United States of America v. Miraca Life Sciences, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

United States of America, Case No. 1:15cv2355

and the States of California

and North Carolina, ex rel.

Girishwar Sharma

JUDGE PAMELA A. BARKER

Plaintiff/Relator,

-vs-

MEMORANDUM OPINION AND

Miraca Life Sciences, Inc., ORDER

et al.,

Defendants

Currently pending are the Motions to Dismiss of Defendants Miraca Holdings, Inc., Miraca

Life Sciences, Inc., and Metroplex Pathology Associates. (Doc. Nos. 47, 48.) For the following

reasons, Defendants’ Motions are GRANTED.

I. Procedural History

On November 17, 2015, Plaintiff/Relator Girishwar Sharma (hereinafter “Relator”) filed a

Complaint in this Court, on behalf of himself and the United States of America and the States of

California and North Carolina, against Defendants Miraca Life Sciences, Inc., Metroplex Pathology

Associates, and Miraca Holdings, Inc., for alleged violations of the Federal False Claims Act, 31

U.S.C. § 3729 et seq. and the California and North Carolina False Claims Act Statutes, Cal. Gov't

Code Section 12650, et seq. and N.C. Gen. Stat. Section 1-605, et seq., respectively. (Doc. No. 1.)

Pursuant to 31 U.S.C. § 3730(b), the Complaint was filed under seal to allow the United States the

opportunity to determine whether it wished to intervene.1

On February 7, 2019, after receiving several extensions of time to make its intervention

decision, the United States filed a Notice informing the Court that it had elected not to intervene in

the instant action. (Doc. No. 15.) Several days later, on February 12, 2019, then-assigned District

Judge Dan Polster issued an Order unsealing the Complaint and ordering that it be served upon the

Defendants. (Doc. No. 16.)

On June 27, 2019, this matter was re-assigned to the undersigned pursuant to General Order

2019-13. On July 18, 2019, the States of California and North Carolina filed a Notice of their

Intention to Decline Intervention. (Doc. No. 31.)

On September 11, 2019, Defendants Miraca Life Sciences, Inc. and Metroplex Pathology

Associates filed a Motion to Dismiss for Failure to State a Claim. (Doc. No. 39.) Relator thereafter

filed a First Amended Complaint raising the same federal and state False Claims Act (“FCA”) claims

against Defendants. (Doc. No. 40.)

Defendants Miraca Life Sciences, Inc. and Metroplex Pathology Associates then filed a

Motion to Dismiss the First Amended Complaint on October 23, 2019. (Doc. No. 47.) On that same

date, Defendant Miraca Holdings, Inc. filed its own Motion to Dismiss for both lack of personal

1 The FCA allows a private individual to bring a lawsuit alleging FCA violations on behalf of the government, which is

known as a qui tam action. See United States ex rel. Bledsoe v. Community Health Systems, Inc. (“Bledsoe I”), 342 F.3d

634, 640 (6th Cir. 2003). See also 31 U.S.C. § 3730. The private individual bringing the qui tam suit, known as a relator,

must first serve the complaint upon the government, where the complaint then remains under seal for at least sixty days.

See 31 U.S.C § 3730(b)(2). During this time period, the government may elect to intervene. Id. If the government does

not intervene in the action, the relator may proceed with the action. See 31 U.S.C. § 3730(b)(4)(B), (c)(3). If the relator

successfully recovers funds for the government in pursuing the qui tam action, he or she may be entitled to up to 25–30%

of the proceeds recovered. See 31 U.S.C. § 3730(d)(2).

2

jurisdiction and failure to state a claim upon which relief may be granted. (Doc. No. 48.) Relator

filed Briefs in Opposition on December 4, 2019, to which Defendants responded. (Doc. Nos. 51, 52,

53, 54.)

II. Factual Allegations

The First Amended Complaint sets forth the following factual allegations. Relator Girishwar

Sharma, M.D., graduated from medical school in India in July 1993. (Doc. No. 40 at ¶ 6.) He

subsequently moved to the United States and, in 2004, completed a residency in pathology at

University Hospitals in Cleveland, Ohio. (Id.) Relator is not and has never been licensed to practice

medicine in Ohio or any other State. (Id.)

In July 2005, Relator was hired by Onco Diagnostics Laboratory, Inc. (“Onco”) to perform

preliminary interpretations of surgical pathology specimens which would then be re-read by a

licensed pathologist. (Id.) In January 2010, Onco was purchased by Predictive Biosciences, Inc.

(“Predictive”). (Id.) From January 2010 until January 2013, Relator was employed by Predictive as

a pathologist associate. (Id.)

During the time period that he was employed by Predictive, Relator alleges that he was

directed to “interpret [pathology] studies and sign them out under licensed pathologists’ names, even

though it was Relator who was reading and interpreting the studies as an unlicensed pathologist.”

(Id. at ¶¶ 53, 67.) Specifically, Relator alleges as follows:

67. Once Onco Diagnostics was acquired by Predictive profitability and turnaround

time became a corporate priority. To facilitate those goals, James Groves, Vice

President of Operations at Predictive and Senior Management from Boston, instructed

Dr. Sharma to perform urine cytology interpretations and sign them out under the

name of a licensed pathologist. Emails directing that this be done were sent by both

Groves and others in management. Rather than providing a screening, Relator was

now providing the definitive read though he was not licensed to do so. This course of

conduct continued from January 2010 to January 2013 during which as many as

3

35,000 to 50,000 [fn omitted] urine cytology studies were signed out by Dr. Sharma

under another pathologist’s name. These urine cytology studies were assigned a CPT

code of 88112 for which Medicare was paid, it is estimated, between $100.07 and

$105.02 per study.

68. By virtue of these fraudulent billings, Medicare paid Predictive somewhere

between $3,500,000 and $5,250,000 for fraudulently billed and presented claims

between January 2010 and January 2013 for urine cytology studies reviewed and

signed out by an unlicensed pathologist under a licensed pathologist’s name. The civil

penalties associated with these fraudulent billings according to 31 USC §3729 as

updated by 28 CFR §85.3(a)(9) is between $192,000,000 and $550,000,000 [footnote

omitted].

(Id. at ¶¶ 67, 68.)2 Notably, Relator acknowledges some “uncertainty” regarding how many studies

(or which specific studies) were presented to Medicare, stating “Relator’s estimates in this First

Amended Complaint as to the number of studies performed are gross numbers that do not take into

account whether the studies were paid for by Medicare or by another payor. Those studies paid for

by another payor will need to be deducted from these estimates.” (Id. at p. 18, fn 2.)

Relator also alleges a second category of allegedly fraudulent billings as follows. Relator

alleges that the States of California, North Carolina, South Carolina and Utah have each promulgated

regulations providing that only a physician licensed in those respective states is permitted to examine

any pathology samples taken from a patient in those states. (Id. at ¶¶ 75-78.) Relator alleges that

Predictive was aware of these laws but directed Relator and other unlicensed pathologists to interpret

and sign out pathology studies under the properly licensed pathologists from those States. (Id. at ¶¶

2 Relator also alleges that, during this time period, Predictive instructed him to “assess and sign out tissue biopsy results

and urine molecular studies under the name of other pathologists who were licensed.” (Id. at ¶ 72.)

4

80A, 80B.) This occurred even when these properly licensed pathologists were on vacation,

unavailable, or no longer employed by Predictive.3 (Id. at ¶¶ 93, 94, 95, 98, 100, 101, 102, 105, 106.)

Lastly, Relator alleges that Predictive implemented a fraudulent scheme whereby pathologists

were directed to sign out on computer-generated test results relating to urine molecular studies

without ever examining the underlying data. Specifically, Relator alleges as follows:

113. From 2011 to January 2013 Predictive was providing testing for bladder cancer

with their proprietary bladder cancer assay known as CertNDx. CertNDx was a

noninvasive molecular diagnostic test which was promoted by Predictive as having

the ability to detect bladder and upper urinary tract cancers by detecting mutations in

the Fibroblast Growth Factor Receptor 3 gene (“FGFR3”) found in cells in urine

samples. These tests were conducted by technologists employed by Predictive and the

results were then sent to Predictive’s pathologists. The pathologists were instructed to

sign off on these results, often at night, after being provided with an email list of cases

to sign out without ever being provided with the underlying data upon which the

results were based.

114. When a CertNDx study was performed upon a urine sample a report would be

created by Defendant’s molecular lab. The pathologists who would ultimately sign out

the molecular reports had no significant involvement in the operations of the

molecular lab and had no supervisory role over the lab. The pathologists would simply

be sent a list of the final reports. Although the pathologists were provided by

Defendants with access to the actual reports they were provided with no meaningful

images of the cells being reported upon in the reports. Additionally, they were not

involved in any fashion in the diagnostic workup. As such, they were in possession of

none of the underlying data which formed the basis for the report’s conclusions. The

pathologists were instructed by email directive to sign out the reports though they had

no basis upon which to determine if the reports were accurate and complete. The

pathologists, sight unseen, would then sign these studies out in batches electronically.

The only care that the pathologists would take would be to make sure that those studies

involving patients from states with a requirement that the interpreting pathologist be

licensed in that state were signed out using the name of a pathologist so licensed.

3 Specifically, Relator alleges that, from January 2010 to January 2012: (1) “thousands of prostate cases were knowingly

and fraudulently signed out under the names of” Dr. Kevin Cooper, Dr. Young Sin Park, and Dr James Bentley; and (2)

approximately 1,500 G.I. and urinary bladder biopsy cases and 5000 urine cytology cases from North Carolina, South

Carolina, California and Utah were fraudulently signed out under the names of Drs. Cooper, Park and Bentley. (Id. at ¶¶

98, 100, 101.) From January 2012 to January 2013, Relator alleges that approximately 1,500 prostate cases, 500 G.I. and

urinary bladder biopsy cases, and 1,500 urine cytology cases were fraudulently signed out under the names of Drs. Cooper,

Park and Bentley. (Id. at ¶¶ 102, 105, 106.) Relator further alleges that these cases were “fraudulently presented and

billed to Medicare.” (Id.)

5

(Id. at ¶¶ 113, 114.) Relator further alleges that Predictive employed the same practice with respect

to its UroVysion Bladder Cancer Detection Test. (Id. at ¶¶ 119-123.) He alleges that this practice

resulted in the submission of false and fraudulent claims under the FCA because, although the

CertNDx and UroVysion studies were performed by laboratory scientists or technicians (and not

physicians), “they were signed out by physicians and were billed to Medicare as a physician

performed interpretation though they were not interpreted by physicians.”4 (Id. at ¶¶ 116, 124.)

In January 2013, the Anatomic Pathology Division of Predictive was acquired by Defendant

Miraca Life Sciences, Inc. (“MLS”).5 (Id. at ¶¶ 6, 129.) Relator acknowledges that he “does not

know whether the transaction whereby [MLS] acquired [Predictive] was a merger, a reorganization,

a sale of stock, a sale of assets or some other type of transaction.” (Id. at ¶ 129.) However, Relator

alleges, “on information and belief,” that the acquisition was one “where [MLS] took over the

corporate entity which was previously known as Predictive Biosciences, Inc.” (Id. at ¶ 130.) In the

alternative, Relator alleges that “the acquisition was one in which Miraca acquired assets from

Predictive.” (Id. at ¶ 131.)

According to Relator, Defendant MLS (which is headquartered in Irving, Texas) “specializes

in the development and commercialization of anatomic pathology services” and also offers general

surgery pathology services. (Id. at ¶ 7.) Defendant MLS is a wholly owned subsidiary of Defendant

Miraca Holdings, Inc. (“MHI”), which is a Japanese corporation organized under Japanese law. (Id.

4 Relator alleges that, from 2010 to 2013, approximately 15,000 CertNDx studies and approximately 6000 UroVysion

tests were performed by Predictive, signed out using this fraudulent practice, and billed to Medicare. (Id. at ¶¶ 118, 127.)

5 Relator alleges that Predictive subsequently went out of business on May 30, 2013. (Id. at ¶¶ 129, 136.)

6

at ¶¶ 7, 10.) Defendant Metroplex Pathology Associates (“Metroplex”) is wholly owned by

Defendant MLS. (Id. at ¶ 9.) Relator alleges, “on information and belief,” that “some or all of the

billings of [MLS] to Medicare were made through Metroplex.” (Id.)

Relator was employed by Defendant MLS as an unlicensed pathologist from January 2013

until May 2014.6 (Id. at ¶ 6.) He alleges that, when it acquired Predictive, Defendant MLS was “fully

aware of the fraudulent practices of Predictive . . ., having undertaken a thorough due diligence

inspection of the facilities, systems and procedures of Predictive prior to consummating the

acquisition.” (Id. at ¶ 133.) More specifically, Relator alleges that:

133. *** During that due diligence review, which went on for a week prior to the

finalization of the acquisition, [MLS] became aware of Predictive’s procedures

whereby unlicensed and unqualified and unregistered pathologists were interpreting

studies and signing them out under licensed and qualified pathologists’ names. They

also, at that time, became aware of how pathologists unlicensed in North Carolina,

South Carolina, California and Utah were signing out cases from those states under

the names of pathologists who were so licensed. They also, at that time, became aware

of how pathologists were signing out molecular studies without ever seeing the slides,

images or cells which formed the base of the interpretations which they simply rubber

stamped with their signatures.

(Id. at ¶ 133.)

Relator further alleges that “not only did [MLS] become aware of those practices before they

acquired the Anatomic Pathology Division of Predictive, they also, by direction from management,

continued those practices after the acquisition until at least such time as Dr. Sharma left.” (Id. at ¶

134.) Specifically, Relator alleges as follows:

69. As of January 1, 2013, the Anatomic Pathology Division of Predictive Biosciences

was acquired by Miraca. James D. Bentley, M.D. functioned as the Medical Director

for Miraca. Dr. Rajal B. Shah, M.D. functioned as the Director of Urologic Pathology

6 Relator alleges that, when it acquired Predictive, MLS also hired a number of other Predictive employees (including Dr.

Park and Dr. Bentley), and continued to service at least five of Predictive’s customers. (Id. at ¶¶ 131G, 131H, 132.)

7

for Miraca. Dr. Richard H. Lash, M.D. functioned as the Chief Medical Officer for

Miraca.

70. Upon the direction of Dr. Shah, Dr. Bentley was instructed to continue the scheme

whereby Dr. Sharma, though unlicensed to practice medicine in Ohio or in any other

state, would perform the urine cytology interpretations which would then be used by

urologists to determine a course of further management for patients suspected of

having urinary tract cancer or other significant conditions. At about 2-3 months into

the acquisition of the Predictive lab by Miraca, Dr. Bentley, then functioning as

Medical Director of the lab for Miraca, advised Relator that Dr. Shah (Director

Urologic Pathology for Miraca) had instructed him to have Relator, though unlicensed,

do virtually all of the urine cytology work. In practice, this worked out to Dr. Sharma

doing approximately ninety percent (90%). This course of conduct continued through

at least May 2014 during which time 15,000 to 18,000 urine cytology studies would

be assigned a CPT code of 88112 and billed and presented to Medicare by Miraca.

***

71. By virtue of these fraudulent billings which Miraca knowingly presented to

Medicare, Medicare paid somewhere between $800,000 and $1,700,000 to Miraca for

fraudulently billed services between January 2013 and at least May 2014 for urine

cytology studies assessed and signed out by an unlicensed pathologist under a licensed

pathologist’s name. The civil penalties associated with these fraudulent billings

according to 31 USC §3729 as updated by 28 CFR 85.3(a)(9) are between $74,250,000

and $178,200,000.

(Id. at ¶¶ 70, 71.) Relator further alleges, although Dr. Cooper was no longer employed by Predictive

and/or MLS as of January 1, 2013, Defendant MLS directed its pathologists to fraudulently sign out

approximately 400 prostrate cases, 300 G.I. and urinary bladder biopsy cases, and 1000 urine

cytology cases from North Carolina, South Carolina, and California under Dr. Cooper’s name,

between January 2013 and July 2013. (Id. at ¶¶ 88, 91, 92.) In addition, Relator alleges that, between

January 2013 and May 2014, Defendant MLS directed its pathologists to fraudulently sign out

approximately 400 prostrate cases, 200 G.I. and urinary bladder biopsy cases, and 1,500 urine

cytology cases under the names of Drs. Park and Bentley. (Id. at ¶¶ 107, 109, 110.) Relator alleges

that these cases were billed and presented to Medicare by Defendant MLS in violation of the federal

FCA and analogous state law provisions.

8

Lastly, Relator alleges that “approximately 4,000 UroVysion 4 probe studies were performed

by [MLS] from January 2013 through May 2014 that were fraudulently signed out and billed and

presented to Medicare for a total of between $3,500,00 and $3,800,000 in fraudulent claims,”

resulting in potential civil penalties of between $22,000,000 and $44,000,000. (Id. at ¶ 128.)

In support of these allegations, Relator attaches 29 exhibits to his First Amended Complaint,

consisting of approximately 200 pages. (Doc. Nos. 40-1 through 40-29.) The majority of these

exhibits are emails that appear to identify specific cases and/or studies (identified by a partially-

redacted patient number) for Relator’s signatures. (Id.) Several of these emails contain instructions

to sign out the cases/studies under the names of various licensed physicians, including Drs. Bentley,

Park, and Cooper. See e.g., Doc. Nos. 40-1 through 40-5, 40-26, 40-27. Other emails appear to

identify batches of CertNDx and UroVysion results for electronic sign off, allegedly without

providing the underlying data for review. See, e.g., Doc. Nos. 40-28, 40-29. The majority of the

attached exhibits relate to the time period when Relator was employed by Predictive.

The First Amended Complaint alleges that Defendant MLS is liable, not only for its own

fraudulent Medicare claims, but also for the fraudulent claims of Predictive under the federal

Successor Liability Doctrine because (1) MLS had notice of Predictive’s fraudulent practices before

the acquisition; and (2) there is a substantial continuity in the operation of the business before and

after the sale. (Doc. No. 40 at ¶¶ 129-136.) Relator further alleges that Defendant MHI is liable for

the conduct of Defendant MLS because MLS’s fraudulent acts inured to the benefit of MHI, thus

allowing a piercing of the corporate veil. (Id. at ¶ 137.)

III. Standard of Review

9

Under Fed. R. Civ. P. 12(b)(6), the Court accepts the plaintiff’s factual allegations as true and

construes the Complaint in the light most favorable to the plaintiff. See Gunasekara v. Irwin, 551

F.3d 461, 466 (6th Cir. 2009). In order to survive a motion to dismiss under this Rule, “a complaint

must contain (1) ‘enough facts to state a claim to relief that is plausible,’ (2) more than ‘formulaic

recitation of a cause of action's elements,’ and (3) allegations that suggest a ‘right to relief above a

speculative level.’” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009)

(quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555–556 (2007)).

The measure of a Rule 12(b)(6) challenge — whether the Complaint raises a right to relief

above the speculative level — “does not ‘require heightened fact pleading of specifics, but only

enough facts to state a claim to relief that is plausible on its face.’” Bassett v. National Collegiate

Athletic Ass'n., 528 F.3d 426, 430 (6th Cir.2008) (quoting in part Twombly, 550 U.S. at 555–556).

“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 misconduct alleged.” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009). Deciding whether a complaint states a claim for relief that is plausible is

a “context-specific task that requires the reviewing court to draw on its judicial experience and

common sense.” Id. at 679.

In addition, “[c]omplaints alleging FCA violations must comply with Rule 9(b)'s requirement

that fraud be pled with particularity because ‘defendants accused of defrauding the federal

government have the same protections as defendants sued for fraud in other contexts.’” Chesbrough

v. VPA, P.C., 655 F.3d 461, 466 (6th Cir. 2011) (quoting Yuhasz v. Brush Wellman, Inc., 341 F.3d

559, 563 (6th Cir. 2003)). See also United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 874

F.3d 905, 914 (6th Cir. 2017). To plead fraud with particularity under Rule 9(b), a plaintiff must

10

allege (1) the time, place, and content of the alleged misrepresentation; (2) the fraudulent scheme; (3)

the defendant’s fraudulent intent; and (4) the resulting injury. See Chesbrough, 655 F.3d at 467;

United States ex rel. Bledsoe v. Cmty. Health Sys. Inc., (“Bledsoe II”), 501 F.3d 493, 504 (6th Cir.

2007). “In the qui tam context, ‘the Court must construe the complaint in the light most favorable to

the plaintiff, accept all factual allegations as true, and determine whether the complaint contains

enough facts to state a claim to relief that is plausible on its face.’” United States ex rel. SNAPP, Inc.

v. Ford Motor Co., 532 F.3d 496, 502 (6th Cir. 2008) (quoting Bledsoe II, 501 F.3d at 502). See also

Ibanez, 874 F.3d at 914.

IV. Analysis

A. Motion to Dismiss of Defendants Miraca Life Sciences, Inc. and Metroplex

Pathology Associates (Doc. No. 47)

In the First Amended Complaint, Relator alleges that Predictive and Defendant MLS

knowingly participated in a fraudulent scheme which caused false claims to be submitted to Medicare.

As discussed above, this alleged fraudulent scheme consists of three components. First, Relator

alleges that Predictive and MLS fraudulently billed Medicare for urine cytology studies that were

interpreted by unlicensed pathologists but signed out under the names of licensed pathologists.7 (Doc.

No. 40 at ¶¶ 2, 67-74.) Second, Relator alleges that Predictive and MLS fraudulently billed Medicare

for urine cytology studies, G.I. and urinary bladder biopsies, and prostate biopsies that were signed

out by various pathologists under the names of pathologists who no longer worked at MLS or

Predictive, were on vacation, or were otherwise unavailable but were licensed in California, North

7 Relator alleges that this conduct violates 42 C.F.R. §§ 410.32(d), 493.1273(b) and (d), 493.1449(b) and (l),

493.1274(e)(3), as well as corresponding state requirements. (Id. at ¶ 2.)

11

Carolina, South Carolina, and/or Utah, in order to circumvent those states’ licensing requirements.8

(Id. at ¶¶ 3, 81-111). Finally, Relator alleges that Predictive and MLS fraudulently billed Medicare

for CertNDx and UroVysion urine molecular studies under circumstances where the pathologist never

reviewed the underlying data and/or results and, in some instances, when the pathologist that signed

off on the studies was not licensed to practice medicine in Ohio or any other state.9 (Id. at ¶¶ 4, 113-

128.)

By virtue of this fraudulent scheme, Relator alleges that Defendants (1) knowingly presented

or caused to be presented, false or fraudulent claims to the United States Government for payment or

approval, in violation of 31 U.S.C. § 3729(a)(1)(A); (2) knowingly made, or used, false or fraudulent

records and statements, and/or omitted material facts, to induce the U.S. Government to approve and

pay such false and fraudulent claims, in violation of 31 U.S.C. § 3729(a)(1)(B); and (3) conspired to

present false or fraudulent claims for payment or approval, or caused to be made or used, fraudulent

records and statements to induce the U.S. Government to approve and pay such false or fraudulent

claims, in violation of 31 U.S.C. § 3729(a)(1)(C). (Id. at ¶¶ 141-144.) Relator also alleges violations

of analogous statutes under the California and North Carolina False Claims Acts. (Id. at ¶¶ 146-156.)

Defendants MLS and Metroplex assert that the First Amended Complaint should be dismissed

for two reasons. (Doc. No. 47.) First, these Defendants argue that Relator fails to allege facts

sufficient to sustain his claim that MLS is liable for the alleged pre-2013 conduct of Predictive under

principles of successor liability. (Id. at pp. 4-13.) Second, Defendants assert that Relator fails to set

8 Relator alleges that this conduct violates 42 C.F.R. §§ 410.20, 410.32, 411.15(k)(1), 493.1274(e)(3), and 493.1273(d).

(Id. at ¶ 3.)

9 Relator alleges that this conduct violates 42 C.F.R. § 411.15(k)(1) and Chapter X of the National Correct Coding

Initiative Policy Manual for Medicare Services. (Id. at ¶ 4.)

12

forth sufficient factual allegations to meet Rule 9(b)’s heightened pleading standard for FCA claims

because Relator fails to allege a single example of a false claim that was actually submitted to

Medicare for payment. (Id. at pp. 13-25.)

As it is dispositive, the Court will first address Defendants’ argument that the First Amended

Complaint fails to set forth sufficient factual allegations to meet the heightened pleading standard for

FCA claims set forth under Rule 9(b) and Sixth Circuit law.

1. Failure to Plead Presentment with Particularity—Section 3929(a)(1)(A)

Defendants MLS and Metroplex argue that the First Amended Complaint should be dismissed

because Relator “fails to allege a single example of an individual false claim that was actually

submitted to the government, as strictly required by the Sixth Circuit under Rule 9(b) in FCA cases.”

(Doc. No. 47-1 at p. 14.) Defendants further assert that “what little the Relator does plead lacks the

particularity required under Rule 9(b).” (Id. at p. 15.) Specifically, Defendants maintain that Relator

fails to sufficiently allege any facts demonstrating that MLS actually submitted, and that Medicare

actually paid, any false claims. (Id. at p. 16.) Defendants also argue that Relator fails to sufficiently

allege the nature of the services for which reimbursement was sought, noting numerous instances in

the First Amended Complaint wherein Relator hypothesizes regarding the services that were

presented to Medicare for payment.10 (Id. at p. 17.) In addition, Defendants maintain that Relator

fails to clearly allege who actually submitted the alleged false claims for payment and, in particular,

fails to make any specific factual allegations regarding Metroplex’s alleged role in the billing process.

10 For example, Defendants highlight Paragraph 88 of the First Amended Complaint, in which Relator alleges that “[i]f

less than 10 core biopsies were submitted for a patient, each would have been coded as CPT Code 88305 . . . If one

assumes that each patient has 12 cores submitted on his behalf, 400 studies would have been processed.” (Doc. No. 40

at ¶ 88.)

13

(Id. at p. 18.) Lastly, Defendants assert that Relator fails to sufficiently plead key facts regarding the

underlying fraudulent scheme, including specific factual allegations regarding the identities of the

participants in, and the Defendants’ alleged knowledge of, the alleged scheme. (Id. at pp. 20-21.)

Relator argues that “the allegations in [the] 160-paragraph, 59-page First Amended Complaint

plus 29 exhibits are sufficiently particular to satisfy the requirements of Rules 9(b) and 8(a).” (Doc.

No. 51 at p. 19.) Relator “acknowledges that he cannot identify the individual claims that were

submitted to Medicare, as he did not work in MLS’s accounting or billing departments and thus, is in

no position to know which individual claims were actually submitted to Medicare for payment.” (Id.

at p. 20.) However, he argues that the factual allegations set forth in the First Amended Complaint

are nonetheless sufficient because he has “alleged specific internal facts grounded in personal

knowledge that strongly support the submission of claims to the government and receipt of payment.”

(Id. at p. 21.) Relator further argues that the First Amended Complaint sufficiently alleges (1) the

types of claims submitted to Medicare (e.g., urine cytology studies, CertNDx and UroVysion

molecular studies, prostate biopsies, etc.); (2) the specific individuals involved (e.g, Rajal Shah,

Richard Lash, James Groves and Frank Basile); (3) the dates and numbers of the claims; and (4)

Defendants’ knowledge of the submission of fraudulent claims. (Id. at pp. 22-25.) Lastly, Relator

argues that “it would be premature to dismiss a defendant on the face of the pleadings prior to

discovery” and requests that, if the Court finds the First Amended Complaint to be insufficient, it

should grant Relator leave to amend. (Id. at p. 25, fn13.)

In response, Defendants acknowledge that the Sixth Circuit has recognized a “personal

knowledge” exception to the requirement that a relator identify a representative false claim that was

actually submitted to the government. (Doc. No. 54 at p. 12.) Defendants assert, however, that this

14

exception applies only in “limited circumstances” where a relator alleges that he has “specific

personal knowledge that relates directly to billing practices, supporting a strong inference that a claim

was submitted.” (Id. quoting Ibanez, 874 F.3d at 915). Defendants maintain that the factual

allegations in the First Amended Complaint do not satisfy this exception because Relator never

alleges that he has any personal knowledge regarding Defendants’ billing practices and, in fact,

“actually admits in his opposition that he ‘is in no position to know which individual claims were

actually submitted to Medicare for payment.’” (Id. at p. 13.) Defendants further assert that the First

Amended Complaint otherwise fails to meet the requirements of Rule 9(b) regarding the time, place,

and content of the alleged fraudulent scheme. (Id. at pp. 13-19.) Lastly, Defendants argue that leave

to amend should be denied given the passage of time and the fact that Relator already had an

opportunity to amend in response to Defendants’ first Motion to Dismiss. (Id. at p. 20.)

Section 3729(a)(1)(A) of the FCA prohibits “knowingly present[ing], or caus[ing] to be

presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A). “A claim

under § 3729(a)(1)(A) ‘requires proof that the alleged false or fraudulent claim was ‘presented’ to the

government.’” Ibanez, 874 F.3d at 914 (quoting United States ex rel. Marlar v. BWXT Y-12, LLC,

525 F.3d 439, 445 (6th Cir. 2008)). See also United States ex rel. Prather v. Brookdale Senior Living

Communities, 838 F.3d 750, 768 (6th Cir. 2016). At the pleading stage, the Sixth Circuit has

interpreted this requirement stringently: “[W]here a relator alleges a ‘complex and far-reaching

fraudulent scheme,’ in violation of § 3729(a)(1), it is insufficient to simply plead the scheme; he must

also identify a representative false claim that was actually submitted to the government.”

Chesbrough, 655 F.3d at 470 (quoting Bledsoe II, 501 F.3d at 510). “Although the relator does not

need to identify every false claim submitted for payment, he must identify with specificity

15

‘characteristic examples that are illustrative of the class of all claims covered by the fraudulent

scheme.’” Chesbrough, 655 F.3d at 470 (quoting Bledsoe II, 501 F.3d at 511) (emphasis in original).

Thus, “where a relator pleads a complex and far-reaching fraudulent scheme with particularity, and

provides examples of specific false claims submitted to the government pursuant to that scheme, a

relator may proceed to discovery on the entire fraudulent scheme.” Bledsoe II, 501 F.3d at 510.

Here, Relator acknowledges that “he cannot identify the individual claims that were submitted

to Medicare, as he did not work in MLS’s accounting or billing departments and thus, is in no position

to know which individual claims were actually submitted to Medicare for payment.” (Doc. No. 51 at

p. 20.) However, he argues that the factual allegations in the First Amended Complaint are sufficient

to satisfy Rule 9(b) under the “relaxed” standard that has been applied by the Sixth Circuit where a

relator has “specific personal knowledge” that justifies a “strong inference” that a false claim was

submitted to Medicare.11 (Id. at p. 21.)

Relator is correct that the Sixth Circuit has recognized a narrow exception to the requirement

that a relator specifically identify a representative false claim that was actually submitted to the

government. See Prather, 838 F.3d at 769. This exception applies when a relator “pleads facts that

create a ‘strong inference’ based on the relator’s detailed firsthand knowledge of the defendant’s

billing practices, that the defendant actually submitted false claims to the government for payment.”

United States ex rel. Hockenberry v. OhioHealth Corp., 2017 WL 4315016 at * 2 (6th Cir. Apr. 14,

11 The Court rejects Relator’s argument that, by failing to address the “personal knowledge” exception in their Motion to

Dismiss, Defendants “waived” the argument that Relator’s allegations are insufficient to show “specific personal

knowledge” supporting the inference that false claims were submitted by Defendants. (Doc. No. 51 at p. 20.) In their

Motion, Defendants clearly raised the argument that Relator failed to plead the FCA presentment requirement with

particularity under the general standard articulated by the Sixth Circuit. Defendants were not also required to address the

“specific personal knowledge” exception to that general standard unless and until Relator raised it in his Brief in

Opposition. After Relator did so, Defendants challenged the applicability of that exception in their Reply Brief. Under

these circumstances, the Court rejects Relator’s waiver argument.

16

2017) (quoting Prather, 838 F.3d at 769-772.) See also United States ex rel. Holloway v. Heartland

Hospice, Inc., 386 F.Supp.3d 884, 901 (N.D. Ohio 2019); United States ex rel. Petkovic v.

Foundations Health Solutions, Inc., 2019 WL 251556 at * 3 (N.D. Ohio Jan. 17, 2019). As the Sixth

Circuit has explained:

This could include personal knowledge that claims were submitted by Defendants for

payment or other personal knowledge of billing practices or contracts with the

government, as well as personal knowledge that was based either on working in the

defendants' billing departments, or on discussions with employees directly responsible

for submitting claims to the government.

Prather, 838 F.3d at 769 (internal quotations and citations omitted).

Notably, “[p]ersonal knowledge of the allegedly fraudulent scheme is not enough to warrant

application of the relaxed standard.” Petkovic, 2019 WL 251556 at *4 (emphasis added) (citing

United States ex rel. Eberhard v. Physicians Choice Lab. Servs., LLC, 642 Fed. Appx 547, 552-53

(6th Cir. 2016)). Rather, a relator must also show knowledge of “submission of specific fraudulent

claims.” Eberhard, 642 Fed. Appx at 552 (citing Chesbrough, supra, 655 F.3d 461). This is so

because “[t]he FCA attaches liability, not to the underlying fraudulent activity or to the government's

wrongful payment, but to the claim for payment.” Id. (quoting Sanderson v. HCA-The Healthcare

Co., 447 F.3d 873, 878 (6th Cir. 2006)) (emphasis supplied).

This so-called “relaxed” standard is an extremely narrow exception that has been applied only

one time by the Sixth Circuit, in United States ex rel. Prather v. Brookdale Senior Living, 838 F.3d

750 (6th Cir. 2016). In Prather, the relator’s job required her to review the company’s Medicare

claims documentation to ensure compliance with state and federal insurance guidelines. Prather, 838

F.3d at 770. Prather alleged that this review “directly related to Defendants’ efforts to bill [] claims

to Medicare” and that she “worked with employees in Brookdale’s billing office.” Id. at 757. After

17

her review, Prather alleged that she would deliver the claims documents to the billing department,

whose job it was to submit the claims for payment. Id. Additionally, Prather identified four patients

for whom the defendants submitted requests for anticipated and final payment and, for each patient,

specified: the services received, the start and end dates of service, the date of the allegedly fraudulent

certification, the dates defendants requested payment, and the amounts paid or billed. Id. at 758-59.

She also provided spreadsheets listing over 1,200 claims that she alleged were fraudulent and, for

each such claim, identified the patient, certification period, servicing network, and servicing

community. Id. at 759.

The Sixth Circuit found that these factual allegations, taken together, were sufficient to

establish with particularity that the defendant “submitted a claim for payment,” as they described

when, where, and how the defendant submitted the claim. Id. at 770-772. The court explained:

These allegations must also be viewed in context. Prather was hired to work on the

Held Claims Project—a project devoted to working through a backlog of Medicare

claims—and her responsibilities were focused on reviewing the documentation for

those Medicare claims, in anticipation of them being submitted to Medicare. Prather

also received confirmation that the final claims that she reviewed were submitted for

payment. She and other employees received an email from Diana Sharp—an

Innovative Senior Care employee who “headed up the group of temporary employees”

hired for the Held Claims Project- “gleefully reporting: ‘[we] have processed and

released over 10,000 claims since 2/7!!” And “[d]efendants issued weekly reports,

called the ‘Home Health Held Claims Report,’ that showed how many claims were

being held and how many claims had been released for billing to Medicare.”

Even though Prather was reviewing final claims for submission, her knowledge of

their submission and documentation supports a strong inference that requests for

anticipated payment were submitted for each patient whose final claim Prather

reviewed. This is because the entire held-claims project existed to avoid the “looming

financial crisis” created by those held claims, which was a product of the fact that if

those claims were not submitted for final payment, the defendants would have faced

the recoupment of anticipated payments that had been made regarding the same

episode of care, see 42 C.F.R. § 409.43(c)(2). Prather's detailed knowledge of the

billing and treatment documentation related to the submission of requests for

final payment, combined with her specific allegations regarding requests for

18

anticipated payment, also creates a strong connection between the requests for

anticipated payment and the requests for final payment. Prather further alleged

that requests for anticipated payment were submitted. Accepting all of these

allegations as true, we cannot deny the strong inference that the specific

documentation that Prather reviewed related to patients for whom requests for

anticipated payment had been submitted to the government for payment.

Id. at 770 (emphasis added) (internal citations omitted).

The Court finds that Prather is distinguishable from the instant case. Unlike the relator in

Prather, Relator herein does not allege any personal knowledge regarding the billing practices and/or

claims submission processes of either Predictive, MLS, or Metroplex. Nor does Relator allege that

he has any personal knowledge based on interactions he had with individuals working in Predictive’s

and/or the Defendants’ billing or claims departments. To the contrary, Relator expressly states, in

his Brief in Opposition, that he “is in no position to know which individual claims were actually

submitted to Medicare for payment.” (Doc. No. 51 at p. 20.) In addition, in the First Amended

Complaint, Relator again indicates a lack of information regarding Defendants’ billing practices,

noting that “estimates in this First Amended Complaint as to the number of studies performed are

gross numbers that do not take into account whether the studies were paid for by Medicare or by

another payor.” (Doc. No. 40 at p. 18, fn. 2) (emphasis added). Under the circumstances presented,

the Court finds that Relator’s allegations are insufficient to “create a ‘strong inference’ based on the

relator’s detailed firsthand knowledge of the defendant’s billing practices, that the defendant actually

submitted false claims to the government for payment.” Hockenberry, 2017 WL 4315016 at * 2

(quoting Prather, 838 F.3d at 769-772.)

Relator appears to argue that declaratory statements in the First Amended Complaints that

Defendants “billed Medicare for services covered by Medicare” and submitted “false and/or

fraudulent statements and claims to Medicare for reimbursement” are sufficient to satisfy this

19

“relaxed” standard. (Doc. No. 51 at pp. 20-21.) The Court disagrees. Under the Sixth Circuit

authority noted above, simply alleging that Defendants presented false and fraudulent claims to

Medicare is not sufficient. Rather, Relator must set forth sufficient allegations demonstrating the

factual basis for these statements; i.e. factual allegations that demonstrate that Relator has personal

knowledge justifying a “strong inference” that Defendants actually submitted claims to the

government for payment. See, e.g, Hockenberry, 2017 WL 4315016 at * 2 (exception applies when

a relator “pleads facts that create a strong inference that based on relator’s detailed firsthand

knowledge of the defendant’s billing practices, that the defendant actually submitted false claims to

the government for payment.”) (emphasis added). Relator fails to do so. Indeed, although Relator

pleads numerous facts showing his firsthand knowledge of the alleged underlying fraudulent scheme,

he does not direct this Court’s attention to any factual allegations in the First Amended Complaint

that demonstrate that he possesses any firsthand knowledge relevant to the Defendants’ billing

practices or otherwise suggesting that Defendants actually submitted false claims to the government

for payment. This is fatal to Relator’s Section 3729(a)(1)(A) claim.12

The exhibits attached to the First Amended Complaint do not cure this deficiency. As

discussed above, these exhibits consist primarily of emails from various individuals at Predictive

12 The Court also rejects Relator’s suggestion that the sheer volume of alleged pathology studies pled in the First Amended

Complaint, combined with the allegation that payments from Medicare account for half of Defendants’ sales, is sufficient

to create a strong inference that Defendants submitted false claims to the government for payment. (Doc. No. 51 at pp.

20-21.) The Court disagrees. As the Sixth Circuit has explained, “Rule 9(b) does not permit a False Claims Act plaintiff

merely to describe a private scheme in detail but then to allege simply . . . that claims requesting illegal payments must

have been submitted, were likely submitted, or should have been submitted.” Sanderson, 447 F.3d at 877. See also

Eberhard, 642 Fed. Appx. at 551. Rather, the Sixth Circuit has strictly required that, to adequately plead a claim under

the FCA, a relator must either (1) specifically identify a representative false claim that was actually submitted to the

government, or (2) plead facts creating a strong inference “based on the relator’s detailed firsthand knowledge of the

defendant’s billing practices” that defendants actually submitted false claims to the government for payment.

Hockenberry, 2017 WL 4315016 at * 2. As discussed at length above, here, Relator has failed to meet either of these

standards.

20

and/or Defendant MLS to Relator that appear to direct him to sign out on pathology studies under the

names of licensed physicians. For example, Exhibit 1 to the First Amended Complaint is an email

dated July 24, 2012 from Kelly Hauck to Relator which provides as follows:

Hi Dr. Sharma,

I have two more UroVysion cases for you to sign out tonight:

PC12-0586-**

PC12-0587-**

They are both Dr. Bentley cases so please sign-out under his name.

Thanks,

Kelly

(Doc. No. 40-1.) See also, Doc. No. 40-2 through 40-5. Other exhibits consist of emails that forward

tables of CertNDx or UroVysion results to Relator (and sometimes others) and appear to contain the

following information: (1) sample ID number, (2) test result (i.e., negative, positive, intermediate,

sample insufficient, cannot be determined, etc.), (3) the State in which the patient resides; and,

occasionally, (4) a specific doctor. See, e.g, Doc. No. 40-28.

The Court finds that these exhibits are not sufficient to satisfy the Sixth Circuit’s “relaxed”

standard under Rule 9(b). While these exhibits may be relevant to the Defendants’ alleged fraudulent

scheme, Relator does not explain how any of the specific emails attached to the First Amended

Complaint contain any information relating to Defendants’ billing practices. Indeed, upon the

Court’s own review, none of these exhibits appear to contain any information suggesting that any of

the specific cases or studies referenced therein were actually submitted to Medicare. See, e.g.,

Holloway, 386 F.Supp.3d at 902 (finding patient list submitted by relator was not sufficient to warrant

application of “relaxed” standard because “the list does not describe claims for payment. It gives

21

information about the patients listed but omits information in the Prather four-patient sample, such

as the amounts billed and/or paid, the Medicaid or Medicare certification dates, and the specific

services provided.”)

In light of the above, the Court declines to apply the “relaxed” standard to Relator’s claims

under Section 3729(a)(1)(A). As discussed above, the relaxed standard exception is “extremely

narrow.” Petkovic, 2019 WL 251556 at * 5. It has been applied by the Sixth Circuit only once, in

Prather, supra, which is distinguishable from the instant case for the reasons discussed above.

Moreover, both the Sixth Circuit and district courts within this Circuit have refused to apply the

“relaxed” standard under circumstances similar to those presented herein. See e.g., United States ex

rel. Crockett v. Complete Fitness Rehabilitation, 721 Fed. Appx. 451, 458 (6th Cir. 2018) (“By

contrast, Crockett specifically disavows any knowledge of how Complete Rehab charged Bortz or

how Bortz submitted bills to the federal government, and several intermediaries existed between the

behavior Crockett observed and the submissions of claims to the government. Therefore, Crockett

lacks the very knowledge that Prather used to justify an exception to Rule 9—and for that reason, she

cannot invoke the relaxed standard.”); Ibanez, 874 F.3d at 915 (“Here, relators do not allege this type

of personal knowledge. Relators were sales representatives of BMS and, unlike the relator in Prather,

did not directly engage with claims whatsoever.”); Petkovic, 2019 WL 251556 at * 6-10 (refusing to

apply relaxed standard where relators “have not alleged any personal knowledge of FHS’ billing-

related procedures”).13

13 The cases cited by Relator to the contrary are either not applicable or distinguishable. Specifically, Relator’s reliance

on U.S. ex rel. Groat v. Boston Heart Diagnostics, 255 F.Supp.3d 13 (D.D.C. 2017), amended on recons., 296 F.Supp.3d

155 (D.D.C. 2017) and U.S. ex rel. Heath v. AT&T, Inc., 791 F.3d 112 (D.C. Cir. 2015) is misplaced because neither of

those cases are from the Sixth Circuit or apply Sixth Circuit law. Relator’s reliance on U.S. ex rel. Daugherty v. Bostwick,

2012 WL 6593804 (S.D. Ohio Dec. 18, 2012), U.S. ex rel. McDonough v. Symphony Diagnostic Services, Inc., 2012 WL

22

For all the reasons set forth above, the Court finds that application of the relaxed standard is

not appropriate here. Moreover, Relator acknowledges that he cannot identify a single allegedly false

claim submitted to the government for payment. Accordingly, the Court finds that Relator has failed

to adequately allege a violation of 31 U.S.C. § 3729(a)(1)(A).

2. Sections 3729(a)(1)(B) and (C)

Relator also alleges claims under 31 U.S.C. §§ 3729(a)(1)(B) and (C). Section 3729(a)(1)(B)

prohibits “knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement

material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B). Section 3729(a)(1)(C) imposes

liability on anyone who “conspires to commit a violation of” the FCA’s other prohibitions. 31 U.S.C.

§ 3729(a)(1)(C).

Defendants MLS and Metroplex move to dismiss Relator’s claims under these Sections on

the grounds that Relator failed to plead these claims with particularity as required under Rule 9(b).

(Doc. No. 47.) For the following reasons, the Court agrees.

Although the Supreme Court in Allison Engine Co. v. United States ex rel. Sanders, 553 U.S.

662, 671 (2008) held that “presentation” of a false statement or record to the government is not an

element of a false records claim under § 3729(a)(1)(B), the Sixth Circuit has since clarified that this

does not “relieve [a relator] of the need to plead a connection between the alleged fraud and an actual

claim made to the government.” Chesbrough, 655 F.3d at 472-73 (emphasis added). See also Ibanez,

628515 (S.D. Ohio Feb. 27, 2012) and U.S. ex rel. Lane v. Murfreesboro Dermatology Clinic, PLC, 2010 WL 1926131

(E.D. Tenn. May 12, 2010) is also misplaced. These district court decisions are from 2010 and 2012, prior to the Sixth

Circuit’s reported decisions in Prather and Ibanez which emphasized the narrow nature of the “relaxed” standard and

limited it to situations where the relator had specific personal knowledge of the defendants’ billing practices. Moreover,

Lane is distinguishable because, in that case, the “plaintiff asserted that she and her co-workers personally implemented

the billing practices described by submitting actual claims to Medicare.” Lane, 2010 WL 1926131 at * 4. Likewise,

McDonough is distinguishable because, there, the relator alleged specific conversations with specific employees of

defendant (including its CEO) regarding defendant’s Medicare billing practices. McDonough, 2012 WL 628515 at * 9.

23

874 F.3d at 916. “The alleged connection must be evident.” Ibanez, 874 F3d at 916 (citing Allison

Engine Co., 553 U.S. at 671–72). Otherwise, “a cause of action under the FCA for fraud directed at

private entities would threaten to transform the FCA into an all-purpose antifraud statute.” Allison

Engine Co., 553 U.S. at 672.

Here, Relator’s claim fails because, although Relator alleges that Defendants made false or

fraudulent statements as part of their allegedly fraudulent scheme, there are no allegations connecting

these statements to any claim that was actually made to the government. Accordingly, and for all

the reasons discussed in connection with Relator’s Section 3729(a)(1)(A) claim, Relator fails to

adequately plead a 31 U.S.C. § 3729(a)(1)(B) claim because he fails to allege a link between a false

statement and the Government’s decision to pay or approve a false claim. See Chesbrough, 655 F.3d

at 473. See also United States ex rel. Dennis v. Health Mgmt. Assocs., Inc., 2013 WL 146048 at *17

(M.D. Tenn. Jan. 14, 2013) (finding that the failure to identify a false or fraudulent claim with

particularity subjects a claim to dismissal under Section 3729(a)(1)(B)).

Relator also fails to state a claim under Section 3719(a)(1)(C). That Section prohibits FCA

conspiracies, requiring a relator to plead facts showing that there was a plan or agreement “to commit

a violation of” one or more of the FCA subsections. See 31 U.S.C. § 3729(a)(1)(C). To meet this

requirement, “it is not enough for relators to show there was an agreement that made it likely there

would be a violation of the FCA; they must show an agreement was made in order to violate the

FCA.” Ibanez, 874 F.3d at 917 (emphasis in original). In addition, the Sixth Circuit has held that

“[a]n FCA conspiracy claim requires a ‘request or demand’ intended to be paid by the government.”

United States ex rel. Crockett v. Complete Fitness Rehabilitation, 721 Fed. Appx 451, 459 (6th Cir.

2018).

24

Here, as discussed supra, Relator has identified no such specific request or demand and has

specifically disavowed any personal knowledge of either Predictive or MLS’ billing practices. As

with Relator’s other FCA fraud claims, there is no specific identification of a particular claim

improperly made to the government by virtue of Defendants’ alleged conspiracy. See, e.g., United

States ex rel Winkler v. BAE Systems, Inc., 957 F.Supp.2d 856, 876 (E.D. Mich. 2013) (“Winkler's

failure to sufficiently plead a violation of § 3729(a)(1)(A) or (B) necessitates a finding of a failure to

plead a conspiracy to violate those sections under § 3729(a)(1)(C).”) Further, Relator’s conspiracy

claim fails for the additional reason that he has failed to sufficiently plead the existence of an

agreement by or between the Defendants that was made in order to violate the FCA. See Ibanez, 874

F.3d at 917.

Accordingly, the Court finds that Relator has failed to state a claim under 31 U.S.C. §§

3729(a)(1)(B) and (C).14

3. State Law Claims

The First Amended Complaint also pleads state law claims for violations of the California

False Claims Act, Cal. Gov’t Code Section 12650, et seq., and the North Carolina False Claims Act,

14 In his Brief in Opposition, Relator suggests, in a footnote, that he has asserted a claim under 31 U.S.C. § 3729(a)(1)(G),

which prohibits “knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to an

obligation to pay or transmit money or property to the Government, or knowingly conceal[ing] or knowingly and

improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government.” As

Defendants correctly note, however, no such claim is actually pled in the First Amended Complaint. See Doc. No. 40 at

pp. 54-55. The Court does note that Section XII of the First Amended Complaint makes passing reference to 31 U.S.C.

3729(a)(1)(E), which imposes liability on anyone who “is authorized to make or deliver a document certifying receipt of

property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt

without completely knowing that the information on the receipt is true.” See Doc. No. 40 at pp. 54-55. However, while

referencing this section, the First Amended Complaint does not contain any allegations (factual or legal) that appear to

state a claim under this section. Relator has not directed this Court’s attention to any factual allegations relating to a

“document certifying receipt of property used . . . by the Government.” Indeed, the word “receipt” does not appear a

single time in the First Amended Complaint. Accordingly, the Court finds that (1) the First Amended Complaint does

not assert a claim under 31 U.S.C. § 3729(a)(1)(G); and (2) Relator has failed to state a claim under 31 U.S.C. §

3729(a)(1)(E).

25

N.C. Gen. Statute Section 1-605, et seq. (Doc. No. 40 at ¶¶ 146-156.) Specifically, Relator alleges

that Defendants knowingly submitted and/or caused the submission of false claims when they

knowingly and wrongfully billed Medi-Cal and the North Carolina Medicaid System for (1)

pathology services performed by an unlicensed pathologist; (2) pathology services that were

performed by physicians who were not licensed to practice in the States of California or North

Carolina; and (3) molecular testing services and readings that were never viewed or interpreted by

any licensed physician. (Id.)

Defendants MLS and Metroplex move for dismissal of these claims on the grounds that

Relator “alleges no particular facts relating to claims made to or paid by Medi-Cal or North Carolina

at all.” (Doc. No. 47-1 at p. 23.) Relator does not address this argument in his Brief in Opposition.

(Doc. No. 51.)

Defendants’ Motion to Dismiss Relator’s state-law claims is granted. Relator does not direct

this Court’s attention to any factual allegations in the First Amended Complaint relating to any claims

for pathology and/or molecular testing services that were made to or paid by either Medi-Cal or the

North Carolina Medicaid System. Accordingly, and in light of the lack of any meaningful argument

to the contrary,15 Relator’s state law claims against these Defendants are subject to dismissal.

4. Request to Amend

15In a footnote, Relator states that “to the extent [he] did not address an issue [in his Brief in Opposition], it is not a

concession but a reflection of the limited space and relative merits of such arguments.” (Doc. No. 51 at fn 13.) Regardless

of whether Relator intended to concede the issues which he did not address, the fact remains that he failed to address

Defendant’s arguments regarding his state law claims, despite having been granted leave to exceed the page limitations.

Relator’s opportunity to argue the merits was in his Brief in Opposition. To the extent he failed to address certain

arguments and issues raised by Defendants in their Motion to Dismiss, the Court deems those issues unopposed.

26

Finally, Relator argues, summarily and in a footnote, “if arguendo some allegation was

insufficient, the Court should grant plaintiff leave to amend the complaint, rather than granting

defendants’ motion to dismiss.” (Doc. No. 51 at p. 25, fn 13.) Relator offers no further argument in

support of this request nor does he attach a proposed Second Amended Complaint to his Brief in

Opposition. Defendants oppose Relator’s request for leave to amend. (Doc. No. 54 at pp. 19-20.)

Relator’s request is denied. Although Rule 15 provides that leave to amend should be freely

granted where justice so requires, the Sixth Circuit recently noted (in a FCA case) that “[w]here

parties have fully argued the merits of a 12(b)(6) motion to dismiss and the district court has duly

considered those arguments and issued an opinion resolving the motion, it is a stretch to say justice

requires granting leave to cure the complaint's deficiencies as identified in adversarial pleadings and

the district court's order—even where the initial order turned on a failure to meet Rule 9(b)'s

particularity requirements.” Ibanez, 874 F3d at fn 2. See also SNAPP, Inc., 532 F.3d at 510–11

(noting that “Bledsoe II should not be taken to imply that the district court must grant Relator leave

to file an amended complaint”) (Suhrheinrich, J., concurring).

In the instant case, Relator already amended his Complaint once after having the opportunity

to review and consider the arguments raised in Defendant MLS’ and Metroplex’s first Motion to

Dismiss. Notably, in that Motion to Dismiss, Defendants MLS and Metroplex expressly raised the

argument that Relator’s allegations (including his allegations regarding presentment) failed to satisfy

the heightened pleadings requirements of Rule 9(b). (Doc. No. 39 at pp. 16-20.) Relator offers no

meaningful argument why he should be provided yet another opportunity to amend, nearly four years

after this case was filed. Relator’s request for leave to amend his First Amended Complaint is,

therefore, denied.

27

Accordingly, and for all the reasons set forth above, Defendants MLS’ and Metroplex’s

Motion to Dismiss (Doc. No. 47) is GRANTED.

B. Motion to Dismiss of Defendant Miraca Holdings, Inc. (Doc. No. 48)

In the First Amended Complaint, Relator alleges that Defendant Miraca Holdings, Inc., a

Japanese corporation, is the parent corporation of Defendant MLS. (Doc. No. 40 at ¶¶ 7, 10.) Relator

alleges generally that “[u]nder corporate law principles, a parent company’s corporate veil may be

pierced and the shareholder held liable for the subsidiary corporation’s conduct when, inter alia, the

corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably

fraud, on the shareholder’s behalf.” (Id. at ¶ 10.) Relator then alleges as follows:

137. The false claims that Miraca made upon the United States constituted a fraud

which inured to the benefit of Miraca Holdings thus allowing a piercing of the

corporate veil rendering Miraca Holdings liable. Additionally, to the extent that

Miraca Holdings directly participated in the false and fraudulent billing described

herein, it is directly liable.

(Id. at ¶ 137.)

Defendant Miraca Holdings, Inc. (“MHI”) argues that the First Amended Complaint should

be dismissed for several reasons. (Doc. No. 48.) First, Defendant MHI argues that the First Amended

Complaint should be dismissed for lack of either general or specific personal jurisdiction. (Id.) Next,

Defendant MHI asserts that the First Amended Complaint should be dismissed for failure to state a

claim because “Relator does not allege that Miraca Holdings engaged in any conduct itself and he

proffers no facts to support his conclusory assertion that Miraca Holdings can be held liable for the

alleged conduct of its former subsidiary.” (Id.) Lastly, like Defendants MLS and Metroplex,

Defendant MHI asserts that Relator’s FCA claims should be dismissed under the heightened

28

pleadings standards set forth in Rule 9(b) because he “does not allege even a single example of a false

claim actually submitted to Medicare.” (Id.)

Relator does not direct this Court’s attention to any allegations in the First Amended

Complaint that Defendant MHI itself (1) participated in the alleged fraudulent scheme; or (2)

knowingly presented, or caused to be presented, false or fraudulent claims and/or statements to the

government for payment or approval. To the contrary, the only allegations in the First Amended

Complaint against Defendant MHI are derivative of the allegations against its subsidiary, Defendant

MLS. 16

Having dismissed all of Relator’s claims against Defendants MLS and Metroplex for failure

to state a claim under Rules 9(b) and 12(b)(6), the Court finds that the claims against MHI are also

necessarily subject to dismissal.

Accordingly, Defendant MHI’s Motion to Dismiss (Doc. No. 48) is GRANTED.

V. Conclusion

For all the reasons set forth above, Defendants’ Motions to Dismiss (Doc. Nos. 47, 48) are

GRANTED.

IT IS SO ORDERED.

s/Pamela A. Barker

PAMELA A. BARKER

Date: July 14, 2020 U. S. DISTRICT JUDGE

16 Relator’s allegation that “to the extent that Miraca Holdings directly participated in the false and fraudulent billing

described herein, it is directly liable,” is entirely speculative and not sufficient to plead that Defendant MHI itself engaged

in any fraudulent conduct. Nor are Relator’s general references to “defendants” throughout the First Amended Complaint

sufficient to plead fraudulent conduct on the part of Defendant MHI. As the Sixth Circuit has explained, “[a] complaint

‘may not rely upon blanket references to acts or omissions by all of the ‘defendants,’ for each defendant named in the

complaint is entitled to be apprised of the circumstances surrounding the fraudulent conduct with which he individually

stands charged.’” Bledsoe I, 342 F.3d at 643 (quoting Benoay v. Decker, 517 F.Supp. 490, 493 (E.D. Mich, 1981)).

29