What is the original source exception to the public disclosure bar?

The False Claims Act prohibits:

• knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval; and
• knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.

To prevail, a qui tam whistleblower must prove that:

1. the defendant submitted a claim to the government;
2. the claim was false; and
3. the defendant knew the claim was false.

The first-to-file bar prohibits a whistleblower from bringing suit based on a fraud already disclosed through identified public channels, unless the whistleblower is “an original source of the information.” Pursuant to the first-to-file bar, “[w]hen a person brings an action under [the False Claims Act], no 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). The first-to-file bar encourages prompt filing.

• Where two complaints allege “all the essential facts” of the underlying fraud, then the first complaint will typically preclude the later complaint, even if the later-in-time complaint incorporates different details.
• Where a second complaint provides additional information that suggests a broader scope of fraud than the initial complaint, the second complaint might be barred where the government knows the essential facts of a fraudulent scheme because it has sufficient information to discover related frauds.
• To bar later-filed qui tam actions, the allegedly first-filed qui tam complaint must not itself be jurisdictionally or otherwise barred, e.g., if the first-filed complaint fails to plead fraud with particularity, as required by Rule 9(b).
• The Fourth Circuit Court of Appeals recently held that the appropriate reference point for a first-to-file analysis is the set of facts in existence at the time that the FCA action under review is commenced. Facts that may arise after the commencement of a relator’s action, such as the dismissals of earlier-filed, related actions pending at the time the relator brought his or her action, do not factor into this analysis.

The first-to-file bar underscores the importance of reporting fraud promptly and seeking counsel to evaluate potential claims.

The False Claims Act requires that a qui tam action must be filed under seal and remain sealed for at least 60 days. This procedure enables the government to investigate the matter, so that it may decide whether to take over the relator’s action or to instead allow the relator to litigate the action in the government’s place.  The purpose of the seal provision is to avoid alerting defendants to a pending federal criminal investigation.  State Farm Fire and Cas. Co. v. US, 137 S. Ct. 436 (2016).

Failure to file under seal could potentially jeopardize a relator’s ability to recover a whistleblower bounty, but the False Claims Act does not require automatic dismissal for a seal violation

The “sealing period, in conjunction with the requirement that the government, but not the defendants, be served, was ‘intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.”  United States ex rel. Pilon v. Martin Marietta Corporation, 60 F.3d 995, 998-99 (quoting S. Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289).

A False Claims Act retaliation claim can also be filed under seal (in conjunction with a qui tam action).

To initiate a False Claims Act qui tam action, the relator (whistleblower) must serve a copy of the qui tam complaint along with a “written disclosure of substantially all material evidence and information the [relator] possesses” on the Government. 31 U.S.C. § 3730(b)(2).  The complaint remains under seal for at least 60 days, and shall not be served on the defendant.  During this 60-day period, the Government is charged with investigating the allegations and “may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal.” 31 U.S.C. §§ 3730(b)(2), (3).

Before the 60-day period (or any extensions obtained) expire, the Government shall either “(A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.” 31 U.S.C. § 3730(b)(4).

Reverse false claims liability arises where an entity or individual avoids the payment of money due to the government, e.g., failing to pay royalties owed to the government for mining on public lands.

Section 3729(a)(1)(G) creates liability for a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government,” or who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).

To establish reverse false claim liability, a qui tam relator must show:

1. proof that the defendant made a false record or statement
2. at a time that the defendant had a presently-existing obligation to the government — a definite and clear obligation to pay money or property at the time of the allegedly false statements.

Reverse FCA liability can be supported by “`proof that the defendant made a false record or statement at a time that the defendant owed to the government an obligation’ . . . to pay money or property.” Chesbrough v. VPA, P.C., 655 F.3d 461, 473 (6th Cir. 2011)).

The term “obligation,” as it is used in the FCA’s reverse false claims provision, expressly includes any “established duty, whether or not fixed, arising from. . . . the retention of any overpayment. 31 U.S.C.A. § 3729(b)(3). By statute, Medicare requires that “[a]n overpayment must be reported and returned” to the program no later than “the date which is 60 days after the date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(2).  CMS has provided the following guidance regarding what it means to have “identified” an overpayment:

A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

42 C.F.R. § 401.305(a)(2). Internal audits can provide evidence that a provider knew about overpayments and chose not to return the overpayments to CMS.

The statute of limitations for a qui tam action is the longer of 1) six years from when the fraud is committed, or 2) three years after the United States knows or should know about the material facts, but not more than 10 years after the violation. Under § 3731(b)(2), the Government may bring an FCA action within up to 10 years of an FCA violation, provided that the suit was commenced within three years of the date that “the official of the United States charged with responsibility to act in the circumstances” knew or reasonably should have known of the facts material to the right of action.

In Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Supreme Court held that both Government-initiated suits under § 3730(a) and relator-initiated suits (qui tam actions) under § 3730(b) are civil actions under section 3730 and therefore the longer limitations period applies in non-intervened qui tam actions.

The relevant “official” whose knowledge triggers the three-year limitations period of § 3731(b)(2) is the Attorney General or his or her designees within the Department of Justice.

The statute of limitations for a False Claims Act whistleblower retaliation case is three years.

The public disclosure bar prohibits a qui tam relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A).

An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [suit].”  § 3730(e)(4)(B).

The public disclosure bar asks whether the relator’s allegations are “substantially similar” to publicly available information. United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012).  “Where a public disclosure has occurred, [the government] is already in a position to vindicate society’s interests, and a qui tam action would serve no purpose.” United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003).

But the public disclosure bar does not dictate that a relator must “possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction.”  United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994).  Rather, “direct and independent knowledge of any essential element of the underlying fraud transaction” is sufficient to give the relator original-source status under the Act. Id. at 657.

In Springfield Terminal, the D.C. Circuit set forth specific criteria to evaluate whether the public disclosures bars a qui tam action:

1. The government has “enough information to investigate the case” either when the allegation of fraud itself has been publicly disclosed, or when both of its underlying factual elements—the misrepresentation and the truth of the matter—are already in the public domain.
2. “[I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id. at 654. Because the publicly disclosed pay vouchers reflected only the false statement (the arbitrator’s claim for payment) and not the true facts (the services actually rendered), we held that the public disclosure bar did not apply. Id. at 655-56. That said, we stressed that a qui tam action cannot be sustained where both elements of the fraudulent transaction—X and Y—are already public, even if the relator “comes forward with additional evidence incriminating the defendant.”

A September 2018 Third Circuit decision in Pharamerica clarifies that the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information, where the public information — standing alone — could not have reasonably or plausibly supported an inference that the fraud was in fact occurring.  Similarly, the D.C. Circuit has held that the public disclosure bar is not triggered where the relator “supplied the missing link between the public information and the alleged fraud” by “rel[ying] on nonpublic information to interpret each [publicly disclosed] contract,” and where “[w]ithout [relator’s] nonpublic sources . . . there was insufficient [public] information to conclude” that the defendant actually engaged in the alleged fraud.  United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 935 (D.C. Cir. 2017).

Courts in the Fifth Circuit apply a three-part test to determine whether the public disclosure bar applies, asking: “(1) whether there has been a `public disclosure’ of allegations or transactions, (2) whether the qui tam action is `based upon’ such publicly disclosed allegations, and (3) if so, whether the relator is the `original source’ of the information.” U.S. ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 173 (5th Cir. 2004) (quotations omitted). The Court is not required to rigidly follow the three steps. U.S. ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 327 (5th Cir. 2011). Indeed, the Fifth Circuit has recognized that “combining the first two steps can be useful, because it allows the scope of the relators’ action in step two to define the `allegations or transactions’ that must be publicly disclosed in step one.” Id.; see also U.S. ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008) (combining the first two steps).

The False Claims Act (FCA) defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4).  In United States ex rel. Escobar v. Universal Health Servs., Inc., the Supreme Court held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.

In particular, the Escobar Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016).  A Fifth Circuit decision summarizes the core holding of Escobar:

In Escobar, the Court articulated the following factors governing the materiality analysis, with no one factor being necessarily dispositive:

• whether compliance with a statute is a condition of payment;
• whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”;
• whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations; and
• whether the government would likely refuse payment had it known of the regulatory violations.

As Escobar addresses only an implied certification theory, Escobar’s materiality requirement should not extend to all types of FCA claims.  For example, an express misrepresentation, e.g., a health insurer expressly agreeing to comply with Medicare rules and regulations when it does not, would violate the FCA.  See, e.g., U.S. ex rel. McCarthy v. Marathon Techs., Inc., No. 11 C 7071, 2014 WL 4924445 (N.D. Ill. Sept. 30, 2014).

Examples of Material False Claims

Examples of material false claims include:

• A drug company Seeking and obtaining payment for off-label uses of certain drugs.  See U.S. ex rel. Brown v. Celgene Corp., 226 F. Supp. 3d 1032 (C.D. Cal. 2016).
• A private security company submitting false weapons qualifications for the services of protective services personnel who had not fulfilled the required weapons training. United States ex rel. Beauchamp v. Academi Training Center, Inc., 220 F. Supp. 3d 676 (E.D. Va. 2016).
• Submitting a false hospice certification. See, e.g., Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 629 (D.N.J. 2016); United States ex rel. Fowler v. Evercare Hospice, Inc., No. 11-CV-00642-PAB-NYW, 2015 WL 5568614, at *7 (D. Colo. Sept. 21, 2015) (“the requirement that physicians’ certifications are accompanied by clinical information and other documentation that support a patient’s prognosis is a condition of payment under applicable Medicare statutes and regulations.”); see also, e.g., United States ex rel. Hinkle v. Caris Healthcare, L.P., No. 3:14-CV-212-TAV-HBG, 2017 WL 3670652, at *9 (E.D. Tenn. May 30, 2017) (“the government’s complaint alleges that defendants’ written certifications were false, in that the documentation for certain patients did not support a prognosis of terminal illness.”).
• A contractor engaged to provide security for Al Asad Airbase in Iraq violated the FCA by falsifying certifications of marksmanship and knowingly billing the Government the full contract price for guards who failed to meet the contractually specified marksmanship qualification. United States v. Triple Canopy, Inc., 857 F.3d 174, 177 (4th Cir. 2017).  The court held that such misrepresentations were material because the Government’s decision to pay “would be influenced by knowledge that the guards could not … shoot straight.” Id. at 176.

The federal government’s payment of a claim after it learns of untruthful certifications or attestations about compliance with regulatory or contractual duties is not a shield from liability.  See Campie v. Gilead Sciences, Inc., 862 F.3d 890, 906 (9th Cir. 2017).

An ordinary breach of a government contract caused by an honest mistake ordinarily does not give rise to False Claims Act liability.  To prevail in a qui tam action, a relator must prove the defendant acted knowingly, i.e., that the defendant “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.”  31 U.S.C. § 3729(b).  But proof of specific intent to defraud is not required.  Therefore, a person who acts in deliberate ignorance or reckless disregard of a false or fraudulent claim can be liable under the False Claims Act.

As amended by the Fraud Enforcement and Recovery Act of 2009, a person is liable under the False Claims Act if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”  There is no requirement to prove that a false statement was made with the intent that it would result in the federal government paying the claim.

Stark Act Violations or Kickbacks Can Violate the False Claims Act

• Both the Stark Act and the Anti-Kickback Act prohibit a health care provider from submitting claims to Medicare based upon referrals from physicians who have a “financial relationship” with the health care entity, unless a statutory or regulatory exception or safe harbor applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b).  In particular, the Stark Act prohibits “knowingly and willfully” offering or paying “any remuneration . . . to any person to induce such person . . . to refer an individual to a person for the furnishing . . . of any item or service for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2)(A).  And it prohibits “knowingly and willfully solicit[ing] or receiv[ing]” kickbacks “in return” for such conduct.  Id. § 1320a-7b(b)(1)(A).
• The Stark Act expressly prohibits Medicare from paying claims that do not satisfy each of its requirements, including every element of any applicable exception.  42 U.S.C. §§1395nn(a)(1), (g)(1).
• “Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a claim submitted to a federally funded insurance program is actionable under the FCA.”  United States  ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (citing United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (other citations omitted)).  Typically submission of a claim to Medicare requires the provider to certify compliance with the Anti-Kickback Law on CMS Form 855s, which states in relevant part “I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with [Medicare] laws, regulations, and program instructions (including, but not limited to, the Federal [A]nti-[K]ickback [S]tatute . . . ), and on the supplier’s compliance with all applicable conditions of participation in Medicare.”
• In other words, a claim for payment made pursuant to an illegal kickback is false under the FCA.  United States ex rel. Quinn v. Omnicare, Inc., 382 F.3d 432, 439 (3d Cir. 2004). It is well-settled that “claims for payment made pursuant to illegal kickbacks are false under the [FCA].” United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 95 (3d Cir. 2018) (quoting United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 52 (D. Mass. 2011)).  When a claim is tainted by an AKS violation, it is automatically legally “false” under the FCA. Greenfield, 880 F.3d at 95. Therefore, once a violation of the AKS has been established, the first element of the FCA, falsity, has been met.
• A defendant can avoid liability under the Stark Act by demonstrating that either a statutory or regulatory exception (or safe harbor) applies.  The safe harbor exceptions recognize that financial arrangements between physicians and health care entities may exist for legitimate reasons independent of referrals.

Note that opposing kickbacks or raising concerns about kickbacks is protected conduct under the False Claims Act anti-retaliation provision.  For more information about False Claims Act whistleblower protection, click here.

For more information about the False Claims Act, Anti-Kickback Statute, Physician Self-Referral Law, and Exclusion Statute, see the HHS OIG’s roadmap for physicians about fraud and abuse laws.

As explained in a recent DOJ press release, “The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs.  The Physician Self-Referral Law, commonly known as the Stark Law, prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper financial arrangement, including the payment of compensation that exceeds the fair market value of the services actually provided by the physician.  Both the Anti-Kickback Statute and the Stark Law are intended to ensure that physicians’ medical judgments are not compromised by improper financial incentives and instead are based on the best interests of their patients. Claims submitted under the Anti-Kickback Statute and the Stark Law violate the False Claims Act.”

Kickback Whistleblower Need Not Prove “but for” Causation

Recently the Third Circuit rejected a provider’s contention that a kickback is actionable under the FCA only where the relator provides that the kickback actually influenced a patient’s or medical professional’s decision to use a particular provider.  In Steve Greenfield v. Medco Health Solutions Inc., the Third Circuit held that a kickback qui tam can be proven by showing that a claim was submitted for reimbursement for medical care that was provided in violation of the Anti-Kickback Statute (as a kickback renders a subsequent claim ineligible for payment).  But the court noted that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”

In June 2019, Rialto Capital Management LLC (Rialto) and its former affiliate RL BB-IN KRE LLC (RL BB) agreed to pay $3.6 million to resolve allegations that Rialto and the Kentuckiana Medical Center (KMC), an Indiana-based hospital owned by RL BB, violated the Anti-Kickback Statute, the Stark Law, and the False Claims Act by engaging in illegal financial arrangements with two doctors who referred patients to KMC. According to the DOJ’s press release, “KMC, under the direction of Rialto, provided personal loans to two referring doctors and then repeatedly forbore from requiring repayment of those loans” and “the hospital’s failure to collect on loans to key referral sources constituted a form of remuneration prohibited by both the AKS and the Stark Law.”

Bid rigging can violate the False Claims Act (FCA) under a fraudulent inducement theory.  In a seminal FCA case, electrical contractors entered into a collusive bidding scheme in which they averaged the price of the prospective bids and then chose from among the contractors one who would submit a bid for the averaged amount, while the others submitted higher bids.  U. S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943).  The Court found that this type of collusive bidding qualified as a false claims violation.

Recently Concept Schools, a charter school management company, paid $4.5M to settle a False Claims Act case alleging that it rigged the bidding for E-Rate contracts between 2009 and 2012 in favor of chosen technology vendors so that its network of charter schools located in several states selected the chosen vendors without a meaningful, fair and open bidding process.  Additionally, the government alleged that Concept Schools’ chosen vendors provided equipment at higher prices than those approved by the FCC for equipment with the same functionality.

Where a contract is “procured by fraud,” False Claims Act liability flows from fraudulent inducement.  Examples of fraudulent inducement include:

• the contractor knowingly provides the government with price lists and discounts containing false information in order to induce it to enter into the contract;
• the contractor makes an initial misrepresentation about its capability to perform the contract in order to induce the government to enter into the contract; or
• a party makes promises at the time of contracting that it intends to break.

Yes, and indeed drug manufacturer Ranbaxy pleaded guilty to seven felonies related to Good Manufacturing Practices violations at facilities in India and paid $500 million in penalties.  Good Manufacturing Practices (“GMPs”) are the standards for quality control and product testing set forth at 21 C.F.R. pt. 211.

A GMP violation can be sufficient to give rise to FCA liability if the drug’s strength materially differed from, or the purity or quality fell below, the strength, purity or quality specified in the drug’s FDA-approved New Drug Application, the drug’s labeling, and/or the standards set forth in an official compendium.  Similarly, manufacturing deficiencies affecting the strength, purity and/or quality of the affected drug such that the drug is essentially “worthless” and not eligible for payment by the government can give rise to FCA liability.  The defect must be so significant that what was provided was “understood to be different” from the approved drug.

But there are limitations:

• A minor or trivial departure from GMPs might not be actionable.
• In the Fourth Circuit, when a new drug has been approved by the FDA and thus qualifies for reimbursement, a claim for reimbursement is not a false claim merely due to adulteration.  See Barry Rostholder v. Omnicare, Inc., 745 F.3d 694 (4th Cir. 2014).

False Claims Act qui tam actions must meet the heightened pleading requirement set forth in Federal Rule of Civil Procedure 9(b).  In other words, a quit tam relator must “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b).  The complaint must “identify ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’” Cafasso ex rel. United States v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)

Note though that in the Ninth Circuit, the relator need not “identify representative examples of false claims to support every allegation.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010).  Similarly, in the Eleventh Circuit, there is no requirement for a qui tam relator to provide exact billing data.  Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1312 & n.21 (11th Cir. 2002).  Rather, a complaint must contain “some indicia of reliability” that a false claim was actually submitted. Clausen, 290 F.3d at 1311. “For instance, a relator with first-hand knowledge of the defendant’s billing practices may possess a sufficient basis for alleging that the defendant submitted false claims.” United States ex rel Patel v. GE Healthcare, Inc., No. 8:14-cv-120-T-33TGW, 2017 WL 4310263, at *6 (M.D. Fla. Sept. 28, 2017).

“An FCA claimant is not required to show `the exact content of the false claims in question’ to survive a motion to dismiss, as `requiring this sort of detail at the pleading stage would be one small step shy of requiring production of actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates.'” United States v. Executive Health Resources, Inc., 196 F.Supp.3d 477, 492 (E.D.Pa. 2016) (citing Foglia, 754 F.3d at 156); Gohil, 96 F.Supp.3d at 519 (“[A relator] is not required to plead the details of any false claim submitted for payment[.]”)

But it is critical to connect the fraud scheme to the submission of false claims.  In United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 58 (1st Cir. 2017), the First Circuit held that “aggregate [information] reflecting the amount of money expended by Medicaid” on off-label prescriptions was “insufficient on its own to support a[] [False Claims Act] claim” because it did not show “an actual false claim made to the [G]overnment.”

To satisfy Rule 9(b), the whistleblower “must provide ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted’”; “[d]escribing a mere opportunity for fraud will not suffice.” See Foglia v. Renal Ventures Mgmt., 754 F.3d 153, 157-58 (3d Cir. 2014).

As summarized in United States of America ex rel. Donna Rauch v. Oaktree Medical Centre, P.C., No. 6:15-cv-01589 (D.SC March 5, 2020), the Fourth Circuit applies the following Rule 9(b) standard:

“To satisfy Rule 9(b), a plaintiff asserting a claim under the [FCA] `must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” Nathan, 707 F.3d at 455-56 (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)). The Fourth Circuit has held that “allegations of a fraudulent scheme, in the absence of an assertion that a specific false claim was presented to the government for payment” are insufficient to meet Rule 9(b)’s heightened pleading standard. Id. at 456. “Instead, the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the [FCA] attaches only to a claim actually presented to the government for payment, not the underlying fraudulent scheme.” Id. (citing Harrison, 176 F.3d at 785). In the event a relator does not plead with particularity that specific false claims actually were presented to the government for payment, a relator’s complaint may still survive a Rule 9(b) challenge only if it “allege[s] a pattern of conduct that would `necessarily have led[ ] to submission of false claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (alteration and emphasis in original).

The False Claims Act provides that any entity violating 31 U.S.C. § 3729(a)(1) is liable for three times the amount of damages that the Government sustains because of the fraud.

In addition, the False Claims Act imposes a penalty for each violation or each false claim. As of December 13, 2021, the minimum False Claims Act penalty is $11,803 per claim and the maximum penalty is $23,607 per claim.

Generally, the qui tam relator (the whistleblower) need not have firsthand knowledge of every aspect of the fraud scheme. The First, Third, Fifth, and Ninth Circuits have taken a more nuanced reading of the Rule 9(b) heightened pleading requirement, holding that it is sufficient for a plaintiff to allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that [false] claims were actually submitted.”

Recently the First Circuit held that “nothing in the statutory text limits ‘direct knowledge’ to knowledge gained from participation in or observation of the fraud. The statute requires only that the person have ‘direct and independent knowledge of the information on which the allegations are based,’ not direct and independent knowledge of the fraudulent acts themselves.” United States ex rel. Banigan v. PharMerica, Inc., 2020 WL 813258 (1st Cir. Feb 19, 2020).