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UNITED STATES EX REL. SACKS v. PHILADELPHIA HEALTH

UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF PENNSYLVANIA


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.

  Count III of the complaint is directed towards Hobbs apparently in his official capacity and alleges that he "knew or had reason to know" of the false claims submitted by PHMC and Littlejohn and, as Deputy Secretary for the Southeastern Region of DPW, authorized and directed payment of the alleged false claims.

 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"

  Plaintiff filed his complaint in February, 1979. The complaint does not allege, and no subsequent pleading to date, over two years later, shows that the notice prerequisites of the False Claims Act have ever been satisfied by plaintiff. The docket does not show that the complaint has been served upon either the United States Attorney General or the United States Attorney for the Eastern District of Pennsylvania. Nor has plaintiff alleged that he made the requisite written disclosure to the federal government of information material to prosecution of the suit. Thus, the United States has had no opportunity under the statute to prosecute or decline to prosecute this action against either defendant.

 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 Hobbs, based upon his approval of PHMC's submissions.

 A. The Standards for Summary Judgment

 Under Fed.R.Civ.Pro. 56(c) summary judgment is appropriate where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. When a party moving for summary judgment supports his motion with affidavit evidence, Fed.R.Civ.Pro. 56(e) states that the opposing party may not rest on the pleadings to defeat summary judgment. First National Bank v. Cities Service Co., 391 U.S. 253, 289, 88 S. Ct. 1575, 1592, 20 L. Ed. 2d 569 (1968) reh. denied 393 U.S. 901, 89 S. Ct. 63, 21 L. Ed. 2d 188 (1968); Bochner v. Quitman, 87 F.R.D. 621, 623 (E.D.Pa.1980). "What Rule 56(e) does make clear is that a party cannot rest on the allegations contained in his complaint in opposition to a properly supported summary judgment motion made against him." First National Bank v. Cities Service Co., 391 U.S. 253, 289, 88 S. Ct. 1575, 1592, 20 L. Ed. 2d 569 (1968) (footnote omitted). Rather, a party opposing a motion for summary judgment must present significant probative evidence, in the form of specific facts, to support the claim of the existence of a genuine issue of material fact. First National Bank v. Cities Service Co., 391 U.S. 253, 289-90, 88 S. Ct. 1575, 1592-1593, 20 L. Ed. 2d 569 (1968); General Electric Co. v. Hol-Gar Manufacturing Corp., 431 F. Supp. 881, 884 (E.D.Pa.1977), aff'd w. o. opinion 573 F.2d 1301 (3d Cir. 1978); Scooper Dooper, Inc. v. Kraftco Corp., 494 F.2d 840, 848 (3d Cir. 1974).

 Federal Rule of Civil Procedure 56(e) further provides that supporting and opposing affidavits must be based on personal knowledge and shall contain facts which would be admissible in evidence. Thus, it is insufficient for the party opposing a motion for summary judgment to rely upon suppositions, conjecture or to assert that an issue may arise at a future date. Robin Construction Co. v. United States, 345 F.2d 610, 613-14 (3d Cir. 1965); Carter v. Cuyler, 415 F. Supp. 852, 855 (E.D.Pa.1976).

 B. PHMC and Hobbs Are Entitled to Summary Judgment

 In his response to Defendants' Motions for Summary Judgment, plaintiff has not come forward with specific facts to indicate that there are genuine issues for trial.

 Plaintiff's complaint (P 7-8, Exhibit "A") specifies that PHMC's Outreach Phase contracts were the cost reimbursement contracts under which false claims were made resulting in a surplus of revenues over expenses. See note 2, supra, and accompanying text. The undisputed evidence establishes that there was no surplus under those contracts. PHMC's auditors, Peat, Marwick, Mitchell & Co. submitted an affidavit and audited schedules of revenues and expenses under the Outreach Program for the periods alleged in plaintiff's complaint which established that there was no surplus under these contracts. In addition, PHMC submitted affidavits of the present and former executive directors of PHMC stating that the Outreach Program operated on a cost reimbursement basis and did not accumulate any excess of revenues over expenses during the relevant period. *fn6"

 Plaintiff has not offered any evidence to dispute these facts. Even though plaintiff's affidavit asserts that he was knowledgeable about PHMC's submissions to DPW in his capacity as Welfare Program Specialist II for the Southeastern Region of DPW, plaintiff does not offer a single specific example of the false claims allegedly submitted by PHMC under the EPSDT cost reimbursement contracts. Rather, in his affidavit and memorandum, plaintiff attempts to introduce matters not pleaded in his complaint regarding the propriety of Hobbs' former service as a member of PHMC's Board of Directors, the propriety of a continued series of negotiated contracts "between and amongst the Defendants" as opposed to public bidding, and the general propriety of PHMC's overall corporate surplus of $ 640,000 during the years in question. Not only do these matters go beyond the allegations of the complaint, but they are not within the ambit of the False Claims Act. For example, the Act does not proscribe negotiations, contracting, or the creation of general surpluses or reserves per se. It proscribes false claims submitted to the United States for payment. As such, these matters cannot constitute disputed issues of material fact which would preclude granting a motion for summary judgment.

 Aside from these matters, plaintiff's affidavit addresses two additional areas in an attempt to establish the existence of genuine issues of fact. He asserts that PHMC made a surplus of $ 768,000 under the EPSDT Program during the years 1974-1977. However, the affidavits and statements submitted by PHMC establish that any EPSDT surplus it may have had during the years 1974-1977 did not result from an excess of revenues over expenses under the cost reimbursement contracts alleged in plaintiff's complaint. The logical inference is that the alleged EPSDT surplus flowed from revenues received under other EPSDT contracts. For example, PHMC has established by affidavit that it received payment from the Commonwealth under the Administrative Phase of the EPSDT program pursuant to fixed fee contracts. It is logical to assume that these contracts were a source of the surplus. In any event, even if the court could ignore this logical inference, it remains that plaintiff has not alleged nor produced evidence that false claims were submitted under non-cost reimbursement EPSDT contracts.

 In his affidavit, plaintiff also asserts that certain alleged inconsistencies existed in the allocation of expenses under the Outreach Program contracts. *fn7" In setting forth these alleged inconsistencies, plaintiff does not challenge the central fact that there was no surplus under the Outreach Program. Rather, he simply sets forth these discrepancies and labels them as "illogical" and "intentionally deceptive."

 Without evidence that there was some irregularity in the method of allocation, plaintiff's statements constitute mere conjecture which cannot constitute evidence sufficient to defeat a motion for summary judgment. Plaintiff does not allege in his complaint, nor assert in his affidavit, that these inconsistent allocations amounted to false claims. In spite of his asserted access to "documents, reports, financial statements and other written material" relating to the programs and expenditures of DPW and PHMC, plaintiff does not come forward with a single example of an instance in which PHMC "padded" or misrepresented its expenses. Defendants have produced affidavits by independent auditors, which state that the figures contained in these statements are accurate and fair in all material respects. Plaintiff's speculations about PHMC's method of allocating its expenses do not constitute specific facts sufficient to raise a genuine issue for trial, particularly in light of the undisputed statements of these independent auditors.

 Reduced to its simplest terms, the plaintiff's argument is that because the defendant made a surplus under the EPSDT Program, the defendant must have submitted false claims. The plaintiff has the burden of producing some probative and competent evidence to support this bare allegation. He has not produced such evidence and nothing in plaintiff's pleadings or affidavit show that he might reasonably be able to do so. Defendants should not be subjected under such circumstances to discovery fishing expeditions. See United States ex rel. Brensilber v. Bausch & Lomb Optical Co., 131 F.2d 545, 547 (2nd Cir. 1942).

 Broadly speaking, the objectives of the False Claims Act are to protect the federal treasury. United States v. Neifert-White Co., 390 U.S. 228, 233, 88 S. Ct. 959, 962, 19 L. Ed. 2d 1061 (1968). Nonetheless, the Act and the court decisions interpreting it do not excuse a plaintiff from meeting its burden of proof. Speculation and conjecture form the basis of plaintiff's complaint and counter affidavit. Such will not suffice to overcome a motion for summary judgment. Robin Construction Co. v. United States, 345 F.2d 610, 614 (3d Cir. 1965).

 The foregoing discussion relates with equal force to plaintiff's claims against defendant Hobbs insofar as they are based upon his purported authorization and approval of PHMC's alleged false claims. In view of the court's dismissal of the complaint against all defendants, it shall not be necessary to reach Hobbs' remaining alternative arguments addressed to plaintiff's allegation that Hobbs authorized and approved Littlejohn's alleged false claims.

 Given the above disposition of the claims against all three defendants, the only claim which remains to be addressed is defendant Littlejohn's counterclaim against plaintiff for abuse of process. For the reasons set forth below, Littlejohn's counterclaim is dismissed without prejudice.

 In its counterclaim, defendant Littlejohn asserts that plaintiff brought suit against Littlejohn without probable cause; that plaintiff's allegations are unfounded, patently untrue; that plaintiff knew, or by reasonable effort could have known that they are untrue; and that the action is willful, wanton and carried out with reckless disregard for the facts. From these allegations, it is unclear whether Littlejohn intends to assert an action for malicious prosecution or for abuse of process. *fn8" (In addition, Littlejohn has failed to assert the basis of subject matter jurisdiction under which it proceeds.) To the extent that Littlejohn asserts a counterclaim for abuse of process which accrued prior to February 17, 1981, it fails to state a claim upon which relief can be granted, since there is no allegation of a seizure of person or property. To the extent that Littlejohn asserts a counterclaim for malicious prosecution, the claim is not ripe. For these reasons, Littlejohn's counterclaim is dismissed without prejudice. *fn9" Simkins Industries, Inc. v. Fuld & Co., 392 F. Supp. 126 (E.D.Pa.1975).

 An appropriate order follows.

 ORDER

 AND NOW, this 6th day of August, 1981, it is hereby ORDERED that:

 1. Defendant Philadelphia Health Management Corporation's motion for summary judgment is hereby GRANTED and Count I of plaintiff's complaint is DISMISSED with prejudice.

 2. Count II of plaintiff's complaint is DISMISSED without prejudice.

 3. Defendant Littlejohn's counterclaim against plaintiff is DISMISSED without prejudice.

 4. Defendant Wilbur E. Hobbs' motion for summary judgment is GRANTED in part, insofar as it relates to knowledge, authorization and approval of matters alleged in Count I of plaintiff's complaint. Therefore, Count III of plaintiff's complaint is DISMISSED with prejudice, insofar as Count III relates to Hobbs' knowledge, authorization and approval of matters alleged in Count I of plaintiff's complaint. Count III of plaintiff's complaint is DISMISSED without prejudice, insofar as it relates to Hobbs' knowledge, authorization and approval of matters alleged in Count II of plaintiff's complaint.


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