United States of America ex rel. et al v. D.S. Medical LLC et al
MEMORANDUM AND ORDER re: 65 MOTION to Dismiss Case Motion to Dismiss Based on Rule 9(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 allege fraud with sufficient particularity is DENIED. (Doc. No. 65.) Signed by District Judge Audrey G. Fleissig on 2/12/15. (CSG)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
UNITED STATES ex rel. PAUL
CAIRNS, et al.,
D.S. MEDICAL LLC; MIDWEST
SONJAY FONN, M.D.: and
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(b). 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 9(b) for failure to allege fraud with sufficient
particularity.1 For the reasons set forth below, the motion to dismiss shall be denied.
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 and operated by Fonn in
December 2008, with Fonn 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. If a patient was
a Medicare or Medicaid beneficiary, the hospital sought and received reimbursement for
the cost of the implants 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 exclusively to Fonn. DSM would receive a
commission from the device manufacturers – in particular and hereinafter, “Manufacturer
Pursuant to an Order entered on October 6, 2014 (Doc. No. 75), this action is
currently stayed, now with the exception of Defendants’ present motion to dismiss.
B” – for their devices that DSM distributed. The complaint alleges that DSM rented
space from MWN, and 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.” In October
and November 2009, Fonn and Seeger allegedly met with representatives of
Manufacturer B, and solicited an increase in commissions paid to DSM in exchange for
Fonn’s use of Manufacturer B’s implants. Following these meetings, Manufacturer B
raised DSM’s commission rate to 50% and agreed to pay an additional “commission
enhancement” of $1700 per month to DSM.
The complaint alleges that 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 the
claim and the underlying transaction complying with such laws and regulations, including
the AKS. Fonn, on behalf of MWN, signed similar certifications, including one on June
15, 2009, to be eligible for reimbursement by Medicare for his services related to the
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,
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 remuneration scheme violating the AKS is
characterized differently – not as monies exchanged between the two sets of Defendants,
but rather as the commission 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 the manufacturer, 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.
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 asserts that
payments to Fonn and MWN by Missouri and the United States were the result of
mistaken understandings of fact. Count V claims that all four Defendants were unjustly
enriched by obtaining government funds to which they were not entitled.
In their present motion to dismiss, Defendants argue that the complaint fails to
state a claim with the particularity required by Federal Rule of Civil Procedure 9(b)
because the complaint (1) provides insufficient information as to what constitutes illegal
remuneration; (2) does not support its allegations that employees of Manufacturer B were
led to believe that a kickback was expected; (3) does not specify what the Government
considers remuneration from Seeger to Fonn; (4) only identifies a single certification that
was allegedly false; (5) does not identify any specific hospital which Fonn caused to file
false claims; (6) does not identify any false certifications for Medicaid claims; and (7)
does not identify specific Medicare or Medicaid claim numbers which are false.
Rule 9(b) provides that in alleging fraud a party must state with particularity the
circumstances constituting fraud. “Because the FCA is an anti-fraud statute, complaints
alleging violations of the FCA must comply with Rule 9(b).” United States ex rel.
Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 916 (8th Cir. 2014)
(citation omitted). To satisfy Rule 9(b), the complaint must plead such facts as the time,
place, and content of the defendant’s false representations, as well as the details of the
defendant's fraudulent acts, including when the acts occurred, who engaged in them, and
what was obtained as a result . . . . In other words, the complaint must identify the who,
what, where, when, and how of the alleged fraud. Id. However, Rule 9(b) “was never
meant to require a plaintiff to set forth every factual detail supporting its claim,” and
where a defendant is able to “mount a vigorous defense” at the motion to dismiss stage,
the pleadings are sufficiently specific. United States ex rel. Schell v. Bluebird Media,
LLC, No. 12–cv–04019, 2013 WL 3288005, at *3 (W.D. Mo. Jun. 28, 2013) (citations
omitted); see also United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552, 557
(8th Cir. 2006).
The FCA, in relevant part, imposes liability on those who present false claims, or
cause false claims to be presented, to the government for payment or approval; or
conspire to defraud the government. 31 U.S.C. § 3729(a)(1)–(3). A claim that violates
the AKS, in that it includes items or services that were referred or recommended in
exchange, directly or indirectly, for remuneration, is “false” for the purposes of the FCA.
42 U.S.C. §§ 1320(a)-7b(b), 1320(a)-7b(g). “A prima facie case under the [FCA]
requires that (1) the defendant made a claim against the United States; (2) the claim was
false or fraudulent; and (3) the defendant knew the claim was false or fraudulent.”
United States ex rel. Raynor v. Nat’l Rural Utils. Co-op. Fin., Corp., 690 F.3d 951, 955
(8th Cir. 2012) (citations omitted).
The Court has carefully reviewed the Government’s complaint and concludes that
it does meet the standards of pleading with particularity set forth in Rule 9(b). The
Government alleges the requirement to certify that Medicare claims are in compliance
with the AKS and alleges that because Fonn was receiving kickbacks, each of these
certifications Defendants submitted or caused to be submitted in the relevant time period
were false. The Government also provides an example of one such certification signed
by Fonn. The complaint states clearly that Defendants received “illegal remuneration” in
the form of shares of the commissions paid to DSM for the spinal implant devices, and
alleges an ongoing practice of these commissions being shared among Defendants. The
Government has provided bank account entries tracing the alleged remuneration from
DSM and Seeger to Fonn. These averments identify the “who, what, where, when, and
how” of the alleged scheme and adequately place Defendants on notice of what they are
being accused of doing.
Moreover, the complaint identifies particular meetings between device
Manufacturer B, Fonn, and Seeger, in which alleged kickback agreements were reached,
and alleges that Fonn selected which implants to use in his surgeries based on kickbacks
resulting from these meetings.
Defendants’ reliance on In re Baycol Products Litigation, 732 F.3d 869 (8th Cir.
2013), is unpersuasive. That case affirmed the dismissal of an FCA claim which alleged
that all health insurance reimbursement claims for a certain drug were false due to the
marketing of the drug, because the complaint did not specify even a single relevant
prescription or claim. Here, the Government’s complaint includes exhibits which detail
specific surgeries for specific Medicare and Medicaid patients in which allegedly false
claims were submitted.2 This is more than enough to enable Defendants to prepare an
adequate defense. See e.g., United States ex rel. Kester v. Novartis Pharms. Corp., No.
11 Civ. 8196(CM), 2014 WL 4401275, at *11 (S.D.N.Y. Sept. 4, 2014) (holding that an
FCA complaint including lists of items/services provided, reimbursement amounts,
government programs with which claims were filed, and time of the claims that allegedly
violated the AKS, satisfied Rule 9(b)); United States ex rel. Heesch v. Diagnostic
Physicians Grp., P.C., Civil Action No. 11–0364–KD–B, 2014 WL 2154241, at *6 (S.D.
Ala. May 22, 2014) (holding that an FCA complaint including a list of provider names,
The Court notes that the exhibits to the complaint were redacted to protect the
identities of Fonn’s patients, but considers this motion to dismiss in light of the unaltered
copies provided by the Government under seal, which specify both patient identities and
the specific Medicare/Medicaid claims in question.
claim numbers/dates, the procedures, and places/costs of services that allegedly violated
the AKS was sufficiently particular to satisfy Rule 9(b)).
IT IS HEREBY ORDERED that Defendants’ motion to dismiss the complaint
(in intervention) for failure to allege fraud with sufficient particularity is DENIED. (Doc.
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 12th day of February, 2015.
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