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United States ex rel. Hagerty v. Cyberonics, Inc.

United States District Court, D. Massachusetts

November 17, 2015

UNITED STATES OF AMERICA et al. ex rel. ANDREW HAGERTY, Plaintiffs,
v.
CYBERONICS, INC., Defendant

         Decided November 13, 2015

          For United States of America, ex rel, Plaintiff: Abraham R. George, LEAD ATTORNEY, U.S. Attorney's Office - MA, Boston, MA.

         For Andrew Hagerty, ex rel, Plaintiff: Christopher J. Trombetta, LEAD ATTORNEY, Law Office of Christopher J. Trombetta, Mansfield, MA; Robert M. Thomas, Jr., LEAD ATTORNEY, Thomas & Associates, Boston, MA; Suzanne E. Durrell, LEAD ATTORNEY, Durrell Law Office, Milton, MA; Joseph S. Hall, PRO HAC VICE, Kellogg, Huber, Hansen, Todd Evans & Figel, PLLC, Washington, DC; Silvija A. Strikis, PRO HAC VICE, Kellogg, Huber, Hansen, Todd & Evans, Wasington, DC.

         For Cyberonics, Inc., Defendant: Timothy H. Madden, LEAD ATTORNEY, Donnelly, Conroy & Gelhaar, LLP, Boston, MA; J. Patrick Bredehoft, William M. Katz, Jr., PRO HAC VICE, Thompson & Knight, LLP, Dallas, TX.

         MEMORANDUM AND ORDER ON MOTION TO AMEND COMPLAINT AND MOTION TO COMPEL ARBITRATION

         F. Dennis Saylor IV, United States District Judge.

         This is a qui tam action alleging the unlawful promotion of medically unnecessary replacements of devices in epilepsy patients. Relator Andrew Hagerty has brought suit against defendant Cyberonics, Inc., a company that manufactures and sells the Vagus Nerve Stimulator Therapy (" VNS" ) system, a medical device used to treat refractory epilepsy and treatment-resistant depression.

         The case was originally filed under seal on February 4, 2013. On October 29, 2013, the United States declined to intervene. The case was unsealed on December 5, 2013. On April 28, 2014, Cyberonics filed a motion to dismiss. Hagerty filed an amended complaint on May 19, 2014. On June 18, 2014, Cyberonics filed a second motion to dismiss for lack of subject-matter jurisdiction and failure to state a claim. On March 31, 2015, the Court granted that motion in part and denied it in part. It was granted as to the federal FCA claims (Counts 1 and 2), the state FCA claims (Counts 3 through 30), and the claim for breach of contract and breach of the implied covenant of good faith and fair dealing (Count 32), and denied as to the two remaining counts. As a result, all that remains of the first amended complaint are claims for retaliatory discharge in violation of 31 U.S.C. § 3730(h) (Count 31) and for wrongful termination and retaliation in violation of public policy and the Massachusetts False Claims Act, Mass. Gen. Laws ch. 12 § 5J (Count 33).

         On May 13, 2015, Cyberonics filed a motion to compel arbitration and to dismiss the remaining two counts. On August 14, 2015, Hagerty moved for leave to file a second amended complaint.

         For the following reasons, that motion will be denied, and defendant's motion to compel arbitration will be granted. The case will be stayed pending the result of the arbitration process.

         I. Background

         On April 19, 2010, Andrew Hagerty applied for employment at Cyberonics, Inc., by submitting and signing an employment application (the " Employment Application" ). (Magee Decl. Ex. 1). In the Employment Application, he represented that he had " read th[e] agreement" and that he " accept[ed] all the terms described" therein. ( Id. at 22). The application terms included a dispute resolution clause that read as follows:

[I]n consideration for my submission and Cyberonics' consideration of this application, Cyberonics and I agree to resolve any claims or disputes arising out of or relating to my application for employment or, if hired, my employment with or termination from Cyberonics exclusively by final and binding arbitration before a neutral arbitrator under the then current rules of the American Arbitration Association.

( Id. at 14).

         In an April 20, 2010 letter (the " Offer Letter" ), Cyberonics offered Hagerty " employment . . . in the position of Associate Therapeutic Consultant [for the] Boston territory . . . ." (Magee Decl. Ex. 2). On the same day, Hagerty signed the Offer Letter. ( Id. at 3). The Offer Letter stated that " [i]n the event of a dispute concerning the employment offer or your employment relationship with Cyberonics, you and Cyberonics agree to submit the matter to binding arbitration under the then current rules of the American Arbitration Association." ( Id. at 2). The Offer Letter stated that although the " letter is not intended to alter th[e] employment at will relationship in any way[,] [i]t does . . . supersede any other written and/or verbal representations made by any representative of Cyberonics relative to your employment with the Company." ( Id. ).

         On August 8, 2012, Hagerty filed a complaint against Cyberonics, alleging wrongful termination (" Hagerty I " ). Complaint, Hagerty v. Cyberonics, Inc., No. 1:12-cv-11465 (D. Mass. Aug. 8, 2012). Cyberonics contends that on January 31, 2013, it notified Hagerty's attorney that it believed that the claims asserted in Hagerty I were subject to binding arbitration. The complaint made no reference to government health-care programs or the FCA, although it did contain allegations of fraud by Cyberonics against various physicians and patients. Id. It alleged one claim for breach of contract. Id.

         On February 2, 2013, Hagerty voluntarily dismissed Hagerty I. On February 4, 2013, he filed the complaint in this case under seal. The complaint alleged, among other things, violations of the False Claims Act. The FCA claims were pursued by Hagerty on behalf of the United States as a qui tam action.

         On October 29, 2013, the government filed a notice declining to intervene in this case. (Docket No. 12). On December 5, 2013, the case was unsealed.

         On April 28, 2014, Cyberonics moved to dismiss for failure to state a claim. On May 19, 2014, Hagerty filed an amended complaint. It alleged violations of the False Claims Act, 31 U.S.C. § 3729(a) (Count 1); conspiracy to violate the FCA (Count 2); violations of various state analogues to the FCA (Counts 3 through 30); retaliatory discharge in violation of 31 U.S.C. § 3730(h) (Count 31); breach of contract and breach of the implied covenant of good faith and fair dealing (Count 32); and wrongful termination and retaliation in violation of public policy and the Massachusetts False Claims Act, Mass. Gen. Laws ch. 12, § 5J (Count 33).

         On June 18, 2014, Cyberonics moved to dismiss the amended complaint for lack of subject-matter jurisdiction and failure to state a claim. That motion was granted in part and denied in part on March 31, 2015. It was granted as to the federal FCA claims (Counts 1 and 2), the state FCA claims (Counts 3 through 30), and the claim for breach of contract and breach of the implied covenant of good faith and fair dealing (Count 32), and denied as to the two remaining counts, the claims for retaliatory discharge in violation of 31 U.S.C. § 3730(h) (Count 31) and for wrongful termination and retaliation in violation of public policy and the Massachusetts False Claims Act, Mass. Gen. Laws ch. 12 § 5J (Count 33).

         On May 13, 2015, Cyberonics filed a motion to compel arbitration and to dismiss the remaining two counts. At the hearing on the motion to compel arbitration, on July 22, 2015, Hagerty notified the Court of his intent to file a second amended complaint. On August 14, 2015, he moved to file a second amended complaint.

         II. Hagerty's Motion to Amend the Complaint

         A. Legal Standard

         Rule 15 of the Federal Rules of Civil Procedure addresses amendments to pleadings. Under Rule 15(a), a party may amend a " pleading" without leave of court in certain relatively narrow circumstances.[1] " In all other cases, a party may amend its pleadings only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). Nonetheless, amendments may be denied on the basis of " undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). In determining whether to grant a motion to amend, the Court must ...


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