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United States ex rel. Chorches v. American Medical Response, Inc.

United States Court of Appeals, Second Circuit

July 27, 2017

United States of America, ex rel. Ronald I. Chorches as Trustee for the Bankruptcy Estate of Paul Fabula, and Paul Fabula, Plaintiffs-Appellants,
American Medical Response, Inc., Defendant-Appellee. [*]

          Argued: February 27, 2017

         Plaintiffs-appellants brought this action under the False Claims Act, 31 U.S.C. § 3729 et seq., against defendant-appellee American Medical Response, Inc. ("AMR"), alleging (1) in a qui tam claim, that AMR made false statements and submitted false claims to the government for reimbursement under the Medicare and Medicaid programs, and (2) in an individual claim, that AMR retaliated against plaintiff-appellant Paul Fabula for his refusal to falsify a document. The United States District Court for the District of Connecticut (Michael P. Shea, Judge) dismissed both claims. For the reasons that follow, the judgment of the district court is VACATED and the case is REMANDED for further proceedings consistent with this opinion.

          Jonathan M. Levine (David S. Golub, on the brief), Silver Golub & Teitell LLP, Stamford, CT, for Plaintiffs-Appellants.

          Pamela L. Johnston, Foley & Lardner LLP, Los Angeles, CA (Lawrence M. Kraus, Foley & Lardner LLP, Boston, MA, on the brief), for Defendant-Appellee.

          Jeffrey S. Bucholtz, Paul Alessio Mezzina, King & Spalding LLP, Washington, DC, and Kathryn Comerford Todd, Warren Postman, U.S. Chamber Litigation Center, Washington, DC. for Amicus Curiae The Chamber of Commerce of the United States of America in support of Defendant-Appellee.

          Before: Katzmann, Chief Judge, and Lynch and Chin, Circuit Judges.

          Gerard E. Lynch, Circuit Judge

         Plaintiffs-appellants brought this action under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., against defendant-appellee American Medical Response, Inc. ("AMR"), alleging (1) in a qui tam claim, that AMR made false statements and submitted false claims to the government for reimbursement under the Medicare and Medicaid programs, and (2) in an individual claim, that AMR retaliated against plaintiff-appellant Paul Fabula for his refusal to falsify a document. The qui tam claim is asserted by bankruptcy trustee Ronald I. Chorches for and on behalf of the United States of America and for the benefit of Fabula's bankruptcy estate. The retaliation claim is asserted by Fabula individually.

         The United States District Court for the District of Connecticut (Michael P. Shea, Judge) dismissed both claims: the first on the ground that Chorches failed to allege with the specificity required by Federal Rule of Civil Procedure 9(b) that AMR submitted false claims to the government, and the second on the ground that Fabula's refusal to falsify a document to effectuate AMR's alleged scheme to submit false claims did not constitute protected activity under the FCA's anti-retaliation provision. After deciding, as preliminary matters, that the district court had jurisdiction over Chorches's qui tam claim and that Fabula did not abandon his retaliation claim, we conclude (1) that Chorches has pled the submission of false claims with sufficient particularity under Rule 9(b), as applied in the qui tam context; and (2) that Fabula's refusal to falsify a patient report, under the circumstances of this case, qualifies as protected activity. Accordingly, we VACATE the judgment of the district court, and REMAND for further proceedings consistent with this opinion.


         The following facts are taken largely from the second and third amended complaints filed in this action (the "SAC" and the "TAC, " respectively). As required when reviewing a motion to dismiss a complaint for failure to state a claim, we accept these facts as true for purposes of this opinion. See O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676-77 (2d Cir. 1991).

         From August 2010 to December 2011, Fabula worked as an Emergency Medical Technician ("EMT") in the New Haven, Connecticut branch office of AMR, the largest ambulance company in the United States. In February 2011, while he was employed at AMR, Fabula filed for Chapter 7 bankruptcy; he received a discharge of his debts in May 2011; and his bankruptcy case was closed in June 2011.

         As an EMT, Fabula provided emergency and non-emergency medical transport services, some of which were reimbursable under Medicare and/or Medicaid. According to the complaints, AMR engaged in a scheme to fraudulently obtain reimbursement from Medicare by falsely certifying ambulance transports as medically necessary and submitting claims that it knew were not properly reimbursable under the rules and regulations governing payments by Medicare.[1]

         The execution of the alleged scheme was relatively straightforward. Medicare pays AMR only for ambulance transports that were "medically necessary, " as explained in the Medicare Benefit Policy Manual. Medical necessity is established when the patient's condition is such that use of any other method of transportation is contraindicated (i.e., inadvisable for the patient's health). Thus, in any case in which some means of transportation other than an ambulance can be used without endangering the individual's health, whether or not such other transportation is actually available, Medicare does not pay for ambulance services. Even when the services are deemed medically necessary, moreover, Medicare payments are based on the level of services furnished, not simply on the vehicle used. As a result, in order to receive reimbursement from Medicare, AMR was required to review and submit information about the condition of patients and the emergency or non-emergency medical services that it had provided to them.

         When AMR dispatched an ambulance to transport someone (in industry parlance, a "run"), the participating paramedics and/or EMTs were required to complete an electronic Patient Care Report ("PCR"). The PCRs documented information such as the date, time, and address of the pickup; the name of the person being transported; the name of the medical facility to which the person was transported; and a description of the condition of the person being transported. They were created electronically on a laptop computer during, or immediately following, a run. The description of the transported person's condition determines whether a run is treated as "medically necessary."

         The TAC alleges that during the period of Fabula's employment, AMR routinely made its EMTs and paramedics revise or recreate their field-generated PCRs to include false statements purportedly demonstrating medical necessity to ensure that runs would be reimbursable by Medicare, whether or not ambulance service was in fact medically necessary in the particular case. AMR supervisors provided the EMTs and paramedics with printouts of their original PCRs prepared at the time of the run, marked up with handwritten revisions that altered the substance of the original PCRs so as to falsely characterize runs as medically necessary. Supervisors at AMR specifically instructed EMTs and paramedics how to modify the PCRs by including false or misleading information, and admitted to Fabula that the purpose of such revisions was to qualify the run for Medicare reimbursement. The participation of the EMTs and paramedics in the revision of the PCRs was required because those employees had unique log-in passwords that allowed them to alter the PCRs and prevented AMR supervisors from revising the PCRs themselves. After the EMTs and paramedics had revised or recreated the original PCRs, AMR supervisors collected and shredded the printouts with the handwritten changes. The falsified electronic PCRs remained in AMR's database, to be used for billing purposes.

         In addition to identifying several general categories of patients who were susceptible to having their runs falsely certified as medically necessary (for example, calm and cooperative dementia patients were routinely written up as having a history of violence), the TAC identifies more than ten specific runs for which Fabula was ordered to alter PCRs to include false or misleading information.[2] A few examples follow.

         On July 7, 2011, Fabula and paramedic William Shick transported several patients to the hospital in response to 911 calls. About two weeks later, Fabula was asked to revise four of the PCRs by adding information about the patients' previous surgeries and injuries, implying that such history made ambulance service medically necessary, even though one patient with a chronic allergy issue had no medical need for an ambulance but wanted a ride to the hospital because she thought she could avoid a wait at the hospital if she was brought in by an ambulance, and another patient called for an ambulance only because he felt that he should not have to buy his own cough syrup. On October 17, 2011, Fabula was in the midst of transporting a patient to the hospital, when the run was canceled when it was learned that it was not the correct date for the patient's medical appointment. Nevertheless, AMR made Fabula complete a "return trip PCR, " as if the patient had been transported both to and from the hospital. TAC ¶ 101. On December 4, 2011, Fabula and Douglass Gladstone (also an EMT) assisted in transporting an obese patient who "had no medical reason to be sent to the hospital, he simply wanted to go there." TAC ¶ 100. The patient was able to walk himself to the stretcher and climb on unassisted. An AMR supervisor instructed Fabula to insert information about the patient's previous surgeries to justify his transport to the hospital. That same patient called 911 six dozen times during 2011 for an ambulance to bring him to a medical facility to obtain insulin. AMR directed Fabula, under threat of being placed on unpaid leave, to state falsely in the PCRs for those runs that the patient had difficulty remaining in an upright position.

         Another run in December 2011, in which Fabula assisted paramedic Kevin Bodiford, ultimately led to Fabula's effective termination by AMR.[3] For several weeks following the run, an AMR supervisor repeatedly instructed Bodiford, who had completed the original PCR (the "December 2011 PCR"), to revise his PCR so that it could be submitted to Medicare for payment. Bodiford refused to resubmit the PCR and told a supervisor that Fabula was responsible for the run. In February 2012, while Fabula was on medical leave, the supervisor contacted Fabula and "told [him] to return to AMR under the guise of recreating a PCR from a run made in early December of 2011 that [the supervisor] said had been lost." SAC ¶ 70. Fabula responded by email that he was uncomfortable with the request. Later that same month, when Fabula went to AMR's offices at the supervisor's direction, the supervisor told Fabula that "[y]ou should be able to complete the PCR with the information I've provided, " SAC ¶ 72, and Fabula was handed the PCR that Bodiford had created as well as a cover sheet that included handwritten additions for Fabula to include in a new PCR. The addition of the handwritten information would have qualified the run for Medicare reimbursement. The words Fabula was instructed to use were not his, however; Fabula in fact did not even know what some of the words meant. No longer willing to participate in AMR's scheme, Fabula refused to falsify the PCR despite being told that "if he didn't include [the handwritten information] on the PCR, he couldn't come back to work." SAC ¶ 75. In a March 1, 2012 letter, AMR instructed Fabula "immediately to arrange a time for reconciliation and transmission of this [electronic PCR]. Failure to do so will result in corrective action up to and including termination." SAC ¶ 79. Because Fabula never returned to revise the PCR, his employment was effectively terminated.

         On June 22, 2012, Fabula filed this action as a relator on behalf of the United States, which declined to intervene in 2013. The SAC asserted two claims: Count One alleged that AMR violated 31 U.S.C. § 3729(a)(1)(A) and (B) by making false statements and submitting false claims to the government, and Count Two alleged that AMR fired Fabula in retaliation for his efforts to stop the submission of a false claim in violation of 31 U.S.C. § 3730(h). On March 4, 2015, the district court dismissed the retaliation claim with prejudice for failure to state a claim, holding that Fabula's refusal to falsify a PCR did not constitute protected activity. It also dismissed the qui tam claim on standing grounds, because the qui tam claim, which pre-dated Fabula's bankruptcy petition, had become the property of his bankruptcy estate. The district court stayed the dismissal of the qui tam claim, however, to give Chorches, the trustee of Fabula's bankruptcy estate, the opportunity to intervene and pursue that claim. Subsequently, Chorches joined the action and filed the TAC, which pled only the qui tam claim. On November 6, 2015, the district court dismissed the TAC with prejudice for failure to state a claim, holding that Chorches did not satisfy Rule 9(b)'s heightened pleading requirement. It entered its final judgment dismissing the case on November 10, 2015. Appellants timely appealed the district court's March 4 and November 6, 2015 rulings.


         "We review de novo the grant of a [Federal Rule of Civil Procedure] 12(b)(6) motion to dismiss for failure to state a claim, accepting all factual allegations as true and drawing all reasonable inferences in favor of the plaintiff." Trs. of Upstate N.Y. Eng'rs. Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir. 2016). The complaint must plead "enough facts to state a claim to relief that is plausible on its face, " Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), and must "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged, " Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Appellants contend that the district court erred in dismissing the FCA qui tam and retaliation claims, as pled in the TAC and the SAC, respectively. For the reasons that follow, we vacate the district court's judgment and remand for further proceedings.

         I. The Qui Tam Claim Was Adequately Pled.

         Chorches argues that the district court erred in dismissing the TAC for failure to comply with Rule 9(b). AMR not only challenges that position but also claims that we lack jurisdiction to consider Chorches's qui tam claim because the district court did not have subject matter jurisdiction over that claim. AMR argues that because Chorches's allegations derive from claims made in Fabula's original complaint, they violate the FCA's public disclosure bar, which AMR contends is jurisdictional.

         A. The District Court Had Jurisdiction over the Trustee's Claim.

         Because "every federal appellate court has a special obligation to satisfy itself not only of its own jurisdiction, but also [of] that of the lower courts in a cause under review, " Arnold v. Lucks, 392 F.3d 512, 517 (2d Cir. 2004) (internal quotation marks omitted), we begin by addressing AMR's threshold contention that the FCA's so-called "public disclosure bar" deprived the district court of jurisdiction over Chorches's qui tam claim.

         The public disclosure bar provides that courts "shall dismiss an action or claim under [§ 3730] . . . if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed" in a federal action (amongst other avenues) "unless . . . the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A). For the first time on appeal, AMR argues that because Chorches - the trustee of Fabula's bankruptcy estate, to which the qui tam claim belongs - raises the same qui tam claim that was previously raised by Fabula, Chorches's claim should be dismissed for lack of subject matter jurisdiction.

         Whether the public disclosure bar is jurisdictional matters in this case because of AMR's failure to raise this argument below. Ordinarily, we will not consider in the first instance arguments not raised in the district court. In re Nortel Networks Corp. Secs. Litig., 539 F.3d 129, 132 (2d Cir. 2008). However, because parties may not, by stipulation or neglect, confer jurisdiction on the federal courts that was denied to us by Congress, we must address any question about our jurisdiction, whether or not it has been properly preserved by the party contesting jurisdiction - or indeed, whether or not any party raises the issue before us. See Wynn v. AC Rochester, 273 F.3d 153, 157 (2d Cir. 2001). Accordingly, we turn first to the jurisdictional question. Upon due consideration, we conclude that the FCA's public disclosure bar is nonjurisdictional, and that AMR has forfeited the public disclosure defense by failing to raise the argument in the district court.

         Not every rule that disallows claims under certain conditions affects the jurisdiction of the district courts. To the contrary, the Supreme Court has warned against "profligate use of the term 'jurisdiction.'" Sebelius v. Auburn Reg'l Med. Ctr., 568 U.S. 145, 153 (2013). Courts must "inquire whether Congress has clearly stated that the rule is jurisdictional; absent such a clear statement, [the Supreme Court has] cautioned, courts should treat the restriction as nonjurisdictional in character." Id. (brackets and internal quotation marks omitted). "Under this test, a provision that does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts will not be considered jurisdictional." U.S. ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80, 86 (2d Cir. 2017) (internal quotation marks omitted). Rather, such rules are construed as denying a cause of action under the specified circumstances, and are subject to the normal rules for preserving nonjurisdictional arguments for appeal.

         Our recent decision in Hayes is instructive. There, we held that the FCA's "first-to-file rule"[4] is not jurisdictional; instead, it "bears on the merits of whether a plaintiff has stated a claim." Hayes, 853 F.3d at 85. In so holding, we reasoned that the first-to-file bar did not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts, and stood "in sharp contrast to other provisions of the FCA that do explicitly invoke the jurisdiction of the district courts." Id. at 86 (emphasis in original).

         The same rationale applies to the public disclosure bar at issue here. As elaborated in Hayes, "[b]ecause the FCA clearly states that other limitations on qui tam actions are jurisdictional, but does not clearly state" that the public disclosure bar is jurisdictional, we must treat the public disclosure bar "as nonjurisdictional in character." Id. (brackets and internal quotation marks omitted; emphasis in original). Indeed, the evidence that the public disclosure bar is not jurisdictional is especially strong. Not only does the public disclosure bar, like the first-to-file rule at issue in Hayes, not speak in jurisdictional terms (when other provisions of the FCA do) - the public disclosure rule itself was formerly written as a jurisdictional bar, but was amended in 2010 specifically to delete the jurisdictional language. Prior to 2010, the provision expressly denied jurisdiction, specifying that "[n]o court shall have jurisdiction over an action under [§ 3730] based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing . . . unless . . . the person bringing the action is an original source of the information." 31 U.S.C. § 3730(e)(4)(A) (2006) (emphasis added). But Congress eliminated the reference to "jurisdiction" when it amended the statute in 2010. Thus, when this action was filed in 2012, the public disclosure rule was no longer jurisdictional in nature. That remains true today.

         Therefore, we join the majority of our sister circuits that have addressed the issue in holding that the public disclosure bar is no longer jurisdictional. See, e.g., U.S. ex rel. Advocates for Basic Legal Equality, Inc. v. U.S. Bank, N.A., 816 F.3d 428, 433 (6th Cir. 2016) (since the 2010 amendment, "[t]he public disclosure bar is no longer jurisdictional, as every other circuit to address the question has concluded."); U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 299-300 (3d Cir. 2016); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 916-17 (4th Cir. 2013). But see United States ex rel. Sheet Metal Workers Int'l Ass'n, Local Union 20 v. Horning Investments, LLC, 828 F.3d 587, 591 (7th Cir. 2016) ("It is true that claims that previously have been disclosed may be brought only in limited circumstances, see 31 U.S.C. § 3730(e)(4), and that this rule is jurisdictional."). Accordingly, because AMR failed to raise the public disclosure bar as an affirmative defense or in connection with its motion to dismiss below, its argument that Chorches's qui tam claim is barred by Fabula's earlier complaints in this action has not been preserved for appellate review.[5]

         B. The Qui Tam Claim was Adequately Pled under Rule 9(b).

         We turn next to the merits of Chorches's appeal. "In reviewing a decision to dismiss a complaint on Rule 9(b) grounds, we assume the truth of [a plaintiff's] allegations." O'Brien, 936 F.2d at 676-77. The TAC alleges on information and belief that specific claims were submitted to Medicare for payment. The district court held, however, that the TAC fails to satisfy Rule 9(b) because it provides neither details, such as invoice numbers, invoice dates, and amounts billed or reimbursed, regarding actual requests for payment made to the government, nor a factual basis for its allegations that AMR submitted false claims. We respectfully disagree.

         The FCA is an anti-fraud statute that "may be enforced not just through litigation brought by the Government itself, but also through civil qui tam actions that are filed by private parties, called relators, 'in the name of the Government.'" Kellogg Brown & Root Servs., Inc. v. U.S. ex rel. Carter, 135 S.Ct. 1970, 1973 (2015), quoting 31 U.S.C. § 3730(b)(1). As relevant to Chorches's qui tam claim, the FCA imposes liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(A), (B).[6] The FCA defines a "claim" as "any request or demand . . . for money or property" that is presented, directly or indirectly, to the United States. 31 U.S.C. § 3729(b)(2)(A).

         Qui tam complaints filed under the FCA, because they are claims of fraud, are subject to Rule 9(b). U.S. ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 26 (2d Cir. 2016); Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995). Rule 9(b) states that "[i]n alleging fraud . . ., a party must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). That ordinarily requires a complaint alleging fraud to "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Ladas, 824 F.3d at 25 (internal quotation marks omitted). But "the adequacy of particularized allegations under Rule 9(b) is . . . case- and context-specific." Espinoza ex rel. JPMorgan Chase & Co. v. Dimon, 797 F.3d 229, 236 (2d Cir. 2015).

         "Despite the generally rigid requirement [of Rule 9(b)], allegations may be based on information and belief when facts are peculiarly within the opposing party's knowledge." Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990). "Pleading on information and belief is a desirable and essential expedient when matters that are necessary to complete the statement of a claim are not within the knowledge of the plaintiff but he has sufficient data to justify interposing an allegation on the subject." 5C C. Wright et al., Fed. Prac. & Proc. § 1224 (3d ed. April 2017 Update). "Where pleading is permitted on information and belief" in a complaint that alleges fraud (and is therefore subject to Rule 9(b)), we require that the complaint "adduce specific facts supporting a strong inference of fraud." Wexner, 902 F.2d at 172.

         AMR argues that Chorches has not satisfied Rule 9(b)'s heightened pleading requirements because he has not identified actual invoices that were submitted to the federal government. The TAC, however, adequately pleads - with specificity, albeit on information and belief - that fraudulent claims were submitted to Medicare.

         1. The TAC Adequately Alleges that Billing Information was Peculiarly Within the Knowledge of AMR.

         Chorches concedes that he cannot identify exact billing numbers, dates, or amounts for claims submitted to the government. However, the TAC sets forth facts establishing specific reasons why such information regarding the particular bills that were submitted for reimbursement is "peculiarly within [AMR's] knowledge." Id. According to the TAC, all ambulance personnel, including Fabula, "were prohibited from making unauthorized entrances into the administrative building of AMR in New Haven where all the billing was taking place, " and other than "certify[ing] whether ambulance runs were medically necessary, " they were not able to "participate[] in [AMR's] billing procedures." TAC ¶ 115. In fact, EMTs and paramedics were restricted to the "'garage' and the 'window' where they punched in and punched out each day, " so that any "information about AMR's submissions to Medicare . . . [was] not accessible by any paramedics or EMTs such as Fabula." Id.[7]

         The billing procedures established by AMR thus (advertently or inadvertently) made it virtually impossible for most employees to have access to all of the information necessary to certify on personal knowledge both that a particular invoice was submitted for payment and that the facts stated to justify the invoice were false. The EMTs and paramedics who participated in the runs and wrote up the PCRs had knowledge of the facts recited regarding the runs (including any falsifications), which would be the basis for establishing whether the runs were eligible for Medicare reimbursement, but they had no access to the billing records establishing whether the runs with allegedly falsified records were in fact billed to Medicare. Conversely, the accounting personnel who presumably dealt with the billing and reimbursement processes knew which invoices were submitted to Medicare, but had access to PCRs (that the TAC alleges were deliberately falsified) only after the falsification was complete; therefore, they presumably were in a position to believe in good faith that, according to the information certified by the EMTs and paramedics, the submitted runs qualified for reimbursement.[8]

         In light of those particular circumstances, which are based on specific factual allegations that are within Fabula's knowledge and that we must assume to be true for present purposes, Fabula (and hence Chorches) was unable, without the benefit of discovery, to provide billing details for claims that AMR submitted to the government for reimbursement. As a result, through no fault or lack of diligence on their part, plaintiffs lacked the ability to identify specific documents containing false claims that AMR submitted to the government. The TAC does, however, make plausible allegations that the bills or invoices actually submitted to the government were uniquely within AMR's knowledge and control. It therefore establishes a basis for concluding that allegations regarding the actual submission of bills may be made on information and belief. But, as noted above, ...

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