USA. v. Spectrum Emergecy Care

• Decision Date: 07 September 1999
• Docket Number: No. 98-3209,98-3209
• Citation: 190 F.3d 1156
• Parties: (10th Cir. 1999) UNITED STATES OF AMERICA, ex rel. LANCE E. HAFTER, D.O.; GEORGE R. SCHWARTZ, M.D., Plaintiffs-Appellants, v. SPECTRUM EMERGENCY CARE, INC., now known as Spectrum Healthcare Resources, Inc.; SPECTRUM HEALTHCARE SERVICES OF DELAWARE, INC., a/k/a Spectrum Healthcare Services, Inc., Defendants-Appellees. and EMCARE HOLDINGS; AMERICAN MEDICAL RESPONSE, INC.; LAIDLAW TRANSIT, INC.; ARAMARK CORPORATION; ARAMARK SERVICES, INC.; LAIDLAW, INC., Defendants
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1156

190 F.3d 1156 (10th Cir. 1999)

UNITED STATES OF AMERICA, ex rel. LANCE E. HAFTER, D.O.; GEORGE R. SCHWARTZ, M.D., Plaintiffs-Appellants, v. SPECTRUM EMERGENCY CARE, INC., now known as Spectrum Healthcare Resources, Inc.; SPECTRUM HEALTHCARE SERVICES OF DELAWARE, INC., a/k/a Spectrum Healthcare Services, Inc., Defendants-Appellees. and EMCARE HOLDINGS; AMERICAN MEDICAL RESPONSE, INC.; LAIDLAW TRANSIT, INC.; ARAMARK CORPORATION; ARAMARK SERVICES, INC.; LAIDLAW, INC., Defendants.

No. 98-3209

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

September 7, 1999

Appeal from the United States District Court for the District of Kansas. D.C. No. 96-CV-1095-JTM

Chan P. Townsley (Mark B. Hutton with him on the briefs) of Hutton & Hutton, Wichita, Kansas, for Plaintiffs-Appellants.

Kathleen A. Buck (James W. Rankin, G. Christian Kronberg, and Dexter Nutall of Kirkland & Ellis, Washington, D.C.; Robert L. Howard, Gary L. Ayers and Martha Aaron Ross of Foulston & Siefkin, L.L.P., Wichita, Kansas, with her on the brief) of Kirkland & Ellis, Washington, D.C., for Defendants-Appellees.

Before PORFILIO, BRORBY and MURPHY, Circuit Judges.

BRORBY, Circuit Judge.

This appeal involves the qui tam provisions of the False Claims Act, 31 U.S.C. §§ 3729 - 3733 ("the Act"). These provisions allow private individuals to commence actions on behalf of the United States against persons who present false or fraudulent claims to the federal government. The Act also contains jurisdictional limits on those who may bring qui tam actions and it specifically bars all qui tam suits based upon publicly disclosed information unless the person bringing the action is an "original source" of the information. 31 U.S.C. § 3730(e)(4)(A). The primary issue in this case is whether the qui tam plaintiffs or relators, Dr. Lance Hafter and Dr. George Schwartz, qualify as "original sources" under § 3730(e)(4)(B).

Drs. Hafter and Schwartz claim Appellees Spectrum Emergency Care, Inc. and other affiliated organizations ("Spectrum") obtained payment from the United States for false and fraudulent Medicare, Medicaid and/or Champus reimbursement claims. The district court granted Spectrum's motion to dismiss on the ground it lacked subject matter jurisdiction to hear the case. The court concluded Appellants based their suit on information previously disclosed in a state court civil suit and that Appellants were not original sources of that information. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

I. Background

The facts of this case center around the emergency room at the Dallas/Fort Worth Medical Center ("the Medical Center"). Beginning in 1988, the Medical Center contracted with an outside organization called Texas Emergency Room Services, P.A. ("Texas Services") to staff its emergency room with physicians. Pursuant to this contract, Texas Services employed emergency care physicians as independent contractors and placed them in the Medical Center's emergency room. Texas Services also hired "medical directors" to perform various administrative tasks in the emergency room. Texas Services, in turn, contracted with Appellee Spectrum for Spectrum's administrative and management services, including accounting and financial functions and the development of credentialing information on physicians recruited to work in the Medical Center emergency room.

Dr. Hafter performed a dual role in the Medical Center's emergency room. He was both an emergency room physician under independent contract with Texas Services as well as a medical director, responsible for supervising emergency room services and physicians. He performed these services from 1988 until 1993, when the Medical Center terminated its contract with Texas Services and Texas Services terminated its contract with Dr. Hafter.

Soon after Dr. Hafter's employment at the Medical Center ended, he received a call from an attorney researching a medical malpractice case. The attorney, Mr. Cameron Spradling, contacted Dr. Hafter in hopes of obtaining information about the treatment his client received in the Medical Center emergency room in 1991. Dr. Hafter apparently remembered the patient, Mr. Nikkie Mallory, and the physician responsible for treating him, Dr. James Chepko, and agreed to speak with Mr. Spradling about the case.¹ During their interview, Dr. Hafter told Mr. Spradling numerous things, not only about Mr. Mallory's treatment, but also about Texas Services' and Spectrum's management of the emergency room physicians. According to Mr. Spradling's affidavit, Dr. Hafter told him Texas Services operated as a "sham entity" and Spectrum actually controlled the independent contractor physicians and told them how to practice medicine. Dr. Hafter explained how Texas Services compensated the independent contractor physicians and about the coding system, developed by Spectrum, which physicians used to charge for their services. Dr. Hafter expressed displeasure both with the way Spectrum treated the emergency room physicians and with Spectrum's receipt of twenty to thirty percent of the fees generated by the physicians as a management fee despite the fact that the physicians did all the quality assurance. Further, Dr. Hafter told Mr. Spradling that Dr. Chepko did not physically see Mr. Mallory during his emergency room visit and that the Medical Center received other complaints by patients seen only by a medical student or intern and not an actual emergency room physician.

As a result of this information, Mr. Spradling claims his case "began to take a new turn in regard to the investigation of non-medical matters." Eventually, Mr. Spradling amended the Mallory complaint to include allegations that Texas Services and Spectrum violated the Texas Medical Practices Act, which prohibits the corporate practice of medicine.² Mr. Spradling enlisted Dr. Hafter to serve as a fact witness in the case. Dr. Schwartz, the other relator in this case, served as an expert witness.³ Mr. Spradling claims that prior to his conversation with Dr. Hafter, he "had no knowledge of Spectrum's fraud as later alleged in the Nikkie Mallory lawsuit."⁴

Approximately one year after the filing of the Mallory suit, Dr. Hafter filed the instant qui tam suit alleging Spectrum submitted false and fraudulent Medicare, Medicaid and/or Champus reimbursement claims to the government. As required under the False Claims Act, Dr. Hafter provided the government with a copy of his complaint and a disclosure statement. See 31 U.S.C. § 3730(b)(2). After an investigation, the government declined to intervene and the district court ordered the Complaint unsealed and served on Spectrum. Subsequently, Spectrum moved to dismiss for lack of subject matter jurisdiction or, in the alternative, for failure to plead fraud with particularity, to which Dr. Hafter filed a response. Before the court ruled on that motion, it consolidated Drs. Hafter and Schwartz's separate cases into one cause of action. The district court then granted Spectrum's renewed motion to dismiss Drs. Hafter and Schwartz's combined Second Amended Complaint.

In its order, the court first determined the information underlying the complaint had been publicly disclosed in the Mallory suit and, as such, jurisdiction was proper only if the Appellants qualified as original sources of the information. To qualify as original sources, the court required Appellants to show: (1) they possessed direct and independent knowledge of all the essential elements of the fraud allegations, and (2) they provided the government with the information prior to the public disclosure. Because Appellants failed to meet either requirement, the court concluded it lacked jurisdiction and dismissed the suit. Drs. Hafter and Schwartz appeal, arguing the district court erred by (1) concluding they lacked direct and independent knowledge of the information underlying their Complaint and (2) requiring them to provide government notice prior to any public disclosure in order to qualify as original sources.

II. Standard of Review

As the parties correctly note, the statutory provisions of 31 U.S.C. § 3730(e)(4) implicate the district court's subject matter jurisdiction. Jurisdictional challenges brought under that section arise out of the same statute creating the cause of action (i.e., the False Claims Act) and are thus necessarily intertwined with the merits of the case. United States ex rel. Fine v. MK-Ferguson Co., 99 F.3d 1538, 1543 (10th Cir. 1996). As such, the court's jurisdictional inquiry should be resolved under Federal Rule of Civil Procedure 12(b)(6) or, after proper conversion into a motion for summary judgment, under Rule 56. Id. In the present case, the district court apparently treated defendant's motion as a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). However, because the jurisdictional question was intertwined with the merits, and because the court relied on affidavits and other evidentiary material submitted by the parties, Spectrum's motion to dismiss should have been treated as one for summary judgment under Rule 56(c). United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1518 (10th Cir. 1996). Accordingly, we exercise our plenary power and consider Spectrum's motion as a motion for summary judgment.⁵ Id.

We review the grant of summary judgment de novo, applying the same legal standard that would be used by the district court. MK-Ferguson, 99 F.3d at 1543. Summary judgment is appropriate if the pleadings, depositions, discovery, and admissions on file, together with any affidavits, show no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996).

This court also reviews issues of subject matter jurisdiction de novo. United States ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 551 (10th Cir.1992), cert. denied, 507...