The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District
Re: Plaintiff's Motion for Partial Summary Judgment
On June 2, 2000, the United States brought this civil action
against defendants St. Luke's Subacute Hospital and Nursing
Centre, Inc. and Guy Seaton (collectively "defendants"), alleging
violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33,
and of the common law in connection with cost reports that
defendants submitted to Medicare. Now before the court is the
United States' motion for summary adjudication as to the issue of
defendants' liability under the FCA. Having considered the
arguments presented and for the reasons stated below, the court
enters the following memorandum and order.
This action arises out of a scheme to defraud Medicare by
inflating reimbursable nursing hours at defendants' care facility
and providing falsified documentation to federal auditors in
order to support such false claims. At all times relevant to the
allegations in the United States' complaint, defendant St. Luke's
Subacute Hospital and Nursing Centre, Inc. ("St. Luke's")
operated a nursing facility located in San Leandro, California.
Defendant Guy Seaton served as St Luke's chief executive officer
("CEO"). As a "subacute facility," St. Luke's provided care to patients
with severe illness or injury who required more intensive
services than ordinary nursing care could provide but did not
require hospital acute care. See Cal. Admin. Code Title 22, §
51124.5. St. Luke's received compensation from the Medicare
program for some of the cost of providing services to certain
Medicare-eligible patients. In 1995, the Department of Health and
Human Services ("DHS") Office of the Inspector General began an
investigation into allegations that St. Luke's was fraudulently
inflating the cost of the nursing services that it provided to
Medicare beneficiaries. This investigation revealed evidence of
an unusually high allocation of nursing costs to Medicare
patients and fabricated nursing schedules to support defendants'
fraudulent claims for reimbursement.
A. The Related Criminal Action
Based on the finding of the DHS investigation, a grand jury
returned a six count indictment against both defendants on May 8,
2002. Winslow Decl., Exh. 2 (hereinafter "Indictment"). The
indictment charged defendants with conspiracy to defraud the
Medicare program in violation of 18 U.S.C. § 371 (Count 1), three
counts of submitting false Medicare claims in violation of
18 U.S.C. § 287 (Counts 2-4), knowingly and willfully making false
statements to Medicare auditors in violation of 18 U.S.C. § 1001
(Count 5), and obstructing a federal audit in violation of
18 U.S.C. § 1516 (Count 6). Among other things, the indictment
alleged that defendants misrepresented the level of nursing care
provided to Medicare patients in support of false claims for
direct nursing services costs incurred in 1996, 1997, and 1998.
Indictment ¶¶ 10, 14(a)-(c). These claims were subsequently paid
by Mutual of Omaha, a fiscal intermediary acting on behalf of the
Medicare program. See Winslow Decl., Exh. 1 at 1277-78
(Testimony of Charles Potter). The United States also alleged
that defendants fabricated payroll reports and time cards by
designating certain employees as working exclusively with
Medicare patients when in fact these employees also provided care
to non-Medicare eligible patients. Id. ¶¶ 11-12.
On December 19, 2002, a jury found defendants guilty on all
counts charged. Winslow Decl., Exh. 6. The court entered
judgments of conviction against both defendants on June 9, 2004.
Id., Exhs. 3-4. Defendants' appeal of their conviction is
currently pending before the Ninth Circuit. Defendants also
continue to be involved in proceedings before the Medicare
Provider Reimbursement Board ("PRRB") for the purpose of determining the
amount of damages sustained by the United States.
B. The United States' Civil Claims
On June 2, 2000, the United States filed the instant civil
action against defendants under the FCA, 31 U.S.C. § 3730(a). The
allegations, now set forth in the United States' amended
complaint filed on April 21, 2000, arise from the same series of
transactions that led to defendants' criminal convictions. As in
the criminal action, the United States alleges that defendants
fraudulently inflated labor costs incurred in caring for Medicare
patients and that in seeking reimbursement for these costs, they
submitted false and fraudulent claims to the Medicare program.
Pl.'s First Amended Compl. (hereinafter "FAC") ¶ 19. Based on
these allegations, the amended complaint pleads three violations
of the FCA, asserting that defendants: (1) knowingly submitted
false claims for payment to the United States in violation of
31 U.S.C. § 3729(a)(1); (2) conspired to defraud the United States
in violation of 31 U.S.C. § 3729(a)(3); and (3) knowingly made
false statements to the United States in violation of
31 U.S.C. § 3729(a)(2). Id. ¶¶ 23-28. The complaint also alleges state law
causes of action for payment by mistake, unjust enrichment, and
breach of contract. Id. ¶¶ 29-34.
On March 6, 2001, the court ordered that proceedings in the
civil action be stayed pending the resolution of the criminal
proceedings against defendants. The stay remained in place until
October 12, 2004, when the court granted the United States'
motion to lift the stay in order to allow the United States to
move for summary adjudication on the issue of defendants'
liability under the FCA. That motion is now before the court. The
United States argues that the entry of a final judgment in the
criminal action estops defendants from denying that they are
liable for civil damages and statutory penalties under the FCA.
The court addresses this argument below.
Summary judgment is proper when the pleadings, discovery, and
affidavits show that there is "no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law." Fed.R.Civ.P. 56(c). Material facts are
those which may affect the outcome of the proceedings. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as
to a material fact is genuine if there is sufficient evidence for a reasonable
jury to return a verdict for the nonmoving party. Id. The party
moving for summary judgment bears the burden of identifying those
portions of the pleadings, discovery, and affidavits that
demonstrate the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On an issue
for which the opposing party will have the burden of proof at
trial, the moving party need only point out "that there is an
absence of evidence to support the nonmoving party's case." Id.
Once the moving party meets its initial burden, the nonmoving
party must go beyond the pleadings and, by its own affidavits or
discovery, "set forth specific facts showing that there is a
genuine issue for trial." Fed.R.Civ.P. 56(e). Mere allegations
or denials do not defeat a moving party's allegations. Id.;
see also Gasaway v. Northwestern Mut. Life Ins. Co.,
26 F.3d 957, 960 (9th Cir. 1994). The court may not make credibility
determinations, Anderson, 477 U.S. at 249, and inferences drawn
from the facts must be viewed in the light most favorable to the
party opposing the motion. Masson v. New Yorker Magazine,
501 U.S. 496, 520 (1991). Nonetheless, even if summary adjudication
of an entire claim is not warranted, Federal Rule of Civil
Procedure 56(d) allows a court to ...