United States ex rel. D'Agostino v. EV3, Inc.

• Decision Date: 30 December 2015
• Docket Number: CIVIL ACTION NO. 10–11822–RGS
• Parties: United States of America ex rel. Jeffrey D'Agostino; States of California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas and Wisconsin; Commonwealths of Massachusetts and Virginia; and The District of Columbia v. EV3, Inc.; Micro Therapeutics, Inc.; John Hardin ; and Brett Wall
• Court: U.S. District Court — District of Massachusetts

153 F.Supp.3d 519

United States of America ex rel. Jeffrey D'Agostino; States of California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas and Wisconsin; Commonwealths of Massachusetts and Virginia; and The District of Columbia

v.EV3, Inc.; Micro Therapeutics, Inc.; John Hardin ; and Brett Wall

CIVIL ACTION NO. 10–11822–RGS

United States District Court, D. Massachusetts.

Signed December 30, 2015

Gregg D. Shapiro, Office of the United States Attorney, Shannon Kelley, United States Attorneys Office, Jonathan Shapiro, Lynn G. Weissberg, Stern, Shapiro, Weissberg & Garin, Boston, MA, Daniel R. Miller, Berger & Montague, Philadelphia, PA, for United States of America ex rel. Jeffrey D'Agostino; States of California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas and Wisconsin; Commonwealths of Massachusetts and Virginia; and The District of Columbia.

Joshua S. Levy, Ropes & Gray LLP, Bryan A. Pennington, Jeremy E. Kanarek, Mitchell D. Stromberg, Ropes & Gray, Stephen G. Huggard, Locke Lord LLP, Elizabeth H. Kelly, Hilary B. Dudley, Edwards Wildman Palmer LLP, Martin F. Murphy, Amanda S. Hainsworth, Shoshana D. Gray, Foley Hoag LLP, Boston, MA, for EV3, Inc.; Micro Therapeutics, Inc.; John Hardin ; and Brett Wall.

MEMORANDUM OF DECISION AND ORDER ON RELATOR'S MOTION TO AMEND THE COMPLAINT

STEARNS

, DISTRICT JUDGE.

This case was remanded by the Court of Appeals for reconsideration of the court's refusal to grant leave to plaintiff/relator Jeffrey D'Agostino to file a fifth iteration of his qui tam Complaint. In its opinion, the Circuit Court did not delve into this court's substantive discussion of the merits of the collective defendants' motion to dismiss. See United States ex rel. D'Agostino v. EV3, Inc. , 802 F.3d 188, 191 (1st Cir.2015)

(“First, [plaintiff/relator] contends that the district court improperly thwarted his efforts to amend his complaint. Second, he challenges the court's dismissal of his complaint and the subsidiary legal determinations undergirding that dismissal. We start—and end—with the first claim.”). For that reason, the court believes that the most efficacious way to proceed is by adopting and adapting its previous discussion of the merits of the case, and analyzing any new allegations for their effect on the court's thinking.

D'Agostino, a former employee of defendant EV3, Inc., filed the prototype of this action under seal on October 26, 2010. At the time, EV3 was the sole defendant. On February 3, 2011, D'Agostino amended the original Complaint to add three defendants, among them John Hardin, the Vice President of Sales and Global Marketing at EV3 for the Onyx device. D'Agostino sought and received permission to amend the Complaint two additional times, the first on August 28, 2012, and the second on May 17, 2013, while the case remained under seal. On October 1, 2013, the United States filed a notice of non-intervention, followed on December 19, 2013, by twenty-five named states and the District of Columbia.¹ On December 26, 2013, the court unsealed the case.² D'Agostino received permission to amend the Complaint yet again on April 28, 2014, adding Microtherapeutics, Inc. (the company that developed the Onyx and Axium devices before merging with EV3), and Brett Wall (a former marketing executive at EV3) as defendants.

On August 1, 2014, on completion of the briefing of the motion to dismiss, D'Agostino sought to amend his Complaint for a fifth time.³ The court denied leave to amend pursuant to Fed. R. Civ. P. 16(b)(4)

, which requires a showing of “good cause,” and on September 30, 2014, dismissed the Third Amended Complaint (TAC) with prejudice.

On September 30, 2015, the Court of Appeals remanded with the instruction that the court consider D'Agostino's request to amend under the more lenient standard of Fed. R. Civ. P. 15(a)(2)

, which permits an amendment only with leave of the court, but also stipulates that leave is to be granted freely “when justice so requires.” Nonetheless, as the Court of Appeals noted, while leave is to be freely granted, a court may deny leave to amend under Rule 15(a)(2) for essentially the same reasons as under Rule 16(b)(4), including “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.”

Foman v. Davis , 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)

. See

D'Agostino , 802 F.3d at 195 (“Let us be perfectly clear. We do not suggest that the district court will be compelled to grant the motion to amend on remand.”).

On November 9, 2015, D'Agostino filed a new motion to amend, attaching a superseding Proposed Complaint (Dkt. # 128-1). Defendants now oppose this motion, arguing inter alia that it would cause undue delay, undue prejudice, that D'Agostino has repeatedly tried and failed to cure deficiencies in the Complaint, and that any further attempt to amend would be futile.

The defendants focus the bulk of their briefs on the “futility” exception. “[A] judge may deny leave if amending the pleading would be futile—that is, if the pined-for amendment does not plead enough to make out a plausible claim for relief.” HSBC Realty Credit Corp. (USA) v. O'Neill , 745 F.3d 564, 578 (1st Cir.2014)

. “Futility of the amendment constitutes an adequate reason to deny the motion to amend.” Todisco v. Verizon Commc'ns, Inc. , 497 F.3d 95, 98 (1st Cir.2007). While “plaintiff typically will not be precluded from amending a defective complaint in order to state a claim on which relief can be granted ... several courts have held that if a complaint as amended could not withstand a motion to dismiss or summary judgment, then the amendment should be denied as futile.” 6 Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ. § 1487 (3d ed.) ; cf.

Hatch v. Dep't for Children, Youth & Their Families , 274 F.3d 12, 19 (1st Cir.2001) (“If leave to amend is sought before discovery is complete and neither party has moved for summary judgment, the accuracy of the ‘futility’ label is gauged by reference to the liberal criteria of Federal Rule of Civil Procedure 12(b)(6).”).

THE AMENDED DECISION⁴

In this now five-year-old qui tam action, plaintiff/relator Jeffrey D'Agostino, a former medical device salesman for defendant EV3, Inc., alleges that EV3, Micro Therapeutics, Inc. (MTI), John Hardin, and Brett Wall violated the federal False Claims Act (FCA), 31 U.S.C. § 3729 et seq. ,

as well as the False Claims Acts of twenty-six states and the District of Columbia. According to the Proposed Complaint, defendants knowingly caused the submission of false claims for reimbursement in violation of FCA § 3729(a)(1)(A) (Count I), and knowingly made, or caused to be made, false records or statements that were material to the false reimbursement claims in violation of FCA § 3729(a)(1)(B) (Count II), and made, used or caused to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the government, or knowingly concealed, avoided or decreased such obligation, in violation of 31 U.S.C. § 3729(a)(1)(G) (Count III),⁵ all the while conspiring to commit these acts in violation of FCA § 3729(a)(1)(C)

(Count IV). The Proposed Complaint makes parallel allegations under the various state and District of Columbia analogs to the FCA (Counts V-XXXI).⁶ For reasons to be explained, D'Agostino's motion under Rule 15(a)(2) to amend his complaint once more will be denied.

BACKGROUND

EV3 manufactures the two medical devices implicated in the Proposed Complaint, the Onyx Liquid Embolic System (Onyx) and the Axium Detachable Coil System (Axium). Both Onyx and Axium were developed by MTI (which later merged with EV3).⁷ Defendant Brett Wall held executive sales and marketing positions at EV3, MTI, Boston Scientific, and Covidien (the current parent company of EV3). Wall was actively involved in the marketing of Onyx and Axium. Defendant John Hardin was the Vice President of Sales and Global Marketing for Onyx at EV3.⁸ D'Agostino served as the Territory Sales Manager for EV3 in the eastern United States between 2005 and 2010.

A. Onyx

Onyx is a synthetic liquid that, when introduced by a catheter, forms a solid mass (embolus) inside a patient blocking the flow of blood. The FDA approved Onyx in July of 2005 for use in the presurgical treatment of a vascular defect in the brain known as brain arteriovenous malformation

(BAVM). The market for the on-label use of Onyx is very small; there are only an estimated 3,000 cases of BAVM treated annually in the United States.

1. Misleading the FDA in the Onyx Approval Process

In broad terms, D'Agostino alleges that MTI misled the FDA during the Onyx approval process by proposing an overly narrow indication for its use, while concealing the true scope of its marketing strategy, and failing to report relevant safety information. D'Agostino alleges that, but for MTI's fraud, Onyx would not have been approved for any use by the FDA.⁹

The factual allegations, distilled from the legal conclusions in which they are embedded, are as follows.¹⁰ According to the Proposed Complaint, the FDA advisory panel appointed to review the safety and efficacy of Onyx expressed concern that the device (despite MTI's assurances) might be marketed for the off-label treatment of other types of vascular disease

, or might be left permanently embedded in a BAVM patient if follow-up surgery was not performed.¹¹ In response to the panel's reservations, the Proposed Complaint alleges that MTI gave false...