United States of America ex rel. Cornelius Harris et al. v. Dialysis Corporation of America (Maryland U.S.D.C.)
Filed: October 2, 2013
Opinion by Judge James K. Bredar
Held: Relators brought four claims alleging Defendant violated the False Claims Act (“FCA”). The Court held that Relators stated one viable claim for relief for Defendant’s alteration of Body Mass Index (“BMI”) numbers in relation to Defendant’s billing the U.S. government for medical claims because BMI information was material to the Government’s payment approval decisions. Relators’ three other claims were dismissed for failure to state a claim upon which relief can be granted or lack of subject-matter jurisdiction.
Facts: Relators Harris and Boonie worked for Defendant Dialysis Corporation of America ("DCA") for approximately one year and both former employees’ responsibilities related to billing.
In their suit against DCA Relators alleged Defendant violated four provisions of the FCA, 31 U.S.C. §3729 et seq. by knowingly presenting false or fraudulent claims for payment or approval to the Government, knowingly making false records or statements to get false or fraudulent claims paid or approved by the Government, conspiring to defraud the Government by getting false or fraudulent claims paid, and knowingly making false records or statements to conceal, avoid, or decrease obligations to pay the Government. Specifically, Relators alleged Defendant altered Social Security numbers on medical claims, changed patients’ BMI numbers on medical claims, overbilled for Epogen, and overbilled D.C. and Ohio Medicaid.
Defendant moved to dismiss the Relators' complaint under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Defendant’s motion to dismiss was granted in part and denied in part.
Analysis: The Court first analyzed Relators’ allegation that Defendant altered Social Security numbers on Medicare claims. The Court examined whether the alleged inaccuracy of the Social Security numbers was material to the Government’s decision to pay for or approve the claims, because the governing standard in the Fourth Circuit at the time this case was filed required a false statement to be material to the Government’s payment approval decision. UnitedStates ex rel. Berge v. Bd. Trs., Univ. of Ala., 104 F.3d 1453, 1459-60 (4th Cir. 1997). A false statement is “material” in the context of FCA claims if it “has a natural tendency to influence agency action or is capable of influencing agency action.” Id. at 1460. Since the Government relies on information other than just Social Security numbers to process Medicare claims, the Court found no plausible inference that inaccurate Social Security numbers were capable of influencing agency action. The Court could not infer that Defendant made false, material statements to the Government in violation of the FCA, and therefore Relators’ allegations as to Social Security numbers failed to state a claim under Rule 12(b)(6).
The Court then investigated Relators’ claim that Defendant changed patients’ BMI numbers on medical claims in order that patients would qualify for Medicare reimbursement for excess dialysis treatments. Relators stated that on multiple occasions, they personally observed Defendant enter the billing system and alter BMI numbers without the proper physician authentication. Because a patient’s BMI number must be above a certain threshold for excess dialysis treatments to qualify for Medicare reimbursement, the Court found that these false statements were material and Relators stated a valid claim upon which relief could be granted.
Next, the Court analyzed Relators’ claim that Defendant overbilled for Epogen. The Court found that this claim failed under both Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6). The claim failed under Rule 12(b)(1) because the first-to-file bar contained in the False Claims Act prevents bringing false claims actions related to civil actions for false claims already filed. 31 U.S.C.A. 3730(b)(5). The Fourth Circuit follows a “same material elements” test when considering whether a fraud claim is barred under the first-to-file bar. United States ex rel. Carter v. HalliburtonCo., 710 F.3d 171, 181-82 (4th Cir. 2013). This claim failed because when Relators’ claim was filed, another case against Defendant was before the Court alleging the same material elements for overbilling of Epogen.
Finally, the Court considered the claim that Defendant overbilled D.C. and Ohio Medicaid. Because Relators did not allege this fraud claim with particularity, the claim failed to meet the pleading standards of Rule 9 (b) and was dismissed.
The full opinion is available in PDF here.
Filed: November 7, 2013 (unpublished)
Opinion by: Judge Andre Davis
Held: the United States District Court for the Western District of North Carolina was not clearly erroneous and did not abuse its discretion in ruling that (1) the parties reached a binding and enforceable oral settlement agreement; and (2) plaintiff did not proceed in bad faith, so neither a dismissal with prejudice nor an award of attorney's fees was appropriate.
Facts: Plaintiff made a $12 million commercial loan to a third party. After the third party borrower filed a voluntary Chapter 11 petition (which was converted to a Chapter 7 liquidation), plaintiff sued several defendants for the gross misconduct of their officers and directors. Plaintiff entered into settlement negotiations with one such defendant, the third party borrower's accounting firm. Even though counsel for plaintiff and defendant exchanged several draft settlement agreements, plaintiff refused to execute the agreement. Defendant moved to enforce the purported agreement, to dismiss the complaint, and for an award of attorney's fees.
Plaintiff alleged that defendant was negligent in providing inaccurate information about borrower's financial condition. Counsel for the parties exchanged several emails and telephone conversations, during the last of which they agreed that defendant would pay plaintiff a sum certain in exchange for a dismissal of the action with prejudice. Plaintiff stated in a court filing that the parties "have agreed to the principal terms of the settlement agreement, but require additional time to complete the drafting and execution of the settlement agreement."
In November and December of 2011, the parties exchanged a total of six drafts, each containing the same material terms, including merger and integration clauses. The parties eventually negotiated a "final" Confidential Settlement Agreement. Defendant emailed an executed copy of the written agreement to plaintiff, followed a week later by the settlement check. The day after defendant mailed the settlement check, plaintiff filed additional papers with the court requesting an extension of time and again representing that the parties "have agreed to the principal terms of the settlement agreement, but require additional time to complete the drafting and execution of the settlement agreement." "Alas," the Fourth Circuit lamented, "the new year brought a refusal by [plaintiff] to execute the Confidential Settlement Agreement." Plaintiff returned the settlement check to defendant and stated that it would not be executing a settlement agreement with defendant.
Defendant moved to enforce the purported agreement, to dismiss the complaint, and for an award of attorney's fees. After a hearing, the district court ruled that the parties agreed on the material and essential terms of a settlement. The district court reasoned that several months of emails between counsel demonstrated an enforceable agreement because the material terms were settled. Those terms included payment price and costs per side, mutual releases, and a confidentiality requirement. The district court found that choice-of-law and venue provisions were not material terms because plaintiff accepted them willingly and without demanding additional consideration. It found further that plaintiff's apparent dissatisfaction with the settlement amount was "simply a risk of litigation and the nature of its investment business . . . which are insufficient to set aside the remaining agreement." Finally, the district court ruled that plaintiff was estopped from denying the existence of the agreement, after it had twice represented to the court that the parties had reached a settlement.
The district court granted in part defendant's motion, ordering the parties to file a notice of settlement within 30 days. The court denied defendant's motion for dismissal with prejudice, ruling that plaintiff had not acted in bad faith as required to support a dismissal with prejudice other than on the merits by FRCP 41(b). Absent bad faith, the district court also declined to award attorneys' fees to ASA.
Analysis: The Fourth Circuit held that the district court was not clearly erroneous in finding that the parties had settled on the material terms of the settlement agreement during a telephone conversation on November 22, 2011. The Fourth Circuit noted that plaintiff never made the agreement contingent on approval by its senior management, that there was no record evidence that the agreement depended on the execution of a writing, and that plaintiff represented to both defendant and to the district court that the parties had reached a settlement. The Court declined to consider as moot defendant's cross appeal on the issue of bad faith and attorney's fees.
The Fourth Circuit held further that the district court was not clearly erroneous in identifying the material terms of the agreement, and classifying as immaterial the choice of law, venue, and release provisions. Plaintiff accepted quickly and without further consideration defendant's change of the choice of law and venue provisions from New York to North Carolina, demonstrating that these terms were not of "paramount importance" to Plaintiff. The release provision was not a material term because defendant disputed it only once and ultimately accepted it. Unlike a case cited by plaintiff, Chappel v.Roth , 548 S.E. 2d 499 (N.C. 2001), the parties did not condition their settlement on the negotiation of a specific release provision.
Reviewing under a deferential clearly erroneous / abuse of discretion standard, the Fourth Circuit appeared to approve of the district court's consideration of the evidence. The Fourth Circuit stated that it was "entirely proper for the district court to hear the evidence of the sequence of events that took place during the negotiations, as well as the settlement amounts considered and finally agreed upon." It stated further that the district court was correct in looking past the merger and integration clauses in the written settlement agreement. That agreement was not fully executed because plaintiff did not sign it; "thus, those provisions could not, and did not, guide the district court's inquiry[.]"
The full opinion is available in .pdf.
Filed: November 5, 2013
Filed: September 25, 2013
Filed: April 16, 2013
Held: Agreement requiring at-will employee to arbitrate disputes with employer, which recited only hiring and continued employment as consideration, which did not require employer to arbitrate, and which gave employer unilateral control over pool of potential arbitrators, was held unenforceable because it lacked mutuality of consideration and denied the employee access to a neutral arbitral forum.
Facts: Plaintiff was an employee at the Defendant company who was terminated in 2011. Plaintiff alleged that she was discriminated against and terminated because of her gender and filed suit under Title VII of the Civil Rights Act of 1964 and Maryland state law.
When Plaintiff commenced employment with the Defendant company, she signed a Problem Support Policy that included “a valid and binding” arbitration agreement under which employees of the Defendant company promised to arbitrate disputes in consideration of only the employees’ hiring and continued employment. Defendant had exclusive control over the list of potential arbitrators. When an employee of Defendant elected to arbitrate a dispute, Defendant was to provide the employee with its list of qualified arbitrators from which the employee could choose. The agreement required employees of the Defendant company to arbitrate but did not require the Defendant company to follow similar procedures or submit to arbitration.
Defendant filed a motion to dismiss or to stay and compel arbitration pursuant to the arbitration agreement signed by Plaintiff.
Analysis: Although the court acknowledged the Fourth Circuit’s liberal policy toward arbitration agreements, it emphasized it still must evaluate arbitration agreements as contracts. The court therefore first analyzed whether the arbitration agreement was valid and enforceable. The court found two independent reasons the arbitration agreement was unenforceable: (1) the agreement lacked consideration and (2) the agreement denied employees access to a neutral forum. Because the arbitration agreement was unenforceable the court denied Defendant’s motion to dismiss the case or to stay and compel arbitration.
First, like all contracts, arbitration agreements must contain adequate consideration. Cheek v. United Healthcare of Mid-Atlantic, Inc., 835 A.2d 656, 661 (Md. 2003); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967); Noohi v. Toll Bros., Inc., 708 F.3d 599, 609 (4th Cir. 2013); Hill v. Peoplesoft USA, Inc., 412 F.3d 540, 543-44 (4th Cir. 2005). The court followed the logic laid out in Cheek, supra, to conclude that employment or continued employment is not alone adequate consideration for an employee’s promise to arbitrate. Cheek, 835 A.2d at 666. Because it did not require Defendant to submit to arbitration, the arbitration agreement was entirely “one-directional” and therefore lacked mutuality of consideration.
Second, even if the arbitration agreement did have adequate consideration, it denied employees access to a neutral forum. Although there is uncertainty as to whether an arbitration agreement that denies one party access to a neutral forum results in unconscionability, a material breach, or simply unenforceability of the agreement, courts agree that denial of access to a neutral forum in an arbitration agreement may make the agreement unenforceable. Muriithi v. Shuttle Exp., Inc., 712 F.3d 173, 176 (4th Cir. 2013); Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999); Murray v. United Food & Commercial Workers Int’l Union, 289 F.3d 297, 302 (4th Cir. 2002).
Here the arbitration agreement denied Plaintiff access to a neutral forum because Defendant had exclusive control over the list of arbitrators from which employees were required to select. In the Fourth Circuit an employer may not retain this exclusive right. Murray, 289 F.3d at 303. Defendant’s promise in the agreement to provide a list of impartial arbitrators was not deemed sufficient to overcome the lack of mutuality in the arbitration selection process. In addition the arbitration agreement was vague with respect to the rules to be followed, thereby providing a further reason to challenge the neutrality of the forum.
The full opinion is available in PDF here.
Post written by Maria A. Stubbings