ARMSTRONG et al v. ANDOVER SUBACUTE AND REHAB CENTER SERVICES ONE, INC. et al

Filing 65

OPINION & ORDER, that Plaintiff's 50 MOTION to Amend/Correct Amended Complaint by KENNETH ARMSTRONG., and shall be filed within ten (10) days. Responses shall be filed in accordance with Federal Rule of Civil Procedure 15(a)(3). Signed by Magistrate Judge Steven C. Mannion on 2/14/2019. (JB, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

KENNETH ARMSTRONG, ex rel.
UNITED STATES OF AMERICA, et
al.,
Plaintiffs,
v.
ANDOVER SUBACUTE AND REHAB
CENTER SERVICES ONE, INC. et al.,

Civil Action No.
2:12-cv-3319-SDW-SCM

OPINION AND ORDER ON
PLAINTIFF’S MOTION TO AMEND
THE AMENDED COMPLAINT
[D.E. 50]

Defendants.
STEVEN C. MANNION, United States Magistrate Judge.
Before the Court is Relator Kenneth Armstrong’s (“Mr. Armstrong”) motion for leave to
file a second amended complaint. 1 Defendants Andover Subacute and Rehab Center Services One,
Inc., (“Andover One”) Andover Subacute and Rehab Center Services Two, Inc., (“Andover Two,”
collectively “Andover”) and the Estate of Dr. Hooshang Kipiani (“Dr. Kipiani”) have opposed the
motion. 2 Defendant Dr. Sanjay K. Jain (“Dr. Jain”) joined that opposition 3 and Mr. Armstrong
replied. 4 The Court has reviewed the parties’ respective submissions and decides the motion
without oral argument. For the reasons set forth herein, Mr. Armstrong’s motion to amend is
GRANTED.

1

(ECF Docket Entry (“D.E.”) 50, Mot. to Amend). Unless indicated otherwise, the Court will refer
to documents by their docket entry number and the page number assigned by the Electronic Case
Filing System.
2

(D.E. 50-3, Defs.’ Opp’n).

3

(D.E. 53, Def. Dr. Jain’s Opp’n).

4

(D.E. 50-4, Pl.’s Reply).

I.

BACKGROUND AND PROCEDURAL HISTORY 5
This qui tam action arises from allegations that all of the defendants knew and submitted

false and fraudulent claims for health care services to the United States and to the states of New
York and New Jersey for unnecessary medical claims. 6 Andover employed Mr. Armstrong from
August 2002 until October 2011, first as a patient advocate and later as director of security. 7
Andover terminated Mr. Armstrong’s employment due to the management’s claimed need to
reduce costs. 8 Mr. Armstrong filed his initial complaint on June 1, 2012. 9 On September 30, 2013,
the United States applied for an Order staying the action so that it may have sufficient time to
investigate the matter and decide whether to intervene, 10 and the Court subsequently
administratively terminated the case.. 11 In June 2017, the United States intervened in the action
in part for settlement purposes as to defendant, Dr. Boris Freyman, and declined to intervene as to
the other defendants. 12 The case was reopened in September of 2017.

5

The Court relies upon the allegations set forth within the pleadings and motion record for
purposes of this motion only. The Court has made no findings as to the veracity of the parties’
allegations.
6

(D.E. 12, Am. Compl., at ¶ 2).

7

(D.E. 12, Am. Compl., at ¶ 9).

8

(D.E. 12, Am. Compl., at ¶ 10).

9

(D.E. 1, Compl.).

10

(D.E. 8).

11

(D.E. 50-1, Second Am. Compl., at ¶ 8).

12

(D.E. 13).
2

In June of 2018, Andover and Dr. Kipiani filed a motion to dismiss. 13 Mr. Armstrong filed
a motion to amend complaint in response. 14 The parties agreed to meet and confer regarding Mr.
Armstrong’s proposed amendments, and Andover and Dr. Kipiani withdrew their motion to
dismiss without prejudice, and the motion to amend was administratively terminated pending the
meet and confer. 15 After Mr. Armstrong’s unsuccessful attempt at consent or stipulation to a
second amended complaint, he filed this motion. 16 Mr. Armstrong is seeking to amend by adding
several facts which outline the alleged scheme and implicate the Andover facility in the scheme. 17
Andover and Dr. Kipiani argue that although Mr. Armstrong’s proposed pleading alleges that
Andover knew and submitted false claims to the government, it is futile and fails to specify a single
example of false billing by Andover. 18 The defendants argue that additional factual allegations
regarding Drs. Kipiani and Jain fail to allege a scheme in which Andover participated, and
therefore Andover cannot be held liable. 19
The defendants additionally argue undue delay to deny leave to amend. 20 They argue that
Mr. Armstrong should not be able to add allegations about specific conduct that he did not include

13

(D.E. 27).

14

(D.E. 34).

15

(D.E. 40 and 42).

16

(D.E. 50-4, Pl.’s Reply, at 1).

17

(D.E. 50-2, Redlined Second Am. Compl.).

18

(D.E. 50-3, Defs.’ Opp’n, at 2).

19

(D.E. 50-3, Defs.’ Opp’n, at 2).

20

(D.E. 50-3, Defs.’ Opp’n, at 9).
3

in his first complaint over seven years ago. 21 Andover has since sold their assets and no longer
operate these facilities, meaning they no longer have access to medical records these new
allegations may require. 22 Finally, Andover argues that Mr. Armstrong took over seven months
since the Court unsealed the initial amended complaint to serve Andover. 23
Mr. Armstrong responded that he is not required to give specific examples and that the
second amended complaint does in fact allege a claim. 24 Mr. Armstrong contends, regarding the
undue delay, that although the matter was sealed, the Court must find good cause as to why Mr.
Armstrong delayed service on the first amended complaint. 25 The Court gave the defendants an
additional 30 days to answer, and Mr. Armstrong cross moved with this motion in a timely
fashion. 26 Since then, Mr. Armstrong argues, the parties have been following the Court’s advised
procedures for amendments to pleadings. 27
II.

MAGISTRATE JUDGE AUTHORITY
Magistrate judges are authorized to decide any non-dispositive motion designated by the

Court. 28 This District has specified that magistrate judges may determine any non-dispositive pre-

21

(D.E. 50-3, Defs.’ Opp’n, at 9).

22

(D.E. 50-3, Defs.’ Opp’n, at 10).

23

(D.E. 50-3, Defs.’ Opp’n, at 10).

24

(D.E. 50-4, Pl.’s Reply, at 2).

25

(D.E. 50-4, Pl.’s Reply, at 7).

26

(D.E. 50-4, Pl.’s Reply, at 7).

27

(D.E. 50-4, Pl.’s Reply, at 7).

28

28 U.S.C. § 636(b)(1)(A).
4

trial motion. 29 Motions to amend are non-dispositive. 30 Decisions by magistrate judges must be
upheld unless “clearly erroneous or contrary to law.” 31
III.

LEGAL STANDARD
After amendments as of right, “a party may amend its pleading only with the opposing

party’s written consent or the court’s leave.” 32 The decision to grant or deny leave to amend is
“committed to the sound discretion of the district court.” 33 While courts have broad discretion to
decide motions to amend, they are to “heed Rule 15(a)’s mandate that amendments are to be
granted freely in the interests of justice.” 34 This ensures that “a particular claim will be decided on
the merits rather than on technicalities.” 35 In the absence of unfair prejudice, futility of amendment,
undue delay, bad faith, or dilatory motive, the Court must grant a request for leave to amend. 36
Under the False Claims Act, a party is liable if they knowingly present, or cause to be
presented, “a false or fraudulent claim for payment or approval” or “a false record or statement
material to a false or fraudulent claim.” 37 The Third Circuit adopted the First, Fifth, and Ninth

29

L. Civ. R. 72.1(a)(1).

30

Continental Cas. Co. v. Dominick D’Andrea, Inc., 150 F.3d 245, 251 (3rd Cir. 1998) (citations
omitted).
31

28 U.S.C. § 636(b)(1)(A).

32

Fed. R. Civ. P. 15(a)(2).

33

Arab African Int’l Bank v. Epstein, 10 F.3d 168, 174 (3d Cir. 1993).

34

Fed. R. Civ. P. 15(a)(2); Voilas et al. v. General Motors Corp., et al., 173 F.R.D. 389, 396
(D.N.J. 1997) (citations omitted) (internal quotations omitted).
35

Dole v. Arco Chem. Co., 921 F.2d 484, 487 (3d Cir. 1990) (citation omitted).

36

Grayson v. Mayview State Hosp., 292 F.3d 103, 108 (3d Cir. 2002).

37

31 U.S.C. § 3729(a)(1)(A)–(B).
5

Circuit’s standard to determine what Rule 9(b) requires of a False Claims Act claimant in the
pleading stage. 38 This requires that “it is sufficient for a plaintiff to allege ‘particular details of a
scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims
were actually submitted.’” 39
“There are two categories of false claims under the False Claims Act: a factually false claim
and a legally false claim.” 40 A factually false claim misrepresents the goods or services provided
to the Government. 41 A legally false claim, however, is “when the claimant knowingly falsely
certifies that it has complied with a statute or regulation the compliance with which is a condition
for Government payment.” 42
Legally false claims are based on false certification theories of liability: express false
certification and implied certification. 43 In an express false certification, “an entity is liable under
the [False Claims Act] for falsely certifying that it is in compliance with regulations which are
prerequisites to Government payment in connection with the claim for payment of federal funds.” 44
Under an implied false certification theory, “a claimant seeks and makes a claim for payment from

38

Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 155–57 (3d Cir. 2014).

39

United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009); see also Ebeid ex
rel. United States v. Lungwitz, 616 F.3d 993, 998–99 (9th Cir. 2010).
40

U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011) (quoting U.S.
ex rel. Connor v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008)).
41

Id.

42

Id.

43

Id.

44

Id. (quoting Rodriguez v. Our Lady of Lourdes Med. Ctr., 552 F.3d 297, 303 (3d Cir. 2008)).
6

the Government without disclosing that it violated regulations that affected its eligibility for
payment; thus, implying compliance with federal rules.” 45
The Third Circuit has adopted the implied false certification theory of liability with a few
conditions. 46 The claimant must allege, in addition to allegations of receipt of federal funds and
failure to comply with regulations, that the payment of the federal funds was conditioned on
compliance with the regulations. 47 The claimant must show that if the Government knew of the
defendant’s violations of laws and regulations, it would not have paid the claims. 48 The Supreme
Court added that the misrepresentation of compliance must be material to the Government’s
payment decision. 49
IV.

DISCUSSION
Defendants’ main argument is that the proposed amendment is futile and does not allege a

cause of action against the Andover facilities. 50 The proposed second amended complaint,
however, does provide allegations of a particular scheme sufficient enough to lead to a strong
inference that claims were submitted under both the express and implied theories of liability.

45

Id.

46

ex rel. Wilkins, 659 F.3d at 306–07.

47

Id. at 307 (quoting Rodriguez, 552 F.3d at 304).

48

Id.

49

Universal Health Servs. V. United States ex rel. Escobar, 136 S. Ct. 1989, 1996 (2016).

50

See (D.E. 50-3, Defs.’ Opp’n, at 2).
7

The proposed second amended complaint thoroughly details the scheme as it relates to Drs.
Jain and Kipiani. 51 Relator further complies with Rule 9(b)’s requirement of particularity by
dictating how Andover organized the scheme. 52 For example, Andover submitted false per diem
claims by charging Medicaid each day a doctor was at the facility, even if the doctor did not see
the patient. 53 According to the amended complaint, patients who were supposed to be under the
care of Dr. Kipiani and Dr. Jain were not seen by the physicians. 54 Andover’s Director of
Operations, Robert Mayer, personally knew that Dr. Kipiani and Dr. Jain were not seeing their
patients. Mr. Mayer nonetheless authorized Andover to submit per diem claims to Medicaid for
these patients.
To receive these per diem payments from Medicaid, Andover signed several contracts with
federal and state governments. 55 In these “Provider Agreements,” Andover agreed to comply with
state and federal Medicaid regulations, laws, and policies. 56 The Provider Agreement contracts
bind Andover to comply with such regulations. 57 Andover’s submissions of per diem claims for
visits that the doctors never actually performed would be considered legally false claims under the

51

(D.E. 50-2, Redlined Second Am. Compl., at ¶¶ 38–89).

52

(D.E. 50-2, Redlined Second Am. Compl., at ¶¶ 90–119).

53

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 91).

54

(D.E. 50-2, Redlined Second Am. Compl., at ¶¶ 104 and 108).

55

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 93).

56

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 94–95).

57

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 96).
8

express certification theory because Andover expressly certified in the Provider Agreements that
it was complying with Medicaid regulations.
Relator’s amendments regarding federal regulations are not futile because they also set
forth facts supporting a violation of the False Claims Act through the implied certification theory.
By submitting per diem claims, Andover represented that it provided its residents with periodic
physician visits that included personal physician visits every thirty days for the first ninety days
after admission and at least once every sixty days after that. 58 According to the amended
complaint, Andover made specific representations that particular services were provided and
knowingly failed to disclose noncompliance with the federal regulations. 59 These
misrepresentations that it was in compliance with federal regulations were material to the
Government’s payment decisions, 60 and Mr. Armstrong therefore alleges sufficient facts regarding
Andover’s liability under the implied certification theory to a violation of the False Claims Act.
The second amended complaint sufficiently alleges a claim against Andover under the False
Claims Act and ties the facility to Drs. Jain and Kipiani’s scheme.
Defendants additionally argue that the entire complaint is futile under the statute of
limitations. The Court, in its discretion, will not consider this argument in connection with its
review of the motion to amend. 61 Defendants had withdrawn their motion to dismiss without
prejudice in order to meet and confer with Relator on a proposed amended complaint. The parties

58

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 99, 101–04).

59

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 108, 111-117).

60

(D.E. 50-2, Redlined Second Am. Compl., at ¶ 118).

61

See In re Aetna UCR Litigation, Civ. No. 07-3541, 2015 WL 3970168, at *8 (D.N.J. June 30,
2015).
9

will have an opportunity to fully brief this issue when Defendants file their dispositive motion,
whether in a motion to dismiss or a motion for summary judgment at the conclusion of discovery.
Both parties addressed the statute of limitations issue only briefly in their briefs. The Court notes
that neither party addressed whether the issues currently before the U.S. Supreme Court in Cochise
Consultancy, Inc. v. U.S., ex re. Billy Joe Hunt, 62 regarding the applicability of the statute of
limitations when the United States does not intervene, have any impact on the instant case.
Because there does not appear to be sufficient briefing on the statute of limitations issue, the Court
declines to engage in a futility analysis of this issue at this juncture; the parties may raise it in any
anticipated motion to dismiss. 63
Regarding undue delay and prejudice, 64 the Court does not find either, as Mr. Armstrong’s
motion to amend was filed in a timely manner in response to Anderson’s motion to dismiss. This
case had been administratively terminated for three years pending the United States’ determination
as to whether to intervene in the case, and fact discovery has not yet concluded.
An appropriate Order follows:
ORDER

IT IS on this Thursday, February 14, 2019,

62

See https://www.supremecourt.gov/docket/docketfiles/html/public/18-315.html.

63

See In re Aetna UCR Litigation, Civ. No. 07-3541, 2015 WL 3970168, at *8 (D.N.J. June 30,
2015); Strategic Envtl. Partners, LLC v. Bucco, 2014 WL 3817295 at *2 (D.N.J. Aug. 1, 2014)
64

(D.E. 50-3, Defs.’ Opp’n, at 9).
10

ORDERED, that Plaintiffs’ motion to file an amended complaint, D.E. 52 is GRANTED
and shall be filed within ten (10) days. Responses shall be filed in accordance with Federal Rule
of Civil Procedure 15(a)(3).

2/14/2019 4:11:17 PM

Original: Clerk of the Court
Hon. Susan D. Wigenton, U.S.D.J.
cc: All parties
File

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