Court Opinion

ID: 3166990
Source: CourtListenerOpinion
Date Created: 2016-01-04 19:01:32.505555+00
Date Added: 2024-06-11T07:38:46.511645
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 15-1867
UNITED STATES, et al., ex rel. AUGUST BOGINA III,
                                           Plaintiffs-Appellants,

                                 v.

MEDLINE INDUSTRIES, INC., et al.,
                                               Defendants-Appellees.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
             No. 11 C 5373 — John J. Tharp, Jr., Judge.
                     ____________________

   ARGUED DECEMBER 10, 2015 — DECIDED JANUARY 4, 2016
                     ____________________

   Before POSNER, MANION, and SYKES, Circuit Judges.
    POSNER, Circuit Judge. This appeal is from the dismissal of
a suit filed in 2011 under the False Claims Act, 31 U.S.C.
§§ 3729 et seq., by a private individual named Bogina on be-
half of the United States. He seeks a bounty for exposing
fraud that the defendants, Medline Industries and the Tutera
Group (and Tutera affiliates unnecessary to discuss), have
allegedly perpetrated against both the federal government,
see 31 U.S.C. § 3730, and several state governments on
2                                                 No. 15-1867

whose behalf Bogina is also suing (they are the “et al.” in the
caption). He bases federal jurisdiction of the state claims on
the supplemental jurisdiction of the federal courts. See 31
U.S.C. § 3732(b); 28 U.S.C. § 1367. The district judge dis-
missed the federal claims as being too similar to those in a
prior suit against Medline to authorize Bogina’s suit. The
judge then relinquished jurisdiction over the state claims to
the state courts, see 28 U.S.C. § 1367(c); about those claims
we need say no more.
    Medline is a major seller of medical equipment to institu-
tions reimbursed by Medicare and similar federal programs
for part of the price they pay for their medical supplies. The
Tutera Group is a chain of nursing homes that is a Medline
customer. Bogina claims to have discovered through his
business associate Michael Tutera, a former member of the
ownership group of the Tutera Group and brother of one of
its current principals, that Medline gives bribes and kick-
backs to the Tutera Group to induce it to purchase from
Medline.
    We’ll see that Medline has been sued before for engaging
in such conduct, though until the present suit the Tutera
Group had not been specifically accused of being one of
Medline’s partners in fraud. Some of the corrupt payments
that Medline has been accused of making are in the form of
lump-sum cash payments, and thus conventional bribes;
others are kickbacks—returning some of the purchase price
to the purchaser off book, thus inducing him to buy from
Medline rather than from a competitor. Whether bribes or
kickbacks, such payments operate as discounts to Medline
customers, and discounts are normally an innocent means of
competing. But not discounts in the form of bribes and kick-
No. 15-1867                                                   3

backs to government contractors. For then the purchaser of a
discounted item will seek reimbursement from the govern-
ment of the authorized percentage of the price charged the
purchaser (Tutera being the purchaser identified by Bogina)
by the seller (Medline)—including the part of that price that
the seller rebates to the purchaser. And as a result the gov-
ernment makes inflated reimbursements and medical pro-
viders are induced to purchase from the discounting seller
even if substitute products of the same or higher quality are
available at lower prices from other sellers. In submitting
these inflated claims for reimbursement the purchasers also
falsely certify compliance with federal anti-bribery and anti-
kickback laws.
    So suppose the nominal price of a piece of equipment
sold by Medline is $100,000 but Medline kicks back $10,000
to the buyer. The buyer’s cost is only $90,000 but he would
report it to the government as $100,000 and thus receive a
greater reimbursement than he was entitled to. That is fraud
and a person (or a firm or other institution) violates the False
Claims Act if he “knowingly presents, or causes to be present-
ed, a false or fraudulent claim for payment or approval” by
the government. 31 U.S.C. § 3729(a)(1)(A) (emphasis added).
Bogina contends that at Medline’s behest the Tutera Group
submitted to the federal government fraudulent claims for
reimbursement. If this is correct, both the Tutera Group and
Medline defrauded the government.
    Bogina is thus suing as a volunteer on behalf of the fed-
eral government—a kind of private attorney general—in the
hope of course of being handsomely compensated if the suit
succeeds. (We’ll encounter such compensation shortly.) He
thus is a bounty hunter, and federal law places some obsta-
4                                                  No. 15-1867

cles in the path of its bounty hunters. Thus 31 U.S.C.
§ 3730(e)(4)(A), as it read during the kickback scheme of
which Bogina accuses the defendants (2003 to 2009), allowed
a private person to bring a false-claims suit on behalf of the
government “based on public allegations” only if he was “an
original source of the information.” A 2010 amendment
changed “based on public allegations” to “if substantially
the same allegations … as alleged in the action or claim [had
been] publicly disclosed.” But this was not a significant
change, both formulas being aimed at barring “’me too’ pri-
vate litigation [that] would divert funds from the Treasury”
to bounty seekers whose efforts had duplicated those of the
government or an earlier bounty seeker. United States ex rel.
Goldberg v. Rush University Medical Center, 680 F.3d 933, 934
(7th Cir. 2012); see also Glaser v. Wound Care Consultants Inc.,
570 F.3d 907, 919–20 (7th Cir. 2009); United States ex rel. Gear
v. Emergency Medical Associates of Illinois, Inc., 436 F.3d 726,
729 (7th Cir. 2006). “[P]ublic disclosures bar qui tam actions
against any defendant who is directly identifiable from the
public disclosures,” even if not specifically named. Id. (The
phrase “qui tam” is short for qui tam pro domino rege quam pro
se ipso in hac parte sequitur, meaning “who [qui] sues in this
matter for the king as well as [tam] for himself.” The “for
himself” part is the hoped-for bounty.)
    Before the 2010 amendment “original source” was de-
fined as “an individual who has direct and independent
knowledge of the information on which the allegations [in
his complaint] are based.” 31 U.S.C. § 3730(e)(4)(B) (1994).
The definition was unsatisfactory, because what “direct”
adds to “independent” as a modifier of “knowledge” is in-
scrutable. Could “direct” mean that even reliable hearsay
cannot be deemed a source of knowledge, that it must be
No. 15-1867                                                    5

classified as indirect? There is the hint of a positive answer
in Leveski v. ITT Educational Services, Inc., 719 F.3d 818, 837
(7th Cir. 2013). (Glaser v. Wound Care Consultants Inc., supra,
570 F.3d at 921 n. 8, recounts the struggle of other circuits to
give meaning to “direct.”) Fortunately the 2010 amendment
redefined “original source” to mean “an individual who …
has knowledge that is independent of and materially adds to
the publicly disclosed allegations … and who has voluntari-
ly provided the information to the Government before filing
an action under this section.” Although this is a considerable
improvement, Bogina claims to have been an “original
source” both before and after the change in the statutory
language; he claims in other words to have fit both defini-
tions.
     We incline to the view that because the earlier definition
is inscrutable as well as skimpier than the current one, the
current one should be deemed authoritative regardless of
when a person claiming to be an original source acquired his
knowledge. “[C]oncerns about retroactive application are
not implicated when an amendment … is deemed to clarify
relevant law rather than effect a substantive change in the
law.” Middleton v. City of Chicago, 578 F.3d 655, 663 (7th Cir.
2009) (quoting Piamba Cortes v. American Airlines, Inc., 177
F.3d 1272, 1283–84 (11th Cir. 1999)). That’s a good descrip-
tion of the amendment to subsection (B) of section 3730(e)(4).
    We are mindful of cases that say that because the 2010
amendment does not state that it is retroactive, the pre-2010
version of the statute governs conduct that occurred in that
era while the new version governs only more recent con-
duct. See e.g., Leveski v. ITT Educational Services, Inc., supra,
719 F.3d at 828; United States ex rel. Goldberg v. Rush Universi-
6                                                  No. 15-1867

ty Medical Center, supra, 680 F.3d at 934; United States ex rel.
Baltazar v. Warden, 635 F.3d 866, 867 (7th Cir. 2011). These
cases take off from a footnote—inapposite to subsection (B),
however—in Graham County Soil & Water Conservation Dis-
trict v. United States ex rel. Wilson, 559 U.S. 280, 283 n. 1
(2010), in which the Supreme Court said that the 2010
amendment of 31 U.S.C. § 3730(e)(4)(A)—the public-
disclosure provision—was not retroactive.
     But from the context it is apparent that the Court in Gra-
ham County was referring to a substantive change (unlike the
innocuous change we noted earlier) in subsection (A) made
by the 2010 amendment—a change to what constitutes a
“public disclosure.” 31 U.S.C. §§ 3730(e)(4)(A)(i), (ii) (2010).
Originally subsection (A) had stated: “No court shall have
jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions in a criminal,
civil, or administrative hearing, in a congressional, adminis-
trative, or Government Accounting Office report, hearing,
audit, or investigation … unless the action is brought by the
Attorney General or the person bringing the action is an
original source of the information.” This was changed by the
amendment to: “The court shall dismiss an action or claim
under this section, unless opposed by the Government, if
substantially the same allegations or transactions as alleged
in the action or claim were publicly disclosed—(i) in a Fed-
eral criminal, civil, or administrative hearing in which the
Government or its agent is a party; (ii) in a congressional,
Government Accountability Office, or other Federal report,
hearing, audit, or investigation … unless the action is
brought by the Attorney General or the person bringing the
action is an original source of the information.” In Graham
County the question was whether the term “administrative
No. 15-1867                                                  7

hearing” in the pre-amendment version was limited to a
federal administrative hearing, and the Court held that it
was not. The amended statute, however, explicitly limits the
term to federal administrative hearings—a significant nar-
rowing and clearly a substantive change to which the Court
properly refused to give retroactive effect.
     Our cases, cited above, had not noted that in contrast to
the substantive change in subsection (A), subsection (B)—the
provision defining “original source”—needed and received
clarification in the 2010 amendment; and because that
amendment, insofar as it alters subsection (B), is a clarifying
rather than a substantive amendment, it is not subject to a
retroactivity bar.
     Enter now Sean Mason, an employee of Medline who
had in 2007, four years before Bogina filed the present suit,
filed a very similar suit, charging Medline with having given
bribes and kickbacks to purchasers of its medical equipment
who provided services reimbursed by Medicare and Medi-
caid. Without admitting liability Medline had settled with
the government (on whose behalf, of course, the suit had
been brought) for a whopping $85 million in compensation
(and an additional $6 million in attorneys’ fees), out of
which the government paid Mason a generous bounty—
$23.4 million.
    Bogina claims to have learned from his pal in the Tutera
Group that the Tutera Group had received kickbacks from
Medline. Unsurprisingly his complaint is very similar to Ma-
son’s, but he argues that there are three critical differences.
The first is that the Tutera Group was not mentioned in Ma-
son’s complaint, which focused on Medline’s alleged bribery
of and kickbacks to its hospital customers; nursing homes
8                                                  No. 15-1867

(which Mason sometimes called “nursing facilities”) were
mentioned only in passing—but they were mentioned. Sec-
ond, the settlement with Mason released the federal gov-
ernment’s civil claims against Medline (that is, terminated
Medline’s liability in exchange for its paying the government
pursuant to the terms of the settlement) only for false reports
submitted to Medicare Part A and Medicaid, while Bogina
alleges that false reports were also made by Medline cus-
tomers, such as the Tutera Group, to Medicare Part B, to
state-funded Medicaid, and to TRICARE (a military health-
care program). Third, Bogina alleges that the fraud is con-
tinuing, while Mason’s complaint contained allegations of
fraud only through 2009, and the Mason settlement released
claims only through May 31, 2010.
     But these differences between the two suits are unim-
pressive. It was common knowledge that Medline sold to
nursing homes as well as to hospitals, so if it provided kick-
backs to the latter, why not to the former as well? Bogina is
not allowed to proceed independently if he merely “adds
details” to what is already known in outline. United States ex
rel. Goldberg v. Rush University Medical Center, supra, 680 F.3d
at 934. And why offer bribes and kickbacks for products
whose buyers would be reimbursed for the cost (or part of
the cost) by Medicare Part A, but not for products covered
by other federal programs? The settlement agreement re-
marks that “unallowed costs” may have been submitted to
TRICARE even though TRICARE was not mentioned in the
release of liability. The government was thus on notice of the
possibility of a broader bribe-kickback scheme before Bogina
sued. Had it wanted to broaden the case against Medline be-
yond the Mason settlement it could have gone after, among
other Medline customers, nursing-home companies such as
No. 15-1867                                                  9

the Tutera Group that received (if Bogina is correct) Medline
kickbacks. But having settled its claims against Medline for a
large sum the government may have thought the company
had learned its lesson and would cease providing bribes or
kickbacks to nursing homes or any other of its customers.
Moreover, a settlement is a compromise; and it is notable
that among the claims that the government released as part
of the Mason settlement were some of the very claims al-
leged in Bogina’s complaint. Indeed the only significant in-
formation that appears in Bogina’s complaint but not in Ma-
son’s is the name “Tutera Group” and references to govern-
ment health care programs besides Medicare Part A and
Medicaid. Neither body of information “materially add[ed]
to the publicly disclosed allegations” against Medline—the
allegations in Mason’s complaint.
    Bogina’s complaint is not saved by its allegations that
the fraud continues to the present day, because those allega-
tions are “on information and belief.” As we explained in
another false-claims bounty-hunting case, United States ex rel.
Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102,
1105–08 (7th Cir. 2014), it is because a public accusation of
fraud can do great damage to a firm before the firm is exon-
erated in litigation (should the accusation prove baseless)
that Rule 9(b) of the Federal Rules of Civil Procedure re-
quires that “in alleging fraud … a party must state with par-
ticularity the circumstances constituting fraud.” Allegations
based on “information and belief” thus won’t do in a fraud
case—for “on information and belief” can mean as little as
“rumor has it that … .”
                                                    AFFIRMED