United States of America, ex rel. Sharman Wood v. Family Healthcare Network et al, No. 1:2007cv00700 - Document 67 (E.D. Cal. 2010)
Court Description: MEMORANDUM DECISION Regarding 58 Motion to Dismiss, signed by Judge Oliver W. Wanger on 12/20/2010. (Defendants motion to dismiss is DENIED in its entirety; Plaintiff shall lodge a formal order consistent with thisdecision within five (5) days following electronic service ofthis decision by the clerk.) (Gaumnitz, R)
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United States of America, ex rel. Sharman Wood v. Family Healthcare Network et al Doc. 67 1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 8 UNITED STATES ex rel. SHARMAN WOOD, 9 1:07-cv-00700-OWW-SKO MEMORANDUM DECISION REGARDING MOTION TO DISMISS (Doc. 58) Plaintiff, 10 11 12 v. FAMILY HEALTHCARE NETWORK, et al., 13 Defendants. 14 I. INTRODUCTION. 15 16 Plaintiff Sharman Wood (“Plaintiff”) proceeds with this action 17 pursuant to the False Claims Act on behalf of the United States. 18 Plaintiff filed the complaint on May 11, 2007. 19 Defendants filed a motion to dismiss the complaint on August 20 27, 2010. 21 dismiss on October 15, 2010. 22 on October 25, 2010. 23 (Doc. 1). (Doc. 58). Plaintiff filed opposition to the motion to (Doc. 63). Defendants filed a reply (Doc. 64). II. FACTUAL BACKGROUND. 24 Family HealthCare Network ("FHCN") is a private health care 25 center that provides primary care services at clinical facilities 26 located throughout Tulare County in California. 27 Defendant Harry L. Foster ("Foster") was the President and Chief 28 Executive Officer (“CEO”) of FHCN at all times relevant to the (Comp. at 2, 5). 1 Dockets.Justia.com 1 complaint. (Comp. at 6). 2 the Chief Financial Officer (“CFO”) of FHCN at all times relevant 3 to the complaint. 4 Defendant Tony M. Weber (“Webebr”) was (Comp. at 6). On February 23, 2003, FHCN submitted an application for an 5 Expanded Medical 6 Services Administration (“HRSA”), an agency of the United States 7 Department of Health and Human Services (“HHS”). 8 FHCN’s 9 expanding the staff and extending the operating hours at FHCN’s February Capacity 2003 grant grant to the Health application Resources (Comp. at 7, 8). requested funds for 10 clinic in Ivanhoe, California. 11 FHCN was awarded a grant in the amount of $1,980,000.00 (“Ivanhoe 12 grant”) based on the information provided in its February 2003 13 grant application. 14 application to the HRSA on April 29, 2003 seeking funds to hire 15 additional staff needed to establish a new FHCN clinic in Goshen, 16 California. 17 awarded a grant in the amount of $4,200,833.00 (“Goshen grant”) 18 based 19 application. 20 on (Comp. at 9). (Comp. at 8, 15). the Foster (Comp. at 15). and information On August 8, 2003, FHCN submitted a second grant On September 21, 2003, FHCN was provided in its April 2003 grant (Comp. at 9). and Webber provided proposed staffing and budget 21 figures included in the Ivanhoe and Goshen grant applications. 22 (Comp. at 15). 23 represented that additional staff were needed, that recruitment for 24 the positions proposed in the grant applications was underway, and 25 that all proposed positions would be filled within ninety days of 26 a grant award. 27 the time FHCN submitted the Ivanhoe and Goshen grant applications, 28 Foster and Webber did not intend to hire the staff proposed staff Both the Ivanhoe and Goshen grant applications (Comp. at 17-18). 2 The complaint alleges that at 1 and knew the proposed staff would not be hired. 2 22). 3 reports 4 Defendants knew that data presented in the reports unduly inflated 5 the number of “new users” serviced at the clinics. The complaint also alleges that when FHCN submitted progress in connection with the Ivanhoe and Goshen grants, (Comp. at 26). III. LEGAL STANDARD. 6 7 (Comp. at 15, 21, Dismissal under Rule 12(b)(6) is appropriate where the 8 complaint lacks sufficient facts to support a cognizable legal 9 theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th 10 Cir.1990). To sufficiently state a claim to relief and survive a 11 12(b) (6) motion, the pleading “does not need detailed factual 12 allegations” but the “[f]actual allegations must be enough to raise 13 a right to relief above the speculative level.” Bell Atl. Corp. v. 14 Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). 15 Mere “labels and conclusions” or a “formulaic recitation of the 16 elements of a cause of action will not do.” Id. 17 be “enough facts to state a claim to relief that is plausible on 18 its face.” Id. at 570. In other words, the “complaint must contain 19 sufficient factual matter, accepted as true, to state a claim to 20 relief that is plausible on its face.” Ashcroft v. Iqbal, --- U.S. 21 ----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal 22 quotation marks omitted). Rather, there must 23 The Ninth Circuit has summarized the governing standard, in 24 light of Twombly and Iqbal, as follows: “In sum, for a complaint to 25 survive a motion to dismiss, the nonconclusory factual content, and 26 reasonable 27 suggestive of a claim entitling the plaintiff to relief.” Moss v. 28 U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal inferences from that 3 content, must be plausibly 1 quotation marks omitted). Apart from factual insufficiency, a 2 complaint is also subject to dismissal under Rule 12(b)(6) where it 3 lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or 4 where the allegations on their face “show that relief is barred” 5 for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 6 910, 166 L.Ed.2d 798 (2007). 7 In deciding whether to grant a motion to dismiss, the court 8 must accept as true all “well-pleaded factual allegations” in the 9 pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, 10 however, “required to accept as true allegations that are merely 11 conclusory, 12 inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 13 (9th Cir.2001). “When ruling on a Rule 12(b)(6) motion to dismiss, 14 if a district court considers evidence outside the pleadings, it 15 must normally convert the 12(b)(6) motion into a Rule 56 motion for 16 summary 17 opportunity to respond.” United States v. Ritchie, 342 F.3d 903, 18 907 court 19 materials-documents 20 incorporated by reference in the complaint, or matters of judicial 21 notice-without converting the motion to dismiss into a motion for 22 summary judgment.” 25 26 judgment, and Cir.2003). “A deductions it must attached of give may, to fact, the unreasonable nonmoving however, the or party consider complaint, an certain documents Id. at 908. IV. DISCUSSION. 23 24 (9th unwarranted A. Count I: False Claims Act Sections 3729(a)(1) and (a)(2) Count I of the complaint asserts a claim for violation of sections 3729(a)(1) and (a)(2). Section 3729(a)(1) provides: 27 In general. Subject to paragraph (2), any person who-- 28 (A) knowingly presents, or causes to be presented, a 4 1 false or fraudulent claim for payment or approval; 2 (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; 3 4 (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G); 5 6 7 8 9 10 11 12 (D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property; (E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; (F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or 13 14 15 16 17 18 19 20 21 (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $ 5,000 and not more than $ 10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410), plus 3 times the amount of damages which the Government sustains because of the act of that person. 31 U.S.C. § 3729(a). 22 In order to properly plead a false claims action under section 23 3729, a plaintiff must comply with the pleading requirements 24 applicable to fraud claims set forth in Rule 9(b) of the Federal 25 Rule of Civil Procedure. 26 (9th Cir. 2010). 27 28 E.g. Ebeid v. Lungwitz, 616 F.3d 993, *12 Rule 9(b) provides: In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. 5 1 Fed. R. Civ. P. 9(b). Rule 9 requires a plaintiff to state "the 2 who, what, when, where, and how of the misconduct charged." Ebeid, 3 616 F.3d at 13 (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 4 1106 (9th Cir. 2003)). 5 1. Defendants Foster and Webber 6 The complaint contains sufficient allegations to state claims 7 for violation of section 3729(a)(1) against Foster and Webber. 8 According to the complaint, Foster certified the grant applications 9 for the Ivanhoe and Goshen grants on behalf of FHCN with knowledge 10 that 11 positions that Foster never intended to fill. (Comp. at 15). 12 Similarly, the complaint alleges that Webber provided proposed 13 staffing 14 applications with knowledge that the proposed staff positions would 15 not be filled. 16 Foster and Webber did not intend to hire the additional staff 17 proposed in the grant applications are supported by inferences 18 drawn from facts alleged in the complaint. 19 both applications and The budget falsely figures in (Comp. at 15). complaint alleges proposed to connection create with new the staff grant The complaint’s allegations that that during a meeting regarding 20 preparation of the Ivanhoe and Goshen grant applications, Webber 21 told another person that he and Defendant Foster did not have to 22 “adhere” to the figures advanced in the grant applications. (Comp. 23 at 22). 24 he never intended to hire new staff or expand services at Ivanhoe, 25 and 26 operational costs all along. 27 alleges that Foster also told other senior management staff members 28 that all of the staffing positions proposed in the grant were not Plaintiff avers that Foster told her in November 2003 that that he intended to use grant money (Comp. at 21). 6 to fund existing The complaint also 1 to be filled. (Comp. at 21). Specifically, the complaint 2 identifies Defendant Webber as an individual whom Foster instructed 3 not to hire additional staff for Ivanhoe. (Comp. at 20). 4 The complaint alleges that the staff proposed in the grant 5 application for the Ivanhoe clinic have never been hired, and that 6 recruitment efforts were never undertaken to fill the proposed 7 positions. 8 hours of operation at the Ivanhoe clinic were never increased as 9 proposed in the grant application. (Comp. at 19). The complaint also alleges that the (Comp. at 23). The complaint 10 provides sufficient factual allegations to support an inference 11 that, at the time the Ivanhoe grant application certification was 12 submitted, Foster and Webber did not intend to hire additional 13 staff for the Ivanhoe facility and thus violated the FCA by false 14 representations to the contrary to wrongfully obtain government 15 funding. 16 FHCN’s application for the Goshen grant represented that 17 “staff recruitment is underway and ongoing” and that “[FHCN] 18 expects to successfully fill all new positions, complete staff 19 training, and be fully operational within 90 days.” (Comp. at 19). 20 As of eight months after the Goshen grant award, the number of full 21 time employees at the Goshen facility had decreased. 22 21). 23 the fact that the number of employees at the Goshen facility had 24 decreased eight months after the grant award provides a sufficient 25 factual basis to permit an inference that, at the time the Goshen 26 grant application was submitted, Foster and Webber did not intend 27 to hire additional staff for the Goshen Facility and thus violated 28 the FCA. (Comp. at Combined with the allegations regarding the Ivanhoe grant, 7 1 Defendants contend that the complaint is deficient because (1) 2 the complaint refers to “Defendants” as an undifferentiated group 3 and does not indicate who made which false statements; (2) the 4 complaint 5 referenced grant applications; (3) the complaint does not provide 6 a 7 applications were false.1 8 Defendants’ arguments have merit. The complaint alleges that “what 9 was actually false” in the Ivanhoe and Goshen grant applications 10 was FHCN’s purported intent to hire additional staff and explains 11 that the reason such statements were false is that Foster and 12 Webber did not then intend to carry out the hiring proposals. 13 Defendants’ motion to dismiss Count I of the complaint as to Foster 14 and Webber is DENIED. does meaningful not indicate explanation of what how was any actually false statements (Motion to Dismiss at 4-5). in in the grant None of 15 2. FHCN 16 The extent to which an entity is liable under the FCA for the 17 acts of its employees presents an unsettled question in the Ninth 18 Circuit. 19 Hosp., 140 F. Supp. 2d 1062, 1071 n.7 (D. Haw. 2001); United States 20 ex rel. McCurdy v. Gen. Dynamics Nat. Steel and Shipbuilding Corp., 21 2010 U.S. Dist. LEXIS 90307* 10-11 (S.D. Cal. 2010). Drawing every 22 reasonable inference in favor of Plaintiff, the allegations in the See United States ex rel. McCarthy v. Straub Clinic & 23 24 25 26 27 28 1 Defendants also contend that the complaint’s allegations regarding false statements contained in progress reports and other grant applications are not pled with the requisite particularity. The allegations regarding false statements made in other grant applications do not establish independent claims, rather, it appears these allegations were pled in order to establish that Defendants engaged in a pattern of making false representations, which supports an inference that Defendants knowingly made false statements in the Ivanhoe and Goshen grant applications. With respect to the progress reports, the allegations are sufficiently particular. 8 1 complaint are sufficient to hold FHCN liable for the fraudulent 2 acts 3 apparent-authority, or managerial-capacity theory. See Grand Union 4 Co. v. United States, 696 F.2d 888, 891 (11th Cir. 1983) (finding 5 liability based on intent-to-benefit theory); see also United 6 States ex rel. Rosales v. San Francisco Housing Auth., 173 F. Supp. 7 2d 8 managerial capacity theory). 9 of the complaint as to FHCN is DENIED. 10 of 987, Foster, 1004 (N.D. whether Cal. under 2001) an (finding intent-to-benefit, liability based on Defendants motion to dismiss Count I B. Count II: False Claims Act Sections 3729(a)(3) 11 Count II of the complaint alleges conspiracy. The FCA imposes 12 liability on "[a]ny person who conspires to defraud the Government 13 by getting a false claim allowed or paid." 14 Conspiracy claims made under the FCA must meet the particularity 15 pleading requirement of Fed. R. Civ. P. 9(b). Vess, 317 F.3d at 16 1108. 17 "the who, what, when, where, and how" of the misconduct charged. 18 Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). 19 complaint alleges an agreement between Foster and Webber to submit 20 misleading grant applications. 21 false representations made in the applications, the reasons such 22 representations 23 representations. 24 claim is DENIED. 25 C. Count III: False Claims Act Section 3729(a)(7) 31 U.S.C. § 3729(a)(3). Averments of fraud under Rule 9(b) must be accompanied by were false, Here, the The complaint also identifies the and the purpose of the false Defendants’ motion to dismiss the conspiracy 26 Section 3729(a)(7), “the reverse false claims provision of the 27 FCA, punishes anyone who ‘knowingly makes, uses, or causes to be 28 made or used, a false record or statement to conceal, avoid, or 9 1 decrease an obligation to pay or transmit money or property to the 2 Government.’” 3 Cir. 2008). 4 false record or statement; (2) knowledge of falsity; (3) use of the 5 false statement to conceal, avoid, or decrease an obligation to the 6 government; 7 obligation to the government; and (5) materiality. 8 1171. United States v. Bourseau, 531 F.3d 1159, 1164 (9th A reverse FCA claim includes five elements: (1) a (4) purpose to conceal, avoid, or decrease an Id. at 1164- 9 According to the complaint, FHCN was required to submit two 10 types of reports to the United States after receiving the Ivanhoe 11 and Goshen grants: individual grant progress reports and yearly 12 uniform data system reports. 13 for the Ivanhoe grant were due on January 15, 2004, July 15, 2004, 14 and January 17, 2005. 15 Goshen grant were due on December 31, 2003 and June 30, 2004. 16 (Comp. at 14). 17 reports for the Goshen and Ivanhoe grants contained the false 18 statement that the increase in medical providers would be reflected 19 in subsequent reports. 20 alleges that Foster and Webber were aware that FHCN’s database 21 system, “Mega West,” was manipulated to fraudulently inflate the 22 number of new patients, and that Foster and Webber knowingly used 23 misleading Mega West data in its progress reports and yearly 24 uniform data system reports in order to create the appearance that 25 FHCN was serving more patients than it actually was. 26 27). The complaint alleges that Foster and Webber knowingly caused 27 to be submitted progress reports and yearly uniform data system 28 reports that contained false material information, and that the (Comp. at 13-14). (Comp. at 14). Progress reports Progress reports for the The complaint alleges that FHCN’s first progress (Comp. at 23-24). 10 The complaint also (Comp. at 26- 1 reports were submitted for the purpose of concealing, avoiding, or 2 decreasing an obligation to the government. 3 dismiss the reverse FCA claim is DENIED. 4 D. Short and Plain Statement Requirement 5 Defendants’ motion to Defendants complain that because the complaint is “replete 6 with legislative 7 authority,” the complaint fails to comply with Rule 8's short and 8 plain statement requirement. 9 the complaint does contain some unnecessary background information, information history...[and] does and (Motion to Dismiss at 7). 11 otherwise 12 regulatory authority set forth in the complaint is relevant to 13 establishing 14 materiality of their alleged false statements. Defendants’ Rule 8. knowledge the Much of complaint Although such of render statutory 10 violative not regulatory of the the confusing statutory wrongfulness or and and ORDER 15 16 For the reasons stated, IT IS ORDERED: 17 1) Defendants’ motion to dismiss is DENIED in its entirety; 18 2) Plaintiff shall lodge a formal order consistent with this 19 decision within five (5) days following electronic service of 20 this decision by the clerk. 21 IT IS SO ORDERED. 22 Dated: hkh80h December 20, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28 11
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