PETRATOS et al v. GENENTECH, INC. et al

Filing 56

OPINION fld. Signed by Judge Susan D. Wigenton on 12/18/14. (sr, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
UNITED STATES OF AMERICA, et al., :
ex rel. GERASIMOS PETRATOS,
:
:
Plaintiffs,
:
:
v.
:
:
GENENTECH, INC., et al.,
:
:
Defendants.
:
____________________________________:

Civ. Action No. 11-3691

OPINION

December 18, 2014

WIGENTON, UNITED STATES DISTRICT JUDGE.
I.

INTRODUCTION
Before this Court is Relator Gerasimos Petratos’s (“Relator”) motion to amend. Defendant

Genentech, Inc. (“Genentech”) opposes the motion.
This Court has jurisdiction over this action pursuant to 31 U.S.C. § 3732(a), 28 U.S.C. §
1331, and 28 U.S.C. § 1345. Venue is proper under 31 U.S.C. § 3732(a) and 28 U.S.C. §§ 1391.
This motion was decided without oral argument pursuant to Federal Rule of Civil
Procedure 78 and Local Civil Rule 78.1. For the reasons set forth below, Relator’s motion to
amend is GRANTED.
II.

BACKGROUND
On June 6, 2011, Relator initiated this qui tam suit against Genentech and the Roche Group

(collectively, “Defendants”), alleging violations of the False Claims Act (“FCA”) and related state
analogues. Relator, a former Genentech employee, claimed Defendants and their employees

engaged in a conspiracy to mislead regulators and the medical community as to the appropriateness
of their Avastin 1 product for treating certain at-risk patient groups. In his initial Complaint, Relator
alleged, inter alia, Defendants: (1) underreported the prevalence and severity of Avastin’s adverse
effects; (2) made their disclosures to regulators and the medical community using databases that
they knew lacked the requisite information to identify at-risk subgroups even though Defendants
could have used more robust databases; and (3) did not adequately examine and report dose-related
effects.
Relator claimed these actions resulted in doctors prescribing Avastin when it was medically
unreasonable or unnecessary, thereby causing the submission of false claims to government health
care systems, including Medicare, Medicaid, the Federal Employees Health Benefits Program
(“FEHBP”), the Department of Defense’s TRICARE program, and the Civilian Health and
Medical Program of the Department of Veterans Affairs (“CHAMPVA”).
On July 18, 2013, Genentech moved to dismiss Relator’s Complaint. On January 30, 2014,
the Hon. Dennis M. Cavanaugh, U.S.D.J. (now retired), granted Genentech’s motion as to
Relator’s claims under two provisions of the FCA: (1) Count One – knowingly presenting or
causing to be presented a false claim under 35 U.S.C. § 3729(a)(1)(A) and (2) Count Two –
knowingly making, using, or causing to be used a false record or statement material to a false or
fraudulent claim under 35 U.S.C. § 3729(a)(1)(B).
Genentech then moved for a judgment on the pleadings as to Relator’s remaining causes
of action. In response, Relator filed the instant motion to amend his Complaint. Relator argues
that his proposed amendments would cure both the pleading deficiencies that formed the basis for

1

Avastin is used in the treatment of cancer. (Compl. ¶ 5.)

2

Judge Cavanaugh’s dismissal opinion and Genentech’s arguments in support of a judgment on the
pleadings.
Genentech opposes the motion. 2 First, Genentech contends Judge Cavanaugh dismissed
Count One and Count Two with prejudice. Alternatively, Genentech argues that Relator’s
amendment is futile as Relator’s proposed amended complaint (“Amended Complaint”) does not
state a cause of action under 31 U.S.C. § 3729(a)(1)(A) or 31 U.S.C. § 3729(a)(1)(B).
The parties have agreed that Genentech will withdraw its motion for judgment on the
pleadings if the instant motion to amend is granted. See Stipulation, Dkt. No. 51.
III.

ANALYSIS
a. Court’s Opinion and Order dated January 30, 2014
Genentech argues Relator’s motion must be denied because Judge Cavanaugh’s dismissal

was with prejudice. Judge Cavanaugh’s January 30, 2014 Order simply states that “Defendant’s
Motion to Dismiss is granted in part and denied in part.” Order, Dkt. No. 44 (emphasis in
original). Further, the Order does not state whether Counts One and Two were dismissed with
prejudice.
Genentech asserts that granting the instant motion to amend would “overturn” Judge
Cavanaugh’s decision or contradict his reasoning. When granting a motion to dismiss, the decision
of whether to permit a subsequent amendment rests within the sound discretion of the trial court.
See Fed. R. Civ. P. 15(a)(2); cf. Reed Elsevier, Inc. v. Inherent.com, Inc., No. 05-4048, 2006 WL
3827414, at *9 (D.N.J. Dec. 27, 2006). Additionally, within the Third Circuit, even when a

2

While Relator initiated suit against both Genentech and the Roche Group, Genentech’s
counsel has stated that the Roche Group is not a legal entity and, in any event, has not been served
with the Complaint. As part of his motion, Relator seeks to amend his complaint to add F. Hoffman
La Roche, Ltd., Hoffman-La Roche Inc., and Roche Holding Ltd. as defendants.
3

complaint is vulnerable to Rule 12(b)(6) dismissal, the district court should allow the party a
curative amendment, unless the amendment would be futile or inequitable. See Hughes v. New
Jersey, No. 11-1442, 2013 WL 1847030, at *7 (D.N.J. Apr. 30, 2013). This Court concludes that
the January 30, 2014 Order granting Genentech’s motion to dismiss was without prejudice.
b. Proposed Amendments
i. Standard of Review
Under Rule 15(a)(2), a plaintiff may amend his complaint “when justice so requires.” The
Third Circuit has repeatedly directed that “motions to amend pleadings [under Rule 15(a)] should
be liberally granted.” Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004). The court may deny a
motion to amend only where there is: (1) undue delay, (2) bad faith or dilatory motive, (3) undue
prejudice, (4) repeated failures to cure deficiencies, or (5) futility of amendment. Foman v. Davis,
371 U.S. 178, 182 (1962). Here, Genentech argues only that the proposed amendment is futile.
A court will consider an amendment futile if it “is frivolous or advances a claim or defense
that is legally insufficient on its face.” Harrison Beverage Co. v. Dribeck Imps., Inc., 133 F.R.D.
463, 468 (D.N.J. 1990) (internal citations and quotations omitted). To determine whether an
amendment is insufficient on its face, courts employ the standard applied to a motion to dismiss,
which is typically governed by Rule 12(b)(6). In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1434 (3d Cir. 1997). Under this standard, the question before the court is not whether the
movant will ultimately prevail, but whether the complaint sets forth “enough facts to state a claim
to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
As a qui tam case involves allegations of fraudulent conduct, Rule 9(b) also applies. See
United States ex rel. Wilkins v. United Health Grp., 659 F.3d 295, 301 n.9 (3d Cir. 2011). Rule
9(b) states, “In alleging fraud or mistake, a party must state with particularity the circumstances

4

constituting fraud or mistake.” “This heightened pleading standard is intended ‘to place the
defendants on notice of the precise misconduct with which they are charged, and to safeguard
defendants against spurious charges of immoral and fraudulent behavior.’” United States ex rel.
Underwood v. Genentech, Inc., 720 F. Supp. 2d 671, 676 (E.D. Pa. 2010) (quoting Seville Indus.
Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984)).
ii. The False Claims Act
Relator seeks to bring claims under 31 U.S.C. § 3729(a)(1)(A) and 31 U.S.C. §
3729(a)(1)(B).
“Establishing a prima facie claim under § 3729(a)(1)(A) requires showing that ‘(1) the
defendant presented or caused to be presented to an agent of the United States a claim for payment;
(2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or
fraudulent.’” United States ex rel. Portilla v. Riverview Post Acute Care Ctr., No. 12-1842, 2014
WL 1293882, at *8 (D.N.J. Mar. 31, 2014) (quoting United States ex rel. Schmidt v. Zimmer, Inc.,
386 F.3d 235, 242 (3d Cir. 2004) and recognizing that Schmidt remains good law following the
2009 amendments to the statute). “The elements of a § 3729(a)(1)(B) claim are that 1) the
defendant made, or caused someone else to make, a false or fraudulent record or statement; 2) the
defendant knew the statement to be false or fraudulent; and 3) the statement was material to a
claim.” Id.
In the Amended Complaint, Relator alleges a number of legally false claims. “[A] claim
is legally false when the claimant knowingly falsely certifies that it has complied with a statute or
regulation the compliance with which is a condition for Government payment.” Wilkins, 659 F.3d
at 305. Id. (internal quotations and citations omitted). There are two theories of false certification
that give rise to liability:

5

Under the “express false certification” theory, an entity is liable
under the FCA for falsely certifying that it is in compliance with
regulations which are prerequisites to Government payment in
connection with the claim for payment of federal funds. There is a
more expansive version of the express false certification theory
called “implied false certification” liability which attaches when a
claimant seeks and makes a claim for payment from the Government
without disclosing that it violated regulations that affected its
eligibility for payment. Thus, an implied false certification theory of
liability is premised on the notion that the act of submitting a claim
for reimbursement itself implies compliance with governing federal
rules that are a precondition to payment.
Id. (internal quotations and citations omitted). Not every failure to comply with a statute or
regulation gives rise to a false certification claim. Instead, the relator “must show that compliance
with the regulation which the Defendant allegedly violated was a condition of payment from the
Government.” Id. at 309. In other words, the plaintiff must prove that “if the Government had
been aware of the defendant’s violations of the [] law and regulations that are the basis of the
plaintiff’s FCA claims, it would not have paid the defendant’s claims.” Id. at 307; see also Portilla,
2014 WL 1293882, at *14 (applying this framework to post-FERA FCA claims).
iii. Application
Relator further alleges multiple express false certification and implied false certification
theories. It must therefore be determined whether any of these theories support a 35 U.S.C. §
3729(a)(1)(A) or 35 U.S.C. § 3729(a)(1)(B) claim.
A claim submitted to Medicare may only be reimbursed if the medical treatment was
“reasonable and necessary.” See 42 U.S.C. § 1395y. “Because the statute permits reimbursement
only for ‘reasonable and necessary’ treatments . . . a prescription [] in a context where it is not
‘reasonable’ or ‘necessary’ would be statutorily ineligible for reimbursement. This satisfies the
FCA’s requirement of a ‘false’ statement.” United States ex rel. Strom v. Scios, Inc., 676 F. Supp.
2d 884, 891 (N.D. Cal. 2009); see also United States ex rel. Colquitt v. Abbott Labs., 864 F. Supp.
6

2d 499, 530 (N.D. Tex. 2012); United States ex rel. Franklin v. Parke-Davis, 147 F. Supp. 2d 39,
51-53 (D. Mass. 2001).
Moreover, even though the “reasonable and necessary” certifications at issue were made
by physicians, and not Defendants, Defendants may still be held liable under the FCA if
Defendants caused these physicians to make claims that were not “reasonable and necessary.”
Strom, 676 F. Supp. 2d at 891 n.2; United States ex rel. Bergman v. Abbott Labs., 995 F. Supp. 2d
357, 367-70 (E.D. Pa. 2014); United States ex rel. Brown v. Celgene Corp., No. 10-3165, 2014
WL 3605896, at *3 (C.D. Cal. July 10, 2014).
Here, the Amended Complaint addresses the deficiencies articulated in the Court’s January
30, 2014 Opinion and Order dismissing Relator’s initial 35 U.S.C. § 3729(a)(1)(A) and 35 U.S.C.
§ 3729(a)(1)(B) claims.
First, Relator alleges that Defendant’s actions have compromised the reliability of the
various drug compendia entries that list the medically acceptable (and therefore reasonable and
necessary) off-label uses of Avastin. See, e.g., Am. Compl. ¶¶ 16, 19, 125, 138, 176-181, 197251. For example, Relator alleges that Defendants misled the key opinion leaders whose reviews
of Avastin impacted what off-label uses would be listed in the compendia. See, e.g., Am. Compl.
¶ 248. These allegations distinguish this case from United States ex rel. Simpson v. Bayer Corp.,
in which the relator did not challenge the drug compendia’s reliability. See No. 05-3895, 2014
WL 1418293, at *9-10 (D.N.J. Apr. 11, 2014); see also Brown, 2014 WL 3605896, at *6
(distinguishing Simpson and denying motion to dismiss when relator alleged that the drug
manufacturer attempted to improperly influence the compendia); Bergman, 995 F. Supp. 2d at
369-70 (same); cf. United States ex rel. Galmines v. Novartis Pharma. Corp., No. 06-3213, 2013
WL 2649704, at *11 (E.D. Pa. June 13, 2013)

7

Second, Relator’s Amended Complaint does not merely provide a general and conclusory
challenge to all Avastin prescriptions as not “reasonable and necessary.” See Simpson, 2013 WL
4710587, at *9; see also No. 05-3895, Dkt. No. 102 ¶ 332. Instead, Relator asserts that had
Defendants not engaged in the alleged fraud, physicians, when treating certain at-risk patient
groups, would not have determined that Avastin (or the particular dosage of Avastin) was
“reasonable and necessary.” 3 See, e.g., Am. Compl. ¶¶ 126-27. In fact, Relator identifies one
particular oncologist who “stated that, had he known of the safety and adverse event risks that
were suppressed by Defendants, he would not have certified Avastin as medically necessary and/or
reasonable and necessary for some of his patients.” Id. at ¶ 240.
Based upon the foregoing, this Court concludes that Relator has sufficiently alleged causes
of action under 31 U.S.C. § 3729(a)(1)(A) and 31 U.S.C. § 3729(a)(1)(B). See Strom, 676 F.
Supp. 2d. at 891-92; Brown, 2014 WL 3605896, at *6; Galmines, 2013 WL 2649704, at *11; see
also Bergman, 995 F. Supp. 2d at 369-70 (noting that TRICARE and FEHBP programs contain
more stringent reimbursement restriction than those of Medicare and Medicaid).

3

These allegations also distinguish the instant case from United States ex rel. Ge v. Takeda
Pharma. Co. Ltd., Nos. 10-11043, 110343, 2012 WL 5398564, at *1 (D. Mass. Nov. 1, 2012), in
which the trial court granted a motion to dismiss when the relator failed to provide any details of
allegedly false claims but instead merely suggested that all of the claims were rendered false by
the drug company’s failure to properly report adverse effects. See United States ex rel. Duxbury
v. Ortho Biotech Prods., L.P., 579 F.3d 13 (1st Cir. 2009) (reversing district court’s dismissal of
FCA claim when the relator had identified eight specific healthcare providers that submitting false
claims as a result of the drug company’s actions). The Court notes that Ge is further
distinguishable in that many of the false certification theories advanced in this case were not raised
by Ge in her complaint. See United States ex rel. Ge v. Takeda Pharma Co., 737 F.3d 116, 126
(1st Cir. 2013) (refusing to consider Ge’s “reasonable and necessary” arguments because they were
not presented to the trial court prior to dismissal).
8

IV.

CONCLUSION
For the reasons set forth above, Relator’s motion to amend [Dkt. No. 52] is GRANTED.

Because Genentech has stipulated that it would withdraw its motion for a judgment on the
pleadings if Relator’s motion to amend was granted, Genentech’s motion is DENIED AS MOOT.
An appropriate Order accompanies this Opinion.

/s/ Susan D. Wigenton__________
United States District Judge

Orig: Clerk
cc:
Parties
Judge Mannion

9