United States of America et al v. Kempf Surgical Appliances, Inc. et al
Filing
28
OPINION AND ORDER denying 12 Defendants' Motion to Dismiss. The Court establishes the following schedule: Discovery shall be completed by 4/1/2014; dispositive motions shall be filed by 5/1/2014; a final pretrial conference has been scheduled for 9/18/2014, at 2:00 P.M.; with a five-day jury trial to commence on 10/21/2014. Signed by Judge S Arthur Spiegel on 4/9/2013. (km1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
UNITED STATES OF AMERICA,
ex rel. SCOTT MEYER,
Plaintiff,
v.
KEMPF SURGICAL APPLICANCES,
INC., et al.
Defendants.
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NO. 1:11-CV-00111
OPINION AND ORDER
This matter is before the Court on Defendants’ Motion
to Dismiss (doc. 12), Plaintiff’s response in opposition thereto
(doc. 17), and Defendants’ reply in support thereof (doc. 19).
For the following reasons, the Court DENIES the motion (doc.
12).
I.
Background
Pursuant
to
the
Anti-Kickback
Statute,
42
U.S.C.
§
1320a-7b (the “AKS”) and the False Claims Act, 31 U.S.C. §§
3729-3733 (doc. 34)(the “Act” or the “FCA”), Relator filed his
complaint in this qui tam action on February 25, 2011, alleging
that Defendants submitted false claims to Medicare and other
federally-funded programs for (i) custom-fabricated or custommolded orthotic devices when patients actually received “off1
the-shelf” devices; (ii) add-on components to orthotic devices
that were not actually provided to patients; (iii) components
that were provided but had already been bundled in the base
price of the device; and (iv) orthotic services provided by
unqualified
orthotist
personnel
(doc.
Defendants
who
4).
receive
were
In
not
supervised
addition,
impermissible
by
Relator
kickbacks
a
licensed
alleges
from
the
that
medical
device manufacturer DeRoyal in exchange for purchasing orthotic
and other equipment from DeRoyal (Id.).
the
federal
government
declined
to
On November 29, 1022,
intervene
in
this
action
(doc. 9), and it was thus ordered unsealed (doc. 10).
According
to
the
complaint,
Relator
is
an
Ohio-
licensed orthotist, and he was employed by Defendants as an
orthotist from April 2, 2010 until January 27, 2011.
Defendant
Kempf Surgical Appliances, Inc., is an Ohio corporation that
supplies durable medical equipment and other medical supplies,
including orthotics, orthopaedic devices, and prosthetics, to
individual
patients
and
to
hospitals.
Defendant
Stephen
R.
Kempf is the company’s president and owner.
In
Count
I,
Relator
claims
that
(i)
Defendants
knowingly presented or caused to be presented to officers or
employees
of
the
United
approval,
including
States
improper
false
claims
claims
for
for
orthotic
payment
devices
or
and
other medical products, in violation of the False Claims Act, 31
U.S.C. §§ 3729(a)(1)(A); (ii) Defendant knowingly made, used, or
caused to be made or used, false records or statements material
to a false or fraudulent claim, in violation of 31 U.S.C. §§
3729(a)(1)(B)
by
making
or
using
false
billing
records
that
reflected upcoded, unbundled and/or otherwise improper charges
for
orthotic
devices
and
other
medical
products;
and
(iii)
Defendants accepted kickbacks from DeRoyal in violation of the
Anti-Kickback
Statute,
42
U.S.C.
§1320a-7b.
In
Count
II,
pursuant to 31 U.S.C. §3730(h), Relator alleges that he was
retaliated against and constructively discharged when he raised
questions
about
Defendants’
billing
practices
and
refused
to
participate in the alleged fraud.
Defendants
move
to
dismiss
Relator’s
complaint
pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing
that Relator has failed to set forth plausible causes of action,
in part because he has failed to satisfy the heightened pleading
requirements of Federal Rule of Civil Procedure 9(b).
II.
The Applicable Standards & the Statutory Framework
A. Federal Rule of Civil Procedure 12(b)(6)
Typically,
a
motion
to
dismiss
brought
pursuant
to
Federal Rule of Civil Procedure 12(b)(6) requires the Court to
determine
complaint.
whether
a
cognizable
claim
has
been
pled
in
the
The basic federal pleading requirement is contained
3
in Fed. R. Civ. P. 8(a), which requires that a pleading "contain
. . . a short and plain statement of the claim showing that the
pleader is entitled to relief."
857,
858
(2007).
(6th
In
Cir.
its
1976);
scrutiny
Westlake v. Lucas, 537 F.2d
Erickson
of
the
v.
Pardus,
complaint,
551
the
U.S.
Court
89
must
construe all well-pleaded facts liberally in favor of the party
opposing
the
(1974).
A
“contain[s]
motion.
Scheuer
complaint
survives
sufficient
factual
v.
Rhodes,
416
a
motion
to
matter,
U.S.
232,
dismiss
accepted
as
236
if
it
true,
to
state a claim to relief that is plausible on its face.”
Courie
v. Alcoa Wheel & Forged Products, 577 F.3d 625, 629-30 (6th Cir.
2009), quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009),
citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
However, because the False Claims Act is an anti-fraud
statute, complaints alleging violations of the Act must meet the
heightened pleading standard of Federal Rule of Civil Procedure
9(b).
493,
U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d
510
(6th
Cir.
2007).
Rule
9(b)
of
the
Federal
Rules
governs all averments of fraud or mistake and mandates that the
circumstances constituting the fraud or mistake be stated with
particularity.
Fed.
alleging
violations
include
“the
time,
R.
of
Civ.
the
place,
P.
False
and
9(b).
Claims
content
Thus,
Act
of
a
complaint
must
minimally
the
alleged
misrepresentation…; the fraudulent scheme; the fraudulent intent
of the defendants; and the injury resulting from the fraud.”
Bledsoe, at 504 (internal quotations and citations omitted).
In
the context of a False Claims Act case, “pleading an actual
false claim with particularity is an indispensable element of a
complaint….”
specific
Id.
instance
However, a relator need not plead “every
of
fraud
where
[his]
allegations
encompass
many allegedly false claims over a substantial period of time.”
Id. at 509.
reaching
Instead, “where a relator pleads a complex and far-
fraudulent
scheme
with
particularity,
and
provides
examples of specific false claims submitted to the government
pursuant to that scheme, a relator may proceed to discovery on
the entire fraudulent scheme.”
B.
Id. at 510.
The False Claims Act
Congress passed the original False Claims Act in 1863
“to combat rampant fraud in Civil War defense contracts.” S.
Rep. No. 99-345, at 8, reprinted in 1986 U.S.C.C.A.N. 5266, 5273
(1986).
In its current form, the FCA imposes liability on any
person who “knowingly presents, or causes to be presented, to an
officer or employee of the United States government…a false or
fraudulent
claim
3729(a)(1)(2008).
for
payment
or
approval.”
31
U.S.C.
§
The statute further imposes liability on a
person who “uses, or causes to be made or used a false record or
statement to get a false or fraudulent claim paid or approved by
5
the Government;” who “conspires to defraud the government by
getting a false or fraudulent claim paid or approved by the
government,”
or
who
uses
“a
false
record
or
statement
to
conceal, avoid, or decrease an obligation to pay or transmit
money or property to the government.”
Id. at (a)(2),(3),(7).
To satisfy the statute’s knowledge requirement, a person must
“(1) ha[ve] actual knowledge of the information; (2) act in
deliberate ignorance of the truth or falsity of the information;
(3) or act in reckless disregard of the truth or falsity of the
information,” but “no specific intent to defraud is required.”
Id. § 3729(b).
The FCA does not create a private cause of action, but
permits a person, designated a “Relator” to bring a civil action
“for the person and for the United States government…in the name
of the government.”
31 U.S.C. § 3730(b).
The Supreme Court has affirmed an aggressive reading
of the FCA, explaining that “Congress wrote expansively, meaning
to ‘reach all types of fraud, without qualification, that might
result in financial loss to the government.’”
V. United States ex rel. Chandler, 538
Cook County, Ill.
U.S. 119 (2003)(quoting
United States v. Neifert-White Co., 390 U.S. 228, 232 (1968)).
C.
The Anti-Kickback Statute
The
Anti-Kickback
Statute
prohibits
any
person
or
entity from offering, making or accepting payment to induce or
reward any person for referring, recommending or arranging for
federally funded medical services, including services provided
under the Medicare and Medicaid programs:
(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)
(B)
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
in return for purchasing, leasing, ordering, or
arranging
for
or
recommending
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,
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.
(2) Whoever knowingly and willfully offers or pays any
remuneration
(including
any
kickback,
bribe,
or
rebate) directly or indirectly, overtly or covertly,
in cash or in kind to any person to induce such
person—
(A)
to refer 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) to purchase, lease, order or arrange 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,
shall
be
guilty
of
a
felony
7
and
upon
conviction
thereof, shall be fined not more than $25,000
imprisoned for not more than five years, or both.
or
42 U.S.C. § 1320a-7b(b).
III.
Defendants’ Motion to Dismiss
A. Plaintiff’s
Complaint
Meets
the
Heightened
Pleading
Standards of Rule 9(b) and States a Claim under the False
Claims Act
“[T]he
purpose
undergirding
the
particularity
requirement of Rule 9(b) is to provide a defendant fair notice
of
the
substance
of
a
plaintiff's
claim
in
defendant may prepare a responsive pleading.”
order
that
the
Michaels Building
Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988).
Relator must have alleged in his complaint the time, place and
content
of
the
misrepresentation;
the
fraudulent
scheme;
Defendants’ fraudulent intent; and the resultant injury.
See
U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 518 (6th
Cir. 2009).
Relator’s
complaint
adequately
and
clearly
puts
Defendants on notices of the substance of his claims and sets
forth allegations supporting the fraudulent scheme, Defendants’
fraudulent intent, and the resultant injury.
Defendants contend
that the complaint is nonetheless deficient because Relator has
not provided fraudulent claims actually submitted for payment.
Given
Relator’s
position
in
the
8
company,
the
short
time
he
worked there, and the fact that he is no longer employed there,
the
full
panoply
Defendants
for
of
claims
payment
is
submitted
only
to
available
the
government
through
by
discovery.
However, Relator did allege representative instances of what he
claims are the impermissible billing practices: for example, his
complaint describes the medical device, the services provided,
and the improper bill related to P.C. for the dates of service
of May 26, 2009 and October 7, 2010; for O.S. for the date of
service of April 13, 2010; and for M.H. for April 20, 2010 (doc.
4).
In addition, he alleged that one of Defendants’ employees
routinely engaged in fraudulent billing and stated in response
to
Relator
questioning
the
company’s
policy
of
billing
prefabricated devices as custom-made, “This is how we make our
money.”
As to the allegations of kickbacks, Relator provides a
specific example of the allegedly impermissible inducement: to
wit, that Defendants accepted money and a trip to a local casino
from a supplier of medical devices in exchange for using that
supplier’s products.
He also alleges that one of the kickback
recipients stated that Defendant Kempf routinely accepted gifts
from that supplier in exchange for using its products.
Relator has come forth with enough to show intent,
injury
and
the
who/what/when/how
of
the
allegedly
fraudulent
scheme and of the impermissible kickbacks to satisfy his burden
9
at this stage. Defendants simply cannot legitimately assert that
they
are
not
adequately
on
notice
of
the
particularities of Relator’s claims against them.
nature
and
The failure
to attach actual fraudulent claims to the complaint is not fatal
to
Relator’s
case.
The
purposes
of
Rule
9(b)
satisfied with the allegations Relator sets forth.
are
amply
Taking the
allegations as a whole and accepting them as true, the Court
draws a strong inference that false claims were submitted to the
government
as
a
result
of
the
schemes
described
in
the
complaint.
And having provided the requisite who, what, where,
when, and how, Relator has complied with the dictates of Rule
9(b).
Accord U.S. ex rel. Fry v. The Health Alliance of Greater
Cincinnati, 2008 WL 5282139 (S.D. Ohio, Dec. 18, 2008); U.S. ex
rel. Repko v. Guthrie Clinic, 557 F. Supp.2d 522, 527 (M.D. Pa.
2008) (“attachment of some or all of the allegedly fraudulent
claims would serve no further purpose consistent with Rule 9(b)
because defendants are on notice that the basis of the alleged
fraud in each claim is the relationship between the defendants,
not anything unique to a particular claim, that has caused these
claims to be allegedly fraudulent”); U.S. ex rel. McDonough v.
Symphony Diagnostic Services, Inc., 2012 WL 628515 (S.D. Ohio,
Feb. 27, 2012).
Relator has alleged that Defendants billed for custom
10
devices when off-the-shelf devices were actually provided; that
Defendants billed for add-on components of devices that were not
actually
provided;
and
that
Defendants
billed
for
add-on
components that were provided but that were also billed for as
part of a bundled base price.
specific
representative
As noted above, he provided
examples
to
support
each
of
allegations and to satisfy the burden of Rule 9(b).
also
alleges
services
that
Defendants
provided
unsupervised.
by
routinely
someone
who
billed
was
these
Relator
for
orthotic
unqualified
and
According to Ohio Revised Code §4779.04, someone
who is providing orthotic services under the supervision of a
licensed orthotist may only do so during the initial evaluation
if the supervisor is “physically present” or during other visits
if the supervisor is “either physically present at the location
where the individual is practicing or is readily available to
the individual through some means of telecommunication and is in
a location that under normal circumstances is not more than
sixty
minutes
individual
is
travel
time
away
practicing.”
from
Ohio
the
Rev.
location
Code
where
the
§4779.04(B),(C).
Defendants argue that this aspect of Relator’s claims should be
dismissed because Relator has not shown that the supervising
orthotist
was
not
individual
provided
physically
present
services.
Specifically,
11
when
the
unlicensed
Relator
alleges
that neither he nor Defendant Kempf “supervised” an unlicensed
employee’s services.
However, Defendants note that Relator also
states that Defendant Kempf was typically in the office building
during regular business hours, thus, according to Defendants,
defeating
Relator’s
claim
“physically present.”
terms
in
the
physically
or
Defendant
Kempf
was
Defendants have conflated two distinct
applicable
present
because
statute:
not,
Relator
Defendant
has
Kempf
alleged
did
not
that,
provide
supervision, which is a distinct component of the statute.
It
may well be that Defendant Kempf did provide supervision and was
physically present when an unlicensed employee provided orthotic
services, which could then render this aspect of Relator’s case
toothless.
But this level of detail must be fleshed out in
discovery as it is a factual dispute not suitable to resolution
on a motion to dismiss.
At this stage, again, Defendants are
sufficiently on notice of the nature of the charges against
them.
For
the
foregoing
reasons,
the
Court
finds
that
Relator has set forth sufficient factual allegations from which
the
Court
conducted
may
by
impermissible
plausibly
Defendants
infer
and
inducements.
a
fraudulent
billing
that
Defendants
benefited
Thus,
the
complaint
states a claim and survives the motion to dismiss.
12
scheme
from
adequately
B. The Retaliation Claim Survives
As
Relator
notes,
employment
inherently fact-driven claim.
retaliation
is
an
Here, Relator alleges that he was
constructively discharged because he refused to participate in
the
alleged
fraud,
and
his
attempts
to
stop
the
fraud
were
fruitless. Defendants cast this as “mere dissatisfaction” with
his treatment on the job.
The Court finds that the allegations
that Relator was in essence required to participate in allegedly
illegal
conduct
are
sufficient,
under
the
circumstances
presented here, to permit the Court to plausibly infer a cause
of action for retaliation under the False Claims Act.
III.
Conclusion
For
the
foregoing
reasons,
Defendants’ Motion to Dismiss (doc. 12).
the
Court
DENIES
Discovery shall be
completed by April 1, 2014; dispositive motions shall be filed
by May 1, 2014; a final pretrial conference has been scheduled
for September 18, 2014, at 2:00 P.M.; with a five-day jury trial
to commence on October 21, 2014.
SO ORDERED.
Dated:
April 9, 2013
s/S. Arthur Spiegel________________
S. Arthur Spiegel
United States Senior District Judge
13
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