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Schaefer v. Family Medicine Centers of South Carolina LLC

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

February 27, 2019

CATHERINE A. SCHAEFER, M.D., Plaintiff,
v.
FAMILY MEDICINE CENTERS OF SOUTH CAROLINA, LLC, STEPHEN F. SERBIN, M.D., PETER J. STAHL, M.D., BHAVESH R. AMIN, M.D., SPRINGWOOD LAKE PRIMARY CARE, LLC, SPRINGWOOD LAKE BUILDING, LLC, SOUTHEAST PROFESSIONAL PLAZA, LLC, MIDTOWN BUILDING, LLC, SALUDA POINTE BUILDING, LLC, and LAKE MURRAY FAMILY MEDICINE BUILDING, LLC, Defendants.

          OPINION AND ORDER

          Margaret B. Seymour, Senior United States District Judge

         Plaintiff Catherine A. Schaefer, M.D. (“Plaintiff”) brought the within action against Defendants Family Medicine Centers of South Carolina, LLC (“FMC”); Stephen F. Serbin, M.D. (“Defendant Serbin”); Peter J. Stahl, M.D. (“Defendant Stahl”); Bhavesh R. Amin, M.D. (“Defendant Amin”); Springwood Lake Primary Care, LLC; Springwood Lake Building, LLC; Southeast Professional Plaza, LLC; Midtown Building, LLC; Saluda Point Building, LLC; and Lake Murray Family Medicine Building, LLC in the Court of Common Pleas for Richland County, South Carolina.[1] The action was removed to this court on October 12, 2018. Plaintiff asserts claims for fraudulent inducement, tortious interference with contract, and civil conspiracy relating to a settlement agreement she entered into with FMC and the United States government in 2014 to settle claims arising under the False Claims Act.

         This matter is before the court on the motion to dismiss filed by Defendants Serbin, Stahl, FMC, Lake Murray Family Medicine Building, LLC, Midtown Building, LLC, Saluda Pointe Building, LLC, Southeast Professional Plaza, LLC, Springwood Lake Building, LLC, and Springwood Lake Primary Care, LLC (hereinafter, “Defendants”). ECF No. 16. The motion seeks dismissal pursuant to Fed.R.Civ.P. 12(b)(6) and 12(b)(7). Id. Plaintiff filed an opposition to Defendants' motion on October 25, 2018, ECF No. 32, to which Defendants filed a reply on November 1, 2018. ECF No. 33.[2] The court held oral argument on the motion on February 12, 2019, and took the matter under advisement. The court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331, 1355.

         I. BACKGROUND

         The FCA Action

         On February 12, 2014, Plaintiff filed a qui tam action under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., on behalf of the United States against Victoria Serbin and Defendants FMC, Serbin, and Stahl, styled United States ex rel. Schaefer v. Family Medicine Centers of South Carolina, LLC, 3:14-cv-00382 (D.S.C. Feb. 12, 2014) (the “FCA Action”). ECF No. 4-2. Defendant Serbin and Defendant Stahl are founders, owners, and members of FMC. Victoria Serbin, Defendant Serbin's wife, was an employee of FMC and held multiple management positions there, including Laboratory Director and Director of Clinical Ancillary Services. ECF No. 4-5 at 2. The FCA action was based on Plaintiff's employment with FMC between April 2013 and November 2013, during which time Plaintiff alleged she “personally witnessed” FMC's scheme to defraud Medicare and Tricare “by overcharging federal health insurance programs for amounts exceeding the actual value of services provided to federally-insured patients.” ECF No. 1-1 at ¶ 36. Plaintiff also alleged that Defendant Serbin wrongfully terminated her employment “when she objected to FMC's fraudulent practices.” Id.

         On May 5, 2016, the United States filed a complaint in intervention alleging that FMC, Defendant Serbin, and Victoria Serbin, (collectively, “Serbin Defendants”) submitted false claims to Medicare, Tricare, and the Federal Employees Health Benefits Program. ECF No. 4-3. The United States further alleged as follows. The Serbin Defendants had employment arrangements with physicians that included “compensation directly attributable to the volume or value of the employed physician's referrals.” Id. at 3. The Serbin Defendants violated the FCA and the Stark Law, 42 U.S.C. § 1395nn, “[b]y knowingly submitting, and causing to be submitted, claims for reimbursement based on referrals generated by physicians who received compensation based on these terms.” Id. Additionally, in order to maximize revenue, the Serbin Defendants devised a variety of schemes, including: “creating custom laboratory panels comprised of diagnostic tests not appropriate for routine measurement”; “implementing standing orders to assure [] custom panels were performed with defined frequency, ” rather than in reaction to clinical needs; programming billing software to generate inaccurate codes so as to misrepresent services provided; ordering unnecessary laboratory tests; and billing for office visits when a patient presented for a simple blood-drawing procedure. Id. at 3-4. Plaintiff subsequently filed an amended complaint to preserve her employment retaliation claim under 31 U.S.C. § 3730(h) of the FCA, which entitled her to recover two times the back pay from the date of her discharge plus interest, special damages, costs, and attorneys' fees. ECF No. 4-4.

         The Serbin Defendants filed a motion to dismiss, which the court denied. United States v. Family Medicine Centers of South Carolina, LLC, 3:14-cv-00382, 2016 WL 6601017 (D.S.C. Nov. 8, 2016). The United States thereafter filed a joint stipulation of dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), citing in relevant part a settlement agreement executed on September 11, 2017 between the United States, Plaintiff, and FMC (“Settlement Agreement”). United States v. Family Medicine Centers of South Carolina, LLC, 3:14-cv-00382 at ECF No. 114.

         The Settlement Agreement

         Plaintiff asserts that in April 2016, FMC offered a lump sum settlement, to which the United States responded with a counter offer. ECF No. 1-1 at ¶ 42. On October 24, 2016, FMC proposed a counteroffer of $1.5 million to be paid over five years in monthly installments of $25, 000. Plaintiff asserts, “FMC claimed its settlement offer was based solely on ability to pay and that FMC no longer had the ability to make the lump sum payment offered in April 2016 because its business had declined since the United States' intervention.” Id. at ¶ 43. Also, “[o]n March 9, 2017, FMC told the United States that banks were declining to extend lines of credit because of concerns with the ‘delay' in reaching a settlement and that four employees were being laid off.” Id. at ¶ 44. The United States thereafter proposed settlement substantially similar to FMC's October 2016 counteroffer, and, on August 2, 2017, the United States and FMC agreed to the settlement. Id. at ¶¶ 45, 46. Plaintiff asserts “FMC claimed it was unable to pay anything to compensate [her] for her employment retaliation claim beyond the monies [she] would receive from the statutory whistleblower reward paid from the government's recovery.” ECF No. 1-1 at ¶ 47. Accordingly, “[b]ased on the representations made by FMC to the United States government and the United States' agreement to an ‘ability to pay' settlement, Dr. Schaefer agreed to join the proposed settlement.” Id. at ¶ 48.

         On September 11, 2017, the United States, Plaintiff, and FMC executed the Settlement Agreement, “which resolved the FCA Action for $1, 560, 000, plus accrued interest at a rate of 2.375 percent, to be paid over five years in monthly installments of $10, 000[, ] plus interest for the first year, followed by monthly installments of $30, 000[, ] plus interest for the remaining four years.”[3] ECF No. 1-1 at ¶ 49. The total interest payment would have been $102, 481.25. Id.; ECF No. 16-2. The Settlement Agreement recognized that Plaintiff was entitled under 31 U.S.C. § 3730(d) to a share of the proceeds paid under the Agreement, and that the United States would pay to Plaintiff 17 percent of each payment FMC remitted under the Agreement.[4][5] ECF No. 16-2 at 2, 4.

         As part of the Settlement Agreement, FMC contemporaneously executed a Corporate Integrity Agreement (“CIA”) with the Office of the Inspector General of the United States Department of Health and Human Services. ECF No. 1-1 at ¶ 52; ECF No. 4-6. The CIA required FMC to restructure. As part of the restructuring, shortly before the execution of the Settlement Agreement, Defendant Stahl agreed to buy FMC, and thereby replaced Defendant Serbin as FMC's chief executive office. ECF No. 1-1 at ¶¶ 11, 12, 54.

         Present Action

         Plaintiff now alleges that FMC intentionally thwarted its obligations to her and the United States under the Settlement Agreement by ceasing to make payments after ten months, while FMC's members “established ‘new' medical practices, often in the same locations seeing the same patients, operating under with new corporate entities [sic].” ECF No. 1-1 at ¶ 3. Plaintiff alleges that Defendants never intended for FMC to honor the Settlement Agreement. Id. at ¶ 5. Plaintiff further alleges that although FMC represented that its business had declined since the government's intervention, “FMC had ample financial resources when the Settlement Agreement was negotiated and executed, ” and, furthermore, “FMC warranted it was currently solvent and would remain solvent at least until the completion of the Settlement Agreement.” Id. at ¶¶ 56, 78; ECF No. 16-2 at 12.

         Plaintiff asserts that FMC was the largest family practice healthcare provider in Columbia, South Carolina, serving approximately 40, 000 patients at six office locations with an estimated annual revenue of $18.97 million and a portfolio of commercial real estate worth several million dollars. ECF No. 1-1 at ¶¶ 10, 58. Plaintiff alleges that almost immediately after the execution of the Settlement Agreement, FMC's member physicians wound up the practice. On March 15, 2018, Defendant Serbin created Defendant Springwood Lake Primary Care, LLC, where he currently practices and to which Defendant Stahl has referred his patients. ECF No. 1-1 at ¶ 27. FMC then announced its closure on April 3, 2018, effective May 31, 2018, and its website directed FMC patients to continue to see former FMC physicians at their new practices. ECF No. 1-1 at ¶¶ 10, 68.

         On July 1, 2018, FMC defaulted on the $12, 889.58 monthly payment due under the Settlement Agreement. ECF No. 1-1 at ¶ 69. On July 12, 2018, the United States sent a notice of default to FMC. Id. at ¶ 70. Under the terms of the Settlement Agreement, FMC was required to cure its default within ten days of the date of the notice, i.e., July 23, 2018. Id. at ¶ 71. On July 19, 2018, Defendants Serbin and Stahl sold the location of FMC's former office in Lexington, South Carolina for over $1.3 million. However, FMC failed to cure the default then and to date has not cured the default. Id. at ¶¶ 72, 73.

         On unspecified dates prior to the execution of the Settlement Agreement, Defendant Serbin formed the following entities: Defendant Springwood Lake Building, LLC, which owns property at 1721 Horseshoe Drive, Columbia; Defendant Southeast Professional Plaza, LLC, which owns property at 813 Leesburg Road, Columbia, which is currently for sale for $1, 650, 000; Defendant Midtown Building, LLC, which owns property at 1910 Gregg Street, Columbia; Defendant Saluda Point Building, LLC, which owned and, on July 19, 2018, sold property at 3630 Sunset Boulevard, West Columbia for $1, 308, 660; and Defendant Lake Murray Family Medicine Building, LLC, which owns property at 7611 St. Andrews Road, Irmo. ECF No. 1-1 at ¶¶ 31-35. Each of these properties served as a location for FMC's medical practice, prior to FMC's closure. Id. Defendants Springwood Lake Building, LLC, Southeast Professional Plaza, LLC, Midtown Building, LLC, Saluda Point Building, LLC, and Lake Murray Family Medicine Building, LLC are hereafter referred to as the “Real Estate Defendants.”

         Plaintiff alleges that with the exception of Defendant Stahl, who retired and referred his patients to Defendant Serbin, and former-defendant Eric N. Hutto, M.D., who has referred his patients to former-defendant Pamela I. Brown, M.D., “FMC's former physicians continue to serve their Columbia-area patients and do so mostly in the same former FMC offices where they practiced when the Settlement Agreement was executed, but under new legal entities, most of which were formed after the Settlement Agreement was executed.” ECF No. 1-1 at ¶ 74. Plaintiff alleges that FMC and its member physicians “never intended to honor the Settlement Agreement, ” and, rather, “intended to wind up FMC as soon as possible after execution of the Settlement Agreement and have done precisely that.” Id. at ¶¶ 80, 81. As a result, Plaintiff contends, Defendants paid only $126, 896.89 for claims worth over $30 million to the United States and Dr. Schaefer.” Id. at ¶ 83.

         On this basis, Plaintiff asserts claims for fraud in the inducement as to Defendants FMC, Serbin, and Stahl; tortious interference with contract as to Defendants Serbin, Stahl, and Amin; and civil conspiracy as to all Defendants. Plaintiff seeks compensatory damages in the form of civil penalties awarded under 31 U.S.C. § 3729 and back pay awarded under 31 U.S.C. § 3730(h); costs and attorney's fees; and punitive damages. ECF No. 1-1 at 20.

         II. LEGAL STANDARD

         A. Federal Rule of Civil Procedure 12(b)(6)

         A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests the legal sufficiency of a complaint. Schatz v. Rosenberg, 943 F.2d 455, 489 (4th Cir. 1991). While the complaint need not be minutely detailed, it must provide enough factual details to put the opposing party on fair notice of the claim and the grounds upon which it rests. Bell Atl. Corp. v. Twombly, 550 U.S 544, 555 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)). Additionally, a complaint must contain factual content that allows the court to reasonably infer the defendant is liable for the alleged misconduct. Ashcroft v. Iqbal, 556 U.S 662, 678 (2009) (“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”). “Facts that are ‘merely consistent with' liability do not establish a plausible claim to relief.” United States ex rel. Nathan v. Takeda Pharms. N. Am., Inc., 707 F.3d 451, 455 (4th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). See 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) (“[T]he pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”).

         The court must accept the allegations in the complaint as true, and draw all reasonable factual inferences in favor of the party opposing the motion. Iqbal, 556 U.S. at 679. However, the court will not accept “legal conclusions couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.” Nathan, 707 F.3d at 455 (quoting Wag More Dogs, LLC v. Cozart, 680 F.3d 359, 365 (4th Cir. 2012)). To determine plausibility, a court is to “draw on its judicial experience and common sense”; but dismissal is not warranted if the court determines that the factual allegations can “plausibly give rise to an entitlement to relief.” Iqbal, 556 U.S. at 679. “But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. (citing Fed.R.Civ.P. 8(a)(2)).

         B. Federal Rule of Civil Procedure 12(b)(7)

         Under Rule 12(b)(7), a court may dismiss a complaint for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). Rule 19 sets forth a two-step inquiry for a district court to determine whether a party should be joined in an action. The court must first determine whether the party is “necessary” to the action.[6] Id. at Fed.R.Civ.P. 19(a). If the court determines that the party is “necessary, ” it must then determine whether the party is “indispensable” to the action.[7] Id. at 19(b). National Union Fire Ins. Co. of Pittsburgh, PA v. Rite Aid of South Carolina, Inc., 210 F.3d 246, 249 (4th Cir. 2000). Am. Gen. Life & Acc. Ins. Co. v. Wood, 429 F.3d 83, 92 (4th Cir. 2005). “If a person who is required to be joined if feasible cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Fed.R.Civ.P. 19(b).

         III. DISCUSSION

         Defendants argue that Plaintiff fails to state a claim upon which relief may be granted, and that the court should dismiss the entire suit for Plaintiff's failure to join the United States as a party.

         A. Pleading Deficiencies

         1. Fraud in the Inducement

         Plaintiff claims fraud in the inducement as to Defendants Serbin, Stahl, and FMC. “Fraud is an intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to her or to surrender a legal right.” Regions Bank v.Schmauch, 582 S.E.2d 432, 444 (S.C. Ct. App. ...


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