Fakorede v. Mid-South Heart Center, P.C.

Filing 34

ORDER GRANTING 16 DEFENDANT'S MOTION TO DISMISS. Signed by Chief Judge J. Daniel Breen on 4/26/16. (Breen, J.)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
EASTERN DIVISION
FOLUSO FAKOREDE,
Plaintiff,
v.

No. 15-1285

MID-SOUTH HEART CENTER, P.C.,
Defendant.
_____________________________________________________________________________
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
_____________________________________________________________________________
INTRODUCTION
This action was brought on November 25, 2015, by the Plaintiff, Foluso Fakorede,
against Defendant, Mid-South Heart Center, P.C. (“MSHC” or the “Clinic”), alleging retaliation
in violation of the federal False Claims Act (“FCA”), 31 U.S.C. § 3730(h). (D.E. 1.) Before the
Court is the Defendant’s motion to dismiss the action in its entirety pursuant to Rule 12(b)(6) of
the Federal Rules of Civil Procedure. (D.E. 16.)
STANDARD OF REVIEW
Rule 12(b)(6) permits a court to dismiss a complaint for "failure to state a claim upon
which relief can be granted[.]" Fed. R. Civ. P. 12(b)(6). A complaint "must contain either direct
or inferential allegations respecting all material elements necessary for recovery under a viable
legal theory." Kreipke v. Wayne State Univ., 807 F.3d 768, 774 (6th Cir. 2015) (quoting
D'Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014)) (internal quotation marks omitted),
reh’g en banc denied (Feb. 19, 2016). The court is to “construe the complaint in the light most
favorable to the plaintiff, accept all well-pleaded factual allegations as true, and examine whether
1

the complaint contains sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Solo v. United Parcel Serv. Co., ___ F.3d ___, 2016 WL 1077163, at *3
(6th Cir. Mar. 18, 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotation
marks omitted). However, “a legal conclusion couched as a factual allegation need not be
accepted as true.” Johnson v. Moseley, 790 F.3d 649, 652 (6th Cir. 2015) (internal quotation
marks omitted).

Plaintiff’s obligation under Rule 12(b)(6) “requires more than labels and

conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id.
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Rather, “[c]onclusions must be
supported by factual allegations to state a claim and meet” the pleading requirements of Fed. R.
Civ. P. 8.1 Verble v. Morgan Stanley Smith Barney, LLC, ___ F. Supp. 3d ___, 2015 WL
8328561, at *11 (E.D. Tenn. Dec. 8, 2015) (citing Iqbal, 556 U.S. at 679) (internal quotation
marks omitted), appeal filed (No. 15-6397) (6th Cir. Dec. 17, 2015).
FACTS ALLEGED
The following allegations are set forth in the complaint and, for purposes of this motion,
taken as true. In the spring of 2012, Fakorede, a physician, was in the process of completing
cardiology training at Cooper University Hospital in Camden, New Jersey, when he was
approached by one of MSHC’s partners concerning an employment opportunity in Jackson,
Tennessee. On July 15, 2013, he, the Defendant, and Jackson-Madison County General Hospital
District (the “Hospital”) entered into a Physician Employment Agreement and a Recruiting
Assistance Agreement (collectively, the “Contract”). The stated purpose of the Contract was to
recruit the Plaintiff to locate his practice in Jackson in order to address a “substantial need for an
1

Rule 8 provides that a pleading must contain “a short and plain statement of the grounds
for the court’s jurisdiction, . . . a short and plain statement of the claim showing that the pleader
is entitled to relief; and . . . a demand for the relief sought[.]” Fed. R. Civ. P. 8(a).
2

additional physician practicing in the specialty of Interventional Cardiology . . . [which] would
benefit the community . . . through increased availability, quality, and choice of patient care.”
(D.E. 18-1 at PageID 73.)
Under the Contract, he received one-time moving and transition advances totaling
$80,000.00 and an educational loan repayment of $30,000.00 per year for each of the three years
covered by the arrangement. In addition, the Hospital agreed to establish a Net Collection
Support Account (the “Support Account”) up to a maximum amount of $500,000.00 for his first
year. The purpose of the Support Account was to supplement his net collections as he worked to
establish his practice. The maximum the Hospital would provide was the difference between Dr.
Fakorede’s actual net collections for the year and $500,000.00. Thus, if his gross collections
during year one were $400,000.00 and his incurred expenses $100,000.00, his net collections
would be $300,000.00. In that scenario, the Hospital would advance to him an amount up to
$200,000.00.
The Hospital’s financial obligations to the Plaintiff depended in part on outlays MSHC
claimed as “actual direct incremental expenses” attributable to his employment. (D.E. 1 ¶ 42.)
To this end, the Hospital required the Clinic to submit a financial statement no later than thirty
days following the end of the physician’s first year of practice. In the event MSHC and the
Plaintiff drew more than the permitted amount, they were bound to remit the difference to the
Hospital. To avoid incurring interest, overpayments had to be repaid within thirty days. Dr.
Fakorede agreed to practice in the Jackson area for a period of at least three years and maintain
medical staff privileges at the Hospital for the three-year term. If he fulfilled his obligations, the
Hospital would forgive all debt he had incurred. If not, Plaintiff was required to immediately
repay all funds advanced to him by the Hospital.
3

In addition, the Defendant agreed, for purposes of its compliance with the Stark Law and
42 C.F.R. § 411.357(e),2 in part as follows:
It is the intent of the parties to comply with all state and federal laws in the
performance of this Agreement. Clinic understands and agrees that the purpose of
this recruiting arrangement is not for the Clinic’s financial benefit but is to assure
a fixed amount of net collections to support the recruited physician’s first year of
practice and that only certain expenses permitted by recruiting laws (those direct
expenses that are the actual incremental expenses of recruiting the Physician and
establishing Physician’s practice) can be reimbursed by Hospital. Any recruiting
remuneration provided by Hospital will be paid directly to Physician, not to
Clinic, and as such will not be passed through Clinic to Physician, but rather will
remain with Physician, except for the actual direct incremental costs attributable
to the recruitment of the Physician and the Physician’s practice. Clinic agrees to
submit financial accountings to Hospital on a timely basis as requested and
required by Hospital, and in such accountings will include only those expenses
which are legally permitted by federal laws governing recruitment arrangements.
2

Simply put, the Physician Self-Referral Act, commonly known as the Stark Law, 42
U.S.C. § 1395nn, prohibits doctors from referring patients to a provider if the referring physician
has a “financial relationship” with the provider. 42 U.S.C. § 1395nn(a)(1)(A); United States ex
rel. Robinson-Hill v. Nurses’ Registry & Home Health Corp., Civ. Action No. 5:08-145-KKC,
2015 WL 4394203, at *3 (E.D. Ky. July 15, 2015). It further proscribes the provider from
presenting claims for services rendered pursuant to a prohibited self-referral. 42 U.S.C. §
1395nn(a)(1)(B); Robinson-Hill, 2015 WL 4394203, at *3. The regulations promulgated under
the statute set forth the types of compensation arrangements that do not constitute a “financial
relationship.” See 42 C.F.R. § 411.357. One of these is the physician recruitment exception,
which states that “[r]emuneration provided by a hospital to recruit a physician that is paid
directly to the physician and that is intended to induce the physician to relocate his or her
medical practice to the geographic area served by the hospital in order to become a member of
the hospital’s medical staff” is not a “financial relationship” if “[t]he amount of remuneration
under the arrangement is not determined in a manner that takes into account (directly or
indirectly) the volume or value of any actual or anticipated referrals by the physician or other
business generated between the parties[.]” 42 C.F.R. § 411.357(e)(1)(iii).
In the case of remuneration provided by a hospital to a physician either directly or
indirectly through payments made to another physician practice, or directly to a
physician who joins a physician practice, [an] additional condition[] must be met:
. . . [i]n the case of an income guarantee of any type made by the hospital to a
recruited physician who joins a physician practice, the costs allocated by the
physician practice to the recruited physician do not exceed the actual additional
incremental costs attributable to the recruited physician.
42 C.F.R. § 411.357(e)(4)(iii).
4

(D.E. 18-1 at PageID 83.)
In his first year, which ended October 31, 2014, Dr. Fakorede had gross collections of
$751,221.92. Nonetheless, MSHC instructed him to take the maximum possible draw from the
Support Account for the first two quarters as well as a sizeable sum for the last two quarters. It
also required him to immediately assign those moneys to the Clinic. During this initial year in
Jackson, he was not provided data regarding the collections he brought into MSHC or the
expenses it attributed to the establishment of his practice.
As noted above, the Defendant was to submit its year-end financial statement to the
Hospital by November 30, 2014, for the purpose of providing evidence of the gross collections
Dr. Fakorede brought into the Clinic, as well as proof of the expenditures MSHC declared as
actual incremental expenses relating to his practice. The statement was not provided by the
required date.
On or about December 8, 2014, Plaintiff requested the records from Carla Reeves, the
Hospital’s financial director. It was at this time he became aware that the twelve-month financial
report had not been submitted by MSHC. He asked her to forward the records to him as soon as
she received them because he wanted to review the Clinic’s calculations prior to their submission
in final form. Reeves offered to provide him a partial financial statement, dated June 10, 2014,
tendered by MSHC’s accountants and covering the first two quarters.
Upon his review of the statement, he discovered that the Clinic had calculated his first
quarter net collections as negative $48.26, despite the fact that his gross collections for that time
period were $99,879.75. For the second quarter, MSHC determined his net collections to be
$6,258.14, notwithstanding gross collections of $188,894.41. In addition, Dr Fakorede noted
5

that MSHC attributed more than $127,000.00 in “depreciation expense” to him, which was
identified as relating to equipment purchased, moved and installed at the Clinic’s newly
completed outpatient-based lab (“OBL”), even though the facility was not used at all until
August 2014 and not by Plaintiff until late October of that year. Other significant expenses were
also attributed to him, including “salaries and wages (incremental staff),” legal and professional
expenses, consulting expenditures and “medical supplies (nuclear & OBL).” (D.E. 1 ¶ 58.)
In early January 2015, Dr. Fakorede emailed Reeves, again requesting the complete
financial statement. Based on the concerns raised during his review of the partial statement, he
also requested the underlying documents justifying MSHC’s calculations. He received the full
report on January 9, 2015, but not the supporting records. The complete statement brought to
light expenses totaling $588,418.67 that MSHC falsely, in Plaintiff’s view, claimed were directly
attributable to his employment. These included a total “depreciation” expense for the year of
$207,230.94, $131,190.04 in medical supplies, and $110,051.52 in staff salaries and wages.
Also on January 9, 2015, Reeves sent an email to MSHC Practice Manager Charlotte
Beard and outside accountant Mickey Hannon advising them that the physician had “raised some
questions” and was requesting certain underlying documentation. (Id. ¶ 66.) Reeves asked the
Clinic to provide a detailed schedule supporting the depreciation calculations. The following
day, Plaintiff emailed the Hospital, Reeves, Beard and Hannon, expressing concerns about the
financial report and seeking collaboration between the Hospital and MSHC to revisit the
depreciation expense drawn from his loan. He also informed them of his one-time use of the
OBL on October 29, 2014, two days before his first term ended.
On January 12, 2015, Hannon responded to Reeves, stating that MSHC had begun initial
plans to renovate its facilities to accommodate a new OBL/vein laboratory during the summer of
6

2013. It was his opinion that, as the renovation was performed expressly “in anticipation” of the
hiring of a new cardiologist, it was therefore reasonable to attribute that expense to Dr. Fakorede.
(Id. ¶ 68.) Hannon acknowledged, however, that no patients were actually seen in the laboratory
until August 2014. By that point, the physician claims, he had become concerned that MSHC
“was deliberately and fraudulently misclassifying many of its expenses -- particularly those
related to the OBL – as being related to Plaintiff’s employment in order to get the [Hospital] to
pay for them.” (Id. ¶ 69.)
Plaintiff sent a detailed email directly to Hospital CEO Bobby Arnold on January 16,
2015, requesting an independent review of the Hospital’s report.

Therein, Dr. Fakorede

specifically noted that his request for supporting documentation had been ignored. He asked that
the independent review be conducted by an auditor qualified “in health care matters who is
familiar with Physician Assistance Agreement and Loan Income Guarantees.” (Id. ¶ 72.) When
he had not received a response to the email by January 21, 2015, Dr. Fakorede went to Arnold’s
office. A secretary advised that Arnold was unavailable and instructed Plaintiff to resend the
email, which she assured him would be seen by the CEO. By January 30, 2015, the physician
had still heard nothing.
On that date, however, Vanessa Patrick, a hospital recruiter responsible for recruiting
cardiologists, contacted him on his cell phone to advise that the Hospital had disallowed the
$207,230.94 “depreciation expense.” She did not mention the other charges he had flagged as
questionable.
After making another attempt to speak with Arnold, Dr. Fakorede received a text
message from the Hospital’s vice president, Deann Montchal, on February 2, 2015, who said she
had been “in conversation with everyone” and invited him to reach out to her with any questions.
7

(Id. ¶ 76.) During a meeting between the two the same day, Monchal reported that she had
spoken with MSHC CEO Dr. Cunningham on January 30, 2015. She had related to him that the
Hospital would be requesting a refund of the approximately $207,000.00 identified as
“depreciation expenses” for the OBL. Again, none of the other charges to which Plaintiff had
objected were addressed, but she promised transparency going forward. He received similar
assurances thereafter from Arnold, who also pledged to meet with him personally in the near
future.
The next day, February 3, 2015, Montchal advised Dr. Fakorede that the Hospital had
requested a complete line-item audit of MSHC’s financial statement. He emailed a response, in
which he
reminded [Montchal] that the Recruiting Agreement that was signed by the
[Hospital], the Clinic and himself, contained express language stating that the
Recruitment Agreement was not meant to advance the [C]linic’s financial
interests and that only expenses permitted by federal law for the [H]ospital to
cover are those expenses that are “the actual incremental expenses of recruiting
the Physician and establishing the Physician’s practice.”
(Id. ¶ 80.)
On February 9, 2015, Plaintiff asked Montchal for an update. She informed him that she
had seen one document over the past week referencing medical supplies and that she had given
instructions for “every line item [to] be audited.” (Id. ¶ 82.) On February 10, 2015,3 Dr.
Cunningham requested a meeting with Plaintiff at 6:00 that evening. At the meeting, the Clinic
CEO instructed the physician to sign a letter of resignation by 7:00 the next morning or face
3

Although the dates referred to in the complaint for Dr. Fakorede’s inquiry to Montchal
and Dr. Cunningham’s request for a meeting were February 9, 2014, and February 10, 2014,
respectively, the Plaintiff clarified in his response to the instant motion, and it is indeed clear
from a broad reading of the pleading, that the correct year in which these incidents occurred was
2015.
8

termination. He provided no explanation other than to say generally that neither MSHC nor Dr.
Fakorede was happy with the situation as it was. The following morning, Plaintiff responded
that he was unwilling to sign the letter in light of the pending audit and without the opportunity
to review a corrected financial report. Dr. Cunningham fired the Plaintiff, effective immediately,
by text message.

Dr. Fakorede later received a letter from the Clinic stating that it was

exercising its option to terminate his employment without cause.
The Plaintiff immediately notified Arnold and Montchal by email regarding his
discharge, stating:
This decision to terminate my employment, of course, comes amidst the line audit
of the financial report for year one of my employment that is currently underway
which thus far has revealed a false $207,000 . . . which was in clear violation of
the recruiting agreement (stating that the agreement is not to be used for the
Clinic’s financial benefit) and in violation of Stark Laws. It is fundamentally
wrong to use the physician recruiting agreement funds which are aimed to assist
the underserved patients of community to the benefit of the clinic, which is why
the [S]tark exception for physician recruitment agreements exists.
(Id. ¶ 91.)
Arnold responded by relating that he regretted the development, was committed to a “fair
and legal resolution of all issues for all involved,” and looked forward to Plaintiff’s continued
service to the Hospital. (Id. ¶ 92.) The physician corresponded regularly with Montchal over the
next few weeks, requesting updates on the Hospital’s audit of MSHC’s financial records and
attempting to clarify his status under the Contract. He received a letter on February 25, 2015,
from Charleyn Reviere, the Hospital’s general counsel, who informed him that she was
responding on behalf of Montchal and that the reconciliation process between the Hospital and
the Clinic was “nearing conclusion.” (Id. ¶ 94.)

9

On March 5, 2015, Dr. Fakorede received two letters from Reviere. The first contained
results of the audit. The Hospital concluded that the $207,230.94 originally attributed to him as
a “depreciation expense” was not a legitimate cost under the terms of the Contract and that
additional expenditures were also disallowed. This resulted in an overdraft by MSHC of the
Support Account in the amount of $314,238.08, which must be refunded. Notwithstanding this
determination, the Hospital also found that allowable expenses totaled $332,088.46.

Dr.

Fakorede was not satisfied, as he continued to have misgivings about the financial report’s
accuracy, believed unlawful expenses remained after the audit, and still had not received the
supporting documentation.
The second letter acknowledged the Hospital’s understanding that he and MSHC had
“ended their employment relationship” and advised that “[s]hould [Plaintiff] leave the
community or cease practicing [in Jackson], then the current balance of the recruiting
indebtedness would be due immediately.”

(Id. ¶ 102.)

Believing the Clinic’s retaliatory

termination had rendered his continued practice in Jackson untenable, Dr. Fakorede relocated to
Mississippi, where he resided and practiced as of the filing of the complaint. Plaintiff alleges in
this action that MSHC retaliated against him for his efforts to prevent a violation of the federal
Stark Law and Anti-Kickback Statute (“AKS”).4

4

Codified at 42 U.S.C. § 1320a-7b, the statute provides that

(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) 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
10

ASSERTIONS OF THE PARTIES AND ANALYSIS
At the outset, the Court recognizes that, generally speaking, in considering a motion to
dismiss under Rule 12(b)(6), the district court may not look outside the complaint, as to do so
effectively converts the motion into one for summary judgment under Fed. R. Civ. P. 56. Trs. of
Detroit Carpenters Fringe Benefit Funds v. Patrie Constr. Co., 618 F. App’x 246, 255 (6th Cir.
2015). The court would then be required to give all parties “a reasonable opportunity to present
all the material that is pertinent to the motion.” Fed. R. Civ. P. 12(d). However, courts “may
consider items appearing in the record of the case, including exhibits, without converting a Rule
12(b)(6) motion into a motion for summary judgment, but only so long as they are referred to in

(B) 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 and upon conviction thereof, shall be fined not more
than $25,000 or imprisoned for not more than five years, or both.
42 U.S.C. § 1320a-7b(b).
11

the complaint and are central to the claims contained therein.” Patrie Constr., 618 F. App’x at
255 (emphasis & internal quotation marks omitted). As it was referred to in the complaint and is
central to the Plaintiff’s claims, the Court will consider the Contract in analyzing the motion to
dismiss.5
The Court now turns to the claim at issue. The FCA “is an anti-fraud statute prohibiting
the knowing submission of false or fraudulent claims to the federal government.” United States
ex rel. Kreipke v. Wayne State Univ., No. 12-14836, 2014 WL 6085704, at *3 (E.D. Mich. Nov.
13, 2014), aff’d 807 F.3d 768 (6th Cir. 2015), reh’g en banc denied (Feb. 19, 2016). The statute
“reaches claims submitted by health-care providers to Medicare and Medicaid -- indeed, one of
its primary uses has been to combat fraud in the health-care field.” Chesbrough v. VPA, P.C.,
655 F.3d 461, 467 (6th Cir. 2011). Section 3729(a)(1)(A) states that “any person who . . .
knowingly presents, or causes to be presented, a false or fraudulent claim for payment or
approval” is liable to the United States government for civil penalties.

31 U.S.C. §

3729(a)(1)(A). “A fraudulent claim against the United States is the sine qua non of a[n FCA]
violation.” Bonewitz v. NewQuest, LLC, Civ. No. 3:14-CV-00096, 2015 WL 1825375, at *5
(M.D. Tenn. Apr. 22, 2015) (citing United States ex rel. Sanderson v. HCA, 447 F.3d 873, 878
(6th Cir. 2006)) (internal quotation marks omitted), appeal filed (No. 15-5552) (6th Cir. May 26,
2015). It is Plaintiff’s position in this case that MSHC was using him to further an illegal
kickback scheme and that it, under the guise of the Contract, sought and obtained hundreds of
thousands of dollars from the Hospital that should never have been paid. He asserts that these
overpayments could be construed as inducing referrals from the Clinic to the Hospital.

5

Indeed, the Plaintiff has voiced no objection to the Court’s consideration of the Contract
in its Rule 12(b)(6) review.
12

The FCA provides a cause of action for retaliatory employment discrimination. Section
3730(h), under which this action has been brought, entitles an employee “to all relief necessary
to make that employee . . . whole, if that employee . . . is discharged . . . or in any other manner
discriminated against in the terms or conditions of employment because of lawful acts done by
the employee . . . in furtherance of an action under [the FCA] or other efforts to stop 1 or more
violations of [the statute].” 31 U.S.C. § 3730(h)(1). The purpose of the whistleblower provision
is to “encourage any individual knowing of Government fraud to bring that information
forward.” Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 562 (6th Cir. 2003).
A claim under § 3730(h) requires proof that (1) the plaintiff “was engaged in a protected
activity”; (2) his “employer knew that [he] engaged in the protected activity”; and (3) his
“employer discharged . . . the employee as a result of the protected activity.” Jones-McNamara
v. Holzer Health Sys., 630 F. App’x 394, 398 (6th Cir. 2015). Stated differently, an employee is
entitled to recover under the statute “when [he] alleges that [he] observed purportedly fraudulent
activity, [he] confronted [his] employer about it, and [his] employer fired [him] because of it.”
United States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439, 449 (6th Cir. 2008) (citing
Mikes v. Strauss, 889 F. Supp. 746, 752-53 (S.D.N.Y. 1995)). A § 3730(h) plaintiff need not
plead or establish an actual violation of § 3729. Jones-McNamara, 630 F. App’x at 399 (citing
Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409,
428 n.1 (2005)).
MSHC maintains that Dr. Fakorede has failed to sufficiently plead that he engaged in
protected activity under the FCA. Plaintiff posits that he engaged in the second form of activity
protected in the statute – taking actions in an effort to stop one or more violations of the FCA.
To demonstrate retaliatory discharge based on this type of protected activity, “an employee must
13

be pursuing an effort to stop a specific violation (or potential violation) of the FCA of which he
or she is aware.” Verble, 2015 WL 8328561, at *10. The “employee’s conduct must be aimed at
stopping specific fraudulent claims against the government.” Id. at *11; Bonewitz, 2015 WL
1825375, at *5 (“The protected activity must relate to ‘exposing fraud’ against the government
or ‘involvement with a false claims disclosure’ to the government.”). Such protected activity
includes reporting suspected misconduct to internal supervisors. Tibor v. Mich. Orthopaedic
Inst., 72 F. Supp. 3d 750, 761 (E.D. Mich. 2014), recons. denied No. 14-10920, 2015 WL
144404 (E.D. Mich. Jan. 12, 2015). Internal reports of fraud “must sufficiently allege . . . fraud
against the United States government.” McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508,
516 (6th Cir. 2000).
Defendant submits in its motion to dismiss that, while the complaint alleges that Plaintiff
raised concerns relative to certain expenses the Hospital attributed to him, he did not, as he must,
aver that he complained about false claims for payments or other violations of federal law prior
to his discharge.

Jones-McNamara instructs that “a plaintiff’s activities must reasonably

embody efforts to stop FCA violations.
quotation marks omitted).

Jones-McNamara, 630 F. App’x at 399 (internal

Internal reports must be “outside the employee’s scope of

employment, . . . do more than simply urge compliance with applicable regulations, and . . . rise
to a level beyond merely reporting wrongdoing to supervisors.” Merritt v. Mountain Laurel
Chalets, Inc., 96 F. Supp. 3d 801, 822 (E.D. Tenn. 2015) (citing McKenzie, 219 F.3d at 516-17)
(internal quotation marks omitted).
MSHC points to two district court decisions as supportive of its position: Miller v.
Abbott Laboratories, Civ. Action No. 3:14CV-00363-JHM, 2015 WL 3773114 (W.D. Ky. June
17, 2015), and United States ex rel. Lockyer v. Hawaii Pacific Health, 490 F. Supp. 2d 1062 (D.
14

Haw. 2007). In Miller, the plaintiff’s supervisor created a competition for employees in her
division to submit written protocols, which were exclusivity agreements between Abbott and
healthcare providers whereby the provider agreed to provide its patients with samples and
coupons for Abbott’s products. Miller, 2015 WL 3773114, at *2. The winner was to receive
$100. Id. One of Miller’s co-workers offered to split the award with a provider representative if
she wrote the winning protocol for him. Id. Miller disclosed the bribe to her supervisor, who
insisted she not inform company officials of the incident. Id. After she reported the bribe and
the supervisor’s reaction, the supervisor refused Miller vacation and training, threatened and
screamed at her, and ultimately terminated her. Id.
In her subsequent FCA action, Miller claimed protected activity under the effort to stop
clause. Id. at *4. The district court granted summary judgment in favor of her employer, finding
that
to constitute protected activity, Miller’s report must specifically allege fraud on
the government, and not just general misconduct. In the present case, Miller’s
internal reports merely alleged general misconduct by an employee at Abbott.
Because § 3730(h) requires more than merely reporting wrongdoing to
supervisors, Miller has not presented sufficient evidence to show that she was
engaged in protected activity.
Id. at *6 (internal citations & quotation marks omitted); see also United States ex rel. Howard v.
Lockheed Martin Corp., 14 F. Supp. 3d 982, 1023 (S.D. Ohio 2014) (“Generalized complaints
about wrongdoing are not sufficient to serve as predicate acts for FCA retaliations[; c]omplaints
about wrongdoing are not actionable unless they concern fraud or false claims against the
Government.”). The court further noted that Miller did not inform her supervisor that Abbott
was possibly engaged in fraud on the government in violation of the FCA or AKS but, rather,
reported one instance of general misconduct by the co-worker. Id.
15

Lockyer, an internist at an outpatient clinic, had engaged in a long-running dispute with
his employer over his compensation. Lockyer, 490 F. Supp. 2d at 1068-69. After the clinic
reduced his salary on several occasions, Lockyer asked to review data concerning his billings
and suggested that an audit be conducted. Id. at 1069. He later demanded arbitration over his
employer’s failure to produce requested compensation documentation to verify the grounds for
his salary reduction. Id. at 1070. After he was fired, Lockyer brought an FCA suit, alleging that,
upon his review of materials obtained during arbitration, he discovered reimbursements from
Medicare/Medicaid for administration of chemotherapy at the clinic that he neither ordered nor
provided. Id.
Lockyer argued on summary judgment that he engaged in protected activity by
investigating the clinic’s billing procedures, which, because of his medical practice, necessarily
included claims for Medicare reimbursement. Id. at 1083. In finding for the defendant, the
district court noted that, where courts have found a question of fact as to a plaintiff’s engagement
in protected activity, there is generally some evidence that the employee, at the time of the
activity, expressed a suspicion of fraud. Id. In the case before it, however, Lockyer’s evidence
failed to show that, at the time he asked for his compensation data, he did so because he was
suspicious of fraud against the government. Id. Rather, the proof established that he suspected
he was being underpaid. Id. at 1084. Thus, the court concluded that “it seems the core of
[p]laintiff’s concern was that [the clinic] was under-reimbursing him for payment he was rightly
owed under his employment contract, not that [the clinic] was overcharging the government for
claims that it was not entitled to bill.” Id. (emphasis added).
The outcome in Lockyer bears some similarity to a case from this Circuit, Smith v. C.R.
Bard, Inc., 730 F. Supp. 2d 783 (M.D. Tenn. 2010), which was also decided on summary
16

judgment. Smith, a manager for a pharmaceutical company, alleged that he was wrongfully
terminated in retaliation for his internal complaint against his employer’s improper off-label
promotion and sales of a particular drug. Smith, 730 F. Supp. 2d at 786-87. The court found that
there was no protected activity because Smith was concerned about his personal liability for
promotion of the off-label use, and was not seeking to expose any alleged fraud on the
government. Id. at 803.
In response to the motion, Dr. Fakorede points to Bonewitz as a good articulation of the
difference between protected and unprotected conduct. Bonewitz was employed as a systems
analyst by NewQuest, LLC, a subsidiary of HealthSpring, Inc., which contracted with the United
States to offer healthcare and prescription drugs to Medicare-eligible participants. Bonewitz,
2015 WL 1825375, at *1. Soon after his hire, he began receiving poor performance reviews
from his supervisor. Id. Afterward, he informed the supervisor that he suspected HealthSpring
was turning a blind eye to fraudulent activities. Id. The supervisor then gave Bonewitz a final
notice for continued substandard performance. Id.
The employee later sent an email to Richard Appel, NewQuest’s director of corporate
compliance, sharing his belief that HealthSpring was incentivising physicians to perform overlythorough examinations and encouraging internal fraud. Id. During a meeting with corporate
counsel, the employee communicated his belief that HealthSpring “had a fiduciary duty to
explain the pros and cons of an extended exam to every patient.” Id. at *3. Bonewitz was
eventually terminated. Id.
The court summarized the applicable law thusly:
[T]he internal reporting of wrongdoing must establish some nexus to the FCA by
reasonably leading to a viable FCA action. If a plaintiff’s allegations fall short of
reaching a nexus with a viable FCA action, therefore, he has not, as a matter of
17

law, engaged in protected activity. In common parlance, therefore, an employee
who complains about internal wrongdoing that could reasonably be a violation of
the FCA and could lead to a viable FCA action may have engaged in protected
activity. On the other hand, an employee who has complained of wrongdoing that
cannot be an FCA violation or has no nexus to a viable FCA action has not
engaged in a protected activity.
Id. at *6 (internal alterations, citations & quotation marks omitted). Applying these principles,
the court found that Bonewitz failed to establish protected activity because he “never raised any
concern (internally or externally) regarding the submission of actual false claims to the United
States by NewQuest -- the basic element of any viable FCA action.” Id. Nor did he “complain[]
to anyone at NewQuest (or elsewhere) that any false claims were being generated and submitted
by NewQuest or paid to NewQuest by the government. Because Bonewitz had no complaints
regarding actual false claims, he had no actual or potential viable FCA action. Bonewitz,
therefore, was not engaged in protected activity” as to NewQuest. Id. (emphasis & internal
footnote omitted).

The court observed in a footnote that an employee’s request for an

independent evaluation, particularly where the request was not accompanied by a threat of FCA
action or evidence of a false claim being submitted to the government, did not provide the
necessary nexus to constitute protected activity. Id. n.8.
Other decisions from this Circuit reviewed by the Court are instructive as to the
sufficiency of pleadings in § 3730(h) cases. In Marlar, the employee, a nurse practitioner at a
nuclear power facility, alleged in her complaint that the company systematically underreported
work-related injuries, illnesses and time missed from work in order to inflate its performancebased compensation under a contract with the federal Department of Energy (the “DOE”).
Marlar, 525 F.3d at 442-43. She raised concerns regarding the underreporting on numerous
occasions and was eventually placed on administrative leave. Id. at 443. While on leave, she
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wrote a letter to Dennis Ruddy, the employer’s president and general manager, asserting that her
computer had been “cleaned out” because she refused to participate in “illegal activities,” which
included the underreporting. Id. She was later fired for insubordination. Id.
In finding her retaliation claim was sufficiently pleaded, the Sixth Circuit stated:
Specifically, Ms. Marlar has pleaded that she repeatedly “objected to her
superiors” about the inaccurate medical records . . . She raised similar objections
during “an open forum where employees could express grievances or
complaints.” Ms. Marlar alleges that “as a result of these actions,” she “was
placed on administrative leave.”
While these allegations likely do not suffice to show that [her employer] was on
notice of Ms. Marlar’s protected activity, Ms. Marlar alleges that she took further
steps that would constitute notice to [the employer]. Specifically, Ms. Marlar
alleges that she wrote a letter to the president and general manager of [the
employer], Mr. Ruddy, asserting that she had been placed on administrative leave
“because she refused to participate in illegal activities . . . The letter further stated
that the illegal activities included the underreporting of occupational injuries and
illnesses resulting in large incentive payments to [the employer] under the
contract with DOE. When [the employer] asked for more information regarding
the alleged “illegal activities,” Ms. Marlar told [officials] that “there was
underreporting of work-related injuries and illnesses.” Ms. Marlar’s allegations,
if true, would mean that [the employer] had defrauded the United States
government, and Ms. Marlar made it clear that she understood that because she
stated that [the employer’s] activities, which she more precisely defined as
“underreporting of work-related injuries and illnesses,” were “illegal” and that
[the employer] obtained “large incentive payments” pursuant to the DOE contract
because of its “illegal activities.”
*

*

*

Ms. Marlar’s complaint meets [the pleading standard for § 3730(h) claims]. She
alleges that she observed purportedly fraudulent activity and confronted her
employer about it. Specifically, Ms. Marlar told [her employer] that she believed
[it] was receiving “illegal” “large incentive payments” under its contract with
DOE because [the employer] was “underreporting its employees’ work-related
injuries and illnesses.” She therefore connected her complaint of [the employer’s]
actions, underreporting, to a concern about fraud on the federal government. Ms.
Marlar further alleges in her complaint that because she informed [the employer]
of her concerns, she was terminated. Given our interpretation of “protected
activity” in McKenzie, Ms. Marlar has adequately pleaded [a § 3730(h) claim].
19

Id. at 449-50 (internal alterations, citations & footnotes omitted).
In Merritt, in which the court found that “protected activity” under § 3730(h) had been
sufficiently pleaded by plaintiffs Melinda Merritt and Benjamin Olivas, the latter had informed
management that he “would not take such risks as falsely paying an undocumented worker” and
“protested the employment of [an undocumented alien] as an illegality.” Merritt, 96 F. Supp. 3d
at 810, 823. The court noted, citing Marlar, that, “[i]f true, such conduct would constitute fraud
upon the United States government, and Olivas’ mention of ‘risks’ shows that he was aware of
this.” Id. at 823. With respect to Merritt, the court found that
[she] sufficiently averred protected activity by telling her supervisor that “it was
wrong of Mountain Laurel to hire an undocumented worker,’ and -- crucially -reporting her concerns to the IRS. While “wrong” may be construed in myriad
ways in the instant context, the fact that Merritt reported her concerns to the IRS
strongly suggests that she considered it illegal for Mountain Laurel to employ an
undocumented worker. Her allegations thus, if true, would amount to fraud
against the United States government, and her understanding of that is clear.
Id. (internal citations & footnote omitted).
The plaintiff in Tibor, a surgeon, refused to sign a proposed recruitment agreement with
physician groups by which she had recently been employed because she believed it to be an
illegal contract. Tibor, 72 F. Supp. 3d at 754. She explained to one of the physicians in the
group that “she could not sign the backdated recruitment agreement because she believed it
would be a violation of the Stark Anti-Referral Law,” the same law invoked by Dr. Fakorede.
Id. Tibor’s refusal resulted in her discharge. Id. The court concluded that, as Tibor informed
her employer of her concern of illegality with respect to the Stark Law, protected activity
pursuant to § 3730(h) had been adequately pleaded. Id. at 762.
Finally, the Court finds of assistance in its determination an unreported case from the
Southern District of Alabama, United States ex rel. Heesch v. Diagnostic Physicians Group,
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P.C., Civ. Action No. 11-0364-KD-B, 2014 WL 4812386 (S.D. Ala. Aug. 5, 2014). Heesch, a
cardiologist, often submitted complaints to the physicians group by which he was employed
concerning compensation and work-related issues. Heesch, 2014 WL 4812386, at *2. After
difficulties in getting along with his co-workers arose, Heesch was given the opportunity to
“discuss his future” with his employer or resign. Id. at *3. At around the same time, Heesch
hired legal counsel. Id. The attorney formally requested extensive records from the group
concerning physician compensation, Medicare payments and other financial documents. Id.
Days afterward, he submitted a second request for “records and documents reflecting each
physician’s share of Stark Pool collections, and total Stark collections of the [employer] and
specific allocation of collections to each doctor based on tests ordered but not performed by each
physician.” Id. (internal quotation marks omitted). The next month, Heesch learned at a group
meeting that the employer “had previously received legal advice regarding their potentially
illegal physician compensation structure, and he expressed his concerns.” Id. Two days after the
meeting, on July 13, 2011, he sent a letter to the group’s president stating that the employer was
“breaking the law regarding ‘Stark Money’ payments, and had been doing so for years.” Id.
Heesch was soon fired. Id.
On summary judgment, the court found that Heesch “began taking steps toward exposing
false claims when he hired independent counsel and requested information from [the doctors’
group] relating to their financial records and Stark collections” and, at that time, engaged in
protected activity under § 3730(h). Id. at *5. The court further found that, “[t]hough [the
employer] asserts [Heesch] couched his activities in general compensation concerns, [Heesch]
undeniably put [the group] on notice of a potential FCA issue [(Stark violations)] when he sent
his July 13 letter to [the group’s president].” Id.
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Dr. Fakorede contends in his brief that his actions beginning on January 10, 2015,
constituted protected activity. (See D.E. 25 at PageID 135 (referencing D.E. 1 ¶¶ 67-82).) On
that date, he “expressed concerns about the financial report and requested that the [Hospital]
collaborate with the Clinic to revisit the Depreciation expense drawn from his loan,” citing
specifically his use of the OBL. (D.E. 1 ¶ 67.) According to the complaint, it was not until
January 12, 2015, that he “had become concerned that the Clinic was deliberately and
fraudulently misclassifying many of its expenses -- particularly those related to the OBL -- as
being related to [his] employment in order to get the [Hospital] to pay for them.” (D.E. 1 ¶ 69.)
On January 16, 2015, he requested of Arnold an independent review of the Hospital’s report, but
there is no allegation that he gave the Hospital CEO any indication of concerns of fraud on the
government. He argues that his request for an independent audit itself constitutes an effort to
stop one or more FCA violations. However, the case upon which he has relied, Bonewitz, clearly
suggests otherwise. See Bonewitz, 2015 WL 1825375, at *6 n.8. He has provided no other legal
support for this assertion. On or about February 3, 2015, he reminded Montchal that “the
Recruiting Agreement that was signed by the [Hospital], the Clinic, and himself, contained
express language stating that the Recruiting Agreement was not meant to advance the [C]linic’s
financial interests and that only expenses permitted by federal law for the [Hospital] to cover are
those expenses that are the ‘actual incremental expenses of recruiting the Physician and
establishing the Physician’s practice.” (D.E. 1 ¶ 80.) Urging compliance with the law is not
protected activity. See Merritt, 96 F. Supp. 3d at 822.
Despite his insistence to the contrary, according to the well-pleaded factual allegations
contained in the complaint, the Plaintiff’s request for an audit, urgings to comply with the law
and challenges relative to attribution of certain expenses to him prior to his termination are
22

insufficient, based on the caselaw reviewed by the Court, to allege protected activity under §
3730(h). None of the internal reports made by Dr. Fakorede during this period alleged fraud on
the government. Indeed, his allegations reveal nothing more than a desire to minimize his
personal financial liability under the Contract, not an effort to stop an FCA violation.
Further, as noted above, in addition to protected activity, a § 3730(h) plaintiff must
adequately plead a connection between that conduct and his termination. To establish the
causation prong of the § 3730(h) claim, “an employee must supply sufficient facts from which a
reasonable jury could conclude that the employee was discharged . . . because of” protected
activity. Howard, 14 F. Supp. 3d at 1021 (citing McKenzie, 219 F.3d at 517). “In order to prove
that the action was taken ‘because of’ the protected activity, the employee must show that the
retaliation was motivated, at least in part, by the employee’s engaging in protected activity.” Id.
(internal quotation marks omitted).
While nothing prior to his termination constituted protected activity, Plaintiff’s February
11, 2015, email to Arnold and Montchal arguably did.

The fatal flaw from a causation

standpoint, viewing the allegations as true, is that Dr. Fakorede did not communicate his
concerns about violations of federal law until after he received the message from Dr.
Cunningham advising him that he had been fired. Thus, he has averred nothing from which an
inference may be reasonably drawn that the purported retaliatory conduct was taken after and in
response to actions that could have been considered protected activity.

See id. at 1026

(plaintiff’s claim failed where he had not “established that the purported retaliatory conduct was
taken after and in response to his purported protected activity”). Accordingly, his termination
obviously could not be said to have been because of protected activity contained in the post-

23

discharge email. As the complaint contains neither direct nor inferential allegations respecting
all of the elements necessary for recovery under § 3730(h), it is DISMISSED.
CONCLUSION
For the reasons articulated herein, the motion is GRANTED.
IT IS SO ORDERED this 26th day of April 2016.
s/ J. DANIEL BREEN
CHIEF UNITED STATES DISTRICT JUDGE

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