U.S. ex rel. Grubbs v. Kanneganti

• Citation: 565 F.3d 180
• Decision Date: 08 April 2009
• Docket Number: No. 07-40963.,07-40963.
• Parties: UNITED STATES of America, ex rel. James H. GRUBBS, M.D., Plaintiff-Appellant, v. Ravikumar KANNEGANTI, M.D.; George E. Groves, M.D., Kashi S. Bagri, M.D.; Sharad B. Kulkarni, M.D.; Sriya DeSilva, M.D.; Baptist Hospitals of Southeast Texas, doing business as Memorial Hermann Baptist Beaumont Hospital; John Doe One; John Doe Two; John Doe Three; John Doe Four; John Doe Five; Sudheer Kaza, M.D.; and Rajen Desai, M.D., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

565 F.3d 180

UNITED STATES of America, ex rel. James H. GRUBBS, M.D., Plaintiff-Appellant, v. Ravikumar KANNEGANTI, M.D.; George E. Groves, M.D., Kashi S. Bagri, M.D.; Sharad B. Kulkarni, M.D.; Sriya DeSilva, M.D.; Baptist Hospitals of Southeast Texas, doing business as Memorial Hermann Baptist Beaumont Hospital; John Doe One; John Doe Two; John Doe Three; John Doe Four; John Doe Five; Sudheer Kaza, M.D.; and Rajen Desai, M.D., Defendants-Appellees.

No. 07-40963.

United States Court of Appeals, Fifth Circuit.

April 8, 2009.

Gary T. Cornwell (argued), The Cornwell Law Firm, Beaumont, TX, Howard Lynn Nations, Houston, TX, for Grubbs.

Paul Wayne Pickering, Fowler, Rodriguez & Chalos, Houston, TX, for Kanneganti.

James Rowland Old, Jr. (argued), Germer Gertz, Beaumont, TX, for Groves.

Mitchell A. Toups (argued), Weller, Green, Toups & Terrell, Beaumont, TX, for Bagri.

Alfred Markham Faggard, Beaumont, TX, for DeSilva.

David Eric Bernsen, Moore Landrey, LLP, Beaumont, TX, Ethan L. Shaw (argued), Moore Landrey, LLP, Austin, TX, for Baptist Hosp. of SE Tex.

Appeal from the United States District Court for the Eastern District of Texas.

Before KING, HIGGINBOTHAM, and WIENER, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This is an appeal from a 12(b)(6) dismissal of a qui tam action under the False Claims Act brought by Dr. Grubbs against his employer, Memorial Hermann Baptist Beaumont Hospital, five of the Hospital's psychiatric doctors, and two other doctors. The action alleges the Hospital and doctors billed Medicare and Medicaid for services not performed. The district court found that the complaint lacked sufficient detail regarding false bills actually presented to the Government and dismissed for failure to plead fraud with particularity as required by FED.R.CIV.P. 9(b).

I

The False Claims Act prohibits, in relevant part, 1) the presentment of a false claim to the Government, 2) the use of a false record or statement to get a false claim paid, and 3) conspiracies to get a false claim paid.¹ Liability for violation includes a liquidated civil penalty and damages, which need not be shown to state a claim but which if shown will be doubled and may be trebled.²

The Act is remedial, first passed at the behest of President Lincoln in 1863 to stem widespread fraud by private Union Army suppliers in Civil War defense contracts. It is "intended to protect the Treasury against the hungry and unscrupulous host that encompasses it on every side."³ To aid the rooting out of fraud, the Act provides for civil suits brought by both the Attorney General and by private persons, termed relators, who serve as a "posse of ad hoc deputies to uncover and prosecute frauds against the government."⁴ In qui tam⁵ suits brought by private persons on behalf of the Government the statute entitles the relator to between ten and thirty percent of any recovery made on behalf of the Government, depending on the extent of the relator's contribution to the action.⁶

II

According to Dr. Grubbs' qui tam complaint, Memorial Hermann Baptist Beaumont Hospital hired him in January 2004 to work as a psychiatrist. In February 2004, and before his first weekend on-call shift, the complaint alleges that two Defendants, Dr. Groves, the Chairman of the Medical Staff of the Hospital's Psychiatric Subsection, and Dr. Kanneganti, a psychiatrist at the Hospital, invited Dr. Grubbs to dinner at a Pappadeaux restaurant. Over dinner, the doctors allegedly divulged to him their fraudulent billing scheme and instructed him on how he was to contribute to the scheme. According to Dr. Grubbs' recitation of the conversation, the doctors instructed him that during weekend on-call shifts doctors meet with the nursing staff to get updates on current patients. The doctors then see the patients only "as needed" or when "something acute's going on," but bill every day as a regular "face-to-face" hospital visit.

Dr. Grubbs' complaint further alleges that over his on-call weekend, the nursing staff did indeed attempt to assist him in recording face-to-face physician visits that had not occurred and that were based solely on information obtained through nursing contacts with the patients. Appalled, Dr. Grubbs allegedly reported the practice to a hospital administrator the next day, who to Dr. Grubbs' further dismay, retorted: "You certainly figured that out quickly."

Fifteen months later, Grubbs filed suit as a qui tam relator alleging violations of the False Claims Act's presentment provision in § 3729(a)(1), the false record or statement provision in § 3729(a)(2), and the conspiracy provision in § 3729(a)(3). In addition to the described scheme, the complaint avers at least one overt act of false billing for each doctor, each similar to this paragraph:

Dr. Desai billed Medicaid for psychotherapy services on January 8, 2004, CPT Code #90805, which constituted a false claim in that the medical records indicate that no psychotherapy was provided by Desai on that date.

Time was given for the United States to intervene,⁷ but after it did not the district court unsealed the suit. Defendants then filed multiple separate motions to dismiss for failure to meet the pleading requirements of FED.R.CIV.P. 9(b).⁸ A magistrate judge recommended dismissal of all claims for failure to plead the circumstances of the alleged fraud with particularity. Dr. Grubbs filed objections to the report and a motion seeking leave to file a Third Amended Complaint, which he attached. The district court adopted the magistrate's report in full and dismissed with prejudice, denying Dr. Grubb's motion for leave to amend. Dr. Grubbs now appeals. We review the district court's grant of Defendants' motion to dismiss for failure to state a claim de novo.⁹

III

A

We have held, along with several of our sister circuits, that a complaint filed under the False Claims Act must meet the heightened pleading standard of Rule 9(b),¹⁰ which provides: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Rule 9(b) is an exception to Rule 8(a)'s simplified pleading that calls for a "short and plain statement of the claim." The particularity demanded by Rule 9(b) is supplemental to the Supreme Court's recent interpretation of Rule 8(a) requiring "enough facts [taken as true] to state a claim to relief that is plausible on its face."¹¹ The Twombly standard replaces the lenient and longstanding rule that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."¹² The new reading raises a hurdle in front of what courts had previously seen as a plaintiff's nigh immediate access to discovery—modest in its demands but wide in its scope.

In cases of fraud, Rule 9(b) has long played that screening function, standing as a gatekeeper to discovery, a tool to weed out meritless fraud claims sooner than later. We apply Rule 9(b) to fraud complaints with "bite" and "without apology,"¹³ but also aware that Rule 9(b) supplements but does not supplant Rule 8(a)'s notice pleading. Rule 9(b) does not "reflect a subscription to fact pleading"¹⁴ and requires only "simple, concise, and direct" allegations of the "circumstances constituting fraud," which after Twombly must make relief plausible, not merely conceivable, when taken as true.

Courts have attempted to clarify Rule 9(b) by articulating workable constructions. The frequently stated, judicially-created standard for a sufficient fraud complaint, the applicability of which to the False Claims Act we will consider later, instructs a plaintiff to plead "the time, place and contents of the false representation[], as well as the identity of the person making the misrepresentation and what that person obtained thereby."¹⁵

B

Several circuits have considered particularity challenges to False Claims Act complaints, focusing largely on the Act's presentment requirement. A frequently cited case, and the case primarily relied on by the district court here, is United States ex rel. Clausen v. Laboratory Corporation of America, Inc.¹⁶ In Clausen, the Eleventh Circuit affirmed the dismissal of a complaint in which a company outsider alleged a billing scheme, conveyed to him by a friend, and conclusively stated that the scheme resulted in the defendants submitting bills to the Government. The court stated that presentment of a false claim is the sin qua non of a False Claims Act violation without which "there is simply no actionable damage to the public fisc."¹⁷ Because of the provision's focus on presentment, it held that it is insufficient for a plaintiff "merely to describe a private scheme in detail" without offering "some indicia of reliability" that an actual false claim for payment was made to the Government.¹⁸ The Clausen court made plain its position that to plead a presentment claim, the minimum indicia of reliability required to satisfy the particularity standard are the specific contents of actually submitted claims, such as billing numbers, dates, and amounts.

At least two circuits have favorably cited the Eleventh Circuit's Clausen rule.¹⁹ The First Circuit considered a case in which a hospital employee alleged that the hospital was submitting Medicare claims for services that were provided improperly or not at all, but could not provide details on specific bills. The First Circuit upheld the dismissal because the complaint failed to meet this standard:

[A] relator must provide details that identify particular false claims for payment that were submitted to the government. 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...