Executive Summary
- What’s new: The Seventh Circuit affirmed dismissal of an outsider’s qui tam action under the False Claims Act, outlining a potential path to dismissal where a relator lacks inside information and relies on speculation rather than particularized factual allegations.
- Why it matters: DOJ data show record qui tam filings driven in large part by data miners analyzing publicly available data, and the DOJ’s new FOCUS initiative actively encourages such filings, making outsider qui tam actions an increasing litigation risk for companies that submit claims to the government.
- What to do next: Defendants facing outsider qui tam actions should consider challenging the sufficiency of relators’ factual allegations at the pleading stage, arguing that statistical analyses and assumptions about company practices lack the particularized factual basis required to state a viable FCA complaint.
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The record for the highest number of qui tam actions filed in a single year was set last year, according to the U.S. Department of Justice (DOJ). The DOJ explained that data miners who analyze publicly available data to identify indications of fraud have driven much of the surge, rather than company insiders who have traditionally filed qui tam actions.
Embracing the work of data miners, the DOJ earlier this year launched an initiative called Fraud Oversight Through Careful Use of Statistics (FOCUS), inviting submissions from data miners who suspect fraud against the government. The initiative includes a questionnaire for data miners to complete describing their analyses. The DOJ commits to data miners that if the “data analysis reflects a data signal with a reasonably strong correlation to potential fraud that is not already known to the government, we will follow up with you to schedule a meeting to discuss in greater detail your work and potential qui tam filings.”
On August 17, 2026, the U.S. Court of Appeals for the Seventh Circuit highlighted the difficulties that company outsiders face in meeting the pleading standards for qui tam actions, outlining a potential path to dismissal in cases where a relator lacks inside information. In United States of America and The State of Illinois, ex rel. A. Samuel Enloe v. Heritage Operations Group, LLC, and Green Tree Pharmacy, Inc., No. 24-1431, the Seventh Circuit affirmed the dismissal of an outsider’s qui tam complaint for failing to plead sufficient factual details about the allegedly false claims. The court’s majority noted that “we do not hold that an outsider can never bring a qui tam action alleging violations of the FCA,” but that an outsider cannot “assume unlawful practices” with no particularized factual basis.
Background
The federal False Claims Act (FCA)1 imposes civil liability on individuals and companies that knowingly submit to the federal government, or cause to be submitted, false or fraudulent claims for payment. Not only may the DOJ bring FCA claims, private individuals may sue in the name of the U.S. government.2 These individuals are known as relators, and the lawsuits they bring are referred to as qui tam actions.
The DOJ can elect to intervene in a qui tam action or seek its dismissal, and a relator may continue to pursue a qui tam action even if the DOJ does not intervene. The relator generally can receive up to 25% of any recovery if the DOJ intervenes and up to 30% if the DOJ does not intervene, along with attorneys’ fees and reasonable expenses.3
To state a viable claim under the FCA, a relator “must allege with particularity that: (1) the defendant made a statement in order to receive money from the government; (2) the statement was false; and (3) the defendant knew the statement was false.”4 A defendant can also be liable under the FCA for submitting a claim for payment from the government while knowingly failing to disclose noncompliance with statutory, regulatory or contractual requirements, when compliance with those requirements is material to the government’s payment decision.5 This is sometimes called an “implied false certification” theory of liability.
A relator is not required to allege facts about a specific invoice to the government, but the relator “must inject precision and some measure of substantiation into the fraud allegations to survive dismissal.”6
Recent Seventh Circuit Opinion
The relator in U.S. ex rel. Enloe alleged that the operator of approximately 40 long-term-care facilities in Illinois and the pharmacy that serviced them, owned by the same family as the facilities’ operator, dispensed medications including opioids to the facilities’ residents without valid prescriptions in violation of the Controlled Substances Act.7 The relator alleged that claims submitted to Medicare for reimbursement for these medications violated the FCA by implying that the medications were lawfully prescribed.
The relator did not work for either of the defendant companies. He had, however, spent his career in the long-term-care pharmacy industry. After working for a large corporation for 20 years, he founded his own pharmacy that competed with the defendant pharmacy.
The relator’s allegations involved the defendants’ practices for dispensing certain controlled substances in emergencies arising between 5:30 p.m. and 9 a.m. and on Sundays — periods when the pharmacy was closed. Under the Controlled Substances Act, according to the Seventh Circuit, a pharmacist may dispense certain drugs without a signed prescription from a physician in emergency situations upon receiving an oral prescription from a physician that is immediately reduced to writing by the pharmacist and followed by a written prescription from the physician within seven days.8
Nurses at the long-term-care facilities allegedly had access to emergency narcotics kits when the pharmacy was closed. According to the relator, the pharmacy’s policy allowed nurses to dispense controlled substances in the emergency kits when the pharmacy was closed once a physician left a voicemail on the pharmacy’s voicemail system, even if a pharmacist did not receive the voicemail until the following day. The relator alleged that this violated the Controlled Substances Act because it cut out the pharmacist’s role and allowed nurses to dispense controlled substances before a pharmacist actually received any prescription.
Court’s Analysis
Two of the three judges on the panel agreed with the district court that the relator did not allege sufficient details in support of his claims, including materiality, and affirmed the dismissal of his complaint. The concurring judge agreed that the relator did not adequately plead materiality, although she asserted that his claims otherwise contained sufficient detail.
The majority began its analysis by explaining that successful qui tam actions are often brought by company insiders with inside information about fraud within the company. The majority noted that this relator is “differently situated than the typical relator.”
In affirming the district court’s dismissal of the relator’s complaint for failing to state a claim, the majority first noted that the Controlled Substances Act violation the relator alleged involved a gray area. The majority stated that that it was not clear that the Controlled Substances Act and related regulations prohibit a nurse from dispensing certain controlled substances in emergency situations immediately after a doctor leaves a voicemail with a pharmacy, even if no pharmacist hears the message until the next day.
Second, the majority held that the relator failed to allege sufficient details about false certifications to Medicare. The court explained that the relator’s only source of knowledge about the defendants’ drug dispensing practices came from the narcotics policy, and that the relator’s allegations otherwise relied on speculation and assumptions.
The majority concluded by stating that “we do not hold that an outsider can never bring a qui tam action alleging violations of the FCA. But what a relator cannot do is assume unlawful practices on the part of a competitor based on vague regulations and guidance with no particularized factual basis.”
The concurring judge disagreed with the notion that the relevant regulations are vague, stating that the relator adequately pled a violation of the Controlled Substances Act if the facts he alleged were true. The judge also stated that the relator’s complaint sufficiently described the “who, what, when, where, and how” of the alleged false claims, citing precedent cautioning against an “overly rigid view” of pleading requirements for fraud claims. Nevertheless, the judge agreed that the relator did not adequately plead that the alleged deficiencies in the defendants’ claims for payment were material to the government’s payment decisions and therefore agreed with affirming the dismissal of the complaint.
Practical Implications for Defendants
The Seventh Circuit’s opinion is likely to provide valuable support for defendants in qui tam actions brought by company outsiders, including data miners. The majority criticized the relator’s lack of support for his allegations other than a company policy, describing the rest of his factual allegations as speculation and assumptions. In contrast, the concurring judge was not troubled by the lack of support for the remaining allegations, finding that they sufficiently alleged a basis for FCA liability, assuming materiality.
Many outsiders, including data miners, are likely to face the same challenges. They might present statistics that support a theory that a defendant’s claims for payment are fraudulent, but without more, they will be vulnerable to challenges that their allegations of fraud depend on speculation and assumptions about what is driving those statistics. Without concrete insider information, many outside relators might struggle to plead facts in sufficient detail to defeat a motion to dismiss, regardless of the strength of their data analysis.
Conclusion
The DOJ’s encouragement of data mining; prospective relators’ increased access to powerful analytical tools, including artificial intelligence; and the prospect of multimillion-dollar rewards are likely to fuel dramatic growth of outsider qui tam actions. The Seventh Circuit’s opinion in U.S. ex rel. Enloe could provide valuable support for defeating actions at the pleading stage.
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1 31 U.S.C. § 3729, et seq.
2 31 U.S.C. § 3730(b).
3 31 U.S.C. § 3730(d).
4 U.S. ex rel. Enloe at 7 (citations and internal quotation marks omitted).
5 Universal Health Servs., Inc. v. United States, 579 U.S. 176 (2016).
6 U.S. ex rel. Enloe at 7 (internal quotation marks omitted); see also Fed. R. Civ. P. 9(b) (requiring fraud claims to be alleged with particularity).
7 U.S.C. § 801 et seq.
8 U.S. ex rel. Enloe at 3.
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