On December 16, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. Hagerty v. Cyberonics, Inc. (Case No. 16-1304) affirming the US District Court for the District of Massachusetts’ dismissal of a relator’s False Claims Act (FCA) claims for failure to plead the alleged fraudulent scheme with the level of particularity required by Federal Rule of Civil Procedure 9(b).
The relator, a former sales representative of medical device manufacturer Cyberonics, Inc., alleged that his former employer had engaged in a scheme to overbill the government by encouraging unnecessary, untimely surgical procedures to prematurely replace batteries in patients’ Vagus Nerve Stimulator (VNS) devices. The relator alleged that while VNS devices, implanted to treat patients with refractory epilepsy, have battery lives of eight to nine years, Cyberonics adopted a sales strategy designed to result in battery replacements after four to five years.
The relator’s suit was filed in August 2012, and the case was unsealed in December 2013 after the government declined to intervene. The relator amended his complaint in May 2014, and Cyberonics moved to dismiss the suit in June 2014.
On March 31, 2015, the District of Massachusetts cited to Rule 9(b) in dismissing the FCA claims, finding that while the relator had adequately alleged a fraudulent scheme, he had failed to provide any particular allegations regarding the submission of false claims or Cyberonics’ involvement in any such submissions. The district court further rejected the relator’s motion to amend his complaint to cure deficiencies identified in the motion to dismiss on the basis that his request was unduly delayed.
On appeal to the First Circuit, while the relator argued that his complaint was comparable to two FCA complaints previously found to be adequate by the First Circuit (United States ex rel. Duxbury v. Ortho Biotech Prods., L.P. and United States ex rel. Excobar v. Universal Health Servs., Inc.), the court found that unlike in Duxbury, the relator failed to identify the who, what, where and when, including failing to allege the filing of the false claims themselves.” Specifically, the court found that the relator had failed to allege whether claims for reimbursement were submitted to the government for unreasonable and medically unnecessary procedures, and had failed to identify how many false claims were submitted or “how Cyberonics’ actions caused their submission.” While the relator identified a specific VNS patient as “Medicare-eligible,” the complaint provided “no indication” that this patient “was an actual Medicare recipient, that his replacement surgery was unnecessary, or that any false claim was submitted on his behalf.” The court further found the complaint’s statistical allegations regarding VNS patients’ enrollment with government healthcare programs to be “too broad to be given much weight.” “[W]ithough any allegation that the [VNS] patients were actually covered by government programs or that certain replacement procedures conducted on these patients were medically necessary, [relator] has at most . . . [only] raise[d] facts . . . suggest[ing] fraud was possible.” (internal quotation marks omitted).
Finally, the First Circuit found that the district court had not abused its discretion in denying the relator’s motion for leave to amend, as the relator had failed to provide a valid reason for his delay. The court held that Cyberonics’s motion to dismiss put the relator on notice of the deficiencies in the complaint, and that his unexplained delay of over a year to attempt to cure these defects did not meet his burden of “showing some valid reason for his neglect and delay.” The ruling reaffirms the First Circuit’s rule that “undue delay, on its own, may be enough to justify denying a motion for leave to amend.”