McGuire v. Estate of Robert Cunningham , 923 F.3d 240 ( 2019 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 17-1106
    UNITED STATES OF AMERICA; STATE OF CALIFORNIA; STATE OF
    COLORADO; STATE OF CONNECTICUT; STATE OF DELAWARE; DISTRICT OF
    COLUMBIA; STATE OF FLORIDA; STATE OF GEORGIA; STATE OF HAWAII;
    STATE OF ILLINOIS; STATE OF INDIANA; STATE OF IOWA; STATE OF
    LOUISIANA; STATE OF MARYLAND; COMMONWEALTH OF MASSACHUSETTS;
    STATE OF MICHIGAN; STATE OF MONTANA; STATE OF NEVADA; STATE OF
    NEW JERSEY; STATE OF NEW MEXICO; STATE OF NEW YORK; STATE OF
    NORTH CAROLINA; STATE OF OKLAHOMA; STATE OF RHODE ISLAND; STATE
    OF TENNESSEE; STATE OF TEXAS; COMMONWEALTH OF VIRGINA; and STATE
    OF WISCONSIN, ex rel. MARK MCGUIRE, WENDY JOHNSON, and
    RYAN UEHLING,
    Plaintiffs,
    v.
    MILLENIUM LABORATORIES, INC., MILLENIUM LABORATORIES OF
    CALIFORNIA, INC.; JAMES SLATTERY; HOWARD APPEL,
    Defendants.
    MARK MCGUIRE,
    Cross-Claimant, Appellant,
    ESTATE OF ROBERT CUNNINGHAM; RYAN UEHLING; OMNI HEALTHCARE INC.;
    AMADEO PESCE; JOHN DOE a/k/a CRAIG DELIGDISH,
    Cross-Defendants, Appellees.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Nathaniel M. Gorton, U.S. District Judge]
    Before
    Torruella, Lynch, and Thompson,
    Circuit Judges.
    Michael Tabb, with whom Thomas M. Greene, Ryan P. Morrison,
    and Greene LLP were on brief, for appellant.
    Michael B. Bogdanow, with whom Robert Foster and Meehan,
    Boyle, Black & Bogdanow, P.C. were on brief, for appellees.
    May 6, 2019
    LYNCH, Circuit Judge.            The False Claims Act (FCA), 
    31 U.S.C. § 3729
        et    seq.,    authorizes       private   persons,    known   as
    relators, to "bring a civil action . . . in the name of the
    Government" against those who make fraudulent claims against the
    United States, 
    id.
     § 3730(b)(1).            When a relator brings such a qui
    tam suit, the government may intervene and proceed with the action,
    or it may decline to intervene and allow the relator to proceed.
    See id. § 3730(b)(1)-(4), (c).
    The FCA encourages relators to bring qui tam suits by
    allowing them to share in any recovery obtained for the government.
    To avoid diluting this potential payout, the FCA's first-to-file
    rule   prohibits    relators       other    than    the   first   to    file   from
    "bring[ing] a related action based on the facts underlying the
    pending action."        Id. § 3730(b)(5).
    This case arises out of the government's successful
    intervention in several qui tam suits against Millennium Health
    (formerly Millennium Laboratories).                Millennium settled with the
    government for $227 million, setting aside fifteen percent of that
    money as a relator's share.          The question on appeal is who is the
    first-to-file relator and how that is determined.
    Mark    McGuire        brought    a   crossclaim    for     declaratory
    judgment that he is the first to file and is entitled, under 
    31 U.S.C. § 3730
    (d)(1),       to    the     fifteen-percent     share.      Robert
    Cunningham, who had brought an earlier qui tam suit against
    - 3 -
    Millennium, moved to dismiss the crossclaim, arguing that he, not
    McGuire, was the first to file.          Finding that the first-to-file
    rule was jurisdictional, and based on its review of extrinsic
    materials outside of the complaints, the district court agreed
    with Cunningham.      United States ex rel. Cunningham v. Millennium
    Labs., Inc., 
    202 F. Supp. 3d 198
    , 209 (D. Mass. 2016). The district
    court dismissed McGuire's crossclaim for lack of subject-matter
    jurisdiction.   
    Id.
    We hold, for the first time in this circuit, that the
    first-to-file   rule    is   not   jurisdictional,   reversing   earlier
    circuit precedent, and we hold that we have jurisdiction over
    McGuire's crossclaim.     We then describe the appropriate method for
    the first-to-file analysis and hold that McGuire was the first-
    to-file relator and that he has stated a claim that he is entitled
    to the relator's share of the settlement.         We reverse and remand
    for further proceedings consistent with this opinion.
    I.
    A.   The False Claims Act
    President Abraham Lincoln signed the FCA into law in
    1863. It was originally intended "to combat rampant fraud in Civil
    War defense contracts."      S. Rep. No. 99-345, at 8 (1986).    Today,
    the FCA is the federal government's "primary litigative tool for
    combatting fraud."     
    Id. at 2
    .
    - 4 -
    The FCA imposes liability on any person who "knowingly
    presents   . . .    a    false   or    fraudulent      claim    for    payment      or
    approval," 
    31 U.S.C. § 3729
    (a)(1)(A), "to an officer, employee, or
    agent of the United States," 
    id.
     § 3729(b)(2)(A)(i).                     A relator
    may enforce the FCA by bringing a civil qui tam action "in the
    name of the Government."         Id. § 3730(b).
    To    bring   such    an   action,    the    relator       must   file    a
    complaint under seal and must serve the United States with a copy
    of the complaint and a disclosure of all material evidence.                       Id.
    § 3730(b)(2).      After reviewing those materials, the United States
    may "proceed with the action, in which case the action shall be
    conducted by the Government."           Id. § 3730(b)(4).         Or, "[i]f the
    government does not exercise its right to intervene in the suit,
    the relator may serve the complaint upon the defendant and proceed
    with the action."         United States ex rel. Karvelas v. Melrose-
    Wakefield Hosp., 
    360 F.3d 220
    , 225 (1st Cir. 2004), abrogated on
    other grounds by Allison Engine Co. v. United States ex rel.
    Sanders, 
    553 U.S. 662
     (2008).
    The    FCA    entitles     the   relator    to   a   portion      of   any
    resulting judgment or settlement.             Before the 1986 amendments to
    the FCA, the relator's share in a case in which the government had
    intervened was capped at "10 percent of the proceeds of the action
    or settlement of the claim."          S. Rep. No. 99-345, at 41.             The FCA
    now mandates a relator award in such a case of "at least 15 percent
    - 5 -
    but not more than 25 percent of the proceeds of the action or
    settlement of the claim, depending upon the extent to which the
    person   substantially    contributed    to   the   prosecution   of   the
    action."1   
    31 U.S.C. § 3730
    (d)(1).
    The 1986 amendments also added a significant restriction
    on recoveries in qui tam suits that is relevant here: the "first-
    to-file" rule in paragraph 3730(b)(5).        That paragraph provides,
    "When a person brings an action under [
    31 U.S.C. § 3730
    (b)], no
    person other than the Government may intervene or bring a related
    action based on the facts underlying the pending action."              
    Id.
    § 3730(b)(5).    Legislative history shows that this rule was meant
    to "clarify in the statute that private enforcement under the civil
    False Claims Act is not meant to produce class actions or multiple
    separate suits based on identical facts and circumstances."            S.
    Rep. No. 99-345, at 25.
    B.   The Complaints
    Because we hold that the first-to-file issue is to be
    addressed under Federal Rule of Civil Procedure 12(b)(6), not Rule
    12(b)(1), we confine our review to the pleadings and to facts
    subject to judicial notice.     Haley v. City of Bos., 
    657 F.3d 39
    ,
    1    When the government declines to intervene and the
    relator successfully prosecutes the action, the relator may
    receive up to 30 percent of the payout (with the remainder to the
    United States). 
    31 U.S.C. § 3730
    (d)(2). That is not the situation
    here.
    - 6 -
    46 (1st Cir. 2011).          We limit our background discussion to facts
    alleged in Cunningham's amended complaint, McGuire's original
    complaint, and in the government's complaint in intervention and
    settlement agreement.2
    1.        Cunningham's Amended Complaint
    In late 2009 and early 2010, relator Robert Cunningham3
    filed       qui    tam   actions   against   five   competitors   of    Calloway
    Laboratories, his employer. One competitor he sued was Millennium.
    Cunningham filed his first amended complaint4 against
    Millennium on February 24, 2011.             It detailed a mechanism of fraud
    arising      from     Millennium's   "Physician     Billing   Model,"   the   key
    component of which was Millennium's "multi-class qualitative drug
    screen," which Cunningham's complaint labels a "test kit."                    The
    test kit was a urine specimen collection cup with chemical test
    2 Cunningham's amended complaint and McGuire's original
    complaint are subject to judicial notice. See Zucker v. Rodriguez,
    
    919 F.3d 649
    , 651 n.5 (1st Cir. 2019) (citing E.I. Du Pont de
    Nemours & Co. v. Cullen, 
    791 F.2d 5
    , 7 (1st Cir. 1986) (Breyer,
    J.)).    And the government's complaint in intervention and
    settlement agreement are also properly before us because McGuire
    attached them as exhibits to his crossclaim.
    3 Cunningham died in December 2010.      His estate has
    continued to pursue his action.     For simplicity, we refer to
    Cunningham and his estate as "Cunningham."
    4 Cunningham's amended complaint states, "This First
    Amended Complaint does not add any facts to those contained in the
    Original Complaint; rather, it removes some of the allegations
    that had been contained therein."        The amended complaint's
    allegations were the only allegations "pending" when McGuire filed
    his suit.
    - 7 -
    strips embedded in it.     This kit, which "c[ould] be purchased for
    less than" ten dollars, "use[d] a single specimen" collected at
    the point of care to detect "multiple drug classes."
    We   described     the    three   aspects   of   Cunningham's
    allegations in United States ex rel. Estate of Cunningham v.
    Millennium Labs. of Calif., Inc., 
    713 F.3d 662
    , 665-66 (1st Cir.
    2013).   Cunningham's complaint alleged that Millennium used its
    inexpensive point-of-care test kits to induce physicians into
    excessive billing (Aspect One), excessive testing (Aspect Two),
    and excessive confirmatory testing (Aspect Three).5 In Cunningham,
    5    We describe the first two aspects more fully. Aspect
    One: Cunningham alleged that Millennium told physicians that this
    test kit could "substantially increase his or her revenue."
    Because the kits performed several tests at once, Millennium told
    the physicians that they could "bill both government and private
    health insurance companies" for several drugs tests per kit. Under
    then-current government billing codes, the physicians should have
    only billed for one test per test kit. Cunningham alleged that a
    document distributed by Millennium "suggest[ed] each physician can
    bill at least 9 units per kit."      And Cunningham alleged that
    Millennium separately informed physicians that they should bill
    "as many units as there are panels in the test kit." Cunningham
    alleged that, under this model, physicians could bill between
    $16.67 and $80 per unit and so extract per-kit revenues of between
    $173.18 to $432.
    Aspect Two:   Cunningham alleged that Millennium encouraged
    physicians to conduct excessive tests.       Millennium informed
    physicians that, if they were to order twenty tests per day, they
    could earn up to $8,640 per day.      The complaint stated that
    Millennium thus "encourage[d] the physician to order more testing
    than that physician would have prior to engaging in Millennium's
    [point-of-care] model, and increase[d] Millennium's market share
    by drawing other physicians to the practice with the hope and
    promise of greater revenues."         It further alleged that
    participating physicians ordered "significantly more testing for
    their patients since entering the conspiracy than they did prior
    - 8 -
    we held that Aspects One and Three were jurisdictionally barred by
    the FCA's public disclosure provision, 
    31 U.S.C. § 3730
    (e)(4)(A),
    because they had been "publicly disclosed" in a California state
    defamation suit brought by Millennium against Calloway.         713 F.3d
    at 671.     We then vacated the district court's order dismissing
    Aspect Two of Cunningham's claim and remanded that claim for
    further proceedings.    Id. at 676.       On remand, the district court
    dismissed    Aspect   Two    of   Cunningham's    claim   for   lack     of
    particularity under Federal Rule of Civil Procedure 9(b) and for
    failure to state a claim under Rule 12(b)(6).         United States ex
    rel. Estate of Cunningham v. Millennium Labs. of Cal., No. 09-
    12209-RWZ, 
    2014 WL 309374
    , at *2 (D. Mass. Jan. 27, 2014).             That
    decision is currently on appeal.
    Only Aspect Three is potentially relevant to the first-
    to-file issue here.6        Cunningham alleged that if the initial
    qualitative test uncovered any of the tested drugs, that test
    "w[ould] need to be followed up by a quantitative screen" and then
    to participating in the conspiracy with Millennium." The alleged
    fraud consisted of Millennium's promotion of this billing model
    and physician defendants' misrepresentation of the medical need
    for the tests performed.
    6    McGuire argues, based on Campbell v. Redding Medical
    Center, 
    421 F.3d 817
     (9th Cir. 2005), that because we found Aspect
    Three to be jurisdictionally barred, it does not count as a
    "pending" claim for first-to-file purposes.      We do not address
    this argument because we find McGuire was the first-to-file relator
    even if we consider Aspect Three of Cunningham's complaint.
    - 9 -
    "confirmed    by    another    method."      The   complaint   alleges    that
    Millennium's       point-of-care   model     led   to   "significantly    more
    testing," including "confirmatory tests."
    Cunningham       alleged     generally     that   this      scheme
    "increas[ed] the revenues of the [physician] defendants at the
    expense of the government and private health insurance programs"
    and "significantly increase[d] Millennium's revenues and market
    share."   Cunningham's amended complaint never mentions the terms
    "custom profiles" or "standing orders" or describes any fraudulent
    schemes by Millennium associated with either.
    Cunningham filed three disclosures of material evidence
    to the government in December 2009, September 2010, and February
    2012, respectively.
    2.      McGuire's Original Complaint
    Mark McGuire, appellant here, filed his original qui tam
    complaint on January 26, 2012.            It focused not on point-of-care
    testing, the first stage of urinary drug testing, as Cunningham's
    complaint had done, but on confirmatory (or quantitative) testing,
    a later stage.       McGuire alleged that after a point-of-care test
    discloses an unexpected drug (or shows the lack of an expected
    drug), a physician can order confirmatory tests.               These tests,
    which require sophisticated equipment and so can be expensive,
    determine how much of the substance is present (or not).
    - 10 -
    McGuire alleged that Millennium engaged in a scheme that
    resulted in unnecessary confirmatory tests being performed and
    billed to the government after the point-of-care tests. Millennium
    persuaded   physicians    to    execute    "custom   profiles,"   which   are
    standing orders for a battery of confirmatory tests on every urine
    sample, regardless of whether the point-of-care testing showed a
    need.   McGuire alleged that "even if [a point-of-care test] comes
    back completely negative, . . . based on the customized profile
    Millennium has gotten the physician's office to sign, Millennium
    runs 10 confirmatory tests."       Millennium profited because "[t]hese
    10 unnecessary tests are then billed to Medicare, Medicaid or other
    federal plans."       And physicians and hospitals who signed up for
    "custom profiles" profited because they could bill the government
    for the unnecessary tests.
    This scheme was, according to McGuire's complaint, a
    matter of corporate policy.              McGuire alleged that Millennium
    supervisors required their sales representatives to aggressively
    market standing orders to physicians -- the representatives would
    return time and time again until the physicians executed custom
    profiles for at least ten confirmatory tests.             Some physicians,
    with Millennium's participation, included up to twenty-five tests
    in their profiles.
    McGuire    also    alleged    that   Millennium   provided    free
    point-of-care cups (test kits) to physicians to induce them to
    - 11 -
    send confirmation testing orders to Millennium. This tactic helped
    Millennium     gain    market       share   in    a    highly    competitive   and
    potentially quite lucrative business.
    3.      The Complaint and Settlement Agreement of the United
    States
    In December 2014, the government announced its intention
    to intervene in McGuire's action (as well as the actions of three
    other relators, none of whom were Cunningham).                      It filed its
    complaint in intervention in those actions on March 19, 2015.                  The
    complaint     describes      two    fraudulent        schemes:   (1) Millennium's
    submission of claims for excessive and unnecessary urine drug
    testing ordered by physicians through standing orders without an
    individualized assessment of patient need; and (2) urine drug
    testing referred by physicians who received free point-of-care
    testing supplies, in violation of the Stark Act and the Anti-
    Kickback Statute.         Millennium used these schemes to "knowingly
    submit[] many millions of dollars' worth of false claims" to the
    government.
    The United States complaint in intervention alleges that
    "[a] core element of Millennium's business model was the use of
    physician standing order forms."                 These standing orders led to
    unnecessary drug tests conducted "regardless of each patient's
    individualized        need    and     condition."          Millennium    required
    physicians to use these forms or be cut off from processing
    - 12 -
    specimens,    set    and    enforced    testing     thresholds    for    standing
    orders, and promoted routine confirmatory testing of even negative
    point-of-care       test    results.       This     standing    order    practice
    generated unnecessary testing, including confirmatory testing for
    rarely abused drugs, even when point-of-care test results showed
    no need for follow-up testing.
    The government's complaint also alleged that Millennium
    engaged in an illegal kickback scheme involving point-of-care
    cups.     After the Center for Medicare and Medicaid Services (CMS)
    changed     the   reimbursement        structure     for   point-of-care       cups
    effective April 2010, "the [point-of-care] test cups were no longer
    a source of significant reimbursement revenue for physicians."                  In
    response,     Millennium      "dramatically"       expanded     its    "Free   Cup
    program."     Under this program, Millennium distributed $5 million
    worth of point-of-care test cups for free to physicians in exchange
    for "referrals" to Millennium.             A physician "refers" a test by
    sending a sample for confirmatory testing.             The government alleged
    that this program violated the Stark Law and the Anti-Kickback
    Statute, which require point-of-care test cups to be sold at fair
    market value.
    On   October    16,   2015,   the     government    and    Millennium
    reached a settlement under which Millennium agreed to pay $227
    million plus interest to resolve these claims.              The settlement set
    aside fifteen percent of the recovery as a relator's share, but
    - 13 -
    did not resolve which relator was entitled to the award.7                 The
    agreement    provided    that    the     district    court   "shall   retain
    jurisdiction as to . . . [r]elators' claims for a share of the
    proceeds of the Settlement Amount."            The district court dismissed
    only the relators' claims against Millennium on March 24, 2016 and
    stated that the "[r]elators' respective claims, between and among
    themselves, for a portion of the agreed-upon 'relator share' of
    the Settlement Amount . . . are not dismissed and will remain
    pending."
    C.   Post-Settlement Procedural History
    On October 23, 2015, McGuire filed a crossclaim for
    declaratory relief, asserting that he was the first to file a
    complaint    that   alleged     the     essential   facts    underlying   the
    government's complaint in intervention and settlement agreement.
    He argued that he was entitled to the entire fifteen-percent
    relator's share because he was the first-to-file relator.8                On
    December    7,   2015,   Cunningham        moved    to   dismiss   McGuire's
    crossclaim, arguing that he, not McGuire, was the first to file.
    7    The settlement also preserved the relators' rights to
    seek reasonable costs and attorney's fees and expenses under 
    31 U.S.C. § 3730
    (d)(2) and preserved some relators' employment-
    retaliation claims.
    8    McGuire brought this crossclaim against Cunningham and
    several other relators but not against Wendy Johnson, Allstate
    Insurance Co., and Lawrence Spitz -- McGuire reports that he
    "reached an agreement" with this last group. The cross-defendants
    other than Cunningham have conceded that they filed behind McGuire.
    - 14 -
    The government took no position on this issue.               It did,
    however, urge the district court to confine its first-to-file
    analysis to "the text of the complaints themselves, and not on any
    subsequent investigation by the United States of such complaints
    or any related communications."
    On   August   19,   2016,   the    district   issued   its     order
    dismissing McGuire's crossclaim.              Cunningham, 202 F. Supp. 3d at
    209. The district court held, relying on this circuit's precedent,
    that       the    first-to-file       rule    was    jurisdictional      and     that
    Cunningham's motion to dismiss was a factual challenge to the
    court's jurisdiction.           Id. at 205-06.       The district court looked
    beyond the complaints to extrinsic evidence and concluded that the
    first-to-file rule applied and barred McGuire's crossclaim.                      Id.
    at 206.      The district court dismissed the crossclaim for lack of
    subject-matter jurisdiction.               Id. at 209.    The order entered on
    the docket three days later, on August 22, 2016.9
    McGuire   moved     for     reconsideration     of     the     order
    dismissing his crossclaim.            The district court denied that motion.
    This appeal followed.
    9  There was no "separate document," Fed. R. Civ. P.
    58(c)(2)(A), accompanying that order, so judgment entered 150 days
    later, on January 19, 2017. McGuire had 30 days from then to file
    his notice of appeal.     McGuire's January 20, 2017 filing was
    timely. Cunningham's arguments to the contrary are meritless.
    - 15 -
    II.
    A federal appellate court normally must "satisfy itself
    both of its own subject-matter jurisdiction and of the subject-
    matter jurisdiction of the trial court before proceeding further."
    Royal Siam Corp. v. Chertoff, 
    484 F.3d 139
    , 143 (1st Cir. 2007)
    (citing Bender v. Williamsport Area Sch. Dist., 
    475 U.S. 534
    , 541
    (1986); Irving v. United States, 
    162 F.3d 154
    , 160 (1st Cir. 1998)
    (en    banc)).      We   consider   whether    the   first-to-file   rule   is
    jurisdictional under the Supreme Court's most recent caselaw.               On
    de novo review, and in light of that precedent, we hold that the
    first-to-file rule, 
    31 U.S.C. § 3730
    (b)(5), is nonjurisdictional
    and that we have jurisdiction over McGuire's crossclaim.10
    "Characterizing a rule as jurisdictional renders it
    unique in our adversarial system."            Sebelius v. Auburn Reg'l Med.
    Ctr., 
    568 U.S. 145
    , 153 (2013).        A jurisdictional objection may be
    raised at any time, even after trial.            And a trial court without
    jurisdiction lacks "all authority to hear a case."11          United States
    v. Kwai Fun Wong, 
    135 S. Ct. 1625
    , 1631 (2015).
    10 McGuire argues that the district court erred in holding
    that his crossclaim for declaratory judgment under paragraph
    3730(d)(1) is subject to the first-to-file rule. Cunningham, 202
    F. Supp. 3d at 203. We need not reach this argument because even
    if the first-to-file rule does not apply to McGuire's crossclaim,
    it applies to his underlying action against Millennium.       And
    because that action eventually gave rise to McGuire's crossclaim,
    we must assure ourselves of the district court's jurisdiction.
    11       So even in a case like this one, in which seven years
    have        passed since McGuire first filed his complaint, a
    - 16 -
    The Supreme Court has attempted to "ward off profligate
    use of the term 'jurisdiction.'"       Auburn Reg'l Med. Ctr., 
    568 U.S. at 153
    .     As such, it has held that we must apply a "readily
    administrable bright line" rule and see if Congress has "clearly
    state[d]"   that    the   provision   under   review   is   jurisdictional.
    Arbaugh v. Y&H Corp., 
    546 U.S. 500
    , 515 (2006).
    In considering this issue, we do not write on a clean
    slate.    As the district court quite properly noted, this court has
    several     times    characterized      the    first-to-file      rule   as
    jurisdictional.     See United States ex rel. Wilson v. Bristol-Myers
    Squibb, Inc., 
    750 F.3d 111
    , 117 (1st Cir. 2014); United States ex
    rel. Heineman-Guta v. Guidant Corp., 
    718 F.3d 28
    , 34 (1st Cir.
    2013); United States ex rel. Duxbury v. Ortho Biotech Prods., L.P.,
    
    579 F.3d 13
    , 16, 33 (1st Cir. 2009).
    While we are "ordinarily 'constrained by prior panel
    decisions directly (or even closely) on point,'" we are not so
    bound when "non-controlling authority that postdates the decision
    . . . offer[s] 'a compelling reason for believing that the former
    panel, in light of new developments, would change its collective
    mind."    Sánchez ex rel. D.R.-S. v. United States, 
    671 F.3d 86
    , 96
    (1st Cir. 2012) (quoting United States v. Guzmán, 
    419 F.3d 27
    , 31
    jurisdictional objection may result in dismissal. And that could
    mean "many months of work on the part of the attorneys and the
    court may be wasted." Henderson ex rel. Henderson v. Shinseki,
    
    562 U.S. 428
    , 435 (2011).
    - 17 -
    (1st Cir. 2005)).            There are several compelling reasons for such
    a belief here.
    First, new developments cast serious doubt on our prior
    characterization of the first-to-file rule as jurisdictional.               In
    2015, the Supreme Court decided Kellogg Brown & Root Services,
    Inc. v. United States ex rel. Carter, 
    135 S. Ct. 1970
     (2015), a
    qui tam case.           Carter "addressed the operation of the first-to-
    file bar on decidedly nonjurisdictional terms, raising the issue
    after        it    decided   a   nonjurisdictional   statute   of   limitations
    issue."           United States ex rel. Heath v. AT & T, Inc., 
    791 F.3d 112
    , 121 n.4 (D.C. Cir. 2015).            The clear implication is that the
    Court did not consider the first-to-file rule to be jurisdictional.
    Interpreting Carter, the D.C. Circuit and the Second Circuit have
    both held that the first-to-file rule is nonjurisdictional.12               See
    United States ex rel. Hayes v. Allstate Ins. Co., 
    853 F.3d 80
    , 85
    (2d Cir. 2017); Heath, 791 F.3d at 120-21.
    This court has twice declined to reach the issue of
    whether the first-to-file rule is jurisdictional when it was not
    necessary to resolution of the appeal, while recognizing that
    Carter affects the analysis.             See United States ex rel. Kelly v.
    Novartis Pharm. Corp., 
    827 F.3d 5
    , 12 n.9 (1st Cir. 2016) ("We
    12 The Fourth Circuit has, after Carter, based on circuit
    precedent,    maintained   that   the   first-to-file   rule   is
    jurisdictional. See United States ex rel. Carter v. Halliburton
    Co., 
    866 F.3d 199
    , 203 n.1 (4th Cir. 2017).
    - 18 -
    assume, but need not decide, that the first-to-file bar remains
    jurisdictional.     This position is not without doubt."); United
    States ex rel. Gadbois v. PharMerica Corp., 
    809 F.3d 1
    , 6 n.2 (1st
    Cir. 2015) ("[W]e have no need to consider the relator's back-up
    argument that the first-to-file bar is not jurisdictional in light
    of Carter.").
    Second, this circuit's prior cases labeling the first-
    to-file rule as jurisdictional, all of which predate Carter,
    devoted no substantive analysis to this issue. Duxbury, the oldest
    case,     listed    the    first-to-file       rule           among   the     FCA's
    "jurisdictional bars" only in passing as dicta.                  
    579 F.3d at 16
    .
    But it did not ask, and no later First Circuit decision has asked,
    if    Congress   clearly   stated   that     the    first-to-file       rule   was
    jurisdictional.     Because these rulings failed to apply the Arbaugh
    clear-statement test, they should be "accorded 'no precedential
    effect' on the question whether the federal court had authority to
    adjudicate the claim in suit."        Arbaugh, 
    546 U.S. at 511
     (quoting
    Steel Co. v. Citizens for a Better Env't, 
    523 U.S. 83
    , 91 (1998)).
    And third, applying the bright line rule leads to only
    one   conclusion:   the    first-to-file     rule        is   nonjurisdictional.
    Neither    statutory   text   nor    context       nor    legislative       history
    suggests otherwise.        See Kwai Fun Wong, 
    135 S. Ct. at 1632-33
    (looking to text, context, and legislative history to determine
    whether a statutory provision was jurisdictional).
    - 19 -
    As always in matters of statutory interpretation, we
    start with the text.         United States v. Musso, 
    914 F.3d 26
    , 30 (1st
    Cir. 2019).        Paragraph 3730(b)(5) provides that "no person other
    than the Government may intervene or bring a related action based
    on   the    facts     underlying    the    pending    action."         
    31 U.S.C. § 3730
    (b)(5). As the D.C. Circuit recognized, this "language 'does
    not speak in jurisdictional terms or refer in any way to the
    jurisdiction of the district courts.'"               Heath, 791 F.3d at 120
    (quoting Arbaugh, 
    546 U.S. at 515
    ).
    We next look to context.       Paragraph 3730(b)(5) does not
    speak in jurisdictional terms; nearby provisions, by contrast,
    explicitly do so.        Cf. Musso, 914 F.3d at 31 (drawing a negative
    inference from word choices made in neighboring statutory text).
    For instance, paragraph 3730(e)(1) provides, "No court shall have
    jurisdiction over an action brought by a former or present member
    of the armed forces . . . against a member of the armed forces
    arising out of such person's service in the armed forces."                     
    31 U.S.C. § 3730
    (e)(1).         And paragraph 3730(e)(2) states, "No court
    shall have jurisdiction over an action brought . . . against a
    Member     of    Congress,   a   member   of   the   judiciary,   or    a   senior
    executive branch official if the action is based on evidence or
    information known to the Government when the action was brought."
    
    Id.
     § 3730(e)(2).        So, as the D.C. Circuit recognized, "[w]hen
    Congress wanted limitations on False Claims Act suits to operate
    - 20 -
    with jurisdictional force, it said so explicitly."                      Heath, 791
    F.3d at 120.
    And finally, as a check to confirm the accuracy of our
    textual analysis, we turn to legislative history.                     See Kwai Fun
    Wong, 
    135 S. Ct. at 1633
     ("[E]ven assuming legislative history
    alone could provide a clear statement (which we doubt), none does
    so here.").       Congress added the first-to-file rule when it amended
    the FCA in 1986.      The Senate Report states that the purpose of the
    first-to-file rule was to clarify that "only the Government may
    intervene in a qui tam action" and that "private enforcement under
    the civil False Claims Act is not meant to produce class actions
    or     multiple    separate     suits   based      on     identical     facts   and
    circumstances."       S. Rep. No. 99-345, at 25.                The first-to-file
    rule    advances     this     goal   even   when        the    provision   is   not
    jurisdictional.
    Finding Congress had made no clear statement that the
    rule was jurisdictional, the D.C. Circuit held that "the first-
    to-file rule bears only on whether a qui tam plaintiff has properly
    stated a claim."        Heath, 791 F.3d at 121.               The Second Circuit,
    relying heavily on Heath, reached the same conclusion.                  Hayes, 853
    F.3d at 85-86. Given Carter, Heath, Hayes, and the Supreme Court's
    clear statement rule, there is a compelling reason to believe that
    prior panels would no longer view the first-to-file rule as
    - 21 -
    jurisdictional.    For the same reasons, we now hold that the first-
    to-file rule is not jurisdictional.
    Because the first-to-file rule is not jurisdictional,
    the district court had subject-matter jurisdiction over McGuire's
    claim against Millennium.     The district court also had subject-
    matter jurisdiction over McGuire's crossclaim under 
    28 U.S.C. §§ 1331
     and 2201. And we have jurisdiction under 
    28 U.S.C. § 1291
    .
    III.
    The   remaining   question    is   whether,   under   
    31 U.S.C. § 3730
    (d)(1), McGuire is entitled to the relator's share of the
    government's settlement with Millennium.13          In assessing this
    question, we confine our review to the pleadings and to "facts
    susceptible to judicial notice."14      Haley, 
    657 F.3d at 46
    .
    As we demonstrate below, the crucial component of this
    question, as framed in this case, is whether McGuire was the first-
    to-file relator.   Rather than remand, we address the first-to-file
    13   The district court purported to deny Cunningham's
    12(b)(6) motion, but only after granting his 12(b)(1) motion. We
    have noted that "if the court lacks subject matter jurisdiction,
    assessment of the merits becomes a matter of purely academic
    interest." Deniz v. Mun. of Guaynabo, 
    285 F.3d 142
    , 150 (1st Cir.
    2002). Deciding a Rule 12(b)(6) motion after finding no subject-
    matter jurisdiction is "gratuitous." 
    Id. at 149
    .
    14   The district court analyzed Cunningham's motion to
    dismiss as a factual challenge under Rule 12(b)(1) and so engaged
    its "broad authority" to look outside the pleadings "to determine
    its own jurisdiction." Valentin v. Hosp. Bella Vista, 
    254 F.3d 358
    , 363 (1st Cir. 2001).
    - 22 -
    issue as a matter of law because it has been fully briefed, because
    neither party suggests that the issue requires remand, and because
    the basic facts are uncontested.           See G. & C. Merriam Co. v.
    Webster Dictionary Co., 
    639 F.2d 29
    , 40 (1st Cir. 1980); see also
    Levy v. Lexington Cty., S.C., 
    589 F.3d 708
    , 716 (4th Cir. 2009);
    LNC Invs., Inc. v. First Fid. Bank, N.A. N.J., 
    173 F.3d 454
    , 464
    (2d Cir. 1999).
    Subsection     3730(d),   entitled     "Award    to   qui     tam
    plaintiff," provides in relevant part:
    If the Government proceeds with an action
    brought by a person under subsection (b), such
    person shall, subject to the second sentence
    of this paragraph, receive at least 15 percent
    but not more than 25 percent of the proceeds
    of the action or settlement of the claim,
    depending upon the extent to which the person
    substantially contributed to the prosecution
    of the action.
    
    31 U.S.C. § 3730
    (d)(1).      We look to whether the government's
    recovery from Millennium constitutes the "proceeds of the . . .
    settlement   of   the   claim"   McGuire    brought.      See   Rille   v.
    PricewaterhouseCoopers LLP, 
    803 F.3d 368
    , 373 (8th Cir. 2015) (en
    banc) ("[A] relator seeking recovery must establish that 'there
    exists [an] overlap between Relator's allegations and the conduct
    discussed in the settlement agreement.'"        (quoting United States
    ex rel. Bledsoe v. Cmty. Health Sys., Inc., 
    342 F.3d 634
    , 651 (6th
    Cir. 2003))).
    - 23 -
    To be entitled to the relator's share under paragraph
    3730(d)(1), a relator must be a person who "br[ings]" "an action
    under . . . subsection [3730(b)]."     
    31 U.S.C. § 3730
    (d)(1); Rille,
    803 F.3d at 372 ("The relators' right to recovery is limited to a
    share of the settlement of the claim that they brought.").          The
    first-to-file rule bars any "person other than the Government"
    from "bring[ing] a related action based on the facts underlying
    the pending action."    
    31 U.S.C. § 3730
    (b)(5).      So only the first-
    to-file relator can claim the relator's share of the settlement
    proceedings for each claim.
    Nearly all courts share this conclusion.          See United
    States ex rel. Shea v. Cellco P'ship, 
    863 F.3d 923
    , 927 (D.C. Cir.
    2017) ("The first-to-file bar thereby ensures only one relator
    will share in the government's recovery . . . ."); United States
    ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 
    149 F.3d 227
    , 231 (3d Cir. 1998) ("[N]o qui tam plaintiff may . . .
    share in a government settlement if his or her allegations repeat
    claims in a previously filed action."); see also United States ex
    rel. Merena v. SmithKline Beecham Corp., 
    205 F.3d 97
    , 103-06 (3d
    Cir. 2000) (Alito, J.) (concluding "that a relator whose claim is
    subject to dismissal under [the public-disclosure rule in 31 U.S.C.
    §] 3730(e)(4)   may    not   receive   any   share   of   the   proceeds
    - 24 -
    attributable to that claim," id. at 106); Fed. Recovery Servs.,
    Inc. v. United States, 
    72 F.3d 447
    , 450 (5th Cir. 1995).15
    This conclusion also aligns with the policies underlying
    the first-to-file rule.      The rule is "part of the larger balancing
    act of the FCA's qui tam provision, which 'attempts to reconcile
    two   conflicting   goals,   specifically,   preventing   opportunistic
    suits, on the one hand, while encouraging citizens to act as
    whistleblowers, on the other.'"      Wilson, 750 F.3d at 117 (quoting
    LaCorte, 149 F.3d at 233).     "The first-to-file bar operates on the
    recognition that, because relators can bring suit without having
    suffered a personal injury, countless plaintiffs in theory could
    file a qui tam action based on the same fraud and then share in
    the proceeds."   Shea, 863 F.3d at 927.      Allowing a follow-on filer
    to siphon off the first-filed suit's proceeds "weaken[s] the
    incentive to dig out the facts and launch the initial action."
    United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 
    606 F.3d 361
    , 364 (7th Cir. 2010).
    To resolve the first-to-file issue here, we ask whether
    Cunningham's   amended   complaint    "contained   'all   the   essential
    15  See also United States ex rel. Dhillon v. Endo Pharm.,
    
    617 F. App'x 208
     (3d Cir. 2015) (unpublished) (summarily affirming
    the district court's finding that only the first-to-file relator
    was entitled to the relator's share of a settlement).      But see
    United States ex rel. Doghramji v. Cmty. Health Sys., Inc., 
    666 F. App'x 410
    , 418 (6th Cir. 2016) (rejecting this conclusion).
    - 25 -
    facts'" of the fraud McGuire alleged.16       United States ex rel. Ven-
    A-Care of the Fla. Keys, Inc. v. Baxter Healthcare Corp., 
    772 F.3d 932
    , 938 (1st Cir. 2014) (quoting Heineman-Guta, 718 F.3d at 34).
    While this "essential facts" standard does not require "identity
    between the two complaints to trigger the first-to-file rule,"
    id., the rule still may bar a different "claim even if that claim
    incorporates somewhat different details," id. (quoting Wilson, 750
    F.3d at 118).    The essential facts test "presents a question of
    law about the statutorily required threshold for notifying the
    government of the fraud alleged in the later-filed suit."             Id.
    Our review is de novo.17      Id.
    We    apply   the    essential     facts   test   by   comparing
    Cunningham's amended complaint and McGuire's original complaint.
    See Heath, 791 F.3d at 121 ("Similarity is assessed by comparing
    16   Other circuits, such as the D.C. Circuit, preclude
    recovery from not-first-to-file relators when the first-filed
    complaint alleges the "material elements of fraud" at issue and
    "equip[s] the government to investigate" that fraud. United States
    ex rel. Batiste v. SLM Corp., 
    659 F.3d 1204
    , 1209 (D.C. Cir. 2011).
    For purposes of this case, we see no difference between this
    standard and the essential facts test.
    17   Cunningham argues that the settlement independently
    reserved this issue for the district court to resolve as a matter
    of fact, and that we must accept the district court's findings.
    The premise is wrong -- the settlement says nothing of the sort.
    It states only that the district court "retain[ed] jurisdiction"
    over this issue, and that the relators "reserve[d] their rights
    against Millennium to seek attorneys' fees, costs and expenses"
    under applicable provisions. It does not displace normal first-
    to-file law.
    - 26 -
    the complaints side-by-side . . . ."); Ven-A-Care, 772 F.3d at 938
    ("[W]e compare the Ven-A-Care complaint to the Sun and Hamilton
    complaint.");      In    re   Nat.   Gas   Royalties   Qui   Tam   Litig.    (CO2
    Appeals), 
    566 F.3d 956
    , 964 (10th Cir. 2009) ("The first-to-file
    bar is designed to be quickly and easily determinable, simply
    requiring a side-by-side comparison of the complaints.").                First-
    to-file analysis is limited to the four corners of the relevant
    complaints.    See Duxbury, 
    579 F.3d at 33-34
     (refusing to consider
    allegations in a later-filed Information because the relator "had
    his opportunity to [include those allegations] when he filed [his]
    Original Complaint").         We conclude, based on those two complaints,
    that Cunningham and McGuire do not allege similar frauds, but
    allege different frauds with different mechanisms.
    We proceed claim-by-claim.             Merena, 
    205 F.3d at 102
    ("[T]he court must conduct a claim-by-claim analysis in order to
    determine if section 3730(b)(5) applies.").              Two claims of fraud
    are relevant here: (1) Millennium's custom profile fraud, and
    (2) Millennium's point-of-care cup kickback scheme.                Cunningham's
    complaint lacks all the essential elements of both claims.
    Cunningham argues that he was the first to file a claim
    against Millennium for excessive and unnecessary drug testing.
    But this is too general an argument.            We must look to the actual
    mechanism (the "essential facts") of the fraud that Cunningham
    alleged.      In   his    amended    complaint,   Cunningham       alleged   that
    - 27 -
    Millennium's Physician Billing Model, which involved physicians
    billing the government for multiple tests for each point-of-care
    cup, led to "significantly more testing."               And he alleged that
    this    increased   point-of-care      testing   led,     in   turn,    to    more
    "confirmatory tests."       But CMS revised its reimbursement rules to
    defeat such fraud, so physicians can no longer bill for multiple
    tests from a single cup.        And Cunningham's amended complaint never
    mentions "standing orders" or "custom profiles," as McGuire's
    does.
    Cunningham's allegations do not cover the essential
    elements of the fraud that McGuire described in his original
    complaint.    McGuire alleged that Millennium required physicians to
    execute custom profiles.        And McGuire alleged that these profiles
    directed     Millennium    to    automatically    conduct       a   battery     of
    confirmatory    tests     regardless   of    individual    patient     need   and
    regardless of what the point-of-care test showed.                      The fraud
    McGuire alleged had a different mechanism (the custom profiles)
    and focused on a different stage of testing (the confirmatory
    stage) than the one Cunningham described.              McGuire was the first
    relator to file a claim including the essential elements of
    Millennium's    custom    profile   fraud,     which    the    government     then
    pursued.
    Cunningham also argues that he alleged the essential
    elements of Millennium's point-of-care cup kickback scheme, the
    - 28 -
    second       scheme   the    government   pursued.      He   says   he   "alleged
    Millennium provided test kits at a nominal cost, and encouraged
    doctors to bill for numerous tests rather than for just one multi-
    panel test."          But Cunningham's amended complaint makes only one
    mention of cost: it says that the point-of-care cups "can be
    purchased for less than $10.00."            Cunningham did not allege that
    this was less than fair market value.             And he did not allege that
    Millennium provided the cups for free in exchange for physicians
    referring confirmatory testing.              McGuire, by contrast, alleged
    that        Millennium      provided   point-of-care     cups,      "a    valuable
    diagnostic tool," to physicians for free to induce them to send
    confirmation testing orders to Millennium.
    Again,    Cunningham's     allegations   do   not    include    the
    essential elements of the fraud McGuire alleged.                    Further, the
    fraud the government pursued was that alleged by McGuire.18                    The
    government alleged that Millennium distributed $5 million worth of
    free point-of-care test cups in exchange for the doctors referring
    the cups to Millennium for confirmatory testing.                    This was an
    illegal       kickback      because,    "absent   an    applicable       statutory
    18 McGuire   attached   the   government's   complaint   in
    intervention to his crossclaim, so it is properly before us. In
    any event, the government's complaint would be subject to judicial
    notice. See Zucker, 919 F.3d at 651 n.5 (citing E.I. Du Pont de
    Nemours & Co., 
    791 F.2d at 7
     (Breyer, J.)).
    - 29 -
    exception[, point-of-care] cups had to be sold at 'fair market
    value' to comply with the Stark Law and Anti-Kickback Statute."
    The    district   court     erred    when      it    found     that
    "Cunningham's materials provided the government with 'sufficient
    notice to initiate an investigation into [Millennium's] allegedly
    fraudulent practices.'"              Cunningham, 202 F. Supp. 3d at 206
    (quoting Ven-A-Care, 772 F.3d at 938). Mere notice -- particularly
    of a different fraud than the government chose to pursue -- is not
    enough.        As we made clear in Ven-A-Care, "we must ask not merely
    whether the first-filed complaint provides some evidence from
    which an astute government official could arguably have been put
    on notice, but also whether the first complaint contained all the
    essential facts of the fraud it alleges."                      772 F.3d at 938
    (emphasis added) (internal citation and quotation marks omitted).
    McGuire has established that he was the first to file a
    claim alleging the essential facts of Millennium's custom profile
    fraud        and    point-of-care    cup     kickback   scheme.        He   has   also
    adequately pleaded that the government's recovery from Millennium
    constitutes the "proceeds of the . . . settlement of the claim[s]"
    he brought.19            
    31 U.S.C. § 3730
    (d)(1).
    19There is no assertion by the government or anyone else
    that McGuire did not plead the conduct that formed the basis of
    the claims the government ultimately settled. We need not address
    the issue decided by the Eighth Circuit in Rille. See 803 F.3d at
    374 (remanding for further factual development in a case in which
    "[t]he government objected to [the relators'] recovery on the
    - 30 -
    IV.
    We   reverse20   and    remand   for   further    proceedings
    consistent with this opinion.
    ground that the relators' complaint did not plead the conduct that
    formed the basis of the claims that the government ultimately
    settled," id. at 371).
    20   Our holding moots McGuire's appeal         of    the   district
    court's denial of his motion to reconsider.
    - 31 -
    

Document Info

Docket Number: 17-1106P

Citation Numbers: 923 F.3d 240

Filed Date: 5/6/2019

Precedential Status: Precedential

Modified Date: 1/12/2023

Authorities (25)

Haley v. City of Boston , 657 F.3d 39 ( 2011 )

G. & C. Merriam Co. v. Webster Dictionary Company, Inc. , 639 F.2d 29 ( 1980 )

United States Ex Rel. Karvelas v. Melrose-Wakefield Hospital , 360 F.3d 220 ( 2004 )

Gail Merchant Irving v. United States , 162 F.3d 154 ( 1998 )

Deniz v. Municipality of Guaynabo , 285 F.3d 142 ( 2002 )

Sanchez Ex Rel. DR-S. v. United States , 671 F.3d 86 ( 2012 )

united-states-of-america-ex-rel-robert-j-merena-v-smithkline-beecham , 205 F.3d 97 ( 2000 )

In Re Natural Gas Royalties Qui Tam Litigation , 566 F.3d 956 ( 2009 )

E.I. Du Pont De Nemours & Co., Inc. v. John F. Cullen, ... , 791 F.2d 5 ( 1986 )

Valentin-De-Jesus v. United Healthcare , 254 F.3d 358 ( 2001 )

Royal Siam Corp. v. Chertoff , 484 F.3d 139 ( 2007 )

United States Ex Rel. Duxbury v. Ortho Biotech Products, L.... , 579 F.3d 13 ( 2009 )

Levy v. LEXINGTON COUNTY, SC , 589 F.3d 708 ( 2009 )

united-states-of-america-ex-rel-sean-bledsoe , 342 F.3d 634 ( 2003 )

United States Ex Rel. Batiste v. SLM Corp. , 659 F.3d 1204 ( 2011 )

United States Ex Rel. Chovanec v. Apria Healthcare Group ... , 606 F.3d 361 ( 2010 )

patrick-campbell-md-united-states-of-america-and-state-of-california-ex , 421 F.3d 817 ( 2005 )

Bender v. Williamsport Area School District , 106 S. Ct. 1326 ( 1986 )

Steel Co. v. Citizens for a Better Environment , 118 S. Ct. 1003 ( 1998 )

Arbaugh v. Y & H Corp. , 126 S. Ct. 1235 ( 2006 )

View All Authorities »