Lonnie Paulos v. Stryker Corporation , 762 F.3d 688 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 13-2509
___________________________
United States ex rel. Lonnie Paulos, MD
lllllllllllllllllllll Plaintiff - Appellant
v.
Stryker Corporation; I-Flow Corporation
lllllllllllllllllllll Defendants - Appellees
Orthofix International, as Successor to Breg, Inc.
lllllllllllllllllllll Defendant
___________________________
No. 13-2647
___________________________
United States ex rel. Lonnie Paulos, MD
lllllllllllllllllllll Plaintiff - Appellee
v.
Stryker Corporation; I-Flow Corporation
lllllllllllllllllllll Defendants - Appellants
Orthofix International, as Successor to Breg, Inc.
lllllllllllllllllllll Defendant
____________
Appeal from United States District Court
for the Western District of Missouri - Kansas City
____________
Submitted: April 17, 2014
Filed: August 7, 2014
____________
Before RILEY, Chief Judge, BENTON and KELLY, Circuit Judges.
____________
RILEY, Chief Judge.
In the early 2000s, doctors saw a spike in the number of patients developing
chondrolysis—a rare and “painful medical condition whereby an individual loses
articular cartilage in a joint,” Mack v. Stryker Corp., 748 F.3d 845, 848 (8th Cir.
2014). Concern then surfaced that this spike was related to the use of medical devices
known as “pain pumps” to deliver anesthetics via catheter into patients’ joint spaces
(the area surrounding a joint).1 See, e.g., id. at 848, n.3; Huggins v. Stryker Corp.,
932 F. Supp. 2d 972, 978 (D. Minn. 2013). This concern triggered several studies on
the effects of placing pain pumps in patients’ joint spaces and also bred numerous
product liability lawsuits against pain pump manufacturers like Stryker Corporation
(Stryker) and I-Flow Corporation (I-Flow). See, e.g., Mack, 748 F.3d at 847-48;
Rodriguez v. Stryker Corp., 680 F.3d 568, 570 (6th Cir. 2012); Meharg v. I-Flow
Corp., No. 1:08-CV-184-WTL-TAB, 2010 WL 711317 (S.D. Ind. Mar. 1, 2010)
(unpublished).
1
Like the parties and the district court below, we use the terms “intra-articular
space,” “synovial cavity,” and “joint space” interchangeably.
-2-
Unlike most pain pump litigants, who raise product liability claims, Dr. Lonnie
Paulos (an orthopedic surgeon and former consultant at Stryker) alleges Stryker and
I-Flow violated the False Claims Act (FCA) by marketing their pain pumps to
encourage the placement of pain pumps directly into patients’ joint spaces after
orthopedic procedures. The district court2 dismissed Dr. Paulos’s claims under
31 U.S.C. § 3730(e)(4)(A), concluding Dr. Paulos’s allegations had been publicly
disclosed and Dr. Paulos was not excepted under 31 U.S.C. § 3730(e)(4)(B) as an
“original source” of the information.3 Dr. Paulos appeals, challenging both
conclusions. We exercise our appellate jurisdiction under 28 U.S.C. § 1291 and
affirm.
I. BACKGROUND
The parties agree the Food and Drug Administration (FDA) has given
“§ 510(k)” clearance4 to market pain pumps generally for “intraoperative” use. Dr.
Paulos claims the FDA has consistently refused to approve marketing pain pumps
specifically for orthopedic placement in joint spaces.5 Dr. Paulos filed this suit on
January 10, 2011, and according to his amended complaint, Stryker and I-Flow
2
The Honorable Ortrie D. Smith, United States District Judge for the Western
District of Missouri.
3
The district court dismissed additional claims against Stryker and I-Flow as
well as claims against other defendants not relevant to this appeal.
4
“The ‘510(k)’ process is named after the section number given to this process
in the Medical Device Amendments of 1976.” Mack, 748 F.3d at 855 n.7. Such
clearance permits the marketing of a device without pre-market safety testing where
“a substantially similar product is currently in use for that purpose.” Id. at 855
(internal quotations omitted).
5
Whether joint space use is included in the broader term of “intraoperative”
area use is another question, see, e.g., Rodriguez, 680 F.3d at 574 (concluding “the
indication for use that the FDA did approve—using the pump at the ‘intra-operative
site’—covers the use of the pump in a joint”), which we need not address today.
-3-
marketed pain pumps for placement specifically in joint spaces while knowingly
(1) “[f]ail[ing] to disclose . . . material information” about the dangers of using pain
pumps in joint spaces or to disclose the lack of safety testing for joint space use;
(2) providing “[f]alse[] indicati[ons] that the pain pumps were approved [by the FDA]
for use” in joint spaces; and (3) providing “[f]alse labeling and promotion materials”
suggesting such use. Dr. Paulos alleges these marketing efforts constituted
intentional fraud and induced many healthcare providers to use pain pumps in their
patients’ joint spaces. He claims that because many of these healthcare providers
sought reimbursement for the pain pumps through federal programs like Medicaid or
Tricare, Stryker and I-Flow thereby caused the submission of “false or fraudulent
claim[s] for payment” in violation of 31 U.S.C. § 3729(a).
Dr. Paulos also asserts he and a colleague, Dr. Charles Beck, were among the
first to suspect and investigate the placement of pain pumps as a cause for
chondrolysis after Dr. Beck approached Dr. Paulos with this theory. Dr. Paulos
claims Stryker knew of the increased risk of chondrolysis early on and alleges he
warned Stryker of his and Dr. Beck’s concern that the uptick in chondrolysis could
be related to the use of pain pumps.
After the district court unsealed Dr. Paulos’s qui tam complaint, Stryker and
I-Flow filed a joint motion to dismiss pursuant to 31 U.S.C. § 3730(e)(4)(A) and
contended (1) the same fraud alleged in Dr. Paulos’s complaint had been publicly
disclosed, and (2) Dr. Paulos was not excepted as an “original source” of the
information underlying his claims. Over Dr. Paulos’s counterarguments on both
points, the district court granted the motion and dismissed Dr. Paulos’s claims. Dr.
Paulos timely appeals.6
6
In their cross-appeals, Stryker and I-Flow both challenge the district court’s
adverse conclusions on other bases for dismissal, effectively raising alternative
arguments for affirmance. Because we agree with the district court’s conclusion on
the public disclosure bar, we need not confront these alternative arguments.
-4-
II. DISCUSSION
In the FCA, Congress included what is nicknamed a “public disclosure bar”
which prevents qui tam relators from suing for fraud against the government when
that fraud is already publicly known. In principle, the FCA’s qui tam provision “‘is
designed to promote private citizen involvement in exposing fraud against the
government, while at the same time,’” the public disclosure bar works to “‘prevent
parasitic suits by opportunistic late-comers who add nothing to the exposure of the
fraud.’” Costner v. URS Consultants, Inc., 153 F.3d 667, 675-76 (8th Cir. 1998)
(quoting United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1511 (8th Cir.
1994)). The FCA provides:
(A) The court shall dismiss an action or claim under this section, unless
opposed by the Government, if substantially the same allegations or
transactions as alleged in the action or claim were publicly disclosed—
(i) in a Federal criminal, civil, or administrative hearing in which
the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or
other Federal report, hearing, audit, or investigation; or
(iii) from the news media.
31 U.S.C. § 3730(e)(4).7 A relator’s claim is excepted from this public disclosure bar,
however, if the relator is an “original source of the information.” Id. § 3730(e)(4)(A).
This original source exception applies in two situations—where the relator
7
At Paulos’s “urging, this court assumes, without deciding, that the current
version of the FCA applies.” United States ex rel. Kraxberger v. Kan. City Power &
Light Co., ___ F.3d ___, ___ n.2, No. 13-2759, 2014 WL 2898465, at *2 n.2 (8th Cir.
June 27, 2014).
-5-
either ([1]) prior 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). Dismissal under the public disclosure bar is thus required if
(1) the defendant has shown public disclosure under § 3730(e)(4)(A), and (2) the
relator does not fit § 3730(e)(4)(B)’s definition of “original source.” We review de
novo the district court’s conclusions on both points. See Kraxberger, ___F.3d at ___,
2014 WL 2898465, at *1.
A. Public Disclosure
Dr. Paulos’s claims were publicly disclosed “if substantially the same
allegations or transactions” as he alleges were “publicly disclosed” in
§ 3730(e)(4)(A)’s enumerated channels. The district court found these requirements
were met because numerous media reports, FDA reports, and federal regulatory
disclosures essentially revealed the allegations of fraudulent marketing forming the
basis for Dr. Paulos’s claims. Dr. Paulos does not challenge the district court’s use
of these sources as falling within the statute’s listed channels of disclosure. Instead,
he argues the specific fraudulent acts at issue here were not publicly disclosed and
only appear substantially similar to the public disclosures at the “highest level of
generality.” We disagree.
First, Dr. Paulos seems to maintain the public reports did not disclose his
allegations that (1) “surgeons were not being told that the devices could cause joint
damage,” (2) “surgeons were told the devices were approved for use,” and (3) “the
devices were being marketed off label.” As the district court discussed in detail, the
public documents laid out precisely these points. These independent sources show
-6-
the following allegations and transactions: (1) various pain pump manufacturers
attempted numerous times to obtain FDA approval to market pain pumps for
placement in joint spaces, and in every instance the FDA refused approval;
(2) Stryker and I-Flow nevertheless encouraged healthcare providers to use pain
pumps in joint spaces; (3) neither company disclosed the lack of FDA approval for
this use; (4) both companies knew the pumps had never been safety-tested for such
use; and (5) both companies continued to market pain pumps for such use even after
learning of a possible connection to chondrolysis.
Attempting to distinguish his fraud claims from these public disclosures, Dr.
Paulos contends the public disclosures “do not establish the key part of this False
Claims case: specifically, [Stryker’s and I-Flow’s] scienter.” Dr. Paulos maintains
the disclosures do not allege “any physician (specifically, Dr. Paulos and/or Dr. Beck)
told the manufacturers that their course of conduct was directly causing” physicians
to use pain pumps in a way that injured patients. On the contrary, one report
expressly discloses that Dr. Beck suggested the causal connection to the pain pump
manufacturers as early as 2005, and another report alleges I-Flow admittedly knew
of a 2006 study linking chondrolysis to joint space use of pain pumps. Many of the
cited documents clearly implicate the companies’ knowledge of the pain pumps’
connection to chondrolysis and the lack of FDA approval.
Dr. Paulos finally proposes that, unlike his claims, the public disclosures fail
to allege that the companies misled healthcare providers about the absence of FDA
approval. The record contradicts this proposition, revealing several public allegations
that the FDA had not approved the joint space use of pain pumps and that Stryker’s
and I-Flow’s marketing practices hid this lack of approval while promoting joint
space use.
Finding no meaningful distinction between the public disclosures and Dr.
Paulos’s claims, we conclude the district court did not err in finding a public
-7-
disclosure sufficient to meet § 3730(e)(4)(A).8 Therefore, Dr. Paulos’s “claim[s]
succeed[] only if he is an ‘original source’” under § 3730(e)(4)(B). Kraxberger,
___F.3d at ___, 2014 WL 2898465, at *3.
B. Original Source Exception
Dr. Paulos qualifies as an “original source” if (1) before the public disclosures,
he “voluntarily disclosed to the Government the information on which” his claims’
“allegations or transactions . . . are based,” or (2) he “has knowledge that is
independent of and materially adds to the publicly disclosed allegations or
transactions, and . . . has voluntarily provided the information to the Government
before filing [this] action.” 31 U.S.C. § 3730(e)(4)(B). Dr. Paulos does not claim to
have volunteered his information to the government before the public disclosures of
fraud, so we need only discuss his potential qualification as the second type of
“original source.”
8
The district court noted “there were no public disclosures that doctors and
hospitals submitted claims for payment” to the federal government, but the district
court reasoned this additional fact merely “add[ed] some color” and supplied further
detail but did not materially distinguish Dr. Paulos’s FCA claim from the public
disclosures of the underlying fraud. See, e.g., United States ex rel. Poteet v. Bahler
Med., Inc., 619 F.3d 104, 115 (1st Cir. 2010); Dingle v. Bioport Corp., 388 F.3d 209,
215 (6th Cir. 2004). The district court further reasoned, “The logical consequence of
the[ alleged] misrepresentations (assuming the correctness of [Dr. Paulos’s] depiction
of the repayment programs’ requirements and other legal theories) is that any doctor
or hospital seeking payment from these federal programs would be submitting a false
claim for payment.” We have indicated, under a prior version of the public disclosure
bar statute, that a relator’s claim cannot be “‘based upon . . . public disclosure of
allegations or transactions’” where the public disclosure fails to reveal “the false
claim itself,” United States ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186,
1188 (8th Cir. 2010) (omission in original) (quoting 31 U.S.C. § 3730(e)(4)(A)
(2008)), but Dr. Paulos does not challenge the district court’s reasoning or
conclusion. We therefore neither address it nor express an opinion on the continuing
applicability of Hixson’s standard under the current version of the statute.
-8-
At scattered points throughout his opening brief, Dr. Paulos appears to claim
independent knowledge of (1) the connection between pain pumps and chondrolysis
after assisting Dr. Beck’s initial research in the area, and (2) Stryker’s scienter by way
of having informed a Stryker executive of the suspected connection between its pain
pumps and chondrolysis. Even assuming Dr. Paulos’s knowledge is independent, his
information on these points does not “materially add[] to the publicly disclosed
allegations or transactions.” Id. § 3730(e)(4)(B)(2).
First, Dr. Paulos bases much of his “original source” argument on his claim that
he was among the first to suspect and investigate a causal connection between pain
pumps and chondrolysis. Dr. Paulos’s complaint shows that from an early point, he
was involved in discussions with colleagues on the chondrolysis issue and that during
this time he treated at least one patient suffering from chondrolysis (and was referred
several others). Dr. Paulos also claims to have spoken with Dr. Beck about Dr.
Beck’s early research investigating the connection. A relator is not an original source
of information under the statute simply because he discovered or suspected it first.
See 31 U.S.C. § 3730(e)(4)(B) (containing no requirement or exception for early
discoveries or suspicions).
The connection between device and disease (and details of the science and
studies supporting it) can be found in numerous news media and FDA reports. Other
than the causal connection itself, Dr. Paulos has not clarified what information his
own conversations or research revealed, what these details add to the public
knowledge base, or how any such additions are material to his FCA claims. With the
key facts to Dr. Paulos’s FCA claims—i.e., the lack of safety testing and causal
connection between device and disease—already thoroughly revealed and without
any clear sense about what new information Dr. Paulos brings to the table, we cannot
say his knowledge (even if gained early and independently) materially contributes
anything of import to the public knowledge about the alleged fraud. See Kraxberger,
___F.3d at ___, 2014 WL 2898465, at *3 (concluding relator’s knowledge did not
-9-
“materially add to what was publicly disclosed” because essentially all of relator’s
knowledge relevant to his FCA claim appeared in existing public disclosures); see
also New Oxford American Dictionary 18, 1079 (3d ed. 2010) (defining “add” as to
“put (something) in or on something else so as to improve or alter its quality or
nature” and to “contribute (an enhancing quality) to something”; defining
“materially” as “substantially; considerably”).
The focus of FCA liability is on knowing fraud in seeking federal funds, see
31 U.S.C. § 3729(a)(1)(A)-(G); In re Baycol Prods. Litig., 732 F.3d 869, 875 (8th Cir.
2013), and the FCA is generally unconcerned with claims of negligence or underlying
“regulatory noncompliance,” see U.S. ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 795-
96 (8th Cir. 2011); Hays v. Hoffman, 325 F.3d 982, 991 (8th Cir. 2003). We fail to
see how the addition of Dr. Paulos’s personal insight on the science behind
chondrolysis would contribute much more than tangentially relevant information to
the central questions of Dr. Paulos’s fraud claim.
Second, Dr. Paulos asserts he has independent knowledge relating to Stryker’s
scienter in that he warned Stryker executives of a connection between the pain pumps
and chondrolysis. Dr. Paulos’s complaint focuses on one communication in
particular—a 2005 fax and e-mail he sent to a Stryker executive in which Dr. Paulos
claimed to know of several cases in which patients unexpectedly developed
chondrolysis and explained “[t]he only common link [wa]s the pain-dripping devices
[pain pumps] with Marcaine or Lidocaine and Epinephrine.” He also shows that a
Stryker executive passed along Dr. Paulos’s warning and noted the concern “that
Marcaine w[ith] epi[nephrine]” may be “rotting the cartilage in shoulders.” Dr.
Paulos seems to assume his communications alerted Stryker about the danger of
placing pain pumps in joint spaces, but “there was no mention whatsoever in these . . .
communications regarding pain pump placement” as relevant to Dr. Paulos’s
chondrolysis concerns. See Phillippi v. Stryker Corp., No. 2:08-CV-02445-JAM-
KJN, 2010 WL 2650596, at *2 (E.D. Cal. July 1, 2010) (unpublished) (emphasis
-10-
added) (examining Dr. Paulos’s same communications in a pain pump product
liability case), aff’d, 471 F. App’x 663 (9th Cir. 2012) (mem. op.) (reviewing the
district court’s grant of summary judgment de novo and concluding, “as the district
court found, [plaintiff] provided insufficient evidence to raise a known or knowable
risk of chondrolysis at the time of [plaintiff’s] surgery”). Instead, Dr. Paulos singled
out the use of certain drug combinations with the pain pump, specifying this was the
“only common link” between Dr. Paulos’s chondrolysis patients. (Emphasis added).
See id. Although scienter in presenting false or fraudulent claims is certainly a
necessary and important element in any FCA claim, see 31 U.S.C. § 3729(a)(1)(A)-
(G); Baycol, 732 F.3d at 875, we, like the court in Phillippi, determine Dr. Paulos’s
warnings on the use of certain anesthetics in pain pumps was unhelpful and largely
irrelevant in assessing whether Stryker knew the dangers of using pain pumps in joint
spaces.
To the extent Dr. Paulos’s independent warning can be said to have put Stryker
on notice of the chondrolysis issue generally, the public reports discussed above
indicate Stryker already had reason to know of the pain pumps’ connection to
chondrolysis after orthopedic uses while also disclosing allegations that (1) Dr. Beck
supplied the results of his study to the pain pump manufacturers, and (2) Stryker
knowingly misrepresented the dangers of pain pump placement. Given the limited
value of Dr. Paulos’s communication in proving Stryker acted knowingly and also the
extent of the public disclosure on the issue, we are not convinced Dr. Paulos’s
warning added significantly to the scienter issue. See, e.g., New Oxford American
Dictionary, supra, at 18, 1079.
Because Dr. Paulos’s proposed independent knowledge cannot be said to
“materially add[] to the publicly disclosed allegations or transactions,” he is not an
“original source” under 31 U.S.C. § 3730(e)(4)(B)(2).
-11-
C. Procedural Issues
Finally, Dr. Paulos faults the district court for looking to materials outside the
pleadings in resolving Stryker and I-Flow’s motion to dismiss. Even though Dr.
Paulos opposed the motion by submitting his own additional materials outside the
pleadings, he complains the district court should not have looked to the public
disclosure documents. He contends the motion essentially “amount[ed] to a [Federal
Rule of Civil Procedure] 12(b)(6) motion” so that the district court should have
converted the motion to one for summary judgment pursuant to Rule 12(d).
Assuming the motion is best viewed as one made under Rule 12(b)(6), a court
“may [still] consider ‘matters incorporated by reference or integral to the claim, items
subject to judicial notice, [and] matters of public record.’” Kraxberger, ___F.3d at
___, 2014 WL 2898465, at *6 (second alteration in original) (quoting Miller v.
Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 n.3 (8th Cir. 2012)). And “[s]ince
the FCA requires a court to dismiss a claim based on public disclosure, a court
necessarily considers the alleged public documents in its dismissal.” Id. Because the
documents utilized by the district court “are integral to the claim, subject to judicial
notice, matters of public record, or evidence of public disclosure the court properly
considered under 31 U.S.C. § 3730(e)(4),” we reject this claim of procedural error.
Id.
III. CONCLUSION
We affirm.
______________________________
-12-