10 June 2013

First Circuit Weighs In On Circuit Split Concerning First-To-File Rule

The First Circuit has deepened a Circuit split on whether an earlier-filed qui tam action must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) in order to serve as a jurisdictional bar to a later-filed suit under 31 U.S.C. § 3730(b)(5). Section 3730(b)(5) of the FCA states that “[w]hen a person brings [a qui tamU.S. ex rel. Heineman-Gupta v. Guidant Corp., No. 12-1867 (1st Cir. May 31, 2013), the First Circuit joined the D.C. Circuit in holding that the earlier-filed action need not satisfy Rule 9(b) in order to have preemptive effect. The Sixth and Ninth Circuits, on the other hand, have required the earlier-filed suit to be jurisdictionally viable and legally sufficient to trigger the first-to-file rule.

In Heineman-Gupta, the relator, Heidi Heineman-Gupta, alleged that Guidant Corporation and Boston Scientific Corporation (“BSC”) had engaged in a kickback scheme designed to promote sales and use of cardiac rhythm management devices. The relator’s allegations largely mirrored allegations that another relator, Elaine Bennett, had made in a separate qui tam action against BSC that she filed in another district at an earlier time. The Bennett qui tam action, which was pending (and under seal) when Heineman-Gupta filed her lawsuit, was ultimately voluntarily dismissed by Bennett and the government.

BSC moved to dismiss Heineman-Gupta’s later-filed suit as jurisdictionally barred by the first-to-file rule. Heineman-Gupta argued that Bennett’s earlier action could not have preemptive effect because it did not pass muster under Rule 9(b) in that did not include specific allegations regarding the particulars of the purported fraud, including dates, places and names of the physicians involved. The district court denied the motion, concluding that Rule 9(b) was inapplicable to the analysis, and the First Circuit affirmed.

The First Circuit stated that nothing in Section 3730(b)(5) references Rule 9(b); rather, the statute states simply that “an action is barred if it is a ‘related action’ that is ‘based on the facts underlying the pending action.'” Had Congress intended Rule 9(b) to be relevant to the analysis, the First Circuit stated, it could have referenced the Rule explicitly in Section 3730(b)(5), just as it references other Federal Rules of Civil Procedure in other provisions of the FCA, including Sections 3732(a), 3733(b)(1)(B), 3733(c)(2), 3733(h)(1), and 3733(j)(6)).

The First Circuit also observed that requiring the earlier-filed complaint to comport with Rule 9(b) would not serve any proper purpose. Rule 9(b) exists to protect defendants from frivolous allegations of fraud and to allow them to prepare a sufficient defense. The first-to-file rule, on the other hand, is focused on putting the Government on notice of potential fraudulent conduct. Quoting the D.C. Circuit’s decision in U.S. ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir. 2011), the First Circuit stated that Section 3730(b)(5) “ʻallow[s] recovery when a qui tam relator puts the government on notice of potential fraud,’ and ‘bar[s] copycat actions that provide no additional material information’ about the fraud.” According to the First Circuit, “[t]his means that if the first-filed complaint contains enough material information (the essential facts) about the potential fraud, the government has sufficient notice to launch its investigation. At that point, the purpose of the [prior, pending] qui tam action under § 3730(b)(5) is satisfied.”

As indicated above, the First Circuit’s decision in Heineman-Gupta joins the D.C. Circuit’s decision in Batiste in holding that Rule 9(b) is irrelevant to a first-to-file-rule analysis. The Sixth and Ninth Circuits have held to the contrary, finding that earlier-filed complaints that are jurisdictionally barred or legally insufficient cannot have preemptive effect under the first-to-file rule. See U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009) (earlier-filed suit subject to FCA public disclosure bar cannot have preemptive effect under the first-to-file rule); Campbell v. Redding Med. Ctr., 421 F.3d 817, 825 (9th Cir. 2009) (same); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir. 2005) (earlier-filed complaint failing to meet Rule 9(b) pleading standards cannot have preemptive effect).

16 April 2013

Fourth Circuit Holds FCA Statute of Limitations Tolled During Wartime Even in Actions Brought by Qui Tam Relators Where the Government Has Not Intervened

Posted by Nicole Ryan and Jennifer Gaspar

United States v. Halliburton, No. 12-1011 (4th Cir. Mar 18, 2013)

Over a vigorous dissent, the United States Court of Appeals for the Fourth Circuit recently held that the Wartime Suspension of Limitations Act (WSLA) tolls the False Claims Act’s (FCA) six-year statute of limitations in a case brought by a qui tam plaintiff involving alleged fraudulent billing for services provided to U.S. military forces in Iraq. United States ex rel. Carter v. Halliburton, No. 12-1011 (4th Cir. Mar. 18, 2013). The court’s decision could have significant implications for future FCA defendants by curtailing the statute of limitations as a defense against claims based on wartime conduct.

Benjamin Carter, a former employee of Kellogg Brown & Root Services (KBR), sued Halliburton and its subsidiaries, including KBR, alleging that the company submitted false claims for services provided to the military in Iraq during his employment at KBR from January through April 2005. The complaint alleged that KBR charged the government for water purification services that it had not actually performed and that it instructed employees to bill twelve hours of work per day regardless of time actually worked.

Carter filed his original complaint in February 2006. After several dismissals, Carter filed his fourth and most recent complaint on June 2, 2011. The district court dismissed that complaint, finding that it was barred by the FCA’s “first to file” requirement and by the six-year statute of limitations. It rejected Carter’s argument that the WSLA tolls the statute of limitations in civil FCA actions where the government has not intervened.

Originally enacted in 1942, the WSLA provides:

When the United States is at war or Congress has enacted specific authorization for the use of Armed Forces, … the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States … shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.

18 U.S.C. § 3287 (2006). The tolling period was extended to five years by the 2008 Wartime Enforcement of Fraud Act, which amended the WSLA. Pub. L. No. 110-417 § 855, codified at 18 U.S.C. § 3287 (2011).

The district court held that the WSLA’s tolling provision is limited to war-related suits filed by the government or to qui tam actions in which the government has intervened. The court also found that the complaint was barred by the “first to file” requirement because similar claims, since dismissed, had been pending at the time Carter’s most recent case was filed. The district court dismissed Carter’s complaint with prejudice.

The Fourth Circuit reversed. It held that the WSLA applies to allegations of fraud, including civil fraud, against the United States during wartime regardless of whether the United States filed or intervened in the action and that, as a result, the FCA’s statute of limitations was tolled as applied to Carter’s claim. The Court further held that the FCA does not require a formal declaration of war and that the United States was “at war” in Iraq for purposes of the WSLA from October 11, 2002, when Congress authorized the President to use military force in Iraq. The Court did not directly address whether the WSLA suspends the statute of limitations for FCA claims brought during a time of war where the claims are unrelated to the war.

The Fourth Circuit also held that the district court erred in dismissing Carter’s complaint with prejudice due to the pending, related claims. The Court agreed with other circuit courts that have adopted a “same material elements test” and concluded that Carter’s claim was sufficiently similar to then-existing actions to warrant dismissal. However, Carter was now free to re-file because the other cases had since been dismissed.

In dissent, Judge Agee disagreed with the majority’s application of the WSLA to actions in which the government is not a party. The dissent argues that it constitutes an unprecedented expansion of the WSLA and that the original purpose of the Act was to free the government from engaging in fact-intensive fraud investigations during wartime. He concludes that no such reasoning applied to private actors, expressing serious concern that the court’s interpretation may result in a near-indefinite statute of limitations and create financial incentives for relators to delay filing in order to increase potential recovery.

The case was reversed and remanded to the district court to consider whether plaintiff’s suit was barred by original source provisions of the FCA because the allegations were publicly disclosed. Defendants have since filed a petition seeking rehearing en banc.

26 November 2012

First-To-File Bar Applies to Later Suit Filed By The Same Relator

Posted by Scott Stein and Erik Ives

The FCA’s first-to-file bar clearly applies when a second relator files a qui tam that makes allegations similar to those previously made by a different relator. But what if the relator who files the second suit is the same person who filed the first suit? A federal district court in the District of Columbia has held that the FCA’s first-to-file rule bars a subsequent related action even when the relator who filed the second action is the same person who filed the “first filed” case.

Shea’s original suit, which we previously wrote about, alleged that Verizon/MCI submitted false claims for improper surcharges on invoices submitted under two telecommunications contracts with certain federal agencies. The United States intervened and settled that case in 2011. But while the first case was pending, Shea filed a second qui tam action, U.S. ex rel. Shea v. Verizon Business Network Services Inc., No. 09-1050(GK) (D.D.C.), alleging that Verizon/MCI had submitted false claims for improper surcharges on invoices submitted under a different set of contracts with different federal agencies. After the Government declined to intervene in the second lawsuit, the district court granted defendants’ motion to dismiss the second case under the FCA’s first-to-file bar.

The court first addressed the threshold issue of whether the first-to-file rule applies to the same relator who later files a second related action, and concluded that it does. The statutory language of the first-to-file rule states that once “a person brings an action under this subsection, no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5) (emphasis added). As the court explained, the plain language of this statute “states without ambiguity or qualification that ‘no person’ other than the Government may bring successive related actions. The statute does not say ‘no other person except the Government may bring an action, it simply says ‘no person’ which would apply equally to the original relator as any other person.” Slip Op. at 10 (emphasis in original) (internal quotations omitted).

The court then concluded that the remaining elements of the first-to-file bar were met. The court found that the second action was related to the first, rejecting Shea’s argument that the two actions were not related because they involved different contracts and different federal agencies. Shea’s original complaint “suffices to put the U.S. government on notice as to Verizon’s allegedly fraudulent billing practices with respect to surcharges on government contracts.” Slip Op. at 17 (internal quotations omitted). Accordingly, the court ruled that the second qui tam action “alleges the same material elements of the same fraud … based on the facts underlying his previously filed qui tam action” and is barred under the first-to-file rule. Id. (internal quotations omitted).

Finally, there was no dispute that the first-filed case was “pending” at the time that the relator brought the second lawsuit. The court rejected Shea’s argument that the first-filed bar shouldn’t apply because the original action had settled by the time the relator filed the operative second amended complaint, holding that an action is deemed to be “pending” once the plaintiff initiates the lawsuit. Slip Op. at 12-13.

A copy of the district court’s opinion in U.S. ex rel. Shea v. Verizon Business Network Services Inc., No. 09-1050(GK), Slip Op., Dkt. No. 58 (D.D.C. Nov. 15, 2012) can be accessed here. [hyperlink to attached] While this was an issue of first impression in the D.C. Circuit, the court’s ruling is consistent with similar decisions by district courts in the Second and Eleventh Circuits. See U.S. ex rel. Smith v. Yale-New Haven Hospital, Inc., 411 F. Supp. 2d 64, 74-75 (D. Conn. 2005); U.S. ex rel. Bane v. Lincare Holdings, Inc., No. 8:06-cv-467, Slip Op., Dkt. No. 71 at 7-8 (M.D. Fla. Mar. 14, 2008).

09 November 2012

First Circuit Set to Widen Circuit Split Over First-to-File Rule

Posted by Kristin Graham Koehler and HL Rogers

The False Claims Act (FCA) provides that “no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This so-called first-to-file rule “bar[s] a later allegation if it states all the essential facts of a previously-filed claim or the same elements of a fraud described in an earlier suit.” United States ex. Rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 32 (1st Cir. 2009). On this, there is no disagreement among the courts of appeal. However, the question arises as to what form the first filed complaint must take to trigger the rule. The Sixth Circuit has held that in order to qualify as a first filed complaint, the complaint “must not itself be jurisdictionally or otherwise barred.” United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516-17 (6th Cir. 2009). Considering the same issue, and looking at the Sixth Circuit’s prior holding, the D.C. Circuit held “a complaint may provide the government sufficient information to launch an investigation of a fraudulent scheme even if the complaint” is not jurisdictionally sound, thereby meeting the first-to-file rule. United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir. 2011). Judge Stearns, in the U.S. District Court for the District of Massachusetts, ruled on this issue over the summer and sided with the D.C. Circuit, dismissing the plaintiffs’ complaint. United States ex rel. Heineman-Guta v. Guidant Corp., 09-11927 (D.Mass. July 5, 2012). On November 6, 2012, the plaintiff filed an appeal with the First Circuit squarely raising this issue of the first-to-file rule.

In the Guidant case, the plaintiff alleged in the District of Massachusetts that the Company was involved in a scheme to induce doctors to use Guidant pace makers. Because of the product at issue, the allegations largely relate to senior citizens and, therefore, involve Medicare. Guidant argued that plaintiff’s FCA claim was precluded because of two previously filed lawsuits that Guidant argued alleged a similar scheme. The District Court found, and plaintiff conceded, that one of the two complaints did, in fact, allege a scheme nearly identical to that alleged by plaintiff. But the complaint was voluntarily dismissed and plaintiff argued lacked the particularity required by Federal Rule of Civil Procedure 9(b). Plaintiff further argued that, for this reason, the complaint could not serve as a jurisdictional bar to her complaint under the principles espoused by the Sixth Circuit in Poteet. The District Court found this argument unpersuasive.

The District Court began by explaining the reason that underlies the first-to-file rule. “The first-to-file rule is intended to provide incentives to relators to promptly alert the government to the essential facts of a fraudulent scheme.” Guidant Corp., 09-11927 at 5 (quotation omitted). Once the government has been put on notice of a fraudulent scheme, there is little benefit to allowing another relator to come later and allege the same scheme. The District Court examined both the Sixth Circuit’s argument that if a complaint is “jurisdictionally or otherwise barred” it does not qualify as an action that would initiate the first-to-file rule, Medtronic, Inc., 552 F.3d 516-17, and the D.C. Circuit’s argument that as long as the previous filing provides notice, whether the actual action is barred in some way or not, the first-to-file rule is triggered. SLM Corp., 659 F.3d 1210. The District Court sided with the D.C. Circuit’s reasoning arguing that the “purpose of a qui tam action is to provide the government with sufficient notice that it is the potential victim of a fraud worthy of investigation.” Guidant Corp., 09-11927 at 10. The District Court saw no reason why the government would be on notice after a filing that was not jurisdictionally or otherwise barred but not on notice following a filing that included the essential elements of the fraud but was somehow barred. Because the government would be on notice regardless, the District Court could find no reason to bar an action in the first instance and not the second.

The plaintiff recently appealed this ruling to the First Circuit. She places squarely at issue the District Court’s decision to side with the D.C. Circuit and reject the reasoning and holding of the Sixth Circuit. Regardless of the way the First Circuit rules on this issue, it will deepen this circuit split. None of us should be surprised to see this decision make its way to the Supreme Court in the next several years. Stay tuned.

14 August 2012

Massachusetts District Court Re-Opens The Door To Relators’ Share Of A Settlement In A Separate Matter To Which Relators Were Not A Party

Posted by Gordon Todd and Joshua Fougere

Last week, the federal district judge presiding over the AWP litigation invited relators Linnette Sun and Greg Hamilton to move to reopen the judgment in another, related case that had been previously settled and closed. In re Pharm. Indus. Average Wholesale Price Litig., 2012 WL 3263922 (D. Mass. Aug. 7, 2012). The order requires some parsing of procedural history. A few months earlier, the court granted defendant Baxter Healthcare’s motion for partial summary judgment of Sun and Hamilton’s claims based upon a broadly worded settlement agreement in another matter brought by a different relator (Ven-A-Care of the Florida Keys). In re Pharm. Indus. Average Wholesale Price Litig., 2012 WL 366599 (D. Mass. Jan. 26, 2012). Although Ven-A-Care had sued ten years before Sun and Hamilton, the cases concerned similar allegations—that Baxter fraudulently inflated the prices of drugs and caused overpayments—and the court thus read the Ven-A-Care settlement’s release to cover, and bar, Sun and Hamilton’s cause of action. In response to concerns about construing releases too broadly, the court placed the onus on the government to police such risks through its statutory authority to withhold consent on expansive settlements. Id. at *3-4 (citing 31 U.S.C. § 3730(b)(1)).

Fast forward a couple of months and the picture muddies. Sun and Hamilton moved for reconsideration, arguing that they were entitled to a fairness hearing on the Ven-A-Care settlement that apparently covered their claims, and to a share of the proceeds. The government, for its part, maintained that it did not understand or intend the Ven-A-Care release to cover Sun and Hamilton’s suit, into which it had declined to intervene. Caught in this “procedural pretzel,” 2012 WL 3263922 at *5, the court maneuvered as follows. First, it held that, by consenting to the Ven-A-Care settlement, the government had “effectively settled” Sun and Hamilton’s claims against Baxter and thus pursued an “alternate remedy” for those claims despite declining to intervene. Id. at *1-4 (citing 31 U.S.C. § 3730(c)(5)). Relying primarily on authority from the Sixth and Ninth Circuits, the court reasoned that a broad reading of § 3730(c)(5) to include the settlement was consistent with FCA’s goal of encouraging relators and would avoid the potential for government abuse. Id. Next, the court found that, because Sun and Hamilton’s rights do not change when the government pursues an “alternate remedy,” the FCA requires that they receive a hearing to determine the fairness of the Ven-A-Care settlement that had extinguished their claims. Id.; 31 U.S.C. § 3730(c)(2)(B). But, because that settlement had been approved and judgment entered, the court was forced to suggest an atypical path—that relators move to reopen the Ven-A-Care judgment (to which they were not parties) pursuant to Fed. R. Civ. P. 60(b)(6). Id. at *5.

In the end, this decision may prove inconsequential—the first-to-file bar lurks and the court noted that it will ultimately “have to determine whether it has jurisdiction.” Id. at *5. But, especially for now, it signals a serious solicitousness for the relators and a willingness to pack much (perhaps too much) into § 3730(c)(5)’s “alternate remedy” language. That could carry significant implications for FCA defendants around the country, who are routinely subject to overlapping FCA claims, because it gives fodder to relators in other cases to wreak havoc on completed settlements and to disturb what the government and the parties all think has been … well, settled.

06 June 2012

Massachusetts District Court Guts Relators’ Kickback and Off-Label FCA Claims on Motion to Dismiss

Posted by Jonathan Cohn and Josh Fougere

On June 1, Judge Rya Zobel issued a decision dismissing most of relators’ claims against pharmaceutical manufacturer Organon and two long-term care pharmacies, Pharmerica and Omnicare, concerning the antidepressant drug Remeron. Relators’ complaint was premised on allegations that defendants (1) received and/or paid kickbacks in exchange for switching patients to Organon’s preferred drugs, (2) misreported pricing and rebates associated with Organon drug sales to the federal government, and (3) promoted Organon drugs for off-label use in order to switch more patients to those drugs. The complaint alleged kickback claims against all defendants and pricing and off-label claims against Organon only.

Judge Zobel’s decision leaves little of the complaint standing. First, the court found that it lacked jurisdiction over all claims against Pharmerica and all kickback and pricing claims against Organon under the FCA’s first-to-file and public disclosure bars. Two aspects of this ruling are particularly noteworthy: (1) Following the D.C. Circuit, the court rejected relators’ contention that a first-filed complaint must satisfy Rule 9(b) because such a requirement would “frustrate the purpose of the first-to-file bar by raising the threshold for it to apply,” Slip Op. 12 n.17, and (2) It was enough for the first-filed complaint to list the Organon drug Remeron, and expressly naming defendant Organon was not necessary, id. at 15. The two complaints alleged the same essential elements of fraud and that was “sufficient to put the government on the trail.” Id. at 16. It did not matter that that these relators provided “additional details and types of kickbacks.” Id.

Second, the court dismissed off-label marketing claims brought under 31 U.S.C. § 3730(a)(1)-(3) because “if a state Medicaid program chooses to reimburse a claim for a drug prescribed for off-label use, then that claim is not ‘false or fraudulent,’ and liability cannot therefore attach for reimbursement.” Id. at 26. Relators alleged only that a state “may” deny coverage for an off-label prescription, not that any states actually did or that states must do so under the Medicaid statute. The allegation that states had a choice whether to cover such prescriptions and did, the court found, could not establish FCA liability for reimbursement claims purportedly filed because of an off-label marketing scheme. Id. at 27-28.

Third, the court dismissed claims against Omnicare premised on so-called “collateral kickbacks”—that is, incentive payments “such as research grants, sponsorship of annual meetings, data purchasing agreements, nominal-price transactions, and participation in corporate partnership programs”—because they failed to satisfy Rule 9(b). Id. at 28-33. The court found, for example, that “budget[ing] for payments to Omnicare does not confirm that such payments were actually made, that Omnicare solicited them, or that the payments were inducements to participate in the conversion or therapeutic interchange scheme alleged,” and the “conclusory allegation that ‘Omnicare actively pursued Organon to participate in corporate partnership programs, which were mainly ways to funnel money to Omnicare in exchange for Remeron prescriptions'” would not do. Id. at 33. (The court did not say whether dismissal was with or without prejudice.)

Although the court did not dismiss relators’ claims entirely, each of these rulings is critically important to limiting the scope of FCA liability that is frequently pursued in analogous cases against pharmacy providers and pharmaceutical manufacturers.

Related post: D.C. Circuit Splits with Sixth Circuit on Scope of FCA’s First-to-File Bar

16 April 2012

Tenth Circuit Affirms Dismissal of Qui Tam Over Relator’s Objection

In an unpublished opinion, a panel of the Tenth Circuit has affirmed the dismissal of a qui tam before it was served on the defendant, over the objection of the relators. United States ex rel. Wickliffe v. EMC Corp., Case No. 09-4082 and 10-4174 (Order and Judgment, April 4, 2012). Relators’ complaint alleged that EMC Corporation knowingly sold defective computers to government agencies and fraudulently concealed information regarding the defect. Before the case was unsealed, the government moved to dismiss the complaint on the basis of a prior settlement with EMC. The district court dismissed the complaint pursuant to 31 U.S.C. 3730(c)(2)(A), which permits the government to dismiss a relator’s suit “notwithstanding the objections” of the relator if the relator is given notice and opportunity for a hearing. Alternatively, the district court held that the complaint was barred by the first-to-file provision, 31 U.S.C. 3730(b)(5).

On appeal, relators challenged the first-to-file dismissal on the grounds that the previously-filed complaint did not satisfy Rule 9(b)’s particularity requirement, and therefore could not act to operate subsequent complaints. The Tenth Circuit, noting that there is a circuit split on the issue of whether “first-filed” complaints must satisfy Rule 9(b), declined to take a firm position on the issue because it concluded that the case could be resolved on other grounds. However, the Panel “admit[ted] to being uneasy” with the position that Rule 9(b) applies, as that “would create a strange judicial dynamic, potentially requiring one district court to determine the sufficiency of a complaint filed in another district court.”

With respect to the dismissal under 3730(c)(2)(A), the Tenth Circuit noted that there also is a circuit split on the level of scrutiny that should be applied when the government moves to dismiss a qui tam suit, with the DC Circuit providing the government a virtually unfettered right to dismiss the action, while the Ninth Circuit requires that the government offer reasons for the dismissal that are rationally related to a legitimate government interest. The Tenth Circuit has adopted the latter, more stringent standard in cases in which the defendant has been served, but the panel declined to decide which test should apply when the government seeks dismissal before the defendant has been served because it found dismissal appropriate under either test, given that the government had already settled with the defendant.

30 January 2012

D.C. Circuit Splits with Sixth Circuit on Scope of FCA’s First-to-File Bar

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.

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