In a March 8, 2017 ruling, the Ninth Circuit deepened a circuit split, holding that Dodd-Frank’s whistleblower protections extend to employees who raise concerns internally, and not merely to those who raise concerns to the U.S. Securities and Exchange Commission.
In U.S. ex rel. Kelly v. Serco, Inc., No. 14-56769, 2017 WL 117154 (9th Cir. Jan. 12, 2017), the Ninth Circuit affirmed a district court’s summary judgment in favor of a FCA defendant because the Relator’s implied false certification claim failed to meet the two-prong standard established by Universal Health Services, Inc. v. United States ex rel. Escobar et al., 136 S. Ct. 1989 (2016).
On December 6, 2016 the Supreme Court ruled that violation of the FCA’s seal provisions does not mandate dismissal of a relators’ complaint. Rather, while Section 3730(b)(2) requires relators to file under seal, the text of the statute is silent as to the remedy for violating this requirement. The Court left to the District Court’s discretion to determine the appropriate remedy for violations of the seal provision. Slip Op. at 10.
In Escobar, the Supreme Court held that implied certification liability under the FCA may exist where the following two conditions are met: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading. This has come to be referred to in post-Escobar briefing as the “two-part test.” However, DOJ has been engaged in an aggressive campaign of filing statements of interest in courts throughout the country arguing that the two-part test is not the exclusive means of establishing implied certification liability post-Escobar, seeking to maintain an expansive scope for the implied certification theory. The hook for DOJ’s argument is the statement elsewhere in Escobar that “We need not resolve whether all claims for payment implicitly represent that the billing party is legally entitled to payment.” District courts have split on whether Escobar’s two part test is the exclusive means of establishing implied certification liability.
In a ruling earlier this week, the Ninth Circuit emphasized the demanding standard Federal Rule of Civil Procedure 9(b)’s particularity requirement imposes on qui tam relators alleging fraud, particularly when seeking to pursue an expansive scope of claims based on limited information. In United States ex rel. Driscoll v. Todd Spencer M.D. Medical Group, Inc., No. 13-17624 (9th Cir. Aug. 9, 2016), a former radiologist employed by the defendant medical group, alleged that the group and its principal violated the FCA by submitting claims to Medicare for “unnecessary CT scans” and, separately, by “unbundling” single procedures into multiple claims to “increase billings artificially.” Id. (slip op. at 3). The relator alleged that this conduct persisted for at period of several years, from at least 2007 to 2010, and perhaps longer. United States ex rel. Driscoll v. Todd Spencer M.D. Med. Grp., Inc., No. 1:11-cv-1776, 2013 WL 6243858, *5 (E.D. Cal. Dec. 3, 2013). After allowing the relator one opportunity to amend his complaint, the district court dismissed the first amended complaint with prejudice, concluding that these allegations were insufficiently specific to withstand Rule 9(b)’s particularity requirement. Id.
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.
On July 16, 2015, the Ninth Circuit held that a relator convicted criminally for his role in a fraud against the government must be dismissed from a qui tam action related to the fraud, even if he played only a minor role in the underlying misconduct.
In U.S. ex rel. Schroeder v. CH2M Hill, relator Carl Schroeder, who worked for a U.S. Department of Energy (“DOE”) contractor, submitted false time cards to his employer and was paid over $50,000 in unearned overtime. Many of Schroeder’s colleagues had engaged in similar conduct. DOE’s Office of Inspector General (“OIG”) launched an investigation in 2008. In an OIG interview conducted in December 2008, Schroeder admitted to over-billing for his time.
Posted by Scott Stein and Paul Belonick
On July 7, 2015, the Ninth Circuit Court of Appeals announced its decision in two consolidated False Claims Act cases, U.S. ex rel. Hartpence v. Kinetic Concepts, Inc. (12-55396) and U.S. ex rel. Godecke v. Kinetic Concepts, Inc. (12-56117), and expressly abrogated the Ninth Circuit requirement that the relator have had a “hand in the [public] disclosure” to qualify as an original source, first announced by the Circuit in U.S. ex rel. Wang v. FMC Corp., 975 F. 2d 1412 (9th Cir. 1992).
Posted by Carol Lynn Thompson and Paul Belonick
On Tuesday, March 17, 2015, the Ninth Circuit Court of Appeals heard two consolidated False Claims Act cases en banc, US ex rel. Hartpence v. Kinetic Concepts, Inc. (12-55396) and US ex rel. Godecke v. Kinetic Concepts, Inc. (12-56117). As discussed here, the challenged district court ruling dismissed the Relators’ cases under the public disclosure bar. In Tuesday’s argument, the Relators urged the court to overturn its holding in U.S. ex rel. Wang v. FMC Corp., 975 F. 2d 1412 (9th Cir. 1992), upon which the district court relied in ruling that an original source must have “played a part in publicly disclosing the allegations and information on which their suits were based” to escape the FCA’s public disclosure bar. The Relators argued that the Supreme Court’s decision in Rockwell Int’l Corp., v. United States, 549 U.S. 457 (2007) abrogated Wang‘s “hand in the disclosure” requirement when it held that the “direct and independent knowledge” that a relator must have to qualify as an original source is the information upon which his or her complaint is based, not the information underlying the public disclosure. Defendant-Appellee countered that Rockwell did not disturb Wang‘s test, and asked the court not to upset its long-standing precedent.
The eleven-member court struggled at argument to align the procedural history of the suit, the Wang test, the text of the FCA, and Congress’ recent amendments and policy concerns. Almost immediately after Relators’ counsel began his argument, J. Kozinski pressed him on why precisely Wang and Rockwell were inconsistent. J. Kozinski seemed incredulous at Relators’ assertion that Rockwell defined an “original source” solely based on knowledge of the allegations in the complaint, and J. Berzon pointed out that under Relators’ proposed definition, any relator with direct knowledge could always bring a qui tam suit even if a public disclosure had already occurred. When Relators’ counsel suggested that Congress intended that result to prevent companies from inoculating themselves against FCA claims by strategically releasing information to the public, J. Kozinski seemed mystified, and asked whether voluntary disclosure of bad acts was a “bad thing” that Congress would seek to prevent. Chief Judge Thomas also pressed Relators’ counsel on whether any empirical evidence backed his claim that companies were engaging in such strategic releases. Relators’ counsel admitted not. J. Berzon, however, noted that Relators’ problem was perhaps not only with the Wang test, but also with the Ninth Circuit’s broad interpretations of “public disclosure.”
Defendant-Appellee’s counsel also faced tough questioning. The court quickly gained an admission from Appellee that Wang‘s “hand in the disclosure” prong did not appear in the FCA’s text. When J. Wardlaw asked Appellee’s counsel why the Wang test should survive, he replied that Wang‘s test created a policy “golden mean” between protecting whistleblowers and requiring their speedy action. But J. Berzon noted that under Appellee’s interpretation a whistleblower could give a great deal of accurate and timely inside information to the government, but could never become a relator if he or she did not directly aid in a later public disclosure. When Appellee’s counsel responded that the Wang test furthered Congress’ intent to prevent “parasite” cases, J. Smith and J. Berzon again observed that the Wang test’s “hand in the disclosure” policy solution to such a “parasite” problem appeared neither in the FCA’s text nor in its statutory history. J. Ikuta noted that Congress amended the FCA as of 2010 expressly to balance the policy considerations at play, and asked how many pre-2010 cases now were left to be decided. Appellee’s counsel could not answer; most such cases remain under seal. J. Callahan then asked Appellee’s counsel what would become of United States ex rel. Meyer v. Horizon Health Group, 565 F.3d 1195 (9th Cir. 2009), which relied on Wang to lay out other important requirements to define an original source, if the court overturned Wang. Appellee’s counsel replied that at least some of Meyer could survive, and J. Smith particularly seemed amenable to a ruling that could “surgically” separate Wang from Meyer.
Finally, J. Bea brought the argument back to procedural matters: had the Relator Godecke been correctly dismissed as second to file? Appellee argued that both Relators had related claims and both should be dismissed, but certainly Godecke remained always in second place. But J. Bea and J. Smith appeared unconvinced, and queried whether Godecke might have claims sufficiently separate and independent from Hartpence’s to move forward on remand.
In the end, although it was difficult to predict what form or reasoning the final decision might take, the court in general appeared open to the suggestion that, especially in light of Congress’ recent amendment to the FCA, the Wang test is due for an upgrade.
On December 3, the Ninth Circuit ordered rehearing en banc in two consolidated False Claims Act cases addressing the FCA’s “original source” exception to the public disclosure bar. The district court dismissed the relators’ complaints on the ground (in part) that their claims were based on publicly disclosed information, and that the relators were not original sources. The district court, relying on the Ninth Circuit’s opinion in U.S. ex rel. Wang v. FMC Corp., 975 F. 2d 1412 (9th Cir. 1992), held that to qualify as an original source, the relator must have “played a part in publicly disclosing the allegations and information on which their suits were based.” The relators argue that this “hand in the disclosure” requirement was abrogated by the Supreme Court’s decision in Rockwell Int’l Corp., v. United States, 549 U.S. 457 (2007), in which the Court stated that the information about which the relator must have “direct and independent knowledge” to qualify as an original source is the information on which his or her claims are based. Relators contend that Rockwell abrogates Wang’s requirement that original source status be linked to the public disclosures at issue, i.e., that so long as a relator has direct and independent knowledge of the information on which his or her claims are based, it is irrelevant that the relator played no role in the public disclosure of those allegations. It is this issue which the Ninth Circuit is posed to consider en banc. If the Court concludes that Wang is no longer good law, it will be easier for relators to establish original source status in the Ninth Circuit.
The cases are US ex rel. Hartpence v. Kinetic Concepts, Inc. (12-55396) and US ex rel. Godecke v. Kinetic Concepts, Inc. (12-56117). The matter is scheduled to be reargued during the week of March 16, 2015.