Commonwealth ex rel. Hunter Laboratories, L.L.C. v. Commonwealth of Virginia, 070716 FED4, 15-1484

Docket Nº:15-1484
Opinion Judge:KING, CIRCUIT JUDGE
Party Name:COMMONWEALTH OF VIRGINIA ex rel. HUNTER LABORATORIES, L.L.C.; COMMONWEALTH OF VIRGINIA ex rel. CHRIS RIEDEL, an individual, Plaintiffs - Appellants, v. COMMONWEALTH OF VIRGINIA, Plaintiff-Appellee, and LABORATORY CORPORATION OF AMERICA, a Delaware corporation; LABORATORY CORPORATION OF AMERICA HOLDINGS, a Delaware corporation; DOES 10 THROUGH 1...
Attorney:Eric James Buescher, COTCHETT, PITRE & MCCARTHY, LLP, Burlingame, California, for Appellants. Candice Mae Deisher, OFFICE OF THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for Appellee. Justin T. Berger, COTCHETT, PITRE & MCCARTHY, LLP, Burlingame, California, for Appellants. Mark R. Herri...
Judge Panel:Before MOTZ, KING, and HARRIS, Circuit Judges.
Case Date:July 07, 2016
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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COMMONWEALTH OF VIRGINIA ex rel. HUNTER LABORATORIES, L.L.C.; COMMONWEALTH OF VIRGINIA ex rel. CHRIS RIEDEL, an individual, Plaintiffs - Appellants,

v.

COMMONWEALTH OF VIRGINIA, Plaintiff-Appellee,

and

LABORATORY CORPORATION OF AMERICA, a Delaware corporation; LABORATORY CORPORATION OF AMERICA HOLDINGS, a Delaware corporation; DOES 10 THROUGH 100, INCLUSIVE; QUEST DIAGNOSTICS NICHOLS INSTITUTE, f/k/a Quest Diagnostics, Incorporated, a California corporation; QUEST DIAGNOSTICS CLINICAL LABORATORIES, INC.; SPECIALTY LABORATORIES, INC., a California corporation; QUEST DIAGNOSTICS, INCORPORATED, a Delaware corporation; UNITED STATES OF AMERICA, Defendants.

No. 15-1484

United States Court of Appeals, Fourth Circuit

July 7, 2016

          Argued: May 10, 2016

         Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Gerald Bruce Lee, District Judge; Anthony J. Trenga, District Judge. (1:13-cv-01129-GBL-TCB)

         ARGUED:

          Eric James Buescher, COTCHETT, PITRE & MCCARTHY, LLP, Burlingame, California, for Appellants.

          Candice Mae Deisher, OFFICE OF THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for Appellee.

         ON BRIEF:

          Justin T. Berger, COTCHETT, PITRE & MCCARTHY, LLP, Burlingame, California, for Appellants.

          Mark R. Herring, Attorney General of Virginia, Adele M. Neiburg, Assistant Attorney General, OFFICE OF THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for Appellee.

          Before MOTZ, KING, and HARRIS, Circuit Judges.

          KING, CIRCUIT JUDGE

         In December 2007, qui tam relators Hunter Laboratories, L.L.C., and Chris Riedel (the "relators") filed this civil action in the Circuit Court of Fairfax County against multiple medical laboratory businesses. The complaint alleged that the medical laboratories had submitted false claims to the Commonwealth of Virginia for Medicaid reimbursement, in contravention of the Virginia Fraud Against Taxpayers Act (the "VFATA"). The defendants removed the action to the Eastern District of Virginia, and the relators (the appellants here) and the Commonwealth (the appellee here) thereafter entered into a settlement agreement with certain of the defendants. In April 2015, the district court awarded the relators a share of the settlement proceeds. On appeal, the relators contend that the court's award was insufficient under the VFATA. We are unable to reach that issue, however, because the district court lacked subject matter jurisdiction over the qui tam action. As explained below, we vacate and remand for a remand to the state court.

         I.

         Before turning to the facts of this case, we explain some pertinent aspects of the Medicaid program. Established in 1965, the Medicaid program "provides joint federal and state funding of medical care for individuals who cannot afford to pay their own medical costs." See Ark. Dep't of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275 (2006). Although state participation in Medicaid is voluntary, a state seeking federal funds for Medicaid must first submit a "plan[] for medical assistance" to the Secretary of Health and Human Services (the "Secretary"). See 42 U.S.C. § 1396-1.

         The Commonwealth of Virginia participates in the Medicaid program, and Virginia law authorizes the Commonwealth's aptly named Department of Medical Assistance Services (the "DMAS") to "submit to the [Secretary] a state plan for medical assistance services." See Va. Code Ann. § 32.1-325(A). Pursuant thereto, DMAS is obliged to "[m]ake, adopt, promulgate and enforce such regulations as may be necessary" to carry out the Commonwealth's plan for Medicaid services. Id. § 32.1-325(B)(3). DMAS also receives and processes Medicaid reimbursement claims submitted by healthcare service providers. See, e.g., Dep't of Med. Assistance Servs. v. Beverly Healthcare of Fredericksburg, 601 S.E.2d 604, 606 (Va. 2004) (explaining that DMAS determines "reimbursement rates for providers of nursing home services to Medicaid recipients").

          A.

         Under Virginia law a relator may institute - "for the person and for the Commonwealth" - a qui tam civil action alleging violations of the VFATA. See Va. Code Ann. § 8.01-216.5(A).[1] On December 19, 2007, the relators filed the qui tam complaint in this case under seal in the Circuit Court of Fairfax County. See Virginia ex rel. Hunter Labs., L.L.C. v. Quest Diagnostics, Inc., No. 1:13-cv-01129 (E.D. Va. Sept. 9, 2013), ECF No. 1-2 (the "Complaint"). The Complaint alleged that the defendant medical laboratories violated the VFATA in two ways: by presenting false claims, in contravention of Va. Code Ann. § 8.01-216.3(A)(1); and by making or using false records or statements to obtain payment or approval of false claims, in violation of Va. Code Ann. § 8.01-216.3(A)(2). As relief, the Complaint sought damages, civil penalties, costs, and other appropriate relief as provided by Virginia law.

         In support of the VFATA claims, the Complaint alleged that the defendants "made false claims for payment of Medicaid-covered laboratory tests by falsely representing that the fees being charged were no greater than the maximum fees payable pursuant to Virginia regulations." See Complaint ¶ 6 (relying on 12 Va. Admin. Code 30-80-30). More specifically, the relators alleged that...

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