Stark Law • Anti-Kickback Statute • False Claims Act • Qui Tam                                                          Co...
under Federal Rule of Civil Procedure 12(b)(1). United States ex rel. Batiste v. SLM Corp., 740 F. Supp. 2d 98, 101-02 (D....
permits in camera submissions, it necessarily invests a district court with authority to either maintain such filings unde...
Compass Medical, P.C. (Compass), brought this action under the federal False Claims Act (FCA), 31 U.S.C.§ 3729 (a)(1)-(2)....
Opinion Excerpts: “In Herrera, the Eastern District of Michigan determined that the plaintiff-relators "fear ofemployment-...
which was procured by fraud, even in the absence of evidence that the claims were fraudulent in themselves."); United Stat...
Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam               Federal Case Report Newsletter. December, 2011...
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December 3 Newsletter

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December 3 Newsletter

  1. 1. Stark Law • Anti-Kickback Statute • False Claims Act • Qui Tam Co Martin Me Newsletter Covering United States Court Opinions December 2011 This Month: By: MartinMerritt PLLC • “First to File” Rules Health Law and Litigation • Sealing/Unsealing • Iqbal and Rule 9(b) 100 Crescent Court • Fraud in the Inducement Suite 700 Dallas, Texas 75201 • Financial Ruin 214.459.3131 214.459.3101 (Fax) martin@dallasphysicianlaw.com www.dallasphysicianlaw.com Not Board Certified by the Texas Board of Legal Specialization UNITED STATES OF AMERICA, EX REL. SHELDON BATISTE, Appellant, v. SLM CORPORATION, Appellee. No. 10-7140. United States Court of Appeals, District of Columbia Circuit. Argued September 16, 2011. Decided November 4, 2011.[Martin Merritt’s Notes: This is a fascinating “First to File” case in which the relator blew the whistle against the defendant,alleging dirty tricks in student loan financing which increased the bank’s return on loans at the government’s expense. The casehad previously been filed by a different relator, but dismissed under rule 12.b.1. Often, court’s refer to the effect of a nonsuit ora dismissal without prejudice as placing the parties in the same position as if the case had never been filed. This result is all themore satisfying where dismissal is for want of subject matter jurisdiction under Rule 12 b.1. Clearly, a judgment where thecourt lacked jurisdiction is void. Quaintly put, a void judgment is “good nowhere and bad everywhere.” This is all fine andgood, unless the case arises under the False Claims Act, where the “first to file” rule is a bar to any of the remaining 7 billionpeople on the planet from filing the same case. What is the effect of filing an FCA case, where the court lacked jurisdiction tohear it? Here, the Court of Appeals affirmed dismissal on the ground that this whistle had previously been blown, even thoughthe first case was dismissed on jurisdictional grounds. Also, the court declined to accept the relator’s interesting argument thatbecause the first complaint failed to meet Rule 9s heightened pleading standard, the first complaint should not count as the“first to file.” In other words, even a poorly filed and prosecuted Complaint– in a court that did not have jurisdiction to hear it,nevertheless meets the “first to file rule.” ]Opinion Excerpts: On November 9, 2005, over two years before Relator Batiste filed his complaint, Michael Zahara filed a quitam case against, inter alia, SLM and his employer, Student Assistance Corporation ("SAC"), a wholly-owned SLM subsidiary.The district court dismissed Batistes complaint with prejudice on September 24, 2010, for lack of subject matter jurisdiction Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 1
  2. 2. under Federal Rule of Civil Procedure 12(b)(1). United States ex rel. Batiste v. SLM Corp., 740 F. Supp. 2d 98, 101-02 (D.D.C.2010). The court held that under the FCAs first-to-file rule, the Zahara Complaint barred the courts consideration of the BatisteComplaint. The first-to-file rule provides, "When a person brings an action under [the qui tam] subsection, no person other thanthe Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. §3730(b)(5). The district court found that the Batiste Complaint alleged the "same material elements" of fraud as the ZaharaComplaint, and thus was barred by the earlier-filed complaint. Batiste, 740 F. Supp. 2d. at 102. The district court rejectedBatistes argument that the Zahara case was not a "pending action" for first-to-file purposes because the Zahara Complaint did notmeet heightened pleading standards for fraud allegations under Federal Rule of Civil Procedure 9(b). Id. at 104. [We arffirm.] UNITED STATES OF AMERICA ex rel. TOM JACKSON, Plaintiff/RELATOR, v. NICK PASLIDIS; DONNA SOODALTER-TOMAN; and ARKANSAS FOUNDATION FOR MEDICAL CARE, Defendants. No. 4:09CV00812 JLH. United States District Court, E.D. Arkansas, Helena Division. November 14, 2011.[Martin Merritt’s Notes: Here, the court discusses the issue of what must be unsealed once the government decides it will notintervene in a qui tam action. Clearly the Complaint must be unsealed under 31 U.S.C. § 3730(b)(3), but what of the remainingdocuments on file? At first blush it would seem natural that anything filed with a United States District court should be madepublic. The “ghost in the machine,” to borrow a phrase from Gilbert Ryle, lies in the fact that the government always seeks bymotion, to show good cause for an extension of the 60 day period provided for it to decide whether to intervene, and must haveinformed the court of the details of its investigation and what else it needs to do before reaching a decision on intervention. Ourgovernment is nothing, if not consistent in its desire to keep its investigation under wraps. The government especially does notlike leaving a paper trail when it declines to intervene, as it will not be around to defend questions as to its methods. Moreimportantly, the government does not want to be on record, nor questioned in a subsequent, possibly unrelated case, why it didnot investigate something the government had previously advised the court it must investigate before filing an FCA intervention.It’s simply a bear trap. While the statute is silent on the issue, court’s typically evaluate the legitimacy of the government’sclaim to work product-type privileges, balanced against the public’s right to know what the Plaintiff has filed with the court.Notice also that the unsealing issue occurs prior to the service of the case on the Defendant. Opinions of this type often reflectthat the court is acting on behalf of the public without motion by the defendant. ]Opinion Excerpts: The United States having declined to intervene, the Complaint will be unsealed so that it may served uponthe Defendants by the Relators, as contemplated by 31 U.S.C. § 3730(b)(3).An additional issue exists with regard to whether all other documents filed in this case to date should remain under seal. TheGovernment has tendered a proposed Order, the terms of which state that only the Complaint will be unsealed and specificallyrequire that all other documents filed in the case to date shall remain under seal. Such an approach appears to conflict with thisCourts customary practice, which requires a showing of good cause to justify the sealing of documents or materials filed infederal court. That cause was made for the United States initially by operation of the False Claims Act. But, at the point at whichthe United States declined to intervene, thereby triggering the unsealing of the Complaint and the prosecution of the action by theRelators, the question arises as to whether good cause remains for continuing to keep such documents under seal. Because thisissue raises important policy concerns, the Court raises the issue sua sponte.While the False Claims Act makes explicit reference to the lifting of the seal on the relators complaint, it is silent on the issue ofthe unsealing of any other documents in the case. Other courts to consider the issue have found that because the False Claims Act Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 2
  3. 3. permits in camera submissions, it necessarily invests a district court with authority to either maintain such filings under seal or tomake them available to the parties. U.S. ex rel. Erickson v. Univ. of Washington Physicians, et al., 339 F.Supp.2d 1124, 1126(W.D. Wash. 2004)(hereinafter, "the Erickson case")(citing cases). This Court agrees.The Court also finds appropriate the approach utilized in the Erickson case for evaluating the governments request to continue tomaintain documents under seal after it declines to intervene. By analogy to Fed. R. Civ. P. 26(c), which authorizes protectiveorders to protect against the disclosure of "a trade secret or other confidential research, development, or commercialinformation," the Erickson court described the appropriate analysis: Resolution of disputes under Rule 26(c) is based on a pragmatic balancing of the need for and harm risked by, disclosures sought. Where disclosure of confidential investigative techniques, of information which could jeopardize an ongoing investigation, or of matter which could injure non-parties is requested, courts have recognized the interest of the public in denying or deferring disclosure.Erickson, 339 F.Supp.2d at 1126.The Erickson court suggested that documents merely describing the governments routine investigative procedures should notremain under seal. In making the decision to unseal the entire court file, the court concluded: This court is satisfied that nothing in the documents in this court file would reveal any sensitive information as to how an investigation works. The documents contain no information that could compromise a future investigation, such as explanations of specific techniques employed or specific references to ongoing investigations.[O]nce the government has decided it will not intervene, it should not be able to handicap the relators action by keepingmaterials under seal without some showing of good cause or ample justification." U.S. by Dept. of Defense v. CACI Inten. Inc.,885 F.Supp. 80, 82 (S.D.N.Y. 1995). Independently of whether a relators action will be handicapped, courts have a duty toensure that all documents filed with the Court remain available and accessible to the public unless good cause exists forrestricting access. That duty arises from the "common-law right of access to judicial records." Nixon v. Warner Communications,Inc., 435 U.S. 589, 597 (1978).UNITED STATES OF AMERICA and COMMONWEALTH OF, MASSACHUSETTS ex rel. DONNA MARIE GLYNN, v. COMPASS MEDICAL, P.C., PARTNERS COMMUNITY, HEALTHCARE, INC., and JOHN DIORIO. Civil Action No. 09-12124-RGS. United States District Court, D. Massachusetts. November 10, 2011[Martin Merritt’s Notes: Here, the court deals with the thorny issue of the heightened pleading standard under Rule 9(b) andIqbal/Twombly. The heightened pleading standard under rule 9 requires that the Relator plead False Claims facts withparticularity. Iqbal and Twombly contemplate that the ‘keys to discovery” will not be turned over unless the Relator states aplausible cause of action. This can place the Relator in a bind. On the other hand, unlimited discovery can be as expensive tothe defendant as the damages claimed. Often, to address these concerns, the Relator will be granted limited discovery in orderto meet the heightened rule 9 requirements, which will be strictly enforced. ]Opinion Excerpts: On December 16, 2009, plaintiff/relator Donna Marie Glynn, a nurse practitioner formerly employed by Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 3
  4. 4. Compass Medical, P.C. (Compass), brought this action under the federal False Claims Act (FCA), 31 U.S.C.§ 3729 (a)(1)-(2).[1]Glynn alleges that Compass Medical, P.C. (Compass), Partners Community Healthcare, Inc. (Partners), and John Diorio violatedthe FCA (Count I), subjected her to a retaliatory termination in violation of 31 U.S.C. § 3730(h) (Count II). Glynn alleges thatDiorio, a physician with whom she worked at Compass, fraudulently filled out patient billing sheets in order to bill Medicare andMedicaid for fictional visits to nursing home patients, care that was not medically necessary or appropriate, and improper patientdischarges and pronouncements of death.It is well established that the heightened pleading requirements of Fed. R. Civ. P. 9(b) apply to claims brought under bothsubsections. See Gagne, 565 F.3d at 45. Although Rule 9(b) may be satisfied where "some questions remain unanswered [but]the complaint as a whole is sufficiently particular to pass muster under the FCA," id. at 46, quoting United States ex rel. Rost v.Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007), "Karvelas requires the complaint to provide, among other fraud specifics, `detailsconcerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, [and] the amount ofmoney charged to the government." Gagne, 565 F.3d at 46, quoting Karvelas, 360 F.3d at 233. Defendants argue that Glynn hasfailed to plead her FCA claims with any of the requisite particularity. The court agrees.For Glynn to make out her subsection (a)(1) claim, she must show that a false claim was actually presented to the government.See Gagne, 565 F.3d at 45-46, citing Allison Engine, 553 U.S. at 669-671. Glynn has not alleged any particulars regarding the"presentment" of any specific claim to the government. She alleges only that Compass and Partners employees submitted claimsbased on Diorios billing statements to the government despite knowing or having reason to know that in some respects they werefraudulent. Glynn does not allege specific billing codes, dates, claim numbers, or patients associated with such false claims, oreven the name of the government agency to which the claims were allegedly submitted. Because Glynn has failed to allege withparticularity the actual presentment of any individual claim, her subsection (a)(1) cause of action fails.With respect to Glynns subsection (a)(2) claim, her footing is no more firm. On a given weekend in May of 2009, Diorio claimedto have seen sixty nursing home patients, among whom he listed Marotti, when according to a statement Glynn attributes toMarottis daughter, no doctor had treated her mother. This double-hearsay allegation (mother to daughter to Glynn) does notcomprise the personal knowledge of fraud that the FCA is intended to extract. See United States ex rel. Joshi v. St. Lukes Hosp.,Inc., 441 F.3d 552, 561 (8th Cir. 2006), quoting United States ex rel. Kinney v. Stoltz, 327 F.3d 671, 674 (8th Cir. 2003) ("The[FCA] is intended to encourage individuals who are either close observers or involved in the fraudulent activity to come forward,and is not intended to create windfalls for people with secondhand knowledge of the wrongdoing."). While in this one instance, itmight be possible to match a billing code on behalf of a named patient with Glynns allegations, she has no actual knowledge thatDiorio did not in fact see Marotti on this occasion.For the foregoing reasons, defendants motions to dismiss Glynns federalclaims (Counts I and II) are ALLOWED with prejudice. UNITED STATES OF AMERICA Ex. Rel. JOYCE RUBLE Plaintiff, v. TROY SKIDMORE, D.O., et al. Defendants. Case No. 2:09-cv-549. United States District Court, S.D. Ohio, Eastern Division. November 8, 2011.[Martin Merritt’s notes: At the outset, the filing under seal provides the relator some anonymity. This was never intended topermanently shield the relator from public disclosure of whislteblowing activity. Here, the Relator changed her mind after theGovernment declined to intervene, and sought dismissal and permanent seal or redaction of her name form the pleadings. Atthis stage, the Defendant will not have been served, therefore the court’s usually take a more active role in protecting thepublic’s right to access.] Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 4
  5. 5. Opinion Excerpts: “In Herrera, the Eastern District of Michigan determined that the plaintiff-relators "fear ofemployment-related retaliation [was] not completely unfounded given her alleged constructive discharge," but nonetheless heldthat her fear of retaliation by a current or future employer was not "sufficient to overcome the strong presumption in favor ofaccess to judicial records." Herrera, 665 F. Supp. 2d at 785-86. The court explained that "to conclude otherwise would ignorethat [the plaintiff-relators] amorphous concern is no different from the concern any employee may have when she sues heremployer for whatever reason." Id. at 786 (quoting United States ex rel. Permison v. Superlative Techs., Inc., 492 F. Supp. 2d561, 564 (E.D. Va. 2007)). The court also noted that, if the plaintiff-relator were to suffer retaliation for filing the qui tam action,the FCA would provide a cause of action. Id. (citing 31 U.S.C. § 3730(h); Superlative Techs., 492 F. Supp. 2d at 564). UNITED STATES OF AMERICA ex rel. CATHY WILDHIRT AND NANCY MCARDLE, and STATE OF ILLINOIS ex rel. CATHY WILDHIRT AND NANCY MCARDLE, Plaintiffs, v. AARS FOREVER, INC., and THH ACQUISITION LLC I, Defendants. No. 09 C 1215. United States District Court, N.D. Illinois, Eastern Division. November 4, 2011.[Martin Merritt’s notes: Rule 9(b) requires the pleading with particularity of specific acts of False Claim filing. This usuallymeans the relator must plead the familiar specific “who, what , when, where” facts as to which claims presented to thegovernment for payment were in fact false. What if the actual claims for payment were not false, but there was fraud in theinducement of the contract which led to the claim being presented for payment? State another way, there is fraud, but I t isimpossible to meet the “who, what, when, where” test. Here the court held the FCA (as well as Stark Law and the Anti-Kickback statute ) do contemplate that intent to defraud, or fraud in the inducement of a government contract will give rise toFCA liability, even though there was no irregularity in the actual presentment of the claim for payment, after the contract wasfraudulently induced. This is similar to holdings under the Anti-Kickback statute in which the defendant has technicallycomplied with a safe harbor, but there is evidence that the scheme was actually a kickback for referrals. Courts often, though notuniformly, hold that fraudulent intent trumps any defense that the scheme was technically compliant. ]Opinion Excerpts: The district court dismissed the complaint under Rule 12(b)(6) "because the false statements and fraud `werenot made in connection with the presentation of a claim." Id. at 783. According to the Fourth Circuit: "The district courtreasoned that the False Claims Act does not reach false statements in submissions to the Government to gain approval forsubcontracting decisions. In the district courts view, the False Claims Act reaches only situations in which a `claim [i.e., thedemand for payment from the government] . . . is itself false or fraudulent." id. (brackets in original); see also id. at 785 ("Thedistrict court would only find a false claim where a demand for payment is itself false or fraudulent (presumably for services notperformed or for an incorrect amount). The district court flatly rejected the possibility that False Claims Act liability could rest onfalse statements submitted to the government to gain approval for a subcontract.").The Fourth Circuit rejected the district courts view, holding that the FCA recognizes a fraud-in-the-inducement theory, underwhich liability attaches "for each claim submitted to the government under a contract, when the contract or extension ofgovernment benefit was obtained originally through false statements or fraudulent conduct." Id. at 787 (citing United States exrel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943)). That is, even where "the claims [for payment] that were submitted were not inand of themselves false" and "the work contracted for was actually performed to specifications at the price agreed," FCA liabilityarises "because of the fraud surrounding the efforts to obtain the contract or benefit status." Ibid. Other circuits are in accord. SeeUnited States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 468 (5th Cir. 2009) ("Under a fraudulent inducementtheory, although the Defendants subsequent claims for payment made under the contract were not literally false, [because] theyderived from the original fraudulent misrepresentation [in the grant proposals], they, too, became actionable false claims.")(brackets in original; internal quotation marks omitted); United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393F.3d 1321, 1326 (D.C. Cir. 2005) ("Although the focus of the FCA is on false `claims, courts have employed a`fraud-in-the-inducement theory to establish liability under the Act for each claim submitted to the Government under a contract Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 5
  6. 6. which was procured by fraud, even in the absence of evidence that the claims were fraudulent in themselves."); United States exrel. Hagood v. Sonoma Cnty. Water Agency, 929 F.2d 1416, 1420-21 (9th Cir. 1991) (holding that "a contract based on falseinformation is a species of false claim," and finding that an FCA claim was properly stated where the complaint alleged that thedefendant "played an active part in having presented for signature a contract that the [defendant] knew was based on falseinformation"). UNITED STATES OF AMERICA, Plaintiff, v. ROBERT WHITE and WILSON TRANSPORT SERVICES, Defendants. Case No. 2:11-cv-00309-PMD. United States District Court, D. South Carolina, Charleston Division. November 18, 2011.[Martin Merritt’s notes. This is a sad case. On the surface, it is a simple default judgment for $1.1 million. Reading between the lines, Whiteand Wilson Transport were busted for transporting patients by ambulance when transport wasn’t medically necessary. There is a goodchance that the claims weren’t blatantly fraudulent, but nevertheless enough of a violation of the False Claims Act that this defendant isfinancially ruined. We can guess this by the fact the government has agreed to allow Wilson to live in his home as long as he owns it, providedhe complies with the settlement repayment agreement. Take this case as a grim reminder how a False Claims Act violation leads to economicruin.]Opinion Excerpts: I find that the complaint supports a default judgment against Wilson Transport Services in the amount of $1,166,879.09.This is the minimum amount allowed by the False Claims Act for damages and penalties for the claims attached to the complaint as Exhibit Aand C setting off the amount of restitution Nathaniel Wilson has been ordered to pay and the amount Robert White has agreed to pay the UnitedStates.I also find that the government has agreed not to enforce the Wilson Transport Service judgment against the home Robert White resides inlocated at 889 High Hill Road, Scranton, South Carolina as long as he resides in it, it is owned by Wilson Transport Service or Robert White,and Robert White is complying with the terms of the settlement agreement entered into with the government. Martin Merritt is a Dallas litigator and Health Law attorney. Whose main practice consists of representing Texas physicians and small practice groups in Stark Law, Anti-Kickback Statute, and False Claims Act compliance in their medical practices, including employment agreements, real estate transactions, and general business matters. He is a member of the Health Law Section of the State Bar of Texas and the Dallas Bar Association. In addition to his Texas practice, he heads the advisory panel of Stark.org, a national pro bono project which annually fields hundreds of inquiries from health care professionals across the United States and directs them toward the appropriate CMS Regulation, OIG Bulletin, Opinion Letter, or other Governmental publication which addresses their issue. MartinMerritt PLLC 100 Crescent Court Suite 700 Www.DallasPhysicianLaw.com Dallas, Texas 75201 (214) 459-3131 (214) 469-3101 (fax) martin@dallasphysicianlaw.com Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 6
  7. 7. Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam Federal Case Report Newsletter. December, 2011 Copyright 2011 MartinMerritt PLLC Page 7

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