USA et al v. MiMedx Group Inc

Filing 78

ORDER: The Court GRANTS IN PART AND DENIES IN PART Defendants motion to dismiss. ECF No. 65. Defendants motion to dismiss is GRANTED as to Relators FEHBP claims, and DENIED as to Relators remaining claims. Relators FEHBP claims are DISMISSED WITH PREJUDICE. Signed by Chief Judge R Bryan Harwell on 05/15/2019. (lsut, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
UNITED STATES OF AMERICA,
ex rel. JON VITALE,

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)
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Plaintiff,
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v.
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MIMEDX GROUP, INC.,
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)
Defendant.
)
____________________________________)

Civil Action No.: 3:17-cv-00166-RBH

ORDER

This matter is before the Court on Defendant MiMedx Group, Inc.’s motion to dismiss under
Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. ECF No. 65 (“Mot. To Dismiss”).
For the reasons set forth below, the Court grants in part and denies in part Defendant’s motion to
dismiss. Defendant’s motion is granted as to Relator Jon Vitale’s (“Relator”) claims regarding the
Federal Health Employees Health Benefits Program (FEHBP), and denied as to the remainder of
Relator’s complaint.1
Factual Allegations and Procedural Background
From January, 2014 to December, 2017, Relator worked as a South Carolina sales representative
for Defendant. ECF No. 1 (“Compl.”) ¶ 58. Defendant is a pharmaceutical manufacturer that develops
and distributes patented biomaterials created from human amniotic tissues and used in wound, surgical,
sports medicine, ophthalmic, and dental healthcare. Compl. ¶¶ 6, 48. At issue in this case are two of
Defendant’s product lines: EpiFix and EpiFix Micronized. Id. ¶¶ 51–53. Intended to heal wounds,
EpiFix is an amniotic membrane while EpiFix Micronized is an amniotic powder useable in intradermal

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Although Defendant requests a hearing on this motion, the Court finds oral argument unnecessary and
dispenses with a hearing on the motion. See Local Civil Rule 7.08 (D.S.C.).

injections. Id. at ¶¶ 52–53. Both products are regulated by the United States Food and Drug
Administration and satisfy the definition of a “drug” under the Food, Drug, and Cosmetic Act, 21
U.S.C. §§ 301 et seq., and a “biologic product” under the Public Health Service Act, 42 U.S.C. §§ 201
et seq. Compl. at ¶¶ 16–24.
On January 19, 2017, Relator filed this qui tam action against Defendant under seal in federal
court pursuant to the procedures of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq. Compl.
Relator alleges that since at least February, 2014, Defendant secures reimbursement of its products by
disguising illegal payments as charitable contributions to the Patient Access Network Foundation
(“PAN”)—a copay and coinsurance assistance foundation—while manipulating the submission of
patient assistance applications to ensure its contributions fund only patients seeking Defendant’s
products. Id. at 1, ¶¶ 5, 42-43; ECF No. 66 (“Relator’s Mem in Opp’n”) at 2–3 (citing Compl. ¶¶
115–159). Relator seeks to recover monies Defendant allegedly obtained illegally from federal health
insurance programs through the sale of regenerative biomaterials, in violation of the Anti-Kickback
Statute (“AKS”), 42 U.S.C. § 1320a-7b, and thus in violation of § 3729(a)(1)(A) and (B) of FCA.
Compl. at 1, ¶¶ 167–178.
On August 10, 2018, after the United States declined to intervene in the case, ECF No. 40, the
Court unsealed the complaint for service on Defendant, ECF No. 43. On October 1, 2018, Defendant
filed the pending motion to dismiss for failure to plead FCA violations with particularity under Fed.
R. Civ. P. 9(b) and failure to state a claim upon which relief may be granted under Rule 12(b)(6). Mot.
to Dismiss at 1. Additionally, Defendant contends dismissal is warranted because Relator’s claims are
foreclosed by FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4). Id. On October 15, 2018, Relator
filed a response in opposition to dismissal, ECF No. 66, and on October 22, 2018, Defendant filed a

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reply thereto, ECF No. 67. On November 6, 2018, the United States, which is the real party in interest,
filed a statement of interest,2 ECF No. 68, to which Defendant responded on November 13, 2018, ECF
No. 69. On January 2, 2019, Relator filed a supplemental response in opposition to dismissal with
additional authority, ECF No. 73, to which Defendant replied on February 22, 2019, ECF No. 74. The
matter is now ripe for the Court’s consideration.
Legal Standards
I.

AKS and FCA

AKS makes it a violation, inter alia, to “knowingly and willfully offer[] or pay[] any
remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in
cash or in kind” to induce the referral of business reimbursable under a federal health care program.
42 U.S.C. § 1320a-7b(b)(2). A person can violate AKS without knowing of AKS, or having the
specific intent to violate the section. Id. § 1320a-7b(h). An AKS violation resulting in a federal health
care payment automatically constitutes a false claim under FCA. United States ex rel. Lutz v. United
States, 853 F.3d 131, 135 (4th Cir. 2017) (citing 42 U.S.C. § 1320a-7b(g)).
FCA provides civil liability against a person who, inter alia, “knowingly presents, or causes to
be presented, a false or fraudulent claim for payment or approval” (“false claims provision”) or
“knowingly makes, uses, or causes to be made or used, a false record or statement material to a false
or fraudulent claim” (“false statements provision”). 31 U.S.C. §§ 3729(a)(1)(A)-(B). “Knowingly”
means having “actual knowledge,” or acting “in deliberate ignorance of the truth or falsity of the

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In its statement of interest, “[t]he United States takes no position on the applicability of the public disclosure
bar . . . [or] on whether Relator has sufficiently pleaded his allegations[.]” ECF No. 68 at 1-2. Rather, the United
States presents arguments on three points relevant to examining Relator’s complaint under Fed. R. Civ. P. 12(b)(6),
and requests any dismissal under Fed. R. Civ. P. 9(b) or public disclosure bar grounds be without prejudice as to the
Government. Id. at 5-15.

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information” or “in reckless disregard of the truth or falsity of the information.” Id. § 3729(b)(1)(A).
Proof of specific intent to defraud is not necessary to prove knowledge. Id. § 3729(b)(1)(B).
“A false or fraudulent claim includes false statements or fraudulent conduct that induce the
contract for or extension of a government benefit.” United States ex rel. Lutz v. Berkeley HeartLab,
Inc., Civil Action No. 9:14-230-RMG, 2017 WL 5033652, at *3 (D.S.C. Oct. 31, 2017). The elements
of a fraudulent inducement claim are: (1) “a false statement or fraudulent course of conduct; (2) made
or carried out with the requisite scienter; (3) that was material to the government’s decision to pay a
claim; and (4) that caused the government to pay out money or to forfeit moneys due.” Id. For the first
element to be met, “the statement or conduct alleged must represent an objective falsehood.” United
States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376-77 (4th Cir. 2008)
“[T]here are two ways to adequately plead presentment” of a false claim. United States ex rel.
Grant v. United Airlines, Inc., 912 F.3d 190, 197 (4th Cir. 2018). First, a relator “can ‘allege with
particularity that specific false claims actually were presented to the government for payment.’” Id.
(quoting United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir.
2013)). The relator must, “‘at a minimum, describe the time, place, and contents of the false
representations, as well as the identity of the person making the misrepresentation and what he obtained
thereby.’” Id. (quoting Wilson, 525 F.3d at 379). “These facts are also referred to as the ‘who, what,
when, where, and how of the alleged fraud.’” United States ex rel. Cooley v. Carolina Wrecking, Inc.,
Civil Action No.: 2:17-0276-RMG, 2019 WL 236797, at *2 (D.S.C. Jan. 16, 2019) (quoting Wilson,
525 F.3d at 379). Second, the relator “can allege a pattern of conduct that would ‘necessarily have led[]
to submission of false claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting
Nathan, 707 F.3d at 457).

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“The FCA may be enforced not just through litigation brought by the Government itself, but
also through civil qui tam actions that are filed by private parties, called relators, ‘in the name of the
Government.’” Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970,
1973 (2015) (quoting 31 U.S.C. § 3730)).
A.

False Claims Provision

Regarding the false claims provision of FCA, “[c]ourts construe the phrase ‘false or fraudulent
claim . . . broadly to reach all types of fraud, without qualification, which might result in financial loss
to the Government.’” Cooley, 2019 WL 236797, at *2 (quoting United States v. Triple Canopy, Inc.,
775 F.3d 628, 634 (4th Cir. 2015), vacated on other grounds, 136 S. Ct. 2504 (2016) (mem.)).
B.

False Statements Provision

For the purposes of FCA’s false statements provision, “‘material’” means having a natural
tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31
U.S.C. § 3729(b)(4). The false statement provision “does not require that the defendant itself ‘present’
the false claim to the government. Instead, this provision is satisfied where the defendant makes or uses
a false record that is material to a false claim.” Grant, 912 F.3d at 200. The relator, however, “is still
required to show that a false claim was submitted to the government.” Id.
C.

Public Disclosure Bar

Unless opposed by the government, the public disclosure bar mandates dismissal of an FCA
claim “if substantially the same allegations or transactions as alleged in the action or claim were
publicly disclosed . . . in a Federal criminal, civil, or administrative hearing in which the Government
or its agent is a party[.]” 31 U.S.C. § 3730(e)(4)(A). The bar, however, does not apply, if the relator
is “an original source of the information.” Id. An original source is “an individual who either: (1) prior

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to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the
information on which allegations or transactions in a claim are based, or (2) who has knowledge that
is independent of and materially adds to the publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before filing an action under this section.” Id.
§ 3730(e)(4)(B).
Once jurisdictional in nature, the public disclosure bar is now an affirmative defense. United
States ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916 (4th Cir. 2013) (explaining the 2010
amendments to FCA eliminated the jurisdictional language of the public disclosure bar); United States
ex rel. Beauchamp v. Acadami Training Ctr., LLC, 816 F.3d 37, 40 (4th Cir. 2016) (“Post-amendment,
the public-disclosure bar is a grounds for dismissal—effectively an affirmative defense—rather than
a jurisdictional bar.”). The bar is meant “‘to prevent “parasitic” qui tam actions in which relators,
rather than bringing to light independently-discovered information of fraud, simply feed off of previous
disclosures of government fraud.’” United States ex rel. May v. Purdue Pharma L.P., 811 F.3d 636,
642 (4th Cir. 2016) (quoting United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1347
(4th Cir. 1994)).
II.

Federal Rule of Civil Procedure 12(b)(6)

“A motion filed under Rule 12(b)(6) challenges the legal sufficiency of a complaint . . .
considered with the assumption that the facts alleged are true[.]” Francis v. Giacomelli, 588 F.3d 186,
192 (4th Cir. 2009) (citations omitted). The Court measures the legal sufficiency by determining
whether the complaint meets the Rule 8 standards for a pleading. Id. Rule 8 requires, in pertinent part,
that a claim for relief contain a “statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a). “Each allegation must be simple, concise, and direct.” Fed. R. Civ. P. 8(d)(1).

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When reviewing a motion under Rule 12(b)(6), the Court must “accept all well-pleaded
allegations in the plaintiff’s complaint as true and draw[] all reasonable factual inferences from those
facts in the plaintiff’s favor[.]” Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).
However, the Court need not accept as true allegations that are contradicted by exhibits to the
complaint. Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002) (citation omitted). To survive a Rule
12(b)(6) motion to dismiss, the plaintiff’s “[f]actual allegations must be enough to raise a right to relief
above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “[O]nce a claim
has been stated adequately, it may be supported by showing any set of facts consistent with the
allegations in the complaint.” Id. at 563. A complaint need not assert “detailed factual allegations”;
however, it must contain “more than labels and conclusions, and a formulaic recitation of the elements
of a cause of action” will not suffice. Id. at 555 (citations omitted). Furthermore, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). A claim has
“facial plausibility” where the pleading “allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
III.

Federal Rule of Civil Procedure 9(b)

In addition to the plausibility standard of Iqbal, Rule 9(b) heightens the pleading standard for
FCA claims by requiring a party alleging fraud to “state with particularity the circumstances
constituting fraud[.]” Fed. R. Civ. P. 9(b); see Grant, 912 F.3d at 196 (citing Nathan, 707 F.3d at
455–56) (“Claims arising under §§ 3729(a)(1)(A) and (B) of the FCA are fraud-based claims that must
satisfy Rule 9(b)’s pleading standard.”). “Rule 9(b)’s particularity requirement serves as a necessary
counterbalance to the gravity and quasi-criminal nature of FCA liability.” Grant, 912 F.3d at 197

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(quotation marks and citation omitted). This requirement “‘does not permit a [FCA] plaintiff merely
to describe a private scheme in detail but then to allege simply and without any stated reason for his
belief that claims requesting illegal payments must have been submitted, were likely submitted or
should have been submitted to the Government.’” Id. at 196 (quoting Nathan, 707 F.3d at 457). The
complaint must “‘provide some indicia of reliability’ to support the allegation that an actual false claim
was presented to the government.” Id. at 197 (citing Nathan, 707 F.3d at 457). Failure to plead
plausible allegations of submission of a false claim means the relator “has not alleged all the elements
of a claim under the [FCA].” Nathan, 707 F.3d at 456 (citation omitted). Without such allegations,
“a relator not only fails to meet the particularity requirement of Rule 9(b), but also does not satisfy the
general plausibility standard of Iqbal.” Id. at 457 (citations omitted).
Discussion
Defendant moves to dismiss the complaint under Rules 12(b)(6) and 9(b) for failure to allege
particularized facts plausibly showing an FCA violation and under the FCA’s public disclosure bar.
ECF No. 65-1 (“Def’s Mem. in Supp. of Mot. to Dismiss”) at 6. With respect to Rules 12(b)(6) and
9(b), Defendant asserts that: (1) Relator fails to state an FCA claim by failing to allege a false or
fraudulent claim and neglecting to show that Defendant caused any false claim to be submitted; (2)
Relator fails to state a claim under § 3729(a)(1)(B) by failing to allege a false statement or record; and
(3) all claims related to the FEHBP fail as a matter of law. Id. at 12-22. With respect to the public
disclosure bar, Defendant contends that: (1) Relator’s allegations about Defendant’s payment of
kickbacks for EpiFix had previously been publicly disclosed; and (2) Relator is not an original source.
Id. at 23-30. The Court examines each of these contentions. The Court first analyzes Relator’s
allegations with respect to FEHBP and his FCA claim for false statements or records under 31 U.S.C.

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§ 3729(1)(B). The Court next turns to FCA’s public disclosure bar and finally analyzes Defendant’s
arguments Relator’s complaint should be dismissed under Federal Rules of Civil Procedure 12(b)(6)
and 9(b).
I.

FEHBP Claims

Relator alleges that by violating AKS, Defendant caused false claims to be submitted to two
programs: Medicare and FEHBP. Compl. at ¶¶ 168, 172–178. Defendant contends Relator’s claims
as to FEHBP fail as a matter of law because the AKS does not apply to that program. Def.’s Mem. in
Supp. of Mot. To Dismiss at 21-22. In response, Relator concedes that because AKS does not apply
to FEHBP, those claims cannot proceed and must be dismissed.3 Relator’s Mem. in Opp’n at 5.
Accordingly, the Court grants Defendant’s motion to dismiss with respect to Relator’s FEHBP-based
claims.
II.

False Statements Claim

Defendant advances the Court should dismiss Relator’s claim under FCA’s false statements
provision because Relator fails to allege Defendant made or used any false statements or false records
material to a false or fraudulent claim. Def’s Mem in Supp. of Mot. To Dismiss at 21. As noted by
Defendant in its reply, ECF No. 67 at 13, Relator fails to address this argument in his Memorandum
in Opposition.
The Court recognizes it could consider Relator to have conceded his cause of action under

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The Court agrees that AKS expressly does not apply to FEHBP. See 42 U.S.C. §§ 1320a-7b(b)(2), (f)(1)
(emphasis added) (providing that AKS applies to unlawful remuneration provided in connection with a “Federal
health care program,” defined in relevant part as “any plan or program that provides health benefits, whether directly,
through insurance, or otherwise, in whole or in part, by the United States Government (other than the health insurance
program under chapter 89 of Title 5)”); 5 U.S.C. §§ 8901 et seq. (providing for FEHBP); see also Office of Personnel
Mgmt., Healthcare, https://www.opm.gov/healthcare-insurance/healthcare/ (last visited May 3, 2019) (“[T]he FEHB
Program is exempt from the application of [AKS].”).

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FCA’s false statements provision. See Campbell v. Rite Aid Corp., Civil Action No. 7:13-cv-02638BHH, 2014 WL 3868008, at * 2 (D.S.C. Aug. 5, 2014) (“Plaintiff failed to respond to [Defendant’s]
argument regarding causes of action 1 and 2, and the Court can only assume that Plaintiff concedes
the argument.”); Stenlund v. Marriott Int’l, Inc., 172 F. Supp. 3d 874, 887 (D. Md. 2016) (“In failing
to respond to this argument, Plaintiff concedes the point.”); Kissi v. Panzer, 664 F. Supp. 2d. 120, 123
(D.D.C. 2009) (“Because the plaintiff’s opposition fails to address the defendants’ arguments, the Court
may treat the defendants’ motion [to dismiss] as conceded.”). However, a violation of AKS resulting
in a federal health care payment constitutes a per se false claim under FCA, Lutz, 853 F.3d at 135
(citing 42 U.S.C. § 1320a-7b(g)), and - as analyzed in Section IV below - the Court holds Relator has
adequately pled an AKS violation resulting in a federal health care payment. Accordingly, at this
juncture, the Court will deny Defendant’s motion to dismiss as to Relator’s false statements provision
claim.
III.

Public Disclosure Bar

Because it could be dispositive of the remaining claims, the Court next turns to FCA’s public
disclosure bar. Defendant advances FCA’s public disclosure bar applies to prevent the instant lawsuit
because Relator’s claims were previously disclosed, and Relator does not qualify as an original source.
Def’s Mem in Supp. of Mot. to Dismiss at 22-30. Relator responds the public disclosure bar does not
apply here because the alleged previous public disclosure did not occur in a hearing to which the
Government was a party, and the previous disclosure was not substantially the same as the instant
claims. Rel’s Mem. in Opp’n. at 17-21. Defendant replies the prior disclosure qualified as a public
disclosure, the relator in that case was the Government’s agent, and the allegations in that case are
substantially the same as those in the instant case. ECF No. 67 at 5-8. Accordingly, Defendant

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advances Relator’s claims should be dismissed under FCA’s public disclosure bar. Id.
As noted above, absent Government objection, FCA’s public disclosure bar requires the Court
to dismiss an FCA claim “if substantially the same allegations or transactions as alleged in the action
or claim were publicly disclosed . . . in a Federal criminal, civil, or administrative hearing in which the
Government or its agent is a party.” 31 U.S.C. § 3730(e)(4)(A). The prior public disclosure alleged
to be applicable here is a qui tam FCA case filed in 2014 against MiMedx in the United States District
Court for the District of Columbia, United States ex rel. Montecalvo v. MiMedx Group, Inc., No: 1:14cv-01260-RCL (D.D.C. 2014).4 Def’s Mem. in Supp. of Mot. to Dismiss at 23.
Montecalvo constitutes a civil hearing within the meaning of the public disclosure bar. Siller,
21 F.3d at 1350 (4th Cir. 1994) (“Given the fluidity in the meaning of the term ‘hearing,’ and the fact
that we can discern no reason why Congress might have intended otherwise, we agree with our sister
Circuits (albeit somewhat reluctantly) that an entire civil proceeding can constitute a ‘hearing’ for
purposes of section 3730(e)(4)(A).”). Further, relator Montecalvo was the Government’s agent for the
purposes of the public disclosure bar. See Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529
U.S. 764, 772 (2000) (noting an FCA qui tam relator “is simply the statutorily designated agent of the
United States, in whose name (as the statute provides, see 31 U.S.C. § 3730(b)) the suit is brought[.]”).;
United States ex rel. Gilbert v. Va. Coll., 305 F. Supp. 3d 1315, 1321-25 (N.D.Ala. 2018) (finding qui
tam relators are agents of the Government for the purposes of FCA’s public disclosure bar); but see
United States v. Medtronic, Inc., 327 F. Supp. 3d 831, 842 (E.D. Pa.. 2018) (holding in the context of
the public disclosure bar, “a qui tam relator is not the government’s agent.”) .

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The Court can properly take judicial notice of Montecalvo. See Papasan v. Allain, 478 U.S. 265, 268 (1986)
(“Although this case comes to us on a motion to dismiss under Federal Rule of Civil Procedure 12(b), we are not
precluded in our review of the complaint from taking notice of items in the public record[.]”

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The Court finds, however, the Montecalvo suit and the instant lawsuit are not substantially
related, and thus the public disclosure bar does not apply. A prior public disclosure and the instant
claims are substantially the same if the earlier disclosure puts the Government on notice of wrongdoing
such that the Government could have started an investigation. United States ex rel. Black v. Health &
Hosp. Corp. of Marion Cty., 494 Fed. App’x 285, 294 (4th Cir. 2012); Citynet, LLC on behalf of the
United States v. Frontier W.Va., Inc., Civil Action No. 2:14-15947, 2018 WL 1582527 at *20 (S.D. W.
Va. Mar. 30, 2018) (noting the Fourth Circuit has not had occasion to define substantially the same
under the post-2010 FCA, and collecting cases showing substantially the same under the public
disclosure bar means similar enough that the Government was on notice of wrongdoing and could
choose to pursue action against the defendant).
Montecalvo and the case at bar are similar in some ways. Like the instant case, Montecalvo is
based upon Defendant’s marketing and sales of EpiFix. Compare Compl. ¶¶ 51-53 with Montecalvo,
ECF No. 1 (“Compl.”) ¶ 4. Like this case, Montecalvo includes claims MiMedx violated AKS, and
thus violated FCA. Compare Compl. ¶¶ 1, 167-78 with Montecalvo Compl. ¶¶ 19, 111, 117-29, 176,
196-212. Further, some of the specific allegations in the two complaints appear quite similar. See
Def’s Mem. In Supp. of Mot. to Dismiss at 25-27 (comparing allegations in the instant complaint to
those in the Montecalvo complaint). The crux of the instant case, however, is that Defendant
coordinated its charitable contributions to PAN to ensure its money funded purchases of Defendant’s
products. See Compl. ¶¶ 42-47. The Montecalvo complaint mentions PAN only once. Montecalvo
Compl. ¶ 121(c). The PAN-related allegation in Montecalvo reads: “Moreover, on information and
belief, Mr. Moore routinely uses the Patient Access Network (‘PAN’) Foundation, an organization that
pays co-payments, by logging into the ‘PAN Portal’ as if he represents the medical provider and puts

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patients through who may not be eligible for coverage.” Id. Despite the similarities between Relator’s
complaint and Montecalvo’s complaint, the Court holds Montecalvo’s claim would not have put the
Government on notice of the complicated scheme alleged in the instant case in which Relator claims
Defendant illegally funded purchase of its own products by filtering money through PAN. For that
reason, Relator’s case is not substantially similar to Montecalvo, and thus the public disclosure bar does
not apply.
Assuming arguendo all elements of the public disclosure bar were met, it still would not apply
because Relator is an original source. Even when otherwise applicable, the public disclosure bar does
not apply when the relator is an “original source,” 31 U.S.C. § 3730(e)(4)(A), defined as, inter alia, a
person “who has knowledge that is independent of and materially adds to the publicly disclosed
allegations or transactions, and who has voluntarily provided the information to the Government before
filing” an FCA action. Id. § 3730(e)(4)(B). Relator has knowledge independent of that contained in
Montecalvo. As noted above, Relator’s allegations are substantially different from Montecalvo’s PANrelated claim. Further, while Montecalvo was employed with a MiMedx competitior, Montecalvo
Compl. ¶¶ 2-3, Relator was a MiMedx sales representative, Compl. ¶ 5. As a MiMedx insider, Relator
would have an independent basis for his knowledge. Additionally, because Relator’s independent
information is significant and could change decisions made regarding the allegations of wrongdoing,
Relator’s information materially adds to that disclosed in Montecalvo. See United States ex rel.
Advocates for Basic Legal Equality, Inc. v. U.S. Bank, N.A., 816 F.3d 428, 431 (6th Cir. 2016 (quoting
Black’s Law Dictionary 1124 (10th ed. 2014)) (“Materiality in [the public disclosure] setting requires
[Relator] to show it had information ‘[o]f such a nature that knowledge of the item would affect a
person’s decision making,’ is ‘significant,’ or is ‘essential.’”) Finally, Relator voluntarily provided his

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information to the Government prior to filing this action. Compl. ¶ 4.
Accordingly, because the allegations in the instant case are not substantially similar to those in
Montecalvo, or alternatively because Relator is an original source, FCA’s public disclosure bar does
not apply to the instant case. For those reasons, the Court will deny Defendant’s motion to dismiss as
to FCA’s public disclosure bar.
IV.

Federal Rules of Civil Procedure 12(b)(6) and 9(b)

Defendant argues the Court should dismiss Relator’s complaint for failure to adequately plead
as required under Federal Rules of Civil Procedure 12(b)(6) and 9(b). Def’s Mot to Dismiss at 1.
Relator avers he has adequately pled his complaint such that dismissal is unwarranted. Rel’s Mem. in
Opp’n. at 2. In the alternative, Relator seeks leave to amend his complaint. Id. at 17 n.4.
As a preliminary matter, the Court will deny Relator’s request for leave to amend his complaint.
Fed. R. Civ. P. 15(a)(2) directs: “[t]he court should freely give leave [to amend] when justice so
requires.” Leave to amend a pleading should be denied only under limited circumstances, such as when
the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the
moving party, or the amendment would be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). Here,
Relator does not elaborate as to what amendments he would make to the complaint, but instead
generally requests leave to amend. Leave to amend is properly denied where the requested leave to
amend is not accompanied by a motion to amend or a proposed amended complaint. See Cozzarelli v.
Inspire Pharms., Inc., 549 F.3d 618, 630-31 (4th Cir. 2008) (finding no abuse of discretion where
district court denied leave to amend when plaintiffs requested leave to amend in a response but did not
file a motion to amend or a proposed amended complaint). Accordingly, in the absence of a motion
to amend accompanied by a proposed amended complaint, Relator’s request for leave to amend is

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denied.
Regarding Defendant’s motion to dismiss Relator’s FCA causes of action for failure to comply
with Federal Rules of Civil Procedure 12(b)(6) and 9(b), the Court agrees with Relator: the FCA causes
of action have been adequately pled at this stage in the proceeding. AKS prohibits, inter alia,
“knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or
rebate) directly or indirectly, overtly or covertly, in cash or in kind” to induce referral of business
reimbursable under a federal healthcare program. 42 U.S.C. § 1320a-7b(b)(2). “An AKS violation that
results in a federal health care payment is a per se false claim under the FCA.” Lutz, 853 F.3d at 135
(citing 42 U.S.C. § 1320a-7b(g)). To state a cause of action under the provisions of FCA at issue here,
Relator must show: (1) a false statement or fraudulent conduct; (2) carried out with the required level
of knowledge; (3) which influenced the Government’s decision to pay a claim; and (4) the Government
paid out or forfeited money. Lutz, 2017 WL 5033652, at *3 (D.S.C. Oct. 31, 2017).
Relator here alleges a scheme where Defendant would encourage sales representatives to
identify patients of Defendant’s medical provider clients who would be eligible for PAN funding to
cover Medicare coinsurance and copays and prepare PAN applications for them. Compl. ¶¶ 42, 115178. Defendant would then make charitable contributions to and fund PAN in an amount correlated
with the number of patients Defendant had identified who would be seeking PAN funding. Id.
Defendant would next have its sales representatives, who had been told to hold applications until the
PAN funds were funded, rush to submit applications. Id. The net result of this activity, Relator alleges,
was Defendant funding sales of its own products by - in essence - laundering money through PAN. Id.
¶¶ 42-43.
Relator sufficiently alleges an AKS violation because he claims Defendant knowingly and

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willfully paid a remuneration, here Medicare coinsurance and copays, indirectly via its correlated
charitable contribution funding of PAN, to induce patients on Medicare to purchase Defendant’s
Products. An AKS violation resulting in a federal Medicare payment is a per se false claim under FCA.
Lutz, 853 F.3d at 135 (citing 42 U.S.C. § 1320a-7b(g)). Further, Relator has shown the elements
necessary to state a cause of action under FCA. Relator alleges: (1) Defendant fraudulently correlated
its charitable contributions to PAN with applications for PAN funding to ensure its products were
purchased; 2) Defendant engaged in this activity knowingly; (3) this activity influenced purchase of
Defendant’s products; and (4) these actions necessarily would have caused the Government to pay out
money, see Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (noting a Relator can show
presentment of a false claim under FCA by “alleging a pattern of conduct that would ‘necessarily have
led [] to submission of false claims’ to the government for payment.”). Accordingly, the Court holds
Relator has sufficiently pled his FCA causes of action, and he has pled them with sufficient
particularity, at this stage of the proceedings. For those reasons, the Court will deny Defendant’s
motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b).
Conclusion
For the foregoing reasons, the Court GRANTS IN PART AND DENIES IN PART
Defendant’s motion to dismiss. ECF No. 65. Defendant’s motion to dismiss is GRANTED as to
Relator’s FEHBP claims, and DENIED as to Relator’s remaining claims. Relator’s FEHBP claims are
DISMISSED WITH PREJUDICE.

IT IS SO ORDERED.
Florence, South Carolina
May 15, 2019

s/ R. Bryan Harwell
R. Bryan Harwell
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Chief United States District Judge

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