Reed Smith Client Alerts

In a significant win for False Claims Act (“FCA”) defendants, the Sixth Circuit, in a unanimous, precedential decision, held that a relator is the federal government’s agent for purposes of the public disclosure bar where the government does not intervene in the previously disclosed federal qui tam proceeding. The FCA’s public disclosure bar, an important defense tool narrowed by Congress in 2010, precludes FCA suits that include “substantially the same allegations” as those previously disclosed in any of three types of public sources, including any “Federal…hearing in which the Government or its agent is a party.” While district courts were divided over the meaning of “agent” in this provision, no federal court of appeals had weighed in until this case. Some important takeaways from this decision include:

  • In the first published federal appellate ruling to address the issue, the Sixth Circuit’s holding that relators are “agents” of the United States will prevent relators from using non-intervention by the government in previous federal qui tam proceedings as a defense against the public disclosure bar.
  • While the Sixth Circuit reads the amended public disclosure bar’s “substantially the same” language as “more sensitive” to differences between the qui tam complaint and prior disclosures than the pre-amendment bar, the court raises the bar by holding that a whistleblower’s claims cannot survive simply by adding some additional details to describe essentially the same scheme by the same corporate actor.
  • Although the Sixth Circuit did not address the strict Rule 9(b) pleading standard or the Circuit’s exception to that standard in its 2016 decision in United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 838 F.3d 750 (6th Cir. 2016), the district court’s decision in this case, 386 F. Supp. 3d 884 (N.D. Ohio 2019), finding that the complaint was not pled with particularity or within the Prather exception, remains an on-point and compelling authority for future FCA defendants seeking dismissal of frivolous qui tam claims.

United States ex rel. Holloway v. Heartland Hospice, Inc.,--- F.3d ---, No. 19-3646 (6th Cir. June 3, 2020)

Kathi Holloway filed her FCA qui tam whistleblower lawsuit against Heartland Hospice and related entities in 2010, alleging that the company orchestrated a corporate-wide scheme to submit false claims for payments to Medicare and Medicaid for hospice care. According to her complaint, Heartland allegedly admitted patients to hospice when the patients were not eligible to receive hospice benefits. After a seven-year investigation, the Department of Justice declined to intervene and the complaint was unsealed.

In its motion to dismiss filed in the U.S. District Court for the Northern District of Ohio, Heartland argued that (1) the claims were barred by the public disclosure bar since they were drawn from several qui tam lawsuits filed in 2007 in South Carolina, and, in the alternative, (2) the complaint did not satisfy the heightened Rule 9(b) pleading standard for allegations of fraud in FCA cases. Although the district court held that the complaint was not barred by a prior public disclosure, the Reed Smith lawyers successfully persuaded the court to dismiss the claims with prejudice for failure to meet the 9(b) standard in Prather. Relator appealed to the Sixth Circuit, arguing that the complaint met the Prather 9(b) standard.

On appeal, Reed Smith’s lawyers again argued that relator’s claims were publicly disclosed in the South Carolina suits and therefore deficient under the pre- and post-amendment public disclosure bar. In addition, they argued that the Prather exception could not be met, and Rule 9(b) supported affirmance as well. Relator argued that an earlier qui tam suit could not constitute a public disclosure where the government declined to intervene, so the prior South Carolina qui tam suits did not trigger the bar. In this issue of first impression in the federal courts of appeals, the Sixth Circuit sided with Heartland and the majority of district courts, finding that relators are “agents” of the United States for the purpose of applying the amended public disclosure bar.