* Over the summer, the United States Court of Appeals for the Seventh Circuit--in United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834--unanimously affirmed a trial court's decision to dismiss a False Claims Act complaint regarding alleged Trade Agreements Act non-compliances because the relator failed to plead fraud with "particularity" under Rule 9(b). In doing so, the Seventh Circuit provided additional guidance about various topics, including the Rule 9(b) standard for implied certifications and the power of the materiality defense.
In Berkowitz, the relator claimed that the defendants sold non-Trade Agreements Act-compliant end products through the GSA Advantage website, and that the defendants impliedly certified compliance upon submitting invoices to the government. The relator formulated his allegations "by comparing the sales other vendors made on the GSA Advantage online portal with certain product lists he obtained through the normal course of his business that identify the country of origin for various products."
The Seventh Circuit explained that to plead fraud with "particularity" under Rule 9(b), the relator "must describe the 'who, what, when, where and how' of the fraud."
Importantly, the Seventh Circuit also cited the U.S. Supreme Court's landmark decision in Universal Health Servs., Inc. v. United States ex rel. Escobar for the proposition that any "concerns about fair notice and open-ended liability in [False Claims Act] cases based on an implied false certification theory should be 'effectively addressed through strict enforcement of the Act's materiality and scienter requirements.'"
The Seventh Circuit thus recognized the critical and enhanced role that Rule 9(b) plays in safeguarding defendants from generalized and flimsy claims based on a theory of implied certification. This view is consistent with the lower court's observation that "satisfying Rule 9(b) often will be tougher to do in implied certification cases than in cases with an outright affirmative misrepresentation... [because] usually it will be easier to set forth the specific details of a fraud scheme that is premised on affirmative lies than it is to sufficiently allege the specifics of a scheme based on material omissions"
The relator generally alleged that the defendants sold non-compliant end products to the government based on a review of sales reports and product information, and alleged False Claims Act liability based on a theory...