P. Victor Gonzalez v. Planned Parenthood of La , 759 F.3d 1112 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
P. VICTOR GONZALEZ, Qui Tam No. 12-56352
Plaintiff, on behalf of the United
States and State of California, D.C. No.
Plaintiff-Appellant, 2:05-cv-08818-
AHM-FMO
v.
PLANNED PARENTHOOD OF LOS OPINION
ANGELES; PLANNED PARENTHOOD
SHASTA-DIABLO, AKA Seal B;
PLANNED PARENTHOOD GOLDEN
GATE; PLANNED PARENTHOOD MAR
MONTE, AKA Seal D; PLANNED
PARENTHOOD RIVERSIDE AND SAN
DIEGO COUNTIES, INC., AKA Seal E;
PLANNED PARENTHOOD ORANGE
AND SAN BERNARDINO COUNTIES,
INC., AKA Seal F; PLANNED
PARENTHOOD PASADENA AND SAN
GABRIEL VALLEY, INC., AKA Seal
G; PLANNED PARENTHOOD SANTA
BARBARA, VENTURA AND SAN LUIS
OBISPO COUNTIES, INC., AKA Seal
H; PLANNED PARENTHOOD SIX
RIVERS, AKA Seal I; PLANNED
PARENTHOOD AFFILIATES OF
CALIFORNIA, AKA Seal J; MARY
JANE WAGLE, AKA Seal K;
MARTHA SWILLER, AKA Seal L;
2 GONZALEZ V. PLANNED PARENTHOOD
KATHY KNEER, AKA Seal M,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
A. Howard Matz, District Judge, Presiding
Argued and Submitted
June 5, 2014—Pasadena, California
Filed July 22, 2014
Before: Ronald M. Gould and N. Randy Smith, Circuit
Judges, and Morrison C. England, Jr., Chief District Judge.*
Opinion by Judge Gould
*
The Honorable Morrison C. England, Jr., Chief District Judge for the
U.S. District Court for the Eastern District of California, sitting by
designation.
GONZALEZ V. PLANNED PARENTHOOD 3
SUMMARY**
False Claims Act
The panel affirmed the district court’s dismissal of a
complaint alleging that, in violation of the False Claims Act
and the California False Claims Act, Planned Parenthood of
Los Angeles knowingly and falsely overbilled state and
federal governments for contraceptives supplied to low-
income individuals.
The district court dismissed the FCA claims for failure
sufficiently to plead falsity under Federal Rule of Civil
Procedure 9(b). The panel affirmed on the alternate ground
that the plaintiff’s third amended complaint did not state a
plausible claim that Planned Parenthood knowingly made
false claims, with the statutory scienter, as required by Fed.
R. Civ. P. 8(a). The panel concluded that the plaintiff’s
assertion that Planned Parenthood knowingly submitted false
claims for reimbursement was compellingly contradicted by
a series of letters he attached to the complaint. The panel
held that the district court did not abuse its discretion in
denying the plaintiff further leave to amend his complaint.
The panel held that the state law claims were barred by
the three-year statute of limitations.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4 GONZALEZ V. PLANNED PARENTHOOD
COUNSEL
Walter M. Weber (argued), Jay Alan Sekulow, Stuart J. Roth
& Tiffany N. Barrans, American Center for Law & Justice,
Washington, D.C.; Jack M. Schuler & Sam D. Ekizian,
Schuler, Brown & Ekizian, Van Nuys, California; Edward L.
White III, American Center for Law & Justice, Ann Arbor,
Michigan, for Plaintiff-Appellant.
Matthew Donald Umhofer (argued) & Amy M. Hinkley,
Spertus, Landes & Umhofer LLP, Los Angeles, California,
for Defendants-Appellees.
OPINION
GOULD, Circuit Judge:
P. Victor Gonzalez, a former Chief Financial Officer of
Planned Parenthood of Los Angeles, appeals from the
dismissal of his qui tam action against Planned Parenthood,
et al., (“Planned Parenthood”) asserting claims under the
False Claims Act (“FCA”) and the California False Claims
Act (“CFCA”). Gonzalez alleges that Planned Parenthood
knowingly and falsely overbilled state and federal
governments for contraceptives supplied to low-income
individuals. The district court dismissed Gonzalez’s claims
under the FCA in his third amended complaint for a failure to
sufficiently plead falsity and concluded that his state law
claims were time-barred by the statute of limitations. We
have jurisdiction under 28 U.S.C. § 1291, and we affirm.
GONZALEZ V. PLANNED PARENTHOOD 5
I
Planned Parenthood is a participant in the Family
Planning, Access, Care and Treatment program (“Family
PACT”), which reimburses Planned Parenthood for
contraceptives that Planned Parenthood gives to low-income
individuals. Family PACT is a program within California’s
Medicaid program (“Medi-Cal”) providing family planning
drugs and services to individuals under the poverty line.
Family PACT has been jointly funded by the federal and state
governments since 1999. Before then it was entirely funded
by the State of California.
To participate in Family PACT, each California branch of
Planned Parenthood signed a Provider Agreement, in which
they agreed to “comply with all federal laws and regulations
governing and regulating providers.” The Provider
Agreement also binds participants to “comply with all of the
billing and claims requirements set forth in the Welfare and
Institutions Code.” The term “at cost” for billing is found
only in the Family PACT billing manual, not in the Welfare
and Institutions Code.
Because Planned Parenthood has agreements in place
with manufacturers, it buys contraceptives at a discounted
rate. From 1997 to 2004, when Planned Parenthood billed
Family PACT and Medi-Cal for contraceptives given to low-
income individuals, it quoted its “usual and customary rates”
for reimbursement rather than its acquisition costs. The
“usual and customary rates” represented what Planned
Parenthood would charge an average patient for
contraceptives, a price lower than the market cost to an
individual, but higher than Planned Parenthood’s acquisition
cost for those contraceptives.
6 GONZALEZ V. PLANNED PARENTHOOD
On May 5, 1997, the California Department of Healthcare
Services (“CDHS”) began exchanging letters with Planned
Parenthood’s executive director and later president, Kathy
Kneer, telling her that claims made to Family PACT and
Medi-Cal should be made “at cost.” This letter exchange
continued, and Kneer sent a letter dated January 14, 1998,
responding to CDHS by stating that Planned Parenthood
“clinics are billing” at the “usual and customary rate,” not at
acquisition costs. There was no response from CDHS after
that letter, no advice to the contrary or objection. Planned
Parenthood kept billing at its “usual and customary rates”
until 2004, when CDHS conducted an audit of Planned
Parenthood and found that Planned Parenthood had not
complied with the billing practices outlined in the Family
PACT manual. According to the audit, Planned Parenthood’s
noncompliance with the billing manual resulted in
overcharges of $5,213,645.92 during the audit period. On
November 19, 2004, the same day as the audit’s release,
CDHS sent a letter to Planned Parenthood stating that “no
specific definition of ‘at cost’ is contained in [the billing
manual]” and that “[i]n researching [the at cost] issue DHS
has became [sic] concerned that, with regard to the definition
of ‘at cost,’ conflicting, unclear, or ambiguous
misrepresentations have been made to providers.” For these
reasons, CDHS did not seek reimbursement from Planned
Parenthood.
Gonzalez was hired on December 9, 2002 as the CFO of
Planned Parenthood of Los Angeles. He participated in early
stages of the audit, but was fired on March 9, 2004. Id. On
November 18, 2005, almost a year after the audit concluded,
Gonzalez urged the United States Attorney General to address
the “fraudulent billing” practices of Planned Parenthood.
Gonzalez filed a qui tam suit under the FCA and CFCA on
GONZALEZ V. PLANNED PARENTHOOD 7
December 19, 2005. The United States declined to intervene
on November 1, 2007. Gonzalez filed a series of amended
complaints culminating in the third amended complaint,
which the district court dismissed with prejudice. That
dismissal is now appealed.
II
We review de novo a district court’s dismissal of a
complaint under Rule 9(b), Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 996 (9th Cir. 2010), as well as the
district court’s dismissal of a claim based on a statute of
limitations, Johnson v. Lucent Techs., Inc., 653 F.3d 1000,
1005 (9th Cir. 2011). We review the district court’s denial of
leave to amend a complaint for abuse of discretion. Ventress
v. Japan Airlines, 603 F.3d 676, 680 (9th Cir. 2010).
III
When Gonzalez filed his complaint, the FCA imposed
liability on a person or organization who “knowingly
presents, or causes to be presented, to an officer or employee
of the United States Government . . . a false or fraudulent
claim for payment or approval.” 31 U.S.C. § 3729(a)(1)
(amended 2009). Gonzalez contends that the district court
erred in dismissing his third amended complaint with
prejudice under the FCA for a failure to adequately plead
falsity under Federal Rule of Civil Procedure 9(b).
We affirm the district court on the alternate ground that
the complaint did not state plausible claims for relief.1 We
1
We may affirm the district court on any basis supported by the record.
United States v. Gonzalez-Rincon, 36 F.3d 859, 866 (9th Cir. 1994).
8 GONZALEZ V. PLANNED PARENTHOOD
apply the plausibility requirement described in Ashcroft v.
Iqbal, 556 U.S. 662 (2009), to FCA claims. Cafasso v. Gen.
Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054–55 (9th Cir.
2011). We need not reach the issue of whether Planned
Parenthood made false claims because, even assuming that
the third amended complaint sufficiently alleges falsity, it did
not satisfy Federal Rule of Civil Procedure 8(a), which here
requires a plausible claim that Planned Parenthood knowingly
made false claims, with the statutory scienter. The FCA
specifically takes aim at knowing falsity, not at negligent
misrepresentation. See United States ex rel. Hopper v. Anton,
91 F.3d 1261, 1267 (9th Cir. 1996) (“Innocent mistakes, mere
negligent representations and differences in interpretations
are not false certifications under the Act.”). “The statutory
phrase ‘known to be false’ does not mean scientifically
untrue; it means a lie.” Hagood v. Sonoma Cnty. Water
Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) (internal
quotation marks and citation omitted). Here, Gonzalez’s
claims failed to plausibly make this requisite allegation of
“knowing” scienter in the total circumstances alleged by the
third amended complaint.
Although we normally treat all of a plaintiff’s factual
allegations in a complaint as true, we “need not . . . accept as
true allegations that contradict matters properly subject to
judicial notice or by exhibit.” Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001); see Slater v.
A.G. Edwards & Sons, Inc., 719 F.3d 1190, 1196 (10th Cir.
2013) (“And if those documents [incorporated by reference
into the complaint] conflict with allegations in the complaint,
we need not accept those allegations as true.”); Kaempe v.
Myers, 367 F.3d 958, 963 (D.C. Cir. 2004) (“Nor must we
accept as true the complaint's factual allegations insofar as
they contradict exhibits to the complaint or matters subject to
GONZALEZ V. PLANNED PARENTHOOD 9
judicial notice.”); Veney v. Wyche, 293 F.3d 726, 730 (4th
Cir. 2002) (quoting Sprewell); Steckman v. Hart Brewing,
Inc., 143 F.3d 1293, 1295–96 (9th Cir. 1998) (“[W]e are not
required to accept as true conclusory allegations which are
contradicted by documents referred to in the complaint.”). To
survive review under Rule 8(a), the “factual allegations that
are taken as true must plausibly suggest an entitlement to
relief, such that it is not unfair to require the opposing party
to be subjected to the expense of discovery and continued
litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.
2011); see Eclectic Props. E., LLC v. Marcus & Millichap
Co., 751 F.3d 990, 995 (9th Cir. 2014).
Here, Gonzalez did not plausibly state a claim under the
FCA because his assertion that Planned Parenthood
knowingly submitted false claims for reimbursement is
compellingly contradicted by a series of letters he attached to
his complaint. In the first exchange of letters, from 1997 to
1998, the CDHS expressed concern over Planned
Parenthood’s billing practices, but remained silent when
Planned Parenthood explicitly described its billing practices
and rationale. Then on November 19, 2004, the same day as
the release of the State of California’s audit of Planned
Parenthood’s billing practices, the State acknowledged in a
letter to Planned Parenthood that “no specific definition of ‘at
cost’ is contained in [the billing manual]” and that “[i]n
researching [the at cost] issue DHS has became [sic]
concerned that, with regard to the definition of ‘at cost,’
conflicting, unclear, or ambiguous misrepresentations have
been made to providers.” The State did not even pursue
money owed by Planned Parenthood, let alone suggest that
Planned Parenthood had made knowingly false claims.
10 GONZALEZ V. PLANNED PARENTHOOD
These attachments fatally undercut Gonzalez’s allegations
of knowing falsity to the point where he cannot state a
plausible claim under the FCA, and we affirm the district
court’s dismissal of his third amended complaint. Stated
simply, even if bills sent by Planned Parenthood were false in
portraying its costs, one cannot plausibly conclude that there
was knowing falsity on the part of Planned Parenthood given
the explicit statements addressing this subject made by the
State of California through CDHS and the State’s silence
after being told what procedures Planned Parenthood was
following.2
The letters attached to Gonzalez’s complaint show the
“obvious alternative explanation” that Planned Parenthood
lacked the scienter required by the FCA. See Twombly,
550 U.S. at 567; Somers v. Apple, Inc., 729 F.3d 953, 965
(9th Cir. 2013) (affirming dismissal of antitrust claim in part
due to an obvious alternative explanation for music pricing);
In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1108
(9th Cir. 2013) (affirming dismissal of plaintiff’s claim under
Securities Act where plaintiff’s allegations were “merely
consistent with both their explanation and the defendants’
competing explanation”); Cafasso, 637 F.3d at 1056. Here,
Gonzalez’s allegation that Planned Parenthood knowingly
submitted false claims is only “merely possible rather than
plausible,” Century Aluminum, 729 F.3d at 1108, and he
2
Gonzalez claims knowing falsity based only on Planned Parenthood’s
alleged breaches of the California Family PACT billing regulations. As
such, the State of California’s interpretation of those regulations is
persuasive in our determination that there was no knowing falsity under
the FCA. Anton, 91 F.3d at 1267–68 (reasoning that California’s
administration of the regulations surrounding the State’s school funding
program was determinative of FCA falsity).
GONZALEZ V. PLANNED PARENTHOOD 11
cannot overcome the plausible and obvious explanation that
Planned Parenthood did not knowingly submit false claims.3
The district court did not abuse its discretion in denying
Gonzalez leave to amend his third amended complaint.
“Futility of amendment can, by itself, justify the denial of a
motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815,
845 (9th Cir. 1995). And the district court’s discretion in
denying amendment is “particularly broad” when it has
previously given leave to amend. Miller v. Yokohama Tire
Corp., 358 F.3d 616, 622 (9th Cir. 2004) (quoting Chodos v.
W. Publ’g Co., 292 F.3d 992, 1003 (9th Cir. 2002)) (internal
quotation marks omitted). Because Gonzalez’s own
complaint attachments defeat the plausibility of his
allegations, and because he had already amended his
complaint several times, the district court did not abuse its
discretion in denying him further leave to amend.
IV
Finally, the district court correctly concluded that
Gonzalez’s claims under the CFCA were time-barred.
Claims under the CFCA must be brought within “three years
after the date of discovery by the official of the state or
political division charged with responsibility to act in the
3
Contrary to Gonzalez’s assertions in the supplemental briefing, the
letters distinguish this case from United States v. Bourseau, 531 F.3d 1159
(9th Cir. 2008) because they show that Planned Parenthood did not “fail[]
to make simple inquiries” as to the proper billing methods. Id. at 1168
(citation omitted). Rather, Planned Parenthood actively engaged with
CDHS officials, who themselves seemed to tacitly approve Planned
Parenthood’s billing procedures by ending the correspondence without
objection after being told that Planned Parenthood was not billing at
acquisition cost but at usual and customary rates.
12 GONZALEZ V. PLANNED PARENTHOOD
circumstances.” Cal. Gov’t Code § 12654(a) (amended 2009,
2012). “Discovery” means “the discovery by the aggrieved
party of the fraud or facts that would lead a reasonably
prudent person to suspect fraud.” Debro v. L.A. Raiders,
112 Cal. Rptr. 2d 329, 336 (Cal. Ct. App. 2001). Here, the
correspondence between Planned Parenthood and CDHS
beginning in 1997 gave information to the State that would
lead a reasonably prudent person to suspect fraud if it was
essential for disbursements to be billed at acquisition cost
rather than at Planned Parenthood’s usual and customary
rates. Gonzalez did not file his complaint until 2005. His
claims under the CFCA are time-barred by the three-year
statute of limitations.
AFFIRMED.