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United States v. Meridian Senior Living, LLC

United States District Court, E.D. North Carolina, Western Division

March 22, 2018




         This cause comes before the Court on defendants' motion to dismiss and motion to stay discovery. The appropriate responses and replies have been filed, and a hearing was held on the matters before the undersigned on December 20, 2017, at Raleigh, North Carolina. In this posture, the motions are ripe for ruling. For the reasons that follow, defendants' motions are denied.


         Stephen Guggenheim, plaintiff and relator, brought this action under the False Claims Act (FCA), 31 U.S.C. § 3729, et seq., as amended and N.C. Gen. Stat. § 1-605, et seq., (NC FCA) to recover damages and civil penalties on behalf of the United States and the State of North Carolina for violations of the FCA and NC FCA with respect to submissions of and reimbursements for false claims to North Carolina's Medicaid Program, specifically for the provision of personal care services.[1] Personal care services, or PCS, under the North Carolina Medicaid Program include a range of hands-on assistance to enable individuals accomplish tasks they are unable to perform themselves, and typically include activities such as dressing, bathing, eating, toileting, and mobility. The majority of the forty-nine named defendants are operators of separate adult care homes that provide PCS to elderly residents. Plaintiff alleges that the named defendants, acting in concert, from at least 2010 and past the date of the filing of the complaint, "acted with actual knowledge of the information, and/or with deliberate ignorance and/or reckless disregard for the truth or falsity of the information, and/or with intention to deceive the government intentionally submitted false claims for reimbursement to N.C. Medicaid for [PCS] provided to residents of Defendants' Special Care Units and received reimbursements therefrom." Specifically, plaintiff contends that these false claims relate to reimbursement for PCS provided to Alzheimer's or other similarly situated memory-impaired adult care home Medicaid beneficiaries residing in memory care units, otherwise known as special care units. Plaintiff alleges that the defendants' staffing patterns and scheduling practices make it impossible for defendants to have rendered the required time units of PCS to their qualified Medicaid special care unit residents, or, alternatively, to provide for and meet the PCS needs of the qualified Medicaid special care unit residents as assessed. See [DE 26] Amd. Cmpl.

         In their motion to dismiss, defendants argue that the complaint does not plead a violation of the FCA or NC FCA with particularity as required by Fed.R.Civ.P. 9(b), the complaint does not state a claim upon which relief may be granted, and that the Court lacks subject matter jurisdiction over the NC FCA claims which should therefore be dismissed.


         Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a claim for lack of subject matter jurisdiction. When subject matter jurisdiction is challenged, the plaintiff has the burden of proving jurisdiction to survive the motion. Evans v. B.F. Perkins Co., 166 F.3d 642, 647-50 (4th Cir. 1999). "In determining whether jurisdiction exists, the district court is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). A Rule 12(b)(6) motion tests the legal sufficiency of the complaint. Papasan v. Allain, 478 U.S. 265, 283 (1986). When acting on a motion to dismiss under Rule 12(b)(6), "the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff." Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). A complaint must allege enough facts to state a claim for relief that is facially plausible. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Facial plausibility means that the facts pled "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged, " and mere recitals of the elements of a cause of action supported by conclusory statements do not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint must be dismissed if the factual allegations do not nudge the plaintiffs claims "across the line from conceivable to plausible." Twombly, 550 U.S. at 570.

         Federal Rule of Civil Procedure 9(b) imposes a heightened pleading standard for fraud or mistake, requiring a party to "state with particularity the circumstances constituting fraud or mistake, " but allowing state of mind to be pled generally. Fed R. Civ. P. 9(b). Courts generally refer to this as the "who, what, when, where, and how" of the alleged fraud. United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008). However, while claims of fraud or mistake do have a heightened pleading standard, "[a] court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) (Harrison).

         To prevail on a claim under the FCA, a plaintiff must demonstrate that (1) defendant made a false statement or engaged in a fraudulent course of conduct; (2) the statement or conduct was carried out with the requisite scienter; (3) the statement or conduct was material; and (4) the statement or conduct caused the government to pay money or forfeit money due and owing. United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 913 (4th Cir. 2003) (Harrison II). The focus of the FCA is on those who present or directly induce the submission of false or fraudulent claims, and the FCA's "scienter requirement defines 'knowing" and "knowingly' to mean that a person has 'actual knowledge of the information, ' 'acts in deliberate ignorance of the truth or falsity of the information, ' or 'acts in reckless disregard of the truth or falsity of the information.'" Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1996 (2016) (internal citations omitted).

         Having considered the first amended complaint in light of the applicable standards, the Court finds that plaintiff has stated claims upon which relief can be granted and satisfied the heightened pleading requirements of Rule 9(b). Plaintiff alleges that each of the defendants implemented the same fraudulent scheme to defraud Medicaid pursuant to a policy directed by Charles Trefzger, who is alleged to be the member manager of all forty-eight LLC defendants that have been named in the first amended complaint. [DE 26] Amd. Cmpl. ¶¶ 18-67. Plaintiff has identified specific applicable PCS reimbursement policies which defendants have violated. See 10A N.C. A.C. 13 A. 13 08(a). Plaintiff has alleged that the fraudulent conduct took place from 2010 through at least the date of the complaint, and that the false claims were submitted regularly and continuously. While plaintiff has not identified the specific date of each allegedly false claim, he is not required to do so at this stage, but rather need allege only enough that the Court is satisfied that defendants are aware of the particular circumstances and that plaintiff has sufficient prediscovery evidence of the facts. Harrison, 176 F.3d 184.

         Plaintiff has further sufficiently alleged how the fraudulent scheme perpetrated by defendants was carried out. Plaintiff contends that during the time periods alleged, defendants maintained the minimum number of staff, or fewer, to comply with state licensing requirements, and that it would not be possible for that number of staff to provide the maximum number of assessed hours to their special care unit residents, as was submitted by defendants to Medicaid for reimbursement. Plaintiff has identified the forms which defendants falsely certified and gave examples of false submissions made by one of the defendant-entities, Woodhaven Court. See [DE 26] Amd. Cmpl. ¶¶ 129 - 152. Plaintiff has identified an executive at defendant Meridian Senior Living Group who allegedly stated that, "irrespective of how much time we spend caring for that resident" defendants bill the state for the total number of hours of PCS for which the resident is approved. Id. f 144. Plaintiff has sufficiently identified the who, what, where, when, and how of the defendants' alleged fraud, and "his allegations pass Rule 9(b) muster." Smith v. Clark/Smoot/Russell, 796 F.3d 424, 433 (4th Cir. 2015).

         Defendants further argue the FCA's public disclosure bar serves as a basis for dismissal of plaintiff s claims. "The public-disclosure bar aims 'to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits' in which a relator, instead of plowing new ground, attempts to free-ride by merely reiterating previously disclosed fraudulent acts." United States ex rel. Beauchamp v. Academi Training Ctr., 816 F.3d 37, 43 (4th Cir. 2016) (citation omitted). After revision in 2010, the FCA's public disclosure bar now provides that

(4)(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed-
(i) in a Federal criminal, civil, or administrative hearing in which the Government or ...

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