The False Claims Act complaint can be a challenging legal document to produce. Oftentimes, a relator will know that a False Claims Act violation was committed, but he or she may be unable to get their hands on the necessary documents to fully substantiate their allegations until the case moves through discovery. Defendants frequently try to have the case thrown out of court even before the relator has a chance to engage in discovery by filing a Rule 9(b) motion to dismiss.
Rule 9(b) of the Federal Rules of Civil Procedure requires that a relator in a False Claims Act lawsuit allege the “circumstances constituting fraud ... with particularity,” but the evidence and information necessary to meet the standard of “with particularity” is often up for debate in a False Claims Act lawsuit.
Two recent court cases shed some light on the kind of information and specificity of allegations that must be pled in a False Claims Act complaint in order to meet the Rule 9(b) standard.
U.S ex rel. Yarberry v. Sears
In U.S. ex rel. Yarberry v. Sears, the relator alleged that Sears and Kmart violated the federal False Claims Act and the Anti-Kickback Statute by offering and paying unreported monetary inducements, such as cash gift cards and/or coupon promotions, to beneficiaries of Medicare, Medicaid and other government health insurance programs (GHP) in exchange for beneficiaries filling their prescriptions at the defendants’ pharmacies.
Although the defendants argued that the relator failed to identify any false statement allegedly made by defendants, a district court in Illinois held that the complaint included sufficient allegations to “evince the required knowledge and willfulness to induce GHP customers to purchase their prescription drugs from Defendants' pharmacies, which in turn would result in payments being made in whole or in part from a federal healthcare program.” Relator had offered statements by defendants to their pharmacists, such as “don't trouble yourself with being the coupon police,” along with the identification of specific store locations involved in the scheme, such that a False Claims Act violation was plausible.
U.S ex rel. Osheroff v. Tenet Healthcare Corp.
In U.S. ex rel. Osheroff v. Tenet Healthcare Corp., the relator alleged that Tenet violated the Anti-Kickback Statute, Stark Law and, in turn, the False Claims Act by leasing office space to physicians for an effective rate per square foot that was below fair market value in exchange for the doctors’ referrals of patients to Tenet.
Like the defendants in the Yarberry case, Tenet sought dismissal of the case under the premise that the relator did not adequately plead violations of the Anti-Kickback Statute and Stark Law because he had failed to adequately allege a benchmark of fair-market value for the Tenet leases.
The court disagreed, holding that the relator had adequately pled facts regarding fair market value by listing a number of particular facts and specific examples from which one could reasonably infer that Tenet entered into below-market-rate leases with referring physicians, including the following:
- Numerous lease agreements with referring physicians where the effective rate per square foot was well below market rate or other concessions were given;
- A 2007 appraisal indicating that the fair market value for two nearby medical offices was well above the price per square foot that Tenet charged its physician-tenants; and
- Empirical analysis indicating that, in various markets around the United States, Tenet charged its physician-tenants far less than the average price found in the market.
The court held that it was not in a position to evaluate whether these figures were an accurate benchmark for fair market value, only whether, on their face, they were sufficiently particular facts. Relator did not need to allege that Tenet's physician-tenants referred Medicaid or Medicare patients to Tenet because of the below-market-rate lease; rather, it was enough to allege that Tenet “knowingly offered a below-market lease” because a reasonable inference could be made that Tenet would not enter into a below-market lease if it weren’t getting something in return.
Both of these recent cases demonstrate that, while relators do need to allege False Claims Act violations using specific information, relators need not prove their case at the outset of a lawsuit. So long as relators can allege particular facts demonstrating that their allegations are plausible, relators should be able to proceed to the discovery phase of their lawsuit through which relators and their counsel can obtain additional evidence supporting their claims.
The whistleblower attorneys at Goldberg Kohn are committed to fighting fraud against the government and protecting the rights of whistleblowers. If you would like to schedule a free, confidential appointment with one of our nationally recognized whistleblower attorneys, please contact us at (312) 863-7222.