Fraud_17860840Medium

In an opinion issued last week, the Third Circuit added to a circuit split on an important issue concerning the False Claims Act—what a relator (or DOJ) must show at the pleading stage to satisfy Rule 9(b)’s “particularity” requirement. In United States ex rel. Foglia v. Renal Ventures Mgmt, LLC, the Third Circuit sided with three other circuit courts that applied a lower pleading standard that plaintiffs need not show “representative samples” of alleged fraudulent conduct, and instead need only allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted. The Supreme Court has recently declined to resolve the circuit split on this issue, so False Claims Act defendants in the Third Circuit should expect to address the lower pleading standard for some time to come.

In Foglia, the relator appealed the district court’s dismissal of his second amended complaint under Fed. R. Civ. P. 12(b)(6) because the complaint failed to meet the particularity required by Rule 9(b). The district court focused on the relator’s failure to “identify representative examples of specific false claims made to the Government.” The relator had alleged that the defendant overbilled Medicare by re-using “single-use” vials of the drug Zemplar. When Zemplar vials are used in single-use fashion, Medicare is charged the full content of the vial; the relator alleged that the defendant harvested extra Zemplar from already-used vials to administer to other patients.

The Third Circuit explained that it first had to determine what Rule 9(b) requires of an FCA claimant, an issue the court had not previously ruled on specifically. The court noted that various circuits disagree on this issue. The Fourth, Sixth, Eighth, and Eleventh Circuits have held that a plaintiff must show “representative samples” of the alleged fraudulent conduct, specifying the time, place, and content of the acts and the identity of the actors. In contrast, the First, Fifth, and Ninth Circuits have held that it is sufficient for a plaintiff to allege the particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted. Two months ago, the Supreme Court denied a petition for a writ of certiorari from the Fourth Circuit’s decision in United States ex rel. Nathan v. Takeda Pharmaceuticals that sought review of the existing circuit split regarding the requirements under Rule 9(b), leaving the issue for further development.

The Third Circuit did not engage in a lengthy analysis of the two approaches. Instead, the court cited one of its previous decisions in which it noted that it had never held that a plaintiff must identify a specific claim for payment at the pleading stage to state a claim for relief. In addition, the court cited DOJ’s amicus brief regarding the certiorari petition inTakeda Pharmaceuticals, which argued that the “rigid” pleading standard required by the Fourth, Sixth, Eighth, and Eleventh Circuits is “unsupported by Rule 9(b) and undermines the FCA’s effectiveness as a tool to combat fraud against the United States.” The Third Circuit concluded that “[i]nsofar as the purpose of Rule 9(b) is to ‘provide[] defendants with fair notice of plaintiffs’ claims,’” the approach followed by the “First, Fifth, and Eleventh Circuits will suffice.”

Turning to the relator’s allegations, the Court noted that “[t]his is a close case as to meeting the requirements of Rule 9(b),” but held that the relator had provided sufficient facts to meet those requirements. The Court stated that its conclusion was supported by the fact that only the defendant has access to the documents that could “easily prove the claim one way or another.”