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United States ex rel. Vaughn v. United Biologics, L.L.C.

United States Court of Appeals, Fifth Circuit

September 7, 2018

United States of America, ex rel. MICHAEL VAUGHN; THEODORE FREEMAN; WILLIAM MCKENNA; WESLEY STAFFORD, Plaintiffs - Appellees
UNITED BIOLOGICS, L.L.C., Defendant - Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before CLEMENT, HIGGINSON, and HO, Circuit Judges.

          EDITH BROWN CLEMENT, Circuit Judge.

         The plaintiffs-relators initiated a qui tam action under the False Claims Act (“FCA”), Anti-Kickback Statute, and related state statutes, suing on behalf of the United States, the District of Columbia, and twelve states. The Government tarried in deciding whether to intervene, but eventually demurred, leaving the relators to go it alone. The relators persisted a little while longer on their own, but they grew tired of the litigation. They moved to voluntarily dismiss their case with prejudice as to themselves only, so that their decision to quit would not hamstring the Government's efforts against the defendant elsewhere.

         The district court consented to the relators' motion. That decision is challenged on appeal. For the reasons set forth, we affirm.


         Plaintiffs-relators Michael Vaughn, Theodore Freeman, William McKenna, and Wesley Stafford (collectively, “Vaughn relators”) are board- certified allergists licensed to practice medicine in Texas. Defendant United Biologics, L.L.C., (“United”) owns and operates remote allergy centers that provide allergy screenings and treatments.[1] United contracted with non- allergist physicians, who permitted United to run its remote allergy centers in their offices or clinics and referred their patients to those services. The Vaughn relators alleged that United improperly billed government healthcare providers for unnecessary or unapproved medical treatments through these clinics. They also alleged that United paid illegal kickbacks to contracting physicians from subsequent Medicare reimbursements.[2]

         The relators filed suit on April 16, 2013. The Government, which had been investigating United's practices in Atlanta since January 2013 (prior to the filing of the litigation and unbeknownst to the Vaughn relators), made its initial entry of appearance on May 1, 2013. The Government petitioned for, and received, five extensions to the initial 60-day deadline to make its intervention decision. See 31 U.S.C. § 3730(b)(2)-(4). The Government's memos in support of the extensions noted that the investigation was nationwide in scope, involved the cooperation of “Districts, States and various agencies, ” and required the gathering and review of a voluminous record. The court first granted the Government the discretion to reveal a redacted version of the complaint to United on February 9, 2014. The Government did not do so until after the court unsealed the case in April 2015.

         In May 2014, while this case was still under seal, a similar qui tam claim was filed in the Northern District of Georgia, United States and the State of Georgia, et al. ex rel. Nix v. United Biologics et al., 1:14-CV-1486. The relator, Terri Nix, sued on behalf of 21 states. The court partially unsealed the Vaughn relators' case to permit the Government to notify the court, named states, and Nix on August 11, 2014. According to United, the Government did not reveal the Nix lawsuit to the Vaughn relators until after its fifth extension, filed January 13, 2015.

         In March 2015, Terri Nix and the Vaughn relators entered into a Sharing Agreement, whereby the parties would “share statutory relator share award(s), if any, . . . resulting from the qui tam actions [they had] separately filed.” According to the Agreement, 85% would be allocated to the Vaughn relators and the remaining to Nix. The Agreement also noted that the parties “agree that all of the lawyers and law firms identified in this Agreement as representing [Nix and the Vaughn relators] have served and are serving as limited co-counsel for all of them, to the extent of the work they have performed and are continuing to perform to advance the common interests” of the relators. The parties further agreed to “work together and consult with each other” regarding strategy. The existence of this settlement agreement was revealed to the court and the Government at the first conference held on April 1, 2015.

         Leading up to the April 1 conference, the Government moved for the case to be transferred to the Northern District of Georgia in light of the ongoing federal investigation there. The court rejected the petition at the subsequent hearing. It noted that the Vaughn relators had sued in Texas, and that this suit was the principal qui tam case. The Nix case was a “tagalong.” During a colloquy, the court also expressed its frustration with the Government for taking so long to decide whether to intervene while leaving the Vaughn relators in the dark.

         United filed a motion to dismiss for failing to state a claim on October 2015, soon after it discovered the lawsuit. The next month, the Government gave notice that it had decided not to intervene. The court then vacated the sealing order and required the relators to disclose “a list of every case, investigation, inquiry, or process of which they know involving the defendants or relating to this scheme.” The court ultimately denied United's motion to dismiss on August 24, 2016. United then filed an answer on September 12, 2016. It also notified the district court that it had filed a motion to transfer venue in the Nix action on the grounds that this was the first-filed.

         The first hearing involving United was a scheduling conference held on October 3, 2016. During the colloquy, the court decided to hold off conducting formal discovery. Instead, it required the parties to submit an exemplar contract United used with physicians, highlighting key portions and explaining how the agreements worked in hypotheticals. The ensuing order, entered October 4, 2016, required the submission of the contracts. It also indicated that “discovery is quashed” and that “[t]he parties will talk.”

         United submitted the modified contract with hypotheticals on October 11, 2016. It also submitted a motion requesting the district court order the Georgia qui tam case be transferred or enjoin the parties. The Vaughn relators filed their response to the hypotheticals one week later.

         On October 24, 2016, the Vaughn relators notified opposing counsel that they had “decided to dismiss their case with prejudice as to them but without prejudice as to” the Government. Instead of notifying the relators whether it opposed the motion, United filed a motion for summary judgment the next day. Hours later, the Vaughn relators filed their motion to voluntarily dismiss the case with prejudice as to themselves but without prejudice to the Government. They also responded to the pending issues before the court: the motion to transfer and the motion for summary judgment.[3]

         Their response to United's motion to transfer explained the reasons for their withdrawal. They noted that the Nix case was ongoing, which ensured that United would still be investigated. They also said that they “decided to voluntarily dismiss their case after being rebuffed in informal discovery, reviewing the transcript of the October 3, 2016 conference, and considering the difficulty of proceeding since the government has declined to intervene.”

         The Government filed a written consent to the dismissal, “provided the dismissal [was] without prejudice” as to it. United contested the motion. United argued that the court should grant its pending motions (including the summary judgment motion without discovery) first or, in the alternative, deny the motion altogether.

         The court then held a hearing on this issue in January 2017. The Vaughn relators' counsel explained that the purpose of the suit was to make the Government aware of United's fraud, which it had achieved, but the Vaughn relators had tired of litigation without the Government's assistance. Counsel noted that his clients had “no intention of ever suing these people again.” As evidence of his clients' good faith, counsel further explained that if the court agreed to its terms, the Vaughn relators would waive their claim to the Sharing Agreement.

         At the court's request, the Government was summoned to the hearing. The Government explained that it understood the Vaughn relators to have chosen to “step back and then allow for the relators in the Northern District of Georgia to go forward with their action.” When pressed by the court to give a reason “why it[] [was] not willing to jump into this” case, the Government replied that “it's typical that the United States does not state a specific reason why.” Such a specific reason “could arguably influence any sort of litigation that comes after.” Instead, the Government contended that “[w]e have, by granting consent, that shows [sic] by inference that there has been some thoughtful procedure into the decision to consent.” The Government did note that it had not yet decided whether to intervene in the Georgia case, however.

         Although the court was skeptical, it ultimately seemed to affirm the Government's reasoning, noting that “[t]he proposal here is if the United States has permitted two indictments to persist for seven years collectively, overlapping each other for three years, and has decided to pick one and not the other and then turn it over to somebody else to try. . . . I'm inferring the choice.” Responding to United's concerns, the court affirmed that it was “absolutely clear” the Government simply decided to pursue the same claims against the defendant in Georgia.

         On March 31, 2017, the court handed down an order “dismiss[ing the case] with prejudice as to the relators.” On April 14, 2017, United filed a Rule 59 motion for clarification, seeking to include the Government and Nix in the dismissal, or require Nix to join this case as a condition of dismissal. The court denied this motion in a “Clarification” order on April 17, 2017, stating, “This ...

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