NO. 2015-01

IN THE

Supreme Court of the United States ______________

UNITED STATES EX REL. KLEIN,

Petitioner,

V.

Respondent,

OSBORN LABORATORIES, INC.

______________

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Thirteenth Circuit

______________

BRIEF FOR THE PETITIONER

______________

TEAM 11

2015 Julius H. Miner Moot Court Competition

ii

QUESTIONS PRESENTED

1. Should unduly simplistic allegations of costly, widespread fraud dismissed under Rule

9(b) and no longer pending block a well-pleaded, potentially meritorious False Claims

Act claim based on the same fraudulent scheme?

2. Should a False Claims Act complaint containing a firsthand observer’s detailed

allegations of a large corporation’s active fraudulent scheme need to allege details of

specific fraudulent invoices presented to the government, even if the invoices would

reveal little of about the underlying fraudulent scheme, in order to satisfy Federal Rule of

Civil Procedure 9(b)?

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED ........................................................................................................ ii

TABLE OF CONTENTS ............................................................................................................ iii

TABLE OF AUTHORITIES ...................................................................................................... iv

OPINIONS BELOW ..................................................................................................................... 1

STATEMENT OF THE CASE .................................................................................................... 2

SUMMARY OF THE ARGUMENT .......................................................................................... 6

ARGUMENT ................................................................................................................................. 8

I. STEWART’S INSUFFICIENTLY PLEADED COMPLAINT SHOULD NOT BLOCK

KLEIN’S WELL-PLEADED, POTENTIALLY MERITORIOUS ACTION TARGETING

OSBORN’S FRAUD. ................................................................................................................. 8

A. Refusing to allow claims deficient under Rule 9(b) to block well-pleaded allegations of

fraud best serves fundamental precepts of the FCA. ............................................................... 8

B. The Thirteenth Circuit’s flawed “government notice” approach for evaluating claims

deficient under Rule 9(b) fundamentally misunderstands the nature of qui tam actions under

the FCA.................................................................................................................................. 10

C. The text of § 3730(b)(5) does not grant preclusive effect to claims that are deficient

under Rule 9(b). ..................................................................................................................... 11

II. THE THIRTEENTH CIRCUIT CORRECTLY DETERMINED THAT STEWART’S

COMPLAINT WAS NOT “PENDING,” AND THEREFORE COULD NOT BLOCK

KLEIN’S CLAIM. .................................................................................................................... 12

A. The plain text of § 3730(b)(5) bars claims related to “pending”—as opposed to non-

pending—actions. .................................................................................................................. 13

B. Barring non-pending actions would frustrate dependent elements of the FCA’s carefully

tailored statutory scheme. ...................................................................................................... 14

C. Interpreting § 3730(b)(5) to protect only pending actions best incorporates the purposes

underlying the FCA’s qui tam provisions.............................................................................. 15

III. THE THIRTEENTH CIRCUIT INPROPERLY DISMISSED KLEIN’S COMPLAINT

BECAUSE KLEIN PLEADED OSBORN’S FRAUD WITH SUFFICIENT

PARTICULARITY TO SATISFY RULE 9(b). ....................................................................... 16

A. The Fraudulent Circumstances Test best supports the goals of the FCA....................... 17

B. The Fraudulent Circumstances Test best accomplishes Rule 9(b)’s purposes of

protecting defendants while not barring potentially meritorious claims. .............................. 19

C. Klein’s complaint is independently sufficient under 31 U.S.C. § 3729(a)(1)(B) because

presentment is not an element of this provision. ................................................................... 21

CONCLUSION ........................................................................................................................... 23

iv

TABLE OF AUTHORITIES

Cases

Allison Engine Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 671 (2008) .................. 22

Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104 (1991) .............................................. 12

Campbell v. Redding Med. Ctr., 421 F.3d 817 (9th Cir. 2005) ...................................................... 9

In re Abbott Labs., Inc., 698 F.3d 568 (7th Cir. 2012) ................................................................. 10

In re Natural Gas Royalties Qui tam Litig. (CO2 Appeals), 566 F.3d 956 (10th Cir. 2009)

............................................................................................................................... ……10, 14, 16

Montana v. United States, 440 U.S. 147 (1979) ........................................................................... 12

Ortho Biotech Products, L.P. v. United States ex rel. Duxbury, 561 U.S. 1005 (2010) (No. 09-

654)............................................................................................................................................ 18

United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, (D.C. Cir. 2011) ........................ 10, 12

United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361 (7th Cir. 2010)..... 15

United States ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301 (11th Cir.

2002)........................................................................................................................ 16, 18, 19, 21

United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009)...................... 17, 20, 21

United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28 (1st Cir. 2013) .................. 11

United States ex rel. Klein v. Osborn Laboratories, Inc., No. 14-0840, (13th Cir. 2014)..... passim

United States ex rel. Klein v. Osborn Laboratories, Inc., No. 2014-CM-0839 (S.D. Wig. May 1,

2014)................................................................................................................................... passim

United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, (9th Cir. 2001) ..................... 8

United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849 (7th Cir. 2009) ......................... 20

United States ex rel. Shea v. Cellco P'ship, 748 F.3d 338 (D.C. Cir. 2014) ........................... 13, 15

v

United States ex rel. Wall v. Circle C Const., L.L.C., 697 F.3d 345, 355 n.3 (6th Cir. 2012)...... 22

Ursomano v. Wells Fargo Bank, N.A., No. C-13-4381 EMC, 2014 WL 644340 (N.D. Cal. Feb.

19, 2014).................................................................................................................................... 10

Walburn v. Lockheed Martin Corp, 431 F.3d 966, (6th Cir. 2005) ................................................ 9

Statutes 31 U.S.C. § 3729 .................................................................................................................... passim

31 U.S.C. § 3730 .................................................................................................................... passim

Fed. R. Civ. P. 9(b) ................................................................................................................ passim

Other Authorities

David Faber, Note, Agency Costs and the False Claims Act, 83 Fordham L. Rev. 219 (2014).... 17

S. Rep. No. 99-345 (1986) .............................................................................................................. 8

1

OPINIONS BELOW

The opinion of the United States District Court for the Southern District of Wigmore is

reported at United States ex rel. Klein v. Osborn Laboratories, Inc., No. 2014-CM-0839 (S.D.

Wig. May 1, 2014).

The opinion of the United States Court of Appeals for the Thirteenth Circuit is reported at

United States ex rel. Klein v. Osborn Laboratories, Inc., No. 14-0840 (13th Cir. 2014).

2

STATEMENT OF THE CASE

Petitioner Dr. Rav I. Klein requests this Court to reverse the decision of the Thirteenth

Circuit dismissing his action on behalf of the United States to recover government funds

fraudulently obtained by respondent Osborn Laboratories, Inc. Klein is a former Osborn

researcher who resigned upon discovering Osborn’s scheme to fraudulently collect government

grant dollars. United States ex rel. Klein v. Osborn Laboratories, Inc., No. 2014-CM-0839, at *8

(S.D. Wig. May 1, 2014).

Osborn, a pharmaceutical company, entered the flu vaccine market in the early 2000s,

enjoying substantial profits. Id. at *2. As the decade progressed, however, the market grew

increasingly less profitable, and after failing to develop a profitable vaccine to combat the Great

Outbreak of 2009, Osborn left the market. Id. at *3. In the wake of Osborn’s exit, three flu

outbreaks took the lives of “[h]undreds of thousands of Americans . . . and millions more

suffered through illness without any available remedy.” Id. at **3–4.

In an effort to attract profit-seeking pharmaceutical companies like Osborn back to the

vaccine market, Congress passed the EPIDEMIC Act in July 2010. Id. at *4. EPIDEMIC permits

pharmaceutical companies to receive partial reimbursement for costs associated with researching

and developing flu vaccines. Id. For security reasons, recipients do not include detailed

information about research efforts in reimbursement requests, but remain subject to auditing. Id.

at 4 & n.4.

Enticed by EPIDEMIC’s subsidies, Osborn re-entered the vaccine market. Id. at *4.

Osborn recognized it could obtain “reputational benefits” through developing new vaccines,

while breaking even financially. Id. at **4–5. In 2013, Osborn used substantial government

subsidies to develop a vaccine to combat the HAUSI virus, a never-before-seen dangerous flu

3

mutation. Id. at *5. During this period, however, “questions began to arise” concerning Osborn’s

reimbursement practices under EPIDEMIC. Id.

These questions originated in part from Dr. Klein. Klein holds advanced degrees in

epidemiology and is one of Wigmore’s foremost influenza experts. Id. In spring 2010, Klein

suspended his professorship at Southern Wigmore University to join Osborn’s influenza research

department. Id. at *6. His work was outstanding, so much so that Klein believes his research was

the basis for Osborn’s success against the HAUSI virus. Id. Notwithstanding this success, Klein

relationship with Osborn suffered when he began to suspect Osborn was committing fraud. Id.

First, supervisors reassigned Klein in fall 2013 to projects he believed, given his expertise

in epidemiology, were unrelated to influenza research. Id. Supervisors told Klein to “trust

company leadership” and continue to fill out timesheets for reimbursement under EPIDEMIC.

Id. Klein soon discovered Osborn had reassigned thirty other researchers to similar projects with

similar billing instructions, and two days later, heard supervisors discussing new departmental

goals unrelated to influenza research. Id. at *7.

Three days later, on September 22, 2013, Klein heard a supervisor and an Osborn finance

executive deliberating over how to “‘make [department invoices] appear eligible’” for

reimbursement under EPIDEMIC. Id. This conversation resulted in a department-wide email on

September 24 instructing researchers to describe new work in this “eligible” manner. Id. The

email, which made no mention of EPIDEMIC or reimbursements for new projects, concerned at

least $20 million monthly in research expenses. Id.

Finally, on September 26, Klein spoke with a coworker, who shared she had been

working on non-flu projects for five months using EPIDEMIC billing codes. Id. Klein then spoke

with four different researchers at Osborn labs around the country, all of whom shared the same.

4

Id. Based on Klein’s observations, Osborn’s fraudulent reimbursement claims spanned at least

several months and concerned hundreds of millions of dollars in costs. Id.

During the period of Klein’s investigation, Osborn experienced budget shortfalls and

delays with certain non-flu research programs. Id. The company responded by “‘pushing . . .

available lines of financing to the limit,’” resulting in reduced cash reserves and significantly

increased debt obligations. Id. at **7–8. Notwithstanding these problems, and despite

reassigning large numbers of flu researchers to new projects, Osborn’s EPIDEMIC

reimbursements remained constant. Id.

Convinced Osborn was defrauding the government, Klein resigned on October 22. Id. at

*8. He resolved to expose Osborn’s fraud and filed a complaint in the Southern District of

Wigmore describing a wide-ranging conspiracy spanning Osborn facilities across the country.

See id. at **6, 8. Unbeknownst to Klein, another Osborn researcher, Dr. French P. Stewart, had

filed an action in the Northern District of Rodriguez a week before alleging a similar, but

significantly less detailed, scheme. Id. at *8.

Stewart and Osborn’s complaints took the form of qui tam actions under the False Claims

Act (FCA). Id. at *8. These actions allow citizen “relators” to sue defrauders on behalf of the

United States. Id. The government investigates relators’ actions and can intervene, but in this

case did not. Id. On March 7, 2014, the Wigmore court dismissed Klein’s claim under the FCA’s

first-to-file bar, which required Stewart’s action to proceed first. Id. Soon thereafter, however,

the Rodriguez court dismissed Stewart’s claim for failing to plead Osborn’s fraud with sufficient

particularity under Federal Rule of Procedure 9(b). Id. at *8. This prompted Klein to refile his

more detailed claim—which included the who, when, and how of the scheme—on March 29,

2014. Id. at **6, 9.

5

Osborn moved to dismiss Klein’s claim. Id. at *9. On May 1, 2014, the Southern District

of Wigmore denied the motion, holding that Stewart’s dismissed complaint did not preclude

Klein’s action and Klein had sufficiently pleaded a detailed fraudulent scheme under Rule 9(b).

Id. at **12, 15. Specifically, the court acknowledged Klein had not pleaded specific instances of

fraudulent billings, but refused to require Klein to “snoop around [Osborne’s] billing

department” at the “risk of inappropriately absolving” Osborn of its fraudulent activity. Id. at

**13–14.

Osborn appealed, and on December 18, 2014, the Thirteenth Circuit reversed the district

court’s decision. United States ex rel. Klein v. Osborn Laboratories, Inc., No. 14-0840, at *11

(13th Cir. 2014). The court held that, while the district court was correct to hold Stewart’s

complaint did not preclude Klein’s action, id. at * 7, Klein failed to meet Rule 9(b)’s

particularity requirements “no matter how logical it might be to infer fraud” because Klein failed

to include details of specific fraudulent billings. Id. at **9–10 (emphasis omitted).

This Court granted certiorari on January 14, 2015. United States ex rel. Klein v. Osborn

Laboratories, Inc., No. 14-0840 (13th Cir. 2014), cert. granted, 572 U.S. — (U.S. Jan. 14, 2015)

(No. 15-01).

6

SUMMARY OF THE ARGUMENT

The Thirteenth Circuit erred in dismissing Klein’s First Amended Complaint. While

correctly concluding the Stewart complaint did not bar Klein’s action, the court applied an

unduly restrictive form of Rule 9(b) to Klein’s allegations of Osborn’s fraudulent scheme. Klein

therefore requests this Court to reverse the Thirteenth Circuit’s decision and remand the case to

the Southern District of Wigmore for further proceedings.

This Court should reverse the initial holding of the Thirteenth Circuit that Stewart’s

insufficiently pleaded complaint is capable of triggering the False Claims Act’s “first-to-file bar”

and thereby blocking Klein’s action. The bar states: “When a person brings an action under this

subsection, no person other than the Government may intervene or bring a related action based

on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5) (2012). Refusing to permit

Stewart’s complaint to bar Klein’s action under this provision best accords with the fundamental

purposes of the FCA, under which insufficiently pleaded allegations of fraud should not bar

well-pleaded, potentially meritorious claims of the same fraud.

This Court should then affirm the Thirteenth Circuit’s holding that Stewart’s claim, even

if it could bar Klein’s complaint under the first-to-file bar, lost any preclusive effect when it was

dismissed, and was therefore no longer “pending” under § 3730 (b)(5). Section 3730(b)(5)

expressly applies to “pending,” or ongoing, actions. This interpretation finds additional support

in the FCA’s public disclosure bar, which relies upon pending’s plain meaning. Finally,

interpreting the bar to apply only to pending actions best comports with the goals of the FCA,

including encouraging qui tam relators to bring fraudulent schemes to light, especially where

prior actions alleging related fraud have failed to do so adequately.

7

Finally, this Court should also reverse the Thirteen Court’s application of Rule 9(b). A

complaint alleging detailed allegations of a fraudulent scheme need not also allege specific false

or fraudulent invoices submitted to the government to satisfy Rule 9(b) as applied to 31 U.S.C. §

3729(a)(1)(A) or (B) of the FCA.

The text of Rule 9(b) does not define a test for particularity under (1)(A), but the

purposes of Rule 9(b) and the FCA are best served by not requiring pleading specific fraudulent

invoices. The FCA is designed to incentivize whistleblowers to identify fraud. In large

corporations, however, departmental isolation often makes it impossible for employees with

knowledge of a fraudulent scheme to access the information necessary to allege a specific

fraudulent invoice, thereby undercutting the FCA’s incentives for valuable whistleblowers with

firsthand information to come forward. Rule 9(b) aims to ensure that defendants receive adequate

notice and additional protections from allegations of fraud. But ample notice and protection for

defendants can be fully satisfied without the inflexible requirement of a specific fraudulent

invoice. Additionally, presentation is not an element of § 3729(a)(1)(B). Thus, a complaint

alleging violations under § 3729(a)(1)(B) is not required to plead a specific fraudulent invoice.

For the foregoing reasons, this Court should reverse the decision of the Thirteenth Circuit

and permit Klein’s complaint to proceed.

8

ARGUMENT

I. STEWART’S INSUFFICIENTLY PLEADED COMPLAINT SHOULD NOT BLOCK

KLEIN’S WELL-PLEADED, POTENTIALLY MERITORIOUS ACTION

TARGETING OSBORN’S FRAUD.

This Court should reverse the Thirteenth Circuit’s finding that claims insufficiently

pleaded under Rule 9(b), like Stewart’s, can activate § 3730(b)(5), the FCA’s “first-to-file bar.”

Allowing poorly pleaded complaints to activate the bar prevents relators like Klein from

pursuing well-pleaded, potentially meritorious allegations of fraud. Preclusion in this manner

directly contravenes fundamental purposes underlying the FCA, including encouraging more qui

tam suits to help detect and investigate fraud. Additionally, the text of § 3730(b)(5) does not

grant preclusive effect to insufficiently pleaded complaints.

A. Refusing to allow claims deficient under Rule 9(b) to block well-pleaded

allegations of fraud best serves fundamental precepts of the FCA.

Complaints that fail Rule 9(b) should not block well-pleaded complaints of the same

fraud; otherwise, the underlying fraudulent activity will remain immune from suit. Congress

amended the FCA in 1986 with the intention of better “coordinat[ing] effort[s] of both the

Government and the citizenry” to combat increasing instances of defrauding public funds, and

did so by “increas[ing] incentives, financial and otherwise, for private individuals to bring suits

on behalf of the Government.” S. Rep. No. 99-345, at 2 (1986). Section 3730(b)(5) of the FCA,

the “first-to-file bar,” complements this purpose through preventing “opportunistic” plaintiffs

from bringing to light already disclosed fraud and diluting financial incentives for

whistleblowers in the process. United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181,

1187 (9th Cir. 2001). Given these purposes, the interaction of Rule 9(b) and § 3730(b)(5) must

9

reflect Congress’s intention to root out fraud through the cooperation of the government and qui

tam relators.

To that end, this Court should deny preclusive effect to claims under the FCA that are

insufficiently pleaded under Rule 9(b). If deficient complaints can block future complaints that

provide greater detail of a fraudulent scheme, one poorly worded complaint could block the

fraud it addresses from prosecution and punishment forever. See Campbell v. Redding Med. Ctr.,

421 F.3d 817, 824 (9th Cir. 2005); (“[A] purely frivolous sham complaint . . . would bar a

subsequently filed action . . . . This cannot be what Congress intended.”); see also Walburn v.

Lockheed Martin Corp, 431 F.3d 966, 972 (6th Cir. 2005) (describing sham complaints as

“legally infirm” grounds for preclusion). Denying preclusive effect to sham complaints ensures

later efforts to expose fraud do not fail because of an expired procedural taint, thereby leaving

defrauders scot-free.

If sham complaints can block future allegations of fraud, ruinous consequences abound.

Defrauders in Osborn’s position, for example, could file a sham complaint through a third party

against themselves, securing swift dismissal under Rule 9(b) and thereby preventing any

additional actions alleging their fraud from coming to light. Additionally, relators in Klein’s

position, eager to expose fraud but wary of failing to plead with particularity, might wait too long

to bring their claims, only to watch an imprudently filed complaint block their action. Congress’s

1986 amendments to the FCA were not meant to encourage cat-and-mouse games, but instead to

encourage qui tam relators to help the government expose fraud. This Court should vindicate

Congress’s intent.

Moreover, refusing to grant preclusive effect to complaints failing Rule 9(b) will not

result in procedural discord. United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210

10

(D.C. Cir. 2011). If a district court is concerned about the disposition of a related, pending FCA

action before another court, it can stay the proceeding before it, as district courts often do. See,

e.g., Ursomano v. Wells Fargo Bank, N.A., No. C-13-4381 EMC, 2014 WL 644340, at *3 (N.D.

Cal. Feb. 19, 2014) (granting stay until resolution of related proceedings). Any conflicting

judgments that arise can be reconciled through the routine appellate process. See, e.g., In re

Abbott Labs., Inc., 698 F.3d 568, 570 (7th Cir. 2012).

Thus, the purposes underlying the FCA—namely, ensuring qui tam relators can expose

fraudulent schemes—are best served by refusing to allow claims that fail Rule 9(b) to block well

pleaded, potentially meritorious allegations of fraud.

B. The Thirteenth Circuit’s flawed “government notice” approach for evaluating

claims deficient under Rule 9(b) fundamentally misunderstands the nature of qui

tam actions under the FCA.

The Thirteenth Circuit, on the other hand, applied a flawed approach in concluding the

dismissed Stewart complaint was capable of barring Klein’s complaint. Klein, No. 14-0840, at

*4. Recognizing that a purpose of the FCA’s qui tam provisions is to alert the government of

fraud, the Thirteenth Circuit held that insufficiently pleaded complaints, like Stewart’s, can block

future complaints of related fraud so long as they provide sufficient notice to the government. Id.

This “government notice” approach is ill-conceived.

The government notice approach depends on two faulty premises. First, tying the

preclusive effect of a qui tam complaint to whatever notice the government receives wholly

ignores the value qui tam relators bring to the government by investigating fraudulent schemes.

See In re Natural Gas Royalties Qui tam Litig. (CO2 Appeals), 566 F.3d 956, 963 (10th Cir.

2009). Subsequent qui tam relators might be better positioned than the government to share the

cost of investigating a fraud, even if the government already has notice of the fraud. Second, the

11

Thirteenth Circuit incorrectly concluded that “[t]he amount of information required to put a

defendant on notice . . . is quite a bit more than that required to allow the government to begin an

investigation.” Klein, No. 14-0840 at *4. In many instances, defendants familiar with their own

accounting and operational practices require less notice to identify the locus of allegations under

the FCA than the government, which has no such familiarity. The more poorly pleaded a

complaint is, the less likely government investigation will ever occur.

Additionally, while a qui tam complaint that fails the pleading requirements of Rule 9(b)

“may nonetheless provide the government sufficient notice,” United States ex rel. Heineman-

Guta v. Guidant Corp., 718 F.3d 28, 36 (1st Cir. 2013) (emphasis added), it also may not. Courts

reviewing such complaints have no way of knowing whether the government received sufficient

notice because the FCA does not require the government to provide reasons for not intervening.

31 U.S.C. § 3730(b)(4)(B) (requiring that the government “notify the court that it declines to take

over the action,” but not requiring a reason). Thus, despite observing that the government

“investigated” the Stewart complaint, the Thirteenth Circuit made no finding as to whether the

Stewart complaint was sufficient to enable the government to conduct a thorough and effective

investigation. Klein, No. 14-0840, at **4–5.

Accordingly, this Court should adopt an approach focused not on government notice

exclusively, but on the broader context of qui tam actions under the FCA, and thereby hold

Stewart’s complaint incapable of barring Klein’s.

C. The text of § 3730(b)(5) does not grant preclusive effect to claims that are

deficient under Rule 9(b).

Section 3730(b)(5), which does not reference Rule 9(b), Batiste, 659 F.3d at 1210, should

not be interpreted to give preclusive effect to claims failing Rule 9(b). First, § 3730(b)(5)

12

precludes “related action[s] based on the facts underlying the pending action.” 31 U.S.C. §

3730(b)(5) (emphasis added). A claim that fails to satisfy Rule 9(b), however, is procedurally

deficient, and ceases to be “pending” upon dismissal. Second, at common law, claim preclusion

requires a prior decision on the merits. See, e.g., Montana v. United States, 440 U.S. 147, 153

(1979). Insufficient pleading under Rule 9(b), however, does not require dismissal on the merits.

See, e.g., Klein, No. 2014-CM-0839, at *8 (dismissing Stewart complaint without prejudice for

failing Rule 9(b)). Therefore, because statutes derogating from the common law should be

strictly construed, see Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 108 (1991), the

first-to-file bar should not be interpreted as giving claims failing Rule 9(b) preclusive effect. If

Congress had intended differently, § 3730(b)(5) would express that intent.

For the foregoing reasons, this Court should reverse the holding of the Thirteenth Circuit

and find that the insufficiently pleaded Stewart complaint cannot bar Klein’s well pleaded,

potentially meritorious allegations of Osborn’s fraud.

II. THE THIRTEENTH CIRCUIT CORRECTLY DETERMINED THAT STEWART’S

COMPLAINT WAS NOT “PENDING,” AND THEREFORE COULD NOT BLOCK

KLEIN’S CLAIM.

Even if this Court finds Stewart’s dismissed complaint could bar Klein’s action, this

Court should nevertheless affirm the Thirteenth Circuit’s holding that the FCA’s first-to-file bar

applies only to actions related to a “pending” suit. Klein’s First Amended Complaint can

therefore proceed, because Klein refiled his action after the Stewart complaint was no longer

pending. Klein, No. 2014-CM-0839 at *9.

Section 3730(b)(5) states that “[w]hen a person brings an action under [the FCA], no

person other than the Government may intervene or bring a related action based on the facts

13

underlying the pending action.” This provision means what it says: “pending”—as opposed to

non-pending—actions bar anyone but the government from intervening or bringing a related

action. Other provisions of the FCA corroborate this interpretation by relying upon the plain text

meaning of pending. And ultimately, the plain text meaning of pending best serves the purposes

underlying the FCA’s qui tam provisions.

A. The plain text of § 3730(b)(5) bars claims related to “pending”—as opposed to

non-pending—actions.

Section 3730(b)(5) of the FCA explicitly applies to pending actions, and should not be

interpreted otherwise. A pending action is “‘[b]egun, but not yet completed.’” See, e.g., United

States ex rel. Shea v. Cellco P'ship, 748 F.3d 338, 347 (D.C. Cir. 2014) (Srinivasan, J.,

concurring in part and dissenting in part) (quoting Black's Law Dictionary 1021 (5th ed.1979)).

Accordingly, the Thirteenth Circuit correctly recognized that the Stewart complaint—having

been dismissed, and thus no longer pending before a court—could not bar Klein’s action. Klein,

No. 14-0840, at *11.

The most straightforward reading of pending is as a synonym for “ongoing,” not as an

empty reference reminding readers that the first action bars the second. As the Thirteenth Circuit

explained, “‘there is no great mystery about ‘which action bars the other,’’” because “pending”

actions bar “related” actions. Klein, No. 14-0840, at *6 (quoting Shea, 748 F.3d at 347

(Srinivasan, J., concurring in part and dissenting in part)). This plain reading is only more clear if

one removes “pending” from § 3730(b)(5) altogether. Shea, 748 F.3d at 347. Nor is

supplementary language necessary to understand pending’s plain meaning. Shea, 748 F.3d at 343

(majority opinion). Adding language to § 3730(b)(5) makes the provision redundant. That

Congress has written more convoluted statutes using the word “pending,” see id. at 344

14

(referencing such statutes), proves only that § 3730(b)(5) is better written. Thus, bolstered by the

fundamental axiom of statutory interpretation that each word in § 3730(b)(5) should be attributed

its own, significant meaning, see, e.g., Shea, 748 F.3d at 347 (Srinivasan, J., concurring in part

and dissenting in part) (citation omitted), this Court should affirm the Thirteenth Circuit’s plain

meaning interpretation of § 3730(b)(5) as applying only to “pending” actions.

B. Barring non-pending actions would frustrate dependent elements of the FCA’s

carefully tailored statutory scheme.

A plain meaning interpretation of “pending” best comports with the FCA’s other qui tam

provisions. In one such provision, the FCA bars actions that arise from alleged instances of fraud

that have already been publicly disclosed. 31 U.S.C. § 3730(e)(4)(A). This “public disclosure

bar” contains two exceptions. First, an “original source” of disclosed information can

nevertheless, under certain conditions, bring a qui tam action. 31 U.S.C. § 3730(e)(4)(B).

Second, the government can authorize a relator to bring a qui tam action notwithstanding a

public disclosure. Id. § 3730(e)(4)(A) (barring claims based on publicly disclosed information

“unless opposed by the Government”).

Public disclosures can occur in a hearing in federal court to which the government is a

party, id. § 3730(e)(4)(A)(i), which includes unsealed qui tam complaints. Klein, No. 14-0840, at

*6 (citing In re Natural Gas Royalties, 566 F.3d at 963). If, however, all first-filed actions

preclude all further related qui tam proceedings after the filing of an initial complaint—whether

the initial actions are pending or not—the exceptions for original sources and government

permission would lose effect in federal court hearings to which the government is a party. See

Shea, 748 F.3d at 350. This result directly contravenes the intent of Congress’s scheme to

encourage meaningful sources of new information to bring qui tam actions, even where fraud is

15

initially disclosed in a public federal hearing. Klein, as an original source of the circumstances of

Osborn’s fraud, exemplifies Congress’s intent.

C. Interpreting § 3730(b)(5) to protect only pending actions best incorporates the

purposes underlying the FCA’s qui tam provisions.

Permitting a first-filed qui tam complaint to bar all related actions would not only

contravene the plain meaning of § 3730(b)(5), but also frustrate the FCA’s fundamental

purposes. While “[t]he resolution of a first-filed [FCA] action does not somehow put the

government off notice of its contents,” Shea, 748 F.3d at 344, no more does the resolution put

the government on notice of essential details of fraud undisclosed or undiscovered pursuant to

the first action. Klein, No. 14-0840, at *6 (“[T]he government, even after being notified of fraud

by a first-filed action, may lack the resources, political will, or sufficient evidence . . . to pursue a

claim.). Barring a second, informative action merely because the first uninformative action was

already brought could conceal pervasive fraud forever.

Fears of endless, duplicative qui tam suits providing no useful insight to the government

concerning fraudulent activity, see Klein, No. 14-0840, at **14–15 (Divolivia, J., concurring in

part and dissenting in part), are vastly overstated. First, prior claims that the government or

relator settled or that were decided on the merits will preclude follow-on qui tam suits as a matter

of res judicata. United States ex rel. Chovanec v. Apria Healthcare Grp. Inc., 606 F.3d 361, 362

(7th Cir. 2010). Only where a prior claim is dismissed without prejudice—perhaps because it

failed to plead fraud adequately, as the Stewart complaint failed here—will (and should) a

second claim escape claim preclusion. See Chovanec, 606 F.3d at 362. Additionally, unhelpful

follow-on claims that merely “feed off” a prior claim will struggle to overcome the public

disclosure bar, unless the relator is an original source. In re Natural Gas Royalties, 566 F.3d at

16

963. Ultimately, while interpreting “pending” to apply only to ongoing qui tam actions may

result in some unhelpful follow-on suits, the policy ramifications that would result from any

first-filed suit blocking all others for all time are far more frightening.

Therefore, in light of how the purposes underlying the FCA’s qui tam provisions

reinforce a plain meaning interpretation of § 3730(b)(5), this Court should affirm the decision of

the Thirteenth Circuit and permit Klein’s complaint to proceed.

III. THE THIRTEENTH CIRCUIT INPROPERLY DISMISSED KLEIN’S COMPLAINT

BECAUSE KLEIN PLEADED OSBORN’S FRAUD WITH SUFFICIENT

PARTICULARITY TO SATISFY RULE 9(B).

The Thirteenth Circuit erred in dismissing Klein’s complaint for failure to plead his FCA

action with the particularity required by Rule 9(b). Rule 9(b) requires plaintiffs to “state with

particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b) (emphasis added). In

interpreting Rule 9(b)’s requirements for Klein’s complaint, the Thirteenth Circuit used an

overly rigid test that frustrates the purposes of the FCA and Rule 9(b). This “Presentation Test”

mandates that plaintiffs alleging a fraudulent scheme provide specific details about the

presentation of the fraudulent bills to the government. See United States ex rel. Clausen v.

Laboratory Corp. of America, Inc., 290 F.3d 1301, 1311 (11th Cir. 2002). This Court should

instead adopt a contextual “Fraudulent Circumstances Test”—grounded in Rule 9(b)’s language

of “circumstances constituting fraud”—when considering § 3729(a)(1)(A) claims’ particularity.

The court in United States ex rel. Grubbs v. Kanneganti articulated the Fraudulent

Circumstances Test as follows: “a relator’s complaint, if it cannot allege the details of an actually

submitted false claim, may nevertheless survive by alleging particular details of a scheme to

submit false claims paired with reliable indicia that lead to a strong inference that claims were

17

actually submitted.” 565 F.3d 180, 190 (5th Cir. 2009). Under this test, this Court should

recognize that Klein’s complaint sufficiently pleaded. Alternatively, Klein’s complaint is

independently sufficient under § 3729(a)(1)(B) because presentment is not an element of this

provision. Therefore, the Court should reverse the incorrect holding of the Thirteenth Circuit.

A. The Fraudulent Circumstances Test best supports the goals of the FCA.

This Court should adopt a Fraudulent Circumstances Test for pleading FCA actions under

§ 3729(a)(1)(A). This test best serves the purposes of the FCA because it is tailored to address

the realities of large corporate structure and government investigators’ actual information

requirements.

The Fraudulent Circumstances Test best reflects Congress intent to coordinate the

investigative efforts of the government and private citizens through the FCA’s qui tam

provisions. The incentives Congress created for qui tam relators have worked. “[T]he

overwhelming majority of actions filed under the FCA are qui tam actions, and the vast majority

of recoveries under the FCA are attributable to qui tam cases as well.” David Faber, Note,

Agency Costs and the False Claims Act, 83 Fordham L. Rev. 219, 221–222 (2014); see also id. at

n.17 (noting that from 2010 through 2013, qui tam relators filed 2614 actions that resulted in the

recovery of $11.5 billion while only 500 non-qui tam actions were filed, recovering $3.3 billion.)

The Fraudulent Circumstances Test builds on this success by calibrating Rule 9(b)’s pleading

requirements to maintain the well-documented effectiveness of qui tam actions.

The Fraudulent Circumstances Test maintains the effectiveness of qui tam actions by

addressing the challenges posed by large corporations. In large corporations, fraudulent

misrepresentation often passes through a number of hands, many of which are powerless to

detect it. In this way, the development of a fraudulent scheme and its completion are frequently

18

separate. Thus, while Dr. Klein recognized the disconnect between his work and what was billed,

neither the person recording his time sheet hours nor the person sending the bill to the

government could see the fraud. The real fraudulent activity was the initial misclassifying of

Klein’s work as EPIDEMIC related research.

Accordingly, the Fraudulent Circumstances Test centers the Rule 9(b) inquiry on

intentionally deceptive activity within the corporation. “[T]he essence of the fraud … lies in the

schemes.” Clausen, 290 F.3d at 1316 (Barkett, dissenting). Thus, the Fraudulent Circumstances

Test focuses on the whether relators can provide detailed information about the scheme and its

implementation. This avoids emphasizing the ordinary-course-of-business activities that

complete the fraud. Importantly, it focuses on what the relators produce, not on the technicalities

of payment claims beyond their access. This shift in focus corresponds perfectly with the goals

of the FCA. The government has emphasized the significant value qui tam relators provide by

“bringing to light information, outside the four corners of the claims for payment, that shows

those claims to be false.” Brief for the United States as Amicus Curiae at 17, Ortho Biotech

Products, L.P. v. United States ex rel. Duxbury, 561 U.S. 1005 (2010) (No. 09-654).

Klein’s case underscores this point. As a researcher, Klein was personally instructed to

further the fraudulent scheme, see Klein, No. 2014-CM-0839, at *6, and his insider knowledge

offers the government the information most difficult to discover. This is particularly true because

EPIDEMIC reimbursement requests require only basic detail about the invoiced bill costs. Klein,

No. 2014-CM-0839, at *4. Klein pleaded the meaningful fraudulent activity—the

misclassification of his hours—in detail. Thus, the Fraudulent Circumstances Test best promotes

the goals of the FCA in cases like Klein’s by recognizing how large corporations operate and

focusing on the type of information most useful to the government.

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The Thirteenth Circuit’s Presentation Test, however, fails to further these ends. The

Presentation Test requires plaintiffs to plead “facts as to time, place, and substance of the

defendant’s alleged fraud.” Clausen, 290 F.3d at 1310. For simple instances of fraud, this test

functions well. If a fraudulent misrepresentation and its communication occur simultaneously by

a single actor, there is no difficulty in pleading detailed facts about the actual presentment of

fraud. In such scenarios, the Presentation Test is effective and appropriate because the intentional

deceit is inextricably intertwined with the completion of fraud.

Yet for fraud within large corporations, the Presentment Test fails to focus on this real

fraudulent activity because the intentional deceit and the completion of the fraud become isolated

events. By focusing on the presentation of a bill—where misinformation is largely

indistinguishable from correctly coded EPIDEMIC research—the Presentation Test creates

significant obstacles for the very type of relator the FCA seeks to encourage most: employees

with knowledge about the inner workings of the scheme. Companies should not be able to

undercut the FCA’s qui tam enforcement by keeping a strict division between the operations and

billing departments. As the district court recognized, see Klein, No. 2014-CM-0839, at *14, the

departmental divisions of a modern corporation, like Osborn, help evade the Presentation Test.

B. The Fraudulent Circumstances Test best accomplishes Rule 9(b)’s purposes of

protecting defendants while not barring potentially meritorious claims.

The Fraudulent Circumstances Test also best advances Rule 9(b)’s purposes of providing

adequate protections for defendants against allegations of fraud, while refraining from barring

meritorious claims. Courts have recognized four general purposes of Rule 9(b): providing

defendants with sufficient notice to prepare a defense, reducing harm to defendants’ reputation

20

and goodwill, protecting defendants from strike suits, and preventing “fishing expeditions” for

post-discovery claims. Grubbs, 565 F.3d at 190.

The Fraudulent Circumstances Test protects defendants in all four ways. Relators still

must plead the details of the fraudulent scheme with particularity, so defendants will know

exactly what the crux of the claim entails. See United States ex rel. Lusby v. Rolls-Royce Corp.,

570 F.3d 849, 855 (7th Cir. 2009) (“Lusby’s accusations [detailing solely the fraudulent scheme]

are not vague. Rolls–Royce has been told exactly what the fraud entails.”). Additionally, the

Fraudulent Circumstances Test protects the reputation of innocent defendants and shields them

from strike suits because it requires relators to show more than mere plausibility of fraud.

Relators must provide particular details of the fraudulent scheme and an indicia of reliability

concerning presentation, a combination difficult to show if the case is entirely baseless. Finally,

the Fraudulent Circumstances Test does not free relators to undergo fishing expeditions in

discovery. The detailed allegations of the fraudulent scheme enables a judge to narrowly tailor

discovery to minimize the cost and burden to the defendant, as the judge in this case intended to

do. See Klein, No. 2014-CM-0839, at *14. If limited discovery demonstrates that no fraudulent

bills were presented to the government, a summary judgment motion will quickly dispose of the

case. See Grubbs, 565 F.3d at 191. Thus, the Fraudulent Circumstances Test ensures that

defendants receive the protections Rule 9(b) was designed to offer.

The Presentation Test, however, over-enforces Rule 9(b)’s gatekeeping role. First, the

Presentation Test essentially requires fact pleading. This is evident in the Thirteenth Circuit’s

refusal to draw any inferences as to presentment because it was an element of the offense. See

Klein, No. 14-0840, at *10. This refusal was unwarranted because, in reality, inferences are

unavoidable. See Lusby, 570 F.3d at 854 (rejecting the Presentation Test because “much

21

knowledge is inferential—people are convicted beyond a reasonable doubt of conspiracy without

a written contract to commit a future crime”). Additionally, if the Thirteenth Circuit would have

inferred presentation from a copy of an invoice—as it would if Klein had provided an invoice—a

refusal to draw inferences cannot be the core of Rule 9(b)’s requirements.

Furthermore, the Presentation Test effectively requires plaintiffs to plead the fraud in

greater detail than they would be required to prove at trial. Proof, however, “is not required at the

pleading stage.” Clausen, 290 F.3d at 1317 (Barkett, dissenting). In fact, as the Grubbs court

noted, “[The Presentation Test] is one small step shy of requiring production of actual

documentation with the complaint, a level of proof not demanded to win at trial and significantly

more than any federal pleading rule contemplates.” Grubbs, 565 F.3d at 190.

Therefore, the Fraudulent Circumstances Test best serves the purpose of Rule 9(b). It

satisfies the goals of Rule 9(b) without needlessly barring meritorious claims essential to the

enforcement of the FCA. The Presentation Test, on the other hand, distorts Rule 9(b) by

replacing notice pleading with a fact-pleading structure that requires specificity exceeding even

the requirements of proof at a trial.

For the foregoing reasons, this Court should adopt the Presentation Test and hold Klein’s

detailed complaint of Osborn’s fraud satisfies the particularity requirements of Rule 9(b).

C. Klein’s complaint is independently sufficient under 31 U.S.C. § 3729(a)(1)(B)

because presentment is not an element of this provision.

Should this Court find Klein’s action under § 3739(a)(1)(A) to be insufficiently pleaded

under Rule 9(b), it should nevertheless find Klein’s complaint sufficient for the purposes of Rule

9(b) under 31 U.S.C. §3729(a)(1)(B), which attaches liability to anyone who “knowingly makes,

uses, or causes to be made or used, a false record or statement material to a false or fraudulent

22

claim.” The Supreme Court clarified in Allison Engine Co., Inc. v. United States ex rel. Sanders

that presentation of the actual bill is not an element of actions brought under § 3729(a)(1)(B).

553 U.S. 662, 671 (2008). Furthermore, (1)(B) merely requires that defendants know their

fraudulent statements or records will result in a fraudulent claim. See United States ex rel. Wall

v. Circle C Const., L.L.C., 697 F.3d 345, 355 n.3 (6th Cir. 2012).

Here, Klein’s complaint sufficiently pleads with particularity the circumstances

surrounding the fraudulent scheme. He alleges that the Senior Research Directors above him

directed him to record his time as EPIDEMIC related despite being unrelated to flu research.

Additionally, these directors directed him to fill out the forms this way with the full knowledge

that it would be billed to the government. Klein, No. 2014-CM-8039, at **6–7. Furthermore, the

extent of the misclassification is clearly material to the claim submitted to the government

because it totaled millions of dollars per month. Id. Collectively, this satisfies § 3729(a)(1)(B).

Thus, if the Court adopts the Presentation Test and determines that Klein’s claim is

insufficient under § 3729(a)(1)(A), it should nevertheless hold that the Klein has sufficiently

pleaded the circumstances of § 3729(a)(1)(B) with particularity because presentation is not an

element.

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CONCLUSION

For the foregoing reasons, this Court should reverse the Thirteenth Circuit’s decision

dismissing Klein’s complaint and remand to the Southern District of Wigmore for further

proceedings.