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U.S. Court In California Finds Defendants Collaterally Estopped From Denying Liability Under FCA After Criminal Conviction

 
 

HLD, v. 33, n. 2 (February 2005)

U.S. Court In California Finds Defendants Collaterally Estopped From Denying Liability Under FCA After Criminal Conviction

St. Luke's is a subacute nursing facility located in California. In 1995, the Department of Health and Human Services (DHHS) Office of Inspector General began an investigation into St. Luke's and found that it was inflating the cost of nursing services that it provided to Medicare beneficiaries and fabricated nursing schedules to support the false claims. Based on the investigation, a grand jury returned a six-count indictment against St. Luke's and its CEO charging defendants with conspiracy to defraud the Medicare program, submitting false Medicare claims, knowingly and willfully making false statements to Medicare auditors, and obstructing a federal audit. A jury found defendants guilty on all counts. The United States then filed a civil action under the False Claims Act (FCA). The action was stayed pending the outcome of the criminal charges. Once the stay was lifted, the United States moved for partial summary judgment on the issue of defendants' liability under the FCA.

The U.S. District Court for the Northern District of California granted the summary judgment motion. The court first addressed the government's first argument that collateral estoppel precludes the defendants from denying their liability for civil damages and penalties under the FCA. The issue, said the court, "is whether the 'essential elements' of the offense of which defendants have been convicted are sufficient to establish their liability in the civil action."

In order to prove its first allegation of an FCA violation, the United States must prove "(1) a false or fraudulent claim; (2) which was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with knowledge that the claim was false." In its verdict, the jury found each of those allegations to be true, therefore the FCA's collateral estoppel provision has been met and precludes the defendants from denying their liability in the civil action, said the court. The defendants next argued that it would be unfair to rely on collateral estoppel while their appeal of their criminal conviction is pending. The court disagreed, finding fairness not an issue "absent a degree of unfairness that rises to the level of a due process violation."

The court went on to find that defendants were estopped from denying their liability on the remaining civil charges based on the verdict in the criminal case. Accordingly, the court granted partial summary judgment to the United States. 

United States v. St. Luke's Subacute Hosp. and Nursing Ctr., No. C 00-1976 MHP, 2004 WL 2905237 (N.D. Cal. Dec. 16, 2004).

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