U.S. ex rel. Colucci v. Beth Israel Medical Center, 06 Civ. 5033(DC).

• Decision Date: 24 March 2009
• Docket Number: No. 06 Civ. 5033(DC).,06 Civ. 5033(DC).
• Parties: UNITED STATES of America ex rel. THOMAS E. COLUCCI, Plaintiff, v. BETH ISRAEL MEDICAL CENTER et al., Defendants.
• Court: U.S. District Court — Southern District of New York

Page 677

603 F.Supp.2d 677

UNITED STATES of America ex rel. THOMAS E. COLUCCI, Plaintiff, v. BETH ISRAEL MEDICAL CENTER et al., Defendants.

No. 06 Civ. 5033(DC).

United States District Court, S.D. New York.

March 24, 2009.

Law Office of Diane McFadin, by Diane McFadin, Esq., Willa N. France, Esq., New York, NY, for Relator.

Proskauer Rose LLP, by Dietrich L. Snell, Esq., New York, NY, by James F. Segroves, Esq., Malcolm J. Harkins III, Esq., Washington, D.C., for Defendants.

Lev Dassin, Esq., Acting United States Attorney for the Southern District of New York by Benjamin H. Torrance, Esq., Assistant United States Attorney, New York, NY, for United States.

OPINION

CHIN, District Judge.

Thomas Colucci, the relator in this False Claims Act ("FCA") qui tam action, died in January 2008. The administrator of his estate, his widow Cleuza Colucci ("Colucci"), moves for substitution as relator under Fed.R.Civ.P. 25(a). Defendants Beth Israel Medical Center ("BIMC"), Morton Hyman, Thomas Hayes, and Robert Naldi oppose the motion. For the reasons that follow, Colucci's motion is granted and she is substituted as relator.

BACKGROUND

The relevant facts and procedural history are not in dispute.

On June 29, 2006, Thomas Colucci filed the complaint in this action under seal as relator on behalf of the United States. His complaint alleged defendants had violated the FCA by filing incorrect Medicare cost reports that resulted in intentional over-billing. (Compl. ¶ 3). A former independent consultant to BIMC, Thomas Colucci claimed personal knowledge of the events alleged in the complaint. (Id. ¶ 7).

The complaint was unsealed on September 13, 2007, and served on defendants in January 2008. Before defendants had time to respond to the complaint, however, Thomas Colucci died on January 24, 2008. On February 21, 2008, I stayed proceedings until such time as "an executor or administrator has been appointed to Mr. Colucci's estate," at which point the executor or administrator was to "advise the court as to whether he seeks to continue to prosecute this case." (Feb. 21, 2008 Order).

Subsequently, in June 2008, Thomas Colucci's widow notified the Court that she had been appointed administrator of her husband's estate and that she sought substitution as relator in this action under Fed.R.Civ.P. 25(a). Colucci filed her motion to substitute on July 17, 2008. Defendants filed their opposition on August 1, 2008, and Colucci filed her reply on September 15, 2008. The United States, which has declined to otherwise intervene in the action to date, submitted a statement of interest on September 25, 2008. The United States did not take a position on Colucci's motion to substitute; its statement addressed only the question of whether the FCA is a punitive or remedial statute. Defendants replied to the United States' statement on October 6, 2008.

DISCUSSION

This case presents an issue of first impression in the Second Circuit: whether a qui tarn action under the FCA survives the death of the relator. If the answer is yes, the Court must then determine whether in this case Colucci, as administrator of her husband's estate, may be substituted as relator.

A. The False Claims Act

The FCA was enacted in 1863 at the height of the Civil War primarily to "combat rampant fraud in Civil War defense contracts." S.Rep. No. 99-345, at 8 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5273. As the Supreme Court has explained, the statute:

was originally adopted following a series of sensational congressional investigations into the sale of provisions and munitions to the War Department. Testimony before Congress painted a sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war. Congress wanted to stop the plundering of the public treasury.

United States v. McNinch, 356 U.S. 595, 599, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958).

Accordingly, the FCA provides that:

[A]ny person who knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval ... is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.

31 U.S.C. § 3729(a)(7).

The statute reaches not only the actual submission of a false claim, but also the making of a record or statement to obtain payment or approval of a false claim, the possession of property or money used to defraud the Government, illegal purchases from an officer or employee of the Government, and the making of a false record to "conceal, avoid or decrease" a financial obligation to the Government. See 31 U.S.C. § 3729(a)(2)-(7).

1. Qui Tarn Provision

Under the qui tarn provision of the FCA, a private person "may bring a civil action for violations of § 3729 for the person and for the United States Government." 31 U.S.C. § 3730(b). These suits are brought in the name of the United States. Id. The plaintiff, or "relator," must provide the Government with a copy of the complaint and written disclosure of all material evidence and information. 31 U.S.C. § 3730(b)(2). The complaint remains under seal for at least 60 days; during that time the Government decides to either: (a) proceed with the action; or (b) notify the court that it declines to take over the action, leaving the relator with the right to conduct the action. 31 U.S.C. § 3730(b), (c).

The relator is entitled to receive a portion of the damages paid in the action regardless of whether the Government proceeds with the action. 31 U.S.C. § 3730(d). This portion can range from ten to twenty-five percent of proceeds from the action or settlement of the claim. Id.

2. 1986 Amendments

In 1986, in response to the perception that "fraud permeates generally all Government programs," Congress amended the FCA in significant respects. S.Rep. No. 99-345, at 2, as reprinted in 1986 U.S.C.C.A.N. at 5267. These amendments strengthened the Act by, among other things, increasing the mandatory civil remedies from double damages to treble damages and the fines from $2,000 to $5,000-$10,000 for each violation. 31 U.S.C. § 3729(a)(7). The amendments also expanded the rights of qui tam relators and increased their financial incentives to bring suit under the Act, so as to "encourage more private enforcement suits." See S.Rep. No. 99-345, at 23-24, as reprinted in 1986 U.S.C.C.A.N. at 5288-89.

B. Substitution of Parties

Fed.R.Civ.P. 25(a)(1) provides that "[i]f a party dies and the claim is not extinguished, the court may order substitution of the proper party. A motion for substitution may be made by any party or by the decedent's successor or representative." Whether a claim survives or is "extinguished" upon the death of a party is determined by "the nature of the cause of action for which the suit is brought." Ex parte Schreiber, 110 U.S. 76, 80, 3 S.Ct. 423, 28 L.Ed. 65 (1884). Unless a statute directly addresses the issue, courts are generally guided by principles of federal common law, which prescribe that claims characterized as "penal" abate upon a party's death, while claims characterized as "remedial" survive. See Ex parte Schreiber, 110 U.S. at 80, 3 S.Ct. 423; United States ex rel. Neher v. NEC Corp., 11 F.3d 136, 137 (11th Cir.1994).

1. Survival of Claim

a. Applicable Law

The question whether FCA claims are remedial or punitive remains unsettled; in its most recent decision on the nature of FCA damages, the Supreme Court held that the statute serves dual purposes. See Cook County, Ill. v. United States ex rel. Chandler, 538 U.S. 119, 129-35, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003). In Chandler, the Supreme Court considered whether municipalities could be liable under the FCA, given their "common law resistance to punitive damages." Id. at 129, 123 S.Ct. 1239. In permitting municipal liability, the Court backed away from its prior characterization of FCA damages as "punitive," noting that "it is important to realize that treble damages have a compensatory side serving remedial purposes in addition to punitive objectives." Id. at 130, 123 S.Ct. 1239 (distinguishing Vermont Agency of Nat'l Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000)). It noted that "[w]hile the tipping point between payback and punishment defies general formulation, . . . the facts about the FCA show that the damages multiplier has compensatory traits along with the punitive." Id.

A number of courts have considered the survival of FCA qui tam actions after the death of the relator, but there is no precedent in the Second Circuit on the question. The most recent cases have relied, at least in part, on Chandler to hold that FCA claims are "remedial" and survive the relator's death. See United States ex rel. Wright v. Chevron USA, No. 5:03 Civ. 264 (E.D.Tex. Dec. 30, 2008); United States ex rel. Lemmon v. Envirocare of Utah, No. 2:02 Civ. 904(BSJ), 2008 U.S. Dist. LEXIS 29619, 6-26 (D. Utah April 9, 2008); United States ex rel. Botnick v. Cathedral Healthcare Sys., Inc., 352 F.Supp.2d 530, 532 (D.N.J.2005). Prior to Chandler, courts also held that FCA qui tarn claims were remedial and survived the death of the relator. See NEC, 11 F.3d at 137-39; see also United States ex rel. Semtner v. Medical Consultants, Inc., 170 F.R.D. 490, 496 (W.D.Okla.1997) ("[T]he relator's role is neither penal nor remedial, but derivative of the remedial claims of the government and thereby survives the death of the relator.").

In the one district court case holding the relator's FCA claim extinguished upon his death, the court noted that the statute's legislative history indicated the FCA was remedial, but that Supreme Court precedent in Stevens suggested the statute was...