Judge dismisses complaint against U.S. government brought by medical supply company, cites lack of jurisdiction

By Jon Campisi | Apr 3, 2012

A federal judge in Philadelphia has granted a motion by the U.S. government to dismiss a complaint brought by a medical equipment supplier involving a contract dispute on the grounds that the court lacks jurisdiction over the matter.

In a March 28 order, U.S. District Judge Cynthia M. Rufe granted the government’s motion to dismiss for lack of subject matter jurisdiction. Rufe simultaneously ordered the case to be transferred to the Court of Federal Claims.

The complaint was initiated by Nichole Medical Equipment & Supply, Inc., and its president and owner, Dominic Rotella.

The plaintiffs, who specialize in durable medical equipment, had filed suit against the Unites States government seeking declaratory judgment and damages for the defendant’s alleged breach of a January 2006 settlement agreement, and also alleging fraudulent conduct relating to the agreement.

The government subsequently filed a motion to dismiss the claims on grounds relating to a lack of subject matter jurisdiction because, pursuant to the Tucker Act, contract claims seeking damages in excess of $10,000 must be heard by the Court of Federal Claims.

The government also sought to dismiss on the grounds that the district court lacks jurisdiction over the plaintiff’s fraud claims as they fall under an exception to the Federal Tort Claims Act.

According to background information on the case, the government filed a civil action against Nichole Medical at the federal court in Philadelphia back in 2004 alleging violations of the False Claims Act, unjust enrichment and breach of contract based upon Nichole’s billing for incontinence supplies.

The following year, the two parties entered into a settlement agreement by which Nichole agreed to pay the U.S. government $750,000.

The agreement provided that Nichole Medical would make one “substantial” payment followed by equal monthly payments for five years, and would undertake “enumerated non-monetary obligations.”

In exchange, the government would release the company from civil or administrative monetary claims based on the covered conduct, which was related to the overbilling for motorized wheelchairs and medical beds.

According to the background information, an investigative arm of the U.S. Department of Health and Human Services found evidence that Nichole Medical improperly billed Medicare for some of the equipment.

“This was understood by the parties to be a final resolution of the dispute over Nichole Medical’s billing for incontinence supplies,” the judicial order states. “The Complaint in the present case alleges that Nichole Medical made the substantial initial payment, but made only two of the sixty monthly payments due under the Settlement Agreement.”

Nichole Medical eventually appealed the overpayment calculation, and an administrative law judge agreed with the company that some of the disputed money had been offset and was owed back to Nichole.

In January 2008, the Medicare Appeals Council upheld the judge’s decision.

Rather than issuing the funds to Nichole Medical, however, the U.S government wished to apply some of the money to the balance owed to the government under the prior settlement agreement, since, by that time, Nichole Medical was in default.

The government subsequently filed a motion to seek enforcement of the incontinence supplies settlement agreement, but a district court judge denied the motion on procedural grounds.

In its complaint, Nichole Medical sought declaratory judgment regarding the settlement agreement, arguing that the government breached its agreement and its duty of good faith by allowing its agents to conduct an unannounced investigation of Nichole Medical’s billing for motorized wheelchairs and semi-electric beds, reopening closed claims, and imposing an offset allegedly improper billing.

Nichole Medical sought judgment declaring that the settlement agreement was rendered void and/or unenforceable by the government’s mishandling of the case.

Nichole Medical asserted a breach of contract claim for the same conduct. The company also sough relief and punitive damages for fraud, alleging that the government agreed to conduct business with Nichole Medical within the applicable legal and statutory structure, that the representation that it would do so was false, and that Nichole Medical relied upon that representation “to its detriment.”

In her ruling, Rufe wrote that because the settlement agreement was not part of the record or incorporated into an order of the district court, the court has no power to enforcement the settlement agreement, and therefore has no jurisdiction over the matter.

Appeals courts have ruled that matters such as these must be played out in the Court of Federal Claims, the ruling states.

Rufe ordered the matter transferred to that venue.


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