United States of America et al v. Medtronic Inc
Filing
63
ORDER granting 50 Motion to Dismiss/General (Written Opinion). Signed by Senior Judge David S. Doty on 1/16/2018. (DLO)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No.: 17-3770(DSD/TNL)
United States of America, ex rel., and
Cavallino Consulting LLC, Relator,
Plaintiffs,
v.
ORDER
Medtronic, Inc.,
Defendant.
Adam M. Shapiro, Esq. and Cotchett, Pitre & McCarthy, 840
Malcolm Road, Burlingame, CA 94010, counsel for plaintiff.
Dulce J. Foster, Esq. and Fredrikson & Byron, PA 200 South 6th
Street, Suite 4000, Minneapolis, MN 55402, counsel for
defendant.
This matter is before the court upon the motion to dismiss by
defendant Medtronic, Inc.
Based on a review of the file, record,
and proceedings herein, and for the following reasons, the motion
is granted.
BACKGROUND
This qui tam action arises from relator Cavallino Consulting,
LLC’s claim that since 2012 Medtronic has fraudulently charged
hospitals
owned
and
operated
by
the
federal
government
expedited shipping costs it did not actually incur.
for
Relator is a
consulting firm based in California that conducts audits, known as
Transportation Overcharge Recovery Audits, of health care systems
to “uncover transportation overcharging.”
Compl. ¶ 8.
Medtronic
is a medical device manufacturer that sells products to hospitals
throughout the country.1
Relator
alleges
Id. ¶ 11.
that,
through
ten
years
of
audits,
it
discovered that Medtronic has engaged in a widespread scheme to
“overcharge for expedited shipping across various health care
systems.”
Id. ¶ 10.
Relator does not allege that it audited a
government hospital or entity or that it otherwise investigated
Medtronic’s sales to the government in reaching that conclusion.
Nor does relator identify representative examples of sales in which
Medtronic overcharged the government for expedited shipping.
See
Compl. Ex. 1. Relator nevertheless alleges that Medtronic receives
substantial discounts on expedited shipping from various carriers
that it failed to pass on to the government despite its contractual
obligation to do so.
Compl. ¶ 21.
Relator broadly estimates that
the discounts ranged from 35% to 65%, which resulted in millions of
dollars in overpayment by the government.
The
contract
attached
to
the
Id. ¶¶ 2, 21.
complaint
is
an
“f.o.b.
destination” contract which, the parties agree, means that the
listed prices include the cost of delivery.
Compl. Ex. 1 ¶ 15.
The contract also provides, however, that for expedited, overnight,
1
The
complaint
mistakenly
asserts
that
Medtronic’s
headquarters are in Illinois rather than Minnesota. Compl. ¶ 11.
This error is apparently a stray allegation from a nearly identical
complaint filed by relator against a medical device manufacturer
based in Illinois.
The complaint also erroneously refers to
Medtronic as “defendants,” which is also presumably due to
relator’s other similar lawsuits.
2
and two-day delivery, the government is “responsible for the
additional shipping charge[s] between the normal surface (ground)
rate and expedited rate.”
Id. ¶¶ 11b, 11c.
as to the meaning of this provision.
The parties disagree
According to relator, it
requires the government to pay the actual expedited shipping costs
paid by Medtronic, whereas Medtronic interprets it to mean that the
government
is
required
to
pay
the
notwithstanding any carrier discounts.
expedited
shipping
“rate”
According to relator, the
contract language is sufficiently clear to establish that Medtronic
knowingly presented false claims for payment to the government by
submitting invoices that included expedited shipping costs it did
not actually incur due to carrier discounts.
Compl. ¶¶ 23-24.
On September 10, 2015, relator commenced this suit against
Medtronic in the Central District of California alleging violations
of the False Claims Act (FCA), 31 U.S.C. § 3729(a)(1)(A), (B), and
(G). The government declined to intervene. ECF No. 19. Medtronic
moved to transfer the case to Minnesota and to dismiss.
34, 35.
ECF Nos.
The California court granted the transfer motion finding
that convenience and fairness were best served by transferring the
case to Minnesota.
ECF No. 41, at 2-4.
The court declined to
entertain the motion to dismiss given the pending transfer.2
at 4.
Id.
Medtronic now moves to dismiss all claims against it under
2
The motion to dismiss was fully briefed and substantively
identical to the instant motion. See ECF Nos. 35, 36, 39.
3
Federal Rules of Civil Procedure 9(b) and 12(b)(6).
Relator
requests the opportunity to file an amended complaint should the
court find that its pleading is insufficient.
DISCUSSION
I.
Standard
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“A claim
has facial plausibility when the plaintiff [has pleaded] factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Iqbal, 556
U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)).
Although a complaint need not contain detailed factual
allegations, it must raise a right to relief above the speculative
level.
Twombly, 550 U.S. at 555.
“[L]abels and conclusions or a
formulaic recitation of the elements of a cause of action” are not
sufficient to state a claim.
Iqbal, 556 U.S. at 678 (citation and
internal quotation marks omitted).
Here, because all of relator’s claims are based in fraud, each
must also meet the heightened pleaded requirements of Rule 9(b).
See U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556
4
(8th Cir. 2006) (“Because the FCA is an anti-fraud statute,
complaints alleging violations of the FCA must comply with Rule
9(b).”).
The requirements of Rule 9(b) are read “in harmony with
the principles of notice pleading,” and the level of particularity
required depends upon the nature of a case.
Schaller Tel. Co. v.
Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002) (citation
and internal quotation marks omitted).
However, “[c]onclusory
allegations that a defendant’s conduct was fraudulent and deceptive
are not sufficient to satisfy the rule.”
internal
quotation
marks
omitted).
To
Id. (citation and
satisfy
the
heightened
pleading requirement, a plaintiff must set forth the “who, what,
where, when, and how” of an alleged fraud.
Joshi, 441 F.3d at 556
(citation and internal quotation marks omitted).
In other words,
a plaintiff must plead “the time, place and contents of false
representations, as well as the identity of the person making the
misrepresentation and what was obtained or given up thereby.”
BJC
Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007)
(citation and internal quotation marks omitted).
II.
Adequacy of Complaint
The FCA imposes liability against any person who knowingly
presents a false or fraudulent claim for payment to the federal
government.3
31 U.S.C. § 3729(a)(1).
3
The FCA allows private
The complaint alleges that Medtronic’s conduct violates the
Federal Acquisition Regulations (FAR) and the related contracts,
Compl. ¶¶ 3, 15-17, 24, but relator now concedes that the FAR is
5
citizens, known as relators, to bring an action on the government’s
behalf.
U.S. ex rel. Thompson v. Walgreen Co., 621 F. Supp. 2d
710, 712 (D. Minn. 2009).
Even when, as here, the government
declines to intervene, “a relator pursuing a qui tam action is
still representing the interests of the government.”
U.S. ex rel.
Davis v. Hennepin Cty., No. 15-2671, 2016 WL 10747256, at *2 (D.
Minn. July 8, 2016).
The FCA defines “claim” as “direct requests to the Government
for payment.” Universal Health Servs. v. U.S. ex rel. Escobar, 136
S. Ct. 1989, 1996 (2016) (citing 31 U.S.C. § 3729(b)(2)(A)).
“Knowingly” means “that a person, with respect to information - (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
information....” 31 U.S.C. § 3729(b)(1).
defraud is not required.
Where
the
falsity
of
the
Specific intent to
Id. § 3729(b)(1)(B).
complaint
alleges
a
“systematic
practice
of
submitting fraudulent claims, the FCA complaint ‘must provide some
representative examples of [the] alleged fraudulent conduct,’
specifying
‘the
time,
place,
and
content
of
the
defendant's
fraudulent acts, including when the acts occurred, who engaged in
them, and what was obtained as a result.’”
U.S. ex rel. Roop v.
Hypoguard USA, Inc., 559 F.3d 818, 822 (8th Cir. 2009) (quoting
irrelevant to this case.
Pl’s. Opp’n Mem. at 2.
6
Joshi,441 F.3d at 556-57).
However, “particular details of a
scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually submitted” may
be sufficient in lieu of representative examples.
U.S. ex rel.
Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 918
(8th Cir. 2014).
Here, the complaint contains no representative examples of the
fraud alleged, so the question is whether the complaint adequately
sets
forth
reliable
indicia
that
false
claims
were
actually
submitted. The court finds that it does not. Relator alleges that
Medtronic engaged in a broad and ongoing scheme to defraud, but
fails to credibly allege the key components of that fraud.
Most
notably, the complaint does not plausibly allege that Medtronic
submitted any claims to the government, let alone any fraudulent
claims.
There is no specific allegation that the government ever
ordered a device from Medtronic under the contract attached to the
complaint or any other contract.4
Nor does the complaint allege
that any hypothetical sales involved expedited shipping to any
government hospital or resulted in an invoice from Medtronic for
expedited shipping costs that did not take into account any
4
The relator has failed to identify any contract Medtronic
may have with the government beyond the publicly available contract
attached to the complaint. See Compl. ¶ 12 (“On information and
belief, Medtronic currently holds multiple contracts with the
Department of Veteran’s Affairs and other federal government
entities.”).
7
discount. Rather, the complaint simply alleges, without any detail
whatsoever, that Medtronic routinely failed to pass along discounts
to the government as required.
As to the discounts, relator only alleges that Medtronic
received discounts from carriers ranging from 35-65%. Compl. ¶ 21.
It does not provide the basis for that conclusory statement, nor
does it explain how relator knows that information given that it
audits hospitals and not medical device manufacturers such as
Medtronic.
Whether and to what extent Medtronic may receive
carrier discounts is pure speculation.
Even assuming sales occurred and that Medtronic failed to pass
along carrier discounts to the government, it is debatable whether
such conduct violated the contract provided to the court. Although
relator’s interpretation of the expedited delivery provision is not
unreasonable, the provision does not clearly require Medtronic to
charge government hospitals for expedited shipping costs actually
incurred.
Absent
such
clarity,
Medtronic
could
not
have
“knowingly” submitted a false claim to the government as that term
is defined under the FCA.
See U.S. ex rel. Hixson v. Health Mgmt.
Sys., Inc., 613 F.3d 1186, 1190 (8th Cir. 2010) (quoting Hagood v.
Sonoma Cty. Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996)) (“[A]
defendant does not act with the requisite deliberate ignorance or
reckless disregard by ‘tak[ing] advantage of a disputed legal
question.’”). As a result, relator has failed to adequately allege
8
a claim under the FCA and dismissal is warranted.
Realtor requests leave to amend the complaint should the court
grant the motion to dismiss.
Despite having had many months to do
so,5 relator has not proffered an amended complaint, nor has it
explained to the court how an amended complaint would remedy the
deficiencies in the original complaint.
denies leave to amend.
As a result, the court
See Wisdom v. First Midwest Bank, 167 F.3d
402, 409 (8th Cir. 1999) (“[P]arties should not be allowed to amend
their complaint without showing how the complaint could be amended
to save the meritless claim.”).
CONCLUSION
Accordingly, based on above, IT IS HEREBY ORDERED that:
1.
The motion to dismiss [ECF No. 50] is granted; and
2.
The case is dismissed with prejudice.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: January 16, 2018
s/David S. Doty
David S. Doty, Judge
United States District Court
5
Relator has been aware of Medtronic’s arguments in support
of dismissal since June 2017, when Medtronic filed its motion to
dismiss in California. ECF No. 35.
9
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