Government Amicus Brief Urges First Circuit to Uphold Viability of Fraud-on-the-FDA Theory

DOJ recently filed an amicus brief urging the First Circuit to revive a suit premised on the contention that an agency would have acted differently had it known of defendant’s fraud.  See Brief for the United States as Amicus Curiae Supporting Neither Party, United States ex rel. D’Agostino v. ev3, Inc., No. 16-1126 (1st Cir. 2016).  The government warns the First Circuit that adopting the district court’s reasoning in dismissing a “fraud-on-the-FDA” theory of liability would have wide-ranging consequences and “categorically foreclose claims that involve federal agency oversight of a defendant’s conduct.”  Although courts generally agree that mere regulatory violations, standing alone, cannot serve as the predicate for FCA liability, relators often try to leverage so-called “fraud-in-the-inducement” theories (discussed further here) to repackage regulatory violations into ostensibly valid FCA claims.  DOJ has so far suffered losses when advocating for a similar theory of liability in the context of FCA claims based on violations of current Good Manufacturing Practices (“cGMP”) (as discussed here and here), and DOJ’s latest effort to protect FCA liability where it touches on FDA’s discretionary decisions could have broad impact on cases alleging fraud within the context of agency enforcement.  In addition, the effort by DOJ here to recast off-label promotion as a “fraud-on-the-FDA” also appears part of an evolving effort to maintain the viability of off-label claims in the face of growing judicial refusal to sanction off-label promotion as the predicate for FCA liability.

DOJ focuses its arguments on the district court’s dismissal under Rule 12(b)(6) of relator’s “fraud-on-the-FDA” and “defective device” theories.  According to the former, defendant device manufacturer deliberately sought a narrow indication for one of its devices while concealing plans to market the device for broader uses.  This alleged fraud induced FDA to approve the device, rendering resulting requests for reimbursement false.  Defendant also supposedly did not submit accurate adverse event reports, and the relator claimed FDA would have either recalled the two affected devices or restricted their approved uses had it been aware of the full extent of adverse events occurring.  Under the related “defective device” theory, CMS would not have paid for allegedly defective devices sold by defendant if CMS had known about the defects.  In dismissing these claims, the district court focused on the “fraud-on-the-FDA” theory and, according to DOJ, rejected it under the view that “FCA actions are barred if they implicate ‘discretionary decisions taken by the FDA in the area of competence delegated to it by Congress.’”

DOJ emphasizes that “authority and expertise of an agency to make decisions” cannot be “a categorical bar to FCA liability.”  First, from a policy perspective, DOJ maintains that the district court’s rationale “would dramatically undermine FCA enforcement” because fraud commonly influences a broad swath of agency decisions.  Second, DOJ insists that a plain reading of the FCA is inconsistent with the district court’s dismissal.  The FCA “provides no exemption from liability simply because there may be a parallel, agency-specific mechanism for uncovering or addressing fraud” and under the government’s view, creating an exemption conflicts with traditional canons of statutory interpretation.

Countering the district court, DOJ argues that claims for payment that are not facially false (either expressly or through an implied false certification) can nonetheless give rise to FCA liability because subsequent claims are tainted by a defendant’s earlier fraud on the agency.  Applying this proposition, DOJ argues that where a “defendant’s false statements masked problems that are so serious that FDA would have (for example) withheld or withdrawn its approval of the medical device had it known the truth, subsequent claims relating to that device could be rendered ‘false or fraudulent’ because the government would not have paid the claims but for the defendant’s fraud.”  Although DOJ acknowledges that “merely demonstrating lack of compliance with FDA procedures, or with the Federal Food, Drug, and Cosmetic Act, is insufficient to establish FCA liability,” DOJ insists that some fraud on the FDA will have a sufficiently strong nexus to future claims for payment.  DOJ proposes that at the very least, FCA liability can occur where defendant’s fraud leads to a device “qualify[ing] or remain[ing] qualified for” reimbursement, and this consequence is the “natural, foreseeable, and intended reason for the defendant’s conduct.”

Yet engaging in such a game of predicting FDA’s “institutional response” to regulatory shortcomings is precisely the task district courts have characterized themselves as “ill-equipped” to engage in when presented with alleged cGMP violations (as discussed here).  DOJ’s request to the First Circuit is ultimately a relatively narrow one—to reverse what the government perceives as a blanket bar on FCA liability where the allegations implicate agency decision-making.  Where the line of viable liability should be drawn remains an open question and we will continue to monitor developments.

A copy of the government’s brief can be found here.