by Ben Vernia | November 3rd, 2010
In a decision on November 1 in U.S. ex rel. Steury v. Cardinal Health, Inc., the Fifth Circuit Court of Appeals affirmed the dismissal of a qui tam relator’s suit against a medical device maker, but remanded the case to permit the relator to amend her complaint. The suit was brought by a former employee of Cardinal Health, who alleged that the company provided defective infusion pumps to the Department of Veterans Affairs. She alleged that the company’s knowing sale of defective pumps violated the False Claims Act by breaching an implied certification of a warranty of merchanability.
The district court, adopting a magistrate report and recommendation, dismissed the complaint for failure to state a claim (under Rule 12(b)(6)) and inadequate particularity (under Rule 9(b)). Although the magistrate had recommended granting the relator leave to amend, the district court entered the dismissal as a final judgment. The relator appealed, raising on appeal the 12(b)(6) and denial of leave to amend issues.
The Fifth Circuit noted that it had not previously adopted the implied certification theory of liability under the False Claims Act, but it concluded that the relator’s complaint failed to state a claim under that doctrine, so it was unnecessary to resolve the issue.
Writing for the court, Judge Fortunato Benavides stated that the False Claims Act is not a “general ‘enforcement device’ for federal statutes, regulations, and contracts.” In the past, he wrote, the Fifth Circuit had dismissed cases in which compliance with contractual, statutory or regulatory provisions was not a prerequisite to payment. Although Congress had recently broadened the definition of materiality on which courts have previously based a payment-prerequisite element, the court found that fairness imposed the same requirement:
The prerequisite requirement has to do with more than just the materiality of a false certification; it ultimately has to do with whether it is fair to find a false certification or false claim for payment in the first place. As already discussed, when payment is not conditioned on a certification of compliance, it is not fair to infer such certification from a mere request for payment. Similarly, even if a contractor falsely certifies compliance (implicitly or explicitly) with some statute, regulation, or contract provision, the underlying claim for payment is not “false” within the meaning of the FCA if the contractor is not required to certify
compliance in order to receive payment. See Southland Mgmt., 326 F.3d at 675 (“There is no liability under this Act for a false statement unless it is used to get [a] false claim paid.”). In short, a false certification of compliance, without more, does not give rise to a false claim for payment unless payment is conditioned on compliance.
In the case at hand, the court found no basis to believe that the government conditioned payment on an implied certification that the allegedly defective pumps complied with a warranty of merchantability. It noted that the relator had not briefed other approaches, such as taken by those courts which have found the False Claims Act violated by the knowing provision of worthless goods, so it declined to address them.
In addition, the court upheld the district court’s determination the relator’s complaint failed to comply with Fed. R. Civ. P. 9(b). Nevertheless, the court found no reason for the court to have denied the relator leave to amend her complaint, and it remanded to permit her ten days to do so.
