DOJ’s Failure to Provide Adequate Pre-Filing Notice Leads to Invalidation of Tolling Agreement

Last week, a federal judge in the Eastern District of North Carolina invalidated a tolling agreement between DOJ and the defendants, finding that the Government breached the agreement by failing to provide the defendant with the agreed-upon thirty days’ notice before filing suit.  See United States v. Bertie Ambulance Serv., Inc., No. 2:14-CV000053-F (Oct. 8, 2015).  Bertie Ambulance Service provides patients in eastern North Carolina with emergency transport service as well as transport to non-emergency scheduled dialysis treatments.  The Government began investigating Bertie in 2004 for the submission of false claims for Medicare and Medicaid payments, eventually alleging in its complaint that Bertie regularly submitted reimbursement claims for services that “were not medically necessary, were not supported by a valid Physician Certification Statement, or otherwise did not qualify for reimbursement.”  Upon notifying Bertie of the investigation on August 31, 2010, the Government requested that Bertie consent to tolling the six-year statute of limitations, and the parties ultimately entered into four tolling agreements that covered the period from September 1, 2010, to August 29, 2014.  Bertie agreed to waive its statute of limitations defense in exchange for the Government providing “thirty (30) days notice to the prospective defendants before the United States files any action alleging the Government claims.”

The Government filed suit on August 28, 2014.  Bertie moved for summary judgment, arguing that the government had failed to provide the required notice.  DOJ argued that it provided the required notice before filing because it had emailed defense counsel on July 16, 2014, “that the Government was ‘now preparing to move forward in this case,’ that ‘it may be helpful to schedule a phone call in the next week to discuss our next steps,’ and that ‘[w]e appreciate your cooperation as we pursue or seek to resolve this civil action.’”  Additionally, the Government informed defense counsel in a phone call that it “had a complaint prepared for filing.”  However, the court held that the Government’s phone and email statements fell “short of what could reasonably be considered notice of intent to file suit,” noting that they sounded “like an attempt at a hard-line negotiation, not notification of a concrete fact.”  The court determined that a tolling agreement is a contract and interpreted North Carolina contract law to entitle the non-breaching party to elect to rescind the contract when there is a material breach going to the very heart of the instrument.  The effect of rescission is the entire abrogation and undoing of the contract; that is, it is as if the original contract never existed.  The court determined that the Government’s only duty was to provide thirty days’ notice prior to filing suit, and that its failure to do so was a material breach going to the heart of the contract, thus entitling Bertie to rescission.  The court accordingly dismissed all claims against Bertie that arose prior to August 28, 2008.

A copy of the opinion can be found here.