Court Opinion

ID: 3031629
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:46:18.470724+00
Date Added: 2024-06-11T11:48:13.057076
License: Public Domain

United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 02-2193
                                    ___________

United States of America,              *
Ex Rel. James B. Kinney                *
                                       *
                     Appellant,        *
                                       * Appeal from the United States
      v.                               * District Court for the
                                       * District of Minnesota.
Rebecca Stoltz, an individual;         *
Kelly Spratt; Geraldine Peterson,      *
an individual; Jennifer Peterson       *
an individual,                         *
                     Appellees.        *
                                  ___________

                              Submitted: February 14, 2003

                                   Filed: May 5, 2003
                                    ___________

Before WOLLMAN, HEANEY and MELLOY, Circuit Judges.
                         ___________

HEANEY, Circuit Judge.

       This is an appeal from a dismissal of a second qui tam action brought on behalf
of the United States by James Kinney pursuant to the False Claims Act,1 31 U.S.C.

      1
       The False Claims Act allows for qui tam actions, in which a private party,
known as a relator, brings an action on behalf of the United States alleging fraudulent
claims were submitted to the government. 31 U.S.C. § 3730(b)(4). The private party
§§ 3729-3733. The complaint alleged that appellees Rebecca Stoltz (Stoltz), Kelly
Spratt (Spratt), Geraldine Peterson (G. Peterson), and Jennifer Peterson (J. Peterson),
four Hennepin County Medical Center (HCMC) employees, knowingly and falsely
defrauded the United States by improperly claiming all ambulance transports as
medically necessary. The district court2 dismissed Kinney’s claim, and we affirm.

                                           I.

       James Kinney, a paramedic at Hennepin County Medical Center since 1983,
filed a qui tam lawsuit against HCMC and Hennepin Faculty Associates (HFA) in
1997. After the government chose not to intervene in this action, Kinney proceeded
with the case, alleging that HCMC and HFA falsely certified all ambulance services
it provided as medically necessary, and in the process defrauded the United States by
billing Medicare for ambulance runs that should not have been billed as necessary.
The runs Kinney claimed as fraudulent were termed “ALS-Minor,” which signified
ambulance runs for emergencies that did not require ambulance support. Kinney’s
claim focused on the lower right-hand corner of the ambulance run sheet, which
stated “I certify that it was medically necessary to transport this patient by
ambulance,” and provided space for the attending physician’s signature. Kinney
alleged that HFA physicians would sign and certify virtually all ambulance runs as
medically necessary, and HCMC received Medicare reimbursement for them.

      The case against HCMC was dismissed with prejudice because HCMC was not
a “person” subject to liability under the False Claims Act. See Vermont Agency of

may recover damages and attorneys fees if the claim is successful, but it is required
to first deliver a copy of its complaint to the United States, which may intervene if it
chooses to pursue the claim. Id.
      2
      The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota.

                                          -2-
Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 787-88 (2000)(holding
a state is not a person for purposes of qui tam liability). No appeal was taken from
the dismissal. The case proceeded against HFA. During discovery, Kinney deposed
eight HCMC employees, including: Stoltz, Billing Manager for HCMC; J. Peterson,
HCMC’s director of Emergency Medical Services; and G. Peterson, the manager of
Ambulance Services.3 The depositions disclosed that Stoltz and G. Peterson had
discoverable information. Prior to the depositions, Kinney never indicated that he
knew of their existence, or about any alleged misdeeds committed by them.

      On August 22, 2001, the district court granted summary judgment to HFA.
United States ex rel. Kinney v. Hennepin County Med. Ctr., 2001 WL 930780 (D.
Minn. Jan. 22, 2001)(Kinney I). It held that Kinney failed to establish that the
physicians’ signing of the ambulance run sheets were the cause of the alleged fraud.
No appeal was taken from this judgment.

       On July 17, 2001, Kinney filed the present qui tam action against Stoltz, J.
Peterson, G. Peterson, and Spratt. He alleged they made false claims against
Medicare for the reimbursement of ambulance runs. Specifically, Kinney alleged: (1)
that Spratt and the Petersons instructed HCMC administrative clerks to try to obtain
physicians’ medical necessity certifications for all ambulance runs for patients
delivered to HCMC; (2) they set HCMC’s automated accounts system to assign a
billable number to all ALS-Minor transports of Medicare patients; and (3) Stoltz
recklessly submitted false claims to Medicare for HCMC in order to obtain
compensation involving all ambulance runs, regardless of their medical necessity or
merit. The appellees moved to dismiss the action, arguing the court lacked subject
matter jurisdiction under Fed. R. Civ. P. 12(b)(1) because the claims asserted came

      3
       Spratt replaced G. Peterson as Manager of Ambulance Services, who left
HCMC in April 2000. Spratt was not deposed in Kinney I, as all events pertinent to
the lawsuit occurred prior to her current position with HCMC.

                                        -3-
from information publicly disclosed during Kinney I, or alternatively the doctrines
of res judicata and collateral estoppel precluded the present action.

       The district court concluded Kinney did not have “direct knowledge” of the
allegations or transactions constituting the alleged violation, namely HCMC’s alleged
manipulation of the billing codes relating to ALS-Minor ambulance transports.
Finding Kinney was neither involved in nor a close observer of the alleged illegal act,
the district court determined that Kinney received his information from the
depositions of the HCMC employees, and because he was not a direct source of the
information, it held his claim was not permitted under the False Claims Act. United
States ex rel. Kinney v. Stoltz, 2002 WL 523869, at *6 ,*7 (D. Minn. Apr. 5,
2002)(Kinney II). Further, Kinney failed to show that he had made a voluntary
disclosure to the government relating to the acts of the four named defendants, and
therefore failed to fully comply with the statute. Id. at *7. Finally, the district court
determined that, even if Kinney had been found to have “direct and independent
knowledge” of the facts underlying the allegations, the suit would have been barred
because it was in essence against the four defendants in their official capacities, and
thus a suit against HCMC, which is barred by the False Claims Act. Id. n.3.4 The

      4
        The district court also denied Kinney’s attempt to amend his complaint, noting
that Fed. R. Civ. P. 15(a) requires leave of the court to amend a complaint once a
“responsive pleading” had been served. Kinney argued that: (1) a motion to dismiss
did not constitute a responsive pleading; and (2) a party can “amend as a matter of
course” to add a new defendant. Kinney II, at *3. The First Amended Complaint
sought to add Hennepin County as a defendant because of the County’s decision to
offer indemnification to the individual defendants, which occurred after the original
complaint was served. Our circuit has noted that supplemental pleadings, not
amended pleadings, are intended to cover matters occurring after the original
complaint is filed. United States v. Vorachek, 563 F.2d, 884, 886 (8th Cir. 1977).
Rule 15(d) gives the district court discretion to permit parties to serve supplemental
pleadings. Kinney cannot supplement his complaint as a matter of right. We think
the district court properly recited the law, and was within its discretion when it did
not accept the amended complaint.

                                          -4-
district court dismissed Kinney’s case with prejudice. This appeal followed, with the
United States filing an amicus curiae brief.

                                            II.

       We review a district court’s order granting a motion to dismiss de novo.
Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001). A district court
ruling on a motion to dismiss must accept the allegations contained in the complaint
as true, and all reasonable inferences from the complaint must be drawn in favor of
Kinney as the source of all relevant allegations in the current action. Hafly v.
Lohman, 90 F.3d 264, 267 (8th Cir. 1996).

       Under the False Claims Act,5 federal courts do not have jurisdiction over an
action based upon public disclosure of allegations or transactions unless the person
bringing the action “is an original source of the information.” A person is the

      5
          The relevant portions of the statute are:

      (A) 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,
      administrative, or Government Accounting Office report, hearing, audit,
      or investigation, or from the news media, unless the action is brought by
      the Attorney General or the person bringing the action is an original
      source of the information.

      (B) For purposes of this paragraph, “original source” means an
      individual who has direct and independent knowledge of the information
      on which the allegations are based and has voluntarily provided the
      information to the Government before filing an action under this section
      which is based on the information.

31 U.S.C. § 3730(e)(4).

                                            -5-
“original source” when they have “direct and independent knowledge of the
information” which formed the basis of the allegations. § 3730(e)(4). Our circuit has
adopted a three-part test to determine this issue: “(1) Have allegations made by the
relator been ‘publicly disclosed’ before the qui tam suit was brought? (2) If so, is the
qui tam suit ‘based upon’ the public disclosure? and (3) If so, was the relator an
‘original source’ of the information on which the allegation was based?” Minnesota
Ass’n of Nurse Anesthetists v. Allina Health Systems Corp., 276 F.3d 1032, 1043
(8th Cir. 2002).

       At the center of this appeal lies the question: What did James Kinney know?
Although the parties offer very different accounts of what Kinney did know, could
know, or should have known, one immutable truth remains: either Kinney had direct
knowledge of the fact that the appellees engaged in the fraudulent conduct, or he did
not. If he did not have direct knowledge of the facts underlying this lawsuit, then he
is not an original source of the information in this lawsuit and this court lacks
jurisdiction.

        A relator has direct knowledge when he sees it with his own eyes. United
States ex rel. Barth v. Ridgedale Elec., Inc., 44 F.3d 699, 703 (8th Cir. 1995). The
False Claims Act is intended to encourage individuals who are either close observers
or involved in the fraudulent activity to come forward, and is not intended to create
windfalls for people with secondhand knowledge of the wrongdoing. Hays v.
Hoffman, ___F.3d___, 2003 WL 1825040, at *1 (8th Cir. April 9, 2003). Our circuit
has not previously addressed the question of specificity in pleading claims under the
False Claims Act. Every other circuit to address this issue has held that since the
False Claims Act is obviously an anti-fraud statute, complaints brought under it must
comply with Fed. R. Civ. P. 9(b). See United States ex rel. Totten v. Bombardier, 286
F.3d 542, 551-553 (D.C. Cir. 2002); Bly-Magee v. California, 236 F.3d 1014, 1018
(9th Cir. 2001); United States ex rel. Thompson v. Columbia/HCA Healthcare Corp.,
125 F.3d 899, 903 (5th Cir. 1997); Gold v. Morrison-Knudson Co., 68 F.3d 1475,

                                          -6-
1476-77 (2d Cir. 1995). Rule 9(b) requires that “all averments of fraud...shall be
stated with particularity.” While Kinney may well have had direct knowledge of the
fact that some patients transported by ambulance were not eligible for such transport
under Medicare, there is no evidence in the record that he had direct knowledge of
the appellees’ alleged wrongdoings. Kinney alleged in Kinney I that the doctors were
responsible for the fraud. He made no mention of the appellees in Kinney II and there
is no evidence in the Kinney I record that he was aware of the role played by the
appellees until after discovery. If Kinney had possessed direct knowledge of the
asserted fraud in Kinney II, he was obligated to identify them in his initial complaint.
Accord United States ex rel. Butler v. Magellan Health Services, Inc., 101 F.Supp.2d
1365, 1368 (M.D.Fla. 2000)(“When pleading fraud, the plaintiff should generally
identify the individuals who made the alleged misrepresentation, the time of the
alleged fraud and the place of the alleged fraud.”). We agree with the district court
that Kinney was not the original source of the allegations on which Kinney II is
based; thus, the district court lacked jurisdiction pursuant to 21 U.S.C. §
3730(e)(4)(A).6

                                          III.

      For the foregoing reasons, we affirm.

      6
        The district court held in the alternative that even though Kinney alleged he
was suing the appellees in their individual capacity, he was actually suing them in
their official capacity, because all their acts were in connection with their official
duties. Kinney II, 2002 WL 523869, at *7 n.3. Thus, the action was in reality against
HCMC, which cannot be sued under the False Claims Act. We see no need to
consider whether Kinney was suing the appellees in their official or individual
capacity, or whether in this case they could be sued in their individual capacity, in
light of our holding that Kinney was not the original source of the suit and the district
court did not have jurisdiction. See United States ex rel. Gaudineer & Comito v.
Iowa, 269 F.3d 932, 937 n.3. (8th Cir. 2001).

                                          -7-
A true copy.

      Attest:

         CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

                           -8-