Posted by Scott Stein and Joe Dosch
On August 7, 2014, the Eighth Circuit affirmed the dismissal of a qui tam False Claims Act suit, and in doing so offered helpful guidance regarding the proper application of the public disclosure bar (while highlighting an open issue regarding public disclosure). The court also addressed whether consideration of materials outside of the pleadings automatically requires the court to treat a motion to dismiss on public disclosure grounds as a motion for summary judgment.
Dr. Lonnie Paulos, the relator, alleged that Stryker Corporation and I-Flow Corporation caused false claims to be submitted to federal healthcare programs by fraudulently marketing and failing to disclose material information regarding their pain pump products. Paulos alleged that the defendants marketed pain pumps for placement in joint spaces, while failing to disclose information about the dangers of using pain pumps in joint spaces and falsely indicating that pain pumps were FDA-approved for use in joint spaces. Paulos further alleged that Stryker and I-Flow caused the submission of false claims by misleading healthcare providers about the use of pain pumps in joint spaces. Paulos alleged that he and another physician colleague were among the first to identify the dangers of placement of pain pumps in joint spaces, and that he warned one of the defendant manufacturers of the possible connection between placement of pain pumps in joint spaces and a painful condition called chondrolysis. The district court (Western District of Missouri) granted defendants’ motion to dismiss pursuant to 31 U.S.C. § 3730(e)(4)(A), agreeing that Paulos’ allegations had already been publicly disclosed in various studies and media reports, and that Paulos was not an “original source” of the information underlying his claims.
On appeal, Paulos contended that despite the numerous medical reports, FDA reports, and federal regulatory disclosures relating to the use of defendants’ pain pumps in joint spaces, those materials did not disclose certain of his specific allegations, such as that “surgeons were not being told that the devices could cause joint damage,” “surgeons were told the devices were approved for use,” and “the devices were being marketed off label.” Paulos attempted to distinguish these claims from the public disclosures by arguing that these allegations established defendants’ scienter. The Eighth Circuit rejected this argument, finding that the publicly disclosed reports did in fact “implicate the companies’ knowledge of the pain pumps’ connection to chondrolysis and the lack of FDA approval.”
The district court had agreed with Paulos that the public disclosures did not demonstrate that healthcare providers submitted claims involving the pain pumps to federal healthcare programs. Nevertheless, it concluded that Paulos’ allegations regarding the submission of false claims merely “add[ed] some color” and did not distinguish Paulos’ allegations from the public disclosures because “any doctor or hospital seeking payment from these federal programs would be submitting a false claim for payment.” The Eighth Circuit noted this aspect of the district court’s ruling, referencing its prior decision in U.S. ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186, 1188 (8th Cir. 2010) in which the court held that “a relator’s claim cannot be ‘based upon . . . public disclosure of allegations or transactions’ where the public disclosure fails to reveal ‘the false claims itself.'” However, because Paulos did not challenge that aspect of the district court’s reasoning, the Eighth Circuit expressly declined to consider whether Hixson remains good law.
Paulos also contended that he was an original source of the fraud allegations, because he had independent knowledge of the connection between pain pumps and chondrolysis, and he had firsthand knowledge of Stryker’s knowledge. Paulos focused on his assertion that he was among the first to identify the link between pain pumps and chondrolysis. However, the Eighth Circuit concluded that a relator is not an original source simply because he discovered or suspected the alleged fraud first. The court found that the key facts upon which Paulos’ claims were based were in fact disclosed in the prior public disclosures, and his personal knowledge about the link between pain pumps and chondrolysis failed to “materially add[ ] to the publicly disclosed allegations or transactions.” Paulos also argued that he materially added to the scienter allegations by pointing to his communications with a Stryker executive in 2005 raising concerns about the use of certain anesthetics in pain pumps. However, because these communications made no reference to the placement of pain pumps in joint spaces—the key issue in his complaint—the Court held that it did not materially add to the publicly disclosed allegations.
Finally, Paulos raised a procedural challenge to the district court’s ruling, arguing that the district court improperly considered materials outside the pleadings without converting the motion to a motion for summary judgment. The court rejected this argument on two grounds. First, the court noted that when ruling on a Rule 12(b)(6) motion to dismiss, the court “may [still] consider ‘matters incorporated by reference or integral to the claim, items subject to judicial notice, [and] matters of public record.” Furthermore, the court noted that because the FCA “requires a court to dismiss a claim based on public disclosure, a court necessarily considers the alleged public documents in its dismissal.” Accordingly the court rejected Paulos’ contention that the district court erred in failing to convert the motion to dismiss to one for summary judgment.
The Paulos decision provides useful guidance regarding the scope of the public disclosure bar. However, the decision leaves open the question of whether the public disclosure bar applies in the Eighth Circuit when the public disclosures do not explicitly disclose the false claims at issue. The decision also confirms that district courts may continue to consider public disclosure materials beyond the allegations of the complaint, without converting the motion into one for summary judgment.