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United States Ex Rel. Sharman Wood v. Family Healthcare Network

December 20, 2010

UNITED STATES EX REL. SHARMAN WOOD,
PLAINTIFF,
v.
FAMILY HEALTHCARE NETWORK, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION REGARDING MOTION TO DISMISS (Doc. 58)

I. INTRODUCTION.

Plaintiff Sharman Wood ("Plaintiff") proceeds with this action pursuant to the False Claims Act on behalf of the United States. Plaintiff filed the complaint on May 11, 2007. (Doc. 1).

Defendants filed a motion to dismiss the complaint on August 27, 2010. (Doc. 58). Plaintiff filed opposition to the motion to dismiss on October 15, 2010. (Doc. 63). Defendants filed a reply on October 25, 2010. (Doc. 64).

II. FACTUAL BACKGROUND.

Family HealthCare Network ("FHCN") is a private health care center that provides primary care services at clinical facilities located throughout Tulare County in California. (Comp. at 2, 5). Defendant Harry L. Foster ("Foster") was the President and Chief Executive Officer ("CEO") of FHCN at all times relevant to the complaint. (Comp. at 6). Defendant Tony M. Weber ("Webebr") was the Chief Financial Officer ("CFO") of FHCN at all times relevant to the complaint. (Comp. at 6).

On February 23, 2003, FHCN submitted an application for an Expanded Medical Capacity grant to the Health Resources and Services Administration ("HRSA"), an agency of the United States Department of Health and Human Services ("HHS"). (Comp. at 7, 8). FHCN's February 2003 grant application requested funds for expanding the staff and extending the operating hours at FHCN's clinic in Ivanhoe, California. (Comp. at 15). On August 8, 2003, FHCN was awarded a grant in the amount of $1,980,000.00 ("Ivanhoe grant") based on the information provided in its February 2003 grant application. (Comp. at 9). FHCN submitted a second grant application to the HRSA on April 29, 2003 seeking funds to hire additional staff needed to establish a new FHCN clinic in Goshen, California. (Comp. at 8, 15). On September 21, 2003, FHCN was awarded a grant in the amount of $4,200,833.00 ("Goshen grant") based on the information provided in its April 2003 grant application. (Comp. at 9).

Foster and Webber provided proposed staffing and budget figures included in the Ivanhoe and Goshen grant applications. (Comp. at 15). Both the Ivanhoe and Goshen grant applications represented that additional staff were needed, that recruitment for the positions proposed in the grant applications was underway, and that all proposed positions would be filled within ninety days of a grant award. (Comp. at 17-18). The complaint alleges that at the time FHCN submitted the Ivanhoe and Goshen grant applications, Foster and Webber did not intend to hire the staff proposed staff and knew the proposed staff would not be hired. (Comp. at 15, 21, 22). The complaint also alleges that when FHCN submitted progress reports in connection with the Ivanhoe and Goshen grants, Defendants knew that data presented in the reports unduly inflated the number of "new users" serviced at the clinics. (Comp. at 26).

III. LEGAL STANDARD.

Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1990). To sufficiently state a claim to relief and survive a 12(b) (6) motion, the pleading "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Mere "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Id. Rather, there must be "enough facts to state a claim to relief that is plausible on its face." Id. at 570. In other words, the "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, --- U.S. ----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted).

The Ninth Circuit has summarized the governing standard, in light of Twombly and Iqbal, as follows: "In sum, for a complaint to survive a motion to dismiss, the nonconclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal quotation marks omitted). Apart from factual insufficiency, a complaint is also subject to dismissal under Rule 12(b)(6) where it lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or where the allegations on their face "show that relief is barred" for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007).

In deciding whether to grant a motion to dismiss, the court must accept as true all "well-pleaded factual allegations" in the pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, however, "required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.2001). "When ruling on a Rule 12(b)(6) motion to dismiss, if a district court considers evidence outside the pleadings, it must normally convert the 12(b)(6) motion into a Rule 56 motion for summary judgment, and it must give the nonmoving party an opportunity to respond." United States v. Ritchie, 342 F.3d 903, 907 (9th Cir.2003). "A court may, however, consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice-without converting the motion to dismiss into a motion for summary judgment." Id. at 908.

IV. DISCUSSION.

A. Count I: False Claims Act Sections ...


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