Judge Michael P. Linfield, Case Number: 23STCV12206, Date: 2024-01-04 Tentative Ruling

Judge: Michael P. Linfield, Case: 23STCV12206, Date: 2024-01-04 Tentative Ruling

Case Number: 23STCV12206 Hearing Date: March 26, 2024 Dept: 34

SUBJECT: Demurrers to Second and Third Cause of Action of Second Amended Complaint

Moving Party: Defendants Edwin Haratonians and Adrineh Asatourian

Resp. Party: Plaintiff Maurice Maalouf

SUBJECT: Joinder in Demurrers

Moving Party: Defendant Jason Boutros

Resp. Party: Plaintiff Maurice Maalouf

The Demurrers to SAC are OVERRULED.

The Joinder in Demurrers is OVERRULED.

BACKGROUND:

On May 30, 2023, Plaintiff Maurice Maalouf filed his Complaint against Defendants Edwin Haratonians, Jason Boutros, Wellness Care Residence, LLC, and Adrineh Asatourian on causes of action of dissolution of limited liability company, violation of the federal False Claims Act, and violation of the California False Claims Act.

On October 6, 2023, Plaintiff filed his First Amended Complaint (FAC).

On October 11, 2023, the Court found related cases 23STCV12206 and 23STCV18039, and designated 23STCV12206 as the lead case.

On January 30, 2024, Plaintiff filed his Second Amended Complaint (SAC).

On March 1, 2024, Defendants Edwin Haratonians and Adrineh Asatourian filed their Demurrers to Second and Third Causes of Action of Second Amended Complaint (“Demurrers to SAC”).

On March 1, 2024, Defendant Jason Boutros filed his Joinder in Demurrers.

On March 6, 2024, Defendants Haratonians and Adrineh Asatourian filed their Notice of Errata.

On March 13, 2024, Plaintiff filed his Opposition to the Demurrers to SAC (“Opposition”).

On March 19, 2024, Defendants Edwin Haratonians and Adrineh Asatourian filed their Reply in support of the Demurrers to SAC (“Reply”).

On March 20, 2024, Plaintiff filed Verified Evidence Further Supporting Overruling of Demurrer (“Evidence in Support of Opposition”).

On March 21, 2024, Defendants Edwin Haratonians and Adrineh Asatourian filed their Response to Evidence in Support of Opposition.

ANALYSIS:

I. Legal Standard

“The party against whom a complaint or cross-complaint has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of” various grounds listed in statute. (Code Civ. Proc., § 430.10.)

“When any ground for objection to a complaint, cross-complaint, or answer appears on the face thereof, or from any matter of which the court is required to or may take judicial notice, the objection on that ground may be taken by a demurrer to the pleading.” (Code Civ. Proc., § 430.30, subd. (a).)

“A demurrer to a complaint or cross-complaint may be taken to the whole complaint or cross-complaint or to any of the causes of action stated therein.” (Code Civ. Proc., § 430.50, subd. (a).)

“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed. Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, citations and internal quotation marks omitted.)

II. Discussion

The three individual defendants demur to the second and third causes of action in the SAC.

A. Violation of the Federal False Claims Act and the California False Claims Act

1. Legal Standard

a. The Federal False Claims Act

“Liability for certain acts.

“(1) In general. Subject to paragraph (2), any person who—

“(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

“(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

“(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

“(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

“(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

“(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

“(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,

“is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410), plus 3 times the amount of damages which the Government sustains because of the act of that person.”

(U.S.C., tit. 31, § 3729, subd. (a)(1).)

“Actions by private persons.

“(1) A person may bring a civil action for a violation of section 3729 [31 USCS § 3729] for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.

“(2) A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) [Rule 4(i)] of the Federal Rules of Civil Procedure. The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.

“(3) The Government may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal under paragraph (2). Any such motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed and served upon the defendant pursuant to Rule 4 of the Federal Rules of Civil Procedure.

(4) Before the expiration of the 60-day period or any extensions obtained under paragraph (3), the Government shall—

“(A) proceed with the action, in which case the action shall be conducted by the Government; or

“(B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.

“(5) When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”

(U.S.C., tit. 31, § 3730.)

b. The California False Claims Act

“This article shall be known and may be cited as the False Claims Act.” (Gov. Code, § 12650, subd. (a).)”

“Any person who commits any of the following enumerated acts in this subdivision shall have violated this article and shall be liable to the state or to the political subdivision for three times the amount of damages that the state or political subdivision sustains because of the act of that person. A person who commits any of the following enumerated acts shall also be liable to the state or to the political subdivision for the costs of a civil action brought to recover any of those penalties or damages, and shall be liable to the state or political subdivision for a civil penalty of not less than five thousand five hundred dollars ($5,500) and not more than eleven thousand dollars ($11,000) for each violation, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990, Public Law 101–410 Section 5, 104 Stat. 891, note following 28 U.S.C. Section 2461.

“(1) Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval.

“(2) Knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim.

“(3) Conspires to commit a violation of this subdivision.

“(4) Has possession, custody, or control of public property or money used or to be used by the state or by any political subdivision and knowingly delivers or causes to be delivered less than all of that property.

“(5) Is authorized to make or deliver a document certifying receipt of property used or to be used by the state or by any political subdivision and knowingly makes or delivers a receipt that falsely represents the property used or to be used.

“(6) Knowingly buys, or receives as a pledge of an obligation or debt, public property from any person who lawfully may not sell or pledge the property.

“(7) Knowingly makes, uses, or causes to be made or used a false record or statement material to an obligation to pay or transmit money or property to the state or to any political subdivision, or knowingly conceals or knowingly and improperly avoids, or decreases an obligation to pay or transmit money or property to the state or to any political subdivision.

“(8) Is a beneficiary of an inadvertent submission of a false claim, subsequently discovers the falsity of the claim, and fails to disclose the false claim to the state or the political subdivision within a reasonable time after discovery of the false claim.”

(Gov. Code, § 12651, subd. (a).)

“The provisions of this article are not exclusive, and the remedies provided for in this article shall be in addition to any other remedies provided for in any other law or available under common law.” (Gov. Code, § 12655, subd. (a).)

“This article shall be liberally construed and applied to promote the public interest.” (Gov. Code, § 12655, subd. (c).)

2. Discussion

Defendants demur to the second cause of action for violation of the federal False Claims Act (FCA) and the California False Claims Act (CFCA), arguing: (1) that the requirements to sufficiently allege a cause of action are well established; (2) that the allegations of the second and third causes of action lack the necessary specificity to comply with the heightened pleading requirements of a qui tam cause of action; (3) that it is improper and insufficient to plead evidence by which one hopes to prove ultimate facts; and (4) that plaintiffs are not allowed to propound discovery to try to manufacture a qui tam lawsuit when they do not have any evidence of actual false claims when they file the lawsuit. (Demurrers to SAC, pp. 3:7–9, 5:20–24, 12:19–21, 13:12–15.)

Defendants correctly note that “CFCA actions are subject to heightened fraud-like pleading requirements.” (State ex rel. Edelweiss Fund, LLC v. JPMorgan Chase & Co. (2023) 90 Cal.App.5th 1119, 1136, citations and internal quotation marks omitted.)

Nonetheless, Plaintiff’s SAC is sufficiently well-pled.

Among other things, Plaintiff alleges: (1) that Plaintiff is associated and familiar with Defendants through his dealings and communications with them; (2) that Plaintiff has personally observed on multiple occasions what appeared to be transfers of cash in a small paper bag by Defendants; (3) that Defendants are engaged in a scheme to defraud the federal and state government Medicare and Medicaid programs; and (4) that Defendants’ scheme for this fraud involves exaggerated billing for “care” of “patients,” which in some cases involved “patients” that did not exist and “care” that was never provided. (FAC, ¶¶ 12–17.)

These allegations are sufficiently certain, unambiguous, and intelligible. The allegations are not impermissibly speculative, and they meet the same heightened pleading requirements as a cause of action for fraud.

The Court that it must assume the truth of the allegations for the purposes of a demurrer. These allegations sufficiently plead the necessary elements for causes of action under the federal False Claims Act and the CFCA.

The Court OVERRULES the Demurrer to the second cause of action for violation of the FCA and the CFCA.

B. Unfair Competition Law

1. Legal Standard

“As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.” (Bus. & Prof. Code, § 17200.)

2. Discussion

Defendants demur to the third cause of action for violation of the UCL, based on the same arguments made as to the second cause of action. (Demurrers to SAC, p. 11:25–27.)

The Court disagrees with Defendants. The third cause of action is sufficiently pleaded for all of the same reasons that the second cause of action is sufficiently pleaded.

The Court OVERRULES the Demurrer to the third cause of action for violation of the UCL.

III. Conclusion

The Demurrers to SAC are OVERRULED.

The Joinder in Demurrers is OVERRULED.