Complaints alleging violations of the False Claims Act (“FCA”) must satisfy Federal Rule of Civil Procedure 9(b), which requires the government or qui tam relator to “state with particularity the circumstances constituting fraud.” In order to ferret out fishing expeditions, many courts have held that Rule 9(b) requires plaintiffs to allege the who, what, when, where and how of the alleged fraud. See, e.g., United States ex rel. Wilson v. Kellogg Brown & Root, 525 F.3d 370, 379 (4th Cir. 2008) (citing United States ex rel. Willard v. Humana Health Plan of Texas, 336 F.3d 375, 384 (5th Cir. 2003). In an FCA case, that usually means the knowing submission of a false claim. This pleading requirement is often an insurmountable hurdle for plaintiffs who lack actual knowledge of any false claims being submitted, but who hope that they might uncover such evidence through discovery.
Relators, on the other hand, often argue that Rule 9(b) does not require them to identify each (or even any) false claim with particularity, as long as they allege a fraudulent scheme that gives rise to a strong inference that such claims were actually submitted. This invitation to “relax” Rule 9(b) has been declined by some courts, most recently by the Fourth Circuit in United States ex rel. Nathan v. Takeda Pharm. No. Am., Inc., No. 11-2077 (4th Cir. Jan. 11, 2013). Nonetheless, the Ninth Circuit recently reinstated an FCA complaint that did not identify even one allegedly false claim, holding that an FCA plaintiff need not allege with particularity the false claim itself, so long as the plaintiff sufficiently alleges the fraudulent scheme. See United States ex rel. Jajdelski v. Kaplan, Inc., No. 11-16651 (9th Cir. Feb. 13, 2013).
Fake Diplomas and Phantom Students
The relator in Kaplan, a former admissions representative at a for-profit college, said he became suspicious when he noticed that diplomas were being drawn up for students who did not graduate. Id. at 2-3. Over time, he became convinced that the school was defrauding the government by requesting financial aid for students who were not enrolled. Id. at 3. When he questioned others at the college about the financial aid status of those students who did not graduate, he was allegedly told by the College Director to “[k]eep [his] nose out of where it doesn’t belong,” and was later fired. Id. In his complaint, he alleged that the college implemented a scheme to defraud the government by submitting financial aid claims to the U.S. Department of Education for students who were not enrolled. But he was unable to identify which allegedly false claims were made to the government, or when they were made. Id. at 4. The district court therefore dismissed the case with prejudice under Rule 9(b) for failing to plead with particularity the who, what, when, where and how of a single false claim, consistent with most courts. Id. at 2.
No Claim, No Worries
On appeal, and in an unpublished decision, the Ninth Circuit reversed. It faulted the district court for having required a qui tam relator to identify “which false claims were submitted and when,” finding no such requirement under Rule 9(b) or its FCA precedent. Id. at *4. The court instead affirmed that “it is sufficient 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,’” even if a complaint did not identify a single false claim. Id. at 4-5 (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)). The Ninth Circuit was satisfied that the relator had pled the scheme with particularity and thus did not require any allegedly false claims to be identified, noting that this reasoning was aligned with the Fifth Circuit’s approach. Id.
Although one judge filed a dissenting opinion, even she did not disagree with this principle. See Jajdelski, at *7 (Callahan, J., dissenting) (“While a plaintiff need not provide ‘representative examples of false claims to support every allegation,’ he must at least 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.’”). Judge Callahan simply found that the relator in that case had not sufficiently pled the scheme. But neither she nor the majority opinion addressed decisions from other circuits which have held that FCA plaintiffs must allege the who, what, when, where and how of false claims with particularity. See, e.g., United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301 (11th Cir. 2002).
As Kaplan indicates, a split of authority is developing as to what must be alleged in an FCA complaint to satisfy Rule 9(b). Moreover, some courts have undertaken to soften Rule 9(b) in circumstances not mentioned either in the rule itself or in the FCA. See, e.g., United States ex rel. Russell v. Epic Healthcare Mgmt. Grp., 193 F.3d 204, 308-09 (5th Cir. 1999) (relaxing Rule 9(b) “when the facts relating to the alleged fraud are peculiarly within the perpetrator’s knowledge”). This has injected nuance into the application of an otherwise straightforward rule and, taken to its extreme, has the potential to unravel the rule altogether. Cf. United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 728 (10th Cir. 2006) (“Although we acknowledge that courts have sometimes relaxed the requirements of Rule 9(b), we agree with the Fifth Circuit’s caution that this exception must not be mistaken for license to base claims of fraud on speculation and conclusory allegations.”).
To prevent meritless suits from reaching discovery or the motion for summary judgment stage, the better route is for courts to require FCA plaintiffs to plead the specifics of the false claim itself. After all, liability under subsections (a)(1)(A) and (a)(1)(B) of the FCA is premised on the false or fraudulent claim—not the scheme surrounding it. See Hopper v. Solvay Pharmaceuticals, Inc., 588 F.3d 1318, 1329 (11th Cir. 2009) (“Because liability under subsection (a)(1) is predicated upon the defendant itself submitting or directly causing the submission of a false claim, we require a plaintiff prove the ‘who,’ ‘what,’ ‘where,’ ‘when,’ and ‘how’ of fraudulent submissions to the government.”).