February 23, 2010

State Court Dismisses Fraud Accusations

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A lawsuit that claimed Cornell University and New York State committed fraud against the U.S. Government was dismissed on February 16, ending a series of complaints filed in 2004 by Bruce Chapman, president of Handle With Care Behavior Management System, Inc.

Handle With Care is a company that provides training programs for various organizations across the country to teach individuals safe techniques for physically restraining others in crisis situations. Since 1998, HWC has faced competition from a new restraint method developed jointly by the University and New York State called the Therapeutic Crisis Intervention method, according to the United States Court of Appeals Decision on Oct. 14, 2008.

In 2004, Chapman sued Cornell and New York State under the federal False Claims Act, claiming that “Cornell and the State conspired to overcharge for services provided by Cornell to the State and funded in part by federal funds [i.e. TCI training],” Nelson Roth, Deputy University Counsel, stated in an e-mail.

The False Claims Act permits people not affiliated with the U.S. Government to file a lawsuit claiming fraud against the Government. The plaintiff stands to receive a portion of the recovery if the action is successful.

The Government declined to intervene in the case in 2005. State defendants then contended that the State is not subject to liability under the False Claims Act. In fact, the United States Supreme Court holds that “only the Federal Government has the ability to sue a state or state agency under the False Claims Act,” as pointed out in the District Court Decision on Feb. 16.

Cornell defendants asserted that the plaintiff’s allegations “fail to provide specifics as to time and place of alleged fraudulent acts and who committed such acts,” which are required under Rule 9(b) of Federal Rules of Civil Procedures, according to the Feb. 16 District Court Decision.

Cornell and the State motioned to dismiss the case in December 2006. The motion had been pending until last week, when the District Court finally approved the dismissal, according to Roth.

Chapman had filed another case against Cornell in July 2004, claiming that Cornell and New York State “conspired to restrain trade in violation of federal antitrust laws,” Roth said. The lawsuit was instigated by an alleged policy change in the New York State Office of Children and Family Services in 1998 that withheld certification of all New York childcare and juvenile facilities’ restraint methods unless the TCI method was used, which resulted in the exclusion of HWC from the market, according to the Oct. 14 United States Court of Appeals Decision.

The District Court dismissed the case back in September of 2005 and the United States Court of Appeals for the Second Circuit upheld the decision on the grounds that the plaintiff “failed to offer a plausible relevant market in which the defendants monopolized the trade for restraint services.”

While Chapman contended that the relevant market involves “restraint training services to private childcare providers located in the State of New York,” the Court of Appeals argued that such a definition is too narrow and that the proper market is the larger exchange of restraint training services to all organizations.

The Court of Appeals thus concluded that the plaintiff “cannot establish that the defendants have substantial market power in the market for restraint services properly defined,” according to its Oct. 14, 2008 decision.

Chapman eventually brought the case to the United States Supreme Court, but the request for a hearing was denied in 2009, according to the Supreme Court Order on Nov 9, 2009.

“Chapman’s claims were without merit and Cornell is pleased with the outcome of each case. The courts that reviewed and dismissed these cases reached the right result in each case,” Roth stated in an e-mail.

Original Author: Yi-Ke Peng