United States v. Berkeley Heartlab, Inc.

247 F.Supp.3d 724

UNITED STATES of America, et al., Plaintiffs,

ex rel. Scarlett Lutz, et al., Plaintiffs–Relators,

v.BERKELEY HEARTLAB, INC., et al., Defendants.

Civil Action No. 9:14–cv–00230–RMG,

C/w 9:11–cv–1593–RMG, 9:15–cv–2458–RMG

United States District Court, D. South Carolina, Charleston Division.

Signed March 23, 2017

Donald H. Caldwell, Jr., U.S. Attorney's Office, James F. Wyatt, III, Robert Adams Blake, Jr., Wyatt and Blake, Charlotte, NC, Elizabeth A. Strawn, Mary Chris Dobbie, Michael David Granston, Michael Edmund Shaheen, Patricia Hanower, US Department of Justice, Steven N. Berk, Berk Law PLLC, Peter Wilson Chatfield, Phillips and Cohen, Washington, DC, Gill Paul Beck, Sr., United States Attorneys Office, Asheville, NC, James C. Leventis, Jr., Jennifer J. Aldrich, US Attorneys Office, John Daniel Kassel, John D. Kassel Law Firm, Columbia, SC, Douglas Edwards Roberts, Marc S. Raspanti, Michael A. Morse, Pamela Coyle Brecht, Pietragallo Gordon Alfano Bosick and Raspanti LLP, Philadelphia, PA, William J. Tuck, Darlington, SC, Eric James Buescher, Justin Theodore Berger, Niall P. McCarthy, Cotchett Pitre and McCarthy, Burlingame, CA, William Alexander Coates, Roe Cassidy Coates and Price, Greenville, SC, for Plaintiffs.

Joseph P. Griffith, Jr., Joseph P. Griffith Law Firm, Morris Dawes Cooke, Jr., Bradley Bruce Banias, Christopher M. Kovach, Barnwell Whaley Patterson and Helms LLC, Matthew R. Hubbell, Charleston, SC, Beattie B. Ashmore, Beattie B. Ashmore Law Office, Greenville, SC, Christopher R. Hall, Nicholas J. Nastasi, Saul Ewing LLP, Philadelphia, PA, Brian P. Dunphy, Matthew D. Levitt, Michael S. Gardener, Mintz Levin Cohn Ferris Glovsky and Popeo, Boston, MA, Hope Schwarz Foster, Mintz Levin Cohn Ferris Glovsky and Popeo, Washington, DC, for Defendants.

ORDER and OPINION

Richard M. Gergel, United States District Judge

This matter is before the Court on Defendant BlueWave Healthcare Consultants, Inc.'s ("BlueWave") motion to dismiss¹ Relator/Plaintiff Chris Riedel's first amended complaint ("FAC") under Federal Rules of Civil Procedure 8, 9(b), 12(b)(1), and 12(b)(6). (Dkt. No. 293.) For the reasons below, BlueWave's motion to dismiss is granted in part and denied in part.

Background and Procedural Posture

BlueWave marketed lab tests for two laboratory companies, Health Diagnostic Laboratory, Inc. ("HDL") and Singulex, Inc. ("Singulex") from approximately 2010 through 2014. On December 30, 2011, Riedel filed a qui tam complaint in the District of Columbia, alleging that BlueWave, HDL, and Singulex violated the False Claims Act ("FCA") through several fraudulent schemes (e.g., billing for medically unnecessary tests and paying kickbacks to physicians facilitated by improper processing and handling fees, waivers of co-payments and deductibles, and Speakers Bureau fees). (Dkt. No, 91–2.) On August 7, 2015, the Government filed its Complaint In Intervention, alleging that BlueWave induced medically unnecessary testing and paid, or caused the payment of, unlawful kickbacks in the form of processing and handling fees to physicians. (Dkt No. 75.) On December 21, 2015, BlueWave filed a motion to dismiss Riedel's first complaint. (Dkt. No. 139.) On March 28, 2016, this Court issued an Order finding that Riedel's allegations against BlueWave related to processing and handling fee kickbacks and medically unnecessary lab tests were barred by the first-to-file bar of the FCA. (Dkt. No. 268.) The Court dismissed Riedel's Complaint without prejudice for failure to plead fraud with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure. Riedel filed his FAC to cure those deficiencies. The FAC alleges that BlueWave violated various provisions of the FCA, including

(1) Presenting false claims in violation of 31 U.S.C. § 3729(a)(1)(A) ;

(2) Making or using false records or statements material to payment or approval of false claims in violation of 31 U.S.C. § 3729(a)(1)(B) ;

(3) Retention of proceeds to which not entitled in violation of 31 U.S.C. § 3729(a)(1)(G) ; and

(4) Conspiracy to commit violations under 31 U.S.C. § 3729(a)(1)(C),

(Dkt. No. 286.) Riedel alleges that BlueWave committed these FCA violations through its participation in five illegal schemes:

(1) Waiver of private insurance co-payments;

(2) Waiver of private insurance deductible payments;

(3) Payment of inflated packaging fees to physicians to induce referrals ("P & H fees");

(4) Payment of "Speaking Fees" to physicians who signed up to be in Defendants' "Speakers Bureau"; and

(5) Systematic billing for medically unnecessary tests ("Unnecessary Tests"),

(Id. )

BlueWave argues in its motion to dismiss that (1) Riedel's claims in connection with P & H Fees and Unnecessary Tests are barred by 31 U.S.C. § 3730(b)(5) (the "first-to-file" bar) and the law of the case; (2) Riedel does not have Article III standing to pursue any FCA claims against BlueWave on which the Government has intervened; and (3) Riedel's FAC should be dismissed for failure to meet the pleading requirements of Rules 8, 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure. (Dkt. No. 293.)

Legal Standards

I. Motion to Dismiss for Failure to State a Claim— Rule 12(b)(6)

To survive a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868, (2009) (quoting Bell Atl. Corp. v. Twombly 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Complaints that merely offer "labels and conclusions" or "a formulaic recitation of the elements of a cause of action" will not survive. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. A motion to dismiss under Rule 12(b)(6)"should not be granted unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief." Mylan Labs., Inc. v. Ma t kari, 7 F.3d 1130, 1134 (4th Cir. 1993).

"Facts that are ‘merely consistent with’ liability do not establish a plausible claim to relief." U.S. ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 455 (4th Cir. 2013) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 668, 129 S.Ct. 1937. "In addition, although [the court] must view the facts alleged in the light most favorable to the plaintiff, [the court] will not accept ‘legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.’ " Nathan, 707 F.3d at 455 (quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012) ).

II. Pleading Fraud with Particularity— Rule 9(b)

A complaint alleging fraud "must state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id. To meet this standard, the complaint must describe "the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) ). In other words, the complaint must describe the "who, what, when, where, and how of the alleged fraud." Id. (quoting United States ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375, 384 (5th Cir. 2003) (internal quotation marks omitted)).

Finally, "[a] court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial pre-discovery evidence of those facts." Harrison, 176 F.3d at 784. Rule 9(b) also requires a complaint to include "some indicia of reliability" to "support the allegation that an actual false claim was presented to the government." Nathan, 707 F.3d at 457 (internal citation omitted). A complaint provides the requisite indicia of reliability where "specific allegations of the defendant's fraudulent conduct necessarily [lead] to the plausible inference that false claims were presented to the government." Id.

Discussion

I. First to File Bar

BlueWave argues in its motion to dismiss that Riedel's allegations related to P & H fees and Unnecessary Tests are barred by 31 U.S.C. § 3730(b)(5) (the "first-to-file" bar) and the law of the case. This Court's prior Order found that both schemes were barred by the first-to-file rule. (Dkt. No. 268 at 35.) Riedel confirmed that he does not seek reconsideration of this Court's prior Order and has only included these schemes in his FCA to preserve his rights on appeal. (Dkt. No. 312 at 6–7.) Riedel's claims in connection with the P & H fees and Unnecessary Tests are therefore dismissed.

II. Article III Standing for Government–Intervened Claims

The Government has intervened as to Riedel's claims related to P & H fees, Unnecessary Tests, BlueWave's commission agreements with HDL and Singulex, and a conspiracy to violate the FCA. BlueWave asserts that this Court has no jurisdiction over any of Riedel's claims on which the Government has intervened because Riedel lacks Article III standing to pursue them. (Dkt. No. 293 at 10.) When filed, the Government's Complaint In Intervention becomes the operative complaint as to all intervened claims.

U.S. ex rel Feldman v. City of New York, 808 F.Supp.2d 641, 648–49 (S.D.N.Y. 2011) ("by automatic operation of the statute, the Government's complaint in intervention becomes the operative complaint as to all claims in which the government has intervened"). If the Government intervenes, "it shall have the...