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United States ex rel Chapman v. Office of Children and Family Services of the State of New York

February 16, 2010

UNITED STATES EX REL. BRUCE CHAPMAN,*FN1 PLAINTIFF,
v.
OFFICE OF CHILDREN AND FAMILY SERVICES OF THE STATE OF NEW YORK; CORNELL UNIVERSITY; NEW YORK STATE COLLEGE OF HUMAN ECOLOGY AT CORNELL UNIVERSITY; MICHAEL A. NUNNO; GWEN AMES; DENISE J. CLARK; JANE DOES #1 THROUGH #5; JOHN DOES #1 THROUGH #5; PETER D. MIRAGLIA; VIRGINIA SIERRA; AND THE DEPARTMENT OF FAMILY ASSISTANCE OF THE STATE OF NEW YORK; DEFENDANTS.



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff-Relator Bruce Chapman ("plaintiff" or "Chapman") filed this qui tam action on December 30, 2004, asserting eighteen causes of action under the False Claims Act, 31 U.S.C. §§ 3729-3733. After investigation following receipt of a proposed amended complaint, the United States filed a Notice on April 10, 2006, that it declined to intervene in the action. (Notice by U.S., Doc. No. 22.) Plaintiff filed an Amended Complaint on May 5, 2006.

Defendants the Office of Children and Family Services of the State of New York ("OCFS"), the Department of Family Assistance of the State of New York, and Peter D. Miraglia ("Miraglia") (collectively "State defendants") moved to dismiss. Defendants Cornell University, the New York State College of Human Ecology at Cornell University, Denise J. Clarke, Michael A. Nunno, Gwen Ames, and Virginia Sierra (collectively "Cornell defendants") also moved to dismiss. Plaintiff opposed both motions. The United States of America filed a brief as amicus curiae. The State defendants and the Cornell defendants replied. Oral argument was heard on March 23, 2007, in Albany, New York. Decision was reserved.

One of the grounds upon which all defendants moved to dismiss is that these claims are barred by res judicata based upon a decision in the case of Chapman v. New York State Division for Youth (No. 1:04-CV-867). In that case the United States Court of Appeals for the Second Circuit affirmed dismissal of plaintiffs' antitrust claims and reinstated the copyright claim against the State defendants. Chapman v. N. Y. State Div. for Youth, 546 F.3d 230, 234 (2d Cir. 2008), cert. denied 130 S.Ct. 552 (2009). As directed, the parties then filed supplemental memoranda of law addressing the legal effect, if any, of the Second Circuit decision on the pending motions in this case. However, because a petition for a writ of certiorari was filed with the United States Supreme Court, the pending motions were held in abeyance. The petition was denied on November 9, 2009. 130 S.Ct. at 552. Thus, the pending motions are now ready for decision.

II. FACTS

Chapman is president of Handle With Care Behavior Management System, Inc. ("HWC"), which markets and sells behavior management and physical restraint programs. In the earlier action noted above, he asserted federal copyright and antitrust causes of action, as well as various state law contract and tort causes of action against various state agencies and employees, various Cornell University entities and related personnel, and a private child treatment center and its officers. Chapman, 546 F.3d at 233. Those claims arose from a 1997 contract between OCFS*fn2 and HWC under which HWC provided training for OCFS Crisis Management/Physical Restraint "master trainers" in the use of HWC's techniques over a period of twelve days. Id. at 235. The OCFS master trainers would then train other personnel in the techniques over the next year. See id. The contract provided that OCFS could reproduce the training materials provided by HWC, but at issue was the continued reproduction and use by OCFS of the HWC training materials after the end date of the contract. See id. The continued reproduction and use of HWC training materials was the basis for the copyright claims, which, as noted above, were reinstated by the appeals court. Id. at 239.

Additionally, sometime in 1998 OCFS allegedly began refusing to certify facilities' restraint methods (which certification was required by state law) unless the Therapeutic Crisis Intervention ("TCI") method, developed jointly by Cornell University and New York State, was used. Id. at 235. This alleged policy of requiring all New York State child care providers and juvenile facilities to use the TCI method foreclosed Chapman's HWC method from the market, hence the antitrust claims. As noted, dismissal of the antitrust claims was affirmed. Id. at 239.

In the present lawsuit, Chapman alleges five types of false claims (eighteen causes of action) related to the TCI method and claims submitted to the United States Department of Health and Human Services ("HHS") for reimbursement under Title IV-E of the Social Security Act. First, he alleges that training costs, from October 1994 through December 2005, that Cornell vouchered to OCFS, for which OCFS sought reimbursement from HHS, were not reimbursable under Title IV-E. Second, Chapman alleges that, notwithstanding their certifications that federal regulations were complied with, Cornell and OCFS violated multiple federal regulations by ignoring market prices for such training and obtaining approximately three times the market price in reimbursement through Title IV-E. Third, plaintiff alleges that multiple federal laws were violated when Cornell billed OCFS and OCFS obtained reimbursement from HHS for "gross overcharges" in the cost of TCI training, both in the daily fees and the required frequency for re-certification, as compared with non-OCFS training. Fourth, he alleges that reimbursements paid to OCFS for TCI training were unlawful because the contracts between Cornell and OCFS were null and void, as they were not approved by the New York State Comptroller in violation of New York law. Finally, Chapman alleges that the OCFS claims for reimbursement for TCI training violated a 1994 consent entered in an earlier federal court action, United States ex rel. Denoncourt v. State of New York, No. 92-2808 (PF) (D.D.C. 1992), under which OCFS agreed not to seek reimbursement from HHS for costs ineligible under Title IV-E.

III. MOTION TO DISMISS STANDARD

When deciding a motion to dismiss pursuant to Rule 12(b)(6), a plaintiff's factual allegations must be accepted as true and all reasonable inferences must be drawn in favor of the plaintiff to assess whether a plausible claim for relief has been stated. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-561, 127 S.Ct. 1955, 1964-67 (2007); Ashcroft v. Iqbal, U.S., 129 S.Ct. 1937, 1953 (2008) (holding that the pleading rule set forth in Twombly applies in "all civil actions"). The factual allegations must be sufficient "to raise a right to relief above the speculative level," crossing the line from "possibility" to "probability." Twombly, 550 U.S. at 557, 127 S.Ct. at 1966. Additionally, "a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. at 1965. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S.Ct. at 1965). Moreover, "legal conclusion[s] couched as [] factual allegation[s]" need not be assumed as true as is required for factual allegations. Id. at 1949-50.

Thus, in reviewing the sufficiency of the pleading, a court first may identify legal conclusions that "are not entitled to the assumption of truth." Id. at 1950. The court should then "assume [the] veracity" of "well-pleaded factual allegations... and determine whether they plausibly give rise to an entitlement to relief." Id.

IV. DISCUSSION

A. State ...


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