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