UNITED STATES OF AMERICA AND NEW YORK STATE ex rel. ORLANDO LEE, MELVILLE LUCKIE and LUZ GONZALEZ, Plaintiffs, v. NORTHERN ADULT DAILY HEALTH CARE CENTER and GALENA DEVERMAN, Defendants.
13-CV-4933 (MKB)
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
September 7, 2016
MARGO K. BRODIE, United States District Judge
MARGO K. BRODIE, United States District Judge:
On September 4, 2013, Orlando Lee, Melville Luckie and Luz Gonzalez (“Relators“) brought this qui tam action on behalf of the United States of America and the State of New York (the “State“) against Defendants Northern Adult Daily Health Care Center (“Northern Adult“)1 and Galena Deverman,2 alleging violations of the False Claims Act,
“FCA“), and the New York State False Claims Act,
I. Background
The facts alleged in the Amended Complaint are accepted as true for the purpose of deciding this motion. According to the Amended Complaint, Northern Adult was an adult day care center that provided “cognitive stimulation,” arts and crafts, personal hygiene, and occupational and physical therapy to its elderly and low-income registrants.3 (Am. Compl. ¶ 12.) As payment, Northern Adult accepted Medicaid, managed-Medicaid, private insurance and private payment. (Id.) Northern Adult was obligated to comply with the New York State Health Rules and Regulations, which required Northern Adult, among other things, to give admission priorities to certain registrants, provide nursing and social services, provide assistance
Relators, who were previously employed by Defendants, allege that Defendants billed the Medicaid Program for “substandard services that were inappropriate, unacceptable, harmful, worthless, and/or unnecessary,” in violation of DOH and Medicaid regulations. (Id. ¶ 43.) Specifically, Relators allege that Defendants, among other things, failed to supervise registrants — resulting in registrants “wandering unescorted” in Prospect Park and around the Park Slope neighborhood of Brooklyn, New York — failed to provide food that adhered to certain dietary and health restrictions, and failed to provide food to African-American and Latino registrants. (Id. ¶ 44.) In addition, Northern Adult allowed registrants to drink alcohol to the point of intoxication, segregated Latino and African-American registrants from white Russian registrants, forced developmentally-disabled registrants to wear “embarrassing costumes for the entertainment and amusement of white Russian registrants,” and refused to transport registrants to African-American and Latino neighborhoods. (Id.)
Relators also allege that Defendants retaliated against them for reporting Northern Adult‘s alleged misconduct. Relators claim that (1) Lee was constructively terminated after he
On June 26, 2014, the State entered into a settlement agreement (the “Settlement Agreement“) with Northern Metropolitan Foundation for Health Care, Inc. (“Northern Metropolitan“) and Northern Manor Multicare Center, Inc. (“Northern Manor“), respectively the non-profit organization and wholly-owned subsidiary that operated Northern Adult. (State Ltr. of Interest at 2.) According to the State,5 the Settlement Agreement covered the following conduct, to which Northern Manor admitted: Northern Manor operated Northern Adult “as a medical model [adult day health care] without a qualified social worker on staff to provide required [adult day health care] social services,” and “on 63 days, the [adult day health care] program admitted more registrants than it was certified to treat by the New York State Department of Health.” (State Ltr. of Interest at 2; see also Relators’ Mem. of Law in Opp‘n to Def. Mot. (“Relators’ Mem.“) 3, Docket Entry No. 46.) Northern Manor and the State settled the claims for six and a half million dollars, and Northern Manor agreed to close Northern Adult. (Id.)
II. Discussion
a. Standard of review
i. Motion to dismiss
In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must “accept all factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff.” Tsirelman v. Daines, 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep‘t of Educ., 131 F.3d 326, 329 (2d Cir. 1997)); see also Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011) (quoting Connecticut v. Am. Elec. Power Co., 582 F.3d 309, 320 (2d Cir. 2009)). A complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Matson, 631 F.3d at 63 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)); see also Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717–18 (2d Cir. 2013). Although all allegations contained in the complaint are assumed true, this principle is “inapplicable to legal conclusions”
Moreover, as discussed in greater detail below, “[i]t is self-evident that the FCA is an anti-fraud statute,” and therefore “claims brought under the FCA fall within the express scope of Rule 9(b) [of the Federal Rules of Civil Procedure].” Wood ex rel. U.S. v. Applied Research Associates, Inc., 328 F. App‘x 744, 747 (2d Cir. 2009) (quoting Gold v. Morrison–Knudsen Co., 68 F.3d 1475, 1476–77 (2d Cir. 1995)); see Bishop v. Wells Fargo & Co., 823 F.3d 35, 43 (2d Cir. 2016) (quoting same). Pleadings subject to Rule 9(b) must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” United States ex rel. Ladas v. Exelis, Inc., --- F.3d ---, ---, 2016 WL 3003674, at *7 (2d Cir. May 25, 2016) (quoting Shields v. Citytrust Bank Corp., Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)); Wood, 328 F. App‘x at 747 (quoting same). “Ultimately, whether a complaint satisfies Rule 9(b) depends upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.” United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 616 (S.D.N.Y. 2013); see Kane ex rel, U.S. v. Healthfirst, Inc., 120 F. Supp. 3d 370, 383 (S.D.N.Y. 2015) (quoting same); U.S. ex rel. Bilotta v. Novartis Pharm. Corp., 50 F. Supp. 3d 497, 508 (S.D.N.Y. 2014) (quoting same); U.S. ex rel. Kester v. Novartis Pharma. Corp., 23 F. Supp. 3d 242, 258 (S.D.N.Y. 2014) (quoting same); see also Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004) (discussing the purpose of the particularity requirement and emphasizing fair notice to the defendant).
“In determining the adequacy of a claim under Rule 12(b)(6), consideration is limited to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken.” Wilson v. Kellogg Co., 628 F. App‘x 59, 60 (2d Cir. 2016) (quoting Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991)). In addition, courts may consider “documents that, although not incorporated by reference, are integral to the complaint.” L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011) (internal quotation marks omitted) (quoting Sira v. Morton, 380 F.3d 57, 67 (2d Cir. 2004)). A court need not consider other information outside the pleadings, but where a court does not exclude extraneous information, it must give notice to the parties and convert the motion to one for summary judgment under Rule 56.
b. Federal and New York False Claims Acts
The FCA imposes liability for, among other things, “knowingly” presenting or causing to be presented, a false or fraudulent claim “for payment or approval.”
The provisions of the FCA invoked by Relators in this case subject to civil liability any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the United States government,
To prove a false claim under FCA sections 3729(a)(1)(A) and 3729(a)(1)(B) or NYFCA sections 189(1)(a) and 189(1)(b), a relator must show that the defendant “(1) made a claim, (2) to the [] government, (3) that is false or fraudulent, (4) knowing of its falsity, and (5) seeking payment from the federal treasury.” Bishop, 823 F.3d at 43 (quoting Mikes v. Straus, 274 F.3d 687, 695 (2d Cir. 2001)), abrogated on other grounds by Universal Health Servs., Inc., 579 U.S. at ---, 136 S. Ct. at 2001); U.S. ex rel. Qazi v. Bushwick United Housing Dev. Fund Corp., 977 F. Supp. 2d 235, 239 (E.D.N.Y. 2013) (quoting same). However, neither the FCA nor the NYFCA defines a “false” claim. See Mikes, 274 F.3d at 696. Similarly, to prove a “reverse false claim” under FCA section 3729(a)(1)(G) or NYFCA section 189(a)(g), which involves money owed to the government rather than money paid by the government, a relator must show: “(1) proof that the defendant made a false record or statement (2) at a time that the defendant had a presently-existing obligation to the government — a duty to pay money or property.” Kester, 43 F. Supp. 3d at 367–68 (quoting Chesbrough v. VPA, P.C., 655 F.3d 461, 473 (6th Cir. 2011) (internal quotation marks omitted)); see also Wood, 328 F. App‘x at 748.
Relators allege that Defendants billed the Medicaid Program for “substandard services that were inappropriate, unacceptable, harmful, worthless, and/or unnecessary,” in violation of DOH and Medicaid regulations. (Am. Compl. ¶ 43.) In particular, Relators allege that Defendants violated provisions of Title 10 and Title 18 of the New York Codes, Rules and Regulations that establish operating conditions for adult day health care facilities, (id. ¶¶ 16–26) and that govern Medicaid reimbursement, (id. ¶¶ 35–36). Northern Adult argues that Relators’ claims are precluded by the settlement agreement between the State, Northern Metropolitan and Northern Manor, (Def. Mem. 3); that Relators have not pled their claims with the particularity
For the reasons discussed below, the Court grants Northern Adult‘s motion to dismiss Relators’ claims brought pursuant to
i. Preclusion by settlement
Northern Adult argues that the Settlement Agreement resolves Relators’ qui tam claims, and the claims are thus precluded under
As explained above, on a motion to dismiss pursuant to Rule 12(b)(6), the Court is limited to “facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken,” Wilson, 2016 WL 143454, at *1, as well as documents integral to the complaint, L-7 Designs, Inc., 647 F.3d at 422. Relators filed the Amended Complaint on June 26, 2015, approximately one year after the Settlement Agreement took effect, and made no mention of the Settlement Agreement in the Amended Complaint. In addition, none of the parties have argued to the Court that the Settlement Agreement is incorporated in, or integral to, the Amended Complaint or that the Court may take judicial notice of the terms of the Settlement Agreement.
ii. Pleading false claims with particularity
Northern Adult argues that the Amended Complaint does not plead the alleged fraud with particularity. (Def. Mem. 5.) Northern Adult contends that Relators have not pled the “who, what, when, where and how of the alleged fraud,” because the Amended Complaint does not identify registrants by name, does not allege attendance dates with particularity and does not provide “dates, names or other details concerning critical billing.” (Id. at 6–7.) Relators argue that they have detailed the “who, what, when, where and how” of the fraud and have provided representative examples of specific false claims. (Relators’ Mem. 6–9.)
“Rule 9(b) requires that ‘[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.‘” Ladas, 2016 WL 3003674, at *7 (alteration in original) (quoting
The purpose of Rule 9(b) is threefold — it is designed to provide a defendant with fair notice of a plaintiff‘s claim, to safeguard a defendant‘s reputation from improvident charges of wrongdoing, and to protect a defendant against the institution of a strike suit. Thus, although Rule 9(b) permits knowledge to be averred
generally, we have repeatedly required plaintiffs to plead the factual basis which gives rise to a strong inference of fraudulent intent. Essentially, while Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the charges.
Wood, 328 F. App‘x at 747 (quoting O‘Brien v. Nat‘l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)). “One of the [further] purposes of Rule 9(b) is to discourage the filing of complaints as a pretext for discovery of unknown wrongs. [A relator‘s] contention, that discovery will unearth information tending to prove his contention of fraud, is precisely what Rule 9(b) attempts to discourage.” Id. (quoting Madonna v. United States, 878 F.2d 62, 66 (2d Cir. 1989)).
Courts in this Circuit have held that “allegations as to the existence of an overall fraudulent scheme do not plead fraud with particularity,” and that “to satisfy Rule 9(b), an FCA claim must allege the particulars of the false claims themselves.” Bilotta, 50 F. Supp. 3d at 509; see also U.S. ex rel. Kester v. Novartis Pharma. Corp., 23 F. Supp. 3d 242, 255 (“[A] plaintiff must plead both the particular details of a fraudulent scheme and details that identify particular false claims for payment that were submitted to the government.” (citation and internal quotation marks omitted)). In other words, FCA pleadings must be “linked to allegations, stated with particularity, of actual false claims submitted to the government.” Bilotta, 50 F. Supp. 3d at 510 (quoting U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 232 (1st Cir. 2004)).6
In Bilotta, the court noted that:
[I]n this Circuit, courts have held that the complaint must provide details that identify particular false claims for payment that were
submitted to the government. . . . [D]etails concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the government, the particular goods or services for which the government was billed, the individuals involved in the billing, and the length of time between the alleged fraudulent practices and the submission of claims based on those practices are the types of information that may help a [plaintiff] to state his or her claims with particularity. These details do not constitute a checklist of mandatory requirements that must be satisfied by each allegation included in a complaint. However . . . some[] of this information for at least some of the claims must be pleaded in order to satisfy Rule 9(b).
Id. (quoting Polansky, 2009 WL 1456582, at *5); see also Kester, 23 F. Supp. 3d at 257–58 (“In line with the weight of authority in this Circuit, I adopt the Karvelas standard — plaintiffs asserting subsection (a)(1)(A) and (a)(1)(B) claims must plead the submission of a false claim with a high enough degree of particularity that defendants can reasonably identify particular false claims for payment that were submitted to the government.” (citation and internal quotation marks omitted)); Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d 282, 301–02 (S.D.N.Y. 2013) (collecting cases).
Nevertheless, “[i]n cases where the alleged fraudulent scheme is extensive and involves numerous transactions that occurred over a long period of time,” courts in this Circuit have held that it is “impractical to require the plaintiff to plead the specifics with respect to each and every instance of fraudulent conduct.” Bilotta, 50 F. Supp. 3d at 517 (quoting Kester, 23 F. Supp. 3d at 258). Rather, “in setting forth a complex and far-reaching scheme,” a relator need allege only “representative samples” of fraudulent conduct to satisfy Rule 9(b). United States v. Bank of N.Y. Mellon, 941 F. Supp. 2d 438, 481–82 (S.D.N.Y. 2013); see also United States v. N.Y. Soc‘y for the Relief of the Ruptured & Crippled, No. 07-CV-292, 2014 WL 3905742, at *14 (S.D.N.Y. Aug. 7, 2014) (collecting cases); United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 616 (S.D.N.Y. 2013) (finding that examples of fraudulent statements were necessary to permit a
As discussed below, Relators have adequately pled false claims under sections 3729(a)(1)(A) and 3729(a)(1)(B) of the FCA and parallel sections 189(1)(a) and 189(1)(b) of the NYFCA. (See Am. Compl. ¶¶ 223–232, 238–247.) However, Relators have not adequately pled “reverse” false claims under section 3729(a)(1)(G) of the FCA and parallel section 189(1)(g) of the NYFCA, and the Court accordingly dismisses those claims. (See id. ¶¶ 233–237, 248–252.)
1. Relators’ false claims — FCA §§ 3729(a)(1)(A), 3729(a)(1)(B) and NYFCA §§ 189(1)(a), 189(1)(b)
Northern Adult argues that “[t]he most glaring examples of [Relators‘] failure to comply with Rule 9(b) is [their] total failure to identify critical details of the billing, particularly in a way that connects the submission of any false claim to [Northern Adult].” (Def. Reply 4.) Northern Adult appears to concede that Relators have argued the “who, what, when, and where” of a fraud scheme, Polansky, 2009 WL 1456582, at *4, but argues, citing an out-of-Circuit case, that Relators have failed to allege the “how” of the fraudulent submissions to the government. (Def. Reply 3–4.) Northern Adult spends the better part of its argument noting that Relators have not explained how the provider named on the Recipient Claim Detail Reports — Northern Manor
The Court finds Northern Adult‘s arguments unpersuasive. Here, the alleged fraudulent scheme took place over several years, at the address listed in the Amended Complaint, and began when Deverman became the full-time Assistant Director of Northern Adult. (Am. Compl. ¶¶ 11, 13, 14 (noting that Deverman became the Assistant Director on December 18, 2008, and that “[s]ince [then], Northern has become systematically racist, has failed to provide required medical and health related services, registers non-eligible individuals, and submits false and fraudulent claims for payment to Medicaid“).) Relators identify Deverman as the person responsible for: contracting with an outside vendor to provide unhealthy food, (id. ¶¶ 49–53), uploading videos of mistreatment of registrants at Northern Adult, (id. ¶ 79), cutting staff and eliminating trainings, (id. ¶¶ 65, 74), and halting physical therapy and exercise programs for registrants, (id. ¶ 62). Relators also identify, by first name and “LNU,” or “Last Name Unknown,” numerous other personnel who engaged in discriminatory conduct and provided worthless services after Deverman became the full-time Assistant Director of Northern Adult. (See, e.g., id. ¶¶ 57, 61, 70, 71.)
The Amended Complaint, which is sixty pages in length, also adequately describes the nature of the misconduct underpinning Relators’ qui tam claims. Relators allege that Defendants failed to adequately supervise registrants, failed to provide food consistent with dietary restrictions, failed to provide registrants with physical and occupational therapy, discriminated against African-American, Hispanic and Chinese registrants and misappropriated Medicaid reimbursements to fund a “Russian social club” for Russian registrants who were not eligible for Medicaid-funded services. (See id. ¶¶ 44–79.) In addition to these allegations, which set forth the deteriorating conditions at Northern Adult from 2010 through 2013, Relators provide sixteen
For instance, the Amended Complaint explains that “LQ,”7 a Chinese-American registrant, attended Northern from January 10, 2010 until April 22, 2010, but was only allowed to attend on Sundays, when no Russians were in attendance. (Id. ¶ 90.) The Amended Complaint notes that LQ is diabetic and that Defendants billed for health-related services provided to LQ, and refers to the claims submitted on LQ‘s behalf. (See id. ¶¶ 90–91 (citing Recipient Claim Detail Report (“LQ Claim Report“), annexed to Am. Compl. as Ex. 3).) The LQ Claim Report includes a location code, category code, registrant identification code, the amount paid, a service code, a daily rate and dates of service that correspond to the roughly weekly attendance alleged in the Amended Complaint. (See LQ Claim Report; Am. Compl. ¶ 90.) The Amended Complaint also states that the claims submitted on LQ‘s behalf “were false [because] LQ was not provided health-related services,” (Am. Compl. ¶ 92), because “Northern [Adult] misappropriated Medicaid funds intended to provide LQ with services in order to maintain a Russian social club,” (id. ¶ 93), and because Northern Adult “violated Title VI of the Civil Rights laws and DOH conditions of payment, including the provision of harmful, discriminatory and worthless services,” (id. ¶ 94). The Amended Complaint provides this level of detail for sixteen representative registrants and corresponding claims. (See Am. Compl. ¶¶ 80–176.)
2. Relators’ “reverse” false claims — FCA § 3729(a)(1)(G) and NYFCA § 189(1)(g)
As explained above, to plead a reverse false claim a relator must show: “(1) proof that the defendant made a false record or statement (2) at a time that the defendant had a presently-existing obligation to the government — a duty to pay money or property.” Kester, 43 F. Supp. 3d at 367–68 (quoting Chesbrough, 655 F.3d at 473 (internal quotation marks omitted)). However, where a complaint “makes no mention of any financial obligation that the [defendants] owed to the government” and “does not specifically reference any false records or statements used to decrease such an obligation,” the court should dismiss the reverse false claim. Id. (quoting Wood, 328 F. App‘x at 748).
Relators have not alleged that Defendants made “a false record or statement material to an obligation to pay or transmit money” to the government, or that Defendants knowingly concealed, avoided or decreased such an obligation.
Separately from its attack on the particularity of the pleadings, Northern Adult argues that Relators bring claims under regulations that cannot support a FCA claim because the regulations merely establish “conditions of participation” or operation in an adult day health care program, “but not conditions of payment” by the government. (Def Mem. 4–5.) The Court understands Northern Adult to argue that Relators have failed to allege falsity under the FCA because, as the Second Circuit has held, the FCA “does not encompass those instances of regulatory noncompliance that are irrelevant to the government‘s disbursement decisions,”8 Mikes, 274 F.3d at 697. (See Def. Mem. 5.)
The Second Circuit has determined that a claim can be false or fraudulent under three theories of liability:
(1) a factually false theory, under which a claim for payment is made to the government seeking payment for services that were never actually provided or for which the description of the goods or services provided is incorrect; (2) an express false legal certification theory, where a claim for payment of federal funds falsely certifies compliance with a statute or regulation that must be complied with before payment can be made; and (3) an implied false legal certification theory, where, although the claim for payment does not certify compliance with a statute or regulation on its face, compliance is a prerequisite to payment under the express statutory or regulatory terms.
1. Express false legal certification theory
Relators repeatedly refer to several rules and regulations with which Northern Adult “expressly and impliedly certified compliance” when it submitted its claims to the government. (See, e.g., Am. Compl. ¶ 34, 47.) As explained above, the Second Circuit has defined express and implied legal certifications as theories of falsity or liability that a plaintiff may raise to describe the manner in which a defendant has defrauded the government. See Mikes, 274 F.3d at 697–98.
In Mikes, the Second Circuit affirmed the dismissal of a qui tam suit alleging that a medical practice had violated the FCA when it requested Medicare reimbursement for procedures that did not meet the requisite standard of care. Id. at 697. The Second Circuit held
In the Amended Complaint, Relators allege that Northern Adult:
specifically certified in a Medicaid Provider Agreement, dated January 14, 2010, that in order to receive payment from the New York Medicaid Program, it was required to comply with
Title VI of the Civil Rights Act of 1964 , and to comply with all Federal and State law, and regulations of the DOH or the Department of Mental Hygiene, or the Department of Health and Human Services.
(Am. Compl. ¶ 34.) However, Relators do not allege that Northern Adult submitted a claim in which it expressly certified such compliance; rather, Relators allege that Northern Adult certified in a Medicaid Provider Agreement that it would comply with state and federal regulations. (Id.) Thus, although Northern Adult may have “expressly . . . certified compliance” with DOH rules and regulations, (id. ¶ 47), a theory of express false legal certification requires that “a claim . . . falsely certifies compliance,” Mikes, 274 F.3d at 698; see U.S. ex rel. Kester v. Novartis Pharma. Corp., 43 F. Supp. 3d 332, 361 (S.D.N.Y. 2014) (“Under Mikes, a violation does not render a claim ‘false’ unless (1) compliance with the underlying statute, regulation, or contract is a ‘precondition’ to payment of the claim, and (2) a party falsely represents (or ‘certifies’) compliance with the provision in connection with the claim.” (emphasis added)). Because Relators have not adequately alleged that Northern Adult, in submitting a claim, certified
2. Implied false legal certification theory
Relators allege throughout the Amended Complaint that Northern Adult submitted “impliedly false” claims that were noncompliant with
The Second Circuit in Mikes noted that only in limited circumstances should a medical provider be found to have implicitly certified compliance with a particular rule as a condition of reimbursement — specifically, “only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid.” Id. at 700. Since the decision in Mikes, the Second Circuit and district courts in the circuit have relied heavily on that decision as having established the sine qua non of an implied false certification claim. See, e.g., Bishop, 823 F.3d at 48–49 (affirming the Mikes test to state a claim under a theory of implied false certification); U.S. ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94, 114 (2d Cir. 2010) (analyzing implied false certification claims by comparison to Mikes); Qazi, 977 F. Supp. at 239, 242 (relying on Mikes to dismiss FCA claims brought under express and implied false certification theories); U.S. ex rel. Feldman v. City of New York, 808 F. Supp. 2d 641, 653 (S.D.N.Y. 2011) (distinguishing the implied false certification claims before it from those in Mikes).
Since the parties briefed this motion, the Supreme Court has issued a ruling that abrogates the Second Circuit‘s implied false certification analysis in Mikes. See Universal Health Servs., 579 U.S. at ---, 136 S. Ct. at 2001–02. In Universal Health, the Supreme Court “granted certiorari to resolve the disagreement among the Courts of Appeals over the validity and scope of the implied false certification theory of liability.” Id. at 1998. The alleged false
The Supreme Court held that the implied false certification theory can be a basis for liability where two conditions are satisfied: “first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant‘s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” Id. at 2001. The misrepresentation “must be material to the Government‘s payment decision in order to be actionable under the [FCA],” and the “materiality standard is demanding.” Id. at 2003. Thus, contrary to the Second Circuit‘s decision in Mikes, the Supreme Court held that “[w]hether a provision is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.” Id. at 2001. The Supreme Court further explained:
In sum, when evaluating materiality under the False Claims Act, the Government‘s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.
Northern Adult‘s argument that
Relators argue that Northern Adult submitted false claims for payment, and Relators have incorporated examples of such claims into the Amended Complaint. (See Recipient Claim Detail Reports, annexed to Am. Compl. as Exs. 1–10.) As in Universal Health, the claims for payment use codes that correspond to specific services, satisfying the first condition for an implied
However, Relators do not allege, as they are now required to do under Universal Health, that Northern Adult‘s misrepresentations were material and that the government would have refused reimbursement had it known of Northern Adult‘s noncompliance with
When the Amended Complaint was drafted, Relators did not have the benefit of the Supreme Court‘s recent guidance on materiality. To the extent that Relators wish to pursue this theory, the pleading is inadequate, and Relators are granted leave to amend the Amended Complaint within thirty (30) days of this decision.
Relators allege that Defendants retaliated against them in violation of the “whistleblower” provisions of the FCA,
i. Retaliation — FCA and NYFCA
Northern Adult argues that Relators have not alleged that they “notified their employer that they were engaged in protected activity, or that they intended to bring a qui tam action,” a necessary prerequisite to Relators’ retaliation claims under the FCA and NYFCA. (Def. Mem.
To sustain an action for retaliatory discharge under the FCA, a plaintiff must establish: “(1) that she engaged in conduct protected under the statute; (2) that [the] defendants were aware of her conduct; and (3) that she was terminated in retaliation for that conduct.” Mooney, 2013 WL 1346022, at *8; Empire Educ. Corp., 959 F. Supp. 2d at 256; Johnson v. Univ. of Rochester Med. Ctr., 686 F. Supp. 2d 259, 268 (W.D.N.Y. 2010); Mikes v. Strauss, 889 F. Supp. 746, 752 (S.D.N.Y. 1995).11 A plaintiff need not plead an FCA retaliation claim with particularity because no showing of fraud is required. Mooney, 2013 WL 1346022, at *8; Garcia v. Aspira of N.Y., Inc., No. 07-CV-5600, 2011 WL 1458155, at *3 n.1 (S.D.N.Y. Apr. 13, 2011). Under the current version of the FCA whistleblower provision, section 3730(h), already in effect at the time of the alleged conduct,12 protected conduct is defined as “lawful acts done by the employee,
A plaintiff must also allege that “his employer was aware that he was engaged in” protected conduct. Weslowski v. Zugibe, 626 F. App‘x 20, 21 (2d Cir. 2015); see Swanson, 2016
Nonetheless, a plaintiff still must show that his employer was aware of his protected activity. Merely grumbling to the employer about job dissatisfaction or regulatory violations does not satisfy the requirement — just as it does not constitute protected activity in the first place. Threatening to file a qui tam suit or to make a report to the government, on the other hand, clearly is one way to make an employer aware. But it is not the only way.
Yesudian, 153 F.3d at 743. However, under the 2009 amendment to the FCA, complaining of regulatory violations may qualify as an “effort[] to stop 1 or more violations” of the FCA, see
Finally, where a plaintiff alleges that he has been discharged in retaliation for engaging in protected conduct, he must plead facts to show that he was directly terminated or that “his employer, rather than discharging him directly, intentionally create[d] a work atmosphere so intolerable that he [was] forced to quit involuntarily.” Terry v. Ashcroft, 336 F.3d 128, 151–52 (2d Cir. 2003). The retaliatory discharge must occur because of the protected conduct. Swanson, 2016 WL 3198309, at *6; see Garcia, 2011 WL 1458155, at *5 (“At the motion to dismiss stage, the temporal proximity of plaintiff‘s [protected conduct] . . . is a sufficient basis to permit the claim to go forward.”); see also McAllan v. Von Essen, 517 F. Supp. 2d 672, 686 (S.D.N.Y. 2007) (holding that, because the plaintiff continued to work for almost three years after the protected conduct and before the alleged retaliation, “[the] plaintiff has failed to provide
1. Lee and Luckie
Without fact discovery, the Court cannot conclude that Lee‘s and Luckie‘s internal reporting to Northern Adult management, and management‘s response, do not constitute paradigmatic whistleblowing and retaliation under the FCA and NYFCA. Lee alleges that he complained to management, including Deverman, about the discriminatory treatment toward Hispanic and African-American registrants, (Am. Compl. ¶¶ 180–89), and Luckie additionally alleges that he complained to management, including Deverman, about the unsanitary handling of food, lack of training for food service staff and provision of alcohol to registrants, (id. ¶¶195–204). Because Relators claim that Defendants violated the FCA by impliedly certifying compliance with
On the issue of notice, Northern Adult argues that “there is no allegation that any relator was engaged in activity other than what they were hired and expected to do,” and “[n]one of the complaints can reasonably be construed as putting Northern [Adult] management on notice of any intent to bring a qui tam lawsuit, as required by case law.” (Def. Mem. 8.) Northern Adult misstates the law. As explained above, Relators were not required to give management “notice of an[] intent to bring a qui tam lawsuit,” and it is no longer clear that Relators could not bring an action for retaliation having engaged in activity that they were “hired and expected to do.” (Id.) Irrespective of the standard for notice, however, the Court cannot conclude from the allegations in the Amended Complaint that the protected conduct that Lee and Luckie engaged in was, in
Northern Adult‘s argument that Relators’ retaliation claims “lack a temporal relationship between any protected activity and the retaliation” is similarly unavailing. (Def. Mem. 8.) The Amended Complaint sets forth facts tending to show that Deverman met with Lee in January of 2010 to respond to his complaints and that Lee was constructively discharged in April of 2010. (Am. Compl. ¶¶ 189–190.) See Gorzynski v. JetBlue Airways Corp., 596 F.3d 93, 110 (2d Cir. 2010) (holding, in the context of a Title VII claim, that “[t]hough this Court has not drawn a bright line defining, for the purposes of a prima facie case, the outer limits beyond which a temporal relationship is too attenuated to establish causation, we have previously held that five months is not too long to find the causal relationship”). Although the Amended Complaint does not provide the dates of Luckie‘s protected conduct, it states that Luckie was terminated in February of 2011 and demoted prior to that date, (Am. Compl. ¶¶ 193–94), and alleges that he complained of misconduct that the Amended Complaint elsewhere dates between 2008 and 2011, (see id. ¶¶ 196–204). Therefore, both Lee and Luckie have adequately alleged that their
2. Gonzalez
Unlike Lee and Luckie, Gonzalez has not stated facts to support a claim for retaliation because, at least at the time of filing, she had been neither discharged nor constructively discharged from her position at Northern Adult. See Mooney, 2013 WL 1346022, at *8 (holding that a plaintiff must establish: “(1) that she engaged in conduct protected under the statute; (2) that [the] defendants were aware of her conduct; and (3) that she was terminated in retaliation for that conduct”). The only retaliatory action Gonzalez pleads in the Amended Complaint is constructive discharge, and it is pled with a single sentence: “Gonzalez has been out of the office since breaking her arm earlier this year, but Deverman has made it quite unclear as to whether she will have a job when she returns.” (Am. Compl. ¶ 221.)
The Court has found no legal support for Gonzalez‘s presumable argument that Deverman “[making] it quite unclear as to whether [Gonzalez] will have a job when she returns” constitutes constructive discharge. See, e.g., Petrosino v. Bell Atl., 385 F.3d 210, 231 (2d Cir. 2004) (holding no constructive discharge where the plaintiff was dissatisfied with his failure to receive a bonus); United States v. Bank of Am. Corp., No 12-CV-8399, 2016 WL 1298985, at *12 (S.D.N.Y. Mar. 31, 2016) (holding that the plaintiff was not constructively discharged because his supervisor treated him coldly, threatened to take away his assistant and denied him a bonus).13 However, assuming Gonzalez were able to plead that Northern Adult “intentionally
ii. Retaliation — Health Care Whistleblower Law
Northern Adult argues that Relators’ claims under
The Health Care Whistleblower Law affords a health care “employee,” as defined in the statute, a cause of action against the employer for “retaliatory action” taken because the employee does any of the following:
(a) discloses or threatens to disclose to a supervisor, or to a public body an activity, policy or practice of the employer or agent that the employee, in good faith, reasonably believes constitutes improper quality of patient care; or
(b) objects to, or refuses to participate in any activity, policy or practice of the employer or agent that the employee, in good faith, reasonably believes constitutes improper quality of patient care.
Of particular relevance here,
The Complaint was filed on September 4, 2013.14 (Docket Entry No. 1.) Lee was constructively discharged on April 1, 2010, (Am. Compl. ¶ 190), and Luckie was discharged in February of 2011, (Am. Compl. ¶ 193). Both Lee and Luckie‘s claims are therefore time-barred
d. Discrimination and Retaliation — NYCHRL
Northern Adult argues that Relators’ discrimination claims under the NYCHRL are barred by the three-year statute of limitations applicable to that provision. (Def. Mem. 9–10.) Relators allege that Northern Adult “forced [them] from their employment positions because they personally were discriminated against and because they spoke out about the discriminatory practices Northern [Adult] engaged in against non-Russians and specifically African Americans and Hispanics.” (Am. Compl. ¶ 55.) Construing the Amended Complaint in Relators’ favor, the Court understands Relators to bring claims of employment discrimination under
As an initial matter, the Court agrees with Northern Adult that Relators did not include in the Complaint any allegations of discriminatory or retaliatory termination of employment under the NYCHRL. Accordingly, for these newly added claims to survive a motion to dismiss, they must either fall within the applicable statute of limitations or relate back to the date of the original complaint.
Claims brought pursuant to the NYCHRL are subject to a three-year limitations period. See
Relators filed the original Complaint on September 4, 2013, (see Docket Entry No. 1), and filed the Amended Complaint, which alleges discrimination and retaliation under the NYCHRL, on June 25, 2015, (see Docket Entry No. 29). Under a three-year statute of limitations, Relators’ claims are time-barred if they are based on retaliation or discrimination that occurred prior to June 25, 2012, unless their claims relate back to the original Complaint. If Relators’ claims do relate back to the original Complaint, their claims are time-barred to the extent that they are based on retaliation or discrimination that occurred prior to September 4, 2010. See
1. Discrimination and retaliation — Lee
Lee alleges that he was constructively discharged on April 1, 2010. (Am. Compl. ¶ 190.) Because even a relation-back of his claims to the date of the filing of the original Complaint would not cure the untimeliness of his discrimination and retaliation claims, the Court grants Defendant‘s motion to dismiss Lee‘s claims under the NYCHRL.
Luckie alleges that he was discharged in February of 2011, (Am Compl. ¶ 193), therefore his discrimination and retaliation claims are only timely if they relate back to the date of the original complaint.
Under New York law, a claim asserted in an amended pleading relates back “unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.”
Luckie‘s claims for retaliatory and discriminatory discharge clearly arise from the same conduct set forth in the original complaint. Indeed, Luckie has not asserted any additional facts to plead his claims under the NYCHRL than he had already included to plead his claims for retaliation under the FCA, NYFCA and Health Care Whistleblower Law. (See Am. Compl. ¶¶ 192–205.) Defendants were therefore on notice of the facts to support Luckie‘s claims of retaliatory and discriminatory discharge from the filing of the original complaint. Strada, 2014 WL 3490306, at *6. The Court accordingly finds that Luckie‘s claims are timely under the NYCHRL.15 See Flum v. Dep‘t of Educ. of N.Y.C., 83 F. Supp. 3d 494, 498 (S.D.N.Y. 2015) (“[T]he central inquiry is whether adequate notice of the matters raised in the amended pleading has been given to the opposing party within the statute of limitations by the general fact situation alleged in the original pleading.” (internal quotation marks omitted) (quoting Slayton v. Am. Express Co., 460 F.3d 215, 228 (2d Cir. 2006))).
3. Discrimination and retaliation — Gonzalez
Gonzalez has not alleged that she was discharged or discriminated against on any particular date. Because a statute of limitations defense is not apparent from the face of Gonzalez‘s claims, Northern Adult is not able to raise it in a 12(b)(6) motion to dismiss. See Lefebvre, --- F. Supp. 3d at ----, 2016 WL 1274584, at *16. Northern Adult bears the burden of proving its affirmative defense, and in the absence of such a defense, Northern Adult bears the
III. Conclusion
For the foregoing reasons, the Court grants in part and denies in part Northern Adult‘s motion to dismiss the Amended Complaint. The Court denies Northern Adult‘s motion to dismiss Relators’ FCA and NYFCA claims under
SO ORDERED:
s/ MKB
MARGO K. BRODIE
United States District Judge
Dated: September 7, 2016
Brooklyn, New York
Notes
Section 3730(h) provides, in pertinent part:
Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 [one] or more violations of this subchapter.
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.