USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 1 of 25

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 21-1290

UNITED STATES OF AMERICA EX REL. HAILE KIROS NICHOLSON,

Plaintiff - Appellant,

v.

MEDCOM CAROLINAS, INC.; JEFF TURPIN,

Defendants - Appellees,

and

JOHN DOES 1-50,

Defendants.

Appeal from the United States District Court for the Middle District of North Carolina at Greensboro. William L. Osteen, Jr., U.S. District Judge. (1:17-cv-00034-WO-LPA)

Argued: March 10, 2022 Decided: July 21, 2022

Before WYNN, HARRIS, and RICHARDSON, Circuit Judges.

Affirmed as modified by published opinion. Judge Richardson wrote the opinion, in which Judge Wynn and Judge Harris joined.

ARGUED: Volney LaRon Brand, BRAND LAW, PLLC, Dallas, Texas, for Appellant. Jeffrey Ryan Whitley, FOX ROTHSCHILD LLP, Raleigh, North Carolina, for Appellees. USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 2 of 25

ON BRIEF: Stephen W. Petersen, FOX ROTHSCHILD LLP, Raleigh, North Carolina, for Appellees.

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RICHARDSON, Circuit Judge:

While working for a company that makes skin grafts, Haile Kiros Nicholson caught

wind of a kickback scheme operating in a Veterans Administration hospital. In broad

strokes, the scheme involved the sale of skin grafts to the VA by commission-based

salespeople who were paid based on how much they sold. If true, that would likely violate

the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, which would then make each

commission-induced sale a violation of the False Claims Act,

et seq. So

Nicholson brought this qui tam suit as a False Claims Act relator on behalf of the United

States government and an analogous state-law claim under North Carolina law.

After the United States declined to intervene in the suit, Nicholson prosecuted it.

Because he used conclusory language in his original Complaint, the district court dismissed

the Complaint with prejudice for failure to state a fraud claim with particularity under

Federal Rule of Civil Procedure 9(b). When Nicholson moved to amend his Complaint

after judgment, the district court denied leave to amend, in part based on a finding of bad

faith.

We agree with the district court’s dismissal of the original Complaint for a lack of

particularity. Given that it is largely made up of conclusory allegations, the original

Complaint may even have failed Rule 8’s lower standard of plausibility. We also find that

the district court did not abuse its discretion in denying leave to amend for bad faith. So

we affirm the district court’s dismissal (with one minor modification, clarifying that a state-

law claim was dismissed without prejudice).

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I. Background

From what we can tell, the basic shape of Nicholson’s alleged kickback scheme is

simple enough. Integra made skin grafts, and they used another company, MedCom

Carolinas, Inc. (“MedCom Inc.”), to sell those skins grafts. MedCom Inc. is run by its

owner, Jeff Turpin. According to Nicholson, Turpin, and MedCom Inc. used independent

contractors to promote the Integra skin grafts and paid them by commission based on their

sales numbers. And paying commissions for referring the skin grafts to the VA would

violate the federal Anti-Kickback statute.

From there, the details get hazy fast. While litigating this case in the district court,

Nicholson offered two Complaints—his original Complaint and an Amended Complaint.

Because we need not reach the Amended Complaint, we focus on the original Complaint,

but include the allegations in the Amended Complaint to add some clarity to a confusing

set of allegations.

A. The Original Complaint

Nicholson filed his original Complaint under seal in 2017. It included five counts:

Counts I, II, and III were claims under three provisions of the False Claims Act,

(a)(1)(A), (B) & (C); Count IV was a private cause of action under the Anti-

Kickback Statute, 42 U.S.C. § 1320a-7b; and Count V was under the North Carolina False

Claims Act,

.

In paragraph 16 of the Complaint, Nicholson describes the illegal scheme that

formed the basis of all his claims. Because much of the difficulty here comes from trying

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to make heads or tails of what is being alleged in that paragraph, we include it here

verbatim:

Relator’s employer Integra utilized 1099 nonemployee reps to generate referrals for Medicare/Medicaid and other federal healthcare program patients in violation of the anti-kickback statute. Specifically, these representatives were paid by Jeff Turpin who owns MedCom LLC in whole or in part for furnishing items covered by federal healthcare programs and received commissions based on the same including PriMatrix and Integra Dermal Replacement Therapy. Relator learned of this scheme based upon his employment with Integra whereby these representatives engaged in national competitions with the full-time employees. Relator spoke with treating physicians, reimbursement personnel, and also received compensation for these 1099 nonemployee’s role in generating these sales. For example, on or about Nov 2016, Patient T. W. received an Integra Dermal Replacement Therapy graft furnished by Relator’s 1099 counterpart/sales representative Holloway whereby VA care benefits paid for this graft utilized by Dr. Phillips in excess of $3,000.00.

J.A. 15.

Some of the story comes through clearly enough: Nonemployee representatives—

in other words, independent contractors 1—were paid, at least in part by commission, to

furnish skin-graft products to federal healthcare programs like VA hospitals. That is the

basic kickback scheme. Representatives were paid commission to sell Integra skin grafts

to VA doctors. Nicholson learned about this scheme through his work at Integra and by

speaking to doctors and “reimbursement personnel.” Nicholson offers a sketch of one such

sale, from a salesperson called Holloway to a Dr. Phillips at a VA hospital, around

November 2016, for at least $3,000.

1 By “1099 nonemployee reps,” the Complaint is likely referring to the IRS form 1099-NEC, which is used to report income as an independent contractor. That form can be contrasted with the W2, which is the form used to report income as an employee. So we understand the reference to 1099 reps and the like to be lingo referring to workers who were independent contractors and not employees.

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Though the outline is clear, there is considerable ambiguity and confusion about

the specifics. How Nicholson knows all this is obscure. “National competitions” are

mentioned—and competition does at least suggest promotion, incentives, and

inducements—but those competitions are not described in any detail at all. Nicholson says

he “received compensation for these 1099 nonemployee’s role in generating sales,” but it

is not clear whether that means Nicholson himself made some of these sales and got

commissions or whether he was the person at Integra receiving the sales proceeds from the

government, perhaps working in the billing department. As to the example involving

Holloway, many important details are missing: No first names were used; no location was

given (which VA hospital, where in the country?); the payment amount is vague,

somewhere on the border between guess and estimate; and he does not link that sale to the

general kickback scheme, except by a dangling introductory phrase “For example.”

The district court focused largely on two further reasons for confusion. First, there

is a confusion about how many MedComs there are. You may have missed it at first pass,

but there is a discrepancy between the MedCom in the case caption and the MedCom

described in paragraph 16 of the Original Complaint. The caption names “MedCom

Carolinas, Inc.” (that is who we have been calling “MedCom Inc.”) as a defendant, but

paragraph 16 describes actions performed by MedCom LLC. In its opinion dismissing the

Original Complaint, the district court refused to assume that MedCom LLC and MedCom

Inc. were one and the same. The court pointed out that, even after having this confusion

raised in Defendants’ briefing, Nicholson continued to refer to nonparty MedCom LLC in

later briefing. And the Complaint talks about “Defendant companies’ payments,” which

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might suggest MedCom Inc. and MedCom LLC; or MedCom Inc. and Integra; or MedCom

Inc., MedCom LLC, and Integra. 2

The second cloud of confusion covered who the 1099 representatives worked for:

MedCom Inc., MedCom LLC, or Integra. Paragraph 16’s first sentence says, “Integra

utilized 1099 nonemployee reps,” suggesting Integra paid them. But the next sentence

says, “these representatives were paid by Jeff Turpin who owns MedCom LLC.” That

phrase links back to the first sentence, suggesting that maybe Integra did not pay for them

after all and one of the MedComs did. Maybe it was some combination of the three.

Nicholson then says that the reps were paid by Jeff Turpin but also that they “received

commissions.” Who paid those commissions is unclear. Integra, either of the MedComs,

or Turpin himself could have done so. And it is precisely this commission—not ordinary

pay—that forms the basis for these claims.

To put it mildly, paragraph 16 lacks clarity. After paragraph 16, the Complaint

claims that this scheme led to thousands of false claims, that they necessarily caused

violations of the Anti-Kickback Statute, and that those violations were routine.

After reviewing the Complaint, the United States declined to intervene, and the

Complaint was unsealed and served on MedCom Inc. and Turpin. MedCom Inc. and

2 In truth, it is hard to make much of the phrase “defendant companies’,” J.A. 15, because there is only one company named as a defendant. So no matter what additional companies are included in that phrase, they are not truly defendant companies.

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Turpin moved to dismiss the Complaint, and that motion was granted two years later. The

district court dismissed the Complaint with prejudice and entered judgment. 3

B. The Amended Complaint

Nicholson then moved to amend or alter the judgment under Rule 59(e) and for

permission to file an amendment under Rule 15(a)(2), attaching a proposed Amended

Complaint to the motion.

The Amended Complaint adds more detail about the scheme, but the same basic

shape appears. First and most importantly, MedCom LLC disappears, leaving only

MedCom Inc. Next, the changes clarify who the representatives work for. Instead of only

Integra “utilizing” the independent contractors, “Integra and MedCom both utilized” them.

J.A. 146. But “to be clear, the 1099 employees were employees of MedCom not Integra.”

J.A. 146 n.1. (The distinction between “utilizing” the reps and claiming them as employees

is not explained.) Nicholson also added more detail about how he learned all this. He

described further knowledge based on “easy access” to purchasing information, access to

things like pricing schedules, patient information, and doctor information. J.A. 149. He

claimed that he learned more about the commission scheme from speaking to Jeff Turpin

and his representatives. In those conversations, Turpin’s representatives apparently told

Nicholson that Turpin was MedCom Inc.’s sole owner and did all the hiring and firing.

3 There is a slight ambiguity about the resolution of the state-law claim in the district court’s order granting the motion to dismiss. On one page, the district court “decline[d] to exercise supplemental jurisdiction” over the state-law claim, but then on the next page, the court dismissed the whole case with prejudice, suggesting that even the state-law claim was dismissed with prejudice. J.A. 118–19. 8 USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 9 of 25

Turpin also told Nicholson that he paid the representatives “on a strictly commission basis”

based on “the volume of reimbursements for these products they sold.” J.A. 147–48.

Nicholson also adds more information about Holloway—now Robert Holloway—

and from Holloway, more information about the scheme. Holloway worked in Durham,

NC and had inside knowledge of the scheme. According to what Holloway allegedly told

Nicholson, the way the scheme worked was that MedCom Inc. sales reps would sell skin

grafts to government programs (like VA hospitals) and submit claims for payment to the

hospitals who would then pay out to Integra. From there, Integra would send 25% of the

net sales money back to MedCom Inc. as a commission, and MedCom Inc. would pay 40%

of its share to the representative (like Holloway).

Nicholson also fleshed out the story surrounding Holloway’s November 2016

payment. The sale was to the VA hospital in Durham, NC; that hospital took claims from

salespeople at the time of the procedure at a preset price; and Holloway sold a graft to Dr.

Phillips for use on Patient T.W. and submitted the claim for a payment of at least $3,000

to the hospital, which was paid to Integra. There is no mention in the Amended Complaint

of whether the 75/25, 60/40 split was followed in the November 2016 sale.

Much of the rest of the Amended Complaint remained the same: Nicholson

included the same five Counts and asked for the same relief.

In March 2021, the district court denied both the motion to amend and the motion

to alter the judgment, citing as its reasons, first, bad faith, and second, that the Amended

Complaint would have been futile for similarly failing to state a claim with particularity.

Nicholson timely appealed, and we have jurisdiction.

.

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II. Discussion

On appeal, Nicholson challenges the dismissal of his Original Complaint, the district

court’s decision to dismiss the Complaint with prejudice, the denial of leave to amend for

bad faith, and the denial of leave to amend for futility. Because we find that the district

court was right to dismiss the Original Complaint, that the court did not abuse its discretion

in dismissing the Complaint with prejudice, and that the court did not abuse its discretion

in denying leave to amend for bad faith, we need not discuss the sufficiency of the

allegations in the Amended Complaint. 4

A. Dismissal of the Original Complaint

1. Failure to State a Claim with Particularity

We review a district court’s dismissal of a complaint for failure to state a claim de

novo. United States ex rel. Grant v. United Airlines Inc.,

(4th Cir. 2018).

Nicholson brings three claims under the False Claims Act: a “presentment claim” under

4 Nicholson’s appeal focuses on the three False Claims Act claims and does not discuss Count IV, the standalone Anti-Kickback Statute violation. While the Fourth Circuit has not yet addressed the issue, other courts agree that there is no private cause of action under the Anti-Kickback Statute. See United States ex rel. Barrett v. Columbia/HCA Healthcare Corp.,

(D.D.C. 2003) (citing W. Allis Mem’l Hosp., Inc. v. Bowen,

, 255 (7th Cir. 1988)); Rzayeva v. United States,

(D. Conn. 2007); Donovan v. Rothman,

(S.D.N.Y. 2000). But either way, Nicholson waived this argument by conceding it before the district court.

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(a)(1)(A), 5 a false-record-or-false-statement claim under

§ 3729(a)(1)(B), 6 and a conspiracy claim under § 3729(a)(1)(C). 7

Roughly speaking, a presentment claim alleges that a defendant knowingly

submitted a false claim to the government themselves. A false-record-or-statement claim

alleges that a defendant knowingly made a false statement or produced a false record

material to a false claim that was submitted to the government by someone else. And a

conspiracy claim covers knowing agreements to do either. Both a presentment claim and

a false-record-or-statement claim under the False Claims Act require four elements: (1) “a

false statement or fraudulent course of conduct; (2) made or carried out with the requisite

scienter; (3) that was material; and (4) that caused the government to pay out money or to

forfeit moneys due.” Harrison v. Westinghouse Savannah River Co.,

(4th Cir. 1999). For the conspiracy claim, the plaintiff must show that the defendants

“agreed that [a] false record or statement would have a material effect on the Government’s

decision to pay [a] false or fraudulent claim.” Allison Engine Co. v. United States ex rel.

Sanders,

(2008). Nicholson brings all three claims against Turpin and

MedCom Inc.

5 “[A]ny person who . . . knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval . . . is liable . . . .” § 3729(a)(1)(A). 6 “[A]ny person who . . . knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable . . . .” § 3729(a)(1)(B). 7 “[A]ny person who . . . conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G) . . . is liable . . . .” § 3729(a)(1)(C).

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Nicholson’s theory about what makes the alleged claims here false or fraudulent is

that they violated the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. A violation of that

statute “automatically constitutes a false claim under the False Claims Act.” United States

ex rel. Lutz v. Mallory,

, 741 (4th Cir. 2021) (citing United States ex rel. Lutz

v. United States,

(4th Cir. 2017)); accord 42 U.S.C. § 1320a-7b(g) (“[A]

violation of this section constitutes a false or fraudulent claim for purposes of subchapter

III of chapter 37 of title 31.”). Under the Anti-Kickback Statute, it is illegal for any person

to knowingly solicit or receive “remuneration” in return for referring any “good, facility,

service, or item” to someone that will be paid for, at least in part, by a Federal health care

program. 42 U.S.C. § 1320a-7b(b)(1)(B).

The Anti-Kickback Statute seems broad enough to criminalize sales by all medical-

device salespeople—e.g., those who get paid to sell anything at all to hospitals who take

Medicare—but it does not quite go that far. The statute includes an exception for “any

amount paid by an employer to an employee [within] a bona fide employment

relationship.” § 1320a-7b(b)(3)(B). Also, given the statute’s ominous breadth, the

Department of Health & Human Services was given the ability to modify exceptions to the

rule and to create further exceptions to the rule. Medicare and Medicaid Patient and

Program Protection Act of 1987,

,

, 697. The Code

of Federal Regulations includes a long list of agency-created exceptions to this rule, and

one of those is for personal services and management contracts and outcomes-based

payment arrangements.

(d). That is how the regulations describe the

bona-fide-employee safe harbor. But that exemption only applies to sales employees that

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meet certain criteria, one of which is that the payment of the employee’s salary “is not

determined in a manner that takes into account the volume or value of any referrals.”

§ 1001.952(d)(1)(iv) (emphasis added). In other words, commissions earned by an

independent contractor based on volume or value are illegal “remuneration” under the

statute and therefore fraudulent claims to boot. See Mallory, 988 F.3d at 738.

In sum then, it would violate the Anti-Kickback Statute, and therefore violate the

False Claims Act, to pay a medical-device salesperson by commission per sale or based on

the value of sales and get paid back in federal healthcare money; any such sale under that

scheme would be a false claim. That is the gist of what Nicholson is trying to allege here.

Now to the pleading standards. Normally when considering Rule 12(b)(6) motions

to dismiss, we look to our familiar plausibility standard, see Ashcroft v. Iqbal,

(2009), but because False Claims Act claims are fraud claims, a higher standard

applies: Fraud-based claims must be pleaded with particularity, Grant,

;

see Fed. R. Civ. P. 9(b). Because all False Claims Act claims must be linked in some way

to presenting a claim for payment to the government this particularity requirement applies

to that presentment element. Grant,

. There are two ways to show

presentment with particularity: either by alleging a representative example describing “the

time, place, and contents of the false representations, as well as the identity of the person

making the misrepresentation and what he obtained thereby”; or by alleging a “pattern of

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conduct that would necessarily have led to submission of false claims.”

(cleaned up). 8

When the claim hinges on an underlying kickback violation, the kickback scheme must be

pleaded with particularity as well. See Nathan, 707 F.3d at 458 (“[O]ur pleading

requirements do not permit a relator to bring an action without pleading facts that support

all the elements of a claim.”); see also United States ex rel. Strubbe v. Crawford Cnty.

Mem’l Hosp.,

(8th Cir. 2019).

This particularity requirement is often called the fraud’s “who, what, when, where,

and how.” See Wilson, 525 F.3d at 379 (quoting United States ex rel. Willard v. Humana

Health Plan of Tex. Inc.,

(5th Cir. 2003)). We require that detail to

prevent frivolous suits, stop fraud actions where everything is learned after discovery (i.e.,

fishing expeditions), and to protect defendants’ reputations. Id.; United States ex rel.

Ahumada v. NISH,

, 280–81 (4th Cir. 2014). While we require significant

detail, “[a] court should hesitate to dismiss a complaint under Rule 9(b) if the court is

satisfied (1) that the defendant has been made aware of the particular circumstances for

which she will have to prepare a defense at trial, and (2) that plaintiff has substantial

prediscovery evidence of those facts.” Harrison,

.

8 The district court noted some confusion among district courts in our Circuit on whether a representative example must be pleaded with particularity to make out a False Claims Act claim under Rule 9(b). Grant tells us that there are two ways to show presentment with particularity, and only one requires a representative example.

. The second option requires only that “a plaintiff can allege a pattern of conduct that would necessarily have led to submission of false claims to the government for payment,” even where we do not have particularized detail about any one such claim.

(cleaned up). So while there may have been confusion, there was and is no open question on this issue in the Fourth Circuit.

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Nicholson’s Original Complaint simply does not meet the high standards of

particularity required by Rule 9(b)—and may not even meet Rule 8’s lower plausibility

standards—so the district court was right to dismiss the Complaint. Much of what is said

in the Original Complaint is classic conclusory language. To say that “representatives were

paid by Jeff Turpin . . . for furnishing items covered by federal healthcare programs and

received commissions based on the same” is in essence just a restatement of the legal

standards we outlined above, plus the owner’s name. Adding the name of the products

helps, but more than that is required to satisfy Rule 9(b). Unlike the Amended Complaint

which gave some detail about the payment breakdown—75/25 split between the companies

and then a 60/40 split of MedCom Inc.’s share between it and its representative—this first

Complaint includes no information about how the payments were split up or how

representatives were paid. It also provides no detail about the actual inducement of sales,

whether and how representatives were supposed to push the product. All this amounts to

not much more than saying that they were using commissioned salespeople to submit false

claims, a legal conclusion.

Nicholson does offer some support for how he knew about the scheme: “based upon

his employment with Integra whereby these representatives engaged in national

competitions with the full-time employees,” by talking to treating physicians and

reimbursement personnel, and by “receiv[ing] compensation for these 1099 nonemployee’s

role in generating these sales.” But none of that pushes this Complaint much further along.

Claiming to know something based on working in an undisclosed role at the relevant

company, based on discussions with unnamed people, and based on participation in

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vaguely described events cannot make a series of conclusory legal statements into a

particularized allegation.

Now to the offered representative claim—the Holloway example—which is only

slightly less nebulous than the general allegations. Nicholson claims in one sentence that

“Patient T. W. received an Integra Dermal Replacement Therapy graft furnished by

Relator’s 1099 counterpart/sales representative Holloway whereby VA care benefits paid

for this graft utilized by Dr. Phillips in excess of $3,000.00.” J.A. 15. So much detail is

missing from this allegation that it sounds like a neighbor’s conversation only half

overheard through the walls. The patient is unknown, the first names of the other two

participants are unknown, who submitted the claim is unknown, who was paid the $3,000

is unknown, whether it was $3,000 or much more than $3,000 is unknown, what VA

hospital in what state is unknown (how many Dr. Phillips are there in the country?), and so

on. The unknowns swamp the knowns. And while there is discussion of some payment,

there is no discussion of the most important detail: a submitted false claim. This story

simply does not give us any confidence that Nicholson “has substantial prediscovery

evidence of [these] facts.” Harrison,

.

Nicholson argues that the district court erred by suggesting that the representatives

worked for Integra and not MedCom Inc. and by making too much of the confusion

between MedCom Inc. and MedCom LLC. But confusion about which corporate entity

was involved matters when pleading particularity is required. And even disregarding

Nicholson’s conflation, we find that there was not enough offered in the Original

Complaint to make out a claim with the particularity required by Rule 9(b).

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In these Rule 9(b) cases, the particularity standard is steep. For future relators, it

may be wise to err on the side of saying too much to avoid a kick from Rule 12(b)(6). The

Original Complaint here needed more to scale that wall. The district court was right to

dismiss the Original Complaint for a lack of particularity.

2. With-Prejudice Dismissal

Next, the district court did not abuse its discretion by dismissing the Original

Complaint with prejudice. In the Fourth Circuit, district courts are not required to give

plaintiffs one without-prejudice ruling on the merits before dismissing with prejudice. See

Adbul-Mumit v. Alexandria Hyundai, LLC,

(4th Cir. 2018). In this

Circuit, plaintiffs do not get a dry run as a matter of right. District courts have inherent

power to manage their dockets with an eye toward speedy and efficient resolutions, Dietz

v. Bouldin,

, 47 (2016), and part of that power is the use of with-prejudice

dismissals. So we review decisions about the nature of a dismissal—even a very first

dismissal—for an abuse of discretion. Adbul-Mumit,

. And we see no

reason to question the district court’s discretionary decision here to dismiss the plainly

insufficient federal causes of action with prejudice.

The district court also dismissed a fifth and final claim, this one under the North

Carolina False Claims Act. Because the state-law claim was the only thing left after the

dismissal of all the federal-law claims, the district court had the discretion to decline to

exercise supplemental jurisdiction over that claim. See Carlsbad Tech., Inc. v. HIF Bio,

Inc.,

(2009) (citing

(c)). But the court’s order might

be read to dismiss that claim with prejudice along with the federal claims. See J.A. 119

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(dismissing the whole case with prejudice). Because the district court declined to even

take jurisdiction over the state-law claim, it could not have and did not adjudicate the merits

of the claim, so that dismissal should have been without prejudice. See Farlow v. Wachovia

Bank of N.C., N.A.,

, 316–17 (4th Cir. 2001). So we affirm the dismissal of

the state-law claim, but we modify the order to clarify that Count V was dismissed without

prejudice.

3. Denial of Leave to Amend

Nicholson next argues that even if the False Claims Act counts were properly

dismissed with prejudice, the district court should have at least granted his post-judgment

motion for leave to amend to fix the Original Complaint’s deficiencies. But denials of

leave to amend are also reviewed for an abuse of discretion, Laber v. Harvey,

(4th Cir. 2006), and again, we find that the district court did not abuse its

discretion.

Under the Federal Rules, a court “should freely give leave” to amend “when justice

so requires.” Fed. R. Civ. P. 15(a)(2). In putting that rule into effect, we have often

described our Fourth Circuit policy as one to “liberally allow amendment.” See, e.g.,

Galustian v. Peter,

(4th Cir. 2010). And our policy furthers a wider

federal policy of—when possible—resolving cases on the merits, instead of on

technicalities. Mayfield v. Nat’l Ass’n for Stock Car Auto Racing,

(4th

Cir. 2012); see Foman v. Davis,

(1962). While we generally encourage

amendment, there are, of course, circumstances that justify denying a plaintiff the

opportunity to try again. We have laid out three such justifications for denying leave to

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amend: prejudice to the opposing party, bad faith, or where the amendment would be futile.

Laber,

(citing Johnson v. Oroweat Foods Co.,

(4th Cir.

1986)). Delay alone is not enough to deny leave to amend, though it is often evidence that

goes to prove bad faith and prejudice. See Johnson, 785 F.2d at 509–10.

At first glance, there seems a tension in this doctrine. Abuse-of-discretion review

suggests district courts have free range, but a liberal policy of amendment and a narrow list

of permissible reasons to deny amendment looks like a short leash. But the tension is

fleeting. An abuse of discretion is where the judge has acted in an arbitrary or irrational

manner, where he has completely failed to consider the right factors, or where he relied on

faulty legal or factual premises. United States v. Welsh,

(4th Cir. 2018).

At bottom, it is a standard of deference, where the trial judge “will not be reversed simply

because an appellate court disagrees.” Henry J. Friendly, Indiscretion About Discretion,

, 754 (1982); see also Evans v. Eaton Corp. Long Term Disability Plan,

(4th Cir. 2008) (“At its immovable core, the abuse of discretion standard

requires a reviewing court to show enough deference to a primary decision-maker’s

judgment that the court does not reverse merely because it would have come to a different

result in the first instance.”). So in this context, it would be an abuse of discretion for the

district court to fail to identify which of the three permissible reasons to deny amendment

it relied on or to fail to give any reasons at all—unless, of course, its reasons “are apparent,”

see Matrix Cap. Mgmt. Fund, LP v. BearingPoint, Inc.,

(4th Cir. 2009)—

but within those three categories, a judge only abuses his discretion when he steps outside

the bounds of reasonable disagreement, see Evans,

. Put simply, an abuse

19 USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 20 of 25

of discretion is when the district judge is “fundamentally wrong.” Bluestein v. Cent. Wis.

Anesthesiology, S.C.,

(7th Cir. 2014).

One last point on the standard: The same legal standards apply to both pre- and

post-judgment motions to amend. Laber,

. Either before or after a judgment

is entered, a district court should deny amendment only where there is prejudice, bad faith,

or futility. But while the legal standard is the same, courts will reasonably deny a higher

number (perhaps a much higher number) of post-judgment motions to amend like the one

here. As we have said, delay may not be enough by itself to deny leave to amend, but

prejudice will naturally be much easier to show and bad faith will seem more plausible the

more time has passed between a first attempt and a proposed amendment.

9

The district court denied amendment because of a finding of bad faith. A few words

on bad faith. We cannot provide a comprehensive definition of a term like bad faith; in

truth, it is a difficult term to define without retreating to circular reasoning or just listing

examples. See Constance A. Anastopoulo, Bad Faith: Building a House of Straw, Sticks,

or Bricks,

, 696 (2012) (explaining how, in the insurance context,

courts often describe “bad faith” as the opposite of “good faith”); Kenneth S. Abraham &

Daniel Schwarcz, Insurance Law & Regulation 91–92 (6th ed. 2015) (“It is extremely

difficult to specify the kind of behavior that triggers the bad faith cause of action. . . . [I]t

may be that each case requires a judgment in context.”). As the Restatement (Second) of

9 Beyond that practical difference, we note there is also a procedural difference between the pre- and post-judgment motion to amend: “[T]he district court may not grant the post-judgment motion unless the judgment is vacated pursuant to Rule 59(e) or . . . 60(b).” Laber,

. 20 USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 21 of 25

Contracts says, “a complete catalogue of types of bad faith is impossible.” § 205 cmt. d

(Am. Law Inst. 1981); but see Liquid Dynamics Corp. v. Vaughan Co.,

(Fed. Cir. 2006) (offering a nine-factor test to determine whether a patent infringer

was operating in bad faith).

Black’s Law Dictionary defines “bad faith” as “[d]ishonesty of belief or purpose.”

Bad Faith, Black’s Law Dictionary (8th ed. 2004). To act with a dishonesty of purpose is

to act for the wrong reasons. It may be outright lying, deceiving, playing unjustifiable

hardball, slacking off, intentionally causing confusion, or stubbornly refusing to follow

rules—you can imagine cases where a party just wants to cause chaos—or it might be

something as mundane as noticing someone’s mistake and saying nothing about it. See

Restatement (Third) of Restitution and Unjust Enrichment § 52 cmt. c & illus. 3 (Am. Law

Inst. 2011). In the contract context, courts have found bad faith for “evasion of the spirit

of the bargain, lack of diligence . . . , willful rendering of imperfect performance, abuse of

a power . . . , and interference . . . or failure to cooperate.” Restatement (Second) of

Contracts § 205 cmt. d. We could go on, but this sketch of the contours of this many-

faceted concept suffices here.

And remember, we review the district court’s finding for abuse of discretion. So

we must determine whether the district court’s decision that the amending party acted in

bad faith is outside the realm of reasonable disagreement.

Now to these facts. The district court offered several reasons for the bad-faith

finding, and we do not find that there was an abuse of discretion, especially when viewing

its reasons together.

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First, the district court suggested that Nicholson withheld facts and evidence that he

knew before filing the original Complaint, without satisfactory explanation. The district

court’s opinion rightly notes that parties have a duty to introduce important evidence on

which they intend to rely as soon as reasonably possible in the litigation. And when a party

withholds evidence for an extended period, it is not unreasonable for a district court to

presume bad faith, at least where no satisfactory explanation is given for the delay. See

First Nat’l Bank of Louisville v. Master Auto Serv. Corp.,

(4th Cir.

1982); see also 6 Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal

Practice and Procedure § 1488 (West 3d ed. 2022). And here, Nicholson waited years to

amend the original Complaint with additional facts. The district court here found that the

facts were withheld—i.e., the facts were known at the time of the filing of the Complaint—

and that no satisfactory explanation was provided. Counsel for Nicholson admitted in oral

argument before this Court that almost all the details added to the Amended Complaint

were known to Nicholson when the original Complaint was filed. Oral Arg. 9:01. Holding

back important details without justification may not always be evidence of bad faith, but

that move is especially dodgy in a case like this where Rule 9(b) requires particularity, in

part, to put defendants on notice of exactly what it is they are being accused of. See

Harrison,

. While that is not undeniable evidence of skulduggery, neither

22 USCA4 Appeal: 21-1290 Doc: 30 Filed: 07/21/2022 Pg: 23 of 25

can we say that the district court was unreasonable to cite this holding back of important

facts as evidence of bad faith. 10

Next, even though the district court had held there was no private cause of action

under the Anti-Kickback Statute, and even though Nicholson conceded there was no

private cause of action under the Anti-Kickback statute, Nicholson still insisted on

including a standalone Anti-Kickback Statute claim as Count IV of his proposed Amended

Complaint. The district found this to be more evidence of bad faith: “[P]ursuing claims

with the knowledge they are not supported by law—cannot be classified as good faith

conduct.” J.A. 221 (cleaned up). Maybe this inclusion was a mistake by Nicholson’s

counsel—perhaps a mistaken copy/paste which many of us can relate to or perhaps an

innocent confusion about the law 11—but at least on the record as we see it, this is a question

10 Because the district court denied Nicholson leave to amend for both bad faith and futility, Nicholson was in a tough spot on appeal, having to argue both that the Amended Complaint had changed enough to be sufficiently particular and also, to rebut the claim of bad-faith withholding of evidence, that the only new facts added to the Amended Complaint were “immaterial”—which all but concedes the first issue of whether the Amended Complaint fixes the particularity problem. But we do not agree that the facts added to the new Complaint were immaterial. They were not just adding first names or saying it was the Durham VA. Nicholson added details of conversations with the two main characters in the story, Turpin and Holloway; he added more detail about his knowledge of Integra and the companies’ relationships; and he added a detailed percentage-by- percentage breakdown of how the payment was split between the companies and their employees. While the Amended Complaint likely did not do enough to scale the wall of Rule 9(b), we cannot agree that all the facts added were immaterial. 11 Nicholson argues in his briefing to this Court that the Anti-Kickback claim in Count IV was included in the Amended Complaint “out of an abundance of caution,” just in case the new Complaint was resealed, and the United States Government revisited its decision to intervene in the qui tam suit. Br. of Appellant 31.

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on which reasonable people might disagree. So the district court justifiably pointed to this

as more evidence of bad faith.

The district court also suggested that Nicholson “change[ed] substantive facts from

one filing to the next” to avoid dismissal. J.A. 220–21. And “misleading and inconsistent

assertions” sometimes reveal bad faith. Adbul-Mumit,

n.7. It is unclear

whether the two complaints here are truly inconsistent. As we discussed above, there is at

least some ambiguity in the Original Complaint about who the 1099 representatives worked

for and where all their payment came from. Paragraph 16 of the Original Complaint is,

frankly, confusing. We might tease out a reading that aligns with the Amended Complaint.

But that reading is surely not required. And however generous we might be, the briefs and

opinions below suggest that Defendants and the district court were both confused on this

point. So at best for Nicholson, the statements were merely misleading instead of both

misleading and inconsistent, which is not exactly a neon sign of good-faith lawyering. 12

Taking all the court’s arguments together, the district court’s bad-faith finding was

within the bounds of reasonable disagreement, and we find no abuse of discretion. Because

we find that the district court did not abuse its discretion in finding bad faith, we can affirm

12 The court noted briefly that Nicholson breached local rules about appropriate citations, and that this supported a finding of bad faith. At first blush, that comment seems to cut against our policy that—at least when it comes to leave to amend—minor technicalities should not stand in the way of reaching the merits. See Mayfield,

. But the rule that was violated here was a rule against paraphrasing facts from the Complaint without citing to them. That error is particularly suspect in a Rule 9(b) case that requires particularity. Especially when added to the concerns about withholding of evidence and shifting allegations, the court’s concern with Nicholson’s refusal to cite his factual allegations was not an abuse of discretion.

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the district court on that ground, and we need not discuss the possibility that the Amended

Complaint would have been futile.

* * *

Nicholson failed to make his allegations in the Original Complaint with the

particularity Rule 9(b) requires, so the district court was right to dismiss the Original

Complaint. From there, the district court had discretion both to dismiss the federal claims

with prejudice and to deny Nicholson leave to amend for bad faith. We see no abuses of

that discretion on this record. But because the district court did not take jurisdiction over

the state-law claim, we modify the decision to clarify that the state-law claim should be

dismissed without prejudice. So the district court is

AFFIRMED AS MODIFIED.

25