USA ex rel. Leslie STEURY v. CARDINAL HEALTH INC., 09-20718.

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation625 F.3d 262
Docket NumberNo. 09-20718.,09-20718.
PartiesUNITED STATES of America ex rel. Leslie STEURY, Plaintiff-Appellant, v. CARDINAL HEALTH, INC., formerly known as Alaris Medical Systems, Inc.; Cardinal Health 303, Inc., formerly known as Alaris Medical Systems, Inc.; Cardinal Health Solutions, Inc., Defendants-Appellees.
Decision Date01 November 2010

OPINION TEXT STARTS HERE

COPYRIGHT MATERIAL OMITTED.

William David George, Connelly Baker Wotring, L.L.P., Houston, TX, for Plaintiff-Appellant.

James P. Holloway, Ober, Kaler, Grimes & Shriver, Washington, DC, Charles Thomas Kruse, Matthew William Caligur, Baker & Hostetler L.L.P., Houston, TX, for Defendants-Appellees.

Appeals from the United States District Court for the Southern District of Texas.

Before DeMOSS, BENAVIDES and ELROD, Circuit Judges.

BENAVIDES, Circuit Judge:

Relator Leslie Steury, on behalf of the United States, claims that defendants Cardinal Health, Inc., Cardinal Health 303 Inc., and Cardinal Health Solutions, Inc., successors to Alaris Medical Systems, Inc., sold the United States Department of Veterans Affairs defective medical equipment in violation of the False Claims Act (FCA), 31 U.S.C. § 3729(a) (2009). A magistrate judge recommended dismissing Steury's complaint for failure to state a claim under Federal Rules of Civil Procedure 9(b) and 12(b)(6), but also recommended granting Steury leave to amend. Both parties filed timely objections. After de novo review, the district court adopted the magistrate judge's recommendations in full. The same day, the district court entered a final judgment dismissing Steury's action.

Steury appeals on grounds that she stated a claim under Rules 9(b) and 12(b)(6), and alternatively that the district court abused its discretion in denying her an opportunity to amend her complaint. We affirm the district court's decision with respect to Steury's failure to state a claim, but we vacate the final judgment and remand to give Steury an opportunity to amend.

I. BACKGROUND

According to her amended complaint, Steury marketed Cardinal's Signature Edition Infusion Device (Signature pump) to various hospitals, including hospitals operated by the Veterans Administration, from March 18, 1996 until her termination on September 28, 2001. The Signature pump is an electronic device that regulates the rate at which intravenous fluids flow into patients. Steury alleges that the Signature pump has a dangerous defect that can cause air bubbles to accumulate and ultimately release into a patient's intravenous line, potentially resulting in serious injury or death. Steury alleges that Cardinal sold Signature pumps to the Veterans Administration from 1997 until August 26, 2006, at which time Cardinal suspended production, sales, repairs, and installation of the Signature pump after certain devices were recalled by the Food and Drug Administration for a separate problem.

Steury alleges that she first became aware of the air-in-line defect in the Signature pump in October 2000. Steury asserts that Dr. Mark DiLuciano, a pediatric anesthesiologist at Children's Hospital of Akron, informed Susan Springman, another Alaris employee, that a Signature pump had injected air into his patient's intravenous line, and that a similar problem had been reported at Children's Hospital of Philadelphia. On May 23, 2001, Steury allegedly met with John Snow (Alaris's area manager) and nurses from Children's Hospital of Akron to discuss concerns about the Signature pump. According to Steury, Snow discredited a nurse's report of an infant mortality related to an intravenous air bubble. Steury asserts that she and various other Alaris employees again discussed the air-in-line defect during a conference call on May 25, 2001 and at a meeting on May 31, 2001.

In June 2001, Snow allegedly informed Steury that Alaris had temporarily suspended shipments of Signature pumps while it reviewed the air-in-line defect, but nonetheless directed Steury to continue marketing the Signature pump. Steury asserts that she was told to expect a final answer from Snow within 90 days. E-mails attached to Steury's complaint suggest that Children's Hospital of Akron continued to raise concerns about the Signature pump between June and September 2001. On September 28, 2001, Alaris terminated Steury's employment. According to Steury, she would have “completed filling a major order” of Signature pumps by the Veterans Administration Hospital of Ohio only five days later.

Steury sued Cardinal on May 11, 2007 for alleged violations of the FCA and a number of similar state statutes. The United States filed a notice of declination to intervene pursuant to 31 U.S.C. § 3730(b)(4)(B) on January 28, 2008. On November 26, before Cardinal answered, Steury filed an amended complaint. The amended complaint again raised claims under the FCA and similar state statutes. In addition to the above factual allegations, Steury's amended complaint asserts, in relevant part:

51.... A claimant submits a false or fraudulent claim within the meaning of the FCA when he submits a claim for payment to the Government for products that contain defective parts.

52. By accepting payment from the federal Government or one of its agencies for the SE infusion pumps, Cardinal Health knowingly misrepresented that the SE infusion pumps were safe, reliable, and quality-assured.

* * *

54. A false certification occurs when the Government has conditioned payment of a claim upon the certification of compliance with, for example, a contract provision, regulation or statute. The claimant submits a false or fraudulent claim within the meaning of the FCA when he or she falsely certifies compliance with that contract provision or statute. These certifications can either be express or implied.

* * *

58. An implied false certification theory occurs when a claimant submits a false claim without expressly certifying compliance with a contract provision, statute, regulation, or governmental program. Liability is imposed on the premise of breach of contract or an implied responsibility, not a financial loss.

59. Cardinal Health is obligated to provide safe, reliable, and quality-tested products, which perform to their specifications, to the Government. By delivering and receiving payments for the SE infusion pumps, Cardinal Health is impliedly certifying compliance with the terms of its contract with the Government for the products.

Cardinal moved to dismiss Steury's complaint on February 2, 2009, and the matter was referred to a magistrate judge. On August 31, 2009, the magistrate judge issued a report and recommendation finding, inter alia, that Steury's allegations of fraud did not satisfy the heightened pleading requirements of Rule 9(b) and thus failed to state a claim under Rule 12(b)(6). The magistrate judge recommended that Steury's “complaint be dismissed without prejudice to the filing of an amended complaint within ten days, if this recommendation is adopted.” Both parties filed timely objections. On September 25, 2009, after de novo review, the district court adopted the magistrate judge's report and recommendation in full. On the same day, the district court entered a final judgment dismissing Steury's “action.” In bold letters, the district court confirmed that “THIS IS A FINAL JUDGMENT.” Steury filed a timely notice of appeal on October 23, 2009.

II. STANDARD OF REVIEW

[1] We review de novo a district court's ruling on a Rule 12(b)(6) motion. United States ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375, 379 (5th Cir.2003). We accept all well-pleaded factual allegations as true, and we interpret the complaint in the light most favorable to the plaintiff. Id. The plaintiff's factual allegations must support a claim to relief that is plausible on its face and rises above mere speculation. United States ex rel. Marcy v. Rowan Cos., 520 F.3d 384, 388 (5th Cir.2008). In addition, claims brought under the FCA must comply with the particularity requirements of Rule 9(b). United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997). Rule 9(b) requires, at a minimum, “that a plaintiff set forth the ‘who, what, when, where, and how’ of the alleged fraud.” Id.; see also United States ex rel. Rafizadeh v. Cont'l Common, Inc., 553 F.3d 869, 872-73 (5th Cir.2008).

[2] We review a district court's denial of leave to amend a pleading for abuse of discretion. See Del Prado v. B.N. Dev. Co., 602 F.3d 660, 663 (5th Cir.2010).

III. DISCUSSION

Steury has expressly limited the issues on appeal to: (1) whether Steury stated a claim under the FCA “when she alleged that the defendant sold the Veterans Administration medical equipment that it knew was defective and unsafe”; and if not, (2) whether the district court erred in granting final judgment without allowing her an opportunity to amend her complaint.

A. Failure To State A Claim

[3] [4] The FCA is the Government's “primary litigation tool” for recovering losses resulting from fraud. Marcy, 520 F.3d at 388. Under certain circumstances, the FCA permits “suits by private parties on behalf of the United States against anyone submitting a false claim to the government.” United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir.2009). Specifically, the FCA imposes civil penalties and treble damages on any person who, inter alia, “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 1 31 U.S.C. § 3729(a)(1)(B) (2009). The terms “knowing” and “knowingly” mean that a person (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” Id. § 3729(b)(1)(A)(i)-(iii). Proof of “specific intent to defraud” is not required. Id. § 3729(b)(1)(B). The term “material” means “having a...

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