United States District Court, D. South Carolina, Columbia Division
UNITED STATES OF AMERICA, ex rel. JON VITALE, Plaintiff,
MIMEDX GROUP, INC., Defendant.
Bryan Harwell Chief United States District Judge
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
Allegations and Procedural Background
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 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.
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.
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 reply thereto, ECF No. 67. On November 6,
2018, the United States, which is the real party in interest,
filed a statement of interest,  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.
AKS and FCA
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)).
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 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.
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)
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).
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)).
False Claims Provision
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