U.S. v. Sulzbach (Full Text)

Case 0:07-cv-61329-KAM Document 143 Entered on FLSD Docket 04/16/2010 Page 1 of 20

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

CASE NO. 07-61329-CIV-MARRA/JOHNSON

UNITED STATES OF AMERICA,

Plaintiff,

vs.

CHRISTI R. SULZBACH

Defendant.

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ORDER AND OPINION

THIS CAUSE is before the Court on Defendant Christi Sulzbach’s (“Defendant” or

“Sulzbach”) Motion for Summary Judgment (DE 87, 88). Plaintiff United States of America

(“Plaintiff,” “United States,” “the government”) filed a Response to the Motion (DE 101) and

Defendant filed a Reply (DE 115). The motion is fully briefed and ripe for review. The Court

has reviewed the motion, response, reply, the entire file in this case, and is otherwise duly

advised in the premises.

Background

In 1994, Defendant was Associate General Counsel of National Medical Enterprises, Inc.

(NME), a large hospital chain, which later merged with another company, American Medical

Holdings, Inc. (AMH), and was renamed Tenet Healthcare Corporation (Tenet). In 1994, NME

and the government settled fraud charges that the government had brought against it. As part of

the settlement, NME agreed to implement a Corporate Integrity Program, memorialized by a

Corporate Integrity Agreement, to ensure that future misconduct did not occur. Sulzbach was

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placed in the position of Corporate Integrity Program Director for NME and then Tenet. In that

position, Sulzbach signed sworn declarations on a yearly basis, assuring the Department of

Health and Human Services (HHS) that NME/Tenet was in material compliance with the legal

requirements for the federal health care program.

In this case, the government has alleged that the Defendant violated the False Claims

Act, 31 U.S.C. § 3730, when she submitted sworn declarations in June 1997 and June 1998 that

falsely certified that Tenet was in compliance with applicable federal program requirements.

Specifically, the government alleges that Sulzbach’s certifications were false for failing to

disclose that Tenet was violating the Stark Statute, 42 U.S.C. § 1395nn, by billing Medicare for

referrals from twelve physicians who practiced at a Tenet facility in Ft. Lauderdale known as

North Ridge Medical Center (North Ridge), and by allowing those violations to continue.

The parties filed cross-motions for summary judgment. In Sulzbach’s motion, she

argues, in part, that the government’s False Claims Act case against her is barred by the

applicable statute of limitations. For the reasons explained below, the Court agrees.

Material Facts

The facts, as culled from affidavits, exhibits, depositions, answers, answers to

interrogatories and reasonably inferred therefrom in a light most favorable to Plaintiff, for the

purpose of this motion, are as follows:

1. In 1994, Defendant Christi Sulzbach (“Sulzbach”) was employed as Associate General

Counsel at National Medical Enterprises, Inc. (“NME”). (Sulzbach Dep. 15:8-16:2, June 3-4,

2009, Def. Appendix (“App.”), Exhibit (“Ex.”) 1.)

2. In June 1994, NME resolved a civil and criminal dispute with the United States concerning a

subsidiary entity, Psychiatric Institutes of America (“PIA”) and various psychiatric facilities

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operated by PIA. (Id. 18:20-18:25, 21:8-22:9.) As part of the settlement, on June 29, 1994,

NME and the Department of Health and Human Services (“HHS”) entered into either the very

first or one of the first healthcare corporate integrity agreements (“CIA”). (NME Corporate

Integrity Agreement (June 29, 1994) (“CIA”), Def. App., Ex. 2; Sulzbach Dep. 18:20-20:2,

163:25-164:4; Morris Dep. 30:18-31:22, September 9, 2009, App., Ex. 3; OIG, “Protecting

Public Health and Human Services Programs: A 30-Year Retrospective” (2006), at 38-39 (“OIG

30 Year Retrospective”), Def. App., Ex. 4.)

3. Sulzbach was named NME’s first Corporate Integrity Program Director and became

responsible for overseeing NME’s compliance program. (Sulzbach Dep. 15:24-17:23,

152:19-152:24.)

4. Pursuant to the CIA, NME was required to submit annual compliance reports to HHS from

June 1995 to June 1999 detailing the company’s compliance efforts. (CIA at ¶ 10.) Sulzbach

was responsible for supervising the preparation of these reports and was required to certify under

oath that to the best of her knowledge and belief the company was in compliance with the terms

of the CIA and federal program legal requirements. (Id.; Sulzbach Dep. 146:18-147:21.)

5. In early 1995, NME acquired American Medical Holdings, Inc. (“AMI”), and then changed

its name to Tenet Healthcare Corp. (“Tenet”). (Schochet Barbera Dep . 17:21-18:16, September
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24, 2003, Def. App., Ex. 11.)

6. In 1993 and 1994, one of AMI’s hospitals, North Ridge Medical Center (“North Ridge”),

entered into a number of physician employment agreements with primary care physicians. The

physicians employed by North Ridge later became known as “Lauderdale Clinical Services” or

Deposition testimony cited in this Order as “Deponent Barbera Dep.” refers to the
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deponent’s deposition during the course of the Barbera litigation.

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“LCS.” (Steigman Barbera Dep. 315:2-315:14, January 16-18, 2003, Def. App., Ex. 12.)

Sulzbach was not employed by AMI when the LCS agreements were entered into and thus had

no role in their negotiation or approval. (Sulzbach Dep. 178:12-178:17.) As a result of the AMI

acquisition, North Ridge became one of the many acute care hospitals owned by Tenet, and

Tenet inherited the LCS agreements. (Id.; Schochet Barbera Dep. 17:21-18:20.)

7. In 1995, during the AMI acquisition, and in 1996 as part of normal compliance reviews,

Tenet employed McDermott, Will & Emery (“McDermott”) to review the North Ridge physician

agreements. (Goldman Dep. 140:4-149:12, May 6, 2009, Def. App., Ex. 13.)

8. In early 1996, Tenet hired Sal Barbera to head the Florida office of Tenet Physician Services

(“TPS”), the Tenet organization responsible for managing its physician practices. (Brown

Barbera Dep. 19:10-19:21, September 22, 2003, Def. App., Ex. 14.) Approximately six months

later, Barbera was terminated. Following a dispute over his severance, Barbera filed a wrongful

termination suit in January 1997, alleging in part that he was fired for attempting to raise the

issue that certain physician agreements were illegal. (Id. 34:21-41:9; Sulzbach Dep. 44:10-47:5;

Barbera Barbera Dep. 150:8-171:10, Dec. 10, 2001, Def. App., Ex. 15.)

9. In a December 2001 deposition attended by the United States, Barbera gave testimony

concerning his allegations in the wrongful termination suit that the LCS contracts were illegal.

(Barbera Barbera Dep. 150:8-171:10, Dec. 10, 2001.)

10. Tony Bennett was the chief financial officer of TPS-Florida in early 1997. Shortly after Jeff

Heinemann took charge of TPS in early 1997, Bennett orally expressed to Heinemann his

concerns regarding the legality of certain of the Florida physician contracts. At Heinemann’s

request, Bennett memorialized his concerns in a memorandum dated February 24, 1997, and

entitled “Legal Concerns related to LCS practices” (the “Bennett Memo”). (Bennett Barbera

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Dep. 200:15-201:16, May 9-10, 2000, Def. App., Ex. 18.) Heinemann then forwarded the

Bennett Memo to Sulzbach. (Heinemann Barbera Dep. 154:10-155:2, March 13, 2003, Def.

App., Ex. 19.)

11. In late March 1997, Sulzbach met with Bennett to further discuss his concerns. Tom

Holliday of Gibson, Dunn & Crutcher LLP also attended, and Don Goldman of McDermott, Will

& Emery (“McDermott”) participated by phone. (Bennett Dep. 46:20-51:12, September 4, 2009,

App., Ex. 20; Bennett Barbera Dep. 268:5-270:13; Sulzbach Dep. 37:9-43:15; Holliday Dep.

26:25-28:4.)

12. Goldman, Tenet’s regular outside counsel for healthcare regulatory advice, was tasked with

looking further into the issues raised by Bennett, as well as the similar issues that had been

raised in Barbera’s wrongful termination suit. (Sulzbach Dep. 37:3-43:15.)

13. In April 1997, Goldman tapped Myla Reizen, a second-year associate in McDermott’s

Miami office, to review and analyze the Florida physician contract files, including the LCS

agreements. (Goldman Dep. 53:22-54:3.)

14. Based upon a review of the contract files, in May 1997, Reizen prepared a report analyzing

potential Stark concerns regarding the LCS and other Florida physician agreements (the

“McDermott Report”). (Reizen Dep. 60:22-61:14, July 21-22, 2009, Def. App., Ex. 21;

Goldman Dep. 149:19-154:23.) Reizen’s report was slightly revised in June of 1997. (Goldman
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Dep. 116:8-116:17.)

The Court notes that Defendant characterizes the May 27, 1997 McDermott Report as a
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non-finalized “draft,” contends that McDermott did not issue its report to Tenet in 1997, and
asserts that Reizen never discussed the Stark concerns with anyone at Tenet. However, for
purposes of ruling on Defendant’s motion for summary judgment, all disputes of fact are viewed
in the light most favorable to Plaintiff, the United States. See DE 102 at ¶¶ 24-30.

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15. Also in May 1997, Barbera filed under seal a second lawsuit, this one a qui tam action under

the False Claims Act against North Ridge and Tenet, alleging, in part, that the LCS contracts

violated Stark (“the Barbera litigation”). (Relators’ Qui Tam Complaint, filed May 13, 1997 in

U.S. ex rel. Barbera v. Tenet Healthcare Corp., Case No. 97-6590, Def. App., Ex. 22.) When the

case was filed, Barbera’s counsel sent copies of the qui tam complaint, along with other

information concerning his allegations, to the United States Department of Justice and the

United States Attorney for the Southern District of Florida. (Letter from Gary Sherman to

William Keefer and Janet Reno (May 13, 1997), Def. App., Ex. 23.)

16. In the Spring of 1997, Tenet was aware of concerns that the North Ridge LCS contracts it

had inherited from AMI might be in violation of the Stark Law. (Sulzbach Dep. 36:11-38:13.)

Defendant made a determination to not disclose the LCS issues to the government. (Id.

173:4-177:22, 183:7-184:6.) 3

17. In June 1997 and again in June 1998, Tenet submitted Annual Compliance Reports to HHS.

(Tenet Healthcare Corp., Annual Compliance Report (June 27, 1997), Def. App., Ex. 32; Tenet

Healthcare Corp., Annual Compliance Report (June 26, 1998), Def. App., Ex. 33.). Both the

June 1997 and June 1998 submissions contained Sulzbach’s sworn certifications that “to the best

of [her] knowledge and belief, Tenet is in material compliance with the terms of the Corporate

Integrity Agreement, as well as . . . other federal program legal requirements,” notwithstanding

the lack of disclosure of the LCS concerns. (Sulzbach Dep. 173:4-177:22, 183:7-184:6; Tenet

Defendant contends that she decided not to report the LCS to the government because
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she concluded she was not obligated to disclose those issues under the CIA. See DE 89 at ¶ 38.
The government disputes this assertion, arguing that “[t]here is no evidence in the record that she
had any factual or legal basis to support such a belief at that time, that anyone had expressed
such a belief to her, or that she had expressed such a belief to anyone else.” See DE 102 ¶ at 38.
For purposes of this motion, the Court will resolve this dispute in favor of the United States.

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1997 Annual Compliance Report (June 27, 1997), at 12; Tenet 1998 Annual Compliance Report

(June 26, 1998), at 14.)

18. In April 1998, HHS served a subpoena on Tenet seeking documents relevant to its

investigation of Barbera’s qui tam allegations. (Subpoena from HHS to Tenet Healthcare Corp.

(April 27, 1998), Def. App., Ex. 34.). HHS was thus aware no later than April 1998 of (1) the

LCS allegations, (2) Tenet’s failure to disclose the LCS issues and (3) that Sulzbach’s June 1997

certification of compliance was made despite Tenet’s failure to disclose the issues. 4

19. In May 2000, as part of its investigation into Barbera’s qui tam claims, the government took

Bennett’s deposition and learned that in 1997, and prior to Sulzbach’s 1997 certification, she had

received the Bennett Memo, had met with Bennett to discuss his concerns, and had assured him

she would look into them. (Bennett Barbera Dep. 268:5-270:13.)

20. On June 22, 2001, after four years of investigation, the government intervened in the

Barbera action and adopted most of Barbera’s claims with respect to the LCS physician

agreements. (United States’ Intervention Complaint, filed June 22, 2001 in U.S. ex rel. Barbera

v. Tenet Healthcare Corp., Case No. 97-6590 (“United States’ Barbera Intervention Complaint”),

Def. App., Ex. 35.)

21. From the very outset of the Barbera case, the government emphasized Bennett’s analysis and

his efforts to alert others at Tenet about the issues, particularly Sulzbach:

The government acknowledges that it was aware of these issues in April 1998; however,
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it asserts that it had no evidence of Defendant’s personal culpability at that time. See DE 102 ¶
45.

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Shortly after sending his memo, Bennett also presented his concerns in a meeting with Tenet
counsel [i.e. Sulzbach].

(United States’ Intervention Complaint at ¶ 120, Def. App., Ex. 35).

22. The government further alleged in the Barbera case that, notwithstanding the receipt of this

information from Bennett, Tenet failed to prevent North Ridge from submitting illegal claims

and failed to notify the government of these issues in its annual compliance reports prepared

under Sulzbach’s supervision:

Despite all of these warnings, Tenet continued to allow its subsidiaries to engage
in unlawful financial relationships with North Ridge Medical Center physicians, it
allowed North Ridge Medical Center to continue billing Medicare for referrals
generated by these physicians, . . . and it has failed to mention the issue in any of
the annual Compliance Reports that it submitted to the Department of Health and
Human Services.

(United States’ Intervention Complaint at ¶ 121, Def. App., Ex. 35).

23. Later in the Barbera litigation, on August 18, 2003, the government sought to compel the

production of various privileged documents, including the McDermott Report. It its reply brief

in support of its motion to compel, the government pointed directly at Sulzbach’s meeting with

Bennett as proof that Tenet, through Sulzbach, knowingly violated the Stark Law:

[T]he Government has identified a great deal of evidence that Tenet knew that it
was violating the Stark Statute and that its attorneys were directly and personally
involved in this unlawful conduct. . . . For example, . . . a February 1997
memorandum by Tenet executive Tony Bennett to his supervisor . . . explained
accurately and in detail why the contracts at issue violated Stark Statute. Mr.
Bennett has testified that he met with two senior Tenet attorneys for several hours
to discuss his memo, and that he was led to believe that they would address his
concerns. . . . Mr. Bennett’s supervisor also testified that he referred Mr.
Bennett’s memo to a senior Tenet attorney and relied on her to address them. . . .
Mr. Bennett’s memo warning that the contracts at issue violated the Stark Statute
was clear, specific, and legally and factually correct. The fact that Tenet
subsequently terminated or renegotiated all of these contracts indicates Tenet
counsel recognized Mr. Bennett’s concerns were valid. . . .

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(United States’ Reply Brief in Support of Revised Motion to Compel, filed August 18, 2003 in

U.S. ex rel. Barbera v. Tenet Healthcare Corp., Case No. 97-6590, at 5-6 (“United States’

Barbera Compel Reply”), Def. App., Ex. 41.)

24. Additionally, in the government’s August 18, 2003 reply brief in the Barbera litigation, the

government argued the crime-fraud exception to overcome Tenet’s assertions of attorney-client

privilege. Specifically, the government applied the crime-fraud exception to Sulzbach’s failure

to disclose to the government the issues raised by Bennett:

[W]hen Tony Bennett began voicing concerns that the contracts were illegal,
senior Tenet lawyers met with him, assured him that they would address his
concerns, and then allowed the company to continue billing the Government
unlawfully without making any disclosure to the Government. This is exactly the
type of conduct that the crime-fraud exception was designed to expose.

(United States’ Barbera Compel Reply at 6, Def. App., Ex. 41.)

25. In its Barbera December 8, 2003 Pre-Trial Brief, the government relied on Sulzbach’s

personal knowledge to support its claim that Tenet had knowingly violated the False Claims Act:

Later documents indicate that the defendants had actual knowledge that
their relationships with the Doctors violated the Stark Law. . . . In his memo,
CFO Bennett explained not only what the Stark Law prohibited and required, but
how he believed the actions taken by North Ridge may have violated the statute.
The evidence will show that shortly after sending this memo to Mr. Heinemann,
CFO Bennett was requested to, and did, discuss his concerns with Christi
Sulzbach, Tenet’s then Associate General Counsel and Corporate Integrity
Program Director. Nevertheless, even after the meeting, Tenet continued to bill
Medicare for millions of dollars in claims in violation of the Stark Law and
repeatedly certified to the health Care Financing Administration (HCFA) that the
company was in compliance with all laws and regulations.

United States’ Pre-Trial Brief, filed December 8, 2003 in U.S. ex rel. Barbera v. Tenet

Healthcare Corp., Case No. 97-6590, at 26 (“United States’ Barbera Pre-Trial Brief”), Def. App.,

Ex. 42.) (emphasis in original).

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26. In its December 8, 2003 Barbera Pre-Trial Brief, the government specifically accused

Sulzbach of making false certifications under the CIA:

These false certifications include sworn statements filed by Tenet Healthcare
Corporation’s Corporate Integrity Program Director and Assistant General
Counsel. Tenet Healthcare Corporation is legally bound by the actions of these
employees.

(United States’ Barbera Pre-Trial Brief at 35, Def. App., Ex. 42.)

27. In a September 9, 2009 deposition, Lew Morris, the OIG Chief Counsel was asked whether

his view that Sulzbach had lied to the Government would be changed if the Court found that

Sulzbach had not been advised by outside counsel that the contracts were illegal. Morris

testified, in pertinent part: “And I believe that she had ample evidence that false claims were

continuing to be submitted to our program based on information she was provided by employees

independent of the law firm’s report, assuming for the moment she didn’t know about it.”

(Morris Dep. 41:20-42:3, Def. App., Ex. 3.) (emphasis added).

Standard of Review

Summary judgment “shall be rendered if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

matter of law.” Fed. R. Civ. P. 56(c). The moving party bears the initial responsibility of

showing the Court, by reference to the record, that there are no genuine issues of material fact

that should be decided at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the

non-moving party bears the burden of proof on an issue, the moving party may discharge its

burden by showing that the materials on file demonstrate that the party bearing the burden of

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proof at trial will not be able to meet its burden. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608

(11 Cir. 1991).
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When a moving party has discharged its burden, the nonmoving party must “go beyond

the pleadings,” and, by its own affidavits or by “depositions, answers to interrogatories, and

admissions on file,” designate specific facts showing there is a genuine issue for trial. Celotex,

477 U.S. at 324. The nonmoving party “must do more than simply show that there is some

metaphysical doubt as to the material facts.” Matsushita Electronic Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 586 (1986). When deciding whether summary judgment is

appropriate, the Court must view the evidence and all reasonable factual inferences therefrom in

the light most favorable to the party opposing the motion. Witter v. Delta Air Lines, Inc., 138

F.3d 1366, 1369 (citations and quotations omitted).

This Court may not decide a genuine factual dispute at the summary judgment stage.

Fernandez v. Bankers Nat’l Life Ins. Co., 906 F.2d 559, 564 (11th Cir. 1990). “[I]f factual issues

are present, the Court must deny the motion and proceed to trial.” Warrior Tombigbee Transp.

Co., Inc. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir. 1983). A dispute about a material

fact is genuine and summary judgment is inappropriate if the evidence is such that a reasonable

jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 248 (1986); Hoffman v. Allied Corp., 912 F.2d 1379 (11th Cir. 1990). However, there must

exist a conflict in substantial evidence to pose a jury question. Verbraeken v. Westinghouse Elec.

Corp., 881 F.2d 1041, 1045 (11th Cir.1989).

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Discussion

Defendant argues that the government’s case against her under the False Claims Act, 31

U.S.C. § 3730, is barred by the applicable statute of limitations. The False Claims Act contains

its own statute of limitations, which provides as follows:

(b) A civil action under section 3730 may not be brought–

(1) more than 6 years after the date on which the violation of section 3729 is
committed, or

(2) more than 3 years after the date when facts material to the right of action are
known or reasonably should have been known by the official of the United States
charged with responsibility to act in the circumstances, but in no event more than
10 years after the date on which the violation is committed,

whichever occurs last.

31 U.S.C. § 3731(b). The Defendant bears the burdens of production and persuasion as to a

statute of limitations defense. Smith v. Duff and Phelps, Inc., 5 F.3d 488, 492, n. 9 (11th Cir.

1993).

In this case, the government specifically stated in a March 22, 2010 telephonic hearing

with the Court that there are no triable issues of fact on the statute of limitations issue:

From the Government’s perspective, there are no triable issues of fact
regarding the statute of limitations issues. The relevant facts are not in dispute.
You have them before you on the Defendant’s statute of limitations motion. . . .
And so we don’t think that this is something to go to trial on, this is
something that you can rule one way or the other on based on the papers.

According to the Complaint, the last date of Sulzbach’s alleged violation of the False

Claims Act occurred in August of 1999. As such, this case (effectively deemed filed in

December 2006 per tolling agreements between the parties) was filed beyond the six-year

limitations bar of § 3731(b)(1). Therefore, the government relies on the statutory tolling

provision of 31 U.S.C. § 3731(b)(2), and thus was required to file this case within three years of

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“the date when facts material to the right of action are known or reasonably should have been

known.” Id. In this action, per the “Agreement between the United States and Christi Sulzbach

to Toll Statute of Limitations,” signed December 14, 2006, the relevant date for determining

whether the statute of limitations has expired pursuant to 31 U.S.C. § 3731(b)(2) is December

14, 2003. See Def. App., Ex. 44.

“[T]he rationale behind tolling requires that the statute of limitations start to run when the

plaintiff acquires knowledge of the wrongful activity.” U.S. ex rel. Hyatt v. Northrop Corp., 91

F.3d 1211, 1217 (9 Cir. 1996). As a general rule, statutes of limitations are construed narrowly
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against the government. BP America Production Co. v. Burton, 549 U.S. 84, 95-96 (2006), citing

E.I. Du Pont De Nemours & Co. v. Davis, 264 U.S. 456 (1924). See also Badaracco v. C.I.R.,

464 U.S. 386, 391 (1984).

“[T]he clock does not begin to run on the pertinent statutory limitation merely because

the plaintiff had mere suspicions or could conceivably have alleged fraud on the part of the

defendant.” U.S. v. United Technologies Corp., 255 F.Supp.2d 779, 784 (S.D. Ohio 2003).

Rather, the statutory bar is dropped once the facts making up the essence of the right of action

are reasonably knowable. U.S. v. Kass, 740 F.2d 1493 (11 Cir. 1984) (holding government’s
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contract action was barred by the statute of limitations because the suit was not filed for almost

eight years after the government had the facts making up the very essence of the right of action.)

As the Eleventh Circuit explained in Kass,

Congress could not, however, be completely forgiving of government delay and
still be true to its motives in enacting a statute of limitations. Therefore, it is not
necessary that relevant officials have all details of a claim before the statutory
period begins to run; once the facts making up the “very essence of the right of

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action” are reasonably knowable, the § 2416 bar is dropped. Cong. News at
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2508.

740 F.2d at 1497.

Where scienter is an element of a cause of action, the statute of limitations begins to run

not when the plaintiff merely knew or should have known the statement was untrue, but rather

when the plaintiff also knew or should have known that the representation was knowingly false:

In other words, the plaintiff gets a year after he learned or should have learned the
facts that he must know to know that he has a claim. In the case of a suit
complaining of a false registration statement, all he has to know is that the
statement was untrue; so, as soon as he knows or should know that, the one-year
period begins to run. In a fraud case, he needs to know more: that the defendant
has made a representation that was knowingly false. When the plaintiff knows or
should know this, the statute of limitations begins to run.

Law v. Medco Research, Inc., 113 F.3d 781, 785-86 (7 Cir. 1997). See also Anderson v.
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Transglobe Energy Corp., 35 F.Supp.2d 1363, 1370 (M.D. Fla. 1999) (statute of limitations

begins to run on a Rule 10b-5 securities fraud claim when the plaintiff has either knowledge of

the violation or notice of the facts which, in the exercise of due diligence, would have led to

actual knowledge thereof). In U.S. ex rel. Wilkins v. North American Const. Corp., 2001 WL

34109383 (S.D. Tex. 2001), the court granted summary judgment to defendant on the

government’s common law fraud claim (which also requires the government to prove

defendant’s knowledge of the falsity of its statements) based on the statute of limitations. The

The language of the statute of limitations for government actions set forth in 28
5
U.S.C.A. § 2416(c) is nearly identical to the applicable statute of limitations in this case, 31
U.S.C. § 3731(b). Section 2416(c) states:
For the purpose of computing the limitations periods established in § 2415, there
shall be excluded all periods during which … facts material to the right of action
are not known and reasonably could not have been known by an official of the
United States charged with the responsibility to act in the circumstances ….

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court held that the statute of limitations began running after the government first received the

defendant’s audit report, since the government was aware at that time that defendant had made

false statements with knowledge of their falsity. Id. at 11. The court rejected the government’s

argument that later discovery of additional facts could justify its delay in filing suit, once

essential facts are known:

Those additional facts strengthen and add specificity to the government’s
knowledge of the fraudulent statement . . . . However, the law does not require
that the government have information that is so complete or so inculpatory before
the responsible official can be charged with knowledge of the facts material to a
fraud cause of action, so as to trigger limitations.

Id. at 10.

Here, the government argues that it did not possess meaningful information about

Defendant’s scienter until 2006, when it received a copy of the 1997 McDermott Report

concerning the LCS issues. The government claims that, prior to 2006, it only had evidence that

Tenet had knowingly made false statements based on the “collective” knowledge and conduct of

its officers and employees. (Resp. 11). See, e.g., U.S. v. Bank of New England, N.A., 821 F.2d

844, 856 (1 Cir. 1987) (“[T]he knowledge obtained by corporate employees acting within the
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scope of their employment is imputed to the corporation.”). According to the government, until

it obtained the McDermott Report from Tenet in 2006, the government lacked essential evidence

of Sulzbach’s scienter, i.e., that Sulzbach had knowingly submitted false certifications. Thus, the

government claims that, although the case was filed a decade after the events at issue, it is not

barred by the statute of limitations.

The Court disagrees. First, based on the undisputed facts regarding the evidence of

Defendant’s scienter that the government did have prior to 2003, the government knew or should

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have known of the facts material to its cause of action. Moreover, in the government’s attempt
6

to prove that Tenet had knowing violated the False Claims Act in the prior case, the government

made multiple statements to the Court that Sulzbach knowingly made false certifications and that

Tenet was bound by Sulzbach’s knowledge.

The government has known since Barbera filed his qui tam complaint in May 1997 that

there were potential LCS Stark Law issues, and thus cannot dispute that it knew about those

issues when Sulzbach submitted her annual compliance report certifications in June 1997 and

June 1998. The government has also known since, at the latest, May 2000, that Sulzbach knew

about the LCS Stark Law issues when she made her certifications. For it was in May 2000 that

the government took the deposition of Tony Bennett, who testified that Sulzbach both received

his February 1997 memo and then met with him a few weeks later to discuss his concerns. Thus,

based on what it learned in the Bennett deposition and in other discovery, no later than May

2000, the government was aware that (1) Bennett had presented his concerns regarding the LCS

contracts to Sulzbach, Tenet’s Compliance Program Director in both memo form and in person,

(2) the concerns expressed by Bennett were also set forth in the complaint filed in the Barbera

qui tam lawsuit in May 1997, (3) Sulzbach had not notified HHS of the potential violations

raised by Bennett, and (4) notwithstanding the lack of notice to HHS, in both June 1997 and June

1998, Sulzbach had certified Tenet’s material compliance with its obligations under the CIA and

applicable federal law.

Defendant does not contend a lack of diligence by the government in discovering its
6
causes of action. Rather, she contends that the government had knowledge of the facts material
to the causes of action many years prior to the filing of this case.

Case 0:07-cv-61329-KAM Document 143 Entered on FLSD Docket 04/16/2010 Page 17 of 20

Moreover, in the government’s attempt to prove that Tenet had knowingly violated the

False Claims Act in the prior case, the government made multiple statements to the Court that

Sulzbach was personally involved in the unlawful conduct, that she knowingly made false

certifications, and that Tenet was bound by Sulzbach’s knowledge. From the very outset of the
7

Barbera case, the government emphasized Bennett’s efforts to alert others at Tenet about the

issues, particularly Sulzbach:

In this memorandum, Bennett quoted from the Stark II statute, using bold face
print on the language dealing with fair market value and relationship of compensation to
referrals. Bennett stated that, in his view, the arrangements were not commercially reasonable.
Shortly after sending his memo, Bennett also presented his concerns in a meeting with Tenet
counsel [i.e. Sulzbach].

(United States’ Intervention Complaint at ¶ 120). The government further alleged in the Barbera

case that, notwithstanding the receipt of this information from Bennett, Tenet failed to prevent

North Ridge from submitting illegal claims and failed to notify the Government of these issues

in its annual compliance reports prepared under Sulzbach’s supervision:

(United States’ Intervention Complaint at ¶ 121).

In an interesting twist, the government argues that Defendant’s counsel has changed its
7
position as to the legal significance of the government’s evidence between the Barbera litigation
and this case. (Resp. at 15-16). Unlike the assertions the government made against Tenet
regarding Sulzbach in the Barbera litigation, where its counsel was acting on behalf of the same
client, the prior assertions to which the government now points were made by attorneys
representing Tenet, a different client. The statements made by counsel in an another case on
behalf of a different client cannot be attributable to or held against Sulzbach.

Case 0:07-cv-61329-KAM Document 143 Entered on FLSD Docket 04/16/2010 Page 18 of 20

Later in the Barbera litigation, on August 18, 2003, the government pointed directly at

Sulzbach’s meeting with Bennett as proof that Tenet, through Sulzbach, knowingly violated the

Stark Law:

[T]he Government has identified a great deal of evidence that Tenet knew that it
was violating the Stark Statute and that its attorneys were directly and
personally involved in this unlawful conduct. . . . For example, . . . a February
1997 memorandum by Tenet executive Tony Bennett to his supervisor . . .
explained accurately and in detail why the contracts at issue violated Stark
Statute. Mr. Bennett has testified that he met with two senior Tenet attorneys for
several hours to discuss his memo, and that he was led to believe that they would
address his concerns. . . . Mr. Bennett’s supervisor also testified that he referred
Mr. Bennett’s memo to a senior Tenet attorney and relied on her to address them.
. . . Mr. Bennett’s memo warning that the contracts at issue violated the Stark
Statute was clear, specific, and legally and factually correct. The fact that Tenet
subsequently terminated or renegotiated all of these contracts indicates Tenet
counsel recognized Mr. Bennett’s concerns were valid. . . .

(United States’ Barbera Compel Reply at 5-6) (emphasis added). Specifically, the government

applied the crime-fraud exception to Sulzbach’s failure to disclose to the government the issues

raised by Bennett:

(United States’ Barbera Compel Reply at 6).

Finally, in its Barbera Pre-Trial Brief, the government relied on Sulzbach’s personal

knowledge to support its claim that Tenet had knowingly violated the False Claims Act:

Case 0:07-cv-61329-KAM Document 143 Entered on FLSD Docket 04/16/2010 Page 19 of 20

Program Director. Nevertheless, even after the meeting, Tenet continued to bill
Medicare for millions of dollars in claims in violation of the Stark Law and
repeatedly certified to the health Care Financing Administration (HCFA) that the
company was in compliance with all laws and regulations.

(United States’ Barbera Pre-Trial Brief at 26). In the Barbera litigation, the government also

specifically accused Sulzbach of making false certifications under the CIA, and stated that Tenet

was legally bound by her actions:

(United States’ Barbera Pre-Trial Brief at 35). The government cannot on the one hand attempt

to impute Sulzbach’s intentional fraudulent conduct to Tenent in order to hold Tenent liable, or

to prove a waiver of the attorney-client privilege based upon a crime-fraud exception, and on the

other hand now claim that they were unaware of Sulzbach’s fraudulent intent. These statements

made by the government in the Barbera case make it clear that years prior to receiving the

McDermott report in 2006, the government had formed the belief that Sulzbach had knowingly

made false certifications and pointedly and repeatedly made those statements to the court. 8

As OIG Chief Counsel Lew Morris stated in his deposition, independent of the

McDermott report, Sulzbach had “ample evidence” that false claims were continuing to be

submitted; the government, in turn, knew of this “ample evidence” years before it received a

copy of the McDermott report. The government’s argument that it did not know “what

subsequent steps, if any, the Defendant took following the meeting [with Bennett],” see Resp. at

Notably, the government’s opposition brief does not attempt to argue that Defendant’s
8
motion misquotes or takes out of context the statements the government made against Sulzbach
in the Barbera litigation.

Case 0:07-cv-61329-KAM Document 143 Entered on FLSD Docket 04/16/2010 Page 20 of 20

14, is insufficient to save the government’s claims, in light of the evidence available to it at the

time of the Barbera case. The limitations clock does not re-start every time a plaintiff learns of a

new fact or “better evidence” that supports its claim.

Based upon the foregoing, the Court concludes that the government (1) had sufficient

evidence of Defendant’s scienter prior to December 14,2003, such that it knew or should have

known of the facts material to its cause of action, and (2) pointedly and repeatedly represented in

the Barbera litigation that Sulzbach had knowingly made false certifications. Thus, the

government cannot rely on its 2006 receipt of the McDermott report to defeat Defendant’s claim

that this case is barred by the statute of limitations.

Conclusion

Accordingly, it is hereby ORDERED AND ADJUDGED as follows:

(1) Defendant’s Motion for Summary Judgment (DE 87, 88) is GRANTED on the

grounds that this case is barred by the statute of limitations;

(2) A final judgment shall be entered separately.

DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,

Florida, this 16 day of April, 2010.
th

Copies furnished to:
all counsel of record

_________________________________
KENNETH A. MARRA
United States District Court