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United States ex rel. Cairns v. D.S. Medical, L.L.C.

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

August 31, 2017

UNITED STATES OF AMERICA, ex rel. PAUL CAIRNS, et al., Plaintiff,
v.
D.S. MEDICAL, L.L.C., et al, Defendants.

          MEMORANDUM AND ORDER

          AUDREY G. FLEISSIG UNITED STATES DISTRICT JUDGE.

         This qui tam action under the False Claims Act, 31 U.S.C. §§ 3729-33 (“FCA”) is before the Court on Defendants' joint motion (ECF No. 198) for summary judgment. For the reasons set forth below, the motion will be denied.

         BACKGROUND

         The qui tam complaint in the present action was filed on January 5, 2012, claiming that the four Defendants - Dr. Sonjay Fonn, a neurosurgeon; the limited liability company Dr. Fonn created, Midwest Neurosurgeons, LLC (“Midwest Neurosurgeons”); Dr. Fonn's fiancée, Deborah Seeger; and Seeger's spinal implant distributorship, D.S Medical, LLC (“DSM”) - violated the FCA by submitting or causing to be submitted to the federal Medicare and Medicaid programs false claims for reimbursement for Dr. Fonn's services in performing spinal surgeries at St. Francis Medical Center (“SFMC”) between December 2008 and March 2012, and for the purchase of implant devices used in those surgeries. The claims for reimbursement were allegedly false because they were the result of alleged kickbacks that violated the federal criminal Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a, et seq.

         The intervenor complaint (ECF No. 26) alleges that Dr. Fonn would select the devices he would use during surgeries at SFMC, based, at least in part, on the fact that DSM served as the local distributor of the devices. DSM would be paid commissions by the manufacturers, and Seeger/DSM would in turn share those commissions by providing in-kind remuneration to Dr. Fonn, in exchange for his continuing to use DSM as his distributor. The alleged kickbacks are this in-kind remuneration from Seeger/DSM to Dr. Fonn, and kickbacks from spinal implant manufacturers (specifically Verticor and Amedica) in the form of inflated commissions paid to DSM. The alleged remuneration from Seeger/DSM to Dr. Fonn was allowing him to live in a home she owned, without paying rent at a fair market value, and allowing him use of a yacht and properties she purchased through a company (DS Enterprises) funded by DSM. The complaint asserts FCA claims against each Defendant individually and in conspiracy with each other, and also asserts state common law claims for payment by mistake of fact, unjust enrichment, and fraud.

         The record before the court presents sufficient evidence for a jury to find the following: Dr. Fonn moved to Cape Girardeau in 2007, and in 2008 joined Cape Neurosurgeons (“CNS”), a neurosurgical practice group owned by Dr. Kee Park. Dr. Fonn was aware that John Park, Dr. Park's brother, owned a company that had served as a distributor for medical products used by Dr. Park, Dr. Fonn, and other physicians at CNS. Dr. Fonn was aware of the significant income John Park realized from this arrangement. After Dr. Park moved out of town in August 2008, Dr. Fonn told a regional sales manager for a surgical device manufacturer that Dr. Fonn wanted Seeger to be his distributor so that he could duplicate the scenario that John Park had. Dr. Fonn persuaded Seeger to become a distributor by promising to support her business, and in October 2008, he paid for the incorporation of DSM. Thereafter, in order for a spinal device manufacturer to secure Dr. Fonn's business, they had to provide DSM with allegedly inflated commission agreements.

         As a result, DSM earned millions of dollars in commission revenue from these device manufacturers. Seeger/DSM shared that revenue with Dr. Fonn by providing him with in-kind remuneration, primarily in that she allowed Dr. Fonn to live with her from at least October 2009 to March 2012 in a home she purchased, renovated, and furnished with funds from her DSM Bank account, at a rent a jury could find was below fair market value. In addition, as noted above, she allowed him use of a yacht and properties she purchased through DS Enterprises. Seeger/DSM provided Dr. Fonn with these forms of remuneration in order to induce him to continue using her company as his distributor.

         In support of their motion for summary judgment, Defendants argue that the allegations relating to remuneration from Seeger/DSM to Dr. Fonn in the form of residing at the home Seeger owned are without evidentiary support, as are other alleged financial benefits flowing to Dr. Fonn from Seeger/DSM. Defendants also assert that the Court should apply the “primary purpose” standard for the intent-to-induce element of the alleged AKS violation, rather than the “one purpose” standard; and the government's evidence does not create a jury question with regard to the intent element under the “primary purpose” standard. Defendants argue that applying the “one purpose” standard would make the AKS void for vagueness.

         With respect to the alleged inflated commissions paid by spinal device manufacturers to DSM, Defendants argue that the evidence shows that the commissions paid to DSM were not inflated, and that there is no evidence that Dr. Fonn conditioned the use of particular implants on DSM being the distributor of the implants.

         Defendants next argue that they cannot not be liable under the FCA for the claims for Medicare or Medicaid reimbursement submitted by SFMC. This is so, according to Defendants, because the government did not submit during discovery copies of any certifications by SFMC that the claims for reimbursement did not involve underlying violations of the AKS by Defendants. Thus, Defendants argue, the hospital claims for reimbursement were neither expressly nor implicitly false. They further argue that the government cannot establish that any misrepresentation with respect to the hospital claims was material to the government's decision to pay the claims, as required for liability under the FCA. Defendants reassert the argument they raised in the context of their motion to dismiss the action for failure to state a claim, that the government cannot establish that “but for” the alleged kickbacks, Dr. Fonn's utilization of spinal implants would have been different. Lastly, Defendants argue that the government's equitable claims fail for the same reasons the FCA claims fail, and further, because the FCA provides an adequate remedy at law for the alleged wrongdoing at issue in this case.

         DISCUSSION

         Summary Judgment Standard

         Federal Rule of Civil Procedure Rule 56(c)(2) provides that summary judgment shall be entered “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, a court is required to view the facts in the light most favorable to the non-moving party and must give that party the benefit of all reasonable inferences to be drawn from the record. Sokol & Assocs., Inc. v. Techsonic Indus., Inc., 495 F.3d 605, 610 (8th Cir. 2007).

         To be a material fact, the factual issue must potentially “affect the outcome of the suit under the governing law.” Id. (citation omitted). “Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)). “[T]he burden of ...


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