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Whistleblowers Eye Clearer Path Following Supreme Court Denials

Oct. 20, 2022, 8:45 AM

False Claims Act whistleblowers that target defense contractors and health-care companies may have a better idea of which courts will be friendlier to their fraud allegations now that the US Supreme Court has decided not to weigh in on what makes a complaint adequate.

The US Supreme Court on Oct. 17 rejected three petitions seeking clarity on how much detail an FCA complaint must include to survive a motion to dismiss, arguing that a split among federal circuit courts was confusing litigants.

That status quo outcome provides some relief for whistleblowers—also known as relators—who were concerned the high court could impose a heavier nationwide burden on whistleblower complaints early in litigation.

“If the Court had taken the Seventh Circuit Molina case and the petitioner, Molina Healthcare, ultimately had succeeded in convincing the Supreme Court to adopt the extreme position that no case could even be brought unless the whistleblower had details about specific claims submitted to the government, that ruling could have precluded many meritorious cases being brought,” said Colette G. Matzzie, who represents whistleblowers with Phillips & Cohen LLP in Washington.

“This could have deprived the American taxpayer of our most effective remedy against fraud on government programs,” she said.

There are some differences among the circuits, but the majority of appellate courts say complaints can proceed if allegations are made with sufficient detail to reliably support an inference that claims were submitted, she said.

Molina Healthcare Inc. argued that the Medicaid fraud suit against it in Illinois—which the US Court of Appeals for the Seventh Circuit found sufficient—would have failed if filed elsewhere. The suit would have been dismissed if brought in courts under the First, Sixth, Eighth, and Eleventh circuits, which don’t adhere to the “lax approach” to pleading used by the Seventh Circuit, the company said.

Because the Supreme Court opted to stay out of it, whistleblowers may go forum shopping at the courts using the purported lax approach. According to another petitioner, seven circuits—including the Second, Fifth, and Ninth—hold that specific details of false claims aren’t required.

Whistleblowers now have a “fairly clear roadmap of where suits can be filed that are more or less hospitable as it relates to the need to provide exemplar claims,” said Roger Lewis, who represents whistleblowers with Goldberg Kohn Ltd. in Chicago.

And any Supreme Court decision on this issue would have led to “new fights” with “likely unknown and unexpected variation in the lower courts,” he said.

‘Bizarrely Lopsided’

Companies that remain potential targets of whistleblower suits are left wondering what if the US government had supported the petitions, two of which were filed by whistleblowers.

US Solicitor General Elizabeth Prelogar filed two amicus briefs urging the Supreme Court not to seek harmony on the pleading issue. Existing disuniformity among the courts doesn’t appear to be materially greater than what would be expected from the application of a fact-intensive standard, the government said then.

But this view “was questioned by many FCA practitioners that handle these cases in different jurisdictions,” said Katie McDermott, who represents FCA defendants with Morgan, Lewis & Bockius LLP in Washington.

They know there’s a material lack of uniformity on the application of Rule 9(b) standards, which addresses pleading fraud with particularity, and that such lack of uniformity appears specific to false claims cases, she said.

Different pleading standards encourage forum shopping, McDermott said. The result can be “a disproportionate focus on the health industry as seen from the bizarrely lopsided FCA recoveries” against those companies, she said.

In 2021, the government’s FCA recoveries exceeded $5.6 billion. More than $5 billion of that amount related to the health-care industry.

Limiting Access

Prelogar may be right that varying standards have somewhat converged, but there are still different standards that can have a significant impact at the motion to dismiss stage, said Michael J. Podberesky, who represents FCA defendants with McGuireWoods LLP in Washington.

Uniformity isn’t impossible here, he said. But the Justice Department “was more concerned about a uniform standard that is more favorable to defendants, and that is what they were trying to avoid,” he said.

Had Molina been ultimately successful in taking down the lax approach, the short term result would have been more dismissals for failure to plead the submission of a false claim with requisite particularity, he said.

Going forward, potential defendants should limit individuals’ access to claims records and submission data, and monitor who is accessing that data, Podberesky added.

“Those individuals might be tomorrow’s relators,” he said.

The cases are Johnson v. Bethany Hospice and Palliative Care LLC, U.S., No. 21-462, 10/17/22; United States ex rel. Owsley v. Fazzi Assocs. Inc., U.S., No. 21-936, 10/17/22; and Molina Healthcare of Ill. Inc. v. Prose, U.S., No. 21-1145, 10/17/22.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com