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United States ex rel. Campie v. Gilead Sciences, Inc.

United States Court of Appeals, Ninth Circuit

July 7, 2017

United States of America ex Rel. Jeffrey Campie and Sherilyn Campie, Plaintiffs-Appellants,
Gilead Sciences, Inc., Defendant-Appellee.

          Argued and Submitted April 19, 2017 San Francisco, California

         Appeal from the United States District Court for the Northern District of California Edward M. Chen, District Judge, Presiding D.C. No. 3:11-cv-00941-EMC

          Tejinder Singh (argued) and Thomas C. Goldstein, Goldstein & Russell P.C., Bethesda, Maryland; Andrew S. Friedman and Francis J. Balint, Jr., Bonnett Fairbourn Friedman & Balint P.C., Phoenix, Arizona; Ingrid M. Evans and Michael A. Levy, Evans Law Firm Inc., San Francisco, California; for Plaintiffs-Appellants.

          Ethan M. Posner (argued) and Joshua N. DeBold, Washington, D.C.; Gretchen Hoff Varner, Covington & Burlington LLP, San Francisco, California; for Defendant-Appellee.

          Douglas N. Letter (argued), Benjamin Schultz, and Michael S. Raab, Attorneys, Appellate Staff; Brian Stretch, Acting United States Attorney; Benjamin Mizer, Principal Deputy Assistant Attorney General; Civil Division, United States Department of Justice, Washington, D.C.; for Amicus Curiae United States.

          Charles S. Siegel, Waters & Kraus LLC, Dallas, Texas, for Amicus Curiae Professor Peter Linzer.

          Before: Stephen Reinhardt and A. Wallace Tashima, Circuit Judges and Donald W. Molloy, [*] District Judge.

         SUMMARY [**]

         False Claims Act

         The panel reversed the district court's Fed.R.Civ.P. 12(b)(6) dismissal of claims under the False Claims Act by relators Jeff and Sherilyn Campie alleging that their former employer, Gilead Sciences, Inc., made false statements about its compliance with Food and Drug Administration regulations regarding certain HIV drugs, resulting in the receipt of billions of dollars from the government; and alleging retaliation against relator Jeff Campie.

         The panel held that the relators stated a plausible claim that Gilead's claims seeking payment for noncompliant drugs were a basis for liability under the False Claims Act. Considering the four elements of False Claims Act liability, first, the panel held that relators alleged a "false claim" under theories of factually false certification, implied false certification, and promissory fraud. Second, relators adequately pled "scienter." Third, the relators sufficiently pled "materiality" at this stage of the case where they alleged more than the mere possibility that the government would be entitled to refuse payment if it were aware of the violations. Fourth, the relators sufficiently alleged that Gilead submitted false claims in a number of ways.

         The panel held that the relators adequately pled a claim for retaliation in violation of the False Claims Act. Specifically, the panel held that the second amended complaint sufficiently alleged facts showing that Jeff Campie had an objectively reasonable, good faith belief that Gilead was possibly committing fraud against the government; that Gilead knew Campie was engaged in protected activity: and that Gilead discriminated against Campie because he engaged in protected activity.

         The panel declined to decide in the first instance the question of whether relators' claims pursuant to 31 U.S.C. § 3729(a)(1)(A), (B) met the heightened pleading standard under Fed.R.Civ.P. 9(b).


          MOLLOY, District Judge.

         This case involves allegations under the False Claims Act, 31 U.S.C. §§ 3729-33, that Defendant-Appellee Gilead Sciences, Inc. (Gilead) made false statements about its compliance with Food and Drug Administration (FDA) regulations regarding certain HIV drugs, resulting in the receipt of billions of dollars from the government. Relators Jeff and Sherilyn Campie (relators), two former Gilead employees, allege that these noncompliant drugs were not eligible to receive payment or reimbursement and, therefore, any claims presented to the government for payment were false under the False Claims Act. Relators further allege that Gilead violated the False Claims Act when it fired relator Jeff Campie, who discovered and ultimately reported the violations. See 31 U.S.C. § 3730(h). The district court dismissed relators' claims under Federal Rule of Civil Procedure 12(b)(6). It did so before the Supreme Court decided Universal Health Servs., Inc. v. United States (Escobar), U.S., 136 S.Ct. 1989 (2016). We reverse.


         Gilead is a large drug producer, with a majority of its prescription drug product sales occurring in the United States. Relevant here, Gilead produces anti-HIV drug therapies, including the drugs Atripla, Truvada, and Emtriva. In 2008 and 2009 alone, the government spent over $5 billion on these anti-retrovirals. Relators claim that in its sale of these drugs to the government, Gilead concealed violations of FDA regulations and knowingly made false statements regarding its regulatory compliance. The facts recited in the relators' complaints, which are taken as true at this stage, Escobar, 136 S.Ct. at 1997, are as follows.

         When a drug manufacturer wishes to get a drug approved for manufacture and sale in the United States, it must submit a "new drug application" (NDA) to the FDA, in which it states the chemical composition of a drug and specifies the facilities where it will be manufactured, as well as methods and controls used in the manufacturing process. 21 U.S.C. § 355(a), (b)(1); 21 C.F.R. § 314.50(d)(1). Acceptable facilities must meet federal standards, known as "good manufacturing practices." See 21 C.F.R. Parts 210, 211. The FDA may refuse an application or withdraw a previously approved application if the methods or facilities "are inadequate to preserve [the drug's] identity, strength, quality, and purity." 21 U.S.C. § 355(d), (e). Once approved, the manufacturer must obtain FDA approval to make major changes to the manufacturing process "before the distribution of the drug" by submitting an application called a Prior Approval Supplement, or PAS. 21 U.S.C. § 356a(c)(2); 21 C.F.R. § 314.70(b)(3). Both an NDA and PAS require the applicant to certify that all statements in the application are true and agree to comply with all applicable laws and regulations. See Form 356h.

         In the mid-2000s, Gilead submitted NDAs and received FDA approval for Emtriva, Truvada, and Atripla. These drugs contain the active ingredient[1] emtricitabine (commonly known as FTC).[2] In its NDA applications, Gilead represented to the FDA that it would source the FTC from specific registered facilities in Canada, Germany, the United States, and South Korea. But, relators allege that as early as 2006, Gilead contracted with Synthetics China to manufacture unapproved FTC at unregistered facilities. For a period of sixteen months beginning in December 2007, Gilead brought illicit FTC from a Synthetics China facility into the United States to use in its commercial drugs, claiming that the FTC had come from its approved South Korean manufacturer. Gilead allegedly began using Synthetics China to save money and trigger price reduction clauses in contracts with other FTC suppliers.

         Gilead ultimately sought approval from the FDA to use Synthetics China's FTC in October 2008, but according to relators, Gilead had been including products from Synthetics China in its finished drug products for at least two years before this approval was obtained in 2010. Relators also allege that Gilead falsified or concealed data in support of its application to get Synthetics China approved by the FDA. For example, Gilead claims in its application that it had received three full-commercial-scale batches of FTC from Synthetics China that passed testing and were consistent with or equivalent to FTC batches made from existing, approved manufacturers. Relators contend that this representation was false as two of three batches had failed internal testing. One of the batches purportedly contained "residual solvent levels in excess of established limits" and other impurities. A second batch had "microbial contamination" and showed the presence of arsenic, chromium and nickel contaminants. Gilead did not report this to the FDA, but rather secured two new batches from the unapproved Chinese site and amended its PAS on April 24, 2009, to include the substitute data. The FDA approved the amended PAS in May 2009 and the Synthetics China facility was registered in 2010. Gilead also began using FTC from another, unapproved Synthetics China facility, but ultimately stopped using Synthetics China as a supplier in October 2011, following continued contamination issues. Two recalls of contaminated products occurred in 2014.

         Gilead never acknowledged or notified the FDA about the bad test results or the contamination and adulteration problems. Despite being aware of manufacturing problems with Synthetics China, Gilead allegedly released 77 lots of FTC produced by Synthetics China to its contract manufacturers before the FDA approval of the Synthetics China facility. Relators allege that the drug products made with FTC affecting the quality and purity of the drug and produced at a different, uninspected manufacturing site are not FDA-approved. And, according to relators, had the FDA been aware of these issues, it would not have approved the use of the Synthetics China manufacturing facility. Relators make a similar argument for the use of unapproved sites in Alberta, Canada to produce ambrisentan, the active ingredient in Letairis, and contamination of tenofovir disoproxil fumarate (a.k.a. Viread), another active ingredient.

         Relators insist that Gilead actively concealed its use of illicit FTC products by Synthetics China in a number of ways. First, Gilead imported the FTC through its Canadian facilities and used fraudulent labeling. Second, the labels and paperwork for the FTC were obscured or augmented to conceal where the FTC was actually produced. Third, Gilead credited its approved FTC manufacturers with the production of the Synthetics China FTC. Relators allege Gilead's false statements and fraudulent conduct resulted in government payments both directly, through programs such as the Department of Defense, Department of Veterans Affairs, Federal Bureau of Prisons, USAID, and the Public Health Service, and through reimbursement programs, such as Medicare, Medicaid, TRICARE, FEHBP, and the Ryan White Program. Payment for drugs under these programs is contingent upon FDA approval. See, e.g., 48 C.F.R. § 46.408 (direct payment); 42 U.S.C. § 1396r-8(k)(2)(A)(i) (Medicaid); 42 U.S.C. § 1395w-102(e) (Medicare Part D). Relators allege that because the drugs paid for by the government contained FTC sourced at unregistered facilities, they were not FDA approved and therefore not eligible for payment under the government programs.

         Relators further claim that these drugs were "adulterated" or "misbranded" in violation of the law. Congress expressly prohibits any person from introducing or receiving any "adulterated" or "misbranded" drugs in interstate commerce. 21 U.S.C. § 331(a), (c). A drug is "adulterated" if "the methods used in, or the facilities or controls used for, its manufacture, processing, packing, or holding do not conform to or are not operated or administered in conformity with current good manufacturing practice, " or if "any substance has been (1) mixed or packed therewith so as to reduce its quality or strength or (2) substituted wholly or in part therefor." 21 U.S.C. § 351(a)(2)(B), (d). A drug is "misbranded" if, inter alia, "it is an imitation of another drug, " or "it was manufactured, prepared, propagated, compounded, or processed in an establishment not duly registered" under the Food, Drug, and Cosmetic Act. 21 U.S.C. § 352(i)(2), (o). Violations of that restriction are crimes and adulterated or misbranded drugs can be seized. 21 U.S.C. §§ 333(a), 334.

         Relators finally raise a retaliation claim regarding the termination of Relator Jeff Campie. See 31 U.S.C. § 3730(h). Mr. Campie worked at Gilead as its Senior Director of Global Quality Assurance from July 2006 to July 2009. His "regular job duties focused on commercial drug product quality assurance/control issues[, but] he was (based on job requirements) expected to review [active ingredient] submissions as well." While employed with Gilead, Campie had quality control oversight of (1) all commercially released drug products by Gilead; (2) Gilead's policies, practices, and good manufacturing practice compliance; and (3) the development of quality systems. It appears that Campie raised concerns about "the integrity of the data being generated to support the release of Gilead drugs" as early as July 2007. In 2008, Campie became worried about Gilead's use of FTC manufactured by Synthetics China, and in January 2009, convened a meeting to caution Gilead management that FTC could not be shipped from an unapproved manufacturing site. Through the remainder of his employment, "Mr. Campie continued to voice strenuous objections to the false representations and omissions being made to the Government concerning the source and lack of purity of the [active ingredients] from Synthetics China and that [sic] lack of a truthful, valid and approved PAS." "Although Mr. Campie was supposed to be responsible for commercial quality input on regulatory filings implicating quality or supply issues, Gilead began to selectively circumvent Mr. Campie's review and effectively removed or excluded him from Gilead's regulatory review process." In a March 2009 meeting, "Mr. Campie made clear that he expected Gilead to stop its deceptive practices and threatened to inform the FDA if Gilead continued its fraudulent conduct." In April 2009, Campie initiated a quarantine to prevent non-approved Letairis from entering the supply chain. That quarantine was lifted and Campie was chastised by management. During this time, Campie continued to voice his concerns.

         On June 20, 2009, Campie was informed he would be terminated effective July 2009. He was told that his "heart wasn't in the job anymore." Campie maintains, however, that he was terminated because he "discovered, investigated, and raised concerns over Gilead's release and distribution . . . of tons of contaminated and adulterated [active ingredients] that had been manufactured at unregistered and uninspected" facilities and thus "were not eligible for payment under the Government Payment Programs, causing the submission of false claims paid by the [federal] Government and the States." Upon termination, Campie was asked to sign a severance agreement agreeing not to initiate any claims under the False Claims Act. He refused.

         The district court dismissed relators' first amended complaint on January 7, 2015, under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, but gave relators an opportunity to amend. On June 12, 2015, the district court dismissed relators' second amended complaint with prejudice, holding that it also failed to state a claim under the False Claims Act.[3] Relators timely appealed. Although it declined to intervene in the case below, the United States Department of Justice submitted a brief as amicus curiae supporting reversal of the district court.


         We have jurisdiction pursuant to 28 U.S.C. § 1291. We review the dismissal of claims under the False Claims Act de novo. United States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1170 (9th Cir. 2006). We assume the facts as alleged are true and examine only whether relators' allegations support a cause of action under the False Claims Act under the theories presented. Id. A Rule 12(b)(6) dismissal "can be based on a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint must plead "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim under the False Claims Act must not only be plausible, Fed.R.Civ.P. 8(a), but pled with particularity under Rule 9(b), Cafassao ex rel. United States v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054-55 (9th Cir. 2011). The district court based its dismissal on Rule 12(b)(6) and did not address whether the relators' complaints met Rule 9(b)'s heightened pleading standard.


         The False Claims Act makes liable anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval, " or "knowingly makes, uses, or causes 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). A "claim" includes direct requests for government payment as well as reimbursement requests made to the recipients of federal funds under a federal benefits program. 31 U.S.C. § 3729(b)(2)(A); Escobar, 136 S.Ct. at 1996. A claim under the False Claims Act requires a showing of "(1) a false statement or fraudulent course of conduct, (2) made with the scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due." Hendow, 461 F.3d at 1174. It is not enough to allege regulatory violations, United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996); rather, the false claim or statement must be the "sine qua non of receipt of state funding, " Ebied ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). We construe the Act broadly, as it is "intended to reach all types of fraud, without qualification, that might result in financial loss to the Government." Hendow, 461 F.3d at 1170 (quoting United States v. Neifert-White Co., 390 U.S. 228, 232 (1968)).[4] Such broad construction has thus given rise to a number of doctrines "that attach potential False Claims Act liability to claims for payment that are not explicitly and/or independently false." Hendow, 461 F.3d at 1171.

         Relators insist that Gilead's claims seeking payment for noncompliant drugs are a basis for liability under the False Claims Act for three reasons. First, Gilead charged the government for approved drugs, knowing that it had delivered unapproved "knock-offs" (factually false certification). Second, by selling its drugs to the government and causing others to seek reimbursement for them, Gilead implicitly certified that the drugs were approved for distribution when it knew otherwise (implied false certification). Third, Gilead lied to the FDA to secure approval of Chinese facilities, making them eligible for government payments (promissory fraud). The district court below rejected all three of relators' theories for recovery under the False Claims Act. First, the district court rejected relators' formulation of a factually false theory based on the provision of nonconforming goods. As to relators' second and third arguments, the district court recognized claims brought under either an implied false certification or promissory fraud theory could be viable, but concluded that relators failed to state a claim under either one because they failed to allege Gilead made a false statement related to a material precondition for payment. The United States, while not taking a position on the merits of relators' claims, identifies in its amicus briefing two rulings by the district court as particularly significant to the government. First, it argues that the district court's ...

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