Tag: Circuit Split

The Supreme Court Is Poised to Weigh in on a False Claims Act Circuit Split

Three pending petitions for writ of certiorari have asked the U.S. Supreme Court to resolve a split among the federal courts of appeals as to the pleading standard for False Claims Act (“FCA”) whistleblower claims.

The FCA creates a right of action whereby either the government or private individuals can bring lawsuits against actors who have defrauded the government. 31 U.S.C. §§ 3729 et seq. Under the FCA, a private citizen can act as a “relator” and bring an action on behalf of the government in what is known as a qui tam suit. The government can elect to intervene, which means participate, in the suit; if it does not, the relator can continue to litigate the case without the direct participation of the government. 31 U.S.C. § 3730. Private individuals can receive a portion of the action’s proceeds or settlement amount. 31 U.S.C. § 3730(d).

The petitions ask the Court to clarify the level of particularity required under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) to plead a claim under the FCA. Rule 9(b) requires plaintiffs alleging “fraud or mistake” to “state with particularity the circumstances constituting fraud or mistake.”

Johnson v. Bethany Hospice and Palliative Care LLC, Case No. 21-462

In their petition for a writ of certiorari, the petitioners in Johnson asked the Supreme Court to take up the issue of whether Rule 9(b) requires FCA plaintiffs “who plead a fraudulent scheme with particularity to also plead specific details of false claims.” The Eleventh Circuit earlier affirmed the district court’s dismissal of an FCA claim based on the plaintiffs’ failure to plead “specific details about the submission of an actual false claim” to the government. Estate of Helmly v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC, 853 F. App’x 496, 502-03 (11th Cir. 2021).

In particular, the relators alleged that several doctors purchased ownership interests in Bethany Hospice and Palliative Care, LLC (“Bethany Hospice”) and were allocated kickbacks for patient referrals through a combination of salary, dividends, and/or bonus payments.  Id. at 498. Among other allegations, the complaint alleged that both the relators had access to Bethany Hospice’s billing systems, and, based on their review of those systems and conversations with other employees, were able to confirm that Bethany Hospital submitted false claims for Medicare and Medicaid reimbursement to the government.  Id. at 502.

The Eleventh Circuit held that the allegations were “insufficient” under Rule 9(b)’s heightened pleading standard for fraud cases.  Id. Even though the relators alleged direct knowledge of Bethany Hospice’s billing and patient records, their failure to provide “specific details” regarding the dates of the claims, the frequency with which Bethany Hospice submitted those claims, the amounts of the claims, or the patients whose treatment formed the basis of the claims defeated their FCA claim.  Id. In addition, the relators did not personally participate or directly witness the submission of any false claims.  Id. The Eleventh Circuit also found unpersuasive the relators’ argument that Bethany Hospice derived nearly all its business from Medicare patients, therefore making it plausible that it had submitted false claims to the government.  Id. “Whether a defendant bills the government for some or most of its services,” the Eleventh Circuit stated, “the burden remains on a relator alleging the submission of a false claim to allege specific details about false claims to establish the indicia of reliability necessary under Rule 9(b).”  Id. (internal quotation marks omitted). Because the relators did not do so here, the Eleventh Circuit affirmed the dismissal of the case.

United States ex rel. Owsley v. Fazzi Associates, Inc., Case No. 21-936

The Sixth Circuit took a similarly hardline approach in United States ex rel. Owsley v. Fazzi Associates, Inc., 16 F.4th 192 (6th Cir. 2021), ruling in favor of a strict interpretation of Rule 9(b).  The petition for a writ of certiorari in Owsley asks the Court to take up the same question as in Johnson.

In Owsley, the relator alleged that her employer used fraudulently altered data to make its patient populations seem sicker than they actually were in order to increase Medicare payments received from the government.  Id. at 195. The complaint “describe[d] in detail, a fraudulent scheme,” and alleged “personal knowledge of the billing practices employed in the fraudulent scheme.”  Id. at 196 (internal quotation marks omitted). But the Sixth Circuit ruled that these allegations were not enough under Rule 9(b). Instead, to bring a viable FCA claim, a relator’s complaint must identify “at least one false claim with specificity.”  Id. (internal quotation marks omitted). A relator can do that in one of two ways: first, by identifying a representative claim actually submitted to the government; or second, by alleging facts “based on personal knowledge of billing practices” that support a strong inference that the defendant submitted “particular identified claims” to the government.  Id. (emphasis in original). Here, though the relator alleged specific instances of fraudulent data – such as upcoding a patient with a leg ulcer to include a malignant cancer diagnosis – she did not identify particular claims submitted to the government.  Id. at 197. “[T]he touchstone is whether the complaint provides the defendant with notice of a specific representative claim that the plaintiff thinks was fraudulent.”  Id. The Owsley relator, the court held, failed to meet that critical touchstone.

Molina Healthcare v. Prose, Case No. 21-1145

The Seventh Circuit adopted a more flexible pleading standard in United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021). As in Johnson and Owsley, the petition for a writ of certiorari asks the Court to weigh in on the Rule 9(b) standard under the FCA. It also presents an additional question about the requirements for an FCA claim under the implied false certification theory.

In Molina Healthcare, the relator brought an FCA claim against Molina Healthcare (“Molina”) for violating certain requirements of its Medicaid contract. The relator alleged that Molina, which had previously subcontracted with another entity for the provision of certain nursing home services, continued to collect payment for those services from the government even though it no longer provided them. Molina Healthcare, 17 F.4th at 736. Molina Healthcare received fixed payments from the government for different categories of patients. It received the highest per capita payment for patients in nursing facilities: $3,180.30.  Id. at 737-38. The relator alleged that Molina Healthcare knowingly continued to collect this rate from the government when it no longer provided a key service to nursing home patients.  Id.

The relator brought an FCA claim against Molina based on three theories of liability: (1) factual falsity (i.e., presenting a facially false claim to the government); (2) fraud in the inducement (i.e., misrepresenting compliance with a payment condition “in order to induce the government to enter the contract”); and (3) implied false certification (i.e., presenting a false claim with the “omission of key facts” instead of “affirmative misrepresentations”).  Id. at 740-741.

The Seventh Circuit held that the relator’s allegations satisfied Rule 9(b)’s pleading requirement under all three theories. First, as to factual falsity, the Court found that the relator provided sufficient information as to the “when, where, how, and to whom” Molina made the allegedly false representations.  Id. at 741. Though the relator did not have access to the defendant’s files, the information he provided “support[ed] the inference” that Molina had submitted false claims to the government.  Id. Second, as to fraud in the inducement, the Seventh Circuit found that the relator’s “precise allegations” regarding “the beneficiaries, the time period, the mechanism for fraud, and the financial consequences” again satisfied Rule 9(b)’s standard.  Id. at 741. The complaint also included details about Molina’s chief operating officer’s statements that indicated that Molina “never intended to perform the promised act that induced the government to enter the contract.”  Id. at 741-42.  Third, as to the implied false certification theory, the court found that the plaintiff adequately alleged that Molina knowingly omitted key material facts while submitting claims to the government.  Id. at 743-44.

The Supreme Court Invites Comment from the Solicitor General

Facing what appears to be a major circuit split, the Supreme Court invited the Solicitor General to file a brief “expressing the views of the United States” in Johnson in January 2022 and in Owsley in May 2022.

The Supreme Court invites the Solicitor General to comment on only a handful of the approximately 7,000 to 8,000 petitions for writ of certiorari that the Court receives in a year. In the 2021 Term, for example, the Solicitor General filed what it calls a “Petition Stage Amicus Brief” in only 19 cases. Four Justices must vote to issue an invitation to the Solicitor General.

The Solicitor General’s view on whether the Court should grant certiorari has often been extremely influential. In the 2007 Term, for example, the Court denied certiorari in every case in which the Solicitor General recommended that approach. By contrast, it granted certiorari in 11 out of the 12 cases in which the Solicitor General recommended a grant. More recent data confirm that the Solicitor General’s recommendations as to whether the Court should grant certiorari remain highly influential. One study found that between May 2016 and May 2017, the Supreme Court followed the Solicitor General’s recommended approach in 23 cases (85%). At the same time, even the act of requesting the views of the Solicitor General dramatically increases the chances that the Court will take up a case. For example, between the 1998 Term and 2004 Term, one study found that the Court was 37 times more likely to grant certiorari in cases where it had invited the Solicitor General to file an amicus brief.

The Solicitor General Urges the Court to Decline Review

On May 24, 2022, the Solicitor General filed its brief in Johnson; it has yet to comment on Owsley. The Solicitor General’s amicus brief in Johnson urges the Court to deny certiorari. The Solicitor General notes that certiorari might be warranted if the courts of appeals applied a rigid, per se rule that required relators to plead “specific details of false claims.” But instead, the brief argues that the courts of appeals have “largely converged” on an approach to FCA pleading requirements that allows relators “either to identify specific false claims or to plead other sufficiently reliable indicia” to support a “strong inference” that the defendant submitted false claims to the government. According to the Solicitor General, the “divergent outcomes” among the circuit courts are merely the result of those courts’ application of a “fact-intensive standard” to various distinct allegations.

The petitioners in Johnson filed a supplemental brief in response to the Solicitor General’s views. They argue that the Solicitor General misinterpreted the Eleventh Circuit’s pleading standard, which effectively requires a relator to allege specific details about false claims to survive a motion to dismiss. In other words, the petitioners argue that in the Eleventh Circuit, the Solicitor General’s “purported” rule that a relator can either allege details about specific false claims or identify reliable indica that false claims were presented are “one and the same.”

Though the Court did not invite the Solicitor General to comment in Molina Healthcare, the petitioners in that case also filed a supplemental brief in response to the Solicitor General’s amicus in Johnson. “Everyone but the Solicitor General agrees that the circuits are hopelessly divided over whether Rule 9(b) requires a relator to plead details of false claims,” the brief argues. The brief notes that the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits do not require plaintiffs to plead specific details of actual false claims; by contrast, the First, Second, Fourth, Sixth, Eighth, and Eleventh Circuits require relators to plead specific details. Accordingly, the brief urges the Supreme Court to resolve the “widely acknowledged circuit split” over Rule 9(b)’s pleading standards.

The Solicitor General has a history of urging the Court to reject certiorari in FCA cases. According to the petitioners’ supplemental brief in Molina Healthcare, since the 1996 Term, the Solicitor General has recommended against review in eleven out of the twelve FCA cases in which the Court invited the Solicitor General’s views. Still, the Court granted certiorari in three of the cases in which the Solicitor General recommended against review.

Given the Supreme Court’s apparent interest in the FCA pleading standard – as evidenced by its calls for the Solicitor General’s views in Johnson and Owsley – there is a chance that it will grant certiorari in at least one of the three cases pending before it. Depending on when the Solicitor General weighs in, the Court may decide to grant certiorari in the fall of 2022.

Any Supreme Court decision that clarifies the pleading standard for FCA cases will likely affect a relator’s ability to successfully litigate qui tam actions in which the government does not intervene more than in cases in which the government does intervene. When a relator files a qui tam action, the government investigates the alleged fraud. If it intervenes in that action, it can file a complaint to include evidence it has discovered in that investigation, allowing it to meet the more stringent version of the Rule 9(b) pleading standard. Relators, however, often do not have access to the same evidence that the government does, such as specific claims data, making it far harder for a relator to meet the more stringent version of pleading standard.

Until the Supreme Court decides to weigh in, qui tam relators will continue to have an easier time satisfying the requirements of Rule 9(b) in those circuits with relaxed pleading standards. In the meantime, and whether the Court takes one of these petitions or not, any FCA whistleblower should seek legal counsel to help her identify the type of factual information that would meet the pleading requirements of the courts that apply a strict pleading requirement.

Article By Kayla Morin of Katz Banks Kumin LLP

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Supreme Court Declines to Resolve Circuit Split on Exercise of Personal Jurisdiction in FLSA Collective Actions

On June 6, 2022, the Supreme Court of the United States declined to hear petitions seeking review of whether federal courts may exercise personal jurisdiction over claims of nonresident plaintiffs who join Fair Labor Standards Act (FLSA) collective actions when their claims are not connected to the defendant’s activities in the forum state. The petitions sought review of rulings on the issue by the First and Sixth Circuit Courts of Appeals in Waters v. Day & Zimmermann NPS, Inc. and Canaday v. The Anthem Companies, Inc., respectively. As a result of the Supreme Court’s decision declining to hear the petitions, there remains a circuit split as to whether the Court’s 2017 ruling in Bristol-Myers Squibb Co. v. Superior Court applies to FLSA collective actions, and employers with nationwide footprints remain subject to uncertainty depending on jurisdiction.

To date, only the First, Sixth, and Eighth Circuits have ruled on the issue. On August 17, 2021, the Sixth Circuit was the first to address the issue in Canaday. There, the Court held that federal courts may not exercise personal jurisdiction over claims of nonresident plaintiffs who join FLSA collective actions when their claims are not connected to the defendant’s activities in the forum state. Just one day later, on August 18, 2021, the Eighth Circuit came to the same conclusion in Vallone v. CJS Solutions Group, LLC.

On January 13, 2022, in Waters, the First Circuit held to the contrary, concluding that federal courts do have personal jurisdiction over claims asserted by nonresident opt-in plaintiffs.

The Significance of Bristol-Myers

The Supreme Court’s decision in Bristol-Myers provides the basis for the current circuit split. Bristol-Myers involved a mass tort action under state law for alleged defects in a blood-thinning drug, Plavix, which the company manufactured. Residents and nonresidents of California sued Bristol-Myers in California state court, alleging injuries related to the drug. The nonresident plaintiffs claimed no relationship with the forum state, nor did they purchase Plavix in California or suffer any harm from it in California. The Supreme Court reasoned that any similarity between the resident and nonresident plaintiffs’ claims was an “insufficient basis” to exercise specific jurisdiction. Unless nonresident plaintiffs could demonstrate that their claims arose out of the defendant’s contacts with the forum state, personal jurisdiction over the company did not exist, no matter “the extent of a defendant’s unconnected activities in the State.”

In ruling that the California state court lacked jurisdiction over the claims of the nonresident plaintiffs, the Supreme Court acknowledged that its holding might ultimately generate more litigation in the form of separate actions by nonresident plaintiffs in their respective states. But the Supreme Court also noted that all plaintiffs to the action could have brought a mass tort action against Bristol-Myers in New York (the company’s headquarters) or Delaware (its place of incorporation) because courts in those states would have had general personal jurisdiction over the company. Instead, the California state court could exercise only specific personal jurisdiction over the company based on its activities in the state. Notably, Bristol-Myers was limited to Rule 23 class actions, leaving lower courts to determine whether its holding applied to FLSA collective actions, which differ procedurally.

The Circuit Split

In Canaday, the Sixth Circuit reiterated the basic tenet that, pursuant to the Due Process Clause of the Fourteenth Amendment, the question of whether a court has personal jurisdiction over a defendant depends on the defendant’s contacts with the state in which the plaintiff filed the lawsuit. Because Anthem is both incorporated and headquartered in Indiana and not otherwise “at home” in the state of Tennessee, the district court in Tennessee lacked general jurisdiction over Anthem as a defendant. At issue was whether the district court in Tennessee had specific personal jurisdiction over Anthem, and thus, whether there was a claim-specific and Anthem-specific relationship between the nonresidents’ FLSA claims and the state of Tennessee.

Applying Bristol-Myers, the Sixth Circuit held that there was not. The court found that the nonresident plaintiffs did not bring claims arising out of or relating to Anthem’s conduct in Tennessee, because Anthem neither employed nor paid the nonresident plaintiffs within the state. The Sixth Circuit went on the explain that adherence to this approach should not change the way FLSA collective actions are filed, because plaintiffs traditionally file their actions where courts have general jurisdiction, or where the conduct occurred. Of note, Sixth Circuit Judge Bernice Donald dissented in Canaday, contending that Bristol-Myers does not apply to FLSA collective actions because the Supreme Court in that case addressed only the limitations of state courts, not federal courts, in their exercise of personal jurisdiction over nonresidents.

In Waters, the First Circuit largely followed the reasoning in Judge Donald’s dissent, concluding that the Supreme Court’s decision in Bristol-Myers Squibb “rest[ed] on Fourteenth Amendment constitutional limits on state courts exercising jurisdiction over state-law claims” and thus did not control whether a federal court could exercise jurisdiction over federal claims asserted by nonresident plaintiffs. The First Circuit also observed that the plain language of Rule 4(k) of the Federal Rules of Civil Procedure merely concerns the service of summonses and does not “constrain[] a federal court’s power to act once a summons has been properly served, and personal jurisdiction has been established.”

Key Takeaways

The Supreme Court’s decision to deny the petitions means that employers with nationwide footprints continue to live with potentially inconsistent rulings on the question of whether a federal district court has jurisdiction to hear claims of out-of-state workers when the defendant is neither headquartered nor incorporated in the state. Canaday and Vallone stand to significantly limit the size and geographic scope of FLSA collective actions in the Sixth and Eighth Circuits, absent a district court’s exercise of general jurisdiction over a corporate defendant, while Waters permits nationwide jurisdiction in the First Circuit. For now, at least, multistate employers face continued uncertainty on the issue until courts of appeals in the remaining circuits weigh in.

Article By Maggie (Hanrahan) Santen, Monica Lacks, and Samuel H. Ottinger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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U.S. Court of Appeals Issues Split WOTUS Ruling

On February 22, a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit (Cincinnati) issued a split 2-1 decision, ruling that it has jurisdiction to proceed with challenges to the Obama administration’s “Waters of the United States” rule, or WOTUS, as opposed to federal district courts. A wide range of government, industry and agriculture interests have filed lawsuits in several district courts across the U.S. challenging the WOTUS rule.

The decision came in the form of three separate opinions, as each judge had a different view of the law on this complex issue. Two judges concluded that the appellate court has jurisdiction over the legal challenges to the WOTUS rule; the third judge concluded that the appellate court lacks jurisdiction over these cases.

It is speculated that the split decision makes it very likely that the state and industry petitioners will seek en banc review of the ruling, meaning that it would go to rehearing before the entire Sixth Circuit for additional review. Challengers will need to petition the court within 45 days to request rehearing.

The decision, which does not answer the legality of the WOTUS rule, but rather which court has authority to review it, means that stay of the WOTUS rule issued last year by the Sixth Circuit will continue in effect until further rulings.

The decision could also be appealed, potentially to the U.S. Supreme Court.

Article By Aaron M. Phelps of Varnum LLP

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