US ex rel. Knisely v. Cintas
Corporation – ED Pa. – March 14, 2014
It is
well-established that claims under the False Claims Act must be pled with
particularity under the special pleading standard of Fed. R. Civ. P. 9(b),
which states in relevant part that “[i]n alleging fraud. . ., a party must
state with particularity the circumstances constituting fraud[.]” See United
States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 n.9 (3d Cir. 2004);
see also United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs.,
Inc., 149 F.3d 227, 234 (3d Cir. 1998); accord Gold v. Morrison-Knudsen Co., 68
F.3d 1475, 1477 (2d Cir. 1995) (citing cases).
This
heightened pleading standard serves a dual purpose. Requiring plaintiffs to
plead with particularity “place[s] the defendants on notice of the precise
misconduct with which they are charged” and also “safeguard[s] [them] against
spurious charges of immoral and fraudulent behavior.” Seville Indus. Mach.
Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). In Judge
Easterbrook’s oft-cited phrasing, plaintiffs must support their fraud
allegations under Rule 9(b) with all the essential detailed factual
circumstances that constitute “the first paragraph of any newspaper story” that
is, “who, what, when, where and how.” DiLeo v. Ernst & Young, 901 F.2d 624,
627 (7th Cir. 1990) (cited in In re Rockefeller Ctr. Props., Inc. Sec. Litig.,
311 F.3d 198, 217 (3d Cir. 2002). Our Court of Appeals has adopted a “flexible”
alternative when plaintiffs cannot plead particularized evidence of a false
claim, holding the plaintiff need not allege “date, place or time” if he can
“inject[]precision and some measure of substantiation” by some other means into
his allegations of fraud. Seville, 742 F.2d at 791.
As
Wright and Miller teach, the degree of pleading particularity required under
Rule 9(b) rests on the nature of the underlying fraud claim. 5A Charles
Alan Wright and Arthur R. Miller, Federal Practice & Procedure, § 1298.
While a simple allegation of fraud may suffice under the Bankruptcy Code,
“considerable pleading particularity may be necessary to satisfy Rule 9(b) and
to state a claim under the federal civil false claim statutes.” LaCorte, 149
F.3d at 234.
Our Court of Appeals has not specifically addressed how the
Rule 9(b) pleading requirements deal with the false-claim elements. Knisely
cites cases from our district court colleagues to urge that we apply a
“generous” standard for Rule 9(b) under which he need not identify specific
claims for payment. Mem. in Opp. at 12. But Knisely misconstrues the Rule's
requirements as it pertains to his claim. He relies on United States ex rel.
Wilkins v. United Health Group, Inc., 659 F.3d 295 (3d Cir. 2011), in which our
Court of Appeals noted that “to our knowledge we have never held that a plaintiff
must identify a specific claim for payment at the pleading stage of the case to
state a claim for relief.” Id. at 308 (emphasis in original). But that passage
referred specifically to the district court’s erroneous dismissal of a False
Claims act case for a failure to plead under the Rule 12(b)(6) standard for a
motion to dismiss, where the district court explicitly declined to apply the
Rule 9(b) pleading requirements. Tellingly, our Court of Appeals then continued
in Wilkins, “In any event. . . the question of whether a plaintiff, at the
pleading stage, must identify representative examples of specific false claims
that a defendant made to the Government in order to plead an FCA claim properly
is a requirement under the more particular pleading standards of Rule 9(b).”
Id. The Court thereafter cited with approval Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993 (9th Cir. 2010), where that Circuit held: We do not embrace the . . . categorical
approach that would, as a matter of course, require a relator to identify
representative examples of false claims to support every allegation[.] . . . We
… conclud[e], in accord with general pleading requirements under Rule 9(b),
that it is sufficient to allege “particular details of a scheme to submit false
claims paired with reliable indicia that lead to a strong inference that claims
were actually submitted.” Id. at 998-99
(quoting United States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F. 3d 180,
190 (5th Cir. 2009)).
Our
colleagues have adopted that seemingly “flexible” standard for particularity
where the specific details of claims have been elusive. See, e.g., United
States ex rel. Schumann v. AstraZeneca PLC, 2010 WL 4025904 at *10 (E.D.Pa.
Oct. 13, 2010) (Ditter, J.); see also United States ex rel. Budike v. PECO
Energy, 897 F.Supp.2d 300 (E.D.Pa. 2012) (Surrick, J.). In short, even under
our Court of Appeals’s so-called flexible approach to Rule 9(b), a relator must
offer particulars to satisfy both the elements of an FCA claim and the Rule 9(b)
pleading standards.
One who
“knowingly presents, or causes to be presented, a false or fraudulent claim for
payment or approval,” or “knowingly makes, uses, or causes to be made or used,
a false record or statement material to a false or fraudulent claim” faces
liability under Section 3729(a)(1)(A) and (B). To establish a prima facie False
Claims Act violation, a plaintiff must prove that “(1) the defendant presented
or caused to be presented to an agent of the United States a claim for payment;
(2) the claim was false or fraudulent; and (3) the defendant knew the claim was
false or fraudulent.” Wilkins, 659 F.3d at 305 (citing Schmidt, 386 F.3d at
242). There are two categories of false claims under the FCA, a factually false
claim where the claimant misrepresents the goods or services it provided to the
Government and a legally false claim where the claimant knowingly falsely
certifies compliance with a statute or regulation that is a condition for
Government payment. Id. ….
Rule 9(b)
permits pleading “based upon information and belief”, particularly where key
factual information remains within the defendant’s control. In re Burlington
Coat Factory Securities Litigation, 114 F.3d 1410, 1418 (3d Cir. 1997). But
such allegations are permissible “only if the pleading sets forth specific
facts upon which the belief is reasonably based.” State Farm Mut. Auto. Ins.
Co. v. Ficchi, 2012 WL 1578247 at *5 (E.D. Pa. May 4, 2012) (Pratter, J.).
District courts in this Circuit have sometimes obliged plaintiffs even in the
pleading stage of FCA actions to provide a statement of efforts undertaken to
obtain information from the opposing party. See United States ex rel. Bartlett
v. Tyrone Hospital, Inc., 234 F.R.D. 113, 122 (W.D.Pa. 2006) (granting defendants’
motion to dismiss). As Judge Buckwalter held in another FCA case, “cursory
allegations, made on information and belief alone, are unquestionably
insufficient to open the door to broad and burdensome discovery.”
