United States Ex Rel. Paulos v. Stryker Corp. , 762 F.3d 688 ( 2014 )


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  • United States Court of Appeals
    For the Eighth Circuit
    ___________________________
    No. 13-2509
    ___________________________
    United States ex rel. Lonnie Paulos, MD
    lllllllllllllllllllll Plaintiff - Appellant
    v.
    Stryker Corporation; I-Flow Corporation
    lllllllllllllllllllll Defendants - Appellees
    Orthofix International, as Successor to Breg, Inc.
    lllllllllllllllllllll Defendant
    ___________________________
    No. 13-2647
    ___________________________
    United States ex rel. Lonnie Paulos, MD
    lllllllllllllllllllll Plaintiff - Appellee
    v.
    Stryker Corporation; I-Flow Corporation
    lllllllllllllllllllll Defendants - Appellants
    Orthofix International, as Successor to Breg, Inc.
    lllllllllllllllllllll Defendant
    ____________
    Appeal from United States District Court
    for the Western District of Missouri - Kansas City
    ____________
    Submitted: April 17, 2014
    Filed: August 7, 2014
    ____________
    Before RILEY, Chief Judge, BENTON and KELLY, Circuit Judges.
    ____________
    RILEY, Chief Judge.
    In the early 2000s, doctors saw a spike in the number of patients developing
    chondrolysis—a rare and “painful medical condition whereby an individual loses
    articular cartilage in a joint,” Mack v. Stryker Corp., 
    748 F.3d 845
    , 848 (8th Cir.
    2014). Concern then surfaced that this spike was related to the use of medical devices
    known as “pain pumps” to deliver anesthetics via catheter into patients’ joint spaces
    (the area surrounding a joint).1 See, e.g., 
    id. at 848,
    n.3; Huggins v. Stryker Corp.,
    
    932 F. Supp. 2d 972
    , 978 (D. Minn. 2013). This concern triggered several studies on
    the effects of placing pain pumps in patients’ joint spaces and also bred numerous
    product liability lawsuits against pain pump manufacturers like Stryker Corporation
    (Stryker) and I-Flow Corporation (I-Flow). See, e.g., 
    Mack, 748 F.3d at 847-48
    ;
    Rodriguez v. Stryker Corp., 
    680 F.3d 568
    , 570 (6th Cir. 2012); Meharg v. I-Flow
    Corp., No. 1:08-CV-184-WTL-TAB, 
    2010 WL 711317
    (S.D. Ind. Mar. 1, 2010)
    (unpublished).
    1
    Like the parties and the district court below, we use the terms “intra-articular
    space,” “synovial cavity,” and “joint space” interchangeably.
    -2-
    Unlike most pain pump litigants, who raise product liability claims, Dr. Lonnie
    Paulos (an orthopedic surgeon and former consultant at Stryker) alleges Stryker and
    I-Flow violated the False Claims Act (FCA) by marketing their pain pumps to
    encourage the placement of pain pumps directly into patients’ joint spaces after
    orthopedic procedures. The district court2 dismissed Dr. Paulos’s claims under
    31 U.S.C. § 3730(e)(4)(A), concluding Dr. Paulos’s allegations had been publicly
    disclosed and Dr. Paulos was not excepted under 31 U.S.C. § 3730(e)(4)(B) as an
    “original source” of the information.3 Dr. Paulos appeals, challenging both
    conclusions. We exercise our appellate jurisdiction under 28 U.S.C. § 1291 and
    affirm.
    I.     BACKGROUND
    The parties agree the Food and Drug Administration (FDA) has given
    “§ 510(k)” clearance4 to market pain pumps generally for “intraoperative” use. Dr.
    Paulos claims the FDA has consistently refused to approve marketing pain pumps
    specifically for orthopedic placement in joint spaces.5 Dr. Paulos filed this suit on
    January 10, 2011, and according to his amended complaint, Stryker and I-Flow
    2
    The Honorable Ortrie D. Smith, United States District Judge for the Western
    District of Missouri.
    3
    The district court dismissed additional claims against Stryker and I-Flow as
    well as claims against other defendants not relevant to this appeal.
    4
    “The ‘510(k)’ process is named after the section number given to this process
    in the Medical Device Amendments of 1976.” 
    Mack, 748 F.3d at 855
    n.7. Such
    clearance permits the marketing of a device without pre-market safety testing where
    “a substantially similar product is currently in use for that purpose.” 
    Id. at 855
    (internal quotations omitted).
    5
    Whether joint space use is included in the broader term of “intraoperative”
    area use is another question, see, e.g., 
    Rodriguez, 680 F.3d at 574
    (concluding “the
    indication for use that the FDA did approve—using the pump at the ‘intra-operative
    site’—covers the use of the pump in a joint”), which we need not address today.
    -3-
    marketed pain pumps for placement specifically in joint spaces while knowingly
    (1) “[f]ail[ing] to disclose . . . material information” about the dangers of using pain
    pumps in joint spaces or to disclose the lack of safety testing for joint space use;
    (2) providing “[f]alse[] indicati[ons] that the pain pumps were approved [by the FDA]
    for use” in joint spaces; and (3) providing “[f]alse labeling and promotion materials”
    suggesting such use. Dr. Paulos alleges these marketing efforts constituted
    intentional fraud and induced many healthcare providers to use pain pumps in their
    patients’ joint spaces. He claims that because many of these healthcare providers
    sought reimbursement for the pain pumps through federal programs like Medicaid or
    Tricare, Stryker and I-Flow thereby caused the submission of “false or fraudulent
    claim[s] for payment” in violation of 31 U.S.C. § 3729(a).
    Dr. Paulos also asserts he and a colleague, Dr. Charles Beck, were among the
    first to suspect and investigate the placement of pain pumps as a cause for
    chondrolysis after Dr. Beck approached Dr. Paulos with this theory. Dr. Paulos
    claims Stryker knew of the increased risk of chondrolysis early on and alleges he
    warned Stryker of his and Dr. Beck’s concern that the uptick in chondrolysis could
    be related to the use of pain pumps.
    After the district court unsealed Dr. Paulos’s qui tam complaint, Stryker and
    I-Flow filed a joint motion to dismiss pursuant to 31 U.S.C. § 3730(e)(4)(A) and
    contended (1) the same fraud alleged in Dr. Paulos’s complaint had been publicly
    disclosed, and (2) Dr. Paulos was not excepted as an “original source” of the
    information underlying his claims. Over Dr. Paulos’s counterarguments on both
    points, the district court granted the motion and dismissed Dr. Paulos’s claims. Dr.
    Paulos timely appeals.6
    6
    In their cross-appeals, Stryker and I-Flow both challenge the district court’s
    adverse conclusions on other bases for dismissal, effectively raising alternative
    arguments for affirmance. Because we agree with the district court’s conclusion on
    the public disclosure bar, we need not confront these alternative arguments.
    -4-
    II.    DISCUSSION
    In the FCA, Congress included what is nicknamed a “public disclosure bar”
    which prevents qui tam relators from suing for fraud against the government when
    that fraud is already publicly known. In principle, the FCA’s qui tam provision “‘is
    designed to promote private citizen involvement in exposing fraud against the
    government, while at the same time,’” the public disclosure bar works to “‘prevent
    parasitic suits by opportunistic late-comers who add nothing to the exposure of the
    fraud.’” Costner v. URS Consultants, Inc., 
    153 F.3d 667
    , 675-76 (8th Cir. 1998)
    (quoting United States ex rel. Rabushka v. Crane Co., 
    40 F.3d 1509
    , 1511 (8th Cir.
    1994)). The FCA provides:
    (A) The court shall dismiss an action or claim under this section, unless
    opposed by the Government, if substantially the same allegations or
    transactions as alleged in the action or claim were publicly disclosed—
    (i) in a Federal criminal, civil, or administrative hearing in which
    the Government or its agent is a party;
    (ii) in a congressional, Government Accountability Office, or
    other Federal report, hearing, audit, or investigation; or
    (iii) from the news media.
    31 U.S.C. § 3730(e)(4).7 A relator’s claim is excepted from this public disclosure bar,
    however, if the relator is an “original source of the information.” 
    Id. § 3730(e)(4)(A).
    This original source exception applies in two situations—where the relator
    7
    At Paulos’s “urging, this court assumes, without deciding, that the current
    version of the FCA applies.” United States ex rel. Kraxberger v. Kan. City Power &
    Light Co., ___ F.3d ___, ___ n.2, No. 13-2759, 
    2014 WL 2898465
    , at *2 n.2 (8th Cir.
    June 27, 2014).
    -5-
    either ([1]) prior to a public disclosure under subsection (e)(4)([A]), has
    voluntarily disclosed to the Government the information on which
    allegations or transactions in a claim are based, or (2) who has
    knowledge that is independent of and materially adds to the publicly
    disclosed allegations or transactions, and who has voluntarily provided
    the information to the Government before filing an action under this
    section.
    
    Id. § 3730(e)(4)(B).
    Dismissal under the public disclosure bar is thus required if
    (1) the defendant has shown public disclosure under § 3730(e)(4)(A), and (2) the
    relator does not fit § 3730(e)(4)(B)’s definition of “original source.” We review de
    novo the district court’s conclusions on both points. See Kraxberger, ___F.3d at ___,
    
    2014 WL 2898465
    , at *1.
    A.     Public Disclosure
    Dr. Paulos’s claims were publicly disclosed “if substantially the same
    allegations or transactions” as he alleges were “publicly disclosed” in
    § 3730(e)(4)(A)’s enumerated channels. The district court found these requirements
    were met because numerous media reports, FDA reports, and federal regulatory
    disclosures essentially revealed the allegations of fraudulent marketing forming the
    basis for Dr. Paulos’s claims. Dr. Paulos does not challenge the district court’s use
    of these sources as falling within the statute’s listed channels of disclosure. Instead,
    he argues the specific fraudulent acts at issue here were not publicly disclosed and
    only appear substantially similar to the public disclosures at the “highest level of
    generality.” We disagree.
    First, Dr. Paulos seems to maintain the public reports did not disclose his
    allegations that (1) “surgeons were not being told that the devices could cause joint
    damage,” (2) “surgeons were told the devices were approved for use,” and (3) “the
    devices were being marketed off label.” As the district court discussed in detail, the
    public documents laid out precisely these points. These independent sources show
    -6-
    the following allegations and transactions: (1) various pain pump manufacturers
    attempted numerous times to obtain FDA approval to market pain pumps for
    placement in joint spaces, and in every instance the FDA refused approval;
    (2) Stryker and I-Flow nevertheless encouraged healthcare providers to use pain
    pumps in joint spaces; (3) neither company disclosed the lack of FDA approval for
    this use; (4) both companies knew the pumps had never been safety-tested for such
    use; and (5) both companies continued to market pain pumps for such use even after
    learning of a possible connection to chondrolysis.
    Attempting to distinguish his fraud claims from these public disclosures, Dr.
    Paulos contends the public disclosures “do not establish the key part of this False
    Claims case: specifically, [Stryker’s and I-Flow’s] scienter.” Dr. Paulos maintains
    the disclosures do not allege “any physician (specifically, Dr. Paulos and/or Dr. Beck)
    told the manufacturers that their course of conduct was directly causing” physicians
    to use pain pumps in a way that injured patients. On the contrary, one report
    expressly discloses that Dr. Beck suggested the causal connection to the pain pump
    manufacturers as early as 2005, and another report alleges I-Flow admittedly knew
    of a 2006 study linking chondrolysis to joint space use of pain pumps. Many of the
    cited documents clearly implicate the companies’ knowledge of the pain pumps’
    connection to chondrolysis and the lack of FDA approval.
    Dr. Paulos finally proposes that, unlike his claims, the public disclosures fail
    to allege that the companies misled healthcare providers about the absence of FDA
    approval. The record contradicts this proposition, revealing several public allegations
    that the FDA had not approved the joint space use of pain pumps and that Stryker’s
    and I-Flow’s marketing practices hid this lack of approval while promoting joint
    space use.
    Finding no meaningful distinction between the public disclosures and Dr.
    Paulos’s claims, we conclude the district court did not err in finding a public
    -7-
    disclosure sufficient to meet § 3730(e)(4)(A).8 Therefore, Dr. Paulos’s “claim[s]
    succeed[] only if he is an ‘original source’” under § 3730(e)(4)(B). Kraxberger,
    ___F.3d at ___, 
    2014 WL 2898465
    , at *3.
    B.     Original Source Exception
    Dr. Paulos qualifies as an “original source” if (1) before the public disclosures,
    he “voluntarily disclosed to the Government the information on which” his claims’
    “allegations or transactions . . . are based,” or (2) he “has knowledge that is
    independent of and materially adds to the publicly disclosed allegations or
    transactions, and . . . has voluntarily provided the information to the Government
    before filing [this] action.” 31 U.S.C. § 3730(e)(4)(B). Dr. Paulos does not claim to
    have volunteered his information to the government before the public disclosures of
    fraud, so we need only discuss his potential qualification as the second type of
    “original source.”
    8
    The district court noted “there were no public disclosures that doctors and
    hospitals submitted claims for payment” to the federal government, but the district
    court reasoned this additional fact merely “add[ed] some color” and supplied further
    detail but did not materially distinguish Dr. Paulos’s FCA claim from the public
    disclosures of the underlying fraud. See, e.g., United States ex rel. Poteet v. Bahler
    Med., Inc., 
    619 F.3d 104
    , 115 (1st Cir. 2010); Dingle v. Bioport Corp., 
    388 F.3d 209
    ,
    215 (6th Cir. 2004). The district court further reasoned, “The logical consequence of
    the[ alleged] misrepresentations (assuming the correctness of [Dr. Paulos’s] depiction
    of the repayment programs’ requirements and other legal theories) is that any doctor
    or hospital seeking payment from these federal programs would be submitting a false
    claim for payment.” We have indicated, under a prior version of the public disclosure
    bar statute, that a relator’s claim cannot be “‘based upon . . . public disclosure of
    allegations or transactions’” where the public disclosure fails to reveal “the false
    claim itself,” United States ex rel. Hixson v. Health Mgmt. Sys., Inc., 
    613 F.3d 1186
    ,
    1188 (8th Cir. 2010) (omission in original) (quoting 31 U.S.C. § 3730(e)(4)(A)
    (2008)), but Dr. Paulos does not challenge the district court’s reasoning or
    conclusion. We therefore neither address it nor express an opinion on the continuing
    applicability of Hixson’s standard under the current version of the statute.
    -8-
    At scattered points throughout his opening brief, Dr. Paulos appears to claim
    independent knowledge of (1) the connection between pain pumps and chondrolysis
    after assisting Dr. Beck’s initial research in the area, and (2) Stryker’s scienter by way
    of having informed a Stryker executive of the suspected connection between its pain
    pumps and chondrolysis. Even assuming Dr. Paulos’s knowledge is independent, his
    information on these points does not “materially add[] to the publicly disclosed
    allegations or transactions.” 
    Id. § 3730(e)(4)(B)(2).
    First, Dr. Paulos bases much of his “original source” argument on his claim that
    he was among the first to suspect and investigate a causal connection between pain
    pumps and chondrolysis. Dr. Paulos’s complaint shows that from an early point, he
    was involved in discussions with colleagues on the chondrolysis issue and that during
    this time he treated at least one patient suffering from chondrolysis (and was referred
    several others). Dr. Paulos also claims to have spoken with Dr. Beck about Dr.
    Beck’s early research investigating the connection. A relator is not an original source
    of information under the statute simply because he discovered or suspected it first.
    See 31 U.S.C. § 3730(e)(4)(B) (containing no requirement or exception for early
    discoveries or suspicions).
    The connection between device and disease (and details of the science and
    studies supporting it) can be found in numerous news media and FDA reports. Other
    than the causal connection itself, Dr. Paulos has not clarified what information his
    own conversations or research revealed, what these details add to the public
    knowledge base, or how any such additions are material to his FCA claims. With the
    key facts to Dr. Paulos’s FCA claims—i.e., the lack of safety testing and causal
    connection between device and disease—already thoroughly revealed and without
    any clear sense about what new information Dr. Paulos brings to the table, we cannot
    say his knowledge (even if gained early and independently) materially contributes
    anything of import to the public knowledge about the alleged fraud. See Kraxberger,
    ___F.3d at ___, 
    2014 WL 2898465
    , at *3 (concluding relator’s knowledge did not
    -9-
    “materially add to what was publicly disclosed” because essentially all of relator’s
    knowledge relevant to his FCA claim appeared in existing public disclosures); see
    also New Oxford American Dictionary 18, 1079 (3d ed. 2010) (defining “add” as to
    “put (something) in or on something else so as to improve or alter its quality or
    nature” and to “contribute (an enhancing quality) to something”; defining
    “materially” as “substantially; considerably”).
    The focus of FCA liability is on knowing fraud in seeking federal funds, see
    31 U.S.C. § 3729(a)(1)(A)-(G); In re Baycol Prods. Litig., 
    732 F.3d 869
    , 875 (8th Cir.
    2013), and the FCA is generally unconcerned with claims of negligence or underlying
    “regulatory noncompliance,” see U.S. ex rel. Vigil v. Nelnet, Inc., 
    639 F.3d 791
    , 795-
    96 (8th Cir. 2011); Hays v. Hoffman, 
    325 F.3d 982
    , 991 (8th Cir. 2003). We fail to
    see how the addition of Dr. Paulos’s personal insight on the science behind
    chondrolysis would contribute much more than tangentially relevant information to
    the central questions of Dr. Paulos’s fraud claim.
    Second, Dr. Paulos asserts he has independent knowledge relating to Stryker’s
    scienter in that he warned Stryker executives of a connection between the pain pumps
    and chondrolysis. Dr. Paulos’s complaint focuses on one communication in
    particular—a 2005 fax and e-mail he sent to a Stryker executive in which Dr. Paulos
    claimed to know of several cases in which patients unexpectedly developed
    chondrolysis and explained “[t]he only common link [wa]s the pain-dripping devices
    [pain pumps] with Marcaine or Lidocaine and Epinephrine.” He also shows that a
    Stryker executive passed along Dr. Paulos’s warning and noted the concern “that
    Marcaine w[ith] epi[nephrine]” may be “rotting the cartilage in shoulders.” Dr.
    Paulos seems to assume his communications alerted Stryker about the danger of
    placing pain pumps in joint spaces, but “there was no mention whatsoever in these . . .
    communications regarding pain pump placement” as relevant to Dr. Paulos’s
    chondrolysis concerns. See Phillippi v. Stryker Corp., No. 2:08-CV-02445-JAM-
    KJN, 
    2010 WL 2650596
    , at *2 (E.D. Cal. July 1, 2010) (unpublished) (emphasis
    -10-
    added) (examining Dr. Paulos’s same communications in a pain pump product
    liability case), aff’d, 471 F. App’x 663 (9th Cir. 2012) (mem. op.) (reviewing the
    district court’s grant of summary judgment de novo and concluding, “as the district
    court found, [plaintiff] provided insufficient evidence to raise a known or knowable
    risk of chondrolysis at the time of [plaintiff’s] surgery”). Instead, Dr. Paulos singled
    out the use of certain drug combinations with the pain pump, specifying this was the
    “only common link” between Dr. Paulos’s chondrolysis patients. (Emphasis added).
    See 
    id. Although scienter
    in presenting false or fraudulent claims is certainly a
    necessary and important element in any FCA claim, see 31 U.S.C. § 3729(a)(1)(A)-
    (G); 
    Baycol, 732 F.3d at 875
    , we, like the court in Phillippi, determine Dr. Paulos’s
    warnings on the use of certain anesthetics in pain pumps was unhelpful and largely
    irrelevant in assessing whether Stryker knew the dangers of using pain pumps in joint
    spaces.
    To the extent Dr. Paulos’s independent warning can be said to have put Stryker
    on notice of the chondrolysis issue generally, the public reports discussed above
    indicate Stryker already had reason to know of the pain pumps’ connection to
    chondrolysis after orthopedic uses while also disclosing allegations that (1) Dr. Beck
    supplied the results of his study to the pain pump manufacturers, and (2) Stryker
    knowingly misrepresented the dangers of pain pump placement. Given the limited
    value of Dr. Paulos’s communication in proving Stryker acted knowingly and also the
    extent of the public disclosure on the issue, we are not convinced Dr. Paulos’s
    warning added significantly to the scienter issue. See, e.g., New Oxford American
    
    Dictionary, supra, at 18
    , 1079.
    Because Dr. Paulos’s proposed independent knowledge cannot be said to
    “materially add[] to the publicly disclosed allegations or transactions,” he is not an
    “original source” under 31 U.S.C. § 3730(e)(4)(B)(2).
    -11-
    C.     Procedural Issues
    Finally, Dr. Paulos faults the district court for looking to materials outside the
    pleadings in resolving Stryker and I-Flow’s motion to dismiss. Even though Dr.
    Paulos opposed the motion by submitting his own additional materials outside the
    pleadings, he complains the district court should not have looked to the public
    disclosure documents. He contends the motion essentially “amount[ed] to a [Federal
    Rule of Civil Procedure] 12(b)(6) motion” so that the district court should have
    converted the motion to one for summary judgment pursuant to Rule 12(d).
    Assuming the motion is best viewed as one made under Rule 12(b)(6), a court
    “may [still] consider ‘matters incorporated by reference or integral to the claim, items
    subject to judicial notice, [and] matters of public record.’” Kraxberger, ___F.3d at
    ___, 
    2014 WL 2898465
    , at *6 (second alteration in original) (quoting Miller v.
    Redwood Toxicology Lab., Inc., 
    688 F.3d 928
    , 931 n.3 (8th Cir. 2012)). And “[s]ince
    the FCA requires a court to dismiss a claim based on public disclosure, a court
    necessarily considers the alleged public documents in its dismissal.” 
    Id. Because the
    documents utilized by the district court “are integral to the claim, subject to judicial
    notice, matters of public record, or evidence of public disclosure the court properly
    considered under 31 U.S.C. § 3730(e)(4),” we reject this claim of procedural error.
    
    Id. III. CONCLUSION
           We affirm.
    ______________________________
    -12-