United States Ex Rel. Sheldon v. Kettering Health Network
816 F.3d 399
6th Cir.2016Background
- Relator Vicki Sheldon filed a qui tam suit under the False Claims Act (FCA) alleging Kettering Health Network (KHN) falsely certified compliance with HITECH / meaningful-use security requirements and collected incentive payments.
- Claimant’s factual basis: letters from KHN acknowledging unauthorized employee access to her and family members’ electronic protected health information (e-PHI), alleged mishandling of EPIC/CLARITY audit reports, and an employee printing sensitive reports unmonitored.
- Relator originally sued in federal court (sealed); while that action was pending she filed a state-court suit alleging torts and statutory violations arising from the same e-PHI breaches; the state court dismissed for failure to state a claim.
- The U.S. declined intervention; the district court denied Relator leave to amend and granted KHN’s Rule 12(b)(6) motion, holding the FCA complaint failed to plead (1) a false certification plausibly and (2) specific false claims for payment under Rule 9(b); it also held res judicata would bar the federal suit as an alternative basis.
- Relator appealed; the Sixth Circuit affirmed, agreeing the complaint and proposed amended complaint failed FCA pleading requirements and that Ohio res judicata principles would preclude relitigation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether KHN’s attestations of HITECH compliance were false (false-certification element) | Sheldon: individual unauthorized accesses and failure to run CLARITY reports show KHN lacked required policies/procedures, so attestations were false | KHN: occasional breaches do not negate compliance; HITECH/HIPAA require risk analyses and remediation processes, not absolute prevention or use of a specific vendor/report | Held: Not false as pleaded — allegations amount to isolated breaches or legal conclusions; plaintiff failed to plausibly show systemic noncompliance |
| Whether Relator pleaded specific false claims for payment (FCA claim submission element) | Sheldon: KHN’s network certified annually and received meaningful-use payments; payments exceeded $75M, so claims must have been submitted and were false | KHN: relator must plead specific representative false claims; broad allegations that claims “must have been submitted” are insufficient under Rule 9(b) and Sixth Circuit precedent | Held: Dismissed — relator failed to identify specific false claims or provide a characteristic example; generalized scheme allegations insufficient |
| Sufficiency of particularity / relaxed standard based on first-hand knowledge | Sheldon: she has personal knowledge (EPIC familiarity, relationship to employee) supporting relaxed pleading | KHN: relator lacks the sort of billing/security-department personal knowledge courts have allowed to relax Rule 9(b) | Held: No relaxed standard application — relator lacks the requisite personal-knowledge facts to satisfy Rule 9(b) |
| Preclusive effect of prior state-court dismissal (res judicata) | Sheldon: state case on appeal; argues novelty of law may affect finality | KHN: state-court dismissal for failure to state a claim is a final adjudication on the merits under Ohio law; the federal claim arises from the same transaction | Held: Alternative basis affirmed — Ohio res judicata applies: prior final judgment, same parties/privity, claims could have been raised earlier, and common nucleus of operative facts existed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must be plausible)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- U.S. ex rel. SNAPP, Inc. v. Ford Motor Co., 618 F.3d 505 (6th Cir. 2010) (elements of an FCA claim; need for representative examples)
- U.S. ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493 (6th Cir. 2007) (Rule 9(b) in FCA context; discussion of relaxed pleading)
- Chesbrough v. VPA, P.C., 655 F.3d 461 (6th Cir. 2011) (false-certification theory and Rule 9(b) application)
- Hapgood v. City of Warren, 127 F.3d 490 (6th Cir. 1997) (Ohio res judicata elements)
- Grava v. Parkman Township, 653 N.E.2d 226 (Ohio 1995) (res judicata bars later claims arising from same transaction)