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PALLADINO EX REL. U.S. v. VNA OF SOUTHERN N.J.

June 30, 1999

JOANN PALLADINO, ON BEHALF OF THE UNITED STATES OF AMERICA, AND INDIVIDUALLY; AND DARLENE KEEGAN, ON BEHALF OF THE UNITED STATES OF AMERICA, PLAINTIFFS,
v.
VNA OF SOUTHERN NEW JERSEY, INC., SOUTHERN NEW JERSEY VISITING NURSE SERVICE SYSTEM, INC., M. KELLY COOKE, JUDY DEMBY, JULIE MELENDEZ, CHRISTINE MCCULLOUGH, WAYNE WHELAN, AND MARYANNE CZOCH, DEFENDANTS.



The opinion of the court was delivered by: Simandle, District Judge.

  OPINION

TABLE OF CONTENTS

Introduction ................................................ 458

I. BACKGROUND ............................................. 458

II. DISCUSSION ............................................ 461

    A. Motion to Dismiss Standard ........................... 461
    B. Count I. — Liability Under
       §§ 3729(a)(1), (2), & (3) ........................ 462
    C. Count II, — Individual Liability
       Under Whistleblower Provision, § 3730(h) ........ 464
    D. Count III — CEPA Liability ........................... 465
       1. Whether CEPA is Preempted as a
          Matter of Federal Law ............................. 465
         a. The English Categories of Preemption ............ 466
         b. Precedents  ..................................... 469
       2. Whether CEPA is Preempted as a
          Matter of State Law ............................... 470
       3. Whether there is Individual Liability Under CEPA .. 471
    E. Count IV — Defamation  ............................... 474
       1. Amended Complaint ................................. 474
       2. Proposed Amendment ................................ 475
    F. Count V — Plaintiff Keenan's Qui Tam Claim ..... 477

  III. CONCLUSION ........................................... 479

This case involves allegations of fraud against the federal government by a nursing service, its subsidiary, and various of its employees. Plaintiff Joann Palladino filed a qui tam complaint under the Federal False Claims Act ("FCA"), 31 U.S.C. § 3729 (a) against the various defendants, as well as claims of defamation and claims of retaliation for her "whistleblowing" under § 3730(h) of the FCA and under New Jersey's Conscientious Employee Protection Act ("CEPA"), N.J.S.A. 34:19-1, et seq. Plaintiff Darlene Keegan also brings a qui tam claim as a relator within the same action.

This opinion must decide several issues of first impression, including whether the federal False Claims Act preempts an action by the plaintiff-employee arising from the same circumstances under the New Jersey Conscientious Employee Protection Act, and whether CEPA permits an action for individual liability against supervisors who allegedly precipitated plaintiff's retaliatory discharge.

Various motions are currently before the Court, including the motion of defendants VNA of Southern New Jersey, Inc. ("VNA"), Southern New Jersey Visiting Nurse Service System, Inc. ("VNSS"), Judy Demby, Julie Melendez, Christine McCullough, and Maryanne Czoch*fn1 for partial dismissal of the Amended Complaint, upon defendant M. Kelly Cooke's separate motion to dismiss the Amended Complaint against her in its entirety, and upon plaintiff Joann Palladino's motion to amend Count IV of the Amended Complaint. For the reasons stated herein, Ms. Palladino's motion to amend will be granted, and all defendants' motions to dismiss will be granted in part and denied in part.

I. BACKGROUND

The facts as alleged are as follows. For the purposes of this motion, the facts as alleged are taken as true. Plaintiffs Joann Palladino and Darlene Keegan are licensed and registered nurses who were formerly employed by defendant VNA of Southern New Jersey, Inc. ("VNA"), a home health agency operated out of its headquarters in Runnemede, New Jersey. (Amended Compl. ¶¶ 4, 12, 60.) Visiting Nurse Service System, Inc. ("VNSS") is the parent company of VNA, and it provides VNA with management and support services. (Id. at ¶ 5.) According to Ms. Palladino and Ms. Keegan, VNA, VNSS, and various VNA corporate officials and supervisors, including M. Kelly Cooke, Judy Demby. Julie Melendez, Christine McCullough, and Maryanne Czoch, engaged in a scheme of billing for unnecessary and improper home health services for patients who were not home bound and who did not require skilled nursing care, thus receiving overpayments from the United States government. (Id. at ¶¶ 6-10.)

Ms. Palladino worked for VNA from 1991 until February 13, 1996, when she was fired. (Id. at ¶ 13, 41.) On December 19, 1994, Ms. Palladino left the Runnemede office to become a Collaborative Practice Nurse in VNA's Philadelphia branch office. (Id. at ¶ 14.) In May of 1995, defendant Cooke was transferred to the Philadelphia office and became Ms. Palladino's supervisor. (Id. at ¶ 15.) At about that time, VNA formed a business relationship with Dr. Eric Paul Rosen, whose medical license had previously been suspended in 1983 after he was convicted of fifteen counts of fraud and one count of arson, whereby Dr. Rosen would refer home-care patients to VNA. (Id. at ¶¶ 16, 17.) VNA would bill Medicare or Medicaid for these services pursuant to Medicare/Medicaid rules and regulations, which require that the patients: (a) be homebound; (b) be in need of skilled nursing services; and (c) be in need of intermittent, short-term nursing care. (Id. at 16, 18.)

Shortly after Dr. Rosen began referring patients to VNA, Ms. Palladino noticed that many of the patients did not meet one or more of the Medicare/Medicaid eligibility requirements, and she allegedly complained of this to Cooke. (Id. at ¶ 19-20.) Cooke allegedly informed Ms. Palladino that ineligible patients would continue to be seen by the staff and that nurses would have to "find a reason" to make the patient eligible if the nurse's note did not reflect that the patient was eligible. (Id. at ¶ 20.)

In August of 1995, Ms. Palladino began assisting Cooke and another co-worker in reviewing patient charts for audit purposes. (Id. at ¶ 21.) While doing so, Ms. Palladino allegedly discovered that nurses were not documenting skilled visits, that patient charts were not properly completed, and that many visits (particularly for Dr. Rosen's patients) did not require skilled nursing services — making those patients ineligible for Medicare and Medicaid benefits. (Id.) Ms. Palladino allegedly raised a concern about the charts to Quality Assurance, to the Vice-President of Customer Service, to the Director of Admissions, and to defendant Demby, VNA's Director of Patient Services. (Id. at ¶ 7, 22.) In October of 1995, Palladino also allegedly complained to the Vice President of Customer Service that the Philadelphia office was violating Medicare/Medicaid rules, but nothing was done. (Id. at ¶ 23.)

Also in October of 1995, Cooke allegedly instructed Palladino to "fix" the charts of Dr. Rosen's patients and to resubmit them to Medicare/Medicaid so that VNA could be paid, but Palladino told Cooke that while Palladino would audit the charts, she would not "fix" or alter them because to do so would be illegal. (Id. at ¶ 24.) According to the Amended Complaint, Cooke responded by saying that VNA had to get paid. (Id.)

On October 21, 1995, Palladino was officially promoted to the position of Nursing Supervisor, the duties of which included supervising the nurses to ensure adherence to VNA standards and procedures. (Id. at ¶ 25.) Near the end of that month, Cooke designated Palladino as the sole employee responsible for obtaining Medicaid authorizations and instructed Palladino to lie to Medicaid, if necessary, by falsifying patient information in order to obtain all authorizations for Medicaid visits. (Id. at ¶ 26.) Palladino refused to do so. (Id.)

Towards the end of that month, Palladino informed VNA's Director of Admissions, that many of Dr. Rosen's patients did not qualify for VNA's services, and, in November, Quality Assurance Employees from the Runnemede office began to make visits to the Philadelphia offices, allegedly confirming Palladino's complaints. (Id. at ¶¶ 27-28.) In mid-November, Palladino complained again to defendant Demby about Dr. Rosen, and Demby asked Palladino to give her some of Dr. Rosen's patient names. (Id. at ¶ 29.) Demby allegedly entered those names into the computer and discovered that all of the patients had the same diagnosis, the same medication, and the same length of stay. (Id.)

In mid-November of 1995, Cooke allegedly hired two other nurses to handle Dr. Rosen's patients, despite the fact that no additional nurses were needed, in order to allow for the replacement of nurses who had complained about Dr. Rosen's referral practices. (Id. at ¶ 30.) In the beginning of December, Palladino allegedly learned that two case managers had been instructed to "fix" charts and alter records, and Palladino informed defendant Demby of this. (Id. at ¶ 32.) Palladino also told Demby that Cooke was treating a black employee in a discriminatory fashion. (Id. at ¶ 33.)

In January of 1996, Cooke allegedly instructed Palladino to sign time sheets giving hours to employees who did not work those hours. (Id. at ¶ 34.) Palladino complained to Wayne Whelan, Cooke's supervisor, about this, and he told Palladino not to sign the sheets. (Id.) On January 17, 1996, Palladino allegedly met again with defendant Demby and defendant Melendez, VNA's Director of Risk Management, complaining about the practices of the Philadelphia office.

According to the Amended Complaint, on February 13, 1996, Cooke told Palladino that Palladino should resign because she had put the agency at liability because of a problem with her driver's license, something about which Palladino was baffled because Palladino had previously apprised Cooke concerning a problem in renewing her driver's license. (Id. at ¶ 41.) Moreover, Palladino was baffled because her job responsibilities did not require her to drive on company time. (Id.) Nonetheless, Cooke allegedly told Palladino that it would be much better if Palladino resigned and "went away quietly." (Id.) Palladino refused to resign. (Id.)

The next day, Palladino met with defendant McCullough, VNA's Vice-President of Human Resources. (Id. at ¶ 42.) McCullough allegedly showed Palladino a copy of Palladino's driver's license that McCullough claimed "had been altered" which Palladino claimed was false, something which Whelan confirmed. (Id.) About that time, Palladino became concerned that Cooke was establishing a pretextual reason for Palladino's discharge, which allegedly was truly because of Palladino's complaints. (Id. at ¶ 43.) At 8:15 am, on Monday, February 19, 1996, defendant McCullough called Palladino at home and told her that she was terminated and should not come to work. (Id. at ¶ 44.) According to the Amended Complaint, Cooke and other agents of VNA and VNSS told third parties that Palladino had been terminated for cause and because she altered her driver's license, statements which were false and which injured Palladino's reputation in her profession. (Id. at ¶¶ 55-57.) A cross-motion by the plaintiffs currently before this Court alleges more specific details about the statements allegedly made to other doctors, health care professionals, and employers seeking references.

On February 21, 1996, Palladino met with defendant Czoch, the President of VNA, in order to complain about the activity in the Philadelphia office, informing Czoch that her driver's license was being used as a pretext for her termination. (Id. at ¶ 45.) Czech allegedly stated that she would look into the matter, but Palladino later received a letter affirming her discharge. (Id. at ¶ 46.) According to the Amended Complaint, defendants Cooke, Melendez, Demby, McCullough, and Czoch all concurred with, approved of, and ratified the decision to termination Palladino because of the complaints she had made regarding VNA's allegedly fraudulent Medicare/Medicaid billing practices. (Id. at ¶ 47.) Palladino's counsel wrote a letter to VNA requesting an investigation of the allegedly pretextual discharge. (Id. at ¶ 48.) VNA's response did not deny the allegations of pretext and did admit that an audit of the Philadelphia office showed that office documentation did not comply with VNA's standards of practice. (Id.) The response letter did not discuss allegations of fraud, and Palladino believes that Cooke controlled the audit and led auditors away from files which would evidence fraud. (Id.) Palladino alleges that VNA and VNSS (not limited to the Philadelphia office) knowingly submitted false and fraudulent Medicare/Medicaid claims to the United States government which the United States government paid, and that VNA "compensates" Dr. Rosen for his illegal referrals to VNA by entering into illicit arrangements with him or entities which he or his family controls. (Id. at ¶¶ 36-37.)

On May 1, 1996, Palladino filed a qui tam complaint under seal alleging that VNA, VNSS, and the individual defendants violated the False Claims Act ("FCA"), 31 U.S.C. § 3729 (a)(1)-(3); she additionally alleged violations of § 3730(h) of the False Claims Act; the Conscientious Employee Protection Act, N.J.S.A. 34:19-1, et seq., and common law defamation. On August 25, 1997, plaintiff Darlene Keegan joined the suit as an additional relator, describing allegations of improper billing in VNA's Runnemede, New Jersey headquarters of VNA, and thus the Amended Complaint was filed under seal.

According to Keegan, she was hired by VNA on May 26, 1993 in VNA's Runnemede office. (Amended Compl. ¶ 63.) She began as a fee for service nurse, visiting patients in their homes on weekends. (Id. at ¶ 65.) After a few months, Keegan allegedly began to see a trend whereby many patients, especially those of Dr. Churchill Blakey, were receiving skilled nursing care despite the fact that they were not truly homebound and did not need such services. (Id. at 65.) Thereafter, Keegan was assigned to be a triage nurse, handling telephone calls, assigning out nurses for existing patients, and handling emergency or new patient calls during her shift hours. (Id. at ¶ 66.) Part of Keegan's responsibilities included receiving regular "reports" from nurses who went out on home visits. (Id.) From these reports, Keegan allegedly discovered that many patients treated by VNA were not properly treated or billed under Medicare/Medicaid standards. (Id. at ¶ 67.) Keegan allegedly began to complain to her supervisors, who told Keegan not to question the homebound status or skilled nursing need status, but merely to assign nurses out. (Id. at ¶ 71.) Keegan was allegedly told not to discharge any patients before the maximum time permitted for their care. (Id.) These instructions came in part from defendant Demby. (Id. at ¶ 72.) Keegan believes that VNA and VNSS, along with the participation of defendants Cooke, Demby, Melendez, Czoch, and various others, have engaged in an improper billing scheme designed to defraud the United States out of Medicare/Medicaid funds. (Id. at ¶¶ 74-76.)

On October 6, 1997, the government filed a notice of election to intervene in the allegations of plaintiffs' Amended Complaint. On April 3, 1998, the government filed its own Amended Complaint alleging violations of the False Claims Act, declining, on April 6, 1998, to intervene in plaintiffs' Amended Complaint.*fn2On April 7, 1998, the Court entered an Order unsealing the Complaint and Amended Complaint, but retaining all previous filings with the Court under seal. The defendants' motions to dismiss and the plaintiffs' cross-motion to amend the Amended Complaint are now before this Court.

II. DISCUSSION

A. Motion to Dismiss Standard

A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). A district court must accept any and all reasonable inferences derived from those facts. , Unger v. National Residents Matching Program, 928 F.2d 1392 (3d Cir. 1991); Glenside West Corp. v. Exxon Co., U.S.A., 761 F. Supp. 1100, 1107 (D.N.J. 1991); Gutman v. Howard Sav. Bank, 748 F. Supp. 254, 260 (D.N.J. 1990).

The question before the court is not whether the plaintiff will ultimately prevail; rather, it is whether he can prove any set of facts in support of his claims that would entitle plaintiff to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). "Although the Federal Rules of Civil Procedure do not require a claimant to set forth an intricately detailed description of the asserted basis for relief, they do require that the pleadings give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Baldwin County Welcome Center v. Brown, 466 U.S. 147, 150 n. 3, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

Therefore, in deciding a motion to dismiss, a court should look to the face of the complaint and decide whether, taking all of the allegations of fact as true and construing them in a light most favorable to the nonmovant, plaintiff's allegations state a legal claim. Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990).

B. Count I — Liability Under §§ 3729(a)(1),(2),&(2)

Count I of the Amended Complaint alleges that VNA, VNSS, and all of the individual defendants are liable to the United States for violation of the False Claims Act, 31 U.S.C. § 3729 (a) ("FCA"). Only defendant Cooke has moved to dismiss this count, arguing that Ms. Palladino has not stated a claim against her under any of the three subsections of § 3729(a).

There are three separate types of violations under § 3729(a). Persons may be liable for knowingly presenting or causing to be presented false claims for payment from the United States government. 31 U.S.C. § 3729 (a)(1). Persons may be liable for knowingly making, or causing to be made, false records or statements in order to receive payment from the Government. Id. at § 3729(a)(2). Finally, those who act together to conspire to have the government pay a false or fraudulent claim may be liable. Id. at § 3729(a)(3). Because claims under the FCA are claims of fraud, the pleading rules are somewhat more specific: plaintiffs must allege those claims with particularity. Fed.R.Civ.P. 9(b). See also United States ex rel LaCorte v. SmithKline Beecham Clinical Laboratories, Inc., 149 F.3d 227, 234 (3d Cir. 1998). Particularity includes "specifying the time, place, and substance of the defendant's alleged conduct." Id. (citing Cooper v. Blue Cross & Blue Shield of Florida 19 F.3d 562, 567 (11th Cir. 1994)).*fn3 See also In re Stac Electronics Sec. Litig., 89 F.3d 1399, 1404 (9th Cir. 1996); Mruz v. Caring, Inc., 991 F. Supp. 701, 719 n. 26 (D.N.J. 1998) (quoting Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1020 (7th Cir. 1992)).

Defendant Cooke does not argue that Ms. Palladino has failed to allege her claim with particularity in terms of specific dates or conduct. Rather, Ms. Cooke contends that the conduct in which Ms. Palladino alleges Ms. Cooke engaged does not violate any of the three provisions of § 3729(a). As to § 3729(a)(1), says Ms. Cooke, while Ms. Palladino alleged that "defendants VNA or VNSSJ submitted to the United States of America, many requests for Medicare/Medicaid reimbursement which VNA knew to be false or fraudulent and the United States of America paid for these claims" (Amended Compl. ¶ 36), the Amended Complaint contains no factual allegation that Ms. Cooke herself submitted a fraudulent claim to the government. As to § 3729(a)(2), Cooke argues, while the factual allegations of the Amended Complaint would establish that Cooke attempted to have false records made in order to defraud the government, there is no factual allegation that Ms. Cooke was successful in her efforts. Finally, Ms. Cooke argues that while the Amended Complaint does allege that VNA and VNSS conspired with Dr. Rosen to present false claims to the government, there are no allegations that Ms. Cooke participated in this conspiracy, and thus there is no claim under § 3729(a)(3).

As stated earlier, when deciding if the plaintiff can prove no set of facts which would entitle it to relief such that a motion to dismiss should be granted, it is this Court's duty to read the Complaint as a whole and draw any and all reasonable inferences for the plaintiff. Unger, 928 F.2d 1392. Keeping this in mind, the Court finds that Ms. Palladino has stated claims against Ms. Cooke under all three subsections of § 3729(a). It is true that Ms. Palladino did not specifically include factual allegations which stated that "Ms. Cooke submitted false claims to the government," that "Ms. Cooke was successful in having records falsified," or that "Ms. Cooke conspired with VNA and Dr. Rosen to submit falsified Medicare and Medicaid forms to the government." However, taking all of the factual allegations as true and construing them in a light most favorable to the nonmovant, here Ms. Palladino, the "missing" allegations can easily be inferred.

Taken together, Ms. Palladino alleges that in May 1995, VNA's Philadelphia office entered into an agreement with Dr. Rosen by which he would refer patients to VNA in return for referrals to service providers that he or his family controlled. (Amended Compl. ¶ 16.) Palladino allegedly found that many of Dr. Rosen's patients were not eligible for services and informed Ms. Cooke of this. (Id. at ¶ 20.) Ms. Cooke allegedly told Ms. Palladino that VNA would keep providing services nonetheless and that nurses should "find a reason" to make the patients eligible. (Id.) That October, Ms. Cooke allegedly instructed Ms. Palladino to "fix" charts for Dr. Rosen's Medicaid payments and resubmit those to the government so that VNA could get paid, but Ms. Palladino refused to "fix" or alter charts. (Id. at ¶ 24.) Ms. Cooke allegedly later instructed Ms. Palladino to obtain all authorizations for Medicaid visits, lying to Medicaid, if necessary, by falsifying patient information. (Id. at ¶ 26.) When Ms. Palladino refused to do so and complained to others at VNA (also alleged to be conspirators in the plan to defraud the government), Ms. Cooke allegedly hired two other nurses to handle Dr. Rosen's patients even though no additional nursing staff was needed, in order to replace nurses who complained about Dr. Rosen's practices. (Id. at ¶¶ 26-30.) The Amended Complaint then alleges that VNA and VNSS were successful in getting the government to pay for falsified claims. (Id. at ¶ 36.)

Accepting these allegations as true and taking all reasonable inferences from them, it can be inferred that Ms. Palladino alleges that Ms. Cooke was participating in a conspiracy with the other defendants to whom Ms. Palladino complained, as well as VNA and VNSS in general and Dr. Rosen, to defraud the government. This conspiracy, which is alleged to have been successful, was to be carried out by having Ms. Cooke and others aid and abet VNA by submitting records to the government which were falsified by members of Ms. Cooke's staff, such as the nurses who Ms. Cooke hired despite the alleged lack of need for them. Clearly, then, Ms. Palladino is alleging that Ms. Cooke submitted falsified claims to the government, that she conspired with others to defraud the government, and that she caused others to falsify documents in pursuance of that plan. Therefore, Count I of the Amended Complaint will not be dismissed.

  C. Count II — Individual Liability Under
  Whistleblower Provision, § 3720(h)

All of the individual defendants move to dismiss Count II against them, arguing that there is no individual liability under the whistleblower provision of the FCA, 31 U.S.C. § 3730 (h). After reading the defendants' briefs in this regard, Ms. Palladino agrees that there is no individual liability under the False Claims Act for individuals that are not her employer. However, she asks that this Count be dismissed against the individual defendants without prejudice to her right to reallege it if discovery uncovers evidence that any of these individuals were her "de facto" employer. Defendants ask that the dismissal be with prejudice.

This Court agrees that this Count as alleged against the individual defendants should be dismissed with prejudice. Section 3730(h) plainly ...


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