U.S., ex rel. Mccarthy v. Straub Clinic and Hosp., No. Civ. 99-00604DAEKSCC.

Decision Date13 April 2001
Docket NumberNo. Civ. 99-00604DAEKSCC.
Citation140 F.Supp.2d 1062
PartiesUNITED STATES of America, ex rel. Lillian MCCARTHY and Katherine Manuel; Lillian McCarthy, individually, and Katherine Manuel, individually, Relators/Plaintiffs, v. STRAUB CLINIC AND HOSPITAL, INC.; PhyCor Hawaii, Inc. and Phycor, Inc., Defendants.
CourtHawaii Supreme Court

Warren Price, III, Price Okamoto Himeno & Lum, Honolulu, HI, Thomas R. Grande, Davis Levin Livingston Grande, Honolulu, HI, for plaintiffs.

Mark E. Recktenwald, Office of the United States Attorney, Honolulu, HI, for United States of America, intervenor.

Robert S. Katz, Torkildson Katz Fonseca Jaffe & Moore, Honolulu, HI, for Straub Clinic and Hospital, Inc., Phycor Hawaii, Inc., defendants.

Deborah K. Wright, Wright & Kirschbraun, Wailuku, Maui, Hi, for Phycor, Inc., defendant.

ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS

DAVID ALAN EZRA, Chief Judge.

The court heard Defendants' Motions on April 10, 2001. Thomas R. Grande, Esq., Mark Davis, Esq., Sharon Himeno, Esq., and Robert M. Kohn, Esq., appeared at the hearing on behalf of Plaintiffs; Robert S. Katz, Esq., and Harry R. Silver, Esq., appeared at the hearing on behalf of Defendants Straub Clinic and Hospital, Inc., and PhyCor Hawaii, Inc., and Keith D. Kirschbraun, Esq., appeared at the hearing on behalf of Defendant PhyCor, Inc. After reviewing the Motion and the Supporting and Opposing Memoranda, the court DENIES Defendants' Motions to Dismiss.

BACKGROUND

Relators/Plaintiffs Lillian McCarthy and Katherine Manuel (collectively "Plaintiffs") brought this qui tam action under the False Claims Act, which is codified at 31 U.S.C. § 3729 et seq. Plaintiffs filed the original Complaint in this case on August 31, 1999, and filed a First Amended Complaint on September 16, 1999.1 Pursuant to a Stipulation and Order filed February 9, 2001, Plaintiffs filed a Second Amended Complaint ("the Complaint") on February 21, 2001. The facts giving rise to the Complaint are summarized below.2

Defendant Straub Clinic and Hospital, Inc. ("Straub") is a medical service provider in the State of Hawaii. Straub therefore falls under the federal Medicare program. Straub employed Plaintiff McCarthy as its Manager of Cash Posting beginning in October of 1992.

As early as 1994, Plaintiff McCarthy made complaints to the Government regarding false claims submission by Straub. The Government thus investigated Straub's billing under Medicare and other related programs.

After its investigation, the Government entered into a Settlement Agreement with Straub, Defendant PhyCor, Inc. ("PhyCor"), and Defendant PhyCor Hawaii3 in order to resolve allegations of the filing of false claims. The Settlement Agreement resulted in Straub's payment of $2.4 million in fees to the Government. Straub did not admit to any wrongdoing, but agreed to execute a Corporate Integrity Agreement ("CIA") which was to govern Straub's billing practices and ensure that it would properly submit claims to the Government.

Allegedly, Plaintiffs McCarthy and Manuel, who was McCarthy's supervisor at the time, discovered that Straub continued to submit false claims, despite the fact that the CIA was in place and supposedly governing billing practices. They reported the alleged false claims, and then filed the Complaint in this case.

In response to the Complaint, Defendants Straub and PhyCor Hawaii filed this Motion to Dismiss on December 15, 2000.4 Defendant PhyCor filed its Motion to Dismiss on March 13, 2001. Each argues, inter alia, that this court lacks jurisdiction to hear this case and that Plaintiffs have failed to plead fraud with sufficient specificity. PhyCor also argues that this court lacks personal jurisdiction over it. Plaintiffs filed their Memoranda in Opposition to these Motions on March 22, 2001, and Defendants filed their Reply Memoranda on March 29, and March 30, 2001.

STANDARD OF REVIEW
A. Motion to Dismiss for Lack of Subject Matter Jurisdiction.

In determining the sufficiency of an alleged jurisdictional basis, the plaintiff bears the burden of proof that subject matter jurisdiction does in fact exist. Thornhill Pub. Co. v. General Tel. & Elec. Corp., 594 F.2d 730, 733 (9th Cir.1979). Moreover, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983). In a motion to dismiss based upon lack of subject matter jurisdiction, the court may receive, among other forms of competent evidence, affidavits to resolve factual disputes without converting the motion to dismiss into one for summary judgment. Sudano v. Federal Airports Corp., 699 F.Supp. 824, 825-26 (D.Haw.1988).

B. Motion to Dismiss for Lack of In Personam Jurisdiction.

Likewise, the plaintiff bears the burden of proof that in personam jurisdiction exists. Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir.1990). In the absence of an evidentiary hearing, however, the plaintiff's written submissions need only make a prima facie showing of jurisdictional facts. Sher, 911 F.2d at 1361 (citing Data Disc, Inc. v. Systems Tech. Assoc., 557 F.2d 1280, 1285 (9th Cir.1977)). Moreover, the plaintiff's allegations are treated as true in determining whether a prima facie showing of personal jurisdiction has been made. Sher, 911 F.2d at 1361; Caruth v. International Psychoanalytical Ass'n, 59 F.3d 126, 128 n. 1 (9th Cir.1995).

C. Motion to Dismiss for Failure to Plead Fraud with Particularity.

Federal Rule of Civil Procedure 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). Under Ninth Circuit law, "Rule 9(b) requires particularized allegations of the circumstances constituting fraud." Decker v. GlenFed, Inc., 42 F.3d 1541, 1547-48 (9th Cir.1994) (en banc). The plaintiff must, in her pleading, include the time, place, and nature of the alleged fraud, and "mere conclusory allegations of fraud are insufficient" to satisfy this requirement. Id. Therefore, a plaintiff must plead more than neutral facts to identify the transaction. Id. The plaintiff must also set forth what is false or misleading about a statement, and why it is false. Id.

DISCUSSION

Because Defendants filed separate Motions to Dismiss, and because the Motions are somewhat divergent, the court will address each one separately.

A. Straub and PhyCor Hawaii's Motion to Dismiss.

Straub and PhyCor Hawaii (hereinafter referred to collectively as "Straub") forward three arguments in support of their Motion to Dismiss: that Plaintiffs are actually complaining of violations of the CIA and the False Claims Act does not provide jurisdiction for such claims; that Plaintiffs have failed to plead fraud with sufficient particularity; and that the court lacks subject matter jurisdiction. The court will address each argument below.

1. Jurisdiction Under the False Claims Act.

Straub first argues that the False Claims Act does not provide jurisdiction over Plaintiffs' claims. In support of its argument, Straub asserts that Plaintiffs "appear to be alleging that Straub is violating the CIA." See Defendant Straub Clinic and Hospital, Inc. and PhyCor Hawaii, Inc.'s Motion to Dismiss, at 5. To this end, Straub argues, the CIA is a contractual agreement which includes an enforcement mechanism. Straub further posits that Plaintiffs have no standing to challenge non-compliance with the CIA, and the False Claims Act does not provide the court with jurisdiction over the CIA. Plaintiffs, of course, disagree.

Plaintiffs point out in their Opposition that although the Complaint does address alleged violations of the CIA, those references are made in addition to the allegations that Straub violated the False Claims Act. After a close review of the Complaint, the court agrees.

The Complaint itself directly alleges that Defendants submitted false claims and violated the False Claims Act. In fact, Count I is entitled "Violation of False Claims Act 31 U.S.C. § 3729." See Second Amended Complaint, at 43. The Complaint also alleges that Defendants have violated the terms of the CIA.5 Whereas a violation of the CIA may or may not provide a cause of action for these Plaintiffs, allegations of such violations do not divest the court of jurisdiction under the False Claims Act. The CIA did not, in any way, grant Defendants immunity from prosecution under the False Claims Act.

Moreover, under Ninth Circuit law, "[a]ny non-frivolous assertion of a federal claim suffices to establish federal question jurisdiction, even if that claim is later dismissed on the merits." Cement Masons Health and Welfare Trust Fund for Northern California v. Stone, 197 F.3d 1003, 1008 (9th Cir.1999). See also Timberlane Lumber Co. v. Bank of America, 549 F.2d 597, 602 (9th Cir.1976) (superseded by statute on other grounds) (stating that where federal statute provides basis for subject matter jurisdiction and plaintiffs' substantive claims, "a motion to dismiss for lack of subject matter jurisdiction rather than for failure to state a claim is proper only when the allegations of the complaint are frivolous"). Here, the Complaint does not appear frivolous on its face. Therefore, the court has subject matter jurisdiction. The court DENIES the Motion on this ground.

2. Pleading Fraud with Particularity.

Straub's next argument is that Plaintiffs' Complaint fails to allege fraud with sufficient particularity as required by Federal Rule of Civil Procedure 9(b). Plaintiffs assert that they have in fact pleaded their Complaint with sufficient specificity to state a claim under the False Claims Act.

It is true that "[c]omplaints brought under the [False Claims Act] must fulfill the requirements of Rule 9(b)." United States ex rel. Lee v. SmithKline...

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