U.S. ex rel. Wright v. Cleo Wallace Centers, CIV.A. 97-D-2517.

• Court: United States District Courts. 10th Circuit. United States District Court of Colorado
• Citation: 132 F.Supp.2d 913
• Docket Number: No. CIV.A. 97-D-2517.,CIV.A. 97-D-2517.
• Parties: UNITED STATES of America ex rel. Ross WRIGHT, Plaintiff, v. CLEO WALLACE CENTERS, and Cleo Wallace Foundation, and James M. Cole, in his official capacity as Chief Executive Officer and President of Cleo Wallace Centers, Defendants.
• Decision Date: 21 December 2000

132 F.Supp.2d 913 UNITED STATES of America ex rel. Ross WRIGHT, Plaintiff,
v.
CLEO WALLACE CENTERS, and Cleo Wallace Foundation, and James M. Cole, in his official capacity as Chief Executive Officer and President of Cleo Wallace Centers, Defendants. No. CIV.A. 97-D-2517. United States District Court, D. Colorado. December 21, 2000.

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Michael C. Theis, Asst. U.S. Atty., U.S. Atty's Office, Denver, CO, for U.S.

Keith Cross, Joseph F. Bennett, Cross Bennett & Hessel, LLC, Colorado Springs, CO, for Ross Wright.

James E. Nesland, Cooley Godward, LLP, Denver, CO, for Cleo Wallace Centers.

MEMORANDUM OPINION AND ORDER

DANIEL, District Judge.

THIS MATTER is before the Court on Defendants Motion for Dismissal, or in the Alternative, Summary Judgment, filed October 4, 1999; Plaintiffs Motion to Amend Complaint, filed November 1, 1999; Plaintiffs Motions to File Additional Authority, filed on December 6, 1999 and September 20, 2000; and Defendants Motion to Dismiss the Amended Complaint, or, in the Alternative, for Summary Judgment and Request for Certification of Interlocutory Appeal, filed October 10, 2000. A hearing on the motions was held on September 26, 2000.

I. FACTUAL BACKGROUND

Plaintiff United States of America ex rel. Ross Wright ("Wright") brings this action in the name of the United States of America as a qui tam plaintiff pursuant to the False Claims Act (FCA), 31 U.S.C. § 3730(b) for alleged violations of the Act. Wrights Amended Complaint arises out of Defendants alleged unlawful conduct in knowingly and fraudulently securing Medicaid and Title IV-E funds and for terminating Wright. The Amended Complaint alleges, in pertinent part, that Wright was employed as the Administrator of the Colorado Springs campus of Defendant Cleo Wallace Centers (CWC) until his termination on September 25, 1997. CWC is a non-profit organization that provides psychiatric treatment and rehabilitation services for children and adolescents through psychiatric inpatient hospitals, residential treatment centers ("RTC") and day care centers. CWC has campuses in Colorado Springs, Westminster, and Denver. Facilities of this kind receive federal Medicaid and Title IV(e) funds via state agencies upon proper licensing pursuant to 42 U.S.C. § 1396. Defendant Cleo Wallace Foundation (Foundation) is a Colorado non-profit corporation allegedly organized solely to provide financial support to CWC and is otherwise indistinct from CWC.

Wright claims that during the period from October 1995 through July 1998, CWC was licensed by the state to operate 46-64 residential treatment beds at the Colorado Springs campus and 78 such beds at the Westminster campus. During this time CWC was also licensed to operate 29 inpatient psychiatric hospital beds at the Colorado Springs office and 32 such beds at the Westminster campus.

In August 1995, CWC expanded its inpatient psychiatric care facilities by building an additional inpatient facility at the Colorado Springs campus. Shortly thereafter, it became apparent that CWC would be unable to fill all of its inpatient psychiatric

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beds. Thus, on October 5, 1990, Michael Montgomery, the Chief Operating Officer of CWC, issued a memorandum stated that RTC patients should be placed in inpatient psychiatric beds, i.e. the "swing-bed" plan. The "swing-bed" plan permitted Defendants to maintain higher census levels which generated substantially higher Medicaid reimbursements for RTC clients than would have otherwise been possible absent the plan.

In August 1997, Wright discovered a letter from Susan Rehak ("Rehak Letter"), a state regulatory official from the Colorado Department of Public Health and Environment (CDPHE), to attorneys for CWC, stating that the state regulatory officials were in no way granting CWC the right to make placements not otherwise authorized by their licenses, such as placing RTC clients in inpatient psychiatric beds. The letter indicated to Wright that, contrary to statements made by Cole and Montgomery, CWC was not, in fact, licensed to conduct the swing-bed plan. Wright further alleges that CWC never followed any state regulatory procedures which would have entitled it to operate its swing-bed plan. These discrepancies allegedly prompted Wright to investigate CWCs swing-bed practice. In the course of that investigation, Wright claims that he sought to discuss the Rehak Letter with Cole and Montgomery but was terminated shortly thereafter without explanation.

Wrights Amended Complaint asserts five causes of action. Wrights first and second causes of action seek to recover remedies available under 31 U.S.C. § 3730(b), for CWCs alleged submission of false claims for reimbursement of Medicaid funds for services to RTC clients unlawfully placed in inpatient psychiatric beds at both the Colorado Springs and Westminster campuses. Wrights third and fourth claims seek similar remedies under 3730(b) for reimbursement of Title IV-E funds for services to RTC clients unlawfully placed in inpatient psychiatric hospitals at both the Colorado Springs and Westminster campuses. Wrights fifth cause of action seeks reinstatement and damages arising out of his alleged retaliatory termination in violation of 31 U.S.C. § 3730(h).

II. ANALYSIS

A. Motion to Amend Complaint

As a threshold matter, I grant Wrights motion to amend his Complaint. Rule 15(a) provides that leave to amend shall be freely given when justice so requires. Frank v. U.S. West, 3 F.3d 1357, 1365 (10th Cir.1993). At the September 26, 2000 hearing, Defendants did not object to Wrights motion, but asserted that arguments in their motion to dismiss, or in the alternative, for summary judgment apply equally to the Amended Complaint. Accordingly, for the reasons stated on the record at the September 26, 2000 hearing, I conclude that Wrights motion to amend should be GRANTED. I therefore address only the arguments raised in the motions to dismiss that relate to the claims in the Amended Complaint.

B. Defendants Motions to Dismiss, or in the Alternative, for Summary Judgment

Defendants move to dismiss the complaint for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) and for failure to state a claim under Fed.R.Civ.P. 12(b)(6), or, in the alternative, for summary judgment on all claims. I first address Defendants jurisdictional arguments.

1. Lack of Jurisdiction

A. Constitutionality of the Qui Tam Provision of the Federal Claims Act, 31 U.S.C. § 3730

Defendants argue that the Court lacks jurisdiction over this case because the FCAs qui tam provision, 31 U.S.C. § 3730, is unconstitutional as applied to the facts before the Court. As courts of limited jurisdiction, federal courts may only adjudicate

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cases that the Constitution and Congress have granted them authority to hear. Todd Holding Co., Inc. v. Super Valu Stores, Inc., 744 F.Supp. 1025, 1026 (D.Colo.1990). Where a party moves to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1), the Court must look to the factual allegations of the Complaint. Groundhog v. Keeler, 442 F.2d 674, 677 (10th Cir.1971). "[T]he burden is on the party claiming jurisdiction to show it by a preponderance of the evidence." Celli v. Shoell, 40 F.3d 324, 327 (10th Cir.1994). "Mere conclusory allegations of jurisdiction are not enough." United States, ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160 (10th Cir.1999).

Defendants contend that the FCAs qui tam provision violates the Take Care and Appointments Clauses of Article II of the U.S. Constitution under the separation of powers doctrine when the Attorney General refuses to intervene in the action. See U.S. Const. art. II, §§ 2, 3.

Before addressing the constitutionality of the qui tam provision, a brief summary of the disputed statute is warranted. The FCAs qui tam provision states, in pertinent part, that "[a] person may bring a civil action for a violation of section 3729 for the person and for the United States Government" to recover damages and penalties. See 31 U.S.C. § 3730(b). Such an action "shall be brought in the name of the government." See id. In bringing the action, the private party, or "relator," must serve a complaint and substantially all material evidence and information the relator possesses upon the government. See id. § 3730(b)(2). The U.S. Attorney then has sixty days within which it may elect to intervene. Id. If the Government chooses to intervene during the sixty-day period, it shall have the primary responsibility for prosecuting the action and shall not be bound by any act of the relator. See id. §§ 3730(b)(4)(A), 3730(c). If the government declines to intervene, then the relator may proceed with its case. See id. § 3730(b)(4)(B). However, even if the government has not intervened in the action, it is entitled to receipt of all pleadings and depositions filed in the case upon request. See id. § 3730(c)(3). Further, the government may still intervene after the sixty-day period upon a showing of good cause. Id.

Once the government has intervened in a qui tam action under the FCA, it may move to dismiss the action or settle the case after the relator has been provided an opportunity for a hearing on the motion. See id. § 3730(c)(2)(A)-(B). The government may also move to impose limitations upon the relators participation in the case, if it shows that the relators participation interferes with the governments prosecution of the action. See id. § 3730(c)(2)(c). I now turn to the alleged violation of the Take Care Clause.

1. Take Care Clause

The Take Care Clause states that [the Executive] shall take Care that the Laws be faithfully executed. U.S. Const. Art. II, Sec. 3. This clause gives the Executive Branch the power to enforce the laws. See Springer v. Government of Philippine Islands, 277 U.S. 189, 202, 48 S.Ct. 480, 72 L.Ed. 845 (1928). The separation...