United States ex rel. Nicholson v. MedCom Carolinas, Inc.

UNITED STATES OF AMERICA, ex rel. HAILE KIROS NICHOLSON, Plaintiff, v. MEDCOM CAROLINAS, INC., JEFF TURPIN, and JOHN DOES (1-50) INCLUSIVE, Defendants.

1:17CV34

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

March 16, 2021

MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

On March 16, 2020, this court entered a Memorandum Opinion and Order, (Doc. 24), and Judgment, (Doc. 25), granting Defendants' motion to dismiss, (Doc. 15), and dismissing this action with prejudice, (see Doc. 25). On April 10, 2020, Plaintiff filed a Motion to Alter or Amend the Judgment and Leave to File an Amended Complaint. (Doc. 26.) The motion is made pursuant to Fed. R. Civ. P. 59(e) and 15(a)(2) and is ripe for ruling. For the following reasons, this court finds the motion should be denied.

I. ANALYSIS

A. Legal Standard for Amendment

Fed. R. Civ. P. 59(e) authorizes a court to amend a judgment within 28 days after entry of the judgment but does not provide an applicable standard for when amendment is appropriate. The Fourth Circuit recognizes at least "three grounds for amending an earlier judgment: (1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice." Pac. Ins. Co. v. Am. Nat'l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998). Notwithstanding those limitations, a motion to amend a post-judgment complaint is evaluated under the same legal standard as a motion made before judgment was entered. Katyle v. Penn Nat'l Gaming, Inc., 637 F.3d 462, 471 (4th Cir. 2011). The standard is as follows:

Motions for leave to amend should generally be granted in light of "this Circuit's policy to liberally allow amendment." Galustian v. Peter, 591 F.3d 724, 729 (4th Cir. 2010). However, a district court may deny leave to amend "when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986).

Adbul-Mumit v. Alexandria Hyundai, LLC, 896 F.3d 278, 293 (4th Cir. 2018). A party seeking amendment from the court need notfile a supporting brief under the local rules, but "must state good cause" for the amendment. L.R.7.3(j). Once a motion is filed, the court should "freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). Under the rule's liberal construction, see Ward Elecs. Serv., Inc. v. First Com. Bank, 819 F.2d 496, 497 (4th Cir. 1987), motions to amend should be granted absent extraordinary circumstances. Such circumstances include undue delay, bad faith or dilatory motive, a repeated failure to cure deficiencies, undue prejudice to the opposing party, and futility of amendment. Foman v. Davis, 371 U.S. 178 (1962).

The facts and procedural history of this case are set out in this court's Memorandum Opinion and Order, (Doc. 24), which is incorporated by reference. This court will address the individual claims of the proposed Amended Complaint to determine whether the motion to amend and corresponding motion to set aside the judgment should be granted or denied. The proposed Amended Complaint contains similar claims to those filed in the original Complaint; this court begins its analysis with Count IV of the proposed Amended Complaint because that count was originally dismissed on jurisdictional grounds. This court found Relator did not have standing.

B. Anti-Kickback Statute Count

Count IV of the proposed Amended Complaint, (Proposed Am. Complaint ("Proposed Am. Compl.") (Doc. 26-1) at 18), alleges a standalone violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7(b). This count was identically pled in the original Complaint. (Original Complaint ("Original Compl.") (Doc. 1) at 14-15.) This court held dismissal of that count was proper under Fed. R. Civ. P. 12(b)(1), as the Anti-Kickback Statute ("AKS") is a "federal criminal statute[s] without a private cause of action." (Memorandum Opinion and Order ("Mem. Op. & Order") (Doc. 24) at 10.) In fact, Relator conceded there is no private right of action under that statute. (Doc. 20 at 1 n.1 ("Plaintiff does not dispute that it can't maintain an individual AKS violation.").) Therefore, the action was dismissed because Relator did not have standing as to Count Four.

In spite of this finding, and in spite of the concession by Relator that he could not maintain an individual AKS violation action, Relator has alleged in his Amended Complaint an identical Count IV to the one previously dismissed. (Compare (Original Compl. (Doc. 1) at 14-15 with (Proposed Am. Compl. (Doc. 26-1) at 18.) A district court may deny leave to amend "when . . . there has been bad faith on the part of the movingparty, or the amendment would be futile." Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986). This court finds, as to the proposed amended Count IV, that Relator's motion to amend should be denied. Relator's repeated allegation for which Relator has admitted, and this court has found, that there is no individual cause of action, is not a good faith pleading.

C. False Claims Act Claims: Counts One, Two, and Three

Counts I, II, and III of the Complaint were dismissed for failure to allege fraud with particularity pursuant to Fed. R. Civ. P. 9(b) and for failure to allege the underlying commission-based scheme with particularity. (See Mem. Op. & Order (Doc. 24) at 11-35.) Relator is a former sales representative for Integra Life Sciences ("Integra"). (Proposed Am. Compl. (Doc. 26-1) ¶ 5.) Relator alleges that he has knowledge of Integra's billing process for wound care products as well as provider offices and reimbursement personnel "such that it was clear that Defendant MedCom Carolina's Inc., and Jeff Turpin's schemes cause false claims to these federal healthcare program patients . . . ." (Id.)¹

The allegations of the original Complaint, (Original Compl. (Doc. 1)), and the proposed Amended Complaint, (Proposed Am. Compl. (Doc. 26-1)), are at best confusingly pled. This court finds it helpful to quote the allegations verbatim from the proposed Amended Complaint that describe the scheme:

Jeff Turpin was the sole owner of MedCom Carolinas, Inc. that employed independent contractors utilizing IRS Form 1099-MISC to generate referrals for Medicare/Medicaid and other federal healthcare program patients in violation of the anti-kickback statute. Specifically, these representatives/contractors were paid in whole or in part for furnishing items covered by federal healthcare programs and Jeff Turpin paid the "Medcom" contractors commissions based on the same including when they sold PriMatrix and Integra Dermal Replacement Therapy grafts that were manufactured and produced by Integra.

(Proposed Am. Compl. (Doc. 26-1) ¶ 5.) Relator later alleges that:

these Medcom contractors, who were not employees of Integra, received commissions for promoting its products including "PriMatrix" and "Integra Dermal Replacement Therapy" based on the volume of business reimbursed by federal healthcare programs. . . . Although Medcom did not manufacture any products of its own, Turpin, paid all of his sales representatives located in various territories on a commission structure based on the volume and value of sales of Integra's products such as IDRT, Omnigraft or Primatrix that were reimbursed by federal healthcare programs throughout Relator's tenure with Integra from March 2015 until September 2017.

(Id. ¶ 16.) Relator alleges that a sales representative for MedCom helped promote Integra products, pursuant to JeffTurpin's commission structures for physicians in the area. (Id.) Relator then describes what appears to be the core of his allegations of fraud:

throughout Relator's tenure with Integra, although Integra received all the reimbursements from third parties such as the VA, or area hospitals, for Integra's products sold by Medcom or the Integra sales force, Integra paid Medcom 25% commission of the net sales for Primatrix or Integra Dermal Therapy Grafts (i.e. after shipping and taxes, discounts were deducted) that were sold by Medcom contractors within 30 days of the sale. Of that amount, Holloway was paid 40% of the reimbursement that Medcom received within thirty days from Medcom. Holloway also admitted to the lack of supervision by Turpin at Medcom. When questioned about the rate of reimbursement, Relator was reminded by Holloway of that which he already knew — that the surgical wound grafts such as "IDRT" were based on a buy and bill model. In other words, accounts such as the VA were face to face driven accounts whereby their physicians utilized the products based on its availability provided by the sales representatives. Therefore, the claims were "presented" when the graft was tendered by the sales representative to be utilized by the physician during the medical procedure for surgical wounds when the IDRT grafts were utilized. At the Durham VA, the claim is submitted at the time of service of the procedure at a preset price based on what is referred to as a "FSS list," and then the claim is processed for payment within a day or two of the doctor entering the electronic consult. Based on Relator's role with the company, he had easy access from either purchasing or his own sales counterparts about the cost of the grafts of IDRT at the VA, the date his products were utilized in his territory, the amount paid by the VA which is preset based on a "FSS" schedule, the patient information, the time the claim was presented, why the claims were presented and the physician who utilized the graft.

(Id.) Relator concludes:

Relator learned on or about January 2017 that pursuant to Holloway's commission incentive offer directed by Jeff Turpin of Medcom (based on the value and volume of grafts that were reimbursed by the VA), Mr. Robert Holloway submitted a claim for payment on or about Nov 2016, to Dr. Phillips for an

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