First To File: Issue 4

• Published date: 17 October 2022
• Subject Matter: Government, Public Sector, Criminal Law, Government Contracts, Procurement & PPP, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Steptoe & Johnson
• Author: Mr Paul Hurst, Patrick F. Linehan, Amba M. Datta and Caitlin Conroy

In this issue:

• Another Rule 9(b) decision (Giaquinto (N.D. W Va.))
• Biogen's $900 million FCA settlement of allegations of AKS violations arising from physician speaker programs and other payments
• A fraud in the inducement case involving representations regarding compliance with the Ethics in Government Act (iFOS (D. Md.))
• DOJ's charging of 47 defendants across six indictments alleging fraud against the Federal Child Nutrition Program

United States ex rel. Giaquinto v. Highland-Clarksburg Hosp., Inc., 1:18-CV-220, 2022 WL 4391508 (N.D.W. Va. Sept. 22, 2022)

Industry: Healthcare

Topics: Rule 9(b), Rule 41(b)

Summary: Last week, a federal district court in West Virginia denied defendants' motions to dismiss and allowed an FCA action to proceed in another case involving an interpretation of Rule 9(b).

In United States ex rel. Giaquinto v. Highland-Clarksburg Hosp., Inc., relator Nancy Giaquinto, a CPA for Highland-Clarksburg Hospital, alleged that defendants Highland-Clarksburg Hospital, Inc., RC General Contractors, Inc., M&C Electric LLC, Associated Architects, Inc., Michael Casdorph, Paul Tennant, and Charles Nary (Defendants) "misdirected and stole over $1 million in construction funds in connection with the government-funded renovation of a community behavioral health hospital."¹

Congress and the US Department of Agriculture (USDA) initiated the Community Facilities Direct and Guaranteed Loan and Grant Program to provide funding to develop essential community facilities in rural areas. Such funding can be used for various public wellbeing measures, including health care facilities such as hospitals. The Program provides low interest direct loans, grants, and a loan guarantee program, all of which can be combined with commercial financing.²

Defendant Highland-Clarksburg Hospital (the Hospital), received $34.8 million in direct and guaranteed loans under the Program for the construction and renovation of a community behavioral health hospital. RC General was contracted to complete certain work. Defendant Michael Casdorph is an incorporator of RC General and serves as its Director, Secretary, and Treasurer; Casdorph also served as the Hospital's "Director of Facilities and Construction and/or the CEO."³ After not disclosing the conflict of interest in connection with Defendant Casdorph's involvement with RC General to the USDA, the Defendants misdirected over $1 million in government-loaned and/or guaranteed funds. The amount of $73,567.31 was paid to mechanical prime contractor Dougherty Company Inc. for work it completed, while a duplicate payment was sent to RC General for the same work, leading RC General to receive the original amount plus an 8% fee equaling $79,452.69 in total. Many other double payments were made.

Defendants Casdorph, Highland-Clarksburg Hospital, RC General, Nary, and M&L Electric filed Motions to Dismiss the Amended Complaint under Rules 9(b), 12(b)(5), 12(b)(6), and 41(b).

Defendants first requested dismissal under Rule 41(b) on the basis that the relator failed to properly serve the original complaint within the required 90 days of filing. Relator had until January 31, 2022, to serve the Defendants and comply with the timing requirement. Rather than serving the Defendants, however, on January 31, 2022, relator filed an Amended Complaint and subsequently failed to serve Defendants that same day. Relator instead served Defendants between February 4th and February 28th. Proof of service for one Defendant was not returned. Relator Giaquinto responded to Defendants' motions to dismiss under Rule 41(b) with a request for an extension of time to perfect service, claiming the delay was excusable neglect and that the First Amended Complaint related back to her original complaint pursuant to Rule 15 of the Federal Rules of Civil Procedure.

Under Rule 4(m), good cause could excuse delay in service if the delay was outside plaintiff's control, the defendant was evasive, plaintiff made reasonable efforts to serve, plaintiff is pro se or in forma pauperis, defendant would be prejudiced, or if plaintiff asked for a proper extension of time. If good cause is not present, the district court explained that in evaluating a request for dismissal for failure to prosecute, it "should consider (1) the degree of personal responsibility of the plaintiff, (2) the amount of prejudice caused the defendant, (3) the existence of a 'drawn out history of deliberately proceeding in a dilatory fashion,' and (4) the existence of a sanction less drastic than...