Corporate Counsel Daily, Shell corporation has standing as Relator, but not an employee for retaliation claim purposes, (Apr 9, 2025)

By Jeffrey H. Brochin, J.D.

FCA claims dismissed as to trade name entity where court had neither personal jurisdiction nor subject-matter jurisdiction over an entity with no legal existence, and one that could neither sue nor be sued.

A federal District Court in New York has granted the Motion to Dismiss filed by Shiel Medical Laboratory (Shiel) in a False Claims Act (FCA) lawsuit brought by a Relator who claimed that Shiel and its related parties, violated the FCA as well as the Anti-Kickback Statute (AKS), the Stark Act and the New York and New Jersey state versions of the FCA. The court ruled that even a shell corporation organized solely for the purpose of the FCA litigation had standing as a ‘person’ to bring the lawsuit; however, its individual principal (Gordon) was barred by the first-to-file rule after he stepped in as an intervenor upon revealing his true identity. The Relator entity itself failed to establish injury in fact that was concrete and particularized. As to the Employer, Shiel, the claims filed against Shiel failed because a trade name has no legal existence that can sue or be sued, (U.S. ex rel. Gordon v. Shiel Medical Laboratory, 16-CV-1090 (NGG) (TAM) (E.D.N.Y. Mar. 29, 2025)).

Theories of the FCA claims. The Relator, a California corporation, and its principal, Gordon (who held a senior position within Shiel until 2017) brought the instant action against Shiel, a biochemical testing laboratory, alleging that since 1996, Shiel knowingly submitted hundreds of millions of dollars in false claims to the Medicare and New York and New Jersey Medicaid programs. The allegations were based on three separate theories: first, that Shiel’s claims were false because they were submitted for tests that were not reasonable and necessary; second, that the claims were submitted for tests that were furnished pursuant to prohibited referrals resulting from Shiel' s improper financial relationships with physicians and skilled nursing facilities (SNFs) in violation of the Stark Law; and third, that Shiel illegally paid the SNFs and physicians remuneration in the form of gifts, expensive entertainment, and other remuneration in violation of the AKS.

Threshold standing issue. The court first addressed Shiel’s challenge to the Relator’s right to file suit, claiming that a shell corporation (organized for the purpose of bringing the litigation) did not have such standing. However, the court disagreed, observing that the Supreme Court has held that a ‘person’ authorized to bring a qui tam lawsuit can be a natural person, partnership, corporation, association, or other legal entity. Accordingly, the Relator was found to have standing to sue.

Standing for retaliation claim. Notwithstanding the general standing as noted above, the court ruled quite differently as to the Relator’s retaliation claims, noting that "the irreducible constitutional minimum of standing'' for a retaliation claim requires that the employee had suffered a an injury in fact of a legally protected interest which was concrete and particularized such that it affected the employee in a personal and individual way. However, again referencing the Supreme Court, the court observed that Relator (‘employee’) cannot rest his claim to relief on the legal rights or interests of third parties, which in this case, would have been the Relator entity’s principal, Gordon. The court agreed with Shiel that the Relator lacked standing to assert retaliation claims on behalf of its principal, Gordon, who was not a party to the case, and they accordingly dismissed the claim.

Trade name not a party. Shiel also moved to be dismissed as a party, arguing that ‘Shiel’ was not a legal entity, but rather a trade name. The court ruled that it was well established under New York law that a trade name has no separate jural existence, and that it can neither sue nor be sued independently of its owner. The court agreed that it lacked both personal jurisdiction and subject matter jurisdiction over Shiel, as a trade name, and they therefore granted the motion for claims against Shiel to be dismissed.

First-to-file bar. The court next considered whether the first-to-file rule barred Gordon from intervening, and concluded that it did. As noted above, the case was initially filed in the name of a shell corporation as Relator (in order to hide Gordon’s identity), and only later did Gordon file as intervenor. Significantly, when a relator files a lawsuit pursuant to 31 U.S.C. § 3730(b)(l), the statute provides that ‘no person other than the government may intervene or bring a related action based on the facts underlying the pending action.’ Therefore, the court found that Gordon was barred to intervene in the instant case under the FCA's "first-to-file" bar and his Complaint was dismissed for failure to state a claim under Rule 12 (b) ( 6).

Based on the foregoing, the court dismissed all seven counts of the Complaint—with prejudice.

The case is No. 16-CV-1090 (NGG) (TAM).

Judge: Garaufis, N.

Attorneys: Jennifer Pedevillano (Halloran & Sage) for James Gordon and the U.S. Nicole Marie Barnard (Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.) for Shiel Medical Laboratory, Shiel Holdings, LLC and BIM Medical, Inc.

Companies: Shiel Medical Laboratory; Shiel Holdings, LLC; BIM Medical, Inc.

Cases: CaseDecisions AntikickbackNews FCANews FraudNews GCNNews QuiTamNews NewYorkNews