                                                                         F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                    UNITED STATES COURT OF APPEALS
                                                                          OCT 26 2000
                                 TENTH CIRCUIT
                                                                       PATRICK FISHER
                                                                               Clerk

 UNITED STATES ex rel.
 GEORGE R. SCHWARTZ, M.D.,
                                                         No. 99-3105
               Plaintiff - Appellant,
          v.                                             (D. Kansas)
 COASTAL HEALTHCARE GROUP,                      (D.C. No. CV-98-1120-JTM)
 INC., nka Coastal Physician Group,
 Inc.; COASTAL EMERGENCY
 SERVICES MANAGEMENT GROUP,
 INC.; COASTAL PHYSICIAN
 CONTRACT SERVICES GROUP,
 INC.; COASTAL PHYSICIANS
 SERVICES, INC., nka CHG
 Properties, Inc.; COASTAL
 EMERGENCY SERVICES OF THE
 WEST, INC.; COASTAL
 PHYSICIANS SERVICES OF THE
 MIDWEST, INC.; COASTAL
 EMERGENCY SERVICES OF
 GEORGIA, INC.; COASTAL
 PHYSICIAN SERVICES OF THE
 SOUTHEAST, INC.; COASTAL
 EMERGENCY MEDICAL
 SERVICES, a professional
 corporation,

               Defendants - Appellees.


                            ORDER AND JUDGMENT           *




      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
                                                                       (continued...)
Before MURPHY and ANDERSON , Circuit Judges, and              KANE ** , District
Judge.




       Plaintiff United States,   ex relatione , George R. Schwartz, M.D., appeals the

dismissal of this action under the   qui tam provisions of the False Claims Act, 31

U.S.C. §§ 3729-3733. Those provisions permit private individuals, acting on

behalf of the United States, to bring actions against individuals or entities who

have allegedly presented false or fraudulent claims to the federal government.

The Act contains a jurisdictional bar, however, prohibiting    qui tam suits based on

publicly disclosed information unless the person suing is an “original source” of

that information. 31 U.S.C. § 3730(e)(4)(A).

       Dr. Schwartz, as relator, alleges that defendants Coastal Physician Services,

Inc. and various related entities (collectively “Coastal”) have presented false or

fraudulent claims in the course of violating certain provisions of the Medicare

Act. The district court dismissed all of Dr. Schwartz’s claims, concluding that it

lacked subject matter jurisdiction because Dr. Schwartz’s accusations were based



       (...continued)
       *

generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

       Honorable John L. Kane, Jr., United States District Judge for the District
       **

of Colorado, sitting by designation.

                                           -2-
upon allegations he had previously publicly disclosed and as to which he was not

an original source. We affirm, although on different grounds than the district

court.



                                    BACKGROUND

         Dr. Schwartz is an emergency medicine physician who has practiced

emergency medicine in California and New Mexico since 1967. He has published

articles critical of the care provided by hospital management companies. Coastal

Physician Group, Inc. is the parent corporation of various subsidiary and affiliated

entities that contract to provide hospitals with emergency room physicians.

         In this qui tam action, Dr. Schwartz alleges that Coastal has, since 1985,

violated the Medicare Anti-Kickback provisions, 42 U.S.C. § 1320a-7b, by

inducing referrals of Medicare and other government medical healthcare patients

from physicians and others through its contractual arrangements with hospitals,

physicians, and others. He further alleges that Coastal has violated

§ 1320a-7a(a)(2) by violating the anti-assignment provisions of 42 U.S.C.

§ 1395u(b)(6).   1
                     Dr. Schwartz asserts that collecting Medicare payments in

violation of §§ 1395u(b)(6) and 1320a-7a(a)(2) and in violation of the Anti-




       42 U.S.C. § 1395u(b)(6) prohibits, with certain exceptions, the
         1

reassignment of physicians’ Medicare claims.

                                           -3-
Kickback provisions of § 1320a-7b constitutes the making of false or fraudulent

claims, prohibited by the False Claims Act.

       As required by § 3730(b)(2) of the False Claims Act, Dr. Schwartz

provided the government with a copy of his complaint and a written disclosure at

the time he filed his complaint.   2
                                       The government declined to intervene and the

district court ordered the complaint unsealed and served on Coastal. The

complaint so served was, in fact, Dr. Schwartz’s third amended complaint.      3



       Defendants subsequently moved to dismiss the complaint or, alternatively,

for a more definite statement, arguing: (1) the district court lacked subject matter

jurisdiction over the complaint because § 3730(e)(4) of the False Claims Act

specifically bars all   qui tam actions based upon publicly disclosed information


      The complaint was originally filed in United States district court in New
       2

Mexico. It was subsequently transferred to the United States district court in
Kansas.
       3
        Dr. Schwartz is no stranger to this court. He and another doctor were
relators in another qui tam action making allegations similar to those in this case
against a different group of medical entities, with respect to which we affirmed
the district court’s dismissal for lack of subject matter jurisdiction. United States
ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156 (10th Cir. 1999).
Dr. Schwartz also filed an action against one of the defendants in this case,
Coastal Physician Group, Inc., alleging malicious prosecution, abuse of process,
defamation, and other causes of action, which, in turn, arose out of Coastal
Physician Group’s prior lawsuit against Dr. Schwartz, filed in North Carolina
state court, alleging libel, slander, and unfair and deceptive trade practices. The
state court action was dismissed. We affirmed the grant of summary judgment to
Coastal Physician Group, Inc. in the malicious prosecution case. Schwartz v.
Coastal Physician Group, Inc., No. 98-2085, 1999 WL 89037 (10th Cir. Feb. 23,
1999) (unpublished).

                                             -4-
unless the relator is an “original source” of the information, and Dr. Schwartz had

previously publicly disclosed certain allegations against Coastal as to which he

was not the original source; and (2) the third amended complaint fails to comply

with Fed. R. Civ. P. 9(b) which requires that “[i]n all averments of fraud or

mistake, the circumstances constituting fraud or mistake shall be stated with

particularity.” Dr. Schwartz then sought and was granted leave to file a fourth

amended complaint, which implicitly resolved defendants’ motion for a more

definite statement.

      The district court dismissed the action, concluding that Dr. Schwartz had

publicly disclosed his allegations against Coastal when he previously testified as

an expert in a medical malpractice case in Georgia state court, and that he was not

the “original source” of the information contained in that public disclosure

because “it is apparent that his knowledge underlying the allegations is not based

on first-hand observation, but upon reviewing various memoranda relating to

Coastal, including an Inspector General Report.” Memorandum Order at 4,

Appellant’s App. at 68. The court also held that

      even if a person otherwise has information which might entitle her to
      original source status, that status is lost if the relator voluntarily
      discloses the information publicly before notifying the government of
      her allegations [and] [h]ere, it is uncontroverted that there was no
      attempt to notify the government of the allegations against Coastal
      until long after the disclosures in the [state court] matter.



                                         -5-
Id. With respect to Dr. Schwartz’s fourth amended complaint, the court

concluded “that the amendment does nothing to correct the jurisdictional defect

created by the earlier public disclosures addressed above.” Memorandum Order

at 5, Appellant’s App. at 69.

      Dr. Schwartz appeals, arguing: (1) the district court erred by dismissing his

entire action pursuant to the jurisdictional bar of 31 U.S.C. § 3730(e)(4) when

two of his three claims were not publicly disclosed; (2) the district court erred in

requiring a proposed relator to provide notice to the United States before he

makes any public disclosure; and (3) the district court erred in finding that Dr.

Schwartz made public disclosures in his deposition testimony. Defendants argue

the district court correctly applied the jurisdictional bar to the allegations of

illegal kickbacks, and that the entire fourth amended complaint is subject to

dismissal for failure to comply with Rule 9(b). We affirm on the basis that the

complaint fails to satisfy Rule 9(b).



                                    DISCUSSION

      Initially, we must determine our standard of review of the district court’s

decision. Defendants sought dismissal of the action for lack of subject matter

jurisdiction under the relevant False Claims Act provision, 31 U.S.C.

§ 3730(e)(4). That section governs the district court’s subject matter jurisdiction.


                                           -6-
“Jurisdictional challenges brought under that section arise out of the same statute

creating the cause of action (i.e., the False Claims Act) and are thus necessarily

intertwined with the merits of the case.”     United States ex rel. Hafter v. Spectrum

Emergency Care , 190 F.3d 1156, 1159 (10th Cir. 1999);       United States ex rel . Fine

v. MK-Ferguson Co. , 99 F.3d 1538, 1543 (10th Cir. 1996). Accordingly, “the

court’s jurisdictional inquiry should be resolved under Federal Rule of Civil

Procedure 12(b)(6) or, after proper conversion into a motion for summary

judgment, under Rule 56.”      Hafter , 190 F.3d at 1159.

       In this case, it is not completely clear from the record how the court treated

defendants’ motion, although the lack of any reference to conversion of the

motion to one for summary judgment suggests that the court treated the motion as

a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1).

However, given the fact that “defendants’ motion to dismiss did not simply attack

the facial validity of the complaint; rather it raised a factual challenge to the

existence of subject matter jurisdiction,”    and because it appears the district court

relied on some evidentiary materials submitted by the parties, “defendants’

motion to dismiss should have been treated as one for summary judgment.”

United States ex rel. Ramseyer v. Century Healthcare Corp.      , 90 F.3d 1514, 1518

(10th Cir. 1996). We therefore consider defendants’ motion as one for summary

judgment under Fed. R. Civ. P. 56(c), which we review de novo.         Id.


                                             -7-
Additionally, “we may affirm a grant of summary judgment on any ground

adequately supported by the record.”      Z.J. Gifts D-2, L.L.C. v. City of Aurora      ,

136 F.3d 683, 685 (10th Cir. 1998).

      Rule 9(b) states “[i]n all averments of fraud or mistake, the circumstances

constituting the fraud or mistake shall be stated with particularity.” Fed. R. Civ.

P. 9(b). Its heightened pleading requirement applies to actions under the False

Claims Act. See United States ex rel. Russell v. Epic Healthcare Management

Group , 193 F.3d 304, 308 (5th Cir. 1999);     Harrison v. Westinghouse Savannah

River Co. , 176 F.3d 776, 783-84 (4th Cir. 1999);     United States ex rel. Thompson

v. Columbia/HCA Healthcare Corp.        , 125 F.3d 899, 903 (5th Cir. 1998);   Gold v.

Morrison-Knudsen Co. , 68 F.3d 1475, 1476-77 (2nd Cir. 1995) (collecting cases).

“At a minimum, Rule 9(b) requires that a plaintiff set forth the ‘who, what, when,

where and how’ of the alleged fraud.”      Thompson , 125 F.3d at 903 (quoting

Williams v. WMX Tech., Inc. , 112 F.3d 175, 179 (5th Cir. 1997));        see also

Harrison , 176 F.3d at 784 (“[T]he ‘circumstances’ required to be pled with

particularity under Rule 9(b) are ‘the time, place, and contents of the false

representations, as well as the identity of the person making the

misrepresentations and what he obtained thereby.’”) (quoting 5 Charles Alan

Wright and Arthur R. Miller,   Federal Practice and Procedure: Civil § 1297          , at

590 (2d ed. 1990)).


                                             -8-
       Dr. Schwartz argues that Rule 9(b)’s pleading requirement is relaxed when

the alleged fraudulent conduct involves numerous occurrences or takes place over

an extended period of time, or “in cases of corporate fraud where a plaintiff

cannot be expected to have personal knowledge of the facts constituting

wrongdoing.” Appellant’s Reply Br. at 9. Although courts have, in certain

circumstances, relaxed the requirements of Rule 9(b), we agree with the

Thompson court which cautioned, “this exception ‘must not be mistaken for

license to base claims of fraud on speculation and conclusory allegations.’”

Thompson , 125 F.3d at 903 (quoting        Tuchman v. DSC Communications Corp.         , 14

F.3d 1061, 1068 (5th Cir. 1994)).

       Additionally, while we have acknowledged that “‘[a]llegations of fraud

may be based on information and belief when the facts in question are peculiarly

within the opposing party’s knowledge,” even in such situations the complaint

must “set[] forth the factual basis for the plaintiff’s belief.”     Koch v. Koch Indus.,

Inc. , 203 F.3d 1202, 1237 (10th Cir. 2000) (quoting         Scheidt v. Klein , 956 F.2d

963, 967 (10th Cir. 1992)),     cert. denied , 2000 WL 949074, 68 U.S.L.W. 3023

(U.S. Oct. 10, 2000), and cert. denied , 2000 WL 1201643, 69 U.S.L.W. 3128

(U.S. Oct. 10, 2000).    See Thompson , 125 F.3d at 903 (“[E]ven where allegations

are based on information and belief, the complaint must set forth a factual basis

for such belief.”); see also Kowal v. MCI Communications Corp.            , 16 F.3d 1271,


                                               -9-
1279 n.3 (D.C. Cir. 1994);    Neubronner v. Milken , 6 F.3d 666, 672 (9th Cir.

1993); United States ex rel. Butler v. Magellan Health Servs., Inc.    , 74 F. Supp. 2d

1201, 1216 (M.D. Fla. 1999) (“[T]he relaxed standard does not remove the

plaintiff’s duty to adequately plead the content of the alleged fraudulent

representations and the places where the activity was to have occurred.”). “A

special relaxing of Rule 9(b) is a   qui tam plaintiff’s ticket to the discovery

process that the statute itself does not contemplate.”    Russell , 193 F.3d at 309.

       We note that the precise procedural posture of this case, as it relates to the

complaint’s compliance with Rule 9(b), is somewhat unusual. Defendants filed a

motion to dismiss Dr. Schwartz’s third amended complaint on both jurisdictional

grounds and for failure to comply with Rule 9(b) and they sought, alternatively, a

more definite statement. Dr. Schwartz then filed his fourth amended complaint,

which included new assertions in support of his causes of action. The district

court subsequently dismissed the fourth amended complaint on jurisdictional

grounds, without needing to reach the issue of whether the complaint satisfied

Rule 9(b).

       While ordinarily we prefer to let the district court rule first on matters, we

may affirm its grant of summary judgment on any basis supported by the record.

Moreover, a Rule 9(b) deficiency may be resolved by summary judgment.              See

Murr Plumbing Co. v. Scherer Bros. Fin. Servs.       , 48 F.3d 1066, 1070 (8th Cir.


                                            -10-
1995) (“A district court may enter summary judgment dismissing a complaint

alleging fraud if the complaint fails to satisfy the requirements of Rule 9(b).”).

Furthermore, to determine whether the pleadings satisfy Rule 9(b), we need only

look directly at the pleadings, which we are as capable of doing on appeal as the

district court is in the first instance. And the issue was clearly raised below; the

district court simply ruled in a way that obviated the need to resolve the issue. In

this situation, we may consider the propriety of Dr. Schwartz’s pleadings under

Rule 9(b). See Harrison , 176 F.3d at 783 n.5 (noting that “[a]lthough the district

court did not dismiss Harrison’s complaint under Rule 9(b), lack of compliance

with Rule 9(b)’s pleading requirements is treated as a failure to state a claim

under Rule 12(b)(6). Also both parties presented arguments under Rule 9(b) to

the court below, and in their briefs here. So it is appropriate for us to address the

validity of [plaintiff’s] pleadings under Rule 9(b).”)

      After carefully examining the fourth amended complaint, we conclude that

it fails to satisfy Rule 9(b). In his claim that the anti-kickback laws were

violated, Dr. Schwartz alleges that Coastal entered into “contracts” with

“hospitals” from 1985 until the present time. In paragraph 33 he identifies a

standard contract which he alleges one of the Coastal entities “developed” “as

early as 1991” and continued to use “with little or no change through at least

1994.” Fourth Amended Complaint ¶ 33, Appellant’s App. at 50-51. He does not


                                         -11-
identify any particular hospital or physician who signed such an agreement, nor

does he identify any time when a false or fraudulent claim was presented. In

Thompson , the court affirmed the district court’s dismissal of a complaint for

failure to comply with Rule 9(b), noting that the district court found that the

relator “failed to meet the pleading requirements of Rule 9(b) because he did not

identify any specific physicians” who allegedly engaged in the unlawful conduct.

Thompson , 125 F.3d at 903; see also Butler , 74 F. Supp. 2d at 1216 (“Markedly,

the complaint fails to refer to specific employees who may have been involved in

submitting false claims.”).

      In paragraph 34 Dr. Schwartz identifies a “commission plan for [Coastal’s]

independent contractor physicians,” but he again identifies no particular physician

who was actually subject to the plan, and identifies no particular time or place

when the plan resulted in the submission of a false or fraudulent claim. Fourth

Amended Complaint ¶ 34, Appellant’s App. at 52. Even with respect to the one

particular contract he identifies in paragraph 35, he describes only the generalities

of how it operated, and nowhere does he identify a physician or a specific

occasion when the practice resulted in a kickback or other illegal activity.

      Dr. Schwartz’s allegations with respect to violations of the anti-assignment

provisions suffer from the same deficiency. They allege only that the “Coastal

Defendants” entered into “contracts with physicians who are independent


                                         -12-
contractors” and obtained “a power of attorney to process all Medicare or other

claims under a government health program, as well as other insurance payments in

the name of the physician, although the payments go directly to the Defendants.”

Fourth Amended Complaint at ¶ 45,        id. at 57. Those vague and general

allegations fail to satisfy Rule 9(b)’s particularity requirement.    4



       In United States ex rel. Butler v. Magellan Health Servs., Inc.      , 101 F. Supp.

2d 1365 (M.D. Fla. 2000), the district court found that a        qui tam plaintiff’s

complaint alleging that a healthcare provider filed false and fraudulent Medicare

claims failed to meet Rule 9(b)’s particularity requirement because plaintiff

“merely alleges a scheme of fraud, and not specific occurrences or facts which

support this general scheme.”      Id. at 1369. Similarly, in    United States ex rel.

Walsh v. Eastman Kodak Co.       , 98 F. Supp. 2d 141 (D. Mass. 2000), the court

observed that the relator’s complaint

       merely describes the contracts between the vendor defendants and
       defendant hospitals, but does not identify with particularity any sales
       or claims for payment that were allegedly fraudulent. . . . [The
       complaint] sets out a methodology by which the vendors might have
       produced false invoices, which in turn could have led to false claims.
       Without citing a single false claim arising from an allegedly false
       invoice, Relator has not met even a bare-bones Rule 9(b) test.


       4
        Defendants argue that Dr. Schwartz has also failed to articulate how a
violation of the anti-assignment provisions would constitute a false or fraudulent
claim. We express no opinion on the substance of Dr. Schwartz’s claims. We
hold only that they fail to allege fraud with the particularity required by Rule
9(b).

                                             -13-
Id. at 147; see also United States ex rel. Gublo v. NovaCare, Inc. , 62 F. Supp. 2d

347, 354 (D. Mass. 1999) (“[P]laintiffs simply allege three methods by which

NovaCare is said to have inflated its bills to the government, without citing a

single instance of a false claim.”)

      In this case, Dr. Schwartz has merely described the allegedly illegal

contracts and arrangements without identifying any person, place or time when an

actual false claim or other illegal activity occurred. He alleges at best the

existence of a general scheme or methodology by which defendants could have

violated the False Claims Act. That is simply insufficient under Rule 9(b).



                                  CONCLUSION

      For the foregoing reasons, we AFFIRM the dismissal of Dr. Schwartz’s

complaint.

                                                ENTERED FOR THE COURT


                                                Stephen H. Anderson
                                                Circuit Judge




                                         -14-
