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Breaking Legal Developments


Published by:
Peter A. Lynch, Esq.
of Cozen O'Connor


EXECUTIVE SUMMARY:      This weekly newsletter covers:

  1. Record Destruction did not Constitute Spoliation of Evidence


In USA and Aflatooni v. Kitsap, et al., Case No. 01-36089, Dec. 16, 2002, the Ninth Circuit Court of Appeals reviewed the plaintiff’s contention that evidence destruction constituted spoliation of evidence requiring the defendant's successful motion for summary judgment to be reversed.

Dr. Alfred Aflatooni appealed the summary judgment dismissal of his False Claims Act lawsuit brought against two physician groups and three doctors. The district court dismissed Aflatooni's action because he failed to produce a single false claim submitted by the defendants. Aflatooni contended that (1) the district court should have given him more time pursuant to Federal Rule of Civil Procedure 56(f) to gather evidence because the defendants engaged in spoliation of the allegedly false documents.

The district court also properly granted summary judgment on the merits. To proceed to trial Aflatooni was required -- not surprisingly -- to present evidence of actual false claims made by the defendants. Because Aflatooni did not point to a single, specific false claim or a sufficiently detailed description of one, he failed to create a triable issue of fact.

Dr. Aflatooni initiated this action in January 1996, acting as a qui tam relator under the federal False Claims Act, 31 U.S.C. §§ 3729-3733. Aflatooni named multiple defendants, including the appellees in this case: Kitsap Physicians Service ("Kitsap"), Pathology Associates of Kitsap County ("PAKC"), Dr. Hallman, Dr. Case, and Dr. Matan. In addition, Aflatooni named Northwest Diagnostic Imaging as a defendant. The government later chose not to intervene.

The parties conducted sporadic discovery until the defendants moved for summary judgment on September 6, 2001. The defendants based their motion on (1) Aflatooni's failure to produce evidence of a single false claim and (2) his failure to bring the action within the statute of limitation. The district court heard oral argument on October 17, 2001. Dr. Aflatooni presented the trial court with limited evidence relating to his claims. He relied almost entirely on a letter from Dr. John P. Matan (now deceased), dated April 8, 1987, and later statements made by the recipient of the letter, Robert Wilson, president of Kitsap. The letter stated in its entirety:

On 4/4/87, I became aware that many of my anatomic pathology billings through [PAKC] have been altered without my knowledge or consent. This was performed by my partner, Dr. Hallman, and has apparently gone on since the inception of [PAKC].

This notice is not to be construed in any way as alleging fraud or any other [illegal] activity by Dr. Hallman nor is it meant to imply a loss to the carrier. This notice is meant to disclaim any knowledge or consent of any possible illegal or unethical activities resulting from this action and to state that the billings for this period under my name do not reflect my personal fee profile or the actual work performed in many instances.

In response to this letter, Kitsap engaged attorney John Guadnola to conduct an internal investigation. Guadnola testified on deposition that his investigation was free from influence by Kitsap and individual doctors, and Guadnola selected without interference nearly 1,000 medical records to review for improper billing. Guadnola concluded that "there was no fraud," that all adjustments to bills were appropriate, and that the general trend of any adjustments was to reduce the amount claimed in the bill. For example, Guadnola found that of the 523 November 1985 bills he reviewed, there were only two occasions in which the bill upwardly adjusted the number of slides reviewed by a pathologist and there were at least fifty downward adjustments.

Aflatooni argues on appeal that the entire Guadnola investigation was a sham, based on a 1997 declaration of a healthcare administrator, an expert whom Aflatooni engaged to assess the propriety of the investigation. However, because Aflatooni failed to present this evidence to the district court in opposition to the motion for summary judgment, either in his written briefs and affidavits or at the summary judgment hearing, he has waived this argument on appeal. See, e.g., Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001) (a "district court is not required to comb the record to find some reason to deny a motion for summary judgment") (quotation [*8] omitted); Peterson v. Highland Music, Inc., 140 F.3d 1313, 1321 (9th Cir. 1998) ("We apply a 'general rule' against entertaining arguments on appeal that were not presented or developed before the district court.").

Aflatooni did present to the district court a memo written by Wilson after receiving Matan's April 1987 letter. Wilson met with Matan at that time, and Matan indicated to Wilson that PAKC submitted about 10,000 bills a year, any of which could have been altered without Matan's knowledge. Aflatooni also claimed that Wilson later personally told him that about a quarter of the 10,000 bills a year may have been altered to receive more compensation.

Dr. Keith Hallman, the physician who allegedly altered Matan's bills to defraud Medicare, testified on deposition that Hallman reviewed Matan's bills in accordance with Hallman's role as managing partner and exercised his reasonable professional judgment to sometimes adjust Matan's bills. Hallman also swore that "I have never knowingly billed for services that were not provided or inaccurately identified services to be billed."

Aflatooni also contended on appeal that he presented sufficient evidence of fraud committed by Northwest Diagnostic Imaging, the party that was dismissed from the case in 1997 on jurisdictional grounds. Aflatooni alleged that Northwest Diagnostic Imaging was forced to pay a penalty of around $150,000 for overcharging Medicare. Northwest Diagnostic Imaging was controlled by Kitsap, which also controls PAKC. Aflatooni argues on appeal that he has therefore established a pattern of fraud by Kitsap that also extends to PAKC. Aflatooni's urging of this evidence for the first time on appeal cannot create a triable issue of fact because he failed to articulate this evidence to the district court in opposition to the summary judgment motion. See Carmen, 237 F.3d at 1029; Peterson, 140 F.3d at 1321.

At the October 17, 2001, summary judgment hearing, Aflatooni raised the issue of evidence spoliation and requested that an evidentiary hearing be conducted on that issue. The district court granted defendants' motion and dismissed Aflatooni's case. The court found that Aflatooni presented "no evidence to support the claim that defendants filed a single claim in violation of the False Claims Act." The district court rejected defendants' argument that Aflatooni's claims were barred by the statute of limitation. The court also rejected Aflatooni's suggestion for an evidentiary hearing to examine his claims of spoliation, stating that "Defendants have offered credible reasons for the destruction of the records, i.e. the retention policy in accordance with both State and Federal Regulations, and storage accommodation." The court also rejected Aflatooni's spoliation claims because "the trial date was scheduled at a date beyond that requested by [Aflatooni]. [Aflatooni's] failure to seek the documents basic to his 15 year old claims (or suspicions) and his six year old lawsuit cannot be blamed on the defendants."

To determine if the district court erred in dismissing Aflatooni's action on summary judgment, the court had to first resolve whether Aflatooni posited a successful spoliation argument. Showing evidence of spoliation of the claim documents by the defendants would allow Aflatooni to argue to the jury adverse inferences of fraud that might be sufficient to defeat summary judgment. Akiona v. United States, 938 F.2d 158, 161 (9th Cir. 1991).

But the district court held that there was no spoliation in this case, finding that "Defendants have offered credible reasons for the destruction of the records, i.e. the retention policy in accordance with both State and Federal Regulations, and storage accommodation." Aflatooni offered no evidence to rebut that explanation.

Defendants engage in spoliation of documents as a matter of law only if they had "some notice that the documents were potentially relevant" to the litigation before they were destroyed. Akiona, 938 F.2d at 161. Aflatooni argued that defendants improperly destroyed the 1985-87 billing records. The defendants responded that the documents were kept and destroyed in the normal course of business. Defense witnesses testified on deposition that the documents were routinely destroyed after keeping them for the six years required by state regulations. That is, the 1985-87 documents were destroyed in 1991-94. Aflatooni did not bring his lawsuit until January 1996. Therefore, Aflatooni's action could not have provided the notice required to establish a valid claim of spoliation.

Aflatooni also contended that the defendants were put on notice about potential litigation when they initiated the 1987 internal investigation. But the result of this investigation was an opinion from outside legal counsel that there were no bases for fraud. From the defendants' perspective, they were not on notice of potential litigation, much less a specific, future qui tam lawsuit.

Aflatooni's argument, would result in a de facto rule that health care providers must keep documents in perpetuity where there was a single suggestion of possible billing changes that was entirely refuted by an external auditor engaged to conduct an internal investigation to confirm or deny improper billing activities. Such a result is not required to maintain the vitality of the False Claims Act and would be unfair as a matter of legal policy to health care providers who generate enormous quantities of records. Where an organization receives a clean bill of health as a result of such an investigation, and keeps the relevant records for the time period mandated by law, without additional evidence of wrongdoing that should have put management on notice that the investigation was inadequate, there is nothing to warrant a finding of spoliation. In this case, the district court correctly found that there was no spoliation.

Mr. Lynch can be reached at Cozen and O'Connor, 501 West Broadway, Suite 1610, San Diego, California 92101, 800-782-3366 (voice), 619-234-7831 (fax), (e-mail), Follow us on Twitter at @firesandrain.

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