U.S. ex rel. Smart v. Christus Health

• Decision Date: 22 January 2009
• Docket Number: Civil Action No. C-05-287.
• Citation: 626 F.Supp.2d 647
• Parties: UNITED STATES of America, ex rel. Danny Lynn SMART, Plaintiff, v. CHRISTUS HEALTH, aka Christus Health System, and Christus Spohn Health System Corporation, Defendants.
• Court: U.S. District Court — Southern District of Texas

626 F.Supp.2d 647

UNITED STATES of America, ex rel. Danny Lynn SMART, Plaintiff, v. CHRISTUS HEALTH, aka Christus Health System, and Christus Spohn Health System Corporation, Defendants.

Civil Action No. C-05-287.

United States District Court, S.D. Texas, Corpus Christi Division.

January 22, 2009.

COPYRIGHT MATERIAL OMITTED

Kevin C. Aiman, US Attorney's Office, Houston, TX, Anthony E. Pletcher, David Tarrant Bright, Watts Law Firm LLP, Corpus Christi, TX, for Plaintiff.

Marc Brian Collier, Fulbright & Jaworski LLP, Austin, TX, Ben Addison Donnell, Donnell Abernethy Kieschnick, Corpus Christi, TX, for Defendants.

MEMORANDUM AND ORDER

JOHN D. RAINEY, District Judge.

Pending before the Court are defendants CHRISTUS Health System ("CHRISTUS Health") and CHRISTUS Spohn Health System ("Spohn") (collectively, "Defendants") Motions to Dismiss relator Danny Lynn Smart's ("Relator") qui tam action. Dkt. Nos. 28, 29. Having considered the motions, record, and relevant law, the Court finds that Defendants' motions should be GRANTED.

I. Background

Relator filed his initial complaint under seal, as required by the qui tam provision of the False Claims Act, see 31 U.S.C. § 3730(b)(2), on June 7, 2005. On October 9, 2007, the United States declined to intervene (Dkt. No. 19), and the complaint, which had been amended once, on May 30, 2006 (Dkt. No. 6), was unsealed. Relator filed a second amended complaint on February 7, 2008. Dkt. No. 23. Defendants moved to dismiss this complaint on a variety of grounds. Dkt. Nos. 28, 29. Relator responded (Dkt. No. 35) and Defendants replied (Dkt. Nos. 38, 39).

Relator, a former employee of Spohn, where he was the director of property management (Dkt. No. 23 ¶ 8), alleges a Medicare fraud scheme by Defendants, who operate three "hospital campuses" in Corpus Christi, Texas. Id. ¶ 3. The core claim of Relator's complaint is that Defendants entered into below-market leases with doctors and physician groups who would, in return, refer more patients to Defendants' facilities. Id. ¶ 9. Relator alleges that Defendants' behavior violates the Stark law, 42 U.S.C. § 1395nn, the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), and "various similar state laws" as well as "ethical canons of the medical profession."¹ Dkt. No. 23 ¶ 9. Relator argues that Defendants' violation of these statutes subjects them to liability under the False Claims Act, 31 U.S.C. § 3729 et seq., because Medicare claims made for patients referred to Defendants' facilities by doctors with below-market leases are fraudulent.² Specifically, Relator claims that Defendants violated 31 U.S.C. § 3729(a)(1),³(2),⁴ (3),⁵ and (7).⁶ Relator also claims that Defendants fired him in retaliation for filing this lawsuit, in violation of 31 U.S.C. § 3730(h). Finally, Relator appears to include some miscellaneous claims involving misuse of donated funds and "disproportionate share" funds. See Dkt. No. 23 ¶¶ 35, 45.⁷

II. Subject Matter Jurisdiction

The Court must first determine whether it is barred by 31 U.S.C. § 3730(e)(4)(A) from taking jurisdiction over this suit. Defendants argue that Relator's allegations against Defendants have been made before, in state litigations involving Ross Physical Therapy and Rehabilitation.⁸ This is significant because the qui tam provision of the False Claims Act includes the following jurisdictional bar:

No court shall have jurisdiction over an action under this section based upon public disclosure of allegations or transactions in a criminal, civil, or administrative hearing . . . unless . . . the person bringing the action is an original source of the information.

31 U.S.C. § 3730(e)(4)(A). The key document here is Ross's First Amended Counterclaim and Petition for Declaratory Judgment filed in one of the state suits. Dkt. No. 29 Ex. B. Ross claimed that her office space, from which she was ousted by Spohn, had been released to a different tenant paying less than Ross was paying before she was removed from the space by Spohn. Id. ¶ 8.4. Ross then claimed that this violated "Title 42 Chapter 7 of the United States Code Annotated (e)" (by which the Court presumes Ross meant 42 U.S.C. § 1395nn(e)(1)(A)(iv), i.e. the Stark law).⁹

Defendants argue that the Ross litigation represents, within the meaning of 31 U.S.C. § 3730(e)(4)(A), "public disclosure" of the allegations made here, that Relator's suit is "based upon" those allegations, and that Relator is not an "original source" of the information relied upon.

A. Legal Standard

The qui tam provision of the False Claims Act, limited by the jurisdictional bar, seeks to balance two competing goals: on the one hand, to enlist private citizens in ferreting out fraud against the government, and on the other, to prevent parasitic actions by those citizens, rushing to the courthouse to sue after reading about fraud in the newspaper, and thus taking a share of the United States' recovery. See, e.g., United States ex rel. Reagan v. E. Tex. Med. Ctr., 384 F.3d 168, 174 (5th Cir.2004).

Deciding whether the jurisdictional bar applies is a three-step inquiry. First, was there a "public disclosure"? Second, are Relator's claims "based upon" that public disclosure? Third, is Relator an "original source of the information"? See Fed. Recovery Servs. v. United States, 72 F.3d 447, 450 (5th Cir.1995) (citing Cooper v. Blue Cross & Blue Shield, 19 F.3d 562, 565 n. 4 (11th Cir.1994)). Relator does not contest Defendants' argument that there was a public disclosure.

Whether Relator's suit is "based upon public disclosure of allegations or transactions" in the Ross litigation is not a straightforward question. While the statutory language seems to imply that "based upon" applies to "public disclosure," not to "information" or "allegations or transactions," most courts to address this problem, including the Fifth Circuit, have performed their analysis by asking whether the qui tam suits were "`based upon' the publicly disclosed allegations." Reagan, 384 F.3d at 176; see also United States ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir.2008) ("[W]e hold that [relator's] qui tam suit is based on publicly disclosed information.").

The distinction can be important for determining the meaning of "based upon." The Courts of Appeals are split on the definition of "based upon." Most say that satisfaction of the "based upon" requirement is met by suits that are supported by the previously disclosed information. The Fourth Circuit, however, appearing to be the lone holdout, has held that "based upon" requires a higher bar. Calling it "the only fair construction of the statutory phrase," the Fourth Circuit held that the later suit must actually be derived from the earlier public disclosure. United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.1994). To illustrate the distinction, a relator who repeats the exact allegations made in a prior civil complaint without awareness of that complaint likely would not be said to have based his allegations on the public disclosure, and thus would not have derived his complaint from the earlier disclosure. On the other hand, that second complaint could be said to be supported by the publicly disclosed information irrespective of the relator's knowledge of the earlier complaint.

The Fifth Circuit has only been faced with the need to analyze whether a relator's complaint was "based upon" earlier public disclosures three times. See Fed. Recovery Servs., 72 F.3d at 450-51; Reagan, 384 F.3d at 176; Fried, 527 F.3d at 442. Fried was a relatively easy case: there, "the very essence" of relator's allegations had been disclosed in government hearings and a General Accounting Office report. Fried, 527 F.3d at 442. If ever there was a case where one could be sure that the government was already aware of the alleged fraud, Fried was it.

The facts of Reagan also required little in-depth analysis: the relator's federal complaint largely repeated the allegations made in her own earlier state court case. Reagan, 384 F.3d at 176. Moreover, the relator had previously brought her allegations to the attention of a federal agency, the Health Care Financing Administration. Id. at 172. Thus the government clearly had knowledge of the fraud, and relator's suit could be found to have been "based upon" her own earlier suit whether a high ("derived from") or low ("supported by") bar was used. Nor did the court specify which standard it was applying.

Finally, the issue in Federal Recovery Services was whether it was enough that relator's complaint was only partially based on earlier disclosures. The relator there conceded that its complaint was based upon an earlier civil suit, but argued that because it added additional allegations, it could avoid the application of the jurisdictional bar. Fed. Recovery Servs., 72 F.3d at 451. The Fifth Circuit rejected this argument, holding that even if the earlier disclosures formed only a partial basis for the new suit, that was enough to have the jurisdictional bar applied. Id.

In short, the Fifth Circuit has never had to explicitly decide whether the Fourth Circuit's "derived from" standard or the more common "supported by" standard should apply.

Nor has the Southern District had many opportunities to weigh in. Outside of the district court opinion in Reagan,¹⁰ only three cases (and only two published cases) address whether a relator's suit is "based upon" earlier disclosures. In one of those cases, United States ex rel. Farmer v. City of Houston, Civ. No. H-03-3713, 2005 WL 1155111 (S.D.Tex. May 5, 2005), the relator did not contest the "based upon" issue.

The relator in United States ex rel. Ward v. Commercial Metals Co., Civ. No. C-05-56, 2007 WL 1390612 (S.D.Tex. May 9, 2007), did contest the issue, but the court was faced with another easy set of facts: the relator "quot[ed] extensively" from the public disclosure and admitted in a deposition that the public...