Judge: William D. Claster, Case: 22-01276838, Date: 2023-06-16 Tentative Ruling

1. Defendant Trividia Health, Inc.'s Notice of Demurrer and Demurrer to First Amended Complaint   ROA 159

2. Status Conference

Defendant Trivida Health, Inc.’s demurrer to the first amended complaint (FAC) of Relator Patricia Crocano is SUSTAINED. The Court will determine whether leave to amend should be granted based on the statements of the parties at the hearing.

Trividia’s unopposed request for judicial notice is GRANTED. Crocano’s request for judicial notice is GRANTED as to Exhibits A and G and otherwise DENIED.

I.            Background

As alleged in the FAC, and taken as true for purposes of demurrer:

Trividia manufactures glucose test strips used by persons with diabetes. During manufacture, the test strips are supposed to be sealed in vials to protect them from heat and moisture exposure. If the strips are exposed to air before they are opened for use, they can return incorrect results. Beginning in 2013, a packaging defect on the assembly line caused Trividia to manufacture test strips whose seals were ineffective, i.e., they were exposed to air while in their vials. This defect resulted in incorrect glucose readings nationwide. Among other things, incorrect glucose readings on Trividia’s test strips apparently contributed to at least two pregnancy losses in women with gestational diabetes. Trividia eventually announced a recall of its test strips in 2016.

Crocano was employed by Trividia beginning in 2014. She started in the customer care department, where she fielded calls from customers who complained of incorrect readings. She later moved to the post-market compliance department, where her responsibilities included investigation of the more serious complaints fielded by the customer care department.

Under the federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations, Trividia was required to inform the FDA of serious adverse events associated with its test strips. Crocano alleges that for several years—from 2013 until it announced the recall— Trividia intentionally covered up adverse events caused by its packaging defects and failed to report them to the FDA. In addition, she alleges Trividia’s packaging defects violated a FDCA requirement that the strips be manufactured in accordance with “current good manufacturing practice.” These failures meant the test strips were “adulterated” and “misbranded” within the meaning of the FDCA. Crocano also alleges that as a result of the foregoing, the test strips did not meet various requirements set forth in California statutes and regulations.

Because the test strips were adulterated and misbranded as defined in the FDCA, and because they did not meet the referenced California standards, they were allegedly worthless products. Crocano contends that neither the State (through Medi-Cal) nor private insurers are obligated to pay for worthless products. As a result, she argues that any claims for reimbursement that Trividia presented or caused to be submitted were actionable false claims under the California False Claims Act (Gov. Code § 12650 et seq.) and the Insurance Frauds Prevention Act (Ins. Code § 1871 et seq.).

This case is Plaintiff’s second attempt to plead CFCA claims. Her first case, filed in the United States District Court for the District of South Carolina in 2017, brought a federal False Claims Act claim along with companion claims under the laws of 27 states. After four years of investigation, the United States and the states declined to participate in Crocano’s federal case, and the complaint was unsealed. The case was transferred to the Southern District of Florida, and Trividia moved to dismiss under FRCP 9(b) and 12(b)(6). The federal court dismissed the federal FCA claim with prejudice for failure to plead with particularity and failure to state a claim. The federal court declined to exercise supplemental jurisdiction over the state law claims, dismissing them without prejudice. (See U.S. ex rel. Crocano v. Trividia Health, Inc. (S.D.Fla. 2022) 615 F.Supp.3d 1296.) Crocano filed suit in this Court shortly thereafter. Her current suit adds IFPA claims that were not previously alleged.

II.          Federal Preemption

Trividia contends Crocano’s claims are impliedly preempted by federal law. Under the Supremacy Clause of the United States Constitution, federal law is the supreme law of the land.  (U.S. Const., art. VI, cl. 2.) As a result, when a state law conflicts with federal law, the state law is preempted. There are two varieties of preemption: express and implied. “Express preemption occurs when Congress ‘define[s] explicitly the extent to which its enactments pre-empt state law.’ [Citation.] Implied preemption occurs: (1) when state law ‘regulates conduct in a field that Congress intended the Federal Government to occupy exclusively[,]’ or (2) when state law ‘actually conflicts with federal law[,]’ which exists ‘where it is impossible for a private party to comply with both state and federal requirements, [citation], or where state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”’” (Glennen v. Allergan, Inc. (2016) 247 Cal.App.4th 1, 9.)

Trividia argues this case is “enforcement-by-proxy” of the FDCA (Mot. at p. 25), and therefore is impliedly preempted under Buckman Co. v. Plaintiffs’ Legal Committee (2001) 531 U.S. 341. In Buckman, the plaintiffs claimed injuries resulting from the implantation of orthopedic screws in their spines. They did not bring products liability claims against the manufacturer. Instead, they argued the manufacturer had lied to the FDA to secure approval of the screws, and that these lies were the but-for cause of their injuries since the FDA would not have approved the screws, and the screws would not have been implanted had the manufacturer not lied to the FDA. They sued the manufacturer for fraud, contending the manufacturer had defrauded the FDA.

The United States Supreme Court held “that the plaintiffs’ state-law fraud-on-the-FDA claims conflict with, and are therefore impliedly pre-empted by, federal law. The conflict stems from the fact that the federal statutory scheme amply empowers the FDA to punish and deter fraud against the Administration, and that this authority is used by the Administration to achieve a somewhat delicate balance of statutory objectives. The balance sought by the Administration can be skewed by allowing fraud-on-the-FDA claims under state tort law.” (Id., at p. 348.)

The Supreme Court allowed that “certain state-law causes of action that parallel federal safety requirements” might survive preemption, such as a common-law negligence claim that alleged not only noncompliance with the FDCA, but also failure to use reasonable care in the manufacturing process. (See id., at pp. 352-353 [discussing Medtronic, Inc. v. Lohr (1996) 518 U.S. 470].) But it rejected “the proposition that any violation of the FDCA will support a state-law claim.” (531 U.S. at p. 353.) The Supreme Court concluded: “In sum, were plaintiffs to maintain their fraud-on-the-agency claims here, they would not be relying on traditional state tort law which had predated the federal enactments in question. On the contrary, the existence of these federal enactments is a critical element in their case.” (Ibid.)

In Glennen, cited favorably by both parties, the California Court of Appeal surveyed the law of express and implied preemption and explained that a plaintiff must plead conduct that violates the FDCA (to avoid express preemption of claims that seek to impose duties absent from the FDCA), and simultaneously assert causes of action that would exist without the FDCA (to avoid implied preemption under Buckman). (Glennen, supra, 247 Cal.App.4th at pp. 11-12.) “Stated another way, ‘“[i]n order to survive preemption, such claims ‘must be premised on conduct that both (1) violates the FDCA and (2) would give rise to a recovery under state law even in the absence of the FDCA.’”’” (Id., at p. 12.) As to the allowable state law claims, the court stated: “Implied preemption under the MDA [the Medical Device Amendments of 1976] bars claims seeking to enforce an exclusively federal requirement that is not grounded in traditional state tort law.” (Id. at pp. 10-11 [emphasis added])

Trividia argues Crocano’s claims hinge on its alleged noncompliance with the FDCA and implementing regulations. The test strips are adulterated and misbranded under the statute because Trividia failed to comply with reporting requirements and manufacturing practice requirements, the test strips are worthless because they are misbranded, and the presentment of a claim for worthless goods is an actionable false claim. As a result, Crocano’s claims are impliedly preempted.

Crocano argues there is no preemption under the Glennen test. Her allegation that Trividia violated the FDCA satisfies the first prong. As to the second prong, she argues that at paragraphs 5 and 98 of the FAC, she has alleged numerous California statues and regulations that Trividia would violate regardless of whether the FDCA existed. Specifically, she points to (1) numerous sections of the Sherman Food, Drug, and Cosmetic Law, (2) two sections of the California Code of Regulations defining “reasonable and necessary” and “medically necessary,” (3) a section of the Welfare and Institutions Code defining “medically necessary,” and (4) a section of the Welfare and Institutions Code requiring the Department of Health Care Services to consider “safety,” “effectiveness,” and “essential need” when determining what medical supplies are approved for reimbursement.

But as Trividia points out in reply, this argument fails Buckman’s requirement that a plaintiff “rely[] on traditional state tort law which had predated the federal enactments in question.” (Buckman, supra, 531 U.S. at p. 353.) None of the statutes or regulations Crocano cites is “traditional state tort law.” Neither are the CFCA or the IFPA to the extent Crocano relies on those statutes. In comparison, the Lohr case discussed in Buckman was a traditional negligence claim. The same is true of the cases cited by Crocano in the first paragraph of page 13 of her opposition. They are all traditional tort cases (product defect, failure to warn, etc.), not statutory violations. Perhaps a patient injured by one of Trividia’s defective test strips could bring a product defect claim that isn’t preempted. But Crocano has not brought such a claim.

Crocano identifies one case that allowed claims other than traditional torts to move forward under Buckman: Farm Raised Salmon Cases (2008) 42 Cal.4th 1077. But Farm Raised Salmon Cases involved food regulation under the FDCA, not drug or device regulation. In the case of food, unlike drugs and devices, the FDCA was amended to permit states themselves to regulate food labels, so long as the label requirements were identical to FDCA requirements. (Id., at pp. 1085-1086.) California enacted such requirements as permitted by statute, and the plaintiffs brought UCL, CLRA, and FAL claims for the defendants’ alleged failure to comply with the state labeling requirements. The California Supreme Court explained that because the FDCA expressly permitted state requirements that mirrored FDCA requirements, the reasoning of Buckman (and the lower court that relied on it) was “seriously undermined” in the context of claims based on noncompliance with state requirements. (Id., at p. 1089.) Since this case does not involve food, the FDCA amendment that seriously undermines Buckman is inapplicable.

Finally, Crocano argues Buckman’s application is limited to fraud that induces FDA approval, not post-approval conduct like Trividia’s. She cites two cases for this proposition, neither of which so holds. The portion of Coleman v. Medtronic, Inc. (2014) 223 Cal.App.4th 413 cited by Crocano simply explains that Buckman involved fraud that included FDA approval. It does not hold Buckman is limited to that context. Stengel v. Medtronic, Inc. (9th Cir. 2013) 704 F.3d 1224 (en banc)) does say the plaintiffs’ claim “is a state-law claim that is independent of the FDA's pre-market approval process that was at issue in Buckman.” (Id., at p. 1233.) But the plaintiffs’ claim was a traditional state-law tort claim for failure to warn, like the negligence claim in Lohr that Buckman itself discussed. Stengel simply contrasts a traditional tort claim with the claim in Buckman. It does not hold that Buckman is limited to fraud that induces FDA approval.

For these reasons, the Court finds that Crocano’s claims are preempted by federal law.

III.       Remaining Arguments

Because the Court finds Crocano’s claims are preempted, it does not address Trividia’s remaining arguments.

IV.         Leave to Amend

At the hearing, Crocano should be prepared to discuss whether it is possible to further amend the complaint to avoid federal preemption.