In an interesting opinion interpreting the FCA’s alternate remedy provision, the D.C. Circuit recently held that a relator who filed a False Claims Act (FCA) case that was ultimately settled was not entitled to a share of the monetary relief that the government obtained through the settlement of a separate Food, Drug, and Cosmetic Act (FDCA) enforcement action against the defendant pharmaceutical manufacturer despite the fact that the enforcement action was based on similar underlying facts. The court explained that whether a separate government action is an “alternative remedy” in which a relator may share turns not on the commonality of facts between the government’s action and the FCA action, but on the type of claim brought and whether that claim could have been brought by the relator under the FCA.
On July 6, 2021, the D.C. Circuit Court of Appeals affirmed in part and reversed in part a district court’s dismissal of the qui tam suit against IBM in United States ex rel. Cimino v. Int’l Bus. Machines Corp., No. 19-7139. The relator alleged that IBM and the Internal Revenue Service (“IRS”) had entered into a software license agreement, but that upon learning that the IRS was uninterested in renewing the agreement, IBM fraudulently induced the IRS to extend the contract. In particular, IBM allegedly collaborated with the auditor of the agreement, resulting in an audit finding that the IRS owed IBM $292 million for noncompliance with the contract’s terms. IBM then offered allegedly to waive that fee in exchange for the IRS renewing the agreement. The relator further alleged that once the new agreement was in place, IBM nonetheless collected $87 million of the noncompliance penalty by disguising that amount as fees for products and services that were never provided. According to the relator, this scheme yielded FCA liability in two ways: first, IBM fraudulently induced the IRS to renew the agreement; second, IBM submitted false claims by billing $87 million for unprovided products and services.
On July 5, 2019, the D.C. Circuit affirmed the dismissal of a qui tam lawsuit against several chemical manufacturers alleging that they violated the False Claims Act by failing to pay civil penalties owed under the Toxic Substances Control Act, 15 U.S.C. §§ 2601 (1976) (“TSCA”) for the manufacturers’ repeated failures to report “information regarding the dangers of isocyanate chemicals” to the EPA. The law firm Kasowitz Benson Torres LLP, which is the relator in the case, urged the D.C. Circuit “to become the first court to recognize FCA liability based on the defendants’ failure to meet a TSCA reporting requirement and on their failure to pay an unassessed TSCA penalty.” The D.C. Circuit declined that invitation.
With Judge Brett Kavanaugh seemingly headed toward confirmation to replace Justice Anthony Kennedy on the Supreme Court, readers of this blog may be interested in his prior cases addressing the False Claims Act. A judge on the United States Court of Appeals for the D.C. Circuit for over a decade, Judge Kavanaugh has been described as a conservative textualist and a “stalwart originalist,” more in line with the late Justice Antonin Scalia than swing vote Justice Kennedy, for whom Kavanaugh clerked alongside recently appointed Justice Neil Gorsuch in 1993-1994, and whom he would replace if confirmed. (more…)
In United States ex rel. McBride et al. v. Halliburton Co. et al., No. 15-7144, 2017 WL 655439 (D.C. Cir. Feb. 17, 2017), the D.C. Circuit affirmed a district court’s summary judgment in favor of several FCA defendants because the Relator failed to show their alleged misrepresentation was “material to the Government’s decision to pay,” as required by the Supreme Court’s decision in Escobar.
In a recent opinion by Judge Wilkins, the D.C. Circuit affirmed the dismissal of a qui tam action against Phillip Morris, United States ex rel Oliver v. Phillip Morris USA, Inc., No. 15-7049 (D.C. Cir. June 21, 2016), with two key holdings that will help FCA defendants in future cases. Specifically, the Court adopted an expansive reading of the FCA’s public disclosure bar and a stringent “original source” requirement.
The D.C. Circuit recently issued another opinion in a case that we have followed closely, In re Kellogg Brown & Root, Inc., No. 14-5319 (D.C. Cir. Aug. 11, 2015). For the second time, the D.C. Circuit granted a writ of mandamus to address the district court’s ruling that the defendant had waived privilege—and for the second time, the D.C. Circuit has vacated the district court’s orders to produce documents in connection with the results of an internal investigation into potential FCA claims because the orders “would erode the confidentiality of an internal investigation in a manner squarely contrary to the Supreme Court’s guidance in Upjohn and [the Court’s] prior decision in this case.” Slip Op. at 23.
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 Nicole Ryan and Sarah Hemmendinger
In a December 2, 2014 opinion in United States ex rel. Doe v. Staples, Inc., No. 13-7071 (D.C. Cir. Dec. 2, 2014), the D.C. Circuit affirmed the dismissal of a relator’s FCA action under the public disclosure bar because the facts underlying the claim were already in the public domain through an online database and administrative reports.
This qui tam action arose out of the alleged importation of Chinese-made pencils to the United States. An anonymous relator, “a self-styled pencil-industry insider,” alleged that Staples, OfficeMax, Target, and Industries for the Blind made false statements to U.S. Customs in order to avoid paying antidumping duties imposed on Chinese-made pencils. The relator claimed that the defendants knowingly purchased Chinese-made pencils yet falsely declared to Customs that the pencils originated in countries other than China.
The government declined to intervene, and the defendants moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim. The district court concluded that the relator’s FCA claim was based on publicly disclosed information and that he failed to show that he qualified as an original source of the information. Thus, it dismissed the case for lack of subject matter jurisdiction. The D.C. Circuit affirmed.
The court began by reviewing the principles it outlined in United States ex rel. Springfield Terminal Railway v. Quinn, 14 F.3d 645 (D.C. Cir. 1994). The court reiterated that where both elements of a fraudulent transaction – “the misrepresentation and the truth of the matter” – are already in the public domain, the public disclosure bar applies. This is the case even if a relator sets forth “additional evidence incriminating the defendant.” Here, both parties agreed that the Customs declarations were the alleged misrepresentations and that these statements were publicly disclosed in an online database. The appeal therefore turned on whether “the truth of the matter” – the question of whether the pencils “actually were made in China” – was also in the public domain. The D.C. Circuit agreed with the defendants on this point, finding that public reports by the International Trade Commission (“ITC”), which constituted administrative reports under the FCA, had already described many of the distinguishing physical characteristics of Chinese pencils (such as off-center leads and inferior finishing), which “form[ed] the basis of Relator’s charge that the pencils were made in China.”
The court rejected the relator’s argument that the public disclosure bar did not apply because his complaint identified distinctive features of Chinese-made pencils in addition to those listed by the ITC. The court explained that the information on the characteristics of Chinese-made pencils already in the public sphere was sufficient to “set government investigators on the trail of fraud.” Likewise, the court rejected the relator’s argument that his allegations concerning the pencils’ telltale characteristics were intended to show only the element of knowledge on the part of the defendants, not that the pencils were in fact made in China. The court held that if these publicly-known features of Chinese pencils were sufficient to put the defendants on notice of the pencils’ origins, they were also “sufficient to enable the government adequately to investigate the case and to make a decision whether to prosecute.” The court also emphasized that the ITC reports stated that U.S. pencil makers had identified three of the four defendants – Staples, Target, and OfficeMax – as “possible” importers of Chinese pencils, concluding that this information, combined with the defendants’ declarations that their pencils were made only in countries other than China, likewise could “have alerted law-enforcement authorities to the likelihood of wrongdoing.”
Therefore, the court held, the relator’s suit was “based upon” publicly disclosed “allegations or transactions” within the meaning of the FCA’s public disclosure bar. The court concluded that it did not matter whether the ITC had conducted a physical inspection of the defendants’ pencils: the relator’s allegations stemmed from a conclusion about the pencils’ origins “based on their physical characteristics,” which were already publicly described through the ITC reports.
Finally, the court held that the relator had waived the argument that he qualified as an original source of the information because he did not raise the argument below.
A copy of the court’s decision can be found here.
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.