343 F. Supp. 3d 610
N.D. Tex.2018Background
- Relator Edward Hendrickson (a former VA OIG investigator) sued sixteen banks under the False Claims Act (FCA), alleging they knowingly accepted and retained recurring federal benefit payments after recipients died and then concealed or misrepresented their knowledge in reclamation responses.
- Federal recurring benefit payments are routed through the ACH network to Receiving Depository Financial Institutions (RDFIs), which are subject to Treasury rules (31 C.F.R. Part 210 and Treasury guidance) and can receive Death Notification Entries (DNEs) from agencies; RDFIs may be liable for payments received after learning of a death unless limited under Part 210 reclamation procedures.
- Relator alleged banks ignored DNEs, kept payments, and falsely certified dates on Notices of Reclamation (NORs) to avoid liability; the United States declined to intervene and Relator proceeded qui tam.
- Defendants moved to dismiss arguing lack of Article III standing (preemption by Part 210 and assignment of claims to Federal Reserve Banks), the FCA public-disclosure bar, and failure to plead fraud with Rule 9(b) particularity; Relator voluntarily dismissed one claim and one defendant during litigation.
- The Court held Relator had Article III standing (FCA partial assignment survives and Part 210 does not preempt the FCA), but found Relator’s FCA action barred by the public-disclosure rule and, alternatively, deficient under Rules 12(b)(6) and 9(b); the suit was dismissed with prejudice as amendment would be futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing — preemption | Hendrickson: FCA claims for fraud can coexist with Part 210; Part 210 does not preclude FCA remedies for fraud | Banks: Part 210 is a comprehensive scheme governing ACH claims and provides exclusive remedies, displacing the FCA | Court: Denied preemption; strong presumption against preclusion and no express congressional intent to displace FCA |
| Standing — assignment | Hendrickson: FCA effects partial assignment of government damages to relator; Fed Reserve collection ability does not vest title | Banks: 31 C.F.R. §210.10(e) lets Federal Reserve Banks collect — that assignment defeats relator's claim to damages | Court: Denied — debit/collection authority is not a legal assignment of the government's damages right; relator retains FCA standing |
| Public-disclosure bar | Hendrickson: his OIG role uncovered fraud; allegations not publicly disclosed or he is original source | Banks: Multiple government reports, cases, and articles publicly disclosed the essential allegations; Hendrickson (an OIG employee) is not a voluntary/original source | Court: Granted dismissal — certain public materials collectively disclosed the scheme and Hendrickson is not an original source (disclosure not voluntary and lacked independent knowledge/material addition) |
| Pleading sufficiency (Rule 9(b) / 12(b)(6)) | Hendrickson: his investigative experience and examples supply particularity and reliable indicia of scheme and scienter | Banks: Complaint lacks who/when/where specifics for each defendant, fails to show DNE receipt or individualized scienter; alleges mass, group-based claims | Court: Alternative ground to dismiss — complaint fails Rule 9(b) (insufficient particulars and reliable indicia; scienter not plausibly pleaded) |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (constitutional standing doctrine)
- Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765 (relator standing via FCA partial assignment)
- Sprint Commc'ns Co. v. APCC Servs., Inc., 554 U.S. 269 (assignee-for-collection standing analysis)
- Jamison v. McKesson Corp., 649 F.3d 322 (Fifth Circuit public-disclosure/original-source framework)
- United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (Rule 9(b) standard in FCA cases)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (application of Twombly plausibility and pleading requirements)
- United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648 (characterization of reverse false claims theory)