UNITED STATES OF AMERICA; STATE OF CALIFORNIA; STATE OF COLORADO; STATE OF CONNECTICUT; STATE OF DELAWARE; DISTRICT OF COLUMBIA; STATE OF FLORIDA; STATE OF GEORGIA; STATE OF HAWAII; STATE OF ILLINOIS; STATE OF INDIANA; STATE OF IOWA; STATE OF LOUISIANA; STATE OF MARYLAND; COMMONWEALTH OF MASSACHUSETTS; STATE OF MICHIGAN; STATE OF MONTANA; STATE OF NEVADA; STATE OF NEW JERSEY; STATE OF NEW MEXICO; STATE OF NEW YORK; STATE OF NORTH CAROLINA; STATE OF OKLAHOMA; STATE OF RHODE ISLAND; STATE OF TENNESSEE; STATE OF TEXAS; COMMONWEALTH OF VIRGINA; and STATE OF WISCONSIN, ex rel. MARK MCGUIRE, WENDY JOHNSON, and RYAN UEHLING, Plaintiffs,
MILLENIUM LABORATORIES, INC., MILLENIUM LABORATORIES OF CALIFORNIA, INC.; JAMES SLATTERY; HOWARD APPEL, Defendants. MARK MCGUIRE, Cross-Claimant, Appellant,
FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Nathaniel M. Gorton, U.S. District Judge]
Michael Tabb, with whom Thomas M. Greene, Ryan P. Morrison,
and Greene LLP were on brief, for appellant.
Michael B. Bogdanow, with whom Robert Foster and Meehan,
Boyle, Black & Bogdanow, P.C. were on brief, for
Torruella, Lynch, and Thompson, Circuit Judges.
False Claims Act (FCA), 31 U.S.C. § 3729 et
seq., authorizes private persons, known as relators, to
"bring a civil action . . . in the name of the
Government" against those who make fraudulent claims
against the United States, id. § 3730(b)(1).
When a relator brings such a qui tam suit, the government may
intervene and proceed with the action, or it may decline to
intervene and allow the relator to proceed. See id.
§ 3730(b)(1)-(4), (c).
encourages relators to bring qui tam suits by allowing them
to share in any recovery obtained for the government. To
avoid diluting this potential payout, the FCA's
first-to-file rule prohibits relators other than the first to
file from "bring[ing] a related action based on the
facts underlying the pending action." Id.
case arises out of the government's successful
intervention in several qui tam suits against Millennium
Health (formerly Millennium Laboratories). Millennium settled
with the government for $227 million, setting aside fifteen
percent of that money as a relator's share. The question
on appeal is who is the first-to-file relator and how that is
McGuire brought a crossclaim for declaratory judgment that he
is the first to file and is entitled, under 31 U.S.C. §
3730(d)(1), to the fifteen-percent share. Robert Cunningham,
who had brought an earlier qui tam suit against Millennium,
moved to dismiss the crossclaim, arguing that he, not
McGuire, was the first to file. Finding that the
first-to-file rule was jurisdictional, and based on its
review of extrinsic materials outside of the complaints, the
district court agreed with Cunningham. United States ex
rel. Cunningham v. Millennium Labs.,
Inc., 202 F.Supp.3d 198, 209 (D. Mass. 2016). The
district court dismissed McGuire's crossclaim for lack of
subject-matter jurisdiction. Id.
hold, for the first time in this circuit, that the
first-to-file rule is not jurisdictional, reversing earlier
circuit precedent, and we hold that we have jurisdiction over
McGuire's crossclaim. We then describe the appropriate
method for the first-to-file analysis and hold that McGuire
was the first-to-file relator and that he has stated a claim
that he is entitled to the relator's share of the
settlement. We reverse and remand for further proceedings
consistent with this opinion.
The False Claims Act
Abraham Lincoln signed the FCA into law in 1863. It was
originally intended "to combat rampant fraud in Civil
War defense contracts." S. Rep. No. 99-345, at 8 (1986).
Today, the FCA is the federal government's "primary
litigative tool for combatting fraud." Id. at
imposes liability on any person who "knowingly presents
. . . a false or fraudulent claim for payment or
approval," 31 U.S.C. § 3729(a)(1)(A), "to an
officer, employee, or agent of the United States,"
id. § 3729(b)(2)(A)(i). A relator may enforce
the FCA by bringing a civil qui tam action "in the name
of the Government." Id. § 3730(b).
bring such an action, the relator must file a complaint under
seal and must serve the United States with a copy of the
complaint and a disclosure of all material evidence.
Id. § 3730(b)(2). After reviewing those
materials, the United States may "proceed with the
action, in which case the action shall be conducted by the
Government." Id. § 3730(b)(4). Or,
"[i]f the government does not exercise its right to
intervene in the suit, the relator may serve the complaint
upon the defendant and proceed with the action."
United States ex rel. Karvelas v.
Melrose-Wakefield Hosp., 360 F.3d 220, 225 (1st Cir.
2004), abrogated on other grounds by Allison Engine
Co. v. United States ex rel. Sanders,
553 U.S. 662 (2008).
entitles the relator to a portion of any resulting judgment
or settlement. Before the 1986 amendments to the FCA, the
relator's share in a case in which the government had
intervened was capped at "10 percent of the proceeds of
the action or settlement of the claim." S. Rep. No.
99-345, at 41. The FCA now mandates a relator award in such a
case of "at least 15 percent but not more than 25
percent of the proceeds of the action or settlement of the
claim, depending upon the extent to which the person
substantially contributed to the prosecution of the
action." 31 U.S.C. § 3730(d)(1).
1986 amendments also added a significant restriction on
recoveries in qui tam suits that is relevant here: the
"first-to-file" rule in paragraph 3730(b)(5). That
paragraph provides, "When a person brings an action
under [31 U.S.C. § 3730(b)], no person other than the
Government may intervene or bring a related action based on
the facts underlying the pending action." Id.
§ 3730(b)(5). Legislative history shows that this rule
was meant to "clarify in the statute that private
enforcement under the civil False Claims Act is not meant to
produce class actions or multiple separate suits based on
identical facts and circumstances." S. Rep. No. 99-345,
we hold that the first-to-file issue is to be addressed under
Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1),
we confine our review to the pleadings and to facts subject
to judicial notice. Haley v.
City of Bos., 657 F.3d 39, 46 (1st Cir. 2011). We
limit our background discussion to facts alleged in
Cunningham's amended complaint, McGuire's original
complaint, and in the government's complaint in
intervention and settlement agreement.
Cunningham's Amended Complaint
2009 and early 2010, relator Robert Cunninghamfiled qui tam
actions against five competitors of Calloway Laboratories,
his employer. One competitor he sued was Millennium.
filed his first amended complaint against Millennium on
February 24, 2011. It detailed a mechanism of fraud arising
from Millennium's "Physician Billing Model,"
the key component of which was Millennium's
"multi-class qualitative drug screen," which
Cunningham's complaint labels a "test kit." The
test kit was a urine specimen collection cup with chemical
test strips embedded in it. This kit, which "c[ould] be
purchased for less than" ten dollars, "use[d] a
single specimen" collected at the point of care to
detect "multiple drug classes."
described the three aspects of Cunningham's allegations
in United States ex rel. Estate of Cunningham
v. Millennium Labs. of Calif., Inc., 713
F.3d 662, 665-66 (1st Cir. 2013). Cunningham's complaint
alleged that Millennium used its inexpensive point-of-care
test kits to induce physicians into excessive billing (Aspect
One), excessive testing (Aspect Two), and excessive
confirmatory testing (Aspect Three). In Cunningham, we
held that Aspects One and Three were jurisdictionally barred
by the FCA's public disclosure provision, 31 U.S.C.
§ 3730(e)(4)(A), because they had been "publicly
disclosed" in a California state defamation suit brought
by Millennium against Calloway. 713 F.3d at 671. We then
vacated the district court's order dismissing Aspect Two
of Cunningham's claim and remanded that claim for further
proceedings. Id. at 676. On remand, the district
court dismissed Aspect Two of Cunningham's claim for lack
of particularity under Federal Rule of Civil Procedure 9(b)
and for failure to state a claim under Rule 12(b)(6).
United States ex rel. Estate of Cunningham
v. Millennium Labs. of Cal., No.
09-12209-RWZ, 2014 WL 309374, at *2 (D. Mass. Jan. 27, 2014).
That decision is currently on appeal.
Aspect Three is potentially relevant to the first-to-file
issue here. Cunningham alleged that if the initial
qualitative test uncovered any of the tested drugs, that test
"w[ould] need to be followed up by a quantitative
screen" and then "confirmed by another
method." The complaint alleges that Millennium's
point-of-care model led to "significantly more
testing," including "confirmatory tests."
alleged generally that this scheme "increas[ed] the
revenues of the [physician] defendants at the expense of the
government and private health insurance programs" and
"significantly increase[d] Millennium's revenues and
market share." Cunningham's amended complaint never
mentions the terms "custom profiles" or
"standing orders" or describes any fraudulent
schemes by Millennium associated with either.
filed three disclosures of material evidence to the
government in December 2009, September 2010, and February
McGuire's Original Complaint
McGuire, appellant here, filed his original qui tam complaint
on January 26, 2012. It focused not on point-of-care testing,
the first stage of urinary drug testing, as Cunningham's
complaint had done, but on confirmatory (or quantitative)
testing, a later stage. McGuire alleged that after a
point-of-care test discloses an unexpected drug (or shows the
lack of an expected drug), a physician can order confirmatory
tests. These tests, which require sophisticated equipment and
so can be expensive, determine how much of the substance is
present (or not).
alleged that Millennium engaged in a scheme that resulted in
unnecessary confirmatory tests being performed and
billed to the government after the point-of-care tests.
Millennium persuaded physicians to execute "custom
profiles," which are standing orders for a battery of
confirmatory tests on every urine sample, regardless
of whether the point-of-care testing showed a need. McGuire
alleged that "even if [a point-of-care test] comes back
completely negative, . . . based on the customized profile
Millennium has gotten the physician's office to sign,
Millennium runs 10 confirmatory tests." Millennium
profited because "[t]hese 10 unnecessary tests are then
billed to Medicare, Medicaid or other ...