SCOTUS Won’t Weigh in on How Whistleblowers Make Valid FCA Claims

Unless you happen to be a litigation lawyer, you’ve probably never heard of Rule 9(b) of the Federal Rules of Civil Procedure. But Rule 9(b) could mean millions of dollars in or out of your pocket if a whistleblower ever files a False Claims Act (FCA) lawsuit against your lab. The bad news is that this critical rule applies differently in different parts of the country, and it looks like the Supreme Court of the US (SCOTUS) won't provide clarity any time soon.

The Importance of Rule 9(b)

The FCA allows private individuals to file what are called “qui tam” lawsuits on the government’s behalf against persons who knowingly submit false claims to defraud federal government programs. In so doing, whistleblowers must navigate complex rules of procedure required to bring a lawsuit in federal court. One of these rules, Section 9(b) of the Federal Rule of Civil Procedure states that “in alleging fraud, a party must state with particularity the circumstances constituting fraud.”

The key question: With what degree of “particularity” do whistleblowers, aka, “relators,” have to be in alleging that the defendant submitted a fraudulent claim in an FCA lawsuit? What sounds like the kind of question that only a lawyer would care about has enormous practical implications. That’s because if relators don’t meet the Rule 9(b) standard, their complaint is defective and you may be able to get the court to toss their case without a trial, effectively ending any leverage the relator has to command a big fat settlement check from you.

Consequently, it’s very common for labs and other defendants to file Rule 9(b)-based dismissal motions in qui tam lawsuits. In many cases, the success of the strategy is dictated by whether the relator must include representative examples of fraudulent claims in the complaint. Coming up with these examples isn’t always a simple matter. Accordingly, a relator’s entire case may stand or fall on how the court interprets Rule 9(b).

The Chorches Case

A notable example is a case that began when a former employee of American Medical Response (AMR) sued that company for submitting false claims for ambulance transport services to Medicare and Medicaid. The problem is that the relator couldn’t identify exact billing numbers, dates, or amounts of claims. And since it didn’t identify any actual invoices submitted, the complaint didn’t meet Rule 9(b), AMR argued.

The US District Court for the District of Connecticut agreed and dismissed the claim. But the relator got the last laugh when the Second Circuit Court of Appeal reversed the lower court. Rule 9(b) ordinarily requires a complaint alleging fraud to:

• Specify the statements contended to be fraudulent;
• Identify the speaker;
• State where and when the statements were made; and
• Explain why the statements were fraudulent.

However, the Second Circuit continued, the adequacy of particularized allegations under Rule 9(b) is “case- and context-specific.” The normal rigid rules may not apply when the case is “based on information and belief when facts are peculiarly within the opposing party’s knowledge.” However, 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.”

In this case, the information regarding the particular bills submitted to Medicare were “peculiarly within [AMR’s] knowledge,” the court reasoned, noting that the company’s billing procedures made it “virtually impossible” for most employees to access all of the information necessary to certify on personal knowledge what invoices were submitted and what facts they contained that made them false. The relators’ inability to identify specific documents containing false claims that AMR submitted to the government was due to “no fault or lack of diligence on their part.” Thus, the “specific and plausible facts” suggesting that AMR “systematically falsified its records to support false claims” was enough to satisfy Rule 9(b) in this case, the court concluded [U.S. ex rel. Chorches v. American Medical Response, 865 F.3d 71 (2d Cir. 2017)].

The Disappointment

While Chorches might be the rule in the Second Circuit, it also appears to be the minority view. Courts in other circuits around the country, including the Third, Fifth, Seventh, Eighth, Ninth, and Tenth, take a different view and impose Rule 9(b) more rigidly and require relators to furnish details about actual claims that the defendant submitted.

While it often steps in when there’s a conflict among the federal circuit courts, on Oct. 17, SCOTUS  denied the petition to take a case called Johnson v. Bethany Hospice and Palliative Care, LLC, to resolve the question of whether relators must provide details about actual claims to satisfy Rule 9(b).¹ So, it looks like who will have the upper hand in qui tam lawsuits under the FCA will continue to remain unclear going forward.

References:

1. https://www.supremecourt.gov/docket/docketfiles/html/public/21-462.html