Court Opinion

ID: 29036
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:33:44+00
Date Added: 2024-06-11T14:55:40.058052
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                         FOR THE FIFTH CIRCUIT
                           __________________

                                No. 01-30862
                             __________________

     United States of America,
     ex. rel., PAUL G. MATHEWS,

                                            Plaintiff-Appellant,

                                      vs.

     HEALTHSOUTH CORP.,

                                            Defendant-Appellee.

                 ______________________________________

              Appeal from the United States District Court
                  for the Western District of Louisiana
                            USDC No. 99-CV-604
                  _____________________________________
                             October 22, 2002

Before HIGGINBOTHAM, WIENER and BENAVIDES, Circuit Judges.

PER CURIAM:*

     Paul Mathews (“Mathews”) appeals from the district court’s

dismissal of his claims under the False Claims Act, 31 U.S.C. §

3729 et seq.

     “We review de novo a district court's dismissal for failure to

state    a   claim   under   Rule   12(b)(6).     .   .   .   We   must   accept

plaintiff's factual allegations as true.... [and a] dismissal will

not be affirmed unless it appears beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would

     *
     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this opinion should not be published and is not precedent except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.
entitle him to relief.”    Blackburn v. City of Marshall, 42 F.3d

925, 931 (5th Cir. 1995). Nonetheless, dismissal is appropriate if

the complaint fails to allege a required element of the offense,

and conclusional allegations are insufficient to prevent dismissal.

Id.

      To assert a claim under the False Claims Act, a plaintiff must

allege   that (1) there was a false statement or fraudulent course

of conduct; (2) made or carried out with the requisite scienter;

(3) that was material; and (4) that caused the government to pay

out money or to forfeit moneys due.    31 U.S.C. § 3729(a) and (b);

United States ex. rel. Harrison v. Westinghouse Savannah River Co.,

176 F.3d 776, 788 (4th Cir. 1999).    To satisfy the intent element,

it is sufficient to show that the defendant acted “in deliberate

ignorance of the truth or falsity of the information. . . [or] in

reckless disregard of the truth or falsity of the information, and

no proof of specific intent to defraud is required.” 31 U.S.C. §

3729(b).

      The sole issue in this appeal is whether Mathews properly

alleged the “false statement or fraudulent course of conduct”

element of his False Claims Act claim.     Mathews contends that he

did allege false statement in his complaint because he stated that

HealthSouth Corp. (“HealthSouth”) falsely certified in its annual

cost reports and self-attestations to the United States government

for 1994 through 1999 that its Sunrise, Florida, facility complied

                                 2
with a Medicare rule requiring it to maintain a 75% population of

patients with specified diagnoses (“the 75% rule”) to obtain

reimbursement as a PPS exempt rehabilitation hospital.1

      In support of his claim, Mathews’ complaint pointed to the

following facts:         First, in early 1996, Mathews was advised by

Kevin Conn (“Conn”), the new Chief Executive Officer (“C.E.O.”) of

HealthSouth Sunrise Rehabilitation Hospital (“Sunrise”),2 that when

he arrived as C.E.O. of Sunrise, Sunrise had no procedures in place

for   monitoring    compliance    with    the    75%   rule.     Second,   upon

implementing the necessary monitoring procedures in mid-1996, Conn

told Mathews that Conn had determined that although Sunrise was

operating at nearly 100% capacity, Sunrise was not meeting the 75%

rule,     but   rather   the   population   of    patients     with   specified

diagnoses was about 65%.         Third, for the remainder of 1996, and

      1
     Mathews also stated in his complaint that HealthSouth
falsely certified compliance with a different rule (the “three
hour rule”) in self-attestations and Cost Reports for 1996, 1997,
1998, and 1999. However, because he did not address the district
court’s dismissal of these claims in his initial brief,
discussing it only in his reply, he has abandoned any arguments
on the dismissal of these claims. See Cinel v. Connick, 15 F.3d
1338, 1345 (5th Cir. 1994) (“An appellant abandons all issues not
raised and argued in its initial brief on appeal.”) .
      2
     According to Mathews’s complaint, Conn had previously been
the C.E.O. of Central Louisiana Rehabilitation Hospital, which
was owned by Continental Medical Systems, Inc. (“Continental”).
When Conn was hired by HealthSouth to be C.E.O. of Sunrise in
1996, Mathews succeeded him as C.E.O. of Central Louisiana
Rehabilitation Hospital. In turn, Continental was acquired by
HealthSouth in 1997. In August, 1998, Mathews resigned after
HealthSouth gave him the choice of resigning or being terminated.

                                      3
each year thereafter, Sunrise continued to operate at nearly 100%

of capacity.     Fourth, each year a PPS exempt hospital must submit

to the government a self-attestation that it is eligible to remain

exempt from PPS for the next fiscal year, implicitly certifying

that the hospital met the 75% rule for the last period.                   Self-

attestation statements for Sunrise were filed in 1994, 1995, 1996,

1997, 1999 and 2000.       Fifth, at the end of each fiscal year from

1994 to 1999, HealthSouth filed Cost Reports claiming reimbursement

from Medicaid as a PPS exempt hospital.             Sixth, after discovering

that HealthSouth was not complying with the 75% rule in 1996, Conn

failed to disclose that fact to the government.

       In his complaint, Mathews argued that “[t]he fact that Sunrise

did not monitor for compliance with the 75% rule before Conn became

C.E.O. and at that time was grossly non-compliant with the rule

means in Relator’s experience that the hospital was reflecting its

natural (and to be expected) patient mix and had probably so

operated historically.”         Thus, Mathews deduced that the 1994 and

1995    self-attestations        and   cost       reports   contained     false

certifications of compliance with the 75% rule.                    In addition,

Mathews pointed out that “[i]n Relator’s personal experience, for

Sunrise to adjust its admissions or discharges to bring itself into

compliance with the 75% rule [after 1996], Sunrise would have had

to turn away a great number of patients. . .            The fact that Sunrise

continued   to   operate   at    nearly    100%    of   capacity   reflects   in

                                       4
Relator’s    experience           that   Sunrise      did      not    bring    itself     into

compliance with the 75% rule in 1996 and has not met the 75% rule

thereafter.”      Thus, Mathews deduced that the 1996 and subsequent

self-attestations           and      cost      reports         also      contained      false

certifications of compliance with the 75% rule.

       The district court concluded that Mathews was conflating the

element of false statement with that of intent and that at worst,

he   had   “alleged     a    negligent        course      of    conduct,      comprised     of

defendant’s failure to monitor compliance with the 75% rule.”

Consequently, the district court held that Mathews had failed to

allege a false statement and dismissed the claim under Fed. R. Civ.

P. 12(b)(6).

       However, Mathews has alleged that certifications of compliance

were   submitted      for        1994-1999,        that   in    1996     Sunrise   was     not

compliant (as admitted by Conn), and that Sunrise’s manner of

operating (continuously at 100% capacity) allows a reasonable

inference that Sunrise was not compliant before and after 1996.

These statements make out more than an allegation of negligence:

they add up to an allegation of false statement.                              Discovery may

well turn up further evidence substantiating these allegations.

Thus, this case does not meet the requirement for dismissal under

Rule   12(b)(6)    as       it    does   not       appear      “beyond    doubt    that    the

plaintiff can prove no set of facts in support of his claim which

would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46

                                               5
(1957).   “It may well be that plaintiff’s allegations may not be

able to stand the scrutiny of a motion for summary judgment

supported by affidavits.      But where pleadings are sufficient, yet

it appears almost a certainty to the court that the facts alleged

cannot be proved to support the legal claim, a motion to dismiss

for failure to state a claim must nevertheless be overruled.”

Boudeloche v. Grow Chemical Coatings Corp., 728 F.2d 759, 762 (5th

Cir. 1984).

     HealthSouth   urges      us    to       affirm     the   dismissal    on    the

alternative   ground   that    Mathews         failed    to   plead   fraud     with

particularity, as required by Fed. R. Civ. P. 9(b). However, as

HealthSouth recognizes, the district court did not reach this issue

in its decision.   In light of the fact that the district court has

in the past allowed the appellant to amend his complaint to comply

with rule 9(b), it is preferable to allow the district court to

reach a decision on this issue before we address it.                      Thus, we

decline to address the question of whether Mathews’ complaint

satisfied the requirements of Rule 9(b) at this time.

                                   CONCLUSION

     The district court erred in finding that Mathews had not

alleged the element of false statement with respect to his False

Claims Act claims that HealthSouth violated the “75% rule.”                     Thus,

we REVERSE the district court’s dismissal of these claims.

                                         6