Flying Pigs and False Claims

On July 7 the Fourth Circuit invoked Flying Pigs to vacate a lower federal court judgment in a Medicaid false claim case, even though neither the lower court nor any of the parties asked it to.

The case started in 2007, when the relators filed a qui tam action in Virginia state court against several medical labs, alleging that they had submitted false Medicaid claims in violation of state law.  The defendants removed the case to federal court on the theory that the claims alleged by the relators, if proven, would constitute violations of the federal Anti-Kickback Statute.

The district court dismissed all claims against one lab, and the remaining parties—relators, the Commonwealth of Virginia, and the remaining labs—entered into a settlement agreement.  When the Commonwealth proposed that the relators receive $139,000, they objected, arguing for $350,000.  The district court sided with the Commonwealth, and the relators appealed to the Fourth Circuit.

The Fourth Circuit raised the question whether the district court ever had jurisdiction.  The court noted that federal question jurisdiction under 28 U.S.C. § 1331 can arise in two ways.  The first way wasn’t applicable because it requires that the plaintiff assert a claim “arising under” under federal law, which the Complaint here plainly didn’t.  The second requires that that a federal issue be (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution without disrupting the federal-state balance.

This is where Flying Pigs comes in.  Flying Pigs, L.L.C. v. RRAJ Franchising, L.L.C., 757 F.3d 177 (4th Cir. 2014), is a precedent holding that the first of those four requirements—the necessarily-raised requirement—isn’t met unless every legal theory supporting the plaintiff’s claim requires resolution of a federal issue.  In Flying Pigs that requirement wasn’t met.  In the case at hand, the requirement wasn’t met because “[by] the plain terms of the Complaint, the relators could have prevailed … by proving that the defendants contravened the Commonwealth’s Medicaid regulations without showing any violation of federal law.”

The lesson of this decision is that the mere fact that Medicaid “is jointly funded by the federal government and the Commonwealth … does not make a federal case out of every Medicaid dispute.”  Just as it didn’t fly in Flying Pigs, it didn’t fly this case, either.

The court vacated the judgment and remanded to the district court for remand back to the state court, where it all started nearly nine years ago.

The case is Va. ex rel. Hunter Labs, LLC v. Virginia, No. 15-1484 (4th Cir., July 7, 2016).

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