In a recent case, affirming the dismissal of an FCA complaint against the City of Chicago, the Seventh Circuit provided guidance to those seeking to understand the pleading requirements for an implied certification claim after the Supreme Court’s recent decision in Escobar. In United States ex rel. Hanna v. City of Chicago, No. 15-3305 (7th Cir. Aug. 22, 2016), the Court held that the relator failed to provide sufficient detail on the alleged statutory and regulatory violations and the link between those violations and the alleged false certification to meet the heightened Rule 9(b) standard.
Earlier this year, we wrote about a case in which a district court disqualified an attorney, Donald Holmes, from serving as a relator based, in part, on his use of information in violation of a protective order in a related case in another district court. See “Court Disqualifies Attorney Relator for Ethical Violations” (June 15, 2015). With Holmes’s appeal of that decision pending in the Fifth Circuit, he filed a motion in the District Court for the District of Columbia—the court that originally issued the protective order that Holmes violated—requesting that the court sanction him $1,000 and modify the protective order to permit disclosure of the confidential information to the DOJ and the qui tam court. The court characterized Holmes’s motion as “a likely attempt to show the Fifth Circuit that he has already been sanctioned by this Tribunal in the hopes of having the dismissal there overturned” but explained that it had no power to alter sanctions levied by another court.
As we previously reported, the DOJ’s recent “Yates Memo” signals a renewed focus by DOJ on individual culpability for corporate wrongdoing. This focus applies to DOJ’s view of what is required to invoke the FCA’s “Cooperation Clause,” 31 U.S.C. § 3729(a)(2), which states that an FCA defendant may be eligible for double damages (rather than treble damages) if: (1) the person committing the violation furnished U.S. officials responsible for investigating the false claims action “with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information,” (2) the person cooperated fully with the government’s investigation, and (3) at the time the person provided information on the violation, no action had commenced with respect to the violation and the person did not have actual knowledge of any investigation into the violation. The Yates Memo states that “the Department’s position on ‘full cooperation’ under the False Claims Act, 31 U.S.C. § 3729(a)(2), will be that, at a minimum, all relevant facts about responsible individuals must be provided.” “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” If a company “declines to learn of such facts” or to disclose all facts about individual wrongdoers, the company is barred completely from eligibility for reduced damages.
The D.C. Circuit recently issued another opinion in a case that we have followed closely, In re Kellogg Brown & Root, Inc., No. 14-5319 (D.C. Cir. Aug. 11, 2015). For the second time, the D.C. Circuit granted a writ of mandamus to address the district court’s ruling that the defendant had waived privilege—and for the second time, the D.C. Circuit has vacated the district court’s orders to produce documents in connection with the results of an internal investigation into potential FCA claims because the orders “would erode the confidentiality of an internal investigation in a manner squarely contrary to the Supreme Court’s guidance in Upjohn and [the Court’s] prior decision in this case.” Slip Op. at 23.
Posted by Scott Stein and Emily Van Wyck
Whether and under what circumstances an attorney can act as a whistleblower is one of the most controversial subjects under the False Claims Act. We wrote previously about a Second Circuit case in which the court dismissed an FCA case brought against a company by its former general counsel on the ground that the attorney had violated his ethical obligations to his former client. See “Second Circuit Affirms Dismissal of False Claims Act Suit Brought By Clinical Laboratory Defendant’s Former General Counsel”. Now another district court has disqualified an attorney whistleblower who sued his client’s adversary, holding that, in doing so, the attorney had violated duties of confidentiality and loyalty to his own client. See United States ex rel. Holmes v. Northrup Grumman Corp., No. 1:13-cv-00085-HSO-RHW (S.D. Miss. June 3, 2015).
Posted by Scott Stein and Emily Van Wyck
In United States ex rel. Rockey v. Ear Inst. of Chicago, No. 11-cv-07258 (N.D. Ill. Mar. 25, 2015), the relator alleged that her former employer, the Ear Institute of Chicago, regularly submitted false claims to Medicare by submitting claims for services rendered by an audiologist under a physician’s name. Additionally, some of these claims were for services not covered by Medicare including therapeutic services performed by an audiologist or services performed without a physician order. In November 2010, the relator alerted the Ear Institute to this improper billing practice and shortly thereafter, the Ear Institute sent a letter identifying the issue to Wisconsin’s Medicare contractor and explaining that none of these claims resulted in overpayments. The letter did not address claims submitted for services not covered by Medicare. The relator filed suit in October 2011 against the Ear Institute, all of its doctors and audiologists, and its billing contractor. Defendants then moved to dismiss the complaint under the public disclosure bar.
The relator argued that the letter failed to sufficiently disclose all of her claims. The court disagreed with the relator explaining that the letter disclosed all elements necessary to show that defendants violated Medicare regulations and, as such, the letter alerted Medicare to “the likelihood of wrongdoing.” That disclosure, the court held, was sufficient to trigger the public disclosure bar.
The district court’s holding is consistent with Seventh Circuit precedent that disclosures to “a competent public official . . . who has managerial responsibility for the very claims being made” qualify as public disclosures. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 909 (7th Cir. 2009). The Seventh Circuit’s view makes sense; there is little reason to reward whistleblowers when the defendant has self-disclosed to a responsible government official prior to the filing of a lawsuit. However, the Seventh Circuit standard does conflict with rulings from other circuits, which hold that a disclosure must be made to the public writ large to qualify under the public disclosure bar. We have written about some of these other decisions here and here.
The court then assessed whether the relator qualified as an original source. The original source provision requires that an individual have “knowledge that is independent of and materially adds to the publicly disclosed allegations.” The court noted that “materially adds” is not defined in the statute and no federal appeals court has interpreted the phrase. The district court therefore applied the “usual definition”—that the relator’s knowledge must have a “natural tendency to influence” or to be “capable of influencing” payment. In arguing that the original source provision applied, the relator claimed that while defendants identified their billing errors in the letter, they did not admit that they knowingly violated Medicare billing regulations. The court disagreed, stating that defendants admitted their billing practices were knowing and intentional. The relator also claimed that she provided detailed examples of fraudulent claims. The court rejected the relator’s proposition that these details materially added to defendants’ “comprehensive mea culpa.” Thus, the relator was not an original source and the public disclosure bar applied.
Even if these claims were not barred by public disclosure, the court found that the claims would still fail because the relator did not adequately allege knowledge, falsity, or materiality. With regard to the remaining claims relating to reimbursement for noncovered services (the claims that were not disclosed in the letter) and the conspiracy and retaliation claims, the court denied defendants’ motion to dismiss.
A copy of the district court’s opinion can be found here.
Posted by Jaime L.M. Jones and Emily Van Wyck
Earlier this week, Senators Chuck Grassley (Iowa) and Ron Wyden (Oregon) hosted a press conference to announce the launch of the Whistleblower Protection Caucus—a bipartisan group of Senators focused on raising awareness of the need for adequate protection from retaliation for whistleblowers.
In his remarks, Grassley stated that “Americans deserve a federal government that is free from fraud, waste, and abuse and whistleblowers play a very important role in keeping government accountable.” He expressed concern that “these patriots” often face retaliation and declared that “[m]uch can be done to improve the environment for whistleblowers and actually encourage more people to step forward when they encounter wrongdoing.” The Caucus will foster bipartisan discussion on the treatment of whistleblowers and will serve as a clearinghouse for the Senate for current information on whistleblower developments.
Other founding members of the Caucus include Senators Ron Johnson (Wisconsin), Mark Kirk (Illinois), Deb Fischer (Nebraska), Thom Tillis (North Carolina), Barbara Boxer (California), Claire McCaskill (Missouri), Tammy Baldwin (Wisconsin), and Ed Markey (Massachusetts).
A copy of Senator Grassley’s related press release can be found here.
Posted by Scott Stein and Emily Van Wyck
Last week, a district court judge rejected a relator’s argument that the FCA restricts the award of costs against unsuccessful relators to only those cases where the suit was found to be frivolous, vexatious, or harassment, a bar significantly higher than that imposed on all other unsuccessful litigants under Federal Rule of Civil Procedure 54. See United States ex rel. Assocs. Against Outlier Fraud v. Huron Consulting Grp., Inc., No. 09-cv-01800-JSR (S.D.N.Y. Feb. 2, 2015). This decision confirms that relators are liable for costs on the same terms as any other unsuccessful litigant.
After summary judgment was granted against the relator, the clerk of the court awarded over $13,000 in costs to the defendants. Relator appealed the award. At issue was the FCA’s distinction between fees, expenses, and costs. Federal Rule of Civil Procedure 54(d)(1) states that “costs” should be awarded to the prevailing party “[u]nless a federal statute . . . provides otherwise.” The relator argued that the FCA “provides otherwise” because it includes a provision that requires a showing that the relator’s claims were “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment” before awarding “reasonable attorneys’ fees and expenses.” 31 U.S.C. § 3730(d)(4). Relator argued that the term “fees and expenses” under the FCA is synonymous with “costs” under FRCP 54, and therefore a court must first find that the lawsuit was frivolous, vexatious, or harassment. Given that defendants did not assert that the claims were frivolous, relator argued, the court erred in awarding costs.
The district court disagreed, finding that the language of the FCA “foreclose[d]” this argument. In doing so, the court noted that the FCA treats fees, expenses, and costs as distinct categories. For example, if a relator prevails in a case where the United States declined to intervene, the FCA provides that the defendant must pay the relator “for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs.” 31 U.S.C. § 3730(d)(2). The court upheld the award of costs concluding that any dicta “loosely suggesting” that these terms are interchangeable “cannot overcome the FCA’s conscious distinction between ‘costs’ and ‘expenses.'”
A copy of the district court’s order can be found here.
Posted by Jaime L.M. Jones and Emily Van Wyck
A Florida federal district court granted a motion for a new trial on damages after an $89.6 million default judgment was entered for False Claims Act violations by a doctor and cancer treatment center. See United States ex rel. McBride v. Makar, No. 8:12-cv-792-T-27MAP, 2014 WL 5307469 (M.D. Fla. Oct. 15, 2014). The court entered a default judgment against the defendant physician and American Cancer Treatment Centers, Inc. (“ACTC”) after defendants failed to respond to the complaint. In calculating damages, the court relied on data compiled by the relator from Medicare records reflecting the total amount paid in reimbursement by the government for all claims submitted by defendants during the time period at issue.
In the order granting a new trial, the court concluded that the damages award was calculated based on allegedly fraudulent claims that were outside the scope of the original complaint. The complaint alleged that the defendant physician submitted false claims for radiation therapy services performed at ACTC that were unnecessary, never performed, or improperly administered. The court noted that these allegations did not support the conclusion that all claims made during this period were false because the existence of some fraudulent billing practices “does not necessarily taint each claim for every patient.” Makar, 2014 WL 5307469, *4. Indeed, as the court recognized, some of the procedures submitted during this period may have been properly supervised and administered.
In reaching its decision, the court distinguished the fraudulent claims submitted in this case from those addressed in United States v. Rogan, 517 F.3d 449 (7th Cir. 2008). In Rogan, the court awarded damages for all claims submitted for patients referred to the defendant through an illegal kickback scheme even if those patients received medical services. Id. at 453. By contrast, the Makar defendants were not alleged to have engaged in illegal conduct that would necessarily taint all claims submitted by the defendants. Therefore, the court ruled that the damages calculation must be based only on those claims determined to be false; specifically, those claims submitted for unnecessary, never performed, or improperly administered services. The court’s order requires additional discovery and a new trial to establish the amount of damages associated with such fraudulent claims.