Gentry v. Encompass Health Corporation et al

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
Plaintiff,
v.
Encompass Health Corporation,
et al.,
Defendants.
§
Deidra Gentry, §
§
§
§
§
§
§
§
§
§
Civil Action No. 4:25-cv-01299
MEMORANDUM AND RECOMMENDATION
This is a False Claims Act (“FCA”) retaliation case. Defendants
Encompass Health Corporation and Encompass Health Rehabilitation
Hospital of Pearland, LLC (collectively, “Encompass”) moved to dismiss this
suit under Fed. R. Civ. P. 12(b)(6). Dkt. 18. After carefully considering the
motion, Plaintiff Deidra Gentry’s response, Dkt. 20, Encompass’s reply,
Dkt. 22, the pleadings, and the applicable law, it is recommended that the
motion to dismiss (Dkt. 18) be granted. Gentry’s request for leave to amend is
denied.
Background
This is the second suit that Gentry has pursued regarding her work at
Encompass Health Rehabilitation Hospital of Pearland, LLC (“the Hospital”),
an inpatient rehabilitation facility. See Dkt. 1 at 1-2. In the first suit, Gentry
United States District Court
Southern District of Texas
ENTERED
January 23, 2026
Nathan Ochsner, Clerk
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brought a qui tam action under the FCA that was dismissed for failure to state
a claim. See United States ex rel. Gentry v. Encompass Health Rehab. Hosp. of
Pearland, LLC, 2024 WL 5433052 (S.D. Tex. Dec. 6, 2024) (“Gentry I”), adopted
by 2025 WL 838263 (S.D. Tex. Mar. 18, 2025), aff’d, 157 F.4th 758 (5th Cir.
2025). 	Gentry’s factual allegations in this suit are taken—word-for-word—
from those in her previous suit. Compare Dkt. 1 at 2-12¸ with Second Amended
Complaint, Gentry I, Civil No. 4:25-cv-11299, Dkt. 28 at 3-12 (S.D. Tex. Mar.
25, 2024).
Just like her first suit, see 2024 WL 5433052, at *1, Gentry alleges here
that she “witnessed numerous instances of fraudulent practices” that violated
the FCA. 	See Dkt. 1 at 1. 	She maintained, both then and now, that the
Hospital improperly used sales representatives with no clinical background,
like Gentry, to perform clinical screenings. 	See id. at 7. 	According to her
theory, those screenings created misleading clinical narratives that were then
adopted or certified by hospital physicians. See id. at 8. She maintained that
because the Hospital’s practices violated Medicare guidelines, its submissions
for Medicare payments violated the FCA. See id. at 10-11.
Also like her previous suit, see Gentry I, Dkt. 28 at 11, Gentry alleges
that her complaints to management and in-house counsel about the purported
violations were ignored. 	See Dkt. 1 at 11. 	She reprises her prior allegation
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that she was terminated “within days” of making this complaint, despite
“glowing” reviews. See id. at 11-12.
As noted, Gentry’s FCA claim in Gentry I was unsuccessful. 	After the
United States declined to intervene, this Court granted Encompass’s motion to
dismiss, concluding that Gentry failed to assert a plausible FCA violation.
See Gentry I, 2024 WL 5433052, at *2, 10, adopted by 2025 WL 838263 (S.D.
Tex. Mar. 18, 2025). 	On appeal, the Fifth Circuit agreed and affirmed the
judgment. Gentry I, 157 F.4th 758 (5th Cir. 2025).
Before 	filing 	her 	notice 	of 	appeal, 	however, 	Gentry 	brought 	this
successive suit, alleging that the Hospital and its owner, Encompass Health
Corporation, violated yet another FCA provision, 31 U.S.C. § 3730(h), by
retaliating against her. See Dkt. 1 (filed March 20, 2025).
Encompass moved to dismiss the complaint, invoking res judicata and
other grounds. 	See Dkt. 18. 	Gentry responded, Dkt. 20, and Encompass
replied, Dkt. 22. In the interim, the Court granted Encompass’s motion to stay
discovery pending resolution of the motion to dismiss. 	Dkt. 29. 	That motion
is ripe for resolution.
Legal standard
To survive dismissal under Rule 12(b)(6), a party must plead “enough
facts to state a claim to relief that is plausible on its face.” 	Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). 	“A claim has facial plausibility when the
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plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” 	Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
An affirmative defense can provide grounds for dismissal under Rule
12(b)(6) if the defense is established on the face of the pleadings. 	See Kansa
Reinsurance Co. v. Cong. Mortg. Corp. of Tex., 20 F.3d 1362, 1366 (5th Cir.
1994). 	When conducting this inquiry, the Court can consider documents
referenced and incorporated in the complaint and any facts for which judicial
notice is appropriate. See Funk v. Stryker Corp., 631 F.3d 777, 782-83 (5th Cir.
2011) (affirming judicial notice of publicly available documents containing
matters of public record when resolving Rule 12(b)(6) motion).
Analysis
This Court need not look beyond Encompass’s invocation of res judicata
as a barrier to this suit. 	Because Gentry could have asserted her retaliation
claim in Gentry I, she cannot raise it now. This case should be dismissed.
I. 	Federal res judicata principles control.
“The preclusive effect of a prior federal court judgment is controlled by
federal res judicata rules.” 	Ellis v. Amex Life Ins. Co., 211 F.3d 935, 937 (5th
Cir. 2000). 	Federal law “bars the litigation of claims that either have been
litigated or should have been raised in an earlier suit.” Duffie v. United States,
600 F.3d 362, 372 (5th Cir. 2010) (internal quotation marks omitted).
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“To preclude parties from contesting matters that they have had a full
and fair opportunity to litigate protects their adversaries from the expense and
vexation attending multiple lawsuits, conserves judicial resources, and fosters
reliance 	on 	judicial 	action 	by 	minimizing 	the 	possibility 	of 	inconsistent
decisions.” 	Montana v. United States, 440 U.S. 147, 153-54 (1979). 	Thus,
“[d]ismissal of a claim based on res judicata is proper if (1) the parties are
identical or in privity; (2) the judgment in the prior action was rendered by a
court of competent jurisdiction; (3) the prior action was concluded by a final
judgment on the merits; and (4) the same claim or cause of action was involved
in both actions.” 	Devins v. Armstrong, 161 F.4th 922, 926 (5th Cir. 2025)
(quotation omitted).
II. 	All res judicata requirements are met.
Most of the res judicata requirements here are undisputed. 	First, this
suit involves the same parties or their privities. Both Gentry and the Hospital
were parties in Gentry I. 	And as the Hospital’s owner, see Dkt. 1 at 2,
Encompass Health Corporation—newly added in this suit—is in privity with
the Hospital. 	See Grynberg v. BP P.L.C., 855 F. Supp. 2d 625, 649 (S.D. Tex.
2012) (“[T]he relationship between a parent company and its wholly owned
subsidiary meets the privity requirements for purposes of res judicata.”), aff’d,
527 F. App’x 278 (5th Cir. 2013).
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The second and third elements are also met. This Court entered a final,
take-nothing judgment in Gentry I, dismissing all claims with prejudice, which
the Fifth Circuit affirmed. Although there are a few days left to file a petition
for writ of certiorari with the Supreme Court (at least as of the date of this
opinion), even a grant of review would not alter the judgment’s finality for res
judicata purposes. See Comer v. Murphy Oil USA, Inc., 718 F.3d 460, 467 (5th
Cir. 2013) (“[A] case pending appeal is res judicata and entitled to full faith
and credit unless and until reversed on appeal.” 	(quoting Fid. Standard Life
Ins. Co. v. First Nat’l Bank & Tr. Co., 510 F.2d 272, 273 (5th Cir. 1975))). This
Court also plainly had jurisdiction because the FCA claims resolved in Gentry I
arose under federal law. 	See United States ex rel. Montcrief v. Peripheral
Vascular Assocs., P.A., 133 F.4th 395, 403 (5th Cir. 2025); 29 U.S.C. § 1331.
The only disputed element is whether this retaliation suit involves “the
same claim or cause of action” as Gentry I. 	Even a cursory review of the two
complaints confirms that the answer is yes.
Federal courts apply a “transactional test” that examines whether the
actions “were based on the same nucleus of operative facts.” 	Eubanks v. Fed.
Deposit Ins. Corp., 977 F.2d 166, 171 (5th Cir. 1992) (internal quotation marks
omitted). Courts consider “whether the facts are related in time, space, origin,
or motivation; whether they form a convenient trial unit; and whether their
treatment as a unit conforms to the parties’ expectations.” 	OJSC Ukrnafta v.
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Carpatsky Petroleum Corp., 957 F.3d 487, 504 (5th Cir. 2020) (quotation
omitted). 	The transactional test can be met even if two suits seek different
relief, advance different theories, or assert different rights. See United States
v. Davenport, 484 F.3d 321, 326 (5th Cir. 2007).
As 	Encompass 	observes—and 	the 	Court 	noted 	above—“the 	factual
pleadings” 	in 	Gentry 	I 	and 	this 	suit 	“are 	identical.” 	See 	Dkt. 	18 	at 	7.
Encompass 	drives 	this 	home 	by 	attaching 	a 	redline 	comparison 	of 	both
pleadings, showing that Gentry’s factual allegations here were taken verbatim
from Gentry I. 	See Dkt. 18-1 at 2-7. 	The only real difference is Gentry’s
addition of a new FCA theory, which does not change the conclusion that both
suits are based on the same nucleus of operative fact. See Davenport, 484 F.3d
at 326. Indeed, Encompass cites Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235,
1237-40 (11th Cir. 1999), which applied the same res judicata test and held
that a plaintiff could not bring a new FCA retaliation suit based on the same
operative facts as his prior qui tam action. See Dkt. 18 at 12-13.
Gentry instead cites two decisions addressing suits filed in the reverse
order that posed concerns not implicated here. See Dkt. 20 at 5 (citing United
States ex rel. Laird v. Lockheed Martin Eng’g & Sci. Servs. Co., 336 F.3d 346
(5th Cir. 2003), abrogated on other grounds by Rockwell Int’l Corp. v. United
States, 549 U.S. 457 (2007); and United States ex rel. Lusby v. Rolls-Royce
Corp., 570 F.3d 849 (7th Cir. 2009)). 	The decision in Laird is inapposite
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because it concluded that a state court’s resolution of the plaintiff’s state-law
wrongful discharge claim did not preclude a successive qui tam FCA action in
federal court. 	See United States ex rel. Laird, 336 F.3d at 359-60. 	And the
Fifth Circuit reached that conclusion because the claims involved different core
issues of fact, such that they would not “form a convenient trial unit for
purposes of claim preclusion under Texas law.” 	See id. 	Gentry’s suits,
however, involve identical facts; she copied her pleading in Gentry I and pasted
the allegations in her complaint. 	Further, while the Laird court stated that
the plaintiff’s “FCA claims and [] state tort claim” underlying his two suits
“cannot be naturally grouped,” it explicitly distinguished cases like Gentry’s
where 	“relators 	assert[] 	both 	qui 	tam 	and 	retaliation 	claims 	under 	the
retaliation provisions of the FCA.” 	See id. at 360 (comparing Ragsdale,
193 F.3d at 1240-41).
Gentry’s reliance on Lusby is similarly unavailing. 	There, the Seventh
Circuit’s reasoning hinged on the sequence in which the qui tam action and
retaliation suit were filed. See United States ex rel. Lusby, 570 F.3d at 851-52.
In finding that the FCA retaliation action did not preclude a later qui tam
claim, the Court sought to “protect the interests of the United States” from
litigants “who without thinking omit qui tam claims from” their personal
employment suits. See id. at 852. That logic does not apply here, where Gentry
filed an unsuccessful qui tam action first and then brought a retaliation suit
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later. 	Neither Laird nor Lusby supports Gentry’s request to exempt her
retaliation claim from basic res judicata principles.
III. 	Gentry had a full and fair opportunity to litigate her retaliation
claim in Gentry I.
Gentry also maintains that her retaliation claim falls into an “exception”
to res judicata because she did not have a “full and fair opportunity to litigate”
it in Gentry I. 	See Dkt. 20 at 6. 	As her sole authority, however, she cites
Kremer v. Chemical Construction Corp., 456 U.S. 461, 479-83 (1982), where the
Supreme Court rejected a contention that state court procedures underlying a
plaintiff’s first suit were “so fundamentally flawed” that the plaintiff should be
allowed to pursue a second suit involving the same underlying facts. 	That
holding hardly advances Gentry’s theory that she was precluded from raising
her retaliation claim in Gentry I.
Gentry attempts to justify this successive suit by claiming that she was
unsure whether her retaliation claim was subject to an arbitration agreement.
See Dkt. 20 at 6. 	She also requests “limited discovery” to determine if a valid
arbitration agreement exists. 	See id. 	But as Kremer concluded, a plaintiff’s
“fail[ure] to avail himself of the” opportunities available the first go-around
does not justify allowing him to take a second bite. See 456 U.S. at 485 (federal
claims barred even where plaintiff did not utilize available state procedures in
the first suit). The same can be said of Gentry.
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Mistaken or not, Gentry’s belief that the retaliation claim might need to
be arbitrated does not excuse her failure to raise it in Gentry I. 	It was
incumbent on Gentry to assert the claim and let the process play out. 	After
all, if no arbitration agreement existed, the claim would have proceeded in
tandem with the qui tam claims. 	Contrariwise, if there were an arbitration
agreement, Encompass could have decided whether to invoke it, as arbitration
can be waived. See Miller Brewing Co. v. Fort Worth Distrib. Co., Inc., 781 F.2d
494, 497 (5th Cir. 1986) (“A party waives his right to arbitrate when he actively
participates in a lawsuit or takes other action inconsistent with that right.”).
And if Encompass invoked arbitration, the parties could have sought this
Court’s determination as to whether arbitration was required, with one of two
outcomes: (1) a ruling that the claim belonged in federal court; or (2) an order
compelling arbitration, followed by motions to either enforce or vacate the
arbitrator’s decision after its issuance. Either way, the claim would have been
resolved on the merits. 	Gentry’s strategic choice not to pursue any of these
options does not mean that she lacked a full and fair opportunity to do so.
Under these circumstances, Encompass is correct that discovery on the
arbitration issue would be “pointless.” 	See Dkt. 22 at 8. 	Settled res judicata
principles bar this suit.
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IV. 	Amendment would be futile.
Gentry alternatively requests leave to amend her complaint. See Dkt. 20
at 4. Encompass counters that amendment would be futile. See Dkt. 22 at 10.
This Court has discretion to deny leave to amend “where the proposed
amendment would be futile because it could not survive a motion to dismiss.”
See Rio Grande Royalty Co. v. Energy Transfer Partners, L.P., 620 F.3d 465,
468 (5th Cir. 2010). 	Here, no amendment could salvage Gentry’s retaliation
claim, which is barred by res judicata. 	Leave to amend is therefore denied.
See, e.g., Gannon, Inc. v. Tex. Dep’t of Transp., 2025 WL 1179874, at *7 (S.D.
Tex. Apr. 23, 2025) (denying amendment as futile because the claims were
“barred by res judicata” (emphasis removed)).
Recommendation and Order
For the foregoing reasons, it is RECOMMENDED that Defendants
Encompass 	Health 	Corporation’s 	and 	Encompass 	Health 	Rehabilitation
Hospital of Pearland, LLC’s motion to dismiss (Dkt. 18) be GRANTED, and
that Plaintiff Diedre Gentry’s claims be DISMISSED WITH PREJUDICE.
It is ORDERED that Plaintiff’s request for leave to amend is DENIED.
The parties have fourteen days from service of this Report and
Recommendation to file written objections. 28 U.S.C. § 636(b)(1); Fed.
R. 	Civ. 	P. 	72(b). 	Failure 	to 	file 	timely 	objections 	will 	preclude
appellate review of factual findings and legal conclusions, except for
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plain error. 	Ortiz v. City of San Antonio Fire Dep’t, 806 F.3d 822, 825
(5th Cir. 2015).
Signed on January 23, 2026, at Houston, Texas.
______________________________
Yvonne Y. Ho
United States Magistrate Judge
_________________________________________
Yvvooon	n	nn	ne Y. Hoo
Uniited States Magistrate Judge
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