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________________________________________________________________________

2013-5101

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

________________________________________________________________________

NICHOLE MEDICAL EQUIPMENT & SUPPLY, INC. and DOMINIC ROTELLA

________________________________________________________________________

APPEAL FROM THE UNITED STATES COURT OF FEDERAL CLAIMS

________________________________________________________________________

NO. 12-cv-00364

ERIC C. BRUGGINK, JUDGE

APPELLANTS’ OPENING BRIEF









Plaintiffs-Appellants

THE UNITED STATES

Defendant-Appellee


v.


















DAVID M. HOLLAR
Villari Brandes & Giannone, PC
8 Tower Bridge, Suite 400
161 Washington Street
Conshohocken, PA 19428
(610) 729-2900
[email protected]

Attorneys for Plaintiffs-Appellants

July 29, 2013

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Form 9

FORM 9. Certificate of Interest

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

Nichole Medical Equipment

v. US

-------------------------

No. 2013-5101

CERTIFICATE OF INTEREST

Counsel for the (petitioner) (appeHant) (respendent}-(appeHee}"famieus-)-fname"'0fparty)
_D_av_i_d_M_._H_o_I_la_r _________ certifies the following (use "None" if applicable; use extra sheets
if necessary):
1.
Nichole Medical Equipment and Supply, Inc. and Dominic Rotella

The full name of every party or amicus represented by me is:

The name of the real party in interest (if the party named in the caption is not the real

2.
party in interest) represented by me is:
Nichole Medical Equipment and Supply, Inc. and Dominic Rotella

All parent corporations and any publicly held companies that own 10 percent or more

3.
of the stock of the party or amicus curiae represented by me are:
None

4. [2] The names of all law firms and the partners or associates that appeared for the party
or amicus now represented by me in the trial court or agency or are expected to appear in this
court are:
Villari Brandes & Giannone, PC

~J,J~

Signature of counsel

David M. Hollar

Printed name of counsel

Please Note: All questions must be answered
cc: James R. Sweet, Esq.

124

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TABLE OF CONTENTS





STATEMENT OF RELATED CASES ..............................................................................1
JURISDICTIONAL STATEMENT ....................................................................................1
STATEMENT OF THE ISSUES.........................................................................................1
STATEMENT OF THE CASE ............................................................................................1
STATEMENT OF THE FACTS .........................................................................................2
The Trial Court’s Statement of Facts.......................................................................3
The Integrity Agreement .......................................................................................14
SUMMARY OF THE ARGUMENT ................................................................................14
ARGUMENT .....................................................................................................................15
STANDARD OF REVIEW ...........................................................................................15
THE TRIAL COURT ANALYZED ONLY ONE-HALF OF THE PARTIES’ AGREEMENT ...16
PLAINTIFFS HAVE NO ADMINISTRATIVE OR TORT LAW REMEDY ...........................18
CONCLUSION ..................................................................................................................19



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TABLE OF AUTHORITIES


Cases
Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 173 L. Ed. 2d 868
(2009)

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L.
Ed. 2d 929 (2007)

Gould, Inc. v. United States, 935 F.2d 1271 (Fed. Cir. 1991).

Nichole Med. Equip. & Supply, Inc. v. TriCenturion, Inc., 694 F.3d 340
(3d Cir. 2012)

Nichole Medical Equipment & Supply, Inc. v. United States, 109 Fed.Cl.
328 (2013)

Sioux Honey Assn v. Hartford Fire Ins. Co., 672 F.3d 1041 (Fed. Cir.
2012)

United States v. Ford Motor Co., 497 F.3d 1331 (Fed. Cir. 2007)

United States v. Isiwele, 635 F.3d 196 (5th Cir. 2011)


Statutes
28 U.S.C. §1295

42 U.S.C. § 1395ddd (2006)

42 U.S.C. 1395kk-1 (2006)

42 U.S.C. § 1395m (2006)


Regulations
42 C.F.R. § 405.370 (2012)

42 C.F.R. § 405.371

42 C.F.R. § 405.841 (2007)

42 C.F.R. § 405.842(a) (2007)









15

15

15

4, 19

2, 16, 18

15

15

3

1

3

4

3

3

3

11

10

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Court Rules
Fed. R. Civ. P. 8




15

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A.



STATEMENT OF RELATED CASES

No other appeal in or from the same civil action or proceeding in the

lower court was previously before this or any other appellate court.

B.

JURISDICTIONAL STATEMENT

This is an appeal from a final decision of the United States Court of

Federal Claims. Jurisdiction is conferred upon this Court by 28 U.S.C.

§1295(a)(3).

C.

STATEMENT OF THE ISSUES

Accepting all well-pleaded facts as true and viewing them in the light

most favorable to the nonmoving party, where the Government’s immunized

Medicare intermediary contractors clearly violated Medicare regulations,

and Plaintiffs-Appellant details these violations as breach of a

comprehensive integrated agreement regarding the parties’ Medicare

transactions, does the Complaint contain sufficient factual matter to state a

claim to relief?

D.

STATEMENT OF THE CASE

Pursuant to the terms of the parties’ agreement which mandated that

“the exclusive jurisdiction and venue for any dispute arising between and

among the Parties… will be heard in the United States District Court for the



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Eastern District of Pennsylvania….,” Appx. at p. 49, Plaintiffs, Nichole

Medical Equipment and Supply, Inc.’s (“Nichole Medical”) and Dominic

Rotella (“Rotella”) filed their Complaint February 28, 2011.

In contradiction of the parties’ agreement, the Defendant United

States (“Government”) sought dismissal on the grounds that the dispute

should not be heard in the Eastern District of Pennsylvania. The District

Court agreed, and by Order dated March 28, 2012 this action was transferred

to the Court of Federal Claims.1

Plaintiffs’ Complaint was filed in the Court of Federal Claim on

August 9, 2012.

The Government’s Motion to Dismiss was filed October 9, 2012.

The Government’s Motion to Dismiss was granted on February 25,

2013, and Plaintiffs’ Complaint was dismissed.2

This appeal followed.

E.

STATEMENT OF THE FACTS



In large measure, Appellants accept the statement of facts set forth in

the “BACKGROUND” section of the trial court’s opinion, as reproduced

entirety below, 109 Fed.Cl. 328, 329-333.


1 2012 U.S. Dist. LEXIS 42751.

2 Reported at 109 Fed. Cl. 328.



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1. The Trial Court’s Statement of Facts

Nichole Medical was a durable medical equipment supplier under the

Medicare Act3 until it ceased operations in October 2007. After receiving a

"tip from a disgruntled former employee," Compl. ¶ 10 [Appx. at p. 19], the

Federal Bureau of Investigation searched Nichole Medical's records in 1998

and February 2000, which culminated in a grand jury proceeding in July

2000. The grand jury did not return an indictment, but further investigations

would follow.

In 2002, a program safeguard contractor ("PSC")4 for the Centers for

Medicaid & Medicare Services ("CMS") conducted a search of Nichole

Medical's Medicare records. Plaintiffs state that the PSC, TriCenturion,


3 Medicare reimburses a supplier after it provides equipment to one or more
beneficiaries. See generally 42 U.S.C. § 1395m(a) (2006) (providing for
payment on durable medical equipment); 42 C.F.R. § 414.210 (2012)
(stating payment rules). In order to be reimbursed, the supplier sends a
certificate of medical necessity to a Medicare contractor. See United States
v. Isiwele, 635 F.3d 196, 198 (5th Cir. 2011).

4 A PSC is one of several entities that contract with the government under
the Medicare Integrity Program. See 42 U.S.C. § 1395ddd(a) (2006)
(describing the program); 42 C.F.R. § 405.370 (2012) (listing program
safeguard contractors as a type of medicare contractor). Program activities
include reviewing the reimbursement claims of Medicare suppliers. See 42
U.S.C. § 1395ddd(b) (listing the activities); 42 C.F.R. § 405.371 (stating
enforcement powers of medicare contractors).




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made an "unannounced, unauthorized and illegal search and seizure of

Nichole Medical's Medicare records on or about May 20, 2002." Compl. ¶

24 [Appx. at p. 22]. TriCenturion submitted information to the Department

of Justice ("DOJ") for a possible fraud claim, which DOJ declined to pursue.

Under TriCenturion's powers as a PSC, however, it could find that the

contractor payment intermediary5 had overpaid Nichole Medical for

reimbursement claims. On June 29, 2004, TriCenturion sent Nichole

Medical a notice of overpayment. The notice alleged that 39 of Nichole

Medical's past claims for reimbursement did not meet program requirements.

These claims included payment for the supply of 19 motorized wheelchairs

and 20 electric hospital beds. Compl. Ex. C at 6 [Appx. at p. 74]. In order to

account for the alleged overpayments, TriCenturion directed the contractor

payment intermediary, Healthnow, to impose an offset against future

reimbursements owed to Nichole Medical. In September 2004, Healthnow

imposed the offset but immediately stayed it.


5 Under the 2003 amendments to Medicare, the general term for a payment
intermediary
is a "medicare administrative contractor." Medicare
Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L.
No. 108-173, § 911(a)(1), 117 Stat. 2066 (2003) (codified at 42 U.S.C.
1395kk-1 (2006)); see also Nichole Med. Equip. & Supply, Inc. v.
TriCenturion, Inc., 694 F.3d 340, 342 & n.3 (3d Cir. 2012).




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A year before the wheelchair/bed offset was stayed, the United States

and the Commonwealth of Pennsylvania filed a civil action on March 3,

2003, regarding other reimbursement claims in the U.S. District Court for

the Eastern District of Pennsylvania against Nichole Medical, Mr. Rotella,

and other persons. Compl. Ex. A at 2 [Appx. at p. 32]. That complaint,

according to plaintiffs here, "focused exclusively on Nichole Medical's

billing for incontinence supplies" and alleged violations of the False Claims

Act and other statutes. Compl. ¶ 12 [Appx. at p. 19]. This civil action was

resolved when the parties signed the settlement agreement at issue in this

case, which was effective on January 27, 2006. By this time the

wheelchair/bed offset had been stayed since September 2004. Plaintiffs

allege that, "Rotella, as President of Nichole Medical, understood [his]

problems with CMS, Medicare and Medicaid had been brought to an end."

Compl. ¶ 20 [Appx. at p. 21].

The settlement agreement (hereinafter "SA") is attached to the

complaint as Exhibit A. The SA has three sections, entitled "Parties,"

"Preamble," and "Terms and Conditions." The Parties section lists as

participants the United States, acting through DOJ and the Office of

Inspector General of the Department of Health and Human Services ("OIG-



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HHS"), the Commonwealth of Pennsylvania, and plaintiffs here, along with

two other persons who were defendants in the district court action.

The Preamble explains Nichole Medical's billing history, stating that

the company supplied durable medical equipment for personal care homes in

Pennsylvania, beginning in June 1986. Paragraph 3 states in detail the

allegations made by the United States and Pennsylvania in the civil action:

In the Complaint the United States and the Commonwealth
contended that defendants Nichole Medical's, Rotella's, Tresca's,
and Oliveras' submission of certain Medicare and Medicaid
claims for incontinence supplies during the period from January
1996 to February 2000 rendered those defendants liable: (i) under
the civil False Claims Act; and/or (ii) the common law theories of
fraud, unjust enrichment/restitution, and breach of contract. This
conduct, relating to Medicaid and Medicare claims between 1996
and 2000 as described in the Complaint, will be referred to
collectively as the "Covered Conduct."


SA § II.3 [Appx. at p. 32]. In addition, the Preamble states in Paragraph 4

that "[t]he United States contends also that it has certain administrative

claims against Nichole Medical, Tresca, and Rotella for engaging in the

Covered Conduct." SA § II.4 [Appx. at p. 32].



The United States' waiver of claims, in Paragraph 5 of Section III, is

specifically limited to the "Covered Conduct":

Subject to the exceptions in Paragraph 9 below . . . the
United States (on behalf of itself, its officers, agents, agencies,
and departments) agrees to release Nichole Medical, Rotella,



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Tresca, and/or Oliveras as appropriate from any civil or
administrative monetary claim the United States has or may have
under the False Claims Act; the Civil Monetary Penalties Law;
the Program Fraud Civil Remedies Act; or the common law
theories of unjust enrichment/restitution, breach of contract and
fraud, for the Covered Conduct.


SA § III.5 [Appx. at p. 36] (emphasis added) (citations omitted). In

Paragraph 14, plaintiffs waive claims that they may have against the United

States, "related to the Covered Conduct and the United States' . . .

investigation and prosecution thereof." SA § III.14 [Appx. at p. 41].

In Paragraph 7, the United States waives administrative action, by

agreeing that it will not rely on the Covered Conduct in order to exclude

Nichole Medical from healthcare programs:

OIG-HHS agrees to release and refrain from instituting,

directing or maintaining any administrative action seeking
exclusion from the Medicare, Medicaid, or other Federal health
care programs (as defined in 42 U.S.C. § 1320a-7b(f)) against
Nichole Medical or Rotella under 42 U.S.C. § 1320a-7a (Civil
Monetary Penalties Law) or 42 U.S.C. § 1320a-7(b)(7)
(permissive exclusion for fraud, kickbacks, and other prohibited
activities), for the Covered Conduct, except as reserved in
Paragraph 9, below, and as reserved in this Paragraph.



SA § III.7 [Appx. at p. 38]. The provision concluded that, "Nothing in this

Paragraph precludes the OIG-HHS from taking action against entities or

persons, or for conduct and practices, for which claims have been reserved

in Paragraph[s] 8 and 9, below." Id.



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Paragraph 9, referred to in Paragraphs 5 and 7 above, specifically

reserves from the government's waiver everything other than the Covered

Conduct (the billing for incontinence supplies between 1996 and 2000):

Notwithstanding any term of this Agreement, specifically

reserved and excluded from the scope and terms of this
Agreement as to any entity or person (including Nichole Medical,
Rotella, Tresca, and Oliveras) are the following:

. . . .
d. Any liability to the United States or the Commonwealth

(or their agencies) for any conduct other than the Covered
Conduct . . . .


SA § III.9(d) [Appx. at p. 39].

In exchange for waiver by the United States and Pennsylvania of

claims arising out of the Covered Conduct, plaintiffs agreed to pay the

United States $750,000. SA § III.1 [Appx. at p. 33]. This consisted of an

initial payment of $150,000, followed by monthly payments. Section III,

Paragraph 21 [Appx. at pp. 46-47] states that Nichole Medical will be in

default if it fails to make payment within five days of the due date.

Upon plaintiffs' failure to cure a default in payment, the United States

has specific rights. The government may "offset the remaining unpaid

balance from any amounts due and owing to defendant [Nichole Medical] by

any department, agency, or agent of the United States or Commonwealth at

the time of the Default." SA § III.21 [Appx. at p. 47]. Nichole Medical and



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Mr. Rotella agree that they will not "contest any offset imposed . . . either

administratively or in any state or federal court." Id.

The SA went into effect on January 27, 2006. Nichole Medical made

the initial payment of $150,000 and made two monthly payments of

$11,322.74, leaving a balance of $577,354.52. It is uncontested that the

government received no further payments.

Plaintiffs allege that they are not liable because TriCenturion and a

government contractor payment intermediary, National Heritage Insurance

Company ("NHIC"), breached the SA by reactivating the wheelchair/bed

action. In July 2006, NHIC replaced Healthnow as the intermediary for

Nichole Medical's supply region. As explained above, Healthnow had

imposed but then stayed an offset in September 2004, against payments

owed to Nichole Medical. TriCenturion alleged the offset accounted for

overpayments on claims for motorized wheelchairs and electric hospital

beds. NHIC re-instituted that offset when it became the carrier, thereby

intercepting payments which plaintiffs otherwise would have received as

reimbursement for supplies unrelated to either the Covered Conduct or the

wheelchair/bed claims. Plaintiffs allege that reimposition of the

wheelchair/bed offset caused plaintiffs to be unable to pay the SA balance,



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leading to its cessation of operations in January 2007. See Compl. ¶ 35

[Appx. at p. 23].

Plaintiffs disputed the wheelchair/bed offset in the Office of Medicare

Hearings and Appeals. On February 12, 2007, an administrative law judge

("ALJ") issued an opinion. He explained that TriCenturion deemed 39

Medicare claims to be overpayments. See Compl. Ex. C at 6 [Appx. at p.

74]. According to the ALJ, TriCenturion treated these 39 claims as a sample

on which it based an additional offset against Nichole Medical beyond just

those 39 items. The claims were "part of [a] statistical formula involving 467

claims which resulted in an extrapolated overpayment of $485,374.54." Id.

at 7 [Appx. at p. 75].

The ALJ addressed each of the 39 sample claims to determine

whether Medicare was properly charged. He concluded that 17 of the claims

met the requirements for reimbursement and were not overpayments. See id.

at 6 [Appx. at p. 74]. Moreover, the larger offset inferred from the sample

was invalid, according to the ALJ, because of procedural errors committed

by TriCenturion and NHIC in taking the sample and applying the results. See

id. at 26-27 [Appx. at pp. 94-95]. Then-current Medicare regulations

required that Nichole Medical receive written notice if its past claims for

reimbursement were to be reopened. 42 C.F.R. § 405.842(a) (2007). Nichole



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Medical did not receive such a notice. Id. at 22 [Appx. at p. 90]. The ALJ

further held that, according to redetermination rules, 42 C.F.R. § 405.841

(2007),6 most of the 39 sample items could not be reopened by CMS. Id. at

24-25 [Appx. at pp. 92-93]. This lack of compliance with regulations and

failure to explain the methodology for the extrapolation caused the ALJ to

throw out the larger offset.

On April 12, 2007, the Medicare Appeals Council ("Council") notified

Nichole Medical that it would, "on its own motion," conduct a review of the

ALJ's decision. Compl. Ex. B at 1 [Appx. at p. 57]. On January 31, 2008, the

Council also found that TriCenturion and NHIC failed to comply with

Medicare regulations. Id. at 7 [Appx. at p. 63]. According to the Council,

however, the ALJ should not have analyzed each of the 39 claims for

coverage. He should have instead deemed all items incapable of reopening

by Medicare. See id. at 6-7 [Appx. at pp. 62-63] (citing 42 C.F.R. § 405.841

(2007)). The result was the entire July 2006 offset was improper and that

Nichole Medical should be reimbursed, not just for 17 of the 39 claims, but

all claims. Plaintiffs allege here that "approximately $101,201.44 should


6 An initial payment decision may be reopened "[w]ithin 12 months from the
date of the notice" of that payment decision, or if good cause is shown, after
those 12 months "but within 4 years" of the decision. 42 C.F.R. §
405.841(a)-(b) (2007). When evidence of fraud exists, the contractor may
reopen a claim for review at any time. 42 C.F.R. § 405.841(c).



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have been paid to Nichole Medical" in order to reverse the effects of that

July 2006 offset. Compl. ¶ 41 [Appx. at p. 24].

Plaintiffs, nonetheless, were still in apparent default on the SA. On

April 1, 2009, the United States made a motion to enforce the agreement in

the U.S. District Court for the Eastern District of Pennsylvania. The United

States made this motion in the original civil action, then-closed, which had

led to the SA. The government intended to declare the $101,201.44 pending

from CMS as applied against the balance still owed by plaintiffs. The district

court denied the motion on March 8, 2010, stating that "the proper vehicle

for the relief that the Government seeks is a new action to enforce the

agreement, not a motion in this case." United States of America v. Rotella,

No. 04-946, at 3 (E.D. Pa. filed Mar. 10, 2010) (unpublished order).

Instead of seeking a new action to enforce the SA, the United States

acted on the default provision without a court order. DOJ and CMS thus

directed the payment intermediary not to reimburse the $101,201.44 to

Nichole Medical.

On August 9, 2012, plaintiffs filed their complaint here,7 alleging that

the United States breached the SA through the actions of intermediaries in


7 Sometime after the Council's decision, plaintiffs filed tort claims against
TriCenturion and NHIC in the U.S. District Court for the Eastern District of
Pennsylvania. See Nicole Med. Equip. & Supply, Inc. v. TriCenturion, Inc.,



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rejecting the wheelchair/bed claims.8 Plaintiffs request that we void the SA,

require the United States to return all SA payments made by plaintiffs, and

direct CMS to proceed with a $101,201.44 reimbursement for Medicare

claims.

Defendant filed a motion to dismiss under 12(b)(6) of the Rules of the

Court of Federal Claims for failure to state a claim upon which relief may be

granted. It contends that the SA does not contain the warranty that was

allegedly breached and that plaintiffs seek to impose duties upon the

government that do not exist.






No. 10-389, 2011 U.S. Dist. LEXIS 33032, 2011 WL 1162052 (E.D. Pa.
Mar. 28, 2011) affirmed by 694 F.3d 340 (3d Cir. 2012). The court held that
it lacked subject matter jurisdiction because Nichole Medical's claims fell
under the jurisdictional bar of 42 U.S.C. § 405(h) (2006). 2011 U.S. Dist.
LEXIS 33032, [WL] at *5. It held, alternatively, that TriCenturion and NHIC
are government contractors with immunity for the alleged misconduct. 2011
U.S. Dist. LEXIS 33032, [WL] at *6-7.




8 Plaintiffs initially filed this case in the U.S. District Court for the Eastern
District of Pennsylvania. On March 28, 2012, that court held that the case
had to be transferred here because plaintiffs allege a breach of contract by
the United States and request damages of more than $10,000. Nichole Med.
Equip. & Supply, Inc. v. United States, No. 11-1107, 2012 U.S. Dist. LEXIS
42751, 2012 WL 1033525, at *3-4 (E.D. Pa. Mar. 28, 2012).




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2. The Integrity Agreement

The trial court’s opinion does not reference the parties’

contemporaneously-executed Integrity Agreement. Appx. at pp. 133-168.

Generally speaking, the Integrity Agreement required additional

training and procedural safeguards to promote strict compliance with

Medicare regulations and procedures.

The SA and the Integrity Agreement reference one another. Appx. at

pp. 33-34, 133. The SA incorporates the Integrity Agreement by reference

and is conditioned upon is execution. Id.

F.

SUMMARY OF THE ARGUMENT

The Settlement Agreement (“SA”) between the Plaintiffs-Appellants

and the United States includes terms relating to the resolution of allegations

relating to past transactions, and incorporates by reference an Integrity

Agreement which relates to all future transactions. When viewed in their

entirety, Plaintiffs-Appellants could have plausibly understood it had

resolved all prior payment actions and both parties were agreeing to stricter

regulatory compliance with regard to future transactions.

Applying the appropriate standard of review, the Complaint contains

sufficient factual matter which, if accepted as true, states a plausible claim

for relief.



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G. ARGUMENT

1. STANDARD OF REVIEW

This Court applies a de novo standard of review to a trial court’s

dismissal for failure to state a claim upon which relief can be granted. Sioux

Honey Assn v. Hartford Fire Ins. Co., 672 F.3d 1041, 1049 (Fed. Cir. 2012),

Gould, Inc. v. United States, 935 F.2d 1271, 1273 (Fed. Cir. 1991).

A pleading must contain a "short and plain statement of the claim

showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 8

does not require "detailed factual allegations," but does require more than a

"naked assertion" such that the complaint will "contain sufficient factual

matter, accepted as true, to 'state a claim to relief that is plausible on its

face.'" See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed.

2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570,

127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

In reviewing a motion to dismiss based on the pleadings, this court

must accept all well-pleaded facts as true and view them in the light most

favorable to the nonmoving party." United States v. Ford Motor Co., 497

F.3d 1331, 1336 (Fed. Cir. 2007). "Threadbare recitals of the elements of a

cause of action, supported by mere conclusory statements, do not suffice."

Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555).



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2. THE TRIAL COURT ANALYZED ONLY ONE-HALF OF THE PARTIES’

AGREEMENT


The Complaint alleges specific facts regarding the creation of the SA:

The Settlement Agreement that was ultimately reached, among other
things, allowed Nichole Medical to continue its on-going business,
including business with Medicare and Medicaid, provided:

a.

Nichole Medical and Rotella would make one substantial and
thereafter equal monthly installments to payoff the Settlement
Amount over a period of five (5) years, Settlement Agreement at
p. 3, Sec. III, ¶1 a true and correct copy of which is attached at
Exhibit A; and

Nichole Medical, Rotella and co-defendant William Tresca
would enter into an Integrity Agreement with the Office of the
Inspector General (“OIG”) and the Department of Health &
Human Services (“HHS”).

b.



Appx. at pp.20-21.



Even though the then-pending wheelchair/bed action is not identified

or referenced in the SA, the trial court nevertheless found that the SA

resolved only the pending actions relating to incontinence products:

The Covered Conduct, in short, relates only to plaintiffs'
submission of allegedly false claims with respect to
incontinence supplies between 1996 and 2000. It does not relate
to other reimbursement claims, for example, claims related to
the stayed offset, which concerned reimbursement for
wheelchairs and hospital beds. This opinion will hereinafter
refer to that offset, and all actions taken pursuant to it, as the
"wheelchair/bed action."


109 Fed. Cl. 331.



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The SA was conditioned upon execution of Integrity Agreement

which was “attached hereto as Exhibit A, and incorporated by into this

Agreement by reference.” Appx. at pp. 33-34. Similarly, the Integrity

Agreement specifically states “this Agreement is incorporated by reference

into the Settlement Agreement.” Appx. at p. 133. The SA and the Integrity

Agreement constitute a comprehensive, integrated agreement. Thus, with

the SA resolving allegations relating to past conduct and the Integrity

Agreement addressing all future Medicare and Medicaid business activities,

it should be plausible that “Rotella, as President of Nichole Medical,

understood its problems with CMS, Medicare and Medicaid had been

brought to an end.” Appx. at p. 21.



The Integrity Agreement focuses exclusively on future actions and the

promotion of a “commitment to comply with all Federal health care program

requirements,” Appx. at p. 135 and “full compliance,” id. at p. 136. The

Government’s defense in this matter has maintained that while strict

compliance was demanded and expected of Plaintiff, no similar level of

compliance can or should plausibly be expected from the Government and

its contractors.



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The trial court’s opinion does not address the Integrity Agreement, its

incorporation into SA, or the reasonable and plausible expectations that

could have resulted from such an integrated and comprehensive agreement.



The Government’s contractor’s violations of the regulations have been

finally adjudicated and are undeniable. If it is plausible that under the

circumstances the Plaintiffs understood that the Government too was

likewise agreeing to follow its own regulations, then their Complaint meets

the minimum requirements of Twombly.



Whether or not Plaintiffs can provide sufficient proof is a matter to be

determined after presentation of all the evidence at trial.

3. PLAINTIFFS HAVE NO ADMINISTRATIVE OR TORT LAW REMEDY



While it has occurred in past and will no doubt occur again in the

future, it always strikes at the heart of justice where those who violate the

law are rewarded, and the victims of those violations are provided no

remedy. The trial court’s opinion appears to suggest that other remedies are

available to Plaintiffs to remedy the misconduct of the Government

contractors. In this regard, the trial court would be incorrect.



The trial court notes that “Medicare intermediaries must comply with

the law,” and concludes that “[t]he remedy when they do not is an

administrative challenge.” 109 Fed. Cl. at 334. While the trial court is



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correct insofar as the only issue is payment of benefits, the damage caused

by the contractors’ violation was far more extensive and permanent. The

Medicare intermediaries not only caused payment to be wrongfully withheld

by their improper conduct, they caused Plaintiffs to become ineligible for

any state or federal health care reimbursement program, see Appx. at p. 35,

by rendering Plaintiffs incapable of meeting their financial obligations under

the SA. For this, there is no administrative remedy.



The trial court also notes that “[i]f the Medicare intermediaries

intentionally failed to comply with the law… that conduct would not be a

breach of contract but a tort…” 109 Fed. Cl. at 334. Again, the trial court is

correct, however CMS, the Department of Justice and the federal courts have

extended “official immunity” to the contractors to cover these, and

presumably any other, violations. Nicole Med. Equip. & Supply, Inc. v.

TriCenturion, Inc., 694 F.3d 340 (3d Cir. 2012).

H. CONCLUSION



Appellants request that the decision of the Court of Federal Claims be

reversed and this matter remanded for further proceedings.







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Respectfully Submitted,
VILLARI BRANDES & GIANONNE, P.C.

s/ David Hollar
David M. Hollar
8 Tower Bridge, Suite 400
161 Washington Street
Conshohocken, PA 19428
(610) 729-2900
Fax (610) 729-2910
Attorneys for Appellants Nichole Medical
Equipment & Supply, Inc. and Dominic
Rotella

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In the United States Court of Federal Claims

No. 12-364 C

NICHOLE MEDICAL EQUIPMENT
& SUPPLY, INC. and DOMINIC
ROTELLA

v.

THE UNITED STATES

JUDGMENT

Pursuant to the court’s Opinion, filed February 25, 2013, granting defendant’s motion to

dismiss,

IT IS ORDERED AND ADJUDGED this date, pursuant to Rule 58, that the complaint is

dismissed, with prejudice. No costs.

Hazel C. Keahey
Clerk of Court

February 25, 2013

By:

s/ Debra L. Samler

Deputy Clerk

NOTE: As to appeal, 60 days from this date, see RCFC 58.1, re number of copies and listing of
all plaintiffs. Filing fee is $455.00.

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In the United States Court of Federal Claims

No. 12-364C

(Filed: February 25, 2013)

* * * * * * * * * * * * * * * * * * * * * *
NICHOLE MEDICAL EQUIPMENT &
SUPPLY, INC. and DOMINIC ROTELLA,

Plaintiffs,

v.

THE UNITED STATES,

* * * * * * * * * * * * * * * * * * * * * *

Defendant.

M e d ic a r e
e q u ip m e n t
s u p p l i e r ;
s e t t l e m e n t
agreem ent; w arranty;
covenant of good faith and
fair dealing; motion
to
dismiss.

David M. Hollar, Conshohocken, PA, for plaintiffs.

Jeremiah M. Luongo, United States Department of Justice, Commercial
Litigation Branch, Washington, DC, with whom was Stuart F. Delery,
Assistant Attorney General, Jeanne E. Davidson, Director, and Steven J.
Gillingham, Assistant Director, for defendant.

OPINION

BRUGGINK, Judge.

On January 27, 2006, Nichole Medical Equipment & Supply, Inc.
(“Nichole Medical”) and its owner Mr. Dominic Rotella (collectively,
“plaintiffs”) entered into a settlement agreement with the United States and the
Commonwealth of Pennsylvania. Plaintiffs agreed to pay the United States
$750,000 to resolve allegations that they were liable for violations of the False
Claims Act, fraud, and unjust enrichment, all arising out of asserted improper
Medicare and Medicaid reimbursement claims. Plaintiffs now contend that the
United States breached that agreement. Pending is defendant’s motion to

1

See 31 U.S.C. §§ 3729-3733 (2006) amended by Fraud Enforcement and
1
Recovery Act of 2009, Pub. L. No. 111-21, § 4, 123 Stat. 1617, 1621 (2009).

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dismiss for failure to state a claim upon which relief may be granted. We held
oral argument on January 3, 2013. The matter is fully briefed. For the reasons
set forth below, we grant the government’s motion.

BACKGROUND2

3

Nichole Medical was a durable medical equipment supplier under the
Medicare Act until it ceased operations in October 2007. After receiving a
“tip from a disgruntled former employee,” Compl. ¶ 10, the Federal Bureau of
Investigation searched Nichole Medical’s records in 1998 and February 2000,
which culminated in a grand jury proceeding in July 2000. The grand jury did
not return an indictment, but further investigations would follow.

4

In 2002, a program safeguard contractor (“PSC”) for the Centers for
Medicaid & Medicare Services (“CMS”) conducted a search of Nichole
Medical’s Medicare records. Plaintiffs state that the PSC, TriCenturion, made
an “unannounced, unauthorized and illegal search and seizure of Nichole
Medical’s Medicare records on or about May 20, 2002.” Compl. ¶ 24.
TriCenturion submitted information to the Department of Justice (“DOJ”) for
a possible fraud claim, which DOJ declined to pursue. Under TriCenturion’s
powers as a PSC, however, it could find that the contractor payment

Unless otherwise noted, the facts are drawn from the complaint and are
2
presumed to be correct.

Medicare reimburses a supplier after it provides equipment to one or more
3
beneficiaries. See generally 42 U.S.C. § 1395m(a) (2006) (providing for
payment on durable medical equipment); 42 C.F.R. § 414.210 (2012) (stating
payment rules). In order to be reimbursed, the supplier sends a certificate of
medical necessity to a Medicare contractor. See United States v. Isiwele, 635
F.3d 196, 198 (5th Cir. 2011).

A PSC is one of several entities that contract with the government under the
4
Medicare Integrity Program. See 42 U.S.C. § 1395ddd(a) (2006) (describing
the program); 42 C.F.R. § 405.370 (2012) (listing program safeguard
contractors as a type of medicare contractor). Program activities include
reviewing the reimbursement claims of Medicare suppliers. See 42 U.S.C. §
1395ddd(b) (listing the activities); 42 C.F.R. § 405.371 (stating enforcement
powers of medicare contractors).

2

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5

intermediary had overpaid Nichole Medical for reimbursement claims. On
June 29, 2004, TriCenturion sent Nichole Medical a notice of overpayment.
The notice alleged that 39 of Nichole Medical’s past claims for reimbursement
did not meet program requirements. These claims included payment for the
supply of 19 motorized wheelchairs and 20 electric hospital beds. Compl. Ex.
C at 6. In order to account for the alleged overpayments, TriCenturion
directed the contractor payment intermediary, Healthnow, to impose an offset
against future reimbursements owed to Nichole Medical. In September 2004,
Healthnow imposed the offset but immediately stayed it.


A year before the wheelchair/bed offset was stayed, the United States
and the Commonwealth of Pennsylvania filed a civil action on March 3, 2003,
regarding other reimbursement claims in the U.S. District Court for the Eastern
District of Pennsylvania against Nichole Medical, Mr. Rotella, and other
persons. Compl. Ex. A at 2. That complaint, according to plaintiffs here,
“focused exclusively on Nichole Medical’s billing for incontinence supplies”
and alleged violations of the False Claims Act and other statutes. Compl. ¶ 12.
This civil action was resolved when the parties signed the settlement
agreement at issue in this case, which was effective on January 27, 2006. By
this time the wheelchair/bed offset had been stayed since September 2004.
Plaintiffs allege that, “Rotella, as President of Nichole Medical, understood
[his] problems with CMS, Medicare and Medicaid had been brought to an
end.” Compl. ¶ 20.

The settlement agreement (hereinafter “SA”) is attached to the
complaint as Exhibit A. The SA has three sections, entitled “Parties,”
“Preamble,” and “Terms and Conditions.” The Parties section lists as
participants the United States, acting through DOJ and the Office of Inspector
General of the Department of Health and Human Services (“OIG-HHS”), the
Commonwealth of Pennsylvania, and plaintiffs here, along with two other
persons who were defendants in the district court action.

Under the 2003 amendments to Medicare, the general term for a payment
5
intermediary is a “medicare administrative contractor.” Medicare Prescription
Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, §
911(a)(1), 117 Stat. 2066 (2003) (codified at 42 U.S.C. 1395kk-1 (2006)); see
also Nichole Med. Equip. & Supply Inc. v. United States, 694 F.3d 340, 342 &
n.3 (3d Cir. 2012).

3

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The Preamble explains Nichole Medical’s billing history, stating that
the company supplied durable medical equipment for personal care homes in
Pennsylvania, beginning in June 1986. Paragraph 3 states in detail the
allegations made by the United States and Pennsylvania in the civil action:

In

the Complaint

the United States and

the
Commonwealth contended that defendants Nichole Medical’s,
Rotella’s, Tresca’s, and Oliveras’ submission of certain
Medicare and Medicaid claims for incontinence supplies during
the period from January 1996 to February 2000 rendered those
defendants liable: (i) under the civil False Claims Act; and/or
(ii)
fraud, unjust
enrichment/restitution, and breach of contract. This conduct,
relating to Medicaid and Medicare claims between 1996 and
2000 as described in the Complaint, will be referred to
collectively as the “Covered Conduct.”

the common

law

theories of


SA § II.3. In addition, the Preamble states in Paragraph 4 that “[t]he United
States contends also that it has certain administrative claims against Nichole
Medical, Tresca, and Rotella for engaging in the Covered Conduct.” SA §
II.4.

The Covered Conduct, in short, relates only to plaintiffs’ submission of
allegedly false claims with respect to incontinence supplies between 1996 and
2000. It does not relate to other reimbursement claims, for example, claims
related to the stayed offset, which concerned reimbursement for wheelchairs
and hospital beds. This opinion will hereinafter refer to that offset, and all
actions taken pursuant to it, as the “wheelchair/bed action.”

The United States’ waiver of claims, in Paragraph 5 of Section III, is

specifically limited to the “Covered Conduct”:

Subject to the exceptions in Paragraph 9 below . . . the
United States (on behalf of itself, its officers, agents, agencies,
and departments) agrees to release Nichole Medical, Rotella,
Tresca, and/or Oliveras as appropriate from any civil or
administrative monetary claim the United States has or may
have under the False Claims Act; the Civil Monetary Penalties
Law; the Program Fraud Civil Remedies Act; or the common
law theories of unjust enrichment/restitution, breach of contract

4

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and fraud, for the Covered Conduct.

SA § III.5 (emphasis added) (citations omitted). In Paragraph 14, plaintiffs
waive claims that they may have against the United States, “related to the
Covered Conduct and the United States’ . . . investigation and prosecution
thereof.” SA § III.14.

In Paragraph 7, the United States waives administrative action, by
agreeing that it will not rely on the Covered Conduct in order to exclude
Nichole Medical from healthcare programs:

OIG-HHS agrees to release and refrain from instituting,
directing or maintaining any administrative action seeking
exclusion from the Medicare, Medicaid, or other Federal health
care programs (as defined in 42 U.S.C. § 1320a-7b(f)) against
Nichole Medical or Rotella under 42 U.S.C. § 1320a-7a (Civil
Monetary Penalties Law) or 42 U.S.C. § 1320a-7(b)(7)
(permissive exclusion for fraud, kickbacks, and other prohibited
activities), for the Covered Conduct, except as reserved in
Paragraph 9, below, and as reserved in this Paragraph.

SA § III.7. The provision concluded that, “Nothing in this Paragraph
precludes the OIG-HHS from taking action against entities or persons, or for
conduct and practices, for which claims have been reserved in Paragraph[s] 8
and 9, below.” Id.

Paragraph 9, referred to in Paragraphs 5 and 7 above, specifically
reserves from the government’s waiver everything other than the Covered
Conduct (the billing for incontinence supplies between 1996 and 2000):

Notwithstanding any term of this Agreement, specifically
reserved and excluded from the scope and terms of this
Agreement as to any entity or person (including Nichole
Medical, Rotella, Tresca, and Oliveras) are the following:

liability

to

. . . .
d. Any

the
Commonwealth (or their agencies) for any conduct other than
the Covered Conduct . . . .

the United States or

SA § III.9(d).

5

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In exchange for waiver by the United States and Pennsylvania of claims
arising out of the Covered Conduct, plaintiffs agreed to pay the United States
$750,000. SA § III.1. This consisted of an initial payment of $150,000,
followed by monthly payments. Section III, Paragraph 21 states that Nichole
Medical will be in default if it fails to make payment within five days of the
due date.

Upon plaintiffs’ failure to cure a default in payment, the United States
has specific rights. The government may “offset the remaining unpaid balance
from any amounts due and owing to defendant [Nichole Medical] by any
department, agency, or agent of the United States or Commonwealth at the
time of the Default.” SA § III.21. Nichole Medical and Mr. Rotella agree that
they will not “contest any offset imposed . . . either administratively or in any
state or federal court.” Id.

The SA went into effect on January 27, 2006. Nichole Medical made
the initial payment of $150,000 and made two monthly payments of
$11,322.74, leaving a balance of $577,354.52. It is uncontested that the
government received no further payments.

Plaintiffs allege that they are not liable because TriCenturion and a
government contractor payment intermediary, National Heritage Insurance
Company (“NHIC”), breached the SA by reactivating the wheelchair/bed
action. In July 2006, NHIC replaced Healthnow as the intermediary for
Nichole Medical’s supply region. As explained above, Healthnow had
imposed but then stayed an offset in September 2004, against payments owed
to Nichole Medical. TriCenturion alleged the offset accounted for
overpayments on claims for motorized wheelchairs and electric hospital beds.
NHIC re-instituted that offset when it became the carrier, thereby intercepting
payments which plaintiffs otherwise would have received as reimbursement
for supplies unrelated to either the Covered Conduct or the wheelchair/bed
claims. Plaintiffs allege that reimposition of the wheelchair/bed offset caused
plaintiffs to be unable to pay the SA balance, leading to its cessation of
operations in January 2007. See Compl. ¶ 35.

Plaintiffs disputed the wheelchair/bed offset in the Office of Medicare
Hearings and Appeals. On February 12, 2007, an administrative law judge
(“ALJ”) issued an opinion. He explained that TriCenturion deemed 39
Medicare claims to be overpayments. See Compl. Ex. C at 6. According to
the ALJ, TriCenturion treated these 39 claims as a sample on which it based

6

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an additional offset against Nichole Medical beyond just those 39 items. The
claims were “part of [a] statistical formula involving 467 claims which
resulted in an extrapolated overpayment of $485,374.54.” Id. at 7.

6

The ALJ addressed each of the 39 sample claims to determine whether
Medicare was properly charged. He concluded that 17 of the claims met the
requirements for reimbursement and were not overpayments. See id. at 6.
Moreover, the larger offset inferred from the sample was invalid, according to
the ALJ, because of procedural errors committed by TriCenturion and NHIC
in taking the sample and applying the results. See id. at 26-27. Then-current
Medicare regulations required that Nichole Medical receive written notice if
its past claims for reimbursement were to be reopened. 42 C.F.R. § 405.842(a)
(2007). Nichole Medical did not receive such a notice. Id. at 22. The ALJ
further held that, according to redetermination rules, 42 C.F.R. § 405.841
(2007), most of the 39 sample items could not be reopened by CMS. Id. at
24-25. This lack of compliance with regulations and failure to explain the
methodology for the extrapolation caused the ALJ to throw out the larger
offset.


On April 12, 200