The Fourth Circuit will soon have the opportunity to clarify the circumstances under which successor liability may be imposed against an entity for False Claims Act judgments against its predecessor. Previously covered here, here, here, here, here, and here, the district court in United States ex rel. Bunk v. Birkart Globistics GmbH & Co. held that purported defendant GovLog could be defendant Gosselin’s successor in interest only if the plaintiffs – the Department of Justice and relators – could establish the elements of successor liability under the more-demanding common law rule instead of the more-lenient “substantial continuity” rule. Under the common law (or “traditional”) rule of successor liability, a corporation that acquires the assets of another corporation does not also assume its liabilities under the FCA unless either: (1) the successor agrees to assume liability; (2) the transaction is a de facto merger; (3) the successor is a “mere continuation” of the predecessor; or (4) the transaction is fraudulent.
Posted by Gordon Todd and Adam Farra
In a recent, sharply worded order, E.D. La. Magistrate Judge Joseph Wilkinson recently rejected the U.S. Justice Department’s objections of undue burden and expense, and ordered the Department to undertake a voluminous document review and production in response to FCA defendants’ discovery and motion to compel.
The Government alleges in United States ex rel. Deane v. Dynasplint Systems, Inc., et al. (E.D. La.), that defendants for over a decade knowingly submitted false Medicare payment requests. Medicare Part B covers the use of durable medical equipment in a patient’s home (out-patient care) but not in a certified skilled nursing home. The Government’s theory is that the defendants understood the distinction and billed the delivery of their durable medical equipment to Medicare Part B as though they were delivering that equipment to patients’ homes, when in reality they were delivering the equipment to uncovered skilled nursing homes.
To assist their experts’ analysis and testimony, defendants sought to discover the cost reports of the skilled nursing homes that allegedly received the durable medical equipment. The request was large: over 17,000 annual cost reports for 7,040 skilled nursing homes. The Government protested that the request was too expensive and that the defendants could obtain the same data because it was publicly available and easily accessible on the Healthcare Cost Report Information System (HCRIS).
Judge Wilkinson categorically rejected the Government’s objections. When a case threatens “the very business existence of the defendant company,” the court wrote that the Government “cannot be permitted to restrict defendant from receiving information its expert believes is necessary to mount an adequate defense.”
The court had a particularly low view of declarations submitted by the Government from its own experts. It questioned the Government expert’s objectivity and called the attendant submissions “arcane,” “self-serving,” “vague,” and “equivocal.” The court accepted the defense expert’s view that the data available on HCRIS is only an “extract” of the full cost report. And it rejected the Government expert’s submission that no specialized expertise is required to access the HCRIS data, noting that the Government expert’s declaration was “so arcane as to defy lay understanding and undermine his conclusion that ‘[n]o specialized expertise is required to utilize HCRIS data[.]'”
As the court noted, the case is a reminder that the Government cannot bring substantial litigation and then object to incurring the proportionate costs: “In light of the broad scope of this litigation, as framed by the government itself, the government must commit all resources necessary to comply with this order in a timely fashion, over and above the ‘normal scope of work’ of some of its agencies and contractors.”