United States v. Physicians Choice Laboratory Services
| Decision Date | 20 July 2021 |
| Docket Number | CIVIL FILE 3:17-CV-37 |
| Parties | UNITED STATES OF AMERICA ex rel. TARYN HARTNETT, and DANA SHOCHED, Plaintiffs, v. PHYSICIANS CHOICE LABORATORY SERVICES, DOUGLAS SMITH, PHILIP MCHUGH AND MANOJ KUMAR, Defendants. |
| Court | U.S. District Court — Western District of North Carolina |
THIS MATTER is before the Court on the final two pending motions in this lengthy litigation. Defendant Douglas Smith has filed a Motion for Relief From Judgment Pursuant to Rule 60(b)(3) FRCP (Doc. No. 157) in which he asks the Court to relieve him from the Final Judgment and Consent Order (Doc No. 146) in which he agreed to pay a substantial sum of money to resolve the claims against him. Also, Relators have filed a Motion for Statutory Attorneys' Fees and Expenses (Doc No. 148) seeking an award of attorneys' fees and expenses from Defendant Smith and Defendant Philip McHugh, jointly and severally. The Court has carefully considered these motions and the parties' briefs and exhibits filed in support and in opposition. For the reasons discussed below, the Court will DENY Defendant Smith's Rule 60(b) motion and GRANT IN PART the Relators' motion for attorneys' fees.
On March 30, 2021, the Court entered an Order granting the United States' Unopposed Motion for Entry of Consent Order and Entry of Final Judgment Against Defendant Douglas Smith (See Doc. Nos. 145-146). The Clerk's Judgment was then entered based on that Order. (Doc. No. 47). Smith - a former medical doctor and experienced businessman - chose not to be represented by counsel in connection with the negotiation of this Consent Order or the February 9, 2021 mediation during which the Parties reached their agreement. In early May 2021, shortly following the beginning of the government's efforts to collect or arrange payment of the Judgment, Smith engaged counsel and, approximately a month later on June 8, 2021 (after Smith's counsel's attempt to “renegotiate” the settlement was unsuccessful), Smith filed, through counsel, a motion pursuant to Rule 60(b)(3) to be relieved of the Judgment. Broadly stated, the grounds for the motion are Smith's allegations that the Assistant United States Attorneys representing the government “misrepresented and engaged in misconduct” that had the effect of impeding Smith's opportunity to engage counsel and/or misled the Court concerning Smith's intention to engage counsel. As discussed below, the Court finds no evidence that the government's counsel engaged in misconduct or that the Court was misled concerning Smith's engagement of counsel. Accordingly, Smith's Rule 60(b)(3) motion will be denied, and the Judgment to which Smith voluntarily agreed will remain in force notwithstanding his apparent current regret over the settlement.
Rule 60(b) relief is an “extraordinary” remedy, and “is only to be invoked upon a showing of exceptional circumstances.” Compton v. Alton Steamship Co., 608 F.2d 96, 102 (4th Cir. 1979) () (internal quotations and citations omitted). Federal Rule of Civil Procedure 60(b) provides, in relevant part, that “on motion and just terms, ” the Court may “relieve a party ... from a final judgment, order, or proceeding ...” on the grounds of, among other grounds, “(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.” Fed.R.Civ.P. 60(b)(3). Rule 60(b)(3) does not address the “merits of a judgment or order, ” but rather “focuses on the unfair means by which a judgment or order is procured.” Barlow v. Colgate Palmolive Co., 772 F.3d 1001, 1010 (4th Cir. 2014) (citing Schultz v. Butcher, 24 F.3d 626, 631 (4th Cir. 1994)). The Fourth Circuit has identified three factors that a moving party must show to prevail on a motion under Rule 60(b)(3): “(1) the moving party must have a meritorious defense; (2) the moving party must prove misconduct by clear and convincing evidence; and (3) the misconduct prevented the party from fully presenting its case.” Schultz, 24 F.3d at 630 (citing Square Constr. Co. v. Washington Metro. Area Transit Auth., 657 F.2d 68, 71 (4th Cir. 1981)). Even if a moving party satisfies these three prongs, the Court must still “balance the competing policies favoring the finality of judgments and justice being done in view of all the facts, to determine within its discretion, whether relief is appropriate in each case.” Id.
A federal district court also has inherent power to dismiss an action where a party “deceives a court” or “abuses the process at a level that is utterly inconsistent with the orderly administration of justice ....” United States v. Shaffer Equip. Co., 11 F.3d 450, 462 (4th Cir. 1993). However, this power must be exercised with “restraint and discretion.” Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991).
In considering Smith's motion, the Court need not (and does not) determine the first element of whether he has a meritorious defense because he has failed to establish any “misconduct” by the Assistant United States Attorneys or that he did not have a full and fair opportunity to present his case to the Court. The basic relevant facts do not appear to be materially disputed, although the parties of course interpret them differently.
In 2019, the United States filed its Complaint in Intervention under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., alleging that Smith orchestrated an unlawful scheme to pay kickbacks to induce the referral of patient urine samples for urine drug testing to Physicians Choice Laboratory Services (“PCLS”), a toxicology lab founded in part by Smith, and in which he had significant ownership and financial interests. (Doc. Nos. 38, 128-1). The United States contends that the Medicare program suffered over $2.6 million in losses directly attributable to Smith's individual conduct, which caused PCLS to submit thousands of false claims. (Doc. No. 128-13 at ¶¶ 14, 29-32) and that the United States would have been entitled to treble damages and civil penalties of approximately $7.8 million if it prevailed at trial.
On January 21, 2021, Assistant United States Attorney (“AUSA”) Katherine Armstrong emailed one of the Court's law clerks to inform the Court that the United States and Defendant Phillip McHugh had preliminarily reached a settlement agreement (subject to governmental approvals), and noted the United States was still pursuing claims against Smith, which were set for trial on March 8, 2021. In response, the law clerk inquired about the status of those claims and Smith's participation in the case, specifically requesting that AUSA Armstrong make a further effort to communicate with Smith. Following up on that request, AUSAs Armstrong and Seth Johnson called Smith the same day and advised him that the Court was inquiring into his participation in the litigation and wanted to hold a status conference in the near future. Shortly after that call, Armstrong updated the Court by email (copying Smith), indicating that Smith was available for a status conference and informing the Court that Smith “anticipates hiring counsel” and “raised the possibility of exploring settlement options with the United States.” (Doc. No. 158-1). A status conference was then set for January 27, 2021. (Jan. 22, 2021 Dkt. Entry).
During the January 27, 2021 status conference, Smith was well-spoken and appeared to understand the nature of the litigation and the claims against him (as would be expected in light of his medical education and prior positions as a corporate health care executive). Smith told the Court that he was interested in pursuing settlement negotiations to resolve the claims against him, and when the Court spoke with Smith specifically about whether he intended to engage counsel he said that he might do so in the event that he was unable to work out a settlement. Thus, the possibility that Smith might engage counsel was made clear to the Court during the conference, as was Smith's choice to pursue settlement in advance of engaging counsel. Following the status conference, the Court issued a text-only order reflecting the discussion, which provided in part that: “the Parties will be given two weeks until 2/10/2021 to report back to the Court concerning their imminent settlement discussions and whether Defendant Smith intends to engage counsel.” (Jan. 27, 2021 Dkt. Entry).
The AUSAs and Smith then exchanged several emails agreeing to participate in and scheduling a mediation as well as a settlement meeting in advance of the mediation. As part of those communications, AUSA Armstrong fully disclosed (to the extent it was not already abundantly clear) that she did not represent Smith and that he had the opportunity to have his own lawyer:
(Doc. No. 161-1 at 34) (emphasis added).
After the in-person meeting at the U.S. Attorney's Office (which had been requested by Smith)...
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