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United States v. Abundant Life Therapeutic Services Texas, LLC

United States District Court, S.D. Texas, Houston Division

April 30, 2019

UNITED STATES OF AMERICA and THE STATE OF TEXAS, ex rel. THOMAS HEADEN III, Plaintiffs,
v.
ABUNDANT LIFE THERAPEUTIC SERVICES TEXAS, LLC, et al., Defendants.

          MEMORANDUM AND OPINION

          Lee H. Rosenthal, Chief United States District Judge.

         Relator Thomas Headen filed this qui tam action against Abundant Life Therapeutic Services Texas, LLC, a medical-services provider; Jon Ford, the former manager of Abundant Life; and unidentified defendants, alleging violations of the False Claims Act, the Anti-Kickback Statute, and the Texas Medicaid Fraud Prevention Act. (Docket Entry Nos. 1, 20). Abundant Life moved to dismiss the amended complaint, which the court granted, without prejudice and with leave to amend. (Docket Entry Nos. 12, 14, 18). Headen filed a second amended complaint in January 2019. (Docket Entry No. 20). Abundant Life again moved to dismiss, Headen responded, Abundant Life replied, and Headen surreplied. (Docket Entry Nos. 22, 30, 31, 33). Ford joined Abundant Life's motion to dismiss. (Docket Entry Nos. 27, 32).

         Based on a review of the second amended complaint; the motions, response, reply, and surreply; the record; the arguments of counsel presented at a hearing; and the applicable law, the motions to dismiss are granted. (Docket Entry Nos. 22, 27). Counts I, II, III, and IV are dismissed, with prejudice and without leave to amend, because amendment would be futile. The court declines to exercise jurisdiction over the pendent Texas-law claim, Count V, which is dismissed, without prejudice, so that Headen may refile it in state court. A dismissal order is separately entered.

         The reasons for these rulings are explained in detail below.

         I. Background

         The second amended complaint alleges the following facts. Headen was a consultant for Abundant Life from April 2017 to February 20, 2018, and was an employee from February 12 to February 28, 2018. (Docket Entry No. 20 at ¶ 5). In January 2018, Ford, then Abundant Life's manager, told Headen that “in order to induce the referral of Medicaid patients [to] Abundant Life, ” he had paid kickbacks to officials at Blackshear Elementary, the Madge Bush Living Center, Rhodes Charter Elementary School, Houston Independent School District, and Harmony Schools. (Id. at ¶¶ 5, 17-18). The kickbacks were paid through a nonprofit organization that Ford directed, the Assistance and Mentorship to Purpose Project. (Id.). Ford transferred at least $42, 000 to the Purpose Project for use in the scheme. (Id. at ¶ 17).

         In July and August 2017, Ford instructed Eryca Neville, a Purpose Project employee, to give $7, 200 in school uniforms, a washer and dryer machine, and educational supplies to Blackshear Elementary's principal. (Id.). Using “on-site campus access, ” Ford directed Melissa Shagun, an independent contractor working with Abundant Life, “to provide free skills building services . . . during school hours to students at Blackshear Elementary, ” then to refer Blackshear students to Abundant Life for “mental health services . . . and assessments.” (Id.). Ford told Headen that Shagun had referred “a litany of patients” to Abundant Life, including one student-patient named J.D. (Id.). According to Ford, Desiree Munoz, an employee of Blackwise LLC, a company owned by Jon Ford's brother, billed Medicaid $19.83 for a mental-health assessment Abundant Life provided J.D. (Id.).

         Jon Ford told Headen that he used the same scheme to induce referrals to Abundant Life from Rhodes Charter Elementary School. (Id. at ¶ 18). Eryca Neville, the Purpose Project employee, gave the Rhodes Charter principal $20, 000 in “computers purchased from Best Buy” in October 2017. (Id.). Abundant Life then received student referrals from Rhodes Charter through Melissa Shagun, the independent contractor working on Abundant Life's behalf. (Id.). Ford told Headen that as a result of the donation and subsequent referrals, Desiree Munoz and Blackwise billed Medicaid $19.83 four times for “initial assessments” Abundant Life gave student-patients J.W., A.W., Z.P. and B.C. from October to December 2017. (Id.).

         Ford also told Headen about a contract between Abundant Life and the Houston Independent School District, and between Abundant Life and the Harmony Schools. (Id.). The contracts “included an offer [for Abundant Life] to provide free skills building services . . . in exchange for Abundant Life billing Medicaid for mental health services.” (Id.). The services would “be free and billed to Texas [M]edicaid.” (Id.). The HISD contract, according to Ford, had signature lines for the HISD Chief Financial Officer, Rene Barajas; the HISD Controller, Sherrie Robinson; and the general counsel. (Id.). HISD and Harmony Schools student-patients received services from Abundant Life between October and December 2017. (Id.). Desiree Munoz billed Medicaid for certain services patients C.M, J.D., and D.P .received from Abundant Life. (Id.).

         Headen learned from Ford that Abundant Life retained independent contractors as marketing agents to generate referrals to Medicare and Medicaid. (Id. at ¶ 5). Abundant Life paid these contractors for “signing up schools and organizations for ‘free skills building' in exchange for child referrals.” (Id.). Ford told Headen that the schemes were illegal and that they “resulted in thousands of hours of billing, ” some reimbursed by Medicaid. (Id. at ¶¶ 17-18). According to Ford, this activity increased Abundant Life's monthly revenue from $230, 000 to $800, 000. (Id. at ¶ 18). The arrangements with the schools were “mutually beneficial, ” Ford claimed, because the schools used the “donations and additional counseling services to supplement its understaffed and underfunded departments.” (Id. at ¶17).

         Ford told Headen that Abundant Life had also retained independent contractors to perform nonessential transportation services. (Id. at ¶ 19). These contractors drove Abundant Life patients to their homes, schools, and appointments, billing the federal government at their discretion for those trips. (Id.). According to Ford, these discretionary billing practices violated Medicare regulations requiring medical providers to contract with a referring entity before billing for transportation services, and violated the regulatory requirement that the billed services be medically necessary. (Id.).

         Ford explained to Headen that Abundant Life hired physicians and provided them and other, nonemployee physicians, doctors with benefits. (Id. at ¶¶ 15, 20). Abundant Life used its employee-physicians' licenses “to apply for approval and to accept payments from Medicaid and Medicare.” (Id. at ¶ 20). Abundant Life gave bonuses and free office space to physicians in exchange for services that facilitated Abundant Life's false Medicare and Medicaid bills, causing “thousands of hours worth of false claims to [be submitted to] the United States.” (Id.). As a result of those improper employer-employee relationships, Abundant Life engaged in the unauthorized practice of medicine. (Id. at ¶ 15).

         In March 2018, Headen filed this qui tam action under seal. (Docket Entry No. 1). After the United States and the State of Texas declined to intervene in May 2018, the court unsealed the complaint and related filings. (Docket Entry Nos. 6, 7). In August 2018, Abundant Life moved to dismiss Headen's complaint under Rules 9(b) and 12(b)(6). (Docket Entry No. 10). That motion became moot when Headen filed an amended complaint in September 2018. (Docket Entry Nos. 12, 13). In October 2018, Abundant Life moved to dismiss the amended complaint, which this court granted in November 2018. (Docket Entry Nos. 14, 18). Headen filed a second amended complaint in January 2019, and Abundant Life and Ford again moved to dismiss. (Docket Entry Nos. 20, 22, 27).

         II. The Legal Standards

         A. Rule 12(b)(6)

         Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Rule 8 “does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556).

         “To withstand a Rule 12(b)(6) motion, [a] complaint must allege ‘more than labels and conclusions, '” and “a formulaic recitation of the elements of a cause of action will not do.” Norris v. Hearst Tr., 500 F.3d 454, 464 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Iqbal, 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). “[A] complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Twombly, 550 U.S. at 555). “Conversely, when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should be exposed at the point of minimum expenditure of time and money by the parties and the court.” Id. (quotation and alteration omitted) (quoting Twombly, 550 U.S. at 558).

         When a complaint fails to state a claim, the court should generally give the plaintiff a chance to amend under Rule 15(a) before dismissing the action with prejudice, unless it is clear that to do so would be futile. See Carroll v. Fort James Corp., 470 F.3d 1171, 1175 (5th Cir. 2006) (Rule 15(a) “evinces a bias in favor of granting leave to amend”); Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”). A court in its discretion may deny a motion to amend for futility if the amended complaint would fail to state a claim on which relief could be granted. Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 766 (5th Cir. 2016); see Pervasive Software Inc. v. Lexware GmbH & Co. KG, 688 F.3d 214, 232 (5th Cir. 2012).

         B. ...


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