United States ex rel. Davis v. Long's Drugs, Inc., Civ. No. 75-1069-E.

• Citation: 411 F. Supp. 1144
• Decision Date: 01 June 1976
• Docket Number: Civ. No. 75-1069-E.
• Court: United States District Courts. 9th Circuit. United States District Court (Southern District of California)
• Parties: UNITED STATES ex rel. Ronald H. DAVIS, Plaintiff, v. LONG'S DRUGS, INC., a corporation, et al., Defendants.

411 F. Supp. 1144

UNITED STATES ex rel. Ronald H. DAVIS, Plaintiff, v. LONG'S DRUGS, INC., a corporation, et al., Defendants.

Civ. No. 75-1069-E.

United States District Court, S. D. California, Civil Division.

March 16, 1976.

As Amended June 1, 1976.

Barton M. Myerson, Jones, Hatfield, Penfield & Garrett, Escondido, Cal., for plaintiff.

Lawrence E. Volmert, Howard H. Bell, Dunlavey, Rosenberg & Miles, Oakland, Cal., David A. Block, Stephen P. Oggel, Sullivan, Jones & Archer, E. Mac Amos, Jr., Holt, Rhodes & Hollywood, San Diego, Cal., Arthur London, Green & Green, Los Angeles, Cal., for defendants.

OPINION

ENRIGHT, District Judge.

This case presents the question of whether claims presented to a state agency in accord with the Federal Medicaid program, 42 U.S.C. § 1396 et seq., are claims against the United States government within the meaning of the Federal False Claims Act, 31 U.S.C. § 231 et seq. The instant action is brought by a private individual, Ronald H. Davis, on behalf of the United States government under the Federal False Claims Act to recover for alleged fraudulent claims submitted by defendants under the state Medicaid program popularly known as MediCal. (California Welfare and Institutions Code section 14000 et seq.) The jurisdiction of this court is predicated upon 31 U.S.C. § 232(A). The United States government has declined participation in this litigation. (See 31 U.S.C. § 232(C)).

Defendants Value Fair, Inc., Long's Drug Stores, Inc., MacDonald's Pharmacies, Inc., and Sav-On Drugs, Inc. have moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b) for failure to state a claim asserting that the alleged fraudulent claims here are not claims against the government within the meaning of the False Claims Act. The defendants also move to dismiss for lack of subject matter jurisdiction arguing that this action is barred by 31 U.S.C. § 232(C) which prohibits private False Claims Act suits where the information upon which the plaintiff relies is already in the possession of the government. The defendants also move to strike Doe allegations in the complaint and alternatively, if their motions to dismiss are not granted, for a more definite statement pursuant to Federal Rule of Civil Procedure 12(e). For the reasons set forth below the defendants' motions to dismiss will be denied, defendants' motions to strike Doe allegations will be granted, and defendants' motions for more definite statement will be taken under submission pending plaintiff's filing of an amended complaint.

Prior to assessing the legal merits of the parties' positions, a brief discussion by way of background as to the various statutory enactments at issue here would appear in order. In 1965, Congress enacted "Medicaid" to provide grants to states for medical assistance programs to aid indigents, 42 U.S.C. § 1396 et seq. In the same year, Congress passed an unrelated program to provide health insurance benefits for the aged and disabled known as "Medicare", 42 U.S.C. § 1395 et seq. In response to the Medicaid Act, the California legislature at the 1965 second extraordinary session passed the California "MediCal" program. (See Morris v. Williams, 67 Cal.2d 733, 738, 63 Cal.Rptr. 689, 433 P.2d 697 (1967)).

"`Medi-Cal' is this state's program enacted pursuant to the federal law. In order to obtain federal funding which became available to the states under Medicaid the Legislature enacted what is commonly known as the `Medi-Cal Act.'" California Medical Assn. v. Brian, 30 Cal. App.3d 637, 642, 106 Cal.Rptr. 555, 558 (1973).

Approximately 50% of MediCal funds originate with the federal government. (See 42 U.S.C. §§ 1396b(a)1 and 1396d(b) for the method of computation.) To qualify for federal funding through the Medicaid program a state plan must comply with extensive federal regulations. (See discussion infra). If these regulations are not complied with, the Secretary of Health, Education and Welfare is empowered to cut off all or part of the federal funds for the state program. (See 42 U.S.C. § 1396c).

The Federal False Claims Act, 31 U.S.C. § 231 et seq., under which this suit is brought, is a civil statute designed to protect the United States Treasury from fraudulent claims. A related enactment, 18 U.S.C. § 287, specifies criminal penalties for whomever makes or causes to be made false claims against the United States. (See United States v. Neifert-White, 390 U.S. 228, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) at n. 1). The civil False Claims Act, 31 U.S.C. § 231 et seq., provides that persons who submit false claims "shall forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act . . .." Private parties as "informers" are given a private right of action under the False Claims Act; they must, however, immediately after commencing suit provide the Attorney General with a copy of the complaint and "a disclosure in writing of substantially all evidence and information in their possession material to the effective prosecution of such suit." (31 U.S.C. § 232(C)). The government then has 60 days within which to enter the suit, and if the government declines, the plaintiff informer may carry on such suit. (31 U.S.C. § 232(C)). Section 31 U.S.C. § 232(E)2 provides that the plaintiff informer is entitled to fair and reasonable compensation not to exceed one-fourth of the total recovery for his information and actions in prosecuting the action.

The plaintiff in the instant case, Ronald H. Davis, asserts that while working as a pharmacist for the various defendants he observed defendants submit numerous false and fraudulent claims for prescription drugs under the California MediCal program. The plaintiff claims that the information upon which this suit is based was not previously in the possession of the United States. The defendants assert that the plaintiff does not possess any new information and this suit is without factual foundation. Any challenge though by defendants to the merits of plaintiff's contentions regarding the submission of fraudulent claims should be resolved on a Federal Rule of Civil Procedure 56 motion for summary judgment. The essence of the instant motions is that the plaintiff has failed to state a claim upon which relief can be granted in that claims for MediCal benefits are not claims against the United States government within the meaning of the False Claims Act, 31 U.S.C. § 231 et seq.

MEDICAL CLAIMS AS CLAIMS AGAINST THE UNITED STATES GOVERNMENT

The defendants argue that the mere fact that federal funds are advanced for a state program is insufficient to warrant a characterization of fraudulent claims under that program as claims against the United States government within the meaning of the False Claims Act. It is the defendants' position that MediCal is an entirely state administered program which is only funded in part by the federal government and under these circumstances the United States does not possess sufficient connection with MediCal to warrant characterizing false MediCal claims as claims against the United States government. The defendants rely on the Supreme Court companion cases of Rainwater v. United States, 356 U.S. 590, 78 S.Ct. 946, 2 L.Ed.2d 996 (1958), and United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958), and the Ninth Circuit opinion in United States v. Howell, 318 F.2d 162 (9th Cir. 1963), as support for the proposition that the False Claims Act should be strictly construed. The Rainwater decision, however, is not favorable to the defendants. In that case the Court held that false claims regarding crop loans made to the Commodity Credit Corporation, a wholly owned government corporation, were cognizable as claims "against the Government of the United States." The Court stated,

"It seems quite clear that the objective of Congress was broadly to protect the funds and property of the Government from fraudulent claims, regardless of the particular form, or function, of the government instrumentality upon which such claims were made. Cf. United States ex rel. Marcus v. Hess, 317 U.S. 537, 544-545, 63 S.Ct. 379, 87 L.Ed. 443." 356 U.S. at 592, 78 S.Ct. at 948, 2 L.Ed.2d at 999.

The McNinch case involved false representations made in obtaining FHA guarantees of housing loans made to defendants by a bank. The Court noted "the problem is not easy" but an application for credit insurance under the FHA program was not a "claim" within the meaning of the False Claims Act. The Court stated,

"Such provisions must be carefully restricted, not only to their literal terms but to the evident purpose of Congress in using those terms, particularly where they are broad and susceptible to numerous definitions. See United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443." 356 U.S. at 598, 78 S.Ct. at 952, 2 L.Ed.2d at 1004.

The Ninth Circuit Howell case was another civil action under 31 U.S.C. § 231. The defendants held a concession for military dry cleaning business through the Bay Area Exchange whereby they were to pay to the Exchange a percentage of their gross receipts. They misrepresented these receipts and the court held that this was not a "claim" against the government within the meaning of the Act.

Although the California MediCal program is administered by a state agency, this program and all state programs which qualify for federal Medicaid funds have substantial contacts with the federal government. As indicated above, MediCal was apparently enacted so that California could qualify for federal Medicaid funds. (See California Medical Assn. v. Brian, 30 Cal.App.3d 637, 642, 106 Cal.Rptr. 555 (1973), California Welfare and Institutions Code sections 14003, 14019, 14053(14) and (17)). Disbursements to state medical assistance programs through Medicaid are subject to a myriad of ...