[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
October 20, 2005
No. 05-11868
THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 98-00204-CV-ODE-1
KIRK S. CORSELLO,
Plaintiff-Appellant,
versus
LINCARE, INC.,
LINCARE HOLDINGS, INC.,
ROTECH, INC.,
ALAN VARRAUX, M.D.,
ROTECH MEDICAL CORPORATION,
Defendants-Appellees,
LINCARE HEALTHCARE GROUP, INC.,
AMERICAN HOME PATIENT, INC.,
et al.,
Defendants.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(October 20, 2005)
Before TJOFLAT, DUBINA and PRYOR, Circuit Judges.
PER CURIAM:
The issue in this qui tam action, brought under the False Claims Act, is
whether a former sales employee of multiple defendants pleaded fraud with
particularity, under Federal Rule of Civil Procedure 9(b), by baldly asserting that
improper practices “resulted in the submission of false claims.” Kirk S. Corsello
appeals both the dismissal of his complaint for failure to plead fraud with
particularity and the denial of his motion to file a third amended complaint.
Because the complaint failed to provide any factual support that false claims were
actually submitted to the government and a third amendment of the complaint more
than five years after the commencement of this action would have been futile, we
affirm.
I. BACKGROUND
In 1998, Corsello brought a qui tam action under the False Claims Act
against 56 entities and 99 John Does and John Doe Corporations. Corsello alleged
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that while he was employed by two of the defendants, they engaged in various
fraudulent schemes, including paying illegal kickbacks to physicians to induce
referrals, falsifying cetificates of medical necessity to provide unnecessary
treatment, and billing for unnecessary or non-existent treatment to obtain Medicare
payments unlawfully. Corsello failed to serve process on the defendants with his
original complaint, but instead moved to file an amended complaint. On June 18,
1999, the district court granted Corsello’s motion to file an amended complaint but
warned Corsello that “[t]he Qui Tam Act was not enacted in order to give the
relator an unlimited opportunity to perfect its complaint” and that “the amended
complaint shall fully comport with the requirement of [Federal Rule of Civil
Procedure 9(b)].” Corsello served the first amended complaint on July 18, 1999,
but then filed a second amended complaint on January 13, 2000, to cure some of
the deficiencies in his earlier complaints and further reduce the number of
defendants.
In his amended complaint, Corsello alleged that Lincare, Inc., Lincare
Holdings, Inc., Rotech, Inc., Alan Varraux, M.D., Rotech Medical Corporation,
and American Home Patient, Inc., violated the False Claims Act by submitting
false Medicare claims and conspiring to defraud the government. 31 U.S.C. §
3729(a)(1), (a)(2), (a)(3). Lincare, Inc. and Lincare Holdings, Inc. (collectively
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Lincare), Rotech, Inc. and Rotech Medical Corporation (collectively Rotech), and
American Home Patient, Inc. are nationwide providers of oxygen services and
equipment to patients in their homes. Varraux is a physician specializing in
pulmonology. Corsello was employed by Lincare as the Center Manager for the
South Orlando Center from 1995 to 1997. After Corsello was terminated by
Lincare, he worked for Rotech as a Regional Sales Support employee from 1998
until his termination in 1999.
On March 9, 2001, the district court granted a motion to dismiss Corsello’s
claims against Lincare, American Home Patient, Inc., and Varraux because
Corsello failed to plead fraud with particularity. Corsello appealed, but this Court
dismissed the appeal because the district court had not yet adjudicated Corsello’s
claims against Rotech. Rotech then moved to dismiss the second amended
complaint for failure to state a claim. Corsello responded to Rotech’s motion to
dismiss and proposed to file a third amended complaint. The district court granted
the motion to dismiss on the ground that Corsello’s complaint failed to plead fraud
with particularity. The district court also denied Corsello’s motion to file a third
amended complaint because Corsello had waited over a year since the dismissal of
his claims against the other defendants, had not explained why he did not plead the
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necessary facts in the previous versions of his complaint, and had not offered an
amendment that cured the deficiencies of his complaint.
II. STANDARD OF REVIEW
This appeal is governed by two standards of review. First, this Court
reviews de novo a dismissal for failure to state a claim upon which relief may be
granted. United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301,
1307 n.11 (11th Cir. 2002). On a motion to dismiss for failure to state a claim, we
accept as true the facts as alleged in the complaint. Id. at 1303 n.2. Second, we
review the denial of a motion to amend a complaint for abuse of discretion. Bryant
v. Dupree, 252 F.3d 1161, 1163 (11th Cir. 2001). The underlying legal conclusion
of whether a particular amendment to the complaint would have been futile is
reviewed de novo. See Harris v. Ivax Corp., 182 F.3d 799, 802–03 (11th Cir.
1999).
III. DISCUSSION
Corsello appeals both the dismissal of his complaint and the denial of his
motion to amend the complaint. We first consider whether the district court erred
in dismissing Corsello’s claims under the False Claims Act for failure to plead
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fraud with particularity. We then address whether the district court erred in
denying Corsello’s motion to file a third amended complaint.
A. The District Court Correctly Dismissed the Complaint for Failure to Comply
with Rule 9(b)
Sections 3729(a)(1) and (a)(2) of the False Claims Act subject to civil
liability entities that knowingly submit false or fraudulent claims to the
government for payment or approval. Clausen, 290 F.3d at 1309. Liability under
the False Claims Act arises from the submission of a fraudulent claim to the
government, not the disregard of government regulations or failure to maintain
proper internal policies. Id. at 1311. The act of submitting a fraudulent claim to
the government is the “sine qua non of a False Claims Act violation.” Id. This
Court has held that complaints alleging violations of the False Claims Act are
governed by Rule 9(b). Clausen, 290 F.3d at 1308–09.
Under Rule 9(b), “the circumstances constituting fraud or mistake shall be
stated with particularity.” Fed. R. Civ. P. 9(b). To state a claim under the False
Claims Act with particularity, the complaint must allege “‘facts as to time, place,
and substance of the defendant’s alleged fraud,’ [and] ‘the details of the
defendants’ allegedly fraudulent acts, when they occurred, and who engaged in
them.’” Clausen, 290 F.3d at 1310 (citing Cooper v. Blue Cross & Blue Shield of
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Fla., Inc., 19 F.3d 562, 567–68 (11th Cir. 1994)). Failure to satisfy Rule 9(b) is a
ground for dismissal of a complaint.
In Clausen, we stated that the complaint must contain “some indicia of
reliability” to satisfy Rule 9(b). 290 F.3d at 1311. In that case, Clausen, who was
a competitor of the defendant, brought an action under the False Claims Act and
alleged that the defendant had engaged in a “decade-long campaign to defraud the
Government.” Id. at 1302–03. Although Clausen described in detail a private
scheme to defraud, Clausen’s complaint did not provide “any billing information to
support [Clausen’s] allegation that actual false claims were submitted for
payment.” Id. at 1306. The complaint speculated that claims “must have been
submitted, were likely submitted or should have been submitted to the
Government.” Id. at 1311. The complaint did not contain any “stated reason for
[Clausen’s] belief that claims requesting illegal payments must have been
submitted.” Because Clausen was a “corporate outsider,” his failure to include a
credible set of facts to support his vague allegations rendered his complaint
deficient under Rule 9(b). Id.
In Hill v. Morehouse Medical Associates, an unpublished opinion, we
elaborated on the “indicia of reliability” required by Clausen. No. 02-14429 (11th
Cir. Aug. 15, 2003) (per curiam). Hill, who was a former employee in the billing
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department of the defendant, alleged a billing process and details about five
fraudulent billing schemes the defendant used to submit claims to the government.
Id. Unlike the relator in Clausen, who was a “corporate outsider,” Hill had
“firsthand information” about the billing practices of the defendant. Id. at 5.
Because Hill “worked in the very department where she alleged the fraudulent
billing schemes occurred,” her allegations that fraudulent claims were submitted on
a daily basis were factually credible. This Court held that Hill’s complaint
satisfied Rule 9(b) because Hill was “privy to . . . the internal billing practices” of
the defendant and thus provided factual support for the allegations of fraudulent
billing in her complaint. Id. at 5.
Corsello is neither a “corporate outsider” nor an employee in the billing
department. Corsello contends that he is unlike the relator in Clausen because, as a
sales employee, he was “aware” of the manner by which the defendants submitted
fraudulent claims and had “learned from his colleagues the national reach of the
schemes.” Corsello also argues that his second amended complaint, like the
complaint in Hill, contained “indicia of reliability” to satisfy Rule 9(b) because the
complaint alleged many details of numerous schemes, employees, and claims.
Corsello argues that the complaint provided the initials of patients whose Medicare
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forms were improperly completed and eventually, Corsello alleged, “resulted in the
submission of fraudulent claims.”
Corsello argues that a pattern of improper practices of the defendants leads
to the inference that fraudulent claims were submitted to the government, but we
disagree. Because it is the submission of a fraudulent claim that gives rise to
liability under the False Claims Act, that submission must be pleaded with
particularity and not inferred from the circumstances. See Fed. R. Civ. P. 9(b)
(stating that “the circumstances constituting fraud . . . shall be stated with
particularity”). Although we construe all facts in favor of the plaintiff when
reviewing a motion to dismiss, we decline to make inferences about the submission
of fraudulent claims because such an assumption would “strip[] all meaning from
Rule 9(b)’s requirements of specificity.” Clausen, 290 F.3d at 1312 n.21.
Corsello’s complaint failed to satisfy 9(b). Corsello’s second amended
complaint failed to allege when, where, and what violations of the False Claims
Act occurred. The complaint instead used vague allegations that improper
practices took place “everywhere Lincare does business throughout the statutory
time period.” The allegations also failed to provide a factual basis to conclude
fraudulent claims were ever actually submitted to the government in violation of
the False Claims Act. At best, Corsello alleged that improper practices have
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“resulted in the submission of fraudulent claims,” or “lead directly to the
submission of fraudulent claims.”
Although Corsello worked in sales, his allegations, often based “on
information and belief,” lacked the “indicia of reliability” required by Clausen
because they failed to provide an underlying basis for Corsello’s assertions.
Corsello did not explain why he believes fraudulent claims were ultimately
submitted. Corsello’s contention that he was “aware” of billing practices was
neither particular to any specific fraudulent claim against the government nor
factually supported because Corsello conceded that he “did not have access to
company files outside his own offices.” Underlying improper practices alone are
insufficient to state a claim under the False Claims Act absent allegations that a
specific fraudulent claim was in fact submitted to the government. Clausen, 290
F.3d at 1311. In short, Corsello provided the “who,” “what,” “where,” “when,”
and “how” of improper practices, but he failed to allege the “who,” “what,”
“where,” “when,” and “how” of fraudulent submissions to the government.
Corsello’s allegation that the defendants conspired to defraud the
government in violation of section 3729(a)(3) of the False Claims Act likewise
failed to satisfy the requirements of Rule 9(b). To state a claim under section
3729(a)(3), the plaintiff must show “(1) that the defendant conspired with one or
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more persons to get a false or fraudulent claim paid by the United States; (2) that
one or more of the conspirators performed any act to effect the object of the
conspiracy; and (3) that the United States suffered damages as a result of the false
or fraudulent claim.” United States ex rel. Stimson v. Provident Life & Accident
Ins. Co., 721 F. Supp. 1247, 1259 (S.D. Fla. 1989). Section 3729(a)(3) of the False
Claims Act imposes liability on those who “conspire[] to defraud the government
by getting a false or fraudulent claim allowed or paid.” 31 U.S.C. § 3729(a)(3). In
his second amended complaint, Corsello alleged that “Lincare and Varraux
conspired to defraud the Government,” but this bare legal conclusion was
unsupported by specific allegations of any agreement or overt act. The district
court correctly dismissed Corsello’s complaint for failure to comply with Rule
9(b).
B. The District Court Did Not Abuse Its Discretion When It Denied Corsello’s
Motion to File a Third Amended Complaint
Corsello also argues that the district court erred when it denied his motion to
file a third amended complaint. Under Federal Rule of Civil Procedure 15(a), a
court should give leave to amend freely “when justice so requires.” Fed. R. Civ. P.
15(a). Ordinarily, a party must be given at least one opportunity to amend before
the district court dismisses the complaint. Bryant v. Dupree, 252 F.3d 1161, 1163
(11th Cir. 2001). The district court, however, need not “allow an amendment (1)
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where there has been undue delay, bad faith, dilatory motive, or repeated failure to
cure deficiencies by amendments previously allowed; (2) where allowing
amendment would cause undue prejudice to the opposing party; or (3) where
amendment would be futile.” Id.
The district court did not abuse its discretion when it denied Corsello’s
motion to amend his complaint. Allowing another amendment would have led to
the filing of Corsello’s fourth complaint in over five years of litigation. Corsello
proposed to file his third amended complaint eighteen months after the district
court had dismissed Corsello’s claims against Lincare, American Home Patient,
and Varraux. The district court had warned Corsello from the beginning that he
must plead fraud with particularity and was not required to give Corsello another
opportunity to correct his errors. Corsello’s “repeated failure to cure deficiencies
by [previous] amendments” is an explicitly permitted reason for which the district
court was entitled to deny his motion to amend. See id.
Corsello erroneously argues that the motion to file a third amended
complaint was delayed because of our decision in Clausen. Corsello does not
explain why he moved to amend five months after the Clausen decision was issued.
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Moreover, Clausen did not articulate a new standard that required an extensive
amendment to Corsello’s complaint; Clausen interpreted an existing standard that
Corsello had failed to meet.
The district court also did not err when it determined that allowing Corsello
to amend his complaint would have been futile, because Corsello’s proposed
complaint still failed to meet the standard of Rule 9(b). The deficiencies of the
second amended complaint remained in the proposed complaint: the allegations of
the proposed complaint were unlimited in temporal or geographic scope and failed
to plead specific instances of fraudulent submissions to the government. In
addition, the proposed complaint alleged that “sales people do not . . . have access
to the specific billing information that is submitted to the government,” which
evidenced that the revised complaint still lacked sufficient indicia of reliability.
The district court, therefore, did not abuse its discretion when it denied Corsello’s
motion to amend.
IV. CONCLUSION
Because Corsello’s complaint failed to plead fraud with particularity and the
district court did not abuse its discretion when it denied Corsello’s motion to file a
third amended complaint, the dismissal of Corsello’s second amended complaint
and the denial of his motion to amend that complaint are
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AFFIRMED.
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