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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT: Clinical Immuno Diagnostic Lab, Inc., et al.,

Petitioner,

DATE: July 25, 2006

             - v -

 

Centers for Medicare & Medicaid Services

 

Docket No. A-05-79
Civil Remedies CR1283
Decision No. 2036
DECISION
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FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE D
ECISION

Clinical Immuno Diagnostic Lab, Inc. (CID), Jerry Pikover, Natalia Pikover, Adolfo Chirico, and Norvelle A. Harris, M.D. (Petitioners) appealed a March 18, 2005 decision by Administrative Law Judge (ALJ) Keith W. Sickendick. Clinical Immuno Diagnostic Lab, Inc. (ALJ Decision). The ALJ Decision upheld the action by the Centers for Medicare & Medicaid Services (CMS) revoking the certificate issued to CID under the Clinical Laboratory Improvement Amendments of 1988 (CLIA). CMS's action was based on a review by the California Department of Health Services (State agency) which found that CID had misrepresented to CMS, through its legal counsel, that it had stopped testing as of April 8, 2002. The applicable statute and regulations provide that CMS may revoke a CLIA certificate if it finds that the laboratory's owner or operator or one of its employees has been "guilty of misrepresentation in obtaining" a CLIA certificate. Section 353(e)(1) of the Public Health Service Act (42 U.S.C. § 263a(i)(1)); 42 C.F.R. § 493.1840(a). As explained below, we uphold the ALJ's conclusion that there was such a misrepresentation in this case and that CMS was authorized to [Page 2] revoke CID's CLIA certificate on this basis. (1) However, we modify Finding of Fact 18 and Conclusions of Law 11, 12, 14 and 15 in order to clarify them or delete unnecessary language.

Procedural Background

The information in this section is drawn from the ALJ Decision and the record before the ALJ and is presented to help the reader understand the context of the issues discussed later. Nothing in this section is intended to replace the findings of fact set out in the ALJ Decision.

CID first obtained a CLIA certificate in 1976 and was authorized to perform moderate and high complexity testing. Based on a State agency survey completed on October 31, 2001, CMS notified CID by letter dated April 3, 2002 that CMS proposed to impose sanctions that included a directed plan of correction requiring CID to cease all laboratory testing effective April 8, 2002 for an unspecified time, as well as suspension followed by revocation of CID's CLIA certificate. CMS's April 3 letter also stated that CMS was administratively extending CID's CLIA certificate, which had expired on October 30, 2000, pending a final determination on the proposed sanctions. CID submitted an allegation of compliance and plan of correction dated April 18, 2002. By letter dated July 12, 2002, CMS advised CID that these were not acceptable.

On July 15, 2002, CID filed a civil suit in the U.S. District Court for the Central District of California seeking a temporary restraining order (TRO) and injunction against the Secretary and CMS to "lift the suspension and revocation of" CID's CLIA certificate. (2) The complaint, signed by CID's counsel Daron Tooch, includes the statement: "As ordered by CMS, CID ceased all laboratory testing on April 8, 2002, and laid off all of its employees." The application for a TRO filed with the court, also [Page 3] signed by Mr. Tooch, similarly states: "CID ceased all laboratory testing on April 8, 2002 and laid off all of its employees[.]"

The same application states elsewhere: "As ordered by CMS, CID began shutting down its laboratory testing on April 8, 2002, and laid off all of its employees." This latter statement is followed by a citation to the July 15, 2002 declaration by Mr. Chirico that accompanies the application for a TRO. The declaration identifies Mr. Chirico as CID's President and corporate director and states in relevant part: "As ordered by CMS, CID began to cease all laboratory testing on April 8, 2002" and "CID had to lay-off its employees."

By letter to CMS and the U.S. Attorney dated July 18, 2002, Mr. Tooch proposed to dismiss CID's lawsuit against the Secretary and CMS in exchange for certain actions by CMS, including the issuance of a CLIA certificate to CID retroactive to October 2000 and valid through October 2002. Two CMS witnesses testified at the hearing held by the ALJ that during a conference call to discuss CID's settlement proposal, Mr. Tooch stated, in response to CMS's inquiry, that CID had ceased testing as of April 8, 2002. In his hearing testimony, however, Mr. Tooch denied that he was asked about whether CID had ceased testing.

In a July 19, 2002 letter referring to Mr. Tooch's July 18, 2002 letter, CMS stated that "CID is permitted to resume testing immediately," that CMS "will notify [CID's] Medicare carrier that the proposed sanctions against CID" based on the October 2001 survey "have been rescinded," and that CMS will issue "a new CLIA certificate effective for the period October 31, 2000 through October 30, 2002." CMS did not state in this letter, or otherwise inform CID, that CMS was relying on Mr. Tooch's representation that CID had ceased all testing as of April 8, 2002 as a basis for these actions.

A recertification survey of CID was completed on December 10, 2002. The survey report found that 13 standard-level deficiencies alleged during the survey that ended October 31, 2001 had not been corrected. The survey report also found that CID "had misrepresented to CMS, through its legal counsel, that the laboratory had ceased testing as of April 8, 2002[.]" The surveyors found that, to the contrary, CID continued to perform microbiology patient testing during the period April 8, 2002 through July 18, 2002. After giving notice of proposed sanctions in a letter dated February 5, 2003, CMS, by letter dated March 31, 2003, notified CID that it was imposing sanctions including revocation of CID's CLIA certificate effective May 30, 2003 based on both the alleged deficiencies and the alleged misrepresentation by Mr. Tooch regarding the cessation of testing.

[Page 4] Petitioners Jerry and Natalia Pikover, Adolfo Chirico and Norvelle A. Harris requested a hearing by an ALJ by letter dated May 27, 2003. Mr. Pikover and Ms. Pikover were owners/operators of CID, Mr. Chirico was an owner of CID, and Dr. Harris was CID's laboratory director. Following an in-person hearing, the ALJ issued a decision upholding the termination, and that decision is the subject of this appeal.

Petitioners' Exceptions

Petitioners excepted to the following findings of fact in the ALJ Decision:

17. Mr. Tooch, while representing Petitioners, misrepresented in federal district court filings and in communications with CMS representatives, that CID had ceased testing April 8, 2002, when in fact, CID continued to do microbiology testing into July 2002.

18. Petitioners' misrepresentation was made in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002.

Petitioners excepted to the following conclusions of law in the ALJ Decision:

10. "Misrepresentation" as used in 42 U.S.C. § 263a(i)(1)(A) is given its common meaning and means a false or misleading assertion or act, or an assertion or act that is not in accord with the facts, and the statute does not impose an element of intent.

11. The plain meaning of 42 U.S.C. § 263a(i)(1)(A) is that any misrepresentation in obtaining a CLIA certificate is sufficient grounds for the Secretary to revoke a CLIA certificate, even if such misrepresentation was negligent or innocent.

12. The fact that a misrepresentation may have been innocent or negligent is no defense to a violation of 42 U.S.C. § 263a(i)(1)(A).

14. Mr. Tooch's misrepresentations in federal district court filings and communications with CMS representatives, even if innocent or negligent, are attributable to CID, its owners, and its operators.

[Page 5] 15. Petitioners' misrepresentation was made in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002.

16. CMS's motives in granting CID a new CLIA certificate for the period October 31, 2000 through October 30, 2002, are irrelevant to a finding of a violation of 42 U.S.C. § 263a(i)(1)(A).

17. The preponderance of the evidence shows that Petitioners are guilty of a misrepresentation in obtaining a CLIA certificate for CID for the period of October 31, 2000 through October 30, 2002, and pursuant to 42 U.S.C. § 263a(i)(1)(A), there is a basis for the revocation of Petitioners' CLIA certificate.

Petitioners make five major arguments on appeal. First, Petitioners argue that in his communications with CMS representatives, Mr. Tooch did not make any statement regarding whether CID had ceased testing as of April 8, 2002. Second, Petitioners argue that neither Mr. Tooch's statement in the court filings nor any statement in his subsequent communications with CMS representatives was made in obtaining a CLIA certificate, as required by section 263a(i)(1). (3) Third, Petitioners argue that Mr. Tooch's statement does not constitute a misrepresentation within the meaning of section 263a(i)(1). Fourth, Petitioners argue that there is no violation of section 263a(i)(1) if CMS did not actually rely on Mr. Tooch's statement. Fifth, Petitioners argue that Mr. Tooch's statement is not attributable to them.

ANALYSIS
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[Page 6] Below, we address each of Petitioners' major arguments in turn. (4) In each section, we identify the Findings of Fact and Conclusions of Law to which the argument pertains. We do not separately discuss Petitioners' exception to Conclusion of Law 17, the ALJ's ultimate legal conclusion that there was a basis for revocation of CID's CLIA certificate pursuant to section 263a(i)(1), although we uphold that conclusion.

The standard of review on factual issues is whether the ALJ decision is supported by substantial evidence in the whole record. The standard of review on issues of law is whether the ALJ decision is erroneous. Board Guidelines - Appellate Review of Decisions of Administrative Law Judges in Cases under CLIA and Related Statutes, http://www.hhs.gov/dab/guidelines/clia.html.

1. Substantial evidence supports the ALJ's finding that Mr. Tooch, while representing Petitioners, misrepresented in communications with CMS representatives that CID had ceased testing as of April 8, 2002.

Petitioners dispute the part of Finding of Fact 17 that states that Mr. Tooch, while representing Petitioners, made a misrepresentation "in communications with CMS representatives." We assume for purposes of discussing this exception that the alleged statement constituted a misrepresentation.

We note preliminarily that Petitioners did not dispute before the ALJ that Mr. Tooch falsely stated in court filings that CID ceased testing as of April 8. In their reply brief on appeal, Petitioners assert for the first time that "there was not even a clear misstatement in the [court] pleadings" since they contain inconsistent statements. P. Reply Br. at 11-12, n. 2. Since Petitioners did not raise this issue before the ALJ, it is not properly considered on appeal. The Board's Guidelines provide that "the Board will not consider issues not raised in the request for review, nor issues which could have been presented to the ALJ but were not." In any event, Petitioners do not deny that the complaint and the application for a TRO each contain a clear statement that CID ceased all testing as of April 8. Even if another statement in the application for a TRO and a statement in Mr. Chirico's supporting declaration are less clear, that does not turn the patently false statements in the court filings into [Page 7] inconsistent statements rather than the outright misrepresentations they are. These misrepresentations, without more, provide a sufficient basis for revocation of CID's CLIA certificate based on section 263a(i)(1). We nevertheless consider Petitioenrs' exception to the ALJ's finding that Mr. Tooch made a later misrepresentation during a telephone conference.

The ALJ found that, after having stated in court filings that CID had ceased testing as of April 8, Mr. Tooch "continued the misrepresentation" during the settlement negotiations in a telephone conference with CMS. ALJ Decision at 35. In making this finding, the ALJ relied on the testimony of Joseph Stein, who was assigned as CMS counsel in the action brought by CID in the district court, Mr. Stein's declaration, and the testimony of Cornell Prodan of the CMS Regional Office. The ALJ Decision states in relevant part:

Mr. Stein, counsel for CMS, testified that he noted the inconsistency in Petitioners' federal court filings and asked Mr. Tooch about it during a telephone conversation. Mr. Stein testified that he recalled that Mr. Tooch told him that the laboratory did stop testing April 8, 2002. Tr. 168-70. [n. 2. On cross-examination, Mr. Stein testified that Mr. Tooch was asked whether Petitioner had ceased testing, but that the query did not come from him. Tr. 175-76. Mr. Stein testified that he couldn't remember who asked Mr. Tooch. Id. at 176.] Mr. Stein is more specific in his declaration in which he asserts that during a telephone conversation involving Mr. Tooch on July 18, 2002, "Mr. Tooch was asked directly to clarify whether CID had, in fact, ceased testing on April 8, 2002 . . . . [he] confirmed unequivocally that the laboratory had indeed ceased testing on April 8, 2002." CMS Ex. 47, at 2-3. Mr. Prodan testified that he recalled sitting in on a teleconference during which Mr. Tooch mentioned that the laboratory had stopped testing. Tr. 98-99. Petitioners assert in their post-hearing brief:

Although CMS witnesses were insistent that Mr. Tooch had made these statements, they could not pinpoint the exact conversation when the statements were made or who specifically had raised this issue with Mr. Tooch. (TR 140-42, 175) Their statements are contradicted by Mr. Tooch, who testified that he does not [Page 8] remember discussing closure of the laboratory as a point of discussion in the negotiations regarding settlement of the federal court lawsuit. (TR 1269)

P. Brief at 7 n.4. Mr. Stein and Mr. Prodan were not clear in their testimony as to exactly when Mr. Tooch stated or made the representation that Petitioners had ceased testing on April 8, 2002. However, Mr. Stein and Mr. Prodan were certain that Mr. Tooch made the representation or statement that Petitioners had ceased all testing during a conference call. It is clear that that conference call occurred sometime between Petitioners' filing its federal district court lawsuit on July 15, 2002 and July 18, 2002, when Mr. Tooch sent his letter setting forth settlement terms. Who raised the issue with Mr. Tooch is not important for this discussion. The weight of the evidence is that, during settlement negotiations, Mr. Tooch continued the misrepresentation that the laboratory had ceased testing on April 8, 2002.

ALJ Decision at 35.

Relying on the same testimony cited in the ALJ Decision, Petitioners argue that the preponderance of the evidence supports a finding that Mr. Tooch did not state outside of the court filings that CID ceased testing as of April 8. In reviewing an ALJ's finding of fact, however, we do not reweigh the evidence that was before the ALJ. Rather, we ask whether the ALJ's findings of fact are supported by substantial evidence in the whole record. Substantial evidence is "more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Richardson v. Perales, 402 U.S. 389, 401 (1971), quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).

The testimony of Mr. Stein and Mr. Prodan and Mr. Stein's declaration constitute substantial evidence in support of the ALJ's finding that Mr. Tooch stated in communications with CMS representatives that CID had ceased testing as of April 8. While the ALJ referred to contrary testimony by Mr. Tooch, the ALJ found that the weight of the evidence supported a finding that Mr. Tooch made such a statement. That finding might have been based on the fact that Mr. Tooch had no testimony or declaration from anyone else to support his version whereas Mr. Stein's testimony and declaration were supported by Mr. Prodan. Or it could be that the ALJ found Mr. Stein and Mr. Prodan more credible than Mr. Tooch, although the ALJ did not make an express [Page 9] credibility determination. Whatever the ALJ's reasoning, we defer to his evaluation of the weight and credibility of the testimony of the witnesses who appeared before him in this matter. See, e.g., Koester Pavilion, DAB No. 1750, at 15 (2000).

Accordingly, we find no basis for Petitioners' exception to the ALJ's Finding of Fact 17.

2. Substantial evidence supports the ALJ's finding that Petitioners' misrepresentation that CID had ceased testing as of April 8 was made in the course of obtaining a CLIA certificate.

Petitioners dispute the part of the ALJ's Finding of Fact 18, and of the identical Conclusion of Law 15, stating that Petitioners' misrepresentation was made "in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002." We assume for purposes of discussing this exception that the statements made by Mr. Tooch constituted a misrepresentation and that the misrepresentation was attributable to Petitioners.

In discussing this finding/conclusion, the ALJ rejected Petitioners' argument that "a mere extension of an existing CLIA certificate" was being sought. ALJ Decision at 39. The ALJ noted that CID's CLIA certificate expired in October 2000 but was administratively extended by CMS while CMS pursued an enforcement action against CID. The ALJ stated that, pursuant to the settlement agreement--

the CMS enforcement action ended and so did the administrative extension of Petitioners' prior CLIA certificate. Petitioners negotiated for and received a new CLIA certificate, valid for the period October 31, 2000 through October 30, 2002. Pursuant to 42 C.F.R. § 493.49(d), two years is the maximum term for a certificate of compliance.

ALJ Decision at 39. Thus, the ALJ found that Petitioners were seeking to obtain a new CLIA certificate because the administratively extended certificate would no longer be valid once CMS's enforcement action was ended.

On appeal, Petitioners argue that section 263a(i)(1) applies only to the issuance of a new CLIA certificate and that Mr. Tooch was not seeking the issuance of a new CLIA certificate when he made the misrepresentation. Petitioners take the position that any misrepresentation was made instead to prevent the revocation of CID's existing CLIA certificate proposed in CMS's April 3, 2002 [Page 10] letter or to obtain the renewal of CID's expired CLIA certificate. (5)

Petitioners' argument has no merit. Neither the statute nor the regulation specifies that a misrepresentation must be made in obtaining a "new" CLIA certificate. Thus, even if Mr. Tooch had been seeking to prevent the revocation of an existing certificate or to renew an expired certificate, it would be reasonable to conclude that his statement was made in "obtaining a CLIA certificate." The ALJ's finding that the misrepresentation was made in the course of obtaining a "new" CLIA certificate is not a legal conclusion by him that the statute does not apply unless the certificate is newly sought but simply reflects the ALJ's view that as a matter of fact CID was seeking to obtain a new CLIA certificate.

In any event, we agree with the ALJ that CID was seeking to obtain a new CLIA certificate rather than to prevent the revocation of an existing certificate or to renew an expired certificate. It is true that on April 3, 2002, CMS proposed the "revocation" of CID's CLIA certificate. However, CID does not dispute that the last CLIA certificate issued to CID had expired on October 30, 2000 and that CID was required to have a new certificate retroactive to October 31, 2000 in order to comply with the requirement in 42 C.F.R. § 493.5 that a laboratory that is performing tests of high and/or moderate complexity and is not CLIA-exempt must have a certificate. Thus, in seeking to enjoin the "revocation," Mr. Tooch was in effect seeking to obtain a new CLIA certificate for the two-year period beginning October 31, 2000. (6) Furthermore, in negotiating the settlement agreement, Mr. Tooch expressly sought the issuance of a new CLIA certificate for this period.

Accordingly, we find no basis for Petitioners' exception to the ALJ's Finding of Fact 18 and Conclusion of Law 15, although we modify them to read as follows in order to clarify that they apply to both the misrepresentation made in the court filings and [Page 11] the misrepresentation made in communications with CMS representatives in the settlement negotiations.

Petitioners' misrepresentations in the court filings and in communications with CMS representatives were made in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002.

3. The ALJ did not err in concluding that Mr. Tooch's statement that CID had ceased testing as of April 8 constituted a misrepresentation within the meaning of section 263a(i)(1).

Petitioners take exception to Conclusions of Law 10, 11, and 12, which, taken together, hold that any false or misleading assertion or act made in obtaining a CLIA certificate, even if innocent or negligent, can constitute a misrepresentation for purposes of section 263a(i)(1). (7) Petitioners had argued before the ALJ that section 263a(i)(1) does not apply to them since Mr. Tooch's "false representation was based upon his faulty assumption drawn from his observations at the laboratory and was not made in a deliberate attempt to mislead either the district court or CMS." ALJ Decision at 34. The ALJ concluded, however, "that the word 'misrepresentation' includes no element of intent" and that the "plain meaning of the statute is that any misrepresentation in obtaining a CLIA certificate is sufficient grounds for the Secretary to revoke a CLIA certificate . . . ." Id. at 37. The ALJ noted that Congress did not state that the Secretary could revoke only if a misrepresentation was found to be fraudulent or material or that a misrepresentation must be excused if it was innocent or negligent. The ALJ also said that "misrepresentation" is defined in Black's Law Dictionary (8th ed. 2004) as "a false or misleading assertion" or "an assertion that does not accord with the facts." Id. at 36, citing Black's at 1022. (8) In addition, the ALJ relied on the fact that Black's [Page 12] separately defines some types of misrepresentation that clearly require intent (e.g., fraudulent misrepresentation). The ALJ also relied on the statutory phrase "guilty of misrepresentation," noting that "guilty" can mean merely that "one committed or is responsible for a crime or a civil wrong." Id., citing Black's at 727. The ALJ thus concluded that by its plain meaning section 263a(i)(1) applied here even if Mr. Tooch's misrepresentation was innocent or negligent. Id. at 37.

On appeal, Petitioners argue that the ALJ erred in concluding that there is no element of intent required to find a misrepresentation under section 263a(i)(1). According to Petitioners, the word "guilty," in the statute "clearly implies more than just an innocent or non-deliberate misstatement." P. Br. at 13. Petitioners assert that Mr. Tooch's false statement was outside the scope of the statute because it was "innocent" and "was not a deliberate attempt to mislead . . . ." (9) Id.

We find no merit to any part of Petitioners' argument. It is clear from the plain language of section 263a(i)(1), the CLIA statutory scheme as a whole, and Congress's purpose in enacting the CLIA statute that CMS is not required to prove intent, e.g., that a false or misleading assertion was made deliberately or wilfully, with knowledge that it was false or with specific attempt to deceive, in order to apply section 263a(i)(1). To the contrary, it appears that Congress intended to give CMS leeway to interpret "guilty of misrepresentation" broadly. Neither the statute nor the regulation states that a misrepresentation must be intentional, nor do the words "misrepresentation" and "guilty" in and of themselves necessarily imply an element of intent. Furthermore, as CMS notes, the absence of the word "intentional" in the provisions at issue here contrasts with the presence of [Page 13] that word in 42 U.S.C. § 263a(1) and 42 C.F.R. § 493.1806(e), where Congress and the Secretary expressly provided that a violation of CLIA requirements must be intentional in order for CMS to impose criminal sanctions. The regulatory scheme similarly provides support for the ALJ's conclusion. None of the other bases for permissive revocation of a CLIA certificate under 42 C.F.R. § 493.1840(a) require any element of intent; they simply require that an owner, operator or employee of a laboratory have engaged in a specified act. See 42 C.F.R. § 493.1840(a)(2)-(8).

As the ALJ noted, the underlying purpose of CLIA, to ensure public health and safety by requiring that laboratories provide accurate and reliable test results, also supports a broad construction of CMS's authority under section 263a(i)(1). A failure to provide accurate information in obtaining a CLIA certificate, even if unintentional, could indicate that the laboratory cannot be trusted to provide accurate and reliable test results.

We also agree with the ALJ's conclusion, based on the statutory language and reference to dictionary definitions, that "guilty of misrepresentation" covers even a negligent false or misleading assertion. First, the statutory language contains neither a modifier for the word "misrepresentation" nor an express exclusion for a negligent misrepresentation or any other type of misrepresentation. Second, as discussed above, the CLIA statute as a whole, as well as the statute's purpose, support a construction broad enough to cover negligent misrepresentation. Furthermore, the treatise referred to in the Black's definition of "misrepresentation," the Restatement (Second) of Contracts § 159 cmt. a (1979), states, "[A]n assertion need not be fraudulent to be a misrepresentation. Thus a statement intended to be truthful may be a misrepresentation because of ignorance or carelessness, as when the word 'not' is inadvertently omitted or when inaccurate language is used." (10) While not cited by the ALJ, this Restatement explication provides further support for his conclusion that even a negligently (or carelessly) made false or misleading assertion can be a misrepresentation.

[Page 14] Since "innocent" is one definition of "ignorant," Webster's Third New International Dictionary at 1125 (1976), the Restatement definition could also be viewed as supporting the ALJ's conclusion of law that even an innocently made false or misleading assertion can be a misrepresentation. However, we do not need to decide whether this conclusion of law by the ALJ is correct because the facts surrounding Mr. Tooch's false statements, discussed below, show that the misrepresentation was not innocent.

As the ALJ noted, ALJ Decision at 37, Mr. Tooch himself suggests that his misrepresentation was negligent, and we agree. In his testimony, Mr. Tooch indicates that he represented that CID had ceased testing as of April 8 based solely on his casual observation, in a visit to CID made only to assemble documents for CID's plan of correction, that there were few employees and no testing being performed in an area of the laboratory that was not designed for testing. See Tr. at 1266, 1284. In addition, it appears that Mr. Tooch's observation was made at least three days after April 8, 2002, and possibly as late as June 18, 2002 (the date of CID's plan of correction), since Mr. Tooch testified that his law firm was not contacted about representing CID until April 11, 2002 (Tr. at 1263). Thus, Mr. Tooch's observation was on its face not a reliable basis for determining that CID had ceased testing as of April 8. As legal counsel, moreover, Mr. Tooch had an affirmative duty to make a reasonable inquiry into whether CID in fact had ceased testing on April 8 before making the statements to this effect in the Federal court filings submitted on behalf of CID. (11) Nevertheless, by Mr. Tooch's own account (described above), he represented that CID had ceased testing as of April 8 without seeking verification of that alleged fact from CID's owners or operators.

Moreover, the statements made by Mr. Tooch were inconsistent with the sworn statement made by one of those owners, Mr. Chirico, in a declaration submitted with the court filings at issue, that the laboratory had only begun to cease testing as of April 8. In our [Page 15] view, a lawyer's making statements in court filings, or in settlement negotiations, that are not consistent with sworn statements by the lawyer's client, must be viewed, at the very least, as negligence.

Based on the inconsistency between Mr. Tooch's statements in the pleadings he filed and the declaration made by his client, as well as the other circumstances discussed in the preceding paragraphs, we also have no hesitancy in concluding that the false statements were not innocent. (12) The situation here stands in stark contrast to the example of an innocent misrepresentation offered by Petitioners to demonstrate the alleged reach of the ALJ's interpretation of the statute - where a laboratory inadvertently transposes the numbers in its zip code. P. Br. at 3. Unlike the example, the false statement here was not an inadvertent, non-substantive error.

Indeed, the artfully worded client's statement in the declaration that the laboratory "began to cease" testing on April 8 and Mr. Tooch's statements in other court filings that the laboratory had actually ceased testing on April 8 suggests that Mr. Tooch's statements were not only negligent but intentional in the sense that he knew he was making a statement that was untrue.

Accordingly, we find no basis for Petitioners' exceptions to the ALJ's Conclusions of Law 10, 11, and 12. However, we modify Conclusions of Law 11 and 12 to read as follows in order to reflect that, given the facts of this case, it is not necessary to reach the issue of whether section 263a(i)(1)(A) applies to an innocent misrepresentation.

11. The fact that a misrepresentation may have been negligent is no defense to a violation of 42 U.S.C. § 263a(i)(1)(A).

12. Mr. Tooch was "guilty of misrepresentation" within the meaning of 42 U.S.C. § 263a(i)(1)(A) in federal district court filings and in communications with CMS representatives.

[Page 16] 4. The ALJ did not err in concluding that CMS's motives in granting CID a new CLIA certificate are irrelevant to a finding of a violation of the statute.

Petitioners take exception to Conclusion of Law 16, which states that CMS's motives in issuing a new CLIA certificate to CID are irrelevant. Elsewhere in his decision, the ALJ stated that "because the statute does not require a material misrepresentation, whether or not CMS actually acted based upon the misrepresentation, and whether or not it was reasonable for CMS to act relying upon the misrepresentation, is irrelevant." ALJ Decision at 37. Thus, in concluding that CMS's motives were irrelevant, the ALJ held in essence that CMS has authority to revoke CID's CLIA certificate under section 263a(i)(1) even if CMS did not rely on Mr. Tooch's misrepresentation in issuing a new CLIA certificate to CID.

Petitioners take the position, however, that CMS should not be able to revoke a CLIA certificate absent "a finding that the misrepresentation was material and that CMS had relied on said misrepresentation in issuing the certificate." P. Br. at 16. According to Petitioners, Mr. Tooch's misrepresentation was not sufficient to justify the revocation of CID's CLIA certificate because the preponderance of the evidence shows that CMS did not in fact rely on the misrepresentation in issuing a new CLIA certificate to CID. (13)

In support of their position, Petitioners cite Carlos A. Cervera, M.D., DAB CR939 (2002). The ALJ there stated that "misrepresentation" means any inaccurate information contained in an application for certification which, "if relied upon by a state or federal agency, would result in certification issuance." At 7. The ALJ here agreed with the ALJ in Cervera that "misrepresentation" in the CLIA statute and regulations at issue includes no element of intent but did not comment on or adopt the part of Cervera relied upon by Petitioners. (14) In any [Page 17] event, we do not read the cited language as stating that no misrepresentation exists unless CMS actually relies on it in granting a CLIA certificate.

Petitioners point to no other authority for concluding that section 263a(i)(1) applies only if CMS actually relies on the misrepresentation. In addition, applying the statute regardless of whether there was actual reliance serves the underlying purpose of CLIA to ensure public health and safety by requiring that laboratories provide accurate and reliable test results. A failure to provide accurate information in obtaining a CLIA certificate, even if not relied on by CMS, could indicate that the laboratory cannot be trusted to provide accurate and reliable test results. Accordingly, we conclude that section 263a(i)(1) applies here regardless of whether CMS relied on Mr. Tooch's misrepresentation.

Moreover, we need not resolve the question whether, contrary to what the ALJ stated, section 263a(i)(1) applies only where a misrepresentation is material since it is clear that Mr. Tooch's misrepresentation was material, i.e., that it could have influenced CMS's decision to issue a new CLIA certificate to CID. As indicated above, CMS had proposed in its April 3, 2002 letter to require that CID cease testing as of April 8 as part of a directed plan of correction. This proposal clearly reflects CMS's belief that CID could take steps to come into compliance with the CLIA requirements if it ceased testing for a period of time. Indeed, the CMS official who signed the July 19, 2002 letter regarding the issuance of a new CLIA certificate indicated in her testimony that she believed that by stopping testing from April 8 to July 19, 2002, CID could have abated the immediate jeopardy allegedly posed by deficiencies found in the October 2001 survey. See ALJ Decision at 42, citing Tr. at 377-382. Thus, Mr. Tooch's misrepresentation in the court filings as well as in the telephone conference concerned a factual issue that could have influenced CMS's decision to settle the lawsuit on the terms that it did.

Accordingly, we find no basis for Petitioners' exception to the ALJ's Conclusion of Law 16.

[Page 18] 5. The ALJ did not err in concluding that Mr. Tooch's misrepresentation was attributable to CID's owners and operators.

Conclusion of Law 14 holds that Mr. Tooch's misrepresentation is "attributable to CID, its owners, and its operators." Petitioners do not dispute that the misrepresentation was attributable to CID, but dispute that it was attributable to CID's owners and operators. The ALJ explained the basis for his conclusion as follows:

It is not necessary to determine whether Mr. Tooch had an individual attorney-client relationship with the whole list [of Petitioners] or just the corporate entity. Mr. Tooch clearly had an attorney-client relationship with the laboratory on whose behalf he filed documents in the federal district court and negotiated with CMS, and his relationship with the laboratory extended to all the owners and operators absent a showing to the contrary. . . . It is well accepted that whatever an attorney does in the progress of a cause is considered as if done by the party and is binding upon the party even if the attorney was guilty of gross negligence. . . . The federal courts have recognized for some time that, under California law, a client is bound by the acts of his or attorney so long as the attorney had the actual or apparent authority to bind him. . . . Accordingly, I conclude that Mr. Tooch's misrepresentations are attributable to the laboratory, its owners, and its operators.

ALJ Decision at 38 (citations omitted).

On appeal, Petitioners argue that none of the individuals to whom the ALJ found the misrepresentation was attributable was a client of Mr. Tooch. As indicated previously, three of the four individuals named were owners of CID, while the fourth was CID's laboratory director. Petitioners also argue that the specific reference in section 263a(i)(1) to misrepresentation by the owner, operator or employee of a laboratory shows that this section applies only to a misrepresentation made by one of these individuals.

Petitioners' arguments have no merit. The duty imposed by the statute not to be "guilty of misrepresentation" ultimately rests on a laboratory's owners and operators. To the extent that the misrepresentation is made by their agent acting within the scope of his authority, it is attributable to them. In this case, it is undisputed that one of CID's three owners, Mr. Chirico, engaged Mr. Tooch's law firm to represent CID in CMS's [Page 19] enforcement action. In addition, Mr. Tooch made the misrepresentation while litigating the enforcement action. Moreover, Mr. Tooch was representing the personal interests of all of the owners and operators, since the revocation of CID's certificate based on the October 2001 survey would have affected their investment in CID and subjected them to a two-year ban on owning or operating another laboratory. (15) There is thus no question that Mr. Tooch was acting within the scope of his authority as the agent of CID's three owners, two of whom were also operators, as well as its laboratory director, who meets the definition of an operator. (16)

To the extent that a laboratory's owners and operators rely on an agent such as an attorney to make representations on their behalf concerning information requested by CMS, they have a duty to ensure that the information provided by the attorney, whether in written documents or conversations, is accurate. In this case, the owners and operators cannot avoid responsibility for the misrepresentation made by Mr. Tooch by arguing that he was ignorant about whether they had implemented a sanction proposed by CMS. The CLIA statute necessarily imposed on them the duty to ensure that any statements made by Mr. Tooch were accurate and truthful. (17) Petitioners do not allege, much less substantiate [Page 20] with evidence, that they kept Mr. Tooch apprised about whether they had ceased operations at the relevant time or address whether they reviewed the court filings (including the sworn statement) made on their behalf relevant to the status of the operations of their laboratory. Thus, Mr. Tooch's misrepresentation was properly attributable to them. (18)

Accordingly, we see no basis for Petitioners' exception to Conclusion of Law 14. However, we modify this Conclusion of Law as follows in order to reflect that, given the facts of this case, it was not necessary for the ALJ to conclude that section 263a(i)(1)(A) applies to an innocent misrepresentation.

14. Mr. Tooch's misrepresentations in federal district court filings and communications with CMS representatives, even if negligent, are attributable to CID, its owners, and its operators.

Conclusion

Based on the foregoing discussion, we affirm the ALJ's decision to uphold CMS's revocation of CID's CLIA certificate. We affirm and adopt all of the ALJ's Findings of Fact and Conclusions of [Page 21] Law except Finding of Fact 18 and Conclusions of Law 11, 12, 14 and 15, which we modify as stated in our analysis.

JUDGE
...TO TOP

Judith A. Ballard

Sheila Ann Hegy

Donald F. Garrett
Presiding Board Member

FOOTNOTES
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1. CMS had also proposed to revoke CID's CLIA certificate, as well as to impose civil money penalties (CMPs), based on the State agency's additional finding that CID had failed to correct 13 standard-level deficiencies. The ALJ concluded, however, that a settlement agreement (referred to below) precluded CMS from relying on these deficiencies as a basis for revocation or the imposition of CMPs, and CMS did not appeal. See ALJ Decision at 15.

2. CID had, by letter dated May 2, 2002, requested an expedited hearing by an ALJ, but its request was not forwarded by CMS for assignment of an ALJ.

3. Section 263a(i)(1) of 42 U.S.C. states in relevant part:

[T]he certificate of a laboratory issued under this section may be suspended, revoked, or limited if the Secretary finds, after reasonable notice and opportunity for hearing to the owner or operator of the laboratory, that such owner or operator or any employee of the laboratory--

(A) has been guilty of misrepresentation in obtaining the certificate[.]

For convenience, we refer only to the statutory provision since the implementing regulation is virtually identical.

4. We have fully considered all arguments that appear to be raised on appeal, regardless of whether we have provided a detailed written analysis in this decision.

5. Petitioners do not argue that section 263a(i)(1) applies only to a misrepresentation on an actual application form for a CLIA certificate, nor do we see any basis for such a limitation.

6. Petitioners suggest that the ALJ reached the issue of whether there was a misrepresentation in the settlement negotiations because he found that the misrepresentation in the court filings was not made in obtaining a CLIA certificate. The ALJ made no such finding, however.

7. In their reply brief, Petitioners discuss their exceptions to Conclusions of Law 10-12 and 16 together. We discuss Petitioners' exceptions to Conclusion of Law 16 separately.

8. A closer reading of Black's reveals an alternative definition of "misrepresentation" as "[t]he "act of making a false or misleading assertion ... , usu[ally] with intent to deceive." (Emphasis added.) The underlined language might be viewed as creating some ambiguity regarding what constitutes a misrepresentation in certain legal contexts. However, for purposes of determining what constitutes a "misrepresentation" under section 263a(i)(1), as discussed more fully below, the statute itself, the broader CLIA statutory framework and the legislative purpose clearly do not require CMS to prove intent to deceive. Furthermore, even in other legal contexts, any effect that the underlined language might have must be weighed against the fact that Black's goes on to cite a treatise explication of "misrepresentation" (also discussed later in this decision) which requires no element of intent.

9. Although Petitioners assert that "there is no dispute that the misrepresentation in this case was innocent," P. Br. at 13, they do not point to any concession or stipulation by CMS to that effect.

10. The Restatement goes on to say that a misrepresentation that is not fraudulent has no consequences unless it is material. While this may be true for purposes of contract law, it is not necessarily true for purposes of CLIA. Later in this decision, we conclude that we do not need to reach the issue of whether a misrepresentation must be material for CMS to invoke section 263a(i)(1) since the misrepresentation in this case clearly was material. See infra p. 17.

11. The ALJ Decision appropriately cites Rule 11 of the Federal Rules of Civil Procedure. ALJ Decision at 38, n.23. Under Rule 11, when counsel signs a pleading, motion or other paper, he or she is certifying to the best of his or her knowledge, information and belief - formed after an inquiry that is reasonable under the circumstances - that legal contentions are supported by existing law and factual contentions have evidentiary support, or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.

12. We note that while Petitioners argue that Mr. Tooch made an innocent mistake, they provided no evidence that would establish that and the facts surrounding Mr. Tooch's false statements, which we discuss above, tend to show just the opposite.

13. The ALJ did not make any finding as to whether CMS relied on Mr. Tooch's misrepresentation in issuing a new CLIA certificate to CID. Although we do not make any finding either, since we conclude that such a finding is unnecessary under the appropriate legal standard, we note that the mere fact that CMS did not inform CID that Mr. Tooch's statement was a basis for its decision to agree to the settlement proposal does not show that there was no reliance in fact.

14. While an ALJ may adopt a holding by a fellow ALJ, an ALJ is not required to do so, nor is the Board bound to follow an ALJ decision.

15. Section 263a(i)(3) of 42 C.F.R. provides that "No person who has owned or operated a laboratory which has had its certificate revoked may, within 2 years of the revocation of the certificate, own or operate a laboratory for which a certificate has been issued under this section."

16. Under 42 C.F.R. § 493.2, the laboratory director is considered an "operator" of the laboratory provided the director "oversees all facets of the operation of [the] laboratory and . . . bear[s] primary responsibility for the safety and reliability of the results of all specimen testing performed in that laboratory." CID does not argue that laboratory director Norvelle Harris did not meet these criteria and also does not argue that she was differently situated than the Pikovers, who the ALJ found were operators as well as owners. Accordingly, we see no reason to treat Dr. Harris any differently for purposes of determining whether Mr. Tooch's misrepresentation while representing CID extends to CID's owners and operators.

17. As the ALJ noted, ALJ Decision at 38, n.23, sanctions for violations of Rule 11 may be imposed on either the attorney, the represented party or both. The only exception - that monetary sanctions for violations of (b)(2) of the Rule concerning unwarranted or frivolous legal arguments may not be awarded against a represented party - does not apply here since the misrepresentation at issue involves facts.

18. It also appears that Mr. Chirico himself made a misrepresentation in his July 15, 2002 declaration. The declaration states "As ordered by CMS, CID began to cease all laboratory testing on April 8, 2002." This is misleading because it indicates that CID's actions were taken in compliance with CMS's order, which was to cease all testing as of April 8. Alternatively, the statement could be viewed as a misrepresentation of the terms of CMS's order. In addition, the ALJ Decision suggests that the statement could be viewed as a misrepresentation because CID "did not begin to cease microbiology testing on April 8, 2002; thus, the laboratory did not begin to cease 'all' testing as Mr. Chirico asserted." ALJ Decision at 35. Moreover, the statement in the declaration that CID "had to lay-off its employees" implies that CID had actually ceased testing since no testing could be conducted without employees.

CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES