Case: 16-10532 Date Filed: 05/26/2017 Page: 1 of 17
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________
No. 16-10532
________________
D.C. Docket No. 1:10-cv-21094-KMW
UNITED STATES OF AMERICA, Ex Rel.
GERRY PHALP AND MATT PEOPLES,
Plaintiffs-Appellants,
versus
LINCARE HOLDINGS, INC. and LINCARE, INC.,
d/b/a Diabetics Experts of America,
Defendants-Appellees.
________________
Appeal from the United States District Court
For the Southern District of Florida
________________
(May 26, 2017)
Before MARCUS and BLACK, Circuit Judges, and COHEN,* District Judge.
____________________
* Honorable Mark H. Cohen, United States District Judge for the Northern District of Georgia,
sitting by designation.
Case: 16-10532 Date Filed: 05/26/2017 Page: 2 of 17
COHEN, District Judge:
Plaintiffs Gerry Phalp and Matt Peoples (collectively “Relators”) brought a
qui tam action pursuant to the False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”),
alleging that Defendants submitted claims to Medicare without adequate
authorization from the relevant Medicare beneficiaries and claims that were the
product of unsolicited telemarketing calls to Medicare beneficiaries. Relators
appeal summary judgments granted to Defendants with respect to each issue.
We affirm the district court with one modification. Although the district
court applied an erroneous scienter standard, the evidence proffered by Relators as
to Defendants’ state of mind with respect to the assignment of benefits forms was
insufficient to survive summary judgment under the proper standard. The district
court did not err in granting summary judgment on Relators’ claims that
Defendants violated Medicare’s unsolicited telephone contact rules.
I. BACKGROUND
A. Facts
Relators are former salespersons for Lincare, Inc. (“Lincare”), which does
business as Diabetic Experts of America (“Diabetic Experts”). Defendants are
Relators’ former employer and related entities. Lincare supplies Medicare patients
suffering from chronic obstructive pulmonary disease with oxygen, respiratory,
and other therapy services. Diabetic Experts is a fictional name Lincare registered
2
Case: 16-10532 Date Filed: 05/26/2017 Page: 3 of 17
in 2004 to sell diabetic-testing supplies. 1 Lincare Holdings, Inc. (“Holdings”) is a
holding company for its wholly-owned subsidiary, Lincare, Inc., and other
subsidiaries. Additionally, Holdings supports the information systems of Lincare
and Diabetic Experts by providing, among other things, a database which contains
the telephone numbers for Diabetic Experts’ customers.
During the relevant time period, Diabetic Experts was in the practice of
supplying Medicare patients with diabetic-testing supplies. Specifically, Diabetic
Experts would place calls to individuals to whom Lincare previously had provided
Medicare-covered items related to chronic obstructive pulmonary disease.
Diabetic Experts would offer these individuals a free diabetic-testing monitor and
sell them diabetic-testing supplies, including blood-testing strips.2 After selling
diabetic-testing strips to these individuals, Diabetic Experts would submit claims to
Medicare using authorizations, or assignments of benefits (“AOBs”), previously
provided by the Medicare beneficiaries to Lincare in connection with Lincare’s
provision of items related to chronic obstructive pulmonary disease. Diabetic
Experts did not obtain AOBs that were specifically related to diabetic testing
1
The district court concluded that Lincare and Diabetic Experts are a single supplier for the
purposes of the Medicare statutes, regulations, and supplier standards at issue. This ruling is not
contested on appeal.
2
The district court’s finding that a Medicare beneficiary is unable to reuse the blood-testing
strips is not contested on appeal.
3
Case: 16-10532 Date Filed: 05/26/2017 Page: 4 of 17
supplies. Instead, Diabetic Experts submitted the AOBs given to Lincare that were
generic in nature and provided that the Medicare beneficiaries agreed: (1) to rent or
purchase “certain medical equipment, products, supplies, prescription drugs and/or
associated services” from “Lincare and its affiliates;” (2) that Lincare would
provide “HME [home medical equipment] and Supplies” or “DME [durable
medical equipment];” and (3) to assign Medicare benefits to Lincare.
B. Procedural Background
Relators alleged in their Second Amended Complaint (“Complaint”) that
Defendants violated the FCA by submitting reimbursement claims to Medicare that
were non-compliant with Medicare regulations in two respects: (1) the
reimbursement claims submitted by Defendants were based upon improper generic
authorizations given to Lincare in connection with the provision of items related to
chronic obstructive pulmonary disease and failed to include a new authorization
when Defendants requested reimbursement for diabetic blood-testing strips; and
(2) the claims submitted to Medicare arose out of telemarketing calls with
beneficiaries that violated Medicare’s unsolicited telephone contact rules. The
Complaint included six examples of claims submitted by Defendants to Medicare
on behalf of six different Medicare beneficiaries which were alleged to be
illustrative of Defendants’ unlawful conduct.
4
Case: 16-10532 Date Filed: 05/26/2017 Page: 5 of 17
Defendants moved for summary judgment. They contended that the claims
filed on behalf of these exemplars complied with the applicable Medicare
regulations and could not form the basis of any FCA claim. The district court
issued an order on July 13, 2015 (the “July Summary Judgment Order”), granting
Defendants’ motion for summary judgment on the six exemplars, but recognized
the possibility that its order may not be dispositive of the entire case. United States
ex rel. Phalp v. Lincare Holdings, Inc., 116 F. Supp. 3d 1326, 1361 (S.D. Fla.
2015). Subsequently, Relators cited evidence of three additional exemplars which
were alleged to be illustrative of Defendants’ practice of unlawfully telemarketing
Medicare beneficiaries. The district court issued a second order on January 11,
2016 (the “January Summary Judgment Order”), granting Defendants’ motion for
summary judgment on the three additional exemplars. United States ex rel. Phalp
v. Lincare Holdings, Inc., No. 10-CV-21094, 2016 WL 3961840 (S.D. Fla. Jan. 11,
2016). Relators appeal portions of those two orders to this Court.
1. The July Summary Judgment Order
The district court held that the evidence was insufficient to create a genuine
issue of material fact with regard to scienter—that is, whether the defendants
“knew or should have known that its policies or practices violated the applicable
statutes and implementing regulations.” The district court analyzed Relators’ “best
evidence” of scienter, which consisted of two emails. One dealt with an entirely
5
Case: 16-10532 Date Filed: 05/26/2017 Page: 6 of 17
different compliance issue. In the second email, Lincare personnel wrote that
“they ‘[m]ay need to reconsider [their] process for Patient Agreements,’” but the
email postdated the relevant transactions by several months. The court concluded
that these two emails did not “allow a reasonable jury to conclude that Diabetic
Experts knowingly submitted false claims.”
Citing United States ex rel. Hixson v. Health Mgt. Sys., Inc., 613 F.3d 1186,
1191 (8th Cir. 2010), the district court stated that when a defendant claims that the
governing law is ambiguous, “[t]o prevail under the False Claims Act, ‘relators
must show that there is no reasonable interpretation of the law that would make the
allegedly false statement true.’” The district court expanded on this line of
reasoning, stating that “a defendant’s ‘reasonable interpretation of any ambiguity
inherent in the regulations belies the scienter necessary to establish a claim of fraud
under the FCA.’” Based on this reasoning, as “an alternative and independent
ground” for granting summary judgment in favor of Defendants, 3 the court
concluded “as a matter of law that, with regard to the six exemplars, no reasonable
jury could find for Relators on the questions of whether Defendants submitted false
claims or made or used false records with the requisite scienter.”
3
The district court also made various findings concerning whether a new AOB was required to
submit claims for diabetic testing strips and whether such strips should be classified as
“supplies” or “equipment” under Medicare regulations. It is unnecessary for this Court to
determine whether the district court’s or Relators’ interpretation of multiple provisions of the
Medicare regulatory scheme is the correct one, given this Court’s conclusion that Relators’
evidence was insufficient to establish scienter under the FCA.
6
Case: 16-10532 Date Filed: 05/26/2017 Page: 7 of 17
2. The January Summary Judgment Order
At the conclusion of the July 13 Summary Judgment Order, the district court
invited the parties to submit a status report indicating what, if any, claims remained
in the case. Relators supplemented the record with evidence of three additional
exemplars, who were previous clients of Lincare’s wholly owned subsidiaries,
Med4Home and Reliant. Relators alleged that Diabetic Experts’ telemarketing of
these beneficiaries was in violation of Medicare’s prescription against unsolicited
telephone contact. See 42 U.S.C. § 1395m(a)(17)(A). Relators argued that, unlike
Diabetic Experts’ relationship with Lincare, Med4Home and Reliant could not be
considered the same supplier as Diabetic Experts for purposes of Medicare
regulations.
On January 11, 2016, the district court entered its order granting summary
judgment in favor of Defendants. The court found that the three additional
exemplars presented by Relators fell within the exception to the anti-telemarketing
prescription that applies where the beneficiary gives written permission to the
Medicare supplier. See 42 C.F.R. § 424.57(c)(11)(i) (“The supplier must . . . agree
not to contact a beneficiary by telephone when supplying a Medicare-covered item
unless . . . [t]he individual has given written permission to the supplier to contact
them by telephone concerning the furnishing of a Medicare-covered item that is to
7
Case: 16-10532 Date Filed: 05/26/2017 Page: 8 of 17
be rented or purchased.”). 4 The court subsequently granted summary judgment for
Defendants on Relators’ remaining claims.
II. STANDARD OF REVIEW
“We review a district court’s grant of summary judgment de novo, viewing
all of the facts in the record in the light most favorable to the non-movant.”
Haynes v. McCalla Raymer, LLC, 793 F.3d 1246, 1249 (11th Cir. 2015) (quotation
and citation omitted). Summary judgment is appropriate “if the movant shows that
there is no genuine dispute as to any material fact” such that “the movant is entitled
to judgment as a matter of law.” FED. R. CIV. P. 56(a).
“We review a district court’s decision to rule on a summary-judgment
motion before all discovery disputes have been resolved for abuse of discretion.”
Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1050 (11th Cir. 2015) (citation
omitted). In order to prevail on appeal, “a party must be able to show substantial
harm to its case from the denial of its requests for additional discovery,” Leigh v.
Warner Bros., Inc., 212 F.3d 1210, 1219 (11th Cir. 2000), and that the party timely
informed the district court of the outstanding discovery, Cowan v. J.C. Penney Co.,
Inc., 790 F.2d 1529, 1532 (11th Cir. 1986). Moreover, the party “must specifically
demonstrate how postponement of a ruling on the motion [for summary judgment
4
The court also rejected Relators’ argument that even if their exemplars did not demonstrate
FCA violations, Relators could survive summary judgment based on facts known to them
personally from their time as employees of Lincare affiliates. We agree with the district court
that Relators’ evidence failed to create a genuine dispute of material fact, and confine our
discussion to Relators’ exemplars.
8
Case: 16-10532 Date Filed: 05/26/2017 Page: 9 of 17
would have] enable[d] him, by discovery or other means, to rebut the movant’s
showing of the absence of a genuine issue of fact.” Reflectone, Inc. v. Farrand
Optical Co., 862 F.2d 841, 843 (11th Cir. 1989) (quotation marks and citation
omitted).
III. DISCUSSION
A. Relators Failed to Offer Evidence That Defendants Acted With the
Requisite Scienter to Establish a Violation of the FCA.
The FCA imposes liability on any person who “knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval; [or]
knowingly makes, uses, or causes to be made or used, a false record or statement
material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A-B). 5 The FCA
authorizes private citizens to bring actions on behalf of the United States. Id.
§ 3730(b). Relators in this case brought claims under two subsections of the FCA,
§ 3729(a)(1)(A) and (B). To establish a cause of action under § 3729(a)(1)(A), a
relator must prove three elements: (1) a false or fraudulent claim, (2) which was
presented, or caused to be presented, for payment or approval, (3) with the
knowledge that the claim was false. 31 U.S.C. § 3729(a)(1)(A). To prove a claim
5
On May 20, 2009, Congress enacted the Fraud Enforcement and Recovery Act of 2009
(“FERA”), Pub. L. No. 111-21, 123 Stat. 1617 (2009), which amended the FCA and re-
designated 31 U.S.C. § 3729(a)(1) as 31 U.S.C. § 3729(a)(1)(A) and 31 U.S.C. § 3729(a)(2) as
31 U.S.C. § 3729(a)(1)(B). We need not decide whether the earlier or amended version of the
FCA is applicable because we conclude that the district court properly granted summary
judgment to Defendants on Relators’ claims based on the alleged violation of the Medicare
regulations under either version of the statute. Moreover, the 2009 amendment does not
materially affect the issues on appeal.
9
Case: 16-10532 Date Filed: 05/26/2017 Page: 10 of 17
under § 3729(a)(1)(B), a relator must show that: (1) the defendant made (or caused
to be made) a false statement, (2) the defendant knew it to be false, and (3) the
statement was material to a false claim. 31 U.S.C. § 3729(a)(1)(B).
In this case, Relators’ theory of FCA liability is a “false certification
theory,” whereby Defendants are alleged to have falsely certified that they
“complied with a [Medicare] statute or regulation the compliance with which is a
condition for Government payment.” United States v. Amin Radiology, No. 5:10-
CV-583-Oc-PRL, 2015 WL 403221, at *3 (M.D. Fla. Jan. 28, 2015) (quotation and
citation omitted)), aff’d sub nom. U.S. ex rel. Florida v. Amin Radiology, 649 F.
App’x 725 (11th Cir. 2016). This case is not one in which the plaintiff seeks to
enforce Medicare regulations, but is a lawsuit brought under and governed by the
FCA. U.S. ex rel. Clausen, 290 F.3d at 1311 (“The False Claims Act does not
create liability merely for a health care provider’s disregard of Government
regulations or improper internal policies unless, as a result of such acts, the
provider knowingly asks the Government to pay amounts it does not owe.”)
(citation omitted). Accordingly, the “fact that there may have been a violation of
the laws governing Medicare . . . is not enough, standing alone, to sustain a cause
of action under the False Claims Act.” Amin Radiology, 2015 WL 403221, at *3
n.3; see also Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1328 (11th Cir. 2009)
(concluding that “[i]mproper practices standing alone are insufficient to state a
10
Case: 16-10532 Date Filed: 05/26/2017 Page: 11 of 17
claim under either § 3729(a)(1) or (a)(2) absent allegations that a specific
fraudulent claim was in fact submitted to the government.”).
The FCA imposes liability on any person who “knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval; [or]
knowingly makes, uses, or causes to be made or used, a false record or statement
material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A-B). With regard
to scienter, a relator must show that the defendant acted “knowingly,” which the
FCA defines as either “actual knowledge,” “deliberate ignorance,” or “reckless
disregard.” 31 U.S.C. § 3729(b). “Congress added the ‘reckless disregard’
provision to the FCA in 1986” in order “to ensure that ‘knowingly’ captured the
‘ostrich’ type situation whether an individual has ‘buried his head in the sand’ and
failed to make simple inquiries which would alert him that false claims are being
submitted.” Urquilla-Diaz, 780 F.3d at 1058 (internal quotations partially omitted)
(quoting S. REP. 99-345, at 21, reprinted in 1986 U.S.C.C.A.N. 5266, 5288)).
“Although proof of a specific intent to defraud is not required, the statute’s
language makes plain that liability does not attach to innocent mistakes or simple
negligence.” Id. (citation and quotation omitted).
Liability attaches to only those who act in gross negligence—those
who fail to make such inquiry as would be reasonable and prudent to
conduct under the circumstances. In other words, Congress did not
intend to turn the False Claims Act, a law designed to punish and
deter fraud, into a vehicle either punishing honest mistakes or
incorrect claims submitted through mere negligence or imposing a
11
Case: 16-10532 Date Filed: 05/26/2017 Page: 12 of 17
burdensome obligation on government contractors rather than a
limited duty to inquire.
Id. (internal punctuation, quotation, and citations omitted).
In the July Summary Judgment Order with regard to the initial six
exemplars, the district court concluded that Relators failed to produce sufficient
evidence that Defendant submitted false claims with the requisite level of scienter
because “a defendant’s reasonable interpretation of any ambiguity inherent in the
regulations belies the scienter necessary to establish a claim of fraud under the
FCA.” The district court’s conclusion that a finding of scienter can be precluded
by a defendant’s identification of a reasonable interpretation of an ambiguous
regulation that would have permitted its conduct is erroneous. Although ambiguity
may be relevant to the scienter analysis, it does not foreclose a finding of scienter.
Instead, a court must determine whether the defendant actually knew or should
have known that its conduct violated a regulation in light of any ambiguity at the
time of the alleged violation. See United States v. R&F Props. of Lake Cty., Inc.,
433 F.3d 1349, 1358 (11th Cir. 2005) (finding a question of fact as to the
defendants’ understanding of a regulation precluded summary judgment despite
ambiguity in the regulation).
Furthermore, under the district court’s legal interpretation, a defendant could
avoid liability by relying on a “reasonable” interpretation of an ambiguous
regulation manufactured post hoc, despite having actual knowledge of a different
12
Case: 16-10532 Date Filed: 05/26/2017 Page: 13 of 17
authoritative interpretation. However, scienter is not determined by the ambiguity
of a regulation, and can exist even if a defendant’s interpretation is reasonable.
See United States ex rel. Minn. Ass’n of Nurse Anesthetists v. Allina Health Sys.
Corp., 276 F.3d 1032, 1053-54 (8th Cir. 2002) (holding that scienter is established
if a defendant knowingly disregards the proper interpretation of an ambiguous
regulation); see also S. REP. 99-345, at 6-7 (1986), reprinted in 1986 U.S.C.C.A.N.
5266, 5271-72 (clarifying that instead of an actual knowledge standard, the Senate
Judiciary Committee intended to adopt a standard which recognizes “that those
doing business with the Government have an obligation to make a limited inquiry
to ensure the claims they submit are accurate.”).
Applying the correct standard, this Court finds that Relators failed to
present sufficient evidence of scienter to defeat Defendants’ motion for summary
judgment. As explained above, Relators’ “best evidence” of scienter consisted of
two emails: one dealt with an entirely different compliance issue and the other
postdated the relevant transactions by several months. The district court correctly
concluded that neither email would permit “a reasonable jury to conclude that
Diabetic Experts knowingly submitted false claims.”
Relators have not identified any error in this analysis and instead have
emphasized evidence of an email exchange from November 2008 between Lincare
employees inquiring whether Lincare could share AOBs with Diabetic Experts.
13
Case: 16-10532 Date Filed: 05/26/2017 Page: 14 of 17
There is nothing about this exchange, which merely discussed Defendants’ then-
existing policy, to suggest that any of Defendants’ employees believed or had
reason to believe they were violating Medicare regulations.
Relators also argue that the plain language of 42 C.F.R. § 424.36(a) and the
2008 amendments thereto constituted notice to Defendants that any authorization
should have included the specific service being provided and, as such, establish the
requisite scienter in this case. There is nothing in the plain language of 42 C.F.R.
§ 424.36(a) that would put Defendants on notice that Diabetic Experts’ use of
AOBs given to Lincare were not compliant with Medicare regulations.
Accordingly, the district court did not err in concluding that summary
judgment to Defendants was appropriate because Relators did not provide
sufficient evidence of scienter.
B. The District Court Did Not Err in Concluding That Defendants’
Telemarketing Practice Did Not Violate Medicare’s Prohibition on
Unsolicited Telephone Contacts.
Medicare regulations prohibit a supplier from contacting a Medicare
beneficiary by phone unless one of the following three exceptions applies:
(i) The individual has given written permission to the supplier to
contact them by telephone concerning the furnishing of a Medicare-
covered item that is to be rented or purchased.
(ii) The supplier has furnished a Medicare-covered item to the
individual and the supplier is contacting the individual to coordinate
the delivery of the item.
14
Case: 16-10532 Date Filed: 05/26/2017 Page: 15 of 17
(iii) If the contact concerns the furnishing of a Medicare-covered item
other than a covered item already furnished to the individual, the
supplier has furnished at least one covered item to the individual
during the 15-month period preceding the date on which the supplier
makes such contact.
42 C.F.R. § 424.57(c)(11).
In its July Summary Judgment Order, the district court found that Lincare
sold durable medical equipment covered by the Medicare regulations to the six
exemplar beneficiaries within the fifteen months leading up the calls in question
made by Diabetic Experts. Based on this fact, the district court correctly found
that the calls made by Diabetic Experts fell squarely within the third exception to
Medicare’s prescription against making unsolicited telephone contact, which
permits calls to beneficiaries “[i]f the contact concerns the furnishing of a
Medicare-covered item other than a covered item already furnished to the
individual, [and] the supplier has furnished at least one covered item to the
individual during the 15-month period preceding the date on which the supplier
makes such contact.” 42 C.F.R. § 424.57(c)(11)(iii).
With regard to the three additional exemplars at issue in the January
Summary Judgment Order, the district court found that “each of the New
Exemplars contains consent to contact by ‘supplier and its affiliates.’” The district
court correctly concluded that these consents meant that the calls placed by
Defendants fell within the first exception to the proscription on telemarketing
15
Case: 16-10532 Date Filed: 05/26/2017 Page: 16 of 17
beneficiaries where the beneficiary gives written permission to the Medicare
supplier.6 42 C.F.R. § 424.57(c)(11)(i).
Relators have not presented any argument that requires this Court to disturb
the lower court’s ruling. Relators’ contention that there was evidence that the first
six exemplars did not consent to being contacted misses the import of the district
court’s July Summary Judgment Order, which relied upon the third, instead of the
first, exception to § 424.57(c)(11).
Additionally, the Court finds without merit Relators’ assertion that the
district court abused its discretion in denying discovery on the “no consent” AOBs
and by ruling on Defendants’ summary judgment motion while Relators had a
pending motion related to the discovery. The record reveals that any pending
discovery requests related to damages and there is no indication that the
information sought would have had any bearing on the outcome of the district
court’s ruling. See Relators’ Mot. for Leave to File Suppl. to Mot. for Partial
Summ. J. (indicating that pending discovery motion was limited to damages
discovery).
6
Specifically, the district court correctly found “that Diabetic Experts’ practice of calling
customers of its affiliate who had consented to contact by affiliates as represented by the New
Exemplars are not violations of the statute that could create an objectively false claim when
presented to the government.”
16
Case: 16-10532 Date Filed: 05/26/2017 Page: 17 of 17
IV. CONCLUSION
We affirm the district court’s orders granting summary judgment to
Defendants. Although the district court incorrectly stated that a defendant can
preclude a finding of scienter by identifying a reasonable interpretation of an
ambiguous regulation that would have permitted its conduct, Relators nevertheless
failed to present sufficient evidence of scienter to survive summary judgment
under the correct standard. The district court also did not err in granting summary
judgment on Relators’ claim that Defendants violated Medicare’s proscription
against unsolicited telemarketing calls.
AFFIRMED AS MODIFIED.
17