Just before the holidays, the First Circuit gave the defense bar a gift by applying a stringent standard to reject a fraud-on-FDA claim under the federal False Claims Act (FCA). This case effectively serves as the death knell for the fraudulent inducement theory in the First Circuit, and the rationale should apply to all courts without limitation.
The relator was Jeffrey D’Agostino, a former sales representative of one of the two defendants: ev3 and Micro Therapeutics, Inc. ev3 manufactured Onyx, an artificial liquid embolic, and ev3’s subsidiary, Micro Therapeutics, Inc, manufactured Axium, another embolic product. When FDA approved Onyx for the treatment of brain arteriovenous malformations, FDA restricted the use in the labeling to physicians with specific training. Nevertheless, according to D’Agostino, the company marketed Onyx for off-label uses, provided off-label product training to physicians, and sold the device to physicians who had little or no training. D’Agostino claimed that the defendants, when seeking approval to market Onyx, “disclaimed” marketing the device for other uses, “overstated” the training they would provide to physicians, and “omitted” important safety information about the product. Opinion at 12.
Plaintiffs have tried to bring private fraud-on-FDA claims against device manufacturers in the past under state law, but courts routinely rejected these attempts under the preemption doctrine. See Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341 (2001) (here). So D’Agostino and his counsel tried a different tack: D’Agostino alleged that the defendant’s fraudulent representations to FDA during the approval process “could have” influenced FDA’s approval decision, and that, under the implied certification theory, led to false claims being submitted to the government. Opinion at 12-13.
The court strongly rejected D’Agostino’s theory.
First, the court held that D’Agostino’s allegation that fraudulent representations “could have” influenced FDA to approve Onyx was not an adequate pleading of a causal link between the representations to FDA and the claims reimbursed by CMS. According to the court:
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.
Id. at 13. Merely saying that a fraudulent statement “could have” caused FDA to grant approval was not enough.
The court further held that D’Agostino’s allegations could not meet the FCA’s materiality standard as articulated in the Supreme Court’s recent ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (here). The fact that CMS continued to reimburse for Onyx in the years after D’Agostino had raised his allegations, in the court’s view, “cast serious doubt on the materiality of the fraudulent representations that D’Agostino allege[d].” D’Agostino Opinion at 14.
But the second, and arguably more significant, reason that the court rejected D’Agostino’s theory was that, in the six years after D’Agostino had raised his allegations, there was no evidence that FDA had taken any form of post-approval enforcement or action, such as demanding a recall or relabeling of the product, temporarily suspending approval, or withdrawing approval. “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.” Id. at 16. In the absence of such official agency action by FDA, the court held that it was impossible to determine that FDA would not have approved the Onyx device without the alleged fraudulent representations.
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.
Now defendants faced with a fraudulent inducement allegation can breathe easier knowing that relators cannot sufficiently plead an FCA claim under this theory unless FDA has in fact taken official action against the manufacturer upon learning of the alleged fraud. Also, the First Circuit joins other courts interpreting the Supreme Court’s decision in Escobar to reject the “materiality” element of the FCA when CMS continues to reimburse for the use of a product. Win-win.