Third Circuit Finds Individual Ownership Interest in Corporation Not Required for FCA Liability and Unsworn Testimony Insufficient to Create a Material Issue of Fact

On March 14, 2018, the Third Circuit affirmed in part and vacated in part a district court ruling granting the United States’ motion for summary judgment.  The case raised three issues:  (1) whether an individual without any ownership interests in a company can face FCA liability for the company’s failure to perform a required act to qualify for Medicare reimbursement; (2) whether an unsworn statement is sufficient to create a material issue of fact when weighed against facts admitted during a plea colloquy; and (3) whether a defendant corporation is collaterally estopped from contesting FCA liability or damages based on an individual’s plea colloquy.

In United States ex rel. Jane Doe v. Heart Solution PC et al., No. 17-2019 (3d Cir. Mar. 14, 2019) the United States intervened in a case involving civil FCA claims against a married couple, the Patels, who had previously been convicted of defrauding Medicare.  The couple had submitted forged diagnostic reports to Medicare and performed diagnostic neurological testing without the proper level of physician supervision to qualify for Medicare reimbursement.  During her plea colloquy, Ms. Patel admitted key facts.  First, when asked if she and her husband “own and operate mobile diagnostic companies known as Biosound Medical Services and Heart Solution PC,” Ms. Patel answered “yes.”  Second, when asked if 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” she responded “yes.”

The FCA case sought to hold the Patels and their two companies, Biosound and Heart Solution, civilly liable for defrauding Medicare on the basis of the neurological testing fraud.  In its motion for summary judgment, the United States argued that Ms. Patel’s plea colloquy established all the required elements of the FCA claim and for that reason summary judgment was appropriate.  In their opposition, defendants’ relied on an unsworn statement by Mr. Patel, in which Mr. Patel stated that one of the companies, Biosound, had employed the required level of physician supervision from 2006 to 2007 and 2012 to 2014.  The district court granted summary judgment.

Only Ms. Patel and Heart Solution appealed.  Ms. Patel first argued that she could not be liable for any fraud associated with Biosound because she held no ownership interest in the company.  The Third Circuit rejected the argument, holding that ownership interest is irrelevant to determining FCA liability.  The conclusion was based on a straight reading of the elements of an FCA claim:  falsity, causation, knowledge, and materiality.  Ownership is not an element of an FCA claim.

Ms. Patel and Heart Solution then argued the district court erred in not giving any weight to Mr. Patel’s unsworn statement.  The Third Circuit disagreed, finding that the statement, not being sworn or made under penalty of perjury, was “incompetent summary judgment evidence.”  Therefore, the Court held that the district court properly ignored Mr. Patel’s statement.

The Third Circuit then turned to whether Heart Solution was collaterally estopped from contesting liability and damages regarding the alleged FCA violation based on Ms. Patel’s criminal conviction and plea colloquy.  Because Heart Solutions was not charged with fraud in the Patels’ criminal proceeding, the Third Circuit concluded that Heart Solution “did not have any opportunity, much less a ‘full and fair opportunity,’ to litigate any issue involved in this appeal.”  Accordingly, the Third Circuit vacated the lower court’s ruling as to the collateral estoppel finding.

A copy of the Third Circuit’s opinion can be found here.