Superior Court of Massachusetts, Suffolk, Business Litigation Session
Therapy Resources Management, LLC et al.
Whittier Health Network, Inc. et al
August 3, 2017
ORDER ON CROSS MOTIONS FOR PARTIAL SUMMARY
P. Leibensperger, Justice
IV of the Amended Complaint seeks a declaratory judgment to
the effect that defendants (referred to collectively as
" Whittier") are barred from seeking indemnity from
plaintiffs (referred to collectively as "
Therapy"). Whittier has not yet answered the amended
complaint or asserted a counterclaim, but the record is clear
that Whittier believes it has the right to be indemnified by
Therapy for litigation costs and a settlement payment
incurred by Whittier in connection with an investigation and
lawsuit under the False Claims Act (" FCA"), 31
U.S.C. § 3729. There is an actual controversy between
the parties regarding whether, as a matter of law, Whittier
can obtain indemnification under its contracts with Therapy
which state that " [Therapy] shall indemnify and hold
[Whittier] harmless from and against all claims, demands,
costs, expenses, liabilities and losses (including reasonable
attorneys fees) which may result against [Whittier] as a
consequence of any malfeasance, negligence . . . caused . . .
by [Therapy] . . ."
argument for summary judgment on Count IV is based on the
following undisputed facts. The losses that Whittier wants
indemnification for arise from the fact that Whittier was
sued, along with Therapy, for fraud under the FCA. The suit
was brought by a former employee of Therapy. There was also
another suit by a different former employee of Therapy
against Therapy alone. The filing of the suits triggered an
investigation by federal officials. The gist of the FCA
claims was that Whittier and Therapy knowingly presented
false claims for Medicare reimbursement. Both Whittier and
Therapy denied the allegations.
point, the claims against Therapy were dismissed. It is
unclear from the record whether the dismissal was a result of
a settlement or whether it was a dismissal without prejudice.
Sometime later, Whittier entered into a settlement with the
FCA plaintiffs, including the government, requiring, among
other things, payment by Whittier of $2.5 million. Therapy
was not a party to the settlement. FCA claims against Therapy
were not released in the Whittier settlement.
settlement agreement alleges that Whittier failed " to
take sufficient steps to prevent [Therapy] from engaging in a
pattern and practice of fraudulently inflating the reported
amounts of therapy provided to Medicare Part A
patients." There is no admission of liability by
Whittier in the settlement agreement and there was no finding
by a court or jury that Whittier engaged in the fraudulent
seeks a declaration that the indemnity provision, quoted
above, is unenforceable as against public policy and the FCA.
In short, Therapy argues that indemnification of Whittier
would relieve it of liability for its own fraud. The parties
concede that if Whittier had been found by a court to have
committed fraud, or admitted to fraud, case law under the FCA
would prohibit Whittier from obtaining indemnification.
Therapy argues that the FCA preempts state law claims based
on contract or common law, for indemnification that would
offset liability for fraud.
Whittier asserts that it did not commit fraud. There has been
no finding or admission that it committed fraud. The issue
presented is identical to what was presented to the United
States Court of Appeals for the Ninth Circuit in Cell
Therapeutics, Inc. v. Lash Group, Inc., 586 F.3d 1204,
1205 (2009) (" But what happens when a target defendant
settles with the government and the relator and then seeks
recovery against a third party for contractual indemnity and
independent claims?") The facts of Cell
Therapeutics are closely aligned with the facts in the
Court in Cell Therapeutics answered its rhetorical
question by holding that a defendant settling FCA claims with
no admission of liability is free to seek indemnification
from a third party. Id. at 1212. " In resolving
disputes under the FCA, we have recognized 'the general
policy in favor of encouraging parties to settle
disputes.' Treating a qui tam settlement as a de facto
finding of liability would inevitably chill the settlement
spirit." Id. (Citation omitted.) After
considering both the policy behind the FCA and principles of
issue and claim preclusion, the Court reversed a lower
court's dismissal of a settling defendant's claim for
indemnification. Id. at 1213.
the reasoning and conclusion in Cell Therapeutics to
be thoroughly persuasive. The cases cited by Therapy are all
distinguishable from the facts of both Cell
Therapeutics and the present case. Whittier should not
be precluded from making a claim for indemnification merely
because it settled the FCA case. Ultimately, whether Whittier
can recover indemnification will depend on its ability to
prove its contract claim (whether Whittier's losses were
" as a consequence of any malfeasance" of Therapy).
Therapy, however, will have the opportunity to prove that
Whittier's conduct was fraudulent. If so, Whittier may be
precluded from indemnification. These issues are not ripe for
determination on the present record.
cross motions for partial summary judgment on Count IV of the
amended complaint ...