1
EXHIBIT 99.6
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is entered into between the United
States of America ("United States"), acting through its Department of Justice
("DOJ") and the Office of Inspector General of the United States Department of
Health and Human Services ("HHS/OIG"), the Office of the Civilian Health and
Medical Program for the Uniformed Services of the United States Department of
Defense ("CHAMPUS"), Xxxxxx XxXxxxxx ("Relator") and Physicians Clinical
Laboratory, Inc. ("PCL") (hereafter collectively referred to as "the Parties"),
through their authorized representatives. It is expressly understood by all
parties that this Agreement is subject to approval by the U.S. Bankruptcy Court
for the Central District of California, Case No.
SV96-23185 GM.
RECITALS
As a preamble to this Agreement, the Parties agree to the following:
1. PCL is an independent clinical laboratory, incorporated in the State of
Delaware. PCL and its subsidiaries and affiliates are identified by name and
provider number, where applicable, in the attached Exhibit A, (collectively
described as PCL in this agreement). On November 8,1996, PCL and certain of its
affiliates filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code"), in the
United States Bankruptcy Court for Central District of California (the
"Bankruptcy Court"). PCL's Chapter 11 case will be hereinafter referred to as
the "Chapter 11 Case." By order entered April 23,1997, the Bankruptcy Court
confirmed the Second amended Plan of Reorganization of Physicians Clinical
Laboratories, Inc. and Its Affiliated Debtors (the "Plan") pursuant to Section
1129 of the Bankruptcy Code.
2. The United States alleges that PCL has submitted or caused to be
submitted false and fraudulent claims for payment to the Medicare program
("Medicare"), Title XVIII of the Social Security Act, 42 U.S.C. Sections
1395-1395ddd, the MediCal Program, Title XIX of the Social Security Act, and the
Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS"), 10
U.S.C. Sections 1071-1106, for clinical laboratory services during the period
from January 1, 1992, to July 18, 1997. Relator filed an action under the qui
tam provisions of the False Claims Act, 31 U.S.C. Sections 3729-33 ("FCA"),
alleging that PCL violated the FCA for certain actions set forth in the
Complaint filed in the District Court for the Eastern District of California, in
United States ex rel. Xxxxxx XxXxxxxx v. Physicians Clinical Laboratory, et al.,
CIV-S97-I005GEBGGH (the "Civil Action").
3. The United States contends that it has or may have certain claims and
causes of action against PCL predicated upon the False Claims Act, 31 U.S.C.
Sections 3729-3733, as amended; the
2
Civil Monetary Penalties Law, 42 U.S.C. Section 1320a-7a; the Program Fraud
Civil Remedies Act, 31 U.S.C. Sections 3801-12; and the provisions for exclusion
from the Medicare and State health care programs, 42 U.S.C. Section 1320a-7(b),
42 U.S.C. Section 1320a-7a and 42 U.S.C. Section 1320a-7(d); as well as under
common law theories, for damages and penalties arising out of claims for
reimbursement for clinical laboratory services, as described in paragraph 2
above.
4. PCL denies the respective allegations of the United States ad the
Relator. In order to avoid the uncertainty and expense of litigation, the
Parties hereby reach a full and final settlement of all issues and disputes
between them based upon the conduct described in paragraph 2 of this Agreement.
TERMS AND CONDITIONS
In accordance with the mutual covenants and agreements herein, and with
full authority to enter into this Agreement and to be bound thereby, the Parties
agree as follows:
5. In settlement of the claims and causes of action that the United States
has or may have against PCL, as described in paragraphs 2 and 3 of this
Agreement, PCL agrees to pay to the United States $2,000,000.00 ("Settlement
Amount") over six (6) years plus interest. PCL will pay $200,000.00 to the
United States within seven (7) days of the Effective Date (as defined in
paragraph 32). The remaining principal balance due of $1,800,000 will be paid in
monthly installments of $25,000, plus interest on the unpaid balance calculated
at the 30 day Treasury Xxxx interest rate in effect at the time of the signing,
commencing on October 1,1997, and continuing on the first day of each month for
the next six years through July 1, 2003. PCL agrees to pay interest at the
Treasury Xxxx interest rate in effect at the time of the installment payment on
the remaining principal balance of $1,800,000. The Settlement Amount or any
installment thereof may be prepaid, in whole or in part, without premium or
penalty. The United States will waive interest for such prepayments.
6. PCL will satisfy the obligations set forth in paragraph 5 by Fedwire
electronic funds transfer to the "Department of Justice," as arranged through
the Financial Litigation Unit, U.S. Attorney's Office, Eastern District of
California.
7. A five (5) calendar day period will be allowed before a payment is
considered to be late. However, all late payments under this paragraph are
subject to an interest charge of 18% (eighteen percent) per annum compounded
daily, commencing on the date payment is due.
8. The occurrence of any of the following events shall constitute an Event
of Default:
2
3
a. Failure to Make Timely Payments: Failure by PCL to pay any amount
provided for in Paragraphs of this Agreement when such payment is
more than ten (10) days late;
b. Commencement of Bankruptcy or Reorganization Proceeding: Except
with respect to the Chapter 11 Case, if prior to making the full
payment of the amount due under Paragraph 5 above, (i) PCL commences
any case, proceeding, or other action (A) under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have any order for relief of debtors, or seeking to adjudicate it
as bankrupt or insolvent, or (B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or
any substantial part of its assets; or (ii) there shall be commenced
against PCL any such case, proceeding or other action referred to in
clause (i) that results in the entry of an order for relief and any
such order remains undismissed, or undischarged or unbonded for a
period of thirty (30) days; and PCL takes any action authorizing, or
in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth above in this
subparagraph.
9. On the occurrence of an Event of Default as defined in paragraph 8
above, the United States agrees that it will provide written notice by certified
mail return receipt requested of the Event of Default and an opportunity for PCL
to cure said Event of Default within five (5) business days of receipt of the
notice. Notification of an Event of Default will be sent by first class mail
addressed to PCL's address with a copy to the address of PCL's counsel provided
in this Agreement. Upon a failure to cure any Event of Default (a "Default"),
the full remaining unpaid balance of the Settlement Amount (including all unpaid
interest and principal) will become immediately due and payable. Interest will
accrue at the rate of the Treasury Xxxx rate plus two percent (2%) per annum
compounded daily from the date of Default on the remaining unpaid principal
balance of the Settlement Amount.
10. Upon the occurrence of a Default the United States may exercise, at
its sole option, one or more of the following rights, as applicable: (a) declare
this Agreement breached, and proceed against PCL for any claims, including those
to be released by this Agreement; or (b) file an action for specific performance
of the Agreement; or (c) offset the remaining unpaid balance, inclusive of
interest, from any amounts due and owing to PCL by any department, agency, or
agent of the United States at the time of default; and (d) exercise any other
right granted by law, or under the terms of this Agreement and the Corporate
Integrity Agreement, or recognizable at common law or in equity. PCL agrees not
to
3
4
contest any offset imposed pursuant to this provision, either administratively
or in any State or Federal court. In addition, upon the occurrence of a Default,
PCL will pay the United States all reasonable costs of collection and
enforcement of this Agreement, including attorney's fees and expenses. The
United States reserves the option of referring such matters for private
collection.
11. Upon declaration of default, HHS/OIG may, at its option, exclude PCL
from participation in the Medicare and State health care programs pursuant to 42
U.S.C. Section 1320a-7(b), 42 U.S.C. Section 1320a-7a and 42 U.S.C. Section
1320a-7(d). Any exclusion imposed by HHS/OIG will have national effect and will
also apply to all other Federal procurement and non-procurement programs. PCL
agrees not to contest such exclusion either administratively or in any State or
Federal court. Upon curing said default, PCL may apply for reinstatement after
the date specified in the notice of exclusion, in accordance with 42 C.F.R
Section 1001.3001. This provision does not affect the rights, obligations, or
causes of action the OIG or HHS may have under any authority other than that
specifically referred to in this paragraph.
Subject to the exceptions in paragraph 12 and in consideration of PCL's
obligations under this Agreement, the United States, on behalf of itself, its
officers, agents, agencies, and departments, hereby releases PCL and J. Xxxxxx
Xxxxxxxxxx from any civil or administrative monetary claim or cause of action
that the United States has or may have under the False Claims Act, 31 U.S.C.
Sections 3729-3733 (as amended); at common law; under the Program Fraud Civil
Remedies Act, 31 U.S.C. Sections 3801-12; the Civil Monetary Penalties Law, 42
U.S.C. Section 1320a-7a; and from any action seeking exclusion from the Medicare
and State health care programs, pursuant to 42 U.S.C. Section 1320a-7a, 42
U.S.C. Section 1320a-7(b), or 42 U.S.C. Section 1320a-7(d) for the conduct
described in paragraph 2.
The United States also agrees to release PCL and X. Xxxxxx Feigenbaurn from any
criminal liability, for the conduct described in paragraph 2.
In addition, subject to the exceptions in paragraph 12 and in consideration of
PCL's obligations under this Agreement, the United States and the Relator will
sign and file with the Court in the Civil Action a Stipulation and Order
Unsealing the Complaint and Dismissing the Action with Prejudice, which will
allow for the reopening of the Civil Action as set forth in paragraphs 10(a) and
18. The Parties will request, however, that the District Court retain
jurisdiction to enforce the terms of the Agreement.
Neither the OIG nor HHS agrees to waive any claims, actions, demands, or causes
of action they may have against PCL for conduct other than that described in
paragraph 2 above. This
4
5
Agreement is intended to be for the benefit of the Parties and J. Xxxxxx
Xxxxxxxxxx and by this instrument the United States does not waive, compromise
or release any claims or causes of action against any other person or entity
except as provided herein.
12. Specifically reserved and excluded from the scope and terms of this
Agreement are any and all:
(1) criminal liability that may arise from the conduct described in
paragraph 2, and any related administrative action for mandatory
exclusion from the Medicare and State health care programs pursuant
to 42 U.S.C. Section 1320a-7(a) except for the release of PCL and J.
Xxxxxx Xxxxxxxxxx;
(2) claims that may arise under Xxxxx 00, Xxxxxx Xxxxxx Code
(Internal Revenue Service) or under securities laws;
(3) liability to the United States (or any agencies thereof for any
conduct other than that described in paragraph 2;
(4) claims against any officers and employees of PCL except J.
Xxxxxx Xxxxxxxxxx;
(5) claims related to Medicare xxxxxxxx prior to July 18, 1997 other
than those specified in paragraph 2;
(6) claims related to obligations created by this Agreement; and
(7) any claims for defective or deficient services.
13. In consideration of the mutual promises and obligations of this
Agreement, Relator hereby releases PCL, and each of its subsidiaries, affiliates
and partners, and any of its present and former shareholders, officers,
directors, employees, predecessors, successors and assigns, from any and all
causes of action, known or unknown, including but not limited to any and all
causes of action related to:
a. any civil claims which Relator asserts or could have asserted under the
False Claims Act, common law, the Program Fraud Civil Remedies Act, or any
other statute creating causes of action for civil relief for the conduct
alleged in Relator's qui tam complaint in the Civil Action;
b. any other claims and causes of action he has or may assert against PCL
whether known or unknown as of the date of this Agreement; provided,
however that any claims of Relator arising from his Motion for Payment of
Administrative Expense, filed with the Bankruptcy Court on
5
6
January 21,1997, and presently on appeal before the Bankruptcy Appellate
Panel of the Ninth Circuit, shall not be released hereby; and
c. subject to the provisions of paragraphs 8-11, inclusive, Relator's
release shall be effective upon the Effective Date as defined in paragraph
31, hereof.
14. Relator agrees that the settlement between the United States and the
Company in this action is fair, adequate and reasonable pursuant to 31 U.S.C.
Section 3730(c)(2)(B).
15. Pursuant to 31 U.S.C. Section 3730, the United States will pay
Relator's share, in the total amount of $150,000, payable in installments of 15%
of each installment paid by PCL, in accordance with paragraph 5, within a
reasonable amount of time after the United States' receipt of each such payment
from PCL; The United States shall not be obligated to pay Relator unless and
until the United States receives payment from PCL.
16. Relator hereby warrants, represents and agrees that he is fully aware
of the provisions of California Civil Code Section 1542, which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IS KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Relator voluntarily waives the provisions of California Civil Code 1542, and any
other similar law, as to any and all claims, demands, causes of action, or
charges of whatever nature, known or unknown, which are related or are in any
manner incidental to the subject matter of the Civil Action, and further agrees
that this waiver is a material aspect of the consideration for entering into
this Agreement.
17. PCL has entered into a Corporate Integrity Agreement with HHS/OIG,
attached as Exhibit B and incorporated by reference herein. On the Effective
Date (as defined in paragraph 31) PCL will commence its obligations under the
Corporate Integrity Agreement.
18. PCL has provided sworn financial disclosure statements and other
financial information to the Bankruptcy Court during the Chapter 11 Case, and
financial information to the U.S. Attorney's Office, and the United States has
relied on the representations therein in reaching this Agreement. PCL warrants
that the financial information provided to the United States is thorough,
accurate, and complete. PCL further warrants that it does not own any assets
which have not been disclosed to the United States Bankruptcy Court. In the
event that the United States discovers previously undisclosed assets totaling
6
7
seventy-five thousand dollars ($75,000) or more in value, which existed at the
time of execution of this Agreement, ad in which PCL had an interest, contingent
or otherwise, the United States may collect one hundred percent (100%) of the
value of the assets previously undisclosed, not to exceed the Settlement Amount
outstanding; provided, however, that if such previously undisclosed assets were
excluded with an intent to defraud this Settlement Agreement may be rescinded by
the United States.
19. With respect to the conduct described in paragraph 2, PCL hereby
waives any defenses it may have to any criminal prosecution, which defenses may
be based in whole or in part on the Double Jeopardy Clause of the Constitution
or the holding or principles set forth in United States x. Xxxxxx, 000 X.X. 000
(1989), and agrees not to argue that the amounts paid under this Agreement are
punitive in nature or effect in any such criminal prosecution.
20. Nothing in any provision of this Agreement constitutes a agreement by
the United States concerning the characterization of the amounts paid hereunder
for purposes of any proceeding under Xxxxx 00, Xxxxxx Xxxxxx Code (Internal
Revenue Service).
21. All costs (as defined in the Federal Acquisition Regulations ("FAR")
31.205-47 and as defined in Titles XVIII and XIX of the Social Security Act, 42
U.S.C. Section 1395, et seq. and Section 1396, et seq. and the regulations
promulgated thereunder) incurred by or on behalf of PCL, and its present or
former officers, directors, employees, shareholders, and agents, in connection
with 1) the matters covered by this Agreement, 2) the Government's audit and
investigation of the matters covered by this Agreement, 3) PCL's investigation,
defense, and the obligations undertaken pursuant to the Corporate Integrity
Agreement incorporated by reference herein, 4) the negotiation of this
Agreement, and 5) the payments made to the United States pursuant to this
Agreement shall be unallowable costs for government contracting purposes and for
Medicare and Medicaid purposes. These amounts will be separately accounted for
by PCL, and PCL will not charge such costs directly or indirectly to any
contracts with the United States, or to any cost report submitted to the
Medicare or Medicaid program or any other government health insurance program.
Any sums owed by PCL to the United States for payments made to PCL by Medicare
and/or Medicaid (federal share) for costs that are unallowable (as defined in
this paragraph) shall be paid by PCL to HHS at its direction.
22. PCL agrees to cooperate fully and truthfully with the United States'
investigation of individuals and entities not specifically released in this
Agreement, for the acts described in paragraph 2. Upon reasonable notice, PCL
will make reasonable efforts to facilitate access to, and encourage the
cooperation of, its directors, officers, and employees for interviews and
testimony, consistent with the rights and privileges of such
7
8
individuals. PCL will furnish to the United States, upon reasonable request, all
documents and records in its possession, custody or control relating to the acts
described in paragraph 2. PCL agrees to waive any applicable attorney-client
work product privilege that may apply to such documents and not assert any such
privilege in response to a request for documents under this paragraph.
23. Upon the occurrence of a Default following an Event of Default under
paragraph 8b. above (Commencement of Bankruptcy or Reorganization Proceeding),
PCL agrees not to contest or oppose any motion filed by the United States
seeking relief from or modification of the automatic stay of 11 U.S.C. Section
362(a) nor to seek relief under 11 U.S.C. Section 105 to enjoin or restrain the
United States from recovering monies owed by PCL arising out of this Agreement
or its underlying relationship with HHS related to the Medicare Program through
offset. PCL recognizes that this express waiver is in consideration for final
settlement of all issues and disputes between the Parties based upon the conduct
described in paragraph 2 of this Agreement and the releases set forth in
paragraphs 11 and 12. Furthermore, although it is agreed that this Settlement
Agreement will not be construed as an admission or evidence of liability, PCL
and HHS agree that this settlement is based on the conduct described in
paragraph 2 of this Agreement and PCL agrees to waive the right to contest
non-dischargeability of the debt.
24. PCL hereby fully and finally releases, dismisses, and forever
discharges the United States, its agencies, employees, servants, and agents from
any and all claims, causes of action, liens, lawsuits, liabilities, losses and
damages, including attorney's fees, costs, and expenses, of every kind and every
nature whatsoever, regardless of legal theory and however denominated, whether
known or unknown, suspected or unsuspected, past or future, which PCL as
asserted or could have asserted against the United States, its agencies,
employees, servants, and agents, related to or arising from the facts described
in paragraph 2 above.
25. This Settlement Agreement and the Corporate Integrity Agreement
incorporated by reference herein constitute the entire agreement between the
Parties. This Agreement may not be altered except by written consent of the
Parties except to the extent that PCL and HHS/OIG agree to modification of the
Corporate Integrity Agreement, pursuant to paragraph 47 of the Corporate
Integrity Agreement. No other additional promises, conditions or agreements have
been entered into other than those stated in this Agreement.
26. Except as provided for herein, each party to this Agreement will bear
its own costs incurred in connection with the Civil Action, including the
preparation and performance of this Agreement.
8
9
27. PCL represents that the Agreement is entered into with knowledge of
the events described herein and upon advice of counsel. PCL further represents
that this Agreement is freely and voluntarily entered into without any degree of
duress or compulsion whatsoever, in order to avoid litigation.
28. The undersigned PCL signatory represents and warrants that he or she
is fully authorized and empowered to execute this Agreement. The undersigned
United States signatories represent that they are signing this Agreement in
their official capacity and that they are fully empowered and authorized to
execute this Agreement.
29. The Parties have executed identical copies of this Agreement, each of
which will be deemed an original.
30. The provisions of this Agreement will be binding upon the Parties and
their heirs, successors, assigns and transferees.
31. This Settlement Agreement is subject to the approval of the Bankruptcy
Court. PCL agrees that it will take all reasonable steps necessary to obtain
such approval as soon as reasonably practicable upon execution of the Settlement
Agreement. The Settlement Agreement shall be effective eleven (11) days after
the Bankruptcy Court issues an order approving the Settlement Agreement or when
such order otherwise becomes a final, non-appealable order (the "Effective
Date").
IN WITNESS WHEREOF, the parties hereto affix their signatures
FOR THE U.S. DEPARTMENT OF JUSTICE
DATED: ____________ __________________________________________
Xxxxxx Xxxxx
Assistant United States Attorney
United States Attorney's Office for the
Eastern District of California
9
10
FOR THE U.S. DEPARTMENT OF
HEALTH AND HUMAN SERVICES
DATED: ____________ __________________________________________
Xxxxx Xxxxxx
Assistant Inspector General
Office of Inspector General
U.S. Department of Health and Human Services
FOR THE OFFICE OF CHAMPUS
DATED: ____________ __________________________________________
Xxxxxx X. Xxxxxx
General Counsel
Office of Civilian Health and Medical
Program of the Uniformed Services
FOR THE REALTOR
DATED: ____________ __________________________________________
Xxxxxx XxXxxxxx
Relator
DATED: ____________ __________________________________________
X. Xxxxxx Cutter
Friedman, Collard, Cutter & Xxxxxxxx
0000 Xxxxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxxx 00000
Realtor's Counsel
10
11
FOR PCL
DATED: ____________ __________________________________________
J. Xxxxxx Xxxxxxxxxx
Chief Operating Officer
Physicians Clinical Laboratory, Inc.
0000 X. Xxxxxx, Xxxxx 000X
Xxxxxxxxxx, Xxxxxxxxxx 00000
DATED: ____________ __________________________________________
Xxxxxxx X. Xxxx
Xxxxx, Day, Xxxxxx & Xxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Counsel for PCL
11
