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Virginia ex rel. Hunter Labs LLC v. Quest Diagnostics Inc.

United States District Court, E.D. Virginia, Alexandria Division

April 22, 2015

THE COMMONWEALTH OF VIRGINIA, ex rel. HUNTER LABS LLC, et al, Plaintiffs,
v.
QUEST DIAGNOSTICS INC., et al, Defendants

For Hunter Laboratories, LLC, Commonwealth Of Virginia ex rel., Chris Riedel, Commonwealth Of Virginia ex rel., an individual, Plaintiffs: Mark P. Friedlander, Jr., LEAD ATTORNEY, Friedlander Friedlander & Earman PC, McLean, VA.

For Quest Diagnostics Incorporated, a Delaware corporation, Quest Diagnostics Nichols Institute, a California corporation, formerly known as Quest Diagnostics, Inc, Quest Diagnostics Clinical Laboratories, Inc., a Delaware corporation, Defendants: Nicholas DelVecchio SanFilippo, LEAD ATTORNEY, McGuireWoods LLP (McLean), McLean, VA; Robert William Loftin, LEAD ATTORNEY, McGuireWoods LLP (Richmond), Richmond, VA.

For Laboratory Corporation Of America, a Delaware corporation, Laboratory Corporation Of America Holdings, a Delaware corporation, Defendants: Sara Renee Kusiak, LEAD ATTORNEY, Joseph William Clark, Jones Day (DC), Washington, DC.

For Specialty Laboratories, Inc., a California corporation, Defendant: Robert William Loftin, McGuireWoods LLP (Richmond), Richmond, VA.

MEMORANDUM OPINION AND ORDER

Anthony J. Trer.ga, United States District Judge.

THIS MATTER is before the Court on Plaintiff Commonwealth of Virginia's (" Commonwealth" ) Motion for Relators' Share Disbursement of $138,925.34 (" Motion for Relators' Share" ) (Doc. 107). This case arises from Plaintiffs Hunter Laboratories, Inc., and Chris ReideFs (collectively " Relators" ) qui tam action on behalf of the Commonwealth pursuant to § 8.01-216.1 of the Virginia Fraud Against Taxpayers Act (" VFATA" ) for alleged Medicaid fraud. The first issue is whether the Court should grant the Commonwealth's Motion for Relators' Share because the " proceeds of a [Medicaid fraud] settlement" are calculated using the years the VFATA was in effect when (1) the VFATA became effective on January 1, 2003, and (2) the settlement agreement includes a conduct/release period of November 1, 1997, through September 25, 2014. The second issue is whether the Court should grant the Commonwealth's Motion for Relators' Share because the " proceeds of a [Medicaid fraud] settlement" are calculated using only the state portion of the settlement amount when (1) the Commonwealth is required to return federal overpayments to the United States, and (2) neither the United States, nor the Commonwealth, have intervened in the Relators' private litigation of the VFATA action.

The Court GRANTS the Commonwealth's Motion for Relators' Share for two reasons. First, because the VFATA does not apply retroactively to claims pre-dating its enactment. Second, because under the VFATA, the " proceeds of the settlement" in a Medicaid fraud action means only the Settlement Agreement amount that is actually received by the Commonwealth after returning overpayments to the United States under 42 U.S.C. § 1396b(d)(3)(A) (2012).

I. BACKGROUND

On December 19, 2007, Relators filed a qui tam action in Virginia Circuit Court for the County of Fairfax under the VFATA, alleging that Defendants Quest Diagnostics, Inc., Quest Diagnostics Nichols Institute f/k/a Quest Diagnostics, Inc., Quest Diagnostics Clinical Laboratories, Inc., and Specialty Laboratories, Inc.[1] (collectively " Quest" ), defrauded the Commonwealth by submitting false Medicaid claims in violation of the VFATA, Va. Code § 8.01-216.1 el seq. (Doc. 108 at 1). Specifically, Relators alleged that from November 1, 1997, through September 25, 2014, Quest: (1) charged Virginia's Medicaid program more than their usual and customary charges to the general public in violation of Virginia Code § 8.01-216.1 et seq. ; and (2) offered and gave discounts on laboratory tests for non-Medicaid services in order to induce purchasers to refer Virginia Medicaid laboratory test business to Quest in violation of the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b (2012). (Doc. 108 at 1-2).

On April 12, 2013, the Commonwealth filed a Notice of Election to Decline Intervention in the qui tam action under Virginia Code § 8.01-216.5(D). (Doc. 108 at 2). Following the Commonwealth's declination decision, the Relators moved forward to litigate the case. (Doc. 108 at 2). The action was removed to this Court on September 9, 2013. (Doc. 1 ¶ 9).

On November 6, 2013, Quest, the Relators, and the Commonwealth reached a settlement whereby Quest agreed to pay a settlement amount of $1,250,000 to the Commonwealth to resolve its civil liability for the allegations in the qui tam action. (Doc. 108 at 2). The Settlement Agreement states that " [t]he Quest Defendants shall pay the Settlement Amount consisting of the Virginia federal and state respective Medicaid portions in settlement of all claims to be released by the State, no later than twenty (20) business days after the Effective Date of this Agreement... ." (Doc. 108-1 at 4) (emphasis added). The Settlement Agreement also states that " [conditioned upon the State's receipt of the Settlement Amount from the Quest Defendants, the State shall pay, on behalf of the Qui Tam Plaintiffs, a percentage of the applicable proceeds in an amount to be negotiated, to . . . Qui Tam Plaintiffs counsel." (Doc 108-1 at 4) (emphasis added). The effective date of the Settlement Agreement was the date of signature of the last signatory. (Doc. 108-1 at 11). The Settlement Agreement was fully executed by all signatories on September 25, 2014. (Doc. 108 at 2). The Commonwealth filed its Motion for Relators' Share Disbursement of $138,925.34 on September 26, 2014.

II. ANALYSIS

The Court GRANTS the Commonwealth's Motion for Relators' Share for two reasons. First, because the VFATA does not apply retroactively to claims pre-dating its enactment. Second, because under the VFATA, the " proceeds of the settlement" in a Medicaid fraud action means only the Settlement Agreement amount that is actually received by the Commonwealth after returning overpayments to the United States under 42 U.S.C. ยง 1396b(d)(3)(A) (2012). Thus, Relators are only entitled to 28% of the Commonwealth's Share for claims that accrued from the VFATA's ...


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