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United States v. Berkeley HeartLab, Inc.

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

October 31, 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 Defendant Latonya Mallory's Motion for Summary Judgment (Dkt. No. 498) on the claims in the Government's Complaint in Intervention and the Government's Motion for Partial Summary Judgment (Dkt. No. 501) against Defendant Mallory 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 Defendant Mallory's Third, Fourth, Sixth, Seventh, Eighth, and Tenth affirmative defenses.[1]

         For the reasons set forth below, Defendant Mallory's Motion for Summary Judgment (Dkt. No. 498) is DENIED. The Government's Motion for Partial Summary Judgment (Dkt. No. 501) is GRANTED IN PART AND DENIED IN PART. The Government's Motion is GRANTED with respect to Defendant Mallory's Third, Fourth, and Seventh 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.[2] (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 Robert Bradford Johnson was employed as a sales representative for BHL beginning in 2002. (Dkt. No. 501-6.) Defendant Floyd Calhoun Dent, III, 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 describing several allegedly illegal marketing and business arrangements among BlueWave, HDL, and Singulex. (Dkt. No. 501-2 at 3-36.) Based on these activities, the Government filed a Complaint in Intervention against Blue Wave, Dent, Johnson (together, the "BlueWave 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 Defendant Mallory's alleged violation of the Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), through her participation in three separate schemes:

(1) P&H Fees: The Government alleges that Mallory and 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 Mallory and the BlueWave 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 filed in connection with one of these three arrangements 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 and Defendant Mallory induced physicians to order medically unnecessary blood tests and caused claims for reimbursement for those tests to be submitted to federal healthcare programs.

         B. Equitable Claims

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

         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 ...


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