United States ex rel. Schroeder v. Medtronic, Inc.

• Decision Date: 14 September 2021
• Docket Number: 17-2060-DDC-KGG
• Court: U.S. District Court — District of Kansas
• Parties: UNITED STATES OF AMERICA, ex rel. THOMAS SCHROEDER, Plaintiff, v. MEDTRONIC, INC., and HUTCHINSON REGIONAL MEDICAL CENTER, Defendants.

UNITED STATES OF AMERICA, ex rel. THOMAS SCHROEDER, Plaintiff, v. MEDTRONIC, INC., and HUTCHINSON REGIONAL MEDICAL CENTER, Defendants.

No. 17-2060-DDC-KGG

United States District Court, D. Kansas

September 14, 2021

MEMORANDUM AND ORDER

Daniel D. Crabtree, United States District Judge.

This Order rules two pending motions: (1) defendant Medtronic Inc.'s Motion to Dismiss Second Amended Complaint (Doc 45) and (2) defendant Hutchinson Regional Medical Center's Motion to Dismiss (Doc. 47). For reasons explained below, the court grants in part and denies in part Medtronic's Motion to Dismiss Second Amended Complaint. The court denies Hutchinson's Motion to Dismiss.

I. Background

A. Procedural History

Relator Thomas Schroeder initiated this qui tam action on behalf of the United States government in January 2017. See Doc. 1 (Compl.). While the government was weighing whether it would intervene in this lawsuit, see Docs. 3, 5, 7, 9, 12, 15, Mr. Schroeder amended his Complaint.^[1] See Doc. 14 (Am. Compl.). After nearly two years and several extensions of time, the government filed a Notice-in April 2020-explaining that it would not intervene. See Doc. 19 at 1. But as the court explained in an Order entered just a few days later, the government, “for good cause, ” still could intervene in this action “at any time[.]” Doc. 20 at 2. In July 2020, relator amended his Complaint a second time. See Doc. 26 (Second Am. Compl.).^[2] Later that year, Medtronic filed its Motion to Dismiss Second Amended Complaint (Doc. 45), along with a Memorandum in Support of Motion to Dismiss Second Amended Complaint (Doc. 46). Hutchinson then filed its own Motion to Dismiss (Doc. 47), plus a Memorandum in Support of Motion to Dismiss (Doc. 48). Relator filed Responses opposing both motions. See Docs. 55, 56. Medtronic filed a Reply Memorandum Supporting Motion to Dismiss (Doc. 61), and Hutchinson filed its own Reply Memorandum (Doc. 63). These motions to dismiss are fully briefed, and the court now can rule them both. But first, the court describes the federal statutes and factual allegations underlying this lawsuit. After that, the court overviews the governing legal standards. Then, the court analyzes the parties' competing arguments.

B. The False Claims Act

This lawsuit is a qui tam action arising under the False Claims Act (FCA). See 31 U.S.C. § 3729(a)(1) - (3). The peculiar sounding phrase referenced above “is an abbreviation for qui tam pro domino rege quam pro se ipso in hac parte sequitur, ” which means “‘who as well for the king as for himself sues in this matter.'” Grubbs, 565 F.3d at 184 n.5 (quoting Black's Law Dictionary 1262 (7th ed. 1999)). In other words, qui tam suits are “brought by private persons on behalf of the Government” when permitted by statute. Id. at 184 (emphasis added); see also State Farm Fire & Cas. Co. v. United States ex rel. Rigsby, 137 S.Ct. 436, 440 (2016) (describing qui tam actions as “[a]lmost unique to the FCA”). If the government declines to intervene, as it did here, “the relator ‘shall have the right to conduct the action.'”^[3] United States ex rel. Polukoff v. St. Mark's Hosp., 895 F.3d 730, 735 (10th Cir. 2018), cert. dismissed, 139 S.Ct. 2690 (2019) (quoting 31 U.S.C. § 3730(c)(3)). “Depending on the specific circumstances of the qui tam suit, the government and the relator divide any proceeds derived from the suit.” Id. (citing 31 U.S.C. § 3730(d)). “This system is designed to benefit both the relator and the Government.” Rigsby, 137 S.Ct. at 440; see also Id. (“A relator who initiates a meritorious qui tam suit receives a percentage of the ultimate damages award, plus attorney's fees and costs.” (citing 31 U.S.C. § 3730(d)).

As for the False Claims Act itself, that law dates back more than a century to the Civil War. See Grubbs, 565 F.3d at 184. The FCA is a remedial statute. See Id. at 189 (“Put plainly, the statute is remedial[.]”); see also United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 725 (10th Cir. 2006) (describing congressional intent behind the 1986 amendments to the FCA as “[e]mphasizing that the statute was remedial”).^[4] It first was passed in 1863 under President Lincoln's leadership. See Grubbs, 565 F.3d at 184. Originally, the FCA was “‘aimed principally at stopping the massive frauds perpetrated by large contractors during the Civil War.'” Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1996 (2016) (quoting United States v. Bornstein, 423 U.S. 303, 309 (1976)). Congress, aghast by the “‘sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed in purchasing the necessitates of war[, ]'” responded by passing the FCA. Id. (quoting United States v. McNinch, 356 U.S. 595, 599 (1958)).

“To aid the rooting out of fraud, the Act provides for civil suits brought by both the Attorney General and by private persons, termed relators, who serve as a ‘posse of ad hoc deputies to uncover and prosecute frauds against the government.'” Grubbs, 565 F.3d at 184 (quoting United States ex rel. Milam v. Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th Cir. 1992)). “Congress has repeatedly amended the Act, but its focus remains on those who present or directly induce the submission of false or fraudulent claims.” Escobar, 136 S.Ct. at 1996 (citation omitted). So, what exactly does the FCA proscribe?

“Today, the FCA generally prohibits private parties from ‘knowingly' submitting ‘a false or fraudulent claim' for reimbursement.” Polukoff, 895 F.3d at 741 (quoting 31 U.S.C. § 3729(a)(1)(A)). The FCA imposes civil liability on “any person who . . . knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the United States government. 31 U.S.C. § 3729(a)(1)(A). “A ‘claim' now includes direct requests to the Government for payment as well as reimbursement requests made to the recipients of federal funds under federal benefits programs.” Escobar, 136 S.Ct. at 1996 (citing 31 U.S.C. § 3729(b)(2)(A)). Given the law's focus on fraud, there's a scienter requirement. It “defines ‘knowing' and ‘knowingly' to mean that a person has ‘actual knowledge of the information,' ‘acts in deliberate ignorance of the truth or falsity of the information,' or ‘acts in reckless disregard of the truth or falsity of the information.'” Id. (quoting 31 U.S.C. § 3729(b)(1)(A)).

The FCA's scienter requirement, however, “‘require[s] no proof of specific intent to defraud[.]'” Polukoff, 895 F.3d at 734 (quoting 31 U.S.C. § 3729(b)(1)(B)).

FCA liability can lead to severe penalties. See United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 795-96 (8th Cir. 2011) (explaining that the FCA “is not concerned with regulatory noncompliance” and instead “serves a more specific function, protecting the federal fisc by imposing severe penalties on those whose false or fraudulent claims cause the government to pay money”).^[5] Under § 3729(a) of the Act, violation of the statue can mean a person is liable for civil penalties, plus treble damages-i.e., “3 times the amount of damages which the Government sustains because of the act of that person.” 31 U.S.C. § 3729(a)(1).

C. The Parties in this Action

The relator in this lawsuit is a Regional Sales Manager for a company who sells medical devices in Kansas and around the country. Doc. 26 at 3 (Compl. ¶ 2). Medtronic also sells medical devices, including some in the same regions where relator's company operates. See, e.g., id. at 21 (Compl. ¶ 65) (alleging that relator's company lost out on sales to one hospital because the facility opted to purchase medical devices from Medtronic). In other words, relator's company and Medtronic are competitors in the medical device sales industry. See, e.g., id. at 29 (Compl. ¶ 91) (recounting a conversation with a hospital administration official about how relator's company could “compete like Medtronic” by providing “free devices”). Hutchinson Regional Medical Center is a nonprofit hospital located in Kansas. Id. at 4 (Compl. ¶ 6). Relator's company and Medtronic both market their services to Hutchinson. See, e.g., id. at 30 (Compl. ¶ 93) (describing a conversation between relator's colleague and a Hutchinson employee discussing Hutchinson's request for a sales proposal, which also was requested from Medtronic).

The Complaint tells a complicated story involving a host of characters. To lend some order to this complicated story, the following three subsections identify some of these key individuals.

1. Medtronic Employees Mentioned in the Complaint

The Complaint references two key Medtronic figures. Doug Winger is “a Sales Representative and Field Trainer” for Medtronic. Id. at 12 (Compl. ¶ 34). According to the Complaint, Winger played a central role in the schemes at Dole VA and Hutchinson. See, e.g., id. (“Upon information and belief, Winger continuously ran the schemes detailed herein[.]”). The Complaint also mentions a Medtronic employee named Kerri Montgomery Kirk- “Medtronic's Clinical Specialist[.]” Id. at 17 (Compl. ¶ 53). Kirk allegedly assisted Winger with the schemes at Dole VA and Hutchinson. See id.; see also Id. at 29 (Compl. ¶ 88).

2. Relevant Individuals at Dole VA

The Complaint's allegations about Medtronic and Dole VA center on the hospital's catherization (“cath”) lab. There, “Teri Brinkley worked as the Radiology Technologist and Lab Manager” and “was responsible for ordering, or recommending for ordering, medical devices for the Dole VA cath lab[.]” Id. at 17 (Compl. ¶ 52). The Complaint also references Diane Keene, who was Chief of Logistics for Dole VA. Id. at 20 (Compl. ¶ 62). The Complaint...