OPINION AND ORDER ON MOTION TO DISMISS COUNTERCLAIMS
Through this qui tam action, Plaintiffs Andrew Battiata, M.D. (“Battiata”) and Jenny Raybon (“Raybon”) (collectively “Plaintiffs”) seek recovery on behalf of the United States for alleged violations of the False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”). The matter is before the court on Plaintiffs’ motion to dismiss the seven counterclaims asserted by Defendants Robert Puchalski, M.D. (“Puchalski”) and South Carolina ENT, Allergy, and Sleep Medicine, P.A. (“SC ENT”) (collectively “Defendants”). For the reasons set forth below, Plaintiffs’ motion is granted in full.
COMPLAINT AND COUNTERCLAIMS
In order to place the counterclaims in context, the court begins with a brief description of the complaint. Plaintiffs are former employees of Defendant SC ENT. They allege that, during their employment, Defendants improperly obtainеd payment from one or more federal programs by intentionally submitting bills with incorrect codes, most critically, by using codes which suggested services were provided by or under the supervision of a physician when they were not.
Defendants deny the allegations of the complaint. In addition, they assert numerous affirmative defenses and seven counterclaims. The present motion is directed to the counterclaims.
Counterclaim Facts. The facts relevant to the counterclaims are found under the heading “Facts Common to all Counterclaims”. Dkt. No. 39 at 16 Counterclaim ¶¶ 7-12. As to Battiata, Defendants allege that “after working [at SC ENT] a very short period of time, he began gathering and taking confidеntial documents to bring this qui tam lawsuit” despite having “a fiduciary duty to SC ENT ... to act in its best interest at all times.” Dkt. No. 39 ¶ 8. Defendants further allege that Battiata filed this qui tam action roughly two months after the employment relationship was terminated pursuant to a Settlement Agreement. Id. ¶ 10.
As to Raybon, who was an employee for approximately five years, Defendants allege that “[d]uring a significant portion of her employment ..., instead of performing her duties, Relator Raybon downloaded thousands of confidential patient records, took confidential documents, falsified her timesheet, and prepared to bring this qui tam lawsuit.” Id. ¶ 12. There are no allegations of misuse of confidential information or resulting harm other than the use in and harm which may result from pursuit of this action.
Based on these allegations, Defendants assert seven counterclaims. These counterclaims are summarized below.
Malicious Prosecution. The first counterclaim, for malicious prosecution, asserts that this action is “brought without any cause to believe that a False Claims Act violation ... has been committed.” Id. ¶ 15. It further alleges that “this action has been brought vindictively and for an ulterior motive; for the purpose of at
Tortious Interference with Economic Relations. The second counterclaim is for tortious interference with economic relations. Under this cause of action, Defendants assert that Plaintiffs “negligently interfered with Defendants’ existing relationships and contracts [with the federal government and private insurers] by making false statements about Defendants’ violations of the False Claims Act and the Stark Act.” Id. ¶ 24. Defendants further allege that these “false statements have damaged the relationships Defendants have with government agencies that it does business with and damaged Defendants!’] expectation that [they] would continue to do business with these and other agencies in the future.” Id. ¶ 25.
This claim does not suggest any communications or actions beyond those involved in pursuit of this action. Neither does it specify any resulting injury beyond the generic claim of injury to business relationships.
Abuse of Process. The third cause of action alleges, in boilerplate terms, that Plaintiffs “have abused the process of this court in a wrongful manner, not proper in the regular conduct of the proceedings ..., to accomplish a purpose for which said proceedings were not designed, specifically, the assassination of the Defendants’ reputations, and retaliation.” Id. ¶ 28.
Without specifying what information is at issue, Defendants assert that the Plaintiffs “havе committed willful acts of the submission of false information in the regular conduct of litigation.” Id. ¶ 29. Defendants allege that they “have suffered damages, loss and harm, including but not limited to their reputation. The damage, loss and harm [are] the proximate and legal result of ... such abuse of legal process.”
Breach of Fiduciary Duty. The fourth counterclaim for breach of fiduciary duty alleges that Plaintiffs’ “access to confidential information ereat[ed] a confidential relationship” and imposed “a fiduciary duty not to publish or disseminate information purported to be privileged or confidential.” Dkt. No. 39 at ¶ 34. Defendants allege that Plaintiffs breached this duty and “are seeking to earn substantial cоmpensation” as a result of the breach. Id. at ¶ 36. In addition to punitive damages, Defendants seek “injunctive relief and full restitution and/or disgorgement of all revenues, earnings, profits, compensation and benefits which may have been obtained by [Plaintiffs] as a result of such actions, including the imposition of a constructive trust over the proceeds of such actions.” Id. at ¶ 37.
Defendants do not specify in this counterclaim how Plaintiffs are “seeking to earn substantial compensation” through the breach of fiduciary duty or identify the “actions” which might result in proceeds subject to a constructive trust. This leaves only the inference that the “compensation” and “proceeds” at issue are thosе which might be obtained as the relators’ share of recovery in this action.
Indemnification and Contribution. Defendants’ fifth counterclaim is for common law indemnification and contribution. Under this counterclaim, Defendants allege that “if the United States sustained damages as indicated in the Complaint, ... then such damages were caused in whole or in party by the negligence, culpable conduct, and incorrect or improper billing and coding by [Battiata].” Id. ¶ 40 (emphasis added). Based on these allega
Unjust Enrichment. The sixth counterclaim, like the fifth, denies liability but asserts that “if the United States has sustained damages as indicated in the Complaint, ... then such damages were caused in whole or in part by the negligence, culpable conduct, and incorrect or improper billing and coding by [Battiata].” Id. ¶ 44 (emphasis added). Defendants then assert that, “[i]f Relator Battiata improperly billed or coded claims submitted to the United States, he has knowingly obtained, conferred, or retained economic benefits acquired at the Defendants’ expense ... under circumstances that render it inequitable for [him] to rеtain the benefits.” Id. ¶ 45. Defendants assert that Battiata “should be ordered to compensate Defendants for the value of the wrongfully obtained benefits and ordered to disgorge all profits derived by this conduct.” Id. ¶ 46. In addition they seek to impose “[a] constructive trust ... on all monies received by the Relator Battiata and on all profits generated by the Relator Battiata as a result of incorrect or improper billing and coding.” Id. ¶ 47.
Payment Under Mistake of Fact. As with the fifth and sixth counterclaims, the seventh alleges that, “if the United States sustained damages as indicated in the Complaint, ... then such damages were caused in whole or in party by the negligence, culpable conduct, and incorrеct or improper billing and coding by [Battiata].” Id. ¶ 49 (emphasis added). It then alleges that if Battiata “improperly billed or coded claims ... [then he] has been paid by the Defendant SC ENT under mistake of fact.” Id. ¶ 50. Defendants assert that they “acted in reasonable reliance on the accuracy and truthfulness” of Battiata’s billing and coding in making payments to Battiata and, on that basis, state that he should be “liable to account for and pay” them any improperly paid amounts.
DISCUSSION
I. Fourth through Seventh Counterclaims
Because of their similarities, the court begins with consideration of the fourth through seventh counterclaims for breach of fiduciary duty, indemnity or contribution, unjust enrichment, and payment under mistake of fact. All but the counterclaim for breach of fiduciary duty are expressly dependent on a finding of liability under the Complaint as each seeks to shift some or all of the liability back to one or both Plaintiffs “if the United States sustained damages as indicated in the Complaint.” Dkt. No. 39 ¶¶40, 44, 49 (emphasis added). While the claim for breach of fiduciary duty does not contain identical language, in context, it too seeks to recover from Plaintiffs if they obtain any benefit from this action. Thus, these state-law counterclaims are all dependent on a finding that Defendants are liable to the United States for violation of the FCA and seek recovery in the nature of a claim for contribution or indemnity.
In Mortgages, the Ninth Circuit Court of Appeals granted mandamus directing the district court to dismiss a variety of claims asserted by defendants against the qui tam relators. The claims at issue, though essentially counterclaims, were asserted by third-party complaint and included claims for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, negligence, negligent misrepresentation, and conspiracy. Mortgages,
The right to contribution and indemnification are no different in principle from other implied rights of action.... A defendant held liable under a federal statute has a right to contribution or indemnification from another who has also violated the- statute only if such right arises (1) through the affirmativе creation of a right of action by Congress, either expressly or implicitly, or (2) via the power of the courts to formulate federal common law.
Id. at 212 (citing United States Supreme Court cases finding no right of contribution under antitrust laws, Title VII, or the Equal Pay Act).
Applying the same analysis as the Supreme Court in Texas Industries, Inc. v. Radcliff Materials,
The court then turned to a consideration of whether such a right should be recognized under federal common law. Noting, first, that creation of rights under federal common law was proper where “necessary to protect [a] uniquely federal interest[,]” the court held that recovery by one wrongdoer against another did not implicate any such interest. Id. at 213. The court next considered whether the language and leg
Several years later, in United States ex rel. Madden v. General Dynamics Corp.,
Recognizing the challenges presented by its decision in light of Mortgages, the court provided the following additional guidance:
We recognize that our decision may encourage qui tam defendants to bring counterclaims for independent damages instead of indemnification. However, we do not think this will result in an end run around Mortgages .... [I]t is possible to resolve the issue of a qui tam defendant’s liability before reaching the qui tam defendant’s counterclaims.... If a qui tam defendant is found liable, the counterclaims can then be dismissed on the ground that they will have the effect of providing for indemnification or contribution. On the other hand, if a qui tam defendant is found not liable, the counterclaims can be addressed on the merits.
Id. (also noting that “some mechanism must be permitted to insure that relators do not engage in wrongful conduct in order to create the circumstances for qui tam suits and to discourage relators from bringing frivolous actions. Counterclaims for independent damages serve these purposes.”).
The Ninth Circuit Court of Appeals again addressed the availability of claims for contribution and indemnity in Cell Therapeutics, Inc. v. Lash Group, Inc.,
The qui tam suit against CTI was settled shortly after it was filed and the third-party action against Lash was removed to federal court. Relying on Mortgages, the district court dismissed the third-party claims. The Court of Aрpeals reversed in a decision that explained that Madden had circumscribed Mortgages in two respects. Id. at 1208-09. First, Madden distinguished claims for independent damages from claims for dependent damages. Id. at 1208. Second, Madden held that “even dependent counterclaims should not be foreclosed until the qui tam defendant’s liability is established” because to do so could offend procedural due process. Id. (suggesting conflict with Mortgages would be avoided by dismissing counterclaims if the qui tam defendant is held liable “on the ground that they will have the effect of providing for indemnification or contribution”). While this court would not read Madden to preclude dismissal of dearly dependent counterclaims until after a decision on the qui tam defendant’s liability under the FCA, it recognizes that the Ninth Circuit is free to interpret and modify its own opinions.
Ultimately, the Lash court held “that qui tam defendants may bring third party claims under the circumstances outlined in this opinion.” Id. at 1213 (noting, inter alia, that “[t]he reasons for restricting the ability of a qui tam defendant to seek recovery against a relator are not in play here.”). The “circumstances” of the opinion were however, unique in various respects including that the claims at issue in the underlying case (United States v. CTI) were not limited to claims under the FCA (id. at 1210), the settlement agreement in that action disclaimed any preclusive effect regarding liability under the FCA (id. at 1211), the damages sought against the third party were not limited to recovery of amounts paid to the United States, and the defendant in the third-party action had contractual obligations to CTI which, alleg
For purposes of the present motion, the most critical holdings in Mortgages, Madden, and Lash relate to the distinction between dependent and independent claims.
The counterclaim at issue in Miller was for breach of fiduciary duty and sought to shift responsibility for some or all of any damages awarded in favor of the United States to the qui tam relator. In dismissing this counterclaim after a jury verdict on the FCA claim, the district court noted that “[t]he unavailability of contribution and indemnification for a defendant under the False Claims Act now seems beyond peradventure.” Id. at 26.
Emerging from thеse cases is the rule that an FCA defendant found liable of FCA violations may not pursue a counterclaim that will have the equivalent effect of contribution or indemnification.
These cases demonstrate that there are two ways in which an FCA defendant’s counterclaim may seek “independent damages” and thus be permissible. The use of the word “independent” has led to some confusion, and courts would be better served to describe the permissible claims as “not dependent on the fact of FCA liability.” In short form, claims by an FCA defendant have been properly permitted where the success of the FCA defendant’s claim does not require a finding that the defendant is liable in the FCA case.
* * *
Thеse cases come together to form a sensible rule. If a defendant’s counterclaim is predicated on its own liability, then its claims against a relator typically-will allege that the relator participated in the fraud, or caused the defendant some damage by the act of being a relator, that is, by disclosing the defendant’s fraud. The first kind of action seeks contribution or indemnity, rights that are not provided by the FCA because they would deter relators, allow wrongdoers to shift their costs, and would disrupt the intended framework of incentives and punishments established by the FCA. The second kind of action has the same effect of providing contribution or indemnity, with the perverse twist that the relator is not еven accused of contributing to the defendant’s fraud. If such suits were allowed, they would punish innocent relators, which would be a significant deterrent to whistleblowing and would imperil the government’s ability to detect, punish,*460 and deter fraud. The FCA contains several provisions seeking to protect relators from retaliation, and it would run counter to this policy if the Court were to allow retaliatory suits against truthful relators.
Id. at 26-29.
Having fully considered the Ninth Circuit decisions, the only circuit court authority directly addressing counterclaims against qui tam relators, Miller, and other cases cited by the parties, this court concludes, for reasons addressed in Mortgages, that a qui tam defendant may not assert any counterclaim for dependent damages against a relator. As explained in Miller, dependent damages are damages which arise from a finding of liability under the FCA against the qui tam defendant. The court further concludes, for reasons addressed in Madden and Miller, that a qui tam defendant may assert claims for independent damages, meaning damages that would exist regardless of defendant’s liability on the qui tam action unless those damages have the effect of indemnification or contribution the issue of effect being one which normally cannot be resolved until after the conclusion of the qui tam litigation.
This court declines to follow Madden and Lash to the extent either would preclude dismissal of claims for dependent damages until after resolution of the qui tam claims. Instead, the court finds that dismissal should be denied only if a reasonable inference can be drawn that damages sought are independent.
The cases cited by Defendants do not support a contrary rule. All are distinguishable for reasons argued by Plaintiffs. See Dkt. No. 60 at 2-5. For example, in Zahodnick v. International Business Machines Corp.,
The other Fourth Circuit cases cited by Defendants are distinguishable from the present action for two reasons. First, like Zahodnick, they were pursued in the plaintiffs’ individual capacities, not as qui tam plaintiffs seeking recovery on behalf of the government. Second, both involved different statutory schemes (the Federal Employers’ Liability Act and the Jones Act). Cavanaugh v. W. Md. Ry. Co.,
In light of the above authority, the court dismisses Defendants’ fourth through seventh counterclaims. The fifth through seventh counterclaims (all but the fourth counterclaim for breach of fiduciary duty) are dismissed with prejudice as each clearly seeks nothing other than dependent damages in the nature of contribution or indemnity. While no facts supporting such a claim have been suggested in Defendants’ submissions, the court will not foreclose the possibility that Defendants might assert a breach of fiduciary duty counterclaim seeking independent damages subject to the repleading requirements below. See Discussion § III.
II. First through Third Counterclaims
Defendants’ three remaining counterclaims arguably seek “independent damages.” That is, each of these counterclaims seeks damages which do not depend on a- finding that Defendants are liable for fraudulent claims under the FCA. It follows that these claims are not necessarily barred under the cases discussed above. However, as explained below each of the claims has other defects which require dismissal without prejudice, subject to the repleading requirements discussed below. See Discussion § III.
A. Malicious Prosecution
One of the required elements of a claim for malicious prosecution is that the challenged proceeding has terminated in the claimants’ favor. See, e.g. Parrott v. Plowden Motor Co.,
B. Tortious Interference and Abuse of Process
The second counterclaim for tortious interference with economic relations and third counterclaim for abuse of process are not pleaded with sufficient particularity to satisfy the relevant pleading standards. See Bell Atl. Corp. v. Twombly,
There are no factual allegations which suggest that Defendants have, in fact, suffered any interference with economic relations. Neither are there any factual allegations which would support an inference that any harm to economic relations was the result of something other than the litigation itself or otherwise resulted from nonprivileged actions. Thus, the factual allegations do not raise a right to relief above the speculative level.
Similarly, as to the abuse of process counterclaim, there are no factual allegations which would support аn inference that Plaintiffs have undertaken “a willful act in the use of the process not proper in the conduct of the proceeding.” See, e.g., Argoe v. Three Rivers Behavioral Ctr. & Psychiatric Solutions,
III. Leave to Amend
Defendants seek leave to amend if the court finds thе pleadings insufficient. See Dkt. No. 58 at 9 n. 1. Despite this, and despite Plaintiffs having pointed to all of the deficiencies noted herein, Defendants do not suggest any facts or changes which might cure the various deficiencies.
If Defendants elect to assert amended counterclaims, as of right or through motion to amend, they shall set forth their counterclaims with sufficient particularity to suрport inferences satisfying the elements of the causes of action, the independent nature of the damages, and the absence of privilege.
CONCLUSION
Plaintiffs’ motion to dismiss the counterclaims is granted for the reasons set forth above. Dismissal of the fifth through seventh counterclaims is with prejudice. Dismissal of the first through fourth counterclaims is without prejudice subject to the caveats above regarding amendment.
IT IS SO ORDERED.
Notes
. In their motion and opening memorandum, Plaintiffs argued all four of these counterclaims were the equivalent of claims for con: tribution or indemnification. Dkt. No. 44 at 1, 44-1 at 1, 3-5. Defendants did not challenge this characterization in their responsive memorandum and mention it only in a conclusоry statement in their surreply. See Dkt. No. 58; Dkt. No. 65 at 4 (noting that a particular decision "only precludes counter
. The Lash decision’s attempted reconciliation of Madden with Mortgages is not entirely clear or persuasive for several reasons. Most critically for present purposes, this court reads Madden to allow for immediate dismissal of counterclaims asserted against a relator if those claims are clearly dependent on the qui tam defendant being held liable (thus clearly in the nature of claims for contribution or indemnity). The Ninth Circuit decision in Lash, however, suggests that Madden narrowed Mortgages to the point that dismissal of counterclaims would never be appropriate until after a determination of defendant’s liability under the FCA. Such a narrowing would effectively abrogate Mortgages’ holding that the district court committed clear error by denying a motion to dismiss. Given that Mortgages, Madden, and Lash were all panel opinions (albeit by different panels), it would not appear that either Madden or Lash could effect a change which amounted to abrogation of Mortgages.
Lash also construes Madden to save all claims for independent damages even if the qui tam defendant is held liable for FCA violations. See Lash,
. This court need not resolve Lash’s application to third-party claims for purposes of the present motion. It does, however, note that at least one court has held that Lash does not support allowing such third-party claims. See United States v. Campbell, No. 08-1951,
. The counterclaim was dismissed after a jury verdict for the government on the FCA claim and the court’s dismissal of related common law claims as duplicative.
. In dicta, Miller suggests the same rule would apply to bar a dependent third-party claim. Id. at 28 (discussing U.S. ex rel. Stephens v. Prabhu,
. One category of independent damages, costs of defending the qui tam action, requires further discussion. Such damages are “independent” in the sense that they will be incurred whether or not defendant is found liable for an FCA violation. This is a category of damage which should be barred if defendant is found liable under the FCA, because an award of such damages would have the effect of indemnification or contribution. This does not, however, mean that such damages should necessarily be allowed if defendant is found not liable. With respect to this particulаr category of damage, the FCA provides a specific remedy which sets a high standard for recovery. This may suggest that recovery of fees may only be allowed if the statutory standard is met. Alternatively, it might be argued that some or all of a qui tam defendant's fees should be allowed if defendant establishes an independent basis for recovery, such as by establishing a state tort claim for abuse of process or a subsequent claim for malicious prosecution. The court will not resolve this issue at this stage, but raises it now to place the parties on notice of the concern.
. The employer's counterclaim was for breach of a confidentiality agreement and the reliеf granted was limited to enjoining further disclosure and requiring return of confidential materials.
. Precluding counterclaims or third-party claims for indemnity or contribution is, by contrast, consistent with Fourth Circuit precedent relating to other federal legislation. See Lyle v. Food Lion, Inc.,
. It also, necessarily, follows that the claim is not a compulsory counterclaim.
. The court expresses no opinion as to whether such a counterclaim may be proper, particularly in light of the comprehensive remedies and controls provided under the FCA itself. See, e.g., 31 U.S.C. § 3730(c)(2) (allowing Government to dismiss, settle, or restrict participation of relator in action); 31 U.S.C. § 3730(d)(3) (allowing for reduction of the share of proceeds paid to relator if relator "planned and initiated the violation”); and 31 U.S.C. § 3730(d)(4) (authorizing court to award "defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment”).
. For example, in their response in opрosition to the motion to dismiss counterclaims, Defendants assert that their first through third counterclaims "seek redress from relators for damages caused by the false statements that relators made about the Defendants to third parties.” Dkt. No. 58 at 9-10. Defendants do not identify the false statements or the third parties to whom they were made, leaving only the inference that the alleged false statements are those contained in the complaint or made in the normal course of pursuing the action (such as cooperation with the government’s pre-service investigation). See also id. at 11 (stating Defendants "falsely stated to government and private in
. The court does not consider here whether Defendants might amend as of right or on motion. The court does, however, note that Defendants would need to comply with any scheduling order deadlines and attach their proposed amended answer and counterclaims to any motion to amend, in addition to completing the prior consultation requirements before filing such a motion.