For the first time since August 2011, the Sixth Circuit examined the standard for pleading False Claims Act (FCA) violations with particularity under Federal Rule of Civil Procedure 9(b)—in particular, when the requirement that a relator plead an actual false claim submitted to the government can be “relaxed,” if at all. The case, U.S. ex rel. Eberhard v. Physicians Choice Laboratory Services, LLC (PCLS), No. 15-5691 (6th Cir. Feb. 23, 2016), involved allegations that PCLS, a medical testing services provider, submitted false claims to Medicare and Medicaid as a result of a purported scheme by PCLS to pay kickbacks—in the form of a commission on sales of PCLS products and services—to an independent sales force to induce them to solicit the referral of samples to PCLS for testing, in violation of the Anti-Kickback Statute. The relator, a former sales employee of PCLS, appealed the district court’s dismissal of his complaint for failure to plead any actual false claims submitted to the government with particularity under Rule 9(b), arguing that the district court should have applied a “relaxed” Rule 9(b) standard because of the relator’s purported “personal knowledge” of the false claims.
In affirming the district court’s ruling, the Sixth Circuit explained at the outset that unlike “some circuits hold[ing] that it is sufficient for a plaintiff to 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, we have joined the Fourth, Eighth, and Eleventh Circuits in requiring ‘representative samples’ of the alleged fraudulent conduct.” Solely based on the relator’s failure to plead any false claims submitted in connection with the alleged kickback scheme, the Sixth Circuit ruled that the relator could not meet the pleading requirements of Rule 9(b).
The Sixth Circuit then addressed whether the relator’s complaint should be entitled to a relaxing of the “representative-claim requirement” considering his alleged “personal knowledge” regarding the submission of false claims. The Eberhard court noted that while the Sixth Circuit had “left open” and then “clarified” the possibility of a “relaxed” Rule 9(b) standard in two prior opinions, it has “yet to apply a relaxed Rule 9(b) standard in practice.” And it again declined to do so in Eberhard. The Sixth Circuit explained that “even where the complaint alleges a fraudulent scheme from which a defendant’s claims for reimbursement must necessarily violate the FCA,” a relator still must allege specific information or personal knowledge about “the filing of the claims themselves.” The only information related to the submission of claims in relator’s complaint was his estimate that Medicare and Medicaid paid for more than 50% of the samples procured by the independent sales force in two specific months. The Sixth Circuit deemed this estimate, which itself was based on an inference (applying knowledge about the payor of the relator-employee’s testing samples to the samples procured by the independent sales force), insufficient personal knowledge about the submission of false claims to entitle the relator to a relaxation of Rule 9(b).
The Eberhard court acknowledged that a relator’s personal knowledge is only one way a relator might establish a “strong inference” that false claims were submitted, and that “there may be other situations in which a relator alleges facts from which it is highly likely that a claim was submitted to the government for payment.” However, such facts were not present in Eberhard, as the relator’s complaint only suggested the possibility—not a strong inference—that false claims were presented to the government. In concluding, the Sixth Circuit again “left open” the possibility that certain situations might warrant a relaxation of Rule 9(b), but made clear this was not one of them.
Going forward, some key takeaways from the Eberhard opinion are:
- In the Sixth Circuit, the default standard remains “strict” that a relator plead representative false claims, and not simply reliable indicia or inferences suggesting that false claims were submitted to the government.
- On three straight occasions, the Sixth Circuit has refused to apply or endorse a relaxation of Rule 9(b). This should signal to district courts that even if there might be circumstances permitting a “relaxed” standard, those circumstances are very narrow.
- The type of fraudulent scheme alleged does not alter the requirement that a relator plead representative false claims. This is particularly significant for FCA cases premised on Anti-Kickback Statute violations, where the government and relators have often argued, and certain district courts in the Sixth Circuit have agreed, that they need not identify particular claims resulting from an alleged kickback scheme because false claims necessarily result from that type of fraudulent scheme.
- Defendants should push back against relator’s requests for discovery prior to a motion to dismiss ruling in FCA cases. In addition to its decision on the motion to dismiss, the Sixth Circuit in Eberhard ruled that the lower court did not abuse its discretion in denying the relator’s discovery requests and finding them contrary to the purposes of Rules 9(b) and 12(b)(6).