U.S. et Tenn. ex rel. Armes v. Jan Garman
16-6212
| 6th Cir. | Dec 8, 2017Background
- Relator Jason Armes, a former respiratory therapist at Select Medical’s Tennessee LTAC hospitals, filed a qui tam suit alleging Select Medical engaged in corporate-wide schemes (manipulating admissions/discharges, unnecessary billing, upcoding, and bonus incentives) to maximize Medicare and TennCare reimbursements from 2005–2014.
- Select Medical defendants moved to dismiss; district court denied Armes leave to amend (undue delay and futility), dismissed most FCA claims under the FCA’s first-to-file bar and one claim under Rule 9(b), and declined supplemental jurisdiction over state-law claims.
- An earlier qui tam in the Southern District of Indiana (Conroy) publicly alleged similar corporate-wide LTAC reimbursement schemes and was unsealed before Armes’s disclosure to the government.
- Armes appealed, arguing erroneous application of first-to-file/public-disclosure bars, that dismissal should be without prejudice (citing Carter), and that the district court abused its discretion in denying leave to amend and in declining supplemental jurisdiction.
- The Sixth Circuit affirmed, but on the alternative ground that Armes’s FCA claims are barred by the FCA’s public-disclosure bar because the Indiana complaint publicly disclosed substantially the same allegations and Armes was not an original source.
- The court also upheld the district court’s denial of leave to amend for undue delay and its refusal to exercise supplemental jurisdiction over state-law claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Armes’s FCA claims are barred by the FCA public-disclosure bar | Armes argued his complaint was not based on the Indiana public disclosure and/or he was an original source, so claims should proceed | Conroy already publicly disclosed substantially the same allegations; Armes was not an original source | Claims barred by public-disclosure bar; Armes not an original source; dismissal affirmed |
| Whether dismissal should be with prejudice or without prejudice under Carter | Armes: Carter requires dismissal under first-to-file/public-disclosure as without prejudice | Defendants: dismissal with prejudice appropriate given public-disclosure and timing | Court affirmed dismissal with prejudice based on public-disclosure; Carter did not change outcome here |
| Whether district court abused discretion in denying leave to amend | Armes: permitted amendment could cure defects | Defendants: Armes delayed and proposed amendments would still be futile | Denial affirmed for undue delay (and futility) |
| Whether district court erred in declining supplemental jurisdiction over state claims | Armes: federal dismissal shouldn’t preclude adjudication of state claims here | Defendants: federal claims dismissed first so state claims should be dismissed | Refusal to exercise supplemental jurisdiction affirmed |
Key Cases Cited
- U.S. ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503 (6th Cir.) (public-disclosure "based upon" substantial-identity test)
- U.S. ex rel. Advocates for Basic Legal Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428 (6th Cir.) (2010 FCA amendment and "materially adds to" original-source standard)
- U.S. ex rel. Conroy v. Select Med. Corp., 211 F. Supp. 3d 1132 (S.D. Ind. 2016) (earlier qui tam publicly alleging Select Medical reimbursement schemes)
- Schindler Elevator Corp. v. U.S. ex rel. Kirk, 563 U.S. 401 (Supreme Court) (public-disclosure bar is broad)
- Rockwell Int’l Corp. v. United States, 549 U.S. 457 (Supreme Court) (pre-amendment public-disclosure bar treated as jurisdictional)
- Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (Supreme Court) (first-to-file dismissal typically without prejudice)