rdd Doc 18 Filed 01/26/18 Entered 01/26/18 15:17:10 Main Document Pg 1 of 20. Michael B. Slade (admitted pro hac vice) KIRKLAND & ELLIS LLP

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1 Pg 1 of 20 Christopher Marcus, P.C. James H.M. Sprayregen, P.C. John T. Weber Michael B. Slade (admitted pro hac vice) KIRKLAND & ELLIS LLP Alexandra Schwarzman (admitted pro hac vice) KIRKLAND & ELLIS INTERNATIONAL KIRKLAND & ELLIS LLP 601 Lexington Avenue KIRKLAND & ELLIS INTERNATIONAL New York, New York North LaSalle Street Telephone: (212) Chicago, Illinois Facsimile: (212) Telephone: (312) Facsimile: (312) Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: 21st CENTURY ONCOLOGY HOLDINGS, INC., et al., Debtor UNITED STATES OF AMERICA EX REL. DAVID DI PIETRO, Chapter 11 Case No (RDD) (Jointly Administered) Adversary Proceeding No Plaintiff, v. 21st CENTURY ONCOLOGY HOLDINGS, INC., 21st CENTURY ONCOLOGY, INC., and 21st CENTURY ONCOLOGY, LLC. Debtors. DEBTORS REPLY IN SUPPORT OF THEIR MOTION TO DISMISS COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT PURSUANT TO 11 U.S.C. 1141(d)(6)

2 Pg 2 of 20 TABLE OF CONTENTS Page INTRODUCTION... 1 ARGUMENT... 2 I. PLAINTIFF HAS NOT ADEQUATELY ALLEGED A NON- DISCHARGEABLE DEBT UNDER 11 U.S.C. 1141(D)(6) A. The Debtors Do Not Owe Debt To A Governmental Unit Because Plaintiff s Allegations Were Previously Publicly Disclosed, And Plaintiff Is Not An Original Source The Allegations in the FAC Were Publicly Disclosed Plaintiff Is Not An Original Source B. The FAC Should Be Dismissed Because Plaintiff Has Not Pled Fraud With Particularity C. Plaintiff s Stark Law Claim Fails As A Matter Of Law D. Plaintiff Has Not Adequately Alleged a Non-Dischargeable Debt Under the Second Clause of Section 1141(d)(6)(A) i

3 Pg 3 of 20 Cases TABLE OF AUTHORITIES Page(s) Anastasia Int l, Inc. v. EM Online Pty LTD., No. 13 CIV KBF, 2013 WL (S.D.N.Y. Oct. 4, 2013)...8 Cooper v. Blue Cross & Blue Shield of Florida, Inc., 19 F.3d 562 (11th Cir. 1994)...4 U.S. ex rel. Doe v. Staples, Inc., 932 F. Supp. 2d 34 (D.D.C. 2013), aff d, 773 F.3d 83 (D.C. Cir. 2014)...5 United States ex rel. Grabcheski v. Am. Int l Grp., Inc., No. 10 CIV (GBD), 2016 WL (S.D.N.Y. Mar. 31, 2016), aff d sub nom. Grabcheski v. Am. Int l Grp., Inc., 687 F. App x 84 (2d Cir. 2017)...7 In re Hawker Beechcraft, Inc., 493 B.R. 696 (Bankr. S.D.N.Y. 2013), rev d in part on other grounds, 515 B.R. 416 (S.D.N.Y. 2014)...15 In re Hawker Beechcraft, Inc., 515 B.R. 416 (S.D.N.Y. 2014)...15 United States ex rel. JDJ & Assocs. LLP v. Natixis, No. 15-CV-5427 (PKC), 2017 WL (S.D.N.Y. Sept. 29, 2017) New York ex rel Khurana v. Spherion Corp., No. 15 CIV (JFK), 2016 WL (S.D.N.Y. Nov. 10, 2016)...3 U.S. ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148 (2d Cir. 1993)...5 United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16 (2d Cir. 2016)...6 U.S. ex rel. Lissack v. Sakura Glob. Capital Markets, Inc., No. 95 CIV. 1363(BSJ), 2003 WL (S.D.N.Y. Aug. 21, 2003), aff d, 377 F.3d 145 (2d Cir. 2004)...4 In re Lois/USA, Inc., 283 B.R. 382 (Bankr. S.D.N.Y. 2002)...8 U.S. ex rel. Mergent Servs. v. Flaherty, 540 F.3d 89 (2d Cir. 2008) ii

4 Pg 4 of 20 Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp. 2d 282 (S.D.N.Y. 2000), aff d, 2 F. App x 109 (2d Cir. 2001) U.S. ex rel. Osheroff v. Humana Inc., 776 F.3d 805 (11th Cir. 2015)...3 U.S. ex rel. Rabushka v. Crane Co., 40 F.3d 1509 (8th Cir. 1994)...4 U.S. ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645 (D.C. Cir. 1994)...4 Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d 282 (S.D.N.Y. 2013) U.S. v. New York City Health & Hosp. Corp., No. 95 CIV (LMM), 2000 WL (S.D.N.Y. Oct. 27, 2000), aff d sub nom. U.S. v. New York Med. Coll., 252 F.3d 118 (2d Cir. 2001)...5 U.S. v. New York Soc. for the Relief of the Ruptured & Crippled, No. 07 Civ. 292 PKC, 2014 WL (S.D.N.Y. Aug. 7, 2014)...9 Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765 (2000) Statutes 11 U.S.C , U.S.C , U.S.C. 1395nn...11 Rules Fed. R. Civ. P. 9(b)... passim Other Authorities 42 C.F.R C.F.R C.F.R iii

5 Pg 5 of 20 INTRODUCTION 1. Plaintiff s Opposition to the Debtors Motion to Dismiss ( Opp. ) does not effectively address either of the two fundamental problems with the FAC 1 : (1) the substance of Plaintiff s allegations was publicly disclosed before he sued the Debtors; and (2) the FAC does not allege any specific statements by which the Debtors promised illegal inducements in exchange for the Agreement, let alone the context in which those statements were made. Each point is an independent basis for dismissing the FAC. 2. First, the FAC should be dismissed because Plaintiff s allegations simply repackage information that was publicly disclosed before he sued the Debtors. In February 2016, news media disclosed the terms of the Agreement and political contributions the Debtors made to Governor Scott, and raised a question as to whether the Agreement was improperly obtained. Weeks later, Plaintiff filed the Florida Complaint, alleging the Debtors lobbyist used his influence with the Governor to provide an illegal inducement to Frank Nask, Broward s then-ceo. Plaintiff argues this was a new claim, but for purposes of the public disclosure bar, the allegations in the FAC and the public disclosures that preceded them are substantially the same. 3. Second, the FAC should be dismissed because Plaintiff has not adequately alleged that the Debtors offered illegal inducements in exchange for the Agreement, which Plaintiff characterizes as the critical element of the alleged fraud. Opp. at 3. Plaintiff argues that a series of nine allegations in the FAC suffice to plead fraud, Opp. at 25-26, but only one of the nine is attributable to the Debtors. And none of the nine or any other allegation in the FAC specifies a particular fraudulent statement or the context in which it was made, as Rule 9(b) requires. 1 Capitalized terms not otherwise defined have the meaning assigned in the Debtors Opening Brief ( Br. ) in support of their motion to dismiss. 1

6 Pg 6 of Third, the FAC should also be dismissed because debt recovered after a FCA qui tam action is owed to the United States, not to an individual, and because Plaintiff has failed to state a claim under the Stark Law. 5. The Debtors therefore respectfully request that the Court dismiss the FAC. ARGUMENT I. PLAINTIFF HAS NOT ADEQUATELY ALLEGED A NON-DISCHARGEABLE DEBT UNDER 11 U.S.C. 1141(D)(6). A. The Debtors Do Not Owe Debt To A Governmental Unit Because Plaintiff s Allegations Were Previously Publicly Disclosed, And Plaintiff Is Not An Original Source. 1. The Allegations in the FAC Were Publicly Disclosed. 6. Before Plaintiff filed the Florida Complaint, news media reports and minutes of a Broward Health Board of Commissioners meeting available on a public website had already disclosed the terms and details of the Agreement and the alleged relationship between the Debtors and the Governor, who had authority to appoint members of Broward s Board, FAC, Ex. A 55. Media reports also strongly implied that the Debtors obtained the Agreement due to their political connections or as a quid pro quo for political contributions to Governor Scott. 2 See Ex. C 3 ( A cancer treatment company financially tied to Gov. Rick Scott that got a no-bid, 25-year contract from Broward Health in January 2012 later contributed nearly $400,000 to the governor s reelection campaign, state records show. ); id. ( Throughout all this time, 21st Century was a reliable contributor to Gov. Scott, who appoints Broward Health s governing Board of Commissioners. ). Plaintiff s attempt to profit from these disclosures by repeating the questions 2 The implication was incorrect, but it was publicly reported. 3 Exhibits are attached to the Declaration of Michael P. Esser in Support of Debtors Motion to Dismiss the FIrst Amended Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. 1141(d)(6) ( Esser Decl. ) [Docket No. 14]. 2

7 Pg 7 of 20 they raise about the terms of the Agreement and the Debtors relationship with Governor Scott and then repackaging them to allege that inducements were offered to Nask, rather than to the Governor, is precisely the kind of opportunistic lawsuit the public disclosure bar was intended to preclude. Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d 282, (S.D.N.Y. 2013) (the purpose of the public disclosure provision is to bar parasitic lawsuits based upon publicly disclosed information in which would-be relators seek remuneration although they contributed nothing ) (internal quotation marks omitted). 7. Plaintiff argues that no publicly-available information disclosed that Debtors obtained a contract with Broward Health through fraudulent conduct. 4 Opp. at 17. That argument ignores both the substance of the public disclosures in this case and the law defining when the public disclosure bar applies. The public disclosure bar applies to claims against a particular defendant if the information disclosed was sufficient to set the government squarely upon the trail of the defendant s participation in the alleged fraud. New York ex rel Khurana v. Spherion Corp., No. 15 CIV (JFK), 2016 WL , at *12 (S.D.N.Y. Nov. 10, 2016). Here, a prosecutor reading reports that the Debtors were awarded a no-bid contract with allegedly favorable terms by a Board of Commissioners appointed by a Governor to whom the Debtors had allegedly made substantial political contributions would have been on the trail. Even if Plaintiff was the first to... uncover the precise nature of defendants scheme, the government was on notice of any alleged fraud, and Plaintiff s argument otherwise attempts to slice the onion way too thin. United States ex rel. JDJ & Assocs. LLP v. Natixis, No. 15-CV-5427 (PKC), 2017 WL 4 While Plaintiff also argues that the Broward Board of Commissioners minutes do not qualify as an enumerated source, that argument is without merit. Copies of the Board minutes are posted to a publicly-available website. See (last visited 1/25/2018). See U.S. ex rel. Osheroff v. Humana Inc., 776 F.3d 805, 813 (11th Cir. 2015) ( clinics publicly available websites... qualify as news media for purposes of the public disclosure provision. ) Id. 3

8 Pg 8 of , at *9 (S.D.N.Y. Sept. 29, 2017). See also U.S. ex rel. Lissack v. Sakura Glob. Capital Markets, Inc., No. 95 CIV. 1363(BSJ), 2003 WL , at *11 (S.D.N.Y. Aug. 21, 2003), aff d, 377 F.3d 145 (2d Cir. 2004) ( The mere fact that the Relator alleges a different theory regarding how the Government is harmed by the fraud that has been publicly disclosed does not mean that the allegations or transactions were not disclosed. ). 8. By drawing a connection between the terms of the Agreement and the Debtors subsequent political contributions to Governor Scott, the public disclosures clearly imply an improper quid pro quo. See Br. at 13-15; supra at 2-3. At most, this quid pro quo varies from the inducements alleged in the FAC only in that the public disclosures imply the Debtors received the Agreement directly in exchange for political contributions to the Governor, while Plaintiff alleges the Debtors received the Agreement by using their connections to the Governor as leverage with Broward s CEO. 5 The FAC s minor variations from the public disclosures do not alter that they are each concerned with substantially the same allegations or transactions, Ping Chen, 966 F. Supp. 2d at 297, and the public disclosure bar therefore applies to Plaintiff s claim. 6 5 The public disclosures Debtors identified also overlap with many of the other allegations in the FAC. For example, the January 30, 2012 Board minutes disclosed Nask s representations to the Board regarding the Agreement, the potential for ancillary revenue, the lack of a RFP or other bidding process, and the representations regarding the previous program. Ex. E. 6 The cases Plaintiff cites are not to the contrary. Unlike U.S. ex rel. Rabushka v. Crane Co., 40 F.3d 1509, (8th Cir. 1994), and U.S. ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 655 (D.C. Cir. 1994), the public disclosures in this case drew a direct a connection between the Agreement and the Debtors political contributions to Governor Scott, giv[ing] rise to an inference of fraud and imput[ing]... bad faith to the Debtors. Contra Rabushka, 40 F.3d at (newspaper articles and corporate reports merely mentioning the existence of defendant s unfunded pension liability, without mention of alleged fraudulent understatement of that liability, did not constitute a public disclosure); Springfield Terminal Ry. Co., 14 F.3d at 655 (publication of facially valid pay vouchers and telephone records could not, absent indication of foul play, be expected to set government investigators on trail of fraud). And unlike in Cooper v. Blue Cross & Blue Shield of Florida, Inc., 19 F.3d 562 (11th Cir. 1994), the public disclosures specifically name the Debtors. 4

9 Pg 9 of Plaintiff is not an original source. 9. Plaintiff is not an original source because his allegations do not materially add... to the publicly disclosed allegations or transactions. 31 U.S.C. 3730(e)(4)(B). Instead, Plaintiff simply repackages existing disclosures, and the public disclosure bar therefore applies to his underlying complaint. See U.S. ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1159 (2d Cir. 1993) ( The fact that [the relator] conducted some collateral research and investigations did not render him an original source, where he was not the source of the core information. ). 10. Plaintiff argues that he materially added to the publicly disclosed allegations in three ways. Opp. at 20. First, Plaintiff alleges he was the only source to reveal that the Debtors allegedly procured the Agreement after offering kickbacks to Nask, Broward s then-ceo. Id. But the crux of Plaintiff s allegation had already been disclosed: news media had already implied that the Debtors received the Agreement as a quid pro quo for making political contributions to the Governor. See supra at 2-4. Plaintiff s allegation that the Debtors also used their political influence to help protect Nask s job is not core information, U.S. ex rel. Kreindler & Kreindler, 985 F.2d at 1159; is not based on first-hand knowledge, U.S. ex rel. Doe v. Staples, Inc., 932 F. Supp. 2d 34, 42 (D.D.C. 2013), aff d, 773 F.3d 83 (D.C. Cir. 2014) (holding that relator was not original source where relator s allegations were based on hearsay and conclusory in nature); and is not pleaded with particularity. See infra at 6-11; see also U.S. v. New York City Health & Hosp. Corp., No. 95 CIV (LMM), 2000 WL , at *2 (S.D.N.Y. Oct. 27, 2000), aff d sub nom. U.S. v. New York Med. Coll., 252 F.3d 118 (2d Cir. 2001) ( Conclusory allegations lacking particulars will not be sufficient to overcome a well pleaded motion to dismiss. ). 11. Second, Plaintiff misstates the allegations in the FAC by arguing that Nask told him the Debtors had promised referrals for ancillary medical services in exchange for entering into the 5

10 Pg 10 of 20 Agreement. Opp. at 20. The FAC alleges only that Nask also stated that 21st Century had a network of employed urologists and other physicians who would refer cancer patients to Broward Health. Nask stated that 21st Century had far greater ability than HealX to generate referrals of patients to Broward Health. 94. There are no particularized allegations in the FAC that Nask told Plaintiff the Debtors had mentioned referrals, or that the Debtors mentioned referrals to Nask. 7 And again, these allegations do not meet the Rule 9(b) pleading standard. See infra at Third, Plaintiff argues he is an original source because he disclosed Nask made payments to HealX, Broward s former radiation oncology provider. But any payments made by Broward to a prior contractual counterparty are irrelevant to the Debtors and the core allegations in the public disclosures and the FAC. 13. Because the FAC does not materially add to the publicly disclosed transactions and allegations, Plaintiff is not an original source, and the public disclosure bar applies. B. The FAC Should Be Dismissed Because Plaintiff Has Not Pled Fraud With Particularity. 14. The FAC should also be dismissed because Plaintiff did not plead the alleged fraud with particularity. A complaint alleging fraud must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent. United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016) (citation omitted) (dismissing FCA qui tam action for failure to plead fraud claims with sufficient particularity). Plaintiff has not pled with particularity what he characterizes as the critical elements of the alleged fraud: that the Debtors procured the contract through illegal inducements including [1] the promise of job security and employment 7 And the minutes of the January 30, 2012 Board of Commissioners disclosed that [o]ne of the components in this agreement is the ancillary revenue. Ex. E. 6

11 Pg 11 of 20 benefits for Nask and [2] the promise of unlawful referrals of patients for other medical services offered by Broward Health. Opp. at 3. The FAC does not allege any specific statement by which the Debtors promised illegal inducements in exchange for the Agreement, let alone the speaker, or when and where the statement was made. 15. Plaintiff does not dispute that this standard which he characterizes as the who what when where and how, Opp. at 25 applies to his claim, including to the underlying fraudulent conduct that results in the submission of fraudulent claims, Opp. at 21. Instead, he argues that nine allegations in the FAC suffice to meet this test. Opp. at But of the nine allegations, only one is attributable to Debtors, and none has anything to do with illegal inducements or promising referrals. 16. The FAC s only specifically-alleged statement attributable to the Debtors is that in 2013, well after the Agreement was signed and approved by Broward s Board of Commissioners, Plaintiff met with the Debtors then-ceo, Dr. Daniel Dosoretz, to discuss cancer treatment services at Broward Health and Broward Health s potential purchase of a proton beam radiation machine. FAC, Ex. A 186. At that meeting, Plaintiff alleges Dosoretz told Plaintiff about his close relationship with the Governor and how he was going to fund his re-election and that Broward Health was a strong partner. FAC, Ex. A 187. This allegation merely repeats the public disclosures concerning the relationship between the Debtors and Governor Scott, see supra 8 Plaintiff also argues that the Court may infer the Agreement was secured through illegal inducements because he has alleged that in 2006 the Debtors offered the then-ceo of Broward Health increased referrals in exchange for a contract. Opp. at 14. But allegations that the Debtors promised referrals in exchange for a different contract six years before the Agreement at issue are not sufficient to infer fraud. United States ex rel. Grabcheski v. Am. Int l Grp., Inc., No. 10 CIV (GBD), 2016 WL , at *3 (S.D.N.Y. Mar. 31, 2016), aff d sub nom. Grabcheski v. Am. Int l Grp., Inc., 687 F. App x 84 (2d Cir. 2017) ( The Second Circuit has cautioned that while Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations...instead, the Second Circuit has repeatedly required plaintiffs to plead the factual basis which gives rise to a strong inference of fraudulent intent. ) (citation and internal quotation marks omitted). 7

12 Pg 12 of 20 at 2-4; it is has no bearing on any alleged kickbacks or referrals offered in exchange for the Agreement the Broward Board of Commissioners had approved a year earlier. And there was certainly nothing illegal about Dosoretz s comments. 17. Plaintiff also relies on four statements allegedly made by Bill Rubin, who Plaintiff alleges was a lobbyist hired by the Debtors. FAC, Ex. A 10. Plaintiff has not, and could not, adequately alleged that Rubin s alleged statements were attributable to the Debtors. Br. at Plaintiff s conclusory statements that Rubin acted on the Debtors instructions, or as their agent, are not particularized allegations of the kind required to plead an agency relationship so as to attribute Rubin s conduct to the Debtors. In re Lois/USA, Inc., 283 B.R. 382, 387 (Bankr. S.D.N.Y. 2002) ( where allegations of fraud are based on a claim of agency, the pleading of the alleged agency relationship must itself meet the requirements of Rule 9(b) ); Anastasia Int l, Inc. v. EM Online Pty LTD., No. 13 CIV KBF, 2013 WL , at *3 (S.D.N.Y. Oct. 4, 2013) (dismissing complaint based on absence of agency relationship because allegations that defendant hired alleged agent who then acted as agent did not permit the court to infer more than mere possibility of misconduct ) (citation omitted). 18. Even if Rubin s statements were attributable to Debtors, they do not relate to the critical elements of the fraud. Opp. at 3. First, Plaintiff alleges that at a lunch meeting in August 2011, Rubin told Plaintiff he was controlling the appointments to the Broward Health Board and needed Plaintiff s support for the Debtors contract with Broward Health. FAC, Ex. A Plaintiff does not allege that Rubin offered illegal inducements of any kind in exchange for his support. Second, Plaintiff alleges that in March 2012, Rubin and Plaintiff met for lunch, and Rubin told Plaintiff not to question my appointments and offered to move forward as a team. FAC, Ex. A 185. Plaintiff does not allege that during this conversation Rubin mentioned illegal 8

13 Pg 13 of 20 inducements offered to Nask or Broward in exchange for entering into the Agreement. Third, Plaintiff alleges that in September 2012, he met with Rubin, and Rubin asked him to be a team player and support [him] and the Governor. FAC, Ex. A 139. Again, Plaintiff does not allege that Rubin mentioned illegal inducements offered to Nask or Broward in exchange for the Agreement. Finally, Plaintiff alleges that Rubin lobbied the Broward Health Board to give Nask a full-year of compensation after his retirement, FAC, Ex. A 72, but does not allege any specific statements in connection with Rubin s lobbying, let alone related to the alleged illegal inducements or to the Debtors involvement. 19. The remaining allegations on which Plaintiff relies in his Opposition refer to statements allegedly made and actions allegedly taken by Frank Nask, the former CEO of Broward Health, who Plaintiff proposes to name as a defendant in the Florida Litigation. FAC, Ex. A 28. But Plaintiff s allegations against Nask are insufficient to state a claim against the Debtors, who are separate defendants in the proposed amended complaint. Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp. 2d 282, 293 (S.D.N.Y. 2000), aff d, 2 F. App x 109 (2d Cir. 2001) ( When fraud is alleged against multiple defendants, a plaintiff must plead with particularity by setting forth separately the acts or omissions complained of by each defendant. ). Nor is it enough for Plaintiff to allege without more that Nask and the Debtors acted in concert or conspired, FAC, Ex. A See U.S. v. New York Soc. for the Relief of the Ruptured & Crippled, No. 07 Civ. 292 PKC, 2014 WL , at *25 (S.D.N.Y. Aug. 7, 2014) (dismissing FCA claims because generalized allegation that they [defendants] entered into one or more conspiracies does not identify the alleged conspiracies with particularity ); Odyssey Re (London) Ltd., 85 F. Supp. 2d at 297 ( a complaint may not rely upon blanket inferences to the 9

14 Pg 14 of 20 acts of all defendants without identifying each defendant's participation in the fraud... The word conspiracy does not alone satisfy the specificity requirement of Rule 9(b). ). 20. Even if Plaintiff could rely on his allegations against Nask to state a claim against the Debtors, they would still fail to particularize the critical elements of the alleged fraud. First, Plaintiff alleges that Nask made payments to HealX, Broward s prior radiation oncology provider. Opp. at 25 (citing FAC, Ex. A 110). Those payment allegations are not a particularized allegation that the Debtors offered illegal inducements in return for the Agreement. Second, in his Opposition, Plaintiff again distorts the FAC by referring to a meeting between Plaintiff and Nask... in which Nask told Plaintiff that Debtors had promised referrals of patients for ancillary medical services to Broward Health in exchange for the contract. Opp. at 25 (citing FAC, Ex. A 94). But, again, that is not what the FAC alleges. See supra at 5-6. Third, Plaintiff points to paragraph 69 of the FAC, which quotes a statement from Nask at a Broward Health Board of Commissioners meeting: Frankly, we have an organization that, you know-----since Stark laws were passed in has done very little about addressing it. We re addressing it now as aggressively as we can. We re behind in some of those things...it was intended to just caution the Board about how we discuss these things in public because we are going to pay a heavy fine to OIG. Nask s statement is not a particularized allegation that the Debtors offered an illegal inducement in exchange for the Agreement. 9 Fourth, Plaintiff directs the Court to allegations in the FAC that Nask misrepresented the economics of the Agreement to Broward s Board. Opp. at 26 (citing FAC, Ex. A 96-99). But as is true of the other allegations, see Opp , Nask s comments 9 Broward paid this heavy fine to the federal government in September FAC, Ex. A 70. The Agreement was not a subject of the government s investigation. Id. 10

15 Pg 15 of 20 about the economics of the Agreement are not particularized statements sufficient to plead that the Debtors offered illegal inducements in exchange for the Agreement. 21. Because no allegations in the FAC satisfy the particularity requirement as to the alleged illegal inducements, which are the critical elements of the fraud, Opp. at 3, the FAC should be dismissed. C. Plaintiff s Stark Law Claim Fails As A Matter Of Law. 22. Plaintiff unsuccessfully attempts to disguise his lack of a valid claim under the Stark Law with irrelevant background and conclusory legal allegations. Plaintiff s allegations simply do not implicate the Stark Law. 23. The Stark Law prohibitions apply to financial relationships between an entity providing designated health services ( DHS ) (e.g., Broward) and a referring physician U.S.C. 1395nn. Notably, the only party subject to potential Stark liability is the DHS entity that bills Medicare as a result of any prohibited referrals. The DHS entity here would be Broward. Accordingly, any allegation against Debtors fails as a matter of law. 24. Furthermore, financial relationships under Stark include (i) a direct or indirect ownership or investment interest in any entity that furnishes DHS; or (ii) a direct or indirect compensation arrangement with an entity that furnishes DHS. 42 C.F.R (a)(1)(ii). 10 A referral under Stark does not include a request by a... radiation oncologist for radiation therapy or ancillary services necessary for, and integral to, the provision of radiation therapy, if (i) the request results from a consultation initiated by another physician...; (ii) the tests or services are furnished by or under the supervision of the... radiation oncologist, or under the supervision of a... radiation oncologist... in the same group practice as the radiation oncologist. 42 C.F.R A course of radiation treatments over a period of time will be considered to be pursuant to a consultation, provided that the radiation oncologist communicates with the referring physician on a regular basis about the patient s course of treatment and progress. Id. The Statement of Interest filed by the United States argues that the referrals of a radiation oncologist are subject to the Stark Law unless they fall squarely within the scope of the exclusion in 42 C.F.R In practical terms, this exclusion captures virtually every request for radiation therapy and ancillary services related to radiation therapy a radiation oncologist makes in his or her professional capacity as a radiation oncologist. Notwithstanding, it is not necessary decide this issue as part of the current Motion because Plaintiff has failed to allege facts that constitute a financial relationship under the Stark Law. 11

16 Pg 16 of 20 Plaintiff has not alleged that any physicians who refer to Broward hold a direct or indirect ownership or investment interest in 21st Century LLC, so the first prong is inapplicable. 25. Turning to the second prong, it is critical to distinguish between direct and indirect compensation arrangements. A direct compensation arrangement exists if remuneration passes between the referring physician (or a member of his or her immediate family) and the entity furnishing DHS without any intervening persons or entities. 42 C.F.R (c)(1)(i). Plaintiff does not allege that any remuneration passed, or was intended to directly be paid by Broward to any referring physicians at 21st Century LLC. Rather, the Agreement is between 21st Century LLC and Broward. Accordingly, 21st Century LLC is an intervening entity between Broward and any referring physicians. 11 Therefore, Plaintiff has not pled that a direct compensation exists, or facts sufficient to allege a direct compensation arrangement exists. 26. The only remaining analysis is whether there is an indirect compensation arrangement between Broward and a referring physician. An indirect compensation arrangement only exists if: The referring physician (or immediate family member) receives aggregate compensation from the person or entity in the chain with which the physician (or immediate family member) has a direct financial relationship that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing the DHS C.F.R (c)(2)(ii). Plaintiff does not allege that referring physicians at 21 st Century LLC received compensation from 21 st Century LLC that varied with, or took into account, the volume or value of referrals or other business generated by the referring physician for Broward. 11 Except as otherwise provided, a referring physician is deemed to stand in the shoes of an intervening physician organization if the physician has an ownership or investment interest in the physician organization. 42 C.F.R (c)(1)(ii). 21st Century LLC does not have any referring physician owner or investors, and Plaintiff has not alleged otherwise. 12

17 Pg 17 of 20 Accordingly, Plaintiff has not alleged the necessary indirect compensation arrangement. 42 CFR (a)(1)(ii). 27. In lieu of addressing or analyzing this legal barrier to his Stark claim, Plaintiff simply asserts that the Debtors cannot insulate themselves from Stark Law liability by claiming that their physicians receive no indirect financial benefit from the Agreement with Broward. Opp. at 14. Plaintiff s statement is a careless mischaracterization of the law and Debtors argument. Plaintiff has not alleged, and could not allege in good faith, that 21st Century LLC has any owners who are referring physicians, so the applicable law is only implicated if a referring physician receives compensation from 21st Century LLC that varies with, or takes into account, volume or value of referrals or other business generated by the referring physician for Broward. 42 C.F.R (c)(2)(ii). The Stark Law claims in the FAC fail because Plaintiff has not alleged such a compensation arrangement. 28. Plaintiff s argument that his claim is saved by the Stark Law requirement that an indirect compensation arrangement must not violate the Anti-Kickback Statute is similarly futile. The regulation Plaintiff cites sets forth exceptions to the referral prohibition related to compensation arrangements. See generally, 42 C.F.R The exception Plaintiff cites provides that indirect compensation arrangements, as defined at (c)(2) do not constitute a financial relationship if certain conditions are satisfied, including a condition that the compensation arrangement does not violate the anti-kickback statute. 42 C.F.R (p)(3). It is unnecessary to consider whether this exception is applicable because, as set forth above, Plaintiff has failed to plead that an indirect compensation arrangement (as defined at (c)(2)) exists in this case. An arrangement is only required to meet an exception to the 13

18 Pg 18 of 20 Stark Law if there is a direct or indirect compensation arrangement which Plaintiff has not alleged. D. Plaintiff Has Not Adequately Alleged a Non-Dischargeable Debt Under the Second Clause of Section 1141(d)(6)(A). 29. The second clause of section 1141(d)(6)(A), which provides in relevant part that confirmation of a plan does not discharge a debtor that is a corporation from any debt... owed to a person as the result of an action filed under [the FCA], is inapplicable to this matter because liability incurred in a FCA qui tam action is owed to the United States. See U.S. ex rel. Mergent Servs. v. Flaherty, 540 F.3d 89, 93 (2d Cir. 2008) ( while the False Claims Act permits relators to control the False Claims Act litigation, the claim itself belongs to the United States. ). It is not debt owed to a person Plaintiff contends the alleged debt in this matter is owed to the government and to him as an individual, Opp. at 7-8, but Plaintiff misconstrues the law. First, Plaintiff argues that the plain language of the FCA statute suggests FCA debt is owed to relators as individuals because the FCA permits relators the right to conduct an action and to have a hearing and court ruling before an action is terminated. Opp. at 7-8 (citing 31 U.S.C. 3730(c)(2)(A-B), 3730(c)(3)). But the sections of the FCA Plaintiff cites address the conduct and termination of a litigation; none suggests that a finding of liability under the FCA creates a debt to the relator. 31. Second, Plaintiff relies on Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765 (2000), but in that case, the Supreme Court held that the FCA confers two rights on the relator: an interest in the lawsuit, and the relator s bounty, which is simply the fee he receives out of the United States recovery for filing and/or prosecuting a successful action on behalf of the 12 Debt owed to a person under the FCA consists of debt such as liability incurred for retaliation against whistleblowers. 31 U.S.C. 3730(h). 14

19 Pg 19 of 20 Government. Id. at 772. In other words, notwithstanding the relator s interest in the lawsuit, any recovery the relator receives is just a portion of the debt paid by the defendant to the United States. 32. Third, Plaintiff writes that in In re Hawker Beechcraft, Inc., 515 B.R. 416 (S.D.N.Y. 2014), Judge Kevin Castel explicitly rejected the interpretation of this section made by the Bankruptcy Court that a relator s claims were owed solely to the Government and thus were not debts owed to a person within the meaning of Section 1141(d)(6)(A). Opp. at 8. That is a misleading description of the Hawker decisions. In In re Hawker Beechcraft, Inc., 493 B.R. 696, 711 (Bankr. S.D.N.Y. 2013), rev d in part on other grounds, 515 B.R. 416 (S.D.N.Y. 2014), Judge Bernstein reviewed applicable precedent and held that although the relator has standing to prosecute a qui tam claim under the FCA, his standing does not change the nature of the underlying debt. The debt is owed to the Government and not to the relator. On appeal, the District Court explicitly chose not to revisit that portion of Judge Bernstein s ruling. In re Hawker Beechcraft, Inc., 515 B.R. at ( it is unnecessary to determine whether these [the relators ] claims are debts owed to a person under Clause 2 of section 1141(d)(6)(A)). 33. The second clause of section 1141(d)(6)(A) is thus inapplicable to this matter because the proceeds of a FCA qui tam action are owed to the United States, not to the relator. 13 CONCLUSION 34. For each of these reasons, and for the reasons set forth in the Debtors opening brief in support of their motion to dismiss, the Debtors respectfully request that the Court dismiss the FAC. 13 If part of the proceeds of a qui tam action were owed directly to individual relators, it could lead to an odd scenario in which the same judgment was non-dischargeable to the extent it was owed to a relator and dischargeable to the extent it was owed to the United States. In re Hawker Beechcraft, Inc., 515 B.R. at 425 ( the limiting phrase of a kind specified in paragraph 2(A) or 2(B) of section 523(a) modifies only any debt that is owed to a domestic governmental unit, and does not modify any debt owed to a person.) 15

20 Pg 20 of 20 New York, New York Dated: January 26, 2018 By: /s/ Christopher Marcus Christopher Marcus, P.C. John T. Weber KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) James H.M. Sprayregen, P.C. Michael B. Slade (admitted pro hac vice) Alexandra Schwarzman (admitted pro hac vice) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL 300 North LaSalle Street Chicago, Illinois Telephone: (312) Facsimile: (312) Counsel for Debtors and Debtors in Possession 16