United States of America ex rel. Cornelius Harris et al. v. Dialysis Corporation of America (Maryland U.S.D.C.)

Filed:  October 2, 2013

Opinion by Judge James K. Bredar

Held:  Relators brought four claims alleging Defendant violated the False Claims Act (“FCA”).  The Court held that Relators stated one viable claim for relief for Defendant’s alteration of Body Mass Index (“BMI”) numbers  in relation to Defendant’s billing the U.S. government for medical claims because BMI information was material to the Government’s payment approval decisions.  Relators’ three other claims were dismissed for failure to state a claim upon which relief can be granted or lack of subject-matter jurisdiction.

Facts:  Relators Harris and Boonie worked for Defendant Dialysis Corporation of America ("DCA") for approximately one year and both former employees’ responsibilities related to billing. 

In their suit against DCA Relators alleged Defendant violated four provisions of the FCA, 31 U.S.C. §3729 et seq. by knowingly presenting false or fraudulent claims for payment or approval to the Government, knowingly making false records or statements to get false or fraudulent claims paid or approved by the Government, conspiring to defraud the Government by getting false or fraudulent claims paid, and knowingly making false records or statements to conceal, avoid, or decrease obligations to pay the Government.  Specifically, Relators alleged Defendant altered Social Security numbers on medical claims, changed patients’ BMI numbers on medical claims, overbilled for Epogen, and overbilled D.C. and Ohio Medicaid.

Defendant moved to dismiss the Relators' complaint under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.  Defendant’s motion to dismiss was granted in part and denied in part.

Analysis:  The Court first analyzed Relators’ allegation that Defendant altered Social Security numbers on Medicare claims.  The Court examined whether the alleged inaccuracy of the Social Security numbers was material to the Government’s decision to pay for or approve the claims, because the governing standard in the Fourth Circuit at the time this case was filed required a false statement to be material to the Government’s payment approval decision.  UnitedStates ex rel. Berge v. Bd. Trs., Univ. of Ala., 104 F.3d 1453, 1459-60 (4th Cir. 1997).  A false statement is “material” in the context of FCA claims if it “has a natural tendency to influence agency action or is capable of influencing agency action.”  Id. at 1460.  Since the Government relies on information other than just Social Security numbers to process Medicare claims, the Court found no plausible inference that inaccurate Social Security numbers were capable of influencing agency action.  The Court could not infer that Defendant made false, material statements to the Government in violation of the FCA, and therefore Relators’ allegations as to Social Security numbers failed to state a claim under Rule 12(b)(6).

The Court then investigated Relators’ claim that Defendant changed patients’ BMI numbers on medical claims in order that patients would qualify for Medicare reimbursement for excess dialysis treatments.  Relators stated that on multiple occasions, they personally observed Defendant enter the billing system and alter BMI numbers without the proper physician authentication.  Because a patient’s BMI number must be above a certain threshold for excess dialysis treatments to qualify for Medicare reimbursement, the Court found that these false statements were material and Relators stated a valid claim upon which relief could be granted.

Next, the Court analyzed Relators’ claim that Defendant overbilled for Epogen.  The Court found that this claim failed under both Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6).  The claim failed under Rule 12(b)(1) because the first-to-file bar contained in the False Claims Act prevents bringing false claims actions related to civil actions for false claims already filed.  31 U.S.C.A. 3730(b)(5).  The Fourth Circuit follows a “same material elements” test when considering whether a fraud claim is barred under the first-to-file bar.  United States ex rel. Carter v. HalliburtonCo., 710 F.3d 171, 181-82 (4th Cir. 2013).  This claim failed because when Relators’ claim was filed, another case against Defendant was before the Court alleging the same material elements for overbilling of Epogen.

Finally, the Court considered the claim that Defendant overbilled D.C. and Ohio Medicaid.  Because Relators did not allege this fraud claim with particularity, the claim failed to meet the pleading standards of Rule 9 (b) and was dismissed.

The full opinion is available in PDF here.

Schelhaus v. Sears Holding Co. (Maryland U.S.D.C.)

Filed: December 3, 2009
Opinion by Judge J. Frederick Motz

Held: Plaintiff’s complaint against employment agency and former employer claiming that reporting the reason for the plaintiff's prior termination to a new employer violated the Fair Credit Reporting Act was sufficient to survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6).

Facts: Plaintiff was an employee in a Sears department store until he was fired for “award fraud” for giving a discount to a customer, giving away a power cord to an appliance, and taking other actions to improperly garner benefits under a sales program. The plaintiff made a written statement to Sears security personnel admitting to this conduct but contended that his supervisors knew and approved of his conduct.

Following his termination from Sears, the plaintiff was hired by a new employer. The new employer conducted a background check on the plaintiff by contacting the employment agency for information. Sears had previously sent a report to the employment agency indicating the reasons for the plaintiff’s dismissal. The agency told the new employer that the plaintiff was fired for committing award fraud. The new employer then fired the plaintiff.

The plaintiff complained to the employment agency, challenging the veracity of his employment history report. The employment agency asked Sears to provide all information supporting the report of a termination for award fraud. In response, Sears provided the employment agency with the plaintiff's written statement admitting to the conduct. The employment agency then told the plaintiff that it had deleted all information from his employment record that had not been verified. The plaintiff later discovered that his employment record remained unaltered, including the allegations of award fraud, and filed suit against Sears and the employment agency.

Both defendants moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

Analysis: The Fair Credit Reporting Act (FCRA) imposes investigation obligations on those who learn that information they have furnished to credit reporting agencies is inaccurate. Further, a consumer reporting agency violates the FCRA if (1) the consumer report contains inaccurate information and (2) the reporting agency did not follow reasonable procedures to assure maximum possible accuracy.

The plaintiff alleged that Sears violated the FCRA because it failed to conduct an investigation into the veracity of the conclusion that the plaintiff committed award fraud, failed to provide the employment agency with information supporting its report, and then failed to amend its initial report of award fraud.

The plaintiff alleged that the employment agency violated the FCRA because it failed to follow reasonable procedures to assure the maximum possible accuracy of Sears’ report when it did not conduct an independent evaluation, possessed no supporting documentation at the time of its report to the new employer, ultimately failed to review any foundation for Sears’ report, and failed to conduct a reasonable investigation to determine whether the disputed information was accurate.

The defendants argued that the plaintiff’s written statement admitting to the alleged fraudulent conduct precluded the plaintiff from bringing actions against them under the FCRA.

The Court held that the plaintiff’s written statement to Sears security personnel did not preclude the plaintiff from raising plausible FCRA claims . The Court noted that while the plaintiff admitted to certain conduct in his written statement, he also contended that he acted with managerial knowledge and supervision. Without details of Sears’ policies and procedures and any definition of “award fraud” the Court could not find that the plaintiff’s claims were deficient.

The full opinion is available in PDF.

Federal Trade Commission v. Innovative Marketing, Inc. (Maryland U.S.D.C.)

Filed September 16, 2009
Opinion by Judge Richard D. Bennett

Held: Under the recently articulated Iqbal "plausibility" standard, the FTC sufficiently pleaded a cause of action against a corporate officer for personal liability for deceptive marketing practices.

Facts: The FTC sued multiple companies and their officers for marketing software using misleading "scareware" tactics. One officer moved to dismiss for failure to state a claim against him in his individual capacity. Under the FTC Act, upon establishment of corporate liability for deceptive marketing, individual defendants may be held personally liable upon proof that they "participated directly" in the acts or "had authority to control them." In addition, the FTC must prove the individual had some knowledge of the conduct.

Regarding the individual, the FTC alleged that 1) he was a corporate officer, 2) he handled the company's finances and merchant accounts, 3) this was important because of the difficulty maintaining payment processors due to a high rate of chargebacks and complaints, and 4) his credit card was used by another defendant to buy advertising. The court held that these allegations were sufficient to support a claim for personal liability under the Act.

*Concerning the knowledge requirement, the court relied on the defendant's degree of participation in business affairs, the small size of the enterprise, and the breadth of the scheme to infer that he had knowledge.

The full opinion is available in PDF.