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United States of America and The State of California v. North East Medical Services, Inc.

United States District Court, N.D. California, San Francisco Division

January 13, 2015

UNITED STATES OF AMERICA and the STATE OF CALIFORNIA, ex rel. TRINH and HSU, Plaintiffs,
v.
NORTH EAST MEDICAL SERVICES, INC., Defendant. NORTH EAST MEDICAL SERVICES, INC., Plaintiff,
v.
CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, et al., Defendants.

ORDER ENFORCING SETTLEMENT Re: ECF No. 189 Re: ECF No. 112

LAUREL BEELER, Magistrate Judge.

INTRODUCTION

The United States and the state of California move to enforce an oral settlement in the captioned cases that the parties reached in open court. The parties were unable to then reduce that settlement to writing. The issue is whether the parties' oral settlement agreement is enforceable, which turns on whether there was an unfulfilled condition precedent to the agreement that the defendant receive a "comprehensive release" of "any and all [federal] administrative claims or actions"? NEMS argues that the condition was not satisfied and that there thus is no agreement.

The court retained jurisdiction when the parties put their agreement on the record, and the parties also consented separately to the undersigned's jurisdiction to hear the motion to enforce. ( See ECF No. 189-11 at 11 & 14; ECF No. 220.)[1] For the reasons stated below, the court finds that the parties' settlement agreement is enforceable on the terms previously put into the record. It accordingly grants the plaintiffs' motion.

STATEMENT

I. BACKGROUND

The relators commenced a qui tam action against North East Medical Services, Inc. ("NEMS") in 2010 (case 10-1904), alleging, among other things, that NEMS knowingly underreported revenue that it received from Medi-Cal managed-care plans in order to artificially inflate supplemental payments it received directly from Medi-Cal. (ECF No. 1.) The federal and California governments investigated these allegations, intervened in the qui tam action, and filed an Amended Complaint in intervention. (ECF Nos. 17, 25, 26.) For its part, NEMS has filed two separate lawsuits against California (cases 10-2433 and 12-2895) alleging that aspects of the State's process for reimbursing federally qualified healthcare clinics violate federal law. The court related the three actions, and case 12-2895 was slated for trial along with the qui tam case (10-1904). The court later granted summary judgment for the state defendants in 10-2433. NEMS filed a notice of appeal in the 10-2433 case.

II. THE SETTLEMENT

On August 28, 2014, the parties engaged in settlement negotiations mediated by the undersigned. (ECF No. 166.) In these discussions NEMS was represented by its counsel and by its CEO, Eddie Chan. The parties reached an agreement in principle to resolve all three cases. Mr. Chan stated that he would convene NEMS's board of directors that evening to obtain authority for the settlement agreement. The following day, NEMS notified the plaintiffs and the court that the Board had approved the agreement in principle. On September 3, 2014, the court held a telephone conference with the parties to discuss the contours of the settlement agreement. (ECF 169.)

On September 4, 2014, the parties and their counsel settled the cases and entered the settlement agreements on the record. (ECF Nos. 170, 189-1 (transcript).) The parties and counsel who were present with settlement authority were as follows:

10-1904 and 10-2895 Cases
For the United States: Ila Deiss and Melanie Proctor from the U.S. Attorney's Office, Meredith Tool from the U.S. Department of Justice ( id. at 5).
For the state of California: David Songco, Deputy Attorney General ( id. at 8).
Relator: James Diamond, attorney for relators ( id. at 9).
NEMS: James Feldesman, Matthew Freedus, and Marissa Guevara (counsel); Eddie Chan, CEO, NEMS ( id. at 3).
10-2433 (Medicare Part D) Case
State of California: Joshua Sondheimer (California DHCS) and Hadara Stanton, Deputy Attorney General ( id. at 10).
NEMS: same as in previous section

A. The Settlement Terms For the 10-1904 and 10-2895 Cases

1. A monetary payment by NEMS, for an amount kept confidential here, including 2.37% interest from September 26, 2014. (ECF No. 189-1 at 11.)

2. The court would retain jurisdiction over the settlement agreement notwithstanding subsequent dismissals. ( Id. ) The court also noted that it was "retaining... jurisdiction over the settlement agreement to give everybody some comfort about the orderly process of this [meaning, the process described in the transcript for the points that follow]...." ( Id. at 11, 14.)

3. The settlement was contingent on NEMS's "resolution of its federal administrative remedies [essentially, whether or not the U.S. Department of Health and Human Services ("HHS") would require a corporate-integrity agreement ("CIA")] with Nancy Brown at HHS, a process that the parties anticipate will take a couple of weeks." ( Id. at 11.)

4. NEMS and the California Department of Health Care Services ("DCHS") agreed to implement an auditing process, including auditors for both sides, to establish governing standards on how NEMS reports revenue for wraparound purposes for open and future years. ( Id. at 11-12.)

5. The agreement would be reduced to writing, and that final settlement agreement would require approval by the government parties' respective governing bodies: Main Justice and the U.S. Attorney's Office for the federal government, and the ordinary approval process for the State's settlement agreements. ( Id. at 12.)

6. The settlement agreement in the qui tam case (10-1904) would be a standard False Claims Act settlement agreement. ( Id. at 12.) NEMS was "aware of that settlement agreement and its release statement [] and the extent of the release." ( Id. )

7. The settlement would not address the relators' attorney's fees or any of the relators' non-intervened claims. ( Id. at 12-13.) The contemplation was that those issues would be the "subject of a separate negotiation... [with] the hope that it will be [finalized in the same time line that we have allocated to the finalizing of the federal administrative remedies [with Nancy Brown]." ( Id. )

8. Cases 10-1904 and 12-2895 case would be dismissed with prejudice. ( Id. at 13.)

9. Because the scope of the settlement of the 10-1904 case covered only years 2001 to 2008, the United States Attorney would provide a "cold comfort letter" to NEMS in the 10-1904 case to cover the years 2009-2010, and with respect to those years, the dismissal would be without prejudice. ( Id. at 13-14.)

The court stated on the record that these settlement terms would be in return for dismissal of the 10-1904 and 10-2895 cases with prejudice (again subject to the approval of the settlement agreement by the governing bodies for the federal and state agencies involved). ( Id. at 13.) The court asked NEMS's attorney whether it had recited the all the terms of the settlement agreement as to the 10-1904 and 10-2895 cases. ( Id. at 14.) NEMS' counsel asked for 30 seconds "just to make certain we covered all the points we wanted to." ( Id. at 14.) After that short break, counsel responded, "Judge, we're - we're good with it." (Id. at 15.) At the government's request, the court stated the usual process, which is that the United States would file the dismissal only after it was paid the settlement amount. ( ...


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