United States v. Charles M. McInteer

This is a qui tam action brought in the United States District Court for the Northern District of Alabama by a physician, the relator, against two physicians and several health care providers under the False Claims Act, 31 U.S.C. § 3729, et seq. The district court dismissed the relator’s complaint, and he now appeals. The questions lying at the heart of this appeal are whether the complaint’s allegations of fraud have been made with the “particularity” required by Federal Rule of Civil Procedure 9(b) and, if not, whether the district court abused its discretion in not granting the relator leave to amend his complaint to cure such deficiency. We answer these questions in the negative and therefore affirm.

I.

The relator, Dr. Patrick Atkins, is an Alabama physician who specializes in adult psychiatry. His private practice includes providing psychiatric services to residents of Alabama skilled nursing facilities (“SNFs”) who are eligible for Medicare and Medicaid. 1 Drs. Charles Mclnteer and Marilyn Lachman, defendants, also provide psychiatric services to such SNF residents; they do so through their company, YHAP Psychiatric Services, Inc. (‘YHAP”), a defendant. 2

In March 2003, while Atkins was seeing residents at the Park Manor Nursing Home, a SNF in Tuscaloosa, Alabama, 3 a nurse showed him a “progress note” Lach-man had entered in the medical records of a Park Manor resident one day in November 2002. The nurse said the progress note, which described the resident’s psychiatric condition that day, constituted a false entry because Lachman could not have seen the resident at that time; the resident had died several weeks before, in *1354 early October. This revelation prompted Atkins to look for other false entries Lach-man may have made in the medical records of residents at Park Manor and at other SNFs as well.

In June 2003, after examining entries Lachman and Mclnteer had made in the medical records of residents at Park Manor and other SNFs, Atkins brought this False Claims Act (“FCA”) qui tam action against fifteen parties: Mclnteer, Lachman, YHAP, and twelve corporate owners/operators of SNFs. 4 His complaint contains three counts. Count One alleges that between March 2000 and March 2003, the defendants submitted false and fraudulent Medicare and Medicaid claims for psychiatric services purportedly rendered to SNF residents and obtained reimbursement for those services. Specifically, they received reimbursement for psychiatric services that were: (1) not rendered, (2) not medically necessary, (3) the result of improper “upcoding,” (4) grounded in psychiatric evaluations provided by unqualified staff personnel, (5) based upon “pre-formed,” predetermined sets of patient evaluations, diagnostic codes, and treatment plans, and (6) provided with substandard levels of care. 5 Count Two alleges that the defendants conspired with one another to file the false claims referred to in Count One. Count Three, based on Alabama tort law, alleges that the filing of the false claims referred to in Count One constituted fraud on the United States. 6

*1355 The defendants severally moved the district court to dismiss Atkins’s complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief, and, alternatively, under Federal Rule of Civil Procedure 9(b) for failure to allege fraud with sufficient “particularity” to enable the defendants to frame a responsive pleading. 7 After considering Atkins’s response to the defendants’ motions, the court dismissed the complaint with prejudice and entered final judgment for the defendants. 8

The court dismissed Atkins’s FCA claims, in Counts One and Two, on two grounds. First, although the defendants

had not moved to dismiss Counts One and Two for lack of subject matter jurisdiction under 28 U.S.C. § 1331, 9 the court, relying on the D.C. Circuit’s decision in United States, ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C.Cir.2004), concluded that it lacked § 1331 jurisdiction to entertain those counts. 10 Totten held that the defendant’s presentation of a fraudulent claim to the National Railroad Passenger Corporation did not constitute the presentation of a fraudulent claim “to an officer or employee of the United States Government” so as to state a claim under the FCA. 11 In the district court’s view, the only entity Mclnteer, Lachman and the *1356 other defendants defrauded was a grantee of federal funds, not the federal government itself. Since the defendants had not defrauded the federal government, Atkins could not state a claim under the FCA; 12 therefore, the court reasoned, he could not invoke the court’s § 1331 jurisdiction.

Second, assuming the presence of § 1331 jurisdiction and that, as a matter of notice pleading, Atkins’s complaint asserted a cause of action cognizable under the FCA, the court held that his allegations of fraud failed to satisfy the requirements of Rule 9(b). The court dismissed Count Three of the complaint on the ground that Atkins lacked standing as a private attorney general under Alabama law to sue on behalf of the United States.

Atkins now appeals the district court’s judgment. He presents the following arguments: (1) the district court has subject matter jurisdiction under 28 U.S.C. § 1331 because he is asserting a claim under the FCA; (2) the allegations of his complaint are sufficient to state a claim for relief; (3) if his allegations are insufficient to state a claim for relief or to satisfy Rule 9(b)’s requirement that they be “stated with particularity,” we should vacate the judgment and remand the case with the instruction that the district court grant him leave to amend his complaint. We consider Atkins’s arguments in order. 13

In resolving this appeal, we address first, in part II, the subject matter jurisdiction issue. We conclude that the district court had jurisdiction under 28 U.S.C. § 1331 and then consider, in part III, the question of the legal sufficiency of Atkins’s complaint to state a claim for relief. The district court held that if Totten were inapplicable and thus did not require dismissal for lack of jurisdiction, the complaint still failed to meet the pleading-with-particularity requirement of Rule 9(b). We similarly conclude that the complaint failed to satisfy the contours of Rule 9(b). In part IV, we take up the question of whether the district court abused its discretion in failing to grant Atkins leave to amend his complaint to cure the Rule 9(b) deficiency. Part V summarizes our holdings.

II.

The district court read Totten for the proposition that if a plaintiff fails to state a claim under the FCA, his action does not arise under the laws of the United States; therefore, his complaint must be dismissed for lack of subject matter jurisdiction. 14 We disagree with the court’s reading. Totten does not present a jurisdictional rule. In fact, the word “jurisdiction” does not appear in the twenty-nine pages that the Totten opinion occupies in the Federal Reporter. The notion that Totten bars subject matter jurisdiction conflates the “failure to state a claim upon which relief can be granted” under Rule 12(b)(6) with federal question jurisdiction under 28 U.S.C. § 1331. As the Supreme Court explained in Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 *1357 (1946), “Jurisdiction ... is not defeated ... by the possibility that the averments might fail to state a cause of action on which [the plaintiffs] could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction.” Id. at 682, 66 S.Ct. at 776. In sum, it is clear that the district court had subject matter jurisdiction in this case. Given this conclusion, we consider whether Atkins’s complaint passes muster under Rule 9(b).

III.

The False Claims Act subjects to civil liability “[a]ny person who knowingly presents, or causes to be presented, to ... the United States Government ... a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1), as well as “[a]ny person who conspires to defraud the Government by getting a false or fraudulent claim allowed or paid,” 31 U.S.C. § 3729(a)(3). “The submission of a [false] claim is ... the sine qua non of a False Claims Act violation.” United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir.2002) (citation omitted). “Without the presentment of ... a claim, ... there is simply not actionable damage .... ” Id. In the healthcare context such as the one before us, “[t]he False Claims Act does not create liability merely for a health care provider’s disregard of Government regulations or improper internal policies unless, as a result of such acts, the provider knowingly asks the Government to pay amounts it does not owe.” Id.

FCA claims must also be stated with particularity pursuant to Rule 9(b). Clausen, 290 F.3d at 1308-09 (“Rule 9(b) [applies] to actions under the False Claims Act.”). Particularity means that “a plaintiff must plead ‘facts as to time, place, and substance of the defendant’s alleged fraud,’ specifically ‘the details of the defendant[’s] allegedly fraudulent acts, when they occurred, and who engaged in them.” Clausen, 290 F.3d at 1310 (quoting Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19 F.3d 562, 567-68 (11th Cir.1994) (citing Durham v. Bus. Mgmt. Assoc., 847 F.2d 1505 (11th Cir.1988))).

Rule 9(b)’s directive that “the circumstances constituting fraud or mistake shall be stated with particularity” does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.

Clausen, 290 F.3d at 1311 (quoting Rule 9(b)).

We cannot make assumptions about a False Claims Act defendant’s submission of actual claims to the Government without stripping all meaning from Rule 9(b)’s requirement of specificity or ignoring that the “true essence of the fraud” of a False Claims Act action involves an actual claim for payment and not just a preparatory scheme.

Clausen, 290 F.3d at 1312 n. 21. Rather, “if Rule 9(b) is to be adhered to, some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.” Clausen, 290 F.3d at 1311 (first emphasis added). As the district court stated in its order dismissing Atkins’s complaint, “[t]he whistle must be blown not only loudly, but with Rule 9(b) particularity in the complaint before the courts will listen.” United States ex rel. Atkins v. McInteer, 2004 WL 3998029 (N.D.Ala.2004) (emphasis added).

*1358 We evaluate whether the allegations of a complaint contain sufficient indicia of reliability to satisfy Rule 9(b) on a case-by-case basis. In Clausen, we held that a competitor of a company that specialized in providing medical testing services to long-term care facilities did not plead his FCA claim against the company with sufficient Rule 9(b) particularity to withstand a motion to dismiss. Clausen, 290 F.3d at 1302-03. The complaint “allege[d] that [the company] engaged in a multi-faceted, decade-long campaign to defraud the Government as a result of its testing services.” Id. at 1303. Specifically, the complaint claimed that the defendant “performed unauthorized, unnecessary or excessive medical tests ... and knowingly submitted bills for [that] work to ... the Government.” Id. The relator named six schemes in which he averred that the defendant had engaged. Id. His complaint went into such detail as to identify specific long-term care facilities, patients, dates of testing, and testing procedures. Id. at 1315.

Although the relator stated with particularity the circumstances comprising the elements of the alleged scheme to defraud, his complaint “failed to meet the minimum pleading requirements for the actual presentment of any false claims.” Id. at 1315 (emphasis added). “No amounts of charges were identified. No actual dates were alleged. No policies about billing or even second-hand information about billing practices were described, ... [and not one] copy of a single bill or payment was provided.” Id. at 1312. We held that although Rule 9(b) “does not mandate all of [that] information for [each] alleged claim[,] ... some of [the] information for at least some of the claims must be pleaded in order to satisfy Rule 9(b).” Id. at 1312 n. 21; Corsello v. Lincare, 428 F.3d 1008, 1013 (11th Cir.2005) (holding that “[b]ecause it is the submission of a fraudulent claim that gives rise to liability under the False Claims Act, that submission must be pleaded with particularity and not inferred from the circumstances”).

On the other hand, in Hill v. Morehouse Med. Assoc., Inc., 2003 WL 22019936 (11th Cir. Aug.15, 2003) (unpublished), 15 we held that a former billing and coding employee of a medical care provider satisfied Rule 9(b) where her complaint claimed that she had firsthand knowledge that her employer submitted false claims. Id. at *5. Unlike the relator in Clausen, however, the Hill relator worked for seven months “in the very department where she alleged the fraudulent billing schemes occurred.” Hill, at *4.

[S]he ha[d] firsthand information about the [defendant’s] internal billing practices and the manner in which the fraudulent billing schemes were implemented. Moreover, she alleged that she observed [the defendant’s] billers, coders, and physicians alter various CPT 16 and diagnosis codes over the course of [her] seven months and thus submit false claims for ... reimbursement to the government .... Most important, ... unlike the plaintiff in [Clausen], [the Hill plaintiff) was privy to [the defendant’s] files, computer systems, and internal billing practices ... because she worked in [the defendant’s] billing and coding department for seven months.

Hill, at *4.

In the case at hand, the complaint fails rule 9(b) for want of sufficient indicia of reliability to support the assertion that *1359 the defendants submitted false claims. As the plaintiff did in Clausen, Atkins has described in detail what he believes is an elaborate scheme for defrauding the government by submitting false claims. He cites particular patients, dates and corresponding medical records for services that he contends were not eligible for government reimbursement. Just like the Clau-sen plaintiff, though, Atkins fails to provide the next link in the FCA liability chain: showing that the defendants actually submitted reimbursement claims for the services he describes. Instead, he portrays the scheme and then summarily concludes that the defendants submitted false claims to the government for reimbursement.

In his complaint, Atkins does not profess to have firsthand knowledge of the defendants’ submission of false claims. He is a psychiatrist responsible for the provision of medical care, not a billing and coding administrator responsible for filing and submitting the defendants’ claims for reimbursement. He rotated through a single facility where he heard rumors from staff and observed records of what he believed to be the shoddy medical and business practices of two other psychiatrists. He then brought suit against those two psychiatrists, their company, and the SNF’s where, he alleges, those two psychiatrists had provided psychiatric care over a three-year period.

The Hill relator, by contrast, personally observed the behavior of which she complained during the seven months she spent in her employer’s billing and coding department, and then brought her action against her employer. Atkins’s complaint not only fails to contain an indicia of reliability approaching the level of reliability found in the Hill allegations, it sweeps with a much broader brush by naming as defendants SNF’s into which Atkins never stepped foot. Faced with these pleading deficiencies, we would be hard pressed to say that Atkins’s complaint satisfies the particularity requirement of Rule 9(b).

The public policy underpinnings of Rule 9(b), the FCA, and qui tarn actions mandate this conclusion. “The particularity rule serves an important purpose in fraud actions by alerting defendants to the ‘precise misconduct with which they are charged’ and protecting defendants ‘against spurious charges of immoral and fraudulent behavior.’ ” Durham, 847 F.2d at 1511 (quoting Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.1984)).

When a plaintiff does not specifically plead the minimum elements of [his] allegation, it enables [him] to learn the complaint’s bare essentials through discovery and may needlessly harm a defendant’s goodwill and reputation by bringing a suit that is, at best, missing some of its core underpinnings, and at worst, ... baseless allegations used to extract settlements.

Clausen, 290 F.3d at 1314 n. 24. “The particularity requirement of Rule 9 is a nullity if Plaintiff gets a ticket to the discovery process without identifying a single claim.” United States v. Lab. Corp. of Am., 2001 WL 1867721, at *1 (N.D.Ga. May 16, 2001), quoted in Clausen, 290 F.3d at 1307.

If given such a ticket, the next stage of [the] litigation is clear. The Plaintiff will request production of every ... claim submitted by the Defendant [during the time period corresponding to Plaintiffs claims]. At that point, the Defendant may decide to settle the case to avoid the enormous cost of such discovery and the possible disruption of its ongoing business. On the other hand, the Defendant may choose to resist the discovery. In that case, the Court will be presented with the dilemma of allowing an unlimited fishing expedition or no *1360 discovery at all because of the difficulty in fashioning logical and principled limits on what has to be produced. The particularity requirement of Rule 9(b), if enforced, will not only protect defendants against strike suits, but will result in claims with discernable boundaries and manageable discovery limits.

United States ex rel. Clausen v. Lab. Corp. of Am., 198 F.R.D. 560, 564 (N.D.Ga.2000), aff'd, 290 F.3d 1301 (11th Cir.2002).

Requiring relators to plead FCA claims with particularity is especially important in light of the quasi-criminal nature of FCA violations (i.e., a violator is liable for treble damages). Rule 9(b) ensures that the relator’s strong financial incentive to bring an FCA claim—the possibility of recovering between fifteen and thirty percent of a treble damages award—does not precipitate the filing of frivolous suits.

The nature of the qui tam action supports our view of this case as well. The qui tam relator brings the action on behalf of the federal government. The relator stands in the government’s shoes— in neither a better nor worse position than the government stands when it brings suit. Accordingly, we cannot furnish a qui tam relator with an easier burden than the government would bear if it intervened and assumed the prosecution of the case. Permitting a qui tam relator to go forward with his complaint, when we would not allow the government to proceed, might encourage the government to evade its burden by merely recruiting a willing relator to file a qui tam action. 17

In fine, the public policies behind Rule 9(b), the FCA, and qui tam actions required the district court to dismiss Atkins’s complaint under Rule 9(b); for it lacks sufficient indicia of reliability to haul the defendants into court. 18

IV.

Atkins contends that the district court abused its discretion in failing to *1361 grant his request for leave to amend his complaint. The request was contained in his memorandum in opposition to the defendants’ motions to dismiss. 19

In its order granting the defendants’ motions to dismiss, the court made no mention of Atkins’s request for leave to amend. The court’s failure to mention the request yields two inferences: (1) the court failed to notice the request at all, or (2) the court noticed the request and denied it sub silentio. Atkins could have ascertained what the court thought about the merits of his request by moving the court pursuant to Federal Rule of Civil Procedure 59(e) to alter or amend its judgment, 20 asking the court explicitly to rule on his request. Alternatively, pursuant to Federal Rule of Civil Procedure 60(b)(6), 21 he could have moved the court for relief from the “operation of the judgment,” and if the court granted his motion, he could ask for leave to amend his complaint. 22 Atkins chose another course, however, by directly appealing the district court’s judgment. That judgment, since it ended the litigation, disposed of Atkins’s request for leave to amend by operation of law if his request was the functional equivalent of a motion for an order granting him leave to amend his complaint.

We pose this condition because, under Federal Rule of Civil Procedure 7(b)(1), a party obtains a court order granting it relief by filing a motion. The Rule states, in pertinent part: “[a]n application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forth the relief or order sought.”

If, for example, a plaintiff wants to amend his complaint (prior to the entry *1362 of judgment), he does so by moving the court for leave to do so pursuant to Federal Rule of Civil Procedure 15(a). 23 Furthermore, as this court held in Long v. Satz, 181 F.3d 1275 (11th Cir.1999), the movant must either attach a copy of the proposed amendment to the motion or set forth the substance thereof. As the Eighth Circuit explained in Wisdom v. First Midwest Bank, 167 F.3d 402, 409 (8th Cir.1999), a plaintiff “should not be allowed to amend [his] complaint without showing how the complaint could be amended to save the meritless claim.”

In Long, as in the case before us, the request for leave to amend was included in a memorandum the plaintiff filed in opposition to the defendants’ motions to dismiss the complaint, and, as here, the plaintiff failed to attach the proposed amendment or set forth the substance of the proposed amendment. Long, 181 F.3d at 1279. 24 Therefore, assuming that Atkins’s request was the functional equivalent of a motion, we affirm the district court’s rejection thereof because it failed to include the proposed amendment or the substance thereof as required by Long. 25

V.

In conclusion, we hold that the district court had subject matter jurisdiction under 28 U.S.C. § 1331 to entertain the complaint in this case. Turning to the merits of this appeal, we conclude that the complaint is insufficient under Rule 9(b) and that the district court did not abuse its discretion by dismissing Atkins’s complaint with prejudice, i.e., without leave to amend.

AFFIRMED.