US EX REL. STINSON, ET AL. v. Prudential Ins.

Decision Date04 May 1990
Docket NumberCiv. A. No. 90-526.
CourtU.S. District Court — District of New Jersey
PartiesUNITED STATES ex rel. STINSON, LYONS, GERLIN & BUSTAMANTE, Plaintiff, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.

Tracy E. Tomlin, Stinson, Lyons, Gerlin & Bustamante, Miami, Fla., for plaintiff.

William G. Kopit, Epstein, Becker & Green, Washington, D.C. and Robert E. Turtz, Epstein, Becker & Green, Princeton, N.J., for defendant.

OPINION

WOLIN, District Judge.

Plaintiff, the law firm of Stinson, Lyons, Gerlin & Bustamante ("the law firm"), has commenced this suit under the qui tam1 provisions of the False Claims Act, ("the FCA") 31 U.S.C. § 3730(b) et seq. The law firm seeks damages and civil penalties arising from alleged false statements and claims made by defendant, The Prudential Insurance Company of America ("Prudential") in violation of the FCA. Defendant has moved for dismissal of the complaint, or in the alternative, for summary judgment. For the following reasons, the Court will dismiss the complaint for lack of subject matter jurisdiction. See Fed.R. Civ.P. 12(b)(1).

I. BACKGROUND

Plaintiff is a private law firm seeking to act on behalf of the United States. The law firm alleges that Prudential, a provider of medical health insurance and group policies, defrauded the Government by shifting responsibility for the payment of insurance claims to Medicare2 despite Prudential's knowledge and understanding of its obligations under section 116(a) of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). TEFRA was the result of Congressional efforts to reduce federal spending; it amended the law to make Medicare the secondary payor to employer group health plan coverage for persons age 65 to 69 (the "working aged") who were employed at the time services were rendered.3

In its complaint, plaintiff alleges that Prudential engaged in a scheme to defraud the Government by allowing Medicare to pay as primary payor and by avoiding or decreasing its obligation to reimburse Medicare or its beneficiaries. Plaintiff learned of the alleged fraud during its representation of Mr. Armlon Leonard in a previous lawsuit. Bustamante Aff., Def. Exh. E., ¶ 8. In that lawsuit, Provident Life & Accident Insurance Company v. Leonard, No. 85-10113 CA(15) (Fla. Dade Co.Cir.Ct. March 1985) rev'd, 526 So.2d 721 (Fla.Dist.Ct.App.1988) (the "Leonard" litigation), plaintiff represented Leonard after he was in an automobile accident in 1983. During that representation, the law firm reviewed the health insurance policy Leonard had with carrier Provident Life & Accident Insurance Company ("Provident") and after further investigation, concluded that Provident's claims handling practices violated federal law by paying secondary to Medicare instead of primary. A lawsuit almost identical to this one ensued. See United States ex rel. Stinson v. Provident Life & Accident Ins. Co., 721 F.Supp. 1247 (S.D.Fla.1989) (the "Provident" litigation).

Through the discovery process in the Leonard litigation, plaintiff obtained internal memoranda from Provident. Bustamante Aff., Def.Exh. E., ¶ 8. One memorandum related to Provident's current method of processing claims for the working aged recommended changing the company's claims procedures to comply with new Medicare regulations. Pltf.Exh. I; Def.Exh. 6, 6A. A second document, entitled "Medicare Reimbursement," is allegedly the tabulated results of a telephone survey Provident had conducted of other insurance carriers claims processing procedures. Pltf.Exh. J; Def.Exh. 6A. That document includes a list of the 24 carriers supposedly contacted by Provident; next to the names of 7 carriers are handwritten annotations. Prudential is one of the 7 carriers and next to the name Arthur M. Wood, Vice President, is written, "Left message—Same as us". With that document in its possession, plaintiff initiated this law suit against Prudential in March 1989.

Under the FCA, a qui tam suit must first be served on the United States, rather than a defendant. It is filed in camera and remains under seal for at least sixty days. 31 U.S.C. § 3730(b)(2) (Supp. V 1987). Within that sixty day period, the Government has the option to intervene and assume prosecution of the case. Id. If the Government chooses to intervene, it becomes the primary responsible party, although the qui tam plaintiff, the "relator," may continue as a party. 31 U.S.C. § 3730(c)(1) (Supp. V 1988). If the Government chooses not to intervene, the relator may proceed to seek recovery of damages and penalties. 31 U.S.C. §§ 3730(c)(3), (d)(2) (Supp. V 1988).

The law firm properly filed this suit with the Government which ultimately chose not to intervene. Pltf.Exh. C. As a result of the Government's declination, the law firm is given standing to sue provided it meets the jurisdictional requirements of the FCA.

Those jurisdictional requirements are at issue here, for Prudential seeks dismissal of the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, on the grounds that plaintiff does not qualify as a proper qui tam plaintiff under the express terms and intent of the FCA. See 31 U.S.C. § 3730(e)(4)(A), (B) (Supp. V 1988). Prudential has also moved for dismissal pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6), for failure to plead fraud with sufficient particularity and failure to state a claim upon which relief can be granted.

II. DISCUSSION
A. Standard of Review

The Court's procedure under a motion to dismiss for lack of subject matter jurisdiction is determined by whether the Fed.R.Civ.P. 12(b)(1) motion attacks the complaint on its face or attacks the existence of subject matter jurisdiction in fact. Mortensen v. First Federal Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). A facial attack offers the familiar safeguards afforded to the plaintiff under a Fed.R. Civ.P. 12(b)(6) procedure: the court must consider the allegations of the complaint as true. Id. Conversely, a factual attack offers no safeguards. In that situation, because the Court's very power to hear the case is at issue, the Court may weigh the evidence. No presumption of truthfulness attaches to plaintiff's allegations and the existence of disputed material facts will not preclude the Court from evaluating for itself the merits of jurisdictional claims. While the form of inquiry is flexible, the burden of proof that jurisdiction does in fact exist remains with the plaintiff. See 5 C. Wright and A. Miller, Federal Practice and Procedure § 1350 (1969); see also, Gibbs v. Buck, 307 U.S. 66, 71-71, 59 S.Ct. 725, 729, 83 L.Ed. 1111 (1939) (there is no statutory direction for procedure upon an issue of jurisdiction, the mode of its determination is left to the trial court); Wetmore v. Rymer, 169 U.S. 115, 18 S.Ct. 293, 42 L.Ed. 682 (1898) (the district court is free to determine facts relevant to its jurisdiction).

In the case at bar, plaintiff claims that Prudential is attacking the complaint on its face. Pltf.Mem., 4, 6. The Court finds this characterization disingenuous, particularly in light of the implicit disavowal contained in a subsequent paragraph, "to the extent that this Court is compelled to evaluate defendant's factual challenge...." Pltf. Mem., 7 (emphasis added). A search through Prudential's submissions fails to reveal any allusion to the lack of jurisdiction evident on the face of the pleading. Rather, defendant has mounted a vigorous factual attack complete with numerous supporting exhibits. The argument Prudential has placed squarely before the Court is that plaintiff is not the original source of the publicly disclosed information that forms the basis of this lawsuit, and therefore the Court lacks jurisdiction to hear this case under 31 U.S.C. 3730(e)(4)(B). Def.Mem., 7-10.

B. Jurisdiction

Both parties in this case have provided the Court with comprehensive descriptions of the history of the FCA, the interaction of the FCA with TEFRA (and DEFRA and COBRA4), and the legislative history and effect of the 1986 amendments to the FCA. Neither disputes the propriety of applying the 1986 amendments to this case and both acknowledge the general jurisdiction provision found at 31 U.S.C. § 3732(a)5, and the jurisdictional exclusion found at 31 U.S.C. § 3730(e)(4)(A)6. As a threshold matter, the Court must ask if the plaintiff has demonstrated a sufficient basis for subject matter jurisdiction: whether (1) there has been a public disclosure within the meaning of the statute; (2) if so, whether the plaintiff/relator "based" this suit on the public disclosure; and (3) if so, whether the plaintiff/relator is an "original source of the information."

1. Public Disclosure

Under section 3730(e)(4)(A), a qui tam plaintiff may not bring an action based upon publicly disclosed allegations or transactions unless the plaintiff was an "original source" of the information. Prior to enactment, section 3730(e)(4)(A) contained a provision which permitted a qui tam plaintiff to bring an action based on publicly disclosed allegations and transactions if the government failed to act within six months of the disclosure. S.Rep. No. 99-345, 99th Cong., 2d Sess. 30, reprinted in 1986 U.S.Code Cong. & Admin.News ("USSCAN") 5266, 5295. This six month provision, however, was deleted from the final version of the bill. Thus, the FCA in its present form does not allow a qui tam plaintiff to bring an action based solely on publicly disclosed transactions.

Prudential argues that the law firm does not qualify as a proper qui tam plaintiff under subsection 3730(e)(4)(A), and that this action is barred because the law firm's claims derive from public disclosures of allegations and transactions in a prior unrelated civil lawsuit, the Leonard litigation. The two documents discovered in the Leonard litigation that allegedly reveal information about Prudential formed part of the law firms's basis for initiating the Provident litigation.

The law firm does...

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