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United States v. Laboratory Corporation of America Holdings

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

January 16, 2019

United States of America and The States of California and Illinois, ex rel. Scarlett Lutz and Kayla Webster, Plaintiffs/Relators,
Laboratory Corporation of America Holdings, Defendant.


          Richard Mark Geirgel United States District Court Judge.

         This matter is before the Court on Defendant Laboratory Corporation of America Holdings' ("LabCorp") partial motion to dismiss the fourth amended complaint ("FAC") under Federal Rules of Civil Procedure 9(b) and 12(b)(6). (Dkt. No. 60.) For the reasons below, LabCorp's motion to dismiss is granted in part and denied in part.

         I. Background

         Relators Scarlett Lutz and Kayla Webster ("Relators") filed a qui tam complaint in 2013 alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729 and multiple state statutes against LabCorp and other defendants. The claims against Defendant LabCorp were eventually severed from the claims against the other defendants. On June 26, 2018, the Relators filed their Fourth Amended Complaint, alleging that LabCorp violated the FCA through several fraudulent schemes impacting government health care programs, such as billing for medically unnecessary tests and paying kickbacks to physicians for ordering tests from LabCorp, and that it did so as part of a conspiracy with two other laboratories: Health Diagnostic Laboratory, Inc. ("HDL") and Singulex, Inc. ("Singulex"). In addition to claims under the FCA, Relators brought claims under the California Insurance Frauds Prevention Act ("CIFPA"), Cal. Ins. Code § 1871.7, and the Illinois Insurance Claims Fraud Prevention Act ("ICFPA"), 740Ill.Comp.Stat. Ann. 92/15, both of which allow interested persons to bring a qui tam suit for fraudulent claims submitted to private insurers. Neither the federal government nor any state government has decided to intervene in this qui tam action as of the date of this order.[1]

         Defendant LabCorp now seeks the dismissal of most claims brought by the Relators. First, LabCorp argues that the FAC fails to state a cause of action against LabCorp for submitting claims for medically unnecessary tests. Second, LabCorp argues that Relators' claim for reverse false claims liability, Count II, is duplicative and fails to allege the claim with particularity, as required by Rule 9(b). Third, LabCorp argues that the Relators lack standing to bring claims under the CIFPA or ICFPA since they are not "interested persons" and, regardless, the claims fail under 9(b). Finally, LabCorp argues that the conspiracy claims fail under 9(b). LabCorp's motion does not seek dismissal of the claims based on alleged kickbacks paid to ensure that doctors referred and ordered lab tests. (Dkt. No. 60 at 3.) Relators oppose the motion. (Dkt. No. 63.)

         II. Legal Standard

         A. Motion to Dismiss

         Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if the complaint fails "to state a claim upon which relief can be granted." Such a motion tests the legal sufficiency of the complaint and "does not resolve contests surrounding the facts, the merits of the claim, or the applicability of defenses.... Our inquiry then is limited to whether the allegations constitute 'a short and plain statement of the claim showing that the pleader is entitled to relief" Republican Party of N. C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (quotation marks and citation omitted). In a Rule 12(b)(6) motion, the Court is obligated to "assume the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). However, while the Court must accept the facts in a light most favorable to the non-moving party, it "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." Id.

         To survive a motion to dismiss, the complaint must state "enough facts to state a claim to relief that is plausible on its face." BellAtl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Although the requirement of plausibility does not impose a probability requirement at this stage, the complaint must show more than a "sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint has "facial plausibility" where the pleading "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

         B. Pleading Fraud with Particularity - Rule 9(b)

         A complaint alleging fraud "must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id. To meet this standard, the complaint must describe "the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (citations omitted). In other words, the complaint must describe the "who, what, when, where, and how of the alleged fraud." Id. (citations omitted).

         Finally, "[a] court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial pre-discovery evidence of those facts." Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999). Rule 9(b) also requires a complaint to include "some indicia of reliability" to "support the allegation that an actual false claim was presented to the government." Nathan, 707 F.3d at 457 (citation omitted). A complaint provides the requisite indicia of reliability where "specific allegations of the defendant's fraudulent conduct necessarily [lead] to the plausible inference that false claims were presented to the government." Id.

         III. Discussion

         A. Claims Based on Medically ...

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