Posted by Robert J. Conlan and Brian P. Morrissey
In a recent decision, the U.S. Court of Appeals for the District of Columbia ruled that a first-filed qui tam complaint need not satisfy the heightened pleading requirements for fraud set forth in Federal Rule of Civil Procedure 9(b) in order to bar subsequent qui tam complaints based on the same material allegations. In so holding, the court rejected the contrary argument put forth by the relator and the United States as amicus curiae, and it created a circuit split with the Sixth Circuit.
In United States ex rel. Batiste v. SLM Corp., reported at 659 F.3d 1204 (D.C. Cir. 2011), slip opinion here, the relator, Sheldon Batiste, alleged that SLM Corp. (commonly known as “Sallie Mae”) defrauded the Federal Government in its administration of student loans by unlawfully putting federally-subsidized student loans into forbearance (thereby causing the Government to pay additional interest and special allowances on such loans), and by filing false certifications with the Government in order to maintain its status as an eligible lender.
More than two years before Batiste filed his complaint, however, another relator had filed a qui tam suit against SLM and one if its wholly-owned subsidiaries. Complt., United States ex rel. Zahara v. SLM Corp., No. 2:05-cv-8020 (C.D. Cal. Nov. 9, 2005). That complaint was ultimately dismissed with prejudice after the relator failed to obtain counsel by a set deadline, Entry Dismissing Action, United States ex rel. Zahara v. SLM Corp., No. 1:06-cv-088 (S.D. Ind. Mar. 12, 2009). The district court in Batiste’s case concluded that this prior qui tam suit was based on the “same material elements of fraud” as Batiste’s complaint. Batiste, 659 F.3d at 1208. Accordingly, the district court dismissed Batiste’s complaint for lack of subject matter jurisdiction under the FCA’s first-to-file bar. Id.; see also 31 U.S.C. § 3730(b)(5) (providing that “no person other than the Government may intervene or bring a related action based on the facts underlying [a] pending action”).
Batiste, supported by the United States as amicus curiae, appealed, arguing that the prior complaint in Zahara did not allege fraud with the particularity necessary to meet Federal Rule of Civil Procedure 9(b)’s heightened pleading standard for fraud claims and, thus, should not have triggered the FCA’s first-to-file bar. The D.C. Circuit rejected that contention, holding that “first filed complaints need not meet the heightened standard of Rule 9(b) to bar later complaints; they must provide only sufficient notice for the government to initiate an investigation into the allegedly fraudulent practices, should it choose to do so.” Batiste, 659 F.3d at 1210.
In reaching this conclusion, the D.C. Circuit expressly declined to follow the Sixth Circuit’s decision in Walburn v. Lockheed Martin Corp., 431 F.3d 966 (6th Cir. 2005). Batiste, 659 F.3d at 1210-11. In Walburn, the Sixth Circuit reasoned that a complaint that fails to satisfy Rule 9(b) should not be given preemptive effect under the FCA’s first-to-file bar because such a complaint, by virtue of its failure to meet the 9(b) standard, is insufficiently precise to provide the Government “adequate notice . . . of the fraud it alleges.” Id. at 973.
Other federal courts are likely to grapple with this same question. As the number of qui tam complaints filed in the federal courts rises and qui tam relators focus special attention on certain industries (including the student loan industry), overlap between complaints is all but inevitable. These courts will be forced to choose between the competing approaches taken by the Sixth and D.C. Circuits, and may ultimately help inform Supreme Court resolution of the current circuit split.
Posted by Amy Markopoulos and Kristin Koehler
A recent ruling in the District of Arizona serves as a reminder to defense counsel that they should be sensitive to the possibility that relators are relying on stolen privileged documents to support their claims. Should a company suspect that a relator’s case is founded on privileged documents, the company should act quickly to move for return of the privileged documents. The consequences for relator or his counsel for failing to appropriately handle privileged documents can be serious.
In Frazier v. IASIS Healthcare Corporation, No. 2:05-cv-00766 (D. Ariz. 2012), IASIS Healthcare and Relator’s counsel had engaged in a 4-year battle regarding the return of certain privileged documents that Relator had stolen when he left IASIS in 2004. The relator, Jerre Frazier, had sent these privileged documents to his lawyers, who kept most of the documents in a sealed box. Despite bearing the title “Legal Memo,” relator’s counsel did not seek the court’s opinion as to whether these documents were privileged, and “appeared to play dumb” and feigned ignorance about the documents’ location when IASIS asked for their return. As a result, IASIS moved for the return of the documents and for sanctions against Relator’s counsel.
Relator’s counsel will pay IASIS $1.4 million, representing the amount of legal fees incurred by litigating this specific issue. Counsel is also barred from representing the Relator or any other plaintiff adverse to IASIS.
Serious issues can arise for counsel when relators steal documents – defense counsel needs to be prepared to file a motion should this occur, and relator’s counsel must be careful to appropriately handle privileged documents if relator turns them over.
IASIS and Frazier settled the case in November, six years after Frazier had initially brought his complaint. The government had declined to intervene in this matter.