U.S. ex rel. Poteet v. Medtronic, Inc.

• Citation: 552 F.3d 503
• Decision Date: 14 January 2009
• Docket Number: No. 07-5262.,07-5262.
• Parties: UNITES STATES of America ex rel., Plaintiff-Appellee, Jacqueline Kay POTEET, Relator-Appellant, v. MEDTRONIC, INC. et al., Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

552 F.3d 503

UNITES STATES of America ex rel., Plaintiff-Appellee Jacqueline Kay POTEET, Relator-Appellant, v. MEDTRONIC, INC. et al., Defendants.

No. 07-5262.

United States Court of Appeals, Sixth Circuit.

Argued: June 5, 2008.

Decided and Filed: January 14, 2009.

ARGUED:

Andrew R. Carr, Jr., Bateman Gibson, Memphis, Tennessee, for Appellant. Christine N. Kohl, United States Department of Justice, Washington, D.C., for Appellee.

ON BRIEF:

Andrew R. Carr, Jr., Everett B. Gibson, Bateman Gibson, Memphis, Tennessee, for Appellant. Christine N. Kohl, Douglas N. Letter, United States Department of Justice, Washington, D.C., for Appellee.

Before: DAUGHTREY, CLAY, and McKEAGUE, Circuit Judges.

CLAY, J., delivered the opinion of the court, in which DAUGHTREY, J., joined. McKEAGUE, J. (p. 520), delivered a separate opinion concurring in the result.

OPINION

CLAY, Circuit Judge.

In this qui tam action, Relator, Jacqueline Kay Poteet ("Poteet"), appeals the district court's dismissal of her complaint, brought pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. (2000), as jurisdictionally barred by the statute's public disclosure provision, 31 U.S.C. § 3730(e)(4)(A), and first-to-file provision, 31 U.S.C. § 3730(a)(5). In addition to challenging the district court's application of these jurisdictional bars, Poteet also claims that the district court abused its discretion when it failed to grant her motion for discovery and when it failed to conduct an evidentiary hearing before dismissing her complaint. For the reasons that follow, we AFFIRM the district court's dismissal of Poteet's action.

I. BACKGROUND

A. Statutory Framework

The FCA imposes civil liability on any person who "knowingly presents, or causes to be presented to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval; [or] conspires to defraud the Government by getting a false or fraudulent claim allowed or paid." 31 U.S.C. § 3729(a)(1) & (3). Violators of the FCA are subject to civil penalties of up to $10,000 as well as double or treble damages. 31 U.S.C. § 3729(a)(7). To promote enforcement of the statute, Congress has directed that an FCA action may be initiated in one of two ways. First, the government itself may pursue a civil action against the alleged false claimant. 31 U.S.C. § 3730(a). Second, as is relevant in this case, a private individual (the relator) may bring a qui tam¹ action for alleged FCA violations on behalf of the government. 31 U.S.C. § 3730(b).

Before bringing a qui tam suit, a relator must serve the complaint upon the government, and the complaint must remain under seal for at least sixty days. 31 U.S.C. § 3730(b)(2). During this time period, the government may "take over" the action, in which case all future litigation is conducted by the government. 31 U.S.C. § 3730(b)(4)(B). If the government declines to do so, however, the relator may serve the complaint on the defendant and proceed with the litigation at its own direction, with the caveat that the government may later intervene upon a showing of good cause. 31 U.S.C. § 3730(c)(3). As an incentive to bring qui tam claims, the FCA awards relators in successful suits a portion — ranging from fifteen to twenty-five percent if the government intervenes, and from twenty-five to thirty percent if it does not — of the proceeds recovered. 31 U.S.C. § 3730(d).

In addition to "encourag[ing] `whistleblowers to act as private attorneys-general' in bringing suits for the common good," Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir.2005) (quoting United States ex rel. Taxpayers Against Fraud v. General Elec. Co., 41 F.3d 1032, 1041-42 (6th Cir.1994)), the FCA also seeks "to discourage opportunistic plaintiffs from bringing parasitic lawsuits whereby would — be relators merely feed off a previous disclosure of fraud." Id.; see also Grynberg, United States ex rel., 390 F.3d 1276, 1278 (10th Cir.2004) ("The False Claim Act's qui tam provisions are designed to encourage private citizens to expose fraud but to avoid actions by opportunists seeking to capitalize on public information."); United States ex rel. LaCorte v. SmithKline Beecham Clinical Lab., Inc., 149 F.3d 227, 233 (3d Cir.1998) ("Section 3730 attempts to reconcile two conflicting goals, specifically, preventing opportunistic suits, on the one hand, while encouraging citizens to act as whistleblowers, on the other."); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C.Cir. 1994) (noting that, in drafting the qui tam provisions of the FCA, Congress sought to achieve "the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own"). Thus, the FCA places a number of jurisdictional limitations on qui tam actions, two of which are relevant for this appeal. First, the public disclosure provision removes federal jurisdiction from FCA actions "based on the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing ... or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A). Second, the first-to-file provision denies standing to certain potential relators by directing that once a qui tam action is filed "no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5). If a relator's complaint fails to comply with either of these jurisdictional provisions, it must be dismissed by the district court. Walburn, 431 F.3d at 970.

B. Factual and Procedural History

Medtronic, Inc. ("Medtronic"), is a medical technology firm which manufactures and distributes various types of medical equipment and supplies. Medtronic Sofamor Danek USA, Inc. ("MSD"), a subsidiary of Medtronic, is a manufacturer and seller of spinal implants and other surgical devices. Both Medtronic and MSD market their products to healthcare providers throughout the United States. The doctors and hospitals who use Medtronic and MSD products frequently submit claims to the federal government for Medicare and Medicaid reimbursement.

On October 5, 2001, Scott Wiese ("Wiese"), a former Regional Sales Manager for MSD, filed a wrongful termination suit against Medtronic, MSD, and others in superior court in Los Angeles, California. Wiese alleged that he had been fired because he had refused to comply with his supervisors' directives to pay illegal kickbacks and bribes to MSD's physician customers in exchange for their business. To support this claim, his complaint described in detail MSD's alleged practice of providing doctors with extravagant travel arrangements, sham consulting agreements, and company-sponsored "Think Tanks" to ensure their continued use of MSD products.

On September 11, 2002, John Doe ("Doe"),² a former MSD attorney, filed a qui tam action under the FCA against Medtronic, MSD, and ten named physicians in the United States District Court for the Western District of Tennessee. The complaint alleged that MSD had used improper sales and marketing tactics to induce the defendant physicians to use MSD products in violation of the FCA and the federal Anti-Kickback statute, 42 U.S.C. § 1320a-7b(b).³ In particular, Doe claimed that MSD had provided the physicians with numerous kickbacks — free marketing services, sham consulting, research, and royalty agreements, lavish all-expense-paid trips to vacation resorts, and limousine service to adult entertainment clubs — in exchange for the physicians' continued use of MSD products and their promoting of MSD products among their fellow doctors. According to Doe, "[t]hese improper inducements inherently taint[ed] the claims for payment submitted by providers for MSD products and [thereby] cause[ed] the submission of false claims for payment in violation of the [FCA]." J.A. at 396. In addition to the damages and civil penalties provided by the FCA, Doe also sought relief under state and federal law for Doe's allegedly retaliatory discharge from MSD.

On December 29, 2003, more than a year after the filing of the Doe complaint and two years after the filing of the Wiese complaint, Poteet, a former MSD Senior Manager for Travel Services, filed the instant qui tam action against twelve physicians (including two physicians named as defendants in the Doe complaint) and five healthcare providers in the United States District Court for the Western District of Tennessee. Poteet alleged that the named defendants had filed numerous false, fraudulent, and ineligible claims for Medicare and Medicaid reimbursement in violation of the FCA. Specifically, Poteet claimed that MSD had paid the defendant physicians large amounts of money and provided them with lavish travel and recreational opportunities — "upgraded lodging for physicians, dinners, entertainment and activities such as golf, snorkeling, sailing, fishing, shopping trips, horse-back riding hiking," etc. — in connection with sham consulting contracts and royalty agreements. J.A. at 23. In return, the defendant physicians and hospitals purportedly purchased MSD products for use in their patients' surgeries. Thereafter, according to Poteet, the individual defendants, or their employers, "actually submitted false claims for reimbursement for such devices for which payment was made in whole or in part under a federal healthcare program." J.A. at 23. Poteet contended that these actions violated both the FCA and the Anti-Kickback statute.

In accordance with the FCA's requirements, see 31 U.S.C. § 3730(b)(2), Poteet filed her complaint in camera to remain under seal for sixty days. During this sixty-day period, Poteet met with attorneys from the United States Attorney's...