Filed: Apr. 12, 2013
Latest Update: Mar. 28, 2017
Summary: state of those facts as claimed by Calloway account executives.for billing.The Relator in this case specifically states in the, Amended Complaint that his allegations are based upon his, experience in the urine drug testing industry, not the, allegations in the California defamation action.
United States Court of Appeals
For the First Circuit
No. 12-1258
UNITED STATES EX REL. ESTATE OF ROBERT CUNNINGHAM,
Plaintiff, Appellant,
v.
MILLENNIUM LABORATORIES OF CALIFORNIA, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Howard and Thompson,
Circuit Judges.
John Roddy, with whom Elizabeth Ryan, Bailey & Glasser LLP,
Robert A. Griffith, Dana P. Petrillo, and Gargiulo/Rudnick, LLP,
was on brief for appellant.
Catherine E. Stetson, with whom Jessica L. Ellsworth, David M.
Ginn, and Hogan Lovells US LLP, were on brief for appellee.
April 12, 2013
TORRUELLA, Circuit Judge. This is an appeal from a
dismissal of a federal False Claims Act ("FCA") complaint on
grounds that it was jurisdictionally barred by the FCA's public
disclosure provision. The Appellant, the Estate of Robert
Cunningham ("Relator"),1 brought an FCA suit against Millennium
Laboratories of California ("Millennium") and John Doe physicians
(collectively, "Appellees"), alleging that Millennium encouraged
physicians to bill the government multiple times for single drug
tests and to perform excessive, medically unnecessary original and
confirmation tests.
Prior to the filing of said complaint, Millennium had
filed a suit against Relator's employer, Calloway Laboratories
("Calloway"), in California state court ("California suit"),
attaching e-mails from Calloway employees to third parties
suggesting fraudulent activity in Millennium's billing practices.
The district court found this prior disclosure to constitute a
jurisdictional bar to Relator's suit, dismissing his complaint.
This appeal followed.
Since we find error in the district court's dismissal of
all of Relator's claims when only some of them had been disclosed
by way of being substantially similar to the information contained
in Millennium's prior California suit, we affirm in part and vacate
1
Robert Cunningham passed away on December 5, 2010. After his
death, the Estate of Robert Cunningham was substituted as Relator.
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in part the district court's dismissal, remanding for the district
court's consideration of whether Relator's remaining FCA claim was
sufficiently pled under Fed. R. Civ. P. 12(b)(6) and 9(b).
I. Background
A. Factual Background
Jurisdiction is determined based on whether it existed at
the time the plaintiff filed the original complaint, Sallen v.
Corinthians Licenciamentos LTDA, 273 F.3d 14, 23 (1st Cir. 2001),
so we provide the factual background as alleged in Relator's
original complaint. Since we ultimately find that said facts were
integrated in Relator's amended complaint, we only distinguish
between the two complaints when there are noted differences as to
the language and count number of their respective allegations.2
2
While it is true that the original complaint contained four
separate FCA counts and the amended complaint contains only one,
the number of counts is not determinative of either the number of
FCA claims alleged or of the factual allegations underlying those
claims. Ordinarily, the issue of stating multiple claims in a
single count is dealt with as a "shotgun" pleading, or a pleading
that fails to identify claims with sufficient clarity to enable a
defendant to frame a responsive pleading. Under Fed. R. Civ. P.
10(b), a party must state "each claim founded on a separate
transaction or occurrence . . . in a separate count or defense" if
doing so would promote clarity. However, a pleading deficiency is
usually addressed by motion for a more definite statement pursuant
to Fed. R. Civ. P. 12(e), and unless none of the multiple claims
alleged in a single count assert a ground for subject matter
jurisdiction, the "shotgun" nature of the pleading on its own
cannot serve as a basis for granting a motion to dismiss pursuant
to Fed. R. Civ. P. 12(b)(1). See, e.g., Ledford v. Peeples,
605
F.3d 871, 892 (11th Cir. 2010), vacated on other grounds,
657 F.3d
1263 (11th Cir. 2011) ("When faced with a complaint [that lumps
multiple claims together in one count, and] in which the counts
incorporate by reference all previous allegations and counts, the
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As relevant here, Millennium developed a urine drug-
testing program for physicians to monitor the medications of
chronic pain patients and to assess patients' compliance with
prescribed medication regimes. The testing method begins as point-
of-care testing in a doctor's office and uses various chemically-
treated test strips ("units") inserted into a single cup filled
with the patient's urine ("specimen") (collectively, the "test
kit").
Robert Cunningham, now deceased, worked as a compliance
officer for Calloway, a competitor of Millennium's, in 2007 and
2008. It was during his employment at Calloway that Cunningham
learned of the allegedly improper billing practices at issue in his
qui tam complaint against Millennium and the unnamed physicians.
Cunningham labeled Millennium's alleged fraudulent practices,
collectively, as "Millennium's Physician Billing Model" in his
district court must cull through the allegations, identify the
claims, and, as to each claim identified, select the allegations
that appear to be germane to the claim. This task can be avoided
if the defendant moves the court for a more definite statement or
if the court, acting on its own initiative, orders a repleader.");
Kuehl v. FDIC, 8 F.3d 905, 908 (1st Cir. 1994) ("Our federal rules
promote the disposition of claims on the merits rather than on the
basis of technicalities, and courts should be reluctant to impose
a dismissal with prejudice for a rules violation that is neither
persistent nor vexatious, particularly without some review of the
merits.") (citing Foman v. Davis, 371 U.S. 178-181-82 (1962)).
Therefore, for the purposes of our review, we focus on the factual
allegations and the legal claims pled based on said allegations,
not the number of counts listed in the amended complaint.
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original complaint. The overall scheme is alleged to involve
different components, but as a general matter, is
designed to 1) encourage physicians to perform
and order medically excessive and unnecessary
testing, thereby significantly increasing the
revenues of the John Doe [physician]
defendants at the expense of the government
and private health insurance programs, and 2)
by increasing the John Doe [physician]
defendants' revenues, significantly increase
Millennium's revenues and market share,
enabling Millennium to profit from the billing
for reflex screenings and confirmations.
The complaint states that, unlike other laboratories "which profit
from the tests ordered by a physician with no payment to the
physician," Millennium's model allows a physician "to substantially
increase his or her revenue based upon the laboratory tests
ordered." The complaint then proceeds to break down the various
aspects of the larger scheme, which involves alleged fraudulent
activity related to multiple billing for single test kits,
excessive testing without medical necessity, and improper
confirmation testing.
First, Millennium is alleged to have billed multiple
times for the testing of a single test kit. Specifically, the
original complaint alleges that Millennium encouraged doctors "to
use a multi-class qualitative drug screen which uses a single
specimen, and to bill the government and private insurance programs
multiple units for the single testing event devices" ("Aspect 1").
Millennium then encouraged doctors "to improperly bill the
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government under CPT codes 80101, 80101QW, and/or other pathology
and laboratory codes," resulting in federal monies lost as a result
of "laboratory services which were not performed as claimed or were
inflated." Millennium did this by informing physicians that,
rather than bill one unit of 80101QW for each test kit, the
physician should bill "as many units as there are panels in the
test kit." (emphasis added). Further, Millennium gave physicians
a document, entitled "Gross Revenue by Insurance Category for
Multi-Clin 11 Panel Test Kit," which suggested that "each physician
can bill at least 9 units per kit," despite the fact that all nine
units are tested "in a single testing event." Relator alleges
fraud in that payment because use of CPT code 80101QW "would only
be proper if it was billed in one unit. . . . Rather, at
Millennium's encouragement and in conspiracy with Millennium, the
John Doe [physician] defendants . . . have billed Federal programs
and other health insurance programs multiple units of 80101QW per
patient per day."
Second, Relator claims that Millennium directed and
encouraged physicians to test excessively, more than was reasonable
or medically necessary ("Aspect 2"). Specifically, the original
complaint alleges that Millennium
represents to the physician that by simply
ordering one (1) test per day and billing
Medicare at the rate of $19.24 per panel for
nine (9) units, the physician can earn $173.18
per day . . . . Millennium also informs the
physician that if she or he were to order
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twenty (20) tests per day and bill Medicare at
the rate of $16.67 per panel for nine (9)
units, the earnings would be $3,463.20 per
day. . . .
Thus, as distinct from the first set of allegations, the second set
of allegations does not involve billing more than one time for a
single unit, but rather involves the unnecessary frequency with
which physicians were encouraged to use and bill entire test kits.
These allegations also include charges that Millennium informed
physicians that, if they were to order twenty tests per day, they
could earn $8,640.00 per day based on "the standard indemnity, auto
insurance, and [w]orkmen's compensation policies at the reasonable
and customary rate of $80.00 per panel for nine (9) units." These
amounts are also reflected in the "Gross Revenue by Insurance
Category for Multi-Clin 11 Panel Test Kit" document, which also
breaks down the potential revenues a physician can earn by ordering
between one and twenty tests per day. The complaint states that
Millennium thus "encourages the physician to order more testing
than that physician would have prior to engaging in Millennium's
point[-] of[-]care model, and increases Millennium's market share
by drawing other physicians to the practice with the hope and
promise of greater revenues." It further alleges that the
physician defendants did order "significantly more testing for
their patients since entering the conspiracy than they did prior to
participating in the conspiracy with Millennium. This would
include . . . the initial screens conducted by" the physician
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defendants. The alleged fraud consists of Millennium's promotion
of said billing model and physician defendants' misrepresentation
of "the medical necessity of the tests performed."
Third and finally, the complaint alleges fraudulent
activity related to confirmation testing of initial screen tests
("Aspect 3"). After performing an initial qualitative test,
physicians at the point of care may confirm the results of those
tests by another method. The complaint claims that Millennium
encouraged physicians to order more testing than they would have
otherwise not only with respect to the initial tests, but with the
confirmation tests as well. The fraud that the complaint alleges
is that Millennium "knowingly encouraged the [physician] defendants
. . . to misrepresent the medical necessity of confirmation
testing. Defendants knew that these practices and procedures
resulted in fraudulent claims to the federal government through the
Medicare, Medicaid, and other federally funded programs."3
Prior to the Relator's filing of the instant suit,
Millennium filed a complaint in its own right against Calloway and
unnamed John Does, inclusive, in the Superior Court of California,
alleging, inter alia, defamation and intentional interference with
3
The amended complaint states the same facts detailed above as to
Aspects 2 and 3, although it omits separate FCA counts charging
Millennium and the physician defendants with the underlying facts
pertaining to Aspects 2 and 3. The amended complaint does,
however, incorporate those facts by reference in the single FCA
count brought.
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contractual relations. Millennium's complaint alleged that two
Calloway account executives sent e-mails to individuals and a
Millennium customer describing Millennium's practice of billing
insurance companies and the government twice for the same service,
and claiming that that practice could put both Millennium and
physicians at risk of "potential legal exposure" or "potential
insurance fraud." Since the e-mails attached to the California
complaint were both the factual basis for the claims alleged in the
complaint, as well as basis for the district court's jurisdictional
determination regarding prior public disclosure, we will describe
the facts alleged therein in detail. We only list facts that are
relevant for the public disclosure bar as it governs Relator's
complaint.
The first e-mail attached to the California complaint is
from a Calloway account executive, Greg Williams, to Michael
Schatman, Ph.D., of Pacific Northwest University Health Sciences in
Yakima, Washington, and Marty Schultz. Williams expresses his
shock that their clinic chose a lab for services "that allow[] the
clinic to generate revenue by billing for the drug screens. There
is a very un-reputable lab going around, called Millennium, that is
offering this revenue generating scenario. I hope this is not the
lab you all have bought into." Williams goes on to describe the
"severe pitfalls" of the physician billing scheme utilized by
Millennium, stating that: (1) "there are . . . patients and
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insurances being billed twice for the same service"; and (2) the
"in-house screens that clinics are billing the 80101 code for
should be bundled, but clinics are 'un-bundling' each metabolite
screened for on the cup or test strip." Williams suggests that
these practices are unlawful, unethical, and the basis for an
office being audited.4
The second e-mail was also sent by a Calloway account
executive, Stephen Schur, but was sent to a Millennium customer.
Schur's e-mail consisted of a two-sentence introduction to an
attached question-and-answer information sheet ("Q & A Sheet I").
The introduction indicates that the attached sheet "should clear
things up" and invites further contact should the customer have any
questions. Q & A Sheet I in its own right appears to be a guide
drafted for physicians as a means to clarify the value of
Calloway's urine-testing services. The Sheet distinguishes between
Calloway's own model and the competing point-of-care "physician
screening model." It does not mention Millennium by name, but
states that "[s]ome laboratories" that promote the "physician
4
While Williams' e-mail mentions confirmation testing, it does
not do so in reference to Millennium. Rather, Williams
distinguishes Millennium's point-of-care drug screens from the kind
of testing that occurs at "confirmation labs like Calloway."
Williams argues that such confirmation labs "are becoming so
prevalent in the market place because the medical community
recognizes the only information of value in this day and age comes
from the results of a confirmed specimen." If anything, then,
Williams' e-mail, Exhibit A to Millennium's California complaint,
distances Millennium from direct involvement with any confirmation
tests.
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screening model" "are sure to attract the attention of regulatory
authorities" for unlawful billing practices. These include
"suggesting that a physician can bill multiple units of CPT Code
80101, sometimes with a 'QW' modifier, for qualitative tests
performed by a physician's office using one of a variety of drug
testing kits on the market." Q & A Sheet I then claims that the
Center for Medicare and Medicaid Services ("CMS") "does not
authorize the billing of multiple units of 80101; i.e. -- they are
considered a single test for billing." It further asserts that
state Medicaid manuals require that, "when a test kit with multiple
drug test cards is used, the provider should bill for a single
instance of 80101 with a 'QW' modifier, not multiple." Secondly,
the Q & A Sheet provides the following question and answer about
confirmation testing by labs promoting the "physician screening
model":
The lab promoting the "Physician Screening
Model" does confirmation testing so at least
the issue of detecting specific drugs within a
drug class is handled. Right?
Possibly. It appears some of these labs are
performing and billing for so-called
"confirming EIA analysis." This is considered
double-billing by CMS because your Point-of-
Care-Testing is also "EIA" (Enzyme
Immunoassay) testing and regulations
specifically prohibit one EIA test confirming
another EIA test. The physician needs to
order only confirmation tests performed by
GC/MS or LC/MS/MS.
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The third e-mail attached to the California complaint was
also sent by Stephen Schur to Teresa Tinc of Pain Diagnosis, and
contained another Q & A Sheet ("Q & A Sheet II"). The body of
Schur's e-mail described the attached Q & A Sheet more fully,
identifying the information contained therein as "info that is
pertinent to a physician billing model like Millennium's. . . . a
model that is potentially fraudulent." The first question on Q &
A Sheet II involves whether a physician who "perform[s] a drug
screen with a Point-of-Care device" may "bill the patient's
insurance for drug screening." The response states that, while
"[s]ome laboratories promote a 'Physician Screening Model'
suggesting that a physician can bill multiple units of CPT Code
80101, sometimes with a 'QW' modifier . . . . This is incorrect and
possibly abusive." It states the same reasons for challenging the
practice as stated in Q & A Sheet I -- CMS not authorizing the
billing of multiple units when they should be considered as a
single test and also referencing state Medicaid manuals prohibiting
the practice. Q & A Sheet II also copies exactly the language of
Q & A Sheet I regarding confirmation testing under the "Physician
Screening Model" described therein.
B. Procedural History
Cunningham filed his original complaint in this action
five days after Millennium filed the California suit, on
December 29, 2009. On February 25, 2011, his Estate filed an
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amended complaint. Millennium moved to dismiss that complaint on
three grounds: the FCA's public disclosure bar deprived the court
of subject matter jurisdiction; in the alternative, Relator failed
to state a claim upon which relief could be granted under Fed. R.
Civ. P. 12(b)(6); and, lastly, he failed to plead fraud with the
requisite particularity under Fed. R. Civ. P. 9(b).
The district court granted Millennium's motion,
dismissing Relator's complaint with prejudice on grounds that it
lacked subject matter jurisdiction under the FCA's public
disclosure bar.
II. Discussion
A. The FCA's Public Disclosure Bar
In challenging the district court's dismissal order,
Relator argues that the court erred when it found that Millennium's
California complaint had publicly disclosed all of the allegations
made in Relator's own complaint. Even if the multiple billing
allegations described as Aspect 1 were disclosed in the California
suit, Relator claims, Millennium's complaint did not state facts
relating to Aspects 2 and 3 of the fraudulent billing practices
that Relator's complaint exposes, namely, excessive testing and
excessive confirmation testing of negative results.
Further, Relator contends that mere rumors of improper
billing stated in Calloway's account executives' e-mails are
insufficient to constitute a "public disclosure" of Millennium's
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fraudulent conduct and it does not put the government on notice of
fraud as required under the statute and this Circuit's case law.
What is exposed, Relator claims, is a sanitized, innocuous version
of Millennium's business model, not the details of the fraudulent
conduct. Relator also asserts that the allegations in his
complaint were not "based upon" Millennium's California complaint
since: (1) Aspects 2 and 3 are only discussed in Relator's
complaint and are not mentioned in the California complaint; and
(2) Relator did not learn of the multiple billing fraud of Aspect
1 from the California complaint. Relator argues in the alternative
that, if the court finds that the information contained in the
instant complaint was publicly disclosed in the California suit,
the court should assert jurisdiction under the "original source"
exception as Cunningham was an original source who acquired all of
his information through his own investigation, without an
intervening agency.
Finally, Relator states that it was error for the
district court to dismiss the complaint with prejudice, without
granting leave to amend, because the dismissal was based on a
"mistakenly abridged reading" of the complaint, and on remand,
Relator should be allowed to file a second amended complaint given
the "well-known, liberal standards for amendment." Upon amendment,
Relator promises to provide more of Millennium's marketing
materials, e-mails, and laboratory testing forms demonstrating
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Millennium's intent that physicians profit from billing for a
multiplicity of results derived from a single urine test, and that
Millennium and the defendant physicians both profit from performing
as many tests as possible regardless of medical necessity, in
violation of the FCA.
This Court reviews de novo the district court's dismissal
of a complaint for lack of subject matter jurisdiction. Abdel-
Aleem v. OPK Biotech LLC, 665 F.3d 38, 41 (1st Cir. 2012).
Jurisdiction is determined based on whether it existed at the time
the plaintiff filed the original complaint. Sallen, 273 F.3d at
23.
Pursuant to the FCA, 31 U.S.C. § 3730(e)(4)(A) (2006),
[n]o court shall have jurisdiction over an
action . . . based upon the public disclosure
of allegations or transactions in a . . .
civil . . . hearing . . . , unless the action
is brought by the Attorney General or the
person bringing the action is an original
source of the information.5
For the public disclosure bar to apply, each of three elements must
be met: (1) a public disclosure of the allegations or transactions
in a relator's complaint must have occurred; (2) said disclosure
must have occurred in the manner which is specified in the FCA; and
5
In 2010, Congress amended the public disclosure provision of the
FCA and explicitly narrowed the jurisdictional bar to disclosures
in federal rather than federal and state cases or hearings. 31
U.S.C. § 3730(e)(4)(A) (2010). Since Relator's complaint was filed
prior to amendment, his complaint could be properly barred on the
basis of a public disclosure of information in a state court
proceeding.
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(3) the relator's suit must be "based upon" those publicly
disclosed allegations or transactions. United States, ex rel.
Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 21 (1st Cir.
2009) (quotations and citation omitted). If those elements have
been met, then a court may only exercise jurisdiction over the suit
if the relator falls within the "original source" exception. Id.
A prior public disclosure may occur through any public
document available on the docket in a civil hearing. See United
States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 111 (1st
Cir. 2010). To be a disclosure "of fraud," a disclosure must
either contain a direct allegation of fraud or allow for a proper
inference of fraud by revealing a misrepresented state of facts in
conjunction with a true state of facts. Id. at 110. In assessing
whether a given later-filed suit is "based upon" publicly disclosed
allegations, we look to whether those allegations are
"substantially similar" to said allegations. United States ex rel.
Ondis v. City of Woonsocket,
587 F.3d 49, 57 (1st Cir. 2009). We
do this by comparing the substance of the prior disclosures with
the substance of a relator's complaint. Poteet, 619 F.3d at 114.
As a preliminary matter, we must address the issue of
which complaint -- Relator's original or amended complaint -- we
are comparing to Millennium's California complaint for the purposes
of the public disclosure bar. The record is not entirely clear
which complaint was reviewed below for the purposes of the public
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disclosure bar. The district court first cited to the proper rule
-- that a court must determine whether it has subject matter
jurisdiction over an action based on the original complaint filed
-- but then only considered its subject matter jurisdiction over
the allegations made in Count One of the original complaint,
summarily stating in footnote 59 that, since Relator's other three
counts "do not appear in the First Amended Complaint," they "thus
have no bearing on this motion to dismiss." The district court
then went on to say that, even if the additional three claims were
not barred by the public disclosure bar, "they do not provide
Relator with the ability to amend the complaint to include a claim
that was jurisdictionally barred at the time Cunningham filed the
original Complaint." After making this statement in a footnote,
the district court did not analyze whether the claims made in the
three separate counts in the original complaint were either: (1)
integrated into the amended complaint in its factual section or
under the single FCA count; or (2) barred by the FCA's public
disclosure provision as a result of having been disclosed in
Millennium's California suit.
The district court erred in the first instance when it
did not consider all FCA counts of the original complaint in
determining whether or not said complaint was jurisdictionally
barred by prior public disclosure. It also erred when it failed to
meticulously compare Relator's allegations in both the original and
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amended complaint regarding excessive and confirmatory testing with
the information contained in Millennium's California complaint and
attached e-mails. Specifically, in reciting the relevant
"substantially similar" facts shared by Millennium's California
complaint and Relator's complaint, the district court only cited to
the California complaint's attached e-mails detailing the multiple
billing fraudulent scheme, or, as the district court described the
scheme, "a plan that billed insurance agencies and the federal
government multiple times for the same test." A detailed
comparison, however, reveals that, while the district court was
correct that Millennium's California complaint discussed the
purportedly fraudulent activity associated with Millennium's
multiple billing practices, it failed to assess whether Relator's
excessive and confirmatory testing allegations contained in Counts
2 and 3 of the original complaint, and retained in paragraphs 1, 5,
16, 18, 22 and 23 of the amended complaint, were also disclosed in
the California suit. Therefore, while we agree with the district
court that Aspect 1 of Relator's fraud allegations was disclosed in
the California suit, we must also address the prior disclosure of
Aspects 2 and 3 as alleged in the original complaint and retained
in the amended complaint. Perusing both Relator's complaints and
the California complaint, we find that Aspect 3 of Relator's FCA
allegations was also disclosed in the California suit, but Aspect
2 was not.
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1. Aspects 1 and 3 of the Alleged Scheme
We first discuss the multiple billing allegations and our
reasons for affirming the district court's dismissal of the
Relator's complaint as barred by the FCA's public disclosure
provision. Relator appears to concede that the multiple billing
scheme alleged as Aspect 1 of its FCA claim was disclosed in the
California complaint, stating that that complaint was "limited to
th[e] discrete issue of multiple billing," and the district court's
holding in dismissing the complaint was "wrong because the
California Complaint is devoid of the other two aspects of the
fraud -- excessively frequent testing, and the automatic
confirmation of negative results." (emphasis added). However, for
the sake of thoroughness, we briefly review the reasons the public
disclosure bar applies to Aspect 1 as alleged in Relator's
complaint.
Relator is incorrect and misguided in suggesting that
Aspect 1 was not "publicly disclosed" in the California suit "as
fraud" because the allegations made in that case consisted of "mere
rumors." Since Relator does not contest that a disclosure of
information on a civil docket may constitute "public disclosure"
for the purposes of the FCA, we construe Relator's challenge to be
directed at the extent to which Millennium's complaint made a
direct or properly inferrable public disclosure of fraud. Yet, the
California complaint and attached e-mails could not have been more
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explicit that the information the Calloway account executives were
spreading about Millennium's billing practices concerned
allegations that they involved and encouraged unlawful and
unethical misrepresentations to the government and private insurers
about billing for multiple tests when in fact only a single unit
was tested. As cited supra, in the first e-mail attached, Williams
states the following about Millennium's billing practices:
First, there are the patients and insurances
being billed twice for the same service.
Medicaid and Medicare frown upon being billed
twice for the same thing. . . . Second, these
in-house screens that clinic are billing the
80101 code for should be bundled, but clinic
are "un-bundling" each metabolite screened for
on the cup or test strip and again Medicaid
and Medicare frowns upon that.
The third e-mail attached to the California complaint states that
"participating in any plan to increase revenues by billing
excessive or incorrect codes violates a number of federal and state
statutes," and that Millennium's billing model involving billing
for each test strip rather than the single testing event puts
physicians "at risk for potential insurance fraud."
Even assuming these statements did not constitute direct
allegations of fraud, the e-mails compare Millennium's version of
the facts associated with its billing practices6 with the "true"
state of those facts as claimed by Calloway account executives.
6
Relator concedes as much in his opening brief in stating that
"the California Complaint artfully describes only those aspects of
Millennium's billing practices that are arguably legitimate."
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Specifically, the e-mails say that, while Millennium represents
that "physicians can bill multiple units of 80101 . . . for
qualitative tests[,] . . . [CMS] does not authorize the billing of
multiple units of 80101: i.e.--they are considered a single test
for billing." Therefore, the district court did not err in finding
that the disclosure constituted a disclosure of fraud.
While we share Relator's concern that a person or entity
committing fraud against the government could theoretically shield
itself from a qui tam action through preemptively filing its own
action, thus creating a sanitized public disclosure while barring
a future whistleblower action, the Supreme Court has been clear
that self-disclosure can bar such suit under the FCA, and it has
further characterized concerns about insulation from FCA liability
as unwarranted in most cases. Schindler Elevator Corp. v. United
States ex rel. Kirk, 131 S. Ct. 1885, 1895 (2011) (dismissing as
"pure speculation" concerns that potential defendants may insulate
themselves from FCA liability by making FOIA requests); Graham
Cnty. Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 130 S. Ct. 1396, 1410 (2010) (stating that careful
disclosure of potential fraud would not immunize a fraudulent actor
"from FCA liability in an action brought by the United States"
because it still tips off the Attorney General; furthermore,
Congress "carefully preserved the rights of the most deserving qui
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tam plaintiffs: those whistle-blowers who qualify as original
sources") (quotations and citations omitted).
Finally, Relator is incorrect in suggesting that his suit
is not "based upon" the allegations contained in the California
suit as to Aspect 1. Relator misconstrues what this court has
understood the terms "based upon" to mean in the context of FCA
liability. We do not, as Relator suggests, determine whether
information in a subsequently filed action is "based upon" a prior
filing in terms of whether the former is "parasitic" to the latter.
Rather, we compare the respective substance of the prior
disclosures with a relator's complaint and determine if they are
"substantially similar." Ondis, 587 F.3d at 57. As just
discussed, the allegations in both suits detail a scheme involving
multiple billing or individual billing for the "unbundled"
components for a single test under CPT codes 80101 and 80101QW. We
thus find that, as to Aspect 1, the district court was not
incorrect in finding that all requirements of the public disclosure
bar were met, and it properly found that it lacked subject matter
jurisdiction as to Relator's FCA claim based on the Aspect 1
allegations.
Relator's FCA claim based on its allegations as to Aspect
3 of Millennium's purportedly fraudulent scheme is also barred
since Aspect 3 was both publicly disclosed and was "substantially
similar" to information provided in Millennium's California suit.
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The facts alleged pertaining to Millennium's confirmation testing
scheme in Relator's complaint were as follows: (1) since the start
of the company in 2007, Millennium used and promoted the Physician
Billing Model designed to, inter alia, "increase [the physician]
defendants' revenues, [and] significantly increase Millennium's
revenues and market share, enabling Millennium to profit from the
billing for . . . confirmations"; (2) the physician defendants
ordered "significantly more testing for their patients since
entering the conspiracy than they did prior to participating in the
conspiracy with Millennium," and this included "confirmatory tests
ordered by the [physician] defendants"; and (3) in conspiracy with
the physician defendants, Millennium "knowingly encouraged" them
"to misrepresent the medical necessity of confirmation testing."7
The California complaint states that Millennium's
business strategy included physicians sending drug tests and
results "to an independent laboratory, such as Millennium, for
confirmation testing and additional testing for drugs not tested
with the point[-]of[-] care device," and further states that "the
laboratory only bills for any confirmation tests and additional
testing that is necessary." This statement in Millennium's
complaint is counterposed with statements made in Calloway account
executives' e-mails regarding confirmation testing and billing. As
7
The original and amended complaints state the same facts as
pertaining to Aspect 3.
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cited supra, Calloway account executives forwarded Q & A Sheets
warning of the potential fraud surrounding billing for confirmation
tests. Specifically, they warned that billing practices like
Millennium's may be "considered double-billing by CMS because your
Point-of-Care-Testing is also 'EIA' (Enzyme Immunoassay) testing
and regulations specifically prohibit one EIA test confirming
another EIA test. The physician needs to order only confirmation
tests performed by GC/MS or LC/MS/MS."
Thus, the allegations in Relator's complaint and the
California suit both concern fraudulent billing of confirmation
tests when such tests were purportedly unnecessary, and they
further link that practice with Millennium's billing model which
benefits Millennium and the physician defendants. Since these
allegations are "substantially similar," Relator's FCA claim as
based in Aspect 3 of Millennium's fraudulent scheme is
jurisdictionally barred.
Further, the claims arising from Aspects 1 and 3 in
Relator's complaint cannot be saved by Relator's belated assertion
that he was the "original source" of the information concerning
Millennium's alleged fraud. An "original source," as defined by
statute at the time Relator's original complaint was filed, is "an
individual who has direct and independent knowledge of the
information on which the allegations are based and has voluntarily
provided the information to the Government before filing an action
-24-
under this section which is based on the information." 31 U.S.C.
§ 3730(e)(4)(B) (2009).
Knowledge is "direct" if it is as "marked by absence of
an intervening agency, instrumentality, or influence: immediate."
Ondis, 587 F.3d at 59 (citation omitted). Knowledge is not direct
if it is "based on research into public records, review of publicly
disclosed materials, or some combination of these techniques." Id.
Knowledge is "independent" if it did not depend on the public
disclosure or if it merely constitutes a use of an individual's
"unique expertise or training to conclude that the material
elements already in the public domain constitute a false claim."
Id. at 59-60. The relator as the proponent of federal jurisdiction
bears the burden of proving its existence by a preponderance of the
evidence. Id. at 54.
Relator raises his original source argument for the first
time on appeal. He contends that he had direct and independent
knowledge of the information at issue because he undertook an
independent investigation into Millennium's activities by reviewing
Millennium's Physician Billing Model and other documents as well as
speaking to a number of people about Millennium's practices during
his tenure at Calloway. Specifically, he claims that he reviewed
"complaints from the sales force, interviews with lead industry
personnel, actions he observed, documents he obtained, and
information he gleaned independently." Relator further claims that
-25-
even information he gleaned from public sources, including the
California complaint, should be exempted from the public disclosure
bar because he "discovered and synthesized that information."
However, because Relator never raised his original source
argument before the district court, it is waived. Warren
Freedenfeld Assocs. v. McTigue, 531 F.3d 38, 48 (1st Cir. 2008)
("If any principle is settled in this circuit, it is that, absent
the most extraordinary circumstances, legal theories not raised
squarely in the lower court cannot be broached for the first time
on appeal.") (quoting Teamsters, Chauffeurs, Warehousemen and
Helpers Union, Local No. 59 v. Superline Transp. Co. et al., 953
F.2d 17, 21 (1st Cir. 1992)).8 In any event, while Relator claims
8
In Relator's reply brief on appeal, he argues that he raised the
original source argument in his sur-reply to Millennium's motion to
dismiss before the district court. However, the cited page numbers
of the sur-reply brief only include Relator's argument that his
case was not "based upon" the allegations contained in Millennium's
California complaint. Original source doctrine is in fact
referenced, but only in Relator's explication of the arguments
raised in United States ex rel. Hutcheson v. Blackstone Med., Inc.,
694 F. Supp. 2d 48, 59 (1st Cir. 2010), not in relation to his own
case. Instead of arguing that the original source exception
applied to retain subject matter jurisdiction, Relator claimed that
one of the elements required for the public disclosure bar to apply
-- the requirement that the allegations be "based upon" the prior
disclosure -- was not met in his case:
The Relator in this case specifically states in the
Amended Complaint that his allegations are based upon his
experience in the urine drug testing industry, not the
allegations in the California defamation action. . . .
Here, Plaintiff/Relator's suit is most certainly not
derived from Defendant's California Complaint. Under the
Hutcheson I & II analysis, which is currently the law
within the First Circuit, the Amended Complaint cannot be
-26-
in a conclusory manner that he conducted an independent
investigation of Millennium's fraudulent practices, he fails to
show how the knowledge he obtained was "direct." Specifically, the
sources he lists for obtaining the information -- Calloway's sales
force and lead industry personnel -- are third parties, and Relator
makes no argument to meet his burden in showing that the
information gleaned from those sources is "marked by the absence of
an intervening agency, instrumentality, or influence." See Ondis,
587 F.3d 59. Further, our case law is clear that "[k]nowledge that
is based on research into public records, review of publicly
disclosed materials, or some combination of these techniques is not
direct." Id. To the extent that Relator asks this court to join
other circuits in holding that discovery and synthesis of
information from different public sources during the course of an
independent investigation can result in original sourcing, we
'based upon' the California Complaint. Jurisdiction
exists over this case under the 1986 version of the FCA,
and Defendant's Motion to Dismiss must be denied.
While it appears that Relator may have confused the "based upon"
analysis with some aspects of the original source doctrine, it
nevertheless remains true that Relator never presented to the
district court briefing, argumentation, or allegations to support
his claims that he was an original source of information on
Millennium's fraudulent billing scheme, and thus the district court
was never able to evaluate what the basis for such an exception to
the public disclosure bar could consist of in this case. This was
also the district court's own understanding in its memorandum
dismissing Relator's complaint: "[t]he Relator does not even
attempt to argue that it fits into the original source exception to
the bar."
-27-
decline to do so. This, because of the scant and vague evidentiary
basis upon which Relator makes his claims both as to Aspects 1 and
3 of the alleged fraud and as to the nature of his purported
"independent investigation" beyond interviews with Calloway's sales
force and leading industry personnel. See, e.g., Kennard v.
Comstock Resources, Inc., 363 F.3d 1039 (10th Cir. 2004); United
States v. Bank of Farmington,
166 F.3d 853, 864 (7th Cir. 1999);
United States ex rel. Barajas v. Northrop Corp.,
5 F.3d 407, 410
(9th Cir. 1993); see also United States ex rel. Yannacopolous v.
Gen. Dynamics,
315 F. Supp. 2d 939, 953-54 (N.D. Ill. 2004).
Finally, we review a district court's denial of leave to
amend a complaint for abuse of discretion. Aponte-Torres v.
University of Puerto Rico, 445 F.3d 50, 58 (1st Cir. 2006). There
was no such abuse here with respect to denying Relator leave to
amend his complaint as to Aspects 1 and 3. Assuming Relator's
request in his sur-reply brief and at oral argument constituted a
"sufficient request" to amend pursuant to Fed. R. Civ. P. 15(a),
see Rost, 507 F.3d at 734, our comparison of the information
disclosed in Relator's complaint and Millennium's California
complaint, and Relator's failure to indicate any additional facts
in its briefing as to Aspects 1 and 3 beyond the information
disclosed in the California complaint, leaves us to conclude that
the jurisdictional defect with respect to those FCA claims is
incurable.
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We thus affirm the district court's dismissal with
prejudice of Relator's complaint as to the FCA claim based on
Aspect 1 of Millennium's purported fraudulent scheme. Aspect 3 of
that scheme is also jurisdictionally barred.
2. Aspect 2 of the Fraudulent Scheme
As stated supra, Relator's complaint alleges that one
component of Millennium's fraudulent billing scheme included
directing and encouraging the physician defendants to test
excessively in a manner that was not medically necessary,
represent[ing] to the physician that by simply
ordering one (1) test per day and billing
Medicare at the rate of $19.24 per panel for
nine (9) units, the physician can earn $173.18
per day . . . . Millennium also informs the
physician that if she or her were to order
twenty (20) tests per day and bill Medicare at
the rate of $16.67 per panel for nine (9)
unites, the earnings would be $3,463.20 per
day. . . .
The allegations thus involve testing patients with an unnecessary
frequency while incentivizing that testing through providing
revenue sheets that break down the gross revenues a physician could
earn by ordering multiple tests rather than one test per day.
Neither Millennium's California complaint nor the e-mails
attached thereto mention this kind of excessively frequent testing
as part of Millennium's fraudulent scheme. The first e-mail from
Williams only references allegations pertaining to Aspect 1 of
Relator's complaint, and the other two e-mails and attached Q & A
-29-
Sheets reference facts pertaining only to Aspects 1 and 3 of
Millennium's billing practices.
However, while Relator's factual allegations pertaining
to Aspect 2 of Millennium's model may not be subject to the FCA's
public disclosure bar, Relator must still sufficiently plead the
fraud associated with those allegations to survive dismissal under
Fed. R. Civ. P. 12(b)(6) and 9(b). While Millennium's motion to
dismiss Relator's complaint included alternative grounds to dismiss
the complaint pursuant to Rules 12(b)(6) and 9(b), the district
court never reached those questions since it dismissed the
complaint on jurisdictional grounds. The parties did not fully
brief those issues on appeal.9 For deficiencies under Fed. R. Civ.
P. 9(b), leave to amend is often given, at least for plausible
claims. N. Am. Catholic Educ. Programming Found., Inc. v.
Cardinale, 567 F.3d 8, 16 (1st Cir. 2009). Accordingly, we vacate
the order dismissing Relator's complaint as to Relator's Aspect 2
allegations and remand to allow the district court to consider
whether Relator's complaint should be dismissed under Rules
12(b)(6) and 9(b). Singleton v. Wulff,
428 U.S. 106, 120 (1976)
9
Millennium mentions pleading deficiencies as to Relator's
allegations of medically unnecessary testing under Rule 9(b) in its
opposition brief, but that argument was cursorily incorporated into
its broader argument that Relator's amended complaint only alleged
a single theory of fraud in the FCA count that remained following
amendment from the original complaint. Relator, for his part,
limited his briefing to the district court's jurisdictional grounds
for dismissing his complaint.
-30-
("It is a general rule . . . that a federal appellate court does
not consider an issue not passed upon below.").
III. Conclusion
We conclude that the district court did not err in
dismissing Relator's complaint as jurisdictionally barred as to
Aspects 1 and 3 of Millennium's alleged fraudulent scheme, and we
therefore affirm dismissal as to those claims. However, we vacate
the district court's order dismissing with prejudice Aspect 2 of
Relator's FCA claim, remanding said claim to the district court for
its consideration of whether Relator alleged sufficient facts to
survive dismissal under Fed. R. Civ. P. 12(b)(6) and 9(b). The
district court may award Plaintiff-Appellant the costs of the
appeal in the event that Plaintiff-Appellant ultimately prevails on
the merits of the remaining FCA claim. Plaintiff-Appellant may
then seek costs taxed in the district court under Fed. R. App. P.
39(e). See, e.g., L-3 Communs. Corp. v. OSI Sys., 607 F.3d 24 (2d
Cir. 2010).
Affirmed in Part, Vacated in Part, and Remanded.
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