The district court dismissed a majority of claims in a qui tam case alleging healthcare fraud, finding the relator failed to plead his allegations with particularity or demonstrate materiality. While the complaint alleged the defendants violated various state Medicaid regulatory requirements, it did not connect the violations to the submission of false claims and did not allege the government would have declined to pay the claims, had it known of the alleged violations. However, the court found that the relator had adequately pled retaliation, as the complaint alleged the relator was fired from his job approximately one month after filing reports with state authorities about ongoing issues with his employer.
Relator Marianne O’Toole, acting as the trustee of the bankruptcy estate of Robert Douglas, pursued a qui tam complaint against multiple defendants, including Community Living Corporation; Creative Escapes LLC, Delores Lulgjuray; Jack Mungovan; Douglas Jurczak, Christine Stile; and John Porcella. The relator alleged the defendants defrauded Medicaid in relation to treatment of developmentally disabled individuals. The defendants moved to dismiss.
The relator was an employee of CLC. Creative Escapes LLC is owned and operated by Lulgjuray, Mungovan, and Jurczak, who are also employees of CLC. Creative Escapes takes developmentally disabled individuals on vacations around the world.
The relator alleged that CLC helped create Creative Escapes and then induced CLC’s customers to use its services. He also alleged that CLC made false statements to New York by directing employees to sign documentation attesting that services were provided long after the services had actually been provided. The complaint also alleged various violations of treatment and custodial regulations, such as the failure to dispense medications properly and the failure to report issues of harm or potential harm to clients.
First, the plaintiff alleged that CLC employees failed to complete or sign documentation attesting to the services they provided each day. To address this, CLC would have employees sign their checklists at a later date, sometimes weeks after the services had been provided, even though state regulations require the forms to be completed daily. The plaintiff also alleged that employees were directed to sign documents for services that had not been provided.
Second, the plaintiff alleged CLC improperly dispensed medications to clients. For example, when two or more clients were prescribed the same prescription, staff would dispense medication from one supply, rather than keeping the appropriate supply on hand for each patient. The plaintiff also alleged CLC failed to dispense medication at the right times and did not keep track of whether medications were dispensed or taken.
Third, the plaintiff alleged CLC failed to properly supervise the conduct of clients and failed to report instances of harm or potential harm.
Fourth, the relator alleged that CLC referred clients to use the services of Creative Escapes, a company it helped found and that was owned and staffed by CLC employees. The relator alleged the defendants improperly induced clients to pay for their vacations using allowances provided by Medicaid. In support of the impropriety of the scheme, the relator noted that Creative Escapes used CLC’s offices and resources, including transport vans paid for by Medicaid. Moreover, CLC consciously did not record expenditures for client spending, personal allowances, or related expenditures, in order to conceal Creative Escapes’ fraudulent activity.
Finally, the relator alleged CLC fired him after he raised concerns about these issues.
The defendants moved to dismiss, first arguing that the claims were barred as a matter of judicial estoppel because the original relator failed to disclose this action during the course of his Chapter 7 bankruptcy proceeding. According to the defendants, because the relator failed to fulfill his disclosure obligations in bankruptcy, he could not now assert his undisclosed claims.
However, the court found the relator had disclosed the action to the defendants. Further, the court noted that the original relator was no longer the plaintiff in this case, but had been replaced by the trustee. According to the court, judicial estoppel does not bar a trustee who has been substituted into a case because the trustee has neither abandoned any claim nor taken an inconsistent position under oath with regard to any claim.
In response, the defendants asserted the complaint had not been disclosed to the relator’s creditors and that the plaintiff’s counsel did not proceed with this action until after the original relator’s debts were discharged. However, the court found no evidence the complaint had been hidden from the relator’s creditors.
On the merits, the court found the plaintiff failed to plead the allegations with particularity, despite multiple amendments. For example, the court found there was not a single allegation of an actual false claim being submitted for reimbursement. Instead, the complaint described a variety of ways the defendants failed to meet regulatory standards and left open the question of whether those violations resulted in the submission of false claims.
The plaintiff asserted that the details of the claims were within the opposing parties’ knowledge, but the court was unconvinced. The court noted that the complaint clearly states the original relator had access to CLC’s records and documents and was privy to detailed information regarding CLC’s operations. The relator also asserted he was asked to fraudulently initial certain documentation, which indicated he would have access to some information about false claims.
The court also found the plaintiff failed to allege falsity. While the plaintiff alleged the defendants failed to comply with various regulatory requirements and that compliance was a condition of payment, the court did not find the allegations met the more demanding materiality standard, as the complaint did not assert the government would have refused to pay claims or requested reimbursement had it known of the violations. Because the complaint provided no basis for the court to conclude the government would have refused to pay, the court dismissed the case on these grounds as well.
However, the court did find the plaintiff had adequately alleged retaliation under the FCA and state law. The court found the original relator raised multiple issues about CLC’s practices and was retaliated against when his responsibilities were reduced and his job terminated. The defendants did not argue that the relator did not engage in protected conduct or that they were not aware of it, but argued that the plaintiff failed to assert any causal connection between the conduct and any acts of retaliation. The defendants noted the protected activity began in 2011, while the relator was not fired until December 2014.
The court noted that a single complaint in 2011 would not provide a causal link to a termination in 2014. Likewise, a series on ongoing complaints might not be enough to show such a link. However, the complaint alleged that the relator had a detailed conversation with his supervisor in November 2014, after which he filed incident reports with the state Justice Center about the ongoing issues. The complaint alleged the defendants knew or suspected the relator had filed the reports and that he was fired within the next month. The court found the escalated reporting provided the temporal link to the retaliatory act needed to survive a motion to dismiss.
