Relaxing rule 9(b): why False Claims Act relators should be held to a flexible pleading standard.

AuthorSmoter, Sara A.

Contents Introduction I. Overview of the False Claims Act & the Pleading Requirement A. The False Claims Act B. The Rule 9(b) Pleading Standard II. Circuit Court Application of the Rule 9(B) Standard A. The Representative Samples Approach B. The Status of the Relator Approach C. The Flexible Approach III. A More Flexible Standard Fulfills the Purpose Behind Rule 9(B) and Provides Fair Access to the Judicial System For Relators A. A Flexible Application of Rule 9(b) Provides Notice to the Defendant and Does Not Unfairly Prejudice Relators B. The Test 1. Prong One: Details of the Overall Scheme 2. Prong Two: Indicia of Reliability 3. The Status of the Relator Approach Should be Rejected C. Courts Have Accepted a More Flexible Application of Rule 9(b) in Other Instances of Alleged Fraud Conclusion Introduction

A nurse believes that her employer, a hospital, is defrauding the government by submitting claims to Medicare and Medicaid for services the hospital never provided. In her complaint, the nurse alleges that the hospital participated in duplicative and unnecessary testing of patients and duplicative billing for blood draws. She also includes factual references to her personal conversations about the hospital's policies with other employees, descriptions and technical codes for medical tests of the type that she alleged were falsely submitted, and the testing histories of two actual patients. However, she cannot provide billing numbers, specific dates, or copies of any bill that was sent to the government, for these false claims. Instead, she has personal, firsthand knowledge of the submission of the false claims--her supervisors informed her of the details of the scheme to induce her to participate in the fraud.

Based on the facts given above, the Eleventh Circuit would likely find her complaint insufficient due to lack of details about the actual false claims submitted, such as dates and amounts. (1) On the other hand, the Fifth Circuit would probably find her complaint sufficient because her personal knowledge of the scheme provides indicia of reliability that the false claims were actually submitted. (2)

An engineer wishes to bring a suit for falsely certifying and shipping parts that did not meet the government's specifications against a company that manufactures equipment for the armed forces. He works for a competitor of this company, so he has no personal knowledge of the fraudulent acts or access to any of the company's invoices or billing information. In his complaint, the engineer alleges which specific parts were shipped and paid for by the government. He also provides information about the contract between the company and the government. He alleges that the company must have submitted at least one false claim or the government would not have paid for the inadequate equipment.

Without details of the actual false claims submitted--such as copies of invoices--the Eleventh Circuit would likely find the engineer's complaint insufficient. (3) The Fifth Circuit may also find his complaint insufficient because, even though he provided details of the overall scheme to submit false claims to the government, he did not provide any other indicia of reliability to support his claims. (4) However, the Seventh Circuit would likely find the complaint sufficient because it provided enough detail of the overall scheme to infer that the false claims were actually submitted. (5)

These hypotheticals illustrate the division among the circuit courts in deciding cases brought under the False Claims Act (FCA). (6) The FCA is aimed at uncovering fraud against the United States Government through suits brought by private citizens called relators. While Federal Rule of Civil Procedure 9(b), (7) which requires a heightened pleading standard in instances of fraud, governs complaints under the FCA, the circuit courts are split in their application of Rule 9(b) to this scenario. The circuits' applications range from rigid to flexible applications of Rule 9(b)'s particularity requirement. Because the Supreme Court has declined to address this issue and because there is no single test that courts can use to decide whether a complaint is sufficient, courts have come to widely disparate decisions. This Note proposes a test under which Rule 9(b) will be satisfied by a complaint filed under the FCA that (1) pleads sufficient detail of a fraudulent scheme and (2) provides reliable indicia of fraudulent claims to conclude that false claims have been filed.

First, this Note will discuss the FCA, contemplating its requirements and purpose. The Rule 9(b) pleading standard will be examined in general and as it applies to the FCA. Second, this Note will examine how the circuit courts have chosen to apply the Rule 9(b) pleading standard to FCA complaints, discussing the courts' holdings within a spectrum of rigid to flexible applications of that rule to highlight the inconsistency surrounding this issue. Third, this Note will suggest that the pleading standard be relaxed in FCA cases to improve access to the judicial system for relators and avoid the informational asymmetry problem.

Fourth, this Note will propose a test for courts to use when evaluating FCA complaints and propose factors that courts should consider when determining if reliable indicia have been provided. Finally, this Note will suggest that the "representative samples" approach and the "status of the relator" approach should be rejected in favor of the flexible approach. Not only will evaluating FCA complaints under this test fulfill the purpose behind the enactment of Rule 9(b), but it will also improve access to the judicial system for relators and allow the FCA to fulfill its remedial purpose. Courts should apply Rule 9(b) flexibly to avoid the unfair burden that a rigid application places on relators. This Note promotes a flexible application of Rule 9(b) in FCA cases and works to clarify the factors courts should consider when applying a flexible application of Rule 9(b) in FCA cases.

  1. Overview of the False Claims Act & the Pleading Requirement

    The FCA is an extremely important tool in uncovering fraud against the United States Government; its goal is to "supplement federal law enforcement resources by encouraging private citizens to uncover fraud on the government." (8) Because the FCA is a federal statute, a complaint filed pursuant to the FCA is analyzed for sufficiency under Federal Rule of Civil Procedure 9(b). (9)

    1. The False Claims Act

      The FCA aims to "protect[] the federal fisc by imposing severe penalties on those whose false or fraudulent claims cause the government to pay money." (10) Congress passed the FCA in 1863 to crack down on fraud perpetrated by Union Army suppliers in government defense contracts during the Civil War. (11) The FCA encourages private citizens, called relators, to file qui tarn (12) cases reporting attempts to defraud the government. (13) The increase in qui tam cases filed in the last two decades is dramatic. For example, in 1987 only 30 qui tam cases were filed, but in 2013, 753 qui tam cases were filed, resulting in recoveries of over $3 billion. (14) One of the principal uses of the FCA is to battle fraud in the health-care field, covering false claims submitted to Medicare and Medicaid by health-care providers. (15) A relator who successfully submits a claim of fraud will receive between fifteen and twenty-five percent of the proceeds of the action or settlement. (16) Recovery under the FCA can be substantial; for example, "[t]he healthcare industry alone accounted for over $9.5 billion in recoveries by the U.S. Department of Justice" from 2009 to 2012. (17)

      Generally, the FCA "indicate[s] a purpose to reach any person who knowingly assisted in causing the government to pay claims which were grounded in fraud, without regard to whether that person had direct contractual relations with the government." (18) The FCA holds liable any person who (1) knowingly submits false claims to the government; (2) causes another to submit false claims; (3) conspires to violate the FCA; or (4) knowingly makes or uses a false record to get a false claim paid by the Government. (19)

      Consequently, "[t]he statute attaches liability, not to the underlying fraudulent activity or to the government's wrongful payment, but to the 'claim for payment.' Therefore, a central question in False Claims Act cases is whether the defendant ever presented a 'false or fraudulent claim' to the government." (20) Liability is not triggered simply by submitting a false claim; the potentially liable party must have knowledge that they are submitting a false claim. (21) The FCA defines knowledge as "actual knowledge," "deliberate ignorance of the truth or falsity of the information," or "reckless disregard of the truth or falsity of the information;" however, proof of specific intent to defraud is not required. (22) A person found liable for this conduct must pay a civil penalty between $5,000 and $10,000 plus three times the amount of the government's damages. (23) In order to successfully bring a qui tarn action, a relator must meet the pleading requirements of Federal Rule of Civil Procedure 9(b).

    2. The Rule 9(b) Pleading Standard

      Rule 9(b) of the Federal Rules of Civil Procedure requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." (24) The Rule 9(b) requirement must be read in conjunction with Rule 8(a), which requires a short and plain statement of the claim. (25) Therefore, merely focusing on the fact that Rule 9(b) requires particularity fails to take into account "the general simplicity and flexibility" contemplated by Rule 8(a). (26) When read in conjunction with Rule 8(a), it becomes clear that Rule 9(b) does not require absolute particularity. (27) Many courts require a...

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