United States Ex Rel. Judd v. Quest Diagnostics Inc. ( 2015 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-3156
_____________
UNITED STATES OF AMERICA ex rel. JAMES JUDD, MD;
DISTRICT OF COLUMBIA; CALIFORNIA; CONNECTICUT; COLORADO;
DELAWARE; FLORIDA; GEORGIA; HAWAII; ILLINOIS; INDIANA;
LOUISIANA; MARYLAND; MASSACHUSETTS; MICHIGAN; MINNESOTA;
MONTANA; NEVADA; NEW HAMPSHIRE; NEW JERSEY; NEW MEXICO;
NEW YORK; NORTH CAROLINA; OKLAHOMA; RHODE ISLAND;
TENNESSEE; TEXAS; VIRGINIA; WISCONSIN; CHICAGO CITY;
NEW YORK CITY; PHILADELPHIA CITY, ex rel., JAMES JUDD, M.D.;
JAMES JUDD, M.D., individually
v.
QUEST DIAGNOSTICS INCORPORATED
James Judd, M.D.,
Appellant
______________
On Appeal from the United States District Court
for the District of New Jersey
(District Court No. 2-10-cv-04914-KM-MAH)
District Judge: Hon. Dickinson R. Debevoise
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Argued: March 18, 2015
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Before: McKEE, Chief Judge, RENDELL and FUENTES, Circuit Judges.
(Opinion filed: August 26, 2015)
_______________________
OPINION1
_______________________
William J. Leonard, Esq. [ARGUED]
Mathieu Shapiro, Esq.
Obermayer, Rebmann, Maxwell & Hippel
One Penn Center
1617 JFK Blvd., 19th Floor
Philadelphia, PA 19103
Kimberly D. Sutton, Esq.
Obermayer, Rebmann, Maxwell & Hippel
200 Lake Drive East
Suite 110, Woodland Falls Corporate Park
Cherry Hill, NJ 08002
Counsel for Appellant
Ethan M. Posner, Esq. [ARGUED]
Matthew J. Berns, Esq.
Michael M. Maya, Esq.
Covington & Burling
One City Center
850 Tenth Street, NW
Washington, DC 20001
Counsel for Appellee
MCKEE, Circuit Judge.
Relator-Plaintiff James Judd, M.D. appeals the District Court’s order dismissing
the majority of his claims under the False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”),
against Defendant Quest Diagnostics Incorporated (“Quest”) due to the public disclosure
1
This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
2
bar and Rule 9(b) of the Federal Rules of Civil Procedure. We will affirm.
I.
Judd is a medical doctor who has been the managing partner and chief executive
officer of Hatboro Medical Associates, P.C., (“HMA), a Pennsylvania-based group
medical practice, since 1988. Quest is a large, Michigan-based diagnostic testing
company with a number of laboratories nationwide. In 2010, Judd filed a qui tam action
under seal that asserted claims under the FCA, as well as multiple state and local false
claims acts. Quest moved to dismiss based on the public disclosure bar to FCA actions,
31 U.S.C. § 3730(e)(4) (2006), and Rule 9(b). In response, Judd filed an Amended
Complaint asserting additional causes of action.
In his Amended Complaint, Judd alleges that, in 2007, he discovered a “kickback
scheme” that Quest had been engaging in with HMA and other healthcare providers
throughout Southeast Pennsylvania since “sometime before 2005[.]” (JA 59 ¶ 23.) The
purpose of this scheme was allegedly to induce healthcare providers to refer their patients
to Quest in return for benefits including medical and office supplies, substance abuse and
diagnostic laboratory testing performed by Quest at discounted rates, and free access to
Quest’s patient database. Judd claims that, as a result of these benefits, the providers did
indeed refer lab work to Quest rather than other labs. He further alleges that both Quest
and the healthcare providers submitted to Medicaid and Medicare thousands of claims for
reimbursement that were false because the underlying procedures were performed using
kits, tests, and other supplies that Quest provided free of charge. As a result of the
alleged scheme, Judd claims that Quest violated the Anti-Kickback Statute (“AKS”), 42
3
U.S.C. § 1320a-7b, and the Stark Law, 42 U.S.C. § 1395nn, and that any claims that
Quest submitted to Medicare and Medicaid during the period of the alleged kickback
scheme were false and fraudulent under the FCA.
After Judd filed his Amended Complaint, Quest again moved to dismiss based on
Rule 9(b) and the public disclosure bar, arguing that Judd’s claims had been publicly
disclosed in three cases: (1) United States ex rel. Urbanek v. Laboratory Corp. of
America Holdings, Inc., No. 00-4863 (E.D. Pa.) (“Urbanek”), filed on September 26,
2000; (2) United States ex rel. Fair Laboratory Practices Associates v. Quest
Diagnostics, Incorporated, No. 05-5393 (S.D.N.Y.) (“F.L.P.A.”), filed on November 18,
2009; and (3) California ex rel. Hunter Laboratories, LLC v. Quest Diagnostics
Incorporated, No. 34-20009-00048046 (Cal. Super. Ct.) (“Hunter Labs”), filed on
December 14, 2009. The District Court concluded that the public disclosure bar
mandates dismissal of Judd’s claims regarding Quest’s scheme with providers other than
HMA before 2010. Judd v. Quest Diagnostics Inc., Civ. No. 10-4914 (KM), 2014 WL
2435659 at *6-13 (D.N.J. May 30, 2014). In so ruling, the court provided two reasons:
First, it found that these claims had been previously publicly disclosed in Urbanek and
Hunter Labs. Id. Second, it found that Judd was not an original source of the
information on which his allegations about healthcare providers other than HMA were
based.2 Id. at *14. Thus, it held that it lacked jurisdiction over these claims. Id. In so
2
Having dismissed Judd’s federal claims, the District Court also dismissed Judd’s state
law claims pursuant to 28 U.S.C. § 1367. Judd, 2014 WL 2435659 at *14, n.16. Judd
does not challenge that decision.
4
ruling, the District Court applied the version of the public disclosure bar in existence
prior to the enactment of the Patient Protection and Affordable Care Act (“ACA”), Pub.
L. 111-148, 124 Stat. 119. Id. at *4-6. The District Court ruled, however, that the public
disclosure bar does not apply to Judd’s allegations regarding false claims submitted by
HMA and the discounted testing services that Quest provided healthcare providers after
2010 in order to induce patient referrals. Id. at *14. Judd voluntarily dismissed his
claims regarding HMA. Id. at *16.
Agreeing with Quest’s Rule 9(b) arguments, the District Court dismissed with
prejudice all of Judd’s claims regarding healthcare providers other than HMA, whether
arising before or after 2010, and whether based on his free-supplies theory or his
discounted-testing theory, because they failed to satisfy the requirements of Rule 9(b) as
provided in United States ex rel. Foglia v. Renal Mgmt. Ventures, LLC, 754 F.3d 153 (3d
Cir. 2014). Judd, 2014 WL 2435659 at *14-17. This appeal followed.
II.
We exercise plenary review of the District Court’s grant of the motion to dismiss
the complaint for lack of jurisdiction due to the FCA’s public disclosure bar. See, e.g.,
United States ex rel. Zizic v. Q2 Administrators, LLC, 728 F.3d 228, 234 (3d Cir. 2013).
We also exercise plenary review of the District Court’s dismissal of the Amended
Complaint for failure to state a claim. See, e.g., United States ex rel. Foglia, 754 F.3d at
154 n.1.
III.
5
The FCA’s public disclosure bar “deprives courts of jurisdiction over qui tam suits
when the relevant information has already entered the public domain through certain
channels.” Graham Cnty Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 559 U.S. 280, 285 (2010). This is true both before and after the ACA amended
the FCA. The pre-ACA public disclosure bar mandated dismissal based on public
disclosures at the local, state, and federal level, while the ACA-amended version requires
dismissal only where disclosures are made in federal proceedings and sources. Compare
31 U.S.C. § 3730(e)(4)(A) (2006) with 31 U.S.C. § 3730(e)(4)(A) (2010). In dismissing
Judd’s claims regarding Quest’s dealings with non-HMA healthcare providers, the
District Court correctly held that before the FCA was amended, “the critical inquiry is
what the law was at the time the alleged conduct in the complaint took place.” Judd,
2014 WL 2435659 at *6.
As the Supreme Court noted in Hughes Aircraft Co. v. United States ex rel.
Schumer, 520 U.S. 939, 945-46 (1997), “there is a presumption against retroactive
legislation that is deeply rooted in our jurisprudence” that is applied “unless Congress
had clearly manifested its intent to the contrary,” and “the legal effect of conduct should
ordinarily be assessed under the law that existed when the conduct took place. . . .” This
presumption against retroactivity is even stronger where an amendment eliminates a
defense to a qui tam suit. Id. at 947 (Noting that amendment in question “eliminate[d] a
defense to a qui tam suit – prior disclosure to the Government – and therefore changes the
substance of the existing cause of action for qui tam defendants by attaching a new
disability, in respect to transactions or considerations already past.”)
6
Here, it is clear that the public disclosure bar as amended by the ACA would
eliminate a full defense that Quest would otherwise have to Judd’s qui tam action: prior
disclosure in a state court. There is no indication, however, that Congress intended to
make the amendments to the public disclosure bar retroactive. See Graham, 599 U.S. at
283 n.1 (Explaining that the ACA amendments to the public disclosure bar “make[] no
mention of retroactivity, which would be necessary for its application to pending cases
given that it eliminates [qui tam defendants’] claimed defense to a qui tam suit.”)
Indeed, neither of the cases that Judd cites convinces us that the ACA-amended
public disclosure bar must apply to qui tam claims filed after the ACA’s effective date.
In United States ex rel. Estate of Robert Cunningham v. Millennium Laboratories of
California, Inc., 841 F. Supp. 2d 523, 524-27 (D. Mass. 2012), aff’d in part and rev’d in
part on other grounds, 713 F.3d 662 (1st Cir. 2013), there was no issue about which
version of the public disclosure bar to apply because the pre-ACA public disclosure bar
was in effect when the initial complaint was filed and when the conduct alleged in the
complaint occurred.3 Although United States ex rel. Booker v. Pfizer, Inc., 9 F. Supp. 3d
34 (D. Mass. 2014), does support Judd’s assertions, it is not persuasive. In a footnote, the
District Court there suggested that the ACA-amended public disclosure bar should apply
despite the fact that most of the conduct at issue preceded the effective date of the ACA.
3
In addition, although an amended complaint was filed in the case after the enactment of
the ACA, the District Court maintained that the pre-ACA public disclosure bar was the
appropriate version to apply because of the “well-established principle that jurisdiction is
determined based on whether it existed at the time of the original complaint.”
Cunningham, 841 F. Supp. 2d. at 527.
7
Id. at 44 n.3. That court ignored the Supreme Court’s holding in Hughes Aircraft,
however.
We also find no error in the District Court’s conclusion that the complaints in
Urbanek and Hunter Labs publicly disclosed Judd’s claims regarding Quest’s dealings
with non-HMA healthcare providers. Judd, 2014 WL 2435659 at *7-10. To determine
whether the pre-ACA public disclosure bar mandates dismissal of Judd’s claims, the
court “must first assess whether the relator’s claim is based on publicly disclosed
allegations or transactions.” United States ex rel. Atkinson v. Pa. Shipbuilding Co., 473
F.3d 506, 519 (3d Cir. 2007). “This, in turn, requires a twofold analysis. First, [the court
must] determine whether the information was disclosed via one of the sources listed in §
3730(a)(4)(A). Second, [the court must] decide whether the relator’s complaint is based
upon those disclosures.” Id. The parties do not dispute that the pleadings in Urbanek and
Hunter Labs qualify as public disclosures under the public disclosure bar in both its pre-
ACA and ACA-amended forms.
It is clear that Judd’s principal claim that Quest distributed free supplies to
physicians in order to induce them to refer patients to Quest for diagnostic laboratory
testing is “based upon” the disclosures in Urbanek. That is readily apparent from the
District Court’s recitation of the pleadings. Judd, 2014 WL 2435659 at *7-8. Indeed, the
relators in Urbanek alleged, as Judd does, that Quest violated the Anti-Kickback Act by
providing healthcare providers with medical supplies, (compare JA 77-78 ¶ 111 with JA
141 ¶ 30), and office supplies, (compare JA 75 ¶¶ 105-06 with JA 141 ¶ 30), in return for
patient referrals, (compare JA 59 ¶ 25, JA ¶ 107, and JA 79 ¶ 117 with JA 141 ¶ 29, JA
8
142 ¶ 32, and JA 181 ¶ 93). Judd’s secondary claim is that this conduct violated the FCA
because physicians submitted fraudulent claims that included the cost of those supplies.
(JA 84 ¶ 132.) This claim was also made in Urbanek. (JA 150 ¶ 72-73, JA 179 ¶ 82, and
JA 180 ¶ 88.) The minor variations between Judd’s Amended Complaint and the
Urbanek pleadings do not place Judd’s claims beyond the scope of the public disclosure
bar. See United States ex rel. Zizic, 728 F.3d at 238 (explaining that identification of
specific employee allegedly involved in fraud did not prevent finding that allegations
were disclosed in prior litigation that did not name employee); United States ex rel.
Boothe v. Sun Healthcare Grp., Inc., 496 F.3d 1169, 1174 (10th Cir. 2007) (“Not a single
circuit has held that a complete identity of allegations, even as to time, place and manner,
is required to implicate the public disclosure bar[.]”) (emphasis in original).
It is also clear that the disclosures in Hunter Labs inform those in Judd’s
Complaint regarding discounted testing services before 2010.4 Judd argues that the
District Court erred in so finding because the allegations in Hunter Labs focused on
Quest’s actions with respect to California and individual doctors, while his allegations
focus on federal programs and groups of doctors. These are distinctions without a
difference. The mechanism of the fraud alleged in both Hunter Labs and the instant case
are the same: that Quest provided discounts to medical providers in order to induce
4
The District Court noted that the Hunter Labs case had “no effect on conduct alleged in
[Judd’s] Amended Complaint that took place in 2010 or later relating to Quest providing
discounted testing services, because . . . substantially similar allegations in state fora do
not qualify as a public disclosure under the ACA-amended public disclosure bar. See 31
U.S.C. § 3730(e)(4)(A) (2010).” Judd, 2014 WL 2435659 at *10 n.10.
9
referrals and that those discounts allowed the medical providers to increase profits by
pocketing the difference between the amounts that they paid to Quest and the amounts
they charged others, whether privately paying patients, or a state government, or the
federal government. As we have explained, the public disclosure bar covers actions
“even partly based upon” previously disclosed allegations or transactions. See United
States ex rel. Zizic, 728 F.3d at 238. The District Court ruling was correct.
Because Judd’s fraud allegations regarding Quest’s alleged scheme with non-
HMA healthcare providers prior to 2010 were publicly disclosed in Urbanek and Hunter
Labs, the District Court had jurisdiction of these claims only if Judd could show that he
was an “original source” of his allegations. 31 U.S.C. § 3730(e)(4)(B).5 Under the pre-
ACA public disclosure bar, an “original source” is “an individual who has direct and
independent knowledge of the information on which the allegations are based . . . .” Id.6
Under the “independent knowledge” prong of the original source test, “the relator must
possess substantive information about the particular fraud, rather than merely background
information which enables a putative relator to understand the significance of a publicly
disclosed transaction or allegation.” United States ex rel. Stinson, Lyons, Gerlin &
5
As we noted above, the District Court found that Judd was an original source of his
allegations regarding Quest’s alleged fraudulent scheme with HMA. Judd, 2014 WL
2435659 at *10-13. Thus, the District Court held that “Judd may pursue his federal FCA
claims . . . as they relate to HMA’s submissions of false claims.” Id. at *17. Those
claims are not at issue, however, because Judd later dismissed them.
6
The pre-ACA public disclosure bar also requires that, to be an “original source,” the
person must have also “voluntarily provided the information to the Government before
filing an action under this section which is based on the information.” 31 U.S.C. §
3730(e)(4) (2006). Quest does not challenge the District Court’s finding that Judd
allegations on this point are adequate. Judd, 2012 WL 2435659 at *14.
10
Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991). Direct
knowledge “is based on first-hand information, and it is gained by the relator’s own
efforts, and not by the labors of others.” United States ex rel. Zizic, 728 F.3d at 239
(citations and internal quotation marks omitted). Judd bears the burden of demonstrating
that he is an original source. See United States ex rel. Precision Co. v. Koch Indus., Inc.,
971 F.2d 548, 551 (10th Cir. 1992).
Although Judd argues that he had firsthand knowledge of Quest’s fraudulent
scheme with healthcare providers other than HMA, there are no allegations in the
Amended Complaint that support this. On the contrary, the allegations are almost
exclusively about dealings between HMA and Quest, and the only mention of other
medical practices in the Amended Complaint is Judd’s allegation that “his discussions
with other providers in South Eastern Pennsylvania . . . demonstrate that Quest’s
practices are not limited to HMA and they extend to other medical practices.” (JA 57 ¶
16.) This bare assertion is simply not enough. See United States ex rel. Hafter v.
Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir. 1999) (“To establish
original source status knowledge, a qui tam plaintiff must allege specific facts – as
opposed to mere conclusions – showing exactly how and when he or she obtained direct
and independent knowledge of the fraudulent acts alleged in the complaint.”). Judd may
be an original source regarding Quest’s dealings with HMA, but that does not establish
that he is an original source regarding Quest’s dealings with other healthcare providers.
See Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007) (Explaining that
“3730(e)(4) does not permit such claim smuggling,” because a relator’s “decision to join
11
all of his or her claims in a single lawsuit should not rescue claims that would have been
doomed by section (e)(4) if they had been asserted in a separate action.”)7
IV.
After resolving issues involving the public disclosure bar, the District Court
dismissed with prejudice all of Judd’s claims regarding healthcare providers other than
HMA, whether arising before or after the enactment of the ACA, and whether based on
his free-supplies theory or his discounted-testing theory, because they failed to satisfy the
7
Judd also contends that he is an “original source” under the ACA-amended public
disclosure bar. The relevant portion of the ACA-amended “original source” doctrine
provides: “[O]riginal source means an individual who . . . has knowledge that is
independent of and materially adds to the publicly disclosed allegations or transactions.”
31 U.S.C. § 3730(e)(4)(B)(2) (2010). As discussed above, Judd has not shown that his
allegations are “independent of” the public disclosures in Urbanek. Judd does not
address this, however, and focuses instead on the “materially adds to” element. To date,
only the Eighth Circuit has addressed the meaning of the phrase. In United States ex rel.
Paulos v. Stryker Corp., 762 F.3d 688, 694-96 (8th Cir. 2014), relying on the dictionary
definitions of “add” and “materially,” the Eighth Circuit opined that a relator fails to
qualify as an original source if he fails to show that “his knowledge (even if gained early
and independently) materially contributes anything of import to the public knowledge
about the alleged fraud.” Id. at 694-95.
Repackaging the argument he made regarding the applicability of Urbanek, Judd
contends that the fraud he alleges “materially adds to” the publicly disclosed allegations
in Urbanek because it occurred during an entirely different timeframe. In so arguing,
Judd relies again on United States ex rel. Booker v. Pfizer, 9 F. Supp. 3d 34 (D. Mass.
2014) as he did in his arguments regarding which version of the public disclosure bar to
apply. In that case, the actions alleged to implicate the public disclosure bar disclosed
conduct in the years prior to 2008. Id. at 44. In contrast, the “central allegation” of the
relators’ action was that Pfizer’s conduct continued after August 2009. Id. The District
Court opined that, by virtue of the difference in timeframe, the relators’ allegations
“materially added” to prior disclosures and described a “‘new’ fraud.” Id. at 46-47 & n.4.
For the reasons discussed above, the few medical supplies included in Judd’s allegations
that were not mentioned in Urbanek and his alleged different timeframe do not establish a
“new fraud” of the type alleged in Booker. Judd is not an “original source” for the
purposes of the ACA-amended public disclosure bar.
12
requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Id. at *14-17. We
agree.
Rule 9(b) provides, in relevant part, that “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.” Fed. R.
Civ. P. 9(b). Thus, a plaintiff must allege “the who, what, when, where and how of the
events at issue.” In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198, 217 (3d
Cir. 2002) (citation and internal quotation marks omitted). When the District Court
rendered its decision, we had not yet specifically determined what Rule 9(b) requires of a
FCA claimant. One week later, however, we resolved this issue in United States ex rel.
Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir. 2014). There, we adopted
the approach of the First, Fifth, and Ninth Circuits, which “have taken a more nuanced
reading of the heightened pleading requirements of Rule 9(b), holding that it is sufficient
for a plaintiff to allege ‘particular details of a scheme to submit false claims paired with
reliable indicia that lead to a strong inference that claims were actually submitted.’” Id.
at 156 (quotation and citation omitted).
Despite this more lenient standard, Judd’s allegations fail. He provides no reason
to believe that Quest submitted claims for Medicare reimbursement in connection with its
kickbacks. Additionally, the paragraphs of his Amended Complaint that he argues
contain specific allegations have nothing to do with Quest’s dealings with non-HMA
medical providers. (See JA 81 ¶ 126, JA 83 ¶ 129, and JA 84 ¶ 131.) The only mention
he makes of other providers is a brief, conclusory assertion that “his discussions with
other providers in South Eastern Pennsylvania . . . demonstrate that Quest’s practices are
13
not limited to HMA and they extend to other medical practices.” (JA 57 ¶ 16.) As we
explained in Foglia, “describing a mere opportunity for fraud will not suffice.” Id. at
158; see also United States ex rel. Nunnally v. West Calcasieu Cameron Hospital, 519 F.
App’x 890, 894 (5th Cir. 2013) (finding the relator’s allegations deficient under Rule 9(b)
because he failed to allege, inter alia, “the identity of any physicians, actual inducements,
or improper referrals.”); United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc.,
637 F.3d 1047, 1057 (9th Cir. 2011) (Explaining that a relator must do more than
“identif[y] a general sort of fraudulent conduct [while] specif[ying] no particular
circumstances of any discrete fraudulent statement.”); Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 1000 (9th Cir. 2010) (finding the relator’s complaint deficient
because it “lack[ed] any details or facts setting out the who, what, when, where and how
of the financial relationship or alleged referrals.”) (citation and internal quotation marks
omitted).
IV.
For the reasons set forth above, we will affirm the judgment of the District Court.
14