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Aldridge v. Cain

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

March 4, 2018

JAMES ALDRIDGE, RELATOR, on behalf of UNITED STATES OF AMERICA PLAINTIFF
v.
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

          ORDER

          HENRY T. WINGATE UNITED STATES DISTRICT JUDGE.

         Before this court is the Defendants' Motion to Dismiss the United States Government's Amended Complaint in Intervention [doc. no. 161]. 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 named Defendants above, aggrieved over the passage of time from the Relator's filing of this Complaint until the Government finally decided to intervene in this lawsuit by its Amended Complaint, bring this motion to dismiss under Rule 41(b)[1] of the Federal Rules of Civil Procedure. By their motion, Defendants herein ask this court to dismiss the Government' Amended Complaint against them because the Government consumed too much time between the date of the Relator's original filing of this action and when the Government chose to intervene. The Government opposes the motion.

         BACKGROUND[2]

         The Relator, James Aldridge, brought this action under the False Claims Act[3](“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[4] 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)[5] and 3732(a)[6].

         Jurisdiction is also invoked under the auspices of Title 28 U.S.C. § 1345, [7] 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 case 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][8] 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)[9]; L.U.Civ. R. 79[10]. 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”)[11], 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[12], 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[13], 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).[14]

         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.

         DISCUSSION

         The Defendants have moved to dismiss the Government's Amended Complaint in Intervention. The first basis for dismissal, Defendants say, is that “it is untimely and the Government abused the court system.” [doc. No. 162 p.1]. Secondly, Defendants ask this court to dismiss the Government's Complaint, under the provisions of Rule 41(b) of the Federal Rules of Civil Procedure for failure of the Government to prosecute its case.

         The Government opposes the motion.

         1. The Government did not abuse the court system or the statutory procedures

         Defendants contend that the Government abused the procedures of the FCA, particularly Title 31 U.S.C. §3730(b)(4).[15] This abuse, Defendants say, consisted of missing deadlines and making misrepresentations to the court. This prejudiced the Defendants, they claim, by contributing to the passage of time, which resulted in evidence and memories becoming lost or stale. This court has done a careful examination of the chronology of events and filings in this case, from the date the Relator filed his Complaint, until the date the Government elected to file its Complaint in Intervention, and does not agree with the Defendants that there was abuse of the court or of the statutory procedures. The following is a timeline of these pertinent events:.

05/31/2007

COMPLAINT filed by Relator

08/13/2007

Government's First Application for Extension

06/18/2008

ORDER granting Extension until August 19, 2008

08/18/2008

Govt's Second Application for Extension

02/10/2009

Govt's Third Application for Extension

08/14/2009

Govt's Fourth Application for Extension

11/12/2009

SEALED* AMENDED COMPLAINT filed by James Aldridge

01/20/2010

Govt's Fifth Application for Extension and request to partially lift seal

05/24/2010

ORDER granting extension until February 17, 2010; and Order granting extension until June 16, 2010 and partially lifting seal

06/16/2010

Government's 6th Application for (6 month) Extension

06/30/2010

ORDER granting extension until November 15, 2010

10/25/2010

Government's 7thApplication for (Ninety-Day) Extension

01/31/2011

ORDER granting extension until February 14, 2011

02/14/2011

Government's 8th Application for (6 month) Extension

03/15/2011

ORDER granting extension until August 13, 2011

08/12/2011

Government's 9th Application for) Extension

08/26/2011

ORDER granting extension until November 30, 2011

11/03/2011

Govt's Petition to Enforce CID No. 11-0002, CID No. 11-0003, CID No. 11-0004, CID No. 11-0005

11/07/2011

Defendant's Motion for more time to Respond to Govt.'s Petition to Enforce

11/17/2011

Defendant's Motion to Transfer venue or to Dismiss; and Defendant's Response to Petition to Enforce

11/28/2011

Government's Request for more time to File Reply (rebuttal) to Defendant's Response to “Petition to Enforce”

11/30/2011

Government's 10th Application for Extension

12/01/2011

Government's RESPONSE in Opposition to Defendants' MOTION to Change Venue, MOTION to Dismiss

12/05/2011

Government's Reply (rebuttal) tin Support of “Petition to Enforce CIDs”

12/08/2011

Defendants' Reply (rebuttal) in Support of MOTION to Change Venue / MOTION to Dismiss

12/15/2011

ORDER granting extension until March 30, 2012

03/09/2012

ORDER - That Petitioners shall produce all materials responsive to Civil Investigative Demands within 20 days

03/30/2012

Government's11th Application for Extension

04/17/2012

ORDER granting extension of time until July 30, 2012

07/10/2012

Government's Motion to Enforce Court's Previous Order re: responding to CID's

07/11/2012

Defendants' Response to Gov's motion to enforce court order; Defendant's Reply in Support of Motion for Enlargement of Time; Government's Reply in support of its motion for expedited briefing and ruling

07/23/2012

Defendants' Response to Govt's motion to Enforce Court Order and Defendants' Motion to enforce Compliance Agreement

07/25/2012

Government's 12th Application for an Extension of Time to Consider Election to Intervene; Government's Motion for more time to File Response to Defendant's Motion to Enforce Compliance Agreement

07/26/2012

ORDER granting extension until January 30, 2013

08/01/2012

ORDER granting Gov's motion for Time to File Response/Reply to Motion to Enforce Compliance Agreement

08/02/2012

Government's Response to Defendants' Motion to Enforce Compliance Agreement

08/10/2012

Defendant's Reply (rebuttal) in support of their Motion to Enforce Compliance agreement, etc.

08/31/2012

Hearing on Motion(s)

09/18/2012

ORDER granting Govt's motion to enforce court's previous order, and denying Defendants' motion to enforce Compliance Agreement and instructing Government to complete its investigation within six months of this order.

09/28/2012

Defendant's Emergency Motion to Stay Enforcement of order re: enforcement of previous order on CID's and Defendant's Motion for reconsideration/ or alter/amend Court's order granting Government's motion and denying Defendant's motion to enforce Compliance Agreement

10/01/2012

Government's Response in opposition to Defendant's motion to stay Court's order re: enforcement of CID order and Response in opposition to Defendant's motion for reconsideration/alter/amend

10/09/2012

Defendants' Rebuttal briefs on their two motions

10/24/2012

Defendant's Supplementation to immediately preceding motions

01/30/2013

Government's 13th Application for an Extension of Time to Consider Election to Intervene

02/11/2013

ORDER granting extension of time until June 30, 2013

07/01/2013

Government's 14th Application for an Extension of Time to Consider Election to Intervene

08/14/2013

ORDER granting motion for time until December 30, 2013.

12/10/2013

Motion to set aside/quash CID's unseal court file and stay enforcement of CID's (with17 attachments)

12/26/2013

Government's Response in Opposition to Defendants' motion to set aside, unseal, quash and stay enforcement of CID's; Government's Motion to Enforce CID's (with 12 attachments)

12/30/2013

Government's 15th Application for extension of time to Consider Election to Intervene

12/31/2013

ORDER granting extension of time until June 30, 2014.

01/03/2014

Defendants' motion for additional time to file Response to Gov's motion to enforce CID's

01/07/2014

Defendants' motion for additional time to file Response to Gov's motion to enforce CID's

01/08/2014

ORDER granting Defendants' motion for additional time to Respond to Gov's motion re: enforcement of CID's

01/17/2014

Defendant'a Reply (rebuttal) in support of their motion to set aside/quash, etc.

01/27/2014

Gov's reply (rebuttal) in support of its motion to enforce CID's

07/01/2014

Government's 16th motion for extension of time to consider Election to Intervene

08/06/2014

ORDER denying motion to reconsider and to change venue

08/20/2014

NOTICE OF APPEAL by Defendants

08/25/2014

MOTION to Stay Proceedings by Defendants

09/05/2014

ORDER of U.S. Court of Appeals: Appellants'(Defendants')motion for stay pending appeal is DENIED

09/11/2014

Government's MOTION for Contempt, Motion for Hearing, Notice of Hearing on Contempt

09/12/2014

ORDER of USCA. Appellants' motion for stay pending appeal is denied.

09/15/2014

Proceedings held before District Judge Henry T. Wingate. Court granted Gov's motion for contempt as to the individual defendants, ordered documents produced by 9/16/2014, reserved ruling on holding defendants' attorneys in contempt and ordered briefing; Defendants' RESPONSE to Motion for Contempt; ORDER granting Motion for Contempt.

09/22/2014

Government's motion for additional time for briefing on attorneys' contempt issue; Telephone Conference before District Judge Henry T. Wingate re: procedure for submission of documents, granted government's motion for extension of time to file supplemental briefs.

09/25/2014

Government's supplemental brief re contempt

09/29/2014

Defendants' supplemental brief re contempt

09/30/2014

ORDER granting Govt's motion for additional Time to File supplemental briefs; ORDER setting deposition dates

10/06/2014

Government's Reply (rebuttal) in Support of supplemental Brief regarding its motion for Contempt

10/10/2014

CERTIFIED COPY OF USCA JUDGMENT/MANDATE (appellant dismissed pursuant to appellant's motion)

10/15/2014

AMENDED ORDER Setting deposition dates

12/30/2014

Government's 17th motion for extension of time to consider Election to Intervene

02/20/2015

ORDER granting Motion for Extension of Time until February 28, 2015

02/27/2015

Gov't s 18th request for (four month) extension of time to consider election to intervene

03/03/2015

ORDER granting Extension of Time until June 1, 2015

06/01/2015

Gov't s 19th request for (four month) extension of time to consider election to intervene

06/10/2015

ORDER granting extension of time until August 1, 2015

08/03/2015

Government's NOTICE OF ELECTION TO INTERVENE IN PART AND DECLINE TO INTERVENE IN PART

8/13/2015

ORDER unsealing Notice of Election, this order, and all matters occurring after this date, Government to serve its complaint and this order on the Defendants within thirty days.

9/10/2015

Govt's motion for extension of time until 9/18/2015 to file Intervention Complaint

9/18/2015

Intervenor Complaint filed

         After September 18, 2015, this lawsuit proceeded as a regularly-filed litigation.

         The Defendants contend that the Government missed its first sixty-day deadline to file for an extension. The record does not bear this out. Defendants count the sixty-day period beginning from the date the Relator's Complaint was filed; but the sixty-day period provided for in § 3730(b)(4) begins to run after the Government receives the Complaint and the material evidence and information. Title 31 U.S.C. § 3730(b)(2). The Government says it was served on June 18, 2007; thus the filing of its application for extension on August 13, 2007, was timely.

         Defendants also complain that they are unable to determine whether the Government was doing any investigation during this time. The Government was not required to reveal its investigative efforts to Defendants. The Government was only required to provide information about its investigation to the court, in camera, each time an extension was requested. This court reviewed each motion and accompanying documents and determined that there was good cause to grant the extension; thus, this court was satisfied that the Government was appropriately engaging in the conduct of its investigation.

         The Defendants claim the Government missed court ordered deadlines and failed to timely file for extensions. The complete chronology of events shows that the Government made nineteen requests for extensions of time to make its intervention decision. This court is unable to determine that any of those requests were untimely or that any of them were not ultimately ...


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