Opinion
Civil Action No. 3:17-cv-02977-M
2020-07-02
UNITED STATES of America et al., Plaintiffs, v. MEDOC HEALTH SERVICES LLC, et al., Defendants.
Richard J. Guiltinan, Clayton Ray Mahaffey, Kenneth G. Coffin, United States Attorney's Office, Dallas, TX, for Plaintiff United States of America. Susan Jean Miller, Robert Simon Savage, Office of the Texas Attorney General, Austin, TX, for Plaintiff The State of Texas. Steve Sumner, Justin Victor Sumner, Sumner Schick & Pace LLP, Dallas, TX, for Plaintiff Mark Adams. Richard B. Roper, III, William L. Banowsky, Thompson & Knight LLP, Dallas, TX, for Defendant Medoc Health Services LLC. John Anthony Scully, Cooper & Scully PC, Dallas, TX, for Defendant Kevin Kuykendall. Stacy L. Brainin, Haynes & Boone LLP, Dallas, TX, for Defendant Sabrina Kuykendall. Joe Kendall, Kendall Law Group PLLC, Dallas, TX, for Defendant Trenton Moody. Mazin A. Sbaiti, Kevin N. Colquitt, Sbaiti & Company PLLC, Bradford John Robinson, Hartline Dacus Barger Dreyer LLP, Dallas, TX, for Defendants Mark Schneider, Michael Schneider. Richard B. Roper, III, Thompson & Knight LLP, Dallas, TX, for Defendant Total RX Care LLC. Robert M. Castle, III, Barnes & Thornburg LLP, Dallas, TX, for Defendant Cuong Nguyen.
Richard J. Guiltinan, Clayton Ray Mahaffey, Kenneth G. Coffin, United States Attorney's Office, Dallas, TX, for Plaintiff United States of America.
Susan Jean Miller, Robert Simon Savage, Office of the Texas Attorney General, Austin, TX, for Plaintiff The State of Texas.
Steve Sumner, Justin Victor Sumner, Sumner Schick & Pace LLP, Dallas, TX, for Plaintiff Mark Adams.
Richard B. Roper, III, William L. Banowsky, Thompson & Knight LLP, Dallas, TX, for Defendant Medoc Health Services LLC.
John Anthony Scully, Cooper & Scully PC, Dallas, TX, for Defendant Kevin Kuykendall.
Stacy L. Brainin, Haynes & Boone LLP, Dallas, TX, for Defendant Sabrina Kuykendall.
Joe Kendall, Kendall Law Group PLLC, Dallas, TX, for Defendant Trenton Moody.
Mazin A. Sbaiti, Kevin N. Colquitt, Sbaiti & Company PLLC, Bradford John Robinson, Hartline Dacus Barger Dreyer LLP, Dallas, TX, for Defendants Mark Schneider, Michael Schneider.
Richard B. Roper, III, Thompson & Knight LLP, Dallas, TX, for Defendant Total RX Care LLC.
Robert M. Castle, III, Barnes & Thornburg LLP, Dallas, TX, for Defendant Cuong Nguyen.
ORDER
BARBARA M. G. LYNN, CHIEF JUDGE Before the Court are five Motions to Dismiss: the Omnibus Motion to Dismiss (ECF No. 59), filed by Defendants Medoc Health Services, LLC, and Total RX Care, LLC, and joined in by the other Defendants; the Motion to Dismiss (ECF No. 62), filed by Sabrina Kuykendall; the Motion to Dismiss (ECF No. 68), filed by Kevin Kuykendall; the Motion to Dismiss (ECF No. 75), filed by Mark Schneider; and the Motion to Dismiss (ECF No. 77), filed by Michael Schneider. For the reasons explained below, all the Motions are DENIED.
I. Background
This is a qui tam suit, alleging that the Defendants aided in the submission of false claims to the Government by referring prescriptions paid for by federal government healthcare programs—such as Medicare, Tricare, and Department of Labor programs—to pharmacies that paid kickbacks. The alleged facts that follow are those described in the Complaint, which this Court takes as true for the purposes of these Motions.
According to the Complaint, "Medoc purports to provide management, administrative, and marketing services to compounding pharmacies and other types of ancillary service providers, such as clinical laboratories." Compl. ¶ 80. Kevin Kuykendall, Sabrina Kuykendall, Mark Schneider, and Michael Schneider (with Medoc, the "Medoc Defendants") allegedly were owners or officers of Medoc during the times relevant to this lawsuit. See id. ¶¶ 23–24, 26–27. Medoc allegedly created subsidiaries, called Management Services Organizations ("MSOs"), to provide services to pharmacies in return for service fees. Id. ¶ 81. The Government claims that Medoc co-owned the MSOs "with physicians willing and able to refer their patient prescriptions to Medoc for routing and fulfillment by Medoc-associated pharmacies." Id. ¶ 83. Through their ownership in the MSOs, the physicians then allegedly received a percentage of the profits earned from the private-pay prescriptions written by the physicians in the MSO. Id. ¶ 84. The Complaint alleges that Medoc encouraged physicians to increase the number of prescriptions they sent to Medoc by placing physicians with a high number of prescriptions in the more lucrative MSOs, while eliminating or transferring to lower volume MSOs physicians who wrote fewer prescriptions. Id. ¶ 95. The Government alleges that this structure gave the Medoc Defendants power over which pharmacy would fill prescriptions, and that they used this power to elicit kickbacks from pharmacies. This conduct gave rise to the Government's claims under the False Claims Act due to violations of the Anti-Kickback Statute. The Government also alleges several related common law causes of action. According to the Complaint, there were three phases of the scheme, beginning in 2015.
Because several of the Defendants have the same last names, the Court will refer to the individual Defendants by their first names only for the remainder of this Order.
"Private-pay" means that the prescriptions were not paid for by a federal government program, so these payments to the MSO physicians are not implicated in the False Claims Act allegations, which relate only to federal prescriptions. Compl. ¶ 91.
First, the Government claims that the Medoc Defendants illegally collected kickbacks from Total RX Care, LLC. The Complaint alleges that in early 2015, Total RX signed a "sales representation" agreement with Medoc, entitling Medoc to 50% of the profits from Total RX's prescriptions paid for by third-party private insurance, specifically excluding federal healthcare programs. Id. ¶¶ 134–35. The Government alleges that soon after, however, Kevin suggested that Total RX add Michael to its payroll, with Michael receiving a percentage of the profits from federal prescriptions referred to Total RX. Id. ¶¶ 138–43. The Government claims that, after some negotiation, Total RX agreed and signed an "Employee at Will" agreement with Michael. Id. According to the Complaint, Total RX immediately began paying Michael hundreds of thousands of dollars (including for federal prescriptions predating the Employee at Will agreement), even though Michael "did not perform services for Total RX." Id. ¶¶ 153, 155, 161. The Medoc Defendants allegedly maintained a spreadsheet tracking the payments owed to Michael, based on the federal referrals. See id. ¶¶ 156–58. The Government claims that Michael deposited his payments into a bank account for Barolo Partners, LLC, where Sabrina divided the money between entities owned by the other Medoc Defendants. Id. ¶¶ 162–68. The Government claims that this was a kickback.
The Government alleges that during this arrangement, the number of federal prescriptions that Total RX filled skyrocketed. See id. ¶ 256. It also identifies several representative claims that Total RX submitted to the Government for payment during this time that it says were tainted by the alleged kickbacks. See, e.g., id. ¶¶ 171, 191, 203, 214, 225. The alleged scheme with Total RX continued for several months, until a Medoc contractor expressed concerns about the arrangement. See id. ¶ 260.
The Government claims that the concerns caused the Medoc Defendants "to move over $500,000 worth of [their] Federal business" to another pharmacy, which they did by reaching an agreement with Doctors Specialty Pharmacy ("DSP"). Id. ¶ 266 (quoting email from Kevin). In August 2015, the Complaint alleges that DSP signed an "MSO Services Agreement" with Vintage Grow Investment Partners I, LLC, whose partners included Kevin, Mark, Michael, Trenton Moody, and Steve Solomon. Id. ¶ 272. The agreement entitled Vintage Grow to 89% of DSP's gross operating income. Id. ¶ 276. However, the Government claims that Vintage Grow had not been incorporated as of the date of the agreement, had no employees, could not provide services to DSP, and that "Vintage Grow was a mere stand-in" for the Medoc Defendants. Id. ¶ 275. In short, the Government alleges that the service fee exceeded fair market value, and instead was a kickback for federal prescription referrals. Id. ¶ 277.
The Complaint alleges that after the agreement was signed, the Medoc Defendants shifted federal prescriptions to DSP. For example, Kevin instructed that "all government pay prescriptions will be filled at" DSP going forward. Id. ¶ 280. As with Total RX, the Complaint claims that the Medoc Defendants closely tracked the number of federal prescriptions referred to DSP, lists specific examples of federal claims submitted by DSP during the alleged kickback scheme, and includes a chart indicating that DSP's federal claims increased significantly while the agreement with Vintage Grow was in effect. See, e.g., id. ¶¶ 289, 312, 326. The Government claims that the Medoc Defendants discontinued the scheme with DSP only after physicians "raised concerns." Id. ¶ 323.
Shortly thereafter, the Complaint alleges that the Medoc Defendants reached an agreement to fill federal prescriptions at yet another pharmacy, MidCities Pharmacy. Id. ¶¶ 330, 337–41. The Government claims that the Medoc Defendants' agreement with MidCities was similar to the agreement with Total RX, by which the Medoc Defendants directed federal prescriptions to MidCities, in exchange for MidCities "hiring" Michael as an employee who was paid a percentage of MidCities' profits. See id. ¶ 341. Again, the Government alleges that Michael "did not perform any of the tasks in the agreement or provide services to" MidCities, and that he "did not actually go to the pharmacy." Id. ¶ 356. Nevertheless, the Complaint claims that MidCities paid Michael over $50,000 in wages that the Government characterizes as kickbacks. Id. ¶ 358. The Complaint alleges that, as with Total RX and DSP, the Medoc Defendants carefully tracked the number of federal prescriptions referred to MidCities, lists examples of federal prescription claims MidCities submitted while the agreement was in place, and claims that MidCities' federal claims increased significantly during that same time. See id. ¶¶ 368, 387, 391.
In October 2017, Relator Mark Adams filed a Complaint alleging several violations of the False Claims Act. See ECF No. 1. After an investigation, the United States filed a Notice of Partial Intervention (ECF No. 23), and an Intervenor Complaint in Partial Intervention (ECF No. 26), alleging violations of the False Claims Act, conspiracy to violate the False Claims Act, fraud, unjust enrichment, and payment by mistake. Relator Adams then filed a Notice of Partial Voluntary Dismissal (ECF No. 28), dismissing all claims outside of the Government's Intervenor Complaint. Thus, the only live claims are those asserted in the Government's Complaint in Partial Intervention.
All subsequent references or citations to the "Complaint" refer to the Government's Intervenor Complaint in Partial Intervention (ECF No. 26).
II. Legal Background
Rule 12(b)(6) authorizes dismissal for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). For a Rule 12(b)(6) motion, the Court may generally consider "the complaint, its proper attachments, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Wolcott v. Sebelius , 635 F.3d 757, 763 (5th Cir. 2011). In reviewing this material, the Court must "constru[e] all factual allegations in the light most favorable to the plaintiffs." Kopp v. Klein , 722 F.3d 327, 333 (5th Cir. 2013). The Court is not, however, "bound to accept as true a legal conclusion couched as a factual allegation." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Papasan v. Allain , 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) ).
For a complaint to survive a Rule 12(b)(6) motion, it must contain "enough facts to state a claim to relief that is plausible on its face." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. A facially plausible complaint "must allege more than labels and conclusions .... [F]actual allegations must be enough to raise a right to relief above the speculative level." Jebaco, Inc. v. Harrah's Operating Co., Inc. , 587 F.3d 314, 318 (5th Cir. 2009) (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).
In addition to Rule 12(b)(6)'s plausibility requirement, "claims brought under the FCA must comply with the particularity requirements of Rule 9(b)." U.S. ex rel. Steury v. Cardinal Health, Inc. , 625 F.3d 262, 267 (5th Cir. 2010). Rule 9(b) requires that the complaint "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). To meet this standard, the plaintiff must, "at a minimum[,] ... set forth the who, what, when, where, and how of the alleged fraud." Steury , 625 F.3d at 266 (citations omitted). However, the Fifth Circuit has held that the rule is not a "straitjacket" and that a complaint, "if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." United States ex rel. Grubbs v. Kanneganti , 565 F.3d 180, 190 (5th Cir. 2009).
III. Violation of the Anti-Kickback Statute
The Anti-Kickback Statute ("AKS")
criminalizes the knowing or willful paying or offering to pay any remuneration to induce: (1) the referral of an individual for items or services that may be paid for by a federal health care program; or (2) the purchasing, leasing, ordering, or arranging for purchasing, leasing, or ordering any item or service that may be paid for by a federal health care program.
United States ex rel. Wall v. Vista Hospice Care Inc. , No. 3:07-cv-00604-M, 2016 WL 3449833, at *21 (N.D. Tex. June 20, 2016) (Lynn, C.J.). To successfully plead an AKS violation, a complaint must allege that a defendant "(1) knowingly and willfully (2) solicited or received, or offered or paid remuneration (3) in return for, or to induce, referral or program-related business." Id. The Defendants contend that the Complaint fails to satisfy this standard.
A. Prescription Referrals
The Defendants first argue that the Complaint does not adequately allege that any payments were "in return for" a federal prescription referral, because the alleged kickbacks at issue were not paid to physicians who wrote the prescriptions. The Government responds, however, that the AKS statute prohibits "any person," not just physicians, from soliciting or receiving kickbacks. See 42 U.S.C. § 1320a-7b(b)(2).
The Government is correct. As the Fifth Circuit has explained, "the AKS has no ‘relevant decision maker’ or ‘medical judgment’ requirement." United States v. Gibson , 875 F.3d 179, 189 (5th Cir. 2017) (quoting United States v. Shoemaker , 746 F.3d 614, 628–29 (5th Cir. 2014) ). The statute "criminalizes payments to ‘any person[s],’ so long as they are made with the requisite intent" to induce referrals. Shoemaker , 746 F.3d at 629 (alteration in original).
The Complaint meets that standard. It alleges that "the Medoc Defendants controlled where the prescriptions generated by the MSO physicians were sent for fulfillment." Compl. ¶ 86. Specifically, the Complaint states that the Medoc Defendants "pressured physicians to send their federal referrals to Medoc for fulfillment." Id. ¶ 93. According to the Government, they did so by "switch[ing] physicians from MSO to MSO based on the number of referrals that the individual physician sent to Medoc." Id. ¶ 95. Contrary to the Defendants' assertion, the Complaint specifically alleges that "Medoc also denied the MSO physicians and their patients the ability to choose where to fill their prescriptions. Instead, Medoc retained control over the referrals and prevented the patients from choosing their usual pharmacy." Id. ¶ 113.
What is more, the Complaint alleges that the Medoc Defendants "could—and did—change the pharmacy charged with fulfilling a federal program patient prescription from month to month based on the kickback schemes they were operating." Id. ¶ 114. It includes specific examples of the Medoc Defendants allegedly switching prescriptions from one pharmacy to another based on which pharmacy was paying kickbacks to the Defendants, see, e.g., id. ¶¶ 115, 300, 312, 387, and refusing to send additional prescriptions to a pharmacy that was not paying kickbacks, see id. ¶ 118. Additionally, the Complaint contains three charts that depict how federal prescriptions spiked at pharmacies during the time the Medoc Defendants allegedly were receiving kickbacks from those pharmacies. See id. ¶¶ 256, 326, 391. Finally, the Complaint details several instances in which the Defendants discussed their ability to transfer prescriptions from one pharmacy to another. See, e.g., id. ¶ 178 (quoting an email from Kevin instructing a physician that "the physicians should be sending all scripts to TotalRX"); id. ¶ 266 (quoting email discussing "mov[ing] over $500,000 worth of our Federal business"); id. ¶ 345 ("We will be sending all the Federal to [MidCities Pharmacy] for now."). The Complaint therefore sufficiently alleges that Medoc controlled prescription referrals, such that payments were "in return for" referrals.
The Defendants nevertheless argue that Medoc's alleged control of prescription referrals is irrelevant, because the Complaint "does not close the loop by pleading specific facts about how [the alleged kickback] payments filtered back down to result in referrals by Medoc." ECF No. 60, at 9. That argument ignores the Complaint's allegations describing how the alleged kickbacks were distributed to the Defendants. According to the Complaint, the individual Defendants who ultimately received the alleged kickbacks (Kevin, Sabrina, Mark, Michael, and Trenton Moody ) were also owners and officers of Medoc. Compl. ¶¶ 22–27, 200, 321, 325. The Complaint also alleges that "the Medoc Defendants planned to divide [the MidCities Pharmacy] kickbacks through Medoc," id. ¶ 374, which would directly link Medoc to the kickbacks. Those allegations are sufficient to "close the loop" by stating a claim that the pharmacies paid kickbacks to the individual Defendants with the intent to induce prescription referrals through Medoc. See Shoemaker , 746 F.3d at 629.
Moody reached a settlement agreement with the Government and has been dismissed from this lawsuit. See ECF No. 117.
Some of the individual Defendants make similar arguments contesting the alleged lack of their personal involvement with prescription referrals. ECF No. 63, at 6–8; ECF No. 72, at 6–8; ECF No. 77, at 9–10. Those arguments fail for similar reasons.
Kevin argues that the Complaint does not allege how he arranged for referrals or received payment for such referrals. Yet the Complaint claims that Kevin was the person who instructed others where to send federal prescriptions to maximize the alleged kickbacks. See, e.g. , Compl. ¶ 178 (quoting email in which Kevin told a physician "the physicians should be sending all [Medicare and Tricare] scripts to TotalRX"); id. ¶ 265 (quoting email from Kevin saying that DSP "sounds like a good fit for our federal business" and that "nothing happens in Medoc that I don't approve"); id. ¶ 278 (quoting email from Kevin asking about the status of "moving the Federal scripts over" to DSP); id. ¶ 280 (quoting email from Kevin informing Medoc's Vice President of Operations that "all government pay prescriptions will be filled at" DSP). The Complaint further alleges that Kevin owned or controlled the entities that ultimately received the alleged kickbacks. See id. ¶ 164 (alleging that Kevin was Barolo's manager, and that Kevin co-owned one of the entities that owned Barolo); id. ¶ 271 (alleging that Kevin was a partner in Vintage Grow). These claims adequately allege that Kevin had sufficient influence over federal prescription referrals and that he received payment for those referrals.
Sabrina and Michael similarly argue that they had nothing to do with prescription referrals. The Government responds, however, that an actual prescription referral is not an element of the offense. "One can violate [the AKS] just for soliciting a kickback." United States v. Sanjar , 876 F.3d 725, 744 (5th Cir. 2017) (citing 42 U.S.C. § 1320a-7b(b)(1) ). "The AKS's plain language ... makes it unlawful for a defendant to pay a kickback with the intent to induce a referral, whether or not a particular referral results. Case law thus consistently treats the AKS's inducement element as an intent requirement." United States ex rel. Parikh v. Citizens Med. Ctr. , 977 F. Supp. 2d 654, 665 (S.D. Tex. 2013) (Costa, J.). The Court agrees that the Complaint need not allege that any of the individual Defendants had the power to actually refer a prescription in return for a kickback, so long as the Complaint alleges that the individual Defendant solicited or received kickbacks with the necessary intent.
The Complaint adequately alleges that element for Sabrina. The Complaint alleges that she calculated the kickbacks the pharmacies owed, and communicated with the pharmacies to demand those alleged kickbacks. See, e.g. , Compl. ¶¶ 184, 254 (describing the spreadsheet Sabrina maintained tracking alleged kickbacks and distributions to the other Medoc Defendants). Further, the Government claims that Sabrina knew those kickbacks were related to federal prescriptions. See, e.g., id. ¶ 262 (quoting email from Sabrina explaining that the Medoc Defendants would "no longer be receiving Federal funds through Total RX and the employee at will from Total RX will be going away after July").
Likewise, the Complaint adequately alleges that Michael solicited or received kickbacks for referrals with the requisite intent. The Complaint claims that Michael signed the employment agreements through which the Medoc Defendants allegedly received the kickbacks. Id. ¶¶ 151, 343, 381, 383. Additionally, the Government claims that Michael received the alleged kickbacks from Total RX and MidCities, and transferred them into an account through which they could be distributed to the other Medoc Defendants. Id. ¶¶ 162, 236, 379. The Government also alleges facts that suggest Michael knew these payments were in return for federal referrals. See, e.g., id. ¶ 187 (quoting email thread sent to Michael, among others, referring to "Federal Payments" from Total RX); id. ¶ 262 (quoting email to Michael and others stating that they would "no longer be receiving Federal funds through Total RX"). These allegations are adequate to defeat the Motion to Dismiss by alleging that Sabrina and Michael received kickbacks with the intent to induce or arrange federal prescription referrals.
The Complaint contains fewer specific allegations about Michael's involvement in the portion of the Defendants' alleged scheme involving DSP. However, the Complaint alleges that Michael received some of those alleged kickbacks through his ownership in Vintage Grow, Compl. ¶ 272, the entity that received payments from DSP. In any event, the allegations about Michael's involvement with Total RX and MidCities are enough in and of themselves to deny Michael's Motion to Dismiss the FCA claim against him, which is premised on claims submitted by Total RX, DSP, and MidCities. See id. ¶ 396.
B. AKS Safe Harbors
The Defendants next argue that the alleged kickbacks fall within a safe-harbor provision such that they do not violate the AKS. With respect to the Total RX and MidCities arrangements, the Defendants claim the bona fide employee safe harbor. With respect to the DSP arrangement, the Defendants claim the management services safe harbor. The Government responds that the AKS safe harbors are affirmative defenses on which the Defendants bear the burden of proof, and therefore are inappropriate for a motion to dismiss.
This Court previously held that the "safe harbors" are affirmative defenses on which the Defendants bear the burden of proof. Vista Hospice Care Inc. , 2016 WL 3449833, at *22. The Fifth Circuit, although usually in unpublished decisions, also has repeatedly described the AKS safe harbors as affirmative defenses. See, e.g., United States v. McCardell , 750 F. App'x 314, 320–21 & n.2 (5th Cir. 2018) (per curiam) (referring to defendant's "burden of proof regarding the safe harbor defense"); United States v. Sanjar , 853 F.3d 190, 206–07 (5th Cir. 2017) (approving of jury instructions that described the "safe harbor defense," which "a defendant had to prove by a preponderance of the evidence"); United States v. Turner , 561 F. App'x 312, 319–20 (5th Cir. 2014) ("The safe harbor provision is an affirmative defense which the defendant must prove ...."); United States v. Robinson , 505 F. App'x 385, 387 (5th Cir. 2013) (per curiam) ("The evidence presented does not support Robinson's affirmative defense that Jones and Chavis were bona fide employees such that the safe-harbor provision applied to exempt his conduct."); United States v. Job , 387 F. App'x 445, 455 (5th Cir. 2010) (per curiam) ("A sufficient foundation for an affirmative defense (such as the safe-harbor exception) consists of ‘evidence sufficient for a reasonable jury to find in [the defendant's] favor.’ " (alteration in original) (quoting United States v. Branch , 91 F.3d 699, 712 (5th Cir. 1996) )). Other Circuits agree. See, e.g., United States v. Vernon , 723 F.3d 1234, 1272 (11th Cir. 2013) ; United States v. Norton , 17 F. App'x 98, 102 (4th Cir. 2001) (per curiam).
Courts have reached have described the safe harbors this way for good reason. "It is a ‘well-established rule of criminal statutory construction that an exception set forth in a distinct clause or provision should be construed as an affirmative defense and not as an essential element of the crime.’ " United States v. Wise , 221 F.3d 140, 148 (5th Cir. 2000) (quoting United States v. Santos-Riviera , 183 F.3d 367, 370–71 (5th Cir. 1999) ). The safe harbors on which the Defendants rely are in a separate subsection of the statute. See 42 U.S.C. § 1320a-7b(b)(3). This Court thus declines to revisit its previous ruling and reaffirms that the AKS safe harbors are affirmative defenses.
Moreover, even if the Defendants' safe harbor arguments are appropriate to assert in a motion to dismiss, the Complaint is sufficient to overcome the Defendants' objections. The employee safe harbor applies only if the employer and employee have "a bona fide employment relationship." 42 U.S.C. § 1320a-7b(b)(3)(B). In assessing whether such a relationship exists, "all of the incidents of the relationship must be assessed and weighed." Robinson , 505 F. App'x at 387 (quoting Nationwide Mut. Ins. Co. v. Darden , 503 U.S. 318, 324, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992) ). "The hiring party's ‘right to control the manner and means’ of the work performed is important to determining whether there is employee status," for example. Id. (quoting Nationwide , 503 U.S. at 323, 112 S.Ct. 1344 ). Other "[r]elevant factors include the method of payment, ‘whether the work is part of the regular business of the hiring party,’ and the hiring party's control over work hours," though "[n]o one factor is determinative." Id. (quoting Nationwide , 503 U.S. at 323–34, 112 S.Ct. 1344 ).
Using this standard, the Complaint adequately alleges that Michael was not a bona fide employee of Total RX or MidCities. Contrary to the Defendants' assertion, the Complaint is more than conclusory on this point. For example, the Government alleges that although the Total RX agreement was not signed until April 2015, it was backdated to March 1, 2015, and Michael was paid for federal prescription referrals dating back to January 30, 2015. Compl. ¶¶ 149, 151, 155. The Complaint also alleges that Michael "did not perform services for Total RX," "did not actually report to Michael Nguyen," Total RX's owner, id. ¶ 153, and did not submit monthly time reports to Total RX, id. ¶ 199. According to the Government, Michael was not involved in the calculation of his pay at all, and often was not even copied on emails regarding that issue. See, e.g., id. ¶ 241. Michael's pay allegedly was primarily a percentage of the federal referrals from Medoc, which he then deposited into the Barolo account to be divided among the other Medoc Defendants. See id. ¶¶ 162, 168, 183, 211, 222.
The Defendants offer an alternative explanation for that distribution, claiming that the Medoc Defendants also were part owners in Total RX. See ECF No. 60, at 13. That explanation relies on facts outside of the Complaint, however, and thus need not be considered in ruling on a motion to dismiss. See Dorsey v. Portfolio Equities, Inc. , 540 F.3d 333, 339 (5th Cir. 2008) ("Because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint ...."). Additionally, even if the Medoc Defendants were part owners in Total RX, the Defendants do not explain why their distributions would have come by way of Michael's pay checks, which would be inconsistent with the Defendants' explanation that Michael was being paid as a bona fide employee pursuant to the terms of the Employee at Will agreement.
Similarly, the Complaint alleges that Michael signed an employment agreement with MidCities that based Michael's pay on federal prescription referrals. Compl. ¶ 343. It further alleges that Michael "did not perform any of the tasks in the agreement or provide services" to MidCities. Id. ¶ 356. As a result, the Government claims, MidCities initially refused to pay Michael, but eventually relented. Id. Again, Michael allegedly was not even copied on many emails regarding his compensation. See, e.g., id. ¶ 361.
Taken together, these facts adequately allege that Michael was not a bona fide employee of either Total RX or MidCities. For example, "courts have typically viewed payments strictly upon a commission basis to be strong evidence that the person is not a bona fide employee." Waldmann v. Fulp , 259 F. Supp. 3d 579, 628 (S.D. Tex. 2016). While the Defendants might have a different perspective, their argument does not defeat the Government's allegations in the context of a motion to dismiss, where the Court must take the Government's allegations as true and draw inferences in the Government's favor. See Kopp , 722 F.3d at 333. With respect to the arrangement with DSP, the Defendants claim the management services safe harbor. That safe harbor applies only if "all" of the seven requirements laid out in the applicable regulation are met. 42 C.F.R. § 1001.952(d). The Defendants all but admit that they do not meet that requirement, writing that the "arrangement satisfied almost every element of the safe harbor." ECF No. 60, at 14 (emphasis added). As relevant here, the aggregate compensation paid must be "set in advance," be "consistent with fair market value in arms-length transactions," and must not be "determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs." 42 C.F.R. § 1001.952(d)(5).
Michael makes a similar argument claiming the employee safe harbor in his individual Motion to Dismiss. See ECF No. 77, at 4–9. It fails for the same reasons.
A legitimate attempt to satisfy the safe harbor's requirement may be relevant to scienter , addressed below, but a failed attempt does not make the safe harbor applicable, because the regulation requires that "all" seven safe harbor standards be satisfied. 42 C.F.R. § 1001.952(d).
The Government claims that the DSP agreement did not satisfy these conditions. The Complaint alleges that DSP paid Vintage Grow "in excess of fair market value," Compl. ¶ 277, because Vintage Grow "had not been incorporated at the time the agreement was signed[,] had no employees[,] and could not provide services to DSP." Id. ¶ 275. Additionally, the Government claims that the compensation was not "set in advance," because it was a percentage of DSP's income instead of a fixed amount, and was "determined in a manner that [took] into account the volume or value of any [Federal] referrals or business otherwise generated between the parties," 42 C.F.R. § 1001.952(d)(5), because Vintage Grow received 89% of DSP's Gross Operating Income. Compl. ¶ 276. That income included an "explosion in DSP's claims for payment" of federal prescriptions, which was "a direct result of the Medoc Defendants arranging for the referral of federal healthcare program patient prescriptions to DSP for fulfillment." Id. ¶ 283. Again, while the Defendants may disagree, the Court must "constru[e] all factual allegations in the light most favorable to the plaintiffs." Kopp , 722 F.3d 327 at 333.
IV. False Claims Act ("FCA") Violation
"The AKS does not create a private right of action, but a violation of it can form the basis of an FCA claim." Vista Hospice Care, Inc. , 2016 WL 3449833, at *21. The FCA prohibits "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). To state a claim under § 3729(a)(1)(A), a plaintiff must allege: "(1) a false statement or fraudulent course of conduct; (2) that was made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money (i.e., that involved a claim)." United States ex rel. Harman v. Trinity Indus. , 872 F.3d 645, 654 (5th Cir. 2017). A complaint may satisfy Rule 9(b) by alleging (1) the details of an actually submitted false claim, or (2) "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Grubbs , 565 F.3d at 190. Grubbs requires the complaint to plead the alleged fraudulent scheme with particularity. Id. The Defendants contend that the Complaint in this case does not meet that standard because it does not adequately plead a "false claim." First, the Defendants argue that the Complaint does not plead that any Defendant certified compliance with the FCA or that any false statement was material, so even if there was an FCA violation, there was no false statement. The Government responds, however, that the 2010 Patient Protection and Affordable Care Act amended the AKS to provide that "a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA]." 42 U.S.C. § 1320a-7b(g). Thus, FCA "allegations based on claims submitted after the 2010" amendment "may proceed without any certification by defendants." Parikh , 977 F. Supp. 2d at 664 n.3. The Complaint describes numerous claims allegedly resulting from a violation of the AKS that Total RX, DSP, and MidCities submitted to the federal government for payment, all in 2015 or 2016. See Compl. ¶¶ 171, 191, 203, 214, 225, 247, 296, 301, 312, 387. Thus, under the 2010 amendments to the AKS, those claims are per se false and the Complaint need not allege any certification.
The Defendants counter, however, that a court in this District held that the entire Affordable Care Act, including the amendments to the AKS, became unconstitutional after Congress reduced the individual mandate shared responsibility payment to $0. Texas v. United States , 340 F. Supp. 3d 579, 601 (N.D. Tex. 2018). After the Defendants filed their brief, the Fifth Circuit vacated and remanded the portion of the district court's decision on which the Defendants rely. Texas v. United States , 945 F.3d 355, 402 (5th Cir. 2019), cert. granted sub nom Texas v. California , ––– U.S. ––––, 140 S. Ct. 1262, 206 L.Ed.2d 253 (2020).
Additionally, this Court previously held that regardless of whether the individual mandate is unconstitutional, "the individual mandate is severable from the rest of ACA, including the provisions of ACA that amend the FCA." United States ex rel. Bachman v. Healthcare Liaison Prof'ls, Inc. , No. 3:13-cv-00023-M, ECF No. 268, at 4–5 (N.D. Tex. Sept. 18, 2019) (Lynn, C.J.). This Court will not depart from its previous decision.
What is more, the district court in Texas v. United States held that the ACA became unconstitutional only "beginning in 2019," when the individual mandate no longer triggered a tax due to the Tax Cuts and Jobs Act of 2017. 340 F. Supp. 3d at 601 ; see also id. at 605 ("The Court therefore finds that the Individual Mandate, unmoored from a tax , is unconstitutional ...." (emphasis added)). Prior to the 2017 changes, the Supreme Court upheld most of the ACA against a similar challenge. See Nat'l Fed'n of Indep. Bus. v. Sebelius , 567 U.S. 519, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). Because all of the allegedly false claims were submitted in 2015 and 2016, even under the reasoning of the district court in Texas v. United States , the amendments to the AKS did not become unconstitutional until 2019, and thus they would apply to the allegations in this case. The Complaint therefore adequately alleges a false claim.
The Complaint also adequately alleges that the claimed AKS violations were material. The Complaint alleges that the Government would not have paid the claims had it known about the asserted kickbacks. Compl. ¶¶ 56, 61, 399. Additionally, other courts have held that AKS violations are "inherently ‘material.’ " United States ex rel. Capshaw v. White , No. 3:12-cv-4457-N, 2018 WL 6068806, at *4 (N.D. Tex. Nov. 20, 2018) ; United States ex rel. Wood v. Allergan, Inc. , 246 F. Supp. 3d 772, 818 (S.D.N.Y. 2017) (same), rev'd on other grounds , 899 F.3d 163 (2d Cir. 2018). AKS violations "are serious, consequential, felony transgressions of law that the Government actively enforces. Every indication is that this is precisely the kind of violation the FCA is supposed to reach." Capshaw , 2018 WL 6068806, at *4. Especially given the 2010 amendments to the AKS, this Court agrees.
Because the claims allegedly tainted by kickbacks and submitted in 2015 and 2016 were per se false and material, the Court need not resolve the parties' dispute about whether the Complaint adequately alleges any certification to the Government. See Parikh , 977 F. Supp. 2d at 664 n.3.
The Supreme Court's decision in Universal Health Services v. United States ex rel. Escobar , ––– U.S. ––––, 136 S. Ct. 1989, 195 L.Ed.2d 348 (2016), does not change that outcome. Escobar involved implied certification, where omitting certain information (such as statutory violations) renders a representation misleading. Id. at 1999. After the 2010 amendments to the AKS, a claim tainted by kickbacks is per se false, regardless of any certification of compliance with the AKS, implied or otherwise. See 42 U.S.C. § 1320a-7b(g) ("[A] claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim ....").
Some of the individual Defendants make a similar argument, arguing that they were not personally involved in the submission of any claims to the Government, false or otherwise. ECF No. 63, at 8–10; ECF No. 72, at 8–9; ECF No. 75, at 6–12; ECF No. 77, at 10–11. But "[t]he FCA applies to anyone who ‘knowingly assists in causing’ the government to pay claims grounded in fraud." United States ex rel. Riley v. St. Luke's Episcopal Hosp. , 355 F.3d 370, 378 (5th Cir. 2004) (quoting Peterson v. Weinberger , 508 F.2d 45, 52–53 (5th Cir. 1975) ). "Thus, a person need not be the one who actually submitted the claim forms in order to be liable." Id. (quoting United States v. Mackby , 261 F.3d 821, 827 (9th Cir. 2001) ); see also United States ex rel. Colquitt v. Abbott Labs. , No, 3:06-cv-01769, 2016 WL 80000, at *7 (N.D. Tex. Jan. 7, 2016) (Lynn, C.J.) (explaining that the FCA "does not require direct involvement in the submission process to establish liability"). "Rather, the law merely demands more than mere passive acquiescence in the presentation of the claim and ‘some sort of affirmative act’ that causes or assists the presentation of a false claim." Colquitt , 2016 WL 80000, at *7 (quoting United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah , 472 F.3d 702, 715 (10th Cir. 2006) ).
According to the Complaint, the claims submitted for payment were false because they were tainted by kickbacks. Thus, allegations that the individual Defendants solicited or received a kickback, knowing that the payments were the result of prescriptions paid for by the federal Government, are sufficient to state a claim. The Complaint makes such allegations with respect to each Defendant.
The Complaint alleges that Kevin set up each of the three allegedly fraudulent arrangements. See, e.g. , Compl. ¶¶ 138–39 (alleging that Kevin suggested that Total RX start paying Michael as an employee based on federal prescription referrals, and sent Total RX a draft agreement); id. ¶¶ 265–76 (alleging that Kevin negotiated and signed the allegedly fraudulent services agreement with DSP); id. ¶¶ 337–40 (alleging that Kevin participated in the decision to put in place the agreement with MidCities, and specifically asked about whether the prescriptions that would be referred to MidCities were federal).
The Government alleges that Mark identified several of the pharmacies with which Medoc set up the allegedly illicit agreements, knowing that the pharmacies were paying kickbacks on federal prescriptions. See, e.g., id. ¶¶ 129–31 (alleging that Nguyen (Total RX) met Mark, who told him Medoc could "generate substantial referrals to Total RX"); id. ¶¶ 144–45 (quoting email thread sent to Mark and others, acknowledging that "Tricare reimbursements" were being "paid to the Employee at Will"); id. ¶ 187 (quoting email thread sent to Mark discussing the "Federal Payments" from Total RX); id. ¶¶ 330–33 (alleging that Mark met Aslam Aemad (MidCities) and said they "could make millions together"). Additionally, the Complaint alleges that Mark went to MidCities to attempt to collect a portion of the alleged kickbacks MidCities owed, id. ¶ 382, and distributed the alleged kickbacks to the other Medoc Defendants, see, e.g., id. ¶ 238.
With respect to Sabrina, the Government claims that she calculated the alleged kickbacks owed by each pharmacy and knew that the payments were a result of federal prescription claims, because that is the information she used to calculate the payments. See, e.g., id. ¶¶ 184, 254, 262.
Finally, the Complaint alleges that Michael is the person who signed the two allegedly fraudulent employment agreements, id. ¶¶ 151, 343, 381, 383, collected many of the alleged kickbacks that caused the claims submitted to the Government to be false, id. ¶¶ 162, 236, 379, and knew that the money was a result of claims paid for federal prescriptions, id. ¶¶ 187, 262, 356.
These facts adequately allege that each individual Defendant played a role in the alleged scheme and took " ‘some sort of affirmative act’ that cause[d] or assist[ed] the presentation of a false claim." Colquitt , 2016 WL 80000, at *7.
V. Knowledge and Intent
Both the FCA and the AKS have scienter elements. The FCA applies if a person "knowingly presents or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1). The statute defines "knowingly" to mean actual knowledge, deliberate ignorance of truth or falsity, or reckless disregard of truth or falsity. Id. § 3729(b)(1)(A). Similarly, the AKS requires that the defendant act "knowingly" and "willfully." 42 U.S.C. § 1320a-7b(b). To act "willfully" is to act "with the specific intent to do something the law forbids." United States v. Gibson , 875 F.3d 179, 188 (5th Cir. 2017) (quoting United States v. Miles , 360 F.3d 472, 479 (5th Cir. 2004) ). However, "a person need not have actual knowledge of" the AKS "or specific intent to commit a violation of" the AKS. 42 U.S.C. § 1320a-7b(h) ; see also United States v. St. Junius , 739 F.3d 193, 210 (5th Cir. 2013). A complaint may allege knowledge and intent generally, though it must still contain factual support making the plaintiff's claims plausible. See Fed. R. Civ. P. 9(b).
The Defendants contend that the Complaint does not adequately allege that they knowingly or willfully violated the FCA or the AKS. The Defendants argue that the Complaint's allegations about their knowledge and intent are conclusory, and that they believed their actions "were perfectly legal." ECF No. 60, at 29. The Complaint alleges otherwise, however, including multiple allegations that the Defendants knew what they were doing was unlawful. See, e.g. , Compl. ¶¶ 124, 150, 277, 374. For example, the Complaint alleges that each of the Medoc Defendants knew about the AKS's restrictions on payments for federal referrals due to their previous involvement with a company that used commission agreements referencing the AKS, and because they ended the Total RX agreement after a contractor expressed AKS-related concerns. See id. ¶¶ 120, 260–64. The Complaint also alleges that Kevin knew about the AKS for the additional reason that an attorney warned him that Medoc's MSO model appeared to violate the AKS. See id. ¶ 121. Finally, the Government alleges that Medoc's agreements with pharmacies and the arrangements with MSO physicians expressly excluded payments for federal prescriptions, suggesting knowledge that such payments were unlawful. See, e.g., id. ¶¶ 91, 122, 135.
As mentioned above, knowledge of the AKS specifically is not required, but it is relevant to whether the Defendants knew their actions were unlawful.
Nevertheless, the Government claims that the Defendants facilitated agreements through which the Medoc Defendants received a percentage of pharmacies' profits from filling federal prescriptions. See id. ¶ 149 (45% of federal referrals at Total RX), ¶ 276 (89% of gross operating income, including federal referrals, at DSP), ¶ 343 (50% of net adjudications, including federal referrals, at MidCities). In fact, the Medoc Defendants allegedly kept close track of the federal prescription referrals and demanded their share. See, e.g., id. ¶¶ 167, 180, 184–87, 284–93, 361–73. The Government claims the Medoc Defendants then distributed those profits through a series of "shell companies." See, e.g., id. ¶¶ 168, 182, 200 210, 221, 254, 321. When a contractor questioned the Total RX arrangement, the Government alleges that the Defendants ended that agreement and moved on to a new one with DSP. See id. ¶¶ 260–63. When that arrangement came under scrutiny, the Medoc Defendants moved on to yet another pharmacy, but returned to the "employee at will" arrangement they previously had abandoned. See id. ¶¶ 323–24.
The Medoc Defendants also argue in the Omnibus Motion to Dismiss that the Complaint contains improper "group pleading," because the Complaint does not establish the requisite scienter as to each Defendant individually. ECF No. 60, at 28. The individual Defendants elaborate on that argument in their separate Motions to Dismiss. ECF No. 63, at 10–12; ECF No. 72, at 9–11; ECF No. 75, at 8–9; ECF No. 77, at 15–16. However, the Complaint contains allegations about each individual Defendant that sufficiently plead that each person took actions that they knew were unlawful.
For example, the Complaint alleges that Kevin proposed the employee agreement with Total RX through which the Medoc Defendants collected kickbacks on federal referrals. See, e.g. , Compl. ¶¶ 138, 141–42. He allegedly even wrote an email referring to "the Tricare reimbursements that will be paid to the Employee at Will." Id. ¶¶ 144–45. Additionally, after a contractor raised concerns about the Total RX agreement, id. ¶¶ 260–64, the Complaint quotes emails from Kevin referring to moving Medoc's "federal business" to another pharmacy, and alleges that Kevin complained that he was "losing money" (i.e. , kickbacks) by not doing so. See id. ¶¶ 265–67.
The Government alleges that Sabrina helped calculate the kickback payments based on federal referrals, including payments for referrals that predated Michael's alleged employment. See, e.g., id. ¶¶ 154, 157–58, 161, 209. Sabrina also allegedly instructed Michael to deposit his payments from Total RX into the Barolo bank account, from which she then calculated how much each of the Medoc Defendants would receive. See, e.g., id. ¶¶ 167–68, 182, 236.
According to the Government, Mark participated in communications making clear that the payments the Medoc Defendants were receiving were kickbacks for federal referrals. See, e.g., id. ¶¶ 144–45 (quoting email referring to "the Tricare reimbursements that will be paid to the Employee at Will"). The Complaint also alleges that even after the Medoc Defendants ended the Total RX agreement over AKS concerns, Mark later went to MidCities to demand payment of alleged kickbacks based on the same type of employment agreement as existed with Total RX. See id. ¶ 382.
With respect to Michael, the Complaint alleges that he collected wages from Total RX and MidCities, even though he knew that he was not actually doing any work to earn those wages, but instead was paid in return for federal referrals. See, e.g., id. ¶¶ 141–42, 149–53. The Government claims that Michael would then deposit the Total RX wages into the Barolo account for them to be distributed to the other Medoc Defendants. See, e.g., id. ¶¶ 162–68. As further evidence of scienter , the Government also alleges that Michael eventually refused to cash the MidCities checks and asked MidCities to pay his wages to a company rather to him individually, presumably to attempt to distance himself from the scheme. See id. ¶ 375.
These allegations sufficiently allege the required scienter for each Defendant. See, e.g., United States v. Ricard , 922 F.3d 639, 648 (5th Cir. 2019) ("The jury could infer from Ricard's suspicious conduct, misrepresentations, and method of compensation that she knew her conduct was unlawful."); Sanjar , 853 F.3d at 212 (upholding jury verdict finding "requisite mindset," because the evidence showed the defendants "meticulously monitored patient referrals, tracking patients, their referrers, and the billings on their claims," and referral fees equaled "roughly ten percent of the money generated"); Riley , 355 F.3d 370, 376 (5th Cir. 2004) (holding that complaint sufficiently alleged knowledge, because it claimed the defendants "ordered the services knowing they were unnecessary," "allege[d] a ‘scheme’ connoting knowing misconduct," and "reiterated" the " ‘knowing’ aspect" throughout the complaint); Capshaw , 2018 WL 6068806, at *3 (explaining that the defendant's "experience and familiarity" with the business was relevant to sufficiently alleging knowledge of the false claims). In these circumstances, the Complaint plausibly alleges that each Defendant acted knowingly and willfully in submitting false claims. The facts alleged in the Complaint—claiming that the Medoc Defendants were familiar with anti-kickback laws, recognized that they were receiving payments for federal referrals, and funneled the payments through other corporate entities to disguise them—adequately allege the necessary scienter.
VI. Conspiracy
In addition to the substantive FCA count, the Government also brings a claim for conspiracy to violate the FCA. Section 3729(a)(1)(C) imposes liability on a party who "conspires to commit [violations]" of the FCA, including the proscriptions against submitting false claims and making false statements. To state a claim under § 3729(a)(1)(C), "a relator must show ‘(1) the existence of an unlawful agreement between defendants to get a false or fraudulent claim allowed or paid by [the Government] and (2) at least one act performed in furtherance of that agreement.’ " Grubbs , 565 F.3d at 193 (quoting United States ex rel. Farmer v. City of Hous. , 523 F.3d 333, 343 (5th Cir. 2008) ). Because the "particularity requirements of Rule 9(b) apply to the ... [FCA]'s conspiracy provision with equal force as to its ‘presentment’ and ‘record’ provisions," a relator "alleging a conspiracy to commit fraud must plead with particularity the conspiracy as well as the overt acts ... taken in furtherance of the conspiracy." Id. (quotation omitted). However, "an express, explicit agreement is not required; a tacit agreement is enough. A conspiracy may be proven with only circumstantial evidence or inferred from a concert of action." Shoemaker , 746 F.3d at 623 (citation and internal quotation marks omitted).
The Defendants argue that the conspiracy count should be dismissed because the Complaint does not adequately allege that the Defendants entered into an unlawful agreement. There is no serious question that the Complaint adequately alleges that the Defendants had an agreement; the Complaint is replete with examples of the Defendants working together to achieve their ends. See, e.g. , Compl. ¶ 148 (describing alleged conference call between the Defendants discussing Total RX hiring Michael as an employee); id. ¶ 182 (describing spreadsheet showing alleged distribution of kickbacks among the Medoc Defendants); id. ¶ 262 (quoting email from Sabrina to other Medoc Defendants informing them that "we will no longer be receiving Federal funds through Total RX and the employee at will from Total RX will be going away"). The only question is whether that agreement was unlawful. For the reasons explained above, the Complaint adequately alleges that it was. The same facts that adequately plead scienter with respect to each Defendant also satisfy the requirement to plead an unlawful agreement by each Defendant. See supra.
The Defendants also argue that the Complaint impermissibly pleads that the Medoc Defendants conspired with themselves, and a legal entity cannot conspire with its officers or agents under the intracorporate conspiracy doctrine. The Defendants ignore, however, that the Complaint also alleges that the Medoc Defendants conspired with others (such as the Total RX Defendants). See Compl. ¶ 419 (alleging that "[t]he Total RX Defendants joined in the agreement"); see also id. ¶ 148 (describing alleged conference call between some of the Medoc Defendants and the Total RX Defendants). Additionally, several exceptions to the intracorporate conspiracy doctrine exist, including an exception "when the alleged conspirators have ‘an independent stake in achieving the object of the conspiracy.’ " Collins v. Bauer , No. 3:11-cv-00887-B, 2012 WL 443010, at *7 (N.D. Tex. Jan. 23, 2012) (quoting H & B Equip. Co. v. Int'l Harvester Co. , 577 F.2d 239, 244 (5th Cir. 1978) ), report and recommendation accepted , 2012 WL 444014 (N.D. Tex. Feb. 10, 2012). The Complaint adequately alleges the exception applies, because the Government claims that the individual Medoc Defendants personally received kickbacks through their other companies, see, e.g. , Compl. ¶¶ 254, 321, and therefore that they had a personal stake in the conspiracy separate from Medoc. As in Parikh , whether the intracorporate conspiracy doctrine ultimately applies "will be a fact-intensive analysis that the Court cannot properly undertake at this stage of the case." 977 F. Supp. 2d at 677–78.
VII. Common Law Claims
Finally, the Defendants move to dismiss the three common law claims, contending that the Complaint "fail[s] to supply the necessary facts to make these requests for relief plausible on their face." ECF No. 60, at 31.
With respect to the fraud claim, it is common for FCA plaintiffs to pursue related common law claims, including common law fraud, based on the same set of facts. See, e.g., United States v. Toyobo Co. , 811 F. Supp. 2d 37, 52 (D.D.C. 2011) (denying motion to dismiss fraud and unjust enrichment claims based on the same facts as an FCA claim). Common law fraud differs from the FCA because the latter "lacks the elements of reliance and damages." Grubbs , 565 F.3d at 189. The Complaint here identifies numerous examples of claims that Total RX, DSP, and MidCities allegedly submitted and that the Government paid, but would not have paid had the Government known about the alleged kickbacks. See, e.g. , Compl. ¶¶ 56, 61, 171, 301, 312, 387. In other words, the Complaint alleges that the Government relied on the truth of the claims, and paid them as a result. Thus, the Government adequately alleges reliance and damages for purposes of the fraud claim.
The Defendants also challenge the Government's claim for unjust enrichment, but the only argument they make is that the claim cannot survive "in the absence of a violation of the AKS, the FCA, or common law fraud." ECF No. 75, at 17; see also ECF No. 77, at 17. Because the Complaint adequately alleges an FCA claim, as explained above, this argument fails. The same facts that allege an FCA claim also allege a claim for unjust enrichment.
The Omnibus Brief and the briefs filed by Kevin and Sabrina also argue that the common law claims, including the claim for unjust enrichment, should be dismissed, but they do not identify any particular failing in the Complaint. See ECF No. 60, at 31; ECF No. 63, at 15; ECF No. 72, at 16. To the extent they are making an argument independent of the argument in the Schneiders' briefs, addressed above, the argument is inadequately briefed. See Nichols v. Enterasys Networks, Inc. , 495 F.3d 185, 190 (5th Cir. 2007) (holding that an issue was inadequately briefed and therefore waived where the party failed to provide "any legal argument beyond bare assertions").
Finally, the Government asserts a claim for payment by mistake, but only against Defendant Total RX, not any of the Medoc Defendants. See Compl. ¶ 431 (referring only to the "Total RX Defendants"); see also ECF No. 94, at 20 ("Count 7 is limited only to Defendants Total RX and Michael Nguyen."). "The Government by appropriate action can recover funds which its agents have wrongfully, erroneously, or illegally paid." United States v. Wurts , 303 U.S. 414, 415, 58 S.Ct. 637, 82 L.Ed. 932 (1938). "To prevail on a claim for payment by mistake ..., the Government must show that [it] ‘made ... payments under an erroneous belief which was material to the decision to pay.’ " United States ex rel. Roberts v. Aging Care Home Health, Inc. , 474 F. Supp. 2d 810, 819 (W.D. La. 2007) (quoting United States v. Mead , 426 F.2d 118, 124 (9th Cir. 1970) ). The Complaint lists several examples of claims allegedly tainted by kickbacks that Total RX submitted and the Government paid, and the Government states that it would not have paid those claims if it had full knowledge of the facts. See, e.g. , Compl. ¶¶ 56, 61, 171. Those allegations adequately state a claim for payment by mistake against Total RX.
The Court entered an agreed judgment as to Defendant Cuong "Michael" Nguyen after he settled with the Government, see ECF No. 112, so Total RX is now the only Defendant at issue in Count 7.
VIII. Conclusion
For the foregoing reasons, the Defendants' Motions to Dismiss are DENIED.
SO ORDERED .