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United States v. Quest Diagnostic Inc.

United States District Court, N.D. Indiana, Hammond Division

February 28, 2017

UNITED STATES OF AMERICA AND STATE OF INDIANA EX REL., WILLIAM DITTMANN, Plaintiffs,
v.
QUEST DIAGNOSTICS, INC. AND XEROX BUSINESS SERVICES, LLC, Defendants.

          OPINION AND ORDER

          PHILIP P. SIMON, JUDGE.

         This qui tam action was brought by William Dittmann on behalf of the United States and the State of Indiana alleging that through their implementation and administration of a private tobacco cessation program, Quest Diagnostics, Inc. and Xerox Business Services, LLC have defrauded both governments. The United States and State of Indiana declined to intervene in this action, and both Xerox and Quest seek dismissal of the action for failure to state a claim. [DE 19; DE 30.]

         Background

         The facts come from the Complaint, which I accept as true for present purposes. The basis of Dittmann's Complaint stems from the administration of the National Tobacco Control Program (the “NTCP”). The Center for Disease Control and Prevention's Office on Smoking and Health created the NTCP in 1999, which provides funding and technical support to state health departments, including Indiana. [DE 1 at ¶¶26-29.] The State of Indiana deposits federal funds received from NTCP into the Indiana Tobacco Use Prevention and Cessation trust fund, from which the Indiana Department of Health may expend money in the form of grants to various public or private entities to implement the long range plan. [Id. at ¶¶30-32.] The CDC also funds the Indiana Tobacco Quitline, which is operated by a company named Alere Wellbeing. [Id. at ¶¶33-34.] Dittmann alleges that Alere also receives grant money from the Trust Fund to subsidize its Quit for Life Program, a program that Xerox offers to its employees. [Id. at ¶¶35-36.]

         Here is how the program works, according to Dittmann. Starting in 2015, Xerox assessed a $500 tobacco surcharge to every employee and their covered spouse/domestic partner enrolled in a Xerox medical plan. [Id. at ¶37.] In order to avoid the surcharge, Xerox requires that each employee and their covered spouse/domestic partner complete a wellness screening, which is administered for Xerox by Quest. [Id. at ¶39.] If a Xerox employee or their covered spouse/domestic partner's blood test is negative for cotinine, which is a bio marker for exposure to nicotine, then the surcharge is removed. But if their blood tests positive, they can still remove this surcharge by enrolling in Alere's Quit for Life program, which involves telephonic meetings with a “quit coach.” [Id. at ¶¶40-41.]

         Dittmann alleges that those who refuse to participate in the Xerox program are presumed to be tobacco users. [Id. at ¶46.] Dittmann refused to participate in the Xerox program and take the required tests. As a result, he alleges, he was falsely designated as being a tobacco user in Xerox and Quest's “information and business systems” and, therefore assessed the $500 tobacco surcharge. [Id. at ¶¶47, 50.]

         One might wonder, where's the false claim in all of this? Dittmann does allege in his Complaint that “[t]he evidence of tobacco users is reported to the CDC through the State of Indiana annually in order to make claims for federal money from the Trust Fund . . . [and that] the level of funding to those administering tobacco cessation programs, such as Alere, is determined on a per capita basis. Therefore each individual that is falsely labeled as a tobacco user is the basis for a false claim.” [Id. at ¶¶55-56.] In addition, Dittmann alleges that “[t]he NTCP's contribution to the Indiana tobacco use prevention and cessation trust fund would be reduced if the defendants had not fraudulently misrepresented that William Dittmann and others like him were tobacco users . . . [and that] [t]he Indiana Department of Health's contributions from the Trust Fund to Alere would also be reduced had the defendants not fraudulently misrepresented that William Dittmann and others like him were tobacco users.” [Id. at ¶¶59-60.]

         Dittmann's complaint was filed under seal alleging that Xerox and Quest had violated the Federal False Claims Act as well as the Indiana False Claims Act. The Complaint also alleges state claim claims of unjust enrichment, payment by mistake, and defamation. [DE 1.] Both United States and the State of Indiana elected not to intervene in this action. [DE 11, 12.] The Complaint was subsequently unsealed and Dittmann was directed to serve a copy on Quest and Xerox, both of whom timely moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). [DE 19, 30.]

         Discussion

         To survive such a motion to dismiss for failure to state a claim, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (internal quotation marks and citations omitted); accord Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). I must accept as true all factual allegations in the Complaint and draw all reasonable inferences in favor of the plaintiff, but I am not required to accept “threadbare recitals of a cause of action's elements, supported by mere conclusory statements.” Ashcroft, 556 U.S. at 663.

         Causes of action brought under the False Claims Act are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b). U.S. ex rel. Gross v. AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005). This means that a plaintiff must plead “with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). “The complaint must state the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff.” U.S. ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014). In other words, to meet the requirements of Rule 9(b), a plaintiff must allege “the who, what, when, where, and how: the first paragraph of any newspaper story.” DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). Failure to do so may results in dismissal under Federal Rule of Civil Procedure 12(b)(6).

         The False Claim Act imposes civil liability for a series of actions under 31 U.S.C. § 3729(a). For this case, we only need to concern ourselves with Section 3729(a)(1), which imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” by the government or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A)-(B). To establish a claim under this section, a relator must prove three elements: (1) a false or fraudulent claim; (2) that was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with the knowledge that the claim was false. United States ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 740-41 (7th Cir. 2007) (overruled on other grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 912 (7th Cir. 2009)).

         Dittmann's complaint suffers from several fatal flaws. First, Dittmann fails to allege that either Quest or Xerox submitted a claim to the Federal Government or the State of Indiana-let alone a false one. Dittmann alleges as his basis for a False Claims Act violation that “defendants knowingly falsified the number of tobacco users employed by Xerox in the reports submitted to the CDC and other federal entities as well as the reports submitted to the State of Indiana . . . [and] [t]herefore, the claims for monies to fund the tobacco cessation programs utilized by the defendants are illegal false claims.” [DE 1 at ¶¶64-65, 71-72.] The first problem with this allegation is that Dittmann has lumped together both defendants in this case and has not indicated which defendant, if any, falsified a report. And this problem is indicative of the larger one, which is that this allegation is so generally pleaded that I cannot deduce what Dittmann alleges actually is happening. For instance, I'm left wondering what these reports are that Dittmann references. Who prepares them? What information do they contain? When and how often are they prepared? From whom and to whom are they transmitted? What are they used for? Are they submitted for the purposes of receiving payment or funding?

         Dittmann does not identify anywhere within his complaint a single report or an example of a report that Xerox or Quest would have sent to either the United States or the State of Indiana in which it reported the number of tobacco users it employed.[1] So what Dittmann is asking is for me to infer an entire fraudulent scheme from the assertion that someone reports the number of believed tobacco users employed by Xerox to the CDC. I simply cannot do this. See, e.g., United States ex rel. Clausen v. Laboratory Corp. of America, Inc., 290 F.3d 1301, 1312 (11th Cir. 2002) (“We cannot make assumptions about a False Claims Act defendant's submission of actual claims to the Government without stripping all meaning from Rule 9(b)'s ...


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