Lead Opinion
CLAY, J., delivered the opinion of the court. SUHRHEINRICH, J. (pp. 510-11), delivered a separate concurring opinion. COOK, J. (p. 511), delivered a separate opinion concurring in part and dissenting in part.
OPINION
Relator SNAPP, Inc. brings this qui tarn action under the False Claims Act, 31 U.S.C. § 3729 et seq., claiming that Defendant Ford Motor Company (“Ford”) fraudulently induced the federal government to contract with Ford by inflating, in official reports to the government, the extent of Ford’s dealings with small and minority-owned businesses. The district court dismissed Relator’s complaint for failure to comply with Fed.R.Civ.P. 9(b)’s requirement that a party alleging fraud “state with particularity the circumstances constituting fraud.... ” Because Relator failed to plead with such particularity the nature of Ford’s claim for payment from the federal government, we AFFIRM the district court’s decision dismissing Relator’s First Amended Complaint. However, because the district court did not have the benefit of our decision in United States ex rel Bledsoe v. Cmty. Health Sys., Inc.,
STATEMENT OF FACTS
A. Factual Allegations
Because Relator is appealing a district court order dismissing its complaint under Rule 12(b)(6), this Court must accept as true all of the factual allegations contained the complaint.
Relator alleges that, from 1991 until 1999, Ford fraudulently exaggerated the extent of its dealings with small and minority-owned businesses, and that these exaggerations induced the federal government to contract with Ford, even though Ford never implemented a plan to “provide[ ] the maximum practicable opportunity” to such businesses. According to Relator, during this eight-year period Relator was controlled entirely by Ford. Ford nominated the majority of Relator’s board members, its organization charts included Relator and its employees, and Ford had full control over its dealings with Relator. Though Relator was nominally owned and managed by a person of color, Relator maintains that this nominal control was a sham, and that Relator actually operated as a subdivision of the Ford Motor Company. Moreover, Relator claims, even if it did qualify as a minority-owned business during its dealings with Ford, from 1995 until 1999, Relator had too many employees to qualify as a small business.
Despite Relator’s claims that it functioned entirely as a subdivision of Ford, Ford filed official reports with the government stating that, between 1991 and 1998, Ford made significant improvements in the amount of business it subcontracted to small and minority-owned businesses. As a prime government contractor, Ford was required to file yearly reports documenting what percentage of the subcontracts related to its government contracts were made with small or minority-owned businesses. According to these reports, Ford increased its subcontracting with small businesses from 19.2% in 1991 to 22.9% in 1998, reaching a peak of 24% in 1993. Over the same period, Ford also increased its subcontracting with small minority-owned businesses from 2.6% of the total amount of its government-related subcontracts to 4.8%. In its 1999 report, Ford stated that 23.3% of its government-related subcontracts were made with small businesses. Although this report also shows a sharp decline in the amount of subcontracts made with small minority-owned businesses, the report also indicates that Ford intended to purchase $3.3 billion worth of supplies from minority-owned businesses, a statement which, if true, would have reflected to an increase in Ford’s dealings with such businesses between 1998 and 1999.
The crux of Relator’s complaint is that, despite Ford’s reports claiming that it had enacted and was successfully implementing a plan to “provide[ ] the maximum practicable opportunity” to small and minority-owned businesses, Ford had inflated the extent of its dealings with such businesses by fraudulently declaring money paid to
Relator further alleges that Ford knowingly or recklessly submitted reports that exaggerated its dealings with small and minority-owned businesses, and that these exaggerations were substantial. In 1998, for example, Ford reported that it paid $2.46 billion to small, minority-owned subcontractors. According to Relator, however, $461 million of this $2.46 billion were sham payments laundered through Relator. Similarly, in 1999 Ford predicted in its reports to the government that it would pay $3.3 billion to small, minority-owned subcontractors, but Relator claims that $556 million of this $3.3 billion were sham payments.
In light of these alleged sham payments, Relator claims that had the federal government been aware that Ford was exaggerating its dealings with small and minority-owned businesses, it would not have permitted Ford to act as a prime contractor. Accordingly, Relator argues, none of the federal government contracts Ford received during the period that it was allegedly inflating its dealings with small and minority-owned businesses would have been awarded to Ford. Because these contracts were allegedly awarded to Ford as a direct result of Ford’s fraudulent statements, Relator further claims that none of the payments made to Ford under these contracts would have been made had Ford not deceived the government.
B. Procedural History
On April 30, 2003, Relator filed its original complaint, under seal, in the Southern District of Ohio. That complaint was unsealed on July 19, 2004, when the United States declined to intervene.
On September 7, 2006, the district court issued an order dismissing a portion of Relator’s claim and ordering Relator to file an amended complaint. In issuing this order, the district court reached two holdings which are relevant to this appeal. First, the district court concluded that the
Relator filed its First Amended Complaint on October 4, 2006, and shortly thereafter, it filed copies of the annual reports Ford had submitted to the government in order to retain its eligibility as a prime contractor. In a February 1, 2007 order, the district court dismissed this amended complaint, holding that it still had not “identified any contract that Ford was allegedly wrongfully awarded as a result of being a Prime Contractor.” (J.A. 356) On February 9, 2007, Relator filed a motion, which the district court construed as a motion to vacate its dismissal of this case under Rule 59(e) and to permit Relator to subsequently file a Second Amended Complaint. Accompanying this motion were additional copies of Ford’s 1991-99 reports to the federal government. Although Relator argued that these reports constituted new evidence justifying the reconsideration of its case, the district court concluded that it had already considered these reports in the context of its decision dismissing the First Amended Complaint, and denied Relator’s motion.
Relator now appeals to this Court, arguing that the district court erred in dismissing its complaint, in denying reconsideration of its case, and in holding that the statute of limitations in qui tam cases is six years.
DISCUSSION
I. THE PARTICULARITY REQUIREMENT OF RULE 9(B) AND RELATOR’S FIRST AMENDED COMPLAINT
Standard of Review
Relator alleges fraud in its complaint, and therefore must comply with Fed.R.Civ.P. 9(b). Dismissal of a complaint for failure to comply with Rule 9(b) is reviewed as a dismissal for failure to state a claim. See United States ex rel Bledsoe v. Cmty. Health Sys., Inc.,
Analysis
When a qui tam relator pleads "a complex and far-reaching fraudulent scheme" it must "provide[] examples of specific false claims submitted to the government pursuant to that scheme" in order to comply with Rule 9(b). Bledsoe II,
A. Rule 9(b) Generally
Although Rule 9(b)'s special pleading standard is undoubtedly more demanding than the liberal notice pleading standard which governs most cases, see Erickson,
their alleged misconduct."); see also Sanderson v. HCA-The Healthcare Company,
Rule 9(b) adds additional pleading requirements for allegations of fraud or mistake, but it should not be read to defeat the general policy of "simplicity and flexibility" in pleadings contemplated by the Federal Rules. Michaels Bldg. Co. v. Ame
In our recent decision in Bledsoe II, we reiterated our long-standing holding that, under Rule 9(b), a plaintiff must “allege the time, place, and content of the alleged misrepresentation ... the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Id. at 504. As Bledsoe II also made clear, however, this requirement should be understood in terms of Rule 9(b)’s broad purpose of ensuring that a defendant is provided with at least the minimum degree of detail necessary to begin a competent defense. “Essentially, [a complaint] should provide fair notice to Defendants and enable them to ‘prepare an informed pleading responsive to the specific allegations of fraud.’ ” Id. (quoting Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass’n,
It is worth noting, however, that although Rule 9(b)’s overarching purpose is to ensure that a defendant possesses sufficient information to respond to an allegation of fraud, two related concerns are implicit in this overarching purpose. See Banca Cremi, S.A. v. Alex. Brown & Sons, Inc.,
B. Rule 9(b) and the False Claims Act
1. The Elements of a Qui Tam Claim
Having determined the requirements of Rule 9(b) generally, we now turn to its application in the qui tam context. In relevant part, the False Claims Act imposes liability on a person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.” 31 U.S.C. § 3729(a)(2). As this statutory language
2. The Particularity Requirement
Under Rule 9(b), “a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Accordingly, insofar as a qui tam action is concerned with Ford’s “knowledge,” this element does not need to be pled with particularity.
Relator has identified allegedly false or fraudulent statements made by Ford with sufficient particularity. According to Relator’s complaint:
Ford fraudulently represented to the United States that payments made by Ford to Relator were payments to a small business concern owned and controlled by socially and economically disadvantaged individuals when, in fact, these payments were a sham; the Relator was being used by Ford as a conduit for the satisfaction of Ford’s, not the Relator’s obligations to Ford’s majority suppliers of goods and services to Ford.
(J.A. 245) Moreover, Relator alleges, these fraudulent misrepresentations were made in particular reports filed annually with the federal government, and Relator has provided copies of these reports which are included in the record. In identifying these reports, Relator states with particularity “the time, place, and content of the alleged misrepresentation.” Bledsoe II,
The same cannot be said, however, with respect to the requirement that Relator identify with particularity a claim for payment by Ford. Under the False Claims Act, a “claim” is defined as
any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.
§ 3729(c). Relator essentially argues that, during the time that it was allegedly making false reports to the government, Ford entered into a large, undetermined number of contracts with the federal government, and that the government made hundreds of millions of dollars of payments to Ford as a result of these contracts. When a relator alleges such a “complex and far-reaching fraudulent scheme” to induce the government into making payments, however, Bledsoe II requires the relator’s complaint to include specific examples of the defendant’s claims for payment from the federal government. See id. at 510. “In order for a relator to proceed to discovery on a fraudulent scheme, the claims that are pled with specificity must be ‘characteristic example[s]’ that are ‘illustrative of [the] class’ of all claims covered by the fraudulent scheme.” Id. at 510-11 (alterations in original); see also id. at 514-15 (affirming a claim of widespread Medicare and Medicaid fraud when the Relator identified a single, representative patient who was fraudulently diagnosed to induce payment from the government).
Despite the requirement that Relator must provide specific examples of claims submitted to the government as part of Ford’s alleged fraudulent scheme, Relator does not provide a single example of a specific claim made by Ford. Instead, Relator merely alleges that “[f]rom 1991 through at least 2001, Ford was awarded contracts on an annual basis by the General Services Administration.” (J.A. 240) Although Relator also provides an estimate of the approximate value of these contracts during the years 1991-2000, Realtor does not identify any individual representative claim for payment made by Ford to the federal government during this time period. Accordingly, we hold that Relator has not complied with Bledsoe II’s mandate that “ ‘[i]n order for a relator to proceed to discovery on a fraudulent scheme,’ it must pled with specificity ‘characteristic example[s]’ that are ‘illustrative of [the] class’ of all claims covered by the fraudulent scheme.”
II. RELATOR’S MOTION TO FILE AN AMENDED COMPLAINT
Standard of Review
Subsequent to the district court’s decision dismissing Relator’s complaint, Relator filed a motion seeking leave to file a Second Amended Complaint, which the district court properly construed as a mo
Analysis
Subsequent to the district court’s decision dismissing its complaint, Relator sought leave to file a Second Amended Complaint, which included “a listing of the contracts, the contracts value, and the number of vehicles awarded to Ford Motor Company for the period from 1991 to 1999.” (J.A. 21) In a March 16, 2007 order, the district court denied Relator’s motion to file a Second Amended Complaint, holding that the amendment would be futile because Relator “has simply been unable to frame its allegations within the confines of the FCA.” (Id.) On September 6, 2007, this Court handed down a new rule of law in Bledsoe II, holding that a qui tam case may proceed to discovery if the relator’s complaint “pleads a complex and far-reaching fraudulent scheme with particularity, and provides examples of specific false claims submitted to the government pursuant to that scheme.”
Although Relator filed his motion to file a Second Amended Complaint subsequent to the district court’s final order dismissing Relator’s First Amended Complaint, we allow a district court discretion to set aside a prior judgment under Rule 59(e) and permit an amended complaint to be filed under such circumstances. See Oleson v. United States,
Relator’s proposed Second Amended Complaint provides far greater detail than its First Amended Complaint, stating that “[f]rom 1991 through 1999, Ford was awarded 65 contracts by the GSA,” and even identifying many of those contracts by their “Ford Contract Nos.,” thus providing Ford with the specific filing numbers it uses to identify individual contacts within its own internal accounting system.
On remand, the district court should consider whether the following rule, which we articulated in Bledsoe II, justifies setting aside its prior judgment and allowing Relator to amend its complaint:
We conclude that the concept of a false or fraudulent scheme should be construed as narrowly as is necessary to protect the policies promoted by Rule 9(b). Specifically, we hold that the examples that a relator provides will support more generalized allegations of fraud only to the extent that the relator’s examples are representative samples of the broader class of claims. In order for a relator to proceed to discovery on a fraudulent scheme, the claims that are pled with specificity must be “characteristic example[s]” that are “illustrative of [the] class” of all claims covered by the fraudulent scheme. The examples of false claims pled with specificity should, in all material respects, including general time frame, substantive content, and relation to the allegedly fraudulent scheme, be such that a materially similar set of claims could have been produced with a reasonable probability by a random draw from the total pool of all claims. With this condition satisfied, the defendant will, in all likelihood, be able to infer with reasonable accuracy the precise claims at issue by examining the relator’s representative samples, thereby striking an appropriate balance between affording the defendant the protections that Rule 9(b) was intended to provide and allowing relators to pursue complex and far-reaching fraudulent schemes without being subjected to onerous pleading requirements.
Finally, we acknowledge that, in light of the Supreme Court’s recent decision in Allison Engine Co. v. United States ex rel. Sanders, the law in this Circuit is now less friendly to qui tam plaintiffs than it was prior to that decision. In Sanders, the Supreme Court held that a qui tam plaintiff may only prevail upon a showing that the defendant made a false statement with the purpose of “getting a false or fraudulent claim ‘paid or approved by the Government.’”
III. STATUTE OF LIMITATIONS
Finally, Relator challenges the district court’s determination that the statute of limitations in a qui tam case brought by a private party relator is always six years. The False Claims Act permits a suit alleging fraud against the government to proceed in multiple ways. First, the Attorney General, upon discovering a potential violation of the Act, may initiate a civil action against the person committing fraud. 31 U.S.C. § 3730(a). Additionally, any person who is the “original source” of information implicating a potential defendant in an act of fraud against the government may bring a suit as a relator in the name of the United States. § 3730(b)(1) & (e)(4)(A). Before filing such a suit, the relator must first serve the complaint upon the government, and the complaint must remain under seal for at least sixty days. § 3730(b)(2). During this time period, the government may “take over” the action, in which case all future litigation is conducted by the government. § 3730(b)(4)(B). If the government declines to do so, however, the relator may proceed with the litigation at its own direction, with the caveat that the government may later intervene upon a showing of good cause. § 3730(c)(3). Should a suit initiated by a relator prove meritorious, the relator is entitled to a share of the proceeds, although the lion’s share of these proceeds will be awarded to the government. § 3730(d).
Under 31 U.S.C. § 3731, the statute of limitations for a claim brought under the False Claims Act is as follows:
(b) A civil action under section 3730 may not be brought-
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,
whichever occurs last.
United States courts of appeal are not united around the Ninth Circuit’s view. Ford argues that we should apply the Tenth Circuit’s decision in United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah,
Because we affirm the district court’s dismissal of Relator’s complaint on Rule 9(b) grounds, however, it is not necessary for us to resolve whether the § 3731(b)(2) tolling provision applies to private party relators. Moreover, inasmuch as this statute of limitations question could be raised again should the district court grant Relator’s motion for leave to file an amended complaint, the district court has not yet granted that motion, and thus the issues raised by Relator’s proposed Second Amended Complaint do not currently raise a live controversy before this Court. Accordingly, the statute of limitations question is not presently ripe for review by this Court. See United States v. Lee,
CONCLUSION
The district court correctly determined that Relator’s First Amended Complaint does not comply with the particularity requirement of Rule 9(b). However, because our recent decision in Bledsoe II alters the law governing Relator’s motion to file a Second Amended Complaint, the district court should be permitted to decide whether to exercise its discretion in light of the currently applicable rule of law. Accordingly, we AFFIRM the dismissal of Relator’s First Amended Complaint, VACATE the order denying the motion to amend that complaint, and REMAND for further consideration of that motion in light of Bledsoe II.
Notes
. Unless otherwise specified, t he word ''complaint'' will refer to Relator’s First Amended Complaint, which is the subject of most of Relator’s claims on appeal.
. The term "prime contractor” refers to a general contractor who is eligible to contract directly with the federal government. See United States ex rel. Sanders v. Allison Engine Co., Inc.,
. Specifically, federal law requires prime contractors to establish a plan to provide opportunities to "socially and economically disadvantaged small business concem[s]," which is defined as a small business in which racial, ethnic and cultural minorities who have historically experienced discrimination hold at least a 51% ownership share of the business. 15 U.S.C. § 637(a)(4) & (5).
. A qui tam action is a False Claims Act claim brought by a relator, a private person alleging fraud by government contractors against the government. 31 U.S.C. § 3730. The relator must first serve the complaint upon the government, and the complaint then remains under seal for at least sixty days. § 3730(b)(2). During this time period, the government may elect to intervene. If the government does not intervene in the action, the relator may proceed with the action. § 3730(b)(4)(B), (c)(3).
. Except as otherwise indicated, we use the term "district court,” to refer to the Eastern District of Michigan.
. At present, there is some confusion as to when a court should require particular facts to be pled, as required by Twombly, and when a court should apply a more liberal pleading standard. See Iqbal v. Hasty,
JNevertfleless, tne instant case arises unaer the heightened pleading standard applicable to allegations of fraud, which itself requires the party alleging fraud to "state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). As Rule 9(b)'s express language requires a pleading alleging fraud to state specific facts, applying Erickson's liberal pleading standard would be inappropriate in the instant case, regardless of whether this case involves the kind of "sprawling, costly and hugely time-consuming" litigation which generally triggers Twom-bly's special pleading rule.
. Relator expressly alleges in its complaint that Ford has been "knowingly or recklessly submitting to the United States claims that Ford knew were false and/or otherwise ineligible for payment,” (J.A. 244), and Ford does not contest that Relator has sufficiently pled the scienter element of its qui tam claim.
. Indeed, in contrast to the dissent's contention, the new details included in the Second Amended Complaint include several examples of false claims. Similar to Relator’s First Amended Complaint, the Second Amended Complaint identifies specific false statements made by Ford, thereby fulfilling one of the elements of a false claim. See Augustine,
. Bledsoe II stated that six years is “the statute of limitations under the [False Claims Act],”
Concurrence Opinion
concurring.
I concur in Judge Clay’s opinion, except to the extent footnote 8 suggests that the
Concurrence Opinion
concurring in part and dissenting in part.
The majority reaches the right conclusion with regard to the district court’s dismissal of Relator’s First Amended Complaint. Relator’s failure to “provide a single example of a specific [false] claim” doomed that complaint because Fed. R.Civ.P. 9(b) ‘“does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply ... that claims requesting illegal payment must have been submitted, were likely submitted or should have been submitted to the Government.’ ” Maj. Op. at 506 (quoting Sanderson v. HCA-The Healthcare Co.,
But having correctly concluded that Relator’s First Amended Complaint deserves dismissal, the majority nevertheless keeps alive the Second Amended Complaint, despite the district court’s finding that it too failed to identify a false claim. JA 21. Although the majority cannot point to a false claim identified by the Second Amended Complaint,
Accordingly, I respectfully dissent from part II of the majority’s opinion.
. In his footnote 8, Judge Clay highlights specific contracts that the plaintiffs allege the government awarded to Ford as a result of Ford’s fraud and the dollar value attached to those contracts. But a contract is not a claim.