United States of America v. Northern Adult Daily Health Care Center

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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UNITED STATES OF AMERICA and NEW

YORK STATE ex rel. ORLANDO LEE,

MMELVILLE LUCKIE and LUZ GONZALEZ,

Plaintiffs,

-against-

MEMORANDUM & ORDER

13—CV—4933(EK)(RER)

NORTHERN METROPOLITAN FOUNDATION FOR

HEALTHCARE, INC., NORTHERN MANOR

MULTICARE CENTER, INC. and NORTHERN

MANOR ADULT DAY HEALTH CARE

PROGRAM,

Defendants.

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ERIC KOMITEE, United States District Judge:

Orlando Lee, Melville Luckie, and Luz Gonzalez (the

“Relators”) brought this qui tam action in 2013 against their

former employer, a Medicaid provider called Northern Manor Adult

Day Health Care Program, and several affiliated companies

(collectively, “Northern” or Defendants). The Relators allege

violations of the federal False Claims Act, 31 U.S.C. §§ 3729-

3732, and its New York analogue, N.Y. State Fin. Law §§ 187-194.

The Court began a bench trial in June of this year. Following

the close of the Relators’ case-in-chief, Defendants asked the

Court to find (among other things) that the Relators had failed

to carry their burden of proving the materiality element of

their claims, and to enter judgment and dismiss the Relators’

case on that basis. ECF No. 199. For the reasons set forth in

this Order, the motion is GRANTED.

I. Background

Northern operated a so-called “medical model” adult

day health care (“ADHC”) program in Park Slope, Brooklyn serving

elderly, low-income individuals.1 To be an ADHC facility,

Northern had to apply to, and receive approval from, the New

York State Department of Health (“DOH”). 10 N.Y.C.R.R. § 425.2.

Northern also applied for enrollment in the New York State

Medicaid Program, which administers federal Medicaid funding

through the DOH and other cooperating agencies.2 Once certified

by the DOH, Northern was authorized to seek reimbursement for

providing day care and health services to qualified

“registrants.”3

1 An adult day care operating under New York State’s “medical model” —

as opposed to a “social model” — offers health care in addition to social

activities. See Second Amended Complaint ¶ 15.

2 “Medicaid is a cooperative federal-state program through which the

Federal Government provides financial assistance to States so that they may

furnish medical care to needy individuals.” Wilder v. Va. Hosp. Ass’n, 496

U.S. 498, 502 (1990); see also 42 U.S.C. § 1396b. “The federal and state

governments share the cost of Medicaid, but each state government administers

its own Medicaid plan.” Shakhnes v. Berlin, 689 F.3d 244, 247 (2d Cir.

2012).

3 New York regulations define “registrant” as a person: “(1) who is not

a resident of a residential health care facility; is functionally impaired

and not homebound, and requires supervision, monitoring, preventative,

diagnostic, therapeutic, rehabilitative or palliative care or services but

does not require continuous 24-hour-a-day inpatient care and services . . . ;

(2) whose assessed social and health care needs can satisfactorily be met in

whole or in part by the delivery of appropriate services in the community

setting; and (3) who has been accepted by an adult day health care program

based on an authorized practitioner’s order . . . and a comprehensive

This case commenced in September 2013. In August 2014,

the New York State Attorney General (“NYAG”) revealed a “long-

term” investigation into misconduct at Northern’s Brooklyn

facility. Press Release, Office of the New York Attorney

General, A.G. Schneiderman Announces Four Arrests and $6.5

Million Settlement for Medicaid Fraud at Brooklyn Adult Day

Health Care Facility (Aug. 12, 2014). The investigation

culminated in a civil settlement with Northern. Id. Under the

settlement agreement, Northern admitted to operating a medical-

model program without a qualified social worker on staff between

July 2010 and June 2011, and to treating more registrants than

it was certified to serve at one time. Id. Northern agreed to

pay $6.5 million to the State and close its facility. Id. The

state and federal governments declined to intervene in this

action one month later, on September 8, 2014. ECF Nos. 9-10.

The Relators allege here that Northern discriminated

against its non-Russian registrants on the basis of national

origin and provided all its registrants substandard care, in

violation of various federal and state statutes. The Court

assumes familiarity with the facts and the long procedural

history of this case, which are set forth in prior orders. See

ECF Nos. 52; 114; 140-1 (April 26, 2019 Oral Argument Tr.); 218.

assessment conducted by the adult day health care program . . . .”

10 N.Y.C.R.R. § 425.1.

In April 2019, the Honorable Margo K. Brodie (to whom

this case was previously assigned) granted Defendants’ motion

for summary judgment in part. ECF Nos. 109; 114; Min. Order

dated April 26, 2019. The only counts to survive that order

were the alleged violations of the federal False Claims Act and

its New York State equivalent.4

In addition to dismissing several claims, Judge Brodie

also limited the theory of liability that the Relators could

pursue on their False Claims Act claims. The Relators had

argued three such theories of liability: (1) the “factually

false theory,” under which a claim is made to the government

seeking payment for services that were never actually provided

or for which the description of the services provided is

incorrect, Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001),

abrogated on other grounds by Universal Health Servs., Inc. v.

U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (“Escobar”);

(2) the “express false certification theory,” for a claim that

explicitly “falsely certifies compliance with a particular

statute, regulation or contractual term,” id. at 698; and (3)

the “implied false certification theory,” where “a defendant

makes representations in submitting a claim but omits its

4 The Relators also brought a number of claims based in employment law.

Judge Brodie dismissed all of these claims: the Relators’ causes of action

for retaliation under the federal False Claims Act and its state analogue,

and discrimination and retaliation under the New York City Human Rights Law.

violations of statutory, regulatory, or contractual

requirements,” and those omissions are “material to the

Government’s payment decision.” Escobar, 136 S. Ct. at 1996,

1999.

Judge Brodie allowed the Relators to proceed only on

the “implied false certification” theory. Apr. 26, 2019 Tr.

11:4-6 (the Court notes that the implied false certification

theory “is the only theory that survived the motion to dismiss

in this case”). Under that theory, Relators contend that

Northern’s discrimination and medical-model failures violate the

false claims statutes because when Northern sought

reimbursement, it “impliedly” (and falsely) certified its

compliance with various laws prohibiting such failures. See

Second Amended Compl. ¶¶ 15-26 (citing 10 N.Y.C.R.R. §§ 425.1,

425.4, 425.5, 425.6, 425.11; 18 N.Y.C.R.R. §§ 492.3, 492.5,

492.6); id. ¶ 28 (citing Title VI of the Civil Rights Act and

18 N.Y.C.R.R. § 491.7(d)(1)); id. ¶¶ 47-48 (asserting implied-

certification theory).

The bench trial commenced on June 21, 2021. After the

Relators presented their case-in-chief in its entirety, the

Defendants moved for judgment under Federal Rule of Civil

Procedure 52(c) (Judgment on Partial Findings), arguing that

Relators failed to meet their burden of proof on all required

elements of their federal and state causes of action.

I make certain findings of fact and draw certain

conclusions of law below in accordance with Rules 52(a) and (c).

Given my finding that the Relators failed to prove the

materiality element by a preponderance of the evidence, I do not

analyze other questions of fact or law in detail. Instead, I

set forth other factual findings (especially regarding Relators’

allegations of discrimination) only as necessary for context,

and discuss briefly two other ways in which the Relators’ trial

evidence was (in the alternative) legally insufficient.

II. Legal Standard

A. Federal Rule of Civil Procedure 52(c)

In a bench trial, the court may enter judgment against

a party on a given claim if: (i) the party has been fully heard

on an issue; (ii) the court finds against the party on that

issue; and (iii) “under the controlling law, [the claim] can be

maintained or defeated only with a favorable finding on that

issue.” Fed. R. Civ. P. 52(c). A court considering a Rule

52(c) motion “does not consider the evidence in the light most

favorable to the non-moving party, but rather weighs the

evidence, resolves any conflicts and determines for itself where

the preponderance of evidence lies.” Pal v. N.Y. Univ., No. 06-

CV-5892, 2013 WL 4001525, at *7 (S.D.N.Y. Aug. 6, 2013)

(internal quotations omitted), aff’d, 583 F. App’x 7 (2d Cir.

2014). The preponderance standard “simply requires the trier of

fact to believe that the existence of a fact is more probable

than its nonexistence.” Metro. Stevedore Co. v. Rambo, 521 U.S.

121, 137 n.9 (1997). “A judgment on partial findings must be

supported by findings of fact and conclusions of law.” Fed. R.

Civ. P. 52(a)(1), (c).

B. The Federal and State False Claims Acts

The federal False Claims Act (“FCA”) establishes

liability for anyone who “knowingly presents, or causes to be

presented, a false or fraudulent claim for payment or approval,”

31 U.S.C. § 3729(a)(1)(A), or “knowingly makes, uses, or causes

to be made or used, a false record or statement material to a

false or fraudulent claim,” id. § 3729(a)(1)(B). The State of

New York has its own false claims statute, the New York False

Claims Act (“NYFCA”), which is modeled on the federal act.5 N.Y.

State Fin. Law §§ 187-194; U.S. ex rel. Pervez v. Beth Israel

Med. Ctr., 736 F. Supp. 2d 804, 816 (S.D.N.Y. 2010). “The NYFCA

follows the federal False Claims Act . . . . and therefore it is

appropriate to look toward federal law when interpreting the New

York act.” State ex rel. Seiden v. Utica First Ins. Co., 96

A.D.3d 67, 71 (1st Dep’t 2012). A court considering claims

5 The elements of a claim under the New York FCA are the same as the

elements of a federal FCA claim. N.Y. State Fin. Law § 189(1)(a), (b) (the

NYFCA applies to any person who “knowingly presents, or causes to be

presented a false or fraudulent claim for payment or approval” or “knowingly

makes, uses, or causes to be made or used, a false record or statement

material to a false or fraudulent claim”).

asserted under both statutes can resolve those claims together.

Pervez, 736 F. Supp. 2d at 816.

A “false or fraudulent” claim under the FCA may be

factually false or legally false. State v. MedImmune, Inc., 342

F. Supp. 3d 544, 553 (S.D.N.Y. 2018); United States ex rel.

Forcier v. Computer Scis. Corp., No. 12-CV-1750, 2017 WL

3616665, at *7 (S.D.N.Y. Aug. 10, 2017). Legal falsity

encompasses “express false certification” and “implied false

certification,” as described above. In keeping with Judge

Brodie’s order, the only theory presented at trial was that of

“implied false certification.”

As noted, the implied false certification theory

applies when “a defendant makes representations in submitting a

claim but omits its violations of statutory, regulatory, or

contractual requirements.” Escobar, 136 S. Ct. at 1999. In

such circumstances, the omissions can give rise to liability “if

they render the defendant’s representations misleading with

respect to the goods or services provided.” Id. This theory

can be a basis for [FCA] liability, at least where two

conditions are satisfied: first, the claim does not

merely request payment, but also makes specific

representations about the goods or services provided;

and second, the defendant’s failure to disclose

noncompliance with statutory, regulatory, or

contractual requirements makes those representations

misleading half-truths.

Id. at 2001. The noncompliance must be “material” to the

government’s payment decision. Id. at 1996. The FCA defines

“material” to mean “having a natural tendency to influence, or

be capable of influencing, the payment or receipt of money or

property.” 31 U.S.C. § 3729(b)(4).

The FCA also contains a scienter requirement that

extends not only to knowledge of the claim’s alleged falsity,

but also to knowledge of materiality: the defendant must have

“knowingly violated a requirement that the defendant knows is

material to the Government’s payment decision.” Id. at 1996

(emphasis added).

III. Relators’ Case-in-Chief: Findings of Fact

As set forth in this section, I find that Northern did

discriminate — at various times and in various ways — in the

provision of services to Russian and non-Russian registrants. I

am also left to recognize, however, the incontrovertible fact

that the Relators introduced essentially no evidence whatsoever

in satisfaction of the materiality element. Given that the

failure of proof on materiality precludes a verdict in the

Relators’ favor, I do not need to make comprehensive findings of

fact on every other disputed issue. See Fed. R. Civ. P. 52(c).

Generally speaking, I consider only facts established by

admissible evidence. See e.g., Beck Chevrolet Co. v. Gen.

Motors LLC, 787 F.3d 663, 679 (2d Cir. 2015).

Northern operated an adult day health care center in

Brooklyn. The registrants were predominately Russian, Tr.

33:17-19, as was the staff, though Northern also recruited and

served people of other nationalities. E.g., Tr. 33:12-16;

35:12-14. Northern provided health and recreational services,

including transportation to and from the facility (through

independent contractors); meals; nursing services; arts and

crafts; physical and occupational therapy; and trips to museums

and restaurants. Tr. 84:20-22; 128:2-5; 156:12-19; 179:15-17;

180:4-6; 181:5-6; 218:11-17.

The Relators, all three of whom testified at trial,

are former Northern employees. Orlando Lee’s role was to market

Northern’s services to senior citizens. Tr. 29:18-25. Lee

recruited Black, Hispanic, and Chinese individuals to Northern.

Tr. 33:12-16; 88:2-3. Melville Lucky and Luiz Gonzalez served

as Certified Nursing Assistants (“CNAs”) at Northern, though

Gonzalez was later promoted to a position in the “recreation”

department. Tr. 152:22-23; 259:2-6.

Gelena Deverman served as the Director of the facility

during the time period alleged in the complaint (2008 to 2012).

See, e.g., Tr. 155:10-16. Relators did not call Deverman, or

any other member of Northern’s leadership team, to testify. The

Relators also opted not to call any registrant, despite having

listed over forty registrants as witnesses in the Joint Pre-

Trial Order. ECF No. 117. In addition, although the JPTO had

indicated the Relators’ intent to call a witness from the New

York State Department of Health, the Relators later indicated

that they were unable to secure such a witness. Dec. 11, 2020

Tr. 10:14-18, ECF No. 209 (Relators’ Counsel: “I think I should

tell you that [the Department of Health’s] position is because

of COVID and other things, that they really can’t afford or

don’t want to have someone come down and testify.”).6

A. Evidence of Discrimination

Given that the Relators have argued that the

discrimination in this case is per-se material — that is,

material as a matter of law, without the need to introduce

evidence of the type that Escobar and other cases call for on

materiality — it is worth setting out a somewhat more detailed

summary of the discrimination evidence introduced.

In their trial testimony, the Relators spoke to

several disparities in the way Northern treated Russian and non-

Russian registrants. All three Relators, for example, testified

that the registrants at Northern were typically (though not

6 The Relators’ inability to produce a witness from the New York DOH

came as the culmination of a long series of discovery failures, some of which

were detailed in the Court’s Memorandum and Order of August 16, 2021. ECF

No. 218.

always) segregated by nationality — Russian registrants in a

front room, and non-Russian registrants in a room at the back of

the facility that was separated by a “long passageway.” Tr.

38:6-13. Some registrants self-segregated, Tr. 182:6-11, but

there were instances in which staff members aggravated the

separation. Relator Gonzalez testified about an incident in

which a social worker named Yulia Kusyuk, sitting at a table in

the “main room” with both Russian-speaking and Hispanic

residents, “scream[ed]” at the Hispanic registrants. Tr.

227:12-228:8. The social worker had been speaking Russian to

the Russian registrants and became angry at the Hispanic

registrants for talking amongst themselves at the same time.

Id. She started “screaming” and “knocking on the table,” and

“said to move those people from there because those people were

so noisy.” Id.

The Relators’ testimony also established that Russian

registrants had preferential access to certain resources and

opportunities. For example, Northern subscribed to a Russian-

language newspaper delivery, Tr. 243:23-25, but Spanish- and

Cantonese-language newspapers were not consistently available:

Northern subscribed to a Spanish newspaper only briefly, and

made Chinese-language newspapers available only when Lee

purchased them (with Northern providing reimbursement). Tr.

141:2-11 (Lee would pick up Chinese language newspapers and

snacks in the morning; Northern reimbursed him after he filled

out vouchers); 275:16-21 (Gonzalez testified that it “was only

[for] two months, I think,” that Northern maintained a

subscription to El Diario). Likewise, Russian registrants had

access to the “new” sewing machine, while the “old machine,”

which was “not good,” was for the non-Russian registrants. Tr.

223:17-22; 224:6-10. Gonzalez complained to Yulia, her direct

supervisor “in recreation,” about this, but Yulia did “nothing.”

Tr. 224:15-19.7

Relator Lee was hired to recruit non-Russian

registrants, but he testified that on two occasions in

particular, he was discouraged from doing so too assertively.

As discussed below, however, this testimony was ambiguous and

vigorously contested.

On direct examination, Lee stated that his duties

included “marketing in the Hispanic, in the bilingual market.”

Tr. 32:21-23. He attended “health fairs” and presentations at

“senior buildings,” handing out “advertisement flyers” and

“tchotchkes” like pill cases to recruit Hispanic and African-

American registrants. Tr. 32:23-33:11. The “census” — i.e.,

the number of daily registrants in attendance — “was low” when

Lee began at Northern, “below a hundred, and they wanted to

7 Non-Russian registrants were provided certain activities that Russian

registrants were not. For example, Chinese-speaking registrants played mah-

jong. Tr. 140:15-21.

raise it.” Tr. 35:23-36:3. But one day, when Lee brought in a

large number of new, Spanish-speaking residents at once, a nurse

doing the “enrollment” paperwork got “very upset” and was “very

nasty” to Lee; she said that he “shouldn’t bring any Hispanics.”

Tr. 101:10-18; see also Tr. 102:15-16 (testifying that the nurse

stated: “You shouldn’t bring this many Hispanics. We have

enough already of them here”).

The import of this testimony, however, was constrained

by a number of factors. First, Lee acknowledged — even in his

direct testimony — that the nurse was upset with him largely

because of the bottleneck in workload created when he arrived

with so many new registrants at once (irrespective of their

ethnicity). Lee testified that the nurse in question (and the

entire nursing department) were

very upset that I brought about seven or eight

Hispanics; and they had to do all the

assessments, all the paperwork, and do all the

enrollment. It takes a while to do each one. So

they never had that many all in one shot to sign

up and enroll . . . .

And she said basically they were upset of all the

work that they had to do. They had a lot of

examinations to do, they had the blood, you know,

not just the blood pressure but they had a whole

assessment, medical assessment to do . . . .

So in order to be enrolled and also for the state

department or Medicare department, you have to

have these assessments. They weren’t just going

to the doctor and spending five minutes and, oh,

let me check your blood pressure. So they had a

lot of information to fill out, and those records

are there not just for those Hispanics but for

any person that would join any medical adult day

care center.

Tr. 101:11-18; 102:18-103:4.

Second, Lee’s testimony about this incident was vague.

He could not remember, for example, the name of the nurse who

had the alleged outburst. Tr. 101:6-8 (Lee testified that “off

the tip of my head, no,” he could not recall the nurse’s name);

Tr. 101:23-102:2 (asked by Relators’ counsel “what ethnicity”

the nurse was, Lee replied that “she was from a part of

Russia . . . [where] they spoke Russian, but they were also

Muslims, you know, Muslim religion”).

Third, Lee’s testimony on this subject was in tension

with his acknowledgment that he was hired to increase the

enrollment of Hispanic registrants. Tr. 29:22-25 (Lee was hired

at Northern after responding to a job posting indicating that

“they needed a bilingual representative, marketing

representative”); 33:12-16 (“In the beginning,” Lee marketed

Northern to “mostly Hispanic and also black” people.).

Notwithstanding Lee’s testimony about the nurse’s outburst (and

certain testimony described below), there was no evidence

introduced that it was Northern’s policy to restrict Hispanic or

other non-Russian enrollment, and there was substantial evidence

(including Lee’s own testimony) that he was charged with

increasing enrollment from various non-Russian populations. For

these reasons, Lee’s testimony failed to establish that the

institutional defendants directed him not to recruit Hispanic

registrants.

Lee also recruited Chinese registrants to Northern.

He testified that the head of the recreation department, who was

Russian, told him that Northern “would not be able to have any

Asian people” because “Russian people don’t like that” and “we

don’t want it.” Tr. 86:21-87:2. Deverman, however, did not

object to Lee’s effort to recruit Asian registrants. See Tr.

88:2-18. Lee did testify that Deverman told him to sign up

Chinese registrants only for Sunday sessions, id., and this

limitation meant that Asian registrants could not attend

“excursions” to museums and restaurants because those excursions

did not occur on Sundays. Tr. 85:11-19. (The only Sunday

excursions were visits to Prospect Park, which was across the

street from Northern’s facility. Tr. 135:8-18.)

Again, however, Lee gave conflicting testimony on the

motivation for the Sundays-only limitation. He acknowledged on

cross-examination that Northern had Cantonese-speaking nursing

assistants in attendance on Sundays only. Tr. 124:18-125:15.

Lee also acknowledged that Deverman pushed to recruit Sunday-

only registrants because, she said, Sunday was “the slowest day

of the week in terms of [the] census” so “that would be a good

day for them to start,” and then “expand it to other days.” Tr.

88:6-18.

Relator Luckie testified that non-Russians were

excluded from physical therapy at Northern, but he was unable to

support this assertion with testimony predicated on his personal

knowledge. Luckie had to go past the physical therapy room to

get to the bathroom, and would “see” only Russian individuals in

attendance. Tr. 180:14-17; 185:10-186:2. But Luckie did not

work in the therapy department, and he did not know whether any

non-Russian registrant had the required doctor’s prescription

for therapy but did not receive it. Tr. 204:13-19. In the end,

his testimony was based on his anecdotal observations, made in

passing, and I cannot find from it that Northern excluded non-

Russian registrants from physical therapy.

Finally, Lee testified that the bus company with which

Northern contracted provided sub-standard service to non-Russian

registrants. Tr. 55:11-19; 112:1-7. Lee testified that on a

number of occasions, the bus company failed to pick up or drive

home a Hispanic or Black registrant. See Tr. 55-62. There were

two instances in which Lee had to drive a registrant home

because the bus did not. Tr. 59:24-60:25; 62:6-23. He alerted

management, including Deverman, of the transportation issues.

Tr. 51:1-4; 53:9-16; 55:18-25. Lee did not know, however, if

the Russian registrants had similar transportation problems.

Tr. 116:10-17.8 This testimony, again, was anecdotal in nature

and devoid of any personal observation of discriminatory

behavior or evidence of discriminatory animus. Thus I do not

find that Northern caused, or knowingly permitted,

discriminatory treatment of registrants by its busing

contractor.

B. Evidence of “Medical Model” Shortcomings

The Relators also testified to certain shortcomings in

the standard of care provided to registrants after Deverman

arrived. According to Relator Luckie, the healthfulness of the

food declined. Before Deverman’s arrival, Northern had prepared

food on premises for the registrants, who had the option of

choosing between a variety of dishes and could order soft or

low-sodium food if medically necessary. Tr. 155:21—156:1;

256:23-257:13. When Deverman became Director, however, Northern

began to order food in “bulk” from a Russian restaurant called

Euphoria. Tr. 160:7-11. Registrants no longer had the option

to choose their entrees. Tr. 155:21-156:1; 160:12-14. At

times, they were served “double” portions. Tr. 155:1-9. The

outgoing dietician at Northern, Leslie Rosen, told Luckie that

8 Much of Lee’s testimony on this subject, and the context surrounding

it, was rank hearsay. He testified to what registrants had told him about

their experiences on the bus, but acknowledged that he was never on the bus

himself. Tr. 79:15-17 (Lee testified that he “wasn’t allowed to ride the

buses at all”).

“elderly people were not supposed to have [this] amount of

food.” Tr. 154:3-155:9.

The Relators also testified to certain improper food-

handling practices. Employees serving the registrants “had no

training in food handling” according to Relator Luckie, though

he did not explain the basis for this assertion. Tr. 161:18-21.

They handled food and kitchenware without gloves for a time,

though at some point rubber gloves were provided. Tr. 161:18-

23; 162:9-10. Northern did not have enough hairnets at one

point, but more were later supplied. Tr. 162:16-25; 210:12-14.

There were also some shortcomings in the level of

supervision that Northern provided to the registrants.

Registrants would drink alcohol on premises. Tr. 215:12-17

(Northern maintenance person told Gonzales he found alcoholic

beverages in the trash, and Gonzalez reported this to the head

nurse). Registrants would occasionally leave Northern and “go

out on the road” or to the park alone and without permission.

Tr. 186:8-17.

C. Evidence of Materiality

As noted above, the leading Supreme Court case on the

elements of the False Claims Act is Universal Health Services,

Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989, 1999 (2016). In

remanding “for further proceedings consistent with” the Court’s

opinion, Escobar directed the lower courts’ attention to

specific varieties of evidence that would be probative of an

implied false certification’s materiality: namely, (a) whether

the government “expressly identified” a statutory, regulatory,

or contractual requirement as a “condition of payment”; (b) the

government’s response to the noncompliance at issue in the “mine

run” of prior cases involving similar allegations; and

(c) whether the “noncompliance” at issue “is minor or

insubstantial.” Id. at 2002-04. The Second Circuit considered

these same factors in Strock. 982 F.3d at 62-65.

Relators introduced no evidence whatsoever on these

factors, despite this Court’s several inquiries on the subject

in the lead-up to trial. As discussed in greater detail below,

they presented no evidence that Northern certified compliance

with any anti-discrimination statute or any adult day care

regulation. They called no government witness to discuss what

the government had done in the past, or would have done in this

case, in light of noncompliance of this variety. And they

presented no evidence or testimony about whether the

noncompliance here went to the essence of the Department of

Health’s bargain.

D. Evidence of Scienter and Specific Representations

Apart from the absence of evidence concerning

materiality, Relators also offered virtually no evidence that

Defendants “knowingly” failed to disclose noncompliance with a

statutory, regulatory, or contractual requirement, see Escobar,

136 S. Ct. at 1995, let alone that Defendants knew that this

omission would be material to DOH’s payment decision. Id. at

1996. They called no Northern employee responsible for

submitting claims to Medicaid. No Relator claimed to have been

responsible for submitting Medicaid reimbursement claims, and no

Relator testified about the knowledge of any employee who was

(or any other Northern employee).

The Relators also had to demonstrate that Northern

submitted claims to Medicaid that made “specific representations

about the . . . services provided.” Id. at 2001. Again, there

was a glaring absence of testimony and other proof on this

subject. The only document Relators moved into evidence on this

element was a 411-page spreadsheet of Medicaid “claims data,”

ECF No. 178-1, as discussed below. They introduced no actual

Medicaid claim into evidence. See Tr. 355:19-24.

IV. Application of Law to the Evidence

A. Materiality

As set forth above, the implied certification theory

applies when “the defendant knowingly violate[s] a requirement

that the defendant knows is material to the Government’s payment

decision.” Escobar, 136 S. Ct. at 1996 (emphasis added). The

materiality standard “looks to the effect on the likely or

actual behavior of the recipient of the alleged

misrepresentation,” — here, the DOH — “rather than superficial

designations.” Strock, 982 F.3d at 59 (quoting Escobar, 136 S.

Ct. at 2002). The Supreme Court set a high bar on materiality

in Escobar, holding that the “materiality standard is

demanding.” 136 S. Ct. at 2003. “[S]trict enforcement of the

Act’s materiality” requirement ensures that the FCA cannot be

used to subject a defendant to “open-ended liability” or to

deprive it of “fair notice” of the conditions for liability.

Id. at 2002.

In the end, the Supreme Court counseled, “[t]he False

Claims Act is not an all-purpose antifraud statute, or a vehicle

for punishing garden-variety breaches of contract or regulatory

violations.” Id. at 2003 (internal quotations and citation

omitted).9

The Court directed in Escobar that the materiality

inquiry should focus on three factors in particular. These

factors are: (a) whether the government “expressly identified” a

statutory, regulatory, or contractual requirement as a

9 If the FCA is not an “all-purpose antifraud statute” despite having

been “aimed principally at stopping the massive frauds perpetrated by large

contractors during the Civil War,” see United States v. Bornstein, 423 U.S.

303, 309 (1976), then it surely is not an all-purpose antidiscrimination

statute either. This is a function of the same limits that Escobar set and

that guide this decision. As one commentator who urged the use of the FCA as

an antidiscrimination tool acknowledged, even before Escobar: “The element of

materiality has the potential to create significant problems for an

antidiscrimination FCA relator.” Ralph Mayrell, Note, Blowing the Whistle on

Civil Rights: Analyzing the False Claims Act as an Alternative Enforcement

Method for Civil Rights Laws, 91 TEXAS L. REV. 449 (2012).

“condition of payment”; (b) the government’s response to the

noncompliance at issue in the “mine run” of prior cases

involving similar allegations; and (c) whether the

“noncompliance” at issue “is minor or insubstantial.” Id. at

2002-04. I apply the law of materiality (primarily guided by

Escobar) to each of these materiality factors in turn.

1. Discrimination Evidence — Application of the Escobar

Factors

Relators did not prove that the Defendants materially

misled the federal and state governments by omitting mention of

the asserted violations of anti-discrimination statutes when

submitting claims for Medicaid payment.

a. Express Condition of Payment

The first materiality factor under Escobar is whether

the government “expressly identified” a statutory, regulatory,

or contractual requirement as a “condition of payment.”

Escobar, 136 S. Ct. at 2003. This factor is important but not

necessarily dispositive. “[E]ven when a requirement is

expressly designated a condition of payment,” “not every

violation of such a requirement gives rise to liability.” Id.

at 1996; see also id. at 2001 (even when an obligation is an

express condition of payment, a violation of that obligation is

not “automatically material”). Escobar noted, by way of

example, that if the government required a provider to “aver

their compliance with the entire U.S. Code and Code of Federal

Regulations,” it would not follow that “failing to mention

noncompliance with any [one] of those requirements would always

be material.” Id. at 2004. That would be an “extraordinarily,”

and impermissibly, “expansive view of liability.” Id.

With respect to this first factor, Relators failed to

establish that the anti-discrimination provisions were an

“express” condition of payment. Relators introduced no evidence

that Defendants certified compliance with any anti-

discrimination statute, despite having alluded to documents

containing such certifications before trial.10 Prior to trial,

the Relators invoked the New York State form of “Certification

Statement” for Medicaid Providers, for example. The Court could

take judicial notice of that document, which is available online

(even though the Relators did not ask me to do so).11 The form,

as it appears on the web, currently requires health providers to

“compl[y] with the Federal Civil Rights Act of 1964 and with

10 Relators attempted to obtain additional copies of Defendants’

applications for enrollment as a provider in the New York State Medicaid

program through a Rule 45 subpoena. Relators’ Mar. 19, 2021 Letter at 3, ECF

No. 160; Subpoena at 1, ECF No. 153. The Court granted the Defendants’

motion in limine to exclude those documents, however, in part because

discovery had closed more than three years earlier and the Relators violated

provisions of the Federal Rules of Civil Procedure in their effort to

introduce them. Aug. 16, 2021 Order, ECF No. 218.

11 eMedNY/Medicaid Management Information System, Certification

Statement for Provider Billing Medicaid,

https://www.emedny.org/info/ProviderEnrollment/ProviderMaintForms/490501_ETIN

_CERT_Certification_Statement_Cert_Instructions_for_Existing_ETINs.pdf (last

visited Aug. 20, 2021).

section 504 of the Federal Rehabilitation Act of 1973, as

amended, which forbid discrimination on the basis of race,

color, national origin, handicap, age, sex and religion.” But

Relators have submitted no evidence that those certifications

were contained in the Certification Statement (or anywhere else

in the provider agreement) when Northern submitted its

application to the DOH before beginning operations in the

Brooklyn facility.

As an aside, I note that even if the Relators had

managed to introduce Northern’s program applications to

Medicaid, and even if those had shown Northern certifying that

it would comply with the non-discrimination statutes at issue,

that may not necessarily have established that the New York DOH

regards such compliance as a condition of payment. In United

States ex rel. Jackson v. DePaul Health Sys., 454 F. Supp. 3d

481, 501 (E.D. Pa. 2020), for example, the court differentiated

a “prerequisite” for participation in a program from a condition

of payment: “It is true that ‘[a] certificate of compliance with

federal health care law is a prerequisite to eligibility under

the Medicare program.’ But Jackson has not provided any

evidence that compliance with the federal standard of care or

state regulations is a condition of payment . . . .” Id.

(quoting United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d

235, 243 (3d Cir. 2004)). That distinction applies here as

well.

b. DOH Responses to Similar Misrepresentations

The second factor concerns the “government’s response”

to the noncompliance at issue. Strock, 982 F.3d at 62.

“Escobar directs examination of the government’s reaction to

noncompliance both ‘in the mine run of cases,’ as well as in the

‘particular’ case at issue.” Id. (quoting Escobar, 136 S. Ct.

at 2003). Finders of fact should look to the presence or

absence of “evidence that the defendant knows that the

Government consistently refuses to pay claims in the mine run of

cases based on noncompliance with the particular statutory,

regulatory, or contractual requirement.” Escobar, 136 S. Ct. at

2003.

Of particular importance to the materiality analysis

are what Strock called “mid-contract refusals to pay” — meaning

documented instances in which the agency in question, having

learned that the claimant is in violation of a statute or

regulation, refuses ab initio to pay a claim for reimbursement.

Strock, 982 F.3d at 63-64. These mid-contract refusals are more

probative than “post hoc enforcement,” Strock held, because the

government could potentially game the latter option in a belated

effort to “engage in . . . materiality manufacturing.” Id. at

63.

Critically, the Relators adduced no evidence in this

case — literally none whatsoever — as to what action the New

York Department of Health has taken or would take upon learning

that a provider was discriminating against registrants in the

manner outlined above. Relators called no DOH witness and cited

no past payment- or enforcement-related action. (As noted

above, Relators had initially indicated their intent to call a

witness from the New York State DOH, but the agency reportedly

indicated that they “can’t afford to or don’t want to” send

someone. Dec. 11, 2020 Tr. 10:14-18, ECF No. 209.) There was

thus no evidence from which to assess the government’s response

to “the mine run of cases” involving such discrimination.

Escobar, 136 S. Ct. at 2003.

The Second Circuit, applying Escobar in 2020, broke

that “mine run of cases” into two sub-categories: cases in which

the agency acts during the life of the reimbursement

relationship at issue, and cases in which the government acts

after the fact. Strock, 982 F.3d at 63-64. In Strock, the

United States government brought suit under the False Claims Act

to recover money paid to a contractor under federal programs

designed to benefit injured veterans. The defendant there had

received millions of dollars in government contracts that were

reserved for “service-disabled veteran-owned small businesses,”

or “SDVOSBs”; but the government alleged that the defendant’s

“SDVOSB status was a sham.” Id. at 57. The defendant argued

that the alleged misrepresentation — that the defendant

qualified as an SDVOSB — was immaterial. The district court

granted a motion to dismiss the complaint for failure to

adequately allege materiality, but the Second Circuit reversed.

The Court of Appeals focused first on actions taken

during the contracting and payment process: namely, “the

numerous steps the government takes to ensure an applicant is

[actually an SDVOSB] before awarding a contract.” Id. at 64.

The Court also noted that the government invoked the actual

names of “multiple contracting officers or specialists who

allegedly would not have awarded contracts” to the defendant

“had they been aware” that it was not an SDVOSB. Id. These

allegations gave rise to a “reasonable inference” that the

government generally does “not award contracts to companies that

it knows” are not SDVSOBs, which “suggest[ed]” that the

misrepresentations at issue were material. Id.

The Court of Appeals was less impressed, however, with

the government’s allegation that it “regularly prosecuted”

entities that “fraudulently obtain SDVOSB set-aside contracts.”

Id. at 63. Citing Escobar, the Court opined that after-the-fact

enforcement was “at best only neutral with regard to a finding

of materiality,” id. at 64, because “[a]llowing the government

to rely on post hoc enforcement efforts to satisfy the

materiality requirement would allow the government to engage

in . . . materiality manufacturing, and at relatively low cost.”

Id. at 63. This low cost contrasted with the higher costs the

government incurs via “mid-contract refusals to pay,” which can

put a project or service at risk of delay. Id.

The care with which the Circuit parsed the Strock

allegations concerning agencies’ responses to similar

misrepresentations is obviously instructive; it shows the

critical importance of such evidence to the materiality

determination. Here, the Relators simply provided no evidence

in either category — neither mid-contract refusals to pay, nor

post-hoc enforcement of any kind. Their witnesses said nothing

about the Department of Health’s standards or process for

reviewing applications or claims. Relators were unable to point

to a single case in which a government agency engaged in post-

hoc enforcement against a Medicare or Medicaid provider for

discrimination in violation of federal or state civil rights

laws. Trial Tr. 400:14-25. And they produced no evidence

showing that a federal or New York State agency ever refused to

pay (in whole or in part), or ever attempted to claw money back

from, a Medicare or Medicaid provider on that basis. The

Relators simply stated — before and during trial — that such

testimony was not necessary. See, e.g., June 14, 2021

Conference Tr. 51:2-5, ECF No. 191 (Relators’ Counsel: “I don’t

think we need an expert to say this is discriminatory behavior

that the government should not pay for.”).

In support of their materiality argument, the Relators

did point to one enforcement action — namely, the 2014

settlement between the New York Attorney General’s Office and

Northern itself. But (i) they did not introduce the settlement

agreement at trial (rather, they ask me to take judicial notice

of it now); and (ii) that action did not involve allegations of

discrimination (instead, it covered allegations that Northern

operated without a qualified social worker and, on certain days,

exceeded the maximum number of authorized registrants on site).

As an example of prior enforcement, however, the 2014

settlement actually hurts the Relators’ case (if anything) more

than it helps because its timing suggests that New York State

was on notice of the Relators’ claims and made no change in its

reimbursement of Northern as a result. The Relators initiated

this action on September 4, 2013, on behalf of the United States

and the State of New York. Where a private person initiates a

qui tam case, the FCA requires that “[a] copy of the complaint

and written disclosure of substantially all material evidence

and information the person possesses shall be served on the

Government” pursuant to Rule 4 of the Federal Rules of Civil

Procedure — meaning within ninety days. 31 U.S.C. § 3730(b)(2).

The New York State FCA follows substantially similar procedures.

N.Y. State Fin. Law § 190(2)(b). The federal and state

governments were thus on notice of this action by December 2013

at the latest.

There is no indication, however, that the DOH stopped

making Medicaid payments to Northern. Indeed, the Relators

attempted to offer into evidence Medicaid claims data through

December 2014 — a full year later. See Revised JPTO, ECF No.

193-1 (describing Relators’ proposed Exhibit 63 as “[t]humb

drives of all Medicaid Claims made by Defendants for all

registrants from 12/1/2008 to 12/31/2014”).12 “[C]ontinued

payment by the federal government after it learns of the alleged

fraud substantially increases the burden on the relator in

establishing materiality.” United States ex rel. Harman v.

Trinity Indus., 872 F.3d 645, 663 (5th Cir. 2017). The Relators

had not carried their burden even before this potentially

substantial increase in it, see id., and they do not help their

case by invoking the 2014 settlement.

Other cases also support the notion that materiality

should not be presumed, absent evidence of a government agency’s

specific response to similar misrepresentations. In Ruckh v.

12 I excluded this evidence because it post-dated the complaint’s

damages period. Aug. 16, 2021 Order at 13, 18.

Salus Rehabilitation, LLC, for example, the court of appeals

held that materiality had not been established, relying in part

on the following failure of proof:

The relator testified that when she informed her

direct supervisors at La Vie Management that her

patient files lacked care plans, they self-reported

the deficiencies to the state. There was no evidence,

however, that the state refused reimbursement or

sought recoupment after this self-reporting. And

there was no evidence that the state ever declines

payment for, or otherwise enforces, these types of

violations.

963 F.3d 1089, 1109 (11th Cir. 2020); see also Jackson, 454 F.

Supp. 3d at 501 and n.31 (granting partial summary judgment

where the relator had not “provided any evidence that the

government has declined payment for failure to comply with these

regulations,” among other failures of proof).

For the foregoing reasons, this factor cuts heavily

against a finding of materiality.

c. The “Essence” of the Bargain

Escobar’s third materiality factor requires a court to

consider whether the “noncompliance is minor or insubstantial.”

Escobar, 136 S. Ct. at 2003. Courts ask whether the requirement

rests at the “very heart” of the statutory or regulatory regime

and thus “noncompliance deprived the government of the intended

benefits” of the contract. Strock, 982 F.3d at 65 (internal

quotations omitted). In other words, the question is whether

the breach struck at “the very essence of the [government’s]

bargain” with the defendant. Escobar, 136 S. Ct. at 2003 n.5

(quoting Junius Constr. Co. v. Cohen, 257 N.Y. 393, 400

(1931)).13 Escobar and subsequent cases teach that this factor

turns on whether the alleged failings go to the “very essence”

of the bargain between the government agency and the payee. Id.

at 2003–04 and n.5.14

Relators introduced no evidence at trial on this third

factor. Despite that failure of proof, this is still the

materiality factor on which the Relators fare best: given this

country’s history, there is no doubt that anti-discrimination

law is at the bedrock of modern American legal doctrine, and the

Court of course recognizes that body of law and its application

to the provision of government services. But Northern’s status

as a Medicaid provider was, at its core, about providing adult

13 Relators asked the Court before and during trial to apply a

“reasonable man” standard in evaluating materiality, and simply assess

whether a reasonable person would view the discrimination and medical-model

failures here as material in the abstract. See, e.g., Tr. 407:16-25;

Relators’ Opp. Br. at 8-9, ECF No. 201. This approach is at odds with

Escobar’s call for specific varieties of evidence of materiality, 136 S. Ct.

at 2003-04, and with the Second Circuit’s application of Escobar in Strock.

982 F.3d at 62-65.

14 See also Janssen v. Lawrence Memorial Hosp., 949 F.3d 533, 541 (10th

Cir. 2020) (considering whether noncompliance went “to the very essence of

the bargain or [was] only minor or insubstantial” (internal quotations

omitted)); Ruckh v. Salus Rehab, LLC, 963 F.3d 1089, 1105 (11th Cir. 2020)

(Medicaid-related practice was “material” because it “[went] to the essence

of the parties’ economic relationship”); United States ex rel. Prather v.

Brookdale Senior Living Communities, Inc., 892 F.3d 822, 831 (6th Cir. 2018)

(considering whether the non-compliance was “minor or insubstantial or if it

goes to the very essence of the bargain” (internal quotations omitted));

United States ex rel. Grubea v. Rosicki, Rosicki & Assocs., P.C., 318 F.

Supp. 3d 680, 701 (S.D.N.Y. 2018) (considering whether the defendant’s

misrepresentation “went to the very essence of the bargain” (internal

quotations omitted)).

day care and health services to low-income individuals in a day

care setting. See, e.g., 10 N.Y.C.R.R. § 425.1 (“Adult day

health care is defined as the health care services and

activities provided to a group of registrants with functional

impairments to maintain their health status and enable them to

remain in the community.”); 10 N.Y.C.R.R. § 425.5 (“At least the

following program components must be available [in ADHC]: (1)

case management; (2) health education; (3) interdisciplinary

care planning; (4) nursing services; (5) nutrition; (6) social

services; (7) assistance and supervision with the activities of

daily living . . . ; (8) planned therapeutic or recreational

activities . . . ; (9) pharmaceutical services; and (10)

referrals for necessary dental services and sub-specialty

care.”). These supervisory- and health-related services are the

most obvious manifestation of the “essence” of the adult day

health care bargain. And there is no dispute here that Northern

did provide meals, on-staff nursing professionals, recreational

activities, transportation to and from the facility, and other

services.

* * * * *

Relators submitted a post-trial brief at the Court’s

request, setting forth proposed findings of fact and conclusions

of law. ECF No. 208. In the fourteen-page section titled

“Materiality,” see id. at 44-57, the Relators cite only one

piece of record evidence from the entire trial — registrants’

enrollment records, which they say “show[] for almost every

minority resident diet restrictions of ‘low fat’, ‘NSA’ (no salt

added), [and other diet restrictions] . . . . Despite this,

every resident received the same bulk-delivered Russian cuisine

prepared by Euphoria catering.” Id. at 53.

This exhibit constitutes evidence of discrimination

and medical-model shortcomings, as noted above. But it is not

evidence of materiality, by the standard set by Escobar or any

other case. Materiality is an element of an FCA violation in

its own right, and the Relators’ proof at trial simply side-

stepped it entirely. To state the obvious, the failure to

adduce sufficient evidence on an essential element — here,

materiality — is fatal to a civil plaintiff’s case. E.g.,

Nick’s Garage Inc. v. Progressive Casualty Insurance Company,

875 F.3d 107, 115 (2d Cir. 2017) (noting that in a civil trial,

“the plaintiff bears the burden of proving every essential

element of its claim”).

Relators ultimately ask the Court to conclude, as a

matter of law, that the discrimination presented at trial rises

to the level of materiality. See Tr. 398:15-18 (Relators’

Counsel: “[W]hat I’m arguing [is] that discrimination is so

fundamental in the law that makes it, as a matter of law,

material.”). Relators point to no case, however, that supports

this notion of per se materiality.15 Indeed, Escobar explicitly

advises against such sweeping liability. Even if labeled an

express condition of payment, the violation of a “statutory,

regulatory, and contractual requirement[] [is] not automatically

material.” Escobar, 136 S. Ct. at 2001. “[M]ateriality cannot

rest on ‘a single fact or occurrence as always determinative.’”

Id. (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S.

27, 39 (2011)). Such a standard would erode the fair notice to

defendants that the Supreme Court took care to protect.16

15 The Relators point to statements by Judge Brodie at the summary-

judgment stage of this case in support of their per-se theory of materiality.

See Relators’ Proposed Findings of Fact and Conclusions of Law at 23. But

Judge Brodie made clear, contrary to Relators’ position, that materiality

would be an issue for the finder of fact. See Nov. 27, 2019 Tr. 28:10-14

(“[Y]ou disagree . . . that the fact that Plaintiffs alleged that the

Defendants discriminated against their registrants, you argue that’s not

material and Plaintiffs argue that’s very material. That’s the issue the

jury has to decide.”) (emphasis added). And she explicitly anticipated

(based on Relators’ counsel’s representations) that the Relators would be

calling a witness from the New York DOH to testify on the subject:

But as I understand, the purpose for this witness [from the DOH]

is simply to discuss what, if any, factors they consider in

determining whether or not to pay a claim, and, in this case

specifically, whether or not knowing that the employer has

engaged in conduct that Plaintiffs allege is discriminatory would

have any effect on the determination of whether or not to pay the

claim; is that correct?

Nov. 27, 2019 Tr. 27:4-10. That witness, as noted above, did not testify.

16 It bears noting that Relators’ counsel argued that discrimination is

per-se material, but also conceded (in advance of trial) that not all

discrimination would qualify as such. This concession came in response to a

hypothetical from the Court. I noted that the Relators had alleged that

Northern regularly provided Russian-language newspapers, but provided

newspapers in other languages on a more limited basis. I then inquired:

assuming arguendo that this was the only discriminatory act the Relators

could prove, would that be per-se material under Escobar? Relators’ counsel

conceded that it would not be:

Relators also invoke U.S. ex rel. Anti-Discrimination

Center of Metro New York, Inc. v. Westchester County, 668 F.

Supp. 2d 548 (S.D.N.Y. 2009) (“Westchester County”), ostensibly

for the proposition that all civil rights violations give rise

to False Claims Act liability. Relators’ Proposed Findings of

Fact and Conclusions of Law at 24. That case, however, is

unavailing. Westchester County involved a government program

whose core purpose was to eradicate housing segregation.

Westchester County, 668 F. Supp. 2d. at 569. In order to

receive development-related funding from the U.S. Department of

Housing and Urban Development, Westchester County certified that

it would meet a variety of anti-discrimination metrics. Id. at

551. The County promised, in particular, to comply with a

regulation that required three tasks: “to conduct an analysis of

impediments to fair housing choice within the area, take

appropriate actions to overcome the effects of any impediments

identified through that analysis, and maintain records

reflecting the analysis and actions in this regard.” Id.

(citing 24 C.F.R. § 91.425(a)(1)(i)). The County, it was

The Court: “I posed the hypo before trial of[,] imagine that the

only discriminat[ion] that gets proved in this trial is that

there [were] Russian language newspapers available for Russian-

speaking registrants but not Mandarin or Cantonese or Spanish

language newspapers . . . would that necessarily be material? And

I think you said no.”

Relators’ Counsel: “I said no and I’ll say no again.”

Trial Tr. 410:13-21.

alleged, did not bother to conduct this analysis, but proceeded

to seek payment anyway. Id. at 559. The Court denied

defendants’ motion for summary judgment. Id. at 565. Unlike

here, however, there was evidence in Westchester County of

regulatory requirements that were “express” conditions of

payment. Id. at 569. And unlike here, those regulations went

incontrovertibly to the absolute essence of the government’s

bargain, which was about eradicating housing discrimination.

Reliance on the Westchester County decision cannot, therefore,

revive the Relators’ case.

For these reasons, Relators failed to prove by a

preponderance of the evidence — or anything close to it — that

the discrimination evidence they adduced would have been

material to the New York Department of Health’s payment

decisions in this case. Simply put, we are left with no

indication at all of how the DOH would likely have responded.

2. Medical Model Evidence — Application of the Escobar

Factors

Relators have also failed to prove that any alleged

non-compliance with “medical model” regulations was material.

As set forth above, Relators adduced no evidence that the

government designated certain statutory, regulatory, or

contractual conditions as express preconditions to payment. And

they produced no evidence showing the government’s response to

noncompliance with medical-model regulations, to the (limited)

extent proven here, in the “mine run of cases.” While the value

of the medical-model services provided is the essence of the

government’s bargain, the violations proved are arguably minor,

making proof of the government’s response to such violations in

the past even more essential.17 The critical question is not

whether Northern provided any degree of substandard care, but

whether there were “sufficiently widespread deficiencies that

they would likely affect the Government’s payment decision.”

United States ex rel. Janssen v. Lawrence Mem'l Hosp., 949 F.3d

17 If a party bills the government — expressly — for a particular good

or service, and does not provide that good or service, then materiality may

be “plain and obvious” as to that claim — but under the “factually false”

theory of FCA liability, not the implied false certification theory. Ruckh,

963 F.3d at 1105 (materiality was “plain and obvious” where skilled nursing

facilities “indicated,” through coding on a claim for payment, that “they had

provided more services — in quantity and quality — than they, in fact,

provided”). But that express claim was not alleged here, and the Relators

did not proceed on the “factually false” theory.

Relators argue that non-Russian registrants were not provided medical

services such as “special diets, physical therapy, occupational therapy, and

health education.” Relators’ Opp. to Rule 52(c) Motion at 16 n.3, ECF No.

201. Even assuming (arguendo) that Relators had proved each and every one of

these shortcomings — which they did not — the Relators do not suggest that

the Defendants billed Medicaid expressly for them. Relators do not suggest,

for example, that Northern submitted claims for reimbursement for particular

physical therapy sessions as a line item. If they had, that claim would have

proceeded under the factually false theory (which did not survive summary

judgment here). See Mikes, 274 F.3d at 697 (under the “factually false

theory,” a claim is made to the government seeking payment for services that

were never actually provided or for which the description of the services

provided is incorrect); see also Apr. 26, 2019 Tr. 11:4-6 (The Court: “[T]he

implied certification theory . . . is the only theory that survived the

motion to dismiss in this case.”). By contrast to the “factually false”

context, materiality is key (and cannot be presumed) in the posture of this

case, where Defendants are alleged to have submitted generic claims for “room

and board,” Tr. 349:6-8, and Relators contend simply that those claims

“implied” compliance with various statutory and regulatory obligations.

Indeed, this is a primary lesson of Escobar.

533, 543 (10th Cir. 2020). Following trial here, there is no

way of knowing the answer to that question.

For the foregoing reasons, I conclude that the

Relators have failed to carry their burden of proving, by a

preponderance of the evidence, that the evidence they adduced

concerning discrimination and medical-model failures would have

been material — separately or in the aggregate — to the

government’s decision to pay any given claim or claims. Based

on this failure of proof, the Relators’ case must be dismissed.

B. Scienter

There is another, independent reason for the grant of

Defendants’ Rule 52(c) motion. Relators were obligated to prove

not only that Northern’s implied misrepresentations were

material, but that the Defendants knew they were material when

making them.

Escobar’s scienter requirement for an implied false

certification theory claim explicitly demands knowledge of

materiality. Escobar, 136 S. Ct. at 1996 (“What matters is not

the label the Government attaches to a requirement, but whether

the defendant knowingly violated a requirement that the

defendant knows is material to the Government's payment

decision.”); Id. at 2001 (“A defendant can have ‘actual

knowledge’ that a condition is material without the Government

expressly calling it a condition of payment.”); Id. at 2003

(“[P]roof of materiality can include, but is not necessarily

limited to, evidence that the defendant knows that the

Government consistently refuses to pay claims in the mine run of

cases based on noncompliance with the particular statutory,

regulatory, or contractual requirement.”).

Escobar goes on to suggest that such knowledge can be

proved either by “actual knowledge” or, in the alternative,

proof that materiality of the condition violated would be so

obvious to a “reasonable person” that “a defendant’s failure to

appreciate the materiality of that condition would amount to

‘deliberate ignorance’ or ‘reckless disregard’” thereof. Id. at

2001-02. The Relators here put a great deal of pressure on that

sentence, arguing that it establishes a “reasonable person”

standard, and that that standard obviates the need for proof

that the Defendants knew that the violations at issue were

material (or even obviates the need for proof of materiality at

all — separate and apart from knowledge thereof). This is,

however, a far more expansive reading of the relevant sentence

in Escobar than that single sentence can bear.

The cited sentence simply posits that certain

violations go so obviously to the essence of the bargain that a

person disclaiming knowledge thereof would necessarily

demonstrate “deliberate ignorance.” Escobar posits the example

of a military supplier’s sale of guns to a government agency.

In that case, Escobar says, ignorance of the materiality of the

condition that “guns [the government] orders must actually

shoot” would require deliberate ignorance. Id. Escobar was

providing guidance to the lower courts on remand, and I read

this “reasonable person” sentence simply to say (not

controversially) that the relevant knowledge can be proved by

deliberate ignorance (what the Second Circuit calls conscious

avoidance)18 as an alternative to actual knowledge. Indeed, this

reading emerges from the FCA itself, which defines “knowingly”

to reach a person who “has actual knowledge of the information;

(ii) acts in deliberate ignorance of the truth or falsity of the

information; or (iii) acts in reckless disregard of the truth or

falsity of the information.” 31 U.S.C. § 3729(b)(1)(A).

Relators offered no evidence of any kind regarding

Defendants’ knowledge of materiality to the government’s payment

decision. See Relators’ Proposed Findings of Fact and

Conclusions of Law 44-57. For this reason, too, the Relators’

claims must be dismissed.

18 Sand et al., Modern Federal Jury Instructions, Criminal Instruction

3A.01 (conscious avoidance means a person “deliberately closed his eyes to

what would otherwise have been obvious to him” or “acted with . . . a

conscious purpose to avoid learning the truth”); see also United States v.

Reyes, 302 F.3d 48, 54 (2d Cir. 2002) (“The doctrine of conscious avoidance .

. . [is] also known as deliberate ignorance or willful blindness[.]).

C. Specific Representation

Finally, Relators also fell short of establishing that

Northern “submit[ted] a claim for payment” to Medicaid that made

“specific representations about the . . . services provided.”

Escobar, 136 S. Ct. at 1995; see also id. at 2001 (“Accordingly,

we hold that the implied certification theory can be a basis for

liability, at least where two conditions are satisfied: first,

the claim does not merely request payment, but also makes

specific representations about the goods or services

provided . . . .”).19

In this case, Relators introduced no actual Medicaid

claims into evidence. Instead they proffered a spreadsheet,

that Defendants produced in response to a discovery request.

Tr. 290:12-13. Relators’ counsel explained that Northern

submitted thousands of electronic claims to Medicaid — over

16,000 pages — and this document was “the representation of the

electronic claims that [were] submitted.” Tr. 355:24-

356:17. The meaning of only three of the spreadsheet’s ten

19 The phrase “at least” in the quoted language does seem to leave open

the possibility that other bases for “implied false certification” liability

may exist, even without the presence of a specific misrepresentation. But

even if other theories of “implied false certification” theory do exist, they

have not been identified as yet by the Supreme Court or Second Circuit. Cf.

United States ex rel. Schimelpfenig v. Dr. Reddy's Labs. Ltd., No. 11-cv-

4607, 2017 WL 1133956, at *6 (E.D. Pa. Mar. 27, 2017) (“While it is true that

the Supreme Court in Escobar left open the question of whether specific

representations were always required for an implied false certification, the

Third Circuit . . . albeit in a nonprecedential opinion, [has] suggested that

an implied false representation “require[s] specific representations.”)

(cleaned up)).

columns are clear — the registrants’ names, the dates of

service, and the amounts billed for “room and board.” See ECF

No. 178-1; Tr. 348:16-349:11; 387:19-392:15. There was no

testimony about who specifically created this document.

Relators’ counsel claimed this chart satisfies the

“specific representation” standard, arguing that “the [specific]

representations are the compilation of claims made for room and

board on certain dates for certain individuals.” Tr. 356:14-23;

358:17-18 (Relators’ Counsel: “I don’t know more specifics than

the date, the time of service, [and] the identity of an eligible

beneficiary . . . .”).

Assuming, arguendo, that this spreadsheet could

constitute “a claim for payment,” it provides little in the way

of “specific” information about the services provided. The

notation “R&B” (i.e., room and board) is a general designation

for ADHCs. Tr. 349:6-8. It includes, for example,

“transportation to and from the facility,” Tr. 358:8-16, as well

as, presumably, the full swath of services an ADHC facility

should provide to registrants — some of which Northern did

provide, as noted above, and some of which it didn’t. In

Escobar, the reimbursement claims represented “the specific

services provided,” by including “payment codes that

corresponded to specific counseling services” that were not

provided, and listing the “specific types of professionals” who

purportedly provided those services (but did not). Escobar, 136

S. Ct. at 1997-98, 2000. The defendants in Escobar thus did

“more than merely demand payment.” Id. at 2000.

“By contrast, a simple demand for payment,” as

Relators seem to rely on here, “does not constitute a ‘specific

representation about the goods and services provided.’” United

States ex rel. Lisitza v. Par Pharm. Cos., Inc., 276 F. Supp. 3d

779, 796 (N.D. Ill. 2017) (quoting United States v. Sanford

Brown, Ltd., 840 F. 3d 445, 447 (7th Cir. 2016)). It is unclear

from the “room and board” code which services Northern

implicated in their alleged omission(s) such that those services

were “misleading half-truths.” Escobar, 136 S. Ct. at 2001.

This does not constitute a “specific representation” under

Escobar.

V. Conclusion

Accordingly, for the reasons stated above, the Court

concludes that Relators have failed to carry their burden of

proof and finds in favor of Defendants. The Clerk of Court is

respectfully directed to enter judgment for Defendants and to

close this case.

SO ORDERED.

_/s Eric Komitee_____________

ERIC KOMITEE

United States District Judge

Dated: August 25, 2021

Brooklyn, New York