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The Sixth Circuit Clarifies Pleading Standards

United States ex rel. Andrew Hirt v. Walgreen Company offers an important cautionary tale for plaintiffs considering claims, or defendants facing claims, brought under the False Claims Act. But it also offers some insights regarding allegations of fraud more generally. The Sixth Circuit faced, head-on, the question of the heightened pleadings standard, and made clear that it would vigorously police the boundary between specific and general allegations.

The plaintiff was the owner of two small, local pharmacies in Tennessee. For some time, he had noticed a loss of his customers to local Walgreens branches, with whom his independent shops have been locked in constant competition. The plaintiff filed suit, alleging in his complaint that Walgreens had been offering customers $25 gift cards to prompt them to switch from the local pharmacies to Walgreens. His lawsuit was styled as a qui tam action, and he claimed violations of the False Claims Act and the Anti-Kickback Statute. The government, with the option under the False Claims Act, declined to intervene, and Walgreens moved to dismiss.

The district court dismissed the plaintiffs claim, and the Sixth Circuit affirmed. It ruled that the plaintiff had failed to meet the heightened pleading standard that applies to allegations of fraud – including alleged violations of the False Claims Act. That heightened pleading standard, the court reiterated from the federal rules, requires that the plaintiff state with “particularity the circumstances constituting fraud or mistake.” And yet the plaintiff in this case had failed to identify, specifically, a single false claim submitted to the government. He failed to identify any customers, the dates on which they filed prescriptions, and how those were handled after submission to Walgreens. “We are left,” the court lamented, “to infer these essential elements from the fact that [the plaintiff’s] customers moved their business from his pharmacies.” That would not do in cases involving allegations of fraud. The heightened pleadings standard “demands specifics,” ruled the court. Finally, the court made clear that earlier suggestions of a “relaxed” pleading standard where the plaintiff cannot allege specific facts, through no fault of his own, applied in far different circumstances than presented in this case. And it also made clear that HIPAA does not stand as a bar to pleading specifics – a plaintiff is free to use initials, dates, and other “non-identifying descriptions” where an allegation threatens to otherwise reveal confidential information.

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