United States District Court, E.D. North Carolina, Western Division
UNITED STATES OF AMERICA and THE STATE OF NORTH CAROLINA, EX REL.STEPHEN GUGENHEIM, Plaintiff,
MERIDIAN SENIOR LIVING, LLC, et al, Defendants.
TERRENCE W. BOYLE UNITED STATES DISTRICT JUDGE
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.
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. 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.
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.
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
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)
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).
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
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).
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 ...