Wake Forest Law Review

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.

Retaliation Claim

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.

Conclusion

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.

By Sophia Blair

On January 5, 2017, the Fourth Circuit published an amended opinion for the civil case, Lynch v. Jackson, originally decided on January 4, 2017.

Bankruptcy Court Decision and Appeal to the Fourth Circuit

Gabriel and Monte Jackson (“Jackson”) filed a petition for Chapter 7 bankruptcy relief. Marjorie Lynch (“Lynch”), a Bankruptcy Administrator, moved to dismiss their case as an abuse. Lynch alleged that the Jacksons over reported their expenses when filing for relief because they used the National and Local Standard amounts in their application form instead of their actual expenses, which were lower.

In filing for Chapter 7 bankruptcy, the Jacksons had to fill out a means test because they earned over the median income for a family of their size. The test is used to determine the amount of a debtor’s disposable income, which may reveal abuse if that income is above a certain level and prevent them from proceeding under Chapter 7. The Jacksons followed the instructions of form 22A-2, which says, “Deduct the expense amounts set out in lines 6-15 regardless of your actual expense. In later parts of the form, you will use some of you actual expenses if they are higher than the standards.” The Jacksons used the standard mortgage and car payment expenses, even though both were higher than their actual expenses.

Lynch argued that the official forms were incorrect and that a Chapter 7 debtor was “Limited to deducting their actual expenses or the applicable National or Local Standard, whichever [was] less.” The Jacksons countered, stating the statute was unambiguous. The Bankruptcy Court denied Lynch’s motion to dismiss on the basis that the Jackson’s interpretation comported with the plain meaning of the statute, and both parties filed a request for permission to directly appeal to the Fourth Circuit.

The Fourth Circuit held that they had jurisdiction over the appeal, and granted the appeal with respect to the question: does 11 U.S.C. § 707(b)(2) permit a debtor to take the full National and Local Standard amounts for expenses even though the debtor incurs actual expenses that are less than the standard amounts?

Was there an abuse of Bankruptcy Relief?

The Fourth Circuit held that under the plain meaning of the statute, a debtor is entitled to deduct the full National and Local Standard amounts even though their actual expenses are below the standard amounts.

In order to determine whether the Jacksons abused bankruptcy relief, the Fourth Circuit looked to the plain meaning of § 707(b)(2)(A)(ii)(I) of the statute. This section states: “the debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor’s actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides . . . .”

Where the statute’s language is plain, the Fourth Circuit ends its inquiry after enforcing the statute according to its terms in the context of the overall statutory scheme. See Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000); Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809 (1989). The court found that the language of  § 707(b)(2)(A)(ii)(I) was clear on its face because it specified that “[t]he debtor’s monthly expenses shall be the debtor’s applicable monthly expense amounts specified under the National Standards and Local Standards.” The court relied on the theory of statutory construction that where Congress uses different words in the same statute, they should have different meanings. Here the court distinguished between “applicable monthly expenses” in the first clause of the statute, and “actual monthly expenses” in the second clause. Therefore, the court understood that the”applicable monthly expenses” were the full National and Local Standard amounts.

Additionally, the Fourth Circuit opined that to construe “applicable” and “actual” to have the same meaning would have the absurd result of punishing frugal debtors. A frugal debtor would be punished to for spending less. Relying on Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982), the court sought to read the statute in such a way as to avoid absurd results.

Disposition

The Fourth Circuit affirmed the bankruptcy court’s judgment to deny Lynch’s motion to dismiss, because the Jacksons had not abused bankruptcy relief by providing the National and Local Standard amounts, instead of their actual expenses in form 22A-2.