Michaels et al v. Agape Senior Community Inc et al

Filing 77

ORDER granting 75 MOTION to Amend Second Amended Complaint; denying 24 Motion to Dismiss for Failure to State a Claim Pursuant to Rules 9(b), 12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure. Signed by Honorable Joseph F. Anderson, Jr. on 03/28/2014.(bshr, )

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
ROCK HILL DIVISION
United States of America ex rel. BRIANNA
MICHAELS and AMY WHITESIDES,

C/A No. 0:12-cv-03466-JFA

Relators,
vs.
AGAPE SENIOR COMMUNITY, INC.;
AGAPE SENIOR PRIMARY CARE, INC.;
AGAPE SENIOR SERVICES, INC.;
AGAPE SENIOR, LLC;
AGAPE MANAGEMENT SERVICES, INC.;
AGAPE COMMUNITY HOSPICE, INC.;
AGAPE NURSING AND
REHABILITATION CENTER, INC.
d/b/a AGAPE REHABILITATION OF
ROCK HILL a/k/a AGAPE SENIOR POST
ACUTE CARE CENTER – ROCK HILL a/k/a
EBENEZER SENIOR SERVICES, LLC;
AGAPE SENIOR FOUNDATION, INC.;
AGAPE COMMUNITY HOSPICE OF
ANDERSON, INC.; AGAPE HOSPICE OF THE
PIEDMONT, INC.; AGAPE COMMUNITY
HOSPICE OF THE GRAND STRAND, INC.;
AGAPE COMMUNITY HOSPICE OF THE
PEE DEE, INC.; AGAPE COMMUNITY
HOSPICE OF THE UPSTATE, INC.; AGAPE
HOSPICE HOUSE OF HORRY COUNTY, INC.;
AGAPE HOSPICE HOUSE OF LAURENS, LLC;
AGAPE HOSPICE HOUSE OF THE LOW
COUNTRY, INC.; AGAPE HOSPICE HOUSE
OF THE PIEDMONT, INC.; AGAPE
REHABILITATION OF CONWAY, INC.;
AGAPE SENIOR SERVICES FOUNDATION,
INC.; AGAPE THERAPY, INC.; AGAPE
HOSPICE; HOSPICE PIEDMONT; HOSPICE
ROCK HILL; and CAROLINAS
COMMUNITY HOSPICE, INC.,

Defendants.

1

ORDER

I. INTRODUCTION
The court has heard oral argument twice and received numerous briefs related to the
sufficiency of the Complaint in this healthcare fraud qui tam action. The Complaint alleges,
among other things, that Defendants systematically defrauded federal healthcare programs by
falsely certifying patients for certain hospice care, when hospice care was not appropriate.
Defendants moved to dismiss, pursuant to FRCP 12(b)(6) and FRCP 12(b)(1), all claims
asserted, largely on the grounds that the Complaint failed to meet the specificity required in fraud
actions under FRCP 9(b). Relators, in their response to the Motion to Dismiss, moved to amend
the Complaint and attached a First Proposed Amended Complaint.

Plaintiffs subsequently

submitted a Second Proposed Amended Complaint. The court partially granted Defendants’
Motion to Dismiss, dismissing the fifth, sixth, seventh, and eighth cause of action, without
prejudice, and granted the motion to amend the Complaint. (ECF No. 48).
After the second hearing—regarding the sufficiency of the First Amended Complaint—
Plaintiffs submitted additional evidence that bolstered the allegations of the Complaint. The
court instructed Plaintiffs to file another motion to amend the Complaint. Defendants opposed
the motion, and renewed their motion to dismiss the Complaint on essentially the same grounds
previously argued. (ECF No. 76). For the following reasons, the court grants Plaintiff’s Second
Motion to Amend the Complaint (ECF No. 75) and denies the remainder of Defendant’s Motion
to Dismiss (ECF No. 24; ECF No. 76).
II. DISCUSSION
The application of the standard in U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707
F.3d 451 (4th Cir. 2013) is critical in this case. In Nathan, the Fourth Circuit set the following
standard for evaluating the sufficiency of pleadings in qui tam suits, as it relates to the

2

presentment of false claims:
[W]e hold that when a defendant's actions, as alleged and as reasonably inferred
from the allegations, could have led, but need not necessarily have led, to the
submission of false claims, a relator must allege with particularity that specific
false claims actually were presented to the government for payment. To the extent
that other cases apply a more relaxed construction of Rule 9(b) in such
circumstances, we disagree with that approach.
U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457-58 (4th Cir. 2013).
Admittedly, the wording of the Nathan standard is circuitous. Because a petition for certiorari is
pending in Nathan, the court has the benefit of the Solicitor General’s understanding of the
holding in Nathan, as well as the Solicitor General’s understanding of where Nathan fits in a
circuit split on the issue of the pleading standard in False Claims Act cases.
The Solicitor General’s brief opposing certiorari confirms the court’s prior understanding
of the Nathan standard. The Solicitor General described the circuit split as follows:
[L]ower courts have reached inconsistent conclusions about the precise manner in
which a qui tam relator may satisfy the requirements of Rule 9(b). Several courts
of appeals have correctly held that a qui tam complaint satisfies Rule 9(b) if it
contains detailed allegations supporting a plausible inference that false claims
were submitted to the government, even if the complaint does not identify specific
requests for payment. Other decisions, however, have articulated a per se rule that
a relator must plead the details of particular false claims - that is, the dates and
contents of bills or other demands for payment - to overcome a motion to dismiss.
Brief for the United States as Amicus Curiae, U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc.,
707 F.3d 451 (4th Cir. 2013), petition for cert. filed, 81 U.S.L.W. 3650 (May 10, 2013) (No. 121349), 2014 WL 709660 at *10. Most importantly, the Solicitor General concluded that “[t]he
… Fourth Circuit[] ha[s] also declined to adopt a per se rule requiring relators to plead specific
false claims.” Id. at 12. The court agrees. The court understands the holding in Nathan to allow
for a relator to satisfy the specificity requirements of Rule 9(b) by alleging “specific false claims
actually … presented to the government for payment.”

3

Nathan, 707 F.3d 451, 457-58.

However, a relator may also satisfy the Nathan standard by alleging a reasonable inference that
false claims were necessarily submitted to the government. 1 Id. The court notes that the Nathan
standard is more strict than the most lenient standards adopted by other courts of appeals, and
more lenient that the most strict standards adopted by other courts of appeals.
Defendants argue that “the Fourth Circuit affirmed its position on [Nathan’s] standard in
a published opinion.” (ECF No. 72, p. 2). Citing to U.S. ex rel. Rostholder v. Omnicare, Inc.,
12-2431, 2014 WL 661351 (4th Cir. Feb. 21, 2014), Defendants argue that Rostholder reinforces
Nathan’s “exacting standards for False Claims Act (FCA) filings.” (ECF No. 72, p.2). The
court disagrees. Rostholder cites Nathan twice. The first citation to Nathan immediately follows
this sentence: “[w]e review de novo the district court's dismissal of relator's complaint under
Rule 12(b)(6).” Rostholder, 12-2431, 2014 WL 661351 at *4. The second citation to Nathan is
in footnote 8:
Because we conclude that relator failed to plead the existence of a false statement
and the scienter required for an FCA claim, we do not address Omnicare's
alternative argument that relator did not allege the presentment of a false claim
with particularity under Federal Rule of Civil Procedure 9(b) and our decision in
Nathan, 707 F.3d 451.
Id. at 6, n.8. In this court’s view, a citation to Nathan for the de novo standard of review on
appeal does not “affirm” the pleading standard in Nathan. Moreover, footnote 8 makes clear that
the Rostholder court did not at all rely on Nathan’s standard related to the specificity of the
presentment of false claims required under FRCP 9(b) in qui tam actions.
Because the Fourth Circuit has not adopted the per se rule requiring relators to plead the

1

“In [Nathan], the Fourth Circuit endorsed the results in Grubbs and Duxbury and indicated that a relator need not
identify particular false claims when ‘specific allegations of the defendant's fraudulent conduct necessarily [lead] to
the plausible inference that false claims were presented to the government.’” Brief for the United States as Amicus
Curiae, U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451 (4th Cir. 2013), petition for cert. filed, 81
U.S.L.W. 3650 (May 10, 2013) (No. 12-1349), 2014 WL 709660 at *12 (citations omitted).
4

presentment of specific false claims, the court examines the Second Amended Complaint (ECF
No. 74) for a reasonable inference that Defendants necessarily submitted false claims to the
government. Nathan, 707 F.3d 451, 457-58. The court also considers allegations of “specific
false claims actually presented to the government for payment.” Id. Relators have met their
burden to survive Defendant’s Motion to Dismiss with regard to the first, second, third and
fourth causes of action, as pleaded in the Second Amended Complaint.
III. CONCLUSION
The court grants Relators’ Second Motion to Amend the Complaint. (ECF No. 75). The
court denies Defendants’ Motion to Dismiss (ECF No. 24; ECF No. 76) as to the First, Second,
Third, and Fourth Causes of Action, as pleaded in the Second Amended Complaint. The court
previously dismissed the Fifth, Sixth, Seventh, and Eighth Causes of Action, as pleaded in the
Second Proposed Amended Complaint, without prejudice. Relators have again included those
causes of action in the Second Amended Complaint, but have not offered any authority disputing
the court’s prior dismissal of those causes of action. For the reasons stated in ECF No. 48, the
court, therefore, dismisses the Fifth, Sixth, Seventh, and Eighth Causes of Action, as pleaded in
the Second Amended Complaint, with prejudice. A scheduling order will be entered forthwith.
IT IS SO ORDERED.
March 28, 2014
Columbia, South Carolina

Joseph F. Anderson, Jr.
United States District Judge

5