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Guide to Covington v. Sisters of the Third Order of St. Dominic, 61 F.3d 909 (9th Cir.(Cal.))
| [1] | U.S. Court of Appeals, Ninth Circuit |
| [2] | No. 93-15194 |
| [3] | 61 F.3d 909, 1995.C09.41769 <http://www.versuslaw.com> |
| [4] | filed: July 13, 1995. |
| [5] | JANET M. COVINGTON; STANLEY H. SIDICANE, PLAINTIFFS-APPELLANTS, UNITED
STATES OF AMERICA, PLAINTIFF-APPELLEE, v. SISTERS OF THE THIRD ORDER OF ST. DOMINIC OF HANFORD, CALIFORNIA, D/B/A SACRED HEART HOSPITAL, ET AL., DEFENDANTS. |
| [6] | Appeal from the United States District Court for the Eastern District
of California. D.C. No. CV-87-00632-OWW. Oliver W. Wanger, District Judge,
Presiding. |
| [7] | Before: D.w. Nelson And Beezer, Circuit Judges, and Letts,*fn1
District Judge. |
| [8] | MEMORANDUM*fn* |
| [9] | Relators Janet Covington and Stanley Sidicane ("the Relators")
brought this action as qui tam plaintiffs pursuant to the False Claims Act,
31 U.S.C. § 3729-3731. On December 10, 1992, the district court entered
a final order that effectively granted judgment to the United States and
terminated the proceedings. The Relators appeal, seeking either our determination
that they were entitled to participate in the settlement or a remand to
the district court with instructions to resolve the dispute on its merits.
We have jurisdiction pursuant to 28 U.S.C. § 1291. We agree with the Relators
that resolution of this dispute on the merits is necessary. We reverse and
remand. |
| [10] | I |
| [11] | In November 1987, the Relators filed a qui tam complaint on behalf of
themselves and the United States government, pursuant to the False Claims
Act ("the Act"), 31 U.S.C. § 3730. The complaint alleged that
Sacred Heart Hospital, a private hospital in Hanford, California, the Catholic
Health Corporation, and others (collectively "Sacred Heart") had
violated the Act in connection with their participation in the federal Medicare
program. The Relators alleged two types of wrongdoing. First, they claimed
that Sacred Heart personnel had fraudulently recoded diagnoses to receive
higher reimbursement from the fiscal intermediary. This "upcoding"
claim is not at issue in this appeal. Second, the Relators asserted that
Sacred Heart personnel knowingly submitted false claims for Medicare payments
based on an inflated reimbursement rate. This "overpayment" claim
is at issue here. |
| [12] | The overpayments began in January 1984 when auditors for Blue Cross of
California, the fiscal administrators of the Medicare program in the state,
applied an incorrect geographical factor to compute Medicare reimbursements
to Sacred Heart for medical services that the hospital had rendered. Although
Sacred Heart is a rural hospital located in Kings County, California, it
received payments as though it were an urban hospital located in Alameda
County, California. The urban factor resulted in a higher rate of reimbursement
than the rate to which Sacred Heart was entitled. The Relators' complaint
alleged that Sacred Heart personnel knew of the incorrect overpayments for
several years, yet continued to accept and use the payments. |
| [13] | After investigation and negotiations, during which discovery by the Relators
was not permitted, the government settled both claims. Early in 1988, the
government required Sacred Heart to make restitution on the overpayment
claim through an Administrative Settlement, under which Blue Cross would
withhold a portion of Sacred Heart's future Medicare reimbursements until
the entire amount, approximately $2.6 million, had been repaid. The Relators
asserted a right under the Act, see 31 U.S.C. § 3730(f), to a percentage
of the government's recovery, but the government asserted that the Relators
were not entitled to any share in that recovery because the government had
accepted simple restitution for the overpayment amount after concluding
that Sacred Heart's conduct was not fraudulent. |
| [14] | The Relators continued to assert their entitlement to a portion of the
recovery for the overpayment violations as part of the negotiations for
settlement of the upcoding violations. In January 1991, the Relators, Sacred
Heart, and the government reached a Settlement Agreement ("the Agreement")
by which the Relators would receive a portion (twenty percent plus interest)
of the upcoding recovery. The Agreement also provided that the Relators'
claim to a portion of the Administrative Settlement of the overpayment claim
would be resolved through an expedited mechanism: the issue would be presented
via "motion and stipulated facts with no discovery permitted."
If the parties were unable to agree on undisputed facts, "the parties
[were to] thereafter proceed as if a motion for summary judgment had been
filed under the provisions of the [Federal Rules of Civil Procedure]."
The government agreed to provide all relevant documents, except those subject
to a protective privilege. Pursuant to the Agreement, the district court
dismissed all claims except the participation of the Relators in the overpayment
recovery that is the subject of this appeal. |
| [15] | The government provided copies of five letters exchanged between Sacred
Heart and Blue Cross from late January 1987 through December 1987, which
initially stated that the hospital reimbursements were at "inappropriate"
rates. The government withheld its own investigative reports and interview
records with Sacred Heart personnel. Because the government claimed privilege
for these crucial discovery documents, the Relators moved for a discovery
order. The district court determined that the asserted privileges were inapplicable
and ordered production. |
| [16] | Based on those documents, the government and the Relators prepared a statement
of admitted facts to be submitted in support of the summary judgment motion.
Each side also submitted additional facts. Attached to its opposition, the
government submitted the declarations of Wallace Flemming, Sacred Heart's
Chief Executive Officer during the period of the overpayments, and Norman
Siegal, the government investigator who claims to have prepared the final
administrative report on the overpayment claim. The government also submitted
excerpts from a January 1989 deposition of Mario Rocha, the hospital's Chief
Financial Officer during the period of the overpayments. |
| [17] | The following facts are uncontested. Sacred Heart learned about the overpayments
as early as June 1984 when, according to Rocha's deposition, Flemming informed
Rocha that he had contacted Blue Cross, the fiscal administrator, to tell
them that the reimbursement rate was inappropriate. Blue Cross told Flemming
that the rate was correct, and that "Flemming was wrong about any mispayment."
Flemming contacted a law firm in 1986, and the firm advised Flemming to
send a letter to Blue Cross. Meanwhile, Rocha established a line item in
Sacred Heart's budget to track the estimated overpayments as a "liability
to third parties" for accounting purposes. Rocha was not sure of the
cause of the overpayment, but he suspected a mistake in the urban-rural
coding. |
| [18] | On January 26, 1987, Flemming made the hospital's first written inquiry
to Blue Cross. Four more letters were exchanged during 1987 between Sacred
Heart and Blue Cross regarding the incorrect payment rate. On November 5,
1987, the Relators filed their qui tam complaint under seal, and in early
December the government began an investigation of Sacred Heart. On December
22, 1987, Sacred Heart again informed Blue Cross that the rate was incorrect,
this time specifying that it had resulted in inflated payments. |
| [19] | The parties were unable to stipulate to further facts, but each contended
that there were no genuine issues of material fact and submitted a statement
of their versions of the facts. The Relators moved for summary judgment,
and the government filed an opposition that was treated as a motion for
summary judgment pursuant to the Scheduling Conference Order. |
| [20] | After briefing and oral argument, the district court determined that there
were genuine issues of material fact because the facts did "not establish
the extent of the knowledge of the Hospital, [or] whether knowingly false
claims were being submitted to the U.S. Government." The district court
thus concluded that it could not grant summary judgment for either party. |
| [21] | After requesting supplemental briefing regarding what further action would
be appropriate under the Agreement, the court interpreted the Agreement
to constitute a waiver of the Relators' right to proceed to trial for determination
of the issue, because it concluded that the parties intended the Relators
to receive compensation only if judgment as a matter of law could be entered
in their favor on the basis of the summary judgment motion. The court issued
an order concluding the case, effectively absolving the United States from
any obligation to share any portion of the Administrative Settlement recovery
with the Relators. An appeal of this order by Relators contests the district
court's interpretation and enforcement of the terms of the Agreement. |
| [22] | II |
| [23] | To the extent that the district court's order is considered a denial of
summary judgment to the Relators and a grant of summary judgment to the
United States, it is reviewed de novo. Jesinger v. Nevada Fed. Credit Union,
24 F.3d 1127,
1130 (9th Cir. 1994). We also review questions of law and interpretations
of a statute de novo. United States ex rel. Madden v. General Dynamics Corp.,
4 F.3d 827,
830 (9th Cir. 1993). |
| [24] | III |
| [25] | We must first address whether the district court applied the correct standard
of liability to Sacred Heart's conduct. The False Claims Act provides that
a party who "knowingly" submits false or fraudulent claims to
the government is subject to liability. 31 U.S.C. § 3729(a). Whether Sacred
Heart personnel caused the improper rate calculation is immaterial because
the mere receipt and deposit of government funds known to have been paid
by mistake is a false claim under the Act. United States v. McLeod,
721 F.2d 282,
283 (9th Cir. 1983). Liability for Sacred Heart thus depends on whether
they knew that they were receiving overpayments to which they were not entitled.*fn1 |
| [26] | The district court held that there was a genuine issue of material fact
regarding whether Sacred Heart personnel satisfied the "knowing"
state of mind requirement under the Act. Without discussing the standard
that it was applying, the district court apparently considered it necessary
for the Relators to establish actual knowledge or fraud. The Relators consistently
countered that the hospital should be liable for its conduct under the constructive
knowledge liability standard. |
| [27] | The statute, as clarified by Congress in the False Claims Amendments Act
of 1986, explicitly states that deliberate ignorance or reckless disregard
for the truth satisfies the "knowingly" state of mind requirement
of the Act. See Pub. L. No. 99-562, § 2(7), 100 Stat. 3153 (effective Oct.
27, 1986), codified at 31 U.S.C. § 3729(b); see also United States ex rel.
McCoy v. California Medical Review, Inc.,
723 F. Supp. 1363,
1370 (N.D. Cal. 1989) (noting that Congress "merely clarified what
had been the proper standard under the old Act."). "The Committee's
amendments . . . [were] aimed at correcting restrictive interpretations
of the act's liability standard." S. Rep. No. 345 at 4, 99th Cong.,
2d Sess., reprinted in 1986 U.S.C.C.A.N. 5266, 5269. Congress explained
that the "gross negligence" standard is based on a "constructive
knowledge definition [that] attempts to reach what has become known as the
'ostrich' type situation where an individual has 'buried his head in the
sand' and failed to make simple inquiries which would alert him that false
claims are being submitted." Id. at 5285. |
| [28] | The Relators' claim was filed after the October 1986 effective date of
the 1986 amendments, but the claim covers conduct that occurred both before
and after that date. The earlier conduct comes within the 1986 amendments
if "the nature of the [offense] involved is such that Congress must
assuredly have intended that it be treated as a continuing one." Toussie
v. United States,
397 U.S. 112,
115 (1970). We conclude that Sacred Heart's conduct in accepting the overpayments,
if it is proven to be reckless or deliberately ignorant, constitutes a continuing
offense under the False Claims Act. Cf. United States v. Morales,
11 F.3d 915,
917-18 (9th Cir. 1993) (concluding that a bribery scheme that began before
the Sentencing Guidelines went into effect and extended beyond that date
constituted a continuing offense to which Guidelines provisions applied);
United States v. Gray,
876 F.2d 1411,
1418 (9th Cir. 1989) (concluding that failure to appear for sentencing was
a continuing offense). |
| [29] | Sacred Heart began receiving overpayments in 1984 and continued to accept
overpayments for more than one year after passage of the amendments, until
December 22, 1987. The acceptance of the overpayments constitutes a continuing
offense for which the prospective application of the liability standard
as articulated in the 1986 amendments is appropriate. |
| [30] | Because the district court applied the incorrect standard, we must consider
whether the Relators are entitled to summary judgment based on the constructive
knowledge state of mind. We conclude that they are not. Examining the same
evidence submitted to the district court in the light most favorable to
the United States, we are unable to determine as a matter of law that Sacred
Heart acted with deliberate ignorance or with reckless disregard for the
truth. |
| [31] | Although the Relators have presented evidence that tends to show that
hospital personnel knew they were receiving overpayments from Blue Cross
and failed to take sufficient action, that evidence is not undisputed. Flemming's
efforts to inform Blue Cross of the error as early as 1984, Rocha's keeping
track of the improper payments, and the flurry of letters sent in 1987 all
support the United States' argument that Sacred Heart did not act with reckless
disregard for the truth. Although the Relators do not dispute the fact that
each of these actions occurred, they dispute whether the hospital did all
that it could to deal with the overpayments. That determination would involve
fact-based interpretations of all the events, a process that is not appropriate
in deciding a motion for summary judgment. |
| [32] | In addition to the disputed evidence in the record, we also are concerned
by important evidence that is not in the record. We do not know how extensive
the overpayments were compared to the hospital's total budget. If the overpayments
were substantial, Sacred Heart personnel should perhaps have taken dramatic
action quickly. If the overpayments were relatively steady but small, the
actions of Flemming and Rocha might well have been all that one would expect.
Because the record is silent, we cannot conclude as a matter of law that
Sacred Heart personnel acted knowingly, recklessly or with deliberate ignorance
in accepting the overpayments. |
| [33] | IV |
| [34] | We must next determine whether the district court properly granted judgment
in favor of the United States. The Relators argue that the district court
erred in interpreting the Settlement Agreement to preclude further consideration
of their claim on the merits. We agree. |
| [35] | A settlement agreement is interpreted by reference to the same principles
applied to any other contract.*fn2
United Commercial Ins. v. Paymaster Corp.,
962 F.2d 853,
856 (9th Cir. 1992); General Motors Corp. v. Superior Court, 15 Cal. Rptr.
2d 622, 625 (Cal. Ct. App. 1993). Our objective in construing contract language
is to "determine and to effectuate the intention of the parties."
Winet v. Price, 6 Cal. Rptr. 2d 554, 558 (Cal. Ct. App. 1994); see 4 Samuel
Williston, Williston on Contracts § 600 (1961) ("The guiding principle,
polestar or lodestar of interpretation, whatever the form or nature of the
instrument is always the same: To ascertain the will, or intent, of the
[parties]."); 3 Arthur L. Corbin, Corbin on Contracts § 536, 538 (1960). |
| [36] | The Settlement Agreement between the government and the Relators provided
that the parties would have "the right to contest before the Court"
whether the Relators were entitled to a share of the settlement of the overpayment
claims. The Agreement set up a mechanism under which the parties agreed
to present a set of stipulated facts to the district court. If the parties
disagreed with factual assertions made by either party, each party would
present "alleged undisputed facts" to the court. The parties were
then to proceed "as if a motion for summary judgment had been filed
under the provisions of the [Federal Rules of Civil Procedure]." |
| [37] | Having concluded that summary judgment could not be granted to the Relators,
the district court then interpreted the Agreement's silence on any further
course of action as an indication that the parties intended no further course
of action. Then the court granted judgment for the United States. |
| [38] | In our opinion, such an interpretation of the Settlement Agreement goes
beyond the words of the agreement, and contravenes the intentions of the
parties. The Agreement contemplates that the issue of the Relators' right
to share in the overpayment settlement would be treated as a motion for
summary judgment. See Fed. R. Civ. P. 56. When a summary judgment motion
is denied, a trial is required to resolve genuine issues of material fact.
See Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574,
587 (1986); cf. Fed. R. Civ. P. 56(c), (d) ("if on motion under this
rule judgment is not rendered upon the whole case . . . and a trial is necessary.").
We are unwilling to cut off the traditional resolution of factual disputes
through some type of trial in the absence of clear indication that the parties
did not necessarily desire to resolve the dispute on the merits. See 10
Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice
and Procedure § 2712 (1969) ("Denial of summary judgment is not a decision
on the merits; it simply is a decision that there is a material factual
issue to be tried."). |
| [39] | Although the Settlement Agreement contains general language indicating
that the parties wished to avoid litigation, we are not convinced that this
language means that the parties agreed that the United States would prevail
if the Relators could not obtain summary judgment. That is unquestionably
the result under the district court's reading of the Agreement. Such a result
is grossly unfair to the Relators, and we discern no reason to attribute
such an intention to their Agreement. Indeed, the Agreement indicates that
the parties wished to "resolve all issues and disputes between"
them. Thus, while the parties wanted to minimize litigation to the extent
possible, they did not expressly preclude further proceedings if their efforts
at an expedited resolution failed. |
| [40] | We conclude that, absent a specific provision in the agreement indicating
that the parties intended summary judgment to be the final stage, we will
follow the course set by the Federal Rules of Civil Procedure. Because we
have declined to decide the issues in this case as a matter of law, we remand
so that they may be resolved by a factfinder at trial. See Fed. R. Civ.
P. 37, 38. |
| [41] | REVERSED and REMANDED. |
| [42] | Disposition |
| [43] | REVERSED and REMANDED. |
| [44] | D.W. Nelson, Concurring in part, Dissenting in part, and Concurring in
the decision to remand: |
| [45] | I concur in Parts I, II, IV, and in the portion of Part III which concludes
that the 1986 amendments to the False Claims Act apply to require a gross
negligence standard of liability. I Dissent from the remainder of Part III,
for the reasons outlined herein. |
| [46] | The majority omits key portions of the factual record such as statements
by the hospital defendants and crucial information contained in the government's
own investigative reports and thus presents an incomplete perspective on
the hospital's actions. In addition, the majority's description of the hospital's
communications with Blue Cross may be misleading without the details presented
here. |
| [47] | The facts show that the hospital administrators knew from the beginning
that the hospital was receiving overpayments and were at least reasonably
certain that there was an urban coding error. Flemming's 1984 call merely
stated that his rate calculations did not conform to the fiscal intermediary's.
Neither Flemming nor Rocha claim that Flemming alerted Blue Cross that the
hospital was receiving overpayments. Yet in 1984, they both knew that the
hospital was receiving overpayments, and Rocha's deposition states that
he knew that the overpayments were due to an urban-rural coding error. Rocha's
interview with the government investigators indicates that he was reasonably
certain about the urban coding error but could not exactly duplicate the
figures. He was able to duplicate the figures exactly in March 1987 after
Blue Cross sent a sample calculation showing that it was applying the specific
rate for Oakland, Alameda County. |
| [48] | In spite of knowledge of the overpayments, the hospital did not set the
funds aside in escrow: it continued to receive, use, and earn interest on
the overpayments throughout the period from January 1984 to December 14,
1987. Rocha's deposition indicates that, even though Flemming and Rocha
considered the overpayment to be so significant that it would be discovered
in the first external audit, they did nothing further to inform Blue Cross
when it was not. Even the Catholic Health Corporation knew that the hospital
was receiving overpayments based on an urban coding at least as early as
September 1986, as indicated by a September 1986 letter to the hospital
from Catholic Health Corporation vice president Kroll. The overpayments
were also discussed by the hospital board in late 1986, as indicated in
the minutes of a December 1986 board meeting and in the Moeller deposition. |
| [49] | Flemming's January 1987 letter, which was the first written inquiry regarding
the rate problem, merely reiterated the 1984 concern regarding rate calculations
without stating that the hospital had received significant overpayments.
In early 1986, however, Flemming had been advised by the hospital's own
accountants and attorneys that the overpayment amount was significant and
that he should inform Blue Cross of the problem by letter. (The overpayment
amount was between one-half and three-quarters of a million dollars a year.)
Although Blue Cross responded on March 19, 1987 with a sample of its calculation
with the Oakland, Alameda County coding error and asked the hospital to
respond with a sample of its own calculations if the hospital was still
unable to duplicate the calculation, the hospital did not respond until
almost seven months later, on October 6, 1987. Even then, the hospital's
letter failed to include a sample of its own calculations and failed to
inform Blue Cross that it was receiving overpayments or that the overpayments
were attributable to an urban coding error. |
| [50] | The hospital wrote to Blue Cross in December 1987 informing it for the
first time that the rate error resulted in overpayments. However, this letter
was not sent until several months after Blue Cross had written again, on
October 16, 1987, that it could not provide further assistance to the hospital's
attempt to duplicate the federal rate calculations without a sample of the
hospital's actual calculations to review. The hospital's letter was also
dated several weeks after the qui tam investigation had allowed Blue Cross
to correct the coding error. |
| [51] | The government's own final investigative report on the overpayment claim
concluded that "the hospital failed to properly disclose" the
overpayment and that the hospital administrator had "concealed the
proper information from the fiscal intermediary." Although the author
of the report submitted a declaration in 1992 that clarifies that he found
no evidence of "provable fraud," "affirmative false statements,"
or "intent to defraud" and that the investigation had concluded
that the overpayments did "not involve fraud,"*fn1
he confirmed his Conclusion "that the hospital could have been more
forthcoming and candid about the discrepancy with Blue Cross. I reached
this Conclusion because Mr. Flemming's letters to Blue Cross go only so
far as to advise that his calculations of the payment rate were different
than the fiscal intermediary's." |
| [52] | The district court found that the hospital knew that it was receiving
overpayments, but it still characterized the facts as presenting a dispute
regarding whether the hospital actually knew that the overpayments resulted
from false information. Because the court applied an actual knowledge or
fraud liability standard, it concluded that affirmative actions of concealment
were required for liability.*fn2
The court therefore found that Flemming's minimal inquiries in his 1984
phone call and 1987 letter regarding the method of calculating reimbursement
rates and Rocha's tracking of the liability in a preexisting general ledger
account for liabilities due third parties*fn3
were sufficient to create a genuine issue of fact. The court also mistakenly
concluded that there was evidence that Flemming had attempted to inform
Blue Cross about over payments*fn4
and that the hospital was not certain of the source of the problem (the
urban-rural error) until it received Blue Cross' March 1987 sample calculation.
The court, applying the incorrect actual knowledge or fraud standard, thus
refused to grant summary judgment to the relators because of a factual dispute
regarding whether the hospital defendants committed actual fraud by affirmatively
concealing the urban-rural coding error and resulting overpayments. |
| [53] | The factual issues that create a dispute regarding actual fraud are not
sufficient to create a dispute regarding the much lower liability standard
of "gross negligence" required under the act. See, e.g., S. Rep.
No. 345, 99th Cong., 2d Sess., reprinted in 1986 U.S.C.C.A.N. 5266, 5285
(explaining that the "gross negligence" standard "attempts
to reach what has become known as the 'ostrich' type situation where an
individual has 'buried his head in the sand' and failed to make simple inquiries
which would alert him that false claims are being submitted"). I disagree
with the majority's view that the determination of whether the hospital
"did all that it could to deal with the overpayments" "involves
fact-based interpretations of all the events" that preclude a finding
of summary judgment for the relators. The hospital defendants did not commit
an "innocent mistake," nor was their conduct simply careless and
thus "mere negligence." Hagood v. Sonoma County Water Agency,
929 F.2d 1416,
1421 (9th Cir. 1991). The facts are sufficient to show that they knowingly
refrained from advising their fiscal intermediary of significant overpayments
from the beginning of 1984. See United States v. TDC Management Corp.,
24 F.3d 292,
298 (D.C. Cir. 1994) (finding that actual knowledge, reckless disregard,
or deliberate ignorance that the corporation had omitted material information
from a report to the government was a violation of the act). Even after
all principal parties were not just reasonably certain but absolutely sure
that the source of the overpayments was an urban coding error, they refrained
from informing Blue Cross and continued to benefit from the windfall funding
that accrued due to the error. This behavior clearly satisfies the gross
negligence standard of deliberate indifference to the truth. |
| [54] | I respectfully Dissent from Part III's determination that the undisputed
facts are insufficient to support summary judgment for the Relators. Because
I agree that the Settlement Agreement should be interpreted to require resolution
of disputed facts at trial, however, I concur in the remand. |
| [55] | LETTS, Concurring in part, Dissenting in part: |
| [56] | I concur in Parts I, II, and III and Dissent from Part IV. I believe that
the district court properly interpreted the Settlement Agreement to preclude
further consideration of the Relators' claim on the merits and I would affirm
the district court's granting judgment in favor of the United States. |
| [57] | The Settlement Agreement limited the dispute before the district court
to whether the Relators were entitled to participate in the Administrative
Settlement. The stated intent of the parties was to settle the action without
litigation. Settlement Agreement at PP 3, 8. The dispute was to be resolved
"via motion and stipulated facts with no discovery permitted,"
or if facts were disputed, by receiving the parties' separate sets of "alleged
undisputed facts" and by proceeding "as if a motion for summary
judgment had been filed under the provisions of the [Federal Rules of Civil
Procedure]." Settlement Agreement at PP 6(B) and (C). |
| [58] | The Settlement Agreement states that "should the Court find that
the Sidicanes are entitled to share in said proceeds, the Sidicanes shall
be awarded 15% of the amount of the [Administrative Settlement]." Settlement
Agreement at P 6(C) (emphasis added). It is clear that the Relators would
benefit from the Administrative Settlement if they affirmatively proved
that Sacred Heart had violated § 3729 as a matter of law based on the undisputed
facts -- that is, if the Relators prevailed on summary judgment. As discussed
in Part III of the majority opinion, the Relators could not prevail on summary
judgment even under the "deliberate ignorance" or "reckless
disregard" standard. |
| [59] | The Settlement Agreement is silent about what happens upon a denial of
plaintiff's or defendant's motions for summary judgment.*fn1a
The majority in Part IV concludes that the logical step following the denial
of the summary judgment motions is to resolve the disputed factual issues
at trial. I believe, however, that the reference in the Settlement Agreement
to the Federal Rules simply was intended to govern how the matter would
be put to the district court for decision, not to commit the court to further
proceedings in the event facts were found to be in dispute. |
| [60] | Allowing a trial of the disputed facts would contradict directly the overriding
intent of the parties to avoid further discovery and litigation. The parties
stated their intent that the Settlement Agreement "would settle, compromise,
and resolve all issues and disputes between them based on the above claims
in order to avoid the uncertainty and expenses of litigation." Settlement
Agreement at P 3. The parties further agreed that: |
| [61] | this Settlement Agreement shall be complete and shall not be subject to
any claim or [sic] mistake of fact or law by any of them, and that it expresses
a full and complete settlement of liability claimed and denied, as against
all of the parties hereto and, regardless of the adequacy or inadequacy
of the amount paid, this Settlement Agreement is intended to avoid litigation
and to be final and complete. |
| [62] | Settlement Agreement at P 8. The trial court found that the plaintiffs
reaffirmed this intent in their Scheduling Report filed December 30, 1991:
"Pursuant to the parties' stipulation, the case is to be concluded
by summary judgment (emphasis added). . . ." Scheduling Report at P
7, quoted in Memorandum Opinion re Final Relief After Denial of Parties'
Cross-Motions for Summary Judgment, Dec. 2, 1992, at 5. |
| [63] | In the context of these statements, I believe the district court properly
interpreted the Settlement Agreement to terminate any further proceedings
if the Relators were unable to prevail on summary judgment. The fact that
the district court considered an additional declaration by the government
agent who drafted the government's investigative report on the overpayment
claim in the determination of the summary judgment motion does not defeat
the parties' intent. It appears that the district court reopened the record
for the limited purpose of assuring itself that a fact apparently in dispute
was actually disputed, rather than to resolve a disputed fact. Having determined
that disputed issues of fact remained that precluded granting the Relators'
motion for summary judgment, the district court correctly concluded that
the United States was entitled to a final judgment. |
|
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|
| Judges Footnotes | |
|
|
|
| [64] | *fn1 The
Honorable J. Spencer Letts, United States District Judge for the Central
District of California, sitting by designation. |
|
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|
| Opinion Footnotes | |
|
|
|
| [65] | *fn2 The
parties dispute which law applies to the interpretation of the Agreement.
The Relators assert that California law applies, while the United States
contends that federal law applies. While we are inclined to agree with the
United States, see Kennewick Irrigation Dist. v. United States,
880 F.2d 1018,
1032 (9th Cir. 1989), we need not conclusively resolve this issue. Under
both California law and federal law, we look to general principles of contract
law. Id. |
| [66] | *fn1 We
reject the United States' argument that the Relators could not recover because
the government accepted a restitution payment as a recovery. This argument
would allow the government to eliminate recovery for relators by simply
characterizing the nature of the conduct. |
| [67] | *fn* This
Disposition is not appropriate for publication and may not be cited to or
used by the courts of this circuit except as provided by Ninth Circuit Rule
36-3.
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| Dissent Footnotes | |
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| [68] | *fn1 Although
the government had argued that the gross negligence standard was applicable
in a related case involving the insurers that was heard before Judge Price
(who also approved the settlement agreement) before the case was transferred
to Judge Wanger (who interpreted the settlement agreement), the government
based its claim before Judge Wanger and before this court on a requirement
of actual fraud. |
| [69] | *fn2 The
district court expressed the standard as follows:
If overpayments resulted from concealment of known facts which are false,
i.e., Hospital officers knew that the Hospital was a rural, not an urban
hospital, who nonetheless knowingly kept the overpayment, a false claim
is established." CR 104: 16 (emphasis added). |
| [70] | *fn3 There
is a strong argument that establishing this "paper" method of
accounting for the excess funds provided a means of concealment for the
overpayments in the audit process while at the same time protecting the
hospital from charges of actual fraud in the eventuality that the geographic
rate error were discovered by the auditors. Without accounting for the liability
in this way, the hospital would have had to change its internal documents
regarding the rate calculation to show the urban rate, which clearly would
have involved actual fraud. |
| [71] | *fn4 The
district court's opinion states:
Mr. Fleming's [sic] efforts to draw the issue of overpayment to the attention
of Blue Cross and the establishment of a fund for repayment is direct
evidence of non-fraudulent conduct as to the disputed Medicare reimbursement.
CR 104: 14 (emphases added). 1a I understand the district court's invitation
of cross motions for summary judgment to have been a procedural means
for implementing the bargain, not an indication of some different bargain. |
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