U.S. ex rel. Roop v. Hypoguard Usa, Inc.

• Decision Date: 17 March 2009
• Docket Number: No. 07-3781.,07-3781.
• Citation: 559 F.3d 818
• Parties: UNITED STATES ex rel Henry ROOP, Plaintiff-Appellant, v. HYPOGUARD USA, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

559 F.3d 818

UNITED STATES ex rel Henry ROOP, Plaintiff-Appellant, v. HYPOGUARD USA, INC., et al., Defendants-Appellees.

No. 07-3781.

United States Court of Appeals, Eighth Circuit.

Submitted: October 14, 2008.

Filed: March 17, 2009.

Francis J. Flynn, argued, Jeffrey J. Lowe, on the brief, St. Louis, MO, for appellant.

Lisa S. Simmons, argued, Chicago, IL, Brent R. Austin and David M. Oppenheim, Chicago, IL, Ryan Marth, Minneapolis, MN, on the brief, for appellees.

Before LOKEN, Chief Judge, JOHN R. GIBSON and MURPHY, Circuit Judges.

LOKEN, Chief Judge.

Qui tam relator Henry Roop appeals the dismissal of his complaint alleging that his former employer, Hypoguard USA, Inc., violated the False Claims Act ("FCA"), 31 U.S.C. § 3729(a). Conceding that his initial Complaint failed to plead an FCA claim with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure, Roop argues that the district court¹ abused its discretion by denying him leave to amend and then denying his motion to alter or amend the judgment to permit him to file a proposed First Amended Complaint. We affirm.

Roop worked as a Medicare sales specialist for Hypoguard, a Minnesota-based manufacturer of blood glucose monitoring systems that are sold to diabetics, many of whom are eligible under Medicare for federal reimbursement of their purchases. Hypoguard sells these medical devices to distributors who submit Medicare reimbursement claims for their sales to nursing homes and individual consumers.

Roop commenced this action in March 2004 by filing a sealed complaint in the Northern District of Mississippi. The complaint alleged, inter alia, that Hypoguard blood glucose monitors and test strips were defective, and that Hypoguard knew they were defective and failed to file reports of defects required by the Food and Drug Administration's Medical Device Reporting ("MDR") regulations,² which caused Medicare to pay countless fraudulent reimbursement claims submitted by Hypoguard distributors. In May 2006, after a lengthy FDA investigation, the United States filed a Notice of Election to Decline Intervention. See 31 U.S.C. § 3730(b)(4)(B). Roop elected to continue the action. Hypoguard was then served and in October 2006 filed motions to dismiss and to transfer venue to the District of Minnesota.

In support of its motion to dismiss, Hypoguard argued that Roop failed to plead fraud with the specificity required by Rule 9(b) because he failed to allege "a single specific false claim or statement submitted to the government," details concerning the alleged failures to submit proper MDRs, and "what was false in any statement to the Government, why it was false, and when the allegedly fraudulent statements were made." In his Memorandum in Opposition, Roop argued at length that the complaint sufficiently pleaded an FCA claim and then concluded: "Alternatively, if this Court finds that Plaintiff's False Claims Act claims lack specificity as required by Rule 9(b), Plaintiff should be granted leave to file an amended complaint." The Northern District of Mississippi transferred venue to the District of Minnesota in March 2007 without ruling on the motion to dismiss.

The district court held a hearing on Hypoguard's motion to dismiss on September 6, 2007. Roop had not complied with the local rule requiring that a party who moves to amend a pleading "shall attach a copy of the amended pleading to the motion." D. Minn. LR 15.1. Accordingly, at the hearing, the district court asked:

If I were to require there to be a realleging under Rule 9, what further facts do you think could be adduced to shore this up?

Counsel for Roop responded:

Well, number one, I can allege that people were injured by it. I do have evidence of that. My client as a regional sales manager was involved in some telephone conferences with groups of sales reps as well as management of Hypoguard in which people gave instances of where people were injured by the device, so I could allege that....

THE COURT: Injured in the sense of requiring hospitalization—

[COUNSEL]: Yeah, and I think one person died.... I guess I could more clearly allege the reimbursement ... it's not Hypoguard being reimbursed, but that they're causing reimbursements to be made. So I could more specifically allege regarding the MDRs and that they were required to be reported and not reported and provide the basis under the regulations with some evidence as to—particular evidence as to people that were injured, or at least discussions where Hypoguard employees acknowledged that people were injured by the device.

THE COURT: Okay.

[COUNSEL]: I would like the opportunity ... to do Rule 26 disclosures and I'd like to take the depositions of some Hypoguard employees and some ex-employees. ... And I would like to get copies of all the MDRs they did file and just internal documents regarding the device....

After the hearing, the district court issued a Memorandum Opinion and Order dismissing Roop's Complaint with prejudice and denying his request for leave to amend. United States ex rel. Roop v. Hypoguard USA, Inc., 2007 WL 2791115 (D.Minn. Sept.24, 2007). The court concluded that all claims "failed to meet the particularity requirements of Rule 9(b)," a conclusion Roop does not challenge on appeal. Noting that Roop neither specified in his memorandum what additional facts he would plead nor submitted a proposed amended complaint, the court denied leave to amend because "the potential amendment Roop's counsel cited [at the hearing] would not cure the deficiencies in Roop's Complaint and thus would be futile."

On October 9, 2007, Roop filed a Motion to Alter or Amend the Judgment and Motion for Leave to File a First Amended Complaint, attaching a 25-page, 63-paragraph First Amended Complaint. His nine-page Memorandum in Support asserted that he "has now alleged in compliance with [Rule] 9(b) the instances of the false and fraudulent claims, and violations of FDA regulations," but he failed to provide a detailed comparison of how the lengthy First Amended Complaint cured deficiencies in the initial Complaint. The district court denied that motion in a Memorandum Opinion and Order explaining that Roop "failed to present any reason why he is entitled to relief under Rule 59(e) or 60(b)." United States ex rel. Roop v. Hypoguard USA, Inc., 2007 WL 4224074, at *1 (D.Minn. Nov.27, 2007).

1. On appeal, Roop first argues that the district court abused its discretion in dismissing his Complaint with prejudice and denying as futile his request for leave to amend to cure its Rule 9(b) deficiencies. Futility is a valid basis for denying leave to amend. We review the denial of leave to amend for abuse of discretion and questions of futility de novo. United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 555 (8th Cir.2006). The district court properly rejected Roop's request at the motion hearing for time to conduct discovery to satisfy Rule 9(b)'s particularity requirement. Id. at 559.

The FCA imposes liability if a defendant (1) "knowingly presents, or causes to be presented, [to a federal official] a false or fraudulent claim for payment or approval," or (2) "knowingly makes ... a false record or statement to get a false or fraudulent claim paid or approved." 31 U.S.C. § 3729(a)(1)-(2).³ Grounded in fraud, FCA claims must satisfy Rule 9(b)'s heightened pleading requirement: "[A] party must state with particularity the circumstances constituting fraud or mistake." To meet this standard and enable the defendant to respond "specifically and quickly," a complaint alleging fraud "must identify who, what, where, when, and how." United States ex rel. Costner v. United States, 317 F.3d 883, 888 (8th Cir.2003). If it alleges a systematic practice of submitting fraudulent claims, the FCA complaint "must provide some representative examples of [the] alleged fraudulent conduct," specifying "the time, place, and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result." Joshi, 441 F.3d at 556-57; accord United States ex rel. SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 506 (6th Cir.2008). Roop concedes his original Complaint failed to meet this pleading standard.

Though the district court "should freely give leave [to amend] when justice so requires," Fed.R.Civ.P. 15(a)(2), plaintiffs do not enjoy "an absolute or automatic right to amend" a deficient FCA Complaint. United States ex rel. Lee v. Fairview Health Sys., 413 F.3d 748, 749 (8th Cir.2005). Here, Roop's Memorandum in Opposition, submitted almost a year before the motion hearing, argued that his initial Complaint satisfied Rule 9(b), alternatively requested leave to amend in a concluding paragraph, and failed to describe the amendments he would submit. After transfer to the District of Minnesota, he failed to comply with local Rule 15.1 for six months before the motion hearing. When the district court asked at that hearing how Roop would cure the Rule 9(b) deficiencies, counsel described additional allegations of consumer injury and non-compliance with the MDR regulations, allegations arguably relevant to a products liability case but as the district court concluded, insufficient to satisfy the Rule 9(b) requirement that FCA fraud claims be pleaded with particularity. The court did not abuse its discretion in denying leave to amend. See Fairview Health Sys., 413 F.3d at 750, and cases cited; accord United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1259 (D.C.Cir.2004).

2. Roop next argues that the district court abused its discretion in denying his motion to alter or amend the judgment to allow him to file the proposed First Amended Complaint. He complains on appeal that only after the court dismissed his Complaint did he become "aware ... of the facts which the Court believed...