Capshaw et al v. White et al

Brief/Memorandum in Support

N.D. Tex.May 22, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION UNITED STATES OF AMERICA ex rel. CHRISTOPHER SEAN CAPSHAW, et al., Plaintiffs, vs. BRYAN K. WHITE, M.D., et al., Defendants. § § § § § § § § § § § § § CIVIL ACTION NO. 3:12-CV-4457-N (Consolidated with No. 3:13-CV-3392-B) BRIEF IN SUPPORT OF DEFENDANT BRYAN K. WHITE’S MOTION TO DISMISS RELATORS’ SECOND AMENDED JOINT COMPLAINT S. Michael McColloch Texas Bar No. 13421950 S. MICHAEL MCCOLLOCH, PLLC E-mail: smm@mccolloch-law.com 1717 McKinney Avenue, Suite 700 Dallas, Texas 75202 Telephone: (214) 593-6415 Fax: (214) 593-6410 Karen Cook Texas Bar No. 12696860 KAREN COOK, PLLC E-mail: karen@karencooklaw.com 1717 McKinney Avenue, Suite 700 Dallas, Texas 75202 Telephone: (214) 593-6429 Fax: (214) 593-6431 Joel S. Sharp Texas Bar No. 00791642 E-mail: jsharp@hunton.com Amy S. Bowen Texas Bar No. 24028216 E-mail: abowen@hunton.com HUNTON & WILLIAMS LLP 1445 Ross Avenue, Suite 3700 Dallas, Texas 75202 Telephone: (214) 979-3000 Fax: (214) 880-0011 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 1 of 33 PageID 5702 i TABLE OF CONTENTS INDEX OF AUTHORITIES ..................................................................................................... iii I. INTRODUCTION ........................................................................................................... 1 II. SUMMARY OF RELATORS’ ALLEGATIONS ............................................................ 3 III. ARGUMENTS AND AUTHORITIES ............................................................................ 4 A. The Complaint Should be Dismissed in its Entirety for Relators’ Willful and Flagrant Disregard of this Court’s Order Dismissing Bryan and Wendt Under the Jurisdictional First-to-File Requirement of the FCA ................................................................... 4 B. This Court’s Previous Order Dismissed All Claims Against White ....................... 5 C. The SAJC Fails to Remedy the Deficiencies Identified by the Court ......................................................................................................... 6 1. Applicable Legal Standard Under 12(b)(6) and 9(b) ................................. 7 2. Relators Fail to State a Predicate Violation Under the AKS or Stark ...................................................................................... 8 3. The SAJC Fails to State a Claim Under the FCA for the Sham Loan, Equity, and Rent Scheme (Counts 1 and 3).......................... 10 i. The SAJC Fails to Allege With Particularity the “When” of the Purported Schemes............................................... 10 ii. The SAJC Fails to Allege with Particularity that White Acted with the Requisite Intent ......................................... 11 iii. Capshaw Has No Firsthand Knowledge About How The Schemes Occurred ............................................................... 12 4. The SAJC Fails to State a Claim Under the False Claims Act: Payola Scheme (Counts 2 and 4)............................................................. 20 5. Both Schemes Fail to Allege Facts Regarding Materiality ...................... 22 6. The SAJC’s Conspiracy Allegations Fail to Satisfy Rule 9(b) (Counts 5 and 6) ..................................................................................... 23 7. The TMFPA Claims Should Be Dismissed (Counts 7 and 8) .................. 24 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 2 of 33 PageID 5703 ii 8. There Remains No Legal Basis to Pierce the Corporate Veil ................... 24 IV. CONCLUSION ............................................................................................................. 25 CERTIFICATE OF SERVICE .................................................................................................. 26 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 3 of 33 PageID 5704 iii INDEX OF AUTHORITIES Abbott v. BP Expl. & Prod., Inc., 851 F.3d 384 (5th Cir. 2017) ................................................. 22 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ........................................................................................ 6 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ......................................................................... 6 Cade v. Progressive Cmty. Healthcare, Inc., No. 1:09-cv-3522-WSD, 2011 WL 2837648 (N.D. Ga. July 14, 2011) ................................................................................. 13 Cinel v. Connick, 15 F.3d 13386 (5th Cir. 1994)........................................................................ 17 Corsello v. Lincare, Inc., 428 F.3d 1008 (11th Cir. 2005) .......................................................... 14 Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010) ................................... 8, 19 Ferrer v. Chevron Corp., 484 F.3d 776 (5th Cir. 2007) ............................................................... 6 Funk v. Stryker Corp., 631 F.3d 777 (5th Cir. 2011) .................................................................. 17 Hopper v. Solvay Pharms., Inc., 588 F.3d 1318 (11th Cir. 2009)), aff’d, 689 F.3d 470 (5th Cir. 2012) ........................................................................................................ 15 In re Sage Physician Partners, Inc., No. 12-41314, U.S. Bankruptcy Court, E.D. Tex. ......................................................................................................................... 17, 18 Ryan, LLC v. Inspired Dev., LLC, 3:12-CV-02391-O, 2013 WL 12137012 (N.D. Tex. July 18, 2013) ........................................................................................................ 25 Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029 (5th Cir. 2010) ............................................................................................................... 24 Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746 (5th Cir. 1996) ............................................................................................................... 24 Simmons v. Peavy-Welsh Lumber Co., 113 F.2d 812 (5th Cir. 1940) ......................................... 16 United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371 (5th Cir. 2009) ...................................................................................................................... 13 United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301 (11th Cir. 2002) ............................................................................................................................. 16 United States ex rel. Colquitt v. Abbott Labs., 864 F. Supp. 2d 499 (N.D. Tex. 2012) ............................................................................................................................. 10 United States ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-cv-2143, 2003 WL 21730668 (N.D. Tex. July 22, 2003) .............................................................. 23 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 4 of 33 PageID 5705 iv United States ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015) ................................ 7, 8 United States ex rel. Fowler v. Caremark, R.X., LLC, 496 F.3d. 730 (7th Cir. 2007) ............................................................................................................................. 13 United States ex rel. Gage v. Davis S.R. Aviation, L.L.C., 623 Fed. Appx. 622 (5th Cir. 2015) ...................................................................................................................... 11 United States ex rel. Gonzalez v. Fresenius Med. Care N. Am., 748 F. Supp. 2d 95 (W.D. Tex. 2010) .................................................................................................... 11, 15 United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) .. 6, 7, 12, 13, 14, 16, 23 United States ex rel. Hartwig v. Medtronic, Inc., No. 3:11cv413-CWR-LRA, 2014 WL 1324339 (S.D. Miss. Mar. 31, 2014) ................................................................. 12, 15 United States ex rel. Jamison v. McKesson Corp., 900 F. Supp. 2d 683 (N.D. Miss. 2012)...................................................................................................................... 8 United States ex rel. Joshi v. St. Luke’s Hospital, Inc., 441 F.3d 552 (8th Cir. 2006) ............................................................................................................................. 14 United States ex rel. Longhi v. United States, 575 F.3d 458 (5th Cir. 2009) ............................... 10 United States ex rel. Mastej v. Health Mgmt. Assocs., Inc., 869 F. Supp. 2d 1336 (M.D. Fla. 2012) ............................................................................................................ 14 United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App’x 890 (5th Cir. 2013) ............................................................................................... 7, 10, 12, 13 United States ex rel. Parikh v. Citizens Med. Ctr., 977 F. Supp. 2d 654 (S.D. Tex. 2013) ........................................................................................................... 7, 8, 9, 10, 15 United States ex rel. Perales v. St. Margaret’s Hosp., 243 F. Supp. 2d 843 (C.D. Ill. 2003) .......................................................................................................................... 9 United States ex rel. Porter v. HCA Health Servs. of Okla., Inc., No. 3:09-CV- 0992, 2011 WL 4590791 (N.D. Tex. Sept. 30, 2011) ..................................................... 11 United States ex rel. Rector v. Bon Secours Richmond Health Corp., No. 3:11- CV-38, 2014 WL 1493568 (E.D. Va. Apr. 14, 2014) ..................................................... 16 United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370 (5th Cir. 2004) ....................................................................................................................... 16, 17 United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010)...... 6, 7, 10, 11 United States ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202 (5th Cir. 2013).................... 10 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 5 of 33 PageID 5706 v United States ex rel. Williams v. McKesson Corp., No. 3:12-CV-0371-B, 2014 WL 3353247 (N.D. Tex. July 9, 2014) ........................................................................... 24 United States ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518 (6th Cir. 2012) ............................................................................................................................. 12 United States ex rel. Wismer v. Branch Banking & Trust Co., No. 3:12-CV-1894- B, 2013 WL 5989312 (N.D. Tex. Nov. 12, 2013)........................................................... 13 United States v. Miles, 360 F.3d 472 (5th Cir. 2004) ................................................................... 9 United States v. Polin, 194 F.3d 863 (7th Cir. 1999) .................................................................... 9 United States v. Shoemaker, 746 F.3d 614 (5th Cir. 2014) ........................................................... 9 Universal Health Serv., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) ............................................................................................................................ 22 OTHER AUTHORITIES 31 U.S.C. § 3729(b)(1)(A)(i-iii) ................................................................................................ 12 31 U.S.C. § 3731(b)(1) .............................................................................................................. 11 42 C.F.R. § 411.351 .................................................................................................................... 8 42 C.F.R. § 424.22 (a)(1) ............................................................................................................ 8 42 U.S.C. § 1320a-7b(b) ............................................................................................................. 7 42 U.S.C. § 1320a-7b(b)(3)(B) ............................................................................................ 21, 22 42 U.S.C. § 1320a-7b(g) ........................................................................................................... 11 42 U.S.C. § 1395nn(a) ................................................................................................................. 7 42 U.S.C. § 1395nn(a)(1) ........................................................................................................ 1, 7 42 U.S.C. § 1396b(s) ................................................................................................................... 1 Fed. R. Civ. P. 12(b)(6) ............................................................................................................... 6 Kinkeade & McColloch’s Texas Penal Code Annotated, §§ 3.02, 3.03, (Commentary) (Thomson Reuters 2016) ........................................................................ 20 Medicare Benefit Policy Manual, Ch. 9 - Coverage of Hospice Services Under Hospital Insurance (Rev.209, 05-08-15), §10 ................................................................... 9 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 6 of 33 PageID 5707 vi Medicare Enrollment Guidelines for Ordering/Referring Providers, CMS, ICN 906223 (Dec. 2015) ......................................................................................................... 9 Tex. Occup. Code § 162.001(b)(2) ............................................................................................ 14 Tex. Occup. Code § 162.001(b)(3) ............................................................................................ 19 Tex. Occup. Code § 162.0022 ................................................................................................... 19 Tex. Penal Code § 12.34 ........................................................................................................... 20 Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 7 of 33 PageID 5708 1 BRIEF IN SUPPORT OF DEFENDANT BRYAN K. WHITE’S MOTION TO DISMISS RELATORS’ SECOND AMENDED JOINT COMPLAINT Defendant Bryan K. White, M.D. (“White”) moves to dismiss the Relators’ Second Amended Joint Complaint (“SAJC”) in its entirety under Federal Rules of Civil Procedure 12(b)(6), 8(a) and 9(b). The SAJC, which hardly deviates from the Relators’ First Amended Joint Complaint (“FAJC”), alleges that defendants violated the False Claims Act (“FCA”) and the Texas Medicaid Fraud Prevention Act (“TMFPA”) by participating in two purported schemes to pay illegal kickbacks in exchange for patient referrals in violation of the Medicare anti-kickback statute, 42 U.S.C. § 1320a-7b (“AKS”) and the Stark law, 42 U.S.C. §§ 1395nn, 1396b(s) (“Stark”). Dismissal of the SAJC is necessary because it fails to adequately plead FCA and TMFPA claims against White. As noted by this Court with respect to the FAJC (Dkt. 256 at 22), there continues to be a fatal gap in the allegations contained in the SAJC - why would White make purported kickbacks to non-physicians with the intent of inducing referrals by independently- employed physicians (the only ones capable of making referrals) who are not receiving anything in return or even know about the alleged inducements? I. Introduction On January 23, 2017, this Court dismissed relators Kevin Bryan (“Bryan”) and Franklin Brock Wendt (“Wendt”)1 (together, the “Dismissed Relators”), along with Sheila Whatley (“Whatley”), pursuant to Rule 12(b)(1) under the first-to-file rule (Dkt. 256) (the “Order”). Remarkably, the SAJC directly contravenes the Order as to Dismissed Relators and Whatley (and their allegations), who were unequivocally dismissed from the case under Rule 12(b)(1) pursuant to the first-to-file bar. Undeterred, Capshaw again joined the dismissed Relators and 1 Of course, Defendant Sheila Whatley (“Whatley”) purported to be a relator in the FAJC and was also dismissed under the first-to-file rule; however, Whatley did not join in the filing of the SAJC. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 8 of 33 PageID 5709 2 Whatley, alleging the same claims, effectively conceding that he cannot meet the minimum pleading requirements on his limited knowledge alone. Capshaw is complicit in the filing of the SAJC and the flouting of this Court’s order, and for that reason alone the SAJC should be dismissed, with prejudice. In the Order, this Court dismissed the FAJC against White pursuant to Rules 9(b) and 12(b)(6). The SAJC patently fails to remedy the deficiencies articulated by this Court. Fundamental gaps, inconsistencies and implausibilities remain in the allegations throughout the SAJC. Even though the entire case is based on purported illegal referrals, there is not a single factual allegation indicating how Whatley induced the physicians into making clinical certifications for treatment for any specific patient-not a single one-notwithstanding that such certifications are the clinical and legal basis of eligibility for hospice and home health treatment as well as reimbursement. In fact, the SAJC contains no allegations of specific conduct, communications or interactions with the referring physicians. The SAJC relies instead exclusively on general conclusory allegations that Kirt Short (“Short”), Yale Sage (“Sage”), and Whatley “were in a position to influence/control” the physicians and inexplicably “mandated” that the physicians make illegal referrals. In addition, the SAJC fails to meet the Iqbal/Twombly “facial plausibility” standard and should, therefore, be dismissed. The allegations in the SAJC fail to plausibly allege how the purported kickbacks induced improper referrals. The outlandish premise that Whatley, Sage, Short, White (or anyone else for that matter) exercised such dominion and control over the numerous referring physicians to negate their independent clinical judgment regarding what was best for their respective patients is simply not plausible-especially considering that Relators did not name them as defendants. This fantastic theory would require the complicity of many Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 9 of 33 PageID 5710 3 physicians, nurses and others and such facts have not even been alleged. Why would a physician, let alone a large group of physicians, illegally breach the duties owed to their patients and risk his or her professional career and liberty for Whatley, White or anyone else for years on end, all for nothing in return? Moreover, the allegations in the FAJC are contradicted by the Relators’ own exhibits and the public record, fatally undermining the plausibility of the claims. Finally, the SAJC still fails to include specific allegations that White, individually, “made any false claims or statements to the government” (Dkt. 256, at 21) or, more fundamentally, how White’s alleged provision of remuneration to persons other than physicians actually influenced any physician’s professional decision about a single particular referral. For these reasons, and as more fully described below, the SAJC should be dismissed as to White. II. Summary of Relators’ Allegations Just as with the flawed FAJC, the crux of the SAJC centers on two purported schemes- the “Sham Loan, Equity, and Rent Scheme” and “Payola Scheme.” The SAJC broadly alleges that (1) every single claim for payment under Medicare or Medicaid presented by multiple home health and hospice entities over the course of six years was false or fraudulent, (2) every single enrollment form and cost report from those entities was a false statement/ certification or record material to false or fraudulent claims for payments, and (3) there was a conspiracy to defraud the government by such acts. The SAJC contains no new theories of liability and no new material facts. The SAJC alleges eight causes of action against White. Counts 1, 3, and 5 allege that through his participation in the purported Sham Loan, Equity, and Rent Scheme White violated the FCA by: (1) presenting or causing to be presented false or fraudulent claims, (2) making or causing to be made a false record or statement, and (3) conspiring to violate the FCA based on Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 10 of 33 PageID 5711 4 predicate AKS and Stark violations. SAJC at ¶¶ 450-54, 460-64, 470-74. Counts 2, 4, and 6 allege that through his participation in the purported Payola Scheme, White violated the FCA by (1) presenting or causing to be presented false or fraudulent claims, (2) making or causing to be made a false record or statement, and (3) conspiring to violate the FCA based on predicate AKS and Stark violations. Id. at ¶¶ 455-59, 465-69, 475-79. Counts 7 and 8 allege that both schemes were used by White to violate the TMFPA. Id. at ¶¶ 480-93. The SAJC contains 78 mostly copied-and-pasted pages under headings labelled “Bryan,” “Wendt” and “Whatley,” revealing starkly Capshaw’s own lack of knowledge to support the claims. See SAJC ¶¶ 281-336 (“Bryan”), ¶¶ 337-78 (“Wendt”) ¶¶ 156-77 (“Whatley”). III. Arguments and Authorities A. The Complaint Should be Dismissed in its Entirety for Relators’ Willful and Flagrant Disregard of this Court’s Order Dismissing Bryan and Wendt Under the Jurisdictional First-to-File Requirement of the FCA. Despite a clear order by this Court dismissing the Dismissed Relators from this case pursuant to Rule 12(b)(1) under the first-to-file bar, the Dismissed Relators brazenly reassert their claims as if the Order had never been entered. This Court has already held that Dismissed Relators’ claims “allege the same material or essential elements of fraud described in Capshaw’s original complaint[,]” and that “[w]hile the FAJC adds allegations into the specifics of the alleged schemes, it does not add details that would not be discovered by a government investigation into Capshaw’s claim.” Dkt. 256 at 8-9. In dismissing Bryan, Wendt, and Whatley, this Court recognized that these are “exactly the kind of parasitic cases the first-to-file jurisdictional bar is designed to prevent.” Id. at 9. But Relator Capshaw disregarded the Order, recognizing that he could not cure the pleading deficiencies on his own knowledge, and filed the instant complaint in concert with the Dismissed Relators, disingenuously using their firsthand Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 11 of 33 PageID 5712 5 knowledge in lieu of his own. In doing so, he betrays his own lack of firsthand knowledge needed to sustain the claims, in a continuing display of gamesmanship that will subject this Court to the expenditure of substantial judicial resources and waste more dwindling financial resources of the Defendants. The SAJC should be dismissed in its entirety with prejudice. B. This Court’s Previous Order Dismissed All Claims Against White. This Court previously dismissed all claims against White in his individual capacity under both 9(b) and 12(b)(6). Dkt. 256 at 21. First, the Court noted that the FAJC did not allege that White submitted, or caused to be submitted, a single false claim - noting that the submission of a false claim is the sine qua non of an FCA violation. Id. Nor did the FAJC indicate how White allegedly “caused the submission of false claims.” Id. Next, the FAJC failed to allege that White, individually, violated the AKS or Stark law. Id. at 22. And, importantly, the Court found the FAJC failed to explain how providing the alleged remuneration under the Sham Loan, Equity and Rent Scheme would influence other physicians to refer patients. Id. (emphasis added). After so finding, the Court likewise dismissed the claims under the TMFPA because those claims are to be evaluated under an FCA standard. Id. at 23. Also, because the alleged fraud was not pleaded with sufficient particularity, the Court ruled the corporate veil could not be pierced. Id. at 24. As to the conspiracy claims that were dismissed against all Defendants, the Court held that: (1) because the FCA claim was not sufficiently pled, the conspiracy claim must fail by default, and (2) the conspiracy allegations were not pled with sufficient particularity to indicate that the Defendants entered into an agreement to defraud the government. Id. at 20, 24. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 12 of 33 PageID 5713 6 C. The SAJC Fails to Remedy the Deficiencies Identified by the Court. 1. Applicable Legal Standard under 12(b)(6) and 9(b). A defendant may move to dismiss a complaint if it fails to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court must accept as true a complaint’s well-pleaded factual allegations, but “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). This pleading standard “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation” and “does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79 (citations omitted). Moreover, to survive a motion to dismiss a complaint must pass the “facial plausibility” test. To meet the “facial plausibility” standard, a plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (emphasis supplied). As noted in the Order, a court does not accept as true “unwarranted factual inferences,” Ferrer v. Chevron Corp., 484 F.3d 776, 780 (5th Cir. 2007), and the allegations are insufficient where they do not rise “above the speculative level. Id. Relators’ claims are also subject to Rule 9(b)’s particularity requirements. United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 266 (5th Cir. 2010) (“Steury I”); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009). Rule 9(b) requires a relator to “state with particularity the circumstances constituting fraud or mistake,” Fed. R. Civ. P. 9(b), which requires, “at a minimum,” that the relator “set forth the who, what, when, where, Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 13 of 33 PageID 5714 7 and how of the alleged fraud,” Steury I, 625 F.3d at 266 (citations and internal quotation marks omitted). Rule 9(b) serves an important “screening function, standing as a gatekeeper to discovery, a tool to weed out meritless fraud claims sooner than later,” and it is applied “with ‘bite’ and ‘without apology.’” Grubbs, 565 F.3d at 185-86 (footnote omitted). In FCA actions, the Fifth Circuit has held that even though a relator may not be required to allege the specific details of an “actually submitted false claim,” a relator’s allegations must include “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Id. at 190. Likewise, the elements of AKS and Stark violations must also be pled with particularity where a relator’s FCA claims are based on violations of these statutes. United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App’x 890, 894 (5th Cir. 2013); United States ex rel. Parikh v. Citizens Med. Ctr., 977 F. Supp. 2d 654, 666 (S.D. Tex. 2013). The AKS prohibits knowingly and willfully offering, paying, soliciting or receiving anything of value to induce or reward patient referrals. 42 U.S.C. § 1320a-7b(b). Stark, on the other hand, regulates financial relationships between referring physicians and entities that furnish designated health services (“DHS”), regardless of the parties’ intent. Under Stark, absent an applicable exception, physicians are prohibited from referring Medicare patients for DHS to any entity with which the physician (or immediate family member) has a “financial relationship” and the DHS entity is prohibited from billing for DHS furnished pursuant to such physician’s referrals. See 42 U.S.C. § 1395nn(a); see also United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 373-74 (4th Cir. 2015); Parikh, 977 F. Supp. 2d at 663. For a Stark violation to serve as a predicate FCA violation, the SAJC must allege the existence of a “financial relationship” between a DHS entity and White. But the SAJC does not Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 14 of 33 PageID 5715 8 alleged the existence of any financial relationship involving White and any DHS entity to which he made any referrals. Further, DHS does not include hospice services. See 42 C.F.R. § 411.351. The AKS and Stark approach the issue of remunerated referrals quite differently. Remuneration under the AKS is problematic only if coupled with an impermissible intent to induce patient referrals. See United States ex rel. Jamison v. McKesson Corp., 900 F. Supp. 2d 683, 697 (N.D. Miss. 2012) (“When analyzing alleged violations of the AKS, a key distinction is that the law does not criminalize referrals for services paid for by Medicare or Medicaid-it criminalizes knowing and willful acceptance of remuneration in return for such referrals.”) (citations and internal quotation marks omitted). Under Stark, remuneration between a DHS entity and a physician creates an impermissible financial relationship, unless an “exception” protects the relationship. See Drakeford, 792 F.3d at 374 (noting that exceptions may “shield[]” defendants from Stark liability) (citation omitted).2 2. Relators Fail to State a Predicate Violation Under the AKS or Stark. The Order identified a critical shortcoming in the FAJC: “the FAJC does not explain how providing this alleged remuneration would influence [or induce] other physicians to refer patients.” Dkt. 256 at 22. Relators have still not offered an answer to this question. Among the gaping deficiencies in the SAJC, Relators fail to grasp a very basic tenet of an AKS violation - that remuneration must be given for the purpose of inducing a referral and that referral, in the case of hospice and home health certifications, can only be given by a doctor.3 2 Thus, to allege a violation of Stark, one must first sufficiently allege the existence of a “financial relationship” between a DHS entity and a specific referring physician. Compare Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 1000 (9th Cir. 2010) (adopting Grubbs’s pleading standard and finding that relator’s “general allegations” concerning the purported improper financial relationship was insufficient under Rule 9(b) to state a claim based on Stark), with Parikh, 977 F. Supp. 2d at 667-68 (finding that relators sufficiently alleged improper financial relationship between physicians and hospital). 3 Medicare Part A or Part B pays for home health services only if a physician certifies and recertifies the patient’s eligibility for the home health benefit. See 42 C.F.R. §424.22 (a)(1). The term “certified” is used Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 15 of 33 PageID 5716 9 Since none of the doctors are alleged to have any knowledge of the claimed inducements, the SAJC attempts to sidestep this problem by alleging in conclusory fashion that all of the doctors employed by a separate company, American Physician House Calls Health Services (“APHHS”), were somehow under the unexplained “control” of Sage, Short, and Whatley, who worked at the separate and distinct entity, American Physician House Calls (“APH”). SAJC ¶ 87. However, there are no factual details as to how this “control” induced the APHHS physicians to refer patients when they had no knowledge or financial stake in the alleged bribes; nor does it explain why those doctors would let themselves be illegally controlled by three non-physicians to the extent of committing felonies when they received nothing in return.4 See, e.g., United States ex rel. Perales v. St. Margaret’s Hosp., 243 F. Supp. 2d 843, 854 (C.D. Ill. 2003). Moreover, as the Parikh court noted, an AKS predicate violation requires that “Relators plead with particularity that [the defendant] made kickbacks with the intent of inducing referrals[.]” Parikh, 977 F. Supp. 2d at 665 (emphasis added). The SAJC lists some alleged referrals that took place, see, e.g., SAJC ¶¶ 94-127, but despite the conclusory allegation that “the following additional examples [of referred patients were] . . . received . . . as a result of remuneration made by Kumar and White in their personal capacities[,]” the SAJC makes no by CMS interchangeably with the term “referred.” See White Appendix (“App.”) at 011-25; Medicare Enrollment Guidelines for Ordering/Referring Providers, CMS, ICN 906223 (Dec. 2015). “To be eligible to elect hospice care under Medicare, an individual must be…certified as being terminally ill” by a physician. Medicare Benefit Policy Manual, Ch. 9 - Coverage of Hospice Services Under Hospital Insurance (Rev. 209, 05-08-15), § 10. White App. at 028. “For the first 90-day period of hospice coverage, the hospice must obtain, no later than 2 calendar days after hospice care is initiated, (that is, by the end of the third day), oral or written certification of the terminal illness by the medical director of the hospice or the physician member of the hospice IDG, and the individual’s attending physician if the individual has an attending physician.” Id. § 20.1. The attending physician is a doctor who has “the most significant role in the determination and delivery of the individual’s medical care.” Id. 4 The three cases cited in the SAJC, ¶ 89 n.3, United States v. Polin, 194 F.3d 863-867 (7th Cir. 1999), United States v. Shoemaker, 746 F.3d 614, 629-30 (5th Cir. 2014), and United States v. Miles, 360 F.3d 472, 477 (5th Cir. 2004), are inapposite. The SAJC does not allege knowing physician participation in the alleged scheme or any facts to support the conclusory assertion that Whatley “controlled” the physicians. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 16 of 33 PageID 5717 10 effort to plead facts to explain how or why the intent of the alleged remuneration was for the purpose of inducing referrals. Id. at ¶¶ 94, 117 3. The SAJC Fails to State a Claim Under the FCA for the Sham Loan, Equity, and Rent Scheme (Counts 1, and 3). To state a claim under the FCA, a plaintiff must allege: “(1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that is presented to the Government.” Steury I, 625 F.3d at 267 (citing United States ex rel. Longhi v. United States, 575 F.3d 458, 467 (5th Cir. 2009)). In the Fifth Circuit a complaint must allege “the particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted,” Grubbs, 565 F.3d at 190. At a minimum, Relators must allege the “who, what, when, where, and how” of the scheme. United States ex rel. Steury v. Cardinal Health, Inc., 735 F.3d 202, 205 (5th Cir. 2013) (“Steury II”) (citing Steury I, 625 F.3d at 266); see also Nunnally, 519 F. App’x at 893. Here, the SAJC fails to allege sufficient factual allegations reflecting how the scheme was carried out from beginning to end and also fails to plead intent as to White. i. The SAJC Fails to Allege with Particularity the “When” of the Purported Schemes. Relators fail to allege with sufficient particularity when the alleged fraud took place. Relators generally allege that the purported schemes were ongoing within a six to seven-year window beginning 2006. SAJC ¶¶ 131, 213, 221. But there is little detail as to when the alleged kickbacks themselves occurred - or when any of the claims themselves were submitted as a result of those kickbacks. See Parikh, 977 F. Supp. 2d at 667; United States ex rel. Colquitt v. Abbott Labs., 864 F. Supp. 2d 499, 536 (N.D. Tex. 2012). The SAJC makes allegations such as: “On September 28, 2010 White gave APH $25,000.00. On that same day, September 28, 2010, Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 17 of 33 PageID 5718 11 Dr. Williams of APH referred patients B.M., T.M. and B.B. to Goodwin Hospice.” SAJC ¶ 101- 02. But there are no particularized facts that allege such payments were linked to or sought to induce that referral, and the SAJC concedes that all of the physicians worked instead for another company, APHHS, not APH. SAJC ¶ 149 n.4. Likewise, the SAJC does not allege when (or if) a claim was ever submitted for those patients. Allegations that simply allege money was paid and patients were referred do not lead to a strong inference that the claims for those patients were actually submitted. United States ex rel. Gage v. Davis S.R. Aviation, L.L.C., 623 Fed. Appx. 622, 627 (5th Cir. 2015) (finding it insufficient when relator did not “allege with any specificity when Northrop-or any other defendant-presented invoices to the USAF.”). The “when” of an alleged FCA violations is also significant given that, under the Patient Protection and Affordable Care Act (“PPACA”), an AKS violation committed after July 22, 2010, is automatically classified as a false claim. 42 U.S.C.§ 1320a-7b(g); United States ex rel. Gonzalez v. Fresenius Med. Care N. Am., 689 F.3d 470, 478 n.9 (5th Cir. 2012). But for violations committed before July 22, 2010, an AKS violation was not automatically considered to be a false claim. Id. 5 ii. The SAJC Fails to Allege with Particularity that White Acted with the Requisite Intent. The Relators fail to allege either of the two levels of required intent. The FCA requires a violation to be “knowingly” committed. Steury I, 625 F.3d at 267 (citation omitted); United States ex rel. Porter v. HCA Health Servs. of Okla., Inc., No. 3:09-CV-0992, 2011 WL 4590791, at *5 (N.D. Tex. Sept. 30, 2011) (Solis, J.). As defined, White must have acted (1) with actual knowledge, (2) in deliberate ignorance of the truth or falsity of the information, or (2) in reckless 5 In addition, the FCA requires qui tam actions to be brought within six years of the violation. 31 U.S.C. § 3731(b)(1). Capshaw filed this action on November 6, 2012, and therefore, some of the Relator’s unidentified claims should likely be dismissed on this basis, if the claims were identified with sufficient particularity to make that determination possible. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 18 of 33 PageID 5719 12 disregard of the truth or falsity. 31 U.S.C. § 3729(b)(1)(A)(i-iii). In addition to the FCA, the AKS requires a “knowing or willful” offer to pay or solicit “any remuneration to induce” a referral. Nunnally, 519 F. App’x at 893. Although the SAJC contains scattershot assertions arguably bearing on intent, none rises above the level of speculation and in any event all of these are sponsored by Whatley and the Dismissed Relators.6 For that reason alone, the first-to-file holding in the Order and the FCA’s knowledge requirements preclude consideration of these allegations in assessing the sufficiency of the pleading. But with or without the barred Relators’ allegations, the SAJC lacks factual allegations sufficient to show that White’s intention in purportedly making the loans to APH, purportedly providing office space to APH and APHHS as well as purportedly transferring free equity interest in BE Gentle Homehealth, Inc. (“BE Gentle”) to Sage and Short was to induce referrals. iii. Capshaw Has No Firsthand Knowledge About How The Schemes Occurred. In addition, the SAJC fails to set forth with particularity how the alleged fraud occurred or how Capshaw knew the details described in the SAJC. A relator must allege sufficient facts showing that he has personal knowledge of the scheme to provide “a basis in law or fact” to support his allegations. United States ex rel. Hartwig v. Medtronic, Inc., No. 3:11cv413-CWR- LRA, 2014 WL 1324339, at *14 (S.D. Miss. Mar. 31, 2014); see also Grubbs, 565 F.3d at 191- 92 (holding that relator sufficiently alleged “his firsthand knowledge of the scheme unfolding as 6 The SAJC alleges, for example, Whatley’s claims that White asked Whatley whether she would “continue to grow” the hospice companies, SAJC ¶ 134, but this fails to plausibly lead to the conclusion that White intended any alleged loans given to APH were to induce referrals. See United States ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518, 528 (6th Cir. 2012) (reversing liability determination based upon legal business plan to maximize reimbursement-”Why a business ought to be punished solely for seeking to maximize profits escapes us.”). The SAJC also generally alleges that Whatley purportedly had conversations with White “over the years,” none of which satisfy, alone or collectively, the two levels of intent required in FCA/AKS complaints. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 19 of 33 PageID 5720 13 it related to him”). Allegations that are conclusory or based solely on the relator’s “un-sourced independent ‘knowledge and belief’” are insufficient, United States ex rel. Wismer v. Branch Banking & Trust Co., No. 3:12-CV-1894-B, 2013 WL 5989312, at *6 (N.D. Tex. Nov. 12, 2013) (Boyle, J.), and a complaint that includes nothing more than “broad” and “sweeping” allegations, void of “indicia of any actual knowledge of any FCA-violating fraud,” will not satisfy Rule 9(b), Nunnally, 519 F. App’x at 893. This high bar has been articulated as demanding allegations “at an individualized transaction level.” United States ex rel. Fowler v. Caremark, R.X., LLC, 496 F.3d. 730, 741 (7th Cir. 2007) (emphasis in original). In Grubbs, the Fifth Circuit found that the relator’s complaint, which “set[] out the particular workings of a scheme that was communicated directly to [him] by those perpetrating the fraud,” satisfied Rule 9(b). 565 F.3d at 191; see also Nunnally, 519 F. App’x at 893 (noting that the complaint in Grubbs “rested on the relator’s actual description” of the scheme). The relator “describe[d] in detail, including the date, place, and participants” of the meeting in which he was informed of the scheme and “allege[d] his first-hand experience of the scheme unfolding as it related to him . . ..” Grubbs, 565 F.3d at 191-92. In this case the allegations must arise from Capshaw’s knowledge based on his alleged role as the Finance Director at APH, SAJC ¶ 10, at some point in time. Yet there are no allegations concerning any particular aspects about Capshaw’s position to show that Capshaw has or could reasonably have knowledge of the scheme. See Cade v. Progressive Cmty. Healthcare, Inc., No. 1:09-cv-3522-WSD, 2011 WL 2837648, at *7-10 (N.D. Ga. July 14, 2011) (noting that relator failed to allege that her job duties provided her with personal knowledge of defendant’s billing process and finding that relator’s “superficial, haphazard, and contradictory description of the billing process” failed to provide reliable indicia that claims were submitted). Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 20 of 33 PageID 5721 14 The bald, conclusory assertion that Capshaw has “personal knowledge” of the scheme is insufficient. Grubbs, 565 F.3d at 191-92; see also Corsello v. Lincare, Inc., 428 F.3d 1008, 1013-14 (11th Cir. 2005) (“Although [relator] worked in sales, his allegations, often based on information and belief, lacked the indicia of reliability required . . . because they failed to provide an underlying basis for [relator’s] assertions.”); United States ex rel. Joshi v. St. Luke’s Hospital, Inc., 441 F.3d 552, 556-57 (8th Cir. 2006). Further the SAJC alleges that Defendants purportedly billed Medicare and Medicaid “an astronomical amount of money,” from 2006 to 2012. SAJC ¶ 84. First, Capshaw was not even employed during that entire period. Although he was some point the “Finance Director” at APH, there are no facts alleged to show that Capshaw has any knowledge, let alone firsthand knowledge, of the billing practices at other companies-the home health or hospice defendants. See Grubbs, 565 F.3d at 190-91 (stating that “reliable indicia” includes “a description of the billing system” that defendant’s records were likely entered into); United States ex rel. Mastej v. Health Mgmt. Assocs., Inc., 869 F. Supp. 2d 1336, 1344 (M.D. Fla. 2012) (noting that relator failed to allege that he had “any familiarity . . . with the billing practices of the defendants”). Further, Capshaw does not allege facts demonstrating any personal knowledge of, or familiarity with, the compensation arrangements between APHHS-a separate, independently-governed “501a” corporation7-and its employed physicians. Nor does he allege any personal knowledge of the referral practice itself, or of communications among the medical personnel at APHHS, or any communications between the independent APHHS physicians on the one hand and White, Kumar or Sage and Short on the other. 7 As applicable here, the Texas ban on the “corporate practice of medicine” requires physician employment by a so-called 501(a) non-profit entity certified by the Texas Medical Board under Section 162.001(b) of the Texas Occupations Code. State law requires that the entity be governed solely by licensed, practicing physicians. Tex. Occup. Code § 162.001(b)(2). APHHS was organized and governed under these strictures. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 21 of 33 PageID 5722 15 Significantly, the SAJC continues to run afoul of the well-founded principle that “the submission of a false claim is the sine qua non of a False Claims Act violation.” United States ex rel. Gonzalez v. Fresenius Med. Care N. Am., 748 F. Supp. 2d 95, 116 (W.D. Tex. 2010) (citing Hopper v. Solvay Pharms., Inc., 588 F.3d 1318, 1328 (11th Cir. 2009)), aff’d, 689 F.3d 470 (5th Cir. 2012). At a minimum, Relators must provide “reliable indicia leading to a strong inference that claims based on such referrals were actually submitted to Medicare or Medicaid.” Parikh, 977 F. Supp. 2d at 667. This can be done by connecting the dots between the defendants and the false claims submitted to the government. Hartwig, 2014 WL 1324339, at *13. Here, instead of identifying any claims submitted or how White caused those claims to be submitted, Relators simply resort to the sweeping conclusion that: “All referrals by APHHS physicians to all Medicare Part A Sham Loan, Equity, and Rent Defendants, and all billing associated with each patient referred, represent violations of the False Claims Act (and violations of the Anti- Kickback Statute and Stark Act) during this time,” resulting in over $200,000,000.00 of false claims paid. SAJC ¶¶ 131, 153. Such a conclusory allegation cannot amount to “reliable indicia leading to a strong inference that claims based on such referrals were actually submitted to Medicare or Medicaid.” Appendix B allegedly shows a “steady stream of original patient referrals and re- certification patient referrals”8 to entities owned by White and Kumar and Appendix C allegedly is “evidence” of billing to Medicare. SAJC ¶ 166. But nowhere on Appendix B is there any indication that patients were receiving Medicare benefits or that Medicare was being billed for these services, and even if they were, there is no indication that those referrals were tainted by 8 There is no such thing as a “recertification referral” as alleged at SAJC ¶ 7, just as there is no such thing as a “Vice Principal” in corporate governance, see SAJC ¶¶ 17, 18. In his effort to construct a viable claim where none exists and without the requisite knowledge, Capshaw has resorted to disingenuous wordsmithing and imagining that further undermines the plausibility of the claims. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 22 of 33 PageID 5723 16 kickbacks. Appendix C (the so-called Medicare bill) is also unavailing; it does not indicate that the patients received the services through a White/Kumar entity as opposed to receiving services through any other entity. Moreover, Appendix C does not link the patients from Appendix B (the so-called referral list) to patients in Appendix C. Raw bills and patient logs standing alone are not enough. See Grubbs, 565 F.3d at 190 (stating that “raw bills” standing alone “are not fraud without an underlying scheme to submit the bills”); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1304 n.7 (11th Cir. 2002) (finding that “documentary exhibits” attached to complaints were insufficient because they did not include “any billing records . . . or references to sums charged to the Government”); United States ex rel. Rector v. Bon Secours Richmond Health Corp., No. 3:11-CV-38, 2014 WL 1493568, at *8 (E.D. Va. Apr. 14, 2014) (finding relator’s “patient log” was insufficient to allege claims were submitted). Relators’ reliance on any of the attached, unauthenticated appendices does not cure these defects and indeed fatally undermine his claim. In the Fifth Circuit, “[w]here there is a conflict between allegations in a pleading and exhibits thereto, it is well settled that the exhibits control.” United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 377 (5th Cir. 2004); Simmons v. Peavy-Welsh Lumber Co., 113 F.2d 812, 813 (5th Cir. 1940) (adding that “the litigant may be defeated by his own evidence, the pleader by his own exhibits”). As in Simmons, Capshaw “has refuted his own allegations” id., in his zeal to lard the SAJC with his own exhibits, further sabotaging his claims. The exhibits in the Appendix manifest fundamental inconsistencies with the already- implausible assertions in the complaint. Notable among these is Capshaw’s own APH organizational chart, App. E, at 106-07, a highly detailed depiction of the positions and named Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 23 of 33 PageID 5724 17 personnel from CEO down to clerical workers. One claimed employee is conspicuously missing, however: the very Sheila Whatley who is so central to the predicate AKS allegations that only through her commanding authority as “care coordinator and operations manager from 2006 - 2014” was APH enabled to “control” numerous physicians and thousands of patient referrals in violation of a host of federal and state statutes, regulations and disciplinary rules. SAJC ¶¶ 13, 87, 89-90, 134, 203-04. According to Capshaw’s incorporated organizational chart, Whatley did not exist at APH. This is materially and irreconcilably inconsistent with the SAJC allegations of Whatley’s title and tenure and that Whatley was the recipient of kickbacks (along with APH’s CEO and CFO), and that from her lofty position there and her resultant “influence,” she “mandated the APHHS physician’s referral of patients from APH” as she “instructed” all the physicians to do continuously over a six-year period. Id. at 86-87. Likewise, the SAJC incorporation of AHP finance records fatally undermines the so- called Sham Loan scheme, showing authoritatively that the loans from White to APH were real loans that were intended to be repaid. The undated chart cited by Capshaw as “evidence the loans/kickbacks were never intended to be repaid,” SAJC ¶ 149, n. 4, demonstrates instead that the notes had been indefinitely extended beyond their original due dates, with the “same terms, conditions and interest rate,” revealing that the notes had not been cancelled or otherwise extinguished but were still carried on the APH books as notes payable, at least as late as sometime in mid-2011. App. F, at 108-09. This alone is fatal to the Sham Loan allegations. Riley, 355 F.3d at 377. But there is more: The APH bankruptcy records cited in the SAJC, ¶ 149, n. 4,9 completely contradict Capshaw, showing authoritatively that the loans were very real, having 9 In re Sage Physician Partners, Inc., No. 12-41314, U.S. Bankruptcy Court, E.D. Tex., filed May 14, 2012. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 24 of 33 PageID 5725 18 been declared as current unsecured claims when the bankruptcy petition was filed in May of 2012. On behalf of APH and under penalty of perjury, then-president (and former V.P.-Finance and Compliance) Christopher McAdam listed Bryan K. White, MD, as the largest of the numerous unsecured creditors of APH, totaling all of the unpaid White extended loans as current notes payable.10 In the extensive proceedings which ensued over more than two years of investigation and litigation, not one corporate shareholder, officer, employee, or competing creditor, nor the U.S. Trustee or his team of attorneys and accountants, ever contradicted White’s creditor status as to the outstanding loans. The Court may take judicial notice of the APH bankruptcy pleadings as public records. See Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011); Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994). Where the loans are not a sham, there can be no claim based on a Sham Loan scheme. The Court may also take judicial notice of the APH bankruptcy records which cripple the so-called Free Rent scheme. What Capshaw somehow failed to include in the SAJC is the fact that APH’s real landlord, Hines REIT 3100 McKinnon Street LP, filed a claim in the APH bank- ruptcy proceeding for APH’s unpaid rent, notifying the Court that Be Gentle had made a sub- lease to APH.11 Represented by Baker Botts, Hines intervened to prevent funds from being paid to Be Gentle for the last three months of APH’s back rent. Those funds were instead directed to the landlord Hines pursuant to the sublease, because the funds were owed to Hines. Be Gentle 10 Id. Dkt. 1 at 6, Voluntary Petition, List of Creditors Holding 20 Largest Unsecured Claims, filed May 14, 2012. White App. at 085. White was also listed as a creditor in the accompanying Verification of Creditor Matrix, Dkt. 1 at 9. White App. at 088. 11 In re Sage Physician Partners, Inc., No. 12-41314, U.S. Bankruptcy Court, E.D. Tex., Dkt. 109, Hines REIT 3100 McKinnon Street LP’s Objection to Cure Notice, filed August 10, 2012. White App. at 001-7. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 25 of 33 PageID 5726 19 cooperated in that process by waiving any claim to more than $124,000 for APH’s then- delinquent rent.12 The SAJC utterly fails the facial plausibility test for many other reasons as well. The most glaring implausibility is the unsupported contention that numerous physicians abdicated their legal and ethical duties on a daily basis for six years running, and did so for no apparent reason. The SAJC meekly speculates that “[i]f the physicians wanted to continue to be employed through APHHS they needed to follow the instructions” of Whatley, who would draft all the referrals and force the doctors to “just sign them as instructed.” SAJC ¶ 87. But mere employment status is insufficient to establish an actionable inducement on the part of a physician. See Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 1000 (9th Cir. 2010). To accept the SAJC allegations as even remotely believable, the Court must conclude that all of these licensed, practicing physicians willingly became felons on a daily basis incapable of exercising their independent professional clinical judgment in the clutches of an all-powerful Whatley. The AKS is a criminal statute and its proscriptions are well known in the medical profession. Moreover, the Texas Occupations Code requires “501(a)” entities like APHHS to be certified by the Texas Medical Board, be governed exclusively by a board of physicians, and enact policies to ensure the independent medical judgment of the employed physicians.13 Those policies must preserve sole authority over medical judgment to the individual physicians,14 as Texas physicians are well aware. Violation of these mandates is a third degree felony for each day the physician allows his or her judgment to be influenced or supplanted by another, and is also grounds for forfeiture of 12 Id. Dkt. 201, Notice of Transfer of Claim, filed May 2, 2013. White App. at 008-10. 13 Tex. Occup. Code §§ 162.001(b)(3), 162.0022. 14 Id. § 162.0022(d). Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 26 of 33 PageID 5727 20 his or her medical license.15 The Capshaw claim that all of these practicing physicians systematically and constantly committed hundreds of these state and federal crimes to satisfy the dictates of Whatley is simply incredible. These fatal defects are compounded by Capshaw’s failure to explain how Whatley accomplished this remarkable feat when only employed at APH “from time to time,” all unspecified, SAJC ¶ 13, or how he could have had any knowledge of Whatley’s irresistible powers, the physician’s practices, or each of the physicians’ knowledge of this sensational scheme. Capshaw’s claims are belied by his own exhibits, the public record, common sense, and the irreconcilable inconsistencies in the bizarre story he weaves in the complaint. The whole tale falls far short of plausible, and Counts 1 and 3 must be dismissed. 4. The SAJC Fails to State a Claim Under the False Claims Act: Payola Scheme (Counts 2 and 4). Dismissed Relators Bryan and Wendt are the “sponsors” of the Payola Scheme. Because this Court has already dismissed Bryan and Wendt, and Capshaw lacks firsthand knowledge of the Payola Scheme, the Court does not need to address the Payola Scheme allegations. Out of an abundance of caution, White will briefly discuss the fatal flaws in the Payola Scheme. First, many of the alleged false claims under the Payola Scheme allegedly occurred in 2006. The SAJC, for example, states in the “beginning of March, 2006” White purchased gift cards with his own money and instructed Bryan to distribute the cards to administrators at nursing homes and “various doctors,” and that, in the summer of 2006, he attended lunches with 15 Id. § 165.152. Each violation carries a penalty of two to ten years imprisonment and a $10,000 fine. Tex. Penal Code § 12.34. Unless the defendant agrees to a joinder of multiple charges, the sentences may be “stacked,” running consecutively. See Kinkeade & McColloch’s Texas Penal Code Annotated, §§ 3.02, 3.03, (Commentary) (Thomson Reuters 2016). Under Capshaw’s claims, each of the APPHS physicians would face sentences totaling hundreds of years. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 27 of 33 PageID 5728 21 staff from various nursing homes. SAJC. ¶¶ 222-23. Suit was filed on November 6, 2012; therefore, any false claims submitted before November 6, 2006 are barred by the statute of limitations. The Payola Scheme allegations are also conclusory. For instance, the SAJC alleges that White instructed Hospice Plus marketers to host a Cinco de Mayo party at a Mexican restaurant. SAJC. ¶ 224. The allegations then go on to state: “White did this in order to induce those facilities to refer hospice patients to Hospice Plus, so that Hospice Plus’s census would grow[.]” Id. The SAJC does not even attempt to plead factual allegations that allege White provided the dinner in order to induce referrals. Instead, Relators simply conclude that was White’s intent. In addition, the Payola Scheme is implausible on its face. The scheme alleges that countless individuals and facilities received remuneration intended to induce patient referrals; however, very few of those alleged recipients were physicians, and therefore, were not actually capable of making referrals. SAJC ¶ 220. Relators allege, for example, on May 6, 2011, Jackie Pollard, R.N., referred patient G.S. to Hospice Plus, L.P. (“Hospice Plus”), and that on June 17, 2011, Chad Meeks, LVN, referred patient J.S. to Hospice Plus. Id. 241-42. These allegations are not only not plausible, they are impossible. To the extent that Relators have advanced allegations of remuneration paid to physicians who were in a position to make patient referrals to White/Kumar provider entities, they have overlooked the statutory exception which precludes compensation paid to a bona fide employee from constituting illegal remuneration.16 While Relators allege that White and Kumar hired physicians as medical directors, SAJC ¶ 235, nothing in the AKS precludes a hospice or a home health agency from employing a physician to serve as a medical director, and any compensation 16 See 42 U.S.C. § 1320a-7b(b)(3)(B) (“Paragraphs (1) and (2) [of the AKS] shall not apply to . . . (B) any amount paid by an employer to an employee (who has a bona fide employment relationship with such employer) for employment in the provision of covered items or services.”). Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 28 of 33 PageID 5729 22 paid to that physician for providing items or services covered by a federal health care program cannot be considered illegal remuneration. See 42 U.S.C. § 1320a-7b(b)(3)(B). The Payola allegations are also deficient for many of the same reasons as the Sham Loan, Equity and Rent Scheme allegations. The allegations stretch over a six-year period, with little detail as to when any of the kickbacks were paid or claims were submitted; the allegations fail to allege how the scheme was conducted and how claims were submitted or if they were ever submitted; and the allegations pertaining to White’s intent are wholly conclusory. 5. Both Schemes Fail to Allege Facts Regarding Materiality. Relators are also required to plead plausible and particular facts to show that the alleged fraudulent statement was material to the government’s decision to pay the claim. Universal Health Serv., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2004 n.6 (2016). This standard is “rigorous” and “demanding” because the False Claims Act is not “an all-purpose antifraud statute.” Id. at 2003. A misrepresentation, likewise, “cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment.” Id.; Abbott v. BP Expl. & Prod., Inc., 851 F.3d 384, 387 (5th Cir. 2017) (“[Escobar] debunked the notion that a Governmental designation of compliance as a condition of payment by itself is sufficient to prove materiality.”). Materiality also is not found by simply alleging or showing that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Id. Here, Relators have not pled a single fact that the supposed fraud perpetrated by White was material to the Government’s decision to pay the allegedly fraudulent claims. Instead, the SAJC is replete with conclusory allegations that do nothing more than track the language of the FCA. For example, Relators repeat the phrase “material to a false or fraudulent claim for Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 29 of 33 PageID 5730 23 payment,” but never tie a factual allegation to this phrase. SAJC ¶¶ 2, 9, 77, 78, 216. This falls short of what is required to plead plausible and particular facts of materiality. Therefore, Counts 1-4 should be dismissed. 6. The SAJC’s Conspiracy Allegations Fail to Satisfy Rule 9(b) (Counts 5 and 6). This Court has already dismissed Relators’ conspiracy claims once. In dismissing the conspiracy claims, the Court found that the “FAJC [did] not contain any factual allegations that suggest the existence of an unlawful agreement for either scheme. . .. At best the FAJC allege[d] a period of submitting false claims by individual actors or acquiescence to an unlawful scheme - neither of which is sufficient to plead an unlawful agreement existed.” Dkt. 256 at 20. The Court also found that the conspiracy claim against White should be dismissed because a conspiracy claim cannot survive absent a viable FCA violation. Id. at 24 n.4. The SAJC suffers from the same problems. A conspiracy claim under the FCA requires: “(1) the existence of an unlawful agreement between defendants to get a false or fraudulent claim allowed or paid by the Government and (2) at least one act performed in furtherance of that agreement.” Grubbs, 565 F.3d at 193. And, as the Court already pointed out, a conspiracy claim cannot survive absent a sufficiently plead FCA claim. See United States ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-cv-2143, 2003 WL 21730668, at *14 n.17 (N.D. Tex. July 22, 2003) (Fitzwater, J.). Because the SAJC cannot state a claim under the FCA, the conspiracy claim must, again, fail. Even if the FCA claims were sufficiently pled, the Relators do not plead particularized facts to establish that White entered into an agreement with any other Defendant to submit false claims or committed an overt act in furtherance of that agreement. Accordingly, the claims for conspiracy against White must be dismissed. Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 30 of 33 PageID 5731 24 7. The TMFPA Claims Should Be Dismissed (Counts 7 and 8). Counts 7 and 8 of the SAJC set forth in conclusory fashion a number of purported violations of the TMFPA against White. Allegations under the TMFPA are subject to the same pleading requirements as claims under the FCA. See United States ex rel. Williams v. McKesson Corp., No. 3:12-CV-0371-B, 2014 WL 3353247, at *4 & n.5 (N.D. Tex. July 9, 2014) (Boyle, J.) (noting that relator’s FCA and TMFPA claims “depend on the same operative facts and legal requirements” and evaluating the claims “under the FCA’s well-defined legal requirements.” As is the case with the FCA allegations, the SAJC devotes a number of pages to Texas’s Medicaid laws but fails to allege any specific violations of such laws by White. Accordingly, for the reasons set forth more fully above, Counts 7 and 8 should be dismissed as to White pursuant to Rule 12(b)(6). 8. There Remains No Legal Basis to Pierce the Corporate Veil. Relators’ attempt to pierce the corporate veil of entities owned by White and Kumar also must fail. The Court previously dismissed Relators’ attempts to pierce the corporate veil because the FAJC did not plead a fraud claim against Dr. White with particularity. The SAJC is no different - Relators still have made few changes between the FAJC and the SAJC, and as such, still have not pled a fraud claim with particularity. Relators’ description of White and Kumar as “Vice Principals” of these entities is nonsensical and meaningless. Courts will pierce the corporate veil when “individuals exploit the corporate form as a sham to perpetrate a fraud.” Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 752 (5th Cir. 1996). To warrant such equitable relief, a plaintiff must plead specific facts that the defendant caused the corporation to be used for the purpose of perpetrating a fraud on the plaintiff, primarily for the personal benefit of the defendant. Id. This claim requires proof that White committed an actual fraud. Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 31 of 33 PageID 5732 25 1035 (5th Cir. 2010). Because Realtors have failed to state a claim for actual fraud, their attempt to pierce the liability shield must fail. Ryan, LLC v. Inspired Dev., LLC, 3:12-CV-02391-O, 2013 WL 12137012, at *10 (N.D. Tex. July 18, 2013). IV. CONCLUSION For the forgoing reasons Defendant Bryan K. White respectfully requests that the Court dismiss all claims against him with prejudice and for all other relief to which he may be entitled. Dated: May 22, 2017. Respectfully submitted, /s/ S. Michael McColloch S. Michael McColloch, Esq. Texas Bar No. 13431950 smm@mccolloch-law.com S. MICHAEL MCCOLLOCH, PLLC 1717 McKinney Avenue, Suite 700 Dallas, Texas 75202 Telephone: (214) 593-6415 Fax: (214) 593-6410 Karen Cook, Esq. Texas Bar No. 12696860 karen@karencooklaw.com KAREN COOK, PLLC 1717 McKinney Avenue, Suite 700 Dallas, Texas 75202 Telephone: (214) 593-6429 Fax: (214) 593-6431 -and- Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 32 of 33 PageID 5733 26 Joel S. Sharp Texas Bar No. 00791642 jsharp@hunton.com Amy S. Bowen Texas Bar No. 24028216 abowen@hunton.com Katherine L. Allen Texas Bar No. 24097295 klallen@hunton.com HUNTON & WILLIAMS LLP 1445 Ross Avenue, Suite 3700 Dallas, Texas 75202 Telephone: (214) 979-3000 Fax: (214) 880-0011 ATTORNEYS FOR DEFENDANT BRYAN K. WHITE CERTIFICATE OF SERVICE On May 22, 2017, I electronically submitted the foregoing document with the clerk of court for the United States District Court for the Northern District of Texas, using the electronic case filing system of the court. I hereby certify that I have served all counsel and/or pro se parties of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2). /s/ Amy S. Bowen Amy S. Bowen Case 3:12-cv-04457-N Document 339 Filed 05/22/17 Page 33 of 33 PageID 5734