United States ex rel. Michaels v. Agape Senior Cmty. Inc., C/A No. 0:12-cv-03466-JFA

United States of America ex rel. BRIANNA MICHAELSand AMY WHITESIDES, Plaintiffs, v. Agape Senior Community Inc; Agape Senior Primary Care Inc;Agape Senior Services Inc; Agape Senior LLC;Agape Management Services Inc; Agape Community Hospice Inc;Agape Nursing and Rehabilitation Center Inc, Defendants.

C/A No. 0:12-cv-03466-JFA

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH CAROLINA ROCK HILL DIVISION

Dated: December 5, 2013

ORDER

I. INTRODUCTION

The court heard oral argument on all pending motions on December 2, 2013 in this healthcare fraud qui tam action. The Complaint alleges, among other things, that Defendants systematically defrauded federal healthcare programs by certifying patients for hospice care, when no such care was needed. Defendants moved to dismiss, pursuant to FRCP 12(b)(6) and FRCP 12(b)(1), all claims asserted ("Motion to Dismiss"), largely on the grounds that the Complaint failed to meet the specificity required in fraud actions under FRCP Rule 9(b). Plaintiffs, in their response to the Motion to Dismiss, moved to amend the Complaint and attached a First Proposed Amended Complaint. Plaintiffs have subsequently submitted a Second Proposed Amended Complaint.¹

Defendants also moved "To Stay Proceedings Pending Hearing On Motion For An OrderDirecting Relators To Surrender Documents For In Camera Review And For Further Relief" ("Motion to Stay and for Further Relief"). Plaintiffs have already submitted the documents at issue—medical records of Agape patients—for in camera review. The crux of Defendants' Motion to Stay and for Further Relief is that Plaintiff Whitesides, while still an employee of Agape, sent her Agape login credentials to Plaintiff Michaels, a few weeks after Plaintiff Michaels' employment with Agape had been terminated. Plaintiff Michaels then remotely logged in to Agape's electronic database, retrieved the Documents, and printed them out to preserve the Documents. The Documents—medical records—clearly contain private health information. Further, access of and distribution of the Documents to non-employees arguably violates an employment agreement with Agape.

In addition to the Motion to Dismiss pursuant to FRCP 12(b)(6), FRCP 12(b)(1) and FRCP 9(b), Defendants seek the following relief:² (1) dismissal of the case for Plaintiffs' allegedly wrongful actions in obtaining the documents; or (2) a stay allowing for discovery related to Plaintiffs' allegedly wrongful actions in obtaining the documents.

II. DEFENDANTS' MOTION TO STAY AND FOR FURTHER RELIEF

Defendants cite to several statutes that Defendants assert criminalize Plaintiffs' conduct in obtaining the Documents. First, Defendants cite to South Carolina law providing that it is a crime "for a person to wilfully, knowingly, maliciously, and without authorization or for an unauthorized purpose to: (a) directly or indirectly access or cause to be accessed a computer, computer system, or computer network for the purpose of: (i) devising or executing a scheme or artifice to defraud; (ii) obtaining money, property, or services by means of false or fraudulentpretenses, representations, promises; or (iii) committing any other crime." S.C. Code Ann. § 1616-20. "'Unauthorized access'" means access of a computer, computer system, or computer network not explicitly or implicitly authorized by the appropriate principal of the computer, computer system, or computer network." S.C. Code Ann. § 16-16-10. Defendants also cite to the federal counterpart, the Computer Fraud and Abuse Act, making it criminal to "intentionally access[] a computer without authorization ... and thereby obtain[] ... information from any protected computer." 18 U.S.C. § 1030.

Defendants next argue that Plaintiffs' actions violate certain provisions of the Health Insurance and Portability Accountability Act, ("HIPAA"), by accessing and disclosing private and confidential patient information. The court notes the difficulty a qui tam plaintiff faces when attempting to comply with HIPAA and other regulations, while also attempting to meet the specificity requirements of FRCP 9(b). Here, Plaintiffs have made genuine efforts to balance those competing concerns by providing more detail in amended complaints, while also using initials of—not names of—patients.³

Plaintiffs first argue that Plaintiffs' conduct did not violate the plain language of any of the criminal provisions cited. Plaintiffs next argue that the False Claims Act provides relevant exceptions for whistleblowers, but unfortunately does not cite directly to those exceptions in their briefs. Plaintiffs do cite to a HIPAA exception that allows whistleblowers to disclose otherwise private health information. However, that exception provides that the disclosure must be made by a "workforce member or business associate" of the relevant organization, to either: (1) a health oversight agency or public health authority; or (2) a retained attorney. 45 C.F.R. § 164.502. Defendants argue that the exception does not allow Plaintiff Michaels to disclose any documents because her employment with Agape had been terminated at the time the disclosurewas made. Defendants argue that the exception does not apply to Plaintiff Whitesides because her disclosure was made to Plaintiff Michaels—neither a retained attorney nor a public health authority.

Plaintiffs very well may have violated various computer fraud laws, employment agreements with Agape, and HIPAA. As discussed already, some of those violations may amount to criminal activity. However, the court refuses, under these circumstances, to label relators Whitesides and Michaels as criminals on a civil motion. Plaintiffs' accessing Agape's computer systems and then printing off documents, when one of the two actors is an employee of Agape and the other was an employee of Agape only weeks prior, is not sufficiently egregious conduct to warrant dismissal of the action or a stay of proceedings. Halaco Eng'g Co. v. Costle, 843 F.2d 376, 380 (9th Cir. 1988) ("Dismissal under a court's inherent powers is justified in extreme circumstances, in response to abusive litigation practices, and to insure the orderly administration of justice and the integrity of the court's orders.") (citations omitted).

Other mechanisms exist to provide Defendants a remedy, if it is determined that the conduct of Plaintiffs Whitesides and Michaels was in fact wrongful. Defendants may have a private right of action, or several, against Plaintiffs, and the availability of counterclaims in this lawsuit provides adequate protection for the Defendants. U.S. ex rel. Madden v. Gen. Dynamics Corp., 4 F.3d 827, 831 (9th Cir. 1993) ("[S]ome mechanism must be permitted to insure that relators do not engage in wrongful conduct in order to create the circumstances for qui tam suits and to discourage relators from bringing frivolous actions. Counterclaims for independent damages serve these purposes."); U.S. ex rel. Battiata v. Puchalski, 906 F. Supp. 2d 451, 460 (D.S.C. 2012) ("a qui tam defendant may assert claims for independent damages, meaning damages that would exist regardless of defendant's liability on the qui tam action unless thosedamages have the effect of indemnification or contribution the issue of effect being one which normally cannot be resolved until after the conclusion of the qui tam litigation."). Indeed, the court believes that the best course of action here is for the Defendants to file any appropriate counterclaims it may have, or to report the alleged criminal activity to the proper authorities.

III. DEFENDANTS' MOTION TO DISMISS PURSUANT TO FRCP 12(b)(6), FRCP 12(b)(1), AND FRCP 9(b)

Defendants move to dismiss, pursuant to FRCP 12(b)(6) and FRCP 12(b)(1), the Complaint and the First Proposed Amended Complaint, largely on the grounds that Plaintiffs have not met the heightened pleading standard of FRCP 9(b). That rule provides:

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally."

Fed. R. Civ. P. 9. The court has reviewed the Second Proposed Amended Complaint and determined, provisionally, that Plaintiffs have met their heightened burden under FRCP 9(b) with regard to the following causes of action: the First Cause of Action; the Second Cause of Action; and the Third Cause of Action.⁴ The Fourth Cause of Action, for retaliatory discharge, brought by Plaintiff Michaels only, has also been sufficiently pled pursuant to FRCP 12(b)...