2011 Year-End False Claims Act Update

January 5, 2012

It seems that “record-breaking” years for recoveries under the False Claims Act, 31 U.S.C. §§ 3729-33 (the “FCA” or the “Act”) are becoming as predictable as Gibson Dunn publishing its Year-End Update on the subject.  And 2011 was no exception.  In its fiscal year ended September 30, 2011, the federal government recovered approximately $3.03 billion, bringing the total FCA recoveries since January 2009 to more than $8.7 billion.[1]  This was the second year in a row that FCA recoveries broke the $3 billion mark and the third-largest yearly recovery amount ever.[2]  And if one includes FCA recoveries payable to the states under the Medicaid program, 2011 recoveries exceeded $4 billion.[3]

2011 also was an active and lucrative year for FCA whistleblowers.  These whistleblowers, private individuals (known as qui tam “relators”) empowered to bring actions on behalf of the government, may receive up to 30% of any recovery.  In 2011, qui tam relators earned more than $532 million in share awards, which is the highest yearly recovery on record and exceeds last year’s relator share awards by more than $140 million.[4]  The government recovered $2.8 billion in 2011 from cases initiated under the FCA’s qui tam provisions,[5] and whistleblowers initiated more new matters in 2011 than in any prior year on record (638, or 84% of the 762 new matters).[6]  In all, private individuals have initiated more than 7,800 qui tam actions since 1986, when statutory amendments markedly expanded the rights of and protections for whistleblowers and increased the percentage of relators’ potential recoveries.[7]  Total whistleblower recoveries since 1986 exceed $3.4 billion.[8]

These ever increasing bounties make it easy to see why qui tam cases account for most new FCA matters opened each year.  And it is not just whistleblowers who reap tremendous rewards.  The FCA has a fee-shifting provision.[9]  Some courts have held that that a prevailing relator is entitled to an award of attorney’s fees and costs, separate and apart from any fee arrangements the relator may have with his or her counsel.  In June 2011, for example, a district court in Colorado awarded three law firms more than $2.178 million in statutory attorney’s fees (roughly 28.8% of the actual damage award), which counsel received in addition to a whopping 55% contingency fee.[10]  Is it any wonder that corporations are terrified of the potential explosion of claims likely to be birthed by the Dodd-Frank Act with similar bounty provisions?

Although the government initiates far fewer FCA matters than relators do, and declines intervention in the overwhelming majority of qui tam actions, the Department of Justice (“DOJ”) certainly has been pulling its own weight too.  In our 2011 Mid-Year False Claims Act Update, we discussed the Obama Administration’s “Campaign to Cut Waste,” launched in June 2011, to increase transparency and accountability in government spending.  We further discussed the DOJ’s aggressive and increasing use of the FCA as a fraud-fighting weapon.  This Administration’s “relentless focus” on eliminating fraud and waste in government programs is achieving considerable results.  The DOJ recovered more than $5.6 billion in criminal and civil fraud-related proceeds in 2011, which is the largest single year fraud recovery in the history of the DOJ, and is more than double the amount recovered in 2008.[11]  Further, between fiscal years 2008 and 2011, the DOJ more than doubled fraud recoveries in twenty-one states and the District of Columbia.[12]  In Maryland, for example, from 2008 to 2011, civil and criminal fraud recoveries increased from approximately $4.3 million to approximately $109 million — an increase of 2,431%.[13]  The District of Columbia experienced a 1,284% increase during that same period.[14]  “Twenty-eight percent of the recoveries in the last 25 years were obtained since President Obama took office,” according to Assistant Attorney General West, which “reflect[s] the extraordinary determination and effort that this administration, and Attorney General Eric Holder in particular, have put into rooting out fraud, recovering taxpayer money and protecting the integrity of government programs.”[15]

In this year-end update, we first summarize significant settlements and judgments announced during the last six months of 2011.  Next, we discuss important judicial decisions and trends continuing during the second half of the year.  The first half of 2011 was discussed in our 2011 Mid-Year False Claims Act Update.  And a collection of Gibson Dunn’s recent publications on the FCA, including more in-depth discussions of the FCA’s framework and operation along with practical guidance to help companies avoid or limit liability under the FCA, may be found on our website.

I.          FCA Enforcement Activity

A.        Total Recovery Amounts:  DOJ Celebrates the 25th Anniversary of FCA Amendments with $30 Billion in Recoveries

As stated above, for the fiscal year ending September 30, 2011, the federal government secured approximately $3.03 billion in civil settlements and judgments.  Although this is a slight decrease from 2010, it is the third-largest yearly recovery amount ever.  And with this amount, total recoveries under the FCA since the 1986 amendments have risen to more than $30 billion.

Although the subject of our future FCA alerts, based on events during the end of the calendar year 2011, fiscal year 2012 promises to be a banner year as well.  For the first quarter of fiscal year 2012 (October through December 2011), DOJ already has announced more than $1 billion in FCA recoveries, including one recovery of close to $200 million hailed as the largest FCA settlement the General Services Administration (“GSA”) has ever obtained,[16] and a staggering $950 million criminal and civil settlement ($628.3 million of which represents the civil FCA portion) with a major pharmaceutical company resolving allegations of off-label promotion.[17]  In October 2011, Abbott Laboratories reserved $1.5 billion and agreed to pay at least $1.3 billion in civil and criminal penalties to regarding its drug sales and marketing practices.[18]  That same month, Amgen announced an agreement in principle with the federal government to settle allegations relating to its drug sales and marketing practices and reserved $780 million.[19]  And in November 2011, GlaxoSmithKline announced an agreement in principle to resolve civil and criminal investigations regarding the company’s sales and marketing practices for $3 billion.[20]  Taxpayers Against Fraud (an organization that promotes and tracks the use of the FCA) recently predicted a $9 billion recovery in FY 2012 based on recoveries announced during FY 2012 to date and cases, investigations, and settlements in the pipeline, which would be a tripling of the last year’s amount.[21]

B.        Qui Tam Activity

Whistleblowers continue to drive the massive recoveries under the FCA, and the government increasingly relies upon private plaintiffs to detect and expose fraud.  Indeed, DOJ repeatedly has attributed its record-breaking recoveries to the FCA’s qui tam provisions:  “We are tremendously grateful to whistle blowers who have brought fraud allegations to the government’s attention and assisted us in this public-private partnership to fight fraud,” Assistant Attorney General West said in announcing 2011 recoveries.[22]  Of the 762 new FCA matters opened during the last fiscal year, 638 — 84% — were matters initiated pursuant to the FCA’s qui tam provisions, and more than $532 million in recoveries were awarded to private plaintiffs under the FCA.[23]  This stands in stark contrast to 1987, when relators initiated only 30 of the 373 new matters (8%).[24]  The chart below demonstrates not only an increase in FCA activity overall, but a distinct shift from largely government-driven investigations and enforcement to qui tam initiated activity.

FCA New Matters, Including Referrals, Investigations and Qui Tam Actions

FCA New Matters

* Source:  DOJ “Fraud Statistics — Overview” (Dec. 7, 2011)

Under the FCA, the government has the right to intervene in and take control over any qui tam action.  In practice, however, the government rarely intervenes in qui tam litigation.  But in 2011, the government’s decision whether or not to intervene remained a key indicator of the government’s subsequent recovery.  Of the approximately $3.03 billion recovered in fiscal year 2010, only 5% was obtained from actions in which the government declined intervention, a percentage that is consistent with historical data (see chart immediately below).  As a result, our advice this year remains the same as last year — companies facing whistleblower claims should front-end load their efforts to convince the government not to intervene.

FCA Settlements or Judgments

* Source:  DOJ “Fraud Statistics — Overview” (Dec. 7, 2011)

C.        Noteworthy Settlements Announced During the Second Half of 2011

In our 2011 Mid-Year False Claims Act Update we discussed several notable settlements and judgments announced during the first half of 2011.  The following are significant settlements announced during the second half of the year (some of which are included in the government’s 2012 fiscal year):

  • In August 2011, Florida’s Attorney General announced a $154 million settlement agreement with two related pharmaceuticals companies to resolve allegations of Medicaid fraud (we reported on the settlement in principle in our 2011 Mid-Year False Claims Act Update).[25]  The federal share of the settlement was $90.95 million; five states (Texas, Florida, Kentucky, Alaska, and South Carolina) will share more than $40 million.[26]  Ven-A-Care of the Florida Keys filed the initial qui tam complaint and received $9 million as its relator share award; its attorneys received $5 million.[27]Ven-a-Care has been mentioned in many of our prior FCA alerts.  The small Florida pharmacy essentially operates as a professional whistleblower; its four partners have recovered more than $400 million in relator share awards in connection with settlements and judgments against drug companies.  Ven-a-Care initiated a number of qui tam actions alleging that many leading pharmaceutical companies defrauded the federal and state governments by falsely reporting a drug’s average wholesale price, which is the basis for calculating Medicaid reimbursement.  The federal government and several state governments intervened in many of those actions.  In 2011 alone, several pharmaceutical companies settled these qui tam actions for hundreds of millions of dollars collectively, and in February 2011, a Texas jury awarded $170 million against a drug manufacturer in one of these cases.  By some accounts, Ven-A-Care has settled more than 20 lawsuits since 2000 resulting in nearly $3 billion in FCA recoveries.
  • On September 12, 2011, one of the nation’s leading providers of home health care services agreed to pay approximately $150 million to resolve criminal and civil charges relating to an alleged nationwide scheme to defraud Medicaid programs and the Veterans Affairs program.  Approximately $130 million resolved FCA liability, approximately $70 million of which was allocated to the federal government.[28]  In discussing the settlement, Assistant Attorney General Tony West noted, “while this resolution may be tough, it is fair and appropriate.  And it’s particularly important at a time when we are all looking for ways to reign in government spending and save taxpayer dollars that we hold accountable those corporations who pad their bottom lines through fraud, waste and abuse.”[29]
  • Also on September 12, 2011, a leading technology company agreed to pay more than $63 million to resolve a whistleblower lawsuit filed in the U.S. District Court for the Eastern District of Arkansas.[30]  In 2004, two individuals filed several, separate qui tam actions alleging that numerous information technology companies engaged in kickback schemes and fraudulent billing in connection with government contracts for technology products and services.[31]  The government intervened in several of the qui tam actions and many of the companies entered into settlement agreements to resolve the FCA claims.  Total settlements in these cases exceed $396 million.
  • On September 16, 2011, a Saudi Arabia-based company agreed to pay the government $13 million to resolve criminal and civil allegations that the company paid kickbacks to a U.S.-based prime contractor employee and illegal gratuities to a former Army sergeant in connection with subcontracts in support of the Army’s operations in Iraq and Kuwait.[32]  Notably, the prime contractor sought to avoid paying the subcontractor on public policy grounds while FCA allegations were pending, but a federal district court in Texas rejected the argument and ordered the contractor to pay nearly $40 million.[33]  In addition, the federal government brought an FCA counterclaim against the prime contractor in the U.S. Court of Federal Claims based on allegations that the prime contractor received kickbacks from the Saudi-based subcontractor.[34]  In July 2011, the Court of Federal Claims dismissed the government’s FCA counterclaim against the contractor.[35]
  • On September 27, 2011, one of the largest national suppliers of durable medical equipment agreed to pay $41.8 million to settle allegations that it submitted false claims for unqualified patients and for equipment that was not medically necessary.[36]
  • On September 29, 2011, DOJ announced a settlement with three government contractors and former government employees who agreed to pay more than $22.6 million to settle allegations of unlawful procurement of a contract with the GSA.[37]  In January 2011, the DOJ settled similar claims against another contractor for its alleged role in the procurement of the contract.[38]
  • On September 30, 2011, one of the nation’s largest home health providers agreed to pay $65 million to resolve allegations that it violated the FCA by billing for services that were not medically necessary and for services rendered to patients who were not homebound.   The relator who initiated the qui tam action was awarded more than $12 million as her share of the government’s recovery.[39]  Daniel R. Levinson, HHS Inspector General announced that the settlement should “warn health care providers of the risks of failing to adopt effective compliance plans.  When providers submit false claims to Medicare, the government will hold them accountable.”[40]
  • As we reported in our 2011 Mid-Year False Claims Act Update, in June 2011, two oil and gas companies and their affiliates agreed to pay more than $17 million to settle allegations that the companies underpaid royalties owed on natural gas produced from federal and Indian leases.  The settlement arose from a qui tam lawsuit filed by Harrold Wright.[41]  In September 2011, three other defendants in the Wright action agreed to pay $20.5 million to resolve similar claims.  This most recent settlement brings total recoveries in the case to approximately $270 million.[42]
  • On October 6, 2011 (fiscal year 2012), the government announced a nearly $200 million settlement with a technology company to resolve allegations that the company made false statements about its sales practices and failed to pass price discounts on to the government.  The settlement was hailed the largest FCA settlement ever obtained by GSA.[43]  Notably, the government’s FCA allegations against the company spawned a shareholder’s derivative lawsuit alleging that certain directors breached their fiduciary duties in connection with the alleged scheme to overbill the federal government (as the district court noted, several of the “allegations of the improper billing practices [were] taken directly from the [qui tam] complaint”).[44]  On November 9, 2011, the California federal district court dismissed the derivative claims with leave to amend for failure to meet federal pleading standards, including plaintiffs’ failure to allege with particularity that “any of the outside directors had knowledge of the alleged overbilling practices.”[45]
  • On October 21, 2011, the DOJ announced a $14.5 million settlement with Pfizer Inc. to resolve allegations relating to its marketing of the prescription drug Detrol.[46]  The settlement is particularly significant insofar as it closes the book on ten qui tam actions commenced in 2003 against the company.  Pfizer’s record-breaking $2.3 billion settlement in 2009 resolved the other nine lawsuits.
  • On October 31, 2011, the U.S. Attorney’s Office for the Southern District of New York announced a $70 million settlement with the City of New York to resolve a qui tam lawsuit alleging unlawful billing under the City-administered Medicaid personal care services program.[47]
  • In our earlier FCA updates, we mentioned several settlements resolving alleged false claims relating to the manufacture and sale of allegedly defective Zylon bulletproof vests.  On November 7, 2011, the DOJ announced yet another settlement with three bankrupt companies for $1 million, bringing the total value of settlements in the Zylon body armor industry to $61 million.[48]  Lawsuits remain pending against other industry participants, and, as part of this most recent settlement, the companies agreed to cooperate in the DOJ’s ongoing enforcement efforts.
  • On November 22, 2011, DOJ announced a nearly $1 billion settlement with a pharmaceutical company to resolve criminal charges and civil claims related to its promotion and marketing of a drug.[49]  The company will pay more than $628 million to resolve the civil FCA allegations.[50]  “We will continue to work with our law enforcement partners to aggressively investigate and prosecute pharmaceutical companies — no matter how large — when they improperly market their products,” said Daniel R. Levinson, Inspector General of HHS.[51]
  • On December 12, 2011, the DOJ announced a $23.5 million settlement with a medical device manufacturer to resolve allegations of unlawful kickbacks to induce physicians to use its products.[52]  In announcing the settlement, the government yet again affirmed that it will actively investigate and prosecute alleged kickbacks in the health care industry.
  • On December 29, 2011, a leading health care company agreed to pay $30 million to settle allegations that it violated the FCA by causing Medicare to overpay for a radiopharmaceutical used in cardiac diagnostic imaging procedures.[53]  The qui tam relator who initiated the action was awarded $5.1 million.

D.        Industry Breakdown

Although the FCA targets fraud in all government programs, most FCA recoveries in the past decade have come from the health care sector.  2011 was no exception.   As Assistant Attorney General Lanny A. Breuer noted at the end of fiscal year 2011, “the era of getting away with Medicare fraud is over …  [t]he government as a whole is coordinating like never before to take on the problem of health care fraud.”[54]

Annual FCA Recoveries by Industry

* Source:  DOJ “Fraud Statistics — Overview” (Dec. 7, 2011)

          1.         Health Care / Pharmaceutical Industry

“For every dollar Congress has provided for health care enforcement over the past three years, [DOJ has] recovered nearly seven.”[55]

As in all years past, most recoveries in fiscal year 2011 — more than $2.4 billion — stemmed from settlements and judgments involving fraud allegedly committed against federal health care programs.[56]  In the last three years, since January 2009, the DOJ has recovered more for health care fraud under the FCA — $6.6 billion — than it has recovered during any other three-year period in history.[57]  And in its most recent Semiannual Report to Congress, HHS OIG reported expected recoveries of about $5.2 billion, including $4.6 billion in “investigative receivables.”[58]  HHS OIG also reported commencing 382 civil actions in fiscal year 2011, which includes FCA and other civil and administrative actions.

Indeed, at the outset of the government’s fiscal year 2011, West noted that “[f]rom Day One, President Obama and Attorney General Eric Holder have been focused like a laser beam on tackling health care fraud in all of its many forms.”[59]  Among other things, in May 2009, Attorney General Eric Holder and Kathleen Sebelius, Secretary of HHS, announced the creation of an interagency task force, the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”), to increase coordination and optimize criminal and civil enforcement.  “With HEAT, the fight against health care fraud has become a Cabinet-level priority.”[60]  HEAT’s efforts to crack down on health care fraud are remarkable; DOJ attributes most of the 2011 blockbuster FCA health care settlements to HEAT’s efforts.  Notably, in late 2011, HHS OIG commenced a HEAT Compliance Training Initiative to provide in-person and online training to prevent fraud and improve compliance.  Several webcast training modules, videos, and audio podcasts are now available on HHS’s website discussing FCA, anti-kickback statute and other compliance topics.[61]  We encourage our health care clients to review these materials.

Although relators and the DOJ regularly crack down on hospitals, doctors, and health care providers who fraudulently bill government health care programs for medical services and supplies, pharmaceutical companies account for a substantial chunk of FCA recoveries.  During fiscal year 2011 alone, the government recovered nearly $2.2 billion in civil claims against pharmaceutical companies.  The huge settlements announced during the past twelve months follow on the heels of other record-breaking FCA settlements within the pharmaceutical industry, including Pfizer’s $2.3 billion settlement and Eli Lilly’s $1.4 billion settlement in 2009.  In fact, a study released at the end of 2010 reported that pharmaceutical cases accounted for at least 25 percent of all federal FCA payouts, and pharmaceutical industry settlements comprised $19.8 billion in penalties during the past 20 years, approximately 75% of which was recovered since 2005.[62]  Other sources confirm that more than half of all pharmaceutical company settlements during the past ten years were in excess of $100 million each, and that approximately 95% of the recoveries stemmed from qui tam complaints.  And in January 2011, HHS reported that there were at least 180 qui tam cases awaiting a government intervention decision that allege fraud in connection with pharmaceutical pricing and promotion.[63]  Clearly, the qui tam bar has targeted pharmaceutical companies to seek to achieve the largest settlements.

Most of the claims against pharmaceutical companies involve allegations of off-label promotion, which is quite remarkable in light of the conduct the FCA is intended to penalize (i.e. the submission of false claims for reimbursement).  In the case of off-label promotion, doctors may actually have prescribed all medications, patients may actually have taken all medications and experienced significant health benefits, and the reimbursement requests submitted to the government may have been entirely “accurate,” insofar as the claims made were for the actual costs of drugs provided.  But, because the FDA prohibits off-label promotion and federal health programs generally will not provide reimbursement for drugs without a medically accepted indication, off label promotion arguably may cause others to submit false claims in violation of the FCA.  Not surprisingly (albeit unfortunately), because defendants often must settle cases to avoid the enormous costs and risks of FCA litigation, this theory of liability has not been tested in any meaningful way.

In November 2011, Assistant Attorney General Tony West stated that there are three primary reasons for the DOJ’s focus on fraud in the pharmaceutical industry:  “First, the money involved in this industry’s participation in health care is staggering ….  Health care spending in the United States surpassed $2.5 trillion in 2009, and, according to independent estimates, 10% of that — $250 billion — was spent on prescription drugs. … Second, this industry’s importance increases as the number of Americans who use pharmaceutical products continues to grow.  Nearly two-thirds of Americans use prescription medicines on a regular basis, including 90% of seniors.”[64]  Third, “given the size, scope and reach of the pharmaceutical industry, we know that the victories we achieve when fighting fraud here will have a profound impact—not just on the health care economy, but on the lives of countless Americans.”[65]

          2.         Defense and Procurement 

Of fiscal year 2011’s FCA recoveries, non-war related procurement and consumer-related financial fraud cases accounted for nearly $358 million.  Another $422 million in recoveries were attributable to defense procurement fraud cases, including $89.3 million in connection with the wars in Iraq and Afghanistan.[66]  DOJ reports that since January 2009, total civil fraud recoveries in connection with the wars in Iraq and Afghanistan amount to $153.4 million.[67]

Several reports released during the second half of 2011 paint a dismal portrait of defense and procurement fraud and abuse.  In its August 2011 Final Report to Congress, for example, the Commission on Wartime Contracting conservatively estimated that as much as $60 billion may have been lost to contract waste and fraud in America’s contingency operations in Iraq and Afghanistan (based on contract spending from FY 2002 projected through the end of FY 2011).[68]  In addition, the Recovery Accountability and Transparency Board (a non-partisan agency created by the American Recovery and Reinvestment Act of 2009 (“ARRA”)) reported that as of October 31, 2011, the Recovery Board and inspectors general have received 8,032 complaints of wrongdoing associated with ARRA funds, and 1,795 complaints have triggered open investigations.[69]  In light of these figures, we expect to see an increase in the number of FCA actions related to government procurement.

Finally, in our 2010 Year-End False Claims Act Update, we discussed President Obama’s Financial Fraud Enforcement Task Force and the United States Attorney’s Office for the Southern District of New York’s formation of a special Civil Frauds Unit to combat “large-scale and sophisticated financial frauds” through the FCA and other civil enforcement mechanisms.  These task forces have been busy.  In November 2011, for example, the government intervened in a qui tam action and filed its own FCA complaint against Allied Home Mortgage Company, its affiliate, and two executives for alleged fraudulent lending practices including false loan certifications to the U.S. Department of Housing and Urban Development associated with $834 million in insurance claims.[70]

II.        Case Law Developments and Judicial Trends

In our 2011 Mid-Year False Claims Act Update, we discussed how FCA jurisprudence has continued to evolve, highlighting significant interpretations of the public disclosure bar and the interrelationship between the FCA and Anti-Kickback Statutes.  The second half of 2011 has exhibited another flurry of judicial decisions; federal courts cited the FCA in more than 200 cases in the second half of 2011 alone.  New circuit splits have arisen that might warrant Supreme Court clarification, particularly regarding the so-called “implied false certification” theory.  We will continue to apprise clients of significant judicial decisions as they develop, including the following:

A.        Developments Involving the Implied False Certification Theory

With some differences from jurisdiction to jurisdiction, the doctrine of implied false certification generally permits the government to hold contractors liable for FCA violations even absent express false statements made to the government.  Under the theory, requests for payment implicitly represent compliance with certain requirements — usually delineated in government contracts, statutes, or regulations — that are considered preconditions to payment.  This is so absent express certifications by the contractors that they met the requirements of such contracts, statutes, or regulations.  Courts continued to grapple with this theory in the second half of 2011, and divergences in applying the theory have emerged across the circuits.

          1.         The Sixth Circuit Affirms the Viability of the Implied False Certification Theory With Limitations

The Sixth Circuit affirmed the viability of the implied false certification theory in Chesbrough v. VPA, P.C., 655 F.3d 461 (6th Cir. 2011), but held that the theory was not boundless.  There, a defendant was accused of fraudulently billing for defective radiology studies.  The relators contended that the defendants “impliedly certified that the studies for which it billed met [industry] standards” and violated the FCA when the studies failed to meet those industry standards.   Id. at 467-68 (emphasis in original).  The Sixth Circuit held, inter alia, that “a relator cannot merely allege that a defendant violated a standard — he or she must allege that compliance with the standard was required to obtain payment.”  Id. at 468.  Because the relators failed to identify any Medicare or Medicaid requiring that such studies meet “industry standards,” there could be no false claim.

The Sixth Circuit also rejected separate FCA allegations when the relators were unable identify particular, false bills submitted to the government.  Interestingly, the court noted that this was not always a requirement, stating that “the requirement that a relator identify an actual false claim may be relaxed when, even though the relator is unable to produce an actual billing or invoice, he or she has pled facts which support a strong inference that a claim was submitted.”  Id. at 471.  However, this exception applies only where a relator has “personal knowledge” that false claims were submitted, which was not the case in Chesbrough.  That the relevant documents were exclusively within the defendant’s control did not obviate the relator’s pleading burden to identify specific fraudulent invoices under Rule 9(b).

          2.         The Third Circuit Upholds Dismissal of Complaint Against an Educational Institution that Pleaded an Implied False Certification Theory

The Third Circuit reiterated the viability of the implied false certification theory in United States ex rel. Pilecki-Simko v. Chubb Institute, citing previous case law for the proposition that “liability attaches ‘when a claimant seeks and makes a claim for payment from the Government without disclosing that it violated regulations that affected its eligibility for payment.'”  Id., No. 10–3907, 2011 WL 3890975, *2 n.8 (3rd Cir. Sept. 3, 2011) (quoting United States ex rel. Willis v. United Health Grp., Inc., 659 F.3d 295, 305-06 (3d Cir. 2011).  In Chubb, relators alleged that an educational institution knowingly made misrepresentations in order to secure student financial aid from the government.  Although recognizing the claim’s legal basis in the implied false certification theory, the court held that the complaint failed even to state a claim for relief under Rule 8.  The allegations of scienter were deemed insufficient, as the complaint included no factual allegations explaining how the defendants documented, were aware of, or were informed of any violations.  Notably, the dismissal was upheld with prejudice, and costs and attorneys’ fees were awarded to one defendant because of the claims on appeal against that defendant were frivolous.

          3.         The First Circuit Adopts a Broad and “Fact-Intensive” Implied False Certification Doctrine

The First Circuit adopted a broad implied false certification framework in 2011.  In United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377 (1st Cir. 2011), which was discussed in our 2011 Mid-Year False Claims Act Update, a relator alleged that the defendant paid kickbacks to induce doctors to use its products.  These inducements allegedly caused hospitals to submit fraudulent claims to Medicare by certifying compliance with the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b.  The First Circuit held, inter alia, that courts applying the implied false certification doctrine should first determine whether a defendant “misrepresented compliance with a precondition of payment so as to be false or fraudulent” and then “whether those misrepresentations were material.”  Id. at 392.  The court held that materiality could be established through express contractual language, statute, or regulation, but that those methods were not exclusive.  Materiality could also be established, for example, “through testimony demonstrating that both parties to the contract understood that payment was conditional on compliance with the requirement at issue.”  Id. at 394 (quotation omitted).  Thus, the First Circuit avoided bright line rules as to the types of requirements that ultimately could lead to FCA liability.

The First Circuit later applied the implied certification theory in New York ex rel. Westmoreland et al. v. Amgen Inc., 652 F.3d 103 (1st Cir. 2011).  In Amgen, plaintiffs alleged that defendants violated seven state FCA statutes by using kickbacks to induce health care providers to present false Medicaid claims.  The district court granted the defendants’ Rule 12(b)(6) motion because the relators could not identify any operative statutes or regulations that “expressly conditioned Medicaid reimbursement on compliance with anti-kickback statutes.”  Id. at 109.  Rejecting that a statute or regulation (or other source) must itself expressly condition payment on compliance to permit FCA liability, the First Circuit applied the “fact-intensive and context-specific inquiry” outlined in Hutcheson, analyzing each state’s Medicaid program to gauge the existence and materiality of their respective requirements as to kickbacks.  Id. at 111.  The court found material payment preconditions in state regulations in Illinois, Indiana, Massachusetts, and New York, and in the Medicaid provider agreements used in California and New Mexico.  Thus, liability was possible under those states’ FCA laws.  However, the relator failed to adequately allege that kickbacks could form the basis of state FCA liability under the Georgia Medicaid program.

Petitions for writs of certiorari were filed following both First Circuit cases.  See Petition for a Writ of Certiorari, Blackstone Medical, Inc. v. United States ex rel. Hutcheson, No. 11-269, 2011 WL 3860767 (U.S. Aug. 30, 2011); Petition for a Writ of Certiorari, Amgen Inc. v. State of New York, No. 11-363, 2011 WL 4400339 (U.S. Sept. 19, 2011).  Amgen’s petition outlined the ways in which the circuits are split with regard to the implied false certification theory, contending that the First Circuit’s framework is “incompatible” with positions taken in the Fourth, Fifth, and Seventh Circuits and broader than those applied in the Second, Third, Eighth, Eleventh, and D.C. Circuits.  Id. at 14-17.  On December 5, 2011, the Supreme Court denied the petition in Blackstone.   And on December 27, 2011, the Supreme Court granted the parties’ Rule 46 motion to dismiss the petition in Amgen.  Accordingly, the law will continue to remain unsettled for the foreseeable future and lower courts will continue to grapple with the issue whether the FCA is the proper vehicle to enforce compliance with myriad laws and regulations that are not expressly tied to any “claims” for payment and do not themselves provide mechanisms for qui tam enforcement.

B.        Implementations of Supreme Court Developments in 2011

As discussed in the our 2011 Mid-Year False Claims Act Update, the Supreme Court ruled in Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885 (2011) that a federal agency’s response to a Freedom of Information Act (“FOIA”) request is a “report . . . or investigation” within the meaning of the public disclosure bar.  The case strengthened the public disclosure bar by preventing relators from filing qui tam actions based on information disclosed in FOIA requests, unless the relators qualify as an “original source.”  Courts have wasted little time in implementing this holding.

Less than two months after remand from the Supreme Court in Schindler, the Second Circuit determined that the relator’s FCA claims were “‘based upon’ the ‘allegations or transactions’ disclosed in the FOIA responses and that [the relator] does not qualify as an ‘original source.'”  United States ex rel. Kirk v. Schindler Elevator Corp., No. 09–1678–cv, 2011 WL 2632130, *2 (2nd Cir. July 6, 2011).  Because those FOIA responses fell within the ambit of the public disclosure bar, the court lacked subject matter jurisdiction to hear the FCA claims.

In United States ex rel. Lewis v. Walker, No. 10–14642, 2011 WL 3794690 (11th Cir. Aug. 26, 2011), similarly, relators claimed that state university researchers violated the FCA by making false statements to the Environmental Protection Agency (“EPA”) to receive grants.  The Eleventh Circuit affirmed the district court’s finding that the documents forming the bases of the relators’ case had been gathered through FOIA and related state requests, and thus were barred pursuant to Schindler.  The court noted that the relators failed to identify any “independent, undisclosed knowledge of any information regarding the alleged fraud.”  Id. at *2.

C.        The D.C. Circuit Holds that a Prior Complaint Need Not Satisfy Rule 9(b) to Preclude Later Suits Under the “First-to-File” Bar

Pursuant to the FCA’s first-to-file rule, 31 U.S.C. § 3730(b)(5), “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  This rule prevents copycat FCA litigation once the purpose of an FCA qui tam suit has been achieved: apprising the government of alleged fraudulent conduct.  Whether later suits are barred by earlier, deficient complaints, however, is an issue that has divided courts.  Some courts require the original complaint to have sufficiently met the Rule 9(b) pleading standard to preclude subsequent complaints.  See Walburn v. Lockheed Martin Corp., 431 F.3d 966 (6th Cir. 2005); Campbell v. Redding Med. Ctr., 421 F.3d 817 (9th Cir. 2005); United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227 (3d Cir. 1998).  Other courts have not required previous complaints to survive Rule 9(b) challenges in order to have preclusive effect. See United States ex rel Piacentile v. Sanofi Synthelabo, Inc., Civ. A. No. 05-2927 (KSH), 2010 WL 5466043 (D.N.J. Dec. 30, 2010); United States ex rel. Folliard v. Synnex Corp., No. 07–cv–719 (RCL), 2011 WL 2836372 (D.D.C. July 19, 2011).

In United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204 (D.C. Cir. 2011), the D.C. Circuit sided with the latter courts, holding that “first-filed complaints need not meet the heightened standard of Rule 9(b) to bar later complaints; they must provide only sufficient notice for the government to initiate an investigation into the allegedly fraudulent practices, should it choose to do so.”  Id. at *1210.  The relator, supported by the United States as amicus curiae, argued that limiting application of the first-to-file rule to situations in which previous complaints satisfied Rule 9(b) “would ensure the complaint provides the government sufficient information to pursue an investigation, as well as prevent an overly-broad complaint from barring a more detailed, later-filed complaint.”  Id. at 1210.  The court rejected this argument, noting that nothing in the FCA’s first-to-file section incorporates Rule 9(b).  In addition, layering a Rule 9(b) requirement on top of the first-to-file rule would require district courts to rule on the sufficiency of complaints in other districts, possibly resulting in courts’ disagreements in different districts as to the same complaint’s sufficiency.

Batiste’s potential impact on the qui tam landscape is significant: whistleblowers are increasingly precluded from bootstrapping similar facts or claims from previous actions into newly filed suits.  Under such a rule, it becomes more important than ever for whistleblowers and defendants alike to identify prior qui tam suits related to the same subject matter, even ones exhibiting woefully inadequate complaints, as they can potentially form the basis for dismissal under the first-to-file rule.  But Batiste notably leaves unanswered the question of what standard governs whether an earlier-filed complaint constitutes “sufficient notice for the government.”  Further, Batiste is simply the decision of one circuit court, and the circuit split identified above remains.

D.        Even When the Government Declines to Intervene, Relators Generally Are Not Masters of Their Own Complaints

          1.         A Relator’s Voluntary Dismissal Does Not Guarantee that a Complaint Will Remain Under Seal

The FCA requires that qui tam actions be filed under seal, and that seal generally cannot be lifted until the government decides whether to intervene in the action.  But what happens if a relator wishes to voluntarily dismiss an action and keep his complaint sealed if the government declines to intervene?  Courts recently faced this question in United States ex rel. Durham Prospect Waterproofing, Inc., No. 10-1946, 2011 WL 4793236 (D.D.C. Oct. 4, 2011) and United States ex rel. Danner v. Quality Health Care Inc., No. 11-4026, 2011 WL 4971453 (D. Kan. Oct. 18, 2011), both of which joined out-of-circuit district courts in holding that relators have no right to prolong the seal.

In Durham, the relator’s sealed complaint was filed against his present employer.  He requested that the seal be maintained permanently, fearing retaliation.  In Danner, the relator’s sealed complaint was filed against a former employer, but the relator nonetheless maintained that public availability of her complaint would impair her ability to continue investigating her claims and her ability to obtain future employment.  Both courts looked to the justifications for the FCA’s sealing requirement, maintaining that the FCA’s sealing provision is intended to permit the government — not the relator — sufficient time to investigate an allegation of fraud.  Nowhere does the FCA indicate that protecting the identity of the relator is a goal of the sealing requirement.  The public’s interest in accessing court proceedings outweighed the interests of the relator in these cases, particularly because in FCA cases the government — i.e., public — is the real party in interest.

          2.         The Government’s Authority to Unilaterally Dismiss a Qui Tam Action Remains Broad

Because qui tam actions are filed on behalf of the government, the government possesses special control over whether a relator’s FCA claims may proceed.  Pursuant to 31 U.S.C. § 3730(c)(2)(A), “The government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”  Courts are split as to the procedures this statute requires, but the results — that suits will be dismissed if the government wishes them to be — are largely uniform.

The Northern District of Illinois recently reaffirmed the government’s broad discretion to unilaterally dismiss qui tam actions in United States ex rel. Nicholson v. Spigelman, M.D., No. 10 C 3361, 2011 WL 2683161 (N.D. Ill. July 8, 2011).  The relator filed an FCA suit against a retired psychologist, a non-profit shelter for adolescent children, and a family-owned pharmacy, alleging that they had submitted claims to Medicaid for a drug ineligible for reimbursement.  The government declined to intervene and moved to dismiss the case.  The court cited split authority on whether the government’s ability to dismiss qui tam actions is entirely unfettered (the Fifth and D.C. Circuits’ standard) or whether the government must satisfy the court that it possesses a valid purpose and a rational relation between the dismissal and that purpose (the Second, Ninth and Tenth Circuits’ standard).  Declining to choose between the standards, the court held dismissal appropriate under either, finding the dismissal rationally related to the government’s legitimate interest in not wasting resources.  The court also rejected the relator’s argument that she had a right to an evidentiary hearing and discovery to probe the scope of the alleged fraud.

          3.         A Florida District Court Permits Government Intervention Fifteen Months After a Qui Tam Complaint is Unsealed

Over the defendant’s objection, a court in the Middle District of Florida permitted the government to intervene in a qui tam action fifteen months after the complaint was unsealed. United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002-Orl-31DAB, 2011 WL 4480846 (M.D. Fla. Sept. 27, 2011).  The government previously had declined to intervene one year after its initial filing when the court refused to grant further extensions.  Section 3730(c)(3) of the FCA permits the government to intervene after a complaint has been unsealed upon a showing of “good cause.”  The court, noting a dearth of case law on the subject, maintained that the “good cause” requirement was implemented only to protect the relator, whose statutory award for a successful qui tam action diminishes once the government intervenes.  Because the relator assented to government intervention in the case, the court held intervention permissible.

E.        When are Pre-Filing Releases of Qui Tam Claims Enforceable

A number of courts recently have grappled with the issue of whether to enforce a relator’s pre-filing release of qui tam claims.  “There is an emerging agreement within the Courts of Appeals that pre-filing releases bar subsequent qui tam claims if (1) the release can be fairly interpreted to encompass qui tam claims and (2) public policy does not otherwise outweigh enforcement of the release.”  United States ex. rel. Nowak v. Medtronic, Inc., 2011 U.S. Dist. LEXIS 82346, *69 (D. Mass. July 27, 2011).  In United States ex rel. Radcliffe v. Purdue Pharma, 600 F.3d 319 (4th Cir. 2010), for example, the Fourth Circuit held that an employee who signed a general release of all federal, state and local claims on separation from employment was barred from bringing a qui tam action.  “Consent of the government is not a necessary condition precedent to enforcement of an otherwise valid release where such a release is executed prior to filing a qui tam action.”  Id. at 328.  Enforceability may depend on government knowledge, however:  “When the government is unaware of potential FCA claims the public interest favoring the use of qui tam suits to supplement federal enforcement weighs against enforcing prefiling releases.  But when the government is aware of the claims, prior to suit having been filed, public policies supporting the private settlement of suits heavily favor enforcement of a prefiling release.”  Id. at 332.

Although most courts agree government knowledge is necessary, courts disagree on the timing of the government’s knowledge.  Must the government be aware of the allegations before the relator files a qui tam complaint or before the relator releases the claims?  A district court in Michigan recently held that public policy may preclude enforcement of a pre-filing release if the government was not aware of the potential fraud at the time the employee signed the release.   United States ex rel. McNulty v. Reddy Ice Holdings, Inc., 2011 U.S. Dist. LEXIS 140316 (E.D. Mich. Dec. 7, 2011).  In McNulty, the relator alleged an anti-competitive conspiracy among ice manufacturers and distributors resulting in fraudulent overcharges to the federal government for purchases of packaged ice.  The court refused to enforce the relator’s pre-filing release because, “Where the government has no knowledge of the claims that form the basis for a qui tam complaint prior to the time that the relator signs the release, enforcement of the release interferes with and frustrates the FCA’s goals of incentivizing individuals to reveal fraudulent conduct to the government.”  Id. at *52.  Rejecting an argument that “the government need only be made aware of the allegations prior to the filing of the qui tam complaint,” the court held “it is clear that the policy interests … would not be served if the government’s knowledge did not precede the execution of the release.”  Id.  Clearly, when companies are terminating an employment relationship, it is imperative to negotiate a broad, all-encompassing release of claims.  A broad release will best position a company to enforce the release against a qui tam lawsuit.

F.         The Ninth Circuit Permits Liberal Re-Pleading in Two FCA Cases

Only months apart, the Ninth Circuit remanded two cases that properly granted motions to dismiss for failure to meet the operative pleading standards, instructing district courts to permit relators to amend their complaints.  In United States v. Corinthian Colleges, 655 F.3d 984 (9th Cir. 2011), relators filed a qui tam action against Corinthian Colleges, Inc., individual defendants on its board of directors, and Ernst & Young LLP, its independent auditor, generally alleging that Corinthian’s employee compensation program violated the Higher Education Act.  The Ninth Circuit agreed with the district court that the relators had failed to adequately plead a relevant false statement or scienter with sufficient specificity.  The Ninth Circuit remanded the case, however, noting that because additional facts could be alleged to support a viable claim, the district court’s finding of futility was inappropriate.

In United States ex rel. Tamanaha v. Furukawa America, Inc., No. 09–55783, 2011 WL 3423788 (9th Cir. Aug. 5, 2011), a relator alleged that an importer submitted materially false information to the United States Customs Service in order to undervalue goods it imported, thereby reducing customs duties owed.  The district court dismissed for failure to state a claim and for failure to plead fraud with sufficient specificity under Rule 9(b).  The Ninth Circuit, yet again, agreed that dismissal of the complaint was appropriate, but remanded so leave to amend could be granted.  The court noted that the relator could “cure any Rule 12(b)(6) or 9(b) defects by amending his complaint to allege the specific sources of [the defendant]’s preexisting obligation to pay customs duties and to plead a False Claims Act violation with greater particularity.”  Id. at *2.

G.        District Court Continues the Trend of Holding that FERA Amendments Are Retroactive Only to Claims for Payment Pending in June 2008

We discussed the retroactivity of the Fraud Enforcement and Recovery Act of 2009 (“FERA”) amendments in our earlier False Claims Act Updates.  We also noted that the vast majority of courts have held that the FERA amendments applied retroactively only to actions in which claims for government payment were pending on June 7, 2008, but not to legal cases pending at the time.  In our 2010 Year-End False Claims Update, however, we commented that the Fifth Circuit’s recent opinion in United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 267 n.1 (5th Cir. 2010) appeared to take the contrary view, holding that the amendments applied because the relator’s “complaint” was pending on June 7, 2008.  Despite this stance in Steury, most courts continue to hold that claims for government payment must be pending on June 7, 2008 in order for the FERA amendments to apply.  See, e.g., United States v. Hawley, No. C 06–4087–MWB, 2011 WL 3295419 (N.D. Iowa Aug. 1, 2011).

H.        Are Qui Tam Awards Includable in Gross Income?

In Campbell v. C.I.R., 658 F.3d 1255 (11th Cir. 2011), the Eleventh Circuit faced the question of whether qui tam payments received by relators should be considered gross income for tax purposes, a question of first impression in the circuit.  The relator contended that he was the assignee of the United States in the qui tam action, and thus he “stands in the shoes of the government” such that any recovery by him is likewise nontaxable.  Id. at 1257 n.3.  Noting the absence of contrary case law in other circuits, the Eleventh Circuit determined that qui tam payments amount to financial incentives paid to private persons in exchange for providing information to the government and prosecuting fraud claims on its behalf.  Thus, the payments are includable in gross income.  The court also assessed 20% accuracy penalty on the relator for his failure to report the qui tam recovery on his tax return.

I.          Developments in State Courts

          1.         Retroactivity of State False Claims Acts

A New Jersey state court recently held that the state’s False Claims Act, which was enacted on January 1, 2008 and made effective on March 13, 2008, could not retroactively apply to allegedly false claims submitted before the statute’s effective date.  See State of New Jersey ex rel. State ex rel. Hayling v. Correctional Medical Servs., Inc., 28 A.3d 1246, 1251 (N.J. Super. Ct. App. Div. 2011).  Looking to legislative history and the statute’s text, the court distinguished the statute from its retroactively enforced counterparts.  Though the issue turns on legislative text and intent, several courts in other jurisdictions similarly have refused to retroactively apply state false claims acts.  See, e.g., United States ex rel. Bogart v. King Pharms., 410 F. Supp. 2d 404, 408 (E.D. Pa. 2006) (“In the instant case, the NM False Claims Act itself did not exist at the time Relator’s action accrued.  Surely there is no better example of a legislative development that permits more plaintiffs to bring suit than was possible before the statutory enactment—literally creating a new cause of action.  With no legislative history available to the contrary, this court must uphold the presumption against retroactive applicability and hold that the Relator’s claim under the NM False Claims Act fails.”); United States v. Grifols Biologicals, Inc., No. Civ. RDB 07-3176, 2010 U.S. Dist. LEXIS 68775, at *22–23 (D. Md. July 9, 2010) (“Each of these [state false claims] statutes applies prospectively; therefore, [plaintiff’s] claims that allege fraudulent activity accruing before these statutes went into effect are not actionable.”).

          2.         California Courts Demonstrate Willingness to Award Attorney Fees and Costs to Prevailing FCA Defendants

The California False Claims Act, Cal. Gov. Code § 12652(g), much like the federal FCA, permits a court to award reasonable attorney’s fees and costs to a prevailing defendant if it determines the suit to have been “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.”  A California appellate court applied this provision to sanction Kern County for bringing a frivolous and harassing suit against its employee in County of Kern v. Jadwin, 197 Cal. App. 4th 65 (2011).  Kern County sued its employee shortly after that employee had complained about the County’s practices and filed a federal action against the County alleging employment retaliation, denial of his due process rights, and violation of federal and state employment laws, a suit which the employee won.  While the federal action was pending, the County filed a state FCA suit accusing the employee of fraudulently seeking $3,125 in reimbursements for continuing education and travel expenses. Relying in large part on interpretations of the law’s federal FCA counterpart in Mikes v. Straus, 274 F.3d 687, 704 (2d Cir. 2001), the court held the County’s suit to be retaliatory, demonstrating “clearly frivolous” and “vexatious” motivations, justifying an award of costs and fees for the employee.

The California Court of Appeal also awarded fees and costs in State of California ex rel. Standard Elevator Co. v. West Bay Builders, Inc., 197 Cal. App. 4th 963 (2011), which also involved a retaliatory qui tam action, this time between private parties: a general contractor and an unlicensed subcontractor.  The court determined that the allegations underlying the subcontractor’s state FCA complaint were not new assertions of fraud, but rather a repetition of information produced in prior civil litigation, and thus barred by the public disclosure bar.  Relying primarily on interpretations of federal FCA law, the court found the subcontractor’s suit to be clearly frivolous because “[n]o reasonable person could think that the allegations in the prior litigation and this CFCA were distinct, and thus outside the public disclosure bar, given the near identity of the allegations.” Id. at 983.

III.       Conclusion

In today’s compliance-focused world, companies without effective compliance programs and procedures increase dramatically the risk of enforcement activity.  As noted above, the DOJ repeatedly warns corporations of the risks of failing to adopt effective compliance plans in FCA settlement announcements.  In 2011, significant developments in the FCA area, including record-breaking settlements and important judicial decisions, must serve as reminders to those companies receiving federal monies to remain vigilant and to periodically reevaluate and, if necessary, buttress their FCA-specific compliance efforts.

By design, the FCA penalizes only “knowing” or intentional misconduct; negligent or mistaken billing activity is not actionable.  Further, as confirmed in United States v. Science Applications International Corp., 626 F.3d 1257 (D.C. Cir. 2010) (Gibson Dunn represented SAIC), a plaintiff cannot “prove scienter by piecing together scraps of innocent knowledge held by various corporate officials, even if those officials never had contact with each other or knew what others were doing in connection with a claim seeking government funds.”  Instead, a plaintiff must plead and prove that at least one employee knew the company’s claims were false.  Robust compliance programs and procedures therefore help combat against allegations of intent.

Further, comprehensive compliance programs and billing policies should help companies detect and deter most FCA violations.  But when companies discover potentially fraudulent conduct or false billing, prompt, efficient, and effective remediation must ensue.  Studies show that most whistleblowers first report their concerns internally.  Thus, companies should take seriously employee complaints and should consider educating the workforce about the FCA and establishing standard procedures for raising complaints and responding to them.

And part of any well-designed response plan should be a discussion with qualified outside counsel about the risks and benefits of self-disclosure.  The FCA has a reduced (double instead of treble) damages provision based on self-disclosure and cooperation.  31 U.S.C. § 3729(a)(2).  Government contractors also must consider the Federal Acquisition Regulation (“FAR”) 52.203-13, which mandates timely disclosure of credible evidence of FCA violations, makes the knowing failure to disclose certain violations of the FCA grounds for suspension or debarment, and specifies minimum standards for covered contractor compliance programs and internal control systems.  The FAR also implements the Federal Awardee Performance and Integrity Information System (“FAPIIS”), which, under certain circumstances, mandates disclosure of information regarding a finding of fault or liability in an FCA proceeding or a settlement of an FCA action resulting in an admission of fault.

In November 2011, Assistant Attorney General Tony West discussed the DOJ’s “comprehensive approach” to fighting fraud, which “means more than just being tough.  It also means being fair.  It means acknowledging when companies and individuals do the right thing and voluntarily disclose wrongdoing to law enforcement officials.”[71]  West remarked that the government will consider voluntary disclosures and cooperation when deciding whether to charge a company and determining the amount of any resolution.[72]  Perhaps, in the end, those who do business with the federal government and strive to “do the right thing” can take some comfort from these comments that they will not be unjustly or disproportionately penalized when rogue employees commit fraud against the government.

In conclusion, based on the ever-increasing and well-publicized FCA bounties, the staggering figures of fraud and abuse in government programs, and the intense demand for oversight and accountability discussed in this and our prior FCA updates, Gibson Dunn predicts that 2012 will be another dynamic and interesting year for FCA activity.  As you might expect, we will keep you posted.

  [1]  See U.S. Dep’t of Justice, Fraud Statistics — Overview (Dec. 7, 2011), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf; Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [2]  See U.S. Dep’t of Justice, Fraud Statistics — Overview (Dec. 7, 2011), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.

  [3]  See Taxpayers Against Fraud, FY 2011 False Claims Act Settlements (as of Oct. 25, 2011), http://www.taf.org/total2011.htm.

  [4]  See Dep’t of Justice, Fraud Statistics — Overview (Dec. 7, 2011), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.

  [5]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [6]  See U.S. Dep’t of Justice, Fraud Statistics — Overview (Dec. 7, 2011), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.

  [7]  Id.

  [8]  Id.

  [9]  31 U.S.C. §3730(d)(2).

  [10]  United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corp., 1:04cv01224-MSK (D. Colo. June 2, 2011).

  [11]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Deputy Attorney General James M. Cole Speaks on a Press Conference Call Regarding the Campaign to Cut Waste (Dec. 13, 2011), http://www.justice.gov/iso/opa/dag/speeches/2011/dag-speech-111213.html.

  [12]  Id.; see also DOJ Total (Criminal & Civil) Fraud Recoveries 2008 vs. 2011,  http://www.whitehouse.gov/sites/default/files/uploads/crm_civ_fraud_2008_2011.pdf; Campaign to Cut Waste: Vice President Biden Announces U.S. will Halt Production of Excess Dollar Coins and Department of Justice Recovered a Record $5.6 billion in Fraud in 2011(Dec. 13, 2011), http://www.whitehouse.gov/the-press-office/2011/12/13/campaign-cut-waste-vice-president-biden-announces-us-will-halt-productio.

  [13]  Id.

  [14]  Id.

  [15]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [16]  Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Oracle Agrees to Pay U.S. $199.5 Million to Resolve False Claims Act Lawsuit (Oct. 6, 2011), http://www.justice.gov/opa/pr/2011/October/11-civ-1329.html.

  [17]  Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, U.S. Pharmaceutical Company Merck Sharp & Dohme to Pay Nearly One Billion Dollars Over Promotion of Vioxx® (Nov. 22, 2011), http://www.justice.gov/opa/pr/2011/November/11-civ-1524.html.

  [18]  See Press Release, Abbott Laboratories, Abbott Reports Strong Ongoing Third Quarter Results; Confirms Double-Digit Ongoing Earnings Growth Outlook for 2011 (Oct. 19, 2011), http://www.abbott.com/news-media/press-releases/2011-oct19.htm.

  [19]  Press Release, Amgen, Inc., Amgen’s Third Quarter 2011 Revenue and Adjusted Earnings Per Share (EPS) Each Increased 3 Percent to $3.9 Billion and $1.40 (Oct. 24, 2011),  http://www.amgen.com/media/media_pr_detail.jsp?year=2011&releaseID=1620695.

  [20]  Press Release, GlaxoSmithKline plc, GlaxoSmithKline reaches agreement in principle to resolve multiple investigations with US Government (Nov. 3, 2011), http://www.gsk.com/media/pressreleases/2011/2011-pressrelease-710182.htm.

  [21]  See Taxpayers Against Fraud, False Claims Act Update & Alert (Dec. 15, 2011), http://www.taf.org/whistle334.htm.

  [22]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [23]  See U.S. Dep’t of Justice, Fraud Statistics — Overview (Dec. 7, 2011), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.

  [24]  Id.

  [26]  Id.

  [27]  Id.

  [28]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Maxim Healthcare Services Charged with Fraud, Agrees to Pay Approximately $150 Million, Enact Reforms After False Billings Revealed as Common Practice (Sept. 12, 2011),  http://www.justice.gov/opa/pr/2011/September/11-civ-1169.html.

  [29]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Tony West Speaks at the Maxim Healthcare Settlement Press Conference (Sept. 12, 2011), http://www.justice.gov/iso/opa/civil/speeches/2011/civ-speech-110912.html.

  [30]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Accenture Pays U.S. $63.675 Million to Settle False Claims Act Allegations (Sept. 12, 2011), http://www.justice.gov/opa/pr/2011/September/11-civ-1167.html.

  [31]  See E.D. Ark. Case Nos. 4:04-cv-00984; 00985; 00986; 00988; 00989; 00990; and 00991.

  [32]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Saudi Arabia-Based Tamimi Global Company to Pay U.S. $13 Million to Resolve Criminal and Civil Allegations of Kickbacks and Illegal Gratuities (Sept. 16, 2011), http://www.justice.gov/opa/pr/2011/September/11-crm-1203.html.

  [33]  See Tamimi Global Company Limited v. Kellogg Brown & Root LLC, No. 4:11-cv-00585 (S.D. Tex., Dec. 29, 2010) (ECF Nos. 41,46).

  [34]  Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, United States Files Counterclaims Against KBR Alleging False Claims and Kickbacks (Mar. 16, 2011), http://www.justice.gov/opa/pr/2011/March/11-civ-336.html.

  [35]  Kellogg Brown & Root Servs. v. United States, 99 Fed. Cl. 488 (2011).

  [36]  See Press Release, Dep’t of Justice, United States Attorney’s Office for the Eastern District of Tennessee, Hill-Rom Company, Inc. Will Pay $41.8 Million To Resolve Federal Health Care Fraud Investigation (Sept. 27, 2011), https://archives.fbi.gov/archives/knoxville/press-releases/2011/hill-rom-company-inc.-will-pay-41.8-million-to-resolve-federal-health-care-fraud-investigation.

  [37]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, SAIC and Others to Pay U.S. More Than $22.6 Million to Resolve False Claims Allegations (Sept. 29, 2011), http://www.justice.gov/opa/pr/2011/September/11-civ-1282.html.

  [38]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Lockheed Martin to Pay $2 Million to Resolve Allegations Resulting from Fraudulent Submission of Government Contract (Jan. 24, 2011), http://www.justice.gov/opa/pr/2011/January/11-civ-095.html.

  [39]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Louisiana-Based LHC Group Inc. Agrees to Pay U.S. $65 Million to Resolve False Claims Act Allegations (Sept. 30, 2011), http://www.justice.gov/opa/pr/2011/September/11-civ-1299.html.

  [40]  Id.

  [41]  United States ex rel. Wright v. Chevron USA, Inc. et al., 5:03-CV-264 (E.D. Tex.).

  [42]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, BP Amoco to Pay U.S. $20.5 Million to Resolve Allegations of Royalty Underpayments from Indian and Federal Lands (Sept. 16, 2011), http://www.justice.gov/opa/pr/2011/September/11-civ-1201.html.

  [43]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Oracle Agrees to Pay U.S. $199.5 Million to Resolve False Claims Act Lawsuit (Oct. 6, 2011), http://www.justice.gov/opa/pr/2011/October/11-civ-1329.html.

  [44]  In Re Oracle Corporation Derivative Litigation, No. C 10-3392 RS (N.D. Cal).

  [45]  In Re Oracle Corporation Derivative Litigation, No. C 10-3392 RS, 2011 U.S. Dist. LEXIS 129765 (N.D. Cal Nov. 9, 2011).

  [46]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Pfizer to Pay $14.5 Million for Illegal Marketing of Drug Detrol (Oct. 21, 2011), http://www.justice.gov/opa/pr/2011/October/11-civ-1389.html.

  [47]  See Press Release, United States Attorney’s Office, Southern District of New York, Manhattan U.S. Attorney Recovers $70 Million in Medicaid False Claims Act Lawsuit Against New York City (Oct. 31, 2011),  https://www.justice.gov/archive/usao/nys/pressreleases/October11/pcssettlementpr.pdf.

  [48]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Point Blank Pays U.S. $1 Million for the Sale of Defective Zylon Bulletproof Vests (Nov. 7, 2011), http://www.justice.gov/opa/pr/2011/November/11-civ-1466.html.

  [49]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, U.S. Pharmaceutical Company Merck Sharp & Dohme to Pay Nearly One Billion Dollars Over Promotion of Vioxx® (Nov. 22, 1011), http://www.justice.gov/opa/pr/2011/November/11-civ-1524.html.

  [50]  See Settlement agreement, United States v. Merck Sharp & Dohme Corp, https://www.justice.gov/archive/usao/ma/news/2011/November/20111114024353852.pdf.

  [51]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, U.S. Pharmaceutical Company Merck Sharp & Dohme to Pay Nearly One Billion Dollars Over Promotion of Vioxx® (Nov. 22, 1011), http://www.justice.gov/opa/pr/2011/November/11-civ-1524.html.

  [52]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Minnesota-Based Medtronic Inc. Pays US $23.5 Million to Settle Claims That Company Paid Kickbacks to Physicians (Dec. 12, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1623.html.

  [53]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, GE Healthcare Inc. Pays U.S. $30 Million to Resolve False Claims Act Allegations (Dec. 29, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1717.html.

  [54]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Lanny A. Breuer Speaks at the American Health Lawyers Association and Health Care Compliance Association’s 2011 Fraud and Compliance Forum (Sept. 26, 2011), http://www.justice.gov/criminal/pr/speeches/2011/crm-speech-110926.html.

  [55]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Tony West Speaks at the 12th Annual Pharmaceutical Regulatory and Compliance Congress (Nov. 2, 2011), http://www.justice.gov/iso/opa/civil/speeches/2011/civ-speech-111102.html.

  [56]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [57]  Id.

  [58]  HHS OIG Semiannual Report to Congress (April 1, 2011 — September 30, 2011), http://oig.hhs.gov/reports-and-publications/archives/semiannual/2011/fall/HHS-OIG-SAR-Fall2011.pdf.

  [59]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Tony West Speaks at the GlaxoSmithKline Press Conference (Oct. 26, 2010), http://www.justice.gov/civil/opa/pr/speeches/2010/civ-speech-101026.html.

  [60]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Lanny A. Breuer Speaks at the American Health Lawyers Association and Health Care Compliance Association’s 2011 Fraud and Compliance Forum (Sept. 26, 2011), http://www.justice.gov/criminal/pr/speeches/2011/crm-speech-110926.html.

  [61]  See Office of Inspector General, Dep’t of Health and Human Services, HEAT Provider Compliance Training Videos, http://oig.hhs.gov/newsroom/video/2011/heat_modules.asp.

  [62]  Pharmaceutical Industry Is Biggest Defrauder of the Federal Government under the False Claims Act, New Public Citizen Study Finds, public citizen (Dec. 2010), http://www.citizen.org/Page.aspx?pid=4734.

  [63]  Letter from Jim Esquea, Assistant Sec’y, U.S. Dep’t of Health & Human Servs., and Ronald Weich, Assistant Attorney General, U.S. Dep’t of Justice, to Senator Charles E. Grassley (Jan. 24, 2011), available at http://www.healthindustrywashingtonwatch.com/uploads/file/DOJ-HHS-joint-letter-to-Grassley(1).pdf.

  [64]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Tony West Speaks at the 12th Annual Pharmaceutical Regulatory and Compliance Congress (Nov. 2, 2011), http://www.justice.gov/iso/opa/civil/speeches/2011/civ-speech-111102.html.

  [65]  Id.

  [66]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011(Dec. 19, 2011), available at http://www.justice.gov/opa/pr/2011/December/11-civ-1665.html.

  [67]  See Id.

  [68]  See Commission on Wartime Contracting in Iraq And Afghanistan, Final Report to Congress, Transforming Wartime Contracting: Controlling costs, reducing risks (August 2011), http://www.wartimecontracting.gov/docs/CWC_FinalReport-lowres.pdf.

  [69]  See Office of the Inspector General, Oversight Actions (Oct. 31, 2011), http://www.recovery.gov/Accountability/Pages/investigations.aspx.

  [70]  See United States of America v. Allied Home Mortgage Corporation, No :11-cv-05443-VM (S.D.N.Y.); Press Release, United States Attorney’s Office, Southern District of New York, Manhattan U.S. Attorney Sues Allied Home Mortgage, CEO, and Executive Vice President for Fraudulent Lending Practices Currently Associated With $834 Million in Insurance Claims Paid by HUD (Nov. 1, 2011),  https://www.justice.gov/archive/usao/nys/pressreleases/November11/alliedhomemortgage.html.

  [71]  See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Assistant Attorney General Tony West Speaks at the 12th Annual Pharmaceutical Regulatory and Compliance Congress (Nov. 2, 2011), http://www.justice.gov/iso/opa/civil/speeches/2011/civ-speech-111102.html.

  [72]  Id.

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