United States Ex Rel. Boothe v. Sun Healthcare Group, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
August 7, 2007
UNITED STATES COURT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

U N ITED STA TES O F A M ER ICA ex
rel. LOU AN NE BOO THE,

Plaintiff-Appellant,
No. 06-2156
v.

SUN H EALTHCARE GROUP, INC.

Defendant-Appellee.

Appeal from the United States District Court
for the District of New M exico
(D.C. No. CIV-03-1276 RB/DJS)

M aureen A. Sanders, Sanders & W estbrook, P.C., Albuquerque, New M exico
(Duff Westbrook, Sanders & W estbrook, P.C. and Daniel M . Faber, Albuquerque,
New M exico, with her on the briefs), for Plaintiff-Appellant.

Paul E. Kalb, Sidley Austin LLP, W ashington, D.C. (John W . Boyd and
Zachary A. Ives, Freedman Boyd Daniels Hollander & Goldberg, Albuquerque,
New M exico, with him on the brief) for Defendant-Appellee.

Before LU CER O, M U RPH Y, and GORSUCH, Circuit Judges.

G O R SU CH, Circuit Judge.
 Louanne Boothe, a former finance and accounting employee of Sun

Healthcare Group, Inc., a M edicare and M edicaid provider, filed a qui tam

complaint, alleging that Sun overbilled the United States in ten distinct ways.

Finding that three of these allegations w ere “based upon” information already in

the public domain and that she was not an “original source” of that information,

the district court held that it lacked subject matter jurisdiction under 31 U.S.C.

§ 3730(e)(4) of the False Claims Act, 31 U.S.C. §§ 3729-33, to hear the case.

W e agree jurisdiction is lacking with respect to the three claims the district

court analyzed. W hile we have not yet had occasion to address whether, as the

district court’s holding suggests, a deficiency in one claim precludes jurisdiction

over all claims joined in the same lawsuit, today we clarify that it does not. Just

as finding three bad apples does not necessarily warrant discarding the barrel, we

hold that an independent jurisdictional analysis of each of M s. Boothe’s

remaining seven claims of fraud is necessary, and accordingly remand for further

proceedings.

I

During the period covered by this lawsuit, Sun, through its network of

approximately 185 direct and indirect subsidiaries, operated medical facilities

across the country that, among other things, provided services to M edicare- and

M edicaid-eligible patients. Construing the facts in the light most favorable to M s.

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Boothe as the party opposing summary judgment in this case, Sun defrauded

M edicare in ten different ways.

First, and foremost in monetary terms, M s. Boothe alleges that Sun over-

billed the government by abusing the so-called Section 1010 exception in the

years 2000-2002. Section 1000 of the M edicare Provider Reimbursement M anual

prohibits providers like Sun from seeking reimbursement of any profit margins

(as opposed to costs actually incurred) charged by related parties assisting it in

providing services to the federal government. M eanwhile, Section 1010 provides

a narrow exception to this rule if the related party meets certain requirements that,

among other things, seek to ensure its profit margin is based on market forces

rather than a purely arbitrary internal decision; thus, Section 1010 requires that a

substantial portion of the related party’s business must be done with third parties

before its profit margin w ill qualify for reimbursement by the government. Sun’s

bills apparently included related party profits of $10.7 million that did not come

close to meeting Section 1010’s strictures.

Abusing Section 1010 was, however, but the tip of the iceberg, according to

M s. Boothe. Though perhaps individually less significant in monetary terms, M s.

Boothe contends that Sun also (2) defrauded M edicare by disregarding M edicare’s

prudent-buyer guidelines and overcharging for therapy management services to

the tune of $2.6 million; (3) overstated its tem porary nursing staff’s labor hours in

2001 and 2002 at Denver M ediplex Specialty Hospital (“Denver M ediplex”) by

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$500,000; (4) overcharged M edicare by $240,000 in 2002 for pharmacy charges at

the Northview Psychiatric Hospital in Boise, Idaho; (5) improperly billed

M edicare in 2001 for $200,000 worth of stolen medical supplies at Denver

M ediplex; (6) overcharged M edicare by $540,000 in 2000-02 by funneling costs

between Denver M ediplex and an affiliated outpatient clinic; (7) filed M edicare

reimbursements for $3.6 million worth of mortgage interests payments in 2001

and 2002 associated with Denver M ediplex even though the mortgage was

discharged in Sun’s O ctober 1999 bankruptcy; (8) released patients earlier than its

prior practice from Ballard Rehabilitation Hospital in San Bernardino, California

in order to inflate its M edicare revenue by $2 million; (9) manipulated patient

discharges at Continental Rehabilitation Hospital in San Diego, California to

impose improper costs on M edicare of $500,000; and (10) signed without the

knowledge or consent of its patients admission forms for three years ending

January 2003 in order to receive from M edicare $9 million in reimbursements for

accident and injury treatments when liability potentially rested w ith third parties.

M s. Boothe filed a sealed complaint in November 2003. She w as, however,

hardly the first qui tam relator to finger Sun for fraud; between October 1996 and

June 1999 alone – as many as seven years before M s. Boothe brought her suit –

other relators filed no fewer than eleven other qui tam complaints against Sun.

The allegations contained in these complaints bear striking resemblances to at

least the first three aspects of M s. Boothe’s pleading, as they, too, charge Sun

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with (1) fraudulently invoking the Section 1010 exception to recoup improper

related-party profits; (2) violating the prudent-buyer guidelines; and

(3) overstating labor hours. In response to these earlier indications of fraud at

Sun, the government conducted a nationwide investigation, culminating in a

settlement agreement between Sun, the government, and various qui tam relators

in 2002, the year before M s. Boothe even filed suit.

After M s. Boothe filed her qui tam complaint and the government indicated

that it would not intervene, the district court unsealed the action. Shortly

thereafter, Sun filed a motion to dismiss asserting, among other things, that the

district court lacked subject matter jurisdiction to consider the case. After

construing Sun’s motion to dismiss as a motion for summary judgment – a

decision not challenged before us – the district court held that it lacked subject

matter jurisdiction over M s. Boothe’s suit because three of her claims were

“based upon” publicly disclosed qui tam complaints and M s. Boothe was not the

“original source for the public disclosures in the prior [qui tam] suits.” 1 M s.

Boothe timely filed her notice of appeal. W e assess de novo the issues raised in

1
Finding itself w ithout jurisdiction, the district court declined to address
Sun’s other arguments for dismissal, including that (1) M s. Boothe waived her
right to pursue a qui tam complaint in a severance agreement she executed upon
her departure from Sun; (2) Sun’s intervening bankruptcy, from which it emerged
in 2002, discharged Sun’s obligations to satisfy the claims in M s. Boothe’s qui
tam complaint; and (3) M s. Boothe failed to plead her qui tam complaint with
sufficient particularity.

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this summary judgment disposition. See United States ex rel. Precision Co. v.

Koch Indus., 971 F.2d 548, 551 (10th Cir. 1992).

II

Originally passed by Congress in 1863 “to combat rampant fraud in Civil

W ar defense contracts,” the False Claims Act, as amended, see 31 U.S.C.

§§ 3729-33, “covers all fraudulent attempts to cause the government to pay out

sums of money.” United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189,

1194 (10th Cir. 2006). Section 3730(a) authorizes the Attorney General of the

United States to bring civil actions to remedy this fraud, while Section 3730(b)(1)

authorizes private individuals, or relators, to bring qui tam civil suits on behalf of

the government against those suspected of fraud – but only under certain heavily

specified and well-familiar circumstances. As a bounty for identifying and

prosecuting fraud on behalf of the government, not to mention complying with a

gamut of procedural prerequisites, relators may receive up to 30 percent of any

recovery they obtain. See 31 U.S.C. § 3730(d). Thus, the Act proceeds on a

theory “as old as modern civilization, that one of the least expensive and most

effective means of preventing frauds on the treasury is to make the perpetrators of

them liable to actions by private persons acting, if you please, under the strong

stimulus of personal ill will or the hope of gain. Prosecutions conducted by such

means compare with the ordinary methods as the enterprising privateer does to the

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slow-going public vessel.” United States v. Griswold, 24 F. 361, 366 (D. Or.

1885). 2

Compliance with Section 3730(e)(4)(A) of Title 31, known as the public

disclosure bar, is one of the prerequisites to suit faced by relators and the focus of

our attention in this dispute. It provides that

[n]o court shall have jurisdiction over an action under this section
based upon the public disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a congressional,
administrative, or Government Accounting Office report, hearing,
audit, or investigation, or from the news media, unless the action is
brought by the Attorney General or the person bringing the action is
an original source of the information.

31 U.S.C. § 3730(e)(4)(A) (emphases added). Essentially, then, Congress has

directed us to follow a two-step inquiry when a relator files a qui tam action. W e

must first ask whether the relator’s action is “based upon” a preexisting public

disclosure of the defendant’s wrongdoing. If it is, we must then ask whether the

relator was the “original source of the information.” If the relator did not serve as

the “original source,” we must dismiss the action for lack of subject matter

jurisdiction. In other words, if the fraud upon the government has already come

to light, Congress has conferred upon us the power to hear only qui tam actions

2
For a historical discussion of the False Claims Act, see Sean Hamer,
Lincoln’s Law: Constitutional and Policy Issues Posed by the Qui Tam Provisions
of the False Claims Act, 6-W TR Kan. J.L. & Pub. Pol’y 89 (1997). “Qui tam is
short for ‘qui tam pro domino rege quam pro se ipso in hac parte sequitur,’ which
means ‘w ho pursues this action on our Lord the King’s behalf as w ell as his
own.’” Rockwell Int'l Corp. v. United States, 127 S. Ct. 1397, 1403 n.2 (2007).

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from the relator who originally exposed the deception, not those from subsequent

relators who may try to copycat and capitalize on the original source’s efforts.

A

W e begin our analysis under Section 3730(e)(4)(A) by focusing on three

claims the district court discussed: (1) the Section 1010 fraud, (2) the violation

of the prudent-buyer guidelines, and (3) the overstatement of labor hours,

discussing the public disclosure bar’s twin tests in turn.

1. M s. Boothe readily concedes that each of these three allegations of

fraud appear in prior qui tam suits. Still, she argues that her complaint should

survive because her suit differs from prior suits with respect to the “time, place,

and manner” of the alleged fraud. Thus, for example, prior qui tam suits revealed

Sun’s Section 1010 abuses as of 1998 or 1999, but do not describe Sun’s practices

as of 2000-02, the period encompassed by M s. Boothe’s suit. Likew ise, prior qui

tam suits allege Section 1010 abuses by certain of Sun’s affiliated business units,

while M s. Boothe’s suit alleges identical abuses by other affiliates.

All of this compels us to ask: what does it mean for an action to be “based

upon” a preexisting public disclosure as opposed to the relator’s own information

for purposes of the public disclosure bar? In Precision, we defined the term to

mean “supported by” and held that it encompasses actions “even partly based

upon” prior public disclosures. Precision, 971 F.2d at 552. Precision took this

tack based on an analysis of the statute’s plain language and with our obligation

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to construe narrowly statutes conferring our jurisdiction firmly in mind. See id.

It did so, as well, on the basis that “once the government knows the essential facts

of a fraudulent scheme, it has enough information to discover related frauds,”

United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149

F.3d 227, 234 (3d Cir. 1998), and the purpose of qui tam litigation is fulfilled.

See United States ex rel. Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276,

1279 (10th Cir. 2004) (“Once an initial qui tam complaint puts the government

and the defendants on notice of its essential claim” further similar claims will be

dismissed.). Though Precision’s test has been questioned in some other

jurisdictions that take a slightly more narrow view of the phrase, 3 it reflects the

dominant approach in the circuits 4 and has been repeatedly reaffirmed by this

circuit. See, e.g., United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038,

1051 (10th Cir. 2004) (quoting Precision, 971 F.2d at 552, and stating: “‘Based

upon’ means ‘supported by’ and the threshold analysis is ‘intended to be a quick

3
See, e.g., United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d
1339, 1348-49 (4th Cir. 1994); United States v. Bank of Farmington, 166 F.3d
853, 863 (7th Cir. 1999); see also United States ex rel. Fine v. Advanced
Sciences, Inc., 99 F.3d 1000, 1007-09 (10th Cir. 1996) (Henry, J., concurring).
4
See, e.g., United States ex rel. M cKenzie v. BellSouth Telecomm., Inc.,
123 F.3d 935, 940 (6th Cir. 1997) (citing accordance by Second, Ninth, and
Eleventh Circuits and writing: “W e conclude that the interpretation of ‘based
upon’ endorsed by the Tenth Circuit is the most consistent with the FCA’s
purpose.”); United States ex rel. M inn. Ass’n of Nurse Anesthetists v. Allina
Health System Corp., 276 F.3d 1032, 1044-47 (8th Cir. 2002).

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trigger for the more exacting original source analysis.’”). 5 Pertinently, too,

neither of the parties before us has asked us to reconsider our precedent.

Seeking to apply Precision with precision, we reject the contention that a

“time, place, and manner” distinction is sufficient to escape the force of the

public disclosure bar. Indeed, we think M s. Boothe’s concession that her first

three claims of fraud differ from previous public qui tam actions only on these

limited bases is highly damaging, amounting to little less than an admission that

the substance of her claims are indeed “supported by” or “partly based upon”

disclosures in prior qui tam cases. A side-by-side comparison of the first three

allegations of M s. Boothe’s complaint with those contained in prior qui tam

actions confirms the point – the fraudulent schemes alleged are materially

identical, focusing on the mechanics of Sun’s 1010 scheme, its abuse of

M edicare’s prudent-buyer guidelines, and its systematic overstatement of labor

hours. Given this, it seems to us that M s. Boothe’s claims would be barred under

any conceivable interpretation of Congress’s “based upon” test. Not a single

circuit has held that a complete identity of allegations, even as to time, place, and

manner is required to implicate the public disclosure bar; rather, all have held, at

a minimum, that dismissal is warranted where the plaintiff seeks to pursue a

5
See also United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 572
(10th Cir. 1995); United States ex rel. Fine v. M K-Ferguson Co., 99 F.3d 1538,
1545-47 (10th Cir. 1996); Grynberg, 390 F.3d at 1279.

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claim, the essence of which is “derived from” a prior public disclosure. Compare,

e.g., United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348-

49 (4th Cir. 1994) (utilizing more relator-friendly “derived from” test); United

States v. Bank of Farmington, 166 F.3d 853, 863 (7th Cir. 1999) (same) with

Grynberg, 390 F.3d at 1279-80 (utilizing more restrictive “supported by” test).

Even M s. Boothe cannot seriously dispute that she seeks to prosecute fraudulent

schemes, the substance of which is “derived from” the claims of qui tam relators

who have come before her.

2. This, of course, does not end our inquiry, for even if a relator’s

claims are “based upon” prior public disclosures, one may still navigate around

the public disclosure bar by showing that he or she is an “original source” within

the meaning of Section 3730(e)(4)(A).

Congress has provided that, to qualify as an “original source,” one must be

an “individual who has direct and independent knowledge of the information on

which the allegations are based and has voluntarily provided the information to

the Government before filing an action under this section which is based on the

information.” 31 U.S.C. § 3730(e)(4)(A) (emphasis added). Of course, one might

ask: what “information” did Congress have in mind? M ust the relator be the

“original source” of the information on which his or her allegations are based?

Or must the relator merely be the “original source” of the information on which

the publicly disclosed allegations that triggered the public disclosure bar are

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based? Happily, the Supreme Court recently clarified that Section 3730(e)(4)(B)

refers to the former set of information, and so we must ask whether M s. Boothe

qualifies as the “original source” of the information on which she bases her

allegation. See Rockwell Int’l Corp. v. United States, 127 S. Ct. 1397, 1407-08

(2007). In announcing its decision, the Supreme Court explained that “[i]t is

difficult to understand why Congress would care whether a relator knows about

the information underlying a publicly disclosed allegation (e.g., what a

confidential source told a newspaper reporter[)] . . . . Not only would that make

little sense, it would raise nettlesome procedural problems, placing courts in the

position of comparing the relator’s information with the often unknowable

information on which the public disclosure was based. . . . It seems to us more

likely . . . that the information in question is the information underlying the

action.” Id.

W e acknowledge circuit precedent previously suggesting that “original

source” refers to the relevant information relating to the initial public disclosure,

see, e.g.,United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199,

1203 (10th Cir. 2003); Precision, 971 F.2d at 551; Sandia Corp., 70 F.3d at 570,

no longer controls in light of the Supreme Court’s clarification. Similarly, it is

now clear that the district court’s assessment that M s. Boothe was not the original

source “for the public disclosures in the prior [qui tam] suits,” though quite

reasonably based on our then-controlling guidance, asks the wrong question.

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 Even so, M s. Boothe does not come close to satisfying the original source

test. Her complaint alleges no facts suggesting that she has “direct and

independent knowledge” of the information contained in her complaint; neither

did she present any facts to the district court in response to defendant’s summary

judgment motion purporting to prove this to be the case. See 31 U.S.C.

§ 3730(e)(4)(B); Rockwell, 127 S. Ct. at 1407-08 (“[T]he ‘information’ to which

subparagraph (B) speaks is the information upon which the relators’ allegations

are based.”) (footnote omitted). On appeal, she relegates her entire discussion of

the “original source” requirement to a single footnote in which she directs us to

the governing statutory language and then asserts flatly and simply that she

“satisfies those requirements.” W e have long made clear that such conclusory

and ill-developed arguments are insufficient to permit us meaningful judicial

review and will not be entertained. See, e.g., Hill v. Kemp, 478 F.3d 1236, 1255

(10th Cir. 2007). This rule applies with special force to arguments seeking to

establish our subject matter jurisdiction, for we are obliged to presume the

absence of jurisdiction unless and until convinced otherw ise. See Merida

Delgado v. Gonzales, 428 F.3d 916, 919 (10th Cir. 2005) (“Because the

jurisdiction of federal courts is limited, there is a presumption against our

jurisdiction, and the party invoking federal jurisdiction bears the burden of

proof.”). M s. Boothe chose to pitch her battle for federal jurisdiction not on the

“original source” but the “based upon” test. That was a legitimate tactical

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litigation decision and her prerogative, and it is therefore the basis on which w e

review her appeal.

B

Having determined that we lack jurisdiction over M s. Boothe’s first three

claims of fraud, we must still ask what to do with the remaining seven. Sun urges

us to the view , adopted by the district court, that any claim in a complaint “based

upon” information already publicly disclosed information spoils the entire

pleading.

W e decline to follow Sun. Instead, we hold that district courts should

assess jurisdiction on a claim-by-claim basis, asking whether the public disclosure

bar applies to each reasonably discrete claim of fraud. This is, of course, how

federal courts traditionally assess challenges to their jurisdiction under Fed. R.

Civ. P. 12(b)(1). See id. (“Every defense, in law or fact, to a claim . . . shall be

asserted in the responsive pleading thereto if one is required, except that the . . .

defense[] [of ‘lack of jurisdiction over the subject matter’] may at the option of

the pleader be made by motion.”) (emphases added). And there is nothing in

Section 3730(e)(4)(A)’s plain language that moves us to think that Congress –

which is presumed to legislate with the existing background rules of law in mind

(perhaps especially including the federal rules, which it reviews before

implementation) – meant to displace this practice. See, e.g., United States v.

Gustin-Bacon Div., Certainteed Prod. Corp., 426 F.2d 539, 542 (10th Cir. 1970)

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(“There is no contest as to the plenary power of Congress to statutorily supersede

any or all of the Rules. But unless the congressional intent to do so clearly

appears, subsequently enacted statutes ought to be construed to harmonize with

the Rules, if feasible.”); cf. M orton v. M ancari, 417 U.S. 535, 551 (1974) (“The

courts are not at liberty to pick and choose among congressional enactments, and

when two statutes are capable of co-existence, it is the duty of the courts, absent a

clearly expressed congressional intention to the contrary, to regard each as

effective.”).

If reasonable minds might once have been able to disagree on this point, the

Supreme Court’s recent decision in Rockwell places it beyond cavil. There, the

Court addressed an argument nearly the inverse of the one Sun urges on us, when

a relator asserted that his status as the “original source” with respect to one claim

provided the Court with jurisdiction over all his claims, many for which he

plainly never served as the “original source.” The Court rejected what it labeled

“claim smuggling” and indicated that it had to assess jurisdiction under Section

3730(e)(4)(A) on a claim-by-claim basis. In doing so, moreover, the Court

quoted a Third C ircuit decision by then-Judge Alito addressing much the issue w e

face and holding that “[t]he plaintiff’s decision to join all of his or her claims in a

single lawsuit should not rescue claims that would have been doomed by section

(e)(4) if they had been asserted in a separate action. And likewise, this joinder

should not result in the dismissal of claims that would have otherwise survived.”

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Rockwell, 127 S. Ct. at 1410 (quoting United States ex rel. M erena v. SmithKline

Beecham Corp., 205 F.3d 97, 102 (3d Cir. 2000) (Alito, J.)). Accordingly, the

Third Circuit concluded, as we do today, that “in applying section (e)(4), it seems

clear that each claim in a multi-claim complaint must be treated as if it stood

alone.” SmithKline, 205 F.3d at 102. 6

W e pause to acknowledge one pleading peculiarity associated with this

case. M s. Boothe’s complaint does not formally denominate each of her ten

claims for fraud as separate causes of action, but instead recites them in laundry

list fashion at the outset of her pleading and follows them w ith a single citation to

the False Claims Act. The parties before us, however, do not dispute that each of

the ten fraudulent schemes M s. Boothe identifies is tantamount to a discrete and

independent cause of action for fraud. Because w e seek to give meaning not just

to the form but the substance of a plaintiff’s complaint, it seems to us that each of

the separate frauds M s. Boothe describes must be analyzed on its own terms. See

Fed. R. Civ. P. 8 (“No technical forms of pleading or motions are required.”; “All

6
W hile we have not previously addressed the issue expressly, we have
previously analyzed jurisdiction under Section 3730(e)(4) on a claim-by-claim
basis. See, e.g., M K-Ferguson Co., 99 F.3d at 1546-47. Sun argues that our
decision in Precision proceeded otherwise. W e disagree. Our point in Precision
was much the Supreme Court’s point in Rockwell; we rejected the idea that
Section 3730(e)(4) bars only causes of action based solely on public disclosures,
holding instead that a relator may not “claim smuggle” by seeking jurisdiction
over a claim partially based on public information. See Precision, 971 F.2d at
552-53; see also M K-Ferguson Co., 99 F.3d at 1546-47.

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pleadings shall be so construed to do substantial justice.”); see also W right &

M iller, 5 Fed. Prac. & Proc. C iv. 3d § 1202. It is for this reason that we

recognize and hold that courts must analyze the jurisdictional status of each

reasonably discrete claim of fraud in a qui tam action and do so based on a review

of the substance of the complaint, not just how it may be formally structured.

The question remains whether M s. Boothe’s remaining seven claims of

fraud can, even when view ed independently, survive the strictures of the public

disclosure bar. Because the application of the “based upon” and “original source”

tests turn on important factual questions, ones on which w e have no record before

us, we think the appropriate course is to remand the matter for the district court’s

consideration in the first instance. 7

* * *

Because three of the ten claims in M s. Boothe’s qui tam action were “based

upon” publicly disclosed allegations of fraud upon the government and M s.

Boothe was not their “original source,” w e affirm the district court’s decision to

grant Sun’s motion for summary judgment on those scores. Because we hold that

jurisdiction under the public disclosure bar must be assessed on a claim-by-claim

7
Neither do we at this time reach Sun’s alternative, non-jurisdictional
arguments for dismissal on which the district court has yet to pass. See supra
note 1.

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basis, however, we remand the remaining seven claims for an independent

jurisdictional assessment.

Affirm ed in part and reversed and remanded in part.

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