June 28, 2022 - Kenneth M. Abell / Katherine Kulkarni
Pending before the Supreme Court are three certiorari petitions that could resolve the longstanding circuit split over the level of detail that Federal Rule of Civil Procedure 9(b) requires of qui tam complaints in False Claims Act (“FCA”) cases.
Complaints alleging violations of the FCA must meet the heightened pleading standard of Rule 9(b), which requires a party “alleging fraud or mistake . . . [to] state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The question that has historically divided the circuit courts is whether a relator in qui tam actions must plead specific, representative samples of false claims to satisfy the “particularity” requirement of Rule 9(b).
The way the circuit courts answer this question can be boiled down to two distinct buckets, with some variation within those buckets. The first bucket includes five circuit courts that all employ a more defendant-friendly standard, generally requiring a relator to plead specific representative examples of fraudulent claims that were submitted to the government. The second bucket includes six circuit courts that take a far more lenient, relator-friendly approach, allowing the submission of false claims to be inferred from the circumstances.
The Circuits Requiring Specifics
In the first bucket, the most stringent interpretation of Rule 9(b) comes from the Eleventh Circuit, which has historically required a relator’s complaint to specify the time, the place, the fraudulent claim submitted and the identity of the person submitting the fraudulent claim. Unlike in other circuits, the submission of a fraudulent claim cannot be inferred from the circumstances; the complaint must generally plead specific details of fraudulent claims that were, in fact, submitted to the government. See, e.g., U.S. v. ex rel. Clausen v. Lab. Corp. of America, 290 F.3d 1301 (11th Cir. 2002); see also U. S. ex rel. Atkins v. McInteer, 470 F.3d 1350, 1359 (11th Cir. 2006); Carrel v. AIDS Healthcare Found. Inc. Corsello v. Lincare, Inc., 428 F.3d 1008, 1013 (11th Cir. 2005).
As discussed in greater detail below, there is some disagreement over the contours of the circuit split because the Eleventh Circuit does not apply this rule categorically. In U.S. ex rel. Mastej v. Health Mgmt. Assoc., Inc. (2014), the Court expressly noted that “there is no per se rule that an FCA complaint must provide exact billing data or attach a representative sample claim.” U.S. ex rel. Mastej v. Health Mgmt. Assoc., Inc., 591 Fed. Appx. 693, 704 (11th Cir. 2014). And in Estate of Debbie Helmly, et al. v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC et al. (2021), the Eleventh Circuit case pending before the Supreme Court on a writ of certiorari, the Court confirmed that it “do[es] not always require a sample fraudulent claim” and is “more tolerant of complaints that leave out some particularities of the submissions of a false claim if the complaint also alleges personal knowledge or participation in the fraudulent conduct.” Estate of Debbie Helmly, et al. v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC, et al., 853 Fed. Appx. 496, 501 (11th Cir. 2021), citing U.S. ex rel. Matheny v. Medco Health Sols., Inc., 671 F.3d 1217, 1230 (11th Cir. 2012). For instance, in Mastej, the Court said that a relator’s direct, first-hand knowledge of, or participation in, the defendant’s submission of false claims may be a sufficient basis for asserting that the defendants actually submitted false claims. U.S. ex rel. Mastej, 591 Fed. Appx. at 704, citing U.S. ex rel. Walker v. R & F Properties of Lake Cnty., Inc., 433 F.3d 1349, 1360 (11th Cir. 2005). Ultimately, though, in practice a complaint is likely to be dismissed in the Eleventh Circuit unless it pleads representative samples of fraudulent claims.
The Fourth, Sixth, and Eighth Circuits follow a similar approach, generally requiring details of specific claims while recognizing that other allegations might be sufficiently reliable to show that the defendant submitted false claims to the government. Like the Eleventh Circuit, the Eighth Circuit held in U.S. ex rel. Thayer v. Planned Parenthood of the Heartland (2014) and in U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc. (2006), that it might excuse the absence of specific examples of false claims if the relator has personal, first-hand knowledge of the submission of false claims. U.S. ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 917 (8th Cir. 2014); U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 556-57 (8th Cir. 2006). In U.S. ex rel. Prather v. Brookdale Senior Living Cmtys, Inc. (2016), the Sixth Circuit held that, in the absence of representative samples, a relator might survive a motion to dismiss if, by virtue of the relator’s position, he or she has personal knowledge of the defendant’s billing practices which supports a strong inference that particular claims were submitted to the government for payment. U.S. ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 838 F.3d 750, 769-60 (6th Cir. 2016); see also U.S. ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905, 920 (6th Cir. 2017). And, the Fourth Circuit held in U.S. ex rel. Nathan v. Takeda Pharmacies North America, Inc. (2013) that a complaint might be otherwise sufficient if the defendant’s actions as alleged would have necessarily led to the submission of false claims; it is not enough when a defendants’ actions as alleged in the complaint could have led to the submission of false claims. U.S. ex rel. Nathan v. Takeda Pharmacies North America, Inc., 707 F.3d 451, 453-54 (4th Cir. 2013).
The bottom line is that a relator who can plead representative false claims will better withstand a motion to dismiss in the Fourth, Sixth, Eighth, and Eleventh Circuits; in the absence of such allegations, the relator must have some personal or special knowledge of the defendant’s billing practices to aver that false claims were submitted. In U.S. ex rel. Duxbury v. Ortho Biotech Prod. (2009), the First Circuit adhered to the more stringent approach but with slightly more nuance; it stated that it would require a relator to plead representative samples, but if the action involved the inducement of third parties to file false claims, the Court would allow a relator to satisfy Rule 9(b) by providing “factual or statistical evidence to strengthen the inference of fraud beyond possibility.” U.S. ex rel. Duxbury v. Ortho Biotech Prod., L.P., 579 F.3d 13, 29 (1st Cir. 2009); see also U.S. ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29, 38-39 (1st Cir. 2017).
The Circuits Requiring Less
In stark contrast to the more defendant-friendly standard employed by the First, Fourth, Sixth, Eighth, and Eleventh Circuits, the second bucket includes the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits, which allow for the submission of claims to be inferred from the circumstances. A relator filing a qui tam complaint in these circuits need not identify specific false claims or allege that the relator had personal knowledge of the defendant’s billing practices. For example, in Foglia v. Renal Ventures Mgmt., LLC (2014), the Third Circuit articulated and adapted the more lenient standard employed by its sister circuits, finding it sufficient for plaintiff to “provide particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 156-57 (3d Cir. 2014), citing Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010) and U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009); see also U.S. ex rel. Health v. AT&T, Inc. 791 F.3d 112, 126 (D.C. Cir. 2015) (same); U.S. ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010); United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016).
There are three pending certiorari applications that could allow the Supreme Court to decide which circuit court approach to Rule 9(b) is the best: an appeal from an Eleventh Circuit opinion, Estate of Debbie Helmly, et al. v. Bethany Hospice & Palliative Care LLC, et al. (2021), an appeal from a Sixth Circuit opinion, U.S. ex rel. Owsley v. Fazzi Assoc. Inc. et al. (2021), and an appeal from the Seventh Circuit, U.S. ex rel. Prose v. Molina Healthcare of Ill., Inc., et al. (2021). Estate of Debbie Helmly, et al. v. Bethany Hospice & Palliative Care LLC, et al., 853 Fed. Appx. 496 (11th Cir. 2021); see also U.S. ex rel. Owsley v. Fazzi Assoc. Inc. et al., 16 F.4th 192 (6th Cir. 2021); see also U.S. ex rel. Prose v. Molina Healthcare of Ill., Inc., et al., 17 F.4th 732 (7th Cir. 2021).
Consistent with its precedent,the Eleventh Circuit in Bethany Hospice found the complaint insufficient where, among other things, the relators failed to allege any specifics about actual false claims submitted to the government. The Court noted that while it “do[es] not always require a sample fraudulent claim,” the relators did “not attempt to provide any particular facts about a representative false claim” or “have the personal knowledge or level of participation that could give rise to some indicia of reliability.” Bethany Hospice, 853 Fed. Appx. at 501-02.
Nor is there anything particularly surprising about the Sixth Circuit’s opinion in Owsley. The Court adhered to its standard application of Rule 9(b), finding that the relator failed to identify any specific claims that the defendant submitted pursuant to the fraudulent scheme or otherwise allege facts based on personal knowledge of billing practices to support a strong inference that particular claims were submitted to the government. Owsley, 16 F.4th at 196-97. On the other side of the circuit split, in Molina Healthcare, consistent with its precedent, the Seventh Circuit deemed a complaint sufficient even though it did not identify any specific false claims; it was enough that the complaint contained information that “plausibly support[ed]” the inference that the defendant made false representations. Molina Healthcare, 17 F.4th at 741. The fraudulent scheme was pled with sufficient particularity, so there was no need to also plead the details of claims that were submitted for payment. Id. at 740.
Disagreement Over the Split Itself
In all three certiorari applications, the relators highlighted the deeply rooted circuit split regarding Rule 9(b)’s pleading requirements and stressed the importance of resolving the split. The U.S. Government, however, does not agree. In Bethany Hospice, the Solicitor General’s office submitted a brief arguing that certiorari should not be granted because the circuits are converging on a more flexible rule that evaluates each complaint under Rule 9(b) case-by-case. The Relator shot back in reply, rebuking the notion that there is consistency amongst the circuits.
Notwithstanding the government’s position, there is, indeed, an outcome-determinative circuit split that needs to be addressed, even if it is not as well-defined as it was previously. Admittedly, the circuits that once applied a categorical rule requiring the identification of specific false claims have retreated from that stringent interpretation of Rule 9(b) in every case.
But there is still no single uniform rule. The default rule in the Eleventh, Fourth, Sixth and Eighth Circuits is that a relator must plead specific false claims but those Circuits also recognize that detailed allegations regarding a relator’s intimate level of knowledge of, and involvement in, the submission of false claims might be enough in certain cases. There can be no question that the application of that standard will continue to result in a much higher rate of qui tam dismissalsthan in the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits, which do not require examples of specific fraudulent claims.
The Supreme Court Should Weigh In
The fact that the viability of qui tam actions will vary significantly depending on the Circuit in which the complaints are filed is a significant problem that warrants the Supreme Court’s intervention. A standard that is too stringent might result in premature dismissal of cases where fraud clearly occurred but in which the relator cannot yet articulate the false claims with requisite specificity; conversely, a standard that is too relaxed might allow for meritless cases to squeak past motions and proceed, to the detriment of the defendant.
FCA cases carry draconian repercussions – treble damages and up to a $25,076 penalty on each fraudulent claim submitted – and they often spawn or are accompanied by parallel criminal prosecutions. Given the severe consequences of FCA actions, it seems unjust to allow the same complaint to proceed in one circuit while subject it to dismissal in a sister circuit. Yet, that is the reality litigants face today. Relatedly, the split is problematic because it encourages forum shopping, especially in national cases in which the defendant is subject to suit in any circuit. A uniform and consistent approach amongst the circuits would help resolve these issues and promote fairness in the institution and prosecution of FCA cases.