Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 1 of 11
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`UNITED STATES DISTRICT COURT
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`EASTERN DISTRICT OF LOUISIANA
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`UNITED STATES OF AMERICA, ex rel.
`MEREDITH MONOHAN DEANE,
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`VERSUS
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`DYNASPLINT SYSTEMS, INC. and
`GEORGE HEPBURN
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`CIVIL ACTION
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`NO. 10-2085
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`SECTION “N” (3)
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`ORDER AND REASONS
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`Presently before the Court is Defendants' Motion to Dismiss under Rule 12(b)(6) (Rec. Doc.
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`53) concerning Counts One, Two, and Three of the State of Washington's complaint in intervention
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`(Rec. Doc. 50). For the reasons stated herein, IT IS ORDERED that the motion is hereby
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`GRANTED to the extent that the claims asserted by the State of Washington, are DISMISSED
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`WITHOUT PREJUDICE.
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`IT IS FURTHER ORDERED that, if the State of Washington desires to proceed further
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`with its claims, it must seek leave, no later than twenty (20) days from the entry of this Order and
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`Reasons, to file an amending and superseding complaint remedying the pleading deficiencies
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`identified herein, and taking into account the assertions made by Defendants in their memoranda
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`(Rec. Docs. 53). If the State of Washington cannot, or does not, cure these deficiencies by timely
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`amendment, the Court shall, upon motion by Defendant, order its dismissal to be with prejudice.
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`1. Background
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`This action was originally brought by Relator Meredith Monohan Deane against Dynasplint
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`Systems, Inc. (Dynasplint) and its president, George Hepburn (Hepburn), alleging claims under the
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`False Claims Act, 31 U.S.C. §3729, et seq as well as two (2) Washington state claims. (Rec. Doc.
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`Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 2 of 11
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`50 at p.1). Dynasplint provides health care products, specifically durable medical equipment
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`("DME") called the Dynasplint System. (Id.). The State of Washington (Washington) brought the
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`Complaint in Intervention (Rec. Doc. 50) on behalf of the Washington Health Care Authority (HCA)
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`and the Department of Social and Health Services (DSHS), which administer the State's Medicaid
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`program. In its complaint, Washington claims that defendants obtained Medicaid payments which
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`they were not entitled to receive under Washington State’s Medicaid program by knowingly
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`submitting false billings to the State between the years 2004 and 2013. (Id. at p. 5.).
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`Specifically, Washington first alleges that Dynasplint submitted fraudulent bills for DMEs
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`provided to patients in their homes or facilities used as homes when, in fact, the DMEs were issued
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`for patients in skilled nursing facilities ("SNF"). (Id.). Washington's Medicaid program prohibits
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`payment for DMEs provided to patients in SNFs. Washington asserts that defendants knowingly
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`misrepresented the place of service to resemble the home, thereby obtaining funds which Dynasplint
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`was not entitled. (Id. at p. 5.). Second, Washington alleges that defendants knowingly misidentified
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`over four hundred (400) of its billings under the code "L," a covered service, when the correct code
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`for the Dynasplint System was "E18," which is not covered under Washington's program. (Id. at p.
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`2-3.). Together the above allegations make up Counts One and Two of Washington's complaint.
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`(Id. at p.6-7.). Third, Washington alleges that defendants breached their provider agreements, which
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`required Dynasplint to comply with state and federal law, by knowingly submitting false claims in
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`violation of both state and federal False Claims Acts. (Id. at p. 6.). Defendants do not challenge
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`Washington's fourth claim for unjust enrichment in the instant motion. However, defendants do
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`challenge Washington's first three claims in their motion to dismiss (Rec. Doc. 53) on the grounds
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`that Washington failed to plead fraud with particularity as required under Fed. R. Civ. Proc. 9(b).
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`Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 3 of 11
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`2. Law & Analysis
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`A. Legal Principles
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`Rule 8 requires that complaints provide a “short and plain statement of the claim showing
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`that the pleader is entitled to relief.” Fed. R. Civ. Proc. 8(a)(2). Although a complaint does not need
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`“detailed factual allegations, . . . more than labels and conclusions are necessary, and a formulaic
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`recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S.
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`544, 555 (2007) (internal citations and quotations omitted); Ashcroft v. Iqbal, 556 U.S. 662, 678
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`(2009) (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
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`statements, do not suffice.”). Similarly, in evaluating motions to dismiss, courts “are not bound to
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`accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265,
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`286 (1986); see also Iqbal, 556 U.S. at 678 (“tenet that a court must accept as true all of the
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`allegations contained in a complaint is inapplicable to legal conclusions.”). “Nor does a complaint
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`suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S.
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`at 678 (quoting Twombly, 550 U.S. at 557); see also Christopher v. Harbury, 536 U.S. 403, 416
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`(2002) (elements of a plaintiff's claim(s) “must be addressed by allegations in the complaint
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`sufficient to give fair notice to a defendant”).
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`Further, to survive a motion to dismiss, a complaint must contain sufficient factual matter,
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`accepted as true, to “state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678
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`(quoting Twombly, 550 U.S. at 570). Facial plausibility exists “when the plaintiff pleads factual
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`content that allows the court to draw the reasonable inference that the defendant is liable for the
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`misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,’ but
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`it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. Rather, a
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`complaint’s allegations "must make relief plausible, not merely conceivable, when taken as true."
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`United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009).
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`“Determining whether a complaint states a plausible claim for relief” is “a context-specific
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`task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at
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`679 (internal citations omitted); see also Robbins v. Oklahoma, 519 F.3d 1242, 1248 (10th Cir.
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`2008) (degree of required specificity depends on context, i.e., the type of claim at issue). And, in
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`evaluating motions to dismiss filed under Federal Rule of Civil Procedure 12(b)(6), the Court "must
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`accept all well-pleaded facts as true, and . . . view them in the light most favorable to the plaintiff."
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`Campbell v. Wells Fargo Bank, N.A., 781 F.2d 440, 442 (5th Cir.), cert. denied, 476 U.S. 1159
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`(1986). Further, "[a]ll questions of fact and any ambiguities in the controlling substantive law must
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`be resolved in the plaintiff's favor." Lewis v. Fresne, 252 F.3d 352, 357 (5th Cir. 2001).
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`Nevertheless, “where the well-pleaded facts do not permit the court to infer more than the mere
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`possibility of misconduct, the complaint has alleged – but it has not ‘show[n]’ – “that the pleader
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`is entitled to relief.’” Iqbal, 556 U.S. at 678 (quoting Fed. Rule Civ. Proc. 8(a)(2)).
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`In addition to Rule 8(a)(2)’s pleading demands, Rule 9(b) supplements Rule 8(a), if fraud
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`is alleged, by requiring circumstances allegedly constituting fraud be stated with particularity. See
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`Fed. R. Civ. Proc. 9(b); Grubbs, 565 F.3d at 185. Thus, Rule 9(b) generally requires the plaintiff
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`to set forth the “who, what, when, where, and how” of the alleged fraud. See, e.g., United States ex
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`rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 266 (5th Cir. 2010); see also Sullivan v. Leor
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`Energy, LLC, 600 F.3d 542, 550-51 (2010) ([C]laimant must "specify the statements contended to
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`be fraudulent, identify the speaker, state when and where the statements were made, and explain
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`why the statements were fraudulent.").
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`Significantly, the Fifth Circuit has explained that the “‘time, place, contents, and identity’
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`standard is not a straitjacket for Rule 9(b).” Grubbs, 565 F.3d at 188. “Rather, the rule is context
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`specific and flexible. Id. at 190. The rule does not require billing numbers, dates, and amounts and
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`may survive “by alleging particular details of a scheme to submit false claims paired with reliable
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`indicia that lead to a strong inference that claims were actually submitted.” Id. Though fraud may
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`be alleged on information and belief if the “facts relating to the fraud are peculiarly within the
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`perpetrator’s knowledge,” the complaint nevertheless “must set forth a factual basis for such belief.”
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`United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.
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`1998).
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`2. Application of the Legal Principles
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`The Court finds the State of Washington's allegations, as presently plead, to be legally
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`inadequate to state a claim for relief under (1) Washington's False Claims Act, RCW 74.66, (2)
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`Washington's Fraudulent Practices Act, RCW 74.09.210, and (3) breach of contract based on
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`fraudulent activity that violated state and federal law.
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`i. Count One: Washington's False Claims Act, RCW 74.66 et seq.
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`RCW 74.66 et seq. prohibits a person from:
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`(a) Knowingly presents, or causes to be presented, a false or fraudulent claim for
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`payment or approval;
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`(b) Knowingly makes, uses, or causes to be made or used, a false record or statement
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`material to a false or fraudulent claim...
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`Wash. Rev. Code Ann. § 74.66.020 (West).
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`Washington alleges in its complaint in intervention (Rec. Doc. 50) that Dynasplint and
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`Hepburn knowingly presented or caused to be presented false or fraudulent claims for payment or
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`approval to the State of Washington, and as a result Washington suffered damages under its False
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`Claims Act, RCW 74.66. (Rec. Doc. 50, Count One). Washington avers that between the years of
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`2004 and 2013 defendants knowingly submitted false claims for payment by intentionally
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`misrepresenting the device and service codes contained in the bills Dynasplint submitted to the
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`State. (Id. at p. 1). First, Washington claims that the U.S. Department of Justice conducted an
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`investigation against the defendants and found that 100% of the claims reviewed were submitted
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`with false codes indicating a place of service of "12," being the home, when the claims were actually
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`submitted for patients located in SNFs. (Id. at p.5). Second, Washington alleges that defendants
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`fraudulently coded over 400 claims by submitting bills with the service code "L," which is covered
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`under Washington's Medicaid program, but such claims are properly coded "E18," which is not
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`covered under the program. (Id.).
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`Significantly, with regard to the first claim where defendants' allegedly misrepresented the
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`place of service to fraudulently obtain Medicaid funds, Washington has not put forth facts sufficient
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`to meet the more specific pleading standards found in Rule 9(b). For instance, Washington fails to
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`indicate which of Dynasplint's submitted bills or claims are at issue in this case, or to specify the
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`total number of claims it believes to be fraudulent.1 Under Rule 9(b), the law provides that a
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`complaint is sufficient if the plaintiff pleads particular details of a scheme paired with some reliable
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`1While not required at this pleading stage, the Plaintiff should be prepared during discovery to identify,
`with certainty, each and every claim at issue in the case.
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`indicia that the claims were actually submitted. Grubbs, 565 F.3d at 188. However, Washington's
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`complaint fails to identify a single claim, not even by way of example, that was fraudulently
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`submitted. Washington does not offer any evidence as to who submitted these claims knowing that
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`they were false other than presumptively contending that the claims were submitted by or at the
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`direction of Dynasplint and the president, Hepburn, himself.2 In addition, Washington's complaint
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`lacks particular detail with regard to why the claims are fraudulent, when the claims were submitted,
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`and where the claims were submitted. Washington must be prepared to identify some evidence3 that
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`supports Count One because its instant complaint lacks sufficient particularity.
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` Notably, Washington correctly argues that "exact dollar amounts, billing numbers, or dates"
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`are not required under the heightened pleading standards; however, the defendants in this case are
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`entitled to the minimum form of fair notice described above. See Grubbs, 565 F.3d at 186.
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`Washington also correctly points out that the pleading requirements are relaxed somewhat when the
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`facts are peculiarly within the defendant's knowledge. Thompson, 125 F.3d at 903. Although, in
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`this case, Washington is incorrect that it is entitled to the relaxed standard. Washington fails to
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`recognize that it specifically alleges that the U.S. Department of Justice conducted an investigation
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`into Dynasplint's billing practices, and, during that investigation, discovered that 100% of the claims
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`reviewed were improperly coded. (Rec. Doc. 50 at p. 5.) Thus, in addition to the defendants, the
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`Department of Justice clearly has some, if not all, of the information needed to allege sufficient
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`2 Defendants did not argue that Washington's complaint lacked the requisite knowledge element, however
`the complaint conspicuously fails to identify a single person who knew these claims were being submitted to
`Washington under false pretense. The allegations in the complaint do not distinguish between claims that were in
`fact fraudulent and claims that were merely submitted incorrectly.
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`3 For instance, evidence of client or patient name, SNF location, amount of the claim, date, etc.
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`Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 8 of 11
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`factual matter to comply with Rule 9(b). Thus, the Court will not allow the State of Washington to
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`proceed under a relaxed pleading standard.
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`Defendants generally argue that Washington's complaint fails to specify which allegedly
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`fraudulent claims fall under RCW 74.66 and which are covered under RCW 74.09.210. Because
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`the RCW 74.66 was enacted in June of 2012, defendants contend that Washington cannot "vaguely
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`pursue" all claims submitted during the period of 2004 to 2013 but are limited only to pursue claims
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`submitted after the effective date of the statute. (Rec. Doc. 53-1 at p. 8). However, the law does not
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`require Washington to definitively assign each alleged claim to its applicable statute. As previously
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`mentioned, Washington should be prepared, but is not required at this stage, to identify each claim
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`with precision, which would indicate the claims, if any, that are subject to Washington's False
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`Claims Act as opposed to its Fraudulent Practices Act. Importantly, Washington stipulates in its
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`opposition that Count One only applies to fraudulent billings submitted after June 2012, and Count
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`Two, based on violations of RCW 74.09.210, applies to any fraudulent conduct occurring prior to
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`the effective date of 74.66. (Rec. Doc. 56 at p. 8).
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`With regard to the second alleged scheme where by Washington contends that defendants
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`knowingly miscoded over four hundred (400) fraudulent bills that were not covered under the
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`Medicaid program, Washington's complaint fails for the same reasons stated above. While
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`Washington has provided some estimate of the total number of claims, it, again, fails to sufficiently
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`allege the “who, what, when, where, and how” of the alleged fraud as required under Rule 9(b). See
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`Steury, 625 F.3d at 266. Washington must correct these deficiencies in the manner identified above
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`in order to survive dismissal of Count One of its complaint.
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`ii. Count Two: Washington's Fraudulent Practices Act, RCW 74.09.210
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`RCW 74.09.210 provides:
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`(1) No person, firm, corporation, partnership, association, agency, institution, or other legal
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`entity, but not including an individual public assistance recipient of health care, shall,
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`on behalf of himself or herself or others, obtain or attempt to obtain benefits or
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`payments under this chapter in a greater amount than that to which entitled by means
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`of:
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`(a) A willful false statement;
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`(b) By willful misrepresentation, or by concealment of any material facts; or
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`(c) By other fraudulent scheme or device, including, but not limited to:
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`(i) Billing for services, drugs, supplies, or equipment that were
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`unfurnished, of lower quality, or a substitution or misrepresentation of items
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`billed; or
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`(ii) Repeated billing for purportedly covered items, which were not
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`in fact so covered."
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`Wash. Rev. Code Ann. § 74.09.210 (West). Based on the same reasoning declared above,
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`Washington has failed to plead Count Two with particularity (illustrated by the statute's subsections
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`a, b, and c) by failing to include the requisite “who, what, when, where, and how” of the alleged
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`fraud such that the defendants were put on fair notice. Washington must amend its complaint in
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`Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 10 of 11
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`intervention to satisfy the heightened pleading standards of Rule 9(b) or risk dismissal of Count
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`Two.
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`iii. Count Three: Breach of Contract
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`Defendants move for dismissal of Count Three of Washington's complaint in intervention
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`declaring that Washington has, for a third time, failed to plead with particularity as required by Rule
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`9(b) because Washington's claim for breach of contract "arises by reason of fraud" and, therefore,
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`must comply with the Rule. (Rec. Doc. 53-1 at p. 6). Washington failed to address defendants
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`arguments for dismissal of Count Three in its opposition.4 Nonetheless, the Court will address the
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`applicability of Rule 9(b) to this particular claim.
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`A breach of contract claim requires that the contract imposed a duty on a party, the duty was
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`breached, and the breach proximately caused damages. Indep. Forest Mfrs. v. Dep't of Labor &
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`Indus., 78 Wash. App. 707, 712, 899 P.2d 6, 9 (1995). As previously stated, Rule 9(b) requires the
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`plaintiff to establish the “who, what, when, where, and how” when fraud is alleged. Washington has
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`failed to sufficiently plead with particularity its claim for breach of contract based on violations of
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`state and federal law. Based on the same missing factors discussed above concerning Counts One
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`and Two of Washington's complaint, Washington has not met the heightened pleading standards of
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`Rule 9(b) with regard to its breach of contract claim. Therefore, Washington must amend its
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`pleadings to conform with the Federal Rules or Count Three will be subject to dismissal.
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`3. Conclusion
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`4In its opposition (Rec. Doc. 56 at p. 8), Washington briefly mentions, "For reasons not clear, Dynasplint
`has moved to dismiss Count Three... for the same lack of pleading clarity...." It does not address Count Three again
`in the memorandum.
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`Case 2:10-cv-02085-KDE-JCW Document 66 Filed 09/05/14 Page 11 of 11
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`For the reasons stated above, IT IS ORDERED that the motion to dismiss presently
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`before the Court is GRANTED to the extent that the claims asserted by the State of Washington,
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`are DISMISSED WITHOUT PREJUDICE. Any amendments ordered by the Court are to be
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`made, in accordance with the Court’s instructions stated above, no later than twenty (20) days
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`following entry of this Order and Reasons.
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` New Orleans, Louisiana, this 5th day of September 2014.
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`_________________________________
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`KURT D. ENGELHARDT
`United States District Judge
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