More Rule 9(b) confusion at the Sixth Circuit

September 3rd, 2008 by Mike Bothwell

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U.S. ex rel. SNAPP, Inc. v. Ford Motor Company, 532 F.3d 496 (6th Cir. 2008)

Once again, the stubborn judicial insistence on the magical “claim” to satisfy the requirements of Rule 9(b) has felled another detailed complaint.  In this instance, despite a detailed exposé of a fraud by one of the participants, the relator’s inability to produce a claim led to dismissal under Rule 9(b).  The Sixth Circuit then remanded for further consideration under its ruling in

United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 502 (6th Cir. 2007) (“Bledsoe II”) as to whether an amended complaint should be permitted under Rule 59.

Relator SNAPP, Inc. (“SNAPP”) brought a qui tam action under the False Claims Act alleging 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.  If true, SNAPP’s allegations show that it was an insider to Ford’s fraud.  The scheme called for Ford to subcontract with large, majority-owned businesses but then launder its payments to that large, majority-owned business through SNAPP, allegedly a small, minority owned business.  Under this scheme, SNAPP received payments only for the purpose of passing them through, while Ford reported these transactions to the government as a subcontract with a small, minority-owned business.

Moreover, SNAPP contends that it did not actually qualify as a small, minority-owned business during the operative timeframe.  The suit alleged that from 1991 until 1999, although SNAPP was nominally owned and managed by a person of color, SNAPP maintains that this nominal control was a sham.  According to SNAPP, it was controlled entirely by Ford during this eight-year period. 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. Moreover, SNAPP alleges that from 1995 until 1999, Relator had too many employees to qualify as a small business.

The Southern District of Ohio dismissed SNAPP’s complaint for failure to comply with Fed. R. Civ. P. 9(b), and the Sixth Circuit affirmed in the instant opinion.  The Sixth Circuit remanded, however, to enable the district court to consider the Sixth’s decision in Bledsoe II before denying Relator’s motion to file an amended complaint.

In reiterating the pleading standard of Rule 9(b) with respect to FCA actions, the Sixth Circuit repeated its maxim from Bledsoe II that a relator must provide sufficient details regarding the time, place and content of alleged false statements, claim for payment from the federal government, and the manner in which the false statements induced the government to make a claimed payment to allow defendant to adequately prepare a responsive pleading.  Pleading with particularity as to the other elements of the cause of action is not required.  Although it found sufficient particularity as to the time, place and content of alleged false statements and as to the inducement to the government, SNAPP’s claims failed because it was unable to provide a “representative” claim for payment made by Ford.

The Sixth Circuit did vacate and remand denial of SNAPP’s motion to file an amended complaint that apparently included “numerous claims for payment Ford submitted to the federal government,” which the district court had denied, ruling amendment would be futile because Relator “has simply been unable to frame its allegations within the confines of the FCA.”  The Court instructed that in reconsidering Relator’s motion in light of Bledsoe II, the “governing principle” guiding the district court’s consideration should be “whether vacating its order dismissing Relator’s complaint, and allowing the amended complaint, is required in order to prevent an injustice; and where an injustice will otherwise result, the trial judge has the duty as well as the power to order a new trial.” (citing Davis by Davis v. Jellico Community Hospital, Inc., 912 F.2d 129, 133 (1990)).

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