[00:00:01] Speaker 01:
Case number 18-5299, Ibsen by a pharmaceuticals ink appellant, which is Alex Michael Azar II, and his official capacity as Secretary of the United States Department of Health and Human Services at ELL.

[00:00:15] Speaker 01:
Mr. Buchholz, Mr. Blumberg,

[00:00:43] Speaker 08:
Good morning, Your Honors.

[00:00:44] Speaker 08:
May it please the Court?

[00:00:47] Speaker 08:
CMS's letter here was final agency action because it had legal consequences for two reasons.

[00:00:52] Speaker 08:
First, as this Court put it in Ray Atlanta, the letter exposed Ibsen to civil penalties for knowing violations.

[00:01:00] Speaker 08:
That's a legal consequence, just as this court held in Raelana.

[00:01:03] Speaker 08:
Second, the letter also had the legal consequence of denying a safe harbor, just as in Hawke's, the Supreme Court's most recent decision on finality.

[00:01:12] Speaker 08:
If the CMS letter had gone the other way and agreed with us about the price we were supposed to report, that would have been a safe harbor from the same penalties for knowing violations, because you can't possibly be guilty

[00:01:23] Speaker 08:
of knowingly providing false information if you're doing what the agency told you you could do.

[00:01:28] Speaker 05:
It sounds to me like your safe harbor argument is just a repackaging of your legal consequence.

[00:01:32] Speaker 05:
There's two ways of saying the same thing, and that is had the letter, because the letter went the way it was, we were exposed to some risk of penalties.

[00:01:42] Speaker 05:
Had it gone the other way, we wouldn't have had that risk.

[00:01:46] Speaker 05:
There's no regulatory safe harbor like there was in hogs, statutory safe harbor.

[00:01:52] Speaker 05:
There's no time limit.

[00:01:54] Speaker 05:
that comes with these letters as it did in the hawks.

[00:01:56] Speaker 05:
So I just want to make sure I'm understanding.

[00:01:57] Speaker 05:
You're just sort of saying, had it gone the other way, that would have given us some protection.

[00:02:01] Speaker 05:
It went the way we don't like, and so now we have some exposure.

[00:02:05] Speaker 08:
Well, two answers, Your Honor.

[00:02:07] Speaker 08:
So first, Hawks discusses the exposure to risk as a legal consequence separately from the safe harbor as what Hawks seems to say is a separate legal consequence and an additional one.

[00:02:17] Speaker 05:
Because it was a whole separate procedure, a regulatory procedure there with rules and agreements about not proceeding for five years and the government as a whole, not just the agency agreeing to it.

[00:02:26] Speaker 08:
I understand.

[00:02:26] Speaker 08:
And so the second part of my answer was going to be

[00:02:28] Speaker 08:
that yes, the safe harbor in Hawks was more formal.

[00:02:32] Speaker 08:
The safe harbor here is not as formal, but it doesn't matter whether it's formal or not in substance.

[00:02:37] Speaker 08:
If the agency had agreed with us that we could do what we thought the statute required or permitted us to do, that would be a safe harbor from penalties for knowing violations.

[00:02:47] Speaker 06:
How would it be a safe harbor?

[00:02:50] Speaker 06:
Like legally, or what regulation, or what case,

[00:02:55] Speaker 06:
What doctrine would you rely upon to say that that letter gives you a safe harbor?

[00:03:01] Speaker 08:
So the statute, Your Honor, that provides for civil penalties against a manufacturer as part of this program, permits civil penalties for knowing violations, the knowing provision of false information.

[00:03:11] Speaker 08:
And as a matter of general law applicable to this statute as well as every other statute that has a knowingly requirement,

[00:03:17] Speaker 08:
You can't knowingly violate the law if you're doing what the agency has told you the law requires.

[00:03:23] Speaker 06:
They say in their brief that this letter, they would not rely on this letter for any sort of a Scientor requirement.

[00:03:33] Speaker 06:
We can get them to concede it again on the record here when they stand up.

[00:03:39] Speaker 06:
It's in writing, so I don't understand how the letter has that legal consequence when the government says that this letter doesn't do that.

[00:03:48] Speaker 08:
Well, Judge Wilkins, with respect, I don't think that the government has said that they would never rely on this letter in any legal proceeding.

[00:03:55] Speaker 08:
And I also don't know how they really even could make such a representation.

[00:03:58] Speaker 08:
The Medicaid drug rebate program is about the states, not just about CMS.

[00:04:02] Speaker 08:
So I don't know how the Department of Justice could stand here and say that this letter could never have any legal consequence in any legal proceeding.

[00:04:09] Speaker 08:
I don't think that's possible.

[00:04:10] Speaker 08:
And I don't think they've purported to say that.

[00:04:11] Speaker 06:
Well, any letter that an agency

[00:04:14] Speaker 06:
right saying our view of the law is X and if the regulated entity disagrees and Does does says we think that's wrong and they do the opposite of X You're saying that that has legal consequences Because they would be knowingly violating the law so every time they get advice that they

[00:04:39] Speaker 06:
a regulated entity gets advice that they say that they're not going to comply with, that's a legal consequence?

[00:04:46] Speaker 08:
No, Your Honor, I think it depends on the legal regime.

[00:04:48] Speaker 08:
I think Your Honor's opinion in the sound board makes this point very clearly, where you have to look at the specifics of the agency program at issue, what that statute says, what those regulations say, and under that regime, what consequence does the agency action have or not have.

[00:05:03] Speaker 08:
And under this statutory regime, there happens to be a provision for civil penalties for knowing violations.

[00:05:09] Speaker 08:
In other statutory regimes, it doesn't work that way.

[00:05:12] Speaker 08:
And a letter putting you on notice of the agency's position doesn't, as in Raelana in this case, expose you as a matter of law to heightened penalties.

[00:05:20] Speaker 06:
Who imposes a civil penalty?

[00:05:23] Speaker 08:
I'm sorry, I didn't hear you.

[00:05:24] Speaker 06:
Who would impose the civil penalty?

[00:05:25] Speaker 08:
The agency would bring a proceeding in front of the agency initially for civil penalties.

[00:05:30] Speaker 06:
And the agency's lawyer said that they wouldn't do that.

[00:05:34] Speaker 08:
Your Honor, I may be missing something, but I don't know where the agency ever said in any kind of a binding way that they wouldn't do that.

[00:05:40] Speaker 08:
They said in the district court, they said they had not, at least not yet, brought any kind of enforcement action against Ipsen.

[00:05:46] Speaker 08:
But as Hawks and Sackett and a dozen of this court's cases make clear, that isn't the standard.

[00:05:52] Speaker 08:
The point of the Supreme Court's most recent cases here is that you don't have to wait for the agency to drop the hammer.

[00:05:58] Speaker 08:
If the agency has given you a definitive interpretation of the law, that as a matter of law exposes you to the risk of enforcement action, then that's a legal consequence that allows you to get into court.

[00:06:08] Speaker 08:
And again, not every agency letter telling you what the agency thinks the law is is final.

[00:06:13] Speaker 08:
That could be because the agency has structured its processes in a way

[00:06:17] Speaker 08:
that the person writing that letter from the agency doesn't speak for the agency and that isn't the consummation of the agency's decision making process.

[00:06:24] Speaker 08:
So it makes perfect sense in a case where the agency has set things up in a way so that the staff, as in sound board, can give you advice that because it's coming from the staff is by definition not the end of the line within the agency because there's a procedure

[00:06:38] Speaker 08:
to get a decision above staff from the agency itself.

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Now, Your Honor's disagreed about whether that was true in the FTC context.

[00:06:44] Speaker 08:
I don't have an opinion about that.

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But if the agency has set itself up in a way so that you can get a decision from someone who doesn't speak for the agency and you have a further opportunity for review within the agency, well then, of course, that isn't final.

[00:06:56] Speaker 08:
You have to pursue that further within the agency.

[00:06:59] Speaker 02:
And so that action by the agency .

[00:07:01] Speaker 02:
.

[00:07:01] Speaker 02:
.

[00:07:01] Speaker 02:
Let me get my question in.

[00:07:04] Speaker 02:
You were first told by

[00:07:07] Speaker 02:
not the council for the agency but by Wendy Tuttle that your NDCs must be changed and that this email that she sent was not a release of liability.

[00:07:24] Speaker 02:
Now that seems to me to be enough of a warning that if you don't change the NDC that you may face liability and my understanding is this

[00:07:37] Speaker 02:
42 USC 1396 RA, so on and so forth, is the only penalty you would face.

[00:07:44] Speaker 02:
Then a year later, the counsel for the agency drops the language about the NDCs must be changed, but still tells you this is not, this letter is not a release of liability.

[00:07:59] Speaker 02:
So you have a second watered down warning that

[00:08:07] Speaker 02:
what you propose is not consistent with the statute.

[00:08:10] Speaker 02:
Then for three years, there's no enforcement as far as the record shows whatsoever.

[00:08:19] Speaker 02:
My first question is, are these surveys being conducted?

[00:08:24] Speaker 02:
I know they're conducted in the secretary's discretion, but are these surveys being conducted so that if they, and you also

[00:08:35] Speaker 02:
put them on notice that you were going to continue to do what you'd asked them permission to do and they told you you couldn't do.

[00:08:42] Speaker 02:
So these surveys seems to me the one avenue that they could penalize you for knowingly supplying false information.

[00:08:56] Speaker 02:
Have there been any of these surveys?

[00:08:58] Speaker 02:
There's nothing in the record about it.

[00:09:00] Speaker 08:
Your Honor, I'm not sure exactly what you mean by a survey.

[00:09:02] Speaker 08:
The way this program works, the manufacturer has to self-report pricing information.

[00:09:06] Speaker 02:
In doing so, I'm sorry.

[00:09:09] Speaker 02:
Well, this is easier, the addendum on five in your brief.

[00:09:18] Speaker 02:
Because the penalties are attached to these verification surveys.

[00:09:25] Speaker 08:
Okay, so Your Honor, now I understand.

[00:09:26] Speaker 08:
I don't know whether, as I stand here right now, I don't know exactly what communications there have been between Ibsen and the agency that might be encompassed by this provision B here on addendum five.

[00:09:39] Speaker 08:
But more fundamentally, the way this program works is the manufacturer has to self-report pricing information on a regular basis.

[00:09:46] Speaker 08:
So Ibsen has been doing so, and as Your Honor pointed out, yes, we've been transparent with the agency about what we're doing and why.

[00:09:53] Speaker 02:
And they've taken no action.

[00:09:54] Speaker 02:
to tell you you cannot use the new base date?

[00:09:59] Speaker 08:
Well, they haven't taken enforcement action per se, but Your Honor, I would submit that's because we're here trying to get our day in court for the court to decide whether the agency's interpretation is correct.

[00:10:12] Speaker 08:
And so it makes perfect sense that the agency wouldn't bring enforcement action against us

[00:10:16] Speaker 08:
based on its interpretation while we're trying to challenge its interpretation.

[00:10:20] Speaker 08:
That doesn't mean the agency might not do so in the future, especially if the court holds that we don't have an ability to challenge the agency's interpretation.

[00:10:29] Speaker 02:
When did you file this?

[00:10:30] Speaker 02:
You filed this within a few months of the 2016 letter from counsel, right?

[00:10:36] Speaker 08:
Yes.

[00:10:37] Speaker 02:
But for a year before that, the agency did nothing.

[00:10:44] Speaker 02:
That's not quite right, Your Honor, because for the year before... I mean, it did nothing to enforce its interpretation of the base.

[00:10:50] Speaker 08:
But that's because we were pursuing reconsideration in front of the agency.

[00:10:53] Speaker 08:
Your Honor pointed out the length of time that passed between Ms.

[00:10:56] Speaker 02:
Tuttle's... They took a year to do it.

[00:11:00] Speaker 08:
Well, I mean, they took however long they took to make their decision, and while they were making their decision about whether our position about what the statute means was right, it's perfectly logical that they wouldn't bring an enforcement action against us because they hadn't formulated their final position yet.

[00:11:13] Speaker 08:
And however long it took them to come to that decision was not in our control.

[00:11:17] Speaker 08:
We promptly sought reconsideration of Ms.

[00:11:19] Speaker 08:
Tuttle's letter.

[00:11:19] Speaker 08:
We did so because it wasn't clear whether Ms.

[00:11:22] Speaker 08:
Tuttle was somebody who could speak for the agency about this, whether her letter was the consummation of the agency's decision-making process.

[00:11:28] Speaker 08:
Yes, Your Honor pointed out, her letter spoke

[00:11:30] Speaker 08:
in mandatory terms, but she's not a senior enough person that we couldn't be sure that we'd get thrown out of court on the first prong of finality.

[00:11:40] Speaker 02:
Let me ask you about the self-reporting.

[00:11:42] Speaker 02:
This is the only statute on Addendum 5 and 6.

[00:11:48] Speaker 02:
that would impose a penalty.

[00:11:49] Speaker 02:
Is that right?

[00:11:50] Speaker 08:
The only monetary penalty is provided by the provision that we're talking about that provides for penalties for the knowing provision of false information.

[00:11:58] Speaker 08:
There are all sorts of other enforcement authorities that the agency has that they cited in their brief and that they said in the district court they haven't, at least not yet, sought to pursue, all the way up to kicking us out of the Medicaid program, which would be a devastating remedy.

[00:12:13] Speaker 08:
So there are all sorts of remedies that might be available.

[00:12:15] Speaker 08:
The only monetary one, to answer Your Honor's question, is the civil penalty provision we're talking about.

[00:12:19] Speaker 05:
That provision... Is there any obligation to retroactively compensate?

[00:12:25] Speaker 05:
You guys have been going along for three years undeterred by the 2016 letter here.

[00:12:39] Speaker 05:
And so if, would you have some duty for these, let's say tomorrow, everything's suddenly resolved, the final answer is what it's been, would you have to put aside knowing penalties?

[00:12:52] Speaker 05:
If they just said you've been doing it wrong for three years, would you have to reimburse the states, or would you, is that only available for knowing violations?

[00:13:00] Speaker 08:
Yes, we would have to restate the prices that we've been reporting.

[00:13:04] Speaker 08:
If at the end of the day, whether that's because the court ruled against us on the merits or because the court said that we didn't have the opportunity to get a decision on the merits, then we would have to decide, are we going to stick by our interpretation of the statute without the ability the other day in court?

[00:13:17] Speaker 05:
I'm just saying that I'm sorry, I wasn't clear.

[00:13:18] Speaker 05:
So let's say it's two years from now or something.

[00:13:20] Speaker 05:
You have the final answer from the agency and courts.

[00:13:24] Speaker 05:
Yes, we would then have to restate.

[00:13:27] Speaker 05:
Restate sounds like a filing.

[00:13:29] Speaker 05:
Would you have to pay money?

[00:13:31] Speaker 08:
Yes.

[00:13:31] Speaker 05:
You'd have to reimburse the states for all this interim period.

[00:13:35] Speaker 08:
Yes.

[00:13:36] Speaker 08:
It's a complicated mechanical process that starts with our restating in CMS's system that then triggers increased rebates.

[00:13:42] Speaker 08:
So yes, the answer to your honest question is we wouldn't have.

[00:13:45] Speaker 05:
Retroactively.

[00:13:46] Speaker 05:
Yes.

[00:13:46] Speaker 05:
OK.

[00:13:46] Speaker 05:
Would that apply whether or not it's knowing?

[00:13:48] Speaker 05:
Or does that only apply if you did a knowing violation?

[00:13:49] Speaker 08:
That applies strict liability regardless of whether.

[00:13:52] Speaker 05:
Regardless.

[00:13:52] Speaker 05:
OK.

[00:13:52] Speaker 05:
Yes.

[00:13:53] Speaker 05:
So the only thing that is triggered

[00:13:56] Speaker 05:
potentially by this letter is the penalties.

[00:14:09] Speaker 08:
The only monetary result, yes.

[00:14:11] Speaker 08:
There's the possibility of being kicked out of the program, which would be even more devastating than civil penalties, which could be triggered by the agency thinking that a company had behaved in an improper way, as opposed to taking lesser action.

[00:14:23] Speaker 08:
So it's not just the civil penalties, but monetarily, yes, it's the civil penalties.

[00:14:28] Speaker 08:
That is the legal consequence specifically triggered by this letter, Justice in Realona.

[00:14:32] Speaker 08:
Before this letter, before the agency told us its definitive view of what the statute requires on our facts,

[00:14:38] Speaker 08:
We had a good argument that we think we're right about what the statute requires, but even if we turned out to be wrong, we at least wouldn't have been knowingly providing false information.

[00:14:47] Speaker 08:
After the agency tells us exactly what the agency thinks we have to do on these specific facts, then we're subject to an increased risk, just as Rayallada was, of penalties that we otherwise wouldn't be subject to.

[00:15:00] Speaker 05:
That's exactly the legal consequence that... How much of an increase in the risk is required for finality?

[00:15:06] Speaker 08:
So this court in Rialana specifically declined to decide whether Rialana would, in fact, be liable for those penalties, just as the Supreme Court in Sackett and in Hawkes didn't decide some of the subsidiary questions about the risks that the regulated party might face, that the existence of it.

[00:15:24] Speaker 05:
There was ultimately tied up with the merits.

[00:15:26] Speaker 05:
But you have a whole separate argument here.

[00:15:29] Speaker 05:
Even if you are wrong on the merits, you still are not liable.

[00:15:36] Speaker 05:
for these knowing penalties because you have this good faith interpretation of the statute.

[00:15:41] Speaker 05:
Was that also true in real life?

[00:15:43] Speaker 08:
Yes, because in Rialana, the provision providing for monetary penalties required willful violations.

[00:15:50] Speaker 08:
So it was phrased slightly differently, but willful, knowing it's the same point, that if you have an innocent mens rea, you can't be held liable for those penalties.

[00:15:57] Speaker 08:
If you're doing what the agency has told you you can do, you can't be liable for those penalties, even if later the agency changes its mind about what the statute requires or a court decides the agency has been wrong all along.

[00:16:06] Speaker 08:
So that was exactly true in Rialana.

[00:16:08] Speaker 06:
It's also true in SACI, Your Honor.

[00:16:09] Speaker 06:
But the agencies can be stopped.

[00:16:11] Speaker 06:
from taking that position by their litigation conduct, right?

[00:16:16] Speaker 08:
Well, potentially.

[00:16:17] Speaker 08:
But again, here I don't know that the agency has promised that it could never take any action against us in any kind.

[00:16:24] Speaker 06:
Well, we can stop them.

[00:16:24] Speaker 06:
We have the power to stop them, right?

[00:16:26] Speaker 08:
Well, again, Your Honor, with respect, it isn't as simple as CMS, because this program involves the states as well.

[00:16:33] Speaker 08:
And so perhaps CMS could bind itself, although I don't really even know how they could do that indefinitely going forward.

[00:16:40] Speaker 08:
But that wouldn't really be an answer, because there are legal consequences that could flow from this, regardless of whether CMS itself took certain actions against us.

[00:16:48] Speaker 05:
I think in Rielana, the agency said that we give you the warning letter, and if you violate it, that's a basis for penalties, regardless of any other considerations.

[00:16:58] Speaker 05:
And yet here, your argument is that there are other considerations, and we still wouldn't be liable.

[00:17:05] Speaker 05:
So you say you have an increased risk, but it's

[00:17:07] Speaker 05:
a double-layered risk.

[00:17:08] Speaker 05:
You have to both lose on the merits and lose on this good faith argument before you would face penalties.

[00:17:15] Speaker 08:
That's no different, Your Honor, than in Raelana.

[00:17:17] Speaker 05:
Raelana said in violation of the letter, period.

[00:17:19] Speaker 05:
That's going to be it.

[00:17:20] Speaker 08:
No, Your Honor, if this court's opinion makes clear that the agency backtracked from that position and said, no, it's just a factor, the letter itself had said,

[00:17:28] Speaker 08:
consistent with what had been the agency's position, the letter itself said, your receipt of this letter means that you're on the hook for the mens rea.

[00:17:36] Speaker 08:
The agency then backtracked from that and said, no, it's just a factor to be taken into account in a larger analysis.

[00:17:41] Speaker 08:
And the court didn't resolve whether that was true, whether the receipt of the letter.

[00:17:46] Speaker 06:
But it was still a factor.

[00:17:46] Speaker 06:
If we wrote that it can't be a factor, then this case isn't the same, right?

[00:17:54] Speaker 08:
Well, if it were true as a matter of law that no legal consequence could flow from this letter, then it wouldn't be final under the analysis that's required.

[00:18:05] Speaker 08:
But again, I don't know how that can be true because there's a statute that provides for various forms of enforcement action to be taken against us.

[00:18:14] Speaker 08:
And I don't know how this agency could bind it, not only itself going forward, but the other actors in this program, in a way that really would protect us against any legal consequence.

[00:18:25] Speaker 06:
I also just, I see that I'm... How would this letter be able to be used by some other actor like the state?

[00:18:33] Speaker 08:
Well, so the states are the beneficiaries of the rebate program.

[00:18:35] Speaker 08:
The rebates go to them.

[00:18:37] Speaker 08:
If ultimately the court were to decide that the agency's interpretation of the statute is correct and Ipsen's is incorrect, we would have to pay increased rebates to the states.

[00:18:48] Speaker 08:
So all along, we've been adhering in a transparent way, in a way that we think is in perfectly good faith, to our interpretation until a court tells us what the law is.

[00:18:57] Speaker 08:
But if we turn out to be wrong, or we can't get a court to tell us what the law is,

[00:19:02] Speaker 08:
and we have to give up and cave to the agency's interpretation because we don't have a way of indicating our contrary interpretation, then the states are the beneficiaries of the increased rebates that they should have gotten all along.

[00:19:12] Speaker 08:
There's all sorts of states and all sorts of remedies and all sorts of regimes that could come into play there.

[00:19:18] Speaker 06:
I understand that, but you haven't told me how this letter would make the state be able to do something to you that it couldn't do just from the fact of its strict liability.

[00:19:32] Speaker 08:
So Your Honor, I don't have a specific answer on a statute that I can cite of what a state could do to get increased remedy.

[00:19:38] Speaker 08:
I'm happy to submit something supplemental to the court about that.

[00:19:41] Speaker 06:
But again, I don't think... Well, I don't think that, you know, I don't think respectfully that's when your briefing is over.

[00:19:50] Speaker 06:
My point is that if you need to prove direct and appreciable legal consequences, if that's part of your burden here,

[00:20:00] Speaker 06:
How does the letter give, you know, result in some direct and appreciable legal consequence with respect to the states?

[00:20:12] Speaker 06:
As you've said, well, you know, the representations only bind CMS.

[00:20:18] Speaker 06:
They don't bind these other actions.

[00:20:20] Speaker 06:
What about the letter changes the legal consequences that you would face from these other actors?

[00:20:26] Speaker 08:
I'm sorry again, Your Honor.

[00:20:27] Speaker 08:
As I stand here, I don't have a state statute that I can cite to you.

[00:20:31] Speaker 05:
Well, can I just?

[00:20:33] Speaker 05:
Yes, Your Honor.

[00:20:33] Speaker 05:
Are you done?

[00:20:34] Speaker 05:
I want to make sure you're done answering his question.

[00:20:38] Speaker 05:
So in Rialano, what we said was, it suffices for present purposes that the regulation is capable of a reading rendering the letter a standalone trigger for willfulness penalties.

[00:20:49] Speaker 05:
and notwithstanding its contrary position, its appeal.

[00:20:52] Speaker 05:
So we did not say there we accept that it's only a fact, or we in fact said that the regulation has a reading that it's a standalone trigger.

[00:21:01] Speaker 05:
Is there anything in regulations, manuals, guidance, or statements you have here that would make this letter a standalone trigger for willfulness?

[00:21:13] Speaker 05:
It's a little hard for me to figure out how that would be, since you all, your behavior,

[00:21:18] Speaker 05:
It seems to be indicating the opposite.

[00:21:20] Speaker 08:
Simply the background law, Your Honor.

[00:21:21] Speaker 08:
There isn't a regulation that's promulgated under this civil penalty statute that says exactly how you determine.

[00:21:28] Speaker 05:
But your background law would include the good faith exception.

[00:21:31] Speaker 05:
So it wouldn't be a standalone.

[00:21:33] Speaker 05:
Your background law argument is that it's not a standalone trigger.

[00:21:38] Speaker 08:
Our argument, Your Honor, is that, just as in Raelana, there is an increased risk of this particular legal consequence, the civil penalties.

[00:21:45] Speaker 08:
In Raelana, the court did not decide that there actually would be civil penalties that Raelana would owe.

[00:21:50] Speaker 05:
Well, we found finality based on the fact that there was a regulation that said this is a standalone trigger.

[00:21:56] Speaker 05:
And just to be clear about my question, there we had standalone trigger.

[00:22:01] Speaker 05:
And your argument here is that it is not a standalone trigger.

[00:22:07] Speaker 05:
But it is an increased risk.

[00:22:09] Speaker 05:
And that's why I asked my original question to you.

[00:22:10] Speaker 05:
How much does the risk have to increase?

[00:22:13] Speaker 05:
That was not decided in Raelana.

[00:22:15] Speaker 08:
No, it wasn't.

[00:22:16] Speaker 08:
But I think it is true that the one sentence that Your Honor quoted in Raelana refers to the regulation as a standalone trigger.

[00:22:21] Speaker 08:
It's also true that other places in Raelana, the court says the possibility... Advices for present purpose means that's the basis on which we're making our decision.

[00:22:29] Speaker 05:
I'm really trying to understand how much of an – it can't be any modicum of an – surely you would agree that any modicum of an increased risk would not be enough.

[00:22:38] Speaker 05:
There must be some substantiality to the increase in the risk, and that's what I'm trying to figure out because you have a sophisticated client here who presumably wouldn't plow ahead if they thought it was a 99 percent chance that they're going to be

[00:22:53] Speaker 05:
hit with willfulness penalties.

[00:22:55] Speaker 08:
Right, and the case law does not provide a sort of numerical answer to exactly how it increased.

[00:22:59] Speaker 05:
I'm asking your articulation of the legal rule and opinion would have to write to rule for you.

[00:23:04] Speaker 08:
I think it would be fair to say a substantial increase in the risk, a minuscule increase in the risk I think probably wouldn't be sufficient, but here there's no basis to say.

[00:23:12] Speaker 05:
How is it a substantial increase if the law establishes this good faith exception?

[00:23:18] Speaker 05:
How is it a substantial increase in this case?

[00:23:20] Speaker 08:
Because, Your Honor, the agency could very well say here, and a court could decide, and we would argue the contrary, just as Ray Alana would argue the contrary, just as the Sacketts would have argued the contrary in an enforcement action, we can argue that our interpretation of the statute is correct.

[00:23:35] Speaker 08:
And so not only are we not liable for knowing violation penalties, we're not liable at all, because we were right and the agency was wrong about what the statute means.

[00:23:42] Speaker 08:
As Sackett and Raelana and lots of other cases make clear, that possibility isn't an answer.

[00:23:47] Speaker 05:
The question is, is there a risk of a legal consequence if you're wrong and don't have to go through the... Right, the risk of those cases was much more concrete than it seems to be here, is what I'm concerned about.

[00:23:56] Speaker 05:
I'm concerned that it seems like you want it to be final for the agency, but it's not final for you.

[00:24:01] Speaker 05:
You get to keep paying, which you've been paying all along.

[00:24:05] Speaker 08:
Well, Your Honor, I think the way that I would put it is where the agency, as this Court has said over and over again, where the agency has taken a definitive position about what the law requires and there is no further opportunity for review within the agency, the agency has forfeited the benefit of delaying review.

[00:24:21] Speaker 05:
How have they taken a definitive position as to what willfulness means?

[00:24:24] Speaker 05:
I'm not talking about their merits position on construction of the statute.

[00:24:28] Speaker 05:
Where have they taken a definitive position that their letter

[00:24:32] Speaker 05:
because it's the prong one type of finality, it's the consummation of agency action, is, in Rialanna's language, a stand-alone trader.

[00:24:45] Speaker 05:
will carry substantial, in your words, substantial weight in deciding whether willfulness has been established.

[00:24:50] Speaker 05:
Do you have any authority for that?

[00:24:51] Speaker 08:
So the language that I just quoted, Your Honor, from this Court's decisions is not about the standard for penalties in the subsequent action.

[00:24:57] Speaker 08:
It's about the agency's position on the issue that the agency addressed in the action that's alleged to be final.

[00:25:03] Speaker 08:
So let me be clear about that.

[00:25:04] Speaker 08:
I also don't think, and I've been focusing on it a lot because I think it's the Court's most analogous case, but there's also Hawks, which is the Supreme Court's most recent case.

[00:25:12] Speaker 08:
And Hawkes seems to say that the exposure to enforcement action is itself a legal consequence.

[00:25:18] Speaker 08:
Hawkes goes on to say there's also a safe harbor.

[00:25:21] Speaker 08:
As Your Honor points out, that's really kind of the flip side of the legal consequence of the denial of the safe harbor.

[00:25:26] Speaker 05:
In this case, not in Hawkes, but in this case, yes.

[00:25:31] Speaker 08:
Well, okay, it's sort of the fifth side in Hawke's as well, because if the agency had said the opposite, then there would be a safe harbor and there wouldn't be exposure to the same enforcement consequences.

[00:25:41] Speaker 05:
The point is that... Right, just to be clear, your safe harbor is just that the letter would be different.

[00:25:45] Speaker 05:
You have no distinct regulatory safe harbor scheme as they did.

[00:25:49] Speaker 05:
They're pretty elaborate.

[00:25:50] Speaker 08:
There isn't a positive law safe harbor as there was in Hawke's.

[00:25:53] Speaker 08:
That's true.

[00:25:53] Speaker 05:
And there's nothing here that would bind any other component of the U.S.

[00:25:57] Speaker 05:
government.

[00:25:59] Speaker 08:
not as a matter of positive law, no, simply as a matter of what knowing means.

[00:26:05] Speaker 08:
We couldn't be liable for knowing violations, for the knowing provision of false information if we did what the agency had told us we could do.

[00:26:13] Speaker 08:
Just as in, that is in substance a safe harbor, even if there isn't a regulation with a capital S and capital H safe harbor title.

[00:26:20] Speaker 08:
And I don't know any case that suggests or any reason in logic that would suggest that there has to be a positive law of safe harbor as opposed to a safe harbor in substance.

[00:26:29] Speaker 08:
And substance is really what I think we should be trying to focus on here because the government starts its brief by saying, here are the issues that the finality, the purposes of the family requirement is supposed to get at.

[00:26:43] Speaker 08:
avoiding disruption to agency processes, allowing the agency to exercise its expertise before it's challenged in court, avoiding piecemeal review.

[00:26:51] Speaker 08:
None of those purposes is implicated here.

[00:26:54] Speaker 08:
The agency has finished its process.

[00:26:55] Speaker 08:
There is no more agency process.

[00:26:57] Speaker 08:
The agency has had the opportunity to apply its expertise, and there's no danger of piecemeal review of anything.

[00:27:03] Speaker 05:
If you had submitted your request for the agency's position, just like you did here, and they didn't answer it,

[00:27:11] Speaker 05:
They just never answered it.

[00:27:13] Speaker 05:
Would that be the denial of a safe harbor?

[00:27:16] Speaker 08:
That's a good question, Your Honor.

[00:27:17] Speaker 08:
It would be a closer case, because I think that it would be harder to tell what the agency's failure to answer meant in the context of the program at issue.

[00:27:24] Speaker 08:
And as I was saying before, as this Court said and Sound Board and California communities more recently, you have to look at the specific regulatory regime at issue to be able to interpret what the agency's action or inaction means or doesn't mean in the context of that regime.

[00:27:36] Speaker 05:
Do you have a position on whether that would be a denial of safe harbor?

[00:27:39] Speaker 08:
I think if the agency is simply – let me back up one step and put one fact on the table that I think is important.

[00:27:44] Speaker 08:
Here there is no process as a matter of anything formal within the agency.

[00:27:48] Speaker 08:
It's not like there's an adjudication regime within the agency where you have a right to a decision.

[00:27:53] Speaker 08:
There is no such process.

[00:27:54] Speaker 08:
In a regime where you had a right to a decision and the agencies, as a part of that regulatory regime, the agency had set its processes up in a way that the agency's failure to respond had a legal meaning, which could be the case in some regimes.

[00:28:07] Speaker 04:
Yes, that would be very different.

[00:28:08] Speaker 08:
Here, I just want to be clear.

[00:28:09] Speaker 08:
Here, there's no such process within the agency.

[00:28:11] Speaker 08:
So here, if the agency simply declined to answer in any way, I don't think that could be said that that's the denial of a safe harbor or that has legal consequences.

[00:28:19] Speaker 08:
That's simply agency inaction.

[00:28:21] Speaker 08:
And that's also, it would be impossible to say that that agency

[00:28:24] Speaker 08:
failure to respond in any way was final in the normal sense of the word under the first prong, because you wouldn't know whether someone else in the agency might give you an answer.

[00:28:34] Speaker 06:
So are those prior regulatory advices, advice notices that are cited in the briefs, are those final agency actions?

[00:28:47] Speaker 08:
I don't know, Your Honor.

[00:28:48] Speaker 08:
I mean, I think as to the issues that they specifically address, which are... Yeah, number 26 or number 48 or, you know... No, I understand the question.

[00:28:57] Speaker 06:
...cite all of those.

[00:28:58] Speaker 06:
Are any of those final agency actions?

[00:29:01] Speaker 08:
So I think the issue that 26 addresses, which is what happens when one company buys a drug from another company, doesn't change anything about the drug, simply buys the drug from another company.

[00:29:12] Speaker 08:
So the labeler code, the labeler part of the code changes because there's a new labeler, a new company selling the drug, but the drug hasn't changed in any way.

[00:29:19] Speaker 08:
If somebody had disagreed with the agency's position on those facts, that the drug hasn't changed, therefore it's the same drug,

[00:29:26] Speaker 08:
then maybe they could have brought an action to challenge Release 26 and said that was final agency action.

[00:29:31] Speaker 08:
Could be an interpretive rule.

[00:29:33] Speaker 08:
I'm not sure, honestly, but Release 26 didn't address our case.

[00:29:38] Speaker 06:
CMS's brief says Release 26 said... So let's suppose instead of a letter they had issued a release that addressed your case.

[00:29:47] Speaker 06:
Is that final agency action?

[00:29:49] Speaker 08:
Well, it would depend on exactly what the release said and whether the release was the end of the process within the agency.

[00:29:54] Speaker 06:
But yes, I think it would be.

[00:29:55] Speaker 06:
It's the end of the process.

[00:29:56] Speaker 06:
They said it's the end of the process.

[00:29:58] Speaker 06:
Everybody signed off who needs to sign off in the whole agency.

[00:30:02] Speaker 08:
And there's no process for further review within the agency, right?

[00:30:04] Speaker 08:
I think it would be final agency action.

[00:30:06] Speaker 08:
The differences between Your Honor's hypo in this case are when the agency issues a general pronouncement, like one of these releases, it may be unclear whether or how that general pronouncement, because of its generality,

[00:30:18] Speaker 08:
applies to a particular set of facts.

[00:30:20] Speaker 08:
Here, we know exactly what the agency thinks the statute requires on our set of facts, because the agency told us directly on our set of facts.

[00:30:26] Speaker 08:
So there's no question about whether the agency's pronouncement applies to us or what consequence it has for us, the way it might be the case if the agency's pronouncement were more general.

[00:30:36] Speaker 08:
So we know from that set of facts here what the agency thinks the statute requires.

[00:30:41] Speaker 06:
So finality turns on whether a particular regulated party

[00:30:48] Speaker 06:
knows whether the notice applies to them?

[00:30:55] Speaker 08:
I'm not saying, Your Honor, that it turns exclusively or directly on that, but other things equal.

[00:31:00] Speaker 08:
If the agency's pronouncement is sufficiently general that it isn't clear whether it applies to a given fact situation, then it's probably not the consummation of the agency's decision-making process on that fact situation.

[00:31:10] Speaker 08:
And for related reasons, it may not have legal consequences for that fact situation, because it may not apply to that fact situation.

[00:31:16] Speaker 08:
So here the point is the agency has addressed our specific fact situation, and where the agency in this court has said over and over again, where the agency has finished its process, it has given you its definitive answer, and it expects you to comply with its view of the law, what is the reason to defer judicial review?

[00:31:31] Speaker 08:
The only thing that's left

[00:31:33] Speaker 08:
is for the agency to choose when and how to exercise its enforcement discretion, what sort of an action to bring against us.

[00:31:39] Speaker 08:
And the Supreme Court has said, as emphatically as you could imagine, in its most recent cases on this issue, that you don't have to wait for the agency to drop the hammer.

[00:31:49] Speaker 05:
If the issue isn't... Are you exposed by this letter to False Claims Act liability?

[00:31:53] Speaker 08:
I didn't hear your question, I'm sorry.

[00:31:53] Speaker 05:
Are you exposed to False Claims Act liability by this letter?

[00:31:56] Speaker 08:
Potentially.

[00:31:58] Speaker 08:
Potentially.

[00:31:59] Speaker 08:
I mean, again, I don't think that we would be liable on the merits of a false claim in that case because I don't think we've done anything wrong, but potentially, yes.

[00:32:10] Speaker 08:
I see that I've far exceeded my time.

[00:32:11] Speaker 02:
Thank you, Your Honor, for your intelligence.

[00:32:13] Speaker 02:
Thank you.

[00:32:31] Speaker 07:
May I please the court?

[00:32:32] Speaker 07:
Excuse me.

[00:32:32] Speaker 07:
Matthew Glover and I represent the appellees.

[00:32:36] Speaker 07:
This court has emphasized that you apply a pragmatic and flexible approach to the determination of final agency action.

[00:32:43] Speaker 07:
The district court did just that here, finding that this case, the letter here, the August 3rd letter, fits within a long line of precedent where all CMS did was state its view of the law.

[00:32:53] Speaker 07:
It didn't instruct Ipsen to take any actions.

[00:32:56] Speaker 05:
It merely said... You did more than state your view of the law.

[00:32:59] Speaker 05:
You said, here's our interpretation of the law, and now we're applying it to the specific facts of this case and telling you what you, Ibsen, what the answer is as for your conduct based on our interpretation of the law, right?

[00:33:14] Speaker 05:
You didn't just announce a general interpretation.

[00:33:17] Speaker 05:
You applied the law to the facts and came to an individualized, particularized decision, right?

[00:33:24] Speaker 07:
In a sense, yes.

[00:33:26] Speaker 05:
In a sense, or yes?

[00:33:27] Speaker 07:
Yes, in that we stated, here's the facts you've given us.

[00:33:31] Speaker 07:
We didn't go into the drug reporting data and independently verify or audit the information they were giving us.

[00:33:38] Speaker 07:
CMS's letter starts by stating, Ibsen, you've told us the following and you made the following changes in an SNDA.

[00:33:45] Speaker 07:
And we look at section 1927, and our reading of that section is that the base date follows the dosage form and strength.

[00:33:56] Speaker 07:
And the letter says, no one disputes, and Ibsen had told us that the base date form is the drug form and strength, the dosage form and strength, sorry, is the same here as it was there.

[00:34:07] Speaker 07:
Our reading of the statute is that that's what controls.

[00:34:09] Speaker 07:
Separately, in manufacturer release 26,

[00:34:12] Speaker 07:
That's why we've instructed that the base state should follow the new drug application and not the new drug code.

[00:34:18] Speaker 07:
And again, we were applying it here, you know, I think is what you're getting at.

[00:34:21] Speaker 05:
It seems to me there's not a whole lot of daylight between what you did here and what you would do, an agency does in an adjudication.

[00:34:27] Speaker 05:
They take their position on the law, their interpretation of the law, and they apply it to

[00:34:33] Speaker 05:
facts that are given to them and come to an individualized determination as to whether a position is lawful in compliance with the statute or not.

[00:34:44] Speaker 05:
And that's always final action.

[00:34:47] Speaker 07:
Understood, Your Honor, but this Court has advised that you look at the regulatory and statutory scheme when determining what's final agency action, and it's also emphasized that agencies need to be able to engage in this sort of informal determination.

[00:34:59] Speaker 05:
So if you look at the... Was this an informal determination?

[00:35:01] Speaker 05:
My understanding was you agree that this is actually formal consummation of agency action applying the law to these facts.

[00:35:09] Speaker 05:
Nothing informal or tentative about it.

[00:35:11] Speaker 07:
We agree that, well, I guess I would make a couple points to that.

[00:35:15] Speaker 07:
This is not a determination, as the letter says at the end, it's not a determination about any claim, and it wouldn't be a determination for the civil monetary penalty provision my friend pointed to.

[00:35:24] Speaker 07:
If you look at that... That's a different thing.

[00:35:25] Speaker 05:
I'm just talking about you've taken your, you've got the statute, you've got your interpretation of it, and you have their facts.

[00:35:31] Speaker 05:
And as to that,

[00:35:33] Speaker 05:
There's nothing informal or tentative.

[00:35:34] Speaker 05:
This is your official final, the other type of final, conclusive consummation of the agency's views on what they are doing with respect to these payments, how they're calculating their payments.

[00:35:51] Speaker 07:
So, yeah, this is the agency's statement of what- Not as to willfulness, I'm sorry, not as to knowing, but as to- It's the agency's statement of what it thinks, how it thinks the law should apply here, and they call this will or prick, but at the end of the letter, we let them know that this is not a decision on a claim.

[00:36:07] Speaker 05:
We didn't threaten enforcement or instruct them- Is there a claim that they could bring to get that final decision, or is, what claim could they bring?

[00:36:17] Speaker 07:
Well, we didn't, what claim could they bring to

[00:36:20] Speaker 05:
Yeah, you said this isn't a final decision on a claim, so that assumes there must be some claim they could bring together for a final answer.

[00:36:26] Speaker 07:
Well, if, for example, one of the states asked them to pay a higher rebate because one of the states looked at this letter or looked at Manufacture Release 26 and said, we disagree with you about the base state you've provided, the state could seek that difference in the rebate, and they would be able to challenge... Would the state seek that through you or through court?

[00:36:43] Speaker 07:
I believe the state would seek that through a court.

[00:36:46] Speaker 05:
Okay, so I'm just, let me get back again.

[00:36:48] Speaker 05:
So that's not a claim that you all would decide.

[00:36:51] Speaker 05:
I will take as a given that you are not making any final decisions on claims for courts.

[00:36:56] Speaker 05:
So when you said this isn't a final decision on a claim, what claim?

[00:37:02] Speaker 07:
Understood, Your Honor.

[00:37:02] Speaker 07:
I think if you step back and look at this as a self-reporting regime, and that's the statutory and regulatory context, and sometimes in self-reporting regimes, it may be difficult for a regulated entity like Ipsen to get a final agency action short of CMS telling them, please change this.

[00:37:19] Speaker 07:
Part of what happens here is in the self-reporting machine, Ipsen reports information, including the base date of the drug, the average manufacturer price in the quarter after that, the average manufacturer price in the current quarter, and a lot of other information.

[00:37:32] Speaker 07:
That goes in what's called the DDR, I think it's the Medicaid drug database reporting system.

[00:37:39] Speaker 07:
that they give that information to CMS through this system.

[00:37:42] Speaker 07:
CMS then calculates what the per unit rebate would be for each dosage form and strength.

[00:37:47] Speaker 07:
They give that calculation back to the drug company who takes it to the states.

[00:37:52] Speaker 07:
The states know how many of their Medicaid patients used certain or how many individual dosages were purchased.

[00:37:58] Speaker 05:
Have you done that here?

[00:37:58] Speaker 05:
Have you given them back?

[00:37:59] Speaker 05:
Here's the rebate amount you should be paying.

[00:38:02] Speaker 07:
We continually give them back that calculation.

[00:38:05] Speaker 07:
No, no, we use the date that they provided.

[00:38:06] Speaker 07:
I guess that's what I was getting to.

[00:38:08] Speaker 07:
We haven't locked them out of that system or told them the date you've placed in that system.

[00:38:13] Speaker 07:
They continue to report.

[00:38:14] Speaker 07:
I think it's...

[00:38:15] Speaker 07:
Quarter four or quarter two of 2015.

[00:38:18] Speaker 05:
This is part of it So you keep sending them letters saying you owe this amount based on their view of the law and not based on your view Based on the data they've provided us.

[00:38:28] Speaker 07:
We haven't locked them out of the system Yes, we haven't locked them out of the system.

[00:38:33] Speaker 05:
What does that mean to lock them out of the system?

[00:38:35] Speaker 07:
My understanding, and this is a little complicated, but it's an issue in another case where you can tell them, we believe what you're reporting is inaccurate, and so we're going to prevent you from using this DDR application.

[00:38:49] Speaker 05:
So you don't believe what they're reporting is inaccurate?

[00:38:51] Speaker 05:
Is that what you're telling me?

[00:38:51] Speaker 07:
We just haven't taken any action, Your Honor.

[00:38:53] Speaker 05:
So you haven't taken any enforcement action?

[00:38:56] Speaker 05:
That's a form of enforcement.

[00:38:58] Speaker 07:
Yeah, I don't know that it's not a formal enforcement in terms of what the statute talks about, the civil monetary penalties, but it would be urging them to change their reporting and preventing them from using the regulatory scheme, yes, if that's what you mean by enforcement.

[00:39:14] Speaker 07:
So we haven't taken any action, and that's one of the points I think that Judge Henderson was raising is that with my friend,

[00:39:22] Speaker 07:
They've continued to report that quarter for 2015, and they haven't made any changes.

[00:39:26] Speaker 07:
We haven't taken any action.

[00:39:28] Speaker 07:
And this letter didn't instruct them, please go back and change how you're reporting.

[00:39:32] Speaker 07:
It didn't threaten them.

[00:39:33] Speaker 07:
If you don't change how you're reporting, we're going to refer this to the Secretary of HHS for civil monetary penalty.

[00:39:39] Speaker 07:
It didn't instruct them.

[00:39:40] Speaker 07:
We're going to tell the states that you're misreporting.

[00:39:42] Speaker 04:
Is such a threat a precondition for bringing an enforcement action?

[00:39:45] Speaker 04:
Do you have to give a written – would you have to give another written notice before you could bring an enforcement action, or could you just bring one?

[00:39:51] Speaker 07:
No, I think we could – if the Secretary of Health and Human Services decided to bring a civil monetary penalty, they could bring that – they could have brought that without this letter.

[00:40:00] Speaker 05:
Right.

[00:40:01] Speaker 05:
But also they wouldn't need any – well, you'd have a lot more difficulty proving knowing without the letter, right?

[00:40:07] Speaker 07:
You know, you might look at things, you know, what does CMS believe its position is?

[00:40:12] Speaker 05:
There would be a formal adjudication, you know, I think... Just to be clear, that threat, so you haven't done a threat, but that's not a precondition to enforcement.

[00:40:21] Speaker 05:
No, a threat's not a precondition.

[00:40:22] Speaker 05:
Or for seeking penalties.

[00:40:24] Speaker 07:
No, it's not a precondition to that.

[00:40:26] Speaker 05:
So what's standing, you mentioned this claim in your letter, but I still don't know what that is.

[00:40:30] Speaker 05:
So what is stand, is there anything standing between them

[00:40:35] Speaker 05:
the position they've been taking and the filings they've been making and an enforcement action other than prosecutorial discretion?

[00:40:43] Speaker 07:
No, but that would be the same before the letter.

[00:40:47] Speaker 07:
If we never responded, we could have, you know.

[00:40:50] Speaker 05:
Well, so is it your position, I think this is some stuff Judge Wilkins was raising, is it your position that this letter is of no relevance and would not even be used or referenced in litigation seeking to prove a knowing violation?

[00:41:06] Speaker 07:
No, the letter might be evidence in that adjudication.

[00:41:09] Speaker 07:
And in that sense, I think this is similar to National Home Builders Association versus Norton, if I can for a second describe there.

[00:41:16] Speaker 07:
EPA had issued a guidance on how you should avoid taking a certain type of butterfly that was in Southern California.

[00:41:23] Speaker 07:
And the guidance said to avoid having your construction actions cause this, you should do all of these things.

[00:41:28] Speaker 07:
National Association of Home Builders sued saying,

[00:41:31] Speaker 07:
when you seek to enjoin people from building because they're threatening to take this endangered species, you're going to point and say, look, you didn't follow the guidance, therefore you've engaged in a take.

[00:41:40] Speaker 05:
And this court said, that's not final agency action merely because the- Was that a general pronouncement of the law, or had they taken their general pronouncement of the law and applied it to a particular home builder's facts like they have here?

[00:41:50] Speaker 07:
Well, it specified the areas and the preconditions on the soil.

[00:41:55] Speaker 07:
It applied to a whole swath of Southern California.

[00:41:58] Speaker 07:
But you could look at what it specified in pinpoint building in this area.

[00:42:01] Speaker 07:
They've now told us we should engage, or they've advised us to engage in this.

[00:42:06] Speaker 05:
They've told the public that this is their view of the law, but they haven't told any individual entity based on particularized facts given to them that here's the alchemist to you.

[00:42:17] Speaker 07:
No, that's true.

[00:42:18] Speaker 05:
That's quite different here.

[00:42:21] Speaker 07:
Well, again, the letter here would be evidence or could be used as evidence in that adjudication.

[00:42:26] Speaker 07:
But it doesn't decide that adjudication.

[00:42:28] Speaker 07:
They would have defenses that they might raise.

[00:42:30] Speaker 07:
But other evidence might be if there were internal emails that they said, hey, we realize that the base date should be staying in quarter 2 of 2007.

[00:42:39] Speaker 07:
But let's see if we can convince CMS to agree with us.

[00:42:41] Speaker 05:
Imagine the only thing you had at this adjudication is your letter and their good faith argument.

[00:42:48] Speaker 05:
Would it still be knowing?

[00:42:50] Speaker 05:
Does the agency have a position on whether their good faith interpretation of the law, after you have told them what the agency's view of the law is in no uncertain terms, and in conclusive terms, is good faith a defense?

[00:43:05] Speaker 07:
I'm not sure I'm going to be able to answer that directly, but I'll tell you the agency's position is that we could have engaged in

[00:43:13] Speaker 05:
enforcement before the letter the same as we would engage in enforcement after the letter and we would need to prove the same knowledge and the same intent and I think I don't think that says anything what the stat I think what you just said is what the statute says is we can bring enforcement actions and we have to prove willful what I'm asking you is what is the role of two things your letter and their good faith argument in the analysis so I keep saying willfulness I'm sorry in terms of a knowing violation

[00:43:39] Speaker 07:
So our letter could be used by us as evidence that they should have known by looking at Section 1927C, which references Section 505 of the FDCA, and looking at our manufacturer releases.

[00:43:54] Speaker 07:
Our letter could be evidence that they should have known that, and if they didn't read the statute the way they did, we've now told them how we read the statute.

[00:44:01] Speaker 04:
Does that defeat their good faith arguments?

[00:44:03] Speaker 04:
for reading this in a different way?

[00:44:04] Speaker 07:
The knowing provision here, to my knowledge, hasn't been applied by a court and determined what a good faith argument is.

[00:44:11] Speaker 07:
In the False Claims Act, this court has standards about what is a good faith legal interpretation and what isn't.

[00:44:17] Speaker 07:
And so I think that's part of what distinguishes this from Ray Atlanta is, in Ray Atlanta, at least the regulations stated that when you receive this type of letter, that's sufficient for willfulness.

[00:44:27] Speaker 07:
And the agency had stated its view on that, and that made it sufficient.

[00:44:31] Speaker 07:
And if you look at

[00:44:32] Speaker 07:
it's another one where the Supreme Court emphasized that the order itself was imposing additional penalties on the Sacketts because they wouldn't just be violating the statute if they continued to build or didn't remediate their property, but they would be also violating the order.

[00:44:48] Speaker 05:
There's no... That's why I'm trying to get this answer for you.

[00:44:50] Speaker 05:
That's why I'm asking these questions.

[00:44:53] Speaker 05:
So if I keep not getting an answer, then it's hard to figure out that it's a distinction.

[00:44:57] Speaker 05:
And so when you keep saying,

[00:44:59] Speaker 05:
It would be evidence.

[00:45:02] Speaker 05:
I'm trying to figure out whether that evidence, your interpretation of the statute, is enough to show knowing even if they have a good faith basis.

[00:45:11] Speaker 05:
Or would you agree that the good faith basis, you'd have to have something more than the letter to overcome that.

[00:45:17] Speaker 07:
So I hesitate because we haven't enforced, to my knowledge, under the known provision here.

[00:45:25] Speaker 07:
Right.

[00:45:25] Speaker 05:
But you must, and you're saying the agency has no position?

[00:45:29] Speaker 07:
The agency has not taken a definitive position on whether there would be a good faith defense, whether the good faith defense would defeat this letter.

[00:45:38] Speaker 07:
The agency's position, which I

[00:45:39] Speaker 07:
we tried to outline in our brief was that their li... and I know you say it's no answer, but that their liability, we could have pursued liability for a known violation with or without the lighter.

[00:45:48] Speaker 06:
What did you mean on your brief on page 34 when you quoted the district court's opinion about five lines up from the bottom of the page?

[00:46:03] Speaker 06:
Is that the line that would have no independent legal effect?

[00:46:19] Speaker 07:
So we meant that our letter doesn't show that they have knowingly engaged in this, or not that they haven't knowingly engaged in it.

[00:46:26] Speaker 07:
It's not like the regulation in Ray Atlanta, where the regulation said, if DOL tells you you're violating the FLSA, your actions after being told in the type of letter that was issued, I think it was an advisory letter, is sufficient to state willfulness.

[00:46:42] Speaker 07:
We haven't taken a position.

[00:46:44] Speaker 06:
Well, the way I read it was tell me

[00:46:48] Speaker 06:
if I'm wrong.

[00:46:49] Speaker 06:
The way I read it, when you say it, when you quote approvingly of the district court saying that the letter does not impute any legally relevant scienter, means that the letter has no relevance at all.

[00:47:09] Speaker 06:
So it couldn't be used at all by the government to demonstrate scienter.

[00:47:15] Speaker 06:
That's the way

[00:47:16] Speaker 06:
I read that sentence.

[00:47:18] Speaker 06:
Is that the wrong way for me to read that sentence?

[00:47:21] Speaker 07:
Yeah, that's not how we intended it and I thought we cited or we described elsewhere in our brief that the letter might be used as evidence in an adjudication.

[00:47:29] Speaker 07:
What we understood the district court to be saying there is that unlike in Ray Atlanta and unlike in some other situations where the agency's pronouncement would create additional penalties, I think Sackett is the other example, the issue of the order there are additional penalties,

[00:47:43] Speaker 07:
and it creates additional type of liability.

[00:47:46] Speaker 07:
Here, the letter doesn't create any additional type of liability.

[00:47:48] Speaker 07:
The question is, what did Gibson know?

[00:47:50] Speaker 07:
And they would raise things like good faith interpretation of the statute in a defense.

[00:47:55] Speaker 05:
Again, to my knowledge, no court except the... Sorry, I could get confused.

[00:48:00] Speaker 05:
Because if you ask what did they know before the letter, that's one thing.

[00:48:04] Speaker 05:
But they knew something different after your letter.

[00:48:07] Speaker 05:
And so you say, well, we could do it before or after.

[00:48:09] Speaker 05:
It doesn't help me here.

[00:48:09] Speaker 05:
So after, their state of mind, their amount of knowledge in their head changed after that letter.

[00:48:16] Speaker 05:
Because at the minimum, they knew the agency's conclusive, specific determination as to them and their facts as to what the law is.

[00:48:25] Speaker 05:
And is it right?

[00:48:27] Speaker 05:
That changed.

[00:48:27] Speaker 07:
I apologize, I believe I'm over time.

[00:48:30] Speaker 07:
And I think perhaps I've been imprecise this morning.

[00:48:33] Speaker 07:
The agency's position in the letter, and maybe it didn't make this as clearly, but was that it stated its view of rules that were plainly evident beforehand.

[00:48:43] Speaker 07:
You know, we've discussed how it then said, here's the evidence you provided us.

[00:48:47] Speaker 07:
None of that evidence shows there was a new drug application.

[00:48:50] Speaker 07:
None of that evidence shows that you had a different dosage form or strength.

[00:48:54] Speaker 07:
The agency's position is that that was knowledge beforehand by looking at the section of the statute describing dosage form or strength and looking at the manufacturer release discussing an NDA versus a new drug code or an NDC.

[00:49:06] Speaker 07:
Has that answered your question?

[00:49:11] Speaker 05:
Well, that sounds back like you're saying, so the letter doesn't matter.

[00:49:15] Speaker 05:
We're in the exact same position before and after the letter.

[00:49:18] Speaker 05:
If that's your position, then you would say the letter wouldn't be relevant evidence because it would have proved nothing and is of no relevance.

[00:49:24] Speaker 05:
Well, if you're saying it's relevancy, it must move the needle, in your view.

[00:49:28] Speaker 07:
If they had any question as to how to read the statute, how to read our manufacture, or at least we've pointed to those and told them, those are still our interpretations of the law.

[00:49:37] Speaker 07:
You've given us these facts, but those remain our interpretations of the law.

[00:49:41] Speaker 07:
Again, this is a self-reporting.

[00:49:42] Speaker 05:
There's two things going on.

[00:49:43] Speaker 05:
There's the conform your behavior to the law.

[00:49:48] Speaker 05:
And then there's the, you're subject to penalties.

[00:49:52] Speaker 05:
Because you could tell them before or after, no, no, you need to conform your behavior to the law.

[00:49:58] Speaker 05:
That's not what they're saying is their risk here.

[00:50:00] Speaker 05:
They say they're at increased risk of these penalties.

[00:50:05] Speaker 05:
So that's what this is about, isn't it?

[00:50:07] Speaker 07:
Yes, but again, it's not clear what the increased risk would be, because the letter at least attempts to say, we think that these were apparent views of the law beforehand.

[00:50:17] Speaker 07:
I understand they hit us that the manufacturer at least wasn't clear about this.

[00:50:20] Speaker 06:
So you think that the

[00:50:24] Speaker 06:
The only way that a letter like this can increase a risk is if it says something different than what the agency had said that the law was before.

[00:50:39] Speaker 07:
Potentially, I hesitate because the recent opinion of Valero of this court said even a novel interpretation stated for the first time in a regulation there didn't make it final agency action.

[00:50:49] Speaker 07:
So I don't want to get crosswise with Valero.

[00:50:52] Speaker 07:
But in this self-reporting regime, you need to have flexible contacts with the agency.

[00:50:57] Speaker 07:
And CMS thought it was doing very little.

[00:50:59] Speaker 07:
CMS admittedly could have done less.

[00:51:00] Speaker 07:
It could have said, please look at this specific phrasing in section 1927 that says dosage, form, and strength.

[00:51:07] Speaker 07:
and please see manufacturer release 26 and just quoted that.

[00:51:10] Speaker 07:
Or it could have said, you know, please look at the statute and look at our manufacturer releases and left it at that.

[00:51:16] Speaker 07:
But it did very little here and it was seeking to have the sort of informal communications with regulated entities that it tries to have to help the self-reporting scheme work efficiently and effectively.

[00:51:27] Speaker 06:
Do you think that the legal rule should be that an agency letter directive communication that could be used to increase the risk of liability of the recipient has a meets prong to a benefit sphere?

[00:51:49] Speaker 07:
No, Your Honor, because I think any agency statement of its view of the law could be used, once published or known to regular entities, could be used to increase the liability of a regulated entity that takes a different view of the law.

[00:52:01] Speaker 07:
And I think Judge Malnett was asking my friend about how much does the increase need to be.

[00:52:07] Speaker 07:
And that would be a line drawing thing.

[00:52:08] Speaker 07:
But for final agency action, it's a flexible and pragmatic approach.

[00:52:12] Speaker 07:
And look at how little CMS did in the letter here, and what more it could have done that it didn't take.

[00:52:17] Speaker 05:
I don't understand what you mean.

[00:52:18] Speaker 05:
If it had been a longer letter, it would be final agency action?

[00:52:21] Speaker 07:
No, but again, if the letter had said, please start reporting this other date by date X, or we're going to lock you out of the DDR system, or some of the other letters.

[00:52:30] Speaker 02:
Well, the first letter did say that.

[00:52:32] Speaker 02:
It said the NDCs must be changed.

[00:52:36] Speaker 02:
It did, and the second letter... The second letter seemed to back off because that language is missing.

[00:52:43] Speaker 07:
Yes, absolutely.

[00:52:43] Speaker 07:
The second letter, which is the letter at issue here, didn't say, didn't instruct them to do anything.

[00:52:48] Speaker 07:
It laid out our view of the law and how that might apply here.

[00:52:52] Speaker 07:
You know, if you think about... It's not might, how it... How we believe it apply.

[00:52:56] Speaker 05:
Your position on how it does definitively apply to these specific new drugs.

[00:53:02] Speaker 05:
Well, to the facts provided here.

[00:53:09] Speaker 07:
We didn't go into the database and pull additional information.

[00:53:12] Speaker 07:
It's to the facts provided here.

[00:53:14] Speaker 05:
Do you think that the facts aren't exactly what's going on?

[00:53:18] Speaker 07:
No, I'm saying that they didn't.

[00:53:20] Speaker 07:
So the SNDA didn't provide a lot of information about what they did with their SNDAs that made these drugs different.

[00:53:26] Speaker 07:
And we just took that and looked at the information they provided.

[00:53:30] Speaker 07:
We didn't go and look at the SNDAs themselves or the tests or some sort of additional.

[00:53:34] Speaker 05:
Is there something under your tests that would make that relevant?

[00:53:37] Speaker 07:
Under our theory, that wouldn't make a difference at all.

[00:53:38] Speaker 05:
OK, well then there's a reason they didn't tell you that and you didn't discuss it.

[00:53:41] Speaker 05:
So I don't know why you say we didn't discuss a lot of things that we told them are not relevant to our decision means that we

[00:53:48] Speaker 05:
didn't take a final agency action.

[00:53:50] Speaker 07:
The letter says at the end that this is limited to the facts you provided us.

[00:53:53] Speaker 07:
Like this is what I'm getting at.

[00:53:54] Speaker 07:
It doesn't mean that were there further investigation there might not be other facts.

[00:53:58] Speaker 07:
I just don't know.

[00:53:59] Speaker 07:
It's limited to the facts that they provided.

[00:54:02] Speaker 07:
If you look at AT&T versus... What other fact could they provide?

[00:54:06] Speaker 05:
Given your interpretation of the law as applied to them in this letter, what fact would change something other than if they said, oops, do we forget to tell you that we did a new drug application?

[00:54:15] Speaker 05:
That would change.

[00:54:16] Speaker 07:
That would change.

[00:54:16] Speaker 05:
Of course, that is what happened.

[00:54:19] Speaker 07:
A different dosage form and strength.

[00:54:21] Speaker 05:
But that's all from the drug.

[00:54:23] Speaker 05:
I mean, that's just a matter of public record.

[00:54:26] Speaker 07:
To say that the letter is meant to respond to the fact, to the letter received from Ipsen, not some independent research, I guess, is what I'm trying to get at.

[00:54:35] Speaker 06:
So what if the letter had concluded by saying that we will take the position in any future enforcement action that taking, that if you don't follow our instructions, you will have committed a knowing violation of the relevant statutes and regulations?

[00:55:06] Speaker 07:
So would that matter?

[00:55:07] Speaker 07:
I think that would matter.

[00:55:09] Speaker 07:
If you look at Ray Alana, once they had the letter, the regulation said any action after that would be a known violation.

[00:55:15] Speaker 07:
If the letter here concluded by saying, now that we've told you our interpretation, which we thought was clear, but now that we've told you, we will consider any future reporting to be willful,

[00:55:24] Speaker 07:
or sorry, not Wilful, that was the standard in Ray Atlanta, that's not the standard, to be known, but we don't consider past actions to be known.

[00:55:31] Speaker 07:
That would be putting them on notice that we view the CNTR is now in effect and it was not before.

[00:55:38] Speaker 07:
So that would be final agency action?

[00:55:40] Speaker 07:
I'm not sure, again, because this is a self-reporting regime.

[00:55:44] Speaker 07:
The enforcement mechanisms require the Secretary of HHS to engage.

[00:55:49] Speaker 07:
It would be certainly more consequence than we have here, and it would look somewhat different than what we have here.

[00:55:55] Speaker 07:
I don't want to say definitively whether it would be final agency action or not, how it would fall on that line.

[00:55:59] Speaker 06:
But it would have significant, it would have additional, what legal effect would that language have?

[00:56:06] Speaker 07:
The agency would be stating its view that a known violation is one made after we've informed you and was not one made before we've informed you, which is what the regulation issue in Ray Atlanta did.

[00:56:18] Speaker 07:
It said, for the agency's purpose, a known violation is one after you've received the letter and not before.

[00:56:24] Speaker 07:
Now the agency did come to court in Ray Atlanta and attempt to sort of walk that back, but the court said, you have a regulation on the books that draws that line.

[00:56:31] Speaker 07:
And so once you sent this letter, you know, the world knows when they received this letter, they're on the DOL's view of knowing versus not on DOL's view of knowing.

[00:56:39] Speaker 07:
If we had put that language in here, it would at least express CMS's view that knowing penalties would be going forward but not going backwards.

[00:56:46] Speaker 06:
But you just said a few minutes ago that this letter could be used as legally relevant evidence to prove a knowing violation.

[00:56:56] Speaker 07:
Yes, in an adjudication.

[00:56:58] Speaker 07:
But as could emails or interactions they had before, as would manufacturer release 26, which stated the new drug application, not the new drug code, is how you determine the base date.

[00:57:10] Speaker 07:
It would just be a piece of evidence in the adjudication.

[00:57:14] Speaker 07:
I'm well over it.

[00:57:16] Speaker 05:
Well, it just seems to me, I'm sorry, that so you don't have a regulation like in Rialana.

[00:57:23] Speaker 05:
So I'm trying to figure out if this is a one free bite for you on nonfinality.

[00:57:27] Speaker 05:
So you go say, we say it's nonfinal, go forward, and then you bring your enforcement action.

[00:57:32] Speaker 05:
And in the enforcement action, you go, here's the letter.

[00:57:35] Speaker 05:
See?

[00:57:36] Speaker 05:
See?

[00:57:37] Speaker 05:
How can they say it wasn't knowing?

[00:57:39] Speaker 05:
They can't even say it's good faith.

[00:57:41] Speaker 05:
We told them what the law is, and we're the agency, and we get Chevron deference.

[00:57:45] Speaker 05:
And so then they're in trouble.

[00:57:50] Speaker 05:
And then the next company comes along, gets the exact same letter.

[00:57:53] Speaker 05:
Do they get to say it's final because now you've taken, the agency has taken a position as to the role of the letter?

[00:57:59] Speaker 07:
The next company receives a similar letter.

[00:58:03] Speaker 05:
Similar letter and they go, aha, see this litigation?

[00:58:06] Speaker 05:
They've said what they think this letter means.

[00:58:07] Speaker 05:
So then it would be final, like for your letter?

[00:58:12] Speaker 07:
I suppose it would depend, but if the position of litigation could not be changed, again, in Ray Elani had a regulation.

[00:58:18] Speaker 05:
Oh, so they'll come up and they'll say it's final.

[00:58:19] Speaker 05:
You'll go, well, we could change that position of litigation.

[00:58:21] Speaker 05:
We're not sure what we're going to do, so it wouldn't be finalist for them either.

[00:58:24] Speaker 05:
And then they go get enforced, and you do the same thing.

[00:58:26] Speaker 05:
So you've got this letter.

[00:58:27] Speaker 05:
This seems not right to me.

[00:58:28] Speaker 07:
They would certainly have a stronger argument, because they would be able to say, look, you're enforcing this.

[00:58:33] Speaker 07:
But in holistic candlers.

[00:58:34] Speaker 05:
So it's not final, because they happen to be the first train going through the station?

[00:58:37] Speaker 07:
Well, but in holistic candlers, they had pursued enforcement against other ear candle developers, but not against some.

[00:58:46] Speaker 07:
And in some of the cases the court has said, in certain statutory regimes, just because they've stated their view of the law and asked you to voluntarily comply, which again, this letter doesn't say, please voluntarily comply or please voluntarily comply by this date.

[00:58:58] Speaker 07:
It just says, here's our interpretation of the statute as applied to the facts given.

[00:59:03] Speaker 07:
The court has said in other cases that you don't, that because someone else is being enforced against doesn't mean you have final agency action.

[00:59:11] Speaker 05:
So let's say it's ten times down the road and you've come here every time and said it's not final, we could change our mind, and ten times you do the exact same.

[00:59:20] Speaker 05:
Is there some point when this actually becomes your agency position on the impact of the letter so that we would have finality?

[00:59:27] Speaker 07:
I suspect there is.

[00:59:28] Speaker 07:
I, you know, I'm not.

[00:59:30] Speaker 05:
But you get how many, how many, how many free bites do you get?

[00:59:33] Speaker 07:
I'm not prepared to answer that.

[00:59:36] Speaker 07:
Again, part of what's going on here is that we don't have any rulings on what the knowing standard is in this statute.

[00:59:41] Speaker 07:
This just isn't something that's been enforced.

[00:59:42] Speaker 05:
I don't understand why that affects finality or not, though.

[00:59:45] Speaker 05:
It seems a bit unfair to them to say, well, it might be final, but we haven't yet come to a public record conclusion as to how much this letter moves the needle on knowing violations.

[01:00:01] Speaker 07:
I guess I was trying to get to, if you had a court's interpretation that said knowing in this statute means that there's a harbor for good faith reasonable interpretations akin to sort of case law that develops under the False Claims Act, then you would be able to say that's what's required to be shown to prove knowing.

[01:00:19] Speaker 07:
We just don't have that here, I guess is all I'm trying to say.

[01:00:22] Speaker 05:
Just one quick question.

[01:00:23] Speaker 05:
It says a knowing presentation of false information.

[01:00:26] Speaker 05:
Does false

[01:00:27] Speaker 05:
require another mens rea or does that require an intentional mens rea or is knowing the only thing that goes on for civil penalties?

[01:00:33] Speaker 05:
Normally something isn't false.

[01:00:35] Speaker 05:
It might be mistaken, but it's not false unless you intend it to be false.

[01:00:40] Speaker 07:
Understood, Your Honor.

[01:00:42] Speaker 05:
You haven't argued that they have any protection as long as they didn't intentionally provide information.

[01:00:47] Speaker 05:
You're only going to give them knowing.

[01:00:49] Speaker 07:
We haven't argued that, I think, partly because we haven't enforced, to my knowledge, under this provision for the base date.

[01:00:57] Speaker 07:
And so the civil monetary penalties have only ever been used, or I think they've predominantly been used in a situation where you designate as innovator versus non-innovator, which affects the main rebate in a significant way.

[01:01:09] Speaker 05:
An issue here is merely the additional rebate, which is how much above is... So, but in these other cases, have you taken a position on what knowing means and what the role of agency letters

[01:01:19] Speaker 05:
even if it's not this exact program, is it the same penalty provision?

[01:01:23] Speaker 07:
It is the same penalty provision.

[01:01:24] Speaker 05:
What have you said about this penalty provision in other contexts?

[01:01:28] Speaker 07:
I don't know.

[01:01:31] Speaker 05:
So you've applied this penalty provision before?

[01:01:37] Speaker 07:
I believe we've at least settled with myelin pharmaceuticals under this penalty provision.

[01:01:42] Speaker 07:
I'm not sure that we have.

[01:01:46] Speaker 07:
I can ask agency counsel if that would

[01:01:50] Speaker 07:
It's the same, we apply it in these other contexts, it's the same that we would apply in other contexts as they know or should have known that the information.

[01:02:08] Speaker 05:
Sorry, if you want to take a quick whisper or something or else you could submit a letter afterwards.

[01:02:12] Speaker 05:
My question is whether you've taken a position on the role of agency communications.

[01:02:18] Speaker 05:
in the knowing calculus in another scenario under the same penalty provision?

[01:02:54] Speaker 08:
Thank you, Your Honors.

[01:02:55] Speaker 08:
I'll start with Judge Millett, your question about applying the law to the specific facts of this case versus the more general interpretation.

[01:03:04] Speaker 08:
A lot of this Court's cases finding no finality, finding no legal consequence, involve a situation where the agency is addressing an abstract question of law.

[01:03:13] Speaker 08:
not in the context of a specific permit application or what have you, but a question of law.

[01:03:17] Speaker 08:
The agency decides the question of law.

[01:03:19] Speaker 08:
It's the end of the road on what the law means.

[01:03:21] Speaker 08:
The agency is giving you its definitive position on that legal issue.

[01:03:25] Speaker 08:
But that disembodied abstract legal conclusion doesn't have any legal consequence unless and until it's incorporated into an agency decision as part of the process that Congress has laid out through a permit application or whatever the context may be.

[01:03:38] Speaker 08:
In that situation, it makes perfect sense to say the abstract legal conclusion isn't final.

[01:03:43] Speaker 08:
It's just a legal conclusion.

[01:03:44] Speaker 08:
And you'll have a chance to get review of the agency's application of that legal conclusion in the process that Congress has spelled out for the agency to go through.

[01:03:52] Speaker 08:
Here, there is no process.

[01:03:54] Speaker 08:
Here, as your honor put it, there's nothing in your question that he answered no to.

[01:03:58] Speaker 08:
My friend said no.

[01:03:59] Speaker 08:
Is there anything standing between us after this letter and an enforcement action except prosecutorial discretion?

[01:04:04] Speaker 08:
The answer was no.

[01:04:05] Speaker 08:
It's a candid answer, and it's the truth.

[01:04:07] Speaker 08:
There is no other process here.

[01:04:09] Speaker 05:
The legal test is appreciable legal consequences.

[01:04:13] Speaker 05:
Am I right that it's only, for me this is actually a lot of money, but I'm not sure it is for your company, $100,000 a quarter, or is it more?

[01:04:22] Speaker 05:
Or is it monthly now?

[01:04:23] Speaker 05:
I'm not sure.

[01:04:24] Speaker 05:
It's $100,000 per violation, and exactly how that would be computed is... Well, the statement of false information, which I assume is just you only do once a quarter when you, every item of false information, so I assume you only submit your calculation once every quarter.

[01:04:41] Speaker 05:
Or you submit whatever data you submit to them that may then spew back the calculation?

[01:04:46] Speaker 08:
So Your Honor, there hasn't been a lot of application of this statute, and exactly as Your Honors probably know from the False Claims Act, where it's a per claim penalty, there are all sorts of issues about how you define what the claim is and how many instances there are.

[01:04:58] Speaker 08:
This statute hasn't been applied enough for me to be confident of the answer to that.

[01:05:01] Speaker 08:
But even if it's once per quarter, let's just assume that, three dosage strengths each per quarter, once per quarter, that adds up to a lot of money.

[01:05:10] Speaker 08:
So certainly that's a substantial consequence, whatever the definition of substantial might be.

[01:05:15] Speaker 03:
Do you do three separate filing?

[01:05:16] Speaker 08:
I'm sorry, your honor.

[01:05:18] Speaker 03:
Do you do three separate filings each quarter?

[01:05:21] Speaker 08:
For each dosage strike, yes, because the statute makes clear that... So $300,000 a quarter.

[01:05:27] Speaker 05:
It does rather...

[01:05:30] Speaker 05:
pale in comparison to, maybe it doesn't matter at the end of the day, but does rather pale in comparison to the types of penalties that were faced daily in Sackett and Hawks and a lot of the other cases where people have been exposed to criminal and civil penalties in a lot of cases.

[01:05:48] Speaker 05:
So I'm trying to figure out, is it appreciable if you have a civil penalty that for a big corporation is

[01:05:56] Speaker 05:
$300,000 a quarter?

[01:05:58] Speaker 08:
My client is not so big that that's less than substantial.

[01:06:01] Speaker 08:
$300,000 a quarter for several years.

[01:06:03] Speaker 08:
We've been trying to get review of this issue for several years, so $300,000 a quarter would add up to an awful lot of money.

[01:06:08] Speaker 08:
And there isn't any case that I'm aware of from this court or the Supreme Court.

[01:06:11] Speaker 05:
It must be way less than your saving by going forward with your own interpretation of the statute, though.

[01:06:16] Speaker 08:
I don't know exactly what that number is, but this is an important issue that going forward would apply not just to this drug, so whatever the calculus is on the difference in price, the difference in rebates for this drug, it's also an important issue that would apply to other products going forward where a client really needs to know what the law is on this.

[01:06:32] Speaker 08:
So all I would say is just there isn't any case that I know of from this court or the Supreme Court or, for that matter, any other court that says the adverse consequence standard has to be criminal as opposed to civil.

[01:06:44] Speaker 08:
I'm not aware of any case that says that.

[01:06:46] Speaker 08:
There's lots of cases from the Supreme Court in this case that involve civil consequences that are monetary that are held to be the kinds of legal consequences that qualify.

[01:06:55] Speaker 08:
And here, I know I'm over my time.

[01:06:57] Speaker 08:
So just in conclusion,

[01:07:00] Speaker 08:
This is a case where it's either we get review now of the agency's definitive interpretation in this letter or we have to wait for the agency to drop the hammer in an enforcement action as the Supreme Court has put it.

[01:07:11] Speaker 08:
The Supreme Court has been emphatic that the point of the APA is so that you shouldn't have to wait

[01:07:15] Speaker 08:
for the agency to drop the hammer in an enforcement action.

[01:07:18] Speaker 08:
You shouldn't have to depend on prosecutorial discretion.

[01:07:21] Speaker 08:
You should be able to get review by a court to do its job of saying what the law is where the agency has given you its definitive interpretation and there's no more review within the agency and the agency's view has legal consequences.

[01:07:32] Speaker 08:
Exactly how substantial those have to be might be a harder issue in another case.

[01:07:36] Speaker 08:
300,000, if that's all it is, and I'm not even sure that's all it is, per quarter over a period of years.

[01:07:41] Speaker 05:
Well, 300,000 discounted by

[01:07:45] Speaker 05:
whatever the risk is of that, which is not 100 percent as it was for purposes of our decision in Rialana.

[01:07:53] Speaker 08:
Your Honor, I don't mean to quibble, but there are other places in Raelana where the decision reads very differently, where the conclusion, the opinion is, the agency's letter renders Raelana a candidate for civil penalties, which is a very different way of putting it than guarantees civil penalties or is a standalone trigger.

[01:08:08] Speaker 05:
And the court explicitly decided... Well, it just meant that they would actually have to bring the enforcement action.

[01:08:12] Speaker 05:
Oh, of course.

[01:08:12] Speaker 05:
I'm not discounting by that.

[01:08:13] Speaker 05:
What I'm discounting by is whether, as we've talked about at some length and don't need to redo here, whether the letter itself even

[01:08:20] Speaker 05:
how much it even moves the needle on knowing.

[01:08:22] Speaker 08:
Well, I mean, I just heard my friend say to your honors in response to your specific questions with follow-up questions to try to get a clear answer on this, I just heard my friend say that the letter would be evidence on the mens rea element in an enforcement action.

[01:08:35] Speaker 08:
Of course, he didn't promise that the agency would bring such an enforcement action, but we know from the Supreme Court that that isn't required.

[01:08:41] Speaker 08:
And we know, because my friend just said it, to your honors, that the agency's view is, under the penalty authority in the statute, that the fact that the agency sent us this letter and told us definitively what it thinks the law is and how that law applies specifically to these facts, that that puts us on notice in a way that affects the knowing standard.

[01:08:59] Speaker 08:
So we now know that that's the agency's view.

[01:09:02] Speaker 08:
The only difference between this and Raelana in that sense is that the agency's letter here didn't spell that out, but we now know that to be true and we already knew I would submit that to be true because the statute uses the word knowingly.

[01:09:14] Speaker 08:
There are a hundred other statutes that use the word knowingly.

[01:09:17] Speaker 08:
It's well established in the case law what knowingly means, the kind of mens rea that requires.

[01:09:22] Speaker 08:
And it's clear whether the agency chose to say so in the letter or today or not,

[01:09:27] Speaker 08:
it's clear that where the agency tells you what it thinks you have to do, you then know that's the agency's position, and then you intentionally don't do that because you think the agency's wrong, that you're at greater risk than you were before the agency told you that.

[01:09:38] Speaker 05:
Are those other schemes you're referencing, do they include any cases recognized in a good faith defense?

[01:09:44] Speaker 08:
I mean, Your Honor, I think in, certainly in the criminal context, I think statutes that have a knowingly element.

[01:09:49] Speaker 05:
The civil context?

[01:09:51] Speaker 08:
So my friend referred to the False Claims Act, that's not actually a knowingly,

[01:09:55] Speaker 08:
I mean it's knowingly, but the statute defines knowingly to mean more like recklessly, so it's not exactly analogous.

[01:10:04] Speaker 08:
There is a good faith defense, but that's because

[01:10:07] Speaker 08:
Well, there there is a good faith defense, but the mens rea is not exactly the same as would apply here.

[01:10:12] Speaker 08:
Again, I don't think that the question is would we be liable in a civil penalty action because the underlying merits question here is what we're trying to get the court to decide.

[01:10:23] Speaker 08:
We think we're right about the underlying merits question.

[01:10:25] Speaker 08:
Of course, if we are, then we're not liable for civil penalties or any other kind of consequence because we've been right all along and the agency has been wrong.

[01:10:32] Speaker 08:
But that isn't the standard.

[01:10:34] Speaker 08:
The point is to try to get the court to answer that question.

[01:10:38] Speaker 08:
So it can't be that a legal consequence exists only if we're likely, before the court has decided the merits question that the finality inquiry is relevant to, it can't be that finality applies only if we're likely to be subject to this consequence in the future.

[01:10:53] Speaker 08:
The whole point is to try to get the court to decide the merits question.

[01:10:57] Speaker 05:
So you think it's not likely that you would be subject to knowing penalties?

[01:11:00] Speaker 08:
I don't know how likely it is or not, because I just heard my friends say that the agency would treat this letter as evidence showing the mens rea that the statute requires.

[01:11:10] Speaker 08:
I would be happy to be able to make the argument if it comes to that, that that's not a correct interpretation of the statute, but I don't know that I would prevail in that argument.

[01:11:19] Speaker 08:
And if the agency is telling your honors out loud in response to your direct questions, yes, we think this is evidence showing mens rea, then I don't know how your honors could say that there isn't a substantial risk that this letter would have the legal consequence that my friend just told your honors it would have.

[01:11:35] Speaker 08:
Thank you very much for your indulgence at the time.

[01:11:37] Speaker 08:
We would ask the court to reverse.

[01:11:40] Speaker 02:
Thank you.

[01:11:41] Speaker 02:
Mr. Glover, could you come back up to the podium?

[01:11:52] Speaker 02:
Would you submit by Friday to the court and to your colleague what was discussed here with Judge Millett, with your co-counsel, as far as

[01:12:23] Speaker 02:
the agency ever having enforced this penalty clause?

[01:12:30] Speaker 01:
Yes.

[01:12:31] Speaker 05:
Under any scheme that it applies to?

[01:12:35] Speaker 07:
Yeah.

[01:12:37] Speaker 07:
The 1396 are the knowing provision there.

[01:12:42] Speaker 05:
Right.

[01:12:43] Speaker 05:
Because that applies more than this particular?

[01:12:47] Speaker 05:
Yeah.

[01:12:47] Speaker 05:
Anything it applies to?

[01:12:53] Speaker 01:
All right.

[01:12:54] Speaker 07:
And I apologize, you said by Friday?

[01:12:56] Speaker 01:
Yes.