Opinion ID: 1226703
Heading Depth: 2
Heading Rank: 2

Heading: The FCA's First-to-File Bar

Text: Section 3730(b)(5) bars a plaintiff from bringing a related action based on the facts underlying [a] pending action. Although this circuit has yet to articulate a test to determine when this provision applies, those circuits to do so have uniformly asked whether the later-filed action alleges the same material or essential elements of fraud described in the pending action. In United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227 (3d Cir.1998), for example, the Third Circuit rejected an argument that § 3730(b)(5) bars only later-filed qui tam actions arising from facts identical to those underlying a pending action, noting that the text of the statute applies to  related action [s] based on the facts underlying the pending action. Id. at 232 (quoting 31 U.S.C. § 3730(b)(5)) (emphasis added). According to the Third Circuit, if a later allegation states all the essential facts of a previously-filed claim, the two are related and § 3750(b)(5) bars the later claim, even if that claim incorporates somewhat different details. Id. at 232-33. Although LaCorte focused primarily on the text of § 3730(b)(5), the Third Circuit also found support for its construction in the history of the FCA. The 1986 amendment to the FCA, which introduced the current version of § 3730(b)(5), attempted to achieve the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their own. Id. at 234 (citation omitted). According to the Third Circuit, an overly narrow interpretation of § 3730(b)(5) would disrupt this delicate balance because dozens of relators could expect to share a recovery for the same conduct, decreasing their incentive to bring a qui tam action in the first place. Id. In contrast, a broader bar furthers the purpose of the FCA's qui tam provisions by ensuring a race to the courthouse among eligible relators, which may spur the prompt reporting of fraud. Id. (internal quotations and alternations omitted). In Walburn v. Lockheed Martin Corp., 431 F.3d 966 (6th Cir.2005), the Sixth Circuit explicitly adopted the reasoning of LaCorte, holding that § 3730(b)(5) applies if both complaints allege `all the essential facts' of the underlying fraud, ... even if [the later-filed] complaint `incorporates somewhat different details.' Id. at 971 (quoting LaCorte, 149 F.3d at 232-33). The Ninth Circuit did the same in United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181 (9th Cir.2001), although it adopted slightly different language: § 3730(b)(5) bars later-filed actions alleging the same material elements of fraud described in an earlier suit, regardless of whether the allegations incorporate somewhat different details. Id. at 1189; see also United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217-18 (D.C.Cir.2003) (adopting the Ninth Circuit's material elements of fraud test from Lujan ). [9] Likewise, the Tenth Circuit, relying again on LaCorte, has found § 3730(b)(5) applicable where the later-filed action does no more than assert the same material elements of fraud described in a pending action. United States ex rel. Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 (10th Cir.2004). We agree with these circuits that the applicability of § 3730(b)(5) should be determined under an essential facts or material elements standard. Accordingly, as long as the later-filed complaint alleges the same material or essential elements of fraud described in a pending qui tam action, § 3730(b)(5)'s jurisdictional bar applies. The question then becomes whether the district court properly applied this standard, i.e., whether Branch's complaint avoids the potential preclusive effect of Rigsby because it alleges different details, different geographic locations, and different wrongdoers.
We agree with the district court that a relator cannot avoid § 3730(b)(5)'s first-to-file bar by simply adding factual details or geographic locations to the essential or material elements of a fraud claim against the same defendant described in a prior compliant. As the Third Circuit explained, a relator who merely adds details to a previously exposed fraud does not help reduce fraud or return funds to the federal fisc, because once the government knows the essential facts of a fraudulent scheme, it has enough information to discover related frauds. LaCorte, 149 F.3d at 234; see also Grynberg, 390 F.3d at 1279 (The pendency of [an] initial qui tam action ... blocks other private relators from filing copycat suits that do no more than assert the same material elements of fraud, regardless of whether those later complaints are able to marshal additional factual support for the claim.). Any construction of § 3730(b)(5) that focused on the details of the later-filed action would allow an infinite number of copycat qui tam actions to proceed so long as the relator in each case alleged one additional instance of the previously exposed fraud. This result cannot be reconciled with § 3730(b)(5)'s goal of preventing parasitic qui tam lawsuits. See Laird, 336 F.3d at 351. Under this framework, the district court properly dismissed Branch's allegations against State Farm. Rigsby specifically alleged that State Farm, in its capacity as a WYO insurer, reallocated claims on two Mississippi properties from wind damage to flood damage in a pernicious attempt to shift its costs to the federal fisc. Branch brought identical allegations against State Farm, except it also alleged facts concerning ten properties in neighboring Louisiana. Because Branch cannot avoid the preclusive effect of Rigsby by focusing on additional instances of fraud occurring in other geographic locations, § 3730(b)(5) applies to bar its allegations against State Farm. [10]
For this same reason, we affirm the dismissal of Allstate, named in the Rigsby complaint. We recognize that only skeletal allegations are raised against Allstate in that case. We express no opinion on the as-yet-unpresented question of whether a dismissal for lack of any factual basis or on Rule 9(b) grounds in the Rigsby case would then permit a suit by Branch or any other person with knowledge of facts from suing Allstate without facing the first-to-file bar. In other words, if the first-filed case is essentially a sham, does it continue to be first after the court in that case dismisses it? The answer to that question should await a case in which it is squarely presented.
The district court also dismissed Branch's allegations against a host of Defendants not named in Rigsby, presumably on the theory that Rigsby 's broad allegations preempted the entire field of Katrina-related WYO fraud. No circuit has directly addressed the issue of whether allegations in a first-filed action can bar related allegations against wholly unrelated defendants brought in a subsequent action. The closest cases are those holding that allegations of fraud against a corporation may bar subsequent allegations of fraud against the corporation's subsidiaries. In Hampton, for example, the District of Columbia Court of Appeals held that § 3730(b)(5) barred an action against certain subsidiaries and employees of a corporation in light of a first-filed action naming only the corporation. 318 F.3d at 218-19. In reaching this conclusion, however, the court relied heavily on the fact that the first-filed action alleged a corporate-wide fraud perpetrated by the corporation directly through its subsidiaries. Id.; see also Grynberg, 390 F.3d at 1280 n. 4 (relying on Hampton to conclude that an FCA action against a corporation barred a subsequent action alleging the same essential claim of fraud against its subsidiaries). Several circuits have also addressed the issue of unnamed wrongdoers in the context of the FCA's public disclosure bar, § 3730(e)(4)(A), which, as we stated above, is not the same thing as the first-to-file bar. See, e.g., United States ex rel. Gear v. Emergency Med. Assocs. of Ill., Inc., 436 F.3d 726, 729 (7th Cir.2006) (industry-wide public disclosures of Medicare fraud bar qui tam actions against any defendant who is directly identifiable from the public disclosures); United States v. Alcan Elec. & Eng'g, Inc., 197 F.3d 1014, 1019 (9th Cir.1999) (public disclosures of fraud that failed to identify specific defendants but pertained to a narrow class of suspected wrongdoerslocal electrical contractors who worked on federally funded projects over a four-year periodtriggered the public disclosure bar as to those contractors); United States ex rel. Fine v. Sandia Corp., 70 F.3d 568, 572 (10th Cir.1995) (where disclosures revealed that at least two of [the laboratory's] eight sister laboratories were engaged in a fraud, the government would have little trouble examining the operating procedures of nine, easily identifiable, [Department of Energy]-controlled, and government-owned laboratories.); United States ex rel. Cooper v. Blue Cross and Blue Shield of Fla., Inc., 19 F.3d 562, 566 (11th Cir.1994) (allegations of widespread Medicaid fraud made in sources in which a particular insurance company was not specifically named or otherwise directly identified were insufficient to trigger the public disclosure bar). If we were to apply these decisions by analogy to the first-to-file situation, they suggest that there might be situations in which the allegations in a first-filed complaint pertain to such a narrow or readily-identifiable group of potential wrongdoers that § 3730(b)(5) acts to bar subsequent allegations against previously unnamed defendants. But that is not the case here. Rigsby does not allege a true industry-wide fraud or concerted action among a narrow group of participants. Rather, looking only at the facts pleaded (not any public information, which is not part of the first-to-file analysis), Rigsby implicates, at most, four specific WYO insurers among the approximately ninety-five WYO insurers conducting business in the Louisiana and Mississippi areas during Hurricane Katrina. Thus, Rigsby tells the government nothing about which of the ninety-one other WYO insurers (and adjusting firms working for or with those insurers), if any, actually engaged in any fraud. The potential for fraud exists in any government program and, certainly, in the situation presented by Hurricane Katrina where mass amounts of federal funds were expended in emergency and less-controlled conditions. By itself, then, Rigsby tells us nothing about any parties not named therein. [11] Thus, in combing through a host of WYO insurers and identifying those specific insurers and adjusting firms that may have committed wind/water fraud, Branch likely revealed instances of fraud that would have otherwise eluded the government. Further, unlike the additional defendants named in Hampton and Grynberg, the additional defendants named in this case are not corporate affiliates or subsidiaries of the Rigsby defendants. Neither Rigsby nor Branch alleges that Katrina-involved WYO insurers conspired or acted in concert to defraud the government. They are not part of a small group of carefully-monitored federal contractors, or working together on a particular site. Rather, the class of wrongdoers that may have committed Katrina-related wind/water fraud are independent entities operating wholly separately, related only by their mutual participation in the government's WYO program. Under these circumstances, forcing the government to expend its limited time and resources wading through the records of ninety-one WYO insurers in an attempt to identify specific instances of fraud would completely undermine the enforcement component of the FCA's qui tam provisions. That is not to say that the first-filed bar can never bar a suit against an unnamed alleged fraud-feasor who is not a corporate relative of the named fraud-feasor. As stated above, once the government knows the essential facts of the fraudulent scheme, it has enough information to discover related fraud. LaCorte, 149 F.3d at 234. Here, nothing in the Rigsby complaint provided the government with facts from which it could discern a widespread fraud involving all WYO insurers or the identities of other specific fraud-feasors. Thus, the claims in the present case against previously unnamed alleged fraudfeasors are not barred by the first-to-file rule. Accordingly, we conclude that the district court erred in dismissing under the first-to-file rule the Branch Defendants that Rigsby failed to name.