Filed: Apr. 15, 2020
Latest Update: Apr. 16, 2020
Summary: Case: 18-60746 Document: 00515383734 Page: 1 Date Filed: 04/15/2020 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED April 15, 2020 No. 18-60746 Lyle W. Cayce Clerk United States of America, ex rel, GWENDOLYN PORTER, Relator, Plaintiff - Appellant v. MAGNOLIA HEALTH PLAN, INCORPORATED, Defendant - Appellee Appeal from the United States District Court for the Southern District of Mississippi USDC No. 1:16-CV-75 Before SOUTHWICK, GRAVES
Summary: Case: 18-60746 Document: 00515383734 Page: 1 Date Filed: 04/15/2020 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED April 15, 2020 No. 18-60746 Lyle W. Cayce Clerk United States of America, ex rel, GWENDOLYN PORTER, Relator, Plaintiff - Appellant v. MAGNOLIA HEALTH PLAN, INCORPORATED, Defendant - Appellee Appeal from the United States District Court for the Southern District of Mississippi USDC No. 1:16-CV-75 Before SOUTHWICK, GRAVES,..
More
Case: 18-60746 Document: 00515383734 Page: 1 Date Filed: 04/15/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 15, 2020
No. 18-60746
Lyle W. Cayce
Clerk
United States of America, ex rel, GWENDOLYN PORTER, Relator,
Plaintiff - Appellant
v.
MAGNOLIA HEALTH PLAN, INCORPORATED,
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 1:16-CV-75
Before SOUTHWICK, GRAVES, and ENGELHARDT, Circuit Judges.
JAMES E. GRAVES, Jr., Circuit Judge:*
This is a qui tam False Claims Act suit involving the administration of
Medicaid services in Mississippi. The relator alleges that her former employer,
which contracts with the Mississippi Division of Medicaid, is violating the
False Claims Act by using licensed professional nurses for tasks that require
the expertise of registered nurses. The federal government declined to
intervene, and the district court dismissed the suit with prejudice. We affirm.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 18-60746 Document: 00515383734 Page: 2 Date Filed: 04/15/2020
No. 18-60746
I. BACKGROUND
Medicaid is a “joint state–federal program in which healthcare providers
serve poor or disabled patients and submit claims for government
reimbursement.” Universal Health Servs., Inc. v. United States ex rel. Escobar,
136 S. Ct. 1989, 1996–97 (2016) (citing 42 U.S.C. § 1396 et seq.). The Mississippi
Division of Medicaid contracts with third parties to co-administer the state’s
Medicaid program through a program commonly known as MississippiCAN.
Companies that contract with MississippiCAN are known as Coordinated Care
Organizations (“CCOs”). CCOs provide a “comprehensive package” of services
including, “at a minimum, the current Mississippi Medicaid benefits which
must be medically necessary.” They operate call centers, process claims, and
contract with health service providers for the provision of covered services.
CCOs are expected to provide “care management” 1 services. During the time
period at issue, Magnolia Health Plan, Inc. (“Magnolia” or “Defendant”)
operated as a CCO pursuant to several consecutive contracts. 2
Gwendolyn Porter (“Relator” or “Plaintiff-Appellant”) is a licensed
registered nurse (“RN”) in Mississippi. She was employed by Magnolia from
February 2011 through September 2012. While there, she allegedly learned
that licensed practical nurses (“LPNs”) were serving as case and care
managers. Plaintiff-Appellant alleges that this practice violates state and
federal law. She reported the alleged violation to the Mississippi Division of
1 The Mississippi Division of Medicaid has referred to these services as both “care
management” services and “case management” services. The parties do not contend that
these terms apply to different services.
2 Mississippi CCOs, including Defendant, receive a “prepaid monthly capitated
payment.” Capitation payments are fixed, pre-arranged monthly payments based on the
number of patients enrolled in a health plan.
2
Case: 18-60746 Document: 00515383734 Page: 3 Date Filed: 04/15/2020
No. 18-60746
Medicaid in late 2011 or early 2012. 3 She also informed the local U.S. Attorney
of Magnolia’s alleged violation.
In March 2016, Plaintiff-Appellant filed a complaint in federal court
alleging claims under state common law and the federal False Claims Act.
About two weeks later, she filed an amended complaint. The government filed
a notice of its election to decline intervention. Magnolia then filed a motion to
dismiss, arguing that the amended complaint did not satisfy the materiality
element of the False Claims Act. In her response, Plaintiff-Appellant withdrew
all claims other than those made pursuant to the False Claims Act. The district
court granted Magnolia’s motion to dismiss and dismissed the False Claims
Act claims with prejudice. 4 Plaintiff-Appellant appealed.
II. DISCUSSION
Plaintiff-Appellant makes three arguments on appeal. She first asserts
that the district court erred in declining to consider certain exhibits to her first
amended complaint. She next argues that the district court erred in ruling that
the amended complaint failed to adequately plead that alleged
misrepresentations made by Magnolia were “material” misrepresentations as
that term is used in the False Claims Act. Finally, she contends that the
district court erred in declining to grant leave to amend.
A. Whether the district court erred in declining to consider
certain exhibits to the first amended complaint
Plaintiff-Appellant complains that the district court “erred in excluding
from consideration exhibits attached to the [amended] complaint on the basis
that they did not form part of the [c]ontracts between [MississippiCAN] and
Magnolia.” The exhibits in question are documents published either by
3There is no indication in the record that the Division took any action in response.
4While the motion to dismiss was pending, Magnolia was awarded a MississippiCAN
contract for the fourth time.
3
Case: 18-60746 Document: 00515383734 Page: 4 Date Filed: 04/15/2020
No. 18-60746
Magnolia or by its parent company, Centene. They include a press release,
policy and procedure manual, job description, list of frequently asked
questions, company handbook excerpt, and PowerPoint presentation. The
district court found that it “need not consider” those exhibits because Plaintiff-
Appellant did not identify “any contractual provision that incorporated [those]
documents” into the contracts between Magnolia and MississippiCAN. But
even if Plaintiff-Appellant is correct that the district court made that finding
in error, none of the exhibits in question establish that the staffing of the case
manager or care manager positions was a material term of the contracts. And
materiality is a key component of Plaintiff-Appellant’s claims, as explained
below. We therefore assume arguendo that the district court committed error
and proceed to the substance of Plaintiff-Appellant’s claims.
B. Whether the district court erred in ruling that the amended
complaint failed to adequately plead materiality
Plaintiff-Appellant’s first amended complaint, the operative pleading,
lists claims under two provisions of the False Claims Act. Plaintiff-Appellant
first attempts to state a claim pursuant to Section 3729(a)(1)(A) of the Act,
which is violated when a person “knowingly presents, or causes to be
presented,” a false or fraudulent claim to the government for payment or
approval. 31 U.S.C. § 3729(a)(1)(A). She also attempts to state a claim under
Section 3729(a)(1)(B) of the Act, under which liability attaches when a person
“knowingly makes, uses, or cause to be made or used, a false record or
statement material to a false or fraudulent claim.” Id. at § 3729(a)(1)(B). 5 The
5Both claims implicate the implied false certification theory of liability. Under that
theory, which has been accepted by the Supreme Court “in some circumstances,” when “a
defendant makes representations in submitting a claim but omits its violations of statutory,
regulatory, or contractual requirements, those omissions can be a basis for liability if they
render the defendant’s representations misleading with respect to the goods or services
provided.” Escobar, 136 S. Ct. at 1999.
4
Case: 18-60746 Document: 00515383734 Page: 5 Date Filed: 04/15/2020
No. 18-60746
district court dismissed both claims because it could not find that Magnolia’s
staffing of care manager and case manager positions by licensed practical
nurses, and not registered nurses, was material to its contracts with
MississippiCAN. We agree.
1. Legal Standards
To survive a motion to dismiss, a complaint “must provide the plaintiff’s
grounds for entitlement to relief—including factual allegations that when
assumed to be true ‘raise a right to relief above the speculative level.’” Cuvillier
v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). Complaints filed pursuant to the False Claims Act
must also satisfy the “heightened” pleading standard of Federal Rule of Civil
Procedure 9(b). United States ex rel. Grubbs v. Kanneganti,
565 F.3d 180, 185
(5th Cir. 2009). Under Rule 9(b), a party alleging fraud or mistake “must state
with particularity the circumstances constituting fraud or mistake.” Fed. R.
Civ. P. 9(b). “We apply Rule 9(b) to fraud complaints with bite and without
apology.”
Grubbs, 565 F.3d at 185 (quotation marks and citation omitted).
However, “to plead with particularity the circumstances constituting fraud for
a False Claims Act § 3729(a)(1) claim, a relator’s complaint, if it cannot allege
the details of an actually submitted false claim, may nevertheless survive by
alleging particular details of a scheme to submit false claims paired with
reliable indicia that lead to a strong inference that claims were actually
submitted.”
Id. at 190.
2. Analysis
The False Claims Act, 31 U.S.C. § 3729 et seq., “imposes significant
penalties on those who defraud the Government.” Escobar, 136 S. Ct. at 1995.
There are four elements of a False Claims Act claim. Plaintiffs suing under the
statute must show that (1) “there was a false statement or fraudulent course
of conduct; (2) made or carried out with the requisite scienter; (3) that was
5
Case: 18-60746 Document: 00515383734 Page: 6 Date Filed: 04/15/2020
No. 18-60746
material; and (4) that caused the government to pay out money or to forfeit
moneys due (i.e., that involved a claim).” Abbott v. BP Expl. & Prod., Inc., 851
F.3d 384, 387 (5th Cir. 2017) (citing United States ex rel. Longhi v. United
States,
575 F.3d 458, 467 (5th Cir. 2009)). Both Magnolia’s motion to dismiss
and the district court order granting that motion addressed only the third
element of this test: materiality.
In 2016, the Supreme Court clarified how courts should interpret the
materiality requirement. The Court noted that the False Claims Act itself
defines “material” as “having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property.” Escobar, 136 S. Ct.
at 1996 (citing 31 U.S.C. § 3729(b)(4)). Describing the materiality standard as
“demanding” and “rigorous,”
id. at 2002–03, the Court explained:
The False Claims Act is not “an all-purpose antifraud statute” or a
vehicle for punishing garden-variety breaches of contract or
regulatory violations. A misrepresentation cannot be deemed
material merely because the Government designates compliance
with a particular statutory, regulatory, or contractual requirement
as a condition of payment. Nor is it sufficient for a finding of
materiality that the Government would have the option to decline
to pay if it knew of the defendant's noncompliance. Materiality, in
addition, cannot be found where noncompliance is minor or
insubstantial.
Id. at 2003 (citations omitted). The Court went on:
[W]hen evaluating materiality under the False Claims Act, the
Government's decision to expressly identify a provision as a
condition of payment is relevant, but not automatically dispositive.
Likewise, proof of materiality can include, but is not necessarily
limited to, evidence that the defendant knows that the
Government consistently refuses to pay claims in the mine run of
cases based on noncompliance with the particular statutory,
regulatory, or contractual requirement. Conversely, if the
Government pays a particular claim in full despite its actual
knowledge that certain requirements were violated, that is very
strong evidence that those requirements are not material. Or, if
the Government regularly pays a particular type of claim in full
6
Case: 18-60746 Document: 00515383734 Page: 7 Date Filed: 04/15/2020
No. 18-60746
despite actual knowledge that certain requirements were violated,
and has signaled no change in position, that is strong evidence that
the requirements are not material.
Id. at 2003–04. In so holding, the Court expressly rejected the view of
materiality advanced by the federal government and the U.S. Court of Appeals
for the First Circuit: “that any statutory, regulatory, or contractual violation is
material so long as the defendant knows that the Government would be
entitled to refuse payment were it aware of the violation.”
Id. at 2004.
Here, the district court dismissed Plaintiff-Appellant’s claims because
her amended complaint failed to (1) identify a specific provision in any of the
three contracts between Magnolia and MississippiCAN requiring that a case
manager or care manager position be staffed by a registered nurse, (2) identify
any specific federal or state statute or regulation mandating that a registered
nurse provide those services, or (3) otherwise establish that the staffing of the
case manager or care manager positions was a material term of the contracts.
De novo review leads this panel to conclude the same.
Plaintiff-Appellant relies on two general categories of documents to
support her claims that Magnolia committed fraud by employing licensed
practical nurses as care or case managers: (1) the contracts between Magnolia
and MississippiCAN; and (2) Mississippi statutes, regulations, and
administrative materials. Neither work in her favor.
The contracts in question identify the minimum services to be performed
by case or care managers, but do not require that those services be performed
by a registered nurse. Indeed, while Plaintiff-Appellant alleges that Magnolia
is “[i]n no event . . . to assign a Case Manager who is neither a Registered
Nurse nor a licensed Social Worker,” that allegation is contradicted by the
contracts themselves. “When a plaintiff attaches documents to the complaint,
courts are not required to accept the plaintiff’s interpretation of those
documents.” Kamps v. Baylor Univ., 592 F. App’x 282, 284 n.1 (5th Cir. 2014)
7
Case: 18-60746 Document: 00515383734 Page: 8 Date Filed: 04/15/2020
No. 18-60746
(per curiam) (unpublished). If “an allegation is contradicted by the contents of
an exhibit attached to the pleading, then indeed the exhibit and not the
allegation controls.” United States ex rel. Riley v. St. Luke’s Episcopal Hosp.,
355 F.3d 370, 377 (5th Cir. 2004) (citation omitted).
Each contract does, however, require Magnolia to “strictly adhere to all
applicable federal and state law (statutory and case law), regulations and
standards . . . including . . . the policies, rules, and regulations” of the
Mississippi Division of Medicaid. Plaintiff-Appellant argues that Magnolia’s
staffing practices violate Mississippi law and therefore constitute material
fraud. We assume arguendo that Plaintiff-Appellant’s characterization of the
Mississippi statutes and regulations is correct. But the Supreme Court has
explicitly rejected the argument that “any statutory, regulatory, or contractual
violation is material so long as the defendant knows that the [g]overnment
would be entitled to refuse payment were it aware of the violation.” Escobar,
136 S. Ct. at 2004. Indeed, “a misrepresentation cannot be deemed material
merely because the [g]overnment designates compliance with a particular
statutory, regulatory, or contractual requirement as a condition of payment.”
Id. at 2003. Here, the district court concluded that the contracts between
Magnolia and MississippiCAN “contain broad boilerplate language generally
requiring a contractor to follow all laws, which is the same type of language
Escobar found too general to support a FCA claim.” We agree.
Moreover, we note that the Mississippi Division of Medicaid took no
action after Plaintiff-Appellant informed the Division that Magnolia was
staffing care and case manager positions with licensed practical nurses.
Instead, it continued payment and renewed its contract with Magnolia several
times. And even after Plaintiff-Appellant’s suit was unsealed, MississippiCAN
awarded Magnolia a contract for the fourth time. See Mississippi True v.
Dzielak, 28CH1:18-CV-557, Order, Dkt. 96, at 1, 3 (Hinds Cty. Ch. Ct. Sept.
8
Case: 18-60746 Document: 00515383734 Page: 9 Date Filed: 04/15/2020
No. 18-60746
28, 2018). 6 “[C]ontinued payment by the federal government after it learns of
the alleged fraud substantially increases the burden on the relator in
establishing materiality.” United States ex rel. Harman v. Trinity Indus., 872
F.3d 645, 663 (5th Cir. 2017). 7 Plaintiff-Appellant has not met that burden.
In summary: Plaintiff-Appellant’s first amended complaint makes no
specific allegations regarding the materiality of Magnolia’s alleged fraud. The
contracts between Magnolia and MississippiCAN do not require Magnolia to
staff care or case manager positions with registered nurses, and they contain
only broad, boilerplate language requiring Magnolia to follow all laws. And
Escobar dictates that MississippiCAN’s continued payments to and contracts
with Magnolia substantially increase the burden on Plaintiff-Appellant in
establishing materiality. See Harman, 872 F.3d at 663. We therefore affirm
the district court’s conclusion that Plaintiff-Appellant did not plead sufficient
facts to survive a motion to dismiss.
6 “Taking judicial notice of directly relevant public records is proper on review of a
12(b)(6) motion.” Biliouris as next friend of Biliouris v. Patman, 751 F. App’x 603, 604 (5th
Cir. 2019) (per curiam) (citing Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011)).
7 Plaintiff-Appellant directs the court to Campie, in which the U.S. Court of Appeals
for the Ninth Circuit applied Escobar and reversed a district court’s dismissal of a False
Claims Act suit involving HIV drugs. See United States ex rel. Campie v. Gilead Sciences,
Inc., 862 F.3d 890 (9th Cir. 2017). Campie, which is not precedential authority here, is also
easily distinguished. In that case, “questions remained as to whether the approval by the
[agency] was itself procured by fraud,” “there existed other potential reasons for continued
approval that prevent[ed] judgment for the defendant on 12(b)(6),” “the continued payment
came after the alleged noncompliance had terminated,” and “the parties dispute[d] exactly
what and when the government knew.”
Harman, 872 F.3d at 664 (quoting
Campie, 862 F.3d
at 906–07). Here, Plaintiff-Appellant has made no allegations that MississippiCAN’s
contracts with Magnolia were themselves the product of fraud or that continued approval
persisted for reasons other than non-materiality. Moreover, Plaintiff-Appellant alleges that
the asserted noncompliance persists to this day.
9
Case: 18-60746 Document: 00515383734 Page: 10 Date Filed: 04/15/2020
No. 18-60746
C. Whether the district court erred in declining to grant leave to
amend
The district court denied Plaintiff-Appellant leave to amend, explaining
that the request was futile. We agree.
Rule 15(a) requires a trial court “to grant leave to amend ‘freely,’ and the
language of this rule ‘evinces a bias in favor of granting leave to amend.’” Lyn–
Lea Travel Corp. v. Am. Airlines, 283 F.3d 282, 286 (5th Cir. 2002) (quoting
Chitimacha Tribe of La. v. Harry L. Laws Co., Inc.,
690 F.2d 1157, 1162 (5th
Cir. 1982)). A district court must have a “substantial reason” to deny a request
for leave to amend.
Id. (quoting Jamieson v. Shaw,
772 F.2d 1205, 1208 (5th
Cir. 1985)). “However, decisions concerning motions to amend are entrusted to
the sound discretion of the district court.” Smith v. EMC Corp.,
393 F.3d 590,
595 (5th Cir. 2004) (quotation marks and citation omitted).
Ordinarily, this court reviews the denial of a motion for leave to file an
amended complaint for abuse of discretion. City of Clinton, Ark. v. Pilgrim’s
Pride Corp., 632 F.3d 148, 152 (5th Cir. 2010). “When the district court’s sole
reason for denying such an amendment is futility, however, we must scrutinize
that decision somewhat more closely, applying a de novo standard of review
similar to that under which we review a dismissal under Rule 12(b)(6).” Wilson
v. Bruks-Klockner, Inc.,
602 F.3d 363, 368 (5th Cir. 2010) (citing Stripling v.
Jordan Prod. Co., LLC,
234 F.3d 863, 872–73 (5th Cir.2000)).
Here, the district court denied leave to amend because Plaintiff-
Appellant had not met, and “indeed cannot meet,” her burden. The court
concluded that “any amendment to continue to pursue” the theory advanced by
Plaintiff-Appellant “would be futile.” For the reasons articulated above, we find
no error in this conclusion. Given the terms of the contracts between Magnolia
and MississippiCAN, as well as MississippiCAN’s election to continue paying
and contracting with Magnolia after Plaintiff-Appellant reported Magnolia’s
10
Case: 18-60746 Document: 00515383734 Page: 11 Date Filed: 04/15/2020
No. 18-60746
staffing practices and filed this complaint, there is no reasonable basis to
predict that Plaintiff-Appellant can recover on her claims.
CONCLUSION
The district court did not err in granting Defendant’s Motion to Dismiss
with prejudice. Its order doing so is AFFIRMED.
11
