United States v. Medshares Mgmt Grp

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 05a0120p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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X
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UNITED STATES OF AMERICA, ex rel. A+
Plaintiffs-Appellees, -
HOMECARE, INC.,
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-
No. 02-6545
,
v. >
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MEDSHARES MANAGEMENT GROUP, INC.; TREVECCA -
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Defendants, -
HOME HEALTH SERVICES, INC.,
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STEPHEN H. WINTERS,
Defendant-Appellant. -
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Appeal from the United States District Court
for the Middle District of Tennessee at Nashville.
No. 97-01059—William J. Haynes, Jr., District Judge.
Argued: April 23, 2004
Decided and Filed: March 10, 2005
Before: MERRITT and MOORE, Circuit Judges; DUGGAN, District Judge.*
_________________
COUNSEL
ARGUED: Matthew H. Kirtland, FULBRIGHT & JAWORSKI, Washington, D.C., for Appellant.
Van S. Vincent, ASSISTANT UNITED STATES ATTORNEY, Nashville, Tennessee, for
Appellees. ON BRIEF: Matthew H. Kirtland, FULBRIGHT & JAWORSKI, Washington, D.C.,
for Appellant. Van S. Vincent, ASSISTANT UNITED STATES ATTORNEY, Nashville,
Tennessee, Charles W. McElroy, WHITE & REASOR, Nashville, Tennessee, for Appellees.
*
The Honorable Patrick J. Duggan, United States District Judge for the Eastern District of Michigan, sitting by
designation.
1
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 2
_________________
OPINION
_________________
KAREN NELSON MOORE, Circuit Judge. Defendant-Appellant Stephen H. Winters
(“Winters”) appeals the jury verdict and award of damages in favor of the Plaintiffs-Appellees, the
United States (“the Government”) and A+ Homecare, Inc. (“A+ Homecare”) (collectively “the
Appellees”). The jury found Winters liable under the False Claims Act (“FCA”), 31 U.S.C.
§§ 3729-3733, for including fraudulent pension expenses on two Medicare cost reporting forms and
awarded damages of $1,061,138.80. The district court remitted the award of damages to
$602,565.43 to reflect the actual damages incurred by the Government, then trebled the amount to
$1,807,696.29, pursuant to 31 U.S.C. § 3729(a). On appeal, Winters argues that the district court
erred by: (1) excluding evidence regarding Medicare reimbursement of similar pension expenses
at other home health agencies Winters owned; (2) denying Winters’s motion for summary judgment
on Count II of the complaint on the grounds that the deferred compensation accrual on the final cost
report was immaterial; (3) failing to consider the merits of Winters’s renewed motion for judgment
as a matter of law; (4) denying Winters’s motion for a new trial on the grounds that (a) the jury
verdict was against the clear weight of the evidence; (b) there was no evidence the Government
sustained any harm; and (c) the jury was confused in calculating damages. We conclude that the
district court did not err on any of these issues, and thus, the jury verdict and remitted award of
damages is AFFIRMED.
I. BACKGROUND
A. Factual Background
In June 1993, Winters purchased Trevecca Home Health Services, Inc. (“THHS”), a home
health agency participating in the Medicare program, from A+ Homecare. Winters owned several
other home health agencies in addition to THHS, all of which were managed through Medshares
Management Group, Inc. (“MMGI”). Winters served as the President, Chief Executive Officer
(“CEO”), and sole member of the board of directors for both MMGI and THHS. At the time
Winters purchased THHS, MMGI had an employees’ retirement plan (the “Plan”), which was in
place at all of the other home health agencies owned by Winters and managed by MMGI. The Plan
was a deferred profit sharing and stock bonus plan. It was Winters’s policy that after buying
a home health agency, he would “immediately implement the complete MMGI package of
benefits, including the Plan.” Appellant’s Br. at 7. Upon purchasing THHS in June 1993,
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 3
Winters
2
claims that the company adopted the Plan1 retroactively for the entire 1993 fiscal
year.
The MMGI Plan in effect for 1993 permitted THHS to make a yearly pension contribution
on behalf of its employees. Winters, as CEO of THHS, had sole discretion not only over whether
to make a contribution, but also over the amount and method of calculating such contribution subject
to certain maximum limitations. Most importantly, nothing in the Plan required THHS to make a
contribution in any fiscal year. See J.A. at 1037 (Winters Trial Tr. Vol. I at 132) (“Q: Were you
required under the plan to even make that contribution for Trevecca Home Health Services for FY
‘93? A: No.”). Once a contribution had been made to the Plan, it was allocated to THHS employees
who participated in the Plan. Employees could participate in the Plan and receive an allocation if
they “completed a Year of Service during the Plan Year and are actively employed on the last day
of the Plan Year.” J.A. at 1208 (MMGI Plan at 26, § 4.3(b)).3
Under the Medicare program, qualified home health agencies such as THHS are entitled to
reimbursement for the reasonable costs associated with providing medical treatment to those
qualified for Medicare benefits. 42 U.S.C. §§ 1395f(a)(2)(C) & (b)(1); 1395x(m)&(o); 1395bbb.
The home health agency is reimbursed for its reasonable costs from the Medicare Trust Fund
through a fiscal intermediary, which acts as an agent of the Secretary of Health and Human Services
(“the Secretary”). The fiscal intermediary reviews claims and makes payments. 42 U.S.C.
§ 1395u(a). Reasonable costs are defined as “costs actually incurred” and determined in accordance
with regulations promulgated by the Secretary. 42 U.S.C. § 1395x(v)(1)(A). The Secretary’s
1
It is not clear from the record the date on which THHS formally adopted the MMGI Plan. Pursuant to § 10.1
of the Plan, an affiliated employer can only adopt the Plan “by a properly executed document evidencing said intent and
will of such Participating Employer.” Joint Appendix (“J.A.”) at 1243 (MMGI Plan at 61). Winters submitted a signed
copy of the minutes of a THHS board of directors meeting where the board resolved to adopt the MMGI Plan, which
was dated June 4, 1993. J.A. at 1278 (THHS Minutes). The record also contains a memorandum, however, written from
David Schwab (“Schwab”), corporate counsel of MMGI, to Winters, dated October 6, 1995, which instructs Winters
that THHS must adopt the Plan by written agreement. The memorandum further states “[p]lease find attached the
adoption agreements for your signature (These have been sent several times consistent with the Legal Department’s
understanding that the Plan was adopted by the various employers.).” J.A. at 1338 (Mem. from Schwab to Winters).
Attached to the 1995 memorandum was an unsigned copy of the THHS board of director minutes dated June 4, 1993.
J.A. at 1344 (THHS Unsigned Minutes). At trial, Winters testified that he could not remember the date he signed the
minutes. J.A. at 980 (Winters Trial Tr. Vol. I at 75). Schwab testified that he sent the back-dated minutes along with
his 1995 memorandum because the MMGI legal department did not have any record of THHS’s adoption of the Plan.
J.A. at 931 (Schwab Trial Tr. Vol. III at 180). Schwab also admitted that the document he sent along with his 1995
memorandum was identical to the signed THHS minutes which was submitted as evidence of the adoption of the Plan.
J.A. at 932 (Schwab Trial Tr. Vol. III at 181).
Furthermore, the minutes approve and adopt “the form of amended Medshares Management Group, Inc.
Employees’ Retirement Plan and Trust Agreement effective January 1, 1993.” J.A. at 1278 (THHS Minutes). The
amended Plan which became effective January 1, 1993, however, was only amended by MMGI on December 30, 1993,
and therefore, could not have been adopted by THHS on June 4, 1993, six months earlier. J.A. at 1183 (MMGI Plan at
1). Thus, it seems implausible that the Plan was adopted on the date Winters claims.
The Appellees contend that “[o]ther than these minutes, there is no document that purports to adopt the Plan
as required by the Plan,” and therefore, “[b]ecause the Plan was not adopted by THHS in 1992 or 1993, there was no
Plan in place for THHS in either of these years. Thus, no contributions could have been made or claimed for
reimbursement for these years.” Appellees’ Br. at 18.
2
THHS operates on a fiscal year ending June 30th, while the Plan operates on a calendar year. Winters claims
that the adoption of the Plan by THHS on June 4, 1993, allowed for the Plan to be applied retroactively for the entire
fiscal year, or from July 1, 1992 to June 30, 1993, despite the fact that Winters purchased THHS only in the last month
of the fiscal year.
3
A Year of Service is defined as twelve consecutive months “during which an Employee has at least 1000 Hours
of Service.” J.A. at 1196 (MMGI Plan at 14, § 1.52). The Plan Year is defined as twelve months “commencing on
January 1st of each year and ending the following December 31st.” J.A. at 1194 (MMGI Plan at 12, § 1.39).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 4
regulations provide for “all necessary and proper costs incurred in furnishing [Medicare] services,
such as administrative costs, maintenance costs, and premium payments for employee health and
pension plans.” 42 C.F.R. § 413.9(c)(3). To receive a reimbursement from the Medicare program,
a service provider “must provide adequate cost data” to the fiscal intermediary based on “the accrual
basis of accounting.” 42 C.F.R. § 413.24(a). The fiscal intermediary evaluates the submitted cost
reports, verifies the costs incurred in providing Medicare services, and pays out the reimbursement.
The claims in this case arise from THHS’s claimed pension expense for its employees in the
Medicare cost reports submitted to the fiscal intermediary.
1. The Interim Rate Report
An Interim Rate Report (“IRR”) is a quarterly report filed with the Medicare fiscal
intermediary for the reimbursement of real and estimated costs associated with the provision of
home health services to Medicare beneficiaries. In August 1993, THHS was required to submit an
IRR for the fourth quarter of fiscal year 1993 (“FY93”). In the IRR, THHS was required to report
all reimbursable expenses incurred for the entire fiscal year, from July 1, 1992 to June 30, 1993.
Because Winters only owned THHS for the last month of FY93, Bertha Holloway (“Holloway”),
a cost report consultant working with A+ Homecare, the previous owner, prepared a draft IRR,
combining the expenses incurred in the eleven months in which THHS was owned by A+ Homecare
with the one month in which Winters owned4 the company. Holloway’s draft IRR did not include
any pension contribution to the MMGI Plan. Based on her calculations, Holloway concluded that
Medicare had overpaid THHS for its services throughout the year, and thus, THHS was required to
repay Medicare $205,466.00. Holloway testified that she informed Allen Ruffin (“Ruffin”), the
Chief Financial Officer of MMGI, that based on her calculations THHS had been overpaid.
Holloway sent the draft IRR along with the supporting documentation to Ruffin for his review.
On August 27, 1993, Ruffin filed the IRR with Palmetto Government Benefits
Administrators (“Palmetto”), a wholly-owned subsidiary of Blue Cross/Blue Shield of South
Carolina, and the fiscal intermediary overseeing THHS’s Medicare claims. The IRR filed with
Palmetto claimed substantially more reimbursable expenses than the draft IRR Holloway had
prepared. Specifically, the filed IRR included a pension contribution of $527,019.305 for the THHS
employees to the MMGI Plan, of which $520,051.00 was attributable to Medicare. The effect of
this additional reimbursable expense was that instead of having to repay Medicare $205,466.00,
THHS was to receive approximately $314,585.00. On September 20, 1993, as a result of the filing
of the IRR, Palmetto paid THHS $314,585.00 from the Medicare Trust Fund. Within a month, the
money was transferred out of the THHS account and into the MMGI general account and used to
pay for MMGI’s operating expenses, including payroll and accounts payable.
The pension expense which was accrued on the IRR was calculated by taking 15% of the
total salary expense of the THHS employees for FY93. In her draft IRR, Holloway calculated the
total salary expense for THHS for FY93 as $3,513,462.00. Winters testified that he directed Ruffin
to include a pension contribution in the IRR by calculating 15% of Holloway’s total salary expense,
or $527,019.30. J.A. at 974 (Winters Trial Tr. Vol. I at 69). Fifteen percent of total compensation
paid or accrued during the taxable year was the maximum deductible contribution to a profit-sharing
plan under the Internal Revenue Code at that time. See Economic Growth and Tax Relief
4
Holloway’s draft IRR did include an expense of approximately $127,000 for the contribution to A+
Homecare’s deferred compensation plan. J.A. at 606 (Holloway Trial Tr. Vol. II at 177). Unlike the $527,019.30
pension expense relating to the MMGI Plan, A+ Homecare had already paid and funded its contribution to the deferred
compensation plan.
5
The difference between the two values relates to pension expenses attributable to services provided to non-
Medicare beneficiaries, or parties with private insurance.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 5
Reconciliation Act of 2001, Pub. L. No. 107-16, § 616, 115 Stat. 38, 102 (2001) (amending I.R.C.
§ 404(a)(3)(A)(i)(I) to increase the deduction limit from 15% to 25%). Winters testified that the
15% figure was the standard amount he used at all of his home health agencies. J.A. at 974 (Winters
Trial Tr. Vol. I at 69). The salary expense upon which Winters based his calculation, however, did
not reflect THHS’s employment level at the time of purchase.
Holloway testified at trial that for most of 1992 A+ Homecare owned only THHS. In
December 1992 and spring of 1993, A+ Homecare purchased two more home health agencies.
Holloway explained that prior to the purchase of these two additional agencies, all of the expenses
incurred by A+ Homecare were reported as part of THHS because A+ Homecare did not meet the
definition of a home office under the Medicare guidelines. After the purchase of additional
agencies, however, A+ Homecare met the definition of a home office and reported its costs as a
separate entity. Moreover, Holloway testified that after the acquisitions, several branches in the
Nashville area that were a part of THHS were transferred to one of the newly acquired home health
agencies. J.A. at 599 (Holloway Trial Tr. Vol. II at 170). The net effect of these moves was to
decrease significantly the number of employees at THHS, from approximately four hundred in the
beginning of 1993 to fifty-seven by June 1993. Holloway further testified that she met with Winters
“to make sure that Mr. Winters understood the number of branches that were part of [THHS] at the
time that he was contemplating purchasing [THHS].” J.A. at 598 (Holloway Trial Tr. Vol. II at
169). She explained that “[t]he crux of my conversation with Mr. Winters was to make sure he
understood that the visits would decrease and that some of the branches that have been reporting
under [THHS] would no longer be reporting.” J.A. at 600 (Holloway Trial Tr. Vol. II at 171).
Winters testified that he was aware that THHS had approximately fifty-seven employees at the time
he purchased the company. J.A. at 968 (Winters Trial Tr. Vol. I at 63). Despite this knowledge, he
instructed Ruffin to use THHS’s total compensation expense for FY93 to calculate the pension
contribution for THHS employees to the MMGI Plan. Thus, THHS reported on its IRR to Palmetto
a pension expense of $527,019.30 for its fifty-seven employees, of which $520,051.00 was
attributable to Medicare. The result was an offset of $205,466.00, which THHS did not have to
repay, and a payment from Medicare of $314,585.00.
2. The Final Cost Report
THHS was required to submit its Final Cost Report (“the Cost Report”) for FY93 within
ninety days of the close of its fiscal year, or by September 30, 1993. The Cost Report, which is the
finalized version of the previously filed IRR, must include all the costs incurred during THHS’s
entire fiscal year, supported by accompanying documentation. Accordingly, THHS began efforts
to accumulate documentation for the eleven months of FY93 when A+ Homecare owned THHS.
THHS encountered severe difficulties in obtaining information from A+ Homecare about the months
in question, and as a result, the Cost Report was not filed until October 1995, two years after the
deadline.6
In order to finalize the pension contribution for FY93, Winters began discussions with Frank
Carney (“Carney”), MMGI’s outside pension attorney, about the size of a contribution that could
be made to the Plan for FY93. At issue was how to calculate the contribution. Though THHS
operated on a fiscal year ending June 30, the Plan operated on a calendar year. Thus, because
THHS’s FY93 began on July 1, 1992 and ended on June 30, 1993, it straddled two different Plan
years — 1992 and 1993. It appears from the record that Carney initially advised Winters that a
contribution could be made for the employees in FY93 only in Plan year 1993, or retroactive only
6
Winters sued A+ Homecare in Tennessee state court for its failure to produce information for the eleven
months it owned THHS in FY93. The state court issued an order compelling A+ Homecare to disclose THHS financial
information to Winters. While the record in this case is not clear on this point, it seems that Winters continued to
encounter significant difficulty in obtaining financial information from A+ Homecare over the next two years.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 6
to January 1, 1993. J.A. at 1263 (Fletcher Notes from Apr. 25, 1995 mtg.). Carney later altered his
opinion and advised Winters that “[t]he only calendar year available at [THHS]’s corporate year end
was the year ending December 31, 1992. For that reason, [THHS] must make its contribution for
its fiscal year ending June 30, 1993 based upon compensation as of the calendar year commencing
January 1, 1992 and ending December 31, 1992.”7 J.A. at 1343 (Ltr. from Carney to Winters).
Relying upon Carney’s advice, Winters directed his staff to calculate the compensation expense for
THHS for calendar year 1992 to determine the pension contribution for FY93.
The problem which arose for Winters in calculating the pension contribution is the absence
of financial information for THHS during this period. Winters never owned THHS during calendar
year 1992, and therefore, needed to rely entirely upon financial information from the two companies
which owned THHS during that time: A+ Homecare and Healthcare of America Inc. (“HCA”).
When A+ Homecare owned THHS, it filed a single tax return which included the THHS expenses
as well as the home office expenses of A+ Homecare as well as several other home health branches
which were not part of THHS by June 1993. HCA, which owned THHS during the first half of
1992, reported THHS’s expenses on HCA’s tax return, which also included several additional home
health agencies as well. Carney advised Winters in 1993 against making a pension contribution in
FY93 because “there was no information available to determine who are eligible and ineligible
employees, so you cannot make that calculation to know what to contribute to the plan.” J.A. at 363
(Carney Trial Tr. Vol. III at 225). In 1995, Carney advised Winters that “[t]here was no way to fund
it because we could not calculate the funding. So my advice to him is you can’t fund it until you
calculate what you put into it.” J.A. at 363 (Carney Trial Tr. Vol. III at 225).
Winters rejected Carney’s advice, however, and instructed Bruce Hayden (“Hayden”), an
internal auditor with MMGI, to reconstruct the calendar year 1992 compensation expense for THHS
based on state unemployment tax information for A+ Homecare and HCA.8 After compiling the tax
information, Hayden created two schedules: the first was the compensation expense for all HCA
employees for calendar year 1992 added to the compensation expense for A+ Homecare’s
employees for just the second half of 1992; the second schedule included the 1992 compensation
expense only for those employees of HCA and A+ Homecare who were still working at THHS in
the first quarter of 1993. J.A. at 1288-89 (Mem. from Hayden to Winters). The second schedule
was created in light of the Plan’s requirements that an eligible employee must work for a year and
be employed on the last day of the Plan year to participate in the allocation of the contribution. The
first schedule listed 397 employees, while the second listed 130.
Both schedules contained obvious shortcomings. Most noticeably, there was no way to
determine if the employees were actually working for THHS or instead for one of the other home
7
It should be noted that Carney’s opinion was premised on the fact that THHS had adopted the Plan by written
agreement prior to the end of its fiscal year on June 30, 1993. J.A. at 1341 (Ltr. from Carney to Winters). As was
mentioned above, there is substantial evidence in the record to support the contention that the Plan was not formally
adopted until October 6, 1995. See supra note 1. Therefore, THHS could not make a contribution to the Plan in FY93.
Moreover, the minutes for the board of directors meeting at which THHS purportedly adopted the Plan state that the
version of the Plan adopted is the amended one which became effective January 1, 1993. J.A. at 1278 (THHS Minutes).
Therefore, THHS was not an affiliated employer in the prior version of the Plan and could not make a contribution to
the Plan for calendar year 1992.
8
According to Winters’s Brief, “[t]his information was used because [Winters was] advised by a current officer
of HCA, Dean Alverson, that during calendar year 1992 all HCA employees in fact had worked for THHS.” Appellant’s
Br. at 13; J.A. at 1034 (Winters Trial Tr. Vol. I at 129).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 7
health agencies or branches owned by HCA or A+ Homecare or for their respective home offices.9
Hayden testified at trial that he told Winters “we couldn’t confirm which employees were from
which company.” J.A. at 556 (Hayden Trial Tr. Vol. III at 131). Hayden also informed Winters that
“[he] had no way to determine whether anyone worked 1,000 hours and met this 1,000 hour working
requirement. [He] did not have any information that would definitely ascertain whether someone
met the end of the year working requirement.” J.A. at 555 (Hayden Trial Tr. Vol. III at 130).
Nevertheless, Winters instructed Hayden to use the larger number in the Cost Report.
Based on Hayden’s calculations in the first schedule, THHS had a compensation expense of
$4,139,682.61 in calendar year 1992. Calculating the pension contribution as 15% of that value,
THHS reported a pension10contribution of $620,952.39 in the Cost Report, of which $602,565.43 was
attributable to Medicare. The pension contribution figure, $602,565.43, was a significant increase
over the $520,051.00 figure reported in the IRR. After the higher pension contribution was added
to the rest of the expenses on the Cost Report, THHS owed Medicare $71,839.00. On October 4,
1995, after signing and certifying its contents, Winters filed THHS’s Cost Report for FY93 with
Palmetto. In the Cost Report Questionnaire, Winters stated that “Due to the unusual and extenuating
circumstances described in enclosed correspondence, the Provider has been unable to calculate the
exact funding requirement necessary. The Provider has included its best estimate of the funding
requirement in allowable costs.” J.A. at 1247 (Addendum to Cost Report Questionnaire, question
F(3)). In a letter which accompanied the Cost Report, Hayden wrote that the accrual for pension
expense “was calculated based upon ‘best available information’ as of 5:00 p.m., Wednesday,
October 4, 1995.” J.A. at 1405 (Ltr. from Hayden to Peebles).
Upon review of THHS’s Cost Report for FY93, Palmetto disallowed the pension expense
because the Plan was not funded within one year after the expense was accrued as required by
Medicare regulations. Put another way, THHS had failed to make a contribution to the Plan on
behalf of its employees within one year of accruing the expense in FY93. In the Cost Report,
Winters explained that the Plan was not funded during the one year period “due to extenuating
circumstances” and therefore, requested a three-year extension. J.A. at 1247 (Addendum to Cost
Report Questionnaire, question F(3)). Palmetto refused, and the pension expense was disallowed.
B. Procedural History
On October 16, 1997, A+ Homecare, the relator, brought a qui tam action against MMGI,
THHS, and Winters (collectively, “the Defendants”) in the United States District Court for the
Middle District of Tennessee for violations of the False Claims Act, 31 U.S.C. §§ 3729-3733. The
United States later intervened and adopted the complaint without amendment. Count I of the
complaint alleged that the Defendants knowingly included a false pension expense of $527,019.30
in the fourth quarter IRR and presented it to the Government “for payment or approval” or “to
conceal, avoid, or decrease an obligation to pay or transmit money or property to the
Government.”11 31 U.S.C. § 3729(a)(1) & (7). Count II alleged that the Defendants violated the
9
Carney testified that had he been told “that they were employees that did not provide services for [THHS] and,
therefore, were not [THHS] employees, [he] would not have said that they be included in the computation included with
[THHS].” J.A. at 354 (Carney Trial Tr. Vol. III at 216).
10
The difference between the two values relates to pension expenses attributable to services provided to non-
Medicare beneficiaries, or parties with private insurance. J.A. at 757 (Menke Trial Tr. Vol. II at 69).
11
The complaint incorporated both types of claims actionable under the FCA. A standard false claim is an
attempt to receive payment from the Government for false or fraudulent claims. 31 U.S.C. § 3729(a)(1). A reverse false
claim is an attempt in order to “conceal, avoid, or decrease” an obligation owed to the Government by filing false
documents. 31 U.S.C. § 3729(a)(7).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 8
FCA by knowingly including a false pension expense of $620,952.39 in the final Cost Report.
Count III alleged that the Defendants violated the FCA by providing false information to Palmetto
during the audit of THHS’s Cost Report. Because THHS and MMGI declared bankruptcy, the
district court stayed the case as against those two parties, but allowed the suit to continue against
Winters.
On January 16, 2001, Winters filed a motion for summary judgment as to all counts. The
district court granted the motion as to Count III, but denied it as to the other two. A trial ensued,
and the jury found Winters liable on Counts I and II and awarded damages in the amount of
$1,061,138.80. Pursuant to the Government’s request, the district court remitted the jury award to
$602,565.43, which was then trebled to $1,807,696.29 pursuant to the FCA. On September 13,
2002, the district court denied Winters’s motion for a new trial and, in the alternative, for judgment
as matter of law. Winters then filed a timely notice of appeal.
II. ANALYSIS
A. Exclusion of Evidence
Winters’s first argument on appeal is that the district court committed reversible error in
excluding evidence regarding Palmetto’s reimbursement of pension contributions to the MMGI Plan
at Winters’s other home health agencies. “Decisions regarding the admission and exclusion of
evidence are within the peculiar province of the district court and are not to be disturbed on appeal
absent an abuse of discretion.” United States v. Middleton, 246 F.3d 825, 838 (6th Cir. 2001); see
also Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141 (1997). Moreover, we will reverse a district court’s
ruling only “when such abuse of discretion has caused more than harmless error” such that this court
“lacks a fair assurance that the outcome of a trial was not affected by evidentiary error.” McCombs
v. Meijer, Inc., 395 F.3d 346, 358 (6th Cir. 2005) (internal quotations omitted). Applying this
standard to the facts of this case, we conclude that the district court did not abuse its discretion in
excluding testimony regarding Medicare reimbursement for pension expenses at Winters’s other
home health agencies.
At trial, Winters sought to introduce this evidence to support his argument that the pension
accruals for THHS were consistent with past practice and were included in the cost reports in good
faith. The district court excluded any evidence of pension reimbursements at Winters’s other home
health agencies pursuant to the Government’s motion in limine. The Government had filed its
motion in response to the court’s earlier ruling, resulting from Winters’s objection, which limited
discovery solely to pension issues at THHS. Winters was permitted, however, to present evidence
as to “testimony of any policy of the Palmetto auditors.” J.A. at 89 (Dist. Ct. Order Feb. 23, 2001).
Thus, the district court permitted Winters to introduce evidence that 15% of total compensation
expense was consistent with Medicare regulations, but prohibited him from presenting evidence as
to specific reimbursements for pension expenses at Winters’s other home health agencies. The
district court explained to the parties that Winters “can ask if there is a policy on the use of 15
percent. But I’m not going to allow you to ask whether there is a policy that has been applied to any
other company, because the government hasn’t had an opportunity to discover that.” J.A. at 1097
(Trial Tr. Vol. II at 8).
After careful review of the record, we conclude that the district court did not abuse its
discretion but rather adopted a reasonable response. During discovery, the Government sought to
compel Winters to turn over information regarding the pension contributions to the MMGI Plan at
his other agencies “to see if they handled other entities the same way. Did they make the
calculations the same way, did they determine how to fund the plan the same way between the
entities.” J.A. at 146 (Tr. of Mot. to Compel Hr’g at 70). Despite the fact that the Government was
not permitted to discover this information, Winters argues in his appellate brief that this evidence
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 9
should have been included at trial to demonstrate “that [he] accrued pension expense on the IRR and
Cost Report in exactly the same way that had previously been audited and approved by Palmetto in
prior years for the same MMGI Plan.” Appellant’s Br. at 24. The district court correctly held that
Winters should not benefit from using evidence from which the Government had been excluded.
To allow otherwise would permit a litigant to manipulate discovery rules and use a favorable
discovery limitation as a sword rather than a shield. See, e.g., In re Columbia/HCA Healthcare
Corp. Billing Practices Litig., 293 F.3d 289, 307 (6th Cir. 2002) (concluding that a party cannot
selectively waive the work-product doctrine to prejudice his opponent), cert. denied, 539 U.S. 977
(2003); Frontier Ref. Inc. v. Gorman-Rupp Co., 136 F.3d 695, 704 (10th Cir. 1998) (holding that
a litigant cannot “selectively [use] the privileged documents to prove a point but then [invoke] the
privilege to prevent an opponent from challenging the assertion”).
Moreover, the district court’s ruling, even if erroneous, would not have altered the outcome
of the trial. Winters was permitted to present evidence that the pension accrual for THHS was
consistent with his policy at his other agencies. See J.A. at 974 (Winters Trial Tr. Vol. I at 69)
(“Q: And who made the determination that 15 percent of the wages would be utilized based on the
salaries on the interim rate report? A: I did. That was the standard amount that we used on all of
the agencies.”). The admission of evidence that Palmetto reimbursed those agencies for the pension
contributions to the MMGI Plan does not shed light on the underlying allegations of fraud.
Specifically, that Winters might have accrued pension expenses correctly at other agencies is not
probative of whether at THHS he accrued pension expenses for employees that did not work there,
during a time in which he did not own it, and for a plan that had not yet been adopted. Therefore,
we conclude the district court did not abuse its discretion in excluding this evidence.
B. Denial of Motion for Summary Judgment on Count II
The second issue Winters raises on appeal is that the district court erred when it denied his
motion for summary judgment on Count II on the grounds that the pension expense on the Cost
Report was immaterial because Palmetto disallowed it. Winters argues that “materiality is [a]
prerequisite to a finding of liability under section (a)(7) of the FCA,” and therefore, he should have
been entitled to summary judgment on Count II. Appellant’s Br. at 26. We have previously held
that “where summary judgment is denied and the movant subsequently loses after a full trial on the
merits, the denial of summary judgment may not be appealed.” Jarrett v. Epperly, 896 F.2d 1013,
1016 (6th Cir. 1990); Garrison v. Cassens Transp. Co., 334 F.3d 528, 537 (6th Cir. 2003). We
explained that:
The policy behind this rule is based on the conclusion that the potential injustice of
allowing the improper denial of a motion for summary judgment is outweighed by
the injustice of depriv[ing] a party of a jury verdict after the evidence was fully
presented, on the basis of an appellate court’s review of whether the pleadings and
affidavits at the time of the summary judgment motion demonstrated the need for a
trial.
Paschal v. Flagstar Bank, FSB, 295 F.3d 565, 571-72 (6th Cir. 2002), cert. denied, 537 U.S. 1227
(2003) (alteration in original) (internal quotation omitted). We have noted, however, that where the
denial of summary judgment was based on a question of law rather than the presence of material
disputed facts, the interests underlying the rule are not implicated. Id. at 572. Moreover, even
though the movant failed to raise the issue in a Rule 50(b) motion after the adverse jury verdict,
appellate review is not waived “if an appeal of the denial of a motion [for] summary judgment on
the same ground would involve review of a pure question of law.” Id. In this case, the district court
concluded “the inclusion of the pension expense in the cost report is material as a matter of law.”
J.A. at 85 (Dist. Ct. Summ. J. Mem. at 37). Therefore, because the issue of materiality “does not
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 10
require the resolution of any disputed facts,” we will review the denial of Winters’s motion for
summary judgment on Count II. Paschal, 295 F.3d at 572.
1. Materiality Requirement
While we have yet to address the issue, several courts of appeals have suggested that a civil
claim brought under the FCA includes a materiality requirement. See United States v. Southland
Mgmt. Corp., 326 F.3d 669, 679 (5th Cir. 2003) (en banc) (Jones, J. concurring); United States ex
rel. Costner v. URS Consultants, Inc., 317 F.3d 883, 887 (8th Cir.), cert. denied, 540 U.S. 875
(2003) [hereinafter “Costner II”]; Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732-33 (7th
Cir.), cert. denied, 528 U.S. 1038 (1999); United States ex rel. Berge v. Bd. of Tr., 104 F.3d 1453,
1459 (4th Cir.), cert. denied, 522 U.S. 916 (1997); United States v. TDC Mgmt. Corp., 24 F.3d 292,
298 (D.C. Cir. 1994). Though a materiality element is not expressly included in the FCA, these
courts have found implicit support for a materiality element in the statutory language, the legislative
history, and the underlying purpose of the law.
In United States v. Wells, 519 U.S. 482, 490-92 (1997), the Supreme Court established a
three-step framework by which courts should interpret statutes: first, a natural reading of the full
text; second, the common-law meaning of the statutory terms; and finally, consideration of the
statutory and legislative history for guidance. Utilizing this framework in Wells, the Court
concluded that the federal crime of knowingly making a false statement to a federally insured bank,
18 U.S.C. § 1014, does not include a materiality element. Id. at 484. The Court’s conclusion rested
on the absence of the term “materiality” in the statute, the lack of a settled meaning of “false
statement” at common law, and support for this interpretation in the statutory history. Id. at 490-92.
By contrast, in Neder v. United States, 527 U.S. 1, 20 (1999), the Court applied the Wells framework
and concluded that the federal crimes of mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343,
and bank fraud, 18 U.S.C. § 1344, include a materiality requirement. Though the statutes in
question similarly fail to mention the word “materiality,” the Court concluded that by using the term
“fraud,” Congress intended to incorporate the “well-settled meaning at common law,” which
included proof of materiality. Id. at 21-23. The Court reasoned that “under the rule that Congress
intends to incorporate the well-settled meaning of the common-law terms it uses, we cannot infer
from the absence of an express reference to materiality that Congress intended to drop that element
from the fraud statutes.” Id. at 23. Thus, the Court concluded “we must presume that Congress
intended to incorporate materiality unless the statute otherwise dictates.” Id. (emphasis in original)
(internal quotation omitted).
Applying the Wells framework to the FCA, we conclude that false statements or conduct
must be material to the false or fraudulent claim to hold a person civilly liable under the FCA. First,
similar to the statutes at issue in Wells and Neder, the FCA does not mention the word materiality.
A natural reading of the statutory text, however, supports the implication of a materiality element.
Under the first subsection, the FCA imposes liability on “[a]ny person who knowingly presents, or
causes to be presented, to an officer or employee of the United States Government . . . a false or
fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1). The term “false or fraudulent”
modifies the word “claim,” which is defined as “any request or demand . . . for money or property
. . . [where] the United States Government provides any portion of the money or property which is
requested or demanded.” 31 U.S.C. § 3729(c). Thus, liability does not arise merely because a false
statement is included within a claim, but rather the claim itself must be false or fraudulent. A false
statement within a claim can only serve to make the entire claim itself fraudulent if that statement
is material to the request or demand for money or property. United States ex rel. Wilkins v. N. Am.
Constr. Corp., 173 F. Supp. 2d 601, 624 (S.D. Tex. 2001). Furthermore, subsection two imposes
liability on one who “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) (emphasis added). Once again, liability attaches only where the claim itself is false or
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 11
fraudulent and the false record or statement is being used “to get” that false claim paid. Put another
way, a false statement or record within a true claim is not actionable under the FCA. As the Fifth
Circuit has stated, “[t]he express connection of a false statement with ‘getting’ a false claim paid is
tantamount to requiring that the false statement be material to the payment decision.” Southland
Mgmt. Corp., 326 F.3d at 679 (Jones, J. concurring). Lastly, subsection seven imposes liability on
anyone who “knowingly makes, uses, or causes to be made or used, a false record or statement to
conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”
31 U.S.C. § 3729(a)(7). This section, which addresses reverse false claims, does not mention the
word “claim,” but nonetheless requires that the false record or statement be used for fraudulent
purposes. Thus, once again, liability does not arise from merely making a false statement, but rather
from making a false statement to conceal, avoid, or decrease an obligation owed to the Government.
A false statement can only avoid or decrease an obligation if that statement is material to the money
or property owed to the Government. In sum, we conclude that a natural reading of the text of all
three of these statutory provisions supports the implication that the FCA imposes liability only for
false statements or conduct which are material to a false or fraudulent claim for money or property
from the Government.
The second step in the Wells framework is to interpret the statute in light of the common-law
meaning of the statutory terms, specifically the words “false” and “fraudulent” that modify the word
“claim.” The Supreme Court has held that “the common law could not have conceived of ‘fraud’
without proof of materiality.” Neder, 527 U.S. at 22. After an exhaustive historical analysis of the
common law usages of the terms “false” and “false claim,” the Wilkins court noted that nothing
about their common-law meanings precludes a materiality requirement. 173 F. Supp. 2d at 626.
Thus, by using the term “false or fraudulent” to modify the word “claim,” Congress intended to
incorporate the well-settled meaning of common-law fraud, including a materiality element. By
contrast, the Third Circuit has noted that the Supreme Court’s holding in Wells that the term “false
statement” does not imply a materiality requirement “perhaps . . . argues against [a requirement]”
in the FCA. United States ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402, 415 (3d Cir. 1999)
(citing Neder, 527 U.S. at 23 n.7), cert. denied, 531 U.S. 880 (2000). That reasoning, however, fails
to account for the use of the term in the statute. Unlike the statute in Wells, which criminalizes the
act of “knowingly making a false statement,” 18 U.S.C. § 1014, the FCA requires that the false
statement be used “to get a false or fraudulent claim paid.” 31 U.S.C. § 3729(a)(2). As we stated
above, liability is imposed based on the use of the false statement in relation to the fraudulent claim,
rather than simply because a false statement was made. Similarly, subsection seven imposes liability
based on the use of the false statement to decrease or avoid an obligation to the Government.
31 U.S.C. § 3729(a)(7). Thus, we conclude that the common-law definitions of the terms “false”
and “fraudulent” are consistent with including materiality as an element of the FCA.
The final step in the Wells framework is to consider the materiality requirement in light of
the statutory and legislative history of the FCA. The history of the FCA reveals that the principal
goal underlying the statute is to prevent fraud perpetrated on the Government. The original False
Claims Act was enacted in 1863 “to combat rampant fraud in Civil War defense contracts.” S. Rep.
No. 99-345, at 8 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5273. In 1986, Congress amended
the civil FCA “to enhance the Government’s ability to recover losses sustained as a result of fraud
against the Government.” Id. at 1, 1986 U.S.C.C.A.N. at 5266. Congress noted that the “growing
pervasiveness of fraud necessitates modernization of the Government’s primary litigative tool.” Id.
at 2, 1986 U.S.C.C.A.N. at 5266. Thus, the scope of the FCA was expanded through such changes
as eliminating the showing of specific intent to defraud, raising the civil penalties, increasing the
Government’s award to treble damages, and imposing liability for a reverse false claim. Id. at 17-
18, 20, 1986 U.S.C.C.A.N. at 5282-83, 5285. With regards to a reverse false claim, the Senate
report states that the FCA was amended “to provide that an individual who makes a material
misrepresentation to avoid paying money owed the Government would be equally liable under the
Act as if he had submitted a false claim to receive money.” Id. at 18, 1986 U.S.C.C.A.N. at 5283
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 12
(emphasis added). Thus, Congress emphasized that only those false statements which are material
to the fraudulent claim itself are actionable under the FCA. The prevention of nonmaterial false
claims is not addressed anywhere in the Senate report. Therefore, we conclude that the statutory and
legislative history supports the conclusion that materiality is implicitly an element of liability under
the FCA.
In sum, after reviewing the natural reading of the text, the common-law meaning of the
statutory terms, and the statutory and legislative history, we conclude that the FCA imposes liability
only for false statements or conduct which are material to a false or fraudulent claim to receive
money or property from the Government or reduce an obligation owed to it.12
2. Materiality Standard
Having determined that the FCA does include a materiality requirement, we turn to the
appropriate standard by which materiality should be reviewed. The circuits which have addressed
the issue of materiality are inconsistent on the standard to be used. See Costner II, 317 F.3d at 886
(noting that “the existence of and appropriate standard for a materiality element is a matter of some
disagreement in the courts”). The United States Supreme Court has stated that “[i]n general, a false
statement is material if it has a natural tendency to influence, or [is] capable of influencing, the
decision of the decisionmaking body to which it was addressed.” Neder, 527 U.S. at 16 (internal
quotation omitted). The Fourth Circuit has adopted the “natural tendency” test in the civil FCA
context and concluded that a university’s failure to credit a graduate student’s research in a grant
application was not material to the NIH’s decision to renew the university’s research grant. Berge,
104 F.3d at 1460-61. By contrast, the Eighth Circuit has adopted a more stringent “outcome
materiality” test, which requires a showing that the alleged fraudulent actions had “the purpose and
effect of causing the United States to pay out money it is not obligated to pay, or those actions which
intentionally deprive the United States of money it is lawfully due.” Costner v. URS Consultants,
Inc., 153 F.3d 667, 677 (8th Cir. 1998) [hereinafter “Costner I”]. Applying the “outcome
materiality” test, the Eighth Circuit held that where the plaintiff cannot show that the government
agency would have acted differently had it known of the omission, “there is no false claim because
[the agency’s action] would have occurred regardless of [the defendant’s] actions.” Rabushka ex
rel. United States v. Crane Co., 122 F.3d 559, 563 (8th Cir. 1997), cert. denied, 523 U.S. 1040
(1998).
12
Our holding in this case is not controlled by our previous decision in United States v. Nash, 175 F.3d 429,
434 (6th Cir.), cert. denied, 528 U.S. 888 (1999), in which we held that materiality is not an element under the criminal
false-claims provision, 18 U.S.C. § 287. Though they were both part of the original False Claims Act passed in 1863,
the civil and criminal provisions were severed in 1874 and codified in different portions of the United States Code.
United States v. Southland Mgmt. Corp., 288 F.3d 665, 674 (5th Cir.), reh’g en banc granted, 307 F.3d 352 (5th Cir.
2002). While we have compared the two provisions in the past to interpret statutory language, see United States v.
McBride, 362 F.3d 360, 371 (6th Cir. 2004) (utilizing § 3729(c) to define the term “claim” in § 287), comparison of the
two statutes in this case would be unhelpful. With regard to materiality, the language of the civil provision is
substantially different than its criminal counterpart. Compare § 3729 (imposing civil liability on any person who
“knowingly presents . . . a false or fraudulent claim for payment or approval” or who uses a false statement “to get a false
or fraudulent claim paid”) with § 287 (imposing criminal liability on any person who presents a claim “knowing such
claim to be false, fictitious, or fraudulent”). We have explained that § 287 criminalizes false statements similar to the
statute at issue in Wells. Nash, 175 F.3d at 434. Thus, the mere inclusion of a false statement in a claim is sufficient
to give rise to criminal liability under § 287. By contrast, § 3729 was “intended to reach all fraudulent attempts to cause
the Government to pay our [sic] sums of money or to deliver property or services,” rather than just mere false statements.
S. Rep. No. 99-345, at 9, 1986 U.S.C.C.A.N. at 5274. As we stated above, a false statement within a claim can only
serve to make the entire claim itself fraudulent if that statement is material to causing the Government to pay the
fraudulent claim.
Therefore, our previous decision in Nash does not control the outcome of our decision in this case. Compare
Southland Mgmt. Corp., 326 F.3d at 679 (Jones, J. concurring) (noting that “there should no longer be any doubt that
materiality is an element of a civil False Claims Act”) with United States v. Upton, 91 F.3d 677, 685 (5th Cir. 1996)
(holding that materiality is not an element for criminal liability under § 287), cert. denied, 520 U.S. 1228 (1997).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 13
Upon review of these two different standards, we conclude that the “natural tendency” test
is the appropriate standard by which materiality in the FCA civil context should be measured. This
standard “focuses on the potential effect of the false statement when it is made, not on the actual
effect of the false statement when it is discovered.” United States ex rel. Harrison v. Westinghouse
Savannah River Co., 352 F.3d 908, 916-17 (4th Cir. 2003). Such a standard is more consistent with
the plain meaning of the statute, which attaches liability upon presentment of a false or fraudulent
claim, rather than actual payment on that claim. 31 U.S.C. § 3729(a)(1). Similarly, a reverse false
claim may be brought if a party “knowingly makes . . . a false record or statement to conceal, avoid,
or decrease an obligation” owed to the Government. 31 U.S.C. § 3729(a)(7). The language of this
section requires the intent to conceal, but is silent on the result. Moreover, liability under the FCA
is punishable by a civil penalty in addition to any damages which the Government actually sustains,
which reinforces the conclusion that the actual result is not dispositive of liability under the FCA.
Furthermore, evaluating materiality based on the potential effect rather than actual result is
more consistent with the underlying purpose of the FCA. The United States Supreme Court has
broadly interpreted the statute to cover “all fraudulent attempts to cause the Government to pay out
sums of money.” United States v. Neifert-White Co., 390 U.S. 228, 233 (1968) (emphasis added).
We have similarly held that “recovery under the FCA is not dependent upon the government’s
sustaining monetary damages.” Varljen v. Cleveland Gear Co., 250 F.3d 426, 429 (6th Cir. 2001).
These holdings are consistent with the FCA’s principal goal of ensuring the integrity of the
Government’s dealings, which is embodied in “the maxim that [m]en must turn square corners when
they deal with the Government.” United States ex rel. Compton v. Midwest Specialties, Inc., 142
F.3d 296, 302 (6th Cir. 1998) (internal citation omitted) (alteration in original). Therefore, we hold
that the “natural tendency” test is the appropriate standard by which materiality should be reviewed.
3. The Cost Report Claim
Having established that the FCA does include a materiality requirement and that the “natural
tendency” test is the appropriate standard by which it should be adjudged, we turn to the facts of this
case. Whether the pension accrual on the Cost Report is material is a mixed question of law and
fact, Harrison, 352 F.3d at 914, which we review de novo. Kalamazoo River Study Group v.
Rockwell Int’l Corp., 355 F.3d 574, 589 (6th Cir. 2004). Applying the “natural tendency” test to this
case, we conclude that the pension accrual on the Cost Report was material even though it was
disallowed by Palmetto. Palmetto disallowed the pension expense because it was not funded within
one year of the date on which it was accrued.13 Even though it may not have resulted in an actual
decrease in the obligation owed to Medicare, Winters’s action of placing the accrual on the Cost
Report certainly had the “natural tendency to influence or [was] capable of influencing the
government’s funding decision.” Harrison, 352 F.3d at 917. The record reveals Winters’s belief
that the accrual could influence agency action. Along with the Cost Report, Winters sent three
letters, two written personally by him, which offer justifications for why the pension had yet to be
funded. In the questionnaire, Winters wrote that the pension had yet to be funded “[d]ue to . . .
extenuating circumstances” and that he believed “this issue qualifies for an extension to the one year
liquidation requirement and should be allowable if liquidated within the three year liquidation
period.” J.A. at 1247 (Addendum to Cost Report Questionnaire, question F(3)). The clear purpose
of these letters and the explanation contained in the questionnaire was to persuade Palmetto to allow
the pension accrual even though the pension had not been funded timely.
13
In this case, the pension accrual in the Cost Report did in fact result in a decrease in the obligation owed to
Medicare. Though it disallowed the expense, Palmetto never issued a notice of provider reimbursement, and thus
Winters never repaid Medicare the pension accrual of $602,565.43. See infra Part D.2. The issuance of the notice of
provider reimbursement is irrelevant in this case, however, because the mere act of placing the false accrual on the Cost
Report is sufficient to find Winters liable under the FCA.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 14
Winters argues in his brief that the pension accrual was included in the Cost Report to induce
Palmetto not to reduce THHS’s obligation to Medicare, but rather to perform an audit. Appellant’s
Br. at 34. In support of his argument, he cites to the questionnaire response which states that the
pension would be funded “once the exact funding requirement is determined through the
Intermediary audit process.” J.A. at 1247 (Addendum to Cost Report Questionnaire, question F(3)).
We find Winters’s argument to be wholly unpersuasive. Medicare regulations “require that
providers maintain sufficient financial records and statistical data for proper determination of costs
payable under the program.” 42 C.F.R. § 413.20(a). Moreover, the cost reports submitted to the
intermediaries “must provide adequate cost data . . . capable of verification by qualified auditors.”
42 C.F.R. § 413.24(a). The role of the fiscal intermediary is only to ensure compliance with
Medicare regulations. Thus, the responsibility is on Winters and THHS to calculate a discretionary
pension contribution, not on Palmetto to determine it for them. A party cannot file a knowingly false
claim on the assumption that the fiscal intermediary will correctly calculate the value in the review
process. See, e.g., United States ex rel. Sarasola v. Aetna Life Ins. Co., 319 F.3d 1292, 1301 (11th
Cir. 2003) (holding that a fiscal intermediary is immune from liability for approving payment for
allegedly fraudulent claims). Such a result would shift the burden of cost calculation from the
provider to the fiscal intermediary and encourage the filing of false claims, which is directly at odds
with the stated goal of the FCA.
In sum, we conclude the pension accrual on the Cost Report was capable of influencing the
Government’s funding decision and therefore satisfies the materiality requirement. Thus, we affirm
the district court’s denial of summary judgment in favor of Winters on Count II.
C. Denial of Motion for Judgment as a Matter of Law
Winters’s third argument on appeal is that the district court erred by failing to consider the
merits of his renewed motion for judgment as a matter of law. The district court ruled that Winters
waived his right to file a renewed motion because he failed to make a motion for a judgment as a
matter of law at the close of all the evidence. We have held that “[t]he question of waiver is a mixed
question of law and fact,” and thus, “[w]e review any determination of underlying facts under the
clearly erroneous standard of review, and make a de novo determination of whether those facts
constitute legal waiver.” Karam v. Sagemark Consulting, Inc., 383 F.3d 421, 426 (6th Cir. 2004).
Applying this standard, we conclude that the district court did not err in finding that Winters waived
his right to file a renewed motion for judgment as a matter of law following the jury verdict.
“It is well-settled that a court can only consider a motion for a judgment notwithstanding the
verdict only if the 14
moving party has previously made a motion for a directed verdict at the close of
all the evidence.” Portage II v. Bryant Petroleum Corp., 899 F.2d 1514, 1522 (6th Cir. 1990)
(emphasis in original). We have “ruled, however, that technical deviation from Rule 50(b)’s
command is not fatal.” Riverview Invs., Inc. v. Ottawa Cmty. Improvement Corp., 899 F.2d 474, 477
(6th Cir.), cert. denied, 498 U.S. 855 (1990). Instead, we noted that “[t]he application of Rule 50(b)
in any case should be examined in the light of the accomplishment of [its] particular purpose as well
as in the general context of securing a fair trial for all concerned in the quest for the truth.” Boynton
v. TRW, Inc., 858 F.2d 1178, 1185 (6th Cir. 1988) (internal quotation omitted) (alteration in
original). Therefore, in order to avoid “adherence to slavish nominalism” we stated that:
a motion for judgment notwithstanding may be granted despite the party’s failure to
renew his motion for a directed verdict where: (1) The court indicated that the
14
We have explained that “[a]lthough Federal Rule of Civil Procedure 50 was amended in 1991 to establish
‘judgment as a matter of law’ as a uniform term replacing the use of ‘j.n.o.v.’ and ‘directed verdict,’ it is clear that this
amendment did not change the rule stated in Portage II.” Jackson v. City of Cookeville, 31 F.3d 1354, 1357 (6th Cir.
1994).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 15
renewal of the motion would not be necessary to preserve the party’s rights; and
(2) The evidence following the party’s unrenewed motion for a directed verdict was
brief and inconsequential.
Riverview, 899 F.2d at 477 (quoting 5A James Wm. Moore et al., Moore’s Federal Practice § 50.08
(2d ed. 1984)). In Boynton, the defendant moved for a directed verdict at the end of the plaintiff’s
case-in-chief and after the jury verdict, but neglected to do so at the close of all the evidence. The
district court did not rule on the directed verdict motion at the end of the plaintiff’s case, but rather
took it “under advisement and indicated its firm intent to ‘get the case to the jury.’” Boynton, 858
F.2d at 1186. In addition, the defendant’s evidence in its case-in-chief consisted of one person,
whose testimony “was brief and largely cumulative.” Id. Therefore, we concluded that “no logical
purpose would be served by holding that the district court was precluded from entertaining [the
defendant]’s motion for a judgment n.o.v.” Id. Similarly, in Riverview, the district court informed
the defendants that renewal of their directed verdict motion was unnecessary, and the rebuttal
evidence presented after their directed verdict motion was brief. Riverview, 899 F.2d at 478.
By contrast, in Jackson v. Huron Development Ltd. Partnership, No. 98-2356, 2000 WL
282482, at *3 (6th Cir. Mar. 9, 2000),15 we distinguished Boynton and concluded that the defendant
could not take advantage of the Riverview exception so as to excuse its failure to renew its motion
at the close of all of the evidence. In Jackson, “the trial court did not take the defendants’ motion
under advisement or otherwise indicate that it need not be renewed,” but rather explicitly denied it.
Id. Following the denial of the motion, the defendants’ case-in-chief consisted of three witnesses,
whose testimony, while relatively brief, “had some importance to the defense,” including
“information not otherwise available to the jury.” Id. As a result, we concluded that the “failure to
renew [the] motion at the close of all the evidence was not a mere technicality,” but rather “[t]he trial
judge should have been given an opportunity to consider whether submission of the case to the jury
was appropriate in the light of all the evidence.” Id. (emphasis in original).
In this case, like the ones cited above, Winters moved for judgment as a matter of law at the
end of the Appellees’ case-in-chief and after the jury verdict, but neglected to do so at the close of
all the evidence. Thus, the issue before us is whether the district court correctly held that Winters’s
case does not fall within the recognized Riverview exception. In his brief, Winters asserts that he
should be able to take advantage of the exception because “the evidence following [his] motion for
a directed verdict [after the Appellees’ case-in-chief] was ‘brief and inconsequential.’” Appellant’s
Br. at 55. We disagree.
First, as in Jackson, the district court neither took Winters’s motion for judgment as a matter
of law under advisement nor signaled that Winters need not renew it at the close of the evidence,
but rather explicitly denied it. The district court ruled that it was “not in a position to direct a verdict
related to the factual issues.” Trial Tr. Vol. IV at 31. Following the denial of the motion, Winters
presented two additional witnesses, James Scott Crawford (“Crawford”) and Bernard Lorenz
(“Lorenz”).16 Crawford, a certified public accountant employed by MMGI, testified regarding his
15
In his brief, Winters criticized the district court’s reliance on an unpublished case of this court. Appellant’s
Br. at 57. We have stated that “[u]npublished opinions of this Court are not binding authority, but nevertheless can be
persuasive authority.” Harper v. AutoAlliance Int’l, Inc., 392 F.3d 195, 205 n.3 (6th Cir. 2004). The district court did
not rely on Jackson as precedential but rather used it as guidance for when the Riverview exception does not apply.
Given the absence of published cases on that issue, we conclude that this use of the Jackson case was appropriate.
16
Because many of the witnesses were from outside the area and were sought for testimony by both sides in
this case, the district court permitted direct examination of the same witness by Appellees and Winters consecutively,
rather than adhering to the traditional presentation of plaintiff’s entire case followed by the opponent recalling the same
witness for his case. See, e.g., J.A. at 833 (Peebles Trial Tr. Vol. I at 205) (instructing the jury that “the defendant [will
have] an opportunity to present what it would about this witness as part of the defense case even though we’re technically
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 16
role in preparing the fourth quarter IRR. Specifically, he testified as to how the compensation
expense was calculated as well as his efforts to obtain information from A+ Homecare regarding
compensation expense. Lorenz, who is a certified public accountant with over twenty-nine years
in the home care industry and who specializes in home health care reimbursement, was called as an
expert witness in the case. He testified that in his opinion Winters “properly accrued and reported
deferred compensation costs for the [MMGI] deferred compensation plan on the [THHS] interim
rate report for the fourth quarter of the 1993 fiscal year, and [the] [THHS] cost report for the 1993
fiscal year.” J.A. at 627-28 (Lorenz Trial Tr. Vol. IV at 74-75). After their direct examinations,
each witness was cross-examined by the Appellees.
Although the combined testimony of these witnesses did not cover an expansive amount of
time, the testimony, especially that of Lorenz, strikes us as critical to Winters’s case, and therefore
cannot be characterized as cumulative or inconsequential. Lorenz testified that in his expert opinion,
Winters complied with all Medicare regulations. If found credible, Lorenz’s opinion could form the
basis for finding Winters not liable. Because the trial judge should have been given an opportunity
to consider whether to submit the case to the jury in light of all the evidence, including the testimony
of Lorenz and Crawford, we conclude that the Riverview exception does not apply. Therefore, under
our established precedent, Winters waived his right to file a renewed motion because he failed to
make a motion for a judgment as a matter of law at the close of all the evidence.
D. Denial of Motion for a New Trial
The fourth and final issue raised on appeal is that the district court erred in denying Winters’s
motion for a new trial. We review the “denial of a motion for a new trial under an abuse of
discretion standard.” Tompkin v. Philip Morris USA, Inc., 362 F.3d 882, 891 (6th Cir. 2004).
“Abuse of discretion is defined as a definite and firm conviction that the trial court committed a clear
error of judgment. A district court abuses its discretion when it relies on clearly erroneous findings
of fact, or when it improperly applies the law or uses an erroneous legal standard.” Id. (internal
quotation omitted). Winters’s motion for a new trial rests on three grounds: (1) whether the liability
finding was against the clear weight of the evidence; (2) whether the damages award was supported
by the evidence; and (3) whether a new trial should be awarded because of juror confusion. We will
review each of these issues in turn.
1. Liability Finding
The first issue which Winters raises in his appeal of the denial of his motion for a new trial
is that the17jury’s finding that he was liable under the FCA was against the clear weight of the
evidence. We have held that:
still in the government’s part”).
17
Appellees argue that Winters should not be able to challenge the sufficiency of the evidence through an
appeal of the denial of his motion for a new trial because of his failure to move for judgment as a matter of law at the
close of all of the evidence. Appellees’ Br. at 31. We have stated that “a party who has failed to move for a directed
verdict at the close of all the evidence[] can neither ask the district court to rule on the legal sufficiency of the evidence
supporting a verdict for his opponent nor raise the question on appeal.” Portage II, 899 F.2d at 1522. This principle
holds whether the basis for challenging the legal sufficiency of the evidence is a motion for a judgment as a matter of
law or a motion for a new trial. See S. Ry. Co. v. Miller, 285 F.2d 202, 206 (6th Cir. 1960) (“No motion for directed
verdict having been made, the question of the sufficiency of the evidence to support the jury’s verdict is not available
as a ground for a motion for new trial.”). Where the basis for a new trial motion is not the legal sufficiency of the
evidence, however, but “that the verdict of the jury was against the great weight of the evidence, the applicable rule is
that such a contention is addressed to the discretion of the trial judge.” Id. Though the language in Winters’s brief is
not entirely consistent upon this point, we will review his motion for a new trial on the grounds that the verdict was
against the clear weight of the evidence.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 17
A court may set aside a verdict and grant a new trial when it is of the opinion that the
verdict is against the clear weight of the evidence; however, new trials are not to be
granted on the grounds that the verdict was against the weight of the evidence unless
that verdict was unreasonable. Thus, if a reasonable juror could reach the challenged
verdict, a new trial is improper.
Barnes v. Owens-Corning Fiberglas Corp., 201 F.3d 815, 820-21 (6th Cir. 2000) (internal
quotations omitted). Applying the standard to this case, we conclude that the district court did not
abuse its discretion in denying Winters’s motion for a new trial.
a. The IRR
Winters’s first argument with regards to his motion for a new trial is that no evidence was
presented for a reasonable jury to find him liable based on the pension accrual included in the fourth
quarter IRR. The FCA states that:
Any person who —
(1) knowingly presents, or causes to be presented, to an officer or employee of
the United States Government . . . a false or fraudulent claim for payment or
approval;
(2) 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; [or]
...
(7) knowingly makes, uses, or causes to be made or used, a false record or
statement to conceal, avoid, or decrease an obligation to pay or transmit
money or property to the Government,
is liable to the United States Government for a civil penalty of not less than $5,000 and not
more than $10,000, plus 3 times the amount of damages which the Government sustains
because of the act of that person . . . .
31 U.S.C. § 3729. Thus, the FCA imposes liability when (1) a person presents a claim for payment
or approval or to decrease an obligation owed to the Government; (2) the claim is false or fraudulent;
and (3) the person acted knowingly, defined as actual knowledge of the information, or with
deliberate ignorance or reckless disregard of the truth or falsity of the information. 31 U.S.C.
§ 3729(b). On appeal, Winters does not contest that filing the IRR with Palmetto was a claim for
payment or to decrease an obligation, but rather challenges the jury’s verdict on the latter two
grounds. Specifically, Winters argues that no reasonable juror could find that the pension accrual
on the IRR was false or that it was knowingly false, and therefore that he is entitled to a new trial.
We disagree.
At trial, the Government presented substantial evidence indicating that Winters had
knowingly included a false or fraudulent pension expense in the IRR. First, the Government
presented evidence indicating that Winters had not signed the THHS board minutes until October
1995, which meant that THHS had not formally adopted the MMGI Plan during FY93. See supra
note 1. By its own terms, the Plan required an affiliated employer to adopt the Plan in writing before
its employees became eligible to receive benefits. J.A. at 1186, 1243 (MMGI Plan at 4 § 1.13, 61
§ 10.1). Therefore, THHS could not contribute in 1993 to a pension plan it failed to adopt until
1995. A reasonable jury could find that including this pension accrual on the fourth quarter IRR for
reimbursement by Medicare was a false claim.
Second, Winters testified that he directed Ruffin to include a pension contribution in the IRR
by calculating 15% of total salary expense on Holloway’s draft IRR, or $527,019.30. J.A. at 974
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 18
(Winters Trial Tr. Vol. I at 69). Holloway testified, however, that the salary expense on her draft
IRR included several branches that were part of THHS during FY93 but were transferred out before
Winters acquired the company. Holloway also explained at trial that the total number of employees
at THHS fell from approximately four hundred in the beginning of 1993 to fifty-seven by June 1993.
Therefore, the salary expense on her draft IRR included more than three hundred employees who
were no longer part of THHS and thus not eligible to participate in the Plan.18 Because Medicare
only reimburses providers for pension contributions which are actually allocated to employees, a
reasonable jury could conclude that a pension accrual calculated for employees who are no longer
employed at THHS and who were never eligible to participate in the Plan is a false claim.
Third, there is substantial evidence in the record that Winters knowingly included the false
claim in the IRR. Holloway testified that she met with Winters “to make sure that Mr. Winters
understood the number of branches that were part of [THHS] at the time that he was contemplating
purchasing [THHS].” J.A. at 598 (Holloway Trial Tr. Vol. II at 169). She explained that “[t]he crux
of my conversation with Mr. Winters was to make sure he understood that the visits would decrease
and that some of the branches that have been reporting under [THHS] would no longer be
reporting.” J.A. at 600 (Holloway Trial Tr. Vol. II at 171). Winters testified that he was aware that
THHS had approximately fifty-seven employees at the time he purchased the company. J.A. at 968
(Winters Trial Tr. Vol. I at 63). Moreover, he also stated that he was familiar with Medicare
regulations and knew that only THHS employees could participate in the Plan. J.A. at 992-93
(Winters Trial Tr. Vol. I at 87-88). Nevertheless, Winters instructed Ruffin to use Holloway’s total
compensation expense for FY93 to calculate the pension contribution of $527,019.30 for THHS’s
fifty-seven employees. A reasonable jury could find that Winters had actual knowledge that the
accrual was false.
In sum, we hold that a reasonable jury could find that the pension accrual of $527,019.30 on
the fourth quarter IRR was a false claim and that Winters had actual knowledge of its falsity.
Therefore, we conclude the district court did not abuse its discretion in denying Winters’s motion
for a new trial on Count I.
b. The Cost Report
Winters’s second argument with regards to his motion for a new trial is that no evidence was
presented for a reasonable jury to find him liable based on the pension accrual included in the final
Cost Report. Echoing his arguments above, Winters claims that no evidence was presented that the
accrual on the Cost Report was a false claim or that it was knowingly false, and therefore that he is
entitled to a new trial. Once again, we disagree.
The Government presented substantial evidence indicating that Winters had knowingly
included a false or fraudulent pension expense in the final Cost Report. First, as we stated above,
the Government presented evidence indicating that Winters had not signed the THHS board minutes
18
To participate in the Plan, an eligible employee must have completed a year of service during the Plan year
and must be actively employed on the last day of the Plan year. J.A. at 1208 (MMGI Plan at 26 § 4.3(b)). Winters
argued repeatedly at trial about the distinction between a contribution and participation/allocation. J.A. at 1049 (Winters
Trial Tr. Vol. I at 144). The Plan explicitly states that the size of the contribution to the Plan “shall be determined by
the Employer.” J.A. at 1207 (MMGI Plan at 25 § 4.1(a)). Medicare will not reimburse for any size contribution,
however, but rather only for “the reasonable cost of services covered under Medicare and related to the care of
beneficiaries.” 42 C.F.R. § 413.9(a). “Reasonable cost includes all necessary and proper expenses incurred in furnishing
services.” 42 C.F.R. § 413.9(c)(3). James Peebles (“Peebles”), an audit manager at Palmetto, testified that Medicare
only reimburses a pension contribution to the extent that it is actually allocated to the employees. J.A. at 819 (Peebles
Trial Tr. Vol. I at 191). Therefore, to calculate a reasonable pension expense, it is appropriate to determine how much
could be allocated to participating eligible employees. Winters seemed to concede this point grudgingly in his trial
testimony. See J.A. at 1039-43 (Winters Trial Tr. Vol. I at 134-38).
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 19
until October 1995. Thus, a reasonable jury could find that THHS could not contribute for calendar
year 1992 to a pension plan that it failed to adopt until 1995. Moreover, the minutes for the board
of directors meeting at which THHS purportedly adopted the Plan state that the version of the Plan
adopted is the amended one which became effective January 1, 1993. J.A. at 1278 (THHS Minutes).
Therefore, THHS was not an affiliated employer in the prior version of the Plan and could not make
a contribution to the Plan for calendar year 1992.
Second, Winters instructed Hayden to calculate the compensation expense for calendar year
1992 based on state unemployment tax information for A+ Homecare and HCA. After compiling
the tax information, Hayden created two schedules: one with 397 people and another with 130. The
distinction between the two schedules was that the second one excluded compensation expense for
employees who were not still working at THHS in the first quarter of 1993. The second schedule
was created in an attempt to conform with the Plan requirements that an eligible employee must
work for a year and be employed on the last day of the Plan year to participate in the allocation of
the contribution.19 Peebles, an audit manager at Palmetto, testified that Medicare only reimburses
a pension contribution to the extent that it is actually allocated to the employees. J.A. at 819
(Peebles Trial Tr. Vol. I at 191). Despite that fact, Winters instructed Hayden to calculate the
pension expense for the Cost Report based on “the schedule with the most employees.” J.A. at 929
(Schwab Trial Tr. Vol. III at 178). Therefore, Hayden calculated the pension contribution as 15%
of the compensation expense in the first schedule, and thus THHS reported a pension contribution
of $620,952.39 in the Cost Report. A reasonable jury could find that, by presenting the pension
accrual to Palmetto without taking steps to ensure that the employees were actually eligible to
participate in the Plan, Winters filed a false claim.
Moreover, reliance on either of these schedules to calculate the pension expense was
problematic. There was no way to determine if the employees were actually working for THHS or
instead for one of the other home health agencies or branches owned by HCA or A+ Homecare or
for their respective home offices. Holloway testified that many of the people listed on Hayden’s
schedule never worked for THHS. J.A. at 617-18 (Holloway Trial Tr. Vol. II at 188-89). Carney
testified that had he been told “that they were employees that did not provide services for [THHS]
and, therefore, were not [THHS] employees, [he] would not have said that they be included in the
computation included with [THHS].” J.A. at 354 (Carney Trial Tr. Vol. III at 216). Hayden
testified at trial that he told Winters “we couldn’t confirm which employees were from which
company.” J.A. at 556 (Hayden Trial Tr. Vol. III at 131). Nevertheless, Winters instructed Hayden
to use the larger number in the Cost Report.
In addition, even though the Cost Report was filed two years after the end of FY93, Winters
had failed actually to make a contribution to the Plan. Though it had accrued a pension expense of
$527,019.30 on the fourth quarter IRR in August of 1993, THHS had yet to make any contribution
by October 1995 despite the fact that it had received money from the Medicare Trust Fund in 1993
for that pension expense and that Medicare regulations required the contribution to be funded within
one year of the accrual. In the final Cost Report for FY93, which was filed in October 1995, THHS
increased the pension accrual to $620,952.39. A reasonable jury could conclude that because THHS
had not even begun to pay the pension expense accrued on the fourth quarter IRR, Winters had no
19
It should be noted that though the second schedule attempted to conform with the Plan, Hayden could not
actually verify if the employees met the Plan requirements for participation. Hayden informed Winters that “[he] had
no way to determine whether anyone worked 1,000 hours and met this 1,000 hour working requirement. [He] did not
have any information that would definitely ascertain whether someone met the end of the year working requirement.”
J.A. at 555 (Hayden Trial Tr. Vol. III at 130). By instructing Hayden to use the first schedule, however, Winters did not
even attempt to abide by the Plan requirements.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 20
intention ever to contribute to the Plan, and thus the pension accrual on the Cost Report was another
false claim.20
Winters argues that even if the accrual was false, there is no evidence for a reasonable jury
to find that he had knowledge of its falsity, but rather his reliance on the advice of counsel and
skilled employees precludes a finding of actual knowledge. Appellant’s Br. at 49. The record
reveals, however, that though many aided in the calculation of the pension accrual, Winters’s key
advisors warned him against making a contribution to the Plan in FY93. The accrual on the Cost
Report was a result of advice from Carney, MMGI’s outside pension attorney, who informed
Winters that any contribution in FY93 should be calculated for calendar year 1992. Carney advised
Winters as early as 1993, however, against making a pension contribution in FY93 because “there
was no information available to determine who are eligible and ineligible employees, so you cannot
make that calculation to know what to contribute to the plan.” J.A. at 363 (Carney Trial Tr. Vol. III
at 225). In 1995, while preparing the Cost Report, Carney advised Winters that “[t]here was no way
to fund it because we could not calculate the funding. So my advice to him is you can’t fund it until
you calculate what you put into it.” J.A. at 363 (Carney Trial Tr. Vol. III at 225).
Hayden, the MMGI employee who actually calculated the pension contribution for the Cost
Report, testified that he informed Winters “we couldn’t confirm which employees were from which
company.” J.A. at 556 (Hayden Trial Tr. Vol. III at 131). He also informed Winters that “[he] had
no way to determine whether anyone worked 1,000 hours and met this 1,000 hour working
requirement. [He] did not have any information that would definitely ascertain whether someone
met the end of the year working requirement.” J.A. at 555 (Hayden Trial Tr. Vol. III at 130).
Hayden also told Winters that he “could not determine which schedule was more accurate.” J.A.
at 929 (Schwab Trial Tr. Vol. III at 178). Despite the fact that THHS was not required to make any
pension contribution in FY93, Winters included the accrual in the Cost Report against the
recommendation of his advisors. Therefore, a reasonable jury could find that Winters had actual
knowledge of the falsity, or at least reckless disregard for the truth.21
20
The district court also ruled that there was sufficient evidence for a reasonable jury to find that Winters
submitted a false claim under the “implied certification” theory. In United States ex rel. Augustine v. Century Health
Servs., Inc., 289 F.3d 409, 415 (6th Cir. 2002), we adopted the “implied certification” theory, which holds a defendant
liable for violating the “continuing duty to comply with the regulations on which payment is conditioned.” In Augustine,
the defendants filed Medicare cost reports, which were not false or fraudulent at the time they were submitted, but
became so subsequent to the filing when the defendants withdrew money from the ESOP to use for other uses. Id. We
concluded that the defendants were liable for failing to file amended cost reports, and thereby violating their continuing
duty to comply with Medicare regulations. Id. In this case, we need not reach the issue of Winters’s liability under an
“implied certification” theory, because we conclude that a reasonable jury could find that the Cost Report was false or
fraudulent at the time it was submitted to Palmetto.
21
Winters further argues in his brief that a reasonable jury could not find that the accrual was knowingly false
because he included several disclaimers along with the Cost Report explaining that the information was based on “best
available information.” Appellant’s Br. at 49. Winters cites two cases from other circuits in support of the argument
that the Government’s knowledge of the accrual precludes a finding that he knowingly submitted a false claim. In both
of the cited cases, however, the court of appeals held that the Government’s knowledge is relevant but not necessarily
dispositive of the issue of knowledge.
The Second Circuit stated that “the statutory basis for an FCA claim is the defendant’s knowledge of the falsity
of its claim, which is not automatically exonerated by any overlapping knowledge [of] government officials.” United
States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1156 (2d Cir.), cert. denied, 508 U.S. 973
(1993). Government knowledge may be relevant however, to “show that the contract has been modified or that its intent
has been clarified, and therefore that the claim submitted by the contractor was not ‘false.’” Id. at 1157. Similarly, the
Ninth Circuit has stated “[t]hat a defendant has disclosed all the underlying facts to the government may . . . show that
the defendant had no intent to deceive. But what constitutes the offense is not intent to deceive but knowing presentation
of a claim that is either ‘fraudulent’ or simply ‘false.’” United States ex rel. Hagood v. Sonoma County Water Agency,
929 F.2d 1416, 1421 (9th Cir. 1991). The court explained that the Government’s knowledge is relevant if the defendant
“did merely what the [Government] bid it [to] do, that the [defendant] had no knowledge that the contract was based on
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 21
In sum, we hold that a reasonable jury could find that the pension accrual of $620,952.39.
on the final Cost Report was a false claim and that Winters had actual knowledge of its falsity.
Therefore, we conclude the district court did not abuse its discretion in denying Winters’s motion
for a new trial on Count II.
2. Damages Award
The second issue which Winters raises in his appeal of the denial of his motion for a new
trial is that the damages award was against the clear weight of the evidence. Under the FCA, a
person who knowingly presents a false claim for payment or approval or to decrease an obligation
owed to the Government “is liable to the United States Government for a civil penalty of not less
than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government
sustains because of the act.” 31 U.S.C. § 3729(a). At the request of the Government, the district
court remitted the jury award of $1,061,138.80, to $602,565.43 to reflect the actual damages
incurred, then trebled that amount to $1,807,696.29 consistent with the statute. The $602,565.43
value represents the pension accrual on the Cost Report attributable to Medicare. Winters argues
on appeal that any damage sustained by the Government was directly a result of Palmetto’s failure
to issue a notice of provider reimbursement (“NPR”), rather than the result of the pension accrual
on the Cost Report, and therefore he should be entitled to a new trial. We disagree.
Under the Medicare regulatory regime, service providers are paid for “the reasonable cost
of services furnished to beneficiaries” through “interim payments approximating the actual costs of
the provider.” 42 C.F.R. § 413.64(a). The cost report filed at the end of the year allows for
retroactive adjustment based on the actual costs incurred. 42 C.F.R. § 413.64(f). The regulations
require that within a reasonable time after receipt of the cost report, the fiscal intermediary must
issue the provider “a written notice reflecting the intermediary’s determination of the total amount
of reimbursement due the provider,” which is known as the NPR. 42 C.F.R. § 405.1803(a). The
NPR provides the basis for making any retroactive adjustments, including recoupments for
overpayments made during the year. 42 C.F.R. § 405.1803(c).
In this case, the fourth quarter IRR included a pension accrual of $527,019.30 for the THHS
employees to the MMGI Plan, of which $520,051.00 was attributable to Medicare. As a result of
the filing of the IRR, THHS did not have to repay Medicare $205,466.00, and received a payment
from Medicare of $314,585.00. The final Cost Report, which was filed in October 1995, contained
a revised pension accrual of $620,952.39, of which $602,565.43 was attributable to Medicare. After
the higher pension contribution was added to the rest of the expenses on the Cost Report, THHS
owed Medicare $71,839.00 for FY93. If the pension accrual was not included in the Cost Report,
the amount owed to Medicare would have increased by the amount of the reimbursable expense, or
$602,565.43. Thus, THHS would have had to repay Medicare a total of $674,404.43. Palmetto
disallowed the pension expense, but never issued an NPR. Peebles testified that in a situation where
fraud might be involved, Palmetto delays the issuance of the NPR. J.A. at 891 (Peebles Trial Tr.
Vol. I at 58). Because the NPR was never issued, THHS never repaid the pension amount. Thus,
. . . false information.” Id.
Both of these cases involved situations in which the Government’s knowledge was used to demonstrate that
what the defendant submitted was not actually false but rather conformed to a modified agreement with the Government.
By contrast, in this case, there is no evidence that Palmetto had altered the understanding of what kind of expenses could
be reimbursed under the Medicare regulations. Moreover, though Winters attached letters explaining that the pension
accrual was based on “best available information,” he neglected to disclose all the pertinent information: that it was
based on calendar year 1992, at which time he did not own THHS; that it was based on compensation expense for
employees who were not eligible to participate in the Plan; that it was based on compensation expense for employees
who may not have even worked at THHS; and that the Plan was not adopted by THHS in FY93. Therefore, we conclude
that Winters’s argument that liability is precluded by the Government’s knowledge is unpersuasive.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 22
the total damages which resulted from the fraudulent claims on both the IRR and the Cost Report
were $602,565.43.
Winters argues that had Palmetto simply issued the NPR, THHS would have repaid the
pension expense and the Government would not have incurred any damages. While the argument
is logical, it misconstrues the issue in this case. Medicare regulations establish the NPR as an
administrative mechanism to make “necessary adjustments due to previously made overpayments
or underpayments” not as a remedial mechanism for fraud. 42 C.F.R. § 413.64(f)(1). The FCA is
the exclusive remedy provided by Congress to recover for fraudulent claims made against the
Government. As the United States Supreme Court has stated, in enacting the FCA, “Congress wrote
expansively, meaning to reach all types of fraud, without qualification, that might result in financial
loss to the Government.” Cook County v. United States ex rel. Chandler, 538 U.S. 119, 129 (2003)
(quotation omitted). The damages provision in the FCA reflects Congress’s view “that some
liability beyond the amount of the fraud is usually necessary to compensate the Government
completely for the costs, delays and inconveniences occasioned by fraudulent claims.” Id. at 130
(quotation omitted). Moreover, the treble damages provision ensures not only full compensation,
but also the fundamental integrity of all those who seek to do business with the Government. See
Midwest Specialities, 142 F.3d at 302 (noting the purpose of the FCA is to effect “the maxim that
[m]en must turn square corners when they deal with the Government”). To accept Winters’s theory
would be to carve out fraudulent Medicare claims from the broad scope of the FCA. According to
Winters’s argument, the remedy for fraudulent claims made on Medicare cost reports would be
limited to the disallowance of those claims by the fiscal intermediary and the simple repayment of
those claims pursuant to an NPR. If such a Medicare carve-out is necessary, it is the province of
Congress to create it.
Therefore, we conclude that a jury could reasonably find that as a result of Winters’s
fraudulent pension expense, the United States suffered damages of $602,565.43. Thus, the district
court did not abuse its discretion in denying Winters’s motion for a new trial on the issue of
damages.
3. Juror Confusion
The final issue which Winters raises in his appeal is that he should be entitled to a new trial
because the jury was in a state of confusion, demonstrated by the fact that it awarded $1,061,138.80
in damages to the Government. We have held that a district court “may grant a new trial under Rule
59 . . . if the damages award is excessive, or if the trial was influenced by prejudice or bias, or
otherwise [was] unfair to the moving party.” Conte v. Gen. Housewares Corp., 215 F.3d 628, 637
(6th Cir. 2000). We have also noted, however, that “where verdicts in the same case are inconsistent
on their faces, indicating that the jury was either in a state of confusion or abused its power, a motion
to alter or amend a judgment, for new trial . . . if timely made, is not discretionary.” Hopkins v.
Coen, 431 F.2d 1055, 1059 (6th Cir. 1970). Winters relies on our holding in Hopkins to argue that
the district court abused its discretion in denying his motion for a new trial. Because there was no
inconsistency between the verdict and the damages award, we conclude the district court did not
abuse its discretion by remitting the award and denying Winters’s motion for a new trial.
During its closing argument, the Government argued that the maximum amount which could
be awarded under Count I was $520,051.00; the maximum amount that could be awarded under
Count II was $602,565.43; and if the jury found liability under both counts, the appropriate award
would still be $602,565.43. J.A. at 1101 (Trial Tr. Vol. V at 41). As the Appellees explain in their
brief, the damages under Count I are subsumed by the damages under Count II. Appellees’ Br. at
41. During deliberations, the jury sent two questions to the judge asking: (1) how the Government
arrived at the $602,565.43 figure as the total damages; and (2) how did that figure relate to the
pension accruals of $527,019.30 on the IRR and $620,952.39 on the Cost Report? Trial Tr. Vol. V
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 23
at 163. The district court did not answer the questions, but rather advised the jury to review all the
evidence. After deliberating further, the jury found Winters liable on all counts and awarded
damages in the amount of $1,061,138.80. The district court polled the jurors individually, each of
whom agreed with the result. Following the dismissal of the jury, the Government asked the district
court to remit the jury award to the amount it requested, $602,565.43.
Winters argues that, pursuant to our holding in Hopkins, there was evidence of jury
confusion, and therefore the district court should have awarded a new trial. In Hopkins, the jury was
given verdict forms which reflected all the possible outcomes of the trial. 431 F.2d at 1057. After
deliberations, the jury signed all the verdict forms, thereby finding in favor of the plaintiff and
awarding $75,000, and against the plaintiff and in favor of the defendant on the same count. Id. at
1058. We held that the forms “indicate a general state of confusion on the part of the jury,” and
therefore a new trial was required. Id. at 1059. Critical to our reasoning was the fact that there was
no discernible outcome to the trial. By contrast, in this case, the verdict was completely consistent
with the damages award. The jury was not confused as to Winters’s liability under the FCA, but
rather miscalculated the extent of the harm to the Government. Therefore, we conclude that Hopkins
does not apply.
Moreover, whatever error was caused by the jury’s miscalculation was cured by the district
court’s remittitur. We have stated that “[a] remittitur is proper where the judge finds the damages
awarded excessive.” Mitroff v. Xomox Corp., 797 F.2d 271, 279 (6th Cir. 1986).
The practice [of remittitur] has come to be employed in two distinct kinds of cases:
(1) where the court can identify an error that caused the jury to include in the verdict
a quantifiable amount that should be stricken; and (2) more generally, where the
award is “intrinsically excessive” in the sense of being greater than the amount a
reasonable jury could have awarded, although the surplus cannot be ascribed to a
particular, quantifiable error.
Shu-Tao Lin v. McDonnell Douglas Corp., 742 F.2d 45, 49 (2d Cir. 1984) (internal citations
omitted). When it orders a remittitur, the court should “confine its role to the removal of the excess
portion of the verdict so that the damage calculation leaves in the judgment a portion of what the
jury awarded.” Id. (internal quotation omitted). As the Supreme Court has stated, “the remittitur
has the effect of merely lopping off an excrescence.” Dimick v. Schiedt, 293 U.S. 474, 486 (1935).
In this case, while its not entirely clear how it calculated the award of damages,22 the jury
clearly found Winters liable on both Counts I and II. Liability on each count directly translated to
a quantifiable value of damages. Therefore, the appropriate damages award for a finding of liability
on both counts is $602,565.43. The district court did not err by lopping off the excrescence. Thus,
22
Winters argues that because one of the jury instructions, to which he failed to object at trial, contained the
treble damages provision of the FCA, the damages award may have reflected a treble amount. Appellant’s Br. at 60-61.
We find this argument wholly unpersuasive. First, there is no evidence in the record to support the argument that the
jury believed that it was awarding treble damages. Second, the jury award of $1,061,138.80 is not divisible by three,
but rather results in $353,712.93 with a repeating remainder. Third, the $353,712.93 value has no support in the record.
The more plausible explanation is that the jury award does not reflect that the damages from Count I are subsumed by
the damages from Count II. The jury most likely added the pension accrual from the IRR to the pension accrual on the
Cost Report and then deducted approximately $86,000 to reflect the actual allocation made to THHS employees during
calendar year 1993. See J.A. at 465 (Ellis Trial Tr. Vol. III at 83). The Government referenced the $86,000 value in its
closing argument. Trial Tr. Vol. V at 35. In any event, we decline Winters’s request to delve into the jury’s reasoning
in an attempt to find potential error. See Sullivan v. Nat’l R.R. Passenger Corp., 170 F.3d 1056, 1059 (11th Cir.)
(“Courts may not reach behind jury verdicts to evaluate their reasoning.”), cert. denied, 528 U.S. 966 (1999). The case
presented to the jury was complex and involved hundreds of exhibits including several financial analyses. That the jury
miscalculated the award does not alter the fact that it found Winters liable on both counts, and therefore the appropriate
damage award was the one remitted by the court.
No. 02-6545 United States et al. v. Medshares Mgmt. Group, Inc. et al. Page 24
we conclude the district court did not abuse its discretion in denying Winters’s motion for a new trial
because of jury confusion.
III. CONCLUSION
For the foregoing reasons, we conclude that the district court did not err on any of the issues
raised on appeal, and thus the jury verdict and the remitted award of damages is AFFIRMED.