Posted by Ellyce Cooper and Patrick Kennell
The ongoing saga regarding privilege and work product issues continues in United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276 (D.D.C. 2005). (Our previous blog posts on the case can be found here, here, and here.) As we previously reported, in June of 2014, the D.C. Circuit ordered the lower court to reconsider its order that Halliburton turn over to the relator the results of an internal investigation. The D.C. Circuit held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation.” In re Kellogg Brown & Root, Inc., 756 F.3d 754 (D.C. Cir. 2014) (emphasis added). However, the court directed the District Court to examine the other reasons advanced by the relator as to why the documents at issue were “not covered by either the attorney-client privilege or the work product doctrine.” Id. at 764.
Posted by Ellyce R. Cooper and Patrick E. Kennell III
In U.S. ex rel. De’von Cannon v. Rescare, Inc., No. 09-3068 (E.D. Pa. Sept. 16, 2014) (Dkt. No. ___) (“Slip Op.”), Judge Diamond of the Eastern District of Pennsylvania ruled that in its third try the Relator pled facts sufficient to survive a motion to dismiss. This time the Relator argued the applicability of the amended (2009) version of § 3729(a)(1) rather than the pre-2009 version. Judge Diamond’s ruling follows the majority of courts around the country that have found that the 2009 amendment can be applied retroactively because it is civil and not punitive in nature.
In dismissing the first two versions of Relator’s complaint, Judge Diamond applied the pre-2009 version of § 3729(a)(1), and found that the Relator did not meet the intent requirement found in Allison Engine, Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 668-69 (2008) (“[A] person must have the purpose of getting a false or fraudulent claim ‘paid or approved by the Government’ in order to be liable under § 3729(a)(2).”). (Slip Op. at 4-5). However, in his Second Amended Complaint, Relator alleged for the first time that he was proceeding under the post-2009 Amendments to § 3729(a)(l) (specifically, Section 3729(a)(l)(B)) (“Any person who…knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable to the United States Government for a civil penalty.).
The amendments to the FCA took effect in May of 2009, and Relator’s allegations dealt with acts that took place “from November 2008 to March 2009.” (Slip Op. at 7). The Court noted that “Congress singled out subsection [3729(a)(1)(B)] to apply retroactively to all ‘claims made under the FCA that are pending on or after’ June 7, 2008.” (Slip Op. at 6). Judge Diamond ruled that the retroactive application of the Amendment would not violate the Ex Post Facto Clause because the FCA is civil in nature, the monetary penalties of the FCA were not punitive in nature, and the “FCA’s penalty provision is . . . not excessive, given its remedial purposes: encouraging would-be qui tam relators and compensating the Government for investigative costs and the fraud itself.” (Slip Op. at 7-9, 12).
Posted by Ellyce Cooper and Patrick Kennell
Last Friday, the D.C. Circuit issued an opinion in In re Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014), reversing the much discussed privilege ruling in U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014), a case we previously wrote about here and here. In reversing the District Court’s opinion, the Court of Appeals held that “[s]o long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation.” (Slip Op. at 7-8) (emphasis added).
As readers may recall, in Barko, the D.C. District Court applied a test that would only extend attorney-client privilege to documents if “the communication would not have been made ‘but for’ the fact that legal advice was sought” and required the defendant to turn over documents from a related internal investigation. (Slip Op at 3) (quoting United States ex rel. Barko v. Halliburton Co., No. 05-cv-1276, 2014 WL 1016784, at *2 (D.D.C. Mar. 6, 2014)). In applying this “but for” test to deny attorney-client protection for various documents, the District Court focused on the fact that the investigation was undertaken to comply with federal regulations and corporate policy and was conducted at the behest of in-house counsel as opposed to outside counsel. The district court’s ruling threatened to eliminate work product protection for investigative materials where there was arguably a non-litigation (business) purpose for conducting the investigation.
The D.C. Circuit rejected the trial court’s “but for” test and provided a straightforward test for the applicability of the attorney-client privilege in internal investigations: “Was obtaining or providing legal advice a primary purpose of the communication, meaning one of the significant purposes of the communication?” (Slip Op. at 10). If so, the court of appeals held, work product protection applies.
Importantly, the Court stated that this test applies “regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.” (Id.). The Court reasoned: “the District Court’s novel approach would eradicate the attorney-client privilege for internal investigations conducted by businesses that are required by law to maintain compliance programs, which is now the case in a significant swath of American industry.” (Slip Op at 9).
Moreover, the Court reaffirmed that the attorney-client privilege applies in internal investigations to both consultations with in-house and outside counsel. (Slip Op. at 6). The Court explained “the District Court noted that in Upjohn the interviews were conducted by attorneys, whereas here many of the interviews in [the company]’s investigation were conducted by non-attorneys. But the investigation here was conducted at the direction of the attorneys in [the company]’s Law Department. And communications made by and to non-attorneys serving as agents of attorneys in internal investigations are routinely protected by the attorney-client privilege.” (Id.)
Finally, it should be noted that the Court reaffirmed the longstanding maxim that “the attorney-client privilege ‘only protects disclosure of communications; it does not protect disclosure of the underlying facts by those who communicated with the attorney.'” (Slip Op. at 17-18) (quoting Upjohn Co. v. United States, 449 U.S. 383, 395 (1981)).
The relator has indicated that he will seek en banc review of the case. Stay tuned to Original Source for any additional updates on the case.
Posted by Ellyce Cooper and Patrick Kennell
On May 7th, a three-judge panel (Judges Thomas Griffith, Brett Kavanaugh and Sri Srinivasan) of the U.S. Court of Appeals for the D.C. Circuit heard oral argument on the privilege issues raised by documents created as part of an internal investigation. As previously reported in this blog, in U.S. ex rel. Barko v. Halliburton Co., 1:05-CV-1276 (D.D.C. Mar. 6, 2014) the D.C. District Court required that the defendant in an FCA case turn over documents from a related internal investigation. The Court reasoned that since the investigation was not conducted at the behest of in-house counsel, the documents were ordinary business records created to comply with federal regulations and corporate policy. In other words, the Court ruled that they were not created to obtain legal advice.
The petition sets forth the significance of this matter to internal investigations: “It is no exaggeration to say that if the district court’s ruling stands, no defense contractor—and indeed, no public company, given widespread internal-control and auditing requirements under laws such as Sarbanes-Oxley and the Foreign Corrupt Practices Act  —can claim privilege over materials generated in internal investigations, because all such companies face obligations under ‘regulatory law’ (comparable to those the court held rendered KBR’s investigative documents unprivileged.” (Petition at 8) (emphasis in original).
The United States Chamber of Commerce, Association of Corporate Counsel, the National Association of Manufacturers, Coalition for Government Procurement, and American Forest & Paper Association, filed an amicus brief in support of the appeal. The brief argued that the District Court’s ruling “threatens to work a sea change in the well-settled rules governing internal corporate investigations.” (Amicus Brief at 1). As the amicus brief states: “stripping the attorney-client privilege where corporate policy drives employees to report legally significant facts to in-house lawyers would  penalize companies that have effective compliance policies.” (Amicus Brief at 14) (emphasis in original).
Regardless of the Court’s ruling, the decision is almost certainly going to have an impact on compliance policies and internal investigations going forward. Stay tuned to the Sidley FCA Blog for further updates as this case moves forward.
Posted by Ellyce Cooper and Patrick Kennell
In May of 2009, DOJ and HHS partnered to establish the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to “focus efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.” The latest settlement to come out of this partnership was for $26 million against a network of hospitals in Florida — Shands Healthcare. (United States of America and the State of Florida ex rel. Terry L. Myers v. Shands Healthcare, et al., No. 3:08-cv-441-J-16 (M.D. Fla. Apr. 30, 2008).
Six of Shands Healthcare’s Florida hospitals were defendants in a qui tam FCA lawsuit filed by the president of a healthcare consulting firm. The crux of Relator’s fraud based claims was that the hospitals billed Medicare, Medicaid and TRICARE “for inpatient procedures that should have been billed as outpatient services.”
The settlement will be split between federal agencies and the State of Florida, with the vast majority going to federal agencies. The realtor’s portion of the recovery has yet to be determined.
DOJ and HHS took the opportunity to again emphasize their “tireless” effort to “seek justice” in healthcare fraud cases. The DOJ Press Release providing more details on the settlement is available here. Note that since January 2009, DOJ has recovered $10.8 billion from cases involving alleged fraud against federal health care programs.
Posted by Patrick E. Kennell III and Ellyce R. Cooper
On January 31, 2012, the Department of Justice celebrated the 25th anniversary of the 1986 Amendments to the False Claims Act with speeches by Attorney General Eric Holder, Assistant Attorney General Tony West, and Members of Congress. The celebration also included a panel discussion entitled “$30 Billion, 25 Years: The False Claims Act in Review.” The DOJ used the occasion to celebrate its recent accomplishments and to describe its future enforcement efforts.
In press releases sent out to mark the occasion, the DOJ noted the following successes:
- “Since [the 1986] changes were enacted, the Justice Department has recovered more than $30 billion under the act.”1
- “Since January 2009, the department has recovered $8.8 billion under the False Claims Act – the largest three-year total in the Justice Department’s history, and 28 percent of all recoveries since the False Claims Act was amended in 1986.”2
- $6.6 billion of the amounts recovered since January 2009 have been from healthcare fraud recoveries.3
- “[F]or every dollar Congress has provided for healthcare enforcement over the past three years, the Departments of Justice and Health and Human Services have recovered nearly seven.”4
- “In FY 2011 alone, the Department of Justice secured more than $3 billion in settlements and judgments in civil cases involving fraud against the government.”5
- “Whistleblowers have filed nearly 8,000 actions – including a record high of 638 in the past year alone.”6
The DOJ also noted a series of key settlements including:
- $2.3 billion – Pfizer Inc. (2010);
- $1.7 billion – Columbia/HCA I & II (2000 and 2003);
- $1.415 billion – Eli Lilly and Company (2009);
- $950 million – Merck Sharp & Dohme (2011);
- $923 million – Tenet Healthcare Corporation (2006);
- $875 million – TAP Pharmaceuticals (2002);
- $750 million – GlaxoSmithKline (2010);
- $704 million – Serono, S.A. (2005).
- $650 million – Merck (2008); and
- $634 million – Purdue Pharma (2007).7
In his speech, Attorney General Eric Holder stated that the DOJ is committed to “aggressively utilizing” the FCA to combat fraud and that the past successes of the DOJ “represent a wide-ranging effort to eradicate the scourge of fraud from some of government’s most critical programs.”8 Attorney General Holder also noted that “in these challenging economic times” the DOJ’s mandate to “aggressively pursue those who would take advantage of their fellow citizens – has never been more clear or more urgent.”9 Finally, Attorney General Holder stated that “the strength of our resolve is equal to the breadth of our mandate.”10 Likewise, Assistant Attorney General for the Civil Division, Tony West indicated that “Attorney General Eric Holder, has made fighting fraud – particularly healthcare fraud – a top priority.”11
It is clear from the remarks at this celebration that the recent increase in civil and criminal FCA actions will continue for the foreseeable future.12 It also remains evident that the healthcare sector continues to be a focus of the DOJ’s enforcement efforts, although it also continues to pursue other industries. The increase of whistleblower FCA cases during this past year also evidences the increased awareness of the FCA by employees of companies that deal with government funding in some way. Corporations and individuals should continue to have extensive compliance programs in place to ensure that the DOJ does not target them as part of the DOJ’s “aggressive pursu[it]” of government fraud related actions using the DOJ’s broad mandate.
1 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/opa/pr/2012/January/12-ag-142.html.
3 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-120131.html.
5 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 .
6 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/ag/speeches/2012/ag-speech-120131.html.
7 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986.
8 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.
11 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.
12 For a detailed accounting of DOJ Fraud Statistics, see Department of Justice, Fraud Statistics Overview (Dec. 7, 2011, 2:47 PM), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.