Wickline v. Powell County Fiscal Court
Filing
59
OPINION & ORDER: 1. Court Orders Plaintiff Stipe's 25 MOTION for Joinder is DENIED. 2. Dft's 26 MOTION to Dismiss for failure to state a claim is GRANTED. 3. Plaintiffs claims are DISMISSED. 4. Dft's 29 MOTION for Leave to File Third-Party complaint is DENIED AS MOOT. 5. Judgment consistent with this Order will be entered. Signed by Judge Karen K. Caldwell on 6/21/2018.(GLD)cc: COR
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
AT LEXINGTON
UNITED STATES OF AMERICA, ex rel.
JESSICA N. STIPE,
JUN 2 12018
AT lEXfNGTON
CLE ROBERT R. CARR
RK U.S. DISTRICT COURT
NO. 5:16-CV-446-KKC
Plaintiff,
OPINION AND ORDER
v.
POWELL COUNTY FISCAL COURT,
Defendant.
*** *** ***
This matter is before the Court on Relator-Plaintiff Jessica Stipe's Motion to Join Party
(DE 25) and Defendant Powell County Fiscal Court's Motion to Dismiss (DE 26) and Motion
for Leave to File a Third Party Complaint (DE 29). For the reasons set forth below, the Court
denies Stipe's motion to join, grants Defendant's motion to dismiss, and denies Defendant's
motion to file a third party complaint as moot.
I. Background
This qui tam action was first initiated by Relator Robert Justin Wickline on December 5,
2016. (Compl., DE 1.) In January 2017, Wickline filed his First Amended Complaint, which
added Jessica Stipe as a Relator. (1st Am. Compl., DE 3.) In May 2017, the United States
provided notice that it declined to intervene and, shortly thereafter, the Relators' First
Amended Complaint was unsealed. On August 11, 2017, the Relators moved to file a Second
Amended Complaint removing Wickline as a Relator, which the Court granted. (DE 10, 11.)
The following factual background is drawn from Stipe's Second Amended Complaint. (2d Am.
Compl., DE 12.)
1
Stipe is a resident of Mount Sterling, Kentucky and was employed by Powell County
Fiscal Court ("PCFC") as an emergency medical technician ("EMT"). PCFC is licensed to
provide ambulance services to the citizens of Powell County, Kentucky. (2d Am. Compl. ii 2.)
It is also a participating ambulance service provider in Medicare, which pays for federal
reimbursement for medically necessary ambulance transportation. (2d Am. Com pl.
iii! 9-12.)
Stipe alleges that PCFC regularly transported patients by ambulance when such
transportation was not medically necessary. As an example, she discusses patient V.H., who,
over a two year period, received ambulance transportation to and from dialysis despite being
capable of walking and not requiring oxygen therapy. (2d Am. Com pl. ii 22.) She also asserts
that, on at least thirty occasions, PCFC employees documented non-emergency dialysis
transport as "ALS, Level 1," a significantly higher billing rate than non-emergency services.
She claims that ten patients had been transported for non-emergency reasons and
documented as "bed confined," despite not meeting Medicare's definition of the term, and that
eight patients were routinely transported despite not meeting the medical necessity
requirement. (2d Am. Compl.
iii!
23-24.) She also asserts that, after Menifee County posted
a memorandum that certain patients residing at the Edgewood Nursing Home did not meet
the medical necessity standard for transport, PCFC sent ambulances into Menifee County to
provide services to those thirty-nine residents. (2d Am. Compl. il 25.) In furtherance of this
scheme, she claims that PCFC employees Director Nathan Hall and Assistant Director Arlen
Rogers pressured subordinate employees, including herself, to falsify and change medical
documentation and to use a pre-filled "Medical Necessity for Ambulance Transport" form so
that PCFC could bill for non-emergency transportation. (2d Am. Compl.
iii! 27-31.)
Stipe's second allegation is that PCFC billed Medicare for non-reimbursable ambulance
transportation by employing an EMT whose certification had expired and a second employee,
G.C., who was not eligible for EMT certification due to a felony diversion program sentence.
2
(2d Am. Compl.
ii
36-44.) She claims that these employees completed sixty-two and forty-
seven ambulance "runs," respectively, which were submitted fraudulently to Medicare for
reimbursement. (2d Am. Compl.
iii!
40, 44.)
Next, Stipe alleges that PCFC billed for non-reimbursable ambulance transportation
during an approximately one-year period when it did not employ a medical director for
ambulance services. She claims that the Kentucky Board of Emergency Medical Services
advised PCFC, pursuant to federal and state regulations, to cease advanced life support
transport until a medical director was supervising operations. Despite this warning, PCFC
continued to bill for those services and receive governmental reimbursements. (2d Am.
Compl.
iii!
52-56.)
Finally, Stipe claims that she witnessed, on numerous occas10ns, PCFC employees
provide advanced life support transport to patients when it was medically unnecessary and
that sixty-five claims were fraudulently up-charged as a result. (2d Am. Compl.
iii!
62-64.)
Stipe asserts two claims under the False Claims Act ("FCA''). 31 U.S.C. § 3729, et seq.
Count I of the Second Amended Complaint asserts that PCFC knowingly presented, or caused
to be presented, false or fraudulent claims for ambulance transport that were not
reimbursable. (2d Am. Compl.
iii!
65-70); see 31 U.S.C. § 3729(a)(l)(A) (holding liable "any
person who knowingly presents, or causes to be presented, a false or fraudulent claim for
payment or approval"). Count II alleges that PCFC knowingly made, used, or caused to be
made or used false records or statements, specifically reports, physician certification
statements, and other requests for reimbursements, material to false or fraudulent claims.
(2d Am. Compl.
iii!
71-76); see 31 U.S.C. § 3729(a)(l)(A) (holding liable "any person who
knowingly makes, uses, or causes to be made or used, a false record or statement material to
a false or fraudulent claim").
3
II. Analysis
There are three motions pending before the Court. First, Stipe has moved join Steven K.
Hardy, a former employee of PCFC, as a relator pursuant to Fed. R. Civ. P. 20. (DE 25.) PCFC
has moved to dismiss this action for failure to state a claim under Fed. R. Civ. P. 12(b)(l).
(DE 26.) Lastly, PCFC has moved to file a third-party complaint to join Medical Claims
Assistance, Inc. and Medical Transport Systems Consulting, LLC as third-party defendants,
pursuant to Fed. R. Civ. P. 14(a). (DE 29). The time for responses and replies have run and
these matters are now ripe for consideration.
A. Stipe's motion to join Hardy as a relator
Stipe seeks to join Steven Hardy as a relator in this action to replace Wickline, who
removed himself as a relator after returning to work at PCFC. A person may be joined as a
plaintiff in an action "if: (A) they assert any right to relief jointly, severally, or in the
alternative with respect to or arising out of the same transaction, occurrence, or series of
transactions or occurrences; and (B) any question of law or fact common to all plaintiffs will
arise in the action." Fed. R. Civ. P. 20(a)(l)(A)-(B). PCFC objects to Hardy's joinder because
he previously sued PCFC in Kentucky state court and, following settlement, dismissed that
case with prejudice. Agreed Order of Dismissal, Hardy v. Powell Cty. Fiscal Ct., No. 15-CI00075 (Powell Cir. Ct. Oct. 26, 2017). Hardy's settlement agreement with PCFC included a
release of all legal claims. (DE 32) (filed under seal).
Generally, under Kentucky law, "a release is a surrender of a claimant's right to prosecute
a cause of action." Waddle v. Galen of Ky., Inc., 131 S.W.3d 361, 364 (Ky. Ct. App. 2004). In
qui tam suits, this rule is complicated by the fact that the injured party is the United States.
Hardy's standing to bring a suit is based not on his own injury, but on the "partial assignment
of the Government's damages claim" to him. Vt. Agency of Nat. Res. v. United States ex rel.
Stevens, 529 U.S. 765, 774 (2000). This assignment gave Hardy "an interest in the lawsuit"4
based on his right to file suit-at the time that he signed the Release. United States ex rel.
Radcliffe v. Purdue Pharma L.P., 600 F.3d 319, 329 (4th Cir. 2010) (citing 6A Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure§ 1545 (2d ed. 1990)). Accordingly,
Hardy's pre-filing release bars his qui tam claim if "(1) the release can be fairly interpreted
to encompass qui tam claims and (2) public policy does not otherwise outweigh enforcement
of the release." United States ex rel. Nowak v. Medtronic, Inc., 806 F. Supp. 2d 310, 336 (D.
Mass. 2011) (collecting cases). 1
Stipe argues that Hardy's state court action involved only violations of state law, and
therefore the Release "could not have included claims under the False Claims Act." (DE 44,
at 7.) That argument is unavailing. The FCA jurisdictional provision states that a qui tam
action "may be brought in any judicial district" where a defendant resides, transacts
businesses, or a proscribed act occurred. 31 U.S.C. § 3732(a). When "considering the propriety
of state-court jurisdiction over any particular federal claim, the [c]ourt begins with the
presumption that state courts enjoy concurrent jurisdiction." Gulf Offshore Co. v. Mobil Oil
Corp., 453 U.S. 473, 478 (1981). While FCA actions in state courts are rare, they have been
recognized as within the jurisdictional scope of the FCA. See United States ex rel. Paul v.
Parsons, Brinkerhoff, Quade & Douglas, Inc., 860 F. Supp. 370, 375 (S.D. Tex. 1994) ("The
False Claims Act states that an action arising under it 'may' be brought in federal court.
Thus, pursuant to the language of the statute, there is concurrent jurisdiction between the
federal and state courts.") (citations omitted), aff'd per curiam, 53 F.3d 1282 (5th Cir. 1995)
("[S]tate courts have concurrent jurisdiction over FCA claims."); United States ex rel.
Hartigan v. Palumbo Bros., Inc., 797 F. Supp. 624, 631 (N.D. Ill. 1992) (holding state courts
It is undisputed that a post-filing release of qui tam claims is unenforceable. See 31 U.S.C. §
3730(b)(l) ("The Action may be dismissed only if the court and the Attorney General give written
1
consent to the dismissal and their reasons for consenting.").
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have concurrent jurisdiction over FCA claims); Driscoll v. Super. Ct., 167 Cal. Rptr. 3d 364,
375 (Cal. Ct. App. 2014) ("Based on the deeply rooted presumption in favor of concurrent
state court jurisdiction, our analysis of the FCA under Gulf Offshore, and relevant case law,
we conclude that state courts have concurrent jurisdiction over FCA retaliation claims."). The
language of the Release was broad, specifying a release of "all claims." (DE 32.) Because, at
the time of signing the Release, Hardy possessed an enforceable interest in a FCA claim
which he could have pursued in either state or federal court, the terms of the Release
encompass that claim.
A number of courts of appeals, following the Ninth Circuit's decision in United States v.
Northrop Corp, 59 F.3d 953 (9th Cir. 1995), have found that balancing public policy
considerations, in some circumstances, prevent the enforceability of pre-filing releases of
FCA claims. See United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16 (2d Cir. 2016); United
States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009); cf United
States ex rel. Gebert v. Transp. Admin. Servs., 260 F.3d 909 (8th Cir. 2001) (endorsing
Northrop test, but declining to apply to release signed during a bankruptcy proceeding). 2
Courts have applied a "government knowledge test" to balance the competing public policy
interests. Generally, "[w]hen the government is unaware of potential FCA claims the public
interest favoring the use of qui tam suits to supplement federal enforcement weighs against
enforcing prefiling releases. But when the government is aware of the claims ... public
policies supporting the private settlement of suits heavily favor enforcement." Radcliffe, 600
F.3d at 332. Courts have disagreed on what the relevant time is for testing government
knowledge. The Fourth Circuit has held that the government must be aware of the
This second prong applies the balancing test enunciated by the Supreme Court in Town of Newton v.
Rumery, 480 U.S. 386, 392, 392 (1987) (holding that "a promise is unenforceable if the interest in its
enforcement is outweighed in the circumstances by a public policy harmed by the enforcement of the
agreement.")
2
6
allegations before the relator files suit, id. at 332-333, while the Tenth Circuit has looked to
the time that the release was signed, Ritchie, 558 F.3d at 1170. Under either of these
approaches Hardy's Release is clearly enforceable. This action was initiated by Wickline on
December 5, 2016, (DE 1), and the United States gave notice that it declined to intervene on
May 30, 2017, (DE 6). Therefore, the government had knowledge of the fraud allegations
against PCFC both before Hardy signed the Release on September 14, 2017, (DE 32) and
before he sought to join as a party in this action on December 12, 2017, (DE 25). Accordingly,
Stipe's motion to join Hardy as a Relator must be denied.
B. PCFC's motion to dismiss
A complaint is subject to dismissal pursuant to Fed. R. Civ. P. 12(b)(6) if it fails to allege
enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
In reviewing a 12(b)(6) motion to dismiss, the Court must "construe the complaint in the light
most favorable to the plaintiff, accept its allegations as true, and draw all reasonable
inferences in favor of the plaintiff." Watson Carpet & Floor Covering, Inc. v. Mohawk Indus.,
Inc., 648 F.3d 452, 456 (6th Cir. 2011) (quoting In re Travel Agent Comm'n Antitrust Litig.,
583 F.3d 896, 902 (6th Cir. 2009)).
A party alleging fraud must "state with particularity the circumstances constituting fraud
or mistake." Fed. R. Civ. P. 9(b). The Sixth Circuit has held that, because a qui tam action
alleges fraud, the heightened pleading requirements of Rule 9(b) apply. See Sanderson v.
HCA-The Healthcare Co., 447 F.3d 873, 876 (6th Cir. 2006). To comply with Rule 9(b), a
plaintiff must "allege the time, place, and content of the alleged misrepresentations on which
he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the
injury resulting from the fraud." Id. at 877 (quoting Yuhasz v. Brush Wellman, Inc., 341 F.3d
559, 563 (6th Cir. 2003)). In other words, the plaintiff must "specify the who, what, when,
7
where, and how of the alleged fraud." Id. (internal quotation marks omitted) (quoting United
States ex rel. Thompson v. Columbia/ HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.
1997). In the context of an FCA claim, this "means that a plaintiff must sufficiently plead not
only 'that the defendant made a false statement,' but also 'that the defendant submitted a
claim for payment to the federal government' involving the false statement." United States
ex rel. Crockett v. Complete Fitness Rehabilitation, Inc. 721 F. App'x 451, 457 (6th Cir 2018)
(quoting United States ex rel. Sheldon v. Kettering Health Network, 816 F.3d 399, 408 (6th
Cir. 2016)). Merely "alleging that the defendants must have submitted fraudulent claims to
the government does not satisfy a plaintiff's duty to plead with particularity under Rule 9(b)."
United States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439 (6th Cir. 2008) (internal
quotation marks omitted) (quoting Sanderson, 447 F.3d at 878)).
Stipe's Complaint does not identify any actual false claims for payment that were
submitted to the United States. Instead, Stipe describes instances were PCFC engaged in
underlying fraudulent behavior and claims that false claims must have been submitted as a
result. For instance, Stipe alleges that PCFC regularly transported government healthcare
beneficiaries who were able to ambulate and therefore did not meet the definition of medical
necessity, (2d Am. Compl. iJ 19), and provides particularized details of that scheme, (2d Am.
Compl.
iii!
22-25). Stipe goes on to allege that PCFC's director and assistant director
conspired with her and other employees to falsify the medical documentation for these
patients "so that PCFC could bill for non-emergency transports when patients did not meet
medical necessity" and that she was directly told to change documentation. (2d Am. Compl.
iii!
27-28.) She has not, however, plead any facts related to the actual submission of bills
resulting from the scheme to the United States. These facts are an example of an insufficient
allegation that false claims must have been submitted. See Sanderson, 44 7 F.3d at 877 ("Rule
8
9(b) 'does not permit a False Claims Act plaintiff merely to describe a private scheme in detail
but then to allege simply that claims requesting illegal payments must have been submitted,
were likely submitted or should have been submitted to the Government.") (quoting United
States ex rel. Clausen v. Lab. Corp. of America, 290 F.3d 1301, 1311 (11th Cir. 2002)); see also
Crockett, 721 F. App'x at 458 ("[A] medical professional ... cannot establish an FCA fraud
claim by simply identifying a scheme that the professional considers improper medical
practice. Instead, a relator must also allege with particularity that the scheme involved
submissions to the government, and where a relator does not do so, her claim is subject to
dismissal.") (internal citations omitted). Stipe's other allegations fail for similar reasons.
While she describes in detail an underlying fraudulent scheme by PCFC to employ
improperly credentialed EMTs, fail to employ a medical director, and provide advanced life
support services to patients who did not require it, she does not describe with particularity
how that scheme resulted in the submission of false claims to the United States. Instead,
Stipe merely makes the conclusory allegation that approximately 693 total runs must have
been submitted as a result. (2d Am. Compl. iii! 40, 44, 59, 64.) The Complaint is devoid of
concrete facts about when, if ever, the fraudulent claims were submitted. Those claims "could
have [been] submitted ... the day after the transport, the next month, or the next years. Or
perhaps ... never submitted." United States ex rel. Doe v. Jan-Car Ambulance Serv., 187 F.
Supp. 3d 786, 794 (E.D. Ky. 2016). Accordingly, the claims are not plead with the
particularity required by Rule 9(b).
Stipe argues that, even though her Complaint does not identify specific instances of
fraudulent billing, it demonstrates that she has "personal knowledge of an invasive and long
term scheme to defraud the federal government." (Stipe Resp. at 11, DE 44.) The Sixth Circuit
has recognized that "the requirement that a relator identify an actual false claim may be
relaxed when, even though the relator is unable to produce an actual billing or invoice, he or
9
she has pled facts which support a strong inference that a claim was submitted." United
States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 838 F.3d 750, 769 (6th Cir.
2016) (quoting Chesbrough v. VPA, P.C., 655 F.3d 461, 471 (6th Cir. 2011)). In order for this
narrow exception to apply, the relator must "allege[] specific personal knowledge that relates
directly to billing practices." Id.
Stipes cannot rely on the Prather exception. In Prather, an inference of false claims
existed because Prather had "detailed knowledge of the billing and treatment documentation
related to the submission of requests for final payment" and made "specific allegations
regarding requests for anticipated payments." Id. at 770. Prather provided specific
information about the treatment of patients, the dates that they were cared for and
physicians signed certifications, alleged that requests were submitted, and identified the
amount requested. Id. at 769-70. Most significantly, Prather was hired to work on "a project
devoted to working through a backlog of Medicare claims-and her responsibilities were
focused on reviewing the documentation for those Medicare claims, in anticipation of them
being submitted to Medicare." Id. at 770. Stipe was employed in a care provider role as an
EMT and she does not allege that her job involved any work related to billing or that it gave
her detailed or specialized knowledge of PCFC's billing practices. See Crockett, 721 F. App'x
at 458 (describing the exception as applying to "billing employees who have detailed personal
knowledge of the submitting entity's billing practices."). Accordingly, Stipe lacks the
specialized knowledge necessary to invoke the exception to Rule 9(b). 3
3 Because the Court finds that Stipe's Complaint is subject to dismissal for failing to meet the
requirements of Rule 9(b), it does not reach the question of whether this action is barred by the public
disclosure doctrine. See 31 U.S.C. § 3730(e)(4)(A).
10
III. Conclusion
For the reasons set forth above, the Court HEREBY ORDERS that:
(1) Plaintiff Stipe's Motion to Join Party (DE 25) is DENIED;
(2) Defendant's Motion to Dismiss (DE 26) is GRANTED;
(3) Plaintiffs claims are DISMISSED;
(4) Defendant's Motion for Leave to File Third-Party Complaint (DE 29) is DENIED as
moot;
(5) judgment consistent with this Order will be entered.
Dated June 21, 2018.
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