United States v. MEDCOM CAROLINAS INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

UNITED STATES OF AMERICA, )

ex rel. HAILE KIROS NICHOLSON, )

)

Plaintiff, )

)

v. ) 1:17CV34

)

MEDCOM CAROLINAS, INC., JEFF )

TURPIN, and JOHN DOES (1-50) )

INCLUSIVE, )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

On March 16, 2020, this court entered a Memorandum Opinion

and Order, (Doc. 24), and Judgment, (Doc. 25), granting

Defendants’ motion to dismiss, (Doc. 15), and dismissing this

action with prejudice, (see Doc. 25). On April 10, 2020,

Plaintiff filed a Motion to Alter or Amend the Judgment and

Leave to File an Amended Complaint. (Doc. 26.) The motion is

made pursuant to Fed. R. Civ. P. 59(e) and 15(a)(2) and is ripe

for ruling. For the following reasons, this court finds the

motion should be denied.

I. ANALYSIS

A. Legal Standard for Amendment

Fed. R. Civ. P. 59(e) authorizes a court to amend a

judgment within 28 days after entry of the judgment but does not

provide an applicable standard for when amendment is

appropriate. The Fourth Circuit recognizes at least “three

grounds for amending an earlier judgment: (1) to accommodate an

intervening change in controlling law; (2) to account for new

evidence not available at trial; or (3) to correct a clear error

of law or prevent manifest injustice.” Pac. Ins. Co. v. Am.

Nat’l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998).

Notwithstanding those limitations, a motion to amend a post-

judgment complaint is evaluated under the same legal standard as

a motion made before judgment was entered. Katyle v. Penn Nat’l

Gaming, Inc., 637 F.3d 462, 471 (4th Cir. 2011). The standard is

as follows:

Motions for leave to amend should generally be granted

in light of “this Circuit’s policy to liberally allow

amendment.” Galustian v. Peter, 591 F.3d 724, 729 (4th

Cir. 2010). However, a district court may deny leave

to amend “when the amendment would be prejudicial to

the opposing party, there has been bad faith on the

part of the moving party, or the amendment would be

futile.” Johnson v. Oroweat Foods Co., 785 F.2d 503,

509 (4th Cir. 1986).

Adbul-Mumit v. Alexandria Hyundai, LLC, 896 F.3d 278, 293 (4th

Cir. 2018). A party seeking amendment from the court need not

file a supporting brief under the local rules, but “must state

good cause” for the amendment. L.R.7.3(j). Once a motion is

filed, the court should “freely give leave when justice so

requires.” Fed. R. Civ. P. 15(a)(2). Under the rule’s liberal

construction, see Ward Elecs. Serv., Inc. v. First Com. Bank,

819 F.2d 496, 497 (4th Cir. 1987), motions to amend should be

granted absent extraordinary circumstances. Such circumstances

include undue delay, bad faith or dilatory motive, a repeated

failure to cure deficiencies, undue prejudice to the opposing

party, and futility of amendment. Foman v. Davis, 371 U.S. 178

(1962).

The facts and procedural history of this case are set out

in this court’s Memorandum Opinion and Order, (Doc. 24), which

is incorporated by reference. This court will address the

individual claims of the proposed Amended Complaint to determine

whether the motion to amend and corresponding motion to set

aside the judgment should be granted or denied. The proposed

Amended Complaint contains similar claims to those filed in the

original Complaint; this court begins its analysis with Count IV

of the proposed Amended Complaint because that count was

originally dismissed on jurisdictional grounds. This court found

Relator did not have standing.

B. Anti-Kickback Statute Count

Count IV of the proposed Amended Complaint, (Proposed Am.

Complaint (“Proposed Am. Compl.”) (Doc. 26-1) at 18), alleges a

standalone violation of the Anti-Kickback Statute, 42 U.S.C.

§ 1320a-7(b). This count was identically pled in the original

Complaint. (Original Complaint (“Original Compl.”) (Doc. 1) at

14-15.) This court held dismissal of that count was proper under

Fed. R. Civ. P. 12(b)(1), as the Anti-Kickback Statute (“AKS”)

is a “federal criminal statute[s] without a private cause of

action.” (Memorandum Opinion and Order (“Mem. Op. & Order”)

(Doc. 24) at 10.) In fact, Relator conceded there is no private

right of action under that statute. (Doc. 20 at 1 n.1

(“Plaintiff does not dispute that it can’t maintain an

individual AKS violation.”).) Therefore, the action was

dismissed because Relator did not have standing as to Count

Four.

In spite of this finding, and in spite of the concession by

Relator that he could not maintain an individual AKS violation

action, Relator has alleged in his Amended Complaint an

identical Count IV to the one previously dismissed. (Compare

(Original Compl. (Doc. 1) at 14-15 with (Proposed Am. Compl.

(Doc. 26-1) at 18.) A district court may deny leave to amend

“when . . . there has been bad faith on the part of the moving

party, or the amendment would be futile.” Johnson v. Oroweat

Foods Co., 785 F.2d 503, 509 (4th Cir. 1986). This court finds,

as to the proposed amended Count IV, that Relator’s motion to

amend should be denied. Relator’s repeated allegation for which

Relator has admitted, and this court has found, that there is no

individual cause of action, is not a good faith pleading.

C. False Claims Act Claims: Counts One, Two, and Three

Counts I, II, and III of the Complaint were dismissed for

failure to allege fraud with particularity pursuant to Fed. R.

Civ. P. 9(b) and for failure to allege the underlying

commission-based scheme with particularity. (See Mem. Op. &

Order (Doc. 24) at 11-35.) Relator is a former sales

representative for Integra Life Sciences (“Integra”). (Proposed

Am. Compl. (Doc. 26-1) ¶ 5.) Relator alleges that he has

knowledge of Integra’s billing process for wound care products

as well as provider offices and reimbursement personnel “such

that it was clear that Defendant MedCom Carolina’s Inc., and

Jeff Turpin’s schemes cause false claims to these federal

healthcare program patients . . . .” (Id.)1

1 The corporate Defendant is designated as MedCom Carolinas,

Inc. (Original Compl. (Doc. 1) ¶ 6.) Defendant Jeff Turpin is

the sole owner of MedCom Carolinas, Inc. (Id. ¶ 7.) Integra

sells products for treatment of thermal injury; one of those

products is PriMatrix. (Id. ¶¶ 14-15.)

The allegations of the original Complaint, (Original Compl.

(Doc. 1)), and the proposed Amended Complaint, (Proposed Am.

Compl. (Doc. 26-1)), are at best confusingly pled. This court

finds it helpful to quote the allegations verbatim from the

proposed Amended Complaint that describe the scheme:

Jeff Turpin was the sole owner of MedCom Carolinas,

Inc. that employed independent contractors utilizing

IRS Form 1099-MISC to generate referrals for

Medicare/Medicaid and other federal healthcare program

patients in violation of the anti-kickback statute.

Specifically, these representatives/contractors were

paid in whole or in part for furnishing items covered

by federal healthcare programs and Jeff Turpin paid

the “Medcom” contractors commissions based on the same

including when they sold PriMatrix and Integra Dermal

Replacement Therapy grafts that were manufactured and

produced by Integra.

(Proposed Am. Compl. (Doc. 26-1) ¶ 5.) Relator later alleges

that:

these Medcom contractors, who were not employees of

Integra, received commissions for promoting its

products including “PriMatrix” and “Integra Dermal

Replacement Therapy” based on the volume of business

reimbursed by federal healthcare programs. . . .

Although Medcom did not manufacture any products of

its own, Turpin, paid all of his sales representatives

located in various territories on a commission

structure based on the volume and value of sales of

Integra’s products such as IDRT, Omnigraft or

Primatrix that were reimbursed by federal healthcare

programs throughout Relator’s tenure with Integra from

March 2015 until September 2017.

(Id. ¶ 16.) Relator alleges that a sales representative for

MedCom helped promote Integra products, pursuant to Jeff

Turpin’s commission structures for physicians in the area. (Id.)

Relator then describes what appears to be the core of his

allegations of fraud:

throughout Relator’s tenure with Integra, although

Integra received all the reimbursements from third

parties such as the VA, or area hospitals, for

Integra’s products sold by Medcom or the Integra sales

force, Integra paid Medcom 25% commission of the net

sales for Primatrix or Integra Dermal Therapy Grafts

(i.e. after shipping and taxes, discounts were

deducted) that were sold by Medcom contractors within

30 days of the sale. Of that amount, Holloway was paid

40% of the reimbursement that Medcom received within

thirty days from Medcom. Holloway also admitted to the

lack of supervision by Turpin at Medcom. When

questioned about the rate of reimbursement, Relator

was reminded by Holloway of that which he already knew

— that the surgical wound grafts such as “IDRT” were

based on a buy and bill model. In other words,

accounts such as the VA were face to face driven

accounts whereby their physicians utilized the

products based on its availability provided by the

sales representatives. Therefore, the claims were

“presented” when the graft was tendered by the sales

representative to be utilized by the physician during

the medical procedure for surgical wounds when the

IDRT grafts were utilized. At the Durham VA, the claim

is submitted at the time of service of the procedure

at a preset price based on what is referred to as a

“FSS list,” and then the claim is processed for

payment within a day or two of the doctor entering the

electronic consult. Based on Relator’s role with the

company, he had easy access from either purchasing or

his own sales counterparts about the cost of the

grafts of IDRT at the VA, the date his products were

utilized in his territory, the amount paid by the VA

which is preset based on a “FSS” schedule, the patient

information, the time the claim was presented, why the

claims were presented and the physician who utilized

the graft.

(Id.) Relator concludes:

Relator learned on or about January 2017 that pursuant

to Holloway’s commission incentive offer directed by

Jeff Turpin of Medcom (based on the value and volume

of grafts that were reimbursed by the VA), Mr. Robert

Holloway submitted a claim for payment on or about Nov

2016, to Dr. Phillips for an Integra Dermal Therapy

Replacement Graft for use on Patient T.W. at the

Durham VA. The claim was ultimately paid for by an

agent of the processing department of the VA through

VA care benefits in excess of $3,000.00 during this

same month to Integra.

(Id.)

While it is hardly clear from these allegations, this court

will assume, arguendo, that Holloway was an independent

contractor paid by MedCom, and as part of his sales, Holloway

sold and/or delivered Integra products. Holloway was paid a

commission for that delivery and invoicing under presently

unexplained circumstances. When construing the allegations of

the proposed Amended Complaint - using the Holloway transaction

as illustrative - this court finds that surgical wound grafts

were based on a “buy and bill model” “whereby their physicians

utilized the products based on its availability provided by the

sales representatives.” (Proposed Am. Compl. (Doc. 26-1) ¶ 16.)

“[C]laims were ‘presented’ when the graft was tendered by the

sales representative to be utilized by the physician during the

medical procedure.” (Id.)

Drawing all reasonable inferences from the proposed Amended

Complaint in favor of Relator, this court finds the proposed

Amended Complaint does not allege “with particularity the

circumstances constituting fraud.” Fed. R. Civ. P. 9(b).

1. Absence of Any Representative Example

Relator’s motion and the accompanying proposed Amended

Complaint do not contain the factual information necessary to

render amendment appropriate. Assuming Relator’s motion to alter

the judgment constitutes a brief, as required,2 it is in

violation of L.R.7.2(a)(2), which requires that “[e]ach

statement of fact should be supported by reference to a part of

the official record in the case.” Moreover, Relator’s proposed

amended complaint falls short of providing at least one

representative example of fraud under the False Claims Act

(“FCA”). As this court stated in its prior Memorandum Opinion

and Order:

The Fourth Circuit requires FCA relators to

allege with particularity at least one representative

example of when a fraudulent claim was submitted to

the government for payment. See Nathan, 707 F.3d at

457; Ahumada, 756 F.3d at 280 (“To satisfy Rule 9(b),

‘an FCA plaintiff must, at a minimum, describe the

time, place, and contents of the false

representations, as well as the identity of the person

making the misrepresentation and what he obtained

thereby.’” (quoting Kellogg Brown & Root, 525 F.3d at

379)); Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d

153, 155 (3d Cir. 2014) (citing Nathan and noting that

2 Although a motion to amend the pleadings does not require

a brief, a motion to alter a judgment does. L.R.7.3(a);

LR7.3(j).

the Fourth Circuit requires a representative claim);

United States ex rel. Eberhard v. Physicians Choice

Lab. Servs., LLC, 642 F. App’x 547, 550–51 (6th Cir.

2016). It is true that the Fourth Circuit has not

expressly required representative claims, but the

reasoning in Nathan strongly suggests that conclusion.

(Mem. Op. & Order (Doc. 24) at 16-17.) This court then went

on to cite persuasive authority regarding the need for

representative examples:

The Fourth Circuit has not expressly

addressed this issue but its ruling in

United States ex rel. Nathan v. Takeda

Pharmaceuticals North America, Inc., 707

F.3d 451 (4th Cir. 2013), suggests that it

follows those circuits requiring

identification of at least one

representative claim. In Nathan, the Fourth

Circuit cited favorably both to United

States ex rel. Clausen v. Lab Corporation of

America, Inc., 290 F.3d 1301 (11th Cir.

2002), and United States ex rel. Joshi v.

St. Luke’s Hospital, Inc., 441 F.3d 552 (8th

Cir. 2006). Clausen and Joshi are decisions

from the Eleventh and Eighth Circuits

respectively, holding that a qui tarn [sic]

relator must identify at least some

representative claims with particularity.

Moreover, the Fourth Circuit cited to Joshi

specifically for the proposition that a

relator must “provide some representative

examples of [the defendants’] alleged

fraudulent conduct.”

Virginia ex rel. Hunter Labs., LLC v. Quest

Diagnostics, Inc., No. 1:13-CV-1129 (GBL/TCB), 2014 WL

1928211, at *7 (E.D. Va. May 13, 2014).

(Mem. Op. & Order (Doc. 24) at 17.)3

Relator argues in his motion that the Amended

Complaint clarifies any deficient allegations in the

original Complaint:

But with this clarification, it should be abundantly

clear that Jeff Turpin and Rob Holloway, as agents of

Medcom, caused a false claim in violation of the AKS

to be submitted on or about November 2016, at the VA

(Durham), for an Integra Dermal Replacement graft

furnished by Rob Holloway whereby the VA care benefits

paid for this graft in excess of $3,000.00. This is

enough to establish the specifics necessary to state a

claim under both Rule 9B and 12(b)(6) based on the law

of this Circuit.

(Doc. 26 at 9.) Notably, Relator does not cite to any

allegations in the proposed Amended Complaint to support the

facts described in the motion.

Relator’s reply, (Doc. 29), also ignores the requirements

of L.R.7.2. For example, Relator argues that he “has alleged

that a false claim was both presented to and paid for by the

Government.” (Doc. 29 at 8.) The closest Relator comes in the

proposed Amended Complaint to specifically alleging a false

claim is the statement that “it was Rob Holloway who not only

recommended this product but made this graft available . . .

3 Even if this court were to find that a representative

claim is not required, that would not change the result here.

This court finds Relator has failed to plead any fraudulent

conduct plausibly and with particularity even if representative

claim is not required.

based on Rob Holloway’s compensation incentive from Defendants

Medcom and Jeff Turpin which violated the AKS.”4 (Id. at 6.)

Relator offers no citation to these facts in the proposed

Amended Complaint. “If an attorney or a party fails to comply

with a local rule of this Court, the Court may impose sanctions

against the attorney or party, or both.” LR83.4(a). Those

sanctions include “an order refusing to allow the failing party

to support or oppose designated claims or defenses.”

LR83.4(a)(2).

2. Failure to State Claims

Relator also falls short of alleging fraud with the facts

that are alleged. The proposed Amended Complaint does not allege

that MedCom billed for Integra products which were not in fact

delivered; therefore, this court does not plausibly find or

infer that a bill was sent for a product that was not delivered

4 As will be explained hereafter, it is not clear what

Relator is suggesting by alleging Rob Holloway “recommended” the

product. Other than alleging that Rob Holloway submitted a bill

for the product, the details of the sale, how Holloway was

compensated, and what he was compensated for are not alleged, at

least in a manner to suggest Holloway was compensated for an

“inducement.” The proposed Amended Complaint alleges the

purchases were made based upon a “buy and bill” model wherein

“physicians utilized the products based on its availability

provided by the sales representatives.” (Proposed Am. Compl.

(Doc. 26-1) ¶ 16.) Relator’s own pleading seems to allege it was

not unlawful inducements but instead availability that

controlled the sale.

under the “buy and bill” model. Nor does the proposed Amended

Complaint allege that there was any fraud in the delivery of the

product itself.

Holloway billed the VA on or about November 2016 for an

Integra Dermal Therapy Replacement Graft for use on Patient T.W.

by Dr. Phillips. (Proposed Am. Compl. (Doc. 26-1) ¶ 16.) The

November claim was paid by the VA pursuant to a preset price

based on an FSS list, (id.), in an amount in excess of

$3,000.00. (Id.) In the absence of any allegations otherwise,

this court finds the proposed Amended Complaint does not allege

any irregularity as to the amount paid by the VA, or any other

healthcare provider, since the proposed Amended Complaint

alleges payments were made pursuant to a preset price as set out

on the “FSS” list.

“Integra received all the reimbursements from third parties

such as the VA, or area hospitals, for Integra’s products sold

by Medcom or the Integra sales force.” (Id. ¶ 16.) Thus, it

appears, payment for the November 2016 transaction was made to

Integra. Relator alleges no fraud in the payment by the VA, or

any other healthcare provider, to Integra. Thereafter, “Integra

paid Medcom 25% commission of the net sales for Primatrix or

Integra Dermal Therapy Grafts (i.e. after shipping and taxes,

discounts were deducted) that were sold by Medcom contractors.”

(Id.) Of the 25% commission Integra paid MedCom, Holloway

received a 40% commission, (id.), apparently paid by MedCom.

Viewing each step of the transaction, Relator’s allegations

do not plausibly allege fraud, much less the circumstances of

fraud with particularity. The claim for payment submitted by

Holloway to the VA is not alleged to be fraudulent; the payment

from the VA to Integra is not alleged to be fraudulent nor to

have been induced by fraud; and finally, the payment from

Integra to MedCom is not alleged to be fraudulent. “[A] central

question in all FCA cases is whether the defendant ever

presented a false or fraudulent claim to the government,

resulting in a ‘call upon the government fisc.’” United States

ex rel. Grant v. United Airlines Inc., 912 F.3d 190, 196 (4th

Cir. 2018) (quoting Harrison v. Westinghouse Savannah River Co.,

176 F.3d 776, 785–86 (4th Cir. 1999)). Relator must, “at a

minimum, describe the time, place, and contents of the false

representations, as well as the identity of the person making

the misrepresentation and what he obtained thereby.” Nathan, 707

F.3d at 455-56. The allegations contained in the proposed

Amended Complaint do not establish a false representation of any

type, much less one sufficient to establish liability under the

False Claims Act. As noted previously by this court, these

allegations are “about a medical procedure involving Integra’s

products that were eventually paid for by government funds” and

not anything specific to a submitted claim. (Mem. Op. & Order

(Doc. 24) at 20.)

That leaves only the alleged payment by MedCom to Holloway

as possible fraud: Relator describes the payment by MedCom to

Holloway as a “commission.” (Proposed Am. Compl. (Doc. 26-1)

¶ 16.) Most notably, even with an allegation that MedCom paid

Holloway, “there is nothing to describe what that payment was

for or, more pointedly, whether the payment was for a prohibited

inducement under 42 U.S.C. § 1320a-7b.” (Mem. Op. & Order (Doc.

24) at 31-32.)

Relator’s conclusory allegations – that Turpin and Holloway

admitted some kind of 1099 contractor relationship with a

payment structure based upon “volume and value of sales of

Integra’s products,” (see Proposed Am. Compl. (Doc. 26-1) ¶ 16),

- are not supported by facts which might plausibly support a

fraudulent claim scheme stated with particularity. Nor does

Relator plausibly allege claims under the Anti-Kickback Statute

based upon products sold via improper inducement.

As a district court in New Jersey explains: “To prove his

FCA claim, plaintiff must pass two hurdles. First, plaintiff

must establish that defendants violated the AKS through its

alleged quid pro quo arrangement with HANJ/HSI. Second,

plaintiff must show that as a result of defendants’ AKS

violation, defendants received payment from the federal

government.” United States v. Medco Health Sys., Inc., 223

F. Supp. 3d 222, 227 (D.N.J. 2016). “[T]he key fact plaintiff

must establish to prevail on his FCA claim is the link between

defendants’ alleged quid pro quo arrangement and payment from

the federal government.” Id. at 228. Any “AKS violation that

results in a federal health care payment is a per se false claim

under the FCA.” United States ex rel. Lutz v. United States, 853

F.3d 131, 135 (4th Cir. 2017) (citing 42 U.S.C. § 1320a-7b(g));

United States ex rel. Kester v. Novartis Pharms. Corp., 43

F. Supp. 3d 332, 363 (S.D.N.Y. 2014) (“[C]ompliance with the AKS

is a precondition to the reimbursement of claims, not just a

condition of participation; claims tainted by AKS violations are

ineligible for reimbursement and, thus, ‘false.’”).

Under the Anti-Kickback Statute, it is illegal to pay:

any remuneration (including any kickback, bribe, or

rebate) directly or indirectly, overtly or covertly,

in cash or in kind to any person to induce such

person —

(A) to refer an individual to a person for the

furnishing or arranging for the furnishing of any

item or service for which payment may be made in

whole or in part under a Federal health care

program, or

(B) to purchase, lease, order, or arrange for or

recommend purchasing, leasing, or ordering any

good, facility, service, or item for which

payment may be made in whole or in part under a

Federal health care program.

42 U.S.C. § 1320a-7b(b)(2)(A)-(B). In other words, for a payment

to violate the Anti-Kickback Statute, it must be intended to

compensate past referrals or to induce future referrals. See

United States v. Borrasi, 639 F.3d 774, 782 (7th Cir. 2011).

Although Relator alleges generally that he was aware MedCom

was paying 1099 sales reps for “referrals . . . in violation of

the anti-kickback statute,” (Proposed Am. Compl. (Doc. 26-1)

¶ 5), Plaintiff’s allegations do not establish anything other

than that an Integra product was sold, Holloway submitted a

claim for that Integra product, the VA paid Integra for that

product, Integra paid MedCom, and MedCom paid Holloway. It is

complete speculation as to why MedCom paid Holloway or what

service Holloway may have rendered, whether lawful or unlawful.

Thus, while there are general claims of payments made by MedCom

for referrals, there are no facts alleged which plausibly

support a finding or an inference that any inducements

prohibited by the Anti-Kickback Statute did in fact occur, or

that they were somehow related to any claim submitted to the

United States.

Relator provides no facts to explain whether Holloway’s

involvement in the transaction involved something more than

delivery of an available product for sale to a physician:

missing is any fact to suggest this was an unlawful inducement.

No allegations included suggest that the doctors chose an

Integra product as a result of any improper inducement from

Holloway or MedCom. It is undisputed that there were deliveries

of Integra products pursuant to a “buy and bill” model wherein

“claims were ‘presented’ when the graft was tendered by the

sales representative to be utilized by the physician during the

medical procedure.” (Proposed Am. Compl. (Doc. 26-1) ¶ 16.)

Under the facts alleged here, the most that can be concluded is

that Holloway delivered an Integra product for which he

submitted a claim at the time of delivery as required by the buy

and bill system. “Threadbare recitals of the elements of a cause

of action, supported by mere conclusory statements, do not

suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A

complaint must contain “more than labels and conclusions,” Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and “naked

assertion[s]” of wrongdoing require some factual enhancement.

Id. Even if Turpin and MedCom created some kind of payment

structure based upon the volume and value of Integra products,

Relator has not alleged any facts to support even an inference

that any bills were submitted resulting from that structure. Nor

is the specific transaction alleged sufficient to state

plausibly and with particularity any fraud in the billing

submitted to the VA. For the reasons explained in this court’s

previous Memorandum Opinion and Order, (Mem. Op. & Order (Doc.

24) at 25-32), this court finds the proposed Amended Complaint

is futile as it fails to state a claim for violation of the

False Claims Act as a result of sales induced in violation of

the Anti-Kickback Statute.

Moreover, the scheme alleged in the proposed Amended

Complaint is different from that alleged in the original

Complaint. In the original Complaint, Relator alleged that

“Relator’s employer Integra utilized 1099 nonemployee reps to

generate referrals for Medicare/Medicaid and other federal

healthcare program patients in violation of the anti-kickback

statute,” and that these “representatives were paid by Jeff

Turpin who owns MedCom LLC in whole or in part for furnishing

items covered by federal healthcare programs and received

commissions based on the same including PriMatrix and Integra

Dermal Replacement Therapy.” (Original Compl. (Doc. 1) ¶ 16.)

Under that scenario, utilizing 1099 employees to generate

“referrals” might suggest something improper in that MedCom and

its 1099 contractors were compensated for an inducement rather

than a sale. However, as this court previously found, that was

not plausibly or particularly alleged. Nevertheless, in a

substantive and unexplained change from the original Complaint,

Relator now alleges it was MedCom who utilized 1099

representatives to generate referrals:

Jeff Turpin was the sole owner of MedCom Carolinas,

Inc. that employed independent contractors utilizing

IRS Form 1099-MISC to generate referrals for

Medicare/Medicaid and other federal healthcare program

patients in violation of the antikickback statute.

Specifically, these representatives/contractors were

paid in whole or in part for furnishing items covered

by federal healthcare programs and Jeff Turpin paid

the “Medcom” contractors commissions based on the same

including when they sold PriMatrix and Integra Dermal

Replacement Therapy grafts that were manufactured and

produced by Integra.

(Proposed Am. Compl. (Doc. 26-1) ¶ 16.) Notwithstanding

Relator’s shifting allegations, which will be addressed

hereafter, these conflicting allegations suggest a separate

problem. In the absence of any description of the relationship

between Integra and MedCom, the propriety of the payment between

Integra and MedCom, or the basis of the payment by MedCom to any

alleged contractor, it is speculation to infer that the alleged

payments to Holloway were part of an unlawful inducement scheme.

42 U.S.C. § 1320a-7b(b)(2)(A)–(B) “is aimed at the

inducement factor.” United States v. Bay State Ambulance & Hosp.

Rental Serv., Inc., 874 F.2d 20, 29 (1st Cir. 1989); United

States v. Greber, 760 F.2d 68, 71 (3d Cir. 1985); Feldstein v.

Nash Cmty. Health Servs., Inc., 51 F. Supp. 2d 673, 681

(E.D.N.C. 1999); see also Borrasi, 639 F.3d at 782 (joining the

Third, Fifth, Ninth, and Tenth Circuits, and thus not creating a

circuit split, in holding government need only prove inducement

was a motivation for remuneration); United States v. Berkeley

Heartlab, Inc., 225 F. Supp. 3d 460, 468 (D.S.C. 2016)

(“Moreover, in FCA cases involving AKS violations, courts have

found scienter where one purpose of the remuneration was to

induce referrals.”); Robert Wood Johnson Univ. Hosp., Inc. v.

Thompson, No. Civ.A.04-142(JWB), 2004 WL 3210732, at *6 (D.N.J.

Apr. 15, 2004) (citing the AKS’s legislative history and noting

the AKS was aimed at combating wasteful spending, particularly

in the form of payments that are “intended to induce patient

referrals”). Here, Relator fails to describe any claims

submitted to a federal healthcare program which resulted from a

payment to a 1099 contractor for an unlawful referral or

inducement. The only claim specifically described does not

support an inference that any commission paid by MedCom to

Holloway was for purposes of an inducement prohibited by the

Anti-Kickback Statute, as opposed to some other purpose - such

as the actual delivery of the product to the physician. This is

particularly true considering that the proposed Amended

Complaint alleges “accounts such as the VA were face to face

driven accounts whereby their physicians utilized the products

based on its availability provided by the sales

representatives,” (Proposed Am. Compl. (Doc. 26-1) ¶ 16), an

allegation which suggests that rather than any improper

inducement, products were purchased based on availability.

A complaint must include facts which allow “the court to

draw the reasonable inference that the defendant is liable.”

Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556–57). For

the reasons set forth herein and those set forth in this court’s

Memorandum Opinion and Order, (Doc. 24), this court finds

Relator’s motion to amend the complaint, (Doc. 26), should be

denied as futile.

D. Denial of Amendment Due to Bad Faith

A district court may deny leave to amend “when . . . there

has been bad faith on the part of the moving party.” Oroweat

Foods, 785 F.2d at 509. Delay alone is an insufficient reason to

deny leave to amend unless the delay is accompanied by bad

faith. See id. This court finds there has been delay; Relator’s

original Complaint was pending for a year as a qui tam action.

(See Original Compl. (Doc. 1); Doc. 8.) The Complaint was

unsealed and Relator chose to proceed with this case without

amendment to the Complaint. (Docs. 8, 9.) Defendants filed a

motion to dismiss on April 11, 2018, (Doc. 15), to which Relator

responded rather than moving to amend the complaint. (See Doc.

20.) A Memorandum Opinion and Order, along with a Judgment

dismissing the case were subsequently filed. (Docs. 24, 25.) It

was only after the Memorandum Opinion and Order and Judgment

were filed that Relator moved to amend the complaint.

Moreover, as described above, in spite of the fact Relator

recognized that Count IV did not create a cause of action, and

in spite of the fact this court held that Count IV does not

create a private cause of action, Relator refiled Count IV as

part of his proposed Amended Complaint. Relator’s proposed

Amended Complaint contains a claim Relator has acknowledged is

meritless.

Also, as noted above, in his brief in support of his motion

to amend, Relator failed to comply with the local rules and

argued facts paraphrased from the proposed Amended Complaint

without citation to those facts in the brief as required by

LR7.2.

“Parties have an obligation to introduce, at the earliest

stage of the litigation as possible, the matters upon which they

want to rely in supporting their claim or defense.” GSS Props.,

Inc. v. Kendale Shopping Ctr., Inc., 119 F.R.D. 379, 381

(M.D.N.C. 1988). The failure to do so, especially when it

appears the omission was in service to tactical considerations,

constitutes bad faith “unless satisfactory explanation [from the

plaintiff] clearly shows otherwise.” Id. Here, Relator

apparently withheld facts and matters known to him at the time

of the filing of the original Complaint and failed to introduce

those facts in support of the allegations in the original

Complaint.

Not only did Relator withhold facts, Relator either pled

facts which were not accurate in the original Complaint or has,

without explanation, changed substantive facts, depending upon

inferences that may be drawn. As described previously herein, in

the original Complaint Relator alleged it was Integra who

utilized the 1099 contractors in violation of the Anti-Kickback

Statue:

Relator’s employer Integra utilized 1099 nonemployee

reps to generate referrals for Medicare/Medicaid and

other federal healthcare program patients in violation

of the anti-kickback statute. Specifically, these

representatives were paid by Jeff Turpin who owns

MedCom LLC in whole or in part for furnishing items

covered by federal healthcare programs and received

commissions based on the same including PriMatrix and

Integra Dermal Replacement Therapy.

(Original Compl. (Doc. 1) ¶ 16) (emphasis added).

In the proposed Amended Complaint, Relator alleges:

Jeff Turpin was the sole owner of MedCom Carolinas,

Inc. that employed independent contractors utilizing

IRS Form 1099-MISC to generate referrals for

Medicare/Medicaid and other federal healthcare program

patients in violation of the anti-kickback statute.

Specifically, these representatives/contractors were

paid in whole or in part for furnishing items covered

by federal healthcare programs and Jeff Turpin paid

the “Medcom” contractors commissions based on the same

including when they sold PriMatrix and Integra Dermal

Replacement Therapy grafts that were manufactured and

produced by Integra.

(Proposed Am. Compl. (Doc. 26-1) ¶ 5.) (emphasis added). These

facts from the original Complaint appear to have been modified

solely in an effort to avoid dismissal. Relator’s changes give

this court substantial concern as to the purpose of the original

filing as well as the modifications set forth in the proposed

Amended Complaint. Alterations for improper purposes constitutes

bad faith:

Bad faith includes seeking to amend a complaint for an

improper purpose, Peamon v. Verizon Corp., 581 Fed.

Appx. 291, 292 (4th Cir. 2014) (holding that it was

bad faith to seek to amend complaint in order to

“artificially inflate . . . damages in order to obtain

subject matter jurisdiction”), or seeking leave to

amend after repeated “pleading failures,” U.S. ex rel.

Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451,

461 (4th Cir. 2013) (holding that the district court

did not abuse its discretion in denying plaintiff

leave to file a fourth amended complaint after

repeated prior dismissals for failure to sufficiently

plead his claim).

Wilkins v. Wells Fargo Bank, N.A., 320 F.R.D. 125, 127 (E.D. Va.

2017). It appears to this court that the conduct evidenced here

– changing substantive facts from one filing to the next and

pursuing claims with the knowledge they are not supported by law

– cannot be classified as good faith conduct. This court

therefore finds the proposed Amended Complaint is drafted in bad

faith.

Relator’s contentions that this court “previously and

undoubtedly misunderstood” certain factual allegations, (Doc. 26

at 1), and “misunderstood several material facts,” (id. at 5),

is not persuasive. Relator appears to be the individual that

confused “MedCom Carolinas, Inc.” and “MedCom LLC” in the

original Complaint; that point of confusion was specifically

addressed in the Memorandum Opinion and Order. (Mem. Op. & Order

(Doc. 24) at 30 (“Relator has introduced further confusion into

the pleadings by referring to a non-defendant entity, MedCom

LLC.”).) Relator also appears to be the individual who failed to

accurately identify on whose behalf the 1099 contractors may

have acted; in the original Complaint, Relator alleged that

Integra used 1099 contractors to generate referrals, only to

reverse that position in the proposed Amended Complaint and

allege it was MedCom who used 1099 contractors to generate

referrals. Finally, it was Relator who brought a direct claim

under the Anti-Kickback Statute knowing that claim was not

supported at law. Refiling an identical claim with full

knowledge it was unmeritorious is not tenable.

Il. CONCLUSION

For the aforementioned reasons, Plaintiff/Relator’s Motion

to Alter or Amend the Judgment and Leave to File an Amended

Complaint, (Doc. 26), is DENIED.

This the 16th day of March, 2021.

LA; buce

LS Wi un L.

United States District Ju

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