# United States of America v. Care Services Management LLC

> District Court, M.D. Tennessee · February 27, 2023

URL: https://www.frixlaw.com/law-library/cases/10438480

## Case

- **Court:** District Court, M.D. Tennessee
- **Decided:** February 27, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

UNITED STATES OF AMERICA and the )
STATES OF GEORGIA, LOUISIANA, )
TENNESSEE, and VIRGINIA ex rel. )
GREGORY FOLSE, )
)
Plaintiffs, )
)
v. ) Case No. 3:17-cv-1478
) Judge Aleta A. Trauger
MARQUIS “MARK” NAPPER, JOSHUA )
KILGORE, DANIEL BIRD, CARE )
SERVICES MANAGEMENT LLC, )
MARQUIS HEALTH SYSTEMS LLC, )
MARQUIS MOBILE DENTAL SERVICES )
LLC, and SALLY B. DALY DDS LLC )
d/b/a FLEUR DE LIS MOBILE DENTAL, )
)
Defendants. )

MEMORANDUM & ORDER

The State of Tennessee and State of Louisiana have filed a Motion for Leave to Supplement
Complaint (Doc. No. 200), to which the defendants have filed a Response (Doc. No. 208), and the
plaintiff governments have filed a Reply (Doc. No. 210). For the reasons set out herein, the motion
will be granted.
I. BACKGROUND
This is a healthcare fraud action originally filed in 2017 by relator Gregory Folse pursuant
to the qui tam provisions of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 to 3732,1 and a few

1 “[T]he qui tam provision of the FCA” allows a private party—known as a “qui tam relator”—to file a
cause of action “in the name of the United States.” U.S. ex rel. Smith v. Lampers, 69 F. App’x 719, 720 (6th
Cir. 2003) (citing 31 U.S.C. § 3730(b)(1)). The complaint is initially placed under seal, while the United
States has an opportunity to investigate the relator’s allegations. 31 U.S.C. § 3730(b)(2). The United States
ultimately must either elect to intervene in the case— in which case, it takes over the prosecution of the
claims—or decline to intervene, giving the relator the option to pursue the FCA claims in the name of the
state-level counterpart statutes. The details of the alleged scheme can be found in the court’s
memorandum of October 27, 2021. See United States v. Napper, No. 3:17-CV-1478, 2021 WL
4992651, at *2 (M.D. Tenn. Oct. 27, 2021). In short, the plaintiffs allege a number of improper
kickback relationships between specialty services provider Care Services Management, LLC

(“CSM”) and long-term care facilities that did business with the states’ Medicaid programs. Id. at
*7.
On March 13, 2018, the United States formally declined to intervene in the case. (Doc. No.
15.) The named state governments continued to investigate the allegations, and, on November 25,
2020, they filed a joint Notice informing the court that Tennessee and Louisiana had elected to
intervene, whereas the other two named states, Georgia and Virginia, had elected to decline. (Doc.
No. 40.) Some additional procedural developments ensued, but the details are unimportant for
present purposes. What matters is that what remains pending are the following claims against CSM
and a handful of related defendants: (1) FCA claims that belong to the United States but that Folse,
as relator, is permitted to pursue due to the federal government’s declination; (2) Tennessee

Medicaid False Claims Act (“TMFCA”) claims asserted by the State of Tennessee; and (3)
Medical Assistance Programs Integrity Law (“MAPIL”) claims asserted by the State of Louisiana.
On January 20, 2023, the state plaintiffs filed a Motion for Leave to Supplement Complaint.
(Doc. No. 200.) They explain the reason for supplementation as follows:
Since the First Amended Complaint in Intervention was filed, Defendant Care
Services Management changed the name of its business to ExcelHealth Group,
LLC. For the reasons set forth in the accompanying Memorandum of Law and
Exhibits, Plaintiffs seek leave from the Court to add ExcelHealth Group, LLC
[“ExcelHealth”] as a Defendant to these proceedings.

government. 31 U.S.C. § 3730(b)(4), (c). Either way, if the claims are ultimately successful, the relator will
be entitled to a share of the recovery, as a reward for his assistance and an incentive for future potential
whistleblowers to come forward. 31 U.S.C. § 3730(d).
(Doc. No. 200 at 1.)
The proposed Supplemental Complaint in Intervention tells a slightly more complicated
story. The plaintiffs do not allege that CSM simply changed its name. Rather, they state that CSM
itself “is no longer in operation or has substantially and materially limited its operations,” but that,

“[t]hroughout 2021 and 2022, CSM transferred employees, assets and clients to” ExcelHealth.
(Doc. No. 200-1 ¶¶ 3–4.) “ExcelHealth and CSM,” the plaintiffs assert, “are managed by the same
people, employ[] the same people, utilize[] the same databases, and are headquartered in the same
offices.” (Id. ¶ 176.) CSM also sent emails to customers that referred to the changeover to
ExcelHealth as a change in CSM’s name and web address. (Id. ¶ 174.) According to the plaintiffs,
the defendants transferred both CSM’s “operations” and its “funds” to ExcelHealth, such that CSM
now “lacks sufficient funds to cover its current indebtedness or contingent liabilities.” (Id. ¶ 191.)
The plaintiffs further allege that “CSM and ExcelHealth have failed to maintain an arms-
length relationship in their business dealings,” that they “have commingled corporate funds,” and
that “[t]he business purposes of CSM and ExcelHealth are similar, if not identical.” (Id. ¶¶ 185,

192–93.) The State of Tennessee subpoenaed bank records revealing that “money has continually
flowed from CSM to ExcelHealth over the past 18 months.” (Id. ¶ 188.) The plaintiffs have also
identified an email from defendant Mark Napper to the Louisiana Department of Health, on behalf
of ExcelHealth, claiming “we have taken care of 1000s of [Louisiana] residents over many
years”—which could only be true if ExcelHealth was a continuation of CSM. (Id. ¶ 190.) The
plaintiffs argue that they therefore should be permitted to recover from ExcelHealth, either as an
alter ego of CSM or through successor liability. The defendants oppose the motion.
II. LEGAL STANDARD
When a party wishes to plead facts about “any transaction, occurrence, or event that
happened after the date of” the party’s initial pleading, that party should rely on a supplemental
pleading pursuant to Rule 15(d), not on an amended pleading pursuant to Rule 15(a). “Amended

and supplemental pleadings differ in [that the] former relate to matters that occurred prior to the
filing of the original pleading and entirely replace the earlier pleading,” while “the latter deal with
events subsequent to the pleading to be altered and represent additions to or continuations of the
earlier pleadings.” Wright & Miller, 6A Fed. Prac. & Proc. Civ. § 1504 (3d ed.). “The purpose of
supplemental pleadings under Rule 15(d) is to allow a plaintiff to update [its] complaint to add
allegations of later events relating to [its] original complaint.” Cage v. Harry, No. 09–512, 2010
WL 1254562, at *1 (W.D. Mich. Mar. 26, 2010) (magistrate judge’s order). In addition to the
different purposes served by amendment and supplementation, there is a key procedural difference:
a supplemental complaint cannot be filed as a matter of course, regardless of its timing; “all
supplemental pleadings require leave of court under Rule 15(d).” Wright & Miller, 6A Fed. Prac.

& Proc. Civ. § 1504 (3d ed.).
Although Rule 15(d) does not set out a specific standard governing requests, courts have
generally assumed that, unless there is a persuasive reason to the contrary, leave to supplement
should be “freely given,” just as leave is freely given to good-faith, timely amendments under Rule
15(a)(2). Ne. Ohio Coal. for the Homeless v. Husted, No. 2:06-CV-00896, 2015 WL 13034990, at
*6 (S.D. Ohio Aug. 7, 2015). The Sixth Circuit has interpreted that standard as embodying a
“liberal amendment policy.” Brown v. Chapman, 814 F.3d 436, 442 (6th Cir. 2016) (quoting Morse
v. McWhorter, 290 F.3d 795, 800 (6th Cir. 2002)). Denial may nonetheless be appropriate when
there is “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to
cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment, etc.” Id. (quoting Foman v. Davis,
371 U.S. 178, 182 (1962)).
III. ANALYSIS

The defendants devote a significant amount of their briefing to the fact that the plaintiffs
have not asserted that ExcelHealth itself was a participant in CSM’s alleged kickback scheme. The
proposed Supplemental Complaint in Intervention does not make such an allegation, however,
because that is not the theory of liability that the plaintiffs are seeking to assert. Nor, to cite another
argument that the defendants have spent time unnecessarily refuting, are the plaintiffs pursuing the
type of “piercing the corporate veil” argument that would apply to a parent company or shareholder
of CSM. Rather, the plaintiffs seek to assert their TMFCA and MAPIL claims against ExcelHealth
through two alternative mechanisms: liability of ExcelHealth as a mere alter ego of CSM; and
liability of ExcelHealth as the successor to CSM’s liabilities. If either option has been plausibly
pleaded, then the supplementation of the Complaint would not be futile and is therefore permissible

unless foreclosed by other factors.
A. Alter Ego Liability
Under Tennessee law, “[a]n alter ego . . . relationship is typified by” one “corporation’s
control of [another] corporation’s internal affairs or daily operations.” Wells ex rel. Baker v. State,
435 S.W.3d 734, 756 (Tenn. Ct. App. 2013) (quoting Gordon v. Greenview Hosp., Inc., 300
S.W.3d 635, 652 (Tenn. 2009)). Factors to be considered in determining whether an alter ego
relationship exists include:
(1) whether there was a failure to collect paid in capital; (2) whether the corporation
was grossly undercapitalized; (3) the nonissuance of stock certificates; (4) the sole
ownership of stock by one individual; (5) the use of the same office or business
location; (6) the employment of the same employees or attorneys; (7) the use of the
corporation as an instrumentality or business conduit for an individual or another
corporation; (8) the diversion of corporate assets by or to a stockholder or other
entity to the detriment of creditors, or the manipulation of assets and liabilities in
another; (9) the use of the corporation as a subterfuge in illegal transactions; (10)
the formation and use of the corporation to transfer to it the existing liability of
another person or entity; and (11) the failure to maintain arms length relationships
among related entities.

F & M Mktg. Servs., Inc. v. Christenberry Trucking & Farm, Inc., 523 S.W.3d 663, 667 (Tenn. Ct.
App. 2017) (quoting Rogers v. Louisville Land Co., 367 S.W.3d 196, 214 (Tenn. 2012)). Louisiana
law also recognizes the alter ego doctrine and instructs courts to consider similar factors. See
Brennan’s Inc. v. Colbert, 85 So. 3d 787, 791 (La. App. 2012) (citing Riggins v. Dixie Shoring
Co., 590 So. 2d 1164, 1168 (La. 1991); Crutcher-Tufts Res., Inc. v. Tufts, 992 So. 2d 1091, 1093
(La. App. 2008)).
“The existence of an alter-ego relationship is a question of fact.” Wells, 435 S.W.3d at 756
(citing Bracken v. Earl, 40 S.W.3d 499, 502 (Tenn. Ct. App. 2000)). The plaintiffs have alleged
facts suggesting that several of the aforementioned factors—particularly Tennessee’s factors 2, 5,
6, 8, and 11—would support a finding of alter ego liability. That is more than sufficient to plead
the theory adequately. An amendment to that effect therefore would not be futile.
B. Successor Liability
“Tennessee recognizes the traditional rule that ‘when one company transfers some or all of
its assets to another company the successor is not liable for the debts of the predecessor’ except
under certain enumerated circumstances.” Johnson v. Tanner-Peck, L.L.C., No. W2009-02454-
COA-R3CV, 2011 WL 1330777, at *13 (Tenn. Ct. App. Apr. 8, 2011) (quoting Hopewell Baptist
Church v. Southeast Window Mfg. Co., LLC, No. E2000–02699–COA–R3–CV, 2001 WL 708850,
at *4 (Tenn. Ct. App. June 25, 2001); citing Gas Plus of Anderson County, Inc. v. Arowood, No.
03A01–9311–CH–00406, 1994 WL 465797 (Tenn. Ct. App. Aug. 30, 1994); George W. Kuney,
Successor Liability in Tennessee, 43 Tenn. Bar J. 24 (May 2007); 19 Am. Jur. Corporations § 2319
(2010)). Although the caselaw on this issue is not robust, those exceptions appear to be as follows:
(1) The purchaser expressly or impliedly agrees to assume such debts; (2) the
transaction amounts to a consolidation or merger of the seller and purchaser; (3) the
purchasing corporation is merely a continuation of the selling corporation; or (4)
the transaction is entered into fraudulently in order to escape liability for such
debts . . . . A fifth exception, sometimes incorporated . . . . is the absence of adequate
consideration for the sale or transfer.

Hopewell, 2001 WL 708850, at *4 (quoting 1 L. Frumer & M. Friedman, Products Liability §
5.06(2), at 70.58(2)-(3) (1981)). A new corporate entity will be considered a “mere continuation”
of the old one if:
(1) a corporation transfers its assets; (2) the acquiring corporation pays less than
adequate consideration for the assets; (3) the acquiring corporation continues the
selling corporation's business; (4) both corporations share at least one common
officer who was instrumental in the transfer; and (5) the selling corporation is left
incapable of paying its creditors.

Signature Combs, Inc. v. United States, 331 F. Supp. 2d 630, 641 (W.D. Tenn. 2004) (quoting IBC
Mfg. Co. v. Velsicol Chem. Corp., 187 F.3d 635 (6th Cir. 1999)). Louisiana law is broadly similar:
[T]he general rule of corporate liability is that, when a corporation sells all of its
assets to another, the latter is not responsible for the seller’s debts or liabilities,
except where (1) the purchaser expressly or impliedly agrees to assume the
obligations; (2) the purchaser is merely a continuation of the selling corporation; or
(3) the transaction is entered into to escape liability.

Pichon v. Asbestos Defendants, 52 So. 3d 240, 243 (La. App. 2010) (quoting Golden State Bottling
Co. v. N.L.R.B., 414 U.S. 168, 182 n.5 (1973)).
The proposed Supplemental Complaint pleads facts sufficient to support plausible
inferences that ExcelHealth is merely a continuation of CSM and/or that the transfer of assets and
operations from CSM to ExcelHealth was undertaken to escape liability. Allegations, of course,
are not evidence, and ExcelHealth is entitled to the opportunity to defend itself before any liability
can attach. At this stage, however, all the plaintiffs are required to do is assert liability plausibly,
such that the court cannot assume that amendment would be futile
C. Other Rule 15(d) Considerations
No other factor weighs meaningfully against granting the motion. On the issue of prejudice,

the defendants make bold, but unpersuasive, claims about the unfair harms that supplementation
would supposedly cause them. Specifically, they argue that CSM was driven out of business by
actions taken by Tennessee’s Medicaid agency, the Bureau of TennCare, following intervention
in this case and that adding ExcelHealth as a defendant would have “a substantial likelihood of . . .
causing [ExcelHealth’s] destruction” as well. (Doc. No. 208 at 2.) That argument, however, is
meritless on its face. Simply being named in a false claims suit is not a corporate death sentence,
and even the defendants’ own telling of events seems to confirm that the real dangers it faces come
from the Bureau of TennCare’s policy decisions, not the unproven allegations of pleadings in this
court. Moreover, ExcelHealth and its employees would likely be burdened by this litigation even
if the court did not permit adding ExcelHealth as a formal party, because they would have

discovery obligations in this case regardless.
The defendants’ arguments regarding permissive joinder of parties under Rule 20 of the
Federal Rules of Civil Procedure are similarly unavailing. The defendants argue that ExcelHealth’s
potential liability is not sufficiently tied to the transactions underlying CSM’s liability for the
parties to be joined, but that could not be further from the truth. The underlying claims are not
merely related—they are the same claims. The plaintiffs are not asserting some other, later-arising
fraud scheme on behalf of ExcelHealth, but rather that “ExcelHealth should be held jointly and
severally responsible for any judgment entered against CSM in this case” and/or that “ExcelHealth
is responsible for the indebtedness and liabilities of CSM, including any judgment rendered in this
case.” (Doc. No. 200-1 □□ 197, 205.) Such allegations squarely bring ExcelHealth within the scope
of permissible defendants pursuant to Rule 20(a)(2).
As for delay, normally an attempt to plead new facts in a case this old would raise red flags
for the court, but the plaintiffs could not have sued ExcelHealth before it existed. The plaintiffs
have provided Secretary of State records confirming that ExcelHealth was not created until May
of 2021 (Doc. No. 201-3), and there is no evidence that the plaintiffs failed to exercise reasonable
diligence in pursuing claims against that new entity. Nor is there any evidence of bad faith, fraud,
or other wrongdoing by the plaintiffs, and the court sees no reason to think that adding ExcelHealth
would substantially prolong these proceedings. The court accordingly will permit the plaintiffs to
file their Supplemental Complaint in Intervention.
IV. CONCLUSION
For the foregoing reasons, the plaintiff states’ Motion for Leave to Supplement Complaint
(Doc. No. 200) is hereby GRANTED.
It is so ORDERED.
(te
United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10438480. Public record. Not legal advice.