Waldman v. Spectra Holdco, LLC.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

UNITED STATES, STATE OF NEW JERSEY, RAN

STATE OF NEW YORK, AND STATE OF vey (NGG “IRC)

CONNECTICUT, ~ ( )¢ )

ex rel. MICHAEL WALDMAN,

Plaintiff/Relator,

-against-

SPECTRA HOLDCO, LLC F/K/A SHIEL

HOLDINGS LLC AND SPECTRA

LABORATORIES, INC.,

Defendants,

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiff and Relator Michael Waldman (“Plaintiff”) brings this

action against his former employers, Defendants Spectra Holdco,

LLC, formerly known as Shiel Holdings LLC, (“Shiel”), and Spec-

tra Laboratories, Inc. (“Spectra”), (collectively “Defendants”},

alleging violations of the anti-retaliation provision of the False

Claims Act (“FCA”), 31 U.S.C. § 3730(h). (See generally Third

Amended Complaint (“TAC”) (Dkt. 38) {4 150-52.) Defendants

have moved to dismiss the Third Amended Complaint under Fed-

eral Rule of Civil Procedure 12(b) (6). (See Not. of Mot, to Dismiss

(Dkt. 43); Mem. in Supp. of Mot. to Dismiss (“Mot.”) (Dkt. 43-

1}.) Defendants also move to strike certain allegations made in

the Third Amended Complaint as immaterial or prejudicial. (See

Mot. at 16.)

For the reasons set forth below, Defendants’ motion to dismiss is

DENIED. Defendants’ motion to strike is GRANTED in part and

DENIED in part.

1 .

I. BACKGROUND!

A. Billing Scheme for Diagnostic Medical Tests

According to the Third Amended Complaint, Defendant Shiel

was a diagnostic medical laboratory business based in Rockleigh,

New Jersey that served the greater New York metropolitan area.

(TAC 5.) As a provider, Shiel was subject to Medicare and Med-

icaid regulations, which required, among other things,

submitting documentation of “medical necessity” for diagnostic

medical tests with certain diagnosis codes provided by doctors in

order to determine coverage and issue reimbursement to the lab

for the test. Ud. 6, 44-45, 47.) Not all diagnostic tests, how-

ever, are reimbursable; some tests are considered “non-covered”

for certain diagnosis codes meaning any claim for reimbursement

relating to those tests will be rejected. Ud, § 6.) Accordingly,

when ordering a diagnostic test for a Medicare-covered patient,

the doctor is supposed to “indicate his or her diagnosis (or sus-

pected diagnosis) by providing on the order form (or

electronically) the corresponding diagnosis code (or codes) from

the International Classification of Diseases and Related Health

Problems (“ICD”).” Ud. § 46.) As stated on Shiels website, pro-

viders are to choose a code that indicates the medical necessity

the doctor believes is appropriate for the test and not to “choose

a code merely to secure claim payment.” (/d. { 48.) In the event

that Shiel’s Medicare carrier finds a test to be medically unneces-

sary, a patient may be required to pay the bill only if an Advance

Beneficiary Notice (“ABN”) is signed by the patient acknowledg-

ing that the patient agrees to pay out of pocket when Medicare

refuses to reimburse. (Id. {{ 50-51.) “Thus, in the normal course

of business at a compliant lab,” if Medicare refuses to reimburse

! The following facts are taken from the Third Amended Complaint and,

for the purposes of this motion to dismiss, are assumed to be true. See Ark.

Pub. Emps. Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 349 (2d Cir.

2022).

a test and the patient has not signed an ABN, the lab will not

receive payment for the diagnostic test and have to “eat the cost.”

dd. | 52.)

B. Defendants’ Alleged Billing Scheme

Plaintiff Michael Waldman, who was previously employed by De-

fendants as a Senior Sales Representative from November 2012

until December 31, 2017, alleges that Defendants were far from

compliant with Medicare and Medicaid regulations. Rather,

“Shiel management willfully and intentionally disregarded

[Medicare/Medicaid] statutes and regulations” by creating a

fraudulent billing scheme aimed at maximizing company reve-

nues and personal profit. dd. §{ 8, 26.) Specifically, Plaintiff

alleges that Defendants regularly submitted false and fraudulent

claims for reimbursement of diagnostic laboratory procedures.

(id. § 53.) As part of this scheme, when a claim for reimburse-

ment of diagnostic testing was rejected, Shiel’s _ billing

department would generate a “Missing Diagnosis Code” report,

internally known as “code sheets,” that would be sent to sales

reps who were supposed to then take the reports back to the doc-

tor’s office to request a covered (and reimbursable) code and sign

the report. Ud. 9, 54-59.) Shiel management pressured sales

reps to “get the codes done” by any means necessary, including

having sales reps and others impermissibly fill out the covered

diagnosis codes themselves (id. {{ 14, 62-63); going to the doc-

tors’ offices and convincing staff to let them use the doctors’

signature stamps to approve the reports on their own and/or

“borrowing” the fax machine to fax the reports back to the billing

department as if the reports were completed by the doctor (id. {

14, 64); and forging the doctor’s signature (id. {{ 14, 66).

Plaintiff alleges that Shiel offered physicians and their medical

practices kickbacks in the form of free goods and services to in-

duce referrals. Ud. { 16, 94). These alleged kickbacks took the

form of all new Apple computers and software that did not fall

within any regulatory safe harbor to be recognized as legitimate

medical equipment (id. 1 95-96); gift cards and expensive

lunches or dinners (id. 16, 99-100, 102); sports tickets (id. 4]

16, 101); and free services such as sending phlebotomists (whose

ostensible purpose was to collect blood samples) to doctors’ of-

fices to handle unrelated office tasks that fell outside of

regulatory safe harbors established by the U.S. Department of

Health and Human Services and the Office of the Inspector Gen- □

eral for phlebotomists (id. 41 17, 97). Employees often “faked

receipts” to get reimbursement for these expenses. (id. { 16.)

Plaintiff alleges that management pressured and incentivized the

sales team to engage in this fraudulent conduct by rewarding

“compliant” staff members with free meals and other gratuities.

(id. 14, 65). Shiel also provided incentive compensation for its

sales reps, whereby sales reps and certain employees tasked with

servicing customer relationships received a percentage of col-

lected revenues from lab tests ordered by their customers. (Id. {

13.) As part of their compensation, sales reps could be rewarded

with up to ten percent of revenues collected as a commission or

bonus. (id. § 88.) Client service reps, who handled matters for

existing customers, could obtain up to two percent of revenues.

(id.) Shiel management used these incentives to pressure sales

teps to “get the codes done” by “constantly remind[ing] them

how much money the uncompleted reports represented to the

reps in lost commission.” (id. (4 90-93.) If sales reps failed to

meet their quotas and targets, management would reprimand

them through verbal chastising and criticism, and/or use threats

of demotion, pay cuts, or even termination. (Id. {| 12, 88.)?

2 Plaintiff also asserts that the sheer volume of the code sheets (upwards

of thousands of pages), coupled with (1) constant demands to get the re-

ports done in short timeframes (e.g., by end of the week or even within a

day), and (2) busy doctors who complained that they had no time to go

over so many reports, made it physically impossible for sales reps to get

C. Retaliation

1. Plaintiff Alerts Management to Potential

Fraudulent Billing Scheme

Plaintiff alleges that Defendants retaliated against him for refus-

ing to engage in their fraudulent billing scheme. (Id. 14 103-149.)

Plaintiff contends that he was subject to the same pressures as

his colleagues to “fraudulently add codes to patient records and

claim documentation to increase corporate revenue.” (fd. § 103.)

Plaintiff, however, consistently refused to engage in the fraud.

Ud.) Instead, in or around early 2016, Plaintiff began complain-

ing to management about the billing scheme. Ud. { 104.) For

example, during a one-on-one meeting with Jim Murphy, Shiel’s

Vice President of Clinical Sales, Mr. Murphy raised concerns

about Plaintiffs sales performance for the first time. (fd.) In re-

sponse, Plaintiff pointed out that his refusal to engage in the

coding fraud was having a direct impact on his customer reve-

nues as well as his incentive compensation and argued that he

should not be penalized for refusing to participate in misconduct.

(id.) During another meeting in or around August 15, 2016, Mr.

Murphy met with Plaintiff again to discuss his sales performance,

and Plaintiff complained about Shiel’s lack of clarity concerning

sales goals and compensation; how the lab is unable to handle

volumes of new business due to inefficient systems; and reiter-

ated his discomfort with Shiel’s fraudulent coding practices. (Ud.

4 105-06.) Mr. Murphy agreed with Plaintiffs concerns and told

Plaintiff that a follow-up meeting with human resources and

compliance officials should be scheduled. Ud. | 106.)

the proper authorization for each completed report. Ud. §{ 70, 79.) As

such, Plaintiff asserts that Shiel management knew which employees were

“particularly efficient” at filling out the reports with covered codes and as-

signed those employees to handle “especially voluminous code sheets or

uncooperative doctors’ offices.” Ud. {4 15, 68-78.)

5 .

Plaintiff asserts that “[njo such meeting took place” and instead

in an email dated August 29, 2016, Mr. Murphy “falsely mischar-

acterized their August 15 conversation.” (id. | 107.) In his email,

Mr. Murphy claimed that he “expressly criticized” Plaintiffs sales

performance noting that Plaintiff failed to grow his customer

base and had not met the goals of Shiel’s “new sales compensa-

tion program’? such that a formal written warning for Plaintiffs

performance was placed in his personnel file. Ud.) Plaintiff al-

leges this was the first formal warning he has received since

working at Shiel. id.)

On September 6, 2016, Plaintiff emailed Peter Connelly, a Com-

pliance Officer for Fresenius Spectra Labs East before it was

acquired by Shiel, writing that sales and service reps were being

directed to fill out missing code sheets with the most “flexible

codes” (or codes that would most likely be reimbursable). (id. {4

109-10.) Plaintiff told Mr. Connelly that he refused to comply

and that he directed his service reps not to fill in the missing

codes either. (Id. | 110.) Plaintiff stated that as a result of his

refusal to engage in fraud, Shiel was not getting reimbursed, and

Plaintiff was written up for not making his quotas. Gd. § 111.)

He further stated that submitting false documentation to the fed-

eral government was illegal and could put the company at risk.

(dd. 4 112.) Plaintiff therefore asked Mr, Connelly to investigate.

(id.) On September 9, 2016, Mr. Connelly responded, assuring

Plaintiff that “the company was ‘taking it very seriously.” Ud. 4

113). Mr. Connelly referred the matter to in-house counsel, Sa-

rah Schuler, who emailed Plaintiff informing him that the

company retained outside counsel to assist and asking Plaintiff to

schedule an interview. Ud.) During the interview on or about

September 29, 2016, Ms. Schuler and outside counsel again re-

assured Plaintiff that they would investigate. (Id.)

3 A new program that, by Plaintiffs account, provided significant financial

incentives for the sales reps to engage in coding fraud. (id.)

2. Retaliation Following Plaintiffs Whistleblowing

Soon after raising his concerns, however, Plaintiff began to expe-

rience an increasingly hostile work environment. Plaintiff alleges

that, among other things, management began excluding him

from lucrative clients and territories while other and more fa-

vored reps were chosen to service multiple territories and

otherwise increase their potential earnings. (Id. { 114.) For ex-

ample, in early 2016, Plaintiff solicited and earned the business

of the Jewish Home of Rockleigh, a nursing home that neigh-

bored Shiel’s headquarters. (Id, | 116.) Despite Shiel’s lab being

incapable of handing the additional volume, Plaintiff and an-

other sales rep stepped in to address the concerns, keeping

Jewish Home as a customer and increasing its referral volumes.

Ud.) In May 2016, Plaintiff was advised that he and his co-sales

rep would get “50/50 credit” for the new business, and Plaintiff

estimated that his compensation for Jewish Home would exceed

$25,000.00 per year. (Id. € 117.) In December 2016, however,

Senior Vice President of Sales, Sal Prifitera, falsely accused Plain-

tiff of failing to provide appropriate service to Jewish Home and

that the nursing home would be switching to a different lab, (Id.

™ 74, 118.) Mr, Prifitera also claimed that he was actually re-

sponsible for obtaining the business resulting in Plaintiff

receiving no credit or compensation for bringing in a new client.

Ud. § 118.) Plaintiff confirmed with the Director of Nursing at

Jewish Home that the nursing home was not ending their rela-

tionship with Shiel and instead intending to continue increasing

the amount of business for Shiel. dd. 4119.)

In another example, Plaintiff alleges that he established a rela-

tionship with Dr. Yaffe, a New York gastroenterologist who

referred a large volume of business to Manhattan Labs—a major

Shiel competitor. (id. 9123.) Plaintiff alleges he was close to clos-

ing a deal with Dr. Yaffe to switch to Shiel for his referrals when

Mr. Prifitera interfered, telling Plaintiff to “hold off’ because he

was working on a direct relationship between Manhattan Labs

and Shiel but still promising that Plaintiff would get credit for the

new business. (Id.} After the deal between Shiel and Manhattan

Labs was consummated, Plaintiff never received credit, losing

what he estimates to be $100,000.00 in annual compensation.

dd. 4 124.) Plaintiff alleges that when he complained about the

deal, Mr. Prifitera told him he “never had a chance of closing a

deal either with Dr. Yaffe or Manhattan Labs.” (id.}

Around November 2016, Plaintiff again complained to Mr. Mur-

phy about the inconsistent quota requirements via email,

including complaints from fellow colleagues, and further noted

that he had been reassigned to sales territories that had fewer

prospects and produced less revenue than the geography as-

signed to other sales reps. (id. § 125.) Rather than reply, Mr.

Murphy forwarded the email to Mr. Prifitera who denied making

any promises or moving goalposts with respect to Plaintiffs com-

pensation. Ud. { 126.) Mr. Prifitera blamed Plaintiff for “fostering

discontent among Shiel employees” and included a written warn-

ing instructing Plaintiff to cc Mr. Prifitera on any further

communication referencing comments made by management.

Ud. 1{ 126-27.)

3. Government Investigation and Plaintiffs

Termination

By December 2016, the Justice Department was investigating*

the Defendants’ billing practices and rumors circulated that this

was the result of Plaintiffs complaining. Ud. 4 129-32.) Plaintiff

reported the accusations that he was the whistleblower to in- □

house counsel and also reported the harassment and discrimina-

tory treatment by Mr. Murphy and Mr. Prifitera, as well as

information about human resources ignoring his complaints and

4 The Justice Department's investigation was in addition to the Defendants’

own internal investigation conducted by Fresenius’s in-house counsel and

retained outside counsel Hogan Lovells. Ud. 4 113.)

failing to take any actions in response. (Id. 133.) In early Janu-

ary 2017, Plaintiff also reported to management and legal that

his self-evaluation form included metrics on collecting codes to

which he argued should not be included due to the current in-

vestigation, (id. § 134.) In-house counsel reassured Plaintiff that

reps were no longer responsible for obtaining missing codes and

to write “not applicable” for that section. Ud.) Yet, at his annual

performance review in March 2017, Plaintiff received all nega-

tive scores (a first for Plaintiff}, including low scores for

“collecting codes” and for “honesty and integrity.” Ud. 135-

37.)

in September 2017, Quest entered into an agreement with Frese-

nits to acquire Shiel and, as a result, Shiel management

individually met with all of its employees regarding their employ-

ment. Ud. §{ 142-44.) During Plaintiffs meeting, management

informed him that he would be terminated by Shiel effective De-

cember 31, 2017, but that he had the opportunity to apply for

employment with Quest. (id. { 144.)° Plaintiff soon learned that

Quest had hired “nearly everyone” to continue their positions af-

ter December 31, 2017, including Mr. Prifitera, whom they hired

as a senior sales executive. Ud. 146.) Plaintiff did not receive

the same opportunity and therefore alleges he was “singled out

not to be offered employment by Quest.” Ud.) Following email

exchanges where Mr. Murphy noted that Plaintiff would not be

5 Plaintiff also alleges that Mr. Prifitera falsely reported that Plaintiff had

confronted him after the meeting and physically threatened him. (id. {

145.) When confronted by human resources, Plaintiff denied and urged

them to obtain the security camera video to confirm. (id.) Plaintiff further

alleges that even after his official termination from Shiel, Mr. Prifitera con-

tinued to harass him, including what he believes were false reports to

Northvale, New Jersey police that Plaintiff verbally threatened a co-worker

and posted threatening messages about said co-worker on an online mes-

sage board. Ud. €{ 148-49.) Plaintiff believes Mr. Prifitera made these

accusations to police because Mr. Prifitera lives in Northvale, NJ, Ud. 4

149.)

receiving his commissions, Plaintiff reported this to human re-

sources which led to his receiving his commissions. Ud. 147.)

He then ended his employment with Shiel. id.)

Ii. PROCEDURAL HISTORY

On November 23, 2016, Plaintiff and Relator Michael Waldman

brought this qui tam action, under a “John Doe” pseudonym, on

behalf of the United States of America, the State of New Jersey,

the State of New York, and the State of Connecticut against De-

fendants Shiel and Spectra Laboratories alleging violations of the

False Claims Act, 31 U.S.C. § 3729 et seq., and analogous State

statutes, (See TAC 4 1-2.) On June 14, 2022, the United States,

New Jersey, New York, and Connecticut governments declined

to intervene in the action and the case was unsealed. (See Dkts.

13-17.) Following amendments to the complaint and dismissal

of certain claims barred by the first-to-file rule, Plaintiff filed his

Third Amended Complaint after being granted the court’s leave

to do so, using his real name, on May 22, 2023. (See TAC { 1; see

also Min. Entry dated April 19, 2023.) Defendants moved to dis-

miss Plaintiffs complaint in its entirety pursuant to Federal Rule

of Civil Procedure 12(b)(6). (See generally Mot.) Defendants

have also moved to strike certain allegations contained in the

Third Amended Complaint. (See id. at 16-18.) Plaintiff opposed

the motion (see Opp. (Dkt. 43-2)}, and Defendants filed a reply

(see Reply (Dkt. 43-4)).

6 A related FCA action was filed in this court on March 4, 2016, and prior

to the instant action. See United States ex rel. YNKDY-2 v. Shiel Medical La-

boratory, et al., No. 16-CV-1090 (NGG) (TAM) (E.D.N-Y. 2016). Pursuant

to FCA’s first-to-file bar, when a person brings an a federal FCA qui tam

action, no person other than the Government may intervene or bring a

related action based on the facts underlying the pending action. 31 U.S.C.

§ 3730(b) (5). Defendants argued that many of Plaintiffs claims are barred

by YNKDY-2 because both cases assert the “same material elements of

fraud,” (See PMC Letter (Dkt. 24) at 2 (quoting U.S. ex rel. Wood v. Aller-

gan, 899 F.3d 163, 169 (2d Cir. 2018).)

10

The court now turns to the instant motion to dismiss.

Ill. LEGAL STANDARD

To survive a Rule 12(b)(6) motion to dismiss, “a complaint must

contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550

‘U.S. 544, 570 (2007)).” “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the miscon-

duct alleged.” Id. A complaint must contain facts that do more

than present a “sheer possibility that a defendant has acted un-

lawfully.” Id. In deciding a motion to dismiss, the court will

accept all factual allegations in the complaint as true and draw

all reasonable inferences in the plaintiffs favor. Fink v. Time

Warner Cable, 714 F.3d 739, 740-41 (2d Cir. 2013), However,

allegations that “are no more than conclusions [] are not entitled

to the assumption of truth.” Hayden v. Paterson, 594 F.3d 150,

161 (2d Cir. 2010). Dismissal for failure to state a claim is appro-

priate if it is clear from the face of the complaint that a claim is

barred as a matter of law. Biocad JSC v. F. Hoffman-La Roche, 942

F.3d 88, 93 (2d Gir. 2019).

IV. DISCUSSION

A. Retaliation Under the False Claims Act

Congress enacted the FCA, 31 U.S.C. § 3729 et seq., in 1863 “with

the principal goal of stopping the massive frauds perpetrated by

large private contractors during the Civil War.” Vermont Agency

of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 781

(2000). The statute, among other things, subjects to liability

7 When quoting cases, unless otherwise noted, all citations and internal

quotation marks are omitted, and ail alterations are adopted.

il

“[alny person who knowingly presents, or causes to be pre-

sented, a false or fraudulent claim for payment or approvall.]”

31 U.S.C. § 3729(a). The Government may bring an action under

the FCA, id. § 3730(a), and, as relevant here, a private individual

may pursue an action on a gui tam basis “in the name of the Gov-

ernment.” id. § 3730(b)(1); see also Vermont Agency of Natural

Res., 529 U.S, at 769,

The FCA also includes a “whistleblower” provision which pro-

vides that:

Any employee ... shall be entitled to all relief necessary to

make that employee .. . whole, if that employee . . . is dis-

charged, demoted, suspended, threatened, harassed, or in

any other manner discriminated against in the terms and

conditions of employment because of lawful acts done by the

employee... or associated others in furtherance of an action

under this section or other efforts to stop 1 or more violations

of this subchapter.

31 U.S.C. § 3730(h) (1).

To plead a claim of retaliation under this provision, a plaintiff

must show that “(1) he engaged in activity protected under the

statute, (2) the employer was aware of such activity, and (3) the

employer took adverse action against him because he engaged in

the protected activity.” See United States ex rel. Chorches for

Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 95

(2d Cir. 2017). Unlike other provisions of the FCA, a plaintiff

“need not plead an FCA retaliation claim with particularity be-

cause no showing of fraud is required.” United States v. N. Adult

Daily Health Care Ctr., 205 F. Supp. 3d 276, 297 (E.D.N.Y. 2016).

1. Protected Conduct.

In this district, protected conduct is “interpreted broadly and en-

compasses two kinds of conduct: (1) lawful acts done by the

employee in furtherance of an action under the FCA, and (2)

12

other efforts to stop one or more violations of the FCA.” Id. at

298. To prove that he engaged in conduct protected under the

statute, plaintiff “need not prevail on his underlying FCA claims,

but simply demonstrate that he had been investigating matters

that were calculated, or reasonably could have led, to a viable

FCA action.” United States v. Empire Educ. Corp., 959 F. Supp. 2d

248, 256 (N.D.N.Y. 2013). It is also not necessary for the plaintiff

to “know that the investigation he was pursuing could lead toa

Valse Claims Act suit.” Swanson v. Battery Park City Auth., No,

15-CV-6938 (JPO), 2016 WL 3198309, at *3 (S.D.N-Y. June 8,

2016). As to the second category of protected conduct, “a retali-

ation claim can be stated so long as the employee was engaged

in efforts to stop an FCA violation, even if the employee's actions

were not necessarily in furtherance of an FCA claim.” Id.

Plaintiff points to several instances in which he allegedly com-

plained to management about the Defendants’ fraudulent billing

practices and argues that this conduct constituted “protected ac-

tivity’ under the FCA. (See, e.g., TAC {4 103-06, 109-13, 134.)

Defendants assert that these instances cannot amount to pro-

tected activity because they are vague and generalized concerns

motivated by Plaintiffs efforts to explain his performance issues

and frustration for receiving negative feedback. (See Mot. at 7-

10.)

While true that raising “generalized concerns” is not activity that

the FCA protects, see Dhaliwal y, Salix Pharms., Ltd., 752 F. App’x

99, 101 (2d Cir. 2019) (Summary Order), Plaintiffs complaints

about “coding fraud” made to the Vice President of Clinical Sales

on two different occasions, coupled with his request to Frese-

nius’s Compliance Officer to investigate the alleged fraud,

support the inference that the Plaintiff was engaged in efforts to

stop practices that “were illegal or may lead to the submission of

false claims.” Id. Indeed, Plaintiff alleges that in his email to the

13

Compliance Officer, Plaintiff noted that “submitting documenta-

tion the federal government with made-up codes that the

prescriber did not supply would be illegal and could put the com-

pany at risk.” (TAC 4 112.) Further, Plaintiffs conduct did not

stop at merely informing management. Plaintiff also alleges that

in refusing to comply with the fraudulent scheme, he “directed

his service reps not to fill in missing codes either” thereby sub-

jecting multiple Shiel employees to a potential loss in

compensation, Ud. { 110.) Thus, this court disagrees with De-

fendants’ assertion that Plaintiff “offers no explanation for how .

his ‘refusal to complete code sheets reflected an effort to stop any

FCA violation” when Plaintiff has repeatedly alleged that instruc-

tions to fill in reports with the most “flexible” codes is against

Medicare’s—-and Shiel’s—own regulations and guidance. (See

Mot. at 9; TAC 99 44-52, 61, 110-11); see also C.F.R. 8

410.32(d)(2). Accordingly, when taken together, Plaintiff suffi-

ciently alleges that he engaged in one or more efforts to stop

violations of the FCA.

Moreover, Defendants’ argument that Plaintiffs allegations are

merely “[u]ninformed speculation” made in response to negative

feedback is without merit. (Mot. at 8.) Plaintiff alleges in detail a

complex billing scheme that resulted in claims being submitted

to government healthcare programs in “violation[] of the False

Claims Act.” (See TAC {4 53-102.) These allegations include

mention of fraudulent conduct by colleagues who forged doctor

signatures, as well as naming specific individuals who were

known to “get the codes done” in an expedited and allegedly il-

legal manner. (See id.} Plaintiff has thus sufficiently alleged that

his complaints were not merely because he was upset with feed-

back regarding low performance, but rather because he refused

to engage in conduct he reasonably considered illegal in an effort

to “expose or investigate Medicare/Medicaid fraud.” Cf. Johnson

y, The Univ. of Rochester Med, Cir., 686 F. Supp. 2d 259, 269

(W.D.N.Y. 2010) (finding plaintiffs failed to allege that their

14

complaints “were made in furtherance of this or any other qui

tam action, or that they were part of an investigation by either

plaintiff into Medicare/Medicaid fraud”). See Bacewicz v. Molecu-

lar Neuroimaging, LLC, No. 17-CV-85 (MPS}, 2019 WL 4600227,

at *6 (D. Conn. Sept. 23, 2019) (‘The Second Circuit has also

held that simply refusing to participate in a fraudulent scheme

can constitute efforts to stop 1 or more violations of the FCA.”).

2. Defendants’ Knowledge of Protected Conduct

A plaintiff must also allege that “his employer was aware that he

was engaged in conduct that is protected by section 3730(h).”

Weslowski v. Zugibe, 626 F. App’x 20, 21 (2d Cir, 2015) (Sum- □

mary Order). “The requisite “standard for notice is flexible: the

kind of knowledge the defendant must have mirrors the kind of

activity in which the plaintiff must be engaged.” Swanson, 2016

WL 3198309, at *5.

The Defendants assert in a footnote that “there is no basis to infer

that Plaintiff directed his complaints to the requisite high level

personnel” such that the Defendants were made aware of the

FCA-protected activity. (Mot. at 9n.1.) To the contrary, Plaintiffs

complaint includes allegations that he informed several high-

level executives, including the Vice President of Clinical Sales,

Fresenius’s Compliance Officer, and the human resources head,

Sheryl Morgan, as well as in-house counsel after the Defendants

finally decided to investigate Plaintiffs claims. (See TAC {{ 104,

109, 112-13, 133.) Defendants’ attempt to downplay Shiel man-

agement as just “employees in sales” (Reply at 3), is belied by the

allegations that Plaintiff complained to compliance and human

resources, Moreover, Plaintiff informed the Compliance Officer

that he refused to comply with fraudulent activity and also di-

rected his team not to participate. Ud. { 110.) Plaintiff has thus

sufficiently presented evidence demonstrating that his com-

plaints were directed at exposing a fraud upon the Government

15

such that Defendants were on notice that he was engaged in pro-

tected activity. See United States v. New York Inst. of Tech., No.

18-CV-7884 (ALC), 2022 WL 976893, at *5 (S.D.N.Y. Mar. 31,

2022); see also Dhaliwal, 752 F. App’x at 101 (noting that the

court has “little trouble” concluding defendant was on notice

where plaintiff informed supervisor that she “wanted to bring her

concerns to legal/compliance”).

3. Retaliatory Action

Finally, Plaintiff must allege that the defendant took “adverse ac-

tion against him because he engaged in the protected activity.”

Chorches, 865 F.3d at 95. An adverse action is a materially ad-

verse change in the terms and conditions of one’s employment.

Mirza v. Garnet Health, No. 20-CV-00556 (PMH), 2022 WL

826410, at *11 (S.D.N.Y. Mar. 17, 2022).° “Examples of materi-

ally adverse changes include termination of employment, a

demotion evidenced by a decrease in wage or salary, a less dis-

tinguished title, a material loss of benefits, significantly

diminished material responsibilities, or other indices unique to a

patticular situation.” Vega v. Hempstead Union Free Sch. Dist., 801

F.3d 72, 85 (2d Cir. 2015).

Here, Plaintiff identifies several events that he argues constitute

materially adverse changes, including (1) a loss of promised com-

pensation, (2) deprivation of lucrative opportunities, and (3)

being passed over for the same job opportunity that most co-

workers received. (See Opp. at 13.) Specifically, Plaintiff alleges

that “[s]hortly after” he began making complaints to manage-

ment regarding the improper billing practices, he was excluded

from lucrative clients and territories and reassigned to sales ter-

ritories with fewer prospects than those assigned to other sales

8 “While the Second Circuit has not defined ‘adverse action’ in the context

of an FCA retaliation claim, courts commonly apply the Title VII defini-

tion.” Id.

16

reps. (TAC {4 114, 125.) He also claims that management “re-

neged on written promises and representations” and applied

“corporate rules concerning sales territory and customer assign-

ments to [Plaintiff] that management did not apply to other sales

reps” resulting in lower compensation. (id. □ 115-28.) Further,

Plaintiff alleges that as a result of his complaints, he received his

first negative performance evaluation and in turn was not rehired

by the successor company Quest when most of his other co-work-

ers were. (See id, 44 135-39, 142-46.)

Defendants argue that Plaintiff fails to allege causation and thus

cannot plead retaliation. (See Mot. at 11-16.) Defendants point

to the fact that the alleged retaliation did not come until after

management expressed concerns with Plaintiffs performance.

(id. at 14.) While this could prove a legitimate, non-retaliatory

reason for Defendants’ conduct, the court cannot determine at

the current stage of the proceedings whether defendant “would

have taken the same action even in the absence of the allegedly

improper reason.” Kohutka v. Town of Hempstead, No. 11-CV-

1882 (ADS), 2012 WL 13109880, at *8 (E.D.N.Y. Mar. 20,

2012), And the court cannot ignore the larger context at play

which, based on Plaintiffs allegations, suggests pretext. Krause v.

Eihab Hum. Servs., Inc., No. 10 CV 898 (RJD), 2015 WL 4645210,

at *10 (E.D.NY. Aug. 4, 2015) (“Under the McDonnell Douglas

framework, after the defendant has articulated a non-retaliatory

reason for the employment action . . . plaintiff must then come

forward with evidence that the proffered, nondiscriminatory rea-

son is a mere pretext for actual discrimination.”).? Here, Plaintiff

alleges that the only reason Defendants raised concerns about his

° The Second Circuit’s summary order in Liburd v. Bronx Lebanon Hosp.

Ctr., 372 F. App’x 137, 139 (2d Cir. 2010), has been read as an “implicit

endorsement of the McDonnell Douglas framework for FCA whistleblower

claims.” New York ex rel. Khurana v. Spherion Corp., 511 F. Supp. 3d 455,

481 n.13 (S.D.N.Y. 2021); see also Forkell v. Lott Assisted Living Gorp., No.

10-CV-5765 (NRB), 2012 WL 1901199, at *10 (S.D.N.Y, May 21, 2012).

17

performance was because he had reftised to engage in fraudulent

coding which was having a “direct impact on his customer reve-

nues as well as his incentive compensation.” (TAC { 104.)

Construing the allegations in Plaintiffs favor, one could plausibly

infer that the performance concerns, written warnings, and eval-

uation faulting Plaintiff for his codes and alleged dishonesty—

amid an investigation into fraudulent codes—were mere pretext

for the retaliation against him.

Defendants correctly argue, however, that Plaintiffs allegations

about lost compensation that he ultimately received do not

amount to adverse actions. (Mot. at 15 (citing TAC § 147).}

“Courts have consistently held that paycheck delays do not con-

stitute an adverse employment action for purposes of making a

prima facie employment discrimination or retaliation claim.”

Lopez v. Guardian Serv. Indus. Inc., 08-CV-8569, 2012 WL

463958, at *4.n.4 (S.D.N.Y. Feb, 10, 2012). But Plaintiffs allega-

tions regarding transfer to less lucrative accounts and exclusion

from previous clients are sufficient to survive a motion to dismiss.

See Campbell v. Grayline Air Shuttle, Inc., 930 F. Supp. 794, 802

(E.D.N.Y. 1996) (noting that adverse actions can include changes

that result in a deprivation of a position or an opportunity and

may be evidenced by a decrease in wages or salary).

Finally, with respect to Plaintiffs allegation that he was passed

over for the same job opportunity that his other co-workers re-

ceived, Plaintiffs allegations are adequately pled for purposes of

his FCA retaliation claim. Plaintiff invokes temporal proximity to

establish causation, arguing that Defendants’ failure to hire him

at the successor company Quest is an adverse action that imme-

diately followed his complaints. (See Opp. at 13 (citing Abrams

y. Dep’t of Pub. Safety, 764 F.3d 244, 254 (2d Gir. 2014)).) To

argue temporal proximity sufficient to plead retaliation, “the

proximity must be very close.” United States ex rel. O’Toole v.

18

Cmty. Living Corp., No. 17-CV-4007 (KPF), 2020 WL 2512099, at

*12 (S.D.N.Y. May 14, 2020).

Plaintiff alleges that over the course of a two-year span he made

specific efforts to stop violations of the FCA that were each met

with adverse actions. (See Opp. at 12-14.) That said, there was a

five- to six-month gap between his first negative performance

evaluation (in March of 2017) and his realization that he had not

been offered employment at Quest (around September 2017).

While courts have found as little as three months to be too long

between protected conduct and a defendant’s retaliation, courts

have also found that “gaps of seven and eight months may sup-

port a sufficient temporal connection if accompanied by other

indicia of retaliatory motive.” Alvarado v. Mount Pleasant Cottage

Sch. Dist., 404 F. Supp. 3d 763, 785 (S.D.N.Y. 2019); see also

Espinal v. Goord, 558 F.3d 119, 129 (2d Cir. 2009) (comparing,

in the Title VIL context, Hollander v. American Cyanamid Co,, 895

F.2d 80, 85-86 (2d Cir.1990) (finding a lack of evidence that an

adverse action, taken three months after the plaintiffs EEOC

complaint, was in response to the plaintiffs protected activity),

with Grant v. Bethlehem Steel Corp., 622 F.2d 43, 45-46 (2d

Cir.1980) (finding that the lapse of eight months between an

EEOC complaint and retaliatory act indicated a causal connec-

tion)).

Plaintiff first raised concerns about Defendants’ potentially fraud-

ulent conduct in early 2016 (TAC | 104-05), and by mid-

December, Plaintiff alleges that he was being deprived of lucra-

tive clients. (id. {{ 118-124.) Following his annual performance

review on March 29, 2017 (id. 7 135), and the announcement

that Shiel was being sold to Quest on September 26, 2017 (id. {

142), Plaintiff was then informed that he would be terminated

effective December 31, 2017, with the opportunity to apply for

employment at Quest. (Id. 11 142-44.) However, Plaintiff alleges

that in the days following his termination, he spoke with “several

19

of his fellow sales reps and learned that Quest had hired nearly

everyone to continue their positions,” including Mr. Prifitera, the

colleague Plaintiff alleges engaged in much of the retaliatory con-

duct. Ud. 7 114-28, 132, 145-46, 148-49.) Plaintiff states that

he was thus “singled out not to be offered employment by Quest”

and that this was in retaliation for his complaints regarding

fraudulent billing. dd. {| 20, 146.) These “surrounding circum-

stances” as alleged by Plaintiff support the inference that Plaintiff

was not offered employment at Quest in retaliation for his pro-

tected activity. Beckles-Canton v. Lutheran Soc. Servs. of New York,

Inc., No. 20-CV-4379 (KPF), 2021 WL 3077460, at *9 (S.D.NLY.

July 20, 2021) (finding that plaintiff adequately pleaded that de-

fendant’s bases for her dismissal were pretextual in light of the

surrounding circumstances).

Drawing all reasonable inferences in Plaintiffs favor, the court

finds that he has adequately pled a retaliation claim. Defendants’

motion to dismiss is therefore DENIED.

B. Rule 12(f) Motion to Strike

Defendants also ask this court to strike certain allegations made

in the Third Amended Complaint relating to kickbacks and other

litigation in which the Defendants were a party. (Mot. at 16-18.)

Under Federal Rule of Civil Procedure 12(8, “the court may

strike from a pleading an insufficient defense or any redundant,

immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.

12(f). “To prevail on a motion to strike, the movant must show

(1) no evidence in support of the allegations would be admissi-

ble; (2) the allegations have no bearing on the relevant issues;

and (3) permitting the allegations to stand would result in prej-

udice to the movant.” Jalayer v. Stigliano, 420 F. Supp. 3d 58, 64

(E.D.N.Y. 2018). “Motions to strike are not favored and will not

be granted unless it is clear that the allegations in question can

have no possible bearing on the subject matter of the litigation.”

20

Lynch v. Southampton Animal Shelter Found, Inc., 278 F.R.D. 55,

63 (E.D.N.Y. 2011).

Defendants first move to strike all allegations referencing pur-

ported kickbacks made by the Defendants to healthcare

providers. (Mot. at 17 (citing TAC 44 1, 16-17, 94-102, 129).)

Defendants argue that because Plaintiff has dismissed his gui tam

FCA claims, none of the instant allegations relate to his retalia-

tion claim and should therefore be dismissed. (Id.) As PlaintifPs

allegations purport to show the magnitude of the alleged fraud-

ulent scheme, the court cannot find, at this stage, that these

allegations “have no possible relation or logical connection to the

subject of the litigation.” Kidder v. Hanes, No. 21-CV-1109S, 2023

WL 2992032, at *5 (W.D.N.Y. Apr. 18, 2023); see G.L.M. Sec. &

Sound, Inc. v. LoJack Corp., No. 10-CV-4701 WS), 2012 WL

4512499, at *7 (E.D.N.Y, Sept. 28, 2012) (“This background in-

formation provides context for and is logically connected to both

the state of mind and motivation of the parties.”). Thus, Defend-

ants’ motion to strike allegations regarding kickbacks is DENIED.

Defendants also seek to strike paragraph 140 of the Third

Amended Complaint which refers to a retaliation lawsuit filed by

another former Shiel employee against the Defendants. (TAC {

140.) In Plaintiff's complaint, he specifically names the former

employee, noting that he was terminated “allegedly in retaliation

for reporting numerous unlawful practices to management” and

that the former employee filed a lawsuit-in the District of New

Jersey that has since settled. id.) Defendants are correct that in

the Second Circuit, references to other litigations that were not

resolved on the merits are immaterial. See, e.g., Cowell v. Utopia

Home Care, Inc., 144 F. Supp. 3d 398, 406 (E.D.N.Y. 2015); Foot-

bridge Ltd. v. Countrywide Home Loans, Inc., No. 09-CV-4050

(PKG), 2010 WL 3790810, at *5 (S.D.N.Y. Sept. 28, 2010).

Therefore, Defendants’ motion to strike is GRANTED with respect

to the allegation in paragraph 140.

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V. CONCLUSION

For the foregoing reasons, the court DENIES Defendants’ motion

to dismiss, DENIES Defendants’ motion to strike allegations con-

cerning kickbacks, and GRANTS Defendants’ motion to strike

paragraph 140 of the Third Amended Complaint. The parties are

DIRECTED to contact the chambers of Magistrate Judge James

R. Cho regarding next steps in the case.

SO ORDERED.

Dated: Brooklyn, New York

February _¥, 2024

s/NICHQLAS G. GARAUFIS

NICHOLAS G. GARAUFIS

United States District Judge

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