United States v. Superior Care Pharmacy

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, Case No. 18-cv-1002-MMA-MSB ex rel. SARAH DUNTSCH, 12 ORDER DENYING DEFENDANT Plaintiff, 13 DAVID WALROD’S MOTION TO v. DISMISS 14

SUPERIOR CARE PHARMACY, et al., 15 [Doc. No. 81] Defendants. 16 17 18 19 On September 16, 2024, the United States of America filed a first amended 20 intervenor complaint against Superior Care Pharmacy, Inc., Derek Ishaque, David 21 Walrod, and Justus Benjamin alleging, among other things, violations of the False Claims 22 Act, 31 U.S.C. § 3729 et seq., and the Controlled Substances Act, 21 U.S.C. § 801 et seq. 23 Doc. No. 76 (“FAC”). On September 30, 2024, Defendant David Walrod filed a motion 24 to dismiss. Doc. No. 81. The government filed a response in opposition to Walrod’s 25 motion, to which Walrod replied. Doc. Nos. 83, 85. The Court found this matter suitable 26 for determination on the papers and without oral argument pursuant to Civil Local Rule 27 7.1.d.1. See Doc. No. 86. For the reasons set forth below, the Court DENIES Walrod’s 28 motion to dismiss. 1 I. BACKGROUND 2 The core factual allegations as alleged in the initial intervenor complaint, Doc. 3 No. 34, remain largely unchanged. In short, Superior Care Pharmacy, Inc. (“SCP”) 4 provides pharmacy services to skilled nursing facilities in San Diego County. FAC2 ¶¶ 2, 5 19. Defendants Ishaque, Walrod, and Benjamin were SCP’s principals during the 6 relevant events and time period. Id. ¶¶ 20–22. Generally speaking, the government 7 alleges that Defendants defrauded the United States of millions of dollars by submitting 8 false claims to Medicare and TRICARE. Id. ¶ 7–8. Additionally, the government alleges 9 that when a search warrant was executed at SCP’s premises in 2023, 184,635 controlled 10 substances were missing. Id. ¶ 168. As a result, the government brings seven claims: 11 (1) presentation of false claims in violation of the False Claims Act (“FCA”), 31 U.S.C. 12 § 3729(a)(1)(A), against SCP and Ishaque; (2) using false statements to get false claims 13 paid in violation of the FCA, id. § 3729(a)(1)(B), against SCP and Ishaque; 14 (3 & 4) failure to make, keep, or furnish records in violation of the Controlled Substances 15 Act (“CSA”), 21 U.S.C. § 842(a)(5), against SCP, Ishaque, and Benjamin; (5) fraudulent 16 transfer in violation of the Federal Debt Collection Procedures Act (“FDCPA”), 28 17 U.S.C. § 3304(b)(1)(A), against all Defendants; (6) payment by mistake against all 18 Defendants; and (7) unjust enrichment against all Defendants. 19 II. LEGAL STANDARD 20 A Rule3 12(b)(6) motion tests the legal sufficiency of the claims made in the 21 complaint. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must 22 contain “a short and plain statement of the claim showing that the pleader is entitled to 23 relief,” Fed. R. Civ. P. 8(a)(2), such that the defendant is provided “fair notice of what the 24 25 1 Because this matter is before the Court on a motion to dismiss, the Court accepts as true the allegations 26 set forth in the Complaint. See Hosp. Bldg. Co. v. Trs. Of Rex Hosp., 425 U.S. 738, 740 (1976). 2 The government neglected to file a redline version of their amended pleading as is required by the 27 Civil Local Rules. CivLR 15.1.c. The Court cautions the government that any further noncompliant filings may be rejected. 28 1 . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 2 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). However, plaintiffs 3 must also plead “enough facts to state a claim to relief that is plausible on its face.” Fed. 4 R. Civ. P. 12(b)(6); Twombly, 550 U.S. at 570. The plausibility standard demands more 5 than “a formulaic recitation of the elements of a cause of action,” or “naked assertions 6 devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 7 (internal quotation marks omitted). Instead, the complaint “must contain allegations of 8 underlying facts sufficient to give fair notice and to enable the opposing party to defend 9 itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 10 In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth 11 of all factual allegations and must construe them in the light most favorable to the 12 nonmoving party. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 13 1996). A court need not take legal conclusions as true merely because they are cast in the 14 form of factual allegations. See Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 15 1987). Similarly, “conclusory allegations of law and unwarranted inferences are not 16 sufficient to defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 17 1998). 18 III. DISCUSSION 19 The Court previously issued an Order granting in part Defendants Walrod’s and 20 Benjamin’s motions to dismiss the initial intervenor complaint. Doc. No. 64. The Court 21 incorporates that Order by reference. Relevant here, the Court denied their requests to 22 dismiss Claim 5 for violation of the FDCPA, finding that the government had adequately 23 pleaded that SCP’s transfers to Walrod and Benjamin were fraudulent. Id. at 9–10, 13– 24 14. However, the Court dismissed Claims 6 and 7, for payment by mistake and unjust 25 enrichment, based upon the government’s failure to plead the applicable law, id. at 14, as 26 well as the government’s failure to plead Walrod’s involvement in the double-billing 27 fraud with particularity as is required under Rule 9(b), id. at 9. Walrod now moves to 28 dismiss Claims 5, 6, and 7. See Doc. No. 81. 1 A. Claim 5 – Federal Debt Collection Procedures Act 2 The government’s fifth claim is for violation of the FDCPA. As the Court 3 previously explained, Doc. No. 64 at 13, the FDCPA includes a fraudulent transfer 4 provision, which allows the government to void a fraudulent transfer by a debtor owing a 5 debt to the United States. United States SBA v. Bensal, 853 F.3d 992, 996 (9th Cir. 6 2017). In particular, the FDCPA provides that “a transfer made or obligation incurred by 7 a debtor is fraudulent as to a debt to the United States, whether such debt arises before or 8 after the transfer is made or the obligation is incurred, if the debtor makes the transfer or 9 incurs the obligation . . . with actual intent to hinder, delay, or defraud a creditor.” 28 10 U.S.C. § 3304(b)(1)(A). 11 The Court has already determined that the government’s allegations are sufficient 12 to state an FDCPA fraudulent transfer claim against Walrod. Doc. No. 64 at 10, 13–14. 13 The Court previously described the alleged fraudulent transfer. Id. at 9–10. In short, the 14 asserted debt here is SCP’s FCA liability—i.e., the money owed to the government that 15 was improperly paid out through the double-billing scheme. FAC ¶ 216. And according 16 to the government, SCP transferred money to Walrod to avoid this debt after Walrod and 17 other SCP principals became aware SCP was being investigated by the government for 18 FCA violations. Id. ¶¶ 212–215. As a result, SCP was unable to pay its debt to the 19 government. Id. ¶ 220. This is, again, sufficient to state a claim against Walrod, and 20 Walrod’s arguments to the contrary do not change this outcome. Issues of whether SCP 21 actually incurred a debt to the government, whether Walrod was aware of this debt, and 22 whether SCP was left insolvent after the transfers are not appropriate for resolution on 23 this record and at the motion to dismiss stage. Here, accepting the allegations as true, 24 SCP transferred to Walrod, and Walrod accepted, $697,500 after SCP incurred its FCA 25 liability to the government, knowing that this money was owed to the government, and 26 SCP was left unable to pay its debt to the government as a result. The Court finds that 27 these allegations are sufficient to state an FDCPA claim against Walrod. Accordingly, 28 the Court DENIES Walrod’s motion to dismiss Claim 5. 1 B. Claims 6 & 7 – Common Law Claims 2 The government’s sixth claim is for payment by mistake, and its seventh claim is 3 for unjust enrichment. As noted above, the Court previously dismissed these claims with 4 leave to amend. Doc. No. 64 at 9, 14. Walrod does not argue that the government failed 5 to cure the previously identified deficiencies. Instead, Walrod makes the legal argument 6 that he should not be held liable for SCP’s receipt of funds. Doc. No. 81-1 at 18–22. 7 As a threshold matter, it appears that these two claims, which the government now 8 pleads pursuant to federal common law, FAC ¶¶ 221–28, are merely alternative theories 9 of relief, which the government may bring alongside its FCA claims. United States 10 v. Mead, 426 F.2d 118, 124 (9th Cir. 1970); United States v. Peters, No. 2:24-cv-00287 11 WBS CKD, 2024 U.S. Dist. LEXIS 122120, at *15 (E.D. Cal. July 10, 2024) (collecting 12 cases). As to the government’s payment by mistake claim, the Ninth Circuit has 13 recognized that such a claim arises under the federal common law and is a remedy 14 available to the United States independent of statute. United States v. Mead, 426 F.2d 15 118, 124 (9th Cir. 1970). Here, the government identifies numerous claims SCP 16 submitted to Medicare, FAC ¶ 96, and TRICARE, id. ¶ 98, and the funds SCP received 17 from these government programs. “If the government made these payments under an 18 erroneous belief which was material to the decision to pay, it is entitled to recover the 19 payments.” Mead, 426 F.2d at 124. The government duly alleges that it was mistaken as 20 to whether SCP was entitled to have these claims funded; according to the government, it 21 was unaware at the time of payment that these claims were previously included in 22 Medicare’s Part A and TRICARE’s pharmacy payments to the SNFs. FAC ¶¶ 95, 97, 23 229. Thus, the government has duly pleaded a claim in the alternative for payment by 24 mistake. 25 Similarly, because the government seeks to recover funds improperly paid pursuant 26 to federal programs, it may pursue an unjust enrichment claim. See United States 27 v. Bellecci, No. CIV S-05-1538 LKK GGH PS, 2008 U.S. Dist. LEXIS 23892, at *21–22 28 (E.D. Cal. Mar. 25, 2008) (“However, federal common law supports reimbursement of 1 federal monies improperly paid pursuant to federal programs.”) (collecting cases). 2 Walrod’s arguments in support of dismissal of these claims are more appropriate 3 for summary judgment. For example, Walrod attempts to distinguish Mead on the 4 grounds that he did not receive any funds directly from the government. Doc. No. 81-1 at 5 19. But based upon the government’s pleading, Walrod directly benefitted from the 6 double-billing scheme. Mead, 426 F.2d at 124 (finding liable the farmers who “received 7 benefits as a result of the transaction”). And ultimately, determination of whether the 8 government’s payments to SCP “flow” to Walrod is not appropriate for resolution at this 9 stage. Consequently, the Court DENIES Walrod’s motion to dismiss Claims 6 and 7. 10 C. Statute of Limitations 11 Finally, Walrod argues that “all claims prior to May 21, 2018, should be barred.” 12 Doc. No. 81-1 at 22. So far as the Court can surmise, Walrod seeks dismissal of Claims 13 5, 6, and 7 on the basis that the government failed to timely plead these claims within the 14 statute of limitations. The parties agree that the applicable statute of limitations for 15 federal claims for violation of the FDCPA, payment by mistake, and unjust enrichment is 16 six years. 28 U.S.C. § 2415(a); id. § 3306(b). 17 In May 2018, Relator Sarah Duntsch initiated this action under seal asserting one 18 cause of action for violation of the FCA. See Doc. No. 1. The factual basis for her claim 19 was that Defendants submitted false claims to Medicare and TRICARE between 2013 20 and 2018. See, e.g., id. ¶ 82. For over five and a half years, the government requested 21 and obtained extensions of time to make an intervention decision based upon the 22 assertion that it was still investigating the claim and allegations. Doc. Nos. 2–3, 5–27. 23 After the Court issued an order to show cause in September 2023, Doc. No. 28, the 24 government elected to intervene in October, and filed the initial intervenor complaint on 25 January 4, 2024, Doc. No. 34. 26 By way of the initial intervenor complaint, the government pleaded seven claims 27 alleging violations of the FCA (Claims 1 & 2), CSA (Claims 3 & 4), and FDCPA (Claim 28 5) as well as payment by mistake (Claim 6) and unjust enrichment (Claim 7). See id. In 1 September 2024, the government filed its first amended intervenor complaint, asserting 2 these same seven causes of action. See FAC. 3 As to the government’s FDCPA claim, the allegedly fraudulent transfers that the 4 government seeks to void occurred in 2020. FAC ¶¶ 212–215. Thus, the government’s 5 initial pleading of its FDCPA claim in January 2024 is facially timely. Walrod does not 6 argue otherwise. 7 With respect to the government’s common law claims, the parties dispute whether 8 they relate back to the Relator’s qui tam filing. As noted above, the Relator did not plead 9 these common law claims against Defendants in her initial pleading. Rather, the 10 government asserted them for the first time in its January 4, 2024 initial intervenor 11 complaint. Doc. No. 34 at 30–31. Factually speaking, these common law claims are 12 based upon the Defendants’ alleged double-billing of Medicare and TRICARE. Doc. 13 No. 34 ¶¶ 162, 183, 185; FAC ¶¶ 229, 250, 255. 14 According to both the initial and first amended intervenor complaints, the alleged 15 Medicare double-billing fraud took place between January 2013 and September 2019, 16 FAC ¶ 116, and the alleged TRICARE double-billing fraud occurred between February 17 2013 and September 2020, id. ¶ 117. These allegations comport with the Relator’s initial 18 pleading in 2018, through which she alleged that SCP had been double-billing Medicare 19 and TRICARE since 2013. See, e.g., Doc. No. 1 ¶ 82. Rule 15(c) provides that an 20 amendment relates back to the date of an original pleading where, for example, “the 21 amendment asserts a claim or defense that arose out of the conduct, transaction, or 22 occurrence set out—or attempted to be set out—in the original pleading; . . . .” Fed. R. 23 Civ. P. 15(c)(1)(B). Thus, the Court agrees with the government that these two common 24 law claims relate back to the initial filing because they stem from the same conduct, 25 transaction, or occurrence alleged by the Relator. 26 Walrod does not contend that the factual basis underlying the government’s 27 common law claims is not the same conduct, transaction, or occurrence set out in the 28 Relator’s complaint. Instead, he argues against application of the relation back doctrine, 1 first asserting that the government does not allege any FCA claims against him. Doc. 2 No. 81-1 at 23. But the Relator pleaded her FCA claim against Walrod as co-owner and 3 President of SCP. Doc. No. 1 ¶ 18; id. at 18. And the government similarly pleaded its 4 two FCA claims against Walrod in the initial intervenor complaint. Doc. No. 34 at 27– 5 28. Walrod does not explain why the government’s election to forgo pursuit of FCA 6 liability as to Walrod in the first amended intervenor complaint, see FAC, undermines the 7 ability for the government’s common law claims to relate back to the Relator’s 8 complaint. 9 Second, Walrod’s contends that pursuant to 31 U.S.C. § 3731(b)(2), the 10 government’s FCA complaint is untimely because it was brought more than more than 11 three years after the government learned facts material to these causes of action. Doc. 12 No. 81-1 at 23. But this section, entitled “False claims procedure,” provides that a civil 13 action may not be brought more than 6 years after the date of the asserted violation, or 14 more than 3 years after facts material to the right of action are or reasonably should have 15 been known (but in no event later than 10 years after the violation), “whichever occurs 16 last.” 31 U.S.C. § 3731(b). Walrod does not explain why the 3-year tolling provision set 17 forth in § 3731(b)(2) applies here. Moreover, the immediately proceeding subsection 18 expressly provides that if the government elects to intervene, the government’s pleading 19 “shall relate back to the filing date of the complaint of the person who originally brought 20 the action, to the extent that the claim of the Government arises out of the conduct, 21 transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint 22 of that person.” Id. § 3731(c). And again, Walrod does not argue that the factual basis 23 underlying the common law claims was not set forth in the Relator’s complaint. Nor 24 does he argue that the Relator’s filing of her May 21, 2018 complaint, which concerns 25 events beginning in 2013, was untimely. 26 In this same vein, Walrod argues that the government’s delay in intervening was 27 dilatory and weighs against a finding that its intervenor complaint relates back. Doc. 28 No. 81-1 at 23–24. The government did not apply for thirty (30) extensions, Doc. 1 || No. 81-1 at 23, the government filed thirteen (13) motions for extension of time, Doc. 2 || Nos. 2 5, 7,9, 11, 13, 15, 17, 19, 21, 23, 25, 27, twelve (12) of which the Court granted, 3 || Doc. Nos. 3, 6, 8, 10, 12, 14, 16, 18, 20, 22, 24, 26. Regardless, because Walrod offers 4 persuasive argument undermining the relation back of the government’s pleadings and 5 ||common law claims, there is no need to consider whether the government should be 6 || equitably prohibited from relying on the FCA’s tolling provision. 7 For all of these reasons, the Court DENIES Walrod’s motion to dismiss on statute 8 || of limitations grounds. 9 IV. CONCLUSION 10 Based upon the foregoing, the Court DENIES Walrod’s motion to dismiss. The 11 ||Court DIRECTS Walrod to file an Answer to the first amended intervenor complaint no 12 || later than fourteen (14) calendar days from the date of this Order. 13 IT IS SO ORDERED. 14 || Dated: January 15, 2025 15 fMbituh M = illr 16 HON. MICHAEL M. ANELLO 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28