United States Ex. Rel. Kelly v. Novartis Pharmaceuticals Corp.
2016 U.S. App. LEXIS 11001
| 1st Cir. | 2016Background
- Relators Allison Kelly and Frank Garcia filed qui tam suits alleging Genentech and Novartis promoted Xolair off-label, paid kickbacks, encouraged falsified Statement of Medical Necessity (SMN) forms, and otherwise caused false claims to be submitted to federal/state healthcare programs.
- Garcia and Kelly originally filed a joint 2006 complaint; a separate 2010 complaint by Fauci and a sealed 2012 Kelly complaint followed. The government and several states declined to intervene in each action.
- Kelly was dismissed from the 2006 action without prejudice; she later filed the 2012 Kelly complaint that largely repeated allegations from the earlier filings. Relators sought to consolidate and amend into a joint complaint in 2014; the district court denied that motion.
- Defendants moved to dismiss; the district court dismissed the federal False Claims Act (FCA) claims in the 2006 Garcia and 2012 Kelly complaints with prejudice for failure to plead fraud with particularity under Fed. R. Civ. P. 9(b), and declined to exercise supplemental jurisdiction over state-law claims but then (erroneously) dismissed those state-law claims with prejudice.
- The First Circuit affirmed dismissal of the federal FCA claims with prejudice (finding Rule 9(b) deficiencies and futility of amendment) but vacated the dismissal of state-law claims with prejudice and remanded for dismissal without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the district court abuse discretion by denying leave to amend in 2014 without stating reasons on the record? | Denial was improper because court failed to state reasons contemporaneously. | Denial was supported by undue delay and futility; reasons apparent from record. | No abuse; denial upheld (reasons apparent from record: delay and futility). |
| Should the 2012 Kelly complaint be barred by FCA first-to-file rule? | Kelly argued her prior involvement in 2006 action removed bar. | Defendants contended 2012 complaint was a later, related action barred by § 3730(b)(5). | First-to-file bar applies; 2012 complaint should have been barred (but court addressed Rule 9(b) too). |
| Did the complaints satisfy Rule 9(b) particularity for FCA claims? | Relators claimed allegations (kickbacks, promotion, incentives) sufficiently infer submission of false claims. | Defendants argued pleadings lacked specific "who, what, where, when" tying conduct to actual false claims submitted to government. | Dismissal affirmed: complaints failed Rule 9(b); allegations speculative and lacked specifics tying alleged misconduct to reimbursed federal claims. |
| Were the state-law claims properly dismissed with prejudice after federal claims dismissed? | Relators argued state claims should be dismissed without prejudice when federal claims are dropped early. | Defendants read court's opinion as dismissing state claims on merits under Rule 9(b). | Reversed as to prejudice: district court relinquished supplemental jurisdiction and thus must dismiss state-law claims without prejudice. |
Key Cases Cited
- Foman v. Davis, 371 U.S. 178 (1962) (standards for granting leave to amend and reasons constituting denial)
- United States ex rel. Wilson v. Bristol-Myers Squibb, Inc., 750 F.3d 111 (1st Cir. 2014) (district court need not state reasons if record shows adequate basis for denial of amendment)
- United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13 (1st Cir. 2009) (Rule 9(b) flexible standard where third-party submits claims; need who/what/where/when tying kickbacks to specific false claims)
- United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 (1st Cir. 2007) (evidence of illegal conduct insufficient alone for FCA liability absent particularized link to false claims)
- United States ex rel. Ge v. Takeda Pharm. Co., Ltd., 737 F.3d 116 (1st Cir. 2013) (requirements for alleging specific providers, rough time periods, locations, amounts, and government programs)
- United States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1 (1st Cir. 2015) (dismissal under first-to-file normally without prejudice; interplay with jurisdictional posture)