Campbell, U.S. v. Redding Medical Center

• Decision Date: 22 August 2005
• Docket Number: No. 03-17082.,03-17082.
• Citation: 421 F.3d 817
• Parties: Patrick CAMPBELL, M.D., UNITED STATES of America and State of California ex rel., Plaintiff-Appellant, United States of America, Intervenor-Appellee, v. REDDING MEDICAL CENTER, a California corporation; Tenet Healthcare Corporation, a Nevada corporation; Chae Hyun Moon, M.D.; Thomas Russ, M.D.; Fidel Realyvasquez, M.D.; Tenet Healthsystem Hospitals, Inc., a Delaware corporation; Cardiology Associates of Northern California; Ricardo Moreno-Cabral, M.D., dba Cardiac Thoracic and Vascular Surgery Medical Group, Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

421 F.3d 817

Patrick CAMPBELL, M.D., UNITED STATES of America and State of California ex rel., Plaintiff-Appellant United States of America, Intervenor-Appellee, v. REDDING MEDICAL CENTER, a California corporation; Tenet Healthcare Corporation, a Nevada corporation; Chae Hyun Moon, M.D.; Thomas Russ, M.D.; Fidel Realyvasquez, M.D.; Tenet Healthsystem Hospitals, Inc., a Delaware corporation; Cardiology Associates of Northern California; Ricardo Moreno-Cabral, M.D., dba Cardiac Thoracic and Vascular Surgery Medical Group, Defendants.

No. 03-17082.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 14, 2005.

Filed August 22, 2005.

David Rude, Clark & Rude, San Jose, CA, for the appellant.

Peter D. Keisler, McGregor W. Scott, Michael A. Hirst, Douglas N. Letter and Irene M. Solet, Civil Division, Department of Justice, Washington, D.C., for the appellee.

Appeal from the United States District Court for the Eastern District of California; David F. Levi, District Judge, Presiding. D.C. No. CV-02-02457-DFL.

Before SILVERMAN, WARDLAW, and CLIFTON, Circuit Judges.

SILVERMAN, Circuit Judge.

The False Claims Act provides that "[n]o court shall have jurisdiction" over a qui tam action based on allegations of fraud that already have been publicly disclosed, unless the relator was an "original source" of the information. 31 U.S.C. § 3730(e)(4)(A). In addition, the Act precludes any person from filing a subsequent "related action based on the facts underlying the pending action" when a qui tam action already has been filed. Id. § 3730(b)(5). This is known as the first-to-file bar. The question before us is whether the first-to-file bar prevents the filing of a subsequent related action when the first action is jurisdictionally defective because the relator was not an original source of publically disclosed information. We hold today that it does not. If the first-filed qui tam action was not filed by an original source and is therefore not jurisdictionally cognizable, it does not constitute the first-filed complaint for the purposes of § 3730(b)(5).

I. Factual and Procedural Background

This lawsuit arises out of a scheme involving the performance of thousands of unnecessary invasive cardiac procedures at the Redding Medical Center ("RMC") for the purposes of fraudulently billing Medicare. On October 30, 2002, Magistrate Judge Peter Nowinski issued a medical records search warrant authorizing the FBI to investigate RMC and the medical offices of the defendant doctors. The FBI executed the search warrant at RMC that same day. The U.S. Attorney's Office also released the Search Warrant Affidavit to the public and the press on October 30.

On November 5, 2002, John Corapi, a former RMC patient, and Joseph Zerga, his friend, filed a sealed qui tam complaint pursuant to the False Claims Act, 31 U.S.C. § 3729-3733 ("FCA"), and the California False Claims Act in the United States District Court for the Eastern District of California against RMC; Tenet Healthcare Corporation; Chae Moon, RMC's director of Cardiology; and Fidel Realyvasquez, the Chairman of RMC's Cardiac Surgery Program. The Corapi/Zerga complaint alleged that the defendants had submitted false claims to federal and state medical insurance programs and stated that they had direct and independent knowledge of the facts underlying the complaint and had brought that information to the attention of the United States government. The Corapi/Zerga suit was assigned to Judge William Shubb.

Three days later, on November 8, 2002, Patrick Campbell, a local physician, filed his own complaint under the FCA and the California statute in the same court against the same defendants. Campbell later amended his complaint to accuse the defendants of engaging in a scheme to defraud state- and federally-funded health care insurance programs, including Medicare, Medicaid, and MediCal, by submitting claims for cardiac care that the defendants knew to be medically unnecessary or inappropriate. The complaint alleged that the defendants had performed medically unjustified invasive diagnostic coronary artery imaging tests and then misrepresented the results of these tests to patients so that they would undergo invasive cardiac procedures. Campbell's complaint was assigned to Judge David Levi. The government and Campbell separately filed notices of related cases, but Judge Shubb declined to treat the cases as related.

The United States moved to dismiss Campbell's complaint pursuant to FED. R. CIV. P. 12(h)(3) for lack of subject matter jurisdiction. The government argued that Campbell's action was based on the same facts underlying the Corapi/Zerga complaint and therefore was barred under the FCA's first-to-file bar, 31 U.S.C. § 3730(b)(5).

Campbell argued in response that because Corapi and Zerga were not original sources the district court had no jurisdiction over their action and their suit could not be considered a pending action for the purposes of the first-to-file bar. Campbell asked the district court to assume for the purposes of the motion that the Corapi/Zerga suit would be dismissed for lack of standing. The government responded that it took no position on whether the Corapi/Zerga complaint was jurisdictionally flawed, arguing that, "[t]hat analysis is irrelevant to the issue of whether the Court has subject matter jurisdiction of Campbell's complaint."

The district court granted the government's motion to dismiss Campbell's action. In doing so, the court assumed that Corapi and Zerga were not original sources, but held that Campbell's suit was nevertheless barred by the first-to-file rule, citing United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181 (9th Cir.2001).

The United States subsequently announced that it had settled its civil claims against RMC and Tenet Healthcare Corporation for payment of $54 million. Campbell filed with Judge Levi objections to the settlement and sought a hearing on its fairness pursuant to 31 U.S.C. § 3730(c)(2)(B) and discovery regarding the amount of and reasons for the settlement. The government responded that Dr. Campbell's motion should be denied because his case had been dismissed and he had no standing to object to the settlement. The district court agreed with the government and denied Dr. Campbell's objections, concluding that Dr. Campbell had no standing to object to the government's settlement or to demand a fairness hearing.

Dr. Campbell appealed both the district court's order dismissing his complaint and the denial of his objections to the settlement.

The United States subsequently notified the district court in the Corapi/Zerga suit that it intended to pay those plaintiffs $8.1 million as the relators' share of the $54 million recovery by the United States in that case. However, that payment has not been finalized.

II. Jurisdiction and Standard of Review

We have jurisdiction to review the district court's dismissal for lack of subject matter jurisdiction under 28 U.S.C. § 1291. Luong v. Circuit City Stores, Inc., 368 F.3d 1109, 1111 (9th Cir.2004). The district court's dismissal of a claim for lack of subject matter jurisdiction is reviewed de novo. Hacienda Valley Mobile Estates v. City of Morgan Hill, 353 F.3d 651, 654 (9th Cir.2003), cert. dismissed, 125 S.Ct. 1239 (2004, 2005).

III. Discussion

A. The False Claims Act

The False Claims Act, 31 U.S.C. § 3729(a), imposes liability on those who submit a false or fraudulent claim for payment to the United States Government. The qui tam provisions of the False Claims Act encourage private parties who are aware of fraud against the government to sue for a civil penalty on behalf of the government. Id. § 3730(b)(1). If the government intervenes and the action is successful, such parties will share in up to 25% of the government's recovery. Id. § 3730(d)(1).

A private party, referred to as the "relator," may bring a civil action in the name of the government to recover damages against a person who has defrauded the government. Id. § 3730(b)(1). The complaint is filed under seal. Id. § 3730(b)(2). "A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses" is served on the government. Id. Within 60 days, the government must elect to either proceed with the action itself, or notify the court that it declines to take over the action, in which case the relator has the right to pursue the action. Id. § 3730(b)(4).

Section 3730(e)(4)(A) states that "[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions . . . unless . . . the person bringing the action is an original source of the information." Id. § 3730(e)(4)(A). This subsection prevents opportunistic individuals from bringing qui tam actions — and sharing in the government's recovery — when they have done nothing to expose the allegations of fraud. Compare United States ex rel. Devlin v. California, 84 F.3d 358, 362 (9th Cir.1996), with United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 651, 656-57 (D.C.Cir.1994). For a court to have jurisdiction over a FCA case brought by a private party after the allegations have been made public, the relator must have been "an original source" of the allegations. An "original source" is someone who has "direct and independent knowledge of the information on which the allegations are based" and has voluntarily provided it to the government before filing suit. 31 U.S.C. § 3730(e)(4)(B); see also Devlin, 84 F.3d at 360 n. 3 (internal quotation marks omitted).

Section 3730(b)(5) provides: "When a person brings an action under [§ 3730(b)], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." This is the first-to-file bar, which encourages prompt disclosure of fraud by creating a race to the courthouse among those...