United States v. Am. Health Found.

1

UNITED STATES OF AMERICA, v. AMERICAN HEALTH FOUNDATION, INC.; AHF MANAGEMENT CORPORATION; AHF MONTGOMERY, INC. d/b/a CHELTENHAM NURSING AND REHABILITATION CENTER; and AHF OHIO, INC. d/b/a THE SANCTUARY AT WILMINGTON PLAEC and d/b/a SAMARITAN CARE CENTER AND VILLA.

Civil Action No. 22-2344

United States District Court, E.D. Pennsylvania

November 7, 2023

MEMORANDUM

R BARCLAY SURRICK, J.

Presently before the Court is Plaintiff United States of America's (“the Government”) Motion to Strike Affirmative Defenses (ECF No. 34). The Government's Motion will be granted in part and denied in part.

I. BACKGROUND

The Government filed this action against four defendants American Health Foundation, Inc.; AHF Management Corporation; AHF Montgomery, Inc., which does business as Cheltenham Nursing and Rehabilitation Center; and AFH Ohio, Inc., which does business as The Sanctuary at Wilmington Place and Samaritan Care Center and Villa (collectively, “Defendants”), alleging violations of the False Claims Act and federal common law theories of payment by mistake and unjust enrichment. (First Amended Compl. (“FAC”), ¶ 1.) The Government alleges that Defendants provided “non-existent and grossly substandard nursing home services to Medicare and Medicaid beneficiaries” and caused or risked causing serious harm to their vulnerable residents. (Id. ¶ 2.) The Government alleges that, in doing so, Defendants “knowingly submitted or caused the submission of false and fraudulent claims for nursing home care” by providing deficient services and violating the standards of care articulated in the Nursing Home Reform Act and its implementing regulations. (Id. ¶ 12.)

In its Answer, Defendants pled five affirmative defenses. (Answer, ECF No. 33, at 84 87.) The Government moves to strike three of these defenses: Waiver and ratification (Second Affirmative Defense); accord and satisfaction (Third Affirmative Defense); and mitigation of damages (Fifth Affirmative Defense). (Mot., ECF No. 34.)

The Second Affirmative Defense of waiver and ratification states:

The United States' claims are barred wholly or in part by the equitable defenses of waiver and ratification.

The First Amended Complaint identifies numerous publicly available surveys performed at the direction of CMS, and the United States asserts claims based on conduct identified in these surveys. The First Amended Complaint also identifies multiple instances in which the United States paid claims for the same care associated with findings in the surveys after completion of the surveys.

The First Amended Complaint identifies multiple instances where the United States or its designee pursued and obtained administrative remedies based on such conduct. The United States or its designee accepted payment of civil penalties and/or a plan of correction to waive and/or ratify any non-compliances associated with Defendants' conduct.

The United States' use of administrative remedies and/or its payment of claims for care associated with survey findings ratifies Defendant's conduct and waives, in whole or in part, the United States' claims in this action. (Answer at 85-86.)

The Third Affirmative Defense of accord and satisfaction states:

The United States has pursued and obtained administrative remedies for care at issue in the First Amended Complaint. The United States or its designee accepted payment of civil penalties and/or verified a plan of correction in response to asserted noncompliances. To the extent that the United States has obtained civil penalties or verified plans of correction in response to conduct identified in the First Amended Complaint, its claims are barred by the doctrine of accord and satisfaction. (Id. at 86.)

The Fifth Affirmative Defense of mitigation of damages states:

Counts I, II, and III of the First Amended Complaint are barred wholly or in part because the United States failed to mitigate its damages.

The First Amended Complaint identifies numerous publicly available surveys performed at the direction of CMS, and the United States asserts claims based on conduct identified in these surveys. The First Amended Complaint also identifies multiple instances in which the United States paid claims for the same care associated with findings in the surveys after completion of the surveys.

Had the United States communicated to Defendants that it would not pay for certain allegedly deficient services, Defendants would not have continued to submit such claims, and the United States would not have suffered all or some of its claimed damages.

(Id. at 87.)

II. LEGAL STANDARD

“The court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent or scandalous matter.” Fed.R.Civ.P. 12(f). The Third Circuit has not addressed whether the heightened plausibility standard articulated in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), applies to affirmative defenses. See Curbio, Inc. v. Miller, No. 22-3619, 2023 WL 2505534, at *3-4 (E.D. Pa. Mar. 13, 2023).

“[A] court should not grant a motion to strike a defense unless the insufficiency of the defense is ‘clearly apparent'” because “a court should restrain from evaluating the merits of a defense where . . . the factual background for a case is largely undeveloped.” Cipollone v. Liggett Grp., Inc., 789 F.2d 181, 188 (3d Cir. 1986). “Affirmative defenses [are] not to be struck unless there [is] no set of facts which could be inferred from the pleadings in support of the defenses.” Dann v. Lincoln Nat. Corp., 274 F.R.D. 139, 145 (E.D. Pa. 2011). “[B]are bones conclusory allegations” may be stricken. Dann, 274 F.R.D. at 145. In other words, “[a]lthough the standard is very low, a defendant must state some basis for asserting an affirmative defense.” Alliance Indus. Ltd. v. A-1 Specialized Serv. & Supplies, Inc., No. 13-2510, 2014 WL 4548474, at *2 (E.D. Pa. Sept. 11, 2014). In addition, “[a]n affirmative defense is insufficient if it is not recognized as a defense to the cause of action.” Total Containment, Inc. v. Environ Prods., Inc., No. 91-7911, 1992 WL 208981, at *1 (E.D. Pa. Aug.19, 1992) (citation omitted). In contrast, “[a] motion to strike should not be granted when the sufficiency of a defense depends on disputed issues of fact” or involves “disputed or unclear questions of law.” Linker v. Custom-BiltMach. Inc., 594 F.Supp. 894, 898 (E.D. Pa. 1984) (citations omitted).

Courts have considerable discretion in determining whether to grant a motion to strike, but they “usually will be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties, or if the allegations confuse the issues.” River RoadDevel. Corp. v. Carlson Corp., No. 89-7037, 1990 WL 69085, at *2 (E.D. Pa. May 23, 1990). Although motions to strike are disfavored, they may “serve a useful purpose by eliminating insufficient defenses and saving the time and expense which would otherwise be spent in litigating issues which would not affect the outcome of the case.” United States v.Marisol, 725 F.Supp. 833, 836 (M.D. Pa. 1989).

III. DISCUSSION

For the following reasons, we grant the Government's Motion to Strike Defendants' Second and Third Affirmative Defenses in whole. We also grant the Government's Motion to Strike Defendants' Fifth Affirmative Defense in part and deny the Motion in part.

A. Second Affirmative Defense: Waiver and Ratification

The Government argues that Defendants' waiver and ratification affirmative defense fails because only the Attorney General and Department of Justice can waive the Government's right to bring a False Claims Act action, and Defendants have not alleged that they have done so. (Mot. at 3-5.)

Defendants argue that some government officials were aware of Defendants' conduct by virtue of the surveys that the Centers for Medicare & Medicaid Services (“CMS”) conducted and administrative remedies that were imposed on Defendants, and that this knowledge could constitute waiver. (Opp'n, ECF No. 37, at 4-5.) Defendants argue that government knowledge can negate False Claims Act and common law fraud claims, and that they are entitled to discovery into this area as the Government has sufficient notice of this defense. (Id.)

The Government's motion to strike the Second Affirmative Defense is granted. “A waiver is an intentional and voluntary relinquishment of a known right.” United States v. Goldberg, 67 F.3d 1092, 1099 (3d Cir. 1995). “Waiver must be made by one having the authority to do so.” U.S. v. Honeywell Intern., Inc., 841 F.Supp.2d 112, 114 (D.D.C. 2012). Congress vested the Attorney General with the authority to bring civil actions under the False Claims Act. See 31 U.S.C. § 3730(a); see also 28 U.S.C. § 516; Martin J. Simko Constr. v. United States, 852 F.2d 540, 548 (Fed. Cir. 1988) (“Congress could not have stated more clearly its intent to give the Attorney General specific authority to ‘administer, settle, or determine' claims or disputes under the False Claims Act.”)

“Violations of the [False Claims Act] . . . may only be waived by the Department of Justice, and the unauthorized statements of United States agents may not serve to waive the Government's claims.” U.S. ex rel. Monahan v Robert Wood Johnson Univ. Hosp. at Hamilton, No. 02-5702, 2009 WL 4576097, at *7 (D.N.J. Dec. 1, 2009) (citing Sappiest v. Omaha Prop. & Cas., 404 F.3d 805, 809 (3d Cir. 2005)). As a result, this defense may only proceed when “a party alleges conduct by the Attorney General that could be construed as waiver of the Government's [False Claims Act] claims.” U.S. ex rel. Spay v. CVS Caremark Corp., No. 094672, 2013 WL 1755214, at *11 (E.D. Pa. Apr. 24, 2013); see also United States v. DynCorp Intern. LLC, 282...