By

Brent Nichols

22 May 2014

Discovery Violations Spoil Plaintiff’s Day: FCA Case Dismissed for Spoliation

Posted by Ellyce Cooper and Brent Nichols

It is not uncommon for courts to impose a variety of sanctions on parties who fail to comply with their discovery obligations. A court in the Eastern District of Virginia, however, took the rare step of ordering dismissal of all claims with prejudice as a sanction for a False Claims Act plaintiff’s repeated spoliation of evidence.

In Hosch v. BAE Systs. Info. Solutions, Inc., No. 1:13-cv-00825, 2014 WL 1681694 (E.D.Va. April 23, 2014), Plaintiff brought suit under the anti-retaliation provisions of the False Claims Act, alleging that his employer had punished him for making disclosures regarding its allegedly fraudulent billing practices.

Defendant served discovery requests seeking the inspection and copying of Plaintiff’s cell phones, computers, and mobile device. Plaintiff initially refused to provide them and Defendant successfully moved to compel, obtaining a court order requiring Plaintiff to turn over his devices for a forensic inspection. The forensic inspection revealed that Plaintiff had systematically wiped the data from his devices, and Defendant moved for sanctions. In recommending dismissal as a sanction, the magistrate reasoned that, “Plaintiff’s severely egregious conduct in this matter, including document theft, spoliation, possible perjury, and obstruction of discovery, mandates a proportionately severe response by this Court.”

The district court then affirmed the magistrate’s recommendations, finding that “the only remedy that can adequately address that prejudice [suffered by defendant] is dismissal with prejudice.” The Court also ordered Plaintiff to pay the attorneys’ fees that Defendant incurred in filing its motions to compel and motion for sanctions.

This decision is a noteworthy development in False Claims Act jurisprudence. The potential sanction of dismissal with prejudice should make relators more cautious when it comes to their preservation and discovery obligations.

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18 March 2014

Decision Recognizes Expanded Implied Certification Theory Under California False Claims Act

Posted by Kimberly Dunne and Brent Nichols

A recent decision by the California Court of Appeal could significantly expand liability for government contactors under the California False Claims Act (“CFCA”). See San Francisco Unified School Dist. ex rel Contreras v. First Student, Inc., No. A136986, Cal. Court. App. (1st Dist. Mar. 11, 2014). In Contreras, the Court held that a “vendor impliedly certifies compliance with express contractual requirements when it bills a public agency for providing goods or services,” even when the vendor has not expressly represented that it is in contractual compliance. Under the rule articulated in Contreras, once a relator has established a false implied certification, he or she need only show that the false certification was “material” to the government’s payment decision and that the defendant acted with scienter (i.e., knowledge or reckless disregard). This decision represents a substantial departure from jurisprudence holding that a breach of contract in and of itself does not give rise to liability under the federal FCA.

In Contreras, a school district contracted with First Student to provide transportation services. The contract required First Student to use school buses that were in “excellent” condition and complied with federal and state safety regulations, and to conduct regular maintenance inspections in accordance with government regulations. Relators alleged that defendant violated these contractual terms by using buses with low tire treads and worn brake lines, and by failing to perform the required inspections. Over the course of several years, First Student submitted monthly invoices, but notably these invoices did not expressly certify compliance with contractual terms. The school district eventually became aware of some maintenance problems, but ultimately renewed its contract with First Student and the State did not intervene in the suit. The trial court granted First Student’s motion for summary judgment, finding that there was no triable issue as to materiality because the district was aware of the issues and still renewed its contract.

The Court of Appeal reversed. After making clear that CFCA should be given “the broadest possible construction,” the Court found that each of First Student’s invoices impliedly certified compliance with contractual terms and that the non-compliance was material because the “alleged falsities were material as a matter of common sense.” The Court rejected defendant’s argument that the invoices could not be material because the district renewed its contract with First Student after learning of the issues. Instead, the Court’s materiality analysis “focused on the potential effect of the false statement when made, not on the actual effect of the false statement when discovered.” Here, even though the district paid First Student’s invoices and renewed its contract, the Court found there was a factual dispute as to whether the implied false certifications—at the time they were made—would have had a “natural tendency” to influence the district’s payment decision.

Overall, this decision blurs the line between breach of contract and CFCA liability, and suggests that a mere knowing breach of a material contractual term may form the basis of a CFCA claim.

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08 January 2014

DOJ Announces Increase In Qui Tam Suits Filed In 2013; $3.8 Billion In Fraud Recoveries

Posted by Ellyce Cooper and Brent Nichols

In December, the Department of Justice announced that the number of False Claims Act qui tam suits filed in 2013 grew significantly. 752 were filed in 2013 — over 100 more than the prior record established last year. These numbers indicate that both DOJ and private whistleblowers, whom the statute allows to file suit on behalf of the government, are bringing FCA cases with increasing frequency.

In 2013, the Department of Justice again recovered significant settlements and judgments from civil cases involving alleged fraud against the government. In its December announcement, DOJ stated that it recovered $3.8 billion in such cases in fiscal year 2013. This figure represents the second highest annual total ever, but is lower than the nearly $5 billion recovered in 2012.

Health care fraud accounted for the most significant proportion of recoveries, representing $2.6 billion of the total $3.8 billion. Of that $2.6 billion, about $1.6 billion resulted from alleged false claims submitted by drug and device companies to federal health insurance programs.

Procurement fraud (consisting predominantly of cases brought against defense contractors) represented the second largest area of recovery, accounting for $890 million, the highest ever annual recovery in that area.

DOJ’s announcement suggests that it is continuing to aggressively pursue False Claims Act and fraud cases.

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