Opinion
Civ. No. H-95-2241.
April 1999.
MEMORANDUM AND ORDER
Pending in this civil action are the following motions:
(1) Defendants' motion to dismiss the complaint for lack of subject matter jurisdiction (Paper No. 65);
(2) Defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted (Paper No. 66);
(3) Defendants' motion for a protective order to prevent discovery into certain matters by the relator (Paper No. 48);
(4) Defendants' motion for a protective order to preclude plaintiff and the relator from communication with defendants' current and former employees and for plaintiff and the relator to produce certain materials (Paper No. 49);
(5) Defendants' motion to have requests for admissions served upon the United States and to strike the government's objections thereto (Paper No. 50);
(6) Defendants' motion to amend discovery date and trial date (Paper No. 69); and
(7) Plaintiff's motion to strike ten affirmative defenses and to dismiss defendants' counterclaims (Paper No. 77).
Extensive memoranda and exhibits in support of and in opposition to these pending motions have been filed by the parties. Following its review of the pleadings, memoranda and exhibits, the Court has concluded that no hearing is necessary for a decision on any of the pending motions. See Local Rule 105.6.
(1) Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction
Relying on Rule 12(b)(1), F.R.Civ.P., defendants seek dismissal of this civil action for lack of subject matter jurisdiction. This motion invokes the "public disclosure bar" of 31 U.S.C. § 3730(e)(4). That statute bars any qui tam suit which is based on previous, public disclosure of the allegations or transactions underlying the suit, unless the relator is the original source of the information. In pertinent part, § 3730(e)(4) provides as follows:
(e) Certain Actions Barred —
(4)(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.
Until 1986, this provision was essentially a "government disclosure" bar, preventing relators from bringing qui tam suits if the government already possessed the information that was the foundation of the relator's claim. See United States ex rel. Siller v. Becton Dickinson Co., 21 F.3d 1339, 1354 (4th Cir. 1994). Enacted in 1986, § 3730(e)(4) sought to lessen the restrictions imposed by the bar and to "encourage more private enforcement suits." Id. at 1347 (quoting U.S.C.C.A.N. 1986, at 1288, 5289). It did so by creating an exception to the government disclosure bar for relators who were the original source of the material provided to the government. See § 3730(e)(4)(B); id. at 1354.
The pending suit is a False Claims Act ("FCA") action brought initially by relator Syed Rahman. Defendants contend that thisqui tam action should be dismissed because it is "based upon" information already publicly disclosed in the earlier wrongful discharge suit filed by Rahman in this Court. See Rahman v. Oncology Associates, P.C., Civil No. Y-95-332. According to defendants, Rahman's knowledge cannot be sufficiently "direct and independent" to satisfy the requirements of the original source exception of § 3730(e)(4)(B). Defendants also argue that this suit should be dismissed because Rahman's allegations are based not on actual knowledge of fraudulent practices but on mere suspicion and conjecture. Defendants make much of the fact that Rahman's allegations in his wrongful termination suit are somewhat vague, addressing only suspicions of fraud, that his disclosure to the government contained more details but was similarly inadequate to show actual knowledge, and that he hired another doctor to verify his suspicions of fraudulent billing after he filed both his suits. Rahman contends that his suit is proper on three separate grounds, each of which independently would render federal subject matter jurisdiction over the instant action proper. See Siller, 21 F.3d at 1347; United States ex rel. Jones v. Horizon Healthcare Corp., 160 F.3d 326, 331 (6th Cir. 1998). According to Rahman, (1) this qui tam suit is not "based upon" his earlier wrongful termination suit, (2) the statements in the earlier suit were not "allegations or transactions" sufficient to trigger the public disclosure bar, and (3) Rahman qualifies as an "original source" under § 3730(e)(4)(B) because his knowledge of the alleged fraud is direct and independent. This qui tam suit cannot be dismissed for lack of subject matter jurisdiction if any of these three characterizations are accurate.
On the record here, this Court has concluded that defendants' motion must be denied because Rahman qualifies as an "original source" under § 3730(e)(4)(B). Consequently, even if there has already been a public disclosure of information upon which this FCA claim is based, this suit has been properly instituted because "the person bringing the action is an original source of the information." § 3730(e)(4)(A).
Under the express terms of the statute, Rahman satisfies the two requirements necessary to qualify as an "original source." He had "direct and independent knowledge of the information on which the allegations are based," and he "voluntarily provided the information to the Government" before he filed the action. § 3730(e)(4)(B); Siller, 21 F.3d at 1351.
Pursuant to § 3730(e)(4)(B), Rahman filed a statement with the federal government on August 1, 1995, disclosing "substantially all material evidence and information possessed by [him]" that defendant Oncology Associates had violated the FCA. He filed his complaint in this qui tam suit on August 2, 1995. Both the disclosure statement and the complaint itself cite specific, questionable billing practices which Rahman observed directly. Rahman cited conversations between himself and various employees of Oncology Associates about those billing practices and between himself and customers complaining about over-billing. Rahman could not have learned these details from discovery obtained in his wrongful termination suit, inasmuch as he filed both the disclosure statement and the complaint before he received any relevant discovery in the earlier suit.
Only after Rahman's counsel filed a motion to compel on August 8, 1995, did the defendants in that suit produce medical records and billing summaries which Rahman needed to support his allegations.
Rahman's knowledge is "direct and independent" because his allegations are based on first-hand, personal observations made during his employment with Oncology Associates. See Horizon Healthcare, 160 F.3d at 333 ("[K]nowledge of the facts regarding the alleged fraud clearly is the result of her employment with [defendant] and the information she acquired and witnessed as a result of her position."); United States ex rel. Devlin v. State of California, 84 F.3d 358, 360 (9th Cir. 1996); United States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699, 703 (8th Cir. 1995). Rahman's knowledge is not derived from someone else's observations. Consequently, Rahman's suit does not represent the kind of parasitic suit that the public disclosure provisions were designed to prevent. Id.
The cases that defendants cite to support their assertion that Rahman's knowledge amounts to a mere suspicion or speculation are clearly distinguishable. In the primary case relied upon by defendants, United States ex rel. Alfatooni v. KITSAP Physician Services, 163 F.3d 516 (9th Cir. 1999), the Ninth Circuit upheld the district court's determination that it lacked jurisdiction over claims against several defendants because the relator's allegations were too speculative to constitute "direct" knowledge. Dr. Alfatooni's knowledge, however, was indirect, inasmuch as he knew of no specific instances of over-billing or general fraudulent practices. Id. at 526. All he knew directly was that defendants' auditing and recording procedures were inadequate. Id.; accord Devlin, 84 F.3d at 360-61 (dismissing an action where relators learned of the alleged fraud only through an employee that had engaged in the fraud); United States v. Daniel F. Young, Inc., 909 F. Supp. 1010, 1022 (E.D.Va. 1995) (dismissing an action where putative relator essentially alleged only that "I think there's something fishy going on in connection with Government Contract A and Contractor B"). By contrast, Dr. Rahman directly observed several potentially fraudulent practices during the course of his employment. That initially he merely suspected that these practices were fraudulent does not affect the direct and independent nature of the information he provided to the government.
Rahman's August 1, 1995 disclosure satisfied the second requirement of the "original source" exception because in it, prior to filing his qui tam complaint, he "voluntarily provided the information [supporting the complaint] to the Government." § 3730(e)(4)(B); Siller, 21 F.3d at 1351. This voluntary disclosure distinguishes this case from Horizon Healthcare, in which a qui tam suit was dismissed because the plaintiff failed to provide the requisite information to the federal government before filing her suit. See 160 F.3d at 334-35.
Defendants argue that Rahman nevertheless failed to satisfy the disclosure requirement because the disclosure to the government must be made before any public disclosure. Although this extra-textual requirement finds some support in the case law,see, e.g., United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 690 (D.C. Cir. 1997); United States ex rel. McKenzie v. BellSouth Telecomm., Inc., 123 F.3d 935, 942-43 (6th Cir. 1997), this Court concludes that it "runs flat into the face" of the language of the statute itself. Horizon Health Care, 160 F.3d at 336 (Gilman, J.) (concurring opinion). While § 3730(e)(4)(A) generally strips federal courts of jurisdiction to hear qui tam actions based on previous public disclosures, it creates an express exception to this restriction when "the person bringing the action is the source thereof." In other words, even if there has been a previous public disclosure, an "original source" may still bring a qui tam suit. Defendants' interpretation would render this plain language of the statute null and void. Such a result is incompatible with our system of divided federal government. See Brogan v. United States, 118 S.Ct. 805, 811-12 (1998) ("Courts may not create their own limitations on legislation, no matter how alluring the policy arguments for doing so. . . .").
For these reasons, defendants' motion to dismiss for lack of subject matter jurisdiction will be denied.
(2) Defendants' Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim
Relying on Rule 12(b)(6), defendants seek dismissal of some of the claims asserted in the complaint. Defendants contend that the following Counts of the complaint should be dismissed: Count III, "Conspiracy to Submit False Claims," because it fails to allege specific intent and fails to allege that the conspirators agreed to submit claims in order to get them allowed or paid; Count IV, "Unjust Enrichment," because an adequate remedy at law precludes it; and Count VI, "Alter Ego and Mere Instrumentality of Colkitt," because an attempt to pierce the corporate veil is merely a subsidiary claim and not an independent cause of action. Defendants further argue that the statute of limitations in 31 U.S.C. § 3731 bars consideration of any and all alleged false claims or statements submitted to the federal government prior to August 25, 1992, which was six years before the government's entry into this suit.
Defendants' memoranda erroneously refer to an "August 27, 1998" filing date, apparently mistaking the docket entry date for the date when the complaint was actually filed.
It is well established that a motion to dismiss under Rule 12(b)(6), F.R.Civ.P., should be denied unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In determining whether to dismiss a complaint or a claim asserted in a complaint, this Court must view the well-pleaded material allegations in a light most favorable to the plaintiff, with the alleged facts accepted as true. 2A Moore's Federal Practice, ¶ 12.07 [2.-5] (2d ed. 1987); 5A C. Wright A. Miller, Federal Practice and Procedure § 1357, at 304-21 (1990).
(a) Count III (Conspiracy to Submit False Claims)
The Court is satisfied that the motion should be denied as to Count III. The government's pleadings are adequate, as they allege:
(1) that defendants conspired with one or more persons to have a fraudulent claim paid by the United States,
(2) that one or more of the conspirators performed an act to have such a claim paid by the United States, and
(3) that the United States suffered damages as a result.
See United States ex rel. Durcholz v. FKW Inc., 997 F. Supp. 1159, 1173 (S.D.Ind. 1998); United States v. Bouchey, 860 F. Supp. 890, 893-94 (D.D.C. 1994); United States ex rel. Stinson, Lyones, Gerlin Bustamante, P.A. v. Provident Life Accident Ins. Co., 721 F. Supp. 1247, 1259 (S.D.Fla. 1989).
Defendants rely on United States v. Murphy, 937 F.2d 1032 (6th Cir. 1991) and FKW, 997 F. Supp. 1159 (S.D.Ind. 1998), in arguing that the government must allege specific intent. This Court would disagree. The cases in question stand merely for the proposition that, in order to prove a conspiracy, the government must show that defendants actually entered into an agreement to accomplish an unlawful end. See 937 F.2d at 1039; 997 F. Supp. at 1173. The complaint in this case has alleged that defendants "entered into an agreement and conspired with one another to submit false claims." Section 3729(a)(3) does not require a more specific allegation than that.
Defendants also argue that Count III is defective because, although it alleges that the defendants conspired to "submit false claims," it does not allege that they conspired to get those claims "allowed or paid." See 31 U.S.C. § 3729(a)(3). This argument is meritless. Defendants seek to parse the language of the complaint and also attempt to draw meaningful distinctions where there are none. The complaint alleges that "defendants entered into an agreement and conspired with one another to submit false claims for reimbursement to the United States and to receive monies for [sic] the United States to which they were not entitled." The complaint is clearly sufficient. As defendants concede in their reply memorandum, the government need not plead the precise language of the statute. The government's allegation of a conspiracy "to submit false claims for reimbursement . . . and to receive monies . . . to which [defendants] were not entitled" clearly describes a conspiracy "to get false claims allowed or paid."
Count III will therefore not be dismissed.
(b) Count IV (Unjust Enrichment)
Count IV alleges in the alternative a claim of unjust enrichment. Defendants argue first that without the government's intervention, the relator would not have been able to raise any common law causes of action in this FCA suit, including a claim for unjust enrichment. According to defendants, Count IV should consequently be dismissed because it would be inequitable to allow an unjust enrichment claim simply because the government elected to intervene. Second, defendants argue that an unjust enrichment claim is unnecessary because an adequate remedy at law exists.
Defendants' motion will be denied as to Count IV. Whether or not the relator would have been able to bring an unjust enrichment claim independently is not relevant, inasmuch as the government has in fact intervened. Furthermore, the "adequate remedy" argument is inapplicable to the facts of this case. At least two courts, including the only authority cited by defendants, have observed that an unjust enrichment claim cannot be pled in the alternative where an adequate remedy exists under the law of contracts. See United States v. Hydroaire, Inc., 1995 WL 86733, *6 (N.D.Ill. 1995); United States v. Geri-Care, Inc., 1990 WL 9463, *3 (E.D.Pa. 1990), vacated in part on other grounds, 1990 WL 39301 (E.D.Pa. 1990). Where, as here, the existence of a contractual relationship between the parties has not been established, it is appropriate to plead quasi-contractual remedies as alternatives to a FCA claim. See id.; United States ex rel. Mayman v. Martin Marietta Corp., 894 F. Supp. 218, 225 (D. Md. 1995).
(c) Count VI (Alter Ego and Instrumentality of Colkitt)
Defendants argue that Count VI is a mistaken attempt to make an alter ego claim a primary cause of action. Defendants argue that the failure to restate each cause of action renders Count VI a claim upon which relief cannot be granted, and warrants dismissal of the claim.
The government concedes that it should have re-stated in Count VI each cause of action, but argues that this is a mere technicality that does not warrant dismissal at this time. The Court would agree. As noted by the government, Count VI incorporates by reference all factual allegations in the complaint and alleges that Colkitt used the various defendant business entities as instrumentalities in his scheme of submitting to the government false claims for payment.
Applying the liberal pleading requirements of the Federal Rules, this Court is satisfied that the government's failure to spell out each cause of action as it relates to defendant Colkitt is a technical oversight which does not warrant dismissal. Since Count VI incorporates all preceding allegations in the complaint, it sufficiently puts defendant Colkitt on notice that the government will seek to pierce the corporate veil and hold him personally liable for any violations of the FCA. Accordingly, defendants' motion to dismiss Count VI will be denied.
(d) Statute of Limitations Under 31 U.S.C. § 3731(b)(1)
In this portion of their motion to dismiss, defendants claim that the statute of limitations in 31 U.S.C. § 3731(b)(1) bars all alleged false claims or statements submitted to the government prior to August 25, 1992. The parties agree that the applicable limitations period is six years, but dispute the date when the limitations period began to run and when it tolled.
Section 3731(b) provides as follows:
A civil action under section 3730 may not be brought —
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date of which the violation is committed, whichever occurs last.
Defendants argue that the applicable limitations period tolled on August 25, 1998 and that the government consequently may pursue only claims submitted after August 25, 1992. The government contends that its complaint "relates back" to when Rahman filed his sealed complaint on August 3, 1995. The government further argues that the filing of the complaint commenced the action, and that the fact that the case was under seal from 1995 to 1998 is irrelevant. Two unreported district court opinions support the government's position. See United States ex rel. Mueller v. Eckerd Corp., No. 95-2030-CIV-T-17C (M.D.Fla. 1998) and United States ex rel. Costa v. Baker Taylor, Inc., 1998 WL 320979 (N.D.Cal. 1998). The Costa case is directly in point here. In Costa, relators filed on June 1, 1995 an FCA complaint which remained under seal until January 31, 1997. As here, defendants argued that the limitations period should have continued to run until defendants were served and the case was unsealed. The Court rejected this argument, stating:
Defendants submit that the court should devise a new rule which would permit tolling and relation back only when a complaint is unsealed. Defendants offer no support for this suggestion, save some policy arguments regarding the purpose of the statutes of limitations. . . . The court cannot substitute its judgment for that of the[ ] legislative bodies, no matter how reasonable or attractive are the arguments which defendants mount for their proposed rules.
Title 31 U.S.C. § 3731, the statute of limitations for the federal False Claims Act, speaks in terms of when an action is "brought." It gives plaintiff six years from the time a violation occurs to bring suit. . . .
The present case was brought and filed on June 1, 1995. On that date, the statutes of limitations were tolled.Id. at *3.
In this particular case, defendants have done no more than advance the same types of policy arguments proposed by the defendants in Costa and rejected by the Court. In the absence of any different or more compelling arguments, the express language of the statute will be applied. Accordingly, this Court concludes that the limitations period here tolled when Rahman "brought" his action on August 3, 1995. See 31 U.S.C. § 3731(b).
For all the foregoing reasons, defendants' motion to dismiss for failure to state a claim upon which relief may be granted will be denied in its entirety.
(3) Defendants' Motion for a Protective Order To Prevent Discovery
This motion requests the Court to suspend discovery pending a ruling on defendants' prior motion for a more definite statement. Defendants also object to Rahman's interrogatories and document requests on grounds of relevancy and burdensomeness.
This motion will be denied. Part of the motion is moot, and the parties' discovery dispute is not properly before the Court.
By marginal Order dated January 20, 1999, Judge Young denied defendants' motion for a more definite statement. Thus, Paragraph 2 of defendants' motion is moot. Paragraphs 3-5 of this motion improperly seek the Court's intervention in a discovery dispute before the requirements of Local Rule 104.7 have been satisfied. If defendants would want the Court to rule on this or any other discovery dispute in this case, they must fully comply with Local Rule 104.7 before the Court will consider the dispute.
(4) Defendants' Motion for a Protective Order To Preclude Plaintiff from Communicating with Certain Employees
Defendants request the entry of an order to prevent plaintiffs' counsel from contacting any of defendants' current or former employees, to require disclosure of all information previously obtained from those employees, and to bar the admission of any future testimony of those employees. Defendants claim that government attorneys inappropriately communicated with current and former employees of defendants during the course of the government's investigation. Defendants rely on the fact that, after the government formally intervened in this suit, a government lawyer contacted six physicians employed by the defendants. Defendants claim that these contacts violated Rule 4.2 of the Maryland Rules of Professional Conduct.
Rule 4.2 provides as follows:
[I]n representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so.
The Comment to Rule 4.2 further provides that:
In the case of an organization, this Rule prohibits communications by a lawyer for one party concerning the matter in representation with persons having a managerial responsibility on behalf of the organization, and with any other person whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability.
Relying on a recent Eighth Circuit case, United States ex rel. O'Keefe v. McDonnell Douglas Corp., 132 F.3d 1252 (8th Cir. 1998), and on three decisions of this Court, Camden v. Maryland, 910 F. Supp. 1115 (D. Md. 1996) (Messitte, J.); AG Gro Servs. Co. v. Sophia Land Co., 1997 WL 907991 (D. Md. 1997) (Garbis, J.);Zachair v. Driggs, 965 F. Supp. 741 (D. Md. 1997) (Davis, J.), defendants argue that Rule 4.2 prohibits any contact between the government and any current or former employees of the defendants.
In opposition, plaintiff represents that no government lawyer has contacted any current employee of the defendant entities regarding the subject matter of this lawsuit. The government admits that, prior to its intervention, its investigators did contact some former employees and non-employees during the course of the investigation. It is also admitted that in December 1998, the Health Care Financing Administration (the "HCFA") and the Medicare carrier for the defendants ("Xact") had direct contact with several physicians associated with the defendants concerning the use of the physicians' individual Medicare provider numbers in seeking Medicare reimbursements.
With regard to its investigation prior to intervening in this suit, the government argues (1) that it did not contact any current employees, (2) that even if it had, such ex parte contacts are permitted by Rule 4.2 because they are "authorized by law," and (3) that Rule 4.2 does not extend to former employees of a represented organization. With regard to the allegedly improper contacts with the individual physicians, the government argues (1) that the contacts were not prohibited by Rule 4.2 because defendants have not shown that the acts of the physicians could be imputed to the defendants, (2) that prior to the contacts, defendants repeatedly claimed that the individual physicians were not represented by defendants' counsel, and (3) that Rule 4.2 does not cover a regulatory agency carrying out its oversight responsibility. Finally, the government contends that it retains the ongoing right to contact non-employees associated with the radiation oncology centers.
This motion will be denied. Defendants have failed to furnish sufficient facts to show that they are entitled to the relief sought by this motion. In essence, defendants seek an abstract ruling that the government must be barred from any and all contact with employees of the corporate defendants. Since defendants have not undertaken to delineate the entities which fall into this broad, amorphous category, their interpretation of Rule 4.2 is inconsistent with both its language and purpose.
If the authors of Rule 4.2 intended it to preclude all contact with all "employees" of an entity, they could have included language to that effect. They did not. Instead, the Rule proscribed ex parte contacts with a represented "party." The Comment to the Rule makes clear that it is not intended to include all former employees or even all present employees of a corporate entity. The Comment speaks instead of "persons having a managerial responsibility on behalf of the organization" and "any other person whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability."
In each of the decisions of this Court cited by defendants, the Court sought to prevent interference with the attorney-client privilege. See, e.g., Camden, 910 F. Supp. at 1122 ("So long as privilege matters are respected, all other former employees remain fair game.") The willingness expressed in those opinions to expand the scope of Rule 4.2 to cover certain former employees simply reflects a recognition that even a former employee may possess information that, if disclosed, would vitiate the attorney-client privilege. See, e.g., id. (Rule 4.2 prevents plaintiff's attorney from contacting a former employee of the defendant who investigated plaintiff's original discrimination complaint); Driggs, 965 F. Supp. at 753 (Rule 4.2 covers contact with former counsel for a corporate defendant).
Thus, both the language of Rule 4.2 and the case law interpreting it require a court to focus on the nature of the information possessed by the "employee" at issue and the relationship between that employee and the corporate entity. This is precisely the kind of information which defendants have failed to provide here.
Defendants' allegation of impermissible contact with six physician employees of the defendants illustrates this deficiency. Defendants have not shown either that these individual physicians have managerial responsibility or that their acts or omissions could be imputed to the corporate defendants. None of the physicians is a defendant in this case, and some of them have retained their own counsel in related matters involving the use by defendants of their individual physician Medicare billing numbers. Perhaps most significantly, defendants have denied that these individuals are represented by counsel for the defendant corporations. In his November 25, 1998 letter, John Brennan, Esq., one of defendants' attorneys, observed: "As you know, this firm does not represent the individual physicians whom [sic] now qualify for Medicare reimbursement as the `supplier/billers' under their UPINs, nor may Equimed, Inc., the centers' manager, speak on the physicians' behalf."
This Court accordingly concludes that defendants have failed to show that the contacts in question fall within the ambit of Rule 4.2. Consequently, defendants' motion for a protective order will be denied.
(5) Defendants' Motion to Have Requests for Admissions Deemed Admitted and to Strike United States of America's Objections Thereto
Defendants complain that the United States has refused to admit or deny any of defendants' 21 requests for admissions. Defendants further contend that the United States' objections are frivolous and unjustified. In accordance with Rule 36(a), F.R.Civ.P., defendants have requested the Court to "determine the sufficiency of the answers or objections" and to deem them admitted.
Once again, defendants seek the Court's intervention in a discovery dispute before complying with either the requirements of the letter or the spirit of Local Rule 104.7. It is apparent that this motion involves a "discovery dispute" between the parties. Rule 104.7 requires that the parties meet and make a good faith effort to resolve all discovery disputes before they may be considered by the Court. Since defendants have not filed the certificate required by the Rule, their motion will be denied.
(6) Defendants' Motion to Modify Discovery Termination Date and Trial Date
This motion will be granted. In his Scheduling Order of November 3, 1998, Judge Young set a December 31, 1999 date for the termination of discovery and an October 9, 2000 trial date.
This case has now been reassigned to the undersigned. A conference with counsel will shortly be scheduled, and new dates will be set in conformance with the undersigned's trial docket. The Court would expect to be able to set earlier dates than those contained in Judge Young's Order. The original dates contemplated that numerous motions would be filed and that the preliminary disputes involved would have to be resolved by the Court before a date for the completion of discovery could be set. Rulings on the pending motions have now been made, and the resolution of these motions should serve to streamline discovery and expedite its completion.
Defendants' motion will therefore be granted, and a Revised Scheduling Order will be hereafter entered by the Court.
(7) Plaintiff's Motion to Strike Ten Affirmative Defenses and to Dismiss Counterclaims Against the United States
Defendants have in their answer asserted 14 affirmative defenses. The government moves to strike 10 of them: defendant's Second Defense (loss sustained by the United States was due to the negligence of plaintiff or some other third party); Fifth Defense (release); Seventh Defense (ratification); Eighth Defense (estoppel); Ninth Defense (laches); Tenth Defense (set-off); Eleventh Defense (unclean hands); Twelfth Defense (accord and satisfaction); Thirteenth Defense (res judicata); and Fourteenth Defense (collateral estoppel).
Defendants have opposed the government's motion to strike on due process grounds. Defendants argue that, at this early stage of the proceedings, it would be fundamentally unfair to grant motions to strike which would have the effect of limiting defendants' access to the wealth of information which the government has accumulated during the three-year investigation which it undertook before intervening in the case. In addition to this blanket objection, defendants specifically oppose the motion only insofar as it relates to defendants' Second Defense (government's negligence), Seventh Defense (ratification), Eighth Defense (estoppel), Tenth Defense (set-off), Thirteenth Defense (res judicata), and Fourteenth Defense (collateral estoppel).
Rule 12(f), F.R.Civ.P., provides that "[u]pon motion made by a party . . . the court may order stricken from any pleading any insufficient defense. . . ." An insufficient defense is one that, as a matter of law, "`cannot succeed under any circumstance.'" United States v. DWC Holding Co., 1994 WL 394730, *1 (D. Md.) (Hargrove, J.) (quoting United States v. Smuggler-Durant Mining Corp., 823 F. Supp. 873 (D. Colo. 1993)). A motion to strike should not be granted "where there is any question of fact or any substantial question of law." United States v. Fairchild Indus., Inc., 766 F. Supp. 405, 409 (D. Md. 1991) (Ramsey, J.); see also FDIC v. Modular Homes, Inc., 859 F. Supp. 117, 120 (D.N.J. 1994); United States v. Fidelcor Business Credit Corp., 1993 WL 276933, *2 (E.D.Pa.). Because questions of fact or substantial questions of law cannot be adequately addressed at an early stage of the proceedings, a court should review with extreme scrutiny a motion to strike. See Fairchild Industries, 766 F. Supp. at 408. Consequently, if defendants can point to legitimate legal authority to support their assertion of a particular defense, a motion to strike that defense should be denied.
Although motions to strike are disfavored, courts have repeatedly recognized that, where proper, they "`serve a useful purpose by eliminating insufficient defenses and saving the time and expense which would otherwise be spent in litigating issues which would not otherwise affect the outcome of the case.'"Fairchild Industries, 766 F. Supp. at 408 (quoting United States v. Marisol, Inc., 725 F. Supp. 833, 836 (M.D.Pa. 1989)); see also FDIC v. Baker, 739 F. Supp. 1401, 1408 (C.D.Ca. 1990). Affirmative defenses are subject to ordinary "plain and concise statement" pleading requirements. Consequently, "[d]efenses that are nothing but bare bones conclusory allegations can be stricken." Modular Homes, 859 F. Supp. at 121 (internal quotation marks omitted).
Applying here the principles of Fairchild Industries, this Court concludes that there is no merit to defendants' due process argument. If one or more of defendants' affirmative defenses are not supported by the applicable law or by defendants' allegations, such an insufficient defense should be stricken to save the parties' time and expense in conducting discovery and in otherwise litigating an issue which could not be expected to affect the outcome of this case. Marisol, 725 F. Supp. at 836. The Court will accordingly undertake to consider each of the government's particularized challenges to the affirmative defenses at issue.
(a) Second Defense — Any Loss Sustained by Plaintiff Was Due to the Negligence of Plaintiff or Some Other Third Party Over Whom Defendants Exercised No ControlPlaintiff contends that the negligence of the government or some other party is not a defense to a claim asserted under the FCA. Defendants counter that the negligence of the government or its agents is relevant to the common law claim of mistake in fact asserted in Count V of the complaint.
Defendant's second affirmative defense must be stricken. Contrary to defendant's contentions, the negligence of the government or its agents would not bar recovery under a common law action seeking to recover money paid under a mistake of fact. The only two cases which defendants cite for support are inapposite. The first, Nationwide Mutual Ins. Co. v. Voland, 103 Md. App. 225, 235 n. 9 (1995), merely cites the second, Baltimore v. DeLuca-Davis Constr. Co., 210 Md. 518, 527 (1955), for the proposition that a party cannot ask a court to rescind or reform a contract where a mistake in fact came about as a result of that party's violation of a legal duty or culpable negligence. By way of contrast, this case presents the question of whether the government can recover monies paid under a mistake of fact where a government contractor was allegedly negligent.
It is apparent from their briefs that the parties view this motion as a vehicle for resolving a substantial discovery dispute. Plaintiff claims that more than 50% of defendants' discovery requests relate to their affirmative defenses. While defendants' pleadings do not allege any particular negligent conduct, their brief in opposition suggests that they will undertake to prove that various Medicare carriers conducted extensive audits of defendants' billing practices and found everything to be in order. Based on this evidence, they will argue that "the Government [knew] that its agents (Medicare Carriers), sanctioned, approved and acquiesced to the Defendants' Medicare billings. . . ."
When viewed in this light, the arguments supporting the plaintiff's motion to strike this defense are even more compelling. Plaintiff cites a number of cases which stand for the proposition that ratification by a government employee or agent cannot defeat an otherwise valid claim for recovery of monies paid by mistake. See, e.g., Wisconsin Central Railroad Co. v. United States, 164 U.S. 190, 206-212 (1986) (holding that the Postmaster General's decision to direct payment did not preclude the government from bringing an action to recover for payment under mistake); United States v. Aerodex, Inc., 469 F.2d 1003, 1009 (5th Cir. 1972) (contractual duty to inspect was for the government's benefit; failure to perform that duty adequately does not insulate government contractor from liability for fraud). Defendants cite and the Court is aware of no authority to the contrary.
The government argues that granting its motion to strike the Second Defense will preclude needless discovery into irrelevant matters (e.g., what duties the government owed to inform defendants of questionable billing practices or the adequacy of any audit conducted by the government or the Medicare carriers). The Court would agree. However, while striking this defense will serve to narrow the permissible scope of discovery, it should be noted that the Court's decision in this regard will not entirely foreclose discovery into prior audits. Presumably, audits finding the defendants in compliance with federal standards would be relevant to the issue of whether defendants intended to defraud the government.
Plaintiff's motion to strike the Second Defense will accordingly be granted.
(b) Fifth Defense — Release
Defendants' Fifth Defense must be stricken. The arguments advanced by the government in support of its motion to strike the Fifth Defense are the same arguments advanced in support of its motion to strike defendants' Second Defense. Defendants cite no contrary authority.
(c) Seventh Defense — Ratification
The government moves to strike defendants' Seventh Defense on the ground that a government official or employee cannot excuse, waive, or ratify a violation of a federal statute. Defendants contend that ratification is a defense to Count V of the complaint which alleges payment under a mistake of fact.
Defendants' Seventh Defense will be stricken. The defendants' arguments here mirror those advanced in opposing plaintiff's motion to strike the negligence defense.
Defendants cite two Maryland cases which recognize that when a mistake of fact (or fraud) causes a party to enter into a contract or transaction, the contract or transaction is voidable, not void, and may be ratified explicitly or by subsequent conduct.See Hoffman v. Seth, 207 Md. 234, 239 (1955); Telesaver, Inc. v. United States Transmission Sys., Inc., 687 F. Supp. 997, 1000 (D. Md. 1988), aff'd 923 F.2d 849 (4th Cir. 1991). The principles established by these cases are not contrary to the position taken by the government in this case, namely that a government employee (let alone a government contractor) does not have the authority to ratify a mistaken or fraudulent payment on behalf of the government itself, whether or not the recovery action is brought under a federal statute. The government's position finds compelling support in the case law. See, e.g., United States v. Wurts, 303 U.S. 414, 415 (1938) ("The Government by appropriate action can recover funds which its agents have wrongfully, erroneously, or illegally paid. No statute is necessary to authorize the United States to sue in such a case. The right to sue is independent of statute.") (internal quotation marks and citation omitted); Wisconsin Central, 164 U.S. at 206-207 (ratification by government employee cannot preclude an otherwise viable claim for recovery of monies paid under mistake); United States v. Mead, 426 F.2d 125, 124 (9th Cir. 1970) (in an FCA case, the government is entitled to seek recovery of monies it mistakenly paid to defendants; the alternate theory of mistake in fact is available, independent of the statute).
Based on these authorities, this Court concludes that there is no "question of fact or any substantial question of law" presented by the defense in question. Therefore, defendants' Seventh Defense must be stricken. Fairchild Industries, 766 F. Supp. at 409.
(d) Eighth Defense — Estoppel
Defendants' Eighth Defense must be stricken with leave to amend. Defendants' answer fails to allege the following necessary elements of a common law defense of equitable estoppel: (1) misrepresentation, (2) reasonable reliance, and (3) detriment.See United States ex rel. Fallon v. Accudyne Corp., 921 F. Supp. 611, 619 (W.D.Wis. 1995). In their supplemental memorandum filed in opposition to the government's motion to strike, defendants have attempted to supplement and add to the allegations contained in their Eighth Defense. However, those allegations must be part of the pleadings rather than contained in a legal brief. See Modular Homes, 859 F. Supp. at 121 (conclusory allegations can be stricken).
It cannot be determined as a matter of law at this stage of the case that defendants' Eighth Defense must be stricken. Defendants point to the Fallon case as one which has explicitly recognized an affirmative defense of estoppel in an action brought by the government. In Heckler v. Community Health Servs. of Crawford County, Inc., 467 U.S. 51, 61 (1983), the Supreme Court declined to adopt a flat rule that estoppel may not run against the government under any circumstances. Assuming that defendants amend their answer, their Eighth Defense presents a "substantial question of law," and resolution of that question of law pursuant to a motion to strike would be premature. See Fairchild Industries, 766 F. Supp. at 409.
Citing OPM v. Richmond, 496 U.S. 414 (1990), plaintiff argues that striking this defense would still be proper because the monies at issue here were paid as part of a statutory entitlement program, as distinguished from cases like Fallon which involved government contracts. Nevertheless, as plaintiff appears to recognize in its reply memorandum, whether a "contract" existed in this case involves factual determinations which are inappropriate for resolution by way of a motion to strike. See Fairchild Industries, supra.
Accordingly, defendants' Eighth Defense will be stricken with leave to amend.
(e) Ninth Defense — Laches
This defense must be stricken. Defendants have not mentioned it in their opposition brief. The authorities cited by the government are controlling, and defendants have cited no cases to the contrary.
(f) Tenth Defense — Set-Off
The government argues that the Tenth Defense, which amounts to a counterclaim against the United States, should be stricken because it fails to allege supporting facts and because the United States has not consented to being sued. See United States v. Shaw, 309 U.S. 495, 502-504 (1939). Defendants concede that a claim of set-off would be barred by sovereign immunity, but they argue that the defense should be treated as one for recoupment. A recoupment defense allows a recovery by the government to be reduced or defeated if a defendant has a valid claim against the government, but does not permit an affirmative judgment to be entered in a defendant's favor. See United States v. Lashlee, 105 F. Supp. 184, 186 (W.D.Ark. 1952); see generally First Nat'l Bank v. Master Auto Service Corp., 693 F.2d 308, 310 n. 1 (4th Cir. 1982) (explaining the difference between set-off and recoupment).
The Tenth Defense will be stricken with leave to amend for two reasons. First, since it is properly a claim for recoupment, the pleadings should be amended to reflect the proper nature of the defense asserted. Second, the allegations are insufficient to put the government on notice of the basis for any claim of recoupment. To be viable, a defense of recoupment must be supported by a short and plain statement of the basis for the defense.
(g) Eleventh Defense — Unclean Hands
This defense must be stricken. Defendants did not mention it in their opposition brief and have cited no authority contrary to that relied upon by the government.
(h) Twelfth Defense — Accord and Satisfaction
This defense must be stricken. Defendants did not mention it in their opposition brief and have cited no authority contrary to that relied upon by the government.
(i) Thirteenth and Fourteenth Defenses — Res Judicata and Collateral Estoppel
The government has moved to strike defendants' Thirteenth and Fourteenth Defenses on the ground that the United States has never been a party to or in privity with a party to any litigation involving a final adjudication of the merits of any issue raised in this suit. Defendants argue that any evaluation of these defenses necessitates a review of factual matters outside of the pleadings and that such a review would preclude striking the defenses. See F.D.I.C. v. White, 828 F. Supp. 304, 311 (D.N.J. 1993).
In making this argument, both the defendants and the district court in White paint with too broad a brush. Under defendants' theory, the defenses of res judicata and collateral estoppel couldnever be properly stricken. While a court should in general be reluctant to strike an affirmative defense, defenses that are clearly insufficient as a matter of law can and should be stricken. Rule 12(f) F.R.Civ.P.; Fairchild Industries, 766 F. Supp. at 408.
In this case, the defenses of collateral estoppel and res judicata are clearly insufficient as a matter of law. Under 31 U.S.C. § 3730(c), the government is not and cannot be bound by the conduct of a relator. Moreover, it is beyond dispute that the government played no role in Rahman's earlier wrongful termination suit against the defendants. For these reasons, the government's motion to strike defendants' Thirteenth and Fourteenth Defenses will be granted.
(6) Conclusion
For all the reasons stated, it is this _______ day of April, 1999 by the United States District Court for the District of Maryland,
ORDERED:
1. That defendants' motion to dismiss the complaint for lack of subject matter jurisdiction is hereby denied;
2. That defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted is hereby denied;
3. That defendants' motion for a protective order to permit discovery into certain matters by the relator is hereby denied;
4. That defendants' motion for a protective order to preclude plaintiff from communicating with certain employees is hereby denied;
5. That defendants' motion to have their requests for admissions deemed admitted and to strike the government's objections thereto is hereby denied;
6. That defendants' motion to amend discovery termination date and trial date is hereby granted;
7. That plaintiff's motion to strike defendants' Second Defense, Fifth Defense, Seventh Defense, Ninth Defense, Eleventh Defense, Twelfth Defense, Thirteenth Defense and Fourteenth Defense is hereby granted; and
8. That plaintiff's motion to strike defendants' Eighth Defense and Tenth Defense is hereby granted, with leave to defendants to amend.