EDNY Judge Nina Gershon analyzed several False Claims Act issues in United States ex rel. Omni Healthcare Inc. v. McKesson Corp., ruling on first-to-file, Rule 9(b), and statute of limitations issues.

Relator Omni Healthcare alleged that defendants improperly used “overfill” in vials of injectable drugs. “Overfill” is the amount of a drug in excess of the amount indicated on the label, typically included so the provider can withdraw a full dose from the vial. Relator alleged that defendants wrongfully broke into the vials, harvested the overfill, and then sold syringes with the overfill to providers who then billed the government.

Identify of Defendants Drives First-To-File Ruling

The Court initially addressed whether relator’s second amended complaint should be dismissed under the first-to-file rule, based on an earlier-filed case that also addressed alleged fraudulent repackaging of overfill. The Court reviewed Second Circuit law holding that a later-filed action is related and therefore barred if it “incorporate[s] the same material elements of fraud as the earlier action.” The Court concluded that the Omni Healthcare allegations were only related as to the one defendant that was a defendant in the earlier action, and dismissed the complaint only as against that defendant. The Court held that “the first-to-file bar would not reach a subsequent qui tam action otherwise alleging the same material elements of fraud, but alleging those elements concerning different defendants.” A later complaint is related if the earlier complaint equips the Government to investigate the fraud, and the Court determined that to be “‘equipped’ to investigate a fraud, the government must know whom to investigate.”

2017 Chorches Decisions Defeats Rule 9(b) Challenge

Defendants next asserted that the complaint did not satisfy the particularity requirement for pleading fraud under Rule 9(b), because it lacked allegations about the content of the false claims, who submitted them, and when they were submitted. Judge Gershon denied this argument based on the 2017 Second Circuit decision in United States ex rel. Chorches v. Am. Med. Response, Inc., which was discussed here. The Court held that “such information is not required where, as here, the relator’s allegations create a strong inference that specific false claims were submitted.”

Statute of Limitations Bars Claims Against Added Defendants

Omni Healthcare conceded that, to satisfy the False Claims Act six year statute of limitations, the new allegations in its second amended complaint would be timely only if they related back to its earlier-filed first amended complaint. The Court noted that the False Claims Act specifically allows a timely complaint to satisfy the statute of limitations even though the named defendants were deprived of notice while the complaint was sealed. New claims against defendants named by Omni Healthcare in the first amended complaint were therefore timely. The second amended complaint, however, had added five additional defendants, and the Court held that claims against these defendants were untimely. “The statute of limitations, like the first-to-file rule, encourages relators to come forward promptly with information to help the government uncover fraud … This purpose would be undermined if a relator were permitted to add additional defendants years later—and potentially after the government has declined to intervene.”

Judge Gershon’s rulings highlight the importance of naming all False Claims Act defendants as early as possible to avoid procedural dismissals.

Last week, the Second Circuit held that a False Claims Act relator does not have to plead details of specific alleged false billings or invoices to the government, as long as he can allege facts leading to a strong inference that specific claims were submitted and that information about them are peculiarly within the defendant’s knowledge.

In United States ex rel. Chorches v. American Medical Response, Inc., Paul Fabula was an emergency medical technician for AMR, the largest ambulance company in the United States. He alleged that AMR falsely certified ambulance transports as being medically necessary and submitted claims it knew were not medically reimbursable under Medicaid. He alleged that AMR routinely made EMTs and paramedics revise or re-create reports to include false statements demonstrating medical necessity in order to qualify for Medicaid reimbursement. Fabula subsequently declared bankruptcy, and the bankruptcy trustee became the relator.

Qui tam complaints, which allege fraud, are subject to Fed. R. Civ. P. 9(b)’s particularity requirement. The Second Circuit determined that relator had adequately alleged a scheme to defraud. Relator, however, admittedly did not have personal knowledge of exact billing numbers, dates, or amounts for claims submitted to the government.

The focus of the Second Circuit’s inquiry, therefore, was whether every qui tam complaint must allege specific identified false billings or invoices. The Court answered in the negative, holding that “a complaint can satisfy Rule 9(b)’s particularity requirement by making plausible allegations creating a strong inference that specific false claims were submitted to the government and that the information that would permit further identification of those claims is peculiarly within the opposing party’s knowledge.”

In Chorches, the Court found that the relator had met this standard by pleading sufficient facts, on personal knowledge, to demonstrate that billing information was peculiarly within the knowledge of AMR and that he was unable, without the benefit of discovery, to provide billing details for claims submitted by AMR to the government. Relator had also sufficiently alleged facts on personal knowledge supporting a scheme to defraud and a strong inference that false claims were actually submitted to the government.

This issue had been addressed by several other circuits, and in 2016, the Second Circuit noted a seeming circuit split on whether an FCA relator must allege the details of specific examples of actual false claims. In Chorches, however, the Court concluded that “reports of a circuit split are, like those prematurely reporting Mark Twain’s death, ‘greatly exaggerated.’” The Court then engaged in an extensive analysis of cases in other circuits, concluding that its pleading standard is fully consistent with both the emerging consensus in other circuits and its own precedents.

Several district courts in the Second Circuit have required a strict pleading of specific facts concerning individual billings or invoices to the government. Those decisions will now have to be re-examined in light of the pleading standard set by the Second Circuit in Chorches: “Rule 9(b) does not require that every qui tam complaint provide details of actual bills or invoices submitted to the government, so long as the relator makes plausible allegations . . . that lead to a strong inference that specific claims were indeed submitted and that information about the claims submitted are peculiarly within the opposing party’s knowledge.”

The Second Circuit also held in Chorches that the FCA’s public disclosure bar is not jurisdictional, and that an alleged refusal to falsify a patient report is sufficient at the pleading stage to qualify as protected activity for an FCA retaliation claim.