1. Stark Law • Anti-Kickback Statute • False Claims Act • Qui Tam
Co Martin Me
Newsletter Covering United States Court Opinions
December 2011
This Month: By:
MartinMerritt PLLC
• “First to File” Rules Health Law and Litigation
• Sealing/Unsealing
• Iqbal and Rule 9(b) 100 Crescent Court
• Fraud in the Inducement Suite 700
Dallas, Texas 75201
• Financial Ruin 214.459.3131
214.459.3101 (Fax)
martin@dallasphysicianlaw.com
www.dallasphysicianlaw.com
Not Board Certified by the Texas Board of Legal Specialization
UNITED STATES OF AMERICA, EX REL. SHELDON BATISTE, Appellant,
v.
SLM CORPORATION, Appellee.
No. 10-7140.
United States Court of Appeals, District of Columbia Circuit.
Argued September 16, 2011.
Decided November 4, 2011.
[Martin Merritt’s Notes: This is a fascinating “First to File” case in which the relator blew the whistle against the defendant,
alleging dirty tricks in student loan financing which increased the bank’s return on loans at the government’s expense. The case
had previously been filed by a different relator, but dismissed under rule 12.b.1. Often, court’s refer to the effect of a nonsuit or
a dismissal without prejudice as placing the parties in the same position as if the case had never been filed. This result is all the
more satisfying where dismissal is for want of subject matter jurisdiction under Rule 12 b.1. Clearly, a judgment where the
court lacked jurisdiction is void. Quaintly put, a void judgment is “good nowhere and bad everywhere.” This is all fine and
good, unless the case arises under the False Claims Act, where the “first to file” rule is a bar to any of the remaining 7 billion
people on the planet from filing the same case. What is the effect of filing an FCA case, where the court lacked jurisdiction to
hear it? Here, the Court of Appeals affirmed dismissal on the ground that this whistle had previously been blown, even though
the first case was dismissed on jurisdictional grounds. Also, the court declined to accept the relator’s interesting argument that
because the first complaint failed to meet Rule 9's heightened pleading standard, the first complaint should not count as the
“first to file.” In other words, even a poorly filed and prosecuted Complaint– in a court that did not have jurisdiction to hear it,
nevertheless meets the “first to file rule.” ]
Opinion Excerpts: On November 9, 2005, over two years before Relator Batiste filed his complaint, Michael Zahara filed a qui
tam case against, inter alia, SLM and his employer, Student Assistance Corporation ("SAC"), a wholly-owned SLM subsidiary.
The district court dismissed Batiste's complaint with prejudice on September 24, 2010, for lack of subject matter jurisdiction
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Copyright 2011
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Page 1

2. under Federal Rule of Civil Procedure 12(b)(1). United States ex rel. Batiste v. SLM Corp., 740 F. Supp. 2d 98, 101-02 (D.D.C.
2010). The court held that under the FCA's first-to-file rule, the Zahara Complaint barred the court's consideration of the Batiste
Complaint. The first-to-file rule provides, "When a person brings an action under [the qui tam] subsection, no person other than
the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. §
3730(b)(5). The district court found that the Batiste Complaint alleged the "same material elements" of fraud as the Zahara
Complaint, and thus was barred by the earlier-filed complaint. Batiste, 740 F. Supp. 2d. at 102. The district court rejected
Batiste's argument that the Zahara case was not a "pending action" for first-to-file purposes because the Zahara Complaint did not
meet heightened pleading standards for fraud allegations under Federal Rule of Civil Procedure 9(b). Id. at 104. [We arffirm.]
UNITED STATES OF AMERICA ex rel. TOM JACKSON, Plaintiff/RELATOR,
v.
NICK PASLIDIS; DONNA SOODALTER-TOMAN; and ARKANSAS FOUNDATION FOR MEDICAL CARE,
Defendants.
No. 4:09CV00812 JLH.
United States District Court, E.D. Arkansas, Helena Division.
November 14, 2011.
[Martin Merritt’s Notes: Here, the court discusses the issue of what must be unsealed once the government decides it will not
intervene in a qui tam action. Clearly the Complaint must be unsealed under 31 U.S.C. § 3730(b)(3), but what of the remaining
documents on file? At first blush it would seem natural that anything filed with a United States District court should be made
public. The “ghost in the machine,” to borrow a phrase from Gilbert Ryle, lies in the fact that the government always seeks by
motion, to show good cause for an extension of the 60 day period provided for it to decide whether to intervene, and must have
informed the court of the details of its investigation and what else it needs to do before reaching a decision on intervention. Our
government is nothing, if not consistent in its desire to keep its investigation under wraps. The government especially does not
like leaving a paper trail when it declines to intervene, as it will not be around to defend questions as to its methods. More
importantly, the government does not want to be on record, nor questioned in a subsequent, possibly unrelated case, why it did
not investigate something the government had previously advised the court it must investigate before filing an FCA intervention.
It’s simply a bear trap. While the statute is silent on the issue, court’s typically evaluate the legitimacy of the government’s
claim to work product-type privileges, balanced against the public’s right to know what the Plaintiff has filed with the court.
Notice also that the unsealing issue occurs prior to the service of the case on the Defendant. Opinions of this type often reflect
that the court is acting on behalf of the public without motion by the defendant. ]
Opinion Excerpts: The United States having declined to intervene, the Complaint will be unsealed so that it may served upon
the Defendants by the Relators, as contemplated by 31 U.S.C. § 3730(b)(3).
An additional issue exists with regard to whether all other documents filed in this case to date should remain under seal. The
Government has tendered a proposed Order, the terms of which state that only the Complaint will be unsealed and specifically
require that all other documents filed in the case to date shall remain under seal. Such an approach appears to conflict with this
Court's customary practice, which requires a showing of good cause to justify the sealing of documents or materials filed in
federal court. That cause was made for the United States initially by operation of the False Claims Act. But, at the point at which
the United States declined to intervene, thereby triggering the unsealing of the Complaint and the prosecution of the action by the
Relators, the question arises as to whether good cause remains for continuing to keep such documents under seal. Because this
issue raises important policy concerns, the Court raises the issue sua sponte.
While the False Claims Act makes explicit reference to the lifting of the seal on the relator's complaint, it is silent on the issue of
the unsealing of any other documents in the case. Other courts to consider the issue have found that because the False Claims Act
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Copyright 2011
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3. permits in camera submissions, it necessarily invests a district court with authority to either maintain such filings under seal or to
make them available to the parties. U.S. ex rel. Erickson v. Univ. of Washington Physicians, et al., 339 F.Supp.2d 1124, 1126
(W.D. Wash. 2004)(hereinafter, "the Erickson case")(citing cases). This Court agrees.
The Court also finds appropriate the approach utilized in the Erickson case for evaluating the government's request to continue to
maintain documents under seal after it declines to intervene. By analogy to Fed. R. Civ. P. 26(c), which authorizes protective
orders to protect against the disclosure of "a trade secret or other confidential research, development, or commercial
information," the Erickson court described the appropriate analysis:
Resolution of disputes under Rule 26(c) is based on a pragmatic balancing of the need for and harm risked
by, disclosures sought.
Where disclosure of confidential investigative techniques, of information which could jeopardize an ongoing
investigation, or of matter which could injure non-parties is requested, courts have recognized the interest of
the public in denying or deferring disclosure.
Erickson, 339 F.Supp.2d at 1126.
The Erickson court suggested that documents merely describing the government's routine investigative procedures should not
remain under seal. In making the decision to unseal the entire court file, the court concluded:
This court is satisfied that nothing in the documents in this court file would reveal any sensitive information
as to how an investigation works. The documents contain no information that could compromise a future
investigation, such as explanations of specific techniques employed or specific references to ongoing
investigations.
[O]nce the government has decided it will not intervene, it should not be able to handicap the relator's action by keeping
materials under seal without some showing of good cause or ample justification." U.S. by Dept. of Defense v. CACI Inten. Inc.,
885 F.Supp. 80, 82 (S.D.N.Y. 1995). Independently of whether a relator's action will be handicapped, courts have a duty to
ensure that all documents filed with the Court remain available and accessible to the public unless good cause exists for
restricting access. That duty arises from the "common-law right of access to judicial records." Nixon v. Warner Communications,
Inc., 435 U.S. 589, 597 (1978).
UNITED STATES OF AMERICA and COMMONWEALTH OF, MASSACHUSETTS ex rel. DONNA MARIE GLYNN,
v.
COMPASS MEDICAL, P.C., PARTNERS COMMUNITY, HEALTHCARE, INC., and JOHN DIORIO.
Civil Action No. 09-12124-RGS.
United States District Court, D. Massachusetts.
November 10, 2011
[Martin Merritt’s Notes: Here, the court deals with the thorny issue of the heightened pleading standard under Rule 9(b) and
Iqbal/Twombly. The heightened pleading standard under rule 9 requires that the Relator plead False Claims facts with
particularity. Iqbal and Twombly contemplate that the ‘keys to discovery” will not be turned over unless the Relator states a
plausible cause of action. This can place the Relator in a bind. On the other hand, unlimited discovery can be as expensive to
the defendant as the damages claimed. Often, to address these concerns, the Relator will be granted limited discovery in order
to meet the heightened rule 9 requirements, which will be strictly enforced. ]
Opinion Excerpts: On December 16, 2009, plaintiff/relator Donna Marie Glynn, a nurse practitioner formerly employed by
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Copyright 2011
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4. Compass Medical, P.C. (Compass), brought this action under the federal False Claims Act (FCA), 31 U.S.C.§ 3729 (a)(1)-(2).[1]
Glynn alleges that Compass Medical, P.C. (Compass), Partners Community Healthcare, Inc. (Partners), and John Diorio violated
the FCA (Count I), subjected her to a retaliatory termination in violation of 31 U.S.C. § 3730(h) (Count II). Glynn alleges that
Diorio, a physician with whom she worked at Compass, fraudulently filled out patient billing sheets in order to bill Medicare and
Medicaid for fictional visits to nursing home patients, care that was not medically necessary or appropriate, and improper patient
discharges and pronouncements of death.
It is well established that the heightened pleading requirements of Fed. R. Civ. P. 9(b) apply to claims brought under both
subsections. See Gagne, 565 F.3d at 45. Although Rule 9(b) may be satisfied where "some questions remain unanswered [but]
the complaint as a whole is sufficiently particular to pass muster under the FCA," id. at 46, quoting United States ex rel. Rost v.
Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007), "Karvelas requires the complaint to provide, among other fraud specifics, `details
concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, [and] the amount of
money charged to the government.'" Gagne, 565 F.3d at 46, quoting Karvelas, 360 F.3d at 233. Defendants argue that Glynn has
failed to plead her FCA claims with any of the requisite particularity. The court agrees.
For Glynn to make out her subsection (a)(1) claim, she must show that a false claim was actually presented to the government.
See Gagne, 565 F.3d at 45-46, citing Allison Engine, 553 U.S. at 669-671. Glynn has not alleged any particulars regarding the
"presentment" of any specific claim to the government. She alleges only that Compass and Partners employees submitted claims
based on Diorio's billing statements to the government despite knowing or having reason to know that in some respects they were
fraudulent. Glynn does not allege specific billing codes, dates, claim numbers, or patients associated with such false claims, or
even the name of the government agency to which the claims were allegedly submitted. Because Glynn has failed to allege with
particularity the actual presentment of any individual claim, her subsection (a)(1) cause of action fails.
With respect to Glynn's subsection (a)(2) claim, her footing is no more firm. On a given weekend in May of 2009, Diorio claimed
to have seen sixty nursing home patients, among whom he listed Marotti, when according to a statement Glynn attributes to
Marotti's daughter, no doctor had treated her mother. This double-hearsay allegation (mother to daughter to Glynn) does not
comprise the personal knowledge of fraud that the FCA is intended to extract. See United States ex rel. Joshi v. St. Luke's Hosp.,
Inc., 441 F.3d 552, 561 (8th Cir. 2006), quoting United States ex rel. Kinney v. Stoltz, 327 F.3d 671, 674 (8th Cir. 2003) ("The
[FCA] is intended to encourage individuals who are either close observers or involved in the fraudulent activity to come forward,
and is not intended to create windfalls for people with secondhand knowledge of the wrongdoing."). While in this one instance, it
might be possible to match a billing code on behalf of a named patient with Glynn's allegations, she has no actual knowledge that
Diorio did not in fact see Marotti on this occasion.For the foregoing reasons, defendants' motions to dismiss Glynn's federal
claims (Counts I and II) are ALLOWED with prejudice.
UNITED STATES OF AMERICA Ex. Rel. JOYCE RUBLE Plaintiff,
v.
TROY SKIDMORE, D.O., et al. Defendants.
Case No. 2:09-cv-549.
United States District Court, S.D. Ohio, Eastern Division.
November 8, 2011.
[Martin Merritt’s notes: At the outset, the filing under seal provides the relator some anonymity. This was never intended to
permanently shield the relator from public disclosure of whislteblowing activity. Here, the Relator changed her mind after the
Government declined to intervene, and sought dismissal and permanent seal or redaction of her name form the pleadings. At
this stage, the Defendant will not have been served, therefore the court’s usually take a more active role in protecting the
public’s right to access.]
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Federal Case Report Newsletter. December, 2011
Copyright 2011
MartinMerritt PLLC
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5. Opinion Excerpts: “In Herrera, the Eastern District of Michigan determined that the plaintiff-relator's "fear of
employment-related retaliation [was] not completely unfounded given her alleged constructive discharge," but nonetheless held
that her fear of retaliation by a current or future employer was not "sufficient to overcome the strong presumption in favor of
access to judicial records." Herrera, 665 F. Supp. 2d at 785-86. The court explained that "to conclude otherwise would ignore
that [the plaintiff-relator's] amorphous concern is no different from the concern any employee may have when she sues her
employer for whatever reason." Id. at 786 (quoting United States ex rel. Permison v. Superlative Techs., Inc., 492 F. Supp. 2d
561, 564 (E.D. Va. 2007)). The court also noted that, if the plaintiff-relator were to suffer retaliation for filing the qui tam action,
the FCA would provide a cause of action. Id. (citing 31 U.S.C. § 3730(h); Superlative Techs., 492 F. Supp. 2d at 564).
UNITED STATES OF AMERICA ex rel. CATHY WILDHIRT AND NANCY MCARDLE, and STATE OF ILLINOIS
ex rel. CATHY WILDHIRT AND NANCY MCARDLE, Plaintiffs,
v.
AARS FOREVER, INC., and THH ACQUISITION LLC I, Defendants.
No. 09 C 1215.
United States District Court, N.D. Illinois, Eastern Division.
November 4, 2011.
[Martin Merritt’s notes: Rule 9(b) requires the pleading with particularity of specific acts of False Claim filing. This usually
means the relator must plead the familiar specific “who, what , when, where” facts as to which claims presented to the
government for payment were in fact false. What if the actual claims for payment were not false, but there was fraud in the
inducement of the contract which led to the claim being presented for payment? State another way, there is fraud, but I t is
impossible to meet the “who, what, when, where” test. Here the court held the FCA (as well as Stark Law and the Anti-
Kickback statute ) do contemplate that intent to defraud, or fraud in the inducement of a government contract will give rise to
FCA liability, even though there was no irregularity in the actual presentment of the claim for payment, after the contract was
fraudulently induced. This is similar to holdings under the Anti-Kickback statute in which the defendant has technically
complied with a safe harbor, but there is evidence that the scheme was actually a kickback for referrals. Courts often, though not
uniformly, hold that fraudulent intent trumps any defense that the scheme was technically compliant. ]
Opinion Excerpts: The district court dismissed the complaint under Rule 12(b)(6) "because the false statements and fraud `were
not made in connection with the presentation of a claim.'" Id. at 783. According to the Fourth Circuit: "The district court
reasoned that the False Claims Act does not reach false statements in submissions to the Government to gain approval for
subcontracting decisions. In the district court's view, the False Claims Act reaches only situations in which a `claim [i.e., the
demand for payment from the government] . . . is itself false or fraudulent.'" id. (brackets in original); see also id. at 785 ("The
district court would only find a false claim where a demand for payment is itself false or fraudulent (presumably for services not
performed or for an incorrect amount). The district court flatly rejected the possibility that False Claims Act liability could rest on
false statements submitted to the government to gain approval for a subcontract.").
The Fourth Circuit rejected the district court's view, holding that the FCA recognizes a fraud-in-the-inducement theory, under
which liability attaches "for each claim submitted to the government under a contract, when the contract or extension of
government benefit was obtained originally through false statements or fraudulent conduct." Id. at 787 (citing United States ex
rel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943)). That is, even where "the claims [for payment] that were submitted were not in
and of themselves false" and "the work contracted for was actually performed to specifications at the price agreed," FCA liability
arises "because of the fraud surrounding the efforts to obtain the contract or benefit status." Ibid. Other circuits are in accord. See
United States ex rel. Longhi v. Lithium Power Techs., Inc., 575 F.3d 458, 468 (5th Cir. 2009) ("Under a fraudulent inducement
theory, although the Defendants' subsequent claims for payment made under the contract were not literally false, [because] they
derived from the original fraudulent misrepresentation [in the grant proposals], they, too, became actionable false claims.")
(brackets in original; internal quotation marks omitted); United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393
F.3d 1321, 1326 (D.C. Cir. 2005) ("Although the focus of the FCA is on false `claims,' courts have employed a
`fraud-in-the-inducement' theory to establish liability under the Act for each claim submitted to the Government under a contract
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Federal Case Report Newsletter. December, 2011
Copyright 2011
MartinMerritt PLLC
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6. which was procured by fraud, even in the absence of evidence that the claims were fraudulent in themselves."); United States ex
rel. Hagood v. Sonoma Cnty. Water Agency, 929 F.2d 1416, 1420-21 (9th Cir. 1991) (holding that "a contract based on false
information is a species of false claim," and finding that an FCA claim was properly stated where the complaint alleged that the
defendant "played an active part in having presented for signature a contract that the [defendant] knew was based on false
information").
UNITED STATES OF AMERICA, Plaintiff,
v.
ROBERT WHITE and WILSON TRANSPORT SERVICES, Defendants.
Case No. 2:11-cv-00309-PMD.
United States District Court, D. South Carolina, Charleston Division.
November 18, 2011.
[Martin Merritt’s notes. This is a sad case. On the surface, it is a simple default judgment for $1.1 million. Reading between the lines, White
and Wilson Transport were busted for transporting patients by ambulance when transport wasn’t medically necessary. There is a good
chance that the claims weren’t blatantly fraudulent, but nevertheless enough of a violation of the False Claims Act that this defendant is
financially ruined. We can guess this by the fact the government has agreed to allow Wilson to live in his home as long as he owns it, provided
he complies with the settlement repayment agreement. Take this case as a grim reminder how a False Claims Act violation leads to economic
ruin.]
Opinion Excerpts: I find that the complaint supports a default judgment against Wilson Transport Services in the amount of $1,166,879.09.
This is the minimum amount allowed by the False Claims Act for damages and penalties for the claims attached to the complaint as Exhibit A
and C setting off the amount of restitution Nathaniel Wilson has been ordered to pay and the amount Robert White has agreed to pay the United
States.
I also find that the government has agreed not to enforce the Wilson Transport Service judgment against the home Robert White resides in
located at 889 High Hill Road, Scranton, South Carolina as long as he resides in it, it is owned by Wilson Transport Service or Robert White,
and Robert White is complying with the terms of the settlement agreement entered into with the government.
Martin Merritt is a Dallas litigator and Health Law attorney. Whose main practice consists of
representing Texas physicians and small practice groups in Stark Law, Anti-Kickback Statute, and False
Claims Act compliance in their medical practices, including employment agreements, real estate
transactions, and general business matters. He is a member of the Health Law Section of the State Bar of
Texas and the Dallas Bar Association. In addition to his Texas practice, he heads the advisory panel of
Stark.org, a national pro bono project which annually fields hundreds of inquiries from health care
professionals across the United States and directs them toward the appropriate CMS Regulation, OIG
Bulletin, Opinion Letter, or other Governmental publication which addresses their issue.
MartinMerritt PLLC
100 Crescent Court
Suite 700 Www.DallasPhysicianLaw.com
Dallas, Texas 75201
(214) 459-3131
(214) 469-3101 (fax)
martin@dallasphysicianlaw.com
Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam
Federal Case Report Newsletter. December, 2011
Copyright 2011
MartinMerritt PLLC
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7. Stark Law • False Claims Act • Anti-Kickback Statute• Qui Tam
Federal Case Report Newsletter. December, 2011
Copyright 2011
MartinMerritt PLLC
Page 7