O 2
8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10
11 UNITED STATES OF AMERICA, et al., Case No.: 2:19-cv-10960-MEMF-SKx
12 Plaintiffs, ORDER GRANTING IN PART MOTION TO 13 DISMISS [ECF NO. 68] v.
14 MEDTRONIC PLC, et al., 15
16 Defendants. 17 18 19 20
21 Before the Court is the Motion to Dismiss filed by Defendants Covidien PLC, Medtronic 22 Inc., and Medtronic PLC. ECF No. 68. For the reasons stated herein, the Court hereby GRANTS IN 23 PART the Motion to Dismiss. 24
27 / / / 28 BACKGROUND 2 I. Factual Background1 3 The Court set out in detail the facts alleged by Relators John Birkle and Michael Bates on 4 behalf of the United States of America and the several States2 (“Relators”) in its prior Order 5 Granting Motion to Dismiss. ECF No. 51 (“MTD Order”). To briefly summarize, this qui tam action 6 concerns two medical devices manufactured by Defendant Covidien PLC (“Covidien”)3: (1) the 7 Puritan Bennett 980 Series Ventilator System (“PB 980”) and (2) the Vital Sync Informatics 8 Manager & Virtual Patient Monitoring Platform (“Vital Sync,” and collectively, the “Subject 9 Devices”). Although Covidien received clearance from the Food and Drug Administration (“FDA”) 10 for the devices in 2014, Relators allege they are defective and unreliable, and further allege that 11 Defendants gave kickbacks to hospitals to purchase these devices at government expense. 12 II. Procedural History 13 On December 30, 2019, Relators filed the instant qui tam action against Defendants. See 14 generally ECF No. 1. On April 28, 2021, Relators filed a First Amended Complaint under seal, 15 alleging forty-six (46) causes of action: (1) violation of the federal False Claims Act, 31 U.S.C. § 16 3729, et seq. (Counts 1 through 7); (2) violations of various state fraud statutes (Counts 8 through 17 38); (3) breach of contract (Count 39); (4) breach of implied covenant (Count 40); (5) retaliation 18 (Count 41); (6) violation of California Labor Code § 1102.5 (Count 42); (7) constructive discharge 19 in violation of public policy (Count 43); (8) defamation (Count 44); (9) retaliation, failure to 20 promote/transfer, and constructive discharge in violation of the Fair Employment and Housing Act 21 (Count 45); and (10) Fair Employment and Housing Act – disparate impact (Count 46). ECF No. 16. 22 23 1 Unless otherwise indicated, the following factual background is derived from the Second Amended 24 Complaint. ECF No. 62 (“SAC”). For the purposes of the Motion to Dismiss, the Court treats these factual allegations as true, but at this stage of the litigation, the Court makes no finding on the truth of these 25 allegations and is therefore not—at this stage—finding that they are true. 26 2 The “several States” in this action refers to the States of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, 27 Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, Washington, and the District of Columbia. 28 3 Covidien was purchased by Defendant Medtronic, Inc. on January 26, 2015, and the combined company is On March 14, 2023, Defendants moved to Dismiss the First Amended Complaint. ECF No. 49. After 2 briefing and argument from the parties, the Court issued an order granting Defendants’ Motion to 3 Dismiss with leave to amend. MTD Order. 4 On July 17, 2023, Relators filed the operative Second Amended Complaint, re-alleging the 5 same causes of action. See generally SAC. On August 18, 2023, Defendants filed this instant Motion 6 to Dismiss and Request for Judicial Notice. ECF Nos. 69 (“Motion”), 70 (“RJN”). On September 19, 7 2023, Relators filed their opposition to the Motion. ECF No. 72 (“Opposition”). On October 3, 2023, 8 Defendants filed their reply. ECF No. 73 (“Reply”). On December 14, 2023, the Court heard oral 9 argument on the Motion. 10 REQUEST FOR JUDICIAL NOTICE 11 I. Applicable Law 12 A court may take judicial notice of facts not subject to reasonable dispute where the facts 13 “(1) [are] generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and 14 readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 15 201(b). Under this standard, courts may take judicial notice of “undisputed matters of public record,” 16 but generally may not take judicial notice of “disputed facts stated in public records.” Lee v. City of 17 Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001), overruled on other grounds by Galbraith v. County 18 of Santa Clara, 307 F.3d 1119, 1125–26 (9th Cir. 2002). Moreover, even when documents are not 19 physically attached to the complaint, courts may nonetheless consider such documents if: “(1) the 20 complaint refers to the document; (2) the document is central to the plaintiff’s claim; and (3) no 21 party questions the authenticity of the document.” United States v. Corinthian Colleges, 655 F.3d 22 984, 999 (9th Cir. 2011); Lee, 250 F.3d at 688. 23 II. Discussion 24 Defendants ask the Court to take judicial notice of two documents: (1) a 501(k) Summary of 25 Substantial Equivalence for the PB 980 (ECF No. 71-1 (“Ex. A”)); and (2) a 501(k) Summary of 26 Effectiveness for Vital Sync (ECF No. 71-2 (“Ex. B”)). Relators do not appear to object to 27 28 Defendants’ RJN.4 Defendants assert that the exhibits were issued by the FDA and therefore public 2 records of administrative bodies widely recognized as proper subjects of judicial notice. See, e.g., 3 United States v. 14.02 Acres of Land More or Less in Fresno Cnty., 547 F.3d 943, 955 (9th Cir. 4 2008) (“Judicial notice is appropriate for records and ‘reports of administrative bodies.’” (quoting 5 Interstate Nat. Gas Co. v. S. Cal. Gas Co., 209 F.2d 380, 385 (9th Cir. 1954))). The Court therefore 6 GRANTS the Request for Judicial Notice and takes judicial notice of Exhibits A and B.5 7 MOTION TO DISMISS 8 I. Applicable Law 9 A. Motions to Dismiss for Failure to State a Claim 10 Under Federal Rule of Civil Procedure Rule 12(b)(6), a party may file a motion to dismiss 11 for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The purpose 12 of Rule 12(b)(6) is to “enable defendants to challenge the legal sufficiency of claims asserted in a 13 complaint.” Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987). A district 14 court may properly dismiss a claim under Rule 12(b)(6) if the complaint fails to allege sufficient 15 facts to support a cognizable legal theory. Caltex Plastics, Inc. v. Lockheed Martin Corp., 824 F.3d 16 1156, 1159 (9th Cir. 2016). 17 “To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to 18 ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 19 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The plausibility standard is not 20 akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has 21 acted unlawfully.” Id. While a complaint does not need detailed factual allegations, a plaintiff’s 22 obligation to provide the grounds of his entitlement to relief requires more than “threadbare recitals 23 of the elements of a cause of action.” Id. “Determining whether a complaint states a plausible claim 24 for relief is ‘a context-specific task that requires the reviewing court to draw on its judicial 25 experience and common sense.’” Ebner v. Fresh, Inc., 838 F.3d 958, 963 (9th Cir. 2016) (quoting 26 Iqbal, 556 U.S. at 679). 27 28 4 Accordingly, the Court presumes there is no objection as to the authenticity of the exhibits. When evaluating a complaint under Rule 12(b)(6), the court “must accept all well-pleaded 2 material facts as true and draw all reasonable inferences in favor of the plaintiff.” Caltex, 824 F.3d at 3 1159; Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) (“We 4 accept factual allegations in the complaint as true and construe the pleadings in the light most 5 favorable to the nonmoving party.”). This tenet, however, is “inapplicable to legal conclusions.” 6 Iqbal, 556 U.S. at 678. 7 Moreover, Federal Rule of Civil Procedure 9(b) states that an allegation of “fraud or mistake 8 must state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). Specifically, 9 the “circumstances” required by Rule 9(b) are the “who, what, when, where, and how” of the 10 fraudulent activity. Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); 11 Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (“[Rule 9(b) requires] the times, dates, places, 12 benefits received, and other details of the alleged fraudulent activity.”). Additionally, the allegation 13 “must set forth what is false or misleading about a statement, and why it is false.” Vess, 317 F.3d at 14 1106 (quoting In re Glenfed, Inc. Secs. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)). Rule 9(b)’s 15 heightened pleading standard applies not only to federal claims, but also to state law claims brought 16 in federal court. Id. at 1103. 17 A district court should generally grant leave to amend freely. Cervantes v. Countrywide 18 Home Loans, Inc., 656 F.3d 1034, 1041 (9th Cir. 2011). However, “a district court may dismiss 19 without leave where a plaintiff’s proposed amendments would fail to cure the pleading deficiencies 20 and amendment would be futile.” Id. 21 B. False Claims Act & Anti-Kickback Statute 22 The False Claims Act (“FCA”) prohibits the submission of false or fraudulent claims to the 23 federal government and imposes liability on an individual who “knowingly presents, or causes to be 24 presented, a false or fraudulent claim for payment or approval” or who knowingly makes a “false 25 record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A)–(B). A claim 26 under the False Claims Act requires a showing of: 27 28 (1) a false statement or fraudulent course of conduct, (2) made with the scienter, (3) 2 that was material, causing (4) the government to pay out money or forfeit moneys 3 due. 4 United States ex rel. Campie v. Gilead Sci., Inc., 862 F.3d 890, 899 (9th Cir. 2017) (quoting United 5 States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1174 (9th Cir. 2006)). 6 “A claim that includes items or services resulting from a violation of [the Anti-Kickback 7 Statute] constitutes a false or fraudulent claim for the purposes of [the federal False Claims Act].” 42 8 U.S.C. § 1320a-7b(g); see also United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 9 89, 96 (3d Cir. 2018) (confirming that the purpose of amendment to the Anti-Kickback Statute is to 10 “strengthen[] whistleblower actions based on medical care kickbacks” and “to ensure that all claims 11 resulting from illegal kickbacks are considered false claims” (quoting 155 Cong. Rec. § 10852-54 12 (daily ed. Oct. 28, 2009) (statement of Rep. Kaufman))); United States v. Medtronic PLC, 2022 WL 13 541604, at * 4 (C.D. Cal. Feb. 23, 2022) (“When the procurement of medical supplies is tainted by a 14 knowing violation of the Anti-Kickback Statute and the violator knows those supplies are subject to 15 reimbursement by a federal health care program, the submission to the government of a 16 reimbursement claim for those supplies turns the Anti-Kickback Statute violator into a False Claims 17 Act violator as well.”). 18 Rule 9(b)’s heightened pleading standard applies to the False Claims Act. Ebeid v. ex rel U.S. 19 v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). However, a relator need not identify representative 20 examples of false claims to support every allegation. Id. Rather, “use of representative examples is 21 simply one means of meeting the pleading obligation.” Id. Under Rule 9(b), “it is sufficient to allege 22 ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong 23 inference that claims were actually submitted.’” Id. at 998–99 (quoting United States ex rel. Grubbs 24 v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)). However, even under this “relaxed standard,” a 25 relator “must provide enough detail ‘to give [defendants] notice of the particular misconduct which 26 is alleged to constitute the fraud charged so that [they] can defend against the charge.’” Id. at 999 27 (quoting U.S. ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051–52 (9th Cir. 2001)). 28 / / / II. Discussion 2 Defendants contend that the Court should grant its Motion to Dismiss because: (1) Relators 3 fail to adequately allege violations of the federal FCA, (2) Relators’ state law claims fail as they 4 parallel the federal FCA claim, and (3) Relators fail to adequately allege Birkle’s employment- 5 related claims. For the reasons discussed below, the Court finds that (1) Relators fail to allege federal 6 FCA violations based on false certification, but adequately allege violations based on kickbacks, (2) 7 their parallel state law claims are adequately alleged only as to certain states, and (3) Relators have 8 abandoned the majority of their employment-related claims, but Birkle’s retaliation claims survive. 9 A. Relators sufficiently plead claims for violations of the federal FCA based on kickbacks (Counts 1–2, 4–5), but not false certification (Counts 3, 6) 10 i. Relators fail to plead fraud based on false certification (Counts 3, 6). 11 In their opposition on the initial motion to dismiss, Relators specifically sought “leave to file 12 a Second Amended Complaint to further detail Medtronic’s express and implied false certifications 13 of compliance with contractual, statutory, and regulatory requirements.” ECF No. 54 at 2. The Court 14 therefore granted Relators leave to amend their complaint to allege their false certification theory of 15 liability under the FCA. MTD Order at 14. Despite having amended their complaint for a second 16 time, Relators have abandoned their fraud based on false certification theory entirely in the face of 17 Defendants’ Motion. Opposition at 1 (“Relators do not oppose the dismissal of claims under the first 18 theory.”). Relators only explicitly concede as to Counts 3 and 6 on this point, and argue that the 19 remaining federal FCA causes of action are viable under their kickback theory. See Opposition at n.1 20 (referencing Counts 3 and 6 only). Defendants argue that this concession should extend to Counts 1, 21 2, and 5 as well, but the Court finds that the SAC adequately pleads these counts based on false 22 claims that can be satisfied by a violation of the Anti-Kickback Statute. SAC ¶¶ 258, 262, 276. 23 As Relators’ concession comes after being given an opportunity to amend their allegations, 24 the Court GRANTS the Motion as to Counts 3 and 6 without leave to amend. See Chodos v. West 25 Publishing Co., 292 F.3d 992, 1003 (9th Cir. 2002) (explaining that although leave to amend is 26 liberally granted, a district court’s discretion in allowing subsequent leave to amend is “particularly 27 broad” when it has “already granted a plaintiff leave to amend”). 28 ii. Relators sufficiently plead fraud based on kickbacks (Counts 1–2, 4–5). 2 A violation of the Anti-Kickback Statute occurs when the defendant: (1) knowingly and 3 willfully (2) offers or pays remuneration (3) to induce the payee to purchase or recommend for 4 purchase (4) any good or service that is reimbursable under a federal healthcare program. 42 U.S.C. 5 § 1320a-7b(b)(2)(B); see also United States v. Miles, 360 F.3d 472, 479–80 (5th Cir. 2004). With 6 regards to the AKS violation, the parties dispute the elements of remuneration and inducement. As 7 explained below, the Court finds that Relators have sufficiently alleged these elements. To find a 8 violation of the FCA, the Court must also find that any alleged kickback was material to the 9 government’s payment of an actual claim, and that there was scienter on the part of the Defendants. 10 See Campie, 862 F.3d at 899. The Court finds that Relators have adequately alleged these elements 11 at this stage. 12 1. Relators sufficiently allege remuneration under the AKS. 13 Defendants first challenge Relators’ allegations supporting that Defendants offered or paid 14 anything that could constitute remuneration under the AKS. Defendants specifically make arguments 15 as to whether the provision of the following categories of goods or services can constitute 16 remuneration: EVQs, filters, cleaning services, warranties, FlexTech, rentals, and trade-ins.6 The 17 Court addresses each in turn, and finds that the majority of these properly support remuneration. 18 EVQs. The Court previously found that the provision of free EVQs was not remuneration 19 because (1) it was not specifically pleaded whether the replacements were for defective products 20 (which would not be remuneration) or for non-defective products (which may be remuneration) and 21 (2) the EVQs had not been alleged to have been sold separately with individual and inherent value. 22 MTD Order at 18–19. Relators have now alleged affirmatively that Defendants provided free EVQs 23 “not to replace defective units,” but because hospital staff members would often damage them 24 during cleaning and installation. SAC ¶ 169. The Court acknowledges that it could be interpreted 25 26 6 The Court notes that the Opposition does not make any arguments as to the FlexTech program, rentals, and trade-ins specifically. At the hearing, Defendants requested that the Court find that Relators have waived 27 arguments as to these categories of services, which the Relators objected to. At this stage, the Court declines to limit the scope of any claim. While the Court addresses all the categories raised by Defendants, the Court 28 finds that this element is satisfied if even one category of goods and services can constitute remuneration at from the allegations that the defect with the PB 980 itself was how susceptible it was to damage in 2 conjunction with how much it had to be cleaned. Id. ¶¶ 101, 102. Nevertheless, drawing all 3 inferences in favor of the complainant, the Court finds that the allegations sufficiently support the 4 inference that EVQs were freely provided to hospitals to replace damaged (and not inherently 5 defective) products, and that otherwise the hospitals would have had to separately spend around 6 $900 to replace the EVQs themselves. SAC ¶ 169. Given the broad scope of the AKS,7 the Court 7 finds that Relators have adequately pleaded remuneration in the form of provision of free EVQs. 8 Filters. For the same reasons as with the EVQs, the Court finds that Relators have 9 adequately pleaded facts that would support that the provision of free DAR and Berriobac filters as 10 remuneration. Specifically, Relators have alleged that Defendants provided “thousands of dollars 11 worth of DAR filters as ‘free samples.’” SAC ¶¶ 179–181. The fact that they were given to address 12 an “alarm problem” with the PB 980 does not necessarily mean that they were given to replace 13 defective products—rather, Relators allege that the issue was that there was a lack of alarm if 14 hospitals used their own filters. Id. Therefore, a supported interpretation is that the PB 980s were 15 properly used with Defendants’ filters, and while hospitals may have preferred to use their own 16 brands of filters, this does not necessarily equate to a defect with either the PB 980 or Defendants’ 17 filters. Therefore, the Court finds that the provision of free filters can qualify as remuneration. 18 Cleaning Services. Again, to the extent that the inference is drawn that the PB 980s being 19 difficult to clean were not in it of itself a defect, the provision of free cleaning services would 20 constitute remuneration. SAC ¶ 170. 21 Warranties. Relators have alleged that hospitals were provided with a “highly valuable 22 extended warranty, including a maintenance agreement at no charge.” SAC ¶¶ 183–187. The Court 23 finds that this sufficiently supports the inference that the warranties had an independent value, and 24 therefore constitute remuneration. 25 FlexTech. The FlexTech sales program was allegedly used to allow hospitals to receive a PB 26 840 ventilator, and then upgrade to the PB 980 after a year. SAC ¶ 182. Relators have alleged that 27
28 7 See Hanleser Network v. Shalala, 51 F.3d 1390, 1398 (9th Cir. 1995) (recognizing Congress’s intent to hospitals would keep the PB 840 much longer than this period. Id. It appears that the value stems 2 from the hospitals “getting an extra two and a half years of extra use out of these new ventilators at 3 no charge, before receiving new PB 980s.” Id. However, it is unclear how this is an additional value, 4 as it is not clear that the PB 840s are somehow worth less than the PB 980s, which are the newer 5 product. Based on the allegations, what is clear is that no hospital had more than one ventilator at a 6 time under the program—if they kept the PB 840, they would not receive the PB 980. Therefore, the 7 Court finds that the allegations regarding the FlexTech program have not been adequately pleaded to 8 constitute a remuneration. 9 Rentals. Relators have pleaded that on two occasions, a hospital required Defendants to rent 10 it ventilators because “it did not have faith in the PB 980 ventilators.” SAC ¶ 188. While the Court 11 finds that it is plausible that the hospital did not have faith because there were actually defects with 12 their PB 980s, drawing the inference in favor of complainants, the hospitals could have also just 13 wanted to use a different product. The Court finds this adequately supports remuneration, as these 14 rentals had a specific value. Id. 15 Trade-Ins. The Court previously found that the allegations of allowing hospitals to keep 16 trade-in ventilators for an extended period of time satisfied remuneration, and does not find it 17 necessary to revisit the analysis here. MTD Order at 19–21. 18 2. Relators sufficiently allege inducement under the AKS. 19 Although not explicit in its moving papers, Defendants also challenge the inducement 20 element of the AKS. See Reply at 4. At the hearing, Defendants explained that their argument on the 21 inducement element in its moving papers was “married” with their 9(b) argument that “a causal 22 connection between alleged kickbacks and any alleged false claims paid” must be specifically 23 pleaded. Motion at 18. However, this marriage is exactly why Defendants’ argument fails on this 24 point.8 In its MTD Order, the Court previously noted the allegations in the FAC did not indicate that 25 the kickbacks induced the hospital to submit false claims. MTD Order at 22. The Court clarifies that 26 actual inducement is not a requirement of the AKS—that remuneration was given “to induce” is 27
28 8 The Court notes that this is an independent determination from whether there is sufficient causation under sufficient for a violation of the AKS. See U.S. v. TEVA Pharmaceuticals, Inc. USA, Inc., 2016 WL 2 750720, at *17 (S.D.N.Y. Feb. 22, 2016) (noting that the “focus of the AKS is not the success of the 3 bribe, but the bribe itself” and that a relator only need to show that “one purpose of remuneration is 4 to induce a person to use a service for which payment is made under a federal healthcare program” 5 (citing U.S. v. Katz, 871 F.2d 105, 108 (9th Cir. 1989)). Therefore, the fact that Relators have not 6 alleged that “every single purchase of a Subject Device was induced by a kickback” is not necessary 7 to plead inducement under the AKS. Motion at 18. Even if no Subject Devices were bought because 8 of the inducement, it would be a violation of the AKS if Defendants gave renumeration to induce, 9 which has been sufficiently pleaded at this time. See SAC ¶ 166 (“This equipment was given to 10 hospitals and physicians for free in order to change the behavior of the surgeons and induce more 11 sales of Defendants’ products.”).9 12 Accordingly, the Court finds that the inducement element has been adequately pleaded. 13 3. Relators sufficiently allege materiality under the FCA. 14 “The term ‘material’ means having a natural tendency to influence, or be capable of 15 influencing, the payment or receipt of money or property. Winter ex rel. United States v. Gardens 16 Regional Hospital and Medical Center, Inc., 953 F.3d 1108, 1121 (9th Cir. 2020). “For a false 17 statement to be material, a plaintiff must plausibly allege that the statutory violations are ‘so central’ 18 to the claims that the government ‘would not have paid these claims had it known of these 19 violations.’” Id. To satisfy Rule 9(b) in the context of an FCA violation, a complaint “need not allege 20 ‘a precise time frame,’ ‘describe in detail a single specific transaction’ or identify the ‘precise 21 method’ used to carry out the fraud,” nor “identify representative examples of false claims to support 22 every allegation.” United States v. United Healthcare Insurance Company, 848 F.3d 1161, 1180 (9th 23 Cir. 2016) (“It is sufficient to allege ‘particular details of a scheme to submit false claims paired with 24 reliable indicia that lead to a strong inference that claims were actually submitted.”). 25 26
27 9 Defendants, for the first time on Reply, make the argument that “induce” in the AKS must mean something 28 similar to criminal solicitation. Reply at 6–7. Regardless, the Court finds that the allegations adequately Here, Relators have alleged that the government would not pay out for claims that were not 2 accurate or truthful, or “tainted by unlawful kickbacks.” SAC ¶ 196–200. As alleged, payment to 3 providers is “conditioned upon [an] express certification that the Provider has complied with the 4 AKS.” Id. ¶ 69. This is sufficient—as the Court has found that Relators have sufficiently pleaded the 5 underlying AKS violation at this time, the Court does not find that materiality is a high bar to meet. 6 The Court acknowledges that not every misrepresentation is “material merely because the 7 Government designates compliance with a particular statutory, regulatory, or contractual 8 requirement as a condition of payment.” Universal Health Services, Inc. v. U.S., 579 U.S. 176, 194 9 (2016). However, designated compliance is nonetheless still “relevant” in evaluating materiality 10 (id.), and courts have previously found that compliance with AKS is material to the FCA. See, e.g., 11 U.S. ex rel. Macias v. Pacific Health Corporation, 2019 WL 2396305, at *7 (C.D. Cal. June 5, 2019) 12 (“Several courts have found that compliance with the AKS is material for the purpose of the FCA.”). 13 The Court sees no reason to require more for materiality in this case. Interpreting the allegations in 14 favor of Relators, Defendants provided remuneration to hospitals with the expectation that they 15 would continue to buy and use their products. It follows that the government would not have paid for 16 claims for ventilators that were part of this kickback scheme, if the kickbacks had been disclosed. 17 Accordingly, this omission could be considered material to the government’s payment of claims. 18 Defendants’ main argument as to materiality is intertwined with the requirement of the FCA 19 that any false statement (which may be satisfied by an AKS violation) actually cause the government 20 to pay out money.10 Specifically, Defendants argue that even accepting there was remuneration, as 21 alleged, none of the remuneration could have led to the purchase of any new Subject Devices. See 22 Reply at 7. Rather, they argue that all of the remuneration alleged has to do with servicing of 23 existing PB 980s, which the hospitals already had. Moreover, Defendants argue that the particularity 24 requirement of Rule 9(b) is not satisfied because rather than identify specific claims that were caused 25 by any remuneration, Relators have merely set forth a chart of total government payment to hospitals 26 over a seven-year time period related to all ventilator use. SAC ¶ 7. 27
28 10 Defendants’ main arguments at the hearing on the Motion related to this point, which the Court addresses The Court first finds that the SAC plausibly alleges that the remuneration could have led to 2 further purchases of the Subject Devices, or other related claims to be submitted. For example, 3 Relators have alleged that in one instance, Defendants left trade-in equipment at UCLA despite 4 giving the hospital the trade-in discount applied to the purchase of a new PB 980. SAC ¶ 173. 5 Drawing all inferences in favor of the complainant, it is plausible that the hospital was induced to 6 purchase the new PB 980 from Defendants because the hospital was getting not only a trade-in 7 discount, but were actually getting to keep the old device. The SAC also pleads that regarding 8 warranties, some customers “demanded an even further extended warranty before purchase.” SAC ¶ 9 183. While the Court acknowledges that other forms of remuneration may not obviously appear 10 related to a specific claim, the Court does not find that Relators must specifically identify each and 11 every claim submitted that they are alleging were induced by the remuneration at issue at this stage. 12 To the extent that Defendants gave remuneration to the hospitals during the time period 13 identified by Relators (2014 to 2021) and these hospitals submitted government claims for purchases 14 from Defendants, it is plausible that all of the purchases from Medtronic were induced by kickbacks. 15 SAC ¶ 7. This is how kickbacks work—a company gives a hospital something of value, so that the 16 hospital will continue to use their services and products. The branching consequence of every 17 remuneration identified by Relators is appropriately resolved through the discovery process—the 18 Court finds it sufficient at this point that Relators have specifically alleged that Defendants gave 19 kickbacks to the hospitals, and that the hospitals then made claims to the government for purchases 20 from Defendants without disclosing these kickbacks. See Ebeid, 616 F.3d at 998 (concluding that it 21 is sufficient under Rule 9(b) to allege the “particular details of a scheme to submit false claims 22 paired with reliable indicia that lead to a strong inference that claims were actually submitted”); see 23 also U.S. ex rel. Everest Principals, LLC v. Abbott Lab., 622 F. Supp. 3d 920, 933 (S.D. Cal. Aug. 24 18, 2022) (holding that “[r]egardless of [the] apparent split of authority between the Third and 25 Eighth Circuits (and the 9th Circuit’s silence as to [the] ‘but for’ cause issue),” the relators 26 adequately established a link simply by pleading that the defendant gave remuneration “for the 27 purpose of inducing” usage of a medical device); Strom ex rel. U.S. v. Scios, Inc., 676 F. Supp. 2d 28 884, 894 (N.D. Cal. 2009) (“While there may indeed be factual disputes as to which claims, if any, were the result of Defendants’ fraudulent activity, it is not Plaintiff’s burden to prove such causation 2 at the pleading stage”). 3 Similarly, to the extent that Defendants gave remuneration to the hospitals during the time 4 period identified by Relators (2014 to 2021) and these hospitals submitted government claims for 5 use of the Defendants’ ventilators in treatment, it is plausible that all of this use was induced by 6 kickbacks. SAC ¶ 7. And the Relators explicitly allege that the kickbacks led the hospitals to 7 continue using these ventilators in treatment and file claims for their usage. SAC ¶¶ 6, 7, 10, 12. 8 Furthermore, the Relators plausibly allege the connection between the usage claims and the 9 purchases by alleging that the government “funded these equipment purchases after the fact by 10 providing reimbursement for the use of Defendants’ devices.” Id. ¶ 10. Given the allegations cited 11 above regarding new purchases, the Court need not determine at this stage whether claims for usage 12 of ventilators purchased as part of the kickback scheme would be sufficiently linked to the AKS 13 violation as to constitute false claims. The Relators can attempt to develop this theory during 14 discovery and either party may seek to prevail on their respective positions at summary judgment or 15 trial. 16 Here, the details in the Complaint sufficiently give Defendants notice of the misconduct 17 alleged so that they may properly defend against the allegations, which satisfies the purpose of Rule 18 9(b). Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (“This court has interpreted Rule 9(b) to 19 require that ‘allegations of fraud are specific enough to give defendants notice of the particular 20 misconduct which is alleged to constitute the fraud charged so that they can defend against the 21 charge . . .”). 22 Accordingly, the Court finds Relators have sufficiently pleaded materiality. 23 4. Relators sufficiently allege scienter under the FCA. 24 Rule 9(b) allows plaintiffs to allege scienter “generally,” although it must still be plausible. 25 Winter, 953 F.3d at 1122. Moreover, “a plaintiff need not prove a ‘specific intent to defraud’ under 26 the FCA—the Act imposes liability on any person acting ‘knowingly,’ which includes acting with 27 ‘actual knowledge, as well as acting ‘in deliberate ignorance,’ or ‘in reckless disregard of the truth or 28 falsity of the information.’” Id. Here, the Court finds this standard met, as there are plausible allegations regarding Defendants’ knowledge that they were giving kickbacks, and that hospitals it 2 gave kickbacks to would make claims and receive government money for its purchases of the 3 Subject Devices. SAC ¶¶ 189, 193–106, 203 (alleging knowledge of Defendants’ conduct). 4 Accordingly, the Court finds Relators have sufficiently pleaded scienter. 5 * * * 6 The Court therefore DENIES the Motion to Dismiss with respect to the claims of FCA 7 violation based on kickbacks (Counts 1–2, 4–5). The Court GRANTS the Motion to Dismiss with 8 respect to the claims of FCA violation based on false certification (Counts 3, 6) without leave to 9 amend. B. Relators’ sufficiently allege California, Hawaii, and Nevada state law claims 10 (Counts 8, 9, 16, 27) but do not sufficiently allege state law claims as to other 11 states (Counts 10–15, 17–26, 28–38) The parties appear to be in agreement that Relators’ state law claims parallel the FCA claims, 12 and therefore rise and fall with the federal FCA claims. Motion at 19–20; Opposition at 2. As the 13 Court finds FCA claims based on a kickback theory adequately alleged at this stage, the Court also 14 finds the equivalent state law claims adequate. Nevertheless, the Court notes that the SAC alleges 15 remuneration mostly being given to California hospitals, (see, e.g., SAC ¶¶ 170 (discussing Kaiser 16 Baldwin Park), 171 (Torrance Memorial Medical Center), 173 (UCLA Ronald Regan Medical 17 Center)). The SAC also shows a chart of hospitals that purchased PB 980 ventilators, with one 18 Hawaii hospital and the rest in California. SAC ¶ 7. At one point, the SAC alleges that Birkle stated 19 that Defendants should not do business with “13 different California and Nevada hospitals” which 20 all received government reimbursement. SAC ¶ 241. Accordingly, the Court finds that there are 21 sufficient allegations tying Defendants’ actions to hospitals in California, Hawaii, and Nevada, as the 22 Court infers that these hospitals would likely submit similar false claims in their respective states. 23 However, there is a lack of allegations from which the Court can infer false claims were submitted to 24 any other state government. See U.S. ex rel. Everest Principals, LLC v. Abbott Laboratories, Inc., 25 622 F. Supp. 3d 920, 935 (S.D. Cal. Aug. 18, 2022) (dismissing state claims where the relator did 26 not allege “with particularity how any false claims were submitted to each state identified”). 27 28 The Court therefore DENIES the Motion as to Counts 8, 9, 16, and 27—which bring causes 2 of action for violation of California, Hawaii, and Nevada law—but GRANTS the Motion with leave 3 to amend for the remaining states (Counts 10–15, 17–26, 28–38). 4 C. Birkle adequately pleads his retaliation causes of action (Counts 7, 41) but has abandoned his remaining employment-related claims (Counts 39–40, 42–46) 5 Defendants move to dismiss the various employment-related claims asserted by Birkle: 6 retaliation under the federal FCA and its California analogue (Counts 7, 41); violation of 7 California’s whistleblower statute (Count 42); constructive discharge (Count 43); breach of contract 8 (Count 39); implied covenant of good faith and fair dealing (Count 40); defamation (Count 44); and 9 age-based discrimination claims under FEHA (Counts 45–46). Relators have only opposed 10 Defendants’ arguments with respect to retaliation claims in their Opposition.11 The Court therefore 11 only addresses the retaliation claims here and finds the rest of the claims abandoned. See Jenkins v. 12 County of Riverside, 398 F.3d 1093, 1096 n.4 (9th Cir. 2005) (noting that the plaintiff “abandoned 13 her other [] claims by not raising them in opposition”). 14 A relator alleging an FCA retaliation claim must demonstrate that: (1) he engaged in 15 protected activity; (2) his employer knew that conduct was protected; and (3) he suffered an adverse 16 employment action causally linked to that protected conduct. Mendiondo v. Centinela Hosp. Med. 17 Ctr., 521 F.3d 1097, 1103 (9th Cir. 2008). The Court previously found that Birkle had not 18 adequately alleged the first two elements. MTD Order at 28. Birkle has now alleged that he had 19 multiple conversations with Medtronic Vice President Blake Tatum, where Birkle “expressed that it 20 was unethical and an obvious violation of their Compliance Wire training that Defendants were 21 providing customer hospital accounts with free equipment . . .” and that he complained quarterly to 22 Vice President of Sales Kevin Hardage that Birkle “was concerned about the unethical nature of 23 Defendants providing” certain goods and services. SAC ¶¶ 232–233. 24 Defendants’ arguments on this issue appear to focus on allegations that Birkle raised 25 concerns about customer complaints and allegedly defective products. Motion at 21; Reply at 13. 26
27 11 Nevertheless, as there is no dispute that California’s False Claims Act (“CFCA”) has a parallel standard, 28 the Court interprets Relators to have opposed Defendants’ arguments as to retaliation under CFCA, even if However, to the extent that Birkle raised complaints that the provision of free goods and services 2 was “unethical,” and an “obvious violation,” this would plausibly allege that Birkle was concerned 3 that Defendants were inducing false claims.12 See Moore v. Cal. Inst. of Tech. Jet Propulsion Lab., 4 275 F.3d 838, 845–86 (9th Cir. 2002) (defining protected activity as where an employee in good 5 faith and reasonably believes, “that the employer is possibly committing fraud against the 6 government”). At the hearing, Defendants argued that the SAC merely alleges that Birkle raised 7 complaints that Defendants were not complying with the training they provided him, which is 8 insufficient to rise to the level of a protected activity under the FCA. However, Birkle has alleged 9 that the training in question “specifically discussed regulatory requirements that Defendants not 10 provide any free products or services because that could constitute [undue] influence” under the 11 AKS and FCA. SAC ¶ 231. Therefore, Birkle’s complaints that he believed Defendants to be 12 violating what they were told in this training directly reflects that he was concerned specifically that 13 Defendants were violating the AKS and FCA, which is actionable. U.S. ex rel. Hopper v. Anton, 91 14 F.3d 1261, 1269 (9th Cir. 1996) (explaining that “the plaintiff must be investigating matters which 15 are calculated, or reasonably could lead, to a viable FCA action”). Defendants relied on Hopper in 16 arguing that there, the relator’s retaliation claim was dismissed even though she submitted numerous 17 complaints. However, her “investigatory activity did not have any nexus to the FCA.” Id. Here, even 18 though Birkle may not have raised as many specific complaints as the relator in Hopper, his 19 complaints, as alleged, have a clear nexus to the FCA. 20 Moreover, there are allegations that Birkle made complaints not tied specifically to violation 21 of any training—for example, his complaints also expressed concern that one of Medtronic’s 22 competitors would find out about the kickbacks and complain about them to the government, and 23 that the retention of trade-in equipment could be considered a kickback. SAC ¶ 232–233. The 24 allegations also specifically show knowledge by senior management and leadership of Birkle’s 25 complaints, as they were directly made to Tatum and Hardage. This would constitute knowledge by 26 27
28 12 The Court draws all inferences in favor of Relators in inferring that the customer hospitals Birkle Defendants that Birkle was engaging in this protected activity.13 The Court finds that this is 2 sufficient to meet the first two prongs of a retaliation claim. 3 Finally, the Court finds that Birkle has adequately alleged adverse conduct based on 4 protected activity. Specifically, Birkle has alleged the adverse conduct as Defendants trying to 5 “force” him out of the company “through a process of retaliation” in part due to his complaints. SAC 6 ¶ 244. The Court finds this sufficient to meet the final element of the claims at this stage of the case. 7 See Mendiondo v. Centinela Hosp. Medical Center, 521 F.3d 1097, 1101 (9th Cir. 2008) (holding 8 that notice pleading standard, as opposed to a heightened pleading standard, applies to FCA 9 retaliation claims). Accordingly, the Court finds that Birkle has adequately pleaded his retaliation 10 claims under the FCA and CFCA. 11 * * * 12 The Court therefore GRANTS the Motion to Dismiss as to Counts 39–40, 42–46 without 13 leave to amend, but DENIES the Motion to Dismiss as to Counts 7 and 41. 14 III. Conclusion 15 For the foregoing reasons, the Court hereby ORDERS as follows: 16 1. The Request for Judicial Notice is GRANTED; 17 2. The Motion to Dismiss is DENIED as to: 18 a. Relators’ federal FCA claims based on a kickback theory (Counts 1 –2, 4–5); 19 b. Relators’ California, Hawaii, and Nevada state law claims paralleling the federal FCA 20 (Counts 8, 9, 16, 27); 21 c. Relators’ claims for retaliation under the federal FCA and CFCA (Counts 7, 41); 22 3. The Motion to Dismiss is GRANTED with leave to amend as to: 23 a. Relators’ remaining state law claims paralleling the federal FCA (Counts 10–15, 17– 24 26, 28–38); 25 4. The Motion to Dismiss is GRANTED WITH PREJUDICE as to: 26 27 13 While the Court acknowledges Defendants’ arguments as to the veracity of the allegations and alternative theories, the Court does not find it appropriate at this stage to make factual determinations—rather, the Court 28 must draw all inferences in favor of Birkle, and in doing so, does not find anything in the SAC that would a. Relators’ federal FCA claims based on a false certification theory (Counts 3, 6); and 2 b. Relators’ remaining employment-related claims (Counts 39-40, 42-46). 3 4 IT IS SO ORDERED. Af 6 Dated: March 28, 2024 7 MAAME EWUSI-MENSAH FRIMPONG 8 United States District Judge 9 10 1] 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28