Two years ago, the Seventh Circuit reversed itself by abandoning its “but-for” causation test in FCA cases in favor of a “proximate cause” rule that had been adopted by all other circuits that had addressed the issue. See United States v. Luce, 873 F.3d 999 (7th. Cir. 2017) (overruling United States v. First National Bank of Cicero, 957 F.2d 1362 (7th Cir. 1992)). The Seventh Circuit remanded the case to the district court with instructions to determine whether the government could establish that the defendant’s conduct proximately caused harm to the government. In an opinion issued last week, the district court strictly applied the new standard and concluded the government could not show proximate cause. United States v. Luce, 2019 U.S. Dist. LEXIS 114718 (N.D. Ill. July 10, 2019).
On August 8, 2017, the Seventh Circuit affirmed the dismissal of an FCA suit alleging that a psychiatric hospital (“Hartgrove”) submitted claims to Medicaid despite maintaining a higher patient census than Hartgrove was licensed to maintain, providing some important clarification on the scope of the public disclosure bar. (more…)
In United States ex rel. Uhlig v. Fluor Corp., et al., No. 14-2815 (7th Cir. Oct. 11, 2016), the Seventh Circuit affirmed the grant of summary judgment in favor of Fluor Corporation (“Fluor”) in an FCA action premised on alleged contract violations and whistleblower retaliation. The decision sets a relatively high bar for proving the existence of “protected” whistleblower activity and is particularly helpful for defendants seeking to defeat retaliation claims under the FCA.
In another recent False Claims Act (“FCA”) case decided on Rule 9(b) grounds, the Seventh Circuit rejected the contention that allegations regarding specific claims submitted are necessary to survive a motion to dismiss, but set a very high bar for pleading FCA claims premised on a lack of medical necessity.
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.
In its first post-Escobar FCA opinion, the Seventh Circuit affirmed summary judgment in favor of defendants in United States ex rel. Sheet Metal Workers Int’l Assoc. v. Horning Investments, LLC, No. 15-1004 (7th Cir. July 7, 2016), and in doing so suggested that there is a high bar for establishing that defendants acted with the requisite knowledge when the claim is that they falsely certified compliance with an ambiguous underlying law.
On February 26, 2016, the Seventh Circuit refused to revive a public interest group’s False Claims Act suit alleging that the Chicago Transit Authority (CTA) misreported transit data to gain additional federal grant allocations. The three-judge panel upheld the district court’s dismissal of the suit, which accused the CTA of over-reporting bus mileage to secure up to $55 million in inflated grant allocations. The district court found that the group’s accusations had already been publicized in a state performance audit report and federal agency letter, and the Seventh Circuit agreed that the relator, public interest group Cause of Action, failed to establish subject-matter jurisdiction under the FCA’s public-disclosure bar, which limits jurisdiction over qui tam actions based on allegations that already have been disclosed publicly through certain sources unless the relator is an “original source” of the information. See Cause of Action v. Chicago Transit Authority, No. 15-1143 (7th Cir. Feb. 29, 2016).
Late last month, in Patrick v. Commissioner, No. 14-2190, _ F. 3d __ (7th Cir. Aug. 26, 2015), the Court of Appeals for the Seventh Circuit unanimously affirmed a United States Tax Court opinion as to the characterization of a qui tam award received by a relator. The Seventh Circuit held, as had the Tax Court, that the award constituted ordinary income rather than capital gain and thus was subject to tax at the highest individual rate rather than the preferential (lower) capital gain rate. Previously, this characterization issue had only been addressed by one other federal circuit, the Ninth, in Alderson v. United States, 686 F.3d 791 (9th Cir. 2012).
Last month, the Seventh Circuit bucked the trend of several other circuits in expressly rejecting the theory of implied false certification under the FCA. See United States v. Sanford-Brown, Limited, No. 14-2506 (7th Cir. June 8, 2015) (opinion here). The Fifth Circuit recently had an opportunity to decide whether to follow the Seventh Circuit’s lead. But acknowledging that, “[f]or over a decade, this court has avoided deciding whether to recognize the implied certification theory,” the Fifth Circuit declined – again – to decide the issue. After concluding that the relator’s allegations would fail to satisfy Rule 9(b) even if the theory was valid, the court once again declined to decide whether the theory should be recognized. Thus, the opinion provides helpful guidance on the pleading standards applicable to implied certification claims in the Fifth Circuit – assuming the theory is viable in the first instance.
Posted by Scott Stein and Catherine Kim
Several circuit courts have recognized the “worthless services” theory of FCA liability, which allows qui tam relators to assert FCA claims premised on the notion that the defendant received reimbursement for goods or services that were worthless. In a recent case, U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit held that assuming the theory is viable in the Seventh Circuit (an issue it declined to decide), it does not apply to situations in which deficient performance of a contract is alleged to have resulted in services “worth less” than what was contracted for. As the court succinctly put it, “[s]ervices that are ‘worth less’ are not ‘worthless.'”
The case was originally filed by two nurses who formerly worked at Momence, alleging that the nursing home knowingly submitted false claims to Medicare and Medicaid by seeking reimbursement for treatment that allegedly failed to comply with standards of care. Although the United States and Illinois declined to intervene, the relators proceeded to trial. The jury reached verdicts against Momence and awarded over $3 million in compensatory damages, which was trebled under the FCA.
On appeal, Momence argued that the district court lacked jurisdiction under the public disclosure bar because the FCA action was based on allegations of non-compliant care that were the subject of previous government reports. The Seventh Circuit, however, continuing its streak of recent opinions narrowing the scope of the public disclosure bar, held that the bar was not implicated because the reports did not disclose “that Momence had the scienter required by the FCA.”
The court then proceeded to assess whether the relators’ claims failed as a matter of law. Although the Seventh Circuit declined to address the viability of a worthless services theory of FCA liability – “a question best saved for another day” – it nevertheless concluded that even if that theory was valid, “[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for.” Because the court concluded that the relators failed to offer evidence establishing that Momence’s services were “truly or effectively ‘worthless[,]'” it held that the worthless services theory could not support the jury’s verdict.
Similarly, the court found that the relators’ evidence in support of the express certification theory was also insufficient because the relators not only failed to put forth evidence of “precisely how many . . . forms contained false certifications[,]” but they also failed to identify “even a roughly approximate number of forms contain[ing] false certifications.” While the court acknowledged the difficulty in producing evidence that supports “even an approximate finding[,] . . . under the FCA, the plaintiff must ‘prove all essential elements of the cause of action . . . by a preponderance of the evidence.'”
Lastly, with respect to the implied certification theory, the court acknowledged that it had not expressly determined whether such theory is recognized in the Seventh Circuit. However, it declined to answer the question here since the realtors did not argue to the jury that the purported implied certifications were conditions of payment, thereby waiving the theory on appeal.
The Seventh Circuit vacated the judgment and remanded the case for judgment to be entered for the defendants. Although the court did not definitively preclude the possibility of a plaintiff prevailing on a worthless services theory in the Seventh Circuit, the reasoning contained in its ruling strongly suggests that such theory, if recognized, would likely be reserved for the most extreme cases.
A copy of the court’s decision can be found here.