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United States ex rel. Cavallino Consulting LLC v. Medtronic, Inc.

United States District Court, D. Minnesota

January 16, 2018

United States of America, ex rel., and Cavallino Consulting LLC, Relator, Plaintiffs,
Medtronic, Inc., Defendant.

          Adam M. Shapiro, Esq. and Cotchett, Pitre & McCarthy, counsel for plaintiff.

          Dulce J. Foster, Esq. and Fredrikson & Byron, counsel for defendant.


          David S. Doty, Judge

         This matter is before the court upon the motion to dismiss by defendant Medtronic, Inc. Based on a review of the file, record, and proceedings herein, and for the following reasons, the motion is granted.


         This qui tam action arises from relator Cavallino Consulting, LLC's claim that since 2012 Medtronic has fraudulently charged hospitals owned and operated by the federal government for expedited shipping costs it did not actually incur. Relator is a consulting firm based in California that conducts audits, known as Transportation Overcharge Recovery Audits, of health care systems to “uncover transportation overcharging.” Compl. ¶ 8. Medtronic is a medical device manufacturer that sells products to hospitals throughout the country.[1] Id. ¶ 11.

         Relator alleges that, through ten years of audits, it discovered that Medtronic has engaged in a widespread scheme to “overcharge for expedited shipping across various health care systems.” Id. ¶ 10. Relator does not allege that it audited a government hospital or entity or that it otherwise investigated Medtronic's sales to the government in reaching that conclusion. Nor does relator identify representative examples of sales in which Medtronic overcharged the government for expedited shipping. See Compl. Ex. 1. Relator nevertheless alleges that Medtronic receives substantial discounts on expedited shipping from various carriers that it failed to pass on to the government despite its contractual obligation to do so. Compl. ¶ 21. Relator broadly estimates that the discounts ranged from 35% to 65%, which resulted in millions of dollars in overpayment by the government. Id. ¶¶ 2, 21.

         The contract attached to the complaint is an “f.o.b. destination” contract which, the parties agree, means that the listed prices include the cost of delivery. Compl. Ex. 1 ¶ 15. The contract also provides, however, that for expedited, overnight, and two-day delivery, the government is “responsible for the additional shipping charge[s] between the normal surface (ground) rate and expedited rate.” Id. ¶¶ 11b, 11c. The parties disagree as to the meaning of this provision. According to relator, it requires the government to pay the actual expedited shipping costs paid by Medtronic, whereas Medtronic interprets it to mean that the government is required to pay the expedited shipping “rate” notwithstanding any carrier discounts. According to relator, the contract language is sufficiently clear to establish that Medtronic knowingly presented false claims for payment to the government by submitting invoices that included expedited shipping costs it did not actually incur due to carrier discounts. Compl. ¶¶ 23-24.

         On September 10, 2015, relator commenced this suit against Medtronic in the Central District of California alleging violations of the False Claims Act (FCA), 31 U.S.C. § 3729(a)(1)(A), (B), and (G). The government declined to intervene. ECF No. 19. Medtronic moved to transfer the case to Minnesota and to dismiss. ECF Nos. 34, 35. The California court granted the transfer motion finding that convenience and fairness were best served by transferring the case to Minnesota. ECF No. 41, at 2-4. The court declined to entertain the motion to dismiss given the pending transfer.[2] Id. at 4. Medtronic now moves to dismiss all claims against it under Federal Rules of Civil Procedure 9(b) and 12(b)(6). Relator requests the opportunity to file an amended complaint should the court find that its pleading is insufficient.


         I. Standard

         To survive a motion to dismiss for failure to state a claim, “‘a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim has facial plausibility when the plaintiff [has pleaded] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Although a complaint need not contain detailed factual allegations, it must raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. “[L]abels and conclusions or a formulaic recitation of the elements of a cause of action” are not sufficient to state a claim. Iqbal, 556 U.S. at 678 (citation and internal quotation marks omitted).

         Here, because all of relator's claims are based in fraud, each must also meet the heightened pleaded requirements of Rule 9(b). See U.S. ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006) (“Because the FCA is an anti-fraud statute, complaints alleging violations of the FCA must comply with Rule 9(b).”). The requirements of Rule 9(b) are read “in harmony with the principles of notice pleading, ” and the level of particularity required depends upon the nature of a case. Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 746 (8th Cir. 2002) (citation and internal quotation marks omitted). However, “[c]onclusory allegations that a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule.” Id. (citation and internal quotation marks omitted). To satisfy the heightened pleading requirement, a plaintiff must set forth the “who, what, where, when, and how” of an alleged fraud. Joshi, 441 F.3d at 556 (citation and internal quotation marks omitted). In other words, a plaintiff must plead “the time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007) (citation and internal quotation marks omitted).

         II. ...

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