United States, ex rel. Hayes v. Allstate Ins. Co., No. 16-705 (2d Cir. 2017)

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Justia Opinion Summary

Relator filed a qui tam action under the False Claims Act (FCA), 31 U.S.C. 3729 et seq., against numerous insurance and trucking companies. On appeal, relator challenged the district court's dismissal with prejudice as a sanction under Federal Rule of Civil Procedure 11. The court joined the D.C. Circuit in holding that the first‐to‐file rule of the FCA is not jurisdictional. Because the court concluded in the summary order accompanying this opinion that the district court did not err by imposing the sanction of dismissal, the court need not consider the non‐FedEx defendants' argument that relator's action did not satisfy the first‐to‐file rule. Accordingly, the court affirmed the judgment.

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16 705 United States, ex rel. Hayes v. Allstate Ins. Co. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _______________ August Term, 2016 (Argued: March 2, 2017 Decided: April 4, 2017) Docket No. 16 705 _______________ UNITED STATES OF AMERICA, EX REL. J. MICHAEL HAYES, Plaintiff Appellant, – v. – ALLSTATE INSURANCE COMPANY, DAIMLER CHRYSLER INSURANCE COMPANY, ERIE INSURANCE COMPANY OF NEW YORK, ERIE INSURANCE EXCHANGE, INC., ERIE INDEMNITY COMPANY, FARMERS INSURANCE EXCHANGE, TRUCK INSURANCE EXCHANGE, FIRE INSURANCE EXCHANGE, FOREMOST INSURANCE GROUP, GEICO, INSURANCE, GMAC INSURANCE, KEMPER INDEPENDENCE INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, LIBERTY MUTUAL GROUP, LIBERTY MUTUAL HOLDING COMPANY, INC., METROPOLITAN GROUP PROPERTY AND CASUALTY INSURANCE COMPANY, METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY, NATIONWIDE GENERAL INSURANCE COMPANY, NATIONWIDE FINANCIAL SERVICES INCORPORATED, NATIONWIDE MUTUAL INSURANCE COMPANY, NEW YORK CENTRAL MUTUAL FIRE INSURANCE COMPANY, PREFERRED MUTUAL INSURANCE COMPANY, PROGRESSIVE INSURANCE COMPANY, THE PROGRESSIVE CORPORATION, INC., REPUBLIC FRANKLIN INSURANCE COMPANY, UTICA MUTUAL INSURANCE COMPANY, GRAPHICS ARTS MUTUAL INSURANCE COMPANY, UTICA NATIONAL INSURANCE COMPANY OF TEXAS, UTICA NATIONAL INSURANCE COMPANY OF OHIO, UTICA NATIONAL ASSURANCE COMPANY, UTICA LLOYD’S OF TEXAS, UTICA SPECIALTY RISK INSURANCE COMPANY, FOUNDERS INSURANCE COMPANY, FOUNDERS INSURANCE COMPANY OF MICHIGAN, UTICA NATIONAL INSURANCE GROUP, STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, HARTFORD FINANCIAL SERVICES GROUP, INC., TRAVELERS INSURANCE GROUP HOLDING, INC., TRAVELERS PROPERTY CASUALTY CORPORATION, THE TRAVELERS COMPANIES, INC., ZURICH NORTH AMERICA, FEDEX CORPORATION, FEDEX EXPRESS, FEDEX GROUND, FEDEX FREIGHT, FEDEX OFFICE, FEDEX CUSTOM CRITICAL, FEDEX TRADE NETWORKS, FEDEX SUPPLY CHAIN SOLUTIONS, FEDEX SERVICES, J.B. HUNT TRANSPORT SERVICES, INCORPORATED, U HAUL INTERNATIONAL, and THE ERIE INSURANCE COMPANY, Defendants Appellees, ALLSTATE CORPORATION, CASTLEPOINT NATIONAL INSURANCE COMPANY, SPECIALTY UNDERWRITERS ALLIANCE, INC., TOWER GROUP COMPANIES, MAIDEN HOLDING LTD, KEMPER CORPORATION, MEDICAL LIABILITY MUTUAL INSURANCE COMPANY, NATIONWIDE CORPORATION, NEW YORK STATE INSURANCE RECIPROCAL, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, PRUDENTIAL FINANCIAL, INC., HEARTLAND EXPRESS, INCORPORATED, NATIONWIDE, FARMERS INSURANCE GROUP COMPANIES, FARMERS UNDERWRITERS ASSOCIATION, AIG, BERKSHIRE HATHAWAY INC., NATIONWIDE MUTUAL INSURANCE INTERCOMPANY POOL, NATIONWIDE, ZURICH FINANCIAL SERVICES AG, and ZURICH INSURANCE GROUP AG, Defendants. _______________ B e f o r e: KATZMANN, Chief Judge, POOLER and LYNCH, Circuit Judges. 2 _______________ Relator J. Michael Hayes brought this qui tam action under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., against numerous insurance and trucking companies. The United States District Court for the Western District of New York (Skretny, J.) dismissed the action with prejudice as to Hayes as a sanction under Federal Rule of Civil Procedure 11. On appeal, Hayes primarily challenges the imposition of the sanction of dismissal. Several of the defendants urge us to affirm the district court’s judgment on the alternative ground that the district court lacked subject matter jurisdiction over Hayes’s FCA claims, which according to these defendants did not satisfy the statute’s first to file rule. We join the D.C. Circuit in holding that the FCA’s first to file rule is not jurisdictional. Accordingly, we need not consider the defendants’ arguments on that issue. For the reasons stated herein and in the accompanying summary order discussing the district court’s imposition of the sanction of dismissal, the judgment of the district court is AFFIRMED. _______________ J. MICHAEL HAYES (Peter M. Jasen, Buffalo, NY, on the brief), for Plaintiff Appellant. JOHN W. CAMPBELL, Federal Express Corporation, Memphis, TN, for Defendants Appellees FedEx Corporation, Federal Express Corporation, FedEx Ground Package System Inc., FedEx Freight Corporation, FedEx Office and Print Services, Inc., FedEx Custom Critical, Inc., FedEx Trade Networks Inc., FedEx Supply Chain Systems, Inc., and FedEx Corporate Services, Inc. DAVID L. YOHAI (Lori L. Pines and John P. Mastando III, on the brief), Weil, Gotshal & Manges LLP, New York, NY, for Defendants Appellees Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, and Foremost Property and Casualty Insurance Company. 3 Bryce L. Friedman, Simpson Thatcher & Bartlett LLP, New York, NY; Deborah L. Stein, Simpson Thatcher & Bartlett LLP, Los Angeles, CA, for Defendants Appellees Travelers Insurance Group Holding, Inc., Travelers Property Casualty Corporation, and The Travelers Companies, Inc. Jonathan M. Freiman, Wiggin and Dana LLP, New Haven, CT, for Defendant Appellee Hartford Financial Services Group, Inc. Sharon Angelino, Goldberg Segalla LLP, Buffalo, NY, for Defendants Appellees J.B. Hunt Transport Services Inc., Founders Insurance Company, Founders Insurance Company of Michigan, Graphic Arts Mutual Insurance Company, Republic Franklin Insurance Company, Utica Mutual Insurance Company, Utica National Insurance Company of Texas, Utica National Insurance Company of Ohio, Utica National Assurance Company, Utica Lloyd’s of Texas, Utica Specialty Risk Insurance Company, and Utica National Insurance Group. Heath J. Szymczak, Bond, Schoeneck & King, PLLC, Buffalo, NY, for Defendants Appellees Erie Insurance Company of New York, Erie Insurance Exchange, Inc., Erie Indemnity Company, and The Erie Insurance Company. Steven M. Levy and Alan S. Gilbert, Dentons US LLP, Chicago IL; Sean C. Cenawood, Dentons US LLP, New York, NY; Sharon Angelino, Goldberg Segalla LLP, Buffalo, NY, for Defendants Appellees Allstate Insurance Company, Allstate Indemnity Company, Kemper Independence Insurance Company, Metropolitan Group Property and Casualty Insurance Company, Metropolitan Property and Casualty Insurance Company; and Defendants Kemper Corporation and The Allstate Corporation. 4 Suzanne O. Galbato, Bond, Schoeneck & King, PLLC, Syracuse, NY, for Defendant Appellee Preferred Mutual Insurance Company. Terrance M. Connors, Connors LLP, Buffalo, NY; Michael K. Loucks, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA, for Defendants Appellees Progressive Insurance Company and The Progressive Corporation, Inc. Douglas W. Baruch and Anayansi Rodriquez Carbo, Fried, Frank, Harris, Shriver & Jacobson LLP, Washington, D.C.; Dan David Kohane, Hurwitz & Fine, P.C., Buffalo, NY, for Defendant Appellee State Farm Mutual Automobile Insurance Company. Michael J. Willett, Gibson, McAskill & Crosby, LLP, Buffalo, NY, for Defendant Appellee Zurich North America. Stephen Sozio, Jones Day, Cleveland, OH; Matthew Corcoran, Jones Day, Columbus, OH; Mark C. Davis, Lippes Mathias Wexler Friedman LLP, Buffalo, NY, for Defendants Appellees Nationwide General Insurance Company, Nationwide Financial Services Incorporated, and Nationwide Mutual Insurance Company. Eric Dranoff, Saretsky Katz & Dranoff, LLP, New York, NY, for Defendant Appellee New York Central Mutual Fire Insurance Company. Susan L. Swatski, Hill Wallack LLP, Princeton, NJ, for Defendant Appellee CorePointe Insurance Company f/k/a Daimler Chrysler Insurance Company. Barry I. Levy, Cheryl F. Korman, and Brian L. Bank, Rivkin Radler LLP, Uniondale, NY, for Defendant Appellee Geico, Insurance. 5 Kevin J. Fee and Amy C. Gross, Duane Morris LLP, New York, NY: Dennis R. McCoy, Barclay Damon, LLP, Buffalo, NY, for Defendants Appellees Liberty Mutual Insurance Company, Liberty Mutual Group, and Liberty Mutual Holding Company, Inc. Kevin M. Hogan, Phillips Lytle LLP, Buffalo, NY, for Defendant Appellee U Haul International. _______________ PER CURIAM: Relator J. Michael Hayes appeals from the district court’s dismissal with prejudice of his False Claims Act (“FCA”) qui tam action as a sanction pursuant to Federal Rule of Civil Procedure 11. On appeal, Hayes argues that the misstatements in his complaint were not made in bad faith and did not justify the sanction of dismissal. He further argues that he should have been granted leave to amend his complaint. Although all of the defendants contend that the district court’s imposition of the sanction of dismissal and denial of leave to amend were proper, several defendants, those not affiliated with Federal Express Corporation (hereinafter the “non FedEx defendants”), additionally argue that the district court lacked subject matter jurisdiction over the action and consequently did not err by dismissing it. We address in this opinion only the non FedEx defendants’ 6 challenge to the district court’s subject matter jurisdiction, and we discuss Hayes’s argument that the sanction of dismissal was wrongfully imposed in a separate summary order filed simultaneously with this opinion. BACKGROUND In this FCA qui tam action, see 31 U.S.C. § 3729 et seq., relator Hayes alleged that the defendant companies, which are primarily, but not exclusively, liability insurance companies, have been systematically and intentionally noncompliant with their obligations under the Medicare Secondary Payer Act to reimburse Medicare for certain payments made on behalf of Medicare beneficiaries. As is discussed more fully in the accompanying summary order, Hayes alleged that he had personal knowledge of each defendant’s participation in a nationwide scheme to defraud Medicare. The assigned magistrate judge and district court ultimately concluded that Hayes had no such knowledge and had acted in bad faith by falsely purporting to have it. As a result, the district court dismissed the action with prejudice as to Hayes as a sanction under Federal Rule of Civil Procedure 11. Hayes appeals from that decision. Although all of the defendants contend that the district court correctly dismissed Hayes’s complaint as a sanction, the 7 non FedEx defendants also advance an alternative basis for affirming the district court: that the district court lacked subject matter jurisdiction over Hayes’s action because Hayes did not satisfy the FCA’s first to file rule. The non FedEx defendants raised this argument to the district court (although they had not raised it before the magistrate judge), but the district court did not address it. DISCUSSION Because “every federal appellate court has a special obligation to ‘satisfy itself not only of its own jurisdiction, but also [of] that of the lower courts in a cause under review,” we will consider the non FedEx defendants’ contention that the district court lacked subject matter jurisdiction. Arnold v. Lucks, 392 F.3d 512, 517 (2d Cir. 2004) (internal quotation marks omitted). I. As relevant to Hayes’s claim, the FCA imposes liability on any person who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G). “The FCA may be enforced not just through litigation brought by the Government itself, but also through civil qui tam actions that are filed by private parties, called relators, ‘in the name of the Government.’” Kellogg Brown 8 & Root Servs., Inc. v. U.S., ex rel. Carter, 135 S. Ct. 1970, 1973 (2015) (quoting 31 U.S.C. § 3730(b)(1)). There are, however, certain limitations on FCA qui tam actions. Under the so called “first to file rule” at issue here, “[w]hen a person brings an action under [the FCA], no person other than the Government may . . . bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). That rule prevents an individual from bringing an FCA qui tam action if another action invoking the same facts is already pending at the time the individual files suit. See Kellogg Brown & Root, 135 S. Ct. at 1974, 1978. The non FedEx defendants argue that Hayes did not satisfy the first to file rule because when he filed his complaint in October 2012, a “related” action was already pending, coincidentally in the same district. According to the non FedEx defendants, that action alleged the same general scheme: that many of the same insurance companies had systematically failed to reimburse Medicare as required under the Medicare Secondary Payer Act. See Complaint, U.S. ex rel. Takemoto v. The Hartford Fin. Servs. Grp., Inc., 157 F. Supp. 3d 273 (W.D.N.Y. 2016) (No. 11 cv 613). The Takemoto complaint was filed in July 2011, over a year before Hayes filed his purportedly related complaint. See id. Although the Takemoto case has since been dismissed, see 157 F. Supp. 3d at 276, aff’d sub nom. U.S. ex rel. 9 Takemoto v. Nationwide Mut. Ins. Co., No. 16 365, 2017 WL 214572, at *3 (2d Cir. Jan. 20, 2017), the non FedEx defendants contend that the existence of the Takemoto case at the time that Hayes filed his complaint deprived the district court of subject matter jurisdiction over Hayes’s action from the outset. If the non FedEx defendants are correct that the first to file rule is jurisdictional, their arguments on that point are not merely an available alternative on which we may affirm the district court; instead, they raise an issue to resolve before turning to the merits of Hayes’s appeal. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999) (“Article III generally requires a federal court to satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case.”). As a result, we consider below whether the first to file rule is jurisdictional. II. Several circuits have stated or assumed that the first to file rule is jurisdictional. See, e.g., U.S. ex rel. Carter v. Halliburton Co., 710 F.3d 171, 181 (4th Cir. 2013), aff’d in part, rev’d in part on other grounds sub nom. Kellogg Brown & Root, 10 135 S. Ct. at 1979 (2015)1; U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376–77 (5th Cir. 2009); Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005). The D.C. Circuit, however, has reached the opposite conclusion. See U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 120–21 (D.C. Cir. 2015). For the reasons articulated below, we join the D.C. Circuit in holding that the first to file rule is not jurisdictional and instead bears on the merits of whether a plaintiff has stated a claim. The Supreme Court has warned against “profligate use of the term ‘jurisdiction.’” Sebelius v. Auburn Reg l Med. Ctr., 133 S. Ct. 817, 824 (2013). “To ward off” such use, the Supreme Court has “adopted a ‘readily administrable bright line’ for determining whether to classify a statutory limitation as jurisdictional.” Id. (quoting Arbaugh v. Y&H Corp., 546 U.S. 500, 516 (2006)). Courts are to “inquire whether Congress has ‘clearly stated’ that the rule is On review, the Supreme Court did not address the Fourth Circuit’s observation that the first to file rule was jurisdictional but focused instead on whether the first to file rule was satisfied in that particular case. See 135 S. Ct. at 1979. We agree with the D.C. Circuit’s conclusion that the Supreme Court’s discussion was “decidedly nonjurisdictional . . . , raising the issue after it decided a nonjurisdictional statute of limitations issue.” U.S. ex rel. Heath v. AT & T, Inc., 791 F.3d 112, 121 n.4 (D.C. Cir. 2015). As a result, we do not read the Supreme Court’s decision as implicitly affirming the Fourth Circuit’s observation that the first to file rule was jurisdictional. 1 11 jurisdictional; absent such a clear statement, . . . ‘courts should treat the restriction as nonjurisdictional in character.’” Id. (brackets omitted) (quoting Arbaugh, 546 U.S. at 515–16). Under this test, a “provision that ‘does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts’” will not be considered jurisdictional. Arbaugh, 546 U.S. at 515 (quoting Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 394 (1982)). The first to file rule provides that “no person other than the Government” may bring an FCA claim that is “related” to a claim already “pending.” 31 U.S.C. § 3730(b)(5); see also Kellogg Brown & Root, 135 S. Ct. at 1974. As the D.C. Circuit observed, this language “speaks only to who may bring a private action and when,” Heath, 791 F.3d at 120, but “does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts,” id. (quoting Arbaugh, 546 U.S. at 515). This is in sharp contrast to other provisions of the FCA that do explicitly invoke the jurisdiction of the district courts. See, e.g., 31 U.S.C. § 3730(e)(1) (“No court shall have jurisdiction over an action brought by a former or present member of the armed forces . . . against a member of the armed forces arising out of such person’s service in the armed forces.”); id. § 3730(e)(2)(A) (“No court shall have jurisdiction over an action brought . . . against a Member of 12 Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought.”). “Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Kucana v. Holder, 558 U.S. 233, 249 (2010) (brackets omitted). Because the FCA “clearly state[s]” that other limitations on qui tam actions are jurisdictional, but does not “clearly state[]” that the first to file rule is jurisdictional, we must treat the first to file rule “as nonjurisdictional in character.” Auburn Reg l Med. Ctr., 133 S. Ct. at 824 (quoting Arbaugh, 546 U.S. at 515–16). As a result, we join the D.C. Circuit in holding that the FCA’s first to file rule “bears only on whether a qui tam plaintiff has properly stated a claim.” Heath, 791 F.3d at 121. Accordingly, a district court does not lack subject matter jurisdiction over an action that may be barred on the merits by the first to file rule. CONCLUSION For the foregoing reasons, we join the D.C. Circuit in holding that the first to file rule of the FCA is not jurisdictional. Because we conclude in the summary 13 order accompanying this opinion that the district court did not err by imposing the sanction of dismissal, we need not consider the non FedEx defendants’ argument that Hayes’s action did not satisfy the first to file rule. For these reasons, the judgment of the district court is AFFIRMED. 14