Law360 (April 24, 2024, 7:15 PM EDT) — A research foundation affiliated with a University of Pittsburgh Medical Center hospital can’t duck a former employee’s claims that the foundation mishandled grant money and fired her for raising concerns, though UPMC itself is off the hook, a federal judge ruled Wednesday.
U.S. District Judge J. Nicholas Ranjan said the Magee-Womens Research Institute and Foundation would have to face claims from Michelle Ruggeri that its lack of internal financial controls and alleged shuffling of National Institutes of Health grant funds violated the False Claims Act, along with her claim that she was fired for reporting her concerns.
But UPMC and the hospital itself were dismissed from the case because the alleged misconduct was done on the foundation’s behalf, not for either of the other institutions.
“The court will dismiss UPMC and Magee-Womens Hospital. … The only basis of liability for these defendants — respondeat superior — fails,” Judge Ranjan said in his opinion. “Though UPMC and the hospital technically employed the key players in this case … the [second amended complaint] only pleads that these employees acted for the benefit of the foundation, not UPMC and the hospital.”
Judge Ranjan trimmed some claims against the University of Pittsburgh and claims that the foundation deceived the NIH by not returning unspent grant money.
But Ruggeri can keep pursuing her other claims, including that the foundation misled the federal government about its financial tracking, improperly moved around grant funds and retaliated against her by firing her as soon as she reported her concerns outside her “chain of command.”
The foundation is the “research and education” arm of UPMC’s Magee-Womens Hospital in Pittsburgh, receiving almost three-quarters of its funding from the NIH at the time relevant to the lawsuit, the opinion said.
Ruggeri had been hired in 2017 to help “revamp” its internal accounting and compliance systems, but she allegedly found problems that the organization was unwilling to address, she claimed.
After she was fired in 2018 for allegedly taking her concerns to Dr. Robert Edwards, a department chair at the university and a member of the foundation’s board, Ruggeri filed a qui tam action, or whistleblower complaint, in 2019. Federal prosecutors spent about three years investigating her allegations but declined to take over the case in November 2022.
One condition of the NIH grants is that the recipient should have internal accounting systems that can track where the money goes, but Ruggeri alleged the foundation’s system was completely inadequate. So when the foundation applied for grants and promised it could comply with the rules and conditions, that was false, she alleged, and that was enough to survive the foundation’s motion to dismiss, Judge Ranjan ruled.
“The foundation’s financial system … couldn’t trace budget expenditures, couldn’t produce accurate monthly reports, and couldn’t be used to verify that account funds were being properly spent,” the judge said. “The well-pled facts explain that the foundation repeatedly certified in its grant applications and reports that its system was sufficient … even though its system was anything but. … That’s enough to plead falsity under the relevant pleading standard.”
Ruggeri also claimed the foundation covered spending that went over-budget by transferring money from grant accounts that had leftovers, treating all its federal and nonfederal money as one big pool despite NIH rules against unapproved “cost transfers.”
Judge Ranjan agreed that the allegation was sufficient to survive against the foundation, and the claim also implicated the University of Pittsburgh because it had employees who signed off on reassigning “employee effort” to other accounts, which also supported her claims of conspiracy.
The judge did dismiss Ruggeri’s third claim of an FCA violation — she alleged the foundation didn’t report saved costs or unspent grant money as “program income” — because that money didn’t meet the definition of income.
The alleged schemes met the “materiality” requirement of the FCA because they influenced the government’s decision to keep giving the foundation grant money, the court said, noting that Ruggeri had pointed to other institutions that got penalized for not having the financial controls they were supposed to. The opinion highlighted the actual penalties the foundation faced once Ruggeri’s claims came to light.
“Perhaps the strongest evidence of materiality is the government’s response after NIH learned of the foundation’s compliance issues, including the misallocation of costs. As pled in the [second amended complaint], during the government’s investigation into Ms. Ruggeri’s allegations, NIH reviewed eight federal grants, which reflected 589 cost transfers between them all. … NIH randomly sampled ten of those transfers, and found each one violated NIH regulations and requirements,” Judge Ranjan said. “Moreover, NIH substantially reduced its awards to the foundation after Ms. Ruggeri’s allegations surfaced, underscoring that these infractions were material.”
Though Ruggeri had been hired to revamp the financial system and might not have been engaged in “protected activity” had she simply taken her concerns to her immediate bosses at the foundation, her decision to go outside the chain of command to Edwards had been enough to make her qualify as a whistleblower, the court said.
Moreover, her being fired the same day she made her report was suggestive of a connection between her whistleblowing and a retaliatory firing, the judge said.
But the retaliation claim only survived against the foundation since the judge found no indication that UPMC, the hospital or university officials had any knowledge of, or say in, Ruggeri’s firing.
Attorneys for Ruggeri and the foundation, as well as a spokesperson for UPMC, declined to comment on the court’s ruling Wednesday. Counsel for the university did not immediately respond to requests for comment.
Ruggeri is represented by Joy P. Clairmont, Sherrie R. Savett, William H. Ellerbe and William H. Fedullo of Berger Montague, Kathryn M. Schilling of Schilling Law LLC, and Emily C. Lambert of Lambert Law Office LLC.
The Magee-Womens Research Institute and Foundation is represented by Allen M. Lopus, Neel Kapur and Robert J. Ridge of Clark Hill PLC.
The University of Pittsburgh is represented by Mariah L. Passarelli of Cozen O’Connor.
UPMC is represented by Marcos E. Hasbun and Sara Alpert Lawson of Zuckerman Spaeder LLP, and Jeffrey J. Wetzel, John C. Conti and Steven L. Ettinger of Dickie McCamey & Chilcote PC.
The case is United States of America ex rel. Ruggeri v. Magee-Womens Research Institute and Foundation et al., case number 2:19-cv-00862, in the U.S. District Court for the Western District of Pennsylvania.
Read more at: https://www.law360.com/articles/1829249/upmc-affiliate-can-t-avoid-false-claims-suit-over-nih-grant-?copied=1
By Matthew Santoni