By

Michael D. Mann

03 May 2019

DOJ Publishes New Guidance on Evaluating Corporate Compliance Programs

On April 30, the Criminal Division of the U.S. Department of Justice (DOJ) released a new guidance document titled “The Evaluation of Corporate Compliance Programs,” which updates a prior version of the guidance first issued in February 2017 (previously analyzed here). The new guidance provides additional insights into how DOJ will assess the effectiveness of a company’s overall compliance program in an enforcement action, focusing on the program’s design, implementation and effectiveness.

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10 July 2013

District Court Finds Mere Failure to Comply with All Contractual Conditions for Services Does Not Necessarily Result In a False Claim

Posted by David Rody and Michael Mann

On June 19, 2013, a district court sitting in the Eastern District of Virginia held in United States ex rel. Badr v. Triple Canopy, Inc., No. 1:11-cv-288, Dkt. #55 (GBL), that “[m]ere failure to comply with all contractual conditions does not necessarily render the billing for those services so deficient or inadequate that the invoice constitutes a false claim under the FCA. Nor does it constitute an incorrect description of services provided to constitute a false statement sufficient to impose FCA liability.” Id. at 1-2. In granting the motion to dismiss of defendant Triple Canopy, Inc. (“TCI”), the court also held that a Relator cannot use allegations of a fraudulent scheme at one location to infer a false claim at another.

TCI was awarded government contracts to provide security services to various military installations overseas, including military bases located in Iraq. Given the nature of the assignment, TCI was required to ensure compliance with U.S. Army standard weapons qualification requirements. The government, as Intervenor, alleged that 332 Ugandan TCI guards arrived for duty, and failed to complete basic skills required before even attempting to qualify on a qualification course. Further, TCI allegedly began to falsify scorecards that were placed in the personnel files of the guards in the event of an inspection. The Relator, a former TCI employee, reported the allegedly fraudulent conduct to TCI’s human resources director, vice president, and general counsel. Later, Relator was allegedly instructed to alter TCI’s scorecards to reflect passing scores for all the guards. Although TCI was not awarded a contract renewal, the government alleged TCI continued to perform other government contracts in Iraq, and the Ugandan unqualified guards were allegedly transferred to other installations in Iraq to perform similar services.

In dismissing the claim, U.S. District Judge Gerald Bruce Lee concluded that because the invoices simply identified the quantity of guards, the price for each, the period of service, and the amount for the services, the invoices, without more, “[did] not contain objectively false statements sufficient to render them false claims for purposes of FCA liability.” Id. at 12. The government sought to analogize under-qualified guards to defective products, but the court dispelled the analogy, noting that “defective goods . . . are materially different from a claim for defective services.” Id. at 15 (emphasis in original). There is still some “inherent value retained in a service that is provided by an unqualified employee compared to a complete inability to use a product that is rendered defective.” Id. (citing U.S. ex rel. Sanchez-Smith v. AHS Tulsa Reg. Med. Ctr., LLC, 754 F. Supp. 2d 1270, 1287 (N.D. Okla. 2010) (rejecting a worthless services theory based upon substandard medical care because some care was provided, even if ultimately below expectations).

The “worthless services” theory did not work here because the government failed to allege “that the TCI guards were entirely deficient so as to render their services worthless.” Id. The Ugandan guards provided a service, although perhaps not fully compliant. The court held that the services must be “entirely devoid of value, or the noncompliance must have caused an injury to the Government such that the guards effectively provided no service at all.” Id. (citing In re Genesis Health Care Ventures, Inc., 112 F. App’x 140, 143 (3d Cir. 2001) (“Case law in the area of ‘worthless services’ under the FCA addresses instances in which either services are literally not provided or the service is so substandard as to be tantamount to no service at all.”). While the failure to receive proper qualification may be a breach of contract action, the government never alleged that TCI presented the qualifications in support of a demand for payment.

Judge Lee also held that a Relator cannot use allegations of a fraudulent scheme at one location involving one contract to create an inference of a false claim at other locations, without personal knowledge, as it would fail Fed. R. Civ. P. 9(b)’s requirement of specificity. The court dismissed all the FCA counts, but granted the government leave to re-plead claims of “breach of contract” and “payment by mistake.”

On July 3, 2013, TCI moved to dismiss the remaining contractual claims pursuant to Fed. R. Civ. P. 12(b)(1), contending that the court lacked subject matter jurisdiction over such disputes pursuant to the Contract Disputes Act, 41 U.S.C. §§ 7101 et seq. See Triple Canopy, Inc., No. 1:11-cv-288 (GBL), Dkt. #57 (E.D. Va. July 3, 2013). A hearing on the motion to dismiss is scheduled for July 26.

— Andrew Soler, a summer associate, provided assistance in the preparation of this post.

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26 February 2013

DOJ to Join FCA Qui Tam Suit Against Lance Armstrong

Posted by Michael D. Mann

As widely reported in the media, on February 22, 2013, the U.S. Department of Justice filed a Notice of Election to Intervene In Part in Floyd Landis’ False Claims Act qui tam suit against his former cycling teammate Lance Armstrong. The government alleges Armstrong, Johan Bruyneel and Tailwind Sports “submitted or caused the submission of false claims to the U.S. Postal Service (“USPS”) in connection with its sponsorship of a professional bicycle racing team by regularly employing banned substances and methods to enhance their performance, in violation of the USPS sponsorship agreements.” In its press release, the government contends the USPS sponsorship agreements “required the team to follow the rules of cycling’s governing bodies, which prohibited the use of certain performance enhancing substances and methods.” The USPS paid the Tailwind-owned professional cycling team approximately $31 million in sponsorship fees between 1996 and 2004. Armstrong was the lead rider on the team and Bruyneel was the manager or directeur sportif. Bruyneel is alleged to have known “team members were using performance enhancing substances and facilitated the practice.”

At this time the government has declined to intervene and reserved the right to seek dismissal against others named in Landis’ claim, including defendants William Stapleton, Barton Knaggs, Capitol Sports and Entertainment Holdings, Inc., and Thomas Wiesel. The government has 60 days, or until April 23, 2013, to file its Complaint in Intervention.

The Landis suit raises a number of novel questions, which were discussed in an earlier post by Jonathan F. Cohn and Brian P. Morrissey.

U.S. District Judge Robert L. Wilkins has lifted the seal on all matters going forward in the proceeding, which is captioned United States ex rel. Floyd Landis v. Tailwind Sports Corporation, et al., No. 10-cv-976 (RLW).

An unsealed copy of Landis’ Second Amended Complaint, also filed on February 22, 2013, can be found here.

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21 February 2013

Sidley’s Kim Dunne Talks FCA Reform in a Q&A Session with Law360

Posted by Michael D. Mann

Kimberly A. Dunne, co-chair of Sidley’s White Collar: Government Litigation and Investigations practice in Los Angeles, participated in a Q&A session with Law360 and shared some thoughts on reform of the FCA: “Where the government — for resource or other reasons — chooses to decline quickly and defer to a whistleblower the responsibility for investigating and litigating, then the whistleblower litigation is justified for all the reasons why the government encourages whistleblowers to raise alarm bells when fraud is suspected. But when the government has spent the time and energy to investigate, I think giving a whistleblower a second bite at the apple when the mere fact of litigation gives him huge leverage to extract a settlement is unfair.” Click here to read the full article (subscription required).

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20 February 2013

Federal Court in Kentucky Reaffirms Longstanding Principle that FCA Whistleblowers Cannot Proceed Pro Se

Posted by Michael D. Mann

Reaffirming the well established principle that relators may not bring a qui tam action under the False Claims Act pro se, on February 12, 2013, the United States District Court for the Western District of Kentucky (Heyburn, J.), barred and dismissed a plaintiff’s frivolous allegations of “an illegal scheme to defraud the government,” concluding that:

Because “a qui tam relator . . . sues on behalf of the government and not himself [, h]e therefore must comply with the general rule prohibiting nonlawyers from representing other litigants.” United States ex rel. Szymczak v. Covenant Healthcare Sys., Inc., 207 F. App’x 731, 732 (7th Cir. 2006) (citation omitted). “Although the FCA does not expressly address whether a private individual can bring a qui tam suit pro se, the courts that have considered the issue have uniformly held that pro se relators may not prosecute qui tam actions.” Brantley v. Title First Titling Agency, No. 1:12–cv–608, 2012 WL 6725592, at *3 (S.D. Ohio Sept. 27, 2012) (listing cases); see also Carter v. Washtenaw Cnty., No. 09–14994, 2010 WL 3222042, at * 1 (E.D. Mich. Aug. 13, 2010) (“A litigant cannot, however, bring a qui tam action under the False Claims Act pro se.”); Zernik v. U.S. Dep’t of Justice, 630 F.Supp.2d 24, 27 (D.D.C. 2009) (“[P]ro se plaintiffs are not qualified to represent the interests of the United States in such an action.”).

Hopson v. Weinburg Attorney’s at Law, 3:12-CV-802 (JGH) (W.D. Ky. Feb. 12, 2013).

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20 February 2013

Ninth Circuit Reverses Dismissal of FCA Suit When Allegations Raised “Strong Inference” False Claims Were Actually Submitted

Posted by Michael D. Mann

On February 13, 2013, the United States Court of Appeals for the Ninth Circuit breathed new life into allegations that a for-profit college owned by Kaplan, Inc., violated the False Claims Act by submitting sham financial aid claims to the U.S. Department of Education. See United States ex rel. Jajdelski v. Kaplan, Inc., No. 11-16651, slip op.

The relator, Charles Jajdelski, a former admissions representative for Kaplan, Inc., alleged that Las Vegas, Nevada-based Heritage College violated the FCA by falsely seeking financial aid for students who either never enrolled at Heritage College or had dropped out of the school. Kaplan acquired Heritage College in May 2003. On October 25, 2003, Jajdelski attended Heritage’s graduation ceremony and allegedly discovered five boxes of diplomas that were never distributed to students. Jajdelski was concerned by the boxes of extra diplomas and made inquiries into the absence of the students. He was allegedly told by the college’s director of education that the diplomas had gone unused because Heritage College admissions representatives were required to sign up a certain quota of applicants per month, despite the fact that only 50% of the enrolled students actually participated in and completed the program. Instructors at the college allegedly kept the students enrolled in the program on their attendance sheets to prevent a return of federal aid funding after a student withdrew from the program. After Jajdelski was allegedly warned to keep his “nose” out of the financial aid status of students, he was terminated a mere ten days later.

Kaplan moved to dismiss the complaint for its failure to allege that Kaplan, the only defendant in the case, submitted false claims for financial aid or explain why Kaplan should be held responsible for conduct that allegedly happened before it acquired or had any ownership interest in Heritage College. The district court agreed and found that Jajdelski had failed, in his sixth amended pleading, to meet the heightened standard required of claims of fraud under Rule 9(b). In its July 7, 2011 Order granting dismissal, U.S. District Judge Kent J. Dawson concluded that “[a]t no point has Plaintiff stated his allegations with sufficient specificity relating to time, place, and the identity of the parties to the alleged fraud to put Kaplan on notice of the ‘particular misconduct which is alleged to constitute the fraud charged.’ Nowhere does Plaintiff identify the false claims that were submitted to the Government, or when or where these false claims were submitted or even by whom. According to the information provided in Plaintiff’s previous and most recent complaint, all of Plaintiff’s fraud allegations occurred at times prior to Defendant acquiring Heritage in May 2003. Under the standards governing successor liability, Defendant cannot be held liable for those activities as alleged in Plaintiff’s Complaint” without some demonstration that Kaplan continued the allegedly fraudulent conduct following its acquisition of Heritage College. See United States ex rel. Jajdelski v. Kaplan, Inc., No. 2:05-CV-1054 (KJD) (GWF) (D. Nev. July 7, 2011).

The Ninth Circuit disagreed and remanded. The Court, adopting the rationale of the Fifth Circuit in United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009), found Jajdelski’s fraud claims under Rule 9(b) sufficient in so much as they alleged “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inferencegt; that claims were actually submitted.” (Emphasis added). Specifically, Jajdelski met the pleading standard because he “allege[d] his first-hand experience of the scheme unfolding” and “describe[d] in detail, including the date, place, and participants, meetings during which the phantom student scheme was revealed.” The Court determined that the continued enrollment of non-attending students created at least a strong inference that Heritage College, and possibly Kaplan, had submitted financial aid claims for those students. Indeed, it would “stretch the imagination” to believe that “Kaplan employees fastidiously (and secretively) documented fake student enrollment statistics and met about them once the threshold for financial aid eligibility was crossed, ‘only for the scheme to deviate . . . at the last moment’ such that they did not submit those claims to the Department of Education.”

In a dissenting opinion, Judge Consuelo Callahan conceded that Jajdelski’s claims provided at least circumstantial support for his “phantom student” theory, but declined the invitation to “tie the extra diplomas, employee confessions, or wrongdoing by apparently everyone at all times to an actual false claim for financial aid by Kaplan.” (Emphasis in original). Judge Callahan acknowledged that Jajdelski did not have to provide representative examples to support each allegation, but concluded that he did not provide a representative false claim for any of the allegations or even provide a “strong inference” that Kaplan ever actually submitted a false claim.

The decision appears to be a split from the Fourth Circuit’s decision last month in United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., No. 11-2077, slip op. (4th Cir. Jan. 11, 2013), in which the Court rejected the relator’s argument that alleging a fraudulent scheme obviates the need to allege a specific false claim to satisfy Rule 9(b).

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