Court Opinion

ID: 4101164
Source: CourtListenerOpinion
Date Created: 2016-11-22 20:00:47.171547+00
Date Added: 2024-06-11T07:45:48.879748
License: Public Domain

United States Court of Appeals
                       For the First Circuit

No. 16-1382

    PETER P. LAWTON, ex rel. UNITED STATES OF AMERICA; and THE
     STATES OF CALIFORNIA, COLORADO, CONNECTICUT, DISTRICT OF
  COLUMBIA, DELAWARE, FLORIDA, GEORGIA, HAWAII, IOWA, ILLINOIS,
      INDIANA, LOUISIANA, MASSACHUSETTS, MARYLAND, MICHIGAN,
   MINNESOTA, MONTANA, NORTH CAROLINA, NEW JERSEY, NEW MEXICO,
   NEVADA, NEW YORK, OKLAHOMA, RHODE ISLAND, TENNESSEE, TEXAS,
                 VIRGINIA, WASHINGTON, WISCONSIN,

                      Plaintiffs, Appellants,

                                 v.

   TAKEDA PHARMACEUTICAL COMPANY, LTD.; TAKEDA PHARMACEUTICALS
 U.S.A., INC., f/k/a Takeda Pharmaceuticals North America, Inc.;
  TAKEDA PHARMACEUTICALS INTERNATIONAL INC.; TAKEDA DEVELOPMENT
      CENTER AMERICAS, INC., f/k/a Takeda Global Research &
         Development Center Inc.; ELI LILLY AND COMPANY,

                       Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

              [Hon. Mark L. Wolf, U.S. District Judge]

                               Before

                     Lynch, Stahl, and Barron,
                          Circuit Judges.

     David E. Kovel, with whom John R. Low-Beer, Of Counsel, and
Kirby McInerney LLP were on brief, for appellants.
     R. Jeffrey Layne, with whom Jonathan S. Franklin, Sarah M.
Cummings, and Norton Rose Fulbright US LLP were on brief, for
appellees.
November 22, 2016
               STAHL, Circuit Judge.           Relator-Appellant Peter Lawton

("Lawton") brought a qui tam action against Appellees Takeda

Pharmaceutical Company, Ltd. and its affiliates ("Takeda") and Eli

Lilly and Company ("Eli Lilly") (collectively, "Defendants") under

the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and the

False Claims Acts of 28 different states and the District of

Columbia.1          Lawton alleges that Takeda and Eli Lilly conspired in

a   fraudulent       marketing      campaign   that   caused   third-parties   to

submit false reimbursement claims to government entities for off-

label uses of Actos, a treatment for Type 2 diabetes.2

               The district court dismissed all of Lawton's claims,

holding that Lawton had not pled his claims with the particularity

required by Federal Rule of Civil Procedure 9(b).               Lawton contests

this       ruling    on   appeal,    and   maintains    that   his   allegations

sufficiently plead that false claims were submitted to both federal

       1
       "'Qui tam' comes from the phrase 'qui tam pro domino rege
quam pro se ipso in hac parte sequitur,' which translates as 'who
pursues this action on our Lord the King's behalf as well as his
own.'" United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720,
727 n.4 (1st Cir. 2007) (quoting Rockwell Int'l Corp. v. United
States, 549 U.S. 457, 463 n.2 (2007)), overruled on other grounds
by Allison Engine v. United States ex rel. Sanders, 553 U.S. 662
(2008).
       2
       "Off-label uses" refer to uses for drugs that are not
approved as safe and effective by the Food and Drug Administration
("FDA"). Though Medicaid reimbursement is available for certain
off-label uses that are medically "essential" or recognized within
one of several medical compendia, see 42 U.S.C. § 1396r-8(a)(3),
(g)(1)(B)(i), (k)(6), these uses are not at issue in this case.

                                           - 3 -
and state government programs.   After thoroughly reviewing these

allegations, we affirm.

                      I. Facts & Background

          Since this appeal follows the granting of a motion to

dismiss, we recite the relevant facts as they appear in Lawton's

Second Amended Complaint.   See Hochendoner v. Genzyme Corp., 823

F.3d 724, 728 (1st Cir. 2016).

          Actos is a brand name drug approved by the FDA for

improving blood sugar control in adults with Type 2 diabetes.    The

drug is manufactured, promoted, marketed, and sold by Takeda.3

          In May 2012, Peter Lawton filed a qui tam complaint

against Takeda alleging that it had engaged in an illegal off-

label marketing campaign for Actos in violation of 21 U.S.C. § 321

et seq. (the "Food, Drug & Cosmetic Act"), and used illegal

kickbacks to support that campaign in violation of 42 U.S.C. §

1320a-7b(b) (the "Anti-Kickback Statute").4    Lawton -- a former

     3 In his Second Amended Complaint, Lawton named Eli Lilly as
a defendant for the first time, alleging that it had entered into
a partnership with Takeda to jointly market Actos from 1999 to
2006.
     4 The FDA has only approved Actos for treatment in adults with
Type 2 diabetes.     Physicians may prescribe Actos for non-FDA-
approved treatments, but the Food, Drug & Cosmetic Act prohibits
pharmaceutical companies from marketing drugs for off-label uses.
The Anti-Kickback Statute, meanwhile, imposes criminal penalties
on anyone who, among other things, "solicits" or "pays any
remuneration (including any kickback, bribe or rebate) directly or
indirectly, overtly or covertly, in cash or in kind, to purchase
or recommend purchasing any good, facility, service or item for
which payment may be made in whole or in part under a federal

                                 - 4 -
chemist and patent litigator at Takeda competitor GlaxoSmithKline

-- further alleged that through this campaign, Takeda and Eli Lilly

had knowingly caused third-parties to submit false or fraudulent

claims for payment to federal and state government programs.5        See,

e.g., 31 U.S.C. § 3729(a); N.Y. State Fin. Law §§ 188-89.

            Lawton made his first amendment to his complaint in

February 2014, and after the United States declined to intervene

and the action was unsealed, his case began in earnest.          In August

2015, the district court allowed Lawton to amend his complaint

again ("Second Amended Complaint"), which he filed the following

month and is the subject of this appeal.

            The Second Amended Complaint alleged that starting in

the late 1990s and lasting until 2011, Defendants utilized a

marketing    scheme   designed   to    develop   and   promote    "quasi-

scientific" bases for off-label use of Actos, specifically the

healthcare program." 42 U.S.C. § 1320a-7b(b). Since Lawton claims
Defendants violated both provisions, FCA liability would attach if
Lawton proved the violations caused third-parties to submit false
claims for reimbursement to government programs.
     5 Lawton claims he initially learned of Takeda's illegal
conduct when, while working at GlaxoSmithKline, he met with various
Takeda representatives in an intellectual property dispute
concerning Actos and Avandia, GlaxoSmithKline's diabetes drug, in
2001. Subsequent to this, he claims to have learned more specifics
about    Takeda's   strategy    via   internal    discussions    at
GlaxoSmithKline between 2001 and 2003 and a series of three job
interviews he had at Takeda in 2009.

                                      - 5 -
treatment      of   prediabetes.6      The    claimed   centerpiece    of   this

campaign involved the development of dozens of pro-Actos research

studies and subsequent publications substantiating these claims.

The most prominent of these studies, Lawton claims, was a 2006

paper ("ACT NOW Study") on the prevention of Type 2 diabetes.

Allegedly conceived and funded by Takeda but ostensibly authored

by Dr. Ralph DeFronzo, the ACT NOW Study advocated for the use of

Actos as an effective treatment for prediabetes.               Lawton alleges

that Dr. DeFronzo and other "thought leaders" and researchers like

him received compensation, kickbacks, and other indirect financial

inducements from Takeda for their Actos studies, related speeches,

and supporting presentations.              Many of these studies, however,

were criticized by various academic journals, peer review panels,

and the FDA.

               Takeda allegedly also established a specialized Actos

sales       force   to   parallel   this   campaign,    and   tasked   it   with

encouraging physicians to prescribe Actos as a safe and effective

treatment for prediabetes.            Takeda also supposedly engaged in

direct marketing to the public about the off-label use of Actos

and made large contributions to several educational and research

organizations to gain influence over their views on prediabetes

        6
       Prediabetes refers to the condition of having                    a   high
probability of developing diabetes in the future.

                                           - 6 -
treatments.    These efforts purportedly continued even after Takeda

knew that the results of many of these studies were inconclusive.

             Based on these allegations, Lawton claimed that Takeda

and Eli Lilly violated the FCA and analogous state statutes by

causing false claims for Actos to be presented to both federal and

state government healthcare programs.

             Lawton first pointed to the dramatic increase in Actos

sales   between   2006   ($1.5   billion)    and   2011   ($3.6   billion),

attributing these increased numbers to greater off-label use of

Actos for patients with a prediabetes condition.              Lawton then

identified three non-diabetic members of the Suffolk County (NY)

Health Plan who, between 2011 and 2014, were prescribed a total of

11 scripts for Actos, for which the Health Plan paid a total of

$3,170.14.     With respect to the federal programs, Lawton cited

evidence that public sector programs like Medicaid and Medicare

accounted for more than half of Actos purchases between 2003 and

2011.    This evidence, he claimed, demonstrated that the Actos

marketing campaign had caused violations of the False Claims Act.

             Takeda and Lilly moved to dismiss the complaint on

multiple grounds.     On March 8, 2016, the district court granted

the motion, dismissing the federal and pendant state claims with

prejudice.     The court reached this conclusion after finding that

neither Lawton's federal nor state allegations pled fraud with the

                                     - 7 -
particularity required by Federal Rule of Civil Procedure 9(b).

Lawton now appeals.

                                 II. Analysis

              Lawton raises two issues on appeal, arguing that the

district court erred in dismissing his federal FCA claim and

associated state claims with prejudice.             We review each in turn.

              A. Federal Claim

              Lawton first contends that the court erred when it

dismissed the federal claim in Lawton's Second Amended Complaint

based on his failure to plead the alleged fraud with enough

particularity to satisfy Federal Rule of Civil Procedure 9(b).                  In

such cases, we review de novo the granting of a motion to dismiss,

United States ex rel. Gagne v. City of Worcester, 565 F.3d 40, 45

(1st   Cir.    2009),    "accepting    as    true   all    well-pleaded   facts,

analyzing     those     facts   in   the    light   most    hospitable    to   the

plaintiff's theory, and drawing all reasonable inferences for the

plaintiff," United States ex rel. Hutcheson v. Blackstone Med.

Inc., 647 F.3d 377, 383 (1st Cir. 2011).

              Rule 9(b) provides: "In alleging fraud or mistake, a

party must state with particularity the circumstances constituting

fraud or mistake."        Fed. R. Civ. P. 9(b).           As we have often said

in   these    cases,     relators    are    "required      to   set   forth    with

particularity the who, what, when, where, and how of the alleged

fraud."   See, e.g., United States ex rel. Ge v. Takeda Pharm. Co.,

                                           - 8 -
Ltd., 737 F.3d 116, 123 (1st Cir. 2013) (internal citation and

quotation marks omitted); see also United States ex rel. Karvelas

v. Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004),

abrogated on other grounds by United States ex rel. Gagne v. City

of Worcester, 565 F.3d 40 (1st Cir. 2009) (applying Rule 9(b) to

FCA claims).

            The FCA penalizes persons who present, or cause to be

presented, to the federal government "a false or fraudulent claim

for payment or approval."     31 U.S.C. § 3729(a)(1).   Thus, Rule

9(b) requires both that the circumstances of the alleged fraud and

the claims themselves be alleged with particularity. United States

ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir. 2007),

overruled on other grounds by Allison Engine v. United States ex

rel. Sanders, 553 U.S. 662 (2008) ("FCA liability does not attach

to violations of federal law or regulations, such as marketing of

drugs in violation of the FDCA, that are independent of any false

claim.").

            We briefly note that Lawton cites this Court's decision

in Rodi v. Southern New England School of Law for the proposition

that the relevant statements about which Rule 9(b) specificity is

required are not the claims filed by innocent third-parties, but

rather the allegedly fraudulent statements made by Takeda.     389

F.3d 5, 15 (1st Cir. 2004) (stating "the specificity requirement

[of Rule 9(b)] extends only to the particulars of the allegedly

                                  - 9 -
misleading statement itself.").     Rodi, however, was a case about

specific fraudulent misrepresentations made by the defendant, and

not one about false or fraudulent claims.        Id. at 5.       While it

made sense for us only to require that the misleading statements

be pled with particularity in that case, we will not do so here

where the fraudulent act of filing false claims is distinct from

actions trying to induce such filing.

          That being said, we have also recognized a difference

between qui tam actions alleging that the defendant made false

claims to the government and those alleging that the defendant

induced third-parties to file false claims with the government.

See United States ex rel. Duxbury v. Ortho Biotech Products, L.P.,

579 F.3d 13, 29 (1st Cir. 2009) (citing Rost, 507 F.3d at 732).

          In   these   circumstances,   we   apply   a   "more   flexible"

standard such that a relator can satisfy Rule 9(b) by providing

"factual or statistical evidence to strengthen the inference of

fraud beyond possibility without necessarily providing details as

to each [submitted] false claim."       Duxbury, 579 F.3d at 29-30.

Still, the evidence necessary to achieve this inference generally

requires the relator to plead, inter alia, the "'specific medical

providers who allegedly submitted false claims,' the 'rough time

periods, locations, and amounts of the claims,' and 'the specific

government programs to which the claims were made.'" United States

ex rel. Kelly v. Novartis Pharms. Corp., 827 F.3d 5, 13 (1st Cir.

                                  - 10 -
2016) (quoting Ge, 737 F.3d at 124); see also Rost, 507 F.3d at

733 (rationalizing Rule 9(b)'s application to FCA claims in part

because "[i]t is a serious matter to accuse a person or company of

committing fraud" and the rule "discourages plaintiffs from filing

allegations of fraud merely in the hopes of conducting embarrassing

discovery and forcing settlement").

           In Karvelas, we likewise explained that while there is

no "checklist of mandatory requirements" that each allegation in

a complaint must meet to satisfy Rule 9(b):

           [D]etails concerning the dates of the claims, the
           content of the forms or bills submitted, their
           identification numbers, the amount of money charged
           to the government, the particular goods or services
           for   which   the  government   was   billed,   the
           individuals involved in the billing, and the length
           of time between the alleged fraudulent practices
           and the submission of claims based on those
           practices are the types of information that may
           help a relator to state his or her claims with
           particularity.

     360 F.3d at 233.

           Viewing Lawton's Second Amended Complaint against the

backdrop of these guidelines, we have little trouble concluding

that his allegations do not satisfy Rule 9(b).

           While the complaint describes at considerable length the

Takeda's marketing machinations, the Second Amended Complaint

falls   well   short   of   alleging,   with   the   requisite   amount   of

specificity, who submitted false claims to the government, how

                                    - 11 -
many false claims were submitted to the government, or how the

Defendants' actions resulted in the submission of false claims.

           Lawton compares his complaint to the one in Duxbury,

where we concluded that the relator's complaint had met Rule 9(b)'s

particularity requirement.        579 F.3d at 30.        There, the relator

alleged that a company paid kickbacks to eight different medical

providers which induced these providers to submit false claims for

reimbursement to Medicare.      Id.     Although a "close call," we held

that the complaint satisfied Rule 9(b) because Duxbury, in addition

to setting forth allegations of kickbacks, provided information

concerning the dates and amounts of the false claims, who filed

these false claims, the applicable time periods and locations, and

how the claims were filed.      Id.

           We   agree    with   the      district     court    that    Lawton's

allegations are materially weaker than those seen in Duxbury.              The

complaint does not allege that every prescription of Actos was

unlawful because it was off-label or that every claim submitted to

the federal government was false.            See United States ex rel.

Westmoreland v. Amgen, Inc., 738 F. Supp. 2d 267, 277 (D. Mass.

2010) (holding complaint satisfied Rule 9(b), in part because it

included   allegations    that,    as    a   result    of     the   defendant's

inducement, a specific provider issued a "standing order" for

doctors to write fraudulent prescriptions for all patients).                He

merely alleges that off-label prescriptions of Actos submitted to

                                        - 12 -
government programs were unlawful.      But Lawton, unlike the relator

in Duxbury, identifies no false claims, either individual or

aggregated, from particular medical providers that were submitted

for reimbursement.

           Instead, Lawton simply postulates that "as much as" 30%

of Actos annual sales were for off-label prescriptions, points to

the amounts of Medicare and Medicaid funds used to pay for Actos

prescriptions between 2003 and 2012, and asks us to infer that a

portion of these funds must have been used to pay unlawful claims.

As Yogi Berra allegedly said, "it's like déjà vu all over again."7

See Ge, 737 F.3d at 124 (holding, in another case concerning Actos,

that "aggregate expenditure data . . . with no effort to identify

specific   entities   who   submitted   claims   or   government   program

payers, much less times, amounts, and circumstances" falls short

of Rule 9(b)'s requirements).

           Lawton, like the relator in Rost, has "[a]t most . . .

raise[d] facts suggesting fraud was possible," but his pleadings

do not suffice under Rule 9(b) to show that doctors, patients, or

patients' private insurers did seek out federal reimbursement for

off-label Actos prescriptions.     507 F.3d at 733.     Because Lawton's

     7 "This epigram is often attributed to [Berra], a man as
famous for mangling the English language as for belting baseballs.
Berra coined many aphorisms -- but not this one. . . . The phrase's
origin is unknown." Williams v. Ashland Engineering Co., Inc., 45
F.3d 588, 589 n.1 (1st Cir. 1995).

                                   - 13 -
"evidence and arguments proceed more by insinuation than any

factual   or    statistical    evidence       that   would   strengthen        the

inference of fraud beyond possibility," we affirm the district

court's dismissal of Lawton's complaint under Rule 9(b).                       See

Kelly, 827 F.3d at 15.

          B. State Claims

          The    district     court   similarly      did   not   err    when    it

dismissed Lawton's state claims with prejudice.                    Rule 9(b)'s

heightened pleading standard generally applies to state law fraud

claims brought in federal court.            See Rost, 507 F.3d at 731 n.8;

Universal Commc'n Sys., Inc. v. Lycos, Inc., 478 F.3d 413, 427

(1st Cir. 2007).    Lawton's Second Amended Complaint only contains

allegations that false claims were submitted to New York State

authorities in violation of the New York State False Claims Act

("NYSFCA").     See N.Y. State Fin. Law § 187 et seq.               Even these

allegations,     however,     are     not     pled    with   the       requisite

particularity.

          Lawton alleges that between April 2011 and March 2014,

three non-diabetic members of the Suffolk County Health Plan in

New York State were prescribed Actos 11 times and that the health

plan paid a total of $3,170.14 for these prescriptions. The Second

Amended   Complaint    does    not,    however,      identify    the    medical

providers who prescribed Actos, nor does it allege how those

prescriptions resulted from Defendants' marketing campaign or

                                      - 14 -
supposed    kickback    scheme.     And     given   the   timeframe      of     the

allegation, it is unclear whether the prescriptions in question

were issued before or after the end of the alleged marketing

campaign in 2011.      This is relevant because if the prescriptions

were written after the campaign ended, we cannot conclude that

Lawton has strengthened the inference of fraud beyond possibility.

            In short, Lawton's state law claims fail to satisfy Rule

9(b) for many of the same reasons why his federal FCA claim failed.

Since Lawton does not offer any new evidence on appeal that would

"cure the inferential gaps" found in the Second Amended Complaint,

the   district    court's     decision    to   dismiss    these    claims     with

prejudice is affirmed.        See Kelly, 827 F.3d at 15.

                               III. Conclusion

            We affirm the district court's order dismissing relator

Peter Lawton's claims, and because we reach this conclusion, we

decline to consider whether Lawton's Second Amended Complaint is

barred     by   the   FCA's    public     disclosure     bar,     31   U.S.C.    §

3730(e)(4)(A), or the NYSFCA's public disclosure bar, N.Y. State

Fin. Law § 190(9)(b).

                                         - 15 -