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False Claims Act Relator's Claim Remanded in Light of Recent Ruling

The Sixth Circuit Court of Appeals remanded a False Claims Act relator's qui tam action to the district court for a new ruling on the relator's motion to file a second amended complaint, because the district court should be allowed to reconsider the motion in light of an intervening decision establishing a new rule of law. The dispute arose out of a small business subcontractor's allegations its prime contractor fraudulently represented payments to the subcontractor to satisfy the prime's obligations under 15 USC 637 to provide opportunities to socially and economically disadvantaged businesses. According to the relator/subcontractor, the prime was using the subcontractor as a "sham" conduit through which it laundered payments to firms that were not socioeconomically disadvantaged. The district court dismissed the relator's first amended complaint for failure to state a claim with particularity, as required by Federal Rule of Civil Procedure 9(b), because the relator failed to provide examples of specific false claims submitted to the government pursuant to the alleged fraudulent scheme. The district court then denied the relator's motion to file a second amended complaint. On appeal, the Sixth Circuit affirmed the district court's dismissal of the relator's first complaint. According to the appellate court, the relator failed to meet the particularity criteria for FCA relators alleging fraudulent schemes, as recently articulated by the court in Bledsoe II, 501 F3d 493 (2007), which requires "characteristic examples that are illustrative of the class of all claims covered by the fraudulent scheme."
"Governing Principle"
However, the Sixth Circuit vacated the district court's order denying the relator's motion to file a second complaint, and remanded the case back to the trial court for a new ruling on the motion. Although the district court properly construed the motion as one to vacate the dismissal of the first complaint, and properly exercised its discretion in denying the motion, at the time of the district court's ruling the Sixth Circuit had not yet issued Bledsoe II, which established a new rule of law with regard to FCA actions involving fraudulent schemes. Under Bledsoe II, an FCA relator's complaint complies with FRCP 9(b) if it "pleads a complex and far-reaching fraudulent scheme with particularity, and provides examples of specific false claims submitted to the government pursuant to that scheme." Because the relator's second complaint contained far greater detail than its first complaint, the district court should be allowed to reconsider whether to grant leave to file the pleading in light of Bledsoe II. In remanding the case, the Sixth Circuit stated the "governing principle" the district court should consider is whether allowing the relator leave to file its second complaint is necessary "to prevent an injustice.". (U.S., ex rel. Snapp, Inc. v. Ford Motor Co., CA-6, 52 CCF ¶78,966)

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

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