United States of America ex rel. et al v. D.S. Medical LLC et al

Filing 277

MEMORANDUM AND ORDER re: 198 Joint MOTION for Summary Judgment Defendants' Joint Motion for Summary Judgment filed by Defendant Deborah Seeger, Defendant D.S. Medical LLC, Defendant Sonjay Fonn, Defendant Midwest Neurosurgeons, LLC - IT IS HEREBY ORDERED that Defendants' joint motion for summary judgment is DENIED. (ECF No. 198.) Signed by District Judge Audrey G. Fleissig on 8/31/2017. (JMC)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION

UNITED STATES OF AMERICA,
ex rel. PAUL CAIRNS, et al.,
Plaintiff,
vs.
D.S. MEDICAL, L.L.C., et al.,
Defendants.

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Case No. 1:12CV00004 AGF

MEMORANDUM AND ORDER
This qui tam action under the False Claims Act, 31 U.S.C. §§ 3729-33 (“FCA”)
is before the Court on Defendants’ joint motion (ECF No. 198) for summary judgment.
For the reasons set forth below, the motion will be denied.
BACKGROUND
The qui tam complaint in the present action was filed on January 5, 2012,
claiming that the four Defendants – Dr. Sonjay Fonn, a neurosurgeon; the limited
liability company Dr. Fonn created, Midwest Neurosurgeons, LLC (“Midwest
Neurosurgeons”); Dr. Fonn’s fiancée, Deborah Seeger; and Seeger’s spinal implant
distributorship, D.S Medical, LLC (“DSM”) – violated the FCA by submitting or
causing to be submitted to the federal Medicare and Medicaid programs false claims for
reimbursement for Dr. Fonn’s services in performing spinal surgeries at St. Francis
Medical Center (“SFMC”) between December 2008 and March 2012, and for the
purchase of implant devices used in those surgeries. The claims for reimbursement

were allegedly false because they were the result of alleged kickbacks that violated the
federal criminal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a, et seq.
The intervenor complaint (ECF No. 26) alleges that Dr. Fonn would select the
devices he would use during surgeries at SFMC, based, at least in part, on the fact that
DSM served as the local distributor of the devices. DSM would be paid commissions
by the manufacturers, and Seeger/DSM would in turn share those commissions by
providing in-kind remuneration to Dr. Fonn, in exchange for his continuing to use DSM
as his distributor. The alleged kickbacks are this in-kind remuneration from
Seeger/DSM to Dr. Fonn, and kickbacks from spinal implant manufacturers
(specifically Verticor and Amedica) in the form of inflated commissions paid to DSM.
The alleged remuneration from Seeger/DSM to Dr. Fonn was allowing him to live in a
home she owned, without paying rent at a fair market value, and allowing him use of a
yacht and properties she purchased through a company (DS Enterprises) funded by
DSM. The complaint asserts FCA claims against each Defendant individually and in
conspiracy with each other, and also asserts state common law claims for payment by
mistake of fact, unjust enrichment, and fraud.
The record before the court presents sufficient evidence for a jury to find the
following: Dr. Fonn moved to Cape Girardeau in 2007, and in 2008 joined Cape
Neurosurgeons (“CNS”), a neurosurgical practice group owned by Dr. Kee Park. Dr.
Fonn was aware that John Park, Dr. Park’s brother, owned a company that had served
as a distributor for medical products used by Dr. Park, Dr. Fonn, and other physicians at
CNS. Dr. Fonn was aware of the significant income John Park realized from this
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arrangement. After Dr. Park moved out of town in August 2008, Dr. Fonn told a
regional sales manager for a surgical device manufacturer that Dr. Fonn wanted Seeger
to be his distributor so that he could duplicate the scenario that John Park had. Dr.
Fonn persuaded Seeger to become a distributor by promising to support her business,
and in October 2008, he paid for the incorporation of DSM. Thereafter, in order for a
spinal device manufacturer to secure Dr. Fonn’s business, they had to provide DSM
with allegedly inflated commission agreements.
As a result, DSM earned millions of dollars in commission revenue from these
device manufacturers. Seeger/DSM shared that revenue with Dr. Fonn by providing
him with in-kind remuneration, primarily in that she allowed Dr. Fonn to live with her
from at least October 2009 to March 2012 in a home she purchased, renovated, and
furnished with funds from her DSM Bank account, at a rent a jury could find was below
fair market value. In addition, as noted above, she allowed him use of a yacht and
properties she purchased through DS Enterprises. Seeger/DSM provided Dr. Fonn with
these forms of remuneration in order to induce him to continue using her company as
his distributor.
In support of their motion for summary judgment, Defendants argue that the
allegations relating to remuneration from Seeger/DSM to Dr. Fonn in the form of
residing at the home Seeger owned are without evidentiary support, as are other alleged
financial benefits flowing to Dr. Fonn from Seeger/DSM. Defendants also assert that
the Court should apply the “primary purpose” standard for the intent-to-induce element
of the alleged AKS violation, rather than the “one purpose” standard; and the
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government’s evidence does not create a jury question with regard to the intent element
under the “primary purpose” standard. Defendants argue that applying the “one
purpose” standard would make the AKS void for vagueness.
With respect to the alleged inflated commissions paid by spinal device
manufacturers to DSM, Defendants argue that the evidence shows that the commissions
paid to DSM were not inflated, and that there is no evidence that Dr. Fonn conditioned
the use of particular implants on DSM being the distributor of the implants.
Defendants next argue that they cannot not be liable under the FCA for the
claims for Medicare or Medicaid reimbursement submitted by SFMC. This is so,
according to Defendants, because the government did not submit during discovery
copies of any certifications by SFMC that the claims for reimbursement did not involve
underlying violations of the AKS by Defendants. Thus, Defendants argue, the hospital
claims for reimbursement were neither expressly nor implicitly false. They further
argue that the government cannot establish that any misrepresentation with respect to
the hospital claims was material to the government’s decision to pay the claims, as
required for liability under the FCA. Defendants reassert the argument they raised in
the context of their motion to dismiss the action for failure to state a claim, that the
government cannot establish that “but for” the alleged kickbacks, Dr. Fonn’s utilization
of spinal implants would have been different. Lastly, Defendants argue that the
government’s equitable claims fail for the same reasons the FCA claims fail, and
further, because the FCA provides an adequate remedy at law for the alleged
wrongdoing at issue in this case.
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DISCUSSION
Summary Judgment Standard
Federal Rule of Civil Procedure Rule 56(c)(2) provides that summary judgment
shall be entered “if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the movant
is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment,
a court is required to view the facts in the light most favorable to the non-moving party
and must give that party the benefit of all reasonable inferences to be drawn from the
record. Sokol & Assocs., Inc. v. Techsonic Indus., Inc., 495 F.3d 605, 610 (8th Cir.
2007).
To be a material fact, the factual issue must potentially “affect the outcome of
the suit under the governing law.” Id. (citation omitted). “Rule 56(c) mandates the entry
of summary judgment, after adequate time for discovery and upon motion, against a party
who fails to make a showing sufficient to establish the existence of an element essential
to that party=s case, and on which that party will bear the burden of proof at trial.” Id.
(quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). “[T]he burden of
demonstrating that there are no genuine issues of material fact rests on the moving party.”
Allard v. Baldwin, 779 F.3d 768, 770 (8th Cir. 2015).
The FCA and the AKS
The FCA imposes liability on any person who “knowingly presents, or causes to
be presented, a false or fraudulent claim for payment or approval” by the government. 31
U.S.C. § 3729(a)(1)(A). The misrepresentation must be “material” to the government’s
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decision to pay the claim. Universal Health Servs., Inc. v. United States ex rel Escobar,
136 S. Ct. 1989, 2001 (2016). To establish a prima facie case, a plaintiff must
demonstrate (1) a false or fraudulent claim; (2) which was presented, or caused to be
presented, by the defendant to the government for payment or approval; (3) with the
knowledge that the claim was false. McNutt ex rel. United States v. Haleyville Med.
Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005). Defendants are subject to treble
damages plus civil penalties of up to $10,000 per false claim. 31 U.S.C. § 3729(a).
In Universal Health Services, the Supreme Court endorsed the “implied false
certification” theory of liability under the FCA, relied upon by the government here,
holding that “when . . . a defendant makes representations in submitting a claim but omits
its violations of [material] statutory . . . requirements, those omissions can be a basis for
liability if they render the defendant’s representations misleading with respect to the
goods or services provided.” Id. at 1999.
The AKS provides, in relevant part:
(b) Illegal remunerations:
(1) whoever 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 —
(A) 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, or
(B) in return for purchasing, leasing, ordering or arranging for or
recommend purchasing, leasing or ordering any good, facility, service,
or item for which payment may be made in whole or in part under a
Federal health care program,
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shall be guilty of a felony and upon conviction thereof, shall be fined not
more than $25,000 or imprisoned for not more than five years, or both.
42 U.S.C. § 1320a–7b(b)(1)(A)–(B).
In March 2010, Congress amended the AKS to set out specifically that “a claim
that includes items or services resulting from a violation of this section constitutes a
false or fraudulent claim for purposes of [the FCA].” 42 U.S.C. § 1320a–7b(g). Both
before and after Universal Health Services, and before the 2010 amendment to the
AKS, this Court and others have held that a violation of the AKS can form the basis of
a claim under the FCA. See, e.g., United States ex rel. Kosenske v. Carlisle HMA, Inc.,
554 F.3d 88, 94 (3d Cir. 2009); United States ex rel. Health Dimensions Rehab., Inc. v.
RehabCare Grp., Inc., No. 4:12CV00848 AGF, 2013 WL 4666338, at *4 (E.D. Mo.
Aug. 30, 2013) (citing cases); United States v. Omnicare, Inc., No. 07 C 05777, 2013
WL 3819671, at *9 (N.D. Ill. July 23, 2013).
“[T]the language of the FCA indicates a purpose to reach any person [not just
the entity that submitted the claim for payment] who knowingly assisted in causing the
government to pay claims which were grounded in fraud.” United States ex rel.
Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 390 (1st Cir. 2011) (citation omitted)
(holding that the government stated a FCA claim against a medical device manufacturer
who provided kickbacks to physicians in exchange for use of its devices in surgery); see
also United States v. Medtronic, Inc., No. CV 15-6264, 2017 WL 2653568, at *4 (E.D.
Pa. June 19, 2017) (“The court recognizes that medical device manufacturers and
distributors like Medtronic may be subject to FCA liability for knowingly paying
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kickbacks to a provider knowing that the provider will seek reimbursement from
[Medicare and Medicaid] and that [those healthcare programs] will require a
compliance certification.”).
Based on the above statutory language and case law, Defendants argument that
the hospital claims for reimbursement were not false, as a matter of law, and that the
government cannot establish that any misrepresentation with respect to the hospital
claims was material to the government’s decision to pay the claims, are without merit.
When, as here, the government bases its FCA claims on violations of the AKS, a
failure to establish adequate factual support for any element of the alleged AKS
violation entitles the defendants to summary judgment.

See United States ex rel.

Jamison v. McKesson Corp., 900 F. Supp. 2d 683, 697 (N.D. Miss. 2012); Klaczak v.
Consol. Med. Transp., 458 F. Supp. 2d 622, 673 (N.D. Ill. 2006).
Here the Court concludes that the government can establish a violation of the
AKS by proving that Defendants knowingly and willfully entered into a scheme
pursuant to which Dr. Fonn received remuneration, as that term is used in the AKS, to
induce him to arrange for the purchase of certain spinal devices that were to be paid for
by a federal health care program. Courts have construed “remuneration” broadly to
include “anything of value” in any form or manner. See, e.g., United States ex rel.
Bingham v. HCA, Inc., No. 13-cv-23671-MGC, 2016 WL 344887, at *6 (S.D. Fla. Jan.
28, 2016) (concluding that the defendant’s obligation to construct and renovate office
space for future occupation by referring physician tenants, especially at a below fair
market value rental rate, was a financial benefit to those physicians and thus constituted
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“remuneration” under the AKS). Here, being allowed to live in a home at a below
market value rent could constitute remuneration under the AKS.
The Court further concludes that the record establishes triable issues on whether
one purpose of that remuneration was to induce Dr. Fonn’s arranging for spinal devices
to be ordered through DSM, devices that would be paid for by Medicare or Medicaid.
As Defendants recognize, five circuits have adopted the “one purpose” standard. See,
e.g., United States v. Borrasi, 639 F.3d 774, 780-82 (7th Cir. 2011); United States v.
McClatchy, 217 F.3d 823, 835 (10th Cir. 2000). The Court agrees with these decisions,
and will apply that standard to this case. Defendants’ invocation of the “primary
purpose” standard is based on the Eighth Circuit Model Instructions for AKS cases, but
as Defendants concede, the Model Instructions are “merely helpful suggestions to assist
the district courts.” United States v. Norton, 846 F.2d 521, 525 (8th Cir. 1988).
Similarly, the Court believes that based on the record, a jury could find that the
commissions spinal device manufacturers paid DSM were inflated, lending support to
the government’s theory of the case. The Court further concludes that Defendants’
materiality, causation, and void-for-vagueness arguments are without merit. Lastly, at
this stage of the litigation, as the FCA claims against the defendants have not
been fully litigated, it would be premature to grant Defendants summary judgment on
the government’s unjust enrichment and payment by mistake causes of action. Of
course, if the government prevails in this case, it will not be awarded any duplicative
monetary damages.
CONCLUSION
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Accordingly,
IT IS HEREBY ORDERED that Defendants’ joint motion for summary
judgment is DENIED. (ECF No. 198.)

AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 31st day of August, 2017.

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