U.S. Court of Appeals Dismisses False Claims Act Complaint Ruling

In a federal court of appeals, the Federal Rule of Civil Procedure 9(b) was addressed by the Seventh Circuit Court of Appeals in Chicago regarding the specificity required in complaints. On Sept. 1, 2016, the U.S. Court of Appeals for the Seventh Circuit in Chicago affirmed dismissal of the amended complaint pursuant to the particularity requirement of Federal Rule of Civil Procedure 9(b).

In this case, a nurse alleged that a number of practices at the Acacia Mental Health Clinic where she worked were not medically necessary. The allegations were that the clinic required patients to see multiple practitioners before receiving medications; required patients to undergo mandatory drug screenings at each visit; and required patients to come to the clinic in-person in order to receive a prescription or speak to a doctor. It was also alleged that the clinic misused a billing code. This was the only claim the Seventh Circuit permitted to go forward. In dismissing the majority of the complaint, Seventh Circuit began with a robust discussion of the importance of Rule 9(b) in screening out a baseless False Claims Act (FCA).

“Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. We have observed, moreover, that fraud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to repose swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims.”

In this case, the Seventh Circuit held that the plaintiff fell short of Rule 9(b), because she provided “no medical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care.” The court remarked that the plaintiff did not offer any reasons why the practices at Acacia were unnecessary other than her “personal view” – the complaint was devoid of any context, such as a comparison of plaintiff’s clinic’s practices to others in the industry.

There was a dissent filed by one of the justices of the court of appeals. Judge David F. Hamilton, in dissent, said “in the post-Iqbal-and-Twombly world of civil pleading, it is difficult for any plaintiff to know what a particular district judge will require by way of details in a complaint. Variations among district judges and appellate panels can be substantial suggesting that the Iqbal and Twombly cases lead not to more clarity and less litigation, but to less clarity and more litigation.”

The issue that Judge Hamilton raised is a noteworthy in that the federal courts have been shifting towards fact-pleading practice based on the Twombly and Iqbal cases. This problem in federal court is now similar to what Illinois lawyers face with judges who have notions about how much factual specificity is required in Illinois complaints.

The Seventh Circuit was unanimous in concluding that the plaintiff Presser alleged a valid claim for “upcoding” but the court was split on whether she adequately alleged several other schemes.

The lesson learned in this case is that where a False Claims Act complaint alleged that care was medically unnecessary, the plaintiff must provide sufficient reasons, other than relying on his or her personal opinion, experience and training as to why that occurred. The plaintiff cannot simply assert that care was unnecessary and hope that in discovery the blanks would be filled in. In the dissent, Judge Hamilton stated that the circumstances of the alleged fraud have been set out with particularity. We have long rejected demands for more than the “who, what, when, where and how” under Rule 9(b).

The majority seems to demand that the relator (the plaintiff) plead evidence or in essence prove her case in the complaint. To justify this unusually demanding interpretation of Rule 9(b), with its amorphous requirement for pleading “context,” the majority highlights one of the policy concerns reflected in Rule 9(b): [T]he danger that a defendant’s reputation might be tarnished unfairly by conclusory allegations of fraud. That is one important policy at stake here, but so too are the liberal pleading policies reflected in Rules 8 and 9(b).” Continuing Judge Hamilton stated that we and other courts try to strike the right balance, guided by the rules’ texts and purposes, by insisting that the “circumstances” of alleged fraud be stated with particularity while allowing general pleading of fraudulent intent.

U.S. ex rel. Rose Presser v. Acacia Mental Health Clinic, No. 14-2804 (U.S. Seventh Cir., Sept. 1, 2016).

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