U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp.

• Citation: 360 F.3d 220
• Decision Date: 23 February 2004
• Docket Number: No. 03-1901.,03-1901.
• Parties: 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.
• Court: U.S. Court of Appeals — First Circuit

360 F.3d 220

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.

No. 03-1901.

United States Court of Appeals, First Circuit.

Heard November 3, 2003.

Decided February 23, 2004.

COPYRIGHT MATERIAL OMITTED

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.

Before LIPEZ, Circuit Judge, COFFIN, Senior Circuit Judge, and BARBADORO,^* District Judge.

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 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 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.

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, 120 S.Ct. 1858, 146 L.Ed.2d 836 (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 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 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, 123 S.Ct. 870, 154 L.Ed.2d 774 (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 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.

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...