First Circuit Affirms Ge, Holds The Line On Requiring FCA Claims To Be Pleaded With Particularity

We previously reported on the district court decision in United States ex rel. GE v. Takeda Pharmaceutical Co. Ltd., Case No. 10-cv-11043 (D. Mass, Nov. 1, 2012), in which a federal district court in Massachusetts dismissed a relator’s complaint on Rule 9(b) and 12(b)(6) grounds for failure to either plead specific false claims with particularity or to plead sufficiently that all claims submitted in violation of FDA requirements could be deemed false under an implied certification theory. On December 6, the First Circuit affirmed that dismissal, emphasizing that in cases in which a defendant is alleged to have caused third parties to submit false claims – for example, when a pharmaceutical manufacturer is alleged to have caused pharmacies to submit false claims – the relator must allege specific facts demonstrating that “false claims” were submitted; allegations of a fraudulent scheme are not sufficient. The Court’s opinion can be found here.

Relator Helen Ge, a former employee of the defendant manufacturer, alleged that her former employer misrepresented and misclassified adverse events for four of its products to avoid reporting them to the FDA. Had the adverse events been reported, Ge alleged, the FDA may have required amendments to the products’ approved labeling or additional entries in FDA databases that may have resulted in physicians disfavoring and decreasing prescription of the products. Furthermore, relator alleged, had the defendant reported the adverse events, the FDA may have withdrawn approval for the products, rendering all claims for reimbursement of the product ineligible for reimbursement under federal healthcare programs. The court dismissed the complaint under Rule 12(b)(6), holding that the relator could not prove that compliance with the FDA’s adverse event reporting requirements is a material precondition of payment under federal healthcare programs. The court explained that the FDA not only has the discretion to determine when to prosecute violations of adverse event reporting requirements, but also has a range of potential civil and criminal fines to impose when it decides to pursue violators, including withdrawal of the product’s approval, injunctive orders, monetary fines and imprisonment for individual defendants, and that not all of these potential remedies would lead to the denial of claims for the manufacturer’s drug. The court also held that the complaint did not satisfy Rule 9(b) because the relator produced only aggregate government expenditure data on the defendant’s drugs, rather than information about any specific false claims.

On appeal, the First Circuit affirmed the dismissal on 9(b) grounds. The Court began by affirming some basic principles: that “[r]elators are required to set forth with particularly the ‘who, what, when, where, and how’ of the alleged fraud,” and that there is no “relaxed” 9(b) pleading standard for FCA cases. The relator is also required to include allegations specific enough to demonstrate the existence of false claims. “In an qui tam action in which the defendant is alleged to have induced third parties to file false claims with the government,” the court explained, “a relator can satisfy this requirement by providing factual or statistical evidence to strengthen the inference of fraud beyond possibility without necessarily providing details as to each false claim.” Even accepting as true the allegations that the manufacturer engaged in “fraud on the FDA,” the court concluded, that was not a sufficient basis on which to infer the false claims were submitted. The court contrasted Ge’s allegations with those in another case in which the relator identified “eight specific medical providers who allegedly submitted false claims, plus rough time periods, locations, and amounts of the claims, and the specific government programs to which the claims were made” – detailed that were “just enough” to constitute a pleading of fraud with particularity.”

Notably, the First Circuit quoted with approval the Fourth Circuit’s January 2013 opinion in U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc. (which we reported about here), in which the Fourth Circuit held that evidence of specific false claims was required to satisfy Rule 9(b). The First Circuit’s citation to Nathan is significant because the relator in the Fourth Circuit case has filed a petition for a writ of certiorari from the Supreme Court, arguing in part that the standard set forth by the Fourth Circuit is more stringent than that required in other circuits – including the First Circuit. (A copy of the petition for writ of certiorari can be found here.) The Ge decision, including in particular the approving citation to the Fourth Circuit’s opinion in Nathan, suggests that the circuit split cited by the petitioners in Nathan is not as wide as suggested, and provides further support for the principle that relators should not be permitted to skirt Rule 9(b)’s stringent pleading requirements by arguing that the submission of false claims was an inevitable consequence of the defendant’s conduct.

Because it found the affirmed the dismissal of the complaint under Rule 9(b), the First Circuit did not rule on the district court’s alternative basis for dismissing the complaint under Rule 12(b)(6). Thus, the Court declined disturb (or affirm) the district court’s ruling that compliance with FDA post-marketing requirements, including timely adverse event reporting, could not support an FCA claim.