Health Law Daily Wrap Up, GENERAL HEALTH CARE NEWS—D. Md.: Court denies vacatur of $26 million default judgment on allegations of COVID-19 testing fraud, (Oct 15, 2024)

By Justin Marcus Smith, J.D.

The court found ample reason to think the judgment-debtor was a sophisticated business executive who was fully aware of his personal jeopardy in this matter.

There was no reason to vacate a multi-million dollar civil judgment by default entered jointly and severally against a business executive and five business entities he allegedly owned, held the federal district court in Baltimore, Maryland. Although none of the judgment-debtors filed an answer to the government’s False Claims Act civil complaint, the executive personally appeared at one point during pre-judgment proceedings. The court painstakingly reviewed other details of notice and court proceedings, but it did not find any basis for vacatur under either Fed. R. Civ. P. 55(c) or R. 60(b). The court accordingly denied the executive’s motion to vacate default judgment (United States of America v. Britton-Harr, No. ELH-23-01921 (D. Md. Oct. 7, 2024)).

Background. In July 2023, the government brought a five-count civil complaint against the executive and entities he allegedly owned. The five counts were: (1) false claims for payment in violation of 31 U.S.C. § 3729(a)(1)(A); (2) making or using false records or statements in violation of 31 U.S.C. § 3729(a)(1)(B); (3) conspiracy to submit false claims in violation of 31 U.S.C. § 3729(a)(1)(C); (4) unjust enrichment; and (5) payment by mistake of fact.

The government specifically alleged the executive and his business entities diverged in various ways from agreements to perform COVID-19 tests for nursing homes. The divergences included:

• performing and billing Medicare for thousands of medically unnecessary respiratory pathogen tests or tests not ordered;

• claiming to have performed such tests after patient death;

• using inaccurate procedure codes to obtain Medicare payment by fraud; and,

• concealing the use of reference labs to evade detection;

The government’s allegations described the involvement of each entity. The government further alleged that at least one of the nursing homes warned the executive that it was receiving results for tests not ordered and directed his attention to a Department of Health and Human Services Office of Inspector General workplan about fraud and abuse. The executive also allegedly ignored a warning from a potential physician partner about medically unnecessary testing and required documentation. Meanwhile, the executive allegedly used funds from entity bank accounts to start an apparently unrelated aircraft charter company.

Procedural details. None of the judgment-debtors filed an answer. However, among other procedural details, the court took note of the following:

• The judgment-debtors, through counsel, waived service of the complaint, albeit that counsel never entered an appearance;

• The executive later personally appeared at a show cause hearing about holding him in contempt;

• Two attorneys who made a limited appearance consented to entry of an order granting the government’s first contempt motion;

• The executive deposited $32,426 into court, out of $575,000 ordered, in connection with the sale of an attached property; and,

• Another attorney made a limited appearance in connection with a second contempt motion.

Default judgment. In July 2024, the court entered an order granting default judgment in favor of the government. The court determined the judgment-debtors were jointly and severally liable for over $21 million in treble damages plus nearly $5 million in civil penalties.

Motion to vacate. The executive moved to vacate the default judgment pursuant to Fed. R. Civ. P. 55(c) and R. 60(b). He asserted the following:

• His failure to respond to the complaint was not willful;

• He had meritorious defense; and,

• Vacatur would not prejudice the government.

The court began its analysis by noting that the Fourth Circuit policy favoring disposition on the merits was not absolute. The court said disposition on the merits must be balanced against the interests of finality and repose.

Willfulness. The court said the executive’s personal appearance in court showed he was clearly aware of the litigation and the serious measures the government was pursuing. Moreover, the court explicitly referenced the clerk’s entry of default and the pending motion for default judgment at one of the contempt hearings. The government actually filed two contempt motions. On the second, the court said it made it clear that the executive faced potential incarceration, and, notably, he requested an attorney shortly thereafter. This again demonstrated awareness of the litigation and potential consequences for inaction. In light of these and other details, the court concluded that the executive’s failure to respond to the suit was “knowing, purposeful, and willful.”

No defense. The court concluded the executive also failed to present a meritorious defense. Although he made various arguments and assertions mostly in connection with his charter aircraft startup, the court said he did not explain what that startup had to do with the case. The case was about Medicare fraud. Nor did the executive explain how surrounding circumstances would exculpate him. The startup and other entities the executive referred to were not parties to this suit. Even if there were some connection with this suit, the court determined the government filed its default judgment motion after the executive took control of the charter aircraft entities. The court concluded the executive did not have a meritorious defense.

Prejudice to adversary. Turning to any unfair prejudice to the opposing party, in this case, the government, the court found the government had reason to think the executive was inclined to evade judgment. The court found he directly violated a court order and writ of attachment. Although he did deposit $32,426 into court of $575,000 of attached property sale proceeds the court had ordered deposited, the court said he did that only in jeopardy of incarceration. The court said it was reasonable to conclude that any more delay would “lead to further dissipation of assets” or “impede the Government’s ability to recover for its losses.” The court also noted that the executive failed to comply with discovery. In all, the court said it was satisfied that vacatur of the default judgment would prejudice the government.

No R. 60(b) relief. With respect to R. 60(b) relief from judgment, the court agreed with the government that the executive failed to make any argument about newly discovered evidence, fraud or misconduct of an adverse party, void judgment, or satisfied judgment. The executive’s allegations of fraud or mistake by another charter aircraft startup executive were off-point because they were not those of an adverse party to the litigation under R. 60(b)(3).

The court also agreed with the government’s observation that the executive was aware of the litigation and failed to show that entry of the default judgment resulted from any mistake, inadvertence, surprise, or excusable neglect. According to the court, by the executive’s own admission, he obtained counsel to represent him “specifically regarding this case from the infancy of the Civil Investigative Demand letter.” The court agreed with the government that this admission showed the executive was a sophisticated party, but even so, he did not make any coherent argument as to why his conduct was excusable or inadvertent. Last, no circumstances supported the R. 60(b) “catch all” provision for relief from judgment. The court accordingly found that the executive failed to satisfy any of the grounds for relief from judgment under R. 60(b) and denied vacatur.

The case is No. ELH-23-01921.

Judge: Hollander, E.

Attorneys: Jonathan Kenneth Hoerner, U.S. Department of Justice, for the U.S. Gerald C. Ruter (Law Offices of Gerald C. Ruter, P.C.) for Patrick Tormay Britton-Harr.

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