John Doe v. Bahler Med. Inc., 09-1728.

• Decision Date: 08 September 2010
• Docket Number: No. 09-1728.,09-1728.
• Citation: 619 F.3d 104
• Parties: UNITED STATES ex rel. Jacqueline Kay POTEET and John Doe, Plaintiffs, Appellants, v. BAHLER MEDICAL, INC., et al., Defendants, Appellees, Lawrence G. Lenke, M.D., et al., Defendants.
• Court: U.S. Court of Appeals — First Circuit

619 F.3d 104

UNITED STATES ex rel. Jacqueline Kay POTEET and John Doe, Plaintiffs, Appellants,

v.BAHLER MEDICAL, INC., et al., Defendants, Appellees,Lawrence G. Lenke, M.D., et al., Defendants.

No. 09-1728.

United States Court of Appeals,First Circuit.

Heard June 10, 2010.

Decided Sept. 8, 2010.

COPYRIGHT MATERIAL OMITTED.

John R. Knight, with whom Everett B. Gibson, Andrew R. Carr and Bateman, Gibson, LLC were on brief, for appellants.

John W. Lundquist, with whom Dulce J. Foster and Fredrikson & Byron, P.A. were on brief, for appellees John Bendo, M.D., et al.

Ara B. Gershengorn, with whom Nicholas C. Theodorou and Foley Hoag, LLP were on brief for appellees Bahler Medical, Inc., et al.

A. Neil Hartzell, with whom Kevin G. Kenneally, LeClairRyan, Dean A. McConnell, Mark A. Fogg and Kennedy Childs & Fogg, P.C. were on brief for appellee George A. Frey, M.D.

Kent Wicker, with whom Reed Wicker, PLLC was on brief for appellees Steven Glassman, M.D.; John Dimar, M.D; and Mladen Djurasovic, M.D.

Before LIPEZ, HOWARD and THOMPSON, Circuit Judges.

HOWARD, Circuit Judge.

The False Claims Act (FCA) allows private persons to file qui tam actions on behalf of the United States against persons or entities who knowingly submit false claims to the federal government.

31 U.S.C. § 3730. In 2007, Jacqueline Kay Poteet brought a qui tam action against 120 spine surgeons ¹ and eighteen medical device distributors. Poteet, a former employee of Medtronic Sofamor Danek USA, Inc. (MSD), claimed that the defendants defrauded the federal government by, among other things, unlawfully promoting the medical products of MSD and its parent Medtronic Inc.

The district court dismissed Poteet's action with prejudice. The court held that the claims against the doctor defendants were jurisdictionally barred by the FCA's public disclosure provision, id. § 3730(e)(4) ² , and that the claims against the distributor defendants were not pled with the particularity required by Federal Rule of Civil Procedure 9(b) for claims sounding in fraud.

Poteet appeals, arguing that the district court erred when it (1) dismissed her complaint against the doctor defendants based on the public disclosure provision; (2) dismissed all claims with prejudice; and (3) denied her motion for leave to file a second amended complaint. We affirm.

I. Statutory scheme

The primary focus of this appeal is on the FCA's public disclosure provision. We start with the statutory scheme.

The FCA prohibits the knowing submission of false or fraudulent claims to the United States. 31 U.S.C. § 3729(a). ³ The federal government may bring a civil action to enforce the FCA, id. § 3730(a), and the statute also contains a qui tam provision authorizing private persons to bring, as relators, civil actions on behalf of the United States. Id. § 3730(b). The government has the option to intervene in a qui tam action and assume primary responsibility over it. Id. § 3730(b)(2), (b)(4), (c)(1).

Whether or not the government intervenes, the relator is eligible to collect a portion of any damages awarded. Id. § 3730(d). Although this financial incentive encourages would-be relators to expose fraud, it also serves to attract those looking to capitalize on fraud already exposed by others. To prevent opportunistic plaintiffs from bringing parasitic qui tam actions, the FCA contains a provision disallowing qui tam actions that are based on prior public disclosures of fraud, as long as the disclosures were made in statutorily specified sources. Id. § 3730(e)(4)(A). This provision is often referred to as the “public disclosure bar.” See, e.g., United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 52 (1st Cir.2009); United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 729 (1st Cir.2007). It provides:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, 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).

II. Facts

With the legal framework in place, we turn to the specifics of the case.

In 2007, Poteet brought this action against the doctor and distributor defendants in federal district court in Massachusetts. Her claims against the defendants centered around their relationship with Medtronic, a medical technology firm that manufactures and distributes medical equipment and supplies, and Medtronic's subsidiary MSD, which manufactures and sells spinal implants and other surgical devices. ⁴

With respect to the physician defendants, Poteet alleged inter alia that they had unlawfully promoted a Medtronic device to third-party doctors, knowing that this promotion would result in the third-party doctors submitting false claims for reimbursement to the federal government.

The district court dismissed Poteet's claims against the doctor defendants with prejudice, after determining that those claims were based on prior public disclosures in a series of lawsuits brought against Medtronic and various doctor defendants and in media coverage of these lawsuits. We briefly recap those lawsuits, and the media coverage they generated.

In 2001, Scott Wiese, a former employee of Medtronic, sued Medtronic in California state court for wrongful termination. In his complaint, Wiese alleged that Medtronic fired him after he refused to pay illegal kickbacks to doctors in exchange for their business.

In 2002, a “John Doe” relator filed a qui tam action against Medtronic and ten doctors in the Western District of Tennessee. This complaint, filed under seal, alleged that Medtronic had paid kickbacks to the doctors and that these “improper inducements ... cause[d] the submission of false claims for payment in violation of the [FCA].” The New York Times published an article about a government investigation into the claims entitled, “Inquiry into Possible Kickbacks at Medtronic Unit.” Reuters, Inquiry into possible kickbacks at Medtronic unit, Sep. 9, 2003, at C.4. The Times published a second story about the investigation, entitled, “An Operation to Ease Back Pain Bolsters the Bottom Line, Too.” Reed Abelson & Melody Petersen, An Operation to Ease Back Pain Bolsters the Bottom Line, Too, N.Y. Times, Dec. 31, 2003, at A.1.

In 2003, Poteet herself filed a qui tam action against twelve doctors and five healthcare providers, also in the Western District of Tennessee where the John Doe complaint had been filed. United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 508 (6th Cir.2009) (“ Poteet I ”). Poteet alleged that Medtronic paid kickbacks to the defendant doctors to get them to use Medtronic products. Id. at 508-09.

Thereafter, Poteet claimed, the doctors submitted numerous false, fraudulent, and ineligible claims for Medicare and Medicaid reimbursement to the federal government in violation of the FCA. Id. at 509. Poteet further alleged that the doctors promoted Medtronic products to third-party doctors, that they “improperly influenced” the third-party doctors, and that the third-party doctors subsequently submitted false claims to the federal government for reimbursement. Poteet claimed that the actions of the defendants violated both the FCA and the federal Anti-Kickback statute, 42 U.S.C. § 1320a-7(b). Like the John Doe action, Poteet's lawsuit was covered by the news media. The New York Times published a story entitled, “Medtronic says a 2nd suit is filed over alleged kickbacks.” Bloomberg News, N.Y. Times, Medtronic says a 2nd suit is filed over alleged kickbacks, Sep. 3, 2004, C3. Following this, the Times published another story entitled, “Whistle-Blower Suit Says Device Maker Generously Rewards Doctors.” Reed Abelson, Whistle-Blower Suit Says Device Maker Generously Rewards Doctors, N.Y. Times, Jan. 24, 2006, C1.

In 2006, the government successfully moved to dismiss the Poteet I complaint. Poteet I, 552 F.3d at 509. In its motion, the government argued that Poteet's action was based on public disclosures made in Wiese and Doe and, as a result, was barred by the FCA's public disclosure provision. Id. The government also informed the district court that it had entered into a settlement agreement with Medtronic, an agreement which, among other things, included a condition that the Poteet and Doe qui tam actions be dismissed. Id. at 509-10. The Sixth Circuit affirmed the dismissal of Poteet's action. Id. at 510. The court held that Poteet's suit was “based upon” the Wiese complaint and that, as a result, the public disclosure bar stripped the courts of subject matter jurisdiction over Poteet's complaint. Id. at 514-15.

In the present case, the district court held that the allegations made in these previous lawsuits, along with the accompanying media coverage of the lawsuits, prevented jurisdiction over Poteet's claims against the doctor defendants. The district court further ruled that Poteet had not pled her claims against the distributor defendants with the requisite particularity.

III. Discussion

Poteet presents three claims on appeal. We consider them in turn.

A. Public disclosure provision

Poteet first argues that the district court erred when it held that the FCA's public disclosure provision barred her claims against the doctor defendants. Ordinarily, we review a district court's dismissal for lack of subject matter jurisdiction de novo, Ondis, 587 F.3d at 54, and that holds true here. Poteet, as the proponent of federal jurisdiction, bears the burden of proving its existence by a preponderance of the evidence. Id.

We employ a multi-part inquiry to determine whether the public disclosure bar applies. Ondis, 587 F.3d at 53. The first three parts of this inquiry ask: (1) whether there has been a prior, public disclosure...