Exibit B To Srcsb Motion To Strike Two Paragraphs In Complaint

COMPOSITE EXHIBIT B Doe, et al. v. School Board for Santa Rosa County, et al. Case No.: 3:08-cv-361-MCR-EMT United States District Court, Northern District of Florida, Pensacola Division

Page 1

LEXSEE PHILADELPHIA'S CHURCH OF OUR SAVIOR, Plaintiff, v. CONCORD TOWNSHIP, et al., Defendants. CIVIL ACTION NO. 03-1766 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSY LVANlA 2004 U.S. Di.s.Fr.LEXIS 15400

July 27,2004, Decided July 28,2004, Filed PRIOR HISTORY: Philadelphia's Chztrch of Our Savior v. Concord Twp., 2004 U.S. Dist. LEXlS 1941 (E.D. Pa., Feb. 4, 2004) DISPOSITION: [*I] Plaintiffs motion for leave to supplement complaint denied.

Currently before the Court is a Motion for Leave to Supplement the Amended Complaint by plaintiff, Philadelphia's Church of Our Savior. Having considered the arguments of both parties, the Court denies Plaintiffs motion. I. PROCEDURAL HlSTORY

COUNSEL: For PHILADELPHIA'S CHURCH OF OUR SAVIOR, Plaintiff: CHARLES J. HARDY, JOSEPH J. MCALEE, RICHARD A. SPRAGUE, STEPHEN R. KURENS, LEAD ATTORNEYS, SPRAGUE AND SPRAGUE, PHILADELPHIA, PA.

For CONCORD TOWNSHIP, Defendant: HUGH A. DONAGHUE, LEAD ATTORNEY, DONAGHUE AND BRADLEY, MEDIA, PA. For CONCORD TOWNSHIP, HUGH A. DONAHUE, MANOS KAVADIAS, JAMES W. McKINLEY, DOMINIC J. CAPPELLI, HOWARD J. GALLAGHER, H. WILLIAM VOLLMER, DOMINIC A. PILEGGI, Defendants: PAOLA TRIPOD1 KACZYNSKI, WILLIAM F. HOLSTEN, HOLSTEN & ASSOCIATES, MEDIA, PA. JUDGES: CHARLES B. SMITH, UNITED STATES MAGISTRATE JUDGE. OPINION BY: CHARLES B. SMITH OPINION

MEMORANDUM AND ORDER CHARLES B. SMITH UNITED STATES MAGISTRATE JUDGE

On March 26, 2003, plaintiff, Philadelphia's [*2] Church of Our Savior (the "Church"), filed a complaint against defendant, Concord Township (the "Township") alleging three counts of defendant's misconduct in violation of the Religious Land Use and Institutionalized Persons Act of 2000 ("RLUIP"), 42 U.S.C. $2000cc, et seq., five counts of misconduct in violation of 42 U.S.C. $ 1983, and five counts of misconduct in violation of the Pennsylvania Constitution. The complaint specifically contended that defendants (1) wrongfully rejected the Church's request for a building permit, after promising to issue one; (2) improperly demanded a permanent easement from the Church as a quid pro quo for the building permit and; (3) improperly refused to accept for filing or to review the Church's written application for a building permit, despite the fact that the proposed sanctuary complied with all applicable zoning, building and safety codes. Plaintiff asserted this Court's federal question jurisdiction overall federal claims pursuant to 28 U.S.C. $ 1331 and 1342(3)-(4), and supplemental jurisdiction over state law claims pursuant to 28 U.S.C. f 1367. [*3] On February 4, 2004, plaintiff was granted leave to amend its complaint in order to add the five members of the Township's Board of Supervisors, the Township Solicitor and the Township Building Inspector in their individual capacities. Both parties met with this Court on June 23, 2003 and entered into settlement negotiations. Following discussions, the parties agreed that plaintiff would complete

Page 2 2004 U.S. Dist. LEXlS 15400, *

dant Township officials, and the Defendant Township did, in fact, thereafter issue a foundational permit to Plaintiff on or about August 28, 2003 authorizing the Plaintiff to build the foundation to support the membrane structure ....

an application for a building permit and plaintiff would pay the cost for an architectural firm to certify BOCA compliance. The firm was approved by defendant and, upon submission of the firm's report, the Township issued a foundational permit on August 28,2003, authorizing plaintiff to build the foundation to support the membrane structure. Thereafter, it issued a Building Permit authorizing plaintiff to erect the proposed sanctuary.

94. Thereafter the Defendant Township issued a building permit to the plaintiff authorizing the plaintiff to erect the proposed sanctuary.

On June 4, 2004, plaintiff filed a Motion for Leave to Supplement its First Amended Complaint to include paragraphs referring to the settlement conference and how the concessions made by the Township establish that defendants had the authority to waive its application requirements. The undersigned held oral argument on June 17, 2004 and, subsequently, both [*4] parties filed post-argument briefs. The Court now considers whether Plaintiffs request for leave to supplement the Amended Complaint should be granted.

95. Both the foundational permit and the building permit issued to the plaintiff were issued under a process which did not require Plaintiff to comply with various local building requirements such as the need to obtain a land development permit, land disturbance permit or a special exception .... 96. As permitted by the foundational permit and the building permit, the plaintiff has begun the construction of its proposed 620-seat sanctuary. 97. In light of the explicit representations and actions on behalf of defendants before this Court including the explicit waiver of various permitting requirements, defendant should be and/or judicially and/or equitably estopped from denying such authority in this case.

11. DISCUSSION Plaintiff seeks leave to supplement its Amended Complaint with references to the settlement proceedings held before this Court ' in order to prove that defendants repeatedly denied, in their responsive pleading and discovery responses, that they had the authority to grant waivers of various requirements. ' I Specifically, plaintiff seeks to add the following paragraphs: 9 I. In or about March 2003, plaintiff filed its Complaint against the Defendant Township, and in or about February 2004 plaintiff filed its First Amended Complaint. In its responsive pleadings and discovery responses, defendants have repeatedly denied that defendant Concord Township, by and through its Board of Supervisors, had the authority to grant a waiver or waivers of various permitting requirements such as land development or land disturbance permits, and/or a special exception ....

92. At a conference held before Magistrate Judge Charles B. Smith on June 23,2003, Defendant Concord Township, by and through its counsel, agreed to afford plaintiff a procedure to obtain a building permit which would permit the plaintiff to construct the proposed temporary sanctuary in question, which procedure did not include any requirements that plaintiff comply with various local building requirements such as a the need to obtain a land development permit, land disturbance permit, and/or special exception. 93. Plaintiff availed itself of the opportunity afforded by Defendant Township and the Defen-

[*51

2 In its Answer to the Complaint, the Township denied that there was "any alternative procedure for reviewing and granting requests for building permits." and that "any procedure resembling what Plaintiff refers to as 'the expedited permit approval procedure' exists within Concord Township." Answer to Complaint. at par. 24. Federal Rule of Civil Procedure 15(d) states that:

Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented. The Supreme Court has held that "leave to amend 'shall be freely given when justice so requires."' Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962). "In the absence of any apparent or declared reason - such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, [*6] undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc.--the leave

Page 3

2004 U.S. Dist. LEXIS 15400, * sought should, as the rules require, by 'freely given."' Id. It "is an abuse of discretion for a district court to deny leave to amend" without one of these reasons. Alvin v. Suzuki, 227 F.3d 107, I21 (3d Cir. 2000). Defendants offer two arguments in opposition to plaintiffs motion. Defendants first claim that the motion to supplement would only inadmissible evidence . proffer . maki& the supplement futile. Second, defendants claim that the motion to supplement the claim with allegations regarding the settlement proceedings is being offered in bad faith. As the Court deems the futility argument to be the more compelling claim, we deny the motion on these grounds. Denying leave to amend on the ground of futility includes those instances where: a complaint or an answer, as amended, would be subject to a motion to dismiss under Rule 12(b)6, or a motion to strike under 12(f), [and] it would be an idle move for the court to allow such an amendment over the objection of the opposing party who could simply make a formal motion to dismiss [*7] or strike after leave to amend is granted. 3 Moore's Federal Practice P 15.080[4]; see also Liberty Fish Co. v. Home Indemnity Co., 1990 U.S. Dist. LEXIS 7334. Civ. A. No. 89-5201, 1990 WL 83341. * I (E.D. Pa. June 18, 1990) (leave to amend may be denied on grounds of futility where proposed amendment would be subject to successful motion to strike under Rule 12m; Medical Graphics Corp. v. HarlJord Ins. Co., 1 71 F.R.D. 254, 257 (D. Minn. 1997) (leave to amend should be denied if proposed amendment would invite motion to strike).

Defendants argue that the proposed supplemental allegations are strictly prohibited by Federal Rule of Evidence 408. which states: Evidence of (I) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence or statements made in compromise negotiations is likewise not admissible.

Fed. R. Evid 408. This [*8] Rule is founded on two major policies: (1) "the evidence is irrelevant since the offer may be motivated by a desire for peace rather than from any concession of weakness of position ... (2) [a] more consistently impressive ground is promotion of the public policy favoring the compromise and settlement of rputes. Fed Evid. Ad . ...

-

-

;Skk;

e.g., Agnew v. ~y~ n.,Jr ullurl. ?vaa u.a. urst. LEXIS 991 1, Civ. A. No. 88-3436, 1988 WL 92872, *4 (E.D. Pa. Sept. 6, 1988) (parts of a complaint may be stricken pursuant to Rule 408 if they are for the purpose of showing liability and refer to settlement negotiations); United States Transmission Sys. v. Americus Ctr., Inc. 1986 U.S. Dist. LEXIS 17057, Civ. A. NO. 85-7044. 1986 WL 13838, *2 (E.D. Pa. Dec. 3, 1986) (striking allegations from a complaint as they fall within Rule 408 and are thus clearly inadmissible); Scott v. Township of Bristol, I991 U.S. Dist. LEXIS 3303, Civ. A. No. 90-1412, 1991 WL 40354, *5 (E.D. Pa. Mar. 20, 1991) [*9] (striking allegations referencing settlement discussions as immaterial and of questionable probative value); see also United States ex rel. Alasker v. Centracare Health Sys., 2002 U.S. Dist. LEXIS 10180, Civ. A. NO. 99-106, 2002 WL 1285089, *2 (D. Minn. June 5 2002) (granting defendant's motion to strike paragraphs of complaint that improperly refer to settlement negotiations and fall within the scope of Rule 408); Yankelevitz v. Cornell Univ., 1997 U.S. Dist. LENS 2823, Civ. A. No. 95-4593, 1997 WL 115651, *4 (S.D.N.Y. Mar. 14, 1997) (if the amendment relates to settlement discussions, then it may be stricken under Rule 12@ and would therefore be futile). Therefore, because claims in a complaint may be stricken under Rule 1267 if they violate Rule 408, they may also be found futile pursuant to Rule 408. The Court must now determine whether the proposed supplement to the Amended Complaint falls within the scope of Rule 408. As noted above, allegations made in a complaint may not use settlement negotiations "to prove liability for or invalidity of the claim or its amount." Fed R. Evid. 408. Plaintiff alleges in Paragraph One of the complaint, that defendants [*lo] violated the RLUlP as well as multiple constitutional rights due, in part, to defendants' "wrongful rejection of the Church's request in October through December of 2002 for a building permit through defendant Township's Expedited Permit approval procedure, after Defendant Concord Township promised to issue a permit." Defendants, in their Sixth Affirmative Defense, expressly deny that they ever had "an expedited permit approval procedure for Building Permits or land development." Consequently, to use the settlement discussions and offers of

Page 4

2004 U.S. Dist. LEXIS 15400, *

36. Under the Expedited Permit approval procedure, the Defendant Township's Board may grant a building permit, and permit construction to begin, based upon the landowner's submission to the Supervisors of, inter alia, sealed architectural and/or engineering drawings.

compromise to prove that the Township did have such an expedited permit approval procedure would directly undermine a primary affirmative defense and go towards proving liability under the complaint. Plaintiff asserts that it does not seek to aver an offer of settlement to prove liability. Rather, it plans to "attack defendants' credibility, andlor establish that, contrary to its pleadings and discovery responses, defendant Concord Township did at the time in question have a procedure for the expedited processing of building permits." Plaintiffs Post-Argument Brief, at pp. 6-7. Plaintiff contends that "despite defendant's denials, after plaintiff [*I I ] filed suit the Defendant Township agreed to grant the Church a building permit without the Church first (a) filing a building permit application, and (b) obtaining all permits andlor approvals that would normally be required." Id. at 4. Yet, plaintiffs argument, which seeks to attack defendants' credibility, is superfluous. Throughout its pleadings and discovery requests, plaintiff has alleged only that an expedited permit approval procedure existed ' and repeatedly, defendants have denied those allegations, indicating only that no such expedited approval procedure was in place. ' For plaintiff now to argue that it seeks to use the settlement negotiations to contradict Defendants' averments and judicially estop them From taking inconsistent positions before this Court is nothing more than an attempt at misdirection. Using the settlement negotiations to attack defendants' credibility would also conveniently disprove defendants' Sixth Affirmative Defense and establish a primary basis of liability. As noted, such a purpose is expressly precluded under Rule 408.

3 Paragraphs 34-37 state as follows: 34. "... Defendant Township's Board has adopted customs, practices andlor procedures under which the Defendant Township may exempt landowners From the various procedural and substantive formalities set forth in Paragraphs 30-33 above. Pursuant to these customs, practices andlor procedures, at all times material hereto the Defendant Township's Board had implemented alternative procedures for reviewing and granting requests for building permits. The procedure has been and is hereinafter referred to as the Expedited Permit approval procedure. 35. Under the Expedited Permit approval procedure, the Defendant Township's Board may initiate and complete an expedited review of a landowner's request to build a structure without written application by the landowner.

37. Under the Expedited Permit approval procedure, the Defendant Township's Supervisors may authorize the Defendant Township's Building lnspector to issue the landowner a building permit, and conduct a building code review during construction; if any changes in construction are required by applicable building code provisions, the landowner may be required by the building Inspector to promptly modify the construction. First Amended Complaint, at PP 34-37. [* 121

4 For example, in its Answer to the First Amended Complaint at paragraph 34. defendants state "It is specifically denied, and strict proof demanded, that the Township's Board of Supervisors has implemented any alternative procedure for reviewing and granting requests for Building Permits. It is hrther denied that any procedure resembling what plaintiff refers to as 'the expedited permit approval procedure' exists within Concord Township." Moreover, in its answer to plaintiffs Requests for Admissions, the Township stated "no such expedited approval procedure was ever in effect in Concord Township."

Plaintiffs alternative claim, that it only seeks to prove that defendants had the "authority" to grant an expedited permit in order to attack defendants' credibility, is likewise fatally flawed. Primarily, plaintiff never alleged, at any point in its pleadings, that defendants possessed this expedited waiver authority. Therefore, defendants never had occasion to deny in their Answer that they had such authority, ' meaning that the settlement negotiations would not operate to contradict any [*I31 of defendants' averments. Moreover, as the focus of plaintiffs cause of action depends not on the Township's authority to grant an expedited permit, but rather whether the process actually existed, the Court recognizes this new addition of the word "authority" as a cloaked attempt to prove liability. As Rule 408 expressly precludes use of settlement negotiations to establish such liability, the proposed supplement is futile. Although plaintiff vehemently argues in its Post-Argument Brief that defendants have denied their authority to grant waivers of local building requirements, it cites to nothing to support that statement. 5

2004 U.S. Dist. LEXIS 15400, *

To the extent plaintiff contends that its proposed supplemental allegations pertain only to admissions of fact made by defendants during settlement negotiations, which fall outside the scope of Rule 408, the Court finds that nothing in the proposed supplemental allegations constitute such an admission. That the Township could waive its permit requirements in the course of a federal [* 141 court litigation does not mean that it had the ability to do otherwise outside of litigation. In several cases cited by defendants, the Pennsylvania Commonwealth Court, albeit in dicta, took judicial notice that variance decisions in the context of the settlement of a judicial proceeding are distinct from zoning board variances. See Summit Township Taxpayers Asso. v. Summit Township Board of Supervisors, 49 Pa. Commw. 459, 411 A.2d 1263. 1266 (Pa. Commw. 1980) ("Because courtapproved settlements of zoning cases are lawful ... we must recognize such settlements as being distinct from zoning hearing board variances; even though a judicial settlement may result in a departure from the ordained zoning pattern"); Yaracs v. Summit Acadamy, 845 A.2d 203, 209 n. 6 (Pa. Commw. 2004) (citing Summit). Accordingly the mere fact that the Township could act in the context of a settlement agreement is not dispositive of whether it had the authority outside of federal litigation. Finally, it appears that discovery would not yield any information that could lead to admissible evidence. Nor does plaintiff offer any insight on the admissible evidence they hope [* 151 to find. The "strong Congressional policy behind Fed. R. Evid. 408 as well as the liberal discovery rules"' support putting the burden "on the party seeking discovery to make a particularized showing 'that the documents relating to the settlement negotiations

Page 5

are relevant and likely to lead to the discovery of admissible evidence."'Key PharmaceuticaIs v. ESI-Lederle, 1997 U.S. Dist. LEXIS 13328, Civ. A . No. 96-1219, 1997 WL 560131, *2 (E.D. Pa. Aug. 29. 1997) (citing Fidelip Fed. Sav, & Loan Ass'n v. Felicetti, I48 F. R. D. 532 (E.D. Pa. 1993)). Plaintiff fails to show that the discovery relating to these supplemental complaints will lead to admissible evidence. Consequently, plaintiff fails to meet its burden of showing that the discovery of these supplemental complaints will lead to any admissible evidence not shielded by Rule 408. In sum, plaintiff has neglected to overcome defendants' contention that the proposed supplemental allegations are, in fact, futile for purposes of Federal Rule r,S Civil Procedure 15. Accordingly, the Court denies the Motion for Leave to Supplement the First Amended Complaint. [* 161 An appropriate order follows.

ORDER AND NOW this 27th day of July, 2004, upon consideration of Plaintiffs Motion for Leave to Supplement the First Amended Complaint, the Response of Defendants thereto and the additional briefs and letters submitted by both parties, and upon conducting oral argument on the Motion, it is hereby ORDERED that the Motion is DENIED. BY THE COURT:

CHARLES B. SMITH UNITED STATES MAGISTRATE JUDGE

Page l

LEXSEE UNITED STATES OF AMERICA, ex rel. and JULIE ALSAKER, and LUANNE CATON, Plaintiffs, v. CENTRACARE HEALTH SYSTEM, INC. and ST. CLOUD HOSPITAL, INC., Defendant. Civil No. 99-106 (JRTIRLE) UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA 2002 U.S. Dist. LEXIS 10180

June 5,2002, Decided DISPOSITION: [*I] Defendants' motion to strike granted in part and denied in part. Defendants' motion to dismiss granted and counts I, I1 and 111 of government's first amended complaint dismissed without prejudice. COUNSEL: For United States: D. Gerald Wilhelm, Assistant United States Attorney, OFFICE O F THE UNITED STATES ATTORNEY, Minneapolis, MN. For Julie Alsaker, Luanne Caton, plaintiffs: Gary Leo Manka, KATZ & MANKA, Minneapolis, MN.

counts of (he relators' complaint and Counts I, I1 and I l l of the government's amended complaint for failure lo comply with Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Defendants also move to m i k e certain paragraphs of the amended complaint. For the reasons that follow, the motion to strike is granted in part and denied in part. The Court also grants defendants' motion to dismiss for failure to plead fraud claims with suficient particulari@ under Rule 9(b), but will grant plainliffs leave to file a second amended complaint to ,cure these deficiencies.

BACKGROUND For defendants: Kevin J. Hughes, Paul R. Harris, Kathleen M. Premo, HUGHES MATHEWS, P.A., St. Cloud, Minnesota. For defendants: Douglas A. Kelley, William Michael, Jr., Steven E. Wolter, DOUGLAS A. KELLEY, P.A., Minneapolis, MN. JUDGES: JOHN R. TUNHEIM, United States District Judge. OPINION BY: JOHN R. TUNHEIM OPINION MEMORANDUM OPINION AND ORDER This is a fraud action brought against defendants CentraCare Health System Inc., and St. Cloud Hospital pursuant to the qui lam provisions of the False claims Act, 31 U.S.C. JJ 3729 et seq. Plaintiffs allege that defendants [*2] prepared and submitted false andlor fraudulent claims for home health aid visits in violation of 31 U.S.C. $ 3729. The government intervened in the action pursuant to 31 U.S.C. J 3730(b)(4)(A). Defendants have moved the Court for an order dismissing all

On January 25, 1999, plaintrfs qui tam relators Julie Alsaker and Luanne Caton ("relators") filed this action under seal pursuant to the qui tam provisions of the False Claims Act ("FCA"). Alsaker was employed at one of defendants' facilities from 1993 through 1996. Caton is the daughter [*3] of a resident who lived at one of the facilities owned and operated by defendants. The complaint alleges that since at least 1992, defendants submitted claims for reimbursement of services provided by home health aides where the aides were not trained and certified in accordance with the provisions of 42 C.F.R. $ 484.36(a)(l). Relators also allege that defendants submitted false bills to Medicare for home health aid visits that were not properly reimbursable either because the claims included "padded" time records or the services provided were custodial in nature and were not related to treatment of the beneficiary's illness or injury. Complaint at PP 18-23. The government intervened on March 16,200 1, and shortly thereafter, the case was unsealed. The government served its amended complaint on defendants on October 17, 2001, after United States Magistrate Judge Raymond L. Erickson directed the government to do so or face a recommendation of dismissal for failure to ef-

2002 U.S. Dist. LEXIS 10180, *

fectuate proper service and for failure to prosecute. October I I, 200 1 Order at 3. ' The amended complaint alleges six counts, three counts of alleged violations of the FCA and one count each [*4] of Unjust Enrichment, Payment By Mistake, and Common Law Recoupment. It alleges that St. Cloud Hospital, acting through its agents, from "at least" 1992 to the present, filed or caused to be filed claims for home health services which were not eligible for reimbursement under the Medicare and Medicaid programs for, among other reasons, the following: a. claims were inflated by adding fifteen-minute increments of time so as to increase the amount claimed and reimbursed for personal care attendant services under Medicaid. Relator Julie Alsaker was directed by agents of Defendant St. Cloud Hospital, acting within the scope of their agency, to "pad" the time she spent providing services; b. The claims submitted were for custodial services unrelated to any need for skilled nursing services, which makes the claims non-reimbursable under Medicare. Relator Julie Alsaker was directed by agents of the Defendant St. Cloud Hospital to provide such services to Medicare beneficiaries, and knows that those services were billed to Medicare and/or Medicaid.

Am. Complaint P 22. The government undertook an investigation in June 1999 and caused a small sample of claims submitted to [*5] Medicare to be selected from among those filed for residents of one of the residential facilities owned and operated by defendants during calendar year 1995. Am. Complaint P 26. This sample was reviewed for compliance with Medicare requirements and when the analysis was completed in November 1999, the fiscal intermediary determined that of the total of approximately $ 100,000 paid by Medicare for these claims, about $ 82,000 in claims were non-reimbursable for various reasons outlined in Exhibit A attached to the complaint. Id. In March 2000, the fiscal intermediary completed a Comprehensive Medical Review of defendants' home health claims submitted during January and early February 2000. Upon such review, the fiscal intermediary determined that approximately 42% of the claims submitted to Medicare were not reimbursable for a variety of reasons, including lack of medical necessity and missing documentation.

Page 2

1 The government did not file its amended complaint within the prescribed time period because the parties had agreed to defer service of the complaint until January 2002 in order to attempt to settle the claims. However, the parties failed to notify the court of this extension and in August 2001, the Magistrate Judge issued an order to show cause why the complaint had not been filed 120 days after the government intervened in the action.

[*6] The government thus maintains that the claims which have so far been audited and were submitted to Medicare and Medicaid were false when submitted either because the service provided was not medically necessary; the service was not supported by a plan of care as required by regulation; the beneficiary receiving the service was not eligible to receive the service; the service was not provided as claimed; and/or the service represented personal care attendance not reimbursable by Medicare. Am. Complaint P 33. The government further maintains that defendants knew the claims were false when submitted. Id. P 34. Defendants responded to the government's amended complaint by filing this motion to dismiss and motion to strike.

DISCUSSION Defendants move to dismiss all counts of the relators' complaint and Counts I, 11, and 111 of the amended complaint for failure to state a claim. ' Defendants also move to strike certain paragraphs pursuant to Rule 1203. The Court first addresses the motion to strike. 2 Although defendants also move to dismiss all counts of the relators' complaint, only the amended complaint is legally relevant. "It is wellestablished that an amended complaint supersedes an original complaint and renders the original complaint without legal effect." Atlas Van Lines, Inc. v. Poplar Bluf Transfer Co., 209 F.3d 1064, 1067 (8th Cir. 2000); Kenney v. Musgreves, 2000 U.S. App. LEXIS 27901, Nos. 002394, 00-2775, 00-2305, 00-2396, 2000 W L 1665077 at * 1 (8th Cir. Nov. 7, 2000). The government concedes as much in its response brief. Gov't Response to Motion to Dismiss at 1-2. [*7] 1. Motion to Strike

Defendants move to strike certain paragraphs from the amended complaint pursuant to Rule 12fl of the Federal Rules of Civil Procedure. Rule I2fl authorizes courts to strike "redundant, immaterial, impertinent or scandalous matter" from parties' pleadings. Specifically, defendants object to paragraphs 28-30 and 34(e) of the amended complaint on the basis that these paragraphs

Page 3

2002 U.S. Dist. LEXlS 10 180, *

improperly describe confidential settlement discussions in violation of Rule 408 of the Federal Rules of Evidence.

)8, evidence of con n compromise negotiations is inadmissible to prove 1156ilitFFed. R. Evid. 408. Although this is a rule L of evidence, courts have routinely granted motions to strike allegations in pleadings that fall within the scope ust~nv. Cornell Univ., 891 b: SUL I J V - J I (IY.u.IV.Y. 1995) (granting defendant's morlurl LU strike paragraph of complaint that alludes to settlement negotiations and falls within scope of 408), rev'd on orher grounds, Walsh v. Cily of Auburn, 942 F. Supp. 788, 797 n.5 (N.D.N. Y. 1996); Kelly v. L. L. Cool J.. 145 F.R. D. 32, 40 (S.D. N. Y. 1992) [*8] (granting defendant's motion to strike portions of complaint that refer to settlement discussions under Rule 408 as immaterial and potentially prejudicial); Braman v. WoodJield Gardens Assocs. Realcorp Investors I, 715 F. Supp. 226, 230 (N. D. Ill. 1989) (same). Upon review of the paragraphs in question, the Court agrees with defendants that these paragraphs improperly discuss settlement negotiations prohibited by Rule 408. Paragraph 28 of the amended complaint provides, in relevant part, that "defendants were contacted by the United States by letter, and invited to engage in discussions relating to settlement of potential claims." Paragraph 29 states that, "during that meeting, counsel for defendants conceded that significant issues existed concerning the reimbursability of claims filed by defendants for home health services." Paragraph 34(e) states that "attorneys for defendants, during the discussions described herein, admitted that the billing practices of defendants for home health services were deficient, and had been so at varying levels for a number of years." Accordingly, the Court grants the motion to strike these paragraphs. ' 3 Defendants also object to paragraph 3 1 which recounts a status conference between the Magistrate Judge and counsel. While the information contained in this paragraph does not directly advance plaintiffs allegations of fraud, it does provide context to the underlying action. The statement is thus not completely immaterial. The Court therefore denies this portion of defendant's motion. [*9] 11. Motion to Dismiss Defendants argue that plaintiffs have not stated a claim for fraud with sufficient particularity. Rule 9(b) requires that "in all averments of fraud, or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). The Eighth Circuit has interpreted the term "circumstances"

of fraud to include the "time place and contents of false representations, as well as the identity of the person making the false representation, and what was obtained or given up thereby."' Commercial Prop. v. Quality Inns, 61 F.3d 639, 644 (8th Cir. 1995). Put another way, the complaint must read like the opening paragraph of a newspaper article: it must contain the "who, what, when, where and how" of the alleged fraud. Bennett v. Berg 685 F.2d 1053, 1062 (8th Cir. 1982), adhered to on reh'g, 710 F.2d 1361 (8th Cir.)(en banc). One of the primary purposes of the rule is to ensure that a defendant can adequately respond and prepare a defense to charges of fraud. Greenwood v. Dittmer, 776 F.2d 785. 789 (8th Cir. 1985). As a result, "conclusory allegations that [*lo] a defendant's conduct was fraudulent and deceptive are not sufficient to satisfy the rule." Commercial. 61 F.3d at 644; Parnes v. Gafeway 2000, lnc., 122 F.3d 539, 549 (8th Cir. 1997). Defendants maintain that the false claim allegations contained in both complaints fail to specify the times of occurrence of the alleged fraudulent activity (the "when"), the specific identity of the fraudulent agents (the "who") and do not describe any specific circumstances constituting fraud in specific cases. Such generic pleading, defendants argue, is clearly insuff~cient as cases like United States ex rel. Robinson v. Northrop Corp., 149 F.R. D. 142 (N.D. 111. 1993), Uniled Slates ex rel. Minnesota Assoc. of Nurse Anesthetists, 1997 U.S. Dist. LEXIS 21402, Civ. No. 4-96-734 (ADMIJGL) at 21-23 (D. Minn. Mar. 3. 1997) (" MANA"), UnitedStares ex ref. Clausen v. Laboratory Corp. of America, Inc., 198 F.R.D. 560 (N.D. Ga. 2000), and United States ex rel. Cox v. Iowa Health Sys., 29 F. Supp. 2d 1022, 1024-25 (S.D. Iowa 1998), make clear. The government argues that the particularity requirement should be relaxed because this case involves [*11] a "complex scheme of fraud over an extended period of time." ' MANA, Mar. 3 1997 Order at 22 ("Less specificity in the complaint can be permitted when the fraudulent activity involves numerous transactions or the fraud occurred over a long period of time."); Clausen. 198 F.R.D. at 562 (noting that the specificity requirements are applied less stringently where the fraud occurred over an extended period of time and consisted of numerous acts); United States ex rel. Johnson v. Shell Oil Co., 183 F.R.D. 204 (E.D. Tex. 1998). Under these circumstances, the government maintains that its complaint satisfies the notice pleading standard. 4 The government also suggests that a lesser pleading standard should apply because the information is "uniquely within the control of the defendants." Am. Complaint P 32. The Court disagrees. Julie Alsaker is a former employee and is

Page 4

2002 U.S. Dist. LEXlS 10180,

alleged to have direct knowledge of the fraudulent activity and to have "witnessed" fraudulent conduct. Presumably, she would have more specific information to offer than has been plead so far. Additionally, the government has subpoena power to obtain documents, and in fact, previously exercised this power when it conducted the first of two studies to assess the merits of relators' complaint. [* 121 Having reviewed the amended complaint and the relevant caselaw, the Court concludes that the amended complaint fails to provide the sufficient level of particularity to satisfy Rule 9(b). The amended complaint suffers from many of the same deficiencies identified in cases mentioned above. For instance, the amended complaint pleads that "Relator Julie Alsaker was directed by agents of Defendant St. Cloud Hospital, acting within the scope of their agency, to 'pad' the time she spent providing services" and to provide "custodial services unrelated to any need for skilled nursing services, which makes the claims non-reimbursable under Medicare." Am. Complaint P 22(a), (b) (emphasis added). The complaint's generalized reference to "agents of defendant St. Cloud Hospital" is as deficient as was plaintiffs' reference to "a Northrup engineer" in Robinson, or to "defendant anesthesiologists" in MANA. Remarkably, the government suggests that this type of pleading is sufficient because defendant St. Cloud Hospital was Alsaker's employer and therefore knows with whom she had daily contact. However, the burden rests with the government, not the defendants, to plead their fraud allegations. [* 131 The Court presumes, and counsel for plaintiff acknowledged at oral argument, that Alsaker can identify the specific "agents" who directed her to "pad" her hours and to conduct non-reimbursable custodial services. These specifics are not peculiarly within the control of the defendant and they should be disclosed in the complaint.

The Court recognizes that plaintiffs' allegations involve over 30,000 claims submitted by defendants over an approximately eight-year period. For this reason, a lower standard of pleading the fraud allegations is appropriate. Nonetheless, a less stringent standard does not alleviate the plaintiffs' burden to allege any specifics of the fraud. As the district court in MANA explained: The Court recognizes that plaintiffs allege a general practice of fraud that covers an extensive period of time. Clearly plaintiffs are not required to recite specifics for all 28,000 allegedly fraudulent transactions. Nevertheless, plaintiffs must provide some representative examples of the fraud which detail the specifics of who, where and when. Plaintiffs complaint

*

does not once describe a single instance of the fraudulent conduct that names a specific anesthesiologist [* 141 on an exact date at a particular hospital with reference to either the procedure, patient or bill. Failure to plead no specifics is insufficient to satisfy Rule 9(b), even given a lesser pleading standard for allegations of extensive fraud. MANA, Mar. 3, 1997 Order at 23 (emphasis in original). The Court agrees with this statement and finds that the complaint must at least provide some representative examples of the alleged fraud. Counts I, I1 and 111 of the amended complaint do not accomplish this and accordingly must be dismissed for failure to comply with Rule 9(b). The Court will, however, dismiss those counts of the amended complaint without prejudice and allow the government an opportunity to file a second amended complaint which complies with the requirements of Rule 9(b). This practice is consistent with the procedure followed by other courts under similar circumstances. Robinson, 149 F.R.D. at 146 (dismissing plaintiffs' complaint without prejudice but granting plaintiffs leave to amend their complaint to bring it into compliance with Rule 9(b)); MA NA, Mar. 3, 1997 Order at 24.

Because the Court finds that the complaint is subject [*I51 to dismissal under 9(b), the Court will not now address defendants' arguments under Rule 12(b)(6) raised in the latter part of defendants' reply brief. Defendants may renew their motion under 12(b)(6) if plaintiffs file a second amended complaint which satisfies the pleading requirements of Rule 9(b). However, the Court pauses to remind defendants of the deferential standard of review that must be accorded plaintiffs on such a motion. The Court also notes that most of the cases relied on by defendants in support of this portion of their motion were before the court on motions for summary judgment, not motions to dismiss. See United States ex rel. Minnesota Assoc, of Nurse Anesthetists v. Allina Health Sys. Corp., 1999 U.S. Dist. LEXlS 23036, Civ. No. 4-96-734, Mar. 17, 1999 (order granting summary judgment); ' United States ex rel. Lowell Quirk v. Madonna Towers, Inc.. 278 F.3d 765 (Feb. 4, 2002) (appeal of order granting summary judgment); United States ex rel. Hopper v. Anton. 91 F.3d 1261, 1263 (9th Cir. 1996) (appeal of district court order granting summary judgment); United States v. Adler, 623 F.2d 1287 (8th Cir. 1980) (post-trial motions). 5 In addition, the Eighth Circuit recently overturned the district court's grant of summary judgment for the defendants. United States ex rel. Minnesota Assoc. of Nurse Anesthetists v. Allina

2002 U.S. Dist. LEXIS 10180, *

Health Sys. Corp, 276 F.3d 1032, 1052-56 (8th Cir. Jan. 17, 2002), reh'g and reh'g en banc denied 2002 U.S. App. LEXlS 4870, (Mar. 25, 2002). [*I61

6 At oral argument, the government raised objection to the submission of exhibits by defendants in their reply brief. Because the Court does not reach the issues relating to defendants' motion under Rule 12(b)(6), to which the exhibits in question pertain, the Court need not resolve that objection at this time.

ORDER

Page 5

is GRANTED as to paragraphs 28-30 and 34(e) and they are accordingly STRICKEN from the amended complaint [Docket No. 191. Defendants' motion to strike is DENIED in all other respects. 2. Defendants' motion to dismiss [Docket No. 221 is GRANTED and Counts I, I1 and 111 of the government's first amended complaint [Docket No. 191 are DISMISSED WITHOUT PREJUDICE. Plaintiffs shall have thirty (30) calendar days from the date of this Order to file a second amended complaint in this action, [*I71 Civil File No. 99-106 (JRTIRLE), and defendants may thereafter respond in a manner authorized by the Federal Rules of Civil Procedure. DATED: June 5,2002

Based on the foregoing, the submissions of the parties, and all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that:

at Minneapolis, Minnesota.

I. Defendants' motion to strike [Docket No 221 is GRANTED in part and DENIED in part. The motion

United States District Judge

JOHN R. TUNHEIM

Page l

LEXSEE SPlRO T. AGNEW, et al. v. AYDlN CORPORATION Civil Action No. 88-3436 UNITED STATES DISTRICT COURT FOR T H E EASTERN DISTRICT OF PENNSYLVANIA 1988 U.S. DisL LEMS 9911

August 31,1988, Decided; September 6,1988, Filed; September 7,1988, Entered COUNSEL: [*I] Robert P. Knapp, Jr., Esquire, ENGEL & MULHOLLAND, New York, NY, Lewis A. Grafman, Esquire, GRAFMAN & VON DREUSCHE, Bala Cynwyd, PA, for Plaintiffs Teresa N. Cavenagh, Esq., DUANE, MORRIS & HECKSCHER, Phila., Pa., for Defendants OPINION BY: NEWCOMER OPINION

MEMORANDUM CLARENCE C. DISTRICT JUDGE

STATES

Plaintiffs tiled suit alleging a cause of action under the Rackateer Influenced Corrupt Organization Act ("RICO"), 18 U.S.C. j' 1961 et. seq., and common law causes of action for fraud, breach of contract, quantum meruit and return of profits. I now have before me defendant's motion to strike paragraphs 76-77 and 80-84 of the amended complaint pursuant to rule 12@ of the Federa1 Rules of Civil frocedure. Defendant contends that of Evidence 408 prohibits plaintiff using statements defendant's attorney uttered at settlement conferences in the complaint. For the reasons stated below 1 will grant the motion.

Factual Background On May 27, 1988, plaintiffs filed an amended complaint including several paragraphs, pertaining to the RICO claim, which referred to statements made by attorneys at settlement meetings. The paragraphs in question state as follows: 76. [*2] In 1985, Agnew discovered that Aydin, Shaw and Alicanto had fraudulently and maliciously

deceived him and concealed from him the true, correct and actual amount of commission paid by Aydin to Alicanto and Shaw. Thereafter he and Woolverton made demands upon Aydin, Shaw and Alicanto for payment of the fair and just compensation to which each was entitled pursuant to agreement and stated their intention to bring suit therefor if necessary. In response, one Ronald F. Kidd, Esq., the defendant's attorney then and thereupon revealed and disclosed the corrupt and fraudulent scheme and intent of Aydin, Shaw and Alicanto when they had engaged Agnew as aforesaid and had falsely and fraudulently promised and agreed to compensate him for his services. In or about January 1986, Kidd, acting in concert and conspiracy with, and for and on behalf of Aydin, Shaw and ~ f i c a n t o traveled , to New York and then and there contemptuously and insolently caused Agnew to be informed that Aydin, Shaw and Alicanto had not thought of compensating him for his services because "nobody would believe him" if he sued in view of the unfavorable publicity connected with prior events related to his holding public office [*3] and, therefore, he could not afford to become involved in a lawsuit to enforce his right to a commission on a contract that Aydin had procured by bribes and kickbacks.

77. By those statements, Aydin by its attorney, Kidd, acknowledged admitted by, for and on behalf of itself, its co-conspirators, Shaw and Alicanto, that they had, as Shaw had previously stated for himself and on their behalf, procured the award of the contract by bribes and kickbacks. 80. In February 1986, Aydin's said attorney, Kidd, again traveled from Philadelphia to New York, ostensibly to make an offer of settlement but in truth and actuality for the conupt, unethical and criminal purpose of threatening Woolverton with prosecution if Agnew should sue Aydin. Acting in concert and conspiracy with, and for and on behalf o f ~ ~ d ihe n ,then and there further revealed and disclosed Aydin's corrupt and fraudulent

Page 2

1988 U.S.Dist. LEXIS 991 1, *

purpose when for a second time, and again with the utmost insolence and contempt, he caused Agnew to be informed that because of his own history and because Aydin, Shaw and Alicanto had procured the contract by fraud and bribery, he could not afford to sue for his commission and lacked the virility to [*4] do so. In so saying, the defendant's attorney, Kidd, thereby reacknowledged and reaffirmed the fact of the defendants' fraud and bribery. 8 1. In conjunction and concurrently with Kidd's said trip to New York in February 1986, and as further confirmation and corroboration of Aydin's fraud and corruption, he caused one James Danaher, Esq. of Palo Alto, California, a member of the California Bar to travel from California to New York, there to foregather with him and the plaintiffs and Woolverton's former attorney on that same occasion, ostensibly for the purpose making an offer of settlement but as events proved, actually for the corrupt, unlawful, indecent and unethical purpose of threatening Woolverton with criminal prosecution if Agnew and he should institute suit. Danaher stated that he was attorney for the defendants Schneidau and Sherman, Aydin officials who had been employed in Aydin's Systems Division, adjacant to Palo Alto. Kidd, acting with Danaher in concert and conspiracy with, for and on behalf of Aydin, Schneidau, Sherman, Shaw and Alicanto, and by obvious and flagrant pre-arrangement with Danaher, with whom he had met and conferred privately immediately prior to their [ * 5 ] meeting with the plaintiffs and Woolverton's attorney, prompted and cued Danaher to threaten Woolverton through his said attorney, by announcing that if the plaintiff were to start this suit, Schneidau and Sherman would in return for grants of immunity from criminal prosecution and indictment for their criminal acts of bribery go before a grand jury and accuse Woolverton of complicity in the defendant's Shaw's and Alicanto's "illegal payments to the Argentine general." Thereby Danaher, speaking on cue from Kidd, once more confirmed, acknowledged and arrested for a second time for and on behalf of the defendant, Alicanto and Shaw their bribery and conuption in procuring the contract, as well as their guilty knowledge of the criminal and indictable nature and character of their immoral and unlawful acts in making such corrupt payments. 82. The February 1986 travel by Kidd and Danaher from Philadelphia and California respectively to New York City, acting in concert and conspiracy with, for and on behalf of the defendants, Shaw and Alicanto was for the purpose of transmitting a communication containing a threat to accuse Woolverton of a crime, with the intent thereby to extort and [*6] demand from him his lawful claims against Shaw and Alicanto, and their making such travel and threat were criminal acts by Kidd, Danaher, Shaw, Alicanto and the defendant indictable under 18

U.S.C. S;S; 875 and 1952 and constituted "racketeering activity" under "RICO" 18 U.S.C. S; 1961 et. seq.

83. In still firther confirmation and corroboration of the defendant's, Shaw's and Alicanto's fraud and corruption, Aydin's attorney, Kidd, again and for a third time traveled from Philadelphia to New York in March 1986, again purportedly for the purpose of making a new offer of settlement but in truth and actuality once more for the criminal purpose of again threatening Woolverton with prosecution if this suit were brought. Danaher too, had again traveled to New York from California at Kidd's behest, and had again met and conferred with him privately in advance of meeting with the plaintiffs attorney. However, they made no such offer, but, Kidd, acting in concert and conspiracy with, for and on behalf of the defendant, Shaw and Alicanto, and speaking in the presence of and with the acquiescence of Danaher, threatened the plaintiffs former attorney and Woolverton in the following words, [*7] or in words to the same effect, "If you bring this suit [meaning the present action] I will send your father-in-law [meaning Woolverton] to prison." By reason of the said threat, Kidd and Danaher again positively and conclusively confirmed, acknowledged and unambiguously asserted for a third time, Aydin's Schneidau's, Sherman's, Shaw's and Alicanto's bribery and corruption in procuring the contract and their guilty knowledge of the criminal and indictable nature thereof. 84. Kidd's and Danaher's March 1986 travel from Philadelphia and California to New York was for the purpose of transmitting a communication containing a threat to accuse Woolverton of a crime and "send him to prison." Such travel and threat were made with the intent to extort from Woolverton his lawful claims against Shaw and Alicanto and to intimidate him from testifying and assisting the plaintiff in suit against the defendants, and were criminal acts by Kidd, Danaher, Shaw and Alicanto, and the defendant, indictable under 18 U.S.C. $3 875 and 1952 and constituted "racketeering activity" under "RICO" 18 U.S.C. $1961 et. seq. Discussion

The sole issue here is whether the statements referred to in the [*8] above-enumerated paragraphs of the complaint should be stricken pursuant to Federal Rule of Evidence 408. The rule provides: Evidence of ( I ) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise

Page 3

1988 U.S. Dist. LEXlS 991 1,

negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. his-rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to ob ct a criminal investigation or PI cuti Stuunron v. I arantino, 637 F.Supp. 1051, 1081 (b.L 408 Advisory Committee N a - - . ~erallybelieved zttlemer egotiatic inhibited if the parties [*9] are aware their Krilikos v. TmerJo 8 ;, Cir. 1987). ,

The Notes of the Advisory Committee explain the broadened scope of Rule 408 over its common law predecessor: The practical value of the common law rule has been greatly diminished by its inapplicability to admissions of fact, even though made in the course of compromise negotiations, unless hypothetical, stated to be without prejudice, or so connected with the offer as to be inseparable from it. . . . An inevitable effect is to inhibit freedom of communication with respect to compromise even among lawyers. Another effect is the generation of controversy over whether a given statement falls within or without the protected area. These considerations account for the exuansion of the rule herewith to include evidence of conducl or statements made in compromise negotiations. (emphasis added). \is p ,calls tbr (

1 open discussion by ea

-4

t Escrow, Inc. v. Jt.,- ,,=., Inc.. 677 F.Supp. 1477, 1485 (D.Or. 1987); 2 Weinstein's Evidence para. 408[03 * 10

nPontlatlrrr ..spe,.

....- &

-

:lear that the statements referred to in par [grapls 76-77 and 80-84 are evidence used for the p pose of showing liability of the defendant. Thus, the on' ~determinatioKTineedmake, cons~deringthe broad sco M e 408, is whether the statemerA-' . . . 'ement negc ' ionp Ylalntltts contend tha. , . ..., ....., ...e statement:, ... question were made by defendant's attorneys the settlement conference should be deemed terminated. I disagree. Plaintiffs are, in effect, requesting that 1 determine the instant in time when the

*

meetings among these opposing attorneys were transformed from settlement discussions into post-discussion angry exchanges. Such a distinction is nearly impossible to make. Angry statements may be negotiation ploys or natural human responses to prolonged or failing negotiations. In Aspen Title & Escrow. Inc. v. Jeld-Wen, Inc., the United States District Court for Oregon was faced with facts similar to the instant case. One party had made a threat during what the opposing party claimed were settlement negotiations. Evidence of this "threat" was ruled inadmissible. The Court stated: Even if a clear breaking point [demarking the, [ * I I ] end of negotiations] always existed, the courts may not be competent to make such a determination. The same policy considerations which establish the need for Rule 408 to cover all statements, establish the need to have settlement conferences in their entirety covered.

677 F.Sur-

-*

'485.

. ,..ornc,,

,..,wing that compromise being pursued. Plaintiffs' response tc 1s motion -. m s that the meetings in question were scheduled in tne spirit of negotiation. If the court determines if and when the character of these meetings changed, a chilling effect on the openness of discussions at hture compromise meetings might result. In turn, the court's action would undermine the policy behind Rule 408. The motion to strike the relevant portions of plaintiffs' complaint will be granted.

untlntln

ORDER - September 6 , 1988, Filed

AND NOW, this 3 1st day of August, 1988, in consideration of defendant's motion to strike paragraph 7677 and 80-84 of the amended con and plaintiffs

-

-m

AND IT IS SO ORDERED.