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Guilfoile v. Shields

United States Court of Appeals, First Circuit

January 15, 2019

THOMAS GUILFOILE, Plaintiff, Appellant,
v.
JOHN M. SHIELDS, SR.; SHIELDS PHARMACY, LLC, d/b/a Shields Health Solutions; UMASS MEMORIAL SHIELDS PHARMACY, LLC, d/b/a Shields Health Solutions; SHIELDS PHARMACY EQUITY, LLC, d/b/a Shields Health Solutions; SHIELDS SPECIALTY PHARMACY HOLDINGS, LLC, d/b/a Shields Health Solutions, Defendants, Appellees.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Denise J. Casper, U.S. District Judge]

          Paul W. Mollica, with whom Tammy T. Marzigliano and Outten & Golden LLP were on brief, for appellant.

          Brian J. Leske for appellees. Michael J. Sullivan and Ashcroft Law Firm, LLC on brief for appellee John M. Shields.

          Walter B. Prince, William A. Worth, and Prince Lobel Tye LLP on brief for appellees Shields Pharmacy, LLC, and Shields Pharmacy Equity, LLC.

          David C. Casey, Stephen T. Melnick, and Littler Mendelson PC on brief for appellees UMass Memorial Shields Pharmacy, LLC, and Shields Specialty Pharmacy Holdings, LLC.

          Before Howard, Chief Judge, Lipez and Barron, Circuit Judges.

          LIPEZ, Circuit Judge.

         In alleged violation of the False Claims Act, appellant Thomas Guilfoile claims he was fired from his job in retaliation for accusing his employer of violating the Anti-Kickback Statute and making false representations in customer contracts. See 31 U.S.C. § 3730(h); 42 U.S.C. § 1320a-7b(b). The district court dismissed his complaint on the ground that Guilfoile did not allege sufficient facts to show he was engaged in protected conduct within the meaning of the retaliation provision of the False Claims Act. After careful review of the complaint and the law, we affirm as to the contractual language claim but vacate and remand as to the claim involving the Anti-Kickback Statute.

         I.

         A. Factual Background

         Because this appeal follows the grant of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), we recite the facts as alleged in the amended complaint. See Davis v. Coakley, 802 F.3d 128, 130 (1st Cir. 2015). We include only those facts relevant to the issues on appeal.

         Appellant Guilfoile is a seasoned management professional with 30 years of finance and operations experience. Appellee John Shields, Guilfoile's employer during the period relevant to this case, is the CEO of a collection of health care LLCs, joint ventures, and holding companies that operate in concert as a single integrated entity (the "Integrated Entity"). The component businesses of the Integrated Entity include appellees Shields Pharmacy, LLC; UMass Memorial Shields Pharmacy, LLC; Shields Pharmacy Equity, LLC; and Shields Specialty Pharmacy Holdings, LLC.[1]

         The Integrated Entity partners with hospitals to provide specialty pharmacy services for chronically ill patients by either operating a pharmacy directly in the hospital or by filling specialty prescriptions through an off-site location. The Integrated Entity processes the prescriptions, bills the patient's insurance, provides patients with financial advice, and follows up with patients to ensure their adherence to complex medication regimens. The Integrated Entity regularly bills federal insurance programs, including Medicaid and Medicare, for the services it provides to patients covered by those programs. As a secondary line of business, the Integrated Entity also runs home infusion and high-risk care management programs.

         After years of providing free business advice to his long-time friend and neighbor Shields, Guilfoile began to consult for the Integrated Entity in April 2013 and officially joined the Integrated Entity full-time as president in August of that year. Guilfoile's employment contract included terms governing salary, bonuses, an equity stake in the Integrated Entity's joint ventures, an equity vesting schedule, and protocols in the event of termination. Shields was Guilfoile's immediate supervisor. The complaint alleges that during Guilfoile's tenure, Shields Specialty Pharmacy Holdings and UMass Memorial Shields Pharmacy had boards of directors composed of Shields, Guilfoile, and the same two other individuals.[2]

         Under Guilfoile's leadership, the Integrated Entity grew from a start-up to a successful operation generating millions of dollars in profit. The Integrated Entity enjoyed overwhelmingly positive feedback from patients, providers, and employees, and Guilfoile's leadership was appreciated by Shields and the Integrated Entity.

         However, in the fall of 2015, Guilfoile became concerned that the Integrated Entity was violating the law. At that time, he learned that Shields had previously entered into a contract on behalf of the Integrated Entity with Michael Greene, [3] Shields's long-time friend and a consultant whom several New Jersey hospitals paid for financial advice. The contract obligated the Integrated Entity to, among other things, pay Greene's consulting firm, the Ayrault Group, $35, 000 per quarter for each hospital contract that Greene successfully referred to the Integrated Entity, specifically targeting two hospitals that Greene was working for as a paid consultant: Newark Beth Israel Medical Center ("NBIMC") and University Hospital ("University"). The Integrated Entity, with assistance from Greene, eventually entered into contracts for specialty pharmacy services with both NBIMC and University, and the Integrated Entity paid Greene "referral fees." Guilfoile believed that these payments "had improperly induced [Greene] to steer [the] hospital contracts to the Integrated Entity."

         Guilfoile conferred with the Integrated Entity's counsel, who agreed that Guilfoile had valid concerns about the contract with Greene. Guilfoile notified Shields that he believed the contract violated the federal Anti-Kickback Statute because the Integrated Entity had paid Greene to secure contracts with hospitals that would result in the Integrated Entity making claims for payment to federal insurance programs. Such payments are prohibited by the statute, as explained in greater detail below. Guilfoile was especially concerned about the implications of the kickback scheme for the contract with University, which he believed was government owned.

         At Guilfoile's insistence, Shields ultimately approached Greene to discuss voiding Greene's contract with the Integrated Entity and obtaining refunds of any payments to the Ayrault Group. After an apparent negotiation, Shields revealed to Guilfoile that Greene agreed to waive payments yet to be made for the University referral but refused to return the money that the Integrated Entity had already paid for the NBIMC referral. Guilfoile believed that by letting the NBIMC payment stand, the Integrated Entity still may have violated the Anti-Kickback Statute. He therefore urged Shields to reveal the matter to the Board and offered to make the disclosure jointly. Shields refused.

         In December 2015, Guilfoile learned that the contracts the Integrated Entity had used to form partnerships with hospitals contained a false representation that the Integrated Entity maintained "a fully staffed 24/7 [c]all [c]enter in Quincy, Massachusetts." The Integrated Entity at the time did not have such a center.[4] Guilfoile believed that making false representations to government-owned hospitals, like University, about medication management services for chronically ill patients with serious medical conditions was contract fraud and posed a serious threat to public health and safety.

         Despite Guilfoile's insistence that the Integrated Entity either amend the contracts to remove the representation or create a fully-staffed 24/7 call center, Shields refused to take action or notify the Board. Instead, Shields suggested that the Integrated Entity should address the issue only if a customer complained about the breach. In an effort to bring the Integrated Entity into compliance with the contractual language, Guilfoile alerted the Human Resources department and the Director of Operations that they should prepare to hire enough staff to operate a 24/7 call center.

         On December 22, 2015, Shields asked Guilfoile to come to his home office, where Shields expressed his concern about Guilfoile "going over his head" and "airing his dirty laundry" to the Board. Shields told Guilfoile that he viewed the Board as a "third rail" -- i.e., an entity that should be approached with caution -- to which Guilfoile was getting too close. Shields also explained that he felt he "had to protect his interests and his family" and that he could not risk a vote by the Board against him. After Guilfoile rejected Shields's suggestion that the two of them consider "parting ways," the meeting ended without a concrete resolution. Shields stated that he would give the matter additional thought.

         A week later, on December 28, Shields terminated Guilfoile's employment in a phone call without further explanation. The following day, Shields emailed Guilfoile to confirm that his employment was terminated. Shields did not provide any reason for the termination and did not refer to Guilfoile's performance or possible misconduct as a basis for the termination. Guilfoile then received a written notice stating that his termination was retroactive to December 22. The letter did not state that he was being terminated for cause.

         After his termination, Guilfoile notified the Board that Shields had terminated him because he feared that Guilfoile would report the suspected violations of law to the Board. Guilfoile subsequently forwarded a letter to the Board memorializing his concerns. Following these disclosures, Shields made repeated threats to file suit against Guilfoile for defamation and tortious interference, which he in fact subsequently did. On February 26, 2016, Guilfoile received a letter from the Integrated Entity discussing its purported right to repurchase Guilfoile's vested equity for a total of $15. The letter stated, for the first time, that Guilfoile had been "terminated for cause."

         B. Procedural Background

         On April 1, 2016, Guilfoile filed this action against the Integrated Entity and Shields alleging "whistleblower retaliation" in violation of the False Claims Act and a variety of state law employment, wage, contract, and tort claims. In the operative amended complaint ("the complaint"), filed after defendants filed motions to dismiss, Guilfoile alleges that the Integrated Entity retaliated against him for his "efforts to stop violations of the [False Claims Act]," specifically his "disclosures . . . related to the kickbacks [the Integrated Entity] paid Mr. Green[e] in exchange for referrals of federally insured patients, and disclosures related to contracts the Integrated Entity entered into with government-owned hospitals even though the Integrated Entity knew the contracts included fraudulent terms."

         Regarding the payments to the Ayrault Group, the complaint alleges that Guilfoile reasonably believed the payments to be "violations of the [Anti-Kickback Statute], a per se violation of the [False Claims Act], resulting in the submission of fraudulent claims to the government," and that "[t]he Integrated Entity violated the [Anti-Kickback Statute] and the [False Claims Act] by willfully paying remuneration to induce a person [Greene] to refer patients for the furnishing of a service for which the Integrated Entity knew payment would be made under federal health care programs." Finally, the complaint alleges that the Integrated Entity retaliated against Guilfoile by terminating his employment, "threatening to sue him, fabricating an after-the-fact contention as to 'cause,' attempting to repurchase his equity for the amount of $15, and then making good on their threat to sue him after he instituted this law suit."[5]

         Following oral argument on defendants' motions to dismiss, Guilfoile requested leave to file a memorandum "in response to legal authority and factual allegations that [d]efendants raised for the first time during oral argument." The last sentence of the brief accompanying the request stated, "If this [c]ourt determines . . . that the present [a]mended [c]omplaint does not adequately plead a cause of action under the anti-retaliation provision of the [False Claims Act], plaintiff respectfully requests that the [c]ourt allow him the opportunity to file a second amended complaint alleging additional facts, like those set forth in this memorandum and supporting affidavit." Guilfoile's "supporting affidavit" alleged additional facts concerning the Integrated Entity's business, Greene's role in recommending the Integrated Entity to the hospitals for the provision of pharmacy services, and the nature of the 24/7 call center service.

         In granting the motions to dismiss, the district court determined that Guilfoile had failed to adequately plead that he was engaged in protected conduct, the first element of a False Claims Act retaliation claim. The court therefore dismissed the retaliation count without analyzing the other elements of the claim. The court then declined to exercise supplemental jurisdiction over the state law claims and dismissed them without prejudice. In a footnote, the court granted in part and denied in part Guilfoile's request to provide a response to defendants' purportedly new theories and factual allegations presented at oral argument. The court stated that it had considered his briefing as to the legal authority first raised at oral argument, but had not considered factual assertions outside the complaint, presumably including the factual assertions in the "supporting affidavit." The court did not respond to Guilfoile's suggestion in his motion that he be allowed to file a second amended complaint if the court found the operative complaint lacking.

         Guilfoile subsequently filed a "Motion to Vacate Judgment and For Leave to Amend the Complaint" pursuant to Federal Rules of Civil Procedure 59(e) and 15(a). After the district court denied the motion, Guilfoile timely appealed both the dismissal of his complaint and the denial of his post-judgment motion.

         II.

         A. ...


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