By Mickey Herman
On Thursday, March 16, 2017, the Fourth Circuit issued a published opinion in United States ex rel. Carson v. Manor Care, Inc., a civil case. Plaintiff-appellant, Patrick Carson, on behalf of the United States, appealed the dismissal of his False Claims Act (“FCA” or “Act”) qui tam and retaliation claims as well as related state fraud claims, arguing that none were barred by the FCA’s first-to-file rule. After evaluating Carson’s claims in turn, the Fourth Circuit affirmed with respect to his qui tam claims, but vacated and remanded the portion of the trial court’s decision as it related to his retaliation and state fraud claims.
Facts & Procedural History
In early 2009, Christine Ribik filed a qui tam suit on behalf of the United States against Manor Care, alleging violations of the FCA arising from overbilling of the government for medical services. Specifically, she contended that the nursing facility operator “regularly and fraudulently classified . . . patients as needing more physical therapy than necessary,” “instructed its physical therapists to spend more time than needed with the patients,” “sent some patients to physical or occupational therapy who did not need it at all,” and “refused to discharge patients for whom physical therapy was no longer useful.”
In September 2011, Carson filed a qui tam suit on behalf of the United States and several states against Manor Care, alleging violations of the FCA (and its state-level equivalents) markedly similar to those asserted by Ribik. In addition, Carson asserted a FCA retaliation claim, contending that his termination from Manor Care was a direct and impermissible result of “his repeated complaints about the fraudulent . . . practices.”
The two cases were consolidated in 2012 and the United States Government subsequently intervened in the action. The district court denied Manor Care’s motion to dismiss the Government’s complaint. It granted, however, the defendant’s motion to dismiss Carson’s complaint, concluding that “the FCA’s first-to-file rule barred all of [his] claims.” Carson appealed.
Qui Tam Claims
The Court first considered whether the first-to-file rule barred Carson’s qui tam claims. Pursuant to its qui tam provision, the FCA permits private citizens to sue on the federal government’s behalf for violations of the Act. However, “[w]hen a person brings an action under [the qui tam] subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” To determine whether a subsequently-filed suit is based on the facts underlying a pending complaint, the Court applies the “material elements test,” which “bars later suit ‘if it is based upon the same material elements of fraud as the earlier suit, even though the subsequent suit may incorporate somewhat different details.’” Although Carson argued that his “allegations go well beyond [Ribik’s],” the Court, after thoroughly comparing the complaints’ allegations, disagreed. It also rejected Carson’s assertion that their complaints’ consolidation protects his claims from the first-to-file bar, emphasizing that the relevant statutory language explicitly prohibits intervenors other than the Government. It thus affirmed the district court’s dismissal of Carson’s qui tam claims.
The Court turned next to Carson’s retaliation claim. “The FCA prohibits employers from retaliating against any employee ‘because of lawful acts done by the employee . . . in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.’” Noting that the district court dismissed this claim on the same grounds as the qui tam claims—the first-to-file rule—the Court endeavored to determine whether retaliation claims fall within the scope of that rule. Considering first the relevant statutory language and structure, the Court emphasized that the first-to-file rule is subsumed by, and therefore only limits, the Act’s qui tam provisions. The Court continued by emphasizing that barring a whistle-blower’s retaliation claim on such grounds makes little sense, both because such claims are considered personal to the plaintiff (unlike the qui tam claims, which effectively belong to the Government) and due to the risk of deterring whistle-blowers. For these reasons, the Court vacated the district court’s dismissal as to Carson’s retaliation claim and remanded the issue for proceedings consistent with the proper scope of the first-to-file rule.
State Fraud Claims
Finally, the Court considered whether the FCA’s first-to-file rule was properly applied to Carson’s state fraud claims. Determining that the district court failed to “support its decision with any discussion or authority to establish that any of the states apply the FCA first-to-file rule, or its equivalent, to that state’s statute,” the Court vacated and remanded the issue to the district court.
Agreeing that the FCA’s first-to-file rule barred Carson’s qui tam claims, the Court affirmed the district court to that extent. It refused, however, to extend the scope of the first-to-file rule to Carson’s retaliation and state fraud claims. It therefore vacated the district court’s judgment as to those issues, and remanded for further proceedings.