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Kelly v. Novartis Pharmaceuticals Corp.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

July 20, 2017

Allison Kelly et al.
Novartis Pharmaceuticals Corporation et al. [1]


          Mitchell H. Kaplan, Justice

         Allison Kelly and Frank Garcia (Relators) brought qui tam actions against Genentech, Inc. (Genentech) and Novartis Pharmaceuticals Corporation (Novartis) in federal district court in Massachusetts under the Federal False Claims Act (FCA), 31 U.S.C. § 3729 et seq., the Massachusetts False Claims Act (MFCA), G.L.c. 12, § 5B(a)(1)-(10), and several other analogous state statutes. The federal claims asserted in their complaints were dismissed by the District Court for failure to plead the alleged fraud with the specificity required by Fed.R.Civ.P. 9(b). See U.S. ex rel. Garcia v. Novartis Pharm. Corp., 91 F.Supp.3d 87 (D.Mass. 2015). The dismissal was affirmed by the First Circuit Court of Appeals. See U.S. ex rel. Kelly v. Novartis Pharm. Corp., 827 F.3d 5 (1st Cir. 2016) ( Kelly ). While the Relators' FCA claims were dismissed with prejudice, their state claims were dismissed without prejudice because the District Court declined to exercise supplemental jurisdiction over them.[2] The Relators then filed the qui tam action against Genentech and Novartis now before the Superior Court alleging claims under the MFCA.[3] As with their previous federal complaints, the Relators allege that the defendants, who jointly marketed the asthma medication Xolair, provided illegal kickbacks to certain Massachusetts doctors, which caused the doctors to prescribe Xolair to Massachusetts Medicaid patients and submit false reimbursement claims for the drug to Medicaid. The defendants now move to dismiss the Relator's First Amended Complaint (Amended Complaint) contending, among other grounds, that the Relators have again failed to plead fraud with sufficient particularity required by Mass.R.Civ.P. 9(b). Because this court finds the First Circuit's reasoning in Kelly persuasive and no material additional allegations have been added to the Amended Complaint, the motion is ALLOWED .[4]


         The following facts are drawn from the allegations in the Relators' Amended Complaint (assumed to be true for the purposes of this motion), their federal complaints, and Kelly .

         Beginning in 2001, the defendants engaged in a joint venture to market an injected drug called Xolair. Xolair is approved by the FDA for treating moderate-to-severe persistent allergic asthma in patients twelve and older whose symptoms are not adequately controlled with inhaled corticosteriods. Garcia was a Xolair sales representative for Genentech from 2003 through 2004 and Kelly was a Xolair sales representative for Novartis from 2003 through 2007; each of their sales territories were in the New York City area, not Massachusetts.

         In March 2006, Garcia and Kelly filed a qui tam action in the U.S. District Court for the District of Massachusetts on behalf of the United States and several individual states under the FCA and analogous state statutes including Massachusetts MFCA (the 2006 Complaint).[5] The complaint alleged, among other things, that in an effort to increase sales of Xolair, the defendants paid kickbacks in violation of 42 U.S.C. § 1320a-7b(b), the Anti-Kickback Statute, to medical providers who served patients participating in government health insurance programs (e.g., Medicaid).[6] According to the Relators, these efforts induced the providers to prescribe Xolair for their patients and then submit false claims for reimbursement of Xolair purchases to government health insurance programs.[7]

         In January 2011, following a four-year investigation, the United States declined to intervene. The individual states named in the 2006 Complaint, including Massachusetts, also elected not to intervene. Kelly subsequently requested and was granted permission to dismiss herself from the action, and all references to her were removed from the Complaint.

         Nonetheless, a year later, Kelly filed another qui tam action against the defendants in the Massachusetts Federal District Court under the FCA and several state FCAs, including the MFCA (2012 Complaint). The allegations in her lengthy complaint were similar to those in the 2006 Complaint, however, this version of the complaint added more detail. Once again, the United States and the named states, including Massachusetts, declined to intervene.

         In October 2012, Garcia filed a motion to amend his 2006 Complaint and consolidate it with Kelly's 2012 Complaint but the District Court declined to rule on the motion. Two years later, the Realtors renewed the motion and filed a 408-page Proposed Amended and Consolidated Complaint (the 2014 PAC). The defendants opposed the motion on grounds of futility, prejudice, and delay; the motion was denied.

         In June 2014, the defendants filed a motion to dismiss the 2006 and 2012 Complaints, which was allowed in March 2015. The Court dismissed the FCA claims with prejudice, holding that the complaints failed to plead fraud with the particularity required by FRCP 9(b) and that amendment would be futile. As noted above, the District Court declined to exercise supplemental jurisdiction over the state law claims, but nonetheless dismissed them with prejudice for failure to plead fraud with particularity.

         The Relators appealed, and the First Circuit issued the Kelly decision in June 2016, upholding the District Court's dismissal of the federal claims with prejudice, but reversing its dismissal of the state claims with prejudice. In connection with the federal claims, the Court explained that the Relators' 2006 and 2012 Complaints failed to comply with FRCP 9(b) because: " Relators' evidence and arguments proceed[ed] more by insinuation than any factual or statistical evidence that would strengthen the inference of fraud beyond possibility." Kelly, 827 F.3d at 15. The Court observed that although the Relators' complaints alleged " that certain doctors, at various points, (1) were enrolled in federal reimbursement programs, (2) received services and incentives from defendants, and (3) prescribed Xolair, " they " failed . . . to tie these independently unexceptional allegations together into particularized charges about specific fraudulent claims for payment." Id.

         Of importance to the motion to dismiss now before this court, the First Circuit also reviewed the 2014 PAC and expressly found that it did not cure the deficiencies in the Relators' complaints: " [although the [2014 PAC] added extra grist for speculation, it offered nothing new of substance to cure the inferential gaps found in Relators' prior complaints." Id.

         The Relators subsequently filed the instant ...

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