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Aldridge v. Cain

United States District Court, S.D. Mississippi, Southern Division

March 4, 2018




         Before 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 (hereafter “Government”).


         The Relator, James Aldridge, brought this action under the False Claims Act[2] (“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[3] cases, the FCA requires that the Relator's Complaint must be filed under seal. Title 31 U.S.C. § 3730(b).

         The 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)[4] and 3732(a)[5].

         Jurisdiction is also invoked under the auspices of Title 28 U.S.C. § 1345, [6] 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).

         This 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][7] 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 seal.

         The 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.

         The 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)[8]; L.U.Civ. R. 79[9]. 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).

         The 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.

         The 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”)[10], 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.

         During 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[11], 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.

         The 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[12], 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).[13]

         This 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.


         Defendants' 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.

         The 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.

         Defendants' 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).

         The 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).

         As 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.

         Because 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 ยง 3730(b)(3). In that case, however, the government decided not to intervene in the case. The ...

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