By Jeffrey H. Brochin, J.D.
Judicial estoppel does not bar a claim when the bankruptcy trustee was substituted for relator.
A New York district court granted the motions to dismiss both federal and state claims brought pursuant to the False Claims Act (FCA) (31 U.S.C. §3729 et seq) after finding that the relator (and subsequently his trustee in bankruptcy) failed to plead with particularity the submission of false claims for Medicaid payment. Access to the provider’s requisite records were within the control of the relator in his capacity as the supervisor of those records, and his unfounded argument that proof of submission was peculiarly within the defendant’s knowledge did not allow for a relaxed pleading standard (U.S. ex rel. O'Toole v. Community Living Corporation, May 14. 2020, Failla, K.).
Relator’s responsibilities. The relator was employed by Community Living Corporation (CLC), an operator of programs for the developmentally disabled, from 2008 until 2014, in a capacity that included maintaining all records and documents relating to reportable incidents, serious reportable incidents, and allegations of abuse. He also provided information to the New York State Office for People with Developmental Disabilities (OPWDD), which funded and oversaw CLC’s 39 sites. After the relator filed for Chapter 7 bankruptcy and his debts were discharged, his trustee in bankruptcy was substituted as the plaintiff in the instant FCA case.
Examples of non-compliance. Among the allegations of wrongdoing by CLC alleged by the relator were that: (1) CLC’s management conspired with its employees to create Creative Escapes, LLC—a vacation company—and then induced CLC’s consumers to use Creative Escapes’ services; (2) CLC management made false statements to the OPWDD by directing employees to sign documentation attesting that services were provided long after the services had actually been provided; (3) CLC engaged in improper drug dispensing by failing to administer dosages or by providing drugs prescribed for one consumer to other consumers; (4) CLC permitted consumers to engage in sexual relationships with one another despite the consumers lacking the mental capacity to properly consent; and (5) CLC failed to report issues of harm or potential harm to OPWDD.
Assertion of judicial estoppel. CLC threshold motion was that the relator should be judicially estopped from bringing his FCA claim because he failed to include such a claim in his bankruptcy petition, but subsequently asserted the claim in his lawsuit. The court found that the FCA claim was in fact included in the bankruptcy proceedings. In addition, the court found that judicial estoppel applies when a relator files for bankruptcy and then brings an FCA claim, but it does not apply where the FCA plaintiff is the trustee in bankruptcy. Accordingly, that motion was denied.
Relaxed pleading standard inapplicable. The court next turned to the issue of whether the complaint should be dismissed for failure to state a claim. Despite multiple amendments, the complaint contained not a single allegation of an actual false claim being submitted for reimbursement. Rather, the complaint alleged a variety of ways in which CLC failed to meet standards set by regulations but then left it to the reader’s imagination as to whether false claims were submitted. The relator argued that the records proving submission of claims based on false information were peculiarly within the knowledge of CLC, and therefore, a relaxed pleading standard should apply. The court rejected that argument after noting that although the complaint never identified the relator’s exact position at CLC, it made clear that he had access to CLC’s records and documents and was privy to detailed information regarding CLC’s operations.
Pleading standards do not require that every qui tamcomplaint provide details of actual bills or invoices submitted to the government, but the relaxed standard of pleading is only permissible when information about the details of the claims submitted are peculiarly within the opposing party’s knowledge. Because the relaxed standard did not apply in the instant case, the complaint was dismissed because of failure to state an FCA claim sufficient for either the federal or New York FCA statutes. The only claim to survive was the relator’s retaliation claim.
The case is 17 Civ. 4007 KPF.
Attorneys: Robert Wayne Sadowski (Sadowski Katz LLP) for Marianne T. Otoole. Claudia Alejandra Costa (Gordon & Rees LLP) for Community Living Corp., Christine Stile and John Porcella.
Companies: Community Living Corp.
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