US EX REL. HUTCHESON v. Blackstone Medical, Inc.

• Decision Date: 12 March 2010
• Docket Number: Civil Action No. 06-11771-WGY.
• Parties: UNITED STATES of America ex rel. Susan HUTCHESON and Philip Brown, Petitioners, v. BLACKSTONE MEDICAL, INC., Respondent.
• Court: U.S. District Court — District of Massachusetts

694 F. Supp.2d 48

UNITED STATES of America ex rel. Susan HUTCHESON and Philip Brown, Petitioners, v. BLACKSTONE MEDICAL, INC., Respondent.

Civil Action No. 06-11771-WGY.

United States District Court, D. Massachusetts.

March 12, 2010.

Robert M. Thomas, Jr., Thomas & Associates, Sonya A. Rao, United States Attorney's Office, Royston H. Delaney, Boston, MA, Frederick M. Morgan, Jr., Jennifer M. Verkamp, Morgan Verkamp LLC, Cincinnati, OH, Suzanne E. Durrell, Durrell Law Office, Milton, MA, for Petitioners.

Jonathan L. Diesenhaus, Peter S. Spivack, Stephen M. Kuperberg, Hogan & Hartson LLP, Washington, DC, Stephanie L. Carman, Hogan & Hartson LLP, Miami, FL, Benjamin S. Halasz, Brien T. O'Connor, Kirsten V. Mayer, Ropes & Gray, Boston, MA, for Respondent.

MEMORANDUM AND ORDER

YOUNG, District Judge.

I. INTRODUCTION

Relators Susan Hutcheson and Philip Brown ("Relators") sued Blackstone Medical Inc., ("Blackstone") in a qui tam action under the False Claims Act, 31 U.S.C. § 3729 et seq. (the "Act"). The claim arises out of Blackstone's alleged nationwide fraudulent scheme to increase the use of its medical devices in spinal surgeries by payment of kickbacks to physicians in violation of the Medicare and Medicaid Patient Protection Act, 42 U.S.C. § 1320a-7b(b) (the "Anti-Kickback Statute"). Relators allege that this fraudulent behavior caused the submission by hospitals and doctors of false claims for payment by Medicare, Medicaid, and other federally-funded government healthcare programs in violation of the False Claims Act.

Blackstone moved to dismiss Relators' complaint on the basis that: (1) it fails to state a claim under Federal Rule of Civil Procedure 12(b)(6) and (2) the alleged fraud is not pled with sufficient particularity under Federal Rule of Civil Procedure 9(b). Blackstone also moved to dismiss Relators' complaint under two jurisdictional bars contained within the False Claims Act: (1) the Act's first-to-file rule, 31 U.S.C. § 3730(b)(5) and (2) the Act's public disclosure bar, 31 U.S.C. § 3730(e)(4)(A).

Blackstone also moved to transfer the case to the Eastern District of Arkansas where another qui tam action against Blackstone and others, alleging violations of the False Claims Act, was filed six months prior to the filing of Relators' complaint with this Court.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On September 29, 2006, Relators filed, under seal, a qui tam complaint against Blackstone¹ for violation of the False Claims Act, 31 U.S.C. § 3729. Six months earlier, on April 14, 2006, John Thomas ("Thomas") filed a qui tam action for violation of the False Claims Act against Blackstone and seven other defendants including an Arkansas surgeon, Dr. Patrick Chan, in the Eastern District of Arkansas.²United States, ex rel. Thomas v. Bailey, No. 06-00465 (E.D. Ark. filed Apr. 14, 2006). Thomas's complaint similarly alleged the existence of a fraudulent kick-back scheme including Blackstone, its agents, and the other defendants. It alleged that as a result of the kick-backs, false claims were submitted to federally funded healthcare programs by defendant Dr. Chan. Thomas Compl. ¶ 5 Thomas Doc. No. 1.³ It also stated on information and belief, that the corporate defendants have and continue to enter into consulting agreements with other physicians in Arkansas and other states in violation of the Anti-Kickback Statute. Thomas Compl. ¶ 57.

Thomas's original complaint contained two counts, alleging violations of 31 U.S.C. § 3729(a)(1) and (2) and conspiracy under 31 U.S.C. § 3729(a)(3). Thomas Compl. ¶¶ 58-62. On April 18, 2007, Thomas moved for partial voluntary dismissal against all defendants except Dr. Chan Thomas Doc. No. 15; on April 26, 2007, Thomas withdrew this motion Thomas Doc. No. 17.

On April 23, 2007 the United States filed an ex parte motion for a partial lifting of the seal in Relators' case to enable it to disclose the existence and allegations contained in Relators' complaint to Thomas. The government's stated rationale was the potential overlap between allegations made in both complaints. U.S. Ex Parte App. to Part. Lift Seal at 2 Doc. No. 9. Judge Lasker granted the application.⁴

On June 20, 2007—over two months after the partial seal on Relators' complaint was lifted—Thomas amended his complaint, stating that Blackstone entered into improper consulting agreements and other kickback arrangements "throughout the United States," resulting in violations of the False Claims Act. Thomas Am. Compl. ¶ 4 Thomas Doc. No. 73.

On November 24, 2008, Relators' complaint was unsealed.⁵ In response to Blackstone's first motion to dismiss, Relators amended their complaint on June 4, 2009 Doc. No. 47. In their amended complaint, they allege that:

• Blackstone utilized a business model, at the direction of senior management, which consisted of paying surgeons across the United States, in cash and in kind, to use its products in their surgeries. Am. Compl. ¶¶ 65, 69-70.

• Blackstone knew that Medicare, Medicaid, and other federal program beneficiaries represent a significant percentage of spine surgery patients. Id. ¶ 66.

• The payments to surgeons were in excess of fair market value for any services the physicians contributed to Blackstone, and were essentially "kick-backs," taking the form of, inter alia, consulting agreements, payments for travel and accommodations, research grants and royalties. These kick-backs violated the Anti-Kickback Statute, 42 U.S.C. § 320a-7(b), which proscribes knowingly offering to pay any remuneration in cash or in kind in exchange for the referral of any product for which payment is sought from any federally-funded healthcare program. Id. ¶¶ 25, 33, 67.

• As a result of Blackstone's illegal inducements, physicians performed surgeries using its products on Medicare and Medicaid patients admitted to healthcare facilities around the country. Id. ¶ 24.

• Blackstone caused hospitals and doctors to submit false claims to federal healthcare programs because compliance with the Anti-Kickback Statute is a condition of payment for federally-funded healthcare programs. Essentially, the claims submitted as a result of illegally-induced surgeries were false claims. Id. ¶ 64.

II. FEDERAL JURISDICTION

Federal jurisdiction is proper because this claim arises under the United States False Claims Act, 31 U.S.C. § 3729, giving the Court jurisdiction under 28 U.S.C. § 1331.

III. ANALYSIS

A. The Motion to Transfer

Blackstone moves pursuant to this section to transfer this action to the Eastern District of Arkansas. Under 28 U.S.C. § 1404(a), a district court may transfer any civil action to any other district where it may have been brought "for the convenience of parties and witnesses, in the interests of justice." 28 U.S.C. § 1404(a). The burden of proof in a motion to transfer rests with the party seeking transfer. Coady v. Ashcraft & Gerel, 223 F.3d 1, 11 (1st Cir.2000).

The First Circuit has described 28 U.S.C. Section 1404(a) as a codification of forum non conveniens. Albion v. YMCA Camp Letts, 171 F.3d 1, 2 (1st Cir.1999). Thus, in evaluating a motion to transfer, courts look to such factors as "the relative convenience to each of the parties, the `relative ease of access to sources of proof,' the availability of compulsory process for attendance of unwilling' witnesses, and the relative availability of documentary and tangible evidence, as well as the public interest in the administration of justice, including trial efficiency." Veryfine Products, Inc. v. Phlo Corp., 124 F.Supp.2d 16, 24 (D.Mass.2000) (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 67 S.Ct. 839, 91 L.Ed. 1055 (1947)). In terms of convenience to the parties and witnesses and availability of evidence, neither forum is favored. The Relators are both residents of Florida. Am. Compl. ¶¶ 10, 14. Blackstone, was a Massachusetts-based company, but now is located in Texas. Blackstone Mem. in Supp. Mot. Transfer at 13-14. More importantly, its relevant records are maintained electronically and can be produced in any jurisdiction with relative ease. Id. at 13. Finally, the ninety-one doctors alleged to have been involved in its alleged kick-back scheme are scattered across the country. Am. Compl. ¶ 84.

Ordinarily, there is a strong presumption in favor of the plaintiff's choice of forum. Coady, 223 F.3d at 11. There is sound empirical basis for this presumption. Studies confirm that when a defendant can winkle a plaintiff out of her chosen forum, the defendant's likelihood of success increases markedly. See Kevin M. Clermont & Theodore Eisenberg, Exorcising the Evil of Forum-Shopping, 80 Cornell L. Rev. 1507, 1511-12 (1995) ("The plaintiff wins in 58% of the nontransferred cases that go to judgment for one side or the other, but wins in only 29% of such cases in which a transfer occurred.").

Although the First Circuit has not ruled on the application of this presumption to nonresidents, this Court looks to Judge Wolf's decision in U.S. ex rel. Ondis v. City of Woonsocket, R.I., 480 F.Supp.2d 434, 436 (D.Mass.2007), as persuasive. In deciding to transfer the nonresident plaintiff's case, Judge Wolf cited 15 Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 3d § 3848 at 134-39 (2007) for the legal principle that plaintiff's choice of venue carries less weight when the district court has "no obvious connection to the case or the plaintiff is a nonresident." The "strong presumption" afforded plaintiff's choice of venue is based principally on the notion of convenience to the plaintiffs. See Nowak v. Tak How Investments, Ltd., 94 F.3d 708, 718 (1st Cir.1996). When plaintiffs choose a forum where they are not residents, this justification is diminished, and concerns of forum-shopping arise. See Williams v. Bowman, 157 F.Supp.2d 1103, 1107 (N.D.Cal.2001) ("The policy behind not deferring to a nonresident plaintiff's choice of venue appears tied into the notion that plaint...