8 F. Supp. 3d 339
S.D.N.Y.2014Background
- Relators (parents) sued NYC DOE and four Upstate New York school districts under the False Claims Act, alleging Medicaid claims for targeted case management (TCM) / IEP-related services were fraudulent because those services were funded by IDEA.
- The SSHSP (State School Supportive Health Services Program) and state billing codes (5491–5495) had been approved by CMS; New York allowed billing for certain IEP-review activities until changes and a moratorium beginning 2009 and SPA rescission in 2010.
- Relators identified 16 children and alleged defendants billed Medicaid for services not provided, used automated billing, failed to assign case managers, failed to notify/obtain parental consent, and double-billed federal funds.
- Upstate defendants moved to dismiss for improper venue (and transfer). DOE moved to dismiss for failure to state a claim. Court severed defendants and found venue improper for Upstate defendants; dismissed Upstate claims without prejudice.
- Court held Relators failed to state an FCA claim against DOE: (1) New York’s rules authorized billing for IEP-review codes, (2) plaintiffs did not plead duplicative receipt of IDEA funds by DOE or an express payment condition, and (3) Relators failed to allege DOE acted knowingly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Joinder and venue for Upstate districts | Defendants’ similar Medicaid billing makes them part of same series of transactions; venue in SDNY proper because federal funds flowed through NYC bank | Each district submitted its own claims in Northern District; joinder improper; receipt location of federal transfer is not where wrongful acts occurred | Joinder improper; venue improper in SDNY for Upstate defendants; claims severed and dismissed without prejudice (no transfer) |
| Factually false claims (billing for IEP reviews) | DOE billed Medicaid for IEP reviews that merely duplicated IDEA-funded services (thus false claims) | State SPA and SSHSP expressly authorized billing certain IEP-review activities; DOE followed state/Federal-approved procedures | Relators’ factual-falsity theory fails: DOE used state-approved billing codes for IEP reviews and did not present a false claim as a matter of law |
| Legally false certification (noncompliance with program rules: case manager, 30‑day meeting, parental notice/consent) | DOE certified compliance when it failed to meet programmatic requirements (implied/express false certification) | Many alleged requirements are not express conditions of payment; SSHSP allowed various personnel to perform reviews; cited regulations do not make Medicaid payment conditional | Court rejects express theory and finds implied‑certification inapplicable where the relied-on rules are not expressed conditions of payment; claims based on case‑manager and 30‑day meeting fail as pleaded |
| Scienter (knowing submission) | Alleged automated billing, failures to reverse claims, and systemic practice support knowledge/reckless disregard | DOE followed State procedures and CMS‑approved SPA; ambiguity in law makes knowledge implausible | Relators did not plead facts plausibly showing DOE had actual knowledge, deliberate ignorance, or reckless disregard; scienter not established |
Key Cases Cited
- Deskovic v. City of Peekskill, 673 F. Supp. 2d 154 (S.D.N.Y. 2009) (joinder standard under Rule 20)
- Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353 (2d Cir. 2005) (venue requires substantial part of events occurring in the district)
- Peterson v. Regina, 935 F. Supp. 2d 628 (S.D.N.Y. 2013) (improper joinder where defendants committed same type of violation independently)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Twombly pleading standard application)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility and inference rules for pleadings)
- United States ex rel. Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (distinguishing factually false and legally false FCA claims and implied certification doctrine)
- Starr v. Sony BMG Music Entm’t, 592 F.3d 314 (2d Cir. 2010) (plausibility standard restated)
- United States ex rel. Colucci v. Beth Israel Med. Ctr., 785 F. Supp. 2d 303 (S.D.N.Y. 2011) (what constitutes a claim aimed at extracting money the government would not have paid)
- United States ex rel. Feldman v. City of New York, 808 F. Supp. 2d 641 (S.D.N.Y. 2011) (limitations on express certification theory)