Thomas Foglia v. Renal Ventures Management , 754 F.3d 153 ( 2014 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________
No. 12-4050
_________
THOMAS FOGLIA,
In the Name of the United States Government pursuant to the
False Claims Act, 31 U.S.C. Section 3730; the State of New
Jersey False Claims Act, Title 2A of the New Jersey Statutes
and Amending 3 P.L. 1968, C. 413; The State of Texas
pursuant to TEX.HUM.RES.CODE Sect. 36.001-26.117 and
individually pursuant to the New Jersey Conscientious
Employee Protection Act, N.J.S.A. 34:19-1 et Seq.,
Appellant
v.
RENAL VENTURES MANAGEMENT, LLC
________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 1-09-cv-01552
District Judge: Honorable Noel L. Hillman
_______
Argued: September 11, 2013
Before: MCKEE, CHIEF JUDGE, SMITH, and SLOVITER, Circuit Judges
(Opinion Filed: June 6, 2014)
Ross Begelman, Esquire (Argued)
Marc M. Orlow, Esquire
Begelman, Orlow & Melletz
411 Route 70 East
Suite 245
Cherry Hill, NJ 08034
Counsel for Appellant
R. James Kravitz, Esquire
Barry J. Muller, Esquire (Argued)
Fox Rothchild
997 Lenox Drive
Princeton Pike Corporate Center, Building 3
Lawrenceville, NJ 08648
Counsel for Appellee
2
______________
OPINION
_______________
SLOVITER, Circuit Judge.
Thomas Foglia appeals the District Court’s order
dismissing his qui tam claim brought under the False Claims
Act, 31 U.S.C. § 3729 et. seq. Foglia’s complaint arises out
of claims submitted or presented to Medicare by Defendant
Renal Ventures (“Renal”) that Foglia alleges are fraudulent.
The District Court dismissed on the ground that the complaint
failed to state a claim. 1
I.
1
The District Court had jurisdiction over Relator Foglia’s
federal claims pursuant to 28 U.S.C. § 1331, and over
Relator’s related state law claim under 28 U.S.C. § 1367. We
have jurisdiction pursuant to 28 U.S.C. § 1291. We review de
novo a district court’s grant of a motion to dismiss for failure
to state a claim under Federal Rule of Civil Procedure
12(b)(6). See Jordan v. Fox, Rothschild, O’Brien & Frankel,
20 F.3d 1250, 1261 (3d Cir. 1994). We “are required to
accept as true all allegations in the complaint and all
reasonable inferences that can be drawn from them after
construing them in the light most favorable to the non-
movant.” Id. (citations omitted).
3
Foglia is a registered nurse who was employed with
Renal starting on March 13, 2007, and was terminated around
November 7, 2008. (App. 34) Renal is a dialysis care
services company. (App. 34) Foglia filed a qui tam
complaint against Renal on behalf of himself as a relator and
on behalf of the United States under the False Claims Act
(“FCA”) in April 2009. (App. 25) The United States chose
not to intervene. (App. 25) Foglia filed an amended
complaint, and the District Court granted Renal’s motion for
judgment on the pleadings and gave Foglia twenty days to file
a second amended complaint. (App. 67, 29) It was Foglia’s
second amended complaint (“SAC”) that was before the
District Court in the proceeding below. (App. 33)
In the argument before us, counsel for Foglia described
his claim as in two parts; one was certification and the other
was retaliation. 2 He claimed that Renal violated the FCA by
falsely certifying that it was in compliance with state
regulations regarding quality of care, by falsely submitting
claims for reimbursement for the drug Zemplar, and by
reusing single-use Zemplar vials. (App. 50-56) The District
Court granted Renal’s Motion to Dismiss the FCA complaint
under Federal Rule of Civil Procedure 12(b)(6) because it
2
The retaliation claim was not considered by the District
Court and is not relevant to this appeal. Foglia also sued
under the New Jersey False Claims Act for the same
violations and brought suit under the New Jersey
Conscientious Employee Protection Act. (App. 56-58)
Because Renal had not moved to dismiss Foglia’s state law
claims, the District Court chose not to exercise supplemental
jurisdiction over these claims and dismissed them without
prejudice. We therefore need not consider them here.
4
determined that Foglia had failed to state his claim with the
heightened level of particularity required by Federal Rule of
Civil Procedure 9(b) for fraud claims. (App. 12-13) In
particular, the District Court focused on Foglia’s failure to
provide a “representative sample” (App. 12) or to “identify
representative examples of specific false claims made to the
Government.” (App. 16) The District Court also determined
that even if Foglia’s claim had met the requirement of Rule
9(b), Foglia “provided no authority under an express or
implied false certification theory that the claims submitted by
defendant violated a rule or statute establishing compliance as
a condition of payment.” (App. 16) The District Court
dismissed the SAC with prejudice, stating that it did so in
light of the fact that Foglia had twice amended his complaint
and had engaged in initial discovery. (App. 22) Foglia here
appeals the dismissal of his claim in relation to over-billing
on Zemplar.
II.
Before we are able to decide whether Foglia has met
the higher pleading requirements set by Federal Rule of Civil
Procedure 9(b), and so whether he has stated a claim under
Federal Rule of Civil Procedure 12(b)(6), we must first
determine what Rule 9(b) requires of an FCA claimant, an
issue this court has not had occasion to rule on specifically.
Rule 9(b) states, “[i]n alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or
mistake. Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P.
9(b). However, the various Circuits disagree as to what a
plaintiff, such as Foglia, must show at the pleading stage to
5
satisfy the “particularity” requirement of Rule 9(b) in the
context of a claim under the FCA.
The Fourth, Sixth, Eighth, and Eleventh Circuits have
held that a plaintiff must show “representative samples” of
the alleged fraudulent conduct, specifying the time, place, and
content of the acts and the identity of the actors. See United
States ex rel. Noah Nathan v. Takeda Pharm. N. Am., Inc.,
707 F.3d 451, 455-56 (4th Cir. 2013), cert. denied, 2014 WL
1271321 (U.S. Mar. 31, 2014) (No. 12-1349); United States
ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510
(6th Cir. 2007); United States ex rel. Joshi v. St. Luke's Hosp.,
Inc., 441 F.3d 552, 557 (8th Cir. 2006); United States ex rel.
Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1308,
1312 (11th Cir. 2002). The First, 3 Fifth, and Ninth Circuits,
however, have taken a more nuanced reading of the
heightened pleading requirements of Rule 9(b), holding that it
is sufficient for a plaintiff to allege “particular details of a
scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually
submitted.” United States ex rel. Grubbs v. Kanneganti, 565
F.3d 180, 190 (5th Cir. 2009); see also Ebeid ex rel. United
States v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010).
In United States ex Rel. Wilkins v. United Health
Group, Inc., 659 F.3d 295, 308 (3d Cir. 2011), we noted that
3
The First Circuit previously held the more restrictive view.
See United States ex rel. Karvelas v. Melrose-Wakefield
Hosp., 360 F.3d 220, 226 (1st Cir. 2004), but has recently
moved to a more relaxed approach much closer to that
followed by the Fifth Circuit. See United States ex rel.
Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 29 (1st
Cir. 2009).
6
we had never “held that a plaintiff must identify a specific
claim for payment at the pleading stage of the case to state a
claim for relief.” (Emphasis in the original, citation omitted).
While that conclusion does not itself commit us to the more
nuanced standards favored by the First, Fifth, and Ninth
Circuits, it is hard to reconcile the text of the FCA, which
does not require that the exact content of the false claims in
question be shown, with the “representative samples”
standard favored by the Fourth, Sixth, Eighth, and Eleventh
Circuits. As the Fifth Circuit has stated, requiring this sort of
detail at the pleading stage would be “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.” Grubb, 565 F.3d at 190 (citations and
footnote omitted).
Furthermore, in a recent brief for the United States as
amicus curiae, filed in relation to the petition for a writ of
certiorari in United States ex rel. Noah Nathan, 707 F.3d 451,
a case presenting a factual situation similar to that presented
here, the Solicitor General indicated that the United States
also believes that the heightened or “rigid” pleading standard
required by the Fourth, Sixth, Eighth, and Eleventh Circuits is
“unsupported by Rule 9(b) and undermines the FCA’s
effectiveness as a tool to combat fraud against the United
States.” The Solicitor General’s brief further states that
“pleading the details of a specific false claim presented to the
government is not an indispensable requirement of a viable
FCA complaint.” Brief for the United States as Amicus
Curiae at 10-11, United States ex rel Noah Nathan v. Takeda
Pharm. N. Am., Inc., 2014 WL 1271321 (U.S. Mar. 31, 2014)
(No. 12-1249), denying cert. to 707 F.3d 451. The Solicitor
7
General also noted that even the Circuits which purport to
follow the “rigid understanding of Rule 9(b)” have “not
consistently adhered” to it, id. at 13, providing a further
ground for doubting whether the “rigid” understanding of
Rule 9(b) could be the correct one. 4 Insofar as the purpose of
Rule 9(b) is to “provide[] defendants with fair notice of the
plaintiffs’ claims,” id., the more “nuanced” 5 approach
followed by the First, Fifth, and Eleventh Circuits will
suffice. That standard is also compatible with our earlier
ruling in Wilkins, and we will use that standard in this case.
III.
We thus turn to the question of whether Foglia has met
the requirements of Rule 9(b) as set out above. Although not
presented as clearly as it might be, Foglia’s “overfill” claim is
best understood as a “factually false” claim. “A claim is
factually false when the claimant misrepresents what goods or
services that it provided to the Government.” Wilkins, 659
F.3d at 305. Foglia contends that Renal over-charged the
government for Zemplar, a prescription drug used for the
prevention and treatment of secondary hyperparathyroidism
associated with chronic kidney disease. Zemplar comes in
vials of three sizes, but Renal only uses 5 microgram (“mcg”)
4
For reasons unrelated to the proper pleading standard
required by Rule 9(b) in a FCA case, the Solicitor General did
not recommend granting certiorari in United States ex rel.
Noah Nathan, even though the Solicitor General argued that
the incorrect standard had been applied by the Fourth Circuit.
Id.5
The Solicitor General’s brief uses this construction, and we
find it appropriate.
8
vials. The vials were originally designed to be single-use
only, with any unused medicine (characterized, somewhat
misleadingly, as “overfill” by Foglia 6) discarded. When
Zemplar vials are used in this single-use fashion, Medicare is
charged for the full content of the vial, no matter how much
of the content is actually used. Foglia contends that Renal
charged Medicare as if Renal were using the 5 mcg vials in
the recommended “single use” fashion, when in fact it
harvested unused portions from vials and used this harvested
amount on other patients. (App. 47-48)
Originally, the Department of Health and Human
Services (“HSS”) required that Zemplar always be used in a
single use fashion. However, in September of 2002 (several
years before the alleged false claim in this case), HSS issued
a memorandum allowing for the multiple use of individual
Zemplar vials and other injectable medicines if six conditions
were followed, so as to ensure the safe use of the medicine.
(App. 60) 7 Foglia contends that Renal “continued multiple
6
Put most accurately, “overfill” is the “extra” amount of a
medicine in a vial which is always included so as to ensure
that a full dose of the labeled amount for the vial is possible,
despite any incidental waste. For example, when, only 2
mcgs of a 5 mcg vial are used, the remaining 3 mcgs are not
strictly “overfill.” The name used here is not important,
however. What matters is the claim that Renal was
harvesting “extra” Zemplar from already-used vials to
administer to patients.
7
Foglia, in his brief and in his SAC, styles these conditions
as “express ‘conditions for receiving payment’.” (App. 46)
Though we have not directly ruled on the issue, it is highly
doubtful these conditions for safe use are properly
9
use of single use vials of injectable medications such as
Zemplar consistently without regard to complying with the
conditions set forth by HHS.” (App. 47) Because we are at
the complaint stage in the proceedings we must accept as true
all allegations in the complaint, and therefore must accept the
allegation that Renal did not, in fact, comply with the
required recommendations by HHS for the safe re-use of
Zemplar vials.
In order for Foglia to satisfy the standards of Rule
9(b), as we have adopted them here, he must provide
“particular details of a scheme to submit false claims paired
with reliable indicia that lead to a strong inference that claims
were actually submitted.” See Grubbs, 565 F.3d at 190.
Describing a mere opportunity for fraud will not suffice.
Sufficient facts to establish “a plausible ground for relief”
must be alleged. Fowler v. UPMC Shadyside, 578 F.3d 203,
211 (3d Cir. 2009) (internal citation omitted). While not
presented as clearly as it might be, the essentials of Foglia’s
factually false claim argument seem to be as follows.
Inventory logs maintained by Renal show that, during the
month of October 2008, Renal used from 29 to 35 vials of
Zemplar per day. (App. 75-6) Because Renal orders Zemplar
“conditions for receiving payment.” Cf. Mikes v. Straus, 274
F.3d 687, 699 (2d Cir. 2001) (“the False Claims Act was not
designed for use as a blunt instrument to enforce compliance
with all medical regulations—but rather only those
regulations that are a precondition of payment.”) However,
while this would be relevant for a “legally false” claim
argument, Foglia seems to have abandoned this argument,
and the “conditions for receiving payment” aspect is not
directly relevant for a “factually false” claim argument.
10
in only 5 mcg vials (App. 48), it would have needed 50 vials
of Zemplar each of the days in question for the number of
patients actually seen each day, if the 5 mcg vials were used
in the single use fashion. (App. 76) Foglia contends that
because renal was using only 29-35 vials of Zemplar per day,
it must have been harvesting unused Zemplar from previously
used vials. However, these allegations are not enough to
establish a “strong inference” that false claims were
submitted, as the use of harvested “extra” Zemplar is
permitted if the HHS recommendations noted above are
followed, and it is therefore possible that Renal was not over-
charging.
We are therefore faced with two possible scenarios.
Either, as Foglia alleges, Renal was charging the government
as if it were using vials of Zemplar in the single use fashion
while actually harvesting and using “extra” Zemplar from the
vials, or Renal was using the “extra” Zemplar from bottles
and only charging the government for the actual volume of
Zemplar used, despite not being in compliance with the
regulations for using Zemplar in this fashion. While both
scenarios are possible, it is unclear what would motivate the
second, as it would expose Renal to possible sanctions for
failure to comply with required procedures, and would not
provide any financial incentive.
This is a close case as to meeting the requirements of
Rule 9(b). Accepting the factual assertions made by Foglia as
true, we have patient logs that show that less Zemplar was
used than would be required if it were used in the single use
fashion. We know that Medicare will reimburse for the full
vial of Zemplar, regardless of whether all of the Zemplar is
used, and that this provides an opportunity for the sort of
11
fraud alleged by Foglia. At this point we must assume that
Foglia is correct in alleging that Renal did not follow the
procedures that it should have followed if it was to harvest the
“extra” Zemplar from the used vials. Although we recognize
that this hypothesis could be challenged, it certainly suffices
to give Renal notice of the charges against it, as is required by
Rule 9(b). This conclusion is further supported by the fact
that Renal, and only Renal, has access to the documents that
could easily prove the claim one way or another—the full
billing records from the time under consideration. Under
these circumstances, Foglia has provided sufficient facts to
meet the requirements under Rule 9(b), and has therefore also
met the requirements to state a claim under 12(b)(6).
IV.
For the foregoing reasons, we will reverse the
dismissal of the factually false claim portion of Foglia’s SAC
and remand to the District Court for further appropriate
proceedings in accordance with this opinion.
12