United States District Court, D. Massachusetts
UNITED STATES OF AMERICA ex rel. JEFFREY D'AGOSTINO; STATES OF CALIFORNIA, CONNECTICUT, DELAWARE, FLORIDA, GEORGIA, HAWAII, ILLINOIS, INDIANA, LOUISIANA, MARYLAND, MICHIGAN, MINNESOTA, MONTANA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, OKLAHOMA, RHODE ISLAND, TENNESSEE, TEXAS and WISCONSIN; COMMONWEALTHS OF MASSACHUSETTS and VIRGINIA; and the DISTRICT OF COLUMBIA
EV3, INC.; MICRO THERAPEUTICS, INC.; JOHN HARDIN; and BRETT WALL
United States of America, ex. rel. Jeffrey D'Agostino and
John Doe, Plaintiff: Gregg D. Shapiro, LEAD ATTORNEY, Office
of the United States Attorney, Boston, MA; Shannon Kelley,
United States Attorneys Office, Boston, MA.
Jeffrey D'Agostino, Relator, Plaintiff: Daniel R. Miller,
LEAD ATTORNEY, PRO HAC VICE, Berger & Montague, Philadelphia,
PA; Jonathan Shapiro, Lynn G. Weissberg, Stern, Shapiro,
Weissberg & Garin, Boston, MA.
John Doe, Relator, State of California, State of California,
State of Delaware, District of Columbia, State of Florida,
State of Georgia, State of Hawaii, State of Illinois, State
of Indiana, State of Louisiana, State of Maryland,
Commonwealth of Massachusetts, State of Michigan, State of
Montana, State of Nevada, State of New Hampshire, State of
New Jersey, State of New Mexico, State of New York, State of
North Carolina, State of Oklahoma, State of Rhode Island,
State of Tennessee, State of Texas, Commonwealth of Virginia,
State of Wisconsin, Plaintiffs: Jonathan Shapiro, Lynn G.
Weissberg, Stern, Shapiro, Weissberg & Garin, Boston, MA.
ev3, Inc., Defendant: Joshua S. Levy, LEAD ATTORNEY, Ropes &
Gray LLP, Boston, MA; Bryan A. Pennington, Jeremy E. Kanarek,
Mitchell D. Stromberg, Ropes & Gray - MA, Boston, MA.
John Hardin, Microtherapeutics, Inc., Defendants: Stephen G.
Huggard, LEAD ATTORNEY, Locke Lord LLP, Boston, MA; Elizabeth
H. Kelly, Hilary B. Dudley, Edwards Wildman Palmer LLP - MA,
Boston, MA; Joshua S. Levy, Ropes & Gray LLP, Boston, MA.
Brett Wall, Defendant: Martin F Murphy, LEAD ATTORNEY, Amanda
S. Hainsworth, Shoshana D. Gray, Foley Hoag LLP, Boston, MA;
Joshua S. Levy, Ropes & Gray LLP, Boston, MA.
OF DECISION AND ORDER ON RELATOR'S MOTION TO AMEND THE
G. Stearns, UNITED STATES DISTRICT JUDGE.
case was remanded by the Court of Appeals for reconsideration
of the court's refusal to grant leave to
plaintiff/relator Jeffrey D'Agostino to file a fifth
iteration of his qui tam Complaint. In its opinion,
the Circuit Court did not delve into this court's
substantive discussion of the merits of the collective
defendants' motion to dismiss. See United
States ex rel. D'Agostino v. EV3, Inc., 802 F.3d
188, 191 (1st Cir. 2015) (" First, [plaintiff/relator]
contends that the district court improperly thwarted his
efforts to amend his complaint. Second, he challenges the
court's dismissal of his complaint and the subsidiary
legal determinations undergirding that dismissal. We start --
and end -- with the first claim." ). For that reason,
the court believes that the most efficacious way to proceed
is by adopting and adapting its previous discussion of the
merits of the case, and analyzing any new allegations for
their effect on the court's thinking.
a former employee of defendant EV3, Inc., filed the prototype
of this action under seal on October 26, 2010. At the time,
EV3 was the sole defendant. On February 3, 2011,
D'Agostino amended the original Complaint to add three
defendants, among them John Hardin, the Vice President of
Sales and Global Marketing at EV3 for the Onyx device.
D'Agostino sought and received permission to amend the
Complaint two additional times, the first on August 28, 2012,
and the second on May 17, 2013, while the case remained under
seal. On October 1, 2013, the United States filed a notice of
non-intervention, followed on December 19, 2013, by
twenty-five named states and the District of
Columbia. On December 26, 2013, the court
unsealed the case. D'Agostino received permission to
amend the Complaint yet again on April 28, 2014, adding
Microtherapeutics, Inc. (the company that developed the Onyx
and Axium devices before merging with EV3), and Brett Wall (a
former marketing executive at EV3) as defendants.
August 1, 2014, on completion of the briefing of the motion
to dismiss, D'Agostino sought to amend his Complaint for
a fifth time. The court denied leave to amend
pursuant to Fed.R.Civ.P. 16(b)(4), which requires a showing
of " good cause," and on September 30, 2014,
dismissed the Third Amended Complaint (TAC) with prejudice.
September 30, 2015, the Court of Appeals remanded with the
instruction that the court consider D'Agostino's
request to amend under the more lenient standard of
Fed.R.Civ.P. 15(a)(2), which permits an amendment only with
leave of the court, but also stipulates that leave is to be
granted freely " when justice so requires."
Nonetheless, as the Court of Appeals noted, while leave is to
be freely granted, a court may deny leave to amend under Rule
15(a)(2) for essentially the same reasons as under Rule
16(b)(4), including " 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, [or] futility of amendment." Foman v.
Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222
(1962). See D'Agostino, 802 F.3d at 195
(" Let us be perfectly clear. We do not suggest that the
district court will be compelled to grant the motion to amend
on remand." ).
November 9, 2015, D'Agostino filed a new motion to amend,
attaching a superseding Proposed Complaint (Dkt. # 128-1).
Defendants now oppose this motion, arguing inter
alia that it would cause undue delay, undue prejudice,
that D'Agostino has repeatedly tried and failed to cure
deficiencies in the Complaint, and that any further attempt
to amend would be futile.
defendants focus the bulk of their briefs on the "
futility" exception. " [A] judge may deny leave if
amending the pleading would be futile -- that is, if the
pined-for amendment does not plead enough to make out a
plausible claim for relief." HSBC Realty Credit
Corp. (USA) v. O'Neill, 745 F.3d 564, 578 (1st Cir.
2014). " Futility of the amendment constitutes an
adequate reason to deny the motion to amend."
Todisco v. Verizon Commc'ns, Inc., 497 F.3d 95,
98 (1st Cir. 2007). While " plaintiff typically will not
be precluded from amending a defective complaint in order to
state a claim on which relief can be granted . . . several
courts have held that if a complaint as amended could not
withstand a motion to dismiss or summary judgment, then the
amendment should be denied as futile." 6 Charles Alan
Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ. §
1487 (3d ed.); cf. Hatch v. Dep't for
Children, Youth & Their Families, 274 F.3d 12, 19 (1st
Cir. 2001) (" If leave to amend is sought before
discovery is complete and neither party has moved for summary
judgment, the accuracy of the 'futility' label is
gauged by reference to the liberal criteria of Federal Rule
of Civil Procedure 12(b)(6)." ).
AMENDED DECISION 
now five-year-old qui tam action, plaintiff/relator
Jeffrey D'Agostino, a former medical device salesman for
defendant EV3, Inc., alleges that EV3, Micro Therapeutics,
Inc. (MTI), John Hardin, and Brett Wall violated the federal
False Claims Act (FCA), 31 U.S.C. § 3729 et
seq., as well as the False Claims Acts of twenty-six
states and the District of Columbia. According to the
Proposed Complaint, defendants knowingly caused the
submission of false claims for reimbursement in violation of
FCA § 3729(a)(1)(A) (Count I), and knowingly made, or
caused to be made, false records or statements that were
material to the false reimbursement claims in violation of
FCA § 3729(a)(1)(B) (Count II), and made, used or
caused to be made or used, a false record or statement
material to an obligation to pay or transmit money or
property to the government, or knowingly concealed, avoided
or decreased such obligation, in violation of 31 U.S.C.
§ 3729(a)(1)(G) (Count III), all the while
conspiring to commit these acts in violation of FCA §
3729(a)(1)(C) (Count IV). The Proposed Complaint makes
parallel allegations under the various state and District of
Columbia analogs to the FCA (Counts V-XXXI). For reasons
to be explained, D'Agostino's motion under Rule
15(a)(2) to amend his complaint once more will be denied.
manufactures the two medical devices implicated in the
Proposed Complaint, the Onyx Liquid Embolic System (Onyx) and
the Axium Detachable Coil System (Axium). Both Onyx and Axium
were developed by MTI (which later merged with
EV3). Defendant Brett Wall held executive
sales and marketing positions at EV3, MTI, Boston Scientific,
and Covidien (the current parent company of EV3). Wall was
actively involved in the marketing of Onyx and Axium.
Defendant John Hardin was the Vice President of Sales and
Global Marketing for Onyx at EV3. D'Agostino served as
the Territory Sales Manager for EV3 in the eastern United
States between 2005 and 2010.
a synthetic liquid that, when introduced by a catheter, forms
a solid mass (embolus) inside a patient blocking the flow of
blood. The FDA approved Onyx in July of 2005 for use in the
presurgical treatment of a vascular defect in the brain known
as brain arteriovenous malformation (BAVM). The market for
the on-label use of Onyx is very small; there are only an
estimated 3,000 cases of BAVM treated annually in the United
Misleading the FDA in the Onyx Approval Process
broad terms, D'Agostino alleges that MTI misled the FDA
during the Onyx approval process by proposing an overly
narrow indication for its use, while concealing the true
scope of its marketing strategy, and failing to report
relevant safety information. D'Agostino alleges that, but
for MTI's fraud, Onyx would not have been approved for
any use by the FDA.
factual allegations, distilled from the legal conclusions in
which they are embedded, are as follows. According to the
Proposed Complaint, the FDA advisory panel appointed to
review the safety and efficacy of Onyx expressed concern that
the device (despite MTI's assurances) might be marketed
for the off-label treatment of other types of vascular
disease, or might be left permanently embedded in a BAVM
patient if follow-up surgery was not performed. In
response to the panel's reservations, the Proposed
Complaint alleges that MTI gave false assurances that it
would institute a program to train surgeons in the proper use
of Onyx. The FDA subsequently approved Onyx
for sale and use, subject to the conditions listed on its
label. The Proposed Complaint alleges that
when EV3 later sought to expand the scope of the FDA's
approval to include the use of Onyx in the treatment of
vascular defects in the " the periphery" (that is,
in the vasculature outside the brain or below the neck), the
FDA denied the request because of insufficient supporting
medical evidence. Prop. Compl. ¶ 59. Notwithstanding the
FDA's refusal, MTI (and EV3) continued to promote the use
of Onyx for peripheral indications and neurointerventional
indications other than the presurgical treatment of
point, MTI licensed the right to fabricate the liquid
material from which Onyx is manufactured to Enteric Medical
Technologies, Inc., another medical devices company. After
acquiring Enteric, Boston Scientific used the material to
manufacture Enteryx, which was approved by the FDA in April
of 2003 for the treatment of gastroesophageal reflux disease.
Enteryx is injected into the musculature below the esophagus
where it solidifies to create a partial barrier preventing
the reflux of stomach acid. According to the Proposed
Complaint, in some cases physicians injecting Enteryx missed
the esophageal musculature, risking potentially fatal
complications. D'Agostino argues that because
of the intimate corporate collaboration among EV3, Enteric,
Boston Scientific, MTI, and Covidien (fostered by the hiring
of senior executives by one company from another), EV3 bears
responsibility for failing to alert the FDA during the Onyx
approval process to problems being encountered by physicians
using Enteryx: EV3 " was representing to the FDA that
Onyx was safe, [while] the same molecule, in the form of
Enteryx, was killing people." Prop. Compl. ¶ 81.
D'Agostino alleges that EV3, during the Onyx approval
process, failed to adequately warn the FDA about the dangers
of Enteryx, and that " [h]ad the FDA known what MTI was
planning, it probably would not have granted the
approval." Prop. Compl. ¶ 176.
Training Program Used to Drive Off-Label
Proposed Complaint describes a surgical training program in
which, after a physician was trained in the use of Onyx, EV3
would supply Onyx to any hospital facility at which the
physician had admitting privileges. These included facilities
that had no surgeons on staff with practices requiring the
on-label use of Onyx. The Proposed Complaint further alleges
that EV3 paid physicians to conduct Onyx training for other
physicians, which sometimes included training in off-label
uses. Prop. Compl. ¶ 132. Because vascular " holes"
in areas below the neck (the periphery) are typically much
larger than those in the brain, more Onyx is required to plug
them, thus making off-label uses more lucrative for EV3. This
recognition, according to the Proposed Complaint, led EV3 to
ramp up the dissemination to physicians of information
promoting Onyx's off-label use. An example given by the
Proposed Complaint is a 2008 EV3 national sales meeting at
which National Marketing Manager (and former defendant) Vitas
Sipelis discussed case reports involving the use of Onyx in
peripheral vasculature surgical interventions, while at the
same time urging sales staff to " [g]et users to think
about additional [off-label] applications (i.e., [dural
arteriovenous fistulas] DAVFs)." Prop. Compl. ¶
Filing of False Claims
and outpatient hospital treatment procedures for eligible
patients are paid by Medicare subject to the condition that
the treatment is certified to be medically reasonable and
necessary. Reimbursement is at the rates
established by the Diagnosis Related Group (DRG) or the
Ambulatory Payment Classification, as appropriate. Although
the cost of a medical device is not billed directly to
Medicare, the hospital ultimately recovers the cost of the
device indirectly by way of the fixed aggregate reimbursement
rates. Where the actual cost of a particular procedure
exceeds the fixed limit, the hospital is permitted to bill
Medicare for the additional cost (a so-called " outlier
originally maintained that all off-label uses of Onyx were
" affirmatively unsafe, ineffective, and hazardous to
patient health,"  and that consequently, all "
claims which fall into this category were false under the
FCA." TAC ¶ 181. In the Proposed Complaint,
D'Agostino repeats this allegation in slightly altered
language: " All claims submitted by hospitals and
doctor to government healthcare programs for procedures
involving Onyx were fraudulent under the FCA. "
Prop. Compl. ¶ 186 n.19. While Medicare is prohibited from
reimbursing hospitals or physicians for unapproved devices
(unless they are part of an FDA-authorized clinical trial),
see 42 C.F.R. § 411.15(o), D'Agostino
acknowledges that Onyx was FDA-approved (and therefore
eligible for Medicare reimbursement). Nonetheless,
D'Agostino argues that because defendants fraudulently
induced the FDA to grant the initial approval for Onyx, all
off-label reimbursement claims were tainted as a
is an embolization coil attached to a delivery pusher
equipped with a manual detacher. A surgeon threads the coil
into the position at which he or she wishes to promote the
formation of an embolus, and then detaches the coil and
removes the pusher. First marketed in 2007, Axium was
developed with the intent of embolizing intracranial
aneurysms and other neurovascular anomalies.
Proposed Complaint alleges that EV3 unnecessarily hurried the
development of Axium, resulting in the launching of a product
that " was not adequately designed, was not properly
manufactured, and was not safe for use." Prop. Compl. ¶
208. During the first year following the launch, the device
was modified " more than a half dozen times" to
correct problems encountered during surgeries. Id.
According to the Proposed Complaint, EV3 actively explored
ways of minimizing losses on the recall of earlier iterations
of Axium. As an example, the Proposed Complaint cites an
internal EV3 email from National Manager Fred Gunderman to
EV3 executives, written after generation 1E of Axium was
marketed. See Prop. Compl. ¶ 224. The
email, in discussing the need to withdraw the earlier
generations 1 through 1B from the market, suggested trading
out generations 1C and 1D< 7mm for the more expensive
version 1E to recoup losses on the recalled units.
Id. The email also discussed the possibility of
selling the superannuated prior generations into the
peripheral market. Id.
Proposed Complaint notes that Dr. Stephen Ohki at Hartford
Hospital in Connecticut reported an Axium coil detachment
failure in late 2008 that " led to a negative outcome
for the patient." Prop. Compl. ¶ 245. In October 2009,
Dr. Ohki reported a similar problem with another Axium coil.
When D'Agostino was asked by Hartford Hospital's
legal department for an internal report on the failures, he
contacted EV3's engineering department. D'Agostino
was told that coils were failing to detach properly because
of a manufacturing error (over welding), caused by a laser
welder being set " too hot." Id. ¶ 247.
The Proposed Complaint lists eleven additional instances of
alleged Axium failures supplementing the two failures
(reported by Dr. Ohki) that were also listed in the TAC.
Proposed Complaint recites the previously alleged
manufacturing defects in other versions of Axium, including
instances of a malformed retainer ring caused by worn
manufacturing equipment, and a welding error that resulted in
an improper coupling of the detachment wire to the inner wall
of the coil. Id. ¶¶ 245-249. While detachment
failures can be remedied by secondary detachment methods
(such as tugging on the device with a forceps), these also
entail risks to patients. D'Agostino,
however, omits from the Proposed Complaint the misbranding
and adulteration claims related to Axium alleged in the TAC.
Axium Adverse Event Reporting
Proposed Complaint alleges that EV3's investigations into
adverse events involving Axium were " often bogus,
blaming the problem on everything but the defective
product." Prop. Compl. ¶ 268. By minimizing
Axium's role in causing " hundreds" of adverse
events, D'Agostino argues that EV3 avoided its obligation
to file Medical Device Reports with the FDA, and had the FDA
been aware of EV3's misfeasance, " it could have
recalled the devices, or greatly restricted the instructions
for [their] use." Id. ¶ 277. As with Onyx,
D'Agostino maintains that, in the case of Axium,
defendants induced " hospitals and physicians to certify
. . . that the medical products . . . provided to patients
were in compliance with applicable statutes [and]
regulations," and that such certifications " were
false  because EV3 was not in statutory or regulatory
compliance." Id. ¶ 278. In other words, EV3 was
marketing medical devices that were eligible for Medicare
reimbursement only because the government did not know "
the truth about these products." Id. ¶ 277.
FCA liability attaches to any individual who 'knowingly
presents, or causes to be presented, a false or fraudulent
claim for payment or approval,' 31 U.S.C. §
3729(a)(1)(A), or 'knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false
or fraudulent claim,' § 3729(a)(1)(B)."
United States ex rel. Hutcheson v. Blackstone Med.,
Inc., 647 F.3d 377, 380 n.3 (1st Cir. 2011).
For purposes of both subsections, " [a] person acts
'knowingly' if he or she '(1) had actual
knowledge of the information; (2) acts in deliberate
ignorance of the truth or falsity of the information; or (3)
acts in reckless disregard of the truth or falsity of the
United States ex rel. Dyer v. Raytheon Co., 2011 WL
3294489, at *6 (D. Mass. July 29, 2011), quoting
Hutcheson, 647 F.3d at 380; see alsoAllison Engine Co. v. United States ex rel. Sanders,
553 U.S. 662, 672-673, 128 S.Ct. 2123, 170 L.Ed.2d 1030
(2008) (the elements of an FCA claim require proof that a
defendant knew, as a " natural, ordinary and reasonable
consequence" of its acts, that false claims would be
submitted to the government for payment). The statute further
prohibits " conspir[acies] to defraud the Government by
getting a false or fraudulent claim allowed or paid."
United States ex. rel. Gagne v. City of Worcester,
565 F.3d 40, 42 (1st Cir. 2009); Allison Engine, 553
U.S. at 672. Persons who violate the FCA are liable for civil