First Circuit Deems Request for Leave to File Fourth Amended False Claims Act Complaint Futile
On December 23, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. D’Agostino v. ev3, Inc. (Case No. 16-1126), affirming the US District Court for the District of Massachusetts’s denial of a relator’s motion for leave to file a fourth amended complaint under the False Claims Act (FCA).
The relator, a former sales representative at ev3, a medical device developer and manufacturer, alleged that his former employer and its subsidiary, Micro Therapeutics, Inc., violated provisions of the FCA by selling two products, the Onyx Liquid Embolic System (Onyx) and the Axium Detachable Coil System (Axium), to hospitals seeking reimbursements by the government through the Centers for Medicare & Medicaid Services (CMS).
The relator filed his original complaint in October 2010. He amended the complaint as a matter of right in February 2011, and twice more with the permission of the court. In October 2013, the government declined to intervene, and the relator requested leave to file a fourth amended complaint, which the district court denied. On appeal for the first time, the First Circuit held that the district court had evaluated the relator’s request under an improper standard and remanded the case. On remand, the district court again denied the relator’s request, deeming it “futile” because the fourth amended complaint failed to state claims upon which relief could be granted.
On appeal for the second time, the First Circuit affirmed the district court’s decision, rejecting each of the relator’s claims in turn. In his first claim, the relator alleged that the defendants made false representations to the Food and Drug Administration (FDA) regarding Onyx, which “could have” influenced the FDA to approve Onyx. The Court deferred to the FDA’s own conclusion that it was not misled, evidenced by its choice not to withdraw approval of Onyx in the face of the relator’s allegations: “To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.”
In his second claim, the relator alleged that the defendants “encourag[ed] medically unnecessary and dangerous uses of Onyx.” The Onyx label—approved by the FDA—stated that it could only be used by “‘physicians with neurointerventional training.’” The relator argued that the defendants did not train some of the physicians who performed procedures involving Onyx, and that because some of the untrained physicians’ patients were covered under government insurance plans, “‘the odds are very high that at least some of the bills were submitted to and paid by the government for use of Onyx by untrained physicians.’” The First Circuit rejected this argument, highlighting the “distinction between alleging that a certain percentage of patients carried government insurance and alleging that any patient carrying government insurance underwent a procedure involving the device that resulted in a claim for government reimbursement.”
In his third claim, the relator alleged that Axium contained manufacturing defects. The First Circuit highlighted the insufficiency of the claim, noting that while the relator identified certain faulty products, he did not identify whether the products were faulty due to manufacturing defects or whether claims involving the faulty products were actually submitted to the government for reimbursement.
In his fourth claim, the relator alleged that Axium devices contained a design defect, citing as support for his claim the defect the fact that Axium was improved over time. As the First Circuit explained, “a product (much less an FDA-approved medical device) cannot be called defective for purposes of establishing falsity in a qui tam case merely because new versions of the product contain design improvement.”
FCA defendants should welcome the First Circuit’s ruling. In opposing the relator’s motion for leave to amend the complaint a fourth time, the defendants advanced an undue delay argument as well as a lack of particularity argument, both of which the district court found to be persuasive. However, the lack of particularity argument was so persuasive to the First Circuit that it felt “no need to consider the district court’s alternative reasons for rejecting [the relator’s] claims.”