Court Allows Defendant to Pursue Counterclaim Against Relator for Violation of Confidentiality Agreement

Posted by Robert J. Conlan and Matt M. Fogelberg

On June 16, a federal district court in Pennsylvania denied a qui tam relator’s motion to dismiss a counterclaim asserted by the defendants that was based on the relator’s alleged breach of a written confidentiality agreement he had executed with defendants as part of his employment. U.S. ex rel. Walsh v. Amerisource Bergen Corp., Case No. 11-7584 (E.D. Pa. June 16, 2014). A copy of the decision can be found here. The court’s decision reinforces a line of federal decisions from other courts that public policy considerations do not require dismissal of a qui tam defendant’s counterclaim so long as the counterclaim’s success is not dependent upon the fact of the defendant’s FCA liability.

Relator Patrick Walsh, an internal auditor employed at Amerisource, alleged that Amerisource and two of its subsidiaries violated the federal FCA and various state FCAs. After the United States declined to intervene and Walsh served an amended complaint on the defendants, the defendants filed a counterclaim against Walsh, alleging that he had violated a confidentiality agreement by taking confidential, proprietary and privileged information from Amerisource and providing the information to his personal attorney. The defendants further alleged that some of the information Walsh took from defendants became public when the court unsealed his FCA complaint. Walsh moved to dismiss the defendants’ counterclaim on several grounds, including “the strong public policy against counterclaims in qui tam actions,” which Walsh argued was “the most compelling reason for dismissal.”

The court rejected Walsh’s motion in its entirety. It specifically held that Walsh’s public policy argument failed because the defendants’ counterclaim alleged damages that are independent of any potential FCA liability – i.e., “not based upon any potential revenues, earnings, profits, compensation, or benefits awarded to Relator as a result of this qui tam action.” In so ruling, the court distinguished cases dismissing counterclaims in FCA cases where the counterclaims, in effect, sought contribution or indemnity because the relator had participated in the alleged fraud or the defendants had been damaged by the relator disclosing the alleged fraud. Instead, the Walsh court found that the defendants’ counterclaim did not depend on – or require a finding of – FCA liability. The counterclaim did not allege that Walsh participated in the purported fraud, nor did it suggest that the damages the defendants sustained resulted from the relator’s disclosure of the alleged fraud. The court therefore held that the defendants’ counterclaim was not effectively a claim for indemnification, and it refused to bar the counterclaim on public policy grounds.

The court’s decision also highlighted a crucial consideration for FCA defendants when deciding whether to file a counterclaim against a relator. The court recognized that a qui tam defendant’s counterclaim will often be compulsory under Federal Rule of Civil Procedure 13, and a defendant that fails to raise a counterclaim might be permanently precluded from asserting that claim. Reiterating the Ninth Circuit’s reasoning in U.S. ex rel. Madden v. Gen. Dynamics Corp., 4 F.3d 827, 831 (9th Cir. 1993), the Walsh court stated that refusing to permit a qui tam defendant from raising a counterclaim independent of its FCA liability “would be a violation of the defendant’s procedural due process rights.” Given the growing body of case law recognizing the validity of an FCA defendant’s counterclaim under circumstances such as those present in Walsh, and the possibility of losing a claim against a relator if not asserted in response to a qui tam action, any defendant facing a qui tam action should consider carefully whether the facts of its case warrant filing a counterclaim against the relator.

Discovery Violations Spoil Plaintiff’s Day: FCA Case Dismissed for Spoliation

Posted by Ellyce Cooper and Brent Nichols

It is not uncommon for courts to impose a variety of sanctions on parties who fail to comply with their discovery obligations. A court in the Eastern District of Virginia, however, took the rare step of ordering dismissal of all claims with prejudice as a sanction for a False Claims Act plaintiff’s repeated spoliation of evidence.

In Hosch v. BAE Systs. Info. Solutions, Inc., No. 1:13-cv-00825, 2014 WL 1681694 (E.D.Va. April 23, 2014), Plaintiff brought suit under the anti-retaliation provisions of the False Claims Act, alleging that his employer had punished him for making disclosures regarding its allegedly fraudulent billing practices.

Defendant served discovery requests seeking the inspection and copying of Plaintiff’s cell phones, computers, and mobile device. Plaintiff initially refused to provide them and Defendant successfully moved to compel, obtaining a court order requiring Plaintiff to turn over his devices for a forensic inspection. The forensic inspection revealed that Plaintiff had systematically wiped the data from his devices, and Defendant moved for sanctions. In recommending dismissal as a sanction, the magistrate reasoned that, “Plaintiff’s severely egregious conduct in this matter, including document theft, spoliation, possible perjury, and obstruction of discovery, mandates a proportionately severe response by this Court.”

The district court then affirmed the magistrate’s recommendations, finding that “the only remedy that can adequately address that prejudice [suffered by defendant] is dismissal with prejudice.” The Court also ordered Plaintiff to pay the attorneys’ fees that Defendant incurred in filing its motions to compel and motion for sanctions.

This decision is a noteworthy development in False Claims Act jurisprudence. The potential sanction of dismissal with prejudice should make relators more cautious when it comes to their preservation and discovery obligations.

Losing Defendant in FCA Suit Accuses Relator’s Counsel and Relator of Conspiracy to Misappropriate Trade Secrets in Furtherance of Qui Tam Lawsuit

Posted by Jaime Jones and Catherine Starks

On February 10, 2014, following a recent jury finding that pipemaker J-M Manufacturing (“J-M”) was liable for damages in a False Claims Act suit initiated by former employee John Hendrix, J-M filed a complaint in the Superior Court of New Jersey, Middlesex County, alleging that the whistleblower and his counsel, Phillips & Cohen LLP (“P&C”), conspired to misappropriate confidential, proprietary, and trade secret information in furtherance of the qui tam lawsuit. The complaint specifically alleges that P&C repeatedly directed Hendrix to use his employee status to obtain information to support his FCA claims, in violation of his confidentiality agreement with J-M. According to the complaint, J-M did not discover the theft of the information until after the qui tam complaint was unsealed and the discovery process unfolded in 2013, more than five years after the qui tam complaint was filed. J-M alleges that P&C used the misappropriated information to develop Hendrix’s own lawsuit and to recruit additional whistleblowers. In doing so, J-M asserts that P&C exceeded its role as counsel “by actively directing and engaging in Hendrix’s illegal scheme to steal J-M’s confidential and proprietary information.” J-M alleges that this represents a “pattern of misconduct” by P&C, citing the 2012 decision in which P&C was disqualified and ordered to pay sanctions related to its acquisition of documents from IASIS Healthcare Corp., a defendant in another qui tam suit.

The issue of whistleblowers taking confidential business information and trade secrets in support of potential qui tam actions, and, increasingly, whistleblower counsel’s solicitation of such information, is one confronted by many FCA defendants. In recent years a number, like J-M, have sought damages and protections from such misappropriation. Several courts have been receptive to such claims, rejecting arguments from whistleblowers that the public policy served by the FCA justifies confidentiality and other breaches in gathering evidence of fraud. We will monitor the outcome of the J-M case, and provide an update as it is available.

DOJ Announces Increase In Qui Tam Suits Filed In 2013; $3.8 Billion In Fraud Recoveries

Posted by Ellyce Cooper and Brent Nichols

In December, the Department of Justice announced that the number of False Claims Act qui tam suits filed in 2013 grew significantly. 752 were filed in 2013 — over 100 more than the prior record established last year. These numbers indicate that both DOJ and private whistleblowers, whom the statute allows to file suit on behalf of the government, are bringing FCA cases with increasing frequency.

In 2013, the Department of Justice again recovered significant settlements and judgments from civil cases involving alleged fraud against the government. In its December announcement, DOJ stated that it recovered $3.8 billion in such cases in fiscal year 2013. This figure represents the second highest annual total ever, but is lower than the nearly $5 billion recovered in 2012.

Health care fraud accounted for the most significant proportion of recoveries, representing $2.6 billion of the total $3.8 billion. Of that $2.6 billion, about $1.6 billion resulted from alleged false claims submitted by drug and device companies to federal health insurance programs.

Procurement fraud (consisting predominantly of cases brought against defense contractors) represented the second largest area of recovery, accounting for $890 million, the highest ever annual recovery in that area.

DOJ’s announcement suggests that it is continuing to aggressively pursue False Claims Act and fraud cases.

Second Circuit Affirms Dismissal of False Claims Act Suit Brought by Clinical Laboratory Defendant’s Former General Counsel

Posted by Scott Stein and Allison Reimann

On October 25, 2013, the Second Circuit affirmed the dismissal of United States ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Incorporated (No. 11-1565-cv), in a case that confronts head-on the tension between whistleblower incentives and the professional obligations of lawyers—and concludes that an attorney’s ethical obligations trump. Peter Keisler, Richard Raskin, Scott Stein, and Allison Reimann of Sidley Austin represented the defendants in this victory.

Relator Fair Laboratory Practices Associates (“FLPA”) filed the suit in 2005 in the Southern District of New York against the clinical laboratory company Quest Diagnostics Incorporated and its subsidiary Unilab Corporation. FLPA’s claim related to the defendants’ contracting practices. FLPA is a general partnership formed by three former Unilab executives, including Mark Bibi, who was Unilab’s general counsel from 1993-2000. As general counsel, Bibi advised the company on a variety of matters, including its contracts, and handled all of the company’s litigation.

After the defendants learned that one of FLPA’s members was Unilab’s former general counsel, the district court permitted limited discovery to determine whether Bibi and FLPA had improperly used or disclosed Unilab’s confidences in bringing the lawsuit. Following discovery, the defendants moved to dismiss on grounds that Bibi had breached his ethical obligations to his former client by using and disclosing Unilab’s client confidences for his own financial benefit, thereby tainting the entire proceeding. The district court agreed and dismissed FLPA’s action. A few months later, the United States gave notice that it was declining to intervene.

In the Second Circuit, FLPA contended that the district court erred in dismissing the case, arguing that deference to state ethical rules would undermine federal policy that uses whistleblower rewards as a vehicle for rooting out fraud. FLPA also disputed that Bibi violated New York’s ethical rules, maintaining that Bibi was permitted to disclose Unilab’s confidences because he reasonably believed that the defendants were committing a crime.

A unanimous three-judge panel affirmed the district court’s decision. Writing for the court, Judge Cabranes explained that, first, the FCA does not preempt state ethical rules. He wrote that “[n]othing in the False Claims Act evinces a clear legislative intent to preempt state statutes and rules that regulate an attorney’s disclosure of client confidences.” Slip Op. at 15. Furthermore, although the FCA permits relators to bring qui tam suits, “it does not authorize that person to violate state laws in the process.” Id. (quoting United States ex rel. Doe v. X. Corp., 862 F. Supp. 1502, 1507 (E.D. Va. 1994)).

The court also agreed that Bibi violated New York’s ethical rules by disclosing confidential information beyond what was “necessary,” as required by those rules. While FLPA claimed that the disclosures were necessary because the FCA requires relators to provide a “written disclosure of substantially all material evidence and information the person possesses to the government,” 31 U.S.C. § 3730(b)(2), the court agreed that Bibi had means of exposing the alleged fraud other than using client confidences in an FCA suit against his former client.

The Second Circuit’s decision has significant implications, particularly in the health care industry where companies rely heavily on their counsel—both in-house and external—to navigate increasingly complicated fraud and abuse laws. Had FLPA’s view of the law prevailed, such candor with counsel would come at considerable risk, because counsel would be free to parlay those confidences into a FCA suit against that client, all the while standing to collect up to 30 percent of the proceeds of a successful action. See 31 U.S.C. § 3730(d). In other words, counsel’s duty to maintain client confidences would always be in potential conflict with that lawyer’s personal financial interest. A contrary ruling also would have threatened another means of reducing government losses: encouraging clients to seek legal advice on fraud and abuse requirements and then obey that advice.

The ruling, however, shows that the federal interest in identifying fraud is not limitless, but rather gives way to ethical obligations that otherwise would prevent an attorney’s participation as an FCA relator. The decision also has implications beyond the FCA context, including the Dodd-Frank Act, which provides its own whistleblower incentives for reporting corporate wrongdoing.

District Court Clarifies Protections Available to Employers Whose Employees Misappropriate Confidential Information for Use in FCA Suits

Posted by Jonathan F. Cohn and Brian P. Morrissey

Last week, in United States ex rel. Wildhirt v. AARS Forever, Inc., No. 09-C-1215, 2013 WL 5304092 (N.D. Ill. Sept. 19, 2013), a federal district court in Illinois issued an important decision that helps to clarify the rights of employers to bring counterclaims against employees who misappropriate confidential company information and later use that information as the basis of an FCA suit.

The Defendants, two business affiliates, were parties to contracts with the Veterans Administration (“VA”) to provide home healthcare services and equipment to patients with respiratory illnesses. Two former employees filed a qui tam action against Defendants, alleging, inter alia, that Defendants breached performance requirements under their VA contracts and, thereby, submitted false claims to the VA’s Medicare and Medicaid programs. Litigation on those FCA claims remains pending.

In the meantime, Defendants asserted counterclaims against the Relators. As Defendants’ employees, Relators signed a confidentiality agreement, in which they agreed not to disclose confidential company information to third parties and to indemnify Defendants for any losses arising from their unauthorized disclosures. Id. at *1-*2. Separately, Relators periodically signed internal-reporting agreements, in which they declared that they were responsible to report any “suspect business practices” to Defendants and were “unaware” of any such practices. Id. *3.

In their counterclaims, Defendants alleged that Relators breached the confidentiality agreement by disclosing confidential company information to the VA and the public, and breached the internal-reporting agreements by failing to report the alleged “suspect business practices” that formed the basis of their FCA complaint. Id. at *3-*4. Defendants sought indemnification for damages suffered as a result of Relators’ disclosures, including legal expenses. Id. at *4.

Relators moved to dismiss the counterclaims, arguing that the confidentiality agreement was contrary to public policy, and therefore unenforceable, because it sought to “thwart” important policy interests in the “detection and exposure of potential fraud against the United States.” Id. at *5. The court (Judge Feinerman) refused to dismiss the counterclaims outright on that basis. Joining the conclusion of another district court, the court held that “‘an FCA defendant found liable of FCA violations may not pursue a counterclaim” that has “the equivalent effect of contribution or indemnification.'” Id. at *5 (quoting United States ex rel. Miller v. Bill Harbert Int’l Constr., Inc., 505 F. Supp. 2d 20, 26 (D.D.C. 2007)). But an FCA defendant may pursue counterclaims against the qui tam relator that are “not dependent on a finding that the [FCA] defendant is liable.'” Id.

Applying this rule, the court dismissed Defendants’ counterclaims to the extent they sought indemnification for damages or penalties that may be imposed on them in the FCA suit. Id. But the court held that the counterclaims were otherwise “independent of the FCA claim.” Id. at *6. The court noted the “extremely broad scope of the documents that Relators are alleged to have retained and disclosed,” and ruled that Defendants could pursue counterclaims against Relators for violating the confidentiality agreement to the extent Relators’ “retentions and disclosures went beyond the scope of those necessary to pursue their qui tam suit.” Id. In addition, the court held that Defendants could recover legal expenses from Relators if Defendants prevail on the merits of the FCA suit and persuade the court that Relators’ FCA claims were “frivolously pursued given [Relators’] alleged lack of relevant knowledge of the VA contracts and Defendants’ performance thereunder.” Id. Finally, the court held that Defendants could pursue counterclaims for breach of the internal-reporting agreements if Defendants prevail in the FCA suit and demonstrate a “causal relationship between Relators’ failure to report and their filing of the qui tam action.” Id. at *7.

As this decision demonstrates, employers in highly-regulated industries, in which FCA exposure is an ever-present risk, can obtain at least some protection by requiring employees to sign confidentiality and internal-reporting agreements. At a minimum, these agreements serve as valuable elements of any effective FCA compliance program by emphasizing to employees the importance of properly handling confidential information and promptly reporting potentially unlawful conduct to superiors. In addition, such agreements can serve as a valuable tool in qui tam litigation initiated by former employees and, specifically, may provide a basis for a counterclaim against the relator. Although such agreements cannot insulate employers from liability for actual FCA violations, they can protect against frivolous qui tam suits and unauthorized disclosures of confidential information that are not reasonably necessary to inform the government of potential fraud.

Seventh Circuit Slams Relator’s Unsavory Tactics; Declines to Mandate Use of Expert Testimony on Claims and Causation Issues

Posted by Gordon Todd and Jeff Beelaert

In Watson v. King-Vassel, No. 12-3671 (7th Cir. Aug. 28, 2013), the Seventh Circuit had stern words for a relator’s unsavory litigation tactics, but also declined to endorse a rule mandating expert testimony on certain issues in every case.

The Relator, Dr. Watson, alleged that defendant Dr. King-Vassel’s off-label prescription of psychotropic drugs to a minor caused the submission of false claims to the Medicaid program. The defendant sought summary judgment because, inter alia, Relator had failed to adduce any expert testimony, including to explain how Medicaid claims are submitted, to prove that by prescribing off-label the defendant knowingly caused the submission. The district court granted summary judgment, holding that expert testimony would be required to explain whether defendant actually caused the claims to be filed, and also holding that expert testimony would be required to explain pharmaceutical data including information in medical compendia, i.e., whether a submitted claim was false.

The Seventh Circuit reversed. As to the first issue, the Court held that expert testimony was not required to prove either how the Medicaid system works, or the defendant doctor’s knowledge regarding the submissions. Instead, a relator need only show that the defendant “had reason to know of facts that would lead a reasonable person to realize that she was causing the submission of a false claim,” or that she “failed to make a reasonable and prudent inquiry into that possibility.” The minor’s mother had testified that she had provided defendant with the minor’s Medicaid billing information and had never paid for the services out-of-pocket. This, the Circuit held, was sufficient for a reasonable juror to extrapolate the defendant’s state of mind. The Circuit rejected the district court’s characterization of Medicaid as a “grand mystery” and “black box,” instead analogizing it to a car: even though “most people could not explain every step turn-key and ignition, the cause-effect relationship is commonly appreciated.” In light of this analogy, a reasonable juror could find, without the aid of expert testimony, that the doctor’s prescription caused a Medicaid claim to be filed.

The Court also rejected as “premature and overbroad” the District Court’s blanket statement that “medical documents typically are not readily understandable by the general public,” thereby requiring expert testimony to explain medical compendia in every case. Instead, the Circuit held that whether such testimony is required turns on a more case-specific analysis as to whether a particular off-label use is supported by one or more compendia. On remand, the Court noted, a more specific analysis may show that the lack of expert testimony is indeed fatal.

While reversing summary judgment, the Court disapproved sternly of the Relator’s “unsavory” litigation generation tactics. The Relator had never treated or even met the patient, but had instead advertised for minor Medicaid patients to “participate in a possible Medicaid fraud suit.” Relator then secured the minor’s medical records by soliciting the minor’s mother to lie to the defendant doctor about their intended use. The Court approved of the District Court’s use of its inherent powers to impose monetary sanctions on Relator and his counsel for their conduct, which the Circuit hoped would dissuade the future use of such tactics.

District Court Allows Retained Overpayment False Claims Act Case To Go Forward

On March 28, 2013, in a reverse False Claims Act case, the United States District Court for the Eastern District of Wisconsin denied Lakeshore Medical Clinic’s motion to dismiss and allowed the relator’s claim to go forward. U.S. ex rel. Keltner v. Lakeshore Med. Clinic, Ltd., No. 11-CV-00892 (E.D. Wis. Mar. 28, 2013). This case shows the increased risk the Fraud Enforcement Recovery Act of 2009 (“FERA”) presents for government contractors, particularly Medicare and Medicaid providers.

Among other changes to the FCA, FERA broadened the scope of the FCA’s reverse false claims provision to encompass retained overpayments. The FCA, as amended by FERA, prohibits “knowingly and improperly avoid[ing] . . . an obligation to pay” the government even without a false statement to conceal the obligation, 31 U.S.C. §372(a)(1)(G), and expansively defines “obligation” to include a duty to pay the government arising “from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). Knowledge under the FCA is defined broadly as “actual knowledge . . . deliberate ignorance of the truth [or] reckless disregard of the truth.” 31 U.S.C. 3729(b). Thus, government contractors face FCA liability for knowingly or recklessly failing to return a government overpayment of funds.

In Keltner, the relator, a former billing department employee, brought a qui tam suit alleging that the defendant medical group violated the FCA by knowingly submitting false claims to the government and failing to repay government overpayments. The relator claimed that Lakeshore in its annual audits found that two doctors had an upcoding error rate greater than 10%. She further alleged that even though Lakeshore repaid the specific overpayments identified in the sample audits, it did not go back and review other claims by those doctors to repay additional upcoded claims, and Lakeshore later ceased auditing the doctors.

Lakeshore moved to dismiss the complaint arguing that the realtor failed to plead fraud with the particularity required by Rule 9(b). The district court denied this motion and held that the relator “plausibly suggest[ed] that [Lakeshore] acted with reckless disregard for the truth and submitted some false claims.” As to the retained overpayment theory, the court held that the relator sufficiently pled this claim because Lakeshore failed to review additional claims after the audit and by discontinuing the audits going forward. Thus, the court found that Lakeshore “intentionally refused to investigate the possibility that it was overpaid,” and “may have unlawfully avoided an obligation to pay money to the government.”

This case potentially represents an expanded area of liability for healthcare providers and other government contractors under FERA and the FCA. Because knowledge is defined broadly to include reckless disregard, contractors must act quickly if they discover any evidence of government overpayment. Government contractors must be aware of their affirmative burden, follow up on any evidence of overpayment, and repay to the government any overpayments.

Fourth Circuit Clarifies “Protected Activities” Under the First Prong of a FCA Retaliation Claim

Posted by Ellyce Cooper and Maureen Soles

A recent Fourth Circuit decision clarifies what constitutes “protected activity” under the anti-retaliation provision of the FCA (31 U.S.C. § 3730(h)(1)). In Glynn v. Edo Corp., 710 F.3d 209 (4th Cir. 2013), the Fourth Circuit affirmed the District Court’s grant of summary judgment dismissing an employee’s retaliation claim. The court held that because plaintiff’s evidence failed to “raise a distinct possibility of a viable FCA action” or prove that any false certification was material, he failed to establish he engaged in “protected activity,” the first of three elements in a FCA retaliation claim.

Dennis Glynn worked as an engineer for Impact Science & Technology (“IST”). IST designs and manufacturers Mobile Multi-Band Jammer systems (“MMBJs”), which jam the frequencies used to detonate IEDs, for the government. Glynn alleged IST terminated him for reporting to the government alleged fraudulent conduct, specifically that IST was “shipping systems that … were putting our troops in jeopardy” and IST had failed to implement a quality assurance plan (“QAP”) as contractually required.

The first element of a retaliation claim under the FCA requires a plaintiff to prove that he “engaged in ‘protected activity’ by acting in furtherance of a qui tam suit.” Glynn, 710 F.3d at 214 (citing Zahodnick v. Int’l Bus. Mach. Corp., 135 F.3d 911, 914 (4th Cir. 1997)). Glynn attempted to satisfy this prong with three theories; the court rejected each theory.

Glynn first argued he engaged in “protected activity” by investigating IST’s alleged fraudulent activity of supplying a substandard product to the government. Although an employee does not need to file an actual qui tam case, the plaintiff must be investigating matters that reasonably could lead to a viable FCA case. Here, the court found that the issue identified by Glynn “was not severe enough in degree to trigger any contractual obligation on IST’s behalf.” The court held that plaintiff failed to offer sufficient evidence that his investigation raised a “distinct possibility of a viable FCA action,” because the product still “met the Government Customer’s standards.” Therefore, Glynn did not engage in protected activity.

Plaintiff next claimed he engaged in “protected activity” when he reported IST’s false certification of compliance with government contracts based on IST’s failure to implement a QAP or to report defects. With regard to the defects, the court applied the same reasoning as to the first theory and found that product improvements did not trigger any reporting requirement. As to the QAP, the court disagreed with the district court’s holding that the “false certification theory was essentially dead on arrival because he never actually received the contracts.” Instead, the court clarified that plaintiff is not required to have “firsthand knowledge of a contract” (i.e. the plaintiff does not have to see the contract itself); circumstantial evidence of a false certification can be sufficient if it raises a distinct possibility of a viable FCA action. But, any false certification must be material. In this case, the failure to implement a QAP was not material because the contractual language relating to the QAP required IST to perform inspections and testing, which the record established IST engaged in at both the modular and systems level. Therefore, any failure to implement a QAP was likely an administrative failure, and not a material false certification.

Finally, the court rejected Glynn’s third theory – that he engaged in “protected activity” by initiating the government investigation – because his complaint failed to “raise a distinct possibility of a viable FCA claim.” Merely “perk[ing] the government’s ears” is not enough to satisfy the “protected activity” prong of the anti-retaliation provision of the FCA.

Federal District Court Bars Repeat Relator’s “Opportunistic” Action

Posted by Gordon Todd and Jeff Beelaert

The United States District Court for Middle District of Tennessee recently dismissed a qui tam action with prejudice after finding that the relator’s “opportunistic” claims were barred by the public disclosure provision of the FCA. In Osheroff v. HealthSpring, Inc., No. 3:10-1015 (M.D. Tenn. April 5, 2013), the Court granted the defendant’s motion to dismiss after finding that the allegations were “substantially the same as the allegations or transactions exposed by the Miami Herald and found on the [company’s] website.” Slip Op. at 14.

The relator was a self-described “entrepreneur” who has business experience in a variety of fields, ranging from motorcycles, to electronics, to commercial real estate and medical clinics for cosmetic surgery and MRIs. He is no stranger to qui tam actions; indeed, the Court cited two other qui tam actions that he filed in Florida federal court. Id. at 8. In this case, Osheroff alleged that HealthSpring—one of the largest managed-care companies in the United States—had devised a “scheme” to secure Medicare payments by doling out lavish inducements to patients.

Specifically, Osheroff alleged that HealthSpring’s medical clinics in South Florida provided “luxurious” Cuban-style healthcare, where “patients are chauffeured in free limousine-class vehicles to enjoy free meals, take-away food, personal pampering, bingo, dominoes, raffles, music and dance as part of an expense-free social or entertainment outing of great cost to the clinics and significant value to their patrons.” Id. at 4. Osheroff allegedly discovered these activities through his own “research” and “investigation.”

The Court disagreed and found that his claims were based on publicly disclosed knowledge. While public disclosure would not necessarily bar the suit if Osheroff had been the original source of the claims, there is nothing to suggest that he presented his information to the Government before the media reports appeared. Moreover, there is nothing to suggest that he added any independent or material information to what was already disclosed. Consequently, the Court dismissed the action with prejudice, noting that “the FCA abjures parasitic lawsuits, that is, suits in which ‘would-be relators merely feed off a previous disclosure of fraud.'” Id. at 12 (quoting Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005)).