The Devil Is in the Details: Eleventh Circuit Rejects "Insider" Claims and Reaffirms Rule 9(b)'s Requirements

With circuit court decisions on Rule 9(b) and the False Claims Act all over the map (literally), the Eleventh Circuit held firm this summer on requiring relators—even the self-described "insider" types—to plead specifics about false claims submitted to the government. Carrel v. AIDS Healthcare Found., Inc., 898 F.3d 1267 (11th Cir. 2018). Although earlier decisions from the Circuit had suggested that a relator with personal knowledge but without details of claims may be able to survive the pleading stage, Carrel is the latest decision illustrating that such a "relaxed" pleading standard isn't all that relaxed.

In Carrel, three former employees of the AIDS Healthcare Foundation, Inc. claimed that the Foundation violated the Anti-Kickback Statute (AKS) and FCA by offering incentives to employees and patients to induce referrals to various healthcare services offered by the Foundation (which was a recipient of government funding). The district court dismissed all but two of relators' claims for failure to satisfy Rule 9(b). It later granted the Foundation's summary judgment motion on the two remaining claims, finding the incentives at issue lawful under the employee exemption to the AKS. This exemption excepts from liability "any amount paid by an employer to [a bona fide] employee . . . for employment in the provision of covered items or services." 42 U.S.C. § 1320a-7b(b)(3)(B). (Unhelpfully to relators, the United States filed a Statement of Interest in support of the Foundation's arguments on that issue.) The Eleventh Circuit affirmed, and last month denied relators' request for a rehearing en banc.

Drawing from several of its prior decisions, the Eleventh Circuit maintained that relators must plead "some indicia of reliability . . . to support the allegation of an actual false claim for payment being made to the [g]overnment." The Court reiterated that relators must "allege the 'who,' 'what,' 'where,' 'when,' and 'how' of fraudulent submissions" to survive dismissal. And although it acknowledged a greater "toleran[ce] toward complaints that leave out some particularities of the submissions of a false claim if the complaint also alleges personal knowledge or participation in the fraudulent conduct," the Court noted that, even there, relators cannot get by without "specific details" of false claims.

Against that backdrop, the Court found relators' sweeping allegations of improper incentives lacking: Although asserting a "mosaic of circumstances . . . perhaps consistent" with allegations of false claims, relators had not provided detail that the alleged circumstances "ever converged and produced an actual false claim where the Foundation both violated the Anti-Kickback Statute when it unlawfully recruited a patient and then billed the government for the services provided to that patient." Relators' claim of "personal knowledge [and] participation" in the alleged fraud fell flat, as the Court questioned whether they were truly insiders if they could not supply specifics about false claims.

Carrel comes on the heels of two recent decisions by the Eleventh Circuit reinforcing the rigor of Rule 9(b) in FCA cases. In one, the Court affirmed the dismissal of a qui tam action for failure to allege details of specific false claims presented to the government, notwithstanding relator's allegations of personal knowledge of defendant's improper billing practices. U.S. ex rel. Jallali v. Sun Healthcare Grp., et al., 667 Fed. Appx. 745 (11th Cir. 2016). In the second, the Court affirmed dismissal where a relator had not alleged specific examples of fraudulent conduct, the submission of any specific fraudulent claim or the basis of her knowledge of any alleged fraudulent billing practices—"a process," the Court observed, "she was far removed from." U.S. ex rel. Chase v. HPC Healthcare, Inc., 723 Fed. Appx. 783, 790 (11th Cir. 2018).

As we have noted, it remains to be seen whether and in what context the Supreme Court will wade into the issue of Rule 9(b)'s application to FCA cases. In the meantime, Carrel is an important link in a chain of decisions that not only demand details of false claims at the pleading stage but make clear that relators cannot hide behind claims of "insider" status without the details to back it up.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.