Introduction

The case of United States of America ex rel. Akiva Tessler, Plaintiff-Appellant, Felix Gonzalez, Plaintiff v. City of New York, Defendant-Appellee, adjudicated by the United States Court of Appeals for the Second Circuit on October 5, 2017, centers on the dismissal of a qui tam action under the False Claims Act (FCA). Plaintiff-Appellant Akiva Tessler, acting pro se, alleged that the City of New York failed to recoup overpayments in federal assistance programs and neglected to redetermine beneficiaries' eligibility for the Medicare Savings Program (MSP). The key issues revolved around whether Tessler's complaint met the stringent pleading standards required under the FCA, particularly Federal Rule of Civil Procedure 9(b).

Summary of the Judgment

The Second Circuit Court affirmed the District Court's decision to dismiss Tessler's complaint. Tessler's second amended complaint (SAC) filed under the FCA alleged two primary claims: the City's failure to recoup overpayments in the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), and the City's neglect in reassessing eligibility for the Medicare Savings Program. The Court held that Tessler's allegations were insufficiently detailed to meet the particularity requirements of Rule 9(b) and failed to establish a plausible claim of fraudulent intent. Consequently, the appeal upheld the dismissal, reinforcing the necessity for precise and detailed pleadings in FCA actions.

Analysis

Precedents Cited

The judgment extensively referenced several pivotal cases that shape the interpretation and application of the FCA:

• Fabula v. American Medical Response, Inc. (865 F.3d 71, 2d Cir. 2017): This case clarified that a relator with personal knowledge of record falsification does not need direct evidence of submission to the government if it is plausible that the employer made such submissions.
• Bell Atlantic Corp. v. Twombly (550 U.S. 544, 2007) and Ashcroft v. Iqbal (556 U.S. 662, 2009): These landmark Supreme Court cases established the "plausibility" standard for pleading, requiring more than mere conclusory statements.
• O'BRIEN v. NATIONAL PROPERTY ANALYSTS PARTNERS (936 F.2d 674, 2d Cir. 1991): Emphasized the need for factual basis to infer fraudulent intent under the FCA.
• Ladas v. Exelis, Inc. (824 F.3d 16, 2d Cir. 2016) and Balintulo v. Ford Motor Co. (796 F.3d 160, 2d Cir. 2015): These cases underscored the strict adherence to procedural requirements and the high threshold for amending pleadings.

Legal Reasoning

The Court's legal reasoning focused on the stringent standards set by the FCA and Federal Rule of Civil Procedure 9(b). For a qui tam action to succeed, the plaintiff must demonstrate that the defendant knowingly submitted false or fraudulent claims to the government. This necessitates particularized allegations detailing the fraudulent statements, the individuals involved, the context of the statements, and the inherent fraudulence.

In Tessler's case, the Court found that his SAC lacked the required specificity. The allegations of a "custom and practice" of not recouping overpayments were too vague and lacked factual support. Similarly, the MSP claims did not convincingly demonstrate fraudulent intent, as there was no clear evidence that the City knowingly submitted false claims. The Court thus concluded that Tessler failed to meet the high pleading standards necessary to proceed under the FCA.

Impact

This judgment serves as a critical reminder to potential FCA relators about the importance of meticulous and detailed pleadings. It reinforces the necessity of providing substantial factual evidence to support claims of fraud, beyond mere allegations or speculative assertions. Future litigants can anticipate that courts will rigorously evaluate the specificity and plausibility of FCA claims, particularly under the heightened standards of Rule 9(b).

Complex Concepts Simplified

False Claims Act (FCA)

The FCA is a federal law that imposes liability on individuals or entities that defraud governmental programs. It allows private individuals, known as "relators," to file actions on behalf of the government and potentially receive a portion of any recovered funds.

Qui Tam Action

A qui tam action is a lawsuit brought by a private individual (the relator) on behalf of the government against a party suspected of committing fraud against the government.

Federal Rule of Civil Procedure 9(b)

This rule requires that allegations of fraud in a complaint be stated with particularity. Specifically, plaintiffs must detail the fraudulent statements, identify who made them, and explain why they are fraudulent.

Pleading Standards: Twombly and Iqbal

These Supreme Court decisions established that complaints must contain enough factual matter to suggest that a claim is plausible, not merely possible or speculative.

Conclusion

The Second Circuit's affirmation in United States ex rel. Akiva Tessler v. City of New York underscores the critical importance of adhering to stringent pleading standards under the FCA and Federal Rule of Civil Procedure 9(b). Plaintiffs must present detailed and specific allegations to convincingly demonstrate fraudulent intent and the submission of false claims. This decision serves as a pivotal reference for future FCA litigations, emphasizing that vague or conclusory statements will not suffice to meet the legal thresholds required for such actions to proceed.