US ex rel Bennett v. Genetics & IVF Inst ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA EX REL
DAVID D. BENNETT,
Plaintiff-Appellant,
v. No. 98-2119
GENETICS & IVF INSTITUTE,
INCORPORATED,
Defendant-Appellee.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
J. Frederick Motz, Chief District Judge.
(CA-95-1620-JFM)
Argued: March 3, 1999
Decided: October 28, 1999
Before TRAXLER, Circuit Judge,
VOORHEES, United States District Judge
for the Western District of North Carolina, sitting by designation,
and FABER, United States District Judge
for the Southern District of West Virginia, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: John Stephen Simms, GREBER & SIMMS, Baltimore,
Maryland, for Appellant. Ronald Henry Clark, ARENT, FOX, KINT-
NER, PLOTKIN & KAHN, Washington, D.C., for Appellee. ON
BRIEF: W. Charles Bailey, Jr., GREBER & SIMMS, Baltimore,
Maryland; Robin Page West, LAW OFFICES OF ROBIN PAGE
WEST, Baltimore, Maryland, for Appellant. Robert E. Wanerman,
ARENT, FOX, KINTNER, PLOTKIN & KAHN, Washington, D.C.,
for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
This is a qui tam action filed by David D. Bennett ("Bennett") on
behalf of the United States under the Federal False Claims Act
("FCA"), 31 U.S.C. § 3730(b). The district court granted the motion
for summary judgment of the defendant, Genetics & IVF Institute,
Inc. (the "Institute"). Bennett appealed. Finding no error, we affirm.
I.
In 1991, 1994 and 1997, through contracts bid competitively under
the procurement laws of Virginia, the Institute undertook to provide
services for federally-funded paternity testing. Federal funding was
provided pursuant to the Child Support and Establishment of Pater-
nity Program under the Social Security Act, 42 U.S.C. § 651, et seq.
The purpose of this program is to decrease the number of fathers who
refuse to support their children because paternity has not been conclu-
sively established.
The request for proposal ("RFP"), which became part of the con-
tract, obligated the Institute to: (1) draw two tubes of blood from
each person tested -- the mother, child and putative father -- for a
total of six tubes of blood for each group or case; (2) perform a pater-
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nity test for each group; and (3) perform a second paternity test for
each group in which the first test indicated the man was not the father.
The contract allowed a twenty-one-day window in which to com-
plete the initial test and any retest. Each test takes thirteen to fifteen
days to complete; therefore, in order to meet the time frame under the
contract, a second test would have to be run simultaneously with the
first in every case. Instead of providing six tubes of blood and two
tests, the Institute provided only three tubes of blood and one test.
The operative pleading before the district court was Bennett's third
amended complaint, filed on August 18, 1997. The third amended
complaint had three counts. Count I charged that the Institute know-
ingly submitted false claims under the paternity testing contract.
Count II alleged that the Institute paid illegal kickbacks to a military
employee of the Bethesda Naval Hospital who later joined the Insti-
tute staff. The third count charged that the Institute had violated the
Stark law, 42 U.S.C. § 1395nn, in connection with its internal labora-
tory testing of tissue samples submitted by staff physicians.
Both Bennett and the Institute filed motions and cross-motions for
summary judgment. On July 10, 1998, the district court, ruling from
the bench at oral argument, granted summary judgment for the Insti-
tute on Counts I and II of the third amended complaint. As to Count
I of the amended complaint, the court ruled that undisputed facts of
record showed that the Institute lacked the requisite fraudulent intent
for liability to attach under the False Claims Act. With regard to
Count II, the court held that Bennett had raised the claim too late in
the proceedings. At oral argument, Bennett admitted that Count II as
originally filed was defective. He attempted to salvage this count by
asserting, in his brief in opposition to the Institute's motion for sum-
mary judgment, a new theory to support it. He did not move to amend
Count II under Rule 15(a); he simply argued that the court should per-
mit him to amend to conform to the evidence as permitted by Rule
15(b). The trial court rejected this argument finding that Bennett was
asserting an entirely new theory. While the trial court did not
expressly say the Institute would be prejudiced by the proposed
amendment, the implication is clear. The new theory, said the court,
would require new discovery and a different focus of the litigation.
As such, the court held, it came "simply too late" in the case. Bennett
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voluntarily moved to dismiss Count III under Federal Rule of Civil
Procedure 41(a). The Institute opposed that motion and, at oral argu-
ment, the district court dismissed Count III with prejudice as to the
relator, Bennett, but not as to the United States. Bennett immediately
filed this appeal which seeks review of the district court's order grant-
ing summary judgment upon Counts I and II.
We apply a de novo standard of review to the trial court's grant of
summary judgment on Count I. Helm v. Western Md. Ry. Co., 838
F.2d 729, 734 (4th Cir. 1988). An abuse of discretion standard applies
to the trial court's refusal to permit amendment of Count II. Gladhill
v. General Motors Corp., 743 F.2d 1049, 1052 (4th Cir. 1984).
II.
Qui tam suits predate the Republic. A discussion of the long history
of the practice is found in Marvin v. Trout, 199 U.S. 212 (1905). The
relator in a qui tam action is essentially a self-appointed private attor-
ney general, and his recovery is analogous to a lawyer's contingent
fee. The relator has no stake in the damages sought, all of which have
been incurred by the government. United States v. Univ. of Tex. M.D.
Anderson Cancer Center, 961 F.2d 46, 49 (4th Cir. 1992).
The False Claims Act was originally passed during the Civil War
as a response to abuses by defense contractors. Congress hoped that
the act, and the qui tam actions it provided for, would help the gov-
ernment uncover fraud and abuse. The Act allows a private action on
behalf of the government against anyone who knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or
approval, or knowingly makes, uses or causes to be made or used, a
false record or statement to get a false or fraudulent claim paid or
approved by the government.
In order to prevail in an action brought under the False Claims Act,
a litigant is required to show the following: (1) that the defendant
made a false statement or engaged in a fraudulent course of conduct;
(2) that such action was taken with the requisite scienter; (3) that the
false claim was material; and (4) that the false claim caused, or could
have caused, the government to incur expenses or to forfeit monies
due. Harrison v. Westinghouse Savannah River Co. , 176 F.3d 776,
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778 (4th Cir. 1999). The False Claims Act establishes that actions
must be taken "knowingly" in order to meet the requisite scienter, and
the term has a special meaning within the context of the False Claims
Act. Under the False Claims Act "knowing" and"knowingly" mean
that a person with respect to pertinent information (1) has actual
knowledge of the information; (2) acts in deliberate ignorance of the
truth or falsity of the information; or (3) acts in reckless disregard of
the truth or falsity of the information. No proof of specific intent to
defraud is required.
Liability under the False Claims Act is subject further to the judi-
cially imposed requirement that the false statement or claim be mate-
rial. Materiality depends on "whether the false statement has a natural
tendency to influence agency action or is capable of influencing
agency action." United States ex rel. Berge v. Bd. of Trustees of Univ.
of Ala., 104 F.3d 1453, 1460 (4th Cir.), cert. denied, 118 S. Ct. 301(1997).
The district court held, and we agree, that the evidence showed
there was no intent to defraud. The Commonwealth of Virginia was
completely aware from the inception of the contract that the Institute
was taking and testing only one sample of blood from each person.
Virginia willingly acquiesced in this practice. Before the contract was
awarded and, again before performance began, the Institute spoke
with officials in Virginia's Division of Child Support Enforcement
who administered the paternity testing program and contract. The
Institute explained to these employees that the method they proposed
to use, DNA testing, would not scientifically require the collection
and analysis of two tubes of blood because it was much more accurate
than serology testing, the previously used method. Taking additional
tubes would only slow down the receipt of the results and both parties
to the contract knew this. Additionally, DNA testing, in contrast to
serology testing, could be performed on a child at a much younger
age, thereby allowing the test to be concluded at a time when it is eas-
ier to locate the reputed father. Virginia officials fully approved of the
Institute's proposed approach. Additionally, Virginia was apparently
pleased with the Institute's performance under the contracts. The
1991 contract was extended several times. The new contract in 1995
was awarded to the Institute. In 1996, after this litigation was filed,
Virginia again awarded the Institute the same contract containing a
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two-tube requirement, although everyone knew that the two-tube
requirement was not being satisfied.
On this state of the record, the district court was correct in holding
that the evidence conclusively established that the Institute did not
possess the requisite intent to deceive. The district court's basis for
its decision was that no reasonable jury could conclude that the Insti-
tute had the requisite scienter. At a minimum, the False Claims Act
requires that the defendant act with reckless disregard as to the falsity
of the claim. The evidence shows that the Institute was not reckless
in its belief that Virginia had agreed to modify the contract and allow
testing of one tube, with retesting only upon request. The evidence
shows that before the contract was awarded, and after the contract
was awarded but before the performance began, the Institute specifi-
cally informed state officials of how it intended to perform under the
contract. The evidence also shows that state officials knew that the
Institute was not taking two tubes and automatically retesting, and
that these officials were nonetheless happy with the Institute's perfor-
mance.
Additionally, it is doubtful that Bennett could establish that the
Institute's claims, even if false, were material under the standard
enunciated in Berge. Under Berge, in order for a false claim to be
material, it must have a "natural tendency to influence agency action"
or be "capable of influencing agency action." Id. at 1460. Here, every-
one involved knew that the Institute was not taking two tubes of blood
or automatically retesting. None of them cared because all were satis-
fied with the Institute's performance under the contract as it was. The
number of tubes and the automatic retesting requirements of the con-
tract were obviously immaterial to Virginia's decision to renew the
contract with the Institute and to pay for the services rendered since
such renewal and payment were made with full knowledge of the
method under which the Institute was performing.
III.
The relator also appealed from the district court's refusal to allow
him to amend Count II of his complaint to offer new theories of Fed-
eral Claims Act liability. Bennett first raised his claims in his opposi-
tion to the Institute's motion for summary judgment. The court held
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that the time in which the claims should have been asserted had long
since passed and denied the motion to amend.
Our inquiry here is whether the district court abused its discretion
in denying Bennett's motion to amend. Gladhill v. General Motors
Corp., 743 F.2d 1049, 1052 (4th Cir. 1984).
A district court has wide discretion in determining whether to per-
mit amendments of pleadings. United States ex rel. Joslin v. Commu-
nity Home Health of Maryland, Inc., 984 F. Supp. 374, 381 (D. Md.
1997); Deasy v. Hill, 833 F.2d 38, 40 (4th Cir. 1987). Amendments
should normally be allowed if there is no unfair prejudice to the
opposing party and the motion is not unduly delayed. Bennett offered
no justification for the substantial delay in seeking to amend his com-
plaint. He had already been permitted to amend twice and he does not
contend that additional evidence supporting his new theory was
revealed during discovery. The new theory was an obvious attempt to
salvage a defective count at a late hour in the case. The trial court
held correctly that Bennett's new claim was not a new theory, but an
entirely different claim. The facts underlying these two claims are
substantially different. Discovery in the case had been completed,
much time had elapsed, and the plaintiff was asserting a new claim
that involved new facts, new legal theories and probably new discov-
ery. Under an abuse of discretion standard, we cannot say that the
court's decision to deny the amendment was error.
For all these reasons, the decision of the district court is affirmed.
AFFIRMED
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