Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-07060/USCOURTS-caDC-14-07060-0/pdf.json

Parties Involved:
Michael L. Davis
Appellant
District of Columbia
Appellee
United States of America

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 7, 2015 Decided July 10, 2015

No. 14-7060

UNITED STATES OF AMERICA, EX REL. MICHAEL L. DAVIS,

 AND

MICHAEL L. DAVIS,

APPELLANT

v.

DISTRICT OF COLUMBIA,

APPELLEE

Consolidated with 14-7061

Appeals from the United States District Court

for the District of Columbia

(No. 1:06-cv-00629)

Sara M. Lord argued the cause for appellant/cross-appellee. 

With her on the briefs were Tenley A. Carp and Jeffrey S.

Jacobovitz.

Stacy L. Anderson, Senior Assistant Attorney General,

Office of the Attorney General for the District of Columbia,

argued the cause for appellee/cross-appellant. With her on the

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brief were Karl A. Racine, Attorney General, Todd S. Kim,

Solicitor General, and Loren L. AliKhan, Deputy Solicitor

General.

Before: ROGERS and GRIFFITH, Circuit Judges, and

GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Upon remand of Michael L.

Davis’s qui tam lawsuit, see United States ex rel. Davis v.

District of Columbia, 679 F.3d 832 (D.C. Cir. 2012) (“Davis I”),

the district court ruled that the District of Columbia violated the

False Claims Act when it submitted a Medicaid reimbursement

claim for FY 1998 and imposed the maximum penalty of

$11,000. United States ex rel. Davis v. District of Columbia, 34

F. Supp. 3d 30 (D.D.C. 2014) (“Davis II”). Davis appeals,

contending the district court erred in ruling the District

submitted only one false claim. The District cross appeals,

contending it is entitled to summary judgment because it made

no false claim. The relevant federal regulations, which were

incorporated into the District’s Medicaid State Plan, required the

District to maintain records supporting its Medicaid

reimbursement claims that could be produced for audit. 

Pursuant to contractual obligations, Davis’s firm, Davis &

Associates, Inc., was to prepare the FY 1998 interim Medicaid

claims and year-end cost report, and consequently his firm, not

the District, had physical possession of the underlying

documentation supporting the District’s claim. Given this

arrangement, the District reasonably understood when it

submitted the claim for payment that it could, through Davis &

Associates, make the supporting records available for audit. 

Accordingly, we reverse and remand the case with instructions

to enter judgment for the District.

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I.

The District of Columbia is eligible for reimbursement by

the federal government for a portion of the cost of providing

health-related services to Medicaid-eligible children pursuant to

the Individuals with Disabilities Education Act, 20 U.S.C.

§§ 1400 et seq. 42 U.S.C. § 1396b(c). The District of Columbia

Public Schools (“DCPS”) has been certified as a provider of

such services, including services for severely disabled students

in the Mamie D. Lee and Sharpe Health Schools and for students

in regular educational settings, as well as transportation for

students on days when a student receives a Medicaid-eligible

service. The version of the District’s Medicaid State Plan in

effect in 1998 provided that DCPS would be reimbursed in

accordance with the “Principles of Reasonable Cost

Reimbursement described at 42 CFR § 413, subparts A.-G.”

Pursuant to these principles, Medicaid reimbursement

operated in two stages. Throughout the fiscal year, providers of

health-related services such as DCPS submitted interim claims

to the D.C. Medical Assistance Administration (“MAA”) and

received interim payments based on fixed estimates of their

actual costs. See 42 C.F.R. §§ 413.60(a), (c), 413.64(a), (f). At

the end of the fiscal year, providers submitted cost reports of

their actual expenditures, see id. §§ 413.60(b), 413.64(f), and

following an audit, “a final adjustment [was] made” to settle the

difference between the interim payments and a provider’s actual

costs, id. § 413.64(f)(2). The federal government contributed

approximately 70 percent of the funds paid to providers by

MAA in 1998, and the District contributed the remaining 30

percent.

The principles of reasonable cost reimbursement further

required providers such as DCPS, upon penalty of suspension of

payments, id. § 413.20(e), to “provide adequate cost data”

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supported by “financial and statistical records which must be

capable of verification by qualified auditors,” id. § 413.24(a);

the cost information had to “be accurate and in sufficient detail”

“to support payments made for services furnished to

beneficiaries,” id. § 413.24(c); see also id. § 413.20(d)

(recordkeeping requirements). 

In 1995, DCPS awarded Health Management Systems, Inc.,

a contract to design, develop, and implement a “Medicaid

Reimbursement Recovery Program” for DCPS’s special

education program. Davis’s firm, Davis & Associates, was a

subcontractor that, for a period of years, “acting on behalf of

DCPS,” was responsible for collecting and submitting data to

MAA for the payment of interim claims, reconciling approved,

denied, and pending claims, and “maintaining original claim

documentation for audit purposes.” Davis & Associates

prepared, submitted, and retained supporting documentation for

interim claims by DCPS’s special education program during FY

1998. It was informed in December 1998 that the firm’s

contract would not be renewed and that it would be replaced by

Maximus, Inc., beginning in FY 1999. Davis & Associates

prepared a year-end cost report for FY 1998, but DCPS declined

to submit it. Davis & Associates retained previously collected

supporting documentation provided by DCPS that Davis avers

was sufficient and appropriate to justify the reimbursement

request his firm prepared.

Instead of using the report prepared by Davis & Associates,

DCPS submitted two FY 1998 cost-settlement reports prepared

by Maximus: one in January 2000 setting forth DCPS’s

expenditures on health-related services for special education

students (the “Special Education Cost Report”) and another

between January and May 2000 stating its expenditures on

transportation for those students (the “Transportation Cost

Report”). The Transportation Cost Report stated that it had been

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prepared by comparing the paid interim health-related service

claims submitted by Davis & Associates to the roster of

Medicaid-eligible students authorized to receive transportation

services, in order to derive the number of “service days” DCPS

provided transportation, and then multiplying that number by

DCPS’s per-student, per-day reimbursable transportation costs. 

It ultimately calculated that the District was owed an additional

$1.7 million in unreimbursed federal funds.

MAA informed DCPS in May 2000 that its auditor, Bert

Smith & Company, was auditing the final cost reports for fiscal

years 1996, 1997, and 1998. See 42 C.F.R. § 413.64(f)(2). In

July 2001, Bert Smith submitted to the District a final report on

the FY 1998 Transportation Cost Report that identified

approximately $9.5 million in Medicaid-eligible costs incurred

by DCPS’s transportation system; this netted out (after

accounting for the interim payments and applying the federal

reimbursement rate) to the District being owed $5.4 million in

federal Medicaid funds for transportation services. Upon

examination of both the FY 1998 Special Education and

Transportation Cost Reports, however, Bert Smith

recommended that the District return approximately $7.6 million

in federal funds for FY 1998.

In 2002, MAA advised the Centers for Medicare and

Medicaid Services (“CMS”), the federal agency administering

the Medicaid program, “that it was encountering difficulties in

determining final reimbursement amounts to DCPS for services

rendered from 1996 through 1998 because the cost information

from DCPS was incomplete.” CMS, Focused Financial

Management Review 1 (2003). After performing a “brief FM

review,” spending a day and a half at Bert Smith and examining

its process, CMS concluded that Bert Smith had, in the face of

“incomplete and insufficiently detailed cost information” from

DCPS, “applied sensible, practical testing and conservative

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judgments to determine allowable Medicaid costs” and that

MAA should finalize the $7.6 million settlement proposed by

Bert Smith. Id. at 2–4.

On April 4, 2006, Davis filed a qui tam lawsuit alleging that

the District violated the False Claims Act, 31 U.S.C. § 3729(a),

by submitting, through DCPS, the Maximus FY 1998 year-end

cost reports when it knew it “did not have in [its] possession

documentation to support and verify that Medicaid reimbursable

services were provided.” Compl. ¶ 30. His amended complaint

identified the date the allegedly false claim was submitted as

January 2000. See Am. Compl. ¶ 15. The district court initially

dismissed the complaint on the ground that, under this court’s

precedent, Davis was not an original source of the information. 

United States ex rel. Davis v. District of Columbia, 773 F. Supp.

2d 21, 33 (D.D.C. 2011); see 31 U.S.C. §§ 3730(e)(4)(A)–(B)

(2000). After this court concluded the Supreme Court had

overruled that precedent, see Davis I, 679 F.3d at 837–39, and

remanded the case, the district court granted in part and denied

in part the parties’ cross motions for summary judgment, Davis

II, 34 F. Supp. 3d at 50.

In moving for summary judgment, Davis argued in his

memorandum of points and authorities that DCPS did not

possess service documentation supporting the Maximus FY

1998 year-end cost reports. He asserted in the statement of

material facts supporting his motion for summary judgment that

DCPS is required to maintain both cost documentation, showing

a provider’s expenditures on health-related services, and service

documentation, such as medical records and progress notes that

show a Medicaid-eligible child received a reimbursable service

on a given day. The District opposed Davis’s motion and also

moved for summary judgment, arguing that Davis’s claims were

barred by the statute of limitations and that Davis had failed,

after discovery, to present any evidence the District had

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knowingly submitted a false claim to the federal government.

 The district court agreed with the District that Davis’s

claims regarding the FY 1998 Special Education Cost Report

were time barred, Davis II, 34 F. Supp. 3d at 38–41, and Davis

has not appealed. The court agreed with Davis that the District

made a false claim when DCPS submitted the FY 1998

Transportation Cost Report for payment because Davis &

Associates, not DCPS, had physical possession of the required

supporting documentation at that time, id. at 43; the

maintenance of such documentation was material to the federal

government’s decision to pay the reimbursement requested, id.

at 44–45; and DCPS submitted the false claim knowingly, id. at

46–47. The court rejected the District’s position that it had

constructive possession under an implied agency theory, finding

there was no evidence that “the Maximus Reports were prepared

or submitted in reliance on documents in Davis’s possession,”

and “the District had already fired Davis” when it submitted the

Transportation Cost Report to MAA in 2000. Id. at 43. The

court imposed the maximum $11,000 penalty for one false

claim. Id. at 48–49.

Both parties appeal, and our review is de novo, see United

States ex rel. Folliard v. Gov’t Acquisitions, Inc., 764 F.3d 19,

25–26 (D.C. Cir. 2014), although in view of our disposition of

the District’s cross appeal, there is no need to address Davis’s

appeal of the number of false claims.

II.

To establish a violation of the False Claims Act, 31 U.S.C.

§ 3729(a), a party may prove “that the defendant presented . . .

a claim to the government, that the claim was false, and that the

defendant knew that the claim was false.” United States ex rel.

Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214,

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218 (D.C. Cir. 2003). A claim is legally false “when it rests on

a false representation of compliance with an applicable federal

statute, federal regulation, or contractual term.” United States

v. Sci. Applications Int’l Corp. (“SAIC”), 626 F.3d 1257, 1266

(D.C. Cir. 2010). Such a certification may be implied, and

“[c]ourts infer implied certifications from silence” when a

claimant fails to comply with obligations that are “‘a

prerequisite to the government action sought.’” Id. (quoting

United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214

F.3d 1372, 1376 (D.C. Cir. 2000)). Only false claims

“knowingly” made — i.e., with “actual knowledge of the [false]

information,” “deliberate ignorance of the truth or falsity of the

information,” or “reckless disregard of the truth or falsity of the

information,” — give rise to liability. 31 U.S.C. §§ 3729(a)–(b)

(2000). “[R]eckless disregard” in this context is “an extension

of gross negligence.” United States v. Krizek, 111 F.3d 934, 942

(D.C. Cir. 1997). To establish knowledge on the basis of an

implied false certification, Davis had to prove that the District,

acting through DCPS, knew both that it violated a legal

obligation and that its compliance was a condition of payment. 

SAIC, 626 F.3d at 1271.

Davis does not challenge that DCPS provided the claimed

services to Medicaid-eligible special education students. Davis

I, 679 F.3d at 840. In response to the District’s cross appeal, he

contends only that DCPS falsely certified when it submitted the

FY 1998 Transportation Cost Report that it had the records to

verify the services were provided on a particular day. Because

the record shows that DCPS had arranged with Davis &

Associates to maintain appropriate documentation supporting its

Medicaid claims, in compliance with the federal document

retention requirements incorporated into the District’s State

Plan, and that DCPS reasonably understood when it submitted

the FY 1998 Transportation Cost Report that it could produce

the underlying documentation for audit, the Transportation Cost

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Report contains no implied false certifications, and the District

made no false claim.

The federal regulations incorporated into the District’s State

Plan required providers to maintain adequate documentation for

audit. Providers were to produce for examination “such records

and documents as are necessary to ascertain information

pertinent to the determination of the proper amount of program

payments due.” 42 C.F.R. § 413.20(d)(2) (1999); see also id.

§ 413.24(a). These regulations, on which Davis relies, provided

that “[a]dequate cost information” “capable of being audited” —

i.e., data that is “accurate and in sufficient detail” to verify

payments — “must be obtained from the provider’s records.” 

Id. § 413.24(c). CMS would suspend payments to a provider

that failed to “maintain . . . adequate records for the

determination of reasonable cost.” Id. § 413.20(e).

Not all failures to comply with a federal statute or

regulation expose a provider to liability under the False Claims

Act. “[A] false certification of compliance with a statute or

regulation cannot serve as the basis for a qui tam action under

the [False Claims Act] unless payment is conditioned on that

certification.” Siewick, 214 F.3d at 1376. In other words, a

defendant may be held liable under the False Claims Act for

falsely certifying it complied with a statute or regulation only if

“certification was a prerequisite to the government action

sought.” Id. The parties dispute whether the regulations the

District allegedly violated are conditions of payment, rather than

conditions of participation in the Medicaid program. Several of

our sister circuits have recognized the difference and cautioned

against treating all Medicare and Medicaid regulations as

conditions of payment. E.g., United States ex rel. Hobbs v.

MedQuest Assocs., Inc., 711 F.3d 707, 714 (6th Cir. 2013);

United States ex rel. Wilkins v. United Health Grp., Inc., 659

F.3d 295, 310–11 (3d Cir. 2011); United States ex rel. Conner

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v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1220 (10th Cir.

2008); Mikes v. Straus, 274 F.3d 687, 699–700 (2d Cir. 2001). 

We need not decide whether the regulations at issue here

are “prerequisites” to payment because, even if they are, Davis

has not met his burden to show that the District was in knowing

violation of these regulations when DCPS submitted the FY

1998 Transportation Cost Report. Nothing in the District’s State

Plan or the Medicaid regulations on which Davis relies

conditioned payment on DCPS’s physical possession of

documentation supporting its year-end cost reports. DCPS was

required only to “maintain” documentation such that the

information could be “obtained” for audit. See 42 C.F.R.

§§ 413.20(e), 413.24(c) (1999). Davis conceded as much in his

sworn False Claims Act disclosure statement, see 31 U.S.C.

§ 3730(b)(2) (2000), averring that for FY 1996, Davis &

Associates, not DCPS, supplied documentation of DCPS’s

Medicaid claims to CMS for audit, and CMS “approved all

DCPS Special Education direct service and transportation

Medicaid reimbursement claim payments.” Michael L. Davis

Disclosure Statement 3 (Apr. 2006) (“Davis Statement”).

 Davis has failed to show a “genuine dispute,” FED. R. CIV.

P. 56(a), over whether DCPS reasonably could have relied on

the same arrangement when it submitted the FY 1998

Transportation Cost Report. Unlike for service documentation,

he does not challenge DCPS’s possession of adequate cost

documentation. Nor does he dispute that adequate service

documentation existed supporting DCPS’s FY 1998 interim

claims. Instead, Davis claims that his firm, Davis & Associates,

had “sufficient and appropriate documentation” in its possession

when it submitted the FY 1998 interim claims and prepared a

FY 1998 year-end cost report on behalf of DCPS and that the

firm “maintained” and “retained” such documentation. Pl.’s

Resp. Def.’s Statement Facts ¶¶ 16, 19; Davis Statement at 2–3. 

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Davis suggested during oral argument that it is unclear whether

the documents in his firm’s possession fully support the

expenses claimed in the FY 1998 Transportation Cost Report

because he does not know what services Maximus included in

its report. But the Maximus Transportation Cost Report stated

that Maximus based its calculations on the interim claims

submitted by Davis & Associates, and Davis claims his firm

retained adequate documentation supporting those claims. 

Davis’s position that, unlike in FY 1996, Davis &

Associates was not under contract with DCPS when it submitted

the Transportation Cost Report, and therefore DCPS could not

reasonably expect his firm to produce the underlying

documentation for audit, is belied by the record, which shows

that Davis & Associates was the contractor responsible for

DCPS’s FY 1998 Medicaid claims. In his disclosure statement

Davis averred that Davis & Associates prepared DCPS’s interim

Medicaid claims and a year-end cost report for FY 1998, and he

alleged in his amended complaint that his firm prepared that

report “[p]ursuant to the terms of its contract,” Am. Compl.

¶ 13. Davis also averred in his disclosure statement that he

informed DCPS that “Maximus had not been the DCPS

Medicaid contractor for FY98,” Davis Statement at 2, and he

admitted in moving for summary judgment that Maximus was

not hired until May 1999, Pl.’s Statement Material Facts ¶ 11. 

Davis has failed to show that Davis & Associates did not have

a continuing contractual duty to complete the work relating to

DCPS’s FY 1998 Medicaid claims.

There is no dispute that Davis & Associates’s duties “on

behalf of DCPS” included “maintaining original claim

documentation for audit purposes,” Def.’s Statement Material

Facts Not in Dispute ¶ 15; Pl.’s Resp. Def.’s Statement Facts

¶ 15; see Davis Statement at 1, and that the records in the firm’s

possession were the property of DCPS. Furthermore, Davis

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conceded during oral argument that there was no dispute over

his willingness to produce the documentation for audit until

after DCPS made the alleged implied false certifications when

it submitted the FY 1998 Transportation Cost Report in early

2000. See Oral Arg. Recording 10:29–10:44. Davis also

acknowledged in his disclosure statement that he refused to

produce the necessary documentation because he thought Davis

& Associates had not been appropriately compensated, not

because there was no contract between his firm and DCPS

covering services for FY 1998. See Davis Statement at 3–4. 

Consequently, DCPS reasonably relied on Davis & Associates

to maintain appropriate documentation for audit when it

submitted the FY 1998 Transportation Cost Report and did not

demonstrate “gross negligence” in discharging its legal

obligations. See Krizek, 111 F.3d at 942.

Davis’s suggestion, first raised during oral argument, that

DCPS was required as a condition of payment not only to

maintain the underlying service documentation for audit, but to

generate the FY 1998 Transportation Cost Report directly from

that documentation, comes too late. Generally, arguments raised

for the first time at oral argument are forfeited. See, e.g.,

Trumpeter Swan Soc’y v. EPA, 774 F.3d 1037, 1043–44 (D.C.

Cir. 2014); Williams v. Romarm, SA, 756 F.3d 777, 782–83

(D.C. Cir. 2014). Davis neither raised this argument in the

district court nor in his briefs on appeal, and he offers no

explanation, much less exceptional circumstances, to excuse his

failure to do so, see Adams v. Rice, 531 F.3d 936, 944–45 (D.C.

Cir. 2008); cf. Lesesne v. Doe, 712 F.3d 584, 588 (D.C. Cir.

2013); Meijer Inc. v. Biovail Corp., 533 F.3d 857, 867 (D.C. Cir.

2008). Such sandbagging is not sanctioned by the court. E.g.,

Williams, 756 F.3d at 783; cf. Se. Mich. Gas Co. v. FERC, 133

F.3d 34, 39 n.2 (D.C. Cir. 1998). 

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Accordingly, because DCPS reasonably understood its

contractual arrangement with Davis & Associates to fulfill its

obligation to maintain records “capable of being audited,” 42

C.F.R. § 413.24(c) (1999), we reverse the grant of summary

judgment for Davis and remand the case with instructions to

enter summary judgment for the District.

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