Opinion ID: 4110875
Heading Depth: 2
Heading Rank: 1

Heading: Onyx Fraudulent Inducement Claims

Text: D'Agostino's principal claim relating to the government's payment for the use of MTI's Onyx device rests on an allegation that MTI made three fraudulent representations to the FDA in seeking approval to market Onyx. Specifically, the defendants disclaimed uses for the device they later pursued, overstated the training they later provided, and omitted critical safety information about the molecule, including its failure in the Enteryx device. The FDA, however, made none of the payments at issue in this lawsuit. Rather, CMS made the payments by reimbursing physicians who performed procedures using Onyx and hospitals where such procedures took place. FCA liability attaches to a 'false or fraudulent claim for payment or approval' or to a 'false record or statement material to a false or fraudulent claim.' United States ex rel. Kelly v. Novartis Pharm. Corp., 827 F.3d 5, 14 (1st Cir. 2016) (quoting 31 U.S.C. - 12 - § 3729(a)(1)(A)–(B)). To link those CMS payments to the fraudulent representations allegedly made to the FDA, D'Agostino notes that FDA approval is a precondition to CMS reimbursement for use of a medical device, and argues that the fraudulent representations allegedly made by MTI to the FDA could have influenced the FDA to grant that approval. We reject this argument because alleging that the fraudulent representations could have influenced the FDA to approve Onyx falls short of pleading a causal link between the representations made to the FDA and the payments made by CMS. If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, CMS would still have paid the claims. In this respect, D'Agostino's fraudulent inducement theory is like a kick shot in billiards where the cue ball could have but did not in fact bounce off the rail, much less hit the targeted ball. D'Agostino tries to rebut this conclusion by relying on the FCA's materiality standard. Under that standard, a representation made to secure a payment is material if it has a natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or property. 31 U.S.C. § 3729(b)(4). He reasons that as long as MTI's representations at issue could have influenced the FDA to grant approval, the representations were material. - 13 - This argument may well misconstrue the FCA's materiality standard. It is a demanding standard. Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2003 (2016). Moreover, the FCA requires that the fraudulent representation be material to the government's payment decision itself. Id. at 2002–04. The fact that CMS has not denied reimbursement for Onyx in the wake of D'Agostino's allegations casts serious doubt on the materiality of the fraudulent representations that D'Agostino alleges. Id. at 2003–04 ([I]f the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.). In any event, even if the alleged fraudulent representations were material as defined by the FCA, the elements of D'Agostino's fraudulent inducement claims include not just materiality but also causation; the defendant's conduct must cause the government to make a payment or to forfeit money owed. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d 1, 18 (D.D.C. 2015) (holding that a plaintiff asserting fraudulent inducement claims must demonstrate not only that the omitted information was material but also that the government was induced by, or relied on, the fraudulent statement or omission (quoting United States ex rel. Thomas v. Siemens AG, 991 F. Supp. 2d 540, 569 (E.D. Pa. 2014))), reconsideration granted - 14 - in part on other grounds sub nom. United States v. Second Chance Body Armor Inc., No. 04-CV-280, 2016 WL 3033937 (D.D.C. Feb. 11, 2016); see also, e.g., United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir. 2005) (The [FCA] requires a causal rather than a temporal connection between fraud and payment.). See generally 1 John T. Boese, Civil False Claims and Qui Tam Actions §§ 2.01[A][3], 2.05 (4th ed. 2016). If the FDA would have approved Onyx notwithstanding the alleged fraudulent representations, then the connection between those representations to the FDA and a payment by CMS relying on FDA approval disappears. The defect in D'Agostino's claim is not a mere flaw in the complaint's choice of words. In the six years since D'Agostino surfaced the alleged fraud, the FDA has apparently demanded neither recall nor relabeling of Onyx--this notwithstanding the agency's option to impose postapproval requirements, 21 C.F.R. § 814.82(a), its clear prerogative to suspend approval temporarily, id. § 814.47(a), and its broad authority to withdraw approval, id. § 814.46(a). In particular, when the FDA concludes that it has been misled because an application contained or was accompanied by an untrue statement of a material fact, it can commence an informal hearing and withdraw its approval allowing the marketing of a device. See 21 U.S.C. § 360e(e). In such an instance, it acts with the benefit, where appropriate, of advice - 15 - on scientific matters from a panel or panels [of experts] under section 360c. Id. The FDA's failure actually to withdraw its approval of Onyx in the face of D'Agostino's allegations precludes D'Agostino from resting his claims on a contention that the FDA's approval was fraudulently obtained. To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so. The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies' judgments about whether to rescind regulatory rulings. See D'Agostino, 153 F. Supp. 3d at 539 (Surely, where the FDA was authorized to render the expert decision on . . . use and labeling, it, and not some jury or judge, is best suited to determine the factual issues and what their effect would have been on its original conclusions. (quoting King v. Collagen Corp., 983 F.2d 1130, 1140 (1st Cir. 1993) (Aldrich, J., concurring))). The collateral effects of allowing juries in qui tam actions to find causation by determining the judgment of the FDA when the FDA itself has not spoken are akin to those practical effects that counsel in favor of not allowing state-law fraud-onthe-FDA claims. See Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 349–51 (2001). If jurors in a single qui tam case could - 16 - determine precisely what representations were essential to approval, which experts to believe, and how the FDA interpreted submissions made to it, some potential applicants who would otherwise seek approval for new products might be deterred, others might swamp the FDA with more data than it wants, and the FDA's responsibility to police fraud consistently with the Administration's judgment and objectives might be undercut. Id. at 350. Practical problems of proof also inform our conclusion. How would a relator prove that the FDA would not have granted approval but for the fraudulent representations made by the applicant? Would competing experts read someone's mind? Whose? What if former officials no longer in government were of one view, and current officials of another? These and similar questions all support our position that the absence of some official agency action confirming its position and judgment in accordance with the law renders D'Agostino's fraud-on-the-FDA theory futile. The United States as amicus curiae agrees that D'Agostino's fraudulent inducement theory necessarily asks whether [the] FDA would have made a different decision absent the fraud. The United States does request that we reject any reading of the district court's opinion as implying that a fraudulent inducement claim would not lie even if fraudulent representations actually caused [the] FDA to approve or clear the device. - 17 - We do not read the district court's carefully crafted opinion that way. Its holding does not, in our view, hinge on rejecting or accepting the position of the United States, and neither does ours. Nor are we saying that the FCA is in this context preempted by the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301–399f. We hold only that causation is an element of the fraudulent inducement claims D'Agostino alleges and that the absence of official action by the FDA establishing such causation leaves a fatal gap in this particular proposed complaint. Certainly some official action by the FDA confirming that its approval was actually procured by the alleged fraudulent representations would fill that particular gap in the proposed complaint. Whether it would suffice to sustain the proposed complaint we need not decide. We do recognize that, should a valid FCA claim exist if the FDA withdrew its approval for a product upon discovering fraud, our ruling today would pose a theoretical risk that the whistleblowing relator might be deprived of his or her bounty by a government intent on doing so. This is because the relator would need to alert the FDA--to secure withdrawal of approval--before the relator could allege causation. In theory, the government in such an instance might first file an FCA action itself, thereby arguably precluding the whistleblower from qualifying for a share of the recovery under 31 U.S.C. § 3730(d). As a practical matter, - 18 - though, this risk is small, and it does not warrant eliminating causation as an element of the claim. As the United States notes, instances in which fraudulent representations masked problems that are so serious that [the] FDA would have (for example) withheld or withdrawn its approval are likely rare. Moreover, if such a case actually arises, there is no logical reason why the government itself (in a case involving what the FDA finds to be the fraudulent procural of approval) would want to proceed in a manner that deprives the whistleblower of a bounty, thereby reducing the incentive for future potential whistleblowers aware of fraud on the FDA.4 In any event, the FDA approved Onyx, and has never withdrawn that approval. D'Agostino therefore cannot establish a causal link between the alleged fraudulent representations made to the FDA and the payment of claims for reimbursement by the government.