Rule 9(b) Pleading Requirements Under the False Claims ActMay 5, 2022 | Michael A. Sirignano |
The Justice Department recently reported obtaining more than $5.6 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2021. https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year. This is the largest annual total in False Claims Act (FCA) history since 2014, no doubt spurred in part by fraud related to COVID-19. This growing wave of fraud has not only caught the attention of federal authorities, but also private parties who are bringing more and more lawsuits in New York federal courts and in federal courts across the country under the FCA alleging fraud against the government, including fraud against federal health insurance programs such as Medicare and Medicaid.
In general terms, the FCA imposes liability on persons who knowingly submit false claims to defraud federal government programs. In addition to allowing the United States to pursue perpetrators of fraud on its own, the FCA allows private citizens to file suits on behalf of the government (called “qui tam” suits) against those who have defrauded the government. Because these are fraud claims, they are subject to the heightened pleading requirement of Federal Rule of Civil Procedure 9(b), which states that, “[i]n alleging fraud . . . , a party must state with particularity the circumstances constituting fraud.”
In recent years, federal circuit courts of appeals have set forth somewhat different standards that civil FCA complaints brought by private citizens, known as relators, must meet to satisfy Rule 9(b) – especially regarding whether representative examples of allegedly fraudulent claims must be included in a complaint. Although the practical impact of the disagreement among the circuits is of some dispute, the U.S. Supreme Court is currently considering whether to grant certiorari in a case where the petitioners, claiming a clear circuit conflict over what Rule 9(b) requires in FCA cases, presented the issue as, “[w]hether Rule 9(b) requires plaintiffs in [FCA] cases who plead a fraudulent scheme with particularity to also plead specific details of false claims.” In opposition to the petition, the respondent asserted that the petitioners’ had “vastly” overstated the alleged split in authority. Johnson v. Bethany Hospice and Palliative Care LLC, No. 21-462 (S.Ct.). On January 18, the Court invited the Solicitor General to file a brief expressing the government’s views.
The Court has previously declined to opine on the Rule 9(b) standard in FCA cases and the specific level of detail that a complaint must include, see, e.g., United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., 572 U.S. 1033 (2014), and, as of this writing, it remains to be seen whether the Court will grant certiorari in Johnson and establish a national standard under Rule 9(b) for FCA complaints. Unless and until that happens, the governing law in the U.S. Court of Appeals for the Second Circuit, including the need to plead representative examples of fraudulent claims, derives from the Second Circuit’s decision in U.S. ex rel. Chorches v. American Medical Response, Inc., 865 F.3d 71 (2d Cir. 2017).
The Second Circuit’s Standard
The private parties that brought the FCA suit in Chorches (a former employee of the defendant and his bankruptcy trustee) alleged, among other things, that American Medical Response, Inc. (AMR) made false statements and submitted false claims to the federal government for reimbursement under the Medicare and Medicaid programs for ambulance transport services. According to the complaint, AMR violated 31 U.S.C. § 3729(a)(1)(A) and 31 U.S.C. § 3729(a)(1)(B), which impose liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”
AMR argued that the plaintiffs’ complaint failed to satisfy Rule 9(b)’s heightened pleading requirement because it did not identify actual invoices that AMR submitted to the federal government. The plaintiffs conceded that they could not identify exact billing numbers, dates or amounts for claims submitted to the government.
The U.S. District Court for the District of Connecticut dismissed the plaintiffs’ FCA claim, finding that their complaint failed to allege with the specificity required by Rule 9(b) that AMR submitted false claims to the government. In particular, the district court held that the complaint failed to satisfy Rule 9(b) because it provided neither details, such as invoice numbers, invoice dates and amounts billed or reimbursed, regarding actual requests for payment made to the government, nor a factual basis for its allegations that AMR had submitted false claims.
On appeal, the Second Circuit vacated the district court’s judgment, ruling that the complaint pled the submission of false claims with sufficient particularity under Rule 9(b), as applied in the FCA context, and remanded the case.
In its decision, the Second Circuit explained that Rule 9(b) ordinarily requires a complaint alleging fraud to “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” It added that the adequacy of particularized allegations under Rule 9(b) was “case- and context-specific.” The circuit court stated that, despite the generally rigid requirement of Rule 9(b), allegations “may be based on information and belief when facts are peculiarly within the opposing party’s knowledge,” although where pleading is permitted on information and belief in a complaint alleging fraud (which therefore is subject to Rule 9(b)), the complaint must “adduce specific facts supporting a strong inference of fraud.”
The Second Circuit then ruled that the plaintiffs’ complaint adequately pleaded “with specificity, albeit on information and belief,” that fraudulent claims had been submitted to the federal government.
First, the circuit court found that the complaint adequately set forth “facts establishing specific reasons” that information regarding the particular bills that were submitted for reimbursement was “peculiarly within [AMR’s] knowledge.” The circuit court pointed out that the complaint alleged that the billing procedures established by AMR made it “virtually impossible” for most employees to have access to all of the information necessary to certify on personal knowledge both that a particular invoice had been submitted for payment and that the facts stated to justify the invoice were false. According to the circuit court, in light of these particular circumstances, which it said were based on specific factual allegations that were within the knowledge of the plaintiff who was AMR’s former employee, the plaintiffs were “unable, without the benefit of discovery, to provide billing details for claims that AMR submitted to the government for reimbursement.” As a result, the circuit court continued, “through no fault or lack of diligence on their part,” the plaintiffs lacked the ability to identify specific documents containing false claims that AMR submitted to the government.
The Second Circuit next explained that even where plaintiffs alleged facts sufficient to permit fraud to be pled on information and belief, their complaint still must “adduce specific facts supporting a strong inference of fraud.” Here, it found, the plaintiffs’ complaint alleged a basis for a strong inference that specific false claims were indeed submitted to the government.
The Second Circuit reasoned that the complaint’s allegations detailed “specific and plausible facts” from which it could be inferred that AMR “systematically falsified its records to support false claims.” Thus, the circuit court held, the complaint “sufficiently pled the allegation . . . that records were in fact falsified.”
Moreover, the circuit court added, the complaint also contained “plausible and particularized factual allegations leading to a strong inference that AMR did in fact submit false claims to the government” for reimbursement, even if the plaintiffs did not allege on personal knowledge that false claims were submitted to the government.
Importantly, the Second Circuit added that the standard it adopted in this case – that an FCA complaint can satisfy Rule 9(b)’s particularity requirement by making plausible allegations creating a strong inference that specific false claims were submitted to the government and that the information that would permit further identification of those claims was peculiarly within the opposing party’s knowledge – must “not be mistaken for license to base claims of fraud on speculation and conclusory allegations.” The Second Circuit stated that it was not requiring that every FCA complaint brought by a private party “allege on personal knowledge specific identified false invoices submitted to the government,” but it made it clear that “those who can identify examples of actual claims must do so at the pleading stage.” In the absence of those actual examples, the Second Circuit concluded, a complaint must include allegations “that lead to a strong inference that specific claims were indeed submitted and also plead that the particulars of those claims were peculiarly within the opposing party’s knowledge.”
The standard set forth by the Second Circuit in Chorches does not mean that district courts in the circuit will refuse to dismiss every FCA complaint that fails to include representative examples of alleged fraud.
For example, in United States ex rel. SW Challenger, LLC v. EviCore Healthcare MSI, LLC, No. 19 Civ. 2501 (VM) (S.D.N.Y. Aug. 13, 2021), the U.S. District Court for the Southern District of New York was asked to dismiss a complaint containing 22 causes of action against the defendant that alleged healthcare fraud in violation of the FCA and various analogous state laws.
The defendant argued, among other things, that the complaint was flawed under Rule 9(b) in that it never identified a claim it submitted to the government, who submitted any such claim, when any such claim was submitted, or what payment was sought in connection with the allegedly false claim.
In response, the plaintiffs, relying on Chorches, argued that they did not have to allege the specifics of any false claims made directly to the government and that their allegations satisfied Rule 9(b) because they led to “a strong inference that specific claims were indeed submitted.”
The district court was not persuaded by the plaintiffs, who failed to cite to a “single identifiable” billing submission or “give a single example” of a false claim. The district court explained that, unlike the facts in Chorches, the complaint in this case did not provide allegations that detailed “specific and plausible facts” from which systematic falsification could be “easily” inferred. The district court concluded that although the plaintiffs alleged that they possessed certain “personal knowledge and experience” regarding the defendant’s activities, they also did “not credibly allege that all specific facts regarding the scheme were exclusively known” to the defendant. It then granted dismissal.
While Chorches continues to govern in the Second Circuit, decisions by other circuit courts of appeals set the Rule 9(b) standard in those jurisdictions. See, e.g., United States ex rel. Bookwalter v. UPMC, 946 F.3d 162 (3d Cir. 2019); United States ex rel. Colquitt v. Abbott Laboratories, 858 F.3d 365 (5th Cir. 2017); United States ex rel. Prose v. Molina Healthcare of Illinois, Inc., 10 F.4th 765 (7th Cir. 2021); United States ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914 (8th Cir. 2014); United States ex rel. Silingo v. WellPoint, Inc., 904 F.3d 667 (9th Cir. 2018); United States ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730 (10th Cir. 2018); Carrel v. AIDS Healthcare Foundation, Inc., 898 F.3d 1267 (11th Cir. 2018). In Chorches, the Second Circuit said that the existence of a circuit split was “greatly exaggerated.” We soon will learn if the Supreme Court has a different view and if it will take the opportunity to expound on the Rule 9(b) standard in FCA cases.
Reprinted with permission from the May 5, 2022, issue of the New York Law Journal©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
- Michael A. Sirignano