United States Court of Appeals
For the First Circuit
No. 03-1901
UNITED STATES OF AMERICA ex rel. JOHN C. KARVELAS,
Plaintiffs, Appellant,
v.
MELROSE-WAKEFIELD HOSPITAL; MELROSE-WAKEFIELD HEALTHCARE
CORPORATION; HALLMARK HEALTH SYSTEM, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Lipez, Circuit Judge,
Coffin, Senior Circuit Judge,
and Barbadoro,* District Judge.
Oliver B. Dickins with whom John F. Murphy was on the brief
for appellant.
Michael K. Fee with whom Ropes & Gray LLP were on the brief
for appellees.
February 23, 2004
________________________
* Of the District of New Hampshire, sitting by designation.
LIPEZ, Circuit Judge. Plaintiff John C. Karvelas brought
this qui tam action against defendants Melrose-Wakefield Hospital,
Melrose-Wakefield Healthcare Corporation, and Hallmark Health
System, Inc., alleging violations of the False Claims Act (“FCA”),
31 U.S.C. § 3729, et seq. The district court granted the
defendants' motion to dismiss the action for failure to state a
claim pursuant to Fed. R. Civ. P. 12(b)(6). On appeal, Karvelas
complains that the court wrongly applied the particularity pleading
requirements of Fed. R. Civ. P. 9(b) for averments in fraud to this
FCA case. He further argues that the court wrongfully dismissed
his claim of retaliation by the defendants for conduct protected by
the FCA. After examining the issues raised by this appeal, some of
which have not been addressed before in this circuit, we affirm.
I.
John C. Karvelas was employed as a respiratory therapist
at the Melrose-Wakefield Hospital in Melrose, Massachusetts, from
1982 until January 1997. He claims that from 1994 until the
termination of his employment at the hospital in 1997, the
defendants knowingly submitted false claims to the United States
government in order to obtain Medicare and Medicaid payments, in
violation of the False Claims Act. In essence, Karvelas alleges
that Melrose-Wakefield Hospital and its parent corporations failed
to comply with federal standards for patient care as required by
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the Health Care Financing Administration ("HCFA")1 for Medicare and
Medicaid reimbursement. He claims that the defendants falsely
certified that they were in compliance with these standards and
"wrongfully billed Medicare and/or Medicaid," presumably on the
basis of services that were being provided improperly or not at
all. Karvelas further claims that he was discharged in retaliation
for his investigation of the defendants’ noncompliance with
regulatory standards and violations of the FCA.
On April 6, 2001, Karvelas filed the present qui tam
action against the defendants in the United States District Court
for the District of Massachusetts.2 On May 3, 2002, the United
States gave notice that it did not intend to intervene in the case.
The district court then ordered the complaint unsealed and
authorized service on the defendants. The defendants subsequently
moved to dismiss the case for failure to state a claim under Fed.
R. Civ. P. 12(b)(6). The district court granted the motion and
dismissed the case with prejudice, ruling that Karvelas had not met
the requirement under Fed. R. Civ. P. 9(b) that allegations of
1
The Health Care Financing Administration became the Centers
for Medicare and Medicaid Services ("CMS") on June 1, 2001.
2
This was the second federal lawsuit that Karvelas has
initiated against the defendants in connection with their alleged
fraudulent activities. His first complaint, which was filed in May
2000, alleged essentially the same retaliation claim pleaded in
this case, as well as various state law claims. The district court
dismissed the action, without prejudice, for failure to state a
claim. Karvelas v. Melrose-Wakefield Hospital, Civ. No. 00-10991
(D. Mass. May 5, 2000).
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fraud be stated with particularity.3 It further held that Karvelas
had failed to allege facts sufficient to state a claim for False
Claims Act retaliation.4 This appeal followed.
II.
A. Standard of Review
We review de novo the district court's dismissal for
failure to state a claim under Fed. R. Civ. P. 12(b)(6). Morales-
Villalobos v. Garcia-Llorens, 316 F.3d 51, 52 (1st Cir. 2003). We
accept the plaintiff's well-pleaded facts as true and draw all
reasonable inferences in favor of the plaintiff. Doran v. Mass.
Turnpike Auth., 348 F.3d 315, 318 (1st Cir. 2003). However, we
reject claims that are made in the complaint if they are "bald
assertions" or "unsupportable conclusions." Arruda v. Sears,
Roebuck & Co., 310 F.3d 13, 18 (1st Cir. 2002). Our objective is
"to determine whether the complaint . . . alleges facts sufficient
to make out a cognizable claim." Carroll v. Xerox Corp., 294 F.3d
231, 241 (1st Cir. 2002). In making this determination, we may
affirm on any independently sufficient basis. Id.
3
The court noted that the judgment was without prejudice to
any claim that the federal government could have raised in the
action, explaining that the government "remains free to exercise
its discretion and judgment regarding its own litigation posture
with respect to matters related to or suggested by claims the
plaintiff ha[d] unsuccessfully presented to this court."
4
The district court also dismissed Count V of Karvelas's
complaint alleging violations of the Racketeer Influenced and
Corrupt Organization (RICO) statute, 18 U.S.C. § 1961, et seq.
Karvelas does not appeal the dismissal of this claim.
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B. The False Claims Act
The False Claims Act, 31 U.S.C. § 3729 et seq., prohibits
the submission of false or fraudulent claims to the federal
government. The statute was first adopted during the Civil War in
response to widespread fraud in wartime defense contracts. See Vt.
Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S.
765, 781 (2000). Its "qui tam"5 provisions authorized private
individuals to sue on behalf of the federal government and were
intended to aid the government in discovering fraud and abuse "by
unleashing a posse of ad hoc deputies to uncover and prosecute
frauds against the government." Harrison v. Westinghouse Savannah
River Co., 176 F.3d 776, 784 (4th Cir. 1999)(citation and internal
quotation marks omitted).6
The most recent amendments to the FCA, passed in 1986,
see S. Rep. No. 345, 99th Cong., 2d Sess., at 2 (1986), reprinted
in 1986 U.S.C.C.A.N. 5266, were intended to encourage the filing of
5
"'Qui tam' is an abbreviation for qui tam pro domino rege
quam pro seipso, which literally means 'he who as much for the king
as for himself.'" United States ex rel. S. Prawer & Co. v. Fleet
Bank, 24 F.3d 320, 324 n.7 (1st Cir. 1994) (citation omitted). Qui
tam provisions first became popular in thirteenth century England.
They permitted private individuals to bring suit on behalf of the
King and served as a supplement to official law enforcement. Id.
6
The historical background of the False Claims Act and its
subsequent amendments has been described in detail by this and
other courts. See, e.g., Prawer, 24 F.3d at 324-26; United States
ex rel. Springfield Terminal Ry Co. v. Quinn, 14 F.3d 645, 646,
649-51 (D.C. Cir. 1994); United States ex rel. Williams v. NEC
Corp., 931 F.2d 1493, 1496-98 (11th Cir. 1991); United States ex
rel. Stinson, Lyons, Gerlin & Bustamante v. Prudential Ins. Co.,
944 F.2d 1149, 1153-54 (3d Cir. 1991).
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private qui tam actions, yet also included provisions designed to
prevent "parasitic" lawsuits, in which "relators, rather than
bringing to light independently-discovered information of fraud,
simply feed off of previous disclosures of . . . fraud [against the
government]." United States ex rel. Siller v. Becton Dickinson &
Co., 21 F.3d 1339, 1347 (4th Cir. 1994). The amendments thus
represent the latest chapter in a long history of "'repeated
congressional efforts to walk a fine line between encouraging
whistle-blowing and discouraging opportunistic behavior.'" Prawer,
24 F.3d at 326 (quoting Quinn, 14 F.3d at 651).
The FCA imposes liability upon persons who 1) present or
cause to be presented to the United States government, a claim for
approval or payment, where 2) that claim is false or fraudulent,
and 3) the action was undertaken "knowingly," in other words, with
actual knowledge of the falsity of the information contained in the
claim, or in deliberate ignorance or reckless disregard of the
truth or falsity of that information. 31 U.S.C. § 3729(a)(1), (b).
The statute does not require proof of specific intent, that is,
intent to present false or fraudulent claims to the government.
Id. § 3729(b) (stating that "no proof of specific intent to defraud
is required" to prove liability under the FCA). The statute
further prohibits "conspir[acies] to defraud the Government by
citing a false or fraudulent claim allowed or paid." Id. §
3729(a)(3). Individuals who violate the FCA are liable for civil
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penalties and double or treble damages plus the costs incurred in
bringing the FCA lawsuit. Id. § 3729(a).
Not all fraudulent conduct gives rise to liability under
the FCA. "[T]he statute attaches liability, not to the underlying
fraudulent activity or to the government's wrongful payment, but to
the 'claim for payment.'" United States v. Rivera, 55 F.3d 703,
709 (1st Cir. 1995). Evidence of an actual false claim is "the
sine qua non of a False Claims Act violation." United States ex
rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th
Cir. 2002), cert. denied, 537 U.S. 1105 (2003). Therefore, a
defendant violates the FCA only when he or she has presented to the
government a false or fraudulent claim, defined as "any request or
demand . . . for money or property" where the government provides
or will reimburse any part of the money or property requested. 31
U.S.C. § 3729(c); see also Harrison, 176 F.3d at 785 ("[T]he False
Claims Act at least requires the presence of a claim – a call upon
the government fisc – for liability to attach.").
As noted above, the FCA's qui tam provisions allow a
private individual or "relator"7 to file a lawsuit alleging FCA
violations on behalf of the United States. 31 U.S.C. § 3730. An
FCA qui tam action may not be based on publicly disclosed
information unless the relator is the original source of that
7
A "relator" is "[a] party in interest who is permitted to
institute a proceeding in the name of the People or the Attorney
General when the right to sue resides solely in that official."
Black's Law Dictionary 1289 (6th ed. 1990).
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information. Id. § 3730(e)(4)(a). The relator must first serve
his or her complaint upon the government, where it remains under
seal for sixty days. Id. § 3730(b)(2). If the government elects
to intervene, it takes over the suit and adopts any or all of the
allegations contained in the qui tam complaint, in which case the
relator is entitled to 15-25 percent of any proceeds recovered.
Id. § 3730(c)(1), (d)(1). If 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. Id. § 3730(b)(2),
(b)(4)(B), (c)(3). If the relator succeeds in recovering funds for
the government, he or she is entitled to 25-30 percent of the
recovery. Id. § 3730(d)(2).
C. Failure to Plead Fraud with Particularity
We must consider whether the district court erred in
dismissing Karvelas's complaint on the ground that it failed to
plead fraud with particularity as required by Rule 9(b) of the
Federal Rules of Civil Procedure. Karvelas claims that a complaint
stating a violation of the False Claims Act need not comply with
Rule 9(b). He argues in the alternative that Rule 9(b)'s
particularity requirements should be relaxed in his case. Finally,
Karvelas claims that even if we do not relax these requirements,
his complaint alleges fraud with sufficient particularity to
satisfy Rule 9(b). After first describing generally the
requirements of Rule 9(b), we address each of these arguments in
turn.
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1. Federal Rule of Civil Procedure 9(b)
Under the general pleading requirements of the Federal
Rules of Civil Procedure, a federal civil complaint need only state
"a short and plain statement of the claim showing that the
plaintiff is entitled to relief." Fed. R. Civ. P. 8(a). However,
the federal rules recognize limited exceptions to Rule 8(a)'s
simplified pleading standard. For example, claims of fraud are
subject to the heightened pleading requirements of Federal Rule of
Civil Procedure 9(b), which provides: "In all averments of fraud or
mistake, the circumstances constituting fraud or mistake shall be
stated with particularity. Malice, intent, knowledge, and other
condition of mind may be averred generally."
We have said that Rule 9(b) requires that a plaintiff's
averments of fraud specify the time, place, and content of the
alleged false or fraudulent representations. Arruda, 310 F.3d at
18-19. The purpose of this requirement is to "give notice to
defendants of the plaintiffs' claim, to protect defendants whose
reputation may be harmed by meritless claims of fraud, to
discourage 'strike suits,' and to prevent the filing of suits that
simply hope to uncover relevant information during discovery."
Doyle v. Hasbro, Inc., 103 F.3d 186, 194 (1st Cir. 1996).
We have recognized that, under Rule 9(b), a plaintiff may
make allegations of fraud on the basis of personal knowledge or on
"information and belief." New England Data Services, Inc. v.
Becher, 829 F.2d 286, 288 (1st Cir. 1987). Hence, such
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"information and belief" allegations remain subject to the
particularity requirements of Rule 9(b). Moreover, allegations of
fraud made on information and belief are also subject to the
additional requirement that "the complaint set[] forth the facts on
which the belief is founded." Id.; see also In re. Cabletron Sys.,
Inc., 311 F.3d 11, 28 (1st Cir. 2002) (noting that "this circuit
imposed a strict requirement [on security fraud allegations based
on information and belief] under 9(b) before enactment of the PSLRA
[Private Securities Litigation Reform Act]")(citing Romani v.
Shearson Lehman Hutton, 929 F.2d 875, 878 (1st Cir. 1991) ("Where
allegations of fraud are . . . based only on information and
belief, the complaint must set forth the source of the information
and the reasons for the belief.") (superceded by statute)).8
2. Applicability of Federal Rule of Civil Procedure 9(b)
to the FCA
Karvelas argues that the district court erred in granting
the defendants' Rule 12(b)(6) motion because a complaint that
alleges a violation of the FCA need not comply with Fed. R. Civ. P.
9(b)'s requirement that "in all averments of fraud . . . the
8
In Langadinos v. American Airlines, Inc., 199 F.3d 68, 73 &
n.8 (1st Cir. 2000), we noted that while "a plaintiff can make
allegations either on the basis of personal knowledge or on
'information and belief,'" there is an "exception . . . in cases
where the tougher pleading standards of Fed. R. Civ. P. 9(b)
replace the more liberal requirements of Fed. R. Civ. P. 8." To
the extent that this language suggests that information and belief
pleading is impermissible under Rule 9(b), it is dicta and it is
inaccurate. Information and belief pleading is permissible,
subject to Rule 9(b)'s particularity requirement and the additional
requirement that pleadings on information and belief set forth the
facts on which that belief is founded.
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circumstances constituting fraud . . . shall be stated with
particularity." He claims that the district court should have
applied the more lenient general pleading standard of Fed. R. Civ.
P. 8(a).
In support of his theory that Rule 9(b) does not apply to
the FCA, Karvelas cites the Supreme Court's decision in
Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), which held that
employment discrimination claims are not subject to a heightened
pleading standard. Karvelas's reliance on Swierkiewicz is
misplaced. It is true that the Court held in Swierkiewicz that
"Rule 8(a)'s simplified pleading standard applies to all civil
actions, with limited exceptions." Id. at 513. However, it
expressly noted that one such exception is Rule 9(b), which
"provides for greater particularity in all averments of fraud or
mistake." Id. (emphasis added); see also Leatherman v. Tarrant
County Narcotics Unit, 507 U.S. 163, 168 (1993) (noting that Rule
9(b) imposes a particularity requirement on the pleading of fraud
or mistake).
We do not agree with Karvelas that "the False Claims Act
is not a 'fraud' statute" and therefore does not fall within the
scope of Rule 9(b). Section 3729(a)(1) of the FCA imposes civil
penalties when a person knowingly presents or causes to be
presented to the government "a false or fraudulent claim for
payment or approval." 31 U.S.C. § 3729(a)(1). Section 3729(a)(3)
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prohibits any conspiracy "to defraud the Government by getting a
false or fraudulent claim allowed or paid." Id. § 3729(a)(3).
The legislative history of the 1986 FCA Amendments and
the Supreme Court's interpretations of the statute further support
the conclusion that FCA claims involve "averments of fraud" that
must be pled with particularity under Rule 9(b). See, e.g., Vt.
Agency of Natural Res., 529 U.S. at 781 n.10 (noting "the
unobjectional proposition . . . that the FCA was intended to cover
all types of fraud") (emphasis in the original); United States v.
Neifert-White Co., 390 U.S. 228, 233 (1968)("[The FCA] protect[s]
the funds and property of the Government from fraudulent
claims")(citation and internal quotation marks omitted); United
States v. Bornstein, 423 U.S. 303, 309 (1976) (explaining that the
FCA was originally enacted to stop "the massive frauds perpetrated
by large contractors during the Civil War"); S. Rep. No. 99-345, at
6, reprinted in 1986 U.S.C.C.A.N. at 5271 (describing the FCA as "a
civil remedy designed to make the Government whole for fraud
losses"). In short, "[i]t is self-evident that the FCA is an anti-
fraud statute." Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1476
(2d Cir. 1995).
Moreover, we reject Karvelas's argument that the False
Claims Act is not a "fraud" statute because, under the statute,
"liability depends on the defendant's knowledge, not on his fraud,"
and therefore only the second clause of Rule 9(b), which allows
knowledge of fraud to be averred generally, applies. Under the
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FCA, liability depends upon the defendant's act (presentation of a
false or fraudulent claim to the United States government) and
mental state (knowledge, or deliberate ignorance or reckless
disregard of the truth or falsity of the information presented).
That Rule 9(b) allows "[m]alice, intent, knowledge, and other
condition of mind of a person [to be] averred generally" does not
mean that particularity requirements do not apply to FCA claims.
Rather, it simply means that a qui tam relator need not plead with
particularity allegations concerning defendants' knowledge,
reckless disregard, or deliberate ignorance of the submission of
false claims. The characterization of a state of mind, after all,
does not lend itself to detailed pleading. On the other hand, the
details of the actual presentation of false or fraudulent claims to
the government can and must be pled with particularity in order to
meet the requirements of Rule 9(b).
Finally, every circuit court that has addressed this
issue has concluded that the heightened pleading requirements of
Rule 9(b) apply to claims brought under the FCA. See Yuhasz v.
Brush Wellman, Inc., 341 F.3d 559, 562-63 (6th Cir. 2003); United
States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301,
1308-09 (11th Cir. 2002), cert. denied, 537 U.S. 1105 (2003);
United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542,
551-52 (D.C. Cir. 2002); Bly-Magee v. California, 236 F.3d 1014,
1018 (9th Cir. 2001); Harrison v. Westinghouse Savannah River Co.,
176 F.3d 776, 783-84 (4th Cir. 1999); United States ex rel. LaCorte
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v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 234 (3d
Cir. 1998); United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997); Gold v.
Morrison-Knudsen Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995); see
also John T. Boese, Civil False Claims and Qui Tam Actions § 5.04
(2d ed. 2000 & Supp. 2003)("It is widely accepted by courts that
because the essence of a False Claims Act is fraud, Rule 9(b)
applies to FCA cases. . . . The applicability of Rule 9(b) to qui
tam actions is by now beyond dispute."). For the reasons discussed
above, we now join this consensus and hold that Rule 9(b) applies
to claims under the FCA. Thus, the district court did not err in
requiring Karvelas to plead with particularity the defendants'
alleged violations of the FCA.
3. Relaxation of Rule 9(b)'s Particularity Requirements
Karvelas argues that even if Rule 9(b) applies to FCA
claims, its requirements should be relaxed in his case because the
information necessary to plead with particularity is within the
possession and control of the defendants. There is some confusion
about the meaning of a "relaxed rule of pleading" under Rule 9(b).
At times, Karvelas seems to equate a relaxed rule of pleading with
pleading on information and belief. The district court, citing the
Fifth Circuit's decision in Thompson, 125 F.3d at 903, stated that
the effect of a relaxed Rule 9(b) standard is that "fraud may be
pled on information and belief." Other courts have adopted this
understanding of what it means to relax 9(b)'s pleading
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requirements. See, e.g., Clausen, 290 F.3d at 1314; United States
ex rel. Russell v. Epic Healthcare, 193 F.3d 304, 308 (5th Cir.
1999). However, as we have already explained, see Part II. c.1
supra, we subject "information and belief" pleading under Rule 9(b)
to particularity requirements. There is, in other words, no
relaxation of the particularity requirement for "information and
belief" pleading. Instead, when we refer to the relaxation of Rule
9(b)'s particularity requirements, we refer to an opportunity for
the plaintiff to plead generally at the outset and then later amend
the complaint, filling in the blanks through discovery. That is
the meaning of a relaxed Rule 9(b) standard that we apply here.
For example, we have said that Rule 9(b) pleading
standards may be relaxed, in an appropriate case, "when the
opposing party is the only practical source for discovering the
specific facts supporting a pleader's conclusion." Boston & Maine
Corp. v. Hampton, 987 F.2d 855, 866 (1st Cir. 1993). In such
cases, "even for a plaintiff's allegations of fraud, if the facts
would be peculiarly within the defendants' control, a court may
allow some discovery before requiring that plaintiff plead
individual acts of fraud with particularity." Id. (citation and
internal quotation marks omitted).
Whether discovery is warranted to correct general
pleadings that do not initially meet the requirements of Rule 9(b)
may turn on the nature of the statute under which the plaintiff's
cause of action arises. For example, we have relaxed Rule 9(b)'s
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pleading requirements pending further discovery for allegations of
mail and wire fraud pursuant to the Racketeer Influenced and
Corrupt Organizations Act "because of the apparent difficulties in
specifically pleading mail and wire fraud as predicate acts." New
England Data Servs., 829 F.2d at 290-91.9 See North Bridge
Assoc., Inc. v. Boldt, 274 F.3d 38, 44 (1st Cir. 2001)(noting that
in the RICO context, where "the specific information [concerning
the defendants' use of interstate mail or telecommunications
facilities] is likely in the exclusive control of the defendant,
the court should make a second determination as to whether the
claim as presented warrants the allowance of discovery and if so,
thereafter provide an opportunity to amend the defective
complaint")(quoting Feinstein v. Resolution Trust Corp., 942 F.2d
34, 43 (1st Cir. 1991)). We have not, however, had occasion to
consider whether this relaxation of Rule 9(b)'s pleading
requirements should be extended to cases arising under the False
Claims Act.
9
On the other hand, prior to the enactment of the Private
Securities Litigation Reform Act, we strictly applied Rule 9(b)'s
pleading requirements in securities fraud cases even when the fraud
related to matters peculiarly within the knowledge of the
defendants because of our concern that "a plaintiff with a largely
groundless claim will bring a suit and conduct extensive discovery
in the hopes of obtaining an increased settlement." Id. at 288;
see also Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985) (in a
securities fraud case, Rule 9(b) "does not permit a complainant to
file suit first, and subsequently to search for a cause of
action")(citation and quotation marks omitted).
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Although some courts have recognized in theory that the
particularity requirements of Rule 9(b) may be relaxed in an FCA
qui tam action where the information relevant to the fraud is
"'peculiarly within the perpetrator's knowledge,'" United States
ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 330 (5th Cir. 2003)
(quoting Russell, 193 F.3d at 308), few courts have actually
applied a relaxed Rule 9(b) standard to an FCA qui tam action. See
Boese, Civil False Claims and Qui Tam Actions, § 5.04[D] (noting
that "[r]arely some courts will grant qui tam relators 'additional
leeway' under Rule 9(b) when information is exclusively in the
hands of the defendant").10 The district court, quoting the Fifth
Circuit's opinion in Russell, 193 F.3d at 308, refused to apply any
version of a relaxed standard in this case because "documents
containing the requisite information [were] possessed by other
entities, such as the Healthcare Financing Administration." This
reasoning apparently assumes that where the required information is
in the hands of the government, a relator can gain access to those
documents and fill in the blanks on that basis. See Clausen, 290
10
For the rare cases, see, for example, Wilkins ex rel. United
States v. Ohio, 885 F. Supp. 1055 (S.D. Ohio 1995)(holding that
relator's failure to meet the particularity requirements of Rule
9(b) did not bar his claim where the relator was a former employee
of the defendants and lacked access to records and documents in the
possession of the defendants that contained information necessary
to plead with particularity); United States ex rel. Kozhukh v.
Constellation Tech. Corp., 64 F. Supp. 2d 1239 (M.D. Fla.
1999)(same).
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F.3d at 1314 n.25 (refusing to apply a more lenient pleading
standard to relator's allegations of fraud because the government
had access to the relevant information and the relator was "not
without avenues for obtaining [that] information").
However, as Karvelas correctly notes, every FCA qui tam
action involves allegations of false or fraudulent claims submitted
to the government. In many of these cases, the information needed
to fill the gaps of an inadequately pleaded complaint will be in
the government's hands. In addition, if the relator seeks to
obtain the requisite information from the government, for example
by submitting a request under the Freedom of Information Act
(FOIA), he or she may encounter Section 3730(e)(4) of the FCA,
which prohibits qui tam actions based upon publicly disclosed
allegations unless the relator is an "original source" of that
information. 31 U.S.C. § 3730(e)(4)(B); see, e.g. United States ex
rel. Mistick PBT v. Housing Auth., 186 F.3d 376, 383 (3d Cir.
1999)(agency report prepared in response to a FOIA request is based
upon publicly disclosed information for FCA purposes), cert.
denied, 529 U.S. 1018 (2000); United States v. A.D. Roe Co., 186
F.3d 717, 723-24 (6th Cir. 1999) (information received pursuant to
a FOIA request is publicly disclosed); United States ex rel. Lamers
v. City of Green Bay, 998 F. Supp. 971, 979-80 (E.D. Wis. 1998)
(same), aff'd 168 F.3d 1013 (7th Cir. 1999). The FCA defines
"original source" as someone "who has direct and independent
knowledge of the information on which the allegations are based,"
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31 U.S.C. § 3730(e)(4)(B). This language excludes individuals who
must rely upon information already in the possession of the
government to adequately state their claim. Thus, Karvelas's
argument for a relaxed pleading standard because the information he
needs to plead with particularity is in the possession and control
of the defendants cannot be answered by the court's suggestion that
he could have obtained that information from the government prior
to filing his complaint.
Nonetheless, we do not agree with Karvelas that "it is
inherently inconsistent with the goals of the False Claims Act" to
require a qui tam relator to specify "the time, dates, places, and
identities" of the individuals involved in the fraud or "the
specifics in the documents prepared and submitted by the defendant
to obtain the funding" at the time that the complaint is filed and
prior to any additional discovery.11 The False Claims Act requires
a qui tam relator to serve on the government "[a] copy of the
complaint and written disclosure of substantially all material
evidence and information the person possesses." 31 U.S.C. §
11
Contrary to Karvelas's suggestion on appeal, the district
court did not hold that Rule 9(b) required the production of actual
documentation. The court's occasional references to the absence of
actual documents do not suggest that the court "refused to consider
any documents referred to in the complaint because Karvelas failed
to produce them." Nor did the district court's "insistence that
the qui tam relator has to plead fraud with particularity mean []
that the relator must plead the particulars of each document to
which reference is made." Rather, as the district court correctly
recognized, Karvelas was required to describe with particularity
some of the documents containing false claims for payment that the
defendants allegedly submitted to the United States.
-19-
3730(b)(2). The complaint is filed in camera and remains under
seal for 60 days during which time the government considers whether
to intervene. Id. As a leading commentator has suggested,
allowing a qui tam relator to amend his or her complaint after
conducting further discovery would mean that "the government will
have been compelled to decide whether or not to intervene absent
complete information about the relator's cause of action." Boese,
Civil False Claims and Qui Tam Actions § 4.04[C].12 Thus, allowing
a relator to plead generally at the outset and amend the complaint
at the 12(b)(6) stage after discovery would be at odds with the
FCA's procedures for filing a qui tam action and its protections
for the government (which is, of course, the real party in interest
in a qui tam action).
Other courts have repeatedly refused to allow qui tam
relators to rely on later discovery to comply with Rule 9(b)'s
pleading requirements. See, e.g., Clausen, 290 F.3d at 1313 n.24.
(noting that allowing a plaintiff "to learn the complaint's bare
essentials through discovery . . . may needlessly harm a
defendant['s] goodwill and reputation by bringing a suit that is,
at best, missing some of its core underpinnings, and, at worst,
[contains] baseless allegations used to extract settlements");
12
Although the government may intervene later in the
litigation, "such intervention is not mandatory. . . . Moreover,
while it may intervene, the government will no longer have an
opportunity to conduct a confidential and unhurried investigation
of the new claims in the amended complaint." Id. at § 4.04[C].
-20-
Russell, 193 F.3d at 308 (holding that "a special relaxing of Rule
9(b) is a qui tam plaintiff's ticket to the discovery process that
the statute itself does not contemplate"). The reluctance of
courts to permit qui tam relators to use discovery to meet the
requirements of Rule 9(b) reflects, in part, a concern that a qui
tam plaintiff, who has suffered no injury in fact, may be
particularly likely to file suit as "a pretext to uncover unknown
wrongs." United States ex rel. Robinson v. Northrop Corp., 149
F.R.D. 142 (N.D. Ill. 1993) (noting Rule 9(b)'s discouragement of
pre-textual claims in rejecting special 9(b) treatment of a qui tam
plaintiff).13 In light of the prevailing precedent and the
procedures for filing and serving a qui tam complaint under 31
U.S.C. § 3730(b)(2) (providing for service on the government), we
hold that a qui tam relator may not present general allegations in
lieu of the details of actual false claims in the hope that such
details will emerge through subsequent discovery.14
13
This requirement also applies where the complaint refers to
"a regularly-filed document prepared by the defendants." We
disagree with Karvelas that such documents are excepted from Rule
9(b)'s heightened pleading standard.
14
In a final variant of his claim for relaxation, Karvelas
asserts that the district court should have applied a relaxed Rule
9(b) standard because the defendants' alleged fraudulent schemes
were complex and occurred over a period of several years. While we
have not adopted such an exception to Rule 9(b)’s pleading
requirements, a few courts have found that a relaxed standard may
apply to FCA qui tam complaints where the alleged conduct took
place over a long period of time or involved numerous occurrences.
See, e.g., United States ex rel. Butler v. Magellan Health Servs.,
Inc., 74 F. Supp. 2d 1201, 1215 (M.D. Fla. 1999); United States ex
rel. Thompson v. Columbia/HCA Healthcare, 20 F. Supp. 2d 1017, 1039
-21-
4. The Compatability of Karvelas's Complaint with Rule
9(b)
Applying Rule 9(b) to Karvelas's complaint, the district
court concluded that Karvelas failed to "state with specificity
what the precise [false] claims were" or to "provide specifics
regarding the documents submitted to HCFA to make the false
claims." After carefully analyzing the sixteen "schemes" that
Karvelas described in his 93-page complaint, the court found that
he had failed in each to "allege violations of the False Claims Act
sufficiently to meet his Rule 9(b) obligation." Similarly, the
court held that the complaint failed to "provide reference to
actual documentation" of the false claims that allegedly had been
filed with the government.
As we have emphasized, liability under the False Claims
Act requires a false claim. See Rivera, 55 F.3d at 709.
Therefore, the defendant's presentation of false or fraudulent
claims to the government is a central element of every False Claims
Act case. A health care provider's violation of government
regulations or engagement in private fraudulent schemes does not
(S.D. Tex. 1998). Although we do not preclude the possibility of
such an exception in a future case, we do not think that three
years presents an exceptionally long period of time. Nor do we
find any basis in the history or requirements of the FCA, or in
most of the precedents, for relieving Karvelas of his burden of
pleading fraud with particularity because he chose to allege
sixteen complex schemes. See Yuhasz, 341 F. 3d at 564 ("[A]
plaintiff should not be able to avoid the specificity requirements
of Rule 9(b) by relying upon the complexity of the edifice which he
created")(citation and internal quotation marks omitted).
-22-
impose liability under the FCA unless the provider submits false or
fraudulent claims to the government for payment based on these
wrongful activities.15 See Clausen, 290 F.3d at 1311 ("Without the
presentment of [a false or fraudulent] claim, while the practices
of an entity that provides services to the Government may be unwise
or improper, there is simply no actionable damage to the public
fisc as required under the False Claims Act.")(emphasis in the
original); United States ex rel. LaCorte v. SmithKline Beecham
Clinical Labs., Inc., No. 96-1380, 2000 WL 17838 (E.D. La., Jan.
10, 2000)(dismissing relator's claims with prejudice where relator
described the general framework for alleged fraudulent schemes but
failed to link the allegedly fraudulent practices to the submission
of fraudulent claims). Underlying schemes and other wrongful
activities that result in the submission of fraudulent claims are
included in the "circumstances constituting fraud or mistake" that
must be pled with particularity pursuant to Rule 9(b). However,
such pleadings invariably are inadequate unless they are linked to
allegations, stated with particularity, of the actual false claims
15
A number of courts have also found FCA violations where a
defendant falsely certifies compliance with certain conditions
required as a prerequisite for a government benefit or payment in
order to induce that benefit. See, e.g., Thompson, 125 F.3d at 902.
In such cases, false certification for the purpose of receiving a
payment or benefit becomes the practical equivalent of a statutory
false claim.
-23-
submitted to the government that constitute the essential element
of an FCA qui tam action.
As applied to the FCA, Rule 9(b)'s requirement that
averments of fraud be stated with particularity – specifying the
"time, place, and content" of the alleged false or fraudulent
representations, means that a relator must provide details that
identify particular false claims for payment that were submitted to
the government.16 In a case such as this, details concerning the
dates of the claims, the content of the forms or bills submitted,
their identification numbers, the amount of money charged to the
government, the particular goods or services for which the
government was billed, the individuals involved in the billing, and
the length of time between the alleged fraudulent practices and the
submission of claims based on those practices are the types of
information that may help a relator to state his or her claims with
particularity. These details do not constitute a checklist of
mandatory requirements that must be satisfied by each allegation
included in a complaint. However, like the Eleventh Circuit, we
believe that "some of this information for at least some of the
16
In the FCA context, the concept of "place" holds less
relevance for allegations about fraudulent bills or other claims
allegedly submitted to the government. It remains an important
detail in pleadings concerning the underlying tests, schemes, or
other conduct that is linked to the submission of false claims.
-24-
claims must be pleaded in order to satisfy Rule 9(b)." Clausen,
290 F.3d at 1312 n.21.17
In describing at considerable length the defendants'
sixteen schemes to defraud the government, the complaint alleges
that the defendants submitted false claims to the federal
government, including cost reports that were falsely certified as
complete, true, and correct. It states that the defendants
wrongfully billed Medicare and Medicaid, and refers generally to
false confirming orders and progress notes. However, the complaint
never specifies the dates or content of any particular false or
fraudulent claim allegedly submitted for reimbursement by Medicare
or Medicaid. It provides no identification numbers or amounts
charged in individual claims for specific tests, supplies, or
17
In a related context, we held that courts will allow private
securities fraud cases "to advance past the pleadings stage when
some questions remain unanswered, provided the complaint as a whole
is sufficiently particular to pass muster under the PSLRA."
Cabletron, 311 F.3d at 32; see Greebel v. FTP Software, Inc., 194
F.3d 185, 193 (1st Cir. 1999)(stating that the pleading
requirements of the Private Securities Litigation Reform Act
(PSLRA) "embody in the act itself at least the standards of Rule
9(b)"). We found that Cabletron's complaint satisfied the PSLRA's
particularity requirements because "the fraud allegations advanced
in [the] complaint, with their consistent details provided from at
least half a dozen different sources across various alleged
schemes, reinforce each other and suggest reliability of the
information reported." Cabletron, 311 F.3d at 33. By contrast, as
we discuss below, Karvelas's complaint does not allege the
particulars of any of his allegations concerning the presentation
of false claims to the government, and therefore, considered as a
whole, the complaint does not meet the particularity requirements
of 9(b). See Greebel, 194 F.3d at 204 (finding that the absence of
any of a number of enumerated "basic details" describing alleged
PSLRA violations was "indicative of the excessive generality of
these allegations").
-25-
services. It does not identify or describe the individuals
involved in the improper billing or allege with particularity any
certification of compliance with federal regulations in order to
obtain payments. As Karvelas himself concedes in his brief to this
court, his complaint "did not set forth the specifics . . . of any
one single cost report, or bill, or piece of paper that was sent to
the Government to obtain funding." Nor does the complaint provide
the source of information and factual basis for his conclusory
allegations that the defendants submitted actual false or
fraudulent claims to the government.
For example, in describing Scheme A, Karvelas alleges
that the defendants "knowingly filed improper claims in that they
presented claims for medical items or service that they knew were
not provided as claimed" and "filed claims that were based on codes
that the defendants knew would result in greater payments than what
an appropriate code would have provided." Karvelas further claims
that "staffing numbers in the Medicaid and Medicare filings were
make believe throughout the entire hospital." However, the
complaint does not specify the individuals who filed these claims,
the dates on which any such claims were filed, the nature and
content of any documents submitted, or the amount claimed from the
government based on the particular medical items and services that
were allegedly improperly provided or on the "make believe"
staffing levels.
-26-
The complaint alleges in Scheme A that "from 1994 to 1997
the Hospital was certifying 12 respiratory therapists when in
reality the hospital had only 7 full time respiratory therapists,"
yet it provides no details concerning the particular dates and
content of the alleged certification, nor, assuming that the
allegation was based on information and belief, does it set forth
the source of that information or the facts on which the belief was
founded. Karvelas also alludes to various documents, referring to
false "Respiratory Therapist time schedules for 1994 into 1997" and
"documents signed under the penalty of perjury and false statement
submitted to the United States Government [that] certified that
there were 11.8 Respiratory Therapists during this period of time."
However, he provides no particular details about the nature of
these documents or the circumstances of their submission to the
United States government.
With somewhat more specificity, Karvelas alleges in his
discussion of Scheme B that the blood gas laboratory "performed
approximately 21,000 arterial blood gas tests (ABG's) in the three
year period beginning in June, 1994 through April, 1997 at $50.00
per test." However, while he states that the Hospital "billed
Medicare and Medicaid for the costs of the testing on a large
percentage of these patients with each bill certified to Medicare
or Medicaid that the ABG laboratory had in fact complied with the
CAP and CLIA standards," Karvelas does not specify which of the
-27-
21,000 tests were billed to the government, supply any details
about the particular bills and certifications submitted, or provide
a factual basis for his allegation that the defendants falsely
certified compliance with federal standards in order to secure
Medicare or Medicaid benefits. This lack of particularity
characterizes all of Karvelas's allegations concerning the
submission of false claims to the federal government.18
In summary, Karvelas alleges serious violations by the
defendants of federal standards governing the provision of patient
care. However, alleged violations of federal regulations are
insufficient to support a claim under the FCA. See United States
ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996)
("Violations of laws, rules, or regulations alone do not create a
cause of action under the FCA."); Clausen, 290 F.3d at 1311 ("[I]f
Rule 9(b) is to be adhered to, some indicia of reliability must be
given in the complaint to support the allegation of an actual false
claim for payment being made to the Government.") (emphasis in the
18
Indeed, with one exception, Karvelas's complaint does not
specify which of the particular violations of patient care
standards that Karvelas witnessed involved Medicare or Medicaid
patients. That exception involves the allegation that hospital
administrators instructed him and others to falsify test results so
that a trustee/patient of the hospital would qualify for Medicare
payment for home oxygen. He further states that on January 26,
1997, the trustee/patient admitted to him that the results of the
test were falsified. However, while this allegation provides
specific details about the purported fraudulent activity, it does
not identify or describe the false claims that were allegedly
submitted to Medicare in connection with the trustee's treatment.
-28-
original). While Karvelas does describe the procedures allegedly
used by the hospital to submit false claims to the United States,
the alleged existence of such procedures does not permit us to
speculate that false claims were in fact submitted. See, e.g.
United States ex rel. Walsh v. Eastman Kodak Co., 98 F. Supp. 2d
141, 147-48 (D. Mass. 2000) (dismissing complaint under Rule 9(b)
where relator set out a methodology by which the defendants might
have produced false claims without citing an actual false claim).
As the district court correctly concluded, Karvelas's failure to
identify with particularity any actual false claims that the
defendants submitted to the government is, ultimately, fatal to his
complaint.19
D. Retaliation Claim
Karvelas argues that the district court improperly
dismissed Count IV of his complaint for failure to state a claim of
retaliation under 31 U.S.C. § 3720(h).20 Congress added 31 U.S.C.
19
Because we conclude that Karvelas has not stated with
specificity allegations of actual false claims submitted to the
government, we need not consider the adequacy of his pleadings
concerning the defendants' alleged "schemes" or failure to comply
with patient care standards.
20
The defendants urged the district court to reject Karvelas's
retaliation claim on res judicata grounds because the court had
previously dismissed a similar claim filed by Karvelas against the
defendants for failure to state a claim upon which relief could be
granted. See Karvelas v. Melrose-Wakefield Hospital, Civ. No. 00-
10991 (D. Mass. May 5, 2000). Although it acknowledged that there
is circuit authority for the proposition that a Rule 12(b)(6)
dismissal has res judicata effect, the court declined to dismiss
the case on that ground because its order of dismissal in the
-29-
§ 3730(h) to the False Claims Act in 1986 to protect employees who
pursue, investigate, or contribute to an action exposing fraud
against the government. This section provides:
Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner
discriminated against in the terms and conditions of
employment by his or her employer because of lawful acts
done by the employee on behalf of the employee or others
in furtherance of an action under this section, including
investigation for, initiation of, testimony for, or
assistance in an action filed or to be filed under this
section, shall be entitled to all relief necessary to
make the employee whole. . . .
31 U.S.C. § 3730(h). To prevail on a False Claims Act retaliation
claim, a plaintiff must show that 1) the employee's conduct was
protected under the FCA; 2) the employer knew that the employee was
engaged in such conduct; and 3) the employer discharged or
discriminated against the employee because of his or her protected
conduct. See, e.g, McKenzie v. BellSouth Telecomm., Inc., 219 F.3d
508, 514 (6th Cir. 2000); United States ex rel. Yesudian v. Howard
Univ., 153 F.3d 731, 736 (D.C. Cir. 1998). Once the employee has
established a prima facie case of retaliation, the burden shifts to
the employer to prove that the employee would have been terminated
or subjected to other adverse action even if he or she had not
engaged in the protected conduct. Hutchins v. Wilentz, Goldman &
Spitzer, 253 F.3d 176, 186 (3d Cir. 2001), cert. denied, 536 U.S.
earlier case, entered without prejudice, had "noted that
plaintiff's False Claims Act litigation was in its early states."
-30-
906 (2002); Yesudian, 153 F.3d at 736 n.4 (quoting S. Rep. No. 99-
345, at 34, reprinted in 1986 U.S.C.C.A.N. at 5300).
In the instant case, the district court determined that
Karvelas's complaint did not allege facts sufficient to support the
second element of his FCA retaliation claim (the employer's
knowledge that he was engaging in protected conduct). On appeal,
Karvelas argues that the district court erred in dismissing his
retaliation claim because his complaint is "replete with
allegations that at every stage Karvelas witnessed activities that
could lead to False Claims Act allegations, that he reported these
activities, and that he was threatened and finally terminated for
doing so." For the reasons set forth below, we affirm the decision
of the district court, although on somewhat different grounds.21
In order to satisfy the first element of a cause of
action under 31 U.S.C. § 3730(h), a plaintiff must demonstrate that
he or she engaged in activity protected under the FCA. This
element of a retaliation claim does not require the plaintiff to
21
In his complaint, Karvelas states that "throughout [his]
employment at Melrose-Wakefield, he complained to management about
deficiencies in the care and about the activities hereinbefore
related within his department and throughout the Hospital." He
explains in his opposition to the defendants' motion to dismiss
that the phrase, "hereinbefore related," includes every allegation
pled in the prior paragraphs of his complaint. We agree with the
district court that "it is not sufficient to plead in this
paragraph that '[Karvelas] complained to management about' each
activity pled in the previous 458 paragraphs" and, like the
district court, we consider only those allegations that concern
Karvelas's interactions and communications with his employers and
activities that were the subject of those communications.
-31-
have filed an FCA lawsuit or to have developed a winning claim at
the time of the alleged retaliation. See Yesudian, 153 F.3d at
741. Rather, an employee's conduct is protected where it involves
"acts done . . . in furtherance of" an FCA action. 31 U.S.C. §
3730(h). The statute's legislative history states that "protection
should extend not only to actual qui tam litigants, but those who
assist or testify for the litigant, as well as those who assist the
Government in bringing a false claims action. Protected activity
should therefore be interpreted broadly." S. Rep. No. 99-345, at
34, reprinted in U.S.C.C.A.N. at 5299.
Courts have adopted various standards for determining
whether conduct is "in furtherance" of an action under the FCA.
Some have said that a "plaintiff must be investigating matters
which are calculated, or reasonably could lead, to a viable FCA
action." Hopper, 91 F.3d at 1269; see Yesudian, 153 F.3d at 740.
Some have found that activity is protected under § 3730(h) where
litigation was "a distinct possibility" at the time that the
employee made his or her disclosures to the employer. See, e.g.,
Childree v. UAP/GA AG Chem., Inc., 92 F.3d 1140, 1146 (11th Cir.
1996); Neal v. Honeywell, Inc., 33 F.3d 860, 864 (7th Cir. 1994).
Two circuits have drawn on Title VII's anti-retaliation provision,
requiring the fact finder to determine that the plaintiff had a
good faith and objectively reasonable belief that the defendant was
committing fraud against the government. Wilkins v. St. Louis
-32-
Hous. Auth., 314 F.3d 927, 933 (8th Cir. 2002); Moore v. Cal. Inst.
of Tech. Jet Propulsion Lab., 275 F.3d 838, 845 (9th Cir. 2002).
Although there is no particular magic in the word choice, we follow
the approach of the Fifth Circuit and interpret "conduct in
furtherance of an action under the FCA" as conduct that reasonably
could lead to a viable FCA action. We think this standard is most
consistent with the broad interpretation for protected activity
under § 3730(h) urged by the legislative history, and we apply it
here.
Karvelas argues that his complaint includes numerous
"allegations to show that [he] witnessed and reported problems that
could reasonably lead to False Claim Act cases." For example, he
argues that he alleged engagement in protected activity when he
claimed that:
While still an employee of the Hospital, [he] pointed out
to his superiors all the way up to the president, the
inadequate staffing, inconsistent administration of
treatment orders, the absence of blood gas quality
control, and inappropriate documentation in the
administration of care and treatment of patients
throughout the Hospital, as well as the failure to meet
regulatory standards which are required for reimbursement
by Medicare and Medicaid.
We do not agree with Karvelas that such activities constitute
protected activity. It is true that Karvelas need not have known
that his actions could lead to a qui tam suit under the FCA, or
even that a False Claims Act existed, in order to demonstrate that
he engaged in protected conduct. See Yesudian, 153 F.3d at 741
-33-
(holding that "even an investigation conducted without
contemplation – or knowledge of the legal possibility of – a False
Claims Act suit can end up being 'in furtherance' of such an
action"). However, conduct protected by the FCA is limited to
activities that "reasonably could lead" to an FCA action; in other
words, investigations, inquiries, testimonies or other activities
that concern the employer's knowing submission of false or
fraudulent claims for payment to the government. See id. at 740.
Karvelas's statement that he reported his supervisors' destruction
of incident reports of medical errors suggests a cover-up of
regulatory failures but does not allege investigation or reporting
of false or fraudulent claims knowingly submitted to the
government. Although "[c]orrecting regulatory problems may be a
laudable goal," it is "not actionable under the FCA in the absence
of actual fraudulent conduct." Hopper, 91 F.3d at 1269; see
McKenzie, 219 F.3d at 516 (noting that while internal reporting may
be protected activity under the FCA, "the internal reports must
allege fraud on the government"). Similarly, nearly all of
Karvelas's statements concerning his alleged activities, the
defendants' alleged knowledge of those activities, and the
defendants' alleged retaliation against Karvelas for those
activities suggest that Karvelas witnessed and reported problems
concerning the hospital's alleged failure to comply with patient
-34-
care standards. Such conduct, without more, does not constitute
protected conduct under the FCA.22
At two points in his complaint, however, Karvelas does suggest
that he investigated and reported to his employer problems with
improper billing. First, he states:
112. The Relator John C. Karvelas also complained
about directives from his immediate supervisor to
complete patient evaluations even if the patients had
been discharged or had died. These evaluations were
billed at $150.00 each, which included inpatient and
outpatient, and which were not reimbursable items, but
yet were billed to Medicare and Medicaid. Mr. Karvelas'
supervisor in the Respiratory Therapy department, Anthony
Dichiara, threatened Respiratory Therapists with
retaliation if they failed to participate in this illegal
activity.
He later claims that:
174. Medicare requires accurate reporting of
financial information on cost reports and credit
balances. 42 C.F.R. § 413.20. And under 42 U.S.C. §
1320a-7a(a)(1)(A) the defendants knowingly filed improper
claims in that they presented claims for medical items or
service that they knew were not provided as claimed.
Under 42 U.S.C. § 1320a-7a(a)(1)(A) the defendant
Hospital filed claims that were based on codes that the
defendant knew would result in greater payments than what
an appropriate code would have provided.
175. The Hospital acknowledged that it knew of the
problem when Relator John C. Karvelas reported it
22
Where an employee has not engaged in conduct protected under
the FCA, he cannot meet the second and third elements of an FCA
retaliation claim, as those depend upon the first. See, e.g.,
Yesudian, 153 F.3d at 743 (explaining that "grumbling to the
employer about job dissatisfaction or regulatory violations" does
not demonstrate that the plaintiff's employer was aware of the
protected activity, "just as it does not constitute protected
activity in the first place").
-35-
internally, but still the Hospital failed to take
corrective action.
Although too vague to meet the Rule 9(b) pleading standards for a
qui tam action,23 these paragraphs allege that Karvelas was
investigating and reporting the hospital's fraudulent billing
practices rather than merely its noncompliance with state or
federal regulations.24 The district court, however, found that
these particular allegations failed to state an FCA retaliation
claim because "the fact that [Karvelas] reported these problems
does not mean that he gave notice to his employer that he was
conducting an investigation of the hospital's billing practices as
a precursor to a False Claims Act proceeding." We disagree with
this analysis.25
23
A retaliation claim under 31 U.S.C. § 3730(h) does not
require a showing of fraud and therefore need not meet the
heightened pleading requirements of Rule 9(b). See, e.g., United
States ex rel. Barrett v. Columbia/HCA Health Care Corp., 251 F.
Supp. 2d 28, 38 (D.D.C. 2003) ("While [plaintiffs'] complaint
inartfully and inadequately pleads the FCA causes of action . . .,
that does not dictate a 12(b)(6) dismissal of the retaliation
discharge based on the well-pleaded facts underlying those causes
of action.").
24
As we are required to make all reasonable inferences in
favor of the plaintiff in considering a 12(b)(6) motion, we
construe paragraph 112 to allege that Karvelas complained about the
fraudulent billing of unnecessary patient evaluations as well as
about the evaluations themselves.
25
We do not read the language of the district court to suggest
that Karvelas was required to notify the Hospital that his
investigation was in fact a "precursor to" an FCA case. For the
reasons we explain, such a holding would be incorrect as a matter
of law. As the district court itself recognized, a "defendant need
-36-
To meet the knowledge element of an FCA retaliation claim,
"the whistleblower must show the employer had knowledge the
employee engaged in 'protected activity.'" S. Rep. No. 99-345,
reprinted in 1986 U.S.C.C.A.N. at 5300. In other words, the
employer must be on notice that the employee is engaged in conduct
that "reasonably could lead to a False Claims Act case." Yesudian,
153 F.3d at 742. However, just as the plaintiff is not required to
know that his investigation reasonably could lead specifically to
a False Claims Act action, the employer need not know that the
employee has filed or plans to file a qui tam action, nor even
necessarily be aware of the existence of the FCA. See Yesudian, 153
F.3d at 742. Instead, "the kind of knowledge the defendant must
have mirrors the kind of activity in which the plaintiff must be
engaged." Id. (explaining that "[a] plaintiff who need not even
have heard of the FCA can hardly be required to inform his
supervisor that he 'intend[s] to utilize his allegations in
furtherance of' an action under that Act."). What the employer
must know is that the plaintiff is engaged in protected conduct,
that is, investigation or other activity concerning false of
not know, or be advised, that [the false or fraudulent claims
investigated by the employee] would violate the False Claims Act
itself." Yesudian, 153 F.3d at 742.
-37-
fraudulent claims that the employer knowingly presented to the
federal government. See, e.g., id. 742; Hopper, 91 F.3d at 1269.26
Thus, to satisfy the knowledge element of § 3730(h), Karvelas
must show that the defendants knew that he was investigating the
Hospital's knowing presentation of false or fraudulent claims for
payment to the government. Karvelas alleged, in paragraph 112 of
his complaint, that he reported the hospital's knowing
falsification of evaluations of dead or discharged patients and its
illegal billing to Medicare and Medicaid for those evaluations. In
paragraph 174, he stated that he reported internally that hospital
officials "knowingly filed improper claims in that they presented
claims for medical treatments they knew were not provided as
claimed." Taking these allegations as true, it appears that
Karvelas notified his employers about the results of his
26
Some courts have held that employees who investigate
government billings or payments as part of their job duties must
"make it clear that the employee's actions go beyond the assigned
task" in order to demonstrate that they were engaged in protected
conduct and their employers were on notice of that conduct. United
States ex rel. Eberhardt v. Integ. Design & Constr., Inc., 167 F.3d
861, 868 (4th Cir. 1999); Brandon v. Anesthesia & Pain Mgmt.
Assoc., 277 F.3d 936, 945 (7th Cir. 2002) (stating that where
plaintiff's job responsibilities included ensuring that hospital
billing practices complied with Medicare regulations, "the fact
that Brandon was alerting his supervisors to the possibility of
their non-compliance with the rules would not necessarily put them
on notice that he was planning to take a far more aggressive step
and bring a qui tam action against them or report their conduct to
the government"). Because Karvelas's job duties did not involve
investigating government payments or billings, he need not meet the
heightened requirements for employees whose job descriptions do
include such responsibilities in order to establish a § 3730(h)
retaliation claim.
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investigation concerning false claims for payment that the hospital
knowingly submitted to the government. These representations did
not simply report noncompliance with federal regulations, see
Hopper, 91 F.3d at 1269, or complain of improper billing in
accordance with Karvelas's job responsibilities, see Eberhardt, 167
F.3d at 867-68.27 By notifying his employers about fraudulent
claims for payment that the Hospital knowingly submitted to the
government, Karvelas provided notice of protected conduct under the
FCA. Therefore, we find that Karvelas has alleged facts sufficient
to support an inference that he engaged in protected conduct under
the FCA and that the defendants were put on notice of that conduct.
See Carroll, 294 F.3d at 241 (explaining that a complaint will
withstand a 12(b)(6) motion to dismiss if it "alleges facts
sufficient to make out a cognizable claim").
However, in order to state a claim for retaliation, Karvelas
must also allege that he was terminated because of his protected
conduct. See S. Rep. No. 99-345, at 35, reprinted in 1986
U.S.C.C.A.N. at 5300 (stating that the employee must show that "the
retaliation was motivated, at least in part, by the employee's
engaging in protected activity"). At the end of his complaint,
27
Moreover, Karvelas alleges that he told his employers about
the submission of claims that were in fact fraudulent, in contrast
to the claims reported by the employee in Luckey v. Baxter, 183
F.3d 730, 732 (7th Cir. 1999)(noting that "only in Humpty Dumpty's
world of word games would anyone apply the label 'fraud' to the
kind of representations Baxter made"). Therefore, we disagree with
the district court that Luckey is controlling here.
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Karvelas states generally the appropriate elements of a retaliation
cause of action, claiming that the defendants retaliated against
him because of his investigation of the hospital's FCA violations.28
However, his complaint fails to allege facts sufficient to support
this third element of his retaliation claim.
As we have observed, under the "notice" pleading standard of
Federal Rule of Civil Procedure 8(a), a complaint should include "a
short and plain statement of the claim showing that the pleader is
entitled to relief," Fed. R. Civ. P. 8(a), and therefore need not
include detailed pleading of the facts. However, while a complaint
"need not include evidentiary detail," it must nonetheless "allege
a factual predicate concrete enough to warrant further
proceedings." DM Research, Inc. v. College of Am. Pathologists,
170 F.3d 53, 55 (1st Cir. 1999)(noting that "[c]onclusory
allegations in a complaint, if they stand alone, are a danger sign
that the plaintiff is engaged in a fishing expedition"). Thus,
even under the liberal pleading requirements of Rule 8(a), a
28
The complaint states that "Defendant Melrose-Wakefield
discharged John Karvelas in retaliation for his investigation of
the defendants' violations of its Government contracts under
Medicaid and Medicare and its False Claims Act violations."
Applying the language of § 3730(h), it further claims that "Relator
John Karvelas was discriminated against in his termination by
Defendant Melrose-Wakefield Hospital by and through its officers,
agents, and employees, because of lawful acts done by him in the
furtherance of an action under the False Claims Act, including his
participation in the investigation of an action under the False
Claims Act and his reporting to the United States Government the
fraudulent actions of the defendants."
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plaintiff must "set forth factual allegations, either direct or
inferential, respecting each material element necessary to sustain
recovery under some actionable legal theory." Gooley v. Mobil Oil
Corp., 851 F.2d 513, 514 (1st Cir. 1988). Simply parroting the
language of a statutory cause of action, without providing some
factual support, is not sufficient to state a claim. See Arruda,
310 F.3d at 18 (affirming that we do not credit claims made in a
complaint if they are "bald assertions" or "unsupportable
conclusions.").
In his complaint, Karvelas alleges that his supervisor
retaliated against him by falsely accusing him of improper conduct
because he had told her boss about unsafe conditions and the lack
of a back-up support system in the Respiratory Therapy Department.
He further states that he was fired after returning from a meeting
with senior management of the hospital, at which he reported
"defective ABG testing run on a fetus" by another respiratory
therapist. Karvelas "told his manager, Ms. Hyland-Miller, what he
had done" and informed her about "the data he had collected, his
visits with Drs. Sen and Lilly, and the failure of the Hospital to
meet patient-care standards." He was fired on the spot. According
to the complaint, Karvelas was subsequently informed by letter that
he had been discharged because of "inappropriate behavior,"
including reporting "alleged unsafe conditions at the Hospital" to
a member of a state senator's staff. However, as noted,
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investigations of allegedly unsafe conditions or noncompliance with
patient care standards do not constitute protected conduct under
the FCA. Nowhere in his complaint does Karvelas allege a factual
predicate concrete enough to support his conclusory statement that
he was retaliated against because of conduct protected under the
FCA. Therefore, we conclude that the district court properly
dismissed Count IV of Karvelas's complaint for failure to state a
claim of retaliation under 31 U.S.C. § 3730(h).
E. Dismissal with Prejudice and Without Leave to Amend
Karvelas argues that even if his complaint failed to meet the
pleading obligations of the Federal Rules of Civil Procedure, the
district court nonetheless erred when it dismissed his case with
prejudice and without affording him an opportunity to amend his
complaint. We disagree.
First, we reject Karvelas's argument that "a ruling on a
12(b)(6) motion is not a ruling on the merits; [but rather] only a
non-merits ruling on the propriety of the pleadings." It is well
settled in this circuit that dismissal for failure to state a claim
pursuant to Fed. R. Civ. P. 12(b)(6) is a final decision on the
merits. Acevedo-Villalobos v. Hernandez, 22 F.3d 384, 388 (1st
Cir. 1994). As we have explained, "the dismissal of the complaint
fits comfortably under the Supreme Court's definition of a 'final
decision' . . . as one that 'ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.'" Id.
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(quoting Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 373-
74 (1981)). Moreover, in the absence of a clear statement to the
contrary, a dismissal pursuant to Fed. R. Civ. P. 12(b)(6) is
presumed to be with prejudice. See Andrews-Clarke v. Lucent Tech.,
Inc., 157 F. Supp. 2d 93, 99 (D. Mass 2001)("A dismissal for
failure to state a claim is a dismissal on the merits . . . . This
type of dismissal, presumed to be with prejudice unless the order
explicitly states otherwise, has a claim preclusive effect."); c.f.
Mirpuri v. ACT Mfg., Inc., 212 F.3d 624, 628 (1st Cir. 2000)("In
this circuit, the phrase 'without prejudice,' when attached to a
dismissal order, is . . . to be read . . . as a signification that
the judgment does not preclude a subsequent lawsuit on the same
cause of action either in the rendering court or in some other
forum."). Thus, in dismissing with prejudice Karvelas's complaint
under Rule 12(b)(6), the district court did not depart from
established precedent but simply stated explicitly what in any
event would have been presumed.
Similarly, the district court did not err by failing to invite
Karvelas to amend his complaint prior to dismissing the case with
prejudice. Although the denial of a motion to amend is reviewed
only for abuse of discretion, "district courts do not customarily
aim to defeat valid claims." Eastern Food Servs. v. Pontifical
Catholic Univ. Servs. Assoc., Inc., No. 02-2391, at 14-15 (1st Cir.
Jan. 20, 2004). Some courts have, in their discretion, allowed
-43-
relators to amend FCA complaints to cure a lack of particularity.
See, e.g., United States ex rel. McCoy v. Calif. Med. Rev., Inc.,
723 F. Supp. 1363, 1366 (N.D. Cal. 1989).
In this case, however, Karvelas never filed a motion to amend
pursuant to Fed. R. Civ. P. 15(a), which provides for amendments as
of right in the absence of a responsive pleading.29 Therefore, the
only issue before us is whether the district court erred in failing
sua sponte to provide Karvelas an opportunity to amend before
dismissing his complaint with prejudice.30 Absent exceptional
29
A motion to dismiss is not considered a responsive pleading.
See Leonard v. Parry, 219 F.3d 25, 30 (1st Cir. 2000).
30
The defendants argue that because Karvelas never moved for
leave to amend, the issue of whether the district court erred by
denying such a request is not before this court. We agree. See
Dartmouth Rev. v. Dartmouth College, 889 F.2d 13, 23 (1st Cir.
1989)(holding that "the question of whether it might have been
error for the court to have denied leave to amend is not before us,
because plaintiffs never requested it")(quotation marks omitted).
However, Karvelas does not argue that the district court erred in
denying a request to amend, but rather that it erred by failing sua
sponte to provide Karvelas an opportunity to amend, or notice that
his pleadings were deficient, before dismissing the case with
prejudice. This question is properly before us. Moreover, we do
not agree with the defendants that Karvelas waived this argument
because he did not seek amendment after the dismissal by moving for
reconsideration or relief from the judgment. A dismissal with
prejudice is a final judgment that "slam[s] the door shut on the
possibility of future amendments to the complaint" unless the
judgment is set aside or vacated pursuant to Rule 59 or Rule 60.
Mirpuri v. ACT Mfg., Inc., 212 F.3d 624, 629 (1st Cir. 2000).
Motions for post-judgment relief and direct appeal thus provide two
separate avenues through which a plaintiff may challenge the
dismissal of a complaint with prejudice and without leave to amend.
See Acevedo-Villalobos, 22 F.3d at 389 ("Where, as here, a
complaint is dismissed without leave to amend, the plaintiff can
appeal the judgment or, alternatively, seek leave to amend under
Rule 15(a) after having the judgment reopened under either Rule 59
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circumstances, a district court has no obligation to invite a
plaintiff to amend his or her complaint when the plaintiff has not
sought such amendment. See Emerito Estrada Rivera-Isuzu de P.R.
Inc. v. Consumers Union, 233 F.3d 24, 30 (1st Cir. 2000) (holding
that district court did not commit error by "failing to invite
Emerito to replead" where "despite its awareness that [the
defendant] had called for dismissal [for failure to state a claim
based on deficient pleadings], Emerito never amended its complaint
as of right . . . nor did it formally ask the district court after
judgment to permit such an amendment")(emphasis in the original);
see also Wagner v. Daewoo Heavy Indus. Am. Corp., 314 F.3d 541,
542 (11th Cir. 2002)("A district court is not required to grant a
plaintiff leave to amend his complaint sua sponte when the
plaintiff, who is represented by counsel, never filed a motion to
amend nor requested leave to amend before the district court.").
In this case, Karvelas chose not to file a motion to amend his
complaint at any stage of the litigation. Instead, he stood upon
his 93-page complaint, even after the defendants filed a 12(b)(6)
motion to dismiss that focused on deficiencies in the pleadings.31
Indeed, the district court had already afforded Karvelas a generous
opportunity to sharpen his pleadings when it did not dismiss with
or 60.").
31
As the defendants point out, the government's decision not
to intervene in the action also suggested that Karvelas's pleadings
of fraud were potentially inadequate.
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prejudice the plaintiff's first FCA retaliation complaint against
the defendants. Under these circumstances, the district court did
not err by failing sua sponte to provide Karvelas an opportunity to
amend his complaint before dismissing the case with prejudice.32
III.
Karvelas filed in the district court a 93-page complaint
alleging that the defendants violated the False Claims Act and
describing sixteen fraudulent "schemes" in which they allegedly
participated. The complaint includes some detail about the nature
of these schemes and about the defendants' alleged failure to
comply with patient care standards. However, in the 93 pages of
this lengthy document, we find no allegation, pled with adequate
specificity, of a false claim for payment that was actually
presented to the government. See Clausen, 290 F.3d at 1312
(upholding dismissal of FCA qui tam complaint where "nowhere in the
blur of facts and documents assembled by [the relator] regarding
six alleged testing schemes [could] one find any allegation, stated
32
We conclude that the district court did not err in failing
sua sponte to provide Karvelas an opportunity to amend without
referring to a specific standard of review. We do that because,
frankly, our cases seem inconsistent in their choice of the
standard of review applicable to such cases, reviewing for abuse of
discretion, see Romani, 929 F.2d at 878; plain error, see Emerito,
233 F.3d at 30; and the interest of justice, see Dartmouth Rev.
889 F.2d at 23. We need not resolve this issue here. Under any
standard of review, the district court did not err in dismissing
Karvelas's complaint with prejudice and without granting leave to
amend.
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with particularity, of a false claim actually being submitted to
the Government"). The law is clear that the False Claims Act
attaches liability to the submission of false claims for payment,
not to the underlying fraudulent activity or other wrongful conduct
on which those claims were based. See Rivera, 55 F.3d at 709. The
district court correctly recognized this difference when it
dismissed Karvelas's complaint.
Affirmed.
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United States Ex Rel. Karvelas v. Melrose-Wakefield Hospital
Court: Court of Appeals for the First Circuit
Date filed: 2004-02-23
Citations: 360 F.3d 220
Copy CitationsCombined Opinion