KAYATTA, Circuit Judge.
This qui tam action makes its second appearance before us. Last year, we held that the district court should have evaluated Jeffrey D'Agostino's request for leave to file his fourth amended complaint under the standard set forth in Federal Rule of Civil Procedure 15(a).
A. Factual Allegations
Defendant ev3, Inc. ("ev3") discovers, develops, manufactures, and markets medical devices. Defendant Micro Therapeutics, Inc. ("MTI"), ev3's subsidiary since 2006, likewise manufactures and markets medical devices. D'Agostino's original and proposed complaints against these companies focus on two devices, the Onyx Liquid Embolic System ("Onyx") and the Axium Detachable Coil System ("Axium"). We recite the relevant facts concerning each device as they are alleged by D'Agostino in his proposed complaint, assuming them to be true unless they are merely conclusory.
Onyx is an artificial liquid material developed by MTI to treat malformed blood vessels in the brain. In plain terms, it is injected into blood vessels near the brain, and then forms a mass blocking the flow of blood to facilitate subsequent surgery. In the early 2000s, MTI licensed the Onyx molecule to a company named Enteric. Enteric used the molecule to develop another medical device, Enteryx, which went to market first, after gaining Food and Drug Administration ("FDA") approval in April 2003 for the treatment of gastroesophageal reflux disease. A series of adverse events involving Enteryx followed, prompting a patient safety alert in October 2004, and culminating in a complete recall of the device in September 2005.
It was during this timeframe — between Enteryx's approval and recall — that MTI sought approval for Onyx. The FDA's regulations require a premarket approval ("PMA") process for medical devices like
MTI's PMA application identified a narrow indication for Onyx: "use in the treatment of brain arteriovenous malformations (`BAVM's'), when embolization is indicated to minimize blood loss to reduce the BAVM size prior to surgery." While seeking approval, MTI emphasized the narrow scope of the indication as well as the rigorous nature of the training program required for physicians using Onyx. According to the testimony of MTI's Vice President before the FDA advisory panel, that training program would include an instructional session, a hands-on workshop, a case review, and observations. According to another MTI witness, any physician who completed this training would receive the assistance of an experienced proctor the first time he or she used Onyx. The advisory panel members placed great weight on these training requirements, describing them as "critically important" and "a very big component of getting [Onyx] into safe use."
The panel ultimately recommended approval of Onyx. However, several of its members explained that it was a "cautious approval," and others warned that they would advise the FDA to rescind approval if MTI disregarded their suggestions for carefully monitoring Onyx cases.
The FDA adopted the panel's recommendation, granting approval to Onyx in July 2005. The Onyx label authorized by the FDA restricted the device's use to "physicians with neurointerventional training and a thorough knowledge of the pathology to be treated, angiographic techniques, and super-selective embolization." It stated, "Contact your Micro Therapeutics Inc. sales representative for information on training courses."
Enter D'Agostino, a sales representative who worked at ev3 from January 2005 until his termination in January 2010. After ev3 acquired MTI in 2006, D'Agostino became familiar with the manner in which the defendants promoted and sold Onyx. He says that he observed physician trainings that lasted as little as four hours and proctored surgeries that involved off-label procedures. He also alleges that the defendants instituted a "Site Certification Process" whereby they certified and sold Onyx to any site where a single neurosurgeon who had completed their training enjoyed privileges. As a result, he says that Onyx fell into the hands of physicians at those sites with inadequate training or no training at all. Additionally, the defendants encouraged off-label marketing by setting sales quotas for their representatives that anticipated such sales, educating their sales force on "peripheral applications," and providing off-label training to physicians during all-expenses-paid retreats. All in all, it became clear, alleges D'Agostino, that the defendants never intended to honor the commitments that MTI had made to the FDA.
Because clinical trials involving Onyx in the treatment of aneurysms evinced numerous complications, the defendants in 2007 launched a new medical device, Axium.
3. Qui Tam Action
Approximately one year later, the defendants terminated D'Agostino's employment. In October 2010, he brought this qui tam action as a "relator" on behalf of the United States under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, and on behalf of numerous states under similar state statutes. The relevant provisions of the FCA are those imposing liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,"
B. Procedural History
Our opinion in
A few days before his opposition was due, D'Agostino filed a fourth amended complaint (i.e., his fifth version of the complaint). The defendants immediately moved to strike, insisting that D'Agostino had used up his right to amend as a matter of course back in February 2011. The court agreed but construed D'Agostino's filing as
In the appeal that followed, we held that the district court erred by applying Rule 16(b)'s standard rather than Rule 15(a)'s more lenient standard.
In addition to finding the proposed amendment futile, the district court expressed the "tentative view that permitting a further amendment would substantially prejudice the individual defendants,"
This appeal followed.
A district court's ruling under Rule 15(a) that amendment would be futile "means that the complaint, as amended, would fail to state a claim upon which relief could be granted."
In performing this review, we, like the district court, confront a proposed complaint that covers 123 pages and features extensive single-spaced excerpts. D'Agostino devotes most of his pleading to establishing in excessive detail that the defendants said and did things that they knew were false or improper, and to critiquing the Onyx and Axium devices. At the same
A. Onyx Fraudulent Inducement Claims
D'Agostino's principal claim relating to the government's payment for the use of MTI's Onyx device rests on an allegation that MTI made three fraudulent representations to the FDA in seeking approval to market Onyx. Specifically, the defendants disclaimed uses for the device they later pursued, overstated the training they later provided, and omitted critical safety information about the molecule, including its failure in the Enteryx device. The FDA, however, made none of the payments at issue in this lawsuit. Rather, CMS made the payments by reimbursing physicians who performed procedures using Onyx and hospitals where such procedures took place. "FCA liability attaches to a `false or fraudulent claim for payment or approval' or to a `false record or statement material to a false or fraudulent claim.'"
We reject this argument because alleging that the fraudulent representations "could have" influenced the FDA to approve Onyx falls short of pleading a causal link between the representations made to the FDA and the payments made by CMS. If the representations did not
D'Agostino tries to rebut this conclusion by relying on the FCA's materiality standard. Under that standard, a representation made to secure a payment is material if it has "a natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). He reasons that as long as MTI's representations at issue "could have" influenced the FDA to grant approval, the representations were material.
This argument may well misconstrue the FCA's materiality standard. It is a "demanding" standard.
In any event, even if the alleged fraudulent representations were material as defined by the FCA, the elements of
The defect in D'Agostino's claim is not a mere flaw in the complaint's choice of words. In the six years since D'Agostino surfaced the alleged fraud, the FDA has apparently demanded neither recall nor relabeling of Onyx — this notwithstanding the agency's option to impose postapproval requirements, 21 C.F.R. § 814.82(a), its clear prerogative to suspend approval temporarily,
The FDA's failure actually to withdraw its approval of Onyx in the face of D'Agostino's allegations precludes D'Agostino from resting his claims on a contention that the FDA's approval was fraudulently obtained. 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. The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies' judgments about whether to rescind regulatory rulings.
The collateral effects of allowing juries in qui tam actions to find causation by determining the judgment of the FDA when the FDA itself has not spoken are akin to those practical effects that counsel in favor of not allowing state-law fraud-on-the-FDA claims.
Practical problems of proof also inform our conclusion. How would a relator prove that the FDA would not have granted approval but for the fraudulent representations made by the applicant? Would competing experts read someone's mind? Whose? What if former officials no longer in government were of one view, and current officials of another? These and similar questions all support our position that the absence of some official agency action confirming its position and judgment in accordance with the law renders D'Agostino's fraud-on-the-FDA theory futile.
The United States as amicus curiae agrees that D'Agostino's fraudulent inducement theory "necessarily asks whether [the] FDA would have made a different decision absent the fraud." The United States does request that we reject any reading of the district court's opinion as implying that a fraudulent inducement claim would not lie even if fraudulent representations "actually caused [the] FDA to approve or clear the device."
We do not read the district court's carefully crafted opinion that way. Its holding does not, in our view, hinge on rejecting or accepting the position of the United States, and neither does ours. Nor are we saying that the FCA is in this context preempted by the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301-399f. We hold only that causation is an element of the fraudulent inducement claims D'Agostino alleges and that the absence of official action by the FDA establishing such causation leaves a fatal gap in this particular proposed complaint. Certainly some official action by the FDA confirming that its approval was actually procured by the alleged fraudulent representations would fill that particular gap in the proposed complaint. Whether it would suffice to sustain the proposed complaint we need not decide.
We do recognize that, should a valid FCA claim exist if the FDA withdrew its approval for a product upon discovering fraud, our ruling today would pose a theoretical risk that the whistleblowing relator might be deprived of his or her bounty by a government intent on doing so. This is because the relator would need to alert the FDA — to secure withdrawal of approval — before the relator could allege causation. In theory, the government in such an instance might first file an FCA action itself, thereby arguably precluding the whistleblower from qualifying for a share of the recovery under 31 U.S.C. § 3730(d). As a practical matter, though, this risk is small, and it does not warrant eliminating causation as an element of the claim. As the United States notes, instances in which fraudulent representations "masked problems that are so serious that [the] FDA would have (for example) withheld or withdrawn its approval" are "likely rare." Moreover, if such a case actually arises, there is no logical reason why the government itself (in a case involving what the FDA finds to be the fraudulent procural of approval) would want to proceed in a manner that deprives the whistleblower of a bounty, thereby reducing the incentive for future potential whistleblowers aware of fraud on the FDA.
B. Onyx "Training Program" Claims
That leaves, with respect to Onyx, D'Agostino's theory that the defendants caused the submission of false claims by encouraging medically unnecessary and dangerous uses of Onyx by physicians who did not attend the training program offered by the defendants. Undergirding this theory is the fact that Medicare excludes from coverage claims involving procedures that "are not reasonable and necessary for the diagnosis or treatment of illness or injury." 42 U.S.C. § 1395y(a)(1)(A). D'Agostino's proposed complaint incorporates the statement of a neurosurgeon and leading Onyx user, who opines that it is never "medically reasonable or medically necessary for an untrained physician to use Onyx in procedure [sic] involving a live human being," as such use "creates an exceedingly dangerous situation for the patient." According to D'Agostino, the defendants therefore caused the submission of false claims by "fail[ing] to provide the physician training that the FDA required as a condition of approved usage, and subsequently induc[ing] those untrained doctors to use Onyx anyway." This theory, rather than targeting every Onyx claim, attacks the subset of claims seeking reimbursement for procedures performed by physicians whom the defendants did not train.
We evaluate the sufficiency of these allegations under Federal Rule of Civil Procedure 9(b), which provides that, "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). More precisely, Rule 9(b) requires a relator to allege with particularity the who, what, when, where, and how of the fraud.
Applying these rules, the district court found the proposed complaint's allegations insufficient, citing their failure to identify any specific false claim submitted to the government for reimbursement.
There are several problems with this line of reasoning. First, and most simply, while the FDA-approved label for Onyx does indeed restrict use to "physicians with neurointerventional training," and refers users to MTI "for information on training courses," it contains no requirement that the physician must obtain the training from MTI or ev3. Therefore, D'Agostino's allegation that the defendants did not train these two physicians falls materially short of alleging facts showing that they were not trained at all. And if they were indeed otherwise trained,
Additionally, even if we were to overlook this gap in the allegations, the assumption that physicians submitted claims for reimbursement merely because many of their patients in general were insured under government programs is faulty. The district court noted as much, explaining 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.
For each of these reasons, we agree with the district court that D'Agostino's "training program" version of his Onyx claim fails because it does not sufficiently allege the submission of a false claim nor does it advance a theory and facts that together create a "strong inference" that false claims were actually filed.
C. Axium Manufacturing Defect Claims
D'Agostino describes various alleged defects in the manufacture of Axium. Instead of identifying specific false claims to CMS involving Axium, the proposed complaint seeks to rely on what D'Agostino calls a "complete falsity" theory. This theory applies, he argues, when every device is defective,
This case presents no need to decide whether such a theory is tenable. The proposed complaint simply does not allege facts making it plausible that all Axium devices — or even most-were defective. It alleges only that "certain lots of Axium" contained manufacturing defects that caused the device to malfunction when the surgeon tried to use it. The proposed complaint does not give the number or percentage of Axium devices that suffered these manufacturing defects. It does identify by hospital, surgeon, date, and (sometimes) Axium generation and lot number a dozen or so surgeries during which the surgeon encountered difficulty or failure in trying to deploy the Axium coil. Only certain of those instances are said to involve defectively manufactured devices, and none are alleged to have resulted in any particular false claims paid by the government.
D. Axium Design Defect Claims
The proposed complaint also seeks to advance a design defect claim. To do so, it first asserts that Axium was modified and improved over time. It then calls "defective" all earlier versions of the device that predated such improvements. Even by their own conclusory terms, these allegations do not make all devices defective; for example, any device featuring the most recent modifications when sold would not be "defective." More importantly, we agree with the district court that 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 improvements.
None of the claims in D'Agostino's fourth amended complaint is adequately pled, so his request for leave to file that complaint was properly denied as futile.