In U.S. v. Genesis Global Healthcare, 2023 WL 3656925 (S.D. Ga. May 25, 2023), a Georgia district court denied three (3) Motions to Dismiss the Second Amended Complaint filed in a qui tam action brought by relators under the False Claims Act (the "FCA") and the Georgia False Medicaid Claims Act. The court, having previously held that the relators' First Amended Complaint amounted to an improper shotgun pleading, found that the Second Amended Complaint adequately remedied the court's concerns. The court's ruling reaffirms the pleading standards of claims brought under the FCA and serves as a guide for both courts and parties alike to the pleading requirements a complaint must satisfy to survive a motion to dismiss.
Generally, a complaint will survive a motion to dismiss if it states a plausible claim and allows a court to reasonably infer the defendant's liability for the allegations made therein. Merely reciting the elements of a cause of action followed by a general statement of liability is insufficient. Further, where a complaint alleges claims under the FCA, Rule 9(b) of the Federal Rules of Civil Procedure ("Rule 9(b)") applies and requires that the complaining party "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). As noted by the court, Rule 9(b) imposes a more exacting pleading standard and requires the complaint to allege facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of the defendant's allegedly fraudulent acts, when they occurred, and who engaged in them." (Citing Hopper v. Solvay Pharms., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009)).
The substance of the relators claims in Genesis Global allege that the defendants created a complex, fraudulent scheme whereby physician investors in a vascular surgery center joint venture received profit distributions and other payments in exchange for expensive and invasive vascular procedures in violation of the Anti-Kickback Statute (42 U.S.C. § 1320(a)-7(b)(2)(A) and the FCA. As part of this scheme, relators further allege that the defendants billed for "designated health services" at a location other than the location at which the services were rendered in a manner that violated the Stark Law's (42 U.S.C. § 1395nn) prohibition against self-referrals of "designated health services" and, in turn, the FCA.
Procedurally, the defendants responded to the relators' First Amended Complaint by filing multiple motions to dismiss. The court granted in part and denied in part the defendants' motions to dismiss, finding, as noted above, that while the First Amended Complaint was sufficient to put the defendants on notice of the general allegations against them, it was a shotgun pleading that did not adequately plead factual allegations to support the counts alleged therein or adequately identify which defendants were charged under each specific count. Specifically, when granting the motion to dismiss the court cited to the First Amended Complaint's approach to adopt each allegation into each successive count without clarifying which allegations applied to each count. In line with Eleventh Circuit precedent, the court granted the relators one opportunity to replead the before dismissed the matter, and ordered that to cure the pleading deficiencies the relators needed to amend their complaint to (1) identify and include within each separate count the specific factual allegations that the relators contend support each count; (2) allege with particularity each defendants' involvement in the purported fraud scheme; and (3) identify which of the defendants the relators argue are liable under each count. Other than the amendments explicitly ordered by the court, the relators were prohibited from making any modifications or amendments to the Second Amended Complaint.
Instruction 1: Identify and include within each separate count the specific factual allegations that Relators contend support each count.
The First Amended Complaint was drafted such that all allegations presented were simply rolled into each successive count. The court noted that a pleading of this nature does not put the defendants on notice as to what alleged conduct a count is referring to because anything and everything previously mentioned in the complaint is incorporated therein. This type of shotgun pleading is improper and fails to satisfy minimum pleading standards.
The court found that the Second Amended Complaint complied with the first instruction of its order and cured the shotgun style pleading of the First Amended Complaint by adding in seventy-four (74) additional paragraphs of factual support for each of the eight (8) counts alleged. The court further noted the removal of all "incorporated by reference" language from the pleadings, which the court previously found contributed to the shotgun style pleading of the First Amended Complaint and left the court wondering which prior allegations supported the elements of each count. Under the Second Amended Complaint the incorporated by reference clauses were removed, and when coupled with the additional paragraphs detailing the alleged actions that supported each count, the court found that the relators "undoubtedly remedie[d]" the court's concern about a shotgun pleading.
Instruction 2: Allege with particularity defendants' involvement in the purported fraud scheme.
The court found that the First Amended Complaint failed to satisfy the pleading standard under Rule 9(b) because allegations tying defendants to the allegedly fraudulent scheme were merely summarily stated. As an example, the court referred to the First Amended Complaint's statements that an individual's knowledge and actions were imputed to entity defendants without alleging substantive allegations against such other defendants or alleging that the actions of such other defendants violated the FCA. The court held that imputing the actions of an individual defendant to another defendant because of the individual's relationship to such other defendant was insufficient.
Under the Second Amended Complaint, the court found that the addition of seventy-four (74) additional paragraphs of factual support along with clear statements that the entity defendants were liable for "[their] own actions and those of [their] agents" allowed the court to understand the grounds upon which each defendant's liability was alleged, including specific alleged actions taken by the defendants in connection with the fraudulent scheme, and satisfied the second instruction of the court's order.
Instruction 3: Specifically identify which defendants the relators contend are liable under each count.
The court found that Second Amended Complaint made clear which defendants are liable under each count because the relators included under each count an allegation that such count is plead against "[e]ach and every one of the Defendants" or some express variation thereof. The court distinguished this clause from the language of the First Amended Complaint's generalized allegations, such as "Defendants violated the [FCA]," which the court found created ambiguity. The court recognized that what is essential is adequate notice of the claims made and grounds upon which they are based, and that the use of "each and every one of the Defendants," "each of the Defendants," and "all of the Defendants" under the Second Amended Complaint sufficiently put the defendants on notice of their alleged involvement in the fraudulent scheme and each count asserted against them.
The court's ruling in this case makes clear that pleading standards are alive and well, and that pleading with little more than general statements of fraud will expose relators to motions to dismiss and potential dismissal of their complaint. In this case, precedent granted the relators an opportunity to cure their pleading defects but the right to cure deficient pleadings is not without restriction and the leniency of courts goes only so far and varies across jurisdictions. The decision of the court discussed herein provides instruction as to what is and what is not an acceptable pleading. Courts, plaintiffs, and defendants should all be attuned to applicable pleading standards to understand that FCA claims must be plead with particularity as to a defendant's acts, including facts as to time, place, and substance, so that the defendant is provided with adequate notice of and the basis for the claims made, or otherwise the complaint is subject to a motion to dismiss.
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