Private Equity Firms, the Healthcare Industry, and the FCA: The “Butterfly Effect” in Action?

When Riordan, Lewis & Haden Inc., a private equity firm, found itself ensnared in a False Claims Act litigation for its role in a prescription drug kickback scheme orchestrated by one of its portfolio companies, it moved to have the United States’ suit dismissed by invoking the familiar concept of the “butterfly effect.” How could RLH’s mere “entry into a new line of business with honest intentions and the hope of turning a profit”—actions that RLH characterized as “the proverbial flutters of a butterfly wing”—create a sufficient basis for FCA liability when the actual misconduct, RLH asserted, was conducted by a wholly different entity?