United States of America et al v. S.M.R.T., LLC et al, No. 3:2018cv00822 - Document 40 (S.D. Cal. 2021)

Court Description: ORDER Denying 34 (1) Request for Judicial Notice and (2) Motion to Dismiss. Signed by Judge Roger T. Benitez on 6/2/2021. (mme)
Download PDF
United States of America et al v. S.M.R.T., LLC et al Doc. 40 1 FILED 2 3 JUN O3 2021 4 CLERK, U.S. DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA BY DEPUlY 5 Ttf 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 UNITED STATES OF AMERICA and STATE OF CALIFORNIA ex rel. RANDY LAZAR, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Case No.: 3:18-cv-00822-BEN-BGS ORDER DENYING (1) REQUEST FOR JUDICIAL NOTICE AND (2) MOTION TO DISMISS Plaintiff/Relator, V. [ECF No. 34] S.M.R.T., LLC, a California limited liability company; and CORNELIUS MCKAY, an individual, Defendants. This is a qui tam action alleging false Medicare and Medi-Cal claims. Compl., "ECF No. 1, ~ 1. Relator Randy Lazar has brought the complaint on behalf of the United II States and State of California pursuant to 31 U.S.C. § 3720(b)(2) and Cal. Gov't Code § II 12650. Id. Defendants S.M.R.T., LLC, a California limited liability company II ("S.M.R.T.") and Cornelius McKay, S.M.R.T.'s registered agent and owner, II (collectively, "Defendants") filed a motion to dismiss. Compl., ECF No. 1, ~ 10-11; II Mot., ECF No. 34. Lazar opposed. Opp'n, ECF No. 35. As a real party in interest and II pursuant to 28 U.S.C. § 517, the United States filed a Statement of Interest also opposing II dismissal. Statement, ECF No. 36. Defendants filed a reply. Reply, ECF No. 38. The 28 1 3: l 8-cv-00822-BEN-BGS Dockets.Justia.com 1 motion was submitted on the papers without oral argument pursuant to Civil Local Rule 7.l(d)(l) and Rule 78(b) of the Federal Rules of Civil Procedure. As set forth below, the 2 3 11 Court DENIES the motion. 4 III. BACKGROUND 1 5 II S.M.R.T. sells durable medical equipment and supplies to patients who utilize 6 II federally funded government healthcare programs. Compl., ECF No. 1, ,r,r 1-2. 7 II Cornelius McKay is the owner of S.M.R.T. Id. at ,r 11. Randy Lazar began working for Defendants in 2016. Compl., ECF No. 1, ,r 17. 8 9 During his employment, Lazar discovered Defendants were exploiting Medicare and 10 Medi-Cal "by: (1) misreporting customer data to qualify for funding to which they were 11 not entitled; and (2) billing government entities for supply orders that were never 12 shipped." Id. 13 "educate Defendants and correct their wrongful practices," Defendants terminated 14 Lazar's employment. Id. at ,r 19. 15 at,r,r 18, 29-31, 35, 37. On September 17, 2017, after Lazar attempted to On January 5, 2018, Lazar filed a civil lawsuit against McKay in the San Diego 16 II Superior Court, styled as Lazar v. McKay, San Diego Superior Court Case No. 37-201817 00000738-CU-BC-CTL (the "State Court Action"). Compl., ECF No. 1, ,r 11. 2 Lazar 18 alleged claims for breach of contract, breach of the covenant of good faith and fair 19 dealing, and recovery of money he had paid on Defendants' behalf. See State Court 20 II Compl., ECF No. 34-3. On April 9, 2018, S.M.R.T. filed a cross-complaint in the State 21 11 Court Action, alleging various state law claims against Lazar. See State Court Cross- 22 11 Compl., ECF No. 34-4. On April 30, 2018, while the State Court Action was still 23 24 25 II I The following overview of the facts is drawn primarily from Lazar's Complaint, II ECF No. 1, which the Court assumes true in analyzing the motions to dismiss. Erickson 26 v. Pardus, 551 U.S. 89, 94 (2007). The Court is not making factual findings. 27 11 2 The nature of that lawsuit and the following information is not stated in the complaint. Instead, it is only discussed by the parties in their briefing on the motion to 28 11 d'1sm1ss. . 2 3: 18-cv-00822-BEN-BGS 1 11 pending, Lazar filed this qui tam complaint under seal. See Compl., ECF No. 1. Lazar's 2 complaint alleges claims for relief for ( 1) presentation of false claims under the federal 3 False Claims Act, 31 U.S.C. § 3729(a)(l)(A); (2) presentation of false claims under 4 California's False Claims Act, Cal. Gov't Code§ 1265 l(a)(l); (3) making or using false 5 records or statements to cause claims to be paid, 31 U.S.C. § 3729(a)(l)(B); (4) making 6 or using false records or statements to cause claims to be paid, Cal. Gov't Code 7 1112651 (a)(2); (5) making or using false records or statements to avoid an obligation to 8 refund, 31 U.S.C. § 3729(a)(l)(G); (6) making or using false records or statements to 9 avoid an obligation to refund, Cal. Gov't Code 12651(a)(7)(8); (7) retaliation against the 10 relator, 31 U.S.C. § 3730(h)(l ); and (8) retaliation against the relator, Cal. Gov't Code 11 12653(a). See id. 12 On May 23, 2019, Lazar and Defendants entered into a court-approved Stipulation 13 for Dismissal in the State Court Action for their respective state law claims. Stipulation, 14 ECF No. 34-5. The Stipulation for Dismissal references a "Mutual Release and 15 Settlement Agreement document" (the "Release Agreement") that was executed 16 "simultaneously with their execution of the [Stipulation for Dismissal]." Id. at 3. 17 However, the Release Agreement was not attached to the Stipulation for Dismissal or 18 otherwise filed in the State Court Action. Opp'n, ECF No. 35, 3. 19 11 Lazar and Defendants executed the Release Agreement after the qui tam action had 20 11 been filed but before the United States and California decided to intervene in this case. 21 II On November 13, 2020, the United States and California informed the Court they did not 22 II intend to intervene in the qui tam action at that time. See ECF No. 19. On December 1, 23 II 2020, the qui tam complaint was unsealed. ECF No. 20. 24 Thereafter, Defendants brought this motion to dismiss. ECF No. 34. Defendants 25 argue the Release Agreement is judicially noticeable and bars Lazar's qui tam claims. 26 II. 27 LEGAL STANDARD A dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure may be 28 11 based on the lack of a cognizable legal theory or absence of sufficient facts to support a 3 3: l 8-cv-00822-BEN-BGS 1 cognizable or plausible legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 2 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When 3 considering a Rule 12(6)(6) motion, the Court "accept[s] as true facts alleged and draw[s] 4 inferences from them in the light most favorable to the plaintiff." Stacy v. Rederite Otto 5 Danielsen, 609 F.3d 1033, 1035 (9th Cir. 2010). A plaintiff must not merely allege 6 conceivably unlawful conduct but must allege "enough facts to state a claim to relief that 7 II is plausible on its face." Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim 8 11 is facially plausible 'when the plaintiff pleads factual content that allows the court to ·9 draw the reasonable inference that the defendant is liable for the misconduct alleged."' 10 Zixiang Liv. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 11 U.S. 662, 678 (2009)). "Threadbare recitals of the elements of a cause of action, 12 supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678. 13 III. ANALYSIS 14 In their motion to dismiss, Defendants do not attack the factual sufficiency of the 15 complaint's allegations but instead argue the claim is barred by the Release Agreement 16 executed between Lazar and Defendants. Mot., ECF No. 34, 2-3. They assert that 17 because in the March 22, 2019 Release Agreement, Lazar released "all claims, rights, and 18 causes of action based on or arising out of ... all acts, omissions, conduct, 19 representations, occurrences, or events prior to the date of execution of [the] Agreement," 20 the Release Agreement covers Lazar's qui tam claims made in the April 30, 2018 21 complaint in this case. Id. at 3, 6. Defendants reason the Court should dismiss the 22 complaint because those claims are covered by the Release Agreement. Id. at 6. 23 However, the Release Agreement is not attached to the complaint or referenced in it. 24 "As a general rule, 'a district court may not consider any material beyond the 25 pleadings in ruling on a Rule 12(6)(6) motion."' Lee v. City ofLos Angeles, 250 F Jd 26 668, 688 (9th Cir. 2001) (citation omitted). "When ruling on a Rule 12(6)(6) motion to 27 dismiss, if a district court considers evidence outside the pleadings, it must normally 28 convert the 12(6)(6) motion into a Rule 56 motion for summary judgment, and it must 4 3: 18-cv-00822-BEN-BGS 1 give the nonmoving party an opportunity to respond." United States v. Ritchie, 342 F .3d 2 903, 907-08 (9th Cir. 2003). "A court may, however, consider certain materials3 11 documents attached to the complaint, documents incorporated by reference in the 4 complaint or matters of judicial notice-without converting the motion to dismiss into a 5 motion for summary judgment." Id. ( citation omitted). 6 Here, Defendants do not argue there is any infirmity with the complaint. Instead, 7 they argue that the Release Agreement bars this suit. Mot., ECF No. 34, 5-6. Because 8 the Release Agreement is not contained within or attached to the complaint, it must fall 9 within one of the exceptions articulated in Ritchie for the Court to consider it here. 10 Defendants argue the Court may consider the Release Agreement under both ( 1) the 11 incorporation by reference doctrine and (2) judicial notice exception. Mot., ECF No. 34, 12 5-6. The Court addresses each argument below. Incorporation by Reference Doctrine Does Not Apply 13 1. 14 Defendants first argue the Release Agreement should be considered under the 15 incorporation by reference doctrine. Mot., ECF No. 34, 5. "[D]ocuments whose contents 16 are alleged in a complaint and whose authenticity no party questions, but which are not 17 physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) 18 motion to dismiss." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). "Such 19 consideration does 'not convert the motion to dismiss into a motion for summary 20 judgment.'" Id. (citation omitted). 21 Here, Lazar does not dispute the authenticity of the Release Agreement. However, 22 Lazar also does not mention the Release Agreement in the complaint, and the claims in 23 the complaint do not depend on the Release Agreement. Put differently, Branch sets 24 forth a two-part test for the incorporation by reference doctrine: (1) undisputed 25 authenticity and (2) reference in the complaint. 14 F.3d at 454. Both criteria must be met 26 before the Court will consider matter outside the complaint based on incorporation by 27 reference, and both criteria are not met here. See Cejas v. Brown, Case No. 18-cv-00543- 28 II WQH-JLB, 2019 WL 201406, at *5 (S.D. Cal. Jan. 15, 2019) (declining to take judicial 5 3: l 8-cv-00822-BEN-BGS 1 notice of a settlement agreement based on incorporation by reference doctrine). 2 Accordingly, the Court declines to consider the Release Agreement pursuant to 3 incorporation by reference. 4 2. 5 Next, Defendants argue the Court may take judicial notice of the Release The Public Records Exception Does Not Apply 6 Agreement as a matter of public record pursuant to Rule 201 of the Federal Rules of 7 Evidence. Mot., ECF No. 34, 5. "Judicial notice under Rule 201 permits a court to 8 notice an adjudicative fact if it is 'not subject to reasonable dispute."' Khoja v. Orexigen 9 Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (quoting Fed. R. Evid. 201(b)). "A 10 fact is 'not subject to reasonable dispute' if it is 'generally known,' or 'can be accurately 11 and readily determined from sources whose accuracy cannot reasonably be questioned.'" 12 Id. (quoting Fed. R. Evid. 201(b)(l)-(2)). Accordingly, "[a] courtmaytakejudicial 13 notice of matters of public record without converting a motion to dismiss into a motion 14 for summary judgment." Lee, 250 F .3d at 689 (quotation marks and citation omitted); see 15 also Reyn 's Pasta Bella LLC v. Visa USA, Inc., 442 F.3d 741, 746 n. 6 (9th Cir. 2006) 16 (noting courts may take judicial notice of filings and other matters of public record). 17 Here, Defendants argue the "Release Agreement's existence is 'not subject to 18 reasonable dispute,' and the Court should take judicial notice of the fact of its existence, 19 including the provision in which Lazar released [Defendants] from all causes of action 20 arising out of all acts and events prior to its 2019 execution." Mot., ECF No. 34, 5. 21 However, Defendants fail to show that the Release Agreement is a court filing or other 22 matter of public record. Instead, it appears the Stipulation for Dismissal, not the Release 23 Agreement, was actually filed with the superior court in the State Court Action. 24 Stipulation, ECF No. 34-5. 25 "Courts in this District have declined to take judicial notice of settlement 26 agreements that have not been filed in a court and are therefore not a matter of public 27 record." Cejas, 2019 WL 201406, at *4 (citing, among others, Gallagher v. San Diego 28 Unified Port Dist., Case No. 08-cv-886-IEG-RBB, 2009 WL 311120, at *5 n. 8 (S.D. 6 3: l 8-cv-00822-BEN-BGS 1.- 1 Cal. Feb. 6, 2009)). These courts have reasoned that because the agreements are not a 2 matter of public record, they are not "capable of accurate and ready determination by 3 resort to sources whose accuracy cannot reasonably be questioned." Id. (citing Fed. R. 4 Evid. 20 l(b )(2). Moreover, these declinations serve a prudential purpose of clearly 5 delineating between an attack on the pleadings and a motion for summary judgment. Finally, the Court notes the Release Agreement was executed over one year after 6 7 Lazar's qui tam complaint was filed. The Ninth Circuit has previously stated that it is not 8 proper to consider a document made after the complaint was filed on a motion to dismiss. 9 See Marder v. Lopez, 450 F .3d 445, 448-49 (9th Cir. 2006). The court reasoned that 10 where a document, like the Release Agreement here, is created after the filing of a 11 complaint, it cannot be said that the complaint relies on the document. Id. Accordingly, 12 the Court declines to take judicial notice of the Release Agreement. 13 IV. 14 CONCLUSION For the reasons set forth above, the Release Agreement is not subject to judicial 15 notice and cannot be incorporated by reference. Accordingly, the Court does not 16 consider it for purposes of Defendants' Motion to Dismiss. As the Motion to Dismiss is 17 premised entirely on the contents of the Release Agreement, the Motion to Dismiss is 18 DENIED. 19 20 IT IS SO ORDERED. 11 Dated: June ~21 21 United States District Judge 22 23 24 25 26 27 28 7 3: l 8-cv-00822-BEN-BGS