Opinion
06 Civ. 7905 (WHP).
January 28, 2008
Counsel of Record: Allison D. Penn, Esq., U.S. Attorney's Office, Southern District of New York, New York, NY, Counsel for Plaintiff.
Jeffrey L. Bernfeld, Esq., Joseph Raphael DeMatteo, Esq., Bernfeld, DeMatteo Bernfeld, LLP, New York, NY, Counsel for Defendants.
MEMORANDUM AND ORDER
The Government brings this action against Defendants Manhattan-Westchester Medical Services, P.C. ("MWMS") and Dr. Turan Itil, the owner and operator of MWMS, asserting claims under the False Claims Act, common law fraud, unjust enrichment, and payment under mistake of fact. MWMS filed counterclaims for various unpaid Medicare claims and expenses. Plaintiff moves to dismiss MWMS's counterclaims and to strike certain affirmative defenses. For the following reasons, Plaintiff's motion is granted.
BACKGROUND
For the purposes of this motion, the Court accepts the following facts as true. The Supplementary Medical Insurance Program for the Aged and Disabled, also known as Part B of the Medicare Program, (the "Medicare Program") is administered by the Centers for Medicare and Medicaid Services, which contract with private carriers to review and process claims. (Complaint, dated Oct. 3, 2006 ("Compl.") ¶¶ 9, 11.) At all relevant times, Empire Medicare Services ("Empire") was the carrier for claims submitted by Defendants. (Compl. ¶ 12.)
The Medicare Program does not reimburse providers for screening procedures for Alzheimer's disease. (Compl. ¶ 15.) Between January 15, 2003 and August 5, 2005, Defendants solicited elderly, non-English speaking individuals to receive free screenings for Alzheimer's disease and falsely diagnosed those patients with Alzheimer's disease. (Compl. ¶¶ 17, 20.) Defendants submitted claims for reimbursement to the Medicare Program for these procedures, which were paid. (Compl. ¶¶ 22.)
In 2003, Empire audited MWMS's previously reimbursed claims and reviewed patients' medical records (the "Audit"). (Answer with Counterclaims, dated Jan. 8, 2007 ("Ans.") ¶ 96.) After the Audit, Empire did not attempt to recoup the earlier reimbursements and continued to approve Defendants' claims submitted through August 5, 2005. (Ans. ¶ 96.)
DISCUSSION
II. Motion to Dismiss Counterclaims
A. Legal Standard
On a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) a court must accept the material facts alleged in the complaint as true and construe all reasonable inferences in the plaintiff's favor. Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000); Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998). Dismissal is appropriate only when "it appears beyond doubt that the plaintiff can present no set of facts entitling [her] to relief." Chosun Int'l. Inc. v. Chrisha Creations, Ltd., 413 F.3d 324, 327 (2d Cir. 2005). It is the plaintiff's responsibility to affirmatively establish subject matter jurisdiction for his claims. Makarova v. U.S., 201 F.3d 110, 113 (2d Cir. 2000).
B. Exhaustion of Administrative Remedies
Sovereign immunity bars suits against the United States unless expressly authorized by federal legislation. United States v. Shaw, 309 U.S. 495 (1940). "[T]he terms of [the government's] consent to be sued in any court define that court's jurisdiction." United States v. Sherwood, 312 U.S. 584, 586-87 (1941).
The Social Security Act, which governs the Medicare Program, requires that a party present a claim for benefits for administrative review and exhaust its administrative remedies before bringing suit. See Abbey v. Sullivan, 978 F.2d 37, 46-47 (2d Cir. 1992). While the requirement of presentment is non-waivable, courts may waive the exhaustion requirement after considering whether: (1) the claim is collateral to a demand for benefits; (2) exhaustion would be futile; and (3) exhaustion would cause plaintiff to suffer irreparable harm. Abbey, 978 F.2d at 43-44. Defendants concede that they have not exhausted their administrative remedies for any of the counterclaims.
1. The First Counterclaim
MWMS's first counterclaim alleges that Plaintiff, through its agent Empire, wrongfully rejected and failed to pay MWMS claims in excess of $500,000. (Ans. ¶¶ 92-93.) First, this is a direct claim for benefits. See Pavano v. Shalala, 95 F.3d 147, 150 (2d Cir. 1996) (a claim that the government wrongly denied benefits is a direct claim and not a collateral claim). Second, exhaustion would not be futile. An administrative law judge could have found the Medicare claims reimbursable had Defendants chosen to exhaust their administrative remedies. Additionally, Plaintiff's action seeks recovery for allegedly false Medicare claims that were paid, while MWMS's first counterclaim is based on Medicare claims that were not paid at all. Consequently, the result of any administrative procedure is not a foregone conclusion. See United States v. Armfield III, 56 F. Supp. 2d 588, 591-93 (W.D.Pa 1998) (exhaustion of administrative remedies for Medicare claims that were denied would not be futile where the Government had brought a False Claims Act action for Medicare claims that were paid); United States v. Royal Geropsychiatric Svcs., Inc., 8 F.Supp. 2d 690, 696-97 (N.D. Ohio 1998) (same). Finally, Defendants have not demonstrated any irreparable harm; the only damage they assert is monetary. See Pavano, 95 F.3d at 151 (no irreparable harm would result from exhaustion where doctors only sought compensation from the Medicare Program). Accordingly, waiver of the exhaustion requirement is not appropriate and, Plaintiff's motion to dismiss the first counterclaim is granted.
2. The Second Counterclaim
The second counterclaim advances two theories: (1) that MWMS is entitled to be paid for outstanding claims that have been submitted for reimbursement, but not paid, and (2) that MWMS is entitled to retain payments previously made by Empire, because the Audit led MWMS to believe that the services it was providing were properly reimbursable by the Medicare Program. (Ans. ¶¶ 96-99.) Plaintiff's counterclaim for reimbursement for outstanding claims that have been submitted but not paid is dismissed for failure to exhaust administrative remedies. The rationale for that is set forth in this Court's analysis dismissing the first counterclaim. The other theory of the second counterclaim is also pled as Defendants' fourth affirmative defense of estoppel. That aspect of Defendants' second counterclaim is dismissed for the reasons set forth below in this Court's analysis striking the affirmative defense of estoppel.
3. The Third Counterclaim
The third counterclaim asserts that MWMS made investments and incurred expenses in reliance on its belief, based on the Audit, that it would be reimbursed by the Medicare Program for those services. MWMS seeks recovery for the losses MWMS suffered when it was forced to cease its operations after its claims were no longer reimbursed. (Ans. ¶¶ 101-05.) MWMS has not alleged that it presented this claim for administrative review. Because presentment is non-waivable, Plaintiff's motion to dismiss the third counterclaim is granted.See Abbey, 978 F.2d at 43.
II. Motion to Strike Affirmative Defenses
A. Legal Standard
Fed.R.Civ.P. 12(f) provides, in relevant part: "Upon motion made by a party . . . the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Motions to strike affirmative defenses may be granted only if it "appears to a certainty that plaintiffs would succeed despite any state of facts which could be proved in support of the defense." William Z. Salcer, etc. v. Envicon Equities, 744 F.2d 935, 939 (2d Cir. 1984); see also SEC v. Toomey, 866 F. Supp. 719, 721-22 (S.D.N.Y. 1992). To prevail, the movant must establish that there is no question of law or fact that would allow the defense to succeed and that inclusion of the defense would prejudice the plaintiff. Toomey, 866 F. Supp. at 722; Salcer, 744 F.2d at 939; Cty Vanlines Inc. v. Experian Info. Solutions, Inc., 205 F.R.D. 148 (S.D.N.Y. 2002). Where a defense must fail as a matter of law, its inclusion prejudices the plaintiff because it will increase the duration and expense of trial. Toomey, 866 F. Supp. at 725.
B. Estoppel — Fourth Affirmative Defense
The Supreme Court "has never upheld an assertion of estoppel against the Government by a claimant seeking public funds."Office of Personnel Management v. Richmond, 496 U.S. 414, 434 (1990). "[T]he payment of money from the Treasury must be authorized by statute," and therefore, "judicial use of an equitable doctrine of estoppel cannot grant . . . a money remedy that Congress has not authorized."Richmond, 496 U.S. at 423, 426. The principle applies equally where a party seeks to use the doctrine of estoppel to prevent the Government from recovering public funds that have already been paid. See United States v. RePass, 688 F.2d 154 (2d Cir. 1982) (estoppel not available as an affirmative defense in a suit where the government sought to recover monies paid out under a falsely obtained loan guarantee); United States v. Southland Mgt. Corp., 288 F.3d 665, 683 (5th Cir. 2002). Although estoppel may apply against the Government in situations where the Government is alleged to have engaged in "some type of affirmative misconduct," this is only in cases "not involving payment from the Treasury." Richmond, 496 U.S. at 421, 434.
Since this civil action involves the recovery of public funds, Defendants estoppel affirmative defense fails as a matter of law. The rationale that the "judicial use of an equitable doctrine of estoppel cannot grant . . . a money remedy that Congress has not authorized" applies equally to Plaintiff's False Claim Act claims and common law claims. See Richmond, 496 U.S. at 426; see also United States v. Cushman Wakefield, Inc., 275 F.Supp.2d 763, 768-70 (N.D.Tex. 2002) (granting motion to strike affirmative defense of estoppel in case involving claims under the False Claims Act and common law claims). Plaintiff's motion to strike the fourth affirmative defense is granted.
C. Laches and Unclean Hands — Fifth Affirmative Defense
The affirmative defenses of laches and unclean hands are also unavailable against the Government. See, e.g., United States v. Angell, 292 F.3d 333, 338 (2d Cir. 2002) ("[L]aches is not available against the federal government when it undertakes to enforce a public right or protect the public interest."); SEC v. Follick, No. 00 Civ. 4385 (KMW) (GWG), 2002 WL 31833868, at *8 (S.D.N.Y. Dec. 18, 2002) ("[T]he doctrine of unclean hands may not be invoked against a government agency which is attempting to enforce a congressional mandate in the public interest."); see also Cushman Wakefield, 275 F. Supp. 2d at 774. Accordingly, Plaintiff's motion to strike the fifth affirmative defense is granted.
D. Setoff — Eighth Affirmative Defense
Defendants' eighth affirmative defense alleges that Plaintiff's claim is barred in whole or part by the doctrine of setoff. The amount Defendants owe Plaintiff could only be reduced if MWMS was successful on its counterclaims. Because MWMS's counterclaims have been dismissed, Defendants are not entitled to any setoff. Therefore, Plaintiff's motion to strike the eighth affirmative defense is granted.
CONCLUSION
For the foregoing reasons, Plaintiff's motion to dismiss Defendants' counterclaims and motion to strike Defendants' fourth, fifth, and eighth affirmative defenses are granted.
SO ORDERED: