United States of America ex rel. Karen Walker and Emma Breland v. Corporate Management, Inc. et al
Filing
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MEMORANDUM OPINION AND ORDER granting in part and denying in part 39 Motion to Dismiss. Signed by District Judge Keith Starrett on 10/24/12 (scp)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
HATTIESBURG DIVISION
UNITED STATES OF AMERICA, ex rel.
KAREN WALKER and EMMA BRELAND
v.
PLAINTIFFS
CIVIL ACTION NO. 2:07-CV-342-KS-MTP
CORPORATE MANAGEMENT, INC., et al.
DEFENDANTS
MEMORANDUM OPINION AND ORDER
For the reasons stated below, the Court grants in part and denies in part
Defendant Greene County Hospital Inc.’s Motion to Dismiss [39].
I. BACKGROUND
This is a False Claims Act (“FCA”)1 case. Karen Walker alleges that Defendants
employed her as a housekeeper from November 2005 through November 2006. Emma
Breland alleges that Defendants employed her as an LPN from November 21, 2005,
through June 11, 2007. Both claim that during their employment they witnessed
Defendants cause false claims to be submitted to the federal government for services
rendered at Green County Hospital and Greene County Rural Health Center.
Defendant Greene County Hospital, Inc. filed a Motion to Dismiss [39], which the
Court now addresses.
II. STANDARD OF REVIEW
“Motions to dismiss under Rule 12(b)(6) are viewed with disfavor and are rarely
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31 U.S.C. §§ 3729, et seq.
granted.” Lormand v. US Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009) (punctuation
omitted). “To survive a Rule 12(b)(6) motion to dismiss, [a plaintiff’s complaint] need
only include a short and plain statement of the claim showing that the pleader is
entitled to relief.” Hershey v. Energy Transfer Partners., L.P., 610 F.3d 239, 245 (5th
Cir. 2010) (punctuation omitted). However, the “complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.”
Great Lakes Dredge & Dock Co. LLC v. La. State, 624 F.3d 201, 210 (5th Cir. 2010)
(punctuation omitted).
“To be plausible, the complaint’s factual allegations must be enough to raise a
right to relief above the speculative level.” Id. (punctuation omitted). “The complaint
need not contain detailed factual allegations, but must state more than mere labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
PSKS, Inc. v. Leegin Creative Leather Prods., Inc., 615 F.3d 412, 417 (5th Cir. 2010)
(punctuation omitted). When determining whether a plaintiff has stated a valid claim
for relief, the Court must “accept all well-pleaded facts as true and construe the
complaint in the light most favorable to the plaintiff.” Great Lakes Dredge & Dock Co.
LLC, 624 F.3d at 210. However, the Court will not accept as true “conclusory
allegations, unwarranted factual inferences, or legal conclusions.” Id. Legal conclusions
may provide “the complaint’s framework, [but] they must be supported by factual
allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 664, 129 S. Ct. 1937, 1940, 173 L. Ed. 2d
868 (2009). A plaintiff must provide more than “threadbare recitals of a cause of
action’s elements, supported by mere conclusory statements, which do not permit the
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court to infer more than the mere possibility of misconduct.” Hershey, 610 F.3d at 246
(punctuation omitted).
III. DISCUSSION
The FCA permits “suits by private parties on behalf of the United States against
anyone submitting a false claim to the Government.” Gonzalez v. Fresenius Med. Care
N. Am., 689 F.3d 470, 475 (5th Cir. 2012). In relevant part, the FCA imposes liability
on anyone 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 [these sections.]” 31 U.S.C. § 3729(a)(1).
Defendant Greene County Hospital, Inc. argues that it could not have made any
of the alleged fraudulent claims witnessed by Relators because it did not exist during
the period of their employment. Defendant submitted its articles of incorporation,2
which demonstrate that it was formed on October 17, 2007 – four months after
Breland’s employment terminated and almost a year after Walker’s employment
terminated. In response, Relators argue that they alleged that Defendant submitted
fraudulent claims from November 2005 to December 18, 2007.3 In rebuttal, Defendant
argues that Relators have not provided sufficient factual support for their allegation
2
The Court may consider matters of public record when addressing a motion
to dismiss. Norris v. Hearst Trust, 500 F.3d 454, 461 n. 9 (5th Cir. 2007).
3
Relators also argue that Defendants are liable under a theory of successor
liability. It is not necessary for the Court to address this issue.
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of fraudulent claims submitted after its incorporation.
“Claims brought under the FCA must comply with Rule 9(b).” United States ex
rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997).
Rule 9(b) provides: “In alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b). One must
generally “set forth the who, what, when, where, and how of the alleged fraud” to meet
Rule 9(b)’s requirements, United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d
262, 266 (5th Cir. 2010), but the Fifth Circuit has specifically addressed the application
of Rule 9(b) to FCA claims. United States ex rel. Grubbs v. Ravikumar Kanneganti, 565
F.3d 180 (5th Cir. 2009). The Court will address the particular requirements for each
subsection of § 3729 below.
A.
Section 3729(a)(1)(A)
Presentment of a claim is the act giving rise to liability under Section
3729(a)(1)(A), and “[f]raudulent presentment requires proof only of a claim’s falsity, not
its exact contents.” Id. at 189. A relator “does not necessarily need the exact dollar
amounts, billing numbers, or dates to prove to a preponderance that fraudulent bills
were actually submitted.” Id. at 190. Therefore, such details are not required at the
pleading stage. Id. at 189-90. To satisfy Rule 9(b)’s standard of particularity for a claim
under the FCA, “a relator’s complaint, if it cannot allege the details of an actually
submitted false claim, may nevertheless survive by alleging details of a scheme to
submit false claims paired with reliable indicia that lead to a strong inference that
claims were actually submitted.” Id. at 190.
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Relators allege that Defendants engaged in a pattern of “upcoding” – billing
Medicare or Medicaid for services under a code that is more expensive than the
services the patient actually needed or was provided – from November 2005 through
December 18, 2007. Relators claim to have witnessed Defendants submit Medicare and
Medicaid claims for two beds at the same time for the same patients. Specifically, they
claim that Defendants kept a bed open in the assisted living section of the facility with
a patient’s charts, while the patient was actually housed in the inpatient rehabilitative
section of the facility. Relators also claim that Defendants submitted claims for
treatment that they never provided, including the dispensing of pharmaceuticals,
intravenous fluids, x-rays, and pregnancy tests. They further claim that Defendants
provided services that were medically unnecessary. Relators named specific patients,
and, in some cases, gave specific dates. They did not provide any specific allegations
regarding false claims after June 2007 – when Breland’s employment terminated.
Defendant Greene County Hospital, Inc. argues that Relators provided no
specific allegations for any events occurring after it was incorporated and, therefore,
capable of submitting false claims. Defendant further argues that Relators could not
possibly have knowledge of events occurring after its incorporation, as they were no
longer employed at the subject health care facilities. However a relator must only have
“direct and independent knowledge on which the allegations are based . . . if the claims
are based on information that is publicly disclosed.” Id. at 194. Here, Relators’ claims
are not based upon public disclosures in “a criminal, civil, or administrative hearing,
in a congressional, administrative, or Government General Accounting Office report,
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hearing, audit, or investigation, or from the news media.” Id. (punctuation omitted).
Therefore, their claims do not have to be based upon direct and independent
knowledge.
Furthermore, all Rule 9(b) requires in this context is that Relators allege “details
of a scheme to submit false claims paired with reliable indicia that lead to a strong
inference that claims were actually submitted.” Id. at 190. Relators provided details
of fraudulent activity they witnessed from November 2005 through June 2007. In some
cases, they provided specific patient names and dates. They further alleged that this
activity continued through December 18, 2007 – after Defendant Greene County
Hospital, Inc. was formed. Although they provided no specific details of fraudulent
activity after June 2007, the Court believes that the details of fraudulent activity prior
to Defendant’s incorporation are sufficient indicia of reliability for Relators’ claim that
the fraudulent activity continued through December 2007.
Defendant stresses that Relators’ claims are unsubstantiated by any evidence,
but Relators are not required to present evidence at the pleading stage. “To require
these details at pleading is one small step shy of requiring production of actual
documentation with the complaint, a level of proof not demanded to win at trial and
significantly more than any federal pleading rule contemplates.” Id. at 190.
Furthermore, overly strict pleading requirements would discourage whistleblowers
from coming forward with what they know. Id. at 191. “While Rule 9(b) stands as a
hurdle preventing discovery when a complaint fails to sufficiently define its claims, it
does not do away with discovery altogether by allowing access to discovery only when
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the complaint already contains all the information necessary to succeed at trial.” Id.
Accordingly, the Court concludes that Relators alleged sufficient facts to state a claim
against Defendant Greene County Hospital, Inc. under § 3729(a)(1)(A) of the FCA.
B.
Section 3729(a)(1)(B)
Section 3729(a)(1)(B) “imposes civil liability on 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.” 31 U.S.C. § 3729(a)(1)(B). This section does not require
presentment. Grubbs, 565 F.3d at 192. All it “requires is that the defendant made a
false record or statement for the purpose of getting a false or fraudulent claim paid by
the Government. For this section, the recording of a false record, when it is made with
the requisite intent, is enough to satisfy the statute . . . .” Id. at 193.
Relators allegedly witnessed Defendants keeping a chart for a patient at an
empty bed, while the patient actually occupied a bed in another section of the facility.
Relators also allege that Defendants submitted false certifications of compliance with
their annual cost reports. Although Relators certainly could have provided more detail
as to specific false medical records and documents, the Court concludes that these
allegations state a claim under § 3729(a)(1)(B).
C.
Section 3729(a)(1)(C)
“[T]o prove a False Claims Act conspiracy, a relator must show (1) the existence
of an unlawful agreement between defendants to get a false or fraudulent claim
allowed or paid by the Government and (2) at least one act performed in furtherance
of that agreement.” Id. at 193 (punctuation omitted). Rule 9(b)’s requirements apply
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to the FCA’s conspiracy provision “with equal force as to its presentment and record
provisions.” Id. “[A] plaintiff alleging a conspiracy to commit fraud must plead with
particularity the conspiracy as well as the overt acts taken in furtherance of the
conspiracy.” Id. (punctuation omitted). Relators have not pled any specific facts
evincing an agreement among the Defendants. Taking the allegations of the First
Amended Complaint as true – that various doctors and staff members of the Defendant
facilities submitted certain false claims – “does not, by itself, do more than point to a
possibility of an agreement among them.” Id. at 194. Therefore, the Court finds that
Relators failed to state a claim under § 3729(a)(1)(C).
IV. CONCLUSION
For the reasons stated above, the Court grants in part and denies in part
Defendant Greene County Hospital, Inc.’s Motion to Dismiss [39]. The Court grants the
motion as to Relators’ claims under 31 U.S.C. § 3729(a)(1)(C), but it denies the motion
as to Relators’ claims under 31 U.S.C. §§ 3729(a)(1)(A) and (B).
SO ORDERED AND ADJUDGED this 24th day of October, 2012.
s/ Keith Starrett
UNITED STATES DISTRICT JUDGE
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