Supreme Court Signals Interest in Clarifying Pleading Requirements in False Claims Act Suits

The Supreme Court (Court) will soon decide whether to take up a critical (and long-running) issue concerning applicability of Federal Rule of Civil Procedure 9(b) pleading standards in False Claim Act (FCA) suits. To satisfy Rule 9(b)’s particularity requirement for fraud allegations, FCA plaintiffs generally have needed to detail specific false claims submitted by defendants. The question that has divided federal courts for more than a decade is whether a plaintiff instead may plead the submission of false claims more generally without identifying specific claims if they provide sufficient reliable indicia that false claims were submitted—such as the qui tam plaintiff’s personal knowledge of or participation in the alleged fraudulent practices that are the basis of the FCA action. The issue is particularly salient in cases where the government declines intervention and the whistleblower (or relator), who is often a former employee of the defendant, may not have access to the relevant invoices at issue.[1]

This is not a new issue: In 2010 and 2014, the Court invited the Solicitor General to file briefs expressing the government’s views in two cases addressing whether the pleading of specific false claims is absolutely required under Rule 9(b). In both cases, the Solicitor General argued against a per se requirement, noting it would hinder relators’ ability to detect and remediate fraud. In 2010, the government acknowledged the existence of a circuit split on the issue but recommended denying cert on separate grounds. In 2014, the government again recommended denying cert because it contended the circuits were resolving any split on their own, as courts that had applied a per se rule were developing more nuanced approaches. The Court denied cert in both cases.[2]

The Court now is considering three petitions raising the question of whether Rule 9(b) imposes an absolute requirement to plead specific false claims — Johnson, et al. v. Bethany Hospice and Palliative Care LLC from the Eleventh Circuit, United States, et al., ex rel. Cathy Owsley v. Fazzi Associates, Inc., et al. from the Sixth Circuit, and Molina Healthcare of Ill., Inc. v. Prose from the Seventh Circuit. In each case, the petitioner asserts a circuit split on whether Rule 9(b) requires the pleading of specific false claims.

In January, the Court invited the Solicitor General to file a brief in Bethany Hospice, and in May the Court extended another invitation to the Solicitor General in Owsley. Days after the Court issued its invitation in Owsley, the government filed its brief in Bethany Hospice.

The government’s brief in Bethany Hospice continues the trajectory of its 2010 and 2014 submissions, stating the circuits now “have largely converged” on a Rule 9(b) standard that permits either the pleading of specific false claims or the pleading of a fraudulent scheme paired with indicia of reliability to support an inference that false claims actually were submitted. The government identifies six circuits that have adopted essentially the same standard, with other circuits varying only in their emphasis on pleading specific claims or the flexibility permitted with a more general pleading. The government attributes inconsistent results across circuits to the fact-intensive nature of a “reliable indicia” standard. It also suggests that while certain courts previously articulated a per se rule, the rule was not applied consistently, casting doubt on the depth of any actual disagreement.

The government appears to be straining to harmonize the circuit approaches in order to stave off Supreme Court action, likely demonstrating the government’s ambivalence towards relators litigating cases that the government has declined to intervene in.[3] Perhaps the U.S. Department of Justice (DOJ) has concluded that the current ambiguity in interpreting Rule 9(b)’s particularity requirement as applied to alleging specific claims serves its interest in that the government has the option of supporting meritorious declined cases by cooperating with and providing those relators with the invoices at issue (either by obtaining them directly from the agency or from the defendant via a subpoena or Civil Investigative Demand) or denying the same to whistleblower plaintiffs whose cases DOJ has concluded lack merit. As such, DOJ may have determined that the current status quo is acceptable or even favorable for the government’s litigating interest.

Though the government has waved off Supreme Court intervention, the Court is plainly interested and could take this opportunity to tackle a longstanding question. If the Court grants certiorari, its resolution of the case will have a significant impact on FCA relators’ ability to survive a motion to dismiss. A decision—if establishing a per se rule—could also indirectly encourage potential whistleblowers to go to greater lengths to obtain claims data to support their allegations prior to their filing a qui tam complaint. To that end, clients should be mindful of how data is segregated, protected, accessed and tracked in their storage systems and should investigate anomalous requests for documents, information and data (particularly claims data) that are not germane to an individual employee’s job role.

We will continue to monitor and provide updates regarding this issue.

McGuireWoods’ Government Investigations & White Collar Litigation Department is a nationally recognized team of more than 80 attorneys representing Fortune 100 and other companies and individuals in the full range of civil and criminal investigations and enforcement matters, including litigation and action under the False Claims Act. Our False Claims Act team includes former federal prosecutors, and experienced civil and white collar criminal litigators with experience in this unique area of law. We also tap attorneys from the firm’s other practice groups and our subsidiary McGuireWoods Consulting LLC. Strategically centered in Washington, D.C., our Government Investigations & White Collar Litigation Department has been honored as a Law360 Practice Group of the Year and earned the trust of international companies and individuals through our representation in some of the most notable enforcement matters over the past decade. For more information on our False Claims Act practice, download our brochure: False Claims Act Investigations, Litigation and Enforcement.

[1]  Pleading specific false claims is less of an issue for DOJ prosecutors because they can much more easily obtain the relevant invoices at issue from the allegedly defrauded agency, or from the defendant via compulsory process.