United States Ex Rel. Gross v. Aids Research Alliance-Chicago ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-2566
UNITED STATES ex rel. SANFORD GROSS,
Plaintiff-Appellant,
v.
AIDS RESEARCH ALLIANCE-CHICAGO,
ROBERTA LUSKIN-HAWK, THOMAS KLEIN,
ROS SLOTTEN, NEEL FRENCH, PATRICIA DIXON,
and CATHOLIC HEALTH PARTNERS,
Defendants-Appellees.
____________
Appeal from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 01 C 8182—William J. Hibbler, Judge.
____________
ARGUED DECEMBER 8, 2004—DECIDED JULY 6, 2005
____________
Before FLAUM, Chief Judge, and POSNER and SYKES,
Circuit Judges.
SYKES, Circuit Judge. Sanford Gross was a subject in an
AIDS research study funded by the National Institutes of
Health (“NIH”) and conducted by the AIDS Research
Alliance-Chicago (“the Alliance”). Catholic Health Partners
acted as the Institutional Review Board for the study. Gross
brought a claim on behalf of the United States under the
qui tam provision of the False Claims Act (“FCA”), 31
2 No. 04-2566
U.S.C. § 3729(a), alleging various acts of negligence and
mismanagement by the Alliance, several of its participating
medical professionals, and Catholic Health Partners. Gross
alleged that the defendants submitted various forms and
reports to the government during the course of the study
and these constituted “certifications” that the study was
being conducted in compliance with federal regulations,
grant study protocols, and “Good Clinical Practices,” when,
in fact, it was not. These are the alleged “false claims” that
form the basis of Gross’s action under § 3729(a).
The district court dismissed the original and amended
complaints for failure to plead fraud with particularity as
required by Rule 9(b), and dismissed the second amended
complaint pursuant to Rule 12(b)(6) for failure to state a
claim. The latter ruling was based largely on what the
district court saw as insufficiencies in the allegations re-
garding the knowledge element of a § 3729(a) claim. See
United States ex rel. Lamers v. City of Green Bay, 168 F.3d
1013, 1018-19 (7th Cir. 1999). The district court also in-
voked the jurisdictional bar in 31 U.S.C. § 3730(e)(4)(A),
which precludes qui tam FCA claims premised upon pub-
licly disclosed information unless “the person bringing the
claim is an original source of the information.”
We affirm, although on somewhat different reasoning.
The second amended complaint fails under Rule 9(b) be-
cause it does not allege to the required degree of parti-
cularity the false statement or statements made by the
defendants, with knowledge of their falsity, for the purpose
of obtaining payment from the government. In addition, the
second amended complaint fails under Rule 12(b)(6) because
it does not allege that payment by the government was
conditioned upon certification of regulatory compliance, a
necessary component of a qui tam FCA claim premised
upon false certification of compliance with federal statutes
and regulations.
No. 04-2566 3
I. Facts
The second amended complaint is 42 pages long and
contains 163 numbered paragraphs, some of which have
numerous lettered subparts. We sketch only the pertinent
allegations here. The NIH sponsored a research study on an
“off-label investigational new drug” for the treatment of
AIDS. The Alliance was one of 15 participating agencies,
and Gross was a participant in the study from October 1998
to December 1999. Catholic Health Partners acted as the
Institutional Review Board for Alliance’s participation in
the study, and the individual named defendants are parti-
cipating physicians and a nurse. The Alliance was awarded
approximately $3.7 million in NIH funding for its participa-
tion in the study.
The second amended complaint contains numerous alle-
gations of negligence, mismanagement, and poor oversight
of the study, including, for example: prescription of med-
ication known to reduce the effectiveness of the study drug;
allowing Gross’s viral load to spike dramatically; failure to
maintain adequate study records; and failure to obtain
proper informed consent. These lapses caused the
defendants to be noncompliant with a laundry list of federal
regulations (there is no need to recite them here), various
study protocols, and “Good Clinical Practices.” The second
amended complaint also alleges that Catholic Health
Partners participated in “other federal grants” and was out
of compliance with certain federal regulations in connection
with these unspecified “other grants.” The pleading alleges
that on December 9, 2002, the Federal Drug Administration
sent Catholic Health Partners a warning letter temporarily
suspending its participation in an unrelated study for “vio-
lating regulations governing the composition, operation,
and responsibilities of an IRB.”
As to the alleged false claims in particular, the second
amended complaint alleges that the defendants submitted
4 No. 04-2566
various “forms, written reports and study results” to the
government, including (but not limited to): Form PHS 398;
Form PHS 2590; Form FDA 1572; CPCRA Form 704;
“Financial Service Requests”; “Consent Forms”; “DAIDS
Investigator of Record Agreement”; and “initial and con-
tinuing review records.” Apart from these cryptic acronyms
and generalized references to form titles, the forms are not
described any further; their purpose or content is not identi-
fied, nor is there any indication when they were filed vis-á-
vis any grant payments. The second amended complaint
does not describe how the filing of any of these forms
related to payment of grant money. Instead, it alleges that
‘[i]ndividually, and in cumulative effect, the forms, written
reports, and study results submitted by the defendants
constituted certifications of compliance with all require-
ments and conditions of the research grant.” There is also
a general allegation that “[d]efendants, individually and
in conspiracy, have knowingly made false or fraudulent
claims and certifications to justify retention of federal funds
already received and to induce payment of additional
federal funds.”
II. Discussion
The FCA is an anti-fraud statute and claims under it
are subject to the heightened pleading requirements of Rule
9(b) of the Federal Rules of Civil Procedure. United States
ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376
(7th Cir. 2003) (Rule 9(b) applies “because the False Claims
Act condemns fraud but not negligent errors or omissions.”)
As is pertinent here, the FCA imposes liability against any
person who “knowingly makes, uses, or causes to be made
or used, a false record or statement to get a false or fraudu-
lent claim paid or approved by the Government.” 31 U.S.C.
§ 3729(a)(2). An FCA claim under § 3729(a)(2) has three
essential elements: (1) the defendant made a statement in
No. 04-2566 5
order to receive money from the government, (2) the
statement was false, and (3) the defendant knew it was
false. 31 U.S.C. § 3729(a)(2); Lamers, 168 F.3d at 1018. An
FCA claim premised upon an alleged false certification of
compliance with statutory or regulatory requirements also
requires that the certification of compliance be a condition
of or prerequisite to government payment. United States ex
rel. Mikes v. Strauss, 274 F.3d 687, 697 (2d Cir. 2001);
United States ex rel. Siewick v. Jamieson Science & Engi-
neering, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000); Harrison
v. Westinghouse Savannah River Co., 176 F.3d 776, 786-87
(4th Cir. 1999); United States ex rel. Thompson v. Colum-
bia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.
1997); United States ex rel. Hopper v. Anton, 91 F.3d 1261,
1266-67 (9th Cir. 1996).
In Lamers, this court affirmed summary judgment against
the FCA relator on the second and third elements of the
claim, concluding that minor technical regulatory violations
do not make a claim “false” for purposes of the FCA; the
existence of mere technical regulatory violations tends to
undercut any notion that a prior representation of regu-
latory compliance was knowingly and falsely made in order
to deceive the government. Lamers, 168 F.3d at 1019; see
also United States ex rel. Luckey v. Baxter Healthcare Corp.,
183 F.3d 730, 733 (7th Cir. 1999). The district court relied
on Lamers to conclude that the second amended complaint
failed to state a claim. Lamers was a summary judgment
case, however; here we are at the pleading stage, and the
violations Gross has alleged appear on their face to go
beyond the “minor technical violations” at issue in Lamers.
In our view, the insufficiencies in Gross’s second amended
complaint relate instead to the first element of the claim,
which, in a nutshell, requires that the fraudulent state-
ment’s purpose must be to coax a payment of money from
the government. As the statute itself puts it, liability
attaches only when a false statement is used “to get a false
6 No. 04-2566
or fraudulent claim paid or approved by the Government.”
31 U.S.C. § 3729(a)(2). Gross has failed to plead this ele-
ment with the specificity required by Rule 9(b).
The false statements on which his claim is grounded are
identified only by a categorical and essentially undecipher-
able listing of various “forms, written reports and study
results” the defendants are alleged to have filed with the
government at some point—the pleading does not say
when—during the course of the study. As we have noted,
the purpose or content of these forms is not described, nor
does the second amended complaint describe how any of the
forms relate to the payment of study funds. There are no
specifics about how the $3.7 million in study funds were
paid—whether in a lump sum when the study commenced
or periodically while the study was ongoing. All we have are
generalized allegations that the forms, considered “in-
dividually and in cumulative effect,” constitute “certifica-
tion” of regulatory compliance; and that the defendants,
“individually and in conspiracy,” made false certifications
“to justify retention of federal funds already received” and
“to induce” additional payment. These conclusory allegations
shed no light on the nature or content of the individual
forms or why any particular false statement would have
caused the government to keep the funding spigot open,
much less when any payments occurred or how much money
was involved. This does not satisfy “the who, what, when,
where, and how” requirement for pleading fraud under Rule
9(b). Garst, 328 F.3d at 376 (quoting DiLeo v. Ernst &
Young, 901 F.2d 624, 627 (7th Cir. 1990)).
Our conclusion here is bolstered by the analysis in Garst.
There, the FCA relator faced similar pleading troubles, hav-
ing suffered the district court’s dismissal of his first three
complaints. Garst, 328 F.3d at 375. The district court finally
ordered the relator to file a more definite statement, but
even that was “loaded with so many acronyms and
cross-references to the third amended complaint (plus its
No. 04-2566 7
attachments) that no one could understand it without
juggling multiple documents.” Id. at 376. Ultimately we
concluded that although the relator had “come closer to spe-
cific allegations of deceit,” he nevertheless “fail[ed] to link
them to any claim for payment.” Id. at 378. Thus, we held
that the complaint in Garst failed Rule 8’s “short and plain
statement” requirement as well as Rule 9(b)’s particularity
mandate. We do not mean to suggest that Gross’s second
amended complaint flunks Rule 8, but we reach the same
conclusion here as in Garst on the failure to plead fraud
with particularity. Id. at 376-77.
In addition, Gross has failed to allege that any particular
certification of regulatory compliance was a condition of
payment of government money. In this respect the second
amended complaint failed to state a claim and dismissal
under Rule 12(b)(6) was justified. As we have noted, where
an FCA claim is based upon an alleged false certification of
regulatory compliance, the certification must be a condition
of the government payment in order to be actionable. The
second amended complaint makes no such allegation.
At oral argument, counsel suggested that the second
amended complaint’s incorporation by reference of the “regu-
latory framework” was enough to clarify the causal con-
nection between false certifications and government pay-
outs. But counsel admitted that this would be true only if
the district judge had “gone out and read all those reg-
ulations quite carefully.” It was not incumbent upon the
district judge to become an expert in all of the regulations
governing NIH grant compliance so that he could piece
together a theory on why any particular form listed in the
second amended complaint might have fraudulently caused
the government to cut a check. False claim allegations must
relate to actual money that was or might have been doled
out by the government based upon actual and particularly-
identified false representations. On this, the complaint is
silent.
8 No. 04-2566
Finally, as we have noted, to the extent that Gross’s claim
was based upon the 2002 warning letter to Catholic Health
Partners, the district court invoked the jurisdictional bar
contained in § 3730(e)(4)(A). That section reads:
No court shall have jurisdiction over an action under
this section based upon the public disclosure of alle-
gations or transactions in a criminal, civil, or adminis-
trative hearing, in a congressional, administrative, or
Government Accounting Office report, hearing, audit, or
investigation, or from the news media, unless the action
is brought by the Attorney General or the person
bringing the action is an original source of the informa-
tion.
31 U.S.C. § 3730(e)(4)(A). The district court was entirely
correct. Gross did not allege that he was an original source
of the information in the warning letter. The judgment of
the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-6-05