Published Aug. 17, 2021 by Texas Lawyer online.
Under the “qui tam” provisions of the False Claims Act (“FCA”), a private “relator” may bring a suit on behalf of the federal government to recover damages sustained by the government in paying false claims. An example of a false claim might be a physician’s claim for reimbursement under Medicare for services that were not actually performed. Another example might be a general contractor’s submission of a fraudulent pay application in connection with a federal construction project.
A successful relator is entitled to share in the recovery that the relator obtains on behalf of the federal government. And in these types of cases, a defendant’s exposure can be enormous. The FCA authorizes the imposition of civil penalties ranging from $11,000 to $23,000 (give or take) per claim, plus trebled damages and attorneys’ fees. For a defendant who is alleged to have submitted false claims over a multi-year period, these numbers can often exceed seven figures. Not to mention that defending a qui tam lawsuit can be incredibly expensive, requiring extensive discovery, multiple experts, and, sometimes, retrieval of old records in outdated formats.
For these reasons, many lawyers who regularly practice in this area will tell you that the motion-to-dismiss stage is critical. It presents an opportunity to get out of the case or at least narrow the issues in the case before significant discovery gets underway. And because FCA claims are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), the filing of a motion to dismiss is a viable option in many cases.
Should you find yourself defending an FCA qui tam case, perhaps for the first time, here are some things to keep in mind when challenging the complaint.
First, examine whether the complaint adequately pleads that the alleged wrongdoing resulted in the payment of false claims by the federal government. This is important because “the statute attaches liability, not to the underlying fraudulent activity or to the government’s wrongful payment, but to the claim for payment.” United States ex rel. Spicer v. Westbrook, 751 F.3d 354, 364 (5th Cir. 2014). Many qui tam complaints allege a litany of misconduct on the part of the defendants but fail to sufficiently connect that conduct to the payment of federal funds.
The leading case in the Fifth Circuit on this point is United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009). Under Grubbs, a relator’s complaint must allege either “the details of an actually submitted false claim,” or, if it cannot do that, “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. at 190. Examples of such details include “dates and descriptions of recorded, but unprovided, services and a description of the billing system that the records were likely entered into.” Id. at 190-91. You might be surprised how many relators do not have familiarity with the defendant’s billing system and cannot allege sufficient details to meet the Grubbs “reliable indicia” standard. So, even in the face of a lengthy, detailed complaint, be sure to look for such details and, if they are lacking, move to dismiss on that ground.
Second, look to see if the complaint adequately alleges the “who, what, when, where, and how” of the alleged fraud. “[T]hough the Grubbs court relaxed the standard for pleading presentment of false claims[,] it did not relax the pleading requirements for alleging the existence of the more crucial element—the scheme.” United States ex rel. Ruscher v. Omnicare, Inc., No. 4:08-CV-3396, 2014 WL 2618158, at *7 (S.D. Tex. June 12, 2014); see also United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App’x 890, 895 (5th Cir. 2013). Moreover, in Grubbs the Fifth Circuit recognized that Rule 9(b) applies “with bite and without apology.”
This is where the real holes in the complaint tend to show up. Relators often try to plead the “when” element, for example, by alleging that the conduct occurred over a particular span of years. But there are numerous federal district court cases in Texas that have determined this is generally insufficient. See, e.g., United States ex rel. Roshan v. E. Texas Med. Ctr., No. 6:16-CV-01128-JDK, 2020 WL 8918651, at *7 (E.D. Tex. Nov. 24, 2020). Keep in mind, too, that pleading the “who” in connection with a claim against an entity generally requires more than simply specifying the entity. The complaint, as a general rule, must identify specific individuals within the entity who carried out the alleged fraud. See, e.g., id. In multi-defendant cases, moreover, the relator often focuses on one or two main players, so in the event that your client is not among those main players you should be ready to highlight the tangential nature of your client’s alleged involvement.
Third, consider presenting data or statistics on the economics of FCA cases, including the costs of litigation, and point out the “screening function” that Rule 9(b) is meant to play. The costs of defending qui tamlawsuits, after all, are substantially higher than recoveries, and about three quarters of qui tam actions are meritless. See J. Randy Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C. L. Rev. 540, 623-625 (2000) (discussing study of 38 non-intervened qui tam suits that cost more than $53 mil-lion dollars to defend but resulted in only about $3.7 million in recoveries). Yet, as of mid-2018, Relators had filed more than 600 qui tam actions every year since 2011. See Civil Division, U.S. Dep’t of Justice, Fraud Statistics Overview: October 1, 1986 – September 30, 2018, https://perma.cc/35CZ-X9VL; see also Pet. for Writ of Certiorari, filed Jan. 14, 2019, in Intermountain Health Care, Inc. v. United States of America, 2019 WL 193121 (U.S.), at 16 (collecting and explaining data).
Although data and statistics are not to be considered as part of the substantive legal analysis, presenting that information may help remind the trial court that denying the motion to dismiss likely will subject the defendant to expensive litigation and may force the defendant to settle a meritless suit to avoid the costs of defense. Some courts will give more weight to that risk than others, but it is usually a point worth making. In connection with this analysis, it may also be worth filing a motion to stay discovery pending resolution of the motion to dismiss. Again, such motions tend to have mixed results, but it is something to consider.
One last consideration is whether there are any grounds for dismissal under Rule 12(b)(6) for failure to state a claim. Do the allegations allege facts conclusively showing a statute-of-limitations defense? Does the complaint advance a set of facts that, even if true, do not constitute a violation of the FCA? These types of arguments should be made where possible, particular since a dismissal under Rule 12(b)(6) is with prejudice and generally binding on the non-party government, whereas a Rule 9(b) motion is generally neither. Ultimately, you want to give the motion-to-dismiss stage your best efforts, as it may be your client’s last line of defense against costly discovery and expensive prolonged litigation.
Derek Carson, a Partner with Cantey Hanger, represents clients in a wide range of civil lawsuits with a particular area of focus being federal-court litigation. He can be reached at email@example.com.