Capshaw et al v. White et al

Brief/Memorandum in Support

N.D. Tex.May 8, 2017

DM2\7796287.3 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION UNITED STATES OF AMERICA Ex rel. CHRISTOPHER SEAN CAPSHAW, KEVIN BRYAN, FRANKLIN BROCK WENDT, AND SHEILA WHATLEY; AND CHRISTOPHER SEAN CAPSHAW, KEVIN BRYAN, AND FRANKLIN BROCK WENDT and STATE OF TEXAS Ex. rel. CHRISTOPHER SEAN CAPSHAW, KEVIN BRYAN, FRANKLIN BROCK WENDT AND SHEILA WHATLEY; AND CHRISTOPHER SEAN CAPSHAW, KEVIN BRYAN, AND FRANKLIN BROCK WENDT Plaintiffs, vs. BRYAN K. WHITE, M.D.; BE GENTLE HOMEHEALTH, INC. also d/b/a PHOENIX HOME HEALTHCARE; SURESH G. KUMAR, R.N.; HOSPICE PLUS, LP.; GOODWIN HOSPICE, LLC; NORTH TEXAS BEST HOME HEALTH; VINAYAKA ASSOCIATES, LLC, d/b/a A&S HOME HEALTH CARE; GOODWIN HOME HEALTHCARE SERVICES, INC.; INTERNATIONAL TUTORING SERVICES, LLC, f/k/a INTERNATIONAL TUTORING SERVICES, INC., and d/b/a HOSPICE PLUS; and CURO HEALTH SERVICES, LLC f/k/a CURO HEALTH SERVICES, INC.; PHOENIX HOSPICE, L.P.; EXCEL PLUS HOME HEALTH INC.; HOME HEALTH PLUS, INC.; ONE POINT HEALTH SERVICES, LLC f/k/a/ ONE POINT HOME HEALTH LLC Defendants. § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § CIVIL ACTION NO. 3-12CV-4457-N (Consolidated with No. 3-13-cv-3392-B) JURY TRIAL DEMANDED Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 1 of 31 PageID 5645 DM2\7796287.3 BRIEF IN SUPPORT OF DEFENDANT SURESH KUMAR’S MOTION TO DISMISS RELATORS’ SECOND AMENDED JOINT COMPLAINT Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 2 of 31 PageID 5646 i DM2\7796287.3 TABLE OF CONTENTS Page I. INTRODUCTION ...............................................................................................................1 II. SUMMARY OF THE ALLEGATIONS .............................................................................3 III. ARGUMENTS AND AUTHORITIES ................................................................................4 A. The Court’s January 23, 2017 Order is Clear: The Dismissed Relators are Barred from Bringing a Qui Tam Action .................................................................4 B. The Court Previously Applied Rule 9(b) and Rule 12(b)(6) and Dismissed All Claims Against Kumar.......................................................................................6 C. The SAJC Fails to Satisfy the Strenuous Materiality Requirement for FCA Cases ........................................................................................................................8 D. The SAJC Failed to Remedy the Fatal Flaws Outlined in the Court’s Order ..........9 1. The SAJC is Still Replete with Conclusory Allegations that Cannot Support the Various FCA Causes of Action against Kumar under Rule 9(b) ....................................................................................................10 2. The SAJC Continues to Rely Upon Group Pleading, Violating Rule 9(b) ....................................................................................................12 3. The SAJC’s Improper Shotgun Pleadings Violate Rule 8 and Must Be Dismissed Under FED. R. CIV. P. (12)(b)(6) .........................................13 a. Counts One, Three, and Seven of the SAJC Fail to State a Claim Upon Which Relief May Be Granted and Don’t Satisfy Rule 9(b)’s Requirement as they Fail to State a FCA, TMFPA, or Anti-Kickback Statute or Stark Law Violation by Kumar .......................................................................16 b. The Alleged Stark Law Allegations Fail to State a Claim Upon Which Relief may be Granted ..............................................19 c. The Conclusory Conspiracy Allegations in Counts Five and Six Still Do Not Satisfy FED. R. CIV. P. 9(b)’s Particularity Requirement ...................................................................................21 d. There is No Legal Basis to Pierce the Corporate Veil of any of the Defendant Entities to Impose Liability upon Kumar ...........22 IV. CONCLUSION ..................................................................................................................23 V. PRAYER ............................................................................................................................23 Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 3 of 31 PageID 5647 ii DM2\7796287.3 TABLE OF AUTHORITIES Federal Cases Abbott v. BP Exploration & Prod., 2017 U.S. App. LEXIS 4446 (5th Cir. 2017) ..........................9 Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937 (2009) ................................................................15 Bates v. Laminack, 938 F. Supp. 2d 649 (S.D. Tex. 2013) ............................................................13 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................. 14-15, 23 Byrne v. Nezhat, 261 F.3d 1075 (11th Cir. 2001) ..........................................................................13 Kelly v. Huzella, 71 F.3d 878 (5th Cir. 1995) ................................................................................13 Meaux v. State Miss. (Dep’t of Pub. Safety/MS HWY Patrol), 2015 U.S. Dist. LEXIS 73749 (S.D. Miss. June 8, 2015) .................................................................................13 Papasan v. Allain, 478 U.S. 265 (1986) .................................................................................. 14-15 In re Parkcentral Global Litig., 884 F. Supp. 2d 464 (N.D. Tex. 2012) (Lynn, J.) ......................12 Patel v. Holiday Hospitality Franchising, Inc., 172 F. Supp. 2d 821 (N.D. Tex. 2001) (McBryde, J.) .................................................................................................................12 Peavy v. WFAA-TV, Inc., 221 F.3d 158 (5th Cir. 2000) ................................................................21 Sapic v. Gov’t of Turkm., 345 F.3d 347 (5th Cir. 2003) ................................................................22 U.S. ex rel. Fox Rx Inc. v. Omnicare, Inc., No. 11-962, 2013 WL 2303768 (N.D. Ga. May 17, 2013) ...................................................................................................................16 U.S. ex rel. Hagerty v. Cyberonics, 2016 U.S. App. LEXIS 22405 (1st Cir. Dec. 16, 2016) ....................................................................................................................................9 United Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ___, 136 S.Ct. 1989 (2016) ................................................................................................................... 8-9 United States ex rel. Bennett v. Medtronic, Inc., 747 F. Supp.2d 745 (S.D. Tex. 2010) ........................................................................................................................................19 United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301 (11th Cir. 2002) .................................................................................................................................. 15-16 United States ex rel. Colquitt v. Abbott Labs., 864 F. Supp. 2d 499 (N.D. Tex. 2012) (Lynn, J.) ........................................................................................................................13 Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 4 of 31 PageID 5648 iii DM2\7796287.3 United States ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-cv-2143, 2003 U.S. Dist. LEXIS 12626 (N.D. Tex. July 22, 2003) .......................................................21 United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) ................. 12, 15-16, 21 United States ex rel. Hebert v. Dizney, 295 F. App’x 717 (5th Cir. 2008) ....................................12 United States ex rel. Longhi v United States, 575 F.3d 458 (5th Cir. 2009) ...........................16, 19 United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F.App’x 890 (5th Cir. 2013) ..........................................................................................................................19 United States ex rel. Steury v. Cardinal Health Inc., 735 F.3d 202 (5th Cir. 2013) ......................15 United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997) ...................................................................................................................15 United States ex rel. Wall v. Vista Hospice Care, Inc., 778 F.Supp.2d 709, 717 (N.D. Tex. 2011) ......................................................................................................................19 United States ex rel. Willard v. Humana Health Plan of Texas, Inc., 336 F.3d 375 (5th Cir. 2003) ..........................................................................................................................19 United States ex rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450 (5th Cir. 2005) .................................................................................................................................16 United States v. Murphy, 937 F.2d 1032 (6th Cir. 1991)...............................................................21 Federal Statutes 31 U.S.C. § 3729 ............................................................................................................................21 31 U.S.C. § 3730(e)(4)(A) ...............................................................................................................6 42 U.S.C. § 1395nn(a)(1)-(b) .........................................................................................................20 42 U.S.C. § 1395nn et seq................................................................................................................3 Anti-Kickback Statute ............................................................................................................ Passim Ethics in Patient Referrals Act ............................................................................................... Passim False Claims Act .................................................................................................................... Passim State Statutes TEX. HUM. RES. CODE § 32.039(b) ................................................................................................18 Texas Medicaid Fraud Prevention Act .................................................................................. Passim Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 5 of 31 PageID 5649 iv DM2\7796287.3 Rules FED. R. CIV. P. 8 .......................................................................................................................13, 23 FED. R. CIV. P. 8(a)(2) ....................................................................................................................14 FED. R. CIV. P. 9(b) ................................................................................................................ Passim FED. R. CIV. P. 11 ...........................................................................................................................13 FED. R. CIV. P. 12(b) ........................................................................................................................5 FED. R. CIV. P. 12(b)(1) ....................................................................................................................1 FED. R. CIV. P. 12(b)(6) .............................................................................................................6, 14 FED. R. CIV. P. 12(e) .......................................................................................................................14 Regulations 42 C.F.R. § 411.351 .......................................................................................................................20 Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 6 of 31 PageID 5650 DM2\7796287.3 BRIEF IN SUPPORT OF DEFENDANT SURESH KUMAR’S MOTION TO DISMISS RELATORS’ SECOND AMENDED JOINT COMPLAINT I. INTRODUCTION Defendant Suresh Kumar (“Kumar”) moves to dismiss the pleading titled Second Amended Joint Complaint (“SAJC”)1 filed by Relator Christopher Sean Capshaw (“Capshaw” or “Relator”), who is joined by, without notice and authorization, Dismissed Relators Kevin Bryan (“Bryan”) and Franklin Brock Wendt (“Wendt”) (collectively, “Dismissed Relators”). Like the First Amended Joint Complaint that it replaces, the SAJC alleges that Defendants engaged in schemes to defraud the United States and the State of Texas by violating the False Claims Act (“FCA”) and the Texas Medicaid Fraud Prevention Act (“TMFPA”). After reviewing the core allegations for years, the United States and the State of Texas had declined to intervene on more than one occasion in this matter. For the reasons explained in detail below, Kumar seeks dismissal of the SAJC because the Dismissed Relators’ allegations clearly (1) are unauthorized in light of the Court’s Order entered January 23, 2017 (Dkt. #256) dismissing them from this lawsuit under Rule 12(b)(1) pursuant to the FCA’s first-to-file bar; (2) should be dismissed because the SAJC continues to fail to state a claim for which relief may be granted; and (3), because it fails to plead allegations of fraud with the specificity required by FED R. CIV. P. 9(b). PROCEDURAL BACKGROUND This litigation has a long and tortuous history. Over four and one-half years ago, on November 6, 2012, Capshaw filed the Original Complaint in this matter (“Capshaw Complaint”).2 1 This title is a misnomer. It’s actually the Third Amended Complaint since it follows the Joint Amended Complaint (See Dkt. #18), which consolidated Capshaw’s Complaint with Bryan’s Complaint and what Relators titled the First Amended Joint Complaint (hereinafter “FAJC”) (Dkt. #87). 2 Dkt. #2 (Complaint). Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 7 of 31 PageID 5651 DM2\7796287.3 2 Thereafter, on August 23, 2013, Bryan and Wendt filed their Complaint in Case 3:13-cv-03392-N (“Bryan Complaint”). Next, on May 20, 2014, Capshaw’s and Bryan’s complaints were consolidated a Joint Amended Complaint (“JAC”).3 Notably, for purposes of this Motion to Dismiss, the JAC was the first pleading to contain allegations of the so-called “Payola Scheme.” On June 26, 2015, the United States filed notice it was not intervening.4 On August 12, 2015, the State of Texas did the same.5 Then, on December 7, 2015, Relator Capshaw and the Dismissed Relators filed the First Amended Joint Complaint (“FAJC”) (which is actually the Second Amended Complaint) under seal.6 Before the FAJC was filed, Sheila Whatley (“Whatley”) had been a named defendant in Capshaw’s Complaint (but was not a relator or a defendant in Bryan’s Complaint). When Capshaw’s and Bryan’s Complaints were consolidated, Whatley remained as a defendant. Only after years had passed did Capshaw, Bryan, and Wendt try to transform Whatley into a relator (instead of being a defendant and coconspirator) by simply choosing to change her status in the FAJC. On January 27, 2016, the United States once again declined intervention.7 On February 24, 2016, Defendants moved to dismiss the FAJC.8 On October 4, 2016, the United States moved for permission to partially intervene against Bryan K. White, M.D. (“White”) and Kumar.9 On January 23, 2017, the Court entered an order dismissing Bryan, Wendt, and Whatley as relators.10 The Court also dismissed the claims against White and Kumar in their individual capacity; the conspiracy claims against all other Defendants; and gave Capshaw 30 days 3 Dkt. #18 (Joint Amended Complaint). 4 Dkt. #29 (United States’ Notice of Non-Intervention). 5 Dkt. #33 (State of Texas’ Notice of Non-Intervention). 6 Dkt. #87 (FAJC). 7 Dkt. #135 (Notice of Non-Intervention at this Time). 8 See Dkt. #146, #148, and #155. 9 Dkt. #234 (Motion to Intervene Partially for Good Cause Against Defendants Suresh Kumar and Bryan White). 10 Dkt. #256. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 8 of 31 PageID 5652 DM2\7796287.3 3 to replead and cure the noted deficiencies in his Complaint.11 (Emphasis added). The January 23, 2017 Order also denied the Government’s Motion to Partially Intervene as being moot in light of its rulings.12 On April 25, 2017, on reconsideration, the Court permitted the Government to partially intervene as to Kumar and White,13 and the Government filed its pending Complaint in Intervention.14 II. SUMMARY OF THE ALLEGATIONS Tracking the statutory language in different subsections of the FCA, the SAJC alleges that White and Kumar formed several healthcare entities that were used to defraud the United States and the State of Texas by causing false or fraudulent claims for payment under Medicare or Medicaid to be presented; by causing false statements/certifications or records material to false or fraudulent claims for payment to be made or used; and by conspiring to do such acts.15 The SAJC alleges that, through two related schemes, White, Kumar, and these entities violated the federal Anti-kickback Statute (“AKS”), the Stark law,16 and the TMFPA. One scheme is labeled the “Sham Loan, Equity, and Rent Scheme.” As to it, the SAJC alleges that some defendants paid for referrals from American Physician House Calls (“APH”) and American Physician House Calls Health Services (“APHHS”) and made loans to APH and APHHS that weren’t intended to be repaid; provided rent-free use of property; and, provided free equity interests in White- and Kumar- owned entities for patient referrals. The other purported scheme is labeled the “Payola Scheme.” The SAJC alleges that this scheme involved bribes and compensation provided to healthcare facilities and professionals for patient referrals by nursing 11 Id. 12 Id. 13 Dkt. #310. 14 Dkt. #311. 15 Dkt. #278 at ¶2. 16 The proper name of the Stark law is the “Ethics in Patient Referrals Act,” which is codified as amended at 42 U.S.C. § 1395nn et seq. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 9 of 31 PageID 5653 DM2\7796287.3 4 homes, assisted living facilities, doctors, and hospitals.17 Capshaw served as APH’s Finance Director.18 Bryan and Wendt held positions with Hospice Plus, L.P. (“Hospice Plus”). Capshaw is the sponsor of the Sham Loan, Equity, and Rent Scheme, while Dismissed Relators Bryan and Wendt are identified as the sponsors of the Payola Scheme. The 213-page SAJC alleges eight causes of action: as concerns Kumar, Counts One, Three, and Five allege that he violated the FCA by making false or fraudulent claims (supposedly tied to violations of the AKS and Stark law); by making a false record or statement; and by conspiring to violate the FCA through the Sham Loan, Equity and Rent Scheme. In turn, Counts Two, Four, and Six allege that he violated the FCA by knowingly making false or fraudulent claims; by making a false record or statement; and by conspiring to violate the FCA through the Payola Scheme. Finally, Counts Seven and Eight allege that both schemes were used to violate the TMFPA. III. ARGUMENTS AND AUTHORITIES A. The Court’s January 23, 2017 Order is Clear: The Dismissed Relators are Barred from Bringing a Qui Tam Action Capshaw should be held responsible for his role in continuing to waste judicial resources and force all defendants to incur unnecessary attorneys’ fees by allowing the Dismissed Relators to join him in the SAJC without notice or authorization and in clear defiance of the Court’s January 23, 2017 Order that dismissed Whatley, Bryan, and Wendt as co-relators.19 In the Order, the Court noted that a “relator cannot avoid the first-to-file jurisdictional bar ‘by simply adding factual details or geographic locations to the essential or material elements of a fraud claim against the same defendant described in a prior complaint.’”20 The Court also stated that “a relator cannot 17 Dkt. #278 at ¶8. 18 Id. at ¶10. 19 Dkt. #256 at p. 6. 20 Id. at p. 7. (citing U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378 (5th Cir. 2009). Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 10 of 31 PageID 5654 DM2\7796287.3 5 escape the first-to-file bar by consolidating a qui tam case with a previously filed qui tam action.”21 The Court explicitly noted that the Dismissed Relators’ additions were the same material or essential elements of fraud that had been described by Capshaw.22 In the January 23, 2017 Order, the Court also observed that the “Bryan Complaint alleged a similar scheme of kickbacks and fraudulent claims.” 23 Moreover, the fact that the Bryan Complaint alleged TMFPA violations for the first time did not matter as the TMFPA “false claims provisions encompass the same fraudulent scheme as Capshaw’s original FCA claims.”24 The Court determined that Whatley was barred by the first-to-file bar because she also failed the “essential facts” or “essential elements” test,25 explaining that “Whatley’s allegations only add detail to the previously alleged fraud allegations”(i.e., the Payola Scheme) and ruling that her claims are barred by the first-to-file rule. Capshaw seems to recognize the problems with his position regarding Whatley because he no longer attempts to include her as a relator in the SAJC. But, by allowing Bryan and Wendt to join him in the SAJC without notice or authorization, he is complicit in this gamesmanship to flout the Court’s order that dismissed them pursuant to Rule 12(b). Capshaw’s apparent reason for this is revealed in the SAJC: rather than repleading the Sham Loan, Equity, and Rent allegations based on his independent and original knowledge of the alleged facts, as the FCA requires, Capshaw merely copied and pasted the entirety of the Dismissed Relators’ allegations from the FAJC into the SAJC. Of course, he cannot rely on those facts. A cursory reading of the Capshaw Complaint against any of the three other complaints clearly demonstrates that he is not an original source of 21 Dkt. #256 p. 7. 22 Id. at p. 8. 23 Id. at p. 9. 24 Id. at 10. 25 Id. at p. 11. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 11 of 31 PageID 5655 DM2\7796287.3 6 the Payola allegations. Because Capshaw’s gamesmanship and disrespect of the Court’s order cannot be tolerated, the SAJC should be dismissed with prejudice. Capshaw’s Complaint focused on the Sham Loan, Equity, and Rent Scheme. The very labels attributed by Capshaw (and his then co-plaintiffs) to over 70 pages of the FAJC now copied into the SAJC identified the facts came from “Whatley” or from “Bryan and Wendt.” This effectively is a judicial admission by Capshaw that he lacks personal knowledge of the facts alleged by Whatley, Bryant, and Wendt as to the “Payola Scheme.” Capshaw’s legerdemain in bootstrapping facts to which he is not an original source in the SAJC is a last-ditch effort to avoid dismissal. But his secondhand knowledge of facts provided originally, and previously made public, by Whatley, Bryant, and Wendt fails to satisfy the original source exception to the Public Disclosure Bar, which requires that he have “direct and independent knowledge.” 31 U.S.C. § 3730(e)(4)(A). Simply put, to avoid dismissal, a relator must have firsthand knowledge of publicly- disclosed conduct, which Capshaw lacks as to both the SAJC’s 20+ pages of factual allegations attributed to Whatley and the 50+ pages of factual allegations attributed to Bryan and Wendt (cut- and-pasted from the FAJC). Therefore, all claims based upon the alleged Payola Scheme must be dismissed. While Kumar respectfully asks the Court dismiss the SAJC with prejudice, if the Court permits Capshaw to replead again, then he should be barred from amending the SAJC to allege any claims based upon the Payola Scheme (i.e., Counts Two, Four, Six, and Eight). B. The Court Previously Applied Rule 9(b) and Rule 12(b)(6) and Dismissed All Claims Against Kumar The Court previously analyzed Capshaw’s and the Dismissed Relators’ claims under the standards of Rule 9(b) and 12(b)(6) and ordered that all claims against Kumar in his individual Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 12 of 31 PageID 5656 DM2\7796287.3 7 capacity were dismissed. 26 The Court noted that the FAJC failed to allege a predicate violation of the FCA with sufficient particularity:27 “The FAJC does not allege Kumar or White, individually, made any false claims or statements to the government. Specifically, the FAJC fails to allege a single specific patient for which Kumar or White submitted a false claim. Nor does the FAJC allege White or Kumar caused a false claim to be submitted.”28 Of critical importance to Capshaw’s allegations, the FAJC was found to be “entirely devoid” of any allegations that Kumar was an individual participant in the Sham Loan, Equity, and Rent Scheme.29 Specifically, the Court stated that the FAJC made general allegations but lacked particularized allegations sufficient to support allegations that Kumar submitted false claims or improperly induced referrals, which are the “sine qua non of a False Claims Act violation.”30 Moreover, because the FAJC did not allege with sufficient particularity that Kumar used his entities as a sham to perpetrate a fraud, the pleadings were insufficient to impose personal liability.31 In particular, the Order stated the that “FAJC fails to allege that Kumar or White violated the AKS or Stark Act, individually, thereby fraudulently inducing a claim to be submitted to the government.”32 As discussed more fully below, the SAJC continues to fail to address the issues identified by the Court. Because of Capshaw’s continued failure to adequately allege FCA violations, and in light of his repeated and wholesale of incorporation of facts as to which he lacks personal, firsthand knowledge, the SAJC should be dismissed with prejudice. 26 Dkt. #256 at p. 21. 27 Dkt. #256 at p. 21. 28 Id. 29 Id. at p. 22. 30 Id. at pp. 22-23 citing U.S. ex rel. Gonzalez v. Fresenius Med. Care N. Am., 748 F. Supp. 2d 95, 116 (W.D. Tex. 2010) (internal citations omitted). 31 Id. at p. 24. 32 Id.at p. 22. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 13 of 31 PageID 5657 DM2\7796287.3 8 C. The SAJC Fails to Satisfy the Strenuous Materiality Requirement for FCA Cases Also fatally absent from the SAJC are allegations that the supposed fraud perpetrated by Kumar was material to the Government’s decision to pay the allegedly fraudulent claims. Recently, in United Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ___, 136 S.Ct. 1989 (2016), the Supreme Court explained that a “misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the FCA.” Id. at 1996. While the Court acknowledged that the term “material” means “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” (id., citing Neder v. United States, 527 U.S. 1, 16 (1999)), it further stated that the materiality standard is “demanding” and that the FCA is not “an all-purpose antifraud statute.” Id. at 1996, 2002 (citing Allison Engine Co. v. United States ex rel. Sander, 553 U.S. 662, 672 (2008)). Of particular importance to the issues in this case, the Escobar Court wrote that a “misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance.” Id. at 2003. In this regard, the SAJC’s allegations fall woefully short of satisfying the FCA’s stringent materiality requirement. As Capshaw has shown to be his pattern, he makes unsupported, conclusory allegations in the SAJC that pay lip-service to satisfying the FCA’s stringent materiality requirement by including nothing more than the phrase “material to a false or fraudulent claim for payment” in his allegations.33 Apart from citing the FCA’s language that uses the word material, the SAJC’s 200+ 33 Dkt. #278 at ¶¶2, 9, 38, 77, 78, 153, 158, 216, 218, 219, 272, 273, 336, 378, and 442. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 14 of 31 PageID 5658 DM2\7796287.3 9 pages include just 15 references that broadly conclude the defendants made false or fraudulent claims that were material to receiving payment.34 Unsurprisingly, these instances fail to allege how the alleged false or fraudulent statements were material to the payment of the claims. Instead, Capshaw simply alleges ipso facto that the representations were material. Yet Escobar was explicit: The FCA does not adopt such an “extraordinarily expansive view of liability” that would include “any statutory, regulatory, or contractual violation” could form the basis of a FCA claim. 136 S.Ct. at 2004. Since the SAJC fails to allege with sufficient particularity how Kumar’s supposed involvement in the Sham Loan, Equity, and Rent Scheme was material to the Government’s decision to pay certain claims, this too is a fatal pleading violation. Cf., U.S. ex rel. Hagerty v. Cyberonics, 2016 U.S. App. LEXIS 22405 (1st Cir. Dec. 16, 2016) (affirming dismissal of FCA complaint because the relators didn’t sufficiently connect facts to the submission of any false claims to the Government under Rule 9(b)), and Abbott v. BP Exploration & Prod., 2017 U.S. App. LEXIS 4446 (5th Cir. 2017) (affirming dismissal of FCA case because plaintiffs failed to create a genuine dispute of material fact as to materiality). As the Abbott court explained: As recently discussed by the Supreme Court in Escobar, “[t]he materiality standard is demanding." Id. at 2003. It debunked the notion that a Governmental designation of compliance as a condition of payment by itself is sufficient to prove materiality. Id. Further, the Court concluded that it is not “sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance.” Id. Abbott, 2017 U.S. App. LEXIS 4446 *6 (emphasis supplied). D. The SAJC Failed to Remedy the Fatal Flaws Outlined in the Court’s Order After he was granted another chance to amend his complaint to cure its patent deficiencies, Capshaw merely regurgitated the FAJC’s allegations. Capshaw’s efforts continue to fail since he 34 Id. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 15 of 31 PageID 5659 DM2\7796287.3 10 only uses conclusory allegations and labels without providing the necessary supporting facts. As noted in Kumar’s Brief in Support of His Motion to Dismiss Relators’ First Amended Joint Complaint (Dkt. No. 154), the FAJC relied upon “information and belief” and thereby failed to satisfy Rule 9(b)’s particularity requirements to support fraud allegations; was based upon conclusory allegations that do not satisfy Rule 9(b)’s requirements; impermissibly grouped all Defendants together; and provided no legal basis to pierce the corporate veil and hold Kumar individually liable. Indeed, in the SAJC, Capshaw relies on the Dismissed Relators’ regurgitated allegations of fact from the FAJC as if they were of his own personal knowledge, and does so again without addressing the deficiencies noted by the Court. Simply put, the SAJC fails to remedy the deficiencies as to which the Court allowed Capshaw to replead. Instead, Capshaw merely uses the unsupported, conclusory phrase “both individually and in their capacities as vice principals …” throughout the SAJC. But just repeating inadequate allegations from the FAJC, and adding this phrase, does not magically impute personal liability to Kumar. Since Capshaw has demonstrated that he cannot overcome the fatal flaws noted by the Court in the FAJC, he should not be allowed to replead since, among other reasons, it is now patently obvious that he cannot cure them. 1. The SAJC is Still Replete with Conclusory Allegations that Cannot Support the Various FCA Causes of Action against Kumar under Rule 9(b) In addition to basing critical allegations on information and belief, the SAJC includes dozens of problematic and conclusory allegations. For example, SAJC ¶9 alleges that White and Kumar used entities they own to present fraudulent claims to the Government (without providing particularity about the claims, such as when they were presented, by whom, to whom, for what, in what amount, and when, etc.). 35 It also globally alleges that “White and Kumar” presented 35 Dkt. #278 at ¶9. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 16 of 31 PageID 5660 DM2\7796287.3 11 (undescribed) payment requests for hundreds of millions of dollars to Medicare and Medicaid,36 before it makes a quantum leap of logic to assert that every [undescribed] annual certification that defendants made was false because the services were provided or procured by kickbacks.37 Again, instead of pleading the necessary facts to establish the claimed conspiracy, the SAJC relies upon conclusory allegations that defendants were “all participants and coconspirators in the Sham Loan, Equity, and Rent Scheme.” 38 Moreover, without supporting facts, the SAJC concludes that defendants knew about and agreed to “maintain the cycle of self-interested and kickback-induced patient referrals. . . .”39 In support of its global damage claims, the SAJC similarly concludes (without particularized factual support) that defendants fraudulently induced the government to make payments, in a transparent attempt to transmogrify all monies paid under the (undescribed) government agreements into damages.40 Absent factual support based on Capshaw’s personal and independent knowledge, he alleges in the SAJC that all defendant companies procured (unidentified) patient referrals using gifts, bribes, and rewards; White and Kumar used these methods to grow their healthcare companies;41 they created multiple hospice and home health entities to cycle patients;42 and Kumar helped Halcrow buy a Lexus to reward her for referrals.43 36 Id. at ¶2. 37 Id. at ¶52 (emphasis added). 38 Id. at ¶79. 39 Id. at ¶83. 40 Id. at ¶141. 41 Id. at ¶383. 42 Id. at ¶421. 43 Id. at ¶334. Additional conclusory allegations are found in ¶267 (Defendants bought patient referrals using cash, gift cards, lunches, dinners, happy hours, tickets to Rangers and Cowboys games, elaborate Christmas gifts, cars, manicures and pedicures, free power lift chairs for disabled patients, and the services of skilled nursing staff provided at no cost to “cooperative” area nursing homes and assisted living facilities); ¶273 (Defendants presented or caused to be presented tens of thousands of false and fraudulent claims); ¶277 (White and Kumar gave instructions to carry out the Payola scheme and had Halcrow transfer patients from one Medicare provider to another to continue the cycle of billing Medicare); ¶279 (a lunch was provided to the staff of The Forum at Park Lane and Kumar’s instruction to have Hospice Plus provide a full time Certified Nurse’s assistant are evidence that Kumar, White and Curo Health Services agreed to continue the Payola Scheme); ¶296 (Kumar instructed the marketing staff to purchase gift cards, alcohol, Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 17 of 31 PageID 5661 DM2\7796287.3 12 2. The SAJC Continues to Rely Upon Group Pleading, Violating Rule 9(b) The SAJC also fails to distinguish the purported conduct of various defendants, relying instead upon problematic group pleading to try to state actionable FCA claims. More specifically, it asserts claims against multiple defendants and relies on broad, generalized allegations that impermissibly lumps them together as though the conduct of one is the same as the conduct of the rest (which isn’t true). Critically, the SAJC improperly fails to set forth with particularity who was involved in the purported schemes and how each was involved. For good reason, this tactic has been rejected by judges in the Northern District of Texas and elsewhere: “Rule 9(b) requirements must be met as to each defendant. It’s impermissible to make general allegations that lump all defendants together; rather the complaint must segregate the alleged wrongdoing of one from another.” In re Parkcentral Global Litig., 884 F. Supp. 2d 464, 470-71 (N.D. Tex. 2012) (Lynn, J.) (footnotes omitted); Patel v. Holiday Hospitality Franchising, Inc., 172 F. Supp. 2d 821, 824- 25 (N.D. Tex. 2001) (McBryde, J.) (plaintiffs “lumped . . . defendants together and failed to sort out the wrongdoing of each….”). As the Fifth Circuit has explained, in FCA cases “broad claims against numerous defendants” that don’t “identify[] specific actions of specific individuals at specific times that would constitute fraud against the government” are insufficient under Rule 9(b). United States ex rel. Hebert v. Dizney, 295 F. App’x 717, 722 (5th Cir. 2008). See also United States ex rel. Grubbs expensive dinners, and other gifts to be given to referral sources); ¶301 (White or Kumar approved offering to provide the services of nurses or Certified Nurse’s Aides to nursing homes and assisted living facilities in order to induce referrals); ¶303 (Kumar sent Bryan to meet with his contacts, to provide a lunch, deliver paperwork for them, put on a party, or do some other favor for them … White and Kumar made it clear they were recruiting these doctors so they would refer more hospice patients to Hospice Plus); ¶336 (Kumar, White, International Tutoring, Curo and Hospice Plus knowingly made or used or caused to be made or used false statements or records material to a false or fraudulent claim for payment); ¶340 (all the patients for which Kumar allegedly provided power-lift chairs were Medicare patients); ¶334 (patients Kumar allegedly purchased from Brown were all Medicare patients); ¶277 (Kumar allowed a doctor to live in one of his homes, bought the doctor a car, and helped the doctor open a new cancer center in exchange for home health and hospice referrals); ¶351 (Kumar offered a nurse one-third of a new health care company he was forming in exchange for referrals); and, ¶439 (Kumar knowingly presented or caused false claims to be presented for payment and knowingly made or used or caused false or fraudulent records to be made or paid). Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 18 of 31 PageID 5662 DM2\7796287.3 13 v. Kanneganti, 565 F.3d 180, 192 (5th Cir. 2009) (“Under . . . the [FCA], the defendant must act with the purpose of getting a false claim paid by the Government.”); United States ex rel. Colquitt v. Abbott Labs., 864 F. Supp. 2d 499, 512 (N.D. Tex. 2012) (Lynn, J.) (“[Relator’s] only allegations applicable to Boston Scientific pertain to ‘Defendants’ generally. Thus, rather than containing particular details of a scheme by Boston Scientific . . . the [complaint] contains only general allegations.”). 3. The SAJC’s Improper Shotgun Pleadings Violate Rule 8 and Must Be Dismissed Under FED. R. CIV. P. (12)(b)(6) Making allegations that incorporate the preceding paragraphs of a complaint, regardless of relevancy, has been harshly criticized as a form of “shotgun pleading” that violates FED. R. CIV. P. 8’s requirement of a “short and plain statement” because it interferes with a court’s ability to administer justice. Byrne v. Nezhat, 261 F.3d 1075, 1129-1130 (11th Cir. 2001). See also Kelly v. Huzella, 71 F.3d 878 at *4 (5th Cir. 1995) (an unpublished, persuasive decision describing shotgun pleading as frivolous) and Bates v. Laminack, 938 F. Supp. 2d 649, 667 (S.D. Tex. 2013) (“What makes . . . a ‘shotgun’ pleading is the inclusion of irrelevant and unrelated facts not tied to specific causes of action such that the claims made are indeterminate and the defendant’s task in defending against them is significantly impaired.”). The problems associated with this practice are also ably described in Meaux v. State Miss. (Dep’t of Pub. Safety/MS HWY Patrol), 2015 U.S. Dist. LEXIS 73749, at *21 (S.D. Miss. June 8, 2015) (“Shotgun pleading-’in which the pleader heedlessly throws a little bit of everything into his complaint in the hopes that something will stick’-clouds the issues in a case, ‘escalates the cost of litigation for both the parties and the Court, requiring voluminous discovery and motions to pinpoint the specific issues for trial,’ and falls ‘dangerously close to Rule 11 territory.’ ”) (Emphasis added). Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 19 of 31 PageID 5663 DM2\7796287.3 14 The SAJC typifies an impermissible shotgun pleading. Each claim for relief incorporates by reference each and all of the preceding allegations, relevant or not. Each subsequent claim incorporates all preceding paragraphs.44 As a result, allegations that may be material to Count One (but not Count Eight) are made a part of Count Eight, and so on. Consequently, in the event the Court declines to dismiss the SAJC with prejudice, relief is hereby sought pursuant to FED. R. CIV. P. 12(e) for a more definite statement.45 A statement showing entitlement to relief under Rule 8(a)(2) must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The SAJC is deficient for not adequately stating a claim upon which relief may be granted. To avoid dismissal under Rule 12(b)(6), a complaint must first contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). In this case, instead of being a short and plain statement of claims, the 200+ page SAJC is the polar opposite: it’s dense and tortuous reading replete with a confusing jumble of conclusory allegations, impermissible group allegations, and critical allegations either based on information and belief or conclusory statements without the necessary, supportive facts. In reviewing a Rule 12(b)(6) motion to dismiss, a court accepts as true all well-pleaded allegations in a complaint; but while such allegations are generally accepted, courts are “not bound to accept as true a legal conclusion couched as factual allegations.” Papasan v. Allain, 478 U.S. 44 Dkt. # 278 at ¶450 incorporating ¶¶1-449; ¶455 incorporating ¶¶1-449; ¶460 incorporating ¶¶1-449; ¶465 incorporating ¶¶1-449; ¶470 incorporating ¶¶1-449; ¶475 incorporating ¶¶1-449; ¶480 incorporating ¶¶1-449; ¶487 incorporating ¶¶1-449. 45 Rule 12(e) states: If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, the party may move for a more definite statement before interposing a responsive pleading. The motion shall point out the defects complained of and the details desired. If the motion is granted and the order of the court is not obeyed within 10 days after notice of the order or within such other time as the court may fix, the court may strike the pleading to which the motion was directed or make such order as it deems just. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 20 of 31 PageID 5664 DM2\7796287.3 15 265, 286 (1986). Rather, such allegations should be disregarded. Id. A court also “may begin by identifying allegations that, because they are mere conclusions, are not entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 664, 129 S.Ct. 1937 (2009). As the Twombly Court explained, “a plaintiff’s obligation to provide the grounds for his entitlement for relief requires more than labels and conclusions, and a formulaic recitation of the elements of the cause of action will not do.” 550 U.S. at 555. To pass muster, the allegations must sufficiently cross the line from merely conceivable to a level plausibly suggesting that the plaintiff is entitled to relief. Id. at 557; see also Iqbal, 129 S.Ct. at 1947-49. The SAJC fails this standard. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949, citing Twombly, 550 U.S. at 555. Indeed, “[w]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged- but it has not ‘shown’-that the pleader is entitled to relief.” Iqbal, 129 S.Ct. at 1950. A complaint fails if, as here, “it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 129 S.Ct. at 1949, citing Twombly, 550 U.S. at 557. In United States ex rel. Steury v. Cardinal Health Inc., 735 F.3d 202, 205 (5th Cir. 2013), the Fifth Circuit found that a relator hadn’t properly pled his theory of fraud since he relied on conclusory pleadings. United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997) (requiring a factual basis for such beliefs). Here, as in United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301 (11th Cir. 2002), the SAJC “does not identify any specific claims . . . submitted to the United States or identify the dates on which those claims were presented . . . and [instead] relies exclusively on conclusory allegations of fraudulent billing.” (Internal citations omitted). See also Grubbs, 565 F.3d at 186, 190 & n. 32 (noting that in Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 21 of 31 PageID 5665 DM2\7796287.3 16 FCA cases Rule 9(b) still requires pleading “the time, place and contents of the false representation[s], as well as the identity of the person making the misrepresentation.”); accord, U.S. ex rel. Fox Rx Inc. v. Omnicare, Inc., No. 11-962, 2013 WL 2303768, at *7 (N.D. Ga. May 17, 2013) (citing Clausen, 290 F.3d at 1314 n.25) (“The Clausen court made plain its position that to plead a presentment claim, the minimum indicia of reliability required to satisfy the particularity standard are the specific contents of actually submitted claims, such as billing numbers, dates, and amounts.”). Indeed, the “ability to plead examples . . . is not a ‘license to base claims of fraud on speculation and conclusory allegations.’ ”). Critically, “[u]nderlying improper practices alone are insufficient to state a claim under the FCA absent allegations that a specific fraudulent claim was in fact submitted to the government.” United States ex rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450 (5th Cir. 2005). While the Fifth Circuit sometimes will allow a complaint to satisfy Rule 9(b) if relators cannot allege the details of an actual false claim submitted (namely, “by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted”), Plaintiffs here haven’t even complied with this lower standard. See Grubbs, 565 F.3d at 190. a. Counts One, Three, and Seven of the SAJC Fail to State a Claim Upon Which Relief May Be Granted and Don’t Satisfy Rule 9(b)’s Requirement as they Fail to State a FCA, TMFPA, or Anti-Kickback Statute or Stark Law Violation by Kumar A FCA complaint must allege: “(1) a false statement or fraudulent course of conduct; (2) that was made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money (i.e., that involved a claim).” United States ex rel. Longhi v United States, 575 F.3d 458, 467 (5th Cir. 2009) (citing United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008)) (internal citations omitted). As noted, the Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 22 of 31 PageID 5666 DM2\7796287.3 17 SAJC fails to identify with the required particularity any false claims or statements by Kumar, let alone ones that caused the government to pay monies to a defendant. The SAJC alleges that White and Kumar formed various healthcare entities and used them to defraud the United States and the State of Texas. Central to the purported Sham Loan scheme was an alleged arrangement between APH and APHHS and healthcare entities owned by White and Kumar. The SAJC further alleges that defendants D. Yale Sage (“Sage”), Kirk Short (“Short”), and Kumar own APH, which was operated by Sage, Short and Halcrow. It also alleges that the arrangement increased (unspecified) patient referrals from APH and APHHS to (unspecified) entities owned by White and Kumar, which thereby increased (unspecified) Medicare payments to these entities. The SAJC alleges that Sage and Short got a free equity interest in a White- and Kumar- owned healthcare entity in exchange for (unidentified) referrals; that White loaned $2,500,000 to APH, which wasn’t intended to be repaid (without any factual basis for this claim); and that rent- free office space was given to APH. It baldly claims that the purpose of the purported “kickbacks” was for referrals from APH and APHHS to the White- and Kumar-owned entities. Through this alleged arrangement, it goes on, these companies caused (unidentified) false claims for payment to be presented (to unidentified entities) and that (unidentified) false statements or certifications or (unidentified) records material to false claims for payment were made. Critically, these allegations aren’t “paired with reliable indicia that lead to a strong inference that claims were actually submitted” by Kumar since, among other defects, the SAJC fails to identify with the required specificity a single patient for whom he caused fraudulent care to be provided, or a single false claim that he caused to be submitted on a specific date. As noted, it also alleges that Kumar was one of the co-conspirators in the Sham Loan Scheme, but the scores Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 23 of 31 PageID 5667 DM2\7796287.3 18 of paragraphs that describe the alleged scheme include no specific facts to support that he caused any false claim to be submitted. The SAJC also fails to explain how the equity allegedly given by Kumar influenced the doctors who did not receive equity to refer patients. Similarly, the SAJC’s false certification allegations are conclusions, not particularized factual allegations as required by Rule 9(b). Once again, the SAJC doesn’t adequately plead a single example to show that Kumar made false statements or caused a false statement of certification to be made to the Government for payment as to a patient being qualified for hospice services. Likewise, the facts as pled don’t support that he fraudulently induced the Government to accept an application to participate in Medicare or Medicaid by knowingly and falsely promising to comply with relevant laws, regulations, guidance, or rules with the intent not to do so; that he made a false statement in monthly batch reports or similar documents that all services were provided in compliance with all relevant laws, regulations, guidance, or rules; or that he impliedly and falsely certified compliance with all relevant laws, regulations, guidance, or rules that are an express condition of payment. The SAJC also doesn’t set out any facts to support the false records or statement claims alleged in Counts Three and Four. Instead, it relies upon legal conclusions masquerading as factual allegations. The allegations even fail to meet the relaxed Rule 9(b) standards for alleging particularized details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims actually were submitted. The SAJC also alleges a laundry list of TMFPA violations under TEX. HUM. RES. CODE § 32.039(b). Once again, however, it doesn’t allege specific facts to demonstrate that Kumar violated the TMFPA. While multiple pages discuss the Texas Medicaid laws, the SAJC fails to allege any specific violation by Kumar, let alone one for fraud, with the degree of specificity required by Rule Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 24 of 31 PageID 5668 DM2\7796287.3 19 9(b). United States ex rel. Willard v. Humana Health Plan of Texas, Inc., 336 F.3d 375, 384 (5th Cir. 2003). It’s clear from a cursory review that the SAJC’s allegations amount to nothing more than “formulaic recitations of the elements of the cause of action” that don’t deserve a presumption that these facts can be proven. Federal judges have dismissed similar FCA complaints when a relator fails to allege the required, supportive particularized facts. See, e.g., United States ex rel. Bennett v. Medtronic, Inc., 747 F.Supp.2d 745, 769 (S.D. Tex. 2010) (dismissing a qui tam complaint for not identifying “an instance of submission” of a false claim or a “representative sample” of false claims). See also United States ex rel. Wall v. Vista Hospice Care, Inc., 778 F.Supp.2d 709, 717 (N.D. Tex. 2011) (dismissing a complaint after finding that the defendants were entitled to a complaint that pled the specific manner by which employees were instructed to falsify certifications, that the employees did so with the requisite intent-and that a pleading based upon information and belief was insufficient). The Fifth Circuit has also affirmed dismissing FCA complaints that don’t satisfy FED. R. CIV. P. 9(b) when, as here, a plaintiff alleges a false certification of compliance with Medicare program rules but then doesn’t identify a “specific instance” of false certification. United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F.App’x 890, 894 (5th Cir. 2013). Critically, as stated in Longhi, the fourth element of a FCA claim is that the false claim “caused the government to pay out money.” Longhi, 575 F.3d at 467. The SAJC is devoid of a properly specific “representative sample” of false claims (or a single “instance of submission” of a false claim) to show how the government paid any money because of alleged false claims. b. The Alleged Stark Law Allegations Fail to State a Claim Upon Which Relief may be Granted The Stark law generally prohibits physicians from referring Medicare patients for one of 11 specified designated health services (“DHS”) to an entity in which the physician has a financial Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 25 of 31 PageID 5669 DM2\7796287.3 20 relationship. It’s subject to many exceptions.46 Under Stark, remuneration between a DHS entity and a physician creates a financial relationship giving rise to referral and billing prohibitions unless an “exception” protects the relationship. In order to have properly alleged a Stark violation that arguably can be piggybacked into a FCA violation, the SAJC must allege the existence of a “financial relationship” between a DHS entity and a specific referring physician-which it simply hasn’t done. Kumar is not a physician; rather he is a registered nurse. Moreover, hospice services aren’t on the list of DHS under Stark.47 Simply put, the Stark law is plainly inapplicable. Even if the SAJC didn’t suffer from these fatal mistakes, it doesn’t come close to adequately pleading the other elements for a Stark law violation. Instead, it simply lumps in the Sham Loan, Equity and Rent Scheme and the Payola Scheme allegations as though they are self- proving Stark violations (which they aren’t since the SAJC fails to identify any referrals for DHS by a physician to or from any entity in while Kumar had a financial interest). Moreover, once again, the SAJC merely states in a conclusory fashion that Defendants violated the Stark law by “giving or accepting self-interested referrals”48 without identifying any claim that Kumar or an affiliated entity presented to an individual, third-party payor, or other entity for a DHS. As such, it is completely devoid of any substantive allegations that could form the basis of a Stark law violation. 46 42 U.S.C. §1395nn(a)(1)-(b) provides, in relevant part, that: Except as provided in subsection (b) of this section, if a physician (or an immediate family member of such physician) has a financial relationship with an entity specified in paragraph (2), then- (A) the physician may not make a referral to the entity for the furnishing of designated health services for which payment otherwise may be made under this subchapter, and (B) the entity may not present or cause to be presented a claim under this subchapter or bill to any individual, third party payor, or other entity for designated health services furnished pursuant to a referral prohibited under subparagraph (A). 47 See 42 C.F.R. §411.351. 48 Dkt. #18 (JAC ¶ 204). Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 26 of 31 PageID 5670 DM2\7796287.3 21 c. The Conclusory Conspiracy Allegations in Counts Five and Six Still Do Not Satisfy FED. R. CIV. P. 9(b)’s Particularity Requirement The conspiracy allegations must be dismissed because the underlying claims concerning FCA violations are facially deficient. A claim for conspiracy under the FCA must allege an unlawful agreement between conspirators to have a false or fraudulent claim allowed or paid by the government and at least one overt act performed in furtherance of that agreement. Grubbs, at 193. Additionally, “secondary liability for conspiracy under §3729 cannot exist without a viable underlying claim.” United States ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-cv-2143, 2003 U.S. Dist. LEXIS 12626 at *48 n.17 (N.D. Tex. July 22, 2003); See also United States v. Murphy, 937 F.2d 1032, 1039 (6th Cir. 1991). Moreover, conspiracy claims cannot be based solely on conclusory allegations. The SAJC cannot survive Rule 9(b)’s particularity requirement since it makes only conclusory allegations about an agreement between defendants and an overt act in furtherance of the conspiracy. No facts are pled that Kumar entered into an agreement to submit false claims. Relators just rely upon the expedient of calling it a conspiracy to submit false claims. As the Fifth Circuit has explained, “[p]roof that a defendant ‘intend[ed] to engage in conduct that resulted in the injury’ is insufficient. Instead, ‘[f]or a civil conspiracy to arise, the parties must be aware of the harm or wrongful conduct at the inception of the combination or agreement.’ ” Peavy v. WFAA- TV, Inc., 221 F.3d 158, 173 (5th Cir. 2000) (citing Triplex Communications, Inc. v. Riley, 900 S.W.2d 716, 719 (Tex. 1995)). But the SAJC contains no specific facts alleging that Kumar entered into an agreement with anyone to have a false or fraudulent claim paid, nor identifies an overt act performed in furtherance of that agreement. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 27 of 31 PageID 5671 DM2\7796287.3 22 d. There is No Legal Basis to Pierce the Corporate Veil of any of the Defendant Entities to Impose Liability upon Kumar In typical conclusory fashion, the SAJC alleges that the corporate veil of “all of the Kumar/White and/or Curo-owned entities” should be pierced.49 It offers no factual allegations to support this assertion; instead, the SAJC merely claims that all the entities were used to perpetuate a fraud and to protect against the discovery of crimes.50 “The corporate veil may be pierced to hold an alter ego liable for the commitments of its instrumentality only if (1) the owner exercised complete control over the corporation with respect to the transaction at issue and (2) such control was used to commit a fraud or wrong that injured the party seeking to pierce the veil.” Sapic v. Gov’t of Turkm., 345 F.3d 347, 359 (5th Cir. 2003), citing American Fuel Corp. v. Utah Energy Dev’t Co., Inc., 122 F.3d 130, 134 (2d Cir. 1997). Here, instead of pleading factual allegations to support a veil-piercing theory, the SAJC merely recites the legal standard for veil piercing.51 The SAJC offers no facts to support the allegation that the veil of any entity Defendant should be pierced in order to hold Kumar personally liable. The SAJC merely states that Kumar was a vice principal for certain entities that allegedly participated in the schemes.52 Notably absent are any allegations, for example, that Kumar exerted total control over any of the entities allegedly used in the scheme. As such, the foregoing allegations aren’t remotely sufficient to demonstrate that Kumar exercised complete control over the respective entities for which he has an ownership interest in order to commit fraud. In over 210 pages of the SAJC, the allegations against the entity Defendants are woefully inadequate to support a veil-piercing theory of liability as to Kumar. Just as the SAJC fails to adequately allege that any 49 Dkt. #278 at ¶4. 50 Id. 51 Id. 52 Id. at ¶¶140-141. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 28 of 31 PageID 5672 DM2\7796287.3 23 Defendant violated the FCA, AKS, or Stark law, it likewise fails to adequately allege an alter ego or veil-piercing theory of liability as to Kumar, who cannot be subject to any veil-piercing theory of recovery. IV. CONCLUSION For the reasons stated more fully above, Kumar moves to dismiss the SAJC. Dismissed Relators Bryan, Wendt and Whatley’s allegations were barred by the first-to-file bar since the Court found that they are based upon the essential elements of fraud, publicly disclosed allegations previously made by Capshaw, and, at most, only provided support for such allegations. Capshaw (and the Dismissed Relators) still hasn’t met the Twombly standard by setting forth “enough facts to state a claim to relief that is plausible on its face.” Capshaw (and the Dismissed Relators) hasn’t supported his allegations with more than a mere possibility of misconduct that would “cross the line from merely conceivable to a level plausibly suggesting” that they’re entitled to relief. Twombly, 550 U.S. at 557. As such, the SAJC doesn’t adequately state a claim upon which relief may be granted. In addition, Capshaw and the Dismissed Relators haven’t satisfied Rule 8’s requirement for a “short and plain statement of the claim” and Rule 9(b)’s particularity requirement. Consequently, all claims against Kumar should be dismissed. V. PRAYER For all of the reasons given, Suresh Kumar urges the dismissal of the SAJC with prejudice and all other relief to which he may be entitled. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 29 of 31 PageID 5673 DM2\7796287.3 24 Respectfully submitted, By: /s/ Dan C. Guthrie, Jr. Dan C. Guthrie, Jr. Texas Bar No. 08635500 2101 Cedar Springs Road, Ste. 1050 Dallas, Texas 75201 Telephone: (214) 953-1000 Facsimile: (214) 953-0200 danguthrie@whitecollardefense.com Michael E. Clark Admitted pro hac vice Texas Bar No. 04293200 Fed ID No. 1785 meclark@duanemorris.com Cameron J. Asby Texas Bar No. 24078160 cjasby@duanemorris.com Duane Morris LLP 1330 Post Oak Blvd., Suite 800 Houston, Texas 77056 Tel: (713) 402-3900 Fax: (713) 402-3901 COUNSEL FOR DEFENDANT SURESH KUMAR Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 30 of 31 PageID 5674 DM2\7796287.3 CERTIFICATE OF SERVICE Pursuant to Local Rule 5.1, I hereby certify that on May 8, 2017 the foregoing document was served on counsel of record via the Court’s Electronic Case Filing system. /s/ Dan C. Guthrie, Jr. Dan C. Guthrie, Jr. Case 3:12-cv-04457-N Document 327 Filed 05/08/17 Page 31 of 31 PageID 5675