DONALD C. COGGINS, JR., District Judge.
This matter comes before the Court on Motions to Dismiss filed by Defendants Daniel A. McCollum; Robert Blackwell;
The False Claims Act ("FCA") provides for the award of treble damages and civil penalties for, inter alia, knowingly causing the submission of false or fraudulent claims for payment to the United States government. 31 U.S.C. § 3729(a)(1). The FCA provides, in pertinent part, that a person who:
31 U.S.C. § 3729(a)(1) (internal footnote and citation omitted) (footnote added). For purposes of the FCA, the terms "knowing" and "knowingly,"
31 U.S.C. § 3729(b)(1). Moreover, "the term `material' means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). "Importantly, to trigger liability under the [FCA], a claim actually must have been submitted to the federal government for reimbursement, resulting in `a call upon the government fisc.'" United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 454 (4th Cir. 2013) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999)) (citation omitted).
A person—known as a "relator"—"may bring a civil action for a violation of [the FCA] for the person and for the United States Government."
31 U.S.C. § 3730(h)(1).
To initiate a qui tam action under the FCA, the relator must serve a copy of the complaint along with a "written disclosure of substantially all material evidence and information the [relator] possesses" on the Government. 31 U.S.C. § 3730(b)(2). "The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders." Id. During this 60-day period, the Government is charged with investigating the allegations and "may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal." 31 U.S.C. §§ 3730(b)(2), (3).
Before the 60-day period (or any extensions obtained) expire, the Government shall either "(A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action."
If the Government intervenes in the case, "it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action"; however, the relator "shall have the right to continue as a party to the action" subject to four statutory limitations:
31 U.S.C. §§ 3730(c)(1), (2).
If the Government declines to "proceed with the action, the [relator] shall have the right to conduct the action." 31 U.S.C. §§ 3730(c)(3). However, the court "may nevertheless permit the Government to intervene at a later date upon a showing of good cause." Id. There are, however, several well-established statutory limitations to a relator's ability to pursue non-intervened FCA actions. See 31 U.S.C. §§ 3730(b)(5); (e)(1)-(4). Generally, the relator must be the first person to file an FCA action based on the facts underlying the complaint. 31 U.S.C. § 3730(b)(5). Furthermore, a relator may not bring an FCA action "which is based upon allegations or transactions which are subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party." 31 U.S.C. § 3730(e)(3). Similarly, the allegations or transactions alleged in the complaint must not have been publicly disclosed: "(i) in a Federal criminal, civil, or administration hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media," unless the relator is an original source of the information. 31 U.S.C. § 3730(e)(4)(A); see 31 U.S.C. § 3730(A)(5) (defining "original source"). If the allegations or transactions in the complaint have been publicly disclosed, the court "shall dismiss [the] action or claim . . . unless opposed by the Government."
Relators who prevail in FCA actions are entitled to a "bounty" on the Government's recovery. See 31 U.S.C. § 3730(d). In cases where the Government intervenes in the action, the relator is generally entitled to between 15 and 25 percent "of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action."
On April 10, 2015, Donna Rauch, Muriel Calhoun, and Brandy Knight ("Plaintiff-Relators")—all former employees of Defendant Oaktree
On March 1, 2019, the Government filed a Notice of Partial Intervention in each of the cases. Specifically, the Government intervened as to the following claims:
As a result of the Government's Notice of Partial Intervention, the Court ordered that the case be unsealed. ECF No. 78. Additionally, the Court consolidated this case and the related cases. ECF No. 79.
On May 31, 2019, the Government filed a Complaint in Intervention, which consolidated the intervened claims and outlined detailed factual allegations in support of those claims. ECF No. 86. Contemporaneously, Plaintiff-Relators undertook the process of serving their Complaint so that they could pursue the non-intervened claims. See, e.g., ECF Nos. 80, 92, 114. After the Complaint was served, Defendants began filing Motions to Dismiss Plaintiff-Relators' Complaint. See ECF Nos. 99, 104, 110, 123, 125. In response, Plaintiff-Relators filed an Amended Complaint on August 9, 2019, which mooted all Motions pertaining to the initial Complaint. See ECF Nos. 124 (Amended Complaint); 202 (Text Order Denying Motions to Dismiss as Moot).
Plaintiff-Relators' Amended Complaint contains only the non-intervened claims.
ECF No. 124 at 2-3. Ten Defendants filed Motions to Dismiss the Amended Complaint, which are now pending before the Court.
"Generally, a complaint will survive a Rule 12(b)(6) motion to dismiss if it `state[s] a claim to relief that is plausible on its face,' meaning that it pleads sufficient facts to support a `reasonable inference that the defendant is liable for the misconduct alleged.'" United States ex rel. Grant v. United Airlines, Inc., 912 F.3d 190, 196 (4th Cir. 2018) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). However, fraud-based claims—to include claims made under the FCA—must satisfy the heightened pleading standard set forth in Federal Rule of Civil Procedure 9(b). Id. Rule 9(b) requires that "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id.
"To satisfy Rule 9(b), a plaintiff asserting a claim under the [FCA] `must, at a minimum, describe 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.'" Nathan, 707 F.3d at 455-56 (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)). The Fourth Circuit has held that "allegations of a fraudulent scheme, in the absence of an assertion that a specific false claim was presented to the government for payment" are insufficient to meet Rule 9(b)'s heightened pleading standard. Id. at 456. "Instead, the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the [FCA] attaches only to a claim actually presented to the government for payment, not the underlying fraudulent scheme." Id. (citing Harrison, 176 F.3d at 785). In the event a relator does not plead with particularity that specific false claims actually were presented to the government for payment, a relator's complaint may still survive a Rule 9(b) challenge only if it "allege[s] a pattern of conduct that would `necessarily have led[ ] to submission of false claims' to the government for payment." Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (alteration and emphasis in original).
The Fourth Circuit has acknowledged that Rule 9(b) imposes practical challenges on relators, "especially where billing practices and records are not readily ascertainable to certain categories of employees within a company." Grant, 912 F.3d at 197. "However, Rule 9(b)'s particularity requirement serves as a necessary counterbalance to the gravity and `quasi-criminal nature' of FCA liability." Id. (quoting United States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1360 (11th Cir. 2006)). "Thus, Rule 9(b)'s purposes of providing defendants notice of their alleged misconduct, preventing frivolous suits, and eliminating fraud actions in which all the facts are learned after discovery apply with special force to FCA claims and the accompanying presentment requirement." Id. (citing Nathan, 707 F.3d at 456).
As an initial matter, each Motion raises the argument that Plaintiff-Relators' lack standing to pursue non-intervened claims. Defendants base this argument on a district court order from the District of Utah—United States ex rel. Brooks v. Steven-Henager College, Inc., 359 F.Supp.3d 1088 (D. Utah 2019). In Brooks, two relators filed an FCA action, contending that the defendants submitted false claims for federal financial aid. Id. at 1094. The Government filed a complaint in intervention, electing to intervene on some but not all of the relators' claims against two defendants. Id. Thereafter, the relators filed a second amended complaint that asserted new claims and named additional defendants. Id. Although the Government elected not to intervene as to the new claims, it took the position that the relators could maintain the non-intervened portion of the action in the name of the United States. Id. The relators amended their complaint several more times, and the defendants moved to dismiss the relators' fourth amended complaint and the Government's amended complaint in intervention. Id.
After the motions to dismiss were fully briefed, the Brooks court sua sponte entered an Order noting that it was "concerned with the manner in which [the] case has been litigated." Brooks, Case No. 2:15-cv-119-JNP-EJF at ECF No. 461 (D. Utah Aug. 2, 2018). Specifically, the court analyzed the language of the FCA and argued that the relators could not independently pursue non-intervened claims. See id. at 10 ("In sum, the plain language of the [FCA] provides that the Government, if it intervenes, must conduct the action, not certain causes of action, and that the Government has `the primary responsibility for prosecuting the action.'" (quoting 31 U.S.C. § 3730(c)(1)) (emphasis in original)). Additionally, the court noted its concern that the FCA "potentially violates the `take Care' clause [of] Article II of the U.S. Constitution to the extent that it allows private citizens to prosecute claims on behalf of the Government." Id. at 11 (citations omitted). In support of this argument, the court cited to dicta in a Supreme Court decision which expressly declined to reach the constitutional issue, a "white paper" from the Washington Legal Foundation,
In light of these concerns, the court ordered supplemental briefing on five issues:
Id. at 12.
After the parties briefed these issues, the Brooks court issued an opinion finding that "nothing in the [FCA] or the legislative history suggests that a relator can maintain the non-intervened portion of an action." Brooks, 359 F. Supp. 3d at 1116. To that end, the court found the FCA to be unambiguous and determined that the word "action" in the FCA means "civil action" rather than "cause of action." Id. at 1118. Thus, under the reasoning of Brooks, the Government would only have two options in an FCA case: (1) intervene as to the entire case or (2) decline to intervene as to the entire case. See id. The Brooks court attempted to distance itself from this conclusion by invoking the language of 37 U.S.C. § 3731(c), which permits the Government to file its own complaint after intervention "or amend the complaint of a person who has brought an action under [the FCA] to clarify or add detail to the claims in which the Government is intervening and to add any additional claims with respond to which the Government contends it is entitled to relief." This language, according to the court, "lets the Government intervene as to certain claims in the relators' complaint" and decline to intervene as to other claims. See Brooks, 359 F. Supp. 3d at 1120.
The Brooks court then determined that relators may not maintain the non-intervened portion of an action. Id. at 1120. The court reasoned that "Congress would not have given relators the primary responsibility for prosecuting the non-intervened claims in such a cryptic fashion." Id. (citation omitted). By way of illustration, the court cited to the language of the FCA, which states the Government has the "`primary responsibility for prosecuting the action, and shall not be bound by an act of the [relator].'" Id. at 1121 (quoting 31 U.S.C. § 3730(c)(1) (emphasis in original)). The court held "it is unclear how the Government is not `bound by an act of [a relator]' if the relator can add allegations, defendants, and claims to the Government's action." Id. Finally, the court examined several other provisions of the FCA and the legislative history and found that the FCA unambiguously prohibits relators from proceeding with non-intervened claims.
Because the Brooks opinion has been invoked by the Defendants in each of their Motions, this Court directed the Government "to file a brief outlining its position on Relators' right to maintain independent claims after the filing of [the] United States' Notice of Partial Intervention and [the] United States' Consolidated Complaint in Intervention." ECF No. 203. The Government filed a brief in which it contends that Brooks was wrongly decided and affirmatively stating that Plaintiff-Relators have the right to maintain the non-intervened claims. ECF No. 247.
The Court agrees with the Government that the reasoning of Brooks is circular and fundamentally misunderstands how an FCA case proceeds. Indeed, equating "action" with "civil action" renders several important provisions of the FCA meaningless. For example, the FCA permits the Government to dismiss or settle "the action" notwithstanding the objections of the relator. As the Government correctly notes in its response, the Government "often seeks to dismiss or settle a subset of a relator's causes of action, rather than the entirety of the complaint, and courts have permitted this approach." ECF No. 247 at 4 (citation omitted). By defining "action" to mean "civil action," the Brooks court would give the Government two options in a case—intervene as to all claims or decline to intervene as to any claims. The Brooks court tries to dispel this conclusion by invoking the language of 37 U.S.C. § 3731(c), which the court found "unambiguously lets the Government add claims when it intervenes." Brooks, 359 F. Supp. 3d at 1120. That misses the point, as that statute outlines what the Government may do after "the Government elects to intervene and proceed with an action brought under [the FCA]." 31 U.S.C. § 3731(c). The Government must choose to intervene in the "action" prior to filing its Complaint in Intervention. Under the Brooks court's reasoning, that necessarily means the Government must initially intervene as to the entire case or decline to intervene as to the entire case. Brooks acknowledges such a reading would be "troubling if it were true." Brooks, 359 F. Supp. 3d at 1120.
To be sure, the FCA is not a model of clarity. In United States ex rel. Merena v. SmithKline Beecham Corp., Justice Alito, who was then a Circuit Court Judge, noted:
205 F.3d 97, 101-02 (3d Cir. 2000) (internal citations and quotations omitted) (emphasis in original).
After examining the FCA statute as a whole, the Court is persuaded that "action" means "cause of action" and not "civil action." Therefore, the Court declines to adopt the reasoning of the Brooks court, which is an outlier in a large body of FCA case law. Indeed, the Court is aware of no case law—other than Brooks—that holds that a relator may not litigate non-intervened claims. It is, perhaps, telling that even the defendants in Brooks did not advance such an argument; instead, the issue was raised by the court. While novelty is not, in and of itself, a valid reason to reject a legal argument, there is an overwhelming body of case law in this District and elsewhere that has permitted relators to pursue non-intervened claims. See, e.g., United States v. Berkeley Heartlab, Inc., 225 F.Supp.3d 487 (D.S.C. 2016) ("The Government partially intervened regarding the waiver of insurance copays and deductibles. . . . Because the Government elected not to intervene with regard to [relator's] allegations involving the payment of speaker's fees or the waiver of private insurance copays and deductibles, he has `the right to conduct the action.'" (quoting 31 U.S.C. § 3730(c)(3))). The Court finds no reason to depart from this well-established interpretation of the FCA and rejects Defendants' Motions to the extent they rely on Brooks.
Defendant McCollum moves to dismiss Plaintiff-Relators' Amended Complaint for three reasons: (1) Plaintiff-Relators have failed to plead that they were employed by Defendant McCollum; (2) 31 U.S.C. § 3730(h) does not recognize a cause of action against non-employers; and (3) Plaintiff-Relators may not pursue non-intervened claims after the Government intervenes. As stated above, the Court finds that Plaintiff-Relators may pursue their non-intervened claims. Accordingly, the Court turns to Defendant McCollum's remaining arguments.
Defendant McCollum contends that Plaintiff-Relators' retaliation claims against Defendant McCollum fail as a matter of law because Defendant McCollum was not Plaintiff-Relators' employer and 31 U.S.C. § 3730(h) does not recognize a cause of action against a non-employer. ECF No. 157 at 3. Plaintiff-Relators respond by arguing that the current version of the FCA does not require that the defendant in a retaliation claim be the relator's employer. ECF No. 184. Alternatively, Plaintiff-Relators claim that Defendant McCollum is the alter ego of Defendant Oaktree. Id.
Defendant McCollum states that "`[a] successful claim for retaliation under § 3730(h) requires that the [relator] establish three basic elements: (1) he engaged in protected activity by acting in furtherance of a qui tam suit; (2) his employer knew of these acts; and (3) his employer took adverse action against him as a result of these acts.'" Id. at 3-4 (quoting Glynn v. EDO Corp., 710 F.3d 209, 214 (4th Cir. 2013) (quotation marks omitted)). However, Defendant McCollum acknowledges, in a footnote, that the case that he quoted "addressed the pre-2009 version of § 3730(h)." Id. at 4 n.1. That proves to be significant in light of the amendments made in 2009. The pre-2009 version of 31 U.S.C. § 3730(h) stated:
False Claims Amendments Act, Pub. L. No. 99-562, 100 Stat. 3153 (1986) (emphasis added).
In 2009, the FCA was amended and now provides:
31 U.S.C. § 3730(h)(1). Importantly, this amendment removed the "by his or her employer" language. The Fourth Circuit has not addressed the question of whether there can be individual liability under 31 U.S.C. § 3730(h) under the current language of the FCA. However, district courts within the Fourth Circuit have found that individuals can be liable for retaliatory actions. For example, in Weihua Huang v. Rector and Visitors of University of Virginia, the district court noted:
896 F.Supp.2d 524, 548 n.16 (W.D. Va. 2012) (citation omitted).
Conversely, other district courts in the Fourth Circuit have held that the 2009 amendment to the FCA did not "expand the universe of individuals a corporate employee could sue for retaliation to include the plaintiff's co-workers and supervisors." Irving v. PAE Gov't Servs., Inc., 249 F.Supp.3d 826, 831 (E.D. Va. 2017). The Irving court acknowledged the importance of Congress removing "by his or her employer" from 31 U.S.C. § 3730(h), stating that "Congress simply meant to recognize the fact that agents and contractors, which were added to the class of potential plaintiffs in 2009, are not entities controlled or directed by an `employer.'" Id. The court further pointed to the legislative history of the 2009 amendment, "which reflects that the Amendment was drafted and passed by Congress, in part, to remedy fraud and abuse arising out of the conflicts in Iraq and Afghanistan." Id. at 832 (citations omitted). Specifically, the court noted that "Congress recognized that to perform essential government functions in Iraq and Afghanistan, the federal government found it increasingly necessary to rely on the use of independent contractors, who in turn, often hired subcontractors and agents to perform necessary government tasks." Id. (citation omitted). "To accommodate this reality, Congress expanded the FCA's whistleblower protections to include agents and independent contractors to ensure that all individuals in these categories who witnessed fraud against the government could bring FCA claims." Id. (citation omitted).
Thus, the Court is presented with an unsettled question of law in this Circuit. As another district court in this Circuit noted, however, "the overwhelming majority of courts, including the Fifth Circuit, have held that the current version of § 3730(h) does not create a cause of action against supervisors sued in their individual capacities." Brach v. Conflict Kinetics Corp., 221 F.Supp.3d 743, 748 (E.D. Va. 2016) (footnotes omitted) (citing Howell v. Town of Ball, 827 F.3d 515, 529-30 (5th Cir. 2016)). After reviewing the relevant authority, the Court agrees with the Fifth Circuit that, "viewing the changes § 3730(h) as a whole, it is clear that the reference to an `employer' was deleted to account for the broadening of the class of FCA plaintiffs to include `contractors' and `agents,' not to provide liability for individual, non-employer defendants." Howell, 827 F.3d at 529-30.
"Whether a § 3730(h) claim can be brought against an individual as an alter ego of an employer corporation is less clear." United States ex rel. Brumfield v. Narco Freedom, Inc., No. 12 Civ. 3674 (JGK), 2018 WL 5817379, at *3 (S.D.N.Y. 2018) (citing cases). However, as detailed below, the Court need not definitively decide whether an individual can be liable under 31 U.S.C. § 3730(h) because Plaintiff-Relators have failed to plausibly allege that Defendant McCollum was the alter ego of Defendant Oaktree. To that end, the Court turns to the allegations of Plaintiff-Relators' Amended Complaint.
The Amended Complaint alleges that Plaintiff-Relator Rauch was employed by Defendant Oaktree from approximately July 1, 2013 to January 22, 2015 as the Chief Operations Officer and Chief Financial Officer. ECF No. 124 at 3. The Amended Complaint further alleges that Plaintiff-Relator Calhoun was employed by Defendant Oaktree from approximately October 15, 2008 to February 25, 2015 initially as a Certified Medical Assistant before being promoted to Operations Manager for Defendant Oaktree's facilities. Id. at 3-4. Finally, the Amended Complaint alleges that Plaintiff-Relator Knight was employed by Defendant Oaktree from approximately March 1, 2010 to February 25, 2015 initially as a Clinic Coordinator for the Anderson, Seneca, and Greenwood practice locations before being promoted to the Lead Clinic Coordinator for Defendant Oaktree's Region Two, which included the Anderson, Seneca, Greenwood, and Easley practice locations. Id. at 4.
Although Plaintiff-Relators' initial Complaint alleged that Defendant McCollum is the Chief Executive Officer ("CEO") of Defendants Oaktree and Labsource, the Amended Complaint is silent on Defendant McCollum's position. ECF No. 1 at 5. Rather, the Amended Complaint simply realleges and incorporates by reference Paragraphs 17-24 of the Government's Complaint in Intervention. ECF No. 124 at 5. The Court is concerned with the sparsity of allegations in Plaintiff-Relators' Amended Complaint and finds that it is generally inappropriate to incorporate allegations from the Government's Complaint in Intervention in a complaint alleging non-intervened claims. Incorporation by reference opens the door to a host of problems and invites challenges to a relator's claims, including those based on the first-to-file doctrine and the public disclosure bar.
Accordingly, in line with the majority of courts to address the issue, the Court holds that 31 U.S.C. § 3730(h) does not allow Plaintiff-Relators to sue their supervisors in their individual capacity. Furthermore, the Court finds that Plaintiff-Relators have not plausibly alleged that Defendant McCollum is the alter ego of Defendant Oaktree; therefore, the Court declines to reach the question of whether Defendant McCollum can be sued as an alter ego of Defendant Oaktree. For those reasons, Defendant McCollum's Motion to Dismiss, ECF No. 157, is GRANTED. The Court grants Plaintiff-Relators 14 days to file a Motion to Amend setting forth legal argument about whether an individual supervisor or corporate executive can be sued as the alter ego of a corporate employer and to propose changes to the Amended Complaint that plausibly allege an alter ego theory of liability.
Defendant Blackwell moves to dismiss Plaintiff-Relators' Amended Complaint for four reasons: (1) Plaintiff-Relators may not pursue non-intervened claims after the Government intervenes; (2) Plaintiff-Relators Amended Complaint does not state a claim for relief under Federal Rules of Civil Procedure 9(b) and 12(b)(6); (3) Plaintiff-Relators' claims are prohibited by the FCA's public disclosure bar; and (4) Plaintiff-Relators' claims run afoul of the FCA's statute of limitations. As stated above, the Court finds that Plaintiff-Relators may pursue their non-intervened claims. Accordingly, the Court turns to Defendant Blackwell's remaining arguments.
Plaintiff-Relators have alleged that Defendant Blackwell was involved in three schemes in violation of the False Claims Act: (1) his participation in self-referrals and receipt of kickbacks and inducements in violation of the Stark Law and the AKS; (2) his participation in false and fraudulent billing practices related to the use of his National Provider Identifier ("NPI") number; and (3) his participation in the submission of claims for medically unnecessary and unreasonable UDT. The Court has reviewed the Amended Complaint and holds that it does not plead allegations against Defendant Blackwell with the particularity required by Federal Rule of Civil Procedure 9(b).
"[T]here are two ways to adequately plead presentment under Rule 9(b)." Grant, 912 F.3d at 197. "First, a [relator] can `allege with particularity that specific false claims actually were presented to the government for payment.'" Id. (quoting Nathan, 707 F.3d at 457). "This standard requires the [relator] to, `at a minimum, describe 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.'" Id. (quoting Wilson, 525 F.3d at 379 (internal quotations omitted)). "Alternatively, a [relator] can allege a pattern of conduct that would `necessarily have led[ ] to submission of false claims' to the government for payment." Id. (quoting Nathan, 707 F.3d at 457). At bottom, "Rule 9(b)'s heightened pleading standard requires that [relators] connect the dots, even if unsupported by precise documentation, between the alleged false claims and government payment." Id. at 199.
Initially, the Court notes that Plaintiff-Relators' Amended Complaint is littered with paragraphs purporting to "incorporate by reference" paragraphs from the Government's Complaint in Intervention. The Court declines to consider any portions of the Government's Complaint in Intervention in ruling on Defendant Blackwell's (or any other Defendant's) Motion to Dismiss. To do so would invite disaster, given the Public disclosure, first-to-file, original source, and other limitations on FCA cases. Moreover, it would be wholly improper for the Plaintiff-Relators to incorporate information the Government obtained independently during its investigation in their non-intervened claims. FCA cases are not fishing expeditions, wherein a relator lies in wait for the Government to obtain the information required for a complaint to pass muster under Rule 9(b). It is the responsibility of the relator to compile a complaint that has the requisite particularity Rule 9(b) requires. The FCA is far too important of a tool, and the Government's resources are far too limited, to permit relators to take a shotgun approach to pleading governmental fraud. Perhaps more importantly, fraud is a serious allegation, and defendants should have a meaningful opportunity to respond to specific allegations of governmental fraud.
Considering only the allegations in the Amended Complaint, Plaintiff-Relators have not identified a single false claim that was presented to the Government for payment. Instead, they allege—in broad strokes—a series of schemes that they declare are unlawful. Rule 9(b) requires more. There is nothing in the Amended Complaint about any of the three schemes that Defendant Blackwell was allegedly involved in that leads to the conclusion that false claims were "necessarily" presented to the Government for payment. And there are certainly no specific examples of false claims presented to the Government for payment. Put simply, Plaintiff-Relators have failed to "connect the dots" between any alleged false claims and government payments.
Plaintiff-Relators response to Defendant Blackwell's Motion is to parrot the allegations of the Government's Complaint in Intervention without any proof (or even any allegations) that Plaintiff-Relators are the original source of the information. For example, Plaintiff-Relators state that they have "alleged that between January 1, 2011 and June 5, 2013, Defendant Blackwell submitted 7,616 claims for reimbursement of UDT furnished by Defendant Oaktree to Medicare," which led to $2,489,182.39 in payments by Medicare. The Government alleged that information in its Complaint in Intervention, and Plaintiff-Relators cannot merely piggyback their claims on information disclosed by the Government in a publicly filed pleading. If Plaintiff-Relators had information about the number of claims submitted due to Defendant Blackwell's actions, that information should have been pled in the original Complaint.
In sum, Plaintiff-Relators' Amended Complaint fails to allege with particularity that Defendant Blackwell violated the FCA. The only particularized information in the Amended Complaint comes by way of incorporation of the Government's Complaint in Intervention, which the Court deems inappropriate given the posture of this case. The Court grants Plaintiff-Relators 14 days to file a Motion to Amend that demonstrates that amendment would not be futile. In the event the Plaintiff-Relators disagree with the Court's holding that it is inappropriate to incorporate allegations from the Government's Complaint in Intervention, they may submit legal argument to that effect in the Motion to Amend.
Defendant Edwards filed a pro se Motion to Dismiss, which incorporates the arguments made by the other Defendants. ECF No. 170. Defendant Edwards specifically argues that: (1) Plaintiff-Relators have no standing to pursue non-intervened claims; (2) Plaintiff-Relators have no standing to pursue retaliation claims against Defendant Edwards; (3) Plaintiff-Relators' claims are superseded by the Government's Complaint in Intervention; and (4) Plaintiff-Relators' claims should be dismissed pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). Id. In response, Plaintiff-Relators' contend that "Defendant Edwards waived his right to file a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, because he filed an Answer to the Amended Complaint on August 23, 2019, in which he did not preserve any grounds for dismissal under Rule 12(b)(1)-(7)." ECF No. 201 at 1 (citing ECF No. 160).
According to the filings in this case, Defendant Edwards was served with the Plaintiff-Relators' original Complaint on June 8, 2019 and given an extension of time to answer until July 20, 2019. ECF No. 228 at 1. On July 19, 2019, Defendant Edwards filed a pro se Answer invoking his Fifth Amendment rights and denying all allegations except that he is a citizen of the United States and a resident of the State of South Carolina. ECF No. 100. On August 9, 2019, Plaintiff-Relators filed an Amended Complaint, which was mailed to Defendant Edwards on August 12, 2019. ECF Nos. 124, 126. On August 23, 2019, Defendant Edwards filed an Answer to the Amended Complaint, in which he again invoked his Fifth Amendment rights and denied all allegations except that he is a citizen of the United States and a resident of the State of South Carolina. ECF No. 160. Thereafter, on September 3, 2019, he filed a Motion to Dismiss, which is presently before the Court. ECF No. 170.
Defendant Edwards' Motion incorporates the arguments made by Defendants in their initial Motions to Dismiss, which have all been denied as moot in light of the Amended Complaint. However, construing the pro se Motion liberally—as the Court must—it appears that Defendant Edwards' Motion was directed at the Amended Complaint, which he had already answered. As Plaintiff-Relators' note in their response, by filing an Answer to the Amended Complaint, Defendant Edwards waived the right to file a Motion to Dismiss. Fed. R. Civ. P. 12(b). However, a defendant may raise the lack of subject matter jurisdiction at any time. Fed. R. Civ. P. 12(h)(3). Construing Defendant Edwards' Motion liberally, he argues that the Court lacks jurisdiction over Plaintiff-Relators' non-intervened FCA claims and retaliation claim. As set forth above, the Court holds that Plaintiff-Relators' have standing to pursue non-intervened claims. Similarly, the Court holds that Plaintiff-Relators have standing to pursue their retaliation claims. Because Defendant Edwards' Motion was untimely, the Court need not reach the other issues it raises.
Defendants Oaktree, FirstChoice, Labsource, and PMA move to dismiss Plaintiff-Relators' Amended Complaint, contending that Plaintiff-Relators' claims are superseded by the Government's Complaint in Intervention and that Plaintiff-Relators' retaliation claims are ill-pled. As stated above, the Court holds that Plaintiff-Relators' may pursue their non-intervened claims. Accordingly, the Court limits its discussion to Plaintiff-Relators' retaliation claims.
Plaintiff-Relators' Seventh Cause of Action alleges that Defendants Oaktree, McCollum, and Edwards engaged in unlawful retaliation in violation of 31 U.S.C. § 3730(h). Therefore, for purposes of this Motion, Defendant Oaktree is the only moving party. To that end, Defendant Oaktree contends that Plaintiff-Relators fail to include the requisite allegations that Relator Rauch's conduct was in furtherance of or related to an FCA claim, as compared to the mere completion of her general duties with Oaktree, and fail to specify any protected activity in which Relators Calhoun and Knight were involved. ECF No. 172 at 7-8. Additionally, Defendant Oaktree contends that Plaintiff-Relators "have failed to allege that Oaktree knew they were engaged in protected activity." Id. at 9.
Plaintiff-Relators' Amended Complaint states, "[t]hroughout her employment with Defendant Oaktree, Plaintiff-Relator Rauch repeatedly opposed the unlawful conduct described above, and she consistently engaged in substantial efforts to stop Defendants from continuing to violate the False Claims Act." ECF No. 124 at 31. To that end, the Amended Complaint alleges that Defendant McCollum: (1) dismissed Plaintiff-Relator Rauch from a meeting where she voiced objections about the legality of kickbacks; (2) publicly reprimanded Plaintiff-Relator Rauch "in front of everyone at a managers' meeting at Defendant Labsource"; and (3) was "involved in making the decision to terminate the employment of all three Plaintiff-Relators." ECF No. 124 at 31-33. The Amended Complaint further outlines Plaintiff-Relator Rauch's significant efforts to stop Defendant Oaktree from committing alleged violations of the FCA. See, e.g., id. at 32 (outlining a number of concerns Plaintiff-Relator Rauch raised to Defendant Oaktree). However, the Amended Complaint does not set forth any protected activity that Relators Calhoun and Knight engaged in. Instead, the Amended Complaint simply alleges that "Plaintiff-Relators Calhoun and Knight had developed a close relationship with Plaintiff-Relator Rauch during their employment together at Defendant Oaktree," and "[a]fter Plaintiff-Relator Rauch's termination, Defendant Oaktree suspected that Plaintiff-Relators Calhoun and Knight were assisting Plaintiff-Relator Rauch in her efforts to stop Defendants from continuing to violate the False Claims Act." Id. at 33. The Amended Complaint does not set forth any plausible allegations that Plaintiff-Relators Calhoun or Knight took any actions to stop any violations of the FCA.
Accordingly, the Court finds that Plaintiff-Relator Rauch plausibly alleged that she was engaged in protected conduct. Furthermore, the Amended Complaint alleges that Plaintiff-Relator Rauch complained about Defendant Oaktree's allegedly unlawful conduct on numerous occasions. See ECF No. 124 at 31-33. However, the Amended Complaint is bereft of any plausible allegations that Plaintiff-Relators Calhoun or Knight were engaged in protected activity or that Defendant Oaktree knew that they were engaged in protected activity. Accordingly, Defendant Oaktree's Motion is GRANTED IN PART and DENIED IN PART. The Court grants Plaintiff-Relators Calhoun and Knight 14 days to amend to allege plausible claims for violation of 31 U.S.C. § 3730(h).
Defendant Banks moves to dismiss Plaintiff-Relators' Second, Fourth, and Sixth Causes of Action. Defendant Banks also adopts the arguments of other Defendants that: (1) Plaintiff-Relators lack standing to pursue their non-intervened claims; (2) Plaintiff-Relators' claims are superseded by the Government's Complaint in Intervention; (3) Plaintiff-Relators' Amended Complaint does not meet the requirements of Federal Rules of Civil Procedure 9(b) and 12(b)(6); (4) Plaintiff-Relators' claims are prohibited by the public disclosure bar as they have not plausibly alleged that they are an "original source"; and (5) Plaintiff-Relators' claims are barred by the statute of limitations because the Amended Complaint does not relate back to the date the original Complaint was filed. As detailed above, the Court finds that Plaintiff-Relators have standing to pursue their non-intervened claim. For the reasons set forth below, the Court finds that Plaintiff-Relators' claims do not satisfy Rule 9(b)'s particularity requirement; accordingly, the Court need not reach Defendant's remaining arguments.
Plaintiff-Relators' Second Cause of Action alleges that "Defendant Banks knowingly provided compensation from Defendant FirstChoice to its physician[s] and physician assistants that was directly based on the volume and value of UDT referrals and other business generated" and then submitted or caused to be submitted claims to Medicare for UDT that resulted from those referrals. ECF No. 124 at 22. The Amended Complaint additionally alleges that "Defendant Banks entered into one or more conspiracies to present or cause to be presented false or fraudulent claims for payment or approval to the Medicare program—and/or made, used, and caused to be made or used false records or statements in support of those claims—for UDT furnished by Defendants Oaktree and Labsource that [were] referred by FirstChoice physicians in violation of the Stark Law and AKS." Id.
Despite the broad nature of these allegations, the Amended Complaint is devoid of any supporting factual allegations. While the Amended Complaint contains several pages of allegations related to this scheme, Plaintiff-Relators fail to identify the submission of a single false claim and the allegations do not lead to the conclusion that false claims were necessarily presented to the Government for payment. Instead, Plaintiff-Relators allege that Defendant Banks created compensation agreements that generated money for healthcare providers, in part, as a result of gross collections for ancillary services. But Plaintiff-Relators fail to connect the dots between this activity and the presentment of false claims to the Government for payment. Therefore, Plaintiff-Relators' claims fail to meet Rule 9(b)'s particularity standard.
Plaintiff-Relators' Fourth Cause of Action alleges, "[i]n 2015, Defendant Banks and Edwards knowingly instructed and/or caused to be presented materially false and fraudulent claims for payment or approval to the Medicare, Medicaid, and TRICARE programs for medically unnecessary and unreasonable UDT based upon the retroactive creation of Certificates of Medical Necessity." ECF No. 124 at 26-27. Despite the sweeping nature of this allegation, Plaintiff-Relators' Amended Complaint is devoid of any particularized information about the alleged false representations and fails to identify a single false claim submitted to the Government for payment or a scheme that necessarily resulted in the submission of false claims to the Government. Therefore, Plaintiff-Relators' claims fail to meet Rule 9(b)'s particularity standard.
Plaintiff-Relators' Sixth Cause of Action alleges that Defendant Banks "knowingly presented and/or caused to be presented materially false and fraudulent claims for approval by Medicare and Medicaid for payment to Defendant Oaktree even though Defendant Oaktree had outsourced the lab testing" to two outside reference labs— Premier Health and Select Labs. Id. at 30-31. However, the factual allegations relating to this scheme only discuss Defendant Edwards and make no mention of Defendant Banks. See id. at 18-19. Thus, not only do Plaintiff-Relators' allegations fail to meet the particularity requirement of Rule 9(b), they fail to meet the basic pleading standard of Rule 8.
As set forth above, Plaintiff-Relators' Amended Complaint fails to allege with particularity that Defendant Banks violated the FCA. Accordingly, Defendant Banks' Motion to Dismiss is GRANTED. The Court finds that amendment would be futile, as the original Complaint was filed more than four years ago and Plaintiff-Relators have had ample opportunity to prepare a pleading that meets Rule 9(b)'s particularity requirement.
Defendant Case moves to dismiss Plaintiff-Relators' Amended Complaint because: (1) Plaintiff-Relators failed to plead their allegations with the requisite particularity required by Federal Rule of Civil Procedure 9(b); (2) Plaintiff-Relators failed to identify a single example of a false statement or claim; (3) Plaintiff-Relators failed to adequately allege scienter; and (4) Plaintiff-Relators failed to adequately allege that the purported violations by Defendant Case were material to the Government's decision to pay a claim. Defendant Case also adopts the arguments of other Defendants that: (1) Plaintiff-Relators lack standing to pursue their non-intervened claims; (2) Plaintiff-Relators' claims are superseded by the Government's Complaint in Intervention; (3) Plaintiff-Relators' Amended Complaint does not meet the requirements of Federal Rules of Civil Procedure 9(b) and 12(b)(6); (4) Plaintiff-Relators' claims are prohibited by the public disclosure bar as they have not plausibly alleged that they are an "original source"; and (5) Plaintiff-Relators' claims are barred by the statute of limitations because the Amended Complaint does not relate back to the date the original Complaint was filed. As detailed above, the Court finds that Plaintiff-Relators have standing to pursue their non-intervened claim. For the reasons set forth below, the Court finds that Plaintiff-Relators' claims do not satisfy Rule 9(b)'s particularity requirement; accordingly, the Court need not reach Defendant's remaining arguments.
Defendant Case is named in only the Third Cause of Action, which alleges violations of the AKS. The Amended Complaint alleges that Defendant Case was the President of Sales for Defendant Labsource. ECF No. 124 at 7. The Amended Complaint alleges that Defendant Case directed Defendant Labsource to offer financial inducements, such as free Point of Care Testing ("POCT") urine collection cups, to healthcare providers in order to induce the providers to refer urine toxicology tests to Defendants Labsource and Oaktree. Id. at 12. "These POCT cups had a typical retail value of $3-$6 per cup, but the [healthcare provider] could bill private or governmental insurers several hundred dollars per sample for the instant-read tests." Id. The Amended Complaint also alleges that Defendant Case directed Defendant Labsource to routinely waive patient financial responsibility for privately insured patients to induce healthcare providers to refer urine specimens to Defendant Labsource. Id. at 13. The Amended Complaint then outlines various examples of healthcare providers that used this direct billing program. Id. at 12-14. Finally, the Amended Complaint states "[a]s a direct and proximate result of Defendant Oaktree's and Labsource's provision of unlawful remuneration and inducement to [healthcare providers] and beneficiaries at the direction of Defendants Case and/or Edwards, governmental payors paid millions of dollars to Defendants Oaktree and Labsource and for which Defendants Case and/or Edwards profited either directly or indirectly." Id. at 14-15.
While the Amended Complaint does outline the parameters of a direct billing program that Defendant Case sold to various healthcare providers, Plaintiff-Relators have not met the high burden of alleging with particularity that this scheme led to the submission of false claims to the Government. See Fed. R. Civ. P. 9(b). The Amended Complaint does not identify a specific example of a false claim that was submitted to the Government; therefore, to survive a motion to dismiss, Plaintiff-Relators' Amended Complaint must "allege a pattern of conduct that would `necessarily have led[ ] to submission of false claims' to the government for payment." Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457). The Court concludes that the Amended Complaint "fails to allege how . . . the bills for these fraudulent services were presented to the government and how . . . the government paid [Defendants] for the services." See id. at 198. "Merely alleging fraudulent conduct and an umbrella payment, without more, is insufficient particularity" where the Defendant is not the party directly submitting the claims to the Government. See id. The kickback scheme alleged by Plaintiff-Relators certainly could have resulted in the presentment of false claims to the Government, but the Amended Complaint falls short of alleging a scheme that necessarily resulted in the submission of false claims to the Government. Accordingly, Defendant Case's Motion to Dismiss, ECF No. 195, is GRANTED. The Court finds that amendment would be futile, as the original Complaint was filed more than four years ago and Plaintiff-Relators have had ample opportunity to prepare a pleading that meets Rule 9(b)'s particularity requirement.
Defendant Sheehan moves to dismiss Plaintiff-Relators' Amended Complaint because: (1) Plaintiff-Relators lack standing to pursue their non-intervened claims; (2) Plaintiff-Relators have failed to allege facts sufficient to state a claim for relief against Defendant Sheehan; and (3) Plaintiff-Relators have failed to allege their claims with the particularity required under Federal Rule of Civil Procedure 9(b). As stated above, the Court holds that Plaintiff-Relators have standing to pursue their non-intervened claims. Accordingly, the Court turns to Defendant Sheehan's arguments that Plaintiff-Relators' First and Fourth Causes of Action fail to allege facts with the particularity required by Rule 9(b) to state a claim for relief against Defendant Sheehan.
Defendant Sheehan claims that Plaintiff-Relators' First Cause of Action fails to allege facts with particularity that would establish that Defendant Sheehan knew his lab referrals caused the submission of false claims. Plaintiff-Relators' Amended Complaint alleges that Defendant Sheehan "knew, or reasonably should have known, that [his] acceptance and expectation of remuneration in exchange for [his] orders of [designated health services] was in violation of the Stark Law and the Anti-Kickback Statute." ECF No. 124 at 11. However, as set forth above, Plaintiff-Relators failed to allege that a single claim was presented to the Government for payment as a resulted of the broad scheme outlined by Plaintiff-Relators. Nor do Plaintiff-Relators provide factual allegations that lead to the conclusion that payments from the Government necessarily resulted from the conduct outlined in the Amended Complaint. In light of this, the Court concludes that there are not sufficiently particularized allegations that Defendant Sheehan, as a mere participant in the schemes, violated the FCA.
Defendant Sheehan also contends that Plaintiff-Relators' Fourth Cause of Action fails to allege facts with particularity that would establish that Defendant Sheehan caused the presentment of claims for medically unnecessary UDTs and that he knew such claims were false. As set forth above, Plaintiff-Relators failed to allege that a single claim was presented to the Government for payment as a resulted of the broad scheme outlined by Plaintiff-Relators. Nor do Plaintiff-Relators provide factual allegations that lead to the conclusion that payments from the Government necessarily resulted from the conduct outlined in the Amended Complaint. In light of this, the Court concludes that there are not sufficiently particularized allegations that Defendant Sheehan, as a mere participant in the schemes, violated the FCA.
Accordingly, Defendant Sheehan's Motion to Dismiss, ECF No. 241, is GRANTED. The Court finds that amendment would be futile, as the original Complaint was filed more than four years ago and Plaintiff-Relators have had ample opportunity to prepare a pleading that meets Rule 9(b)'s particularity requirement.
For the foregoing reasons, the Court rules as follows:
IT IS SO ORDERED.
