Michael Drakeford v. Tuomey

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 3:05-cv-02858-MBS. [999613839]. [13-2219]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 13-2219

UNITED STATES ex rel. MICHAEL K. DRAKEFORD, M.D.,
Plaintiff – Appellee,
v.
TUOMEY, d/b/a Tuomey Healthcare System, Inc.,
Defendant – Appellant.
−−−−−−−−−−−−−−−−−−−−−−−−−−−
AMERICAN HOSPITAL
ASSOCIATION,

ASSOCIATION;

SOUTH

CAROLINA

HOSPITAL

Amici Supporting Appellant.

Appeal from the United States District Court for the District of
South Carolina, at Columbia.
Matthew J. Perry, Jr., Senior
District Judge; Margaret B. Seymour, Senior District Judge.
(3:05-cv-02858-MBS)

Argued:

October 31, 2014

Decided:

July 2, 2015

Before DUNCAN, WYNN, and DIAZ, Circuit Judges.

Affirmed by published opinion.
Judge Diaz wrote the majority
opinion, in which Judge Duncan joined.
Judge Wynn wrote a
separate opinion concurring in the judgment.

ARGUED: Helgi C. Walker, GIBSON, DUNN & CRUTCHER, LLP,
Washington, D.C., for Appellant.
Tracy Lyle Hilmer, UNITED

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STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
ON BRIEF: James M. Griffin, Margaret N. Fox, A. Camden Lewis,
LEWIS, BABCOCK & GRIFFIN, LLP, Columbia, South Carolina; Daniel
M. Mulholland III, HORTY SPRINGER & MATTERN, Pittsburgh,
Pennsylvania; E. Bart Daniel, Charleston, South Carolina, for
Appellant.
Stuart F. Delery, Assistant Attorney General,
Michael D. Granston, Michael S. Raab, Civil Division, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C.; G. Norman Acker,
III, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Raleigh, North Carolina, for Appellee. Melinda
R. Hatton, Maureen D. Mudron, AMERICAN HOSPITAL ASSOCIATION,
Washington, D.C.; Jessica L. Ellsworth, Amanda K. Rice, HOGAN
LOVELLS US LLP, Washington, D.C., for Amici Curiae.

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DIAZ, Circuit Judge:
In a qui tam action in which the government intervened, a
jury determined that Tuomey Healthcare System, Inc., did not
violate
(2012). 1

the

False

Claims

Act

(“FCA”),

31

U.S.C.

§§ 3729-33

The district court, however, vacated the jury’s verdict

and granted the government a new trial after concluding that it
had

erroneously

excluded

deposition testimony.

excerpts

of

a

Tuomey

executive’s

The jury in the second trial found that

Tuomey knowingly submitted 21,730 false claims to Medicare for
reimbursement.
for

the

The district court then entered final judgment

government

and

awarded

damages

and

civil

penalties

totaling $237,454,195.
Tuomey contends that the district court erred in granting
the government’s motion for a new trial.

Tuomey also lodges

numerous other challenges to the judgment entered against it
following the second trial.

It argues that it is entitled to

judgment as a matter of law (or, in the alternative, yet another
new

trial)

because

it

did

not

violate

the

FCA.

In

the

alternative, Tuomey asks for a new trial because the district
court failed to properly instruct the jury.
1

Finally, Tuomey

Under the qui tam provisions of the FCA, a whistleblower
(known as the relator) can file an action on behalf of the
federal government for alleged fraud committed against the
government. If the action is successful, the relator shares in
the recovery.

3

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asks

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us

to

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strike

the

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damages

and

civil

penalties

award

as

either improperly calculated or unconstitutional.
We conclude that the district court correctly granted the
government’s

motion

for

a

new

trial,

albeit

for

a

different than that relied upon by the district court.

reason

reject

Tuomey’s

claims

of

error

following

the

We also

second

trial.

Accordingly, we affirm the district court’s judgment.

I.
A.
Tuomey is a nonprofit hospital located in Sumter, South
Carolina, a small, largely rural community that is a federallydesignated

medically

underserved

area.

At

the

time

of

the

events leading up to this lawsuit, most of the physicians that
practiced at Tuomey were not directly employed by the hospital,
but instead were members of independent specialty practices.
Beginning

around

2000,

doctors

who

previously

performed

outpatient surgery at Tuomey began doing so in their own offices
or at off-site surgery centers.

The loss of this revenue stream

was a source of grave concern for Tuomey because it collected
substantial facility fees from patients who underwent surgery at
the

hospital’s

outpatient

center.

Tuomey

estimated

that

it

stood to lose $8 to $12 million over a thirteen-year period from
the

loss

of

fees

associated

with
4

gastrointestinal

procedures

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To stem this loss, Tuomey sought to negotiate part-time

employment contracts with a number of local physicians.
In drafting the contracts, Tuomey was well aware of the
constraints imposed by the Stark Law.

While we discuss the

provisions of that law in greater detail below, in broad terms,
the

statute,

making

42

referrals

physician . . .
varies

U.S.C.

with,

receives

or

takes

prohibits

entities

to

§ 1395nn,

where

aggregate

compensation

into

account,

physicians

“[t]he

the

referring

.

volume

from

.

or

.

that

value

of

referrals or other business generated by the referring physician
for the entity furnishing” the designated health services.
C.F.R. § 411.354(c)(2)(ii) (2014).

42

Pursuant to the Stark Law,

“[a] hospital may not submit for payment a Medicare claim for
services rendered pursuant to a prohibited referral.”

United

States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675
F.3d 394, 397–98 (4th Cir. 2012).
Beginning in 2003, Tuomey sought the advice of its longtime
counsel, Nexsen Pruet, on the Stark Law implications arising
from the proposed employment contracts.
engaged

Cejka

specialized

in

Consulting,
physician

a

national

compensation,

Nexsen Pruet in turn
consulting
to

provide

firm
an

that

opinion

concerning the commercial reasonableness and fair market value
of the contracts.

Tuomey also conferred with Richard Kusserow,

a former Inspector General for the United States Department of
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and

Services,

later,

Human

and

with

Steve

Pratt,

an

attorney at Hall Render, a prominent healthcare law firm.
The

part-time

similar terms.
base salary.

employment

contracts

had

substantially

Each physician was paid an annual guaranteed
That salary was adjusted from year to year based

on the amount the physician collected from all services rendered
the previous year.
earned

in

the

form

The bulk of the physicians’ compensation was
of

a

productivity

bonus,

which

paid

the

physicians eighty percent of the amount of their collections for
that year.

The physicians were also eligible for an incentive

bonus of up to seven percent of their earned productivity bonus.
In addition, Tuomey agreed to pay for the physicians’ medical
malpractice

liability

insurance

as

group’s share of employment taxes.
allowed

to

participate

in

Tuomey’s

well

as

their

practice

The physicians were also
health

insurance

plan.

Finally, Tuomey agreed to absorb each practice group’s billing
and collections costs.
The contracts had ten-year terms, during which physicians
could maintain their private practices, but were required to
perform

outpatient

hospital.
located

in

surgical

procedures

exclusively

at

the

Physicians could not own any interest in a facility
Sumter

that

provided

ambulatory

surgery

services,

save for a less-than-two-percent interest in a publicly traded
company that provided such services.
6

The physicians also agreed

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not to perform outpatient surgical procedures within a thirtymile radius of the hospital for two years after the expiration
or termination of the contracts.
Tuomey

ultimately

entered

into

contracts with nineteen physicians.

part-time

employment

Tuomey, however, was unable

to reach an agreement with Dr. Michael Drakeford, an orthopedic
surgeon.

Drakeford

believed

that

the

proposed

contracts

violated the Stark Law because the physicians were being paid in
excess of their collections.
package

did

not

reflect

He contended that the compensation
fair

market

value,

and

thus

the

government would view it as an unlawful payment for the doctor’s
facility-fee-generating referrals.
To address Drakeford’s concerns, Tuomey suggested a joint
venture as an alternative business arrangement, whereby “doctors
would become investors . . . in . . . a management company that
would provide day-to-day management of the outpatient surgery
center,” J.A. 3268, and both Tuomey and its co-investors would
“receive payments based on that management [structure].”
2036.

J.A.

Drakeford, however, declined that option.

Unable to break the stalemate in their negotiations, in May
2005, Tuomey and Drakeford sought the advice of Kevin McAnaney,
an attorney in private practice with expertise in the Stark Law.
McAnaney

had

formerly

served

as

the

Chief

of

the

Industry

Guidance Branch of the United States Department of Health and
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Human Services Office of Counsel to the Inspector General.

In

that position, McAnaney wrote a “substantial portion” of the
regulations implementing the Stark Law.

J.A. 2026.

McAnaney advised the parties that the proposed employment
contracts raised significant “red flags” under the Stark Law. 2
J.A. 2054.

In particular, Tuomey would have serious difficulty

persuading the government that the contracts did not compensate
the

physicians

in

excess

of

fair

market

value.

Such

a

contention, said McAnaney, would not pass the “red face test.”
J.A.

2055.

McAnaney

also

warned

Tuomey

that

the

contracts

presented “an easy case to prosecute” for the government.

J.A.

2078.
Drakeford ultimately declined to enter into a contract with
Tuomey.

He later sued the hospital under the qui tam provisions

of

FCA,

the

alleging

that

because

the

part-time

employment

contracts violated the Stark Law, Tuomey had knowingly submitted
false claims for payment to Medicare.

As was its right, the

government intervened in the action and filed additional claims

2

According to McAnaney, the joint venture
raised separate concerns under the Anti-Kickback
U.S.C. § 1320a-7b(b), which bars “the payment of
for the purpose of inducing the purchase of health
by any federal health care insurance program.”
Loucks & Carol C. Lam, Prosecuting and Defending
Fraud Cases 233 (2d ed. 2010).

8

alternative
Statute, 42
remuneration
care covered
Michael K.
Health Care

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seeking equitable relief for payments made under mistake of fact
and unjust enrichment theories.
B.
At the first trial, Tuomey argued that McAnaney’s testimony
and related opinions regarding the contracts should be excluded
as

an

offer

to

compromise

or

settle

under

Federal

Rule

of

Evidence 408 because McAnaney was mediating a dispute between
Tuomey

and

Drakeford.

Alternatively,

Tuomey

contended

that

because McAnaney was hired jointly by Tuomey and Drakeford, he
owed a duty of loyalty to both clients that precluded him from
testifying.

The district court sustained Tuomey’s objection,

although it did not articulate the ground for its ruling.
Tuomey also objected to the government’s attempt to admit
excerpts from the deposition testimony of Gregg Martin, Tuomey’s
Senior

Vice

President

and

Chief

Operating

Officer.

Tuomey

argued that the deposition testimony should be excluded because
it contained Martin’s recollections of a discussion he had with
Tuomey’s

counsel

concerning

employment contracts.

McAnaney’s

opinions

regarding

According to Tuomey, the testimony was

merely a “back doorway to get in Mr. McAnaney’s opinions.”
808.

the

J.A.

The government countered that the deposition testimony was

admissible to show Tuomey’s state of mind and intent to violate
the Stark

Law.

The

district

court

objection.
9

again

sustained

Tuomey’s

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The jury returned a verdict finding that, while Tuomey had
violated

the

government

Stark

filed

Law,

a

equitable claims.

it

had

not

post-verdict

violated

motion

for

the

FCA.

judgment

The

on

its

It also moved for judgment as a matter of law

under Federal Rule of Civil Procedure 50 on the FCA claim, or
alternatively

for

a

new

trial

under

Rule

59

because

of

the

district court’s decision to exclude McAnaney’s testimony and
opinions, as well as the Martin deposition excerpts.
The

district

court

denied

judgment as a matter of law.
committed

“a

deposition

excerpts.

government’s

substantial

motion

J.A.
for

a

the

government’s

motion

for

But the court agreed that it had
error”
1296.

new

by
It

trial.

excluding

the

therefore

granted

Notably,

the

Martin
the

district

court’s decision was based solely on its error in excluding the
Martin deposition excerpts.
While the government asked for a new trial only on the
knowledge element of the FCA claim, the district court granted a
new trial as to the entirety of the claim.

Notwithstanding the

court’s decision to grant a new trial on the FCA claim, the
district

court

entered

judgment

for

the

government

on

its

equitable claims based on the jury’s finding of a Stark Law
violation, and ordered Tuomey to pay damages in the amount of
$44,888,651 plus pre- and post-judgment interest.

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On appeal, we vacated the judgment, concluding that the
jury’s finding of a Stark Law violation was a common factual
issue necessary to the resolution of both the equitable claims
and the FCA claim. 3

Yet, because the district court rendered the

jury’s verdict finding a Stark Law violation a “legal nullity”
when it granted the government’s motion for a new trial, we held
that the court deprived Tuomey of its Seventh Amendment right to
a

jury

trial

by

entering

judgment

Drakeford, 675 F.3d at 405.

on

the

equitable

claims.

We remanded the case for a new

trial as to all claims.
While the case was on appeal, the presiding judge passed
away.

At the second trial, the new presiding judge allowed the

government

to

introduce

the

previously

excluded

Martin

deposition testimony, and also allowed McAnaney to testify.

The

jury found that Tuomey violated both the Stark Law and the FCA.
It further found that Tuomey had submitted 21,730 false claims
to Medicare with a total value of $39,313,065.
court

trebled

the

actual

damages

and

assessed

The district
an

civil penalty, both actions required by the FCA.
§ 3729(a)(1).

From

the

resulting

judgment

of

additional
31 U.S.C.

$237,454,195,

Tuomey appeals.
3

Tuomey also sought leave to pursue an interlocutory appeal
of the district court’s order granting a new trial on the FCA
claim. We denied that motion.

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II.
A.
Tuomey’s

appeal

presents

these

issues:

First,

did

the

district court err in granting the government’s motion for a new
trial on the FCA claim?

If not, did the district court err in

(1) denying Tuomey’s motion for judgment as a matter of law (or,
in the alternative, for yet another new trial) following the
second trial; and (2) awarding damages and penalties against
Tuomey based on the jury’s finding of an FCA violation?

We

address each issue in turn, but first provide a general overview
of the Stark Law.
B.
The Stark Law is intended to prevent “overutilization of
services

by

physicians

who

[stand]

patients

to

facilities

or

entities

financial interest.”

to
in

profit

from

referring

which

they

[have]

Drakeford, 675 F.3d at 397.

a

The statute

prohibits a physician from making a referral to an entity, such
as

a

hospital,

with

which

he

or

she

has

a

financial

relationship, for the furnishing of designated health services.
42

U.S.C.

§ 1395nn(a)(1).

If

the

physician

makes

such

a

referral, the hospital may not submit a bill for reimbursement
to Medicare.
may

not

make

Id. § 1395nn(a)(1)(B).
any

payment

for

a

Similarly, the government
designated

provided in violation of the Stark Law.
12

health

service

Id. § 1395nn(g)(1).

If

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a person collects any payment for a service billed in violation
of the Stark Law, “the person shall be liable to the individual
for, and shall refund on a timely basis to the individual, any
amounts so collected.”

Id. § 1395nn(g)(2). 4

Inpatient and outpatient hospital services are considered
designated health services under the law.

Id. § 1395nn(h)(6).

A referral includes “the request by a physician for the item or
service.”

Id. § 1395nn(h)(5)(A).

A referral does not include

“any designated health service personally performed or provided
by the referring physician.”

42 C.F.R. § 411.351.

However,

there is a referral when the hospital bills a “facility fee”
(also known as a “facility component” or “technical component”)
“in connection with the personally performed service.”
and

Medicaid

Programs;

Physicians’

Referrals

to

Medicare

Health

Care

Entities With Which They Have Financial Relationships, 66 Fed.
Reg.

856,

941

(Jan.

4,

2001);

see

also

Medicare

Program;

Physicians’ Referrals to Health Care Entities With Which They
Have Financial Relationships (Phase II), 69 Fed. Reg. 16054,
16063 (Mar. 26, 2004).

4

Because the Stark Law does not create its own right of
action, the government in this case sought relief under the FCA,
which provides a right of action with respect to false claims
submitted for Medicare reimbursement.
See Drakeford, 675 F.3d
at 396 & n.2.

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A financial relationship constitutes a prohibited “indirect
compensation
chain

of

arrangement,”

any

financial

if

(1)

number . . . of

“there

persons

relationships . . .

exists

or

between

an

entities
them,”

unbroken

that

(2)

have

“[t]he

referring physician . . . receives aggregate compensation . . .
that varies with, or takes into account, the volume or value of
referrals or other business generated by the referring physician
for the entity furnishing” the designated health services, and
(3) the entity has knowledge that the compensation so varies.
42 C.F.R. § 411.354(c)(2); see also Drakeford, 675 F.3d at 408
(“[C]ompensation arrangements that take into account anticipated
referrals . . . implicate the volume or value standard.”).
statute,

however,

does

not

bar

indirect

The

compensation

arrangements where: (1) the referring physician is compensated
at fair market value for “services and items actually provided”;
(2)

the

manner

compensation
that

referrals”;

takes
(3)

the

arrangement
into

is

account

compensation

“not

the

determined

volume

arrangement

or

is

in

value

any
of

“commercially

reasonable”; and (4) the compensation arrangement does not run
afoul

of

any

other

federal

or

state

law.

42

C.F.R.

§ 411.357(p); Drakeford, 675 F.3d at 398.
Once

a

relator

or

the

government

has

established

the

elements of a Stark Law violation, it becomes the defendant’s
burden

to

show

that

the

indirect
14

compensation

arrangement

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exception shields it from liability.

See United States ex rel.

Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009).
C.
We first address the district court’s decision to grant the
government a new trial on the FCA claim.
two grounds in support of its motion.

The government pressed

First, it argued that the

district court erred by excluding McAnaney’s testimony, along
with

all

evidence

containing

the

views

he

expressed

to

the

parties on the potential Stark Law liability surrounding the
contracts.

Second,

court

erroneously

While

the

the

government

excluded

district

court

the

argued

Martin

granted

a

new

that

the

deposition
trial

on

district
excerpts.

the

latter

ground, we instead affirm the district court on the basis of its
more glaring error, the exclusion of McAnaney’s testimony and
related evidence.
1.
We review a district court’s decision to grant a new trial
for abuse of discretion.

Cline v. Wal-Mart Stores, Inc., 144

F.3d 294, 301 (4th Cir. 1998).

We apply the same standard to

the district court’s decision to exclude evidence.
Mukasey, 538 F.3d 306, 317 (4th Cir. 2008).

Buckley v.

“By definition, a

district court abuses its discretion when it makes an error of
law.”

RZS Holdings AVV v. PDVSA Petroleo S.A., 506 F.3d 350,

356 (4th Cir. 2007).

Even so, we may reverse a district court
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if

rights.

its

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evidentiary

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error

affects

Buckley, 538 F.3d at 317.

a

party’s

substantial

And, of course, we may

affirm a district court’s ruling on any ground apparent in the
record.

Republican Party of N.C. v. Martin, 980 F.2d 943, 952

(4th Cir. 1992).
2.
We believe that the district court abused its discretion in
granting

a

new

trial

on

the

ground

that

excluded the Martin deposition excerpts.
court

should

instance,

an

not

have

excluded

evidentiary

error

this
is

it

had

improperly

Even if the district

evidence

harmless

in

when

the

it

first

does

not

affect a party’s substantial rights--in this case, whether it
can be said with a high probability that the error did not
affect the judgment.

Taylor v. Va. Union Univ., 193 F.3d 219,

235 (4th Cir. 1999) (en banc), abrogated on other grounds by
Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003); Daskarolis v.
Firestone Tire & Rubber Co., 651 F.2d 937, 942 (4th Cir. 1981)
(noting that even if the district court believed that it had
excluded admissible evidence, the erroneous exclusion could not
be

grounds

for

a

new

trial

because

substantial rights of the parties).

it

did

not

affect

the

The district court made no

effort to assess the alleged error under this stringent harmless
error

standard.

Furthermore,

because

the

exclusion

of

the

Martin deposition testimony was, in fact, a harmless error, the
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district court abused its discretion in granting a new trial on
this ground.
In its motion for a new trial, the government argued that
Martin’s

testimony

was

necessary

scienter element of its FCA claim.
contended

that

McAnaney’s

Martin,

warnings

Tuomey’s

that

the

evidence

supporting

Specifically, the government
agent,

received

part-time

reckless

the

evidence

disregard

traversing.

of

would

the

have

legal

and

employment

raised significant Stark Law compliance issues.
government,

the

contracts

Thus, says the

demonstrated

minefield

ignored

that

Tuomey’s
it

was

We think, however, that the probative value of this

particular evidence is weak at best, and excluding it did not
negatively affect the government’s substantial rights.
The

deposition

excerpts

predominantly

focus

on

Martin’s

recollection of a discussion he had with Tuomey’s lawyer, Tim
Hewson.
call

between

Smith. 5
Law

Hewson recounted to Martin the details of a conference
Hewson,

McAnaney,

and

Drakeford’s

lawyer,

Greg

Specifically, Hewson told Martin that McAnaney had Stark

compliance

concerns

with

5

both

the

proposed

part-time

Hewson was likely recounting the details of two separate
conference calls.
The first call was between McAnaney, Smith,
and Hewson and covered the part-time employment contracts. The
following day, Steve Pratt joined those three for a second call
focusing on the joint venture arrangement. When asked if he was
aware that there were two separate conference calls, Martin
responded that he did not “remember for sure.” J.A. 105.

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employment contracts as well as the joint venture arrangement
(which Martin referred to as the “under arrangement”).

However,

Martin was unable to remember specifics about the conversation,
and often confused McAnaney’s concerns with issues raised by
Steve Pratt.
Martin did vaguely recall that Hewson had told him that
McAnaney said the proposed arrangements would raise “red flags”
with

the

remember

government.
whether

J.A.

104-05.

McAnaney’s

Yet,

warnings

were

Martin

could

particular

not

to

the

part-time employment contracts, the joint venture arrangement,
or

both.

Indeed,

in

Martin’s

“separate the two.”

J.A. 107.

distinguish

proposed

the

two

recollection

it

was

hard

to

To the extent that Martin could
arrangements,

he

recalled

being

warned of greater problems with the joint venture arrangement.
With respect to McAnaney’s concerns about the employment
contracts,

Martin

related

fair

to

detail.

had

a

market

Ultimately,

vague

value,

Martin

recollection
but

was

of

unable

acknowledged

that

some

to

issues

offer

there

more

was

a

“difference of opinion” between McAnaney and Hewson, but decided
to trust Hewson’s opinion that the contracts posed no Stark Law
concerns.

J.A. 111.

That Martin’s deposition testimony was hazy is not at all
surprising, given that he was being asked to recall--nearly four
years

after

the

fact--the

substance
18

of

a

conversation

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Tuomey’s lawyer, who himself was recalling an earlier conference
call with McAnaney.

Standing alone, we fail to see how the

government was substantially prejudiced by the district court’s
decision

to

exclude

this

evidence.

Thus,

we

hold

that

the

district court abused its discretion in relying on this ground
to grant the government’s motion for a new trial.
3.
Nonetheless, we affirm the district court’s order granting
a new trial on the alternative ground urged by the government-that it was prejudiced by the exclusion of McAnaney’s testimony
and other related evidence of his warnings to Tuomey regarding
the legal peril that the employment contracts posed. 6

To make

its case that Tuomey “knowingly” submitted false claims under
the FCA, the government needed to show that Tuomey knew that
there was a substantial risk that the contracts violated the
Stark

Law,

recklessly

and

was

nonetheless

disregarded

that

deliberately

risk.

6

In

our

ignorant
view,

of,

or

McAnaney’s

Tuomey says that we may not affirm on this alternative
ground because the government’s brief never asked us to do so.
But this assertion splits the thinnest of hairs. While perhaps
the government could have been more direct in its brief, it
clearly alerted us (and Tuomey) that there was an alternate
ground for affirming the district court. See Appellee’s Br. at
82 (“[The] new trial ruling was correct not only because of the
exclusion of Martin’s testimony, but also because the exclusion
of McAnaney’s testimony and related evidence was clearly
erroneous
and
affected
the
substantial
rights
of
the
government.”).

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testimony was a relevant, and indeed essential, component of the
government’s evidence on that element, and Tuomey offered no
good reason why the jury should not hear it.
The district court has now presided over two trials in this
case, with strikingly disparate results.

In the first trial,

the jury did not hear from McAnaney and found for Tuomey on the
FCA claim.

When the case was retried, McAnaney was allowed to

testify and the jury found for the government.
think not.

Coincidence?

We

Rather, we believe that these results bespeak the

importance of what the jury in the first trial was not allowed
to consider.
And this is so even while acknowledging that McAnaney was a
looming presence throughout the first trial.

For example, the

jury heard audio of a Tuomey board meeting, where a board member
mentioned that McAnaney had voiced concerns with the part-time
employment contracts.
nature

of

McAnaney

those

Left unsaid, however, was the precise

attached

concerns

(Tuomey’s

counsel

McAnaney’s

views

to
at
on

or

them.

the

weight

The

jury

Nexson
the

Pruet)

employment

and

also

was

seriousness
knew

that

generally

contracts,

but

that

Hewson

aware

of

that

he

dismissed them as not credible because, in his view, Drakeford
was deliberately seeking to cherry pick a legal opinion that
would undermine the entire deal.

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The jury was also aware that Drakeford 7 wrote to Tuomey’s
board

summarizing

McAnaney’s

opinions.

The

district

court,

however, excluded Drakeford’s letter, although it did allow the
jury

to

consider

the

board’s

response

wherein

rejected Drakeford’s unspecified objections.

it

summarily

Finally, the jury

heard that Tuomey refused to allow McAnaney to prepare a written
opinion

discussing

subsequently

his

concerns

terminated

regarding

McAnaney’s

the

contracts,

and

engagement

altogether

on

September 2, 2005.
While certainly not insubstantial, the sum of the evidence
at the first trial regarding McAnaney was that Tuomey (1) was
aware

that

McAnaney

had

unspecified

concerns

about

the

employment contracts; (2) refused to allow McAnaney to relay his
concerns in writing; and (3) later terminated McAnaney’s joint
representation.

Yet, under the FCA, the government had to prove

that Tuomey knew of, was deliberately ignorant of, or recklessly
disregarded
violated

the

the

falsity

Stark

of

Law).

its
We

claims
think

(i.e.

that

that

its

McAnaney’s

claims

specific

warnings to Tuomey regarding the dangers posed by the contracts
were critical to making this showing.
McAnaney

warned

Tuomey

that

procuring

fair

market

valuations, by itself, was not conclusive of the accuracy of the
7

Drakeford was not called as a witness at either trial.

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valuation.
the

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He emphasized that it would be very hard to convince

government

“substantially

that

above

a

contract

even

their

that

paid

collections,

physicians

much

less

their

collections minus expenses,” would constitute fair market value.
J.A.

2053.

According

to

McAnaney,

compensation

arrangements

under which the contracting physicians are paid in excess of
their collections were “basically a red flag to the government.”
Id.

He noted that similar cases had previously been prosecuted

before, although all of them ultimately settled.
McAnaney also pointed out that the ten-year term of the
contracts,

combined

with

the

thirty-mile,

two-year

noncompete

provision would reinforce the government’s view that Tuomey was
“paying [the physicians] above fair market value for referrals.”
J.A. 2055.

He concluded that the contracts did not pass the

“red face test,” and warned that the government would find this
“an easy case to prosecute.”
We

think

the

J.A. 2055, 2078.

importance

of

McAnaney’s

government’s case is self-evident.
imagine

any

more

probative

and

testimony

to

the

Indeed, it is difficult to

compelling

evidence

regarding

Tuomey’s intent than the testimony of a lawyer hired by Tuomey,
who was an undisputed subject matter expert on the intricacies
of the Stark Law, and who warned Tuomey in graphic detail of the

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thin legal ice on which it was treading with respect to the
employment contracts. 8
4.
Tuomey urges, however, that McAnaney’s testimony and other
evidence

containing

his

views

Federal Rule of Evidence 408.

were

properly

excluded

under

That rule, however, mandates the

exclusion of evidence relating to offers to compromise or settle
disputed

claims

liability

on

if

the

the

evidence

claim.

is

Bituminous

being

offered

Constr.,

Inc.

Enters., Inc., 816 F.2d 965, 968 (4th Cir. 1987).
persuaded

that

McAnaney

Tuomey

compromise

or

record

unambiguously

was

settle
shows

retained
a

to

disputed

that

to
v.

prove
Rucker

We are not

help

Drakeford

and

claim.

Rather,

the

Drakeford

and

Tuomey

hired

McAnaney to advise them of the Stark Law risks posed by the
employment contracts.

As a result, Rule 408 does not support

the district court’s decision to exclude McAnaney’s testimony. 9

8

We note that Tuomey waived the attorney-client privilege
with respect to its communications with McAnaney when it
asserted the advice-of-counsel defense. See Rhone-Poulenc Rorer
Inc. v. Home Indem. Co., 32 F.3d 851, 863 (3d Cir. 1994) (“A
defendant
may . . .
waive
[attorney-client]
privilege
by
asserting reliance on the advice of counsel as an affirmative
defense.”).
9

In any event, as our concurring colleague ably explains,
even assuming that McAnaney’s testimony would ordinarily be
excludable under Rule 408, Tuomey nonetheless opened the door to
its admission by raising the advice-of-counsel defense.

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See ICAP, Inc. v. Global Digital Satellite Sys., Inc., 225 F.3d
654, 2000 WL 1049854, at *3 (4th Cir. 2000) (unpublished table
opinion)

(finding

communications

Rule

408

involved

inapplicable

contract

where

negotiations

the

parties’

rather

than

settlement negotiations).
Nor

do

we

find

merit

in

Tuomey’s

objection

based

on

McAnaney’s supposed duty of loyalty to his clients.

At trial,

Tuomey

supported

never

suggested

which

evidentiary

rule

exclusion on this ground, although it now characterizes this
argument as a claim for exclusion under Rule 403.

That rule of

course allows a district court to exclude relevant evidence, but
only “if its probative value is substantially outweighed by a
danger

of

one

or

more

of

the

following:

unfair

prejudice,

confusing the issues, misleading the jury, undue delay, wasting
time, or needlessly presenting cumulative evidence.”
Evid. 403.
value

of

Fed. R.

Left unsaid by Tuomey is precisely how the probative
McAnaney’s

compelling

testimony

was

substantially

outweighed by the countervailing factors set out in Rule 403.
In sum, Tuomey has offered no good reason why the jury in
the first trial was not allowed to hear from McAnaney.

And we

agree with the government that this evidence was critical to its
ability to satisfy its burden to prove that Tuomey acted with
the requisite intent under the FCA.

We therefore affirm the

district court’s order granting a new trial on the FCA claim.
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III.
We turn now to Tuomey’s challenges to the judgment entered
following

the

second

trial.

Tuomey

asks

for

judgment

as

a

matter of law because a reasonable jury could not have found
that (1) the part-time employment contracts violated the Stark
Law,

or

(2)

Alternatively,

Tuomey
Tuomey

knowingly
asks

for

a

submitted
new

trial

false

claims.

because

of

the

district court’s refusal to tender certain jury instructions.
A.
We review the district court’s denial of Tuomey’s motion
for judgment as a matter of law de novo.

Austin v. Paramount

Parks, Inc., 195 F.3d 715, 727 (4th Cir. 1999).

We “view all

the evidence in the light most favorable to the prevailing party
and draw all reasonable inferences in [its] favor.”

Konkel v.

Bob Evans Farms Inc., 165 F.3d 275, 279 (4th Cir. 1999).

We

will reverse the district court if a reasonable jury could rule
only in favor of the moving party.
Med.

Ctr.,

Inc.,

290

F.3d

639,

Dennis v. Columbia Colleton
645

(4th

Cir.

2002)

(“[I]f

reasonable minds could differ, we must affirm.”).
1.
Tuomey argues that it is entitled to judgment as a matter
of law because the contracts between it and the physicians did
not run afoul of the Stark Law.

As we explain, however, a

reasonable jury could find that Tuomey violated the Stark Law
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when it paid aggregate compensation to physicians that varied
with or took into account the volume or value of actual or
anticipated referrals to Tuomey.
To begin with, we note that the Stark Law’s “volume or
value” standard can be implicated when aggregate compensation
varies with the volume or value of referrals, or otherwise takes
into

account

the

volume

§ 411.354(c)(2)(ii).
directed

the

insists,

however,

foreclosed

the

jury

or

value

of

referrals.

42

C.F.R.

That is precisely what the district court
in

the

that

jury’s

second

our

trial

earlier

consideration

to

assess.

opinion

of

whether

varied with the volume or value of referrals.

in
the

Tuomey

this

case

contracts

Instead, says

Tuomey, the only question that should have been put to the jury
was “whether the contracts, on their face, took into account the
value or volume of anticipated referrals.”

Drakeford, 675 F.3d

at 409.
We disagree.

The district court properly understood that

the jury was entitled to pass on the contracts as they were
actually implemented by the parties.

We said as much in our

earlier opinion, where
we emphasize[d] that our holding . . . [was] limited
to the issues we specifically address[ed]. On remand,
a jury must determine, in light of our holding,
whether the aggregate compensation received by the
physicians under the contracts varied with, or took
into account, the volume or value of the facility
component referrals.
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Id. at 409 n.26 (emphasis added).
A reasonable jury could have found that Tuomey’s contracts
in fact compensated the physicians in a manner that varied with
the

volume

or

value

of

referrals.

There

are

two

different

components of the physicians’ compensation that we believe so
varied.

First,

each

year,

the

physicians

were

paid

a

base

salary that was adjusted upward or downward depending on their
collections from the prior year.
received

the

bulk

of

their

In addition, the physicians

compensation

in

the

form

of

a

productivity bonus, pegged at eighty percent of the amount of
their collections.
As Tuomey concedes, “the aggregate compensation received by
the

physicians

collections

for

under

the

personally

Appellant’s Br. at 42.

Contracts
performed

was

based

solely

professional

on

services.”

And as we noted in our earlier opinion,

there are referrals here, “consisting of the facility component
of

the

physicians’

resulting
component.”

facility

personally
fee

billed

performed
by

Tuomey

Drakeford, 675 F.3d at 407.

services,
based

and
upon

the
that

In sum, the more

procedures the physicians performed at the hospital, the more
facility fees Tuomey collected, and the more compensation the
physicians received in the form of increased base salaries and
productivity bonuses.

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The nature of this arrangement was confirmed by Tuomey’s
former

Chief

Financial

Officer,

William

Paul

Johnson,

who

admitted “that every time one of the 19 physicians . . . did a
legitimate

procedure

on

a

Medicare

patient

at

the

hospital

pursuant to the part-time agreement[,] the doctor [got] more
money,” and “the hospital also got more money.”

J.A. 2012.

We

thus think it plain that a reasonable jury could find that the
physicians’

compensation

actual referrals.

varied

with

the

volume

or

value

of

The district court did not err in denying

Tuomey’s motion for judgment as a matter of law on this ground. 10

10

We are not persuaded by Tuomey’s reliance on commentary
promulgated by the Centers for Medicare & Medicaid Services as
it developed implementing regulations for the Stark Law. Tuomey
points to a portion of the commentary wherein the agency states
that the “fact that corresponding hospital services are billed
would
not
invalidate
an
employed
physician’s
personally
performed work, for which the physician may be paid a
productivity
bonus
(subject
to
the
fair
market
value
requirement).” 69 Fed. Reg. at 16089. But this statement deals
only with a productivity bonus based on the fair market value of
the work personally performed by a physician--it says nothing
about the propriety of varying a physician’s base salary based
on the volume or value of referrals.
In any case, the commentary regarding productivity bonuses
appears under a section of the regulations that specifically
addresses comments related to the exception for bona fide
employment relationships.
This exception covers circumstances
where there is a meaningful administrative relationship between
the physician and the hospital. The jury was instructed on this
exception at trial, and rejected it.
Tuomey does not quarrel
with that aspect of the jury’s verdict; rather it contends that
the commentary applies irrespective of whether a bona fide
employment relationship actually exists. Nothing in the statute
or the regulations, however, supports this notion.

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2.
Tuomey next argues that the district court erred in not
granting its motion for judgment as a matter of law because it
did not knowingly violate the FCA.

Specifically, Tuomey claims

that because it reasonably relied on the advice of counsel, no
reasonable jury could find that Tuomey possessed the requisite
intent to violate the FCA.

Because the record here is replete

with evidence indicating that Tuomey shopped for legal opinions
approving of the employment contracts, while ignoring negative
assessments, we disagree.
The

FCA

imposes

“knowingly

presents,

fraudulent

claim

employee

of

§ 3729(a)(1)(A),

or

for

the

civil

liability

causes

payment

United

to

or

be

on

(b)(2)(A)(i).

person

presented,

approval”

States

any

to

a

an

Government.
Under

the

who

false

or

officer

or

31
Act,

U.S.C.

the

term

“knowingly” means that a person, with respect to information
contained

in

a

claim,

(1)

“has

actual

knowledge

of

the

information;” (2) “acts in deliberate ignorance of the truth or
falsity of the information;” or (3) “acts in reckless disregard
of the truth or falsity of the information.”
The

purpose

of

the

FCA’s

scienter

Id. § 3729(b)(1).

requirement

is

to

avoid

punishing “honest mistakes or incorrect claims submitted through
mere negligence.”

United States ex rel. Owens v. First Kuwaiti

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Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir.
2010) (internal quotation marks omitted).
The record evidence provides ample support for the jury’s
verdict as to Tuomey’s intent.

Indeed, McAnaney’s testimony,

summarized above, is alone sufficient to sweep aside Tuomey’s
claim of error. 11

We agree with the district court’s conclusion

that “a reasonable jury could have found that Tuomey possessed
the

requisite

scienter

McAnaney’s remarks.”

once

it

J.A. 4055-56.

determined

to

disregard

A reasonable jury could

indeed be troubled by Tuomey’s seeming inaction in the face of
McAnaney’s

warnings,

efforts

avoid

to

particularly

hearing

precisely

given
what

Tuomey’s
McAnaney

aggressive
had

to

say

regarding the contracts.
Nonetheless, a defendant may avoid liability under the FCA
if it can show that it acted in good faith on the advice of
counsel.

Cf. United States v. Painter, 314 F.2d 939, 943 (4th

Cir. 1963) (holding, in a case involving fraud, that “[i]f in
good faith reliance upon legal advice given him by a lawyer to
whom he has made full disclosure of the facts, one engages in a

11

We note also that the jury at the second trial considered
the deposition testimony of Tuomey executive Gregg Martin.
While this evidence is (for reasons we have explained) not
overly compelling in isolation, it is not without some value in
showing that Tuomey was aware that its proposed contracts raised
Stark Law concerns.

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course of conduct later found to be illegal, the trier of fact
may

in

innocent

appropriate
because

circumstances

‘the

guilty

conclude

mind’

was

the

conduct

absent”).

was

However,

“consultation with a lawyer confers no automatic immunity from
the

legal

Rather,

consequences

to

establish

of

conscious

the

fraud.”

advice-of-counsel

Id.

at

943.

defense,

the

defendant must show the “(a) full disclosure of all pertinent
facts to [counsel], and (b) good faith reliance on [counsel’s]
advice.”

United States v. Butler, 211 F.3d 826, 833 (4th Cir.

2000) (internal quotation marks omitted).
Tuomey
information

contends

that

regarding

the

it

provided

proposed

full

employment

and

accurate

contracts

to

Hewson, who in turn advised Tuomey that the contracts did not
run afoul of the Stark Law.

But as the government aptly notes,

“[i]n determining whether Tuomey reasonably relied on the advice
of its counsel, the jury was entitled to consider all the advice
given to it by any source.”

Appellee’s Br. at 53.

In denying Tuomey’s post-trial motions, the district court
noted--and we agree--that a reasonable jury could have concluded
that Tuomey was, after September 2005, no longer acting in good
faith reliance on the advice of its counsel when it refused to
give full consideration to McAnaney’s negative assessment of the
part-time

employment

contracts

31

and

terminated

his

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warnings

by

Pg: 32 of 67

Tuomey defends

claiming

that

his

its dismissal

opinion

was

of McAnaney’s

tainted

influence exerted by Drakeford and his counsel.

by

undue

But there was

evidence before the jury suggesting that Tuomey also tried to
procure a favorable opinion from McAnaney.

Indeed, Tuomey’s

counsel admitted that he was trying “to steer McAnaney towards
[Tuomey’s] desired outcome” and that Tuomey needed to “continue
playing along and influence the outcome of the game as best we
can.”

J.A. 4482.

Thus, a reasonable jury could conclude that

Tuomey ignored McAnaney because it simply did not like what he
had to say.
Tuomey points to the fact that it retained Steve Pratt, a
prominent

healthcare

lawyer,

and

Richard

Kusserow,

former

Inspector General at the United States Department of Health and
Human Services, as further evidence that it acted in good faith
and

did

not

ignore

McAnaney’s

warnings.

12

Pratt

rendered

two

The government contended that Tuomey submitted 25,973
total claims for payment to Medicare between fiscal years 2005
and 2009. The government’s evidence on this point consisted of
a summary chart detailing the number of claims filed by Tuomey
in each fiscal year.
It appears, however, that the jury
subtracted the 4,243 claims that Tuomey submitted in fiscal year
2005 (running from October 1, 2004 to September 30, 2005) from
the government’s number. From this, the district court surmised
that the jury resolved to hold Tuomey responsible for those
claims filed beginning in fiscal year 2006 (that is, on or after
October 1, 2005) given that they were filed after Tuomey
terminated McAnaney’s joint representation on September 2, 2005.
We think this is an entirely reasonable view of the evidence.

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opinions that generally approved of the employment contracts.
But

he

did

so

without

being

told

of

McAnaney’s

unfavorable

assessment, even though Tuomey had that information available to
it at the time.
view

of

In addition, Pratt reviewed and relied on the

Tuomey’s

employment

fair-market-value

contracts

would

compensate

consultant
the

that

physicians

at

the
fair

market value, but he did not consider how the consultant arrived
at its opinion.

Nor did he know how much the doctors earned

prior to entering into the contracts, or that the hospital stood
to lose $1.5-2 million a year, not taking into account facility
fees, by compensating the physicians above their collections.
We

thus

think

it

entirely

reasonable

for

a

jury

to

look

skeptically on Pratt’s favorable advice regarding the contracts.
The same can be said of the Kusserow’s advice.

Kusserow--

who was called by the government to rebut Tuomey’s advice-ofcounsel

defense--advised

contracts

about

McAnaney.

As

Tuomey

eighteen

months

was

case

the

regarding
before

with

the

Pratt,

the

employment

parties
he

retained

received

no

information regarding the fair market value of the employment
contracts,

information

that

Kusserow

considered

vital

“to

be

able to do a full Stark analysis of [the proposed contracts].”
J.A.

1676.

And

although

Kusserow

did

say

in

a

letter

to

Tuomey’s counsel that he did not believe the contracts presented
“significant Stark issues,” J.A. 1675, he hedged considerably on
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that view because of “potentially troubling issues related to
the

productivity

and

[incentive

bonus

provisions

contracts] that have not been fully addressed.”
As

the

district

court

observed,

in

the

J.A. 1677.

“the

jury

evidently

rejected Tuomey’s advice of counsel defense” as of the date that
Tuomey received McAnaney’s warnings, “grounded on the fact that
the

jury

excluded

damages

from

[before

the

termination

of

McAnaney’s engagement] in making its determination” of the civil
penalty and damages.

J.A. 4055.

Thus, while Kusserow’s advice

was certainly relevant to Tuomey’s advice-of-counsel defense, a
reasonable jury could have determined that McAnaney’s warnings
(and Tuomey’s subsequent inaction) were far more probative on
the issue.
In sum, viewing the evidence in the light most favorable to
the government, we have no cause to upset the jury’s reasoned
verdict that Tuomey violated the FCA.
B.
Next,
court’s
“decision
content

Tuomey

jury
to
of

raises

several

instructions.
give
an

(or

not

We
give)

instruction . . .

challenges

to

review

a

district

a

instruction

jury

for

abuse

of

the

district
court’s
and

the

discretion.”

United States v. Russell, 971 F.2d 1098, 1107 (4th Cir. 1992).
Our task is to determine “whether the instructions[,] construed
as

a

whole,

and

in

light

of
34

the

whole

record,

adequately

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informed the jury of the controlling legal principles without
misleading

or

confusing

objecting party.”
Cir. 1987).

the

jury

to

the

prejudice

of

the

Spell v. McDaniel, 824 F.2d 1380, 1395 (4th

We will reverse the district court’s decision not

to give a party’s proposed instruction “only when the requested
instruction (1) was correct; (2) was not substantially covered
by the court’s charge to the jury; and (3) dealt with some point
in the trial so important, that failure to give the requested
instruction seriously impaired that party’s ability to make its
case.”

Noel

v.

Artson,

641

F.3d

580,

586

(4th

Cir.

2011)

(internal quotation marks omitted). 13
1.
First, Tuomey urges us to grant it a new trial because the
district court failed to give jury instructions consistent with
our analysis in the first appeal.

Specifically, Tuomey claims

that

our

the

district

court

ignored

admonition

that

“the

question, which should properly be put to a jury, is whether the
contracts, on their face, took into account the value or volume
of

anticipated

referrals.”

Drakeford,

675

F.3d

at

409.

According to Tuomey, the district court’s failure to so instruct
the jury erroneously permitted the jury to consider extrinsic
13

Because two of Tuomey’s challenges to the instructions
address the proper calculation of damages, we address them
separately infra at Sections IV.A.1, and IV.B.

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evidence

of

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intent

in

Pg: 36 of 67

determining

whether

the

physicians’

compensation took into account the volume or value of referrals.
As the district court correctly determined, however, we did
not mean to limit the government’s ability to present evidence
as to Tuomey’s intent to violate the FCA.

Rather, we sought to

emphasize that the government could not rely on such evidence
alone to show a violation.

See id. at 409 n.25 (“We agree with

[United States ex rel. Villafane v. Solinger, 543 F. Supp. 2d
678, 693 (W.D. Ky. 2008)] that intent alone does not create a
violation.

However,

that

does

not

aid

Tuomey

if

the

jury

determines that the contracts took into account the volume or
value of anticipated referrals.”).

Thus, the district court did

not err in declining to give this instruction.
2.
Tuomey next argues that the district court erred in not
separately instructing the jury on the knowledge element in the
Stark Law regulations’ definition of an indirect compensation
arrangement.

As Tuomey correctly notes, the Stark Law requires

that “[t]he entity furnishing [designated health services must]
ha[ve] actual knowledge of, or act[] in reckless disregard or
deliberate

ignorance

physician . . .

of,

receives

the

aggregate

fact

that

the

compensation

referring

that

varies

with, or takes into account, the volume or value of referrals.”
42 C.F.R. § 411.354(c)(2)(iii).
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Here, however, the district court instructed the jury that
Tuomey would have acted knowingly under the FCA if it “realized
what it was doing and was aware of the nature of its conduct and
did not act through ignorance, mistake or accident.”
43.

J.A. 3942–

Given that a jury found Tuomey possessed the requisite

scienter under the FCA, it necessarily also found Tuomey knew
that its contracts varied with or took into account referrals.
Therefore, the district court’s error (if any) in not separately
instructing the jury as to the knowledge component of the Stark
Law was harmless.
3.
Third,

Tuomey

argues

that

the

district

court

erred

by

refusing to charge the jury that claims based upon differences
of

interpretation

under the FCA.

of

disputed

legal

questions

are

not

false

For this proposition, it cites to our decision

in United States ex rel. Wilson v. Kellogg Brown & Root, Inc.,
525 F.3d 370, 377 (4th Cir. 2008), in which we said as much.
However, we also held there that for a claim to be “false” under
the FCA, “the statement or conduct alleged must represent an
objective falsehood.”

Id. at 376.

When submitting its claims to the government, Tuomey was
required to certify its compliance with the Stark Law.

See

United States ex rel. Thompson v. Columbia/HCA Healthcare Corp.,
125 F.3d 899, 902 (5th Cir. 1997) (“[W]here the government has
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conditioned payment of a claim upon a claimant’s certification
of compliance with . . . a statute or regulation, a claimant
submits

a

false

or

fraudulent

claim

when

he

or

she

falsely

certifies compliance with that statute or regulation.”); United
States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 565 F.
Supp.

2d

153,

158–59

(D.D.C.

2008).

complied with the Stark Law or it didn’t.
inquiry.

Here,

Tuomey

either

This is an objective

And the jury found that Tuomey, in fact, violated the

Stark Law.

As a result, Tuomey’s certification that it complied

with the Stark Law was false.

The subjective inquiry--whether

Tuomey knew that its claims were in violation of the Stark Law-is

covered

under

the

knowledge

element. 14

Therefore,

the

district court did not err in refusing to give this instruction.
4.
For their last jury instruction challenge, Tuomey contends
that the district court erred by failing to instruct the jury
that Tuomey was entitled to rely on legal advice even if it
turned out to be wrong.

However, the district court instructed

14

In Wilson, there was no either/or proposition of the kind
present here. Rather, in that case, the relators contended that
the disputed statement was false because the defendant “agreed
to [certain conditions] in the contract even though it knew it
would not, and later did not, abide by those terms.”
Wilson,
525 F.3d at 377.
As we explained, the relators’ assertion did
not rest on an objective falsehood, “but rather on Relators’
subjective interpretation of [the defendant’s] contractual
duties.” Id.

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the jury that knowledge does not include actions taken “through
ignorance,
emphasized

mistake
that

the

or

accident.”

jury

could

J.A.

not

3943.

conclude

that

It

later

Tuomey

had

knowledge “from proof of mistake, negligence, carelessness or a
belief in an inaccurate proposition.”

Id. (emphasis added).

Because the import of Tuomey’s proposed charge was covered by
the district court’s instructions, we reject Tuomey’s claim of
error.

IV.
Finally,

Tuomey

makes

several

challenges

$237,454,195 judgment entered against it.
the

district

Next,

it

court

claims

improperly

that

the

measure of actual damages.

the

First, it argues that

calculated

district

to

court

the

civil

used

the

penalty.
incorrect

Finally, it brings constitutional

challenges to the award under the Fifth and Eighth Amendments.
A

defendant

found

liable

under

the

FCA

must

pay

the

government “a civil penalty of” not less than $5,500 and not
more than $11,000 “plus 3 times the amount of damages which the
Government

sustains

because

of

that

§ 3729(a)(1); 28 C.F.R. § 85.3(a)(9). 15

15

person.”

31

U.S.C.

In this case, the jury

The FCA sets the civil penalty range at $5,000 to
$10,000, but includes a provision that adjusts the range for
inflation.

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found that Tuomey had submitted 21,730 false claims, for which
it awarded actual damages of $39,313,065, which the district
court trebled.

The district court then added a civil penalty of

$119,515,000 to that sum, which it calculated by multiplying the
number of false claims by the $5,500 statutory minimum penalty.
Ordinary, we review a court’s calculation of damages for
clear

error.

Universal

Furniture

Int’l,

Inc.

v.

Collezione

Europa USA, Inc., 618 F.3d 417, 427 (4th Cir. 2010).

However,

to the extent the claim is that the calculations are influenced
by legal error, our review is de novo.

Id.

Likewise, the

constitutionality of a damages award is a legal question that we
review de novo.

See Cooper Indus., Inc. v. Leatherman Tool

Grp., Inc., 532 U.S. 424, 436 (2001).
A.
1.
According

to

Tuomey,

the

civil

penalty

assessed

was

improperly inflated because the jury was permitted to take into
account both inpatient and outpatient procedures performed by
the contracting physicians.
opinion

in

this

case,

Tuomey

Instead, relying on our earlier
claims

that

the

only

relevant

claims “were those Tuomey ‘presented, or caused to be presented,
to Medicare and Medicaid for payment of facility fees generated
as a result of outpatient procedures performed pursuant to the

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contracts.’”

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Appellant’s

Pg: 41 of 67

Br.

at

54

(quoting Drakeford, 675 F.3d at 399).

(alterations

omitted)

Tuomey is incorrect.

It is true that the contracts solely addressed compensation
for outpatient procedures.

That is, the physicians’ collections

(which form the basis for both their base salaries and their
productivity bonuses) do not account for the volume or value of
inpatient procedures performed.

Tuomey, however, takes out of

context language from our earlier opinion recognizing this fact
to suggest that we commanded that the relevant claims be limited
to those seeking payment for outpatient procedures.

We said

nothing of the sort.
If

a

physician

has

a

financial

relationship

with

a

hospital, then the Stark Law prohibits the physician from making
any referral to that hospital for the furnishing of designated
health

services.

E.g.,

United

States

ex

rel.

Bartlett

v.

Ashcroft, 39 F. Supp. 3d 656, 669 (W.D. Pa. 2014) (“Because a
‘compensation arrangement’ existed between Physician Defendants
and

[the]

Hospital,

the

Stark

[Law]

prohibited

Physician

Defendants from making any patient referrals to [the] Hospital
for designated health services.” (emphasis added)).

Inpatient

hospital services are designated health services.

42 U.S.C. §

1395nn(h)(6).

request

And

a

referral

includes

“the

or

establishment of a plan of care by a physician which includes
the

provision

of

the

designated
41

health

service.”

Id.

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§ 1395nn(h)(5).
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Plainly, then, inpatient services constitute a

referral

for

the

furnishing

of

designated

health

services, and the district court properly instructed the jury to
factor them into the damages calculation.
2.
Tuomey also asserts that the jury’s damage award is flawed
because the government failed to present sufficient evidence of
referrals.

Specifically, Tuomey contends that the government

did not identify the “referring physician,” and thus failed to
prove

that

the

alleged

false

claims

came

about

through

a

prohibited referral.
The government’s proof on this point came in the form of
summary evidence and testimony detailing the claims submitted by
Tuomey.

We agree with the district court that the government’s

evidence was sufficient to support the jury’s verdict.

We note

also, as did the district court, that “Tuomey was entitled to
offer its own expert and its own alternate damages calculations,
but elected not to do so.”
In

any

case,

Tuomey

J.A. 4061.
offers

no

authority

to

support

its

argument that the claims must explicitly identify the referring
provider.

Conversely, several courts have accepted that the

“‘attending/operating’

physician

42

identified

in

Form

UB-92

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qualifies as a referring physician.” 16

United States v. Rogan,

459 F. Supp. 2d 692, 713 (N.D. Ill. 2006); see also United
States v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002-Orl-31TBS,
2013 WL 6017329, at *10-11 (M.D. Fla. Nov. 13, 2013) (finding
that the fact that one of the physicians with whom the hospital
has a financial relationship is identified as an “operating” or
“attending” physician is sufficient evidence that the physician
was

also

contrary).

the

“referring

physician”

absent

evidence

to

the

Given the lack of support for Tuomey’s position, we

conclude that the jury had sufficient evidence to identify the
prohibited referrals.
3.
Tuomey

next

argues

that

the

district

court

erroneously

assessed the penalty based on the 21,730 UB-92/04 forms Tuomey
submitted

to

Medicare

for

reimbursement.

Instead,

Tuomey

asserts that the number of false claims should be limited to
four Medicare cost reports that it submitted. 17

16

Form UB-92 (later replaced by Form UB-04) is used by
hospitals to submit a claim for reimbursement to Medicare.
17

Cost reports (CMS-2552) “are the final claim that a
provider submits to the fiscal intermediary for items and
services rendered to Medicare beneficiaries. . . . Medicare
relies upon the hospital cost report to determine whether the
provider is entitled to more reimbursement than already received
through interim payments, or whether the provider has been
overpaid and must reimburse Medicare.”
J.A. 68-69 (citing 42
C.F.R. §§ 405.1803, 413.60, 413.64(f)(1)).

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Tuomey provides no Stark Law case to support its argument.
Rather,

it

cites

to

FCA

cases

where

the

UB-92/04

forms

themselves were not fraudulent, but were submitted as part of an
ongoing

fraudulent

scheme.

In

those

cases,

the

consummated only when the cost report was submitted.

fraud

was

See United

States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.
Supp.

2d

25,

70-71

(D.D.C.

2007);

Visiting

Nurse

Ass’n

of

Brooklyn v. Thompson, 378 F. Supp. 2d 75, 99 (E.D.N.Y. 2004).
But

even

those

cases

suggest

that

a

UB-92/04

form

can

constitute a discrete fraudulent claim under the FCA when the
government

proves

fraudulent.

that

the

forms

were,

in

fact,

false

or

See Hockett, 498 F. Supp. 2d at 70-71; Visiting

Nurse Ass’n, 378 F. Supp. 2d at 99.

This occurs when “the

provider knowingly asks the Government to pay amounts it does
not owe.”

United States ex rel. Clausen v. Lab. Corp. of Am.,

Inc., 290 F.3d 1301, 1311 (11th Cir. 2002).
Here, each time Tuomey submitted to Medicare a UB-92/04
form asking for reimbursement for a prohibited referral, it was
knowingly asking the government to pay an amount that, by law,
it could not pay.
not

err

in

Consequently, we find the district court did

finding

that

each

separate claim.

44

UB-92/04

form

constituted

a

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B.
Tuomey

also

actual damages.

challenges

the

district

court’s

measure

of

It argues that the true measure is not the sum

total of all claims the government paid (as the court instructed
the jury), but rather the difference (if any) between the true
value of the services provided by Tuomey and what the government
actually

paid.

evidence

that

for[,] . . .

According
the

to

Tuomey,

Government

there

were

Appellant’s Br. at 87.

no

did

actual

since

not

“there

get

damages

what

under

was
it

the

no
paid

FCA.”

Here again, Tuomey’s view of the law is

incorrect.
The

Stark

Law

prohibits

the

government

from

paying

any

amount of money for claims submitted in violation of the law.
42 U.S.C. § 1395nn(g)(1).
condition

precedent

Medicare.

to

Compliance with the Stark Law is a

reimbursement

of

claims

submitted

to

When Tuomey failed to satisfy that condition, the

government owed it nothing.

United States v. Rogan, 517 F.3d

449, 453 (7th Cir. 2008).
The
services

Stark

provided

unnecessary.
legally
injury

Law

expresses

in

Congress’s

violation

of

that

judgment

that

law

medically

are

all

By reimbursing Tuomey for services that it was

prohibited
equivalent

from
to

the

paying,
full

the

amount

government
of

the

has

suffered

payments.

Cf.

United States v. Mackby (Mackby II), 339 F.3d 1013, 1018-19 (9th
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Cir. 2003) (finding that the fact that the defendant actually
rendered

the

injury,

service

as

billed

“[d]amages

statement”).

did

under

not

the

negate

FCA

the

flow

government’s

from

the

false

In this case, the damage from the false statement

came from the payment to an entity that was not entitled to any
payment

at

all.

Accordingly,

we

reject

Tuomey’s

claim

of

error. 18
C.
Finally, Tuomey argues that the district court’s award of
$237,454,195,

consisting

of

damages

and

a

civil

penalty,

is

unconstitutional under the Excessive Fines Clause of the Eighth
Amendment and the Due Process Clause of the Fifth Amendment.
While

the

award

is

substantial,

we

cannot

say

that

it

is

unconstitutional.
“The
prohibits

Excessive
the

punishment.”

Fines

government

Clause
from

of

the

imposing

Eighth

excessive

Amendment
fines

as

Korangy v. FDA, 498 F.3d 272, 277 (4th Cir. 2007).

“Civil fines serving remedial purposes do not fall within the
reach

of

the

Eighth

Amendment.”

Id.

But

where

“a

civil

sanction ‘can only be explained as serving in part to punish,"

18

For the same reason, we also reject Tuomey’s contention
that the district court erred in failing to instruct the jury
that the government had to prove that the services received were
worth less than what the government paid.

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then the fine is subject to the Eighth Amendment.”

Id. (quoting

Austin v. United States, 509 U.S. 602, 610 (1993)).

In such a

case, the fine “will be found constitutionally excessive only if
it

is

‘grossly

offense.’”
v.

disproportional

to

the

gravity

of

[the]

Id. (alteration in original) (quoting United States

Bajakajian,

524

U.S.

321,

334,

(1998)).

We

have

said,

however, that instances in which the penalty prescribed under
the FCA is unconstitutionally excessive will be “infrequent.”
United States ex rel. Bunk v. Gosselin World Wide Moving, N.V.,
741 F.3d 390, 408 (4th Cir. 2013).
By contrast, the Due Process Clause “imposes substantive
limits beyond which penalties may not go.”
Alliance

Res.

Corp.,

509

U.S.

443,

TXO Prod. Corp. v.

453-54

(1993)

(internal

quotation marks omitted) (Fourteenth Amendment case); Morgan v.
Woessner, 997 F.2d 1244, 1255 (9th Cir. 1993) (finding that the
Supreme Court’s analysis under the Due Process Clause of the
Fourteenth Amendment applies equally under the Fifth Amendment),
cited with approval in EEOC v. Fed. Express Corp., 513 F.3d 360,
376 (4th Cir. 2008).

Like the Eighth Amendment, the Due Process

Clause does not apply to compensatory damage awards.
because

compensatory

damages

“redress

the

concrete

This is
loss

the

plaintiff has suffered by reason of the defendant’s wrongful
conduct,”

and

the

assessment

of

the

“essentially a factual determination.”
47

plaintiff’s

injury

is

Cooper Indus., 532 U.S.

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On the other hand, punitive damages are “essentially

‘private fines’ intended to punish the defendant and to deter
future

wrongdoing.”

Id.

Consequently,

there

must

be

“procedural and substantive constitutional limitations on these
awards.”

See State Farm Mut. Auto Ins. Co. v. Campbell, 538

U.S. 408, 416 (2003).

Thus, the Due Process Clause imposes

limits on “grossly excessive” monetary penalties that go beyond
what

is

necessary

to

vindicate

the

government’s

interests in punishment and deterrence.”

“legitimate

BMW of N. Am., Inc. v.

Gore, 517 U.S. 559, 562 (1996).
The “FCA imposes damages that are essentially punitive in
nature.”

Vt. Agency of Natural Res. v. United States ex rel.

Stevens, 529 U.S. 765, 784 (2000).

But the Supreme Court has

also noted that the treble damages provision of the statute has
a compensatory aspect, in that they account for the fact that
some

amount

of

money

beyond

actual

damages

is

“necessary

to

compensate the Government completely for the costs, delays, and
inconveniences occasioned by fraudulent claims.”
Ill.

v.

(2003).

United

States

ex

rel.

Chandler,

538

Cook Cnty.,
U.S.

119,

130

Additionally, the provision allows the government to

recover some measure of the amount it must pay to compensate
relators in qui tam actions.
(“If

the

Government

proceeds

Id.; see also 31 U.S.C. § 3730(d)
with

an

action

brought

by

[a

relator, the relator] shall . . . receive at least 15 percent
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but not more than 25 percent of the proceeds of the action or
settlement of the claim . . . .”).
penalty is completely punitive.

On the other hand, the civil

United States v. Mackby (Mackby

I), 261 F.3d 821, 830 (9th Cir. 2001).
The Supreme Court has instructed courts to consider three
guideposts when reviewing punitive damages awards under the Due
Process

Clause:

“(1)

the

degree

of

reprehensibility

of

the

defendant’s misconduct; (2) the disparity between the actual or
potential
damages

harm

award;

suffered
and

(3)

by
the

the

plaintiff

difference

and

the

punitive

between

the

punitive

damages awarded by the jury and the civil penalties authorized
or imposed in comparable cases.”

19

State Farm, 538 U.S. at 418.

There is no reason to believe that the Court’s “approach to
punitive

damages

under

the

Fifth

Amendment

would

differ

dramatically from analysis under the Excessive Fines Clause.”
Rogan, 517 F.3d at 454.
The degree of reprehensibility of the defendant’s conduct
is “[p]erhaps the most important indicium of the reasonableness
of

a

punitive

damages

award.”

19

Gore,

517

U.S.

at

575.

Of

Because the FCA’s civil penalty and treble damages
provisions are Congressional mandates, we believe this final
factor is not instructive here. Indeed, to the extent that the
district court exercised any discretion at all, it did so by
imposing the statutory minimum civil penalty for each fraudulent
claim.

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course, in this case the damages and penalties assessed against
Tuomey are congressionally prescribed.

31 U.S.C. § 3729(a)(1).

As we have previously stated, the Stark Law expresses Congress’s
judgment

of

the

reprehensibility

of

the

conduct

at

issue

by

deeming services provided in violation of the law worthless.
And “[t]he fact . . . that Congress provided for treble damages
and an automatic civil monetary penalty per false claim shows
that

Congress

believed

that

making

government is a serious offense.”
cf.

Rogan,

517

F.3d

454

(“[O]ne

a

false

claim

to

the

Mackby II, 339 F.3d at 1018;
would

think

that

a

fine

expressly authorized by statute could be higher than a penalty
selected ad hoc by a jury.”).
In
evaluate

addition,
the

the

degree

Supreme
of

Court

has

reprehensibility

directed
of

the

courts

to

defendant’s

conduct by considering whether:
the harm caused was physical as opposed to economic;
the tortious conduct evinced an indifference or a
reckless disregard of the health or safety of others;
the target of the conduct had financial vulnerability;
the conduct involved repeated actions or was an
isolated incident; and the harm was the result of
intentional malice, trickery, or deceit, or mere
accident.
State Farm, 538 U.S. at 419.

While Tuomey’s conduct in this

case does not implicate the first three factors, we think the
last two are relevant here.

See Saunders v. Branch Banking &

Trust Co. of Va., 526 F.3d 142, 153 (4th Cir. 2008) (finding

50

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even

provide

Filed: 07/02/2015

the

presence

justification

of

for

Pg: 51 of 67

a

single

a

State

substantial

Farm
award

factor
of

“can

punitive

damages”).
Clearly,
State

Farm,

claims.
meant

Tuomey’s
538

U.S.

conduct
at

“involved

419,

as

it

repeated

submitted

actions,”

21,730

false

Thus, while the penalty is certainly severe, it is
to

reflect

the

sheer

breadth

perpetrated upon the federal government.

of

the

fraud

Tuomey

Bunk, 741 F.3d at 407-

08 (explaining that the court was comfortable assessing high
civil

penalties

claims).

As

undertaking

in
we

spawns

FCA
have
a

actions

involving

said,
fraud

“[w]hen
of

a
an

large

number

enormous

comparable

of

public

breadth

[high

penalties] help[] to ensure what we reiterate is the primary
purpose of the FCA: making the government completely whole.”
Id.

Substantial penalties also serve as a powerful mechanism to

dissuade such a massive course of fraudulent conduct.
at 408.

See id.

And the government has “a strong interest in preventing

fraud” because “[f]raudulent claims make the administration of
Medicare more difficult, and widespread fraud would undermine
public confidence in the system.”

Mackby II, 339 F.3d at 1019.

Nor were Tuomey’s actions in this case the result of a
“mere accident.”

State Farm, 538 U.S. at 419.

determined

Tuomey

that

submitted

false

Rather, the jury

claims

for

Medicare

reimbursement “knowingly,” that is, with actual knowledge, in
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deliberate ignorance, or with reckless disregard that the claims
violated the Stark Law.

Under the circumstances, we agree with

the government that “strong medicine is required to cure the
defendant’s disrespect for the law.”

Gore, 517 U.S. at 577.

Next, we consider the disparity between actual harm and the
punitive damages award.

Specifically, we compare the actual

damages assessed against Tuomey to the civil penalty and the
portion
Here,

of
we

treble
can

damages

$119,515,000,

properly
as

that

can

regard

punitive.

be

the

On

considered

entire

the

other

civil

hand,

damages of $39,313,065 are entirely compensatory.
above,

the

trebling

additional

of

actual

sum

of

damages

$78,626,130

is

a

hybrid

punitive.
penalty,

the

actual

As discussed

resulting

the

compensatory

of

from

and

punitive damages.
Although the Supreme Court has not told us where to draw
the line, see Chandler, 538 U.S. at 131, we may safely assume
that the portion of the trebled award allocated to the relator
is

compensatory.

See

id.

Assuming

further

that

Drakeford

receives the minimum amount allotted by the statute--that is
fifteen
entitled

percent
to

$66,832,210
calculation,

of

the

total

$11,793,920
to
the

be

of

allocated

portion

recovery--the

of

the
to

trebled

punitive

damages

relator

that

award,

damages.
is

be

leaving
By

this

compensatory

$51,106,985 and the $186,347,210 balance is punitive.
52

would

is

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While the Court has been reluctant to fix a bright-line
ratio that punitive damages cannot exceed for purposes of the
Due Process Clause, it has suggested that “an award of more than
four times the amount of compensatory damages might be close to
the line of constitutional impropriety.”
at 425.

State Farm, 538 U.S.

Here, the ratio of punitive damages to compensatory

damages is approximately 3.6-to-1, which falls just under the
ratio the Court deems constitutionally suspect. 20
conclude

that

the

damages

award

is

We therefore

constitutional

under

the

Fifth and Eighth Amendments.

V.
Finally,

we

do

not

discount

the

concerns

raised

by

concurring colleague regarding the result in this case.

our
But

having no found no cause to upset the jury’s verdict in this
case and no constitutional error, it is for Congress to consider
whether changes to the Stark Law’s reach are in order.
AFFIRMED

20

The government contends that the ratio between the
penalty awarded and the actual damages (after accounting for the
relator’s recovery) may be as low as 2-to-1 or even 1-to-1.
This calculation, however, ignores the treble damages award, a
portion of which we consider to be punitive.

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WYNN, Circuit Judge, concurring:
Because Tuomey opened the door to the admission of Kevin
McAnaney’s testimony by asserting an advice of counsel defense,
and because I cannot say, based on the record before me, that no
rational jury could have determined that Tuomey violated both
the Stark Law and the False Claims Act, I concur in the outcome
today.
But I write separately to emphasize the troubling picture
this

case

paints:

An

impenetrably

complex

set

of

laws

and

regulations that will result in a likely death sentence for a
community hospital in an already medically underserved area.

I.
Regarding the issue of whether the district court correctly
granted a new trial, we review such a decision for abuse of
discretion.

Cline v. Wal-Mart Stores, Inc., 144 F.3d 294, 301

(4th Cir. 1998).

Similarly, we “review a trial court’s rulings

on the admissibility of evidence for abuse of discretion,” and
we will overturn such a ruling only if it is “arbitrary and
irrational.”

United States v. Cole, 631 F.3d 146, 153 (4th Cir.

2011) (quotation marks and citation omitted).
A.
Judge Perry, who presided over the first trial, excluded
McAnaney’s testimony pursuant to Evidence Rule 408, which can be

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used to exclude evidence of settlement negotiations.

Under Rule

408, “conduct or a statement made during compromise negotiations
about [a disputed] claim” is generally inadmissible when used to
“prove or disprove the validity or amount of a disputed claim.”
Fed. R. Evid. 408(a).
It is unclear to me that the district court abused its
discretion

in

determining

excluded under Rule 408.

that

McAnaney’s

testimony

could

be

In his deposition testimony, McAnaney

described himself as “a tie breaker” who was jointly hired by
Drakeford and Tuomey when they could not agree about whether the
contracts
J.A.

violated

139-41.

the

Stark

Tuomey’s

and

Law—arguably
Drakeford’s

a

disputed

dispute

claim.

about

the

legality of the contracts reached impasse and ended in Drakeford
acting as a relator of this qui tam action only three months
later.

Had

Drakeford

and

Tuomey

been

able

to

reach

an

agreement, Drakeford presumably would not have filed this suit,
in

which

the

government,

having

intervened,

now

stands

in

Drakeford’s shoes.
Rule 408’s exclusionary provision applies where a “dispute
or a difference of opinion exists,” not just “when discussions
crystallize to the point of threatened litigation.”

Affiliated

Mfrs., Inc. v. Aluminum Co. of Am., 56 F.3d 521, 527 (3d Cir.
1995).

When viewed thusly, it is hard to say that Judge Perry

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acted either arbitrarily or irrationally in deeming McAnaney’s
testimony excludable.
Crucially,

however,

evidence

subject

to

exclusion

under

Rule 408 is so excludable “only if the evidence is offered to
prove

either

liability

for

or

invalidity

of

a

claim

or

its

amount;” otherwise, it may come in.

Bituminous Const., Inc. v.

Rucker

965,

Enterprises,

Inc.,

816

F.2d

968

(4th

Cir.

1987)

(emphasis added); Fed. R. Evid. 408(b) (“The court may admit
this

evidence

for

another

purpose.”).

Stated

differently,

“[s]ince the rule excludes only when the purpose is proving the
validity or invalidity of the claim or its amount, an offer for
another purpose is not within the rule.”
Evid.

§

408.08

(quotation

marks

2-408 Weinstein’s Fed.

and

citation

omitted).

Therefore, if the McAnaney evidence was admissible for a purpose
beyond the validity or amount of a disputed claim, Rule 408
would provide no basis for barring it wholesale from the first
trial.
B.
The

government

argues,

among

other

things,

that

the

McAnaney evidence went to the heart of an issue wholly beyond
the

scope

of

Rule

408’s

limited

Tuomey’s advice of counsel defense.

exclusionary

ambit—namely,

With this, I must agree.

As explained by a district court in this Circuit in the
context of a False Claims Act fraud claim, “good faith reliance
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on the advice of counsel may contradict any suggestion that a
[defendant] ‘knowingly’ submitted a false claim.”

United States

v. Newport News Shipbuilding, Inc., 276 F. Supp. 2d 539, 565
(E.D.

Va.

2003).

“[I]f

a

[defendant]

seeks

the

advice

of

counsel in good faith, provides full and accurate information,
receives advice which can be reasonably relied upon, and, in
turn, faithfully follows that advice, it cannot be said that the
defendant ‘knowingly’ submitted false information or acted with
deliberate ignorance or reckless disregard of its falsity, even
if that advice turns out in fact to be false.”

Id.

See also,

e.g., United States v. Butler, 211 F.3d 826, 833 (4th Cir. 2000)
(identifying the elements of the advice of counsel defense as
“(a) full disclosure of all pertinent facts to [a lawyer], and
(b) good faith reliance on the [lawyer]’s advice”).
When a party raises an advice of counsel defense, however,
all advice on the pertinent topic becomes fair game.

“It has .

. . become established that if a party interjects the ‘advice of
counsel’ as an essential element of a claim or defense,” then
“all

advice

received

concerning

the

same

subject

matter”

is

discoverable, not subject to protection by the attorney-client
privilege, and, by logical extension, admissible at trial.
McCormick On Evid. § 93 (7th ed. 2013).

1

See also, e.g., In re

EchoStar Commc’ns Corp., 448 F.3d 1294, 1299 (Fed. Cir. 2006)
(“Once a party announces that it will rely on advice of counsel
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the

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privilege

is

waived.

The

widely

applied standard for determining the scope . . . is that the
waiver applies to all other communications relating to the same
subject matter. . . . Thus, when EchoStar chose to rely on the
advice

of

in-house

privilege

with

counsel,

regard

to

it

any

waived

the

attorney-client

attorney-client

communications

relating to the same subject matter, including communications
with counsel other than in-house counsel, which would include”
the advice of outside counsel.) (quotation marks and citation
omitted).
Here, there can be no doubt that Tuomey pressed an advice
of

counsel

defense.

Tuomey

argued

to

the

first

jury,

for

example, that “[t]he lawyers were the ones running the show . .
. . All Tuomey did was accept their recommendations and vote on
them if they thought that it was something that would be good
for

the

hospital.

defense.

Advice

of

counsel

is

a

very,

very

good

It is one that the law recognizes, and it is one that

. . . fits perfectly in this situation.”

Trial I, Transcript

for Mar. 25, 2010, at 1986.
Further,
advice

of

the

counsel

district
defense,

court

instructed

making

clear

the

that

it

jury

on

the

provided

vehicle for absolving Tuomey of False Claims Act liability.

a

The

court instructed, among other things, that “the defendant has
asserted

an

affirmative

defense
58

of

advice

of

counsel

to

the

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United

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States’

allegation

False Claims Act.
if

true,

will

Pg: 59 of 67

that

it

acted

in

to

defeat

show

of

the

An affirmative defense is an argument that,
the

government’s

claim.”

Transcript for Mar. 26, 2010, at 2098-99.
needed

violation

to

succeed

with

Trial

I,

Regarding what Tuomey

that

defense,

Judge

Perry

instructed that “in order for the defendant to prevail on its
affirmative defense of advice of counsel, Tuomey must prove the
following: One, that the advice was sought in good faith; two,
that

Tuomey

provided

full

and

accurate

information

to

the

attorney; three, the advice could be reasonably relied upon;
and, four, Tuomey faithfully followed the attorney’s advice.”
Id.
Having put the advice it got from its lawyers squarely at
issue,
which

Tuomey
advice

should
of

not

counsel

have

been

permitted

the

jury

was

to

cherry-pick

permitted

to

hear.

Instead, the jury should have been allowed to consider all the
advice of all Tuomey’s counsel—including McAnaney.
The

record

assessment

was,

makes
it

clear

was

also

that,

whatever

advice

of

else

McAnaney’s

counsel.

McAnaney’s

engagement letter to Tuomey and Drakeford, who had hired him
jointly, stated that McAnaney, a lawyer, had been “retained” to
“review

and

advise”

the

business relationship.”
guided

by

the

parties’

parties
J.A. 145.

“with

to

a

proposed

McAnaney committed to being

“instructions
59

respect

in

carrying

out

the

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representation” and reporting to the parties his “conclusions”
and “any potential compliance issues.”

Id.

In other words,

McAnaney was Tuomey’s counsel, and he advised Tuomey about the
contracts at the heart of this case.
The record makes similarly clear that Tuomey did not follow
McAnaney’s advice.

McAnaney advised Tuomey that the proposed

contracts raised significant “red flags” under the Stark Law.
J.A. 2054.

McAnaney advised that Tuomey would have difficulty

persuading the government that the contracts did not compensate
the physicians in excess of fair market value.
warned

Tuomey

that

the

contracts

prosecute” for the government.

presented

J.A. 2078.

“an

And McAnaney
easy

case

to

Rather than heed

this advice and back away from the contracts, however, Tuomey
told McAnaney not to put his conclusions in writing and ended
his engagement.
Allowing

McAnaney’s

testimony

into

evidence

to

show

the

advice he gave in light of Tuomey’s advice of counsel defense
would
ambit.

have
In

been

outside

other

words,

of
by

Rule

408’s

pressing

limited
an

advice

exclusionary
of

counsel

defense, Tuomey itself opened the door for McAnaney’s testimony
to come in, even if it otherwise might have been excludable
under Rule 408.

See Fed. R. Evid. 408(b).

Despite this, the

district court barred McAnaney’s testimony wholesale.

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In keeping McAnaney out of the first trial, the district
court prevented the jury from getting the full picture of what
advice Tuomey had gotten from counsel.

Tuomey told the jury

that “[t]he lawyers were the ones running the show . . . All
Tuomey

did

was

accept

their

recommendations.”

Transcript for Mar. 25, 2010, at 1986.
effectively

prevented

from

showing

Trial

I,

But the government was

that

Tuomey

had

gotten

conflicting recommendations from its different counsel, picked
its preferred advice, and discarded the rest.

It is hard to

imagine that this constituted anything other than a prejudicial
abuse of discretion.

Cf. Rodriguez-Garcia v. Municipality of

Caguas, 495 F.3d 1 (1st Cir. 2007) (reversing because erroneous
Rule 408 ruling hamstrung plaintiff’s ability to show elements
of claim).
In sum, in allowing Tuomey to press its advice of counsel
defense and giving the jury an advice of counsel instruction yet
preventing the jury from hearing all the advice that Tuomey got,
the

district

government.
trial.

court

abused

its

discretion

and

prejudiced

the

This error alone was grave enough to warrant a new

Accordingly,

I,

too,

conclude

that

decision to grant a new trial must be upheld.

61

Judge

Perry’s

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II.
Moving beyond the district court’s decision to grant a new
trial, I agree with the majority that the jury’s determination
that Tuomey violated both the Stark Law and the False Claims Act
must stand.

Our standard of review at this juncture is a highly

deferential

one,

“accord[ing]

the

utmost

respect

to

jury

verdicts” and “constraining” us to affirm so long as the record
contains “sufficient evidence for a reasonable jury” to have
returned the verdict it did.

Lack v. Wal-Mart Stores, Inc., 240

F.3d 255, 259 (4th Cir. 2001).

After careful review of the

record, I cannot conclude that no reasonable jury could have
reached the verdict before us.
Nevertheless,
paints:

I

am

troubled

by

the

picture

this

case

An impenetrably complex set of laws and regulations

that will result in a likely death sentence for a community
hospital in an already medically underserved area.
A.
The

Stark

Law

is,

at

its

core,

a

prohibition

on

self-

referrals, barring doctors from referring patients for certain
services to entities in which the doctors (or their immediate
family members) have a financial interest, unless an exception
applies.

Patrick A. Sutton, The Stark Law in Retrospect, 20

Annals Health L. 15, 25-26 (2011).

62

Further, entities providing

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the pertinent services are prohibited from billing Medicare or
Medicaid pursuant to such a prohibited referral.
“The

Stark

immaterial

Law

whether

is

a

one

strict

liability

intended

to

Id.

statute

violate

inadvertent violation can trigger liability.”

the

so

it

law;

is
an

Paula Tironi, The

“Stark” Reality: Is the Federal Physician Self-Referral Law Bad
for the Health Care Industry?, 19 Annals Health L. 235, 237-38
(2010).
be

Individuals and entities that violate the Stark Law can

subject

to

severe

monetary

federal health care programs.

penalties

Id.

open

to

extensive

exclusion

from

These “steep civil sanctions

and program exclusions may be ruinous.
are

and

liability,

Health care providers

their

financial

security

resting uneasily upon a combination of their attorneys’ wits
[and] prosecutorial discretion.”

Jo-Ellyn Sakowitz Klein, The

Stark Laws: Conquering Physician Conflicts of Interest?, 87 Geo.
L.J. 499, 503-04 (1998).
Despite attempts to establish “bright line” rules so that
physicians and healthcare entities could “ensure compliance and
minimize . . . costs,” 66 Fed. Reg. 856, 860 (Jan. 4, 2001), the
Stark Law has proved challenging to understand and comply with.
Indeed, “[t]he Stark law is infamous among health care lawyers
and their clients for being complicated, confusing and counterintuitive; for producing results that defy common sense, and
sometimes elevating form over substance.
63

Ironically, the Stark

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law was actually intended to simplify life by creating ‘bright
lines’

between

what

would

be

permitted

and

what

would

be

disallowed, and creating certainty by removing intent from the
equation.”

Charles B. Oppenheim, The Stark Law: Comprehensive

Analysis + Practical Guide 1 (AHLA 5th ed. 2014).

Some of the

invective

borders

used

to

describe

the

Stark

law

even

on

lyrical: “ambiguous[,] arcane[,] and very vague;” and “heaps of
words in barely decipherable bureaucratese.”
The

Stark

Law:

Boon

or

Boondoggle?

An

Steven D. Wales,
Analysis

of

the

Prohibition on Physician Self-Referrals, 27 Law & Psychol. Rev.
1, 22-23 (2003) (quotation marks and citations omitted).
Given this complexity and the strict liability nature of
the

statute,

a

Stark

Law

“compliance

program

can

help

a

physician or [] entity prove good faith and obtain leniency in
the event of a violation; however, the Stark Law’s complexity
and

frequent

revisions

make

it

difficult

for

physicians

entities to develop and implement such programs.”
at 238.

and

Tironi, supra

Against this problematic backdrop, the availability of

an advice of counsel defense should perhaps be especially robust
in Stark Law cases prosecuted under the False Claims Act.
B.
The False Claims Act discourages fraud against the federal
government
knowingly

by

imposing

presents,

or

liability
causes
64

to

on
be

“any

person

presented,

who
a

.

false

.

.
or

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claim

for

payment

Pg: 65 of 67

or

3729(a)(1)(A) (emphasis added).

approval.”

31

U.S.C.

§

The False Claims Act is meant

“to indemnify the government . . . against losses caused by a
defendant’s fraud,” Mikes v. Straus, 274 F.3d 687, 696 (2d Cir.
2001) (citing United States. ex rel. Marcus v. Hess, 317 U.S.
537, 549, 551–52 (1943)), as opposed to a defendant’s mistake.
Accordingly,

a

showing

defendant
good

may

faith

skirt

reliance

False
on

Claims

the

advice

Act

liability

by

of

counsel.

As the majority opinion recognizes, in fraud cases,

“‘[i]f in good faith reliance upon legal advice given him by a
lawyer to whom he has made full disclosure of the facts, one
engages in a course of conduct later found to be illegal,” the
trier of fact may conclude that the conduct was innocent because
“‘the guilty mind’ was absent.”

Ante at 30-31 (quoting United

States v. Painter, 314 F.2d 939, 943 (4th Cir. 1963)).
In the context of the Stark Law, it is easy to see how even
diligent counsel could wind up giving clients incorrect advice.
Between the law’s being amended to have a broader scope but then
narrowed with various exceptions, along with the promulgation
and amendment of copious associated rules and regulations, “the
Stark Law bec[ame] a classic example of a moving target.

For

lawyers, who must depend on the predictability of the law when
they give counsel to their clients, such unpredictability [i]s
an unusually heavy burden.”

Wales, supra at 21.
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In this case, there can be no doubt that Tuomey sought and
followed

the

advice

of

its

long-time

counsel,

Nexsen

Pruet.

Nexsen Pruet drafted and approved the contracts at the heart of
this litigation.

Tuomey and Nexsen Pruet consulted with others,

including

the

nation’s

national

consulting

compensation.

firm

Those

arrangements

(though

shared

pertinent

all

largest

healthcare

with

experts,

the

expertise
too,

parties

law

in

signed

dispute

information

firm

for

a

physician

off

whether

and

on

the

Tuomey

purposes

of

had

these

additional assessments).
Nevertheless, as the majority opinion notes, “a reasonable
jury could have concluded that Tuomey was . . . no longer acting
in good faith reliance on the advice of its counsel when it
refused

to

give

full

consideration

assessment of the” contracts.

to

Id. at 32.

McAnaney’s

negative

As already explained,

McAnaney, the former Chief of the Industry Guidance Branch at
the Department of Health and Human Services’ Office of Counsel
to the Inspector General, also served as Tuomey’s counsel.
he

advised

Tuomey

that

the

proposed

arrangements

significant red flags and may well be unlawful.
followed

McAnaney’s

advice,

it

likely

would

have

And

raised

Had Tuomey
faced

no

lawsuit in which to raise an advice of counsel, or any other,
defense.

66

Appeal: 13-2219

Doc: 92

Filed: 07/02/2015

Pg: 67 of 67

III.
This case is troubling.

It seems as if, even for well-

intentioned health care providers, the Stark Law has become a
booby trap rigged with strict liability and potentially ruinous
exposure—especially

when

coupled

with

the

False

Claims

Act.

Yet, the district court did not abuse its discretion when it
granted a new trial and the jury did not act irrationally when
it determined that Tuomey violated both the Stark Law and the
False Claims Act.

Accordingly, I must concur in the outcome

reached by the majority.

67