TULLIO EMANUELE v. MEDICOR ASSOCIATES, INC. et al
For the reasons set forth in the accompanying Memorandum Opinion, Defendants Motion in Limine to Preclude Evidence or Bifurcate Trial (ECF No. 377) is DENIED; Relators Motion in Limine to Preclude Reference to Any Burden of Proof Other than a Prepond erance of the Evidence (ECF No. 398) is GRANTED; Relators Motion in Limine Regarding the Measure of Damages under the False Claims Act (ECF No. 408) is GRANTED; and Relators Motion to Strike (ECF No. 449) is GRANTED. Signed by Chief Judge Joy Flowers Conti on 10/26/17. (jdg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
U.S. ex rel. Tullio Emanuele,
Medicor Associates, et al,
C.A. No. 10-245 Erie
Conti, Chief District Judge
Pending before the court are the Motion in Limine to Preclude Evidence or Bifurcate
Trial (ECF No. 377) (“Motion to Preclude Evidence”) filed by defendants The Hamot Medical
Center of the City of Erie (“Hamot”) and Medicor Associates, Inc. (“Medicor”, and together with
Hamot, “Defendants”); the Motion in Limine to Preclude Reference to Any Burden of Proof
Other than a Preponderance of the Evidence (ECF No. 398) (“Burden of Proof Motion”) filed by
the United States ex rel. Tullio Emanuele (“Relator”); and Relator’s Motion in Limine Regarding
the Measure of Damages under the False Claims Act (ECF No. 408) (“Damages Motion”). At a
hearing held on October 12, 2017, the court ordered supplemental briefing on each of the three
motions. Defendants filed a supplemental brief with respect to the Motion to Preclude Evidence
(ECF No. 446) and the Burden of Proof Motion (ECF No. 448), but did not file a supplemental
brief regarding the Damages Motion.1 Relator responded to each filing (ECF Nos. 450, 451,
Defendants also filed a supplemental brief (ECF No. 447) addressing Relator’s Motion to Preclude Reference to the
453), and the United States filed a Statement of Interest (ECF No. 455). These motions are now
ripe for review.
Defendants’ Motion to Preclude Evidence
Relator initiated this action pursuant to the False Claims Act, 31 U.S.C. § 3729(a)(1)(A)(C) (the “FCA”), which imposes liability on any person or entity who “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.” 31 U.S.C. § 3729(a)(1). In his amended complaint,
Relator alleged that Defendants submitted claims to Medicare that violated the Stark Law, 42
U.S.C. § 1395nn, and the Anti-Kickback Act, 42 U.S.C. § 1320a-7b.2 Both the Stark Law and
the Anti-Kickback Act prohibit a health care entity from submitting claims to Medicare based
upon referrals from physicians who have a “financial relationship” with the health care entity,
unless a statutory or regulatory exception or safe harbor applies. 42 U.S.C. §§ 1395nn(a)(1);
1320a-7b(b). In the amended complaint, Relator alleged that there were financial relationships
between Defendants and referrals from physicians as a result of those relationships which
violated the Stark Law and Anti-Kickback Act. The amended complaint also pled that: (1)
Defendants performed unnecessary medical procedures, often with fatal results; and (2) certain
financial arrangements between Hamot and Medicor violated those statutes because they served
no purpose but to facilitate the exchange of illegal referrals and kickbacks between Hamot and
Government’s Non-Intervention (ECF No. 386). Relator’s motion in limine with respect to the government’s nonintervention was granted. (Hearing Transcript 10/12/17 (ECF No. 442) at 56). At the hearing, the court denied
defendants’ request to file a supplemental brief on that issue, but indicated that they could move for reconsideration
“if [they] can find some case where it went to the jury and the court granted the motion or permitted [the
government’s non-intervention] to come in as evidence.” (Id. at 56-57). Any such motion would have to meet the
standards for reconsideration set forth in Federal Rule of Civil Procedure 59(e). Because no motion was filed,
Relator’s motion to strike Defendants’ supplemental brief on this issue (ECF No. 449) will be granted.
The analysis applicable to the Stark Law and Anti-Kickback Act is largely indistinguishable. See Kosenske, 554
F.3d at 91 (observing that “the requirements of the Anti-Kickback Act and its implementary regulations are
indistinguishable from those of the Stark Act”).
Medicor. Relator alleged that these violations occurred “[f]rom at least June 1, 2001 through at
least May 31, 2005, and beyond.” (Id. ¶ 2.)
Following discovery, Relator withdrew his allegations of unnecessary medical
procedures. Relator continued to maintain that Defendants cannot meet their burden to show that
the medical directorship arrangements satisfied any of the statutory exceptions (or safe harbors)
set forth in the Stark Law and Anti-Kickback Act. He abandoned his argument that the medical
directorships were “shams,” but argued that Defendants still could not satisfy any Stark Law or
Anti-Kickback exceptions because some of their agreements were never reduced to writing or
were permitted to lapse without written renewal.
In their Motion to Preclude Evidence, Defendants contend that the “allegations” that form
the current basis for this litigation – to wit, that the contracts in issue governing the medical
directorships were not in writing at all times as required by the Stark Law and Anti-Kickback
Act – were never pleaded in either the original or amended complaint. Defendants seek to
preclude Relator from offering any evidence to support these “unpleaded” claims and contends
that this court lacks subject matter jurisdiction over them.3
To sustain a claim pursuant to § 3729(a)(1) of the FCA, a relator (or the government)
must prove that (1) the defendant presented or caused to be presented to an agent of the United
States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the
claim was false or fraudulent. United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d
295, 304-05 (3d Cir. 2011); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 (3d
As a corollary to their assertion that Relator’s claims were never properly pled, Defendants’ maintain that it is now
too late for Relator to amend his pleading to include these claims because the deadline for amendment was over
three years ago. Defendants also argue that the court lacks subject-matter jurisdiction over any claims arising from
documents turned over during discovery because Relator is not an original source with respect to those claims.
Because Relator had personal knowledge concerning those claims based upon the financial relationships and
referrals which continued after his employment ended, Defendants’ suggestion that he was not an original source as
to those claims is without merit.
Cir. 2004). The relator must also establish that the alleged misrepresentation to the government
was “material to the Government’s payment decision in order to be actionable under the False
Claims Act.” Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S.Ct. 1989, 2002
(2016). Where the allegedly false claims are based on violations of the Stark Law and the AntiKicback Act, the relator must prove that: (1) the defendants had a “financial relationship” of the
type prohibited by the statute; (2) one of the defendants referred patients to the other for
“designated health services”; and (3) claims based on those referrals were submitted to Medicare
for payment. 42 U.S.C. § 1395nn(a)(1). Once the relator has established a prima facie violation
of the Stark Law or the Anti-Kickback Act, the burden shifts to the defendants to demonstrate
that the financial arrangement fits within a statutory exception or safe harbor. See United States
ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (“Once the plaintiff or the
government has established proof of each element of a violation under the [Stark] Act, the
burden shifts to the defendant to establish that the conduct was protected by an exception.”);
United States v. Rogan, 459 F.Supp.2d 692, 717 (N.D. Ill. 2006) (noting that, once the plaintiff
or government has established a violation of the Stark Act, the defendant bears the burden of
establishing that the conduct was protected by an exception); United States ex rel. Baklid-Kunz
v. Halifax Hosp. Med. Ctr., No. 09-1002, 2012 WL 921147, at *5 (M.D. Fla. Mar. 19, 2012)
(because Stark Act exceptions are “affirmative defense rather than elements of a cause of action .
. . it is the Defendants’ obligation to plead that they apply rather than the [relator’s] obligation to
plead that they do not apply.”).
In his amended complaint, Relator alleged that Hamot and Medicor established a
financial relationship by entering into “a series of contracts . . . to pay kickbacks . . . and to
engage in unlawful relationships with physicians to induce patient referrals. (Amended
Complaint (ECF No. 64) ¶ 95.) Specifically, Relator alleged that Hamot and Medicor entered
into “a series of sham contracts . . . for ‘medical directorships’ or other similar personal service
arrangements.” (Id. ¶ 97.) Relator identified six medical directorships by name and averred that
he had been personally assigned to provide services pursuant to one of them throughout his
employment at Medicor. (Id. ¶¶ 98, 104.) Relator identified many of the critical terms of the
arrangements, such as the timeframe, expectations for performance, compensation, and terms of
renewal. (Id. ¶¶ 99-100.) Despite the existence of these financial arrangements, Relator averred
that Medicor “referred thousands of patients covered by federal health insurance programs to
Hamot on an exclusive basis.” (Id. ¶ 106.)
In addition to alleging the prima facie elements of his claim, Relator also alleged –
although it was not his burden to do so – that the medical directorships did not satisfy the
requirements of several of the Stark Law and Anti-Kickback Act exceptions that Defendants
would most likely attempt to invoke. Relator alleged that these exceptions were not applicable
because the directorship arrangements were “shams” that did not require Medicor physicians to
perform any actual work, rendering the arrangements commercially unreasonable. (Amended
Complaint (ECF No. 64) ¶¶ 116, 119-21.)
During discovery, evidence was adduced suggesting that the directorship arrangements
may not always have been set forth “in writing,” as required by several Stark Law and AntiKickback Act exceptions. See 42 C.F.R. §411.357(l) (the “fair market value exception”); 42
C.F.R. § 411.357(d)(1) (“the personal services arrangements exception”). Realtor moved for
partial summary judgment on this basis. The court agreed with Relator that at least two medical
directorships – the Women’s Heart Health directorship and the CV Chair arrangement – were
never set forth in writing. (Summary Judgment Opinion (ECF No. 345) at 19-23.) The court
held that there were disputed issues of material fact about whether the remaining directorship
agreements satisfied the writing requirement. (Id. at 19.) Significantly, the parties did not
dispute the prima facie elements of Relator’s Stark Law claims. (Id. at 12-13) (“The parties do
not appear to dispute that a financial relationship existed among Hamot, Medicor, and the
individual physician defendants. As such, the sole issue presented in Plaintiff’s motion is
whether the compensation arrangements satisfied one of the Stark Act exceptions during the
relevant time periods.”)
Defendants now contend that Relator should be precluded from offering any evidence to
the jury regarding the writing requirement in certain exceptions contained in the Stark Law and
Anti-Kickback Act because he never pled the absence of a written agreement in his amended
complaint and that he was not the original source for that claim. Because the burden of
establishing an applicable Stark Law or Anti-Kickback Act exception rests squarely with the
defense, Defendants are essentially asking the Court to preclude Relator from offering evidence
to refute the existence of a potential affirmative defense and to require the Relator to be an
original source for the inapplicability of an affirmative defense.
In support of this proposition, Defendants rely heavily on Rockwell International Corp. v.
United States, 549 U.S. 457 (2007), wherein a qui tam relator brought a False Claims Act
(“FCA”) action against a government contractor based on the contractor’s operation of a nuclear
weapons plant. Id. at 460. The relator, an engineer, had drafted a memorandum for the
contractor, Rockwell International Corporation (“Rockwell”), explaining that a proposed method
for disposing of toxic pond sludge would not work. Id. at 461. Rockwell intended to dispose of
the sludge by mixing it with cement and turning it into solid “pondcrete” blocks. Id. The
engineer explained that the proposed method of disposal relied on a piping system that would be
inadequate to remove the sludge in a form that could be turned into a solid block. Id. Rockwell
proceeded with the project despite his objections. Id. After being laid off, the engineer, Stone,
contacted the Federal Bureau of Investigation to inform it that Rockwell was concealing
environmental violations. Id. at 462.
Based upon his “inadequate piping” theory, Stone initiated a FCA action alleging that
Rockwell had falsely certified compliance with federal and state environmental regulations to
induce the government to continue making payments on the contract. Id. at 463-64. The
government later intervened and filed an amended complaint alleging that Rockwell had violated
environmental laws by storing leaky pondcrete blocks. The government, however, did not allege
that the pondcrete blocks were leaky for the same reason that Stone predicted (the inadequacy of
the piping system). Id. at 465. Instead, the government alleged that the insolidity was due to an
incorrect ratio of sludge to concrete, poor quality control, and inadequate inspections. Id.
Following a jury verdict in the government’s favor, Rockwell filed an appeal arguing that
the government’s claims were based on publically disclosed allegations for which Stone was not
an original source. Rockwell noted that federal courts lack jurisdiction over FCA allegations
based on public disclosures “in a criminal, civil, or administrative hearing . . . or from the news
media” unless the action is brought by the person who was the “original source of the
information.” Id. at 467 (citing 31 U.S.C. 3730(e)(4)(A)). In order to be an original source, the
relator must have “direct and independent knowledge of the information on which the allegations
are based.” 31 U.S.C. § 3730(e)(4)(B). The Court ultimately determined that Stone’s allegations
fell short of this standard:
Stone’s knowledge falls short. The only false claims ultimately found by
the jury (and hence the only ones to which our jurisdictional inquiry is
pertinent to the outcome) involved false statements with respect to
environmental, safety, and health compliance over a 1 ½ year period
between April 1, 1987, and September 30, 1998. As described by Stone
and the Government in the final pretrial order, the only pertinent problem
with respect to this period of time for which Stone claimed to have direct
and independent knowledge was insolid pondcrete. Because Stone was
no longer employed by Rockwell at the time, he did not know that the
pondcrete was insolid; he did not know that pondcrete storage was even
subject to RCRA; he did not know that Rockwell would fail to remedy
the defect; he did not know that the insolid pondcrete leaked while being
stored onsite; and, of course, he did not know that Rockwell made false
statements to the Government regarding pondcrete storage.
Id. at 475. Because Stone did not have “direct and independent knowledge of the information
upon which his allegations were based,” the Court determined that the district court lacked
jurisdiction over the claims arising from those allegations. Id. at 476.
Critically, the Court emphasized that the problem was not that Stone had incorrectly
identified the source of the flaw in the pondcrete; rather, the problem was that Stone never
actually knew whether the pondcrete had failed or not. He had simply predicted that it might.
The Court noted:
Stone’s prediction that the pondcrete would be insolid because of a flaw
in the piping system does not qualify as “direct and independent
knowledge” of the pondcrete defect. Of course a qui tam relator’s
understanding of why a concealed defect occurred would normally be
immaterial as long as he knew the defect actually existed. But here
Stone did not know that the pondcrete failed; he predicted it. Even if a
prediction can qualify as direct and independent knowledge in some
cases (a point we need not address), it assuredly does not do so when its
premise was a failed prediction, disproved by Stone’s own allegations.
Id. at 475-76 (emphasis in original).
The Court also rejected the government’s argument that Stone’s accurate allegations with
respect to a totally different environmental violation (related to spray-irrigation) were sufficient
to provide jurisdiction over all his claims:
Stone counters that his original-source status with respect to his sprayirrigation claim (which related to a time period different from that for his
pondcrete claim) provided jurisdiction with respect to all of his claims.
We disagree. Section 3730(e)(4) does not permit jurisdiction in gross
just because a relator is an original source with respect to some claim.
We, along with every court to have addressed the question, conclude that
§ 3739(e)(4) does not permit such claim smuggling.
Id. at 476.
Defendants’ contend that Rockwell is directly applicable. According to Defendants,
Relator initially proffered one theory of liability (that the directorships were “shams”) before
shifting entirely to another theory (that the directorships were not properly reduced to writing).
Defendant contends that Relator cannot “smuggle” his new “claims” into this action without
independently establishing that he was the original source of those “claims.”
Here, however, Relator’s allegations with respect to the elements of his prima facie case,
i.e. his claims, have never wavered. Relator’s FCA claim requires him to demonstrate that the
Defendants falsely and knowingly certified their compliance with the Stark Law and AntiKickback Act while submitting claims for payment to the government that were tainted by
patient referrals between health care entities engaged in a financial relationship. As noted above,
Relator’s amended complaint contains reasonably detailed allegations that Hamot and Medicor
knew about the prohibitions against illegal referrals and kickbacks under the Stark Law and AntiKickback Act, but entered into medical directorships for the purpose of inducing referrals and
submitting claims for payment to the government based on those referrals. Indeed, the court
granted partial summary judgment in favor of Relator on the inapplicability of an exception with
respect to two medical directorship agreements.
Moreover, unlike in Rockwell, the theory that Relator purportedly failed to plead in his
amended complaint – the absence of a written agreement – relates entirely to an affirmative
defense on which Defendants bear the burden of proof. Defendants do not dispute that they bear
the burden of demonstrating that a financial arrangement fits within an exception or safe harbor
to the Stark Law or Anti-Kickback Act. See Kosenske, 554 F.3d at 95 (“Once the plaintiff or the
government has established proof of each element of a violation under the [Stark] Act, the
burden shifts to the defendant to establish that the conduct was protected by an exception.”). To
the extent that Relator initially pled that several of the Stark Law and Anti-Kickback Act
exceptions did not apply because they were “shams,” that allegation went directly to an element
that he had no obligation to plead at all. Relator’s failure to predict what potential defects might
apply to the affirmative defenses raised by the Defendant is not the kind of “claim smuggling”
contemplated by Rockwell.
Defendants respond that the scienter requirement of the FCA requires the Relator to go
beyond his prima facie burden and allege precisely why Defendants’ financial arrangements did
not satisfy a Stark Law or Anti-Kickback Act exception:
Relator’s Amended Complaint alleged a False Claims Act violation
based on the theory that claims were false because Defendants’ financial
arrangements based in the medical directorship agreements were shams.
(Doc. 64, Am. Compl. ¶¶ 95-114). The only allegations relevant to
Defendants’ knowledge (which Relator was obligated to plead a
plausible basis for) were that Defendants knew their arrangements did
not meet the Stark Law’s personal service and management contracts
safe harbor. (Id. at ¶¶ 115-25). But now, Relator alleges a new reason
why Defendants knew they were submitting false claims, i.e., that they
knew their contracts were not in writing. This is a wholly separate
allegation of and basis for Defendants’ scienter under the FCA and thus
constitutes a separate claim, which under Rockwell requires a separate
(Defendants’ Supplemental Brief in Support (ECF No. 446) at 11.) Federal Rule of Civil
Procedure 9(b), however, provides that “[m]alice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b); Smith v. Carolina Medical
Center, No. 11-2756, 2017 WL 3310694, at *13-14 (E.D. Pa. Aug. 2, 2017) (noting that “general
allegations” describing the scienter element of an FCA action are sufficient under Rule 9(b)).
The amended complaint alleges that Hamot and Medicor were “aware of the prohibitions against
kickbacks and legal restrictions on financial relationships between hospitals and physicians” but
nevertheless “entered into a series of contracts with Medicor” to induce patient referrals.
(Amended Complaint (ECF No. 64) ¶ 95.) It also alleges that Hamot and Medicor “knowingly
presented or caused to be presented” claims to Medicare for payment based on those referrals.
(Id. ¶¶ 113-14.) These allegations were sufficient for purposes of the scienter requirement of
Relator’s FCA claim. Smith, 2017 WL 3310694, at *13-14 (“[D]efendants argue that the
government and relator fail to allege facts showing scienter. But knowledge “may be alleged
generally under Rule 9(b).”). 4
Defendants’ contention is also at odds with the well-established proposition that a relator
does not bear the burden of establishing the absence of a Stark Law or Anti-Kickback Act
exception. See Kosenske, 554 F.3d at 95. Indeed, it is axiomatic that a plaintiff has no
obligation to “anticipate and answer” each of the potential affirmative defenses that might apply
to his claim. VICI Racing, LLC v. T-Mobile USA, Inc., 763 F.3d 273, 301 (3d Cir. 2014). If the
court were to adopt Defendants’ argument, a relator would be obligated to not only anticipate
and plead a defendant’s lack of compliance with each and every Stark Law or Anti-Kickback Act
exception, but also would need to plead the absence of each particular element of those
exceptions. Rockwell - which did not involve the Stark Law or Anti-Kickback Act - simply
cannot be read to support such a broad and novel proposition.
Finally, Defendants maintain that Relator’s allegations now focus on a time period that
extended beyond his own employment with Medicor, involving transactions and patients about
Moreover, once the elements of a claim “[have] been stated adequately, [they] may be supported
by showing any set of facts consistent with the allegations in the complaint.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 563 (2007) (citing Sanjuan v. Am. Bd. of Psychiatry & Neurology, 40
F.3d 247, 251 (7th Cir. 1994)).
which he necessarily has no first-hand knowledge. Courts have rejected the premise that
Rockwell creates an absolute bar to claims that stem from time periods outside a relator’s time of
employment. In United States ex rel. Galmines v. Novartis Pharmaceuticals Corp., for example,
the court rejected this precise argument:
The holding in Rockwell was not—as Novartis contends—that the
relator categorically could not be an original source for any allegations
extending past the date of his employment. Rather, the Court held merely
that the relator had no direct and independent knowledge of the facts
underlying the fraudulent scheme. See U.S. ex rel. Hockett v.
Columbia/HCA Healthcare Corp., 498 F.Supp.2d 25, 54 (D.D.C.2007)
(“Under Rockwell, a relator must qualify as an original source for each
distinct kind of claim or scheme she alleges.”). The relator predicted that
the pondcrete would fail for one reason, then the relator was laid off, and
then the pondcrete failed—but for an entirely different reason than the
one the relator had predicted. Here, Mr. Galmines observed the off-label
marketing and illegal kickbacks firsthand, then he left Novartis and filed
this lawsuit, but the off-label marketing and illegal kickbacks continued
as they had before he left Novartis. The analogous situation would have
been if the relator in Rockwell observed the pondcrete failing, then
brought a lawsuit and then left Rockwell, and the pondcrete continued to
fail for the same reason the relator alleged in his lawsuit. Barring the
relator in such a scenario from bringing a claim for the entire fraudulent
scheme would not comport with common sense, the general principles of
law, or the scheme of the False Claims Act. The key distinction in
Rockwell was the fact that the relator had no direct and independent
knowledge of the material facts underlying the actual fraudulent
scheme—not that he was no longer employed at the company allegedly
perpetrating the fraud.
Novartis, 88 F.Supp.3d 447, 452-53 (E.D. Pa. 2015). The same is true in the instant case.
Relator has consistently maintained that Hamot and Medicor entered into financial relationships
designed to secure patient referrals while he was employed there and that the same kind of
arrangements continued following his employment. As in Novartis, this allegation of a
continuing fraud does not run afoul of the original source rule. Id. at 454-55 (noting that “the
limitation on a relator’s ability to recover for additional periods of time is not the original source
bar but the pleading requirements and the discretionary powers of the court over discovery.”).
Defendants’ motion to preclude evidence or bifurcate trial is denied.
Relator’s Burden of Proof Motion
In his Burden of Proof Motion, Relator contends that the applicable burden of proof for
his FCA claims is a preponderance of the evidence, as in any other civil case. Defendants
counter that claims premised on the Stark Law must be proven by clear and convincing evidence,
while those premised on the Anti-Kickback Act must be proven beyond a reasonable doubt.
Prior to 1986, there was a divergence of authority in the circuit courts with respect to the
applicable standard of proof in FCA cases. Compare United States v. Ueber, 299 F.2d 310 (6th
Cir. 1962) (requiring clear and convincing evidence), and United States v. Foster Wheeler Corp.,
447 F.2d 100 (2d Cir. 1971) (same), with United States v. Thomas, 709 F.2d 968 (5th Cir. 1983)
(applying a preponderance of the evidence standard); Federal Crop Ins. Corp. v. Hester, 765 F.2d
723 (8th Cir. 1985) (same). In 1986, Congress addressed this divergence by amending the FCA
to clarify that, “[i]n any action brought under section 3730, the United States shall be required to
prove all essential elements of any cause of action, including damages, by a preponderance of the
evidence.” 31 U.S.C. § 3731(d); see S. Rep. No. 96-615 at 8 (March 4, 1980) (noting the Senate
Committee’s view that a burden of proof other than the preponderance of the evidence standard
imposes an “unreasonably difficult standard of proof” in FCA actions and suggesting
clarification by way of amendment). Defendants raise the novel argument that this revision
applies only to actions brought by the United States, and not to actions brought a qui tam relator.
Defendants support their argument almost exclusively by citation to the United States
Supreme Court’s decision in Graham County Soil & Water Conservation District v. United
States ex rel. Wilson, 545 U.S. 409 (2005). In Graham, the Supreme Court observed in dicta that
“the context of [Section 3731(d)]” implies that the phrase “action brought under section 3730” is
limited to “§ 3730(a) actions brought by the United States and § 3730(b) actions in which the
United States intervenes as a party . . . .” Id. at 418. In the very next paragraph, the Court stated
that the statute of limitation contained in Section 3731(b) applied only to Section 3730(a) and (b)
actions without differentiating between those in which the government intervened and those in
which it did not. Id. Defendants rely on Graham to suggest that the burden of proof set forth in
Section 3731(d) should be limited to actions brought by the United States or in which the United
States intervened. The only issue before the Court in Graham, however, was whether a relator’s
retaliation claim under 31 U.S.C. § 3730(h) was governed by the three-year statute of limitations
applicable to analogous state wrongful-discharge claims or the six-year period that the FCA
prescribes for a “civil action under section 3730.” Id. at 417-18. Moreover, the provision that
the Court was addressing – Section 3730(h) – creates a retaliation claim that is available only to
a relator on his own behalf and does not involve the government. The applicable burden of proof
in a § 3730(b) action brought on behalf of the United States by a relator was never an issue
before the Court.
At the oral hearing, the court challenged the parties to produce relevant caselaw
addressing the proper burden of proof, particularly in the context of jury instructions. Relator
produced seven recent cases applying the “preponderance of the evidence” standard in either jury
instructions or special verdict slips. See, e.g., United States ex rel. Rigsby v. State Farm, No.
1:06cv433 (S.D. Miss. 2016) (ECF No. 454-1) (incorporating the “preponderance of the
evidence” standard into a special verdict form); United States ex rel. Colquitt v. Abbott
Laboratories, No. 3:06cv1769 (N.D. Tx. Apr. 7, 2016) (ECF No. 454-2) (directing the jury to
determine whether the relator proved his case “by a ‘preponderance of the evidence’”); United
States ex rel. Harman v. Trinity Industries, No. 2:12cv0089 (C.D. Tx. Oct. 20, 2014) (ECF No.
454-3) (special verdict form); United States ex rel. Ubl v. IIF Data Solutions, Inc., No.
1:06cv641 (E.D. Va. Oct. 27, 2008) (ECF No. 454-4) (special verdict form); United States ex rel.
Ortolano v. Amin Radiology, No. 5:10cv583 (M.D. Fl. May 9, 2014) (ECF No. 454-5) (jury
instructions); United States and State of Illinois ex rel. Absher v. Momence Meadows Nursing
Center, No. 04-2289 (C.D. Ill. Feb. 8, 2013) (ECF No. 454-6) (jury instructions); United States
ex rel. Loughren v. UnumProvident Corp., No. 03-11699 (D. Mass. Oct. 16, 2008) (ECF No.
454-7) (jury instructions). In contrast, Defendants failed to cite a single case actually applying a
heightened burden of proof to a post-1986 FCA claim involving a relator. See St. Paul Fire and
Marine Ins. Co. v. United States, 31 Fed. Cl. 151, 155 (Ct. Cl. 1994) (discussing the burden of
proof in dicta in a non-FCA case but quoting the wrong statutory provision); United States v.
Chilstead Building Company, Inc., 18 F.Supp.2d 210, 214 (relying on pre-1986 caselaw to apply
a “clear and convincing” standard at the summary judgment stage in a case not involving a
relator); United States v. Truong, 860 F.Supp.1137, 1140 (E.D. La. 1994) (discussing the pre1986 split of authority in a non-relator case and concluding that the burden of proof had been
met under either standard).
Based upon the foregoing, the court agrees with the courts that applied the preponderance
of the evidence burden of proof in FCA cases, whether the action is brought by a relator on
behalf of the United States or the United States government. See United States ex rel. Hyatt v.
Northcrop Corp., 91 F.3d 1211, 1214-15 (9th Cir. 1996) (noting that the legislative history of the
FCA “is replete with many instances in which the word ‘government’ is used when referring to
suits brought in the name of the United States by . . . private qui tam plaintiffs” because “qui tam
plaintiffs are merely agents suing on behalf of the government, which is always the real party in
interest”); United States v. Campbell, No. 08-1951, 2011 WL 43013, at *5 (D.N.J. Jan. 4, 2011)
(applying the preponderance of the evidence standard to FCA claims brought on the basis of
Stark and Anti-Kickback Act violations); United States v. Rogan, 459 F.Supp.2d 692, 716 n. 12
(N.D. Ill. 2006) (noting that the “criminality of predicate offenses in an underlying civil statute . .
. does not mandate application of a higher burden of proof in a civil case”). Relator’s motion
will be granted.
Relator’s Damages Motion
Finally, the parties disagree about whether any damages awarded to Relator for false
claims must be offset by the value of any actual services performed by Hamot and Medicor
physicians.5 Relator contends that the proper measure of damages is the full amount of any
claims Hamot submitted to Medicare for payment that violated either the Stark Law or the AntiKickback Act. Defendants counter that the appropriate measure of damages in a FCA case is the
difference between what the government paid and the value of the services the government
As correctly noted by Defendant, the traditional measure of damages in a FCA action is
the difference between the market value of the product that the government received and the
market value that the product would have been worth had it been of the specified quality. United
States v. Bornstein, 423 U.S. 303, 316 n.13 (1976); see United States ex rel. Wall v. Circle C
Construction, 813 F.3d 616, 618 (6th Cir. 2016) (rejecting the argument that the government
should pay nothing for work performed on several buildings despite false claims); United States
ex rel. Thomas v. Siemans AG, 991 F.Supp.2d 540, 573 (E.D. Pa. 2014) (measuring FCA
damages “as the difference between what the government actually paid and what the government
would have paid had it known of the falsity of the defendant’s claim”). This standard for damage
As previously noted, Defendants did not supply a supplemental brief on this issue.
calculation, often referred to as the “benefit of the bargain” standard, is typically applied where
the government receives a tangible service or benefit. See Bornstein, 423 U.S. at 317 n. 13
(noting that the government’s damages after receiving deficient electron tubes for radio kits were
“equal to the difference between the market value of the tubes it received and retained and the
market value that the tubes would have had if they had been of the specified quality.”); Wall, 813
F.3d at 618 (offsetting the value of electrical work actually performed on government
warehouses despite that the wages paid to electricians by the contractor violated a federal wage
In contrast, where the false claims at issue are based on illegal referrals or kickbacks,
courts have typically awarded a full measure of damages under the principle that “the United
States would have paid . . . nothing for hospital claims” tainted by violations of the Stark Law or
Anti-Kickback Statute. United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008). In Rogan, for
example, the Court of Appeals for the Seventh Circuit held that the proper measure of damages
where claims submitted to the United States are made false by kickbacks or illegal referrals is the
full amount of each claim that was tainted by the illicit arrangement, despite that the patients
may have actually received medical treatment:
“[We do not] think it important that most of the patients for which claims
were submitted received some medical care – perhaps all the care
reflected in the claim forms. . . . [Defendant] did not furnish any medical
service to the United States. The government offers a subsidy (from the
patients’ perspective, a form of insurance), with conditions. When the
conditions are not satisfied, nothing is due. Thus the entire amount that
[Defendant] received on these 1,812 claims must be paid back.”
Rogan, 517 F.3d at 453. In other words, no offset of damages is available because the
government is explicitly barred by law from making any payment for a claim tainted by a
kickback or illegal referral. Id. at 726; see United States ex rel. Wilkins v. United Health Group,
Inc., 659 F.3d 295, 314 (3d Cir. 2011) (noting that “[t]he government does not get what it
bargained for when a defendant is paid by CMS for services tainted by a kickback.”). Other
courts have routinely reached the same conclusion in the kickback/illegal referral context. See,
e.g., United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 386 (4th Cir. 2015) (“By
reimbursing the [defendant hospital] for services that it was legally prohibited from paying
[under the Stark Law], the government has suffered injury equivalent to the full amount of the
payments.”); United States v. Mackby, 339 F.3d 1013, 1014-15 (9th Cir. 2003) (noting that,
because Medicare fraud rendered the defendant ineligible to bill Medicare, the United States’
damages were the full sum of money that Medicare paid, despite that some services were
actually performed); United States ex rel. Freedman v. Suarez-Hoyos, No. 04-933, 2012 WL
4344199, at *4 (M.D. Fla. Sept. 21, 2012) (concluding that “the amount of the Government’s
damages resulting from the payment of false claims tainted by a kickback arrangement equals the
full amount that Medicare paid on such claims”).
Defendants’ citation to United States ex rel. Nudelman v. International Rehab Associates,
No. 00-1837, 2006 U.S. Dist. LEXIS 17958 (E.D. Pa. Apr. 4, 2006), does not compel a different
result. In Nudelman, the relator claimed that the defendant was ineligible to bill the government
for services because it had inaccurately represented that it was performing medical “utilization
review” services that met a particular standard. Id. at *8-14. In reviewing a proposed settlement
for fairness, the court was called upon to consider the potential range of possible recoveries for
the relator. Id. at *53-54. The relator suggested that the maximum possible recovery would be
the full value of all claims ever submitted under the contract, despite that fully complaint
utilization reviews were performed in approximately 90-95% of the claims. Id. at *52. The
court disagreed, opining that a more reasonable potential recovery would be the value of only
those claims that never actually received the contractually agreed-upon review process. Id. at
*54. The court concluded that this analysis “has more logical appeal given that the traditional
measure of damages in a false claims act case is the difference between the market value of what
the government was promised and what it actually received. Id. (citing Bornstein, 423 U.S. at
316 n. 13).
Despite the court’s citation to Bornstein, a careful review of Nudelman actually supports
relator’s position. The issue in Nudelman was not whether to offset the value of a single claim
against the value of any service provided under that claim, but whether the entire body of claims
submitted under a contract, both compliant and non-compliant, should be partitioned to account
for only the non-compliant claims. Indeed, for each of the claims that the court determined was
unlawful, the court considered damages based on the full value of that claim, with no offset. Id.
at *54 (noting that a more reasonable potential recovery would be to deduct 95% from the total
value paid for all claims to account for the 5% of claims that were unlawful).
In light of the foregoing, the court agrees with Relator that the proper measure of
damages for services that the government is legally prohibited from paying due to illegal
referrals or kickbacks is “equivalent to the full amount of the payments.” Drakeford, 792 F.3d at
387. Relator’s motion will be granted.
For the reasons set forth herein, Defendants’ Motion in Limine to Preclude Evidence or
Bifurcate Trial (ECF No. 377) is denied; Relator’s Motion in Limine to Preclude Reference to
Any Burden of Proof Other than a Preponderance of the Evidence (ECF No. 398) is granted;
Relator’s Motion in Limine Regarding the Measure of Damages under the False Claims Act
(ECF No. 408) is granted; and Relator’s Motion to Strike (ECF No. 449) is granted. An
appropriate order follows.
By the court:
/s/ Joy Flowers Conti
Joy Flowers Conti
Chief United States District Judge
Dated: October 26, 2017
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