Seventh Circuit Uses Rule 9(b) to Dismiss False Claims Act Case

08 January 2015 Wisconsin Appellate Law Blog

The Seventh Circuit has been on quite a tear recently with cases involving the False Claims Act; we wrote about three of them, involving the federal assignment law, the worthless-services doctrine, and the public-disclosure bar, last year.

The latest in this string of cases is United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, No. 13-3383 (Dec. 3, 2014), a decision written by Judge Posner, in which the court affirmed the dismissal of the relator’s complaint for failure to plead his false claim with sufficient particularity under Fed. R. Civ. P. 9(b). 

The relator, Grenadyor, was a pharmacist at Ukrainian Village Pharmacy in Chicago. He alleged that the pharmacy defrauded the government by giving customers gifts (tins of caviar and Russian-language “TV Guides”), by forgiving their copays, and by seeking reimbursement for drugs that the pharmacy never delivered.

The district court dismissed the case, but did so for the wrong reason. To violate the False Claims Act one must “knowingly present . . . a false or fraudulent claim for payment or approval” by the government. That sort of fraud was rampant during the Civil War and the Lincoln administration, when the False Claims Act (sometimes called the “Lincoln law”) first became law. The false claim here allegedly was made on a form that the pharmacy completed to receive reimbursements from the Medicare program, where it promised “to abide by the Medicare laws, regulations and program instructions that apply to this supplier.” The district court thought that this promise didn’t amount to a false claim, but the Seventh Circuit disagreed. “If you say ‘I agree’ when you don’t agree, you’re making a false statement, . . . [and m]aking a false promise in order to obtain something of value is fraud, and can be the basis of a claim under the False Claims Act.” Slip op. 4-5.

It wasn’t Grenadyor’s legal theory that was the problem with his complaint; it was the facts and the lack of any particularity in his allegations. For example, Grenadyor had alleged that the pharmacy signed the form in 2004, but he didn’t have any allegations to show that it was forgiving co-pays then. He wasn’t employed there until 2006. Or take the caviar and the Russian-language TV Guides: Grenadyor’s complaint did not contain a single allegation identifying a claim that the pharmacy submitted to Medicare on behalf of a patient who had received these gifts. He knew only that it was the pharmacy’s general practice to give gifts. Likewise, all he alleged concerning prescriptions billed but never delivered were two occasions when customers failed to pick up their orders. That hardly amounted to the proof necessary under Rule 9(b), which, according to the court, has a heightened pleading standard because “a public accusation of fraud can do great damage to a firm before the firm is (if the accusation proves baseless) exonerated in litigation.” Slip op. 5.

Grenadyor did attempt to revive his allegations regarding the co-pays by arguing in the alternative that each bill submitted to the government was “an implicit assurance that the bill is lawful.” This was his attempt to bring forward in time the pharmacy’s 2004 promise, and it’s otherwise known as the “implicit-certification theory.” The theory has been recognized by some courts, though the Seventh Circuit (so far) declined to take the plunge as recently as last year in United States ex rel. Absher v. Momence Meadows Nursing Center, Inc., 764 F.3d 699, 711 & n.13 (7th Cir. 2014), the subject of our worthless-services post. A ruling on the theory’s validity will have to wait for another day, for the Grenadyor court believed that Grenadyor’s factual allegations failed regardless.

The court affirmed dismissal of Grenadyor’s complaint with prejudice, but reversed dismissal of a related claim for retaliation and remanded for further proceedings.

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