Loosen Up: Breaking Free from Strict "with Particularity" Requirements When Pleading Fraud for Qui Tam Actions Brought Under the Fca

• Publication year: 2022

49 Creighton L. Rev. 415. LOOSEN UP: BREAKING FREE FROM STRICT "WITH PARTICULARITY" REQUIREMENTS WHEN PLEADING FRAUD FOR QUI TAM ACTIONS BROUGHT UNDER THE FCA

LOOSEN UP: BREAKING FREE FROM STRICT "WITH PARTICULARITY" REQUIREMENTS WHEN PLEADING FRAUD FOR QUI TAM ACTIONS BROUGHT UNDER THE FCA

Morgan Gray

I. INTRODUCTION

During the Civil War era, Congress passed the False Claims Act ("FCA")(fn1) in response to the growing concern of government contractors submitting fraudulent account statements and shipping defective orders to the government.(fn2) To protect the United States government, the FCA prevents and diminishes fraudulent behavior by government-funded defendants by imposing restitutionary penalties.(fn3) Known as a qui tam action, the FCA allows private persons, referred to as relators, to bring a claim for a penalty of which the federal government is entitled to receive a share.(fn4) A relator benefits from bringing a qui tam action because the FCA entitles the relator to receive up to thirty percent of the penalty the government recovers.(fn5) In order to establish a qui tam action under the FCA, a relator must show that the defendant knowingly presented a false or fraudulent claim for payment to a United States agent.(fn6)

In accordance with the Federal Rule of Civil Procedure 9(b) ("Rule 9(b)"),(fn7) there is a heightened pleading requirement for fraud in that such a claim must be plead with particularity.(fn8) The purposes of Rule 9(b) are to provide the defendant proper notice of the alleged misconduct, to prevent frivolous suits by plaintiffs, to eliminate undeveloped fraud suits, and to protect the reputation of a defendant.(fn9) Rule 9(b) supplements the standard pleading rule, Federal Rule of Civil Procedure 8(a) ("Rule 8(a)"),(fn10) which requires a concise statement of the claim with a demand for relief.(fn11) According to the Supreme Court of the United States, a Rule 8(a) pleading requires enough facts to raise the right to relief from a speculative level to a plausible level.(fn12)

The Federal Rules of Civil Procedure were adopted to minimize the common law pleading requirements.(fn13) However, when alleging fraud or mistake under Rule 9(b), a party must present with particularity the circumstances amounting to such fraud or mistake.(fn14) The circuit courts agree that qui tam actions pleading fraud under the FCA must meet the particularity requirement of Rule 9(b), but the circuits are split on what the particularity requirement entails.(fn15) In qui tam actions, the United States Courts of Appeals for the Fourth, Sixth, Eighth, and Eleventh Circuits require the relator to plead particular details of the actors, the alleged fraudulent conduct, and when and where the alleged conduct took place.(fn16) Comparatively, the United States Courts of Appeals for the First, Fifth, and Ninth Circuits developed a more nuanced approach to Rule 9(b), requiring reliable facts as evidence to support an inference of a fraudulent scheme.(fn17)

In Foglia v. Renal Ventures Management, LLC,(fn18) the United States Court of Appeals for the Third Circuit adopted the reasoning of the First, Fifth, and Ninth Circuits, requiring the relator to plead facts as evidence of a scheme of fraudulent behavior.(fn19) In Foglia, the relator, Thomas Foglia, brought a qui tam action in the United States District Court for the District of New Jersey, claiming his employer, Renal Ventures Management, LLC ("Renal"), violated the FCA.(fn20) The complaint alleged that Renal falsely certified that the company complied with New Jersey's regulations concerning quality of care, falsely submitted claims for reimbursement for a drug, and reused single-use vials of medicine.(fn21) Specifically, Foglia's complaint alleged that Renal inflated the price of Zemplar, a prescription drug used to treat chronic kidney disease, when reporting costs to the Centers for Medicare and Medicaid Services.(fn22) The district court granted Renal's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"),(fn23) reasoning that Foglia failed to state a claim with the requisite heightened level of particularity under Rule 9(b) for claims alleging fraud.(fn24) Foglia appealed to the Third Circuit, which reversed the district court's holding and concurred with the First, Fifth, and Ninth Circuits that Foglia's claim of a scheme of fraud was sufficient to meet the standard of Rule 9(b).(fn25)

This Note will first review the facts and holding of Foglia.(fn26) This Note will then discuss the facts and holdings of the cases leading to the Foglia decision.(fn27) Finally, this Note will argue that the Third Circuit's decision in Foglia correctly applied the more nuanced pleading requirement for qui tam claims brought under the FCA.(fn28)

II. FACTS AND HOLDING

In Foglia v. Renal Ventures Management, LLC,(fn29) the relator, Thomas Foglia, brought a qui tam claim in the United States District Court for the District of New Jersey alleging violations of the False Claims Act ("FCA") by his employer, Renal Ventures Management, LLC ("Renal").(fn30) A qui tam claim under the FCA allows a private party or individual to sue in the name of the United States for injuries to the federal government.(fn31) The FCA imposes liability on any person who knowingly submits a fraudulent claim or record to the United States government for compensation.(fn32)

Foglia worked as a registered nurse with Renal, a company which provides dialysis care.(fn33) Foglia began his employment in March 2007, and Renal terminated Foglia in November 2008, allegedly in retaliation to Foglia's complaints regarding Renal's conduct.(fn34) In 2009, on behalf of the United States, Foglia submitted a complaint alleging that Renal violated the FCA.(fn35) The complaint alleged that Renal falsely certified that the company complied with New Jersey's regulations concerning quality of care and reused single-use vials of medicine.(fn36) Foglia's complaint additionally alleged that Renal submitted inflated reimbursements to the Center for Medicare and Medi-caid Services for Zemplar, a prescription drug used to treat chronic kidney disease.(fn37) Although Zemplar came in three different sizes, Renal only used the five-microgram vials of the drug, which were designed to be single-use vials.(fn38) Regardless of how much was actually used, Medicare was charged for the full content of the bottle.(fn39) Foglia asserted that Renal reported to Medicare that the company properly used Zemplar in its single-use fashion when Renal was actually using the unused portions of the vials on other patients.(fn40)

Despite Foglia's assertions, the United States elected not to intervene in Foglia's 2009 complaint.(fn41) The district court granted Renal's motion to dismiss Foglia's second amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"). The court reasoned Foglia's complaint did not comply with the requisite heightened level of particularity under Federal Rule of Civil Procedure 9(b) ("Rule 9(b)") for claims alleging fraud.(fn42)

On appeal, the United States Court of Appeals for the Third Circuit reversed the district court's holding, reasoning that a plaintiff can properly allege fraud if he pleads details of a defendant's scheme to report false claims in conjunction with reliable indicia presenting a strong inference that the defendant actually submitted the claims.(fn43) The Third Circuit indicated that the holdings of the United States Courts of Appeals for Fourth, Sixth, Eighth, and Eleventh Circuits were too rigid and violated Rule 9(b) in requiring a plaintiff to plead representative examples of the purported fraudulent acts, including the time, location, and content of the conduct and the identity of the actors.(fn44)

Following its determination of the requirements for Rule 9(b), the Third Circuit next considered whether Foglia satisfied these require-ments.(fn45) Reversing the district court's decision, the Third Circuit determined that Foglia's complaint gave Renal proper notice of the alleged charges as required by Rule 9(b).(fn46) Noting that it would be inadequate to allege merely an opportunity for fraud to form a plausible ground for relief, Foglia's complaint was sufficient because he asserted several specific facts and allegations of Renal's behavior.(fn47) In determining that Foglia's complaint sufficiently gave Renal notice, the Third Circuit relied on Foglia's presentation of Renal's inventory logs, which indicated that Renal was not using enough vials of Zemplar per day in relation to how many patients were administered the drug.(fn48) Although there was a possibility that Renal was using the vials properly, it was plausible the company was falsely reporting the use of the drug, and accordingly, the complaint gave Renal proper notice of Fo-glia's charges.(fn49) The circuit court also allowed Foglia's complaint to proceed, noting that only Renal had access to the full billing records, which alone could prove or disprove Foglia's claim.(fn50)

III. BACKGROUND

A. United States ex rel. Joshi v. St. Luke's Hospital,Incorporated: The Eighth Circuit Demanded a Heightened Requirement for Fraud Claims

In United States ex rel. Joshi v. St. Luke's Hospital, Inc.,(fn51) Dr. Keshav Joshi, an anesthesiologist at St. Luke's Hospital, brought a qui tam action pursuant to the False Claims Act ("FCA") against St. Luke's Hospital and Dr. Mohammed...