October 7, 2016
Supreme Court Punts Again on FCA Claims Specificity
Holland & Knight Government Contracts Blog
The U.S. Supreme Court recently denied certiorari in United States ex rel. Walterspiel v. Bayer AG. This case, arising out of the Fourth Circuit, raised yet again the question of how much detail a False Claims Act (FCA) complaint must allege about the alleged false claims themselves. The Supreme Court famously denied certiorari two years ago in another Fourth Circuit case raising similar questions, United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc. It thus appears that any definitive resolution of this question will have to wait.
In Takeda, the issue was whether an FCA complaint must allege with particularity that actual false claims were submitted to the government, or whether it must simply allege a fraudulent scheme from which a court can infer that claims were submitted. Courts have not been uniform on the issue. Some courts have reasoned that the “submission of a claim is . . . the sine qua non of a False Claims Act violation,” thus requiring particulars about those claims. United States ex rel. Clausen v. Lab Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002). Other courts have used less stringent language, requiring only “reliable indicia that lead to a strong inference that claims were actually submitted.” United States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).
The petition in Walterspiel presented a narrower issue than Takeda. It argued principally that an FCA complaint need not allege details about the claims themselves when those details are in the exclusive possession of the defendant. It is an interesting argument that has been raised in a variety of other contexts. Yet whatever its merits, the Supreme Court seemed to conclude that Walterspiel was a poor vehicle to consider it, given that the relator both failed to properly serve the defendant that allegedly submitted claims and failed to properly plead that defendant’s link to any other defendant who was properly served. See United States ex rel. Walterspiel v. Bayer AG, No. 15-1459, slip op. at 7–8 (4th Cir. Jan. 20, 2016) (per curiam) (noting these problems with the case).
Even so, the Walterspiel petition serves as a reminder that the False Claims Act’s stringent pleading standards remain a subject of scrutiny for the courts and relators. Neither Takeda nor Walterspiel was a proper case for clarifying those standards, but a future case might be. Defendants and their counsel should bear that in mind when crafting motions to dismiss and defending their cases on appeal.
In Takeda, the issue was whether an FCA complaint must allege with particularity that actual false claims were submitted to the government, or whether it must simply allege a fraudulent scheme from which a court can infer that claims were submitted. Courts have not been uniform on the issue. Some courts have reasoned that the “submission of a claim is . . . the sine qua non of a False Claims Act violation,” thus requiring particulars about those claims. United States ex rel. Clausen v. Lab Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002). Other courts have used less stringent language, requiring only “reliable indicia that lead to a strong inference that claims were actually submitted.” United States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).
The petition in Walterspiel presented a narrower issue than Takeda. It argued principally that an FCA complaint need not allege details about the claims themselves when those details are in the exclusive possession of the defendant. It is an interesting argument that has been raised in a variety of other contexts. Yet whatever its merits, the Supreme Court seemed to conclude that Walterspiel was a poor vehicle to consider it, given that the relator both failed to properly serve the defendant that allegedly submitted claims and failed to properly plead that defendant’s link to any other defendant who was properly served. See United States ex rel. Walterspiel v. Bayer AG, No. 15-1459, slip op. at 7–8 (4th Cir. Jan. 20, 2016) (per curiam) (noting these problems with the case).
Even so, the Walterspiel petition serves as a reminder that the False Claims Act’s stringent pleading standards remain a subject of scrutiny for the courts and relators. Neither Takeda nor Walterspiel was a proper case for clarifying those standards, but a future case might be. Defendants and their counsel should bear that in mind when crafting motions to dismiss and defending their cases on appeal.