UNITED STATES OF AMERICA et al., ex. rel., ALLISON KELLY, FRANK GARCIA, Plaintiffs, Appellants,
NOVARTIS PHARMACEUTICALS CORPORATION; NOVARTIS CORPORATION; GENENTECH, INC.; and ROCHE HOLDINGS, INC., Defendants, Appellees.
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS, Hon. William G. Young, U.S. District Judge.
Timothy Cornell, with whom Cornell Dolan, P.C., was on brief,
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
Kayatta, Stahl, and Barron, Circuit Judges.
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
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
Facts & Background
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.
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,  paid kickbacks to
doctors,  encouraged sales representatives to
improperly complete and influence the completion of Statement
of Medical Necessity ("SMN") forms,  and targeted
Disproportionate Share Hospitals. 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.
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
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 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
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"; and failed to provide the best price for
Xolair to healthcare providers. Four months later, 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.
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.
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-
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.
months later, Defendants filed a motion to dismiss the 2006
Garcia Complaint and the 2012 Kelly Complaint.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.
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
dismissing their federal claims with prejudice. Finally,
Relators argue that the court erred in dismissing their
state-law claims with prejudice.
Motion to Amend
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
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 ...