Khurana v. Innovative Health Care Systems, Inc.

• Decision Date: 12 December 1997
• Docket Number: No. 96-30525,96-30525
• Citation: 130 F.3d 143
• Parties: Rajiv KHURANA, Plaintiff-Appellant, v. INNOVATIVE HEALTH CARE SYSTEMS, INC.; Karry Teel; Carl Holden; William Malone; I.H.S. River Region Hospital of Vacherie, La., Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 143

130 F.3d 143

Rajiv KHURANA, Plaintiff-Appellant, v. INNOVATIVE HEALTH CARE SYSTEMS, INC.; Karry Teel; Carl Holden; William Malone; I.H.S. River Region Hospital of Vacherie, La., Inc. Defendants-Appellees.

No. 96-30525.

United States Court of Appeals Fifth Circuit.

Dec. 12, 1997.

James Alan Williams, McElwee, Williams & Peters, L.L.C., Gretna, LA, Robert Elton Arceneaux, Barham & Arceneaux, New Orleans, LA, for Plaintiff-Appellant.

Frank E. Massengale, Karen Kaler Whitfield, Massengale & Debruhl, New Orleans, LA, for Defendants-Appellees.

Frank H. Walk, Jr., New Orleans, LA, pro se.

Edward P. Gothard, Metairie, LA, pro se.

Frederick M. Stoller, McCloskey, Langenstein & Stoller, New Orleans, LA, pro se.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before WIENER and PARKER, Circuit Judges, and LITTLE, ^* District Judge.

PARKER, Circuit Judge:

Dr. Rajiv Khurana appeals the district court's dismissal of his complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the basis that he did not have standing to bring his civil claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and alternatively, because Khurana failed to plead a RICO enterprise separate and distinct from the defendant in some of his civil claims based on 18 U.S.C. § 1962(c). Finding that Khurana may have standing for some of his civil RICO claims, we affirm in part and reverse and remand in part.

FACTS AND PROCEEDINGS BELOW

For purposes of this appeal, we accept the following factual allegations as true.

Dr. Rajiv Khurana ("Khurana") filed suit in Louisiana state court against the defendant-appellees, alleging defamation and wrongful discharge from his position as Medical Director of River Region Hospital in Vacherie, Louisiana, ¹ as well as civil claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., based on violations of 18 U.S.C. § 1962(b), (c), and (d). ² Khurana's civil RICO claims arise from a Medicare and Medicaid fraud scheme in which the appellees were engaged.

River Region Hospital ("River Region" or "hospital") is an owned subsidiary of Innovative Health Care Systems, Inc. ("Innovative"). Both River Region and Innovative are defendant-appellees in this action. Defendant-appellees also include Karry Teel and Carl Holden, who hold offices in both Innovative and River Region, and William Malone, River Region's administrator.

Khurana is a practicing physician with dual specialities in psychiatry and neurology. In July 1993, Khurana was hired to be River Region's Assistant Medical Director under a three-year contract. Khurana agreed to join River Region as its Assistant Medical Director on the basis of fraudulent misrepresentations as to the legitimacy of the hospital's operations and qualifications. In June of 1994, Khurana was named the hospital's Medical Director. After his promotion, he became aware that the hospital was engaging in fraudulent Medicaid and Medicare practices. He was discharged from his position as Medical Director six months later in January of 1995. The hospital went out of business in 1996.

After the appellees removed the suit to federal court, Khurana filed an amended complaint alleging that the appellees committed a variety of RICO predicate acts (wire and mail fraud, extortion, bribery, witness tampering, and violation of the Travel Act, 18 U.S.C. § 1952) and that these acts constituted a pattern of racketeering activity in violation of § 1962(b) and § 1962(c). Khurana also alleged a conspiracy, in violation of 18 U.S.C. § 1962(d), to violate 18 U.S.C. § 1962(b) and § 1962(c). In his complaint, Khurana contended (1) that he was fraudulently induced into "harmful employment associations" which caused him a loss of legitimate business opportunity and damage to his professional reputation, (2) that he was wrongfully discharged which caused him a loss in earnings, benefits and reputation, and (3) that the appellees' "illegal competition" with him in his private and hospital practices caused him a loss in business income.

The appellees filed a motion to dismiss Khurana's RICO claims pursuant to Fed.R.Civ.P. 12(b)(6). The appellees argued to the district court that (1) Khurana did not have standing to assert the RICO claims, and that (2) Khurana failed to allege a RICO "enterprise" separate and distinct from a RICO "person," i.e., a perpetrator, associated with or employed by the enterprise as required for claims based on 18 U.S.C. § 1962(c). The district court granted the motion and Khurana now presents this panel with the same two issues in his appeal.

DISCUSSION

I. Standard of Review

We review the dismissal of a complaint for a failure to state a claim for which relief can be granted under Fed.R.Civ.P. 12(b)(6) de novo. Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir.1993). A claim may not be dismissed unless it appears beyond doubt that the plaintiff cannot prove any set of facts in support of his claim which would entitle him to relief. Benton v. United States, 960 F.2d 19, 21 (5th Cir.1992). For purposes of our review, we must accept the plaintiff's factual allegations as true and view them in a light most favorable to the plaintiff. Campbell v. City of San Antonio, 43 F.3d 973, 975 (5th Cir.1995).

II. § 1964(c)

RICO Standing

The appellant argues that the district court erred in dismissing the RICO claims because proper causation between his injuries and RICO violations was pleaded, giving him standing. The appellees collapse the appellant's injuries into one mass of discharge complaints and contend that Khurana cannot have standing for any of his claims because he was not the target of any Medicaid/Medicare fraud scheme. We disagree that Khurana's alleged injuries may be viewed as a homogeneous group. We consider the injuries individually because Khurana's standing for each turns on a proximate causation inquiry.

A. Overview of § 1964(c) Standing

Section 1964(c) provides that

[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee.

18 U.S.C. § 1964(c). In order to establish standing under § 1964(c), a plaintiff must show (1) a violation of § 1962, (2) an injury to his business or property, and (3) that his injury was proximately caused by a RICO violation. See Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992); Cullom v. Hibernia Nat'l Bank, 859 F.2d 1211, 1214 (5th Cir.1988). Khurana challenges the district court determination that his injuries were not proximately caused by RICO violations.

When the Supreme Court announced the proximate cause prerequisite to § 1964(c) standing in Holmes, 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532, it directed us to "the many shapes this concept took at common law." Id. at 268, 112 S.Ct. at 1318.

[W]e use "proximate cause" to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. At bottom, the notion of proximate cause reflects "ideas of what justice demands, or of what is administratively possible, or of what is administratively possible and convenient." W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser & Keeton on Law of Torts § 41, p. 264 (5th ed. 1984).

Id. at 268, 112 S.Ct. at 1318. In Holmes, the Court held that an alleged stock manipulation scheme that disabled two broker-dealers from meeting obligations to customers did not proximately cause the claimed injury of a plaintiff-corporation subrogated to the rights of the broker-dealers' non-purchasing customers. Such was too remote an injury to satisfy the proximate cause requirement because only an intervening insolvency connected the RICO conspirators' acts to the customers' injuries. Id. at 271, 112 S.Ct. at 1319. Taking guidance from the common law's enunciation of proximate causation, the Court reasoned that those injured only "indirectly" by racketeering activity do not have § 1964(c) standing. ³ Id. at 268, 274, 112 S.Ct. at 1317-18, 1321. Allowing for recovery for the Holmes' secondary victims would run afoul of proximate causation standards. Id. at 274, 112 S.Ct. at 1321. In her concurrence, Justice O'Connor explained that the "words 'by reason of' [in § 1964(c)] operate ... to confine RICO's civil remedies to those whom the defendant has truly injured in some meaningful sense." ⁴ Id. at 279, 112 S.Ct. at 1323-24. The proximate cause requirement is intended to preclude recovery by plaintiffs who "complain[ ] of harm flowing merely from the misfortunes visited upon a third person." Id. at 268, 112 S.Ct. at 1317-18.

In Holmes, the Court acknowledged that articulating a definition of "proximate cause" for purposes of § 1964(c) standing analysis was difficult: ⁵ "the infinite variety of claims that may arise make it virtually impossible to announce a black-letter rule that will dictate the result in every case. Thus, our use of the term 'direct' should be merely understood as a reference to the proximate cause enquiry that is informed by the concerns set out in the text." 503 U.S. at 274 n. 20, 112 S.Ct. at 1321 n. 20. ⁶ These concerns have been cited as the demands of justice, a reluctance to open the flood gates to administratively inconvenient and unmanageable litigation, Standardbred Owners Ass'n v. Roosevelt Raceway Assocs., 985 F.2d 102, 104 (2d Cir.1993) (citing Holmes, 503 U.S. at 266 n. 10, 268-69, 112 S.Ct. at 1316 n. 10, 1318), the potential for duplicative recoveries and superfluous deterrence, In re Am. Express Co. Shareholder Litig., 39 F.3d 395, 401 (2d Cir.1994), and the statutory goal of encouraging directly injured victims to act as private attorneys general to vindicate the law, Mendelovitz...