United States ex rel. Taylor v. Healthcare Assocs. of Tex.

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UNITED STATES OF AMERICA, ex rel. CHERYL TAYLOR, Plaintiff, v. HEALTHCARE ASSOCIATES OF TEXAS, LLC, et al., Defendants.

Civil Action No. 3:19-CV-2486-N

United States District Court, N.D. Texas, Dallas Division

May 5, 2023

MEMORANDUM OPINION AND ORDER

David C. Godbey Chief United States District Judge

This order addresses Defendants'^[1] motion to strike and to dismiss [112]. The Court concludes that Relator Cheryl Taylor's Second Amended Complaint^[2] (“2AC”) adequately states a claim for relief under the False Claims Act and denies the motion.

I. Origins of the Dispute

Taylor alleges that she observed HCAT^[3] and its agents, the individual defendants, employ fraudulent Medicare billing practices. HCAT was founded and managed by Defendants Powell, Deems Gaman, Feehery, and nondefendant Dr. Maria Baird (the “Founding Physicians”). 2AC ¶ 75. Taylor first worked for HCAT as an outside consultant. Id. ¶ 76. She audited HCAT's healthcare billing practices in late 2017 and provided a follow-up assessment in May 2018. Id. at ¶ 76. In August 2018, Taylor accepted full-time employment with HCAT as the executive responsible for its revenue cycle. Id. ¶ 77. Throughout her tenure at HCAT, Taylor's duties included submitting claims for reimbursement to Medicare, reviewing denied claims, and interviewing every billing and coding department employee. Id. ¶¶ 77-78. According to Taylor, numerous HCAT policies required billing staff to submit claims for greater reimbursement than Medicare regulations allowed. Allegedly:

1. HCAT submitted claims with coding errors and without complete medical records to avoid delays in reimbursement. Id. ¶¶ 83-91.

2. HCAT submitted claims that named a treating physician who did not actually provide or supervise the claimed service in order to skirt credentialing requirements, secure higher reimbursement rates, and obtain reimbursement for nonreimbursable services. Id. ¶¶ 5, 7, 92161, 208, 212, 221-225.

3. HCAT also obtained reimbursement for nonreimbursable services by ordering unnecessary tests and services and manipulating billing codes and chart data. Id. ¶¶ 6, 162-214.

4. HCAT officials refused to return overpayments. Id. ¶¶ 215-220.

Taylor contends that she notified HCAT personnel, including compliance officer Kristian Daniels, CEO David Harbour, and then-CFO Jeff Vines, of the problematic practices. Id. ¶¶ 79, 91, 117-20, 160-61, 218. To her knowledge, HCAT did not correct its practices or disclose them to the government. Id. ¶ 79. HCAT terminated Taylor in January 2019. Id. ¶ 80.

Taylor filed this qui tam action alleging several counts under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729(a)(1). She subsequently sought leave to amend because the Government's investigation and early discovery revealed that HCA-Irving should be named as a defendant. Rel.'s Unopp. Mot. Leave 1 [57]. Defendants did not oppose the filing of the First Amended Complaint (“1AC”) [58]. Id. at 6; see also Joint Stipulation [62] (applying pending motion to dismiss briefing to amended complaint). But Defendants now argue that Taylor's additional amendments impermissibly rely on material obtained in discovery, and they ask the Court to strike portions of the 2AC as well as dismiss it entirely for failure to state a claim.

II. Legal Standards

A. Motion to Strike

Under Federal Rule of Civil Procedure 12(f), the Court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” FED. R. CIV. P. 12(f). Granting a motion to strike is a drastic remedy that should be used sparingly. Augustus v. Bd. of Pub. Instruction, 306 F.2d 862, 868 (5th Cir. 1962) (citing Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953)). The Court should strike a matter as impertinent or immaterial only when it has “no possible relation to the controversy.” Augustus, 306 F.2d at 868 (citing Brown & Williamson Tobacco Corp., 201 F.2d at 822). Beyond the scope of Rule 12(f), courts also retain inherent powers to “fashion an appropriate sanction for conduct which abuses the judicial process,” including striking material as impermissible. United States v. SouthEast Eye Specialists, PLLC, 570 F.Supp.3d 561, 571 (M.D. Tenn. 2021) (quoting Royce v. Michael R. Needle P.C., 950 F.3d 939, 953 (7th Cir. 2020)) (internal quotations omitted).

B. Motion to Dismiss for Failure to State a Claim

When addressing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must determine whether the plaintiff has asserted a legally sufficient claim for relief. Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir. 1995). “When reviewing a motion to dismiss, a district court must consider the complaint in its entirety, as well as ... documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (internal quotation marks omitted).

A viable complaint includes “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A court generally accepts well-pleaded facts as true and construes the complaint in the light most favorable to the plaintiff. Gines v. D.R. Horton, Inc., 699 F.3d 812, 816 (5th Cir. 2012). The facts are “taken collectively” rather than “scrutinized in isolation.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007). But a plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (internal citations omitted). “Factual allegations must be enough to raise a right to relief above the speculative level . on the assumption that all the allegations in the complaint are true.” Id. (internal citations omitted). A complaint is plausible if it “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Claims of misconduct are “merely conceivable and not plausible” if their supporting facts have a more obvious legal explanation. U.S. ex rel. Integra Med Analytics, L.L.C. v. Baylor Scott & White Health, 816 Fed.Appx. 892, 897 (5th Cir. 2020) (unpub) (quoting Iqbal, 556 U.S. at 682).

Additionally, Rule 9(b) requires that plaintiffs alleging fraud or mistake state their claims with particularity. FED. R. CIV. P. 9(b). And because Rule 9(b) “stand[s] as a gatekeeper to discovery,” U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir. 2009), plaintiffs must be able to set forth at least “the ‘who, what, when, where, and how' of the alleged fraud” largely without that benefit. U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997) (quoting Williams v. WMX Tech., Inc., 112 F.3d 175, 179 (5th Cir. 1997)). Plaintiffs may not “make an end run around” the requirement that fraud be pled with particularity by “rest[ing] [their complaints] primarily on facts learned through the costly process of discovery.” U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 380 (4th Cir. 2008). However, “conditions of a person's mind” may be alleged generally. FED. R. CIV. P. 9(b). Further, when “facts relating to the alleged fraud are peculiarly within the perpetrator's knowledge,” plaintiffs may plead their allegations “on information and belief,” but they “must set forth a factual basis for such belief.” Thompson, 125 F.3d at 903. Courts are careful to ensure that this exception is not misused as a “license to base claims of fraud on speculation and conclusory allegations.” Id. (quoting (Tuchman v. DSC Comms. Corp., 14 F.3d 1061, 1068 (5th Cir. 1994)) (internal quotations omitted).

III. The Court Denies the Motion to Strike

The heightened pleading requirements of Rule 9(b) apply in FCA cases. U.S. ex rel. Russell v. Epic Healthcare Mgmt. Grp., 193 F.3d 304, 308 (5th Cir. 1999), abrogated on other grounds, U.S. ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009). Accordingly, courts sometimes strike discovery-based amendments to complaints where the plaintiffs cannot otherwise satisfy Rule 9(b). See, e.g., Bingham v. HCA, Inc., 783 Fed.Appx. 868, 876 (11th Cir. 2019) (unpub.) (affirming striking under Rule 12(f)); cf. Southeast Eye Specialists, 570 F.Supp.3d at 571 (finding striking for impermissibility outside the scope of Rule 12(f), then declining to strike under inherent powers). Doing so prevents plaintiffs from being able to litigate deficient claims by “learn[ing] the complaint's bare essentials through discovery.” U.S. ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1313 n.24 (11th Cir. 2002).

But not all information obtained during discovery “circumvent[s] the purpose of Rule 9(b),” as concerned the Bingham court. 783 Fed.Appx. at 876. District courts across the country regularly allow relators to use documents obtained from governmental entities in their amended pleadings. See, e.g., U.S. ex rel. King v. Solvay S.A., 2010 WL 2851725, at *1 (S.D. Tex. 2010) (“[Russell] necessitates that relators be allowed to use the subpoenaed documents that were shared by the States in their amended complaint.”); U.S. ex rel. Underwood v. Genentech, Inc., 720 F.Supp.2d 671 680 (E.D. Pa. 2010) (Defendant's authority “precludes only amendments to a qui tam complaint based on discovery obtained directly from the qui tam defendant,” but “no authority . . . bar[s] amendments based on discovery the relator obtained from the Government. Indeed . . . courts have suggested just the opposite.”); United States v. Walgreen Co., 2018 WL 6258892, at *2 (C.D. Cal. 2018) (following Genentech and collecting...