712 F. App'x 27
2d Cir.2017Background
- Akiva Tessler, pro se relator, sued the City of New York under the False Claims Act alleging two types of violations: (1) the City failed to recoup certain Supplemental Nutrition Assistance Program (SNAP) and TANF "aid-to-continue" overpayments and sought federal reimbursement for unrecouped amounts; and (2) the City failed to redetermine eligibility for participants in a Medicare Savings Program (MSP).
- Tessler filed a second amended complaint (SAC) and the City moved to dismiss under Rule 12(b)(6). The district court dismissed the SAC for failure to state a claim; Tessler appealed.
- The Court of Appeals reviews Rule 12(b)(6) dismissals de novo and applies Rule 9(b) heightened pleading standards for FCA fraud claims, while scienter may be pleaded generally but must give rise to a strong inference of intent.
- Tessler relied on asserted "custom and practice" at the City and a set of observed fair hearing outcomes as the factual basis for his aid-to-continue claims. He relied on alleged failures to recertify more than 1,000 MSP recipients for the MSP claims.
- The district court denied leave to amend after Tessler had already amended multiple times; the Second Circuit reviewed that denial for abuse of discretion and considered futility principles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of pleading for aid-to-continue claims under Rule 9(b) | Tessler: "custom and practice" of not recouping overpayments and observed hearings/statistics show false claims were presented for reimbursement | City: Allegations are conclusory, lack particularized facts (who, when, how), and City not required to recoup below statutory thresholds | Dismissed — allegations not particularized; Rule 9(b) not satisfied |
| FCA submission requirement (reliance on Fabula) | Tessler: Fabula permits pleading submission on information and belief where relator lacks access to billing records | City: Fabula distinguishable — no plausible inference City submitted false claims here | Dismissed — Fabula inapplicable because no plausible allegation that City submitted false claims |
| Scienter for MSP claims | Tessler: City knowingly or recklessly failed to redetermine eligibility for MSP recipients | City: Complaint alleges knowledge at most in conclusory terms; no facts showing knowing presentation of false claims | Dismissed — scienter inadequately pleaded; no strong inference of fraudulent intent |
| Denial of leave to amend | Tessler: District court abused discretion by denying further amendment | City: Tessler had multiple chances; he never explained how further amendment would cure defects; amendment would be futile | Affirmed — denial not an abuse of discretion and amendment would be futile |
Key Cases Cited
- United States ex rel. Chorches as Trustee for Bankr. Estate of Fabula v. Am. Med. Response, Inc., 865 F.3d 71 (2d Cir. 2017) (where relator had factual basis to show employer falsified records, pleading submission on information and belief permitted)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6) complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept legal conclusions; pleading standards explained)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA scienter and implied-certification principles discussed)
- O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674 (2d Cir. 1991) (requirement to plead factual basis giving rise to strong inference of fraudulent intent)
- United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16 (2d Cir. 2016) (Rule 9(b) requires particularized allegations beyond conclusory statements)