Request to File Amended Complaint for Fraud Rejected for Failure to Allege Facts with Particularity

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After granting defendants’ motion to dismiss and dismissing plaintiff’s action with prejudice, the U.S. District Court for the Middle District of North Carolina recently denied relator’s motion to alter or amend the judgment and file an amended complaint alleging Anti-Kickback Statute (“AKS”) and False Claims Act (“FCA”) violations. Central to the court’s decision to deny the motion in United States v. Medcom Carolinas, Inc., No. 1:17-CV-34, 2021 WL 981240 (M.D.N.C. Mar. 16, 2021) was plaintiff’s continued inability to: (1) provide a representative example of a false claim that had been submitted to the government for payment; and (2) connect remuneration being paid with any claims that were submitted.

In his Proposed Amended Complaint, which the court noted was “at best confusingly pled,” Plaintiff Haile Kiros Nicholson, a former sales representative for Integra Life Sciences (“Integra”), alleged that Defendants MedCom Carolina’s Inc. (“MedCom”) and Jeff Turpin, the sole owner of MedCom, violated the FCA.  In his original Complaint, Nicholson claimed that Integra utilized independent contractors, who generated referrals for federal healthcare program patients and were paid by Turpin for furnishing Integra products covered by federal healthcare programs, allegedly in violation of the AKS. In his Proposed Amended Complaint, Nicholson claimed that it was MedCom that employed the independent contractors who generated referrals and received commissions for promoting Integra’s products. Nicholson alleged that although Integra received the reimbursements for its products from third parties such as the VA health system or area hospitals, Integra paid MedCom a commission of the net sales of the products that were sold by MedCom contractors. MedCom then paid commissions to its contractors.

The court found the Proposed Amended Complaint did not “allege ‘with particularity the circumstances constituting fraud,’” and rejected the relator’s motion for leave to amend for several reasons.  First, the court held that Nicholson’s motion and Proposed Amended Complaint did not contain necessary factual information. Although the Fourth Circuit does not expressly require at least one representative example of a fraudulent claim, the district court analyzed the Fourth Circuit’s decision in United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451 (4th Cir. 2013) and concluded that its reasoning in that case strongly suggests that it is necessary for FCA relators “to allege with particularity at least one representative example of when a fraudulent claim was submitted to the government for payment.”

Despite Nicholson’s allegations that a specific independent contractor that sold and/or delivered Integra products was paid a commission by MedCom for that delivery and invoicing, the court held that the “proposed amended complaint [fell] short of providing at least one representative example of fraud.” Second, the court found that Nicholson failed to tie the alleged inducement to any unlawful remuneration. To prove his FCA claim, the court explained, a plaintiff must establish: (1) “that defendants violated the AKS through its alleged quid pro quo arrangement”; and (2) “that as a result of defendants’ AKS violation, defendants received payment from the federal government.” Here, Nicholson alleged that an Integra product was sold, an independent contractor submitted a claim for that Integra product, the VA paid Integra for the product, Integra paid MedCom, and MedCom paid the independent contract. However, Nicholson failed to allege facts “which plausibly support a finding or an inference that any inducements prohibited by the [AKS] did in fact occur, or that they were somehow related to any claim submitted to the United States,” or any fact to suggest that there was unlawful inducement.

Additionally, due to Nicholson’s shifting allegations about who utilized the independent contractors, the court found that, “[i]n the absence of any description of the relationship between Integra and MedCom, the propriety of the payment between Integra and MedCom, or the basis of the payment by MedCom to any alleged contractor, it is speculation to infer that the alleged payments to [independent contractors] were part of an unlawful scheme.” The court further noted that this change of substantive facts from the original Complaint “appear[ed] to have been modified solely in an effort to avoid dismissal,” constituting bad faith.

Nicholson also alleged a standalone violation of the AKS in his Proposed Amended Complaint, which was identically pled in the original Complaint. The court had previously held dismissal of that count from the original Complaint was proper because the AKS does not create a private cause of action, which Nicholson conceded. The court thus found that Nicholson’s repeated allegation of this violation, despite his prior admission and the court’s prior finding that there is no individual cause of action, was “not a good faith pleading.”


Despite the court’s policy to liberally allow amendment, this case demonstrates the strict pleading requirements to state a claim under the FCA and survive a motion to dismiss.  The court’s analysis on the heightened requirements for pleading an FCA claim based on an alleged AKS violation also provides helpful guidance and a strong analysis to the benefit of the FCA defense bar.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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