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Appeals court rules nurse can pursue False Claims Act suit

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A nurse who quit her position at a home health care provider because she was allegedly afraid of being caught up in its fraudulent activity can pursue her False Claims Act lawsuit even though her employer did not force her to resign, says a federal appeals court, in overturning a lower court ruling.

Sue Smith worked as a director of nursing for LHC Group Inc. and Kentucky LV L.L.C. at LHC’s home health office in Lexington, Kentucky, according to Friday’s ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Sue Smith v. LHC Group Inc., a Delaware Corporation; Kentucky LV L.L.C. et al.

Ms. Smith alleged she discovered other employees regularly bypassed proper procedure and admitted patients without the requisite clinical evaluation and documentation, according to the ruling. Her complaints about this to senior management were ignored, and one senior manager allegedly told her the fraudulent scheme brought in $6 million annually, said the ruling.

Ms. Smith said she had to choose between resignation and ignoring the fraud. She resigned, then sued LHC Group and Kentucky LV claiming they had violated the False Claims Act by constructively discharging her in retaliation for her reports, as well as Kentucky state law.

The U.S. District Court in Lexington dismissed her lawsuit on the basis her employer had not forced her to quit her job. The case was unanimously reinstated by a three-judge panel, one of whose judges also issued a concurring opinion.

“The question in this appeal is whether the plaintiff, Smith, adequately alleged that she suffered a discharge or adverse employment action when she felt it necessary to resign her job as Director of Nursing because her employer continued to defraud the government,” said the ruling.

The panel agreed this was the case. “A jury could find that LHC created intolerable conditions by ignoring Smith’s complaint of illegal activity” and that “it is damaging to a professional to require her to engage in an activity she considers illegal and immoral with the threat of prosecution and loss of her nursing home license looming in the background,” said the ruling.

In constructive discharge cases an employer’s intent “can be shown by demonstrating that quitting was a foreseeable consequence of the employer’s actions,” said the ruling, in quoting an earlier ruling, and remanding the case for further proceedings.