USA ex rel. Todd Heath v. AT&T, Inc.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 24, 2015 Decided June 23, 2015
No. 14-7094
UNITED STATES OF AMERICA, EX REL. TODD HEATH, ET AL.,
AND TODD HEATH,
APPELLANT
v.
AT&T, INC., ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:11-cv-01897)
Rose F. Luzon argued the cause for appellant. With her
on the briefs were Scott R. Shepherd, Jonathan W. Cuneo,
Matthew E. Miller, and James E. Miller.
Andrew J. Pincus argued the cause for appellees. With
him on the brief was Paul W. Hughes.
Before: GRIFFITH and MILLETT, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge MILLETT.
2
MILLETT, Circuit Judge: Todd Heath appeals the
dismissal of his False Claims Act qui tam suit against AT&T,
Inc. and nineteen of its subsidiaries across the United States.
The first question presented is whether an earlier and still-
pending qui tam lawsuit filed against a single AT&T
subsidiary bars this suit under the False Claims Act’s first-to-
file rule, 31 U.S.C. § 3730(b)(5), which prohibits qui tam
actions that rely on the same material fraudulent actions
alleged in another pending lawsuit. We hold that the first-to-
file bar does not apply because the Wisconsin action alleges
fraud based on affirmative pricing misrepresentations by
seemingly rogue Wisconsin Bell employees. The present
complaint, by contrast, alleges fraud and its concealment
arising from a centralized and nationwide corporate policy of
failing to enforce known statutory pricing requirements.
As a backup, AT&T proposes affirmance on the
alternative ground that the complaint fails to plead the alleged
fraud with sufficient particularity, as required by Federal Rule
of Civil Procedure 9(b). We disagree. The complaint lays out
in detail the nature of the fraudulent scheme, the specific
governmental program at issue, the specific forms on which
misrepresentations were submitted or implicitly conveyed, the
particular falsity in the submission’s content, its materiality,
the means by which the company concealed the fraud, and the
timeframe in which the false submissions occurred. That is
sufficient on this record for the particular type of statutory
fraud asserted in this case.
We accordingly reverse the judgment of the district court
and remand for further proceedings.
3
I
Statutory Framework
The False Claims Act
The False Claims Act, 31 U.S.C. §§ 3729 et seq., broadly
proscribes the knowing or reckless submission of false claims
for payment to the federal government or within a federally
funded program. See United States ex rel. Oliver v. Philip
Morris USA Inc., 763 F.3d 36, 39 (D.C. Cir. 2014). As
relevant here, the Act imposes liability on “any person” who
“knowingly” (i) “presents, or causes to be presented, a false or
fraudulent claim for payment or approval,” 31 U.S.C.
§ 3729(a)(1)(A), (ii) “makes, uses, or causes to be made or
used, a false record or statement material to a false or
fraudulent claim,” id. § 3729(a)(1)(B), or (iii) “makes, uses,
or causes to be made or used, a false record or statement
material to an obligation to pay,” or “conceals * * * an
obligation to pay or transmit money or property to the
Government,” id. § 3729(a)(1)(G).
The False Claims Act defines the type of “claim” subject
to those prohibitions as “any request, or demand, whether
under a contract or otherwise, for money or property and
whether or not the United States has title to the money or
property,” if that claim is “presented” or “made” to (i) “an
officer, employee, or agent of the United States,” or to (ii) “a
contractor, grantee, or other recipient, if the money or
property is to be spent or used on the Government’s behalf or
to advance a Government program or interest” in which the
United States government either “provides or has provided
any portion of the money or property requested or
demanded,” or “will reimburse such contractor, grantee, or
other recipient for any portion of the money or property which
is requested or demanded.” 31 U.S.C. § 3729(b)(2)(A).
4
The False Claims Act’s prohibitions can be enforced
through both criminal and civil actions by the federal
government. See 18 U.S.C. § 287; 31 U.S.C. § 3729. In
addition, the Act authorizes private individuals—known as
relators—to bring a qui tam civil action “in the name of the
Government,” 31 U.S.C. § 3730(b)(1), and to share in any
damages recovered, id. § 3730(d). See generally Vermont
Agency of Natural Resources v. United States ex rel. Stevens,
529 U.S. 765, 768–770 (2000).
Qui tam actions augment the government’s limited
resources by “creating a strong financial incentive for private
citizens to guard against efforts to defraud the public fisc.”
United States ex rel. Totten v. Bombardier Corp., 286 F.3d
542, 546 (D.C. Cir. 2002). But because that incentive
structure can give rise to opportunistic and abusive behavior,
Congress interposed a number of conditions that limit qui tam
suits to those that expose previously undiscovered fraud or
provide new, helpful information to the government. See
United States ex rel. Hampton v. Columbia/HCA Healthcare
Corp., 318 F.3d 214, 217 (D.C. Cir. 2003) (discussing
Congress’s “efforts to walk a fine line between encouraging
whistle-blowing and discouraging opportunistic behavior”).
One such limitation is known as the “first-to-file” rule. It
provides that, once a qui tam action has been brought, “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). Actions are “related” if they
assert the “‘same material elements of fraud’ as an earlier suit,
even if the allegations ‘incorporate somewhat different
details.’” Hampton, 318 F.3d at 217 (quoting United States
5
ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1189
(9th Cir. 2001)).1
The Universal Service Fund
In the Telecommunications Act of 1996, Congress
charged the Federal Communications Commission (“FCC”)
with promoting universal access to advanced
telecommunications and information services at just,
reasonable, and affordable rates. Telecommunications Act of
1996, Pub. L. No. 104-104 § 254, 110 Stat. 56, 71–75. Under
the 1996 Act and the FCC’s implementing regulations, every
interstate telecommunications carrier must contribute a
portion of its quarterly interstate and international
telecommunications revenue to the Universal Service Fund.
See 47 C.F.R. §§ 54.706, 54.709. That portion is established
by the Commission “on an equitable and nondiscriminatory
basis.” 47 U.S.C. § 254(d). The FCC appointed the
Universal Service Administrative Company to administer the
Fund, 47 C.F.R. § 54.701(a), and to use the money to support
the cost of providing low-cost telecommunications services to
schools, libraries, health-care providers, low-income
consumers, and subscribers in high cost-areas. See 47 U.S.C.
§ 254(b); 47 C.F.R. § 54.701(c)(1).
One of the many programs administered through the
Fund is the Schools and Libraries Program, commonly known
as “E-Rate.” See 47 U.S.C. § 254(h)(1)(B). The E-Rate
program entitles qualifying schools and libraries to receive
Internet and telephone services at discounted rates. See
1
The Supreme Court recently clarified that this bar on related
actions lasts only as long as the first-filed case remains pending.
See Kellogg Brown & Root Servs., Inc., et al. v. United States ex
rel. Carter, No. 12-1497, 575 U.S. ___, slip op. at 11–13 (2015).
6
generally United States v. Green, 592 F.3d 1057, 1060–1061
(9th Cir. 2010). To receive those discounts, the schools and
libraries must first conduct a “competitive bidding process”
that is open to all telecommunications service providers. 47
C.F.R. § 54.503(a). As a condition of participation, service
providers may only submit bids at or below the “lowest
corresponding price” offered by the company. Id.§ 54.511(b). That is the “lowest price that a service provider
charges to non-residential customers who are similarly
situated.” Id. § 54.500(f); see also 47 U.S.C. § 254(h)(1)(B)
(the rates charged must be “less than the amounts charged for
similar services to other parties”).
The schools and libraries must then select the most cost-
effective service from among those bids. 47 C.F.R.
§ 54.511(a). Once the schools and libraries have reached an
agreement with a service provider, they can submit a request
for funding approval to the Universal Service Administrative
Company. Id. § 54.504(a). Once the agreement is approved,
the Company will either reimburse the school or library for its
payments to the service provider, or will pay the service
provider’s invoices directly. Id. § 54.514(a) & (c).
Factual and Procedural Background
At this procedural juncture, we take the facts in the light
most favorable to Heath. See Navab-Safavi v. Glassman, 637
F.3d 311, 318 (D.C. Cir. 2011).
1. Todd Heath operates a business that audits
telecommunications bills to identify improper charges. In
October 2011, Heath filed a qui tam suit against AT&T, Inc.
and nineteen of its subsidiaries on behalf of the United States
government, seventeen States, the District of Columbia,
Chicago, and New York City. The complaint alleges that
AT&T and its named subsidiaries fraudulently overbilled the
7
Universal Service Fund from 1997 through 2009. Complaint,
United States ex rel. Heath v. AT&T, Inc., et al., No. 11-1897
(D.D.C. Oct. 28, 2011) (“AT&T Nationwide Complaint”).
More specifically, Heath alleges that AT&T orchestrated
and implemented through its subsidiaries a corporate-wide
scheme to have false claims submitted to the Universal
Service Fund by depriving schools and libraries in the E-Rate
program of the lowest corresponding price for services.
Schools and libraries, unaware of those overcharges, then
passed those inflated costs on to the federal government for
reimbursement through the Universal Service Fund.
Heath also asserts that AT&T is a “recidivist E-Rate
Program violator” that “previously has been investigated on
multiple occasions for other significant violations of the E-
Rate program.” AT&T Nationwide Complaint ¶ 63. One
particular investigation led to an administrative consent
decree before the FCC, in which AT&T (without conceding
liability) agreed to pay the federal government $500,000 and
to institute a plan to ensure compliance with the program,
standardize all billing procedures, and designate coordinators
to answer employees’ questions about E-Rate compliance.
See In the Matter of SBC Communications, Inc., 19 FCC Rcd.
24014, 2004 WL 2913392 (FCC 2004); see generally FCC v.
AT&T, Inc., 562 U.S. 397 (2011).
According to Heath, AT&T began to require employees
to participate in E-Rate training in 2005, but AT&T chose not
to train its employees in the lowest-corresponding-price
requirement. AT&T Nationwide Complaint ¶¶ 69–70.
Employees remained ignorant of the requirement until AT&T
revamped its pricing scheme in 2009. Id. ¶ 76. Heath alleges
that, as a result of AT&T’s knowing or reckless decision not
to train its employees, AT&T’s sales representatives
8
nationwide overbilled E-Rate schools and libraries—that, in
turn, passed those inflated costs onto the Universal Service
Fund—for more than a decade. Id. ¶ 107–110. According to
the complaint, AT&T’s employees certified to the schools and
libraries that every invoice complied with the FCC’s rules, id.
¶¶ 81–94, and AT&T corporate personnel “ratified and
approved” all of these actions, id. ¶ 41.
Heath further alleges that AT&T knew that compliance
with the lowest-corresponding-price requirement was an
express and material condition for reimbursement from the
Universal Service Fund, yet it knowingly or recklessly failed
to ensure that its employees complied with that requirement.
AT&T Nationwide Complaint ¶ 101. Finally, Heath alleges
that, at least since 2009, AT&T has been aware of its past
violations of the lowest-corresponding-price rule, and yet
concealed that information from the Universal Service Fund
to avoid having to repay it. Id. ¶ 98–100.
2. This case is not Heath’s first qui tam suit. In
October 2008, Heath filed a False Claims Act qui tam
complaint against Wisconsin Bell, Inc., a wholly owned
subsidiary of AT&T. Complaint, United States ex rel. Heath
v. Wisconsin Bell, Inc., No. 08-cv-00876 (E.D. Wis. Oct. 16,
2008) (“Wisconsin Bell Complaint”). In that case, Heath’s
audit work for several Wisconsin school districts uncovered
that Wisconsin Bell charged some E-Rate eligible schools
more than others, and that Wisconsin Bell generally failed to
provide school districts with the benefit of the favorable
pricing it offered to state departments, agencies, and
universities. Wisconsin Bell Complaint ¶¶ 31–39. When
informed of this pricing discrepancy, Wisconsin Bell’s sales
representatives “regularly denied the existence of the
agreements” between Wisconsin Bell and other Wisconsin
agencies, and continued to “submit[] billings” for
9
reimbursement (or offset) from the Fund every month,
“knowing that [its] billings were excessive and did not reflect
the lowest corresponding prices[.]” Id. ¶ 39. See generally
United States ex rel. Heath v. Wisconsin Bell, Inc., 760 F.3d
688, 689 (7th Cir. 2014). It was “[o]nly after Heath obtained
a copy of” an agreement between AT&T and the Wisconsin
Department of Administration “through a public records
request, [that] AT&T beg[a]n acknowledging that the contract
existed and that, under it, substantially more favorable rates
were available to AT&T’s E-Rate school district customers.”
Wisconsin Bell Complaint ¶ 37. Last year, the Seventh
Circuit reversed the district court’s dismissal of the Wisconsin
Bell Complaint, and the case remains pending in the Eastern
District of Wisconsin. See United States ex rel. Heath v.
Wisconsin Bell, Inc., No. 08-cv-00724 (E.D. Wis.).
3. In the case at hand, AT&T moved to dismiss Heath’s
AT&T Nationwide Complaint pursuant to Federal Rules of
Civil Procedure 9(b), 12(b)(1), and 12(b)(6). AT&T argued
that the complaint was barred by both the first-to-file rule, 31
U.S.C. § 3730(b)(5), and the public-disclosure bar, id.§ 3730(e)(4)(a), and that it was pled with insufficient factual
specificity.
The district court dismissed the complaint for lack of
jurisdiction, holding that the previously filed Wisconsin Bell
case barred Heath’s suit under the first-to-file rule. United
States ex rel. Heath v. AT&T, Inc., et al., 47 F. Supp. 3d 42,
47 (D.D.C. 2014). Specifically, the district court reasoned
that, because Wisconsin Bell’s relationship to its parent
AT&T is apparent from the face of the Wisconsin Bell
Complaint, any federal personnel or agency investigating
Heath’s original allegations “would be aware of the fact that
there are many other state or regional AT&T operating
companies that provide precisely the same services and are
10
owned and controlled by the same parent.” Id. Since the E-
Rate program operates nationally, the government would
logically “see if there was an organization-wide practice or
procedure outlined by parent AT&T, Inc., and whether other
AT&T operating companies were abiding by the rules.” Id.II
Analysis
A. The First-to-File Bar
In dismissing Heath’s complaint as jurisdictionally barred
by the first-to-file rule, the district court doubly erred. The
first-to-file rule is not jurisdictional and, on the merits, it does
not apply to Heath’s complaint.
We decide de novo whether the statutory first-to-file
limitation on qui tam lawsuits is jurisdictional. We also
review the dismissal of a complaint for failure to state a claim
de novo, treating Heath’s factual allegations as true and giving
him the benefit of all plausible inferences that can be derived
from the facts alleged. See Kowal v. MCI Communications
Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
Jurisdiction
The district court is to be forgiven for treating the first-to-
file rule as jurisdictional. That is how numerous courts of
appeals have characterized it. See, e.g., United States ex rel.
Ven-A-Care of the Florida Keys, Inc. v. Baxter Healthcare
Corp., 772 F.3d 932, 936 (1st Cir. 2014); United States ex rel.
Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013).
And last year, this court affirmed a district court’s
jurisdictional dismissal under Federal Rule of Civil Procedure
12(b)(1) of a complaint under the first-to-file bar, albeit
11
without specifically addressing whether the bar is
jurisdictional. See United States ex rel. Shea v. Cellco
Partnership, 748 F.3d 338 (D.C. Cir. 2014), vacated, 83
U.S.L.W. 3116 (June 1, 2015).2
Confronting the jurisdictional question was not necessary
in Shea because the only issue presented on appeal was
whether the district court properly dismissed the case as
barred by the first-to-file rule. Even if the district court
wrongly characterized its dismissal as jurisdictional, we could
sustain that judgment for failure to state a claim under Rule
12(b)(6). See Shea, 748 F.3d at 345 (Srinivasan, J.,
concurring in part & dissenting in part) (“The court’s
affirmance, however, should not be understood as a holding
that the first-to-file bar is a jurisdictional limitation.”); see
also Morrison v. National Australia Bank Ltd., 561 U.S. 247,
254 (2010); Sierra Club v. Jackson, 648 F.3d 848, 854 (D.C.
Cir. 2011).
Because this appeal, by contrast, raises issues under both
the first-to-file bar and Federal Rule of Civil Procedure 9(b)’s
heightened pleading requirement for fraud and because there
is recurring confusion in the district courts, the time has come
to resolve that jurisdictional question. Indeed, the Supreme
Court has “endeavored in recent years to ‘bring some
discipline’ to the use of the term ‘jurisdictional,’” Gonzalez v.
Thaler, 132 S. Ct. 641, 648 (2012); see also United States v.
Kwai Fun Wong, 135 S. Ct. 1625, 1632 (2015); Sebelius v.
Auburn Regional Medical Ctr., 133 S. Ct. 817, 824 (2013),
and we aim to do the same today.
2
See also United States ex rel. Batiste v. SLM Corp., 659 F.3d
1204, 1208 (D.C. Cir. 2011) (affirming a district court’s
jurisdictional dismissal based on the first-to-file bar without
specifically addressing whether the bar is jurisdictional).
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Truly jurisdictional rules “govern ‘a court’s adjudicatory
authority,’” obligating courts to “consider sua sponte issues
that the parties have disclaimed or have not presented.”
Gonzalez, 132 S. Ct. at 648. Such objections may be raised
“at any point in the litigation, and a valid objection may lead a
court midway through briefing to dismiss a complaint in its
entirety.” Id. Courts should not lightly attach such drastic
consequences to a procedural requirement. Instead, such rules
will be held to “cabin a court’s power only if Congress has
‘clearly state[d]’ as much.” Kwai Fun Wong, 135 S. Ct. at
1632 (alteration in original). Absent such a clear statement,
“courts should treat the restriction as nonjurisdictional in
character.” Auburn Regional, 133 S. Ct. at 824 (internal
quotation marks omitted).
The first-to-file bar provides that, once a qui tam action
has been brought on a claim, “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). That language “does not speak in jurisdictional
terms or refer in any way to the jurisdiction of the district
courts.” Arbaugh v. Y&H Corp., 546 U.S. 500, 515 (2006)
(quoting Zipes v. Trans World Airlines, Inc., 455 U.S. 385,
394 (1982)). The text speaks only to who may bring a private
action and when; it says nothing about the court’s “power” to
consider claims. Kwai Fun Wong, 135 S. Ct. at 1632.
The statutory structure confirms what the plain text
indicates. When Congress wanted limitations on False
Claims Act suits to operate with jurisdictional force, it said so
explicitly. For example, while the first-to-file bar appears in a
subsection labeled “Actions by Private Persons,” a
neighboring subsection is labeled “Certain Actions Barred”
and a number of those provisions are expressly couched in
jurisdictional terms. Section 3730(e)(1) directs that “[n]o
13
court shall have jurisdiction over an action brought by a
former or present member of the armed forces * * * against a
member of the armed forces arising out of such person’s
service[.]” 31 U.S.C. § 3730(e)(1) (emphasis added). Section
3730(e)(2) likewise commands that “[n]o court shall have
jurisdiction over an action brought * * * against a Member of
Congress, a member of the judiciary, or a senior executive
branch official if the action is based on evidence or
information known to the Government when the action was
brought.” Id. § 3730(e)(2)(A) (emphasis added).
Congress, in other words, knew how to reference
“jurisdiction expressly” in the False Claims Act if “that [was]
its purpose.”3 But it did not do so in the first-to-file rule.4
Because nothing in the text or structure of the first-to-file rule
suggests, let alone “clearly state[s],” that the bar is
jurisdictional, Kwai Fun Wong, 135 S. Ct. at 1632, we hold
3
Equal Employment Opportunity Comm’n v. Lutheran Social
Services, 186 F.3d 959, 962 (D.C. Cir. 1999) (quoting I.A.M.
National Pension Fund Benefit Plan C v. Stockton Tri Industries,
727 F.2d 1204, 1208 (D.C. Cir. 1984)); see United States v.
Papagno, 639 F.3d 1093, 1099 (D.C. Cir. 2011) (“As the Supreme
Court has often stated, when ‘Congress includes particular language
in one section of a statute but omits it in another section of the same
Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.’”) (quoting
Kucana v. Holder, 558 U.S. 233, 249 (2010)).
4
It is noteworthy that, in its most recent False Claims Act case, the
Supreme Court addressed the operation of the first-to-file bar on
decidedly nonjurisdictional terms, raising the issue after it decided
a nonjurisdictional statute of limitations issue. Moreover, nothing
in the Court’s analysis sounded in jurisdictional terms. Kellogg
Brown & Root, No. 12-1497, slip op. at 11–13.
14
that the first-to-file rule bears only on whether a qui tam
plaintiff has properly stated a claim.
Application of the First-to-File Rule
Once a suit has been filed under the False Claims Act, the
first-to-file rule prohibits any person, other than the
government, from “bring[ing] a related action based on the
facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).
A second action is “related,” within the meaning of the first-
to-file bar, if the claims incorporate “the same material
elements of fraud” as the earlier action, even if the allegations
incorporate additional or somewhat different facts or
information. Hampton, 318 F.3d at 217. Similarity is
assessed by comparing the complaints side-by-side, and
asking whether the later complaint “alleges a fraudulent
scheme the government already would be equipped to
investigate based on [the first] [c]omplaint.” United States ex
rel. Batiste v. SLM Corp., 659 F.3d 1204, 1209 (D.C. Cir.
2011).
That comparative analysis demonstrates that Heath’s two
complaints target factually distinct types of frauds. The
Wisconsin Bell Complaint alerted the federal government
only to a limited scheme by Wisconsin Bell to defraud the E-
Rate program within Wisconsin. That alleged fraud was
accomplished, in part, through affirmative misrepresentations
by Wisconsin Bell employees to schools and libraries within
Wisconsin, in which those employees openly denied the
existence of a state contract with a lower corresponding price.
In contrast, the AT&T Nationwide Complaint alleges a
different and more far-reaching scheme to defraud the federal
government through service contracts entered into across the
Nation, and then to cover up that fraud. Critically, the alleged
fraud was accomplished not through affirmative
15
misrepresentations about the lowest corresponding price, but
through institutionalized disregard of the lowest-
corresponding-price requirement altogether in AT&T’s
employee-training and billing procedures. According to the
AT&T Nationwide Complaint, AT&T and its subsidiaries
deliberately failed to enforce that lowest-price mandate by
refusing to train or even tell employees about that limitation
on charges, and by failing to incorporate that limitation into
its billing practices. AT&T Nationwide Complaint ¶¶ 70–71.
As a result, AT&T knowingly or recklessly caused schools
and libraries to overbill the E-Rate Program. Id. ¶¶ 107–109.
Heath further alleges that, in 2009, AT&T rectified its
practices to ensure, for the first time, that its employees
complied with the lowest-corresponding-price requirement.
AT&T Nationwide Complaint ¶ 76. But even though AT&T
knew “the full extent of its past wrongdoing” and knew it had
a clear duty to tell the government about the overbilling, it did
not do so. Id. ¶ 79. Instead, the complaint alleges, AT&T
knowingly concealed those violations to avoid having to
reimburse the Universal Service Fund, in violation of 31
U.S.C. § 3729(a)(1)(G). Id. ¶ 110.
On its face, the Wisconsin Bell complaint discloses
nothing more than the rogue actions of individuals within a
single AT&T subsidiary and their specific, overt
misrepresentations. Nothing in the complaint would have
alerted the United States government to a nationwide scheme
centered in AT&T’s corporate headquarters of mischarging
the E-Rate program and subsequently concealing those
overpayments. Nor, given the affirmative misrepresentations
at issue, would the Wisconsin Bell Complaint have pointed
the federal government to AT&T’s systematic refusal to
institutionalize compliance by employees with the lowest-
corresponding-price requirement.
16
The fraud thus manifested itself in sufficiently distinct
ways in the two cases that the material elements of the fraud
differ. As the Seventh Circuit has recognized, “to understand
whether the suits materially overlap we must know whether
the initial suit[] alleged frauds by rogue personnel at scattered
offices or instead alleged a scheme orchestrated by * * *
national management.” United States ex rel. Chovanec v.
Apria Healthcare Group, Inc., 606 F.3d 361, 364 (7th Cir.
2010). Because the Wisconsin Bell Complaint alleged only
the former, it did not disclose the nationwide fraud grounded
in institutionalized training and enforcement failures, and
compounded by efforts at concealment, that is the focus of
Heath’s later complaint.
The cases on which AT&T relies presented the obverse
scenario. Shea, Hampton, and Batiste all involved situations
where the first complaint alleged a broad fraudulent scheme
orchestrated by a national or parent company, and the second
complaint merely added additional facts or widened the circle
of victims of the same fraudulent conduct. For example, in
the now-vacated decision in Shea, the relator’s first complaint
alleged that Verizon had engaged in “uniform billing
practices” that had improperly charged a number of
government agencies. 748 F.3d at 342. The second
complaint alleged the exact same fraudulent scheme, adding
only that Verizon’s fraudulent uniform billing practices also
swept in government contractors. Id. The first-to-file rule
barred the second action because the first complaint had
already put the government on notice of both the nature and
reach of the alleged fraud. Id. (“Presumably, if Verizon’s
billing practice was truly uniform, it was so as to all
government contracts, not just [as to those alleged in the first
complaint].”).
17
Likewise, in Hampton, the first complaint alleged “a
corporate-wide problem” in which the parent company
“perpetrated fraud in providing home health care services
through numerous subsidiaries” in 37 States. 318 F.3d at 218.
The first-to-file bar applied because the second complaint did
nothing more than allege that another subsidiary perpetuated
the same fraud in six more States. Id.; see also Batiste, 659
F.3d at 1209 (first-to-file rule applied when the first complaint
alleged that “corporate policies” perpetuated a “nationwide
scheme attributable not only to the subsidiary, but also to [the
parent company],” and the second complaint simply asserted
the same fraudulent practices in another subsidiary).
Those cases stand for the simple proposition that the
greater fraud often includes the lesser. The problem for
AT&T is that the lesser fraud does not, without more, include
the greater. The Wisconsin Bell Complaint did not allege that
AT&T encouraged Wisconsin Bell’s fraud or affirmative
misrepresentations, or even knew anything about them. Nor
did the Wisconsin Bell Complaint suggest that AT&T and its
subsidiaries engaged in “uniform billing practices” across the
United States. Shea, 748 F.3d at 342. There simply is no hint
in the Wisconsin Bell Complaint of a country-wide,
institutionalized corporate practice of disregarding the lowest-
price requirement or of a calculated refusal to educate or train
employees.
AT&T emphasizes that E-Rate is a national program so
that the government “naturally would have examined the
actions of the other operating subsidiaries.” AT&T Br. 19.
Surely AT&T does not mean that, every time a handful of
individuals within a single subsidiary engage in fraud, the
federal government should presume that the misconduct was
orchestrated, as a matter of corporate policy, from AT&T’s
central headquarters. Without more, one subsidiary’s
18
infractions do not presumptively symptomize a corporate-
pervading problem. A single broken branch does not mean
that the entire tree is diseased.
AT&T is, of course, correct that the E-Rate program is a
national program. So is virtually every law policed by the
federal False Claims Act. To hold, as AT&T suggests, that
the first-to-file bar kicks in every time an initial complaint
alleges that a subsidiary of a national company violated a
national law would erase a broad swath of False Claims Act
coverage. The point of the first-to-file bar is not to allow
isolated misconduct to inoculate large companies against
comprehensive fraud liability. The point, instead, is to
prevent copycat litigation, which tells the government nothing
it does not already know. Because Heath’s complaints go
after two materially distinct fraud schemes, the first-to-file bar
does not apply.
B. Federal Rule of Civil Procedure 9(b)
AT&T argues that the district court’s judgment can be
affirmed on the alternative ground that Heath’s complaint
failed to plead the alleged fraud with the particularity that
Federal Rule of Civil Procedure 9(b) requires.5 AT&T raised
this argument before the district court, but the district court
did not reach the issue. Heath, 47 F Supp. 3d at 44 n.2. We,
however, can affirm a judgment on any basis adequately
preserved in the record below. Queen v. Schultz, 747 F.3d
879, 884 (D.C. Cir. 2014); see also Kaemmerling v. Lappin,
553 F.3d 669, 676 (D.C. Cir. 2008) (compliance with Rule
5
“In alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be alleged
generally.” Fed. R. Civ. P. 9(b).
19
9(b)’s pleading requirement may be independently assessed
by the court of appeals in the first instance).
Rule 9(b) requires Heath to “state with particularity the
circumstances constituting fraud[.]” Fed. R. Civ. P. 9(b). The
rule serves to “discourage[] the initiation of suits brought
solely for their nuisance value, and safeguards potential
defendants from frivolous accusations of moral turpitude.”
United States ex rel. Williams v. Martin-Baker Aircraft Co.,
Ltd., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (quoting United
States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C.
Cir. 1981)). In addition, “because ‘fraud’ encompasses a
wide variety of activities,” the complaint must be particular
enough to “guarantee all defendants sufficient information to
allow for preparation of a response.” Id.Heath’s AT&T Nationwide Complaint satisfies Rule
9(b). It sets forth in sufficient detail the time, place, and
manner of AT&T’s scheme to defraud the Universal Service
Fund. From 1997 to 2009, the complaint alleges, AT&T
knowingly failed to enforce institutional compliance with the
lowest-corresponding-price requirement. AT&T Nationwide
Complaint ¶¶ 61–62. That behavior continued even after the
2004 consent decree obligated AT&T to standardize billing
practices and to train its employees. Id. ¶¶ 64–70. Because
AT&T “continued to ignore the Company’s responsibility to
offer” the lowest corresponding price, AT&T’s employees
remained ignorant of the requirement and consistently
overcharged E-Rate eligible schools and libraries. Id. ¶ 71.
As a result, AT&T “knowingly has caused school districts and
libraries to submit false claims for payment to [the Universal
Service Administrative Company], knowing that such false
claims would be submitted * * * for reimbursement” from the
federal program. Id. ¶ 108.
20
To support those allegations, the complaint includes
copies of AT&T’s training materials. AT&T Nationwide
Complaint Exhibit 3, Appendix 150–279. The complaint also
alleges that an audit of AT&T’s bills to the Detroit public
school system revealed that, between 2005 and 2010, AT&T
overbilled the E-Rate eligible schools by at least $2.8 million.
AT&T Nationwide Complaint ¶¶ 103–104.
In short, Rule 9(b)’s requirements of particularity as to
who (AT&T), what (detailed identification of a centralized
and institutionalized failure to comply with the lowest-
corresponding-price requirement, which resulted in massive
overbilling of a governmental program), where (through
nineteen subsidiaries and their interactions with E-Rate
schools and libraries across the Country), and when (1997 to
2009) have been satisfied. The complaint thus put AT&T on
fair notice of the fraud of which it is accused: That, even in
the wake of a consent decree pertaining to pervasive E-Rate
problems, AT&T persisted in knowingly or recklessly failing
to comply with the lowest-corresponding-price requirement,
which it knew was a material condition for E-Rate
reimbursement, which caused false claims to be submitted
and their payment later concealed.
AT&T makes three objections to the complaint’s
sufficiency, none of which succeeds. First, AT&T stresses
that the complaint fails to identify specific, affirmative
misrepresentations to the United States government. More
specifically, AT&T notes that Heath’s complaint relies on the
FCC’s Form 473, which requires AT&T to confirm annually
“that the invoice forms submitted by each service provider are
in compliance with the FCC’s rules[.]” AT&T Nationwide
Complaint ¶ 82. According to AT&T, during the complaint’s
time period, Form 473 did not require companies to certify
compliance with the lowest-corresponding-price requirement.
21
While the absence of allegations of affirmative
misrepresentations might underscore a difference between this
case and the Wisconsin case, the argument does not help
AT&T because fraud could be proven even without explicit
certifications of compliant rates. A fraud case can rest on
“implied” certifications if the defendant knowingly “withheld
information about its noncompliance with material contractual
requirements.” United States v. Science Applications Int’l
Corp., 626 F.3d 1257, 1269 (D.C. Cir. 2010).
The AT&T Nationwide Complaint includes sufficient
allegations of such implicit certifications. According to
Heath, during all relevant periods, the lowest-corresponding-
price requirement “was an express requirement of the E-Rate
program.” AT&T Nationwide Complaint ¶ 101. Compliance
“was a material condition for reimbursement,” id., and if the
Universal Service Administrative Company had known about
AT&T’s noncompliance, “it would have deemed all requests
for reimbursement for AT&T’s services ineligible, and would
not have issued payments on invoices submitted by AT&T, or
by the schools and libraries, for E-Rate Program services
provided by AT&T,” id. ¶ 99. Furthermore, Heath alleges
that AT&T knew that compliance was a material and express
condition for reimbursement. Id. ¶ 99–101.
Second, AT&T objects that the complaint fails to identify
the specific actors who made the false statements or
misrepresentations. But unlike cases in which relators have
vaguely alleged that ‘some managers’ perpetuated fraud,
Heath does identify a specific actor—AT&T itself. See Cook
County v. United States ex rel. Chandler, 538 U.S. 119, 125–
126 (2003) (“While § 3729 does not define the term ‘person,’
* * * [t]here is no doubt that the term then extended to
corporations[.]”); cf. Williams, 389 F.3d at 1256. The
complaint alleges that AT&T deliberately omitted E-Rate’s
22
lowest-corresponding-rate requirements from its pricing and
billing scheme and chose not to train its employees in E-Rate
compliance, leaving its subsidiaries’ employees unaware of
the illegality of their actions.
For a fraud like that, alleging with specificity how the
company itself institutionalized and enforced its fraudulent
scheme, and how it was manifested in corporate training
materials and audit reports, sufficiently identifies who
committed the fraud for the purposes of Rule 9(b). The
complaint makes clear, in other words, that corporate levers
were pulled; identifying precisely who pulled them is not an
inexorable requirement of Rule 9(b) in all cases. See United
States ex rel. Bledsoe v. Community Health Systems, Inc., 501
F.3d 493, 509 (6th Cir. 2007) (“[W]here the corporation is the
defendant in a [False Claims Act] action, we hold that a
relator need not always allege the specific identity of the
natural persons within the defendant corporation * * *.
[S]uch information is merely relevant to the inquiry of
whether a relator has pled the circumstances constituting
fraud with particularity.”).
Third, AT&T argues that the complaint lacks
“representative samples” of the claims that specify the time,
place, and content of the bills. That goes too far. Rule 9(b)
does not inflexibly dictate adherence to a preordained
checklist of “must have” allegations. See Thayer v. Planned
Parenthood of the Heartland, 765 F.3d 914, 918 (8th Cir.
2014) (“Rule 9(b) is context specific and flexible[.]”) (internal
quotation marks omitted); United States ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 188 (5th Cir. 2009) (“Rule 9(b)’s
ultimate meaning is context-specific, and thus there is no
single construction of Rule 9(b) that applies in all contexts.”).
23
Instead, the point of Rule 9(b) is to ensure that there is
sufficient substance to the allegations to both afford the
defendant the opportunity to prepare a response and to
warrant further judicial process. See Williams, 389 F.3d at
1256. What allegations are needed to invest the complaint
with indicia of reliability, moreover, may depend on the
nature of the fraud alleged and its statutory or common-law
source. See generally Grubbs, 565 F.3d at 188–189.
For example, False Claims Act qui tam complaints,
unlike common law or securities fraud claims, do not require
the plaintiff to prove either that a party relied on a specific
representation or that there has been a monetary injury.
Grubbs, 565 F.3d at 189. A person that presented fraudulent
claims that were never actually paid remains civilly liable. Id.In that context, providing identifying details about specific
payments is less important to put the defendant on notice.
Nor would such details serve the purpose of the False Claims
Act in this context. The federal government itself already has
records of those payments and thus “rarely if ever needs a
relator’s assistance to identify claims for payment that have
been submitted[.]” See Br. for the United States as Amicus
Curiae at 16, United States ex rel. Nathan v. Takeda Pharm.
N. Am., Inc., 134 S. Ct. 1759 (2014). Instead, in such cases,
the greater concern is with the “other information” relators
have “that shows those claims to be false.” Id.We accordingly join our sister circuits in holding that the
precise details of individual claims are not, as a categorical
rule, an indispensable requirement of a viable False Claims
Act complaint, especially not when the relator alleges that the
defendant knowingly caused a third party to submit a false
claim as part of a federal regulatory program. See Foglia v.
Renal Ventures Mgmt., LLC, 754 F.3d 153, 156–157 (3d Cir.
2014); Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993,
24
998–999 (9th Cir. 2010); United States ex rel. Lemmon v.
Envirocare of Utah, Inc., 614 F.3d 1163, 1172–1173 (10th
Cir. 2010); United States ex rel. Lusby v. Rolls-Royce Corp.,
570 F.3d 849, 854 (7th Cir. 2009); United States ex rel.
Duxbury v. Ortho Biotech Prods., LP, 579 F.3d 13, 29 (1st
Cir. 2009); Grubbs, 565 F.3d at 190. The central question,
instead, is whether the complaint alleges “particular details of
a scheme to submit false claims paired with reliable indicia
that lead to a strong inference that claims were actually
submitted.” Grubbs, 565 F.3d at 190.
Heath’s complaint passes that test. He provides factual
specificity concerning the type of fraud, how it was
implemented, and the training materials used, all of which is
then corroborated by the concrete example of the Detroit audit
documenting the very type of overbilling that follows the
complaint’s pattern.
AT&T relies on a handful of cases from outside this
circuit to suggest that relators must always plead specific,
representative samples. AT&T Br. 27 (citing United States ex
rel. Dunn v. North Mem’l Health Care, 739 F.3d 417, 418
(8th Cir. 2014); United States ex rel. Nathan v. Takeda
Pharm. N. Am., Inc., 707 F.3d 451, 456–460 (4th Cir. 2013),
cert. denied, 134 S. Ct. 1759 (2014); United States ex rel.
SNAPP, Inc. v. Ford Motor Co., 532 F.3d 496, 503 (6th Cir.
2008); United States ex rel. Joshi v. St. Luke’s Hospital, Inc.,
441 F.3d 552, 557 (8th Cir. 2006)). Those circuits, however,
do not read their precedent as rigidly as AT&T does and, in
fact, have acknowledged the need for some functional
flexibility in reviewing a complaint’s allegations. See, e.g.,
Thayer, 765 F.3d at 918 (“We agree that ‘[s]tating “with
particularity the circumstances constituting fraud” does not
necessarily and always mean stating the contents of a bill.’”)
(alteration in original); Nathan, 707 F.3d at 457 (requiring
25
only “some indicia of reliability” that a false claim had been
presented to the government); Chesbrough v. Visiting
Physicians Ass’n, 655 F.3d 461, 471 (6th Cir. 2011) (“[W]e
do not foreclose the possibility that this court may apply a
‘relaxed’ version of Rule 9(b) in certain situations[.]”).
Moreover, to require relators to plead representative
samples of claims actually submitted to the government
would require relators, before discovery, to prove more than
the law requires to be established at trial. See Lusby, 570 F.3d
at 854–855; Grubbs, 565 F.3d at 188–189. To win his case, a
relator does not need to identify “exact dollar amounts, billing
numbers, or dates to prove to a preponderance that fraudulent
bills were actually submitted.” Grubbs, 565 F.3d at 190. We
decline to read Rule 9(b) as requiring more factual proof at
the pleading stage than is required to win on the merits.6
IV
Conclusion
The first-to-file rule is a nonjurisdictional procedural bar
that does not apply here because the frauds alleged in Heath’s
two cases differ in material respects. We also hold that the
AT&T Nationwide Complaint complies with the pleading
requirements of Federal Rule of Civil Procedure 9(b). We
accordingly reverse the judgment of the district court
dismissing the complaint and remand for further proceedings.
So ordered.
6
AT&T argued below that the public-disclosure bar, 31 U.S.C.
§ 3730(e)(4)(a), also requires dismissal of the complaint. That
argument was not pressed here, and we take no position on it.