Congress Closed a Door Through the First-to-File Bar: Has This District Court Opened a Window?

A district court in the Eastern District of Michigan recently held that a relator can loop in additional relators under Federal Rule of Civil Procedure 15 even if the “first-to-file” rule would otherwise prohibit the newcomers’ intervention in the suit. U.S. ex rel. Olsen v. Tenet Healthcare Corporation, No. 22-cv-11590 (E.D. Mich. Aug. 23, 2024).

In July 2022, one relator filed a qui tam complaint against Tenet Healthcare Corporation (Tenet) alleging that Tenet fraudulently billed for inpatient services in its subsidiary hospitals that were never actually provided while patients were “boarded” in emergency rooms. In October 2023, the relator amended his complaint, adding two relators and the Detroit Medical Center (DMC) as a defendant. Tenet and DMC moved to dismiss the amended complaint under the False Claim Act’s (FCA) first-to-file bar, which provides that “[w]hen a person brings an action under [the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). Defendants also argued that they should be dismissed as improper parties and that relators failed to state a claim.

The court rejected defendants’ reliance on a contrary holding by a Tennessee district court, which held that the first-to-file bar precluded the addition of a second relator through a Rule 15 amendment. Instead, the court agreed with precedent from its district — as well as the Third and Tenth Circuits — to hold that a relator could amend his complaint to add new relators under Rule 15 without violating the first-to-file bar. Per the court’s analysis, adding a relator through amendment was simply not a procedural “intervention” under the Federal Rules of Civil Procedure. The court narrowly construed the term “intervention” as used in the first-to-file bar to apply to times when a party seeks to bring itself into an action — and not to existing relators bringing new parties into an action through amendment.

Although the court rejected defendants’ first-to-file argument, it still granted defendants’ motion to dismiss under Rules 9(b) and 12(b)(6). The court concluded that relators failed to sufficiently allege that defendants “directly participated in the submission of any of the purported false claims” by their subsidiary hospitals, and that the allegations were insufficient to “pierce the corporate veil.” Although relators claimed that the defendants had a “protocol” encouraging their subsidiary hospitals to bill for services they either were not providing or were unable to provide, the court concluded that the protocol did not amount to actual involvement in submitting the false claims.

This opinion raises an important question: Does this district court’s “technical” interpretation undermine the central purpose of the first-to-file bar, which Congress intended to deter relators from filing duplicative FCA claims? In other words, has this holding opened a “window” that enables relators to enlist additional relators to enter qui tam actions via Rule 15, despite Congress having closed the “front door” with the first-to-file bar? For now, this decision is surely a harbinger of more opinions to come as to whether relators can find creative ways to avoid the first-to-file bar.

* Alyssa Tyler contributed to this Blog. Alyssa is employed as an associate in Arnold & Porter's Houston office.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.