Lead Opinion
Laurie Simpson appeals the dismissal of the qui tam action she brought against Bayer Healthcare under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. Simpson alleged Bayer defrauded the United States government through its marketing and sale of the cholesterol-lowering drug Baycol. She claimed Bayer fraudulently caused the government to make reimbursements for Baycol prescriptions through federal health insurance programs such as Medicare and Medicaid; she also claimed Bayer fraudulently induced the Department of Defense (DoD) to enter into two contracts for the purchase of Baycol. The district court dismissed Simpson’s claims, concluding she failed to plead fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. We affirm the dismissal relating to federal health insurance programs but reverse as to the DoD contract claims and remand for further proceedings.
I.
In early 1998, Bayer began marketing Baycol to compete with other cholesterol-lowering “cerivastatin” or “statin”
Laurie Simpson worked at Bayer from 1998 through 2004 as a manager of market research. While at Bayer, Simpson’s work involved marketing Baycol. In October 2006, relying in large part upon information to which she was privy during her
Part of Simpson’s initial lawsuit was dismissed for lack of jurisdiction on the grounds Simpson was not the original source of her allegations. See 31 U.S.C. § 3730(e)(4)(A) (indicating courts lack jurisdiction over an FCA claim unless the relator is “an original source of the information”). Some of her allegations — those involving payments the government made before October 2000 — were also dismissed because they were barred by the FCA’s six-year statute of limitations. The district court initially dismissed the remainder of Simpson’s suit without prejudice for failing to plead fraud with particularity, but gave Simpson a chance to cure the deficiencies by filing an amended complaint, which Simpson filed. This appeal concerns what was left of Simpson’s suit.
In this second amended complaint (SAC), Simpson alleged Bayer defrauded the government in two distinct respects. First, Simpson alleged Bayer fraudulently caused the government to make reimbursements for Baycol prescriptions through federal health insurance programs such as Medicare and Medicaid, asserting that “had the Government known the full truth [about Baycol] it would not have paid the [reimbursement] claims.” SAC at ¶ 266; Appellant’s App. at A-128. Simpson also alleged Bayer fraudulently induced the DoD to enter into two contracts for the purchase of Baycol to be prescribed to members of the armed services by physicians working at Military Treatment Facilities. We will first summarize Simpson’s allegations regarding the DoD contracts.
A. The DoD Contracts
The DoD reached an initial agreement with Bayer for the purchase of Baycol on October 1, 1999. The initial DoD contract called for Bayer to sell Baycol to the military for an 18-month term in three different dosages (0.2 mg, 0.3 mg, and 0.4 mg) at a price of $.30 per tablet. This initial contract had an estimated base value per year of $11,505,000, and provided the military with an option to renew for two separate one-year extensions. If the DoD exercised its option to renew, the per tablet price would increase to $.31 per tablet the first year (for an estimated base value of $11,888,500), and to $.32 per tablet the second year (for an estimated base value of $12,272,000). Id. at ¶ 72; Appellant’s App. at A-70.
After entering into the initial contract with Bayer, the DoD became concerned about the connection between rhabdomyolysis and Baycol, and contacted Bayer regarding those concerns. Simpson alleged that on November 10, 1999, Casimir Zygmunt, a Baycol representative at Bayer, responded to inquiries made by Lieutenant Commander Richerson, the DoD’s point of contact for the DoD Statin Award Implementation Plan, about Baycol’s safety with respect to the risk of rhabdomyolysis. Simpson alleged Zygmunt told the DoD there is “[n]o evidence to suggest Baycol causes more rhabdo then (sic) others — it is a class effect.” Id. at ¶ 107; Appellant’s App. at A-77. Simpson alleged this was “a false statement because Bayer did possess evidence at the time suggesting that Bay-col did cause more rhabdomyolysis than other statins.” Id. (Emphasis in original).
Paragraphs 108 through 120 of the SAC further describe the contacts between Bayer and the DoD over the latter’s concern
On January 20, 2001, the DoD renewed the original contract with Bayer and extended the period of performance from February 20, 2001, through February 19, 2002, for an estimated dollar value of $11,888,500.
Simpson alleged the January 2001 contract extension and the February 2001 BPA were fraudulently induced by the false statements Bayer made about Bay-col’s effectiveness and connection to rhabdomyolysis. Simpson alleged that “[i]f the DoD and other prescribers had known the truth (which DoD attempted to discover on multiple occasions), then it is unlikely the DoD would have entered into the contract with Bayer or would have extended the contract.” Id. at ¶ 123; Appellant’s App. at A-82.
Finally, as relevant to the January 2001 contract extension and February 2001 BPA, Simpson alleged that “[a]ccording to the DoD PEC [Pharmacoeconomic Center], there were approximately 400,000 Baycol prescriptions filled in MTFs [Military Treatment Facilities] during the period commencing October 2000 to the withdrawal of Baycol from the market [in August 2001].” Id. at ¶244; Appellant’s App. at A-123. Simpson also alleged that “[f]rom October 2000 through the time of the withdrawal of Baycol from the market in August 2001, government agencies, under various contracts with Bayer for the supply of Baycol, including the DoD ... paid Bayer at least $11,983,305.08 for their supplies of Baycol.” Id. at ¶243. In other words, Simpson alleged Baycol was used by members of the armed services after Bayer allegedly fraudulently induced the DoD to enter into the January 2001 contract extension and February 2001 BPA, and further alleged the government made payments to Bayer pursuant to the allegedly fraudulently induced DoD contracts.
B. Federal Health Insurance Reimbursements
We next summarize Simpson’s allegations regarding federal health insurance reimbursements. Simpson’s SAC focused on a number of aspects of the manner in which Bayer generally marketed Baycol. Simpson alleged Bayer made false statements about Baycol’s efficacy in lowering cholesterol when it introduced the drug into the general marketplace. Simpson further alleged Bayer misrepresented the risks of adverse side effects associated with Baycol. Simpson also alleged Bayer used illegal kickbacks to physicians to induce them to begin prescribing Baycol or to increase their prescriptions of Baycol.
Finally, as significant for purposes of this appeal, Simpson then alleged the gen
C. The Motion to Dismiss
Bayer moved to dismiss Simpson’s SAC under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Bayer contended in relevant part that Simpson’s allegations were deficient because she did not include representative examples of false claims submitted for payment to the government. Bayer argued the particularity requirements of Rule 9(b) require a relator to allege representative false claims in order to survive a motion to dismiss, citing this court’s decisions in United States ex rel. Vigil v. Nelnet, Inc.,
II
We apply de novo review to a district court’s decision to dismiss a complaint under Rules 9(b) or 12(b)(6) of the Federal Rules of Civil Procedure. Summerhill v. Terminix, Inc.,
Originally enacted in response to “unscrupulous Civil War defense contractors,” Minn. Ass’n of Nurse Anesthetists v. Allina Health Sys. Corp.,
The FCA “is not concerned with regulatory noncompliance,” but with false or fraudulent claims that cause the government to pay money. Vigil,
The FCA generally “attaches liability, not to the underlying fraudulent activity, but to the claim for payment.” Costner v. URS Consultants, Inc.,
With these general principles in mind, we turn to the two distinct theories of “false claims” Simpson alleged in her SAC — those involving the DoD contracts and those involving government reimbursements under federal health insurance programs.
A. The DoD Contracts
Simpson’s SAC alleged that Bayer fraudulently induced the DoD to enter into the January 2001 contract extension, and the February 2001 BPA for 0.8 mg tablets of Baycol, by making allegedly false representations about Baycol’s safety with respect to the risk of rhabdomyolysis.
In granting Bayer’s motion to dismiss, the district court applied the same analysis to both the allegations involving the fraudulently-induced DoD contracts and the allegations involving the federal health insurance reimbursements. In part, the district court concluded Simpson’s allegations were insufficient on both claims because she did not tie her allegations of Bayer’s fraud to specific fraudulent claims for payment submitted to the government. The district court reasoned:
[T]he fact that a patient covered by a federal or state funded health care program was prescribed Baycol to lower his/her cholesterol is not, in and of itself, false or fraudulent.... A claim under the FCA focuses on the claims, not the underlying fraudulent activity. Because there are no allegations in the SAC that a claim submitted to the government for payment for Baycol, was — in and of itself — fraudulent or false, [Simpson] has failed to sufficiently plead a claim under the FCA.
In re Baycol Prods. Litig., No. 08-5758,
The Supreme Court first recognized fraud-in-the-indueement as a viable theory of FCA liability in 1943 in United States ex rel. Marcus v. Hess,
This fraud did not spend itself with the execution of the contract. Its taint entered into every swollen estimate which was the basic cause for payment of every dollar paid by the [government].... The initial fraudulent action and every step thereafter taken, pressed ever to the ultimate goal — payment of government money to persons who had caused it to be defrauded.
Id. at 543-44,
The legislative history of the FCA also supports the conclusion that fraud-in-theindueement is a recognized theory of liability under the Act. “Specifically, [in amending the FCA in 1986,] Congress noted that, under FCA case law, ‘each and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation, constitutes a false claim.’ ” United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc.,
Thus, when a relator alleges liability under a theory of fraud-in-the inducement, claims for payment subsequently submitted under a contract initially induced by fraud do not have to be false or fraudulent in and of themselves in order to state a cause of action under the FCA. See, e.g., United States ex rel. Harrison v. Westinghouse Savannah River Co.,
Based upon our review of Simpson’s allegations regarding the DoD contracts, we conclude her complaint sufficiently “identifies] the ‘who, what, where, when, and how1 of the alleged fraud,” Joshi,
In addition, Simpson connected her allegations regarding the alleged fraud to the January 2001 contract extension and the February 2001 BPA and alleged that “[i]f the DoD and other preseribers had known the truth (which DoD attempted to discover on multiple occasions), then it is unlikely the DoD would have entered into the contract with Bayer or would have extended the contract.” Finally, Simpson’s complaint alleges the government made payments to Bayer under the allegedly fraudulently induced contracts, claiming there were approximately 400,000 Baycol prescriptions filled in Military Treatment Facilities between October 2000 and the withdrawal of Baycol from the market in August 2001, and the government paid Bayer at least $11,983,305.08 for their supplies of Baycol during that same time period.
We fail to see how these allegations are insufficient to state a claim for relief under a theory of fraud-in-the-inducement. We therefore reverse the district court with respect to the allegations regarding the DoD contracts, and remand for further proceedings consistent with this opinion.
B. The Federal Health Insurance Reimbursements
Unlike the DoD contracts we have just discussed, there is no direct contractual relationship between the government and Bayer with respect to Simpson’s allegations regarding reimbursements under federal health insurance programs. Thus, Simpson’s reimbursement claims do not involve an allegedly fraudulently-induced contract where claims for payment subsequently submitted under a government contract initially induced by fraud do not
With respect to these reimbursement claims, the district court noted Simpson’s SAC failed to identify any specific false claims submitted by Bayer to the government and explained that cases “decided by the Eighth Circuit post-JosM reaffirm this Court’s previous finding that particularized allegations of representative false claims are required to properly assert a claim under the FCA.” In re Baycol,
The district court also compared Simpson’s SAC to the complaint found deficient in Roop,
The district court said Simpson’s SAC was similarly deficient because she merely “asserts that had the government known of Bayer’s misrepresentations and omissions concerning the risks associated with Baycol, the government would not have paid any claims submitted under ... federal and state health insurance programs.” In re Baycol,
With respect to Simpson’s federal health insurance reimbursement claims, we agree with the district court that the pleadings in Simpson’s SAC were inadequate to state a cause of action under the FCA because she did not include at least some representative examples of false claims with respect to Bayer’s alleged scheme involving federal health insurance reimbursements, or
In Vigil, we said “[w]ithout sufficient allegations of materially false claims, an FCA complaint fails to state a claim on which relief may be granted.”
to satisfy Rule 9(b)’s particularity requirement and to enable St. Luke’s and Dr. Bashiti to respond specifically to Dr. Joshi’s allegations, Dr. Joshi must provide some representative examples of their alleged fraudulent conduct, specifying the time, place, and content of their acts and the identity of the actors. Dr. Joshi’s complaint is void of a single, specific instance of fraud, much less any representative examples. Thus, the district court properly dismissed Dr. Joshi’s complaint for failure to comply with Rule 9(b).
Id. at 557. (Emphasis in original).
Finally, in Roop we dealt with allegations similar to the fraudulent scheme alleged by Simpson because the case involved a defendant who — by manufacturing and marketing a defective medical product — allegedly caused third parties to submit false Medicare reimbursement claims to the government.
The proposed First Amended Complaint did not plead with particularity the details of any false Medicare reimbursement claim presented to, or paid by, the United States or its agent. Nor did it allege with particularity how any product defect or failure to submit MDR7 reports to the FDA was material to— that is, ‘capable of influencing’ — the government’s decisions to pay countless unidentified Medicare reimbursement claims submitted by Hypoguard distributors. The conclusory allegation that unidentified government agents ‘would not have reimbursed through Medicare individuals submitting claims [for Hypo-guard systems] if [they] had known of the defects and failure to comply with*880 the rules and regulations of the FDA’ does not comply with Rule 9(b).
Id. at 824-25 (internal citations omitted).
We conclude this case is controlled by our decisions in Joshi and Roop. Simpson alleged that all federal health insurance reimbursement claims submitted by third parties to the government for Baycol prescriptions were false or fraudulent because of the misleading and deceptive manner in which Bayer marketed Baycol. She did not, however, plead at least some representative examples of actual reimbursement claims submitted to the government pursuant to the underlying allegedly fraudulent marketing scheme, or establish how such reimbursement claims were false in and of themselves. Instead, she relied upon a general allegation that the government would not have paid any of the reimbursement claims submitted under the federal health insurance programs had it known of Bayer’s underlying allegedly fraudulent marketing scheme. We conclude this allegation is indistinguishable, for all material purposes, from the allegation we found lacking in Roop. We therefore affirm the district court with respect to the allegations involving federal health insurance reimbursement claims.
Ill
We affirm the district court’s dismissal of the claims relating to the federal health insurance reimbursements. We reverse the district court’s dismissal of the claims involving the DoD contracts, and remand this case for further proceedings consistent with this opinion.
Notes
. Statins are a class of drugs which inhibit HMG-CoA reductase, an enzyme that plays a central role in the production of cholesterol in the liver.
. The contract extension slightly modified the terms of the original contract, because the original contract was supposed to expire on March 31, 2001, not February 20, 2001.
. Congress renumbered and amended § 3729(a) in response to the Supreme Court’s
. Bayer argues Simpson's SAC did not plead a claim of fraudulent inducement because she did not use the label “fraud-in-the inducement” in the complaint. We are not concerned, however, with the labels a party attaches to a claim. Instead, we focus on the substance of the underlying factual allegations. See Mut. Creamery Ins. Co. v. Iowa Nat’l Mut. Ins. Co.,
. We note the temporal relationship between Simpson's allegations and the two DoD contracts at issue is not a perfect fit. The SAC focused on the approximate ten-month period between the running of the statute of limitations in October 2000 and the withdrawal of Baycol from the market in August 2001, rather than the approximate seven-month period between the effective dates of the two DoD contracts and the withdrawal of Baycol from the market. It would be unreasonable to infer, however, that all 400,000 prescriptions described in the SAC were filled prior to the effective dates of the two DoD contracts in early 2001, and that no prescriptions were filled thereafter until the withdrawal of Bay-col from the market in August 2001. Likewise, it would be unreasonable to infer that all the government payments Simpson alleges took place in the ten-month period between October 2000 and August 2001 were made prior to the effective dates of the two DoD contracts, and that no funds were paid by the government after the contracts became effecfive. Thus, the SAC still clearly alleges Bay-col prescriptions were filled at Military Treatment Facilities after the two contracts became effective, and that the government made payments to Bayer pursuant to the contracts. The lack of a perfect fit between the specific amounts alleged in the SAC and the effective dates of the DoD contracts is not fatal to the question whether Simpson stated a claim for relief.
. On appeal, Bayer urges us to affirm the district court's dismissal of the allegations involving the DoD contracts on a number of alternative grounds that have not yet been addressed by the district court. We believe it more prudent to allow the district court to address those issues in the first instance. See, e.g., Lafarge North Am., Inc. v. Discovery Grp. L.L.C.,
. Medical Device Reporting.
. Simpson also appeals the district court's refusal to give her another chance to amend her complaint to state an actionable claim with respect to the federal health insurance reimbursement claims. We conclude the district court did not abuse its discretion in denying the request, because Simpson failed to provide the district court with a copy of her proposed third amended complaint, as required by Local Rule 15.1 of the District of Minnesota. See Drobnak v. Andersen Corp.,
Concurrence Opinion
concurring in part and dissenting in part.
I concur in the court’s cogent description of this dispute and its procedural history. I join Part II.B. of its opinion, which affirms the dismissal of relator’s FCA claims relating to federal health insurance reimbursements. In Part H.A., I agree with the conclusions that relator sufficiently pleaded fraud in the inducement of the 2001 DoD contracts, and that fraud in the inducement is “a viable theory of FCA liability” established by the Supreme Court’s decision in United States ex rel. Marcus v. Hess,
It is hornbook law that, to warrant recovery of damages for fraud in the inducement, “it must appear, not only that injury has been suffered, but that the fraud complained of was the proximate cause of the injury.” Boatmen’s Nat’l Co. v. M.W. Elkins & Co.,
The court ends its truncated analysis of this factor with the Supreme Court’s ruling in Hess that the “taint [of fraudulent inducement] entered into every swollen estimate which was the basic cause for payment of every dollar paid.” Supra p. 876, quoting
By contrast, the fraud in the inducement alleged by Simpson — failing to disclose a known risk to patients prescribed Baycol' — • did not necessarily have the effect of increasing the amounts paid for reimbursement of claims submitted under the DoD contracts. The only damage allegation relating to the DoD contracts in Simpson’s 92-page Second Amended Complaint was that “the Government paid money to Bayer for a drug that it would not have purchased had it known the full truth.” But that was harm resulting from the underlying fraud, not a plausible allegation that the government was harmed by paying false claims under the DoD contracts. With or without the contracts at issue, DoD physicians would have prescribed statin drugs to military personnel who needed to lower their cholesterol. There is no allegation that DoD paid more for Baycol than it would have paid for a different statin. There is no allegation that the government paid damages to DoD patients who were prescribed Baycol and developed rhabdomyolysis. For this reason, Simpson failed to state a plausible FCA claim simply by alleging fraud in the inducement. To plead this alleged fraud with the partic
An FCA relator such as Simpson has Article III standing only because Congress in the FCA partially assigned the government’s damage claim for the “injury in fact” allegedly suffered when it pays a false claim. Vermont Agency of Natural Res. v. United States ex rel. Stevens,