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United States ex rel Underwood v. Genentech

June 2, 2010


The opinion of the court was delivered by: Diamond, J.


The United States having declined to intervene in this qui tam action, the Relator -- who is continuing the lawsuit -- seeks to amend his Complaint to add new allegations purportedly based on documents the Department of Justice obtained during its six year investigation of this matter. (Doc. No. 63.) Defendant has moved to dismiss, arguing that the Complaint does not meet Rule 9(b)'s heightened pleading requirement. (Doc. No. 73.) Defendant also asks me to bar any amendment as an impermissible attempt to bolster Relator's defectively pled Complaint. (Doc. No. 68.)

Defendant bases its Rule 9(b) argument on Relator's failure to identify in his Complaint a specific false claim actually submitted to the Government. There is no authority in this Circuit requiring such particularized pleading, however, especially where, as here, the Relator has alleged that the Defendant itself did not submit the false claims, but induced third parties to do so. Accordingly, I conclude that the Complaint Relator seeks to amend -- which includes detailed allegations of Defendant's fraudulent scheme -- passes muster under Rule 9(b).

Even though the law usually does not allow a qui tam relator to save an inadequately pled complaint by adding amendments based on discovery obtained from the defendant, there is no authority barring such amendments based on discovery obtained from the Government. Accordingly, I conclude in the alternative that regardless of whether Relator's Complaint is adequately pled, he may amend with discovery he obtained from the Government.

I will thus deny Genentech's Motion to Dismiss (Doc. No. 73) and grantRelator's Motion to Amend (Doc. No. 63).


Defendant Genentech, Inc. is a California-based biotechnology company that manufactures and markets Rituxan, a prescription drug the Food and Drug Administration has approved for the treatment of non-Hodgkins lymphoma and chronic lymphocytic leukemia. (Doc. No. 15 ¶¶ 3, 17-20.) From 1997 until 2005, Genentech employed Relator John Underwood as a sales manager and senior hospital systems specialist. (Id. ¶ 2.)

In 2003, Relator informed the DOJ that Genentech was defrauding Medicare and Medicaid through an "off-label" marketing and kickback scheme:Genentech bribed health care providers to prescribe Rituxan for uses other than the treatment of lymphoma or leukemia. (Doc. No. 63, Ex. A ¶¶ 10, 14.) According to Relator, off-label Rituxan prescriptions generated hundreds of millions of dollars in revenue to Genentech, comprising more than half the Medicare and Medicaid monies paid to the Company. (Id. ¶ 14.)

On July 3, 2003, Relator filed under seal a qui tam Complaint, alleging violations of the False Claims Act through underlying violations of the Medicare and Medicaid Fraud and Abuse Act. See 31 U.S.C. §§ 3729 et seq.; 42 U.S.C. §§ 1320 et seq. As the False Claims Act requires, Relator served the United States -- on whose behalf he was proceeding -- with his Complaint so that it could decide whether to intervene in the case. (Doc. No. 1.) He filed his First Amended Complaint under seal on November 8, 2005. (Doc. No. 15.)

Beginning in 2003, the DOJ investigated Relator's allegations, obtaining some seven million documents from other federal agencies and from Genentech itself. On September 25, 2009, the United States filed a Notice of Election to Decline Intervention. (Doc. No. 29.) To help him decide whether to proceed with this action, Relator subpoenaed the seven million documents from the DOJ. See Fed. R. Civ. P. 45; Doc. No. 46. Although the DOJ provided Relator with documents it had obtained from other federal agencies, it declined, absent court order, to provide those documents it had obtained directly from Genentech. (Doc. No. 48.) When the DOJ notified Genentech of the subpoena, the Company moved for protective relief. (Doc. No. 45.)

After a hearing on December 17, 2009, I denied protective relief, ordered the DOJ to comply with Relator's third party subpoena, and granted Genentech's Motion to Unseal the Complaint. (Doc. Nos. 54, 56.) The First Amended Complaint and the docket were unsealed on December 31, 2009. Pursuant to the Parties' agreement, I issued a Scheduling Order on January 8, 2010 requiring Relator to serve the "operative complaint" in this matter "within 90 days of the delivery to counsel for the Relator of the records subpoenaed . . . consisting of the documents produced to the government by Defendant Genentech, Inc. during its investigation." (Doc. No. 58 ¶ 1.)

Relator filed the instant Motion for Leave to File Second Amended Complaint on April 15, 2010. (Doc. No. 63.) After reviewing Genentech's response in opposition, I ordered the Parties to submit memoranda addressing whether the First Amended Complaint was adequate under Rule 9(b). (Doc. No. 72.) Genentech instead moved to dismiss the First Amended Complaint, arguing that it did not pass muster under Rule 9(b). (Doc. No. 73.) In response to Genentech's Motion, the United States submitted a "Statement of Interest," taking strong exception to Genentech's construction of Rule 9(b)'s pleading requirements. (Doc. No. 75.)


As I explain below, although the First and Second Amended Complaints differ, both include the same core conspiracy charges -- that Genentech carried out a fraudulent scheme to profit from off-label Rituxan prescriptions written for Medicare and Medicaid patients. Both pleadings set out the two ways that Genentech engineered this scheme: (1) pressuring its sales staff illegally to market off-label uses for Rituxan prescriptions; and (2) paying illegal kickbacks -- tropical vacations or honoraria -- to induce and reward physicians who prescribed off-label Rituxan.

In the First Amended Complaint, Relator alleges that Genentech's scheme began in 2000 and continued until "at least December 2002." (Doc. No. 15 ¶ 18.) The Complaint included seven Counts:

(1) "deliberate avoidance of FDA regulations," or active concealing of the off-label Rituxan prescriptions from federal regulators;

(2) "false statements to physicians regarding Rituxan" by Genentech employees with reference to the safety and efficacy of the medication;

(3) illegal kickbacks to physicians who prescribe large amounts of Rituxan prescriptions;

(4) off-label Rituxan sales to the Veteran's Administration;

(5) "violating state formularies," review boards' rules about which uses of prescription drugs were eligible for Medicare reimbursement;

(6) "avoiding [federal Medicare and Medicaid] price controls based on therapeutic equivalency"; and

(7) illegal kickbacks to physicians who prescribe large amounts of Herceptin, another Genentech medication used for the treatment of breast ...

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