The district court denied a motion for attorneys’ fees and expenses by the defendant in an unsuccessful qui tam case. The court held that the question of materiality was a close one and therefore it could not conclude that the litigation was frivolous. Further, the Ninth Circuit had already denied a request for costs in connection to the relator’s appeal of the district court’s dismissal of his case. The district court reasoned that if the appeals panel found the complaint was not frivolous, it followed that the underlying claims were not. The court also concluded that the relator’s “disturbing statements” to defendant executives were not related to the qui tam case but the termination of the relator’s employment, and that his similar lawsuits against other medical entities on the same grounds but did not place a burden on the defendant, even if the grounds were similarly unfounded.
Defendant San Bernardino Mountains Community Hospital District moved the court to award its reasonable attorneys’ fees and costs after its successful defense of a qui tam case alleging violations of the False Claims Act
In January 2017, relator Frank Adomitis filed a complaint alleging the defendant defrauded Medicare in relation to certain reimbursements available for eligible rural hospitals. The court previously granted the defendant’s motion to dismiss the complaint on three occasions. After the dismissal of the third amended complaint, the court declined to grant the relator additional leave to amend. The defendant later filed this motion for costs.
Adomitis alleged the defendant knowingly failed to meet the Critical Access Hospital program’s distance requirement or acted with deliberate indifference as to whether they complied. The CAH designation is designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare by keeping essential services in rural communities. To accomplish this goal, CAHs receive certain benefits, such as cost-based reimbursement for Medicare services. To be eligible, the hospital must be located more than 35 miles from another hospital, or be more than a 15-mile drive from another hospital in an area with mountainous terrain or only secondary roads.
The relator learned of his claims while employed as the defendant’s chief financial officer. Adomitis alleged that SBMCHD knew that its facility did not meet the criteria for a CAH designation in an area with mountainous terrain, and never conducted a survey or audit to ensure it complied. His complaint relied on CMS regulatory guidance, which over time employed shifting and highly detailed definitions of “mountainous terrain. He also alleged that SBMCHD’s senior officials must have known from their own travel that insufficient portions of a local state route met the criteria set forth in this regulatory guidance.
In its final motion to dismiss, the court found that the relator sufficiently alleged that Mountain did not meet the distance requirements to qualify for the rural program, but also found that the violation was highly technical and the allegations were broad. On appeal, the Ninth Circuit affirmed, finding that the relator’s allegations were too vague and conclusory to support the implausible conclusion that the medical facility was aware that area mountain roads did not meet CMS criteria.
In their motion for fees, the defendant sought more than a quarter million dollars in attorneys’ fees and expenses, arguing that the relator’s claim was clearly frivolous, vexatious, and brought for the purpose of harassment. However, the court disagreed. As weak as the plaintiff’s claims ultimately proved, the court noted they failed in part due to uncertainty around the materiality element. Further, to the extent the claim failed due to the scienter element, the court found this shortcoming did not surface until later proceedings. Finally, the district court noted the Ninth Circuit denied the defendant’s request for fees for the appeal. The district court reasoned that if the questions were close enough to show that an appeal was not clearly frivolous, then it must find that the underlying case also was not frivolously filed.
The defendant argued that it had shown the relator state documents that showed the hospital met the regulatory location and distance requirements to be considered eligible for the program, and therefore any litigation after that point was frivolous. The court disagreed, finding that the proffered documents did not conclusively establish the lawsuit was frivolous. The court eventually found that the report made it unlikely that Mountains knowingly violated the requirements, but that was not a foregone conclusion, and the court held that finding otherwise would result in unfair post hoc reasoning.
The court also held the action was not clearly vexatious or brought primarily for the purpose of harassment. The defendant provided evidence of disturbing statements by the relator towards Mountains executives, but the court found this connected to the termination of the relator’s employment, not to the litigation. Further, the existence of similar lawsuits with identical claims against other hospitals did not demonstrate a personal campaign of harassment directed against Mountains. Even if the other lawsuits were similarly unfounded, the court found they placed no burden on Mountains.
