False Claims Act & Civil Fraud

Government contractors and health care companies have become increasingly concerned about the application of the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, and the Department of Justice’s (“DOJ”) and False Claims Act (“FCA”) relators’ arguments that the statute extends indefinitely the limitation period applicable to civil FCA cases. 31 U.S.C. §§ 3729-3733. Today, the Supreme rejected the unwarranted extension of the WSLA and properly limited the reach of that statute (and suspension of limitations periods) to the context of criminal law. The decision in Kellogg Brown & Root Services, Inc. v. U.S. ex rel. Carter (“KBR”) is an important victory for Government contractors, health care companies and other recipients of federal funding. It provides protection against stale claims, which should be barred by the statute of limitations. It is particularly noteworthy because it removes the risk of stale FCA claims that would otherwise be time barred and that have no connection to wartime activities, such as health care claims, or lawsuits related to other civilian agency programs, e.g., the Department of Agriculture program discussed in United States v. BNP Paribas SA.
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Although this blog focuses on numerous issues of interest to the Government contracts community, two types of disputes that get significant attention here are False Claims Act lawsuits and bid protests. Recently, DOJ and GAO issued their annual reports on the volume of activity with respect to such cases, and although these reports are a few weeks old, we wanted to briefly summarize the reports.
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The GAO recently sustained a protest because the agency failed to adequately consider a False Claims Act (FCA) case that was pending against the awardee’s parent corporation. The GAO’s decision in FCi Federal, Inc. represents a rare intersection of the FCA and GAO’s bid protest jurisdiction. The decision also provides an example of a successful challenge to an affirmative responsibility determination–an issue GAO will generally not review.

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iStock_000035162090LargeThis week, the Supreme Court denied the qui tam plaintiff’s petition for certiorari in United States ex. Rel. Rostholder v. Omnicare, Inc., a False Claims Act (FCA) case from the Fourth Circuit. In Omnicare, the relator alleged that the defendants violated the FCA because certain of its practices violated Food and Drug Administration (FDA) safety regulations and Medicare and Medicaid beneficiaries subsequently presented claims for reimbursement for its products. The district court dismissed the relator’s complaint for failure to state a claim upon which relief can be granted, and the Fourth Circuit affirmed. The Supreme Court’s denial of a writ of certiorari sends a signal that there are limits on FCA claims rooted in regulatory violations. Namely, an FCA claim cannot be based on a violation of a regulation that is wholly unrelated to any condition or requirement for payment.
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Supreme Court_839277LargeToday the Supreme Court began a new term. The Court does not often hear cases involving government contracts, but this may be a notable year for contractors at the Court. In the context of the False Claims Act, the Court will hear Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, which involves  two issues—the Wartime Suspension of Limitations Act (WSLA) and the first-to-file bar. Because the Fourth Circuit held that the WSLA extended the statute of limitations for FCA cases, affirming the Fourth Circuit’s decision could result in longer and more expensive litigation as contractors litigate FCA claims that would have otherwise been summarily dismissed as untimely or barred by a prior action. Although DOJ did not intervene in Carter, it filed an amicus brief on the petition for certiorari that states the the Government is unambiguously in favor of the WSLA and of permitting follow-on qui tam actions once the first case has been dismissed.
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The FCA relators’ and defense bars have been battling for some time about the extent of a relator’s obligation under Rule 9(b) to plead the details of her/his claim with particularity. The Eighth Circuit’s recent decision in US ex rel. Thayer v. Planned Parenthood appears to change the balance in what has been described as a circuit split regarding whether allegations concerning “representative examples” of specific false claims are necessary to satisfy Rule 9(b)’s heightened pleading standard. On closer inspection, however, the court’s opinion raises questions regarding the extent of the circuit split.

Under Planned Parenthood, a relator may be able to evade the representative-example-requiring interpretation of Rule 9(b) if she/he can plead the “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that the claims were actually submitted.” For such “reliable indicia” to exist, the relator would presumably have held a position that would have resulted in first-hand knowledge of the defendant’s billing processes and procedures such that she/he could make credible allegations related to the submission of specific claims to the Government. Many FCA relators will not be in a position to satisfy both of these requirements, and Rule 9(b) should continue to preclude such claims.
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Late last week, the D.C. Circuit affirmed the district court’s dismissal on summary judgment of a relator’s FCA claims in U.S. ex rel. Folliard v. Government Acquisitions, Inc. & Govplace. Although the court provided an extensive discussion of several evidentiary rulings that led to the dismissal of much of the case, its ruling with respect to the Trade Agreements Act (TAA) certifications received from suppliers is significant to contractors. The court held that, in providing country of origin information to the Government under the TAA, the contractor reasonably based its representations on certifications it received from a supplier. Accordingly, the district court had properly granted summary judgment with respect to an FCA claim based on purportedly defective certifications. To the extent a Government contractor is reselling products in reliance on a supplier’s TAA certification—and there is a reasonable basis to accept the certification—the Govplace decision should prove helpful to contractors.
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CMS Caregiver PicNursing home care and costs—and their connection to Medicare—are issues that sporadically receive media attention and, last weekend, were the subjects of a large expose and op-ed in the NY Times. A few days before those articles were published, the Seventh Circuit issued its anticipated decision in US ex rel. Absher v. Momence Meadows Nursing Center, which addresses nursing home care and Medicare payments in a context familiar to readers of this blog: the False Claims Act. In a decision of interest to nursing home and other healthcare providers—as well as other types of service providers to the federal Government—the appeals court reversed a dangerously expansive trial court interpretation of the “worthless services” theory of FCA liability. The Seventh Circuit’s decision leaves some important questions for another day, but it provides some good news for businesses contracting with the Government.
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In a case against two medical device makers in which DOJ (reasonably) declined to intervene, the U.S. Eighth Circuit Court of Appeals recently affirmed the district court’s dismissal of a series of False Claims Act allegations. The court’s opinion provides clear, relatively short, and thoughtful explanations of both the public disclosure bar and the original source exception—and why the relator’s allegations were improperly based on public disclosures for which he was not an original source. The opinion is a helpful refresher in the policy behind and the application of these rules barring claims of parasitic relators.
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In Fresenius Medical Care Holdings, the US Court of Appeals for the First Circuit held that taxpayers can meet their burden of proving that a government settlement was compensatory—and thus deductible—with evidence beyond the settlement’s terms. Thus, if the settlement agreement does not address tax treatment, the trial court is to look to the “economic realities of the transaction.” Fresenius provides several important lessons for taxpayers settling disputes with the government. 
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