The district court mostly denied multiple motions to dismiss by two defendants in a qui tam case alleging violations of the Stark Law and the False Claims Act. The defendants argued the allegations were insufficiently specific and failed to identify a specific false claim for payment to the government. However, the court found the relator more than adequately asserted the defendants’ roles in the improper relationships between various physicians and healthcare entities. The court also held that because the relator alleged that every claim for payment was tainted by the Stark Law violations, the relator need not identify a representative example. The court did grant the motions to dismiss individual claims under the Stark Law, which does not provide a private cause of action for the relator to leverage, and the motions to dismiss the counts of reverse false claims, because they were based on the same allegations as the counts of direct false claims.
Defendants Michael Kimzey and Steve Hendley moved to dismiss a qui tam case alleging healthcare fraud and unlawful employment retaliation under the False Claims Act.
Relator Wayne Allison was employed by Southwest Orthopedic Specialists PLLC as its administrator and business manager. His complaint alleged he learned the basis for his FCA claims during his employment. The United States and the state of Oklahoma intervened in some claims, but declined to intervene in others. The intervened claims have been settled and dismissed, leaving only the claims in which neither the federal government nor state intervened. Kimzey and Hendley have moved to dismiss.
The court considered each defendant’s motion separately. Kimzey argued he should be dismissed from Count I because it purports to bring an action against him under the Stark Law. Kimzey argued the law provides no private cause of action. In response, the relator argued that while the United States may pursue civil penalties under Stark, he did not assert a right to damages under Stark. The relator maintained that he merely alleged Stark violations as a predicate to his FCA claims. The court took this as the relator’s concession that Kimzey and Hendley should be dismissed from Count I.
Kimzey next challenged Counts II through V, the claims under the FCA. Kimzey argued that the counts fail because group pleading is insufficient to satisfy Rule 9(b); the allegations directed at Kimzey were not sufficient to state a claim; the fraudulent schemes that are alleged as support of the relator’s claims do not meet the particularity standards of Rule 9(b); the complaint did not allege that Kimzey acted with the necessary scienter; the relator’s intentional destruction of evidence cast further doubt on the allegations specific to Kimzey; and the complaint did not plead the existence and submission to the government of any specific false claim.
First, the court rejected the group pleading argument, noting that group pleading is not disallowed per se. While the complaint occasionally grouped a certain number of defendants that included Kimzey, it also listed the people encompassed by these terms. Given the care with which the term was defined and used, the court found it did not run afoul of group pleading rules.
The court also rejected Kimzey’s assertion that the factual allegations against him were scant. The complaint alleged Kimzey was aware of the quid pro quo scheme that implicated the Stark Act; that he destroyed evidence connected to an employment agreement scheme; that he directly participated in the creation of a company for the purpose of self-referrals; and that he participated in multiple other schemes. The court found the allegations sufficiently pled to give Kimzey the opportunity to defend himself. Because the complaint also set out sufficient facts to show Kimzey’s alleged knowledge of the schemes, the court rejected his argument based on scienter as well.
The court next rejected the spoliation argument, because it was evidence-based, not pleadings-based. The court also rejected Kimzey’s argument the complaint failed to identify a specific false claim that was submitted to the government by Kimzey or with his help. However, the court found the complaint provided an adequate basis for a reasonable inference that false claims were submitted as part of the alleged schemes participated in by Kimzey. Specifically, the complaint alleged that all of the claims submitted to the government as a result of referrals from the doctors named in the complaint during the period in question violated the FCA due to improper financial relationships with, and kickbacks to, those doctors, so that all such claims were tainted and false. Further, the court noted that it was the pattern of behavior of Kimzey and the other defendants that provided the basis of the claims, not anything particular to any single claim. In the context of this case, requiring the relator to identify a particular false claim would not serve the purposes of Rule 9(b).
Next, Kimzey challenged the count alleging reverse false claims, arguing the complaint did not allege that he or any of the defendants had any obligation to pay funds to the government yet failed to do so. Absent such an allegation, Kimzey argued the complaint did not state a basis for relief. The court granted the motion, finding that the count was premised on the defendants’ failure to repay monies gained by the direct false claims, a theory that has been foreclosed.
The court also rejected Kimzey’s argument the conspiracy claims were insufficiently pled. Having already found the underlying claims were adequately alleged, the court found Kimzey’s premise for dismissing the conspiracy claim undercut. The court also declined to dismiss the counts asserting state claims, for generally the same reasons it denied the motion to dismiss the FCA claims.
Next, the court considered the motion to dismiss from defendant Hendley. The court dismissed Count I, again noting the Stark Law does not establish a private cause of action. The court generally denied the motion to dismiss with respect to most claims, on the same bases as it had denied Kimzey’s motion. The court found the allegations specific and well-pled with regard to Hendley, and that the relator was not required to identify a specific false claim for payment to the government. However, the court did dismiss the count alleging reverse false claims, for the same reason as noted above.
