United States of America et al v. The Center for Wound Healing, LLC et al

Filing 63

ORDER ADOPTING REPORT AND RECOMMENDATIONS. For the reasons stated in the attached Order, the court adopts the R&R in its entirety. The court dismisses each of the Ms. Rattans claims with prejudice. The Clerk of Court is respectfully directed to enter judgment in favor of defendants and close this case. Ordered by Judge Kiyo A. Matsumoto on 1/7/2016. (Gong, LiJia)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICAN & STATE OF
NEW YORK ex. Rel. SHIVANIE RATTAN and
SHIVANIE RATTAN in her individual
capacity,

ORDER ADOPTING
REPORT AND
RECOMMENDATION

Plaintiffs,

11-cv-6259 (KAM)(SMG)

-againstEPISCOPAL HEALTH SERVICES, INC., &
RESTORIX HEALTH (NEW YORK) LLC, a/k/a
THE CENTER FOR WOUND HEALING,
Defendants.
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MATSUMOTO, United States District Judge:
On December 22, 2011, plaintiff Shivanie Rattan,
commenced this action as relator on behalf of the United States
and the State of New York and on behalf of herself individually,
against Episcopal Health Services, Inc. (“EHS”) and Restorix
Health (“Restorix”), also known as The Center for Wound Healing
(collectively, “defendants”).

(ECF No. 1.)

Ms. Rattan filed a

first amended complaint on November 7, 2012.

(ECF No. 4.)

The

complaints were filed under seal pursuant to 31 U.S.C. §
3730(b)(2).

The first amended complaint was unsealed by Order

dated January 13, 2014.

(ECF No. 9.)

Ms. Rattan filed a second

amended complaint (“SAC”) on May 23, 2014.

(ECF No. 21.)

SAC alleges violations of the False Claims Act (“FCA”), 31

The

U.S.C. § 3729, et seq., the New York State False Claims Act1, and
Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et
seq.
On August 7, 2014, defendants moved to dismiss the
SAC.

(ECF Nos. 25, 32.)

The court referred defendants’ motions

to dismiss to Magistrate Judge Steven M. Gold for a Report and
Recommendation.

(Order Referring Mot. dated 9/16/14.) Judge

Gold heard oral argument on the motions to dismiss on February
11, 2015, at which time, he concluded that Restorix’s motion
raised matters outside the pleadings and thus converted
Restorix’s motion to dismiss to a motion for summary judgment
pursuant to Federal Rule of Civil Procedure 12(d).
Entry for 2/11/15 Hearing, ECF No. 39.)

(Minute

Judge Gold also offered

to allow additional discovery but none of the parties requested
any additional discovery at the oral argument or at any point
thereafter.

(See Tr. of 2/11/15 Hearing at 15, ECF No. 40.)

Judge Gold set a schedule for additional briefing for Restorix’s
motion for summary judgment, and the motion was fully briefed on
May 13, 2015.

(ECF Nos. 46-54.)

By letter dated May 18, 2015,

Ms. Rattan also requested leave to file a third amended

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As stated in the Report and Recommendation (“R&R”), both the federal and New
York State False Claims Acts use identical language and the claims brought
pursuant to both are analyzed in the same away. (R&R at 4 n.4, ECF No. 59.)
Consequently, the court’s discussion of the FCA applies to the New York State
False Claims Act in equal measure.

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pleading.

(ECF No. 56.)
On July 13, 2015, Judge Gold issued a R&R recommending

that the court grant defendants’ motions and dismiss each of Ms.
Rattan’s claims with prejudice and deny leave to file a third
amended complaint.

(R&R at 25, ECF No. 59.)

Ms. Rattan filed her objections to the R&R.

On July 27, 2015,
(ECF No. 60.)

On

August 12, 2015, defendants filed their responses to Ms.
Rattan’s objections.

(ECF Nos. 61, 62.)

A district court reviews those portions of a Report
and Recommendation to which a party has timely objected under a
de novo standard of review and “may accept, reject, or modify,
in whole or in part, the findings or recommendations . . .”
U.S.C. § 636(b)(1)(C).

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However, where no objections to the

Report and Recommendation have been filed, the district court
“need only satisfy itself that that there is no clear error on
the face of the record.”

Urena v. New York, 160 F. Supp. 2d

606, 609-10 (S.D.N.Y. 2001) (quoting Nelson v. Smith, 618 F.
Supp. 1186, 1189 (S.D.N.Y. 1985)).

The court has nonetheless

conducted a de novo review of Judge Gold’s entire Report and
Recommendation.
Ms. Rattan objects to Judge Gold’s recommendation of
dismissal of her FCA claims on the grounds that (1) the
certification language on the Medicaid billing form differs from

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that of the Medicare form cited in the R&R; (2) the R&R
improperly relies on United States ex rel. Michael Dunn v. North
Memorial Health Care et al., Civil No. 10-4673, 2012 WL 6552791
(D. Minn. Dec. 14, 2012); and (3) the R&R misconstrues the
direct supervision exception for services performed on hospital
premises.

Ms. Rattan also objects to Judge Gold’s

recommendation that the court deny her leave to extend the time
for service on defendants with respect to her employment
discrimination claims and deny Ms. Rattan leave to amend her
complaint for a third time.

The court addresses each of Ms.

Rattan’s objections in turn.
A. FCA Claims
The R&R recommended dismissal of Ms. Rattan’s FCA
claims on the ground that there is no genuine dispute of
material fact that the claims submitted to Medicare were not
“false” under the FCA.

(R&R at 17-23.)

As the R&R discusses in

greater depth, liability under the FCA requires a showing of
materiality, that the false or fraudulent claim would have
“influenced the government’s decision to pay.”

(Id. at 19)

(quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001).)
Ms. Rattan contends, via her complaint and affidavit, that
during her employment with Restorix, which provided hyperbaric
oxygen therapy services, she prepared Medicare and Medicaid

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billing forms for two physicians to sign at her supervisor’s
direction, and that the physicians signed the forms even though
they were not present when the services were performed.
19.)

(R&R ¶

Judge Gold found, however, that in light of the fact that

under the applicable federal rules and regulations, a
physician’s “presence” is presumed when a procedure such as
hyperbaric oxygen therapy is performed on the grounds of a
hospital, and it is undisputed that the procedures at issue were
performed in the St. John’s Episcopal hospital building, no
materially false claims were made by Restorix.
Among many other reasons provided in the well-reasoned
and thorough R&R, Judge Gold cited the Medicare certification on
the back of the sample billing form submitted by Ms. Rattan that
provides the basis for her claim.

(R&R at 23.)

The R&R noted

that the certification language makes plain that “a physician
signing the form represents that the services for which
reimbursement is being sought must have been performed under the
physician’s personal supervision ‘except as otherwise
permitted,’” and that the federal rules and regulations
otherwise permit the provision of hyperbaric oxygen therapy
services without the direct supervision of a physician when
performed on hospital grounds.

(Id.)

Ms. Rattan objects to the recommended dismissal of her

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FCA claims, because the Medicaid certification language does not
contain such an exception. (Obj. at 2.)

The court finds Ms.

Rattan’s objection unavailing, because Ms. Rattan has failed to
allege any facts (or otherwise provide support) to suggest that
any of the physician-endorsed forms were submitted for Medicaid
reimbursement.

(See SAC; Affidavit of Ms. Rattan, ECF No. 51.)

Other than plaintiff’s conclusory and vague allegations that
Restorix “systematically overbilled Medicare and Medicaid,” (SAC
¶ 2), Ms. Rattan alleges a single instance on or about January
26, 2009 when a biller working for Restorix submitted a bill to
Medicare for treatment as if a physician had been present when
no physician was present for treatment (SAC ¶ 26).
Consequently, whether the certification language cited in the
R&R provided the same exception for Medicaid as it does for
Medicare reimbursement is not relevant to the disposition of Ms.
Rattan’s FCA claims.
Ms. Rattan’s objection that the R&R improperly relied
upon Dunn is groundless.

As an initial matter, the R&R cited

Dunn as persuasive, not controlling, authority.

In Dunn, the

court dismissed the complaint, because during the relevant
timeframe, direct supervision for hospital outpatient cardiac
and pulmonary rehabilitation services was presumed pursuant to
42 C.F.R. § 410.27 and thus no materially false claim was made

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in violation of the FCA.

2012 WL 65522791, at *6.

The court,

like Judge Gold, finds Dunn to be persuasive when applied to the
facts in this case.
In her objections, Ms. Rattan reiterates the argument
in her opposition to Restorix’s motion for summary judgment that
Restorix does not constitute an outpatient department of the
hospital.

(See Obj. at 4; Mem. of Law in Opp. to Def. Restorix’

Mot. for Summ. J. at 8, ECF No. 52.)

As the R&R cogently

explained, the regulations merely require that the services at
issue be “‘furnished at a department of a hospital,’ not that a
provider of support services, like Restorix, itself be a
department of a hospital.”

(R&R at 22 n.9)(quoting 65 Fed. Reg.

18,434,18525 (Apr. 7, 2000).)

The court finds that there is no

basis for Ms. Rattan’s redundant argument.
B. Rule 4(m)
Ms. Rattan also objects to the recommended dismissal
of her Title VII claim pursuant to Federal Rule of Civil
Procedure 4(m) on the grounds that the R&R creates a “new rule”
and that defendants have not specified any actual prejudice.

As

the R&R discusses in detail, the FCA requires that when a civil
action is commenced by a private person, the complaint shall be
filed in camera, shall remain under seal for at least 60 days,
and shall not be served on the defendant until the court so

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orders.

(R&R at 8 (citing 31 U.S.C. § 3730(b)(2).)

Here, the

government requested numerous extensions of that 60-day period
and decided not to intervene in January 2014, when the complaint
was unsealed and served on defendants more than two years after
the first complaint was initially filed.

(R&R at 8-9.)

Ms.

Rattan requested an extension of time to serve her complaint in
a letter to Judge Gold dated February 26, 2015 after the
timeliness problems were identified in defendants’ motions to
dismiss and during oral argument.

(R&R at 11.)

The court acknowledges that the circumstances leading
to the delay in service in this case are unique.

Other district

courts have confronted the question of whether the statute of
limitations is tolled when a relator filing a FCA claim under
seal later attempts to amend the complaint to add additional
claims.

See Hayes v. Dept. of Educ. Of City of New York, 20 F.

Supp. 3d 428 (S.D.N.Y. 2014); United States ex rel. Deering v.
Physiotherapy Associates, Inc., 601 F. Supp. 2d (D. Mass. 2009).
Courts are then required to analyze whether the new claims
relate back to the first complaint pursuant to Federal Rule of
Civil Procedure 15(c).

The Second Circuit has held in a FCA

action that a claim brought outside the statutory limitations
period cannot relate back to the filing date of a complaint that
was never served on the defendant:

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The secrecy required by § 3730(b) is incompatible with
Rule 15(c)(2), because (as is well-settled) the
touchstone for relation back pursuant to Rule 15(c)(2)
is notice, i.e., whether the original pleading gave a
party adequate notice of the conduct, transaction, or
occurrence that forms the basis of the claim or
defense. The rationale of Rule 15(c) is that a party
who has been notified of litigation concerning a
particular occurrence has been given all the notice
that statutes of limitations were intended to provide.
By design, the seal provision of § 3730(b) deprives
the defendant in an FCA suit of the notice usually
given by a complaint. Because any relation back of
subsequent filings to the original complaint is
incompatible with the core requirement of notice under
Rule 15(c)(2), continued running of the statute of
limitations is warranted.
United States v. The Baylor Univ. Med. Ctr., 469 F.3d 263, 270
(2d Cir. 2006)(internal quotations and citations omitted).
The facts before the court here, however, differ from
Baylor in that Ms. Rattan did include her Title VII claim when
she initially filed her complaint in December 2011 and thus she
timely filed her Title VII claim under the applicable statute of
limitations, but she did not serve the amended complaint until
more than two years later, in violation of Rule 4(m).
Additionally, Ms. Rattan’s joined Title VII claim is entirely
unrelated to her FCA claim, unlike in Hayes and Deering where
the claim that plaintiffs wanted to add was a retaliation claim
under the FCA.

The court also notes that in her initial

complaint filed on December 22, 2011, Ms. Rattan also included a
claim under the New York Minimum Wage Act for Restorix’s alleged

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failure to pay overtime, but that she dropped her overtime claim
when she filed her first amended complaint on November 7, 2012.
(Compare Compl. ¶¶ 11, 25-27, ECF No. 1 with First Am. Compl.,
ECF No. 4.)

By summons and complaint dated November 13, 2012,

Ms. Rattan filed a complaint in civil court of the state of New
York asserting violation of the New York Minimum Wage Act based
on the same allegations that were included in her first
complaint.

(See Mem. of Law in Supp. of Restorix’s Mot. to

Dismiss, Ex. 2, ECF No. 33.)
The court finds that the R&R appropriately recommended
denial of an extension of time to serve Ms. Rattan’s Title VII
claim on defendants after weighing the relevant factors.

Ms.

Rattan’s contention that defendants “have failed to specify any
actual prejudice caused by the delay” is not only contradicted
by defendants’ memoranda and the reasons articulated in the R&R,
but the Second Circuit has also stated that “[i]t is obvious
that any defendant would be harmed by a generous extension of
the service period beyond the limitations period for the action,
especially if the defendant had no actual notice of the
existence of the complaint until the service period had
expired.”
Cir. 2007).

Zapata v. City of New York, 502 F.3d 192, 198-99 (2d
Here, Ms. Rattan has failed to convince the court

that the need to file her FCA claim under seal is necessarily

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good cause for her failure to provide notice to the defendants
of the Title VII claim for more than two years.

Because the

Title VII and FCA claims are factually unrelated, there is no
risk that filing a Title VII claim would somehow undermine the
secrecy of the FCA claim.

Additionally, that Ms. Rattan filed

her New York overtime claims in state court and dropped them
from her federal case suggests that her decision to file her
Title VII claims together is due either to her deliberate
decision, mistake or neglect, none of which constitutes good
cause for an extension of time.

See id.

C. Failure to Exhaust Administrative Remedies
Ms. Rattan sole objection to the R&R’s finding that
Ms. Rattan failed to exhaust her Title VII claim against EHS is
a conclusory statement that “there was plenty of evidence to
conclude that [ ] Defendant EHS was sufficiently on notice of
Ms. Rattan’s human rights complaint and had interests
sufficiently similar to those of Defendant Restorix to be a
proper party to this Title VII proceeding.”

(Obj. at 7.)

Upon

the courts de novo review, the court adopts Judge Gold’s cogent
analysis and dismisses Ms. Rattan’s Title VII claim for failure
to exhaust administrative remedies.
D. Leave to Amend and Request for Discovery
The court has reviewed the record de novo and also

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adopts the R&R’s recommended denial of Ms. Rattan’s requests for
leave to amend her complaint and for additional discovery in
this case.

The court finds that Ms. Rattan’s proposed amendment

which she previously raised in her letter to Judge Gold dated
May 18, 2015 (ECF No. 56), is futile for the reasons stated by
Judge Gold in the R&R.

Although Ms. Rattan apparently hopes to

allege more clearly in a third amended complaint that Restorix
assisted in preparing claims for submission by EHS or its
physicians, Judge Gold determined that this amendment would be
futile, because he did “not rely on Restorix’s argument that it
did not submit claims in recommending that its motion for
summary judgment be granted.”

(See R&R at 24.)

The court also

finds futile Ms. Rattan’s other proposed amendment, raised for
the first time in her objections, to “make clear that even if
the services at issue were properly coded, it was still
fraudulent for the doctors at issue to claim credit for the
services.”

Whether or not it was fraudulent for the physicians

to claim credit for the services at issue, the physicians’
actions do not meet the materiality requirement of the FCA if
the actions would not have influenced whether or not a claim
would have been reimbursed by the government.
Finally, Ms. Rattan makes no argument as to why the
denial of discovery is improper, stating merely that Judge Gold

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“erred.”

(Obj. at 7.)

Plaintiff does not explain how

additional discovery would be relevant or defeat Restorix’s
motion for summary judgment.

In light of the fact that Judge

Gold offered the parties an opportunity to take additional
discovery and that the discovery that Ms. Rattan seeks would not
overcome summary judgment in any event, the court adopts the
R&R’s denial of Ms. Rattan’s request for discovery.
Accordingly, the court adopts the R&R in its entirety.
The court dismisses each of the Ms. Rattan’s claims with
prejudice.

The Clerk of Court is respectfully directed to enter

judgment in favor of defendants and close this case.

SO ORDERED.

Dated:

January 7, 2016
Brooklyn, New York
_______ ___/s/
Kiyo A. Matsumoto
United States District Judge

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