Fourth Circuit narrows scope of potential FCA claims

7 February 2025 Reed Smith News Flashes

Home Perspectives Fourth Circuit narrows scope of potential FCA claims

On Monday, the Fourth Circuit issued an opinion that could narrow the scope of permissible claims under the federal False Claims Act or, at least, require that potential relators provide additional evidence in their complaints or face severe limitations. In United States ex rel. Wheeler v. Acadia Healthcare Co., No. 23-2101, 2025 U.S. App. LEXIS 2350 (4th Cir. Feb. 3, 2025), the court ruled that a relator’s claims of fraudulent behavior engaged in by their former employer were limited to the state in which the relator witnessed the behavior or had some evidence that the behavior was taking place in other facilities in that state, but could not be expanded nationwide without further evidence.

Authors: Kate Seikaly Anthony R. Todd

In Wheeler, the relator (a physician’s assistant at an Acadia Healthcare facility in Asheville, North Carolina), alleged that she had personal knowledge that therapists and counselors employed by Acadia were signing off on false patient notes, documenting services that were never provided. These services were then billed to Medicare. Wheeler provided multiple examples of alleged false notes in her complaint, but all of the examples were limited to the one Acadia facility in Asheville where Wheeler worked. Wheeler also alleged that a supervisor at that facility informed her that fraudulent notes were being created “at other North Carolina locations.” While Wheeler further alleged that this false billing was “corporate policy” across all Acadia facilities nationwide, she provided no specific evidence of this policy or examples from other locales to back up her claims. The government declined to intervene, and the district court dismissed the complaint in its entirety.

While the Fourth Circuit reversed the lower court and reinstated Wheeler’s complaint, it did so in a limited way. Because Wheeler had only provided evidence of potential false claims taking place in North Carolina and had made no specific allegations with respect to Acadia facilities in other parts of the country or with respect to a specific corporate policy, the court found that the case would be limited to only North Carolina. Specifically, the court found that Wheeler had not met her pleading requirements under Federal Rule of Civil Procedure 9(b), which requires that a plaintiff allege fraud with particularity, with respect to her allegation of a “corporate policy” supporting the behavior: “A mere allegation that a corporate policy exists, with nothing more, is insufficient.”

This case is significant for any company in an industry frequently subject to false claims complaints. Relators often attempt to make sweeping allegations of corporate-wide or nationwide fraud, where their personal knowledge is limited to a single unit or geographic area. The Wheeler case provides some relief to defendants by holding that allegations of corporate-wide or nationwide conduct must be supported by “substantial pre-discovery evidence of the facts.” Thus, even if a relator alleges sufficient facts regarding false claims to survive a motion to dismiss, it may be possible to dramatically limit the scope of relator’s claims if they fail to allege 1) personal knowledge of acts taking place in multiple states or 2) a specific corporate policy regarding the false claims.

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