United States: First Circuit Affirms Dismissal Of False Claims Act Case

Happy birthday to Stan Lee, the main man behind Marvel Comics. He wrote the stories for The Amazing Spider Man which, when we were 10 years old, we read with a good deal more enthusiasm than we presently feel when encountering the deathless prose in (a) a plaintiff motion to compel, or (b) pretty much any opinion out of the Missouri state courts. When we were at Comic Con in San Diego last Summer, the only autograph we wanted was Stan Lee's. But the line was indecently long. Hundreds of Thors, Daredevils, and X-men stood between us and the object of our adoration. We knew any hope of meeting our hero was pure fantasy. Anyway, if our friends at the Abnormal Use blog do not have a picture of a Marvel comic at the top of today's post, we will be very much disappointed.

Happy birthday, also, to Denzel Washington. Most of you probably know him from his movies, such as Glory, Malcolm X, Training Day, and, currently, Fences. But we first laid eyes on Washington when he appeared in the very fine television show, St. Elsewhere. That program was set in a Boston hospital. It ran from 1982 to 1988. Denzel Washington was in the cast all six years. The entire cast was superb, and the writing was inventive. It is possible that the ending of St. Elsewhere (cleverly titled "The Last One") was a little too inventive. It turned out that everything that happened in the series was the fantasy of an autistic child. To our eyes, it seemed a bit of a cheat. But maybe it was a commentary on art. Art is artifice. It is a lie in service of some bigger truth. It is a fine falsehood.

So fantasy and falsehood seem to be our themes for the day. Massachusetts has an interesting history of falsehoods in legal history. The Salem Witch trials had their origin in a silly girl's lies. It is easy to read the trial transcripts of the Sacco and Vanzetti trial, or the trial of Lizzy Borden, and conclude that great injustices were done. More recently, and more to the point for the sort of law we practice, the history of False Claim Act cases against drug and device companies in the Bay State has been inglorious. Cases have marched forward and cost companies many millions of dollars in the absence of any actual falsehoods. We are even more dismayed when we consider the overly aggressive and incoherent positions sometimes adopted by our former employer, the Department of Justice. But maybe, just maybe, courts in the Bay State are starting to exercise some control over, and impose reasonable limits on, False Claims Act cases.

That certainly seems to be the case with Hagerty ex rel. U.S. et al. v. Cyberonics, Inc., 2016 U.S. App. LEXIS 22405 (1st Cir. Dec. 16, 2016). Hagerty brought a qui tam action (hence the "ex rel.") alleging that the defendant had promoted medically unnecessary replacements of batteries in nerve stimulator medical devices. Those battery replacements, according to the plaintiff, resulted in patients and medical providers filing – ta da! – false claims for reimbursements from government health care programs. Such false claims supposedly added up to violations of the False Claims Act.

The first thing that occurs to us is that this case presents a classic case of damned-if-you-do/damned-if-you-don't. If any of those batteries wore down prior to replacement, you can be sure there would be a product liability action – maybe even one for wrongful death. We bet you've even heard of similar such cases. If you want to get hypertechnical, any replacement of a battery before it runs down is unnecessary. Or perhaps you could call it being careful. Whatever. Is this really a case of a false claim?

The second thing that occurs to us is that Hagerty is the second First Circuit case we have posted on this week that imposes limits on False Claims Act cases. It almost seems like a Christmas miracle. The two First Circuit decisions are like a pair of presents under the tree, occupying places of honor amidst the drone, ice bucket, Amazon Echo, Yankee candles, beer growler, and die cast 1/64 scale Aston Martin DB5 that Santa left for us.

The Hagerty trial court dismissed the case under Federal Rule of Civil Procedure 9(b), which requires that fraud claims be pleaded with specificity. Well, that makes sense. A claim under something called the False Claims Act must be alleging some sort of fraud. In Hagerty, after the plaintiff filed the qui tam case in February 2013, the government declined to intervene. (We would say that such declination reflects weakness on the merits, but every time we say something like that a plaintiff qui tam lawyer drops a comment or sends us a note telling us we're all wet.) Then the defendant in Hagerty filed a motion to dismiss, and the plaintiff responded by filing a First Amended Complaint ("FAC"). [Yes, the False Claims Act is commonly abbreviated as the "FCA," so we could refer in this post to the FCA FAC, but the spirit of the season moves us to be merciful.] The FAC accused the company of using "aggressive sales quotas" that inspired sales representatives to share inaccurate battery life calculations with doctors and to encourage premature battery replacements. The FAC projected that at least 10,000 batteries had been replaced prematurely, with a cost of $20,000 per procedure, with 50-60% of that cost being covered by government health programs. Did we mention that the plaintiff in Hagerty was a former company sales representative?

The trial court held that the FAC did not pass muster under Rule 9(b). There was no specificity about which medical providers submitted reimbursement claims, or how many reimbursement claims were submitted by which providers, or how exactly the defendant's actions caused the submissions. The court refused to infer that the defendant's actions generally "infected" reimbursement claims with fraud. There was no allegation of which specific patients were actually covered by government programs. Indeed, the FAC identified only one patient, but never alleged that the patient was an actual Medicare recipient. Fighting "an uphill battle," the plaintiff resorted to "statistical allegations." That is how the plaintiff ended up talking about 50-60% coverage. But the court concluded that the statistical approach was insufficient, amounting to nothing more than "insinuation." There is no doubt that the trial court's approach was rigorous. Remarkably, and wonderfully, the First Circuit completely affirmed the trial court's approach, and affirmed dismissal of the False Claims Act cause of action.

Now anyone with a tender heart and warm sympathies for plaintiff lawyers (so we're talking about somebody utterly unlike us), might grouse about this result. What more could the plaintiff lawyers do? Weren't they as specific as they could be? The answer is no, and that is proved by the plaintiff's own arguments, and that takes us to the second part of the First Circuit's opinion. The plaintiff eventually sought to amend his complaint yet again, so apparently his lawyers did manage to think up some additional allegations that might inject some specificity into the False Claims Act claim. But the trial court was unimpressed by the plaintiff's "listless approach toward amending his complaint," and denied the amendment on the grounds of undue delay. What was the delay? The FAC had been filed on May 29, 2014. The defendant moved to dismiss the FCA on June 18, 2014. No undue delay by the defendant, obviously. The court granted the defendant's motion on March 31, 2015. The plaintiff did not move for leave to file a second amended complaint until August 14, 2015. Put another way, the plaintiff tried to file a second amended complaint more than two and a half years after filing the qui tam lawsuit, more than 13 months after the defendant filed its motion to dismiss the FCA, and more than four months after the court granted the motion to dismiss. The plaintiff argued that the only period of alleged delay that mattered was the four months after the court's ruling, and that did not constitute undue delay.

Maybe we are jaded defense hacks, but four months does seem like rather a long time. But the First Circuit reasoned that the longer period of delay, starting from the filing of the motion to dismiss, was relevant. The motion put the plaintiff on notice of potential deficiencies, and "nothing prevented [the plaintiff] from moving for leave to plead any new information once he became aware of it." Accordingly, the First Circuit concluded that the plaintiff "did not meet his burden of providing a valid reason for his delay and that the district court did not abuse its discretion in denying his motion for leave to amend." There is a valuable practice pointer in the Hagerty case. When fashioning an argument of undue delay, you might be able to lengthen that delay by looking earlier in the timeline.

Moreover, the Hagerty opinion offers a more fundamental way out from pernicious False Claims Act cases. Plaintiffs should be required to allege actual falsehoods. They should be required to allege them with specificity. That specificity must include not only the who, what, where, and when, but also the how – the causative link between the alleged falsehoods and the government payments. Many False Claims Act cases will have real trouble meeting this standard. Those cases are not only meritless, they are fantasies.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions