The district court found it reasonable for a relator to base new kickback allegations on information obtained during discovery, rather than involve additional defendants based merely on suspicion. The court also said the relator was not responsible for a three-year delay in proceedings due to the government’s investigation of his claims or the additional year needed to resolve the defendants’ various motions to dismiss.
United States District Court for the District of Kansas No. 17-2060-DDC-KGG; U.S. ex rel. Thomas Schroeder v. Medtronic Inc., et al.
In Brief
A district court in Kansas granted the relator leave to amend his complaint to add defendants and to incorporate additional medical devices allegedly tainted by kickbacks paid by a manufacturer to hospital employees. The defendants argued that the request was unduly delayed and prejudicial, because the case had been pending for more than five years. However, the court noted that the case was under seal for three years while the government investigated and tied up for another year while the defendants filed various motions to dismiss. The court declined to hold the relator responsible for these delays, which precluded discovery and his further investigation. The court also held the relator reasonably waited to add new defendants and allegations until discovery began, rather than involve additional medical practices based on mere belief.
Background
Relator Thomas Schroeder alleged that defendants Medtronic Inc. paid illegal kickbacks to hospital employees to induce them to purchase excess inventory of medical devices, which were used in surgical procedures for which the defendant hospitals later sought reimbursement from government healthcare programs.
Previously, the court denied the defendants’ motion to dismiss the relator’s Anti-Kickback Statute and conspiracy claims, but agreed that the complaint did not adequately allege the off-label use of some medical devices and the performance of unnecessary medical procedures. The court granted the relator leave to amend to address the deficiencies in the latter claims.
The relator filed a third amended complaint and a motion to dismiss the off-label and unnecessary procedures claims is pending. The relator now seeks leave to file a fourth amended complaint. In his motion, the relator sought permission to add defendants and additional devices to his claims; clarify the description of certain medical devices; and add allegations about medically unnecessary and off-label procedures. In response, the defendants argued that the motion must fail on the bases of relator’s undue delay, dilatoriness, and bad faith, and the futility of amendment.
Undue Delay, Dilatoriness, and Bad Faith
In arguing undue delay, Medtronic noted that the case was first filed in 2017 and that the relator had already filed four complaints. According to Medtronic, the relator merely attempted to make his complaint a “moving target” and to drag out his litigation.
The court disagreed, finding this argument too simplistic in light of the complicated procedural history of the case. The court noted the case was under seal for three years while the government investigated, meaning the relator was not permitted to litigate or investigate. Further, the relator was not permitted to conduct any discovery during the year consumed by the various motions to dismiss. Put another way, when the relator filed this motion, the discovery phase was less than four months old. The court explained that those delays were beyond the relator’s control. The court also noted that the relator filed his motion within the time allowed by the court. Accordingly, the court found that the date the case was filed was irrelevant to the motion.
The defendants also argued that the relator was already aware of the facts underlying his proposed amendment, such as the involvement of the newly proposed defendants and the additional devices subject to kickbacks. Medtronic argued the relator provided no explanation for why claims associated with those devices were not asserted in the first four complaints.
However, the court found the relator established that his new allegations were based on information received in discovery. The relator argued that he had a good faith basis as to these new allegations, but the discovery information, including contracts and invoices, established the claims to his satisfaction.
The court found it reasonable for the relator to wait for discovery to add his new allegations, rather than rely on mere belief. The court agreed with the relator’s assertion that he exercised reasonable discretion before involving a medical practice in a serious and complex legal case, even if this resulted in some delay.
Futility
First, Medtronic argued that Schroeder failed to identify a single source for his kickback allegations, but the court noted that it must accept all well-pleaded allegations as true at the motion to dismiss stage. Next, Medtronic argued that the relator failed to allege facts supporting his kickback claim because he pled no facts about the use or sale of the newly pleaded Medtronic devices at the defendant hospitals.
In response, the relator argued that the proposed amendment ties sales of the devices to ongoing illegal remuneration between Medtronic employees and employees at the hospitals. In other words, the relator sought to expand the universe of devices tainted by the alleged kickbacks already described. The court found this sufficient in the context of a futility analysis.
Finally, Medtronic argued that the relator had not pled viable claims based on lack of medical necessity and off-label promotion. The court declined to delve into this argument in detail, as it generally mirrored the motion to dismiss already before the court. However, the court noted that Medtronic’s argument relied on a sworn declaration of its attorney, which was inappropriate at this stage. Accordingly, the court granted the motion for leave to amend.
