Liebman v. Methodist Le Bonheur Healthcare

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF TENNESSEE

AT NASHVILLE

UNITED STATES OF AMERICA and the )

STATE OF TENNESSEE ex rel. JEFFREY H. )

LIEBMAN and DAVID M. STERN, M.D. )

) Case No. 3:17-cv-00902

v. ) Judge Campbell

) Magistrate Judge Holmes

METHODIST LE BONHEUR )

HEALTHCARE, METHODIST )

HEALTHCARE-MEMPHIS HOSPITALS, )

CHRIS McLEAN, and GARY SHORB )

MEMORANDUM OPINION AND ORDER

Pending before the Court is the third motion for leave to amend the complaint filed by the

Relators, Jeffrey Liebman and David Stern. (Docket No. 154.) Defendants filed a response is

opposition. (Docket No. 162.) Relators filed a reply. (Docket No. 166.) For the reasons discussed

below, Relators’ motion for leave to amend (Docket No. 154) is GRANTED. The Clerk is directed to

separately file the third amended complaint and accompanying exhibits, which are presently found at

Docket Nos. 154-1, 154-2, and 154-3. Once filed, the third amended complaint is the legally operative

complaint, Parry v. Mohawk Motors of Mich., Inc., 236 F.3d 299, 306 (6th Cir. 2000), thus

rendering moot Defendants’ pending motion to dismiss the second amended complaint. The Clerk is

therefore directed to terminate that motion (Docket No. 79) without prejudice to refiling as to the third

amended complaint as appropriate. Defendants shall answer or otherwise respond to the third amended

complaint as directed by Rule 15(a)(3) of the Federal Rules of Civil Procedure.1

1 Unless otherwise noted, all references to rules to are to the Federal Rules of Civil

Procedure.

A. Background

Familiarity with this case is presumed and the background and procedural history are recited

again only as necessary to explain or give context to the Court’s ruling.2 Relator Jeffrey Liebman

originally commenced this qui tam action against Defendants under the False Claims Act (“FCA”) by

the filing of a sealed complaint on May 30, 2017. (Docket No. 1.) After the United States and the

State of Tennessee decided not to intervene (Docket Nos. 44 and 45), Relators amended the complaint

(upon motion) and added David Stern as a Relator. (Docket Nos. 56, 58, and 59.)

Methodist Defendants and West Defendants (with which Relators have since reached a

settlement) filed motions to dismiss the second amended complaint on various grounds including that

the second amended complaint is barred by the FCA’s first-to-file rule and fails to satisfy the

requirements under the FCA and Rule 9(b) to plead fraud with particularity based on Relators’ personal

knowledge. (Docket No. 79.)3 On March 19, 2021, Relators filed a motion for leave to file the instant

third amended complaint. (Docket No. 154.) Methodist Defendants (as the only remaining defendants)

oppose the amendment (Docket Nos. 162 and 163) on grounds that the third amended complaint is

similarly defective because it fails to plead particularized fraud based on personal knowledge and that

allowing Relators to proceed with a third amended complaint before the question of sufficiency of the

allegations in the second amended complaint is resolved is prejudicial.

2 The recited background and procedural history are taken from the record and, unless

otherwise noted, are generally undisputed.

3 Relators eventually reached a settlement with the West Defendants. (Docket No. 132.) By

order entered on February 9, 2021, the claims against the West Defendants were severed and dismissed.

(Docket No. 133.)

B. Legal Standards and Analysis

Although the Sixth Circuit has not addressed whether a motion to amend is a dispositive

or non-dispositive motion, most of the district courts in the Sixth Circuit, including this court,

consider an order on a motion to amend to be non-dispositive. See, e.g., Gentry v. The Tennessee

Board of Judicial Conduct, 2017 WL 2362494, at *1 (M.D. Tenn. May 31, 2017) (“Courts have

uniformly held that motions to amend complaints are non-dispositive matters that may be

determined by the magistrate judge and reviewed under the clearly erroneous or contrary to law

standard of review …”) (citations omitted); Chinn v. Jenkins, 2017 WL 1177610 (S.D. Ohio

March 31, 2017) (order denying motion to amend is not dispositive); Young v. Jackson, 2014 WL

4272768, at *1 (E.D. Mich. Aug. 29, 2014) (“A denial of a motion to amend is a non-dispositive

order.”); Hira v. New York Life Insurance Co., at **1-2, 2014 WL 2177799 (E.D. Tenn. May 23,

2014) (magistrate judge’s order on motion to amend was appropriate and within his authority

because motion to amend is non-dispositive); United States v. Hunter, 2013 WL 5280251, at *1

(S.D. Ohio Oct. 29, 2013) (stating that a magistrate judge’s orders denying petitioner’s motions to

amend a petition pursuant to 28 U.S.C. § 2855 were non-dispositive).

Rule 15, which governs the Court’s consideration of the pending motion, states that leave

to amend a pleading should be “freely given when justice so requires.” Fed. R. Civ. P. 15(a). This

mandate follows the principle that a plaintiff’s claims ought to be decided on the merits “rather

than the technicalities of pleadings.’” Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir. 1986)

(quoting Tefft v. Seward, 689 F.2d 637, 639 (6th Cir. 1982)). Sixth Circuit precedent clearly

“manifests ‘liberality in allowing amendments to a complaint.’” Newberry v. Silverman, 789 F.3d

636, 645 (6th Cir. 2015) (quoting Janikowski v. Bendix Corp., 823 F.2d 945, 951 (6th Cir. 1987)).

Absent “any apparent or declared reason,” such as undue delay, bad faith or dilatory motive,

repeated failure to cure deficiencies by prior amendments, undue prejudice to the opposing party,

or futility of the amendment, “the leave should, as the rules require, be ‘freely given.’” Leary v.

Daeschner, 349 F.3d 888, 905 (6th Cir. 2003 (quoting Foman v. Davis, 371 U.S. 178, 182 (1962).

The determination as to whether justice requires permission to amend the pleading is within the

district court’s “sound discretion.” Moore, 790 F.2d at 559 (internal citations omitted); but see

Riverview Health Inst. LLC v. Med. Mut. of Ohio, 601 F.3d 505, 512 (6th Cir. 2010) (reviewing de

novo district court’s denial of motion for leave to amend on the basis of futility). For the reasons

discussed below, the Court finds that Rule 15’s liberal standard of allowing amendments is not

overcome by considerations of either undue prejudice or futility under the circumstances of this

case.

I. Prejudice

Defendants maintain that substantial prejudice will result from permitting Relator’s

proposed third amended complaint amendment before the Court has decided the pending motion

to dismiss the second amended complaint. Although Defendants cite to a case in which a motion

to amend was denied without prejudice to allow for resolution of a pending motion to dismiss,

U.S. ex rel. Byrd v. Acadia Healthcare Co., Inc., that reference was to a prior ruling in the

procedural history of the case and does not include any in-depth analysis or support. 2021 WL

108112, at *12 (M.D. Louis. March 18, 2021). Rather than adopt this dicta, the Court elects instead

to follow Magistrate Judge Newbern’s persuasive approach – based on prevailing authority – that

prejudice generally requires more than merely the pendency of a motion to dismiss. Local Spot,

Inc. v. Lee, Case No. 3:20-cv-00421, 2020 WL 7554214, at *3 (M.D. Tenn. Dec. 14, 2020)

(internal citations omitted). Here, ample time remains in the discovery period (see Docket No. 152

at 2) and before trial for Defendants to develop their response to the third amended complaint.

Given the issues in this case, and the procedural posture, the Court does not find either a lack of

diligence or undue delay on Relators’ part or the kind of undue prejudice necessary to justify

denying leave to amend under Rule 15.

II. Futility

The remaining crux of Defendants’ opposition focuses on the purported futility of Relators’

proposed amendments because the amendments are, according to Defendants, based on

information obtained from the West Defendants in discovery and therefore simply compound

Relators’ lack of personal knowledge of any fraud. A proposed amendment is futile when it would

not survive a motion to dismiss under Rule 12(b)(6) and the Sixth Circuit has made clear that any

analysis of the futility of proposed amendments is equivalent to that undertaken in consideration

of a Rule 12(b)(6) motion. Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 421 (6th Cir.

2000).

“Courts in this circuit recognize that futility arguments in the context of a motion to amend

are functionally dispositive and present something of a “conceptual difficulty” when raised before

a magistrate judge who, by statute, cannot ordinarily rule on dispositive motions.” Local Spot, Inc.

v. Lee, Case No. 3:20-cv-00421, 2020 WL 7554214, at *4 (M.D. Tenn. Dec. 14, 2020) (citing

Durthaler v. Accounts Receivable Mgmt., Inc., No. 2:10-cv-1068, 2011 WL 5008552, at *4 (S.D.

Ohio Oct. 20, 2011); see also Vanburen v. Ohio Dep’t of Pub. Safety, No. 2:11-cv-1118, 2012 WL

5467526, at *4 (S.D. Ohio Nov. 9, 2012) (holding that due to this “procedural roadblock,” the

better course would be to allow amendment of the complaint with the understanding that a motion

to dismiss may follow filing of the amended complaint). This is particularly true where, as here,

the parties have raised the same or similar legal issues in dispositive motions that are concurrently

pending before the district judge. Under these circumstances, at least where the proposed amended

claims are “arguably sufficient, it is usually a sound exercise of discretion to permit the claim[s]

to be pleaded and to allow the merits of the claim[s] to be tested before the District Judge by way

of a motion to dismiss.” Durthaler, 2011 WL 5008552, at *4; see also Greenwald v. Holstein,

No. 2:15-cv-2451, 2016 WL 9344297, at *5 (S.D. Ohio Feb. 3, 2016) (same).

Defendants’ arguments in favor of dismissal and in opposition to the proposed third

amended complaint turn on whether Relators’ claims can survive under Rule 9 and what

Defendants characterize as FCA’s requirement that Relators possess personal knowledge of the

fraud they are alleging. “Allowing Defendants’ substantive legal arguments to be addressed in a

single decision is the most efficient course of action and will guard against inconsistent results in

different procedural contexts.” Local Spot, 2020 WL 7554214, at *4.4 Given this efficiency, the

lack of any undue prejudice to Defendants by allowing the amended pleading, and there being no

other apparent reasons to deny the motion for leave to amend under Rule 15(a)(2), the Court will

allow the amendment.5

C. Conclusion

For all these reasons, Relators’ motion for leave to amend (Docket No. 154) is granted. The

Clerk is directed to separately file the third amended complaint and accompanying exhibits, which are

presently found at Docket Nos. 154-1, 154-2, and 154-3. Once filed, the third amended complaint is

the legally operative complaint, thus rendering moot Defendants’ pending motion to dismiss the

Second Amended Complaint. The Clerk is therefore directed to terminate that motion (Docket No. 79)

4 To be clear, allowance of the amendment should not be construed as a determination that

Defendants’ arguments for dismissal are without merit. The undersigned expresses no opinion on

the merits of those arguments, including implicitly by granting Relator’s motion to amend.

5 The Court also notes that the time to seek leave to amend has now expired, which

minimizes, if not eliminates, the prospect of additional amendments.

without prejudice to refiling as to the third amended complaint as appropriate. Defendants shall answer

or otherwise respond to the third amended complaint as directed by Rule 15(a)(3).

It is SO ORDERED.

\

BARBARA D. HODMES

nited States Magistrate Judge