United States District Court, D. Idaho
MEMORANDUM DECISION AND ORDER
LYNN WINMILL, U.S. DISTRICT COURT JUDGE
Court has before it a motion to dismiss filed by defendants
and a motion to amend filed by plaintiff McClary. The motions
are fully briefed and at issue. For the reasons explained
below, the Court will grant the motion to amend, and deny the
motion to dismiss in large part, granting only the unopposed
request to dismiss the conspiracy count (Count VI).
Patty McClary filed this lawsuit against her former employer,
North Canyon Medical Center (NCMC) and its chief executive
officer, Tim Powers, alleging that she was retaliated against
for raising concerns about patient health and safety. NCMC
was a Medicare & Medicaid Services (CMS) certified
hospital, and was audited regularly to determine whether its
certification should be renewed based in part on the
hospital's record of patient care and safety.
2015, the certifying agency determined that NCMC was not in
compliance with a requirement that it have a Director of
Nursing position to oversee patient care and safety. To keep
the hospital's certification and to continue to receiving
funding, Powers created the Director of Nursing position and
hired McClary to fill that position. But McClary alleges that
Powers directed her not to file reports on infection control
and other matters that would show that patient care and
safety was not being improved. She alleges that when she
complained, she was passed over for promotion, demoted, and
eventually forced to resign.
lawsuit, McClary alleges several claims related to her
wrongful termination, and also alleges two counts on behalf
of the United States alleging the defendants violated the
False Claims Act. The case remained sealed while the
Government investigated the matter, and was later unsealed
when the Government decided not to intervene.
defendants filed a motion to dismiss the two claims under the
False Claims Act, alleging that the complaint fails to
describe the defendants' misconduct with particularity.
McClary agreed, and instead of responding to the motion to
dismiss directly, filed a motion to amend her complaint to
cure the defects identified by defendants. The defendants
object to the proposed amendments, arguing that they are
futile because they fail to identify a false statement, fail
to explain why any false statements were material, and fail
to state a claim for conspiracy. McClary agrees the
conspiracy claim (Count VI) should be dismissed but opposes a
dismissal of the other False Claim Act count (Count V). The
issue before the Court is whether the proposed amendments to
Count V are futile because of the shortcomings listed by
are directed by Rule 15 to “freely give leave [to
amend] when justice so requires.” This policy is
“to be applied with extreme liberality.”
Eminence Capital LLC v. Aspeon, Inc., 316 F.3d 1048,
1049 (9th Cir. 2003). However, leave to amend is
not granted when the amendments are futile - that is, subject
to dismissal. Id.
proposed amendments, McClary has alleged a false
certification theory of liability under the False Claims Act.
Under this theory, a false claim can occur when a party
represents compliance with a statute or regulation as a
condition to payment, without actually complying with that
statute or regulation. U.S. ex rel. Hendow v. University
of Phoenix, 461 F.3d 1166, 1171 (9th Cir.
2006). To prevail on this claim, McClary must prove four
elements: (1) a false statement or fraudulent course of
conduct, (2) made with scienter, (3) that was material,
causing (4) the government to pay out money or forfeit moneys
due. Id. at 1174.
allege that McClary's proposed amendments fail to
establish the first, third, and fourth elements - a false
statement that is material and causes the government to pay
out money. But in the proposed amendments, McClary alleges
that Powers “purposefully caused NCMC to submit false
statements and/or reports or records regarding operating room
infection control to the Government for the purpose of
meeting CMS required standards and complying with the
proposed corrective action-all of which was done to not lose
federal funding and to receive Government payments.”
Proposed Amended Complaint (Dkt. No. 20-1)at ¶
74. This is an allegation of a false statement by defendant
Powers, acting as CEO of defendant NCMC, to obtain funding
from the government, and hence material.
also alleges that Powers directed her not to report certain
types of wrongful conduct that she was otherwise required to
report and that could “trigger a federal or state
payment adjustment . . . .” Id. at ¶ 106.
Meanwhile, Powers was representing to the Government that
McClary was hired to a position - Director of Nursing - that
was created in response to a demand by the certifying agency
for the purpose of improving patient care and safety to meet
the funding standards for a CMS certified hospital.
Id. at ¶¶ 40-43. But what Powers was not
telling the certifying agency was that he was directing
McClary to hide damaging reports. This is an allegation of an
omission that renders misleading Powers' representations
that NCMC was meeting all the standards for funding. The
Supreme Court has held that when “a defendant makes
representations in submitting a claim but omits its
violations of statutory, regulatory, or contractual
requirements, those omissions can be a basis for liability if
they render the defendant's representations misleading
with respect to the goods or services provided.”
Universal Health Services, Inc. v. U.S., 136 S.Ct.
1989, 1999 (2016).
argue that this case is governed by U.S. ex rel. Hopper
v. Anton,91 F.3d 1261 (9th Cir. 1996). In
that case, the plaintiff alleged that a school district
accepted federal funds to assist the disabled despite failing
to comply with some of the requirements of the very federal
law providing the funding. Id. at 1267. The Circuit
affirmed dismissal of that claim because the plaintiff could
not prove any false statements - the school district was not