As we reported earlier, district courts have split on whether Escobar’s so-called “two-part test” is the sole means of establishing implied certification liability under the FCA. In Escobar, the Supreme Court held that implied certification liability may exist where: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading. While some courts have determined that Escobar’s two-part test is the exclusive means of establishing implied certification liability, DOJ and various qui tam relators have argued that implied certification claims may proceed—at least in some cases—without establishing “specific misrepresentations” about the goods or services provided.
As we reported here, in its ruling in Universal Health Services, Inc. v. United States ex rel. Escobar last June, the Supreme Court affirmed the viability of the implied certification theory of liability under the FCA, but remanded the case to the First Circuit to apply the Court’s newly-articulated framework for analysis of such claims. Last week, the First Circuit ruled that even under the Supreme Court’s demanding test for liability, the relators still stated a cognizable implied certification claim, and therefore reversed the district court’s dismissal of the relators’ complaint. Critical to the First Circuit’s ruling was its view that evidence of the government’s payment practices when faced with similar alleged violations are less important to the analysis than the court’s assessment of the centrality of a regulation to the contractual relationship between the government and the defendant.
Last week, the U.S. Securities and Exchange Commission reached at $265,000 settlement with BlueLinx Holdings Inc. The SEC alleged that BlueLinx violated federal securities law by using severance agreements that required outgoing employees to waive their rights to SEC whistleblower awards. As we previously reported here, the SEC has taken action against other employment agreements that arguably impair whistleblowing activity in the past.
A District of Nevada magistrate judge has ruled that an FCA defendant’s assertion that it complied with “all applicable legal requirements” constitutes a “good faith” defense that waives the attorney-client privilege. The opinion highlights the thin line between a mere denial of scienter (which should not waive the privilege) and an affirmative good faith defense (which may), and illustrates the difficult choices FCA defendants face when deciding how best to respond to an allegation that they knowingly attempted to commit fraud.
In a ruling earlier this week, the Ninth Circuit emphasized the demanding standard Federal Rule of Civil Procedure 9(b)’s particularity requirement imposes on qui tam relators alleging fraud, particularly when seeking to pursue an expansive scope of claims based on limited information. In United States ex rel. Driscoll v. Todd Spencer M.D. Medical Group, Inc., No. 13-17624 (9th Cir. Aug. 9, 2016), a former radiologist employed by the defendant medical group, alleged that the group and its principal violated the FCA by submitting claims to Medicare for “unnecessary CT scans” and, separately, by “unbundling” single procedures into multiple claims to “increase billings artificially.” Id. (slip op. at 3). The relator alleged that this conduct persisted for at period of several years, from at least 2007 to 2010, and perhaps longer. United States ex rel. Driscoll v. Todd Spencer M.D. Med. Grp., Inc., No. 1:11-cv-1776, 2013 WL 6243858, *5 (E.D. Cal. Dec. 3, 2013). After allowing the relator one opportunity to amend his complaint, the district court dismissed the first amended complaint with prejudice, concluding that these allegations were insufficiently specific to withstand Rule 9(b)’s particularity requirement. Id.
A qui tam relator’s disclosure statement may be discoverable if it is used to refresh the relator’s recollection for a deposition or other testimony. In United States ex rel. Bingham v. HCA, Inc., a False Claims Act case before the U.S. District Court for the Southern District of Florida, the defendant moved to compel production of the relator’s written disclosure statement to DOJ. The parties disputed whether the relator’s statement constitutes work product and, if so, whether the work product protection was waived. In an order issued earlier this week, the district court bypassed the first question and ruled that any work product protection was waived when the disclosure statement was used to refresh the relator’s recollection prior to his deposition. The court relied on “long-established principles” that privilege in these circumstances must give way to Federal Rule of Evidence 612, which entitles an adverse party “to have the writing [used to refresh the witness’s recollection] produced at the hearing, to inspect it, to cross-examine the witness about it, and to introduce in evidence any portion that relates to the witness’s testimony.” The court reasoned that fairness to the defendant requires that the disclosure statement be turned over for effective cross-examination.
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.
If Medicare pays a flat rate for a patient to purchase a medical device regardless of how long the patient uses the item, any false statement to Medicare regarding the length of time the patient needs that device is not an FCA violation because it is not material to Medicare’s payment decision. That was the holding recently by a federal district court in Massachusetts, granting summary judgment to device manufacturer DJO, Inc. and ending its role in a decade-long qui tam litigation against numerous manufacturers of bone-growth stimulators. United States ex rel. Bierman v. Orthofix Int’l, N.V. 05-10557-RWZ (D. Mass. Apr. 11, 2016).
Last month, the Eighth Circuit, sitting en banc, overturned a district court’s decision to grant two qui tam relators a share of an FCA settlement that resolved multiple claims, including some claims allegedly unrelated to the relators’ complaint. Rille v. Pricewaterhouse Coopers LLP, et al., No. 11-3514, 2015 WL 5778810 (8th Cir. Oct. 5, 2015). Joining the Sixth Circuit, the Eighth Circuit held that the FCA only entitles a relator to share in the portion of the settlement attributable to the claims that he or she brought. Id.
A federal district court in California has denied a qui tam relator’s attempt to share in the proceeds of a $323 million FCA settlement, holding that he was not the “original source” of the information that led to the settlement because he learned most of it secondhand from a former co-worker.