Corporate Counsel Daily, Court affirms magistrate’s finding of no good cause to permit qui tam amendment, (Jan 3, 2024)

By Justin Marcus Smith, J.D.

The district court noted the qui tam relator’s reference to numerous prior extensions of pretrial scheduling order deadlines only served to underscore the relator’s failure to ask for an extension this time.

A qui tam relator should not be allowed to file a second amended complaint at least five months after expiration of the magistrate judge’s pretrial scheduling order without providing an adequate explanation for the delay, affirmed a federal district court in Newark, New Jersey. The magistrate judge ruled the relator did not show good cause for amendment under Fed. R. Civ. P. 16(b)(4) and would also have caused prejudicial delay to the healthcare providers defending the action under a more liberal application of R. 15. On appeal, the district court did not find any clear error in connection with the magistrate’s R. 16(b)(4) decision. The district court said it was most concerned with the apparent delay of at least five months between the time the relator said she came into possession of new information and the time she asked for leave to amend. The district court emphasized she did not adequately explain the circumstances and did not tie her delay to any dilatory discovery practice on the part of her adversaries (U.S. ex rel. McDermott v. Life Source Services, LLC, Dec. 28, 2023, Salas, E.).

Background. A registered nurse, brought a qui tam action against her former employer, Life Source Services, LLC (LSS), and other closely related entity healthcare providers and natural persons. The relator alleged that LSS and the other healthcare providers falsely and fraudulently billed the Medicare and Medicaid programs for hospice services or in connection with durable medical equipment. The relator also alleged LSS wrongfully terminated her after she objected to falsifying hospice care records. The United States and the State of New Jersey declined to intervene.

The magistrate established a Pretrial Scheduling Order (PTSO). In January, 2022, after about two years of discovery with the extension of various PTSO deadlines to facilitate discovery, the magistrate judge granted the relator’s motion to file a first amended complaint (FAC). The FAC asserted violations of the False Claims Act, 31 U.S.C. § 3729; violations of the New Jersey False Claims Act, N.J.S.A. § 2A:32C-10; and retaliation in violation of the anti-retaliation provisions of multiple federal and state laws, including New Jersey’s Conscientious Employee Protection Act (CEPA), N.J.S.A. § 34:19-3.

No party ever sought to extend the PTSO amendment deadline. However, in November 2022, about ten months after expiration of the PTSO’s January 30, 2022 deadline to amend or add parties, the relator moved to file a second amended complaint. The relator said she wanted to expand the time period of the purported illegal conduct, add details about it, join more entity and natural person defendants, and delete her CEPA claim.

The magistrate judge, finding no Fed. R. Civ. P. 16(b)(4) good cause to amend months after expiration of the PTSO amendment deadline, denied amendment. The magistrate judge explained that both sides were aware of the deadlines; the record showed the relator knew of her stated reasons for amendment at least five months before she moved to amend; and, the relator did not approach the court about purported discovery difficulties. The magistrate judge also found that R. 15 did not support amendment given the relator’s delay in moving to amend and attendant prejudice to the defendants. The relator, arguing error, appealed the magistrate’s denial of leave to amend.

Discussion. The district court agreed with the magistrate’s assessment that the relator failed to show good cause to amend under R. 16(b)(4). This rule applied because the relator moved to amend about ten months after the PTSO amendment deadline. The district court said it was most concerned with the gap or delay between when the relator said she learned about documents, the “new information” she represented as her cause for amendment, and when she requested leave to amend.

The parties contested when the relator acquired the purported new information, but even accepting the relator’s arguments, the court said it found at least a five-month gap between when the relator supposedly acquired it and when she sought leave to amend. In addition, the court found the relator “never clearly state[d] what pertinent new information she learned when” and that she only made general assertions in her brief about acquiring “additional, relevant information” that required amendment of the complaint. A referenced deposition occurred more than five months before the relator requested leave to amend.

The court agreed with the magistrate’s finding that the relator was in possession of the allegedly new information by at least June 2022. Some billing records “admittedly” came into the relator’s possession by April 2022. The court said the relator did not challenge these findings but apparently admitted that she continued to review the records well after June 2022. It appeared to the court that the relator had the pertinent alleged new information by early June 2022. Accordingly, the court said the relator failed to “convincingly explain how she acted with reasonable diligence” in waiting over five months to request amendment and without asking for an extension of the PTSO amendment deadline. The court therefore did not find any clear error in the magistrate’s ruling that the relator did not have good cause for amendment under R. 16(b)(4). The court provided numerous citations in support of its affirmation.

The court said it found the relator’s counterarguments “unavailing” because she did not tie her adversaries’ alleged dilatory discovery tactics to her delay in seeking amendment. The court also found she did not explain why her review of the records took so long or why she did not ask for extension of the PTSO amendment deadline. The court provided more citations in support here. Last, the court found the relator did not provide any support for her argument that the PTSO deadlines did not matter because they had “fallen by the wayside.” If anything, that argument only underscored prior party diligence in seeking extensions of PTSO deadlines.

The case is No. 19-5360 (ES) (MAH).

Attorneys: Lydia B. Cotz (The Law Firm of Lydia Cotz) for Sherri McDermott. Elizabeth F. Lorell (Gordon & Rees, LLP) for Life Source Services, LLC d/b/a Life Source Hospice.

Companies: Life Source Services, LLC d/b/a Life Source Hospice

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