False Claims Act case failed to state claim

Where the relator’s False Claims Act claims were based on “classic conclusory language,” they were properly dismissed for failure to state a claim. And because plaintiffs do not get a “dry run” as a matter of right and district courts have inherent power to manage their dockets with an eye toward speedy and efficient resolutions, it was not an abuse of discretion to dismiss the plainly insufficient federal causes of action with prejudice.

Background

While working for a company that makes skin grafts, Haile Kiros Nicholson caught wind of a kickback scheme operating in a Veterans Administration hospital involving the sale of skin grafts to the VA by commission-based salespeople who were paid based on how much they sold. If true, that would likely violate the Anti-Kickback Statute, which would then make each commission-induced sale a violation of the False Claims Act. So Nicholson brought this qui tam suit as a False Claims Act relator and an analogous state-law claim under North Carolina law.

After the United States declined to intervene in the suit, Nicholson prosecuted it. Because he used conclusory language in his original complaint, the district court dismissed it with prejudice for failure to state a fraud claim with particularity under Federal Rule of Civil Procedure 9(b). When Nicholson moved to amend his complaint after judgment, the district court denied leave to amend, citing, among other things, bad faith.

Original complaint

There are two ways to show presentment with particularity: either by alleging a representative example describing “the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby” or by alleging a “pattern of conduct that would necessarily have led to submission of false claims.” When the claim hinges on an underlying kickback violation, the kickback scheme must be pleaded with particularity as well.

Nicholson’s original complaint simply does not meet the high standards of particularity required by Rule 9(b) — and may not even meet Rule 8’s lower plausibility standards — so the district court was right to dismiss the complaint. Much of what is said in the original complaint is classic conclusory language.

Unlike the amended complaint which gave some detail about the payment breakdown, this first complaint includes no information about how the payments were split up or how representatives were paid. It also provides no detail about the actual inducement of sales, whether and how representatives were supposed to push the product.

Nicholson does offer some support for how he knew about the scheme: “based upon his employment with Integra whereby these representatives engaged in national competitions with the full-time employees,” by talking to treating physicians and reimbursement personnel and by “receiv[ing] compensation for these 1099 nonemployee’s role in generating these sales.” But none of that pushes this complaint much further along. Claiming to know something based on working in an undisclosed role at the relevant

company, based on discussions with unnamed people and based on participation in vaguely described events cannot make a series of conclusory legal statements into a particularized allegation.

Prejudice

The district court did not abuse its discretion by dismissing the original complaint with prejudice. In this circuit, plaintiffs do not get a dry run as a matter of right. District courts have inherent power to manage their dockets with an eye toward speedy and efficient resolutions, and part of that power is the use of with-prejudice dismissals. The court sees no reason to question the district court’s discretionary decision here to dismiss the plainly insufficient federal causes of action with prejudice.

The district court also dismissed a claim under the North Carolina False Claims Act. That dismissal should have been without prejudice. So the court affirms the dismissal of the state-law claim, but modifies the order to clarify that it was dismissed without prejudice.

Amend

Finally, the district court did not abuse its discretion in denying Nicholson’s post-judgment motion for leave to amend to fix the original complaint’s deficiencies. Taking all the court’s arguments together, the district court’s bad-faith finding was within the bounds of reasonable disagreement, and this court finds no abuse of discretion.

Affirmed as modified.

United States ex rel. Nicholson v. Medcom Carolinas LLC, Case No. 21-1290, July 21, 2022. 4th Cir. (Richardson), from MDNC at Greensboro (Osteen). Volney LaRon Brand for Appellant. Jeffrey Ryan Whitley for Appellees. VLW 022-2-178. 25 pp.