On October 16, 2014, United States Magistrate Judge Jeremiah McCarthy of the Western District of New York issued a Report and Recommendation to District Judge William Skretny in which he recommended dismissal with prejudice as a Rule 11 sanction of a False Claims Act (“FCA”) case brought by an attorney whistleblower (“Relator”) on behalf of the United States (who has not intervened in the action) seeking millions in damages against over 80 corporate defendants for allegedly participating in a scheme to defraud the federal government out of millions in Medicare payments in relation to the requirements of the Medicare Secondary Payer Act, 42 U.S.C. §§ 1395y et seq.

Several of the defendants in the action moved for Rule 11 sanctions against Relator and his counsel on grounds they had no factual basis to maintain the fraud allegations against them after an unsuccessful dialogue between counsel to attempt to informally resolve the issue. The Report and Recommendation was issued to address the Rule 11 concerns raised by the moving defendants, many of the other defendants, and the Court itself, about the sufficiency of the Relator’s allegations concerning a purported scheme to defraud the United States.

In its Report and Recommendation, the Court highlighted the Relator’s allegations that “all” of the defendants engaged in a scheme to defraud Medicare in his most recent complaint while demonstrating in subsequent submissions that “…he did not know whether all defendants had participated in the alleged scheme[.]” Under the circumstances, the Court found that the only appropriate sanction to recommend as to the Relator under Rule 11 was dismissal of the case with prejudice as the sanction “must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated” and “in view of the deliberate and repeated false allegations made by the Relator in this case I do not believe that [an award of attorneys’ fees] would be an adequate deterrent – not only to the Relator, but also to others who might be inclined to make similar misrepresentations.”

The Court noted that its dismissal with prejudice recommendation did not apply to the government’ right, as a non-party, to commence a separate action for similar relief. The Court also rejected the Relator’s request for leave to file a new amended complaint under the circumstances because: (1) such a pleading would be futile given Relator’s inability to plead fraud with particularity in compliance with Rule 9(b)requirements; and (2) Relator’s “bad faith” conduct in alleging personal knowledge of fraud against all defendants when he later acknowledged he had no such knowledge.

The Report and Recommendation issued by Magistrate Judge McCarthy addresses many of the most significant questions facing defendants in an FCA claim and reveals the value of promptly addressing factual problems typically raised in connection with such claims with relators, their counsel and the Court. FCA actions present many challenges, can be costly to defend and can seek substantial damages.