There is a growing consensus that False Claims Act (“FCA”) filings will increase in light of the vast sums of government money entering the economic bloodstream. Whistleblowers will be on the lookout for what is predicted to be increased instances of fraudulent activity. The government, armed with additional resources, is predicted to police for fraud and investigate and seek monies and penalties for that fraudulent activity.
Given the predicted extra use to which the FCA will be subjected, it seems prudent to note those areas in which there are or appear to be circuit splits.
There is no question that the government has the authority to dismiss FCA claims. See 31 U.S.C. § 3729(c)(2)(A). And in January 2018, in the form of the Granston memo, the Department of Justice made known to its attorneys that they should exercise that authority in the appropriate case. At Congress’s request, the government has reported that, since the issuance of the Granston memo, it has exercised this authority sparingly. Between January 1, 2018 and December 19, 2019, the government reported that it sought dismissal of 45 FCA cases out of more than 1,170 filed. Of those, 10 were filed by a for-profit private investment group whose claims the government considered to lack merit. Twelve were pro se filings in which the government declined to intervene. Pro se relators cannot bring FCA claims. Some number were considered meritless. The government also moved to dismiss 10 cases because an agency expressed concerns that it would undermine patient care. See https://www.grassley.senate.gov/sites/default/files/2019-12-19%20DOJ%20to%20CEG%20%28FCA%20dismissals%29.pdf (last visited April 11, 2020).
While there is no question that the government has the authority to dismiss cases, the question is what standard applies to any such dismissal. The D.C. Circuit has held that the authority is unfettered. See, e.g., Hoyt v. Am. Nat’l Red Cross, 518 F.3d 61 (D.C. Cir. 2008). To be sure, that court recognizes that Section 3720(c)(2)(A) provides the relator a right to challenge dismissal determinations. At the same time, the Court held that “the only function [of that section] ‘is simply to give the relator a formal opportunity to convince the government not to end the case.…’” United States ex rel. Schweizer v. Oce N.V., 677 F.3d 1228, 1233 (D.C. Cir. 2012) (quoting Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003)); see also Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 753 (5th Cir. 2001); U.S. ex rel. Rodgers v. Arkansas, 154 F.3d 865, 868 (8th Cir. 1998). This past year, the Third Circuit held—without adopting a specific dismissal standard—that Section 3720(c)(2)(A) does not afford the right to a hearing unless specifically requested or any challenge demonstrates that the government’s motion to dismiss is arbitrary and capricious. Chang v. Children’s Advocacy Center of Delaware, 938 F.3d 384, 388 (3d Cir. 2019).
In contrast, the Ninth Circuit and the Tenth Circuit do not afford the government unfettered discretion. Those courts impose a two-step standard. A government’s motion to dismiss is valid if the government (1) identifies a valid government purpose, and (2) there is a rational relation between dismissal and accomplishment of the purpose. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998); Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936 (10th Cir. 2005). If the government meets this burden, the burden switches to the relator to show that the dismissal is “fraudulent, arbitrary and capricious, or illegal.” Sequoia, 151 F.3d at 1145.
The Supreme Court just recently denied cert. on this issue, perhaps based on the government’s argument in opposition to cert. that the different standards are not dispositive as applied. United States ex rel. Schneider v. JPMorgan Chase Bank, N.A., 2019 WL 4566462 (D.C. Cir. Aug. 22, 2019), cert. denied Case. No. 19-678 (April 6, 2020). However, as the government noted, there are at least two cases pending appeal in which the courts denied motions to dismiss because they considered the request subject to judicial review and denied the government’s request to dismiss. United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 2019 WL 1598109 (S.D. Ill. April 15, 2019), appeal filed, No. 19-2273 (7th Cir.); United States v. Academy Mortgage Corp., 2018 WL 3208157 (N.D. Cal. June 29, 2018), appeal filed, No. 18-16408 (9th Cir.).
Federal Rule of Civil Procedure 9(b) dictates a heightened pleading standard for FCA allegations, with the exception of scienter. Regarding allegations of scienter, courts agree that Federal Rule of Civil Procedure Rule 8 applies.
There is a recurring dispute (or as at least one court has argued, a seeming dispute) as to one aspect of the pleading requirements—specifically, how specific the pleadings must be regarding the submission of a false claim. One school of thought is considered more restrictive or stricter. It is said to be represented by the recent decision in United States ex rel. Strubbe v Crawford County Mem. Hosp., 915 F.3d 1158 (8th Cir. 2019), in which the Court affirmed a motion to dismiss. Relators claimed that defendant required additional treatments and made other changes in order to increase Medicare reimbursements. However, the Court found those allegations wanting because “Relators did not plead representative samples of false claims.” Id. at 1164. The Court did provide that it had allowed an FCA claim to go forward when there were “particular details of a scheme” that were “paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. Yet, the case cited by the Strubbe court for this proposition is United States ex rel. v. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914 (8th Cir. 2014). In Thayer, the relator’s position “gave her personal knowledge that false claims were submitted” and those were the claims that survived a motion to dismiss. However, the Thayer court dismissed those claims not based on personal knowledge that claims were submitted. 765 F.3d at 919-20; see also Strubbe, 915 F.3d at 1164-65. Additional courts said to be proponents of this stricter standard are the Fourth and Eleventh Circuits. United States ex rel. Grant v. United Airlines, 912 F.3d 190 (4th Cir. 2018); United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301 (11th Cir. 2002).
The other approach is considered the “more lenient” pleading standard. Under this standard, a complaint does not need to allege the details of a submitted false claim. Rather, it is enough that “particular details of a scheme to submit false claims [be] paired with reliable indicia that lead to a strong inference that claims were actually submitted.” United States ex rel. Chorches for Bankr. Estate of Fabula v. Am. Med. Response, 865 F.3d 71, 89 (2d Cir. 2017). More to the point, and in contrast to Strubbe, the contents of a false billing need not be alleged. See e.g., Chorches, 865 F.3d at 89-91 (collecting cases); United States ex rel. Heath v. AT&T, 791 F.3d 112, 126 (D.C. Cir. 2015); Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010).
On November 25, 2019, the Supreme Court denied cert. in Strubbe, 140 S. Ct. 553 (2019), seemingly leaving a circuit split for resolution at some later date. However, it does bear noting that at least some courts do not consider this to be as stark a circuit split as some would argue. As noted by the Second Circuit in Chorches, the stricter approach has been “refined” in ways that suggest a “case-by-case approach that is more consistent [with other circuits] than might at first appear.” 865 F.3d at 89; see also Heath, 791 F.3d at 126.
“[A] reasonable difference of opinion among physicians reviewing medical documentation ex post is not sufficient on its own to suggest that those judgments—or any claims based on them—are false under the FCA,” said the Eleventh Circuit in United States v. AseraCare, Inc., 938 F.3d 1278, 1297 (11th Cir. 2019), thereby causing what some say is a circuit split. The context for this holding is as follows. Relators, and then the government, alleged that defendant submitted documents falsely certifying that patients were terminally ill and therefore qualified for hospice treatment. At trial, a government medical expert testified that the medical records did not support terminal illness certifications; however, according to the Court, the expert (1) “made clear that his testimony was a reflection of only his own clinical judgment,” (2) conceded that he could not discuss whether certifying physicians were wrong, and (3) did not testify that no reasonable doctor could have concluded that the patients were terminally ill when certified as so. In short, the expert “testified that, in his opinion, the patients were not terminally ill.” Id. at 1287-88.
According to the Court, such testimony was insufficient to establish falsity. A reasonable difference of opinion among physicians is not enough. There must be evidence of an “objective falsity,” the Court concluded. Id. at 1297.
Within months of AseraCare, two Courts discussed and rejected AseraCare. In United States ex rel. Druding v. Care Alternatives, 952 F.3d 89 (3d Cir. 2020), the Court rejected entirely the notion that objective falsity is necessary to an FCA claim. The Court found that such a requirement conflates scienter with falsity and, separately, runs contrary to the scope of the FCA. According to the Court, it may be that a claim is factually and actually false, consistent with AseraCare. It may also be false in the sense that the medical opinion was not honestly held by the physician. Finally, the Court noted that the AseraCare objective falsity analysis did not take in account the fact that a claim may be “legally false,” where the acts do not comply with statute or regulation. Based on these conclusions, the Court reversed the grant of summary judgment, concluding that expert testimony that disagreed with the assessment of defendant’s hospice certifications was sufficient.
The Ninth Circuit also rejected AseraCare. In Winter ex rel. United States v. Gardens Regional Hosp. and Med. Ctr., 2020 WL 1329661 (9th Cir. Mar. 23, 2020), the court held that a physician’s certification necessary for in-patient care can be false, and it need not be alleged to be objectively false. The Court noted that, even absent proof of objective falsehood, a certification of medical necessity can be considered false if the opinion is not honestly held or made without basis in fact.
The first to file rule bars any related actions based on the facts underlying the pending previously filed FCA action. 31 U.S.C. § 3730(b)(5). One question courts have wrangled with is whether the provision presents a jurisdictional bar or is merely a defense to an FCA claim. If jurisdictional, the first to file bar can be raised at any time, even after trial. And at the motion to dismiss stage, extrinsic evidence can be considered. See United States v. Millennium Labs., Inc., 923 F.3d 240, 249 (1st Cir. 2019).
Traditionally, and prior to the Supreme Court opinions discussing whether statutory provisions should be read as jurisdictional, Sebelius v. Auburn Regional Med. Ctr., 568 U.S. 145 (2013); Kellogg Brown & Root Servs. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), courts considered the first to file rule to be jurisdictional. See, e.g., Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1278 (10th Cir. 2004); United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1183 (9th Cir. 2001).
Since those Supreme Court cases, the Fourth Circuit has adhered to this view. The Fourth Circuit has held that the first to file rule is jurisdictional and goes to a court’s subject matter jurisdiction. United States ex rel. Carter v. Halliburton Co., 866 F.3d 199 (4th Cir. 2017).
Other courts, however, have rejected their older line of cases based on these recent Supreme Court decisions, concluding that the first to file bar serves as a defense only. Most recently, the First Circuit, finding no support in the wording of the FCA or its statutory history, joined the D.C. and Second Circuits in concluding that the first to file rule is not jurisdictional. United States ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80 (2d Cir. 2017); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112 (D.C. Cir. 2015). In Millennium Labs., this caused the Court to reverse the district court’s dismissal of a complaint, which was based in part on consideration of extrinsic evidence. Instead, the Court held that what could be considered was governed by Rule 12(b)(6). As such, the Court limited its review to the four corners of the complaints at issue to determine whether the first complaint “contained all of the essential facts of the fraud” alleged in the second complaint. 923 F.3d at 252 (internal quotes omitted).