In the
United States Court of Appeals
For the Seventh Circuit
No. 06-1619
U NITED S TATES OF A MERICA on the relation of
Christine Chovanec,
Plaintiff-Appellant,
v.
A PRIA H EALTHCARE G ROUP INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 4543—Charles P. Kocoras, Judge.
A RGUED D ECEMBER 4, 2006—D ECIDED M AY 19, 2010
Before E ASTERBROOK, Chief Judge, and C UDAHY and
S YKES, Circuit Judges.
E ASTERBROOK, Chief Judge. The district court dismissed
this qui tam action under 31 U.S.C. §3730(b)(5), which
provides: “When a person brings an action under this
subsection, no person other than the Government may
intervene or bring a related action based on the facts
underlying the pending action.” The complaint accuses
2 No. 06-1619
Apria Healthcare of fraudulently billing the Medicare
and Medicaid programs for medical devices (such as
oxygen tanks) and related services that were unnecessary
or should have been recorded under less expensive reim-
bursement codes. According to the complaint, the fraud
took place at Apria’s office in Morton Grove, Illinois,
from 2002 through 2004. When Christine Chovanec filed
this suit, two other qui tam actions against Apria were
pending: United States ex rel. Costa v. Apria Healthcare
Group, Inc., filed in California in 1998, and United States
ex rel. Wickern v. Apria Healthcare Group, Inc., filed in
Kansas in 1999. Both Costa and Wickern charged Apria
with the same sort of inappropriate billing, often called
“miscoding” or “upcoding.” The district court deemed
Chovanec’s suit “related” to these suits because it too
alleged miscoding; differences in time and place are
irrelevant, the court stated.
Four days after the district court dismissed Chovanec’s
suit, the Costa and Wickern actions were settled under the
auspices of the Department of Justice, which had taken
over the litigation. (Perhaps this is why Wickern was not
itself dismissed under §3730(b)(5).) Apria agreed to pay
$17,600,000 on account of claims for reimbursement
submitted from June 1995 through December 31, 1998.
Chovanec then moved for reconsideration, arguing that
the settlement not only ended the prior actions that
blocked her suit but also established (through the time
limits of the settlement) that the three qui tam actions
do not overlap. The district court denied this motion,
and the effect of the settlement is our first order of busi-
ness.
No. 06-1619 3
Chovanec treats §3730(b)(5) as if it read something like:
“While another action under this section is pending, no
person other than the Government may continue to
prosecute a related action. . .”. Then §3730(b)(5) would do
nothing to block an infinite series of claims; me-too
actions could proliferate, provided only that the
copycat asked for a stay until the action ahead of it in the
queue had been resolved. That’s not at all what the
actual statute says, however. It provides that if one
person “brings an action” then no one other than the
Government may “bring a related action” while the first
is “pending”.
One “brings” an action by commencing suit. Many
statutes are of the form “do not bring an action un-
til. . .”, where the condition is exhausting administrative
remedies, negotiating, or waiting a specified time.
Statutes of this form are understood to forbid the com-
mencement of a suit; an action (or a given claim within a
larger action) “brought” while the condition precedent
is unsatisfied must be dismissed rather than left on ice.
See, e.g., Hallstrom v. Tillamook County, 493 U.S. 20 (1989);
McNeil v. United States, 508 U.S. 106 (1993); Jones v. Bock,
549 U.S. 199, 219–24 (2007). And United States ex rel. Lujan
v. Hughes Aircraft Co., 243 F.3d 1181, 1188 (9th Cir.
2001), applied this principle to §3730(b)(5), holding that
a follow-on suit must be dismissed if its predecessor is
still pending when the new one is filed.
Thus “a related action based on the facts underlying
the pending action” must be dismissed rather than
stayed. And if the action is related to and based on the
4 No. 06-1619
facts of an earlier suit, then it often cannot be refiled—for,
once the initial suit is resolved and a judgment entered
(on the merits or by settlement), the doctrine of claim
preclusion may block any later litigation. The plaintiff in
a qui tam action, after all, is the United States rather
than the relator; whether the United States wins or loses
in the initial action, that is the end of the dispute. Only
when the initial action concludes without prejudice (or
covers a different transaction) will a later suit—by the
original relator, a different relator, or the Department of
Justice—be permissible. See United States ex rel. Lusby v.
Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009); but see
United States ex rel. Campbell v. Redding Medical Center,
421 F.3d 817 (9th Cir. 2005) (if a freeloader is the first to
file and that action is doomed by the requirement that
the relator be the original source of the information, see
31 U.S.C. §3730(e)(4), then the real original source may
file a later suit without transgressing the limit set by
subsection (b)(5) once the first suit is no longer pending).
So is Chovanec’s claim “a related action based on the
facts underlying” the Costa and Wickern suits? The
actions are related in the sense that both allege that
Apria billed the federal government too much for
medical devices and services. They are distinct in the
sense that the first actions cover the period 1995–98,
while Chovanec’s claim covers the period 2002–04 and
concerns conduct at just one of Apria’s offices in Illinois.
Which scope of “related” is right—the broad reading or
the narrow one? That the settlement of the first-filed
actions covers only 1995–98 is a factor in favor of the
narrow reading, though not a sufficient one: §3730(b)(5)
No. 06-1619 5
refers to the “facts underlying the pending action” (that
is, to the complaint and potentially the record compiled
in the suit) rather than to the parties’ later choices.
Identification of a “related” action must depend on the
claim made in the initial suit and not the terms of the
settlement, for it is the suit rather than the settlement
that activates §3730(b)(5).
The disposition of a follow-on claim such as Chovanec’s
must come not from staring hard at the word “related”
but from its context—both linguistic and functional. The
full phrase describing the impermissible follow-on claim
is: “a related action based on the facts underlying the
pending action.” It is not enough that claims be related
in the loose sense that they arise out of the same
general kind of wrongdoing; they must also have facts
in common. Not identical facts; then a copycat claim
could pass muster if the relator added some details
missing from the initial complaint. As so often when a
statute contains a word such as “facts” and the ques-
tion arises “which facts,” courts supply the answer: “the
material facts” (or alternatively “the essential facts”). That
is what every court of appeals to consider this phrase
has done. See United States ex rel. Duxbury v. Ortho
Biotech Products, L.P., 579 F.3d 13, 32–34 (1st Cir. 2009);
United States ex rel. LaCorte v. SmithKline Beecham Clinical
Laboratories, Inc., 149 F.3d 227, 232–34 (3d Cir. 1998); United
States ex rel. Branch Consultants v. Allstate Insurance Co.,
560 F.3d 371, 377–80 (5th Cir. 2009); Walburn v. Lockheed
Martin Corp., 431 F.3d 966, 971 (6th Cir. 2005); United
States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d at
1187–89; United States ex rel. Grynberg v. Koch Gateway
6 No. 06-1619
Pipeline Co., 390 F.3d 1276, 1279–80 (10th Cir. 2004); United
States ex rel. Hampton v. Columbia/HCA Healthcare Corp.,
318 F.3d 214, 217–18 (D.C. Cir. 2003).
We agree with that conclusion. One can’t use an
identical-facts approach (or a definition modeled on the
same-facts version of claim preclusion that some states
employ); that would read “related” out of the statute.
But one also can’t say that “all similar frauds are re-
lated” without reading the same-facts language out of the
statute. In Einstein’s universe, everything is related to
everything else. A materiality rule accommodates both
parts of the statutory phrase—though at the expense of
posing the question what “material” means. It is a
protean term that requires further analysis.
The other circuits that have addressed this subject
understand the “material” or “essential” facts to be
those on which the original relator is entitled to com-
pensation if the suit prevails. There’s a good reason for
that view. Relators receive substantial awards for their
services in bringing fraud to light—as much as 30% of
the total to which the United States is entitled. See 31
U.S.C. §3730(d). The lure of this payoff is what induces
people to do the work to uncover fraud and to bear the
risk and expense of the litigation. Me-too suits designed
to divert some of the reward to latecomers do not serve
any useful purpose, and they weaken the incentive to
dig out the facts and launch the initial action. What’s
more, secondary suits that do no more than remind the
United States of what it has learned from the initial suit
deflect recoveries from the Treasury to rewards under
No. 06-1619 7
§3730(d). The False Claims Act offers private relators
bonanzas for valuable information. If a suit makes a
claim for compensation without revealing anything new,
then it is sensible to block it under §3730(b)(5) even if
the relator is an “original source” (a technical term eluci-
dated in Rockwell International Corp. v. United States, 549
U.S. 457 (2007)). The author of the fraud won’t escape
when the first suit (or the ensuing federal investigation)
tells the agency everything it needs to know, and the
full recovery will go to the Treasury, without an unneces-
sary diversion.
Chovanec did not propose to muscle in on the Costa
and Wickern relators or siphon off any portion of their
reward. Still, to understand whether the suits materially
overlap we must know whether the initial suits
alleged frauds by rogue personnel at scattered offices or
instead alleged a scheme orchestrated by Apria’s national
management. Allegations about a scam in California or
Kansas in the 1990s would not reveal to the United States
any risk of a scam in Illinois in 2003—beyond the
obvious fact that any medical provider can engage in
upcoding, and that sort of generic knowledge differs
from “the facts underlying the pending action.”
So what did the Costa or Wickern relators allege? The
United States, which defends the judgment dismissing
Chovanec’s suit, believes that they alleged a nationwide
scheme, which would indeed give the Medicare and
Medicaid systems enough knowledge to spark further
investigations without the goad of qui tam litigation or
the need to pay a private relator. We summarize here
some allegations that led the United States to this view.
8 No. 06-1619
Wickern’s complaint alleged that Apria modified its
computer system, which handles entries from all of its
offices, to reduce accountability of its employees,
including deleting the identification of the persons who
enter billing information into the system. This made it
possible for workers to engage in upcoding without
personal risk, implying that the national managers
wanted to encourage the practice. This inference
was fortified by an allegation that Apria’s national head-
quarters provided its customer service representatives
with “cheat sheets” of examples showing how the billing
records could be modified to reflect more or different
services (or more expensive devices) than physicians
had prescribed. The headquarters also allegedly told
representatives to use these cheat sheets rather than
the information provided by the physicians. What’s
more, the complaint alleges that Apria’s headquarters
pressured employees to bill the Medicare program with-
out proper documentation and coached physicians to
record their work in categories that could support
higher bills (or would qualify for some payment even
though the actual service was outside the list of com-
pensable procedures or devices). The Costa and Wickern
complaints couldn’t allege that any of this conduct
was certain to continue past their filing dates (1998 and
1999), but neither did either complaint allege that it
had stopped. Fraud in Illinois in 2002 thus is within the
scope of a national, continuing, scheme alleged in 1998
and 1999.
What can be said for the relator in this proceeding is
that the United States apparently did not conduct the
No. 06-1619 9
sort of follow-up investigation and prosecution that
would have prevented Apria’s office in Illinois from
conducting an upcoding scam in the early 2000s. The
United States does not contend that the allegations in
Costa and Wickern gave it actual notice of problems (on-
going or impending) in Illinois. If the United States was
going to remain in the dark indefinitely about what
was happening in Illinois during and after 2002, then
Chovanec supplied valuable information and is entitled
to compensation. (Here and elsewhere in the opinion
we indulge the assumption that Apria submitted false
claims. That’s the complaint’s allegation, which we
must accept for current purposes even though Apria
denies wrongdoing.)
Still, this does not carry the day for Chovanec—and for
the same reason that the time-limited settlement of Costa
and Wickern is not conclusive in her favor. Section
3730(b)(5) asks about what is related to the “facts under-
lying the pending action.” It does not make anything
turn on whether the United States puts those facts to
their best use. The allegations of the Costa and Wickern
suits are what they are, and as those complaints allege
an ongoing fraud orchestrated by Apria’s national staff,
the decision of any given office to participate in the
scheme is related to those allegations.
So although we read “related action based on the facts
underlying the pending action” to specify only the materi-
ally similar situations that objectively reasonable
readings of the original complaint, or investigations
launched in direct consequence of that complaint, would
10 No. 06-1619
have revealed, Chovanec’s complaint still falls within
§3730(b)(5).
The district court dismissed the complaint with preju-
dice. As we explained above, however, §3730(b)(5)
applies only while the initial complaint is “pending.” Costa
and Wickern are no longer pending (and weren’t pending
when the district court denied Chovanec’s motion for
reconsideration), so she is entitled to file a new qui tam
complaint—entitled, that is, as far as §3730(b)(5) goes.
Perhaps the allegations in Costa and Wickern (or other
sources) count as public disclosures that prevent follow-
on litigation by anyone other than an original source. 31
U.S.C. §3730(e)(4)(A). See Graham County Soil & Water
Conservation District v. United States ex rel. Wilson, 130 S. Ct.
1396 (2010). Or perhaps the disposition of Costa and
Wickern, coupled with the doctrines of claim and issue
preclusion, blocks anyone (including the United States)
from filing additional suits dealing with any upcoding
scheme that Apria orchestrated nationally. To avoid
preclusion, Chovanec might have to establish that events
in Illinois were entirely unrelated to the national scheme
of the 1990s, perhaps representing a recurrence (at the
behest of local managers) after the national fraud
had ended. If Chovanec could show that, the allegations
would avoid even §3730(b)(5).
Because Costa and Wickern were not pending when the
district court made its final decision—and because
Chovanec may be able to frame a new complaint that
would survive a motion to dismiss—the current pro-
ceeding should have been dismissed without prejudice.
No. 06-1619 11
We vacate the judgment of the district court and
remand with instructions to dismiss the complaint
without prejudice.
5-19-10