Health Law Daily Relator’s bad faith warranted dismissal, circuit finds first-to-file rule not jurisdictional
Monday, April 10, 2017

Relator’s bad faith warranted dismissal, circuit finds first-to-file rule not jurisdictional

By Kayla R. Bryant, J.D.

The False Claims Act’s (FCA) (31 U.S.C. §3729) first-to-file rule is nonjurisdictional and does not wrench subject matter jurisdiction away from a court, and the trial court did not abuse its discretion in dismissing an action without leave to amend based on finding that the relator made misrepresentations in bad faith. The U.S. Court of Appeals for the Second Circuit affirmed the dismissal in a summary order, and addressed its position on the circuit-splitting issue of the jurisdictional impact of the first-to-file rule in its precedential opinion by looking to congressional intent (U.S. ex rel. Hayes v. Allstate Insurance Company, April 4, 2017, per curiam).

Qui tam action and bad faith. The attorney relator alleged that over 60 companies (most of them liability insurance companies), alleging a practice of noncompliance with Medicare reimbursement regulations. He based this allegations on personal knowledge obtained through conversations with attorneys, defense counsel, and carrier representatives. In a motion for expedited discovery, the relator admitted that some of the companies might not have been parties to the scheme. He was ordered to show cause why he had not violated rules of civil procedure by making inconsistent claims, and the magistrate judge ultimately recommended that the complaint be dismissed with prejudice due to claims made in bad faith. The district court adopted the recommendation and dismissed the complaint. The Second Circuit affirmed despite the relator’s claims of confusion due to "corporate complexities," finding that even if this explanation were true, it does not justify falsely claiming personal knowledge of wrongdoing by all of the named companies.

First-to-file rule’s jurisdictional implications. In opposing the relator’s appeal before the Second Circuit, a group of companies argued that the district court did not have subject matter jurisdiction over the qui tam action because the relator did not satisfy the FCA’s first-to-file rule. This rule precludes qui tam actions filed while similar actions are pending based on the same underlying facts. The companies noted that a related action was pending in the same district when this claim was filed, and argued that the district court had no subject matter jurisdiction over this case from the time the claim was filed.

Several circuits, including the Fourth, Fifth, and Sixth Circuits have found the first-to-file rule to be jurisdictional. The Second Circuit, however, agreed with the D.C. Circuit’s position that it is not jurisdictional and that the rule addresses the question of whether the relator has stated a claim. The Second Circuit pointed to the U.S. Supreme Court’s bright line for determining a statutory limitation’s impact on jurisdiction: a clear congressional statement that the rule is jurisdictional. In this case, the Second Circuit found that the language of the rule only discusses when and by whom a private action can be brought under the FCA, in contrast to other FCA provisions that do invoke district court jurisdiction.

The case is No. 16-705.

Attorneys: Joseph J. Karaszewski, U.S. Attorney’s Office, for the United States of America. Sharon Angelino (Goldberg Segalla LLP) and Steven Levy (Dentons US LLP) for Allstate Insurance Co. Susan Lynn Swatski (Hill Wallack LLP) for Daimler Chrysler Insurance Co. Heath J. Szymczak (Bond, Schoeneck & King, PLLC) for Erie Insurance Co. of New York. David L. Yohai (Weil, Gotshal & Manges LLP) for Farmers Insurance Exchange.

Companies: United States of America; Allstate Insurance Co.; Daimler Chrysler Insurance Co.; Erie Insurance Co. of New York; Farmers Insurance Exchange

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