Third Circuit Sides With Whistleblowers in Split on FCA Pleading

A federal appeals court said that the False Claims Act (FCA) does not require whistleblowers to list “representative samples” of fraudulent transactions in order to proceed with a FCA claim, deepening a  judicial split that won’t be resolved until the U.S. Supreme Court weighs in.

Under federal rules, fraud lawsuits face a high obstacle at the outset: Unless plaintiffs state their claims “with particularity” — which may mean exact dates and dollar amounts — their cases will be dismissed. This prevents frivolous claims of victimization.

But what does the “particularity” rule mean in the context of the FCA, where whistleblowers report fraud against the U.S. government, not against themselves? Employees may know of Medicare cheating or other wrongdoing at a company, but they may not have access to exact dates and dollar amounts — because they don’t work in a billing department, for instance.

In U.S. ex rel. Foglia v. Renal Ventures Management., LLC, the U.S. Court of Appeals for the Third Circuit said whistleblowers need some latitude, and rejected the strict position of some sister appellate courts, which require FCA whistleblowers to list a few specific transactions in order to proceed.

Such a requirement, said the Third Circuit, 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.”

At least eight circuits now have ruled on the issue. Foglia makes the tally an even 4-4: The Fourth, Sixth, Eighth, and Eleventh Circuits apply a narrow pleading standard to the FCA — making it easy to defeat whistleblower claims — while the First, Third, Fifth, and Ninth have adopted what Foglia called “a more nuanced reading.”

In Foglia, the Third Circuit said whistleblowers may proceed if they allege particular details of “a scheme to submit false claims” along with “reliable indicia that lead to a strong inference that claims were actually submitted.” That matches the position of the U.S. government, which argued in a recent case that anything stricter would “undermine[] the FCA’s effectiveness as a tool to combat fraud against the United States.”

The FCA is one of the government’s most powerful crime-fighting tools: Since 1986, when the law was strengthened, taxpayers have recovered nearly $40 billion in fraudulent claims. Under the FCA’s qui tam provision, whistleblowers who sue on behalf of the government may get up to 30% of recovered funds as a reward.

Tagged: False Claims Act (FCA), Whistleblower Laws (Federal)