Sairam v. Mercy Retirement and Care Center

— 1 — — 2 — — 3 — 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA — 6 — 7 SAMIR SAIRAM, et al., Case No. 21-cv-04335-EMC 8 Plaintiffs, ORDER GRANTING DEFENDANTS’ 9 v. MOTION TO DISMISS 10 MERCY RETIREMENT AND CARE Docket No. 30 CENTER, et al., — 11 — Defendants. — 12 — — 13 — 14 Plaintiffs are Samir Sairam, a medical doctor, and an affiliated corporation known as Samir 15 Sairam M.D. Inc. (“Sairam Inc.”). Dr. Sairam previously worked at Mercy Retirement & Care 16 Center (“Mercy”), a nursing facility. He served as its Medical Director and was also an attending 17 physician for a number of its residents. Plaintiffs filed suit against Mercy and its Executive 18 Director, Tamra Marie Tsanos, after Dr. Sairam was terminated as the Medical Director. Plaintiffs 19 filed suit in state court, but Defendants removed because one of the claims that Plaintiffs asserted 20 was a federal claim – specifically, a RICO claim. 21 Currently pending before the Court is Defendants’ motion to dismiss the operative second 22 amended complaint (“SAC”). The Court previously granted Defendants’ motion to dismiss the 23 first amended complaint (“FAC”), though, in that order, it addressed the merits of the RICO claim 24 only. It declined to address the arguments made on the state law claims because, in the absence of 25 a federal claim, the Court might decline supplemental jurisdiction. In the pending motion to 26 dismiss the SAC, Defendants argue that the RICO claim, as replead, still is not viable. Defendants 27 also argue that any claims asserted against Ms. Tsanos should be dismissed. 1 hereby GRANTS the motion to dismiss the RICO claim. Having dismissed the claim that served 2 as the basis for subject matter jurisdiction, the Court declines supplemental jurisdiction over the 3 remaining state law claims and remands the case back to state court. 4 I. FACTUAL & PROCEDURAL BACKGROUND 5 A. SAC 6 In the SAC, Plaintiffs allege as follows. 7 Dr. Sairam is a licensed physician who specializes in geriatric medicine. See SAC ¶ 2. 8 Sairam Inc. is an affiliated company. See SAC ¶ 3; see also SAC ¶ 11 (alleging that Dr. Sairam’s 9 services are billed through the corporation). Mercy is a nursing facility. See SAC ¶ 4. Its 10 Executive Director is Ms. Tsanos. See SAC ¶ 5. 11 In 2017, Mercy hired Dr. Sairam to be its Medical Director. See SAC ¶ 5. As Medical 12 Director, Dr. Sairam was “responsible for standards, coordination, surveillance, and planning for 13 improvement of medical care at Mercy.” SAC ¶ 9. In addition to being the Medical Director at 14 Mercy, Dr. Sairam also acted as the attending physician for dozens of residents at Mercy. See 15 SAC ¶ 10. 16 In January 2021, Mercy notified Dr. Sairam that it would be terminating him as Medical 17 Director, effective in March 2021. Ms. Tsanos signed the termination notice. In their initial 18 disclosures, Defendants have confirmed that Ms. Tsanos was involved in making the decision to 19 terminate. See SAC ¶ 18. 20 “When Dr. Sairam asked Mercy why it was terminating his medical directorship, Mercy 21 responded that one reason was Dr. Sairam was driving away other practitioners from the facility. 22 Underlying Mercy’s purported justification was Dr. Sairam’s history of blowing the whistle on 23 substandard care or fraudulent billing practices at the facility.” SAC ¶ 19; see also SAC ¶ 24 24 (alleging that “Mercy was fed up with Dr. Sairam’s refusal to place patient well-being second to 25 profits and administrative expediency”). For example, shortly before he was terminated, Dr. 26 Sairam complained to Ms. Tsanos that substandard care had been provided to one of his patients 27 because Mercy’s administrator, Nicole Foreman, interfered with him instating a DNR order. See 1 that physicians performed medically unnecessary procedures on patients, “some of whom are 2 incapacitated and cannot object to the treatment.” SAC ¶ 21 (giving as examples an unnecessary 3 skin biopsy and unnecessary wound debridements). He also complained about a doctor who 4 would “send medical scribes (non-professional personnel who assist healthcare practitioners in 5 charting physician-patient encounters in real time) to treat residents at Mercy” and who “would 6 [then] bill Medicare as if he had personally performed the services charted by the medical scribe.” 7 SAC ¶ 20 (adding that “physicians with questionable billing practices don’t want to practice in a 8 facility where the medical director scrutinizes those practices”). 9 Although Mercy was terminating Dr. Sairam, that did not “terminate his patient-physician 10 relationships with residents at Mercy” SAC ¶ 25. He remained an attending physician for many 11 residents. SAC ¶ 25. Defendants then began a “campaign to drive Dr. Sairam from Mercy 12 completely, including by interfering with [his] patient-physician relationships with Mercy 13 residents and by attempting to make [his] ability to treat those residents more difficult and 14 burdensome.” SAC ¶ 25. 15 As an example of interference, Mercy mailed a letter to residents or their authorized 16 representatives a few weeks after issuing the termination notice in January 2021. In the letter, 17 Mercy stated that Dr. Sairam was leaving as the Medical Director. The letter also gave the 18 misleading impression that Dr. Sairam would no longer treat patients at Mercy as an attending 19 physician – e.g., by stating that he “‘will be leaving us as of March 3, 2021’” and that Mercy 20 “‘greatly appreciate[s] his physician services these past years’” and “‘wish[es] [him] well in his 21 future endeavors.’” SAC ¶ 26. (This letter appears to have been signed by Ms. Tsanos. See SAC 22 ¶ 26.) As another example of interference, in February 2021, Mercy asked Dr. Sairam to approve 23 a proposed communication to his patients, “ask[ing] them to confirm whether they want to 24 continue with Dr. Sairam as their attending physician.” SAC ¶ 31. Dr. Sairam objected to the 25 letter, but it was still mailed out which led to several of his patients leaving his care. See SAC ¶ 26 31. 27 As for an example of Defendants making it more difficult for Dr. Sairam to treat his 1 and community staff, including but not limited to patient care. See SAC ¶ 38. Also, Mercy 2 ignored or delayed compliance with Dr. Sairam’s patient care instructions, failed to inform him of 3 suspected or confirmed COVID infections at the facility, and terminated his access to an online 4 portal used to monitor COVID testing results. See SAC ¶¶ 39-42. Mercy further falsely cast 5 aspersions on the quality of care provided by Dr. Sairam – e.g., Mercy’s counsel of record accused 6 Dr. Sairam of not complying with COVID protocols.1 See SAC ¶¶ 43, 46. 7 Based on, inter alia, the above allegations, Plaintiffs have asserted the following causes of 8 action. 9 (1) Intentional interference with contractual relationships (i.e., between Plaintiffs and 10 Mercy residents). 11 (2) Intentional interference with prospective economic advantage (i.e., between 12 Plaintiffs and Mercy residents). 13 (3) Violation of California Business & Professions Code § 510. See generally Cal. 14 Bus. & Prof. Code § 510(c) (providing that it is a violation of public policy for a 15 person or entity “to terminate an employment or other contractual relationship with 16 or otherwise penalize a health care practitioner principally for advocating for 17 appropriate health care”). 18 (4) Violation of California Business & Professions Code § 2056. See generally id. § 19 2056(c) (providing the same with respect to a physician and surgeon; adding that 20 “[n]o person shall terminate, retaliate against, or otherwise penalize a physician and 21 surgeon for that advocacy, nor shall any person prohibit, restrict, or in any way 22 discourage a physician and surgeon from communicating to a patient information in 23 furtherance of medically appropriate health care”). 24 (5) Violation of RICO. See 18 U.S.C. § 1962 (c)-(d). 25 (6) Wrongful termination in violation of public policy (against Mercy only). 26 (7) Violation of California Business & Professions Code § 17200 (against Mercy — 27 — 1 only). 2 B. Order on FAC re RICO Claim 3 As indicated above, Plaintiffs include in their SAC a claim for a violation of RICO. A 4 RICO claim was also included in the prior FAC but the Court held that the claim, as pled, was 5 deficient. 6 Under § 1962(c), it is unlawful for a “person employed by or associated with any enterprise . . . to conduct or participate . . . in the 7 conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962 (c). Under § 1962(d), it is unlawful for 8 a person to conspire to violate, e.g., subsection (c) above. See id. § 1962(d). “Racketeering activity” is defined to mean certain 9 unlawful conduct, including but not limited to mail fraud ( 18 U.S.C. § 1341 ) and wire fraud (§ 1343). See id. § 1961(1). “Pattern of 10 racketeering activity” means “at least two acts of racketeering activity . . . [,] the last of which occurred within ten years . . . after 11 the commission of a prior act of racketeering activity.” Id. § 1961(5). — 12 — 13 Docket No. 25 (Order at 7) (footnote omitted). 14 The Court explained that, in the FAC, Plaintiffs identified two types of racketeering 15 activity: “(1) Defendants mailed misleading letters to Dr. Sairam’s patients (i.e., mail fraud) and 16 (2) Defendants ‘submit[ed] claims for [false] payment to the federal government’ (i.e., wire 17 fraud).” Docket No. 25 (Order at 7) (footnote omitted). Plaintiffs did not appear to be injured by 18 the wire fraud in any way; rather, the victim of the wire fraud was the government. Plaintiffs did 19 not dispute such but argued that they were still injured by the mail fraud and that was sufficient to 20 have a viable RICO claim – i.e., injury from one act of racketeering was good enough. However, 21 the Court noted that 22 Plaintiffs’ position is viable only if the wire fraud and mail fraud can plausibly be considered part of [the same] pattern of racketeering 23 activity. The Supreme Court has noted that, for there to be a pattern of racketeering activity, a plaintiff cannot rely solely on the fact that 24 there is more than one predicate act. 25 In normal usage, the word “pattern” here would be taken to require more than just a multiplicity of 26 racketeering predicates. A “pattern” is an “arrangement or order of things or activity, and the 27 mere fact that there are a number of predicates is no relationship that they bear to each other or to some 1 external organization principle that renders them “ordered” or “arranged.” — 2 — H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989). — 3 — Furthermore, the legislative history for RICO indicates that — 4 — [a] pattern is not formed by "sporadic activity," and a 5 person cannot "be subjected to the sanctions of title IX simply for committing two widely separated and 6 isolated criminal offenses." Instead, "[t]he term 'pattern' itself requires the showing of a relationship" 7 between the predicates, and of "'the threat of continuing activity.'" "It is this factor of continuity 8 plus relationship which combines to produce a pattern." RICO's legislative history reveals Congress' 9 intent that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the 10 racketeering predicates are related, and that they amount to or pose a threat of continued criminal 11 activity. — 12 — Id. at 239 (emphasis in original). 13 Docket No. 25 (Order at 8-9) (emphasis in original). 14 The Court determined that, based on the allegations made in the FAC, Plaintiffs failed to 15 show that the wire fraud and the mail fraud were related. “Predicate acts are related only if they 16 have the same or similar purposes, results, participants, victims or methods of commission, or 17 otherwise are interrelated by distinguishing characteristics and are not isolated events.” Docket 18 No. 25 (Order at 9) (internal quotation marks omitted). According to Plaintiffs, the wire fraud and 19 mail fraud were related because, “in both cases, Mercy’s purpose was to make money,” but the 20 Court was not persuaded because 21 this “common purpose” lacks sufficient specificity. Cf. Cisneros v. Petland, Inc., 972 F.3d 1204, 1211 (11th Cir. 2020) (in discussing 22 an association-in-fact RICO enterprise, for which a plaintiff must plead there is a “common purpose,” stating that “[a]n abstract 23 common purpose, such as a generally shared interest in making money, will not suffice[;] [r]ather, where the participants' ultimate 24 purpose is to make money for themselves, a RICO plaintiff must plausibly allege that the participants shared the purpose of enriching 25 themselves through a particular criminal course of conduct”). 26 Plaintiffs also suggest that there was a common purpose “‘to maximize profits [through] violation [of] legal obligations to 27 Mercy’s residents and physicians.’” Docket No. 19 (Pls.’ Supp. Br. apparent purpose of the wire fraud was to defraud the federal 1 government of money, and the apparent purpose of the mail fraud was to retaliate against Dr. Sairam for his having made complaints. 2 It is worth noting that the mail fraud did not seem to – at least not as alleged – yield any profit to Defendants. Even if patients chose to 3 move to an attending physician other than Dr. Sairam, the ones who would profit would be the new attending physician. Cf. FAC ¶¶ 104 11 (suggesting that an attending physician is paid for his or her services by the patient). — 5 — 6 Docket No. 25 (Order at 11). 7 Finally, the Court addressed Plaintiffs’ contention that the wire and mail fraud were related 8 because “the wire fraud claims are actionable, in part, because Mercy is failing to disclose to the government violations Dr. Sairam 9 reported to Mercy and violations of law regarding Dr. Sairam’s patients’ right to choose him as their attending physician free of any 10 interference from Mercy.” Docket No. 19 (Pls. Supp. Br. at 5). But for predicate acts to be related for RICO purposes “require[s] more 11 than [any] articulable factual nexus.” Heller, 71 F.3d at 525. And to the extent Plaintiffs are suggesting that Defendants wanted to get 12 rid of Dr. Sairam in order to continue making false claims for payment with the federal government, (1) there is no indication that 13 Dr. Sairam was intending to expose Defendants’ scheme to the federal government or that Defendants knew of such an intent, and 14 (2) in any event, Defendants had already gotten rid of Dr. Sairam prior to the mail fraud by firing him as the Medical Director. The 15 mail fraud did not appear to further the wire fraud. And although the mail fraud may have provided a factual context for the wire 16 fraud, the victims of each differed and each involved entirely different kinds of conduct. — 17 — 18 Docket No. 25 (Order at 11-12). 19 Because Plaintiffs failed to show that the wire and mail fraud were related, the Court was 20 left with mail fraud as a possible basis for the RICO claim. Although Plaintiffs asserted more than 21 one act of mail fraud (i.e., an alleged pattern), the Court found that the continuity requirement had 22 not been satisfied. See Docket No. 25 (Order at 12) (noting that continuity “‘is both a closed- and 23 open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that 24 by its nature projects into the future with a threat of repetition’”). Plaintiffs had pointed to two 25 letters sent by Defendants to his patients at Mercy – the first in January 2021 (where Defendants 26 allegedly misled patients into thinking that, because Dr. Sairam would no longer be the Medical 27 Director, he would also be leaving as an attending physician) and the second in February 2021 1 their attending physician). The Court noted that 2 the conduct that Plaintiffs attribute to Defendants [as mail fraud] does not fall within either the open-ended concept or the closed3 ended concept [of continuity]. The open-ended concept is inapplicable because the past conduct does not, by its nature, project 4 into the future with a threat of repetition. There is no evident threat of continued repetition. As for the closed-ended concept, that 5 requires repeated conduct, and two letters in the span of two months is insufficient. See, e.g., Turner v. Cook, 362 F.3d 1219 , 1230-31 6 (9th Cir. 2004) (taking note of plaintiffs’ allegation that 94 companies received fraudulent communications from defendants in 7 June or July 2001; “[b]ecause almost all of the alleged fraudulent communications occurred during the two month period between 8 June and July of 2001, and the additional three categories of communication occurred only sporadically in the preceding year 9 (and one of these communications was sent to one of the [plaintiffs]) appellants have failed to allege a ‘series of related predicates 10 extending over a substantial period of time’”); Mocha Mill, Inc. v. Port of Mokha, Inc., No. 18-cv-02539-HSG, 2019 U.S. Dist. LEXIS 11 35218, at *30 (N.D. Cal. Mar. 5, 2019) (stating that, according to the Ninth Circuit, “activity spanning only a matter of months, involving 12 a single victim, with a singular goal, cannot sustain a RICO claim”). 13 Docket No. 25 (Order at 13). 14 Although the Court dismissed the RICO claim, it gave Plaintiffs an opportunity to amend. 15 C. Allegations in Support of the RICO Claim in the SAC 16 In the SAC, Plaintiffs have reasserted a RICO claim. There are some new allegations but 17 most are similar to those contained in the prior complaint. Below are the main allegations related 18 to the RICO claim as pled in the SAC: 19 • Mercy and Ms. Tsanos participated in, or conspired to participate in, the conduct of 20 an enterprise’s affairs through a pattern of racketeering activity. See SAC ¶ 74. 21 • “The purpose of [the] enterprise is to maximize profits by submitting claims for 22 payment to the government notwithstanding non-compliance with the laws and 23 regulations governing the provision of health care services and the failure to 24 provide medically appropriate care.” SAC ¶ 74. See, e.g., SAC at 18 n.2 (alleging 25 that “‘[e]ach CMS-2540-10 form submitted by Mercy [a form submitted by nursing 26 facilities for Medicare purposes] certifies that Mercy’s representatives are ‘familiar 27 with the laws and regulations regarding the provision of health care services, and 1 such laws and regulations’”); see also Opp’n at 13 (indicating that Mercy was 2 required to “disclose to the government violations reported by Dr. Sairam to 3 Mercy”). 4 • The pattern of racketeering activity includes the following acts: (1) “mailing letters 5 (signed by Ms. Tsanos on behalf of Mercy) to all of Dr. Sairam’s patients at Mercy 6 to obtain money or property by means of false pretenses and representations about 7 Dr. Sairam in violation of 18 U.S.C. § 1341” and (2) “submitting claims for 8 payment to the federal government that, either expressly or implicitly, certify 9 compliance with the laws and regulations regarding the provision of healthcare 10 services, despite the pattern of legal violations outlined above, in violation of 18 11 U.S.C. § 1343 .” SAC ¶ 77. 12 • “Defendants terminated Dr. Sairam’s medical directorship in retaliation for his 13 objections to Mercy’s noncompliant practices and because he presents an 14 impediment to the pursuit of profit at the expense of medically appropriate care and 15 compliance with the laws and regulations governing the provision of health care 16 services. Because the termination of Dr. Sairam’s medical directorship did not 17 terminate his patient-physician relationships at Mercy, Defendants continue to take 18 actions that interfere with those relationships and that otherwise burden and impede 19 his ability to treat his patients, including by failing to timely carry out patient care 20 orders, adopting policies and procedures that make his job more difficult or 21 burdensome, maligning the quality of care he provides to his patients and his 22 observance of COVID-19 precautions, and by misleading his patients (both by mail 23 and orally). Defendants resorted to the numerous wrongful acts alleged herein, 24 including through use of mail and wire communications, in order to silence him, 25 discredit him, and/or drive him out of Mercy, and thereby protect its ability to 26 continue submitting claims to the government while engaging in non-compliant 27 practices.” SAC ¶ 78. 1 II. DISCUSSION 2 A. Legal Standard 3 Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include “a short and plain 4 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 5 complaint that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil 6 Procedure 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a Rule 12(b)(6) motion to dismiss 7 after the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic 8 Corp. v. Twombly, 550 U.S. 544 (2007), a plaintiff’s “factual allegations [in the complaint] ‘must 9 . . . suggest that the claim has at least a plausible chance of success.’” Levitt v. Yelp! Inc., 765 10 F.3d 1123, 1135 (9th Cir. 2014). The court “accept[s] factual allegations in the complaint as true 11 and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. 12 Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a 13 complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient 14 allegations of underlying facts to give fair notice and to enable the opposing party to defend itself 15 effectively.” Levitt, 765 F.3d at 1135 (internal quotation marks omitted). “A claim has facial 16 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable 17 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 . “The 18 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer 19 possibility that a defendant has acted unlawfully.” Id. (internal quotation marks omitted). 20 In the instant case, Defendants contend that Plaintiffs’ RICO claim is not plausibly pled. 21 Defendants also challenge the claims asserted against Ms. Tsanos as implausible. 22 B. RICO Claim 23 For the RICO claim, Plaintiffs have once again attempted to allege a pattern of 24 racketeering activity based on mail fraud and wire fraud. 25 1. Wire Fraud 26 As an initial matter, Defendants argue that it is implausible the mail and wire fraud are 27 related (thus, creating a pattern of racketeering activity) because Plaintiffs have not, in the first 1 In response, Plaintiffs assert that the argument should be rejected because Defendants 2 never made the argument in its first 12(b)(6) motion even though they could have. See Fed. R. 3 Civ. P. 12(g)(2) (providing that, “[e]xcept as provided in Rule 12(h)(2) or (3), a party that makes a 4 motion under this rule must not make another motion under this rule raising a defense or objection 5 that was available to the party but omitted from its earlier motion”); Fed. R. Civ. P. 12(h)(2) 6 (providing that “[f]ailure to state a claim upon which relief can be granted . . . may be raised: (A) 7 in any pleading allowed or ordered under Rule 7(a); (B) by a motion under Rule 12(c); or (C) at 8 trial”). Plaintiffs also point out that the Court’s order on the FAC allowed Defendants to include 9 only arguments they made in the first 12(b)(6) motion. See Docket No. 25 (Order at 14) (stating 10 that, “[i]f Defendants moves to dismiss the new pleading, they may include any argument made in 11 the present briefing that the Court did not address”). Finally, Plaintiffs note that Mercy never 12 moved to dismiss the RICO claim when asserted in the FAC (only Ms. Tsanos did) and instead 13 answered it. See Docket No. 7 (answer). But see Docket No. 25 (Order at 7) (noting that, for the 14 RICO claim, an argument was made that, “if accepted, would require dismissal as to not only Ms. 15 Tsanos but also Mercy”). 16 Although Plaintiffs’ position is not entirely lacking in merit, the Court rejects it – 17 particularly because, at the hearing, Plaintiffs themselves provided clarity for the first time as to 18 what their wire fraud theory was. In any event, there is no real prejudice to Plaintiffs given that, 19 even if the Court did not consider the argument here, nothing would bar Defendants from 20 challenging the wire fraud claim through a 12(c) motion. To disregard Defendants’ argument at 21 this juncture would exalt form over substance. 22 According to Defendants, the wire fraud claim is not sufficiently pled because Plaintiffs 23 allege in the SAC that doctors engaged in fraudulent billing practices with the government 24 (implicitly for their own benefit), but there is no allegation that these doctors were Mercy 25 employees such that it was ultimately Mercy who submitted false claims to the government. In 26 other words, it was the individual doctors who were making false claims, and not Mercy. See 27 Mot. at 14 n.4; see also Reply at 6 (maintaining that, “[b]ecause Mercy does not provide medical 1 services”). Defendants raise a legitimate point. The SAC’s allegations indicate that individual 2 doctors billed residents for providing care as attending physicians, and not Mercy. See, e.g., SAC 3 ¶ 21 (alleging that Dr. Sairam spoke to the doctor who performed an unnecessary skin biopsy, the 4 doctor “stated that it was his company’s practice to biopsy all wounds”) (emphasis added); SAC ¶ 5 20 (alleging that “this physician [who had a practice of sending medical scribes to perform 6 medical services] would bill Medicare as if he had personally performed the services charted by 7 the medical scribe”) (emphasis added); SAC ¶ 20 (alleging that “physicians with questionable 8 billing practices don’t want to practice in a facility where the medical director scrutinizes those 9 practices”) (emphasis added); cf. SAC ¶ 11 (alleging that Sairam Inc. – i.e., not Mercy – bills for 10 services provided to the residents when Dr. Sairam is acting as an attending physician). 11 Plaintiffs protest that, regardless of what individual doctors may have done, they have still 12 alleged that Mercy itself also submitted false claims to the government. See Opp’n at 21 & n.5 13 (stating that, “[t]o be clear, both physicians at Mercy and Mercy submit claims for reimbursement 14 to the federal government, physicians for professional services and Mercy as a skilled nursing 15 facility”; citing 42 U.S.C. § 1395yy which relates to payments to skilled nursing facilities). For 16 example, in ¶ 77 of the SAC, Plaintiffs allege that Defendants “submit[ted] claims for payment to 17 the federal government that, either expressly or implicitly, certifying compliance with the laws and 18 regulations regarding the provision of healthcare services, despite the pattern of legal violations 19 outlined above.” SAC ¶ 77; see also SAC at 18 n.2 (alleging that “‘[e]ach CMS-2540-10 form 20 submitted by Mercy [a form submitted by nursing facilities for Medicare purposes] certifies that 21 Mercy’s representatives are ‘familiar with the laws and regulations regarding the provision of 22 health care services, and that the service[s] identified in this cost report were provided in 23 compliance with such laws and regulations’”). While this is true, the allegation that Mercy 24 submitted false claims is somewhat conclusory in nature. Certainly, it is muddled: what exactly 25 was false about the claims that Mercy was making for payment for its services (as a nursing 26 facility)? 27 When pressed at the hearing, Plaintiffs provided clarification. According to Plaintiffs, 1 been the focus of Plaintiffs’ FAC and SAC, but because Mercy represented in its submittals that it 2 was in compliance with health care law when, in fact, it had violated such law by penalizing Dr. 3 Sairam for advocating for appropriate health care (in contravention of California Business & 4 Professions Code §§ 510 and 2056). The problem for Plaintiffs is that they have failed to allege 5 how this falsity was material. In addressing the False Claims Act, the Supreme Court has noted 6 that “statutory, regulatory, and contractual requirements are not automatically material, even if 7 they are labeled conditions of payment.” Univ. Health Servs. v. United States ex rel. Escobar, 579 8 U.S. 176 , 191 (2016) (emphasis added). In addition, in Escobar, the Supreme Court rejected the 9 view that “any statutory, regulatory, or contractual violation is material so long as the defendant 10 knows that the Government would be entitled to refuse payment were it aware of the violation.” — 11 — Id. at 195 . The Court explained as follows: 12 [According to the Government,] [i]f the Government contracts for health services and adds a requirement that contractors buy 13 American-made staplers, anyone who submits a claim for those services but fails to disclose its use of foreign staplers violates the 14 False Claims Act. To the Government, liability would attach if the defendant’s use of foreign staplers would entitle the Government not 15 to pay the claim in whole or part – irrespective of whether the Government routinely pays claims despite knowing that foreign 16 staplers were used. Likewise, if the Government required contractors to aver their compliance with the entire U.S. Code and 17 Code of Federal Regulations, then under this view, failing to mention noncompliance with any of those requirements would 18 always be material. The False Claims Act does not adopt such an extraordinarily expansive view of liability. — 19 — — 20 — Id. at 195-96 . 21 Escobar provides guidance in the instant case. Under Plaintiffs’ position, because Mercy 22 terminated him for advocating for appropriate health care, it violated health care law, and therefore 23 all requests for payment that Mercy thereafter made (certifying that it was in compliance with 24 health care law) were false, regardless of whether a given request for payment had any connection 25 to the advocacy in which he engaged. This is the kind of expansive ipse dixit alleged violation 26 that fails to regard the basic requisite of materiality condemned in Escobar. Plaintiffs must 27 articulate a basis for how the alleged falsity was material in order to have a viable wire fraud 1 Accordingly, the Court agrees with Defendants that Plaintiffs have failed to adequately 2 allege a claim for wire fraud based on false claims for payment submitted to the federal 3 government. 4 2. Whether Wire Fraud and Mail Fraud Are Plausibly Related 5 Even assuming that Plaintiffs adequately pled a claim for wire fraud (based on false 6 certification of law compliance made in claims for payment submitted to the federal government), 7 Plaintiffs must adequately plead a pattern of racketeering activity to state a RICO claim. 8 Although Plaintiffs assert that there is a pattern based of racketeering activity based on wire fraud 9 and mail fraud,2 they have not plausibly alleged that the wire fraud and mail fraud are related for 10 purposes of RICO. 11 As noted in the Court’s prior order, for there to be a pattern of racketeering activity, the 12 predicate acts must be related and have continuity. Though the relatedness requirement is not a 13 cumbersome one, it “is not without any bite. Predicate acts are related only if they have the same 14 or similar purposes, results, participants, victims or methods of commission, or otherwise are 15 interrelated by distinguishing characteristics and are not isolated events.” Docket No. 25 (Order at 16 9) (internal quotation marks omitted; citing H.J. Inc. v Nw. Bell Tel. Co., 492 U.S. 299 , 240 17 (1989)). 18 In the instant case, Plaintiffs have alleged that the purpose of the RICO enterprise was “to 19 maximize profits by submitting claims for payment to the government notwithstanding non20 compliance with the laws and regulations governing the provision of health care services and the 21 failure to provide medically appropriate care.” SAC ¶ 74. According to Plaintiffs, both the wire 22 fraud and the mail fraud shared this purpose. See Opp’n at 11 (asserting that the “unifying 23 purpose” is “to maximize profits by submitting claims for payment to the government, 24 notwithstanding non-compliance with the laws and regulations governing the provision of health 25 care services and the failure to provide medically appropriate care”); Opp’n at 12 (claiming that 26 the “common purpose” is “to facilitate Mercy’s submission of claims to the government — 27 — 1 notwithstanding its non-compliant practices”). 2 The wire fraud, as pled, would arguably have the above-identified purpose. The wire fraud 3 is Defendants’ act of submitting false claims for payment to the government. But, as the Court 4 previously noted, it is not at all clear how the mail fraud has the same purpose. The mail fraud 5 consisted of, e.g., Defendants sending letters to Dr. Sairam’s patients suggesting that he would no 6 longer be providing services as an attending physician and/or that the patients should move over to 7 a new attending physician. As the Court previously noted, the “apparent purpose of the mail fraud 8 was to retaliate against Dr. Sairam for his having made complaints” about, e.g., the fraudulent 9 billing practices by doctors, and the mail fraud did not yield any profit to Defendants – i.e., 10 “[e]ven if patients chose to move to an attending physician other than Dr. Sairam, the ones who 11 would profit would be the new attending physician,” not Mercy. Docket No. 25 (Order at 11). 12 Plaintiffs suggest that, while retaliation may have been one purpose for the mail fraud, that 13 does not mean that the mail fraud did not have another purpose as well – i.e., protecting the 14 scheme to defraud the government. See Opp’n at 9 (arguing that it is not proper to “narrow[] the 15 ‘purpose’ behind an action to its most immediate result”; nor is it proper to “assume[] that an act 16 may serve only one purpose at a time”). Although mail fraud could in theory have had more than 17 one purpose, it is not plausible that the mail fraud had the additional purpose of protecting the 18 scheme to defraud the government which involved lying about the very letters about which 19 Plaintiffs complain. There is an inherent illogic in Plaintiffs’ circular reasoning: Defendants 20 engaged in unlawful conduct (removing Dr. Sairam) in order to prevent the disclosure of that very 21 conduct.3 22 Moreover, Plaintiffs have not explained with any specificity how ousting Dr. Sairam from 23 Mercy furthered Mercy’s scheme to defraud the government. That is, how would removing Dr. 24 Sairam as an attending physician further Mercy’s ability to lie to the government about its 25 compliance with health care law? Mercy had already terminated Dr. Sairam from his position as — 26 — 3 There appears to be a more fundamental problem with Plaintiffs’ basic racketeering pattern — 27 — theory. Under Plaintiffs’ logic, any time an applicant engages in an unlawful retaliatory act 1 Medical Director because (as alleged) he had advocated for appropriate health care. The direct 2 and primary act of retaliation was consummated. Having suffered that retaliatory termination, Dr. 3 Sairam was already incentivized to blow the whistle. Indeed, any effort to terminate his 4 relationships with patients as attending physician (thereby creating more legal violations) would 5 only serve to further incentivize Dr. Sairam to blow the whistle. Accordingly, Plaintiffs have 6 failed to allege a plausible claim that the mail and wire fraud are related. 7 3. Continuity of Mail Fraud 8 Although the Court finds it implausible that the wire fraud and mail fraud are related, there 9 is still one remaining issue for the Court to consider – i.e., whether, considering the acts of mail 10 fraud alone, there is a pattern of racketeering activity. As noted above, the Court previously held 11 that, though Plaintiffs asserted more than one act of mail fraud (i.e., an alleged pattern), the 12 continuity requirement had not been satisfied. Even when the new allegations in the SAC are 13 considered, Plaintiffs have not alleged enough to show a pattern of racketeering activity. 14 Although Plaintiffs have alleged “an ongoing campaign to oust Dr. Sairam, using mail and [email] 15 communications,” Opp’n at 17 (emphasis in original), which suggests continuity, there must be 16 still be a fraudulent scheme in the first instance for which Defendants were using the mail and/or 17 email.4 See Bridge v. Phx. Bond & Indem. Co., 553 U.S. 639, 647 (2008) (stating that “[m]ail 18 fraud . . . occurs whenever a person, ‘having devised or intending to devise any scheme or artifice 19 to defraud,’ uses the mail ‘for the purpose of executing such scheme or artifice or attempting so to 20 do’[;] [t]he gravamen of the offense is the scheme to defraud, and any ‘mailing that is incident to 21 an essential part of the scheme satisfies the mailing element’”); see also Schmuck v. United States, — 22 — 489 U.S. 705, 711, 715 (1989) (stating that the mail fraud statute reaches “instances in which the — 23 — — 24 — 4 In their reply brief, Defendants argue for the first time that any email communications are not wire fraud because there is no allegation of a connection to interstate commerce – e.g., that the — 25 — “emails originated from individuals or entities located in different states from one another” or that the “computer servers hosting the originating and/or receiving emails were based on different — 26 — states when [the] communications were sent”). See Reply at 8-9. See, e.g., Ideal Steel Supply Corp. v. Anza, 373 F.3d 251, 265 (2d Cir. 2004) (noting that, "[a]s a matter of substance, it is — 27 — possible for a wire communication whose origin and ultimate destination are within a single state 1 use of the mails is a part of the execution of the fraud”; adding that even “‘innocent’ mailings – 2 ones that contain no false information – may supply the mailing element”). 3 Here, Plaintiffs are still relying on an alleged scheme to defraud the government – i.e., 4 ousting Plaintiffs would permit Defendants to “continue to submit false claims.” Opp’n at 18. For 5 the reasons stated above, it is not plausible that ousting Plaintiffs would serve to permit 6 Defendants to continue making false claims for payment to the government. Thus, even if 7 Plaintiffs have pled continuity of bad conduct by Defendants, that in and of itself is not sufficient 8 as Plaintiffs must allege that such continuous conduct was in furtherance of a scheme to defraud. 9 They fail to do so. 10 III. CONCLUSION 11 For the foregoing reasons, the Court dismisses the RICO claim for failure to state a claim 12 for relief. Plaintiffs’ RICO claim as pled in the SAC is still deficient: (1) the predicate act of wire 13 fraud is not plausibly alleged because Plaintiffs have not plausibly alleged how Mercy’s false 14 certification of compliance with health care law was material; (2) even if the predicate act of wire 15 fraud were plausibly alleged, Plaintiffs have failed to plausibly allege that the wire fraud and mail 16 fraud were related (i.e., that there was a pattern of racketeering activity); and (3) to the extent 17 Plaintiffs claim a pattern of racketeering activity based on the various acts of mail fraud and/or 18 email fraud (designed to oust Dr. Sairam from Mercy as even an attending physician), Plaintiffs 19 have not alleged a plausible scheme to defraud sufficient to state a RICO claim. 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 1 Because the Court previously gave Plaintiffs an opportunity to remedy the RICO claim and 2 they have still failed to do so, the dismissal of the RICO claim is with prejudice. The Court 3 declines to exercise supplemental jurisdiction over the remaining state law claims (including those 4 brought against Ms. Tsanos) and therefore does not address any of Defendants’ arguments on the 5 state law claims. Because the instant case was removed to federal court, the Court orders the 6 Clerk of the Court to remand the case back to the Alameda County Superior Court. In addition, 7 the Clerk is ordered to close the file in this case. 8 This order disposes of Docket No. 30. — 9 — 10 IT IS SO ORDERED. — 11 — 12 Dated: January 19, 2022 — 13 — 14 ______________________________________ EDWARD M. CHEN 15 United States District Judge — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 —