IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 03-11297

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UNITED STATES OF AMERICA

Plaintiff - Appellant

v.

MEDICA RENTS COMPANY LTD, Etc; ET AL

Defendants

MEDICA RENTS COMPANY LTD, a Texas Partnership

Defendant - Appellee

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United States of America, ex rel,

RAMON B CARTER; MICHAEL STOCKHAM

Plaintiffs - Appellants

v.

RICHARD F WALSH, doing business as Medica-Rents Company Ltd, an

individual; MEDICA-RENTS COMPANY LTD, a Texas for profit partnership

Richard F Walsh General Partner; MED-RCO INC, a Texas for profit

corporation Richard F Walsh President

Defendants - Appellees

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United States Court of Appeals

Fifth Circuit

F I L E D

August 19, 2008

Charles R. Fulbruge III

Clerk
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UNITED STATES OF AMERICA

Plaintiff - Appellant

v.

MEDICA-RENTS COMPANY LTD, A Texas Partnership; RICHARD F

WALSH; ANNA JEAN KING WALSH; THE AMY SUZANNE WALSH 1987

TRUST; THE ELLEN KING WALSH 1987 TRUST; THE HOLLAND

FLEMING WALSH 1987 TRUST; MED-RCO INC, A Texas for profit

corporation

Defendants - Appellees

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Cons. w/07-10414

UNITED STATES OF AMERICA

Plaintiff - Appellant

v.

MEDICA RENTS COMPANY LTD, A Texas Partnership; RICHARD F

WALSH; ANNA JEAN KING WALSH; THE AMY SUZANNE WALSH 1987

TRUST; THE ELLEN KING WALSH 1987 TRUST; THE HOLLAND

FLEMING WALSH 1987 TRUST; MED RCO INC, A Texas for profit

corporation

Defendants - Appellees

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* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be

published and is not precedent except under the limited circumstances set forth in 5TH CIR. R.

47.5.4.

3

RAMON B CARTER, United States of America, ex rel

Plaintiffs

UNITED STATES OF AMERICA, EX REL

Plaintiff - Appellant

v.

RICHARD F WALSH, an individual doing business as Media-Rents Co Ltd;

MEDICA-RENTS CO LTD, a Texas for profit partnership Richard F Walsh

General Partner; MED-RCO INC, a Texas for profit corporation Richard F

Walsh President

Plaintiffs - Appellees

Appeal from the United States District Court 

for the Northern District of Texas

USDC No. 4:00-CV-483

Before HIGGINBOTHAM, DAVIS, and BARKSDALE, Circuit Judges.

PER CURIAM:*

Individual relators and the government appeal the district court’s grant

of summary judgment to Medica-Rents Co. (“Medica-Rents”) on claims under the

False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”), and judgment for MedicaRents after a bench trial on common-law claims, along with the award of
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attorneys’ fees. Appellants’ action, both under the FCA and for mistaken

payment and unjust enrichment, arose from their contention that Appellees

made unjustifiable and fraudulent claims for reimbursement from Medicare for

rentals of durable medical equipment. We affirm the district court’s orders

rejecting Appellants’ FCA and common-law claims. However, we reverse the

district court’s award of attorneys’ fees.

I.

Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395–1395gg,

establishes the Health Insurance for the Aged and DisabledProgram, commonly

known as Medicare. Medicare provides, among other things, federal government

funds to help pay for durable medical equipmentfor Medicare beneficiaries. The

United States provides reimbursement for Medicare claims for these goods

through the Health Care Financing Administration (“HCFA”), which contracts

with private insurance carriers to administer, process, and pay claims. In 1993,

the HCFA delegated responsibility for standardizing reimbursement into four

regional carriers, called Durable Medical Equipment Regional Carriers

(“DMERCs”). Additionally, HCFA created the Statistical Durable Medical

Equipment Regional Carrier (“SADMERC”) to coordinate the coding decisions

of the four DMERCs such that there is country-wide consistency. HCFA made

the DMERC for Region C—Blue Cross/Blue Shield of South Carolina, doing

business under the name Palmetto Government Benefits Administrators

(“Palmetto”)—the SADMERC, as well.

In order for a supplier to obtain reimbursement from HCFA, the supplier

must identify its products using a coding system known as the Healthcare

Common Procedure Coding System (“HCPCS”). The HCPCS is maintained by
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1 The record is replete with examples of contradictory guidance. By way of example, a

Medicare provider in Tennessee advised that ROHOs should be billed under code E0197, the

Florida carrier advised using code E0184, Blue Cross/Blue Shield of Arkansas advised using code

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the HCPCS Alpha-Numeric Editorial Panel (the “Panel”), which decides whether

a new code should be created for a product or whether the product fits within an

existing code. Each HCPCS code used to identify rented durable medical

equipment is assigned a monthly reimbursement amount. Each HCPCS code

describes a category of products, and each productfitting the description is billed

to Medicare under that code. Durable medical equipment that does not match

the description of a specific HCPCS code is billed using code E1399, for

miscellaneous products, a code that is processed by hand rather than computer.

Medica-Rents rented special mattress overlays called ROHO Dry Flotation

Mattress Systems (“ROHOs”). ROHOs are non-powered static surfaces designed

to be laid on top of typical hospital mattresses to prevent or relieve patients’

bedsores or pressure ulcers. Before HCFA centralized Medicare’s durable

medical equipment claims by establishing the four regional DMERCs and the

SADMERC, Medica-Rents submitted reimbursement claims to the local

Medicare carriers in each state where it did business. In November 1992, the

Panel determined that ROHOs should be billed under the miscellaneous code

E1399. The local Medicare carrier for Louisiana, however, sent Medica-Rents

several letters with guidance to bill under code E0277, a more lucrative code that

typically applies to more expensive powered mattresses, not mattress overlays.

At the same time, other states told Medica-Rents it could not use code E0277 for

the ROHOs. At other points multiple contradictory instructions were given to

Medica-Rents regarding which code to use.1
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E0190, Blue Cross/Blue Shield of Alabama advised using code E0197, and Louisiana Medicare

Services initially advised using code E1399 and later authorized billing under code E0277 in

October 1993.

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After the reorganization, beginning in approximately December 1993,

Medica-Rents submitted its claims to Palmetto, the DMERC for Region C. As

stated, Palmetto was also the SADMERC responsible for, among other things,

pulling together various HCPCS codes used by local carriers for the same

products and making them consistent. Just as there had been confusion

regarding which code to use before the reorganization, there was confusion

regarding which code to use in the transition to the new system and thereafter.

For example, Palmetto paid claims submitted under code E0277 until early 1995.

Atthattime, HCPCS was determining whether a new code was necessary for the

ROHOs. On February 21, 1995, an HCPCS coordinator for the SADMERC

indicated that code E1399 should be used to bill for the ROHO. Medica-Rents

complied with this guidance, but continued to lobby for a new code. For the next

few months, the claims submitted by Medica-Rents were unpaid. Then, in April

1995 Medica-Rents received contradictory guidance regarding whether it should

use code E1399; this confusion culminated when Sharietta Thompson, the

Region C DMERC ombudsman for Texas suppliers, informed Medica-Rents that

Palmetto was processing the unpaid claims and that “everything should be ok”

with code E1399. On June 13, 1995, Medica-Rents followed up with Thompson

because the claims submitted under code E1399 remained unpaid. On June 15,

1995, representatives of the SADMERC and the HCPCS coordinators for the

DMERCs held a conference call regarding code E0277, and the next day the

SADMERC issued a memorandum regarding that call that allowed limited use
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2 The memorandum stated, in relevant part, that SADMERC had decided to allow

suppliers filing low-air-loss products under code E0277 to continue to do so and to allow

suppliers filing under code E1399 to begin to file under code E0277 for new claims.

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of code E0277.2 Then, on June 23, 1995, the SADMERC told Medica-Rents that

E1399 was the correct code. On July 11, 1995, the Region C DMERC had a

policies-and-procedures meeting to resolve billing and claims processing issues.

At that meeting the Region C DMERC decided that low-airloss overlays billed

under the code E1399 should be changed to code E0277 to try to determine if

there were duplicates in the system. Over the next few days, there were

multiple emails between the Region C DMERC and SADMERC regarding

whether the ROHOs should be billed under code E0277. Finally, on July 18,

1995, Thompson sent a letter instructing Medica-Rents to use code E0277. A

copy of this letter was sent to Sue Pearcy, who worked at the Dallas Regional

Office of HCFA. On August 4, 1995, Thompson sent a second letter to MedicaRents reiterating thatthe ROHO should be billed under code E0277. The letters

were never corrected, altered, withdrawn, or amended.

In 1998, individual relators filed a qui tam action under the FCA against

Medica-Rents as well as other named defendants (together, with Medica-Rents,

the “Defendants”), alleging that the Defendants had defrauded the federal

Medicare program by knowingly over-billing for the ROHOs. The claim was

based on the argument that code E1399 should have been used instead of code

E0277, and that excess reimbursement had been issued due to improper coding.

Two years later, the United States filed a federal common-law action against

Medica-Rents for mistaken payment and unjust enrichment based on many of

the same underlying facts. The United States then intervened in the FCA case
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and the two actions were consolidated in the Northern District of Texas for

discovery and trial. In September 2003, the district court granted summary

judgmentfor the Defendants on the FCA claims. In January 2006, after a bench

trial, the district court ruled in favor of the Defendants on the common-law

claims. In January 2007, the district court issued a final order granting the

Defendants over $4.8 million in attorneys’ fees pursuant to the Equal Access to

Justice Act (“EAJA”), 28 U.S.C. § 2412.

II.

We review a grant of summary judgment de novo, viewing all evidence in

the light most favorable to the non-moving party and drawing all reasonable

inferences in that party’s favor. See Crawford v. Formosa Plastics Corp., 234

F.3d 899, 902 (5th Cir. 2000). “Summary judgment is proper when the evidence

reflects no genuine issues of material fact and the non-movant is entitled to

judgment as a matter of law.” Id. (citing FED. R. CIV.P. 56(c)). “A genuine issue

of material fact exists ‘if the evidence is such that a reasonable jury could return

a verdict for the non-moving party.’” Id. (quoting Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248 (1986)). “The standard of review for a bench trial is well

established: findings of fact are reviewed for clear error and legal issues are

reviewed de novo.” Kona Tech. Corp. v. S. Pac. Transp., 225 F.3d 595, 601 (5th

Cir. 2000) (citations omitted). We review a district court’s decision to award

attorneys’ fees for bad faith under the EAJA for abuse of discretion. See Perales

v. Casillas, 950 F.2d 1066, 1071 (5th Cir. 1992) (citation omitted).

III.

A.

Appellants argue first that the district court erred in granting summary
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judgment in favor of the Appellees on the FCA claims. To recover under the

FCA the plaintiff must demonstrate: (1) the claimant presented, caused to be

presented, or conspired to have presented to an agent of the United States a

claim for payment; (2) the claim was false or fraudulent; and (3) the claimant

knew the claim was false or fraudulent. 31 U.S.C. § 3729. The government

argues that Medica-Rents knowingly submitted false or fraudulent claims for

payment based on the factthat Medica-Rents used the E0277 code instead ofthe

E1399 code. 

Medica-Rents may have used an incorrect billing code, but if it did, it did

so at the direction and in compliance with at least one directive from Palmetto,

a DMERC and the acting SADMERC. We agree with the district court that

there was substantial confusion created by contradictory instructions and

guidance before, during, and after the transition to the new DMERC and

SADMERC system. In these circumstances, it is unclear that the Defendants’

use of code E0277 was erroneous, and we agree with the district court that the

evidence does not support a reasonable inference thatthey knowingly submitted

false or fraudulent claims. 

B.

Appellants next argue that the district court erred in rejecting their

common-law claims. Under the common-law theory of payment by mistake, the

government may “recover money it mistakenly, erroneously, or illegally paid

from a party that received the funds without right.” LTV Educ. Sys., Inc. v. Bell,

862 F.2d 1168, 1175 (5th Cir. 1989). “[R]ecovery under unjust enrichment is

justified when one person obtains a benefit from another by fraud, duress, or the

taking of an undue advantage.” Heldnefels Bros., Inc. v. City of Corpus Christi,
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832 S.W.2d 39, 41 (Tex. 1991). 

The government argues that Medica-Rents received higher payments than

it deserved for the ROHOs because it submitted claims for payment under code

E0277 instead of code E1399. Upon our review of the record, however, and as

stated above, Medica-Rents utilized a billing code specifically authorized by

Palmetto. Palmetto was the DMERC for Region C and the SADMERC, and we

are convinced that the district court did not clearly err in determining that

Palmetto had appropriate authority to give this guidance on July 18, 1995. Also,

a copy of the July 18, 1995 letter was sent to the regional office of HCFA, which

took no steps to correct the guidance. The district court did not err in finding

that, under these circumstances, where there was no misconception or

misunderstanding regarding the facts and where the government specifically

authorized use of code E0277, there can be no mistaken payment. Additionally,

because Palmetto specifically authorized use of E0277, there was no fraud,

duress, or the taking of an undue advantage necessary to find unjust

enrichment.

C.

The government also challenges the district court’s award of attorneys’

fees. Section 2412(b) of the EAJA permits an award of fees against the

government “to the same extent that any other party would be liable under the

common law.” 28 U.S.C. § 2412(b). “Section 2412(b) incorporates the ‘American

rule’ for fee-shifting, which permits a fee award only when the losing party acted

‘in bad faith, vexatiously, wantonly, or for oppressive reasons.’” Perales, 950

F.2d at 1071 (quoting F.D. Rich Co. v. United States ex rel. Indus. Lumber Co.,

417 U.S. 116 (1974)) (emphasis omitted). 
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The district court awarded attorneys fees in part because the “government

was aware of the tenuous nature of the case,” and “brought claims that were

either wholly without evidence (False Claims Act) or could not withstand even

a cursory review of the admitted evidence (common-law claims).” United States

v. Medica-Rents Co., 2006 WL 3635416, *3 (N.D. Tex. 2006). Upon our review

of the record, we are not convinced that the government brought claims that

were either wholly unsupported or that were easily dispatched by cursory review

of the evidence. The record reflects legitimate confusion on the part of both

Medica-Rents and the government before, during, and after the transition to the

DMERC and SADMERC system. Although we today affirm the district court’s

summary judgment and dismissal after bench trial, respectively,the record does

not establish bad faith on the part of the government. The district court did not

agree with Appellants’ arguments, but Appellants did have a nonfrivolous

argument regarding which code should have been used and which entities had

the authority to issue guidance. We therefore conclude that the district court

abused its discretion in awarding attorneys’ fees and we must reverse that

award.

IV.

For the foregoing reasons, we affirm the district court’s grant of summary

judgment on the FCA claim and the district court’s judgment in favor of the

Defendants in the common-law claims following a bench trial. However, we

reverse the award of attorneys’ fees and remand this case to the district court to

enter judgment consistent with this opinion.

AFFIRMED in part, REVERSED in part, and REMANDED.