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United States ex rel Davis v. District of Columbia

December 23, 2008

UNITED STATES OF AMERICA, EX REL. MICHAEL L. DAVIS, PLAINTIFF,
v.
DISTRICT OF COLUMBIA AND THE DISTRICT OF COLUMBIA PUBLIC SCHOOL SYSTEM, DEFENDANTS.



The opinion of the court was delivered by: John D. Bates United States District Court

MEMORANDUM OPINION

The District of Columbia and the District of Columbia Public School System (collectively, "defendants") have filed a motion to dismiss this False Claims Act ("FCA") suit filed by relator Michael L. Davis ("plaintiff" or "relator") on behalf of the United States. Plaintiff alleges that defendants violated the FCA by submitting a claim for Medicaid reimbursement without maintaining documentation adequate to support that claim. Defendants seek to dismiss plaintiff's Complaint, claiming a lack of subject matter jurisdiction, failure to plead fraud with particularity, and failure to state a claim upon which relief can be granted. Defendants also seek to dismiss the District of Columbia Public School System ("DCPS") as a defendant. For the reasons below, defendants' motion to dismiss is granted in part and denied in part.

BACKGROUND

The recitation of facts is primarily taken from plaintiff's Complaint ("Compl."). Plaintiff is the chairman, president, and chief executive officer of Davis & Associates ("D&A"). Compl. ¶ 4. In 1995, D&A was awarded a contract to develop and implement a Medicaid Reimbursement Recovery program for defendants' special education program. Id. ¶ 10. Under the contract, D&A collected data and prepared documentation necessary to support Medicaid reimbursement claims ("cost claims"). Id. ¶ 11. D&A's contract was not renewed at the end of 1998; instead, defendants hired Maximus Corporation ("Maximus") to prepare cost claims. Id. ¶ 12. Nevertheless, D&A prepared a $60 million cost claim, along with the documentation to support it, for the 1998 fiscal year. Id. ¶ 13. D&A sent the cost claim to the appropriate District of Columbia agency and retained all of the supporting documentation. Id. ¶ 14.

Defendants initially did not submit D&A's $60 million cost claim to the federal government for reimbursement; rather, defendants sought reimbursement on an $8 million cost claim prepared by Maximus. Id. ¶ 15. D&A learned about the $8 million claim and advised defendants that they were in fact owed $60 million. Id. ¶ 16. Plaintiff offered to turn the documentation over to defendants for some (unknown) compensation. See Personal Disclosure Statement of Michael L. Davis ("Personal Disclosure Statement") at 3-4. Defendants declined, yet in March 2002, they submitted a revised cost claim for $60 million. Compl. ¶ 18; Personal Disclosure Statement at 2. The U.S. Treasury paid the $60 million claim. Compl. ¶ 21. According to plaintiff, because D&A had retained the documentation supporting the $60 million claim, the revised claim lacked adequate supporting documentation. Id. ¶¶ 19-20. Plaintiff alleges that submitting a cost claim without maintaining supporting documentation violates Medicaid cost reimbursement regulations. Id. ¶ 20.

Plaintiff filed this qui tam complaint on April 4, 2006, alleging that defendants' actions constitute a violation of the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq. Before filing suit, plaintiff notified both the U.S. Department of Health and Human Services and the U.S. Department of Justice of defendants' purported actions. See Memorandum in Opposition to the District of Columbia's Motion to Dismiss ("Davis Opp.") at Ex. 1 & 2. Plaintiff also adhered to FCA procedures requiring qui tam claims to be filed under seal to allow the United States to intervene and prosecute the action itself. On October 24, 2007, the United States declined to intervene and asked that plaintiff be allowed to prosecute the suit as a relator. See Government Notice of Election to Decline Intervention. Defendants filed this motion to dismiss on April 4, 2008.

STANDARD

"[I]n passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); see Leatherman v. Tarrant Cty. Narcotics and Coordination Unit, 507 U.S. 163, 164 (1993); Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C. Cir. 1979). Therefore, the factual allegations must be presumed true, and the plaintiff must be given every favorable inference that may be drawn from the allegations of fact. Scheuer, 416 U.S. at 236; Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000). However, the Court need not accept as true "a legal conclusion couched as a factual allegation," nor inferences that are unsupported by the facts set out in the complaint. Trudeau v. Federal Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

Under Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has jurisdiction. See U.S. Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000); see also Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001) (a court has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority."). "'[P]laintiff's factual allegations in the complaint . . . will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim." Grand Lodge, 185 F. Supp. 2d at 13-14 (quoting 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (2d ed. 1987)). Additionally, a court may consider material other than the allegations of the complaint in determining whether it has jurisdiction to hear the case, as long as it still accepts the factual allegations in the complaint as true. See Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253-54 (D.C. Cir. 2005); E.E.O.C. v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 n.3 (D.C. Cir. 1997); Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir.1992).

In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court is mindful that all that the Federal Rules of Civil Procedure require of a complaint is that it contain "'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); accord Erickson v. Pardus, 551 U.S. ___, 127 S.Ct. 2197, 2200 (2007) (per curiam). "A Rule 12(b)(6) motion tests the legal sufficiency of a complaint." Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). Thus, the complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atl. Corp., 127 S.Ct. at 1965 (citations omitted).

ANALYSIS

I. Subject Matter Jurisdiction

Defendants argue that the Court lacks subject matter jurisdiction in this case because plaintiff's suit is based on a publicly-disclosed transaction. Courts lack jurisdiction over qui tam FCA actions based on publicly-disclosed transactions unless the relator is an "original source." 31 U.S.C. § 3730(e)(4)(A). Defendants argue that two public disclosures bar the current suit from proceeding. First, defendants argue that another case filed by plaintiff, a discrimination case arising out of the same relationship between plaintiff and defendants, constitutes a public disclosure. See Davis & Assoc., Inc. v. District of Columbia, 501 F. Supp. 2d 77 (D.D.C. 2007) (Kessler, J.). Although civil litigation may constitute a public disclosure, see United States ex rel. Springfield Terminal Rwy. Co. v. Quinn, 14 F.3d 645, 652 (D.C. Cir. 1994), plaintiff's discrimination case does not divest this Court of subject matter jurisdiction over plaintiff's FCA claim. Plaintiff's discrimination case was filed on May 24, 2006 -- more than seven weeks after plaintiff filed the current suit. It is long established that "the jurisdiction of the Court depends upon the state of things at the time of the action brought, and that after vesting, it cannot be ousted by subsequent events." Mollan v. Torrance, 22 U.S. 537, 539 (1824). Because the present suit was filed before the discrimination case, the discrimination case poses no jurisdictional bar.

The second supposed public disclosure is a 2002 District of Columbia audit "reveal[ing] that $15 million of costs incurred for services rendered to special education students were disallowed for Medicaid reimbursement [in fiscal years 1995 through 1998] due to the absence or unavailability of supporting documentation." See Defendants' Reply to Opposition to Motion to Dismiss ("Def. Rep.") at 17. In Springfield Terminal, the D.C. ...


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