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United States v. Lexington Foot and Ankle Center, PSC

United States District Court, E.D. Kentucky, Central Division, Lexington

June 6, 2019



          Robert E. Wier, United States District Judge.

         Lexington Foot and Ankle Center and its owner/operator Dr. Michael Allen (together “LF&AC”) move to dismiss this case, which the United States filed under the False Claims Act (FCA). DE #13. The matter is fully briefed and ripe for disposition. The United States pleaded its FCA claim with sufficient particularity, and the statutory framework erects no good cause hurdle the United States must clear before initiating suit. The Court thus rejects the dismissal effort.

         A. Factual and Procedural Background

         The United States alleges that Dr. Allen and LF&AC submitted claims to Medicare Part B and the Federal Employee Health Benefits Program (FEHPB) for non-reimbursable routine foot care, upcoded or misrepresented the provision of podiatry services in order to qualify them for reimbursement, and falsified patient records to substantiate fabricated claims. DE #1 at ¶¶ 2, 59- 60. The allegations in the United States's Complaint overlap[1] with facts alleged in a March 2017 qui tam action brought by two podiatrists that are former Lexington Foot & Ankle contractors. See DE #21 at 4; DE #13-1 at 2; DE #13-2 (Qui Tam Complaint). The relators similarly asserted the existence of a fraudulent coding and billing scheme. See DE #21 at 5; DE #13-1 at 3-5. The United States sought and received three extensions of time to intervene in the qui tam action, but, when the court stated that it would not approve further extensions, ultimately declined to intervene due to ongoing investigation of the claims. DE #21 at 5; Richardson, No. 5:17-cv-129-DCR, DE #13. The Government made clear that it would persist in investigating and might seek intervention later. See Richardson, No. 5:17-cv-129-DCR, DE #13 at 1 (“Because the Government has not completed its investigation, it cannot decide, as of the Court's deadline, whether to proceed with this action . . . However, the Government's investigation will continue[.]”). In April 2018, Defendants moved to dismiss the qui tam action, and, two weeks later, the United States moved to partially intervene in the case. Id.; DE #21-1 (Motion to Partially Intervene). Judge Reeves subsequently dismissed the qui tam complaint (without prejudice) for lack of requisite pleading particularity and denied as moot the Government's partial intervention motion. Richardson, No. 5:17-cv-129-DCR, DE #26.

         Following the qui tam dismissal in June 2018, the United States claims it and Defendants engaged in (ultimately unsuccessful) informal potential settlement negotiations. DE #21 at 6. The United States then filed this action in November 2018. DE #1 (Complaint). Defendants moved to dismiss (DE #13) and sought to stay discovery on the claims pending resolution of the motion (DE #14). This Court denied the stay request. DE #24.

         Defendants seek dismissal for two independent reasons. First, Defendants argue that this action is functionally an extension of the qui tam, and, thus, the United States must make the good cause showing statutorily required when the Government seeks to intervene in a qui tam after an initial declination. DE #13-1 at 12; see 31 U.S.C. § 3730(c)(3) (providing that, where a relator proceeds with an action after the United States declines to intervene, “the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause”). Second, Defendants maintain that the Complaint's fraud allegations are insufficiently particular under Rule 9(b) and Rule 12(b)(6). DE #13-1 at 16.[2] The United States opposed dismissal (DE #21), and Defendants replied (DE #28).[3]

         B. Absence of a Good Cause Requirement

         The parties agree (and the Complaint establishes) that this action stems from facts underlying the previous qui tam. Defendants urge the Court to take this connection further and construe the United States's Complaint in this case as an extension of (and functional attempt to intervene in) the dismissed qui tam after its previous declination decision in that action, triggering § 3730(c)(3)'s good cause requirement. Creative lawyering, but unsupported. There is no relevant authority (either that the parties cite or that the Court independently locates) indicating that an FCA case stemming from facts underlying a prior, dismissed qui tam is considered a continuation of that qui tam for purposes of § 3730(c)(3). Rather, the FCA framework suggests that there are two distinct types of actions authorized by the Act-§ 3730(a) actions brought by the Attorney General, such as here, and § 3730(b) qui tam actions brought by private individuals:

Section 3730 authorizes two types of actions: First, the Attorney General, who “diligently shall investigate a violation under section 3729, ” may bring a civil action against the alleged false claimant. § 3730(a). Second, a private person, known as a relator, may bring a qui tam civil action “for the person and for the United States Government” against the alleged false claimant, “in the name of the Government.” § 3730(b).

Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S.Ct. 1507, 1510 (2019). The FCA's structure illustrates this dichotomy: § 3730(a) is titled “Responsibilities of the Attorney General, ” while § 3730(b) is titled “Actions by private persons.”

         Notably, the good cause requirement for late Government intervention in a qui tam is found within § 3730(c), explicitly titled “Rights of the parties to qui tam actions” (emphasis added). This section provides that “[i]f the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action[.]” § 3730(c). However,

[i]f the Government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the Government so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the Government's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause.

§ 3730(c)(3). The text of (c)(3) unambiguously qualifies when the Government must show good cause; by its terms, the requirement applies only when: (1) the Government elects not to intervene in a qui tam and conduct the action itself per (c)(1); (2) the relator nevertheless continues to pursue the qui tam action independently; and (3) despite its prior declination, the Government later seeks to intervene in the qui tam. LF&A invites the Court to treat a qui tam, once filed, as forever modifying how and whether the United States may pursue the involved false claims case. The statute offers no support for this expansive and preclusive take. Per Defendants, the dismissed (without prejudice) prior qui tam erects a permanent super hurdle. This is nowhere in the text. Indeed, § 3730(a), without restriction, states that “the Attorney General may bring a civil action under this section against” a person the Attorney General “finds . . . has violated” the FCA. Although the FCA modifies procedures for intervention in a pending qui tam, the FCA does not purport to impose those limits beyond the life of the qui tam action.

         Other provisions of the statute-including the first-to-file rule-further underscore the distinction between § 3730(a) and § 3730(b) cases and the intentionally different requirements applicable to them. The rule provides that “[w]hen a person brings [a qui tam action], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” § 3730(b)(5). This rule “establishes a first-to-file bar, preventing successive plaintiffs from bringing related actions based on the same underlying facts.” Walburn v. LockheedMartin Corp., 431 F.3d 966, 971 (6th Cir. 2005) (quoting U.S. ex rel. Lujan v. Hughes AircraftCo., 243 F.3d 1181, 1187 (9th Cir. 2001)). “The first-to-file bar furthers the policy of the False Claims Act in that ‘[t]he first-filed claim provides the government notice of the essential facts of an alleged fraud, while the first-to-file bar stops repetitive claims.'” Id. (quoting Lujan, 243 F.3d at 1187 (citation omitted)). By barring successive relators from bringing actions based on the same underlying facts, but specifically exempting the Government from this first-to-file bar, ...

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