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United States v. Berkeley HeartLab, Inc.

United States District Court, D. South Carolina, Beaufort Division

October 23, 2017

United States of America, et al, Plaintiffs,
v.
Berkeley HeartLab, Inc., et. al, Defendants. ex rel. Scarlett Lutz, et al., Relators,

          ORDER AND OPINION

          Richard Mark Gergel, United States District Court Judge.

         This matter is before the Court on Defendants Blue Wave Healthcare Consultants, Inc., Floyd Calhoun Dent, III, and Robert Bradford Johnson's (collectively, "the BlueWave Defendants") Motion for Summary Judgment on the claims in the Government's Complaint in Intervention, Relator Chris Riedel's non-intervened claims, and several of their affirmative defenses. (Dkt. No. 504.) For the reasons set forth below, the Motion for Summary Judgment is GRANTED IN PART AND DENIED IN PART. The Motion is GRANTED with respect to Relator Riedel's Speaker Fee claim and DENIED as to all other claims and defenses.

         The United States has filed a cross motion for Partial Summary Judgment against the BlueWave Defendants on Counts I and III of its Complaint in Intervention: (I) the presentation of false claims tainted by an illegal kickback scheme disguised by process and handling fees and (III) conspiracy to present those false claims. The Government has also moved for partial summary judgment on several of Defendants' affirmative defenses. (Dkt. No. 501.) The Government's Motion for Partial Summary Judgment is GRANTED IN PART AND DENIED IN PART. The Motion is GRANTED with respect to Defendants' Fourth, Fifth, Sixth, Seventh, Tenth, Twelfth, and Nineteenth affirmative defenses and DENIED with respect to all other claims and defenses.

         I. Background

         Berkeley HeartLab, Inc. ("BHL") is a California company that offers laboratory testing services for physicians treating patients with cardiovascular disease. (Dkt. No. 501-5.) Defendant Latonya Mallory was the Lab Operations Manager for BHL from 2005 through September 2008. (Dkt. No. 501-4 at 3-4.) Defendant Johnson was employed as a sales representative for BHL beginning in 2002. (Dkt. No. 501-6.) Defendant Dent was employed as a sales representative at BHL beginning in 2005. Johnson trained Dent to perform sales at BHL. (Dkt. No. 501-8; Dkt. No. 501-7 at 10.) Mallory left BHL in September 2008 and formed a new laboratory testing Company, Health Diagnostics Laboratory, Inc. ("HDL"), in November of that year. (Dkt. No. 501-4 at 5.) Mallory was President and CEO of HDL from 2008 through 2014.

         In the latter half of 2009, Johnson, Dent, and Mallory arranged for HDL to retain Dent and Johnson to market its laboratory tests to physicians and physician practices. On January 4, 2010, Dent and Johnson incorporated Blue Wave Healthcare Consultants, Inc. ("Blue Wave") as co-owners with 50% ownership each. (Dkt. No. 173-2 at 50-51; Dkt. No. 501-10 at 3-4.) Blue Wave's only clients were HDL and another laboratory called Singulex, Inc. ("Singulex"). All of Blue Wave's earnings derived from its sales agreements with HDL and Singulex. (Dkt. No. 501-7 at 26-27; Dkt. No. 501-10 at 21-22.)

         II. The Complaint in Intervention

         The Government has provided a lengthy summary of material undisputed facts with citations to the record outlining the contours of several allegedly illegal marketing and business arrangements among Blue Wave, HDL, and Singulex. (Dkt. No. 501-2 at 3-36.) Based on these activities, the Government filed a Complaint in Intervention against the Blue Wave Defendants and Mallory, alleging that they are liable for violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq., payment by mistake of fact, and unjust enrichment. (Dkt. No. 75.)

         A. FCA Claims

         Some of the Government's FCA claims arise from Defendants' alleged violation of the Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), through their participation in three separate schemes:

(1) P&H Fees: The Government alleges that the Blue Wave Defendants caused physicians to be paid process and handling fees to induce those physicians to order blood tests that were reimbursed by federal healthcare programs.
(2) Zero Balance Billing: The Government alleges that the Blue Wave Defendants caused Tri-Care co-payments and deductibles to be waived to induce physicians to order blood tests that were reimbursed by Tricare.
(3) Commission Payments: The Government alleges that, because the laboratories paid BlueWave commissions as an independent contractor for marketing their blood tests, those commissions were intended to induce physicians to order blood tests that were reimbursed by federal healthcare programs.

         The Government alleges that each claim tainted by one of these three illegal kickback schemes violates the AKS and "constitutes a false or fraudulent claim" under the FCA. See 42 U.S.C. § 1320a-7b(g). The Government's fourth FCA claim is not based on an AKS violation:

(4) Medically Unnecessary Tests: The Government alleges that the BlueWave Defendants induced physicians to order medically unnecessary blood tests and submitted claims for reimbursement for those tests to federal healthcare programs.

         B. Equitable Claims

         Based on the conduct described above, the Government also claims: (1) that the Government paid the Blue Wave Defendants based upon mistaken or erroneous understandings of material fact, and (2) that the Blue Wave Defendants were unjustly enriched.

         C. Relator Riedel's Non-intervened Claims

         Relator Riedel has brought two non-intervened claims. (Dkt. No. 286.) First, he claims that Singulex, HDL, and/or BlueWave paid physicians speaker fees to appear and teach at conferences to induce those physicians to order lab tests that were reimbursable by federal health care programs (the "Speaker Fee" arrangement). He also claims that Singulex, HDL, and/or BlueWave waived copayments and deductibles for private insurance carriers to induce physicians to order blood tests reimbursable by federal health care programs (the "Private Zero Balance Billing" scheme). Riedel's FCA claims are both premised on AKS violations.

         The BlueWave Defendants argue that they are entitled to summary judgment on (1) all claims arising under the FCA brought by the Government and Relator Riedel; (2) the Government's equitable claims for payment by mistake of fact and unjust enrichment; and (3) Defendants' Second, Fourth, Fifth, Sixth, Seventh, Ninth, Tenth, Twelfth, Thirteenth, Fifteenth, and Nineteenth affirmative defenses.. (Dkt. No. 504-1.)

         III. Legal Standard

         A. Summary Judgment

         To prevail on a motion for summary judgment, the movant must demonstrate that there is no genuine issue of any material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The party seeking summary judgment has the burden of identifying the portions of the "pleadings, depositions, answers to interrogatories, any admissions on file, together with the affidavits, if any, which show there is no genuine issue as to any material fact that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The Court will construe all inferences and ambiguities against the movant and in favor of the non-moving party. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962). The existence of a mere scintilla of evidence in support of the non-moving party's position is insufficient to withstand a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). However, an issue of material fact is genuine if the evidence is such that a reasonable jury could return a verdict in favor of the non-movant. Id. at 257.

         "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "In the language of the Rule, the nonmoving party must come forward with 'specific facts showing that there is a genuine issue for trial.'" Id. at 587. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Id. (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).

         B. The False Claims Act

         The False Claims Act imposes civil liability on any person who "knowingly presents, or causes to be presented, to [the United States government] a false or fraudulent claim for payment or approval" or "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." 31 U.S.C. § 3729(a). A false or fraudulent claim includes false statements or fraudulent conduct that induce the contract for or extension of a government benefit. To prove a fraudulent inducement claim, a plaintiff must show that: (1) there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material to the government's decision to pay a claim; and (4) that caused the government to pay out money or to forfeit moneys due. See United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008).

         IV. Discussion

         A. False Claims Act

         The BlueWave Defendants claim they are entitled to summary judgment on the Government's FCA claims because the Government has failed to create a genuine dispute of material fact about whether (1) they made false statements or engaged in a fraudulent course of conduct and (2) their statements or conduct were material to the Government's decision to pay any claims.

         1. False Statements or Fraudulent Course of Conduct

         The BlueWave Defendants argue that the Government has failed to create a genuine dispute of material fact about whether they made false statements or engaged in a fraudulent course of conduct because the Government has failed to point to evidence that (1) they had the requisite scienter to violate the AKS with regard to any of the alleged kickback schemes or (2) any test for which a ...


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