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United States ex rel. Cairns v. D.S. Medical LLC

United States District Court, E.D. Missouri, Southeastern Division

February 11, 2015

UNITED STATES ex rel. PAUL CAIRNS, et al., Plaintiff,
v.
D.S. MEDICAL LLC; MIDWEST NEUROSURGEONS, L.L.C.; SONJAY FONN, M.D.; and DEBORAH SEEGER, Defendants.

MEMORANDUM AND ORDER

AUDREY G. FLEISSIG, District Judge.

This qui tam action, in which the United States has intervened, is brought under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33. The United States claims that Defendants - two individuals and two limited liability companies they formed - violated the FCA by submitting and/or causing others to submit to the United States claims for payment that were false, because they were the result of kickbacks that violated the federal criminal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b. The complaint also asserts common law claims of unjust enrichment and payment under mistake of fact. Now before the Court is Defendants' joint motion to dismiss the case under Federal Rule of Civil Procedure 12(b)(6).[1] For the reasons set forth below, the motion to dismiss shall be denied.

BACKGROUND

The complaint (in intervention) alleges the following. Defendant Sonjay Fonn, D.O., is a physician who, from November 2008 to March 2012, had privileges to perform spinal implant surgeries at a hospital in Missouri. Defendant Midwest Neurosurgeons, L.L.C. ("MWN") is a Missouri limited liability company formed by Fonn in December 2008, and operated by him, with himself as the sole physician employee. In accordance with typical practice, Fonn would inform the hospital which implant devices he wished to use in his surgeries. The hospital would arrange to purchase the requested devices through a distributor. If a patient was a Medicare or Medicaid beneficiary, the hospital would seek and receive reimbursement for the cost of the implant devices by filing claims with Medicare (Part A) or Medicaid. In addition, Fonn, acting through MWN, submitted claims to, and was paid by, Medicare (Part B) and Medicaid for his professional services associated with such surgeries.

In June 2008, Defendant Deborah Seeger, with whom Fonn has had a long-term personal relationship and to whom, since at least June 2008, he is engaged to be married, formed Defendant D.S. Medical, LLC ("DSM"), a Missouri limited liability company, for the distribution of spinal implant devices. DSM would receive a commission from the device manufacturers - in particular and hereinafter, "Manufacturer B" - for their devices that DSM distributed. The complaint alleges that DSM rented space from MWN, and that MWN and DSM had "shared' employees and contractors." Further, according to the complaint, after its formation, Fonn used DSM as his "virtually exclusive source" of spinal implant devices for his patients, and he began using more such devices in each of his surgeries and performing more spinal implant surgeries than he did before.

The complaint further alleges the following. Fonn was DSM's only physician/customer, and "Fonn and Seeger set up and operated [DSM] together as a joint venture, using it as a common enterprise for their mutual economic benefit." Fonn and Seeger share title to assets, including a truck and recreational vehicle, that were purchased in part with DSM's commission revenue from Manufacturer B, and since at least June 2008, Fonn and Seeger have shared a residence that Seeger purchased "using a [DSM] bank account... using her commission revenue from [DSM]."

To be eligible for payment by Medicare for the costs of the implant devices, the hospital was required to certify that it agreed to abide by Medicare laws and regulations and that it understood that payment of a claim by Medicare was conditioned upon both the claim and the underlying transaction complying with such laws and regulations, including the AKS. Fonn, on behalf of MWN, signed similar certifications to be eligible for reimbursement by Medicare for his services related to the surgeries.

The complaint sets forth, in three counts, the Government's theories of how Defendants' above-described conduct violated the FCA. Count I asserts that Fonn, personally and through MWN, solicited and received remuneration from Seeger and DSM in return for ordering/causing the hospital to purchase implant devices through DSM, for which payment was made by Medicare and/or Medicaid; that Seeger and DSM paid remuneration to Fonn and MWN to induce Fonn to order implant devices through Seeger and DSM, for which payment was made by Medicare and/or Medicaid; and that all four Defendants thereby,

caused false claims for payment to be presented to the United States in violation of 31 U.S.C § 3729(a)(1)(A) when they submitted and caused the submission of claims to Medicaid and Medicare for spinal implant devices and related services by the hospital and MWN as a result of kickbacks and/or illegal remuneration in violation of the [AKS].

(Doc. No. 26 at 17-18.) A list of claims (billed to Medicare Part A, Medicare Part B, and Medicaid) that were allegedly false under this theory was submitted as an exhibit to the complaint.

In Count II, the alleged illegal remunerations are characterized differently - not as monies exchanged between the two sets of Defendants, but rather as the commissions paid by Manufacturer B to DSM. This count asserts that Fonn, Seeger, and DSM, individually and collectively, solicited and received commissions/remuneration from the Manufacturer B in return for ordering, or having the hospital order, implant devices from Manufacturer B, and that all four Defendants thereby caused false claims for payment to be presented to the United States, as quoted above in the context of Count I. A list of claims that were allegedly false under this theory (billed to Medicare Part A and to Medicare Part B) was submitted as another exhibit to the complaint.

Count III asserts that the four Defendants conspired to violate the FCA as asserted in Count II. Counts IV and V assert common law claims. Count IV seeks recovery from Fonn and MWN for monies paid them (for reimbursement of professional services) by Missouri and the United States as a result of mistaken understanding of fact, that is, as a result of a mistaken belief that the relevant claims and certifications were not false. Count V seeks recovery from all four Defendants on the theory that they were unjustly enriched by obtaining government funds to which they were not entitled.

Defendants argue that Counts I, II, and III fail to state claims under the FCA because (1) the complaint fails to allege that the AKS violations were the "but for" causation of the alleged false claims, that is, that but for the alleged kickbacks, Fonn's utilization of the subject implant devices and related services would have been different; (2) as there is no allegation of medically unnecessary procedures conducted by Fonn, the Medicare Part B claims for his services do not include "services resulting from a violation" of the AKS, and therefore are not false claims; (3) the complaint only suggests the "possibility" not the "plausibility" that Seeger induced Fonn to purchase products through DCM in return for remuneration; and "in combination with judicial experience and common sense, " provides "the likely explanation" for why Fonn directed business to Seeger, and why Seeger shared assets with Fonn, namely, their personal relationship; (4) the Government's theory of the alleged kickback scheme improperly expands on the prohibition in the Stark Act, 28 U.S.C. § 1395nn, against married people engaging in referrals as alleged here, and improperly invades Seeger's and Fonn's privacy rights; and (5) inasmuch as the hospital certifications only certified that the hospital complied with the AKA, not that Defendants did, the certifications were not false and thus Defendants did not cause the hospital to submit false claims.

Defendants argue that Count IV, payment due to mistake of fact, should be dismissed as to Seeger, DSM, and Fonn, because the Government does not allege that it made a payment to any of these parties. Defendants also argue that the Government is not entitled to collect any payments made by the State of Missouri under the Medicaid program. With respect to Count V for unjust enrichment, Defendants again argue that the only payments the Government made were to MWN, and as these payments were for physician services not the implant devices, this Count fails as a matter of law. Furthermore, Defendants argue that the Government's failure to specifically allege what monies constituted unjust enrichment, as well as the existence of an express contract between the Government ...


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