U.S. Court of Appeals for the Second Circuit.
U.S. Court of Appeals for the Second Circuit (Credit: ALM)

The False Claims Act, 31 U.S.C. §3729 et seq. (FCA), and its state law analogues, premise liability upon proof that the defendant used false statements in connection with a claim for payment of money by the government. In cases where the government declines to intervene and a qui tam relator proceeds with the lawsuit, Federal Rule of Civil Procedure 9(b)’s requirement that a plaintiff must “state with particularity the circumstances constituting fraud” has tripped up many relators whose complaints failed to allege the details of a false claim for payment that was submitted to the government. Many relators have seen their complaints dismissed under Rule 9(b) as a result.

While the U.S. Courts of Appeals for the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits have adopted what some call a “more lenient” pleading standard that permitted cases to go forward even when the complaint did not allege details of a false claim that was actually submitted, the Second Circuit had not directly addressed that issue until a three-judge panel, in an opinion authored by Circuit Judge Gerard E. Lynch, declared in United States ex rel. Chorches v. American Medical Response, Docket No. 15-3930, 2017 WL 3180616 (2d Cir. July 27, 2017), that Rule 9(b) did not “require every qui tam complaint [to] allege on personal knowledge specific identified false invoices submitted to the government.” 2017 WL 3180616, *10. To be sure, the court did not go so far as to provide qui tam relators with a “license to base claims of fraud on speculation and conclusory allegations,” id. (quotation omitted), but a plaintiff who makes allegations that lead to a strong inference that specific claims were indeed submitted and why the particulars of those claims were peculiarly within the defendant’s knowledge will be able to satisfy the requirements of Rule 9(b). Id. Indeed, the court went on to state that plaintiffs “who can identify examples of actual claims must do so at the pleading stage.” Id. In the opinion, Judge Lynch acknowledged that district courts in the Second Circuit had tended to apply a “stricter” pleading standard that resulted in the dismissal of qui tam complaints under Rule 9(b) for failing to identify specific false claims actually submitted to the government. Id.*15 & n.21.

The circumstances of the underlying case provide guidance for how qui tam relators may satisfy the Rule 9(b) pleading standards in the absence of direct knowledge that false claims were actually submitted to the government. The relators in the case were ambulance drivers who were required to complete electronic Patient Care Reports (PCR) that documented the details of the ambulance transport. Those details determined whether a run was “medically necessary” and thus billable to Medicare or Medicaid. The relators had alleged that they were asked, upon threat of firing and losing their jobs, to revise certain PCRs to add false information about the patients’ medical condition and histories to make it appear that the transport was medically necessary and thus billable to a government health insurance program. Id. * 2-3. The relators alleged specific details about the patients, the date of the ambulance service and the false information that was added and the identity of the management level employees who directed the falsification of records. The relators also alleged that their supervisor told them to revise the PCRs so they could be submitted to Medicare for payment. The relators further alleged that they were not provided access to the physical location where invoices were prepared and had no access via computer or otherwise to the billing processes, so they did not have personal knowledge whether the ambulance company actually submitted false claims to any government agency. The Second Circuit held that the combination of details about the specific PCRs the relators were required to falsify and the details about why they did not have personal knowledge of the claims submission process, plus allegations that between 40 percent and 70 percent of the defendant’s business during the time period in question involved Medicare or Medicaid patients, made it “highly likely that any systematic scheme for documenting fabricated medical necessity for ambulance services will indeed reach the governmental insurers.” Id. *9 & n.10.

In rendering the decision, the court stated that it was being “mindful of the purposes of both Rule 9(b) and the False Claims Act.” Id. *10. According to the court, if a company took steps to ensure that few employees could plead both false statements and presentment of a claim based on such falsehoods, then a strict application of Rule 9(b) “would discourage the filing of meritorious qui tam suits that can expose fraud against the government.” Id. “It is not the purpose of Rule 9(b), as applied to FCA qui tam actions, to render the FCA toothless as to particularly clever fraudulent schemes.” Id. In the particular case at hand, the complaint’s allegations were sufficient to provide the defendant with notice of the relators’ claims and not subject the defendant to “improvident charges of wrongdoing” such as might occur in a securities fraud “strike suit.” Id.

Qui tam relators in False Claims Act cases face difficult odds of success when they proceed with a case after the government declines to intervene. The Second Circuit’s decision in American Medical Response has provided such litigants, and the district courts, with clear guidance about how to plead their cases to avoid dismissal under Rule 9(b) when the relators do not have personal knowledge of actual false claims submitted to the government. In joining with the other circuits that have ruled that relators do not necessarily have to plead details about false claims actually submitted to the government, the Second Circuit has provided encouragement for whistleblowers to file and pursue meritorious cases to expose fraud against the government.