In the
United States Court of Appeals For the Seventh Circuit ____________________ No. 14‐2804 UNITED STATES OF AMERICA and the STATE OF WISCONSIN, ex rel. ROSE PRESSER, Plaintiff‐Appellant,
v.
ACACIA MENTAL HEALTH CLINIC, LLC, and ABE FREUND, Defendants‐Appellees. ____________________
Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:13‐cv‐00071‐JPS — J.P. Stadtmueller, Judge. ____________________
ARGUED APRIL 6, 2016 — DECIDED SEPTEMBER 1, 2016 ____________________
Before FLAUM, RIPPLE, and HAMILTON, Circuit Judges. RIPPLE, Circuit Judge. Relator and plaintiff Rose Presser filed a qui tam action under the False Claims Act, 31 U.S.C. 2 No. 14‐2804
§ 3729 et seq. (“FCA”), and its Wisconsin analog, the Wiscon‐ 1 sin False Claims Act, Wis. Stat. § 20.931 et seq. (“WFCA”), on behalf of the United States and the State of Wisconsin against defendants Acacia Mental Health Clinic, LLC (“Acacia”) and Abe Freund, the principal owner of Acacia. Ms. Presser al‐ leges that Acacia and Mr. Freund engaged in “upcoding,” provided unnecessary medical procedures, and then charged the federal and state governments for those expenses. The dis‐ trict court granted the defendants’ motion to dismiss the com‐ plaint for failure to state a claim of fraud with particularity as required by Federal Rule of Civil Procedure 9(b). We affirm that judgment except as it relates to the claims against both defendants regarding the use of an improper billing code. We hold that Ms. Presser has stated those allegations with suffi‐ cient particularity and therefore reverse the district court’s judgment on those claims and remand for further proceed‐ ings.
I BACKGROUND A. Facts Ms. Presser has twenty years of experience working as both a nurse and a nurse practitioner in the State of Wiscon‐ sin. In October 2011, Ms. Presser began working with Acacia
1 On July 12, 2015, the Wisconsin legislature repealed the Wisconsin False
Claims Act in its entirety. See 2015 Wis. Act 55, § 945n. However, under Wisconsin law, “[t]he repeal of a statute hereafter shall not remit, defeat or impair any civil or criminal liability for offenses committed, penalties or forfeitures incurred or rights of action accrued under such statute be‐ fore the repeal thereof.” Wis. Stat. § 990.04. No. 14‐2804 3
as an independent contractor nurse practitioner. She pro‐ vided psychiatric evaluations, managed patient medication, and provided other medical services. In her complaint, Ms. Presser alleges that Acacia was engaged in the following practices and policies. First, Acacia mandated that patients be assessed by a min‐ imum of four different individuals before they were provided with medication. Patients were required to see a receptionist, a medical nurse practitioner (who could not conduct medical examinations but did provide acupuncture and similar treat‐ ments), a psychotherapist, and then a nurse practitioner. Pa‐ tients incurred separate charges for each of these four steps. Ms. Presser alleges that, “[b]ased on [her] years of experience and training, Acacia’s four‐step policy was not medically nec‐ 2 essary.” Second, the clinic manager directed Ms. Presser to utilize American Medical Association Current Procedural Terminol‐ ogy code 90801 when billing her assessments. The reception‐ ist and the medical nurse practitioner used this same billing code for their encounters with the patient. This “code is ap‐ plied to … a full psychological assessment by a therapist (or therapist in training), or a psychiatric medical evaluation by a psychiatrist or psychiatric nurse practitioner, the type of as‐ sessment [Ms.] Presser was expressly told to discontinue con‐ ducting.”3 Ms. Presser asked the clinic manager why billing
2 R.31 at 9 ¶ 26.
3 Id. at 8 ¶ 22. Based on the complaint, it appears that the clinic manager
asked Ms. Presser to discontinue these evaluations in the first two months of her employment, in order to conform to Acacia’s four‐step assessment 4 No. 14‐2804
code 90801 was being used by receptionists, medical nurse practitioners, and nurse practitioners. The clinic manager shrugged his shoulders in response. Third, patients were required to undergo a mandatory urine drug screening during each visit. Each of these screen‐ ings was billed. The clinic manager told Ms. Presser that the tests allowed Acacia to determine whether patients were tak‐ ing their medication. Ms. Presser alleges, “[b]ased on her per‐ sonal knowledge and experience,” that “the policy made no sense as the screenings would not establish when the patients took their medications and whether they were taking them at 4 the proper times.” Fourth, both Mr. Freund and the clinic director told the clinic staff that patients were required to come to the clinic in person in order to obtain a prescription refill or to speak with a physician. Patients regularly told Ms. Presser that they had called to speak with her over the phone, but were told by the receptionist that they needed to come to Acacia in person. If a patient missed an appointment or was not seen for a period as short as thirty days, he or she was discharged and would need to restart the assessment process. Before obtaining a new prescription, patients were required to see a psychotherapist at the clinic. Patients were billed for these encounters. “Based on [Ms.] Presser’s years of experience and training,”
procedure. See id. at 8 ¶ 21. However, the complaint is not entirely clear on this point. 4 Id. at 10 ¶ 28. No. 14‐2804 5
Ms. Presser alleges that these prescription refill and appoint‐ 5 ment policies “were medically unnecessary.” In her complaint, Ms. Presser provided examples of what 6 she believed to be “unnecessary medical billings.” John Doe 1 and Jane Doe 2 saw Ms. Presser for treatment of anxiety dis‐ orders during Ms. Presser’s previous tenure at Aurora Behav‐ ioral Health.7 In her “clinical judgment,” neither patient was 8 an “appropriate candidate for psychotherapy.” Ms. Presser had similar opinions about John Doe 2 and Jane Doe 1, whom she also saw for medication.9 The clinic manager and Mr. Freund nonetheless directed that all four individuals un‐ dergo the assessment process established by Acacia, which in‐ cluded psychotherapy. Before Ms. Presser began working at Acacia, Mr. Freund 10 told her “that Acacia could take all insurance.” Mr. “Freund also told [Ms.] Presser that almost all of Acacia’s patients were
5 Id. at 12 ¶ 39.
6 Id. at 13 ¶ 42.
7 Due to the Privacy Rule established in the Health Insurance Portability
and Accountability Act of 1996, the patients’ identities are undisclosed. See id. 8 Id. at 13–15 ¶¶ 43, 46.
9 The amended complaint does not specify whether John Doe 2 or Jane
Doe 1 were prior patients at Aurora Behavioral Health or were seen for the first time at Acacia. 10 Id. at 17 ¶ 55. 6 No. 14‐2804
11 ‘on Title 19.’” According to the amended complaint: Based on those discussions, as well as her expe‐ rience at other clinics, she knew that Acacia sub‐ mitted bills to individual patients, to private in‐ surers, and to Medicare and Medicaid programs run by the United States and the State of Wis‐ consin for services provided to patients, subject to their individual circumstances. She also knew those bills were based on services provided to patients, as coded by Acacia staff, in accordance with Acacia’s mandatory policies and proce‐ dures discussed above.[12] Ms. Presser calculated what she believed to be the appropri‐ ate annual revenue for Acacia, “[b]ased on her experience and 13 her knowledge of the patient volume and activity at Acacia.” Actual revenue for 2011 was double Ms. Presser’s calculation. Ms. Presser and other clinicians questioned the efficacy of the aforementioned procedures, but the clinic director told 14 them that “[t]his is how Abe [Freund] wants it.” When Ms. Presser sent emails that questioned procedures, Mr. Freund would respond, even when those emails were not addressed to him. He also had cameras in the office and could
11 Id. at 17 ¶ 57.
12 Id. at 18 ¶ 59.
13 Id. at 19 ¶ 62.
14 Id. at 6 ¶ 14; see also id. at 15 ¶ 48. No. 14‐2804 7
monitor the treatment being provided. According to the com‐ plaint, he therefore “knew that Acacia was billing Medicare and Medicaid for all services provided by the staff at Acacia, including services that Acacia’s clinical staff told him were not medically necessary or contrary to protocols and proce‐ 15 dures established by Medicare and/or Medicaid.” He never‐ theless continued to direct staff to comply with these policies.
B. Earlier Proceedings Ms. Presser filed a qui tam complaint on January 18, 2013, under the FCA and the WFCA on behalf of the United States and the State of Wisconsin against Acacia and Mr. Freund. She alleged that they had submitted fraudulent medical bills to the federal and state governments for payment.16 Acacia and Mr. Freund moved to dismiss the complaint on December 18, 2013, contending that Ms. Presser had not pleaded a single claim with sufficient particularity. Ms. Presser then moved to amend her complaint. The district court granted that motion and ordered Ms. Presser to “mak[e] any and all improvements she deems appropriate; no further
15 Id. at 16 ¶ 52; see also id. at 17 ¶ 57 (telling Ms. Presser that patients were
on Title 19). 16 Ms. Presser also presented a conspiracy claim, a common law claim of
payment under mistake of fact, and a common law claim of unjust enrich‐ ment. The district court dismissed those claims, and Ms. Presser does not appeal their dismissal. 8 No. 14‐2804
17 leave to amend will be granted.” Ms. Presser subsequently filed an amended complaint. Acacia and Mr. Freund moved to dismiss the amended complaint on April 11, 2014. They contended that Ms. Presser had failed to plead the FCA and WFCA claims with sufficient particularity, as required by Federal Rule of Civil Procedure 9(b), and had failed to state any claim under Federal Rule of Civil Procedure 12(b)(6). The district court granted the de‐ fendants’ motion on July 15, 2014. The court noted that Ms. Presser had “fail[ed] to identify with specificity to whom 18 bills for Acacia’s services were allegedly presented.” The court also held that, at most, the complaint discussed how Acacia submitted bills to patients, insurers, and Medicaid 19 programs “subject to their individual circumstances.” In the view of the court, Ms. “Presser does not even definitively al‐ lege that at least one patient’s bill was submitted to the United 20 States or the State of Wisconsin.” The district court con‐ cluded that none of Ms. Presser’s claims could survive a mo‐ tion to dismiss.
17 R.30 at 2 (emphasis omitted). In the view of the district court, Ms. Presser cited a provision of the FCA which did “not provide for lia‐ bility.” Id. at 1. It stated that, absent an amendment, it therefore “would be obliged to dismiss this case for failure to state a claim.” Id. Although the district court only referenced this supposed jurisdictional defect as the ba‐ sis for its order, it did state that Ms. Presser should make all appropriate improvements to her complaint. Id. at 1–2. 18 R.40 at 7 (emphasis in original).
19 Id. (emphasis omitted) (quoting R.31 at ¶¶ 59–60).
20 Id. at 7–8 (emphasis in original). No. 14‐2804 9
The court also declined to grant Ms. Presser leave to amend her complaint. It noted that Ms. Presser already had been given the opportunity to file an amended complaint and concluded that the defendants would be prejudiced by the unresolved allegations of fraud. Ms. Presser now timely ap‐ peals.
II DISCUSSION “The FCA is an anti‐fraud statute and claims under it are subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure.” United States ex rel. Gross v. AIDS Research All.‐Chi., 415 F.3d 601, 604 (7th Cir. 2005). We review de novo a district court’s decision to dismiss a complaint for failing to satisfy the requirements of Rule 9(b). AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011).21 Drawing on the Supreme Court’s holdings in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), we have made clear that the pleading stand‐ ards under Rule 8 and Rule 9 remain distinct. Swanson v. Citi‐ bank, N.A., 614 F.3d 400, 403 (7th Cir. 2010); see also Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736–37 (7th Cir. 2014). Under Rule 8, a plaintiff only needs to “give enough details about the subject‐matter of the case to present a story that
21 We also review de novo a decision to dismiss a complaint under Federal
Rule of Civil Procedure 12(b)(6). OʹGorman v. City of Chi., 777 F.3d 885, 888 (7th Cir. 2015). However, a complaint that satisfies the heightened plead‐ ing standards of Rule 9(b) necessarily satisfies the pleading standards of Rule 12(b)(6). See Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736– 37 (7th Cir. 2014). 10 No. 14‐2804
holds together.” Swanson, 614 F.3d at 404. Alternatively, un‐ der Rule 9(b), a plaintiff “alleging fraud or mistake … must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). A plaintiff ordinarily must describe the “who, what, when, where, and how” of the fraud—“the first paragraph of any newspaper story.” United States ex rel. Lusby v. Rolls‐Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (internal quotation marks omitted). While applying this shorthand to describe the require‐ ments of Rule 9, we also have warned that “courts and liti‐ gants often erroneously take an overly rigid view of the for‐ mulation” and that the precise details that must be included in a complaint “may vary on the facts of a given case.” Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 22 631 F.3d 436, 442 (7th Cir. 2011). Nevertheless, plaintiffs must “use some … means of injecting precision and some measure of substantiation into their allegations of fraud.” 2 James Wm. Moore et al., Moore’s Federal Practice § 9.03[1][b], at 9‐22 (3d ed. 2015); see also Pirelli, 631 F.3d at 442. Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. United States ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 370 (7th Cir. 2016). “[A] public accusation of fraud can do great damage to a firm before the firm is (if the accu‐ sation [is] prove[d] baseless) exonerated in litigation … .” United States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc.,
22 See also Anchor Bank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011); Vin‐
cent v. City Colls. of Chi., 485 F.3d 919, 923 (7th Cir. 2007); Emery v. Am. Gen. Fin., Inc., 134 F.3d 1321, 1323 (7th Cir. 1998). No. 14‐2804 11
772 F.3d 1102, 1105 (7th Cir. 2014). We have observed, more‐ over, that “fraud is frequently charged irresponsibly by peo‐ ple who have suffered a loss and want to find someone to blame for it.” Ackerman v. Nw. Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999). If discovery is allowed to proceed, a de‐ fendant well may face a long period of time where it stands accused of fraud, placing what may be undue pressure on the de‐ fendant to settle the case in order to lift the cloud on its reputation. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plain‐ tiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims. Fid. Nat’l Title Ins. Co. of N.Y. v. Intercounty Nat’l Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005); see also Vicom, Inc. v. Harbridge Merch. Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994) (discussing the Rule’s purpose of “minimizing ‘strike suits’ and ‘fishing expeditions’”); Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 924 (7th Cir. 1992) (“Rule 9(b) ensures that a plaintiff have some basis for his accusations of fraud before making those accusations … .”).
A. We have applied the requirements of Rule 9(b) in the past, and that experience provides useful guideposts for our as‐ 12 No. 14‐2804
sessment of this case. We begin by focusing on the require‐ ments of the FCA. Our court summarized them in United States ex rel. Yannacopoulos v. General Dynamics, 652 F.3d 818 (7th Cir. 2011): The False Claims Act makes it unlawful to knowingly (1) present or cause to be presented to the United States a false or fraudulent claim for payment or approval, 31 U.S.C. § 3729(a)(1) (2006); (2) make or use a false record or state‐ ment material to a false or fraudulent claim, § 3729(a)(1)(B); or (3) use a false record or state‐ ment to conceal or decrease an obligation to pay money to the United States, § 3729(a)(7) (2006). Under the Act, private individuals … , referred to as “relators,” may file civil actions known as qui tam actions on behalf of the United States to recover money that the government paid as a result of conduct forbidden under the Act. Gla‐ ser v. Wound Care Consultants, Inc., 570 F.3d 907, 912 (7th Cir. 2009). As an incentive to bring suit, a prevailing relator may collect a substantial percentage of any funds recovered for the bene‐ fit of the government. Id. To establish civil lia‐ bility under the False Claims Act, a relator gen‐ erally must prove (1) that the defendant made a statement in order to receive money from the government; (2) that the statement was false; and (3) that the defendant knew the statement was false. E.g., United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 604 (7th Cir. 2005). No. 14‐2804 13
23 Id. at 822 (footnote omitted). The WFCA similarly requires a relator to show these elements. See Wis. Stat. § 20.931(2)(a) (a person is liable who “[k]nowingly presents or causes to be presented to any officer, employee, or agent of this state a false claim for medical assistance”); id. § 20.931(2)(b) (a person is liable who “[k]nowingly makes, uses, or causes to be made or used a false record or statement to obtain approval or pay‐ ment of a false claim for medical assistance”).
1. We first consider whether the complaint states, with suffi‐ cient particularity, that Acacia and Mr. Freund made the al‐ leged claims and statements to the federal and state govern‐ ments. The defendants contend, and the district court held, that Ms. Presser had not alleged that the defendants actually sent any of the alleged claims or made any of the alleged state‐ ments to the state or federal governments. Our case law establishes that a plaintiff does not need to present, or even include allegations about, a specific docu‐ ment or bill that the defendants submitted to the Government. In United States ex rel. Lusby v. Rolls‐Royce Corp., 570 F.3d 849 (7th Cir. 2009), for example, an engineer alleged that his em‐ ployer knowingly certified engine parts that did not meet the specifications prescribed by the Government. Id. at 853–54. The engineer’s complaint described the parts that were shipped to the Government, noted that a contract required his
23 In enacting the FCA, Congress sought “to encourage any individual
knowing of Government fraud to bring that information forward.” S. Rep. No. 99–345, at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266–67. 14 No. 14‐2804
employer to certify the parts in order to receive payment, and stated that payment was received. Id. at 853. However, the en‐ gineer did not provide an invoice showing a specific request for payment. Id. at 854. We held, nonetheless, that it was rea‐ sonably understood from the complaint that the employer had submitted a certificate containing false statements in ask‐ ing for payment. Id. (noting that it was “possible that military procurement officers accepted and paid for the turbine blades without this certificate” but that the possibility was “re‐ mote”). In a similar case, we held that an employee of an ed‐ ucational training institution adequately pleaded fraud by al‐ leging that the institution failed to comply with federal law, received funding, and “could only have received federal funding by certifying compliance” with federal law. Leveski v. ITT Educ. Servs., Inc., 719 F.3d 818, 839 (7th Cir. 2013). In each of these cases, the alleged facts necessarily led one to the con‐ clusion that the defendant had presented claims to the Gov‐ ernment. Here, Ms. Presser stated in her complaint that Mr. Freund had told her “that almost all of Acacia’s patients were ‘on Title 24 19’” and that they dealt with Medicare. Ms. Presser’s com‐ plaint also makes clear that the questionable practices and procedures were applied to all patients at the clinic. Consid‐ ering Ms. Presser’s position as a nurse practitioner, a position that does not appear to include regular access to medical bills, we do not see how she would have been able to plead more facts pertaining to the billing process. See Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1051 (7th Cir. 1998) (“[T]he par‐ ticularity requirement of Rule 9(b) must be relaxed where the
24 R.31 at 17 ¶¶ 57–58. No. 14‐2804 15
plaintiff lacks access to all facts necessary to detail [her] claim.”). Therefore, “[f]or now, an inference is enough.” Leveski, 719 F.3d at 839. We hold, consistent with Lusby and Leveski, that Ms. Presser has alleged adequately that Acacia billed Medicare for services that were provided pursuant to the challenged policies and procedures.
2. We now must consider whether the policies and practices alleged in Ms. Presser’s complaint describe the alleged fraud‐ ulent activity in sufficient detail. Although a pleading need not “exclude all possibility of honesty in order to give the par‐ ticulars of fraud,” Lusby, 570 F.3d at 854, “[t]he grounds for the plaintiff’s suspicions must make the allegations plausible, even as courts remain sensitive to information asymmetries that may prevent a plaintiff from offering more detail.” Pirelli, 631 F.3d at 443 (emphasis in original). We begin with the allegations related to the use of billing code 90801. According to the complaint, this code is only meant to apply to full psychological assessments by a thera‐ pist or an evaluation by a psychiatrist. Ms. Presser alleges that her superiors directed her to use this code even though they also “expressly told [her] to discontinue conducting” psychi‐ 25 atric evaluations. She also alleges that receptionists and medical nurse practitioners used this code, even though their job description clearly does not include psychological assess‐ ments. The clinic director indicated to Ms. Presser that the use of this specific code was the policy and that Mr. Freund
25 Id. at 8 ¶ 22. 16 No. 14‐2804
wanted these policies in place. Acacia mandated that all pa‐ tients be assessed by a receptionist, nurse practitioner, and medical nurse practitioner, and each of these encounters were billed separately. These allegations state clearly and specifi‐ cally that Acacia provided non‐psychiatric evaluations and then falsely presented those services as psychiatric evalua‐ tions on bills to the state and federal governments. Indeed, the allegations involving this billing code are even more specific than those presented in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Universal Health Services, a relator alleged that the owner of a mental health facility had employed mental health counselors who lacked the requisite licensing. Id. at 1997. The facility sub‐ mitted reimbursement claims to Medicaid using payment codes “such as ‘Individual Therapy’ and ‘family therapy.’” Id. The Supreme Court concluded that, “by submitting claims for payment using payment codes that corresponded to specific counseling services, [the owner of the facility] represented that it had provided individual therapy, family therapy, pre‐ ventive medication counseling, and other types of treatment.” Id. at 2000. The Court held that the use of these codes “without disclosing [the] many violations of basic staff and licensing requirements for mental health facilities … constituted mis‐ representations” that could serve as a basis for liability under 26 the FCA. Id. at 2000–01. Ms. Presser’s allegations involve more than the “misleading half‐truths” that the Court identi‐ fied in Universal Health Services. Id. at 2001. In that case, the
26 The Supreme Court remanded the case to determine whether this mis‐
representation was sufficiently “material.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002–04 (2016). No. 14‐2804 17
defendant allegedly billed Medicaid for the correct type of therapy but failed to note that the therapy was provided by an unqualified individual. Id. at 1999. Here, Acacia and Mr. Freund allegedly billed Medicaid for a completely different treatment. The claim therefore does not involve a misrepresen‐ tation by omission; it involves an express false statement. Ms. Presser’s complaint sufficiently alleges that the defend‐ ants misused a billing code and falsely represented to the state and federal governments that a certain treatment was given by certain medical staff when in fact it was not. By contrast, Ms. Presser’s remaining allegations present significant cause for concern. Ms. Presser challenges the pro‐ priety of the four‐person evaluation process, mandatory drug screenings, and policies on prescription refills and appoint‐ ments. She claims that these policies violate 42 U.S.C. § 1395y(a)(1)(A), which states that the Medicare program will not provide reimbursement for services which “are not rea‐ sonable and necessary for the diagnosis or treatment of illness 27 or injury.” However, in her complaint, Ms. Presser provides no med‐ ical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care forbidden by the statute. For instance, the complaint does not reference policies or practices at other medical clinics, regulations, or other publi‐ cations which call Acacia’s policies into question. Further, alt‐ hough the complaint identifies four individuals who received treatment at Acacia that was, in Ms. Presser’s view, medically unnecessary, the complaint does not provide any reasons why
27 See R.31 at 21 ¶ 72. 18 No. 14‐2804
these treatments actually were unnecessary other than Ms. Presser’s personal view. We previously have affirmed dismissals of complaints that fail to put the defendant’s alleged activity into its relevant context. In Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436 (7th Cir. 2011), for example, we considered a complaint which alleged that a pharmacy chain systematically filled prescriptions for one form of a medication with a more expensive form of the same medica‐ tion. Id. at 438. The plaintiff relied, in part, on data showing that the chain had sought reimbursement for the more expen‐ sive form of the drug eleven times. Id. at 444. We noted, how‐ ever, that patients may have specific medical reasons that make the more expensive form of the drug preferable to the other form. Id. at 445. “[T]he data” presented in the complaint, “untethered as they are, cannot corroborate a fraud because their free‐floating nature stymies any meaningful under‐ standing of what the numbers mean.” Id. We explained that: Putting the numbers in context could tell us whether [the plaintiff] also reimbursed [the pharmacy] for the cheaper form of the drugs in the five‐year period that [the plaintiff] exam‐ ined. To the extent it did not, the fraud claim would be supported; to the extent it did, it would be undermined. Or we could see if reim‐ bursements for the more expensive forms of the drugs outstripped reimbursements for the cheaper versions in an unlikely way. [The plain‐ tiff] did not need to dance to [a] comprehensive statistical tune, but did need to provide firsthand facts or data to make its suspicions No. 14‐2804 19
plausible. [The plaintiff’s] de minimis showing tells us little and does not fulfill Rule 9(b)’s pur‐ pose of “forc[ing] the plaintiff to do more than the usual investigation before filing his com‐ plaint.” Id. (last alteration in original) (emphasis in original) (quoting Ackerman, 172 F.3d at 469). The complaint in this case similarly lacks a concrete basis for the plaintiff’s allegations. Like the complaint in Pirelli, Ms. Presser’s complaint fails to demonstrate how Acacia’s policies compare to other clinics or could otherwise be under‐ stood as “unusual.” See id. Acacia’s policies could have en‐ tirely innocent explanations. A four‐step evaluation process may be in place to ensure that patients are diagnosed properly and receive proper treatment. Mandatory drug‐screening and in‐person refill policies may ensure that prescriptions are not being abused. Without additional context providing reason to question the appropriateness of these policies, the complaint does not present allegations of fraud with sufficient particu‐ larity. Not only does the lack of context make these allegations too indefinite, but each of the allegations depends entirely on 28 Ms. Presser’s personal estimation —an estimation that is not
28 See, e.g., id. at 9 ¶ 26 (“Based on Presser’s years of experience and train‐
ing, Acacia’s four‐step policy was not medically necessary.”); id. at 10 ¶ 29 (“Based on Presser’s years of experience and training, Acacia’s policy mandating a urine drug screen each time a patient came to the clinic was not medically necessary.”); id. at 12 ¶ 39 (“Based on Presser’s years of ex‐ perience and training, Acacia’s policies requiring appointments to speak with clinicians, limiting refills without an appointment, and mandating 20 No. 14‐2804
supported in any concrete manner. Many potential relators could claim that “in my experience, this is not the way things are done.” However, relators may not be in a position to see the entire picture or may simply have a subjective disagree‐ ment with the other party on the most prudent course of ac‐ tion. Further, their perspective may be colored by considera‐ ble bias or self‐interest, such as in the case of a disgruntled employee. The heightened possibility of mistake or bias sup‐ ports the need for a higher standard of specificity for fraud compared to other civil litigation. See, e.g., Fid. Nat’l Title Ins. Co., 412 F.3d at 749 (noting that Rule 9(b) “forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims”); Ackerman, 172 F.3d at 469 (“[F]raud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it.”); Uni*Quality, Inc., 974 F.2d at 924 (“Rule 9(b) ensures that a plaintiff have some basis for his accusations of fraud before making those accusations and thus discourages people from including such accusations in complaints simply to gain leverage for settlement or for other ulterior pur‐ poses.”). Ms. Presser’s subjective evaluation, standing alone, is not a sufficient basis for a fraud claim. We hold that Ms. Presser sufficiently has alleged facts that constitute a fraudulent scheme involving the use of billing code 90801. However, without an ascertainable standard or more context, Ms. Presser’s other allegations of fraud do not
psychotherapy and Medical Nurse Practitioner assessments to obtain re‐ fills of medications were medically unnecessary.”). No. 14‐2804 21
suffice. The latter claims were properly dismissed by the dis‐ 29 trict court.
B. A party has the right to amend the complaint once as a matter of right and has the opportunity for further amend‐ ment at the district court’s discretion. Fed. R. Civ. P. 15(a); see also Gonzalez‐Koeneke v. West, 791 F.3d 801, 807 (7th Cir. 2015). Here, Acacia and Mr. Freund moved to dismiss Ms. Presser’s initial complaint, contending in part that Ms. Presser had not pleaded a single claim with sufficient particularity. The dis‐ trict court granted Ms. Presser’s motion for leave to amend her complaint and directed Ms. Presser to “mak[e] any and all improvements she deems appropriate; no further leave to
29 Ms. Presser has pleaded adequately the element of fraudulent intent for
her remaining claims. The FCA’s “scienter requirement defines ‘knowing’ and ‘knowingly’ to mean that a person has ‘actual knowledge of the infor‐ mation,’ ‘acts in deliberate ignorance of the truth or falsity of the infor‐ mation,’ or ‘acts in reckless disregard of the truth or falsity of the infor‐ mation.’” Universal Health Servs., 136 S. Ct. at 1996 (quoting 31 U.S.C. § 3729(b)(1)(A)). Unlike the other elements of an FCA claim, “[m]alice, in‐ tent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b); see also Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 658 (7th Cir. 2015). According to the complaint, Ms. Presser was told by the clinic manager that Acacia’s policy required the use of billing code 90801, and she was told that Mr. Freund endorsed this policy. One certainly could infer intent from these alleged facts. The defendants do not contend that Ms. Presser has failed to satisfy the ele‐ ment of intent, and we see no reason to affirm the dismissal of her com‐ plaint on these grounds. 22 No. 14‐2804
30 amend will be granted.” When the court subsequently dis‐ missed Ms. Presser’s amended complaint, it concluded that Ms. Presser was on notice that she would not receive addi‐ tional leave to amend and “that any further amendment 31 would be unduly prejudicial to Defendants.” Ms. Presser does not challenge the district court’s decision not to grant further leave, and therefore this issue is waived. See Fluker v. Cty. of Kankakee, 741 F.3d 787, 795 (7th Cir. 2013) (holding that a party that failed to develop a legal argument on appeal regarding the district court’s denial of its attempt to file a second amended complaint had waived the issue). Considering that some of her claims are proceeding to the dis‐ covery stage, the district court may choose to revisit the ques‐ tion of amendment because the potential for undue prejudice to Acacia and Mr. Freund that previously was identified by the district court now may be diminished. The decision whether to grant further leave to amend is entirely within the discretion of the district court.
Conclusion For the foregoing reasons, we affirm the district court’s judgment except with respect to the claims about the use of billing code 90801. With respect to those claims, we reverse the judgment of the district court and remand for further pro‐ ceedings consistent with this opinion. Whether, under these circumstances, further amendment should be allowed, is left
30 R.30 at 2 (emphasis omitted).
31 R.40 at 10. No. 14‐2804 23
to the district court’s discretion. The parties shall bear their own costs in this appeal. AFFIRMED in part; REVERSED and REMANDED in part
24 No. 14‐2804
HAMILTON, Circuit Judge, concurring in part and dissenting in part. I agree with my colleagues that the dismissal of Presser’s claims alleging fraudulent use of billing codes must be reversed. Judge Ripple’s opinion explains why Presser al‐ leged sufficiently that the defendants presented the allegedly false claims to the federal and state governments for payment and why those allegations are sufficiently specific for pur‐ poses of Rule 9(b) regarding the improper billing codes. However, I respectfully part company on the dismissal of Presser’s other fraud claims based on the unnecessary four‐ person evaluation process, mandatory drug screenings, and policies on prescription refills and appointments. I would al‐ low those claims to go forward as pleaded. In any event, the district court will need to exercise its sound discretion in de‐ ciding whether to allow further amendments to revive these other claims. On these other claims, Presser alleged the “circumstances” of the fraud with particularity as required by Rule 9(b) by providing “the who, what, when, where, and how, the first paragraph of any newspaper story.” U.S. ex rel. Hanna v. City of Chicago, — F.3d —, —, 2016 WL 4434559, at *3 (7th Cir. Aug. 22, 2016), quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). She has identified the defendants’ practices that led to much higher billings to the government. The majority does not disagree. In addition, Presser has alleged fraudulent in‐ tent adequately as to all of her claims. The majority acknowl‐ edges as much in footnote 29, which also reminds us that Rule 9(b) allows fraudulent intent to be alleged “generally.” Yet the majority concludes on pages 17 to 20 that Presser failed to allege something else essential, apparently some ad‐ ditional factual basis to support her contention that these No. 14‐2804 25
other challenged practices are in fact fraudulent rather than innocent. That discussion is in tension with note 29 and more broadly with our case law interpreting Rule 9(b) and the abil‐ ity to plead fraudulent intent generally. The majority tells us that what is missing is “an ascertain‐ able standard or more context,” and the majority suggests that a reference to a professional standard might provide the missing allegations. Ante at 20. The majority is concerned that plaintiff has not identified anything other than her own expe‐ rience and judgment as a basis for saying that defendant was billing the federal and state governments for unnecessary care. The majority also speculates about possible innocent ex‐ planations for the allegedly fraudulent practices. Ante at 19. With respect, the majority’s insistence on an external standard or “context” goes beyond the requirements of Rule 9(b). The circumstances of the alleged fraud have been alleged with particularity here. We have long rejected demands for more than the “who, what, when, where, and how” under Rule 9(b). E.g., Hefferman v. Bass, 467 F.3d 596, 602 (7th Cir. 2006) (reversing dismissal of fraud claim); Fidelity Nat’l Title Ins. Co. v. Intercounty Nat’l Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005) (same); General Electric Capital Corp. v. Lease Resolu‐ tion Corp., 128 F.3d 1074, 1078 (7th Cir. 1997) (affirming denial of dismissal under Rule 9(b)); Midwest Commerce Banking Co. v. Elkhart City Centre, 4 F.3d 521, 524 (7th Cir. 1993) (error to dismiss under Rule 9(b)); Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992) (plaintiff need not “plead facts showing that the representation is indeed false”); accord, Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Services, Inc., 536 F.3d 663, 668–69 (7th Cir. 2008) (complaint need not plead evidence of fraud). The majority 26 No. 14‐2804
seems to demand that the relator plead evidence or in essence prove her case in the complaint. In fact, the majority here comes close to applying the spe‐ cial pleading standard from the Private Securities Litigation Reform Act, which requires a securities fraud plaintiff to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u–4(b)(2); see also Tellabs v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319–20 (2007) (explaining how PSLRA re‐ quirement for pleading fraudulent scienter goes beyond Rule 9(b)). That standard does not apply here, but by suggesting innocent explanations for the challenged practices and criti‐ cizing the relator’s failure to negate them in her complaint, the majority applies something very close to the “strong infer‐ ence” standard from the PSLRA. To justify this unusually demanding interpretation of Rule 9(b), with its amorphous requirement for pleading “con‐ text,” the majority highlights one of the policy concerns re‐ flected in Rule 9(b): the danger that a defendant’s reputation might be tarnished unfairly by conclusory allegations of fraud. That is one important policy at stake here, but so too are the liberal pleading policies reflected in Rules 8 and 9(b). We and other courts try to strike the right balance, guided by the rules’ texts and purposes, by insisting that the “circum‐ stances” of alleged fraud be stated with particularity while al‐ lowing general pleading of fraudulent intent. That balance does not include the majority’s uncertain requirement for pleading “context” or for facts refuting the majority’s sug‐ gested innocent explanations for the allegedly fraudulent practices. These additional claims may fail later on for lack of No. 14‐2804 27
evidence, but it seems to me, for now at least, that they have been pleaded sufficiently. This case will return to the district court for discovery and further proceedings. It is possible the relator Presser may seek to amend her complaint to meet the newly articulated re‐ quirement for “context” or “external standards,” or at least for more factual details supporting the other fraud claims. The majority says at page 22 that the decision on any further amendment of the complaint “is entirely within the discretion of the district court.” It should go without saying that discre‐ tion must be exercised according to law. Rule 15(a)(2) pro‐ vides that the “court should freely give leave when justice so requires.” If a further amendment is sought here, the case for allowing it would be very strong because of a mistake the dis‐ trict court made at the outset of the case. When the defense filed its original motion to dismiss, the district judge told the relator that she would have only one chance to amend her complaint. Such a rigid ruling at the out‐ set of most cases would be an abuse of discretion. See Runnion v. Girl Scouts of Greater Chicago, 786 F.3d 510, 522 (7th Cir. 2015) (2009 amendment to Rule 15(a) “did not impose on plaintiff’s choice of pleading a regime of ‘one‐and‐done’”). In this case, the “one‐and‐done” ruling was an abuse of discretion since it was based on the judge’s own clear legal mistake. He wrote that the complaint failed to state a claim under the False Claims Act because it asserted a claim under “31 U.S.C. § 3729(a)(2).” See U.S ex rel. Presser v. Acacia Mental Health Clinic, LLC, 2014 WL 3530747, at *1 (E.D. Wis. July 15, 2014) (summarizing earlier order). The flaw that prompted the “last chance” warning, was merely a problem with a citation, which was not even necessary. 28 No. 14‐2804
The original complaint quoted the correct language from the False Claims Act—“knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim.” The problem was that the original com‐ plaint cited the pre‐2009 version, 31 U.S.C. § 3729(a)(2), rather than the post‐2009 version in which that same language ap‐ pears in § 3729(a)(1)(B). The complaint was not required to in‐ clude a legal theory, let alone a correct citation. E.g., Doe v. Smith, 429 F.3d 706, 708 (7th Cir. 2005); Bartholet v. Reishauer A.G., 953 F.2d 1073 (7th Cir. 1992). Such a minor citation error should not be fatal, nor should it shut the door to any further needed amendments, keeping in mind the “when justice so requires” standard of Rule 15(a)(2). More generally, in the post‐Iqbal‐and‐Twombly world of civil pleading, it is difficult for any plaintiff to know what a particular district judge will require by way of details in a complaint. Variations among district judges and appellate panels can be substantial, suggesting that the Iqbal and Twombly project is leading not to more clarity and less litiga‐ tion, but to less clarity and more litigation. The majority acknowledges this problem, noting accurately that “the pre‐ cise details that must be included in a complaint ‘may vary on the facts of a given case.’” Ante at 10, quoting Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 442 (7th Cir. 2011); accord, In re Healthcare Compare Corp. Securities Litig., 75 F.3d 276, 284–85 (7th Cir. 1996) (Ripple, J., dissenting) (“Reasonable minds can—and will—differ on the adequacy of the factual specificity in an allegation of fraud.”). To emphasize the uncertainty, Pirelli noted that the plaintiff in that case may have provided too much detail. 631 F.3d at 439 n.1. No. 14‐2804 29
Too much? Too little? More “context”? What is a plaintiff to do? The best approach is to let the plaintiff try her best, and then to be liberal in allowing amendments (“when justice so requires”) once the court has indicated what is necessary. E.g., Runnion v. Girl Scouts of Greater Chicago, 786 F.3d 510, 519‐20 (7th Cir. 2015) (reversing dismissal). We should not decide cases, or invite district judges to decide cases, based on a plaintiff’s incorrect prediction about just how much detail a particular district judge or appellate panel might require. See Fed. R. Civ. P. 8(e) (“Pleadings must be construed so as to do justice.”). Such decisions about amending pleadings are left to district judges’ sound discretion, not to their whims, and cer‐ tainly not to their impatience based on their own legal mis‐ takes, as occurred in this case.