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Wichansky v. Zoel Holding Company Incorporated

United States District Court, D. Arizona

November 24, 2014

Marc A. Wichansky, Plaintiff,
Zoel Holding Company Incorporated, et al., Defendants.


DAVID G. CAMPBELL, District Judge.

Defendants David Zowine, Karina Zowine, Charles Johnson, Martha Leon, Susan Collier, Sarah Shanahan, Pat Shanahan, Zoel Holding Company, Inc., and MGA Home Healthcare, LLC (collectively "Defendants") have filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Doc. 24. The motion has been fully briefed (Docs. 24, 31, 40, 45, 46), and no party has requested oral argument. For the reasons that follow, the Court will grant Defendants' motion.

I. Background.

Plaintiff Marc Wichansky filed this qui tam action under the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq., on September 19, 2013, alleging that Defendants defrauded the United States government through intentional overbilling to Medicaid. Doc. 1. In 2006, Wichansky and Defendant David Zowine founded Zoel Holding Company, Inc. ("Zoel"), which specializes in employee placement services. Wichansky was the chairman and president of Zoel and its wholly owned subsidiaries until Zowine acquired Wichansky's stock in a May 2012 shareholder buyout proceeding. Wichansky previously owned a 50% interest in the company and his duties included administrative operations and management of day-to-day business affairs. Doc. 24 at 3. Zowine ran sales operations, owned a 50% interest in the company, and acted as Zoel's secretary and vice president. Id.

Beginning in late 2010, the relationship between Wichansky and Zowine "rapidly deteriorated." Doc. 24 at 3. On January 26, 2011, Wichansky sent Zowine an e-mail terminating his employment with Zoel. Wichansky then filed a lawsuit in Maricopa County Superior Court, requesting a declaratory judgment that Zowine's termination was lawful and effective.[1] Doc. 24 at 3. On February 1, 2011, Wichansky sent Zowine a $950, 000 check along with a promissory note in the same amount and a letter notifying Zowine that Wichansky had unilaterally exercised his right to purchase Zowine's interest in Zoel under a Cross-Purchase Agreement that allowed Zoel to buy out a shareholder whom Zoel ceased to employ. Id. The Superior Court held an evidentiary hearing and concluded that Wichansky lacked authority to terminate Zowine or acquire his shares in Zoel. Id. Wichansky then filed a petition to dissolve Zoel, apparently unaware that this would trigger Zowine's statutory right to purchase Wichansky's shares under A.R.S. § 10-1434. Id. at 4. The Superior Court held a five-day evidentiary hearing to determine the value of Wichansky's shares, and ultimately permitted Zowine to purchase the shares on terms set by the court. Id.

Wichansky asserts that, during this first proceeding in Maricopa County Superior Court, he made a series of discoveries indicating that from November 2007 through August 2009 Zowine and several employees of HHL (a subsidiary of Zoel) had engaged in fraud with respect to bills submitted to the Arizona Department of Economic Security's ("DES") Division of Developmental Disabilities ("DDD"), a state agency funded by the federal government. Wichansky also asserts that Zowine intentionally lured Wichansky into dissolving the company so that Zowine could take over and end an investigation Wichansky had launched into these very billing discrepancies at HHL. Doc. 1 at 10.

On June 14, 2013, Wichansky filed a lawsuit ("First Federal Case") in this Court against Zoel, Zowine, and several of the employees named in this action (including several employees who are not named here), raising numerous state and federal claims concerning Defendants' alleged retaliation against Wichansky. See Wichansky v. Zowine, No. 2:13-CV-01208 (Complaint, June 14, 2013). Wichansky's federal claims included a retaliation claim under the FCA, claims under the Computer Fraud and Abuse Act, and a claim for federal securities fraud. Doc. 24 at 5.

The present qui tam action alleges that Defendants defrauded the United States government by submitting false claims to the DDD, a state agency funded by the federal government which provides services to disabled state residents. Doc. 1 at 2. Wichansky alleges that Defendants deliberately overbilled DDD each month for healthcare services, intentionally overbilled third-party liability claim-payors ("TPLs") for healthcare services, willfully billed both DDD and TPLs for the same healthcare services, and purposely coded healthcare services to obtain higher reimbursements from DDD and TPLs. Id. at 3-4. Wichansky also alleges that Defendants conspired to conceal these fraudulent billing practices by allocating reimbursements for some patients to the accounts of other patients. Id. at 4.

II. Zoel's Settlement With Arizona.

Defendants claim that in March 2011, Zoel self-disclosed certain billing problems to the Arizona Health Care Cost Containment System ("AHCCCS"). Doc. 24. AHCCCS investigated these billing problems and sent a "Notice of Payment Suspension" to Zoel on February 7, 2012, noting that under federal law it was "temporarily suspending all future payments" to Zoel. Id. (quoting Notice, Doc. 24-2 at 66). The Notice stated that "credible allegations of fraud exist with regard to your company based on our investigation, " and that AHCCCS suspected Zoel had "submitted, or caused to be submitted, claims to AHCCCS and its contracted health plans for services that were not provided as claimed for the time period of 1/1/06 to present." Id at 5-6 (quoting Notice, Doc. 24-2 at 66). The suspension, it explained, would continue until either AHCCCS or prosecuting authorities determined that insufficient evidence of fraud existed or legal proceedings related to the alleged fraud were completed. Id. at 6. Zoel appealed the AHCCCS suspension to the Arizona Office of Administrative Hearings. Id.

AHCCCS and Zoel reached an agreement on May 1, 2012, under which AHCCCS agreed to lift the payment suspension and Zoel agreed to deposit $1, 000, 000 in an escrow account to compensate AHCCCS for funds Zoel may have been overpaid. Id. The administrative appeal was vacated with rights reserved. Id.

On November 6, 2013, AHCCCS and Zoel reached a final and binding settlement agreement, which "settl[ed] and compromis[ed] all disputes arising from or related in any way to the services provided by [Zoel] and claims submitted to AHCCCS during the period January 1, 2006 to December 31, 2011. Id. (quoting Settlement Agreement, Doc. 24-2 at 112). As part of this settlement, Zoel agreed to pay AHCCCS $1, 250, 000 in restitution for all billing errors and for AHCCCS's investigative costs. Id. AHCCCS agreed to accept this settlement payment to resolve all transactions at issue and to release the company, in full, for any claims related to services for the relevant time period. Id. In addition, AHCCCS noted that Zoel had cooperated throughout the investigation. AHCCCS stated that it "found no evidence that [Zoel] committed fraud" or "acted with intent to defraud." Id. at 6-7 (quoting Settlement Agreement, Doc. 24-2 at 112).

III. Analysis.

Defendants make three arguments: (1) the government, through AHCCCS, has already investigated and settled all transactions that underlie Wichansky's qui tam allegations, thus barring this FCA case under 31 U.S.C. § 3730(e)(3) (Doc. 24 at 5); (2) this case is barred by 31 U.S.C. § 3730(e)(4) because it alleges information that was previously publicly disclosed ( id. at 11); and (3) the claims in this case are not pled with the particularity required by Rule 9(b) ( id. at 12). The Court will address the first two arguments and need not address the third.

A. AHCCCS Investigation and Settlement.

Defendants argue that Wichansky's complaint must be dismissed because a qui tam action cannot succeed where the government is already a party in a civil suit or administrative proceeding based on the same allegations. Doc. 24 at 7. The relevant statutory language reads: "In no event may a person bring [a qui tam action] based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party." 31 U.S.C. § 3730(e)(3). Defendants argue that the AHCCCS proceeding constituted such a "civil monetary penalty proceeding." Doc 24 at 7.

Defendants rely on Foundation for Fair Contracting, Ltd. v. G&M E. Contracting, 259 F.Supp.2d 329 (D.N.J. 2003), a qui tam lawsuit preceded by a United States Department of Labor ("DOL") investigation into the alleged false claims. The DOL investigation was completed a year after the relator's filing and resulted in the defendants paying back wages to the government. Id. at 333. The district court dismissed the qui tam action for lack of subject matter jurisdiction, finding that the DOL investigation constituted an "administrative civil money penalty proceeding" under § 3730(e)(3). Id. The court held that allowing the qui tam suit to proceed would "provide for a second recovery by another entity despite the resolution of the government's investigation into the very same transactions, in contravention of the statutory purpose." Id.

Defendants argue that the AHCCCS investigation is like the DOL investigation in Fair Contracting, and that allowing Wichansky to proceed with his suit risks a second recovery despite the previous resolution by AHCCCS. Defendants note that AHCCCS investigated the alleged billing fraud two years before Wichansky ...

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