Contract – First-to-File Rule No Bar to FCA Claim

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U.S. ex rel. Patrick Carson v. Manor Care Inc. (Lawyers Weekly No. 001-063-17, 23 pp.) (Agee, J.) No. 16-1035, March 16, 2017; USDC at Alexandria, Va. (Hilton, J.) 4th Cir.

Holding: A former physical therapy assistant can pursue his False Claims Act claim that he was fired in retaliation for complaining about overbilling at a care facility, even though the district court correctly dismissed his other FCA claims as barred by the first-to-file rule; because the district court failed to state any authority for dismissing plaintiff’s state fraud claims, the 4th Circuit vacates that judgment as well.

Two Suits

In January 2009, occupational therapist Christine Ribik filed a qui tam action under seal in the Eastern District of Virginia on behalf of the U.S. against her former employer, Manor Care, alleging claims of overbilling. Ribik alleges Manor Care regularly and fraudulently classified its patients as needing more physical therapy than necessary and instructed its physical therapists to spend more time than needed with patients, resulting in higher Medicare payments. She alleged Manor Care sent some patients to physical or occupational therapy who did not need it at all and refused to discharge patients for whom physical therapy was no longer useful.

In September 2011, appellant Patrick Carson filed a qui tam suit under seal against Manor Care in the same court on behalf of the U.S. and several states against Manor Care under the FCA and the state-equivalent statutes. Carson, a physical therapy assistant, alleged Manor Care, his former employer, had committed fraud on the government through its billing practices, including overbilling for therapy services provided; billing for therapy services not provided; billing non-skilled activities as skilled therapy; and billing for unreasonable, unnecessary and at times harmful therapy. Carson also claimed defendant retaliated against him by firing him after he complained about overbilling.

Ribik and Carson’s cases were consolidated in June 2012, and a third case was added in November 2014. The U.S. government filed a notice of election to intervene in the consolidated case, and the consolidated complaint in intervention was filed in April 2015.

On motion by the government, the district court dismissed Carson’s complaint under the first-to-file rule. Carson appealed.

First-to-File Rule

The court applies a “material elements test” in determining whether a later-filed complaint is based on the facts underlying a previously filed complaint. If a court finds that the particular action before it is barred by the first-to-file rule, the court lacks subject matter jurisdiction over the later-filed matter.

Carson’s claims are essentially the same as those found in Ribik’s complaint. The shared contention of both complaints is that Manor Care implemented a scheme of overbilling for medical and physical therapy costs in order to defraud the government. Neither Carson’s factual additions nor the fact that his experience took place in Pennsylvania, as opposed to Ribik’s experience in Virginia, saves him from the first-to-file bar simply by alleging additional facts relating to how Manor Care overbilled the government. Nor did it matter that the district court had consolidated the suits.

The district court properly determined that it lacked subject matter jurisdiction over Carson’s qui tam action under the FCA. However, his separate claim for retaliatory termination survives. The first-to-file rule has no relation to a claim for retaliation under the FCA.

Application of the first-to-file rule is contained solely within the “actions by private persons” of 31 U.S.C. § 3730(b) and thus only applies to claims covered by that subsection. Under the plain language of the statute, § 3730(h) stands independently to subsection (b) and deals with an entirely different subject matter: retaliatory acts as opposed to false claims.

The district court also dismissed the state fraud claims on the basis of the federal first-to-file rule. The district court did not support its decision with any discussion or authority to establish that any of the states apply the FCA first-to-file rule, or its equivalent, to that state’s statute. The district court should have the opportunity to address this issue.

Affirmed in part, vacated and remanded in part.