United States of America et al v. County Of Cook
Filing
57
MEMORANDUM Opinion and Order: For the reasons stated herein, the Court grants the County's motion to dismiss Relator's Amended Complaint without prejudice. (Dkt. No. 52.) Relator may file a Second Amended Complaint within thirty (30) days. If no Second Amended Complaint is filed, this dismissal without prejudice will convert to one with prejudice. Signed by the Honorable Harry D. Leinenweber on 11/24/2020: Mailed notice(maf)
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 1 of 35 PageID #:434
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
ex rel. NOREEN LANAHAN,
Case No. 17 C 5829
Relator,
v.
Judge Harry D. Leinenweber
COUNY OF COOK,
Defendant.
MEMORANDUM OPINION AND ORDER
Defendant Cook County moves to dismiss Relator’s Amended
Complaint pursuant to FED. R. CIV. P. 12(b)(6) and FED. R. CIV.
P. 9(b). (Dkt. No. 52.) For the reasons stated herein, the Court
grants the motion. The Court dismisses Relator’s Amended Complaint
without prejudice. Relator may file a Second Amended Complaint
within thirty (30) days. If no Second Amended Complaint is filed,
this
dismissal
without
prejudice
will
convert
to
one
with
prejudice.
I.
BACKGROUND
This case arises from an alleged scheme by Cook County (the
“County”) to defraud the United States of federal grant funds.
Relator lodges a sprawling 294-paragraph Amended Complaint with
six counts against the County. The first five counts allege the
County violated the False Claims Act (“FCA”), specifically by: (1)
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presenting and submitting false claims in violation of 31 U.S.C.
§§ 3729(a)(1)(A) & (B) (Counts One and Two); (2) retaining and
converting federal funds premised on false claims in violation of
31 U.S.C. §§ 3729(a)(1)(D) & (G) (Counts Four and Five); and (3)
conspiracy
to
§ 3729(a)(1)(C)
violate
(Count
the
FCA
Three).
in
Count
violation
Six
of
31
U.S.C.
alleges
the
County
violated the FCA when it violated two other federal statutes, the
Stark Law and Anti-Kickback Statute. See 42 U.S.C. § 1320a-7b(b);
41 U.S.C. § 1395nn.
The Court summarizes Relator’s claims but notes the Amended
Complaint was difficult to follow and rife with inconsistencies.
Nevertheless, the Court takes the following facts therefrom. The
Court construes the facts in the light most favorable to the
Relator, accepting as true all well-pleaded facts alleged, and
drawing all possible inferences in Relator’s favor. See Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
A.
Relator’s Examples
Relator, Noreen Lanahan (“Relator”), worked as a Director of
Financial Control for the County’s Department of Public Health
(“CCDPH”). (Am. Compl. ¶¶ 16 & 27, Dkt. No. 42.) In that position,
Relator alleges she supervised the County’s grant fund accounting,
including the submission of claims for payment to the Government
in connection with federal public health grants. (See id. ¶¶ 27
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& 243.) Although Relator alleges she is an “original source” of
the information pleaded in the Amended Complaint, she does not
plead the details necessary to allege FCA violations or even the
dates of her employment. (Id.) Instead, the Amended Complaint
alleges
six
examples
of
apparent
FCA
violations
during
the
“relevant time period.” (See, e.g., id. ¶¶ 5, 16, 64, 75–77, 81,
109–10, 136, 138, 140, 149–50, 155, 159, 227–28, & 231–32.) For
each example, the Court details the allegations as follows.
1.
$2.5 Million H1N1 Personal Service Costs
Reimbursement and Transfer
Generally, Relator alleges that County certifications for
federal grant awards “during the relevant period” “were expressly
and impliedly false.” (Id. ¶¶ 136–37.) According to Relator, this
is because the County: (1) failed to maintain reliable records of
employee time spent on federal programs; (2) manually adjusted
certified cost reimbursement claims to align with the County’s
objective
to
spend
down
grant
money;
and
(3)
perpetuated
an
“ongoing scheme” to launder federal grant proceeds through the
Cook County Health and Hospital System (“CCHHS”) Enterprise Fund
(“Enterprise Fund”). (Id. ¶¶ 115 & 138.) Relator also alleges the
County’s retention of proceeds from false claims submitted to the
United
States
“impliedly
compromised
all
of
the
certificates
warranting awards and payments related to grants” during the
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relevant period. (Id. ¶¶ 140–42.) In support, Relator provides the
following example.
The
Centers
for
Disease
Control
and
Prevention
(“CDC”)
awarded two grants to CCDPH in 2009 to combat H1N1, totaling $2.5
million. (Id. ¶ 90.) Under the terms, the United States supplied
vaccines and reimbursed CCDPH for the personal service cost of
delivering those vaccines to certain County residents. (Id. ¶ 92.)
In general, CCDPH’s ability to achieve grant deliverables depends
on its ability to absorb liabilities until it can submit claims
for and obtain reimbursement from the United States. (See id.
¶ 244.)
As
the
period
of
performance
for
the
grants
reached
expiration, managers assigned employees usually staffed on local
public health objectives to work on the federal grant deliverables.
(Id. ¶ 93.) Yet, the payroll system continued to track and charge
those employees as expenses to a general business account instead
of the restricted business unit accounts specifically created for
the H1N1 grants. (Id. ¶¶ 91–94.)
To determine what amount of money should be charged from the
restricted accounts, the H1N1 program manager then requested the
payroll records of over one hundred employees to review their time
charges during the period of performance. (Id. ¶ 96.) She used
those records to estimate the employees’ time spent on the H1N1
grants. According to Relator, the resulting “estimate” was not in
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proportion to the time spent on the H1N1 initiative. Instead, the
H1N1 program manager “applied an arbitrary percentage to the salary
expensed to local taxpayers to arrive at a value closely aligned
with spending down the balance” of the H1N1 grant awards. (Id.
¶¶ 95–99; see also Invoices, Am. Compl., Exs. 1 & 2, Dkt. No. 421 & 42-2.) Those amounts were then “manually adjusted a second
time to accommodate travel expenses.” (Am. Compl. ¶ 99.)
The County allegedly certified claims and submitted them to
the CDC that listed a personal service cost of $1,210,802.33 on
the first restricted business unit account plus $46,856.23 in
travel expenses, totaling $1,257,658.56. (Id.) The County also
allegedly certified and submitted the identical employees at a
personal service cost of $1,065,506.05 on the second restricted
business unit account plus $93,600 in travel expenses, totaling
$1,159,106.05. (Id.) The claims submitted on both accounts total
$2,416,764.61,
suspiciously
close
to
the
total
$2.5
million
allotment. (Id.) Relator alleges the CDC reimbursed the County for
these
amounts.
(Id.
¶ 106.)
But
the
personal
service
costs
certified, submitted, and reimbursed did not reflect the County’s
liabilities
actually
incurred
to
support
the
H1N1
grant
objectives. (Id. ¶ 100.)
Relator next alleges that, after the period of performance
for a grant ends, regulations require the County to adhere to
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certain
closeout
procedures—the
objective
being
to
reconcile
revenue with expenses. (Id. ¶ 101.) Specifically, the regulations
require “liquidation of all obligations under the grant within 90
days of the end of the performance period” and the return of all
unliquidated grant money to the United States. (Id. ¶ 102.) The
County delegates the responsibility of balancing its various fund
accounts, in compliance with applicable laws and regulations, to
the Comptroller. (Id. ¶¶ 103–04.) The County code prohibits the
Comptroller “from liquidating the balance of federal reimbursement
funds credited to restricted grant business unit accounts” and
requires the Comptroller “to balance and close all revenue accounts
by . . . November 30th.” (Id. ¶ 105.)
In September 2011, the County generated vouchers for the H1N1
grant
reimbursements.
(Id.
¶
108.)
The
vouchers
labeled
the
reimbursement payments as employee costs incurred on behalf of the
grants,
and
the
Comptroller
directed
staff
to
voucher
these
reimbursement payments as credits to a specific account. (Id.
¶¶ 109–10; see also Reimbursement Vouchers, Am. Compl., Exs. 3 &
4, Dkt. Nos. 42-3 & 42-4.) Per grant closeout procedures, these
unliquidated H1N1 reimbursement funds were owed back to the United
States, and “the Comptroller was bound to close the grant business
units and refund the payments to the United States.” (Am. Compl.
¶¶ 111–12.) Instead, in October 2011, “the Comptroller liquidated
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$1,237,451[.]41 and $1,257,658.56 from the restricted H1N1 grants
to . . . a “special revenue fund.” (Id. ¶¶ 113–14.) The County
then adopted these amounts from its corporate balance sheet to the
CCHHS Enterprise Fund. (Id. ¶ 115.)
Relator
alleges
that
neither
the
County
nor
the
CCHHS
Enterprise Fund recorded the liquidated funds as a liability owed
to the United States. (Id. ¶ 116.) The County uses cost accounting
standards, recognizing “revenue and expenses only at the time when
cash changes hands.” (Id. ¶ 117.) CCHHS uses accrual accounting
standards, recognizing “revenue when it is earned and expenses at
the time that they are billed.” (Id.) Because of the differing
accounting standards, “the Comptroller is not legally bound to
balance CCHHS revenue accounts at the close of [the] County’s
fiscal year.” (Id.) Therefore, Relator alleges that the transfer
of grant funds to the CCHHS Enterprise Fund allowed the County to
circumvent
“external
and
internal
financial
and
accounting
standards that would have otherwise triggered a refund to the
United States.” (Id. ¶ 118.)
2.
$6.8 Million Personal Service Costs
Inquiry and Transfer
Relator alleges the County used the CCHHS Enterprise Fund “to
launder the illicit proceeds from false claims paid by the United
States for grants . . . by applying the funds as profit to CCHHS”
and that this practice “applied to all cost reimbursement grants
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administered by [CCDPH] during Relator’s tenure.” (Id. ¶ 120.)
Between 2007 and 2017, CCDPH “oversaw approximately $100 million
in grants awarded” to advance federal grant objectives in the
County suburbs. (Id. ¶ 121.) Thus, Relator alleges that the County
“retained tens of millions of dollars in reimbursements from the
United States for personal service costs that were not incurred”
in support of federal grant objectives. (Id. ¶ 122.)
Relator alleges that she “became aware [of] and increasingly
concerned about” the County’s administration of federal grant
funds in 2014. (Id. ¶ 124.) Specifically, near the end of the 2014
fiscal year, Relator received an inquiry from “County executives”
about $6.8 million in grant revenue that remained on CCDPH’s
“balance sheet at the time of a recent external audit.” (Id. ¶¶ 125
& 127; see also Nov. 2014 Email Chain, Am. Compl. Ex. 5, Dkt.
No. 42-5.) Relator responded that the money related to personal
service costs charged to specific grants from the United States,
and she identified four restricted business unit account numbers
that
corresponded
with
the
grants.
(Am.
Compl.
¶
127.)
“She
explained that the collective balance reflected deferred revenue
carried forward from 2013 grants that would be adjusted at grant
closing.” (Id. ¶ 128.) Relator does not allege that the County
failed to perform the personal services charged to these four
restricted business unit accounts.
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On November 10, 2014, the CCHHS Vice Chairman approved an
internal recommendation to liquidate the $6.8 million and absorb
the federal grant money as revenue to CCHHS. (Id. ¶ 129.) The
recommendation “ordered preparation of vouchers liquidating the
restricted cash credited to the grant business units to the CCHHS
Enterprise Fund as profit.” (Id.) The absorption of these funds
directly as profit to the Enterprise Fund cannot be traced by audit
trail. (Id. ¶¶ 131–32.)
This concerned Relator, and she expressed her frustrations
about the liquidation in an email to the CCHHS Chief Financial
Officer (“CFO”). (Id. ¶ 133.) In that email, Relator stated that
commingling federal grant funds and local revenue to “prop-up” the
CCHHS Enterprise Fund amounted to a “stunning” indifference to
accounting principles. (Id.; see also Lanahan Email to CCHHS CFO,
Am. Compl., Ex. 6, Dkt. No. 42-6.) Relator likened the action to
“Enron management and accounting.” (Am. Compl. ¶ 133; Lanahan Email
to CCHHS CFO.)
3. $14 Million Delegated to the Public Health
Institute of Metropolitan Chicago (“PHIMC”)
In March 2010, Relator learned that CCDPH had received a $16
million grant award from the CDC. (Am. Compl. ¶¶ 241 & 243.) Only
certified
funding.
public
(Id.
¶
health
242.)
departments
CCDPH
is
a
were
eligible
certified
for
public
this
health
department. (Id. ¶ 239.) Unlike the grants in Relator’s first two
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examples, the CDC advanced the money upfront. (Id. ¶ 244.) This
meant that the County did not have to absorb liabilities until it
submitted and obtained reimbursement from the United States. (Id.)
In 2011, Relator learned that the CCHHS Board prepared an
agreement with PHIMC to serve as fiscal agent for these funds.
(Id. ¶ 245.) PHIMC is not a certified public health department nor
did it have any agreement with the County—the guarantor for the
funds. (Id. ¶ 246.) Relator alleges that PHIMC lacked the resources
and financial controls to qualify for the award independently.
(Id. ¶ 247.) For this reason, the transfer of funds concerned
Relator. (Id. ¶ 249.) Relator was also concerned because “the CCHHS
Board lacked the authority to transfer funds awarded to [CCDPH]
without the approval of the [ ] County Board of Commissioners,”
and CCDPH would have to account for the funds in its annual audit.
(Id. ¶¶ 248–50.)
The CCHHS Board approved “a memorandum of understanding for
PHIMC to act as fiscal agent” for the funds. (Id. ¶ 251.) Because
of her concerns, Relator refused to transfer the funds to PHIMC
without authorization from the County Board of Commissioners. (Id.
¶ 252.) Then, CCDPH counsel informed Relator that PHIMC had already
received the funding. (Id. ¶ 253.) Despite the funding have already
been transferred, the CCDPH counsel asked whether Relator intended
to
include
approval
of
the
transfer
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on
the
County
Board
of
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Commissioners agenda. (Id. ¶ 254.) Ultimately, the County Board of
Commissioners approved the transfer. (Id. ¶ 255.)
During the annual audit, Relator conveyed her concerns about
this transfer to auditors. (Id. ¶ 256.) The auditors advised her
to put her concerns in writing and send them to the County CFO and
Chief Budget Officer. (Id. ¶ 257.) Relator did what the auditors
advised her to do. (Id. ¶ 258.) The only response Relator received
was from a County Budget Office employee informing her that “her
written concerns were not welcome.” (Id.)
4.
Next,
Institute
Relator
of
Hektoen Kickback Scheme
alleges
Medicine
that
the
(“Hektoen”)
County
and
participated
in
the
Hektoen
a
kickback
scheme involving federal grant funds. Hektoen “is an Illinois nonprofit organization that operates as a fiscal agent for public
grants.” (Id. ¶ 163.) Since “at least the 1970s,” Hektoen has
operated as a fiscal administrator for grants awarded to County
hospitals, including John Stroger Hospital (“JSH”) and Provident
Community
Hospital
(“PCH”).
(Id.)
“In
exchange
for
an
administration fee, Hektoen promotes itself . . . as a turnkey
solution for the fiscal administration of public grants.” (Id.)
Relator alleges familiarity with Hektoen from her work in the
healthcare industry, the news, and from personal experience in her
role as Director of Financial Control. (Id. ¶¶ 164–66.) As for the
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scheme,
Relator
alleges
that
Hektoen
provided
kickbacks
to
physicians charged with federal grants oversight as a reward for
selecting Hektoen to administer those grants. (Id. ¶¶ 231–32.) In
exchange, Relator alleges the physicians, in addition to the
administration fee, permitted Hektoen “to skim” off a percentage
of the federal award. (Id. ¶¶ 186–87 & 291.) “On information and
belief,” this percentage went into a “Dean’s Fund” that “department
chairs and senior physician leadership” utilized “for parties,
travel, and other unallowable costs.” (Id. ¶ 188.)
Relator alleges the arrangement with Hektoen to administer
grant
funds
gives
the
physicians
that
contract
with
Hektoen
“complete discretion” over the remaining percentage of funds after
the “Dean’s Fund” allocation. (Id. ¶¶ 189 & 193.) Before turning
over control, however, Hektoen requires authorization from the
physicians’ “fiscal and clinical chain of command within [the]
County’s
health
network.”
(Id.
¶ 193.)
To
obtain
this
authorization, physicians must create a budget outline of their
plans for the discretionary funds, and that budget outline must be
“approved
and
authorized
by
CCHHS
officials.”
(Id.)
Once
authorized, Hektoen transfers the funds from the grant account to
the principal investigator’s discretionary account. (Id. ¶ 194.)
After this, Relator alleges that there is no additional oversight.
(Id.)
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Relator
alleges
additional
benefits
to
physicians
for
contracting with Hektoen. For example, physicians have substantial
discretion over hiring employees with minimal interference from
Hektoen. (Id. ¶ 190.) Relator notes that “Hektoen does not prohibit
staffing grants with relatives and acquaintances.” (Id.) Also, to
make grant-related contract purchases, physicians submit a form to
Hektoen, and Hektoen uses grant funds to make the purchase without
additional “scrutiny” or “public oversight.” (Id. ¶ 191.) Finally,
many CCHHS “physicians were compensated at a rate higher than the
permissible rate chargeable as a salary expense” to federal grants
and CCHHS “internally tracked credits awarded to physicians for
delegating the fiscal management” of awards to Hektoen. (Id. ¶ 196;
see
also
Physician
Grant
Time
Tracking
Ledger
9/1/2013
to
10/31/2014, Am. Compl., Ex. 9, Dkt. No. 42-9.)
5.
Dr. Bala Hota
Relator alleges that at least one former JSH physician, Dr.
Bala Hota, received cash benefits in exchange for Hektoen’s fiscal
management of a federal grant. (Am. Compl. ¶¶ 198–203 & 211–21.)
Relator relays many details about Hota’s alleged theft of funds
from an April 2018 Chicago Tribune investigation and article. (See
id.; see also id. ¶ 218 n.11.) The article indicates that, over a
period of several years, Hota stole nearly $250,000 in grant
revenue for personal expenses like electronics and luxury travel.
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(See id. ¶¶ 198–203 & 211–21.) Relator alleges that she is unaware
of any attempts to disclose this theft to the United States. (Id.
¶ 204.)
6.
Cost Reports
Finally, Relator alleges the County certified JSH and PCH
cost reports to the Centers for Medicare and Medicaid Services
(“CMS”) that were false. The United States prepays reimbursements
to JSH and PCH based on cost reports certified to CMS for patient
care services covered by Medicare and Medicaid. (Id. ¶¶ 59 & 155–
57.) To determine the prepayment, CMS requires hospitals to account
for all patient care cost contributions in the cost reports,
including “any public grant revenue donated in support of patient
care services.” (Id. ¶ 158.) Relator alleges that, “during the
relevant period,” the County “falsely certified” CMS cost reports
by omitting grant revenue managed by Hektoen on the County’s
behalf, failing to disclose fraud, and certifying compliance with
applicable federal and state laws, regulations, and ordinances.
(Id. ¶¶ 159–60, 197, 225–30.) Relator also alleges that the County
duplicates its return on personal service costs by expensing them
to federal grant reimbursements and in CMS cost reports. (Id.
¶ 176.)
In support of these allegations, Relator cites the following
language allegedly from the preface and certification portion of
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cost reports submitted by County officials from both hospitals to
CMS “[s]ince at least 2008”:
MISREPRESENTATION OR FALSIFICATION OF ANY INFORMATION
CONTAINED IN THIS COST REPORT MAY BE PUNISHABLE BY
CRIMINAL, CIVIL AND ADMINISTRATIVE ACTION, FINE AND/OR
IMPRISONMENT UNDER FEDERAL LAW. FURTHERMORE, IF SERVICES
IDENTIFIED IN THIS REPORT WERE PROVIDED OR PROCURED
THROUGH THE PAYMENT DIRECTLY OR INDIRECTLY OF A KICKBACK
OR
WERE
OTHERWISE
ILLEGAL,
CRIMINAL,
CIVIL
AND
ADMINISTRATIVE ACTION, FINES AND/OR IMPRISONMENT MAY
RESULT.
CERTIFICATION BY OFFICER OR ADMINISTRATOR OF PROVIDER(S)
I HEREBY CERTIFY that I have read the above certification
statement and that I have examined the accompanying
electronically filed or manually submitted cost report
and the Balance Sheet and Statement of Revenue and
Expenses prepared by _________________________{Provider
Name(s) and Number(s)}for the cost reporting period
beginning ______________ and ending ______________ and
to the best of my knowledge and belief, this report and
statement are true, correct, complete and prepared from
the books and records of the provider in accordance with
applicable instructions, except as noted. I further
certify that I am familiar with the laws and regulations
regarding the provision of health care services, and
that the services identified in this cost report were
provided in compliance with such laws and regulations.
(Id. ¶¶ 225–26.) Relator also makes two general allegations about
JSH’s 2018 cost report. First, Relator alleges that JSH claimed
$516,396,057 for reimbursement from CMS for personal service costs
like salary and wage expenses. (Id. ¶ 157.) Second, Relator alleges
that JSH’s CFO endorsed the CMS cost report. (Id. ¶ 160.)
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B.
Procedural Posture
Relator filed her Complaint on August 10, 2017. After the
United States declined to intervene in the action, the case was
reassigned to this Court. On May 26, 2020, Relator filed her First
Amended Complaint. On September 14, 2020, the County filed this
motion to dismiss. (Mot., Dkt. No. 52.)
II.
LEGAL STANDARD
A Rule 12(b)(6) motion challenges the legal sufficiency of
the complaint. To survive a Rule 12(b)(6) motion, the complaint’s
allegations must meet a standard of “plausibility.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible
“when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “[T]he plausibility determination is a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense.” W. Bend Mut. Ins. Co. v. Schumacher,
844 F.3d 670, 676 (7th Cir. 2016) (quotation and citation omitted).
“Threadbare
recitals
of
the
elements
of
a
cause
of
action,
supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678.
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III.
DISCUSSION
Under the FCA, private individuals known as relators may file
qui tam civil actions against alleged fraudsters on behalf of the
United States government. United States ex rel. Watson v. KingVassel, 728 F.3d 707, 711 (7th Cir. 2013); 31 U.S.C. § 3730. If
the Government does not intervene in the action, as here, a relator
may proceed with the action solo but still on the Government’s
behalf.
eligible
31
U.S.C.
to
§ 3730(c)(3).
receive
a
If
percentage
of
successful,
the
total
a
relator
recovery.
is
Id.
§ 3730(d)(1)–(2).
A.
Rule 9(b) Particularity Pleading
Because the FCA is an anti-fraud statute, Relator must meet
the heightened pleading requirements of Rule 9(b). United States
ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th
Cir. 2018). Rule 9(b) requires that a plaintiff “alleging fraud or
mistake
.
.
.
state
with
particularity
the
circumstances
constituting fraud or mistake,” meaning “the who, what, when,
where, and how” of the fraud or “the first paragraph of any
newspaper story.” FED. R. CIV. P. 9(b); United States ex rel. Lusby
v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (internal
quotations omitted). “That includes the identity of the person
making the misrepresentation, the time, place, and content of the
misrepresentation, and the method by which the misrepresentation
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was communicated to the [Government].” United States ex rel. Hanna
v. City of Chi., 834 F.3d 775, 779 (7th Cir. 2016) (citation and
quotation omitted).
Rule
9(b)
has
three
main
purposes:
(1)
to
protect
a
defendant’s reputation from harm; (2) to minimize “strike suits”
and “fishing expeditions”; and (3) to provide adequate notice of
the claim to a defendant. Vicom, Inc. v. Harbridge Merchant Servs.,
Inc., 20 F.3d 771, 777 (7th Cir. 1994) (citation omitted); see
also Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v.
Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011) (“As one district
court has noted, the particularity requirement of Rule 9(b) is
designed
to
discourage
a
‘sue
first,
ask
questions
later’
philosophy.”). “Courts have generally agreed that when a relator
pleads lengthy fraudulent schemes, the relator need only allege
representative examples of the fraud with particularity.” United
States v. Addus HomeCare Corp., No. 13 CV 9059, 2017 WL 467673, at
*10 (N.D. Ill. Feb. 3, 2017) (citing cases).
In her response, Relator cites to Eighth Circuit precedent to
argue that she is a “bona fide whistleblower” entitled to a
“relaxed” Rule 9(b) standard. (Resp. at 10–12 (citing United States
ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d
914 (8th Cir. 2014)), Dkt. No. 55.) This is the first time Relator
identifies herself as a whistleblower. Further, Relator does not
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cite, nor can the Court find, any instance where the Seventh
Circuit adopts this standard. While the Seventh Circuit has said
that Rule 9(b)’s requirements are relaxed when the Relator lacks
access to all facts necessary to detail her claim, Relator does
not allege that here. Corley v. Rosewood Care Ctr., Inc., 142 F.3d
1041, 1051 (7th Cir. 1998). Indeed, Relator argues the opposite,
insisting
“insider
that
she
status.”
is
a
(Resp.
“quintessential
at
10–12.)
whistleblower”
She
claims
direct
with
and
independent knowledge based on personal involvement in the federal
grant
compliance
process
and
submission
of
claims
for
reimbursement. (See id.) This negates any potential lack of access
argument.
Further, courts in this district have struggled to reconcile
a relaxed pleading standard for qui tam relators with the fact
that a qui tam relator acts on the government’s behalf. See, e.g.,
United States v. Thorek Hosp. & Med. Ctr., No. 04 C 8034, 2007 WL
2484333, *2 (N.D. Ill. Aug. 29, 2007) (Andersen, J.) (“The qui
tam relator
must
meet
the
normal
standard
of
particularity
required by Rule 9(b).”); United States v. Ortho–McNeil Pharm.,
Inc., No. 03 C 8239, 2007 WL 2091185, *4 (N.D. Ill. July 20, 2007)
(Kendall, J.) (“If a relator cannot plead with particularity
alleged violations of the FCA, he stands in no better position to
assist the Government than any other citizen.”); Peterson v. Cmty.
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Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 20 of 35 PageID #:453
Gen. Hosp., No. 01 C 50356, 2003 WL 262515, at *2–3 (N.D. Ill.
Feb. 7, 2003) (Reinhard, J.) (“[T]he whole point of relator's case
is that defendants submitted [fraudulent] Medicare claims . . .
But which patients? And which claims? And which claims or other
documents show defendants falsely certified their compliance with
federal law? These questions are absolutely essential to relator's
claim of fraud.”). Some have even concluded that relaxing the Rule
9(b) pleading standard should be limited to “rare circumstances”
because
it
“would
undermine
the
purposes
of
fraud
pleading
generally and the FCA specifically.” Ortho-McNeil Pharm., Inc.,
2007
WL
2091185,
at
*4.
Because
Relator
has
not
alleged
circumstances warranting exception, Relator must meet Rule 9(b)’s
particularity pleading requirements.
To satisfy Rule 9(b), Relator must allege the who, what, when,
where, and how of the alleged fraud. Put another way, Relator must
plead
“specific
facts
demonstrating
what
occurred
at
the
individualized transactional level.” Berkowitz, 896 F.3d at 841.
Despite alleging a broad scheme by the County to defraud the United
States, none of Relator’s proffered examples pleads the necessary
underlying details of that fraud scheme. Tellingly, Relator does
not refer the Court to specific allegations in her response when
challenged
on
her
example. Lusby,
lack
570
of
F.3d
“newspaper
at
853.
- 20 -
story”
Relator
details
instead
of
each
resorts
to
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 21 of 35 PageID #:454
sweeping statements. (See, e.g., Resp. at 7 (stating each example
“provides the requisite ‘who, what, where, when and how.’”).)
Sweeping statements, however, are not enough.
The FCA imposes liability on any person who:
(A) knowingly presents, or causes to be presented, a
false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used,
a false record or statement material to a false or
fraudulent claim;
(C) conspires to commit a violation of subparagraph (A),
(B), (D), (E), (F), or (G);
(D) has possession, custody, or control of property or
money used, or to be used, by the Government and
knowingly delivers, or causes to be delivered, less than
all of that money or property;
. . .
(G) knowingly makes, uses, or causes to be made or used,
a false record or statement material to an obligation to
pay or transmit money or property to the Government, or
knowingly conceals or knowingly and improperly avoids or
decreases an obligation to pay or transmit money or
property to the Government,
31 U.S.C. § 3729(a)(1). Relator alleges violations of all the
listed § 3729(a)(1) subsections.
To maintain a claim under any of these subsections, Relator
must, at a minimum, allege the submission of a false statement to
the Government for payment. See Mason v. Medline Indus., Inc.,
No. CIV.A. 07 C 5615, 2009 WL 1438096, at *4 (N.D. Ill. May 2009)
(“The sine
qua
non of
a
False
Claims
- 21 -
Act
violation
is
the
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 22 of 35 PageID #:455
submission of a fraudulent claim.”); see also Hanna, 834 F.3d at
778 (stating that to prove a § 3729(a)(1)(A), a relator must show
that: (1) the defendant made a statement to receive money or
property from the government; (2) the statement was false; and (3)
the defendant knew the statement was false); United States ex rel.
Marshall v. Woodward Inc., 812 F.3d 556, 561 (7th Cir. 2015)
(stating to prove a § 3729(a)(1)(B) violation, a relator must show
that: (1) the defendant made a statement or record in order to
receive money or property from the government; (2) the statement
or record was false; (3) the defendant knew the statement or record
was false; and (4) the false statement or record was material to
the government's decision to pay or approve the false claim). Part
of meeting that minimum includes pleading the particularities of
the false statement in accordance with Rule 9(b).
Relator does not plead the submission of a false statement to
the Government for payment at all, let alone with the kind of
particularity that Rule 9(b) demands. Thus, Relator does not meet
the minimum. The Court addresses the two most obvious deficiencies
in Rule 9(b) terms—the when and the what.
1.
The
Amended
Complaint
The When
does
not
allege
specific
dates.
Instead, it repeatedly references the “relevant period.” (See,
e.g., Am. Compl. ¶¶ 5, 16, 64, 75–77, 81, 109–10, 136, 138, 140,
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Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 23 of 35 PageID #:456
149–50, 155, 159, 227–28, & 231–32.) Relator makes her allegations
as an “original source,” but the Amended Complaint does not allege
the dates of her employment. Further, the Amended Complaint does
not allege a single date when the County made any allegedly false
statement to the Government for payment. The Court does not expect
Relator to allege an exact date for every allegation, but alleging
none falls far short of Rule 9(b)’s requirements.
When the Amended Complaint does mention dates, most pertain
to alleged activity after payments were already disbursed to County
accounts. Such allegations say nothing about when and how the
County made a false statement to the Government for payment. Nor
do they establish when and how the County got the money for any
given grant. With an alleged complex scheme that seemingly spans
from 2008 to the present, it would certainly help to know when the
sine qua non of an FCA violation took place. (See Am. Compl. ¶¶ 223
& 226.) Mason, 2009 WL 1438096, at *4. Absent allegations of a
false
statement
allegations
about
to
the
the
Government
County’s
poor
for
payment,
financing
subsequent
practices
are
meaningless for FCA purposes.
The when is also necessary to determine whether Relator’s
claims fall within the FCA’s statute of limitations. The County
argues
the
violations
statute
before
of
August
limitations
10,
2011.
- 23 -
excludes
allegations
Nevertheless,
the
of
Court
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 24 of 35 PageID #:457
declines the County’s suggestion to dismiss on this basis. First,
“[a] contention that the statute of limitations bars an action is
an affirmative defense, meaning that the plaintiff is not required
to
negate
it
in
its
complaint.”
United
States
v.
Tech
Refrigeration, 143 F. Supp. 2d 1006, 1007 (N.D. Ill. 2001) (citing
Gomez v. Toledo, 446 U.S. 635, 640 (1980)). Second, the Amended
Complaint
does
not
allege
facts
sufficient
for
the
Court
to
determine when any false statement was made to the Government for
payment. The allegations do not even allow the Court to determine
when violations may have occurred or the applicability of tolling.
The Amended Complaint’s allegations are simply too deficient to
allow the Court to conduct a statute of limitations analysis.
2.
The What
Relator must plead that the County submitted a false statement
to the Government for payment either in the form of a claim or
false certification of compliance. The Amended Complaint is devoid
of either type of allegation. Relator argues that she alleges six
examples, but “the number of examples does not compensate for their
lack of particularity.” Mason, 2009 WL 1438096, at *3.
First, as to false claims for payment, Relator does not allege
any claim for payment submitted to the Government. For instance,
in her second example, Relator alleges the details of a November
2014
email
chain
wherein
the
CCHHS
- 24 -
Vice
Chairman
approved
a
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 25 of 35 PageID #:458
recommendation to transfer the $6.8 million balance of four grantspecific restricted business accounts as revenue to the CCHHS
Enterprise Fund. (Am. Compl. ¶¶ 123–33.) Relator argues that a
statement in the email chain directing staff members to move the
money from the grant-specific restricted business accounts to the
CCHHS
Enterprise
Fund
constitutes
a
claim
for
payment.
(See
Nov. 2014 Email Chain, Am. Compl. Ex. 5 (“Please see decision
below. We will be moving the $6.8 million to the Health fund.
Please prepare the entries. Thanks.”).) “Just like that,” Relator
concludes the “County violated the [FCA].” (Resp. at 3.) This is
not a claim for payment to the Government though. Any claim that
resulted in payment must have happened at some time before this
directive. Relator does not allege facts about that apparent
submission, and the Court cannot infer that it actually happened.
As to this second example, the Amended Complaint is silent
about how the $6.8 million in personal service costs were submitted
for reimbursement, when such claims were submitted, who submitted
those claims, to whom the claims were submitted, and for what
amounts.
The
other
example
discussing
personal
service
cost
submissions, example one, also comes up short. In this example,
Relator pleads the amounts allegedly submitted for reimbursement
(see Am. Compl. ¶ 99) but does not plead any of the other crucial
details. Relator’s remaining four examples similarly fail to plead
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the details of a false claim. Relator cannot “merely . . . describe
a private scheme in detail but then . . . allege simply and without
any stated reason for [her] belief that claims requesting illegal
payments must have been submitted, were likely submitted or should
have been submitted to the Government.” United States ex rel.
Quinn.
v.
Omnicare
Inc.,
382
F.3d
432,
440
(3rd
Cir.
2004)
(internal quotation marks and citation omitted); United States ex
rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 378 (7th Cir.
2003) (“Some [allegations] come close[ ] to specific allegations
of deceit but [the plaintiffs] fail to link them to any claim for
payment.”). Ultimately, Relator fails to plead any claim for
payment.
Without any claim for payment, it follows that Relator also
fails to plead the falsity of any such claim. Instead, she argues
that “[a]ny truth to the claims was abruptly undermined when the
Vice Chairman directed the conversion of the funds into profit for
the ‘Health system fund.’” (Resp. at 7.) FCA claims do not simply
arise from accounting failures, improper procedure, or disregard
for regulations. See United States ex rel. Grenadyor v. Ukrainian
Vill. Pharmacy, Inc., 772 F.3d 1102, 1107 (7th Cir. 2014) (“[I]t
is not enough to allege, or even prove, that the [defendant]
engaged in a practice that violated a federal regulation. Violating
- 26 -
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a regulation is not synonymous with filing a false claim.”). The
Court declines to draw such unreasonable inferences.
Second, as to false certifications of compliance to the
Government for payment, Relator alleges that the County made
multiple false statements or omissions to receive money from the
Government. A false certification theory may be the “basis for FCA
lability when a defendant not only requests payment on a claim
‘but also makes specific representations about the good or services
provided’ and ‘the defendant’s failure to disclose noncompliance
with material statutory, regulatory, or contractual requirements
makes those representations misleading half-truths.’” Berkowitz,
896 F.3d at 840–41 (citing Universal Health Servs., Inc. v. United
States ex rel. Escobar, 136 S.Ct. 1989, 2002 (2016)). The problem
is
that
Relator
certification.
does
The
not
allege
specifics
Complaint
Amended
the
contains
of
any
only
false
general
allegations that the County failed to comply with federal grant
requirements
but
nonetheless
certified
compliance
with
those
requirements to receive payment from the Government. (See, e.g.,
Am. Compl. ¶¶ 135–42.) Such general allegations, however, do not
plead
false
certification
on
an
individualized
transactional
level.
For instance, in Relator’s third example, she alleges that
CCDPH received a $16 million grant award for which it appointed a
- 27 -
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local non-profit, PHIMC, to serve as fiscal agent. (Id. ¶¶ 241–
45.) Relator alleges this was problematic because only certified
public health departments were eligible for the funding. (Id.
¶ 242.) According to Relator, PHIMC is not a certified public
health department nor does it have the resources and financial
controls to qualify for the award itself. (Id. ¶¶ 246–47.) Yet,
nowhere does Relator allege the County made a false certification
on this basis to receive the $16 million. The Court also fails to
see why a fiscal agent like PHIMC would need to qualify for the
funding it merely manages. These allegations require a logical
leap beyond what Rule 9(b) permits.
The FCA is not “an all-purpose antifraud statute . . . or a
vehicle
for
regulatory
punishing
garden-variety
violations.” Universal
breaches
Health,
136
of
contract
S.Ct.
at
or
2003
(citation and quotations omitted). Thus, compliance with Rule 9(b)
is mandatory. As discussed, the Amended Complaint fails to plead
the
key
element
for
any
FCA
claim—a
false
statement
to
the
Government for payment. It also lacks the facts necessary to
demonstrate
what
occurred
for
any
given
example
on
an
individualized transactional level. For this reason, the Court
dismisses Counts One, Two, Three, Four, and Five for failure to
state a claim.
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B.
Anti-Kickback Statute and Stark
Law FCA Claims: Count Six
Count Six alleges FCA claims based on alleged violations of
the Anti-Kickback Statute and Stark Law. The purpose of these laws
is to ensure lawful patient referrals for federally funded medical
services. Specifically, “[t]he Anti–Kickback Statute criminalizes
the knowing and willful solicitation, receipt, offer, or payment
of any remuneration for referring patients for care or services
that the government may pay for, in whole or in part, through a
federal health care program.” United States ex rel. Dolan v. Long
Grove Manor, Inc., No. 10 C 368, 2014 WL 3583980, at *4 (N.D. Ill.
July 18, 2014) (citing 42 U.S.C. § 1320a–7b). “The Stark Law
similarly ‘forbids federal reimbursement for services that stem
from
compensated
referrals.’” Dolan,
2014
WL
3583980,
at
*4
(citing United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008)).
“Neither statute provides a right of private enforcement, but
falsely certifying compliance with either is actionable under the
FCA.” Dolan, 2014 WL 3583980, at *4. Where, as here, an FCA claim
is premised on the violation of these laws, Relator must plead the
underlying violation in compliance with Rule 9(b)’s particularity
pleading requirements. Id.
Three of Relator’s alleged examples touch on these claims. In
Relator’s fourth example, she alleges that the County and Hektoen
improperly rewarded JSH and PCH physicians charged with grant
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oversight for selecting Hektoen to serve as fiscal administrator
for those grants. (Am. Compl. ¶¶ 161–97.) Specifically, Relator
alleges
the
County
and
Hektoen
promised
physicians
certain
benefits, including discretion over 90% of reallocated federal
grant funds and near total autonomy over personnel decisions. (Id.
¶¶ 192–94.) In Relator’s fifth example, she cites to an April 2018
Chicago Tribune investigation and article about one specific JSH
physician, Dr. Bala Hota, who allegedly benefitted from Hektoen
kickbacks and stole funds for personal expenditures. (Id. ¶¶ 198–
221.) In Relator’s sixth example, she also alleges that JSH and
PCH also benefitted from the alleged arrangement with Hektoen
because the hospitals avoided mandatory disclosure of public grant
revenue in cost reports submitted to CMS for Medicare and Medicaid
reimbursements.
(Id.
¶
8.)
According
to
Relator,
the
County
“falsely certified” CMS cost reports by omitting grant revenue
managed by Hektoen on the County’s behalf, failing to disclose
fraud, and certifying compliance with applicable federal and state
laws, regulations, and ordinances. (Id. ¶¶ 226–30.) Based on these
examples, Relator alleges the County is liable for Anti-Kickback
and Stark Law violations under the FCA. (Id. ¶¶ 290–93.)
Relator alleges the County falsely certified compliance with
the Anti-Kickback Statute and Stark Law in CMS cost reports, giving
rise
to
an
FCA
violation.
Contrary
- 30 -
to
Relator’s
allegation,
Case: 1:17-cv-05829 Document #: 57 Filed: 11/24/20 Page 31 of 35 PageID #:464
violations of the Anti-Kickback Statute and Stark Law are not per
se FCA violations. (See id. ¶ 292.) United States ex rel. Kroening
v. Forest Pharms., Inc., 155 F. Supp. 3d 882, 890–91 (E.D. Wis.
2016). In fact, “[k]ickbacks are not actionable under the FCA
unless someone submits claims to the government for payment based
on those kickbacks.” United States ex. rel. Stop Ill. Mktg. Fraud,
LLC v. Addus Homecare Corp., No. 13 C 9059, 2018 WL 1411124, at *6
(N.D. Ill. Mar. 21, 2018). While Relator “does not need to present,
or even include allegations about, a specific document or bill
that the defendants submitted to the Government,” she must do more
than generally allege the submission of claims. United States ex
rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770,
777 (7th Cir. 2016). Relator must plead some details sufficient to
support an inference of false claims. See Lusby, 570 F.3d at 853–
54.
For this reason, Count Six suffers the same fate as the other
counts. Relator has not pleaded details sufficient to support such
an inference because she has not pleaded the submission of any
claim at all. Relator argues that she met this burden and points
to her allegations in example six that JSH and PCH submitted cost
reports to CMS for Medicare and Medicaid reimbursements. (Resp. at
14–15.) Relator argues that, from this, the Court can draw a
reasonable inference that the personal service costs charged to
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Hektoen-managed grants were duplicative of expenses charged in the
hospitals’ CMS cost reports. The Court, however, cannot draw such
an inference from the allegations in Relator’s Amended Complaint.
While CMS cost reports can constitute claims for payment
submitted to the Government within the scope of the FCA, Relator
does not plead the material details of any CMS cost report in
particular. Mason, 2009 WL 1438096, at *3 (finding CMS cost reports
can
constitute
claims
for
payment
but
finding
allegations
deficient under Rule 9(b)); see United States ex rel. Crews v. NCS
Healthcare of Ill., Inc., 460 F.3d 853, 856–57 (7th Cir. 2006)
(finding failure to allege false claim is fatal); see also Garst,
328 F.3d at 378 (finding relator “does not come close to alleging
fraud
with
particularity”).
To
sufficiently
allege
duplicate
charges, Relator must first allege details about specific cost
reports, including: the overall amount claimed in the cost report,
what portion of that claimed amount was for personal service costs,
when the cost report was submitted, who submitted the cost report,
when the report was submitted, and what years the cost report
covers. The Court would then require the same information about
the specific Hektoen-managed grants that Relator alleges duplicate
personal service costs already claimed in a corresponding cost
report. These details would allow the Court to compare the cost
reports with the Hektoen-managed grant reimbursements for any
- 32 -
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given
year
and
information.
The
charges
exist
submitted
potentially
Court
cannot
without
in
cost
a
infer
duplication
simply
conclude
description
reports
and
of
for
the
from
that
that
duplicate
claims
actually
Hektoen-managed
grant
reimbursements in any given year.
Relator includes just two allegations about a specific cost
report—JSH’s
2018
cost
report—in
her
general
background
allegations to her sixth example. (See Am. Compl. ¶¶ 154–60.)
First,
Relator
alleges
that
JSH
claimed
$516,396,057
for
reimbursement from CMS for personal service costs like salary and
wage expenses. (Id. ¶ 157.) Second, Relator alleges that JSH’s CFO
endorsed the CMS cost report. (Id. ¶ 160.) Relator, however, does
not connect these general allegations to any wrongdoing.
For example, Relator does not plead the specifics of any
corresponding Hektoen-managed grants overseen by any JSH physician
in 2018. As a result, these two random allegations do not allow
the Court to infer that the personal service costs charged to
Hektoen-managed grants overseen by JSH physicians were duplicative
of expenses that JSH charged to CMS in its 2018 cost report. See
Mason, 2009 WL 1438096, at *4 (concluding that plaintiff “simply
has not established the necessary links between a fraudulent scheme
and
a
false
claim”).
Because
the
Court
cannot
compare
JSH’s
Hektoen-managed grant reimbursements for personal service costs in
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2018 with the amount JSH certified to CMS for personal service
costs in its 2018 cost report, Relator’s reasonable inference
argument fails.
Relator pleads some specific information about former JSH
physician, Dr. Bala Hota. (See Am. Compl. ¶¶ 198–204 & 211–21.)
However, Relator pulls most of these allegations from an April
2018 Chicago Tribune article versus relying on her own personal
knowledge. (See id. ¶ 218 n.11.) These allegations speak to the
alleged falsity of the County’s cost report certifications. They
do not, however, fill the major void in this Amended Complaint—
the failure to allege the submission of a false statement to the
Government for payment. Accordingly, the Court dismisses Count Six
for failure to state a claim.
IV.
CONCLUSION
For the foregoing reasons, the Court grants the County’s
motion to dismiss Relator’s Amended Complaint without prejudice.
(Dkt. No. 52.) Relator may file a Second Amended Complaint within
thirty (30) days. If no Second Amended Complaint is filed, this
dismissal without prejudice will convert to one with prejudice.
IT IS SO ORDERED.
- 34 -
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Harry D. Leinenweber, Judge
United States District Court
Dated: 11/24/2020
- 35 -
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