4:25-cv-01299•Gentry v. Encompass Health Corporation et al
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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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 1 of 12
2 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 2 of 12
3 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 3 of 12
4 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). Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 4 of 12
5 “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). Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 5 of 12
6 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. Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 6 of 12
7 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 7 of 12
8 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 8 of 12
9 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. Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 9 of 12
10 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. Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 10 of 12
11 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 11 of 12
12 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 Case 4:25-cv-01299 Document 30 Filed 01/23/26 in TXSD Page 12 of 12
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