Lawton v. Takeda Pharmaceutical Company

United States Court of Appeals
For the First Circuit
No. 16-1382
PETER P. LAWTON, ex rel. UNITED STATES OF AMERICA; and THE
STATES OF CALIFORNIA, COLORADO, CONNECTICUT, DISTRICT OF
COLUMBIA, DELAWARE, FLORIDA, GEORGIA, HAWAII, IOWA, ILLINOIS,
INDIANA, LOUISIANA, MASSACHUSETTS, MARYLAND, MICHIGAN,
MINNESOTA, MONTANA, NORTH CAROLINA, NEW JERSEY, NEW MEXICO,
NEVADA, NEW YORK, OKLAHOMA, RHODE ISLAND, TENNESSEE, TEXAS,
VIRGINIA, WASHINGTON, WISCONSIN,
Plaintiffs, Appellants,
v.
TAKEDA PHARMACEUTICAL COMPANY, LTD.; TAKEDA PHARMACEUTICALS
U.S.A., INC., f/k/a Takeda Pharmaceuticals North America, Inc.;
TAKEDA PHARMACEUTICALS INTERNATIONAL INC.; TAKEDA DEVELOPMENT
CENTER AMERICAS, INC., f/k/a Takeda Global Research &
Development Center Inc.; ELI LILLY AND COMPANY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Lynch, Stahl, and Barron,
Circuit Judges.
David E. Kovel, with whom John R. Low-Beer, Of Counsel, and
Kirby McInerney LLP were on brief, for appellants.
R. Jeffrey Layne, with whom Jonathan S. Franklin, Sarah M.
Cummings, and Norton Rose Fulbright US LLP were on brief, for
appellees.
November 22, 2016
STAHL, Circuit Judge. Relator-Appellant Peter Lawton
("Lawton") brought a qui tam action against Appellees Takeda
Pharmaceutical Company, Ltd. and its affiliates ("Takeda") and Eli
Lilly and Company ("Eli Lilly") (collectively, "Defendants") under
the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and the
False Claims Acts of 28 different states and the District of
Columbia.1 Lawton alleges that Takeda and Eli Lilly conspired in
a fraudulent marketing campaign that caused third-parties to
submit false reimbursement claims to government entities for off-
label uses of Actos, a treatment for Type 2 diabetes.2
The district court dismissed all of Lawton's claims,
holding that Lawton had not pled his claims with the particularity
required by Federal Rule of Civil Procedure 9(b). Lawton contests
this ruling on appeal, and maintains that his allegations
sufficiently plead that false claims were submitted to both federal
1
"'Qui tam' comes from the phrase 'qui tam pro domino rege
quam pro se ipso in hac parte sequitur,' which translates as 'who
pursues this action on our Lord the King's behalf as well as his
own.'" United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720,
727 n.4 (1st Cir. 2007) (quoting Rockwell Int'l Corp. v. United
States, 549 U.S. 457, 463 n.2 (2007)), overruled on other grounds
by Allison Engine v. United States ex rel. Sanders, 553 U.S. 662(2008).
2
"Off-label uses" refer to uses for drugs that are not
approved as safe and effective by the Food and Drug Administration
("FDA"). Though Medicaid reimbursement is available for certain
off-label uses that are medically "essential" or recognized within
one of several medical compendia, see 42 U.S.C. § 1396r-8(a)(3),
(g)(1)(B)(i), (k)(6), these uses are not at issue in this case.
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and state government programs. After thoroughly reviewing these
allegations, we affirm.
I. Facts & Background
Since this appeal follows the granting of a motion to
dismiss, we recite the relevant facts as they appear in Lawton's
Second Amended Complaint. See Hochendoner v. Genzyme Corp., 823
F.3d 724, 728 (1st Cir. 2016).
Actos is a brand name drug approved by the FDA for
improving blood sugar control in adults with Type 2 diabetes. The
drug is manufactured, promoted, marketed, and sold by Takeda.3
In May 2012, Peter Lawton filed a qui tam complaint
against Takeda alleging that it had engaged in an illegal off-
label marketing campaign for Actos in violation of 21 U.S.C. § 321et seq. (the "Food, Drug & Cosmetic Act"), and used illegal
kickbacks to support that campaign in violation of 42 U.S.C. §
1320a-7b(b) (the "Anti-Kickback Statute").4 Lawton -- a former
3 In his Second Amended Complaint, Lawton named Eli Lilly as
a defendant for the first time, alleging that it had entered into
a partnership with Takeda to jointly market Actos from 1999 to
2006.
4 The FDA has only approved Actos for treatment in adults with
Type 2 diabetes. Physicians may prescribe Actos for non-FDA-
approved treatments, but the Food, Drug & Cosmetic Act prohibits
pharmaceutical companies from marketing drugs for off-label uses.
The Anti-Kickback Statute, meanwhile, imposes criminal penalties
on anyone who, among other things, "solicits" or "pays any
remuneration (including any kickback, bribe or rebate) directly or
indirectly, overtly or covertly, in cash or in kind, to purchase
or recommend purchasing any good, facility, service or item for
which payment may be made in whole or in part under a federal
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chemist and patent litigator at Takeda competitor GlaxoSmithKline
-- further alleged that through this campaign, Takeda and Eli Lilly
had knowingly caused third-parties to submit false or fraudulent
claims for payment to federal and state government programs.5 See,
e.g., 31 U.S.C. § 3729(a); N.Y. State Fin. Law §§ 188-89.
Lawton made his first amendment to his complaint in
February 2014, and after the United States declined to intervene
and the action was unsealed, his case began in earnest. In August
2015, the district court allowed Lawton to amend his complaint
again ("Second Amended Complaint"), which he filed the following
month and is the subject of this appeal.
The Second Amended Complaint alleged that starting in
the late 1990s and lasting until 2011, Defendants utilized a
marketing scheme designed to develop and promote "quasi-
scientific" bases for off-label use of Actos, specifically the
healthcare program." 42 U.S.C. § 1320a-7b(b). Since Lawton claims
Defendants violated both provisions, FCA liability would attach if
Lawton proved the violations caused third-parties to submit false
claims for reimbursement to government programs.
5 Lawton claims he initially learned of Takeda's illegal
conduct when, while working at GlaxoSmithKline, he met with various
Takeda representatives in an intellectual property dispute
concerning Actos and Avandia, GlaxoSmithKline's diabetes drug, in
2001. Subsequent to this, he claims to have learned more specifics
about Takeda's strategy via internal discussions at
GlaxoSmithKline between 2001 and 2003 and a series of three job
interviews he had at Takeda in 2009.
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treatment of prediabetes.6 The claimed centerpiece of this
campaign involved the development of dozens of pro-Actos research
studies and subsequent publications substantiating these claims.
The most prominent of these studies, Lawton claims, was a 2006
paper ("ACT NOW Study") on the prevention of Type 2 diabetes.
Allegedly conceived and funded by Takeda but ostensibly authored
by Dr. Ralph DeFronzo, the ACT NOW Study advocated for the use of
Actos as an effective treatment for prediabetes. Lawton alleges
that Dr. DeFronzo and other "thought leaders" and researchers like
him received compensation, kickbacks, and other indirect financial
inducements from Takeda for their Actos studies, related speeches,
and supporting presentations. Many of these studies, however,
were criticized by various academic journals, peer review panels,
and the FDA.
Takeda allegedly also established a specialized Actos
sales force to parallel this campaign, and tasked it with
encouraging physicians to prescribe Actos as a safe and effective
treatment for prediabetes. Takeda also supposedly engaged in
direct marketing to the public about the off-label use of Actos
and made large contributions to several educational and research
organizations to gain influence over their views on prediabetes
6
Prediabetes refers to the condition of having a high
probability of developing diabetes in the future.
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treatments. These efforts purportedly continued even after Takeda
knew that the results of many of these studies were inconclusive.
Based on these allegations, Lawton claimed that Takeda
and Eli Lilly violated the FCA and analogous state statutes by
causing false claims for Actos to be presented to both federal and
state government healthcare programs.
Lawton first pointed to the dramatic increase in Actos
sales between 2006 ($1.5 billion) and 2011 ($3.6 billion),
attributing these increased numbers to greater off-label use of
Actos for patients with a prediabetes condition. Lawton then
identified three non-diabetic members of the Suffolk County (NY)
Health Plan who, between 2011 and 2014, were prescribed a total of
11 scripts for Actos, for which the Health Plan paid a total of
$3,170.14. With respect to the federal programs, Lawton cited
evidence that public sector programs like Medicaid and Medicare
accounted for more than half of Actos purchases between 2003 and
2011. This evidence, he claimed, demonstrated that the Actos
marketing campaign had caused violations of the False Claims Act.
Takeda and Lilly moved to dismiss the complaint on
multiple grounds. On March 8, 2016, the district court granted
the motion, dismissing the federal and pendant state claims with
prejudice. The court reached this conclusion after finding that
neither Lawton's federal nor state allegations pled fraud with the
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particularity required by Federal Rule of Civil Procedure 9(b).
Lawton now appeals.
II. Analysis
Lawton raises two issues on appeal, arguing that the
district court erred in dismissing his federal FCA claim and
associated state claims with prejudice. We review each in turn.
A. Federal Claim
Lawton first contends that the court erred when it
dismissed the federal claim in Lawton's Second Amended Complaint
based on his failure to plead the alleged fraud with enough
particularity to satisfy Federal Rule of Civil Procedure 9(b). In
such cases, we review de novo the granting of a motion to dismiss,
United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45
(1st Cir. 2009), "accepting as true all well-pleaded facts,
analyzing those facts in the light most hospitable to the
plaintiff's theory, and drawing all reasonable inferences for the
plaintiff," United States ex rel. Hutcheson v. Blackstone Med.
Inc., 647 F.3d 377, 383 (1st Cir. 2011).
Rule 9(b) provides: "In alleging fraud or mistake, a
party must state with particularity the circumstances constituting
fraud or mistake." Fed. R. Civ. P. 9(b). As we have often said
in these cases, relators are "required to set forth with
particularity the who, what, when, where, and how of the alleged
fraud." See, e.g., United States ex rel. Ge v. Takeda Pharm. Co.,
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Ltd., 737 F.3d 116, 123 (1st Cir. 2013) (internal citation and
quotation marks omitted); see also United States ex rel. Karvelas
v. Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004),
abrogated on other grounds by United States ex rel. Gagne v. City
of Worcester, 565 F.3d 40 (1st Cir. 2009) (applying Rule 9(b) to
FCA claims).
The FCA penalizes persons who present, or cause to be
presented, to the federal government "a false or fraudulent claim
for payment or approval." 31 U.S.C. § 3729(a)(1). Thus, Rule
9(b) requires both that the circumstances of the alleged fraud and
the claims themselves be alleged with particularity. United States
ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007),
overruled on other grounds by Allison Engine v. United States ex
rel. Sanders, 553 U.S. 662 (2008) ("FCA liability does not attach
to violations of federal law or regulations, such as marketing of
drugs in violation of the FDCA, that are independent of any false
claim.").
We briefly note that Lawton cites this Court's decision
in Rodi v. Southern New England School of Law for the proposition
that the relevant statements about which Rule 9(b) specificity is
required are not the claims filed by innocent third-parties, but
rather the allegedly fraudulent statements made by Takeda. 389
F.3d 5, 15 (1st Cir. 2004) (stating "the specificity requirement
[of Rule 9(b)] extends only to the particulars of the allegedly
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misleading statement itself."). Rodi, however, was a case about
specific fraudulent misrepresentations made by the defendant, and
not one about false or fraudulent claims. Id. at 5. While it
made sense for us only to require that the misleading statements
be pled with particularity in that case, we will not do so here
where the fraudulent act of filing false claims is distinct from
actions trying to induce such filing.
That being said, we have also recognized a difference
between qui tam actions alleging that the defendant made false
claims to the government and those alleging that the defendant
induced third-parties to file false claims with the government.
See United States ex rel. Duxbury v. Ortho Biotech Products, L.P.,
579 F.3d 13, 29 (1st Cir. 2009) (citing Rost, 507 F.3d at 732).
In these circumstances, we apply a "more flexible"
standard such that a relator can satisfy Rule 9(b) by providing
"factual or statistical evidence to strengthen the inference of
fraud beyond possibility without necessarily providing details as
to each [submitted] false claim." Duxbury, 579 F.3d at 29-30.
Still, the evidence necessary to achieve this inference generally
requires the relator to plead, inter alia, the "'specific medical
providers who allegedly submitted false claims,' the 'rough time
periods, locations, and amounts of the claims,' and 'the specific
government programs to which the claims were made.'" United States
ex rel. Kelly v. Novartis Pharms. Corp., 827 F.3d 5, 13 (1st Cir.
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2016) (quoting Ge, 737 F.3d at 124); see also Rost, 507 F.3d at
733 (rationalizing Rule 9(b)'s application to FCA claims in part
because "[i]t is a serious matter to accuse a person or company of
committing fraud" and the rule "discourages plaintiffs from filing
allegations of fraud merely in the hopes of conducting embarrassing
discovery and forcing settlement").
In Karvelas, we likewise explained that while there is
no "checklist of mandatory requirements" that each allegation in
a complaint must meet to satisfy Rule 9(b):
[D]etails concerning the dates of the claims, the
content of the forms or bills submitted, their
identification numbers, the amount of money charged
to the government, the particular goods or services
for which the government was billed, the
individuals involved in the billing, and the length
of time between the alleged fraudulent practices
and the submission of claims based on those
practices are the types of information that may
help a relator to state his or her claims with
particularity.
360 F.3d at 233.
Viewing Lawton's Second Amended Complaint against the
backdrop of these guidelines, we have little trouble concluding
that his allegations do not satisfy Rule 9(b).
While the complaint describes at considerable length the
Takeda's marketing machinations, the Second Amended Complaint
falls well short of alleging, with the requisite amount of
specificity, who submitted false claims to the government, how
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many false claims were submitted to the government, or how the
Defendants' actions resulted in the submission of false claims.
Lawton compares his complaint to the one in Duxbury,
where we concluded that the relator's complaint had met Rule 9(b)'s
particularity requirement. 579 F.3d at 30. There, the relator
alleged that a company paid kickbacks to eight different medical
providers which induced these providers to submit false claims for
reimbursement to Medicare. Id. Although a "close call," we held
that the complaint satisfied Rule 9(b) because Duxbury, in addition
to setting forth allegations of kickbacks, provided information
concerning the dates and amounts of the false claims, who filed
these false claims, the applicable time periods and locations, and
how the claims were filed. Id.We agree with the district court that Lawton's
allegations are materially weaker than those seen in Duxbury. The
complaint does not allege that every prescription of Actos was
unlawful because it was off-label or that every claim submitted to
the federal government was false. See United States ex rel.
Westmoreland v. Amgen, Inc., 738 F. Supp. 2d 267, 277 (D. Mass.
2010) (holding complaint satisfied Rule 9(b), in part because it
included allegations that, as a result of the defendant's
inducement, a specific provider issued a "standing order" for
doctors to write fraudulent prescriptions for all patients). He
merely alleges that off-label prescriptions of Actos submitted to
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government programs were unlawful. But Lawton, unlike the relator
in Duxbury, identifies no false claims, either individual or
aggregated, from particular medical providers that were submitted
for reimbursement.
Instead, Lawton simply postulates that "as much as" 30%
of Actos annual sales were for off-label prescriptions, points to
the amounts of Medicare and Medicaid funds used to pay for Actos
prescriptions between 2003 and 2012, and asks us to infer that a
portion of these funds must have been used to pay unlawful claims.
As Yogi Berra allegedly said, "it's like déjà vu all over again."7
See Ge, 737 F.3d at 124 (holding, in another case concerning Actos,
that "aggregate expenditure data . . . with no effort to identify
specific entities who submitted claims or government program
payers, much less times, amounts, and circumstances" falls short
of Rule 9(b)'s requirements).
Lawton, like the relator in Rost, has "[a]t most . . .
raise[d] facts suggesting fraud was possible," but his pleadings
do not suffice under Rule 9(b) to show that doctors, patients, or
patients' private insurers did seek out federal reimbursement for
off-label Actos prescriptions. 507 F.3d at 733. Because Lawton's
7 "This epigram is often attributed to [Berra], a man as
famous for mangling the English language as for belting baseballs.
Berra coined many aphorisms -- but not this one. . . . The phrase's
origin is unknown." Williams v. Ashland Engineering Co., Inc., 45
F.3d 588, 589 n.1 (1st Cir. 1995).
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"evidence and arguments proceed more by insinuation than any
factual or statistical evidence that would strengthen the
inference of fraud beyond possibility," we affirm the district
court's dismissal of Lawton's complaint under Rule 9(b). See
Kelly, 827 F.3d at 15.
B. State Claims
The district court similarly did not err when it
dismissed Lawton's state claims with prejudice. Rule 9(b)'s
heightened pleading standard generally applies to state law fraud
claims brought in federal court. See Rost, 507 F.3d at 731 n.8;
Universal Commc'n Sys., Inc. v. Lycos, Inc., 478 F.3d 413, 427
(1st Cir. 2007). Lawton's Second Amended Complaint only contains
allegations that false claims were submitted to New York State
authorities in violation of the New York State False Claims Act
("NYSFCA"). See N.Y. State Fin. Law § 187 et seq. Even these
allegations, however, are not pled with the requisite
particularity.
Lawton alleges that between April 2011 and March 2014,
three non-diabetic members of the Suffolk County Health Plan in
New York State were prescribed Actos 11 times and that the health
plan paid a total of $3,170.14 for these prescriptions. The Second
Amended Complaint does not, however, identify the medical
providers who prescribed Actos, nor does it allege how those
prescriptions resulted from Defendants' marketing campaign or
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supposed kickback scheme. And given the timeframe of the
allegation, it is unclear whether the prescriptions in question
were issued before or after the end of the alleged marketing
campaign in 2011. This is relevant because if the prescriptions
were written after the campaign ended, we cannot conclude that
Lawton has strengthened the inference of fraud beyond possibility.
In short, Lawton's state law claims fail to satisfy Rule
9(b) for many of the same reasons why his federal FCA claim failed.
Since Lawton does not offer any new evidence on appeal that would
"cure the inferential gaps" found in the Second Amended Complaint,
the district court's decision to dismiss these claims with
prejudice is affirmed. See Kelly, 827 F.3d at 15.
III. Conclusion
We affirm the district court's order dismissing relator
Peter Lawton's claims, and because we reach this conclusion, we
decline to consider whether Lawton's Second Amended Complaint is
barred by the FCA's public disclosure bar, 31 U.S.C. §
3730(e)(4)(A), or the NYSFCA's public disclosure bar, N.Y. State
Fin. Law § 190(9)(b).
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