16-365-cv
United States v. Nationwide Mut. Ins. Co.

                                   UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                            AMENDED SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 20th day of January, two thousand seventeen.

PRESENT: REENA RAGGI,
                 DENNY CHIN,
                 RAYMOND J. LOHIER, JR.,
                                                    Circuit Judges.
----------------------------------------------------------------------
UNITED STATES OF AMERICA ex rel.
DR. KENT TAKEMOTO,
                                                Relator-Appellant,
                 v.                                                      No. 16-365-cv

NATIONWIDE MUTUAL INSURANCE COMPANY,
THE    TRAVELERS    COMPANIES,    ZURICH
AMERICAN INSURANCE COMPANY, BROADSPIRE
SERVICES, INC., WAL-MART STORES INC.,
EVEREST NATIONAL INSURANCE COMPANY,
SENTRY INSURANCE A MUTUAL COMPANY,
ACCIDENT FUND INSURANCE COMPANY OF
AMERICA, MARRIOTT INTERNATIONAL, INC.,
CRAWFORD AND CO., ESIS, INC., INSURANCE
COMPANY OF NORTH AMERICA, ACE AMERICAN
INSURANCE COMPANY, INDEMNITY INSURANCE
COMPANY OF NORTH AMERICA, ALLSTATE
INSURANCE COMPANY, AMERICAN HOME
ASSURANCE COMPANY, COMMERCE AND
INDUSTRY INSURANCE COMPANY, ILLINOIS
NATIONAL       INSURANCE       COMPANY,

                                                      1
CONTINENTAL         CASUALTY      COMPANY,
COLUMBIA          CASUALTY        COMPANY,
CONTINENTAL        INSURANCE      COMPANY,
HARTFORD ACCIDENT & INDEMNITY COMPANY,
HARTFORD CASUALTY INSURANCE COMPANY,
SPECIALTY RISK SERVICES, LLC, LIBERTY
MUTUAL INSURANCE COMPANY, PROGRESSIVE
CASUALTY         INSURANCE        COMPANY,
PROGRESSIVE DIRECT INSURANCE COMPANY,
ST. PAUL FIRE & MARINE INSURANCE COMPANY,
TRAVELERS CASUALTY INSURANCE COMPANY
OF AMERICA, ZURICH AMERICAN INSURANCE
COMPANY, FARMERS INSURANCE EXCHANGE,
FARMERS NEW CENTURY INSURANCE, 21ST
CENTURY CASUALTY COMPANY, MARYLAND
CASUALTY COMPANY, STEADFAST INSURANCE
COMPANY, SEDGWICK CLAIMS MANAGEMENT
SERVICES INC., ZENITH INSURANCE COMPANY,
                            Defendants-Appellees,

ACE LTD., ALLSTATE CORPORATION, AMERICAN
INTERNATIONAL GROUP, INC., CNA FINANCIAL
CORPORATION, LIBERTY MUTUAL HOLDING
COMPANY,               INC.,          SEDGWICK               CLAIMS
MANAGEMENT SERVICES HOLDINGS, INC., ZENITH
NATIONAL INSURANCE CORP., CHARTIS, INC.,
FARMERS GROUP, INC., ACCIDENT FUND
INSURANCE COMPANY OF AMERICA, HARTFORD
FINANCIAL            SERVICES           GROUP,          INC.,      THE
PROGRESSIVE CORPORATION, INC.,
                                                          Defendants.
----------------------------------------------------------------------
APPEARING FOR APPELLANT:                          ROBERT L. KING (Aaron M. Zigler, Noah
                                                  Smith-Drelich, on the brief), Korein Tillery
                                                  LLC, St. Louis, Missouri.




                                              2
APPEARING FOR APPELLEES:   BRYCE L. FRIEDMAN, Simpson Thacher &
                           Bartlett LLP, New York, New York; Deborah
                           L. Stein, Simpson Thacher & Bartlett LLP, Los
                           Angeles, California, for The Travelers
                           Companies, Inc., St. Paul Fire and Marine
                           Insurance Company, and Travelers Casualty
                           Insurance Company of America.

                           David L. Yohai (Lori L. Pines, John P.
                           Mastando III, on the brief), Weil, Gotshal, &
                           Manges LLP, New York, New York, for
                           Farmers Insurance Exchange, Farmers New
                           Century Insurance, and 21st Century Casualty
                           Company.

                           Stephen Sozio, Jones Day, Cleveland, Ohio;
                           Matthew Corcoran, Jones Day, Columbus,
                           Ohio; Mark C. Davis, Lippes Mathias Wexler
                           Friedman LLP, Buffalo, New York, for
                           Nationwide Mutual Insurance Company.

                           Sharon M. Porcellio, Bond, Schoeneck & King,
                           PLLC, Buffalo, New York; James Gitzlaff, Paul
                           Sheldon, Elenius Frost & Walsh, Chicago,
                           Illinois, for The Continental Insurance
                           Company, Continental Casualty Company, and
                           Columbia Casualty Company.

                           Eric Dranoff, Saretsky Katz & Dranoff, LLP,
                           New York, New York, for Marriott
                           International, Inc.

                           Steven M. Levy, Dentons US LLP, Chicago,
                           Illinois, for Zenith Insurance Company.

                           Joseph J. Schiavone, Jeffrey S. Leonard, Budd
                           Larner, P.C., Short Hills, New Jersey, for
                           Everest National Insurance Company.




                             3
Michael J. Willett, Gibson, McAskill & Crosby,
LLP, Buffalo, New York, for Maryland
Casualty Company, Steadfast Insurance
Company, and Zurich American Insurance
Company.

Steven M. Levy, Dentons US LLP, Chicago,
Illinois; Sean C. Cenawood, Dentons US LLP,
New York, New York, for Allstate Indemnity
Company and Allstate Insurance Company.

Suzanne Jaffe Bloom, Benjamin Sokoly, Mollie
C. Richardson, Winston & Strawn LLP, New
York, New York, for American Home
Assurance Company, Commerce and Industry
Insurance Company, and Illinois National
Insurance Company.

Terrance M. Connors, Connors LLP, Buffalo,
New York; Michael K. Loucks, Kara E. Fay,
Skadden, Arps, Slate Meagher & Flom LLP,
Boston, Massachusetts, for Progressive
Casualty Insurance Company and Progressive
Direct Insurance Company.

David J. Farber, Jeffrey S. Bucholtz, Paul
Alessio Mezzina, King & Spalding LLP,
Washington, D.C., for Broadspire Services,
Inc., Crawford & Company, Sedgwick Claims
Management Services, Inc., and Specialty Risk
Services, LLC.

Todd L. Padnos, Danielle Kennedy, Sheppard,
Mullin, Richter & Hampton LLP, San
Francisco, California; Charles L. Kreindler,
Barbara E. Taylor, Sheppard, Mullin, Richter &
Hampton LLP, Los Angeles, California, for
Accident Fund Insurance Company of America.




  4
                                           Jonathan Rosenberg, O’Melveny & Myers LLP,
                                           New York, New York, for ESIS, Inc., ACE
                                           American Insurance Co., Indemnity Insurance
                                           Co. of North American, and Insurance Co. of
                                           North America.

                                           Brian R. Biggie, Goldberg Segalla LLP,
                                           Buffalo, New York, for Sentry Insurance.

                                           Kevin J. Fee, Amy C. Gross, Duane Morris
                                           LLP, New York, New York, for Liberty Mutual
                                           Insurance Company.

                                           Jonathan M. Freiman, Wiggin and Dana LLP,
                                           New Haven, Connecticut, for Hartford Casualty
                                           Insurance Company and Hartford Accident and
                                           Indemnity Company.

                                           David A. Crichlow, Katten Muchin Rosenman
                                           LLP, New York, New York; Andrew G.
                                           Klevorn (Jared T. Heck, on the brief), Katten
                                           Muchin Rosenman LLP, Chicago, Illinois, for
                                           Wal-Mart Stores, Inc.

      Appeal from a judgment of the United States District Court for the Western

District of New York (William M. Skretny, Judge; Jeremiah J. McCarthy, Magistrate

Judge).

      UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment entered on January 21, 2016, is AFFIRMED.

      Relator Kent Takemoto, a doctor who owns a Medicare Secondary Payer

compliance company, appeals the dismissal of his complaint, brought pursuant to the

False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., which accuses various insurance

industry   participants,   self-insured   corporations,   and   third-party   administrators

(“defendants”) of failing to comply with repayment obligations under the Medicare


                                              5
Secondary Payer Act (“MSPA”), 42 U.S.C. § 1395y(b). Takemoto further appeals the

denial of leave to amend his complaint.

         We review de novo the dismissal of a complaint for failure to state a claim,

accepting the alleged facts as true and drawing all reasonable inferences in plaintiff’s

favor. See Barrows v. Burwell, 777 F.3d 106, 111 (2d Cir. 2015). Nevertheless, “bald

assertions and conclusions of law will not suffice” to avoid dismissal, Spool v. World

Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008) (internal quotation marks

omitted), nor will factual “allegations that are wholly conclusory,” Krys v. Pigott, 749

F.3d 117, 128 (2d Cir. 2014). See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Rather, a

complaint must plead sufficient “factual content” to allow a court “to draw the reasonable

inference that the defendant is liable for the misconduct alleged.” Id.

         We review the denial of leave to amend a complaint for abuse of discretion. See

Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 169 (2d Cir.

2015).

         In applying these standards here, we assume the parties’ familiarity with the facts

and procedural history of this case, which we reference only as necessary to explain our

decision to affirm.

1.       Adequacy of the Complaint

         The district court adopted the magistrate judge’s recommendation to dismiss

Takemoto’s complaint insofar as it grouped defendants together and failed to plead facts

as to each defendant’s obligation to repay the government, an essential element of his

FCA claims. Takemoto faults the district court for failing to assume the veracity of facts


                                              6
alleged in the complaint, viewing allegations in isolation rather than in their totality, and

incorrectly finding group pleading impermissible given defendants’ participation in the

same relevant conduct. We are not persuaded.

       Even when we review the complaint’s allegations as a whole and assume the

truthfulness of pleaded facts, Takemoto fails to plead plausible claims for relief because

he does not allege facts admitting an inference of a reimbursement obligation on the part

of any defendant. The FCA defines “obligation” as “an established duty, whether or not

fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee

relationship, from a fee-based or similar relationship, from statute or regulation, or from

the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). As an initial matter, this

statutory language contemplates individualized pleading for each defendant of the source

of the obligation. In defending his group pleading, Takemoto cites Loreley Fin. (Jersey)

No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d at 173, but that case is distinguishable in

that Takemoto’s claims are not against a “plural author [] implied by the nature of the

representations,” e.g., where “(1) the alleged fraud is based on statements made in

[securities] offering materials and (2) the complaint gives grounds for attributing the

statements to the group,” id.

       Here, Takemoto can only speculate that each defendant had one or more

reimbursement obligations under the MSPA based on the facts that approximately 17% of

the population are Medicare beneficiaries and that defendants issue settlements,

judgments, or awards for “tens of thousands of claims involving Medicare beneficiaries”

each year. Appellant’s App’x 44. But these facts are insufficient to give rise to a


                                             7
plausible inference of an obligation on the part of any defendant. For example, as

defendants observe, nowhere does the complaint identify any beneficiaries for whom the

Center for Medicare and Medicaid Services (“CMS”) made conditional payments, the

amounts or dates of such payments, an associated settlement, and the relation of any

conditional payments to any particular defendant. In the absence of such facts admitting

a reasonable inference that CMS made a conditional payment on behalf of a particular

defendant’s beneficiary, there is no basis for a secondary inference that a given defendant

was under a reimbursement obligation to CMS. See 42 U.S.C. § 1395y(b)(2)(B)(ii) (“[A]

primary plan, and an entity that receives payment from a primary plan, shall reimburse

the appropriate [entity] . . . if it is demonstrated that such primary plan has or had a

responsibility to make payment with respect to such item or service.”).

       To the extent Takemoto seeks to avoid this conclusion by arguing that defendants’

obligation was to adopt adequate MSPA compliance procedures, he points to no authority

supporting such an obligation, much less the proposition that such a claim is actionable

under the FCA. The language of the statutory section under which Takemoto’s claims

are brought, in fact, indicates otherwise insofar as it locates liability in the avoidance of

an “obligation to pay or transmit money . . . to the Government.”              31 U.S.C. §

3729(a)(1)(G). A compliance program is not an obligation to pay money.

       In sum, Takemoto’s “allegations supply nothing but low-octane fuel for

speculation” about the requisite reimbursement obligation element of his claims, which

cannot defeat Rule 12(b)(6) dismissal even under the basic pleading requirements of Rule

8(a). Lundy v. Catholic Health Sys. of Long Island Inc., 711 F.3d 106, 115 (2d Cir.


                                             8
2013).1 Thus, we affirm the dismissal of the complaint pursuant to Rule 12(b)(6) without

further considering the sufficiency of allegations supporting the knowledge and improper

avoidance elements of Takemoto’s claims.

2.     Denial of Leave to Amend

       Because Takemoto’s request to amend gave “no clue as to how the complaint’s

defects would be cured,” denial of amendment was not an abuse of discretion. Loreley

Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d at 190 (internal quotation

marks omitted); see Wilson v. Merrill Lynch & Co., 671 F.3d 120, 140 (2d Cir. 2011).

Thus, vacatur is not warranted on this ground.




1
  This court has generally held FCA claims to the higher pleading standard of Rule 9(b),
“which requires that plaintiffs ‘state with particularity the specific statements or conduct
giving rise to the fraud claim.’” Bishop v. Wells Fargo & Co., 823 F.3d 35, 43 (2d Cir.
2016) (quoting Gold v. Morrison-Knudsen Co., 68 F.3d 1475, 1477 (2d Cir. 1995)). We
have summarily applied this rule to reverse false claim actions for knowing concealment
and avoidance. See Wood ex rel. United States v. Applied Research Assocs., Inc., 328 F.
App’x 744, 748 (2d Cir. 2009); see also Olson v. Fairview Health Servs. of Minn., 831
F.3d 1063, 1074 (8th Cir. 2016) (stating that reverse liability under § 3729(a)(1)(G)
requires allegation of fraudulent conduct, and “it would be remarkable if relators could
escape Rule 9(b)’s heightened pleading requirements for fraud by seeking recovery
through subsection (a)(1)(G)”); United States ex rel. Customs Fraud Investigations, LLC
v. Victaulic Co., 839 F.3d 242, 258 (3d Cir. 2016) (assessing sufficiency of reverse FCA
claim using Fed. R. Civ. P. 9(b)); United States ex rel. Heath v. AT&T, Inc., 791 F.3d
112, 123 (D.C. Cir. 2015) (same). The magistrate judge, however, here concluded that
avoidance claims under § 3729(a)(1)(G) did not involve fraud so as to be subject to Rule
9(b). Because Takemoto’s pleadings are insufficient even under Rule 8(a), the district
court declined to review this ruling or consider whether § 3729(a)(1)(G) avoidance
equates to a fraudulent omission. See generally Merrill Lynch & Co. Inc. v. Allegheny
Energy, Inc., 500 F.3d 171, 181 (2d Cir. 2007) (discussing elements of claim of fraud by
omission). For the same reason, we too need not here pursue that question.

                                             9
3.    Conclusion

      We have considered all of Takemoto’s remaining arguments and conclude that

they are without merit. Accordingly, the dismissal of his complaint for failure to state a

claim is AFFIRMED.

                                  FOR THE COURT:
                                  CATHERINE O=HAGAN WOLFE, Clerk of Court




                                           10
