Opinion
CIVIL ACTION NO. 06-10061-RGS.
October 12, 2007
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS
BACKGROUND
On January 1, 2006, Stephen Fauci filed this action against his former employer, Genentech, Inc. (Genentech), a pharmaceutical maker, and its Chief Financial Officer, David Ebersman, alleging that he had been terminated by Genentech in retaliation for his investigation and complaints regarding illegal conduct by Genentech sales representatives. The case is before the court on Genentech's motion to dismiss.
The following factual allegations, which are drawn from the Second Amended Complaint, are deemed true for purposes of the motion to dismiss. Fauci was employed as a sales representative by Genentech for approximately five years beginning in 2000. In March of 2003, Fauci was made a member of a team of "clinical specialists" responsible for marketing the asthma drug Xolair. After assuming his new assignment, Fauci learned that a number of his fellow sales representatives were engaged in questionable practices. In particular, Fauci alleges that Genentech employees were instigating the filing of false or fraudulent claims with the United States government in violation of the False Claims Act (FCA), 31 U.S.C. § 3729 et seq. One especially dubious practice involved "marketing the spread." According to Fauci, Genentech induced physicians to prescribe Xolair by publishing an inflated average wholesale price (AWP) for the drug (which determined the government reimbursement rate for Medicare patients), while at the same time promising to sell Xolair to physicians at a deeply discounted price, thereby allowing doctors to pocket the "spread" between what they paid for the drug and the AWP reimbursement rate. The marketing scheme benefitted Genentech by capturing market share from Xolair's competitor drugs, Advair and Singulair.
This particular scheme has been the subject of much litigation between the pharmaceutical industry and the federal and state governments and has led to several criminal prosecutions and civil settlements. See, e.g., In re: Lupron® Marketing and Sales Practices Litig., 295 F. Supp. 2d 148 (D. Mass. 2003).
Xolair is a drug that must be injected by a physician or a physician's assistant; it cannot be self-administered.
Fauci also alleges that Genentech sales representatives completed "Statement of Medical Necessity" forms for Medicare patients. These forms, which are the responsibility of the prescribing physician, record information regarding a patient's health, history, weight, and immunoglobulin E (IgE) test levels. According to Fauci, Genentech sales representatives falsely inflated patients' weights and/or IgE levels to justify an increase in the prescribed dosage of Xolair, and to qualify patients who were otherwise ineligible to take Xolair under Food and Drug Administration (FDA) guidelines.
Fauci further states that Genentech employees instructed physicians on techniques for manipulating Medicare billing to obtain a higher reimbursement rate. For example, several managers told physicians to use the Medicare Level 5 billing code, which is intended for extensive patient evaluations and screening, for routine patient visits, which should have been billed as Level 1. Sales representatives were also told to advise physicians to use codes that were not approved by the Joint Council on Allergy, Asthma, and Immunology, or that were otherwise utilized solely for oncology treatments. Finally, Fauci claims that sales representatives lavished physicians with expensive gifts and honoraria to induce them to prescribe Xolair.
Fauci asserts that Genentech management was profoundly aware of his concerns. He first complained to his district and regional managers in February of 2004 about the illegal marketing practices and the submission of false claims. According to Fauci, his concerns were ignored. In August of 2004, when a new district manager was appointed, Fauci renewed his complaints, only to be told that it was none of his concern. Fauci nonetheless persisted. Genentech had scheduled meetings of the National Representatives Panel (of which Fauci was a member) for November 4, 2004. In anticipation of the meetings, Fauci solicited information from other clinical specialists regarding their sales practices. Fauci claims that this "investigation" confirmed his suspicions of widespread illegal practices.
Also prior to the national meetings, Fauci contacted Genentech's in-house counsel to obtain a legal opinion regarding the propriety of sales representatives filling out patients' medical forms. He was told that under no circumstances should a sales representative complete patient forms or collect data on patients. Fauci presented the results of his "investigation" at the National Representatives Panel gathering. In the following month, Fauci advised several colleagues to cease committing illegal acts. He also continued to make his complaints known to his superiors.
Fauci claims that despite excellent performance reviews and several merit awards, his managers began to plot his termination in order to silence him. Fauci claims that they revealed to other employees highly confidential personal details about his taking leave under the Family and Medical Leave Act (FMLA) to be treated for depression. In addition, Genentech refused to pay Fauci the commissions he had earned in 2004. Although his district and regional managers agreed that he was owed $91,108, they refused to authorize payment. Fauci's district manager then reprimanded him for refusing to approve the payment of an illegal honorarium to a client physician. Finally, Genentech management increased Fauci's sales quota without informing him and terminated his appointment to the National Representatives Panel.
Fauci received Genentech's Leaders Developing Leaders Award in December of 2004 and a Sales Achievement Award in February of 2005.
According to Fauci, he was ridiculed by his managers for taking FMLA leave. His district manager told colleagues that Fauci was "digging his own grave and slitting his own throat" by complaining to Genentech's Human Resources Department. The manager stated that Fauci "must be an idiot to think that human resources is there for the employee; they work for management." Fauci claims that his supervisors purposely withheld information that was crucial to his ability to service his customers. In addition, managers allegedly sabotaged his sales efforts by refusing to return his telephone calls, faxes, and emails.
On April 8, 2005, Fauci was informed that he was being terminated for discrepancies in his ProRep reporting regarding two clients (of a total of 152), and for poor performance generally. Fauci was specifically cited for service problems with respect to three of his accounts. Fauci claims that the criticisms were merely a pretext and that the real reason for his termination was retaliation for his complaints about Genentech's sales practices (as well as for his complaints regarding the unpaid commissions).
ProRep is the software system used by Genentech's marketing department in the development of sales literature and marketing tools.
The Second Amended Complaint alleges wrongful termination in violation of the FCA and state statutory and common-law claims. On March 29, 2007, Genentech filed a motion to dismiss Counts I, III, and V of the Second Amended Complaint. On September 24, 2007, the court heard argument on the motion. At the conclusion of the hearing, the court dismissed Count V insofar as it claimed that Fauci had been wrongfully deprived of his options to purchase Genentech stock.
These include allegations of a violation of the Massachusetts Payment of Wages Law, Mass. Gen. Laws c. 149, § 148 (Count II); wrongful termination in violation of public policy (Count III); breach of contract (Count IV); breach of the implied covenant of good faith and fair dealing (Count V); and intentional interference with advantageous business relations (Count VI).
DISCUSSION
1. False Claims Act (Count I)
The FCA prohibits the knowing submission of false or fraudulent claims to the United States. See 31 U.S.C. § 3729(a). The Act's qui tam provisions authorize a private individual to bring suit on behalf of the federal government as a relator. See 31 U.S.C. § 3730(b). In order to encourage the exposure of fraudulent practices, the FCA provides for protection against retaliation by a relator's employer. The Act provides that
[a]ny employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.31 U.S.C. § 3730(h). In order to state a claim for retaliation under section 3730(h), a relator must show that: (1) the employee engaged in conduct protected under the FCA; (2) the employer knew that the employee was engaged in such conduct; and (3) the employer discharged, discriminated against, or otherwise retaliated against the employee because of the protected conduct.United States ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 235 (1st Cir. 2004).
Genentech argues that the claim for retaliation should be dismissed for failure to allege facts sufficient to establish that Fauci was engaged in conduct protected under the FCA. An employee's conduct is protected if it involves "acts done . . . in furtherance of" an FCA action. 31 U.S.C. § 3730(h). The First Circuit defines such conduct as that which "reasonably could lead to a viable FCA action." Karvelas, 360 F.3d at 236. To be protected under section 3730(h), Fauci need not have initiated an FCA action at the time of the adverse employment action, nor must he have developed a winning claim. Id. Genentech relies on Fauci's admission that he was not investigating the alleged improper practices with an FCA lawsuit in mind. However, Fauci's lack of awareness of the FCA has no bearing on the motion to dismiss. Indeed, Fauci "need not have known that his actions could lead to a qui tam suit under the FCA, or even that a False Claims Act existed, in order to demonstrate that he engaged in protected conducted." Id. at 237 (emphasis in original). See also United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 741 (D.C. Cir. 1998) ("[E]ven an investigation conducted without contemplation — or knowledge of the legal possibility of — a False Claims Act suit can end up being 'in furtherance' of such an action."); United States ex rel. Smith v. Yale Univ., 415 F. Supp. 2d 58, 103 (D. Conn. 2006) ("Whether acts are found to have been in furtherance of a FCA action are more appropriately assessed in terms of their function or effect and not on the intent of the actor, at the time, that he or she was doing so as a foundation or basis for an FCA action."). The only essential is whether Fauci was investigating (or reporting) the involvement of Genentech employees in the submission of false or fraudulent claims to the government. Fauci has cited numerous allegations of fraud on the government and repeated complaints to his managers about Genentech's practices. That is all — at this stage of the proceedings — that is required to defeat a motion to dismiss a claim of retaliation. For present purposes, Fauci has sufficiently stated a claim under the FCA.
Genentech additionally argues that because it is the physicians who submitted false claims forms to the government, Fauci has not cited any facts to suggest that he was investigating whether Genentech "caus[ed] to be presented . . . a false or fraudulent claim for payment," as required by 31 U.S.C. § 3729(a)(1). However, Fauci has sufficiently alleged that Genentech caused the physicians to submit claims for inflated reimbursements to the United States government by "marketing the spread," filling out patient forms on their behalf, and instructing them on the manipulation of Medicare billing codes.
2. Wrongful termination in violation of public policy (Count III)
The common law provides redress for employees who are "terminated for asserting a legally guaranteed right (e.g., filing a workers' compensation claim), for doing what the law requires (e.g., serving on a jury), or for refusing to do that which the law forbids (e.g., committing perjury)." Wright v. Shriners Hospital for Crippled Children, 412 Mass. 469, 472 (1992). Genentech moves to dismiss on the ground that the common law does not authorize claims for wrongful termination in violation of public policy where a plaintiff has a statutorily-created means of vindicating the policy at issue. InMelley v. Gillette Corp., 397 Mass. 1004 (1986), the Supreme Judicial Court (SJC) held that a former employee was barred from bringing an action against her employer for wrongful termination on the grounds of age discrimination because of the alternative remedies specifically provided by Mass. Gen. Laws c. 151B. Id. There is no "impenetrable rule mandating dismissal of state law claims alleging wrongful termination in violation of public policy simply because a federal or state statute relative to the subject exists. Rather, the Massachusetts courts have developed a logical preference that plaintiffs relying on a public policy already codified in a particular statute follow the procedures set forth in the statute, but only if the statutory remedies are comprehensive and adequate." Briones v. Ashland, Inc., 164 F. Supp. 2d 228, 230 (D. Mass. 2001). Because the FCA provides a comprehensive and adequate remedial scheme for vindicating the public policy interests identified by Fauci in the Second Amended Complaint, the motion to dismiss Count III will be ALLOWED.
CONCLUSION
For the foregoing reasons, Genentech's motion to dismiss isALLOWED in part and DENIED in part. The motion is ALLOWED as to Count V, insofar as it relates to Fauci's claim regarding the loss of stock options, and as to Count III, the wrongful termination claim. The motion is DENIED as to Count I, alleging retaliation under the FCA. Accordingly, the court adopts Schedule A as set out in the parties' proposed discovery schedule.
SO ORDERED.