U.S. v. Univ. of Mass.

• Decision Date: 27 January 2016
• Docket Number: No. 15–1239.,15–1239.
• Citation: 812 F.3d 35
• Parties: UNITED STATES of America and Commonwealth of Massachusetts, ex rel. Michael A. Willette, Plaintiff, Appellant, v. UNIVERSITY OF MASSACHUSETTS, WORCESTER a/k/a University of Massachusetts Medical School, Defendant, Appellee. Estate of Leo Villani and John Does, Defendants.
• Court: U.S. Court of Appeals — First Circuit

812 F.3d 35

UNITED STATES of America and Commonwealth of Massachusetts, ex rel. Michael A. Willette, Plaintiff, Appellant,

v.UNIVERSITY OF MASSACHUSETTS, WORCESTER a/k/a University of Massachusetts Medical School, Defendant, Appellee.

Estate of Leo Villani and John Does, Defendants.

No. 15–1239.

United States Court of Appeals, First Circuit.

Jan. 27, 2016.

Allyson H. Cohen, for appellant.

Daniel Meron, Special Assistant Attorney General, Commonwealth of Massachusetts, with whom Latham & Watkins LLP was on brief, for appellee.

Before BARRON, Circuit Judge, SOUTER,^* Associate Justice, and SELYA, Circuit Judge.

SELYA, Circuit Judge.

This appeal raises two distinct but loosely connected issues. The first involves the question of whether the University of Massachusetts Medical School (UMMS) is a state agency, not a "person," and therefore exempt from suit by private parties under the False Claims Act (FCA), 31 U.S.C. §§ 3729 –3733, and its Massachusetts counterpart, Mass. Gen. Laws ch. 12, §§ 5A –5O. The second involves the operation and effect of Federal Rule of Civil Procedure 54(b).

With respect to the first question, we settle upon the appropriate test (a matter of first impression in this circuit), conclude that UMMS is an arm of the state, and hold that the district court did not err in dismissing the relator's claims against it. With respect to the second question, we conclude that Rule 54(b) must be construed strictly. As a result, we dismiss the relator's attempt to raise on appeal issues not fairly presented in the district court's Rule 54(b) certificate. The tale follows.

I. BACKGROUND

Plaintiff-appellant Michael A. Willette (the relator) toiled at UMMS for roughly fourteen years beginning in 2000. Specifically, he worked for the Center for Health Care Financing (CHCF). One of CHCF's chief tasks is the recovery of funds from third parties (such as private insurers or the estates of deceased beneficiaries) in order to reimburse Medicaid expenditures previously made by the Commonwealth of Massachusetts and the federal government.

CHCF is an office within a division of UMMS known as "Commonwealth Medicine."

Neither CHCF nor "Commonwealth Medicine" is separately incorporated.

Leo Villani also worked at CHCF. Villani died in 2013, and the relator was appointed as his personal representative. In reviewing estate documents, the relator discovered that Villani had contrived a scheme to divert funds collected by CHCF to his own behoof, siphoning off nearly $4,000,000 before his death. In a series of meetings, the relator shared the details of Villani's fraud with his superiors. The relator claims that UMMS officials thereafter retaliated against him by excluding him from a meeting, denying him access to his work computer and departmental software while the scheme was being investigated, and "verbally demean[ing]" him.

In time, the relator repaired to the federal district court. He sued UMMS and Villani's estate in a qui tam action alleging (as pertinent here) violations of the FCA and its Massachusetts counterpart. The relator's complaint was originally filed under seal, and he amended it twice before the United States and Massachusetts declined to intervene. See 31 U.S.C. § 3730(b)(4)(B) ; Mass. Gen. Laws ch. 12, § 5C(4)(ii).

When the case was taken out from under seal, the second amended complaint was served. UMMS moved to dismiss for lack of subject matter jurisdiction and failure to state a claim. See Fed.R.Civ.P. 12(b)(1), (6). As part of his opposition to UMMS's motion, the relator cross-moved for leave to file a third amended complaint, seeking to add as defendants "Commonwealth Medicine" and a plethora of individuals (all employees or former employees of UMMS, "Commonwealth Medicine," or CHCF, sued in their individual capacities).

After a hearing, the district court (addressing the second amended complaint) dismissed the relator's FCA claims against UMMS. The court's dispositive consideration was the bedrock proposition, established by the Supreme Court in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 787–88, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000), that states cannot be sued in a private action under the FCA. See United States ex rel. Willette v. Univ. of Mass., 80 F.Supp.3d 296, 299–302 (D.Mass.2015). The court embraced the corollary proposition that whether an entity is a "state" should be determined by reference to the Eleventh Amendment arm-of-the-state test. See id. at 299. It went on to hold that this same reasoning dictated the outcome of the relator's claims against UMMS under the Massachusetts counterpart to the FCA.¹ See id. at 299 n. 4 (citing Scannell v. Attorney Gen., 70 Mass.App.Ct. 46, 872 N.E.2d 1136, 1138 n. 4 (2007) ). Finally, the court denied the relator's motion for leave to file a third amended complaint, concluding for a variety of reasons that the proffered complaint would be futile. See id. at 302–04.

The relator filed a notice of appeal. The notice of appeal was premature because the case was still pending against the Villani estate in the district court. We nevertheless held the appeal in abeyance while the relator sought and received partial final judgment from the district court. See Fed.R.Civ.P. 54(b). Based on the district court's Rule 54(b) certificate, the relator's appeal proceeded.

II. ANALYSIS

In this venue, the relator seeks review of both the determination that UMMS is not amenable to suit under the FCA and the denial of leave to amend. We discuss these rulings separately.

A. The Claims Against UMMS.

The relator's principal asseveration is that the district court erred in determining that UMMS is a state agency and, thus, exempt from the FCA. This asseveration raises an antecedent question of first impression in this circuit about the appropriate test for determining whether an entity is a state agency for FCA purposes.

Some background is helpful. The FCA subjects to liability "any person" who submits a false claim to the government "for payment or approval." 31 U.S.C. § 3729(a)(1)(A). The statute itself does not define the term "person." In Stevens, the Supreme Court filled this void: it applied the "longstanding interpretive presumption that ‘person’ does not include the sovereign," 529 U.S. at 780, 120 S.Ct. 1858, and concluded that states are not subject to liability in actions brought by private parties under the FCA, id. at 787–88, 120 S.Ct. 1858. In its analysis, the Court emphasized the "virtual coincidence of scope" between the question of "whether States can be sued" under the FCA and the question of "whether unconsenting States can be sued" in the Eleventh Amendment context. Id. at 779–80, 120 S.Ct. 1858.

Though the Court did not explain how to determine whether an entity is a state agency for FCA purposes, the correspondence the Court identified has led every circuit that has confronted the question to conclude that the FCA context requires the same test as that used for determining whether an entity is an arm of the state entitled to share in Eleventh Amendment immunity. See, e.g., Kreipke v. Wayne State Univ., 807 F.3d 768, 775 (6th Cir.2015) ; United States ex rel. Lesinski v. S. Fla. Water Mgmt. Dist., 739 F.3d 598, 601–02 (11th Cir.), cert. denied, ––– U.S. ––––, 134 S.Ct. 2312, 189 L.Ed.2d 201 (2014) ; United States ex rel. Oberg v. Ky. Higher Educ. Student Loan Corp., 681 F.3d 575, 579–80 (4th Cir.2012) ; Stoner v. Santa Clara Cty. Office of Educ., 502 F.3d 1116, 1121–22 (9th Cir.2007) ; United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702, 718 (10th Cir.2006) ; United States ex rel. Adrian v. Regents of the Univ. of Cal., 363 F.3d 398, 401–02 (5th Cir.2004). We join this unbroken precedential chain and today hold, as did the court below, see Willette, 80 F.Supp.3d at 299, that the appropriate test under the FCA for actions brought by private parties is identical to the one we have employed in determining whether an entity is an arm of the state for Eleventh Amendment purposes.

It remains, of course, for us to apply this holding.² We previously have articulated a two-part test for arm-of-the-state status. First, we determine if "the state has indicated an intention—either explicitly by statute or implicitly through the structure of the entity—that the entity share the state's sovereign immunity." Redondo Constr. Corp. v. P.R. Highway & Transp. Auth., 357 F.3d 124, 126 (1st Cir.2004). In the absence of an explicit statement, an analysis of the entity's structure requires a wide-ranging survey of the entity's relationship with the state.

While this survey is not controlled by a mechanical checklist of pertinent factors, the case law offers important clues. See, e.g., Hess v. Port Auth. Trans–Hudson Corp., 513 U.S. 30, 44–46, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994) ; Lake Country Estates, Inc. v. Tahoe Reg'l Planning Agency, 440 U.S. 391, 401–02, 99 S.Ct. 1171, 59 L.Ed.2d 401 (1979) ; Fresenius Med. Care Cardiovascular Res., Inc. v. P.R. & the Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56, 68 (1st Cir.2003) ; Metcalf & Eddy, Inc. v. P.R. Aqueduct & Sewer Auth., 991 F.2d 935, 939–40 (1st Cir.1993). Synthesizing these clues, we note that (as pertinent here) the factors include such things as the degree of state control over the entity, the way in which the entity is described and treated by its enabling legislation and other state statutes, how state courts have viewed the entity, the functions performed by the entity, and whether the entity is separately incorporated.See Fresenius, 322 F.3d at 62 nn. 5–6, 65 n. 7.

If this structural analysis is conclusive, our inquiry ends. See id. at 68. If, however, this analysis is inconclusive, "the court must proceed to the second stage and consider whether the state's treasury would be at risk in the event of an adverse judgment." Redondo Constr., 357 F.3d at 126.

We review a district court's application of the arm-of-the-state test de novo. See Fresenius, 322...