United States Ex Rel. Black v. Health & Hospital Corp. of Marion County

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1726
UNITED STATES OF AMERICA ex rel. PAUL R. BLACK,
Plaintiff - Appellant,
v.
HEALTH & HOSPITAL CORPORATION OF MARION COUNTY,
Defendant – Appellee,
and
DOUGLAS L. ELWELL; MATTHEW R. GUTWEIN; MYERS AND STAUFFER
LC,
Defendants.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Richard D. Bennett, District Judge.
(1:08-cv-00390-RDB)
Argued: May 18, 2012 Decided: August 17, 2012
Before AGEE, DAVIS, and THACKER, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Barry Coburn, COBURN & GREENBAUM, PLLC, Washington,
D.C., for Appellant. Jessica Lynn Ellsworth, HOGAN LOVELLS US
LLP, Washington, D.C., for Appellee. ON BRIEF: Jonathan L.
Diesenhaus, Thomas J. Widor, HOGAN LOVELLS US LLP, Washington,
D.C.; Joseph H. Young, HOGAN LOVELLS US LLP, Baltimore,
Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Relator Paul R. Black appeals the district court’s
dismissal of his Amended Complaint, alleging various claims
under the False Claims Act, 31 U.S.C. §§ 3729, et seq. (the
“FCA”). The district court held that it did not possess subject
matter jurisdiction over Black’s claims, and even if it did
possess jurisdiction, the Amended Complaint failed to state a
claim under the Federal Rules of Civil Procedure. Black also
challenges the district court’s denial of his request for leave
to file a Second Amended Complaint. Because we agree that the
district court lacked subject matter jurisdiction pursuant to
the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A), we
affirm without reaching the alternate grounds for dismissal. We
also affirm the district court’s denial of Black’s request for
leave to file a Second Amended Complaint.
I.
A.
On February 12, 2008, Relator Black filed this FCA qui
tam action in the United States District Court for the District
of Maryland against Appellee Health and Hospital Corporation of
Marion County, Indiana (“HHC”), a municipal corporation and
political subdivision of the State of Indiana that owns and
3
operates nursing home facilities. 1 See J.A. 8-73. 2 Although the
government declined to intervene in this action, Black proceeded
individually pursuant to 31 U.S.C. § 3730(b)(4)(B). He then
filed an Amended Complaint on August 23, 2010, which alleges a
scheme orchestrated by HHC in which Medicaid reimbursements were
fraudulently obtained for nursing home expenditures that HHC
never made. See id. at 100-57.
Specifically, the Amended Complaint includes four
counts:
Count I, that HHC caused state Medicaid agencies to
submit factually false claims to the Centers for
Medicare and Medicaid Services (“CMS”), in violation
of 31 U.S.C. § 3729(a)(1); 3
Count II, that HHC caused state Medicaid agencies to
submit legally false claims to CMS, in violation of 31
U.S.C. § 3729(a)(1);
1
This is the second qui tam action Black, an attorney
licensed in Indiana, has filed against HHC. He filed the first
in the United States District Court for the Southern District of
Indiana in October 2003. After he amended his complaint once in
Indiana and the government declined to intervene, he dismissed
that action without prejudice.
2
Citations to the “J.A.” refer to the Joint Appendix filed
by the parties in this appeal.
3
The subsections under which these claims arose were re-
numbered in May 2009. At the time that Black’s initial
Complaint was filed, § 3729(a)(1) provided that a person could
be held liable for a civil penalty and treble damages if he or
she “knowingly presents, or causes to be presented, to an
officer or employee of the United States Government or a member
of the Armed Forces of the United States a false or fraudulent
claim for payment or approval[.]” 31 U.S.C. § 3729(a)(1)
(2006), amended May 2009.
4
Count III, that HHC made and used, and caused to be
made and used, false records and statements to get
false or fraudulent claims paid or approved by the
government, in violation of 31 U.S.C. § 3729(a)(2); 4
and
Count IV, that HHC entered into a conspiracy to
defraud the government, in violation of 31 U.S.C. §
3729(a)(3). 5
J.A. 153-55. The following excerpt from Black’s Amended
Complaint summarizes the allegations of HHC’s wrongdoing:
Congress has made federal taxpayer funds
available to help states provide medical care to their
poorest citizens. But Congress requires a basic
commitment in return — each state must use its own
funds to pay its fair share of those Medicaid
expenses. The federal government reimburses
approximately 62% of Indiana’s Medicaid expenditures.
In order to qualify for that 62% reimbursement, the
State of Indiana must spend the other 38% from its own
funds on actual care for Medicaid recipients. . . .
In 2001, HHC persuaded Indiana Medicaid officials
to tell the federal government that Indiana was
spending an extra $57 per day on all Medicaid patients
living in county nursing homes. Since 2001, HHC has
given Indiana Medicaid officials pieces of paper
saying that HHC had spent enough money on nursing home
4
Subsection (a)(2) provided that a person could be held
liable for a civil penalty and treble damages if he or she
“knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or
approved by the Government[.]” 31 U.S.C. § 3729(a)(2) (2006),
amended May 2009.
5
Subsection (a)(3) provided that a person could be held
liable for a civil penalty and treble damages if he or she
“conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid[.]” 31 U.S.C. § 3729(a)(3)
(2006), amended May 2009.
5
patients to cover Indiana’s share of that extra $57
per patient per day on all county nursing homes in the
state, and was doing “intergovernmental transfers” to
the state of Indiana matching those amounts. Indiana
Medicaid officials then gave HHC pieces of paper
saying that the state was returning the money to HHC.
In fact, HHC had not spent any substantial extra money
on the patients in its nursing homes.
Relying on Indiana’s false claims that it had
used state funds to pay its share of an extra $57 per
patient per day for Medicaid patients in county
nursing homes, the federal government reimbursed
Indiana 62% of those claimed expenditures, amounting
to hundreds of millions of dollars in unwarranted
federal reimbursements since 2001. Indiana then
shared that extra federal money with HHC. Neither
Indiana nor HHC spent a substantial percentage of that
extra federal money on patient care for nursing home
residents, as required by law[.]
J.A. 100-101.
On November 19, 2010, HHC filed a Motion to Dismiss,
arguing (1) the court lacked subject matter jurisdiction under
the FCA pursuant to the “public disclosure bar,” 31 U.S.C. §
3730(e)(4), and Federal Rule of Civil Procedure 12(b)(1); (2)
venue was improper in the District of Maryland, pursuant to Rule
12(b)(3); and (3) the Amended Complaint failed to state a claim
under the FCA, pursuant to Rules 12(b)(6) and 9(b). See Mem.
Supp. Motion to Dismiss at 15, United States ex rel. Black v.
Health & Hosp. Corp., No. 1:08-cv-00390 (D. Md. Feb. 12, 2008;
filed Nov. 19, 2010), ECF No. 30-1. Black responded on January
3, 2011, and also filed a separate “Motion to Defer Potential
Motion for Leave to Amend Until Resolution of Motion to Dismiss”
6
(hereinafter, “Motion to Defer”). The motion asked the court to
“defer the period for him to move to amend until after the Court
resolves the Motion to Dismiss” and stated, “the Court will be
in a better position to evaluate any motion for leave to amend .
. . after it has decided HHC’s pending Motion to Dismiss.” Mem.
Supp. Motion to Defer at 2, Black, No. 1:08-cv-00390 (D. Md.
Feb. 12, 2008; filed Jan. 3, 2011), ECF No. 33-1.
On March 28, 2011, the district court dismissed the
Amended Complaint with prejudice and denied the Motion to Defer.
See United States ex rel. Black v. Health & Hosp. Corp., No.
RDB-08-0390, 2011 WL 1161737 (J.A. 559-84) (D. Md. Mar. 28,
2011) (the “District Court Opinion”). First, the court held
that subject matter jurisdiction was lacking under Federal Rule
of Civil Procedure 12(b)(1) based on the FCA’s jurisdictional
public disclosure bar. Second, the court explained that even if
it possessed subject matter jurisdiction, the Amended Complaint
could also be dismissed under Rules 12(b)(6) or 9(b). 6 See J.A.
8-24.
On April 11, 2011, Black filed a Motion for Leave to
File Second Amended Complaint, along with a Motion for
6
The District Court Opinion did not address the venue
argument. Although we have doubts about the reasoning proffered
by Black on this point at the district court level, we assume
without deciding that venue was proper in the District of
Maryland.
7
Reconsideration of the court’s denial of his Motion to Defer.
The court denied both on June 15, 2011. See J.A. 720-25.
B.
1.
The backdrop to Relator Black’s Amended Complaint
involves the interplay between state and federal funding of the
Medicaid program. Medicaid is a state-administered health care
program for low-income individuals, but the federal government
contributes varying costs, depending on the state. See Ark.
Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 275
(2006); 42 U.S.C. § 1396, et seq. The program is regulated by
the Secretary of the United States Department of Health and
Human Services, who acts through CMS. See Ahlborn, 547 U.S. at
275.
In order to receive federal funds for Medicaid, a
state must create a “State plan.” 42 U.S.C. § 1396a. The State
plan is “a comprehensive written statement . . . describing the
nature and the scope of [the state’s] Medicaid program and
giving assurance that it will be administered in conformity”
with the applicable federal laws and regulations. 42 C.F.R. §
430.10. CMS reviews each plan to determine whether it can be
approved “to serve as a basis for Federal financial
participation (FFP) in the State program.” Id.8
Once a State plan is submitted and approved by CMS,
the state can receive federal reimbursement for “an amount equal
to the Federal medical assistance percentage . . . of the total
amount expended . . . as medical assistance under the State
plan,” 42 U.S.C. § 1396b(a)(1), also known as the “FMAP.” 42
C.F.R. § 400.203. Each state must provide a prospective
quarterly estimate of its anticipated Medicaid expenditures, and
CMS uses that number and the FMAP to calculate the federal funds
due to the state. See id. § 430.30 (a)–(d).
For years, state governments have utilized various
funding mechanisms to maximize their state Medicaid expenditures
in order to obtain an increased federal match, and three such
mechanisms are relevant to this appeal. First, the upper
payment limit mechanism (“UPL”) allows states to reimburse
health care facilities for uncompensated care, but reimbursement
is limited to the amount that the Medicare program would have
paid for the same services. See 42 C.F.R. § 447.272(b).
Second, states can receive intergovernmental transfers (“IGTs”)
from local governments, usually in the form of taxes, which can
then qualify for federal matching funds. IGTs “allow units of
local government, including government health care providers, to
share in the cost of the State Medicaid program.” 72 Fed. Reg.
92236, 2238 (Jan. 18, 2007). 7 Finally, states also utilize
certified public expenditures (“CPEs”), which allow Medicaid
providers to make direct Medicaid expenditures that qualify as
part of the state’s share for federal matching funds. CPEs must
be “certified by the contributing public agency as representing
expenditures for FFP[.]” 42 C.F.R. § 433.51(b).
In the early 2000s, the Medicaid funding landscape
changed when Congress adopted a system that would set new UPLs
on overall aggregate payments to Medicaid providers by class
(e.g., state government-owned, local government-owned, or
private entities), rather than by provider. See 66 Fed. Reg.
3148 (Jan. 12, 2001); Alameda County Med. Cntr. v. Leavitt, 559
F. Supp. 2d 1, 2 (D.D.C. 2008) (explaining that CMS had “refined
a system based on [UPLs], with reimbursements calculated using
aggregate, and not provider-specific, cost data”). The
revisions were meant to limit the ability of the states to
7
IGTs are authorized by the Social Security Act.
Specifically, the Social Security Act provides that “the
Secretary may not restrict States’ use of funds where such funds
are derived from State or local taxes . . . transferred from or
certified by units of government within a State as the non-
Federal share of [Medicaid] expenditures . . . regardless of
whether the unit of government is also a health care
provider[.]” 42 U.S.C. § 1396b(w)(6)(A). Indeed, Indiana law
requires that “[e]ach governmental transfer or other [Medicaid]
payment mechanism . . . must maximize the amount of federal
financial participation that the state can obtain through the
[IGT] or other payment mechanism.” Ind. Code § 12-15-14-1(c).
10
manipulate UPL/IGT mechanisms in order to increase receipt of
federal matching funds. See 67 Fed. Reg. 2602 (Jan. 18, 2002).
However, because the UPL scheme came to be defined in
the class aggregate, rather than by Medicaid provider, it was
possible for a provider to receive an amount in excess of its
former “individual UPL,” as long as the overall “class UPL” was
not exceeded. Because Medicaid is generally funded at a lower
rate than Medicare, states often had an excess of funds, or a
“UPL Gap,” from which to distribute monies to Medicaid providers
of their choice. In practical terms, a state could make a
“supplement payment” to any provider in a class and could
structure that payment so that it would be funded in part by
federal matching funds and in part by state funds. It could
then recoup that payment through an IGT from the same provider.
This method was permissible under the new regulations.
2.
CMS repeatedly and publicly expressed concern with the
UPL/IGT financing scheme used by the states to take advantage of
aggregate UPLs, beginning at least as early as 2000. In 2007,
CMS sought to issue a new regulation that would have
significantly curtailed the states’ use of the UPL/IGT scheme by
returning to a system of reimbursement on a cost-to-provider
basis. See 72 Fed. Reg. 2236 (Jan. 18, 2007) (the “2007
11
Proposed Rule”). 8 The 2007 Proposed Rule was never adopted. In
fact, Congress enacted a one-year moratorium on the issuance of
the rule or any rule like it. See Leavitt, 559 F. Supp. 2d at
2.
During the time leading up to the introduction of the
2007 Proposed Rule and thereafter, however, public debate on
this issue thrived. Congress held numerous public hearings on
the subject. See, e.g., Upper Payment Limits: Federal Medicaid
Spending for Non-Medicaid Purposes, Hearing Before S. Comm. On
Finance, 106th Cong. 1-2 (Sept. 6, 2000) (statement of Sen.
William V. Roth, Jr., Chairman) (describing the use of UPL
payments as a “complicated accounting mechanism” that “tak[es]
advantage of a loophole” in the applicable federal regulations);
id. at 3 (statement of Sen. John Breaux) (“[M]y State has found
out that this procedure, in fact, is not illegal, and therefore,
is legal and has filed an application to do what, apparently, 19
other States currently are doing, and 14 states, in addition to
8
The “Background” section of the 2007 Proposed Rule states,
“We have found instances in which the State or local government
has used the funds returned by the health care provider for
costs outside the Medicaid program or to help draw additional
Federal dollars for other Medicaid program costs. The
Government Accountability Office (GAO) and the Department of
Health and Human Services Office of Inspector General (OIG) have
reviewed these practices and shared our concerns that they are
not consistent with Medicaid financing requirements.” 72 Fed.
Reg. at 2238.
12
mine, have applications, in fact, to do.”). Legislative reports
addressed the same. See, e.g., Elicia J. Herz, Cong. Research
Serv., RL31021, Medicaid Upper Payment Limits and
Intergovernmental Transfers: Current Issues and Recent
Regulatory and Legislative Action (2005); U.S. Gov’t
Accountability Office, GAO-02-147, Medicaid: HCFA Reserved Its
Position and Approved Additional State Financing Schemes (2001).
Indiana media outlets also featured these issues.
See, e.g., Art Lodgson, Editorial: Medicaid Patients at Risk
from State’s Budget Knife, The Indianapolis Star, Mar. 11, 2002,
at A9 (J.A. 400-01); Nursing Homes, Medicaid Make Deal,
Evansville Courier & Press, Mar. 12, 2002, at B3 (J.A. 403). In
fact, Indiana’s Medicaid financing scheme drew national
attention when the New York Times highlighted a dispute between
Indiana and CMS over Marion County’s IGTs. See Robert Pear,
U.S. Nears Clash with Governors on Medicaid Cost, N.Y. Times,
Feb. 16, 2004 (J.A. 405).
C.
In his Amended Complaint, Black alleges that HHC
executives and officials at the Office of Medicaid Policy and
Planning (“OMPP”), the Indiana state agency responsible for
administering the state Medicaid program, acted “in concert” to
draft a proposed amendment to the Indiana State Plan. Am.
Compl. ¶ 51. This amendment, Black claims, “was designed to
13
appear to take advantage of the Medicaid UPL Regulation that
permits state Medicaid agencies to claim and receive . . .
additional [UPL payments], provided that the state actually
expended such amounts on nursing facility care.” Id. ¶ 52
(emphases in original).
The amendment to the State Plan about which Black
complains was approved by CMS. Nonetheless, Black claims that
“under the fraudulent scheme entered into between HHC and OMPP,
no expenditures were actually made by OMPP and, ultimately, only
CMS paid any part toward the supposed supplemental UPL Medicaid
Payments.” Am. Compl. ¶ 63. Black says that, as part of this
“scheme,” “HHC avoided having OMPP make any actual expenditures
simply by having OMPP falsely . . . claim . . . amounts that
OMPP ‘certified’ it had ‘spent,’ and/or amounts that were
purportedly transferred to OMPP by means of [IGTs], which were
subsequently ‘transferred’ back from OMPP to HHC, rather than
‘spent.’” Id. ¶ 64.
Black also claims that HHC and OMPP entered into a
“[s]ecret” written agreement in February 2002 to “unlawfully
obtain FFP for UPL payments[.]” Am. Compl. ¶ 92. This
agreement shows, he says, that HHC provided “false
certification” that its “funds” constituted “expenditures” under
the Social Security Act, but an expenditure “cannot be merely a
refund or reduction in accounts receivable.” Id. ¶ 98-99.
14
Black further claims that “OMPP’s use of HHC’s purported IGTs as
a basis for the UPL Medicaid payments violates OMPP’s commitment
in the State Plan that only state funds are used to pay all of
the non-federal share of the total expenditures.” Id. ¶ 106.
Likewise, he claims that HHC reported “contrived” CPEs in
violation of CMS’s policies set forth in the 2007 Proposed Rule.
Id. ¶ 102.
The district court dismissed Black’s Amended Complaint
pursuant to the FCA’s jurisdictional “public disclosure bar,” 31
U.S.C. § 3730(e)(4)(A). The purpose of the public disclosure
bar is “to prevent lawsuits by private citizens [when] th[e]
[relevant] authority is already in a position to vindicate
society’s interests, and a qui tam action would serve no
purpose.” Glaser v. Wound Care Consultants, Inc., 570 F.3d 907,
913 (7th Cir. 2009) (internal quotation marks omitted). This is
because, where a public disclosure has occurred, “the critical
elements exposing the [alleged fraud]” are already placed in the
public domain. Id. (internal quotation marks omitted).
At the time the Amended Complaint was filed, the
public disclosure bar provided,
(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
Account[ability] Office report, hearing, audit, or
investigation, or from the news media, unless the
15
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.
31 U.S.C. § 3730(e)(4) (2006), amended March 23, 2010. 9
9
The statute was later amended to provide,
The court shall dismiss an action or claim under this
section, unless opposed by the Government, if
substantially the same allegations or transactions as
alleged in the action or claim were publicly disclosed
—
(i) in a Federal criminal, civil, or
administrative hearing in which the
Government or its agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal
report, hearing, audit, or investigation; or
(iii) 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.
31 U.S.C. § 3730(e)(4). The Supreme Court has observed that the
new statute lacks the explicit language that would make it
retroactive. See Graham Cnty. Soil & Water Conservation Dist.
v. United States ex rel. Wilson, ___ U.S. ___, 130 S. Ct. 1396,
1400 & n.1 (2010). Even if it would apply retroactively,
however, as explained infra, Black’s claim still does not
survive under the narrower reading adopted by this court prior
to March 23, 2010.
16
In invoking the public disclosure bar to dismiss this
action, the district court found that Black’s allegations in the
Amended Complaint “largely mimic the public criticism of the
UPL/IGT Medicaid financing mechanisms that have been the subject
of great debate within CMS, Congress, the GAO, and elsewhere
since at least as early as 2000.” District Court Opinion 13.
It also observed that many of Black’s concerns with Indiana and
HHC’s Medicaid financing schemes “are substantially similar to
[the] 2007 Proposed Rule[.]” Id. at 14.
II.
As an initial matter, we are “obliged to satisfy
ourselves of subject-matter jurisdiction[.]” United States v.
Urutyan, 564 F.3d 679, 684 (4th Cir. 2009). See also Wye Oak
Tech., Inc. v. Republic of Iraq, 666 F.3d 205, 218 (4th Cir.
2011) (“[A] federal court has an independent obligation to
assess its subject-matter jurisdiction.” (internal quotation
marks omitted)). Federal district courts are “courts of limited
subject matter jurisdiction” and “possess only the jurisdiction
authorized them by the United States Constitution and by federal
statute.” Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009).
When a defendant challenges the existence of subject
matter jurisdiction in fact, “the plaintiff bears the burden of
proving the truth of such facts by a preponderance of the
17
evidence.” Vuyyuru, 555 F.3d at 347. We review a district
court’s jurisdictional findings of fact “on any issues that are
not intertwined with the facts central to the merits of the
plaintiff’s claims” for clear error. Id. at 348. We review
“any legal conclusions flowing therefrom” de novo. Id.Under the clearly erroneous standard of review, the
fact that this court may have decided the case differently is an
insufficient basis to overturn a finding of fact. See Easley v.
Cromartie, 532 U.S. 234, 242 (2001). We will only overturn a
court’s finding of fact as clearly erroneous when, “although
there is evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction
that a mistake has been committed.” United States v. U.S.
Gypsum Co., 333 U.S. 364, 395 (1948).
When reviewing a district court’s denial of a motion
for leave to amend a complaint, we employ an abuse of discretion
standard. See Nolte v. Capital One Fin. Corp., 390 F.3d 311,
317 (4th Cir. 2004).
III.
A.
In adopting the FCA, Congress intended “to protect the
funds and property of the Government from fraudulent claims[.]”
18
Rainwater v. United States, 356 U.S. 590, 592 (1958). This
court has explained,
[The FCA’s] roots lie in the rampant fraud perpetrated
by contractors against the government during the Civil
War, and it has served ever since as a safeguard
against unscrupulous government contractors. The
cornerstone provision of the FCA prohibits any person
from presenting a false or fraudulent claim for
payment or approval to the United States.
Mann v. Heckler & Koch Def., Inc., 630 F.3d 338, 342-43 (4th
Cir. 2010) (internal citations and quotation marks omitted).
See also United States ex rel. Owens v. First Kuwaiti Gen.
Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir. 2010).
FCA actions may be brought by the Attorney General or by a
private party. See 31 U.S.C. § 3730(a), (b). If a private
party, commonly known as a “relator,” brings the claim, it is
known as a “qui tam” action, and the relator acts “in the name
of the United States.” Mann, 630 F.3d at 343. A relator may
recover up to thirty percent of the proceeds of a successful
action, plus attorney’s fees and costs. See 31 U.S.C. §
3730(d). The relator files his or her complaint under seal and
notifies the government, and the government will either
intervene or allow the relator to proceed alone. Id. § 3730(b),
(c). The public disclosure bar was enacted to “strike a balance
between encouraging private persons to root out fraud and
stifling parasitic lawsuits[.]” Graham Cnty. Soil & Water
19
Conserv. Dist. v. United States ex rel. Wilson, ___ U.S. ___,
130 S. Ct. 1396, 1407 (2010).
B.
In an FCA action, when subject matter jurisdiction is
challenged under the public disclosure bar, a court must engage
in a three-pronged analysis to determine (1) if there was a
public disclosure, (2) if the relator’s allegations were “based
upon” the public disclosure, and, if so, (3) whether the relator
is nonetheless “entitled to original source status” as “‘an
individual who has direct and independent knowledge of the
information on which the allegations [] are based[.]’” United
States ex rel. Wilson v. Graham Cnty. Soil & Water Conserv.
Dist., 528 F.3d 292, 299 (4th Cir. 2008), rev’d on other
grounds, Graham Cnty., 130 S. Ct. at 1411; Vuyyuru, 555 F.3d at
348 (quoting 31 U.S.C. § 3730(e)(4)(B) (2006)). 10
1.
First, we must determine if the district court erred
in concluding that a public disclosure occurred. The pre-March
2010 public disclosure bar is triggered by “the public
10
Because the factual issues regarding the FCA’s public
disclosure bar concern issues that are not intertwined with the
facts central to Black’s FCA claims, the district court was
entitled to go beyond the allegations of the Amended Complaint
and consider evidence outside the pleadings, including Black’s
statements in his sworn declaration filed on January 3, 2011.
See Vuyyuru, 555 F.3d at 348-50; J.A. 495-501.
20
disclosure of allegations or transactions in a criminal, civil,
or administrative hearing, in a congressional, administrative,
or [GAO] report, hearing, audit, or investigation, or from the
news media[.]” 31 U.S.C. § 3730(e)(4)(A) (2006); United States
ex rel. Grayson v. Advanced Mgmt. Tech., Inc., 221 F.3d 580, 582
(4th Cir. 2000). The district court found that this requirement
was satisfied, explaining,
CMS, the agency charged with administering the
Medicaid program, has publicly expressed its concern
with the individual states’ use of UPL and IGT
financing mechanisms to leverage Federal Match funding
from at least as early as 2000. As a result, the CMS
and GAO engaged in a lengthy and systematic review of
the state Medicaid financing programs. As part of
this review, the CMS Administrator specifically noted
that Indiana was among seven states that have worked
cooperatively with [CMS] either to remove new
recycling features or terminate existing recycling
provisions in the future. While these disclosure
[sic] did not specifically identify the Defendant HHC,
they clearly show that the government was aware of the
Medicaid financing schemes being utilized by the
states in general, and Indiana in particular[.]
District Court Opinion 11-12 (internal quotation marks and
citations omitted).
Black contends that “[t]he district court did not
attempt to parse in detail the alleged similarity between the
general observations about Medicaid reimbursement made by the
GAO and Congress, as compared with the highly specific
allegations” made in the Amended Complaint. Br. of Appellant
16. The district court was not required to do so. There is no
21
requirement under our case law that the public disclosure
matches with specificity the allegations made by a qui tam
relator. Indeed, the Supreme Court has recognized that the
first prong of the public disclosure bar is satisfied if the
disclosure “put[s] the Federal Government on notice of a
potential fraud.” Graham Cnty., 130 S. Ct. at 1404.
Since Graham County, this court has held in an
unpublished opinion that SEC forms were “public disclosures”
because, even though they “[did] not necessarily alert federal
agencies to wrongdoing, [they] certainly provide[] easily
accessible notice of [] transactions . . . from which an
investigation could have begun or developed.” United States ex
rel. Jones v. Collegiate Funding Servs., No. 11-1103, 2012 WL
835747, at *10 (4th Cir. Mar. 14, 2012). Other courts have
likewise held that public disclosures need not match the
specificity of the FCA allegations. See, e.g., United States ex
rel. Gear v. Emergency Med. Assocs. of Ill., 436 F.3d 726, 729
(7th Cir. 2006) (citing GAO reports and medical news reports
about improper Medicare billing as examples of public
disclosures, even when they did not name the FCA defendant);
United States ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386,
389 (6th Cir. 2005) (“[W]e do not require specific disclosure of
fraud to find public disclosure.”).
22
Furthermore, since at least 2000, there has been a
robust public discussion about the propriety of the UPL/IGT
mechanism. As the district court acknowledged, CMS, a
government agency, publicly relayed perceived deficiencies with
the UPL/IGT mechanism throughout the country and, specifically,
in Indiana. See District Court Opinion 11-12. The discussion
was manifested in GAO reports, congressional reports and
hearings, and in various forms of news media. These items fall
directly within the confines of the public disclosure bar
statute, and as a result, they were sufficient to “put the
Federal Government on notice of a potential fraud.” Graham
Cnty., 130 S. Ct. at 1404.
Therefore, the district court did not err in finding
that a public disclosure occurred.
2.
Second, we address whether the district court erred in
finding that Black’s allegations underpinning his FCA claims
were “based upon” public disclosures.
Before the 2010 revisions to the public disclosure
bar, the “based upon” language of (e)(4)(A) was construed more
narrowly in the Fourth Circuit than in other courts. In Siller
v. Becton Dickinson & Co., the court held that “a relator’s
action is ‘based upon’ a public disclosure of allegations only
where the relator has actually derived from that disclosure the
23
allegations upon which his qui tam action is based.” 21 F.3d
1339, 1348 (4th Cir. 1994) (emphasis added). See also United
States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st
Cir. 2009) (“[T]he Fourth Circuit [is] alone among the courts of
appeals in favoring a narrow reading of the ‘based upon’
language.”). However, in 2009, this court held that the public
disclosure bar “encompasses actions even partly based upon prior
public disclosures.” Vuyyuru, 555 F.3d at 351-52 (emphasis
added).
Black’s Amended Complaint — at the very least —
encompasses actions partly based on public disclosures. The
district court found that the Amended Complaint “essentially
parrot[s]” the concerns outlined in the 2007 Proposed Rule;
“tracks the public debate surrounding the issue”; and “borrows
heavily from CMS’ publicly disclosed concerns with the UPL/IGT
program.” District Court Opinion 14-15. These findings are not
clearly erroneous.
First, the Amended Complaint reflects the core of the
2007 Proposed Rule and other public disclosures. For example,
• Black alleges that UPL payments to Indiana were
impermissible because the state did not actually
expend such amounts of nursing care under
Medicaid. See Am. Compl. ¶ 52, 63-64. The 2007
Proposed Rule provides similarly. See 72 Fed.
Reg. at 2236-40. See also J.A. 290, 292 (Office
of Inspector General Memorandum) (explaining
that, in conducting audits of six states, the OIG
found “the enhanced payments to local government-
24
owned providers were not based on the actual cost
of providing services to Medicaid beneficiaries”
and recommending that states “must demonstrate
that . . . payments were actually made available
to the facilities and the facilities used the
fund to furnish Medicaid approved services”).
• Black alleges that HHC’s IGTs or CPEs were
“merely a refund or reduction in accounts
receivable.” Am. Compl. ¶ 99. This same
sentiment was echoed in public documents. See,
e.g., J.A. 291 (Office of Inspector General
Memorandum) (“[Use of UPL Gap funds for IGTs]
draws into question whether the amounts returned
to the State agencies constitute a refund
required to be reported as other
collections[.]”).
• Black alleges that HHC’s IGTs or CPEs were not in
compliance with the 2007 Proposed Rule. Am.
Compl. ¶ 100-04 (citing 2007 Proposed Rule, 72
Fed. Reg. 2236-01).
• Black alleges that the source of IGTs were not
state and local tax revenue, as required under
the Indiana State Plan. See Am. Compl. ¶ 106-07.
The 2007 Proposed Rule similarly provides, “the
State must be able to demonstrate [] [t]hat the
source of the [IGTs] is State or local tax
revenue[.]” 72 Fed. Reg. 2236.
Moreover, Black’s own sworn declaration undercuts his argument.
He admits that before he filed his initial complaint in this
court, he “reviewed the 2007 CMS proposal to adopt new
regulations related to IGTs, CPEs, and UPL financing
arrangements” and used it to “help[] [him] better articulate”
his legal theory. J.A. 500. For these reasons, the district
court did not clearly err in its decision on the second prong.
25
3.
Finally, Black’s last opportunity to survive HHC’s
motion to dismiss is to prove that he is entitled to “original
source” status. In order to achieve original source status,
Black must prove beyond a preponderance of the evidence that he
has “direct and independent knowledge of the information on
which his allegations are based and has voluntarily provided the
information to the Government[.]” 31 U.S.C. § 3730(e)(4)(B)
(pre-March 2010). A relator’s knowledge is “direct” if “he
acquired it through his own efforts, without an intervening
agency,” and it is “independent” if “the knowledge is not
dependent on public disclosure.” Grayson, 221 F.3d at 583(internal quotation marks omitted).
Black has simply not put forth the evidence necessary
to prove that he is an original source of the information in his
Amended Complaint. In this regard, he proffered that he
contacted Bob Decker, a client who “had considerable experience
with Indiana nursing homes, and is a smart man.” J.A. 496.
According to Black, they discussed the UPL/IGT mechanism at
length, and Decker supplied Black with documents concerning the
Medicaid financing arrangements between HHC and Indiana. Id. at
496-97. Black says he also spoke with a woman named Faith
Laird, who said she had “recorded a statement from a nursing
home operator admitting that he had received a cash payout from
26
HHC as a share of the extra FFP HHC has received” and had
“written out a ‘conspiracy chart’” related to the UPL scheme.
Id. at 498.
Moreover, Black’s purported status as the “original
source” must rest on more than a guessing game. As explained in
Vuyyuru, a person’s “mere suspicion that there must be a false
or fraudulent claim lurking around somewhere simply does not
carry his burden of proving that he is entitled to original
source status.” 555 F.3d at 353. Yet Black admitted in his
initial Complaint that he never had “access to all the books and
records of Defendants that may be relevant to this action” and
was therefore not “in a position to identify, in all cases, all
the specific documents used to make the false or fraudulent
claims[.]” Compl. ¶ 24 (J.A. 14). Rather, he explains that, “I
knew in my gut that HHC’s UPL deal with the State was illegal.”
J.A. 498. This is not enough. Due to the “glaring lack of
evidence” of Black’s direct and independent knowledge, Vuyyuru,
555 F.3d at 354, we affirm the district court’s decision on the
original source issue.
We therefore affirm the district court’s dismissal of
this claim under the public disclosure bar. 11
11
Because we agree with the court’s decision on the public
disclosure bar, we need not reach the alternative ground for
(Continued)
27
C.
Black also asks us to reverse the district court’s
denial of his request for leave to file a Second Amended
Complaint. First, he filed the Motion to Defer on January 3,
2011, and then, the Motion for Leave to File Second Amended
Complaint and Motion for Reconsideration of the court’s denial
of the Motion to Defer on April 11, 2011. The court denied all
three, and Black argues that the court erred in doing so. We
find his arguments to be without merit.
Black admits that “[t]his issue arose in a somewhat
unusual procedural posture” in his filing of the Motion to
Defer, but he argues that his motion “was tantamount to making a
standard request for leave to amend if the motion to dismiss was
granted.” Br. of Appellant 21. We disagree. As the district
court explained, “this unusual request certainly runs afoul of
its purpose, which is to ‘provide the district court with a
means by which to determine whether the amendment would cure the
defects in the initial complaint.’” District Court Opinion 24
(quoting Francis v. Gaicomelli, 588 F.3d 186, 197 (4th Cir.
2009)).
dismissal under Rules 12(b)(6) and 9(b). See Schramm, Inc. v.
Shipco Transp., Inc., 364 F.3d 560, 566 n.2 (4th Cir. 2004).
28
Turning to the denial of Black’s Motion to Amend and
Motion for Reconsideration on April 11, 2011, the district court
correctly noted that these motions are essentially “moving this
Court to reconsider its dismissal of the complaint.” J.A. 722.
The court had already ruled that after “four[] iteration[s]” of
his complaint, Black still failed to provide allegations
sufficient to survive a motion to dismiss, and that further
amendments would be futile. District Court Opinion 25. Indeed,
the Supreme Court has held that “repeated failure to cure
deficiencies by amendments previously allowed” and “futility of
amendment” are acceptable grounds for denying a request for
leave to amend the complaint. Foman v. Davis, 371 U.S. 178, 182
(1962). The district court did not abuse its discretion in
denying the motions.
IV.
For the foregoing reasons, the judgment of the
district court is
AFFIRMED.
29