United States ex rel. Wood v. Avalign Techs., Inc.

UNITED STATES OF AMERICA ex rel. MARY BIXLER WOOD, et al., Plaintiffs, v. AVALIGN TECHNOLOGIES, INC.,INSTRUMED INTERNATIONAL, INC.,INSTRUMED GMBH, NEMCOMED FW, LLC,NGINSTRUMENTS, INC., ADVANTIS MEDICAL, INC.,ROUNDTABLE HEALTHCARE PARTNERS, L.P., CAREFUSION CORPORATION, andDE PUY SYNTHES, INC., Defendants.

14 Civ. 4958 (ER)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

May 20, 2020

OPINION & ORDER

RAMOS, D.J.:

Relator Mary Bixler Wood filed this qui tam action under seal on July 2, 2014 on behalf of the United States of America; the States of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Utah, Washington, and Wisconsin; the Commonwealths of Massachusetts and Virginia; and the District of Columbia. Doc. 19. Relator brought claims under the False Claims Act (the "FCA") and its state counterparts against Avalign Technologies, Inc. ("Avalign"), Instrumed International, Inc. ("Instrumed") (together, the "Avalign Defendants"), Instrumed GmbH, Nemcomed FW, LLC, NGInstruments, Inc., Advantis Medical, Inc., RoundTable Healthcare Partners, L.P., CareFusion Corporation ("CareFusion"), and DePuy Synthes, Inc., alleging that they illegal marketed medical devices never cleared for use by the U.S. Food and Drug Administration (the "FDA") in violation of the Food, Drug, and Cosmetic Act (the "FDCA"), and that federal and state healthcare programs then improperly reimbursed procedures using these devices. Id.

Before the Court is Relator's motion pursuant to Federal Rule of Civil Procedure 54(d)(2) for an award of attorney's fees and expenses following settlements with CareFusion and the Avalign Defendants (collectively, "Defendants").¹ Doc. 25. For the following reasons, the motion is GRANTED in part and DENIED in part.

I. BACKGROUND

A. Statutory Background

1. The FCA

The FCA prohibits any person from "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval," as well as "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C.§ 3729(a)(1)(A)-(B). The Attorney General is responsible for investigating violations of the FCA and may bring a civil action if it has been violated. Id. § 3730(a). However, the FCA also allows private parties ("relators") to "bring a civil action for a violation of section 3729 for the person and for the United States Government." Id. § 3730(b)(1). This is known as a qui tam action. The Government may, in turn, "elect to intervene and proceed with the action." Id. § 3730(b)(2). If it does, "it shall have the primary responsibility for prosecuting the action," and has the authority to "dismiss the action notwithstanding the objections of the person initiating the action," including to settle the action. Id. § 3730(c)(1)-(2)(B). If the Government declines to intervene, relators "shall have the right to conduct the action." Id. § 3730(b)(4)(B).

In cases where the Government intervenes and prevails on one or more of the claims, the relator may "receive at least 15 percent but not more than 25 percent of theproceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action." Id. § 3730(d)(1). Relator "shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs," for successful claims. Id; United States ex rel. Mikes v. Straus, 274 F.3d 687, 705 (2d Cir. 2001) (citing Hensley v. Eckerhart, 461 U.S. 424, 434-35 (1983), abrogated on other grounds by Univ. Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).

2. The FDCA

When it was first enacted, the FDCA, 21 U.S.C. § 301 et seq. required FDA approval for the introduction of new drugs into the market, but largely left the regulation of medical devices to the States. See Riegel v. Medtronic, Inc., 552 U.S. 312, 315 (2008). However, as devices grew more complex, Congress changed this scheme with the Medical Device Amendments of 1976 (the "MDA"), 21 U.S.C. § 360c et seq., which established various levels of federal oversight for devices depending on the level of level of risk they posed.

Under the MDA, certain medical devices require approval or clearance by the FDA before they can be marketed in the United States. This approval or clearance may take several forms. Generally, to provide "reasonable assurance" that the device is both safe and effective, the device must undergo the premarket approval (the "PMA") process. Id. § 360e(d)(2). However, there are two exceptions to this requirement. The first is a provision that "grandfathers" certain devices that were already on the market before 1976. Id. § 360e(b)(1)(A). The second, is a provision that allows devices to avoid the PMA process if they are "substantially equivalent" to one of these grandfathered devices. Id. § 360e(b)(1)(B). The process of reviewing these "substantially equivalent" devices is known as § 510(k) review because it is governed by section 510(k) of the FDCA. Section 510(k) clearance is required before a relevant device is introduced into interstate commerce for the first time, before making a change or modification to an already cleareddevice that "could significantly affect safety or effectiveness," or before making a major change or modification to the intended use of a previously § 510(k)-cleared device. 21 C.F.R. § 807.81(a); 21 U.S.C. § 360(k). Failure to do so results in an adulterated and misbranded product, and marketing such a device is prohibited under federal law. See, e.g., 21 U.S.C. §§ 331(p), 351(f), 352(o).

The FDCA and its implementing regulations impose many other requirements on medical devices marketed in interstate commerce. These include, among others, quality controls in accordance with current good manufacturing practices, see, e.g., 21 C.F.R. § 820; labeling requirements, see, e.g., id. § 801; and post-marketing obligations, including medical device reporting requirements, see, e.g., id. § 803. Failure to comply with any of these requirements may result in the relevant devices being considered "adulterated," 21 U.S.C. § 351, or "misbranded," id. § 352.

None of the major federal healthcare programs, including Medicare, Medicaid, TRICARE, and CHAMPVA, provide for reimbursement for the purchase or use of medical devices that lack required § 510(k) approval or that are otherwise adulterated or misbranded.

B. The Original Complaint and the CareFusion and Avalign Defendants

Relator, previously the Vice President of Quality and Regulatory Affairs for Avalign from February 2010 until her employment was terminated in July 2013, Doc. 19 ¶ 9, filed the original complaint under seal on July 2, 2014. Doc. 19. In it, she alleged that nine defendants knowingly sold thousands of medical devices that had never been cleared for use by the FDA to providers around the country. Id. These providers subsequently billed Medicare and other federal and state healthcare programs for procedures using these illegal devices in violation of program rules. Id. The complaint alleged thirty-four counts—three counts alleging violations of the FCA, and thirty-one alleging violations of corresponding state laws—and included numerous theories of noncompliance and liability for all of the defendants. Id.

As is relevant to the instant motion, Relator alleged eight overarching theories of liability against the Avalign Defendants. In particular, she alleged that Avalign, a manufacturer of medical devices, had:

(1) Marketed medical devices without § 510(k) clearance, id. ¶¶ 81-101;

(2) Failed to implement design controls required by Quality System Regulations (QSR), id. ¶¶ 102-111;

(3) Failed to implement purchasing controls required by QSR, id. ¶¶ 112-125;

(4) Failed to comply with production phase quality requirements, id. ¶¶ 126-157;

(5) Failed to meet labeling requirements, id. ¶¶ 158-170;

(6) Failed to follow proper complaint handling procedures, id. ¶¶ 171-181;

(7) Failed to file medical device reporting submissions, id. ¶¶ 182-190; and

(8) Committed various other QSR violations, id. ¶¶ 191-205.

With regards to the § 510(k) allegations, Relator alleged that Instrumed, a subsidiary of Avalign, failed to obtain clearance for certain devices in the following four ways: (1) it lacked a documented basis for legally marketing approximately two-thirds of its nearly 30,000 finished devices and components, id. ¶ 86; (2) it falsely claimed that a significant number of devices were covered by § 510(k) clearances that did not, in fact, support those devices, id. ¶ 87; (3) it marketed numerous devices requiring § 510(k) clearance based on the false premise that the devices qualified as preamendment, id. ¶¶ 88-90; and (4) it marketed multiple devices that had been significantly changed, in design or in intended use, from § 510(k)-cleared or preamendment versions, id. ¶¶ 91-95.

Relator's § 510(k) claims against CareFusion, a purchaser of Instrumed products, largely relate to her claims against Instrumed. Specifically, Relator alleged that CareFusion "knew that Instrumed was distributing devices without required § 510(k) clearance or evidence of preamendment status." Id. ¶ 209.

The United States partially intervened on August 9, 2019, by which time several states had already intervened. Its intervention was limited to one theory of liability: that Instrumed had sold certain medical devices which it claimed qualified as pre-amendment devices, but which it knew could not qualify as such. Docs. 21, 22 ¶¶ 41-65. The Government declined to intervene with respect to the remainder of Relator's theories of liability, including the remainder of her § 510(k) allegations against the...