United States v. Berkeley Heartlab, Inc.

• Decision Date: 12 May 2016
• Docket Number: Consolidated with 9:11–cv–1593–RMG,9:15–cv–2485–RMG,CA No.: 9:14–cv–00230–RMG
• Citation: 225 F.Supp.3d 460
• Court: U.S. District Court — District of South Carolina
• Parties: The UNITED STATES of America and the States of North Carolina, California, Illinois, ex rel. Scarlett Lutz, Kayla Webster, Dr. Michael Mayes and Chris Riedel, Plaintiffs, v. BERKELEY HEARTLAB, INC., BlueWave Healthcare Consultants, Inc., Quest Diagnostics Incorporated, Latonya Mallory, Floyd Calhoun Dent, III and Robert Bradford Johnson, Defendants.

225 F.Supp.3d 460

The UNITED STATES of America and the States of North Carolina, California, Illinois, ex rel. Scarlett Lutz, Kayla Webster, Dr. Michael Mayes and Chris Riedel, Plaintiffs,

v.BERKELEY HEARTLAB, INC., BlueWave Healthcare Consultants, Inc., Quest Diagnostics Incorporated, Latonya Mallory, Floyd Calhoun Dent, III and Robert Bradford Johnson, Defendants.

CA No.: 9:14–cv–00230–RMG

Consolidated with 9:11–cv–1593–RMG

9:15–cv–2485–RMG

United States District Court, D. South Carolina, Beaufort Division.

Signed May 12, 2016

Donald H. Caldwell, Jr., U.S. Attorney's Office, Charlotte, NC, Gill Paul Beck, Sr., United States Attorneys Office, Asheville, NC, James C. Leventis, Jr., Jennifer J. Aldrich, US Attorneys Office, Columbia, SC, Mary Chris Dobbie, Michael David Granston, Michael Edmund Shaheen, Patricia Hanower, Elizabeth A. Strawn, US Department of Justice, Washington, DC, James F. Wyatt, III, Robert Adams Blake, Jr., Wyatt and Blake, Charlotte, NC, Marc S. Raspanti, Michael A. Morse, Pamela Coyle Brecht, Douglas Edwards Roberts, Pietragallo Gordon Alfano Bosick and Raspanti LLP, Philadelphia, PA, William J. Tuck, Darlington, SC, Eric James Buescher, Justin Theodore Berger, Niall P. McCarthy, Cotchett Pitre and McCarthy, Burlingame, CA, Steven N. Berk, Berk Law PLLC, Washington, DC, John Daniel Kassel, John D. Kassel Law Firm, Columbia, SC, Peter Wilson Chatfield, Phillips and Cohen, Washington, DC, William Alexander Coates, Roe Cassidy Coates and Price, Greenville, SC, for Plaintiffs.

Brian P. Dunphy, Matthew D. Levitt, Michael S. Gardener, Mintz Levin Cohn Ferris Glovsky and Popeo, Boston, MA, Hope Schwarz Foster, Mintz Levin Cohn Ferris Glovsky and Popeo, Washington, DC, Matthew R. Hubbell, Charleston, SC, Christopher M. Kovach, Christopher M. Kovach Law Office, Charleston, SC, Joseph P. Griffith, Jr., Joseph P. Griffith Law Firm, Charleston, SC, Morris Dawes Cooke, Jr., Bradley Bruce Banias, Barnwell Whaley Patterson and Helms, Charleston, SC, Beattie B. Ashmore, Beattie B. Ashmore Law Office, Greenville, SC, Christopher R. Hall, Nicholas J. Nastasi, Saul Ewing LLP, Philadelphia, PA, for Defendants.

ORDER

Richard Mark Gergel, United States District Court Judge

This matter is before the Court on three motions: (1) Defendants BlueWave, Dent, and Johnson's Motion to Quash FDCPA Prejudgment Remedies (Dkt. No. 277); (2) a Motion to Quash by Blue Eagle Farming, LLC, Eagle Ray Investments, LLC, Forse Investments, LLC, and War–Horse Properties, LLLP (collectively, the "Johnson-related Entities") (Dkt. No. 274); and (3) a Motion to Dissolve Prejudgment Attachments by Christina M. Dent, Lakelin Pines, LLC, and Trini "D" Island, LLC (collectively, the "Dent-related Entities") (Dkt. No. 278). For the reasons discussed below, the Court DENIES the motions.

I. Background

The United States intervened in this consolidated qui tam action against Defendants, alleging False Claims Act and common law claims related to four alleged schemes involving laboratory blood testing. (Dkt. No. 75 (Government's complaint in intervention)),¹ On February 5, 2016, the Government filed an application for prejudgment remedies under the Federal Debt Collection Procedures Act (FDCPA), 28 U.S.C. § 3001 et seq. (Dkt. No. 173). The application was accompanied by affidavits from Kendrick Bailey, an investigator with the U.S. Department of Justice–Civil Division (Dkt. No. 173–3 (Ex. 18)), and Su Kim, a special agent for the U.S. Department of Health and Human Services, Office of Investigations (Dkt. No. 173–2 (Ex. 6)).² Kim's affidavit provided facts supporting the probable validity of the United States' claim for debt (i.e. , damages and penalties for FCA violations), identified the amount of debt claimed by the United States, and outlined facts suggesting that Defendants had transferred property with the effect of hindering, delaying, or defrauding the United States. Bailey's affidavit offered additional facts suggesting that Defendants were transferring property with the effect of hindering, delaying, or defrauding the United States.

After reviewing the application and accompanying affidavits, the Court granted the application in part and denied it in part, (Dkt. No. 178), and the Clerk of Court issued writs of attachment and notices of prejudgment attachment and garnishment, (Dkt. Nos. 180–193).

On April 4, 2016, Defendants BlueWave, Dent, and Johnson filed a motion to quash the order granting the Government's application for FDCPA prejudgment remedies. On April 1, 2016, the Johnson-related Entities filed a motion to quash 47 prejudgment writs issued against individual parcels of property owned by these various entities. On that same day, Christina Dent and the Dent-related Entities filed a motion to dissolve prejudgment attachments as to 10 properties. The Johnson-related Entities, the Dent-related Entities, and Christina Dent are not parties to the underlying litigation. The Court heard oral argument on each of these motions on May 5, 2016.

II. FDCPA Framework

The FDCPA provides the "exclusive civil procedures for the United States" to obtain a prejudgment remedy in connection with a "claim for a debt." 28 U.S.C. § 3001. Subchapter B governs prejudgment remedies in general, and Subchapter D addresses remedies in the context of fraudulent transfers involving debts. The Government applied for prejudgment remedies under both subchapters. (Dkt. No. 173 at 6).

The Government is entitled to prejudgment remedies under Subchapter B where it establishes (1) the probable validity of the claim for a debt; (2) the amount of the debt claimed; (3) that the debtor has or is about to assign, dispose, remove, conceal, ill-treat, waste, or destroy property with the effect of hindering, delaying, or defrauding the United States; (4) that it has satisfied all other statutory requirements; and (5) that the debtor has a substantial nonexempt interest in the property against which a remedy is sought. See 28 U.S.C. §§ 3101 –3105.

Under Subchapter D, the Government must establish that a transfer is fraudulent within the meaning of 28 U.S.C. § 3304. Once it has met this burden, the Government may rely on "applicable principles of equity" to avoid the transfer, use a remedy against "the asset transferred or other property of the transferee," or seek "any other relief the circumstances may require." Id. at § 3306(a).

The Court addresses the applicability of both subchapters below.

III. Prejudgment Remedies Under Subchapter B

1. Whether the Government established the probable validity of the debt

To seek prejudgment relief under Subchapter B, the FDCPA requires "an affidavit establishing with particularity to the court's satisfaction facts supporting the probable validity of the claim for a debt and the right of the United States to recover what is demanded in the application." 28 U.S.C. § 3101(c)(1). The FDCPA defines "debt," in relevant part, as "an amount that is owing to the United States on account of ... overpayment, fine, ... penalty, ... damages, ... or other source of indebtedness to the United States." Id. § 3002(3)(B).

The Government seeks penalties on each claim for payment Defendants presented or caused to be presented to Medicare and TRICARE, as well as treble damages under the FCA. (See Dkt. No. 75 at 43–46). Further, the Government's common law claims effectively seek to recover overpayments from Defendants for "certain sums of money to which they were not entitled." (Id. at 46–47). To support the validity of these claims, Su Kim's affidavit (Dkt. No. 173–3) makes the following assertions;

• Defendants BlueWave, Dent, and Johnson contracted for commission-based payments from two client laboratories in exchange for promoting lab tests that were reimbursed by federal healthcare programs, in violation of the Anti–Kickback Statute (AKS) and the FCA. (Id. at ¶ 5)

• BlueWave encouraged physicians to order tests from its laboratory clients by promoting the processing and handling fees paid by the laboratories as additional revenue for the physicians. BlueWave also marketed the waiver of patients' coinsurance and deductibles by the laboratories. BlueWave received a percentage of the laboratories' collections from these sales. (Id. at ¶¶ 11–12).

• BlueWave and others systematically presented or caused false claims to be presented to Medicare and TRICARE for payment. (Id. at ¶ 13).

• Johnson and Dent coached BlueWave sales representatives to market the processing and handling fees. (Id. at ¶ 14).

• BlueWave, Johnson, and Dent negotiated agreements with BlueWave's independent sales contractors that involved paying the contractors a portion of the kickbacks it received from the laboratories in violation of the AKS. (Id. at ¶¶ 16–24).

• BlueWave, Johnson, and Dent were directly involved in the kickback scheme involving processing and handling fees and the submission of medically unnecessary tests. (Id. at ¶ 27).

To reach these conclusions Kim personally investigated Johnson, Dent, and BlueWave for payments from client laboratories involving medically unnecessary testing and involving illegal kickbacks in the form of processing and handling fees. Kim and other special agents interviewed BlueWave employees and independent contractors, physicians, physicians' staff, and phlebotomists. In addition, Kim reviewed many documents responsive to subpoenas and administrative investigative demands. (Id. at ¶ 3).

At a post-deprivation hearing, the Government and the debtor defendants generally engage in a burden-shifting exercise where the debtor bears the initial burden of putting forward evidence that places the Government's showing of the probable validity of the debt in dispute. This may be done, for example, through the cross-examination of the Government's affiants or challenging the reliability of sources of information. But where the affidavit is particularized and the affiant's sources of information are reliable because they have personal knowledge of the events to which they provided...