Chittum, et al V East Mental Health Services, Llc

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

W.D. Va.May 26, 2017

18628/3/8012777v1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION UNITED STATES OF AMERICA ex rel. MICHELLE CHITTUM, et al., and COMMONWEALTH OF VIRGINIA ex rel. MICHELLE CHITTUM, et al., Plaintiffs, v. EAST MENTAL HEALTH SERVICES, LLC Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 7:13-cv-00498 EAST MENTAL HEALTH MOTION TO DISMISS RELATORS’ SECOND AMENDED COMPLAINT WITH PREJUDICE Defendant East Mental Health Services, LLC (“EMH”), by and through its counsel, respectfully moves this Court for an Order dismissing on the merits, with prejudice, Relators’ Second Amended Complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. This Motion is supported by EMH’s Memorandum of Law filed herewith. John R. Thomas, Jr. (VSB No. 75510) Justin M. Lugar (VSB No. 77007) GENTRY LOCKE 900 SunTrust Plaza P.O. Box 40013 Roanoke, Virginia 24022-0013 (540) 983-9300 Fax: (540) 983-9400 jlugar@gentrylocke.com Thomas@gentrylocke.com Counsel for Defendant East Mental Health Services, LLC EAST MENTAL HEALTH SERVICES, LLC By: /s/ John R. Thomas, Jr._______ Of Counsel Case 7:13-cv-00498-EKD Document 63 Filed 05/26/17 Page 1 of 2 Pageid#: 495 18628/3/8012777v1 CERTIFICATE OF SERVICE I hereby certify that, on this 26th day of May, 2017, the foregoing was filed electronically with the Clerk of Court using the CM/ECF system, which will send a Notice of Electronic Filing to counsel of record in this matter, and by U.S. Mail upon the following party: Thomas Strelka, Esq. Strelka Law Office, P.C. 119 Norfolk Avenue, Suite 330 Roanoke, VA 24011, /s/ John R. Thomas, Jr._______ Of Counsel Case 7:13-cv-00498-EKD Document 63 Filed 05/26/17 Page 2 of 2 Pageid#: 496 18628/3/8013659v1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF VIRGINIA ROANOKE DIVISION UNITED STATES OF AMERICA ex rel. MICHELLE CHITTUM, et al., and COMMONWEALTH OF VIRGINIA ex rel. MICHELLE CHITTUM, et al., Plaintiffs, v. EAST MENTAL HEALTH SERVICES, LLC Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 7:13-cv-00498 MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT EAST MENTAL HEALTH’S MOTION TO DISMISS RELATORS’ SECOND AMENDED COMPLAINT WITH PREJUDICE East Mental Health Services, LLC. (“EMH”), by counsel, submits this Memorandum of Law in Support of its Motion to Dismiss. The Second Amended Complaint should be dismissed with prejudice because the Relators fail to: (1) meet their burden of pleading fraud with particularity, and (2) sufficiently plead the elements required for a finding of False Claims Act (“FCA”) liability. Although the Second Amended Complaint repeatedly alleges “double or triple billing,” and even asserts “specific instances” of fraud, the allegations are vague, conclusory, and unsupported by any specific facts. Neither the Second Amended Complaint itself, nor the attached exhibits, contain any details such as dates, names, services, or even persons involved in the alleged fraud. Similarly, although the Second Amended Complaint broadly alleges Medicaid and Medicare violations, it fails to identify any specific regulations being violated. Thus, the Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 1 of 12 Pageid#: 497 2 18628/3/8013659v1 Second Amended Complaint alleges generalized fraud at unspecified dates by unnamed persons violating unidentified laws. STATEMENT OF THE CASE Relators, Michelle Chittum, Billie Graham, Camille Hughes, and Julia Switzer (“Relators”) filed a qui tam action against East Mental Health Services, LLC (“EMH” or “Defendant”) on October 24, 2013. Relators filed an Amended Complaint on April 23, 2015 and a Second Amended Complaint on January 25, 2017. Prior to filing the first Amended Complaint but after initiating the original qui tam action, Relators executed a Settlement Agreement with Defendant EMH to resolve a parallel employment law claim. 1 The “Confidential Settlement Agreement” was executed on March 7, 2014, a little over four months after the filing of the original qui tam complaint, and purported to fully and finally discharge any and all other claims the Relators may have against the EMH. The Second Amended Complaint broadly alleges that Defendant, EMH, engaged in and continues to engage in “fraudulent Medicaid and Medicare billing.” Sec. Am. Comp. ¶ 2. No specific provision of Medicaid or Medicare regulations is identified. The Second Amended Complaint further alleges that Relators, Clinicians at EMH, were “required” to “double or triple bill the government” as a “daily practice[]” by “not providing individualizes [sic] services” but instead working with “two or more patients simultaneously.” Id. at ¶ 20 (internal quotations omitted). In support of these broad allegations, the Second Amended Complaint further states that Clinicians were “encouraged” and “expected” to submit fraudulent billing records. See id. at ¶¶ 1 Relators filed a lawsuit against EMH on November 1, 2013, alleging a violation of the Fair Labor Standards Act (“FLSA”) in the United States District Court for the Western District of Virginia, Civil Action No. 7:13-cv-523, which was resolved by a Confidential Settlement Agreement executed March 7, 2014. Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 2 of 12 Pageid#: 498 3 18628/3/8013659v1 20-22. The Second Amended Complaint, however, does not provide specific dates, services, or names of persons purportedly involved in the alleged fraud. Attached to the Second Amended Complaint are Exhibits A – D, which are declarations signed by each of the four (4) Relators. Id. at ¶ 21. The exhibits are intended, as stated by the Relators, to provide “specific instances of fraudulent billing.” Id. The Second Amended Complaint alleges that these unspecified instances of fraudulent billing are violations of the FCA. See id. at ¶¶ 19-26. STANDARD OF REVIEW To survive a motion to dismiss, a complaint must “state a claim to relief that is plausible on its face.” United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 455 (4th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotations omitted). The Iqbal plausibility standard asks the plaintiff for “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. A complaint that pleads facts that are “merely consistent with” a defendant’s liability does not entitle the plaintiff to relief. Id. (internal quotations omitted). Additionally, although the Court, in reviewing a 12(b)(6) dismissal, “must accept as true all of the Appellant’s allegations and must construe factual allegations in the light most favorable to the plaintiff,” it must not accept mere legal conclusions of liability unsupported by specific facts. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999); see also Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). The Fourth Circuit has expressly stated that it “will not accept ‘legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.’” Nathan, 707 F.3d at 455 (quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012)). Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 3 of 12 Pageid#: 499 4 18628/3/8013659v1 The heightened pleading standard of Rule 9(b) requires Relators to allege, with particularity, the “‘time, place, and contents of the false representations, as well the identity of the person making the misrepresentation and what he obtained thereby.’” United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)). See also United States ex rel. Nathan v. Takeda Pharms. N.Am., Inc., 707 F.3d 451 (4th Cir. 2013). Conclusory allegations or allegations of “fraud by hindsight” do not meet the requirements of Rule 9(b). Harrison, 176 F.3d at 784. See also Hillson Partners Ltd. Partnership v. Adage, Inc., 42 F.3d 204, 209 (4th Cir. 1994). ARGUMENT 1. The Second Amended Complaint Fails To State A Claim Upon Which Relief Can Be Granted And Must Therefore Be Dismissed Under FRCP 12(b)(6). The Second Amended Complaint asserts mere conclusions of law, unsupported allegations of fraud, fails to sufficiently plead the four elements required for a finding of liability under the FCA and must, therefore, be dismissed under Federal Rule of Civil Procedure 12(b)(6). The FCA prohibits a person from knowingly presenting or "caus[ing] to be presented" to the government false claims for payment or approval. 31 U.S.C. § 3729(a)(1)(A). See, e.g., Nathan, 707 F.3d at 454. False statements are actionable under the FCA only if they constitute a “false or fraudulent claim” that was actually submitted to the federal government for reimbursement. Id. (quoting Harrison v. Westinghouse Savannah River Co. 176 F. 3d 776, 785 (4th Cir. 1999)); see also Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1325-26 (11th Cir. 2009). Thus, to establish liability under the FCA, a Relator must prove four elements: (1) that there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 4 of 12 Pageid#: 500 5 18628/3/8013659v1 to forfeit moneys due (i.e., that involved a 'claim'). United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008); Harrison, 176 F.3d at 787. First, the Amended Complaint fails to demonstrate the requisite scienter for FCA liability. A Relator must show that the Defendant knowingly presented or caused to be presented false claims for payment. 31 U.S.C. § 3729(a)(1)(A). Knowledge requires a showing of actual knowledge of the information, deliberate ignorance, or reckless disregard of the truth or falsity of the information, none of which is pled here. See 31 U.S.C. § 3729(b)(1)(A)i-iii. Instead, all that Relators allege in terms of knowledge on the part of Defendant is that the Relators “observed certain Clinicians” –noticeably unnamed clinicians–“report the above-referenced unethical conduct to EMH”—similarly unnamed EMH officials—and that the practices thereafter “continued.” See Sec. Am. Comp. ¶ 22. Simply put: an observation that unidentified persons allegedly reported unspecified services to unidentified supervisors is not evidence of knowledge on the part of the EMH supervisors or the company. Without specific facts such as times, dates, names, and places demonstrating that specific persons knew and approved of the fraud, Relators cannot meet their pleading standard with regard to knowledge, deliberate ignorance, or even reckless disregard. Second, the Amended Complaint fails to demonstrate that the claims submitted were actually false. The FCA requires, as a threshold element, that the claims in question represented an objective falsehood. See United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008); see also United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir. 1999). Thus, circumstances resulting from mere “poor” or “inefficient management” or even “imprecise statements” or “differences in interpretation” are not actionable under the FCA because they do not prove objective falsity. Id. (internal quotations omitted). Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 5 of 12 Pageid#: 501 6 18628/3/8013659v1 Here, the Relators fail to prove objective falsity for several reasons: First, although they allege “double and triple” billing in “specific instances” of fraud, neither the Second Amended Complaint nor even the exhibits actually reference any specific services provided by the clinicians and billed out to the government for payment. Second, while the Relators allege broad and even “rampant” violations of Medicaid regulations, they fail to name any specific provisions that are actually being violated. Thus, rather than demonstrate an objective falsehood, as required by statute and affirmed by the Fourth Circuit, Relators instead offer a factually deficient, subjective opinion of unidentified laws being violated by unidentified persons at unspecified dates. The Complaint must therefore be dismissed under FRCP 12(b)(6) for failure to state a claim upon which relief can be granted. 2. The Amended Complaint Fails To Meet The Well-Established (And Strict) Particularity Requirement Of FRCP 9(b) And Must Therefore Be Dismissed. Moving beyond the lower Iqbal/Twombly pleading standard, the Relators’ Second Amended Complaint does not plead fraud with particularity pursuant to Federal Rule of Civil Procedure 9(b) and must, therefore, be dismissed. Rule 9(b) imposes a heightened pleading standard by requiring Relators to allege with particularity the circumstances constituting fraud. To meet this standard, the Fourth Circuit has consistently held that “an FCA plaintiff must, at a minimum, describe the ‘time, place, and contents of the false representations, as well the identity of the person making the misrepresentation and what he obtained thereby.’” United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)); see also United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451 (4th Cir. 2013). Conclusory statements Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 6 of 12 Pageid#: 502 7 18628/3/8013659v1 or mere allegations of “fraud by hindsight” do not meet the requirements of Rule 9(b). Harrison, 176 F.3d at 784. See also Hillson Partners Ltd. Partnership v. Adage, Inc., 42 F.3d 204, 209 (4th Cir. 1994). The particularity requirement, as noted by the Court, is a crucial safeguard imposed on Relators for four primary purposes: First, it ensures that defendants have “sufficient information to formulate a defense by putting [them] on notice of the conduct complained of.” Second, it protects defendants from frivolous suits. Third, it “eliminate[s] fraud actions in which all the facts are learned after discovery.” Fourth, it shields defendants from “harm to their goodwill and reputation.” Id. (quoting United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Blue Cross Blue Shield, Inc., 755 F. Supp. 1055, 1056-57 (S.D. Ga. 1990)). Because of their specificity, these Rule 9(b) facts are often referred to as the “who, what, when, where, and how” of the alleged fraud. Kellogg Brown & Root, Inc., 525 F.3d at 379 (citing United States ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 384 (5th Cir. 2003) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997))). For the reasons that follow, Relators have failed to meet the Rule 9(b) pleading requirement. First, Relators fail to allege any specific facts—dates, times, persons—supporting their allegations. Instead, Relators’ Second Amended Complaint contains merely conclusory allegations of misconduct and vague assertions that “double or triple” billing must have occurred, but does not provide particular dates, persons, or places to support said allegations. Sec. Am. Comp. at ¶ 20. For instance, Relators assert that “[c]linicians were then encouraged by EMH to submit billing records indicating that patients received individualized care when in fact they had not.” Id. (emphasis added). This alleged “encouragement” of fraudulent billing, however, as well as the purported “fact” that such services were not performed falls well short of Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 7 of 12 Pageid#: 503 8 18628/3/8013659v1 the Rule 9(b) pleading standard. The Relators do not indicate who encouraged whom to submit the alleged billing, when this alleged “encouragement” occurred, what precisely was being billed, where the communications and/or transactions took place, and how the alleged fraudulent scheme, if any, was conducted. The Complaint, in fact, is entirely devoid of any particulars whatsoever: the who, what, when, where, why, and how are missing altogether. Second, the attached “Exhibits,” which purportedly list “specific instances of fraudulent billing,” are similarly also entirely devoid of any actual specific information describing the alleged fraud. Sec. Am. Comp. at ¶ 21 (emphasis added). In Exhibit A, for example, Relator Chittum claims she “witnessed rampant Medicaid fraud on the part of East Mental Health Services, LLC.” Ex. A. ¶ 3. She does not, however, offer any evidence whatsoever as to who committed the alleged fraud, when she witnessed it, when the bills were presented to the government, if at all, or even what bills created the so-called “rampant” fraud. In fact, the “rampant” nature of the circumstances is thus nothing more than a vague and conclusory assertion unsupported by any specific facts. The exhibit continues, however, with the purported “specifics” by describing a supposed “concrete example” of the alleged fraud whereby Relator “observed Clinicians to travel with two or three or more patients in one vehicle at the same time even though this is a violation of Medicaid regulations.” Ex. A ¶ 5. Once again, this alleged “concrete” example is nothing if not concrete: it is vague, conclusory, and insufficient to satisfy the particularity requirement of Rule 9(b). The Complaint does not state when the Relator allegedly “observed” the unidentified “two or three or more patients,” how many patients were in question, what dates constituted the “same time” period referenced by Relator, or even which Medicaid regulations, if any, were being violated. The allegations could not be more vague. Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 8 of 12 Pageid#: 504 9 18628/3/8013659v1 To be clear, Nathan does not require that specific false claims be alleged with particularity; in the alternative, a relator may allege a fraud scheme with particularity that would necessarily lead to the plausible inference that false claims were made. If the relator pursues this avenue, however, they must allege sufficient detailed facts such that the alleged fraud scheme has the “indicia of relability.” Nathan, 707 F.3d at 456-457. The Second Amended Complaint fails to allege any facts that would constitute the detailed fraud scheme required by Nathan. Third, not only have Relators failed to plead with particularity “specific facts” that either in and of themselves constitute fraud or support a strong inference of fraud, but they have also failed to cite specific Medicaid regulations that were being violated. Simply put: Relators’ conclusions that EMH’s activity “results in ‘triple billing’ or sometimes more,” that said activity is “violative of Medicaid regulations,” and that EMH “supports and condones this practice” are just that: mere conclusions of law—notably unidentified law—falling far short of the Fourth Circuit’s well-established pleading-with-particularity requirement, as stated in Nathan: In view of the rationale underlying Rule 9(b), we decline to adopt Relator's argument for a more lenient application of the Rule. We have adhered firmly to the strictures of Rule 9(b) in applying its terms to cases brought under the Act . . . Moreover, we have emphasized that a claim brought under the Act that "rest[s] primarily on facts learned through the costly process of discovery . . . is precisely what Rule 9(b) seeks to prevent." For these reasons, nothing in the Act or in our customary application of Rule 9(b) suggests that a more relaxed pleading standard is appropriate in this case. Id. (internal citations omitted). 707 F.3d 451, 456. The Relators’ failure to identify specific Medicaid or Medicare provisions at issue is of particular importance in light of the fact that there are many different payment systems under both programs. Some Medicare and Medicaid programs consist of managed care, while others are fee- for-service. Without any facts as to which programs or services are at issue, there is no evidence that Relators’ allegations could actually constitute fraud at all. Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 9 of 12 Pageid#: 505 10 18628/3/8013659v1 Thus, since Relators have not plausibly alleged, in the pre-discovery phase, which specific false claims were presented to the government, by whom, how, where, and when, the Second Amended Complaint does not satisfy the strict particularity requirements of Rule 9(b) and must therefore be dismissed. 3. The Second Amended Complaint Should Be Dismissed With Prejudice. The Second Amended Complaint should be dismissed with prejudice because Relators have now had three opportunities to state a claim, yet failed to meet the applicable pleading standard. Despite multiple opportunities to modify their complaint, the Relators’ Second Amended Complaint remains vague, conclusory, and unsupported by any specific facts. Had Relators actually possessed the requisite information to meet the applicable pleading standards, such information would have surely been incorporated by now. In such circumstances, the Fourth Circuit has consistently held that the court “may deny leave to amend if the amendment ‘would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would have been futile.’” Nathan, 707 F.3d at 461 (quoting Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en banc) (quoting Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986))). Since nearly four years have now elapsed since the filing of the original complaint and the Relators have continually failed to meet the relevant pleadings standards despite multiple attempts, it is evident that any further amendments would be futile. The granting of leave to file yet another amended complaint would both “undermine the substantial interest of finality in litigation” and, as the Fourth Circuit explains, needlessly and unduly subject the Defendant to “continued time and expense” occasioned by Relators’ multiple pleading failures. Nathan, 707 F.3d at 461. Since Rules 12(b)(6) and 9(b) were designed precisely to prevent vague complaints from reaching fact-fishing expeditions in the discovery Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 10 of 12 Pageid#: 506 11 18628/3/8013659v1 phase, the Court should deny any further motion for leave to amend and dismiss the Second Amended Complaint with prejudice. CONCLUSION EMH respectfully requests the Court dismiss the Second Amended Complaint with prejudice for failure to state a claim upon which relief can be granted pursuant to FRCP 12(b)(6) and failure to plead fraud with particularity pursuant to FRCP 9(b). John R. Thomas, Jr. (VSB No. 75510) Justin M. Lugar (VSB No. 77007) GENTRY LOCKE 900 SunTrust Plaza P.O. Box 40013 Roanoke, Virginia 24022-0013 (540) 983-9300 Fax: (540) 983-9400 Thomas@gentrylocke.com jlugar@gentrylocke.com Counsel for Defendant East Mental Health Services, LLC EAST MENTAL HEALTH SERVICES, LLC By: /s/ John R. Thomas, Jr._____________ Of Counsel Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 11 of 12 Pageid#: 507 12 18628/3/8013659v1 CERTIFICATE OF SERVICE I hereby certify that, on this 26th day of May, 2017, the foregoing was filed electronically with the Clerk of Court using the CM/ECF system, which will send a Notice of Electronic Filing to counsel of record in this matter, and by U.S. Mail upon the following party: Thomas Strelka, Esq. Strelka Law Office, P.C. 119 Norfolk Avenue, Suite 330 Roanoke, VA 24011, John R. Thomas, Jr.___________ Of Counsel Case 7:13-cv-00498-EKD Document 63-1 Filed 05/26/17 Page 12 of 12 Pageid#: 508