacies that sold drugs under membership club and price match programs for years while collecting higher reimbursement rates from the government. As the district court explained, even if the pharmacies submitted the wrong prices, the law was too unclear before Garbe for whistleblowers to satisfy the FCA's "knowing violation" element as a matter of law.

What will you remember most about this case?

JH:  From the outset, we believed in our core that our client had acted completely responsibly and was on the right side of the law.  It is so gratifying that our belief was loudly vindicated only ten months after taking on the assignment.