United States ex rel. Lee v. N. Adult Daily Health Care Ctr.

205 F.Supp.3d 276

UNITED STATES of America and New York State ex rel. Orlando Lee, Melville Luckie and Luz Gonzalez, Plaintiffs,

v.NORTHERN ADULT DAILY HEALTH CARE CENTER and Galena Deverman, Defendants.

13–CV–4933 (MKB)

United States District Court, E.D. New York.

Signed September 7, 2016

Kenneth M. Abell, United States Attorney's Office, Central Islip, NY, Raphael Katz, Robert Wayne Sadowski, Sadowski Katz PLLC, Jill Diane Brenner, State of NY Office of the Attorney General, Noah Aaron Kinigstein, Noah Kinigstein, Petro Zinkovetsky, Zinkovetsky Law Firm, New York, NY, for Plaintiffs.

Frank Anthony Hess, Peckar & Abramson, PC, River Edge, NJ, for Defendants.

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge

On September 4, 2013, Orlando Lee, Melville Luckie and Luz Gonzalez ("Relators") brought this qui tam action on behalf of the United States of America and the State of New York (the "State") against Defendants Northern Adult Daily Health Care Center ("Northern Adult")¹ and Galena Deverman,² alleging violations of the False Claims Act, 31 U.S.C. § 3729 et seq. (the "FCA"), and the New York State False Claims Act, N.Y. State Fin. Law § 187 et seq. (the "NYFCA"). (Compl. ¶¶ 175–241, Docket Entry No. 1.) On September 8, 2014, the United States and the State declined to intervene in the action. (Docket Entry Nos. 9–10.) On June 25, 2015, Relators filed an Amended Complaint that included an additional cause of action under the New York City Human Rights Law ("NYCHRL"). (Am. Compl., Docket Entry No. 29.) On October 14, 2015, Northern Adult moved to dismiss the Amended Complaint under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. (Notice of Mot. to Dismiss, Docket Entry No. 43; Mem. of Law in Supp. of Def. Mot. to Dismiss ("Def. Mem."), Docket Entry No. 43–1). For the reasons discussed below, the Court grants in part and denies in part Northern Adult's motion to dismiss.

I. Background

The facts alleged in the Amended Complaint are accepted as true for the purpose of deciding this motion. According to the Amended Complaint, Northern Adult was an adult day care center that provided "cognitive stimulation," arts and crafts, personal hygiene, and occupational and physical therapy to its elderly and low-income registrants.³ (Am. Compl. ¶ 12.) As payment, Northern Adult accepted Medicaid, managed-Medicaid, private insurance and private payment. (Id. ) Northern Adult was obligated to comply with the New York State Health Rules and Regulations, which required Northern Adult, among other things, to give admission priorities to certain registrants, provide nursing and social services, provide assistance and supervision for daily living activities, and provide meals and nutritional supplements. (Id. ¶¶ 16–23.) As an applicant to participate in the New York State Medicaid Program (the "Medicaid Program"), Northern Adult submitted a certification that it would comply with Title VI of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000d et seq. ("Title VI")⁴ and all New York State Department of Health ("DOH") and federal Medicaid regulations. (Id. ¶ 34.) According to Relators, Northern Adult failed to comply with the DOH and Medicaid regulations despite filing that certification. (Id. ¶ 34.)

Relators, who were previously employed by Defendants, allege that Defendants billed the Medicaid Program for "substandard services that were inappropriate, unacceptable, harmful, worthless, and/or unnecessary," in violation of DOH and Medicaid regulations. (Id. ¶ 43.) Specifically, Relators allege that Defendants, among other things, failed to supervise registrants—resulting in registrants "wandering unescorted" in Prospect Park and around the Park Slope neighborhood of Brooklyn, New York—failed to provide food that adhered to certain dietary and health restrictions, and failed to provide food to African–American and Latino registrants. (Id. ¶ 44.) In addition, Northern Adult allowed registrants to drink alcohol to the point of intoxication, segregated Latino and African–American registrants from white Russian registrants, forced developmentally-disabled registrants to wear "embarrassing costumes for the entertainment and amusement of white Russian registrants," and refused to transport registrants to African–American and Latino neighborhoods. (Id. )

Relators also allege that Defendants retaliated against them for reporting Northern Adult's alleged misconduct. Relators claim that (1) Lee was constructively terminated after he raised questions and complained about certain violations, including that Northern Adult was treating Latino registrants poorly, (id. ¶¶ 177–91); (2) Luckie was demoted and terminated after he complained about Northern Adult's health violations and its disparate treatment of African American and Latino registrants, (id. ¶¶ 192–205); and (3) Gonzalez was constructively terminated after complaining about several deficiencies at Northern Adult, including that Northern Adult stopped providing physical therapy to registrants and that it served food to African American and Latino registrants last, (id. ¶¶ 206–222).

On June 26, 2014, the State entered into a settlement agreement (the "Settlement Agreement") with Northern Metropolitan Foundation for Health Care, Inc. ("Northern Metropolitan") and Northern Manor Multicare Center, Inc. ("Northern Manor"), respectively the non-profit organization and wholly-owned subsidiary that operated Northern Adult. (State Ltr. of Interest at 2.) According to the State,⁵ the Settlement Agreement covered the following conduct, to which Northern Manor admitted: Northern Manor operated Northern Adult "as a medical model [adult day health care] without a qualified social worker on staff to provide required [adult day health care] social services," and "on 63 days, the [adult day health care] program admitted more registrants than it was certified to treat by the New York State Department of Health." (State Ltr. of Interest at 2; see also Relators' Mem. of Law in Opp'n to Def. Mot. ("Relators' Mem.") 3, Docket Entry No. 46.) Northern Manor and the State settled the claims for six and a half million dollars, and Northern Manor agreed to close Northern Adult. (Id. )

After the State settled with Northern Metropolitan and Northern Manor, Relators moved for an alternate remedy, arguing that Relators had provided much of the information that led to the settlement agreement and, pursuant to 31 U.S.C. § 3730(d)(1), Relators should be able to recover a share of the settlement amount. (Relators' Mem. 3.) On March 23, 2016, the Court denied Relators' motion as premature and held that Relators could renew their motion for a share of the settlement proceeds if the Court found that they had stated a valid qui tam action. U.S. ex rel. Lee v. N. Adult Daily Health Care Ctr. , 174 F.Supp.3d 696, 705 (E.D.N.Y. 2016).

II. Discussion

a. Standard of review

i. Motion to dismiss

In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must "accept all factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff." Tsirelman v. Daines , 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep't of Educ. , 131 F.3d 326, 329 (2d Cir. 1997) ); see also Matson v. Bd. of Educ. , 631 F.3d 57, 63 (2d Cir. 2011) (quoting Connecticut v. Am. Elec. Power Co. , 582 F.3d 309, 320 (2d Cir. 2009) ). A complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Matson , 631 F.3d at 63 (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ); see also Pension Ben. Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc. , 712 F.3d 705, 717–18 (2d Cir. 2013). Although all allegations contained in the complaint are assumed true, this principle is "inapplicable to legal conclusions" or "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

Moreover, as discussed in greater detail below, "[i]t is self-evident that the FCA is an anti-fraud statute," and therefore "claims brought under the FCA fall within the express scope of Rule 9(b) [of the Federal Rules of Civil Procedure]." Wood ex rel. U.S. v. Applied Research Associates, Inc. , 328 Fed.Appx. 744, 747 (2d Cir. 2009) (quoting Gold v. Morrison–Knudsen Co. , 68 F.3d 1475, 1476–77 (2d Cir. 1995) ); see Bishop v. Wells Fargo & Co. , 823 F.3d 35, 43 (2d Cir. 2016) (quoting same). Pleadings subject to Rule 9(b) must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." United States ex rel. Ladas v. Exelis, Inc. , 824 F.3d 16, 25 (2d Cir. 2016) (quoting Shields v. Citytrust Bancorp., Inc. , 25 F.3d 1124, 1128 (2d Cir. 1994) ); Wood , 328 Fed.Appx. at 747 (quoting same). "Ultimately, whether a complaint satisfies Rule 9(b) depends upon the nature of the case, the complexity or simplicity of the transaction or occurrence, the relationship of the parties and the determination of how much circumstantial detail is necessary to give notice to the adverse party and enable him to prepare a responsive pleading." United States v. Wells Fargo Bank, N.A. , 972 F.Supp.2d 593, 616 (S.D.N.Y. 2013) ; see Kane ex rel, U.S. v. Healthfirst, Inc. , 120 F.Supp.3d 370, 383 (S.D.N.Y. 2015) (quoting same); U.S. ex rel. Bilotta v. Novartis Pharm. Corp. , 50 F.Supp.3d 497, 508 (S.D.N.Y. 2014) (quoting same); U.S. ex rel. Kester v. Novartis Pharma. Corp. , 23 F.Supp.3d 242, 258 (S.D.N...