Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 91 C 1432--John F. Grady, Judge.
Before BAUER, MANION, and KANNE, Circuit Judges.
DECIDED SEPTEMBER 6, 1995
Walid Hindo, a current radiologist and former Chairman of the Department of Radiology for the University of Health Sciences/The Chicago Medical School ("University"), brought this action against the University under the qui tam provisions of the False Claims Act, 31 U.S.C. sec. 3729 et seq. Hindo claimed that the University defrauded the government when it sought from the North Chicago Veterans Administration Medical Center reimbursement for the salaries and benefits paid by the University to radiology residents who worked at the Medical Center during the 1989-90 academic year, but for whom funding had not been approved by the Veterans Administration. As required under the Act, 31 U.S.C. sec. 3730(b)(2), Hindo filed his complaint in camera under seal and served a copy of it upon the United States government, which had sixty days to "elect to intervene and proceed" with the action. Id. The government ultimately notified the district court pursuant to 31 U.S.C. sec. 3730(4)(B) that it declined to take over the action. That gave Hindo the right to "conduct the action." 31 U.S.C. secs. 3730(4)(B), (c)(3). Hindo's complaint was then unsealed and served upon the University in November 1992.
Sometime thereafter, Hindo filed an amended complaint which added a new count alleging that the University violated 31 U.S.C. sec. 3720(h) by threatening to terminate his tenure and by discharging him from his position as chair of the Department of Radiology for reporting the University's supposed fraudulent billing to the Medical Center. The University moved to dismiss that count on the ground that Hindo's unsuccessful prior state court litigation against the University for retaliatory discharge barred those claims. See Hindo v. University of Health Sciences/The Chicago Medical Sch., 604 N.E.2d 463 (Ill. App. Ct. 1992), appeal denied, 612 N.E.2d 513 (1993). In late 1993, after the discovery cutoff date and while the University's motion to dismiss was pending, Hindo sought leave to file his Second Amended Complaint which added additional allegations of harassment by the University in "retaliation" for Hindo's reporting the fraudulent billing. The district judge denied Hindo's motion to file his Second Amended Complaint and subsequently granted the University's motion to dismiss Hindo's sec. 3720(h) claim "due to the preclusive effect of the judgment on Hindo's state retaliatory discharge claim."
The bench trial on Hindo's original claim began in late 1994. The district judge asked the parties to focus on the issue of whether the University's invoices were false, and of what the University and the Medical Center knew about the status of Veterans Administration funding for the radiology residents when the Medical Center paid the University's bills for reimbursement of the radiology residents' salaries and benefits. After Hindo had presented his evidence, the University moved for a directed verdict under Federal Rule of Civil Procedure 52(c) on the ground that Hindo's evidence confirmed that the University had not made any false claims. The district court granted the University's motion and entered judgment for the University. Hindo timely appealed. As with most False Claims Act cases, this case is heavily dependent on its facts, which we will now undertake to recite in unfortunate detail.
Hindo is a tenured member of the University's faculty. Until early 1990, he was also the Chairman of the University's Department of Radiology and on the staff at the Medical Center.
The University operates a medical school in North Chicago, Illinois, adjacent to the Medical Center, with which it is affiliated. The University operates privately, while the Medical Center is funded by the Veterans Administration. The University maintains advisory responsibility for the education and training programs conducted with the Medical Center, which retains full responsibility for the care of patients, including all administrative and professional functions relating to that care. The University also oversees a Deans Committee composed of senior University faculty members which serves as a liaison between the University and the Medical Center. Additionally, the University is responsible for nominating all physicians for residency programs, in terms of numbers and qualifications agreed upon by the Deans Committee and the Veterans Administration.
The two parties operated under a Disbursement Agreement during the relevant time period. Under this agreement, the University paid salaries and benefits directly to the residents, and the Medical Center reimbursed the University the residents' costs in two steps. First, the University submitted to the Medical Center a summary schedule of duty assignments for residents before the start of each calendar quarter. Once the schedule was approved by its Chief of Staff, the Medical Center would pay in advance eighty per cent of the estimated charges for the quarter.
The final payments were made after the end of the calendar quarter. To obtain final payment, the University sent the Medical Center an invoice naming each of the residents that performed services during that quarter, the program level (number of years of training) of each resident, the number of days each resident spent at the hospital (duty days), the appropriate daily charge for each resident, and the total charge for each resident. The number of duty days for each resident was determined by reviewing the Medical Center's time records for each resident.
Before making the final quarterly payment, the Medical Center had an elaborate four-step procedure to review the University's invoices and verify their accuracy. We need not describe this system in detail, but will summarize it. The first three steps called on different levels of Medical Center personnel to certify that the services had been performed as invoiced, sign forms to that effect, and authorize payment of the invoices. The final step required a Medical Center accountant to verify from a certain Veterans Administration form that the Veterans Administration had funded each and every residency position. After the successful completion of all four steps, the Medical Center's Department of Fiscal Services would execute payment of the invoice to the University.
With that background, we now move to the circumstances of Hindo's claim. The Medical Center had applied for and been granted funding for two radiology residencies for the 1988-89 academic year. This funding, however, was temporary, and the Medical Center was required to reapply for the 1989-90 year, which it did in mid-1988. On October 12, 1988, the Veterans Administration notified the Medical Center that it had denied permanent funding for the two radiology residencies. The Veterans Administration permitted the Medical Center one week to appeal its decision. The Medical Center missed the deadline for appeal by two days; the Veterans Administration considered this delay fatal to the Medical Center's appeal. The Veterans Administration, however, placed the Medical Center's request on a "waiting list for temporary resident positions" and promised such funding if resources became available. As we shall see, this last missive caused the Medical Center personnel a certain degree of optimism for the 1989-90 academic year which they were loathe to relinquish short of a definite and final denial of their plea for funding.
As is typical, the University relied on the National Resident Matching Program to staff its resident program from medical schools across the country. The match program imposed a deadline of January 1989 for offering residency positions at the University. Early that month, Dr. Mitchell Rhodes, the University's Associate Dean for Graduate Medical Education Clinical Facilities, contacted Dr. Victor Wahby of the Veterans Administration Central Office regarding the status of funding for the radiology residencies. Dr. Wahby told Dr. Rhodes that although there was no guarantee, it was likely that funding ...