District Court Vacates $350M Jury Verdict Under Escobar For Failure to Prove the Government Would Have Denied Payment

As discussed here and here, courts continue to grapple with how to resolve qui tam cases where the government continued purchasing from the defendant even after being made aware of the relator’s allegations of fraud.  One judge recently vacated an “unwarranted, unjustified, unconscionable, and probably unconstitutional” $350 million jury verdict for the relator, finding the government’s continued payment of the defendants’ claims dispositive on the issue of materiality.  United States ex rel. Ruckh v. Salus Rehabilitation LLC, No. 11-cv-1303 (M.D. Fla. Jan. 11, 2018).  The case reinforces the important role that government purchasing histories play post-Escobar.

The stunningly large jury verdict arose as a result of the court’s decision to allow the relator to employ statistical sampling to establish FCA liability for various “paperwork defects” relating to skilled nursing services (as discussed previously here).  The defense subsequently filed a motion for judgment as a matter of law, arguing that Escobar’s test for materiality focuses on the government’s actual response after learning of the relator’s allegations or similar misconduct.  The defendants argued that the evidence at trial fell short of proving materiality, because it did not show that the government “regarded the disputed practices as material and would have refused to pay,” or that the defendants knew the government considered the practices to be material.  DOJ sought leave to file a statement of interest on the question.  The district court denied the request, explaining that the government had not “identifie[d] any interests inadequately protected by the relator.”

The court agreed with the defendants’ arguments about the proper application of Escobar.  As the court explained, to prove materiality, the relator would need to show that the government would have suspended payment instead of taking less extreme administrative action.  Furthermore, the relator must make this showing with respect to the full set of claims at issue—claims submitted by 53 facilities—and not merely with respect to some subset of the claims.  But in this case, the government continued to pay the defendants, creating a “practical impediment to proof of materiality.”  In addition, the relator had not pointed to any other instance of the government denying payment in the face of a similar alleged failure to maintain records of patient “comprehensive care plans.”  The court also observed that the vulnerable patient population at issue decreased the plausibility of any assertion that the government would have ceased payment without first undertaking less drastic measures.  The court concluded that where the government “continues to pay full fare for a product or service despite knowledge of … [a] claimed defect,” the government “relentlessly works itself into a steadily tightening bind that at some point becomes disabling” because the government, or a relator suing in its place, accrues “the insurmountable burden of proving that the government would not do exactly what history demonstrates the government in fact did.”  With no evidence of materiality, the Court further concluded that establishing the defendants’ knowledge of materiality is “impractical, if not impossible.”

A copy of the court’s opinion can be found here.