Welcome to Original Source: The Sidley Austin False Claims Act Blog

The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.

DOJ Civil Division Issues Guidance On Assessing Inability-to-Pay Claims

On September 4, 2020, Acting Assistant Attorney General Ethan Davis issued guidance to the U.S. Department of Justice’s Civil Division on evaluating inability-to-pay claims.  The memorandum, titled “Assessing an Entity’s Assertion of an Inability to Pay,” sets forth an analytical framework for evaluating an individual or company’s claim that it cannot pay a civil fine or monetary penalty because it lacks sufficient assets.  This framework would apply to civil claims under the False Claims Act.

The recent guidance reinforces the Civil Division’s long-standing practice of taking under consideration an entity’s assertion that it is unable to both “pay the government and meet its ordinary and necessary business and/or living expenses.”  In making an inability-to-pay argument, entities must complete the Division’s certified Financial Disclosure Form, which identifies assets and liabilities, current and anticipated income and expenses, cash flow, projections, working capital, and other relevant information.  Entities must also cooperate in providing access to appropriate personnel and documentation responsive to DOJ’s inquiries, including tax returns and audited financial statements.

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Court Sanctions DOJ and Defendants For Discovery Violations In False Claims Act Case

On July 10, 2020, a federal magistrate judge in the District of Minnesota issued a 39-page decision sanctioning DOJ (and the defendants) for various discovery violations in an FCA case based on alleged violations of the Anti-Kickback Statute.

As previously reported here, the Defendants Paul Ehlen (“Ehlen”), the majority owner of Precision Lens, and Cameron-Ehlen Group (conducting business as Precision Lens) (collectively, the “defendants”) are involved in the distribution of intraocular lenses and other products for ophthalmic surgeries.  DOJ alleges that the defendants provided physicians with expensive trips, meals, and other in-kind remunerations at no cost or below fair market value.  DOJ further alleges that, in exchange, these physicians purchased the Defendants’ products and used them during surgeries, which were subsequently billed to Medicare, in violation of the Anti-Kickback Statute and the False Claims Act.  DOJ and the defendants filed motions seeking sanctions against the other in connection with inadequate preparation of 30(b)(6) designees and potential spoliation of information, documents, and electronically stored information.  DOJ also filed a motion to compel the production of additional potentially relevant documents.

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Department of Justice Intends To Scrutinize Role of Litigation Funding in Qui Tam Lawsuits

We recently reported on the Eleventh Circuit’s decision in Ruckh v. Salus Rehabilitation LLC, which was the first case to assess the role of litigation funding agreements in qui tam litigation.  In that case, the Eleventh Circuit rejected a challenge to the relator’s standing based on the existence of a litigation funding agreement.

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Current DOJ Enforcement Priorities, Focus on CARES Act Fraud

At a recent U.S. Chamber of Commerce, Institute for Legal Reform meeting, Principal Deputy Associate Attorney General Ethan Davis set forth the current enforcement priorities of the U.S. Department of Justice (DOJ), clarifying for corporations accessing stimulus funds or otherwise dealing with government programs or acting in regulated industries how it is focusing its efforts to target fraud in the midst of the COVID-19 pandemic. While Davis underscored DOJ’s commitment to using the False Claims Act (FCA) and other “weapons in [its] arsenal” to fight fraud against the various pandemic stimulus programs, he also emphasized DOJ’s commitment to exercise enforcement discretion in cases lacking the hallmarks of bad corporate intent.

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Eleventh Circuit Reinstates Bulk of $350 Million FCA Jury Verdict, Adds Further Gloss to the FCA’s Materiality and Causation Standards and Role of Litigation Funding

On June 25, 2020, the Eleventh Circuit affirmed in part and reversed in part a district court’s decision to set aside a jury’s $350 million verdict in favor of the relator.  In Ruckh v. Salus Rehabilitation, LLC, Angela Ruckh, a registered nurse, alleged that two skilled nursing facilities (“SNFs”) and two related management services companies violated various Medicare and Florida Medicaid SNF regulations.  The Eleventh Circuit’s decision adds further gloss to the FCA’s materiality and causation standards.

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DOJ Announces First Increase To FCA Civil Penalties Since 2018

The 2015 Balanced Budget Act (BBA) requires that federal agencies make inflationary adjustments to civil monetary penalties on a yearly basis to account for inflation using calculations based on the Bureau of Labor Statistics’ Consumer Price Index.  On June 19, 2020, DOJ issued a final rule that will increase the civil penalties in FCA actions for penalties assessed after this date.  The prior minimum False Claims Act penalty of $11,181 will be increased to $11,665 per claim.  The maximum penalty will also increase from $22,363 to $23,331 per claim. The revised civil penalties, once adopted, will apply to all assessments of FCA civil penalties after the effective date, including penalties associated with violation predating the adjustment, but assessed on or after the date that the increases go into effect.

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