Available outside my office.
Median: 25
Mean: 23.4
High: 29
Plaintiffs Jaime Vargas (“Vargas”) and Francis Alvarez (“Alvarez”) assert three counts of violations of the False Claim Act. As to Count II (kickback scheme) and Count III (co-pay waiver scheme), the motion should be granted and the counts dismissed without prejudice.
Pleading Standard
A 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal or factual sufficiency of a claim for relief. A court can dismiss with prejudice (with leave to replead) or without prejudice (with leave to replead).
A court on a 12(b)(6) motion examines the four corners of the complaint, FRCP 12(d), to determine whether it pleads sufficient facts to show that the pleader’s legal rights have been violated and that he may be entitled to recovery. The court must take the well-pleaded facts as true and draw all reasonable inferences in favor of the plaintiff.
Ordinarily, a claim for relief must satisfy FRCP 8(a)(2), requiring a “short and plain statement of the claim showing that the pleader is entitled to relief.” This requires that a pleading give the defendant “fair notice” of the claim and the grounds on which it rests. Twombly; Conley. The plaintiff must provide sufficient non-conclusory facts to show a “plausible” entitlement to recovery, Twombly, meaning the court—drawing on judicial experience and common sense—can draw a reasonable inference of liability from non-conclusory facts. Iqbal. Plaintiff must plead nonconclusory facts. “Bald” legal conclusion—repeating the conclusion the plaintiff seeks—is insufficient. Iqbal. Nonconclusory allegations accepted as true must identify a real-world transaction or occurrence, describing specific action by specific individuals.
But when a party alleges fraud or mistake, FRCP 9(b) requires “heightened pleading,” under which a pleader must “state with particularity the circumstances constituting fraud or mistake.” This requires the pleading to describe the who, what, when, where, and how of the fraudulent conduct--what the fraudulent statements or actions were, who made them, and how they were made or communicated to the plaintiff, and why they were fraudulent. Particularity also prohibits pleading on information-and-belief.
Although controversial, the general view is that harm to a defendant’s business and reputation and the “in terrorem” effect of a fraud accusation justifies the demand that a plaintiff present more and more-specific factual detail at the outset of litigation. Those fears may compel defendants to settle actions for an inflated value to avoid reputational injury.
FRCP 9(b) allows malice, intent, and other allegations of state of mind to be alleged generally. That means state of mind must be pleaded in line with the requirements of FRCP 8(a)(2), as interpreted in Twombly and Iqbal.
The False Claims Act prohibits presenting fraudulent claims for payment to the government. § 3729(a). Private individuals—known as “relators”—may sue on behalf of the government, recover a percentage of the government’s loss. § 3730(a), (d); Yates. Because fraud is part of the statute, plaintiffs must plead with particularity under FRCP 9(b).
Count II:
Count II focuses on a kickback scheme—Optigen paying contract field technicians (“CFTs”) to steer patients to purchase Optigen equipment.
The FCA prohibits any remuneration, including kickbacks, to induce a person “to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which a fraudulent claim for payment or approval may be made in whole or in part.” § 3729(a)(3)(B). Plaintiff must show that defendants paid for referrals, rather than for performance of a job or service. Durham (11th Cir. 2002). Payment is insufficient; defendant must have paid “for something other than legitimate services.” Id.
The Complaint fails to do so. The complaint describes payments to CFTs, ranging from $ 50 to new CFTs to as much as $ 225 for longer-serving CFTs. (Compl. ¶¶ 1176-1177). It also alleges Optigen provided food and reimbursements. (Compl ¶¶ 1178-1179). But the Complaint never alleges—much less with particularity—that these payments were for referrals rather than for legitimate services. The closest is ¶ 1176, which asserts that “Optigen offered payments to CFTs to induce them to refer patients to Optigen and to purchase Optigen medical equipment.” This is the bald allegation—repeating the desired conclusion—that cannot satisfy Twombly and FRCP 8(a)(2), never mind FRCP 9(b) particularity. In fact, ¶ 1174 describes legitimate services CFT’s perform and for which Optigen paid—travel, training on Optigen equipment, installation, and follow-up support.
Count III
Count III alleges a scheme to submit false waivers for co-pays. Optigen provided every patient with a standardized waiver form, which the patient signed; Optigen never verified income, sought documentation, or conducted individualized review of patient entitlement for a co-pay waiver. (Compl. ¶¶ 1184-1189).
Such a scheme could violate § 3729(a)(5), which prohibits presenting false supporting information in support of fraudulent claims for approval. But § 3729(a)(5) does not impose liability on a party who prepares to commit fraud, only actual submission of fraudulent claims grounded on false information. Clausen (11th Cir. 2002). “The true essence of the fraud of a False Claims Act action involves an actual claim for payment, not just a preparatory scheme.” Id
Relators fail to plead with particularity that Optigen submitted false waiver forms. They plead on information-and-belief that Optigen submitted the pre-signed forms. (Compl. ¶¶ 1190). Information-and-belief allegations lack FRCP 9(b)’s necessary particularity. Moreover, submitting a pre-signed waiver request does not equate to submitting a false waiver request. Relators fail to allege with particularity that defendants submitted any request for which a waiver was not warranted. To be sure, by submitting pre-signed, unverified, undocumented waiver requests, Optigen allegedly intended to submit and recover on a fraudulent claim. But the FCA does not impose liability for attempts to submit fraudulent claims. Clausen. And even if pre-signed waiver requests make it more likely they submitted some false requests, FRCP 9(b) requires more detail of those facts.
Terms of Dismissal
A pleading that fails FRCP 9(b) is factually insufficient—it lacks required factual detail. A plaintiff may be able to correct the defects in the complaint by pleading the circumstances constituting fraud with greater particularity. The court therefore should dismiss without prejudice and with leave to amend, giving plaintiffs another opportunity to satisfy FRCP 9(b).
