A federal district court in Ohio recently grappled with an issue that arises frequently in healthcare qui tam cases: what happens when a relator steals confidential health information to file an FCA action? The relator in Cabotage v. Ohio Hospital for Psychiatry, No. 11-cv-50 (S.D. Ohio), a nurse, suspected that the hospital’s Medical Director was engaged in fraudulent activity. Cabotage gathered evidence, including the Medical Director’s patient notes and other patient-identifying information, and provided it to an agent for HHS. After HHS declined to pursue a claim against the facility for misconduct, Cabotage filed a qui tam. When the defendant hospital learned that Cabotage had taken confidential patient information, it filed a motion to compel the return of the information pursuant to HIPAA.
The Court concluded that it lacked authority under HIPAA to order the return of the purloined information, and that only the Secretary of HHS could act to enforce that statute. However, exercising its “inherent authority,” the Court entered an order precluding the relator from utilizing in the lawsuit any of the documents she removed from the hospital in connection with her investigation. The Court did not preclude relator from seeking the documents through the discovery process in the qui tam.
A copy of the court’s opinion can be found here.
On June 18, the Supreme Court ruled for GlaxoSmithKline that the Fair Labor Standard Act’s outside sales exemption applies to pharmaceutical sales representatives, who are therefore not entitled to overtime wages. Christopher v. SmithKlineBeecham Corp., No. 11-204. In analyzing the issue, both the majority and the dissenting justices determined that the deference generally granted by courts to agency interpretations of ambiguous regulations was not warranted with respect to the Department of Labor’s position set forth in its Amicus Curiae brief. The Court held that the position adopted by the Department in its brief – that a “sale” for purposes of the “outside sales” exemption is only made if the salesman transfers title to the property at issue – was not clearly set forth in the statute or regulations, and had not been previously articulated by the Department. In this connection, the Court noted as conspicuous the absence of any enforcement activity premised on the Department’s reading of the outside sales exemption, and characterized the agency’s position as creating an “unfair surprise” for the industry. The Court recognized that extending deference to agency interpretations of ambiguous regulations “creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby ‘frustrating the notice and predictability purposes of rulemaking.'”
The Christopher decision thus suggests that courts should decline to extend deference to agency interpretations of vague regulations that may result in significant liability, such as under the FCA, absent evidence that the agency has provided clear guidance consistent with those interpretations in advance of the litigation. Courts frequently are confronted with this issue in FCA cases premised on alleged regulatory violations by defendants in highly regulated industries such as the healthcare industry, and we expect defendants in those cases to rely on the decision to push back on attempts by the government to advance for the first time in litigation interpretations of ambiguous regulations.
One of the most significant changes that the Affordable Care Act made to the FCA was elimination of the jurisdictional nature of the public disclosure bar and vesting in the United States the right to seek to veto any motion to dismiss based on violation of the public disclosure bar. The new post-ACA public disclosure bar provides that the court “shall dismiss” an FCA claim that violates the public disclosure bar “unless opposed by the Government.” 31 U.S.C. sec. 3730(e)(4)(A).
On June 4, a federal district court in Florida denied a defendant’s motion to dismiss on public disclosure grounds, finding that the alleged disclosures were insufficient to trigger the bar. See U.S. ex rel. Sanchez v. Abuabara, No. 10-61673 (S.D. Fla.), slip op. attached. While the decision itself is unremarkable – the court concluded that the alleged disclosures failed to disclose the key elements of relator’s claim that the Defendants induced federal agencies to award the defendants a contract based on false representations regarding their financial solvency and ability to perform the work – it is nevertheless notable because it appears to be the first decision reporting on the government’s exercise of its new veto authority. In the opinion, the Court notes that “[a]t the oral argument held before this Court on June 1, 2012, . . . a representative of the United States Attorney’s Office, confirmed that the government would not oppose a subject matter jurisdiction dismissal if the Public Disclosure Bar was otherwise satisfied.”
Neither the opinion nor other information on the public docket provides further information about how the Government made its decision, or who was involved in making that decision. Indeed, DOJ has not provided any guidance as to the criteria that will guide its decision as to whether to exercise its new authority or how far “up the chain” those decisions will be made. Thus, a defendant considering moving to dismiss on public disclosure grounds under the new FCA must contend not only with the ordinary risk that the motion will be rejected by the Court on the merits, but also the risk that DOJ, through some as-yet-unspecified process based on as-yet-unspecified criteria may unilaterally seek to deprive the Court of the opportunity to decide the motion at all, either before or perhaps even after a ruling by the Court.
One related side note: It appears from the opinion that the parties agreed that the amended (post-ACA) version of the public disclosure bar applied to the relator’s claims because the case was filed after the ACA was enacted. However, it is not clear that the date that the ACA was enacted rather than, for example, the date that the alleged false claims were submitted, is the date that should determine which version of the ACA should apply. We expect the issue of “which version of the FCA” applies to be increasingly litigated as cases are unsealed that involved claims and complaints that straddle the pre- and post-ACA versions of the FCA.
Posted by Brent Wilner and Ellyce Cooper
On May 15, 2012, the United States Court of Appeals for the District of Columbia Circuit issued an opinion, which dramatically altered the Court’s precedent regarding the original source rule. United States ex rel. Davis v. District of Columbia, No. 11-7039, Slip Op., (D.C. Cir. May 15, 2012), available at http://www.cadc.uscourts.gov/internet/opinions.nsf/C7A5B64099D02F98852579FF004E73DC/$file/11-7039-1373743.pdf (“Davis”).
In Davis, the whistleblower raised allegations that the District of Columbia Public Schools (“DCPS”) improperly obtained Medicaid reimbursement for special education services through claim submissions lacking adequate documentation. At issue before the D.C. Circuit was when the whistleblower made the allegations to the government.
Until 1998, the whistleblower provided accounting services to DCPS including submitting DCPS’s claims for special education services. Davis Slip Op. at 3. While preparing the 1998 claim, DCPS replaced the whistleblower’s firm with another accounting firm. Id. DCPS proceeded to file a claim prepared by the new firm, even though the new firm never obtained proper documentation for the claim. Id.
In 2002, the District of Columbia Auditor released a report to the public finding that “for fiscal years 1996-1998, ‘$15 million of costs incurred for services referred to special education students [by DCPS] were disallowed for Medicaid reimbursement due to the absence or unavailability of supporting documentation.'” Davis Slip Op. at 4. Two years later, the whistleblower informed the Inspector General of the U.S. Department of Health and Human Services that DCPS “d[id] not have in their possession documentation to support a drawdown of federal [M]edicaid funds for [1996-1998].'” Id. at 8. Thereafter, in 2006, the whistleblower filed his qui tam action alleging, inter alia, that the District of Columbia violated the FCA by submitting the 1998 claim in the absence of documentation. Id. at 4.
The District Court granted the District of Columbia’s motion to dismiss the qui tam action for lack of subject matter jurisdiction. Id. at 6. Relying on an earlier D.C. Circuit opinion, United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997), the district court reasoned that the whistleblower could not have been the “original source” of the information “[b]ecause there was no evidence that Davis notified the federal government before the 2002 Auditor’s report.” Id. That is, the whistleblower’s action was premised on information that had already been publicly disclosed.
The D.C. Circuit rejected the lower court’s interpretation of the public disclosure bar. Instead, the Davis court relied on the Supreme Court’s opinion in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). The D.C. Circuit found that Rockwell stands for the proposition that “[t]he relator can be an ‘original source’ to the government of his information even if the publicly disclosed information came from someone else.” Davis Slip Op. at 10.
Of particular import, Davis rejected the defendant’s (and Findley’s) concern that “‘once the information has been publicly disclosed . . . there is little need for the incentive provided by a qui tam action.'” Ibid. (citing Findley, 105 F.3d at 691). Rather, the court indicated that there is a policy interest to qui tam actions that survives the public disclosure: “[T]he relator’s information can be different and more valuable to the government than the information underlying the public disclosure, which might be nothing more than speculation or rumors.” Id. at 10-11 (citing Rockwell, 549 U.S. at 472). The Davis court stated examples of this would arise where the whistleblower has “an eyewitness account” or “important documents” that might not have been contained in the public disclosure. Id. at 11. Ultimately, the court concluded that “we will no longer require that a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator’s and will instead enforce only the text’s deadline of ‘before filing an action.'” Id.
It is worth noting that much of the impact of Davis has already been foretold by recent Congressional amendments to the FCA. Davis was decided applying the 1986 version of the FCA, which barred suits “based upon the public disclosure of allegations or transaction . . . unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (2006) (amended 2010). As amended in 2010, the FCA now defines an “original source” as:
[A]n individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
31 U.S.C. § 3730(e)(4)(B) (Supp. 2010). As the Davis court noted, Congress mitigated one concern the defense bar might have had after Rockwell, namely, Congress precluded a whistleblower from bringing a qui tam action if he or she added nothing to publicly disclosed information “by amending the statute to provide incentives to only those relators whose information adds value.” Davis Slip Op. at 11 n.4.
The Davis opinion nevertheless provides a reminder to entities operating in the federal reimbursement space that whistleblower suits may remain a viable threat even after alleged misconduct is revealed through public disclosures.
Posted by Scott Stein and Jennifer Cheung
The First Circuit recently vacated and remanded a lower court’s grant of summary judgment for the defendant in an FCA case based on allegations that defendant submitted a grant application to the National Institute on Aging for research that relied on falsified data. See United States ex rel. Jones v. Brigham and Women’s Hosp., et al., No. 10-2301, slip op. at 51 (1st Cir. May 7, 2012). The opinion is noteworthy for its detailed discussion of the role of expert testimony on summary judgment. Id. at 11-23.
According to the relator, the defendant allegedly altered study data (regarding certain measurements of the brain and conversion to Alzheimer’s disease) to make it statistically significant, and then knowingly included a discussion of this falsified data in a grant application to support a larger proposed study on Alzheimer’s disease. Id. at 2. Defendants allegedly received funds while knowingly in violation of regulations that required applicants to investigate and report allegations of scientific misconduct. Id. at 3.
One of relator’s three experts, Dr. Daniel Teitelbaum, stated that the falsified data was generated by the cherry-picking of study subjects in a non-random fashion that deviated from blinded and reliable research protocols. Id. at 15-16. In Dr. Teitelbaum’s view, had the original non-falsified data been used, the data would not be statistically significant and such results would not support the grant application. Id. Dr. Norbert Schuff took the position that defendant’s revisions of the data was extensive, inconsistent with initially adapted protocol, and made with knowledge of the study subjects’ diagnoses. Id. at 12-13. In his view, the objectivity of the measurements was material to the review of the grant application. Id. Similarly, Dr. Martha Isabel Davila-Garcia, a past application reviewer, took the position that the grant application contained a number of statements that were material to the funding decision. Id. at 13-15. In addition, in her view, the subsequent inquiry into the alleged misconduct by the defendant’s boss and mentor was insufficient. Id.
The lower court found that the relator had not generated genuine issues of material facts on any of the elements at issue – falsity, materiality, and knowledge – in its summary judgment ruling. Id. at 18. The relator challenged this conclusion, noting that the lower court did not mention Dr. Teitelbaum’s report, its admissibly, or the defendant’s motion in limine to preclude relator from offering certain expert testimony and evidence. Id. at 18-21.
While the First Circuit acknowledged that the lower court should be afforded great discretion in deciding whether to admit or exclude opinion evidence, it nevertheless held that the lower court committed an error of law and abused its discretion by failing to admit or exclude Dr. Teitelbaum’s report. Id. at 21-23. But rather than simply remand the case for further proceedings, the Court of Appeals examined the parties’ submissions to the trial court and concluded that the dispute over Dr. Teitelbaum’s qualifications was not sufficient to bar admissibility of his testimony. Id. at 23. According to the Court of Appeals, Dr. Teitelbaum’s testimony was connected to the heart of the relator’s claims. Id. at 22. Turning to the question of whether Dr. Teitelbaum’s testimony with other record evidence, including Dr. Schuff and Dr. Davila-Garcia’s testimonies, generated genuine issues of material fact, the Court of Appeals concluded that it did and therefore reversed and remanded the case to the lower court. Id. at 23-51.
In an unpublished opinion, a panel of the Tenth Circuit has affirmed the dismissal of a qui tam before it was served on the defendant, over the objection of the relators. United States ex rel. Wickliffe v. EMC Corp., Case No. 09-4082 and 10-4174 (Order and Judgment, April 4, 2012). Relators’ complaint alleged that EMC Corporation knowingly sold defective computers to government agencies and fraudulently concealed information regarding the defect. Before the case was unsealed, the government moved to dismiss the complaint on the basis of a prior settlement with EMC. The district court dismissed the complaint pursuant to 31 U.S.C. 3730(c)(2)(A), which permits the government to dismiss a relator’s suit “notwithstanding the objections” of the relator if the relator is given notice and opportunity for a hearing. Alternatively, the district court held that the complaint was barred by the first-to-file provision, 31 U.S.C. 3730(b)(5).
On appeal, relators challenged the first-to-file dismissal on the grounds that the previously-filed complaint did not satisfy Rule 9(b)’s particularity requirement, and therefore could not act to operate subsequent complaints. The Tenth Circuit, noting that there is a circuit split on the issue of whether “first-filed” complaints must satisfy Rule 9(b), declined to take a firm position on the issue because it concluded that the case could be resolved on other grounds. However, the Panel “admit[ted] to being uneasy” with the position that Rule 9(b) applies, as that “would create a strange judicial dynamic, potentially requiring one district court to determine the sufficiency of a complaint filed in another district court.”
With respect to the dismissal under 3730(c)(2)(A), the Tenth Circuit noted that there also is a circuit split on the level of scrutiny that should be applied when the government moves to dismiss a qui tam suit, with the DC Circuit providing the government a virtually unfettered right to dismiss the action, while the Ninth Circuit requires that the government offer reasons for the dismissal that are rationally related to a legitimate government interest. The Tenth Circuit has adopted the latter, more stringent standard in cases in which the defendant has been served, but the panel declined to decide which test should apply when the government seeks dismissal before the defendant has been served because it found dismissal appropriate under either test, given that the government had already settled with the defendant.
Posted by Amy Markopoulos and Kristin Graham Koehler
Companies that enter into FCA settlements may face follow on shareholder liability for breach of fiduciary duty in the settlement process itself.
On March 22, 2012, Shareholder Jordan Weinrib sued Oracle Corporation directors, including Chief Executive Officer Larry Ellison, in Delaware Chancery Court for failing to mitigate damages when the company agreed to a $200 million whistle-blower settlement with the U.S. government.
The Complaint alleges that current and previous directors violated their fiduciary duties by forcing the government into extensive litigation even though the directors knew the government’s allegations were “grounded in fact.” According to the Complaint, “[r]ather than attempt to settle all claims at that time by the institution of appropriate corporate therapeutics and the paying of what would have been a small fine, the board insisted on digging in and litigating the matter extensively.” By litigating the case, the Complaint contends, Oracle drove up the ultimate settlement price, harming taxpayers and shareholders alike.
The underlying settlement, announced in October, resolved a lawsuit brought by a former Oracle employee, claiming Oracle induced the General Services Administration to buy $1.08 billion in software from 1998 to 2006 by falsely promising the same discounts offered to favored commercial customers. The payout was the largest ever obtained by the GSA under the False Claims Act.
Weinrib said in his Complaint that he initially asked the company to investigate his claims in September 2010. However, board members “surreptitiously” abandoned an investigation and instead focused on negotiating a settlement with shareholders who had filed similar complaints in federal court in San Francisco. According to Weinrib, Oracle is attempting to “derail any inquiry into the wrongful acts.” Weinrib is seeking unspecified damages on behalf of the company.
Posted by Brian P. Morrissey and Kristin Koehler
A. Brian Albritton at the False Claims Act and Qui Tam Law blog discusses an interesting interview recently published in the Corporate Crime Reporter with Joseph E.B. “Jeb” White of the firm Nolan & Auerbach, P.A., which focuses its practice exclusively on representing qui tam relators in healthcare fraud suits. The interview discusses White’s view on the types of cases in which the Department of Justice is most likely to intervene. In a particularly notable passage, White briefly mentions DOJ’s practice of “deferring” its decision on whether to intervene in a qui tam suit when the deadline for that decision comes due. That topic warrants a bit of exploration here because, as readers may have observed in their own practice, DOJ appears to be relying on this practice with increasing frequency.
The FCA provides that, once a relator files a complaint, the complaint “shall remain under seal for at least 60 days,” affording DOJ a window within which to investigate the relator’s claims. 31 U.S.C. § 3730(b)(2). At the end of that period (which is routinely extended for months or even years), DOJ is required to either intervene and take over the action, or decline and allow the relator to conduct the litigation instead. Id. § 3730(b)(4). Even if DOJ declines, the FCA grants the Department the right to join the case at a later time, provided it can show “good cause.” Id. § 3730(c)(3).
It is increasingly common for DOJ prosecutors to file a statement with the court indicating that the DOJ has made “no decision” on intervention, but reserving its right to intervene at a later time. In light of the FCA provisions discussed above, these “no decision” statements have the very same effect as a statement declining intervention. After DOJ files its “no decision” statement, the relator proceeds with the litigation alone, and DOJ preserves the same statutory right to intervene later, just as it would if it had formally declined to intervene.
Yet DOJ may achieve some benefits in labeling its choice on intervention as a “no decision” rather than a declination. White suggests one. He observes that, in some cases, a “no decision” statement allows the DOJ to signal to relator’s counsel that DOJ is, in fact, interested in the case, but simply cannot intervene at the moment because of resource constraints or because the relator has not yet fully fleshed out his or her allegations. By making “no decision,” DOJ sends a message to the relator saying “please keep this case alive, we are going to come back later.” But a second consideration may motivate “no decision” statements in other cases. Sometimes, DOJ may conclude that a relator’s allegations are unlikely to establish a violation of the FCA, but may also be aware that DOJ’s failure to intervene in the relator’s case could prompt a negative reaction from certain politicians or members of the media. The scores of recent qui tam complaints filed against participants in the mortgage securitization industry provide an example of this phenomenon. Some such complaints have merit, some do not, but the default presumption among certain sectors of the general public is that the DOJ should be actively pursuing all forms of fraud in that industry. By styling its choice on intervention as a “no decision” rather than a “declination,” the Department provides itself with some public relations cover, emphasizing to the public that while it is not formally joining the relator’s suit, it is retaining its right to do so later, which the FCA would have provided to the Department anyway, even if it had formally declined to intervene.
Whatever the reasons for DOJ’s “no decision” statement in a particular case, it is clear that DOJ’s practice of using such statements is on the rise and likely to continue in the future.
Posted by Jaime L.M. Jones and Brad Robertson
Echoing a fact pattern often found in False Claims Act matters (see related post here), a recent motion filed in an unfair competition suit pending in the Southern District of Florida seeks sanctions for the inappropriate collection and use of confidential information from the opposing party’s former employees. In Millennium Laboratories, Inc. v. Aegis Sciences Corporation, consolidated cases No. 11-cv-20451 and 11-cv-22815, Millennium Laboratories claims that counsel for Aegis Sciences Corporation initiated numerous inappropriate ex parte communications with two of Millennium’s former employees and collected over 5,000 pages of Millennium’s documents—many of which were clearly marked as containing proprietary, confidential and/or attorney-client privileged information—and used the documents as the foundation of a counterclaim against Millennium. The motion further alleges that the former employees’ non-disclosure and confidentiality agreements with Millennium protected these materials and that documents in the production put counsel for Aegis on notice of the agreements. When faced with responding to discovery requests asking for the basis of its counterclaims, the motion asserts that counsel for Aegis allegedly attempted to cover up the circumstances of its receipt of these documents by returning them to the former employees and re-collecting them via a “friendly” third party subpoena before serving its responses.
Millennium seeks dismissal of the defendant’s counterclaims, monetary sanctions, and disqualification of counsel based on Federal Rule of Civil Procedure 37 and violation of the Florida Rules of Professional Conduct. While Aegis will almost certainly oppose the motion, it serves as another reminder that relators (and their counsel) may face significant legal risk when they rely on improperly obtained or retained internal company documents to bring an FCA claim.
Posted by Robert J. Conlan
In an opinion providing a view of the interactions between DOJ and a qui tam relator during the Government’s investigation of the relator’s claims, the U.S. District Court for the District of Columbia last week ordered the Government to pay the relator more than DOJ had argued the relator was entitled to receive as a share of the Government’s recovery pursuant to 31 U.S.C. 3730(d). The case, U.S. ex rel. Shea v. Verizon Communications, Inc., No. 07-111(GK) (D.D.C. Feb. 23, 2012) (reported at 2012 U.S. Dist. LEXIS 22776), is one of relatively few judicial decisions addressing relator’s-share issues in detail.
The relator in Shea filed his qui tam action in 2007, alleging that MCI/Verizon had submitted false claims for improper surcharges on invoices submitted under two telecommunications contracts with the United States. The case remained under seal for several years while the Government conducted its investigation. In February 2011, the Government intervened and settled the case. The Government and the relator were not able to agree on an appropriate relator’s share, so the parties litigated the issue.
Conducting its analysis under factors identified in the Senate Report accompanying the 1986 amendments to the FCA (S. Rep. No. 99-345, at 28 (1986)), as well as in accordance with a set of “Relator’s Share Guidelines” that DOJ issued in December 1996 (11 FCA and Qui Tam Quarterly Review, at 17-19 (Oct. 1997)), the Shea court ultimately concluded that the relator in the case before it was entitled to 20% of the settlement. The court focused much of its analysis on the extent to which the relator was involved in the Government’s investigation, and it thereby provided a fairly detailed account of the interactions between DOJ and the relator in this case. Among other things, the court noted the following:
- The relator “participated fully in all aspects of the Government’s investigation and settlement discussions with Verizon,” and estimated “he spent hundreds of hours each year on the case.”
- The relator hired a “leading” telecommunications attorney to assist in the effort.
- Early in the case, the Government requested that the relator provide a memorandum stating relator’s position on why each surcharge relator identified was prohibited under the Federal Acquisition Regulation and the contract in issue. The Government also asked the relator to rank the charges in priority for investigation. The relator and his counsel provided an “exhaustive” chart and a legal memorandum setting forth the factual and legal bases for the allegations about each surcharge. The court stated that the relator’s and his counsel’s work “sav[ed] the Government enormous resources” and “helped the Government’s auditors to identify relatively quickly the ad valorem charges in Verizon’s back-up billing data.”
- The relator, through counsel, worked with the Government to draft proposed categories for subpoenas to be issued.
- The relator, “[o]n numerous occasions, . . . discussed with the GSA auditors the methods they were using to identify illegal surcharges.”
- The relator signed a non-disclosure agreement so “he could have access to the findings of the GSA audit team and analyze their usefulness to the litigation.”
- The relator reviewed a PowerPoint presentation Verizon had used to present its defenses to the Government. The relator thereafter made a “multi-hour presentation” to DOJ addressing Verizon’s positions.
- The relator “was forced to ask [the] Court to enter an Order, which was granted, directing GSA and [DOJ] to share the Government’s underlying damages estimate with him so he could analyze the methodology used.”
While each FCA qui tam case is, of course, different, the recent opinion in <lt;EM>Shea demonstrates the significant involvement that relators can have, behind the scenes, in the Government’s investigation of qui tam allegations.