In a recent decision, Cho v. Surgery Partners, Inc., No. 20-14109, 2022 WL 982126 (11th Cir. Apr. 1, 2022), the Eleventh Circuit joined virtually every other circuit in concluding that because a relator's original complaint is "the proper point of reference" for the first-to-file bar, a relator cannot stave off a first-to-file dismissal by amending the complaint.
In April 2017, the relators in Cho filed a complaint alleging that dozens of defendants participated in a purported scheme to pressure medical providers to refer patients to certain surgery and pain-management centers for quantitative urine drug testing regardless of whether a cheaper testing option would have been sufficient. Relators further alleged that these surgery and pain-management centers ran excessive panels, submitting those claims for reimbursement to government healthcare programs and generating millions of dollars in payments. In addition to the direct owners of the surgery and pain-management centers, the relators also named the private equity owner H.I.G. and related entities as defendants.
Eight months before the Cho relators filed their original complaint, however, a separate group of relators had filed an FCA action under seal alleging that the same surgery and pain-management centers participated in the same fraudulent scheme that was alleged in the Cho action. The United States intervened in this earlier action, eventually settling the case. Although H.I.G. was not named in the suit that settled, the settlement agreement specifically released H.I.G. and related H.I.G.-related entities.
After the settlement agreement was announced in April 2020, the Cho relators filed a second amended complaint in the Cho action in which they narrowed the allegations to just those concerning the H.I.G. defendants. Although H.I.G. moved to dismiss on several grounds, including that the settlement agreement released it from any liability, the district court did not reach the other grounds, dismissing the case under the first-to-file bar because the Cho relators filed their initial complaint while the earlier related action was pending.
On appeal, the relators argued that first-to-file bar did not apply because the earlier action was no longer pending when they filed their second amended complaint. In rejecting that argument, the Eleventh Circuit focused primarily on the text of the first-to-file bar, which states that a person may not "bring a related action" while an earlier related action is pending. Noting that the court has several times concluded that "bring[ing]" an "action" refers to the "initiation of legal proceedings in a suit," the Eleventh Circuit held that the first-to-file bar "turns on the moment the [r]elators initiated legal proceedings-not on the moment the [r]elators amended their complaint." In other words, a relator may not circumvent the first-to-file bar simply by amending its pleading after an earlier pending related action has been dismissed.
The Eleventh Circuit's decision brings it in line with the Fourth, Sixth, Seventh, Ninth, and Tenth Circuits, each of which has similarly concluded that the first-to-file bar requires courts to consider circumstances at the time of the filing of the initial complaint. This leaves the First Circuit's decision in United States ex rel. Gadbois v. PharMerica Corp., 809 F.3d 1 (1st Cir. 2015), as the lone outlier among circuit courts that have considered the issue and come to the opposite conclusion. In Cho, the Eleventh Circuit acknowledged the First Circuit's Gadbois decision, but declined to follow it, noting that it did not "explain how its reading comports with the plain language of the first-to-file bar."
The relators also argued on appeal that because the H.I.G. defendants were not named in the earlier action and there was no conspiracy allegation in the earlier action, the two actions were not related. The court rejected each of these arguments. Adopting the "same material elements" test of many other circuits, the Eleventh Circuit concluded that the two actions alleged the same material elements of fraud and relied on the same essential facts and were thus related under the first-to-file bar. That the H.I.G. defendants were not named in the earlier action did not change the court's analysis because the addition of new defendants had not put the government on notice of a broader, more far-reaching scheme than was alleged in the earlier action. Nor did the Eleventh Circuit find relators' argument that the conspiracy allegation was unrelated to the earlier-filed action any more convincing, given that the claim was based on the same scheme such that the government would have "been equipped to investigate both substantive FCA violations and any conspiracies stemming from, or derivative to, the same scheme."
The Eleventh Circuit's Cho decision is notable for two reasons. First, it adds to the growing chorus of circuit courts to conclude that amending a complaint following dismissal of an earlier-filed related action will not cure a pleading that is otherwise flawed under the first-to-file bar. We at Qui Notes will monitor whether other circuit courts will follow suit and whether the First Circuit will reconsider its contrary position. Second, the Eleventh Circuit has provided greater clarity to the district courts within its jurisdiction about how to assess whether two actions are "related" under the first-to-file bar.
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