United States ex rel. O'Toole v. Cmty. Living Corp.

UNITED STATES OF AMERICA, and the STATE OFNEW YORK ex rel. MARIANNE T. O'TOOLE,as Trustee of the Bankruptcy Estate of Robert Douglas, Plaintiffs, v. COMMUNITY LIVING CORPORATION;CREATIVE ESCAPES, LLC; DELORES LULGJURAY;JACK MUNGOVAN; DOUGLAS JURCZAK; CHRISTINE STILE; andJOHN PORCELLA, Defendants.

17 Civ. 4007 (KPF)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

May 14, 2020

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:

Plaintiff Marianne O'Toole, serving as Trustee for the Bankruptcy Estate of Relator Robert Douglas, brings this action on behalf of the United States and the State of New York against Defendants Community Living Corporation ("CLC"), Christine Stile, and John Porcella (together, the "CLC Defendants"), as well as Creative Escapes, LLC, Delores Lulgjuray, Jack Mungovan, and Douglas Jurczak. CLC bills for and receives reimbursements from Medicaid as part of its treatment of developmentally disabled individuals ("consumers"), and Plaintiff alleges that all Defendants participated in a variety of schemes to defraud Medicaid, in violation of the False Claims Act, 31 U.S.C. §§ 3729-3733 (the "FCA"), and the New York False Claims Act, N.Y. State Fin. Law §§ 187-194 (the "NYFCA").

Specifically, Plaintiff alleges that: (i) CLC's management conspired with its employees to create Creative Escapes, LLC — a vacation company — and then induced CLC's consumers to use Creative Escapes's services; (ii) CLC management made false statements to the New York State Office for People with Developmental Disabilities ("OPWDD") by directing employees to sign documentation attesting that services were provided long after the services had actually been provided; (iii) CLC engaged in improper drug dispensing by failing to administer dosages or by providing drugs prescribed for one consumer to other consumers; (iv) CLC permitted consumers to engage in sexual relationships with one another despite the consumers lacking the mental capacity to properly consent; and (v) CLC failed to report issues of harm or potential harm — known as "reportable incidents" — to OPWDD. Plaintiff also alleges that Relator was terminated in retaliation for his reporting of the above fraudulent schemes, in violation of the FCA and the NYFCA.

The CLC Defendants have moved to dismiss this action under Federal Rule of Civil Procedure 12(b)(6). They argue, first, that Plaintiff should be judicially estopped from bringing her claims and, second, if judicial estoppel does not apply, that Plaintiff has nevertheless failed to state a claim upon which relief can be granted. For the reasons set forth in the remainder of this Opinion, the CLC Defendants' motion is granted in part and denied in part.

BACKGROUND¹

A. Factual Background

1. The Parties

Plaintiff is the Chapter 7 Trustee of the Bankruptcy Estate of Relator. (SAC ¶ 12). Relator was an employee of CLC from at least 2008 until December 14, 2014, the date of Relator's termination. (Id. at ¶¶ 80, 92).² Relator's responsibilities included maintaining all records and documents relating to reportable incidents, serious reportable incidents, and allegations of abuse. (Id. at ¶ 80). Relator also had other responsibilities, including: (i) providing files, documents, and information for OPWDD surveys of CLC's properties; (ii) overseeing fire safety; (iii) conducting site visits of CLC's properties and reporting findings from those visits; and (iv) conducting quality of life surveys with consumers. (Id. at ¶¶ 81-84).

Creative Escapes, LLC is a limited liability company located in New York and owned and operated by Lulgjuray, Mungovan, and Jurczak. (SAC ¶ 16). All three individuals are also employees of CLC. (Id. at ¶¶ 17-19). CreativeEscapes takes individuals with developmental disabilities, including CLC's consumers, on vacations across the world. (Id. at ¶ 16).

CLC is a non-profit agency created in 1991, with its principal office in Mount Kisco, New York. (SAC ¶ 15). CLC is funded and licensed by the OPWDD, and it provides residential, vocational, and other services to consumers. (Id.). CLC operates 39 residential sites — known as Individual Residential Alternatives ("IRAs") — each of which is separately licensed and regulated by OPWDD. (Id.). Plaintiff alleges that Stile and Porcella are either the owners, managers, or directors of CLC, and that Stile was Relator's supervisor. (Id.).

Relevantly for this action, CLC bills for and receives reimbursements from Medicaid. (SAC ¶ 3). Medicaid is a joint federal-state program that provides healthcare benefits for eligible beneficiaries, which include the disabled. (Id. at ¶ 20). Each state that participates in Medicaid has its own agency that administers the program. (Id.). Enrollment in Medicaid carries certain requirements. In general, Medicaid will only reimburse for services that are medically necessary and appropriate, and it will not reimburse for services that are inappropriate, improper, unnecessary, excessive, inaccurately described, or that constitute unacceptable practices. (Id. at ¶¶ 35-36). Moreover, New York regulations include compliance with all New York State Department of Health ("DOH") regulations within the definition of acceptable practices. (Id. at ¶ 37). Further emphasizing the importance of following relevant regulations, an entity seeking to participate in Medicaid must fill outan enrollment form that requires the entity to certify that it will comply with DOH regulations. (Id. at ¶ 38). The enrollment form also requires that any claim for payment be true, accurate, and complete. (Id.).

CLC is further required to comply with New York regulations because it participates in the Home and Community-Based Services ("HCBS") Waiver Program, which allows states to meet the needs of people who prefer to get long-term care services and support in their home or community, as opposed to an institutional setting. Home and Community-Based Services 1915(c), Medicaid.gov, https://www.medicaid.gov/medicaid/home-community-based-services/home-community-based-services-authorities/home-community-based-services-1915c/index.html. In New York, HCBS waiver services are regulated by OPWDD. (SAC ¶ 29). To deliver HCBS waiver services, an entity must both complete an HCBS Provider Agreement and operate in accordance with specific provisions of the New York Codes, Rules and Regulations (the "NYCRR"). (Id. at ¶¶ 31-32).

Plaintiff has highlighted several regulations that, she claims, are relevant to the issues in this action. (SAC ¶¶ 33, 39-40). These include: (i) regulations prohibiting the commercial exploitation of individuals; (ii) regulations protecting an individual's right to express their sexuality as limited by their consensual ability to do so; (iii) regulations protecting an individual's use of his or her personal money and property; and (iv) regulations prohibiting an agency or sponsoring agency from purchasing any item or service for which public funds were provided. (Id. at ¶ 33). Other relevant regulations mandate thereporting of reportable incidents to OPWDD, and include within reportable incidents the administration of a prescription drug without a prescription, the failure to provide adequate medical care, and any suspected financial exploitation. (Id.). Finally, New York regulations require that providers prepare and maintain contemporaneous records regarding their right to receive payment, to submit claims only for services actually furnished, and to submit claims in the manner required by the relevant department. (Id. at ¶ 39).

2. The Alleged Fraudulent Schemes

a. The Fraudulent Billing Scheme

Plaintiff alleges that CLC uses a form known as the HCBS Waiver Service Documentation IRA ResHab Daily Checklist (the "Checklist") in order to substantiate its claims for reimbursement from Medicaid. (SAC ¶ 42). CLC is required to fill out both daily narrative notes, which must be filled out contemporaneous to when the consumer received the relevant service, and a monthly summary note. (Id. at ¶ 43). Staff who are providing a service initial the date on which the service is provided, and therefore attest that the service was in fact provided on that date. (Id. at ¶ 44). This initialing must occur on the same day as the service is provided. (Id.). In general, services are billed on a monthly basis. (Id. at ¶ 45).

Plaintiff alleges that CLC had a widespread problem of its staff members failing to complete or initial their Checklists at the time services were provided. (SAC ¶ 49). In response to this issue, Stile directed CLC's accounting department to draw up a list of staff members who had failed to complete theirChecklists properly. (Id. at ¶ 50). Stile further required those staff members to come to CLC's Accounting Department and sign, initial, and note the consumer's response to the service, even if the service had been provided several weeks beforehand. (Id.). This practice became common at CLC, and the list of negligent staff members often exceeded 30-40 people. (Id.). Plaintiff alleges that Relator was personally called to Accounting and asked to initial services non-contemporaneously. (Id.). Plaintiff further alleges that not only were staff members directed to complete and sign Checklists non-contemporaneously, but they were also directed to sign Checklists for services that had not been provided. (Id. at ¶¶ 53-54).

As a specific example of this scheme, Plaintiff alleges that Relator was conducting an internal audit of two of CLC's apartments in the last week of October 2011 when he discovered that no documentation had been completed for the month of October. (SAC ¶ 52). Notably, however, Plaintiff offers no allegation that any claims in connection to those two apartments were submitted to Medicaid. Additionally, Plaintiff alleges that in October or November of 2014, Relator was working with Renette Gordon at CLC's Moseman Residence. (Id. at ¶ 51). Allison McKay, the Regional Program Coordinator, entered the Moseman Residence and...