Nichole Med. Equip. & Supply, Inc. v. United States, No. 12-364C

CourtCourt of Federal Claims
Writing for the CourtERIC G. BRUGGINK
Docket NumberNo. 12-364C
Decision Date25 February 2013


No. 12-364C

United States Court of Federal Claims

Filed: February 25, 2013

Medicare equipment supplier; settlement agreement; warranty;
covenant of good faith and fair dealing; motion to dismiss.

David M. Hollar, Conshohocken, PA, for plaintiffs.

Jeremiah M. Luongo, United States Department of Justice, Commercial Litigation Branch, Washington, DC, with whom was Stuart F. Delery, Assistant Attorney General, Jeanne E. Davidson, Director, and Steven J. Gillingham, Assistant Director, for defendant.



On January 27, 2006, Nichole Medical Equipment & Supply, Inc. ("Nichole Medical") and its owner Mr. Dominic Rotella (collectively, "plaintiffs") entered into a settlement agreement with the United States and the Commonwealth of Pennsylvania. Plaintiffs agreed to pay the United States $750,000 to resolve allegations that they were liable for violations of the False Claims Act,1 fraud, and unjust enrichment, all arising out of asserted improper Medicare and Medicaid reimbursement claims. Plaintiffs now contend that the United States breached that agreement. Pending is defendant's motion to

Page 2

dismiss for failure to state a claim upon which relief may be granted. We held oral argument on January 3, 2013. The matter is fully briefed. For the reasons set forth below, we grant the government's motion.


Nichole Medical was a durable medical equipment supplier under the Medicare Act3 until it ceased operations in October 2007. After receiving a "tip from a disgruntled former employee," Compl. ¶ 10, the Federal Bureau of Investigation searched Nichole Medical's records in 1998 and February 2000, which culminated in a grand jury proceeding in July 2000. The grand jury did not return an indictment, but further investigations would follow.

In 2002, a program safeguard contractor ("PSC")4 for the Centers for Medicaid & Medicare Services ("CMS") conducted a search of Nichole Medical's Medicare records. Plaintiffs state that the PSC, TriCenturion, made an "unannounced, unauthorized and illegal search and seizure of Nichole Medical's Medicare records on or about May 20, 2002." Compl. ¶ 24. TriCenturion submitted information to the Department of Justice ("DOJ") for a possible fraud claim, which DOJ declined to pursue. Under TriCenturion's powers as a PSC, however, it could find that the contractor payment

Page 3

intermediary5 had overpaid Nichole Medical for reimbursement claims. On June 29, 2004, TriCenturion sent Nichole Medical a notice of overpayment. The notice alleged that 39 of Nichole Medical's past claims for reimbursement did not meet program requirements. These claims included payment for the supply of 19 motorized wheelchairs and 20 electric hospital beds. Compl. Ex. C at 6. In order to account for the alleged overpayments, TriCenturion directed the contractor payment intermediary, Healthnow, to impose an offset against future reimbursements owed to Nichole Medical. In September 2004, Healthnow imposed the offset but immediately stayed it.

A year before the wheelchair/bed offset was stayed, the United States and the Commonwealth of Pennsylvania filed a civil action on March 3, 2003, regarding other reimbursement claims in the U.S. District Court for the Eastern District of Pennsylvania against Nichole Medical, Mr. Rotella, and other persons. Compl. Ex. A at 2. That complaint, according to plaintiffs here, "focused exclusively on Nichole Medical's billing for incontinence supplies" and alleged violations of the False Claims Act and other statutes. Compl. ¶ 12. This civil action was resolved when the parties signed the settlement agreement at issue in this case, which was effective on January 27, 2006. By this time the wheelchair/bed offset had been stayed since September 2004. Plaintiffs allege that, "Rotella, as President of Nichole Medical, understood [his] problems with CMS, Medicare and Medicaid had been brought to an end." Compl. ¶ 20.

The settlement agreement (hereinafter "SA") is attached to the complaint as Exhibit A. The SA has three sections, entitled "Parties," "Preamble," and "Terms and Conditions." The Parties section lists as participants the United States, acting through DOJ and the Office of Inspector General of the Department of Health and Human Services ("OIG-HHS"), the Commonwealth of Pennsylvania, and plaintiffs here, along with two other persons who were defendants in the district court action.

Page 4

The Preamble explains Nichole Medical's billing history, stating that the company supplied durable medical equipment for personal care homes in Pennsylvania, beginning in June 1986. Paragraph 3 states in detail the allegations made by the United States and Pennsylvania in the civil action:

In the Complaint the United States and the Commonwealth contended that defendants Nichole Medical's, Rotella's, Tresca's, and Oliveras' submission of certain Medicare and Medicaid claims for incontinence supplies during the period from January 1996 to February 2000 rendered those defendants liable: (i) under the civil False Claims Act; and/or (ii) the common law theories of fraud, unjust enrichment/restitution, and breach of contract. This conduct, relating to Medicaid and Medicare claims between 1996 and 2000 as described in the Complaint, will be referred to collectively as the "Covered Conduct."

SA § II.3. In addition, the Preamble states in Paragraph 4 that "[t]he United States contends also that it has certain administrative claims against Nichole Medical, Tresca, and Rotella for engaging in the Covered Conduct." SA § II.4.

The Covered Conduct, in short, relates only to plaintiffs' submission of allegedly false claims with respect to incontinence supplies between 1996 and 2000. It does not relate to other reimbursement claims, for example, claims related to the stayed offset, which concerned reimbursement for wheelchairs and hospital beds. This opinion will hereinafter refer to that offset, and all actions taken pursuant to it, as the "wheelchair/bed action."

The United States' waiver of claims, in Paragraph 5 of Section III, is specifically limited to the "Covered Conduct":

Subject to the exceptions in Paragraph 9 below . . . the United States (on behalf of itself, its officers, agents, agencies, and departments) agrees to release Nichole Medical, Rotella, Tresca, and/or Oliveras as appropriate from any civil or administrative monetary claim the United States has or may have under the False Claims Act; the Civil Monetary Penalties Law; the Program Fraud Civil Remedies Act; or the common law theories of unjust enrichment/restitution, breach of contract

Page 5

and fraud, for the Covered Conduct.

SA § III.5 (emphasis added) (citations omitted). In Paragraph 14, plaintiffs waive claims that they may have against the United States, "related to the Covered Conduct and the United States' . . . investigation and prosecution thereof." SA § III.14.

In Paragraph 7, the United States waives administrative action, by agreeing that it will not rely on the Covered Conduct in order to exclude Nichole Medical from healthcare programs:

OIG-HHS agrees to release and refrain from instituting, directing or maintaining any administrative action seeking exclusion from the Medicare, Medicaid, or other Federal health care programs (as defined in 42 U.S.C. § 1320a-7b(f)) against Nichole Medical or Rotella under 42 U.S.C. § 1320a-7a (Civil Monetary Penalties Law) or 42 U.S.C. § 1320a-7(b)(7) (permissive exclusion for fraud, kickbacks, and other prohibited activities), for the Covered Conduct, except as reserved in Paragraph 9, below, and as reserved in this Paragraph.

SA § III.7. The provision concluded that, "Nothing in this Paragraph precludes the OIG-HHS from taking action against entities or persons, or for conduct and practices, for which claims have been reserved in Paragraph[s] 8 and 9, below." Id.

Paragraph 9, referred to in Paragraphs 5 and 7 above, specifically reserves from the government's waiver everything other than the Covered Conduct (the billing for incontinence supplies between 1996 and 2000):

Notwithstanding any term of this Agreement, specifically reserved and excluded from the scope and terms of this Agreement as to any entity or person (including Nichole Medical, Rotella, Tresca, and Oliveras) are the following:
. . . .
d. Any liability to the United States or the Commonwealth (or their agencies) for any conduct other than the Covered Conduct . . . .

SA § III.9(d).

Page 6

In exchange for waiver by the United States and Pennsylvania of claims arising out of the Covered Conduct, plaintiffs agreed to pay the United States $750,000. SA § III.1.This consisted of an initial payment of $150,000, followed by monthly payments. Section III, Paragraph 21 states that Nichole Medical will be in default if it fails to make payment within five days of the due date.

Upon plaintiffs' failure to cure a default in payment, the United States has specific rights. The government may "offset the remaining unpaid balance from any amounts due and owing to defendant [Nichole Medical] by any department, agency, or agent of the United States or Commonwealth at the time of the Default." SA § III.21. Nichole Medical and Mr. Rotella agree that they will not ...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT