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Successful Fraud Claims Under the False Claims Act Require More Than Mere Whistleblower Allegations

A Whistleblower must "clearly state the substance of the fraud that has been committed"

The Fifth Circuit recently affirmed the dismissal of a qui tam relator's claims under the False Claims Act for failing to "clearly state the substance of the fraud that has been committed." In upholding dismissal of the whistleblower's claims, the court emphasized the fact that "descriptive or conclusory allegations" are not sufficient to state a claim under the False Claims Act. , --- F.3d ---, 2013 WL 4436264 (5th Cir. Aug. 20, 2013).

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A Whistleblower's Claims Must Be Alleged With Particularity

From 1996 to 2001 the relator marketed a medical device to the U.S Department of Veterans Affairs.  The relator alleged that in early 2001 she notified management after she became aware of a design flaw in the device that could potentially result in a patient's death.  The defendant company suspended shipment of the devices for three months in mid-2001 while it reviewed the defect, but the relator claimed she continued to market the device during the review period.  At the end of the review period, when she was scheduled to fill an order with the VA, the relator was fired.

The relator sued the device manufacturer in 2007 for alleged False Claims Act violations, claiming that when the manufacturer submitted claims for payment to the government, it was implicitly certifying compliance with all federal laws and regulations as well as the terms of the contract with the government, including the warranty of merchantability.  However, the contract at issue contained no express requirement that the manufacturer certify compliance as a condition for seeking payment. The district court dismissed the relator's complaint, and in 2010 the Fifth Circuit affirmed the dismissal on appeal but remanded to allow the relator to amend her complaint.

The relator filed two more amended complaints, alleging (1) that merchantability was a "standard condition" of the manufacturer's contracts with the VA and that the VA would not have paid for the Signature pumps had the VA been aware of the defect, and (2) that the devices were "worthless" because the VA's expected tort liability from using the devices exceeded the expected benefit.  The district court dismissed both of relator's attempts to amend her complaint, and she then appealed to the Fifth Circuit.

The Fifth Circuit Rejected A Whistleblower's Claims For Failing To Specify The Fraud

The False Claims Act requires the whistleblower plaintiff to prove that the defendant knowingly presented a false claim to the government for payment.  31 U.S.C. § 3729(a)(1)(B).  In addition, under Federal Rule of Civil Procedure 9(b), successful claims "must state with particularity the circumstances constituting fraud," or, in other words, the "who, what, when, where, and how" of the alleged fraud.

Read here about how the Federal False Claims Act (FCA) includes a provision which protects whistleblowers from retaliation from their employers.

The Fifth Circuit held the relator's allegations were deficient because she did not identify the specific contractual provisions regarding merchantability. The court stated that in order to show fraud, the relator must allege how the devices deviated from the government's specifications and that the manufacturer knowingly sold the government defective devices.  The court also observed that government procurement regulations do not provide that merchantability is a standard contract condition, as the government can override implied merchantability provisions with express warranties, or can accept and pay for noncompliant items, meaning payment is not conditioned on compliance with the warranty of merchantability.  The relator's conclusory allegations did not properly plead that the government would not have paid the manufacturer in the absence of the merchantability provision in the contract.

Qui Tam Reloator Must State Who, What, When, Where or How of the Claim

 

Finally, the court refused to consider the relator's worthless goods claim because the relator did not address the who, what, when, where or how of the claim. The relator did not allege that any device sold to the VA over a nine-year period was ever found to be deficient or worthless, that any patient was harmed to the use of the device at a VA hospital, or that the VA was ever sued for an injury allegedly caused by a defective device.

Contact Us To Learn More

We invite you to learn more from our Whistleblowers, Qui Tam & False Claims Act Practice Group. For more information or to schedule a confidential discussion about a potential false claims case against the government, please fill out the form on the right. You can also call us at (215) 875-4699.

For further reading:
Federal and State Whistleblower Laws
Searching and Picking a Whistleblower Qui Tam Law Firm for Your Case
Types of False Claims Cases to take Action On
Should I be a whistleblower and report government fraud?

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