Patrick Campbell, M.D., United States of America and State of California Ex Rel., United States of America, Intervenor-Appellee v. Redding Medical Center, a California Corporation Tenet Healthcare Corporation, a Nevada Corporation Chae Hyun Moon, M.D. Thomas Russ, M.D. Fidel Realyvasquez, M.D. Tenet Healthsystem Hospitals, Inc., a Delaware Corporation Cardiology Associates of Northern California Ricardo Moreno-Cabral, M.D., Dba Cardiac Thoracic and Vascular Surgery Medical Group

Citations: 421 F.3d 817; 2005 U.S. App. LEXIS 17980Docket: 03-17082

Court: Court of Appeals for the Ninth Circuit; August 22, 2005; Federal Appellate Court

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The case involves a False Claims Act lawsuit against Redding Medical Center (RMC) and several associated defendants, including Tenet Healthcare Corporation and individual doctors, for allegedly performing unnecessary invasive cardiac procedures to fraudulently bill Medicare. The central legal issue is the interpretation of the first-to-file bar under the False Claims Act, specifically whether a subsequent related action can be filed if the initial qui tam action is jurisdictionally defective due to the relator not being an "original source" of the publicly disclosed information.

On October 30, 2002, a search warrant was issued for RMC as part of an FBI investigation, which was publicly disclosed the same day. Following this, on November 5, 2002, John Corapi and Joseph Zerga filed a sealed qui tam complaint against the defendants, claiming they had knowledge of the fraudulent activities and had informed the government about them. The complaint was assigned to Judge William Shubb. The Ninth Circuit ultimately held that if the first qui tam action is not jurisdictionally valid, it cannot be considered the first-filed complaint for purposes of the first-to-file bar, allowing subsequent related actions to proceed.

On November 8, 2002, Patrick Campbell filed a complaint against the same defendants as in a prior case, alleging they defrauded Medicare, Medicaid, and MediCal by submitting false claims for unnecessary cardiac care. He claimed the defendants performed unjustified coronary artery imaging tests and misrepresented the results to induce patients into unnecessary procedures. Campbell's case was assigned to Judge David Levi, but Judge Shubb declined to link it to the earlier cases, Corapi and Zerga. 

The United States moved to dismiss Campbell's complaint, citing the first-to-file bar under the FCA, asserting it was based on the same facts as the earlier complaints. Campbell contended that since Corapi and Zerga were not original sources, their case could not impede his. He asked the court to assume their case would be dismissed for lack of standing, but the government maintained that this issue was irrelevant for jurisdiction purposes. The district court granted the government's motion to dismiss, agreeing that even assuming Corapi and Zerga were not original sources, Campbell's claim was still barred by the first-to-file rule, referencing precedent from the Ninth Circuit.

Subsequently, the United States settled its claims against RMC and Tenet Healthcare Corporation for $54 million. Campbell objected to the settlement, seeking a fairness hearing and discovery on the settlement terms. The government argued that Campbell lacked standing to object due to the dismissal of his case. The district court sided with the government and denied Campbell's requests.

Campbell appealed both the dismissal of his complaint and the denial of his objections. The United States informed the district court that it would pay $8.1 million to the plaintiffs in the Corapi/Zerga suit as part of the settlement, although this payment had not yet been finalized. The jurisdiction for reviewing the district court's dismissal rests under 28 U.S.C. § 1291, and such dismissals are reviewed de novo.

The False Claims Act (FCA), under 31 U.S.C. § 3729(a), establishes liability for submitting false claims to the U.S. Government, encouraging private parties, known as "relators," to file suit on behalf of the government through qui tam provisions. Successful relators may share up to 25% of any recovery if the government intervenes (Id. § 3730(d)(1)). A relator initiates a sealed civil action and must disclose relevant evidence to the government, which has 60 days to decide whether to take over the case (Id. § 3730(b)(2), (4)).

Section 3730(e)(4)(A) restricts court jurisdiction over actions based on publicly disclosed allegations unless the relator is the "original source" of the information, defined as someone with direct knowledge who has informed the government prior to filing (Id. § 3730(e)(4)(B)). This provision aims to prevent opportunistic claims from individuals who did not contribute to uncovering the fraud. 

Additionally, Section 3730(b)(5) implements a first-to-file bar, prohibiting anyone other than the government from intervening or filing related actions based on the same facts while a pending action exists. The court examined whether this bar applies when the initial complaint is dismissed on jurisdictional grounds due to the relator's lack of original source status. 

The district court interpreted the first-to-file bar as operating independently of the original source requirement, suggesting that any filed complaint, even if jurisdictionally flawed, would block subsequent related actions. However, the current analysis contests this view on two grounds: first, it did not consider the implications of publicly disclosed allegations that might lead to opportunistic lawsuits, and second, it contradicts Congress's intent in the 1986 FCA amendments, which aimed to incentivize genuine whistleblowers. An overly broad application of the first-to-file bar could prevent valid claims from being pursued in cases of public disclosure.

The district court's decision in United States ex rel. Lujan v. Hughes Aircraft Co. ruled that Linda Lujan's qui tam claim was barred due to the first-to-file rule established under 31 U.S.C. § 3730(b)(5). Lujan's claim mirrored allegations made by William Schumer, who filed a similar suit in 1989 that was dismissed on the merits after the government declined to intervene. The court found that Lujan's claims were based on the same essential facts as Schumer's, thus affirming the dismissal under the first-to-file bar, which aims to incentivize whistleblowers and prevent opportunistic claims.

The ruling emphasized that the dismissal of Schumer's suit did not negate the first-to-file bar because it had initially informed the government of the alleged fraudulent scheme. However, the circumstances in Lujan's case differ from the current action, as Lujan did not argue that Schumer was not an original source. Crucially, the ruling clarifies that the first-to-file bar applies only when the earlier complaint fulfills jurisdictional requirements, and in public disclosure cases, prior public disclosures already alert the government to the fraudulent scheme.

The distinction is made that non-original sources cannot contribute to the government's knowledge, while original sources can still file claims post-disclosure, suggesting that Congress intended to encourage the reporting of fraud by those with firsthand knowledge. Thus, the rationale for barring Lujan's claim does not extend to the current situation, where a pending action by a non-original source does not 'alert' the government.

Lujan is not determinative for the case, prompting examination of § 3730(b)(5) and its relationship with § 3730(e)(4). The term "pending action" might include any filed suit or limit to actions likely to proceed on merits, making the plain language insufficient for clarity. Legislative history from the 1986 Amendments indicates Congress aimed to promote private enforcement of the False Claims Act (FCA), emphasizing that only the government can intervene in qui tam actions to prevent class actions or multiple suits based on identical claims. The FCA, enacted in 1863 for Civil War fraud, has undergone significant amendments, notably in 1943 to eliminate "parasitical suits" where the government already knew of the fraud, and again in 1986 to reverse restrictive interpretations that barred suits based on government-held information. The 1986 amendments aimed to bolster private whistleblower actions by offering increased monetary incentives and reducing the burden of proof for qui tam claims.

Section 3730(b)(5) of the False Claims Act (FCA) does not impose an absolute first-to-file bar when the initial complaint is jurisdictionally defective. The FCA and its 1986 Amendments aim to balance incentives for whistleblowers with deterrence against opportunistic claims lacking substantial information. The qui tam provisions of the FCA encourage private citizens to expose fraud while preventing those who seek to exploit public information without any insider knowledge. The original source requirement rewards whistleblowers who disclose information to the government prior to public knowledge. Legislative intent reflects a strong policy to incentivize insiders who voluntarily disclose wrongdoing. An interpretation of § 3730(b)(5) that creates an absolute bar would allow opportunistic claimants to overshadow genuine insiders, undermining Congress's goal of encouraging legitimate whistleblower actions. The government’s argument suggesting that a frivolous complaint could preclude a subsequent valid claim from an original source contradicts the legislative intent and would diminish the number of viable qui tam suits, contrary to Congress's objectives.

The government contends that an absolute first-to-file rule would not undermine legitimate whistleblower claims due to the requirements of FED. R. CIV. P. 9(b), which mandates specific pleading of fraud by qui tam plaintiffs. However, this requirement does not address the concern that a non-original source's placeholder complaint could divest the court of jurisdiction over a legitimate original source complaint, contradicting Congressional intent. The district court dismissed Campbell's case, interpreting Lujan to mean that § 3730(b)(5) bars subsequent qui tam complaints, even if the initial complaint was jurisdictionally barred. This interpretation was applied incorrectly to a situation not considered in Lujan. The court clarifies that in public disclosure cases, the first-to-file rule under § 3730(b)(5) only prohibits subsequent complaints after a complaint that meets the jurisdictional criteria of § 3730(e)(4).

The district court had presumed Corapi and Zerga were not original sources, ruling that their status as first filers was the only relevant factor. The court now emphasizes that determining the original source status is essential. If Corapi and Zerga are original sources, their complaint prevents Campbell's; if not, Campbell's complaint would not be barred. To resolve this, the court suggests consolidating the Corapi/Zerga and Campbell cases for clarity. The decision is reversed and remanded for further proceedings.