Conflicting Requirements of Notice: The Incorporation of Rule 9(B) Into the False Claims Act's First-to-File Bar

• Author: Howe, Brian D

Introduction

The False Claims Act ("FCA")'s origins trace back to the Civil War in 1863.1 With the rebel forces swiftly moving toward Washington, D.C., Union armies faced dwindling supplies of muskets, horses, and mules due to government contractor profiteering.2 Recognizing the lack of government resources and the potential for private citizens to combat defenseprocurement fraud, President Lincoln signed the FCA into law.3 The FCA was intended to encourage private individuals to alert the government to fraud.4 To effectuate this goal, the Act contains a qui tam provision, which allows private citizens-also known as relators-to bring suits on behalf of the government and receive a portion of the damages.5

Throughout the FCA's history, Congress has sought a delicate balance between two competing policy objectives: encouraging whistleblowers to come forward and alert the government to fraudulent activity and simultaneously discouraging opportunistic plaintiffs from initiating parasitic lawsuits. 6 These dual policy goals have come to the forefront in the circuit split regarding the incorporation of Federal Rule of Civil Procedure 9(b) ("Rule 9(b)")'s heightened pleading standard7 into the FCA's first-to-file provision, which prohibits anyone other than the government from intervening or bringing "a related action based on the facts underlying the pending action." 8 In opposition to the Sixth Circuit,9 the First Circuit recently joined the D.C. Circuit in holding that an earlier-filed FCA complaint need not satisfy Rule 9(b)'s particularity requirement to provide the government with sufficient notice of the alleged fraud and to preclude a later-filed complaint.10

Commentators in favor of eliminating Rule 9(b) from the first-to-file bar argue that this approach better comports with the FCA's twin policy goals of encouraging parties promptly to report fraud and deterring parasitic relators,* 11 and further that it provides a clear, exception-free application of 31 U.S.C. § 3730(b)(5) for courts to follow.12 By contrast, those commentators in favor of grafting Rule 9(b) onto the first-to-file bar claim that including Rule 9(b)'s particularity requirement will better serve to "minimize social loss from false claims" and more effectively use relators as government resources.13 These broad policy arguments, however, fail adequately to address Rule 9(b)'s practical utility in providing notice to the government at the first-to-file stage.

Critically, neither the circuit court decisions nor the relevant scholarship on this issue has provided a comprehensive explanation as to why the government's notice requirements should differ-if indeed they should differ at all-from defendants' notice requirements for purposes of the first-to-file bar. If the government needs the same heightened notice as common law fraud defendants, Rule 9(b) should be incorporated into the first-to-file bar, and complaints that are deficient under Rule 9(b) will not preclude laterfiled complaints. But if the government does not need such particularized notice, Rule 9(b) should not apply to the first-to-file bar, and complaints that are deficient under Rule 9(b) will accordingly preclude later-filed complaints. This Note resolves the conflict underlying the circuit split by identifying and justifying the difference in FCA notice requirements for the government at the first-to-file stage and for defendants at the pleading stage.

This Note argues that, when interpreting the FCA's first-to-file bar, courts should follow the approach adopted by the First and D.C. Circuits in affording preclusive effect to first-filed complaints even if they are deficient under Rule 9(b). Unlike garden-variety civil defendants in an adversarial context, the government pursues a partnership with the plaintiff and therefore does not require heightened notice in the complaint to shield its reputation or to prepare a defense strategy. Part I addresses the congressional intent behind 31 U.S.C. § 3730(b)(5) and analyzes the current circuit split regarding the incorporation of Rule 9(b) into the FCA's first-to-file rule. Part II contrasts the underlying purposes of 31 U.S.C. § 3730(b)(5) and Rule 9(b) and maintains that Rule 9(b)'s heightened pleading standard, which primarily protects the defendant, should not apply to the first-to-file bar. Part III argues that, because the government has sufficient investigatory resources beyond the four corners of the complaint to assess adequately the merits of the relator's allegations, complaints need not satisfy Rule 9(b) to provide the government with notice sufficient to launch an investigation into the defendant's alleged conduct.

1. Congressional Intent Behind 31 U.S.C. § 3730(b)(5) and the Current Circuit Split Regarding the Incorporation of Rule 9(b)

   This Part provides an overview of qui tam procedure, the first-to-file bar, and the conflicting circuit court decisions regarding the inclusion of Rule 9(b) in 31 U.S.C. § 3730(b)(5). Section I.A discusses the procedure followed by relators bringing suit under the FCA and the dual policy interests underlying the qui tam provision. Section I.B details the Sixth Circuit's approach of incorporating Rule 9(b) into the first-to-file bar and accordingly rendering first-filed complaints "legally infirm"14 if they are deficient under Rule 9(b). Finally, Section I.C examines the more recent approach adopted by the First and D.C. Circuits, which have declined to create an exception to the first-to-file rule by including Rule 9(b) therein and in turn have afforded preclusive effect to first-filed complaints that fail to pass Rule 9(b)'s scrutiny.15

   1. Competing Policy Interests in the Qui Tam Provision

      When a relator brings suit under the FCA, his complaint remains under seal for at least sixty days, during which time the government decides whether to intervene in the action before it is served on the defendant.16 If the government elects to intervene, it bears the primary burden of prosecuting the case, although the relator still has the opportunity to continue as a party in the action.17 Further, the relator has the potential to receive up to 25% of any monetary damages or settlement of the claim, depending on the extent of his participation in the case.18 If the government declines to intervene, however, the plaintiff can still prosecute the action himself19 and receive up to 30% of the proceeds.20

      The qui tam provision balances the dual policy goals of encouraging whistleblowers to provide notice of fraudulent activity to the government and deterring parasitic plaintiffs who have no original information to provide. 21 Indeed, the FCA seeks to achieve "the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own."22 This approach is particularly reflected in the FCA's first-to-file rule, which prohibits anyone other than the government from intervening or bringing "a related action based on the facts underlying the pending action."23 Congress implemented the first- tofile provision as part of the 1986 Amendments Act, which significantly overhauled the FCA.24 Although Congress intended the amendments to facilitate and encourage additional relators to bring suit under the FCA in light of increasing fraud against the government,25 the Senate Committee on the Judiciary clarified that the first-to-file rule was drafted to prevent "class actions" and "multiple separate suits based on identical facts and circumstances."26

      Accordingly, the first-to-file rule tasks federal courts with weeding out parasitic complaints in which "would-be relators merely feed off a previous disclosure of fraud."27 Although courts initially contested "whether facts needed to be identical or material,"28 a growing dispute has arisen regarding the incorporation of Rule 9(b)'s particularity requirement into the first- tofile rule.29 Rejecting the Sixth Circuit's approach, the First Circuit recently joined the D.C. Circuit in holding that an earlier-filed FCA complaint "need not meet the heightened pleading standard of Rule 9(b) to provide sufficient notice to the government of the alleged fraud and bar a later-filed complaint." 30 The First Circuit thereby substantially limited the possibility of additional qui tam actions based on similar facts.

   2. The Sixth Circuit's "Legally Infirm" Approach

      In Walburn v. Lockheed Martin Corp., the relator, a former security officer at a government-owned power plant, alleged that Lockheed Martin falsified dosage readings obtained from dosimeters worn by employees to maintain its accreditation with the Department of Energy and continue receiving funding pursuant to its contract with the federal government.31 Determining that Walburn's allegations were "encompassed" by the allegations in an earlier-filed action by Kenneth Brooks,32 the district court dismissed his complaint for lack of subject matter jurisdiction under 31 U.S.C. § 3730(b)(5).33 The Sixth Circuit, however, ruled that "the Brooks complaint's failure to comply with Rule 9(b) rendered it legally infirm from its inception" and therefore incapable of precluding Walburn's action under the first-to-file provision.34

      Unconvinced by the defendant's argument that such a holding would carve out an exception from the "exception-free" first-to-file bar, the court responded that the Brooks complaint was insufficient to put both the government and the defendant on notice of the underlying fraud.35 Declining to draw any distinction between the notice requirements...