16 April 2013

Federal District Court Denies Relator’s Bid for Expedited Discovery of Documents Produced to DOJ During Investigation

Posted by Gordon Todd and Matthew Krueger

A federal district court opinion issued last week could help defendants oppose attempts by relators in non-intervened qui tam cases to seek early discovery of documents produced to the Government during its investigations. In Laughlin v. Orthofix International, N.V., No. 05-10557-EFH (D. Mass. Apr. 10, 2013), the Court denied the relator’s motion for leave to issue a subpoena to the Government—before the parties had commenced discovery—to obtain documents that the defendant had produced to the Government during its investigation of similar allegations.

In 2005, the relator filed suit against several medical-device companies, alleging False Claims Act violations in their sale and distribution of bone growth stimulators. The Government conducted a lengthy investigation of the relator’s claims as well as other potential healthcare offenses. During its investigation, the Government obtained documents from the defendants concerning both the relator’s claims and also the other potential offenses. The Government ultimately decided not to intervene in the case.

Before the parties had held a Rule 26(f) discovery conference, the relator moved for leave to issue a Rule 45 subpoena to the Government, seeking documents the defendant had produced to the Government. The defendants opposed the motion, arguing that the relator had not shown good cause to avoid Rule 26(d)(1)’s prohibition on any discovery—including discovery of third parties—until after a Rule 26(f) discovery conference.

The district court denied relator’s motion. The court agreed with defendants that allowing the relator to obtain the documents from the Government would “effectively remove their ability to lodge objections to particular documents and would deny them the opportunity to designate documents confidential pursuant to a valid protective order.” Slip op. at 3. On the other hand, denying the discovery would only “subject the relator to the normal discovery process.” Id.

The decision highlights an aggressive move that relators in non-intervened cases may make, seeking early discovery of defendants’ documents directly from the Government, outside the normal course of discovery. The district court’s decision provides a terse, but helpful precedent that rejects this move and vindicates the protections built into Federal Rule 26.

07 March 2013

Eighth Circuit Allows Recovery By Two Whistleblowers On a Claim That Wasn’t Part of the Original Suit

Posted by Kristin Graham Koehler and Amy Markopoulos

Relators may be able to recover on claims additional to those they originally brought if the additional claims are closely related and would not otherwise have been discovered. The Eighth Circuit held on March 1, in Rille et al. v. Accenture, LLP et al., No. 11-2054 (8th Cir. 2013), that two whistleblowers were entitled to 15 percent of the federal government’s settlement with Hewlett-Packard Co. (“HP”) even though the claim was not part of the original suit they filed. The relators initially alleged that HP engaged in unlawful kickback and defective pricing schemes in its sale of computer equipment to the federal government. The United States intervened in the action and reached a $55 million settlement with HP, allocating $9 million of the settlement to the kickback scheme and $46 million to the defective pricing scheme. The district court awarded the relators a 21% share of the kickback settlement and a 15% share of the defective pricing settlement.

The government then sued to prevent the two whistleblowers from receiving part of its recovery from the qui tam action. The government claimed, inter alia, (1) that the relators’ defective pricing claim was a different defective pricing claim than the one settled, and (2) that the government learned about the conduct through HP’s voluntary disclosure and not from the relators’ qui tam. The trial court found that the government would have had no knowledge of the defective pricing scheme other than from the whistleblowers’ suit. The Eighth Circuit upheld the trial court’s decision, finding that the whistleblower’s defective pricing claim was sufficiently related to the original action to justify the relators’ share of the settlement. The dissent argued, however, that the False Claims Act allows the relator to “recover only from the proceeds of the settlement of the claim that he brought.”

Although, as here, very similar facts would be required for a whistleblower to recover on a claim different from the one actually brought, this case illustrates an expansion of the statute in favor of relators, which will likely only serve to embolden the whistleblowers’ bar.

20 February 2013

Federal Court in Kentucky Reaffirms Longstanding Principle that FCA Whistleblowers Cannot Proceed Pro Se

Posted by Michael D. Mann

Reaffirming the well established principle that relators may not bring a qui tam action under the False Claims Act pro se, on February 12, 2013, the United States District Court for the Western District of Kentucky (Heyburn, J.), barred and dismissed a plaintiff’s frivolous allegations of “an illegal scheme to defraud the government,” concluding that:

Because “a qui tam relator . . . sues on behalf of the government and not himself [, h]e therefore must comply with the general rule prohibiting nonlawyers from representing other litigants.” United States ex rel. Szymczak v. Covenant Healthcare Sys., Inc., 207 F. App’x 731, 732 (7th Cir. 2006) (citation omitted). “Although the FCA does not expressly address whether a private individual can bring a qui tam suit pro se, the courts that have considered the issue have uniformly held that pro se relators may not prosecute qui tam actions.” Brantley v. Title First Titling Agency, No. 1:12–cv–608, 2012 WL 6725592, at *3 (S.D. Ohio Sept. 27, 2012) (listing cases); see also Carter v. Washtenaw Cnty., No. 09–14994, 2010 WL 3222042, at * 1 (E.D. Mich. Aug. 13, 2010) (“A litigant cannot, however, bring a qui tam action under the False Claims Act pro se.”); Zernik v. U.S. Dep’t of Justice, 630 F.Supp.2d 24, 27 (D.D.C. 2009) (“[P]ro se plaintiffs are not qualified to represent the interests of the United States in such an action.”).

Hopson v. Weinburg Attorney’s at Law, 3:12-CV-802 (JGH) (W.D. Ky. Feb. 12, 2013).

22 January 2013

Case Involving Government Employees As Whistleblowers Heads Back to Court of Appeals

Posted by Douglas Axel and Wesley Montalvo

A long running case dealing with the ability of government employees to receive compensation for serving as whistleblowers appears to be heading back to the D.C. Circuit Court of Appeals.

In 1997, the Project on Government Oversight (“POGO”) brought a False Claims Act lawsuit against several oil companies, alleging that they had understated the value of oil extracted from Federal and Native American lands, and had thus underpaid the associated royalties. POGO had consulted with Richard A. Berman, a government economist, on issues related to the lawsuit, and asked him to join as a relator. Although Berman declined to join the lawsuit, POGO nevertheless gave him $383,600 of its $1.2 million share of the qui tam settlement as a “Public Service Award.”

The government filed a civil action against POGO and Berman in 2003, alleging that POGO’s payment to Berman was an illegal supplement to his government salary under 18 U.S.C. § 209, which forbids anyone other than the government from paying a government employee “as compensation for” the employee’s government work, and prohibits government employees from receiving such payments. The government prevailed in the district court twice, and twice the judgment was reversed in the Court of Appeals. In the first appeal, after summary judgment was granted for the government, the court held a genuine issue of fact existed as to whether POGO’s payment to Berman was made “as compensation for his services as an . . . employee of the executive branch.” United States v. Project on Gov’t Oversight, 454 F.3d 306, 313 (D.C. Cir. 2006). In the second appeal, after a jury verdict for the government, the court held that the jury instructions failed to require the government to show that the parties to the transaction intended that the payment be for official government work, which is also an element of a § 209 violation. United States v. Project on Gov’t Oversight, 616 F.3d 544, 557 (D.C. Cir. 2010).

On remand, Berman moved for summary judgment, arguing among other things that the POGO money was compensation for whistleblowing, which Berman argued cannot, as a matter of law, be part of an employee’s duties. The district court disagreed, holding that “‘whistleblowing’ in the broad sense that Berman uses it often is part of an employee’s job.” Because “Berman was assigned to analyze policy issues—potentially including fraudulent behavior by regulated entities—that were relevant to the mission of the Department of the Interior,” the court reasoned that his job duties “could have included whistleblowing, and a payment for whistleblowing could thus have been compensation for his government services.” United States v. Project on Gov’t Oversight, 839 F. Supp. 2d 330, 341 (D.D.C. 2012).

The government moved for summary judgment on a breach of fiduciary count, which the court granted, finding that Berman had accepted an interest in the qui tam litigation while performing government work that could have affected POGO lawsuits, without disclosing such interest to his government employer. Rejecting Berman’s defense that he could not have breached his duty to the United States because its interests were aligned with POGO, the court reaffirmed that the interests of qui tam relators are different from the government because they “are motivated primarily by the prospect of monetary rewards rather than the public good.” Id. at 353.

After the case proceeded to a mistrial last month, the government dropped its suit against POGO. Berman has indicated his intent to appeal the grant of summary judgment on the government’s breach of fiduciary duty claim, so it appears that the litigation is not quite finished.

Although not directly involving a government whistleblower seeking an award as qui tam relator, the POGO litigation provides an interesting parallel to those cases disqualifying as a relator, under the public disclosure bar, a government employee whose job responsibilities included the reporting of government fraud. E.g. United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d 740 (9th Cir. 1995).

26 November 2012

First-To-File Bar Applies to Later Suit Filed By The Same Relator

Posted by Scott Stein and Erik Ives

The FCA’s first-to-file bar clearly applies when a second relator files a qui tam that makes allegations similar to those previously made by a different relator. But what if the relator who files the second suit is the same person who filed the first suit? A federal district court in the District of Columbia has held that the FCA’s first-to-file rule bars a subsequent related action even when the relator who filed the second action is the same person who filed the “first filed” case.

Shea’s original suit, which we previously wrote about, alleged that Verizon/MCI submitted false claims for improper surcharges on invoices submitted under two telecommunications contracts with certain federal agencies. The United States intervened and settled that case in 2011. But while the first case was pending, Shea filed a second qui tam action, U.S. ex rel. Shea v. Verizon Business Network Services Inc., No. 09-1050(GK) (D.D.C.), alleging that Verizon/MCI had submitted false claims for improper surcharges on invoices submitted under a different set of contracts with different federal agencies. After the Government declined to intervene in the second lawsuit, the district court granted defendants’ motion to dismiss the second case under the FCA’s first-to-file bar.

The court first addressed the threshold issue of whether the first-to-file rule applies to the same relator who later files a second related action, and concluded that it does. The statutory language of the first-to-file rule states that once “a person brings an action under this subsection, no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5) (emphasis added). As the court explained, the plain language of this statute “states without ambiguity or qualification that ‘no person’ other than the Government may bring successive related actions. The statute does not say ‘no other person except the Government may bring an action, it simply says ‘no person’ which would apply equally to the original relator as any other person.” Slip Op. at 10 (emphasis in original) (internal quotations omitted).

The court then concluded that the remaining elements of the first-to-file bar were met. The court found that the second action was related to the first, rejecting Shea’s argument that the two actions were not related because they involved different contracts and different federal agencies. Shea’s original complaint “suffices to put the U.S. government on notice as to Verizon’s allegedly fraudulent billing practices with respect to surcharges on government contracts.” Slip Op. at 17 (internal quotations omitted). Accordingly, the court ruled that the second qui tam action “alleges the same material elements of the same fraud … based on the facts underlying his previously filed qui tam action” and is barred under the first-to-file rule. Id. (internal quotations omitted).

Finally, there was no dispute that the first-filed case was “pending” at the time that the relator brought the second lawsuit. The court rejected Shea’s argument that the first-filed bar shouldn’t apply because the original action had settled by the time the relator filed the operative second amended complaint, holding that an action is deemed to be “pending” once the plaintiff initiates the lawsuit. Slip Op. at 12-13.

A copy of the district court’s opinion in U.S. ex rel. Shea v. Verizon Business Network Services Inc., No. 09-1050(GK), Slip Op., Dkt. No. 58 (D.D.C. Nov. 15, 2012) can be accessed here. [hyperlink to attached] While this was an issue of first impression in the D.C. Circuit, the court’s ruling is consistent with similar decisions by district courts in the Second and Eleventh Circuits. See U.S. ex rel. Smith v. Yale-New Haven Hospital, Inc., 411 F. Supp. 2d 64, 74-75 (D. Conn. 2005); U.S. ex rel. Bane v. Lincare Holdings, Inc., No. 8:06-cv-467, Slip Op., Dkt. No. 71 at 7-8 (M.D. Fla. Mar. 14, 2008).

14 August 2012

Massachusetts District Court Re-Opens The Door To Relators’ Share Of A Settlement In A Separate Matter To Which Relators Were Not A Party

Posted by Gordon Todd and Joshua Fougere

Last week, the federal district judge presiding over the AWP litigation invited relators Linnette Sun and Greg Hamilton to move to reopen the judgment in another, related case that had been previously settled and closed. In re Pharm. Indus. Average Wholesale Price Litig., 2012 WL 3263922 (D. Mass. Aug. 7, 2012). The order requires some parsing of procedural history. A few months earlier, the court granted defendant Baxter Healthcare’s motion for partial summary judgment of Sun and Hamilton’s claims based upon a broadly worded settlement agreement in another matter brought by a different relator (Ven-A-Care of the Florida Keys). In re Pharm. Indus. Average Wholesale Price Litig., 2012 WL 366599 (D. Mass. Jan. 26, 2012). Although Ven-A-Care had sued ten years before Sun and Hamilton, the cases concerned similar allegations—that Baxter fraudulently inflated the prices of drugs and caused overpayments—and the court thus read the Ven-A-Care settlement’s release to cover, and bar, Sun and Hamilton’s cause of action. In response to concerns about construing releases too broadly, the court placed the onus on the government to police such risks through its statutory authority to withhold consent on expansive settlements. Id. at *3-4 (citing 31 U.S.C. § 3730(b)(1)).

Fast forward a couple of months and the picture muddies. Sun and Hamilton moved for reconsideration, arguing that they were entitled to a fairness hearing on the Ven-A-Care settlement that apparently covered their claims, and to a share of the proceeds. The government, for its part, maintained that it did not understand or intend the Ven-A-Care release to cover Sun and Hamilton’s suit, into which it had declined to intervene. Caught in this “procedural pretzel,” 2012 WL 3263922 at *5, the court maneuvered as follows. First, it held that, by consenting to the Ven-A-Care settlement, the government had “effectively settled” Sun and Hamilton’s claims against Baxter and thus pursued an “alternate remedy” for those claims despite declining to intervene. Id. at *1-4 (citing 31 U.S.C. § 3730(c)(5)). Relying primarily on authority from the Sixth and Ninth Circuits, the court reasoned that a broad reading of § 3730(c)(5) to include the settlement was consistent with FCA’s goal of encouraging relators and would avoid the potential for government abuse. Id. Next, the court found that, because Sun and Hamilton’s rights do not change when the government pursues an “alternate remedy,” the FCA requires that they receive a hearing to determine the fairness of the Ven-A-Care settlement that had extinguished their claims. Id.; 31 U.S.C. § 3730(c)(2)(B). But, because that settlement had been approved and judgment entered, the court was forced to suggest an atypical path—that relators move to reopen the Ven-A-Care judgment (to which they were not parties) pursuant to Fed. R. Civ. P. 60(b)(6). Id. at *5.

In the end, this decision may prove inconsequential—the first-to-file bar lurks and the court noted that it will ultimately “have to determine whether it has jurisdiction.” Id. at *5. But, especially for now, it signals a serious solicitousness for the relators and a willingness to pack much (perhaps too much) into § 3730(c)(5)’s “alternate remedy” language. That could carry significant implications for FCA defendants around the country, who are routinely subject to overlapping FCA claims, because it gives fodder to relators in other cases to wreak havoc on completed settlements and to disturb what the government and the parties all think has been … well, settled.

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