Opinion
CV 99-06800 LGB (Ex).
October 6, 1999
ORDER REMANDING PLAINTIFF'S COMPLAINT
I. INTRODUCTION
In the instant motion, Plaintiffs seek to remand the present action to state court. Defendants removed Plaintiffs' action to this Court alleging federal question jurisdiction on three grounds: (1) the Plaintiff's claims are "artfully plead" qui tam actions under the False Claims Act, (2) Plaintiff's state law claims are pre-empted by the False Claims Act, 31 U.S.C. § 3729et seq., and (3) the resolution of Plaintiffs' first claim depends directly on the resolution of substantial and important questions of federal law. In support of their instant motion to remand, Plaintiffs argue that: (1) Plaintiffs have pled only state law claims, (2) there is no complete preemption of the state law claims, (3) the complaint does not present a federal question, and (4) the court should make Plaintiffs whole for this removal under 28 U.S.C. § 1447(c).
II. FACTUAL AND PROCEDURAL BACKGROUND
Defendants provide health care services for which they are reimbursed by the federal Medicare and state MediCal programs. Plaintiffs allege that Defendants knowingly submitted fraudulent claims for payment under Medicare and MediCal for non-reimbursable anti-unionization activities. See Com. at ¶¶ 41, 43, 45, 48, 56, 66.
Plaintiffs originally filed this action in the Los Angeles Superior Court for the state of California on May 20, 1999. In their complaint Plaintiffs alleged five claims for unlawful business practices in violation of California Business Professions Code § 17200, et al. Under section 17200, "unfair competition" includes: unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising. See Cal. Bus. Prof. Code § 17200. Therefore, if a company violates a state or federal law they may be found to have violated § 17200 as well. See id. However, a company does not necessarily need to violate a law to be in violation of § 17200 if the company acted unfairly. See id.; see also Mark A. Chavez, An Introduction to California's Unfair Competition Law; How to Use and Apply Business and Professions Code Section 17200, et seq., 1114 PLI/Corp 583, 591 (1999). In Plaintiffs' first claim they allege a violation under § 17200 based on a violation of 42 U.S.C. § 1395, a federal statute on claiming for Medicare. See Not. of Rem. Ex. A, 27. In the other four claims, Plaintiffs allege violations under § 17200 for violations of California statutes. See id. at 28-30.
Defendants removed Plaintiffs' action to this Court on July 1, 1999 after allegedly receiving notice of the complaint on June 1, 1999. Defendants alleged in their Notice of Removal that this Court has removal jurisdiction over Plaintiffs' complaint because: (1) Plaintiffs' state law claims are preempted by the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq.; (2) the resolution of Plaintiffs' first claim depends directly on the resolution of substantial and important questions of federal law; and (3) all of Plaintiffs' claims are artfully plead qui tam actions under the FCA, "disguised" as state claims. See Not. of Rem. ¶¶ 4-5.
On July 27, 1999, Plaintiffs filed the instant motion to remand their action to state court. Plaintiffs argue in the instant motion that their action should be remanded to state court because: (1) Plaintiffs have pled only state law claims, (2) there is no complete preemption of the state law claims, and (3) the complaint does not present a federal question. Plaintiffs also argue in the instant motion that the Court should make Plaintiffs whole for this removal under 28 U.S.C. § 1447(c) by awarding attorneys' fees. See P.'s Mot. of Rem. PA at i.
On September 13, 1999, Defendants filed an opposition and a request for judicial notice in support of their opposition. In Defendants' Opposition to Plaintiffs' Motion to Remand, Defendants argue: (1) each of the Plaintiffs' claims is completely preempted by the qui tam provisions of the False Claims Act, (2) in the alternative, federal jurisdiction exists because Plaintiffs' state law claims turn on the resolution of substantial and important federal questions, and (3) Plaintiffs' request for attorney fees should be denied. See D.'s Opp. at i. In Defendants' Request for Judicial Notice in support of their opposition, Defendants provide two Provider Reimbursement Review Board ("PRRB") decisions. In the first, St. Francis Hosp. v. Blue Cross Assoc. et al., PRRB Hearing Dec. No. 88-D28 (Sep. 1, 1988), the PRRB decided that a hospital giving a 10% wage increase two weeks before a union representation election was an allowable cost despite the fact that it was found to be an unfair labor practice by the National Labor Relations Board. See D.'s Req. Ex. 1. In the second decision, Stanford Univ. Hosp. v. Blue Cross Assoc., et al., PRRB Hearing Dec. No. 82-D72 (Mar. 17, 1982), the PRRB decided that costs spent to hire a consulting firm to assist hospital management during a unionization process of employees were allowable costs. See D.'s Req. Ex. 2. Defendants also seek judicial notice of portions of the Medicare Reimbursement Manual, specifically §§ 2180, 2180.1, 2180.2, 2180.3, and 2183, all relating to allowable costs related to union activities. See D.'s Req. Ex. 3.
Plaintiffs filed a reply to Defendants' opposition on September 20, 1999. In Plaintiffs' Reply, Plaintiffs argue: (1) that claims brought on behalf of Plaintiffs' members and the general public are not qui tam claims, (2) that whether Plaintiffs' complaint raises a "substantial" federal question is controlled by Merrell Dow and Utley, and (3) Plaintiffs are entitled to recover their attorneys' fees. See P.'s Reply at i.
III. COMPLETE PREEMPTION
A. Legal Standard
Federal preemption of a state law action will be found in three situations: (1) express preemption, where Congress has expressly preempted state actions under a particular statute, (2) field preemption, where Congress has so completely regulated in a field of law that it may be inferred that Congress intended to provide the only available remedies to particular actions, and (3) conflict preemption, where a state cause of action will conflict with a federal law or with the execution of Congress' full purpose and objectives. See English v. General Electric Co., 496 U.S. 72, 78-9 (1990); see also Industrial Truck Assoc., Inc. v. Henry, 125 F.3d 1305, 1309 (9th Cir. 1997).
The Supreme Court has expressed repeatedly the importance of federal courts using their discretion carefully in finding state laws preempted because of the importance in protecting federalism. See Donald v. Golden 1 Credit Union, 839 F. Supp. 1394, 1398 (E.D. Cal. 1993) (describing the Supreme Court's "grudging approach to complete preemption"); see also Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 68 (1987) (concurrence J. Brennan) (explaining that "removal jurisdiction exists when, as here, `Congress has clearly manifested an intent to make causes of action . . . removable to federal court.' . . . In future cases involving other statutes, the prudent course for a federal court that does not find a clear congressional intent to create removal jurisdiction will be to remand the case to state court").
In determining whether a state law is preempted the most important consideration is Congressional intent and purpose.See Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516-517 (1992). To determine Congressional intent and purpose we look to the text and structure of the statute. See CSX Transp. v. Easterwood, 507 U.S. 658, 662-64. If it is determined that Congress intended to preempt state law, then it is necessary to determine: (1) the preemptive scope and (2) whether the state law concerned falls within that scope. See Peters v. Union Pac. R.R. Co., 80 F.3d 257, 261 (8th Cir. 1996); see also CSX Transp. 507 U.S. at 664.
B. Analysis
1. Complete Preemption by FCA?
As cited by the Plaintiff in their Motion to Remand, it has been repeatedly held that the FCA does not completely preempt all other causes of action based on fraudulent claims to the Federal Government. See United States v. Mead, 426 F.2d 118, 124 fn. 4 (9th Cir. 1970) (finding that "[t]he [FCA] is not in derogation of the common law but is merely another remedy which the government can invoke to protect itself from fraud"); see also United States v. Borin, 209 F.2d 145, 148 (5th Cir. 1954) (finding that False Claims Act does not provide the exclusive remedy for fraudulent claims against the government); United States v. Silliman, 167 F.2d 607, 610 (3d Cir. 1948) (finding that the FCA did not deprive the United States, as plaintiff, from common law cause of action); Pooler v. United States, 127 F. 519, 520 (1904) (holding that the right of the United States to recover for a fraudulent claim under the False Claims Act is cumulative, and not exclusive). The Defendants in their opposition correctly noted that all of the Plaintiffs' cited cases involve the United States as plaintiff. See D.'s Opp. 6:18-24. And, although the Defendants did not note it, it may also be noted that all of the cases cited by Plaintiffs involve the issue of preempting common law actions and not actions under state statutes. See Mead, 426 F.2d at 124 fn.4, Borin, 209 F.2d at 148, Silliman, 167 F.2d at 610, and Pooler, 127 F. at 520. Therefore, as the present action involves a private cause of action under a state statute, the issue before this court is a narrow one: Is a claim by a private individual under statutory authority, completely preempted by the qui tam provision of the FCA?
2. Preemption of Private Cause of Action by Qui Tam Provision?
a. FCA qui tam provisions
The False Claims Act ("FCA") provides a federal remedy to the United States to recover for fraudulently made claims on federal funds. See 31 U.S.C. § 3729, et seq. The FCA contains aqui tam provision so private citizens may sue on behalf of the United States. See 31 U.S.C. § 3730. If the qui tam plaintiff prevails they can receive up to 30% of the proceeds of the case. See id. Under the FCA a defendant may be required to pay up to treble damages. See id. The FCA is the government's "primary litigative tool for combating fraud." See S. Rep. No. 99-345, at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266. In 1986, Congress amended the FCA to make qui tam suits more attractive to private citizens by increasing the amount a qui tam plaintiff could receive and by adding in protection schemes for "whistleblowers". See id.; see also Lisa Estrada,Note, An Assessment of Qui Tam Suits By Corporate Counsel Under the False Claims Act; United States Ex. Rel. Doe v. X Corp., 7 Geo. Mason L. Rev. 163, 166 (1998). The Congressional Committee on the Judiciary decided that, "[i]n the face of sophisticated and widespread fraud, . . . only a coordinated effort of both the Government and the citizenry will decrease this wave of defrauding public funds." S. Rep. No. 99-345 (1986),reprinted in 1986 U.S.C.C.A.N. 5266, 5266. Congress did include in the 1986 amendments a requirement that the qui tam Plaintiff be the "original source" to the government of the defendant's fraud. See Estrada, supra at 167. The purpose of this requirement is to discourage opportunistic lawsuits. See id.
b. Analysis
i. Language
Looking at the language of the FCA qui tam provisions there is no language of exclusivity that evidences intent by Congress to preempt other actions. See 31 U.S.C. § 3730. Defendants cited to many cases to support the proposition that preemption was not limited to ERISA, LMRA, and "tribal claims". See D.'s Opp. n. 2. However, all of the federal statutes in Defendants' cases, unlike § 3730, contain either exclusivity language or have been found to involve an area of law that requires national uniformity. See id. (citing Joe Boxer Corp. v. Fritz Trans. Int'l, 33 F. Supp.2d 851, 854 (C.D. Cal. 1998) (Carriage of Goods by Sea Act — expressly states, "this chapter shall apply to all contracts for carriage of goods by sea"); Peters v. Union Pac. R. Co., 80 F.3d 257, 262 (8th Cir. 1996) (Federal Railway Safety Act — expressly states: (1) "Laws . . . shall be nationally uniform . . .;" and (2) "A state may adopt . . . any law . . . until such time as the Secretary has adopted a rule . . . covering the same subject matter . . ."); New S.D., Inc. v. Rockwell Int'l Corp., 79 F.3d 953, 955 (9th Cir. 1996) (federal common law involving national security — found that federal interest required uniformity on government contracts relating to national security); Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 232-33 (4th Cir. 1993) (§ 301 of the Copyright Act — expressly states that any rights that fall under § 301 are governed "exclusively by this title."); Stamps v. Collagen Corp., 984 F.2d 1416, 1421 (5th Cir. 1993) (Federal Medical Device Act — expressly stating, "Any state requirement different from, or in addition to, federal law is preempted"); M.Nahas Co. v. First Nat'l Bank of Hot Springs, 930 F.2d 608, 610 (8th Cir. 1991) (Banking Act of 1864 — uniformity important to protect national banks)). Section 3730 does not contain language similar to the statutes discussed in the cases cited by Defendant. See 31 U.S.C. § 3730. Defendant does not cite to any case law and the Court was unable to find any that supports a requirment of national uniformity under § 3729. See D.'s Opp. 4-7.
Section 3729 defines when a person has violated § 3729. Section 3730 reads, "A person may bring a civil action for a violation of section 3729 for the person and for the United States Government." None of the language in either section suggest that any suit for fraud against the government must be brought under § 3729, only that § 3729 provides a cause of action for such a fraud. There is an exception to this in § 3730(b)(5) which reads, "When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based upon the facts underlying the pending action." This section seems to suggest that if there was a suit pending under § 3730 a person might be preempted from bringing a state cause of action if it was based upon the same set of circumstances demonstrating fraud. However, this would be a defensive preemption, not field preemption as the Defendants are alleging in their Opposition, and therefore would not provide federal question jurisdiction. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 393 (1987) (stating that a case may not be removed based upon a defense of federal preemption).
ii. Structure
Looking outside the language of the statute, there is no evidence that Congress intended to foreclose all other actions by private citizens on claims of fraudulent claims on the Government. Defendants point to the Senate Report issued on the 1986 amendments to the FCA to prove that Congress intended thequi tam suit under the FCA to be the sole cause of action by a private citizen against the government. See D.'s Opp. at 4-5. Defendants specifically cited to lines that read: "Unlike most other types of crimes or abuses, fraud against the Federal Government can be policed by only one body — the Federal Government. State and local law enforcement are normally without jurisdiction where federal funds are involved." Id. However, this is hardly conclusive proof or even that persuasive, that "Congress has clearly manifested an intent to make causes of action . . . removable to federal court." See Metropolitan Life, 481 U.S. at 68. When the lines are taken in context of the entire Senate Report, they suggest that Congress intended to expand the scope of actions against Government defrauders by private citizens not limit them. See S.Rep. No. 99-345, (1986),reprinted in 1986 U.S.C.C.A.N. 5266.
Looking within the statute, Defendants cite to the procedural provisions required for a qui tam suit (e.g. bringing the suit in the name of the United States, serving the complaint on the United States Attorney's Office, the right of the government to investigate and dismiss the suit, etc.) as proof of Congressional intent to preempt the field. See D.'s Opp. 5-6. This argument is somewhat persuasive in demonstrating that Congress intended to protect the Government's cause of action and a state action that conflicts with that action would be preempted. See 31 U.S.C. § 3730; see also Hoefer v. Fluor Daniel, Inc., 50 F. Supp.2d 975 (C.D. Cal. 1999) (holding that remedies allowed under state law conflicted with FCA and therefore were preempted). However, without any further evidence of Congress's intent to foreclose all other private actions based on fraudulent claims against the Government, and with Congress's stated purpose in the 1986 amendments to increase qui tam suits to deter "sophisticated and widespread fraud," it does not appear that the qui tam provision of the FCA preempts all other private actions based upon fraudulent claims against the United States Government.
Section 17200 itself does not conflict with Congress' purpose in implementing the 1986 amendments. Unlike the qui tam suit, which provides for up to 30% recovery for a qui tam plaintiff on treble damages, the only remedies under § 17200 are restitutionary damages and injunctive relief. See 31 U.S.C. § 3729, et seq.; Cal. Bus. Prof. Code §§ 17200, et seq.;see also Bank of the West v. Superior Court, 2 Cal.4th 1254, 1266 (1992). Therefore, § 17200 does not encourage opportunistic lawsuits, as guarded against by Congress under the FCA. See 31 U.S.C. § 3729, et seq. and discussion supra III(B)(2) (a).
3. Plaintiffs do not allege a qui tam suit
Even if § 3730 preempted state statutes, the Plaintiffs' suit under § 17200 would not fall within the scope of that preemption. Although Plaintiffs, based on their alleged facts, could have brought an action under § 3730, this is not dispositive that their cause of action would be preempted by § 3730. Section 3730 allows private citizens to sue for the Federal Government's claims. See 31 U.S.C. § 3730. The Plaintiffs are not suing for the Federal Government's claims or harms to the Federal Government, but for harms to members of the Plaintiffs' organization. See Mot. to Rem. PA at 10:4-10. Harms to the Plaintiffs' members would not be recoverable under § 3730. See 31 U.S.C. § 3730. Therefore, the causes of action are not concurrent. See Buster, 104 F.3d 1186, 1188 (9th Cir. 1997) (finding that since ERISA only authorizes particular types of actions, suit by fiduciary seeking relief which is not so authorized is not completely preempted). If there is any conflict that does exist between § 17200, et seq. and the FCA, the Defendants would be able to raise the defense of federal preemption, but this does not allow for removal. See Caterpillar, 482 U.S. at 393 (ruling that removal cannot be based on defense of federal preemption); see also Day v. ATT Corp., 63 Cal.App.4th at 325 (finding that where restitution under § 17200 was in conflict with "federal filed rate doctrine," restitution was preempted, but injunction relief was not).
See United States ex rel. Davis v. Long's Drugs, Inc., 411 F. Supp. 1144, 1146-47 (S.D. Cal. 1976) (holding that Medicare and MediCal claims fall within the False Claims Act).
C. Conclusion
Based on the foregoing, Defendants' have not demonstrated that the False Claims Act preempted Plaintiffs' cause of action. Therefore, as recommended by Justice Brennan in Metropolitan, "the prudent course for a federal court that does not find a clear congressional intent to create removal jurisdiction will be to remand the case to state court." Metropolitan, 481 U.S. at 68 (concurrence J. Brennan).
IV. SUBSTANTIAL AND IMPORTANT FEDERAL QUESTION
A. Legal Standard
A state claim may be removable to federal court under federal question jurisdiction if it raises an issue of federal law. See Franchise Tax Board, 463 U.S. 1, 9 (1983). A claim may raise an issue of federal law if "the vindication of a right under state law necessarily turns on some construction of federal law."Franchise, 463 U.S. at 9. The "mere presence of a federal issue in a state cause of action does not automatically confer federal question jurisdiction. . . ." Merrell, 478 U.S. at 813. The establishment of the right to relief under the state claim must require the "resolution of a substantial question of federal law in dispute between the parties." Franchise, 463 U.S. at 13 (emphasis added); see Berg v. Leason, 32 F.3d 422, 423 (9th Cir. 1994). "The fact that federal law plays a preliminary, threshold role in the case of state claims . . . does not, by itself, transform such state claims into federal ones." Hunter, 746 F.2d 635, 646 (9th Cir. 1984).
Although an action may be removable on federal question grounds, removal is not mandatory. There is a strong presumption of concurrent state court jurisdiction. See Taffin v. Levitt, 493 U.S. 455, 466-67 (1990). The fact that a state law cause of action may require reference to federal law is not enough. See Mangini v. R.J. Reynolds Tobacco Co., 793 F. Supp. 925, 927 (N.D. Cal. 1992).
B. Analysis
Plaintiffs' first claim alleges that Defendants violated section 17200 of the California Business and Professional Code by violating 42 U.S.C. § 1395 (x)(v)(1)(N) and 1395(g)(a).See Not. of Rem. Ex. A 27. These statutes make submitting fraudulent Medicare claims unlawful. See 42 U.S.C. § 1395 (x) (v)(1)(N) and 1395(g)(a). Thus, in order to resolve Plaintiffs' first claim, this Court would first have to determine whether Defendants violated provisions of the Medicare Act. See Cal. Bus. Prof. Code § 17200, et seq.
In Merrel Dow Pharmaceuticals v. Thompson, 478 U.S. 804 (1986), the Supreme Court decided that where a federal statute does not provide a private cause of action and that federal statute is an element in a state cause of action, the federal statute will not raise a substantial question of federal law for purposes of removal jurisdiction because to hold otherwise would be contrary to Congressional intent. See Merrell, 478 U.S. at 814; see also Utley v. Varian Assoc., Inc., 811 F.2d 1279 (9th Cir. 1987) (finding that because of the rule in Merrell a claim was not removable if based on federal law that does not provide a private cause of action). Therefore, the present action, based on the Medicare Act, is not removable because §§ 1395, et seq., do not provide a private cause of action. See Merrell, 478 U.S. at 814; Utley, 811 F.2d at 1283; see also 42 U.S.C. § 1320a-7a and 1320a-7b (giving the civil and criminal penalties for filing false information to the Medicare program). See generally discussion supra III (B)(3) (discussing how qui tam action does not provide a private cause of action).
C. Conclusion
Based on the foregoing, this case is remanded because it does not raise a substantial and important federal question.
V. ATTORNEYS' FEES
An award of attorney fees is inappropriate where the defendants' attempt is "fairly supportable" and there is no bad faith. See Schmitt v. Insurance Co. Of No. America, 845 F.2d 1546, 1552 (9th Cir. 1988). The Plaintiffs have not shown bad faith on the part of the Defendants and the Court finds none. Furthermore, Defendants removal was "fairly supportable." As such, an award of attorney fees on the present motion would be inappropriate. See id.
VI. CONCLUSION
Based on the foregoing, Plaintiffs' motion to remand is GRANTED. Furthermore, Plaintiffs' demand for sanctions is DENIED. As such Defendant's motion to dismiss scheduled for October 18, 1999 is MOOT.
IT IS SO ORDERED.