exibit b to srcsb motion to strike two paragraphs in complaint

8/14/2019 Exibit B to SRCSB Motion to Strike Two Paragraphs in Complaint

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Page 1

LEXSEE

PHILADELPHIA'S CHUR CH O F OUR SAV IOR, Plaintiff, v. CO NCO RD

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

Ju ly 27,2004, Decided

July 28,2004, Filed

PRIOR HISTORY: Philadelphia's Chztrch of Our Sav-

ior v. Concord Twp., 2004 U.S. Dist. LEXlS 1941 (E.D.Pa., Feb. 4, 2004)

DISPOSITION: [*I] Plaintiffs motion fo r leave tosupplement complaint denied.

COUNSEL: For PHILADELPHIA'S CHURCH OFOUR SAVIOR, Plaintiff: CHARLES J. HARDY,

JOSEPH J . MCALEE, RICHARD A. SPRAGUE,STEPHEN R. KURENS, LEAD ATTORNEYS,

SPRAGU E AND SPRAGUE, PHILADELPHIA, PA.

For CONCORD TOWNSHIP, Defendant: HUGH A.DONAGHUE, LEAD ATTORNEY, DONAGHUEAND BRA DLEY, MEDIA, PA.

For CONCORD TOWNSHIP, HUGH A. DONAHUE,

MANOS KAVADIAS, JAMES W. McKINLEY,DOMINIC J. C APPELLI, HO WAR D J. GALLAGHER,

H. WILLIAM VOLLMER, DOMINIC A. PILEGGI,

Defendants: PAOLA TRIPOD1 KACZYNSKI,

WILLIAM F. HOLSTEN, HOLSTEN & ASSOCIATES,MEDIA, PA.

JUDGES: CHARLES B. SMITH, UNITED STATESMAGISTRATE JUDGE.

OPINION BY: CHARLES B. SMITH

OPINION

MEMORANDUM AND ORDER

CHARLES B. SMITH

UNITED STATES MAGISTRATE JUDGE

Currently before the Court is a Motion for Leave toSupplement the Amended Complaint by plaintiff, Phila-

delphia's Church of Our Savior. Having considered the

arguments of both parties, the Court denies Plaintiffs

motion.

I. PROCEDURAL HlSTORY

On March 26, 2003, plaintiff, Philadelphia's [*2]

Church of Our Savior (the "Church"), filed a complaintagainst defendant, Concord Township (the "Township")

alleging three counts of defendant's misconduct in viola-tion o f th e Religious Land Us e and Institutionalized Per-

sons Act of 2000 ("RLUIP"), 42 U.S.C.$2000cc, et seq. ,

five counts o f misconduct in violation o f 42 U.S.C. $1983, and five counts o f misconduct in violation of the

Pennsylvania Constitution. The complaint specifically

contended that defendants ( 1 ) wrongfully rejected theChurch's request fo r a building permit, after promising toissue one; (2 ) improperly demanded a permanent ease-ment from th e Church a s a quid pr o quo fo r the buildingpermit and; (3 ) improperly refused to accept fo r filing or

to review th e Church's written application fo r a building

permit, despite th e fact that th e proposed sanctuary com-plied with all applicable zoning, building and safetycodes. Plaintiff asserted this Court's federal question ju-

risdiction overall federal claims pursuant to 28 U.S.C.$1331 and 1342(3)-(4), and supplemental jurisdiction overstate law claims pursuant to 28 U.S.C.f 1367. [*3] OnFebruary 4, 2004, plaintiff was granted leave to amendits complaint in order to add the five members of theTownship's Board of Supervisors, the Township Solicitorand th e Township Building Inspector in their individualcapacities.

Both parties met with this Court on June 23, 2003and entered into settlement negotiations. Following dis-

cussions, the parties agreed that plaintiff would co mplete



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2004 U.S. Dist. LEXlS 15400, *

an application for a building permit and plaintiff wouldpay the cost for an architectural firm to certify BOCAcompliance. The firm was approved by defendant and,upon submission of the firm's report, the Township is-sued a foundational permit on August 28,2 003 , authoriz-

ing plaintiff to build the foundation to support the mem-brane structure. Thereafter, it issued a Building Permitauthorizing plaintiff to erect the proposed sanctuary.

On June 4, 2004, plaintiff filed a Motion for Leaveto Supplement its First Amended Complaint to includeparagraphs referring to the settlement conference andhow the concessions made by the Township establishthat defendants had the authority to waive its applicationrequirements. The undersigned held oral argument onJune 17, 2004 an d, subseque ntly, both [*4] parties filedpost-argument briefs. The Court now considers whetherPlaintiffs request for leave to supplement the AmendedComplaint should be granted.

11. DISCUSSION

Plaintiff seeks leave to supplement its AmendedComplaint with references to the settlemen t proceeding sheld before this Court ' in order to prove tha t defendantsrepeatedly denied, in their responsive pleading and dis-covery responses, that they had the authority to grantwaivers of various requirements. '

I Specifically, plaintiff seek s to add the follow-ing paragraphs:

9 I. In or about March 2003, plaintiff filed itsComplaint against the Defendant Township, andin or about February 2004 plaintiff filed its FirstAmended C omplaint. In its responsive pleadingsand discovery responses, defendants have repeat-edly denied that defendant Concord T ownship, byand through its Board of Superviso rs, had the au-thority to grant a waiver or waivers of variouspermitting requirements such as land develop-ment or land disturban ce permits, and/or a spec ialexception ....

92. At a conference held before MagistrateJudge Charles B. Smith on June 23,20 03, Defen-dant Concord Town ship, by and through its coun-

sel, agreed to afford plaintiff a procedure to ob-tain a building permit which would permit theplaintiff to construct the proposed temporarysanctuary in question, which procedure did notinclude any requirements that plaintiff complywith various local building requirements such asa the need to obtain a land development permit,land disturbance permit, and/or sp ecial exception.

93. Plaintiff availed itself of the opportunityafforded by Defendant Township and the Defen-

dant Township officials, and the DefendantTownship did, in fact, thereafter issue a founda-tional permit to Plaintiff on or about August 28,2003 au thorizing the Plaintiff to build the fou nda-tion to supp ort the mem brane structure ....

94. Thereafter the Defendant Township is-sued a building permit to the plaintiff au thorizingthe plaintiff to erec t the proposed sanctuary.

95 . Both the foundational permit and thebuilding permit issued to the plaintiff were issuedunder a process which did not require Plaintiff tocomply with various local building requirementssuch as the need to obtain a land developmentpermit, land disturbance permit or a special ex-ception ....

96. As permitted by the foundational permitand the building permit, the plaintiff has begun

the construction of its proposed 620-seat sanctu-ary.

97. In light of the explicit representations andactions on behalf of defendants before this Courtincluding the explicit waiver of various permit-ting requirem ents, defendant should be and/or ju-dicially and/or equitably estopped from denyingsuch authority in this case.

[*512 In its Answ er to the Complaint, the Tow nshipdenied that there was "any alternative procedurefor reviewing and granting requests for buildingpermits." and that "any procedure resembling

what Plaintiff refers to as 'the expedited permitapproval procedure' exists within Conco rd Town-ship." Answer to Co mplaint. 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 suchterms as are just, permit the party to servea supplemental pleading setting forthtransactions or occurrences or eventswhich have happened since the date of thepleading sought to be supplem ented.

The Supreme Court has held that "leave to amend 'shallbe freely given when justice so requires."' Foman v.Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2 d

222 (1962). "In the absence of any apparent or declaredreason - such as undue delay, bad faith or dilatory motiveon the part of the movant, repeated failure to cure defi-ciencies by amendmen ts previously allowed, [*6] undueprejudice to the opposing party by virtue of allow ance ofthe amend ment, futility of the amend ment, etc.--the leave



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2004 U.S. Dist. LEXIS 15400, *

sought shou ld, as the rules require, by 'freely given."' Id.

It "is an abuse of discretion for a district court to denyleave to amend" without one of these reasons. Alvin v.Suzuki, 227 F.3d 107, I21 (3d Cir. 2000).

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 fo r peace rather thanfrom any concession of weakness of position ... (2 ) [a ]more consistently impressive ground is promotion of the

Defendants offer two arguments in opposition to

public policy favoring the compromise and settlement ofplaintiffs motion. Defendants first claim that the motionrputes. Fed Evid. Ad . ...

to supplement would only proffer inadmissible evidence - - -maki& the supplement futile. Second, defendants claimthat the motion to supplement the claim with allegationsregarding the settlement proceedings is being offered inbad faith. As the Court deems the futility arg umen t to bethe more compelling claim, we deny the motion on thes egrounds.

Denying leave to amend on the ground o f futility in-cludes 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 strikeunder 12(f), [and] it would be an idlemove for the court to allow such anamendment over the objection of the op-posing party who could simply make aformal motion to dismiss [*7] or strikeafter leave to am end is granted.

3 Moore's Federal Practice P 15.080[4]; see also LibertyFish Co. v. Home Indemnity Co ., 1990 U.S . Dist. LEXIS

7334. Civ. A . No. 89-5201, 1990 WL 8334 1. * I (E.D. Pa.June 18, 1990) (leave to amend may be denied on

grounds of futility where proposed amendment would besubject to successful motion to strike under Rule 12m;Medical Graphics Co rp. v. HarlJord Ins . Co., 1 71 F.R. D.

254, 257 (D. Minn. 1997) (leave to amend should bedenied if proposed amendment would invite motion tostrike).

Defendants argue that the proposed supplemental al-legations are strictly prohibited by Federal Rule of Evi-dence 408. which states:

Evidence of ( I ) furnishing or offering orpromising to furnish, or (2 ) accepting oroffering or promising to a ccept, a valuable

consideration in compromising or at-tempting to compromise a claim whichwas disputed as to either validity oramount, is not admissible to prove liabil-ity for or invalidity of the claim or itsamount. Evidence or statements made incompromise negotiations is likewise notadmissible.

;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

40 8 if they are fo r the purpose of showing liability andrefer to settlement negotiations); United States Transmis-

sion 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 inadmis-sible); 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 ref-erencing settlement discussions as immaterial and ofquestionable 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 tostrike paragraphs of complaint that improperly refer tosettlement 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 tosettlement discussions, then it may be stricken underRule 12@ and would therefore be futile). Therefore, be-cause claims in a complaint may be stricken under Rule

1267 if they violate Rule 408, they may also be foundfutile pursuant to Rule 408.

Th e Court must now determine whether the pro-posed supplement to the Amended Complaint fallswithin the scope of Rule 408. As noted above, allegationsmade in a complaint may not use settlement neg otiations"to prove liability fo r or invalidity of the claim or itsamount." Fed R. Evid. 408. Plaintiff alleges in Para-graph One of the complaint, that defendants [* l o ] vio-

lated the RLUlP as well as multiple constitutional rightsdue, in part, to defendants' "wrongful rejection of theChurch's request in October through December of 2002for a building permit through defendant Township's Ex-

pedited Permit approval procedure, after Defendant Con-cord Township promised to issue a permit." Defendants,in their Sixth Affirmative Defense, expressly deny thatthey ever had "an expedited permit approval procedurefor Building Permits or land development." Conse-quently, to use the settlement discussions and offers of



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2004 U.S. Dist. LEXIS 15400, *

To the extent plaintiff contends that its proposed

supplemental allegations pertain only to admissions offact made by defendants during settlement negotiations,which fall outside the scope of Rule 408, the Court findsthat nothing in the proposed supplemental allegations

constitute such an admission. That the Township couldwaive its permit requirements in the course of a federal[* 141 court litigation does not mean that it had the abil-ity to do otherwise outside of litigation. In several casescited by defendants, the Pennsylvania CommonwealthCourt, albeit i n dicta, took judicial notice that variancedecisions in the context of the settlement of a judicialproceeding are distinct from zoning board variances. Se eSummit Township Taxpayers Asso. v . Summit Township

Board of Supervisors, 49 Pa. Commw. 459, 41 1 A.2d1263. 1266 (Pa. Commw. 1980) ("Because court-approved settlements of zoning cases are lawful ... wemust recognize such settlements as being distinct fromzoning hearing board variances; even though a judicialsettlement may result in a departure from the ordainedzoning pattern"); Yaracs v . Summit Acadamy, 845 A.2d203, 20 9 n. 6 (Pa. Commw. 2004) (citing Summit). Ac-cordingly the mere fact that the Township could ac t inthe context of a settlement agreement is not dispositiveof whether it had the authority outside of federal litiga-tion.

Finally, it appears that discovery would not yieldany information that could lead to admissible evidence.Nor does plaintiff offer any insight on the admissibleevidence they hope [* 151 to find. The "strong Con gres-sional policy behind Fed. R. Evid. 408 as well as the lib-eral discovery rules"' sup port putting the burden "on theparty seeking discovery to make a particularized showing'that the do cumen ts relating to the settlement negotiations

are relevant and likely to lead to the discovery of admis-sible 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 Fidel ip

Fed. Sav, & Loan Ass'n v. Felicetti, I48 F.R.D. 532

(E.D . Pa. 1993)). Plaintiff fails to show that the discov-ery relating to these supplem ental complaints will lead toadmissible evidence. Co nsequen tly, plaintiff fails to meetits burden of showing that the discovery of these sup-plemental complaints will lead to any admissible evi-dence not sh ielded by Rule 408.

In sum, plaintiff has neglected to overcome defen-dants' contention that the proposed supplemental allega-tions are, in fact, futile for purposes of Federal Rule r , S

Civil Procedure 15. Accordingly, the Court denies theMotion for Leave to Supplement the First AmendedComplaint.

[* 161 An approp riate order follows.

ORDER

AND NOW this 27th day of July, 2004, upon con-sideration of Plaintiffs Motion for Leave to Supplementthe First Amended Complaint, the Response of Defen-dants thereto and the additional briefs and letters submit-ted by both parties, and upon conducting oral argumenton the Motion, it is hereby ORDERED that the Motion isDENIED.

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. CLOUDHOSPITAL, 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 strikegranted in part and denied in part. Defendants' motion to

dismiss granted and counts I, I1 and 111 of government'sfirst amended co mplaint dismissed w ithout prejudice.

COUNSEL: For United States: D. Gerald Wilhelm, As-

sistant United S tates Attorney, OFFICE O F TH E

UNITED S TATE S ATTORN EY, Minneapolis, MN.

For Julie Alsaker, Luanne Caton, plaintiffs: Gary LeoManka, KATZ & MANKA, Minneapolis, MN.

For defendants: Kevin J. Hughes, Paul R. Harris, Kath-

leen 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., Min-

neapolis, MN.

JUDGES: JOHN R. TUNHEIM, United States DistrictJudge.

OPINION BY: JOHN R. TUNHEIM

OPINION

MEMORANDUM OPINION AND ORDER

This is a fraud action brought against defendantsCentraCare Health System Inc., and St. Cloud Hospitalpursuant to the qui lam provisions of the False claimsAct, 31 U.S.C. JJ 3729 et seq. Plaintiffs allege that de-fendants [*2] prepared a nd submitted false andlorfraudulent claims for home health aid visits in violationof 31 U.S.C. $ 3729. The government intervened in theaction pursuant to 31 U.S.C. J 3730(b)(4)(A). Defen-dants have moved the Court for an order dismissing all

counts of (h e relators' complaint and Coun ts 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 Rulesof Civil Procedure. Defendants also move to m i k e cer-tain paragraphs of the amended co mplaint. For the rea-

sons that follow, the m otion to strike is granted in partand denied i n part. The Court also grants defendants'

motion to dismiss for failure to plead fraud claims withsuficient particulari@ under Rule 9(b), but will grant

plainliffs leav e to file a second amende d complaint to,cure these deficiencies.

BACKGROUND

On January 25 , 1999, plaintrfs qui tam relators Julie

Alsaker and Luanne Caton ("relators") filed this action

under seal pursuan t to the qui tam p rovisions of the FalseClaims 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 com-

plaint alleges that since at least 1992, defendants subm it-

ted claims for reimbursement of services provided byhome health aides where the aides were not trained and

certified in accord ance with the provisions of 42 C .F.R. $484.36(a)(l). Relators also allege that defendants sub-mitted false bills to Medicare for home health aid visits

that were not properly reimbursable either because theclaims included "padded" time records or the services

provided wer e custodial in nature and we re not related totreatment of the beneficiary's illness or injury. Complaint

at PP 18-23.

The government intervened on March 16 ,2 00 1, andshortly thereafter, the case was unsealed. The govern-ment served its amended complaint on defendants on

October 17, 2001, after United States Magistrate Judge

Raymond L. Erickson directed the government to do soor face a recommendation o f dismissal for failure to ef-



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2002 U.S. Dist. LEXIS 10180, *

fectuate proper service and for failure to prosecute. Oc-

tober I I, 200 1 Order at 3. ' The amended complaint al-

leges 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 follow-

ing:

a. claims were inflated by adding fif-

teen-minute increments of time so as to

increase the amount claimed and reim-

bursed 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 cus-

todial 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 Hospi-

tal to provide such services to Medicare

beneficiaries, and knows that those ser-

vices were billed to Medicare and/or

Medicaid.

Am. Complaint P 22. The government undertook an in-

vestigation 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 cal-

endar 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

1 The government did not file its amended com-

plaint 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 August2001, 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 neces-

sary; the service was not supported by a plan of care as

required by regulation; the beneficiary receiving the ser-

vice was not eligible to receive the service; the service

was not provided as claimed; and/or the service repre-

sented personal care attendance not reimbursable byMedicare. 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 rela-

tors' 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 well-

established that an amended complaint super-

sedes an original complaint and renders the origi-

nal complaint without legal effect." Atlas VanLines, Inc. v. Poplar Bluf Transfer Co., 209 F.3d

1064, 1067 (8th Cir. 2000); Kenney v. Mus-

greves, 2000 U.S. App. LEXIS 27901, Nos. 00-

2394, 00-2775, 00-2305, 00-2396, 2000 WL

1665077 at * 1 (8th Cir. Nov. 7, 2000). The gov-

ernment concedes as much in its response brief.

Gov't Response to Motion to Dismiss at 1-2.

completed a Comprehensive Medical Review of defen-

dants' home health claims submitted during January and[*7] 1.Motion to Strike

early February 2000. Upon such review, the fiscal inter- Defendants move to strike certain paragraphs from

mediary determined that approximately 42% of the the amended complaint pursuant to Rule 12f l of the

claims submitted to Medicare were not reimbursable for Federal Rules of Civil Procedure. Rule I2f l authorizes

a variety of reasons, including lack of medical necessity courts to strike "redundant, immaterial, impertinent or

and missing documentation. 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



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2002 U.S. Dist. LEXlS 10180, *

improperly describe confidential settlement discussionsin violation of Rule 408 of the Federal Rules of Evi-dence.

)8, evidence of conn compromise negotiations is inadmissible to

prove 1156ilitFFed. R. Evid. 408. Although this is a ruleL -of evidence, courts have routinely granted motions tostrike allegations in pleadings that fall within the scope

u s t ~ n . Cornell Univ., 89 1 b: SULI J V - J I ( IY.u. IV.Y.1995) (granting defendant's morlurl LU

strike paragraph of complaint that alludes to settlementnegotiations 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'smotion to strike portions of complaint that refer to set-tlement discussions under Rule 408 as immaterial andpotentially prejudicial); Braman v. WoodJield Gardens

Assocs. Realcorp Investors I, 715 F. Supp. 226, 23 0(N . D. Ill. 1989) (same). Upon review of the paragraphsin question, the Court agrees with defendants that theseparagraphs improperly discuss settlement negotiationsprohibited by Rule 408. Paragraph 28 of the amendedcomplaint provides, in relevant part, that "defendantswere contacted by the United States by letter, and invitedto engage in discussions relating to settlement of poten-tial claims." Paragraph 29 states that, "during that meet-ing, counsel for defendants conceded that significantissues existed concerning the reimbursability of claimsfiled by defendants for home health services." Paragraph34(e) states that "attorneys for defendants, during thediscussions described herein, admitted that the billingpractices of defendants for home health services weredeficient, and had been so at varying levels for a numberof years." Accordingly, the Court grants the motion tostrike these paragraphs. '

3 Defendants also object to paragraph 3 1 whichrecounts a status conference between the Magis-trate Judge and counsel. While the informationcontained in this paragraph does not directly ad-vance plaintiffs allegations of fraud, it does pro-vide context to the underlying action. The state-ment is thus not completely immaterial. TheCourt therefore denies this portion of defendant's

motion.

[*9] 11. Motion to Dismiss

Defendants argue that plaintiffs have not stated aclaim for fraud with sufficient particularity. Rule 9(b)requires that "in all averments of fraud, or mistake, thecircumstances constituting fraud or mistake shall bestated with particularity." Fed. R. Civ. P. 9(b). Th eEighth Circuit has interpreted the term "circumstances"

of fraud to include the "time place and contents of falserepresentations, as well as the identity of the person mak-ing the false representation, and what was obtained orgiven up thereby."' Commercial P rop. v . Quality Inns, 61

F.3d 639, 644 (8th Cir. 1995). Put another way, t h e

complaint must read like the opening paragraph of anewspaper article: it must contain the "w ho, what, when,where and how" of the alleged fraud. Bennett v. Berg685 F.2d 1053, 1062 (8th Cir. 1982), adhered to on re-h'g, 710 F.2d 1361 (8th Cir.)(en banc). One of the pri-mary purposes of the rule is to ensure that a defendantcan adequa tely respond and prepare a d efense to chargesof 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 arenot sufficient to satisfy the rule." Commercial. 61 F.3d at

64 4; Parnes v . Ga few ay 2000, ln c., 122 F.3d 539, 549

(8th Cir. 199 7).

Defendants maintain that the false claim allegationscontained in both complaints fail to specify the times ofoccurrence of the alleged fraudulent activity (the"when"), the specific identity of the fraudulent agents(the "who") and do not describe any specific circum-stances constituting fraud in specific cases. Such genericpleading, defendants argue, is clearly insuff~cient ascases 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) at21-23 (D. Minn. Mar. 3. 1997) (" MANA"),UnitedStares

ex re f .Clausen v . Laboratory Corp. of America, Inc., 198

F.R.D. 56 0 (N.D. G a . 2000), and United States ex rel.Co x v. Iowa Health Sys., 29 F. Supp. 2 d 1022, 1024-25(S .D. Iowa 1998), make clear.

The government argues that the particularity re-quirement should be relaxed because this case involves[ * 1 1 ] a "complex scheme of fraud over an extended pe-riod of time." ' MANA, Mar. 3 1997 Order at 22 ("Lessspecificity in the complaint can be permitted when thefraudulent activity involves numerous transactions or thefraud occurred over a long period of time."); Clausen.198 F.R.D. at 56 2 (noting that the specificity require-ments are applied less stringently where the fraud oc-curred over an extended period of time and consisted ofnumerous acts); United States ex rel. Johnson v. Shell Oil

Co. , 183 F.R.D. 204 (E.D. Tex. 1998). Under these cir-cumstances, the government maintains that its complaintsatisfies the notice pleading standard.

4 The government also suggests that a lesserpleading standard should apply because the in-formation is "uniquely within the control of thedefendants." Am. Complaint P 32. The C ourt dis-agrees. Julie A lsaker is a forme r employee and is



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2002 U.S. Dist. LEXlS 10180, *

alleged to have direct knowledge of the fraudu-lent activity and to have "witnessed" fraudulentconduct. Presumably, she would have more spe-cific information to offer than has been plead so

far. Additionally, the government has subpoena

power to obtain documents, and in fact, previ-ously exercised this power when it conducted the

first of two studies to assess the m erits of relators'complaint.

[* 121 Having reviewed the amended com plaint andthe relevant caselaw, the Court concludes that theamended com plaint fails to provide the sufficient level ofparticularity to satisfy Rule 9(b). The amended complaintsuffers from many of the same deficiencies identified incases mentioned above. For instance, the amended com-plaint pleads that "Relator Julie Alsaker was d irected by

agents of Defendant St. Cloud Hospital, acting withinthe scope of their agency, to 'pad' the time she spen t pro-

viding se rvices" and to provide "cu stodial services unre-lated to any need for skilled nursing services, whichmakes the claims non-reimbursable under Medicare."Am. Com plaint P 2 2(a), (b) (emphasis added). The com-plaint's generalized reference to "agents of defe ndant St.Cloud Hospital" is as deficient as was plaintiffs' refer-ence to "a Northrup engineer" in Robinson, or to "defen-dant anesthesio logists" in MANA. Remarkably, the gov-ernment suggests that this type of pleading is sufficientbecause defendan t St. Cloud Hospital was Alsaker's em-ployer and therefore knows with whom she had dailycontact. However, the burden rests with the government,not the defenda nts, to plead their fraud allegation s. [* 131The Court presumes, and counsel for plaintiff acknowl-edged at oral argument, that Alsaker can identify thespecific "agents" who directed her to "pad" her hours andto conduct non-reimbursable custodial services. Thesespecifics are not peculiarly within the control of the de-fendant and they should be disclosed in the complaint.

The Court recognizes that plaintiffs' allegations in-volve over 30,000 claims submitted by defendants overan approximately eight-year period. For this reason, alower standard of pleading the fraud allegations is ap-propriate. Nonetheless, a less stringent standard does notalleviate the plaintiffs' burden to allege any specifics ofthe fraud. As the district cour t in MANA explained:

The Court recognizes that plaintiffs al-lege a general practice of fraud that coversan extensive period o f time. Clearly plain-tiffs are not required to recite specifics forall 28,000 allegedly fraudulent transac-tions. Nevertheless, plaintiffs must pro-vide some representative examples of thefraud which detail the specifics of who,where and when. Plaintiffs complaint

does not once descr ibe a single instance ofthe fraudulent conduct that names a spe-

cific anesthesiologist [* 141 on an exac tdate at a particular hospital with reference

to either the procedure, patient or bill.

Failure to plead no specifics is insufficientto satisfy Rule 9(b), even given a lesserpleading standard for allegations of exten-sive fraud.

MANA, Mar. 3, 1997 Order at 23 (emphasis in original).The Court agrees with this statement and finds that thecomplaint must at least provide some representative ex-

amples of the alleged fraud. Counts I , I 1 and 111 of theamended complaint do not accomplish this and accord-ingly must be dismissed for failure to comply with Rule

9(b). The Court will, however, dismiss those counts ofthe amended complaint without prejudice and allow thegovernment an opportunity to file a second amendedcomplaint which complies with the requirements of Rule

9(b). This practice is consistent with the procedure fol-lowed by other courts under similar circumstances. Rob-

inson, 149 F.R .D. at 146 (dismissing plaintiffs' com-plaint without prejudice but granting plaintiffs leave toamend their complaint to bring it into compliance withRule 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 nowaddress defendants' arguments under Rule 12(b)(6) raisedin the latter part of defendants' reply brief. Defendantsmay renew their m otion under 12(b)(6) if plaintiffs file asecond amended complaint which satisfies the pleadingrequirements of Rule 9(b). However, the Court pauses toremind defendants of the deferential standard of reviewthat must be accorded plaintiffs on such a motion. TheCourt also notes that most of the cases relied on by de -fendants in support of this portion of their motion werebefore the court on motions for summary judgment, notmotions to dismiss. Se e 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.. 27 8F.3d 765 (Feb. 4, 2002) (appeal of order granting sum-

mary judgment); United States ex rel. Hopper v. Anton.91 F.3d 1261, 1263 (9th Cir. 1996) (appeal of districtcourt order granting summary judgment); United Statesv. Adler, 62 3 F.2d 1287 (8th Cir . 1980) (post-trial mo-tions).

5 In addition, the Eighth Circuit recently over-turned the district court's grant of summaryjudgment for the defendants. United States ex rel.Minnesota Assoc. of Nurse Anesthetists v. Allina



Page 5

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 de-

nied 2002 U.S. App. LEXlS 4870, (Mar. 25,

2002).

[*I61

6 At oral argument, the government raised ob-jection to the submission of exhibits by defen-

dants 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

Based on the foregoing, the submissions of the par-

ties, and all of the files, records, and proceedings herein,

IT IS HEREBY ORDERED that:

I. Defendants' motion to strike [Docket No 221 is

GRANTED in part and DENIED in part. The motion

is GRANT E D as to paragraphs 28-30 and 34(e) and they

are accordingly STRICKEN from the amended com-

plaint [Docket No. 191. Defendants' motion to strike is

DENIED in all other respects.

2. Defendants' motion to dismiss [Docket No. 221 is

GRANT E D and Counts I , I 1 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 Or-

der 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

at Minneapolis, Minnesota.

JOHN R. TUNHEIM

United States District Judge



Page 2

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

purpose when for a second time, and again with the ut-

most insolence and contempt, he caused Agnew to beinformed 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

comm ission and lacked the virility to [*4] do so. In sosaying, the defendant's attorney, Kidd, thereby reac-knowledged and reaffirmed the fact of the defendants'fraud and bribery.

8 1. In conjunction and conc urrently w ith Kidd's s aid

trip to New Yo rk in February 1986, and as further con-firmation and corroboration of Aydin's fraud and corrup-

tion, he caused one James Danaher, Esq. of Palo Alto,

California, a m ember of the C alifornia B ar to travel fromCalifornia to New York, there to foregather with him and

the plaintiffs and Woolverton's former attorney on thatsame occasion, ostensibly for the purpose making anoffer of settlement but as events proved, actually for the

corrupt, unlawful, indecent and unethical purpose ofthreatening Woolverton with criminal prosecution ifAgnew and he should institute suit. Danaher stated thathe was attorney for the defendants Schneidau and

Sherman, Aydin officials who had been employed inAydin'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 andAlicanto, and by obvious and flagrant pre-arrangementwith Danaher, with whom he had met and conferred pri-

vately immediately prior to their [ * 5 ] meeting with theplaintiffs and Woolverton's attorney, prompted and cued

Danaher to threaten Woolverton through his said attor-ney, by announcing that if the plaintiff were to start this

suit, Schneidau and Sherman would in return for grantsof 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 A licanto's "illegal payments to the A rgentine

general." Thereby Danaher, speaking on cue from Kidd,once more confirmed, acknowledged and arrested for asecond time for and on behalf of the defendant, Alicantoand Shaw their bribery and conuption in procuring thecontract, as well as their guilty knowledge of the crimi-nal and indictable nature and character of their immoraland unlawful acts in making such corrupt payments.

82. The February 1986 travel by Kidd and Danaherfrom Philadelphia and California respectively to New

York City, acting in concert and conspiracy with, for andon behalf of the defendants, Shaw and Alicanto was forthe purpose of transmitting a communication containinga threat to accuse Woolverton of a crime, with the intent

thereby to extort and [*6] deman d from him his lawfulclaims against Shaw and Alicanto, and their making suchtravel 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 firt her confirmation and corroboration of

the defendant's, Shaw's and Alicanto's fraud and corrup-tion, Aydin's attorney, Kidd, again and for a third time

traveled from Philadelp hia to New York in March 1986,

again purportedly for the purpose of making a new offerof settlement but in truth and actuality once more for thecriminal purpose of again threatening Woolverton withprosecution if this suit were brought. Danaher too, hadagain traveled to New York from California at Kidd's

behest, and had again met and conferred with him pri-vately 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 pres-ence of and with the acqu iescence of Danaher, threatenedthe plaintiffs former attorney and Woolverton in the fol-

lowing words, [*7] or in words to the same effect, "Ifyou bring this suit [meaning the present action] I willsend your father-in-law [meaning Woolverton] toprison." By reason of the said threat, Kidd and Danaher

again positively and conclusively confirmed, acknowl-

edged and unambiguously asserted for a third time, Ay-din's Schneidau's, Sherman's, Shaw's and Alicanto's brib-

ery and corruption in procuring the contract and theirguilty knowledge of the criminal and indictable nature

thereof.

84. Kidd's and Danaher's M arch 1986 travel fromPhiladelphia and California to New York was for thepurpose of transmitting a communication containing a

threat to accuse Woolverton of a crime and "send him toprison." 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, D anaher, Shaw and Ali-canto, and the defendant, indictable under 18 U.S.C. $3875 and 1952 and constituted "racketeering activity"under "RICO" 18 U.S.C. $1961 et. seq.

Discussion

The sole issue here is whether the statements re-ferred to in the [*8] above-enumerated paragraphs of the

complaint should be stricken pursuant to Federal Rule ofEvidence 408. Th e rule provides:

Evidence of ( I ) furnishing or offering or promisingto furnish, or (2) accepting or offering or promising toaccept, a valuable consideration in compromising or at-tempting to compromise a claim which was disputed asto either validity or amount, is not admissible to proveliability for or invalidity of the claim or its amount. Evi-dence 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 dis-coverable merely because it is presented in the course ofcompromise negotiations. his-rule also does not requireexclusion when the evidence is offered for another pur-

pose, such as proving bias or prejudice of a witness,negativing a contention of undue delay, or proving aneffort 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 egotiaticinhibited if the parties [*9] are aware their

Krilikos v.

TmerJo 8 ; , , Cir. 1987).

Th e Notes of the Advisory Committee explain thebroadened scope of Rule 408 over its common lawpredecessor:

Th e practical value of the common law rule has beengreatly diminished by its inapplicability to admissions offact, even though made in the course of compromise ne-gotiations, unless hypothetical, stated to be withoutprejudice, or so connected with the offer as to be insepa-rable from it. . . . An inevitable effect is to inhibit free-dom of communication with respect to compromise even

among lawyers. Another effect is the generation of con-troversy over whether a given statement falls within orwithout the protected area. These considerations accountfor the exuansion of the rule herewith to include evidence

of conducl or statements made in compromise negotia-

tions. (emphasis added).

\is p 1open discu ssion by ea,calls tb r ( tnPontlatlrrr . spe,. . ..- & Escrow, Inc. v . Jt.,- ,,=.

Inc.. 677 F.Supp. 1477, 1485 (D.Or. 1987); 2 Weinstein'sEvidence para. 408[03 * 10--

lear that the statements referred to in par

[grapls 76-77 and 80-84 are evidence used for the p

M e 408, is whether the statemerA-

4ose of showing liability of the defendant. Thus, the on '~determinatioKTineedmake, cons~dering he broad sc o

. . .'ement negc ' ionp Ylalntltts contend

tha. ,. ..., ....., ...e statement:, ...question were made by

defendant's attorneys the settlement conference should bedeemed terminated. I disagree. Plaintiffs are, in effect,requesting that 1 determine the instant in time when the

meetings among these opposing attorneys were trans-

formed from settlement discussions into post-discussionangry exchanges. Such a distinction is nearly impossibleto make. Angry statements may be negotiation ploys or

natural human responses to prolonged or failing negotia-

tions. In Aspen Title & Escrow. Inc. v. Jeld-Wen, Inc.,the United States District Court for Oregon was facedwith facts similar to the instant case. One party had madea threat during what the opposing party claimed weresettlement negotiations. Evidence of this "threat" wasruled inadmissible. The Court stated:

Even if a clear breaking point [demarking the, [ * I I ]end of negotiations] always existed, the courts may notbe competent to make such a determination. The samepolicy considerations which establish the need for Rule

408 to cover all statements, establish the need to havesettlement conferences in their entirety covered .

677 F.Sur- -* '485.

. ,..ornc,, ,..,wing that com promiseuntlntln

being pursued. Plaintiffs' response tc 1s motion-. m s hat the meetings in question were scheduledin tne spirit of negotiation. If the court determines if andwhen the character of these meetings changed, a chillingeffect on the openness of discussions at h t ure compro-mise meetings might result. In turn, the court's actionwould undermine the policy behind Rule 408. Th e mo-tion to strike the relevant portions of plaintiffs' complaintwill be granted.

ORDER - September 6 , 1988, Filed

AN D NOW, this 3 1s t da y of August, 1988, in con-sideration of defendant's motion to strike paragraph 7 6 -77 and 80-84 of the amended co n and plaintiffs

- mAN D IT IS SO ORDERED.

exibit b to srcsb motion to strike two paragraphs in complaint

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