United States District Court, E.D. Kentucky, Southern Division
UNITED STATES OF AMERICA, ex rel. JENNIFER L. GRIFFITH and SARAH CARVER, Plaintiffs,
ERIC C. CONN, et al., Defendants
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For Jennifer L. Griffith, USA, ex rel, Plaintiff: Benjamin Vernia, PRO HAC VICE, The Vernia Law Firm, Washington, DC; Brian A. Ritchie, William Nicholas Wallingford, Wallingford Law, PSC, Lexington, KY; Joyce R. Branda, U.S. Department of Justice - 261, Washington, DC; Mark A. Wohlander, Wohlander Law Office, Lexington, KY; Michael D. Granston, Michal L. Tingle, U.S. Department of Justice - Civil Division, Ben Franklin Station, Washington, DC; Patrick Michael Klein, II, U.S. Department of Justice - 9548, Washington, DC.
For Sarah Carver, USA, ex rel, Plaintiff: Michael D. Granston, LEAD ATTORNEY, Michal L. Tingle, U.S. Department of Justice - Civil Division, Ben Franklin Station, Washington, DC; Benjamin Vernia, PRO HAC VICE, The Vernia Law Firm, Washington, DC; Brian A. Ritchie, William Nicholas Wallingford, Wallingford Law, PSC, Lexington, KY; Joyce R. Branda, U.S. Department of Justice - 261, Washington, DC; Mark A. Wohlander, Wohlander Law Office, Lexington, KY; Patrick Michael Klein, II, U.S. Department of Justice - 9548, Washington, DC.
MEMORANDUM OPINION AND ORDER
Amul R. Thapar, United States District Judge.
Relators Jennifer Griffith and Sarah Carver filed a qui tam complaint under the False Claims Act against defendants Eric C. Conn. and others, alleging that the defendants colluded to rig social security cases in favor of Conn. and his clients. No matter how serious the allegations, the relators' complaint still must meet minimal pleading requirements under the federal rules. On several important counts, the relators' complaint fails to satisfy the pleading standards. As a result, the defendants' motion to dismiss must be granted in part.
As the Court's previous opinion includes a full recitation of the facts, a summary here suffices. See R. 153 at 2-5. Relators Jennifer Griffith and Sarah Carver allege that Social Security lawyer Eric Conn. conspired with Administrative Law Judge (" ALJ" ) David Daugherty to manipulate the assignment of disability cases and grant disability benefits to undeserving claimants. As part of their scheme, Conn. would notify Daugherty when his clients filed claims, R. 63 ¶ ¶ 52-54, and Daugherty would then assign himself those cases, id. ¶ ¶ 62, 64. The relators list several examples of cases that Daugherty misappropriated. See id. ¶ ¶ 70, 71. Daugherty would then conduct " sham proceedings" or in some cases simply grant benefits without a hearing. Id. ¶ ¶ 73-83. After his clients received benefits, Conn. submitted Forms 1560 and 1696 to the Social Security Administration (" SSA" ) to receive his fees for his representation. Id. ¶ 72. Griffith and Carver also allege that doctors David P. Herr, Bradley Adkins, and Srinivas Ammisetty worked with Conn. to create false medical records to support the disability claims. Id. ¶ ¶ 103-05.
On October 11, 2011, Griffith and Carver filed a complaint under the False Claims Act (" FCA" ). R. 1; R. 2. The complaint was unsealed on February 19, 2013. R. 18. On December 6, 2013, the relators filed a second amended complaint. R. 63. That complaint contains eight counts, and those counts broadly fall into two categories of alleged FCA liability: (1) Conn's clients' applications for social security benefits, which Daugherty granted, were false or fraudulent, and (2) Conn's requests for representative fees in those matters were also false or fraudulent. Id. ¶ ¶ 138-42, 148-64.
Conn and the other defendants (" Conn" ) first filed a motion to dismiss for lack of subject-matter jurisdiction under the public-disclosure bar, arguing that the relators did not voluntarily provide information to the government before filing suit as required by the FCA. See, e.g., R. 137-1. The undersigned held that, for claims before March 23, 2010, the public-disclosure bar precluded only Carver's claims because her disclosures while an employee of SSA were compelled by the agency's employment policies. R. 153 at 12-15. Griffith's
claims could proceed because she voluntarily provided the information after she resigned from SSA. R. 153.
Conn has now filed motions to dismiss for lack of subject-matter jurisdiction, again under the public-disclosure bar, and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). R. 146; R. 156; R. 158; R. 160; R. 162.
The FCA, 31 U.S.C. § § 3729-3733, punishes fraud against the United States. It prohibits knowingly presenting " a false or fraudulent claim for payment or approval" and knowingly making or using " a false record or statement material to a false or fraudulent claim." Id. § 3729(a)(1)(A), (B). A " claim" is " any request or demand . . . for money . . . [that] is presented to an officer, employee, or agent of the United States." Id. § 3729(b)(2)(A), (A)(i). While the United States may proceed with a false claims action on its own, the FCA also permits individuals, known as " relators," to file suit on behalf of the United States. If the claim is prosecuted successfully, the relator may be entitled to a share of the recovery. See id. § 3730(d).
I. Subject-Matter Jurisdiction and the Public-Disclosure Bar
When a relator files a claim under the FCA, several jurisdictional hurdles may preclude a court's adjudication of the merits. In this case, Conn. argues that the public-disclosure bar serves as one of those jurisdictional obstacles. Before the amendments in the Patient Protection and Affordable Care Act (" PPACA" ), the public-disclosure bar stated that " [n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless . . . the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A) (2006).
Conn contends that the Court lacks jurisdiction due to the public-disclosure bar over three categories of allegations concerning pre-March 23, 2010 conduct: (1) the allegations surrounding his resignation before the Court of Appeals for Veterans Claims (" Veterans Court" ), (2) the allegations concerning Conn's conduct occurring after she left SSA, and (3) the allegations that are based on the Senate Report, which detailed Conn's and Daugherty's alleged abuses. None of those arguments divest the Court of jurisdiction here.
A. The public-disclosure bar does not preclude the claims related to Conn's failure to disclose his resignation from the Veterans Court.
In the complaint, Griffith alleges that Conn. falsely certified various forms submitted to SSA by failing to disclose his resignation from the Veterans Court. R. 63 ¶ 142. According to Conn, Griffith based her Veterans Court allegations on publicly disclosed information from the United States Senate's investigatory report into Conn's abuses. See R. 170 at 2-13 (citing U.S. Senate Committee on
Homeland Security and Governmental Affairs, How Some Legal, Medical, and Judicial Professionals Abused Social Security Disability Programs for the Country's Most Vulnerable: A Case Study of the Conn. Law Firm 1 (Oct. 7, 2013), available at http://www.hsgac.senate.gov/hearings/social-security-disability-benefits-did-a-group-of-judges-doctors-and-lawyers-abuse-programs-for-the-countrys-most-vulnerable (hereinafter " Senate Report" )). As a result, Conn. says, Griffith cannot bring those claims because she is not an original source of the allegations. See 31 U.S.C. § 3730(e)(4) (2006).
The public-disclosure bar (pre-March 23, 2010) strips a court of jurisdiction over actions " based upon the public disclosure of allegations or transactions," except where the relator is an original source or the Attorney General brings the action. 31 U.S.C. § 3730(e)(4)(A) (2006). The phrase " based upon the public disclosure of allegations or transactions" consists of two parts: (1) whether the fraud has been publicly disclosed and (2) whether the relators' allegations are " based upon" the public disclosures. United States v. Chattanooga-Hamilton Cnty. Hosp. Auth'y, 782 F.3d 260, 265 (6th Cir. 2015).
Turning first to whether the fraud has been publicly disclosed, that inquiry also consists of two elements. Unsurprisingly, the first requirement of a public disclosure is that the disclosure be " public." United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 511 (6th Cir. 2009). A disclosure of fraud is public where it appears in " the news media," a court document, " a criminal, civil, or administrative hearing, [or] in a congressional, administrative, or Government Accounting Office report, audit, or investigation." 31 U.S.C. § 3730(e)(4)(A); Poteet, 552 F.3d at 512.
The second element requires the disclosure to " reveal[ ] the same kind of fraudulent activity against the government as alleged by the relator." Poteet, 552 F.3d at 511. If the information is " sufficient to put the government on notice of the likelihood of related fraudulent activity," then the public information has disclosed the fraud. Id. at 512 (internal quotation marks omitted). One way that the government is on notice is if the public disclosure contains an allegation of fraud. Id. For example, if a newspaper reports that Hospital ABC has defrauded the United States government by overinflating medical costs, that story would alert the government to look into whether Hospital ABC has submitted fraudulent bills.
If the disclosure does not contain an allegation of fraud, the Sixth Circuit, adopting the D.C. Circuit's reasoning, has held that where " the information about both a false state of facts and the true state of facts has been disclosed, we [will] find that there has been an adequate public disclosure because fraud is implied." Id. ; see United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 331 (6th Cir. 1998) (adopting analysis from D.C. Circuit's decision in United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 304 U.S. App.D.C. 347 (D.C. Cir. 1994)); see also Dingle v. Bioport Corp., 388 F.3d 209, 212 (6th Cir. 2004) (" Either a public disclosure which includes an allegation of fraud, or a public disclosure that describes a transaction that includes both the state of facts as they are plus the misrepresented state of facts must be present to eliminate jurisdiction in a case." ). The D.C. Circuit's formulation used a form of legal algebra to explain the necessary showing: consider X Y = Z, where Z is the allegation of fraud and X and Y are the " essential elements." Dingle, 388 F.3d at 212 (quoting Springfield, 14 F.3d at 654). X represents the true state of facts and Y represents the misrepresented state of
facts. Id. For a disclosure to constitute a public disclosure of fraud, " the combination of X and Y must be revealed from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed." Id. In the example above, if the newspaper, in one story, reports that patients Jane, Bill and Tom went to Hospital ABC solely for checkups, but also reports in another story that Hospital ABC billed Medicare for expensive surgery for those patients, then the government would be on notice of the hospital's fraudulent billing. The true state of facts--the procedures Jane, Bill and Tom actually received--and the false state of facts--what the hospital billed--would both have been disclosed.
In assessing whether disclosures reveal X and Y (or Z), the disclosures need not come from a single source. Poteet, 552 F.3d at 512. Instead, a relator's action may be barred where several sources combine to disclose the allegations or transactions. Id. Regardless of how many sources disclose the information, the question still remains whether the information from those sources constitutes the " Z" or the " X" and " Y" .
Here, the true state of facts, " X," is in the public domain. The true state of the world is that Conn. resigned from practicing before the Veterans Court and, as a result, may never appear before that Court. Several sources disclosed Conn's resignation from the Veterans Court: (1) the Veterans Court's order accepting Conn's resignation, (2) the Senate Report, and (3) various news media. See R. 156-3 (Veterans Court decision); R. 172-2 (Senate Report); R. 172-1,3,4 (blogs and other news media).
But simply having " X" in the public realm is not sufficient to bar the relators' claims. The false state of facts, " Y," must also be disclosed. In this case, the relators allege that Conn. did not disclose that he was disqualified from practicing before the Veterans Court. That fact publicly appears in the fee claims themselves, several of which are cited in the Senate Report. See Senate Report at 85 n.405, 12 n.665, 134 n.729, 136 n.752, 140 n.795, 143 n.822, 155 n.944. At least one example of Form 1696 for the Appointment of Representative is attached to the Report and readily available. See Exhibit A-2 to Senate Report (available as part of Exhibit Parts 5) (PDF at pg. 167), Appointment of Representative, Form 1696. The rest are under seal. See Exhibit List to Senate Report at 6, (available as part of Exhibits Part 1).
Even though the Senate Report contains only one unsealed example of the Form, it is enough to put the government on notice. Cf. Dingle, 388 F.3d at 214 n.3 (holding that single quote sufficed to put government on notice). That Form contains the false state of facts: Conn's certification that he was not " disbarred or suspended from a court or bar to which [he] was previously admitted to practice as an attorney" and was not " disqualified from practicing in or appearing before a Federal program or agency." Exhibit A-2 to Senate Report. The Form is in the Senate Report dedicated to Conn's and Daugherty's alleged abuses, along with citations to several other fee agreements and forms. Presumably the government is aware of the exhibits, as well as the text, of reports by Senate investigative committees. And the absence of Form 1560 from the examples is not fatal, because even if the disclosures are " slightly different" from the allegations in the case, they are still " sufficient
to put the government on notice as to the possibility of fraud." Dingle, 388 F.3d at 215. One example of a false statement on a form in an investigative Senate report could put the government on notice that similar forms contained identical falsehoods.
Because the allegations have been publicly disclosed, the next inquiry is whether the relators' allegations are " based upon" the public disclosure. An allegation is based upon a public disclosure where the allegation is " supported by" or has " substantial identity" with the public disclosure. Poteet, 552 F.3d at 514. Even if the complaint is only " partly" based upon public disclosures, that is enough. Id.
Relators' claims are " based upon" the publicly disclosed allegations. There is substantial identity between the complaint and the Senate Report. The Report contains both Conn's resignation from the Veterans Court (which is publicly disclosed through other channels as well) and an example of a false fee form. The allegations are at least " partly" based upon the public disclosures, as the complaint also relies on Conn's resignation from the Veterans Court and false fee forms.
Because the allegations were based upon publicly disclosed information, they may proceed with their claims related to the Veterans Court only if they are original sources. See 31 U.S.C. § 3730(e)(4)(B) (2006). At issue here is whether Griffith satisfies the " direct and independent knowledge" prong of the original-source exception. See id. Direct knowledge is " marked by absence of intervening agency," while independent knowledge is not " dependant [sic] on public disclosure." United States ex rel. McKenzie v. BellSouth Telecomms., Inc., 123 F.3d 935, 941 (6th Cir. 1997). As the Sixth Circuit has recently clarified, direct knowledge does not require first-hand knowledge of the fraud. United States ex rel. Antoon v. Cleveland Clinic Found., 788 F.3d 605, 2015 WL 3620519, at *9-10 (6th Cir. 2015) (" First-hand knowledge is not a necessary component of direct knowledge." ). Under Antoon, direct knowledge is " knowledge gained by the relator's own efforts and not acquired from the labor of other people." 788 F.3d 605, Id. at *10. While eschewing any mathematical formula, Antoon did offer examples of when relators satisfy that requirement. See id. (" [W]e have never stated whether a relator must possess a certain nature and quantity of information in order to have 'direct and independent knowledge' of her allegations." ). Particularly relevant here, the court approved of a relator who has " direct (but not first-hand) knowledge of the billing practices of an institution, and uncover[s] fraud only after consulting a public document that reveals that those practices are fraudulent." Id.
Griffith falls squarely within that example, except that she also has first-hand knowledge of Conn's billing practices. Here, Griffith declared in an affidavit that, as part of her duties, she " typically" handled SSA Forms 1560, 1696, and 1699. R. 172-5 ¶ 4. Many of those forms were from Eric Conn. Id. ¶ 7 (" [Conn] signed the aforementioned forms (including Form 1696, and others as relevant to each case)." ). Griffith " do[es] not recall any of the . . . forms signed by Mr. Conn. in which he disclosed the fact that he had resigned from the bar of the Court of Appeals for Veterans Claims." Id. ¶ 8. Griffith, as an SSA employee who handled Conn's fee claims, had first-hand knowledge that his forms omitted the true nature of his status in the Veterans Court. That knowledge was likewise independent--her knowledge of Conn's omissions was not dependent on any public disclosure. The only dependent knowledge was Conn's true state of facts: that he resigned
from the Veterans Court. But Griffith need not have direct and independent knowledge " of all of the vital ingredients to a fraudulent transaction" --simply having direct and independent knowledge of the submission of the forms suffices. Antoon, 788 F.3d 605, 2015 WL 3620519, at *10 (quoting Springfield, 14 F.3d at 656-57); see also Springfield, 14 F.3d at 657 (holding that the direct and independent knowledge prong is satisfied if the relator has " direct and independent knowledge of any essential element of the underlying fraud transaction (e.g., Y)" ). As a result, she had sufficient direct and independent knowledge to qualify as an original source.
Finally, Griffith also revealed to the government " Conn's failure to disclose his disciplinary record" before the public disclosure in the Senate Report. R. 172-5 ¶ 10. Sixth Circuit precedent currently requires the relators' disclosure to the United States to occur before the fraud has been publicly disclosed. See McKenzie, 123 F.3d at 942 (" [A] relator must provide the government with the information [upon which the publicly disclosed allegations are based] prior to any public disclosure." ). Under that standard, Griffith is still an original source. Her affidavit states that she provided the information regarding Conn's misrepresentations to the government in 2011, before the Senate Report was released in October 2013. R. 172-5; see also R. 131 at 53 (transcript of evidentiary hearing) (explaining that she met with government officials in June 2011). The Senate Report is the only document containing a public disclosure of the false state of facts: that Conn. did not disclose his Veterans Court resignation to the SSA. Because Griffith disclosed her information to the government before all the relevant facts of the fraud had been publicly disclosed, she may proceed as an original source.
McKenzie, however, may be in conflict with the Supreme Court's decision in Rockwell International Corp. v. United States, 549 U.S. 457, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007). Notably, McKenzie, in which the Sixth Circuit first set forth the requirement that the relator's disclosure to the government must come before the public disclosure, explicitly held that it was " adopt[ing] the approach of the District of Columbia Circuit" in United States ex rel. Findley v. FPC -- Boron Employees' Club, 105 F.3d 675, 323 U.S. App.D.C. 61 (D.C. Cir. 1997), overruled by United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 400 U.S. App.D.C. 351 (D.C. Cir. 2012). McKenzie, 123 F.3d at 942. As the preceding sentence indicates, the D.C. Circuit has overruled Findley 's holding regarding the timing of a relator's disclosure in light of the Supreme Court's decision in Rockwell. See Davis, 679 F.3d at 838-39; see also United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 24 (1st Cir. 2009) (" Rockwell. . . substantially undercuts the conclusion by the D.C. [in Findley ] and Sixth Circuits." ). Under D.C. Circuit case law after Davis, a relator no longer has to disclose to the government before the public disclosure. Davis 's overruling of Findley would suggest a similar result in this Circuit. This case does not present the need to delve any more deeply into the issue, as Griffith has satisfied existing Sixth Circuit case law. Accordingly, the allegations that Conn. falsely certified his Veterans Court status on Forms 1560, 1696, and 1699 are not jurisdictionally barred.
B. Allegations of fraudulent conduct occurring after Griffith left the SSA are not jurisdictionally barred.
The next jurisdictional argument raised by Conn. is that Griffith is not an original source as to any allegations about Conn's ...