A recent Sixth Circuit opinion in U.S. ex rel. Hirt v. Walgreen Co. should come as welcome news for FCA defendants concerned about the implications of the Sixth Circuit’s application last year, for the first time, of a “relaxed” standard for pleading false claims under Rule 9(b) in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc.
In Hirt, the relator alleged that Walgreen Company distributed kickbacks—in the form of $25 gift cards—to Medicare and Medicaid beneficiaries upon transferring their prescriptions to Walgreens, in violation of the Anti-Kickback Statute, and submitted subsequent prescription-drug claims to the government in violation of the FCA. The Sixth Circuit affirmed the lower court’s dismissal of the complaint for failure to “identify a single false claim,” which is an “indispensable element of a complaint that alleges a FCA violation in compliance with Rule 9(b).”
In so ruling, the Sixth Circuit’s opinion in Hirt offered a not-so-thinly-veiled retort to last year’s Prather opinion, which first applied a “relaxed” Rule 9(b) standard. The Sixth Circuit explained that it has no authority to “relax” Rule 9(b)’s pleading standard and that use of the word potentially “mislead[s] lawyers and their clients.” “To the extent the words of Civil Rule 9(b) need elaboration,” the Sixth Circuit noted, “the most that can be said is that ‘particular allegations of fraud may demand different things in different contexts.’” Notably, the only judge who was part of both the Prather and Hirt panels is Judge McKeague, who wrote a strongly worded dissent in Prather regarding the “majority’s decision to apply a never-before-used exception to Rule 9(b).”
Directly addressing Prather, the Sixth Circuit stated its ruling has “no purchasing power here” where the relator “failed to provide the factual predicates necessary to convince [the court] that actual false claims in all likelihood exist.” For instance, the relator did “not allege personal knowledge of Walgreen’s claim submission procedures” or “describe even one unlawful prescription purchase—that customer X of his pharmacy filled prescription Y with Willow Walgreens on date Z after receiving a gift card from Walgreens.” The Sixth Circuit concluded that it has “no basis for excluding a lack of personal knowledge when it comes to the essential—the primary—illegal conduct at issue.”
In the wake of Prather, this opinion suggests a potential fissure among Sixth Circuit judges regarding the Rule 9(b) standard in FCA cases, which is a development we will closely watch in future cases.