UNITED STATES OF AMERICA, Ex Rel. GERRY PHALP AND MATT PEOPLES, Plaintiffs-Appellants,
LINCARE HOLDINGS, INC. and LINCARE, INC., d/b/a Diabetics Experts of America, Defendants-Appellees.
from the United States District Court For the Southern
District of Florida D.C. Docket No. 1:10-cv-21094-KMW
MARCUS and BLACK, Circuit Judges, and COHEN, [*] District Judge.
Gerry Phalp and Matt Peoples (collectively
"Relators") brought a qui tam action
pursuant to the False Claims Act, 31 U.S.C. §§
3729-3733 ("FCA"), alleging that Defendants
submitted claims to Medicare without adequate authorization
from the relevant Medicare beneficiaries and claims that were
the product of unsolicited telemarketing calls to Medicare
beneficiaries. Relators appeal summary judgments granted to
Defendants with respect to each issue.
affirm the district court with one modification. Although the
district court applied an erroneous scienter standard, the
evidence proffered by Relators as to Defendants' state of
mind with respect to the assignment of benefits forms was
insufficient to survive summary judgment under the proper
standard. The district court did not err in granting summary
judgment on Relators' claims that Defendants violated
Medicare's unsolicited telephone contact rules.
are former salespersons for Lincare, Inc.
("Lincare"), which does business as Diabetic
Experts of America ("Diabetic Experts"). Defendants
are Relators' former employer and related entities.
Lincare supplies Medicare patients suffering from chronic
obstructive pulmonary disease with oxygen, respiratory, and
other therapy services. Diabetic Experts is a fictional name
Lincare registered in 2004 to sell diabetic-testing
supplies. Lincare Holdings, Inc.
("Holdings") is a holding company for its
wholly-owned subsidiary, Lincare, Inc., and other
subsidiaries. Additionally, Holdings supports the information
systems of Lincare and Diabetic Experts by providing, among
other things, a database which contains the telephone numbers
for Diabetic Experts' customers.
the relevant time period, Diabetic Experts was in the
practice of supplying Medicare patients with diabetic-testing
supplies. Specifically, Diabetic Experts would place calls to
individuals to whom Lincare previously had provided
Medicare-covered items related to chronic obstructive
pulmonary disease. Diabetic Experts would offer these
individuals a free diabetic-testing monitor and sell them
diabetic-testing supplies, including blood-testing
strips. After selling
diabetic-testing strips to these individuals, Diabetic
Experts would submit claims to Medicare using authorizations,
or assignments of benefits ("AOBs"), previously
provided by the Medicare beneficiaries to Lincare in
connection with Lincare's provision of items related to
chronic obstructive pulmonary disease. Diabetic Experts did
not obtain AOBs that were specifically related to diabetic
testing supplies. Instead, Diabetic Experts submitted the
AOBs given to Lincare that were generic in nature and
provided that the Medicare beneficiaries agreed: (1) to rent
or purchase "certain medical equipment, products,
supplies, prescription drugs and/or associated services"
from "Lincare and its affiliates;" (2) that Lincare
would provide "HME [home medical equipment] and
Supplies" or "DME [durable medical
equipment];" and (3) to assign Medicare benefits to
alleged in their Second Amended Complaint
("Complaint") that Defendants violated the FCA by
submitting reimbursement claims to Medicare that were
non-compliant with Medicare regulations in two respects: (1)
the reimbursement claims submitted by Defendants were based
upon improper generic authorizations given to Lincare in
connection with the provision of items related to chronic
obstructive pulmonary disease and failed to include a new
authorization when Defendants requested reimbursement for
diabetic blood-testing strips; and (2) the claims submitted
to Medicare arose out of telemarketing calls with
beneficiaries that violated Medicare's unsolicited
telephone contact rules. The Complaint included six examples
of claims submitted by Defendants to Medicare on behalf of
six different Medicare beneficiaries which were alleged to be
illustrative of Defendants' unlawful conduct.
moved for summary judgment. They contended that the claims
filed on behalf of these exemplars complied with the
applicable Medicare regulations and could not form the basis
of any FCA claim. The district court issued an order on July
13, 2015 (the "July Summary Judgment Order"),
granting Defendants' motion for summary judgment on the
six exemplars, but recognized the possibility that its order
may not be dispositive of the entire case. United States
ex rel. Phalp v. Lincare Holdings, Inc., 116 F.Supp.3d
1326, 1361 (S.D. Fla. 2015). Subsequently, Relators cited
evidence of three additional exemplars which were alleged to
be illustrative of Defendants' practice of unlawfully
telemarketing Medicare beneficiaries. The district court
issued a second order on January 11, 2016 (the "January
Summary Judgment Order"), granting Defendants'
motion for summary judgment on the three additional
exemplars. United States ex rel. Phalp v. Lincare
Holdings, Inc., No. 10-CV-21094, 2016 WL 3961840 (S.D.
Fla. Jan. 11, 2016). Relators appeal portions of those two
orders to this Court.
The July Summary Judgment Order
district court held that the evidence was insufficient to
create a genuine issue of material fact with regard to
scienter-that is, whether the defendants "knew or should
have known that its policies or practices violated the
applicable statutes and implementing regulations." The
district court analyzed Relators' "best
evidence" of scienter, which consisted of two emails.
One dealt with an entirely different compliance issue. In the
second email, Lincare personnel wrote that "they
'[m]ay need to reconsider [their] process for Patient
Agreements, '" but the email postdated the relevant
transactions by several months. The court concluded that
these two emails did not "allow a reasonable jury to
conclude that Diabetic Experts knowingly submitted false
United States ex rel. Hixson v. Health Mgt. Sys.,
Inc., 613 F.3d 1186, 1191 (8th Cir. 2010), the district
court stated that when a defendant claims that the governing
law is ambiguous, "[t]o prevail under the False Claims
Act, 'relators must show that there is no reasonable
interpretation of the law that would make the allegedly false
statement true.'" The district court expanded on
this line of reasoning, stating that "a defendant's
'reasonable interpretation of any ambiguity inherent in
the regulations belies the scienter necessary to establish a
claim of fraud under the FCA.'" Based on this
reasoning, as "an alternative and independent
ground" for granting summary judgment in favor of
Defendants,  the court concluded "as
a matter of law that, with regard to the six exemplars, no
reasonable jury could find for Relators on the questions of
whether Defendants submitted false claims or made or used
false records with the requisite scienter."
The January Summary Judgment Order
conclusion of the July 13 Summary Judgment Order, the
district court invited the parties to submit a status report
indicating what, if any, claims remained in the case.
Relators supplemented the record with evidence of three
additional exemplars, who were previous clients of
Lincare's wholly owned subsidiaries, Med4Home and
Reliant. Relators alleged that Diabetic Experts'
telemarketing of these beneficiaries was in violation of
Medicare's prescription against unsolicited telephone
contact. See 42 U.S.C. § 1395m(a)(17)(A).
Relators argued that, unlike Diabetic ...