United States Ex Rel. Grubbs v. Kanneganti

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

April 8, 2009

No. 07-40963 Charles R. Fulbruge III

Clerk

UNITED STATES OF AMERICA, ex rel. JAMES H. GRUBBS, M.D.

Plaintiff-Appellant

v.

RAVIKUMAR KANNEGANTI, M.D.; GEORGE E. GROVES, M.D., KASHI S.

BAGRI, M.D.; SHARAD B. KULKARNI, M.D.; SRIYA DE SILVA, M.D.;

BAPTIST HOSPITALS OF SOUTHEAST TEXAS, doing business as

Memorial Hermann Baptist Beaumont Hospital; JOHN DOE ONE; JOHN

DOE TWO; JOHN DOE THREE; JOHN DOE FOUR; JOHN DOE FIVE;

SUDHEER KAZA, M.D.; and RAJEN DESAI, M.D.

Defendants-Appellees

Appeal from the United States District Court

for the Eastern District of Texas

Before KING, HIGGINBOTHAM, and WIENER, Circuit Judges.

PATRICK E. HIGGINBOTHAM:

This is an appeal from a 12(b)(6) dismissal of a qui tam action under the

False Claims Act brought by Dr. Grubbs against his employer, Memorial

Hermann Baptist Beaumont Hospital, five of the Hospital’s psychiatric doctors,

and two other doctors. The action alleges the Hospital and doctors billed

Medicare and Medicaid for services not performed. The district court found that

the complaint lacked sufficient detail regarding false bills actually presented to

No. 07-40963

the Government and dismissed for failure to plead fraud with particularity as

required by F ED. R. C IV. P. 9(b).

I

The False Claims Act prohibits, in relevant part, 1) the presentment of a

false claim to the Government, 2) the use of a false record or statement to get a

false claim paid, and 3) conspiracies to get a false claim paid.1 Liability for

violation includes a liquidated civil penalty and damages, which need not be

shown to state a claim but which if shown will be doubled and may be trebled.2

The Act is remedial, first passed at the behest of President Lincoln in 1863

to stem widespread fraud by private Union Army suppliers in Civil War defense

contracts. It is “intended to protect the Treasury against the hungry and

unscrupulous host that encompasses it on every side.” 3 To aid the rooting out of

1

See 31 U.S.C. § 3729(a)(1-3):

Any person who--

(1) knowingly presents, or causes to be presented, to an officer or employee of the United

States Government or a member of the Armed Forces of the United States a false or

fraudulent claim for payment or approval;

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a

false or fraudulent claim paid or approved by the Government; [or]

(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid

...

is liable to the United States Government . . . [.]

2

Id. § 3729(a).

3

S. Rep. No. 99-345, at 11 (1986) (quoting U.S. v. Griswold, 24 F. 361, 266 (D. Or.

1885)). Suits brought by private parties are on behalf of the executive branch of the

Government, which still vocally maintains the goal of uncovering fraud, especially in the

medical context, as indicated by President Obama’s February 24, 2009 speech to the joint

session of Congress: “We will root out the waste, fraud, and abuse in our Medicare program

that doesn’t make our seniors any healthier.”

2

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fraud, the Act provides for civil suits brought by both the Attorney General and

by private persons, termed relators, who serve as a “posse of ad hoc deputies to

uncover and prosecute frauds against the government.” 4 In qui tam 5 suits

brought by private persons on behalf of the Government the statute entitles the

relator to between ten and thirty percent of any recovery made on behalf of the

Government, depending on the extent of the relator’s contribution to the action.6

II

According to Dr. Grubbs’ qui tam complaint, Memorial Hermann Baptist

Beaumont Hospital hired him in January 2004 to work as a psychiatrist. In

February 2004, and before his first weekend on-call shift, the complaint alleges

that two Defendants, Dr. Groves, the Chairman of the Medical Staff of the

Hospital’s Psychiatric Subsection, and Dr. Kanneganti, a psychiatrist at the

Hospital, invited Dr. Grubbs to dinner at a Pappadeaux restaurant. Over

dinner, the doctors allegedly divulged to him their fraudulent billing scheme and

instructed him on how he was to contribute to the scheme. According to Dr.

Grubbs’ recitation of the conversation, the doctors instructed him that during

weekend on-call shifts doctors meet with the nursing staff to get updates on

current patients. The doctors then see the patients only “as needed” or when

“something acute’s going on,” but bill every day as a regular “face-to-face”

hospital visit.

Dr. Grubbs’ complaint further alleges that over his on-call weekend, the

nursing staff did indeed attempt to assist him in recording face-to-face physician

4

U.S. ex rel. Milam v. Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th

Cir. 1992).

5

“Qui tam” is an abbreviation for qui tam pro domino rege quam pro se ipso in hac

parte sequitur, which means “who as well for the king as for himself sues in this matter.”

Black’s Law Dictionary 1262 (7th ed. 1999).

6

31 U.S.C. § 3730(d). Under the original version of the statute, the relator received

one-half of the recovery. Act of Mar. 2, 1863, 2 Stat. 696.

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No. 07-40963

visits that had not occurred and that were based solely on information obtained

through nursing contacts with the patients. Appalled, Dr. Grubbs allegedly

reported the practice to a hospital administrator the next day, who to Dr.

Grubbs’ further dismay, retorted: “You certainly figured that out quickly.”

Fifteen months later, Grubbs filed suit as a qui tam relator alleging

violations of the False Claims Act’s presentment provision in § 3729(a)(1), the

false record or statement provision in § 3729(a)(2), and the conspiracy provision

in § 3729(a)(3). In addition to the described scheme, the complaint avers at least

one overt act of false billing for each doctor, each similar to this paragraph:

Dr. Desai billed Medicaid for psychotherapy services on January 8,

2004, CPT Code #90805, which constituted a false claim in that the

medical records indicate that no psychotherapy was provided by

Desai on that date.

Time was given for the United States to intervene,7 but after it did not the

district court unsealed the suit. Defendants then filed multiple separate motions

to dismiss for failure to meet the pleading requirements of F ED. R. C IV. P. 9(b).8

A magistrate judge recommended dismissal of all claims for failure to plead the

circumstances of the alleged fraud with particularity. Dr. Grubbs filed

objections to the report and a motion seeking leave to file a Third Amended

Complaint, which he attached. The district court adopted the magistrate’s

report in full and dismissed with prejudice, denying Dr. Grubb’s motion for leave

7

A False Claims Act complaint is first served on the Government and remains under

seal for sixty days while the Government decides whether to intervene and take over the

action. 31 U.S.C. § 3730(b)(2).

8

“A dismissal for failure to plead fraud with particularity under Rule 9(b) is treated

as a dismissal for failure to state a claim under Rule 12(b)(6).” U.S. ex rel. Thompson v.

Columbia/HCA Healthcare Corp., 125 F.3d 899, 901 (5th Cir. 1997).

4

No. 07-40963

to amend. Dr. Grubbs now appeals. We review the district court’s grant of

Defendants’ motion to dismiss for failure to state a claim de novo.9

III

A

We have held, along with several of our sister circuits, that a complaint

filed under the False Claims Act must meet the heightened pleading standard

of Rule 9(b),10 which provides: “In alleging fraud or mistake, a party must state

with particularity the circumstances constituting fraud or mistake.” Rule 9(b)

is an exception to Rule 8(a)’s simplified pleading that calls for a “short and plain

statement of the claim.” The particularity demanded by Rule 9(b) is

supplemental to the Supreme Court’s recent interpretation of Rule 8(a) requiring

“enough facts [taken as true] to state a claim to relief that is plausible on its

face.” 11 The Twombly standard replaces the lenient and longstanding rule that

“a complaint should not be dismissed for failure to state a claim unless it

appears beyond doubt that the plaintiff can prove no set of facts in support of his

claim which would entitle him to relief.”12 The new reading raises a hurdle in

front of what courts had previously seen as a plaintiff’s nigh immediate access

to discovery—modest in its demands but wide in its scope.

In cases of fraud, Rule 9(b) has long played that screening function,

standing as a gatekeeper to discovery, a tool to weed out meritless fraud claims

9

U.S. ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999).

10

See id. at 308–09 (“A special relaxing of Rule 9(b) is a qui tam plaintiff’s ticket to the

discovery process that the statute itself does not contemplate.”); U.S. ex rel. Karvelas v.

Melrose-Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. 2004) (listing the circuits that have

applied Rule 9(b)’s heightened pleading standard to False Claims Act complaints).

11

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).

12

Conley v. Gibson, 355 U.S. 41, 45–46 (1957).

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No. 07-40963

sooner than later. We apply Rule 9(b) to fraud complaints with “bite” and

“without apology,”13 but also aware that Rule 9(b) supplements but does not

supplant Rule 8(a)’s notice pleading. Rule 9(b) does not “reflect a subscription

to fact pleading”14 and requires only “simple, concise, and direct” allegations of

the “circumstances constituting fraud,” which after Twombly must make relief

plausible, not merely conceivable, when taken as true.

Courts have attempted to clarify Rule 9(b) by articulating workable

constructions. The frequently stated, judicially-created standard for a sufficient

fraud complaint, the applicability of which to the False Claims Act we will

consider later, instructs a plaintiff to plead “the time, place and contents of the

false representation[], as well as the identity of the person making the

misrepresentation and what that person obtained thereby.” 15

B

Several circuits have considered particularity challenges to False Claims

Act complaints, focusing largely on the Act’s presentment requirement. A

frequently cited case, and the case primarily relied on by the district court here,

is United States ex rel. Clausen v. Laboratory Corporation of America, Inc.16 In

Clausen, the Eleventh Circuit affirmed the dismissal of a complaint in which a

company outsider alleged a billing scheme, conveyed to him by a friend, and

conclusively stated that the scheme resulted in the defendants submitting bills

to the Government. The court stated that presentment of a false claim is the sin

qua non of a False Claims Act violation without which “there is simply no

13

Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir. 1997).

14

Id.

15

Russell, 193 F.3d at 308.

16

290 F.3d 1301, 1311 (11th Cir. 2002).

6

No. 07-40963

actionable damage to the public fisc.”17 Because of the provision’s focus on

presentment, it held that it is insufficient for a plaintiff “merely to describe a

private scheme in detail” without offering “some indicia of reliability” that an

actual false claim for payment was made to the Government.18 The Clausen

court made plain its position that to plead a presentment claim, the minimum

indicia of reliability required to satisfy the particularity standard are the specific

contents of actually submitted claims, such as billing numbers, dates, and

amounts.

At least two circuits have favorably cited the Eleventh Circuit’s Clausen

rule.19 The First Circuit considered a case in which a hospital employee alleged

that the hospital was submitting Medicare claims for services that were provided

improperly or not at all, but could not provide details on specific bills. The First

Circuit upheld the dismissal because the complaint failed to meet this standard:

[A] relator must provide details that identify particular false

claims for payment that were submitted to the government. In

a case such as this, details concerning the dates of the claims, the

17

Id.

18

Id.

19

See U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 727

(10th Cir. 2006); U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 232 (1st Cir.

2004). The Sixth Circuit has also cited Clausen to uphold a dismissal in a False Claims Act

case in which the relator was “unable to identify a specific claim submitted directly to the

United States.” There, however, the relator came forward with only a vague scheme and

alleged that virtually every claim made by the defendant was fraudulent, with no indication

of why or how. Thus the complaint would have failed for reasons more fundamental than not

offering the contents of a specific claim. See Yuhasz v. Brush Wellman, Inc., 341 F.3d 559,

563–65 (6th Cir. 2003). The Seventh, Third, and Ninth Circuits have also cited Clausen for

the proposition that a relator must allege details of a false claim actually submitted to the

Government, but the appeals in these circuits were all brought at the summary judgment

stage, after discovery had been completed. See U.S. ex rel. Crews v. NCS Healthcare of Ill.,

Inc., 460 F.3d 853 (7th Cir. 2006); U.S. ex rel. Quinn v. Omnicare Inc., 382 F.3d 432 (3d Cir.

2004); U.S. ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995 (9th Cir. 2002). Requiring

detailed evidence of a false claim post-discovery is not necessarily indicative of what details

these courts would require at the pleading stage.

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No. 07-40963

content of the forms or bills submitted, their identification

numbers, the amount of money charged to the government, the

particular goods or services for which the government was billed,

the individuals involved in the billing, and the length of time

between the alleged fraudulent practices and the submission of

claims based on those practices are the types of information that

may help a relator to state his or her claims with particularity.20

The complaint before the First Circuit offered few details supporting an

inference that bills were presented. As the court stated: “[T]he complaint never

specifies the dates or content of any particular false or fraudulent claim allegedly

submitted for reimbursement by Medicare or Medicaid. It provides no

identification numbers or amounts charged in individual claims for specific tests,

supplies, or services. It does not identify or describe the individuals involved in

the improper billing or allege with particularity any certification of compliance

with federal regulations in order to obtain payments.” 21 Thus, although the First

Circuit cites Clausen and formulates its own strict standard, the facts before it

did not require the court to reach the question of whether all complaints alleging

a False Claims Act presentment claim must include details of specific bills.

The Tenth Circuit, also citing Clausen, and quoting the First Circuit’s

standard, has similarly held that a relator’s complaint against a health

insurance company for submitting false claims to the Health Care Financing

Authority lacked the requisite particularity because it failed to allege “the

specifics of any actual claims submitted.” 22 Unfortunately, we cannot determine

from the facts in that case whether the complaint at issue set forth any indicia

that claims were submitted. If so, this would make the demand for billing detail

much like the strict requirement of Clausen, but as it stands we cannot be sure.

20

Karvelas, 360 F.3d at 232–33.

21

Id. at 233.

22

Sikkenga, 472 F.3d at 727–28.

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While the First and Tenth circuits have relied, to a somewhat unclear

degree, on Clausen, at the same time the Eleventh Circuit itself has moved away

from Clausen’s most exacting language, accepting less billing detail in a case

where particular allegations of a scheme offered indicia of reliability that bills

were presented. In U.S. ex rel. Walker v. R&F Properties of Lake County, Inc.,

the Eleventh Circuit held that a False Claims Act complaint met the requisite

particularity based on a nurse’s allegations that she “believed [the hospital]

submitted false or fraudulent claims” by billing nurses’ services as if performed

by a doctor.23 The nurse did not come forward with any details of the contents

of actually submitted claims, alleging only the scheme that, according to an office

administrator, nurse and doctor services were billed identically. Although the

court did not say as much, in the face of strong evidence of a billing scheme in

which it was likely, as opposed to speculative, that fraudulent bills were actually

submitted, the court found relatively skimpy details about the bills to be

sufficient.

While this Court has also addressed the sufficiency of False Claims Act

complaints, we are yet to confront squarely with what particularity a complaint

must plead the actual details of the false claim itself. It is true that we have

said “statements or claims are among the circumstances constituting fraud in a

False Claims Act suit, [and] these must be plead with particularity,”24 but this

statement only recited Rule 9(b)’s requirement that the circumstances of fraud

be pled with particularity; it did not speak to the detail required. We now

consider that question as presented by this case and do so for sections 3729(a)(1-

3) separately and in turn.

23

433 F.3d 1349, 1360 (11th Cir. 2005) (emphasis added).

24

U.S. ex rel. Russell v. Epic Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir.

1999).

9

No. 07-40963

IV

A

Dr. Grubbs’ complaint first alleges violations of § 3729(a)(1), which makes

liable any person who “knowingly presents, or causes to be presented” a false

claim to the Government. This provision includes an express presentment

requirement. As the Eleventh Circuit describes it, the provision’s sine qua non

is the presentment of a false claim. Other elements include that the claim was

false or fraudulent and that the action was undertaken knowingly. Notably,

stating a claim under § 3729(a)(1) does not require actual or specific damages,

as the statute imposes a liquidated civil penalty on violators.

We have traditionally required that a fraud complaint include “the time,

place and contents of the false representation[], as well as the identity of the

person making the misrepresentation and what that person obtained thereby.”25

However, we have acknowledged that “Rule 9(b)’s ultimate meaning is context-

specific,”26 and thus there is no single construction of Rule 9(b) that applies in

all contexts. Depending on the claim, a plaintiff may sufficiently “state with

particularity the circumstances constituting fraud or mistake” without including

all the details of any single court-articulated standard—it depends on the

elements of the claim at hand.

The “time, place, contents, and identity” standard originated in common

law fraud and securities fraud cases making it no surprise that the elements of

those claims match the pleading standard’s requirements. The elements of

common law fraud are “1) that a material representation was made; (2) the

representation was false; (3) when the representation was made, the speaker

knew it was false or made it recklessly without any knowledge of the truth and

25

Id.

26

Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir. 1997).

10

No. 07-40963

as a positive assertion; (4) the speaker made the representation with the intent

that the other party should act upon it; (5) the party acted in reliance on the

representation; and (6) the party thereby suffered injury.” 27 Given the elements

of reliance and damages, pleading common law fraud with particularity demands

the specifics of the false representation—without the precise contents of the

misrepresentation the plaintiff cannot show he relied on the misrepresentation

to his detriment. In other words, common law fraud’s elements of reliance and

damages are intertwined with the misrepresentation and heighten the need for

attention to the misrepresentation itself .

The False Claims Act, in contrast, lacks the elements of reliance and

damages. Rather, it protects the Treasury from monetary injury. Put plainly,

the statute is remedial and exposes even unsuccessful false claims to liability.28

A person that presented fraudulent claims that were never paid remains liable

for the Act’s civil penalty. It is adequate to allege that a false claim was

knowingly presented regardless of its exact amount; the contents of the bill are

less significant because a complaint need not allege that the Government relied

on or was damaged by the false claim. Thus, a claim under the False Claims Act

and a claim under common law or securities fraud are not on the same plane in

meeting the requirement of “stat[ing] with particularity” the contents of the

fraudulent misrepresentation.

27

Allstate Ins. Co. v. Receivable Fin. Co., 501 F.3d 398, 406 (5th Cir. 2007) (interpreting

Texas law).

28

The Eleventh Circuit’s statement that without presentment “there is simply no

actionable damage to the public fisc as required under the False Claims Act,” U.S. ex rel.

Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002), is incorrect to the

extent that it is not limited to section (a)(1) and adds a damages element to the False Claims

Act, requiring payment in addition to presentment. The statute offers a civil penalty for proof

of fraudulent claims whether or not paid.

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And surely a procedural rule ought not be read to insist that a plaintiff

plead the level of detail required to prevail at trial.29 The False Claims Act is a

civil provision and under section (a)(1) a plaintiff must prove presentment by a

preponderance of the evidence.30 Fraudulent presentment requires proof only

of the claim’s falsity, not of its exact contents. If at trial a qui tam plaintiff

proves the existence of a billing scheme and offers particular and reliable indicia

that false bills were actually submitted as a result of the scheme—such as dates

that services were fraudulently provided or recorded, by whom, and evidence of

the department’s standard billing procedure31 —a reasonable jury could infer that

more likely than not the defendant presented a false bill to the government, this

despite no evidence of the particular contents of the misrepresentation. Of

course, the exact dollar amounts fraudulently billed will often surface through

discovery and will in most cases be necessary to sufficiently prove actual

damages above the Act’s civil penalty. Nevertheless, a plaintiff does not

29

See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, --- (2007) (“We

emphasize, as well, that under our construction of the ‘strong inference’ standard, a plaintiff

is not forced to plead more than she would be required to prove at trial. A plaintiff alleging

fraud in a § 10(b) action, we hold today, must plead facts rendering an inference of scienter

at least as likely as any plausible opposing inference. At trial, she must then prove her case

by a ‘preponderance of the evidence.’ Stated otherwise, she must demonstrate that it is more

likely than not that the defendant acted with scienter.”). Although we refrain from delving

into the quagmire, a pleading rule that requires the complaint to state more facts than

necessary to prove elements of a cause of action to a preponderance at trial summons Seventh

Amendment concerns.

30

See UMC Electronics Co. v. U.S., 249 F.3d 1337, 1338 (Fed. Cir. 2001).

31

The magistrate’s report also faults the complaint for not identifying the person who

actually submitted the bills. Whether a doctor put the claims in motion by entering records

of unprovided or unnecessary services into the hospital’s standard billing system, or whether

the doctor actually hit the “send” button that presents the bills to the Government, does not

change the nature of the fraud. The False Claims Act recognizes this and requires only that

a person knowingly “causes [a claim] to be presented.” See U.S. ex rel. Riley v. St. Luke’s

Episcopal Hosp., 355 F.3d 370, 378 (5th Cir. 2004). The doctor can cause the fraud by putting

a fraudulent record into a system that he knows will ministerially crank out a fraudulent bill

to the Government. Describing such a system serves the same purpose for pleading as naming

the individual who hit the submit button.

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necessarily need the exact dollar amounts, billing numbers, or dates to prove to

a preponderance that fraudulent bills were actually submitted. To require these

details at pleading is one small step shy of requiring production of actual

documentation with the complaint, a level of proof not demanded to win at trial

and significantly more than any federal pleading rule contemplates.32

Appellees retort that because presentment is the conduct that gives rise

to § 3729(a)(1) liability, Rule 9(b) demands that it is the contents of the

presented bill itself that must be pled with particular detail and not inferred

from the circumstances. We must disagree with the sweep of that assertion.

Stating “with particularity the circumstances constituting fraud” does not

necessarily and always mean stating the contents of a bill. The particular

circumstances constituting the fraudulent presentment are often harbored in the

scheme. A hand in the cookie jar does not itself amount to fraud separate from

the fib that the treat has been earned when in fact the chores remain undone.

Standing alone, raw bills—even with numbers, dates, and amounts—are not

fraud without an underlying scheme to submit the bills for unperformed or

unnecessary work. It is the scheme in which particular circumstances

constituting fraud may be found that make it highly likely the fraud was

consummated through the presentment of false bills.

In sum, the “time, place, contents, and identity” standard is not a

straitjacket for Rule 9(b). Rather, the rule is context specific and flexible and

must remain so to achieve the remedial purpose of the False Claim Act. We

reach for a workable construction of Rule 9(b) with complaints under the False

Claims Act; that is, one that effectuates Rule 9(b) without stymieing legitimate

efforts to expose fraud. We hold that to plead with particularity the

32

See U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238 F.Supp.2d 258,

269 (D.D.C. 2002) (agreeing with the dissent in Clausen that the Clausen majority was

“seeking not particularity but proof.”).

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circumstances constituting fraud for a False Claims Act § 3729(a)(1) claim, a

relator’s complaint, if it cannot allege the details of an actually submitted false

claim, may nevertheless survive by alleging particular details of a scheme to

submit false claims paired with reliable indicia that lead to a strong inference

that claims were actually submitted.

B

This standard comports with Rule 9(b)’s objectives of ensuring the

complaint “provides defendants with fair notice of the plaintiffs’ claims, protects

defendants from harm to their reputation and goodwill, reduces the number of

strike suits, and prevents plaintiffs from filing baseless claims then attempting

to discover unknown wrongs.” 33 Ultimately, the question is what is required for

a ticket to the federal discovery apparatus.

Confronting False Claims Act defendants with both an alleged scheme to

submit false claims and details leading to a strong inference that those claims

were submitted—such as dates and descriptions of recorded, but unprovided,

services and a description of the billing system that the records were likely

entered into—gives defendants adequate notice of the claims. In many cases, the

defendants will be in possession of the most relevant records, such as patients’

charts, doctors’ notes, and internal billing records, with which to defend on the

grounds that alleged falsely-recorded services were not recorded, were not billed

for, or were actually provided.34

Rule 9(b) also prevents nuisance suits and the filing of baseless claims as

a pretext to gain access to a “fishing expedition.” A complaint that includes both

33

Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir. 1994).

34

Appellee Dr. Desai argues that some patient visits may not be in the doctors’ records

because regulations allow a psychiatrists to keep notes separate from a patient’s charts. The

applicable regulation belies Dr. Desai’s argument. “Psychotherapy notes excludes . . .

counseling session start and stop times.” 45 C.F.R. § 164.501.

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No. 07-40963

particular details of a scheme to present fraudulent bills to the Government and

allegations making it likely bills were actually submitted limits any “fishing” to

a small pond that is either stocked or dead. Defendants either have or do not

have evidence that the alleged phony services were actually provided; they either

have or do not have evidence that recorded, but unprovided or unnecessary,

services did not result in bills to the Government. Discovery can be pointed and

efficient, with a summary judgment following on the heels of the complaint if

billing records discredit the complaint’s particularized allegations. That is the

balance Rule 9(b) attempts to strike. And it works best when access to discovery

does not inevitably include all discovery’s powers but is tailored by the district

court to the case at hand. And the detail must be sufficient to allow this

tailoring. Rule 9(b) should not be made to shoulder all the burden of policing

abusive discovery. Its balance draws upon the vigilant hand of the district court

judge.

The First Circuit points to the Government intervention provision in the

Act as a reason to enhance protection against unfocused discovery.35 It reasons

that absent details in the complaint about fraudulent bills submitted by

defendants, the Government would have to decide whether to intervene on

incomplete information. The First Circuit acknowledged that the Government

could intervene after discovery, but argued that by then the Government would

have lost its opportunity to conduct a confidential investigation on its own time

line. Even considering the importance of the Government’s ability to intervene,

as it is the true party at interest in qui tam actions, we see this is a strained

rationale for overly strict pleading. It discourages whistleblowers who may have

significant information from coming forward with what they know in order to

protect the Government’s ability to intervene on perfect data. Such a rule would

35

U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 230–31 (1st Cir. 2004).

15

No. 07-40963

sweep too far. While Rule 9(b) stands as a hurdle preventing discovery when a

complaint fails to sufficiently define its claims, it does not do away with

discovery altogether by allowing access to discovery only when the complaint

already contains all the information necessary to succeed at trial.

C

Grubbs’ complaint satisfies Rule 9(b) on its § 3729(a)(1) claim as to the

individual doctors. The complaint sets out the particular workings of a scheme

that was communicated directly to the relator by those perpetrating the fraud.

Grubbs describes in detail, including the date, place, and participants, the

dinner meeting at which two doctors in his section attempted to bring him into

the fold of their on-going fraudulent plot. He alleges his first-hand experience

of the scheme unfolding as it related to him, describing how the weekend on-call

nursing staff attempted to assist him in recording face-to-face physician visits

that had not occurred. Also alleged are specific dates that each doctor falsely

claimed to have provided services to patients and often the type of medical

service or its Current Procedural Terminology code that would have been used

in the bill.

Taking the allegations of the scheme and the relator’s own alleged

experience as true, as we must on a motion to dismiss, and considering the

complaint’s list of dates that specified, unprovided services were recorded

amounts to more than probable, nigh likely, circumstantial evidence that the

doctors’ fraudulent records caused the hospital’s billing system in due course to

present fraudulent claims to the Government. It would stretch the imagination

to infer the inverse; that the defendant doctors go through the charade of

meeting with newly hired doctors to describe their fraudulent practice and that

they continually record unprovided services only for the scheme to deviate from

the regular billing track at the last moment so that the recorded, but

unprovided, services never get billed. That fraudulent bills were presented to

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No. 07-40963

the Government is the logical conclusion of the particular allegations in Grubbs’

complaint even though it does not include exact billing numbers or amounts.

D

Regarding the Hospital, however, the complaint fails because there is no

indication that the Hospital itself acted with the requisite intent. Under all

sections of the False Claims Act, the defendant must act with the purpose of

getting a false claim paid by the Government. Grubbs did not plead, argue at

the district court, or on appeal that the Hospital was vicariously liable for the

actions of the doctors or nurses. Without an attributed liability theory, no

allegations in the complaint allow a reasonable inference that the Hospital had

the requisite intent. The Hospital may have been inadvertently and in the

normal course of business processing the claims of services fraudulently

exaggerated by its doctors. We have no basis for inferring otherwise.

However, in light of the survival of the (a)(1) claims against the individual

doctors, in fairness Dr. Grubbs should be granted leave to amend his complaint

regarding his (a)(1) claims against the Hospital.36

V

We now turn to § 3729(a)(2), which imposes civil liability on any person

who “knowingly makes, uses, or causes to be made or used, a false record or

statement to get a false or fraudulent claim paid or approved by the

Government.” The district court dismissed Grubbs’ (a)(2) claims for the same

reason it dismissed the (a)(1) claims; the complaint failed to allege details of

fraudulent bills actually presented to the Government. This was error. As the

Supreme Court recently settled: “[T]he concept of presentment is not mentioned

36

See Foman v. Davis, 371 U.S. 178, 181–82 (1962) (“Rule 15(a) declares that leave to

amend ‘shall be freely given when justice so requires’; this mandate is to be heeded.”). The

district court has the discretion to refuse leave to file amendments after any amendment filed

on remand.

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in § 3729(a)(2). The inclusion of an express presentment requirement in

subsection (a)(1), combined with the absence of anything similar in subsection

(a)(2), suggests that Congress did not intend to include a presentment

requirement in subsection (a)(2).”37

What § 3729(a)(2) requires is that the defendant made a false record or

statement for the purpose of getting a false or fraudulent claim paid by the

Government. For this section, the recording of a false record, when it is made

with the requisite intent, is enough to satisfy the statute; we need not make the

step of inferring that the record actually caused a claim to be presented to the

Government. Grubbs’ complaint particularly alleges that at the February 5

dinner, Drs. Groves and Kanneganti explained how they meet with the nursing

staff and “write notes” about patients that they only see on an as needed basis

but bill as daily face-to-face visits. He also alleges that two days later the

nursing staff “attempted to assist him in recording information as physician

visits even before and without his actually personally seeing the patients.”

Similarly, the complaint alleges that “[o]n December 4 and 5, 2004, Dr. Bagri

recorded false progress notes in The Hospital medical records for hospital visits

with a patient, but the visits did not actually occur.” These are simple, concise,

and particular allegations of the circumstances constituting § 3729(a)(2) fraud

and these claims against Drs. Groves, Kanneganti, and Bagri should not have

been dismissed at the pleading stage.

VI

Grubbs also alleges violations of the False Claims Act’s conspiracy

provision. Section 3729(a)(3) subjects to civil liability any person who “conspires

to defraud the Government by getting a false or fraudulent claim allowed or

paid.” We have held that to prove a False Claims Act conspiracy, a relator must

37

Allison Engine, Co. v. U.S. ex rel. Sanders, 128 S.Ct. 2123, 2129 (2008).

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No. 07-40963

show “(1) the existence of an unlawful agreement between defendants to get a

false or fraudulent claim allowed or paid by [the Government] and (2) at least

one act performed in furtherance of that agreement.” 38 The particularity

requirements of Rule 9(b) apply to the False Claims Act’s conspiracy provision

with equal force as to its “presentment” and “record” provisions. As the D.C.

Circuit has stated, a plaintiff alleging a conspiracy to commit fraud must “plead

with particularity the conspiracy as well as the overt acts . . . taken in

furtherance of the conspiracy.”39

To the extent that the district court dismissed the (a)(3) claim because the

complaint did not sufficiently plead a specific instance of a presented claim, the

district court erred. As in § 3729(a)(2), the conspiracy provision lacks a

presentment element, thus presentment of a false claim need not be proven nor

pled to prevail on a False Claims Act conspiracy charge.

The district court also reasoned that the complaint fell short of pleading

an agreement. We disagree as to Drs. Groves and Kanneganti, the two doctors

that arranged the Pappadeaux’s meeting, but agree as to the other defendants.

The complaint attributes specific language to Drs. Groves and Kanneganti that

occurred at the Pappadeaux’s meeting and which indicates, or at least from

which a reasonable jury could infer,40 that they were in agreement between

themselves and some members of the nursing staff to improperly record

unprovided services for the purpose of getting fraudulent claims paid by the

Government. The temporal circumstances of the meeting also suggest a

38

U.S. ex rel. Farmer v. City of Houston, 523 F.3d 333, 343 (5th Cir. 2008).

39

FC Inv. Group LC v. IFX Markets, Ltd., 529 F.3d 1087, 1097 (D.C.Cir. 2008). The

court’s analysis was couched as jurisdictional, but the statement holds true as a purely

procedural pleading requirement.

40

See Farmer, 523 F.3d at 344. While Farmer asked whether a “reasonable jury could

infer” on review of a summary judgment, the standard on review of a motion to dismiss cannot

be more exacting.

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No. 07-40963

conspiratorial design. Two days prior to Dr. Grubbs’ first weekend on call these

doctors invited him to a dinner at which they described how they used the

weekend on calls to perpetrate the alleged fraudulent scheme. To infer that the

two doctors were in agreement is not conclusory or speculative, but naturally

inferred from the allegations.

It does, however, stretch deduction to conclude that the remaining

defendant doctors and the Hospital were also in on the agreement. Even taking

the allegations as true—that various doctors over a period of years each

submitted certain false claims—does not, by itself, do more than point to a

possibility of an agreement among them.

Regarding Drs. Groves and Kanneganti, the two doctors for which we hold

the complaint adequately alleges an agreement, Grubbs provides particular

circumstances of the required overt acts by describing his exchange with the

nursing staff two days after the meeting. The nurses, although not defendants,

were aware of a practice here alleged to have been an agreement to cheat the

government and are asserted to have offered to assist Grubbs in recording their

conference as face-to-face visits with patients. Another separate overt act,

subsequent to the meeting, was alleged regarding Dr. Kanneganti specifically.

The complaint avers that he billed Medicaid “for a psychiatric diagnostic exam

on October 12, 2004, CPT Code #90801,” even though “[t]he Hospital medical

records indicate that the psychiatric exam of the patient was conducted by a

nurse.” Accordingly, the district court erred in dismissing the conspiracy claim

as to defendants Groves and Kanneganti.

VII

Lastly, we address the district court’s finding that Grubbs’ complaint

failed for want of independently obtained knowledge of the alleged fraud. This

requirement is misplaced. A relator must have direct and independent

knowledge on which the allegations are based when the action is “based upon the

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No. 07-40963

public disclosure of allegations or transactions in a criminal, civil, or

administrative hearing, in a congressional, administrative, or Government

[General] Accounting Office report, hearing, audit, or investigation, or from the

news media.”41 In other words, the original-source independent-knowledge

requirement is only triggered if the claims are based on information that is

publicly disclosed.42

Grubbs’ complaint is not based upon publicly disclosed allegations. Prior

to Grubbs’ complaint, there were no court or administrative proceedings

regarding the alleged fraud at the Hospital, nor were there Government reports

or audits containing information on which Grubbs’ allegations are based.

Grubbs’ complaint, if true, exposed a previously-uncovered fraud being

perpetrated on the Government; at least on the state of the present record it is

not a parasitic suit by an opportunistic late-comer.43

Appellees, pointing to Reagan, argue that any citizen could have used the

Freedom of Information Act to obtain billing information on which Grubbs’

action is partly based. In Reagan, we held that an FOIA request constitutes a

public disclosure, as it is an “administrative . . . report,” an enumerated public

disclosure under the statute.44 We found that we lacked jurisdiction because the

relator had made and received an FOIA report prior to filing her complaint that

“substantiated the allegations she made in . . . her current claims under the

41

31 U.S.C. § 3730(e)(4)(A–B).

42

See U.S. ex rel. Joseph Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 441–42 (5th Cir.

2008); U.S. ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 173 (5th

Cir. 2004) (“Under 31 U.S.C. § 3730(e)(4), we first ask ‘whether there has been a public

disclosure of allegations or transactions.’”) (internal quotation marks omitted).

43

See Reagan, 384 F.3d at 174.

44

Id. at 175–76.

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No. 07-40963

FCA.”45 Here, in contrast, no FOIA request had been made and no

administrative report was in existence relating to the allegations in the

complaint at the time it was filed. Additionally, we doubt whether medical

billing information that comprises the crux of the complaint in this case would

be available through the FOIA, which excludes “personnel and medical files and

similar files the disclosure of which would constitute a clearly unwarranted

invasion of personal privacy.” 46 On the showing to date, the complaint does not

include publicly-disclosed information and thus whether Grubbs was an original

source bearing direct and independently obtained knowledge remains undecided.

We emphasize that we decide only that the allegations are sufficient to

gain Dr. Grubbs access to the discovery process. We leave to the able district

court to manage this access—discovery targeted to the claims alleged, avoiding

a search for new claims.

We REVERSE and REMAND the dismissal of Grubbs’ § 3729(a)(1) claims,

except as to the Hospital which we AFFIRM without prejudice, granting Grubbs

leave to amend his complaint. We REVERSE and REMAND the dismissal of

Grubbs’ § 3729(a)(2) claims as to defendants Groves, Kanneganti, and Bagri and

AFFIRM as to the other defendants. We REVERSE and REMAND the dismissal

of Grubbs’ § 3729(a)(3) conspiracy claims as to defendants Groves and

Kanneganti and AFFIRM as to the other defendants. AFFIRMED in part,

REVERSED and REMANDED in part.

45

Id. at 176.

46

5 U.S.C. § 552(b)(6).

22