Opinion
Case No. 5:99cv73-SPM.
August 17, 2001
ORDER ON DEFENDANTS JACKSON COUNTY HOSPITAL CORPORATION AND QUORUM HEALTH RESOURCES L.L.C'S MOTIONS TO DISMISS
I. INTRODUCTION
Presently before the Court are Defendants Jackson County Hospital Corporation's ("JCH") Motion to Dismiss (doc. 31) and Quorum Health Resources L.L.C.'s ("Quorum") Motion to Dismiss (doc 36). Plaintiff John A. King ("Relator") filed a response to Quorum's motion (doc. 49) and JCH's motion (doc. 50). Thereafter, JCH provided the Court with Supplemental Authority in support of its motion (doc. 52). Quorum later filed a Notice of Decision in support of its motion (doc. 68). With leave of Court, Quorum and JCH filed reply briefs (docs. 62 and 63). Relator, with the Court's permission, subsequently filed a response to Quorum and JCH's reply briefs (doc. 77). For reasons set forth below, the Court will grant JCH's Motion to Dismiss and grant in part, and deny in part, Quorum's Motion to Dismiss. The Court, however, will grant Relator leave to amend Counts I and II of the Complaint against Quorum.
Quorum filed a separate brief in support of its motion (doc. 37), whereas JCH incorporated a memorandum of law into its motion.
II. BACKGROUND
A. PROCEDURAL HISTORY
On March 17, 1999, Relator filed a Complaint against JCH and Quorum (hereinafter collectively known as "Defendants"). Relator filed the Complaint on behalf of himself and the United States Government (the "Government") pursuant to Title 31 of the United States Code, section 3730(b)(1). In September 2000, after a six-month investigation, the Government declined intervention in the action.
The Complaint sets forth three causes of action. Counts I alleges that Defendants knowingly made or used false or fraudulent statements or caused false or fraudulent statements to be made or used, for the purpose of obtaining or aiding in obtaining payment for or approval of false Medicare and/or Medicaid claims by the Government in violation of the Federal False Claims Act ("FCA"). Count II alleges that Defendants conspired to defraud Medicare and Medicaid by arranging and obtaining payment for false and/or fraudulent claims involving medical services in violation of the FCA. Count III alleges a common law claim of unjust enrichment.
B. ALLEGATIONS OF THE COMPLAINT
Relator, a resident of Alabama, is an orthopedic surgeon and anesthesiologist at JCH. JCH is a Florida not-for-profit corporation with its principal place of business located in Mariana, Florida. Quorum is a limited liability company that provides contracted hospital management services to JCH. Quorum's principal place of business is located in Brentwood, Tennessee.
Quorum's motion states that Defendant no longer resides in Alabama or works at JCH.
Relator alleges that the State of Florida participates in Medicaid and is eligible to receive federal funds under Medicaid. Relator further states that Medicaid is funded by the Social Security Act and provides coverage for a variety of necessary medical services for poor and disadvantaged individuals. Relator alleges that the primary purpose of Medicaid is to provide access to and improvement of the quality of medical care for indigent individuals. Participation in Medicaid is not required, however, Relator alleges that a state which participates in Medicaid must devise a state plan for medical assistance according to federal guidelines and receive approval of the plan from the United States Department of Health and Human Services.
Relator further alleges that Defendants made false statements and/or claims to the Government concerning the reporting and billing of medical procedures, supplies, and other services under Medicare and Medicaid, and possibly other federal and state-funded programs. Specifically, Relator alleges that Defendants devised several schemes in order to: (1) submit false and fraudulent Medicare and/or Medicaid claims; (2) submit duplicate claims; (3) alter documents to submit the claims; and (4) make, cause, or use a false record of statement to get the claims paid or approved; and (5) have the claims paid by the Government.
In order to carry out their plans, Relator alleges that Defendants created the following four schemes:
1. Scheme A (Improper Remuneration of Eligible Beneficiaries)
Relator alleges that Defendants maintained a "policy and conduct" of offering discounts on medical services provided to individuals eligible for Medicare and Medicaid benefits. In many instances, Defendants provided discounts in excess of 25% of outstanding balances owed under the Medicare Part B co-payment plans. Medicare does not permit this remuneration. Defendants either knew or should have known that this remuneration influenced individuals to order or receive benefits from JCH. Defendants, however, submitted false claims to Medicare and/or Medicaid by certifying under penalty of perjury, that all services billed to the Government were performed in compliance with all applicable regulations.
2. Scheme B (Fraudulent Allocation of Equipment Costs)
Relator alleges that Defendants also billed for numerous durable medical equipment ("DME") products which were ordered or prescribed by JCH staff physicians. All individuals in need of the DME products were sent to the JCH emergency room for the products. Defendants did not have a DME provider number from the Health Care Financing Administration. Defendants knew that they were not approved providers from the DME and/or supplies and could not submit claims for such equipment/supplies. Despite this knowledge, Defendants incorporated the costs in general administrative cost accounts. JCH documented this information in Cost Reports submitted to Medicaid on an annual basis by and through the Health Care Financing Administration's fiscal intermediary.
3. Scheme C (Falsification of Nurse Time/Travel Time Cards)
Relator alleges that Defendants billed Medicare and Medicaid for operating nurse services in hourly increments, regardless of the amount of time attributable to the subject procedure. JCH, by and through its supervisor of operating room nurses, signed off on time sheets that indicated each procedure lasted a minimum of one hour. Many of the services performed, however, required 15 minutes or less of actual operating room nurse time. Relator also alleges that operating room nurses were permitted to represent travel time for many of the services provided even though the nurses performed the services at JCH. Defendants were aware of the conduct of one or more operating room nurses who falsified time sheets and travel time reports to inflate payments for patient services. The Medicare Trust Fund relied upon Defendants' representation that JCH operating room nurses provided medical services and accurately reflected the time component of these services to obtain Medicare and Medicaid payments.
4. Scheme D (Falsification of Time Modifiers and Supplies)
Relator alleges that Defendants increased the billing to Medicare for anesthesia services by falsely reporting modifiers of anesthesia services provided to Medicare and Medicaid beneficiaries. In many instances, Defendants billed in one hour increments for procedures which required less than 15 minutes. Defendants also classified anesthesia procedures as general anesthesia encounters when only regional encounters were performed. Moreover, Defendants charged for technical supplies which were not part of the anesthesia encounter.
III. STANDARD OF REVIEW
A. Rule 12(b)(6)
The purpose of a Rule 12(b)(6) motion is to test the facial sufficiency of the statement of the claim for relief. See Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1368 (11th Cir. 1997). In considering the motion, the Court construes the complaint in the light most favorable to the plaintiff and accepts as true the factual allegations therein. See id. at 1369. The motion will be granted only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief. See id.
IV. DISCUSSION
A. The False Claims Act
The FCA allows a private citizen (the "relator") to bring a qui tam civil action in the name of the Government against any person who "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." 31 U.S.C. § 3729(a)(2). The relator may also initiate suit against a person who "conspires to defraud the Government by getting a false or fraudulent claim allowed or paid." Id. § 3729(a)(3). The FCA does not define the term "person" as used in section 3729(a).
A relator is "[t]he real party in interest in whose name a state or an attorney general brings a lawsuit." Black's Law Dictionary 1292 (7th ed. 1999).
A qui tam action is "[a]n action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive." Black's Law Dictionary 1262 (7th ed. 1999).
When the relator brings a qui tam action under the FCA, he must serve the complaint on the United States Attorney General and the local United States Attorney. See 31 U.S.C. § 3730(b)(2). The complaint must be filed in camera, remain under seal for at least 60 days, and cannot be served on the defendant until the court so orders. Id. While the action is sealed, the Government will investigate the action and determine whether or not it will intervene and take over the litigation. See id.
The FCA offers a financial incentive to private parties to bring qui tam actions. If the Government intervenes and proceeds with the action, the relator can recover 15% to 25% of the proceeds of the action or settlement of the claim. See id. § 3730(d)(1). If the Government does not proceed with the action, the relator can receive 25% to 30% of the proceeds of the action or settlement. See id. § 3730(d)(2). Reasonable expenses, attorneys' fees, and costs may also be awarded. See § 3730(d)(1)-(2).
B. JCH's Motion to Dismiss
JCH seeks dismissal of Relator's Complaint on several grounds: (1) JCH is not subject to liability under the FCA; (2) failure to state a claim upon which relief can be granted as to Counts II and III; (3) Eleventh Amendment immunity; (4) Relator's failure to allege compliance with the notice requirements of Section 768.28 of the Florida Statutes; and (5) the allegations of fraud are not stated with particularity pursuant to Fed.R.Civ.P. 9(b). Defendant contends that deficiencies in the Complaint as stated in grounds one through three, warrant dismissal with prejudice.
1. JCH's Liability Under the False Claims Act
The issue before the Court is one of first impression for this Court and courts within this circuit. The Court must determine whether JCH, as a local governmental entity, qualifies as a "person" subject to liability under the FCA in light of the Supreme Court's decision in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). The answer is no.
In Stevens, the Supreme Court of the United States addressed the issue of whether a State or State agency is a "person" under the FCA and therefore subject to liability. Stevens, 529 U.S. at 778, 120 S.Ct. at 1865. The Supreme Court held that States and State agencies are not statutory persons under the FCA. See id. at 787; 120 S.Ct. at 1871. The Supreme Court reasoned that the various features of the FCA, as originally enacted and amended, along with additional considerations supported its conclusion. See id. at 787; 120 S.Ct. at 1870.
The Supreme Court began its analysis by applying the "longstanding interpretive presumption that `person' does not include the sovereign." Id. at 780, 120 S.Ct. at 1866. This presumption is "particularly applicable where it is claimed that Congress has subjected the States to liability to which they had not been subject before." Id. at 781, 120 S.Ct. at 1867. The Supreme Court noted, however, that the presumption may be disregarded "upon some affirmative showing of statutory intent to the contrary." Id. at 781, 120 S.Ct. at 1867.
Next, the Supreme Court evaluated the historical context of the FCA and found that it supported the conclusion that States and their agencies are not persons under the statute. See id. The Court reasoned that the FCA was enacted in 1863 to stop fraud perpetuated by "large private contractors during the Civil War."Id. "Its liability provision — the precursor to today's § 3729(a) — bore no indication that States were subject to its penalties." Id. at 782, 120 S.Ct. at 1867. Even though the statute has undergone many changes over the years, the Court noted that none of the changes suggested that the term "person" applies to States. Id., 120 S.Ct. at 1868.
The Supreme Court then opined that "the current version of the FCA imposes damages that are essentially punitive in nature, which would be inconsistent with state qui tam liability in light of the presumption against imposition of punitive damages on governmental entities." Id. at 785, 120 S.Ct. at 1869. The Court explained that under the current version of the FCA, a defendant is liable for up to $10,000 per claim plus treble damages. See 31 U.S.C. § 3729(7)(a). Since the imposition of treble damages demonstrates an intent to punish, and deter future, unlawful conduct, the Supreme Court viewed the FCA's penalty section as punitive in nature.
The Supreme Court recognized that the earlier version of the FCA was remedial in nature since it imposed a $2000 penalty and double damages. See Stevens, 529 U.S. at 785, 120 S.Ct. at 1869.
The Supreme Court also commented that the FCA's "sister scheme," the Program Fraud Civil Remedies Act of 1986 ("PFCRA"), does not include States in its definition of persons. See 529 U.S. at 786, 120 S.Ct. at 1870. Thus, "[i]t would be most peculiar to subject States to treble damages and civil penalties in qui tam actions under the FCA, but exempt them from the relatively smaller damages provided under the PFCRA."See id.
The PFCRA was enacted before Congress amended the FCA in 1986. See Stevens, 529 U.S. at 786, 120 S.Ct. at 1870. The PFCRA creates administrative remedies for false claims. See id. (citing 31 U.S.C. § 3801(a)(6)).
Finally, the Supreme Court reasoned that its holding was further supported by two considerations: (1) statutory construction rules and (2) statutes should be construed to avoid difficult constitutional questions. See id. at 787, 120 S.Ct. at 1870.
JCH argues that Realtor may not bring a qui tam action against it in light of Stevens. JCH contends that it was created by the Florida Legislature; therefore, it is a subdivision of the State. As such, JCH asserts that it is not subject to liability under the FCA.
In contrast, Relator argues that JCH is not a State agency as referenced in Stevens. He asserts that the presumption applied by the Supreme Court does not apply to governmental entities or publicly-owned corporations that are not arms of the State, since they do not share in the State's Eleventh Amendment immunity. The Court will address each argument in turn.
a. JCH is Not Liable as a State Agency
If JCH is a State agency, it cannot be held liable under the FCA. See Stevens, 529 U.S. at 787, 120 S.Ct. at 1871. As a State agency, JCH is not a "person" under section 3729(a). See id. Accordingly, Counts I and II would be dismissed.
b. JCH Not Liable as a Local Governmental Agency
If JCH is a local governmental agency, it cannot be held liable under the FCA. Since Supreme Court did not address whether local governments and their agencies are considered statutory persons and therefore, Stevens must be distinguished from the case before the Court. The Supreme Court's ruling, however, provides the Court with significant guidance concerning this issue.
As pointed out by the Supreme Court, the FCA's text does not indicate congressional intent that states agencies or even local governmental agencies are statutory persons which are subject to liability. The FCA does not define the term "person" as used in section 3729(a). Although Congress has amended the FCA over the years, none of the amendments suggest that the term includes local governmental agencies. Stevens, 529 U.S. at 782, 120 S.Ct. at 1868. See also United States v. Graber, 8 F. Supp.2d 343, 351 (S.D.N.Y. 1998). "The literal text of the statute, in short, does not plainly subject states and municipalities to [FCA] liability." Graber, 8 F. Supp.2d at 351. Simply put, if Congress meant to include municipalities as persons under the FCA, it would have said so.
The legislative history of the FCA also indicates that Congress did not intend for local governmental agencies to be defined as persons. "[T]he FCA was enacted in 1863 with the principal goal of `stopping the massive frauds perpetrated by large private contractors during the Civil War." Stevens, 529 U.S. at 781, 120 S.Ct. at 1867 (citing United States v. Borstein, 423 U.S. 303, 309, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976); United States ex rel. Marcus v. Hess, 317 U.S. 537, 547, 63 S.Ct. 379, 87 L.Ed. 443 (1943)) (emphasis added). See also Graber, 8 F. Supp.2d at 352. "While the legislative history surrounding the passage of the original Act is admittedly scant . . . nothing in the available record suggests that Congress specifically intended to subjects states or local governments to liability under the Act."Graber, 8 F. Supp.2d at 352. Thus, Congress did not envision that local governments would be subject to FCA liability at the time of enactment.
Furthermore, local governmental agencies should not be held liable because the FCA's imposition of punitive damages is contrary to the presumption that local governments are not subject to punitive damages. See United States ex rel. Garibaldi v. Orleans Parish Sch. Bd., 244 F.3d 486, 491 (5th Cir. 2001). In Garibaldi, the Fifth Circuit Court of Appeals Fifth Circuit held that a school board, as a local governmental unit, is not a "person" subject to liability under the FCA. Id. at 495. While recognizing that Stevens did not resolve the precise issue of whether local governments are statutory persons under the FCA, the Fifth Circuit relied upon the Supreme Court's discussion of punitive damages inStevens in support of its holding. See id. at 491. The Fifth Circuit stated,
The Fifth Circuit the rejected the notion that local governmental agencies should be held liable under the FCA based upon the Supreme Court's rulings on local government liability under Title 42, United States Code, section 1983 ("section 1983"). See Garibaldi, 244 F.3d at 494. The court explained that the legislative history of section 1983 demonstrates congressional intent to hold local governments liable for section 1983 claims. See id. Further, unlike the FCA, the court noted that section 1983 is aimed at individuals who act under the color of state law. See id. Moreover, the court opined that the Supreme Court has held that local government cannot be held liable for punitive damages under § 1983. See id. Finally, court also rejected the argument that the Supreme Court's interpretation of the antitrust laws warranted a similar result since the antitrust laws were drafted with a "clear purpose to reach all the nation's commercial activity." Id.
As the Supreme Court has held, imposing punitive damages on local governments is ordinarily contrary to sound public policy. Though a local government can properly be made to pay compensation for the wrongful acts of its agents, punishing a local government is pointless. The punishment, in the form of higher taxes or reduced public services, is visited upon the blameless . . . Extracting damages from them — damages that are far more than is needed to compensate the federal government for whatever losses it has suffered — is supported, as the Supreme Court has said, by `neither reason nor justice . . .
[Moreover,] [i]mposing punitive damages on a local government in favor of the federal government is especially problematic. Requiring such a transfer of payment would reflect a judgment by Congress that denying the schoolchildren of [the School board] needed services, or requiring the taxpayers . . . to pay higher taxes, is justified in light of the relatively minor benefit to the federal treasury. Though Congress is free to make that determination if it chooses, we will not find such a choice absent clear language in the text of the [FCA].Id. at 491-492. Thus, the Fifth Circuit concluded that the FCA's punitive damages "regime" demonstrates congressional intent to not include local governments as persons subject to liability under the statute. See id. at 493.
To date, the Fifth Circuit is the only federal court of appeals to address the issue of local government liability under the FCA in light of Stevens.
Indeed, this same conclusion has been reached by all other courts addressing this issue, except one. See, e.g., United States ex rel. Honeywell v. San Francisco Hous. Auth., 2000 WL 793300, *3-4 (N.D. Cal. Jul. 12, 2001) (local governmental entity not liable under FCA due to well-settled presumption against imposing punitive damages against governmental agencies); United States ex. rel. Chandler v. Hektoen Inst. for Med. Research, 118 F. Supp.2d 902, 903 (N.D. Ill. 2000) ("Although this court finds no reason to alter its conclusion that the County is a `person' for purposes of the FCA, it is quite clear that under Stevens the County is immune from the imposition of punitive damages, which are mandatory if liability is found under the FCA");United States ex rel. Dunleavy v. County of Delaware, 2000 WL 1522854, *2 (E.D.Pa. Oct. 12, 2000) (county not liable under FCA). Cf. United States ex rel. Rosales v. San Francisco Hous. Auth., 2001 WL 370176 (N.D. Cal. Mar. 26, 2001) (ruling local governmental agency subject to FCA liability).
Relator urges the Court to recognize that Rosales is more persuasive than Garibaldi. In Rosales, the Northern District of California held that local governmental agencies are not persons under the FCA. See Rosales, 2000 WL 1522854, at *25-26. The court reasoned that local governments and their agencies are not considered sovereigns. See id. at *20. The court also opined that "Congress regarded local governments and their agencies as persons at the time of FCA's enactment." Id. at *21. In support of this opinion, the court discussed the Supreme Court's analysis of municipality liability under 42 U.S.C. § 1983. See id. at *21. The court also stated that the FCA imposes remedial rather than punitive damages and that "Congress' intent in increasing the FCA's damages provisions does not run afoul of the Supreme Court's decision in City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 101 S.Ct. 2748, 69 L.Ed.2d 616 (1981)." See id. at *30-33.
Relator argues that Rosales provides a more detailed analysis of the issue before the Court. He contends that Rosales recognizes that the FCA term `person' was introduced into the statute in 1863, not in 1986, and gives effect to the Supreme Court's holding that the term has "remained in the statute unchanged' since that time. This rationale in Rosales is premised upon the notion that in 1863 Congress clearly intended to include municipalities as persons subject to FCA liability.
The Court also notes that the Northern District of California declined to follow Rosales. See Honeywell, 2000 WL 793300, at *4. In Honeywell, the Northern District of California addressed whether FCA claims can be brought against local government entities in light of Stevens. See id. at *2. Relying upon Garibaldi, the court reasoned that a local governmental entity could not be liable under the FCA due well settled presumption against imposing punitive damages against governmental agencies. See id. at * 3-4. Thus, the court rejected the Rosales argument that local governments may be held liable under the FCA because the FCA is not punitive in nature. See id. at *4.
In Honeywell, the court found that local governmental bodies cannot be liable under the FCA regardless of whether or not they have the power to tax. See Honeywell, 2001 WL 793300, at *3.
For the above-mentioned reasons, the Court finds that JCH is not a "person" under the liability provisions of the FCA if it is a State agency or local governmental agency. Therefore, Relator cannot bring a qui tam action against JCH. Accordingly, Counts I and II against JCH must be dismissed.
Since Quorum is not subject to liability under the FCA, the Court need not address Quorum's additional bases for dismissal of Counts I and II.
2. Dismissal of Count III
The only claim remaining against JCH is the common law claim of unjust enrichment. Having dismissed all federal claims before trial, the Court declines to exercise supplemental jurisdiction over remaining state law claim. See 28 U.S.C.A. § 1367(c)(3). Thus, Count III against JCH will be dismissed as well.
B. Quorum's Motion to Dismiss
Quorum seeks dismissal of the Complaint based upon the following grounds: (1) Relator did not plead the circumstances of fraud with particularity pursuant to Rules 9(b) of the Federal Rules of Civil Procedure; (2) Counts I, II, and III do not contain any facts concerning Quorum; (3) Plaintiff fails to state a claim upon which relief can be granted; and (4) allowing Plaintiff to litigate this case on behalf of the Government would violate the "Take Care Clause" and "Appointments Clause" of the United States Constitution.
1. Applicability of Rule 9(b) to FCA Claims
Relator argues that Rule 9(b) should not apply to FCA claims because he need not prove fraud under the FCA, but merely that the claims or statements were false. As such, he contends that the FCA is not a statute involving fraud. Relator further argues that Rule 9(b) pertains to common law fraud rather than statutory fraud. The Court disagrees with Relator's arguments.
Rule 9(b) applies to FCA claims. See Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 568 (11th Cir. 1994); United States v. Gericare Med. Supp. Inc., 2000 WL 33156443, *5 (S.D. Ala. Dec. 11, 2000); United States ex rel. Clausen, 198 F.R.D. 560, 562 (N.D. Ga. 2000); United States ex rel. Butler v. Magellan Health Services, Inc., 101 F. Supp.2d 1365, 1368-69 (M.D. Fla. 2000); United States ex rel. Stinson, Lyons Gerlin and Bustamente P.A. v. Blue Cross Blue Shield of Georgia, 755 F. Supp. 1040, 1051 (S.D. Ga. 1990).See also United States ex rel. Russell v. Epic Healthcare Mgmt, 193 F.3d 304, 308 (5th Cir. 2000). The rule applies to FCA claims because the FCA is an anti-fraud statute. See Clausen, 198 F.R.D. at 562. Relator is correct that FCA liability may attach upon a showing that the claims and/or statements were false rather than fraudulent. See 31 U.S.C. § 3729(a)(2)-(3). The alleged false statements or claims, however, are among the circumstances constituting fraud under the FCA.See Russell, 193 F.3d at 308. As such, Rule 9(b) applies and FCA causes of action must be plead with particularity. See id.
The Court also rejects Relator's argument that it makes little sense to apply Rule 9(b) to a statutory claim when the rule was designed for common law fraud claims. Rule 9(b)'s application to FCA serves an important role. It provides a defendant with sufficient notice of the precise misconduct with which it is charged and protects a defendant against spurious changes of immoral and fraudulent behavior. See Durham, 847 F.2d at 1511; Gericare Med. Supp., 200 WL 33156443 at, *5; Clausen, 198 F.R.D. at 562. Rule 9(b)'s role is not diminished simply because the FCA involves statutory fraud rather than common law fraud. See Clausen, 198 F.R.D. at 562.
2. Rule 9(b)'s Particularity Requirement
Quorum asserts that Counts I and II of the Complaint should be dismissed because Relator failed to plead the circumstances of fraud with particularity. In particular, Quorum argues that Relator failed to identify the following information: (1) any person involved in the alleged fraudulent conduct; (2) the relevant time period; (3) any false claim or false certification of regulatory compliance made to cause a false claim to be paid; (4) the alleged regulatory basis for the alleged infractions that underlie the alleged FCA violations; (5) the alleged connection between the alleged regulatory infraction and Medicare or Medicaid reimbursement; (6) facts that specify each defendant's connection to the fraud; and (7) that Quorum was a Medicare provider, made any false certifications or regulatory compliance, and/or billed any false claims.
Rule 9(b) states that "[i]n all averrments of fraud . . ., the circumstances constituting fraud . . . shall be stated with particularity." Fed.R.Civ.P. 9(b). While the application of Rule 9(b) is important to provide a defendant with sufficient notice of the charges, the rule must be read in conjunction with Rule 8(a)'s requirement that a plaintiff plead need only plead a short plain statement of the grounds upon which he is entitled to relief. See Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1371 (11th Cir. 1997). A relator may satisfy rule 9(b) if the complaint sets forth "(1) precisely what statements were made in what documents or oral representations or what omissions were made; (2) the time and place of each such statements and the person responsible for making (or, in the case of omissions, not making) same; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendants obtained as a consequence of the fraud." Id. (citations and internal quotations omitted). A relator may also satisfy Rule 9(b)'s requirement by alternative means. See Durham, 847 F.2d at 1512.
In the case before the Court, Relator's Complaint falls short of Rule 9(b)'s particularity requirement. Although Relator asserts FCA claims against multiple defendants, the Complaint does not identify Quorum's participation in the alleged fraudulent activities. See Gericare, 2000 WL 33156443, at *9. Also, it does not identify a single claim that was actually submitted pursuant to the allegedly fraudulent schemes identified in the Complaint. See Clausen, 198 F.R.D. at 563. While Relator alleges several schemes in which Defendants could have produced false claims, he also fails to provide any facts showing that the schemes resulted in the submission of false claims.See id. Moreover, Relator does not specify the time period in which the alleged fraud took place. Thus, the Court agrees that Relator does not satisfy Rule 9(b)'s particularity requirement.
Relator suggests that he need not provide Quorum with a time frame because "certainly" Quorum knows when Defendant worked at JCH. Relator's Complaint does not state the period of time in which he worked for JCH.
Relator argues that the Court should relax Rule 9(b)'s particularity requirement to take into account the peculiarities of the case before Court. He also asserts that Rule 9(b) does not set forth any standard for determining when an averment of fraud is plead with sufficient particularity. Furthermore, he claims such detail is not necessary because the specific details are within the control of Defendants.
A relaxed standard applies in cases involving allegations of widespread fraud. Butler, 101 F. Supp.2d at 1368. "[A] Court will only apply this relaxed standard only when the plaintiff alleges that the necessary information lies within the defendant's control and includes a statement of facts upon which the allegations are based." Butler, 101 F. Supp.2d at 1368 (citations and internal quotations omitted). Even if a court applies a relaxed standard, a relator still has a duty to fully plead fraud allegations. See id. at 1369. See also Clausen, 198 F.R.D. at 562 (a relator "must still adduce facts supporting a strong inference of fraud or it will not satisfy even a relaxed pleading standard.")
The Court does not believe that Rule 9(b) should be relaxed in this case. Plaintiff has not proven that the necessary information lies within Quorum's exclusive control. See, e.g., Clausen, 198 F.R.D. at 563 (relaxed standard not applicable where Healthcare Financing Administration possessed alleged false claims and Government's presumably examined claims during investigation and prior to declining intervention);Russell, 193 F.3d at 307 (no relaxed standard where other agencies possessed information, i.e., Healthcare Financing Administration). In fact, Relator expressly states in his Complaint that the Healthcare Financing Administration was privy to the documents referred to in Scheme C. Relator simply suggests that he did not have access to the information because he was not a billing clerk and would not attempt to steal hospital billing records to obtain documentation regarding the exact dates and patient names for every false claim submitted. In short, the Court is not convinced that a relaxed standard is applicable in this case.
Even if the Court applies a relaxed standard, Relator's Complaint still falls short of the relaxed requirement standard. Relator's Complaint fails to adduce facts supporting a strong inference of fraud. As such, Relator cannot meet his burden of proof even under a relaxed standard.
3. Leave to Amend the Complaint
Relator argues that even if his pleadings are insufficient, the Court should grant him leave to amend the Complaint. Despite the deficiencies in the Complaint, the Court agrees that dismissal of Counts I and II is not warranted. The Court does not find that more particular allegations could not demonstrate an FCA violation. As such, Relator should have the opportunity to bring his Complaint into compliance with the Rule 9(b). See Cooper, 19 F.3d at 568-569 (citing Bank v. Pitt, 928 F.2d 1108 (11th Cir. 1991)).
B. Dismissal Pursuant to Rule 12(b)(6)
The basis for Quorum's motion for dismissal of Counts I and II under Rule 12(b)(6) is premised upon the argument that Quorum is JCH's agent for hospital management services. Quorum contends that since it neither provided Medicare or Medicaid services at JCH nor assumed any responsibility for professional medical judgements, Plaintiff cannot demonstrate that Quorum played any role in the acts alleged in the Complaint. Quorum also argues that Relator's conspiracy allegation fails because an agent and principal cannot form a conspiracy. Quorum further contends that because of its agent/principal relationship with JCH, it is immune from FCA liability.
In support of the agent/principal arguments, Quorum's motion refers to matters outside the pleadings. The Court believes that these documents should not be excluded from consideration; therefore, the Court must treat the motion as one for summary judgement rather than a 12(b)(6) motion. See Fed.R.Civ.P. 12(b). The Court, however, believes that ruling on these issues would be premature since Relator intends to amend the Complaint. Thus, on this basis, the Court will deny Quorum's Motion to Dismiss. Quorum may refile a motion upon submission of Relator's amended complaint.
Rule 12(b) provides as follows:
If on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, an all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Fed.R.Civ.P. 12(b).
C. Relator's Common Law Claim
Quorum alleges that Count III, the common law claim for unjust enrichment/restitution, must be dismissed pursuant to Rule 12(b)(1) and Rule 12(b)(6) because Relator has no right to bring the claim on behalf of the United States. Relator has not responded to this allegation. The Court concludes Quorum is correct and Count III should be dismissed.
Pursuant to section 3730(b)(1), "[a] person may bring a civil action for a violation of [31 U.S.C.] section 3729 for the person and the United States Government." 31 U.S.C. § 3730(b)(1). The FCA, however, does not allow relators to assert common law claims on behalf of the United States. See United States ex rel. Walsh v. Eastman Kodak Co., 98 F. Supp.2d 141, 140 (D.Mass. 2000) (citing United States ex rel. Long v. SCS Bus. Tech. Inst., 999 F. Supp. 78, 92 (D.D.C. 1998) rev'd on other grounds, 173 F.3d 870 (D.C. Cir. 1999); United States ex rel. Mayman v. Martin Amerietta Corp., 894 F. Supp. 218, 225-26 (D.Md. 1995)). Since Relator does not allege that he suffered an injury in fact, i.e., that he was defrauded or that Defendants were unjustly enriched at his expense, he lacks standing to assert common law claims. See Walsh, 98 F. Supp.2d at 149. Thus, Defendant's motion as to Count III is granted.
D. Violation of the Take Care Clause and Appointments Clause
Based upon the fact that the Court will grant Relator leave to amend the Counts I and II and dismiss Count III, the Court will not address the constitutional arguments asserted by Quorum at this time. Federal courts should avoid reaching constitutional questions if there are other grounds upon which a case can be decided. Bellsouth Telecomm., Inc. v. Town of Palm Beach, 252 F.3d 1169 (11th Cir. 2001). Accordingly, Quorum's motion on this basis will be denied without prejudice.
V. ORDER
Upon consideration of the parties' pleadings, and careful and independent review of the case law concerning this matter, it is hereby
ORDERED AND ADJUDGED that Defendant Jackson County Hospital Corporation's Motion to Dismiss (doc. 31) is GRANTED. It is further
ORDERED AND ADJUDGED that Defendant Quorum Healthcare L.L.C.'s Motion to Dismiss (doc. 36) is GRANTED in part, and DENIED in part. It is further
ORDERED AND ADJUDGED that Relator shall have 20 days leave from the date of this order to amend Counts I and II of the Complaint.
DONE AND ORDERED.