And yet another appellate court decision reining in the reach of the first-to-file bar for whistleblowers under the False Claims Act. This one decided by the DC Circuit in United States ex rel. Heath v. AT&T. Before the Court was the question of whether a whistleblower action against AT&T for allegedly engaging in a nationwide scheme of overcharging the government was barred because of an earlier filed suit challenging a much narrower band of this alleged misconduct. The Court held it was not, applying a strict reading of what constitutes “related” actions under the first-to-file rule.
The case involves AT&T’s provision of telecommunication services to schools and libraries under the government’s E-Rate program which entitles qualifying institutions to receive Internet and telephone services at discounted rates. As a condition of participating as a supplier in the program, AT&T agreed to provide its services at or below the lowest price it offered its other customers. The whistleblower, Todd Heath, claims AT&T violated this best-pricing obligation through a corporate-wide scheme it implemented through its subsidiaries across the country.
The problem for Mr. Heath is he brought an earlier E-Rate best-pricing case against AT&T subsidiary Wisconsin Bell which the district court in the current case found barred his current action under the first-to-file rule. The court reasoned the similarities between the two cases would have put the government on notice of AT&T’s alleged E-Rate best-pricing transgressions beyond the more limited sliver of conduct challenged in the Wisconsin action. According to the lower court, “[s]ince the E-Rate program operates nationally, the government would logically see if there was an organization-wide practice or procedure outlined by parent AT&T, Inc., and whether other AT&T operating companies were abiding by the rules.”
The appellate court disagreed, finding the district court’s take on the first-to-file bar much too expansive.* The Court got there by looking to whether the current complaint “alleges a fraudulent scheme the government already would be equipped to investigate” based on the earlier filed complaint. The Court found the government would not be so equipped based only on the Wisconsin complaint. That case deals only with AT&T’s alleged fraud in Wisconsin which was centered around affirmative misrepresentations by Wisconsin Bell employees to schools and libraries in Wisconsin. In contrast, the current complaint alleges a more far-reaching scheme accomplished not through misrepresentations but through “institutionalized disregard” of the best-pricing requirements altogether in AT&T’s employee-training and billing procedures. It also alleges the company was aware of these violations and knowingly concealed them from the government.
In short, the Court found the earlier complaint discloses “nothing more than the rogue actions of individuals within a single AT&T subsidiary,” which would not have
alerted the government to a nationwide scheme of mischarges and concealment. As the DC Circuit so succinctly put it, “[w]ithout more, one subsidiary’s infractions do not presumptively symptomize a corporate-pervading problem. A single broken branch does not mean that the entire tree is diseased.” To hold otherwise, the Court cautioned, would erase a broad swath of False Claims Act coverage by having the potential of inoculating large companies against False Claims Act liability merely because of some unrelated infractions by a subsidiary. That is not the point of the first-to-file bar. Rather, it is “to prevent copycat litigation, which tells the government nothing it does not already know.”**
*The Court also found the lower court erred by treating the first-to-file rule as a jurisdictional bar. “Because nothing in the text or structure of the first-to-file rule suggests, let alone clearly states, that the bar is jurisdictional . . . we hold that the first-to-file rule bears only on whether a qui tam plaintiff has properly stated a claim.”
**The Court also rejected AT&T’s challenge to the sufficiency of the pleadings under Rule 9(b). The Court did so finding a “fraud can rest on ‘implied’ certifications if the defendant knowingly ‘withheld information about its noncompliance with material contractual requirements.'” The Court likewise rejected AT&T’s contention that the complaint failed 9(b) because it lacked “representative samples” of the allegedly fraudulent false claims or invoices. It thus joined its “sister circuits in holding that the precise details of individual claims are not, as a categorical rule, an indispensible requirement of a viable False Claims Act complaint.” All that is needed is “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”
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