United States District Court, S.D. Mississippi, Southern Division
JAMES ALDRIDGE, RELATOR, on behalf of UNITED STATES OF AMERICA PLAINTIFF
H. TED CAIN, JULIE CAIN, CORPORATE MANAGEMENT, INC., STONE COUNTY HOSPITAL, INC., STONE COUNTY NURSING AND REHABILITATION CENTER, INC. QUEST MEDICAL SERVICES, INC. QUEST REHAB, INC; TERRI BEARD, THOMAS KULUZ, and STARANN LAMIER, AND JOHN DOES I-XX DEFENDANTS
T. WINGATE, UNITED STATES DISTRICT JUDGE.
this court is the Defendants' Motion to Unseal
[doc. no. 163]. The Defendants herein are:
H. Ted Cain; Julie Cain; Corporate Management, Inc.; Stone
County Hospital, Inc.; Thomas Kuluz; and Starann Lamier. This
lawsuit originally was brought by James Aldridge, Relator, on
behalf of the United States Government. A Relator in this
context describes a private person who, with knowledge of
activities allegedly defrauding the United States Government,
files suit to recover monies on behalf of the United States
Government. A Relator may share in the proceeds of a
successful action, receiving between fifteen percent and
twenty-five percent of the recovery, as determined by the
court. Accordingly, this lawsuit actually features two
plaintiffs, the Relator and the United Stated Government
Relator, James Aldridge, brought this action under the False
Claims Act (“FCA”), 31 U.S.C.
§3729(a)(1) and (2). The FCA imposes liability on
persons who make false claims for payment to the Government.
It contains a provision that enables private individuals to
bring suits for violations of the FCA in the Government's
name and to receive a portion of the amount recovered from
the Defendants. In such qui tam cases, the FCA
requires that the Relator's Complaint must be filed under
seal. Title 31 U.S.C. § 3730(b).
subject matter jurisdiction of this court is invoked under
Title 28 U.S.C. § 1331 federal question jurisdiction, by
way of and pursuant to provisions of the False Claims Act,
Title 31 U.S.C. §§ 3730(b) and 3732(a).
is also invoked under the auspices of Title 28 U.S.C. §
1345,  which provides for jurisdiction in the
federal district courts when the United States is a
plaintiff. Venue is also proper in this district in
accordance with 31 U.S.C. § 3732(a).
lawsuit was originally filed as civil No. 3:07-cv-309 in the
Southern District of Mississippi, Northern Division. On
January 24, 2016, the Defendants filed a motion to transfer
venue [doc. no. 124] contending, inter alia, that
venue was improper in the Northern Division or,
alternatively, that the case should be transferred, in the
interest of justice, for the convenience of the parties and
witnesses. The Government opposed the motion, denying that
venue was improper in the Northern Division, relying on
§ 3732(a) of the False Claims Act, and asked the court
not to exercise its discretion to transfer the case. This
court granted the motion [doc. no. 152], and transferred this
case to the Southern Division of the Southern District of
Mississippi, with the undersigned United States District
Court Judge maintaining authority over the matter subsequent
to the transfer. The transferred case is assigned the current
case number, 1:16-cv-369 HTW-LRA. All of the documents filed
under the previous case number are now filed in the current
case. Documents filed prior to August 14, 2015, remain under
Relator, James Aldridge, is the former Operating Officer for
Defendant Stone County Hospital in Wiggins, Mississippi. He
filed his original Sealed Complaint in this matter [doc. no.
2] on behalf of the Government on May 31, 2007. The
Defendants named in the Complaint were as follows: Corporate
Management, Inc.; Stone County Hospital, Inc.; Stone County
Nursing and Rehabilitation Center, Inc.; Quest Medical
Services, Inc.; Quest Rehab, Inc.; H. Ted Cain,
professionally and in his individual capacity; Julie Cain;
Starr Ann Lamier; Terri Beard; and John Does I-XX.
Relator's original Complaint, as heretofore mentioned,
was filed under seal - that means it was not a part of the
public record, and could not be disclosed to the public nor
to the litigants. See State Farm Fire and Casualty Co. v.
U.S. ex rel. Rigsby, 137 S.Ct. 436, 443, 196 L.Ed.2d 340
(2016); Title 31 U.S.C. § 3730(b)(2); L.U.Civ. R.
Therefore, the Defendants were not served with the Complaint
nor notified of its existence; nor were they allowed to view
the Complaint or to file a response. See State Farm
at 443 (the seal provision was meant to allay the
Government's concern that a Relator filing a civil
complaint would alert defendants to a pending federal
criminal investigation) (citing S.Rep. No. 99-345, pp. 23-24
(1986). 23-24 (1986).
Relator filed a sealed Amended Complaint [doc. no.
6] on November 12, 2009, naming the same Defendants. Just as
with the original Complaint, the Defendants were not notified
nor called upon to respond to the Complaint. In sum, the
Complaint, as to the Defendants, was a secret endeavor.
Government allegedly was investigating the matter during this
time and filed requests for extensions before the District
Court, asking the court for more time to decide whether the
Government would intervene. On August 3, 2015, the Government
reached its decision and filed its Notice of Election to
Intervene in Part and to Decline to Intervene in Part
[doc. no. 113]. The Government filed its original Intervenor
Complaint on September 18, 2015 [doc. no. 116], and later on
December 4, 2015 filed its Amended Complaint [doc.
no. 118]. The Amended Complaint was drawn under the False
Claims Act, Title 31 U.S.C. §§ 3729 et seq., as
amended by False Claims Act Amendment of 1986, the Fraud
Enforcement and Recovery Act of 2009
(“FERA”), and the Patient Protection and
Affordable Care Act of 2010, as well as under common law
theories of payment of mistake of fact and unjust enrichment.
The Government intervened as to Defendants Corporate
Management, Inc.; Stone County Hospital, Inc.; H. Ted Cain;
Julie Cain; and Starann Lamier; and added Thomas Kuluz as a
Defendant. The Government declined to intervene as to the
other Defendants named in the Relator's Complaint.
the pertinent times, the Defendants' roles relative to
this litigation were as follows. Defendant Corporate
Management Inc. (hereinafter “the Management
Company”), managed Stone County Hospital and allegedly
operated other hospitals and health care facilities in South
Mississippi, as well as other businesses owned by Defendant
H. Ted Cain. Defendant Stone County Hospital was a Critical
Access Hospital, serving a rural area in Stone County in
the southern part of Mississippi. Defendant H. Ted Cain
(hereinafter “Ted Cain”) was the owner of Stone
County Hospital and the owner and Chief Executive Officer of
the Management Company, as well as owner of other businesses,
both medical and non-medical. Defendant Julie Cain is the
wife of Ted Cain and was the Administrator of Stone County
Hospital. Starr Ann Lamier was Chief Operating Officer of the
Management Company. Thomas Kuluz was Chief Financial Officer
of the Management Company.
Relator and the Government (Collectively
“Plaintiffs”) allege that Defendants violated
various laws pertinent to Medicare and Medicaid. Plaintiffs
allege, inter alia, that the Defendants committed
cost report fraud by falsely certifying that the services
identified in their annual cost reports were provided in
compliance with applicable laws and regulations, while
knowingly including costs that were not reimbursable under
the Medicare and Medicaid programs. As a result, say
Plaintiffs, Medicare and Medicaid reimbursed these Defendants
in an amount much higher than that to which they were legally
entitled. Plaintiffs additionally allege that Defendants
illegally inflated costs, engaged in patient ping-
pong, and failed to collect copayments and
deductibles from Medicare beneficiaries. These acts, and the
conspiracy to commit these acts, according to Plaintiffs,
constitute violations of the FCA. The Government seeks
damages (including investigative costs), civil penalties,
suit costs and other relief. The Relator seeks a percentage
of penalties and damages obtained from Defendants under 31
U.S.C. § 3730(d)(1).
court conducted a hearing on July 17, 2017, on this motion
and on Defendants' motion to unseal the record, during
which time the Government and the Defendants presented oral
arguments. Attorneys for the Government, for the Relator and
for the Defendants were present. This court also conducted a
telephonic conference with counsel for all parties on
November 30, 2017, during which time the Government renewed
its request for an in camera hearing prior to the court's
decision on whether to unseal the court record. This court
granted the Government's request over the Defendants'
objections, and held the in camera hearing
on December 7, 2017. A court reporter was present who
prepared a transcript of those proceedings.
motion requests that the entire record in this qui
tam litigation be unsealed to permit Defendants to
analyze the documents in the record, evaluate the allegations
against them and assert all potential defenses. Defendants
say they are especially concerned with reviewing the motions
for extensions of time and accompanying documents filed by
the Government seeking additional time to decide whether to
intervene. Defendants contend that these documents are
necessary to their statute of limitations defense.
Government replies that the Defendants so-called defense has
no merit, but that the requested documents, if unsealed,
would not provide any information useful for that purpose.
Says the Government, the Defendants have not and cannot
demonstrate how the sealed documents would assist a statute
of limitations defense and any such information as they
supposedly need may be obtained in discovery.
arguments that the record should be unsealed are primarily
based on common law principles, See e.g., SEC v. Van
Waeyenberghe, 990 F.2d 845, 848 (5th Cir.
1993); Belo Broadcasting Corp. v. Clark, 654 F.2d
423, 429 (5th Cir. 1981) and public policy
concerns. The FCA, however, provides a unique statutory
scheme that favors sealing. In fact, the Act requires that
the Complaint be filed under seal. See United States ex
rel. Killingsworth v. Northrop Corp., 25 F.3d 715, 720
n.2 (9th Cir. 1994). See also, SEC v. Van
Waeyenberghe, 990 F.2d 845, 848 (5th Cir.
1993); Belo Broadcasting Corp. v. Clark, 654 F.2d
423, 429 (5th Cir. 1981).
period of sealing provided for by the FCA allows the
Government to investigate the Relator's allegations and
coordinate any other law enforcement efforts prior to
deciding whether to intervene in the litigation. See,
United States ex re. Coughlin v. International Bus.
Machines Corp., 992 F.Supp. 137, 140 (N.D.N.Y. 1998).
Under the Act, the government is initially allowed sixty (60)
days to make its decision regarding intervention. The
government frequently requests multiple extensions of time to
look into the Relator's allegations, pursue its
investigation, and communicate with other agencies involved.
It is not unusual for the investigation to span a period of
years prior to the decision on intervention. See e.g.,
U.S. ex rel Martin v. Life Care Centers of Am., Inc.
(the court criticized the Government while acknowledging the
prevalence of lengthy pre-intervention periods); See
also, United States v. Mallavarapu, 2010 WL 3896422
(W.D. LA Sept. 30, 2010).
stated in United States ex rel. Mikes v. Straus, 846
F.Supp. 21, 23 (S.D.N.Y.1994), and U.S. ex rel. Coughlin
v. Int'l Bus. Machines Corp., 992 F.Supp. 137,
140-41 (N.D.N.Y. 1998), the court has the discretion, as the
case proceeds, to preserve the seal or not, balancing the
need for disclosure against the risk of harm.
the False Claims Act permits in camera submissions,
the statute necessarily gives the court discretionary
authority over whether to maintain the secrecy of such
submissions. U.S. ex rel. O'Keefe v. McDonnell
Douglas Corp.,902 F.Supp. 189, 190-92 (E.D.Mo.1995),
United States v. CACI Int'l Inc., 885 F.Supp.
80, 81 (S.D.N.Y.1995), and United States ex rel. Mikes v.
Straus,846 F.Supp. 21, 23 (S.D.N.Y.1994). United
States ex rel. Mikes v. Straus emphasizes the point. In
Mikes, the Government submitted materials in camera
seeking extensions of time to decide whether to intervene,
pursuant to Title 31 § 3730(b)(3). In that case,
however, the government decided not to intervene in the case.