Last Thursday one of the subcommittees of the House Judiciary Committee held a hearing on Oversight of the False Claims Act. Four stakeholders represented the diverse viewpoints of the plaintiffs’ bar, a compliance program reform initiative, the defense bar, and in-house counsel (copies of their prepared written testimony can be found here, here, here, and here).
Buried in the budget legislation recently signed into law by President Obama is a provision that will increase FCA civil penalties significantly. The FCA’s civil penalties were last increased by 10%, to their current levels of $5,500-$11,000, in 1999. However, the budget law requires DOJ to issue new regulations by July 1, 2016 to increase those penalties. The law also requires that the penalties be automatically adjusted each year thereafter
Pressure continues to build for the Department of Justice to hold corporate executives criminally responsible for corporate misconduct. As previously discussed here and here, Deputy Attorney General Sally Yates recently announced new guidance that the DOJ will focus increasingly on prosecuting high level executives for corporate wrongdoing. Two United States Senators, Richard Blumenthal (D-Connecticut) and Robert Casey (D-Pennsylvania), have also taken up this cause, and have introduced the “Hide No Harm Act of 2015.” The Hide No Harm Act, if passed, would make it a crime for “any responsible corporate officer” with “actual knowledge of a serious danger associated with” any covered product, service, or business practice not to “verbally inform an appropriate Federal agency” within 24 hours and not to warn possibly affected individuals “as soon as practical.” The failure to do so would be punishable by up to five years in prison.
One of the key components of the proposed bill is an anti-retaliation provision that prohibits companies from taking adverse employment action against any employee that “informed a Federal agency, warned employees, or informed other individuals of a serious danger of a covered product.” This provision provides broad protection for whistleblowers in this context.
We will closely monitor the progress of this bill and provide updates as they become available.
On April 28, 2015, the Senate unanimously approved S. 304, the Motor Vehicle Safety Whistleblower Act. The bipartisan legislation was reported out of the Committee on Commerce, Science, and Transportation and placed on the Senate Legislative Calendar on April 13, 2015. The Committee modified the legislation, including additional provisions regarding the protection of whistleblower identities, extending the deadline for the Secretary to promulgate regulations consistent with the statute from 12 to 18 months, and providing that the Secretary may make an award to a whistleblower prior to the promulgation of the regulations. The legislation, as passed, can be found here, and the Committee Report can be found here. We first reported on the proposed legislation here.
The legislation now moves to the House of Representatives for consideration. We will continue to monitor the legislation.
On February 26, 2015, the Senate Committee on Commerce, Science, and Transportation approved the Motor Vehicle Safety Whistleblower Act. The full text of the Motor Vehicle Safety Whistleblower Act can be found here. Introduced by Senators John Thune (South Dakota) and Bill Nelson (Florida), the proposed legislation prescribes certain incentives to whistleblowers who voluntarily provide information relating to motor vehicle defects that are likely to cause unreasonable risk of death or serious physical injury. The proposed whistleblower provisions are very similar to those of the Dodd-Frank Act. Highlights of the proposed legislation include:
- Financial incentive to whistleblowers up to 30% of collected sanctions in excess of $1 million.
- Applies to original information relating to any motor vehicle defect, noncompliance, or any violation or alleged violation of any notification or reporting requirement likely to cause unreasonable risk of death or serious physical injury.
- Applies to violations that predate legislation.
- Whistleblowers must first report or attempt to report the information to the company, with limited exceptions, and those who are convicted of a crime in connection with the violation would not be eligible for an award.
- Protection of the whistleblowers’ identities.
The proposed legislation will now head to the Senate floor for a vote. We will continue to follow the legislation and provide updates.
Posted by Scott Stein and Brenna Jenny
In May, the Department of Health and Human Services’ Office of Inspector General (“OIG”) published two proposed rules, one expanding its exclusion authority (“Proposed Exclusion Rule”) and the other broadening and strengthening the availability of civil monetary penalties (“Proposed CMP Rule“). Some of these proposals merely codify provisions of the Affordable Care Act (“ACA”), whereas others are a product of the OIG’s own initiative, but interwoven within both are changes reflecting the influence of the False Claims Act on the enforcement landscape.
For example, in the Proposed Exclusion Rule, the OIG is proposing to add a provision expressly stating that there is no time limitation for the conduct that can form the basis for exclusion, regardless of whether the conduct is based on the violation of a statute with a statute of limitations. 79 Fed. Reg. 26810, 26815 (May 9, 2014). Much of the OIG’s rationale reflected its desire to be able to match the time lag often associated with FCA litigation. The OIG explained that with a time limitation, it might feel compelled to file a notice of proposed exclusion against a defendant in a pending FCA suit to avoid losing its window of opportunity, even where it might subsequently decide against exclusion with a fuller understanding of the allegations.
The OIG also proposes to borrow definitional terms from the FCA for its own enforcement purposes. As a consequence of being excluded, individuals and entities cannot receive payment “for any item or service furnished” to a federal healthcare program (“FHCP”). The OIG’s new definition would expand the meaning of “furnish” to encompass not only individuals and entities who “submit claims to” FHCPs, but also those who “request or receive payment from” FHCPs, such as organizations that receive block grants from FHCPs. While this definition generally makes explicit the government’s pre-existing enforcement approach, the OIG specifically notes that this “revised wording would be consistent with the False Claims Act’s broad definition of ‘claim'” and “would appropriately encompass all current and future payment methodologies.” Similarly, in the Proposed CMP Rule, the OIG plans to codify the ACA’s new source of CMP liability, based on “any false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a provider of services or a supplier under a Federal healthcare program.” The ACA did not define “material,” and the OIG proposes to define the word so as to “mirror the False Claims Act definition.”
Sidley’s client update providing more detail regarding the proposed rules is available here.
Posted by David Rody and Lauren Treadaway
New York lawmakers have sought to fill a perceived gap in the New York State False Claims Act by providing a bounty and legal protections to whistleblowers who provide information for successful claims involving financial wrongs prohibited by state law. NYS Bill No. 4362, which is modeled in part on the New York State False Claims Act, provides new incentives to employees of financial services providers who report employer violations of New York State’s banking, insurance, and financial services laws. Currently, the New York Financial Services Law does not address monetary rewards or legal protection from employer retaliation for whistleblowers who report employer misconduct. Sponsored by New York State Senators James Seward and Joseph Griffo, S4362 would strengthen the current Financial Services Law in two significant ways: (1) by providing financial rewards for employees who disclose employer violations of New York State’s banking, insurance, and financial services laws to the Department of Financial Services (“DFS”); and (2) by including a provision for legal protection against employer retaliation for employees who report such misconduct.
If enacted, S4362 would allow a whistleblower who reports original information to receive between 10 and 30 percent of the total monetary sanctions received by DFS in a successful action against defendant based on the whistleblower’s information. The bill also creates legal protections for whistleblower employees against employer retaliation that mirror the remedies provided by the New York False Claims Act. According to the bill, a whistleblower employee may seek an injunction, reinstatement, backpay, and/or special damages where an employer retaliates against the employer by demoting, suspending, terminating, or harassing the employee. The full text of S4362 can be found here.
Posted by Kristin Graham Koehler and Lauren Roth
In the continuing drama of the Allison Engine case, the Sixth Circuit, last week, revived relators’ “claims” by overturning the District Court decision and further deepening a circuit split on the issue of how to interpret the word “claims” in section 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (FERA). Roger Sanders v. Allison Engine Company, Inc. et al., Nos. 10-3818 (6th Cir. Nov. 2, 2012).
Readers will recall that this case began its journey in 1995 with relators’ filing a False Claims Act complaint against several Navy subcontractors. The case went to trial and, at the close of relators’ case, defendants filed a motion for judgment as a matter of law, arguing that relators had failed to produce evidence that any false claim was presented to the Navy. Without evidence of presentment, defendants argued, no reasonable jury could find a False Claims Act violation. The district court agreed. On appeal, however, the Sixth Circuit held that 31 U.S.C. section 3729(a)(2) did not require presentment of a claim to the government. In a unanimous decision, the Supreme Court disagreed, and it held that a person must have intended to get a false or fraudulent claim “paid or approved by the Government” in order to be liable. Dissatisfied with this outcome, Congress revised the statute itself, removing the language from section 3729(a)(2) on which the Court had based its decision and making its revision retroactive for “all claims under the False Claims Act . . . that [were] pending on or after” June 7, 2008 (i.e., two days before the Supreme Court’s Allison Engine decision).
After FERA’s passage, the Allison Engine defendants filed a motion to preclude retroactive application of the amended provisions of False Claims Act section 3729. The district court granted the motion, finding that the retroactivity language in FERA section 4(f)(1)—which arguably had been enacted to address this very case—did not apply. The court’s rationale was grounded in an inconsistent use of terms between FERA section 4(f)(1) and 4(f)(2)—the first provision relating to pending “claims” under the False Claims Act, the second relating to pending “cases.” Among other things, the court reasoned that the differences in terminology between the two sections suggested a Congressional intent to assign different meanings to them. Interpreting “claim” to mean “any request or demand . . . for money or property” (i.e., the definition for False Claims Act section 3729, to which FERA section 4(f)(1) applies), the district court found that although the Allison Engine “case” may have been pending in June 2008, no “claims” were pending. Further, the court reasoned, even if section 4(f)(1) could be read to apply to the pending case, such application would violate the Ex Post Facto clause of the Constitution.
Sixth Circuit Decision
Back to the Sixth Circuit on appeal, the case has taken yet another turn. In its decision last week, the court reversed the district court ruling, holding that “claim” in section 4(f)(1) does mean “case.” (It also held that such application does not violate the Constitution.) While crediting the presumption that Congress uses different words to convey different meanings, the court nevertheless determined that such an argument was undermined in this case. In particular, the court was persuaded by the facts of the FERA drafting process (namely, that the two section 4(f) provisions were drafted by different chambers of Congress at different times) and the fact that other places in the False Claims Act plainly use the term “claim” to mean “civil action or case.” Because the court’s decision put it squarely on one side of a circuit split with the Second and Seventh Circuits—while the Ninth and Eleventh circuits, as well as many district courts, take the opposite view—it remains to be seen whether Allison Engine will take another ride to the Supreme Court before its journey ends.
The decision itself is attached; a copy can also be found at the following link: http://www.ca6.uscourts.gov/opinions.pdf/12a1129n-06.pdf
The Federal False Claims Act (“FCA”) has undergone significant amendments in recent years, through the Fraud Enforcement and Recovery Act (“FERA”) in 2009 and the Patient Protection and Affordable Care Act (“PPACA”) in 2010. For states to remain eligible to receive a 10% bonus on Medicaid-related false claims recoveries, federal law requires in part that “the [state] law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims” as the FCA. 42 U.S.C. § 1396(h) (2012). On September 29, 2012, California Governor Jerry Brown signed into law Assembly Bill 2492, which aims to further align the California False Claims Act (“CFCA”) with the FCA and thus preserve bonuses for the state in connection with Medicaid-related false claims recoveries.
Among the new key provisions of the amended CFCA are the following:
1. Scope of Potential Whistleblowers: The previous version of the CFCA barred suits by a whistleblower based on publicly disclosed allegations, unless the whistleblower had “direct and independent” knowledge of the allegations and had provided the information that led to the public disclosure. The amended CFCA allows a whistleblower to proceed with a lawsuit based on allegations that had been publicly disclosed if the Attorney General opposes dismissal of the whistleblower’s claims, if the whistleblower had disclosed to the state or relevant political subdivision the information on which the lawsuit is based prior to the public disclosure, or if the whistleblower’s knowledge is independent of and “materially adds” to the public information and he or she voluntarily provided the information to the state or political subdivision before filing suit.
2. Involvement in Wrongful Conduct: The amended CFCA no longer bars recovery for whistleblowers who “actively participated in the fraudulent activity.” Instead, it now provides for a more lenient standard by granting a court discretion to determine whether to reduce recovery and then only for persons who “planned and initiated” the fraudulent conduct. Even a whistleblower who “planned and initiated” the scheme may receive up to 33% or 50% of the recovery, depending on whether the state intervenes in the action. The import of this change is best illustrated (albeit under a different statutory scheme) by Bradley Birkenfeld, a former UBS banker who provided information to the government that led to UBS entering into a deferred prosecution agreement for tax fraud charges and paying $780 million in penalties. As a result, Mr. Birkenfeld received a $104 million award under the IRS whistleblower program despite his participation in the underlying fraudulent conduct. Under the previous version of the CFCA, a whistleblower involved in the fraud would have been barred from any recovery and therefore without any monetary incentive to report fraudulent activity. Now, individuals who are actual participants in fraudulent activity have a considerable incentive to report false claims under the amended CFCA.
3. Enhanced Whistleblower Protections: The amended CFCA now provides for reinstatement of employment as an additional remedy for employees who suffered retaliation by their employers. Moreover, this protection now extends to employees who “engaged in efforts to stop one or more [false claims] violations” in addition to employees who acted “in furtherance” of a false claims action.
4. Increased Penalties: The amended CFCA increases the low and high end of the civil penalty range by $500, i.e. from $5000 – $10,500 to $5,500 – $11,000.
The Supreme Court this morning announced that the so-called “individual mandate,” the centerpiece of the Patient Protection and Affordable Care Act (PPACA), which requires most individuals to maintain a minimum level of health insurance, is a constitutional exercise of Congress’s power to tax. Separately, the Court held that a provision of PPACA that would penalize States that elected not to participate in the expansion of the Medicaid program by withdrawing their existing federal Medicaid funding is unconstitutional. However, the Court concluded that this violation can be cured by severing this provision from the rest of the law, leaving the remainder of PPACA standing.
Thus, those False Claims Act and Anti-Kickback Statute-related amendments enacted as part of PPACA, briefly listed here, remain standing: (1) the amendment to the AKS establishing that claims “resulting from” AKS violations that are submitted to the federal healthcare programs give rise to FCA liability (PPACA § 4204(f)(1)); (2) the further AKS amendment, clarifying that knowledge of and specific intent to violate the AKS are not necessary to establish a violation (PPACA § 6402(f)(2)); (3) amendments to the FCA’s “public disclosure bar” provision that convert it from a jurisdictional bar to an affirmative defense that can be raised by a defendant in a motion to dismiss but rejected by the government, precluding judicial resolution of the issue, and significantly limiting the types of disclosures that can give rise to the defense (PPACA § 10104(j)(2)); (4) requiring recipients of “overpayments” to report and return them, and making the failure to do so the basis of a “reverse false claim” cause of action under the FCA (PPACA § 6402(a)); and (5) creating additional civil monetary penalties that may be applied to conduct that violates the FCA (PPACA §§ 6402(d)(2), 6408(a)).
The opinion is available at http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf