Various statutes incorporate concepts of common law fraud. The federal False Claims Act (“FCA”), 31 U.S.C. §§3729-3733, is one of them.
Generally, the FCA imposes liability upon any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government. 31 USC §§ 3729(a)(1)(A) and (B). The FCA allows private persons to file suit for violations of the FCA on behalf of the government. A suit filed by an individual on behalf of the government is known as a “qui tam” action, and the person bringing the action is referred to as a “relator.” If the federal government does not intervene to assume prosecution of the case, it may be continued by the relator, with statutory benefits available to the relator.
As the FCA is an anti-fraud statute, a relator’s claims must comply with Federal Rule of Civil Procedure 9(b), which requires a plaintiff to plead fraud claims “with particularity.” Fed. R. Civ. P. 9(b). In the recent case of USA. Ex Rel. v. The City of NY., 14-CV-6455, NYLJ 1202775506763, at *1 (SDNY, Decided December 16, 2016), District Judge Jesse Furman considered the requirements under Rule 9(b) and dismissed a qui tam action in its entirety.
The relators alleged that, in the course of administering two federally funded public benefits programs, New York City submitted false or fraudulent claims to the federal government based upon the City’s alleged failure (1) to recoup overpayments to “hundreds of thousands” of program recipients and (2) to recertify at least a thousand recipients for a Medicare program.
In determining the City’s motion to dismiss under Fed. R. Civ. P. 12(b)(6) and 9(b), the Court first observed general principles under Rule 9(b): “In general, to comply with Rule 9(b) a complaint ‘must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’ Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (internal quotation marks omitted).” The Court continued: “Whether a complaint complies with the Rule, however, depends ‘upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.’”
In an informative analysis of Fed. R. Civ. P. 9(b), the Court ruled that the relators had not satisfied the Rule’s requirements. On the first basis for the relators’ FCA claims, the Court observed: “Relators’ claims with respect to ‘Aid to Continue’ benefits fall far short of satisfying Rule 9(b). In fact, Relators fail to allege a single specific example of a false claim filed in connection with the City’s alleged failure to recoup improper ‘Aid to Continue’ benefits. Instead, they rely on [Relator] Tessler’s [a hearing officer] assertion that it was the City’s ‘custom and practice’ not to recoup overpayments and statistical evidence indicating only that very few hearings ‘concerning the issue of recoupment of overpayments received due to Aid To Continue status’ were held in comparison with the number of fair hearings ‘on other issues.’ … Tessler’s assertions, however, are too conclusory to satisfy Rule 9(b); they ‘fail to provide the “who, what, when, where and how” of these “observations” and “conversations.”’”
On the second basis of the relators’ claims, the Court also found the pleading lacking: “Put simply, those allegations and the e-mail thread attached to the Second Amended Complaint support no more than an inference that, through mistake or system error, the City failed to redetermine eligibility for 1,060 people between 2004 and 2013, when the error was discovered and promptly corrected. …Those allegations do not support an inference — let alone a strong inference — of fraudulent intent, particularly since the Second Amended Complaint itself acknowledges that the Medicare Savings Program is part of an ‘extensive regulatory scheme’ and that the State uses two different record systems to process authorizations and payments for services.” The Court continued that the “Relators’ conclusory allegations and the e-mail thread they attach to the Second Amended Complaint do not even remotely support the inference that the City knew (or was reckless in not knowing) that it was causing false claims to be presented to the federal government on behalf of Medicare Savings Program recipients whose eligibility had not been redetermined in accordance with applicable regulations. That is fatal to Relators’ Medicare Savings Program claims.”
This case once again illustrates the strict pleadings requirements for claims of fraud under both state and federal procedure, and the willingness of courts to dispose of cases lacking in specificity at the outset.