25 August 2021

Finding No Materiality, Court Grants Summary Judgment for Defense in Fraudulent Inducement Case

On August 12, 2021, the United States District Court for the District of Minnesota granted Boston Scientific Corporation’s (BSC) motion for summary judgment in relator Stephen Higgins’s declined qui tam, which alleged that BSC had fraudulently induced the Food and Drug Administration (FDA) to approve two types of defibrillators that the FDA later recalled.

The relator raised three theories of liability.  First, BSC caused providers to submit claims for defibrillators and services that were not medically reasonable or necessary.  Second, BSC caused providers to submit claims for defective and misbranded defibrillators.  Third, “BSC fraudulently induced FDA approval of the [defibrillators] (and continued to defraud the FDA following the initial approval).”  Explaining that liability in FCA suits attaches not to the underlying fraudulent activity, but to the claim for payment, the court determined that the relator’s claims all hinged on his ability to prove that BSC caused providers to submit false claims.  And because the relator aimed to satisfy the causation element by proving that BSC fraudulently induced FDA’s approval of the devices, all his “theories depend[ed] upon proving causation by way of fraudulent inducement.”

To be successful, relator’s fraudulent inducement theory required evidence that BSC made false statements that were material either to FDA’s initial decision to approve the defibrillators or to its continued approval of those defibrillators.

First, the court considered the FDA’s initial approval.  The court determined that the relator had shown “fact issues with respect to four alleged misrepresentations,” all concerning statements or omissions to the FDA on clinical issues with the defibrillators.  The court, however, rejected the relator’s claim that BSC had misrepresented by omission certain adverse events.  The relator argued that though the adverse events were included in a report to FDA, they were effectively omitted because they were “buried” in an appendix.  The court explained that the “buried facts doctrine” applies in securities cases, but not here, because “the FDA is a regulatory agency that specializes in reviewing clinical observations related to medical devices. It is thus far different from a shareholder, whom the buried facts doctrine was designed to protect.”

The court then assessed whether the misrepresentations, if they occurred, were material.  To prove materiality, the court explained, the relator needed to show that the FDA would not have approved the devices had it known about any of the four misrepresentations alleged.  But the court concluded that the FDA was aware of the information at issue in three of the four alleged misrepresentations prior to the defibrillators’ initial approval, a fact fatal to relator’s case.  The court cited the Supreme Court’s statement in Escobar that “if the Government pays a particular claim in full despite actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”  Such very strong evidence, the court continued, “becomes compelling when an agency armed with robust investigatory power to protect public health and safety is told what Relators have to say, yet sees no reason to change its position.”  The relator failed to present evidence that the remaining alleged misrepresentation was, by itself, so important to the FDA that it would have altered the initial approval decision.

Second, the court considered two alleged omissions made in securing continued FDA approval for the defibrillators.  But the FDA was also aware of the information allegedly omitted and did not conclude that BSC had committed a regulatory violation.  As a result, the court again determined that these supposed omissions could not be material.  The case underscores the important role government knowledge continues to play in judicial assessments of materiality.

A concurrence in a recent D.C. Circuit Court of Appeals case encouraged the Supreme Court to reconsider the viability of the fraudulent inducement theory. See our post on that case here.

The court’s opinion can be found here.

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