U.S. ex rel. Walsh v. Eastman Kodak Co.

• Decision Date: 31 May 2000
• Docket Number: No. Civ.A. 95-12545-PBS.,Civ.A. 95-12545-PBS.
• Citation: 98 F.Supp.2d 141
• Parties: UNITED STATES of America, ex rel. Timothy J. WALSH, Plaintiff, v. EASTMAN KODAK COMPANY, Abbott Laboratories, Tyco International, Ltd., f/k/a The Kendall Company, E.I. Dupont de Nemours and Company, Miles, Inc., Picker International, Inc., Baxter Healthcare Corporation, Dade Diagnostics International, Dade Microscan, Inc., The Carney Hospital, Inc., Individually and on behalf of those similarly situated and Daughters of Charity National Health System, Inc., as their sponsoring organization and on behalf of those similarly situated, Defendants.
• Court: U.S. District Court — District of Massachusetts

98 F.Supp.2d 141

UNITED STATES of America, ex rel. Timothy J. WALSH, Plaintiff, v. EASTMAN KODAK COMPANY, Abbott Laboratories, Tyco International, Ltd., f/k/a The Kendall Company, E.I. Dupont de Nemours and Company, Miles, Inc., Picker International, Inc., Baxter Healthcare Corporation, Dade Diagnostics International, Dade Microscan, Inc., The Carney Hospital, Inc., Individually and on behalf of those similarly situated and Daughters of Charity National Health System, Inc., as their sponsoring organization and on behalf of those similarly situated, Defendants.

No. Civ.A. 95-12545-PBS.

United States District Court, D. Massachusetts.

May 31, 2000.

Susan G. Winkler, United States Attorney's Office, Boston, MA, Floyd H. Anderson, Mark Roder, Campo Anderson LLP, Boston, MA, Charles M. Campo, Jr., Campo Anderson, LLP, Boston, MA, for plaintiff.

Samuel F. Davenport, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., Boston, MA, for Eastman Kodak Company, defendant.

Daniel E. Reidy, R. Christopher Cook, Anastasia Katinas, Jones, Day, Reavis & Pogue, Chicago, IL, Douglas S. Brooks, Goodwin, Procter & Hoar, Boston, MA, Ralph F. Boyd, Jr., Goodwin Procter & Hoar LLP, Boston, MA, for Abbott Laboratories, defendant.

Michael Paris, Gerald P. Tishler, Amanda B. Varella, Brown, Rudnick, Boston, MA, for Kendall Company, The, defendant.

Susan J. Baronoff, Roche, Carens & DeGiacomo, P.C., Boston, MA, for Dupont Merck Pharmaceuticals Company, defendant.

Mary Elizabeth Buckles, Reed, Smith, Shaw & McClay, Washington, DC, Eugene

Tillman, Joseph W. Metro, Tamara V. Scoville, Reed Smith Shaw & McClay LLP, Washington, DC, for Miles, Inc., defendant.

James S. Dittmar, Mark D. Robins, Hutchins, Wheeler & Dittmar, Boston, MA, for Picker International, Inc., defendant.

Michael Kendall, McDermott, Will & Emory, Boston, MA, Michele E. Granda, McDermott, Will & Emery, Boston, MA, Michele E. Granda, McDermott, Will & Emery, Boston, MA, for Baxter Healthcare Corporation, Dade International, Dade Microscan, Inc., defendants.

E. Michael Flanagan, Tara M. Vold, Gardner, Carton & Douglas, Washington, DC, Ross Ginsberg, Gilman, McLaughlin & Hanrahan, Boston, MA, Michael Eby, Gilman, McLaughlin & Hanrahan LLP, Boston, MA, Attison L. Barnes, Gardner, Carton & Douglas, Washington, DC, for Carney Hospital, Daughters of Charity National Health Systems, defendants.

MEMORANDUM AND ORDER

SARIS, District Judge.

INTRODUCTION

This is a qui tam action brought by the relator, Timothy Walsh ("Relator"), pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA"), on behalf of the United States. Relator seeks to recover penalties and damages arising from false or fraudulent cost reports allegedly submitted by the defendants, Carney Hospital, the Daughters of Charity National Health System ("DCNHS") and various unnamed hospital defendants. Walsh is the Chief Financial Officer at Carney Hospital. As to each set of hospital defendants, Relator also alleges common law violations, including fraud, payment under mistake of fact, and unjust enrichment.

Relator also brings suit against nine vendor defendants, who allegedly caused the false claims to be submitted by failing to report, or misreporting, discounts on supplies and equipment purchased by the hospitals. Specifically, Relator asserts that the vendor defendants' discount and rebate programs amount to unlawful kickbacks under the Medicare Anti-Kickback Act, 42 U.S.C. § 1320a-7(b) (a.k.a. the "AKA"). Relator alleges that those undisclosed, and unpermitted, discounts and rebates "caused" the hospitals to submit false claims to the government in violation of the FCA.

The United States intervened, and settled this matter with respect to defendants Carney Hospital and DCNHS (collectively referred to herein as "DCNHS"). Under the settlement agreement entered into by the Relator, the United States, and DCNHS, the Relator agreed to release all claims against those hospitals upon receipt by the United States of an initial settlement amount. That initial amount was based upon an audit that had been performed within DCNHS of unreported and misreported discounts from contracts with Eastman Kodak. Relator was to receive an additional amount once another audit encompassing all the contracts at issue was performed on the hospitals. Relator alleges that because the second audit was performed unsatisfactorily, the parties have not complied with the provisions of the settlement agreement. DCNHS moves for dismissal, or alternatively for summary judgment, asserting that the unambiguous language of the settlement agreement released them upon Relator's acceptance of the initial amount.

The United States declined to intervene against the vendor defendants and the unnamed hospital defendants, and the Relator elected to proceed with the litigation, as provided for under 31 U.S.C. § 3730(b)(4). The vendor defendants have moved individually, and collectively, for dismissal of the First Amended Complaint under FedR.Civ.P. 9(b) and 12(b)(6). The vendors argue that: (1) Relator has failed to plead with specificity the "who, what, where, and when" of his false claims allegations (2) a violation of the AKA does not give rise to a FCA claim as a matter of law; (3) even if it did, the Relator has not alleged that the vendor defendants acted with the required state of mind under either law.

For the reasons stated below, after hearing, I ALLOW DCNHS's motion to dismiss or for summary judgment on the ground that the settlement agreement bars this action. I ALLOW the vendor defendants' motion to dismiss under FedR. Civ.P. 9(b) with prejudice.

BACKGROUND FACTS

A. The DCNHS Hospital Defendants

The following facts are undisputed, unless otherwise noted. On November 22, 1995, Relator, on behalf of the United States, filed a qui tam action under the FCA, alleging that DCNHS submitted false claims for payment to the United States government in connection with applications for reimbursement under the Medicare and Medicaid programs. On July 14, 1998, the United States Attorneys Office ("USAO") and the Department of Justice ("DOJ"), on behalf of the Office of the Inspector General of the Department of Health and Human Services ("OIGHHS"), elected to intervene in the action with respect to DCNHS.

From July 1997 to July 1998, the USAO and DCNHS engaged in settlement negotiations. On July 27, 1998, the United States filed a complaint against DCNHS and four hospitals for alleged violations of the FCA based upon unreported or misreported Kodak discounts on the hospitals' cost reports. On that same day, the USAO, Relator, and DCNHS filed a stipulation of partial dismissal, under which the parties voluntarily dismissed with prejudice all claims related to the complaint against DCNHS. The stipulation was filed with the understanding that the parties would execute a settlement agreement. On August 3, 1998, this Court entered an order enforcing the parties' stipulation and requiring that all contents in the file be kept under seal, with the exception of the stipulation itself and the government's election to intervene.

On August 27, 1998, the USAO and DOJ (on behalf of OIG-HHS), DCNHS, and the Relator executed a settlement agreement (the "Agreement"). Under the Agreement, DCNHS agreed to pay the United States $586,075 as an initial settlement amount resulting from an audit of the Kodak discount program. The Relator was to receive $129,500 of the initial settlement amount, and the Agreement provided that:

Timothy Walsh (the "Relator") agrees that the settlement of claims in the Civil Action is fair, adequate and reasonable under all of the circumstances, pursuant to 31 U.S.C. § 3730(c)(2)(B). On the United States' receipt of [the initial settlement amount], Relator, for himself, his heirs, successors and assigns, will release and will be deemed to have released the four Hospitals and DCNHS from any and all claims that Relator has or may have that arises under or relates to any of the allegations in the Civil Action or the Covered Conduct, except as they relate to a claim for reasonable attorney's fees, expenses, and costs pursuant to 31 U.S.C. § 2730(d)....

DCNHS transferred the initial settlement amount to the United States on July 29, 1998. The United States then sent the Relator his share.

The Agreement also provided that DCNHS would pay two times the total losses to Medicare, which would be calculated based on the results of a further audit of the other vendor programs. That follow-up audit was to be performed by the Catholic Healthcare Audit Network ("CHAN"), which had successfully conducted the Kodak audit of the DCNHS hospitals. Paragraph 6 of the Agreement required, in pertinent part, that:

The audit will be conducted using the same methodology CHAN used to audit Kodak discounts, with the modification that unreported discounts used to purchase equipment or pay for leases will be included as unreported discounts regardless of the treatment of depreciation or lease payments in the cost report.... DCNHS will provide the audit work papers, back-up documentation, pertinent portions of any rerun cost reports, and all summaries thereof to HHS Office of Investigations in Boston, Massachusetts ("OI-HHS")....

Under the Agreement, OIG-HHS was given responsibility to verify that CHAN followed the agreed upon audit methodology and that the documentation supported CHAN's results. OIG-HHS would then calculate the total Medicare loss, determine the final settlement amount due from DCNHS, and notify the USAO and DCNHS to arrange transfer of that amount. The USAO would then pay the Relator a 22% share of the final settlement amount. (See Agreement at ¶ 15).

In October of 1998, the United States sought a status report from DCNHS regarding the vendor audit, which was supposed to be completed within four months from the date of the Agreement. A representative from CHAN advised the government that CHAN had started the audit of one of the DCNHS...