Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

United States ex rel. Lupo v. Quality Assurance Services, Inc.

United States District Court, S.D. California

July 26, 2017

UNITED STATES OF AMERICA ex rel. ERIN HAYES LUPO, Plaintiff,
v.
QUALITY ASSURANCE SERVICES, INC., an entity; GLENN RUSSELL DEACON II, an individual; GLENN RUSSELL DEACON, an individual; SUSAN DEACON, an individual; and SHELLY BECKER, an individual, Defendants.

          ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFF/RELATOR'S SECOND AMENDED COMPLAINT; (2) GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO STRIKE PORTIONS OF THE SECOND AMENDED COMPLAINT

          JEFFREY T. MILLER United States District Judge

         Defendants Quality Assurance Services, Inc. (“QAS”), Glenn Russell Deacon II, Glenn Russell Deacon, Susan Deacon, and Shelly Becker (collectively, “Defendants”) move the court to dismiss the second amended complaint (“SAC”) of Relator Erin Hayes Lupo for failure to state a claim. (Doc. No. 29.) In addition, Defendants move to strike portions of the SAC. (Doc. No. 30.) Relator opposes both motions. (Doc. Nos. 31, 32.) The court finds the matters suitable for decision without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the following reasons, the court grants both motions in part and denies both motions in part.

         BACKGROUND

         QAS is a California corporation that contracts to perform inspections and diagnostic testing on medical equipment for hospitals and other health care providers. (Doc. No. 25 ¶¶ 6, 17.) The individual defendants are all shareholders of QAS. (Id. ¶¶ 7-10.) Relator worked at QAS for approximately eight years, including as office manager. (Id. ¶¶ 5, 20.)

         In September 2016, Relator filed a first amended complaint, alleging six counts: (I) substantive violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1); (II) conspiracy to violate the FCA, id. § 3729(a)(3); (III) retaliation in violation of the FCA, id. § 3730(h); (IV) retaliation in violation of California Labor Code section 1102.5 (“section 1102.5”); (V) retaliation in violation of California Labor Code section 232.5 (“section 232.5”); and (VI) wrongful termination in violation of California public policy. (See generally Doc. No. 13.) All six counts stemmed from allegations that Defendants falsified medical device inspection reports, which caused the submission of false claims to the government, and that QAS terminated Relator for exposing that activity.

         In February 2017, Defendants filed a motion to dismiss the first amended complaint, (Doc. No. 18), which the court granted in part and denied in part, (Doc. No. 22). Specifically, the court: granted Defendants' motion to dismiss Count I with leave to amend as to Glenn Russell Deacon, Susan Deacon, and Shelly Becker, but denied it as to QAS and Glenn Russell Deacon II; granted Defendants' motion to dismiss Count II with partial leave to amend; granted Defendants' motion to dismiss Count III without leave to amend as to the individual defendants, but denied it as to QAS; granted Defendants' motion to dismiss Count IV without leave to amend as to the individual defendants, but denied it as to QAS; granted Defendants' motion to dismiss Count V with leave to amend; granted Defendants' motion to dismiss Count VI without leave to amend as to the individual defendants, but denied it as to QAS; and granted Defendants' motion to dismiss Relator's prayer for punitive damages, with leave to amend as to Counts IV, V, and VI.

         On April 5, 2017, Relator filed the SAC. (Doc. No. 25.)[1] The SAC omits Relator's previous claim for conspiracy to violate the FCA, but maintains the other counts, adding allegations in a number of places. The crux of the SAC continues to be Defendants' alleged falsification of medical device inspection reports, the submission of false claims to the government, and Relator's termination. Relator now lays out the counts as follows: (I) substantive violations of the FCA, against all defendants; (II) retaliation in violation of the FCA, against QAS; (III) retaliation in violation of section 1102.5, against QAS; (IV) retaliation in violation of section 232.5, against all defendants; and (V) wrongful termination in violation of California public policy, against QAS. Relator again seeks punitive damages, on what are now labeled as Counts III, IV, and V. (See id.)

         After an extension of time to respond to the SAC, Defendants filed the instant motions on May 22, 2017.

         DISCUSSION

         The court will first address Defendants' motion to dismiss before turning to their motion to strike.

         I. MOTION TO DISMISS

         Defendant moves to dismiss each count in the SAC, as well as Relator's request for punitive damages.

         A. Legal Standards

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) challenges the legal sufficiency of the pleadings. Generally, to overcome such a motion, the complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Facts merely consistent with a defendant's liability are insufficient to survive a motion to dismiss because they establish only that the allegations are possible rather than plausible. Id. at 678-79. The court must accept as true the facts alleged in a well-pleaded complaint, but mere legal conclusions are not entitled to an assumption of truth. Id. The court must construe the pleading in the light most favorable to the non-moving party. Concha v. London, 62 F.3d 1493, 1500 (9th Cir. 1995).

         A heightened pleading standard governs FCA claims, however. United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 (9th Cir. 2011). That heightened standard, provided by Federal Rule of Civil Procedure 9(b), requires that the complaint “state with particularity the circumstances constituting fraud or mistake, ” although “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” “Rule 9(b) demands that, when averments of fraud are made, the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal ellipsis omitted). To satisfy Rule 9(b), “[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how' of the misconduct charged.” Id. (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)).

         B. Analysis

         1. Count I: Substantive Violations of the FCA

         a. Relevant Law

         The FCA prohibits the submission of false or fraudulent claims to the United States. Subsection (A) of 31 U.S.C. § 3729(a)(1) imposes liability upon any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval[.]” 31 U.S.C. § 3729(a)(1)(A). Subsection (B) imposes liability upon any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim[.]” Id. § 3729(a)(1)(B). The difference between subsections (A) and (B), then, “is that the former imposes liability for presenting a false claim, while the latter imposes liability for using a false record or statement to get a false claim paid.” Jana, Inc. v. United States, 34 Fed.Cl. 447, 449 (1995).

         To state a claim under subsection (A), Relator must show: “(1) a false or fraudulent claim (2) that was material to the decision-making process (3) which defendant presented, or caused to be presented, to the United States for payment or approval (4) with knowledge that the claim was false or fraudulent.” Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1047 (9th Cir. 2012). To state a claim under subsection (B), Relator must show that Defendants “knowingly made, used, or caused to be made or used, a false record or statement material to a false or fraudulent claim.” Id. Given the “causes to be” language in both subsections, the “FCA reaches ‘any person who knowingly assisted in causing the government to pay claims which were grounded in fraud, without regard to whether that person had direct contractual relations with the government.' Thus, a person need not be the one who actually submitted the claim forms in order to be liable.” United States v. Mackby, 261 F.3d 821, 827 (9th Cir. 2001) (quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 544-45 (1943)).

         b. Defendants' Previous Arguments on this Issue, and the Court's Ruling

         In moving to dismiss the first amended complaint, Defendants focused on Relator's failure to identify any actual claims made to the government. In denying the motion, the court noted that concrete evidence of claims was not required at this stage. Rather, as the Ninth Circuit has held, “it is sufficient to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010) (internal quotations omitted). Given that standard, the court found that the first amended complaint, “even if not artfully drafted, ” met Ebeid's requirements.

First, Relator alleges particular details of a scheme: rather than properly test medical equipment, Defendants produced reports on the performance of medical equipment using falsified data and provided those reports to various health care providers, including government-run institutions. Second, there is convincing reason to infer that this alleged scheme caused claims to be submitted to the government: the various health care providers used the equipment to treat patients and sought reimbursement for that treatment via claims to the government for Medicare and Medicaid funds; but the government would not have made those payments had it known the treatment was rendered on improperly tested and uncertified medical equipment. Through this process, false claims for payment were submitted.

(Doc. No. 22 at 5.)

         In addition, the court ruled that Relator had satisfied Rule 9(b) by giving QAS and Glenn Russell Deacon II “notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess, 317 F.3d at 1106.

         c. Defendants' Current Arguments on this Issue

         Now, in moving to dismiss the SAC, Defendants advance a different theory. In a nutshell, Defendants argue that Relator brings her claims under a “false certification theory” of FCA liability, but fails to plead essential elements of either an “express” or “implied” false certification claim.

         As an initial matter, the court questions whether this portion of Defendants' motion is appropriate and timely with respect to QAS and Glenn Russell Deacon II. As discussed, the court already ruled on Defendants' motion to dismiss Relator's claim that QAS and Glenn Russell Deacon II violated the FCA. That claim was part of Count I in the first amended complaint and it remains a nearly identical part of Count I in the SAC. Defendants could have made their false certification argument in their first motion to dismiss; they did not. The court considered the arguments they did make and denied that portion of the motion. Consequently, this portion of Defendants' motion to dismiss has the air of a motion for reconsideration. See Amaretto Ranch Breedables, LLC v. Ozimals, Inc., No. C 10-05696 CRB, 2011 WL 2690437, at *1-2 (N.D. Cal. July 8, 2011) (summarily denying defendant's motion to dismiss plaintiff's statutory unfair competition claim because order on previous complaint had already addressed it).

         And indeed, Federal Rule of Civil Procedure 12(g) generally prohibits successive motions to dismiss that raise arguments that could have been made in the prior motion. See Fed.R.Civ.P. 12(g)(2) (“Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.”). But one of the exceptions referenced in Rule 12(g) and found in Rule 12(h) is a motion for judgment on the pleadings under Rule 12(c). Thus, if the court did not consider Defendants arguments now, they could simply answer the SAC and make these same arguments in a Rule 12(c) motion. Rather than face that possibility, the court, in order “to secure the just, speedy, and inexpensive determination of this case, ” Fed.R.Civ.P. 1, will rule on Defendants' arguments at this time. See Nat'l City Bank, N.A. v. Prime Lending, Inc., No. CV-10-034-EFS, 2010 WL 2854247, at *2 (E.D. Wash. July 19, 2010) (reaching same decision).

         d. Allegations Against QAS and Glenn Russell Deacon II

         Turning to the merits of Defendants' argument, the court again declines to dismiss Count I as to QAS and Glenn Russell Deacon II. In the court's view, Defendants misunderstand Relator's allegations. Relator does not merely allege that Defendants violated the FCA because they “falsely certifie[d] compliance with a statute or regulation as a condition to government payment, ” as was discussed in United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1171 (9th Cir. 2006). Rather, the allegations, in essence, are that Defendants “knowingly made, used, or caused to be made or used, a false record or statement material to a false or fraudulent claim”-precisely what the Ninth Circuit requires in order to state a claim under 31 U.S.C. § 3729 (a)(1)(B). See Hooper, 688 F.3d at 1047. As the Ninth Circuit has put it, “[i]n an appropriate case, knowingly billing for worthless services or recklessly doing so with deliberate ignorance may be actionable under § 3729, regardless of any false certification conduct.” United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1053 (9th Cir. 2001).

         Put differently, Relator does not have to resort to a false certification theory, because she does premise Count I on explicitly false records-specifically, medical device inspection reports. That makes this case unlike United States v. Todd Spencer M.D. Med. Grp., No. 1:11-CV-1776-LJO-SMS, 2016 WL 7229135 (E.D. Cal. Dec. 14, 2016), which Defendants cite extensively, and in which the relator's claims were “not premised on an assertion that Defendants' claims for payment were ‘explicitly and/or independently false'” and thus “only viable under two doctrines: (1) false certification (either express or implied); and (2) promissory fraud.” See id. at *4 (citing Hendrow, 461 F.3d at 1171).

         Here, Relator specifically alleges that “Defendant Glenn Russell Deacon II has, on numerous occasions, created false, fraudulent reports, and submitted them to the California State Government for payment, as well as hospitals and other medical care providers in return for payment, which payment is funded, in part, by the government through Medicare, Medicaid, MediCal, and Tri-Care.” (Doc. No. 25 at 6, ¶ 21.) And to demonstrate this fraudulent conduct, Relator alleges that Defendants have created identical reports on different equipment, ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.