Recent Federal Court Decisions Highlight Differing Pleading Standards for False Claims Act Suits

September 11, 2014

On August 20, 2014, the U.S. Court of Appeals for the Seventh Circuit rejected the “worthless services” and “false certification” theories of liability under the False Claims Act (FCA), overturning a $9 million qui tam jury verdict. Two weeks later, the Eighth Circuit shed the pleading specificity requirements needed to sustain a lawsuit under the FCA. These two recent decisions highlight the difference among circuits in the way they treat FCA actions. While some courts are raising the bar on qui tam pleadings, other courts are making it easier to bring suit under the FCA.

In the Seventh Circuit decision United States ex rel. Absher v. Momence Meadows Nursing Center, Inc., two nurses filed a qui tam action against Momence Meadows Nursing Center, alleging that the facility knowingly submitted thousands of false claims to Medicare and Medicaid programs. The relators advanced two theories of liability under the FCA: “worthless services” and “false certification.” Following trial, a jury awarded the United States over $9 million in compensatory damages. The Seventh Circuit vacated the $9 million judgment and explained that the qui tam relators failed to establish liability under either theory. The Court declined to adopt either theory.

The worthless services theory allows a qui tam relator to bring claims for violations of the FCA when a defendant receives government reimbursement for services or products that are in essence worthless. The relator’s primary argument in Momence was that the facility provided “woefully inadequate care” to its residents and thus violated the FCA. The Seventh Circuit held that under this theory, services must be “worthless” and not simply “worth less”--the services must be of such poor quality that they are equivalent to no service at all. The Court expressed uncertainty as to whether worthless services was really its own theory of liability. It also refused to decide whether the false certification theory (where a business certifies its compliance with government statutes or regulations, but knowingly fails to meet prerequisite conditions) was a valid FCA theory.

While the Seventh Circuit sought to limit the theories under which a FCA suit might be upheld, the Eighth Circuit relaxed the pleading requirements of certain qui tam actions. In United States ex rel. Thayer v. Planned Parenthood, a former Planned Parenthood center manager sued the organization for submitting false or fraudulent claims for Medicaid reimbursement. The complaint alleged Planned Parenthood violated the FCA by filing claims for unnecessary quantities of birth control, birth control dispensed without a physician’s orders or an examination, abortion-related services, and serviced that had been paid for by “donation” either in part or in whole. The relator did not provide any instances of fraud, representative or specific, in her complaint.

The district court dismissed the suit for failure to plead fraud with particularity, as required by Federal Rule of Civil Procedure 9(b). The Eighth Circuit reversed and ruled that a realtor may satisfy particularity requirements when a) the realtor provides sufficient indicia of reliability to support that allegations that false claims were submitted; and, b) the realtor pleads personal knowledge of the defendant’s submission of false claims. This ruling effectively changes the 9(b) pleading standard for a certain type of relator within the Eighth Circuit. Because the Planned Parenthood manager was able to provide names of those who participated in the fraudulent scheme, the time in which the scheme took place, and the methods by which the scheme was perpetrated as evidence of the “particular details” (in lieu of pointing to the fraud itself) the Eighth Circuit held that the particularity standard was met in relation to these claims.

These two cases show the varying pleading standards for FCA liability, and these rulings serve as the latest reminder that FCA lawsuits have changing pleading standards.

For more information on the False Claims Act, please contact the author of this alert, Jonathan S. Feld (312-627-5680 or or your Dykema relationship lawyer. 

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