By

Kimberly Dunne

15 October 2018

District Court Invalidates Relators’ Pre-Filing Releases on Public Policy Grounds

We have previously discussed (here and here) the enforceability of a relator’s pre-filing release of FCA claims—an issue on which the FCA is silent. Recently, in United States ex rel. Susan Class et al., v. Bayada Home Health Care Inc., No. 2:16-cv-00680 (E.D. Pa. Sep. 24, 2018), a district judge in the Eastern District of Pennsylvania weighed in on the enforceability of pre-filing releases and held that, as a matter of public policy, these releases are unenforceable where “the Government did not have sufficient knowledge of the Relators’ allegations prior to the signing of Relators’ releases.” (more…)

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25 September 2018

Ninth Circuit Addresses Impact of Escobar’s Falsity and Materiality Requirements On Existing Circuit Precedent

In Escobar, the Supreme Court held that the implied false certification theory of liability is viable under the False Claims Act when “at least two conditions” are satisfied: “[F]irst, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” As we have previously discussed here, courts are split as to whether Escobar’s two-part test is a mandatory baseline to demonstrate an implied false certification or merely one way to plead such a claim, leaving open the door for other variants of implied certification claims not explicitly identified by the Supreme Court.  Recently, in United States ex rel. Scott Rose, et al. v. Stephens Institute, No. 17-15111 (9th Cir. Aug. 24, 2018), the Ninth Circuit held that Escobar’s two-part test was mandatory—effectively overruling its pre-Escobar test for establishing implied certification claims outlined in Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010). (more…)

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09 July 2018

District Court Dismisses Original Source’s FCA Claims as Barred by Government’s Pursuit of Penalty in Bankruptcy Proceeding

The government action bar provides that a relator may not bring a False Claims Act (FCA) lawsuit “based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party.”  31 U.S.C. § 3730(e)(3) (emphasis added).  Recently, in Schagrin v. LDR Industries, LLC, No. 14 C 9125, 2018 WL 2332252 (N.D. Ill. May 23, 2018), a district court held that the relators’ lawsuit was barred by the “government action bar” because LDR Industries had already been subject to administrative penalties by U.S. Customs for the same alleged conduct. (more…)

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19 April 2018

Eleventh Circuit Extends FCA’s Ten Year Limitations Period to Non-Intervened Cases, Creating Circuit Split

The False Claims Act provides that a case must be brought within the later of (1) six years after the date on which the alleged violation is committed, or (2) three years after “the date when the facts material to the right of action are known or reasonably should have been known by the official of the United States with responsibility to act in the circumstance, but in no event more than 10 years after the date on which the violation is committed.”  31 U.S.C. § 3731(b).  When the government has declined to intervene in an FCA action and a relator files a qui tam suit more than six years after the violation, the Fourth and Tenth Circuits have held that the relator’s suit is time-barred and the relator cannot take advantage of § 3731(b)(2)’s more generous statute of limitations.  Last week, in United States ex. Rel. Hunt v. Cochise Consultancy, Inc., __ F.3d __, 2018 WL 1736788 (11th Cir. Apr. 11, 2018), the Eleventh Circuit split from the Fourth and Tenth Circuits, holding that § 3731(b)(2) “applies to an FCA claim brought by a relator even when the United States declines to intervene.”  And departing from the Ninth Circuit, the Eleventh Circuit further held that because the period “begins to run when the relevant federal government official learns of the facts giving rise to the claim, when the relator learned of the fraud is immaterial for statute of limitations purposes.” (more…)

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06 April 2018

Sixth Circuit Applies Objective Intent Standard for Constructive Discharge Claim in FCA Retaliation Case

The False Claims Act’s anti-retaliation provision, 31 U.S.C. § 3730(h), provides relief to an “employee, contractor, or agent,” who is “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done . . . in furtherance of an action” under the FCA. Recently, in Smith v. LHC Group, Inc. et al., __ F. App’x __, 2018 WL 1136072 (6th Cir. Mar. 2, 2018) (unpublished), the Sixth Circuit clarified that the test for an employer’s intent in a “constructive discharge” retaliation case is an objective one — joining the majority of circuits that have rejected a subjective employer intent requirement in constructive discharge cases in different contexts. (more…)

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16 January 2018

Ninth Circuit Validates Value of Government-Action Bar Against Parasitic Qui Tam Suits

In a matter of first impression, the Ninth Circuit recently interpreted the “government-action bar,” one of the defenses to a parasitic False Claims Act (“FCA”) action, to offer meaningful protection to defendants who resolve one action from having to defend a whistleblower’s effort to capitalize on claims not previously litigated. See United States ex rel. Bennett v. Biotronik, Inc., 876 F.3d 1011 (9th Cir. 2017).  The government-action bar prohibits a relator from bringing a qui tam suit “based upon allegations or transactions which are the subject of a civil suit . . . in which the Government is already a party.”  31 U.S.C. § 3730(e)(3).  Until recently, the temporal and substantive reach of the government-action bar was unclear because of two unanswered questions:  First, no court had made clear whether the government-action bar applied to suits that had been dismissed or otherwise resolved. Second, it was unclear whether there was a bar to a whistleblower action where the government intervened to settle some, but not all, of the “allegations and transactions” asserted in a complaint, and the subsequent suit asserted claims based on the uncovered conduct that was dismissed without prejudice as part of the earlier settlement.  In a two-to-one decision, the Ninth Circuit provided settling defendants with some better assurances that when they settle an intervened qui tam suit with the government, they will not later be subject to a parasitic money grab by a different relator based upon the same allegations and transactions.   (more…)

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12 January 2018

Fourth Circuit Clarifies Legal Standard for a FCA Retaliation Claim

While there generally has been no question that the False Claims Act protects employees who suffer retaliation because of reporting suspected fraud by their employer, the Fourth Circuit recently made clear that the FCA whistleblower provisions protect disclosures that could lead to any viable FCA action regardless of whether the target is the employer of the whistleblower.   O’Hara v. NIKA Technologies, Inc., No. 16-1805, _ F.3d. _, 2017 WL 6542675 (4th Cir. Dec. 22, 2017).  This decision raises the bar for employers who learn of employees’ concerns about third-parties allegedly committing fraud on the government in the event the company takes subsequent adverse employment action against the so-called whistleblower. (more…)

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12 January 2016

Ninth Circuit Affirms DOJ’s Right to Dismiss FCA Action Over Relator’s Objections

On December 18, 2015, the Ninth Circuit affirmed the dismissal of a False Claims Act (“FCA”) case against Raytheon Company based on the perceived risk by the Department of Justice (“DOJ”) that litigation would risk disclosure of classified information.  In United States ex rel. Mateski v. Raytheon Co, the DOJ moved to dismiss an FCA action challenging Raytheon’s conduct in its performance under a classified government contract, over the objections of the relator, because continued litigation of the case would substantially burden government resources and risk disclosure of classified information.  Under section 3730(c)(2)(A) of the FCA, the Government may move to dismiss a FCA action notwithstanding the relator’s objections where it demonstrates that there is a rational relationship between dismissal and a valid government purpose.

(more…)

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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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06 March 2013

District Court Judge Applies Public-Disclosure Bar to Dismiss FCA <i>Qui Tam</i> Suit With Prejudice

In a case defended by Sidley, a district court in the Central District recently granted a motion to dismiss with prejudice based on the public disclosure bar and, in doing so, clarified several important principles. United States of America, ex rel. Steven Mateski v. Raytheon Co., 2:06-cv-03614-ODW-FMO, Dkt. # 127. The Court recognized that the public-disclosure bar does not require a defendant to establish an exact one-to-one correspondence between public disclosures and allegations in a qui tam complaint. The Court rejected such a “particularity requirement” because the public disclosure bar broadly applies whenever a qui tam complaint rehashes “allegations or transactions” that are “substantially similar” to public disclosures. Slip op. at p. 4. “[P]ublic disclosures need not detail information underlying allegations or transactions so long as they supply enough information for the United States to pursue an investigation.” Id. at p. 6. In addition, the Court affirmed that a defendant need not prove that a qui tam complaint is “solely based upon” public disclosures to defeat jurisdiction – “a qui tam complaint partly based upon publicly disclosed information” is barred as well. Id. at p. 5. Finally, the Court found the relator failed to satisfy the three “independent source” requirements under Ninth Circuit law: (1) he did not “ha[ve] a hand in the public disclosure”; (2) he lacked “direct and independent knowledge” of the alleged fraud; and (3) he had not disclosed the basis of his qui tam allegations to the Government prior to filing the action. Id. pp. 7-9.

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