Opinion
23-566
01-17-2024
MICHAEL PILAT, PHILIP MANISCALCO, UNITED STATES OF AMERICA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF CALIFORNIA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF COLORADO EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF CONNECTICUT EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF DELAWARE EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF FLORIDA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF GEORGIA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF ILLINOIS EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF INDIANA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF LOUISIANA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF MARYLAND EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF MASSACHUSETTS EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF NEW HAMPSHIRE EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF NEW JERSEY EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF NEW YORK EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF NORTH CAROLINA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF OKLAHOMA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF RHODE ISLAND EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF TENNESSEE EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF TEXAS EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF VIRGINIA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, STATE OF WASHINGTON EX REL. MICHAEL PILAT, PHILIP MANISCALCO, AND THE DISTRICT OF COLUMBIA EX REL. MICHAEL PILAT, PHILIP MANISCALCO, Plaintiffs-Appellants, v. AMEDISYS, INC., DOES 1-100, Defendants-Appellees.[*]
FOR RELATORS PILAT AND MANISCALCO: DAVID B. HARRISON, Spiro Harrison & Nelson, Montclair, NJ. FOR AMEDISYS, INC.: RAJEEV MUTTREJA, Jones Day, New York, NY.
UNPUBLISHED OPINION
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of The United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 17th day of January, two thousand twenty-four.
Appeal from a judgment of the United States District Court for the Western District of New York (Sinatra, J.).
FOR RELATORS PILAT AND MANISCALCO: DAVID B. HARRISON, Spiro Harrison & Nelson, Montclair, NJ.
FOR AMEDISYS, INC.: RAJEEV MUTTREJA, Jones Day, New York, NY.
PRESENT: RAYMOND J. LOHIER, JR., BETH ROBINSON, ALISON J. NATHAN, Circuit Judges.
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment entered on March 13, 2023, is AFFIRMED IN PART, VACATED IN PART, and REMANDED.
Relators Michael Pilat and Philip Maniscalco appeal from a judgment of the district court dismissing their complaint, which alleges violations of the federal False Claims Act ("FCA") and the false claims acts of twenty-one states and the District of Columbia, and denying leave to amend. We assume the parties' familiarity with the underlying facts and the record of prior proceedings, to which we refer only as necessary to explain our decision.
Amedisys, Inc. is a home health and hospice care company based in Louisiana with facilities throughout the country. Relators Pilat and Maniscalco worked for Amedisys at its home health center in Amherst, New York, as a Clinical Manager Assistant and physical therapist, respectively.
In their Third Amended Complaint ("TAC"), Relators alleged that Amedisys and certain unnamed defendants violated the FCA and state false claims acts since at least 2015. According to Relators, Amedisys falsely certified unqualified patients for home health care, provided unnecessary and improper treatment, falsified time records, and manipulated patient records. These schemes resulted in fraudulent bills to the government for reimbursement under Medicare, Medicaid, and other government-funded healthcare programs.
Relators also alleged that, after they expressed concerns over company practices, Amedisys retaliated by firing them in violation of the FCA, 31 U.S.C. § 3730(h).
The district court dismissed the TAC and denied Relators leave to amend, determining that they did not engage in protected activities under the FCA's anti-retaliation provision, and they failed to plead FCA violations with the requisite particularity. See United States v. Amedisys, Inc., No. 17-CV-136, 2023 WL 2481144 (W.D.N.Y. Mar. 13, 2023).
On appeal, Relators ask us to reinstate their dismissed claims and allow them leave to amend their complaint. We review the district court's dismissal without deference, "constru[ing] plaintiffs' complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in plaintiffs' favor." Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009).
In quotations from caselaw and the parties' briefing, this order omits all internal quotation marks, alterations, footnotes, and citations, unless otherwise noted.
1. Retaliation
In relevant part, the FCA prohibits employers from retaliating against employees for taking action to stop FCA violations. See 31 U.S.C. § 3730(h)(1). To state a claim of retaliation, a plaintiff must allege: (1) the employee "engaged in activity protected under the statute," (2) "the employer was aware of such activity," and (3) "the employer took adverse action against" the employee because of the protected activity. United States ex rel. Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 95 (2d Cir. 2017). The district court determined that Relators did not allege that they engaged in protected activity because the complaints to supervisors they rely on to support their retaliation claims did "not have anything to do with potential false claims" and were "more appropriately characterized as concerns about patient care." Amedisys, 2023 WL 2481144, at *9.
We disagree and conclude that the TAC adequately states a claim that both Maniscalco and Pilat engaged in protected activity. Under the statute, relators engage in protected activity if they engage in "efforts to stop 1 or more violations of" the FCA. 31 U.S.C. § 3730(h)(1). Such efforts can include both complaining internally to supervisors about suspected fraudulent practices and refusing to engage in such practices. See Chorches, 865 F.3d at 97-98 (noting, "at best, a hair's-breadth distinction between complaining internally that a practice is illegal under the FCA and advising a supervisor of one's refusal to engage in that illegal practice" and rejecting "[a]ny line-drawing between the two, so as to qualify one but not the other as protected activity under § 3730(h)").
Both Maniscalco's and Pilat's actions meet this threshold. After Maniscalco's supervisors had already overruled his recommendations for a specific Medicare patient twice and recertified the patient after two six-week programs, Maniscalco "refused instructions by his supervisors to recertify a third time, insisting that she was completely independent and it would be unethical to do so." Jt. App'x at 108. Drawing all reasonable inferences in Maniscalco's favor, we conclude that his acts were an "effort[] to stop 1 or more violations" of the FCA. 31 U.S.C. § 3730(h)(1). Even though Maniscalco voiced concerns about "unethical" behavior, as opposed to "illegal" behavior, his comments support the inference that he was attempting to prevent Amedisys from providing, and overbilling for, unneeded treatment.
Likewise, the TAC alleges that Pilat repeatedly expressed his concerns to his supervisor over email "about the inability of the nurses and therapists to keep up with Amedisys's extensive volume of patients." Jt. App'x at 112. In one of those emails, Pilat told his supervisor in November 2016 that he had to schedule visits for "3 times as many patients as was safe." Jt. App'x at 106.
The district court determined these allegations did not rise to the level of protected activity because they were about the quality of patient care, not fraud. Overscheduling clinicians and cramming in patient visits results in poor quality care, but the TAC also explains how those acts are fraudulent: "Amedisys still billed for the services . . . as if the clinician had actually fully performed them," Jt. App'x at 106, even though many patients were seen only "for a few minutes rather than an amount of time commensurate with the Government billing," Jt. App'x at 113. That is fraud, and the TAC adequately alleged that Pilat engaged in protected activity by voicing concerns about this fraud to his supervisors.
We vacate the district court's dismissal on that basis. We express no view as to whether Pilat's and Maniscalco's claims satisfy the other prongs of an FCA retaliation claim, and leave the district court to address those questions in the first instance.
2. False Claims Violations
Turning to Relators' allegations that Amedisys made and submitted false claims to the government, because FCA claims sound in fraud, Relators "must state with particularity the circumstances constituting [the] fraud." Fed. R. Civ. P. 9(b). But despite Rule 9(b)'s insistence on specificity when pleading fraud claims, "it does not elevate the standard of certainty that a pleading must attain beyond the ordinary level of plausibility." Chorches, 865 F.3d at 88.
In this case, Relators sought to meet Rule 9(b)'s requirements according to the criteria we established in Chorches. There, we held that a plaintiff may plead on information and belief to satisfy Rule 9(b) in the FCA context by (1) showing billing information is "peculiarly within the opposing party's knowledge" and (2) "making plausible allegations creating a strong inference that specific false claims were submitted to the government." Id. at 86.
The district court determined the TAC did not satisfy either Chorches prong and therefore concluded the complaint did not meet Rule 9(b)'s particularity requirements. We agree in part.
As to the second Chorches prong, we conclude that Relators plausibly alleged sufficient facts to create a strong inference that specific false claims were submitted to the government. As to the first Chorches prong, we agree with the district court that the TAC falls short of alleging that "identification of particular claims is peculiarly within the knowledge of Amedisys." Amedisys, 2023 WL 2481144, at *6. But, as discussed below, we remand the case for the district court to grant leave to amend the complaint to address the shortcomings in Relators' pleadings.
a. Strong Inference that Specific False Claims Were Submitted
In considering whether Relators had pled "plausible allegations creating a strong inference that specific false claims were submitted to the government," Chorches, 865 F.3d at 86, the district court compared Relators' claims here to the claims of fraudulent overbilling for ambulance runs in Chorches, where the complaint alleged "ten specific runs described in detail," and concluded that the allegations here fall short by comparison, Amedisys, 2023 WL 2481144, at *7.
We disagree. Although some of Relators' allegations are less detailed than the Chorches allegations, Relators have identified multiple specific instances in which a clinician was instructed either to document patient information falsely to allow for treatments for which the patient did not qualify, or to recommend an unnecessary course of treatment. For example, Maniscalco's supervisors instructed him in early 2017 to fraudulently write that a 50-year-old man he was treating was not independent and needed assistance to use stairs, even though that wasn't true. The TAC also notes an instance involving a "female patient in her late-50's with early onset Parkinson's [who] completed a six-week program" in which Amedisys overstated the severity of her condition in the summer of 2016 in order to continue her treatment. Jt. App'x at 104. The most vivid allegation involves a "female patient approximately 70 years old with a neurological disorder that limited her mobility but did not preclude her from leaving the house or from driving." Id. at 107. Maniscalco began treating her in December 2016, and over the course of several months his supervisors repeatedly overruled his recommendations that her treatment be dialed back, despite Maniscalco's protestations that she did not need such treatments because she was "completely independent and it would be unethical" to provide the more expansive treatment. Id. at 107-08. Maniscalco was allegedly told not to document a leg injury this same patient suffered in a car accident, because documentation of her accident would indicate she was not actually homebound and would thus unmask her ineligibility for continued home-based treatment.
Relators have also identified multiple specific instances in which Amedisys falsified time sheets. For example, the TAC discusses one nurse assigned to 86 visits a week and another assigned to 78 a week, which made it physically impossible to spend adequate time with each patient and resulted in billing for work never performed.
Even if Relators were not privy to the actual bills sent on the basis of these instances, their allegations raise a strong inference that false claims were, in fact, submitted to the government in these instances. Indeed, the TAC alleges that 80% of Amedisys's revenue derives from government funded healthcare. See Chorches, 865 F.3d at 85 ("[I]n light of the significant share of runs that are reimbursed by Medicare and Medicaid (as distinct from private insurance), it is highly likely that any systematic scheme for documenting fabricated medical necessity for ambulance services will indeed reach the governmental insurers."); United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 740 (D.C. Cir. 1998) (concluding relator satisfied the submission prong in part because relator "knew that 80% of Howard's money came from the United States Government").
b. Billing Information Peculiarly Within Amedisys's Knowledge
Although it's a close case, we agree with the district court that the TAC as currently written suggests that Relators had enough access to billing information to render implausible their claim that the billing was "peculiarly within" Amedisys's knowledge. Chorches, 865 F.3d at 86. The district court's analysis flows from the following allegations:
Amedisys operated an independent billing department that gathered the forms submitted by therapists outlining services performed. That billing department then converted those forms to billings to the Government. While in most cases, Relator Maniscalco never saw these forms again after submitting them to the billing department, in some cases he was able to later review the forms and noticed changes
that were made by the billing department that specifically increased revenue to Amedisys.Jt. App'x at 111. Interpreting this passage, the district court noted that "Maniscalco admits to being able to review some forms after they were submitted to the billing department-enough to notice certain alleged changes made by that department that increased revenue to Amedisys." Amedisys, 2023 WL 2481144, at *6. As a result, it concluded that "Relators had some-albeit limited-access to billing information," so they could not show that such information was peculiarly within Amedisys's knowledge. Id.
We agree. Without further explanation, the above allegation appears to be in tension with Relators' allegations that the only contact they had with the billing department was when coding specialists initiated conversation by reaching out over telephone, and that neither Relator was "privy to the submission of the bills or invoices to Government Funded Healthcare Programs." Jt. App'x at 111. For that reason, the district court did not err in concluding that Maniscalco failed to plausibly allege that the billing records were peculiarly within Amedisys's knowledge. Chorches, 865 F.3d at 86.
3. Leave to Amend
But we conclude that Relators have not had an adequate opportunity to amend their complaint to clarify the relationship between the forms referenced in the allegation above and the billing records, and the nature of their access to the billing department. The district court exceeded its discretion in denying them leave to amend.
In general, leave to amend should be "freely give[n] . . . when justice so requires," Fed.R.Civ.P. 15(a)(2), and "[c]omplaints dismissed under Rule 9(b) are almost always dismissed with leave to amend," Pasternack v. Shrader, 863 F.3d 162, 175 (2d Cir. 2017). When a district court denies leave to amend in an exercise of discretion, rather than on the basis of a legal determination, we review for abuse of discretion. See Smith v. Hogan, 794 F.3d 249, 253 (2d Cir. 2015).
The district court rested its decision to deny leave to amend on the ground that Relators had already pled three times and thus had ample opportunity to address the deficiencies Amedisys identified in their complaint. See Amedisys, 2023 WL 2481144, at *10. In other words, the district court declined to give Relators another bite at the apple.
We disagree for three reasons. First, although the allegation in question involving Maniscalco's access to Amedisys's forms was included in the Second Amended Complaint ("SAC"), Amedisys did not make a particularized argument tied to that allegation in its motion to dismiss that complaint. Amedisys made the argument that carried the day only after Relators amended and filed the TAC. At the time Relators filed the TAC, they were not on notice of the potential issue concerning the allegation.
Second, and related, in denying leave to amend, the district court stated that the earlier motion to dismiss the SAC "raised similar-if not identical- arguments as to why Relators' complaint is insufficient." Amedisys, 2023 WL 2481144, at *10. But that wasn't totally accurate. Given that the allegations surrounding Maniscalco's access to Amedisys's forms proved to be decisive in the district court's Chorches analysis, and Amedisys's motion to dismiss the SAC did not in fact raise this issue, it was error to deny leave to amend on this basis.
Finally, the record suggests that Relators may well be able to amend to satisfy the first Chorches prong. As Relators alleged, "Amedisys operated an independent billing department that gathered the forms submitted by therapists . . . [and] converted those forms to billings to the government." Jt. App'x at 111. Those billing department members "worked from various parts of the country . . ., operated outside of the knowledge and purview of Relators, and . . . operated . . . quietly and independently from the rest of the Company." Id. The coding specialists, in particular, "were not located at the Amherst facility, or in New York for that matter" and worked in Illinois, Louisiana, and other parts of the country. Id. at 100. These allegations are substantially similar to the allegations in Chorches that the defendants' bills were generated from a billing department to which the relators lacked any physical access. See Chorches, 865 F.3d at 82.
In their briefing, and at oral argument, counsel for Relators explained that Maniscalco had access to his own treatment forms after they were altered by coding specialists in the billing department, but had "absolutely no idea what's in those bills," "how they're created," "how they're submitted," "when they're submitted," or "who's processing them." Oral Arg. Tr. at 9-10. Given an opportunity to amend, Relators could explain in their complaint any distinction between the treatment forms to which they had access and the actual bills that comprised the false claims. They could also attempt to reconcile their access to some forms used by the billing department with their allegations that the billing department operated out of their purview. Moreover, Relators could describe their digital access to treatment and billing records at Amedisys, and explain whether and how they could virtually access the billing records at issue-an issue that was not implicated in Chorches.
For these reasons, we reverse the district court's judgment insofar as the court denied Relators leave to amend.
4. State False Claims Acts
Relators offer no arguments to support a challenge to the district court's dismissal of their state law claims. In a footnote to their opening brief, Relators write: "For the reasons set forth herein, this Court should similarly reverse the District Court's dismissal of Relators' State Law FCA claims." Appellee's Br. at 34 n.5. The footnote continues to briefly suggest an argument regarding the state law claims, but, at oral argument, counsel for Relators conceded that they did not otherwise address their state law claims in their opening brief.
With such a bare and conclusory argument, Relators forfeited their state law challenges. See United States v. Restrepo, 986 F.2d 1462, 1463 (2d Cir. 1993) ("We do not consider an argument mentioned only in a footnote to be adequately raised or preserved for appellate review."). We thus affirm the district court's dismissal of the state FCA claims. Our remand to the district court to allow leave to amend to address the sufficiency of the federal claims under Rule 9(b) does not affect our decision to affirm the district court's dismissal of the state law claims forfeited on appeal.
* * *
For the foregoing reasons, the district court's judgment is AFFIRMED IN PART, and VACATED IN PART, and the case is REMANDED to the district court for further consideration consistent with this decision.
[*] The Clerk of Court is directed to amend the official case caption as set forth above.