First Circuit Upholds Dismissal of FCA Claims with Prejudice Taking Middle-Ground Approach to Particularity Requirement

The First Circuit, in United States ex rel. Garcia v. Novartis AG, upheld the dismissal of a FCA claim with prejudice against Novartis Pharmaceutical Corporation, Novartis Corporation, Genentech, Inc. and Roche Holdings, Inc. (collectively “Defendants”) on the basis that the complaint did not include sufficient specific allegations regarding the who, what, where, and when of the fraud to satisfy Federal Rule of Civil Procedure 9(b).  In so doing, the First Circuit appears to have taken a fact-specific middle-ground approach to the Rule 9(b) particularity standard, rather than wholly following either side of the Circuit split on the particularity standard.

The present case stems from allegations by two former employees—Frank Garcia, who worked for Genentech, and Allison Kelly, who worked for Novartis—that Defendants had engaged in off-label marketing and had provided kickbacks in connection with the sale of Xolair, a drug approved to treat asthma.

Analyzing whether the complaint met the requirement to pled fraud with particularity under Rule 9(b), the First Circuit summarizes the applicable law on particularity stating Rule 9(b), which serves a gate-keeping function for claims under the FCA, requires that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud of mistake.”  Slip op. at 16-17 (quoting Federal Rule Civil Procedure 9(b)). The Court goes on to say that “conclusory allegations and references to plans and schemes are not sufficient.”  Id. at 17 (internal quotations and citations omitted).

However, rather than applying that strict Rule 9(b) particularity standard, the First Circuit distinguishes the present case.  In cases such as the present case, where relators allege that Defendants did not commit fraud directly, but rather caused a third party to submit a fraudulent claim to the government, the First Circuit applies a more flexible particularity standard.  Under that flexible standard, a relator is allowed “to satisfy Rule 9(b) by providing ‘factual or statistical evidence to strengthen the inference of fraud beyond possibility without necessarily providing details as to each false claim submitted.’”  Slip op. at 17 (quoting United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29 (1st Cir. 2009)).

Despite the application of the more flexible standard, the Court still found that relators had failed to plead fraud with particularity.  As characterized by the First Circuit, Garcia and Kelley’s allegations of fraud consisted of alleging “that certain doctors, at various points, (1) were enrolled in federal reimbursement programs, (2) received services and incentives from Defendants, and (3) prescribed Xolair.” Slip op. at 21.  The First Circuit held that relators had failed “to tie these independently unexceptional allegations together into particularized charges about specific fraudulent claims of payment.” Id.  Ultimately, the Court concluded that although it was not “irrational to infer that, given [the allegations], some false claims for [Xolair] reimbursement were submitted to the government,” such an inference was “not enough to satisfy Rule 9(b).”  Slip Op. at 22 (internal citations omitted).

The First Circuit’s approach, although consistent with past First Circuit jurisprudence, see Duxbury, 579 F.3d at 29 (distinguishing between qui tam actions alleging the defendant submitted false claims and qui tam actions alleging the defendant induced a third party to submit false claims), is interesting because it adopts the more lenient approach preferred by the majority of Circuits with respect to the particularity standard, but only for a limited set of cases—those where the defendant did not directly commit the fraud.

Generally, the Fourth, Sixth, Eighth, and Eleventh Circuits apply a more stringent Rule 9(b) test, requiring that “a relator must allege with particularity that specific false claims actually were presented to the government for payment.” United States ex rel. Noah Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013), cert. denied, 134 S. Ct. 1759, 188 L. Ed. 2d 592 (2014); United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007) (holding “where a relator pleads a complex and far-reaching fraudulent scheme with particularity, and provides examples of specific false claims submitted to the government pursuant to that scheme, a relator may proceed to discovery on the entire fraudulent scheme); United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 557 (8th Cir. 2006) (requiring relators “provide some representative examples of their alleged fraudulent conduct, specifying the time, place, and content of their acts and the identity of the actors”); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002) (“some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government”).

In contrast, the Third, Fifth, Seventh, Ninth, and Tenth Circuits generally apply a less stringent standard under which a relator need only plead “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 156 (3d Cir. 2014).  Unlike the Fourth, Sixth, Eighth, and Eleventh Circuits, there is no requirement to provide examples of specific false claims.  See also Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010) (rejecting the “categorical approach that would … require a relator to identify representative examples of false claims to support every allegation”); United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1172 (10th Cir. 2010) (“claims under the FCA need only show the specifics of a fraudulent scheme and provide an adequate basis for a reasonable inference that false claims were submitted as a part of that scheme”); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009) (holding “a relator’s complaint, if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”); United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009) (holding a relator need not plead “the specific request for payment”).

The First Circuit’s opinion is available here.