Battiata et al v. Puchalski et al
Filing
67
OPINION AND ORDER granting 44 Motion to Dismiss for Failure to State a Claim. Signed by Honorable Cameron McGowan Currie on 10/30/2012.(cbru, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
United States of America, ex rel. Andrew
Battiata, M.D. and Jenny Raybon,
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)
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Plaintiffs,
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v.
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Robert Puchalski, M.D. and South
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Carolina ENT, Allergy, and Sleep
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Medicine, P.A.,
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Defendants.
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___________________________________ )
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Robert Puchalski, M.D. and South
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Carolina ENT, Allergy, and Sleep
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Medicine, P.A.,
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Third-Party Plaintiffs,
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v.
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Chad B. Gunnlaugsson, M.D. and
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Orville H. Dyce, M.D.,
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Third-Party Defendants.
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___________________________________ )
C.A. No. 3:11-cv-3360-CMC
OPINION AND ORDER
ON MOTION TO DISMISS
COUNTERCLAIMS
Through this qui tam action, Plaintiffs Andrew Battiata, M.D. (“Battiata”) and Jenny Raybon
(“Raybon”) (collectively “Plaintiffs”) seek recovery on behalf of the United States for alleged
violations of the False Claims Act, 31 U.S.C. § 3729, et seq. (“FCA”). The matter is before the court
on Plaintiffs’ motion to dismiss the seven counterclaims asserted by Defendants Robert Puchalski,
M.D. (“Puchalski”) and South Carolina ENT, Allergy, and Sleep Medicine, P.A. (“SC ENT”)
(collectively “Defendants”). For the reasons set forth below, Plaintiffs’ motion is granted in full.
COMPLAINT AND COUNTERCLAIMS
In order to place the counterclaims in context, the court begins with a brief description of the
complaint. Plaintiffs are former employees of Defendant SC ENT. They allege that, during their
employment, Defendants improperly obtained payment from one or more federal programs by
intentionally submitting bills with incorrect codes, most critically, by using codes which suggested
services were provided by or under the supervision of a physician when they were not.
Defendants deny the allegations of the complaint. In addition, they assert numerous
affirmative defenses and seven counterclaims. The present motion is directed to the counterclaims.
Counterclaim Facts. The facts relevant to the counterclaims are found under the heading
“Facts Common to all Counterclaims”. Dkt. No. 39 at 16 Counterclaim ¶¶ 7-12. As to Battiata,
Defendants allege that “after working [at SC ENT] a very short period of time, he began gathering
and taking confidential documents to bring this qui tam lawsuit” despite having “a fiduciary duty to
SC ENT . . . to act in its best interest at all times.” Dkt. No. 39 ¶ 8. Defendants further allege that
Battiata filed this qui tam action roughly two months after the employment relationship was
terminated pursuant to a Settlement Agreement. Id. ¶ 10.
As to Raybon, who was an employee for approximately five years, Defendants allege that
“[d]uring a significant portion of her employment . . . , instead of performing her duties, Relator
Raybon downloaded thousands of confidential patient records, took confidential documents, falsified
her timesheet, and prepared to bring this qui tam lawsuit.” Id. ¶ 12. There are no allegations of
misuse of confidential information or resulting harm other than the use in and harm which may result
from pursuit of this action.
2
Based on these allegations, Defendants assert seven counterclaims. These counterclaims are
summarized below.
Malicious Prosecution. The first counterclaim, for malicious prosecution, asserts that this
action is “brought without any cause to believe that a False Claims Act violation . . . has been
committed.” Id. ¶ 15. It further alleges that “this action has been brought vindictively and for an
ulterior motive; for the purpose of attempting to legally harass, leverage, and to defame
Defendants[.]” Id. ¶ 16. The alleged injuries include being “forced to defend themselves and to
expend money and time in their defense[.]” Id. ¶ 18. Defendants seek punitive as well as actual
damages under this claim.
Tortious Interference with Economic Relations. The second counterclaim is for tortious
interference with economic relations. Under this cause of action, Defendants assert that Plaintiffs
“negligently interfered with Defendants’ existing relationships and contracts [with the federal
government and private insurers] by making false statements about Defendants’ violations of the
False Claims Act and the Stark Act.” Id. ¶ 24. Defendants further allege that these “false statements
have damaged the relationships Defendants have with government agencies that it does business with
and damaged Defendants[’] expectation that [they] would continue to do business with these and
other agencies in the future.” Id. ¶ 25.
This claim does not suggest any communications or actions beyond those involved in pursuit
of this action. Neither does it specify any resulting injury beyond the generic claim of injury to
business relationships.
Abuse of Process. The third cause of action alleges, in boilerplate terms, that Plaintiffs
“have abused the process of this court in a wrongful manner, not proper in the regular conduct of the
3
proceedings . . . , to accomplish a purpose for which said proceedings were not designed,
specifically, the assassination of the Defendants’ reputations, and retaliation.” Id. ¶ 28.
Without specifying what information is at issue, Defendants assert that the Plaintiffs “have
commiteed willful acts of the submission of false information in the regular conduct of litigation.”
Id. ¶ 29. Defendants allege that they “have suffered damages, loss and harm, including but not
limited to their reputation. The damage, loss and harm [are] the proximate and legal result of . . .
such abuse of legal process.”
Breach of Fiduciary Duty. The fourth counterclaim for breach of fiduciary duty alleges that
Plaintiffs’ “access to confidential information creat[ed] a confidential relationship” and imposed “a
fiduciary duty not to publish or disseminate information purported to be privileged or confidential.”
Dkt. No. 39 at ¶ 34. Defendants allege that Plaintiffs breached this duty and “are seeking to earn
substantial compensation” as a result of the breach. Id. at ¶ 36. In addition to punitive damages,
Defendants seek “injunctive relief and full restitution and/or disgorgement of all revenues, earnings,
profits, compensation and benefits which may have been obtained by [Plaintiffs] as a result of such
actions, including the imposition of a constructive trust over the proceeds of such actions.” Id. at
¶ 37.
Defendants do not specify in this counterclaim how Plaintiffs are “seeking to earn substantial
compensation” through the breach of fiduciary duty or identify the “actions” which might result in
proceeds subject to a constructive trust. This leaves only the inference that the “compensation” and
“proceeds” at issue are those which might be obtained as the relators’ share of recovery in this
action.
4
Indemnification and Contribution. Defendants’ fifth counterclaim is for common law
indemnification and contribution. Under this counterclaim, Defendants allege that “if the United
States sustained damages as indicated in the Complaint, . . . then such damages were caused in
whole or in party by the negligence, culpable conduct, and incorrect or improper billing and coding
by [Battiata].” Id. ¶ 40 (emphasis added). Based on these allegations, Defendants assert that Battiata
“is liable to the Defendant[s] for common law indemnification and judgment over and for
contribution in the full amount of any recovery by the United States . . . or for the portion caused by
his relative responsibility[.]” Id. ¶ 41 (seeking recovery of “damages, costs, disbursements and
attorney fees with respect to this action”) .
Unjust Enrichment. The sixth counterclaim, like the fifth, denies liability but asserts that
“if the United States has sustained damages as indicated in the Complaint, . . . then such damages
were caused in whole or in part by the negligence, culpable conduct, and incorrect or improper
billing and coding by [Battiata].” Id. ¶ 44 (emphasis added). Defendants then assert that, “[i]f
Relator Battiata improperly billed or coded claims submitted to the United States, he has knowingly
obtained, conferred, or retained economic benefits acquired at the Defendants’ expense . . . under
circumstances that render it inequitable for [him] to retain the benefits.” Id. ¶ 45. Defendants assert
that Battiata “should be ordered to compensate Defendants for the value of the wrongfully obtained
benefits and ordered to disgorge all profits derived by this conduct.” Id. ¶ 46. In addition they seek
to impose “[a] constructive trust . . . on all monies received by the Relator Battiata and on all profits
generated by the Relator Battiata as a result of incorrect or improper billing and coding.” Id. ¶ 47.
Payment Under Mistake of Fact. As with the fifth and sixth counterclaims, the seventh
alleges that, “if the United States sustained damages as indicated in the Complaint, . . . then such
5
damages were caused in whole or in party by the negligence, culpable conduct, and incorrect or
improper billing and coding by [Battiata].” Id. ¶ 49 (emphasis added). It then alleges that if Battiata
“improperly billed or coded claims . . . [then he] has been paid by the Defendant SC ENT under
mistake of fact.” Id. ¶ 50. Defendants assert that they “acted in reasonable reliance on the accuracy
and truthfulness” of Battiata’s billing and coding in making payments to Battiata and, on that basis,
state that he should be “liable to account for and pay” them any improperly paid amounts.
DISCUSSION
I.
Fourth through Seventh Counterclaims
Because of their similarities, the court begins with consideration of the fourth through
seventh counterclaims for breach of fiduciary duty, indemnity or contribution, unjust enrichment,
and payment under mistake of fact. All but the counterclaim for breach of fiduciary duty are
expressly dependent on a finding of liability under the Complaint as each seeks to shift some or all
of the liability back to one or both Plaintiffs “if the United States sustained damages as indicated
in the Complaint.” Dkt. No. 39 ¶¶ 40, 44, 49 (emphasis added). While the claim for breach of
fiduciary duty does not contain identical language, in context, it too seeks to recover from Plaintiffs
if they obtain any benefit from this action. Thus, these state-law counterclaims are all dependent on
a finding that Defendants are liable to the United States for violation of the FCA and seek recovery
in the nature of a claim for contribution or indemnity.1
1
In their motion and opening memorandum, Plaintiffs argued all four of these counterclaims
were the equivalent of claims for contribution or indemnification. Dkt. No. 44 at 1, 44-1 at 1, 3-5.
Defendants did not challenge this characterization in their responsive memorandum and mention it
only in a conclusory statement in their surreply. See Dkt. No. 58; Dkt. No. 65 at 4 (noting that a
particular decision “only precludes counterclaims for indemnification and contribution” and,
consequently, would not apply to “Defendants’ counterclaims for . . . breach of fiduciary duty, unjust
enrichment and payment under a mistake of fact[.]”).
6
While there is no Fourth Circuit decision on point, those cases which have addressed similar
counterclaims have found them unavailable in a qui tam action. See, e.g., Mortgages, Inc. v. United
States Dist. Court, 934 F.2d 209, 213-14 (9th Cir. 1991) (discussed below); United States ex rel
Miller v. Bill Harbert Intern Const., 505 F. Supp. 2d 20 (D.D.C. 2007) (discussed below at 12-13).
In Mortgages, the Ninth Circuit Court of Appeals granted mandamus directing the district
court to dismiss a variety of claims asserted by defendants against the qui tam relators. The claims
at issue, though essentially counterclaims, were asserted by third-party complaint and included
claims for breach of contract, breach of the covenant of good faith and fair dealing, breach of
fiduciary duty, fraud, negligence, negligent misrepresentation, and conspiracy. Mortgages, 934 F.2d
at 211; see also id. at 211-12 (characterizing claims as “counterclaims”). Despite the varied legal
theories, all “sought as relief full indemnification and/or contribution from [relators] against any
recovery or judgment in favor of the United States in the FCA action.” Id. at 211. The Court of
Appeals held that the district court’s denial of the relators’ motion to dismiss was clearly erroneous
because “there is no right of indemnity or contribution among participants in a scheme to defraud
the government in violation of the FCA.” Id. at 212. This conclusion was supported, in part, by the
following discussion:
The right to contribution and indemnification are no different in principle
from other implied rights of action. . . . A defendant held liable under a federal statute
has a right to contribution or indemnification from another who has also violated the
statute only if such right arises (1) through the affirmative creation of a right of action
by Congress, either expressly or implicitly, or (2) via the power of the courts to
formulate federal common law.
Id. at 212 (citing United States Supreme Court cases finding no right of contribution under antitrust
laws, Title VII, or the Equal Pay Act).
7
Applying the same analysis as the Supreme Court in Texas Industries, Inc. v. Radcliff
Materials, 451 U.S. 630 (1981), the Court of Appeals examined the legislative history of the FCA,
noting both the absence of any mention of contribution or indemnification as well as recognition that
the qui tam provisions of the FCA might reward wrongdoers because the qui tam provisions of the
FCA were “based upon the idea of ‘setting a rogue to catch a rogue.’” Id. at 213. With respect to
congressional intent, the court concluded as follows: “The FCA is in no way intended to ameliorate
the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with
‘unclean hands.’
Congress did not intend to create a right of action for contribution or
indemnification under the FCA.” Id. at 213.
The court then turned to a consideration of whether such a right should be recognized under
federal common law. Noting, first, that creation of rights under federal common law was proper
where “necessary to protect [a] uniquely federal interest[,]” the court held that recovery by one
wrongdoer against another did not implicate any such interest. Id. at 213. The court next considered
whether the language and legislative history of the statute indicated a congressional expectation that
the “courts will give shape to the statute’s broad mandate by drawing on common-law tradition.”
Id. (internal marks omitted). The court found no evidence of such an intent in light of the
“comprehensive legislative scheme, including integrated procedures for enforcement,” which gave
rise to “a strong presumption that Congress did not intend the courts to supplement the remedies
enacted.” Id. Ultimately, the court concluded that “[b]ecause there is no basis in the FCA or federal
common law to provide a right to contribution or indemnity in a FCA action, we conclude that there
can be no right to assert state law counterclaims that, if prevailed on, would end in the same result.”
Id. at 214.
8
Several years later, in United States ex rel. Madden v. General Dynamics Corp., 4 F.3d 827
(9th Cir. 1993), a different panel of the same court reversed dismissal of all counterclaims brought
by a qui tam defendant against employee-relators. The critical distinction between the counterclaims
in Madden and those in Mortgages was not the theories of relief, which were similar, but the nature
of the damages sought. As the court explained, “[c]ounterclaims for indemnification or contribution
by definition only have the effect of offsetting liability. Counterclaims for independent damages are
distinguishable, however, because they are not dependant on a qui tam defendant’s liability.” Id. at
830-31. After considering both defendant’s interest in procedural due process, and the remedies
available to it under the FCA, which the court found inadequate to fully protect a non-liable
defendant’s interests, the court concluded that “qui tam defendants can bring counterclaims for
independent damages.” Id. at 831 (but not defining what constitute “independent damages”).
Recognizing the challenges presented by its decision in light of Mortgages, the court
provided the following additional guidance:
We recognize that our decision may encourage qui tam defendants to bring
counterclaims for independent damages instead of indemnification. However, we do
not think this will result in an end run around Mortgages. . . . [I]t is possible to
resolve the issue of a qui tam defendant’s liability before reaching the qui tam
defendant’s counterclaims. . . . If a qui tam defendant is found liable, the
counterclaims can then be dismissed on the ground that they will have the effect of
providing for indemnification or contribution. On the other hand, if a qui tam
defendant is found not liable, the counterclaims can be addressed on the merits.
Id. (also noting that “some mechanism must be permitted to insure that relators do not engage in
wrongful conduct in order to create the circumstances for qui tam suits and to discourage relators
from bringing frivolous actions. Counterclaims for independent damages serve these purposes.”).
9
The Ninth Circuit Court of Appeals again addressed the availability of claims for contribution
and indemnity in Cell Therapeutic, Inc. v. Lash Group, Inc., 586 F.3d 1204 (9th Cir. 2009) (“Lash”).
There, the claims in the underlying federal complaint (against Cell Therapeutic, Inc. (“CTI”))
included both claims under the FCA and common law claims for fraud, negligent misrepresentation
and unjust enrichment. Id. at 1207. CTI initiated a third-party action in state court against Lash, an
entity which had provided advice and professional services to CTI. CTI alleged that Lash was
responsible for the errors at issue in the federal action and that CTI had been injured in various ways
including but not limited to the amounts CTI might be obligated to pay in the federal action. CTI
asserted several contract-based claims, including for contractual indemnification, as well as a claim
for professional negligence.
The qui tam suit against CTI was settled shortly after it was filed and the third-party action
against Lash was removed to federal court. Relying on Mortgages, the district court dismissed the
third-party claims. The Court of Appeals reversed in a decision that explained that Madden had
circumscribed Mortgages in two respects. Id. at 1208-09. First, Madden distinguished claims for
independent damages from claims for dependent damages. Id. at 1208. Second, Madden held that
“even dependent counterclaims should not be foreclosed until the qui tam defendant’s liability is
established” because to do so could offend procedural due process. Id. (suggesting conflict with
Mortgages would be avoided by dismissing counterclaims if the qui tam defendant is held liable “on
the ground that they will have the effect of providing for indemnification or contribution”). While
this court would not read Madden to preclude dismissal of clearly dependent counterclaims until
10
after a decision on the qui tam defendant’s liability under the FCA, it recognizes that the Ninth
Circuit is free to interpret and modify its own opinions.2
Ultimately, the Lash court held “that qui tam defendants may bring third party claims under
the circumstances outlined in this opinion.” Id. at 1213 (noting, inter alia, that “[t]he reasons for
restricting the ability of a qui tam defendant to seek recovery against a relator are not in play here.”).
The “circumstances” of the opinion were however, unique in various respects including that the
claims at issue in the underlying case ( United States v. CTI) were not limited to claims under the
FCA (id. at 1210), the settlement agreement in that action disclaimed any preclusive effect regarding
liability under the FCA (id. at 1211), the damages sought against the third party were not limited to
2
The Lash decision’s attempted reconciliation of Madden with Mortgages is not entirely
clear or persuasive for several reasons. Most critically for present purposes, this court reads Madden
to allow for immediate dismissal of counterclaims asserted against a relator if those claims are
clearly dependent on the qui tam defendant being held liable (thus clearly in the nature of claims for
contribution or indemnity). The Ninth Circuit decision in Lash, however, suggests that Madden
narrowed Mortgages to the point that dismissal of counterclaims would never be appropriate until
after a determination of defendant’s liability under the FCA. Such a narrowing would effectively
abrogate Mortgages’ holding that the district court committed clear error by denying a motion to
dismiss. Given that Mortgages, Madden, and Lash were all panel opinions (albeit by different
panels), it would not appear that either Madden or Lash could effect a change which amounted to
abrogation of Mortgages.
Lash also construes Madden to save all claims for independent damages even if the qui tam
defendant is held liable for FCA violations. See Lash, 586 F.3d at 1209 (“Madden directly addresses
two key questions that underlie our analysis in this case: First, are any of CTI’s claims appropriately
considered ‘independent claims’? Second, has there been a finding of liability that would preclude
dependent claims that might in effect give CTI an indemnity?”); id.(“Under Madden, CTI may
advance independent claims without regard to an eventual finding of liability under the FCA. . . . It
is incumbent on the district court to separate those claims for damages which ‘only have the effect
of offsetting liability’ from those that are not dependent on a qui tam defendant’s liability under the
FCA.”). While this conclusion may be correct, it seems contrary to language in Madden which
appears to suggest that even independent claims might be dismissed if they had the effect of
indemnification or contribution.
11
recovery of amounts paid to the United States, and the defendant in the third-party action had
contractual obligations to CTI which, allegedly, included a contractual duty of indemnification.
For purposes of the present motion, the most critical holdings in Mortgages, Madden, and
Lash relate to the distinction between dependent and independent claims.3 This distinction, and its
significance as reflected in various cases, was carefully explained in United States ex rel. Miller v.
Bill Harbert International Const., Inc., 505 F. Supp. 2d 20 (D.D.C. 2007).
The counterclaim at issue in Miller was for breach of fiduciary duty and sought to shift
responsibility for some or all of any damages awarded in favor of the United States to the qui tam
relator. In dismissing this counterclaim after a jury verdict on the FCA claim, the district court
noted that “[t]he unavailability of contribution and indemnification for a defendant under the False
Claims Act now seems beyond peradventure.” Id. at 26.4 The district court summarized and
explained the rules drawn from various prior decisions, including Mortgages and Madden as follows:
Emerging from these cases is the rule that an FCA defendant found liable of FCA
violations may not pursue a counterclaim that will have the equivalent effect of
contribution or indemnification.
***
These cases demonstrate that there are two ways in which an FCA defendant's
counterclaim may seek “independent damages” and thus be permissible. The use of
the word “independent” has led to some confusion, and courts would be better served
3
This court need not resolve Lash’s application to third-party claims for purposes of the
present motion. It does, however, note that at least one court has held that Lash does not support
allowing such third-party claims. See United States v. Campbell, No. 08-1951, 2011 WL 43013 at
**11-12 (D.N.J. 2011) (granting motion for summary judgment on third-party claims for
indemnification and contribution because claims were dependent on finding defendant liable under
the FCA, but making dismissal without prejudice based on potential for other damages which might
be pursued in an independent action if defendant was successful in its defense of the FCA action).
4
The counterclaim was dismissed after a jury verdict for the government on the FCA claim
and the court’s dismissal of related common law claims as duplicative.
12
to describe the permissible claims as “not dependent on the fact of FCA liability.” In
short form, claims by an FCA defendant have been properly permitted where the
success of the FCA defendant’s claim does not require a finding that the defendant
is liable in the FCA case.
***
These cases come together to form a sensible rule. If a defendant’s
counterclaim is predicated on its own liability, then its claims against a relator
typically will allege that the relator participated in the fraud, or caused the defendant
some damage by the act of being a relator, that is, by disclosing the defendant’s
fraud. The first kind of action seeks contribution or indemnity, rights that are not
provided by the FCA because they would deter relators, allow wrongdoers to shift
their costs, and would disrupt the intended framework of incentives and punishments
established by the FCA. The second kind of action has the same effect of providing
contribution or indemnity, with the perverse twist that the relator is not even accused
of contributing to the defendant’s fraud. If such suits were allowed, they would
punish innocent relators, which would be a significant deterrent to whistleblowing
and would imperil the government’s ability to detect, punish, and deter fraud. The
FCA contains several provisions seeking to protect relators from retaliation, and it
would run counter to this policy if the Court were to allow retaliatory suits against
truthful relators.
Id. at 26-29.5
Having fully considered the Ninth Circuit decisions, the only circuit court authority directly
addressing counterclaims against qui tam relators, Miller, and other cases cited by the parties, this
court concludes, for reasons addressed in Mortgages, that a qui tam defendant may not assert any
counterclaim for dependent damages against a relator. As explained in Miller, dependent damages
5
In dicta, Miller suggests the same rule would apply to bar a dependent third-party claim.
Id. at 28 (discussing U.S. ex rel. Stephens v. Prabhu, 1994 W.L. 761237 at *1 (D. Nev. 1994)). The
dicta in Miller was adopted by the district court in Campbell, 2011 WL 43013 (discussed above at
n. 4), which granted third-party defendants’ motion to dismiss third-party claims seeking
contribution and indemnity. Campbell at *9 (although decided at the summary judgment stage,
Campbell did not require prior resolution of the FCA claim before resolving the motion to dismiss
as the same order denies the government’s motions for partial summary judgment); see also United
States v. Domestic Indus. Inc., 32 F. Supp. 2d 855 (E.D. Va. 1999) (dismissing third-party claims
for contribution and indemnification in action brought under the FCA and other statutory and
common law theories).
13
are damages which arise from a finding of liability under the FCA against the qui tam defendant.
The court further concludes, for reasons addressed in Madden and Miller, that a qui tam defendant
may assert claims for independent damages, meaning damages that would exist regardless of
defendant’s liability on the qui tam action unless those damages have the effect of indemnification
or contribution
the issue of effect being one which normally cannot be resolved until after the
conclusion of the qui tam litigation.
This court declines to follow Madden and Lash to the extent either would preclude dismissal
of claims for dependent damages until after resolution of the qui tam claims. Instead, the court finds
that dismissal should be denied only if a reasonable inference can be drawn that damages sought are
independent.6
The cases cited by Defendants do not support a contrary rule. All are distinguishable for
reasons argued by Plaintiffs. See Dkt. No. 60 at 2-5. For example, in Zahodnick v. International
Business Machines Corp., 135 F.3d 911 (4th Cir. 1997), the Fourth Circuit allowed recovery on a
counterclaim in a case filed under the FCA’s anti-retaliation provisions. Such an action is
necessarily pursued in the plaintiff’s individual capacity, not as relator on behalf of the United States.
6
One category of independent damages, costs of defending the qui tam action, requires
further discussion. Such damages are “independent” in the sense that they will be incurred whether
or not defendant is found liable for an FCA violation. This is a category of damage which should
be barred if defendant is found liable under the FCA, because an award of such damages would have
the effect of indemnification or contribution. This does not, however, mean that such damages
should necessarily be allowed if defendant is found not liable. With respect to this particular
category of damage, the FCA provides a specific remedy which sets a high standard for recovery.
This may suggest that recovery of fees may only be allowed if the statutory standard is met.
Alternatively, it might be argued that some or all of a qui tam defendant’s fees should be allowed
if defendant establishes an independent basis for recovery, such as by establishing a state tort claim
for abuse of process or a subsequent claim for malicious prosecution. The court will not resolve this
issue at this stage, but raises it now to place the parties on notice of the concern.
14
Thus, allowing a counterclaim in such an action does not raise the same concerns as in a qui tam
action.7 See also Burch ex rel. United States v. Piqua Engineering Inc., 145 F.R.D. 452 (S.D. Ohio
1992) (allowing counterclaim in FCA action which asserted both qui tam and retaliation claims
where facts underlying counterclaim related to the personal retaliation claim rather than seeking
contribution or indemnification based on plaintiff’s alleged participation in the FCA violation).
The other Fourth Circuit cases cited by Defendants are distinguishable from the present
action for two reasons. First, like Zahodnick, they were pursued in the plaintiffs’ individual
capacities, not as qui tam plaintiffs seeking recovery on behalf of the government. Second, both
involved different statutory schemes (the Federal Employers’ Liability Act and the Jones Act).
Cavanaugh v. W. Md. Ry. Co., 729 F.2d 289, 294 (4th Cir. 1984) (allowing counterclaim for property
damage in action brought under FELA); Dise v. Express Marine, Inc., 476 F. App’x 514, 2011 WL
5588913 (4th Cir. 2011) (allowing counterclaim for property damage in action brought under the
Jones Act).8
In light of the above authority, the court dismisses Defendants’ fourth through seventh
counterclaims. The fifth through seventh counterclaims (all but the fourth counterclaim for breach
of fiduciary duty) are dismissed with prejudice as each clearly seeks nothing other than dependent
damages in the nature of contribution or indemnity. While no facts supporting such a claim have
7
The employer’s counterclaim was for breach of a confidentiality agreement and the relief
granted was limited to enjoining further disclosure and requiring return of confidential materials.
8
Precluding counterclaims or third-party claims for indemnity or contribution is, by contrast,
consistent with Fourth Circuit precedent relating to other federal legislation. See Lyle v. Food Lion,
Inc., 954 F.2d 984 (4th Cir. 1992) (noting, in rejecting employer’s attempt to transfer liability to a
third party under the Fair Labor Standards Act, that “to engraft an indemnity action upon this
otherwise comprehensive federal statute would run afoul of the Supremacy Clause of the
Constitution and would undermine employers’ incentives to abide by the Act.”).
15
been suggested in Defendants’ submissions, the court will not foreclose the possibility that
Defendants might assert a breach of fiduciary duty counterclaim seeking independent damages
subject to the repleading requirements below. See Discussion § III.
II.
First through Third Counterclaims
Defendants’ three remaining counterclaims arguably seek “independent damages.” That is,
each of these counterclaims seeks damages which do not depend on a finding that Defendants are
liable for fraudulent claims under the FCA. It follows that these claims are not necessarily barred
under the cases discussed above. However, as explained below each of the claims has other defects
which require dismissal without prejudice, subject to the repleading requirements discussed below.
See Discussion § III.
A.
Malicious Prosecution
One of the required elements of a claim for malicious prosecution is that the challenged
proceeding has terminated in the claimants’ favor. See, e.g. Parrott v. Plowden Motor Co., 143
S.E.2d 607, 608 (S.C. 1965). It follows that a claim for malicious prosecution cannot be pursued
as a counterclaim to the challenged litigation.9 This counterclaim is, therefore, dismissed without
prejudice to filing of such a claim, if otherwise viable, after the completion of these proceedings.10
9
It also, necessarily, follows that the claim is not a compulsory counterclaim.
10
The court expresses no opinion as to whether such a counterclaim may be proper,
particularly in light of the comprehensive remedies and controls provided under the FCA itself. See,
e.g., 31 U.S.C. § 3730 (c)(2) (allowing Government to dismiss, settle, or restrict participation of
relator in action); 31 U.S.C. § 3730 (d) (3) (allowing for reduction of the share of proceeds paid to
relator if relator “planned and initiated the violation”); and 31 U.S.C. § 3730 (d)(4) (authorizing
court to award “defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the
action and the court finds that the claim of the person bringing the action was clearly frivolous,
clearly vexatious, or brought primarily for purposes of harassment”).
16
B.
Tortious Interference and Abuse of Process
The second counterclaim for tortious interference with economic relations and third
counterclaim for abuse of process are not pleaded with sufficient particularity to satisfy the relevant
pleading standards. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (requiring pleading
of factual allegations sufficient “to raise a right to relief above the speculative level”). Taken
together, the factual allegations in the “Facts Common to all Counterclaims” and allegations of these
counterclaims, at most, suggest that Plaintiffs initiated this action with some ulterior motive to harm
Defendants and that Defendants may suffer unwarranted harm, including harm to their reputations,
as a result (at least presuming successful defense of the FCA claim).
There are no factual allegations which suggest that Defendants have, in fact, suffered any
interference with economic relations. Neither are there any factual allegations which would support
an inference that any harm to economic relations was the result of something other than the litigation
itself or otherwise resulted from non- privileged actions. Thus, the factual allegations do not raise
a right to relief above the speculative level.
Similarly, as to the abuse of process counterclaim, there are no factual allegations which
would support an inference that Plaintiffs have undertaken “a willful act in the use of the process not
proper in the conduct of the proceeding.” See, e.g., Argoe v. Three Rivers Behavioral Ctr. &
Psychiatric Solutions, 697 S.E.2d 551, 556 (S.C. 2010) (reciting elements and noting that the abuse
of process cause of action “provides a remedy to one damaged by another’s perversion of a legal
procedure for a purpose not intended by the procedure”). At most, Defendants’ allegations support
an inference that the action was filed with an ulterior purpose of harming Defendants. This is not
enough as improper purpose is only one of the elements of a claim for abuse of process.
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III.
Leave to Amend
Defendants seek leave to amend if the court finds the pleadings insufficient. See Dkt. No.
58 at 9 n.1. Despite this, and despite Plaintiffs having pointed to all of the deficiencies noted herein,
Defendants do not suggest any facts or changes which might cure the various deficiencies.11 Neither
have Defendants filed a motion to amend or taken other action to amend their answer and
counterclaims. The court, nonetheless, declines to foreclose the possibility that Defendants might
assert one or more claims for independent damages with respect to the first through fourth
counterclaims.
If Defendants elect to assert amended counterclaims, as of right or through motion to amend,
they shall set forth their counterclaims with sufficient particularity to support inferences satisfying
the elements of the causes of action, the independent nature of the damages, and the absence of
privilege.12
11
For example, in their response in opposition to the motion to dismiss counterclaims,
Defendants assert that their first through third counterclaims “seek redress from relators for damages
caused by the false statements that relators made about the Defendants to third parties.” Dkt. No.
58 at 9-10. Defendants do not identify the false statements or the third parties to whom they were
made, leaving only the inference that the alleged false statements are those contained in the
complaint or made in the normal course of pursuing the action (such as cooperation with the
government’s pre-service investigation). See also id. at 11 (stating Defendants “falsely stated to
government and private insurers that Defendants routinely and as a matter of company policy
violated the FCA and the STARK Act” without identifying to whom the statements were made, in
what context, what harm resulted, or how these allegations support counterclaims for malicious
prosecution, abuse of process, or tortious interference with economic advantage).
12
The court does not consider here whether Defendants might amend as of right or on
motion. The court does, however, note that Defendants would need to comply with any scheduling
order deadlines and attach their proposed amended answer and counterclaims to any motion to
amend, in addition to completing the prior consultation requirements before filing such a motion.
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CONCLUSION
Plaintiffs’ motion to dismiss the counterclaims is granted for the reasons set forth above.
Dismissal of the fifth through seventh counterclaims is with prejudice. Dismissal of the first through
fourth counterclaims is without prejudice subject to the caveats above regarding amendment.
IT IS SO ORDERED.
s/ Cameron McGowan Currie
CAMERON MCGOWAN CURRIE
UNITED STATES DISTRICT JUDGE
Columbia, South Carolina
October 30, 2012
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