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UNITED STATES EX REL. SACKS v. PHILADELPHIA HEALTH

August 6, 1981

UNITED STATES of America ex rel. Stephen SACKS
v.
PHILADELPHIA HEALTH MANAGEMENT CORPORATION, et al.



The opinion of the court was delivered by: GILES

MEMORANDUM

The court has before it defendants' motions for summary judgment to dismiss a qui tam action brought by plaintiff Stephen Sacks, a private individual on behalf of both himself, as an informer, and the United States under the provisions of the Federal False Claims Act, 31 U.S.C. § 231 et seq. (1976) (hereinafter "False Claims Act"). *fn1"

 The complaint, in three separate counts, names as defendants the Philadelphia Health Management Corporation (hereinafter "PHMC"), a private non-profit corporation, Wilbur Hobbs (hereinafter "Hobbs"), a Deputy Secretary of the Commonwealth of Pennsylvania Department of Public Welfare (hereinafter "DPW") and Roy Littlejohn Associates (hereinafter "Littlejohn"), a management consulting firm. Jurisdiction over all three defendants is predicated upon 31 U.S.C. § 232(A) (1976).

 Count I of plaintiff's complaint, which relates to PHMC, alleges that between 1974 and 1977, PHMC knowingly and intentionally exaggerated its monthly expenses under cost reimbursement contracts with the Commonwealth of Pennsylvania and thereby received illegal revenues in excess of its expenses, resulting in a surplus of approximately $ 768,000. The alleged contracts between PHMC and the Commonwealth were entered into pursuant to the Outreach Program portion of the "Early Periodic Screening Diagnostic and Training Program" (hereinafter "EPSDT" Program), a state medical assistance program which was partly funded by the federal government. *fn2"

 Count II of the complaint alleges that "Littlejohn" submitted monthly claims totalling $ 5,200,000 for consulting services performed under contracts entered into between DPW and Littlejohn. Plaintiff further alleges that these claims were false and fictitious since Littlejohn did not perform all of the services for which it claimed payment. Count II is unrelated to the claim against PHMC.

 Defendants PHMC and Hobbs have each filed a motion for summary judgment. (Defendant Littlejohn has not moved for summary judgment but has filed a counterclaim against plaintiff for abuse of process.) In its motion for summary judgment, PHMC asserts that the undisputed evidence adduced through affidavits and financial statements audited by independent certified public accountants demonstrates that PHMC had no surplus under any of the alleged cost reimbursement contracts during the years in question. PHMC admits that it had organizational surpluses but asserts that it had sources of revenue other than the cost reimbursement contracts, such as fixed fee contracts, which are not alleged in plaintiff's complaint and which cannot form the basis of a False Claims Act action. It argues that plaintiff's theory of illegal action by PHMC turns completely upon the existence of cost reimbursement contract surplus. Since there was no such surplus, the complaint must be dismissed.

 The Commonwealth joins in the reasoning of PHMC in support of its own motion for summary judgment on behalf of Hobbs sued in his official capacity. In addition, it moves to dismiss the action for lack of subject matter jurisdiction under 31 U.S.C. § 232(C) (1976). *fn3"

 For the reasons which are set forth below, the court grants the motions for summary judgment of PHMC and Hobbs, insofar as Hobbs' motion relates to plaintiff's claims based upon Hobbs' knowledge and authorization of PHMC's alleged false claims. Further, the court dismisses the complaint without prejudice as to Littlejohn and as to Hobbs based upon his alleged knowledge and authorization of Littlejohn's alleged false claims, and dismisses Littlejohn's counterclaim against plaintiff without prejudice.

 The jurisdictional basis for a qui tam action brought in the district court is outlined in 31 U.S.C. § 232. Subsection (C) specifically provides that the prerequisite to an action by an individual is notice of the pendency of the suit to the United States Attorney in the district involved. Notice consists of service of the complaint together with a disclosure in writing of substantially all evidence and information in the individual's possession which is material to effective prosecution of the action. The United States has sixty (60) days after service to enter the case. Only if the United States fails to enter an appearance in a timely manner or declines, in writing, to prosecute may the individual carry on the suit. Moreover, Section (C) specifically states that the court shall have no jurisdiction to proceed with any suit whenever it shall be made to appear that the informer's suit was based upon evidence or information already in the possession of the United States at the time suit was brought. *fn4"

 Although there is no time period established in the statute within which notice must be given to the United States, it has been held that such notice must be given simultaneous or nearly simultaneous to the filing of the complaint. United States ex rel. Shinn v. Tennessee, 74 F. Supp. 635 (E.D.Tenn.1947) (Qui tam plaintiff should give notice to the United States, at the latest, within 60 days of the filing of the complaint.) Under the statutory scheme set forth above, simultaneous notice allows the United States to decide quickly whether to intervene and control the action. Moreover, it should be determined at the earliest possible time whether the informer's suit is based upon evidence or information which was in the possession of the United States prior to filing of the suit. Under the statute, until such a determination is made, this court's jurisdiction is merely conditional and it could be deprived of jurisdiction at any stage of the proceedings. United States v. Aster, 275 F.2d 281 (3d Cir.) cert. denied, sub nom. Aloff v. Aster, 364 U.S. 894, 81 S. Ct. 223, 5 L. Ed. 2d 188 (1960); United States ex rel. Vance v. Westinghouse Electric Corp., 363 F. Supp. 1038 (W.D.Pa.1973); United States ex rel. Lapin v. IBM Corp., 490 F. Supp. 244, 245 (D.Haw., 1980). *fn5"

 It is not clear from the statute that the notice requirement is a jurisdictional prerequisite. However, it is clear that notice is mandatory. Plaintiff, after nearly two years, has not satisfied the notice requirements of the statute, and has not responded in any form to Hobbs' argument that the complaint should be dismissed for lack of subject matter jurisdiction due to plaintiff's failure to comply with the notice requirements. Under the circumstances, it is entirely appropriate to dismiss plaintiff's complaint as to all three defendants. United States ex rel. Shinn v. Tennessee, 74 F. Supp. 635 (E.D.Tenn.1947).

 In any event, PHMC's and Hobbs' respective motions for summary judgment would have to be granted, and the complaint dismissed with prejudice insofar as it relates to the claims against PHMC and against ...


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