Sebelius v. Uplift Med., P.C., Case No.: RWT 11cv2168

• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)
• Writing for the Court: Roger W. Titus
• Parties: KATHLEEN SEBELIUS, Plaintiff, v. UPLIFT MEDICAL, P.C., et al., Defendants.
• Docket Number: Case No.: RWT 11cv2168
• Decision Date: 28 August 2012

KATHLEEN SEBELIUS, Plaintiff,
v.
UPLIFT MEDICAL, P.C., et al., Defendants.

Case No.: RWT 11cv2168

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: August 28, 2012

MEMORANDUM OPINION

Plaintiff Kathleen Sebelius filed suit against Defendants Uplift Medical, P.C., Daniel Austin, and Cynthia Austin seeking to recover a civil money penalty assessed for violations of the Federal Standards for Privacy of Individually Identifiable Health Information ("Privacy Rule"), 45 C.F.R. 160, 164 (2000), which was promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), Pub. L. No. 104-191, 110 Stat. 1936. For the reasons discussed below, the Court will deny Defendant Cynthia Austin's Motion to Dismiss, Doc. No. 13, deny Defendant Dan Austin's Motion to Dismiss, Doc. No. 18,¹ deny Plaintiff's Motion to Strike, Doc. No. 20, construing it instead as an Opposition to Defendant Dan Austin's Motion to Dismiss, grant Plaintiff's Motion to Dismiss Counterclaim, Doc. No. 21, and grant Plaintiff's Motion for Summary Judgment. Doc. No. 4.

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I. Background

Kathleen Sebelius, the Secretary of the Department of Health and Human Services ("HHS") brought this action against Uplift Medical, P.C. doing business as Cignet Health Center, Cignet Health Plan, and/or Cignet Healthcare ("Uplift") and its owners Dan and Cynthia Austin, de facto partners of the now unincorporated business association, for violations of the Privacy Rule. See Compl. ¶¶ 2-6.

After having determined that Uplift was a covered entity as defined under 45 C.F.R. § 160.103 and thus obligated to adhere to HIPAA's privacy rule, HHS determined via administrative proceeding that Uplift had violated two provisions of the HIPAA Privacy Rule. First, it "failed to provide [forty-one] individuals timely access to obtain a copy of the protected health information about them in the designated records sets (medical records) maintained by Uplift" in violation of 45 C.F.R. § 164.524. Doc. No. 4-1 at 5. Uplift also "failed to cooperate with [HHS's] investigation of [twenty-seven] complaints regarding Uplift's noncompliance with the requirement to provide timely access to protected health information" in violation of 45 C.F.R. § 160.310(b). Doc. No. 4-1 at 5. Accordingly, HHS levied a proposed $4,351,600 penalty under 42 U.S.C. § 1320d-5 and 45 C.F.R. Part 160 subpart D against Uplift. Compl. ¶ 14.

On October 20, 2010, HHS notified Uplift by a Notice of Proposed Determination that it was proposing the imposition of a penalty of $4,351,600. Compl., Ex. A. The Notice of Proposed Determination also provided detailed information regarding Uplift's right to request a hearing challenging the proposed penalty within ninety days of receiving the Notice of Proposed Determination. Id. at 6-7. Uplift did not request a hearing, and thus HHS imposed the proposed penalty. Doc. No. 4-1 at 6. On February 4, 2011, HHS notified Uplift by Notice of Final

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Determination, Compl., Ex. B, that the $4,351,600 penalty would become final. Doc. No. 4-1 at 6. After accounting for a Medicare offset, HHS alleges that the current debt that Uplift owes the United States is $4,348,041.30. Id.

On August 4, 2011, HHS filed a three-count Complaint in this Court against Uplift and its owners to collect the penalty. The Complaint alleges that the individual Defendants as well as Uplift are liable for the civil money penalty because 1) Uplift continued to operate as an unincorporated business association in Maryland after the forfeiture of its corporate charter, 2) Uplift became a de facto Maryland Partnership under Md. Code Ann. Corps. & Ass'ns § 9A-202(a) when it forfeited its corporate status, 3) because Uplift was not validly incorporated at the time of the penalty assessment, owners Dan and Cynthia Austin are liable for the current debt as the de facto partners of an unincorporated business association under M.D. CODE ANN. CTS. & JUD. PROC. § 6-406, and 4) the Defendants are equitably estopped from denying Uplift is a Professional Corporation vis-à-vis HHS for the purposes of the civil money penalty. Compl. ¶¶ at 22-63. Dan Austin sent letters to HHS on September 5, 2011² and to the United States Attorney's Office on November 17, 2011,³ both of which purport to be answers to the Complaint. Doc. No. 3.

On November 2, 2011, HHS filed a Motion for Summary Judgment. Doc. No. 4. On November 22, 2011, Dan Austin filed his Opposition to the Motion for Summary Judgment, Doc. No. 5, to which HHS replied on December 9, 2011. Doc. No. 7. On January 3, 2012, after

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prompting from this Court, Cynthia Austin filed an opposition to the Motion for Summary Judgment. Doc. No. 9. On January 26, 2012, Dan Austin filed a surreply to the Motion for Summary Judgment without leave of Court. Doc. No. 12. On February 24, 2012, HHS filed a sur-surreply in support of its Motion for Summary Judgment. Doc. No. 16.

On February 15, 2012, Cynthia Austin filed a Motion to Dismiss. Doc. No. 13. On March 5, 2012, HHS filed its opposition. Doc. No. 17. On March 20, 2012, Dan Austin filed a Motion to Dismiss, Doc. No. 18, and a Counterclaim against HHS, Lee Medical Group, and Dana Lee. Doc. No. 19. On April 9, 2012, HHS filed a Motion to Strike or in the alternative an Opposition to Defendant Dan Austin's Motion to Dismiss. Doc. No. 20. On April 19, 2012, HHS filed a Motion to Dismiss Counterclaim. Doc. No. 21.

II. Discussion

A. Motions to Dismiss

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests the sufficiency of the complaint. Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). To survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quotation omitted). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. "But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not "shown"—that the pleader is entitled to relief." Id. at 1950; see also Simmons v. United Mortg. & Loan Invest., 634 F.3d 754, 768 (4th Cir. 2011) ("On a Rule 12(b)(6) motion, a complaint must be dismissed if it

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does not allege enough facts to state a claim to relief that is plausible on its face.") (quotation and emphasis omitted).

A court must consider all well-pleaded allegations in a complaint as true, see Albright v. Oliver, 510 U.S. 266, 268 (1994), and must construe factual allegations in the light most favorable to the plaintiff. See Lambeth v. Bd. of Comm'rs, 407 F.3d 266, 268 (4th Cir. 2005). Nevertheless, a court is not required to accept as true "a legal conclusion couched as a factual allegation," Papasan v. Allain, 478 U.S. 265, 286 (1986), conclusory allegations devoid of any reference to actual events, see United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979), or "allegations that are merely conclusory, unwarranted deductions of fact or unreasonable inferences." Veney v. Wyche, 293 F.3d 726, 730 (4th Cir. 2002) (internal quotation marks omitted). "'Thus, in reviewing a motion to dismiss an action pursuant to Rule 12(b)(6) a court must determine whether it is plausible that the factual allegations in the complaint are enough to raise a right to relief above the speculative level.'" Monroe v. City of Charlottesville, 579 F.3d 380, 386 (4th Cir. 2009) (quoting Andrew v. Clark, 561 F.3d 261, 266 (4th Cir. 2009)).

1. Defendant Cynthia Austin's Motion to Dismiss

Defendant Cynthia Austin argues that the Court should dismiss the Complaint because HHS improperly named her as a Defendant. Doc. No. 13. HHS responds that she is legally barred from challenging the penalty, the motion is improper as a matter of law, and all of her arguments are without merit. Doc. No. 17.

Based on the record before this Court, Cynthia Austin was properly named in her joint and individual capacity as a co-owner and de facto partner of Uplift. Id. at 2-4. Uplift listed Cynthia Austin as a Director under its Articles of Incorporation in 1997 and in 2002, Compl.,

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Exs. D; F, during which time Uplift recognized her as a staff physician and specialist in obstetrics and gynecology. Id. at Ex. H.

Despite the forfeiture of Uplift's corporate status on October 7, 2003, Compl., Ex. D, Uplift continued to operate as an unincorporated Maryland business association. Doc No. 16 at 6-13. Under Maryland law, Uplift, after forfeiting its corporate status, continued to operate as an unincorporated Maryland business association. Price v. Upper Chesapeake Health Ventures, 995 A.2d 1054, 1059-61 (Md. Ct. Spec. App. 2010) (holding that a corporation does not become a legal non-entity after forfeiture of corporate status for failure to pay taxes). As such, Uplift and its owners are liable for the penalty assessed after Uplift forfeited its corporate status and continued to operate.

Cynthia Austin, as a co-owner and de facto partner of Uplift, is also legally barred from challenging the penalty by 45 C.F.R. § 160.422 for failure to exhaust her administrative...