United States ex rel. Di Pietro v. 21 Century Oncology Holdings, Inc. (In re 21st Century Holdings, Inc.)

• Decision Date: 09 July 2018
• Docket Number: Case No. 17–22770 (RDD),Adv. P. No. 17–08284(RDD)
• Citation: 591 B.R. 134
• Parties: IN RE: 21ST CENTURY HOLDINGS, INC., et al. Debtors. United States of America ex rel. David Di Pietro, Plaintiff, v. 21 Century Oncology Holdings, Inc., 21 Century Oncology, Inc., and 21 Century Oncology, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

591 B.R. 134

IN RE: 21ST CENTURY HOLDINGS, INC., et al. Debtors.United States of America ex rel. David Di Pietro, Plaintiff,

v.21^st Century Oncology Holdings, Inc., 21^st Century Oncology, Inc., and 21^st Century Oncology, LLC, Defendants.

Case No. 17–22770 (RDD)

Adv. P. No. 17–08284(RDD)

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

Signed July 9, 2018

KIRKLAND & ELLIS LLP Attorneys for the Reorganized Debtors/Defendants BY: JACOB H. JOHNSTON and MARK MCKANE

DELBELLO DONNELLAN WEINGARTEN WISE & WIEDERKEHR, LLP Attorneys for Ex rel. Plaintiff, David Di Pietro BY: STEVEN R. SCHOENFELD

BERGER SINGERMAN LLP Attorneys for Ex rel. Plaintiff, David Di Pietro BY: JORDI GUSO and SHARON KEGERREIS

MODIFIED BENCH RULING ON MOTION TO DISMISS

Robert D. Drain, United States Bankruptcy Judge

On May 25, 2018 the Court issued a bench ruling on the portion of the reorganized debtors/defendants' (the "Debtors") motion for an order dismissing this adversary proceeding pursuant to Fed. R. Bankr. P. 7009 and 7012 that the Court had not previously granted in its prior bench ruling on January 30, 2018. As I alerted the parties at the hearing, I am filing this modified bench ruling to correct and improve on the syntax and structure of the May 25, 2018 oral ruling, the result of which has already been memorialized by an order dated June 4, 2018 granting the motion to dismiss in full. This Modified Bench Ruling is more colloquial and immediate than a memorandum of decision (and delivered faster), but I hope it is more readable than the bench ruling transcript which it supersedes.

This is the adjourned hearing from January 30, 2018 on the Debtors' motion to dismiss the first amended complaint herein¹ pursuant to Fed. R. Bankr. P. 7009 and 7012, incorporating Fed. R. Civ. P. 9(b) and 12(b)(6).

At the January 30, 2018 hearing, I granted certain aspects of the Debtors' motion to dismiss: I denied the claims of the relator plaintiff, Mr. De Pietro (the "Plaintiff") in this qui tam action based on the Debtors' alleged violations of the Stark Law, 42 U.S.C. § 1395nn, which were premised on alleged offers of patient referrals, including as a basis for the Debtors' alleged violations of the False Claims Act, 31 U.S.C. § 3729, et. seq. ; and I ruled against the Plaintiff regarding his proffered interpretation of the application of section 1141(d)(6) of the Bankruptcy Code, 11 U.S.C. § 1146(d)(6), to his own right to recovery under the False Claims Act (as opposed to the claims that he is pursuing on the United States' behalf).

As to the latter ruling, I concluded that the plain language of Bankruptcy Code section 1141(d)(6) and Southern District of New York precedent limit the Plaintiff's right to a declaration of non-dischargeability to his claim for his fees in a successful qui tam action² and not to his right under 31 U.S.C. § 3730(d) to a percentage of a recovery on the claims that he is pursuing on behalf of the United States for alleged violations of the False Claims Act or in any other way through the Government's possible recovery.

The latter, far larger potential claim I concluded is clearly not a claim that would be owed to the Plaintiff individually but, rather, would be owed to the United States and, therefore, is outside the coverage of section 1141(d)(6)'s plain terms. See 11 U.S.C. § 1141(d)(6) : "The confirmation of a plan does not discharge a debtor that is a corporation from any debt—(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit , or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State Statute. (Emphasis added.) See also United States ex rel. Minge v. Hawker Beechcraft, Inc. , 493 B.R. 696, 710–12 (Bankr. S.D.N.Y. 2013) (concluding that the two italicized clauses above are separate and therefore that a qui tam plaintiff is entitled only to have the aspects of his or her claim that are not first owed to a governmental unit under the False Claims Act be declared non-dischargeable). In United States ex rel. Minge v. Hawker Beechcraft, Inc. , 515 B.R. 416 (S.D.N.Y. 2014), the District Court reversed that decision on other grounds but in doing so agreed with the Bankruptcy Court that clauses 1 and 2 of section 1141(d)(6)(A) are independent and give rise to separate non-dischargeable claims as limited thereby. Id. at 424–25.

I will not repeat the reasons stated in the transcript of the January 30, 2018 hearing for concluding that the complaint does not allege necessary elements of a claim for violation of the Stark Law and thus that the complaint's False Claim Act claims based on allegations of the offer of improper patient referrals should be dismissed.

Plaintiff's remaining claims are based on the Debtors' alleged violations of the Anti–Kickback Statute, 42 U.S.C. § 1320a–7b, as a basis for the complaint's False Claims Act claims. As with the complaint's False Claims Act allegations based on the Stark Law, claims would arise under the False Claims Act if the Debtors violated the Anti–Kickback Statute and then, as the complaint alleges, failed to disclose such violations in their certifications to the United States in connection with enrolling in and billing for Government-reimbursed health programs. 31 U.S.C. § 3729(a)(1)(A), (B), (C) and (G).

The motion to dismiss contends that the complaint's False Claims Act claims based on violations of the Anti–Kickback Statute fail because the Plaintiff does not satisfy 31 U.S.C. § 3730(e)(4)(A) and (B) in that, as alleged by the Debtors, the crux of those Anti–Kickback Statute claims was publicly disclosed by other sources before the Plaintiff shared them with the Government and the Plaintiff lacks knowledge that is independent of and materially and timely added to such publicly disclosed allegations.³

At the January 30, 2018 hearing, I reserved ruling on what I'll refer to as this "prior public disclosure issue," based in large part on the need for briefing on a second, related issue deriving from the fact that the complaint's allegations that the Debtors violated the False Claims Act based on their violations of the Anti–Kickback Statute in turn depend almost entirely on alleged conduct by the Debtors' lobbyist, Bill Rubin ("Rubin").

I noted at the January 30, 2018 hearing that False Claims Act claims sound in fraud,⁴ and, therefore, that Fed. R. Bankr. P. 7009, which incorporates Fed. R. Civ. P. 9(b) applies to them.⁵ Given the complaint's lack of particularity in describing the scope and conduct of Rubin's agency on the Debtors' behalf (indeed, as discussed later, most of the complaint's references to Rubin's agency are wholly conclusory), I asked the parties to brief whether and to what extent Fed. R. Civ. P. 9(b) applied to those portions of the complaint focusing on the relationship between Rubin and the Debtors and the complaint's allegations with respect to Rubin's conduct.

The prior public disclosure issue and this Rule 9(b) issue are related because, as discussed in more detail later, the only aspect of the complaint that arguably materially adds to the prior public disclosure of the facts underlying the complaint's remaining False Claims Act claims relate to Rubin's lobbying role on the Debtors' behalf; if that role is insufficiently pled or the complaint's description of Rubin's conduct, to the extent sufficiently pled, does not substantially add to the prior public disclosures, the remaining False Claim Act claims should be dismissed, too.

Having reviewed the parties' post-hearing briefs and considered all of the pleadings filed in connection with the motion to dismiss, as well as the transcript of the January 30, 2018 hearing and, of course, the complaint, I have determined to grant the remaining aspect of the motion to dismiss for the following reasons.

As noted, in this qui tam action the Plaintiff/relator asserts False Claims Act claims on behalf of the United States based on alleged false certifications by the Debtors in their transactions with the Government, primarily in connection with the Debtors' enrolling in and billing for the Government's Medicare, Medicaid and TRICARE programs. Complaint ¶¶ 211–343.

The complaint alleges that the Debtors' certifications were false or fraudulent because they failed to disclose the Debtors' violations of federal law, namely the Stark Law and the Anti–Kickback Statute incurred in connection with the Debtors' entry into a contract with North Broward Hospital District ("Broward Health") to supply Broward Health with radiation oncology services (the "Broward Contract"). Having on January 30, 2018 concluded to dismiss the complaint's claims for violation of the False Claims Act based on the Debtors' alleged violation of the Stark Law premised on the Debtor's offer of improper patient referrals, I now address the complaint's claims based on the Debtor's alleged violation of the Anti–Kickback Statute.

When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), incorporated by Fed. R. Bankr. P. 7012, a court must assess the legal feasibility of the complaint, not weigh the evidence that might be offered in its support. Koppel v. 4987 Corp. , 167 F.3d 125, 133 (2d Cir. 1999).

The Court's consideration is limited to facts stated on the face of the complaint and the documents appended to the complaint or incorporated in it by reference, as well as matters of which judicial notice may be taken. Hertz Corp. v. City of New York , 1 F.3d 121, 125 (2d Cir. 1993), cert. denied , 510 U.S. 1111, 114 S.Ct. 1055, 127 L.Ed.2d 375 (1993).

The availability of judicial notice is relevant here because the basis for the remaining aspect of the motion to dismiss is the alleged prior public disclosure of the crux of the Debtors' alleged Anti–Kickback Statute violations, and therefore the Plaintiff's failure to comply with section 3370(e)(4)(A)–(B) of the False Claims Act's gatekeeping requirement, in a publication with the wonderful...