Garcia v. Novartis Pharmaceuticals , 827 F.3d 5 ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-1470
UNITED STATES OF AMERICA et al., ex. rel.,
ALLISON KELLY, FRANK GARCIA,
Plaintiffs, Appellants,
v.
NOVARTIS PHARMACEUTICALS CORPORATION; NOVARTIS CORPORATION;
GENENTECH, INC.; and ROCHE HOLDINGS, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Kayatta, Stahl, and Barron,
Circuit Judges.
Timothy Cornell, with whom Cornell Dolan, P.C., was on
brief, for appellants.
Elliot R. Peters, with whom Steven A. Hirsch, David J.
Silbert, Keker & Van Nest LLP, Matthew J. O'Connor, Ronald G.
Dove, Jr., and Covington & Burling LLP, were on brief, for
Genentech, Inc. and Roche Holdings, Inc., appellees.
Michael A. Rogoff, with whom Debra E. Schreck, Kaye Scholer
LLP, Tracy A. Miner, and Demeo LLP, were on brief, for Novartis
Pharmaceuticals Corporation and Novartis Corporation, appellees.
June 17, 2016
STAHL, Circuit Judge. Appellants Allison Kelly and
Frank Garcia ("Relators") brought qui tam actions against
Appellees Genentech, Inc. and Roche Holdings, Inc. ("Genentech")
and Novartis Pharmaceuticals Corporation and Novartis
Corporation ("Novartis") (collectively, "Defendants") under the
False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and related
state statutes. Relators allege that Defendants caused
physicians and healthcare providers to submit false claims to
the government for reimbursement for Xolair, an injected drug
used to treat allergies.
Because Relators failed to state their complaints with
sufficient particularity and the district court did not abuse
its discretion in denying Relators leave to amend, we AFFIRM the
district court's decision to dismiss the federal claims with
prejudice. After dismissing the federal claims, however, the
district court declined to exercise jurisdiction over the state-
law claims and then dismissed these claims with prejudice.
Because the court erred in dismissing the state-law claims with
prejudice, we VACATE this portion of the district court's
decision and REMAND with instructions to dismiss Relators'
state-law claims without prejudice.
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I. Facts & Background1
Xolair is a drug 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 corticosteroids. The drug is co-promoted in the United
States by Genentech and Novartis.
In 2006, Frank Garcia and Allison Kelly jointly filed
a qui tam complaint (the "2006 Garcia Complaint" or "2006 Garcia
Action") alleging that defendants had marketed Xolair
unlawfully. Garcia had been a Xolair sales representative for
Genentech from 2003 to 2004, and Kelly had been a Xolair sales
representative for Novartis from 2003 to 2007. The 2006 Garcia
Complaint alleged that Defendants illegally promoted Xolair for
off-label uses,2 paid kickbacks to doctors,3 encouraged sales
1
Because this appeal follows the granting of a motion to
dismiss, we recite the facts as they appear in the applicable
complaints in this action, including any documents incorporated
by reference in those complaints. Hochendoner v. Genzyme Corp.,
___ F.3d ____, 2016 WL 2962148, at *1 (1st Cir. 2016).
2
Although the FDA only approved Xolair for treating
moderate-to-severe persistent allergic asthma in patients twelve
and older, it is alleged that pharmaceutical representatives for
Novartis and Genentech visited doctors' offices and reported
studies that claimed that Xolair was effective on patients with
mild asthma, or that it should be used on patients who did not
otherwise satisfy the criteria for administration of Xolair.
The representatives supposedly also were encouraged to tell
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representatives to improperly complete and influence the
completion of Statement of Medical Necessity ("SMN") forms,4 and
targeted Disproportionate Share Hospitals.5 Based on these
allegations, Relators claimed that Defendants violated the FCA
and analogous state statutes by causing false claims for Xolair
to be presented to government healthcare programs.
In 2010, another Genentech sales representative,
Stephen Fauci, filed a complaint similarly alleging that
Genentech and Novartis had promoted off-label uses of Xolair
(the "2010 Fauci Complaint" or "2010 Fauci Action").
After conducting a four-year investigation, the United
States, in January 2011, declined to intervene in the 2006
Garcia Action and the 2010 Fauci Action. The vast majority of
doctors that Xolair could be used for peanut and other allergies
that did not involve asthma and could be used on children under
the age of twelve.
3
Novartis and Genentech allegedly treated doctors to free
equipment and labor, dined them at fine restaurants, and
provided them speakers' fees and luxury trips.
4
An SMN is a formal prescription for medication that is
signed by the prescribing physician.
5
A Disproportionate Share Hospital is a hospital that
serves a significantly disproportionate number of low-income
patients and receives payments from the Centers for Medicaid and
Medicare Services to cover the costs of providing care to
uninsured patients.
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the States named as plaintiffs followed the United States' lead
and declined as well. So too did counsel for Kelly and Garcia,
who withdrew. In light of this apparent unraveling, Kelly asked
to be dismissed as a relator from the 2006 Garcia Action and
asked that her name remain under seal. The court dismissed
Kelly from the action and gave Garcia sixty days to file an
amended complaint removing all references to Kelly. Garcia
requested several extensions of time to file this complaint as
he sought new counsel to carry the action forward.
Then, in June 2012, Kelly returned to the court, now
represented by the new counsel for Garcia and Fauci, and filed
yet another qui tam complaint under seal (the "2012 Kelly
Complaint" or "2012 Kelly Action"). In her new complaint, Kelly
built upon the allegations contained in the pending 2006 Garcia
and 2010 Fauci Complaints, contending that Defendants illegally
promoted Xolair for off-label uses; paid kickbacks to
physicians; aided and encouraged doctors to falsify SMNs;
targeted and marketed to Disproportionate Share Hospitals;
encouraged doctors to "upcode";6 and failed to provide the best
price for Xolair to healthcare providers. Four months later,
6
"Upcoding" involves using improper billing and coverage
codes in order to obtain higher reimbursement rates.
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Garcia and Fauci moved to consolidate their actions with the new
2012 Kelly Action and moved for leave to file an amended joint
complaint ("Joint Complaint" or "Joint Action"). The court did
not rule on the motion to consolidate and amend, and the federal
government and several States once again declined to intervene.
In 2013, the district court unsealed the 2012 Kelly
Complaint, leaving the 2006 Garcia Action and the 2010 Fauci
Action under seal. Finally, in January 2014, Kelly served the
2012 Kelly Complaint on Defendants. That same month, the United
States filed a motion to partially lift the seal in the 2006
Garcia and 2010 Fauci Actions, pointing out that the 2012 Kelly
Complaint "could be subject to dismissal under the False Claims
Act's 'first to file' rule" because it was "based on the same
facts underlying the complaints" in the those actions. The
court allowed the motion and unsealed, among other documents,
the 2006 Garcia Complaint and the 2010 Fauci Complaint.
Relators then attempted to re-file their pending
motion to consolidate and amend. In response, the court gave
Defendants two weeks to respond to the proposed Joint Complaint.
Defendants opposed the Joint Complaint on grounds of futility,
undue delay, and prejudice. Genentech and Novartis argued that
the 2010 Fauci and 2012 Kelly Actions fell under the first-to-
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file bar and noted that the cases had been pending for several
years before the Joint Complaint had been filed. The next day,
on April 18, 2014, the court entered a short order denying
Relators' motion to consolidate and amend.
A few months later, Defendants filed a motion to
dismiss the 2006 Garcia Complaint and the 2012 Kelly Complaint.7
On March 17, 2015, the court granted Defendants' motion,
dismissed the federal claims with prejudice, and issued judgment
for Defendants. The court held that the 2006 Garcia and 2012
Kelly Complaints failed to plead fraud with particularity, as
required by Federal Rule of Civil Procedure 9(b), and that
amendment would be futile. The court also dismissed Relators'
pendent state-law claims with prejudice. Relators now appeal.
II. Analysis
Relators raise three issues on appeal. First, they
contend that the district court abused its discretion when it
denied their 2014 motion to amend and consolidate by failing to
declare its reasoning on the record at the time of the denial.
Second, Relators argue that the district court erred in
7
The day before Defendants filed their motion to dismiss,
Fauci voluntarily dismissed all claims in the 2010 Fauci Action.
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dismissing their federal claims with prejudice. Finally,
Relators argue that the court erred in dismissing their state-
law claims with prejudice.
A. Motion to Amend
Relators claim the district court erred in its April
18, 2014 order because it denied their first motion to amend and
consolidate without explaining its reasoning on the record. We
review the denial of a motion to amend for abuse of discretion.
United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104,
116 (1st Cir. 2010). Here, no such abuse can be found.
Although the court could, and perhaps should, have
foreclosed this basis for appeal through a short recitation of
its reasoning, this omission alone is not a basis for reversal.
As the Supreme Court held in Foman v. Davis:
In the absence of any apparent or declared
reason--such as 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, futility of
amendment, etc.--the leave sought should, as
the rules require, be 'freely given.' Of
course, the grant or denial of an
opportunity to amend is within the
discretion of the District Court, but
outright refusal to grant the leave without
any justifying reason appearing for the
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denial is not an exercise of discretion; it
is merely abuse of that discretion . . . .
371 U.S. 178, 182 (1962) (emphasis added). The court's basis
for decision need not be declared if its reasons are apparent
from the record. United States ex rel. Wilson v. Bristol-Myers
Squibb, Inc., 750 F.3d 111, 119 (1st Cir. 2014) ("We 'defer to
the district court's hands-on judgment so long as the record
evinces an adequate reason for the denial.'" (quoting Aponte–
Torres v. Univ. of P.R., 445 F.3d 50, 58 (1st Cir. 2006))); ACA
Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 55 (1st Cir.
2008) (noting that "the district court enjoys significant
latitude in deciding whether to grant leave to amend" and that
we will "defer to the district court's decision 'if any adequate
reason for the denial is apparent on the record'" (quoting
LaRocca v. Borden, Inc., 276 F.3d 22, 32 n.9 (1st Cir. 2002))).
Here, the court's decision immediately followed
Defendants' opposition memorandum, which set out adequate bases
for denial: undue delay and futility. As Defendants pointed out
in that memorandum, Relators "offer[ed] no valid reason" for
"withholding for at least five years the 'additional details'
they s[ought] to include in their amended complaint." See
Nikitine v. Wilmington Tr. Co., 715 F.3d 388, 390–91 (1st Cir.
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2013) ("[W]hen 'a considerable period of time has passed between
the filing of the complaint and the motion to amend, courts have
placed the burden upon the movant to show some valid reason for
his neglect and delay.'" (quoting Hayes v. New Eng. Millwork
Distribs., Inc., 602 F.2d 15, 19–20 (1st Cir. 1979))); Edlow v.
RBW, LLC, 688 F.3d 26, 40 (1st Cir. 2012) (affirming denial when
"the factual predicates on which the proposed amended complaint
is based are the same as those in the original complaint and
were known to [plaintiff] before he filed suit").
Relators' proposed amendment also was futile because
any attempt to consolidate the 2010 Fauci Action and 2012 Kelly
Action with the still-pending 2006 Garcia Action would be little
more than an attempt to circumvent the FCA's first-to-file bar.
See 31 U.S.C. § 3730(b)(5) ("When a person brings an [FCA qui
tam action on the government's behalf], no person other than the
Government may intervene or bring a related action based on the
facts underlying the pending action.").8 The district court
would later (erroneously) reject Defendants' first-to-file
argument with respect to the 2012 Kelly Action due to her
8
Relators sought more than the routine consolidation of
independent actions for pre-trial proceedings and administrative
purposes; Relators sought to merge three distinct actions into
one single proceeding operating under one single complaint.
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original involvement in the 2006 Garcia Action. However, at the
time of the initial motion to consolidate and amend, Relators
sought to incorporate the 2010 Fauci Action as well. This
merger of cases would have been an obvious violation of the
first-to-file rule. Thus, the reasons for the court's 2014
decision were readily apparent from the record, and the court's
denial of Relators' motion was not an abuse of discretion.
B. Relators' Federal-Law Claims
Relators next contend the court erred in its March 17,
2015 order when it dismissed the FCA claims in the 2006 Garcia
and 2012 Kelly Actions and, again, denied leave to amend. We
review the granting of a motion to dismiss de novo, Buntin v.
City of Bos., 813 F.3d 401, 404 (1st Cir. 2015), "accepting as
true all well-pleaded facts, analyzing those facts in the light
most hospitable to the plaintiff's theory, and drawing all
reasonable inferences for the plaintiff," United States ex rel.
Hutcheson v. Blackstone Med. Inc., 647 F.3d 377, 383 (1st Cir.
2011). In its decision, the district court rejected Defendants'
argument that the 2012 Kelly Complaint should be dismissed under
the first-to-file bar. Instead, the court dismissed the federal
claims in both the 2006 Garcia and 2012 Kelly Actions based on
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their failure to plead the alleged fraud with sufficient
particularity to satisfy Federal Rule of Civil Procedure 9(b).
i. First to File
We first examine Defendants' contention that the
district court should have dismissed the 2012 Kelly Action based
on the first-to-file rule. This rule bars a later-filed
"related action," 31 U.S.C. § 3730(b)(5), that alleges "all the
essential facts" or "the same elements of a fraud described" in
an earlier-filed complaint while that complaint is still
pending, Wilson, 750 F.3d at 117.
In this case, all of the parties agreed, and the court
found, that the two suits involved "the same basic facts and
issues" and were "virtually identical to each other." United
States ex rel. Garcia v. Novartis AG, 91 F. Supp. 3d 87, 99 (D.
Mass. 2015). Yet, the court held that the first-to-file rule
"ought not bar the exercise of jurisdiction over the [2012 Kelly
Action] in this particular case" because "Kelly and Garcia co-
filed the Garcia Complaint." Id.In so holding, the district court erred. Neither the
text nor the purpose of the statute permit such an exception.
The stark "no person" language of the rule is plainly stated and
"exception-free." Wilson, 750 F.3d at 117; see also United
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States ex rel. Duxbury v. Ortho Biotech Prods., L.P. (Duxbury),
579 F.3d 13, 16, 32-33 (1st Cir. 2009). The resulting bar
furthers the FCA's goal of avoiding piecemeal and duplicative
ligation that does not advance the government's investigation of
alleged fraud. Once the government has "sufficient notice to
launch [an] investigation[,] . . . [a] later-filed complaint
that mirrors the essential facts as the pending earlier-filed
complaint does nothing to help reduce fraud of which the
government is already aware." United States ex rel. Heineman-
Guta v. Guidant Corp., 718 F.3d 28, 35-36 (1st Cir. 2013).
It is true that Kelly was not the prototypical
"opportunistic" or "parasitic" plaintiff, Novartis, 91 F. Supp.
3d at 99; however, Kelly cannot escape the fact that she
voluntarily requested dismissal without prejudice from the 2006
Garcia Action. "'Without prejudice' does not mean 'without
consequence.'" Powell v. Starwalt, 866 F.2d 964, 966 (7th Cir.
1989). Nothing about her prior involvement in the 2006 Garcia
Action could serve to dissolve the independent statutory bar to
her bringing a new, and essentially identical, action in 2012.
See United States ex rel. Shea v. Cellco P'ship, 748 F.3d 338,
342-43 (D.C. Cir. 2014), cert. granted, judgment vacated on
other grounds, 135 S. Ct. 2376 (2015) (holding that "[n]o rule
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of grammar, logic, or the law compels" a reading "that the
first-to-file bar applies only to litigants other than the
relator who filed the original action"); United States ex rel.
Moore v. Pennrose Props., LLC, No. 3:11-cv-121, 2015 WL 1358034,
at *15 (S.D. Ohio Mar. 24, 2015) (finding that a relator's
status as an earlier filer did not prevent the first-to-file
rule from barring his subsequent complaint); United States ex
rel. Syzmoniak v. ACE Sec. Corp., C/A No. 0:13-cv-00464-JFA,
2014 WL 1910876, at *1-2, *4-6 (D.S.C. May 12, 2014) (dismissing
second qui tam suit on first-to-file grounds even though same
relator had filed earlier suit and second suit named additional
defendants); United States ex rel. Smith v. Yale-New Haven
Hosp., Inc., 411 F. Supp. 2d 64, 75-76 (D. Conn. 2005)
(dismissing second qui tam complaint filed by the same relator
on first-to-file grounds because the bar applies "equally to the
original relator as any other person").
Although Relators argue that Kelly "brought her claims
with her" when she left the 2006 Garcia Action, this is little
more than a thin fiction. When Kelly was dismissed from the
2006 Garcia Action, the court only ordered that Garcia file an
amended complaint and "remov[e] all references to Relator
Allison Kelly"; an order which, in any event, was not followed.
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Kelly may have left the 2006 Garcia Action, but the essential
allegations remained behind.
For these reasons, the 2012 Kelly Complaint should
have been dismissed under the first-to-file bar. This does not,
however, end our inquiry. Complaints dismissed under the first-
to-file bar are usually dismissed without prejudice. See United
States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1, 3 (1st
Cir. 2015) ("[T]he dismissal of a section 3730(b)(5) claim
ordinarily should be without prejudice, because the claim could
be refiled once the first-filed action is no longer pending.").
Yet, this case presents a procedural wrinkle. If the
court properly dismissed the 2006 Garcia Complaint based on its
failure to allege fraud with sufficient particularity, then the
presently "pending" case would drop out and the first-to-file
bar on the 2012 Kelly Complaint might be lifted. See id. at 6.
In such circumstances, Kelly could conceivably supplement or re-
file her complaint. See id. at 7-8.
In this case, however, remanding would be a wasteful
formality. Even if the district court were to find on remand
that it now had jurisdiction, that court has already held that
the 2012 Kelly Complaint is insufficiently particularized to
offset a Rule 9(b) challenge. Because we would send the action
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back to a fate certain and the merits of the district court's
particularity decision are undoubtedly correct, we will spare
the litigants a costly and unnecessary round trip and address
the district court's particularity decisions with respect to
both complaints now.9 Cf. Bullard v. Hyde Park Sav. Bank (In re
Bullard), 752 F.3d 483, 485 n.1 (1st Cir. 2014), aff'd sub nom.
Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015).
ii. Particularity
The district court held that neither the 2006 Garcia
Complaint nor the 2012 Kelly Complaint pled fraud with
sufficient particularity to survive the demands of Federal Rule
of Civil Procedure 9(b). Rule 9(b) requires that "[i]n alleging
fraud or mistake, a party must state with particularity the
9
We assume, but need not decide, that the first-to-file bar
remains jurisdictional. This position is not without doubt.
See Gadbois, 809 F.3d at 6 n.2 ("[W]e have no need to consider
the relator's back-up argument that the first-to-file bar is not
jurisdictional in light of [Kellogg Brown & Root Servs., Inc. v.
United States ex rel. Carter, 135 S. Ct. 1970 (2015)]."). Even
if the first-to-file bar were non-jurisdictional, however, we
would still be faced with a question of particularity and
futility. See United States ex rel. Shea v. Verizon Commc'ns,
Inc., No. 09–1050(GK), 2015 WL 7769624, at *11 (D.D.C. Oct. 6,
2015) ("The Court has already concluded that Plaintiff's action
must be dismissed without prejudice under § 3730(b)(5). . . .
Accordingly, the only question the Court must consider is
whether dismissal with prejudice under Rules 8 and 9(b) is
warranted.").
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circumstances constituting fraud or mistake." The particularity
requirement means that a complaint must specify "the time,
place, and content of an alleged false representation." Doyle
v. Hasbro, Inc., 103 F.3d 186, 194 (1st Cir. 1996) (quoting
McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 (1st
Cir. 1980)). Conclusory allegations and references to "plans
and schemes" are not sufficient. Id. (quoting Hayduk v. Lanna,
775 F.2d 441, 444 (1st Cir. 1985)).
Where, as here, it is alleged that the defendant
caused a third party to submit a claim to the government, then
the First Circuit applies a somewhat "more flexible" standard,
allowing a relator to satisfy Rule 9(b) by providing "factual or
statistical evidence to strengthen the inference of fraud beyond
possibility without necessarily providing details as to each
false claim" submitted. Duxbury, 579 F.3d at 29-30 (citations
and internal quotation marks omitted). However, "it is the
fraud itself which must be pled with particularity, not just who
benefits from the fraud and what pot of federal money may be the
object of the fraud." United States ex rel. Gagne v. City of
Worcester, 565 F.3d 40, 47 (1st Cir. 2009).
In other words, it is not enough simply to "rais[e]
facts that suggest fraud was possible . . . [because, for
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example, it] may well be that [those] doctors who prescribed
[the drug] for off-label uses as a result of [the] illegal
marketing of the drug withstood the temptation and did not seek
federal reimbursement, and neither did their patients." United
States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 733 (1st Cir.
2007), overruled in part by Allison Engine Co. v. United States
ex rel. Sanders, 553 U.S. 662 (2008). Because "[i]t may be that
physicians prescribed [the drug] for off-label uses only where
the patients paid for it themselves or when the patients'
private insurers paid for it," id., the evidence necessary to
"strengthen the inference of fraud beyond possibility," id.,generally requires the relator to plead, inter alia, "specific
medical providers who allegedly submitted false claims," the
"rough time periods, locations, and amounts of the claims," and
"the specific government programs to which the claims were
made." United States ex rel. Ge v. Takeda Pharm. Co., Ltd., 737
F.3d 116, 121, 124 (1st Cir. 2013). Merely alleging that a
scheme was wide-ranging--and, therefore, that a fraudulent claim
was presumably submitted--will not suffice.
Nor is evidence of illegal conduct alone sufficient to
state an FCA claim. See Rost, 507 F.3d at 732. FCA liability
attaches to a "false or fraudulent claim for payment or
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approval" or to a "false record or statement material to a false
or fraudulent claim." 31 U.S.C. § 3729(a)(1)(A)-(B). "FCA
liability does not attach to violations of federal law or
regulations, such as marketing of drugs in violation of the
[Food, Drug & Cosmetic Act, 21 U.S.C. § 321 et seq.], that are
independent of any false claim." Rost, 507 F.3d at 727.
Rather, the complaint must identify the alleged fraud
with a significant degree of specificity. In Duxbury, for
example, the relator alleged that, through a company's illegal
kickbacks, false claims to Medicare were filed by medical
providers for reimbursement of drug purchases. 579 F.3d at 29.
Duxbury set[] forth allegations of kickbacks
provided by [the company] that resulted in
the submission of false claims by eight
[named] healthcare providers in the Western
United States . . . . As to each, Duxbury
provide[d] information as to the dates and
amounts of the false claims filed by these
providers with the Medicare program.
Id. at 30. Although the Duxbury court said the case was "a
close call," it found that the relator's claims satisfied Rule
9(b) because he alleged the "who, what, where, and when of the
allegedly false or fraudulent representation." Id. (quoting
Rodi v. S. New Eng. Sch. of Law, 389 F.3d 5, 15 (1st Cir.
2004)). "In particular, Duxbury ha[d] identified, as to each of
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the eight medical providers (the who), the illegal kickbacks
(the what), the rough time periods and locations (the where and
when), and the filing of the false claims themselves." Id.Similarly, in United States ex rel. Westmoreland v.
Amgen, Inc., the complaint "contain[ed] allegations regarding
particular medical providers who submitted legally and factually
false claims at the Defendants' encouragement." 738 F. Supp. 2d
267, 276 (D. Mass. 2010). In particular:
Relator pleads that the Defendants advised
doctors at Balboa Nephrology . . . to
capture all overfill profit, which led
Balboa to issue a standing order for doctors
to write Aranesp orders for an amount that
was 10% more than the standard dosage that
otherwise would have been administered for
every patient, and a standing order that
Medical Assistants were to administer as
much Aranesp in the vial as possible.
Relator also alleges that California Kidney
Group . . . billed Aranesp 15% over the
labeled dosage even though it is not
actually possible to withdraw 15% overfill
from a single dose vial, and sought
reimbursement for dosages of Aranesp above
the amount intended to be administered to
the patient.
Id. at 276-77 (citations omitted). In short, the defendants
"knew that their actions 'would, if successful, result in the
submission by [providers] of compliance certifications required
by Medicare that [the defendants] knew would be false.'" Id. at
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277-78 (alterations in original) (quoting United States ex rel.
Schmidt v. Zimmer, Inc., 386 F.3d 235, 244 (3d Cir. 2004)).
When one compares the allegations made in the 2006
Garcia Complaint and the 2012 Kelly Complaint to the allegations
made in Duxbury and Westmoreland, it becomes clear that the
pleadings here do not meet the requisite level of specificity.
In fact, the allegations in Duxbury, which outstrip those found
here, were only "barely adequate." See Ge, 737 F.3d at 124.
The closest Relators get to positing the existence of fraud is
to allege that certain doctors, at various points, (1) were
enrolled in federal reimbursement programs, (2) received
services and incentives from Defendants, and (3) prescribed
Xolair. Relators failed, however, to tie these independently
unexceptional allegations together into particularized charges
about specific fraudulent claims for payment. With respect to
the 2012 Kelly Complaint, for example, the district court found
that Kelly pleaded "no evidence of any false statement, SMN
form, or claim that effectively was submitted," "identif[ied] no
claims for reimbursement to Medicare, Medicaid, or any other
federal health care program," and "fail[ed] to provide even a
single example of fraudulent conduct resulting in reimbursement
of Xolair by a federal health care program[.]" Novartis, 91
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F. Supp. 3d at 109. The district court found that Kelly, like
Garcia, had not "provid[ed] reliable indicia that the alleged
underlying schemes resulted in submission of false claims," nor
had she "br[ought] forward evidence that the physicians who
prescribed Xolair sought federal reimbursement." Id.
Of course, it may not be "irrational to infer that,
given [the allegations], some false claims for [Xolair]
reimbursement were submitted to the government." Rost, 507 F.3d
at 732. But this is not enough to satisfy Rule 9(b). Relators'
allegations "g[i]ve rise to only speculation as to whether the
alleged scheme caused the filing of false claims with the
government." Duxbury, 579 F.3d at 31. Because Relators'
evidence and arguments proceed more by insinuation than any
"factual or statistical evidence [that would] strengthen the
inference of fraud beyond possibility," Rost, 507 F.3d at 733,
the district court properly dismissed Relators' federal claims.
The court's further decision to dismiss the federal
claims with prejudice likewise cannot be faulted. Relators had
repeatedly failed to cure the deficiencies in their complaints,
and the proposed Joint Complaint promised more of the same.
Although the Joint Complaint added extra grist for speculation,
it offered nothing new of substance to cure the inferential gaps
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found in Relators' prior complaints. We need hardly rely upon
the abuse-of-discretion standard to affirm the district court's
decision to dismiss the federal claims with prejudice.
C. Relators' State-Law Claims
Finally, Relators claim that the district court erred
when it dismissed their pendant state-law claims with prejudice.
"As a general principle, the unfavorable disposition of a
plaintiff's federal claims at the early stages of a suit
. . . will trigger the dismissal without prejudice of any
supplemental state-law claims." Rodriguez v. Doral Mortg.
Corp., 57 F.3d 1168, 1177 (1st Cir. 1995). However, "this
praxis is not compelled by a lack of judicial power. . . . In an
appropriate situation, a federal court may retain jurisdiction
over state-law claims notwithstanding the early demise of all
foundational federal claims." Id.Relators alleged violations of a number of state false
claims acts. In its decision, the district court dismissed the
federal-law claims but declined "to exercise supplemental
jurisdiction over the state law claims." Novartis, 91 F. Supp.
3d at 112. The court recognized that, when federal claims are
dismissed at such an early stage, "any supplemental state-law
claims" should be dismissed without prejudice. Id. (quoting
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Rossi v. Gemma, 489 F.3d 26, 39 (1st Cir. 2007)). Consequently,
the court stated that "Relators' claims for relief under the
individual states' qui tam statutes are dismissed, albeit
without prejudice." Id. (emphasis added).
In its conclusion, however, the district court
inexplicably reversed course and dismissed Relators' state-law
claims with prejudice. Id. Relators filed a Request for
Clarification, and the Court responded, without further
explanation, that it had intended to dismiss the state-law
claims with prejudice as well.
Defendants contend that the court dismissed the state-
law claims for the same reason it dismissed the federal-law
claims: failure to plead fraud with particularity. The court's
conclusion to its opinion reflects this reading: "[T]he claims
alleged in Garcia's and Kelly's complaints, pursuant to . . .
the individual states' equivalent qui tam provisions, lack the
particularity required under Rule 9(b) for pleading fraud." Id.But this conclusion simply cannot be reconciled with
the court's earlier decision in its opinion declining
jurisdiction over the state-law claims. A court cannot dismiss
a claim on the merits if it has declined to exercise
jurisdiction over the claim at all. That is not to say that the
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court would have lacked the power to dismiss the claims with
prejudice if it had retained jurisdiction. See Rodriguez, 57
F.3d at 1177. But here the court declined jurisdiction and then
purported to dismiss the claims with prejudice. That does not
wash.
Because the district court expressly relinquished
jurisdiction over Relators' state-law claims, we think it
appropriate to vacate the district court's decision to dismiss
the state-law claims with prejudice and remand so that the court
may dismiss the state-law claims without prejudice.
III. Conclusion
For the foregoing reasons, we AFFIRM the district
court's dismissal of Relators' federal-law claims with
prejudice, and we VACATE the district court's decision to
dismiss Relators' state-law claims with prejudice. On REMAND,
the district court is instructed to dismiss Relators' state-law
claims without prejudice.
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