United States v. Cent. Med. Sys., LLC

THE UNITED STATES OF AMERICA, THE STATE OF FLORIDA and JAEL CANCEL, Plaintiffs, v. CENTRAL MEDICAL SYSTEMS, LLC, ALAN T. HARLEY, JOAN HARLEY,ARTHUR WRIGHT and MEDDEX SOLUTIONS, LLC, Defendants.

Case No: 6:14-cv-512-Orl-28TBS

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION

October 19, 2018

ORDER

On October 8, 2018, Defendants Central Medical Systems, LLC (CMSI), Alan T. Harley, Joan Harley, Arthur Wright, and Meddex Solutions, LLC (Meddex) filed a Motion to Quash Order Granting Application for Prejudgment Remedies and to Dissolve Prejudgment Writs of Attachment and Garnishment (Doc. 79).¹ Defendants also sought an expedited hearing on their motion pursuant to 28 U.S.C. § 3101(d)(2). Upon the filing of Defendants' motion, the Court ordered the United States (Government) to respond, which it did on October 15, 2018. (Doc. 84). The Court held the statutorily prescribed hearing on October 16, 2018. At the hearing, Defendants and the Government presentedlive witness testimony, documentary evidence, and legal arguments. Upon consideration of the evidence presented by the parties, the Court now denies Defendants' Motion to Quash.²

I. Background

A. Procedural Background

The underlying case is a qui tam action that was filed under seal by relator Jael Cancel on March 28, 2014. On January 18, 2018, the Government elected to intervene in part in the case. (Doc. 34). The Government filed its original Complaint in Intervention (Doc. 39) on March 23, 2018. This initial Complaint named only CMSI and Alan Harley as defendants. CMSI and Alan Harley answered on May 4, 2018.

On July 27, 2018, the Government filed two ex parte motions: (1) Application for Pre-Judgment Remedies (Doc. 60) and (2) Motion for Joinder of Defendants (Doc. 61). The Application for Prejudgment Remedies sought, pursuant to 28 U.S.C. §§ 3101, 3102, and 3104, to attach several vehicles owned by Alan Harley, Joan Harley, and Arthur Wright and to garnish the accounts in which Defendants had a substantial, nonexempt interest. (See Doc. 60 at 8-9). The Government supported its application with an affidavit completed by Department of Justice Investigator Mitchell Blum and outside Civil Investigator Mary Vanatta. (See Doc. 60-5 at 1). The Motion for Joinder sought to joinJoan Harley, Wright, and Meddex as named debtor-defendants. (See Doc. 61 at 1-2). In a single ex parte Order dated August 16, 2018, United States Magistrate Judge Thomas B. Smith granted the Government's Motion for Joinder and its Application for Prejudgment Remedies. (See Doc. 62). The Order instructed the Clerk of the Court to issue notices of Writs of Attachment and Garnishment.

On August 24, 2018, the Government filed its Amended Complaint in Intervention (Doc. 66), naming Joan Harley, Wright, and Meddex as additional defendants. On September 7, 2018, the United States Marshals Service executed the Writs of Attachment and Garnishment. (See Doc. 72). Defendants now seek to quash and dissolve those writs. Defendants argue that the writs must be dissolved because the Government failed to comply with the relevant statutory and constitutional requirements. The Government disagrees.

Defendants sought an expedited hearing pursuant to 28 U.S.C. § 3101(d)(2). At the hearing, Defendants called Investigator Blum, Joan Harley, Wright, and Alan Harley. The Government cross-examined these witnesses and presented documentary evidence. The Government also called Investigator Blum. At the conclusion of the hearing, the Court took the matter under advisement.

B. Factual Background

Because this is a unique case with constitutional implications, a recitation of the relevant facts is appropriate. CMSI, which is owned by Alan Harley, is a limited liability company that "provides surgical dressings, durable medical equipment (DME), or other Medicare reimbursable items to patients." (Doc. 66 at 4). Meddex, which was previously owned by Alan Harley but is now owned by Wright, is also a limited liability company that "provides surgical dressings, DME, or other Medicare reimbursable items to patients." (Id.at 5). Alan Harley is the "managing member of and operates CMSI, [while] Wright is the managing member of and operates Meddex." (Id. at 1). At the hearing, Wright testified that he had worked close to full time at CMSI, receiving $10,000 a month in compensation. Joan Harley is Alan Harley's wife, and she allegedly was a manager at CMSI until around January of 2016. She also managed ATH investments.³ (See id. at 4, 24-25).

The Government alleges that since 2009, "CMSI, through Alan Trent Harley, has been submitting inflated billing for surgical dressing, DME, or other healthcare items that include upcoded wound care supplies or wound care supplies that were not provided to patients in order to receive inflated and ineligible payments from the United States." (Id. at 8). The Government based this allegation on interviews with "multiple then-current and former employees of CMSI" and a review of documentary evidence. (Id.). Because of this suspected fraud, the Center for Medicare and Medicaid Services (CMS)⁴ "initiated a payment suspension, including a targeted prepayment review of suspect codes." (Doc. 60-5 at 7). When a Medicare provider like CMSI is under a payment suspension, any claims submitted by the company for payment are not disbursed directly into the company's bank account. Rather, as Investigator Blum explained at the hearing, that payment is placed in an escrow account and held while Medicare investigates the alleged fraud. Here, CMS placed CMSI on payment suspension on February 6, 2018. Harley testified that he was notified of that suspension on February 20, 2018.

On February 21, 2018, the Harleys transferred ownership of Meddex to Wright through ATH. (See id.). At the hearing, the parties vigorously debated the circumstances surrounding this transaction. Defendants paint this transaction as a "bona fide, [arm's]-length transaction." (Doc. 79 at 11). Alan Harley stated in his affidavit that after negotiation, Wright offered him a $150,000 promissory note in exchange for ownership of Meddex. (See Doc. 79-1 at 8). Wright stated in his affidavit that he valued Meddex based on his experience in the medical supply field. As discussed at the hearing, after this alleged negotiation and valuation, Alan Harley and Wright executed a purchase agreement that called for quarterly payments of $13,337.00 with the first payment due on May 21, 2018. However, Alan Harley testified at the hearing that he had yet to receive a payment from Wright.

The Government, on the other hand, paints this transaction as a quick, under-the-table deal between two longtime business partners aimed at circumventing CMSI's payment suspension and allowing Meddex to operate as CMSI's alter ego.⁵ In support of this contention, the Government points to a number of facts, including: (1) that CMSI and Meddex listed the same phone number in their official state of Florida records; (2) that Wright's email address contained the web address for CMSI; (3) that Meddex's physical address was, prior to CMSI's relocation, the same as CMSI's physical address; (4) that CMSI and Meddex are listed together on official service authorization forms given topatients; (5) that Meddex submitted to Medicare a voided check listing a CMSI bank account on its application for an electronic funds transfer authorization; (6) that 436 beneficiaries billed for services by CMSI before the imposition of the CMSI payment suspension were billed by Meddex after the imposition of that suspension; (7) that prior to the CMSI payment suspension, CMSI was billing Medicare hundreds of thousands of dollars a month for supplies and Meddex was billing nothing, whereas after the suspension, CMSI's monthly billing reduced to zero and Meddex's increased to hundreds of thousands of dollars; and (8) that Meddex was sold for a $150,000 promissory note but then began billing Medicare hundreds of thousands of dollars per month. (See Doc. 60-5 at 8-10, 15-16, 18-20; see also Doc. 79-1 at 8).

Alan Harley's responses to the Court's questioning at the hearing further corroborate the suggestion that ill motives pervaded this transaction. Alan Harley testified that: (1) he learned of the CMSI payment suspension one day and sold Meddex the next; (2) he did not advertise Meddex as for sale; (3) he did not talk to any other potential purchasers besides Wright; (4) he did not seek an evaluation of the business's worth from a third party; (5) he neither met with nor hired an attorney to handle the sale of Meddex; (6) no attorney attended the closing of the sale or reviewed the sale documents prior to the closing; (7) he does not recall the length of the purchase agreement; (8) he does not know whether the contract contained any provisions for accounts receivable and payable or whether it contained a provision governing the transfer of personal property; (9) he does not know the interest rate on the promissory note; (10) he has not received any payments fromWright pursuant to the promissory note; and (11) Medicare pays about 70% of what is billed and a company receives on average about 70-80% of the amount Medicare disburses.⁶

After the sale, Meddex billed Medicare and received disbursements for three months. However, Wright testified at the hearing that CMS imposed a payment suspension on Meddex on June 1, 2018. Presumably, this payment suspension operates similarly to the suspension imposed upon CMSI. Investigator Blum testified that despite the suspension, Medicare inadvertently disbursed around $140,000 to Meddex in July of 2018—one month after the imposition of the payment suspension. On September 7, 2018, the Government served the Writs of Attachment and Garnishment on all Defendants. Investigator Blum testified that the inadvertent disbursement went into the Meddex bank account that is subject to the Writ of Garnishment. But at the time the answer to the Writ of Garnishment...