United States Ex Rel. Nargol v. Depuy Orthopaedics, Inc.

United States Court of Appeals
For the First Circuit
No. 16-1442
UNITED STATES, ex rel., ANTONI NARGOL and DAVID LANGTON; STATE
OF ARKANSAS, STATE OF CALIFORNIA, CITY OF CHICAGO, STATE OF
COLORADO, STATE OF CONNECTICUT, STATE OF DELAWARE, DISTRICT OF
COLUMBIA, STATE OF FLORIDA, STATE OF GEORGIA, STATE OF HAWAII,
STATE OF ILLINOIS, STATE OF INDIANA, STATE OF IOWA, STATE OF
LOUISIANA, STATE OF MARYLAND, STATE OF MICHIGAN, STATE OF
MINNESOTA, STATE OF MONTANA, STATE OF NEVADA, STATE OF NEW
JERSEY, STATE OF NEW MEXICO, STATE OF NEW YORK, STATE OF NORTH
CAROLINA, STATE OF OKLAHOMA, STATE OF RHODE ISLAND, STATE OF
TENNESSEE, STATE OF TEXAS, COMMONWEALTH OF VIRGINIA, STATE OF
WISCONSIN, COMMONWEALTH OF MASSACHUSETTS, CITY OF NEW YORK,
STATE OF NEW HAMPSHIRE, STATE OF MISSOURI, STATE OF WASHINGTON,
ex rel., ANTONI NARGOL and DAVID LANGTON,
Plaintiffs, Appellants,
v.
DEPUY ORTHOPAEDICS, INC.; DEPUY, INC.;
JOHNSON & JOHNSON, SERVICES, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor IV, U.S. District Judge]
Before
Torruella, Thompson, and Kayatta,
Circuit Judges.
Russell L. Kornblith, with whom David W. Sanford, Ross B.
Brooks, Sanford Heisler, LLP, Kevin M. Kinne, and Cohen Kinne
Valicenti & Cook, LLP, were on brief, for appellants.
Mark D. Seltzer, with whom D. Danielle Pelot, Hannah R.
Bornstein, and Nixon Peabody LLP were on brief, for appellees.
July 26, 2017
KAYATTA, Circuit Judge. In this action brought by two
private individuals under the False Claims Act ("FCA"), 31 U.S.C.
§ 3729, and various state analogues, we review de novo the
dismissal of a complaint under Federal Rules of Civil
Procedure 9(b) and 12(b)(6). Applying and extending our holding
in United States ex rel. D'Agostino v. ev3, Inc., 845 F.3d 1 (1st
Cir. 2016), we affirm the dismissal of the complaint to the extent
it relies on the alleged falsity of statements made by the product
manufacturer in securing approval from the U.S. Food and Drug
Administration ("FDA") to market a hip-replacement device. At the
same time, we reverse the district court's dismissal of the
complaint to the extent it rests on allegations that the
manufacturer palmed off latently defective versions of its FDA-
approved product on unsuspecting doctors who sought government
reimbursement for the defective products.
I. Background
Doctors Antoni Nargol and Robert Langton (together,
"Relators") claim to be experts in hip-replacement techniques and
devices. They brought this qui tam suit in May 2012 against DePuy
Orthopaedics, Inc., DePuy, Inc., and Johnson & Johnson Services,
Inc. (collectively, "DePuy") and filed an amended complaint under
seal in November 2013. As in all other qui tam actions under the
FCA, see Vt. Agency of Nat. Res. v. United States ex rel. Stevens,
529 U.S. 765, 769 (2000), the U.S. Department of Justice was given
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time to conduct an investigation to determine whether the United
States would intervene. In July 2014, it declined to do so.
Relators then filed a second amended complaint (for our purposes,
the "complaint") in May 2015. This is the complaint we now review,
because it was the one the district court found lacking and
dismissed with prejudice. Quite unhelpfully, it is 168 pages long
and contains over 800 paragraphs of allegations, from which we
distill the following:
Total hip replacement surgery involves replacing the
bone components of the joint--the ball-like femoral head and the
cup-like acetabulum--with artificial substitutes. In addition, a
standard prosthetic hip replaces the bit of femur directly below
the femoral head with an artificial "femoral stem," the top of
which is connected to a "trunnion" that inserts into a "taper" in
the artificial head (this union is known as the "taper trunnion"
or the "taper junction"). Hip replacements also typically include
liners that form a buffer between the artificial cup and the
artificial head. The particular hip-replacement device at issue
on this appeal is a so-called metal-on-metal ("MoM") device
employing a metal artificial acetabular cup and a metal artificial
femoral head. DePuy marketed the device under its "Pinnacle"
product line. We will use the name "Pinnacle MoM device" to refer
to this device, as distinguished from other DePuy hip-replacement
devices.
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To ensure that hip-replacement devices work properly and
do not unexpectedly degrade over time, all of the components must
be carefully designed and manufactured to be consistently and
correctly sized, shaped, and smoothed. This is especially true
for MoM devices because any time two metal components of an MoM
device put pressure on or rub against one another, tiny metal
shavings can make their way into the recipient's bloodstream,
causing pain and Adverse Response to Metal Debris (ARMD), a soft-
tissue reaction similar to a tumor, and requiring medical treatment
or "revision" surgery (a surgery in which a hip-replacement device
must itself be replaced). Friction between components of an MoM
device can also cause the artificial cup to prematurely loosen,
and can cause the device to corrode, leading to the same type of
pain and difficulty walking that gave rise to the need for hip
arthroplasty in the first place.
In December 2000, DePuy received FDA approval under
section 510(k) of the Federal Food, Drug, and Cosmetic Act, 21
U.S.C. § 360e(b)(1)(B)(ii), to market and sell the Pinnacle MoM
device. Ordinarily, a medical device like the Pinnacle MoM device
would be required to undergo an extensive premarket approval
process. The Pinnacle MoM device, however, was approved by way of
a different, less arduous process because DePuy represented to the
FDA that the Pinnacle MoM device was "substantially equivalent" to
the "ASR," an earlier MoM hip-replacement device for which DePuy
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had previously received premarket approval. Although Relators
describe both the ASR and the Pinnacle MoM device throughout their
complaint, only the Pinnacle MoM device is at issue in this case.
Relators allege two types of fraud in DePuy's marketing
of the Pinnacle MoM device. First, Relators allege that DePuy
made a series of false statements to the FDA and doctors, but for
which the FDA would not have approved the Pinnacle MoM device for
hip replacements or would have withdrawn that approval, and doctors
would not have certified the devices for government reimbursement.
Second, Relators allege that DePuy falsely palmed off devices that,
due to latent manufacturing defects, materially deviated from the
design specification of the FDA-approved Pinnacle MoM device.
The alleged manufacturing defects at issue are of two
types. One defect occurred when the sizes as manufactured of the
artificial femoral head and its acetabular cup caused them to fit
too snugly, impeding the cushioning intervention of bodily fluid
that precluded the head and cup from rubbing directly against each
other. According to the complaint, "DePuy's manufacturing process
fail[ed] to produce implant heads within specification 14.93% of
the time and implant liners 50.41% of the time." The second defect
occurred when the surface of the taper trunnion that interacted
with the taper emerged from the manufacturing process with too
much roughness. This roughness increased friction and the shedding
of small metal debris when the trunnion moved against the taper.
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Over fifty percent of the Pinnacle MoM devices as sold allegedly
suffered from this defect and were "well outside of their required
manufacturing specifications." Combined with the first defect, it
caused the devices sold as Pinnacle MoM devices to have a five-
year failure rate of nearly fifteen percent, as compared to a five-
year failure rate of 4.5% or lower as claimed by DePuy (and
characteristic of or superior to the failure rates of other
competing devices).
Relators allege that DePuy made direct claims to the
federal government and various state governments seeking payment
for some of the defectively manufactured Pinnacle MoM devices.
They also allege that DePuy was indirectly responsible for the
claims for payment that healthcare providers submitted to the
federal and state governments for reimbursement for defectively
manufactured Pinnacle MoM devices that the healthcare providers
had purchased from DePuy.
The district court found that Relators failed to plead
false claims under either the FCA or the cited state-law versions
of the FCA with the particularity required by Federal Rule of Civil
Procedure 9(b). See United States ex rel. Nargol v. DePuy
Orthopaedics, Inc., 159 F. Supp. 3d 226, 248–55, 259–60 (D. Mass.
2016).1 In so finding, the district court bifurcated its analysis
1 The district court also dismissed Relators' claim that DePuy
and its officers and employees conspired to defraud the government
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by focusing first on all direct claims submitted by DePuy to the
government, and then on indirect claims made through health care
providers. The court found that the complaint's allegations
concerning "direct" claims for payment that DePuy allegedly
submitted to the Department of Veterans Affairs, the Naval Medical
Center, and the Department of the Army failed to plead that the
claims for government payment were for the Pinnacle MoM device at
issue in this suit (as opposed to other hip-replacement devices)
and failed to identify any specific false claims. See id. at 247–
52. As for the "indirect" false claims for payment that DePuy
caused others to submit, the district court found that Relators
failed to identify even a single representative false claim for
payment for a defective Pinnacle MoM device, and that the complaint
did not cite sufficient "other factual and statistical evidence to
strengthen the inference of fraud beyond a mere possibility." Id.
at 252. Noting that the case had been pending for nearly four
years and that Relators, even after their third try at drafting a
compliant complaint, had yet to particularly plead a cognizable
claim for relief under the FCA, the district court dismissed the
complaint with prejudice, entered judgment in favor of DePuy, and
in violation of 31 U.S.C. § 3729(a)(1)(C), a claim the court
determined was not cognizable. See Nargol, 159 F. Supp. 3d at
258–59. Relators have not challenged on appeal the district
court's ruling on this issue.
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rejected Relators' motion to reconsider its judgment by allowing
the filing of a third amended complaint. Id. at 262.
Relators now appeal. They argue that the district court
should have found that they plausibly and particularly alleged
that every claim submitted to the government for payment, directly
or indirectly, was false because the Pinnacle MoM device was
dangerously designed. They also contend that the district court
erred in dismissing their claims arising out of indirect sales
because the Rule 9(b) requirements for pleading fraud in connection
with government reimbursements of intermediary parties is "more
flexible," United States ex rel. Duxbury v. Ortho Biotech Prods.,
L.P., 579 F.3d 13, 30 (1st Cir. 2009) (quoting United States ex
rel. Gagne v. City of Worcester, 565 F.3d 40, 46 (1st Cir. 2009)),
than the district court realized. Relators further argue that the
district court erred in denying them leave to amend their complaint
a third time, and in rejecting their motion to reconsider that
denial.
II. Discussion
A.
Rather than initially separating Relators' allegations
into those involving "direct" false claims for government payment
and those involving "indirect" false claims, we focus first on all
of Relators' claims, whether direct or indirect, that rest on the
allegation that DePuy misrepresented the safety and effectiveness
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of the product's design in order to secure or maintain FDA approval
for the Pinnacle MoM device. We recently dealt with an analogous
claim in D'Agostino, in which we held that "the FDA's failure
actually to withdraw its approval of [the device at issue] in the
face of [the relator's] allegations precludes [the relator] from
resting his claims on a contention that the FDA's approval was
fraudulently obtained." 845 F.3d at 8. The claim in this case is
not quite on all fours with the claim we confronted in D'Agostino
because the FDA does not independently assess the safety and
effectiveness of a medical device that qualifies for approval under
section 510(k). See Medtronic, Inc. v. Lohr, 518 U.S. 470, 493
(1996). Rather, the process under section 510(k) allows a device
manufacturer to piggyback on the full-scale review and approval of
another device by demonstrating that the new device is
"'substantially equivalent' to a predicate device" which itself
may be marketed pending the completion of a full premarket approval
process. Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341,
345 (2001) (quoting 21 U.S.C. § 360e(b)(1)(B)).
Nevertheless, the process constitutes the government's
method of determining whether a device is safe and effective as
claimed. That determination is what makes the product marketable,
and Relators offer no suggestion that government reimbursement
rules require government health insurance programs to rely less on
section 510(k) approval than they do other forms of FDA approval.
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The FDA, in turn, possesses a full array of tools for "detecting,
deterring, and punishing false statements made during . . .
approval processes." Id. at 349. Its decision not to employ these
tools in the wake of Relators' allegations so as to withdraw or
even suspend its approval of the Pinnacle MoM device leaves
Relators with a break in the causal chain between the alleged
misstatements and the payment of any false claim. D'Agostino, 845
F.3d at 8. It also renders a claim of materiality implausible.
See id. at 7. The FCA's "materiality standard is demanding."
Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989,
2003 (2016). Even in an ordinary situation not involving a
misrepresentation of regulatory compliance made directly to the
agency paying a claim, when "the Government pays a particular claim
in full despite its actual knowledge that certain requirements
were violated, that is very strong evidence that those requirements
are not material." Id. Such very strong evidence becomes
compelling when an agency armed with robust investigatory powers
to protect public health and safety is told what Relators have to
say, yet sees no reason to change its position. In such a case,
it is not plausible that the conduct of the manufacturer in
securing FDA approval constituted a material falsehood capable of
proximately causing the payment of a claim by the government.
Ruling otherwise would "turn the FCA into a tool with which a jury
of six people could retroactively eliminate the value of FDA
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approval and effectively require that a product largely be
withdrawn from the market even when the FDA itself sees no reason
to do so." D'Agostino, 845 F.3d at 8.
Here, as in D'Agostino, there is no allegation that the
FDA withdrew or even suspended product approval upon learning of
the alleged misrepresentations. To the contrary, the complaint
alleges that Relators told the FDA about every aspect of the design
of the Pinnacle MoM device that they felt was substandard, yet the
FDA allowed the device to remain on the market until DePuy, on its
own volition, discontinued the device in 2013. There are
allegations that an FDA official sent a letter in 2005 that
"imposed an affirmative obligation on DePuy to provide the FDA
with updated information if . . . data indicated that DePuy's
'change or modification to the device or its labeling could
significantly affect the device's safety or effectiveness and thus
require submission of a new 510(k),'" and that a 2011 FDA
Establishment Inspection Report concerning a DePuy plant in
Indiana determined that DePuy was not adequately reporting adverse
events or investigating complaints of device failure. Such
evidence does show that the FDA was paying attention. But the
lack of any further action also shows that the FDA viewed the
information, including that furnished by Relators, differently
than Relators do.
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Admittedly, the complaint does seem to posit a second
twist that we did not encounter in D'Agostino: In theory, a
product may be sufficiently "safe" and "effective" to secure FDA
approval for a given use, 21 U.S.C. § 360e(d)(2), yet its use might
nonetheless not be sufficiently "reasonable and necessary" for
patient care to warrant Medicare reimbursement for its use, 42
U.S.C. § 1395y(a)(1)(A). See United States ex rel. Petratos v.
Genentech Inc., 855 F.3d 481, 487–88 (3d Cir. 2017); Int'l Rehab.
Sci. Inc. v. Sebelius, 688 F.3d 994, 1002 (9th Cir. 2012) ("FDA
clearance . . . is necessary, but not sufficient, for Medicare
coverage. FDA review and Medicare coverage review have different
purposes." (citations omitted)); Almy v. Sebelius, 679 F.3d 297,
308 (4th Cir. 2012) (approving Secretary's decision not to
reimburse because device was not "reasonable and necessary,"
despite device's approval under section 510(k)). Assuming that to
be so, then it is possible that a particular attribute of a product
would not be required to secure FDA approval, yet it would be
necessary to secure reimbursement. In such circumstances, a
manufacturer's false statement that its product possesses such an
attribute might in theory both cause the presentment of a claim
and be material to the government's decision to pay the claim in
a way that involves no second guessing of the government's still-
extant FDA approval of the product.
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In Relators' complaint, this theory takes the form of
allegations that DePuy told doctors that the Pinnacle MoM device
had a failure rate of 0.1% at five years, as opposed to the more
modest 4%–4.5% claimed in DePuy's FDA filings. The complaint is
devoid of particularized allegations, though, that any doctor
submitted a claim he or she would not have submitted if DePuy's
0.1%-failure-rate boast had not been made. More importantly,
Relators level no allegation that the difference between 0.1% and
4%–4.5% was the difference between being reimbursable by the
government (as "reasonable and necessary") and not being
reimbursable. Rather, on that crucial point the complaint admits
that a 4%–4.5% failure rate would suffice because it is less than
the five-percent maximum failure rate provided under industry
guidelines, and alleges only that the true five-year failure rate
(purportedly much greater than five percent) rendered the product
not reasonable and necessary. And that allegation (as far as the
design-defect-based claims are concerned) simply runs Relators
back into their claim that DePuy misled the FDA to obtain or
maintain approval for the Pinnacle MoM device.
Relators additionally argue that their causal theory
posits a chain running not just through the FDA, but also directly
from DePuy to doctors precisely because DePuy repeated to doctors
the statements it made to the FDA. We see no reason, though, why
such a likely and customary repetition of the statements made to
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the FDA renders it more plausible that a materially false statement
caused the payment of a claim that would not have been made
otherwise. The government, having heard what Relators had to say,
was still paying claims not because of what was said to or by the
doctors, but because the government through the FDA affirmatively
deemed the product safe and effective. And, absent some action by
the FDA, we can see no plausible way to prove to a jury that FDA
approval was fraudulently procured. See D'Agostino, 845 F.3d at 8.
Finally, Relators seem to suggest that we should revisit
our holding in D'Agostino because a panel in the Ninth Circuit
recently reversed the dismissal of an FCA claim predicated in part
on allegations that the defendant misled the FDA. See United
States ex rel. Campie v. Gilead Scis., Inc., No. 15-16380, 2017 WL
2884047, at *13 (9th Cir. July 7, 2017). Of course, one panel of
this court may not revisit the holding of a prior panel merely
because another circuit disagrees. In any event, we find nothing
in Campie to warrant revisiting D'Agostino. The example of a valid
claim given in Campie2, see id. at *10 n.8, would be a valid claim
under D'Agostino too, since it rests not on lying to the FDA but
rather on palming off one product as another. Additionally, the
record in Campie lacked what we have here: a situation in which
the FDA was not alleged to have ever withdrawn its approval, even
2 Supplying FDA-approved Tylenol rather than Atripla.
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long after it acquired full knowledge of Relators' claims. Id. at
*11. Otherwise, Campie offers no rebuttal at all to D'Agostino's
observation that six jurors should not be able to overrule the
FDA. See D'Agostino, 845 F.3d at 8. And it offers no solution to
the problems of proving that the FDA would have made a different
approval decision in a situation where a fully informed FDA has
not itself even hinted at doing anything. Instead, it decides not
to deem these problems to be fatal on a Rule 12(b)(6) motion, even
if, apparently, no plausible solutions can be envisioned, even in
theory.
For these reasons, the district court did not err in
dismissing any claim based on Relators' design-defect theory of
fraud.3
B.
We now arrive at Relators' principal theory of fraud
raised on this appeal: that DePuy often sold to health care
providers a defectively manufactured product that materially
differed from the device the FDA approved. Specifically, Relators
point to the allegations in their complaint that, based on data
3
The district court dismissed these claims for failure to
plead them with the particularity required under Rule 9(b). See
Nargol, 159 F. Supp. 3d at 255. Relators urge us to vacate and
remand so that the district court can consider whether the
complaint complies with Rule 12(b)(6). We are not bound, however,
by the reasoning of the district court, and we "may affirm an order
of dismissal on any ground evident from the record." MacDonald v.
Town of Eastham, 745 F.3d 8, 11 (1st Cir. 2014).
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"representative of the outcomes of DePuy's manufacturing process,"
Relators' statistical analysis suggested that DePuy's
manufacturing process produced a surface-roughness defect in the
taper trunnion junction in more than half of DePuy's Pinnacle MoM
devices and "fail[ed] to produce explant heads within
specification 14.93% of the time and 50.41% of the time for the
explant liner." This theory--that DePuy got FDA approval for a
device and then palmed off a defective version of that device both
directly on the government itself and on unsuspecting doctors and
patients, who then submitted claims for payment to unsuspecting
government payors--is a theory of actionable misconduct under the
FCA, to which D'Agostino poses no impediment. See, e.g., Universal
Health Servs., 136 S. Ct. at 2001–02. The key question is whether
this theory has been pled with the requisite particularity.
The complaint in this case contains a description of
just one actual sale of a defectively manufactured product to a
provider that sought government reimbursement. Specifically, the
complaint alleges that a surgeon at Stony Brook University Medical
Center in New York implanted a Pinnacle MoM device in a patient in
November 2007. The device failed "as a result of manufacturing
defects in the device, including nonconforming diametrical
clearance dimensions." Not knowing that the device was defectively
manufactured, "Stony Brook University Medical Center submitted a
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claim to Medicaid for [the patient's] Pinnacle hip device and
implant surgery."
The district court observed that the complaint alleges
no "specific representations or materials that the doctor received
and relied upon, nor does it allege the specific DePuy device for
which the doctor filed a claim." Nargol, 159 F. Supp. 3d at 254.
As to the first point, the plain, specific misrepresentation
(assuming the allegations to be true) was that the device was the
Pinnacle MoM device, an FDA-approved product, rather than a
defectively manufactured, nonconforming variant. As to the second
point, we read the complaint's description of a DePuy Pinnacle hip
implant which contained use instructions for the "Pinnacle MoM" as
fairly identifying the Pinnacle MoM device.
The question remains, however, whether identifying this
single exemplar false claim is sufficient to clear the hurdle
imposed by Federal Rule of Civil Procedure 9(b). Rule 9(b) applies
because FCA actions sound in fraud. See United States ex rel.
Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir.
2004), abrogated on other grounds by Allison Engine Co. v. United
States ex rel. Sanders, 553 U.S. 662 (2008); see generally John T.
Boese, Civil False Claims and Qui Tam Actions § 5.04[C] (4th ed.
2016) (collecting cases). FCA complaints must therefore "state
with particularity the circumstances constituting fraud." Fed. R.
Civ. P. 9(b).
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The drafters of Rule 9(b) left us only a few hints of
the purposes sought to be furthered by the rule. The 1937 advisory
committee notes state only: "See English Rules Under the
Judicature Act (The Annual Practice, 1937) O. 19, r. 22." Fed. R.
Civ. P. 9(b) advisory committee's note (1937) . That source, while
voicing a roughly similar rule,4 offers no express insight into
the rule's purpose. Nor does further excavation provide any firm
evidence of what the drafters of our Federal Rules of Civil
Procedure meant to accomplish with the words they used. See
generally Christopher M. Fairman, An Invitation to the Rulemakers-
-Strike Rule 9(b), 38 U.C. Davis L. Rev. 281, 287 (2004). The
only other tidbit gleaned by academic review of the rule's
provenance is that Judge Charles E. Clark, the advisory committee's
first reporter, once opined that "[w]hile useful, this rule
probably states only what courts would do anyhow and may not be
considered absolutely essential." Id. (quoting Charles E. Clark,
Simplified Pleading, 2 F.R.D. 456, 463–64 (1943)).
Like nature upon encountering a vacuum, courts have
since filled this gap with a list of purposes inferred to be the
objects of the rule's aim. In our own circuit, we have ascribed
4
"Fraud must be distinctly alleged and proved. The acts
alleged to be fraudulent must be stated, otherwise no evidence in
support of them will be received." Jeff Sovern, Reconsidering
Federal Rule 9(b): Do We Need Particularized Pleading Requirements
in Fraud Cases?, 104 F.R.D. 143, 146 n.19 (1985).
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to Rule 9(b) the purposes of "[giving] notice to defendants of the
plaintiffs' claim, [protecting] defendants whose reputation may be
harmed by meritless claims of fraud, [discouraging] 'strike
suits,' and [preventing] the filing of suits that simply hope to
uncover relevant information during discovery." Karvelas, 360
F.3d at 226 (quoting Doyle v. Hasbro, Inc., 103 F.3d 186, 194 (1st
Cir. 1996)). To this list the Fifth Circuit has added the purpose
of ensuring that qui tam complaints include only as-yet nonpublic
information that the government may need in order to decide whether
to take the case over. United States ex rel. Russell v. Epic
Healthcare Mgmt. Grp., 193 F.3d 304, 308–09 (5th Cir. 1999).5
The circuits have varied, though, in their statements of
exactly what Rule 9(b) requires in a qui tam action. Of most
relevance here, a consensus has yet to develop on whether, when,
and to what extent a relator must state the particulars of specific
examples of the type of false claims alleged. See Foglia v. Renal
Ventures Mgmt., LLC, 754 F.3d 153, 155–56 (3d Cir. 2014) (surveying
circuits).
Following the lead of the Eleventh Circuit, our circuit
staked out its general position in Karvelas, which concerned
allegations that a hospital subverted government standards but
5 To be precise, this purpose would seem to be less a purpose
for Rule 9(b) and more a policy reason for applying it to qui tam
complaints. Whether the FCA supports such a policy we need not
decide.
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claimed it was in full compliance when it billed Medicare and
Medicaid for services rendered. 360 F.3d at 223. As we explained:
In a case such as this, details 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. These
details do not constitute a checklist of
mandatory requirements that must be satisfied
by each allegation included in a complaint.
However, like the Eleventh Circuit, we believe
that "some of this information for at least
some of the claims must be pleaded in order to
satisfy Rule 9(b)."
Id. at 233 (quoting United States ex rel. Clausen v. Lab. Corp. of
Am., 290 F.3d 1301, 1312 n.21 (11th Cir. 2002)); see United States
ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116, 123–25 (1st Cir.
2013).
In applying this general rule over time, we have
nevertheless recognized at least one exception to the expectation
that a relator should be able to allege the essential particulars
of at least some actual false claims that were in fact submitted
to the government for payment. "[W]e have . . . 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
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government." Lawton ex rel. United States v. Takeda Pharm. Co.,
842 F.3d 125, 130 (1st Cir. 2016) (citing Duxbury, 579 F.3d at
29). We apply a "more flexible" standard in actions of the latter,
indirect type: where the defendant allegedly "induced third
parties to file false claims with the government . . . a relator
could 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 false claim."
Duxbury, 579 F.3d at 29 (quoting United States ex rel. Rost v.
Pfizer, Inc., 507 F.3d 720, 733 (1st Cir. 2007)); see Ge, 737 F.3d
at 123–24. Such evidence must pair the details of the scheme with
"reliable indicia that lead to a strong inference that claims were
actually submitted." Id. (quoting United States ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)).
Seeking to take advantage of this increased flexibility
for indirect claims, relators in actions alleging unlawful, off-
label marketing of prescription drugs have often sought to rely on
the following reasoning: Drug was approved for Use X; Company
successfully marketed it also for Use Y; lots of Drug has been
prescribed in the United States; a significant number of U.S.
patients are covered by government insurance; therefore it is
rational to assume that some payments for off-label use of Drug
have been made or reimbursed by the government.
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Rost was the first case in which we considered this line
of reasoning. We agreed that the claimed inference generated by
such reasoning was "not irrational." Rost, 507 F.3d at 732. The
strength of the inference, though, depended on an unstated
assumption that physicians or patients would improperly seek
government reimbursement for the off-label prescription, rather
than paying out of pocket. And the record in Rost showed that, in
fact, "[i]n most, if not all, instances," patients paid out-of-
pocket for off-label prescriptions. Id. (alteration in original).
Accordingly, the inference that false claims were filed rose to
the level of a "possibility" only. Id. at 733. This holding has
controlled our subsequent disposition of qui tam pleadings in at
least four other cases alleging unlawful marketing for off-label
uses or off-label dosages. See, e.g., United States ex rel. Booker
v. Pfizer, Inc., 847 F.3d 52, 57–58 (1st Cir. 2017); D'Agostino,
845 F.3d at 11; Lawton, 842 F.3d at 132; United States ex rel.
Kelly v. Novartis Pharm. Corp., 827 F.3d 5, 15 (1st Cir. 2016).6
In one instance, on de novo review we did reverse a
Rule 9(b) dismissal of a qui tam action. See Duxbury, 579 F.3d at
6 Of course, our case selection is quite skewed because we
generally only see the weaker complaints. This is because almost
all of the qui tam cases that reach our court are ones in which a
capable district court, after briefing, has found the complaint
lacking. Conversely, rulings sustaining the sufficiency of the
stronger complaints are generally not appealable until after final
judgment, and few complex civil cases go the whole nine yards.
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32. The fraudulent scheme alleged in Duxbury involved the payment
of kickbacks to health care providers in a manner designed to
artificially inflate the reported price of a pharmaceutical
product. Id. at 17. The kickbacks took the form, in large part,
of free product given to providers "so that" they could submit the
free product for reimbursement at the reported price, pocketing
the payment. Id. at 31. The relator did "not identify specific
claims." Id. at 30. He did, however, identify "as to each of . . .
eight medical providers (the who), the illegal kickbacks (the
what), the rough time periods and locations (the where and when),
and the filing of the false claims themselves." Id. These
allegations were sufficient to show "that false claims were in
fact filed by the medical providers [the relator] identified, which
further support[ed] a strong inference that such claims were also
filed nationwide." Id. at 31.
What most distinguishes Duxbury from our off-label
marketing cases is the nature of the conspiracy. In Rost, we found
no strong reason to believe that patients provided drugs for off-
label use would seek reimbursement where the use was not eligible
for reimbursement. Rost, 507 F.3d at 732. In Duxbury, though,
the entire purpose of giving doctors free product was so that they
would seek reimbursement to realize the kickback. Duxbury, 579
F.3d at 31. The alleged scheme would have made little sense had
reimbursement not been sought. And the added detail about
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transactions involving eight providers, while not claim-specific
within the sense described in Karvelas, made the filing of some
claims "beyond possib[le]." Id. (quoting Rost, 507 F.3d at 733).
Here, Relators press yet a third type of alleged fraud,
which involves neither off-label marketing nor kickbacks. The
fraudulent scheme alleged here--after our rejection of claims
based on the FDA-approved product design--is that DePuy knowingly
palmed off, as the approved Pinnacle MoM device, devices that
materially deviated from the approved specifications in a manner
that materially increased the risk of patient harm. There is no
suggestion in the pleadings--and no reason to infer based on the
allegations--that the minute but material manufacturing defects
were known to the doctors, the patients, or the government. Nor
would the defects in this particular instance have manifested
themselves during surgery. Cf. D'Agostino, 845 F.3d at 12 (finding
insufficient a pleading that false claims were likely submitted
for government payment for defectively manufactured devices
because the complaint alleged not "a latent manufacturing defect
that manifested itself only after the surgery was completed and
the claim for reimbursement submitted," but rather a "defect [that]
caused the device to fail as the surgeons tried to use it, and
thus before any claim for reimbursement might have been
submitted"). Unlike in our off-label marketing cases, there is
therefore no reason to suspect that physicians did not seek
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reimbursement for defective Pinnacle MoM devices. Additionally,
it is very likely that every sale of a Pinnacle MoM device was
accompanied by an express or plainly implicit representation that
the product being supplied was the FDA-approved product, rather
than a materially deviant version of that product. Finally, given
the nature of a total hip replacement, it is also highly likely
that the expense is not one that is primarily borne by uninsured
patients in most instances. Importantly, the complaint also
alleges the sale and use of thousands of Pinnacle MoM devices,
making it virtually certain that the insurance provider in many
cases was Medicare, Medicaid, or another government program.7
To summarize, Relators allege that, over a five-year
period, several thousand Medicare and Medicaid recipients received
what their doctors understood to be Pinnacle MoM device implants;
that more than half of those implants fell outside the
specifications approved by the FDA; and that the latency of the
defect was such that doctors would have had no reason not to submit
claims for reimbursement for noncompliant devices. In this
context, where the complaint essentially alleges facts showing
that it is statistically certain that DePuy caused third parties
7
For example, the complaint alleges that approximately 18,750
Pinnacle MoM devices were sold to Medicare patients alone between
2005 and 2009, and that those patients made up roughly half of the
total number of people who received Pinnacle MoM devices during
that timeframe.
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to submit many false claims to the government, we see little reason
for Rule 9(b) to require Relators to plead false claims with more
particularity than they have done here in order to fit within
Duxbury's "more flexible" approach to evaluating the sufficiency
of fraud pleadings in connection with indirect false claims for
government payment. In short, we have in this case a complaint
that alleges the details of a fraudulent scheme with "reliable
indicia that lead to a strong inference that claims were actually
submitted," Duxbury, 579 F.3d at 29 (quoting Grubbs, 565 F.3d at
190), for government reimbursement from the United States and from
the state of New York.8
C.
While the foregoing suffices to sustain Relators' claims
under the FCA9 and New York's state-law analogue for indirect false
8 Whether the one pleaded example offered here is necessary
we need not and do not decide.
9 This includes both count 1 (alleging that DePuy violated 31
U.S.C. § 3729(a)(1)(A)) and count 2 (alleging that DePuy violated
31 U.S.C. § 3729(a)(1)(B)). As Relators observe, the district
court stated: "The First Circuit has distinguished pleading
standards for direct claims, or sales to the government, which are
governed by 31 U.S.C. § 3729(a)(1)(A), from indirect claims to the
government where a defendant causes third-parties to submit false
claims, which are governed by 31 U.S.C. § 3729(a)(1)(B)." Nargol,
159 F. Supp. 3d at 252. This is incorrect: neither § 3729(a)(1)(A)
nor § 3729(a)(1)(B) applies only to direct or indirect claims for
government payment. Section 3729(a)(1)(A) imposes liability on
defendants who directly "present[] . . . a false or fraudulent
claim for payment or approval," and defendants who indirectly
"cause[] to be presented[] a false or fraudulent claim for payment
or approval." 31 U.S.C. § 3729(a)(1)(A). Likewise,
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claims for government payment, it does not sustain Relators' claims
alleging that DePuy directly submitted false claims for payment to
the government, or any of Relators' claims at all under the other
state laws cited in the complaint. With regard to direct claims,
Relators make no argument that the "more flexible" standard
articulated in Duxbury and Gagne applies, or that their allegations
satisfactorily plead the transactional particulars required under
Karvelas. They argue only that they need offer no transactional
particulars because all sales were fraudulent. Yet, Relators
themselves concede that not all of the Pinnacle MoM devices were
manufactured defectively, and we have in turn rejected their
argument that their design-defect theory works. In short, this is
not a case in which every claim for payment was by definition
fraudulent, so we need not decide how we might rule in such a case.
With respect to payments by states other than New York,
Relators for the most part have made conclusory allegations that
state and municipal analogues to the FCA were violated when claims
section 3729(a)(1)(B) similarly prohibits both directly "mak[ing
or] us[ing] . . . a false record or statement material to a false
or fraudulent claim" and "caus[ing] to be made or used[] a false
record or statement material to a false or fraudulent claim." Id.§ 3729(a)(1)(B). Relators allege that doctors certified to
Medicare that the device they implanted was reasonable and
necessary for patient care because it was the Pinnacle MoM device
that the FDA had approved, and that such certifications were
frequently false because manufacturing defects made the implanted
device materially different from the one the FDA approved. This
is sufficient to particularly plead a cause of action under both
§ 3729(a)(1)(A) and § 3729(a)(1)(B).
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for reimbursement were submitted for covered patients in a handful
of states and municipalities, but the complaint does nothing to
allege that Pinnacle MoM devices were advertised to and implanted
by physicians in Arkansas, California, Colorado, Chicago, or any
other state or municipality except for the state of New York.
Relators do not allege that DePuy made the Pinnacle MoM device
available to surgeons and their patients in those places, much
less how many of such devices (if any) were ordered and implanted
in patients, how many total-hip-replacement surgeries (if any)
were performed in these places, or how many people in these places
were covered by government healthcare programs during the relevant
timeframe.
The exception, again, is New York. Relators do allege
that between 2005 and 2010, "New York State Medicaid paid for an
average of approximately 1280 claims each year for total hip
replacement devices," fifty percent of each of which the United
States paid; that MoM hip-replacement devices made up a large
percentage of devices being prescribed and installed during that
time; and that given both DePuy's general market share and the
specific market share of the Pinnacle MoM device, "nearly 425
Pinnacle devices bearing the diametrical-clearance manufacturing
defect would have been paid for by New York State Medicaid," and
the United States, "between 2005 and 2010." This is enough for
Relators' manufacturing-defect-based indirect claims under New
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York's analogue to the FCA to satisfy Rule 9(b)'s particularity
requirement.
D.
Finally, Relators argue that the district court should
have permitted them leave to amend so that they could file yet
another (i.e., a fourth) version of their complaint that would
comply with the strictures of Rules 9(b) and 12(b)(6). But see In
re Biogen Inc. Sec. Litig., 857 F.3d 34, 45 (1st Cir. 2017)
(explaining that we review denials of motions to amend and for
reconsideration for abuse of discretion, discouraging "any
expectation that there will be leisurely repeated bites at the
apple" (internal citation omitted)). Relators contend that they
made this request both before and after the district court entered
judgment against them, first by seeking leave to amend under Rule
15(a) and then by seeking reconsideration and leave under Rules 59
and 60.
The relevant gist of the proposed fourth complaint is
the addition of transactional particulars for some indirect claims
for government payment for Pinnacle MoM devices. Those details do
nothing to overcome the defect in Relators' fraud-on-the-FDA,
design-defect claims, or the absence of transactional particulars
for the alleged direct claims that Relators do not argue are within
Duxbury's "more flexible" exception to the requirements of
Karvelas. The proposed amendments are also unnecessary to rescue
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the manufacturing-defect claims under federal and New York state
law that we have already found were properly pleaded. And they do
nothing to cure the defects we have identified in Relators' claims
under the laws of other states. In short, the proposed amended
complaint is either futile or redundant.
III. Conclusion
We vacate the dismissal of Relators' claims that DePuy
caused physicians to submit claims to the United States and New
York for payment for Pinnacle MoM devices that did not materially
comport with the specifications of the FDA approval for those
devices in violation of the FCA, 31 U.S.C. § 3729(a)(1)(A)–(B)
(counts 1 and 2), and its New York state analogue, N.Y. State Fin.
Law § 189(1)(a)–(b) (count 27). We affirm the dismissal of all
other claims, and of the denial of further requests to amend the
complaint. We remand the case solely for resolution of the
surviving claims. All parties shall bear their own costs on this
appeal.
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