In United States ex rel. Sedona Partners LLC v. Able Moving & Storage Inc., the Eleventh Circuit Court of Appeals (the “Court”) recently reversed a district court’s ruling that relators could not use materials obtained during discovery to satisfy the heightened pleading requirement under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”).
Background
The False Claims Act (“FCA”), codified at 31 U.S.C. §§ 3729-3733, empowers private individuals, known as relators, to bring qui tam lawsuits on behalf of the U.S. government for false or fraudulent claims submitted for federal reimbursement. When relators sue under the FCA, they need to satisfy the heightened pleading standard of Rule 9(b). Specifically, relators must “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). In a 2019 unpublished opinion, the Court held that discovery material could not be used in a relator’s qui tam FCA complaint because that would “circumvent the purpose of Rule 9(b).” Bingham v. HCA, Inc., 783 F. App’x 868, 876 (11th Cir. 2019).
Here, in 2020, Sedona Partners LLC (“Sedona Partners”) filed a qui tam action alleging the government was defrauded by a group of transportation service providers (“TSPs”) who coordinated from 2008-2018 to circumvent the “America First” shipping policy in order to secure cheaper contracts. The government declined to intervene in the action.
The TSPs moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Sedona Partners’ first amended complaint. While that motion was pending, the district court allowed discovery to continue. After the district court granted the TSPs’ motion to dismiss, Sedona Partners filed a second amended complaint using information obtained through discovery. The TSPs again moved to dismiss and to strike allegations from the complaint that were based on information obtained during discovery.
The district court granted the motions to dismiss and to strike those allegations, reasoning that allowing plaintiffs to use discovery material to satisfy the heightened pleading standard of Rule 9(b) would render the standard a “nullity.”
Heightened Pleading Under Rule 9(b)
The Court reversed the district court’s dismissal, holding that nothing in the Federal Rules of Civil Procedure, and specifically Rule 9(b), prohibits a relator from using discovery materials to satisfy the Rule 9(b) heightened pleading standard.
On appeal, the TSPs argued that Rule 9(b) would be nullified if relators were allowed to use discovery material to remedy their deficient FCA claims. Further, the TSPs urged the Court to rely on the persuasive authority of Bingham. The Court declined to accept either argument.
Instead, the Court relied on two principal arguments in coming to its decision: (1) the plain meaning of the text of Rule 9(b) gives no indication that relators are prohibited from using discovery materials to cure their otherwise deficient FCA claims; and (2) the United States Supreme Court has warned courts to avoid supplementing the Federal Rules of Civil Procedure on a case-by-case basis. Addressing the first argument, the Court noted that the Federal Rules of Civil Procedure do not prohibit relators from using discovery material in their complaints and, in fact, allow parties to “amend [their] pleadings to reflect information gained from any source.”
Ultimately, the Court concluded that the district court’s dismissal and striking of Sedona Partners’ second amended complaint violated the plain language of Rule 9(b) and amounted to the type of ad hoc supplementation of pleading standards the Supreme Court has expressly sought to avoid. In ruling, the Court joined a growing minority of Circuits that allow relators to use discovery materials to cure defects in their Rule 9(b) pleadings.
Practical Takeaways
- Discovery Material Allowed for Pleading Under Rule 9(b) – Relators bringing actions under the FCA in the Eleventh Circuit may now use materials obtained during discovery to meet the heightened pleading standard of Rule 9(b).
If you have questions or would like more information about this topic, please contact:
- David Honig at (317) 977-1447 or dhonig@hallrender.com;
- Kennedy Bunch at (317) 977-1420 or kbunch@hallrender.com; or
- Your primary Hall Render contact.
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