Cases Highlight Ongoing Uncertainty, Complexities of Rule 9(b) in FCA Context

June 29, 2022Articles

Cases Highlight Ongoing Uncertainty, Complexities of Rule 9(b) in FCA Context

One of the most basic questions under the False Claims Act—what facts a relator must plead to state a claim—is also one of the most difficult to answer. The Supreme Court is considering multiple certiorari petitions seeking to resolve a circuit split in the application of Rule 9(b)’s heightened pleading standard to the FCA. Even within those two broad approaches, courts continue to encounter new issues and to adopt a fact-specific stance on how much “particularity” the rule requires. Defendants need to pay continued close attention to circuit differences, and use the rule to the maximum extent possible to hold relators to the heightened standard.

For a False Claim Act (FCA)[1] complaint to survive a motion to dismiss it must not only meet the ordinary 12(b)(6) plausibility standard,[2] but also clear Rule 9(b)’s higher hurdle by “stat[ing] with particularity the circumstances constituting fraud.”[3] This requirement accords defendants a measure of protection from baseless FCA qui tam (whistleblower) actions.[4] The rule is silent, though, on how much detail is needed to plead fraud “with particularity,” and federal courts have not interpreted the requirement uniformly.

Circuit Split… or Convergence?

Generally, the circuits fall into two broad camps, with one group requiring plaintiffs to “show ‘representative samples’ of the alleged claims for payment, specifying the time, place, and content of the acts and the identity of the actors,”[5] and the other holding a plaintiff need only “allege ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”[6]

Despite having denied cert on this question before,[7] there are signs the Court recognizes the growing pressure on the issue: twice already this year—in January in the Eleventh Circuit case of Bethany Hospice,[8] and last month in Owsley from the Sixth Circuit[9]—the Court asked the Solicitor General to submit amicus briefs.[10] The first of those briefs to be filed revealed there is even disagreement about the extent to which the circuits diverge.

In her Bethany Hospice amicus brief, the Solicitor General argued against cert and contended “the courts of appeals have largely converged on a . . . flexible standard.”[11] Even those circuits that “have placed greater emphasis than other courts of appeals on FCA relators pleading details regarding specific false claims for payment,” the brief contended, have “recognized that such details are not invariably required.”[12] Incredibly, this position managed to unite relators and defendants in opposition. The relator in Bethany Hospice characterized the Solicitor General’s position as “pure ipse dixit” and “devoid” of supporting authority.[13] In another case, the defendant filed a supplemental brief arguing that the Solicitor General “is the only one who thinks” the circuits have converged.[14]

The dispute turns on which cases the Solicitor General chose to cite and which ones she ignored. In arguing the circuits are largely harmonious, the Solicitor General cited the Sixth Circuit’s decision in Prather.[15] There, while recognizing “most other circuits have applied either an across-the-board heightened standard or an across-the-board permissive one,”[16] the court termed the split “not nearly as deep as it first appears” because “[e]very circuit that has applied a heightened standard, save ours, has retreated from such a requirement in cases in which other detailed factual allegations support a strong inference that claims were submitted.”[17] Prather allowed a limited exception to the representative-claim requirement, holding 9(b) satisfied where relators allege “specific personal knowledge that relates directly to billing practices” supporting a “strong inference that a [false] claim was submitted.”[18] However, in United States ex rel. Hirt v. Walgreen Co.—which the Solicitor General did not mention—the Sixth Circuit almost immediately “clarified that courts have no authority [to] ‘relax’ or otherwise modify the Rules of Civil Procedure.”[19] Instead, it clarified that “[t]he identification of at least one false claim with specificity is an indispensable element” of compliance with Rule 9(b).[20] And the court noted in United States ex rel. Ibanez v. Bristol-Meyers Squibb Co., that no case within the circuit other than Prather had applied the exception.[21]

The Solicitor General’s amicus brief seems unlikely to quell the widespread perception of a split; indeed, its strenuous attempts to harmonize the circuits’ positions as “basically equivalent” may have unintentionally underscored the split. Perhaps most tellingly, the brief discounts the difference between a standard that requires pleading a representative false claim but allows one or more limited exceptions, versus a standard that always allows for “reliable indicia” supporting a “strong inference” a claim was actually submitted.

Whether the Supreme Court will grant cert on the issue remains to be seen. Meanwhile, FCA defendants need to pay continued close attention to the differences between the circuits over 9(b), and use the rule to the maximum extent possible to hold relators to a heightened pleading standard. Two recent decisions within the Sixth Circuit highlight the ongoing complexities around the application of Rule 9(b) to FCA complaints.

Rule 9(b) in Multi-Defendant Cases

In United States ex rel. Kramer v. Doyle, [22] the Southern District of Ohio considered an issue of first impression[23] in the Sixth Circuit: whether plaintiffs in multi-defendant FCA cases must “identify a representative claim submitted . . . by each defendant” or merely “identify a representative claim submitted . . . by some, but not all, defendants” and then link the remaining defendants to the representative claim by alleging they “were part of the fraudulent scheme.”[24]

The relator had alleged a dentist and several dental practices under his ownership effected a fraudulent scheme involving insurance claim submissions to Ohio Medicaid for procedures that were not medically necessary.[25] The complaint identified specific Medicaid billing by some, but not all, defendants.[26] The court held this was insufficient: “[W]hat it takes to state a claim against a given defendant in an FCA case” cannot “depend on how many other defendants a complaint also names.”[27]

In circuits that take the Sixth Circuit’s more exacting approach to Rule 9(b), Kramer is a helpful, well-reasoned decision that provides a clear, bright-line rule for multi-defendant FCA cases. Even in circuits that take the more lenient approach, Kramer could be helpful to support an argument that a relator must plead “reliable indicia that lead to a strong inference that claims were actually submitted” by each defendant.

Rule 9(b) and FCA Fraudulent Inducement

Rule 9(b) played a different role in United States ex rel. USN4U, LLC v. Wolf Creek Federal Services,[28] an appeal from the Northern District of Ohio’s dismissal of a qui tam complaint involving a National Aeronautic and Space Administration (NASA) contractor that operated and maintained a NASA research facility.[29] 

The alleged false claims occurred under an indefinite-delivery-indefinite-quantity (IDIQ) contract, where facility employees submitted requests to NASA for maintenance work and NASA generated work orders to the relevant contractor.[30] The contractor would then submit a proposal to NASA including labor and materials costs; following negotiation of final terms, NASA would award a firm-fixed-price contract for the work.[31] 

The case hinged mainly on whether allegedly inflated labor-time estimates in defendant’s proposals constituted false claims.[32] The district court found the proposals were mere estimates, not “request[s] or demand[s] for money.”[33] Because the relator failed “to adequately identify a false ‘claim’” to the government for payment, the court found the complaint failed Rule 9(b)’s particularity requirement.[34]

The Sixth Circuit reversed, holding the relator sufficiently pled FCA fraudulent inducement, and did so in a way that met 9(b)’s heightened pleading standard.[35] Underscoring that “an invoice which itself does not contain a falsity, may supply the premise for a false claim if submitted in connection with a fraudulently obtained contract,”[36] the panel found the allegations of falsely inflated cost estimates, which induced NASA to contract at those prices, stated an FCA fraudulent inducement claim.[37] In turn, by specifying four instances of allegedly inflated estimates, the relator satisfied the Sixth Circuit’s rigorous 9(b) particularity standard for FCA complaints.[38]

Wolf Creek thus stands for the proposition that, where an FCA complaint properly pleads fraud in the inducement, proposals or estimates can satisfy even stringent application of Rule 9(b). That is because, under a fraudulent inducement theory, all claims are false for the same reason—the fraud surrounding the efforts to obtain the contract or other government benefit.[39] The proper focus under Rule 9(b) is therefore the heart of the fraud—the false statements that are alleged to have induced the contract at issue. In fraudulent inducement cases, defendants can use Wolf Creek to argue that plaintiffs must identify with particularity the statements at issue as well as allege the elements of a fraudulent inducement claim.

[1] 31 U.S.C. § 3729 et seq.

[2] See Fed. R. Civ. P. 12(b)(6); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)) (complaint must plead sufficient factual matter to “state a claim to relief that is plausible on its face”).

[3] See Fed. R. Civ. P. 9(b) (alteration added); US ex rel. Grant v. United Airlines Inc., 912 F.3d 190, 196 (4th Cir. 2018).

[4] See Mamalakis v. Anesthetix Mgmt. LLC, 20 F.4th 295, 297 (7th Cir. 2021) (Rule 9(b)’s purpose is “to protect defendants from baseless accusations of fraud”); cf. United States v. Am. At Home Healthcare & Nursing Servs., No. 14-cv-1098, 2017 U.S. Dist. LEXIS 94505, at *11 (N.D. Ill. June 20, 2017) (rule’s “three main purposes”: (1) protect defendant’s reputation, (2) reduce fishing expeditions and other abusive litigation, and (3) give defendant notice of claims).

[5] Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 155–56 (3d Cir. 2014) (quoting United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 455–56 (4th Cir. 2013)), cert. denied, 572 U.S. 1033 (2014).

[6] Id. at 156 (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)).

[7] See, e.g., Nathan, 572 U.S. 1033.

[8] Helmly v. Bethany Hospice & Palliative Care of Coastal Ga., LLC, 853 F. App’x 496 (11th Cir. 2021), petition for cert. pending sub nom. Johnson v. Bethany Hospice, No. 21-462.

[9] United States ex rel. Owsley v. Fazzi Assocs., Inc., 16 F.4th 192 (6th Cir. 2021), petition for cert. pending, No. 21-936.

[10] A third petition for cert is also currently pending on the same issue: United States ex rel. Prose v. Molina Healthcare of Illinois, Inc., 10 F.4th 765 (7th Cir. 2021), petition for cert. pending sub nom. Molina Healthcare of Illinois, Inc. v. Prose, No. 21-1145.

[11] Bethany Hospice (No. 21-462). Brief amicus curiae of Solicitor General of the United States, at 15, 17.

[12] Id. at 16.

[13] Bethany Hospice (No. 21-462). Supplemental brief of petitioners Jolie Johnson, et al., at 4.

[14] Molina Healthcare of Illinois, Inc. v. Prose (21-1145), Supplemental brief of petitioners Molina Healthcare of Illinois, Inc., et al. at 1.

[15] Bethany Hospice. Brief amicus curiae of Solicitor General, at 14 (citing Prather v. Brookdale Sr. Living Cmtys., Inc., 838 F.3d 750, 772 (6th Cir. 2016)).

[16] 838 F.3d at 772; see also id. at 772 n.10 (collecting cases).

[17] Id. (quoting United States ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 917–18 (8th Cir. 2014)) (holding a relator satisfies 9(b) “by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted”).

[18] Id. at 769 (citation omitted).

[19] See United States ex rel. Richardson v. Lexington Foot & Ankle Ctr. PSC, Civ. A. No. 5:17-129-DCR, 2018 U.S. Dist. LEXIS 93976, at *13 (E.D. Ky. June 5, 2018) (citing Hirt, 846 F.3d 879, 881 (6th Cir. 2017)) (alteration added).

[20] Hirt, 846 F.3d at 881 (citation and internal quotation marks omitted); see also United States ex rel. Ibanez v. Bristol-Meyers Squibb Co., 874 F.3d 905, 915 (6th Cir. 2017) (citing Prather, 838 F.3d at 770) (noting that no case within the circuit other than Prather had applied the exception).

[21] See 874 F.3d 905, 915 (6th Cir. 2017); see also id. at 914 (citing Chesbrough v. VPA, P.C., 655 F.3d 461, 470 (6th Cir. 2011)) (characterizing the requirement to plead presentment via a representative claim as “stringent”). The Prather exception has since been applied on at least one occasion within the circuit. See United States ex rel. Lynch v. Univ. of Cincinnati Med. Ctr., LLC, No. 1:18-cv-587, 2020 U.S. Dist. LEXIS 48214, at *79–95 (S.D. Ohio Mar. 20, 2020); cf. United States ex rel. Holloway v. Heartland Hospice, Inc., 386 F. Supp. 3d 884, 901–02 (N.D. Ohio 2019) (citing Prather’s “strong inference” language but finding the exception inapplicable in instant case).

[22] No. 1:18-cv-373, 2022 U.S. Dist. LEXIS 72919 (S.D. Ohio Apr. 21, 2022).

[23] Kramer included discussion of United States ex rel. Owsley v. Fazzi Assocs., Inc., 16 F.4th 192 (6th Cir. 2021), a multi-defendant FCA case involving a similar issue, but noted that Owsley’s treatment of the issue was arguably dicta. Id. at *23–24. The court did not identify, and we have been unable to find, any decision from another circuit precisely on point; however, it is well established that under Rule 9(b) a plaintiff’s allegations may not “lump multiple defendants together” but rather must “differentiate . . . allegations” for each defendant  See, e.g., United States v. Kindred Healthcare, 469 F. Supp. 3d 431, 453 (E.D. Pa. 2020); Kramer, U.S. Dist. LEXIS 72919, at *21 (citing Sugarlips Bakery v. A&G Franchising, Nos. 3:20-cv-00830, et al., 2022 U.S. Dist. LEXIS 12196, at *33 (M.D. Tenn. Jan. 24, 2022)) (to satisfy Rule 9(b), plaintiff must “separately explain[] each defendant’s role” in the alleged fraud).

[24] Kramer, 2022 U.S. Dist. LEXIS 72919, at *19.

[25] Id. at *3. 

[26] Id. at *43–44.

[27] Id. at *22 (alteration added).

[28] No. 20-4246, 2022 U.S. App. LEXIS 13095 (6th Cir. May 16, 2022).

[29] Id. at *1–2.  The qui tam complaint in Wolf Creek was brought by a limited liability company formed by the relator in order to proceed anonymously, as a safeguard against reprisals. Id. at *3–4.

[30] Id. at *2–3.

[31] Id..

[32] United States ex rel. Relator v. Wolf Creek Fed. Servs., No. 1:17-CV-558, 2020 U.S. Dist. LEXIS 263350 (N.D. Ohio Nov. 3, 2020), at *4, 7–11.

[33] Id. at *9–10. The court construed the relator’s claims as being made under an implied fraudulent-inducement theory, with the government relying on the truthfulness of the labor-time estimates in the proposals, and the estimates inducing the government to accept the proposals and enter into the contracts. Id. at *13. However, the court found the relator fell short of properly pleading this theory of liability. Id.

[34] Id. at *11.

[35] Wolf Creek, 2022 U.S. App. LEXIS 13095, at *10.

[36] Id. (quoting United States v. United Techs. Corp., 626 F.3d 313, 319 (6th Cir. 2010)).

[37] Id.

[38] See id. at *11–13.

[39] See United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 787–88 (4th Cir. 1999).