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United States ex rel. Doe v. Heart Solution, PC

United States Court of Appeals, Third Circuit

May 3, 2019


          Argued on October 1, 2018

          On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 2-14-cv-03644) District Judge: Honorable Stanley R. Chesler

          Mark E. Cedrone (ARGUED) Cedrone & Mancano Counsel for Appellants

          Charles Graybow (ARGUED) Office of United States Attorney Counsel for Appellee USA

          Paul B. Brickfield Brickfield & Donahue Timothy J. McInnis Counsel for Appellee Jane Doe

          Before: JORDAN, ROTH, Circuit Judges and STEARNS [*] , District Judge.


          ROTH, Circuit Judge.

         Nita K. Patel and her husband, Kirtish N. Patel, were convicted of defrauding Medicare in a prior criminal proceeding. The United States then brought this civil action for the same fraudulent schemes against Ms. Patel, Ms. Patel's healthcare company (Heart Solution P.C.), Mr. Patel, and Mr. Patel's healthcare company (Biosound Medical Services). The United States prevailed in the District Court and only Ms. Patel and Heart Solution appealed.

         In granting summary judgment to the United States, the District Court relied on the Patels' convictions and plea colloquies in the criminal case, essentially concluding that Ms. Patel had already admitted to all elements and issues relevant to her civil liability. However, the District Court failed to dissect the issues that were determined in the criminal case from those that were not. It lumped together Ms. Patel and Heart Solution, even though Heart Solution was not involved in the criminal case. It also failed to disaggregate claims Medicare paid to Ms. Patel and Heart Solution from those paid to Mr. Patel and Biosound. As such, it erred in finding that Ms. Patel and Heart Solution conceded all of the essential elements to every claim in this appeal. Thus, we will affirm the judgment of the District Court in part and vacate in part and remand for further proceedings consistent with this opinion.


         In November 2015, the Patels pled guilty to separate, but nearly identical, criminal information charges under 18 U.S.C. § 1347 for defrauding Medicare.[1] They conducted this fraud through two separate schemes. First, the Patels submitted diagnostic reports to Medicare that should have been written by a specialist physician-but were not-and contained forged physician signatures. Ms. Patel and Heart Solution do not dispute liability with respect to the claims involving this scheme. The second scheme involved diagnostic neurological testing. Medicare regulations require all diagnostic testing to be "reasonable and necessary," as defined under Medicare Part B.[2] In order for diagnostic neurological testing to be "reasonable and necessary," it must be performed under the proper level of physician supervision.[3] The Patels did not comply with these regulations. Instead of employing a supervising neurologist for these tests, the Patels falsely represented to Medicare that the neurological testing was being supervised by a licensed neurologist.

         Much of this appeal centers on Ms. Patel's plea colloquy for her criminal conviction. The relevant parts of the colloquy follow. First, the sentencing judge asked Ms. Patel whether she and her husband "own and operate mobile diagnostic companies known as Biosound Medical Services and Heart Solution PC," and she responded, "yes."[4] Neither the court, the government, nor Ms. Patel clarified whether she had ownership interests in both companies or just Heart Solution.[5] Next, the judge asked whether between 2006 and 2014, Ms. Patel and her husband "falsely represent[ed] to Medicare that the neurological testing being performed at Biosound Medical Services was being supervised by a licensed neurologist, when, in fact, it was not."[6] Again, she responded "yes."[7] Neither the court nor the parties addressed whether Heart Solution-as opposed to the Patels or Biosound-made any such misrepresentations. Finally, the judge asked whether, "Biosound Medical Services and Heart Solution, PC, [were] paid at least [$1.18 million] by Medicare . . . for diagnostic neurological testing that was never supervised by a licensed neurologist." Ms. Patel answered, "yes."[8] Neither the parties nor the court sought to clarify whether one company was paid the entire amount or whether the payments were divided between the companies.

         In June 2014, relator Jane Doe brought a qui tam suit under the False Claims Act (FCA) against Ms. Patel, Mr. Patel, Biosound, and Heart Solution. The United States filed a complaint in intervention on November 18, 2015. The plaintiffs sought to hold the Patels and the two companies civilly liable for defrauding Medicare through the two schemes described above. Specifically, they claimed the defendants violated two provisions of the FCA by (1) "knowingly present[ing] or caus[ing] to be presented a false or fraudulent claim, "[9] and (2) "knowingly mak[ing], us[ing], or caus[ing] to be made or used a false record or statement material to a false or fraudulent claim."[10] They also brought common law claims including fraud, unjust enrichment, disgorgement of profits, and payment by mistake of fact.

         In March 2016, the plaintiffs moved for partial summary judgment on the two FCA counts, arguing that Ms. Patel's admissions during her plea colloquy established all the elements of the FCA claims and that therefore Heart Solution and Ms. Patel were collaterally estopped from contesting FCA liability. In their opposition brief, the defendants relied on a statement submitted by Mr. Patel in a pleading entitled "Certification of Kirtish N. Patel." In it, Mr. Patel claimed that Biosound employed a supervising neurologist from 2006 to 2007 and from 2012 to 2014. The defendants argued that the statement raised an issue of fact as to the time frame during which Biosound lacked a supervising neurologist. The statement was not sworn and was not made under the penalty of perjury.

         The District Court granted summary judgment to plaintiffs on July 8, 2016, finding that the guilty pleas and accompanying colloquies established all elements of the FCA claims and collaterally estopped the defendants from contesting liability. It also struck the section of Mr. Patel's statement regarding the time frame during which Biosound had a supervising neurologist because it was "self-serving" and conflicted with testimony from the plea colloquy regarding the time frame without any "reasonable explanation." On December 23, 2016, the government moved for summary judgment on the remaining common law claims under the same theory-that the defendants had admitted to all the elements of the claims. The District Court agreed and granted the motion on April 3, 2017.

         On May 3, 2017, Ms. Patel and Heart Solution appealed both summary judgment orders.[11] They submit two primary arguments. First, they contend that Ms. Patel cannot be liable for any unsupervised neurological testing at Biosound because she did not own or operate Biosound, and thus had no legal duty to ensure Biosound employed a neurological testing supervisor. Second, they argue that even if we find them liable for the neurological testing issues at Biosound, Mr. Patel's statement created an issue of material fact as to the time frame during which the unsupervised testing occurred. We reject both of these arguments.

         Moreover, we will affirm the District Court with regard to Ms. Patel's liability on the FCA and common law fraud claims. However, we will vacate the District Court's findings that (1) Heart Solution is estopped from contesting liability and damages for all claims, and (2) Ms. Patel is estopped from contesting liability and damages for the remaining common law claims.


         The District Court had jurisdiction under 31 U.S.C. § 3732(a) and 28 U.S.C. §§ 1331, 1367. We have jurisdiction of this appeal under 28 U.S.C. § 1291. We exercise plenary review over a district court's grant of summary judgment, applying the same standard as the district court.[12] Under this standard, a court will "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[13]


         We first address Ms. Patel's and Heart Solution's two main arguments on why the District Court erred in granting summary judgment. First, they contend that Ms. Patel cannot be liable for Biosound's unsupervised testing because she did not possess an ownership interest in Biosound and merely worked as an employee. We reject this argument and hold that ownership interest is irrelevant to FCA liability. Second, they argue that even if Ms. Patel is liable for Biosound's fraud, Mr. Patel's statement created a triable issue of fact as to the years during which Biosound lacked a supervising neurologist. We conclude that Mr. Patel's statement cannot create a disputed issue of fact on summary judgment because it was not sworn or made under penalty of perjury.


         We address the issue of ownership first. Ms. Patel argues that because she did not have any ownership interest in Biosound, she had no duty to ensure that Biosound employed a supervising neurologist and was not in charge of ensuring Biosound's compliance with Medicare regulations. However, whether Ms. Patel had an ownership interest in Biosound is irrelevant to her liability under the FCA.[14] There are four elements to the two FCA claims brought here: "falsity, causation, knowledge, and materiality."[15] Ownership is not one of them. Although corporations and individuals with ownership interests-such as board members and executives-are typically the parties investigated and sued for FCA violations, individuals at all levels of a company have been found liable under the FCA.[16] We conclude that individual employees with no ownership interest in a company can be liable under Sections 3729(a)(1)(A) and 3729(a)(1)(B) of the FCA.

         This conclusion, that an ownership interest is not required for FCA liability, is consistent with the language of the FCA. Section 3729 establishes civil penalties for "[a]ny person" in violation of its provisions.[17] The FCA does not define the term "person," but the Supreme Court has found that the meaning of the word has not changed since 1863, when Congress passed the original FCA.[18] There is no doubt that Congress intended the term "person" to include natural persons. There is no suggestion in the FCA that an ownership interest is necessary to the definition of "person."[19]

         Recent Department of Justice (DOJ) guidance regarding the FCA is consistent with our holding that ownership is not required for FCA liability. In 2015, then- Deputy Attorney General Sally Yates issued a memo regarding corporate fraud and wrongdoing, including FCA enforcement.[20] The memo explicitly states that the DOJ should focus on "seeking accountability from the individuals who perpetrated the wrongdoing."[21] The memo states that the DOJ should "fully leverage its resources to identify culpable individuals at all levels in corporate cases"[22] and that DOJ "lawyers should not agree to a corporate resolution that includes an agreement to dismiss charges against, or provide immunity for, individual officers or employees."[23] It is clear from the language of the memo that, in the eyes of the DOJ, liability does not depend on ownership and employees are subject to suit.

         Because ownership is irrelevant to FCA liability, the first argument fails.


         Ms. Patel and Heart Solution also argue that there remains a triable issue of fact regarding the years during which Biosound employed a supervising neurologist. In support of this argument, they rely on Mr. Patel's statement, which claims that Biosound employed a supervising neurologist during 2006-2007 and 2012-2014. We conclude that because Mr. Patel's statement was both unsworn and not given under the penalty of perjury, it was insufficient to create an issue of fact on summary judgment.

         This holding is consistent with the Federal Rules of Civil Procedure, authority from our sister circuits, and our own precedent. A 2010 amendment to the Advisory Committee Notes on Federal Rule 56(c)(4), which governs evidence submitted on summary judgment, states "that while 'a formal affidavit is no longer required' on summary judgment, a certification submitted as a substitute for an affidavit must be subscribed in proper form as true under penalty of perjury." This amendment incorporates a statutory exception to the general rule that affidavits must be sworn to be considered on summary judgment. The statute, 28 U.S.C. § 1746, provides that when a matter is required to be supported by a sworn affidavit, the matter can instead be supported by an unsworn "declaration, certificate, verification, or statement," as long as the statement is made under penalty of perjury and dated. Thus, while an unsworn statement may be considered on summary judgment, an unsworn statement that has not been made under penalty of perjury cannot.

         The Fifth Circuit Court of Appeals reached the same conclusion when presented with this issue. In Nissho-Iwai American Corp. v. Kline, [24] the only evidence the nonmoving party submitted on summary judgment was an statement that was "neither sworn nor its contents stated to be true and correct nor stated under penalty of perjury."[25] The court held that unsworn statements, on their own, generally cannot raise an issue of fact as to preclude summary judgment unless the statement falls within the statutory exception to this rule under Section 1746.[26] The Second and Seventh Circuit Courts of Appeals have come to similar conclusions.[27]

         Although we have not directly addressed this issue in a precedential opinion, today's holding is in line with our prior rulings. In Woloszyn v. County of Lawrence,[28] we held that a district court did not err in refusing to consider an unsworn statement on summary judgment because it did not comply with Rule 56.[29]

         Accordingly, Mr. Patel's statement is incompetent summary judgment evidence. His statement is the only evidence Ms. Patel and Heart Solution submitted on the issue of the whether Biosound had a supervising neurologist at any point between 2006 and 2014.[30] Therefore, there is no genuine ...

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