In the recent case of United States ex rel. Thayer v. Planned Parenthood of the Heartland, No. 13 1654, 2014 WL 4251603 (8th Cir. Aug. 29, 2014), the Eighth Circuit1 deepened the current split in the circuits regarding the level of specificity required in a False Claim Act (FCA) case, making it easier for whistleblowers and the government to survive early dismissal. In Planned Parenthood, the Court relaxed the pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure in FCA cases by holding that, in appropriate circumstances, a relator might satisfy the requirement to plead fraud with particularity without pleading specific, representative examples of false claims. Although the Planned Parenthood opinion appears to impose a less stringent pleading standard than prior Eighth Circuit opinions on the issue, it comports with the FCA pleading requirements imposed by several other circuits and should assist in promoting uniformity in the enforcement of the FCA. As discussed below, the decision is likely to encourage whistleblowers to be more aggressive in bringing FCA cases, even when they cannot identify specific false claims.
Background of Planned Parenthood
Susan Thayer brought a qui tam action against Planned Parenthood of the Heartland, Inc. (Planned Parenthood) alleging that Planned Parenthood violated the FCA and the Iowa False Claims Act (IFCA), Iowa Code Ann. §§ 685.1to 685.7 (West 2014), by submitting false or fraudulent claims for Medicaid reimbursement. The district court dismissed her complaint for failure to plead fraud with the particularity required by Rule 9(b). Planned Parenthood, 2014 WL 4251603 at * 1. Specifically, the district court granted Planned Parenthood’s motion to dismiss, concluding that Thayer failed to meet the pleading requirements of Rule 9(b) as articulated in United States ex rel. Joshi v. St. Luke’s Hospital, Inc., 441 F.3d 552 (8th Cir. 2006), because she failed “to provide a single specific example of a particular fraudulent claim Planned Parenthood submitted to the government, let alone any representative examples.” Planned Parenthood, 2014 WL 4251603 at * 1. The Eighth Circuit affirmed in part and reversed in part, remanding for further proceedings.
Pleading Requirements for Complaints Alleging Violations of the False Claims Act Prior to Planned Parenthood
It has long been established that, “[b]ecause the FCA is an anti fraud statute, complaints alleging violations of the FCA must comply with Rule 9(b).” United States ex rel. Joshi v. St. Luke’s Hospital, Inc., 441 F.3d 552, 556 (8th Cir. 2006). Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances constituting fraud[.]” “This particularity requirement demands a higher degree of notice than that required for other claims.” United States ex rel. Costner v. United States, 317 F.3d 883, 888 (8th Cir.2003). The leading Eighth Circuit case, Joshi, required that “the complaint must plead such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result.” Joshi, 441 F.3d at 556. In other words, while an FCA complaint need not include the “specific details of every alleged fraudulent claim,” when a relator alleges that a defendant engaged in a systematic practice or scheme of submitting fraudulent claims, the complaint “must provide some representative examples of [the defendant’s] alleged fraudulent conduct, specifying the time, place, and content of [the defendant’s] acts and the identity of the actors.” Id. at 557.
Eighth Circuit’s Clarification of the Pleading Requirements in Planned Parenthood
In Planned Parenthood, the Eighth Circuit clarified a relator’s pleading obligations in FCA litigation. Notably, the Eighth Circuit specifically distinguished the Joshi case and opined that “Joshi’s representative examples requirement need not be satisfied with respect to some portions of the complaint.” 2014 WL 4251603 at * 2. Rather, the Eighth Circuit adopted the approach of several other circuits2 and held a “relator can satisfy Rule 9(b) by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Planned Parenthood, 2014 WL 4251603, at * 3 (internal quotations and citations omitted).
The Joshi case involved claims by an anesthesiologist who had practiced at St. Luke’s Hospital, Inc. (“St. Luke’s”). Dr. Joshi’s Complaint stated, without any details of the alleged false clams, that every claim submitted by St. Luke’s was false. In Joshi, the Eighth Circuit imposed a requirement that a relator plead at least some representative examples of false claims, primarily because Dr. Joshi’s allegation that “every” claim was fraudulent “lack[ed] sufficient ‘indicia of reliability.’” Joshi, 441 F.3d at 557. The Court reasoned that Dr. Joshi’s role as an anesthesiologist rather than a member of the hospital’s billing department meant he did not provide sufficient factual basis for his “knowledge concerning the alleged submission of fraudulent claims,” necessitating the articulated standard. Id. at 558.
By contrast, Thayer “was the center manager for two of Planned Parenthood’s clinics, oversaw Planned Parenthood’s billing and claims systems, and was able to plead personal, first-hand knowledge of Planned Parenthood’s submission of false claims.” Planned Parenthood, 2014 WL 4251603, at * 3. Unlike in Joshi, the relator in Planned Parenthood alleged “that her position as center manager gave her access to Planned Parenthood’s centralized billing system, [and she pled] specific details about Planned Parenthood’s billing systems and practices, and allege[d] that she had personal knowledge of Planned Parenthood’s submission of false claims.” Planned Parenthood, 2014 WL 4251603 at * 4. Accordingly, the Eighth Circuit concluded that certain of Thayer’s claims “have sufficient indicia of reliability because she provided the underlying factual bases for her allegations.” Id.
The Planned Parenthood Court, in adopting this pleading standard, agreed with Judge Higginbotham’s reasoning in United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009) that the standard fulfills the objectives of Rule 9(b) “‘without stymieing legitimate efforts to expose fraud.’” Planned Parenthood, 2014 WL 4251603, at *4 quoting Grubbs, 565 F.3d at 190. The Court opined that “[s]tating ‘with particularity the circumstances constituting fraud’ does not necessarily and always mean stating the contents of a bill.” Id. Accordingly, “relators whose allegations lack sufficient indicia of reliability should be required to plead representative examples of the false claims because their allegations are more likely to be unfounded. In contrast, a relator who provides sufficient indicia of reliability to support her allegations that false claims were submitted, such as by pleading details about the defendant’s billing practices and pleading personal knowledge of the defendant’s submission of false claims, fulfills Rule 9(b)’s objective of protecting the defendant from baseless claims.” Planned Parenthood, 2014 WL 4251603, at *4.
Potential Implications of the Planned Parenthood Decision
The Eighth Circuit’s less stringent approach to pleading an FCA case appears intended to focus on the reliability of the allegations and would allow credible relators to survive dismissal even when the relator cannot identify specific details of each false claim submitted. In addition, the Planned Parenthood opinion aligns the Eighth Circuit with several other circuits and the Department of Justice’s position on FCA pleading standards.3
It must not be forgotten, however, that the Planned Parenthood decision does not eliminate Rule 9(b)’s pleading standard. To the contrary, the Eighth Circuit specifically opined that, “to satisfy the ‘particular details’ requirement of [the Eighth Circuit] holding . . . the relator must provide sufficient details ‘to enable the defendant to respond specifically and quickly to the potentially damaging allegations.’” Planned Parenthood, 2014 WL 4251603 at *4 quoting United States ex rel. Costner v. United States, 317 F.3d 883, 888 (8th Cir. 2003). The Planned Parenthood decision further highlights the significance of pleading specific allegations regarding the relator’s knowledge of the alleged scheme to defraud to enhance the credibility of the relator, which courts will scrutinize, particularly if representative examples of the alleged fraud are not provided.
We anticipate the Planned Parenthood decision will encourage the government, private whistleblowers and their counsel to become even more aggressive in bringing FCA claims in the health care and other regulated industries. Until the Supreme Court or Congress reins in the FCA, the statute will continue to be the government’s primary fraud fighting weapon and a significant source of legal exposure to health care providers and others doing business with the government.4
Additional Information
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1 The Eighth Circuit encompasses Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
2 United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009); see also Chesbrough v. VPA, P.C., 655 F.3d 461, 471 (6th Cir. 2011); Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 99 (9th Cir. 2010); United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010); cf. United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013); United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29 (1st Cir. 2009); United States ex rel. Lusby v. Rolls Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009).
3 Indeed, the Department of Justice has previously filed an amicus brief in the case of Ortho Biotech Products, L.P. v. United States ex rel. Duxbury, No. 09-654 in which it advocated for a position similar to that adopted by the Eighth Circuit in Planned Parenthood.
4 Recoveries under FCA continue to grow: in 2013, recoveries were approximately $3.8 billion, bringing total recoveries under the False Claims Act since January 2009 to $ 17 billion – nearly half the total recoveries since the Act was amended in 1986.