The False Claims Act’s first-to-file rule does not prevent a federal court from hearing a case entirely, the Ninth Circuit Court of Appeal ruled Sept. 24. A concurring opinion, written by the author of the majority opinion, argued that a judge’s off-hand comments in opinions should not set Ninth Circuit precedent.
The Sept. 24 11-judge opinion restored the case of a Los Angeles Kaiser Foundation Hospital records administrator, Marcia Stein, who accused her former employee of committing Medicare fraud.
Allegations
“(Kaiser) participated in a fraudulent scheme to up-code and falsely diagnose MA (Medicare Advantage) enrollees with sepsis and/or severe sepsis, i.e., sepsis with acute organ failure…when sepsis was not present. Such false sepsis diagnoses were made in order to increase the risk adjustment scores for the MA enrolled so diagnosed and thereby increase CMS’s capitation payments to (Kaiser). This scheme was also promoted by (Kaiser) to falsely lower (Kaiser’s) reported sepsis mortality rates thereby improve (Kaiser’s) reputation and prestige as a quality hospital provider,” Stein’s Nov. 3, 2016 amended complaint said.
Stein was not the only one who alleged Kaiser submitted false claims: She was one of six. The first filed in 2013, and the last filed in 2020. The cases were consolidated in June 2021.
United States prosecutors decided to take on the consolidated charges that Kaiser filed false claims under the Medicare Advantage plan by filing for improper diagnoses. The prosecutors did not pick up the cases in their entirety.
False Claims Act
Kaiser moved to dismiss the remaining arguments still brought by the six litigants. They argued that the False Claims Act prevents the cases being heard at all.
The False Claims Act includes the first-to-file rule: “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”
The rule is intended to promote incentives for whistleblowers, and to prevent opportunistic plaintiffs from jumping in on a well-grounded lawsuit, according to the Ninth Circuit.
Rulings
Circuit judges had previously found that the first-to-file rule completely prevented a federal court from hearing a second False Claims Act case against an entity. Legally, this meant that the court did not have jurisdiction to hear a case.
This precedent led to Northern District of California Judge Edward Chen’s approval of Kaiser’s motion to dismiss Stein’s case on June 3, 2022.
“Although not all courts agree, the Ninth Circuit has expressly held that the first-to-file provision (§ 3730(b)(5)) is jurisdictional in nature,” Chen wrote.
Stein appealed, and the case appeared before Ninth Circuit Judges Danny Boggs, Sidney Thomas and Danielle Forrest. They denied Stein’s appeal on Jan. 10.
“We are bound by (the 2015 case Hartpence v. Kinetic Concepts) holding that ‘we treat the first-to-file bar as jurisdictional,’” the memorandum reads.
Reversal
In a concurring opinion, Forrest wrote that, although Hartpence is binding precedent, it is inconsistent with Supreme Court doctrine, and should be overturned.
The first-to-file rule does not clearly say that it is jurisdictional, even though different provisions of the False Claims Act discuss jurisdiction, Forrest wrote. The Hartpence ruling’s precedence on the first-to-file rule was not done with analysis, because Hartpence was not explicitly about the rule, Forrest wrote. Other circuit courts that have analyzed the first-to-file rule have found it is not jurisdictional, Forrest continued.
Forrest got her wish by writing the 11-judge appellate opinion Sept. 24.
“Two decades ago, we labeled this (first-to-file) rule ‘jurisdictional’ without any analysis (in 2001’s Hughes Aircraft Co. v. United States). Then, sitting en banc in Hartpence, we cited Hughes and reiterated that we ‘treat the first-to-file bar as jurisdictional. But we again neglected to provide any analysis. Simply put, the nature of the first-to-file rule was hardly part of our consideration of these cases,” Forrest wrote.
“When our law is wrong, it is our duty to correct it. This case brings to light an error in our case law. All we do today as an en banc court is bring ourselves in line with current Supreme Court doctrine,” Forrest continued.
Rethinking dicta
Forrest also wrote a concurring opinion in which she argued that the Ninth Circuit should not apply offhand comments about legal issues not questioned in a case, legally known as dicta, as precedent. She was joined only by Circuit Judge Patrick Bumatay.
“This case demonstrates that our dicta-is-binding rule is burdensome and misguided. But even more troubling, it lacks legal foundation. We should discard it because it causes unnecessary inefficiency and wastes resources, as it did here, and because it is contrary to the common-law tradition of judging,” Forrest wrote.
Forrest argued that dicta have traditionally been non-binding, by definition are uninformed, and by practice are only applied by the Ninth Circuit.
“We stand out like a flamingo in a flock of finches in treating dicta as binding. But it was not always so,” Forrest wrote.
She traced the circuit’s use of dicta back to the 2001 case United States v. Johnson which said, “We hold, instead, that where a panel confronts an issue germane to the eventual resolution of the case, and resolves it after reasoned consideration in a published opinion, that ruling becomes the law of the circuit, regardless of whether doing so is necessary in some strict logical sense.”
Forrest described that statement as another piece of dicta which should never have been made precedent.
“The issue of dicta was never briefed, argued or conferenced,” Forrest wrote.
Case information
Case No. 3:16-cv-05337
Appellate Case No. 22-15862
Circuit Judges Mary Murguia, Johnnie Rawlinson, Milan Smith Jr., Jacqueline Nguyen, Bridget Bade, Kenneth Lee, Danielle Forrest, Patrick Bumatay, Gabriel Sanchez, Roopali Desai and Anthony Johnstone joined Forrest’s majority ruling.
Read the dismissal ruling here
Read the Jan. 10 appellate memo here
Read the Sept. 24 en banc ruling here
