Mason v. Medline Indus., Inc.

• Decision Date: 18 February 2010
• Docket Number: Civil Action No. 07 C 5615
• Citation: 731 F.Supp.2d 730
• Parties: Sean MASON, Plaintiff, v. MEDLINE INDUSTRIES, INC. and the Medline Foundation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

731 F.Supp.2d 730

Sean MASON, Plaintiff,

v.MEDLINE INDUSTRIES, INC. and the Medline Foundation, Defendants.

Civil Action No. 07 C 5615.

United States District Court,

N.D. Illinois,

Eastern Division.

Feb. 18, 2010.

Edward Roy Moor, Jordan Douglas Shea, Williams Montgomery & John, Ltd., Chicago, IL, Alastair John Findeis, Kirk E. Chapman, Ross Brooks, Milberg LLP, New York, NY, for Plaintiff.

Ana Raquel Bugan, Anton Ronald Valukas, Charles B. Sklarsky, Gregory M. Boyle, Robert R. Stauffer, Jenner & Block LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

SUZANNE B. CONLON, District Judge.

Relator Sean Mason brings this qui tam action against his former employer, Medline Industries, Inc., and Its affiliated not-for-profit corporation, the Medline Foundation (collectively, "Medline"), asserting violations of the False Claims Act (the "FCA"), 31 U.S.C. § 3729(a)(1) and (2).¹ Medline moves to dismiss the second amended complaint pursuant to Federal Rule of Civil Procedure 9(b) and 12(b)(6). For the reasons set forth below, the motion is denied.

BACKGROUND

Medline is one of the largest manufacturers and distributors of medical-surgical supplies in the United States. Medline sells its products primarily to hospitals and other healthcare providers, the vast majority of which participate in federal healthcare programs such as Medicare and Medicaid. Between December 1998 and September 2005, Medline employed Mason in several different positions, all dealing with customer contracts and account management. Over the course of Ms employment, Mason allegedly observed Medline engaging in extensive acts of fraud resulting in the submission of false claims to the federal government.

Mason originally filed this case in October 2007 on behalf of the United States and the State of Illinois. In accordance with the FCA's qui tam provision, 31 U.S.C. § 3730, the complaint remained underseal while the United States and Illinois determined whether they would intervene and proceed with the case. Both declined to do so. Mason's first amended complaint alleged that Medline violated the FCA and the Illinois Whistleblower Reward and Protection Act (the "IWRPA"), 740 ILCS 175/1 et seq., by: (1) providing bribes and kickbacks to healthcare providers; (2) fraudulently inducing the federal government to agree to improper tracking customers in procurement contracts and then giving below-government pricing to those tracking customers; and (3) overbilling the federal government's mail-order pharmacy program. On May 22, 2009, the court dismissed the first amended complaint without prejudice because Mason failed to link his allegations to specific claims for government payment and failed to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b). Dkt. 82. Mason's second amended complaint is narrower in scope; he omits the IWRPA claim and two of the three alleged schemes.

The second amended complaint claims that Medline used a wide array of kickbacks and bribes to solicit business from healthcare providers. Providers are required to submit annual cost reports to the Centers for Medicare and Medicaid Services, the agency that administers federal healthcare programs. 42 C.F.R. 413.20(b). Each cost report includes a certification attesting to compliance with healthcare laws and regulations, including anti-kickback provisions. Mason claims that by engaging in bribes and kickbacks, Medline knowingly caused the submission of false or fraudulent claims for payment to the United States, and knowingly caused the use of false statements, resulting in the payment of false or fraudulent claims. 31 U.S.C. § 3729(a)(1) and (2).

LEGAL STANDARD

A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint, not its merits. Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir.1990). When considering the motion, the court accepts as true all well-pleaded allegations, and draws all reasonable inferences in Mason's favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008). Factual allegations in the complaint must be sufficient to state a claim to relief that is plausible on its face, rather than merely speculative. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is facially plausible when the factual allegations allow the court to draw reasonable inferences that Medline is liable for the misconduct alleged. Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).

Generally, a complaint need only provide a short and plain statement giving defendants fair notice of the nature and basis of each claim. Fed.R.Civ.P. 8(a)(2); Twombly, 550 U.S. at 554-55, 127 S.Ct. 1955. Allegations of fraud, however, are subject to the heightened pleading standard set forth in Federal Rule of Civil Procedure 9(b), which requires plaintiffs to plead fraud with particularity. Complaints alleging fraud must provide "the who, what, when, where, and how." Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir.2007). The FCA is an anti-fraud statute subject to Rule 9(b)'s heightened pleading requirement. United States ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir.2005). Plaintiffs proceeding under the FCA must link specific allegations of fraud to claims for government payment. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 378 (7th Cir.2003).

DISCUSSION

The FCA imposes civil liability on any person who "knowingly presents, or causes to be presented ... a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1). To state a claim under this section, Mason must allege: (1) there was a false or fraudulent claim; (2) Medline knew the claim was false; and (3) Medline presented the claim or caused it to be presented to the United States for payment or approval. United States ex rel.Fowler v. Caremark RX, LLC, 496 F.3d 730, 740-41 (7th Cir.2007).

The FCA also imposes liability on one who "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." 31 U.S.C. § 3729(a)(2). Under this provision, Mason must allege that: (1) Medline made, or caused a healthcare provider to make, a statement to receive money from the government; (2) the statement was false; and (3) Medline knew it was false. Fowler, 496 F.3d at 741. Because Mason's claims are premised upon a false certification of statutory or regulatory compliance, he must also allege that the certification was a condition of or prerequisite to payment by the government. United States ex rel. Crews v. NCS Healthcare of Ill., Inc., 460 F.3d 853, 858 (7th Cir.2006); Gross, 415 F.3d at 604.

In May 2009, Congress enacted the Fraud Enforcement and Recovery Act ("FERA"), Pub. L. No. 111-21, 123 Stat. 1617, which amended the language of § 3729(a)(2). Under the new version, recodified as 31 U.S.C. § 3729(a)(1)(B), a person is liable if he "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." Section 4(f)(1) of FERA provides that this change "shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act that are pending on or after that date." The FCA defines a claim as "any request or demand ... for money or properly." 31 U.S.C. § 3729(c). ² While this case was pending on June 7, 2008, Mason does not allege that any claims, as defined by § 3729(c), were pending at that time. The United States declined to intervene but submitted a Statement of Interest arguing that FERA's amendment should be read to apply retroactively to all legal claims alleging violations of the FCA, not claims to the government for payment. Several courts have addressed the government's argument; none have been persuaded. Hopper v. Solvay Pharms., Inc., 588 F.3d 1318, 1327 n. 3 (11th Cir.2009); United States ex rel. Sanders v. Allison Engine, No. l:95-cv-970, et al., 2009 WL 3626773, at *2-4 (S.D.Ohio Oct. 27, 2009); United States v. Sci. Applications Int'l Corp., 653 F.Supp.2d 87, 105-08 (D.D.C.2009);

The United States contends the phrase "claims under the False Claims Act" does not implicate the FCA's definition of "claim" in § 3729(c), but rather indicates Congress' intent that the amended provision apply retroactively to legal claims. Statutory definitions control the meaning of statutory words. Lawson v. Suwannee Fruit & S.S. Co., 336 U.S. 198, 201, 69 S.Ct. 503, 93 L.Ed. 611 (1949). Given § 3729's unambiguous definition of "claim," FERA has no impact on this case because none of the claims at issue were pending on or after June 7, 2008. BedRoc, Ltd. v. United States, 541 U.S. 176, 183, 124 S.Ct. 1587, 158 L.Ed.2d 338 (2004)(task of statutory interpretation "ends there [if] the text is unambiguous"). Moreover, the full text of FERA's § 4(f) supports the conclusion that Congress did not intend "claims" in § 4(f)( l ) to mean "cases." See United States v. Webber, 536 F.3d 584 (7th Cir.2008) (context, and not just literal text, will often reveal Congress' intent with respect to a particular statute) (citation omitted); Dersch Energies, Inc. v. Shell Oil Co., 314 F.3d 846, 856 (7th Cir.2002) (statute must be construed in its proper context). In § 4(f)(2), the provision immediately following the section at issue here, Congress provided that "section 3731(b) of title 31, as amended ... shall apply to cases pending on the date of enactment." Pub. L. No. 111-21, 123 Stat. 1625. If Congress intended the retroactivity of § 4(f)(1) be measured by "cases," it would have said so just as it did in § 4(f)(2). The court interprets § 4(f)(1) to apply to "claims" as defined in the FCA. Accordingly, FERA's amendment does not apply retroactively to this case.

I. Sufficient Factual Basis

Medline argues the second amended complaint should be dismissed for failing to satisfy Rule 9(b)'s pleading standard and failing to provide a...