United States ex rel. Goodstein v. McLaren Regional Medical Center

McLaren Regional Medical Center (McLaren) agreed to lease office space from Family Orthopedic Realty, LLC (FOR) (defendants). The all-inclusive gross lease was the product of months of intense negotiation over matters such as computing the office’s square footage, the term of the lease, allocation of certain risks, and an escalator clause to adjust the base rent for inflation. Peter Goodstein (plaintiff) brought a qui tam action on behalf of the United States government (plaintiff), alleging that McLaren’s lease was part of an illegal kickback scheme whereby, in exchange for McLaren’s paying excessive rent, FOR’s physician-owners (defendants) referred their patients to McLaren. The federal district court heard expert testimony as to the lease’s fair market value. The government’s expert testified that, based on his analysis of comparable gross-lease properties, McLaren paid too much for its space. The expert witness for McLaren and FOR testified that triple-net leases, in which the lessee reduced its rent payments but absorbed the lessor’s insurance, tax, and utility expenses, were more common locally than were gross leases. This expert testified that adding triple-net leases to the sample and adjusting for the difference between such leases and gross leases made it clear that McLaren’s rent was in line with the space’s fair market value.