Opinion
No. 3-94-0515
September 14, 1995
ORDER
Pending before the Court is a Motion to Dismiss or, in the Alternative, Motion for Summary Judgment filed by Defendants, American Healthcorp, Inc. and Diabetes Treatment Centers of America, Inc., to which Plaintiff A. Scott Pogue has responded. For the reasons more fully discussed in the accompanying Memorandum, Defendants' Motion for Summary Judgment is hereby DENIED. However, Defendants' Alternative Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted is hereby GRANTED. Consequently, this case is hereby DISMISSED.
It is so ORDERED.
MEMORANDUM
Pending before the Court is a Motion to Dismiss or, in the Alternative, Motion for Summary Judgment filed by Defendants, American Healthcorp, Inc. ("AHC") and Diabetes Treatment Centers of America, Inc. ("DTCA"), to which Plaintiff A. Scott Pogue ("Mr. Pogue") has responded. Defendants have moved to dismiss this action under Rule 12(b)(6) of the Federal Rules of Civil Procedure, contending that the Complaint fails to state a claim upon which relief can be granted. Alternatively, Defendants have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, claiming that the release signed by Mr. Pogue prohibits him from bringing this suit against Defendants. The Court will first address Defendants' Motion for Summary Judgment and then consider their Motion to Dismiss.
Mr. Pogue filed this qui tam action under the False Claims Act ("FCA"), 31 U.S.C. § 3729-3733 (1983 Supp. 1995), in the name of the United States pursuant to 31 U.S.C. § 3730(b)(1), which allows a private party to bring a civil action on behalf of the United States against persons who defraud the government in violation of 31 U.S.C. § 3729. The Defendants named in this action are Mr. Pogue's former employer, DTCA; AHC, parent company of DTCA; West Paces Medical Center ("West Paces"); five individual physicians; and a number of John Doe defendant hospitals and physicians.
Mr. Pogue became aware of the facts upon which he bases the allegations made in his Complaint while he was employed at DTCA as the Director for Marketing and Director of Development. After eighteen months with DTCA, Mr. Pogue was terminated from his employment on February 28, 1994. Shortly after his termination, Mr. Pogue investigated the possibility of bringing claims against his former employer, including a qui tam action under the FCA. To this end, Mr. Pogue hired an attorney, Mr. Vincent Zuccaro ("Mr. Zuccaro"), to negotiate the terms of the "FULL, FINAL AND COMPLETE RELEASE AND DISCHARGE OF ALL CLAIMS, COVENANT NOT TO SUE AND INDEMNITY AGREEMENT" (the "Agreement") offered to him by DTCA. Mr. Pogue retained Mr. Zuccaro for purposes of negotiating the Agreement but sought the advice of other counsel regarding the possibility of bringing a qui tam action.
At all times while negotiating the Agreement, Mr. Pogue was also actively pursuing the possibility of bringing a qui tam action against DTCA. The bases for this qui tam action is summarized as follows. Mr. Pogue alleges that Defendants were involved in a scheme by which individual physicians would refer their Medicare and Medicaid patients to West Paces for treatment in violation of federal anti-kickback and self-referral statutes. As a consequence of these referrals, Defendants caused to be submitted to the government false and fraudulent claims. Plaintiff alleges that these claims are false and fraudulent because had the government been aware of these violations, Defendants would not have been able to participate in Medicare and Medicaid programs. Therefore, by submitting the claims to the government, West Paces, with the help of the other Defendants, fraudulently implied that the claims were not being submitted in violation of federal laws that would prevent it from participating in Medicare and Medicaid programs.
Mr. Pogue asserts that before signing the Agreement he consulted with his attorneys, Mr. Ralph Mello ("Mr. Mello") and Mr. Larry Crain ("Mr. Crain"), regarding the effect of the Agreement on his qui tam action. Whereupon, Mr. Mello and Mr. Cram informed him that they believed the Agreement would not effect his qui tam action. After negotiations, Mr. Pogue executed the Agreement on May 16, 1994 and was paid $13,000 and given the right to receive bonuses on certain projects underway at the time. The Agreement provides, in pertinent part:
8. Pogue does hereby release and forever discharge for himself, his heirs successors, administrators and assigns, the Company, its agents, directors, officers or employees from any and all legal claims, causes of action, agreements, obligations, liabilities, damages and or demands whatsoever at law or in equity, in any federal or state court or before any federal or state commission, agency or board, specifically including but not limited to, any rights or claims he may have arising under any applicable state or federal employment discrimination laws or the Age Discrimination in Employment Act, through the date this Agreement is executed, which he, his successors and assigns had, has or may have, against the Company, its agents, directors, officers or employees or their successors relating in any way to or arising out of his employment with the Company and/or termination of his employment with the Company.
(Docket Entry No. 40, Exhibit D, p. 2). Heeding the advice of his attorneys that this language did not bar his qui tam action, Mr. Pogue filed this suit on behalf of the United States on June 23, 1994. On February 6, 1995, the United States elected not to intervene in this action at this time.
Defendants DTCA and AHC have filed this Motion for Summary Judgment, arguing that the Agreement signed by Mr. Pogue prohibits him from bringing a qui tam action on behalf of the United States. In ruling on a motion for summary judgment, this Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A party may obtain summary judgment if the evidentiary material on file shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of satisfying the court that the standards of Rule 56 have been met. See Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir. 1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact which is disputed. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 248. If so, summary judgment dismissal is inappropriate.
Defendants contend that the broad language of the Agreement prohibits Mr. Pogue's qui tam action on behalf of the United States. Specifically, the language of the Agreement provides that Mr. Pogue releases DTCA from "any and all legal claims . . . relating in any way to or arising out of his employment with the Company and/or termination of his employment with the Company." (Docket Entry No. 40, Exhibit D, p. 2). As Mr. Pogue is well-educated and was aware of the possibility of bringing a qui tam action against Defendants at the time of signing the Agreement, Defendants contend that he must of understood the import of this language to bar him from bringing this suit. See Coleson v. Inspector General of Dept. of Defense, 721 F. Supp. 763, 768-69 (E.D. Va. 1989) (finding that a release agreement in which the plaintiff agreed "not to institute any action or actions arising out of his employment . . ." prohibited the plaintiff, who was obviously intelligent and well-educated, from bringing a qui tam action against his employer and others); Robbins v. Desnick, No. 90-C2371, 1991 U.S. Dist. LEXIS 418 (N.D. Ill. Jan. 10, 1991) (holding that a broad and general release signed by the plaintiff was sufficient to bar a qui tam action filed by the plaintiff on behalf of the United States); United States ex rel. LaValley v. First Nat'l Bank of Boston, No. 86-236-MLW, 1994 U.S. Dist. LEXIS 15386 (D. Mass. Oct. 13, 1994) (recognizing that signing a release would preclude a relator from bringing a qui tam action).
Mr. Pogue argues that the Agreement does not bar his claim because the express language of the Agreement does not demonstrate that the parties intended to include a qui tam action within the scope of the release provision. He further contends that even if the Agreement could be considered to bar this suit, the Agreement would be void as against public policy.
For purposes of analysis, the Court assumes that the Agreement encompasses Mr. Pogue's right to bring a qui tam action but finds, nonetheless, that this provision of the Agreement is unenforceable as against public policy. In so finding, the Court agrees with the recent decision of the Ninth Circuit in United States ex rel. Green v. Northrop Corp., ___ F.3d ___, No. 92-56392, 1995 WL 408510 (9th Cir. July 12, 1995). The facts of Green are very similar to the facts underlying the present case. Mr. Green was employed by the defendant, Northrop Corporation ("Northrop"). During his employ, he claimed to have discovered that Northrop had double charged the government. Mr. Green alleges that he was terminated once he brought this information to the attention of certain Northrop officials. He then entered into a Settlement Agreement and General Release with Northrop by which he agreed to "release, acquit and forever discharge Northrop [and its] employees . . . from any and all claims . . . which he had or held, or has or holds, or may claim to have or to hold by reason of any and all matters . . . including, but not limited to, those arising out of or relating to the Action and/or Green's employment with and separation from Northrop." Id. at *1. After signing the agreement, Mr. Green filed a qui tam action on behalf of the United States against Northrop. After investigating Mr. Green's allegations, the United States chose not to intervene in the suit. The defendants then moved for summary judgment, contending that the agreement signed by Mr. Green prohibited him from bringing a qui tam action against them. The district court agreed with the defendants, finding that the language of the agreement was sufficiently broad to encompass Mr. Green's claim under the FCA and that the policy of encouraging settlements and enforcing agreements required that the agreement be upheld. Id. at *2. The Ninth Circuit disagreed.
In Green, the Ninth Circuit first addressed what law must be applied to determine the enforceability of the release. As Congress had not spoken on the issue of the enforceability of releases signed prior to bringing a qui tam action, the court determined that it was necessary to look to federal common law. Id. at *5-*7 Accordingly, the court based its decision upon the test established by the Supreme Court in Town of Newton v. Rumery, 480 U.S. 386 (1987), which provides that "a promise is unenforceable if the interest in its enforcement is outweighed in the circumstances by a public policy harmed by enforcement of the agreement." Id. at 392. In applying this test, the Green court further reasoned that:
where a substantial public interest favoring nonenforcement is present, the interest in settlement is insufficient. Otherwise there would be no point to the Rumery balancing test: since the interest in settlement is present in every case, every settlement agreement would be enforced. Clearly, then, when there is a substantial public interest that would be harmed by enforcement . . . the party seeking enforcement must, at the least, advance some important interest in addition to the interest in settlement.
Green, 1995 WL at *7 (quoting Davies v. Grossmont Union High School Dist., 930 F.2d 1390, 1398 (9th Cir. 1991), cert. denied, 501 U.S. 1252 (1991)). Under this analysis, the court determined that the public interest in detecting fraud on the government, which the FCA seeks to promote, would be substantially impaired by the enforcement of the release, and therefore, outweighed the interest in encouraging settlements and enforcing agreements. Green, 1995 WL at *8-*14.
This Court agrees with the Ninth Circuit decision in Green. Both parties agree that federal common law must be applied to determine the enforceability of the Agreement entered into by Mr. Pogue. They disagree, however, as to what the state of the federal common law is on this issue. Defendants point to three federal district court cases in which the court either explicitly or implicitly upheld the validity of a release agreement that would prevent the party to the agreement from bringing a qui tam action against his former employer. See Coleson v. Inspector General of Dept. of Defense, 721 F. Supp. 763, 768-69 (E.D. Va. 1989); Robbins v. Desnick, No. 90-C2371, 1991 U.S. Dist. LEXIS 418 (N.D. Ill. Jan. 10, 1991); United States ex rel. LaValley v. First Nat'l Bank of Boston, No. 86-236-MLW, 1994 U.S. Dist. LEXIS 15386 (D. Mass. Oct. 13, 1994). None of these cases, however, considered the public policy issues addressed in Green. This Court agrees with the Ninth Circuit that enforcement of release agreements that include claims against an employer under the FCA would subvert the purposes of that Act. In enacting the qui tam provision of the FCA, Congress intended to "set up incentives to supplement government enforcement" of the Act, United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994), by "encourag[ing] insiders privy to fraud on the government to blow the whistle on the crime." Wang v. FMC Corp., 975 F.2d 1412, 1419 (9th Cir. 1992) (citing H.R. Rep. No. 660, 99th Cong., 2d Sess. 22 (1986) and S. Rep. No. 345, 99th Cong., 2d Sess. 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5266). Upholding releases in which an employee agrees not to reveal the fraud engaged in by their employer would obviously stunt the Congress' efforts to protect the national treasury and deter fraud. The public's interest in the government's coffers is clearly substantial.
Defendants maintain that upholding the Agreement in the present case would not frustrate the purposes of the FCA because it does not affect the government's ability to pursue the action. While it is true that in the present case the United States is aware of Mr. Pogue's allegations of fraud, if the prevailing rule were that pre-filed releases were enforceable, the government may not ever become aware of allegations of fraud in the first place. See Green, 1995 WL at *11. Thus, the purposes of the FCA would still be frustrated by setting such a precedent in this case.
Applying the Rumery test to the present case leads this Court to the same conclusion reached by the Ninth Circuit in Green. In determining the enforceability of the Agreement, the Rumery balancing test requires that the Court weigh the interest of the public in protecting the national treasury and deterring fraud against the public policy of enforcing agreements and encouraging settlements. As the Court has concluded that the public has a substantial interest in protecting the government's coffers from fraud and Defendants have not established any interest beyond the general interests of enforcing agreements and encouraging settlements, the Court finds that "prefiling releases of qui tam claims, when entered into without the United States' knowledge or consent, cannot be enforced to bar a subsequent qui tam claim." Id. at *14. Accordingly, the Court hereby finds that the Agreement entered into by Mr. Pogue cannot be enforced to bar his qui tam claim, and Defendants' Motion for Summary Judgment must therefore be denied.
Defendants next contend that this action should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failing to state a claim upon which relief can be granted. Under Rule 12(b)(6), the Court may dismiss Plaintiff's Complaint "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984) (citing Conley v. Gibson, 355 U.S. 41, 145-46 (1957)). The Court may not grant the motion simply because it disbelieves some of the Complaint's factual allegations. Neitzke v. Williams, 490 U.S. 319, 327 (1989). "While this standard is decidedly liberal, it requires more than the bare assertion of legal conclusions." In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988). Plaintiff must plead facts sufficient to establish all of the essential elements of the doctrine under which he seeks relief. Scheid, 859 F.2d at 436 (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984), cert. denied, 470 U.S. 1054 (1985). Because Plaintiff has failed to establish all of the elements necessary to establish a claim under the FCA, the Court hereby grants Defendants' Motion to Dismiss pursuant to Rule 12(b)(6)
The Federal Circuit clearly set forth the elements necessary to establish a claim under the FCA in its recent decision in Young-Montenay, Inc. v. United States, 15 F.3d 1040 (Fed. Cir. 1994). To recover under the FCA, Plaintiff must establish:
(1) the [Defendants] presented or caused to be presented to an agent of the United States a claim for payment;
(2) the claim was false or fraudulent;
(3) the [Defendants] knew the claim was false or fraudulent; and
(4) the United States suffered damages as a result of the false or fraudulent claim.
Id. at 1043 (citing Miller v. United States, 550 F.2d 17, 23 (Ct.Cl. 1977)). The Court finds that Mr. Pogue has failed to allege facts that, even if true, would be sufficient to prove either the second or fourth element.
First, Mr. Pogue has failed to allege that any of the claims submitted by Defendant West Paces were themselves false. He has not alleged that the services were unnecessary, not rendered, or that there was some other miscalculation with regard to the care provided to the patients. Rather, he asserts that the claims are false because they were submitted in knowing violation of federal anti-kickback and self-referral statutes that would bar participation in Medicaid and Medicare programs. Even if Defendants submitted these claims in knowing violation of the anti-kickback and self-referral statutes, however, that would not render the claims themselves false.
Second, even if the claims could be considered false or fraudulent based upon the circumstances under which they were submitted, Plaintiff has failed to prove that the government was injured by the submission of these claims. Plaintiff does not allege that the services rendered to these patients was unnecessary; therefore, the patients would have been treated at some hospital, even if it was not West Paces. As the government pays the same amount for treatment under the Medicaid and Medicare programs regardless of where the treatment is rendered, it has suffered no injury. Accordingly, the Court finds that Plaintiff has not alleged facts sufficient to support a claim under the FCA.
For the foregoing reasons, Defendants' Motion for Summary Judgment is hereby DENIED. However, Defendants' Alternative Motion to Dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted is hereby GRANTED. Consequently, this case is hereby DISMISSED.