Laurie Simpson v. Bayer Healthcare , 732 F.3d 869 ( 2013 )


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  •                 United States Court of Appeals
    For the Eighth Circuit
    ___________________________
    No. 12-2979
    ___________________________
    In re: Baycol Products Litigation
    ------------------------------
    United States of America, ex rel Laurie Simpson
    lllllllllllllllllllll Plaintiff
    Laurie Simpson
    lllllllllllllllllllll Plaintiff Relator - Appellant
    v.
    Bayer Healthcare, doing business as Bayer Healthcare Pharmaceuticals; Bayer
    Pharmaceuticals Corporation; Bayer Corporation; Bayer A.G.
    lllllllllllllllllllll Defendants - Appellees
    ____________
    Appeal from United States District Court
    for the District of Minnesota - Minneapolis
    ____________
    Submitted: June 12, 2013
    Filed: October 15, 2013
    ____________
    Before LOKEN, BRIGHT, and BYE, Circuit Judges.
    ____________
    BRIGHT, Circuit Judge.
    Laurie Simpson appeals the dismissal of the qui tam action she brought against
    Bayer Healthcare under the False Claims Act (FCA), 31 U.S.C. §§ 3729–3733.
    Simpson alleged Bayer defrauded the United States government through its marketing
    and sale of the cholesterol-lowering drug Baycol. She claimed Bayer fraudulently
    caused the government to make reimbursements for Baycol prescriptions through
    federal health insurance programs such as Medicare and Medicaid; she also claimed
    Bayer fraudulently induced the Department of Defense (DoD) to enter into two
    contracts for the purchase of Baycol. The district court dismissed Simpson's claims,
    concluding she failed to plead fraud with the particularity required by Rule 9(b) of
    the Federal Rules of Civil Procedure. We affirm the dismissal relating to federal
    health insurance programs but reverse as to the DoD contract claims and remand for
    further proceedings.
    I.
    In early 1998, Bayer began marketing Baycol to compete with other
    cholesterol-lowering "cerivastatin" or "statin"1 drugs. Certain studies concluded
    Baycol was less effective at lowering cholesterol than competing drugs when Baycol
    was prescribed at the dosage initially approved by the Food and Drug Administration
    (FDA). Bayer then sought and obtained approval from the FDA to sell Baycol at
    higher dosage levels. Doctors began to report, however, that patients who were
    prescribed Baycol developed rhabdomyolysis, a rare but serious muscle disorder in
    which destroyed muscle cells release into the bloodstream. The likelihood of this
    warned-about side effect appeared to increase when Baycol was prescribed at higher
    doses, or in conjunction with gemfibrozil, another cholesterol-lowering drug. In July
    1
    Statins are a class of drugs which inhibit HMG-CoA reductase, an enzyme that
    plays a central role in the production of cholesterol in the liver.
    -2-
    2001, the FDA asked Bayer to address these concerns about Baycol. Bayer
    voluntarily withdrew Baycol from the market in August 2001.
    Laurie Simpson worked at Bayer from 1998 through 2004 as a manager of
    market research. While at Bayer, Simpson's work involved marketing Baycol. In
    October 2006, relying in large part upon information to which she was privy during
    her time at Bayer, Simpson filed a qui tam action against Bayer as a relator on behalf
    of the government. She alleged Bayer knew about, but downplayed, the risks of
    developing rhabdomyolysis through the use of Baycol. She also alleged Bayer
    misrepresented Baycol's efficacy when compared to competing cholesterol-lowering
    drugs sold by other manufacturers (such as Lipitor), and paid illegal kickbacks to
    physicians to increase Bayer's share of the market for statin drugs.
    Part of Simpson's initial lawsuit was dismissed for lack of jurisdiction on the
    grounds Simpson was not the original source of her allegations. See 31 U.S.C. §
    3730(e)(4)(A) (indicating courts lack jurisdiction over an FCA claim unless the
    relator is "an original source of the information"). Some of her allegations – those
    involving payments the government made before October 2000 – were also dismissed
    because they were barred by the FCA's six-year statute of limitations. The district
    court initially dismissed the remainder of Simpson's suit without prejudice for failing
    to plead fraud with particularity, but gave Simpson a chance to cure the deficiencies
    by filing an amended complaint, which Simpson filed. This appeal concerns what
    was left of Simpson's suit.
    In this second amended complaint (SAC), Simpson alleged Bayer defrauded
    the government in two distinct respects. First, Simpson alleged Bayer fraudulently
    caused the government to make reimbursements for Baycol prescriptions through
    federal health insurance programs such as Medicare and Medicaid, asserting that "had
    the Government known the full truth [about Baycol] it would not have paid the
    [reimbursement] claims." SAC at ¶ 266; Appellant's App. at A-128. Simpson also
    -3-
    alleged Bayer fraudulently induced the DoD to enter into two contracts for the
    purchase of Baycol to be prescribed to members of the armed services by physicians
    working at Military Treatment Facilities. We will first summarize Simpson's
    allegations regarding the DoD contracts.
    A.     The DoD Contracts
    The DoD reached an initial agreement with Bayer for the purchase of Baycol
    on October 1, 1999. The initial DoD contract called for Bayer to sell Baycol to the
    military for an 18-month term in three different dosages (0.2 mg, 0.3 mg, and 0.4 mg)
    at a price of $.30 per tablet. This initial contract had an estimated base value per year
    of $11,505,000, and provided the military with an option to renew for two separate
    one-year extensions. If the DoD exercised its option to renew, the per tablet price
    would increase to $.31 per tablet the first year (for an estimated base value of
    $11,888,500), and to $.32 per tablet the second year (for an estimated base value of
    $12,272,000). Id. at ¶ 72; Appellant's App. at A-70.
    After entering into the initial contract with Bayer, the DoD became concerned
    about the connection between rhabdomyolysis and Baycol, and contacted Bayer
    regarding those concerns. Simpson alleged that on November 10, 1999, Casimir
    Zygmunt, a Baycol representative at Bayer, responded to inquiries made by
    Lieutenant Commander Richerson, the DoD's point of contact for the DoD Statin
    Award Implementation Plan, about Baycol's safety with respect to the risk of
    rhabdomyolysis. Simpson alleged Zygmunt told the DoD there is "[n]o evidence to
    suggest Baycol causes more rhabdo then (sic) others – it is a class effect." Id. at ¶
    107; Appellant's App. at A-77. Simpson alleged this was "a false statement because
    Bayer did possess evidence at the time suggesting that Baycol did cause more
    rhabdomyolysis than other statins." Id. (Emphasis in original).
    -4-
    Paragraphs 108 through 120 of the SAC further describe the contacts between
    Bayer and the DoD over the latter's concern about the frequency or severity of
    rhabdomyolysis associated with Baycol. For example, in a letter Bayer sent to the
    DoD on December 3, 1999, Simpson alleges Bayer falsely stated "there are
    insufficient data upon which to base a dose-response relationship" between the
    frequency or severity of rhabdomyolysis and the use of Baycol. Id. at ¶ 112;
    Appellant's App. at A-78. Simpson alleged this was a false statement because "Bayer
    was aware at the time that there was in fact a dose-response relationship with Baycol's
    adverse side-effects." Id.
    On January 20, 2001, the DoD renewed the original contract with Bayer and
    extended the period of performance from February 20, 2001, through February 19,
    2002, for an estimated dollar value of $11,888,500.2 Id. at ¶ 80; Appellant's App. at
    A-71. In addition, on February 20, 2001, the DoD agreed to purchase a higher dosage
    of Baycol from Bayer (0.8 mg tablet) under a Blanket Purchase Agreement (BPA).
    Under the BPA, Bayer sold 0.8 mg tablets of Baycol to the military at a discounted
    price of $15.00 for 30 tablets, and $45.00 for 90 tablets. Id. at ¶ 96; Appellant's App.
    at A-74.
    Simpson alleged the January 2001 contract extension and the February 2001
    BPA were fraudulently induced by the false statements Bayer made about Baycol's
    effectiveness and connection to rhabdomyolysis. Simpson alleged that "[i]f the DoD
    and other prescribers had known the truth (which DoD attempted to discover on
    multiple occasions), then it is unlikely the DoD would have entered into the contract
    with Bayer or would have extended the contract." Id. at ¶ 123; Appellant's App. at
    A-82.
    2
    The contract extension slightly modified the terms of the original contract,
    because the original contract was supposed to expire on March 31, 2001, not
    February 20, 2001.
    -5-
    Finally, as relevant to the January 2001 contract extension and February 2001
    BPA, Simpson alleged that "[a]ccording to the DoD PEC [Pharmacoeconomic
    Center], there were approximately 400,000 Baycol prescriptions filled in MTFs
    [Military Treatment Facilities] during the period commencing October 2000 to the
    withdrawal of Baycol from the market [in August 2001]." Id. at ¶ 244; Appellant's
    App. at A-123. Simpson also alleged that "[f]rom October 2000 through the time of
    the withdrawal of Baycol from the market in August 2001, government agencies,
    under various contracts with Bayer for the supply of Baycol, including the DoD . . .
    paid Bayer at least $11,983,305.08 for their supplies of Baycol." Id. at ¶ 243. In
    other words, Simpson alleged Baycol was used by members of the armed services
    after Bayer allegedly fraudulently induced the DoD to enter into the January 2001
    contract extension and February 2001 BPA, and further alleged the government made
    payments to Bayer pursuant to the allegedly fraudulently induced DoD contracts.
    B.     Federal Health Insurance Reimbursements
    We next summarize Simpson's allegations regarding federal health insurance
    reimbursements. Simpson's SAC focused on a number of aspects of the manner in
    which Bayer generally marketed Baycol. Simpson alleged Bayer made false
    statements about Baycol's efficacy in lowering cholesterol when it introduced the
    drug into the general marketplace. Simpson further alleged Bayer misrepresented the
    risks of adverse side effects associated with Baycol. Simpson also alleged Bayer used
    illegal kickbacks to physicians to induce them to begin prescribing Baycol or to
    increase their prescriptions of Baycol.
    Finally, as significant for purposes of this appeal, Simpson then alleged the
    general manner in which Bayer marketed Baycol was causally connected to payments
    the government made under Medicare, Medicaid, and the Federal Employees Health
    Benefits Program (FEHBP) when individuals participating in those programs received
    a prescription from a physician for Baycol, filled the prescription at a pharmacy, and
    -6-
    the pharmacy or individual submitted the prescription to the government for
    reimbursement through those federal health insurance programs. Simpson
    specifically alleged "the Government purchased and/or reimbursed significant
    quantities of Baycol when it would not otherwise have done so if Bayer had fully
    disclosed the truth regarding the safety of its drug." Id. at ¶ 266; Appellant's App. at
    A-128. Simpson further alleged "Bayer caused false claims to be submitted by
    patients and organizations because physicians relied on Bayer's assertions when they
    prescribed Bayer, thus causing false claims to be submitted to the Government[.]" Id.;
    Appellent's App. at A-129. Finally, Simpson alleged "had the Government known
    the full truth it would not have paid the claims." Id.
    C.     The Motion to Dismiss
    Bayer moved to dismiss Simpson's SAC under Rules 9(b) and 12(b)(6) of the
    Federal Rules of Civil Procedure. Bayer contended in relevant part that Simpson's
    allegations were deficient because she did not include representative examples of
    false claims submitted for payment to the government. Bayer argued the particularity
    requirements of Rule 9(b) require a relator to allege representative false claims in
    order to survive a motion to dismiss, citing this court's decisions in United States ex
    rel. Vigil v. Nelnet, Inc., 
    639 F.3d 791
     (8th Cir. 2001); United States ex rel. Joshi v.
    St. Luke's Hospital, 
    441 F.3d 552
     (8th Cir. 2006); and United States v. ex rel. Roop
    v. Hypoguard USA, Inc., 
    559 F.3d 818
     (8th Cir. 2009). The district court agreed with
    Bayer's arguments and granted the motion to dismiss. This timely appeal followed.
    II
    We apply de novo review to a district court's decision to dismiss a complaint
    under Rules 9(b) or 12(b)(6) of the Federal Rules of Civil Procedure. Summerhill v.
    Terminix, Inc., 
    637 F.3d 877
    , 880 (8th Cir. 2011).
    -7-
    Originally enacted in response to "unscrupulous Civil War defense
    contractors," Minn. Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 
    276 F.3d 1032
    , 1041 (8th Cir. 2002), the FCA serves a "specific function, protecting the federal
    fisc by imposing severe penalties on those whose false or fraudulent claims cause the
    government to pay money[.]" Vigil, 639 F.3d at 795–96. The Act allows private
    individuals (i.e., relators) to bring a civil action in the name of the United States
    against those who violate the Act's provisions. 31 U.S.C. § 3730(b)(1).
    The FCA "is not concerned with regulatory noncompliance," but with false or
    fraudulent claims that cause the government to pay money. Vigil, 639 F.3d at 795-96.
    As a result, the FCA carefully defines the conduct it prohibits. The Act's "core
    provisions," id. at 796, make any person liable who "(1) knowingly presents, or
    causes to be presented, [to a federal official] a false or fraudulent claim for payment
    or approval," or "(2) knowingly makes, uses, or causes to be made or used, a false
    record or statement to get a false or fraudulent claim paid or approved by the
    Government." 31 U.S.C. § 3729(a)(1)–(2).3 The FCA defines "claim" to include "any
    request or demand … for money or property which is made to a contractor, grantee,
    or other recipient if" the United States either "provides any portion of the money or
    property which is requested or demanded," or "will reimburse such [entity] for any
    portion of the money or property which is requested or demanded." Id. § 3729(c).
    The FCA generally "attaches liability, not to the underlying fraudulent activity,
    but to the claim for payment." Costner v. URS Consultants, Inc., 
    153 F.3d 667
    , 677
    (8th Cir. 1998). Accordingly, the general elements of a case under the FCA are "that
    3
    Congress renumbered and amended § 3729(a) in response to the Supreme
    Court's interpretation of § 3729(a)(2) in Allison Engine Co. v. United States ex rel.
    Sanders, 
    553 U.S. 662
    , 665 (2008). See Fraud Enforcement and Recovery Act of
    2009, Pub. L. No. 111–21, § 4(a)(1), 123 Stat. 1617, 1621–22. This amendment does
    not apply retroactively to this case because none of the allegedly false claims here
    were pending in 2008.
    -8-
    (1) the defendant made a claim against the United States; (2) the claim was false or
    fraudulent; and (3) the defendant knew the claim was false or fraudulent." United
    States ex rel. Raynor v. Nat'l Rural Util. Coop. Fin. Corp., 
    690 F.3d 951
    , 955 (8th Cir.
    2012).
    With these general principles in mind, we turn to the two distinct theories of
    "false claims" Simpson alleged in her SAC – those involving the DoD contracts and
    those involving government reimbursements under federal health insurance programs.
    A. The DoD Contracts
    Simpson's SAC alleged that Bayer fraudulently induced the DoD to enter into
    the January 2001 contract extension, and the February 2001 BPA for 0.8 mg tablets
    of Baycol, by making allegedly false representations about Baycol's safety with
    respect to the risk of rhabdomyolysis.4
    In granting Bayer's motion to dismiss, the district court applied the same
    analysis to both the allegations involving the fraudulently-induced DoD contracts and
    4
    Bayer argues Simpson's SAC did not plead a claim of fraudulent inducement
    because she did not use the label "fraud-in-the inducement" in the complaint. We are
    not concerned, however, with the labels a party attaches to a claim. Instead, we focus
    on the substance of the underlying factual allegations. See Mut. Creamery Ins. Co.
    v. Iowa Nat'l Mut. Ins. Co., 
    427 F.2d 504
    , 508 (8th Cir. 1970) ("[P]leadings must be
    construed favorably to the pleader and judged by substance rather than form.");
    Kutten v. Bank of Am., N.A., 
    530 F.3d 669
    , 670 (8th Cir. 2008) ("[W]e do not rely
    on the names of the causes of action that the plaintiff alleges. Instead we look at the
    substance of the allegations, based on a fair reading."); see also Bell Atlantic Corp.
    v. Twombly, 
    550 U.S. 544
    , 555 (2007) (noting the importance of examining the
    factual allegations when addressing a Rule 12(b)(6) motion to dismiss, rather than the
    "labels and conclusions [or] formulaic recitation of the elements of a cause of
    action").
    -9-
    the allegations involving the federal health insurance reimbursements. In part, the
    district court concluded Simpson's allegations were insufficient on both claims
    because she did not tie her allegations of Bayer's fraud to specific fraudulent claims
    for payment submitted to the government. The district court reasoned:
    [T]he fact that a patient covered by a federal or state funded health care
    program was prescribed Baycol to lower his/her cholesterol is not, in
    and of itself, false or fraudulent. . . . A claim under the FCA focuses on
    the claims, not the underlying fraudulent activity. Because there are no
    allegations in the SAC that a claim submitted to the government for
    payment for Baycol, was – in and of itself – fraudulent or false,
    [Simpson] has failed to sufficiently plead a claim under the FCA.
    In re Baycol Prods. Litig., No. 08-5758, 
    2012 WL 5358333
     at *6 (D. Minn. July 19,
    2012). Contrary to the district court's reasoning, a claim alleging fraud in the
    inducement of a government contract does focus on the false or fraudulent statements
    which induced the government to enter into the contract at the outset. We therefore
    conclude the district court's reasoning was incorrect as applied to Simpson's
    allegations regarding the DoD contracts.
    The Supreme Court first recognized fraud-in-the-inducement as a viable theory
    of FCA liability in 1943 in United States ex rel. Marcus v. Hess, 
    317 U.S. 537
     (1943).
    Hess involved claims submitted by government contractors who had engaged in
    collusive bidding. The Supreme Court found FCA liability for each claim submitted
    to the government under a contract so long as the original contract was obtained
    through false statements or fraudulent conduct:
    This fraud did not spend itself with the execution of the contract. Its
    taint entered into every swollen estimate which was the basic cause for
    payment of every dollar paid by the [government]. . . . The initial
    fraudulent action and every step thereafter taken, pressed ever to the
    -10-
    ultimate goal—payment of government money to persons who had
    caused it to be defrauded.
    Id. at 543-44.
    The legislative history of the FCA also supports the conclusion that fraud-in-
    the-inducement is a recognized theory of liability under the Act. "Specifically, [in
    amending the FCA in 1986,] Congress noted that, under FCA case law, 'each and
    every claim submitted under a contract, loan guarantee, or other agreement which was
    originally obtained by means of false statements or other corrupt or fraudulent
    conduct, or in violation of any statute or applicable regulation, constitutes a false
    claim.'" United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 
    393 F.3d 1321
    , 1326 (D.C. Cir. 2005) (quoting S. Rep. No. 99–345, at 9 (1986), reprinted in
    1986 U.S.C.C.A.N. 5266, 5274).
    Thus, when a relator alleges liability under a theory of fraud-in-the inducement,
    claims for payment subsequently submitted under a contract initially induced by fraud
    do not have to be false or fraudulent in and of themselves in order to state a cause of
    action under the FCA. See, e.g., United States ex rel. Harrison v. Westinghouse
    Savannah River Co., 
    176 F.3d 776
    , 788 (4th Cir. 1999) ("Contrary to the district
    court's decision, in many of the [fraud-in-the-inducement] cases cited above the
    claims that were submitted were not in and of themselves false. . . . False Claims Act
    liability attached, however, because of the fraud surrounding the efforts to obtain the
    contract or benefit status, or the payments thereunder."); see also Claire M. Sylvia,
    The False Claims Act: Fraud Against the Government § 4:29 (April 2013) ("A
    fraudulent effort to obtain a contract, sometimes called 'fraud in the inducement,' can
    constitute a false or fraudulent claim for payment or approval.").
    Based upon our review of Simpson's allegations regarding the DoD contracts,
    we conclude her complaint sufficiently "identif[ies] the 'who, what, where, when, and
    -11-
    how' of the alleged fraud," Joshi, 441 F.3d at 556, to satisfy Rule 9(b)'s requirements
    and survive a motion to dismiss under Rule 12(b)(6). Simpson's allegations identify
    (1) the individuals involved in the exchange between Bayer and the DoD regarding
    the DoD's concerns about Baycol's safety with respect to the risk of rhabdomyolysis
    (i.e., Casimir Zygmunt for Bayer and Lieutenant Commander Richerson for the DoD);
    (2) the alleged misrepresentations regarding whether Baycol causes more
    rhabdomyolysis than other statins, and whether a relationship exists between
    prescribing Baycol at higher dosages and the frequency or severity of
    rhabdomyolysis; (3) the dates when the alleged misrepresentations were made (e.g.,
    November 10, 1999 and December 3, 1999) and the manner in which the alleged
    misrepresentations were made; and (4) the specific reasons why the representations
    were alleged to be fraudulent (i.e., because Bayer allegedly possessed evidence to
    know the representations were false at the time they were made).
    In addition, Simpson connected her allegations regarding the alleged fraud to
    the January 2001 contract extension and the February 2001 BPA and alleged that "[i]f
    the DoD and other prescribers had known the truth (which DoD attempted to discover
    on multiple occasions), then it is unlikely the DoD would have entered into the
    contract with Bayer or would have extended the contract." Finally, Simpson's
    complaint alleges the government made payments to Bayer under the allegedly
    fraudulently induced contracts, claiming there were approximately 400,000 Baycol
    prescriptions filled in Military Treatment Facilities between October 2000 and the
    withdrawal of Baycol from the market in August 2001, and the government paid
    Bayer at least $11,983,305.08 for their supplies of Baycol during that same time
    period.5
    5
    We note the temporal relationship between Simpson's allegations and the two
    DoD contracts at issue is not a perfect fit. The SAC focused on the approximate ten-
    month period between the running of the statute of limitations in October 2000 and
    the withdrawal of Baycol from the market in August 2001, rather than the
    approximate seven-month period between the effective dates of the two DoD
    -12-
    We fail to see how these allegations are insufficient to state a claim for relief
    under a theory of fraud-in-the-inducement. We therefore reverse the district court
    with respect to the allegations regarding the DoD contracts, and remand for further
    proceedings consistent with this opinion.6
    B. The Federal Health Insurance Reimbursements
    Unlike the DoD contracts we have just discussed, there is no direct contractual
    relationship between the government and Bayer with respect to Simpson's allegations
    regarding reimbursements under federal health insurance programs. Thus, Simpson's
    reimbursement claims do not involve an allegedly fraudulently-induced contract
    contracts and the withdrawal of Baycol from the market. It would be unreasonable
    to infer, however, that all 400,000 prescriptions described in the SAC were filled
    prior to the effective dates of the two DoD contracts in early 2001, and that no
    prescriptions were filled thereafter until the withdrawal of Baycol from the market in
    August 2001. Likewise, it would be unreasonable to infer that all the government
    payments Simpson alleges took place in the ten-month period between October 2000
    and August 2001 were made prior to the effective dates of the two DoD contracts, and
    that no funds were paid by the government after the contracts became effective.
    Thus, the SAC still clearly alleges Baycol prescriptions were filled at Military
    Treatment Facilities after the two contracts became effective, and that the government
    made payments to Bayer pursuant to the contracts. The lack of a perfect fit between
    the specific amounts alleged in the SAC and the effective dates of the DoD contracts
    is not fatal to the question whether Simpson stated a claim for relief.
    6
    On appeal, Bayer urges us to affirm the district court's dismissal of the
    allegations involving the DoD contracts on a number of alternative grounds that have
    not yet been addressed by the district court. We believe it more prudent to allow the
    district court to address those issues in the first instance. See, e.g., Lafarge North
    Am., Inc. v. Discovery Grp. L.L.C., 
    574 F.3d 973
    , 986 fn.9 (8th Cir. 2009) ("Because
    we believe it would be beneficial for the district court to address these issues in the
    first instance, we decline to affirm on these alternative theories.").
    -13-
    where claims for payment subsequently submitted under a government contract
    initially induced by fraud do not have to be false or fraudulent in and of themselves
    in order to state a cause of action under the FCA. Instead, Simpson alleged Bayer's
    misleading marketing scheme caused third parties to submit false claims to the
    government. See 31 U.S.C. § 3729(a)(1)(A) (extending FCA liability to any person
    who "causes to be presented, [to a federal official] a false or fraudulent claim for
    payment or approval") (emphasis added); see also United States v. Hawley, 
    619 F.3d 886
    , 892 (8th Cir. 2010) (noting a claim under the FCA "need not be made directly
    to the government; it may include a request or demand that was originally made to a
    contractor, grantee, or other recipient of federal funds and then forwarded to the
    Government") (internal quotation marks and citation omitted); Claire M. Sylvia, The
    False Claims Act: Fraud Against the Government § 4:2 (April 2013) ("Subsection
    (a)(1)(A) imposes liability not only on a person who 'presents' a false or fraudulent
    claim, but also on a person who causes another to present a false or fraudulent
    claim.").
    With respect to these reimbursement claims, the district court noted Simpson's
    SAC failed to identify any specific false claims submitted by Bayer to the government
    and explained that cases "decided by the Eighth Circuit post-Joshi reaffirm this
    Court's previous finding that particularized allegations of representative false claims
    are required to properly assert a claim under the FCA." In re Baycol, 
    2012 WL 5358333
     at *5.
    The district court also compared Simpson's SAC to the complaint found
    deficient in Roop, 
    559 F.3d 818
    . As explained by the district court, Roop involved
    a relator who alleged a defendant's manufacture and sale of defective glucose
    monitors and test strips caused the government to pay fraudulent reimbursement
    claims under Medicare. We held the relator failed to state a claim under the FCA for
    a number of reasons, including the circumstance that the relator "failed to . . . identify
    specific false or fraudulent Medicare reimbursement claims by Hypoguard
    -14-
    distributors[.]" Roop, 559 F.3d at 824. Roop affirmed the district court's dismissal
    of the complaint because the relator merely conclusorily alleged the government
    would not have paid Medicare reimbursement claims if they had known of the defects
    in the glucose monitors and test strips. Id. at 825.
    The district court said Simpson's SAC was similarly deficient because she
    merely "asserts that had the government known of Bayer's misrepresentations and
    omissions concerning the risks associated with Baycol, the government would not
    have paid any claims submitted under . . . federal and state health insurance
    programs." In re Baycol, 
    2012 WL 5358333
     at *6. The district court reasoned that
    Simpson failed to make any allegations connecting a government decision to pay
    Baycol to any alleged fraud because the mere "fact that a patient covered by a federal
    or state funded health care program was prescribed Baycol to lower his/her
    cholesterol is not, in and of itself, false or fraudulent." Id. The district court
    concluded "[b]ecause there are no allegations in the SAC that a claim submitted to the
    government for payment for Baycol, was – in and of itself – fraudulent or false,
    Relator has failed to sufficiently plead a claim under the FCA." Id.
    With respect to Simpson's federal health insurance reimbursement claims, we
    agree with the district court that the pleadings in Simpson's SAC were inadequate to
    state a cause of action under the FCA because she did not include at least some
    representative examples of false claims with respect to Bayer's alleged scheme
    involving federal health insurance reimbursements, or show how any particular
    reimbursement claim was fraudulent in and of itself.
    In Vigil, we said "[w]ithout sufficient allegations of materially false claims, an
    FCA complaint fails to state a claim on which relief may be granted." 639 F.3d at
    796. As relevant to the issue of pleading representative false claims, we later stated
    with even more clarity in Joshi that a relator must "plead some representative
    examples [of false claims] within the statute of limitations." 441 F.3d at 560. Joshi
    -15-
    found persuasive the reasoning of the Eleventh Circuit in Corsello v. Lincare, Inc.,
    
    428 F.3d 1008
     (11th Cir. 2005). That case related to an underlying fraudulent scheme
    where certain health care corporations were allegedly submitting false Medicare
    claims to the government by falsifying certificates of medical necessity or billing for
    unnecessary or nonexistent treatment. Similar to Simpson, the relator in Corsello
    relied upon his allegations of the underlying scheme to argue false claims must have
    been submitted to the government, but did not include allegations of specific false
    claims actually submitted to the government for payment. The Eleventh Circuit
    dismissed the relator's complaint for failure to plead fraud with the particularity
    required by Rule 9(b). Id. at 1013-14. Applying the same reasoning to the relator's
    allegations in Joshi, we concluded a relator could not rely merely upon allegations of
    the underlying scheme to argue all claims submitted for payment to the government
    pursuant to the scheme were fraudulent because "all the nurse anesthetists' work was
    illegal" and thus "every invoice for nurse anesthetist work was fraudulent[.]" Joshi,
    441 F.3d at 556. Instead, we said
    to satisfy Rule 9(b)'s particularity requirement and to enable St. Luke's
    and Dr. Bashiti to respond specifically to Dr. Joshi's allegations, Dr.
    Joshi must provide some representative examples of their alleged
    fraudulent conduct, specifying the time, place, and content of their acts
    and the identity of the actors. Dr. Joshi's complaint is void of a single,
    specific instance of fraud, much less any representative examples. Thus,
    the district court properly dismissed Dr. Joshi's complaint for failure to
    comply with Rule 9(b).
    Id. at 557. (Emphasis in original).
    Finally, in Roop we dealt with allegations similar to the fraudulent scheme
    alleged by Simpson because the case involved a defendant who – by manufacturing
    and marketing a defective medical product – allegedly caused third parties to submit
    false Medicare reimbursement claims to the government. 559 F.3d at 820. Again, we
    -16-
    held that allegations regarding the underlying scheme were insufficient to state a
    claim for relief without pleading representative examples of some false
    reimbursement claims submitted to the government:
    The proposed First Amended Complaint did not plead with
    particularity the details of any false Medicare reimbursement claim
    presented to, or paid by, the United States or its agent. Nor did it allege
    with particularity how any product defect or failure to submit MDR7
    reports to the FDA was material to—that is, 'capable of influencing'
    —the government's decisions to pay countless unidentified Medicare
    reimbursement claims submitted by Hypoguard distributors. The
    conclusory allegation that unidentified government agents 'would not
    have reimbursed through Medicare individuals submitting claims [for
    Hypoguard systems] if [they] had known of the defects and failure to
    comply with the rules and regulations of the FDA' does not comply with
    Rule 9(b).
    Id. at 824-25 (internal citations omitted).
    We conclude this case is controlled by our decisions in Joshi and Roop.
    Simpson alleged that all federal health insurance reimbursement claims submitted by
    third parties to the government for Baycol prescriptions were false or fraudulent
    because of the misleading and deceptive manner in which Bayer marketed Baycol.
    She did not, however, plead at least some representative examples of actual
    reimbursement claims submitted to the government pursuant to the underlying
    allegedly fraudulent marketing scheme, or establish how such reimbursement claims
    were false in and of themselves. Instead, she relied upon a general allegation that the
    government would not have paid any of the reimbursement claims submitted under
    the federal health insurance programs had it known of Bayer's underlying allegedly
    fraudulent marketing scheme. We conclude this allegation is indistinguishable, for
    7
    Medical Device Reporting.
    -17-
    all material purposes, from the allegation we found lacking in Roop. We therefore
    affirm the district court with respect to the allegations involving federal health
    insurance reimbursement claims.8
    III
    We affirm the district court's dismissal of the claims relating to the federal
    health insurance reimbursements. We reverse the district court's dismissal of the
    claims involving the DoD contracts, and remand this case for further proceedings
    consistent with this opinion.
    LOKEN, Circuit Judge, concurring in part and dissenting in part.
    I concur in the court’s cogent description of this dispute and its procedural
    history. I join Part II.B. of its opinion, which affirms the dismissal of relator’s FCA
    claims relating to federal health insurance reimbursements. In Part II.A., I agree with
    the conclusions that relator sufficiently pleaded fraud in the inducement of the 2001
    DoD contracts, and that fraud in the inducement is “a viable theory of FCA liability”
    established by the Supreme Court’s decision in United States ex rel. Marcus v. Hess,
    
    317 U.S. 537
     (1943). But in my view, the court ends the analysis in Part II.A.
    prematurely, failing to take into account that this particular fraud-in-the-inducement
    claim suffers from the same Rule 9(b) inadequacy as the FCA complaint in United
    8
    Simpson also appeals the district court's refusal to give her another chance to
    amend her complaint to state an actionable claim with respect to the federal health
    insurance reimbursement claims. We conclude the district court did not abuse its
    discretion in denying the request, because Simpson failed to provide the district court
    with a copy of her proposed third amended complaint, as required by Local Rule 15.1
    of the District of Minnesota. See Drobnak v. Andersen Corp., 
    561 F.3d 778
    , 787 (8th
    Cir. 2009) (concluding a district court does not abuse its discretion when it denies
    leave to amend where a plaintiff does not comply with Local Rule 15.1 of the District
    of Minnesota).
    -18-
    States ex rel. Joshi v. St. Luke’s Hospital, Inc. -- the implicit allegation “that ‘every’
    claim submitted by [Bayer] was fraudulent lacks sufficient ‘indicia of reliability.’”
    
    441 F.3d 552
    , 557 (8th Cir.), cert. denied, 
    127 S. Ct. 189
     (2006). Accordingly, I
    respectfully dissent from the decision to reverse the district court’s dismissal of the
    DoD contract claims.
    It is hornbook law that, to warrant recovery of damages for fraud in the
    inducement, “it must appear, not only that injury has been suffered, but that the fraud
    complained of was the proximate cause of the injury.” Boatmen’s Nat’l Co. v. M. W.
    Elkins & Co., 
    63 F.2d 214
    , 216-17 (8th Cir. 1933) (applying federal law and
    affirming a directed verdict for defendant on this ground). In the typical dispute
    between private parties, a well-pleaded claim of fraud in the inducement needs no
    specific allegation of injury; the fraudulently induced contract is itself harm likely
    entitling the plaintiff at least to the remedy of rescission. But FCA claims are not
    typical disputes. As the court recognizes, the FCA “generally attaches liability, not
    to the underlying fraudulent activity, but to the claim for payment.” Supra p.8
    (quotation omitted). In my view, when the underlying fraud is fraud in the
    inducement, this necessarily requires plaintiff to plead some nexus between the fraud
    that induced the contract, and the subsequent claims for payment under the contract.
    This is not unlike the need to plausibly allege that a false certification of compliance
    with the requirements of a government program was material to the government’s
    decision to pay a particular claim. See United States ex rel. Vigil v. Nelnet, Inc., 
    639 F.3d 791
    , 799-800 (8th Cir. 2011); United States ex rel. Wilkins v. United Health
    Group, Inc., 
    659 F.3d 295
    , 308-11 (3d Cir. 2011).
    The court ends its truncated analysis of this factor with the Supreme Court’s
    ruling in Hess that the “taint [of fraudulent inducement] entered into every swollen
    estimate which was the basic cause for payment of every dollar paid.” Supra p.10,
    quoting 317 U.S. at 543. But in Hess, the fraud was undisclosed collusive bidding,
    a fraud the very purpose of which was to ensure that the government paid inflated
    -19-
    claims submitted under the fraudulently induced contract. Likewise, in the few
    published cases that have upheld fraud-in-the-inducement FCA claims, the fraud
    ensured that the government would pay inflated claims, or would otherwise not
    receive the financial benefit of its bargain. See United States ex rel. Longhi v.
    Lithium Power Tech., Inc., 
    575 F.3d 458
    , 473 (5th Cir. 2009) (the government’s
    benefit of the bargain, “to award money to eligible deserving small businesses . . .
    was lost as a result of the Defendant’s fraud” in inducing the grants), cert. denied, 
    130 S. Ct. 2092
     (2010); Harrison v. Westinghouse Savannah River Co., 
    176 F.3d 776
    ,
    791-94 (4th Cir. 1999) (fraud that allegedly induced paying more to a subcontractor
    survived Rule 12(b)(6) dismissal); Murray & Sorenson, Inc. v. United States, 
    207 F.2d 119
    , 123 (1st Cir. 1953) (fraud “increasing the price which the government
    eventually has to pay”).
    By contrast, the fraud in the inducement alleged by Simpson -- failing to
    disclose a known risk to patients prescribed Baycol -- did not necessarily have the
    effect of increasing the amounts paid for reimbursement of claims submitted under
    the DoD contracts. The only damage allegation relating to the DoD contracts in
    Simpson’s 92-page Second Amended Complaint was that “the Government paid
    money to Bayer for a drug that it would not have purchased had it known the full
    truth.” But that was harm resulting from the underlying fraud, not a plausible
    allegation that the government was harmed by paying false claims under the DoD
    contracts. With or without the contracts at issue, DoD physicians would have
    prescribed statin drugs to military personnel who needed to lower their cholesterol.
    There is no allegation that DoD paid more for Baycol than it would have paid for a
    different statin. There is no allegation that the government paid damages to DoD
    patients who were prescribed Baycol and developed rhabdomyolysis. For this reason,
    Simpson failed to state a plausible FCA claim simply by alleging fraud in the
    inducement. To plead this alleged fraud with the particularity Rule 9(b) requires, she
    needed to allege specific harm resulting from specific false claims submitted under
    the fraudulently induced DoD contracts. “[A]llegations of product defects and
    -20-
    consumer injury” do not cure deficiencies in an FCA complaint. United States ex rel.
    Roop v. Hypoguard USA, Inc., 
    559 F.3d 818
    , 824 (8th Cir. 2009).
    An FCA relator such as Simpson has Article III standing only because
    Congress in the FCA partially assigned the government’s damage claim for the
    “injury in fact” allegedly suffered when it pays a false claim. Vermont Agency of
    Natural Res. v. United States ex rel. Stevens, 
    529 U.S. 765
    , 773 & n.4 (2000). Here,
    Simpson alleged no injury in fact to the government, only that Bayer improperly
    benefitted from fraudulently inducing the DoD contracts. If true, that undoubtedly
    caused “injury to [the government’s] sovereignty arising from violation of its laws.”
    Id. at 771. But a claim for that injury lies beyond what the government assigned to
    Simpson in the FCA. Accord United States ex rel. Willard v. Humana Health Plan,
    Inc., 
    336 F.3d 375
    , 386 (5th Cir. 2003) (“[T]he government must suffer an injury in
    fact for there to be standing.”). Accordingly, I would affirm dismissal of her DoD
    contract claims.
    ______________________________
    -21-
    

Document Info

Docket Number: 12-2979

Citation Numbers: 732 F.3d 869, 2013 WL 5614268, 2013 U.S. App. LEXIS 20768

Judges: Loken, Bright, Bye

Filed Date: 10/15/2013

Precedential Status: Precedential

Modified Date: 10/19/2024

Authorities (21)

Vermont Agency of Natural Resources v. United States Ex Rel.... , 120 S. Ct. 1858 ( 2000 )

Boatmen's Nat. Co. v. M. W. Elkins & Co. , 63 F.2d 214 ( 1933 )

United States Ex Rel. Longhi v. United States , 575 F.3d 458 ( 2009 )

United States Ex Rel. Bettis v. Odebrecht Contractors of ... , 393 F.3d 1321 ( 2005 )

Murray & Sorenson, Inc. v. United States , 207 F.2d 119 ( 1953 )

Edwin P. Harrison, and United States of America, Party in ... , 176 F.3d 776 ( 1999 )

pat-costner-united-states-ex-rel-sharon-golgan-carolyn-lance-debra , 153 F.3d 667 ( 1998 )

United States Ex Rel. Keshav S. Joshi v. St. Luke's ... , 441 F.3d 552 ( 2006 )

Bell Atlantic Corp. v. Twombly , 127 S. Ct. 1955 ( 2007 )

United States Ex Rel. Wilkins v. United Health Group, Inc. , 659 F.3d 295 ( 2011 )

Mutual Creamery Insurance Company v. Iowa National Mutual ... , 427 F.2d 504 ( 1970 )

Lafarge North America, Inc. v. Discovery Group L.L.C. , 574 F.3d 973 ( 2009 )

United States v. Hawley , 619 F.3d 886 ( 2010 )

Kutten v. Bank of America, N.A. , 530 F.3d 669 ( 2008 )

United States Ex Rel. Roop v. Hypoguard USA, Inc. , 559 F.3d 818 ( 2009 )

United States Ex Rel. Willard v. Humana Health Plan of ... , 336 F.3d 375 ( 2003 )

Allison Engine Co. v. United States Ex Rel. Sanders , 128 S. Ct. 2123 ( 2008 )

Drobnak v. Andersen Corp. , 561 F.3d 778 ( 2009 )

Summerhill v. Terminix, Inc. , 637 F.3d 877 ( 2011 )

United States Ex Rel. Vigil v. Nelnet, Inc. , 639 F.3d 791 ( 2011 )

View All Authorities »