Courts Return to Real Particularity to Meet Rule 9(b)’s “Fraud with Particularity” Requirement


The courts appear to be walking back their trend toward loosening False Claims Act (“FCA”) pleading requirements.

The FCA is a fraud statute, and lawsuits alleging FCA violations must be pled under Rule 9(b) of the Federal Rules of Civil Procedure:

Fraud or Mistake; Conditions of Mind. In 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.[1]

For a long time, the prevailing rule was found in the Eleventh Circuit Court of Appeals’ decision in United States ex rel. Clausen v. Laboratory Corp. of America, Inc.[2] The court in Clausen said:

the submission of a claim is … the sine qua non of a False Claims Act violation…. and therefore a False Claims Act plaintiff may not “merely describe a private scheme in detail but then … allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.[3]

The Clausen court concluded that a qui tam relator in an FCA case must, at a minimum, provide at least one specific example of a false claim submitted to the government.[4] Other courts soon followed suit, including the Sixth Circuit Court of Appeals, which stated the identification of at least one actual false claim was “an indispensable element of a claim that alleges a [False Claims Act] violation in compliance with Rule 9(b).”[5]

In 2003, the Eleventh Circuit Court created confusion with its unpublished opinion in United States ex rel. Hill v. Morehouse Medical Associates, Inc.[6] In Hill, the court allowed a relaxed pleading standard where the whistleblower was a corporate insider without access to detailed information. It ruled that a qui tam whistleblower who showed sufficient indicia of reliability, even in the absence of specific claims, could meet the Rule 9(b) fraud with particularity standard. The Court retreated from Hill relatively quickly, in United States ex rel. Atkins v. McInteer,[7] and again in United States ex rel. Sanchez v. Lymphatx Inc.,[8] when the Court of Appeals stated that Clausenwas the controlling opinion. Unpublished opinions, like Hill, could not control if contrary to controlling opinions.

Unfortunately, the Hill decision took on a life of its own. It formed the basis for conflicting rulings in both the Eleventh Circuit and the Sixth Circuit.

In 2014, in United States ex rel. Mastej v. Health Management Associates, Inc., et al.,[9] the Eleventh Circuit Court of Appeals appeared to flip-flop, ruling a relator:

with direct, first-hand knowledge of the defendant’s submission of false claims gained through her employment with the defendants may have a sufficient basis for asserting that the defendants actually submitted false claims.[10]

In 2016, the Sixth Circuit Court of Appeals also backed away from the strict standard, finding that a False Claims Act complaint met the Rule 9(b) standard where the relator “alleges specific personal knowledge that relates directly to billing practices.”[11]

But, first, in 2016, and then in 2017, the courts returned to the strict standard.

In 2016, the Eleventh Circuit Court of Appeals issued its ruling in United States ex rel. Jallali v. Sun Healthcare Group, et al.[12] In Jallali, the qui tam relator asked the Court of Appeals to evaluate its pleading based upon the Mastej standard for Rule 9(b), rather than the standard found in Clausen. The court affirmed quite clearly that its rules state “(u)npublished opinions are not considered binding precedent, but they may be cited as persuasive authority.”[13] Clausen was the standard to be followed, not Mastej. The court stated:

Absent an allegation, stated with particularity, that the Defendants presented a false claim for payment to the Government, Jallali has failed to state claim for relief under the FCA.[14]

In January 2017, the Sixth Circuit Court of Appeals followed suit. In United States ex rel. Hirt v. Walgreen Co.,[15] the court issued its own mea culpa for lowering the standard. It began its analysis by noting that it had raised the theoretical possibility of a lower standard in Bledsoe, based upon Hill.[16] That ultimately led to the decision in the Prather decision.[17] The court very carefully distinguished Prather, noting in very close detail exactly how much personal knowledge and involvement she had in the claims submission and billing process. It then offered the core of its decision:

The Eleventh Circuit’s use of the word “relax,” and our repetition of it in later cases, runs the risk of misleading lawyers and their clients. We have no more authority to “relax” the pleading standard established by Civil Rule 9(b) than we do to increase it. Only by following the highly reticulated procedures laid out in the Rules Enabling Act can anyone modify the Civil Rules, whether in the direction of relaxing them or tightening them.[18]

While the Six Circuit Court of Appeals did not explicitly abrogate Prather, it appeared to retreat from any “relaxation” of Rule 9(b) and to draw a very tight circle around the particular facts that allowed the whistleblower in that case to proceed. The decisions in both Hirt and Jallali seem to signal an impatience with qui tam relators coming to court with descriptions of schemes, high hopes they will find something in discovery and a claim of enough personal knowledge to circumvent Rule 9(b). This would be a welcome respite for health care providers and other government contractors and a challenge to potential whistleblowers to only come to court with fully developed FCA lawsuits.

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[1] Fed.R.Civ.P. 9(b).

[2] 290 F.3d 1301, 1311 (11th Cir. 2002).

[3] Id. at 1311 (citation omitted).

[4] Id. at 1315.

[5] United States ex rel. Bledsoe v. Community Health Systems, In., 501 F.3d 493, 504 (6th Cir. 2007).

[6] No. 02-14429, 2003 WL 22019936 (11th Cir. 2003).

[7] 470 F.3d 1350, 1358 (11th Cir. 2006).

[8] 596 F.3d 1300, 1303 (11th Cir. 2010).

[9] 591 Fed.Appx. 693 (11th Cir. 2014).

[10] Id. at 704.

[11] United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., et al., 838 F.3 750, 769 (6th Cir. 2016).

[12] 2016 WL 3564248, (11th Cir. July 1, 2016).

[13] Id.

[14] Id. at *2.

[15] No. 16-6232, 2017 WL 359661 (6th Cir. January 25, 2017).

[16] Bledsoe, 501 F.3d at 504 n. 12.

[17] Hirt at *2.

[18] Id.