United States ex rel. Bogina v. Medline Indus., Inc.

• Decision Date: 24 March 2015
• Docket Number: No. 11 C 05373,11 C 05373
• Parties: UNITED STATES OF AMERICA, ex rel. AUGUST BOGINA III, Plaintiffs, v. MEDLINE INDUSTRIES, INC., TUTERA GROUP, INC., JOSEPH C. TUTERA, WALNUT CREEK MANAGEMENT COMPANY, L.L.C., ILLINOIS HEALTH CARE MANAGEMENT II L.L.C., and TUTERA INVESTMENTS L.L.C., Defendants.
• Court: U.S. District Court — Northern District of Illinois

UNITED STATES OF AMERICA,
ex rel. AUGUST BOGINA III, Plaintiffs,
v.
MEDLINE INDUSTRIES, INC.,
TUTERA GROUP, INC., JOSEPH C.
TUTERA, WALNUT CREEK
MANAGEMENT COMPANY, L.L.C.,
ILLINOIS HEALTH CARE
MANAGEMENT II L.L.C., and TUTERA
INVESTMENTS L.L.C., Defendants.

No. 11 C 05373

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 24, 2015

Judge John J. Tharp, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiff August Bogina ("Bogina") brings this fourteen-count action, as relator on behalf of the United States and eleven individual states, against defendant Medline Industries, Inc. ("Medline"), and defendants Tutera Group, Inc., Joseph C. Tutera, Walnut Creek Management Company, L.L.C., Illinois Health Care Management II L.L.C., and Tutera Investments L.L.C. (collectively, "Tutera"), pursuant to the qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., and various parallel state statutes. See Third Amended Complaint ("Complaint" or "Compl."), Dkt. 27, ¶ 1.¹ Subject matter jurisdiction is alleged under 31 U.S.C. § 3732(a), (b), and 28 U.S.C. § 1331, see Compl., Dkt. 27, ¶ 9, but contested by Medline and Tutera in the motions to dismiss now before the Court. See Dkt. 61, at 2; Dkt. 64, at 2.

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Medline and Tutera move to dismiss Bogina's Complaint pursuant to Fed. R. Civ. P. 12(b)(1) and/or 12(b)(6), contending that Bogina's claims "are jurisdictionally barred by the FCA's public disclosure bar," 31 U.S.C. § 3730(e)(4), because they "are based on and are substantially similar to allegations that were publicly disclosed" in another qui tam action against Medline previously brought and settled in this district, United States ex rel. Mason v. Medline Indus., Inc., No. 07 C 5615 (filed Oct. 4, 2007; dismissed Mar. 24, 2011), as well as various news stories reporting on that litigation and settlement, and "because Bogina does not fall within the 'original source' exception to the public disclosure bar." See Medline Mot., Dkt. 64, ¶¶ 2-3; Tutera Mot., Dkt. 61, ¶ 2. For the following reasons, the Court agrees that Bogina's claims must be dismissed pursuant to the FCA's public disclosure bar.²

I. Governing Standards

Before turning to Bogina's claims and the events that preceded them, mention must be made of the standard and burden of proof applicable to the current motions. An amendment to the FCA which took effect on March 23, 2010, modifies its public disclosure bar, 31 U.S.C. § 3730(e)(4), from one depriving a court of jurisdiction (no court "shall have jurisdiction over an action under this section") to one requiring dismissal of a barred action or claim (the court "shall dismiss an action or claim under this section"). See United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 705-06 (7th Cir. 2014) (quoting pre- and post-amendment versions of 31 U.S.C. § 3730(e)(4)). The Seventh Circuit has questioned whether

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this amended version of § 3730(e)(4) remains "a jurisdictional requirement that must be addressed before a court can reach the merits of the FCA claims," suggesting that the amended public disclosure bar perhaps may be addressed under Rule 12(b)(6) rather than Rule 12(b)(1). See id. ("it is no longer clear" that the Supreme Court's holding that § 3730(e)(4) "is a jurisdictional requirement" is "still good law" after the 2010 amendment) (citing Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467-70 (2007)).

Because this FCA amendment was not retroactive, the earlier version of § 3730(e)(4) applies to conduct before March 23, 2010, and the amended version to conduct thereafter.³ Here, although the bulk of Bogina's Complaint alleges conduct that "began by at least December 1, 2003 and continued to at least December 31, 2009," two paragraphs allege (on "information and belief") that the "illegal conduct" "continues to the present day." Compl., Dkt. 27, ¶¶ 89, 135. Both versions of § 3730(e)(4)'s public disclosure bar are implicated in such a case—where the FCA violations alleged span the 2010 amendment of the statute⁴—conceivably requiring motions invoking that bar to be analyzed partly (here, primarily) under Rule 12(b)(1) and partly under Rule 12(b)(6). See Chicago Transit Auth., 2014 WL 5333399, at *2. But that distinction makes no practical difference to the standard applied by the Court in this case. See id. ("Regardless of whether the 2010 version of the public disclosure bar is deemed substantive or jurisdictional, the Court's disposition of Defendant's motion is the same.").

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Like a motion under Rule 12(b)(6), a motion to dismiss under Rule 12(b)(1) mounting a "facial" challenge to subject matter jurisdiction (i.e., based on the legal sufficiency of the jurisdictional allegations on the face of the complaint, as in this case) requires the complaint's allegations to be "taken as true for purposes of the motion." See Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443-44 (7th Cir. 2009); Chicago Transit Auth., 2014 WL 5333399, at *3 (citing Apex); Omnicare, 2014 WL 1458443, at *3 (same). The burden of establishing jurisdiction in a qui tam case, however, remains on the relator plaintiff—here, Bogina—by a preponderance of the evidence. Absher 764 F.3d at 707 ("At each stage of the jurisdictional analysis, the relators bear the burden of proof," and such burden is to prove "on a claim-by-claim basis that subject matter jurisdiction exists by a preponderance of the evidence." (quoting Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009), and Boese, Civil False Claims and Qui Tam Actions § 4.02[A], at 4-56 (4th ed. Supp. 2014)) (brackets and internal quotation marks omitted). The Court applies these standards to the current motions.

II. Background

A. The Mason Litigation

According to Bogina's Complaint, "Medline is one of the largest manufacturers and distributors of durable medical equipment" in the United States, Compl., Dkt. 27, ¶ 76; and Medline sells such equipment to various healthcare providers, including nursing facilities, "the vast majority of which participate in federal healthcare programs such as Medicare and Medicaid." Id. at ¶ 77. Bogina alleges that Medline violated the FCA by using "rebates," "bribes," and "kickbacks" to induce nursing facilities to purchase Medline products, thereby causing such facilities in turn to submit false claims when seeking reimbursement for those purchases from government healthcare programs. Id. at ¶¶ 1-7.

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Nearly four years before Bogina filed this case, however, another relator (Sean Mason) filed a strikingly similar action in this district against Medline and an affiliate for violations of the FCA and an Illinois whistleblower statute. See Medline Mem. Ex. A, Dkt. 65-1; Court Docket in Mason v. Medline Indus., Inc., No. 07 C 5615 (N.D. Ill. filed October 4, 2007) [hereinafter Mason].⁵ Although initially sealed while the federal government and Illinois considered whether to intervene (which they declined to do), the Mason action was unsealed in January 2009. See Mason Dkts. 13-18, 21. An amended complaint followed in March 2009, alleging that Medline violated the FCA and the foregoing Illinois statute by, among other "schemes," providing "rebates," "bribes," and "kickbacks" to induce purchases of Medline products by various healthcare providers, including nursing facilities, who in turn submitted false claims when seeking reimbursement for such purchases. Mason Dkt. 47, ¶¶ 2-10, 23, 27, 30.

Following dismissal of Mason's amended complaint for failure to plead fraud adequately and with particularity, Mason Dkt. 82, in December 2009, Mason filed a second amended complaint ("Mason Complaint"), omitting any state claims, but again alleging violations of the FCA through "rebates," "bribes," and "kickbacks" to various "health care providers who purchase medical and surgical supplies paid for by Federal healthcare programs such as Medicare and Medicaid," including among others, "nursing facilities." Medline Mot. Ex. B, Dkt. 65-2, ¶¶ 1-14, 26, 28. The Mason Complaint further identified the specific Medline department responsible for sales to nursing homes—its Healthcare Company sales department—and specific individuals in that department who had "knowledge of one or more fraudulent schemes alleged,"

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including one in Medline's "Top management"—Medline Healthcare Company Senior VP (Timothy Dunden) and VP (Steve Marciano). Id. at ¶¶ 28, 33. In denying Medline's motion to dismiss the Mason Complaint, the Mason court described Mason's allegations of this "scheme" as follows:

The second amended complaint claims that Medline used a wide array of kickbacks and bribes to solicit business from healthcare providers. Providers are required to submit annual cost reports to the Centers for Medicare and Medicaid Services, the agency that administers federal healthcare programs. 42 C.F.R. 413.20(b). Each cost report includes a certification attesting to compliance with healthcare laws and regulations, including anti-kickback provisions. Mason claims that by engaging in bribes and kickbacks, Medline knowingly caused the submission of false or fraudulent claims for payment to the United States, and knowingly caused the use of false statements, resulting in the payment of false or fraudulent claims. 31 U.S.C. § 3729(a)(1) and (2).

Mason v. Medline Indus., Inc., 731 F. Supp. 2d 730, 733 (N.D. Ill. 2010).

More than a year after this ruling sustaining the Mason Complaint over Medline's motion to dismiss, the Mason action was dismissed in March 2011 pursuant to a Settlement Agreement between Mason, Medline, and the United States. See Mason Dkt. 238 (Mar. 24, 2011 "Order of Dismissal with Prejudice" noting that "Mason, Medline, and the United States have entered into a Settlement Agreement").⁶ News media reports describing the claims that were asserted in

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Mason and the $85 million Medline paid to settle them quickly followed. See, e.g., Medline Mot. Ex. E...