United States of America ex rel. et al v. D.S. Medical LLC et al
Filing
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MEMORANDUM AND ORDER re: 64 MOTION to Dismiss Case Pursuant to Rule 12(b) filed by Deborah Seeger, D.S. Medical LLC, Defendant Sonjay Fonn, Defendant Midwest Neurosurgeons, LLC. IT IS HEREBY ORDERED that Defendants' motion to dismiss the Complaint in Intervention for failure to state a claim is DENIED. (Doc. No. 64.) Signed by District Judge Audrey G. Fleissig on 2/11/15. (CSG)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
SOUTHEASTERN DIVISION
UNITED STATES ex rel. PAUL
CAIRNS, et al.,
Plaintiff,
v.
D.S. MEDICAL LLC; MIDWEST
NEUROSURGEONS, L.L.C.;
SONJAY FONN, M.D.; and
DEBORAH SEEGER,
Defendants.
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Case No. 1:12CV00004 AGF
MEMORANDUM AND ORDER
This qui tam action, in which the United States has intervened, is brought under
the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33. The United States claims that
Defendants – two individuals and two limited liability companies they formed – violated
the FCA by submitting and/or causing others to submit to the United States claims for
payment that were false, because they were the result of kickbacks that violated the
federal criminal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a-7b. The complaint
also asserts common law claims of unjust enrichment and payment under mistake of fact.
Now before the Court is Defendants’ joint motion to dismiss the case under Federal Rule
of Civil Procedure 12(b)(6).1 For the reasons set forth below, the motion to dismiss shall
be denied.
BACKGROUND
The complaint (in intervention) alleges the following. Defendant Sonjay Fonn,
D.O., is a physician who, from November 2008 to March 2012, had privileges to perform
spinal implant surgeries at a hospital in Missouri. Defendant Midwest Neurosurgeons,
L.L.C. (“MWN”) is a Missouri limited liability company formed by Fonn in December
2008, and operated by him, with himself as the sole physician employee. In accordance
with typical practice, Fonn would inform the hospital which implant devices he wished to
use in his surgeries. The hospital would arrange to purchase the requested devices
through a distributor. If a patient was a Medicare or Medicaid beneficiary, the hospital
would seek and receive reimbursement for the cost of the implant devices by filing claims
with Medicare (Part A) or Medicaid. In addition, Fonn, acting through MWN, submitted
claims to, and was paid by, Medicare (Part B) and Medicaid for his professional services
associated with such surgeries.
In June 2008, Defendant Deborah Seeger, with whom Fonn has had a long-term
personal relationship and to whom, since at least June 2008, he is engaged to be married,
formed Defendant D.S. Medical, LLC (“DSM”), a Missouri limited liability company, for
the distribution of spinal implant devices. DSM would receive a commission from the
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Pursuant to an Order entered on October 6, 2014 (Doc. No. 75), this action is
currently stayed with the exception of Defendants’ present motion to dismiss, and another
joint motion to dismiss under Rule 9(b).
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device manufacturers – in particular and hereinafter, “Manufacturer B” – for their devices
that DSM distributed. The complaint alleges that DSM rented space from MWN, and
that MWN and DSM had “‘shared’ employees and contractors.” Further, according to
the complaint, after its formation, Fonn used DSM as his “virtually exclusive source” of
spinal implant devices for his patients, and he began using more such devices in each of
his surgeries and performing more spinal implant surgeries than he did before.
The complaint further alleges the following. Fonn was DSM’s only
physician/customer, and “Fonn and Seeger set up and operated [DSM] together as a joint
venture, using it as a common enterprise for their mutual economic benefit.” Fonn and
Seeger share title to assets, including a truck and recreational vehicle, that were
purchased in part with DSM’s commission revenue from Manufacturer B, and since at
least June 2008, Fonn and Seeger have shared a residence that Seeger purchased “using a
[DSM] bank account . . . using her commission revenue from [DSM].”
To be eligible for payment by Medicare for the costs of the implant devices, the
hospital was required to certify that it agreed to abide by Medicare laws and regulations
and that it understood that payment of a claim by Medicare was conditioned upon both
the claim and the underlying transaction complying with such laws and regulations,
including the AKS. Fonn, on behalf of MWN, signed similar certifications to be eligible
for reimbursement by Medicare for his services related to the surgeries.
The complaint sets forth, in three counts, the Government’s theories of how
Defendants’ above-described conduct violated the FCA. Count I asserts that Fonn,
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personally and through MWN, solicited and received remuneration from Seeger and
DSM in return for ordering/causing the hospital to purchase implant devices through
DSM, for which payment was made by Medicare and/or Medicaid; that Seeger and DSM
paid remuneration to Fonn and MWN to induce Fonn to order implant devices through
Seeger and DSM, for which payment was made by Medicare and/or Medicaid; and that
all four Defendants thereby,
caused false claims for payment to be presented to the United States in
violation of 31 U.S.C § 3729(a)(1)(A) when they submitted and caused the
submission of claims to Medicaid and Medicare for spinal implant devices
and related services by the hospital and MWN as a result of kickbacks
and/or illegal remuneration in violation of the [AKS].
(Doc. No. 26 at 17-18.) A list of claims (billed to Medicare Part A, Medicare Part
B, and Medicaid) that were allegedly false under this theory was submitted as an
exhibit to the complaint.
In Count II, the alleged illegal remunerations are characterized differently – not as
monies exchanged between the two sets of Defendants, but rather as the commissions
paid by Manufacturer B to DSM. This count asserts that Fonn, Seeger, and DSM,
individually and collectively, solicited and received commissions/remuneration from the
Manufacturer B in return for ordering, or having the hospital order, implant devices from
Manufacturer B, and that all four Defendants thereby caused false claims for payment to
be presented to the United States, as quoted above in the context of Count I. A list of
claims that were allegedly false under this theory (billed to Medicare Part A and to
Medicare Part B) was submitted as another exhibit to the complaint.
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Count III asserts that the four Defendants conspired to violate the FCA as asserted
in Count II. Counts IV and V assert common law claims. Count IV seeks recovery from
Fonn and MWN for monies paid them (for reimbursement of professional services) by
Missouri and the United States as a result of mistaken understanding of fact, that is, as a
result of a mistaken belief that the relevant claims and certifications were not false.
Count V seeks recovery from all four Defendants on the theory that they were unjustly
enriched by obtaining government funds to which they were not entitled.
Defendants argue that Counts I, II, and III fail to state claims under the FCA
because (1) the complaint fails to allege that the AKS violations were the “but for”
causation of the alleged false claims, that is, that but for the alleged kickbacks, Fonn’s
utilization of the subject implant devices and related services would have been different;
(2) as there is no allegation of medically unnecessary procedures conducted by Fonn, the
Medicare Part B claims for his services do not include “services resulting from a
violation” of the AKS, and therefore are not false claims; (3) the complaint only suggests
the “possibility” not the “plausibility” that Seeger induced Fonn to purchase products
through DCM in return for remuneration; and “in combination with judicial experience
and common sense,” provides “the likely explanation” for why Fonn directed business to
Seeger, and why Seeger shared assets with Fonn, namely, their personal relationship; (4)
the Government’s theory of the alleged kickback scheme improperly expands on the
prohibition in the Stark Act, 28 U.S.C. § 1395nn, against married people engaging in
referrals as alleged here, and improperly invades Seeger’s and Fonn’s privacy rights; and
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(5) inasmuch as the hospital certifications only certified that the hospital complied with
the AKA, not that Defendants did, the certifications were not false and thus Defendants
did not cause the hospital to submit false claims.
Defendants argue that Count IV, payment due to mistake of fact, should be
dismissed as to Seeger, DSM, and Fonn, because the Government does not allege that it
made a payment to any of these parties. Defendants also argue that the Government is
not entitled to collect any payments made by the State of Missouri under the Medicaid
program. With respect to Count V for unjust enrichment, Defendants again argue that the
only payments the Government made were to MWN, and as these payments were for
physician services not the implant devices, this Count fails as a matter of law.
Furthermore, Defendants argue that the Government’s failure to specifically allege what
monies constituted unjust enrichment, as well as the existence of an express contract
between the Government and MWN, defeat this claim. Finally, Defendants argue that
both Counts IV and V should be dismissed because the complaint does not identify
whether they are brought under federal or state common law.
DISCUSSION
Rule 8(a) of the Federal Rules of Civil Procedure provides that to state a claim, a
pleading must contain a short and plain statement of the claim showing that the pleader is
entitled to relief. To survive a motion to dismiss for failure to state a claim under Rule
12(b)(6), a complaint must contain sufficient factual matter, which, if accepted as true,
states “a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
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(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Accordingly, at
the pleading stage a plaintiff must show that success on the merits is more than a “sheer
possibility.” Id. This standard “calls for enough facts to raise a reasonable expectation
that discovery will reveal evidence of [the claim].” Id.
The FCA provides, in pertinent part:
Any person who –
(1) knowingly presents, or causes to be presented, to an officer or employee of the
United States Government . . . a false or fraudulent claim for payment or
approval;
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(3) conspires to defraud the Government by getting a false or fraudulent claim
allowed or paid;
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is liable to the United States Government for a civil penalty of not less than $5,000
and not more than $10,000, plus three times the amount of damages which the
Government sustains because of the act of that person . . . .
31 U.S.C. § 3729(a).
The AKS provides in relevant part as follows:
[W]hoever 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
recommending purchasing, leasing or ordering any good, facility,
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service, or item for which payment may be made in whole or in part
under a Federal health care program,
shall be guilty of a felony . . .
42 U.S.C. § 1320a-7b(b)(1).
The AKS specifically provides that a claim submitted to the government for
reimbursement is false or fraudulent for purposes of the FCA where the claim “includes
items or services resulting from a violation” of the AKS. 42 U.S.C. § 1320a-7b(g).
Courts have held that this amendment is not retroactive, but that it serves to clarify the
AKS, not alter it. See United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d
295, 311 n.19 (3d Cir. 2011); United States v. Woods, No. 11 CR 595, 2013 WL
2636108, at *2-3 (N.D. Ill. June 12, 2013). Indeed, neither party contends that it does not
apply to this case.
“By enacting Section 1320a–7b(g), Congress made clear that the fact that the
certifications were made by an innocent party submitting a claim without knowledge of
an AKS violation did not remove the taint of falsity from the certifications[.]” United
States ex rel. Kester v. Novartis Pharms. Corp., ___ F. Supp. 2d ___, 2014 WL 4230386,
at *10 (S.D.N.Y. 2014).
Defendants base their “but for” argument on the statutory term “resulted from” in
the AKS. They rely heavily on the recent Supreme Court case Burrage v. United States,
134 S. Ct. 881 (2014), in which the Court construed a section of the Anti-Drug Abuse
Act providing for a sentencing enhancement when “death or serious bodily injury results
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from the use of [the distributed illegal] substance.” The Court held that the term “results
from” imposes a requirement of proof that the harm would not have occurred but for the
defendant’s conduct. Id. at 887-88. The Court explained, “[w]here there is no textual or
contextual indication to the contrary, courts regularly read phrases like ‘results from’ to
require but-for causality.” Id. at 888. Thus, according to Defendants, the claims
submitted by the hospital to Medicare and Medicaid for reimbursement in this case would
be false only if they were for items (or services) that would not have been purchased but
for Defendants’ kickback scheme. However, in this case the complaint alleges that Fonn
specifically chose the devices manufactured by Manufacturer B for the purpose of
benefitting from the kickback scheme. This is tantamount to the Government alleging
that Fonn would not have chosen those particular devices but for the kickback scheme,
and is sufficient to state a claim under the FCA. See United States ex rel. Hutcheson v.
Blackstone Med., Inc., 647 F.3d 377 (1st Cir. 2011) (holding that allegations that
physicians received kickbacks from a medical device manufacturer in exchange for the
use of the devices in surgery, were sufficient to state a claim that the hospital’s and
physicians’ claims for Medicare payment were false under the FCA).
Defendants’ argument that the allegations of improper remuneration merely set
forth a scheme that was “possibly” illegal, but not conduct by the Defendants that is
“plausibly” illegal is not persuasive. The Court does not agree with Defendants that the
facts as alleged establish “the inescapable conclusion” that inducement and remuneration
here as between the two sets of Defendants was merely the product of Fonn and Seeger’s
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close personal relationship. While Fonn’s financial relationship with Seeger and DSM in
connection with the implant devices is not per se improper, as Defendants concede it
would have been under the Stark Act, 28 U.S.C. § 1395, had they been married, their
personal relationship does not conclusively shield them here.
Defendants’ reliance on United States ex rel. Thomas v. Bailey, No. 4:06CV00465
JLH, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008), for the proposition that the hospital’s
certifications could not be said to be false even if Defendants violated the AKS is
unavailing. The Court agrees with the Government that the better view, which is
expressed in the majority of cases, is that compliance with the AKS is a condition of
payment by Medicare and Medicaid, and thus claims seeking payment for items or
services that would not have been purchased or performed but for kickbacks are “false”
claims; and further, that a non-submitting party may be liable for causing the submission
of such a false claim by another party, and that this liability is not conditioned on whether
the submitting party knew about the non-submitting party’s unlawful conduct. See
Hutcheson, 647 F.3d at 393; Wilkins, 659 F.3d at 309.
The Eighth Circuit has recognized that noncompliance with regulatory
requirements that are “a precondition to” payment by the government, rather than
“merely a condition of continuing participation in a government program” could “result[]
in a materially false claim [under the FCA] for a specific government payment.” United
States ex rel. Onnen v. Sioux Falls Indep. Sch. Dist., No. 49-5, 688 F.3d 410, 414-15 (8th
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Cir. 2012) (citing cases including Wilkins, 659 F.3d at 306-11). And this Court believes
that the Eighth Circuit would hold accordingly here.
The Court also rejects Defendants’ argument that even if the purchase of the
implant devices were a result of kickbacks, Fonn’s professional services were not. The
professional services for which MWS sought reimbursement in this case were to implant
the very devices for which Fonn allegedly accepted kickbacks. These services were thus
the result of the same financial incentives that colored Fonn’s selection of Manufacturer
B’s and involve the same “underlying transaction,” such that Fonn/MWS are not entitled
to payment by Medicare and Medicaid for those services. See Hutchenson, 647 F.3d at
393-94.
With respect to the two common law claims (Counts IV and V), the Government’s
response to the motion to dismiss clarifies that these are brought under federal common
law. These claims are “available to the United States and are independent of statute” and
are governed by federal common law. United States ex rel. Heesch v. Diagnostic
Physicians Group, P.C., No. 11–0364–KD–B, 2014 WL 2154241, at *11 (S.D. Ala. May
22, 2014) (quoting United States v. Mead, 426 F.2d 118, 124 (9th Cir. 1970)); see also
United States v. Applied Pharm. Consultants, Inc., 182 F.3d 603, 608 (8th Cir. 1999).
To prevail on its claim of mistaken payment, the Government must show that it
made payments under an erroneous belief which was material to the decision to pay.
Heesch, 2014 WL 2154241, at *11. To state a claim of unjust enrichment under federal
common law, the Government must show that “(1) a benefit was conferred, (2) the
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recipient was aware that a benefit was received and; (3) under the circumstances, it would
be unjust to allow retention of the benefit without requiring the recipient to pay for it.”
United States v. R.J. Zavoral & Sons, Inc., No. 12–668 (MJD/JJK), 2014 WL 5361991, at
*16-17 (D. Minn. Oct. 21, 2014). Under either theory, the Government may seek
repayment from any third parties to whom the funds flowed, not just the party to which
they were directly given. United States v. Bellecci, No. CIV S-05-1538 LKK GGH PS,
2008 WL 802367, at *5 (E.D. Cal. Mar. 26, 2008) (citing Mead, 426 F.2d at 124-25).
The Court concludes that the allegations that Medicare and Medicaid mistakenly
paid claims under the belief that Fonn and MWN were in compliance with the law, and
that but for this mistaken belief they would have denied the claims, are sufficient to
survive a motion to dismiss. It is immaterial which of these two Defendants received the
funds directly from the Government. Moreover, because a portion of each Medicaid
payout was taken from federal Treasury funds, the Government is entitled to make a
claim for the return of these monies as well. See United States v. Lahey Clinic Hosp.,
399 F.3d 1, 15-16 (1st Cir. 2005). The Government also sufficiently alleges that all
Defendants were unjustly enriched through the Medicare and Medicaid payments.
To the extent that any relief requested by the Government’s FCA and common law
claims is duplicative, “the [G]overnment will not be allowed to recover twice, but may
defer its election of remedy until trial on the merits.” See United States v. United Techs.
Corp., 255 F. Supp. 2d 779, 785 (S.D. Ohio 2003).
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CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Defendants’ motion to dismiss the Complaint in
Intervention for failure to state a claim is DENIED. (Doc. No. 64.)
________________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 11th day of February, 2015.
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