An Ever Widening Gap: Circuit Split on the Applicable Pleading Standard for the False Claims Act

Many areas of the False Claim Act are subject to legal interpretation and have been subject to Circuit splits, sometimes resulting in rulings from the Supreme Court.  In the United States, there are thirteen federal circuit courts that provide intermediate appellate review of the federal district courts in several states.  The decision by a circuit court has binding authority on the district courts within its jurisdiction.  When there is a conflict between circuit courts on an important issue it creates the basis for review by the Supreme Court.

One such area that is currently subject to a Circuit split is the standard to which a relator or the government must plead their case for the False Claims Act.  The Federal Rules of Civil Procedure, Rule 9(b), requires that when alleging fraud or mistake, “a party must state with particularity the circumstances constituting fraud or mistake.” F.R.C.P. Rule 9(b).

The Third, Fifth, Seventh, Ninth and Tenth Circuits have adopted a broader reading of the pleading requirements in a False Claims Act, finding that a relator must only “offer[] particular and reliable indicia that false bills were actually submitted” to the government as result of a particular scheme.  U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 188-89 (5th Cir. 2009).  However, the First, Sixth and Eleventh Circuits have adopted a much stricter interpretation set forth by the First Circuit in U.S. ex rel. Karvelas v. Melrose-Wakefield Hospital.  In Karvelas, the Court found

a relator must provide details that identify particular false claims for payment that were submitted to the government…[D]etails concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services for which the government was billed, the individuals involved in the billing, and the length of time between the alleged fraudulent practices and the submission of claims based on those practices.  U.S. ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 232-33 (1st Cir. 2044), abrogated on other grounds by Allison Engine Co., 553 U.S. 662.

As of now, the 2nd Circuit has not yet opined on the particularity standard.  However, the District Courts in New York have analyzed the Circuit split in several cases and have adopted the stricter standard as set forth in the First, Sixth and Eleventh Circuits.  See, U.S. ex. rel. Mooney v. Americare, Inc., 2013 WL 1346022 (E.D.N.Y. 2013); United States ex rel. Siegel v. Roche Diagnostics, Corp., 988 F. Supp. 2d 341, 346 (E.D.N.Y. 2013); United States ex rel. Moore v. GlaxoSmithKline, LLC, 2013 WL 6085125, at *5 (E.D.N.Y. October 18, 2013); U.S. ex rel. Osmose, Inc. v. Chemical Specialties, Inc., 2014 WL 234819 (W.D.N.Y. 2014); U.S. v. Wells Fargo Bank, N.A., 2013 WL 5312564 (S.D.N.Y. Sept. 24, 2013); U.S. v. Dialysis Clinic Inc., 2011 WL 167246 (N.D.N.Y. 2011).  Two recent cases in the District Courts of New York have also adopted this stricter standard.  In U.S. ex rel. Kester v. Novartis Pharmaceuticals Corp., 2104 WL 2324465 (S.D.N.Y. May 29, 2014) the Court stated,

Though no Second Circuit opinion addresses the degree of particularity with which a plaintiff asserting an FCA claim must plead the submission of a false claim, the court has issued a summary order on the subject. In Wood ex rel. United States v. Applied Research Associates, Inc., 328 Fed. App’x 744 (2d Cir.2009), the court affirmed the district court’s dismissal of an FCA action on the basis that the plaintiff failed to satisfy Rule 9(b)….Wood lacks precedential value, but it strongly suggests that the Second Circuit would approve a pleading rule comparable to the “identification” standard articulated in Karvelas. Kester, supra *13. 

Recently, the Court in U.S. ex rel. Corporate Compliance Associates, also adopted the heightened pleading standard as set forth in the First, Sixth and Eleventh Circuits, finding that “[t]his Court agrees that Grubbs would likely not be accepted as the law of this Circuit. Clausen and Karvelas are more consistent with decades of Second Circuit precedent.” U.S. ex rel. Corporate Compliance Associates v. NY Soc. for the Relief of the Ruptured and Crippled, Maintaining the Hospital for Special Surgery, 2014 WL 3905742, *15 (S.D.N.Y. Aug. 7, 2014). 

While not settled in the 2nd Circuit, it appears that most of the District Courts have sided with the First, Sixth and Eleventh Circuits in adopting a heightened pleading standard for qui tam actions, further deepening the Circuit split on the issue and making it a ripe issue for the Supreme Court to address.  The impact of the decision by the Supreme Court on this issue would have a tremendous effect on parties in False Claims Act litigation.

For more information, please contact the author, Danielle Holley.  She can be reached by calling (518) 462-5601 or by email at dholley@oalaw.com  


Danielle Holley

About Danielle Holley

Danielle is an associate with our Health Law department. Danielle is involved in representing and advising a broad spectrum of health care and social service provider clients in civil litigation, transactional work, fraud and abuse, HIPAA, compliance and other regulatory and general business matters. Danielle has experience in, among other areas, state and federal regulatory compliance, fraud and abuse, general civil litigation, guardianship and administrative hearings. Danielle also has clinical ethics experience and advises clients on the ethical and legal requirements related to health care delivery.