Wilson v. Crestwood Healthcare, L.P. et al

Filing 32

MEMORANDUM OPINION and ORDER DISMISSING CASE that the motion to dismiss filed by defendants, Speed, Tygart, Shah, Crestwood and Hudson, respectively, are GRANTED; the motion to strike jointly filed by defendants, Shah, Speed, and Tygart is DENIED as moot, it is ORDERED that all claims asserted in this action are DISMISSED with prejudice, costs are taxed to plaintiff; as more fully set out in order. Signed by Judge C Lynwood Smith, Jr on 5/18/2012. (AHI)

FILED
2012 May-18 PM 01:24
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
UNITED STATES OF
AMERICA, ex. rel. FLOYD H.
WILSON,
Plaintiff,
vs.
CRESTWOOD HEALTHCARE,
L.P., d/b/a CRESTWOOD
MEDICAL CENTER, et al.,
Defendants.

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Civil Action No. CV-11-S-3361-NE

MEMORANDUM OPINION AND ORDER
Relator, Floyd H. Wilson, commenced this qui tam proceeding on behalf of the
United States, alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq.,
by Crestwood Healthcare L.P., doing business as “Crestwood Medical Center,” Dr.
Smita S. Shah, Dr. James Eugene Speed, Dr. Stephen G. Tygart, Dr. Pamela Hudson,
and a number of fictional defendants described only as “Does 1-25.”1 Relator filed
his complaint, under seal, on September 16, 2011. The United States ultimately
elected to decline to intervene in the action on January 24, 2012.2 The complaint was

1

See doc. no. 1 (Complaint) ¶¶ 10, 12-14. See also Part III(E) of this opinion, infra,
discussing the fact that federal courts do not permit fictitious party practice.
2

Doc. no. 7.

unsealed on January 30, 2012.3 The case presently is before the court on four
motions: three virtually identical motions to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6), for failure to state a claim upon which relief can be
granted,4 and a motion to strike relator’s response to the motions to dismiss.5
I. FACTUAL ALLEGATIONS OF THE COMPLAINT
A.

Parties
Relator, Floyd H. Wilson, is a Tennessee-based contractor.6

Wilson’s

contracting company is called “Capital Investors Properties Group, Inc.”7 Defendant
Crestwood Healthcare L.P., doing business as Crestwood Medical Center
(“Crestwood”), owns and operates a hospital in Huntsville, Alabama.8 Defendant Dr.
Pamela Hudson is the Chief Executive Officer of Crestwood, a position she has held
since 2007.9 Defendants Dr. Smita S. Shah, Dr. James Eugene Speed, and Dr.
Stephen G. Tygart (the “defendant physicians”) are physicians who leased office

3

Doc. no. 8.

4

Doc. no. 20 (Motion to Dismiss of James Eugene Speed and Stephen G. Tygart); doc. no.
22 (Motion to Dismiss of Smita S. Shah); doc. no. 24 (Motion to Dismiss of Crestwood L.P. and
Pamela Hudson).
5

Doc. no. 30.

6

Doc. no. 1 ¶ 9.

7

See id. ¶ 62.

8

Id. ¶ 10.

9

Id. ¶ 11.

2

space for their medical practices from Crestwood.10
B.

The Corporate Integrity Agreement
Prior to December of 2000, Crestwood was owned by Healthcare Corporation

of America (“HCA”).11 On December 12, 2000, HCA entered into a “Corporate
Integrity Agreement” with the Department of Health and Human Services.12 That
agreement was for a term of eight years.13 When HCA sold Crestwood, Crestwood
was released from its obligations under the HCA Corporate Integrity Agreement
itself.14 From that time forward, Crestwood was subject to a supplemental integrity
agreement.15 Under that agreement, Crestwood was required to
implement and maintain with respect to its operations . . . an effective
program to prevent and detect violations of the legal requirements
applicable to the delivery of goods and services in connection with any
healthcare benefit and that such program will comply with the
provisions of the U.S. sentencing guidelines related to corporate
compliance programs and will be mindful of any applicable guidance
issued by [the Department of Health and Human Services] and . . .
maintain such program for no less than five years . . . .16

10

Id. ¶ 13. Defendants note that the physicians, themselves, did not sublease the space, i.e.,
their medical practices were the actual parties to the agreements. Doc. no. 21, at 4 n.1. For the
purposes of this motion to dismiss, that distinction is not relevant.
11

Cf. doc. no. 1 ¶ 45.

12

Id. ¶ 35.

13

Id. ¶ 36.

14

See id. ¶ 44.

15

Id. ¶ 45.

16

Doc. no. 1 ¶ 44 (bracketed alteration supplied).

3

Crestwood had an affirmative obligation to ensure that its provision of healthcare and
its billing policies complied with federal law, and to report any potential violations
to the Department of Health and Human Services.17
C.

The Lease Agreements
Crestwood entered into a “Ground Lease Agreement” with relator’s

development company in 1999.18 Relator developed the property for use as the
“Vincent Medical Building,” and leased the premises back to Crestwood through
January of 2011.19 Crestwood, in turn, subleased space in that building to the
defendant physicians and other medical practitioners.20 Relator’s complaint focuses
on the terms of those subleases.
One of the subtenants was a medical practice called “General Surgical
Associates.”21 Crestwood and General Surgical Associates executed a sublease for
a two-year term to commence in November of 2004.22 Allegedly, the sublease
deliberately understated the area of the demised premises, resulting in a benefit to
17

Cf. id. ¶ 43 (describing the affirmative reporting requirement in the HCA Corporate
Integrity Agreement).
18

Id. ¶ 62.

19

Id. ¶¶ 53, 62, 65-66.

20

See id. ¶ 65.

21

Doc. no. 1 ¶ 47. Presumably, one or more of the defendant physicians owns that practice,
but relator has not actually alleged how General Surgical Associates relates to any of the named
defendants.
22

Doc. no. 1 ¶ 47.

4

General Surgical Associates of more than $100,000 over the course of the lease.23
The defendant physicians were all subtenants of Crestwood for unspecified
periods of time between calendar years 2000 and 2010.24 Allegedly, thesubleases all
contained terms favorable to them. They were charged for less square footage than
they actually occupied.25 They were charged lease rates that were not only below the
market rate, but also below the rates Crestwood was paying relator under the master
lease, by between $1.00 to $3.00 a square foot.26 The subtenants were not required
to reimburse Crestwood for their use of Crestwood-owned equipment.27
Under the terms of the subleases, the subtenants were supposed to pay
Crestwood their share of the operating expenses of the premises as “additional
rents.”28 At the commencement of the subleases, the operating expenses were
23

Id. ¶ 48. The specifics of this transaction, as laid out in the complaint, are nonsensical.
Relator states that the sublease began in November of 2004, and was extended beyond its two-year
term, but was terminated in February of 2006, i.e., before the end of the initial lease terms. Id. ¶¶
47-48. Additionally, he states that the demised premises comprised “4823 square feet of rentable
space and 4306 square feet of useable space.” Id. ¶ 48. He then states that General Surgical
Associates paid a rental rate based on 4823 square feet of useable space, i.e., the area he had
previously identified as rentable space, and that the actual useable space was 5500 square feet, i.e.,
and area larger than he initially stated the rentable space to be. Id. ¶ 48.
Defendants have not relied on those inconsistencies in framing their arguments in favor of
dismissal. The court highlights them here only as an explanation for the omission of specifics in its
statement of the facts, as relator did attempt to include specifics in his complaint.
24

Doc. no. 1 ¶ 50.

25

Id.

26

Id. ¶¶ 50-52.

27

Id. ¶ 50.

28

Id. ¶ 55.

5

estimated at $3.00 a square foot per month, to be adjusted to reflect rising costs in the
future.29 Although actual operating expenses for Crestwood rose as high as $6.50 a
square foot per month, the subtenants were never charged more than $3 per square
foot per month.30 Likewise, the subtenants were not required to pay their utility costs,
in contravention of the subleases.31 Utility costs in comparable buildings over the
same time period were greater than $2.00 a square foot per month.32 Crestwood’s
failure to charge utility costs to the subtenants saved them between $18,000 and
$27,000 a year.33 Additionally, Crestwood did not charge the subtenants the expense
it incurred in paying ground lease expenses.34 That failure to charge expenses saved
the subtenants an additional $100,000.35
Crestwood provided custom leasehold improvements in the premises subleased
by the defendant physicians.36 None of those three physicians was charged for any
cost associated with those improvements.37 As a result, Shah saved $240,000, Speed

29

Doc. no. 1 ¶ 57.

30

Id.

31

Id. ¶¶ 59-60.

32

Id. ¶ 61.

33

Id.

34

Doc. no. 1 ¶¶ 62-63.

35

Id. ¶ 64.

36

Id. ¶¶ 72-74.

37

Id.

6

$260,000, and Tygart $260,000.38
D.

False Claims
The final paragraph in the “allegations” section of the complaint states that

Crestwood “knowingly and intentionally violated Federal Law” by providing all of
the compensation outlined in the complaint in exchange for illegal Medicare and
Medicaid referrals from the subtenants.39 “Defendants then knowingly submitted
false claims to federal and state governments based on referrals from those
physicians.”40 Relator does not identify any particular false claim by date, physician,
patient, type of service, or any other indicium.
II. MOTION TO DISMISS STANDARD
Federal Rule of Civil Procedure 12(b) permits a party to move to dismiss a
complaint for, among other reasons, “failure to state a claim upon which relief can be
granted.” Fed. R. Civ. P. 12(b)(6).41 This rule must be read together with Rule 8(a),
38

Id.

39

Doc. no. 1¶ 75.

40

Id.

41

In full text, Rule 12(b) provides that:

Every defense to a claim for relief in any pleading must be asserted in the responsive
pleading if one is required. But a party may assert the following defenses by motion:
(1) lack of subject-matter jurisdiction;
(2) lack of personal jurisdiction;

7

which requires that a pleading contain only a “short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While that
pleading standard does not require “detailed factual allegations,” Bell Atlantic Corp.
v. Twombly, 544 U.S. 544, 550 (2007), it does demand “more than an unadorned, thedefendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, —,
129 S. Ct. 1937, 1949 (2009) (citations omitted).
A pleading that offers “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action will not do.” [Twombly,
550 U.S., at 555]. Nor does a complaint suffice if it tenders “naked
assertion[s]” devoid of “further factual enhancement.” Id., at 557.
To survive a motion to dismiss founded upon Federal Rule of
Civil Procedure 12(b)(6), [for failure to state a claim upon which relief
can be granted], a complaint must contain sufficient factual matter,
accepted as true, to “state a claim for relief that is plausible on its face.”
(3) improper venue;
(4) insufficient process;
(5) insufficient service of process;
(6) failure to state a claim upon which relief can be granted; and
(7) failure to join a party under Rule 19.
A motion asserting any of these defenses must be made before pleading if a
responsive pleading is allowed. If a pleading sets out a claim for relief that does not
require a responsive pleading, an opposing party may assert at trial any defense to
that claim. No defense or objection is waived by joining it with one or more other
defenses or objections in a responsive pleading or in a motion.
Fed. R. Civ. P. 12(b).

8

Id., at 570. A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged. Id., at 556. The
plausibility standard is not akin to a “probability requirement,” but it
asks for more than a sheer possibility that a defendant has acted
unlawfully. Ibid. Where a complaint pleads facts that are “merely
consistent with” a defendant’s liability, it “stops short of the line
between possibility and plausibility of ‘entitlement to relief.’” Id., at
557 (brackets omitted).
Two working principles underlie our decision in Twombly. First,
the tenet that a court must accept as true all of the allegations contained
in a complaint is inapplicable to legal conclusions. Threadbare recitals
of the elements of a cause of action, supported by mere conclusory
statements, do not suffice. Id., at 555 (Although for the purposes of a
motion to dismiss we must take all of the factual allegations in the
complaint as true, we “are not bound to accept as true a legal conclusion
couched as a factual allegation” (internal quotation marks omitted)).
Rule 8 marks a notable and generous departure from the hyper-technical,
code-pleading regime of a prior era, but it does not unlock the doors of
discovery for a plaintiff armed with nothing more than conclusions.
Second, only a complaint that states a plausible claim for relief survives
a motion to dismiss. Id., at 556. Determining whether a complaint
states a plausible claim for relief will, as the Court of Appeals observed,
be a context-specific task that requires the reviewing court to draw on
its judicial experience and common sense. 490 F.3d, at 157-158. But
where the well-pleaded facts do not permit the court to infer more than
the mere possibility of misconduct, the complaint has alleged — but it
has not “show[n]” — “that the pleader is entitled to relief.” Fed. Rule
Civ. Proc. 8(a)(2).
In keeping with these principles a court considering a motion to
dismiss can choose to begin by identifying pleadings that, because they
are no more than conclusions, are not entitled to the assumption of truth.
While legal conclusions can provide the framework of a complaint, they
must be supported by factual allegations. When there are well-pleaded
factual allegations, a court should assume their veracity and then
9

determine whether they plausibly give rise to an entitlement to relief.
Iqbal, 556 U.S. at —, 129 S. Ct. at 1949-50 (emphasis added).
When ruling upon a motion to dismiss, the court must assume that the wellpleaded facts set forth in the plaintiff’s complaint are true. See Anza v. Ideal Steel
Supply Corp., 547 U.S. 451, 453 (1994) (stating that on a motion to dismiss, the court
must “accept as true the factual allegations in the amended complaint”); Marsh v.
Butler County, 268 F.3d 1014, 1023 (11th Cir. 2001) (en banc) (setting forth the facts
in the case by “[a]ccepting all well-pleaded factual allegations (with reasonable
inferences drawn favorably to Plaintiffs) in the complaint as true”). Accordingly, that
which is set out in this memorandum opinion as “the facts” for Rule 12(b)(6) purposes
may, or may not, be the actual facts. See, e.g., Williams v. Mohawk Industries, Inc.,
465 F.3d 1277, 1281 n.1 (11th Cir. 2006).
The pleading standard is heightened in cases involving fraud or mistake. “In
alleging fraud or mistake, a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Rule 9(b) serves three purposes:
First, it deters the use of complaints as a pretext for fishing expeditions
of unknown wrongs designed to compel in terrorem settlements.
Second, it protects against damage to professional reputations resulting
from allegations of moral turpitude. Third, it ensures that a defendant is
given sufficient notice of the allegations against him to permit the
preparation of an effective defense.

10

Banca Cremi, S.A. v. Alex. Brown & Sons, Inc., 132 F.3d 1017, 1036 n.25 (4th Cir.
1997) (quoting Parnes v. Gateway 2000, Inc., 122 F.3d 539, 549 (8th Cir. 1997)).
Claims brought pursuant to the False Claims Act are considered fraud claims, and are
subject to the pleading requirements of Rule 9(b). See, e.g., United States ex rel.
Matheny v. Medco Health Solutions, Inc., 671 F.3d 1217, 1222 (11th Cir. 2012).
III. DISCUSSION
A.

The False Claims Act, Anti-Kickback Statute, and Stark Statute
The False Claims Act allows private citizens to bring civil actions on behalf of

the United States — a so-called “qui tam action.” 31 U.S.C. § 3730(b). The person
bringing such an action is known as the “relator.” A qui tam action does not allege
that the relator personally suffered damages. Rather, the relator prosecutes the action
to recover losses suffered by the United States, but is entitled to a share of any
damages awarded to the government. That share ranges between fifteen and twentyfive percent, if the government decides to participate in the prosecution of the case,
or twenty-five and thirty percent, if the government declines to exercise that option.
See 31 U.S.C. §§ 3730(d)(1)-(2).
The False Claims Act imposes liability on persons who defraud the federal
government. The statute provides for a civil penalty of between $5,000 and $10,00
to be imposed for each violation, and treble damages for losses actually suffered by
11

the government. 31 U.S.C. § 3729(a)(1). In relevant part, the False Claims Act
imposes that liability on any person who:
(1) knowingly presents, or causes to be presented, to an officer or
employee of the United States Government or a member of the Armed
Forces of the United States a false or fraudulent claim for payment or
approval;
(2) knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or approved by
the Government;
(3) conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid;
...
(7) knowingly makes, uses, or causes to be made or used, a false
record or statement to conceal, avoid, or decrease an obligation to pay or
transmit money or property to the Government.
31 U.S.C. §§ 3927(a)(1)-(3), (7).42
Congress has enacted statutory provisions to curtail fraud in the medical
industry, particularly with regard to the federally-funded Medicare and Medicaid
programs. The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, imposes criminal
42

In 2009, Congress amended and renumbered sections of the False Claims Act. Fraud
Enforcement & Recovery Act of 2009, Pub. L. No. 111–21, § 4(a), 123 Stat. 1617, 1621–22. Those
amendments do not apply to this case. See id. § 4(f), 123 Stat. at 1625. Citations herein refer to the
False Claims Act as it existed before the 2009 amendments.
The amendments to the relevant language of the statute were largely stylistic, and the current
version of the statute is not substantively different from the prior version. The revised versions of
the old subsections (a)(1), (a)(2), (a)(3), and (a)(7) appear at subsections (a)(1)(A), (a)(1)(B),
(a)(1)(C), and (a)(1)(G), respectively, of the current 31 U.S.C. § 3927.

12

liability on anyone who, among other things,
knowingly and willfully solicits or receives any remuneration (including
any kickback, bribe, or rebate) directly or indirectly, overtly or covertly,
in cash or in kind —
. . . in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service
for which payment may be made in whole or in part under a
Federal health care program, . . .
42 U.S.C. § 1320a-7b(b)(1). The statute likewise penalizes those who make payments
in return for receiving referrals. 42 U.S.C. § 1320a-7b(b)(2). Additionally, the Stark
Statute, 42 U.S.C. § 1395nn, prohibits hospitals and other medical providers from
presenting claims to federal health care programs if those claims are the result of
referrals from physicians with whom the hospital has a financial relationship. See 42
U.S.C. § 1395nn(a)(1).
In recognition of the fact that legitimate relationships may exist between
hospitals and physicians who practice in or refer patients to hospitals, exceptions and
safe harbor provisions were included in both the Anti-Kickback Statute and the Stark
Statute. See, e.g., 42 U.S.C. §§ 1320a-7b(b)(3); 1395nn(e). Federal regulations
outline the requirements which must be met in order to submit a claim to the
government, when that claim would ordinarily be barred by the statutes. See, e.g., 42
C.F.R. § 411.357(a)(4). Among other requirements, any lease agreement between a

13

referring physician and treating hospital must be made at fair market value, and, be
consistent with an arms’ length transaction. See 42 U.S.C. § 1395nn(h)(3).
Relator’s False Claims Act theory is premised on violations of the AntiKickback Statute and the Stark Statute. He avers that the lease agreements between
Crestwood and the defendant physicians were arranged in exchange for patient
referrals, and violated both statutes: i.e., the rent was below market value, violating
the Stark Statute, and the reduced rent and other financial benefits constituted
remuneration, in violation of the Anti-Kickback Statute. Thus, he alleges, any
Medicare or Medicaid claims arising from referrals from the defendant physicians to
Crestwood would be in contravention of federal law and, therefore, fraudulent. For
the purposes of ruling on the motions to dismiss, the court will assume that relator’s
factual assertions regarding the lease arrangements are sufficient to establish
violations of the Anti-Kickback Statute and Stark Statute.
B.

Relator’s Claims
1.

Count I

Relator alleges violations of subsections (a)(1) and (a)(2) of the False Claims
Act in Count I of his complaint. The Eleventh Circuit has consistently held that, in
order to satisfy the pleading requirements of Federal Rule of Civil Procedure 9(b), a
relator bringing an action under to subsection (a)(1) of the False Claims Act must
14

allege “facts as to time, place, and substance of the defendant’s alleged fraud,
specifically the details of the defendants’ allegedly fraudulent acts, when they
occurred, and who engaged in them.” Matheny v. Medco Health Solutions, Inc., 671
F.3d 1217, 1222 (11th Cir. 2012) (quoting Hopper v. Solvay Pharmaceuticals, Inc.,
588 F.3d 1318, 1324 (11th Cir. 2009)). See also Corsello v Lincare, Inc., 428 F.3d
1008, 1012 (11th Cir. 2005); United States ex rel. Clausen v. Laboratory Company of
America, Inc., 290 F.3d 1301, 1310 (11th Cir. 2002).
“The False Claims Act does not create liability merely for a health care
provider’s disregard of Government regulations or improper internal policies unless,
as a result of such acts, the provider knowingly asks the Government to pay amounts
it does not owe.” Clausen, 290 F.3d at 1311 (citations omitted).
Without the presentment of such a claim, while the practices of an entity
that provides services to the Government may be unwise or improper,
there is simply no actionable damage to the public fisc as required under
the False Claims Act. The submission of a claim is thus not . . . a
‘ministerial act,’ but the sine qua non of a False Claims Act violation.
Id. (emphasis in original, citation omitted). Thus, the relator must make specific
allegations with regard to underlying violations of federal law: i.e., the actions that
make the claims submitted to the government fraudulent, and, with regard to the
claims themselves. As the Eleventh Circuit explained in Corsello,
Underlying improper practices alone are insufficient to state a
15

claim under the False Claims Act absent allegations that a specific
fraudulent claim was in fact submitted to the government. Clausen, 290
F.3d at 1311. In short, Corsello provided the “who,” “what,” “where,”
“when,” and “how” of improper practices, but he failed to allege the
“who,” “what,” “where,” “when,” and “how” of fraudulent submissions
to the government.
Corsello, 428 F.3d at 1014. See also Hopper, 588 F.3d at 1326 (ruling that Rule 9(b)
was not satisfied when the relator merely piled “inference upon inference” without
alleging any particular details about the submission of claims); United States ex rel.
Atkins v. McInteer, 470 F.3d 1350, 1359 (11th Cir. 2006) (ruling that a relator’s
complaint fails “for want of sufficient indicia of reliability” when it merely “portrays
the scheme and then summarily concludes that the defendants submitted false claims
to the government for reimbursement”). Cf. Matheny, 671 F.3d at 1225 (denying
motion to dismiss where “Relators pled specifics relating to the submission of a
specific statement in a specific document, submitted by a specific person during a
specific review, as required by a particular government contract”); Hill v. Morehouse
Medical Associates, Inc., No. 02-14429, 2003 WL 22019936, at *4-5 (11th Cir. Aug.
15, 2003) (denying motion to dismiss where relator provided detailed description of
billing process, physicians and patients involved, diagnosis codes, and confidential
documents containing additional information).
Actions brought pursuant to subsection (a)(2) of the False Claims Act do not

16

require allegations that false claims were submitted to the government, because that
subsection of the statute lacks the “presentment clause” that is contained in subsection
(a)(1). Hopper, 588 F.3d at 1327-29 (citing Allison Engine Co. v. United States ex rel.
Sanders, 553 U.S. 662 (2008)). Instead, a relator bringing a subsection (a)(2) claim
must allege “that (1) the defendant made a false record or statement for the purpose
of getting a false claim paid or approved by the government; and (2) the defendant’s
false record or statement caused the government to actually pay a false claim.” Id. at
1327. “[G]eneral allegations of improper government payments to third parties,
supported by factual or statistical evidence to strengthen the inference of fraud . . .
could satisfy the particularity requirements of Rule 9(b).” Id. (bracketed alteration
supplied). However, the Hopper court did not reach the question of whether the
pleading standard for the “payment clause” of subsection (a)(2) actually is more
relaxed than the high standard applied to the “presentment clause” in subsection (a)(1),
because the court determined that the relator did not allege that the defendants
intended for the government to rely on their false statements. Id.
Here, relator has failed to provide, or even to attempt to provide, the “who,”
“what,” “where,” “when,” and “how” of fraudulent claim submissions to the
government. As with the relators in Clausen, Corsello, Atkins, and Hopper, relator has
provided a detailed explanation of the illegal scheme that, he alleges, precipitated false
17

claims. But, as with the relators in the Clausen, Corsello, Atkins, and Hopper cases,
he provides no details regarding the submission of any claims. Relator only makes
one statement regarding the actual submission of false claims: “Defendants then
knowingly submitted false claims to federal and state governments based on referrals
from those physicians.”43 With regard to the government actually paying false claims,
relator makes a similarly conclusory assertion: “The United States, unaware of the
falsity of the records, statements and claims made or caused to be made by Defendants,
paid and continues to pay claims that would not be paid, but for the Defendants’
unlawful conduct.”44 He provides none of the “factual or statistical” support that the
Hopper court stated could be sufficient to plead a violation of the “payment clause.”
The allegations in Count I of the complaint, alleging violations of subsections (a)(1)
and (a)(2) of the False Claims Act, “do not ‘come up short.’ Rather, they do not come
up at all.”45
2.

Count II

Relator alleges violations of subsection (a)(3), conspiracy to defraud the United
States, in Count II of his complaint. To state a False Claims Act claim for conspiracy
to defraud the government, a relator must show:
43

Doc. no. 1 ¶ 75.

44

Id. ¶ 80.

45

Doc. no. 21, at 9.

18

(1) that the defendant conspired with one or more persons to get a false
or fraudulent claim paid by the United States; (2) that one or more of the
conspirators performed any act to effect the object of the conspiracy; and
(3) that the United States suffered damages as a result of the false or
fraudulent claim.
Corsello, 428 F.3d at 1014 (internal quotation and citation omitted). Subsection (a)(3)
claims, like those brought under the other subsections of the False Claims Act, are
subject to the heightened pleading standard of Rule 9(b). Id.
Here, relator alleges that the improper real estate dealings and patient referrals
that form the basis of his claims in Count I constitute a conspiracy to defraud the
government.46 Assuming for the sake of discussion that relator sufficiently alleged the
first two elements of a conspiracy claim, he failed to allege the third. As discussed in
the preceding subpart of this opinion, plaintiff failed to plead that the United States
suffered damages in a manner sufficient to satisfy Rule 9(b). Like his claims in Count
I, relator’s claim in Count II is not sufficiently pleaded.
3.

Count III

Relator alleges violations of subsection (a)(7) in Count III of his complaint.
That subsection is the so-called “reverse false claim” provision of the False Claims
Act. To assert a reverse false claim, a plaintiff must allege the existence of five
46

Doc. no. 1 ¶ 85 (“Through the acts described above, Defendants acting in concert with each
other . . . conspired to defraud the United States by knowingly presenting . . . false or fraudulent
claims . . . .”).

19

elements:
(1) a false record or statement and (2) the defendant’s knowledge of the
falsity; (3) that the defendant makes, uses, or causes to be made or used
a false statement; (4) for the purpose to conceal, avoid, or decrease an
obligation to pay money to the government; and (5) materiality of the
misrepresentation.
United States ex rel. Mastej v. Health Management Associates, Inc., — F. Supp. 2d
—, No. 2:11–cv–89–FtM–29DNF, 2012 WL 523623, at *7 (M.D. Fla. Feb. 26, 2012)
(citations omitted).
Here, relator has made no specific allegations to support a reverse false claim.
Instead, he merely makes a conclusory assertion that defendants “used a false record
or statement to conceal, avoid, or decrease an obligation to pay or transmit money to
the government.”47 His theory appears to be that, under its agreement with the
Department of Health and Human Services, Crestwood was required to remit to the
government any funds that it received to reimburse false claims.48 However, that
theory is not specifically developed in the complaint. In fact, relator “fails to allege
any amounts owed to the government by . . . defendants or otherwise provide any other
information that puts defendants on notice as to the substance of the . . . claims.” Id.
at *8. For that reason, Count III fails to meet the requirements of Rule 9(b).

47

Id. ¶ 92.

48

See doc. no. 27 (Response in Opposition to Motions to Dismiss), at 7-8.

20

C.

Relator’s Attempt to Salvage His Complaint
Relator’s response brief, filed in opposition to the motions to dismiss, contains

over four, full, single-spaced, pages of “background.”49 In those pages, relator sets
forth details that were absent from his complaint, citing to numerous exhibits attached
to the response. He provides a more specific account of the events that led to the
Corporate Integrity Agreement between HCA and the government, and the sale of
Crestwood by HCA.50 He also provides more detailed information about the lease
agreements between the various parties, and the contracting relationship between his
company and Crestwood.51 Of significance to the motions before the court, relator
cited deposition testimony of the defendant physicians, taken in the course of prior
litigation in state court.52 Dr. Speed testified that he and Dr. Tygart referred roughly
half of their patients to Crestwood, and that they provided service to Medicare
patients.53 Similarly, Dr. Shah testified that she referred patients to Crestwood, and
that about 40% of all of her patients received Medicare benefits.54 Finally, relator
stated that he and Terry Brown, the Chief Financial Officer of Crestwood, had
49

Id. at 2-6. The words “single-spaced” are emphasized because federal courts require that
the text of all pleadings be double-spaced.
50

Id. at 2-3.

51

Id. at 3-5.

52

Id. at 5-6.

53

Doc. no. 27, at 5.

54

Id. at 6.

21

“ongoing and continuing conversations” about Crestwood’s Medicare compliance.55
Brown allegedly told him that Crestwood “would take [its] chances” on the false
claims.56
The defendant physicians jointly filed a motion to strike the response, while
Crestwood and Hudson filed a reply brief, in which they urged the court to disregard
the additional facts.57 Relator then filed a response to the motion to strike, in which
he requested that he be afforded the opportunity to amend the complaint, should the
court find it deficient.
Defendants correctly state that, when evaluating a motion to dismiss premised
upon Federal Rule of Civil Procedure 12(b)(6), courts generally does not consider
allegations outside of the complaint itself. See, e.g., St. George v. Pinellas County,
285 F.3d 1334, 1337 (11th Cir. 2002) (“The scope of the review must be limited to the
four corners of the complaint.”). There is an exception to that general rule: i.e., when
an extrinsic document is “(1) central to the plaintiff’s claim, and (2) its authenticity is
not challenged.” Speaker v. United States Department of Health and Human Services
Centers for Disease Control & Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010).

55

Id. at 7.

56

Id. (bracketed alteration supplied).

57

Doc. no. 29 (Reply Brief of Crestwood and Dr. Pamela Hudson); doc. no. 30 (Motion to

Strike).

22

That exception can apply to documents referenced in the complaint, Wilchombe v.
TeeVee Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009), or submitted by a defendant.
Speaker, 623 F.3d at 1379. Thus, relator may rely on the language of the compliance
agreements and leases in arguing that his complaint is sufficiently well-pleaded
(although it would have been preferable to attach them to the complaint itself).
Nonetheless, the issue of whether relator may properly rely on documents
outside the four corners of his complaint is moot. Even assuming the background
information presented in relator’s response is true, it fails to elevate the allegations in
his complaint to the level of specificity required by the Eleventh Circuit under Rule
9(b). Relator still has failed to allege any false claims with specificity. The mere fact
that the defendant physicians admitted they referred some patients to Crestwood, and
had some Medicare patients, falls far short of the “who,” “what,” “where,” “when,”
and “how” required to satisfy Rule 9(b). Corsello, 428 F.3d at 1014. Relator’s
argument that his conversations with Brown provide his allegations with sufficient
indicia of reliability is stronger, but still ultimately fails.
Relator relies on two Eleventh Circuit cases: Matheny, and United States ex rel.
Walker v. R&F Properties of Lake County, Inc., 433 F.3d 1349 (11th Cir. 2005).58
58

Relator also cites an unpublished opinion from the Southern District of Ohio, United States
ex rel. McDonough, No. 2:08–CV–00114, 2012 WL 628515 (S.D. Ohio February 27, 2012). The
relator in that case, like those in Matheny and Walker, was an insider, and the court applied a Sixth
Circuit pleading standard that is not quite as stringent as that outlined by the Eleventh Circuit.

23

Relator states that in Walker, “the court found the relator’s information substantiated
by an officer of the corporation.”59 However, that characterization glosses over a
critical fact in Walker — the relator in that case was a former employee of the
defendant. Walker involved a medical practice that billed Medicare for the full cost
of services performed by physician’s assistants and nurse practitioners in situations
in which it was only permissible to bill for a portion of those services. Walker, 433
F.3d at 1353-54. The relator based her complaint, in part, on a conversation that she
had with one of the defendant’s managers. Id. at 1359. However, that conversation
was in the course of the relator’s employment with the defendant, in which she also
was a firsthand witness to the billing scheme, and was in fact required to participate
in it. Id. at 1360. The Walker relator was not a “corporate outsider,” Clausen, 290
F.3d at 1311, and her conversation with one of the defendant’s managers was not the
sole source of her knowledge regarding false Medicare claims.
Matheny is likewise distinguishable from the case at bar. Relator relies on
Matheny to demonstrate that failure to comply with a Corporate Integrity Agreement
can constitute a violation of the False Claims Act.60 That principle is not in doubt.
Rather, the problem with relator’s complaint is its failure to allege with specificity the

59

Doc. no. 27, at 7.

60

Id.

24

false claims that constituted violations of the agreement governing Crestwood. In
Matheny, the relators were former employees of the defendant. Matheny, 671 F.3d at
1220. One of them was present at meetings where the failure to comply with the
Corporate Integrity Agreement binding the company was discussed and the scheme
to falsify reports was developed. Id. at 1225-26. Although he was told of the scheme
by officers of the company, those conversations were part of his employment and, like
the Walker relator, he was required to participate in the scheme. Id. at 1221. The
Matheny relators identified the dates of the relevant meetings, and included specific
information about accounts for which false Medicare claims were filed. Id. at 1226.
The differences between the specificity of the allegations in Walker and
Matheny, on the one hand, and the case at bar, on the other, are striking. Perhaps most
salient is the fact that, here, relator is a corporate outsider, while in those cases the
relators were former employees of the defendants. There is no requirement that a
relator be an employee or former employee, and the Eleventh Circuit has recognized
the difficulty an outsider faces in satisfying Rule 9(b). See Clausen, 290 F.3d at 1314
(“We are not unsympathetic to the situation in which Clausen finds himself. Most
relators in qui tam actions are insiders. As a corporate outsider, he may have had to
work hard to learn the details of the alleged schemes . . . .”). Nonetheless, a relator,
be he an insider or an outsider, still must be able to state the “who,” “what,” “where,”
25

“when,” and “how” of claims filed with the government. Corsello, 428 F.3d at 1014.
See also Clausen, 290 F.3d at 1314 (stating that the pleading standard is not relaxed
for corporate outsiders). Of more legal significance than their status as insiders, the
relators in Walker and Matheny alleged specific details about the filing of fraudulent
claims. Relator’s bare assertion that claims were filed, and that the Crestwood CFO
told him that there were fraudulent claims, does not meet that standard.
D.

Relator’s Request for Leave to Amend his Complaint
Federal Rule of Civil Procedure 15 states that a “court should freely give leave

[to amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2) (bracketed alteration
supplied). “Ordinarily, a party must be given at least one opportunity to amend before
the district court dismisses the complaint.” Corsello, 428 F.3d at 1314 (citing Bryant
v. Dupree, 252 F.3d 1161, 1163 (11th Cir. 2001)).

The court may disallow

amendment, however, “(1) where there has been undue delay, bad faith, dilatory
motive, or repeated failure to cure deficiencies by amendments previously allowed;
(2) where allowing amendment would cause undue prejudice to the opposing party;
or (3) where amendment would be futile.” Id. When a relator desires to amend his
complaint, he must file a motion for leave to amend, and “must either attach a copy of
the proposed amendment to the motion or set forth the substance thereof.” Atkins, 470
F.3d at 1362.
26

Here, relator has not attached a copy of his proposed amended complaint. The
additional factual allegations he set forth in his response to the motions to dismiss,
however, appear to constitute the substance of his proposed amendment.61 Defendants
argue that amendment would be futile.62 The court agrees. As discussed in the
previous subpart of this opinion, even taking into consideration the additional facts
relator set out in his response brief, his allegations fall short of the mandate of Rule
9(b). He “does not profess to have firsthand knowledge of the defendants’ submission
of false claims.” Atkins, 470 F.3d at 1359. His attempt to buttress his complaint with
extrinsic evidence failed to identify a single false claim. Thus, the court may dismiss
the case without allowing him an opportunity to amend his complaint.
E.

Claims Asserted Against “Does 1-25”
The complaint names various fictitious defendants, stating that those unknown

people “have served as admitting physicians, agents, representatives of one and

61

See doc. no. 31, at 4.

[S]hould this court deem it inappropriate or find itself unable to consider, by judicial
notice, lease documents referred to in the complaint and testimony of the parties in
state court proceedings, under oath, Plaintiff would respectfully request Leave of
Court to amend the complaint filed by Plaintiff to further clarify and allege the
documents and elements from the Defendants[’] sworn statements in the complaint
filed by Plaintiff.
Id. (bracketed alterations supplied).
62

Doc. no. 29, at 6-7.

27

another in the fraud and submission of false and fraudulent claims to the United
States.”63 Federal courts do not allow fictitious party practice. See New v. Sports &
Recreation, Inc., 114 F.3d 1092, 1094 n.1 (11th Cir. 1997) (“[F]ictitious party practice
is not permitted in federal court.”). Therefore, any claims asserted against fictitious
defendants are due to be dismissed. See, e.g., Wiggins v. Risk Enterprise Management
Ltd., 14 F. Supp. 2d 1279, 1279 n.1 (M.D. Ala. 1998) (dismissing sua sponte fictitious
defendants).
IV. CONCLUSION AND ORDERS
For the reasons set forth herein, the motion to dismiss filed by defendants Speed
and Tygart,64 defendant Shah,65 and defendants Crestwood and Hudson,66 respectively,
are GRANTED. The motion to strike jointly filed by defendants Shah, Speed, and
Tygart67 is DENIED as moot. It is ORDERED that all claims asserted in this action
be, and the same hereby are, DISMISSED with prejudice. Costs are taxed to plaintiff.
The clerk is directed to close this file.

63

Doc. no. 1 ¶ 14.

64

Doc. no. 20.

65

Doc. no. 22.

66

Doc. no. 24.

67

Doc. no. 30.

28

DONE and ORDERED this 18th day of May, 2012.

______________________________
United States District Judge

29