Cho v. Surgery Partners, Inc.

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF FLORIDA

TAMPA DIVISION

UNITED STATES OF AMERICA,

ex rel. SHELDON CHO, M.D.,

and DAWN BAKER, Relators,

Plaintiffs,

v. Case No. 8:17-cv-983-T-33AEP

H.I.G. CAPITAL, LLC, and

H.I.G. SURGERY CENTERS, LLC,

Defendants.

/

ORDER

This cause comes before the Court pursuant to the Motion

to Dismiss the Relators’ Second Amended Complaint filed by

Defendants H.I.G. Capital, LLC and H.I.G. Surgery Centers,

LLC (Doc. # 91), filed on July 13, 2020. Plaintiff-Relators

Sheldon Cho, M.D., and Dawn Baker filed a response on August

3, 2020. (Doc. # 97). On August 7, 2020, HIG filed a reply.

(Doc. # 98). For the reasons explained below, the Motion is

granted, and this case is dismissed without prejudice.

I. Background

A. Factual Allegations

1. H.I.G. acquires Surgery Partners

According to the operative complaint, H.I.G. is a

private-equity firm that engages in buyouts of various

companies. (Doc. # 85 at ¶¶ 3, 91-93). In December 2009,

H.I.G. bought out Surgery Partners,1 a national network of

surgical facilities and ancillary services, including pain

management services. (Id. at ¶¶ 2-3, 101). On the same day as

the buyout, Bayside Capital, Inc. – a “controlled affiliate

of H.I.G. Capital, LLC” – entered into a Management and

Investment Advisory Services Agreement with Surgery Partners

(hereafter, the “HIG Management Agreement”). (Id. at ¶¶ 5,

94-100). The second amended complaint claims that Bayside is

operated and controlled by H.I.G. Capital, and that H.I.G.

“directly and through its Bayside business unit, controlled,

managed, and advised Surgery Partners.” (Id. at ¶¶ 95, 100).

Pursuant to the HIG Management Agreement, H.I.G.

provided “management, consulting, and financial advisory

services” to Surgery Partners and any companies or businesses

formed or acquired by Surgery Partners. (Id. at ¶ 6). The

agreement stated that H.I.G. would provide Surgery Partners

with “advice and assistance concerning any and all aspects of

the operations, planning, financing and budgeting” of the

companies. (Id. at ¶ 7). Relators allege that Surgery Partners

1 The term “Surgery Partners,” as used in the second amended

complaint, encompasses Surgery Partners, Inc., Surgery Center

Holdings, Inc., Surgery Partners Holding, LLC, and Surgery

Center Holding, LLC. (Doc. # 85 at ¶ 2).

paid H.I.G. $38.7 million for these services from 2009 to

2017. (Id. at ¶ 8).

Following the acquisition, H.I.G. also placed “multiple”

representatives on the Surgery Partners’ Board of Directors.

(Id. at ¶ 9). “For example, H.I.G. Managing Partner

Christopher Laitala was named to the Surgery Partners Board

of Directors in 2009,” became Chairman in 2015, and was also

appointed president of Surgery Center Holdings, Inc. (Id. at

¶¶ 10, 121). Specifically, H.I.G. had three individuals on

the Surgery Partners Board: Laitala, Matthew Lozow, and

Fraser Preston. (Id. at ¶ 120).

According to Relators, “[b]y virtue of its managerial

and advisory role to the buyout fund and the buyout fund’s

large equity stake, the H.I.G. Defendants controlled the

Surgery Partners business. Further, H.I.G., through its

Bayside business unit, contracted to provide Surgery Center

Holdings, Inc. with managerial, consulting, and advisory

services.” (Id. at ¶ 106). Thus, H.I.G. provided a “robust

management role,” working in “partnership” with Surgery

Partners’ executives. (Id. at ¶ 134).

2. H.I.G. and Surgery Partners form Logan Labs

The operative complaint alleges that “[u]nder H.I.G.’s

control, leadership, experience, and direction, Surgery

Partners created a new profit center – urine toxicology

testing.” (Id. at ¶ 10). Specifically, beginning in 2011,

H.I.G. and Surgery Partners formed a new business, Logan

Laboratories LLC (”Logan Labs”). (Id. at ¶¶ 10, 157). Logan

Labs was a wholly owned subsidiary of Surgery Partners, and

Surgery Partners used it to provide ancillary laboratory

services to its physicians. (Id. at ¶ 11).

Logan Labs became “a nationwide provider . . . of urine

drug testing (‘UDT’), also called ‘urine toxicology’ testing

services.” (Id.). Logan Labs was dependent on UDT referrals

from Surgery Partners’ physicians, “whose patients are

largely beneficiaries of Government-funded healthcare

programs, including, but not limited to, Medicare, Medicaid,

and TRICARE.” (Id. at ¶ 12).

a. Urine Drug Testing (UDT)

There are two types of UDT: qualitative and

quantitative. (Id. at ¶ 16). Qualitative UDT can be performed

either via point-of-care testing, which means it is performed

in a doctor’s office, or it can be sent to an outside

laboratory. (Id. at ¶ 17). Point-of-care testing is an “easy

and cost-efficient” way to perform UDT, and both types of

qualitative UDT are “far less expensive” than quantitative

UDT. (Id. at ¶¶ 18, 21). This is because quantitative UDT can

only be performed “in a laboratory using properly calibrated

equipment and appropriately qualified laboratory

professionals.” (Id. at ¶ 22). Relators state that

quantitative UDT is not appropriate or medically necessary

for every patient or every clinic visit; in fact, it is

medically necessary “only for a narrow subset of patients.”

(Id. at ¶¶ 23-24).

b. Logan Labs’ use of UDT

According to Relators, Logan Labs generated most of its

revenues from “confirmatory” quantitative UDT. (Id. at ¶ 26).

“[U]nder the management, control, and direction of the H.I.G.

Defendants, Surgery Partners implemented fraudulent schemes

to refer patients of Surgery Partners-affiliated physicians

to Logan Labs for extensive and expensive confirmatory

quantitative UDT. They prohibited the use of office-based UDT

without medical or scientific justification, leaving their

affiliated physicians with only laboratory-based UDT (either

qualitative or quantitative). They monitored their

physicians’ and mid-level providers’ use of ‘confirmation’

UDT and exerted great pressure on physicians to order

confirmation UDT for every patient regardless of the

patient’s clinical presentation.” (Id. at ¶ 30). Thus,

Relators allege that Surgery Partners and H.I.G. submitted,

or caused to be submitted, “millions of dollars’ worth of

false claims to Government-funded programs . . . for UDT,

including confirmatory quantitative UDT, that were not

reasonable or necessary.” (Id. at ¶ 34).

As Relators tell it, “the strategy put forth by the

H.I.G. Defendants and adopted by Surgery Partners . . . in

creating Logan Labs was to take advantage of their captive

employed physicians and adopt a fraudulent scheme of over-

utilizing UDT as a means to generate revenue . . . largely of

Government healthcare program beneficiaries.” (Id. at ¶ 14).

To this end, Relators allege that H.I.G. and Surgery Partners

drove up quantitative UDT in numerous ways:

1) Surgery Partners’ executives allegedly pre-

selected patients, including Government healthcare

program beneficiaries, for the expensive UDT

service and obtained urine samples from these

patients before the patients were even seen by a

medical provider. (Id. at ¶¶ 367-77).

2) Surgery Partners fraudulently obtained patients’

consents to urine toxicology screening by falsely

representing that quantitative UDT services were

required multiple times per year to comply with

state and/or federal laws. (Id. at ¶¶ 378-83).

3) Surgery Partners implemented policies prohibiting

physicians from using simple, and less expensive,

UDT screening methods in the office. (Id. at ¶¶

384-96).

4) Surgery Partners had a company-wide practice or

policy to send all patients with Government-

provided insurance or any private insurance plan

that would pay for lab-based UDT to Logan Labs,

even if the physician preferred a “dip stick test”

or a different laboratory. (Id. at ¶¶ 445-51).

5) Surgery Partners pressured medical providers to

refer patients for UDT services by closely

monitoring the patients who were not referred for

UDT at each visit. (Id. at ¶¶ 452-65). To that end,

Surgery Partners would track doctors’ UDT referral

numbers and would pressure doctors whose referral

numbers were low to bring them up. (Id.).

6) Surgery Partners implemented UDT policies that

resulted in the creation of false electronic

medical records to support medically unnecessary

UDT services. (Id. at ¶¶ 466-69).

7) On top of the push for physicians to order more

UDTs than medically indicated, Logan Labs would

routinely bill multiple different billing codes,

performing a more thorough analysis than was

necessary. (Id. at ¶¶ 475-88).

8) Logan Labs “unbundled” the quantitative UDT bills,

resulting in increased and unduly inflated bills.

(Id. at ¶¶ 493-94).

9) Surgery Partners’ adopted a corporate policy to

pressure medical providers to sign false

attestations of medical necessity for quantitative

UDT. (Id. at ¶¶ 495-500). This was significant

because Government healthcare programs, like

Medicare, required that the testing be medically

necessary to qualify for reimbursement. (Id. at ¶¶

299-303, 496).

10) While Logan Labs billed Medicare for millions of

dollars’ worth of “confirmation” UDT, in reality

Surgery Partners’ physicians did very little

“confirmatory” testing because quantitative UDT was

the only testing ordered. (Id. at ¶¶ 504-06).

11) Surgery Partners and Logan Labs regularly waived

co-pays for Government healthcare beneficiaries so

that they would not complain about the expense of

UDT. (Id. at ¶ 507).

Finally, Relators allege that Surgery Partners tied

physician compensation to UDT referrals. Specifically,

Surgery Partners had an “Attractive Physician Compensation

Structure,” which was a two-tiered compensation structure.

(Id. at ¶ 536). Tier One was the base salary, while Tier Two

provided incentive compensation based on 100% cash collection

of ancillary services, including “UDS high complex” lab

tests. (Id.). Relators allege that H.I.G. personnel,

including Laitala and Lozow, “were personally involved in

initiating and designing Surgery Partners’ incentive

compensation system.” (Id. at ¶ 545). Laitala was named to

the compensation committee, which reviewed and evaluated

company compensation practices. (Id.). Thus, Relators allege

that these arrangements violated the Stark Law and the Anti-

Kickback Statute. (Id. at ¶¶ 550-63, 570-86).

Based on these allegations, Relators bring two causes of

action: (1) violation of the federal False Claims Act (“FCA”),

31 U.S.C. § 3729(a)(1)(A) and (B), and (2) conspiracy to

violate the FCA, in violation of 31 U.S.C. § 3729(a)(1)(C).

(Id. at 119-21).

B. Procedural History

Relators initiated this qui tam FCA lawsuit against

dozens of defendants on April 25, 2017, based on the UDT

fraudulent scheme described above. (Doc. # 1). Relators

amended their complaint once as a matter of right on January

15, 2019. (Doc. # 20). On January 21, 2020, the United States

and the various states on whose behalf Relators purported to

bring claims filed their notices of intent. (Doc. ## 32-33).

In its notice, the United States notified the Court of

its decision to intervene in this action for the purpose of

settlement as to most of the named defendants (the “Settling

Defendants”). The United States also notified the Court that

it was not intervening at that time with respect to the H.I.G.

Defendants, although its investigation into those Defendants

was ongoing. (Doc. # 33).

Accordingly, on January 23, 2020, the Court lifted the

seal on the complaint, the amended complaint, and the Court’s

order, and it also directed that Relators serve all defendants

other than the Settling Defendants in accordance with Federal

Rule of Civil Procedure 4. (Doc. # 34).

In April 2020, Logan Labs, Tampa Pain Relief Centers,

Inc. and certain individual Defendants – all of whom were

named in Relators’ original complaint – entered into a

Settlement Agreement with the United States, the Relators in

this case, and the Relators in another matter, the Ashton

case, which will be discussed in further detail below. See

(Doc. # 85 at ¶ 53). Those Defendants agreed to pay $41

million to settle the claims at issue in this case and in the

Ashton matter. See Dep’t of Justice, Office of Public Affairs

press release, available at

https://www.justice.gov/opa/pr/reference-laboratory-pain-

clinic-and-two-individuals-agree-pay-41-million-resolve-

allegations.

On May 22, 2020, Relators and the United States filed a

joint notice of voluntary dismissal where some defendants

were dismissed with prejudice and others without prejudice.

(Doc. # 61). After ascertaining that all affected

governmental entities assented to the dismissal, this Court

dismissed all claims against those named Defendants on June

8, 2020. (Doc. # 77). Pursuant to the Joint Notice of

Dismissal, and in accordance with the Settlement Agreement,

the following claims were not dismissed: (1) Relators’ and

Relators’ counsel’s claims for reasonable costs and

attorneys’ fees under 31 U.S.C. § 3730(d); and (2) those

claims that the Relators and the United States assert against

Defendants H.I.G. Capital, LLC, and H.I.G. Surgery Centers,

LLC, that are outside the scope of the releases contained in

the Settlement Agreement. (Id.).

On August 7, 2020, while this Motion was still pending,

the United States notified the Court that it would not be

intervening in this matter against Defendants H.I.G. Capital,

LLC, and H.I.G. Surgery Centers, LLC, the Defendants who

brought the instant Motion to Dismiss. (Doc. # 98).

Through the Court’s June 8, 2020, Order, other

stipulations of dismissal, and Relators’ second amended

complaint, the case has now been winnowed down to the two

federal FCA claims described above against these two H.I.G.

Defendants. (Doc. ## 53, 77, 85).

The H.I.G. Defendants filed their Motion to Dismiss on

July 13, 2020. (Doc. # 91). The Motion has been fully briefed

(Doc. ## 97, 98) and is now ripe for review.

II. Legal Standard

When a claim arises under the FCA, “Rule 8’s pleading

standard is supplemented but not supplanted by Federal Rule

of Civil Procedure 9(b).” Urquilla-Diaz v. Kaplan Univ., 780

F.3d 1039, 1051 (11th Cir. 2015). Rule 9(b) imposes a

heightened pleading standard for allegations of fraud,

requiring a party to “state with particularity the

circumstances constituting fraud or mistake.” Fed. R. Civ. P.

9(b). In the FCA context, “the relator has to allege facts as

to time, place, and substance of the defendant’s alleged

fraud, particularly, the details of the defendant’s allegedly

fraudulent acts, when they occurred, and who engaged in them.”

Urquilla-Diaz, 780 F.3d at 1051 (internal quotation marks and

citations omitted).

On a motion to dismiss pursuant to Rule 12(b)(6), the

Court accepts as true all the allegations in the complaint

and construes them in the light most favorable to the

plaintiff. Jackson v. Bellsouth Telecomms., 372 F.3d 1250,

1262 (11th Cir. 2004). Further, the Court favors the plaintiff

with all reasonable inferences from the allegations in the

complaint. Stephens v. Dep’t of Health & Human Servs., 901

F.2d 1571, 1573 (11th Cir. 1990). But,

[w]hile a complaint attacked by a Rule 12(b)(6)

motion to dismiss does not need detailed factual

allegations, a plaintiff’s obligation to provide

the grounds of his entitlement to relief requires

more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action

will not do. Factual allegations must be enough to

raise a right to relief above the speculative

level.

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

(citations omitted). Courts are not “bound to accept as true

a legal conclusion couched as a factual allegation.” Papasan

v. Allain, 478 U.S. 265, 286 (1986). Furthermore, “[t]he scope

of review must be limited to the four corners of the

complaint.” St. George v. Pinellas Cty., 285 F.3d 1334, 1337

(11th Cir. 2002).

III. Analysis

H.I.G. raises four arguments in support of dismissal.

First, it argues that the second amended complaint brings

claims that have already been released by the Government and

Relators in the April 2020 Settlement Agreement. Second,

H.I.G. claims that the FCA’s first-to-file rule bars the

Relators’ complaint. Third, it argues that the second amended

complaint fails to state a plausible claim against H.I.G.

because it does not sufficiently allege that H.I.G. knowingly

caused the submission of false claims. Finally, according to

H.I.G., the allegations in the second amended complaint do

not meet the requirements of Rule 9(b) and rely instead on

“conclusory statements and innuendo.” (Doc. # 91 at 2).

Because the Court agrees with H.I.G. that Relators’

claims are barred by the FCA’s first-to-file rule, it will

not address any of H.I.G.’s other arguments.

A. First-to-File Rule under the FCA

The FCA’s first-to-file rule provides that “[w]hen a

person brings an action . . . no person other than the

Government may intervene or bring a related action based on

the facts underlying the pending action.” 31 U.S.C. §

3730(b)(5). The first-to-file rule reflects the understanding

that a corresponding government-initiated action would have

involved only a single suit. Makro Capital of Am., Inc. v.

UBS AG, 543 F.3d 1254, 1260 (11th Cir. 2008).

This means that “once one suit has been filed by a

relator or by the government, all other suits against the

same defendant based on the same kind of conduct would be

barred.” Cooper v. Blue Cross & Blue Shield of Fla., Inc., 19

F.3d 562, 567 (11th Cir. 1994). It abates only “pending”

related actions “while the earlier suit remains undecided but

ceases to bar that suit once it is dismissed.” Kellogg Brown

& Root Servs., Inc. v. U.S., ex rel. Carter, 575 U.S. 650,

135 S. Ct. 1970, 1979 (2015) (holding that a qui tam suit

under the FCA ceases to be “pending” once it is dismissed).

Accordingly, a dismissal based solely on the first-to-file

bar should be without prejudice. United States ex rel. Bernier

v. Infilaw Corp., 347 F. Supp. 3d 1075, 1081 (M.D. Fla. 2018).

The issues for determination, then, are two-fold: (1)

whether the earlier-filed action was “pending” when the later

action was brought; and (2) whether the two actions are

“related.” See 31 U.S.C. § 3730(b)(5).

1. Whether the earlier-filed action was “pending”

H.I.G. argues that the first-to-file bar applies here

due to the earlier-filed case of United States ex rel. Ashton

v. Logan Laboratories, LLC, et al., Case No. 16-4583 (E.D.

Pa. 2016). (Doc. # 91 at 11-16). In that case, three

plaintiff-relators brought FCA claims against Logan Labs and

Surgery Partners, Inc. on behalf of the United States and

numerous states. (Ashton, Doc. # 1). The Ashton complaint was

filed on August 22, 2016. (Id.). The Ashton complaint was,

like the complaint here, based on Surgery Partners’ and Logan

Labs’ fraudulent UDT practices. (Id.). On April 15, 2020, the

United States intervened in that case for the purpose of

settlement and the court dismissed the case on June 2, 2020,

pursuant to a joint stipulation of dismissal. (Ashton, Doc.

## 25, 27, 28).

By way of reminder, Dr. Cho and Baker filed their initial

complaint in this matter on April 25, 2017. (Doc. # 1). Thus,

at the time the original complaint was filed, Ashton was still

pending. Relators argue, however, that when they filed their

second amended complaint – which focuses on the allegations

against H.I.G. – on June 29, 2020, the Ashton case had since

been dismissed. (Doc. # 97 at 18-19). The question thus

becomes – does amendment of a complaint cure or change the

first-to-file analysis?

As the parties agree, “whether amendment of a qui tam

complaint following dismissal of a first-filed suit protects

the action from the first-to-file bar is the subject of a

Circuit split, and the Eleventh Circuit has not addressed the

issue.” (Doc. # 97 at 18); see also (Doc. # 91 at 15-16, 15

n.7).

Indeed, the Circuits that have addressed this question

are split. The Courts of Appeals for the Second Circuit and

the District of Columbia have held that the pertinent date to

be considered is when the original complaint was filed in the

second action. See United States ex rel. Wood v. Allergan,

Inc., 899 F.3d 163, 171-72 (2d Cir. 2018) (rejecting as

“inconsistent with the language of the statute” the argument

that a violation of the first-to-file bar can be cured by

filing an amended pleading after the first action is

dismissed); United States ex rel. Shea v. Cellco P’ship, 863

F.3d 923, 929 (D.C. Cir. 2017) (“Shea infringed the first-

to-file bar by bringing a related action while [the] first-

filed case remained pending. Although [the first-filed] suit

is no longer pending, a supplemental complaint cannot change

when Shea brought [the] second action for purposes of the

statutory bar. . . . [I]n short, Shea’s action was incurably

flawed from the moment he filed it.”). The First Circuit,

however, has taken a different view. See United States ex

rel. Gadbois v. PharMerica Corp., 809 F.3d 1, 6 (1st Cir.

2015) (“Developments occurring after the filing of the second

amended complaint . . . have dissolved the jurisdictional bar

that the court below found dispositive. . . . [T]his case is

analogous to the cases in which a jurisdictional prerequisite

(such as an exhaustion requirement) is satisfied only after

suit is commenced. Under the circumstances, it would be a

pointless formality to let the dismissal of the second amended

complaint stand — and doing so would needlessly expose the

relator to the vagaries of filing a new action.”).2

After careful consideration, this Court agrees with the

reasoning of the Second and D.C. Circuits. See United States

v. Albertsons LLC, No. SA-15-CV-957-XR, 2018 WL 6609571, at

*3 (W.D. Tex. Dec. 17, 2018)(“This Court finds the reasoning

in Shea and Wood persuasive and holds that Relator’s action

— doomed at the time of filing because of the prior-filed []

action — cannot be cured by Relator’s amended complaint.”).

First, as the Wood court pointed out, allowing an amended

complaint to defeat the first-to-file bar runs counter to the

2 The Fourth Circuit has held that the first-to-file bar

requires dismissal of a later-filed action even if the first-

filed action is dismissed while the later-filed action is

still pending; it has not decided whether amending or

supplementing a complaint after dismissal of the first-filed

action allows the later-filed action to proceed. United

States ex rel. Carter v. Halliburton Co., 866 F.3d 199, 212

(4th Cir. 2017).

plain terms of the statute:

[Section 3730(b)(5)] bars a person from bringing -

- not continuing to prosecute - a related action

during the pendency of an FCA case, and it makes no

provision for a stay of proceedings until the

prior-filed action is resolved. The first-to-file

bar is thus clear: an action cannot be brought while

a first-filed action is pending. . . . Further,

under a plain-language reading, “amending or

supplementing a complaint does not bring a new

action, it only brings a new complaint into an

action that is already pending. . . . The statutory

command is not ambiguous: a claim is barred by the

first-to-file bar if at the time the lawsuit was

brought a related action was pending.

Wood, 899 F.3d at 172.

Second, as explained in Shea, accepting the argument put

forth by the Relators would “give rise to anomalous outcomes.”

863 F.3d at 930. For example, “if a relator brings suit while

a related action is pending, her ability to proceed with her

action upon the first-filed suit’s completion could depend on

the pure happenstance of whether the district court reached

her case while the first-filed suit remained pending.” Id.

The court elaborated with a hypothetical:

[I]magine a situation in which relators A, B, and

C each file a qui tam action alleging the same

fraud. Relator A reaches the courthouse first and

his action therefore goes forward. Relator B

reaches the courthouse second, but the district

court determines his suit is blocked by the first-

to-file bar and thus dismisses it per the ordinary

course. Relator C files last, and shortly

thereafter, the first-filed action is dismissed.

But suppose relator C filed her suit so late in the

game that the district court fails to dismiss her

action before dismissing the first-filed suit.

Under Shea’s proposed rule, relator C would receive

a windfall: she, unlike relator B, could simply

amend her existing complaint and thereby secure

herself pole position in the first-to-file queue.

Relator C would jump past relator B for the

opportunity to proceed with her suit (and to share

in the government’s reward).

Id. (citations omitted). The D.C. Circuit surmised that

“Congress presumably would not have intended a relator’s fate

to depend on chance considerations such as the extent of a

particular court’s backlog and the timeliness of a particular

court’s entry of a dismissal.” Id.; see also Wood, 899 F.3d

at 174 (noting that if “the primary, if not sole purpose of

the first-to-file rule is to help the Government uncover and

fight fraud, it is unlikely that Congress intended to do so

in an inefficient manner prone to anomalous outcomes”)

(quotations omitted)).

Thus, because Ashton was pending at the time Relators

filed their original complaint in 2017, the first-to-file bar

will apply if the Ashton case is “related.” The Court now

turns to that inquiry.

2. Whether the earlier-filed action is “related”

Because the Ashton complaint is publicly available on

the federal courts’ PACER website, and as a court document

its contents cannot reasonably be in doubt, this Court is

permitted to take judicial notice of it. “Courts may take

judicial notice of public records, such as a pleading filed

in another court, because such documents are ‘capable of

accurate and ready determination by resort to sources whose

accuracy cannot reasonably be questioned.’” Navarro v. City

of Riviera Beach, 192 F. Supp. 3d 1353, 1364 (S.D. Fla. 2016)

(quoting Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278

(11th Cir. 1999)). “However, judicial notice may be taken

only to establish what those documents contain, not the

veracity of their contents.” Id. (citing Bryant, 187 F.3d at

1278). Accordingly, in order to determine whether the two

actions are sufficiently “related” to trigger the FCA’s

first-to-file bar, this Court will take judicial notice of

the allegations in the Ashton complaint, though it passes no

judgment on the veracity of those allegations.

“Assessing relatedness is not rocket science; doing so

requires comparing the complaints side-by-side to see whether

the claims [in the second action] incorporate the same

material elements of fraud as the earlier action, even if the

allegations incorporate additional or somewhat different

facts or information.” Infilaw, 347 F. Supp. 3d at 1083

(internal quotation marks omitted). “Rather, the whole point

of the first-to-file bar is to see whether the later filed

complaint alleges a fraudulent scheme the government already

would be equipped to investigate based on the first

complaint.” Id. (alterations and quotation marks omitted).3

For this analysis, this Court will consider only the

original complaints in each case. Infilaw, 347 F. Supp. 3d at

1083 (“[T]he relevant complaints are the originals – time is

of the essence with FCA actions and only the true

‘whistleblower’ should be rewarded, not copycats.”); United

States ex rel. Urquilla-Diaz v. Kaplan Univ., No. 09-20756-

CIV, 2016 WL 3909521, at *5 (S.D. Fla. Mar. 24, 2016) (“Thus,

to determine whether Diaz and Gatsiopoulos are ‘related,’ the

Court must consider only the allegations in the original

Gatsiopoulos complaint and the allegations in the original

Diaz complaint; later amendments of either complaint are

irrelevant to the analysis.”).

3 In Infilaw, a court within this District explained that

there is currently a split of authority as to whether the

first-to-file rule is a jurisdictional bar or should be

considered under the rubric of Rule 12(b)(6). Id. at 1081-

83. After scrutinizing the case law, the Infilaw court

determined that “[w]ithout a clear path from the U.S. Court

of Appeals for the Eleventh Circuit, the Court tags along

with the Second and D.C. Circuits, who have the better reading

of the first-to-file bar as part of the 12(b)(6) inquiry, not

12(b)(1).” Id. at 1082-83. This Court agrees with the

reasoning of Infilaw although, for purposes of this Order,

whether the bar is jurisdictional or arises under Rule

12(b)(6) is of little moment.

Relators argue that they “allege a scheme materially

different than the one in Ashton.” (Doc. # 97 at 16). For one

thing, Relators point out that the H.I.G. Defendants were not

named as defendants in Ashton, and allegations about H.I.G.’s

alleged role in the scheme are entirely absent from the Ashton

pleading, “either by name or by allusion.” (Id.).

Once again, in the absence of Eleventh Circuit case law

on this issue, the Court turns to other jurisdictions for

guidance. To determine whether the first-to-file bar applies,

seven circuit courts of appeals have adopted the “same

material elements” test. See United States v. Berkeley

Heartlab, Inc., 225 F. Supp. 3d 487, 507 (D.S.C. 2016). Under

this test, a later-filed action is not based on the facts of

a pending action when it identifies a new defendant who is

not a subsidiary or corporate affiliate of an already-named

defendant. See In re Nat. Gas Royalties Qui Tam Litig. (CO2

Appeals), 566 F.3d 956, 962 (10th Cir. 2009) (“The identity

of a defendant constitutes a material element of a fraud claim

[but] [c]ases involving parents, subsidiaries, and other

corporate affiliates might . . . require deviations from the

general requirement that claims must share common defendants

in order to trigger the first-to-file bar.”); see also United

States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318

F.3d 214, 218–19 (D.C. Cir. 2003) (holding that later-filed

complaint’s allegations against a specific subsidiary were

already encompassed in allegations in first-filed complaint

against the parent corporation).

In addition to their corporate relationship, this Court

must also look at the scope of the allegations contained in

the first- and later-filed complaints. Courts have held that

allegations of a greater, more expansive, or nationwide fraud

naturally include lesser, local, or subsidiary frauds;

whereas lesser frauds may not always include the greater. See

United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 121-

22 (D.C. Cir. 2015) (holding first-to-file bar did not apply

when the earlier action alerted the government only to “a

limited scheme by Wisconsin Bell to defraud [a program] within

Wisconsin” that was accomplished through affirmative

misrepresentations by Wisconsin Bell employees and the later-

filed action alleged “a different and more far-reaching

scheme to defraud the federal government through service

contracts entered into across the Nation”); see also United

States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1209 (D.C.

Cir. 2011) (first-to-file rule applied when the first

complaint alleged that “corporate policies” perpetuated a

“nationwide scheme attributable not only to the subsidiary,

but also to [the parent company],” and the second complaint

simply asserted the same fraudulent practices in another

subsidiary); United States ex rel. Chovanec v. Apria

Healthcare Group, Inc., 606 F.3d 361 (7th Cir. 2010) (holding

that earlier-filed suit alleged facts of a top-down fraud

emanating from national headquarters and, thus, encompassed

the fraud at a single office that was alleged in the later-

filed complaint). As a district court in the Southern District

of Florida has explained it, “[i]n the context of a parent

and subsidiaries or related corporations, to determine

whether suits are related for purposes of the first-to-file

bar, a court must determine whether the earlier-filed suit

alleges a fraud at local, individual offices or, instead,

alleges a cohesive scheme orchestrated by national

management.” Urquilla-Diaz, 2016 WL 3909521, at *4. For

example, in the Urquilla-Diaz case, the court held that where

the earlier-filed complaint’s scope was limited to a single

school in Pennsylvania but the later-filed complaint

encompassed a similar scheme at all of Kaplan University’s

seventy-nine schools and its online program, “the claims in

the two complaints are not related.” Id.

Here, it is undisputed that the H.I.G. Defendants were

not named in the Ashton complaint. However, in the original

complaint in this case, they were named as the corporate

parents of Surgery Partners and Logan Labs, the main entities

behind the fraud. (Doc. # 1 at ¶¶ 81-93). Thus, the H.I.G.

Defendants are the corporate affiliates of the defendants

named in the Ashton action. See Grynberg v. Koch Gateway

Pipeline Co., 390 F.3d 1276, 1280 n.4 (10th Cir. 2004)

(finding that the first-to-file rule applied where a relator

named as defendants some “affiliated” entities that were not

listed as defendants in the prior pending lawsuit).

What’s more, read in its entirety, the Ashton complaint

alleged a broad, nationwide scheme on the part of Logan Labs

and Surgery Partners to defraud Medicare and other Government

programs by submitting medically unnecessary and inflated

claims for UDT. For example, the Ashton complaint alleged

that Surgery Partners operated in 28 states and, indeed, the

Ashton relators brought the complaint on behalf of 28

individual states, in addition to the United States. (Ashton,

Doc. # 1 at 1, ¶ 14). The Ashton relators alleged that Logan

Labs knowingly submitted millions of dollars’ worth of false

claims to Medicare for UDT that were neither reasonable nor

necessary, and that, from 2013 until 2016, Logan Labs received

almost 200,000 urine specimens and that 50% of those were

billed to Government programs, “for a total of an estimate

$200 to $400 million.” (Id. at ¶¶ 7, 99).

And comparing the complaints side-by-side, the Ashton

complaint and the original complaint here both allege several

of the same key factors underlying the UDT scheme: (1) Surgery

Partners caused or manipulated its physicians to routinely

order UDT for patients without regard for individual patient

needs, in violation of the Medicare requirement that

providers seek reimbursement only for “reasonable and

necessary” services; (2) Surgery Partners paid illegal

kickbacks or offered other incentives to its physicians to

induce them to refer high numbers of UDT to Logan Labs; (3)

once received, Logan Labs would run excessive UDT panels; and

(4) all of which resulted in millions of dollars’ worth of

false claims being presented to Medicare, Medicaid, and other

Government programs. Compare (Doc. # 1 at ¶¶ 19-22, 24-25,

31, 272-73, 279, 288, 292-93, 301-03, 349, 353, 386-91, 433-

39, 449) with (Ashton, Doc. # 1 at ¶¶ 2, 8, 87-89, 95-97,

104-07, 110-15, 136).

In sum, a comparison of the original Ashton and Cho

complaints reveals that they allege the same essential facts

regarding the UDT fraud against the Government committed by

Surgery Partners and Logan Labs. While Cho’s complaint

contains slightly different details, both complaints allege

that Surgery Partners and Logan Labs violated the FCA by

implementing a broad policy of requiring expensive and

medically unnecessary UDT for a large number of patients for

whom the testing was not necessary and then reaping millions

of dollars in profits by submitting these claims to Government

programs for payment. Both complaints allege that Surgery

Partners and Logan Labs violated the Stark Law, and the Anti-

Kickback Statute by providing kickbacks, additional

compensation, and other perks to medical professionals as an

inducement to order as much UDT as possible.

The Court thus disagrees with Relators that the “primary

allegation levelled by Relators in their first Complaint here

– the institution of Surgery Partners’ kickback compensation

structure – is also absent from Ashton.” (Doc. # 97 at 16).

A fair reading of the initial complaint in this case

demonstrates that, while the kickback scheme is certainly an

integral part of Relators’ original complaint, it is not the

“primary allegation.” Moreover, the Ashton relators also

alleged that “Surgery Partners provided illegal kickbacks to

physicians in order to increase laboratory tests to Logan

[Labs]” and that this alleged kickback scheme violated the

Stark Law and the Anti-Kickback Statute. (Ashton, Doc. # 1 at

¶¶ 95-99). That Cho’s complaint contained additional details

about the structure of those kickbacks does not defeat the

first-to-file bar. See United States ex rel. Lujan v. Hughes

Aircraft Co., 243 F.3d 1181, 1189 (9th Cir. 2001) (holding

that Section 3730(b)(5) “bars later-filed actions alleging

the same material elements of fraud described in an earlier

suit, regardless of whether the allegations incorporate

somewhat different details”).

Relators argue that their initial complaint described a

scheme different from the one alleged in Ashton because, for

example, (1) the Ashton complaint “focused on the fraudulent

impact of standing order forms and standard testing panels,”

whereas they alleged that the Defendants “used fraudulent

intake forms to obtain patient consent for testing,” and (2)

these Relators alleged a scheme that was “top-down and

designed to meet the corporate-wide objective of shifting

Surgery Centers’ profit center to ‘ancillary services.’”

(Doc. # 97 at 17-18). The first example is easily discarded.

Complaints need not allege identical facts – the relevant

question is, instead, whether they allege the same “essential

claim” or “material elements.” See Grynberg, 390 F.3d at 1279-

80. The precise way in which Surgery Partners implemented its

objective of sending nearly all patient specimens for UDT,

regardless of medical necessity, is not a material element of

the fraud. See Batiste, 659 F.3d at 1209-10 (holding that

where the first-filed complaint “would suffice to equip the

government to investigate SLM’s allegedly fraudulent

forbearance practices nationwide,” the second-filed

complaint’s additional details “would not give rise to a

different investigation or recovery”).

As for Relators’ other argument, the Court cannot

discern a material difference in the scope of the scheme

outlined in the two complaints. True, Relators here named

more defendants, but both complaints alleged a nationwide

scheme by Surgery Partners and Logan Labs across multiple

offices to send unnecessary UDT to Logan Labs in order to

reap millions in illegal reimbursements from Medicare and

other government payors. This case is thus distinguishable

from those cases where the first-filed action alleged only a

localized or limited scheme and the later-filed action

alleged a much broader, nationwide scheme, directed by a far-

reaching corporate policy. See Heath, 791 F.3d at 121-22;

Urquilla-Diaz, 2016 WL 3909521, at *4.

Thus, while Relators insist that “Ashton did not put the

Government on notice of H.I.G.’s liability,” (Doc. # 97 at

17), that is not the relevant standard. Instead, the question

is whether the Relators here alleged a fraudulent scheme that

the Government would already be equipped to investigate based

on the first complaint. See Infilaw, 347 F. Supp. 3d at 1083);

see also United States v. Medco Health Sols., Inc., No. CV

11-684-RGA, 2017 WL 63006, at *10 (D. Del. Jan. 5,

2017)(“Courts will find that two actions are related, despite

different defendants, when the first-filed complaint provided

‘enough information to discover’ the fraud alleged in the

second-filed complaint, including the identity of the new

defendants.”). Here, the allegations in the Ashton complaint

were such that the Government was equipped to launch a broad,

nationwide investigation into the UDT fraud perpetrated by

Surgery Partners, including the potential culpability of

Surgery Partners’ corporate affiliates. See United States ex

rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 517 (6th Cir.

2009)(“[T]he fact that the later action names different or

additional defendants is not dispositive as long as the two

complaints identify the same general fraudulent scheme”); see

also Grynberg, 390 F.3d at 1279 (“Once the government is put

on notice of its potential fraud claim, the purpose behind

allowing qui tam litigation is satisfied. . . . Once an

initial qui tam complaint puts the government and the

defendants on notice of its essential claim, all interested

parties can expect to resolve that claim in a single

lawsuit.”).

For these reasons, the Relators’ complaint is barred by

the FCA’s first-to-file rule.

B. Leave to Amend

Dismissals based solely on the first-to-file rule should

be without prejudice. Infilaw Corp., 347 F. Supp. 3d at 1081;

see also Medco Health, 2017 WL 63006, at *12 (explaining that

because a case ceases to be “pending” once it is decided or

dismissed, dismissal under this rule “must be without

prejudice to refiling once the earlier action is no longer

pending”). Thus, Relators’ claims are dismissed without

prejudice.

Accordingly, it is

ORDERED, ADJUDGED, and DECREED:

(1) The Defendants’ Motion to Dismiss the Relators’ Second

Amended Complaint (Doc. # 91) is GRANTED. Relators’

second amended complaint is dismissed without prejudice

based on the federal False Claims Act’s first-to-file

bar.

(2) The Clerk is directed to CLOSE the case. Pursuant to the

terms of the Settlement Agreement, the Court will retain

jurisdiction, as appropriate, to determine Relators’ and

Relators’ counsel’s claims for reasonable costs and

attorneys’ fees related to the Settlement Agreement

under 31 U.S.C. § 3730(d).

DONE and ORDERED in Chambers, in Tampa, Florida, this

26th day of August, 2020.

lism? In. Meanreploy Croc

VIR IA M. HERNANDEZ’*COVINGTON

UNITED STATES DISTRICT JUDGE

32