Hunter Laboratories, ex rel. v. Commonwealth of Virginia, 828 F.3d 281

In 2007 relators Hunter Laboratories, L.L.C. and Chris Riedel filed a qui tam complaint in Fairfax County under the Virginia Fraud Against Taxpayers Act (VFATA), alleging medical labs submitted false Medicaid reimbursement claims by offering discounts to induce referrals and then overbilling DMAS.
The Commonwealth declined to intervene; the complaint was unsealed in 2013 and defendants removed the case to federal court asserting federal-question jurisdiction under 28 U.S.C. § 1331.
Defendants argued relators’ “pull-through” theory depended on violations of the federal Anti-Kickback Statute, making the VFATA claims necessarily raise federal issues; relators did not seek remand and the district court never adjudicated jurisdiction.
The parties settled with four defendants in 2014: defendants paid $1,250,000 to the Commonwealth and the Commonwealth sought court approval for a negotiated relators’ share; the district court approved $138,925.34, less than relators’ requested $350,000.
On appeal the Fourth Circuit examined whether the district court had subject-matter jurisdiction (arising-under federal law via Grable/Gunn). The Fourth Circuit concluded the VFATA claims did not necessarily raise a federal issue and vacated and remanded for remand to state court.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal district court had § 1331 jurisdiction over state VFATA qui tam claims	VFATA relief depends on showing Anti-Kickback Act violations tainting Medicaid claims, so a federal issue is necessarily raised	VFATA claims require resolution of federal law (Anti-Kickback Statute), so removal was proper under § 1331	No § 1331 jurisdiction: VFATA claims do not necessarily raise a federal issue under Grable/Gunn; remand to state court required
Validity/amount of relators’ share award by district court	Relators argued the approved share was insufficient and sought $350,000	Commonwealth moved to approve $138,925.34 as relators’ share per settlement negotiation	Not reached on merits because of lack of federal jurisdiction; district court judgment vacated and remanded for remand to state court

Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006) (describing Medicaid as joint federal-state program)
Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 (2005) (establishing four-part test for when state claim arises under federal law)
Gunn v. Minton, 133 S. Ct. 1059 (2013) (applying Grable framework to state-law claims that implicate federal issues)
Franchise Tax Board v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1 (1983) (well-pleaded complaint rule articulation)
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, 136 S. Ct. 1562 (2016) (state-law claims alleging federal violations for ‘‘atmospheric’’ reasons do not necessarily arise under federal law)
Flying Pigs, L.L.C. v. RRAJ Franchising, L.L.C., 757 F.3d 177 (4th Cir. 2014) (applying Grable; federal issue not necessarily raised when state-law theories suffice)
Dixon v. Coburg Dairy, Inc., 369 F.3d 811 (4th Cir. 2004) (en banc) (a claim arises under federal law only when every legal theory requires resolution of a federal issue)
Pinney v. Nokia, Inc., 402 F.3d 430 (4th Cir. 2005) (discussing well-pleaded complaint rule)
United States v. Wilson, 699 F.3d 789 (4th Cir. 2012) (noting courts’ obligation to ensure subject-matter jurisdiction)
Rice v. Rivera, 617 F.3d 802 (4th Cir. 2010) (per curiam) (appellate courts’ duty to confirm lower-court jurisdiction)