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Ever since Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), held that state-law claims alleging fraud on the FDA are preempted, plaintiffs have been attempting to find some other way of bringing claims that attribute FDA actions to a defendant’s false pretenses.  Since preemption is based on the Supremacy Clause, and the constitutional relationship between the federal and state legal systems, the doctrine doesn’t apply where recovery is sought under a federal statute.  Since the False Claims Act (“FCA”) is a federal statute, sporadic attempts have been made to bring private fraud-on-the FDA-claims under that statute.  Bexis, who invented what became the Buckman fraud-on-the-FDA/implied-preemption defense in the Bone Screw litigation, even worked on an amicus brief in one such case, United States ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386 (6th Cir. 2005), that was ultimately decided (favorably to the defense) on other grounds.

A little less than a year ago we reported on an excellent FCA result in United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp.3d 519 (D. Mass. 2015).  Ever since we’ve been holding our breath, because the First Circuit has been known for pro-plaintiff rulings in cases against our drug and medical device clients.  Indeed, the First Circuit once led our list the worst drug/medical device cases of the year for two years running – in 2012 and 2013.  Whether something’s changed since then in the First Circuit, we can’t say.  But we can report that the district court’s dismissal of fraud-on-the-FDA-based FCA claims in D’Agostino has just been affirmed with an excellently reasoned decision.  See D’Agostino v. EV3, Inc., ___ F.3d ___, 2016 WL 7422943 (1st Cir. Dec. 23, 2016).

The facts in D’Agostino were thoroughly explained in our prior post.  Briefly, the relator (a fired sales rep) alleged that the defendants pulled fast ones on the FDA with respect to the approvals/supplemental approvals of two medical devices, one called “Onyx” and the other “Axium” (these defendants evidently like “x” as much as did the former Standard Oil of New Jersey).  The relator-plaintiff claimed that the defendants:  (1) sought approval of Onyx for a narrow indication, but intended to promote it more broadly off-label (exactly the claim in Buckman); (2) failed to live up to promises made to the FDA concerning extensive surgeon training in using Onyx (also a form of fraud on the FDA); (3) concealed the failure of Onyx’s active ingredient in a different device (ditto); and (4) failed to recall earlier versions of Axium after obtaining FDA approval (not fraud on the FDA, but a theory that could dangerously penalize innovation).  See D’Agostino, 2016 WL 7422943, at ??? (for some reason WL has omitted star paging, so we’ll also cite to the slip opinion), slip op. at 4-8.  Critically, although the FDA was informed of all of these claims, the Agency never instituted any enforcement action, nor did the government elect to join the D’Agostino FCA action.  Id. at 9, 15.  As discussed in the prior post, the district court dismissed all of these claims with prejudice as futile.

The First Circuit affirmed in a muscular opinion.

In the first place, fraud-on-the-FDA claims don’t fit well into the FCA because the allegedly defrauded entity (the FDA) doesn’t ever actually make claims or seek reimbursement of medical costs. “The FDA, however, made none of the payments at issue in this lawsuit.  Rather, CMS made the payments by reimbursing physicians . . . and hospitals.”  Id. at 12.  Because of this disconnect, the relator had to proceed under the “implied certification” theory recently allowed by the United States Supreme Court in Universal Health Services, Inc. v. United States, 136 S. Ct. 1989 (2016) (discussed here).  However, the FCA’s materiality standard for such claims is “demanding.” D’Agostino, slip op. at 14 (quoting UHS, 136 S. Ct. at 2003).

That the defendants’ misrepresentations supposedly “could have” influenced FDA approval wasn’t enough. “[C]ould have . . . falls short of pleading a causal link between the representations made to the FDA and the payments made by” other government entities. Id. at 13.

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, [the government] would still have paid the claims.  In this respect, [relator’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. (emphasis original).  Although this suit had been pending since 2010, the government continued to pay the claims at issue, which “casts serious doubt on the materiality of the fraudulent representations that [relator] alleges.”  Id. at 14.

Beyond materiality, the fraud-on-the-FDA allegations failed for lack of causation, and here’s where things really get interesting from our point of view.  If the FDA would have taken the actions it did regardless of the purported misrepresentations, there can’t be causation.  Id. at 15.  Here, the FDA’s lack of enforcement action was critical:

In the six years since [relator] surfaced the alleged fraud, the FDA has apparently demanded neither recall nor relabeling of Onyx − this notwithstanding the agency’s [list of enforcement options]. The FDA’s failure actually to withdraw its approval of Onyx in the face of [relator’s] allegations precludes [relator] from resting his claims on a contention that the FDA’s approval was fraudulently obtained.

*          *          *          *

[C]ausation is an element of the fraudulent inducement claims [relator] alleges and . . . the absence of official action by the FDA establishing such causation leaves a fatal gap. . . . [T]he FDA approved Onyx, and has never withdrawn that approval.  [Relator] 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.

Id. at 15-16, 18-19 (emphasis added).

Under this rationale, fraud on the FDA as a basis for an FCA action is effectively dead.  Without FDA enforcement action, causation fails as a matter of law.   Further, even if the FDA initiated enforcement action, then that administrative proceeding – not the FCA – is the proper forum to examine allegations of fraud on the FDA.  Claims where a relator reports fraud to the FDA and the government “first file[s] an FCA action itself” are “likely rare” and “do[] not warrant eliminating causation as an element of the claim.”  Id. at 18-19.  The availability of an fraud-on-the-FDA-based FCA claim in this “rare” situation, where privately supplied information induces the a successful FDA enforcement action for fraud, are indeed so “rare” that we can’t think of any.  In all the fraud-on-the-FDA claims we’ve encountered, either (as in D’Agostino) the FDA shrugged them off as meritless, or else information that the Agency itself uncovered led to an enforcement action commenced directly by the government.

The policies the First Circuit invoked in D’Agostino are as powerful as its result.  Fraud-on-the-FDA claims seek to second guess FDA product approvals, and thus should not be pursued in privately-initiated litigation:

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.

Id. at 16 (emphasis added).  A private litigant should not be allowed to shout “no” where the FDA has, and continues to, say “yes.”

Furthermore, D’Agostino recognized the inescapable practical problems of all private fraud-on-the-FDA claims, whether brought under federal or state pretenses – these are the same reasons that the Supreme Court gave for preemption in Buckman:

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-on-the-FDA claims. See Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 349-51 (2001).  If jurors in a single qui tam case could 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.

D’Agostino, slip op. at 16-17 (citing and quoting Buckman).  “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 [relator’s] fraud-on-the-FDA theory futile.”  Id. at 17.  Like the court’s prior reasoning, these practical policy reasons are rock solid.  A fraud-on-the-FDA claim cannot exist without a jury being told it can ignore as supposedly “fraudulent,” whatever in-force FDA decision that a private plaintiff claims was fraudulently obtained.

The other claims also failed. The purported fraud-on-the-FDA by failure-to-train claim completely failed to identify any government-paid claims that met this factual description.  Id. at 22 (relator “failure to identify any specific false claim”).  Nor had the relator established falsity, since the FDA-approved labeling for the device “contains no requirement that the physician must obtain the training from” defendants, and surgeons could well have been trained elsewhere. Id. at 22-23.  Where have we seen that before?   More fundamentally:

[T]he assumption that physicians submitted claims for reimbursement merely because many of their patients in general were insured under government programs is faulty.

Id. at 23.  The manufacturing defect claim failed because the complaint “neither alleges any specific false claims” nor that false claims of that sort “were actually submitted.”  Id. at 25.  Finally, the proposition that an improved design necessarily rendered all previously sold versions of the product “defective” was simply wrong:

[W]e agree with the district court that a product (much less an FDA-approved medical device) cannot be called defective . . . merely because new versions of the product contain design improvements.  Indeed, by that standard, most every car sold to the government would be per se defective.

Id. at 26 (citation omitted).

Private plaintiffs do not have the standing to pursue, nor do individual juries have the institutional competence to decide, whether the FDA would have would have reached a different outcome had it received a different set of information than it actually evaluated.  The FDA decides what drugs and medical devices should be sold in this country, not private claimants and their lawyers self-interestedly chasing big dollars.  Not only was D’Agostino correctly decided, but it was decided with uncommonly powerful reasoning.  Good riddance to private litigation of fraud-on-the-FDA claims of all sorts.