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Nichole Medical Equipment & Supply, Inc. and Dominic Rotella v. United States of America

March 28, 2012

NICHOLE MEDICAL EQUIPMENT & SUPPLY, INC. AND DOMINIC ROTELLA, PLAINTIFFS,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Rufe, J.

MEMORANDUM OPINION AND ORDER

Nichole Medical Equipment & Supply, Inc. ("Nichole Medical"), a durable medical equipment ("DME") supplier, and its president and owner Dominic Rotella, have filed suit against the United States seeking a declaratory judgment and damages for the Government's alleged breach of a January 27, 2006 settlement agreement ("Settlement Agreement"), and also claiming fraudulent conduct related to the Settlement Agreement.

The Government has filed a motion to dismiss all claims on the grounds that: 1) the Court lacks subject matter jurisdiction over Plaintiffs' contract claims (Counts I and II) because, pursuant to the Tucker Act, contract claims (and claims sounding in contract such as Plaintiffs' declaratory judgment claim) seeking damages in excess of $10,000 must be heard by the Court of Federal Claims; and 2) the Court lacks subject matter jurisdiction over Plaintiffs' fraud claims, as they fall under an exception to the Federal Tort Claims Act ("FTCA") and Plaintiffs assert no other legitimate basis for jurisdiction. For the reasons set forth below, the Court finds that it lacks jurisdiction over Plaintiffs' claims.

I. BACKGROUND

The Incontinence Supplies Action

In 2004, the United States filed a civil action against Nichole Medical in the Eastern District of Pennsylvania, alleging violations of the False Claims Act, fraud, unjust enrichment, and breach of contract, based upon Nichole Medical's billing for incontinence supplies. *fn1 In 2005, the parties entered into a Settlement Agreement, pursuant to which Plaintiffs agreed to pay the United States $750,000. *fn2 The Settlement Agreement provided that Nichole Medical would make one substantial payment followed by equal monthly payments for five years, and would undertake enumerated non-monetary obligations. In exchange, the Government agreed to release Nichole Medical and the individual defendants in that case, including Rotella, from civil or administrative monetary claims based on the covered conduct. This was understood by the parties to be a final resolution of the dispute over Nichole Medical's billing for incontinence supplies. The Complaint in the present case alleges that Nichole Medical made the substantial initial payment, but made only two of the sixty monthly payments due under the Settlement Agreement.

The Motorized Wheelchair/ Semi-Electric Bed Investigation

On May 20, 2002, TriCenturion, a Medicare Program Safeguard Contractor (PSC), which, pursuant to its contract with Medicare, performs program integrity tasks such as fraud and overpayment investigations on behalf of the United States Secretary of Health and Human Services, performed an unannounced audit of Nicole Medical's business records. *fn3 It claims to have found evidence of overpayment to Nichole Medical for motorized wheelchairs and medical beds. Although the United States Attorney did not find evidence of fraud, TriCenturion maintained that Plaintiff had improperly billed Medicare for some motorized wheelchairs and semi-electric hospital beds (i.e. an administrative overpayment), and issued a notice of overpayment to Nichole Medical in 2004. TriCenturion estimated the amount of overpayment, and instructed the regional carrier, then HealthNow, to institute a 100% offset against other payments due to Plaintiff under Medicare. HealthNow initially complied, but stopped the recoupment after counsel for Nichole Medical intervened. When National Heritage Insurance Company ("NHIC") succeeded HealthNow, TriCenturion instructed NHIC to re-institute the offset, which NHIC did in July 2006. *fn4 The offset allegedly caused Nichole Medical to default on the payments due under the terms of the incontinence supplies Settlement Agreement, and by January 2007 Nichole Medical terminated all business operations.

Plaintiff appealed the overpayment calculation and offset through the administrative review process. In February 2007, the Administrative Law Judge ("ALJ") found that TriCenturion had not complied with certain Medicare regulations regarding notices, procedures, and grounds for re-opening claims and instituting offsets. The ALJ found that $101,201.44 had been improperly offset and was owed to Nichole Medical. In January 2008, the Medicare Appeals Council upheld the ALJ's opinion. *fn5

Rather than issuing the improperly offset funds to Nichole Medical, the United States wished to apply the $101,201.44 to the balance owed under the Settlement Agreement, as Nichole Medical was, by that time, in default. Pursuant to this goal, the Government filed a motion to enforce the incontinence supplies Settlement Agreement. The District Court Judge denied this motion on procedural grounds. *fn6

The Claims Set Forth in the Complaint

First, Plaintiffs seek declaratory judgment regarding the incontinence supplies Settlement Agreement. Plaintiffs allege that Defendants expressly or impliedly promised to conduct business with Nichole Medical within Medicare's legal and regulatory structure. Plaintiffs argue that the Government breached this provision of the Settlement Agreement and its duty of good faith and fair dealing by allowing its agents to conduct an unannounced investigation of Nichole Medical's billing for motorized wheelchairs and semi-electric beds, re-open closed claims regarding such DME, and impose an offset for allegedly improper motorized wheelchair/ semi-electric bed billing. Therefore, Plaintiffs herein seek judgment declaring that the Settlement Agreement was rendered void and/or unenforceable by the Government agents' later mishandling of concerns about Nichole Medical's billing for motorized wheelchairs and semi-electric beds, and seek a refund of all money paid to the Government pursuant to the Settlement Agreement, as well as payment of the improper offset.

Second, Nichole Medical asserts a breach of contract claim for the same conduct described above. As previously discussed, the conduct Nichole Medical alleges breached the Settlement Agreement was the subject of administrative review. Despite its successful challenge to the Government agents' compliance with the Medicare laws and regulations, here Nichole Medical argues that the non-compliance with those statutes and regulations was also a breach of the Settlement Agreement, and Plaintiffs seek compensatory damages for the breach.

Third, Nichole Medical seeks relief and punitive damages for fraud, alleging that the Government agreed to conduct business with Nichole Medical within the applicable legal and statutory structure, that the representation that it would do so was false, and ...


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