UNITED STATES OF AMERICA ex rel. JANE DOE v. HEART SOLUTION, PC; BIOSOUND MEDICAL SERVICES; KIRTISH N. PATEL; NIMESH PATEL; NITA K. PATEL
No. 17-2019
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
May 3, 2019
Heart Solution PC and Nita K. Patel, Appellants. Argued on October 1, 2018. PRECEDENTIAL.
On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 2-14-cv-03644) District Judge: Honorable Stanley R. Chesler
Before: JORDAN, ROTH, Circuit Judges and STEARNS*, District Judge
(Opinion filed May 3, 2019)
Mark E. Cedrone (ARGUED)
Cedrone & Mancano
123 South Broad Street - Suite 810
Philadelphia, PA 19109
Counsel for Appellants
Charles Graybow (ARGUED)
Office of United States Attorney
970 Broad Street
Room 700
Newark, NJ 07102
Counsel for Appellee USA
Paul B. Brickfield
Brickfield & Donahue
70 Grand Avenue
Suite 102
River Edge, NJ 07661
* The Honorable Richard G. Stearns, United States District Judge for the District of Massachusetts, sitting by designation.
Timothy J. McInnis
521 Fifth Avenue
Suite 1700
New York, NY 10175
Counsel for Appellee Jane Doe
ROTH, Circuit Judge
Nita K. Patel and her husband, Kirtish N. Patel, were convicted of defrauding Medicare in a prior criminal proceeding. The United States then brought this civil action for the same fraudulent schemes against Ms. Patel, Ms. Patel‘s healthcare company (Heart Solution P.C.), Mr. Patel, and Mr. Patel‘s healthcare company (Biosound Medical Services). The United States prevailed in the District Court and only Ms. Patel and Heart Solution appealed.
In granting summary judgment to the United States, the District Court relied on the Patels’ convictions and plea colloquies in the criminal case, essentially concluding that Ms. Patel had already admitted to all elements and issues relevant to her civil liability. However, the District Court failed to dissect the issues that were determined in thе criminal case from those that were not. It lumped together Ms. Patel and Heart Solution, even though Heart Solution was not involved in the criminal case. It also failed to disaggregate claims Medicare paid to Ms. Patel and Heart Solution from those paid to Mr. Patel and Biosound. As such, it erred in finding that Ms. Patel and Heart Solution conceded all of the essential elements to every claim in this appeal. Thus, we will affirm the judgment of the District Court in part and vacate in part and remand for further proceedings consistent with this opinion.
I.
In November 2015, the Patels pled guilty to separate, but nearly identical, criminal information charges under
Much of this appeal centers on Ms. Patel‘s plea colloquy for her criminal conviction. The relevant parts of the colloquy follow. First, the sentencing judge asked Ms. Patel whether she and her husband “own and operate mobile diagnostic companies known as Biosound Medical Services and Heart Solution PC,” and she responded, “yes.”4 Neither the court, the government, nor Ms. Patel clarified whether she had ownership interests in both companies or just Heart Solution.5 Next, the judge asked whether between 2006 and 2014, Ms. Patel and her husband “falsely reprеsent[ed] to Medicare that the neurological testing being performed at Biosound Medical Services was being supervised by a licensed neurologist, when, in fact, it was not.”6 Again, she responded “yes.”7 Neither the court nor the parties addressed whether Heart Solution—as opposed to the Patels or Biosound—made any such misrepresentations. Finally, the judge asked whether, “Biosound Medical Services and Heart Solution, PC, [were] paid at least [$1.18 million] by Medicare for diagnostic neurological testing that was never supervised by a licensed neurologist.” Ms. Patel answered, “yes.”8 Neither the parties nor the court sought to clarify whether one company was paid the entire amount or whether the payments were divided between the companies.
In June 2014, relator Jane Doe brought a qui tam suit under the False Claims Act (FCA) against Ms. Patel, Mr. Patel, Biosound, and Heart Solution. The United States filed a complaint in intervention on November 18, 2015. The plaintiffs sought to hold the Patels and the two companies civilly liable for defrauding Medicare through the two schemes described above. Specifically, they claimed the defendants violated two provisions of the FCA by (1) “knowingly present[ing] or caus[ing] to be presented a false or fraudulent claim,”9 and (2) “knowingly mak[ing], us[ing], or caus[ing] to be made or used a false record or statement material to a false or fraudulent claim.”10 They also brought common law claims including fraud, unjust enrichment, disgorgement of profits, and payment by mistake of fact.
In March 2016, the plaintiffs moved for partial summary judgment on the two FCA counts, arguing that Ms. Patel‘s admissions during her plea colloquy established all the elements of the FCA claims and that therefore Heart Solution and Ms. Patel were collaterally estopped from contesting FCA liability. In their opposition brief, the defendants relied on a statement submitted by Mr. Patel in a pleading entitled “Certification of Kirtish N. Patel.” In it, Mr. Patel claimed that Biosound employed a supervising neurologist from 2006 to 2007 and from 2012 to 2014. The defendants argued that the statement raised an issue of fact as to the time frame during which Biosound lacked a supervising neurologist.
The District Court granted summary judgment to plaintiffs on July 8, 2016, finding that the guilty pleas and accompanying colloquies established all elements of the FCA claims and collaterally estopped the defendants from contesting liability. It also struck the section of Mr. Patel‘s statement regarding the time frame during which Biosound had a supervising neurologist because it was “self-serving” and conflicted with testimony from the plea colloquy regarding the time frame without any “reasonable explanation.” On December 23, 2016, the government moved for summary judgment on the remaining common law claims under the same theory—that the defendants had admitted to all the elements of the claims. The District Court agreed and granted the motion on April 3, 2017.
On May 3, 2017, Ms. Patel and Heart Solution appealed both summary judgment orders.11 They submit two primary arguments. First, they contend that Ms. Patel cannot be liable for any unsupervised neurological testing at Biosound because she did not own or operate Biosound, and thus had no legal duty to ensure Biosound employed a neurological testing supervisor. Second, they arguе that even if we find them liable for the neurological testing issues at Biosound, Mr. Patel‘s statement created an issue of material fact as to the time frame during which the unsupervised testing occurred. We reject both of these arguments.
Moreover, we will affirm the District Court with regard to Ms. Patel‘s liability on the FCA and common law fraud claims. However, we will vacate the District Court‘s findings that (1) Heart Solution is estopped from contesting liability and damages for all claims, and (2) Ms. Patel is estopped from contesting liability and damages for the remaining common law claims.
II.
The District Court had jurisdiction under
III.
We first address Ms. Patel‘s and Heart Solution‘s two main arguments on why the District Court erred in granting summary judgment. First, they contend that Ms. Patel cannot be liable for Biosound‘s unsupervised testing because she did not possess an ownership interest in Biosound and merely worked as an employee. We reject this argument and hold that ownership interest is irrelevant to FCA liability. Second, they argue that even if Ms. Patel is liable for Biosound‘s fraud, Mr. Patel‘s statement created a triable issue of fact as to the years during which Biosound lacked a supervising neurologist. We conclude that Mr. Patel‘s statement cannot create a disputed issue of fact on summary judgment
A.
We address the issue of ownership first. Ms. Patel argues that because she did not have any ownership interest in Biosound, she had no duty to ensure that Biosound employed a supervising neurologist and was not in charge of ensuring Biosound‘s compliance with Medicare regulations. However, whether Ms. Patel had an ownership interest in Biosound is irrelevant to her liability under the FCA.14 There are four elements to the two FCA claims brought here: “falsity, causation, knowledge, and materiality.”15 Ownership is not one of them. Although corporations and individuals with ownership interests—such as board members and executives—are typically the parties investigated and sued for FCA violations, individuаls at all levels of a company have been found liable under the FCA.16 We conclude that individual employees with no ownership interest in a company can be liable under Sections
This conclusion, that an ownership interest is not required for FCA liability, is consistent with the language of the FCA. Section
Recent Department of Justice (DOJ) guidance regarding the FCA is consistent with our holding that ownership is not
Because ownership is irrelevant to FCA liability, the first argument fails.
B.
Ms. Pаtel and Heart Solution also argue that there remains a triable issue of fact regarding the years during which Biosound employed a supervising neurologist. In support of this argument, they rely on Mr. Patel‘s statement, which claims that Biosound employed a supervising neurologist during 2006-2007 and 2012-2014. We conclude that because Mr. Patel‘s statement was both unsworn and not given under the penalty of perjury, it was insufficient to create an issue of fact on summary judgment.
This holding is consistent with the Federal Rules of Civil Procedure, authority from our sister circuits, and our own precedent. A 2010 amendment to the Advisory Committee Notes on
The Fifth Circuit Court of Appeals reached the same conclusion when presented with this issue. In Nissho-Iwai American Corp. v. Kline,24 the only evidence the nonmoving party submitted on summary judgment was an statement that was “neither sworn nor its contents stated to be true and cоrrect nor stated under penalty of perjury.”25 The court held that unsworn statements, on their own, generally cannot raise an issue of fact as to preclude summary judgment unless the statement falls within the statutory exception to this rule under Section
Although we have not directly addressed this issue in a precedential opinion, today‘s holding is in line with our prior rulings. In Woloszyn v. County of Lawrence,28 we held that a district court did not err in refusing to consider an unsworn statement on summary judgment because it did not comply with Rule 56.29
Accordingly, Mr. Patel‘s statement is incompetent summary judgment evidence. His statement is the only evidence Ms. Patel and Heart Solution submitted on the issue of the whether Biosound had a supervising neurologist at any point between 2006 and 2014.30 Therefore, there is no genuine dispute of material fact as to whether Biosound had a supervising neurologist.
IV.
We now turn to collateral estoppel as applied to Heart Solution and conclude that Heart Solution is not collaterally estopped from contesting liability or damages for the claims against it. Under federal common law, collateral estoppel applies when “(1) the issue sought to be precluded is the same as that involved in the prior action; (2) that issue was actually litigated; (3) it was determined by a final and valid judgment; and (4) the determination was essential to the prior judgment.”31 Moreover, “collateral estoppel cannot apply when the party against whom the earlier decision is asserted did not have a full and fair opportunity to litigate that issue in the earlier case.”32 In situations involving the collateral estoppel effects of a prior criminal judgment, “the court must examine the record of the criminal proceeding,” including the plea colloquy, “to determine specifically what issues were decided.”33 “[R]easonable doubt as to which issues were decided by a prior judgment should be resolved against using such judgment as an estoppel.”34
Heart Solution cannot be estopped based on Ms. Patel‘s criminal conviction and plea colloquy. The Unitеd States
Thus, we will vacate the District Court‘s holding that Heart Solution is estopped.
V.
Next, we address Ms. Patel‘s liability for FCA violations and common law fraud and conclude that (1) the District Court properly found that she was estopped from contesting the falsity and knowledge elements of these claims; and (2) the Government met its burden to show materiality and causation.
An FCA violation has four elements: “falsity, causation, knowledge, and materiality.”37 Ms. Patel admitted that: (1) she “falsely represented to Medicаre that the neurological testing being performed at Biosound Medical Services was being supervised by a licensed neurologist when, in fact, it was not;” and (2) she “knowingly made these false representations to Medicare.” As a result, she is collaterally estopped from denying the falsity and knowledge elements of the FCA claims.
We also conclude that the materiality element has been satisfied38 even though the District Court did not apply Supreme Court precedent. In June 2016, the Supreme Court decided Universal Health Services, Inc. v. United States ex rel. Escobar,39 where it held that materiality is an element of all FCA claims, regardless of whether the specific statutory provision lists materiality as an element.40 The Court then provided guidance on how the materiality requirement should be applied. It explained that a misrepresentation is not material merely because the government designates compliance with a particular regulatory requirement as a condition of payment or because “the Government would have the оption to decline to pay if it knew of the defendant‘s noncompliance [with the regulation].”41 In fact, it is “very strong evidence” that a requirement is not material “if the Government pays a particular claim in full despite its actual knowledge
The District Court did not apply Escobar in its analysis. It relied exclusively on the provision labeling supervision of diagnostic testing a condition of payment rather than looking to the record for other factors, as provided in Escobar, bearing on the materiality analysis.45 However, when we examine the record, we conclude that there is no issue of fact as to materiality under Escobar.
The initial burden was on the government to show materiality, and it met its burden when it submitted that, pursuant to the regulation, Medicare would not pay the claims in the absence of a certification from a supervising neurоlogist. Neither Ms. Patel nor any other defendant put forth any evidence indicating otherwise. She made no showing that noncompliance with the supervision requirement was “minor or insubstantial”46 or that Medicare generally pays this type of claim “in full despite its actual knowledge that certain requirements were violated.”47 Because the Government met its burden to show materiality and Ms. Patel put forth no evidence in rebuttal, the element of materiality was properly established, and there is no need to remand this case tо the District Court to determine materiality under Escobar.
This conclusion as to materiality also means that there was causation—the final FCA element. Because these misrepresentations were material, they caused damage to Medicare. In other words, but for the misrepresentations, Medicare would never have paid the claims.
Next, we address the District Court‘s holding that Ms. Patel‘s conviction also estops her from contesting liability as to common law fraud. The elements of fraud under New Jersey law are (1) knowingly making a matеrial misrepresentation; (2) an intention that the other person rely on the misrepresentation; (3) reasonable reliance by the other person; and (4) resulting damages.48 We agree with the District Court that Ms. Patel is estopped from denying that she knowingly made misrepresentations to Medicare regarding the neurological testing being performed at Biosound. Moreover, for the same reasons as in the FCA claim, we find that the materiality and causation/reliance elements of common law fraud have been met. Therеfore, we will affirm the District Court‘s determination as to common law fraud.
VI.
Turning to the remaining common law claims—unjust enrichment, disgorgement of profits, and payment by mistake of fact—we hold that Ms. Patel is not collaterally estopped from denying liability or damages as to these claims.
Whether Ms. Patel or Heart Solution specifically—as opposed to Mr. Patel and Biosound—retained any from funds from Medicare was not determined in the criminal case so as to estop Ms. Patel from contesting liability for these claims. In order to find that Ms. Patel is collaterally estopped, we must find that the issue of whether she retained funds was (1) involved and litigated in the prior action, (2) actually determined by a final judgment, and (3) essential to the conviction.52 Ms. Patel‘s conviction and plea colloquy do not permit such findings. First,
Her plea colloquy does not establish that she obtained funds from Medicare. Ms. Patel admitted that she submitted false claims to Medicare about the neurological testing at her husband‘s company, Biosound. She also admitted that Biosound and Heart Solution were paid approximately $1.18 million from Medicare for unsupervised neurological testing. These admissions may suggest that Ms. Patel and/or Heart Solution retained at least part of the $1.18 million, but they are not sufficient to estop Ms. Patel from arguing and submitting evidence to show otherwise. It is рossible that Mr. Patel and Biosound retained the entire benefit and Ms. Patel and Heart Solution retained nothing. The criminal proceedings do not speak to this question, much less resolve it. Where there is “reasonable doubt as to which issues were decided by a prior judgment” we cannot conclude that collateral estoppel applies.53
This same reasoning applies to the question of damages. Ms. Patel is not estopped from contesting damages because neither her conviction nor colloquy conclusively establish she was ever paid by Medicare for unsupervised neurological testing.
As such, we will reverse the District Court‘s grant of summary judgment on the unjust enrichment, disgorgement of profits, and payment by mistake of fact claims. We will also reverse the District Court‘s finding as to damages assessed against Ms. Patel with regard to these claims.
VII.
For the foregoing reasons, we will affirm the District Court‘s judgment on the