United States v. New York Medical College

Citations: 252 F.3d 118; 2001 WL 589426Docket: Docket No. 00-6353

Court: Court of Appeals for the Second Circuit; May 31, 2001; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Plaintiffs Surender Dhawan and Dennis Gowie, acting qui tam on behalf of the United States, appeal the dismissal of their amended complaint against New York Medical College (NYMC) by the U.S. District Court for the Southern District of New York. The court dismissed the case with prejudice, citing a lack of subject matter jurisdiction under the False Claims Act (31 U.S.C. § 3730(e)(4)) and Federal Rule of Civil Procedure 12(b)(1). The court found that the plaintiffs failed to demonstrate they were an "original source" of the information required for their qui tam claim.

The plaintiffs, former executives of Metropolitan Hospital Center (MHC), alleged that NYMC, contracted to provide physician services and staffing under an Affiliation Agreement, overcharged MHC by over $2 million for services not rendered. They claimed to have repeatedly raised concerns about NYMC’s billing practices and requested an audit, which supported their allegations. Following their complaints, the plaintiffs were terminated by HHC.

After a state court settlement in 1998 regarding similar allegations, they filed this qui tam action in 1995, accusing NYMC and others of substantial Medicare/Medicaid fraud. The district court's dismissal was based on the plaintiffs' failure to meet the criteria for original source status necessary to proceed under the False Claims Act. The plaintiffs subsequently filed an appeal.

The district court's dismissal of a complaint against the United States under Fed. R. Civ. P. 12(b)(1) was reviewed de novo. Under the False Claims Act, a private party can initiate a qui tam action based on publicly disclosed allegations of fraud only if they qualify as an "original source" of that information (31 U.S.C. 3730(e)(4)(A)). To be considered an "original source," the plaintiff must demonstrate: (1) direct and independent knowledge of the allegations, (2) voluntary provision of this information to the government before filing suit, and (3) being a source for the entity that publicly disclosed the allegations (31 U.S.C. 3730(e)(4)(B)). The district court determined that the plaintiffs did not meet the first and third criteria.

Specifically, the plaintiffs failed to show they had direct and independent knowledge of the fraud allegations, as the core information came from audits conducted by the New York City Health and Hospital Corporation (HHC). They did not deny that these audits were the source of their claims. Their argument that they had direct knowledge because they initially identified service failures and requested the audits does not substantiate their claim, as their amended complaint primarily relied on the findings of the audits rather than their own investigations. Furthermore, their assertion of being the source of public disclosure by filing a state-court lawsuit does not satisfy the requirements of direct and independent knowledge. The court cited precedents indicating that reliance on third-party information undermines the original source claim, reaffirming that the plaintiffs did not fulfill the necessary criteria to proceed with their qui tam action.

Public disclosure of information relevant to a qui tam suit does not establish a party as the original source of that information. In this case, the plaintiffs were found not to be original sources despite their involvement in litigation that led to public disclosure. The district court's assumption that the New York City Health and Hospital Corp. (HHC) was the entity that publicly disclosed the information contradicts its earlier finding that the plaintiffs had already disclosed the fraud in a prior state court action. The appellate court affirmed the district court's dismissal of the amended complaint due to lack of subject matter jurisdiction and also upheld dismissals under Rule 12(b)(6) and Federal Rule of Civil Procedure 9(b) for other defendants. The plaintiffs' argument that HHC conducted an audit at their request was deemed insufficient, as it was not alleged in the amended complaint and did not demonstrate that the plaintiffs were the source of the core information. Prior case law supports that merely instigating an investigation or audit does not fulfill the requirement of having direct and independent knowledge of the information.