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November 4, 2020 |
Webcast: The False Claims Act: Updates for Health Care Providers

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance indicating some new thinking in the Trump Administration about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends vigorously to pursue any fraud, waste and abuse in connection with COVID-related stimulus funds.  As much as ever, any company that deals in government funds—especially in the health care sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. The panel discusses developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting health care providers;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
  • The coming surge of COVID-related FCA enforcement actions; and
  • The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Winston Y. Chan is a partner in the San Francisco office.  He has particular experience representing clients in enforcement actions and investigations by the DOJ, the Department of Health and Human Services Office of Inspector General, and State Attorneys General under the False Claims Act and related statutes.  He previously served as an Assistant United States Attorney in the Eastern District of New York, where he served in a number of supervisory roles, including as Health Care Fraud Coordinator overseeing qui tam and whistleblower investigations involving allegations of False Claims Act violations, kickbacks, misbranding and off-label promotion. Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes. Julie Schenker is a litigation associate in the Washington, D.C. office where she focuses on health care enforcement and compliance matters, other white collar defense and investigations, and related litigation.  She has represented health care provider clients in investigations by the DOJ, and the Department of Health and Human Services Office of Inspector General, and she has experience advising clients regarding the False Claims Act, Anti-Kickback Statute, and Stark Law, as well as other health care related matters. Jessica Wright is an associate in the San Francisco office. She practices in the firm’s Litigation Department and is a member of the White Collar Defense and Investigations and Securities Litigation Practice Groups where she represents companies dealing with FCA investigations, securities fraud allegations, and trade secret related matters.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour, of which 1.5 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.  

October 22, 2020 |
Webcast: The False Claims Act: Updates for Drug & Device Manufacturers

The False Claims Act ("FCA") is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance indicating some new thinking in the Trump Administration about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends to pursue vigorously any fraud, waste and abuse in connection with COVID-related stimulus funds. As much as ever, any company that deals in government funds—especially in the life sciences sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves.

Please join us to discuss developments in the FCA, including:
  • The latest trends in FCA enforcement actions and associated litigation affecting drug and device manufacturers;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
  • The coming surge of COVID-related FCA enforcement actions; and
  • The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ's enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Marian J. Lee is a partner in the Washington, D.C. office, where she provides FDA regulatory and compliance counseling to life science and health care companies. She has significant experience advising clients on FDA regulatory strategy, risk management, and enforcement actions. John D. W. Partridge is a partner in the Denver office where he focuses on white collar defense, internal investigations, regulatory inquiries, corporate compliance programs, and complex commercial litigation. He has particular experience with the FCA and the Foreign Corrupt Practices Act ("FCPA"), including advising major corporations regarding their compliance programs. Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the FCA and related statutes.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour, of which 1.5 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

October 13, 2020 |
Webcast: The False Claims Act: Updates for the Government Contracting Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance under the Trump Administration that has effectuated changes in DOJ’s approach to FCA cases. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends vigorously to pursue any fraud, waste and abuse in connection with COVID-related stimulus funds. As much as ever, any company that deals in government funds—especially in the government contracting sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join us to discuss developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting government contractors;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
  • The coming surge of COVID-related FCA enforcement actions; and
  • The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes. Erin N. Rankin is an associate in the Washington, D.C. office. She has extensive experience litigating government contract disputes and advising clients on FAR and DFARS compliance, with a particular focus on cost and pricing issues. Ms. Rankin also assists clients with all types of legal questions and disputes that arise in the creation, performance, and closing out of government contracts. She defends clients against False Claims Act allegations, negotiates and drafts subcontracts, conducts internal investigations, navigates disputes between prime and subcontractors, and represents clients in mandatory disclosures and suspension and debarment proceedings. Andrew Tulumello is a partner in the Washington, D.C. office.  He has represented several government contractors in investigations, suits, and trials (both by qui tam relators and the Department of Justice) under the False Claims Act involving federal contracts worth billions of dollars, including representing a leading defense contractor in 10(b) and derivative litigation following a $500 million deferred prosecution agreement with the Department of Justice.  He was profiled by The National Law Journal in recognizing Gibson Dunn’s Washington. D.C. office as the Litigation Department of the Year, in The National Law Journal’s  2017 Appellate Hot List, and by Bloomberg BNA (“Deflategate Lawyer Heads to High Court in Securities Case”). James Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour, of which 1.5 credit hour may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

October 6, 2020 |
Webcast: The False Claims Act: Updates for the Financial Services Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has issued statements and guidance indicating some new thinking in the Trump Administration about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed ten straight years of nearly $3 billion or more in annual FCA recoveries. The government has also made clear that it intends vigorously to pursue any fraud, waste and abuse in connection with COVID-related stimulus funds. As much as ever, any company that deals in government funds—especially in the financial services sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join us to discuss developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting the financial services sector;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with recent DOJ Civil Division personnel changes and DOJ’s use of its statutory dismissal authority;
  • The coming surge of COVID-related FCA enforcement actions; and
  • The latest developments in FCA case law, including developments in particular FCA legal theories affecting your industry and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ's enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. F. Joseph Warin is a partner in the Washington, D.C. office, chair of the office’s Litigation Department, and co-chair of the firm's White Collar Defense and Investigations practice group. His practice focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. James Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour, of which 1.5 credit hour may be applied toward the areas of professional practice requirement.  This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.5 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

July 17, 2020 |
2020 Mid-Year False Claims Act Update

Click for PDF

As the world reels from the COVID-19 pandemic and certain sectors of the economy struggle, False Claims Act (“FCA”) enforcement and litigation has largely plodded along during the first six months of 2020—and some areas reflect increasing activity. At the same time, the federal government’s stimulus efforts are sowing seeds for potentially significant future enforcement efforts, and the dire economic and employment landscape domestically may well catalyze whistleblower complaints.

As we have explained in prior alerts (available here and here), the federal government has spent record sums as part of COVID-19 stimulus and relief efforts; and whenever the government spends large amounts of money, activity under the FCA—the government’s primary tool for combating fraud against the government—is sure to follow. True to form, the government has already announced that FCA enforcement related to COVID-19 funding will be a priority in the months and years ahead, and we have begun to see the first wave of fraud prosecutions and investigations related to the government’s stimulus spending.

Meanwhile, enforcement efforts that started before the recent crisis have continued. And the courts, while somewhat slowed by shutdowns that have affected every court in the country, nevertheless produced notable opinions in the last six months that deserve careful attention for any company doing business, directly or indirectly, with the federal or state governments. As detailed below, these opinions address a wide range of issues, including the scope of the FCA’s falsity element (including in relation to whether and when differences in clinical judgments can serve as a predicate for liability), the contours of other key elements of the statute (e.g., scienter and materiality), and the public disclosure bar.

Below, we begin by summarizing recent enforcement activity, then provide an overview of notable legislative and policy developments at the federal and state levels, and finally we analyze significant court decisions from the past six months. Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I.  NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE FIRST HALF OF 2020

The first few months of 2020 featured a fairly typical number of FCA resolutions announced by DOJ. Unsurprisingly, there was a clear slowdown beginning in April as many government offices (and businesses) shuttered. This slowdown has resulted in lower overall recoveries compared to the pace during the first half of prior years. In a significant departure from past years, DOJ has announced only one nine-figure settlement this year (a $145 million settlement with a health information technology developer that was implicated in an alleged kickback scheme relating to prescriptions of opioid products).

Behind the scenes, however, neither the government nor the private relators’ bar seem to have lost focus on FCA enforcement as a result of COVID-19. Ongoing investigations are moving forward. And June has already seen a slight uptick in the number of resolutions announced (although the average amounts generally have been lower than in the beginning of 2020).

As usual, the majority of FCA recoveries from enforcement actions this year have involved health care and life sciences entities, including recoveries alleging violations of the Anti-Kickback Statute (“AKS”) and the Stark Law, which generally prohibit various types of remunerative arrangements with referring health care providers. Below, we summarize these and some of the other most notable settlements thus far in 2020.

In addition to the settlements summarized below, there was also a (comparatively rare) federal jury trial under the FCA during the first half of the year. In March 2020, a federal jury found after a nine-week trial that several individuals and their affiliated companies were liable for violations of the FCA, and awarded $10.85 million in single damages (which after statutory trebling and civil penalties resulted in a judgment of more than $32 million).[1] According to the government, the defendants submitted fraudulent Medicare cost reports when they billed Medicare for compensation paid to owners and executives who did not do reimbursable work for the hospital; the U.S. Attorney for the Southern District of Mississippi called the matter “one of the most egregious cases of Medicare fraud we have litigated in the State of Mississippi.”

A.  Health Care and Life Science Industries

  • On January 15, a California-based manufacturer of durable medical equipment (“DME”) agreed to pay more than $37.5 million to resolve allegations that it violated the FCA by paying kickbacks to equipment suppliers, sleep laboratories, and other health care providers. The government alleged that the DME manufacturer induced patient referrals by, among other things, providing free patient outreach services and below-cost equipment and installation, as well as arranging for, and guaranteeing payments due on, interest-free loans for the purchase of its equipment. The company contemporaneously entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General (“HHS-OIG”) that requires the company to implement additional controls around its product pricing and sales and conduct monitoring of its arrangements with referral sources.[2]
  • On January 21, a patient co-pay foundation based in Virginia agreed to pay $3 million to resolve allegations that it coordinated with three pharmaceutical manufacturers to enable them to provide kickbacks to Medicare patients taking the manufacturers’ drugs. DOJ alleged that the foundation designed and operated funds that directed money from the pharmaceutical manufacturers to patients to cover co-payments for drugs sold by those companies. The settlement amount was determined based on the foundation’s ability to pay. The foundation agreed to a three-year Corporate Integrity Agreement with HHS-OIG that requires the foundation to implement measures to ensure that it operates independently and that its interactions with donors comply with the law. The Integrity Agreement also requires compliance-related certifications from the foundation’s Board of Directors, and reviews by an independent review organization. The federal government previously entered into settlements with the three pharmaceutical manufacturers related to the same allegations.[3]
  • On January 27, a California-based health information technology developer entered into a deferred prosecution agreement and agreed to pay over $26 million in criminal fines and forfeit criminal proceeds of nearly $1 million, to resolve allegations that it obtained unlawful kickbacks from pharmaceutical companies in exchange for implementing clinical decision support alerts in its electronic health record software designed to increase prescriptions of the companies’ drug products. This represents the first criminal action against an electronic health records vendor. In a simultaneous civil settlement, the developer agreed to pay approximately $118.6 million to the federal government and states to resolve allegations that it accepted kickbacks from pharmaceutical companies and that it caused its users to submit false claims for federal incentive programs by misrepresenting the capabilities of its software. The civil settlement also resolved allegations that the developer obtained false certifications for its electronic health care software.[4]
  • On February 19, an operator of nursing facilities in Pennsylvania, Ohio, and West Virginia agreed to pay more than $15.4 million to settle allegations that it overbilled Medicare and the Federal Employees Health Benefits Program for medically unnecessary rehabilitation therapy services. The settlement also resolves allegations that the nursing facility operator received payments for ineligible services performed by employees who were excluded from federal health care programs. The relators who filed the case will receive approximately $2.8 million as their share of the recovery. The nursing facility operator also agreed to enter into a chain‑wide Corporate Integrity Agreement.[5]
  • On February 28, DOJ announced a second settlement related to the provision of unnecessary rehabilitation therapy services at nursing homes. A Tennessee-based provider of skilled nursing and rehabilitation services agreed to pay $9.5 million to settle allegations that it knowingly submitted false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary, or provided by appropriately skilled personnel, and that it forged pre‑admission evaluations of patient need for skilled nursing services to Tennessee’s Medicaid Program. The two relators who filed the case will receive approximately $1.4 million and $145,000, respectively, as their share of the recovery.[6]
  • On February 28, a pharmaceutical company agreed to pay nearly $11.9 million to resolve allegations that it paid kickbacks to Medicare patients through a charitable foundation. The government alleged that the company violated the AKS and thus the FCA by making payments to the foundation for the purpose of using the foundation as a conduit to pay Medicare co-pay obligations of patients taking the company’s drug. The company also entered into a Corporate Integrity Agreement with HHS-OIG that will require, among other things, reviews by an independent review organization and compliance-related certifications from the company’s executives and Board of Directors.[7]
  • On March 17, a Pennsylvania doctor agreed to pay $2.8 million under the FCA and the Controlled Substances Act, as well as in civil forfeiture, relating to alleged distribution to patients of non-medically necessary drugs for which he then submitted claims to federal health care programs.[8]
  • On April 6, a New Jersey chiropractor agreed to pay $2 million to resolve allegations that he billed federal health care programs for unnecessary injections and knee braces and accepted kickbacks. This resolution followed an agreement reached with seven former clinics and their owners, which we discussed in our 2019 Year-End Update.[9]
  • On April 6, a Georgia-based biopharmaceutical company agreed to pay $6.5 million to resolve claims that it charged inflated prices to the U.S. Department of Veterans Affairs for human tissue graft products.[10] The company allegedly misreported its commercial pricing, enabling the company to charge inflated prices to the government.
  • On April 10, a rehabilitation services company agreed to pay more than $4 million to resolve allegations that it caused three skilled nursing facilities to submit claims for reimbursement for unnecessary or inaccurately recorded time allegedly spent on rehabilitation services. The company also entered into a five-year Corporate Integrity Agreement that requires training, auditing, and monitoring relating to the conduct at issue.[11]
  • On April 14, a rehabilitation company and related entities agreed to pay $10 million to resolve similar allegations that the company submitted claims to Medicare for rehabilitation therapy services that were improperly labeled as being for “Ultra High”—or the neediest—patients.[12]
  • On April 15, a lab company, an associated pain clinic, and two former executives agreed to pay $41 million to resolve FCA allegations that they engaged in unnecessary urine drug testing.[13] According to the government, the defendants developed and implemented a practice of automatically ordering expensive and unnecessary testing, without any physician making an individualized determination that the tests were medically necessary for particular patients.
  • On April 22, a non-profit hospital operator and affiliated physician group paid nearly $10 million to resolve allegations that they had engaged in unlawful referral arrangements in violation of the Stark Law, AKS, and FCA.[14] The hospital operator proactively self-disclosed its violations of the FCA to the government and cooperated in the investigation.
  • On April 27, a North Carolina-based laboratory agreed to pay $43 million to resolve FCA allegations that the company submitted claims for tests that were not medically necessary and engaged in other improper billing and compensation methods.[15]
  • On June 25, an Atlanta-based hospital system agreed to pay $16 million to resolve FCA allegations that it inappropriately billed federal health care programs for more costly inpatient care, rather than for outpatient care.[16] The government alleged that case managers overturned the judgment of treating physicians and billed Medicare and Medicaid for inpatient care despite the physicians’ recommendation that outpatient care was appropriate. The settlement also resolved allegations that the hospital system paid a commercially unreasonable sum to acquire a cardiology group in violation of the AKS.

B.  Government Contracting

  • On January 3, a university based in New Jersey agreed to pay more than $4.8 million to resolve allegations that it submitted false claims for payment to the Department of Veterans Affairs to receive education benefits and funds pursuant to the Post-9/11 Veterans Education Assistance Act to which the university was not entitled. Three individuals previously pleaded guilty to related criminal charges.[17]
  • On January 31, two companies agreed to pay a collective $29 million to resolve FCA allegations that they rigged bidding in an auction to acquire a U.S. Department of Energy Loan. The government alleged that the companies pressured competing bidders to suppress bids during a live auction, thereby reducing the amount recovered in the auction and allowing the companies to acquire the loan for less than its fair market value. The relators who filed the case will receive approximately $5.2 million as their share of the recovery.[18]
  • On February 6, the successor to a local redevelopment agency based in Los Angeles, California, agreed to pay $3.1 million to resolve allegations that its predecessor violated the FCA by allegedly failing to comply with federal accessibility laws when it financed and helped develop affordable housing using federal funds. Since the events underlying the allegations, California has dissolved all redevelopment agencies, and the party to the settlement is working to wind down the affairs of its predecessor.[19]
  • On April 27, a Massachusetts university agreed to pay more than $1.3 million to resolve allegations of overcharging NIH grants.[20] The university self-disclosed concerns that one of its professors had overcharged NIH by overstating time and effort spent on statistical analysis support that the professor and her team provided to other professors on grant-related research.

II.  LEGISLATIVE AND POLICY DEVELOPMENTS

A.  COVID-19 Enforcement Policy

As we reported previously, DOJ has already confirmed that it will focus resources on COVID-19-related fraud. In a March 16 memorandum to all U.S. Attorneys and a March 20 press release, Attorney General William Barr announced that DOJ will prioritize the investigation and prosecution of coronavirus-related fraud schemes.[21] In addition, Attorney General Barr directed U.S. Attorneys to appoint a “Coronavirus Fraud Coordinator” in each district—responsible for coordinating enforcement and conducting public outreach and awareness—and also established a national system for whistleblowers to report suspected fraud.

Recent public remarks by DOJ Civil Division Principal Deputy Assistant Attorney General Ethan Davis—delivered in a June 28, 2020 speech—reaffirmed that the Civil Division’s Fraud Section has prioritized FCA actions involving fraud relating to COVID-19.[22] These remarks highlighted, in particular, intent to focus scrutiny under the FCA on several aspects of the stimulus funding under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), such as in connection with certifications of compliance with loan program requirements.

And DOJ has already begun taking action against COVID-19 related fraud, as promised. In one instance, DOJ filed criminal healthcare fraud charges against an officer of a medical technology company alleging in part that the defendant paid unlawful kickbacks and bundled medically unnecessary COVID-19 testing with other services billed to the government and thereby allegedly caused submission of false claims that were kickback-tainted, medically unnecessary, and/or otherwise not provided as represented.[23] Although the case involves only criminal charges, the underlying health care fraud allegations regarding unlawful billing and alleged kickbacks are what would likely form core FCA issues in a civil fraud action, and may be an indicator of what is to come.

B.  Federal Legislative Developments

1.  COVID-19 Legislation

There also have been several federal legislative developments thus far in 2020 that may spur FCA enforcement activities for years to come. We have covered these developments in detail in updates throughout the COVID-19 crisis (available here and here), and we summarize the key provisions here for ease of reference.

The most notable legislation is the CARES Act. The CARES Act, which is the largest emergency stimulus package in history, devotes $2.2 trillion worth of government funds to mitigate the effects of COVID-19.[24] The Act provides relief for businesses, industries, individuals, employers, and states in a number of ways, including a Small Business Administration (“SBA”) loan program offering up to $350 billion in relief, as well as economic stabilization programs to provide loans, loan guarantees, and funding for eligible industries, businesses, states, and municipalities.

DOJ has repeatedly signaled that it will devote significant resources to combating fraud related to COVID-19, including fraud involving CARES Act funds.[25] DOJ’s efforts will be complemented by the CARES Act’s creation of a new oversight committee called the Pandemic Response Accountability Committee (“PRAC”) to promote transparency and oversight of CARES Act appropriated funds.[26] The Act’s emergency appropriations included $80 million for the PRAC, which will be comprised of various agency Inspectors General to “(1) prevent and detect fraud, waste, abuse, and mismanagement; and (2) mitigate major risks that cut across program and agency boundaries.”[27]

2.  Public Pronouncements Regarding DOJ’s Dismissal Authority

As in the past several years, public debate has continued in the first half of 2020 regarding DOJ’s use of its authority to dismiss FCA actions brought by qui tam relators. In a May 4, 2020 letter to Attorney General Barr, Senator Chuck Grassley (R-IA) stated that he could “confidently say,” as “the original author” of the 1986 amendments to the FCA, that the text of the FCA subjects DOJ’s dismissal decisions to judicial review.[28] As such, Senator Grassley stated, he “vehemently” disagreed with DOJ’s view, contained in a brief the Solicitor General recently filed in the Supreme Court, that DOJ’s dismissal decisions are “an unreviewable exercise of prosecutorial authority.”[29] DOJ has increasingly moved to dismiss FCA cases since January 10, 2018, when Michael Granston, then Director of the Civil Fraud Section, issued guidance on when DOJ should exercise its dismissal authority, a development we have discussed in prior updates (available here and here). It remains to be seen whether Senator Grassley’s letter will prompt any shift in DOJ’s approach.

DOJ itself has continued to make its dismissal authority a focal point of the Department’s public pronouncements. In January 2020, at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement, then‑Deputy Associate Attorney General Stephen Cox emphasized that the FCA continues to be one of DOJ’s “most important tools” to fight health care, grant, financial, and government-contracting fraud.[30] He also discussed DOJ’s 31 U.S.C. § 3730(c)(2)(A) dismissal authority, noting that “if we see a qui tam action raising frivolous or non-meritorious allegations that the Department of Justice disagrees with or could not make in good faith, we should not let a plaintiff try the case on behalf of the United States.”[31] He further stated that DOJ’s “exercise of this authority will remain judicious, but we will use this tool more consistently to preserve our resources for cases that are in the United States’ interests and to rein in overreach in whistleblower litigation.”[32] This may be a signal that DOJ will become more aggressive in exercising its dismissal authority. However, it is also worth noting that Cox was recently confirmed as U.S. Attorney for the Eastern District of Texas, and another senior DOJ official, Jody Hunt, resigned from his position as Assistant Attorney General for the Civil Division effective July 3. It remains unclear whether these changes in senior DOJ personnel will beget a shift in DOJ’s approach to the exercise of its dismissal authority. We will continue to monitor and report on any such developments.

3.  Final DOJ Rule Increasing Per-Claim Penalties

In late June, DOJ issued a final rule increasing FCA per‑claim penalties for the first time since 2018.[33] DOJ is required by law to adjust penalties to keep pace with inflation, and this change effectuates that mandate. Under the new penalty framework, for FCA penalties assessed after June 19, 2020 (and applicable to violations occurring after November 2, 2015), the minimum per‑claim penalty is now $11,665 (up from $11,181) and the maximum penalty is now $23,331 (up from $22,363).[34]

C.  State Legislative Developments

We detailed HHS-OIG’s review and approval of state false claims statutes and other developments in state laws in our 2019 Mid-Year FCA Update and 2019 Year-End FCA Update.

As an incentive for seeking HHS-OIG approval, states can receive “a 10-percentage-point increase in their share of any amounts” recovered under the relevant laws.[35] To receive approval, state statutes must (among other requirements) contain provisions that are “at least as effective in rewarding and facilitating qui tam actions” as those in the federal FCA, and must contain civil penalties at least equivalent to those imposed by the federal FCA.[36] A similar requirement is that a given state’s statute must provide for civil penalty increases “at the same rate and time as those authorized under the [federal] FCA” pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.[37] Currently, the total number of states with approved statutes stands at twenty-one (California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Montana, Nevada, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, and Washington), while eight states have laws that have not yet been deemed to meet the federal standards (Florida, Louisiana, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, and Wisconsin).[38]

Several states also have proposed false claims act legislation in the first half of 2020. In the District of Columbia, the D.C. Council is considering a bill that would amend the District’s existing false claims act (D.C. Code Ann. § 2-381.01 et seq.) to expressly authorize tax-related false claims actions against persons who “reported net income, sales, or revenue totaling $1 million or more in a tax filing to which [the relevant] claim, record, or statement pertained, and the damages pleaded in the action total $350,000 or more.”[39] The bill would authorize treble damages for tax‑related violations, meaning District taxpayers could be liable for three times the amount not only of any taxes, but also of any interest and tax penalties.[40] Because D.C.’s current false claims statute excludes tax‑related claims from false claims liability, this bill, if passed, would represent a major policy shift.[41] The D.C. Council Committee of the Whole reported favorably on the bill on January 21, 2020, and recommended approval of the bill by the Council.[42]

The Pennsylvania legislature also is considering a false claims act bill that would enable private citizens to bring lawsuits on behalf of the state against anyone who “[k]nowingly presents or causes to be presented a false or fraudulent claim for payment or approval” or “[k]nowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim.”[43] The bill would also require the Attorney General to make recommendations to state agencies on how to prevent false claims violations from occurring.[44] The new law would empower the Pennsylvania Office of the Attorney General to enforce its provisions, including via civil investigative demands.[45] The bill largely mirrors the federal FCA and was first referred to the House Human Services Committee on May 21, 2020.[46] As of this update, it is pending review by the House Rules Committee, as the Pennsylvania General Assembly continues its 2019-2020 session.[47]

We also reported in our 2019 Mid-Year Update on a bill passed by the California Assembly, Assembly Bill No. 1270, which would alter the state’s false claim act considerably, including by amending the act to limit the definition of materiality to include only “the potential effect” of an alleged false record or statement “when it is made,” without consideration—contrary to the U.S. Supreme Court’s 2016 decision in Escobar[48]—of “the actual effect of the false record or statement when it is discovered.”[49] The amendments would also extend the act to tax-related cases where the damages pleaded exceed $200,000 and a defendant’s state-taxable income or sales exceed $500,000.[50] After the bill stalled in the State Senate, a California Assembly member (Mark Stone, D-Monterey Bay) introduced a substantially similar bill, Assembly Bill No. 2570.[51] The bill remains pending in the State Senate, which was scheduled to return from its summer recess on July 13 but on July 9 announced that the return would be delayed until July 27.[52] We will continue to monitor state legislation in these states and others for signs of further movement or revisions.

III.  NOTABLE CASE LAW DEVELOPMENTS

The first half of 2020 saw a number of notable circuit court decisions, including several touching on the FCA’s reach, exploring Rule 9(b)’s heightened pleading requirements, and addressing notable topics such as litigation funding arrangements.

A.  Third and Ninth Circuits Hold That Differences in Clinical Judgments May Satisfy “Falsity” Element under the FCA

One key area of developing FCA jurisprudence in recent years has been whether and when differences in medical opinions may satisfy the falsity element of FCA liability. Last year, the Eleventh Circuit held in United States v. AseraCare, Inc. that claims cannot be “deemed false” under the FCA based solely on “a reasonable difference of opinion among physicians” as to a medical provider’s clinical judgment, although the court left open the door for FCA claims where there is a showing of facts “inconsistent with the proper exercise of a physician’s clinical judgment.” 938 F.3d 1278, 1293 (11th Cir. 2019). Earlier decisions by the Tenth and Sixth Circuits, on the other hand, suggested that a mere difference of medical opinion between physicians may be sufficient in certain circumstances to show that a statement is “false” for purposes of FCA liability. United States ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730 (10th Cir. 2018); United States v. Paulus, 894 F.3d 267 (6th Cir. 2018).

The Third and Ninth Circuits entered the fray this year in a pair of similar decisions. First, the Third Circuit, in United States ex rel. Druding v. Care Alternatives, stated that a “physician’s judgment may be scrutinized and considered ‘false’” and that a “difference of medical opinion is enough evidence to create a triable dispute of fact regarding FCA falsity.” 952 F.3d 89, 100 (3d Cir. 2020). There, relators argued that defendants provided medically unnecessary hospice care to ineligible patients even though defendants maintained written certifications of necessity of care from a physician for each patient who was admitted to the hospice program. To prove the alleged “falsity” of the certifications, relators relied on expert testimony that the patients at issue did not, in fact, need hospice care—a conclusion disputed by defendants’ own experts. Id. at 91. The district court granted summary judgment to the defendants; because there was no evidence that any physician had certified hospice treatment was appropriate for any patient that the physician actually “believed was not hospice eligible,” the court reasoned that a mere disagreement among experts as to necessity of care could not establish that the admitting physicians’ clinical judgments were false. Id.

On appeal, the Third Circuit reversed, faulting the district court for conflating the elements of falsity and scienter, and concluding that “falsity” can be shown by mere differences in medical judgments. The court explained that a claim based on a medical conclusion regarding a patient’s care could be deemed “legally false,”—i.e., a claim that does not conform to certain regulatory requirements such as a requirement that any certification as to necessity of care be supported by a clinical diagnosis—and that in such circumstances, expert testimony would be relevant to determining falsity. Id. at 98.

Importantly, however, the Third Circuit recognized that the scienter element still serves as a “limit[ to] the possibility . . . [of] expos[ure] to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” Id. at 96. Thus, even showing that opinions are “false” cannot serve to establish FCA liability absent evidence “that Defendant’s certifying doctor was making a knowingly false determination.” Id.

The Ninth Circuit reached a similar conclusion in Winter ex rel. United States v. Gardens Regional Hospital and Medical Center, holding that an FCA claim based on an alleged lack of medical necessity may be sufficient to survive a motion to dismiss. 953 F.3d 1108, 1117 (9th Cir. 2020). In Winter, the relator (a nurse) alleged that the defendant, a hospital provider, had “falsely certif[ied] that patients’ inpatient hospitalizations were medically necessary,” based on the relator’s opinion and on other evidence allegedly in the patients’ medical files. Id. at 1112. The district court granted defendants’ motion to dismiss, holding that because a relator “must show that a defendant knowingly made an ‘objectively false’ representation,” “a doctor’s clinical judgment cannot form the basis of an FCA suit” because “subjective medical opinions . . . cannot be proven to be objectively false.” Id.

The Ninth Circuit reversed, holding that differences in opinion may satisfy the falsity element. Like the Third Circuit, the Ninth Circuit faulted the district court for conflating scienter and falsity. Citing Druding and relying on the statutory text, the court explained that medical judgements can be “false” under the statute’s plain language, which does not “carve out an exception for clinical judgments and opinions.” Id. at 1117. The court explained that an opinion as to medical necessity may be “false,” for example, if the opinion is “dishonestly held” or is shown to be untrue by other evidence of a diagnosis in accordance with “standards of medical practice.” Id. The Ninth Circuit also disclaimed any conflict with the Eleventh Circuit’s AseraCare opinion, which it read as recognizing that clinical judgments can be false in some circumstances.

The Ninth Circuit emphasized that “falsity is a necessary, but not sufficient, requirement for FCA liability”—and that “after alleging a false statement, a plaintiff must still establish scienter” (i.e., that it was made with the requisite intent) for the statement to be actionable under the FCA. Id. at 1118. The court also cautioned, however, that at least at the pleadings stage, scienter may be “alleged generally” under Rule 9(b) and that “specific intent” to defraud is not required under the FCA. Id.

The decisions in Winter and Druding suggest that in cases premised on allegations regarding medical necessity, courts—at least in certain circuits—may allow claims based upon differences in opinions to proceed on the “falsity” element, at least under certain circumstances; but other elements (such as scienter, and materiality) still provide strong defenses. Unfortunately, this may limit defendants’ ability to secure dismissal of spurious suits at the pleading stage.

B.  Fourth Circuit Rejects Qualified Immunity as a Defense to FCA Liability for Government Officials

When applicable, the doctrine of qualified immunity shields federal and state officials from damages for violating statutory or constitutional rights. The Fourth Circuit, in United States ex rel. Citynet, LLC v. Gianato, rejected qualified immunity as a defense to FCA claims under any circumstances. 962 F.3d 154, 160 (4th Cir. 2020). In Citynet, the relator alleged that certain state officials in West Virginia had defrauded the United States when obtaining federal funding to improve broadband connectivity for state residents. Defendants moved to dismiss based on qualified immunity, and although the district court deferred ruling on the merits of the defense, its decision nevertheless implicitly recognized that the doctrine “could [be] invoke[d] as a defense to claims of fraud brought under the FCA.” Id. at 156.

In an interlocutory appeal, the Fourth Circuit reversed, concluding that qualified immunity “may not be invoked as a defense to liability under the FCA.” As the court explained, the doctrine of qualified immunity is fundamentally “inconsistent” with “the FCA’s scienter requirement,” which is explicit that FCA liability “attaches only where a person has acted intentionally or recklessly.” Id. at 159. Because qualified immunity protects a government official only when the official acts “reasonably, but mistakenly,” and not when “acting intentionally or recklessly,” qualified immunity does not apply in the FCA context. Id. The court also relied on policy concerns behind application of the doctrine—namely that it is intended to protect the public interest—in rejecting its application in cases where the United States is defrauded. Id.

C.  Seventh Circuit on AKS Liability

The Seventh Circuit’s recent ruling on what may constitute a “referral” subject to the AKS might have FCA implications. In Stop Illinois Health Care Fraud, LLC v. Sayeed, the relator alleged that in-home health care services providers and associated entities engaged in an illegal patient referral scheme. Under the alleged scheme, the provider purportedly purchased access to patient files from a non-profit senior care organization, in violation of the AKS and, by extension, the FCA. 957 F.3d 743, 745 (7th Cir. 2020). After a bench trial, the district court entered judgment for the defendants, concluding that there was no evidence that any remuneration was paid with the intent to induce “referrals.” Id. at 745. Among other arguments, relator argued at trial that the provider had violated the AKS when it entered into a contract with the non-profit under which it paid a monthly fee that was “intended to secure access to client information” in the non-profit’s files, which was then used by the provider to solicit business. Id.

On appeal, the Seventh Circuit held that the district court had not adequately addressed whether this “file-access theory” of liability could “constitute a prohibited referral under the Anti-Kickback Statute.” Id. at 746. The Seventh Circuit outlined that the term “referral” does not require “explicit direction of a patient to a provider” in a direct manner but rather, is to be understood as a “more inclusive” notion, to include “subtle” arrangements that involve even an “indirect means of connecting a patient with a provider.” Id. The court recognized that where a provider allegedly has provided something of value in exchange for access to files with patient information and then used that information to solicit clients, this set of facts “would allow, but perhaps not compel, a finding that [the arrangement] qualifies as a referral.” Ultimately, the Seventh Circuit remanded this “close question” for the district court to consider initially. Id.

The Seventh Circuit’s description of what could potentially constitute a “referral” subject to the AKS, and, by turn, implicate the FCA if billed to the government, may invite further theories of AKS and FCA liability in this arena.

D.  Courts Continue to Interpret the FCA’s Materiality And Scienter Requirements Post-Escobar

Courts this year have continued to develop and refine jurisprudence regarding materiality, government knowledge, and scienter under the FCA in the wake the Supreme Court’s landmark decision on the implied certification theory of liability in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). Consistent with the Supreme Court’s directive in Escobar, courts have examined whether FCA plaintiffs have adequately alleged facts to satisfy the rigorous and demanding materiality standard at the pleadings stage.

Earlier this year, the Eleventh Circuit weighed in on both materiality and scienter—as well as a challenge to a relator’s status based on a litigation funding agreement. In Ruckh v. Salus Rehabilitation, LLC, the relator alleged that a nursing home facility and related entities were misrepresenting the services they provided and also failed to comply with Medicaid requirements (e.g., by upcoding claims). No. 18-10500, --- F.3d ----, 2020 WL 3467393, at *4 (11th Cir. June 25, 2020). After a jury found the defendants liable for alleged FCA violations and awarded more than $100 million in damages before trebling, the district court granted a motion to set aside the verdict, finding relators had failed to provide sufficient evidence of materiality and scienter at trial.

On appeal, the Eleventh Circuit reversed and reinstated the verdict in part. As to materiality, while the defendants argued that instances of “upcoding” and similar practices were “recordkeeping mistakes the FCA does not punish,” the court held that “the jury was not required to believe the defendants’ position” and reasonably could have found this an “implausible explanation.” Id. at 12. As to scienter, despite the district court’s observation there was no evidence of a “massive, authorized, cohesive, concerted, enduring, top-down corporate scheme,” the court of appeals held that relator’s evidence showing company management was allegedly aware of and approved the practices at issue supported the jury’s finding that the defendants acted with scienter. Id. at 12-16.

The court upheld, however, a reduction of approximately $20 million in the jury verdict relating to a subset of the claims at issue. Those claims stemmed from patient files that lacked care plans allegedly in violation of applicable regulations. Id. at 16. The Eleventh Circuit reasoned that there was “no evidence” that the government sought reimbursement for these violations once it was made aware of them; nor was there evidence it ever “declines payment for, or otherwise enforces these types of violations.” Id. Moreover, the court held that Escobar compelled a finding in defendants’ favor because there was no evidence linking the absence of care plans to any “specific representations regarding the services provided” as is required by the Supreme Court’s opinion. Id. at 16-17.

On appeal, defendants sought to disqualify the relator based on a litigation financing agreement between the relator and a litigation funding entity that required the relator to assign 4% of her interest in any potential recovery to the entity. Defendants argued that the arrangement violated the FCA. Id. at 7-9. The court rejected this argument, concluding that while the FCA “does not expressly authorize relators to reassign their right to represent the interests of the United States in qui tam actions” neither did it “proscribe[] such assignment.” Id. at 9. The court reasoned that the FCA expressly “includes a number of restrictions, including on the conduct of qui tam actions and who may serve as a relator,” and noted that prohibition on entry into a litigation funding agreement was not among those enumerated restrictions. On this basis, the court declined to “engraft[] any further limitations onto the statute.” Id. at 12.

The Tenth Circuit also addressed the issue of materiality in United States ex rel. Janssen v. Lawrence Memorial Hospital, 949 F.3d 533 (10th Cir. 2020). There, the relator alleged a hospital violated the FCA by allegedly falsely certifying (1) the accuracy of data regarding patient arrival times required to be reported by Medicare and (2) compliance with a statutory requirement to provide FCA compliance information in an employee handbook. Id. at 546. The district court granted summary judgment to the defendants on materiality, finding there was no evidence that the alleged falsehoods influenced the government’s payment decisions. Id.

The Tenth Circuit affirmed, explaining that Escobar requires materiality to be assessed by looking “to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,” rather than the objective behavior of a reasonable person. Id. at 541. In cases alleging regulatory noncompliance, this requires looking to whether the government refused to pay in past similar instances, whether the noncompliance is minor or insubstantial, and whether compliance with the regulations at issue is a condition of payment. Id.

In rejecting the theory that recording inaccurate patient arrival times was material, the court relied on the fact that CMS was made aware of the data issue in 2014 through detailed allegations from a former employee, and “has done nothing in response and continues to pay [the] Medicare claims.” Id. at 542. The court also held that while there were “inaccuracies in [data] reporting” there were not “sufficiently widespread deficiencies” likely to affect the government’s payment decision. Moreover, the court noted that imposing FCA liability would “undermine” the separate CMS administrative program intended to handle such noncompliance. Id. at 543. As to the allegedly non-compliant employee handbooks, the court found that these were “precisely the type of garden-variety compliance issues that the demanding materiality standards of the FCA are meant to forestall.” Id. at 545. This issue, at best, was “limited” and did not represent a “wholesale failure” of the company’s compliance function (noting the defendant provided FCA training elsewhere). Id. Moreover, as with the reporting issues, the relator failed to show any likely effect of the noncompliance on the government’s payment decision. Id.

The Janssen opinion underscores that defendants can and should urge courts to rigorously enforce the FCA’s materiality requirement, lest the FCA become the “general antifraud statute and tool for policing minor regulatory compliance issues” that Escobar warned against.

By contrast, in United States ex rel. Drummond v. BestCare Laboratory Services, L.L.C., the Fifth Circuit rejected defendants’ scienter and falsity challenges. 950 F.3d 277 (5th Cir. 2020). There, a competitor-relator alleged that a clinical testing laboratory obtained millions in reimbursement for miles that its technicians never traveled. Id. at 277. The government intervened and argued, in relevant part, that the defendants sought payment for mileage driven by technicians purportedly to collect samples that were, in reality, shipped, and that the defendant counted a single shipment of multiple samples as separate mileage for each sample. Id. at 280.

On appeal, defendants argued the reimbursement practices at issue were lawful, relying on sub‑regulatory guidance in a CMS billing manual, or in the alternative, that there was a triable issue of fact as to scienter, because they had a “good faith” belief the practices were lawful based on their interpretation of the manual. Id. at 281. The Fifth Circuit rebuffed both arguments. As to the first, the court concluded that even if defendants had complied with the CMS manual, any “sub-regulatory guidance” in the manual would at best be a “policy statement” that has “no binding legal effect.” Id. at 281. As to scienter, the court held that the sub-regulatory guidance at issue—which expressly stated contractors could not bill “for miles not actually traveled by the laboratory technician”—made it clear there was “no way to read the Manual to suggest” defendants’ practices of billing for miles “not actually traveled by anyone” were lawful. Id.

E.  Fifth and Eighth Circuits Explore Rule 9(b)’s Particularity Requirements in Affirming Dismissal of FCA Claims

While the Supreme Court has rejected multiple petitions to clarify the interplay of Rule 9(b) and the FCA, circuit courts have grappled with precisely how to apply Rule 9(b)’s particularity requirement in FCA cases. Rule 9(b) heightens the pleading standard for fraud claims, stating that a party “must state with particularity the circumstances constituting fraud or mistake.” Courts generally have recognized that an FCA plaintiff can satisfy Rule 9(b) either by pleading (1) representative examples of the false claims, or (2) the particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.

In United States ex rel. Benaissa v. Trinity Health, the Eighth Circuit addressed the contours of what constitutes “reliable indicia” sufficient to support a strong inference that claims were actually submitted. No. 19-1207, --- F.3d. ----, 2020 WL 3455795, at *4 (8th Cir. June 25, 2020). In Trinity, the relator—a trauma surgeon who operated at the defendants’ regional hospital system—alleged that the defendants compensated five physicians for referrals in violation of the Stark Law and AKS, rather than for their skills or credentials. After the district court dismissed the claims under Rule 9(b), the relator argued on appeal that he had pleaded the particular details of a scheme paired with “reliable indicia” supporting an inference that claims were submitted. Specifically, relator pointed to his allegation that defendant derived nearly 30% of its annual revenue from Medicare reimbursements and it was likely that at least some of the claims submitted would be for services provided by those particular physicians. Id. at *3.

The Eighth Circuit disagreed, and affirmed dismissal under Rule 9(b), holding that the relator lacked “firsthand knowledge of [defendant’s] billing practices” and had not pleaded any details about those billing indicating a reliable “basis for knowledge” that fraudulent claims were submitted, such as dates and descriptions of particular services coupled with “a description of the billing system that the records were likely entered into.” Id. at *4. The court rejected the notion that its ruling constricts would-be relators to a narrow class of only those “members of the billing department or the financial services department of a hospital.” Id. Acknowledging that such “an insider might have an easier time obtaining information about billing practices,” the court observed that it and other courts have held many other types of individuals can serve as relators—including physicians, EMTs, and nurse practitioners—so long as they plead “particular and reliable indicia that false bills were actually submitted as a result of the scheme”—such as “dates that services were fraudulently provided or recorded,” and “by whom.” Id.

The Eighth Circuit’s decision makes clear that mere generalized allegations—e.g., that a company is in receipt of a large amount of Medicare reimbursement and that every submitted claim by that company relating to certain physicians was false or fraudulent—do not satisfy Rule 9(b).

In United States ex rel. Integra Med Analytics, L.L.C. v. Baylor Scott & White Health, the Fifth Circuit explored whether and when statistical evidence can satisfy pleading requirements in an FCA case. No. 19-50818, --- Fed. App’x ----, 2020 WL 2787652, at *4 (5th Cir. May 28, 2020). There, the relator alleged that a short-term care hospital system and its affiliates billed Medicare for medically unnecessary treatments and engaged in upcoding. The latter theory relied primarily on allegations regarding a statistical analysis of inpatient claims data that purportedly showed that the defendant coded for certain conditions at a higher rate than other hospitals, as well as alleged statements by a former employee that he was directed to fraudulently bill. Id. at *1-2. The Fifth Circuit affirmed the district court’s dismissal, holding that the allegations failed to satisfy either the plausibility requirement of Rule 8(a) or the particularity requirement of Rule 9(b). Id. at *4.

The court held that the relator’s “statistical analysis” did not satisfy either Rule 8(a)’s or Rule 9(b)’s pleading requirements, alone or in conjunction with other allegations. The court explained that the same statistical data showed that the rate of coding for the same procedures by other hospitals increased every year until the average was “within a few percentage points” of the defendants, which was due to an industry wide trend resulting from CMS guidance encouraging hospitals to “tak[e] full advantage of coding opportunities to maximize” Medicare payments as long as supported by documentation in the medical record. Id. at *3-4. Thus, the court held, while defendant’s higher than average billing rates were “consistent with” the submission of “fraudulent Medicare reimbursement claims to the government,” they were also consistent with the defendant simply “being ahead of most [other] healthcare providers in following new guidelines from CMS.” Id. at *3. The Fifth Circuit held that the relator’s allegations regarding medically unnecessary treatments and statements by former coding employees all failed to satisfy Rule 9(b) because the allegations were conclusory and “fail[ed] to state the content of” any allegedly fraudulent directives or guidance. Id. at *5.

The Fifth Circuit cautioned that its “conclusion does not exclude statistical data from being used to meet the pleading requirements of Federal Rule of Civil Procedure 8(a) and, when paired with particular details, Rule 9(b).” Id. at *4.

F.  First and Sixth Circuits Explore Application of the Public Disclosure Bar and Original Source Exception

The FCA’s public disclosure bar requires dismissal of an FCA case “if substantially the same allegations or transactions” forming the basis of the action have been publicly disclosed, including “in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party,” unless the relator is an “original source of the information.” 31 U.S.C. § 3730(e)(4).

In United States ex rel. Holloway v. Heartland Hospice, Inc., the Sixth Circuit unanimously held that relators are “agents” of the government for purposes of the above language of the public disclosure bar, such that disclosure to a relator in a federal civil case may trigger the bar. The court therefore affirmed the district court’s dismissal of a case alleging substantially the same scheme as three prior qui tam suits involving the defendant’s parent company. 960 F.3d 836 (6th Cir. 2020). In that case, the relator—a former consultant for Heartland—alleged that the defendants certified patients as eligible for hospice under Medicare regulations even when the patients were not terminally ill, thereby “leech[ing] millions of dollars from the federal government in payments for unnecessary hospice care.” Id. at 839.

The court rejected three of the four categories of potential public disclosures identified by the defendant. Id. at 841. It explained that a DOJ settlement of FCA claims and a qui tam complaint filed against other entities, both of which involved similar schemes, did not constitute public disclosures because courts do not infer industry-wide disclosure from allegations against a particular company. The court also concluded that a report by HHS-OIG finding that 4% of claims “did not meet certification of terminal illness requirements” did not constitute a prior disclosure because the report contained “no insinuation of fraud, but at most noncompliance.” Id. at 844.

But the Sixth Circuit concluded that three qui tam complaints filed against defendants’ parent company and related entities triggered the public disclosure bar. The court rejected the relator’s contention that these cases were not “public” because the government did not intervene. As the Sixth Circuit observed, a qui tam relator is the government’s agent for purposes of the public disclosure bar because the government is the real party in interest and exerts a fair amount of control over qui tam litigation. Further, the complaints “disclosed” the fraud alleged in the complaint because they “depict[ed] essentially the same scheme.”

In United States ex rel. Banigan v. PharMerica Inc., meanwhile, the First Circuit clarified the meaning of the term “original source.” 950 F.3d 134 (1st Cir. 2020). There, the plaintiffs alleged that the defendant, one of the largest long-term care pharmacy companies in the United States, provided kickbacks to incentivize nursing homes to switch residents’ prescriptions from other manufacturers’ drugs to its own antidepressants. The purported kickbacks included contractual discounts, rebates, and bonuses. The district court dismissed the case, applying the public disclosure bar.

But the First Circuit reversed. Although the circuit court agreed with the district court that an earlier FCA action involving the same scheme triggered the public disclosure bar, it concluded that the relator was an “original source of the information,” and that dismissal was therefore inappropriate. Id. at 137.

As the circuit court explained, under the version of the public disclosure bar in effect prior to the 2010 amendments to the FCA, an “original source” must have both direct and independent knowledge of the information on which his allegations are based. Id. at 136 n.1, 138. The First Circuit rejected the argument that the relator’s knowledge was not “direct” because he had learned about the scheme from others, through email and word of mouth, rather than being someone who had participated in or observed the scheme in operation directly. The court also held that the relator could still qualify as an original source, despite first learning of the scheme only as it was winding down. Id. at 140. Focusing on the statutory text, the court stated that the statute requires direct and independent knowledge only of the information on which allegations are based, not direct and independent knowledge of the fraudulent acts themselves. Similarly, the court rejected any requirement that an original source have contemporaneous knowledge of the fraud. According to the court, that position lacks textual support, and such a requirement would discourage reports of fraud. Id.

IV.  CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2020 False Claims Act Year-End Update, which we will publish in January 2021.

_______________________

[1] Press Release, U.S. Atty’s Office for the So. Dist. of MS, Federal Jury finds Defendants Guilty of Submitting False Claims to Medicare under Civil False Claims Act (March 13, 2020), https://www.justice.gov/usao-sdms/pr/federal-jury-finds-defendants-guilty-submitting-false-claims-medicare-under-civil-false.

[2] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Resmed Corp. to Pay the United States $37.5 Million for Allegedly Causing False Claims Related to the Sale of Equipment for Sleep Apnea and Other Sleep-Related Disorders (Jan. 15, 2020), https://www.justice.gov/opa/pr/resmed-corp-pay-united-states-375-million-allegedly-causing-false-claims-related-sale.

[3] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Patient Services Inc. Agrees to Pay $3 Million for Allegedly Serving as a Conduit for Pharmaceutical Companies to Illegally Pay Patient Copayments (Jan. 21, 2020), https://www.justice.gov/opa/pr/patient-services-inc-agrees-pay-3-million-allegedly-serving-conduit-pharmaceutical-companies.

[4] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $145 Million to Resolve Criminal and Civil Investigations (Jan. 27, 2020), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-145-million-resolve-criminal-and-civil-investigations-0.

[5] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Guardian Elder Care Holdings and Related Entities Agree to Pay $15.4 Million to Resolve False Claims Act Allegations for Billing for Medically Unnecessary Rehabilitation Therapy Services (Feb. 19, 2020), https://www.justice.gov/opa/pr/guardian-elder-care-holdings-and-related-entities-agree-pay-154-million-resolve-false-claims.

[6] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Diversicare Health Services Inc. Agrees to Pay $9.5 Million to Resolve False Claims Act Allegations Relating to the Provision of Medically Unnecessary Rehabilitation Therapy Services (Feb. 28, 2020), here.

[7] See Press Release, U.S. Atty’s Office for the Dist. of MA, Sanofi Agrees to Pay $11.85 Million to Resolve Allegations That it Paid Kickbacks Through a Co-Pay Assistance Foundation (Feb. 28, 2020), https://www.justice.gov/usao-ma/pr/sanofi-agrees-pay-1185-million-resolve-allegations-it-paid-kickbacks-through-co-pay.

[8] See Press Release, U.S. Atty’s Office for the Eastern Dist. of PA, Doctor Who Pleaded Guilty to Health Care Fraud for “Goodie Bags” Agrees to Resolve Civil Fraud and Controlled Substance Liability for $2.8 Million (Mar. 17, 2020), https://www.justice.gov/usao-edpa/pr/doctor-who-pleaded-guilty-health-care-fraud-goodie-bags-agrees-resolve-civil-fraud-and.

[9] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, New Jersey Chiropractor Agrees to Pay $2 Million to Resolve Allegations of Unnecessary Knee Injections and Knee Braces and Related Kickbacks (Apr. 6, 2020), https://www.justice.gov/opa/pr/new-jersey-chiropractor-agrees-pay-2-million-resolve-allegations-unnecessary-knee-injections.

[10] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, MiMedx Group Inc. Agrees to Pay $6.5 Million to Resolve False Claims Act Allegations of False Commercial Pricing Disclosures (Apr. 6, 2020), https://www.justice.gov/opa/pr/mimedx-group-inc-agrees-pay-65-million-resolve-false-claims-act-allegations-false-commercial.

[11] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Contract Rehab Provider to Pay $4 Million to Resolve False Claims Act Allegations Relating to the Provision of Medically Unnecessary Rehabilitation Therapy Services (Apr. 10, 2020), https://www.justice.gov/opa/pr/contract-rehab-provider-pay-4-million-resolve-false-claims-act-allegations-relating-provision.

[12] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Nursing Home Chain Saber Healthcare Agrees to Pay $10 Million to Settle False Claims Act Allegations (Apr. 14, 2020), https://www.justice.gov/opa/pr/nursing-home-chain-saber-healthcare-agrees-pay-10-million-settle-false-claims-act-allegations.

[13] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Reference Laboratory, Pain Clinic, and Two Individuals Agree to Pay $41 Million to Resolve Allegations of Unnecessary Urine Drug Testing (Apr. 15, 2020), https://www.justice.gov/opa/pr/reference-laboratory-pain-clinic-and-two-individuals-agree-pay-41-million-resolve-allegations.

[14] Press Release, U.S. Atty’s Office for the Western Dist. of VA, Centra Health Inc. and Blue Ridge Ear, Nose, Throat, and Plastic Surgery, Inc. Agree to Pay Nearly $10 Million to Settle False Claims Act Allegations (Apr. 22, 2020), https://www.justice.gov/usao-wdva/pr/centra-health-inc-and-blue-ridge-ear-nose-throat-and-plastic-surgery-inc-agree-pay?_sm_au_=iVVJ1pNS4QjFZ7VjFcVTvKQkcK8MG.

[15] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Testing Laboratory Agrees to Pay Up to $43 Million to Resolve Allegations of Medically Unnecessary Tests (Apr. 27, 2020), here.

[16] See Press Release, U.S. Atty’s Office for the Northern Dist. of GA, Atlanta hospital system to pay $16 million to resolve false claims allegations (June 25, 2020), https://www.justice.gov/usao-ndga/pr/atlanta-hospital-system-pay-16-million-resolve-false-claims-allegations.

[17] See Press Release, U.S. Atty’s Office for the Dist. of NJ, Caldwell University Agrees To Pay More Than $4.8 Million To Resolve Allegations Of Violating False Claims Act (Jan. 3, 2020), https://www.justice.gov/usao-nj/pr/caldwell-university-agrees-pay-more-48-million-resolve-allegations-violating-false-claims.

[18] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Purchaser of Department of Energy Loan to Pay $29 Million to Settle Alleged Bidding Fraud (Jan. 31, 2020), https://www.justice.gov/opa/pr/purchaser-department-energy-loan-pay-29-million-settle-alleged-bidding-fraud.

[19] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, CRA/LA Agrees to Pay $3.1 Million to Resolve Alleged Misuse of Federal Funds for Inaccessible Housing (Feb. 6, 2020), https://www.justice.gov/opa/pr/crala-agrees-pay-31-million-resolve-alleged-misuse-federal-funds-inaccessible-housing.

[20] Press Release, U.S. Atty’s Office for the Dist. of MA, Harvard University Agrees to Pay Over $1.3 Million to Resolve Allegations of Overcharging NIH Grants (Apr. 27, 2020), https://www.justice.gov/usao-ma/pr/harvard-university-agrees-pay-over-13-million-resolve-allegations-overcharging-nih-grants?_sm_au_=iVVJ1pNS4QjFZ7VjFcVTvKQkcK8MG.

[21] U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud.

[22] See Office of Pub. Affairs, U.S. Dep’t of Justice, Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce’s Institute for Legal Reform (July 6, 2020), https://www.justice.gov/civil/speech/principal-deputy-assistant-attorney-general-ethan-p-davis-delivers-remarks-false-claims.

[23] United States v. Mark Schena, Indictment (Jun. 8, 2020), https://www.justice.gov/opa/press-release/file/1283931/download.

[24] See Gibson, Dunn, & Crutcher LLP, Emergency Federal Measures to Combat Coronavirus (Mar. 18, 2020), https://www.gibsondunn.com/emergency-federal-measures-to-combat-coronavirus/.

[25] See, e.g., U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download.

[26] See Gibson, Dunn & Crutcher LLP, Senate Advances the CARES Act, the Largest Stimulus Package in History, to Stabilize the Economic Sector During the Coronavirus Pandemic (Mar. 26, 2020) (“CARES Alert”), https://www.gibsondunn.com/senate-advances-the-cares-act-to-stabilize-economic-sector-during-coronavirus-pandemic/.

[27] Id. (quoting CARES Act Section 15010(b)(1)-(2)).

[28] See Letter from Sen. Charles E. Grassley, Chair, S. Comm. on Fin., to Hon. William Barr, Att’y Gen. 1-2 (Sept. 4, 2019), https://www.grassley.senate.gov/sites/default/files/2020-05-04%20CEG%20to%20DOJ%20%28FCA%20Dismissal%20authority%29.pdf.

[29] See id. at 1.

[30] See Stephen Cox, Deputy Assoc. Att’y Gen., Keynote Remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 27, 2020), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-provides-keynote-remarks-2020-advanced.

[31] Id.

[32] Id.

[33] 85 Fed. Reg. 37004 (June 19, 2020).

[34] Id. at 37006.

[35] State False Claims Act Reviews, Dep’t of Health & Human Servs.–Office of Inspector Gen., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp.

[36] Id.

[37] Id.

[38] Id.

[39] DC B23-0035, 23d Council (2019-2020), https://lims.dccouncil.us/Legislation/B23-0035.

[40] See D.C. Code § 2-381.02(a) (2013).

[41] See D.C. Code § 2-381.02(d) (2013) (stating that “[t]his section shall not apply to claims, records, or statements made pursuant to those portions of Title 47 of the District of Columbia Official Code that refer or relate to taxation”).

[42] See Council of the District of Columbia, Committee of the Whole Committee Report on Bill 23-35, “False Claims Act of 2020,” http://chairmanmendelson.com/wp-content/uploads/2020/01/B23-35-False-Claims-Committee-Packet.pdf.

[43] See HB 2352 Pennsylvania General Assembly Bill Information (2019-2020), here.

[44] Id.

[45] Id.

[46] Id.

[47] Id.

[48] Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016).

[49] See AB-1270 False Claims Act, California Legislative Information (2019-2020), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1270.

[50] Id.

[51] See AB-2570 False Claims Act, California Legislative Information (2019-2020) http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB2570.

[52] Id.; see also Patrick McGreevy, California legislators delay return to Capitol as a lawmaker is hospitalized with COVID-19, L.A. Times (July 8, 2020), here.


The following Gibson Dunn lawyers prepared this client update: Stuart Delery, Jim Zelenay, John Partridge, Jonathan Phillips, Joseph Warin, Joseph West, Robert Blume, Ryan Bergsieker, Karen Manos, Charles Stevens, Winston Chan, Andrew Tulumello, Benjamin Wagner, Alexander Southwell, Reed Brodsky, Robert Walters, Monica Loseman, Geoffrey Sigler, Sean Twomey, Reid Rector, Alli Chapin, Meghan Dunn, Julie Hamilton and Jillian Katterhagen.

Gibson Dunn lawyers regularly counsel clients on the False Claims Act issues. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following members of the firm's False Claims Act/Qui Tam Defense Group:

Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com)

New York Zainab N. Ahmad (+1 212-351-2609, zahmad@gibsondunn.com) Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com)

Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com)

Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com)

Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com)

Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com)

San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)
Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com)

© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 8, 2020 |
The CARES Act, the Higher Education Emergency Relief Fund, and Guidance for Schools to Limit Litigation Exposure

Click for PDF It seems no industry has been spared the effects of the COVID-19 pandemic.  The educational sector is no exception.  Classroom doors are closed, classes are being held remotely, federal work-study jobs may no longer be available, and dormitories and dining halls have been shut down.  The Higher Education Emergency Relief Fund (“HEERF”) offers valuable financial assistance to schools and their students.  But accepting a HEERF grant undoubtedly exposes the recipient to legal risks, including potential False Claims Act (“FCA”) liability.  In these tumultuous times, it is easy for careful compliance and planning efforts to fall by the wayside.  Yet such efforts are crucial if schools are to avoid legal liability in the years that follow.  This update presents an overview of HEERF and its conditions, potential FCA pitfalls, and advice for ensuring compliance and avoiding litigation.

I.   The CARES Act  and the Higher Education Emergency Relief Fund

By now, you are likely familiar with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and its inclusion of funds to help educational institutions and their students adapt and respond to the widespread effects of the COVID-19 pandemic.  The CARES Act  creates a $14 billion higher education emergency relief fund (HEERF) for the Department of Education to distribute directly to institutions of higher education.  Starting in April, HEERF grants became available to schools. The grant money consists of two different types of aid.  The first, the so-called “student portion” of the aid, is $6.2 billion available to any Title IV postsecondary institution but restricted in that it must be distributed directly to the students most affected by the pandemic.[1]  This amounts to 50% of the aid distributed to each institution.  The second type of aid, the so-called “institutional portion,” may be used to cover “any costs associated with significant changes to the delivery of instruction due to coronavirus.”[2] Ninety percent of the funds will be awarded to schools based on two formula factors: (1) 75% of the funds will be awarded to schools based on the school’s share of full-time equivalent (“FTE”) enrollment of Pell Grant recipients; and (2) 25% of the funds will be awarded to schools based on each school’s share of FTE enrollment of students who were not Pell Grant recipients.  At institutions that provide both online and ground-based education, students who were enrolled exclusively in an online program on March 13, 2020 are not eligible for emergency financial aid grants.  The formula used to calculate the distribution of funds to institutions excludes students who were exclusively enrolled in distance education courses. The law also creates a $3 billion Governor’s Emergency Education Relief Fund for the Department to make grants to applying states and, in turn, for states to make grants to institutions of higher education and local education agencies. The CARES Act  is also designed to ensure that students affected by COVID-19 are given certain relief from conditions of their Title IV financial aid.  For example, if a student begins attendance in a payment period or period of enrollment that begins on or includes March 13, 2020, and subsequently withdraws from the period as a result of COVID-19-related circumstances, that student’s institution is not required to return the student’s Title IV funds.[3]

II.   A Fertile Opportunity for False Claims Act Lawsuits?

Although HEERF grants may be invaluable to schools affected by the pandemic, institutions should be aware that accepting a HEERF grant carries legal risks.  In fact, a number of institutions have decided to refuse the grants.  A spokesperson for one prominent university explained: “After careful review, we believe that accepting the funds, even as a pass-through entirely to students, would impose unacceptable legal and regulatory liabilities on [our institution] that could have a significant negative impact in the future.  We continue to maintain our commitment to supporting students in distress through institutional and donated funds, and we will also continue to identify other sources of relief for the most vulnerable members of [our] community.”[4] Among the risks created by HEERF grants is potential FCA litigation.  The FCA, as many in the education sector know, is the government’s primary means for combating fraud in connection with government payments and government programs.[5]  The FCA imposes liability for the knowing submission of a false claim for payment, or a false statement made in connection with a false claim for payment, to the government.[6]  The damages from FCA liability can be catastrophic—the FCA provides for virtually automatic trebling of damages, penalties of up to $22,000 “per false claim,” and attorneys’ fees and costs.[7]  And perhaps worst of all, liability under the FCA can provide a basis for suspension and debarment from further government programs or payment.[8]  FCA claims may be brought by the government directly or by whistleblowers, who sue on the government’s behalf, seeking a bounty of up to 30% of whatever is recovered on the government’s behalf.[9]  More about the FCA can be found here. The Department of Justice has already said it will focus resources on COVID-19-related fraud.  In a March 16 memorandum to all U.S. Attorneys and a March 20 press release, Attorney General William Barr announced that DOJ will prioritize the investigation and prosecution of coronavirus-related fraud schemes, which would include FCA-related claims.[10]  Attorney General Barr also directed U.S. Attorneys to appoint a “Coronavirus Fraud Coordinator” in each district (responsible for coordinating enforcement and conducting public outreach and awareness) and established a national system for whistleblowers to report suspected fraud.[11]  Additionally, the CARES Act  itself creates an oversight committee—the Pandemic Response Accountability Committee (“PRAC”)—to “prevent and detect fraud, waste, abuse, and mismanagement” in connection with CARES Act  funds.[12] The education sector has not been immune from FCA liability in the past.  Rather, it has been a high-profile target.  For instance, much of the late 1990s and 2000s was filled with lawsuits filed by “whistleblowers” against educational institutions under the FCA, claiming that the institution received Title IV aid under false pretenses or while in violation of any one of the many rules or regulations schools agreed to as a condition for participating in Title IV programs.  While none (or very few) of these cases resulted in jury verdicts for the whistleblowers or the government, the mere threat of potentially crippling liability and expense of litigating caused numerous schools to settle FCA claims for substantial amounts.  These cases were not limited to the for-profit education sector.  Our annual Year-End False Claims Act Updates include summaries of these settlements.[13] With the sheer amount of funding involved with HEERF grants, and the various conditions attached, it is not unreasonable to suspect another spree of potential FCA cases against schools coming out of the pandemic.  Let’s consider a few examples.
  • As explained above, at least 50% of the grant funds must be allocated directly to students.[14] A school that previously refunded room and board to a student or disbursed grants to students struggling with economic hardships may be tempted to use HEERF funds to reimburse itself for those previous student-directed expenditures.  But the Department has stated that such an allocation would not be permitted.[15]  Although each institution has significant discretion to determine how to allocate the funds, the Department has stated the student portion of the aid may not be used by the school to reimburse itself for refunds or grants that it previously offered to students.[16]
  • As for the institutional portion of the aid, despite the Act’s broad language regarding permitted uses, the Department has stated the grants may not be used to cover payments to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.[17]
  • The CARES Act  requires each institution that accepts funds from HEERF to continue to pay non-student employees and contractors to the greatest extent practicable based on the school’s financial situation.[18] Institutions may not, however, use emergency financial aid grants to students to pay employees and contractors.[19]
  • The law imposes extensive reporting requirements.[20] Each institution is required to report how grants were distributed to students, how the amount of each grant was calculated, and any instructions or directions that the institution gave to students about the grant.[21]
Any of these various rules could potentially provide the basis for the government, or a “whistleblower,” to at least try to assert FCA claims—and seek treble damages, penalties, and attorneys’ fees.  The theory under any of them would basically be the same:  the school, in knowing (or “reckless disregard”) violation of these rules, accepted and distributed HEERF grants.  And whether or not such a claim had any merit, or viably did assert an FCA claim under the applicable law, litigation will be an expensive and burdensome process—even in light of compelling defenses.

III.   Ensuring Compliance and Avoiding False Claims Act Liability

So, in light of the above, what can educational institutions do to mitigate risk of liability, including, particularly, FCA liability?  As anyone who has worked from home since the COVID-19 crisis began can attest, it is harder than ever to stay organized and methodical at work.  Yet for schools accepting HEERF grants and grappling with the accompanying requirements, careful planning and organization is essential.  Here is some guidance: Stay informed:  Ensure you understand the government regulations detailing what you are required to do and when.  Monitor announcements by the President, Congress, and the Department to ensure you remain informed of waivers, modifications, and other developments in regulatory requirements, or guidance for schools, which may change as the crisis continues to develop.  Even unintentional or implied misrepresentations of regulatory compliance can lead to burdensome FCA lawsuits, even when meritless. Document decisions:  Institutions should carefully document institutional decision-making relating to student services, academic programs, and government aid.  It is important to remember that while something may seem reasonable and obvious in the present, it may be questioned in the rearview mirror in the future.  Thus, it is helpful to have contemporaneous documentation outlining a particular decision, and the rationale for making that decision at the time.  Indeed, documentation may not only help defeat a later FCA lawsuit (by demonstrating the good faith basis for a decision), but such documentation can be powerful evidence before the government investigating any potential FCA issue.  And much better to have documents telling your story than to have to force your employees or executives to fill in the blanks for the government via witness interviews.  Advice of counsel, in particular, can constitute strong evidence of a good faith decision (but could result in waiver of privilege as to the relevant subject matter to the extent it is relied upon by the institution in litigation or an investigation). Follow reporting requirements and document communications:  Institutions should be familiar with their obligations to report decisions to the appropriate departments and agencies.  Institutions also can contact the Department to argue for alternative lawful approaches other than those stated in the Department’s guidance.  But do not assume that you are in the clear simply because the government is aware of your institution’s actions.  Rather, in line with the above, it is critical to document a communication from the government expressing approval.  This is true not only because a later whistleblower will likely know nothing of your communications with the government, but also because FCA case law tends to be more favorable to those FCA defendants who not only sought government approval, but also received approval back from the government.  Compile in real-time written evidence or documentation of communications with the government, including communications regarding any modifications or waivers and their purpose to meet government or public needs.  You can also consider publicly announcing any government-approved waivers or modifications to existing requirements, as well as your reliance on such actions, as doing so may make public your decision and present additional hurdles under the FCA’s public disclosure bar for any would-be FCA plaintiff. Adopt best practices for ensuring compliance with government requirements: Continue to implement effective risk management and auditing procedures during the COVID-19 crisis.  Keep in mind that while some risks of FCA liability are readily apparent even in a time of crisis, it can be easier to lose sight of other, less obvious pitfalls during an emergency.  Further, what a school may believe it is doing in good faith now will be questioned later.  For example, a company constructing urgently needed housing for first responders following Hurricane Katrina later settled FCA claims alleging it failed to abide by the specific requirements in its contract.[22]  Best practices with respect to risk management, auditing, and compliance may not only help prevent any potential FCA issues, but will also assist in addressing and remediating them. Ensure that you have effective reporting systems in place and take reports seriously:  Statistics show that most whistleblowers attempt to complain internally within a company or institution first, before reporting items to the government or filing an FCA lawsuit.  It is therefore important to have robust reporting procedures in place for whistleblowers to be given the opportunity to report concerns, even (or particularly) in this time of “work from home.”  And it is just as important for those reports to be taken seriously, investigated and remedied.  Further, one of the many tolls of the COVID-19 is increased furloughs and layoffs.  This only creates additional opportunities for whistleblowers (or whistleblower lawyers) to attempt to bring claims.  Make sure that your reporting processes are robust, and be vigilant about what is being said by both current employees and those whose employment may be ending in exit interviews—as that is often a telltale sign of whether FCA activity is afoot.  And if you become aware of any claims of misconduct or fraud in connection with requests for or receipt of government funds, ensure that your response is handled by appropriate compliance or legal personnel and treat allegations seriously, including by conducting a thorough, well-documented investigation. Approach the government:  If you become aware of any issues with respect to government programs or potential FCA allegations, consult with counsel about disclosure obligations and outreach to the government.  Your counsel will analyze whether disclosure may be required by law.  And, if an FCA investigation is active, it is critical to engage the government.  Each year, the vast majority (along the lines of 90%) of recoveries in FCA cases come from ones where the government intervened in the matter.  As a result, it is absolutely critical to do your best to give the government the opportunity to consider all information available that might lead the government to choose to not intervene in your matter (and/or settle the matter on reasonable terms). Keep accreditors informed:  Finally, institutions should also keep accreditors informed to ensure that changes in response to the COVID-19 pandemic comply with accreditor requirements.  Among the spate of FCA litigation filed against institutions in the past were claims that a school violated the FCA by misleading accreditors.  It is important to keep accreditors up to date as required as well. We hope you found this guidance helpful.  For a full listing of Gibson Dunn’s alerts relating to the FCA, please visit the FCA practice group’s list of publications.  And the below Gibson Dunn attorneys are available to answer any questions you may have. ________________________ [1] H.R. 748 §§ 18004(a)(1), 18004(c). [2] Id., § 18004(c). [3] Id., § 3508. [4] Douglas Belkin, Joining Harvard, More Top Universities Pass Up Stimulus Funds, Wall St. J., Apr. 23, 2020, available at https://www.wsj.com/livecoverage/coronavirus-2020-04-23/card/i9lvX7ew5lO5ncDLok7j [5] Gibson Dunn 2019 Year-End False Claims Update (Jan. 31, 2020), available at https://www.gibsondunn.com/2019-year-end-false-claims-act-update/ [6]  31 U.S.C. § 3729(a)(1)(A) and (B). [7] Id., § 3729(a)(1)(G). [8] 48 C.F.R. § 9.406-2. [9] Id., § 3730(d). [10] U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [11] U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [12] Gibson, Dunn & Crutcher LLP, CARES Alert, Section IV, available at https://www.gibsondunn.com/senate-advances-the-cares-act-to-stabilize-economic-sector-during-coronavirus-pandemic/. [13] https://www.gibsondunn.com/?search=news&s=&practice%5B%5D=1935. [14] H.R. 748 § 18004(c). [15] Higher Education Emergency Relief Fund, Frequently Asked Questions about the Emergency Financial Aid Grants to Students under Section 18004 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, available at https://www2.ed.gov/about/offices/list/ope/heerfstudentfaqs.pdf [16] Id. [17] Higher Education Emergency Relief Fund, Frequently Asked Questions about the Institutional Portion of the Higher Education Emergency Relief Fund under Section 18004(a)(1) and 18004(c) of the Coronavirus Aid, Relief, and Economic Security (CARES), available at https://www2.ed.gov/about/offices/list/ope/heerfinstitutionalfaqs.pdf [18] Id. [19] Id. [20] H.R. 748 § 3517. [21] Id. [22] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hurricane Katrina Contractor Accepts $4 Million Judgment Under the False Claims Act (Apr. 24, 2009), https://www.justice.gov/opa/pr/hurricane-katrina-contractor-accepts-4-million-judgment-under-false-claims-act.
Gibson Dunn are available to address any questions you may have about the developments. Please feel free to contact the Gibson Dunn attorney with whom you usually work, any member of the firm’s False Claims Act Group, or the following authors: James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Jeremy S. Smith (+1 213-229-7973, jssmith@gibsondunn.com) Harper L. Gernet-Girard (+1 213-229-7314, hgernetgirard@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 31, 2020 |
Implications of COVID-19 Crisis for False Claims Act Compliance

Click for PDF Industries worldwide are confronting unprecedented challenges and uncertainties sparked by the novel coronavirus (COVID-19) public health crisis, which has shuttered businesses, disrupted travel, supply chains, and the financial markets, and threatened global economic stability.  In response to the pandemic, the United States government has responded with a $2.2 trillion economic stimulus package—the largest in history.  This massive new program comes on the heels of other local, state, and federal emergency measures, including significant spending on critical supplies and the federal government’s invocation (albeit on a limited basis) of a wartime statute to direct U.S. industry to manufacture needed medical supplies and equipment. In the midst of this crisis, companies that do business with the government, including entities in the health care industry and a range of government contractors, have prioritized the public and raced to meet government needs.  The fast-paced corporate decisions and actions that this effort has required may not be scrutinized in detail today, in the heat of the moment.  But if history is any indicator, today’s responses to the COVID-19 crisis will be scrutinized in the years to come, and could lead to future legal action under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.  In the aftermath of past crises, the U.S. Department of Justice (“DOJ”) and qui tam relators have vigorously pursued FCA claims targeting entities that benefited from government spending—efforts contributing heftily to the nearly $40 billion that the federal government has recovered under the FCA in the last decade alone. There is no reason to believe that the COVID-19 crisis will be any different.  DOJ already announced it will “prioritize the investigation and prosecution of Coronavirus-related fraud schemes” and established a national hotline for whistleblowers to report suspected fraud.  Accordingly, any company receiving government funds would do well to take steps today to protect against the risk of potential future FCA liability.  Below, we summarize these developments, identify potential areas of likely COVID-19-related FCA enforcement, and offer tips for managing risks and other mitigation efforts.

I.          Background

The FCA has served as the principal tool for combatting fraud in government programs for more than 150 years.  FCA enforcement has been particularly robust when emergency government spending ramps up, giving opportunists the chance to exploit the public fisc, even when lives are at stake.  The FCA itself is the product of such a national crisis:  Congress enacted the statute during the Civil War in 1863 in response to unscrupulous suppliers defrauding the Union Army,[1] providing defective goods such as “spavined beasts and dying donkeys” in place of healthy horses, sand instead of sugar, and “experimental failures of sanguine inventors” instead of working firearms.[2] Flurries of FCA activity also have followed more recent crises, particularly those that involve significant emergency government spending.  This includes, for example, the wars in Iraq and Afghanistan, natural disasters such as Hurricane Katrina, the 2008 financial crisis and Troubled Asset Relief Program (“TARP”), and the ongoing national opioid epidemic.  In addition to DOJ’s enforcement activities, private plaintiffs’ attorneys representing qui tam relators have, in the wake of past crises, enthusiastically pursued FCA actions against all types of government contractors and industries receiving government funds. In connection with the 2008 financial crisis, for example, a DOJ task force charged with rooting out fraud in federally insured mortgage and lending programs was the vanguard of aggressive FCA enforcement.  The task force’s efforts, focused primarily on lenders participating in government programs and other institutions receiving government funds, led to record-setting annual FCA recoveries upwards of $6 billion in the years that followed, and their effects still linger more than a decade later.  And even just the most recent of these crises proves the point.  In the last few years, DOJ has boldly pursued FCA claims against manufacturers, prescribers, health systems, and others involved in the opioid distribution chain, recovering more than $1.5 billion last year alone. The COVID-19 crisis has prompted federal action that may well dwarf expenditures on prior crises.  Just days ago, for example, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) became law.  The CARES Act, the largest emergency stimulus package in history, will devote $2.2 trillion worth of government funds to mitigate the effects of COVID-19.[3]  As we reported in detail earlier this week, several key provisions in the Act provide relief for businesses, industries, individuals, employers, and states, including as follows:
  • Establishment of a Small Business Administration (“SBA”) loan program offering up to $350 billion in loans forgivable under certain conditions, with relaxed eligibility requirements relative to existing law;
  • Provisions for direct rebates and other tax relief for individuals and employers;
  • Provisions for hundreds of billions of dollars in funding and other resources for the health care industry, education sector, defense contractors, and lending institutions; and
  • Establishment of a $500 billion economic stabilization program to provide loans and loan guarantees for eligible businesses, states, and municipalities.
In addition to passage of the CARES Act, the government’s efforts have included the following steps, on which we reported last week:[4]
  • Enacting legislation appropriating more than $8 billion dollars in government spending for supplies, vaccines, tests, isolation and quarantine costs, sanitization of public areas and more;
  • Declaring a state of emergency authorizing the release of up to $50 billion in spending in government efforts to combat the virus;
  • Invoking the wartime-era Defense Production Act to direct U.S. industries to manufacture critical medical supplies, including respirator masks and ventilators; and
  • Announcing intended partnerships with the private sector to expand COVID-19 testing.
These steps, and others that are sure to follow as the crisis develops, will set the stage for potential COVID-19-related FCA enforcement activity in years to come.

II.        DOJ Prioritizes COVID-19 Fraud Cases and Whistleblower Attorneys Gear Up

DOJ has already confirmed that it will focus resources on COVID-19-related fraud.  In a March 16 memorandum to all U.S. Attorneys and a March 20 press release, Attorney General William Barr announced that DOJ will prioritize the investigation and prosecution of coronavirus-related fraud schemes.[5]  In addition, Attorney General Barr directed U.S. Attorneys to appoint a “Coronavirus Fraud Coordinator” in each district—responsible for coordinating enforcement and conducting public outreach and awareness—and also established a national system for whistleblowers to report suspected fraud.[6]  DOJ further affirmed in a March 17 public statement that it is “committed to pursuing” violations of the FCA “especially during this critical time as our nation responds to the outbreak of COVID-19.”[7]  Although still in their infancy, DOJ’s efforts harken to similar government actions in past times of crisis. DOJ’s efforts will be complemented by the CARES Act’s creation of a new oversight committee called the Pandemic Response Accountability Committee (“PRAC”) to promote transparency and oversight of CARES Act appropriated funds.[8] The Act’s emergency appropriations included $80 million for the PRAC, which will be comprised of various agency Inspectors General to “(1) prevent and detect fraud, waste, abuse, and mismanagement; and (2) mitigate major risks that cut across program and agency boundaries.”[9] In addition to potentially drawing scrutiny from DOJ and agency Inspectors General, companies contracting with or receiving government funds are likely to see a slew of future qui tam whistleblower complaints in connection with the COVID-19 crisis and economic downturn.  The plaintiffs’ bar has already signaled its willingness to begin this effort, including a widely publicized request by a whistleblower attorney and national whistleblower advocacy group for DOJ to form a task force “to monitor and investigate” COVID-19-related FCA cases,[10] and numerous firms issuing calls for would-be relators to come forward and pursue qui tam actions relating to COVID-19.[11]

III.       Potential FCA Pitfalls in Responding to the COVID-19 Crisis

Entities in the following industries are most exposed to the risk of future COVID-19-related FCA enforcement actions.

A.         Life Sciences and Health Care Industries

Given the nature of the COVID-19 crisis, companies in the life sciences and health care industries—including drug and device manufacturers and suppliers, diagnostic companies, health care providers, and insurers—are perhaps the most likely to have their decisions and conduct scrutinized through the lens of the FCA in the future. In its recent announcement prioritizing COVID-19-related enforcement actions, DOJ specifically targeted fraud in treatment by providers, such as “obtaining patient information for COVID-19 testing and then using that information to fraudulently bill for other tests and procedures.”[12]  This echoed DOJ officials’ comments from February, which focused on the practice of Medicare Advantage insurers indiscriminately billing the government for “every possible patient diagnosis,” including “unsupported diagnosis codes” ineligible for reimbursement.  Entities billing federal programs (as well as state programs) for treatment of those affected by COVID-19 should exercise particular care in selecting diagnostic codes when seeking reimbursement. Other activities that fall within the types of buckets that resulted in FCA actions in the past (whether successful or not)—and could serve as the basis of COVID-19 related FCA actions—could potentially include:
  • “upcoding” for testing or treatments of different types or amounts than those actually provided;[13]
  • billing for treatment or testing that is not medically necessary, especially treatment whose safety or efficacy is unsupported and may even cause harm;
  • billing for treatment, testing, or medical supplies that do not comply with regulatory requirements;
  • billing for treatment that is grossly and materially substandard; and
  • making false or misleading statements in connection with marketing drugs or devices.
The bar for pursuing frontline health care providers under the FCA is likely to be higher when it comes to the COVID-19 crisis, given the critical need to provide treatments to patients during this crisis.  Notably, the CARES Act provides immunity to many treatment providers for claims under federal or state laws relating to emergency health care services provided with respect to COVID-19.[14]  Further, the CARES Act recognizes liability immunity for certain respiratory protective devices that HHS has deemed a priority for use during this public health emergency.  Nevertheless, frontline providers may still face situations where the government or qui tam whistleblowers allege after the fact that the emergency care provided was not undertaken in good faith and instead was to profit off of the crisis.

B.        Other Industries Receiving COVID-19 Relief Funding

FCA liability is a potential risk even for entities that do not directly conduct business with the government, but nevertheless accept government funding in some manner, including in the form of loans, grants, or other programs. 1. Loan Programs. The CARES Act injects nearly a trillion dollars’ worth of loan and loan guarantee programs into the economy.  This aid is partially specific to certain industries, such as the passenger airline and air cargo sectors, but the bulk is more widely available to a range of domestic-based businesses.  Further, the Act makes SBA loans available to any business that qualifies as a “small business” under eligibility requirements more inclusive than existing law.[15]  Any participant in these programs, or similar government relief programs, will be subject to certain required conditions of participation and/or payment, which can be complex and may create a potential minefield from an FCA perspective. With respect to the $500 billion CARES Act loan program, some portions of funding are restricted to passenger air carriers ($25 billion), cargo air carriers ($4 billion), and any “businesses critical to maintaining national security” ($17 billion).  As to the eligibility requirements for the remainder of the fund,[16] while the CARES Act does specify some requirements—such as that a business be domiciled and have significant operations and a majority of its employees in the United States—the complete terms and conditions for eligibility remain to be determined, as the legislation directs the Secretary of the Treasury to promulgate the full requirements no later than 10 days after enactment, i.e., the first week of April.[17] Although the CARES Act does provide clearer standards of eligibility for the SBA loan program (i.e., any company with no more than 500 employees may be eligible), the Act also contains numerous exceptions that expand its reach. For example, the CARES Act’s limited waiver of existing SBA affiliation rules—affecting whether or how the head count for certain affiliates are included in calculating the number of employees when determining eligibility for the program—will allow certain businesses in the accommodation and food services industries to still qualify for loans depending on their classification and the number of employees per physical location.[18]  But outside the Act’s enumerated exceptions, businesses must still abide by the requirement to aggregate their employee headcounts or revenues with those of their affiliates to determine whether they are eligible for the SBA loan program.  Although the CARES Act provides an expanded avenue for relief to some businesses seeking financial assistance, companies (including those with private equity ownership) should familiarize themselves with both the SBA affiliation rules and the CARES Act’s limited exceptions before seeking to obtain SBA loans. 2. Grants. The CARES Act includes emergency appropriations providing funding to the CDC, NIH, and other agencies for research, health surveillance programs, and other resources to respond to the COVID-19 crisis, as well as prepare for future public health emergencies.[19]  In addition, as relief efforts continue, the government may provide future funding for charitable or research grant programs, or similar types of funding—all of which implicate the FCA. In recent years, a variety of entities, including private companies, universities, and even municipalities, have faced FCA claims alleging violations in connection with obtaining or performing federal grants, ranging from a failure to comply with regulations and grant conditions, to falsifying grant applications or fabricating study data.  In one case, a private university paid more than $100 million to settle qui tam claims that it violated the FCA by submitting applications and progress reports that contained falsified research data.[20]  In another case, a national energy company paid nearly $30 million to resolve allegations it received inflated payments by misrepresenting its eligibility for federal grant funds.[21] And while it might be natural to think that the government would be more forgiving when charitable or good causes are involved, such as this, history counsels otherwise.  For example, a children’s hospital paid nearly $13 million to resolve FCA claims alleging that the hospital misreported its available bed count when seeking grant funding from HHS for pediatric resident training.[22]  And certain courts have upheld, in FCA cases, the award of treble damages on the entire amount of the research grants at issue, including in cases based on alleged false statements made in grant renewal applications.[23]  Companies receiving federal funds in the future, whether charitable relief, or in connection with COVID-19 research grants, should be mindful of these pitfalls. 3. Other Government Programs. As we covered in our report, the CARES Act also impacts rules and requirements relating to numerous government programs and revenue streams, including appropriations for national defense, debt restructuring, lending by financial institutions, and federally-backed mortgages.[24]  The Act therefore has implications for a wide range of industries, including defense contracting, the education sector, and banks and other lending institutions, among others, that receive government funding or relief and are all potential targets for FCA relators and their attorneys.

IV.       Guidance for Minimizing FCA Risks in Government Procurement and Relief Programs

As the government expands spending to address the COVID-19 crisis, any entity receiving government funding or taking advantage of government-backed or guaranteed loans should consider the practices outlined below to mitigate the risk of future FCA legal action:
  • Stay informed:
    • Ensure that you understand government contracting regulations detailing what you are required to do and when.
      • Know when you are contractually required to notify the government of your right to an equitable adjustment of a contract price, delivery schedule, or both. For example, FAR 52.243-1 requires notification to the Contracting Officer within 30 days.
      • Track and understand the complex requirements imposed by regulations specific to your industry, e.g., Medicare and Medicaid requirements.
    • Monitor announcements by the government and agencies appropriately to ensure that you remain informed of waivers, modifications, and other developments in regulatory requirements, or guidance for industry, which may change as the crisis unfolds.
      • CMS and HHS-OIG, for example, have begun providing blanket waivers and made broadly applicable modifications to provider requirements aimed at permitting hospitals to operate with fewer restrictions and maximize the treatment of COVID-19 patients.[25]
    • Remember that even unintentional or implied misrepresentations of regulatory compliance can lead to FCA enforcement actions, if material to payment and done with “reckless disregard.”
  • Adopt best practices for ensuring compliance with government requirements:
    • Continue to implement effective risk management and auditing procedures during the COVID-19 crisis to minimize the risk of such liability.
      • Keep in mind that while some risks of FCA liability are readily apparent even in a time of crisis—such as in the case of providing substandard or defective equipment or services to the government—it can be easier to lose sight of other, less obvious pitfalls during an emergency, such as billing the government for goods or services that do not strictly comply with all regulatory requirements. This could include, for example, billing for work performed by unqualified personnel, or for work done by personnel other than those represented to the government as having performed the work.
    • Implement effective procedures and controls around any required certifications regarding what the government is paying for.
      • Account for any requirements imposed by statute, regulation, rules, or contract, whether generally applicable, or that apply to your industry and/or the specific goods or services provided—which, for example, could include ADA requirements, the Buy American Act, or the Trade Agreements Act.
      • Document your compliance with any such requirements and/or the bases of any required certifications.
    • Avoid unilaterally deciding to forego or not complete any government requirements (e.g., skipping mandated procedures, tests, certifications, and so forth) even if intended to fast track production given the urgency involved, unless there is explicit and clear (and written) government authorization to do so, as outlined further below.
      • Remember that efforts that involve cutting corners might appear entirely reasonable to anyone in the midst of a crisis, but may well appear hasty, ill-advised, or even wasteful when viewed in hindsight months or years later.
      • Claims for payment that involve misrepresentations of compliance with government requirements have resulted in significant FCA liability—even when those claims were made during times of past crises. For example, a telecommunications company that designed and built Iraq’s national 911 emergency communications system during the height of the Iraq War settled FCA claims based on allegations the company had certified completion of certain testing and validation that it had not actually performed.[26]  Similarly, a company constructing urgently needed housing for first responders following Hurricane Katrina settled FCA claims alleging that it failed to abide by the specific requirements in its contract.[27]
      • Be aware that FCA liability requires more than a “bare assertion that defendants delivered goods that did not conform to contractual specifications.”[28] And even in cases where the government pays for what it later discovers to be defective, for example, “ineffective vaccines,” courts have dismissed FCA claims for lack of scienter.[29]
    • Exercise care when participating in any COVID-19 loan, grant, or other relief program to ensure that any government requirements are met, and that any representations made to the government as part of the funding process are accurate.
    • Be aware of the risks posed to those directors and officers responsible (directly or through private equity ownership) for a company availing itself of government funding, such as through the CARES Act’s SBA loan program, particularly those who certify compliance with government requirements. If the individual is found to have caused the submission of a false claim, they may face arguments that their conduct satisfies the falsity element of FCA liability.
      • If the director or officer is found to have proceeded in good faith, however, it would be difficult for a plaintiff to satisfy the scienter element. It is thus important to document the rationale and bases underlying the good faith belief (including, for instance, communications with the government, or others in the industry, or counsel, etc.).  Advice of counsel, in particular, can constitute very strong evidence on scienter for the officer or director (but, of course, likely would result in waiver of privilege as to the relevant subject matter).  To the extent that you believe that an insurance policy could be applicable, consult your insurance counsel about potential coverage issues.
  • Document any governmental modification or waiver of requirements:
    • Ensure that any such waivers or modifications are authorized by a government official or agency with sufficient authority to act (i.e., by the Contracting Officer, or by an authorized government agency), and are thoroughly and adequately documented in writing.
      • Be aware that in past FCA cases, defendants have faced arguments that government officials who modified requirements lacked the “unilateral authority” to amend requirements, and that therefore defendants should still be subject to liability.[30]
    • Seek confirmation regarding changes in government requirements, even if you already believe them to be clear.
      • Keep in mind that the fluid nature of the COVID-19 situation has reportedly created confusion and apparent inconsistencies in guidance from federal agencies.[31]
    • Compile in real time written evidence or documentation of the modifications or waivers and their purpose to meet government or public needs.
      • Understand that memories are likely to be treated as less reliable than documentation, and what may seem obvious today may not be in the future when the crisis has abated. Adequately-documented decisions by authorized officials are likely to provide a strong defense on scienter and materiality elements.
      • Evidence of this “government knowledge” will be a key issue with respect to materiality and scienter, as courts have acknowledged that such evidence can “negate both of these elements,”[32] although in some instances, have held that scienter is negated only if the government communicates its knowledge and approval back to the contractor.[33]
      • Do not assume that you are in the clear simply because the government is aware of your actions. Rather, it is critical to document a communication from the government expressing approval, under the line of cases requiring the government’s knowledge and approval be communicated back to the contractor to negate scienter.
    • Consider publicly announcing any government approved waivers or modifications to existing requirements, as well as your reliance on such actions.
      • For example, as noted above, CMS and HHS-OIG have waived or modified certain requirements with respect to hospitals to maximize the availability of COVID-19 treatment. Similarly, FDA has modified or waived certain regulatory requirements with respect to respirator masks for use by health care personnel to encourage manufacturers to make additional masks available.[34]
      • Making public your reliance on the government’s actions serves not only to highlight a lack of scienter, but may also bolster future arguments that FCA claims are subject to the statute’s “public disclosure” bar. If the key elements of the alleged fraud are published in the news media, this can support dismissal unless the whistleblower is an “original source” that materially adds to the information in the public domain.
  • Ensure that you have effective reporting systems in place to discover potential compliance issues and then take them seriously:
    • Know that many whistleblowers are current and former employees. With the increased furloughs and layoffs brought on by the COVID-19 crisis, there may be a significant rise in whistleblowing activity.  In addition to compliance and reporting systems, you should ensure that you pay close attention to any allegations or issues raised as part of exit interviews.
    • Statistics show the overwhelming majority of whistleblowers first report their allegations internally and are willing to wait for the internal investigation process.[35] If you become aware of any claims of misconduct or fraud in connection with requests for or receipt of government funding involving your company, ensure that your response is handled by appropriate compliance or legal personnel and treat allegations seriously, including by conducting a thorough, well-documented investigation.
    • By taking these steps, you may be able to satisfactorily resolve the concerns raised internally, and avoid escalation to outside agencies or counsel. Studies have shown that a company’s internal whistleblower report volume is associated with fewer and lower amounts of government fines and material lawsuits.[36]
  • Steer clear of anti-competitive conduct:
    • Be mindful of DOJ’s recently announced focus on enforcement of antitrust laws—violations of which may form the basis of related FCA claims—in connection with COVID-19.
      • As we have reported recently, on March 9, DOJ warned that it will be on “high alert” for collusive practices, including fixing prices or rigging bids for personal health equipment such as face masks, respirators, and diagnostic equipment, especially by companies selling to federal, state, and local agencies.[37]
      • DOJ has in the past brought enforcement actions under the FCA against companies—for instance, generic drug manufacturers—on the grounds that claims for government program reimbursement of drugs allegedly tainted by price-fixing conspiracies were false or fraudulent.[38]
If you have any doubts about the propriety of any action when it comes to government contracts, funding, or government loans, stop and seek guidance of counsel.  We are all working through this crisis together, and Gibson Dunn's lawyers are available to assist with any questions you may have regarding FCA and government contracting developments related to the COVID-19 outbreak.
[1]              Office of Pub. Affairs, U.S. Dep’t of Justice, The False Claims Act: A Primer (2011), https://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf. [2]              U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 722 F. Supp. 607, 609 (N.D. Cal. 1989) (citing Tomes, Fortunes of War, 29 Harper’s Monthly Mag. 228 (1864)). [3]              See Gibson, Dunn & Crutcher LLP, Senate Advances the CARES Act, the Largest Stimulus Package in History, to Stabilize the Economic Sector During the Coronavirus Pandemic (Mar. 26, 2020) (“CARES Alert”), https://www.gibsondunn.com/senate-advances-the-cares-act-to-stabilize-economic-sector-during-coronavirus-pandemic/. [4]              See Gibson, Dunn, & Crutcher LLP, Emergency Federal Measures to Combat Coronavirus (Mar. 18, 2020), https://www.gibsondunn.com/emergency-federal-measures-to-combat-coronavirus/. [5]              U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [6]              U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [7]              Lydia Wheeler, Bloomberg News, Coronavirus False Claims Task Force Urged at Justice Department (Mar. 17, 2020), https://news.bloomberglaw.com/health-law-and-business/coronavirus-false-claims-task-force-urged-at-justice-department. [8]              Gibson, Dunn & Crutcher LLP, CARES Alert, Section IV. [9]              Id. [10]            Lydia Wheeler, Bloomberg News, Coronavirus False Claims Task Force Urged at Justice Department (Mar. 17, 2020), https://news.bloomberglaw.com/health-law-and-business/coronavirus-false-claims-task-force-urged-at-justice-department. [11]             See, e.g., https://www.kkc.com/news/what-laws-protect-coronavirus-whistleblowers-whistleblower-attorneys-publish-faqs-for-coronavirus-whistleblowers-and-qui-tam-relators/, https://www.fcacounsel.com/false-claims-act-whistleblower-blog, https://www.beasleyallen.com/news/whistleblower-advocate-urges-formation-of-coronavirus-task-force/, https://www.whistleblowerllc.com/coronavirus_fraud/. [12]             U.S. Dep’t of Justice, Memorandum from Attorney General William P. Barr (Mar. 16, 2020), https://www.justice.gov/ag/page/file/1258676/download; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud (Mar. 20, 2020), https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud. [13]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Healthcare Service Provider to Pay $60 Million to Settle Medicare and Medicaid False Claims Act Allegations (Feb. 6, 2017), https://www.justice.gov/opa/pr/healthcare-service-provider-pay-60-million-settle-medicare-and-medicaid-false-claims-act. [14]             Gibson, Dunn & Crutcher LLP, CARES Alert, Section III. [15]            Id., Section I and IV. [16]            Id., Section IV. [17]            Id. [18]            Id., Section I and IV. [19]            Id. [20]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Duke University Agrees to Pay U.S. $112.5 Million to Settle False Claims Act Allegations Related to Scientific Research Misconduct (Mar. 25, 2019), https://www.justice.gov/opa/pr/duke-university-agrees-pay-us-1125-million-settle-false-claims-act-allegations-related. [21]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, SolarCity Agrees to Resolve Alleged False Claims Act Violations Arising From Renewable Energy Grant Claims to Treasury (Sep., 22, 2017), https://www.justice.gov/opa/pr/solarcity-agrees-resolve-alleged-false-claims-act-violations-arising-renewable-energy-grant. [22]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Children’s Hospital to Pay $12.9 Million to Settle False Claims Act Allegations (Jun. 15, 2015), https://www.justice.gov/opa/pr/childrens-hospital-pay-129-million-settle-false-claims-act-allegations. [23]             See U.S. ex rel. Feldman v. van Gorp, 697 F.3d 78, 81 (2d Cir. 2012). [24]             See Gibson, Dunn & Crutcher LLP, CARES Alert, Section IV. [25]             See Rich Daly, Health Care Legal, Hospitals seek legal cover amid their coronavirus responses (Mar. 24, 2020), https://www.hfma.org/topics/news/2020/03/hospitals-seek-legal-cover-amid-their-coronavirus-responses.html. [26]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Alcatel-lucent Subsidiary Agrees to Pay U.S. $4.2 Million to Settle False Claims Act Allegations (Sep. 21, 2012), https://www.justice.gov/opa/pr/alcatel-lucent-subsidiary-agrees-pay-us-42-million-settle-false-claims-act-allegations. [27]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hurricane Katrina Contractor Accepts $4 Million Judgment Under the False Claims Act (Apr. 24, 2009), https://www.justice.gov/opa/pr/hurricane-katrina-contractor-accepts-4-million-judgment-under-false-claims-act. [28]            U.S. ex rel. Hutchins v. DynCorp Int’l, Inc., 342 F. Supp. 3d 32, 52 (D.D.C. 2018). [29]            Id. at 52. [30]             Id. at 55. [31]             Dorothy Atkins, Law360, Top DOJ Atty Spotlights Main FCA Target Areas For 2020 (Mar. 24, 2020), https://www.law360.com/articles/1255991/coronavirus-fallout-leaves-gov-t-contractors-scrambling. [32]             See U.S. ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1092 n.10 (11th Cir. 2018); see also Kelly v. Serco, Inc., 846 F.3d 325, 334 (9th Cir. 2017) (finding that relator “failed to establish a genuine issue of material fact regarding materiality” on FCA claim where the government continued to make payment after learning of alleged noncompliance). [33]             See U.S. ex rel. Becker v. Westinghouse Savannah River Co., 305 F.3d 284, 289 (4th Cir. 2002). [34]             See U.S. Food and Drug Admin., Coronavirus (COVID-19) Update: FDA and CDC take action to increase access to respirators, including N95s, for health care personnel (Mar. 2, 2020), https://www.fda.gov/news-events/press-announcements/coronavirus-covid-19-update-fda-and-cdc-take-action-increase-access-respirators-including-n95s. [35]             See Dana Gold, et. al., Government Accountability Project, Why Whistleblowers Wait, https://www.whistleblower.org/wp-content/uploads/2018/12/GAP_Report_Why_Whistleblowers_Wait.pdf. [36]             Stephen Stubben, et. al., University of Utah, Evidence on the Use and Efficacy of Internal Whistleblowing Systems (Mar. 3, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3273589. [37]             Gibson, Dunn & Crutcher LLP, Antitrust Implications of COVID-19 Response (Mar. 12, 2020), https://www.gibsondunn.com/coronavirus-antitrust-implications-of-covid-19-response/. [38]             See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Admits to Price Fixing in Violation of Antitrust Law, Resolves Related False Claims Act Violations (May 31, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-admits-price-fixing-violation-antitrust-law-resolves-related-false; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Second Pharmaceutical Company Admits to Price Fixing, Resolves Related False Claims Act Violations (Dec. 3, 2019), https://www.justice.gov/opa/pr/second-pharmaceutical-company-admits-price-fixing-resolves-related-false-claims-act.
Gibson Dunn attorneys regularly counsel clients on issues raised by this pandemic, and we are working with many of our clients on their response to COVID-19. Please also feel free to contact the Gibson Dunn attorney with whom you usually work, any member of the False Claims Act Group, or the authors: Authors:  John D.W. Partridge, Jonathan M. Phillips, James L. Zelenay Jr. and Sean S. Twomey © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 31, 2020 |
2019 Year-End False Claims Act Update

Click for PDF The books are now closed on another decade of False Claims Act (FCA) enforcement, and what a decade it was. During the last ten years, the government recovered nearly $38 billion dollars under the FCA from companies that do business with the federal government. This ten-year total is more than double the amount recovered in the prior decade (2000 to 2009), and there are no signs of relief in sight. This past year, as in preceding years, the government continued to rely on the FCA to combat alleged fraud and corruption by companies doing business with the government, and the Department of Justice (DOJ) obtained more than $3 billion in recoveries. This figure marks a slight uptick from 2018 and remains relatively consistent with recent recovery trends. The pipeline of new cases—which will drive recoveries in future years—also remains full. More than 780 new FCA matters were initiated in 2019, marking the tenth year in a row in which over 700 new FCA cases were filed. In other news, while this year has seen no major legislative developments at the federal level, states continue to enact or amend false claims statutes that will enable states to receive a higher percentage share of any recoveries under such laws. Meanwhile, the courts continued to develop a body of law beneath the statutory text. During the last year, there were a number of noteworthy circuit court decisions that concern the scope of the statute’s reach in relation to government programs, materiality, causation, and even DOJ’s authority to seek dismissal of qui tam suits pursued by whistleblowers, among other important topics. We address these and other developments in greater depth below. We first focus on enforcement activity during the fiscal year ending on September 30, 2019 and recent, noteworthy FCA settlements. Next, we turn to legislative and policy updates at the federal and state levels. Finally, we analyze significant case law developments. As always, Gibson Dunn’s recent publications on the FCA may be found on our website, including industry-specific articles, webcasts, presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I.  FCA ENFORCEMENT ACTIVITY

A.  Total Recovery Amounts: 2019 Recoveries Exceed $3 Billion

The federal government recovered more than $3 billion during fiscal year 2019.[1] This amount is a slight increase from last year ($2.9 billion), and marks the eleventh straight year that total FCA recoveries have been $2.45 billion or more.[2] With the exception of 2012, 2014, and 2016, when DOJ hit high-water marks of $5 to $6 billion (driven in part by mortgage-related settlements resulting from the 2008 financial crisis), the modern era of FCA enforcement appears to have settled into a remarkable rhythm: every year, the federal government recovers somewhere in the neighborhood of $3 billion dollars using the FCA. There are no signs of these staggering recovery amounts abating, and this trend has held regardless of the administration. Although the Trump Administration had overseen a slight downtick in the annual recoveries during each of the prior two years, this year’s recoveries reversed the trend with an increase from last year. These recoveries, while very high in their own right, do not even include all of the recoveries attributable to false claims activity, because the DOJ figures represent only federal recoveries, not state recoveries. Yet, in FCA cases there is very often a state component to any settlement or judgment, especially in health care cases where there is a nexus with state Medicaid programs. Indeed, DOJ touted in its press release announcing these figures that “in many of these cases the department was instrumental in recovering additional millions of dollars for state Medicaid programs.”[3]

B.  Qui Tam Activity

The total number of FCA cases filed each year remains remarkably high, too. This year, there were 782 new FCA cases. Of those, 146 (or 19%) were initiated by the government, while the other 636 (or 81%) were initiated by qui tam whistleblowers.[4] This is consistent with past years, as demonstrated in the chart below. Number of FCA New Matters, Including Qui Tam Actions Source: DOJ “Fraud Statistics – Overview” (Jan. 9, 2020) Qui tam suits (particularly those in which the government decides to intervene) also continue to drive the bulk of the recovery amounts. This year, more than $2.2 billion of the total $3 billion in settlements and judgments resulted from lawsuits originally filed under the FCA’s qui tam provisions.[5] Notably, the federal government recovered $1.9 billion (63% of the total amount of recoveries) in qui tam cases where the government intervened, and $844 million (28% of total recoveries) in non-qui tam cases (i.e., cases initiated by the government, not a whistleblower). This also means the government recovered $293 million (10% of the total) in cases where DOJ declined to intervene in a qui tam, the third highest total in declined cases during the last 20 years. This is also a significant increase from last year, when recoveries in declined cases were $135 million, and signifies the ongoing threat of FCA cases even if a company can convince the government to stand down in the first instance.[6] Settlements or Judgments in Cases Where the Government Declined Intervention as a Percentage of Total FCA Recoveries Source: DOJ “Fraud Statistics – Overview” (Jan. 9, 2020)

C.  Industry Breakdown

Once again, the vast majority of the federal government’s FCA recoveries came from the health care industry. This year, $2.6 billion (more than 85%) of the $3 billion in recoveries came from the health care sector, including providers, pharmaceutical companies, and medical device manufacturers. Recoveries from the defense industry accounted for another approximately $250 million.[7] FCA Recoveries by Industry Source: DOJ “Fraud Statistics – Overview” (Jan. 9, 2020) Enforcement efforts in the health care industry are notable for both their breadth and depth, targeting a wide variety of companies under a wide variety of theories. As in past years, however, a large number of the FCA settlements with health care companies were premised on alleged kickbacks, including violations of the Anti-Kickback Statute (AKS) and Stark Law. This year, in particular, DOJ also continued its strong focus on companies involved with the opioid crisis, including both opioid manufacturers and companies that provided services to opioid manufacturers.[8] Stemming from these theories and enforcement priorities, settlements with health care companies included both relatively small settlements with small businesses (e.g., a health clinic) as well as blockbuster settlements with large companies. But this latter category—big settlements with big companies—once again drove the high dollar volumes. As summarized below (and in our 2019 Mid-Year False Claims Act Update), some of the biggest settlements of 2019 included settlements of $500 million and $195 million from opioid manufacturers; and settlements of $124 million and $122 million by pharmaceutical companies in connection with charitable foundations. There were also 505 new health care FCA cases initiated in the last year,[9] making it all but certain that health care will remain the leading source of FCA recoveries in years to come. Outside of the health care space, the theories of liability and types of companies that DOJ targeted were more disparate. Among the most notable and novel theories this year included $162 million in settlements premised on a hybrid antitrust-FCA theory (a theory we discussed in our recent webcast on antitrust enforcement in the government procurement space). In that case, in particular, South Korean companies allegedly drove up fuel prices charged to the United State military through concerted anticompetitive conduct, as we covered in our 2019 Mid-Year False Claims Act Update.[10] In another novel case, DOJ and a coalition of state attorneys general secured the first-ever FCA settlement premised on cybersecurity vulnerabilities, after a technology company failed to report or remedy flaws in the security surveillance system it sold to multiple states and the federal government. There was also an array of more traditional procurement and government contracting settlements, as discussed below.

II.  NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE SECOND HALF OF 2019

We summarize below some of the notable FCA settlements announced since July 2019 (we covered notable settlements and judgments from the first half of 2019 in our 2019 Mid-Year False Claims Act Update). These summaries reveal details of some of the most notable settlements and provide insight into the theories of liability and industries that have been a focus of government (and relator) enforcement efforts during the last year.

A.  Health Care and Life Science Industries

  • On July 11, an international consumer goods conglomerate agreed to pay the federal government $1.4 billion to resolve potential criminal and civil liability related to the marketing of an opioid addiction treatment drug. The resolution is the largest recovery by the United States related to opioid drugs, and includes forfeiture of proceeds totaling $647 million, civil settlements with the federal government and the states totaling $700 million, and an administrative resolution with the FTC for $50 million. DOJ alleged that the consumer goods conglomerate directly, or through its subsidiary pharmaceutical company, knowingly (1) promoted the sale and use of the drug to physicians who were writing prescriptions for unsafe and medically unnecessary uses; (2) promoted the sale or use of the drug to physicians and state Medicaid agencies with false claims that the drug was less susceptible to diversion, abuse, and accidental pediatric exposure than alternative drugs; and (3) took measures to delay the entry of generic competitor drugs in an attempt to control pricing of the drug.[11]
  • On July 24, a Pennsylvania-based addiction treatment hospital agreed to pay almost $2.9 million to settle allegations that it violated the FCA by submitting bills to Medicare, Medicaid, and the Federal Employees Health Benefits Program for detoxification treatment services on behalf of patients who did not meet the qualifying medical criteria or lacked documentation to support their claims. The hospital also entered into a Corporate Integrity Agreement. The whistleblower will receive over $500,000 for his share of the recovery.[12]
  • On August 8, a California-based medical group and one of its physicians agreed to pay more than $5 million to resolve allegations that they reported invalid diagnoses to Medicare Advantage plans and in doing so caused the plans to receive inflated payments from Medicare and increased their own share of payments received from the Medicare Advantage Organizations. The whistleblower, a former employee of the medical group, will receive approximately $850,000 as his share of the federal recovery.[13]
  • On August 29, a provider of overseas health care services for the federal government agreed to pay $940,000 to resolve allegations that it overcharged TRICARE, the federal health care program for military members and their families, for aeromedical evacuation services. DOJ alleged that the company concealed discounts it received from air ambulance providers that it was required to pass along to TRICARE, resulting in inflated invoices. The whistleblower will receive $165,000 as his share of the recovery.[14]
  • On September 4, a pharmaceutical company agreed to pay $15.4 million to settle allegations that it paid illegal kickbacks under the FCA and AKS by providing meals and entertainment to health care providers allegedly to induce them to prescribe the company’s drug. The whistleblowers will receive approximately $2.9 million as their share of the settlement. The government is continuing to pursue other FCA claims against the pharmaceutical company related to allegations that the company paid illegal kickbacks in the form of co-pay subsidies.[15]
  • On September 18, a compounding pharmacy, two of its executives, and a private equity firm agreed to a $21.4 million settlement in total to resolve allegations that they violated the FCA through their involvement in an alleged kickback scheme to induce referrals of prescriptions that were reimbursed by TRICARE. DOJ alleged that the compounding pharmacy (1) paid kickbacks to outside “marketers” that paid telemedicine doctors to prescribe military members and their families compounded creams and vitamins that were formulated to ensure the highest reimbursement from TRICARE; (2) regularly paid patient copayments without verifying patients’ financial needs and disguised the source of the payments as a sham charitable organization; and (3) continued to seek reimbursement for prescriptions despite receiving complaints from patients that prescriptions were being written without patient consent or a valid relationship between the patient and prescriber. DOJ alleged that the private equity firm that managed the pharmacy agreed to and financed the plan to pay kickbacks to outside marketers to help generate prescriptions.[16]
  • On September 25, a national provider of mobile health diagnostic services agreed to pay $8.5 million to settle allegations that it engaged in a kickback scheme with skilled nursing facilities. DOJ alleged that the diagnostic services company provided x-rays to nursing facilities at prices below fair market value in an effort to induce the facilities to refer federal health care business to the company. The settlement was announced months after the company filed for bankruptcy earlier this year. The two whistleblowers will receive a total of more than $2 million as their share of the federal recovery.[17]
  • On September 26, a California-based pharmaceutical company was charged for allegedly paying kickbacks to a health care provider to prescribe the company’s drug to beneficiaries of federal health care programs. The company agreed to pay more than $108 million in criminal penalties, forfeiture, and civil damages. Of the total settlement, the pharmaceutical company agreed to pay over $95 million to resolve FCA allegations. DOJ alleged that the pharmaceutical company paid kickbacks in the form of money, honoraria, travel, and meals to health care providers of elderly patients at long-term care facilities to induce them to prescribe the company’s drug for behaviors associated with dementia patients, which is not an approved use of the drug. Three whistleblowers will share more than $17.7 million from the civil settlement. Additionally, the pharmaceutical company will pay approximately $7 million to resolve state Medicaid claims and has agreed to cooperate with indictments against four individuals alleged to be involved in the alleged kickback scheme. The company also entered into a Corporate Integrity Agreement.[18]
  • On October 4, a California-based medical group, its former CEO, and several physicians paid the United States and California nearly $6.7 million to settle allegations that they billed for medically unnecessary eye exams, improperly waived Medicare co-payments, and violated other regulations. The settlement resolves claims that personnel improperly billed Medicare and Medicaid/Medi-Cal by misclassifying simpler exams as being more complex, and also waived Medicare co-payments and deductibles without proper documentation of patients’ financial hardship in an effort to receive referrals.[19]
  • On October 9, a genetic testing company and its three principals agreed to pay $42.6 million in total to settle claims that they violated the FCA by paying kickbacks to physicians in exchange for laboratory referrals and for providing and billing medically unnecessary tests. The company and its principals allegedly paid the kickbacks to induce orders of pharmacogenetic tests, in return for the physicians’ participation in a clinical trial. The federal government also alleged that the company and its principals furnished tests that were not medically necessary and billed Medicare. The company also agreed to a 25-year exclusion period from participation in federal health care programs.[20]
  • On October 9, an operator of kidney dialysis clinics agreed to pay $5.2 million to settle claims that the company tested dialysis patients for Hepatitis B more than medically necessary and then billed Medicare for those tests. The government alleged that the company conducted, and billed Medicare for, tests of patients it knew to be immune to Hepatitis B infection. The whistleblower will receive 27.5% of the federal government’s recovery.[21]
  • On October 18, seven clinics and their owners agreed to pay the federal government more than $7.1 million to settle allegations that they violated the FCA by submitting false claims to Medicare for medically unnecessary viscosupplementation injections and knee braces. The settling clinics and related parties also entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General that requires implementation of compliance controls and annual claims review. The whistleblower will receive $857,550 of the settlement amount.[22]
  • On November 7, the U.S. Attorney for the Southern District of New York announced a civil settlement in which a medical device company and two executives agreed to pay nearly $6 million in total to settle the federal government’s FCA claims that they violated the AKS by paying surgeons to use and promote their products, resulting in false claims for payment from Medicare and Medicaid. The settlement resolves allegations that the company and the executives recruited doctors and paid them millions in consulting fees, royalties, and intellectual property purchase fees to induce them to use the company’s products. The government had intervened in a private qui tam lawsuit.[23]
  • On October 28, several South Dakota-based hospital entities agreed to pay $20.25 million to settle FCA allegations that they submitted false claims to federal health care programs resulting from violations of the AKS and medically unnecessary spinal surgeries. The settlement resolves allegations that the hospital entities received repeated warnings that one of its top neurosurgeons was improperly receiving kickbacks from his use of implantable devices distributed by his physician-owned distributorship and was performing medically unnecessary procedures. The United States alleged that, despite these warnings, the companies continued to employ the physician, allowed him to profit from use of his device, and continued to submit claims for medically unnecessary procedures. The whistleblowers will receive $3.4 million from the federal government.[24]
  • On November 7, a pharmaceutical company agreed to pay $20.5 million to settle allegations concerning the establishment of false and inflated Average Wholesale Prices (AWPs) for active pharmaceutical ingredients used in compound prescriptions. The settlement resolves claims that the company knowingly inflated the AWPs for its ingredients to increase the reimbursement that its pharmacy customers received from federal health care programs for using the company’s ingredients to prepare and fill specially-made compound prescriptions. The company allegedly promoted its high AWPs and profit potential as an inducement to pharmacies to purchase its ingredients. The settlement also resolved other allegations against other related entities. The whistleblowers will receive $3.7 million from the federal government.[25]
  • On November 8, a hospital company and its affiliate agreed to pay $12.3 million to settle claims that it violated the FCA by submitting false claims to Medicare for procedures only partially performed or supervised by attending surgeons. The settlement resolves allegations that the hospital billed for endoscopic and robotic procedures that were insufficiently supervised by medical residents instead of the attending physician, and that it administered unnecessary and improperly documented treatments. The alleged scheme centered on the practice of the former chairman of the urology department conducting a high-revenue robotic operation in one operating room while unsupervised residents were performing surgeries on patients in the other room.[26]
  • On November 15, several hospitals agreed to pay the federal government $46 million to resolve allegations arising from claims they submitted to Medicare. The settlement resolves allegations that one hospital violated the Stark Law by billing Medicare for services referred by an affiliated physician group, to whom it allegedly paid amounts under a series of compensation agreements that exceeded the fair market value for the services provided. The United States also alleged that the physician group submitted duplicative bills to Medicare for services performed by physicians’ assistants it was leasing to the hospital. The hospital also agreed to settle claims related to other self-disclosed conduct. The whistleblower will receive $5.9 million as her share of the federal government’s recovery.[27]
  • On November 20, a hospital pharmacy agreed to pay $10 million to the federal government to settle claims that it violated the FCA by submitting false claims to Medicare for prescription drugs that did not meet Medicare coverage requirements. The settlement also resolves allegations that the company submitted claims to Medicare that resulted from improper remuneration provided to Medicare beneficiaries in the form of free blood glucose testing supplies and waiver of co-payments and deductibles for insulin, in violation of the AKS. The whistleblower will receive $1.9 million from the United States.[28]
  • On November 26, a Massachusetts-based laboratory company agreed to pay $26.7 million to settle allegations that it violated the AKS and the Stark Law, as well as allegations that it improperly billed claims to the federal government for laboratory testing. The settlement resolves claims that the laboratory agreed to provide laboratory testing for small Texas hospitals in exchange for per-test payments. To generate more referrals for the hospitals and more money for itself, the company allegedly conspired with the hospitals’ independent marketers to make payments to referring physicians that were disguised as investment returns, but were actually based on, and offered in exchange for, the physicians’ referrals. These physicians allegedly referred patients to the Texas hospitals for laboratory testing performed by the company, which were then billed to Medicare, Medicaid, and TRICARE. The whistleblowers will receive approximately $4.4 million of the settlement.[29]

B.  Government Contracting

  • On July 16, a producer of electrical connectors agreed to pay $11 million to settle allegations that it violated the FCA by supplying connectors to the U.S. military that did not comply with testing protocols. DOJ alleged that the company did not conduct required periodic testing on six models of electrical connectors from 2008 to 2017. The whistleblower will receive $2.1 million from the federal government.[30]
  • On July 31, a manufacturer of security camera software agreed to pay $8.6 million to settle multistate litigation alleging that the company violated the FCA and state whistleblower acts because it allegedly knowingly failed to report or remedy flaws in the security surveillance system it sold to multiple states and the federal government that made the system vulnerable to hackers. The settlement provided refunds to the federal government and sixteen states that had purchased the allegedly defective software.[31]
  • On August 5, a New York-based construction company admitted to underpaying its workers on two federally funded construction projects and submitting payroll records to the federal government that falsely described the nature of the employees’ work. The construction company agreed to pay $435,000 to resolve lawsuits alleging civil fraud and FCA violations.[32]
  • On August 8, a company that provides medical supplies to the Departments of Defense and Veterans Affairs agreed to pay $3.3 million to settle FCA allegations that it manufactured products in China and Malaysia, knowing that these countries did not comply with the Trade Agreements Act’s requirement that all products sold to government agencies come from countries with which the United States has a trade agreement.[33]
  • On August 19, a Georgia-based producer of prefabricated modular structures agreed to pay $2.4 million to settle allegations that it violated the FCA by allegedly selling products to the Army, Department of Veterans Affairs, and General Services Administration that did not comply with electrical and structural standards. As part of the settlement agreement, the company also agreed to repair all allegedly deficient products previously supplied to the federal government.[34]
  • On August 20, the majority owner and former CEO of a Virginia-based defense contractor agreed to pay $20 million to resolve allegations that it violated the FCA by fraudulently procuring federal contracts reserved for small businesses. DOJ alleged that, based on misrepresentations made by the former CEO, the company was awarded multiple small business set-aside contracts for which it was ineligible. DOJ previously resolved claims against the defense contractor and its former general counsel related to the alleged scheme, resulting in combined settlements totaling more than $36 million, making it the largest FCA recovery related to allegations of small business contracting fraud.[35]
  • On August 20, an international airline headquartered in Texas agreed to pay approximately $22.1 million to resolve allegations under the FCA that the airline falsely reported the times at which it delivered United States mail to foreign postal administrations or other intended mail recipients allegedly to conceal its noncompliance with contractual obligations to the United States Postal Service.[36]
  • On November 13, a development corporation agreed to pay $2.8 million and give up $16 million in potential administrative claims to settle allegations that the company fraudulently induced the Army to award the company a contract for renovation of a shipyard by falsely representing that it would perform the contract when, in fact, its Israeli parent company intended to do so, and for presenting false claims to the United States certifying that it was performing the work as the prime contractor when in fact the work was being performed by its parent company.[37]

III.  LEGISLATIVE AND POLICY DEVELOPMENTS

A.  Federal Developments

The second half of the year remained quiet on the legislative front, and 2019 passed without any major federal legislative developments pertaining to the FCA. But we did identify some noteworthy developments on topics that we detailed in our 2019 Mid-Year False Claims Act Update.

1.  Attention on Application of the Granston Memo

Section 3730(c)(2)(A) of the FCA provides the government with authority to seek to dismiss declined qui tam cases, stating that “the Government may dismiss the action notwithstanding the objections of the person initiating the action if [1] the person has been notified by the Government of the filing of the motion and [2] the court has provided the person with an opportunity for a hearing on the motion.” DOJ continued its more active exercise of discretion to seek dismissals pursuant to Section 3730(c)(2)(A) in 2019, guided by the Granston Memo DOJ released in January 2018, which is codified in DOJ’s Justice Manual,[38] and which we discussed most recently in this year’s Mid-Year Update. As we have explained, the Granston Memo set forth a non-exhaustive list of factors for DOJ to consider when determining whether to move to dismiss a qui tam relator’s case under Section 3730(c)(2)(A), including whether dismissal would serve the government’s interests.[39] In the wake of the Granston Memo, lower courts have faced an increasing number of government requests to dismiss qui tam cases pursuant to the government’s authority under Section 3730(c)(2)(A). Courts have been split on the proper legal standard to apply to such requests, a question that the FCA’s text does not directly address. Some lower courts have followed the Ninth Circuit’s Sequoia test, also adopted by the Tenth Circuit, under which the government may only dismiss if: (1) it identifies a valid government purpose; (2) a rational relation exits between the dismissal and accomplishment of that purpose; and (3) dismissal is not fraudulent, arbitrary and capricious, or illegal. United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). Other courts have followed the D.C. Circuit’s more government-friendly test under which the government has “an unfettered” right to dismiss such that dismissals are “unreviewable” (with a possible exception for “fraud on the court”). Swift v. United States, 318 F.3d 250, 252-53 (D.C. Cir. 2003). In a decision exploring this issue, the Third Circuit held last year that “the dismissal provisions in the FCA . . . do not guarantee an automatic in-person hearing in every instance,” notwithstanding the requirement that a court provide the “opportunity for a hearing.” United States ex rel. Chang v. Children’s Advocacy Ctr. of Del., 938 F.3d 384, 387-88 (3d Cir. 2019). There, the district court granted the government’s request to dismiss after the government asserted that it had declined the case because the relator’s allegations were “factually incorrect and legally insufficient.” Id. at 386. Although the relator opposed the request, he did not specifically request a hearing and was not provided one. On appeal, the Third Circuit concluded that “an in-person hearing is unnecessary unless the relator expressly requests a hearing or makes a colorable threshold showing of arbitrary government action.” Id. at 388. The court also affirmed the dismissal, but—despite requests from the parties—declined to “take a side in this circuit split” regarding the proper standard to apply to the government’s dismissal requests under Section 3730(c)(2)(A). Instead, the Third Circuit concluded that the government’s request passed muster under “even the more restrictive standard” requiring a “rational relation” between dismissal and accomplishment of a valid purpose. Id. at 387. The Third Circuit’s decision reaffirms that the government’s dismissal power under Section 3730(c)(2)(A) remains a forceful tool in its arsenal, and it highlights the challenges that relators face in opposing such requests for dismissal. Other courts also continued to grapple with the implications of the Granston Memo during the second half of 2019. On November 5, 2019, the U.S. District Court for the Northern District of California granted the government’s motion to dismiss the qui tam relators’ FCA claims in United States ex rel. Campie v. Gilead Sciences, Inc., No. 11-cv-00941-EMC, 2019 WL 5722618 (N.D. Cal. Nov. 5, 2019). FCA defendants and practitioners have watched this case closely in hopes of discerning more about the impact of the Granston Memo. (We have covered Campie in past updates, including here and here.) The government previewed late last year in an amicus brief before the U.S. Supreme Court that if Campie were remanded to the district court, the government would move to dismiss the case under Section 3730(c)(2)(A).[40] The government stayed true to its word. In its motion after remand, the government asserted that dismissal of the relators’ FCA claim would serve the government’s interests by (1) preventing the relators “from undermining the considered decisions of [the U.S. Food and Drug Administration (FDA)] and [Centers for Medicare and Medicaid Services (CMS)] about how to address the conduct at issue here,” and (2) avoiding “the additional expenditure of government resources on a case that it fully investigated and decided not to pursue,” especially given that FDA already had taken regulatory actions it deemed appropriate. United States ex rel. Campie, 2019 WL 5722618 at *5. The district court granted the government’s motion, applying the test for dismissal set forth in Sequoia, under which the court examines whether the government has set forth a valid reason for dismissal, as discussed above. The court observed that the government investigated the relators’ claims for more than two years after the suit was filed, and that FDA was involved with oversight of Gilead even before the relators filed the suit, so the decision to move for dismissal was not “cursory.” Id. at *5-7. The court also rejected relators’ assertion that the government lacked sufficient basis to argue for dismissal based on the cost of continued litigation; according to the district court, the ultimate question is whether the government engaged in a meaningful consideration of cost and benefit such that its decision to seek dismissal is supported by a rational basis. Id. at *7. It is clear that the Granston Memo and the scope of DOJ’s dismissal authority will remain important topics in the coming year. Indeed, just before the district court handed down its decision in Campie, Senator Charles E. Grassley of Iowa, Chairman of the Senate Committee on Finance, wrote to Attorney General William Barr expressing concerns with DOJ’s implementation of the Granston Memo and “efforts to dismiss greater numbers of qui tam cases for reasons that appear primarily unrelated to the merits of individual cases”—this, according to Senator Grassley, “could undermine the purpose of the False Claims Act.”[41] Senator Grassley highlighted three cases in which DOJ moved to dismiss relators’ claims and cited the cost of litigation, including Campie, United States ex rel. Polansky v. Executive Health Res., Inc., No. 12-CV-4239-MMB, 2019 WL 5790061 (E.D. Pa. Aug. 20, 2019), and United States ex rel. Cimznhca, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. April 15, 2019), the latter of which we discussed in our 2019 Mid-Year Update. The Senator also asked DOJ to answer a number of questions about DOJ’s utilization of dismissal authority, including what role the Granston Memo played in DOJ’s decision to dismiss in Campie, whether DOJ would have moved to dismiss the case absent the Memo, and what resources have been devoted to dismissing qui tam claims since the Memo.[42] DOJ responded to Senator Grassley’s letter on December 19, stating that it shares the Senator’s view on the importance of the FCA and its qui tam provisions and that, since January 1, 2018, DOJ has moved to dismiss only 45 cases under Section 3730(c)(2)(A) out of 1,170 qui tam cases filed, or less than 4%.[43] DOJ provided some additional detail regarding the cases it sought to dismiss, including the fact that ten were filed by the same for-profit private investment group advancing the same allegations, which DOJ determined lacked merit.[44] Further, DOJ stated that it has recovered more than $60 billion under the FCA since 1986, “more than 70% of which was recovered in connection with lawsuits filed pursuant to the statute’s qui tam provisions.”[45] We will be watching carefully to see how this saga unfolds.

2.  Action on Opioids

As discussed above, the government has indicated that it will make fighting the opioid crisis a priority. In the press release announcing the government’s $1.4 billion settlement with an international consumer goods conglomerate, for example, the government stated that the settlement demonstrated that it “will work tirelessly to address all facets of the opioid epidemic.”[46] In December 2019, DOJ announced that it would award more than $333 million to help communities affected by the opioid crisis, adding that DOJ has made fighting opioid addiction “a national priority.”[47] This announcement came on the heels of DOJ’s statement in July that ten districts with some of the highest drug overdose death rates in the country would focus on prosecuting every “readily available” case involving synthetic opioids,[48] and HHS’s statement in September that it had released more than $1.8 billion in funding to states to combat the opioid crisis.[49] We will continue to closely watch DOJ’s approach to opioids in the coming year.

3.  Additional Developments

A few other recent government announcements bear mentioning as examples of how the current administration is thinking about the scope of FCA enforcement activity. As we described in an alert earlier this year, DOJ announced on October 28, 2019, that it signed a memorandum of understanding with Housing and Urban Development (“HUD”) that establishes guidance for the use of the FCA in actions against Federal Housing Administration (“FHA”) lenders.[50] The memorandum makes clear that FHA requirements will be enforced primarily through HUD’s administrative proceedings, absent extenuating circumstances, and it follows a series of settlements with significant recoveries related to the FHA loan program.[51] On October 31, 2019, HHS’s Office of the General Counsel, including Deputy General Counsel and CMS Chief Legal Officer Kelly Cleary, issued a memorandum (the “Cleary Memo”) assessing the impact of the Supreme Court’s recent opinion in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019) on Medicare payment rules that form the basis of compliance actions.[52] As the Cleary Memo sets forth, the Court held that “any Medicare issuance that establishes or changes a ‘substantive legal standard’ . . . must go through notice-and-comment rulemaking.”[53] HHS cautioned in the Memo that guidance that should have been promulgated through notice-and-comment rulemaking under Allina (but was not) cannot validly be used to bring an enforcement action.[54] That is, an enforcement action cannot be predicated on a guidance document unless it was issued through notice-and-comment rulemaking.[55] HHS also acknowledged, however, that under long-standing legal principles recently articulated in the Brand Memo, which we discussed in our 2018 Mid-Year and Year-End False Claims Act Updates, even guidance documents consistent with Allina may not be used as the sole basis for an enforcement action, although they may be relevant for questions of scienter and materiality.[56] Turning briefly to address Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), HHS stated that “the touchstone of materiality is whether the government would have paid the claims at issue had it known of a defendant’s alleged noncompliance with a law or regulation,” and that cases where a violation “may be material even if the government continued to pay with full knowledge of that violation” are “exceedingly rare” after Escobar.[57] Addressing specifically “healthcare qui tam suits” in which HHS would be the government payor in question, HHS explained that “the critical question is whether the alleged violation would have influenced our decision to pay.”[58] The Cleary Memo offers interesting insight from HHS on important FCA issues relating to materiality and the substantive standards underlying potential FCA theories. Finally, on January 27, 2020, Deputy Associate Attorney General Stephen Cox gave a speech at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement where he reviewed DOJ’s recent enforcement priorities and took a look ahead at the next year.[59] Many of the topics he addressed are covered above or in our 2019 Mid-Year Update—including opioid enforcement, the Granston Memo, reliance on subregulatory guidance, and cooperation credit. In addition to these topics, Cox also addressed the emerging issue of third-party litigation financing in qui tam actions. In class actions and other private cases, third-party financing for litigation is a common, albeit often secretive, feature of modern litigation. In his comments, Cox noted various reform efforts that are underway to address this issue, and acknowledged that third-party financing for litigation is very likely behind some qui tam suits as well. Notably, however, Cox indicated that the government often has “little insight into the extent to which they are backing the qui tam cases we are investigating, litigating, or monitoring.”[60] Given that qui tam cases are ostensibly undertaken in the government interest, this is remarkable: even the government does not know who is financing (and perhaps influencing) the direction of FCA lawsuits. Cox pledged that DOJ is “considering what, if any, interests the United States has with respect to third-party litigation financing in qui tam litigation and whether it is worth seeking some disclosure, at least to the department, of such arrangements.”[61]

B.  State Developments

We detailed the HHS’s Office of Inspector General’s (HHS OIG) review and approval of state false claims statutes and other developments in state laws in our 2019 Mid-Year Update. Since then, HHS OIG also has reviewed and approved Hawaii’s false claims statute, bringing the total number of states with approved statutes to twenty-one.[62] As we explained mid-year, to receive approval, state statutes must contain provisions that are at least as effective in “rewarding and facilitating qui tam actions” as those in the federal FCA and contain civil penalties of at least an equivalent amount, among other requirements. As an incentive for implementing such requirements, states with qualifying laws can receive a 10% greater share of any damages recovered under those laws.[63] HHS OIG has yet to approve false claims statutes it has reviewed in eight states—Florida, Louisiana, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, and Wisconsin.[64] We also reported in our 2019 Mid-Year Update on a bill passed by the California Assembly, Assembly Bill No. 1270, which would broaden the state’s false claim act considerably, including by amending the act to include consideration of “the potential effect” of an alleged false record or statement “when it is made,” and extending the act to tax-related cases where the damages pleaded exceed $200,000 and a defendant’s state-taxable income or sales exceed $500,000. The California Senate has amended the bill slightly to clarify that it would not apply retroactively to tax-related cases where the alleged false statement or record occurred before January 1, 2020, and the bill currently remains pending in the state senate.[65] The South Carolina bill that we also discussed in our mid-year update, which would enact the state’s first false claims act, likewise remains stalled in the state senate’s judiciary committee, where it has been sitting since January of 2019.[66] We will continue to watch state legislation in these states and others for signs of further movement or revisions.

IV.  NOTABLE CASE LAW DEVELOPMENTS

The second half of 2019 was active on the case law front, featuring a number of notable circuit court decisions touching on various aspects of the FCA, including the statute’s materiality and causation requirements, and the statute’s reach in relation to government programs.

A.  Second Circuit Holds that the FCA Applies to Federal Reserve Banks

Although broad in many respects, the FCA is cabined by its purpose of protecting the government fisc, and thus the statute expressly does not apply to efforts to defraud private entities who are not administering or using government funds. Under 31 U.S.C. § 3729(b)(2)(A), fraudulent “claims” are thus actionable when they are presented either (1) to an “officer, employee, or agent” of the United States, or (2) to a private “contractor, grantee, or other recipient” so long as a portion of the money is (a) “provided” or “reimburse[d]” by the United States and (b) used to advance its “interest[s].” In United States v. Wells Fargo & Co., the Second Circuit grappled with this dividing line between public and private, holding that the FCA reaches allegedly fraudulent claims relating to emergency loans made by the twelve Federal Reserve Banks (FRBs). 943 F.3d 588 (2d Cir. 2019). There, relators pursued FCA claims based on allegations that certain banks had misrepresented their financial condition to the FRBs to qualify for emergency loans at favorable interest rates for which they were not, in fact, qualified. The district court concluded that the allegedly fraudulent loan requests were not “claims” within the meaning of the FCA because FRBs were not government “agents” and because the United States did not provide the money involved in the FRB emergency loan program. Id. at 594. The Second Circuit reversed, holding that the FCA reaches claims to FRBs because they are “governmental instrumentalities operating under direct supervision of a government agency where the disbursement itself is part of a government program and where the money is created ex nihilo pursuant to congressional authority.” Id. at 605. The court held that FRBs act as “agents” of the United States in the context of emergency loans at issue because they “extend emergency loans pursuant to a statutory delegation from Congress” and are supervised by a government agency, the Federal Reserve Board, which “exercises substantial control over FRB emergency lending activities.” Id. at 599-600. The court reached its conclusion even though FRBs are not part of any executive department or agency, but instead are corporations with private banks as nominal shareholders, and even though that FRB loans are delivered in the form of credit to the borrowing bank, not lent out of treasury funds. As the Second Circuit explained, the “United States is the source of the purchasing power conferred on the banks when they borrow from the Fed’s emergency lending facilities.” Id. at 603. Although the Second Circuit emphasized that its holding that the FCA applied was limited to “the narrow context” of claims involving FRBs with respect to “the Fed’s emergency lending facilities,” the decision may nevertheless encourage future arguments in other contexts that a broader swath of entities are “governmental instrumentalities” that fall within the statute’s scope. Id. at 605-06.

B.  Eleventh Circuit Rejects FCA Liability Based on Reasonable Differences in Opinion

In United States v. AseraCare, Inc., the Eleventh Circuit held that claims cannot be “deemed false” under the FCA based solely on “a reasonable difference of opinion among physicians” as to a medical provider’s clinical judgment. 938 F.3d 1278, 1281 (11th Cir. 2019). There, the government relied on a false certification theory that claims for treatment for hospice patients were based on the provider’s representation of the patients as “terminally ill” when, according to expert physician witness testimony as to a sample subset of patients, they were, in fact, not. Id. at 1284-85. The district court vacated a jury finding in the government’s favor and entered summary judgment against it, concluding that the mere difference of opinion between physicians (the government’s expert and the provider) could not establish “falsity” as a matter of law. Id. at 1285-86. On appeal, the Eleventh Circuit agreed, holding that when a certification to the government—including that a patient is terminally ill—is based on a physician’s clinical judgment, it cannot be “false,” and therefore is not actionable, unless the underlying clinical judgment reflects an “objective falsehood.” Id. at 1296-97. Concluding that a “mere difference of reasonable opinion” among medical providers alone does not constitute an “objective falsehood,” the court explained that plaintiffs instead “must identify facts and circumstances surrounding the patient’s certification that are inconsistent with the proper exercise of a physician’s clinical judgment. Where no such facts or circumstances are shown, the FCA claim fails as a matter of law.” Id. at 1297. Although the Eleventh Circuit’s ruling reversed a grant of summary judgment for defendants, the opinion nonetheless articulated a standard for proving the specific alleged false claims at trial: “crucially, on remand the Government must be able to link this evidence of improper certification practices to the specific . . . claims at issue in its case. Such linkage is necessary to demonstrate both falsehood and knowledge.” Id. at 1305. In reaching its conclusion regarding falsity, the AseraCare court considered but declined to follow decisions by both the Tenth and Sixth Circuits. Id. at 1300 n.15 (citing United States ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d 730 (10th Cir. 2018); and United States v. Paulus, 894 F.3d 267 (6th Cir. 2018)). The government had argued, unsuccessfully, that these cases established that a mere difference of medical opinion can be sufficient to show that a statement is false for FCA liability. Id. Whether AseraCare creates a circuit split of sorts on this issue will become clearer as other circuits consider it, as the AseraCare court sought expressly to distinguish Paulus and Palukoff on the grounds that the clinical standards at issue in the former case were capable of objective factual evaluation and the opinions at issue in the latter may not have been reasonable or even genuinely-held. Although nominally a win for the government, the Eleventh Circuit’s AseraCare decision undoubtedly will reverberate in health care fraud cases of many types, given that the treating physician’s clinical judgment is the linchpin for reimbursement in many different federal health program settings. Under AseraCare, the government will have to show more than mere differences in medical opinions to prove falsity; and, the case likely will require more rigor in the use of statistical sampling to support evidence of false claims, insofar as the government will be required to establish a specific link between the government’s evidence and the particular false claims at issue.

C.  Courts Continue to Interpret the FCA’s Materiality Requirement Post-Escobar

In 2019, as in past years, lower courts continued to develop the growing body of jurisprudence regarding materiality and government knowledge under the FCA in the wake of the Supreme Court’s decision in Escobar, 136 S. Ct. 1989, the landmark decision on the implied certification theory of liability. Consistent with the Supreme Court’s directive in Escobar, circuit courts continued to examine whether FCA plaintiffs have adequately alleged facts to satisfy the rigorous and demanding materiality standard at the pleadings stage, with mixed outcomes. In Godecke v. Kinetic Concepts, Inc., the Ninth Circuit addressed materiality allegations in an FCA claim predicated on the theory that the defendants allegedly submitted claims for Medicare payment without disclosing that no written order had been received before delivery, in violation of regulatory requirements. 937 F.3d 1201 (9th Cir. 2019). As to materiality, the complaint alleged that Medicare would not have paid for the claims had it been aware of the lack of prior written orders, because that requirement was part of relevant government reimbursement rules (i.e., an express “condition of payment”). Further, according to the complaint, the requirement was not just some “paperwork issue” but instead was the result of “extensive negotiations” between the defendant and Medicare “in order to prevent fraud and abuse.” Id. at 1213. The Ninth Circuit held that these allegations indicated that noncompliance with the requirement was not “minor or insubstantial” and thus were sufficient to establish materiality (even though the allegations did not address how Medicare “has treated similar violations”). Id. at 1213-14. In contrast, in United States ex rel. Patel v. Catholic Health Initiatives, the Fifth Circuit, in a per curiam opinion, affirmed dismissal of an FCA complaint because the alleged false claim—failure to report a change in ownership of a hospital—was not “material.” No. 18-20395, 2019 WL 6208665, at *4 (5th Cir. Nov. 20, 2019). The case involved an ownership dispute over a hospital that had originally been structured with individual doctors as partners. The hospital system then purchased or terminated their shares and then allegedly received reimbursements through an entity designated as the owner even after a court determined that, due to the partnership dispute, that entity was not really the owner. Invoking Escobar, the court held that the relator failed to adequately allege materiality. Despite the allegations as to misrepresentation of the ownership of the hospital, there was no evidence that the government “consistently refuses to pay claims” with incorrect statements regarding ownership, and the fact that the government had paid the claims at issue suggested that the government did not care who the rightful owner of the hospital was. Id. (citation omitted). Although FCA defendants have had some success in recent years disputing materiality, cases like Patel reaffirm that challenges to allegations of materiality remain a strong potential basis for dismissal at the pleading stage.

D.  Courts Continue to Analyze Rule 9(b)’s Particularity Requirement in FCA Claims

Rule 9(b) heightens the standard for pleading fraud claims, requiring that a party alleging fraud “must state with particularity the circumstances constituting fraud or mistake.” As we have noted in past updates, circuit courts have struggled with how to apply Rule 9(b)’s particularity requirement in FCA cases. This year was no exception, as is clear from two recent cases arising in the context of the Stark Act and AKS. In United States ex rel. Bookwalter v. UPMC, the Third Circuit reversed a lower court’s decision dismissing an FCA case that involved claims predicated on productivity-based physician compensation structures. No. 18-1693, 946 F.3d 162, 166-67, 178 (3d Cir. 2019). The relator alleged that the compensation structures between physician practices and neurosurgeons resulted in improper bill-padding. The Third Circuit concluded that the relators had plausibly alleged the conduct at issue violated the Stark Law and, therefore, the claims were “false” for purposes of the FCA. Id. at 169-70. The court also explored the limits of Rule 9(b)’s heightened pleading standard, holding that the relators did not have to allege “the date, time, place, or content of every single allegedly false Medicare claim” involved in the allegedly unlawful compensation scheme. Id. at 176. Rather, the court determined that since the alleged “falsity” came not from a particular misrepresentation, but from a set of circumstances of alleged bill-padding that made a whole set of claims allegedly false, it was enough to allege the circumstances of that scheme with particularity. Id. The court focused on “[t]he sum total of the[] allegations,” which it concluded told a “detailed story about how the defendants designed a system to reward surgeons for creating and submitting false claims.” Id. at 177. This, the court reasoned, was “particular enough” to achieve Rule 9(b)’s goals of precision, substantiation of the fraud allegation, and notice to the defendant of the misconduct with which it is charged. Id. at 176-77. In Bingham v. HCA, Inc., the Eleventh Circuit similarly explored the intersection between Rule 9(b) and FCA cases predicated on violations of the AKS and the Stark Law, but reached the opposite conclusion. 783 F. App’x 868, 870 (11th Cir. 2019). There, the relator’s FCA theory relied on his allegations the defendants allegedly provided “sweetheart deals to certain physicians who leased space in [its] medical office buildings . . . in exchange for patient referrals,” which constituted unlawful remuneration in violation of the AKS and Stark Law. Id. at 870-71. The court held, however, that the complaint was properly dismissed by the district court because it did not satisfy the heightened pleading requirements of Rule 9(b). Id. at 877. Specifically, the critical elements of the alleged kickback scheme relied entirely on “conclusory” allegations that were “based on information and belief,” and were “devoid of facts regarding the substance of [the] alleged misconduct,” including “when it occurred, and who engaged in it.” Id.

E.  Fifth Circuit Clarifies Causation Standard for Mortgage Fraud Claims Under the FCA

Until recently, federal circuit courts were divided as to the standard for demonstrating proximate causation in FCA cases predicated on claims involving mortgage fraud. While the Fifth Circuit had articulated a rigorous causation standard widely viewed as difficult to meet, other circuits, including the Ninth and D.C. Circuits, employed a much more relaxed standard under which a false statement was deemed a proximate cause of the loss if the statement concerned factors that affected the likelihood of repayment, such as a borrower’s creditworthiness. In United States v. Hodge, however, the Fifth Circuit clarified its standard, electing to step back from the “restrictive” causation standard that its prior precedent had been read to articulate, and expressly brought its standard into alignment with the more relaxed requirements imposed by other circuits. 933 F.3d 468, 474-75 (5th Cir. 2019), as revised (Aug. 9, 2019). In Hodge, the Fifth Circuit affirmed a nearly $300 million treble damages judgment against two mortgage companies and their owner for allegedly fraudulently obtaining FHA insurance for loans that later defaulted. Id. at 472. After a five-week trial, a jury found that the defendants had misrepresented compliance with FHA underwriting guidelines and had concealed the use of unregistered branches to originate loans. Id. On appeal, the Fifth Circuit rejected a challenge to the sufficiency of the evidence, holding that the government had shown scienter, materiality, and causation. Id. at 473-75. Specifically, evidence the defendants had continued to originate loans from unregistered branches after being notified by HUD that it was unlawful demonstrated scienter. Id. at 473. As to materiality, the court relied on the fact that HUD demanded indemnification from defendants after discovering a handful of loans were originated from unregistered branches, and later barred them from the FHA program entirely. Id. at 474. As to causation, the court held that the government’s evidence—which relied on sampling of loan files and extrapolation showing that loans from unregistered branches had higher default rates—was sufficient to show causation between the alleged misconduct and ultimate defaults (leading to alleged damages) even though it did not connect the alleged misconduct to specific loans. Id. at 475. The court concluded that “[e]ven if the defendants did not know which specific loans would eventually default, it was foreseeable that a higher percentage of them would,” which sufficiently demonstrated causation under the FCA. Id. The decision, which allows the government to show causation at a higher level of generality using sampling, may encourage DOJ and relators to pursue similar theories in FCA claims with large numbers of alleged misstatements.

F.  Several Circuits Address Causation and Other Issues in FCA Retaliation Claims

In the second half of 2019, several courts of appeals also addressed issues under the FCA’s anti-retaliation provision, which protects would-be whistleblowers from retaliation based on certain protected activity undertaken in furtherance of a potential FCA claim. We briefly summarize these decisions below. In a matter of first impression for FCA retaliation claims before the Tenth Circuit, the court joined several other circuits in holding that when there is no direct evidence of retaliation, the McDonnell Douglas framework applies to FCA retaliation claims. Miller v. Inst. for Def. Analyses, No. 19-1110, 2019 WL 6997900, at *4 (10th Cir. Dec. 20, 2019) (citing McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973)). Under this three-step framework, “a plaintiff first must set forth a prima facie case of retaliation,” second, “the burden then shifts to the defendant to articulate a legitimate, nonretaliatory reason for the adverse employment action,” and then third, “if the employer produces evidence of a legitimate nonretaliatory reason, the plaintiff must assume the further burden of showing that the proffered reason is a pretext calculated to mask retaliation.” Id. at *4-5 (citations omitted). The Tenth Circuit affirmed a grant of summary judgment in the defendant’s favor, holding that although, at the first step, a short “temporal proximity between [a plaintiff’s] protected conduct and the adverse action” alone can be “relied on to prove causation,” the nearly five-month gap the plaintiff identified was insufficient. Id. at *5-6. The Fifth Circuit, in a pair of decisions, likewise addressed the proper standard for analyzing causation in FCA retaliation claims under the McDonnell Douglas framework. In Garcia v. Professional Contract Services, the Fifth Circuit similarly ruled that in the first step of McDonnell Douglas, “a plaintiff can meet his burden of causation simply by showing close enough timing between his protected activity and his adverse employment action,” but that at the third step (the pretext stage), a “heightened but-for causation requirement applies.” 938 F.3d 236, 243 (5th Cir. 2019). Applying this framework to a retaliation claim brought by an employee with some responsibilities for ensuring “the company was complying with its contracts with the government,” the court reversed a grant of summary judgment in the defendants’ favor at the third step, holding that the plaintiff had pointed to enough evidence of pretext—including the temporal proximity between the alleged protected activity and termination of less than three months, as well as other factors, such as disparate treatment of a similarly situated employee—to survive summary judgment. Id. at 238, 244. In Musser v. Paul Quinn College, however, the Fifth Circuit affirmed a grant of summary judgment for the defendant at the third step in a claim brought by an independent contractor “tasked with providing financial and accounting services” as an interim controller to defendant, where the plaintiff’s alleged evidence of retaliation did not include “other significant evidence of pretext” apart from temporal proximity, and thus fell “short of the . . . evidence described in Garcia.” 944 F.3d 557, 559-64 (5th Cir. 2019). Finally, a split of the D.C. Circuit held that the plaintiff-veterinarian’s termination, allegedly in retaliation for complaints about the defendant’s violations of conditions of federal funding in animal research, could support an FCA retaliation claim even where the plaintiff’s warnings “did not accuse the [defendant] of fraud in terms.” Singletary v. Howard Univ., 939 F.3d 287, 297-98 (D.C. Cir. 2019). The majority held that despite the lack of direct accusations of fraud, the plaintiff had alleged a reasonable belief of an FCA violation because she alleged that the university was required to make annual certifications of compliance, and that her complaints “coincided” with the annual reporting period. Id. According to the dissent, however, because the defendant was never warned “about possible fraud,” the university had no reason to think the plaintiff was reporting in an effort to stop fraud. Id. at 307. The dissent further held that the claim was not viable because mere violations of contract or regulation do not equate to fraud unless they are material to a false claim for money, under Escobar—a topic the majority declined to address. Id.

V.  CONCLUSION

As always, Gibson Dunn will continue to monitor these developments and others in the FCA space and stands ready to answer any questions you may have. We will report back to you on the latest news mid-year, in early July. ______________________ [1] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Recovers over $3 Billion from False Claims Act Cases in Fiscal Year 2019 (Jan. 9, 2020), https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019 [hereinafter DOJ FY 2019 Recoveries Press Release]. [2] See U.S. Dep’t of Justice, Fraud Statistics Overview (Jan. 9, 2020), https://www.justice.gov/opa/press-release/file/1233201/download [hereinafter DOJ FY 2019 Stats]. [3] DOJ FY 2019 Recoveries Press Release. [4] See DOJ FY 2019 Stats. [5] Id. [6] Id. [7] Id. [8] DOJ FY 2019 Recoveries Press Release. [9] See DOJ FY 2019 Stats. [10] DOJ FY 2019 Recoveries Press Release. [11] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Obtains $1.4 Billion from Reckitt Benckiser Group in Largest Recovery in a Case Concerning an Opioid Drug in United States History (Jul. 11, 2019), https://www.justice.gov/opa/pr/justice-department-obtains-14-billion-reckitt-benckiser-group-largest-recovery-case. [12] See Press Release, U.S. Atty’s Office for the E. Dist. of Pa., Eagleville Hospital Pays $2.85 Million to Resolve Allegations of Improper Billing for Detox Treatment (Jul. 24, 2019), https://www.justice.gov/usao-edpa/pr/eagleville-hospital-pays-285-million-resolve-allegations-improper-billing-detox. [13] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider and Physician to Pay $5 Million to Settle False Claims Act Allegations (Aug. 8, 2019), https://www.justice.gov/opa/pr/medicare-advantage-provider-and-physician-pay-5-million-settle-false-claims-act-allegations. [14] See Press Release, U.S. Atty’s Office for the E. Dist. of Pa., Defense Contractor to Pay $940,000 to Resolve Allegations of Withholding Discounts from TRICARE (Aug. 29, 2019), https://www.justice.gov/usao-edpa/pr/defense-contractor-pay-940000-resolve-allegations-withholding-discounts-tricare. [15] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Mallinckrodt Agrees to Pay Over $15 Million to Resolve Alleged False Claims Act Liability for “Wining and Dining” Doctors (Sept. 4, 2019), https://www.justice.gov/opa/pr/drug-maker-mallinckrodt-agrees-pay-over-15-million-resolve-alleged-false-claims-act-liability. [16] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Compounding Pharmacy, Two of Its Executives, and Private Equity Firm Agree to Pay $21.36 Million to Resolve False Claims Act Allegations (Sept. 18, 2019), https://www.justice.gov/opa/pr/compounding-pharmacy-two-its-executives-and-private-equity-firm-agree-pay-2136-million. [17] See Press Release, U.S. Atty’s Office for the E. Dist. of Pa., Trident USA Health Services LLC to Pay $8.5 Million to Resolve False Claims Act Liability for Alleged Kickback Scheme (Sept. 25, 2019), https://www.justice.gov/usao-edpa/pr/trident-usa-health-services-llc-pay-85-million-resolve-false-claims-act-liability. [18] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Targeting Elderly Victims Admits to Paying Kickbacks, Resolves Related False Claims Act Violations (Sept. 26, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-targeting-elderly-victims-admits-paying-kickbacks-resolves-related. [19] See Press Release,  U.S. Atty’s Office for the C. Dist. of Cal., Eye Doctor Group, Physicians Pay $6.65 Million to Settle Allegations They Submitted Fraudulent Bills to Medicare and Medicaid (Oct. 4, 2019), https://www.justice.gov/usao-cdca/pr/eye-doctor-group-physicians-pay-665-million-settle-allegations-they-submitted. [20] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Genetic Testing Company and Three Principals Agree to Pay $42.6 Million to Resolve Kickback and Medical Necessity Claims (Oct. 9, 2019), https://www.justice.gov/opa/pr/genetic-testing-company-and-three-principals-agree-pay-426-million-resolve-kickback-and. [21] See Press Release,  U.S. Atty’s Office for the Dist. of Mass., Fresenius Agrees to Pay $5.2 Million to Resolve Allegations that it Overbilled Medicare for Hepatitis B Tests (Oct. 9, 2019), https://www.justice.gov/usao-ma/pr/fresenius-agrees-pay-52-million-resolve-allegations-it-overbilled-medicare-hepatitis-b. [22] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Former Osteo Relief Institutes and Their Owners to Pay Over $7.1 Million to Resolve Allegations of Unnecessary Knee Injections and Braces (Oct. 18, 2019), https://www.justice.gov/opa/pr/former-osteo-relief-institutes-and-their-owners-pay-over-71-million-resolve-allegations. [23] See Press Release, U.S. Atty’s Office for the S. Dist. of N.Y., Manhattan U.S. Attorney Announces Settlement Of Lawsuit Against Spinal Implant Company, Its CEO, And Another Executive For Paying Millions Of Dollars In Kickbacks To Surgeons (Nov. 7, 2019), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-settlement-lawsuit-against-spinal-implant-company-its. [24] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Sanford Health Entities to Pay $20.25 Million to Settle False Claims Act Allegations Regarding Kickbacks and Unnecessary Spinal Surgeries (Oct. 28, 2019), https://www.justice.gov/opa/pr/sanford-health-entities-pay-2025-million-settle-false-claims-act-allegations-regarding. [25] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Compound Ingredient Supplier Fagron Holding USA LLC to Pay $22.05 Million to Resolve Allegations of False and Inflated Average Wholesale Prices for Ingredients Used in Compound Prescriptions (Nov. 7, 2019), https://www.justice.gov/opa/pr/compound-ingredient-supplier-fagron-holding-usa-llc-pay-2205-million-resolve-allegations. [26] See Stipulation and Order of Settlement, U.S. ex rel. Markelson v. Lenox Hill Hospital et al., No. 1:17-cv-07986 (S.D.N.Y. Nov. 8, 2019) [27] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, California Health System and Surgical Group Agree to Settle Claims Arising from Improper Compensation Agreements (Nov. 15, 2019), https://www.justice.gov/opa/pr/california-health-system-and-surgical-group-agree-settle-claims-arising-improper-compensation. [28] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Kentucky Hospital to Pay over $10 Million to Resolve False Claims Act Allegations (Nov. 20, 2019), https://www.justice.gov/opa/pr/kentucky-hospital-pay-over-10-million-resolve-false-claims-act-allegations. [29] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Laboratory to Pay $26.67 Million to Settle False Claim Act Allegations of Illegal Inducements to Referring Physicians (Nov. 26, 2019), https://www.justice.gov/opa/pr/laboratory-pay-2667-million-settle-false-claims-act-allegations-illegal-inducements-referring. [30] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, ITT Cannon to Pay $11 Million to Settle False Claims Allegations for Untested Electrical Connectors (Jul. 16, 2019), https://www.justice.gov/opa/pr/itt-cannon-pay-11-million-settle-false-claims-allegations-untested-electrical-connectors. [31] See Press Release, NY State Office of the Attorney General, Attorney General James Secures $6 Million From Cisco Systems In Multistate Settlement (Aug. 1, 2019), https://ag.ny.gov/press-release/2019/attorney-general-james-secures-6-million-cisco-systems-multistate-settlement; Mark Chandler, Executive Platform: A Changed Environment Requires a Changed Approach, Cisco Blogs (Jul. 31, 2019), https://blogs.cisco.com/news/a-changed-environment-requires-a-changed-approach. [32] See Press Release, U.S. Atty’s Office for the S. Dist. of NY, Manhattan U.S. Attorney Announces Settlement With Construction Company For Underpaying Workers And Submitting False Payroll Reports On Two Federally Funded Projects (Aug. 5, 2019), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-settlement-construction-company-underpaying-workers-and. [33] See Press Release, U.S. Atty’s Office for the E. Dist. of PA, Defense Contractor to Pay $3.3M to Resolve False Claims Act Allegations (Aug. 8, 2019), https://www.justice.gov/usao-edpa/pr/defense-contractor-pay-33m-resolve-false-claims-act-allegations. [34] See Press Release, U.S. Atty’s Office for the S. Dist. of GA, Government Settles Alleged False Claims Act Violations with Sesolinc Group (Aug. 19, 2019), https://www.justice.gov/usao-sdga/pr/government-settles-alleged-false-claims-act-violations-sesolinc-group. [35] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts (Aug. 20, 2019), https://www.justice.gov/opa/pr/former-ceo-virginia-based-defense-contractor-agrees-pay-20-million-settle-false-claims-act. [36] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, American Airlines Inc. Agrees To Pay $22 Million to Settle False Claims Act Allegations for Falsely Reporting Delivery Times of U.S. Mail Transported Internationally (Aug. 20, 2019), https://www.justice.gov/opa/pr/american-airlines-inc-agrees-pay-22-million-settle-false-claims-act-allegations-falsely. [37] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, ABS Development Corporation Agrees to Pay $2.8 Million to Settle False Claims Act Allegations and to Waive Administrative Claims (Nov. 13, 2019), https://www.justice.gov/opa/pr/abs-development-corporation-agrees-pay-28-million-settle-false-claims-act-allegations-and. [38] U.S. Dep’t of Justice, Justice Manual, Section 4-4.111. [39] See Memorandum, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for- Evaluating-Dismissal-Pursuant-to-31-U-S.pdf. [40] Brief for the United States as Amicus Curiae at 15, Gilead Sciences, Inc. v. United States ex rel. Campie, 139 S. Ct. 783 (2019). [41] Letter from Sen. Charles E. Grassley to Att’y Gen. William Barr at 1 (Sept. 4, 2019), https://www.grassley.senate.gov/sites/default/files/documents/2019-09-04%20CEG%20to%20DOJ%20%28FCA%20dismissals%29.pdf. [42] Id. at 5-6. [43] Letter from Assistant Att’y Gen. Stephen E. Boyd, Office of Legis. Affairs, U.S. Dep’t of Justice, to Sen. Charles E. Grassley at 1 (Dec. 19, 2019), https://www.grassley.senate.gov/sites/default/files/2019-12-19%20DOJ%20to%20CEG%20%28FCA%20dismissals%29.pdf. [44] Id. at 2. [45] Id. at 1. [46] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Obtains $1.4 Billion from Reckitt Benckiser Group in Largest Recovery in a Case Concerning an Opioid Drug in United States History (Jul. 11, 2019), https://www.justice.gov/opa/pr/justice-department-obtains-14-billion-reckitt-benckiser-group-largest-recovery-case. [47] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Awards More than $333 Million to Fight Opioid Crisis (Dec. 13, 2019), https://www.justice.gov/opa/pr/justice-department-awards-more-333-million-fight-opioid-crisis. [48] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Announces Results in Fight Against the Opioid Crisis At One Year Mark of Operation S.O.S. (July 16, 2019), https://www.justice.gov/opa/pr/justice-department-announces-results-fight-against-opioid-crisis-one-year-mark-operation-sos. [49] See Press Release, U.S. Dep’t of Health & Human Servs., Trump Administration Announces $1.8 Billion in Funding to States to Continue Combating Opioid Crisis (Sept. 4, 2019), https://www.hhs.gov/about/news/2019/09/04/trump-administration-announces-1-8-billion-funding-states-combating-opioid.html. [50] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Departments of Justice and Housing and Urban Development Sign Interagency Memorandum on the Application of the False Claims Act (Oct. 28, 2019), https://www.justice.gov/opa/pr/departments-justice-and-housing-and-urban-development-sign-interagency-memorandum-application. [51] See, e.g., U.S. Dep’t of Justice, Recent Accomplishments of the Housing and Civil Enforcement Section (January 7, 2020), https://www.justice.gov/crt/recent-accomplishments-housing-and-civil-enforcement-section. [52] See Memorandum, Dep’t of Health & Human Servs., Dep. Gen. Counsel & CMS Chief Legal Officer Kelly M. Cleary & Dep. Gen. Counsel Brenna E. Jenny, Impact of Allina on Medicare Payment Rules (Oct. 31, 2019). [53] Id. [54] Id. [55] Id. [56] Id. [57] Id. [58] Id. [59] See Press Release, Office of Pub. Affairs, Deputy Associate Attorney General Stephen Cox Provides Keynote Remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 27, 2020), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-provides-keynote-remarks-2020-advanced. [60] Id. [61] Id. [62] Dep’t of Health & Human Servs., Office of Inspector Gen., State False Claims Act Reviews, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp. [63] Id. [64] Id. [65] AB-1270 False Claims Act, California Legislative Information (Aug. 13, 2019), https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1270, https://leginfo.legislature.ca.gov/faces/billStatusClient.xhtml?bill_id=201920200AB1270. [66] See S. 40, A Bill to Amend Title 15 of the 1976 Code, by Adding Chapter 85, to Enact the “South Carolina False Claims Act” (123d Session), https://www.scstatehouse.gov/sess123_2019-2020/bills/40.htm.

The following Gibson Dunn lawyers assisted in preparing this client update: Stuart Delery, Jim Zelenay, John Partridge, Jon Phillips, Joseph Warin, Joseph West, Robert Blume, Ryan Bergsieker, Karen Manos, Charles Stevens, Winston Chan, Andrew Tulumello, Benjamin Wagner, Alexander Southwell, Reed Brodsky, Robert Walters, Monica Loseman, Geoffrey Sigler, Sean Twomey, Reid Rector, Alli Chapin, Jeremy Ochsenbein, Meghan Dunn, Jennifer Bracht, and Julie Hamilton.

Gibson Dunn's lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  From U.S. Supreme Court victories, to appellate court wins, to complete success in district courts around the United States, Gibson Dunn believes it is the premier firm in FCA defense.  Among other notable recent victories, Gibson Dunn successfully overturned one of the largest FCA judgments in history in United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017), and the Daily Journal recognized Gibson Dunn’s work in U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center Inc. as a Top Defense Verdict in its annual feature on the top verdicts for 2017.  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has dozens of attorneys with substantive FCA experience, including nearly 30 Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com) New York Zainab N. Ahmad (+1 212-351-2609, zahmad@gibsondunn.com) Matthew L. Biben (+1 212-351-6300, mbiben@gibsondunn.com) Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)
Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 4, 2019 |
Webcast: Preparing for Enhanced Antitrust Enforcement in Government Procurement

DOJ’s newly-announced Procurement Collusion Strike Force portends increased federal antitrust and False Claims Act enforcement in government procurement. Join Gibson Dunn partners as they discuss DOJ’s enforcement techniques, strategies for mitigating legal risks in the procurement process, and response plans for in-house counsel when alerted to a potential government investigation. Topics to be covered include:

  • How antitrust and False Claims Act enforcement are being deployed in government procurement cases
  • Risk factors and red flags in competitive bids that may attract DOJ prosecutors
  • Best practices to minimize antitrust risks in government procurement processes
To read more about the Procurement Collusion Strike Force, visit our Client Alert regarding its announcement, "DOJ Announces a New Strike Force to Combat Antitrust Misconduct in Government Procurement." View Slides (PDF)
[embed]https://player.vimeo.com/video/377674429[/embed]
PANELISTS: Kristen Limarzi is a partner in the Washington, D.C. office. Before joining Gibson Dunn, Ms. Limarzi was the Chief of the Appellate Section of DOJ’s Antitrust Division, and she was involved in every civil non-merger matter and all of the most complex criminal cases the Division litigated in the last decade. Her practice focuses on investigations, litigation, and counseling on antitrust merger and conduct matters, as well as appellate and civil litigation. Scott Hammond is a partner in the Washington, D.C. office and Co-Chair of the Antitrust and Competition Practice Group. Previously, Mr. Hammond served as a DOJ prosecutor for 25 years, including 8 years as the Antitrust Division’s Deputy Assistant Attorney General for Criminal Enforcement – the highest ranking career lawyer in the Antitrust Division. He assists clients in antitrust and white-collar crime compliance, crisis management and government investigations across all industry sectors. Jeremy Robison is a partner in the Washington, D.C. office. His practice focuses on defending companies and individuals involved in antitrust investigations by U.S. and international enforcement authorities, conducting internal investigations, and advising companies on antitrust compliance programs and policies. Mr. Robison has represented clients from a range of industries in antitrust investigations, including in the financial services, pharmaceutical, defense, healthcare, and technology sectors. Jonathan Phillips is a partner in the Washington, D.C. office where he focuses on white collar enforcement matters and related litigation. Before joining the firm, Mr. Phillips served as a Trial Attorney in DOJ’s Civil Division, Fraud Section, where he investigated and prosecuted allegations of fraud against the United States under the False Claims Act and related statutes, including cases involving bid rigging and other allegations of fraud by government contractors. Joseph West is a partner in the Washington, D.C. office and former Co-Chair of the firm’s Government Contracts Practice. For 40 years, Mr. West has concentrated his practice on contract counseling, compliance/enforcement, and dispute resolution. He has represented both contractors (and their subcontractors, vendors and suppliers) and government agencies, and has been involved in cases before numerous federal courts and agencies. Lindsay Paulin is a litigation associate in the Washington, D.C. office. Her practice focuses on a wide range of government contracts issues, including internal investigations, claims preparation and litigation, bid protests, and government investigations under the False Claims Act. Ms. Paulin’s clients include contractors and their subcontractors, vendors, and suppliers across a range of industries including aerospace and defense, information technology, professional services, private equity, and insurance.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

November 4, 2019 |
U.S. Department of Justice and U.S. Department of Housing and Urban Development Issue Memorandum on Application of the False Claims Act

Click for PDF In a move designed to encourage greater participation by banks and other lending institutions in Federal Housing Administration (“FHA”) programs, on October 28, 2019, the U.S. Department of Justice (“DOJ”) and the U.S. Department of Housing and Urban Development (“HUD”) signed a Memorandum of Understanding (“MOU”) setting forth guidance on the appropriate use of the False Claims Act (“FCA”) to enforce violations of FHA regulatory requirements.[1] The guidance—Inter-Agency Coordination Of Civil Actions Under The False Claims Act Against Participants In FHA Single Family Mortgage Insurance Programs—is voluntary and creates no legal rights or obligations. Nevertheless, the MOU describes the interagency process for and considerations involved in determining whether certain conduct should be addressed through HUD’s administrative proceedings or similar civil action, or referred to DOJ to pursue action under the FCA. In public remarks proclaiming the MOU’s goal of encouraging banks to participate in FHA lending, HUD Secretary Ben Carson expressed that “the False Claims Act became a monster” that drove banks away in the decade following the financial crisis, “[b]ut now, the monster has been slayed.”[2] Secretary Carson added his “suspicion” that “relatively few things” will warrant referral to DOJ under the MOU, stating that “an obvious case of fraud [is] one thing,” but that “we’re not going to make a big deal of” conduct that “is not a pattern” and is a “mistake that’s correctable.”[3] This alert briefly describes the background and key takeaways from the MOU. Gibson Dunn is available to answer any questions you may have about how this guidance applies to your organization, as well as any other topics related to the FCA. Background The FHA provides important access to government-backed mortgage loans, particularly for lower income and first time home buyers. Over the past decade, however, banks and other lending institutions have dramatically reduced participation in FHA programs—originating less than 14 percent of FHA-insured mortgages this year, down from nearly 45 percent in 2010. HUD officials have attributed this decline to aggressive FCA enforcement against large FHA lenders following the financial crisis.[4] DOJ has recovered approximately $7 billion in FCA actions against mortgage lenders in the last 10 years. Against this backdrop, the MOU is specifically “intended to address [the] concerns [regarding] uncertain and unanticipated FCA liability for regulatory defects [that] led many well-capitalized lenders, including many banks and credit unions … to largely withdraw from FHA lending.”[5] The MOU, which pledges to dial back the use of the FCA in enforcing regulatory noncompliance in FHA programs, also marks the latest development in what has become a broader trend of reining in FCA enforcement under the Trump Administration. In recent years, DOJ policy changes have included issuance of the Brand Memo,[6] which prohibits DOJ attorneys from pursuing enforcement actions predicated on violations of non-binding agency guidance; issuance of the Granston Memo,[7] which instructed prosecutors to more regularly consider moving to dismiss qui tam actions in which DOJ declines to intervene; and revisions to the Yates Memo to provide more opportunities for corporate cooperation credit and inclusion of individuals in corporate settlements, among others.[8] These policy changes have been incorporated into the Justice Manual, the main internal policy manual for DOJ.[9] The MOU As the MOU makes clear, going forward, HUD will handle enforcement of violations of FHA program requirements “primarily through HUD’s administrative proceedings,” including through the agency’s mortgage review board. For more serious regulatory violations, the MOU sets forth a framework for the two agencies to follow in “deciding when to pursue False Claims Act cases to remedy material and knowing FHA violations.”[10] Specifically, the MOU identifies the standards for when HUD may refer a matter to DOJ for pursuit of FCA claims (the “FCA Evaluation Standards”), providing for referral where the following two conditions are met:

  • (1) the most serious violations (so-called “Tier 1” violations under HUD regulations) exist either: (i) in at least 15 loans or (ii) in loans with an unpaid principal balance of at least $2 million; AND
  • (2) there are aggravating factors such as evidence that the violations are systemic or widespread.[11]
Beyond this referral framework, the MOU acknowledges that DOJ will solicit HUD’s views during the investigative, litigation, and settlement phases of any FCA matters predicated in whole or in part on alleged violations of FHA requirements. This includes HUD’s view as to whether the alleged violations “are material or not material to the agency” so that DOJ “can determine whether [the materiality element and other] elements of FCA [liability] can be established.” It has always been the case that DOJ attorneys would solicit HUD’s views of the allegations under investigation and, as a matter of policy, HUD would have to approve any DOJ action. It is therefore remarkable that the agencies not only highlight this procedure in the guidance but specifically mention materiality—an element which allows an administration to tailor its enforcement agenda by taking the position that an alleged FHA regulatory violation was not important, or at least would not have resulted in non-payment had the government known about it (i.e., was not material). The MOU also specifically addresses qui tam litigation initiated by private relators. Although noting that ultimate dismissal authority remains with DOJ, the MOU nevertheless provides for HUD to recommend dismissal of qui tam suits where HUD determines that:
  • the alleged conduct would not have warranted referral to DOJ under the FCA Evaluation Standards;
  • the alleged conduct does not represent a material violation of FHA requirements; or
  • the litigation threatens to interfere with HUD’s policies or the administration of its FHA lending program and dismissal would avoid these effects.
Finally, the MOU makes clear that even in cases where HUD declines to refer to DOJ or recommends dismissal, it retains discretion to pursue civil monetary penalties for violations of FHA regulations under other applicable laws, including the Program Fraud Civil Remedies Act. Conclusion Citing fears of draconian FCA liability for even minor noncompliance with FHA regulations facing prospective lenders, banks and other lending institutions have shied away from participation in the program in recent years. But particularly if comments from HUD officials are any indication, the new MOU provides a sign that the government has shifted its enforcement priorities in an effort to mitigate these concerns. Organizations that follow the guidance may decrease the likelihood that they will face the prospect of FCA enforcement actions in connection with FHA programs. And particularly noteworthy is that under the MOU DOJ will seek the guidance from HUD as to whether violations alleged by qui tam whistleblowers are material or not, such that DOJ may seek to dismiss such claims outright under its recently-flexed authority to dismiss qui tam cases even over a whistleblower’s objections. As noted above, the MOU is the latest action taken by the Trump Administration in a broader effort to temper FCA enforcement, promote more practical uses of government resources, and reduce the burden on regulated businesses of defending against cases of low or no merit. This effort has begun to generate real change—for example, since the Granston Memo, DOJ has, in fact, begun moving to dismiss qui tam actions at a greater rate than it did in the past. Whether the same can be said of the MOU as to FCA enforcement in connection with FHA lending remains to be seen, but at a minimum, it appears defendants in FCA actions based on alleged FHA program violations will have additional means to pursue declination and dismissal by the government. Gibson Dunn will monitor how this MOU actually works in practice, and will provide updates as they develop. _____________________    [1]   U.S. Dep’t of Justice and U.S. Dep’t of Housing and Urban Development, Inter-Agency Coordination Of Civil Actions Under The False Claims Act Against Participants In FHA Single Family Mortgage Insurance Programs (Oct. 28, 2019), https://www.hud.gov/sites/dfiles/SFH/documents/sfh_HUD_DOJ_MOU_10_28_19.pdf    [2]   Ben Lane, HousingWire, Exclusive: HUD’s Carson on False Claims Act – “The monster has been slayed” (Oct. 28, 2019), https://www.housingwire.com/articles/exclusive-huds-carson-on-false-claims-act-the-monster-has-been-slayed/    [3]   Id.    [4]   Jessica Guerin, HousingWire, FHA clarifies rules to attract more participants to its mortgage lending program (May 9, 2019), https://www.housingwire.com/articles/49011-fha-clarifies-rules-to-attract-more-participants-to-its-mortgage-lending-program/; MarketWatch, Trump administration says it will penalize fewer banks who violate FHA regulations (Oct. 29, 2019), https://www.marketwatch.com/story/trump-administration-says-it-will-penalize-fewer-banks-who-violate-mortgage-regulations-2019-10-29    [5]   Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Departments of Justice and Housing and Urban Development Sign Interagency Memorandum on the Application of the False Claims Act (Oct. 28, 2019), https://www.justice.gov/opa/pr/departments-justice-and-housing-and-urban-development-sign-interagency-memorandum-application    [6]   U.S. Dep’t of Justice, Memorandum from Rachel Brand, Associate Attorney General (Nov. 16, 2017), https://www.justice.gov/opa/press-release/file/1012271/download    [7]   U.S. Dep’t of Justice, Memorandum from Michael D. Granston, Director, Commercial Litigation Branch, Fraud Section (Jan. 10, 2018), https://drive.google.com/file/d/1PjNaQyopCs_KDWy8RL0QPAEIPTnv31ph/view    [8]   See Rod J. Rosenstein, Deputy Attorney General, U.S. Dep’t of Justice, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0 [announcing changes]; see also U.S. Dep’t of Justice, Memorandum from Sally Yates, Deputy Attorney General (Sep. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download    [9]   U.S. Dep’t of Justice, Justice Manual §§ Section 4-4.111 (Granston), 4-4.112 (Yates), Title 1-20.000 et seq. (Brand)    [10]   Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Departments of Justice and Housing and Urban Development Sign Interagency Memorandum on the Application of the False Claims Act (Oct. 28, 2019), https://www.justice.gov/opa/pr/departments-justice-and-housing-and-urban-development-sign-interagency-memorandum-application    [11]   U.S. Dep’t of Housing and Urban Development, Office of Lender Activities & Program Compliance, Loan Review System (LRS): Implementation and Process Changes (Jan. 26, 2017), https://www.hud.gov/sites/documents/LRS_LENDER_PROCESS.PDF, at 24 (Tier 1: Fraud/Misrepresentation; Violations of statutory requirements; Significant eligibility or insurability issues; Inability to determine/support loan approval).
The following Gibson Dunn lawyers assisted in preparing this client update: Stuart Delery, Jonathan Phillips, James Zelenay, and Sean Twomey. Gibson Dunn’s lawyers have handled hundreds of FCA investigations and have a long track record of litigation success. Our lawyers are available to assist in addressing any questions you may have regarding the above developments. For more information, please feel free to contact the Gibson Dunn lawyer with whom you work, the authors, or any of the following members of the False Claims Act group.

Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com)

New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)
Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 15, 2019 |
Webcast: The False Claims Act – 2019 Mid-Year Update: Health Care and Life Sciences Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has recently issued statements and guidance indicating some new thinking about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed eight straight years of nearly $3 billion or more in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the health care and life sciences sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join us to discuss developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting drug and device companies;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with the Yates Memo, guidance on cooperation credit in FCA cases, and DOJ’s use of its statutory dismissal authority;
  • Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and
  • The latest developments in FCA case law, including recent Supreme Court jurisprudence and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ's enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Marian J. Lee is a partner in the Washington, D.C. office where she provides FDA regulatory and compliance counseling to life science and health care companies. She has significant experience advising clients on FDA regulatory strategy, risk management, and enforcement actions. John D. W. Partridge is a partner in the Denver office where he focuses on white collar defense, internal investigations, regulatory inquiries, corporate compliance programs, and complex commercial litigation. He has particular experience with the False Claims Act and the Foreign Corrupt Practices Act ("FCPA"), including advising major corporations regarding their compliance programs. Jonathan M. Phillips is a partner in the Washington, D.C. office, where his practice focuses on FDA and health care compliance, enforcement, and litigation, as well as other government enforcement matters and related litigation. He has substantial experience representing pharmaceutical and medical device clients in investigations by the DOJ, FDA, and HHS OIG. Previously, he served as a Trial Attorney in DOJ's Civil Division, Fraud Section, where he investigated and prosecuted allegations of fraud under the FCA and related statutes.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

October 1, 2019 |
Webcast: The False Claims Act – 2019 Mid-Year Update: Government Contracting Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has recently issued statements and guidance indicating some new thinking about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed eight straight years of nearly $3 billion or more in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the government contracting sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves.

Please join us to discuss developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting government contractors;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with the Yates Memo, guidance on cooperation credit in FCA cases, and DOJ’s use of its statutory dismissal authority;
  • Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and
  • The latest developments in FCA case law, including recent Supreme Court jurisprudence and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: John W.F. Chesley is a partner in the Washington, D.C. office. He represents corporations, audit committees, and executives in internal investigations and before government agencies in matters involving the FCPA, procurement fraud, environmental crimes, securities violations, antitrust violations, and whistleblower claims. He also litigates government contracts disputes in federal courts and administrative tribunals. Jonathan M. Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation involving government contractors, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ and Department of Defense brought under the False Claims Act and related statutes. Erin N. Rankin is an associate in the Washington, D.C. office and a member of the firm’s Litigation Department. She represents clients on government contracts matters relating to contract claims, bid protests, suspension and debarment proceedings, voluntary disclosures and government investigations, and she is well-versed in conducting internal investigations and defending against civil False Claims Act allegations brought by qui tam relators. She has substantial litigation experience representing clients before the U.S. Court of Federal Claims, the Armed Services Board of Contract Appeals, and the U.S. Government Accountability Office. James Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

September 17, 2019 |
Webcast: The False Claims Act – 2019 Mid-Year Update: Financial Services Sector

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. The U.S. Department of Justice has recently issued statements and guidance indicating some new thinking about its approach to FCA cases that may signal a meaningful shift in its enforcement efforts. But at the same time, newly filed FCA cases remain at historical peak levels and the DOJ has enjoyed eight straight years of nearly $3 billion or more in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the financial services sector—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves.

Please join us to discuss developments in the FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation affecting the financial services sector;
  • Updates on the Trump Administration’s approach to FCA enforcement, including developments with the Yates Memo, guidance on cooperation credit in FCA cases, and DOJ’s use of its statutory dismissal authority;
  • Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and
  • The latest developments in FCA case law, including recent Supreme Court jurisprudence and the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides (PDF)

PANELISTS: Stuart F. Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ's enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Sean S. Twomey is a senior litigation associate in the Los Angeles office with experience in complex commercial cases at both the trial and appellate level, with an emphasis in sports law and health care compliance, enforcement, and litigation. He is experienced in handling white collar investigations, internal audits, and enforcement actions, and also has significant experience in False Claims Act qui tam litigation and related civil and criminal investigations in which he has represented clients in a variety of industries. F. Joseph Warin is a partner in the Washington, D.C. office, chair of the office’s Litigation Department, and co-chair of the firm's White Collar Defense and Investigations practice group. His practice focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. James Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.
MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast.  No certificate of attendance is required for California “self-study” credit.

August 5, 2019 |
Mid-Year Review: False Claims Act Enforcement in 2019

Los Angeles partner James L. Zelenay Jr. and associate attorney Sean S. Twomey are the authors of “Mid-Year Review: False Claims Act Enforcement in 2019” [PDF] published by the Daily Journal on August 1, 2019.

July 16, 2019 |
2019 Mid-Year False Claims Act Update

Click for PDF As we progress through the Trump Administration’s third year, robust False Claims Act (“FCA”) enforcement continues. At the same time, the Administration has continued to signal a greater openness to tempering overly aggressive FCA theories. In the past six months, the Department of Justice (“DOJ”) issued long-awaited guidance about cooperation credit in FCA cases and also continued to seek dismissal of some declined cases pursued by whistleblowers (albeit with mixed success). Aside from these efforts, however, DOJ has not evidently relaxed its approach to enforcement: the first half of the year saw DOJ announce recoveries of nearly three-quarters of a billion dollars in settlements, largely from entities in the health care and life sciences industries. The next year should provide insight as to whether the Administration’s policy refinements are the vanguard of a more meaningful shift by DOJ away from its historical enforcement efforts. But even if that were the case, enterprising relators and aggressive state enforcers may end up filling any gaps. In just the past half year, several states took steps to enact or strengthen existing FCA statutes. Regardless of what direction DOJ and the Trump Administration head, federal courts’ FCA decisions from the last six months serve as a reminder that FCA litigation remains hard-fought, given the enormous stakes. At the highest level, the U.S. Supreme Court weighed in on the FCA again this year, resolving a circuit split about the FCA’s statute of limitation in favor of whistleblowers. This marked the third time in four years the land’s highest court interpreted the FCA. Meanwhile, lower courts also remained active in FCA jurisprudence, issuing a number of notable opinions that we have summarized herein. Below, we begin by addressing enforcement activity at the federal and state levels, turn to legislative developments, and then analyze significant court decisions from the past six months. As always, Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I.  NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE FIRST HALF OF 2019

DOJ has announced more than $750 million in settlements this year, a slight uptick from this point in 2018, but somewhat down from half-year highs set in recent years. The dollar totals tell only part of the story, however, as neither DOJ nor qui tam relators have scaled back FCA investigations or whistleblower complaints considerably. As in recent years, DOJ secured the lion’s share of its FCA recoveries from enforcement actions involving health care and life sciences entities. Although DOJ’s recoveries came from cases reflecting a wide variety of theories of FCA liability, cases involving alleged violations of the Anti-Kickback Statute (“AKS”) and the Stark Law, which generally prohibit various types of remunerative arrangements with referring health care providers, continued to predominate. This year, DOJ’s AKS enforcement activity includes several large recoveries, totaling nearly $250 million, from pharmaceutical companies accused of unlawfully covering Medicare copays for their own products through charitable foundations. Further, DOJ backed up its statements regarding its plans to combat the opioid epidemic as it recovered more than $200 million from an opioid manufacturer accused of paying kickbacks. Below, we summarize these and some of the other most notable settlements thus far in 2019.

A.  Health Care and Life Science Industries

  • On January 28, a hospital and six of its owners agreed to pay the federal government $8.1 million to settle claims that it violated the FCA by submitting false claims to Medicare and Medicaid programs in violation of the AKS and Stark Law. DOJ alleged that the hospital, its subsidiary, and at least two affiliates recruited a medical director in order to secure his referrals of patients by offering the physician compensation that exceeded fair market value for his services. The whistleblower will receive $1.6 million from the federal government.[1]
  • On January 30, a pathology laboratory agreed to pay $63.5 million to settle allegations that it violated the FCA by engaging in improper financial relationships with referring physicians. The settlement resolves allegations that the company violated the AKS and the Stark Law by providing subsidies to referring physicians for electronic health records (“EHR”) systems and free or discounted technology consulting services. The allegations stem from three whistleblower lawsuits, and the whistleblowers’ share of the settlement had not been determined at the time the settlement was announced.[2]
  • On February 6, a Florida-based developer of EHR software agreed to pay $57.25 million to resolve allegations that it caused its users to submit false claims to the government by (1) misrepresenting the capabilities of its EHR product (thereby enabling them to seek meaningful use incentive payments) and (2) violating the AKS (by financially incentivizing its client health care providers to recommend its product to prospective customers).[3]
  • On February 6, a Georgia-based hospital agreed to pay $5 million to resolve allegations that it violated the FCA by engaging in improper financial relationships with referring physicians between 2012 and 2016. DOJ alleged that the hospital compensated the physicians in amounts that were above fair market value or in a manner that took into account the volume or value of the physicians’ referrals.[4]
  • On February 27, a Tennessee-based health care company and its related companies agreed to pay more than $18 million to resolve a lawsuit brought by DOJ and Tennessee alleging they billed the Medicare and Medicaid programs for substandard nursing home services. The settlement also resolves claims brought by DOJ against the company’s majority owners and CEO, as well as the LLC’s former director of operations, who agreed to pay $250,000 toward the settlement.[5]
  • On March 11, a medical technology company agreed to pay more than $17.4 million to resolve allegations that it violated the FCA by providing free or discounted practice development and market development support, allegedly amounting to “in-kind” payments to induce physicians in California and Florida to purchase the company’s ablation products. Under the settlement, the company also will pay approximately $1.4 million to California and approximately $1.0 million to Florida for claims paid for by the states’ Medicaid programs. The two whistleblowers, former company employees, will receive approximately $3.1 million as their share of the federal recovery.[6]
  • On March 21, a Maryland-based health care company and its affiliates agreed to pay $35 million to settle allegations under the FCA that it paid kickbacks to a Maryland cardiology group in exchange for referrals, through a series of contracts with two Maryland hospitals. The settlement resolved two whistleblower lawsuits brought by cardiac surgeons and former patients, who alleged that the company and its affiliates performed medically unnecessary cardiac procedures for which they submitted false claims to Medicare. The whistleblowers’ share had not been disclosed yet.[7]
  • In April, several pharmaceutical companies reached settlements with DOJ over allegations involving charitable funds. For example:
    • As part of a string of investigations by the U.S. Attorney’s Office for the District of Massachusetts, three pharmaceutical companies agreed to pay a total of $122.6 million to resolve allegations that they violated the FCA by illegally paying the Medicare or Civilian Health and Medical Program copays for their own products through purportedly independent foundations that were allegedly used as mere conduits. The government contended that the companies’ payments of the copays were kickbacks aimed at inducing patients to use the companies’ drugs. In all three matters, the government alleged that the foundations were used to generate revenues from prescriptions for patients who would have otherwise been eligible for the companies’ free drug programs. One company agreed to pay $57 million; the second company agreed to pay $52.6 million, and the third company agreed to pay $13 million.[8]
    • On April 30, a Kentucky-based pharmaceutical company agreed to pay $17.5 million to resolve allegations that it violated the FCA and AKS by paying kickbacks to patients and physicians to induce prescriptions of two of its drugs. DOJ alleged that the company increased the drugs’ prices in January 2012, which increased Medicare patients’ copays. Then, DOJ asserted, the company paid these patients’ copays through a third-party Parkinson’s Disease fund, thereby providing illegal inducements to patients to purchase the drugs. The allegations underlying the settlement were originally raised by whistleblowers, who will receive $3.15 million as their share of the recovery.[9]
  • On April 12, a California-based health care services provider and several affiliated entities agreed to pay $30 million to resolve allegations that the affiliated entities submitted false information about the health status of beneficiaries enrolled in Medicare Advantage plans, which purportedly resulted in overpayments to the provider.[10]
  • On May 6, a West Virginia-based health care company agreed to pay $17 million to resolve allegations of a billing scheme that allegedly defrauded Medicaid of $8.5 million. This represented the largest health care fraud settlement in the history of West Virginia, and the state will collect $2.2 million from the settlement. DOJ alleged that the company, acting through a subsidiary and several of its drug treatment centers, sent blood and urine samples to outside laboratories for testing, and then submitted reimbursement claims to West Virginia Medicaid as if the treatment centers had performed the tests themselves. According to the government, since the company paid the outside laboratories a lower rate than its requested reimbursement to Medicaid, the company wrongfully collected $8.5 million.[11]
  • On May 30, a Kansas-based cardiologist agreed to pay $5.8 million to resolve allegations that he and his medical group violated the FCA by improperly billing federal health care programs for medically unnecessary cardiac stent procedures. This marked the DOJ’s third False Claims settlement with the cardiologist and his medical group, who concurrently agreed with U.S. Department of Health and Human Services (“HHS”) to be excluded from participation in federal health programs for three years. The settlement announcement resolves allegations in a whistleblower lawsuit filed by another cardiologist, who will receive approximately $1.16 million from the settlement.[12]
  • On May 31, a New Jersey-based pharmaceutical company was charged under the Sherman Act for conspiring with competitors to fix prices, rig bids, and allocate customers. In a separate civil resolution, the company agreed to pay $7.1 million to resolve allegations under the FCA related to the alleged price fixing conspiracy. DOJ asserted that between 2012 and 2015, the company paid and received remuneration through arrangements on price, supply, and allocation of customers with other pharmaceutical manufacturers for certain generic drugs, in violation of the AKS, and that its sale of such drugs resulted in claims submitted to or purchases by federal health care programs.[13]
  • On June 5, an opioid manufacturing company agreed to a $225 million global resolution to settle the government’s criminal and civil investigations. DOJ alleged that the company paid kickbacks and engaged in other unlawful marketing practices to induce physicians and nurse practitioners to prescribe its opioid to patients. As part of the criminal resolution, the company entered into a deferred prosecution agreement with the government, and its subsidiary pleaded guilty to five counts of mail fraud. The company also agreed to pay a $2 million criminal fine and a $28 million forfeiture. As part of the civil resolution, the company agreed to pay $195 million. The allegations stem from five whistleblower lawsuits, and the whistleblowers’ share of the settlement has yet to be determined.[14]
  • On June 30, the nation’s largest operator of inpatient rehabilitation centers agreed to pay $48 million to resolve allegations that its centers provided medically unnecessary treatment, and also submitted false information to Medicare to achieve higher levels of reimbursement. The settlement involved allegations across multiple facilities and was part of DOJ’s broader efforts to target inpatient treatment facilities nationally.

B.  Government Contracting

  • On January 28, a corporation that provides information and technology services agreed to pay $5.2 million to resolve allegations that it violated the FCA by falsely billing labor under its contract with the United States Postal Service (“USPS”). Under the contract, the company would bill the USPS for personnel performing services at rates established by certain billing categories. DOJ alleged that the corporation knowingly billed the USPS for certain personnel services at higher category rates, even though the personnel did not have the education and/or experience to be in these categories.[15]
  • On March 25, a private university in North Carolina agreed to pay the government $112.5 million to resolve allegations that it violated the FCA by submitting applications and progress reports that contained purportedly falsified research on federal grants to the National Institutes of Health (“NIH”) and to the Environmental Protection Agency. Among other allegations, DOJ asserted that the university fabricated research results related to mice to claim millions of grant dollars from the NIH. The allegations stem from a whistleblower lawsuit brought by a former university employee, who will receive $33.75 million from the settlement.[16]
  • On May 13, a California-based software development company agreed to pay $21.57 million to resolve allegations that it caused the government to be overcharged by providing misleading information about its commercial sales practices, which was then used in General Services Administration (“GSA”) contract negotiations. DOJ alleged that the company knowingly provided false information concerning its commercial discounting practices for its products and services to resellers. These resellers then allegedly used that information in negotiations with GSA for government-wide contracts. DOJ alleged this caused GSA to agree to less favorable pricing, which led the government purchasers to be overcharged. The allegations stemmed from a whistleblower lawsuit filed by a former company employee, who will receive over $4.3 million from the resolution.[17]

II.  LEGISLATIVE AND POLICY DEVELOPMENTS

A.  Federal Developments

1.  Guidance Regarding Cooperation Credit

The first half of 2019 did not witness major legislative developments at the federal level pertaining to the FCA. But DOJ has advanced its recent efforts to more publicly and transparently articulate its approach to FCA cases, as evidenced by the May 2019 release of long-awaited guidance regarding cooperation credit in FCA investigations.[18] We covered this development in detail in our May 14, 2019 alert entitled “Cooperation Credit in False Claims Act Cases: Opportunities and Limitations in DOJ’s New Guidance.” Several key points regarding the guidance bear mention here. The guidance is the latest chapter in a broader effort by DOJ to scale back the “all or nothing” approach to cooperation credit set forth in the 2015 Yates Memorandum. This initiative stems from a belief that that approach, in the words of former Deputy Attorney General Rod J. Rosenstein, had been “counterproductive in civil cases” because it deprived DOJ attorneys of the “flexibility” they needed “to accept settlements that remedy the harm and deter future violations.”[19] In keeping with Mr. Rosenstein’s statements, the new DOJ guidance—codified at Section 4-4.112 of the Justice Manual[20]—provides that defendants may receive varying levels of cooperation credit depending on their efforts across ten non-exhaustive categories of cooperation.[21] These include:
  • “[i]dentifying individuals substantially involved in or responsible for the misconduct”;
  • making individuals available who have “relevant information”;
  • “[a]dmitting liability or accepting responsibility for the relevant conduct”; and
  • “[a]ssisting in the determination or recovery” of losses.[22]
The guidance also notes that cooperation must have value for DOJ, as measured by the “timeliness and voluntariness” of the cooperation, the “truthfulness, completeness, and reliability” of the information provided, the “nature and extent” of the cooperation, and the “significance and usefulness of the cooperation” to DOJ. Under the guidance, DOJ’s determination of cooperation credit will consider remediation undertaken by the defendant, including remediation focused on root causes and discipline of relevant individuals.[23] The guidance states that to receive full credit, entities should “undertake a timely self-disclosure that includes identifying all individuals substantially involved in or responsible for the misconduct, provide full cooperation with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.”[24] Unlike DOJ’s guidance regarding cooperation in criminal cases, the new FCA guidance does not provide for percentage reductions in penalties (or damages) for various levels of cooperation. Instead, the guidance focuses on DOJ’s “discretion . . . [to] reduc[e] the penalties or damages multiple sought by the Department,” and provides that no defendant may receive cooperation credit so great as to result in the payment of an amount less than single damages (including relator’s share, plus lost interest and costs of investigation).[25] The new guidance provides a measure of clarity regarding DOJ’s overall approach to cooperation credit, and the flexible standards the guidance sets forth provide opportunities for defendants to formulate creative negotiation and litigation strategies. On the other hand, the guidance lacks specificity regarding several critical issues (e.g., what constitutes cooperation and how to assess the value that cooperation provides to DOJ).

2.  Application of the Granston Memorandum

As we have previously discussed, DOJ signaled last year that it will increasingly consider moving to dismiss some FCA qui tam actions. Specifically, in January 2018, Michael Granston, the Director of the Fraud Section of DOJ’s Civil Division, issued a memorandum (the “Granston Memo”) stating that “when evaluating a recommendation to decline intervention in a qui tam action, attorneys should also consider whether the government’s interests are served, in addition, by seeking dismissal pursuant to section 3730(c)(2)(A).”[26] The Granston Memo established a list of non-exhaustive factors for DOJ to evaluate when considering whether to dismiss a case under section 3730(c)(2)(A), which states that the government may dismiss an FCA “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.”[27] The Granston Memo’s release prompted cautious optimism among FCA observers that DOJ would step in to dismiss unmeritorious cases, but the Memo also left many open questions regarding exactly how DOJ would exercise its discretion. Since the Memo’s release, FCA defendants routinely have pushed DOJ to dismiss cases, and in some cases, DOJ has done just that. But a little more than a year after the Memo’s release, there are signs that DOJ is continuing to calibrate its approach, in response both to defendants’ insistent entreaties and scrutiny by the courts (which must approve any dismissal). First, the memorandum’s namesake, DOJ Civil Fraud Section Director Michael Granston, recently elaborated on how DOJ will apply the Granston Memo’s principles. In remarks at the Federal Bar Association’s FCA Conference in March, Mr. Granston explained that DOJ will not be persuaded to dismiss qui tam actions “[j]ust because a case may impose substantial discovery obligations on the government.”[28] The decision to seek dismissal, he said, will instead be evaluated on a case-by-case basis, with the cost-benefit analysis focusing on the likelihood that the relator can prove the allegations brought on behalf of the government.[29] Mr. Granston cautioned that defendants “should be on notice that pursuing undue or excessive discovery will not constitute a successful strategy for getting the government to exercise its dismissal authority,” and that “[t]he government has, and will use, other mechanisms for responding to such discovery tactics.”[30] Overall, Mr. Granston stated, “dismissal will remain the exception rather than the rule.”[31] Second, Deputy Associate Attorney General Stephen Cox delivered remarks at the 2019 American Conference Institute’s Advanced Forum on False Claims and Qui Tam Enforcement that explained DOJ’s approach to dismissals.[32] Regarding the Granston Memo, Mr. Cox characterized the relationship between qui tam relators and the government as a “partnership,” formed on the belief that relators “are often uniquely situated to bring fraudulent practices to light.”[33] He emphasized, however, that DOJ plays a “gatekeeping role” in ensuring that when a relator prosecutes a non-intervened FCA case, it does not do so in a way that harms the government’s financial interests or creates bad law for the government.[34] Mr. Cox stated that the Granston Memo “is not really a change in the Department’s historical position,” but he acknowledged that DOJ’s use of its dismissal authority has increased since 2017.[35] Mr. Cox told listeners that while DOJ “will remain judicious,” it “will use this tool more consistently to preserve our resources for cases that are in the United States’ interests.”[36] In more recent remarks, Mr. Cox has added that DOJ’s “more consistent[]” use of its dismissal authority will aim at “reign[ing] in overreach in whistleblower litigation.”[37] With DOJ’s increased use of its statutory dismissal authority has come greater judicial scrutiny of the scope of that authority and the standards to be applied in determining whether dismissal is appropriate. In the wake of the Granston Memo, lower courts have been forced to analyze the standard that courts should apply when the government moves to dismiss qui tam cases. These cases have pitted two competing standards against each other, with mixed results. Previously, in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), the Ninth Circuit held that the government’s dismissal is first examined for: (1) an identification of a valid government purpose by the government; and (2) a rational relation between the dismissal and accomplishment of the government’s purpose. Id. at 1145. If the government’s dismissal meets the two-step test, the burden shifts to the relator to show that the “dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. (quoting United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1353 (E.D. Cal. 1995)). The Tenth Circuit adopted the Sequoia standard and also applies the above test. Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936, 940 (10th Cir. 2005). In contrast, in Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003), the D.C. Circuit rejected the Ninth Circuit’s Sequoia standard, holding that nothing in section 3730(c)(2)(A) “purports to deprive the Executive Branch of its historical prerogative to decide which cases should go forward in the name of the United States.” The court observed that the purpose of the hearing provided for in section 3730(c)(2)(A) “is simply to give the relator a formal opportunity to convince the government not to end the case.” Id. Therefore, the D.C. Circuit held that the government has “an unfettered right to dismiss” FCA actions, and so government dismissals are basically “unreviewable” (with a possible exception for dismissals constituting “fraud on the court”). Id. at 252-53. However, the remainder of the federal circuit courts have not weighed in on the standard for government dismissals of qui tam actions thus far. In the meantime, several district courts have confronted this issue, with some following Sequoia, while others followed Swift. Among the courts following Sequoia were the following:
  • In United States v. EMD Serono, Inc., 370 F. Supp. 3d 483 (E.D. Pa. 2019), the U.S. District Court for the Eastern District of Pennsylvania adopted the Ninth Circuit’s Sequoia standard after critiquing the D.C. Circuit’s approach in Swift. The court then held that the government’s dismissal had met the Sequoia standard because the government had “articulated a legitimate interest” when it argued that the “allegations lack merit, and continuing to monitor, investigate, and prosecute the case will be too costly and contrary to the public interest.” at 489. Id. at 489.
  • In United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019), the U.S. District Court for the Southern District of Illinois adopted the Ninth Circuit’s Sequoia standard and rejected the D.C. Circuit’s approach in Swift. Applying the Sequoia standard, the court found that the government’s “decision to dismiss this action is arbitrary and capricious, and as such, not rationally related to a valid governmental purpose.” Id. at *4. Although the government had identified a valid interest of avoiding litigation costs, the court found the government had failed to conduct the requisite “minimally adequate investigation” because it collectively investigated the eleven claims that the relator’s group filed without specifically investigating the relator’s claim against the defendants in this case. Id. at *3.
Other district courts have been persuaded by Swift’s “unfettered” dismissal standard.
  • In United States ex rel. Davis v. Hennepin County, No. 18-CV-01551 (ECT/HB), 2019 WL 608848 (D. Minn. Feb. 13, 2019), the U.S. District Court for the District of Minnesota stated that the Swift standard was more consistent with section 3730(c)(2)(A)’s text and with the Constitution, but did not decide the issue because the government was entitled to dismissal under both the Swift and Sequoia standards. According to the court, the government could dismiss because “the Relators were notified of the motion and received the opportunity for a hearing.” Id. at *7. However, the court then observed that the government would still be entitled to dismissal even under Sequoia. Id. The court credited the government’s rationale of avoiding the cost and burden of a case that would likely result in no recovery, and also noted that the relators had put forth no factual evidence that the government was acting capriciously by ignoring evidence. Id.
  • In United States ex rel. Sibley v. Delta Reg’l Med. Ctr., No. 17-CV-000053-GHDRP, 2019 WL 1305069 (N.D. Miss. Mar. 21, 2019), the U.S. District Court for the Northern District of Mississippi indicated its agreement with the Swift standard, but then observed that the government was entitled to dismissal under either standard. There, the government declined to intervene, then moved to dismiss her action, arguing that the action would interfere with the government’s efforts to enforce the Emergency Medical Treatment Act, would use scarce government resources, and that the complaint did not allege any viable claims. Id. at *2-*3. Aligning with Swift, the court explained that the government “possesses the unfettered discretion to dismiss a qui tam [FCA] action” and therefore that the court must grant the government’s motion. Id. at *7. Regardless, the government was entitled to dismissal even under Sequoia, as the government had stated a “valid reason for dismissal” that the relator could not refute. Id. at *8.
  • In United States ex rel. De Sessa v. Dallas Cty. Hosp. Dist., No. 3:17-CV-1782-K, 2019 WL 2225072 (N.D. Tex. May 23, 2019), the U.S. District Court for the Northern District of Texas also echoed Swift’s reasoning, while concluding that the government was entitled to dismissal under either standard. In a short decision, the court cited to Swift and granted the government’s motion to dismiss the relator’s FCA fraud claim. Id. at *2. The court then explicitly noted that its holding did not dismiss the relator’s FCA retaliation claim, as that claim was not brought on behalf of the U.S. government. Id.

B.  State Developments

As detailed in our 2018 Mid-Year and Year-End False Claims Act Updates, Congress created financial incentives in 2005 for states to enact their own false claims statutes that are as effective as the federal FCA in facilitating qui tam lawsuits, and that impose penalties at least as high as those imposed by the federal FCA.[38] States passing review by HHS’s Office of Inspector General (“OIG”) may be eligible to “receive a 10-percentage-point increase in [their] share of any amounts recovered under such laws” in actions filed under state FCAs.[39] As of June 2019, HHS OIG has approved laws in twenty states (California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Massachusetts, Montana, Nevada, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia and Washington), while nine states are still working towards FCA statutes that meet the federal standards (Florida, Hawaii, Louisiana, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, and Wisconsin).[40] Five approvals have occurred in 2019 to date (California, Delaware, Georgia, New York, and Rhode Island).[41] While HHS OIG did not publicly state the reasons for these approvals, they likely stemmed at least in part from the fact that all five states recently amended their false claims statutes to peg their civil penalties to those imposed by the federal FCA, including as adjusted for inflation under the Federal Civil Penalties Inflation Adjustment Act of 1990.[42] Some states have continued to consider (or implement) revisions to their false claims acts after federal approval. Most notably, in May 2019, the California Assembly passed Assembly Bill No. 1270, which would amend the California False Claims Act’s definition of materiality, for purposes of the “false record or statement” prong of the statute, to consider only “the potential effect of the false record or statement when it is made, not . . . the actual effect of the false record or statement when it is discovered.”[43] This change could mark a significant pro-plaintiff limiting of the concept of materiality in the wake of Escobar, which held that materiality is a matter of the “effect on the likely or actual behavior of the recipient of an alleged misrepresentation.”[44] The California bill also would expand the state false claims act to apply to certain claims, records, or statements made under the California Revenue and Taxation Code. Specifically, the bill extends the California false claims act to tax-related cases where the damages pleaded exceed $200,000, and where the state-taxable income or sales of any person or corporation against whom the action is brought exceeds $500,000.[45] The new law would require the state Attorney General or prosecuting authority, prior to filing or intervening in any false claims act case related to taxes, to consult with the relevant tax authority.[46] Under the bill, the state Attorney General or prosecuting authority, but not a qui tam relator, would be authorized to obtain from state government agencies otherwise confidential records relating to taxes, fees, or other obligations under California’s Revenue and Taxation Code.[47] The amendment would prohibit the state government authorities from disclosing federal taxation information to the state Attorney General or prosecuting authority without IRS authorization. The amendment would also prohibit disclosure by the state Attorney General or prosecuting authority of any taxation information it does receive, “except as necessary to investigate and prosecute suspected violations” of the California false claims act.[48] The bill is currently being considered by committees in the California Senate.[49] Other states lack false claims statutes and have moved in fits and starts towards enacting them. For example, as of June 2019, a bill to enact the South Carolina False Claims Act remained pending in the state’s legislature after being referred to the state senate’s judiciary committee in January.[50] The bill is nearly identical to the last false claims act bill introduced in South Carolina’s Senate, which died in that body’s judiciary committee after being referred in January 2015.[51] Other states that lack broad false claims acts have nonetheless moved incrementally towards endowing themselves with robust enforcement powers. West Virginia, for example, lacks a false claims statute broadly defined, but does prohibit Medicaid fraud through a statute that in some ways resembles the FCA.[52] Until early 2019, the state’s Medicaid Fraud Control Unit (“MFCU”), which holds the power to investigate possible violations of the statute, sat within the state department of health and human services. However, a bill was passed on March 7, 2019, which will relocate the MFCU to the Office of the Attorney General.[53] Once effective on October 1, 2019, the new law will give primary prosecution authority to the Office of the Attorney General; only if that office declines prosecution will attorneys employed or contracted by the state department of health and human services have authority to take the case forward.[54] This consolidation of power in the Office of the Attorney General could be the first step in a push for enactment of broader false claims enforcement powers.

III.  NOTABLE CASE LAW DEVELOPMENTS

With a U.S. Supreme Court decision, more than a dozen notable circuit court decisions, and a handful of important district court decisions too, the first half of 2019 was an active period on the case law front (as detailed below).

A.  U.S. Supreme Court Extends the Statute of Limitations in Cases Where the Government Does Not Intervene

The FCA provides two different limitations periods for “civil action[s] under section 3730”—(1) six years after the statutory violation occurs, or (2) three years “after the United States official charged with the responsibility to act knew or should have known the relevant facts, but not more than [ten] years after the violation.” 31 U.S.C. § 3731(b). Whichever period is longer applies. In Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S. Ct. 1507 (2019), the Supreme Court resolved a circuit split regarding the FCA’s statute of limitations for qui tam actions pursued only by a whistleblower, without government participation. Specifically, the question that had split the circuit courts is whether a relator—pursuing a case where the government has declined to intervene—can take advantage of the longer statute of limitations period of up to ten years. In Cochise, the relator conceded that more than six years had elapsed before he filed his suit from when the alleged FCA violations occurred. Id. at 1511. However, the relator argued that fewer than three years had elapsed between when the relator had revealed the alleged FCA violations to federal agents and when the relator filed his suit. Id. Thus, the relator argued that he should be able to take advantage of the longer statute of limitations period, triggered from when he had disclosed his allegations to the government. Id. The district court initially dismissed the suit, holding that section 3731(b)(2)’s three-year period does not apply to relator-initiated suits in which the government declines to intervene. Id. But the Eleventh Circuit reversed, and held that the longer period could apply to relator-initiated suits in which the government declines to intervene. Id. The Supreme Court, looking to resolve a circuit split, unanimously affirmed the Eleventh Circuit’s ruling. Id. at 1510. The Court reasoned that, because section 3731(b)’s two statute of limitations periods apply to “civil action[s] under section 3730” and because both government and relator-initiated FCA suits constitute “civil action[s] under section 3730,” the statute’s plain text made both of the limitations periods applicable to both types of suits. Id. at 1511-12 (quoting section 3731(b)). The Court also held that private relators in non-intervened suits do not constitute “the official of the United States charged with responsibility to act in the circumstances” under section 3731(b)(2). Id. at 1514. In other words, section 3731(b)(2)’s three-year period does not begin when a private relator who initiates the suit knows or should have known about the fraud. Id. Thus, because section 3731(b)(2)’s three-year period is available in relator-initiated non-intervened suits and because the private relator’s learning of the facts does not begin this three-year period, dismissal of the relator’s suit was not warranted on statute-of-limitations grounds. Id.

B.  Courts Continue to Interpret the FCA’s Materiality Requirement Post-Escobar

As we have previously discussed, courts continue to wrestle with the implications of the Supreme Court’s decision in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the landmark decision that addressed the implied certification theory of liability, and in the process gave renewed emphasis to the concepts of materiality and government knowledge under the FCA.

1.  The Fifth Circuit Applies Escobar in Analyzing Materiality

In United States ex rel. Lemon v. Nurses To Go, Inc., 924 F.3d 155 (5th Cir. 2019), the Fifth Circuit, reviewing a district court’s dismissal of claims, engaged in a thorough application of Escobar, articulating three non-exhaustive “factors” for determining materiality. First, the court asked whether the government expressly conditioned payment on meeting the statutory or regulatory requirements at issue. Second, the court considered whether the government would have denied payment if it had known of the violations, a factor which the court referred to as “government enforcement.” And third, the court asked whether the defendant’s noncompliance was substantial or minor. In Lemon, the relators alleged that a hospice provider submitted claims affirming it had complied with various Medicare statutory and regulatory requirements, despite allegedly violating several requirements related to certifications, face-to-face physician patient encounters, and writing plans of care. Id. at 157. They also alleged that the hospital billed for ineligible services and patients, such as billing for already deceased patients. Id. at 157-58. Applying each of its articulated Escobar factors in turn, the Fifth Circuit began by addressing conditions of payment. The court acknowledged that Escobar held that violating a requirement which is labeled a condition of payment does not alone “conclusively establish materiality.” Id. at 161. Nevertheless, conditioning payment on a requirement is “certainly probative evidence of materiality.” Id. (quoting United States ex rel. Rose v. Stephens Institute, 909 F.3d 1012, 1020 (9th Cir. 2018)). Because the Medicare statute expressly noted that payment can only be made if the certification, face-to-face encounter, and plan-of-care requirements that the defendants allegedly violated were met, the court held that the defendants’ allegedly fraudulent certifications that they had complied with the statutory and regulatory requirements violated the government’s express conditions of payment. Id. Second, the court turned to government enforcement. Id. at 161-62. Here, the relators alleged in their complaint that HHS OIG had previously pursued enforcement actions against other hospice providers that had committed violations similar to the defendants’ alleged violations—namely submitting bills for ineligible services and patients and failing to conduct the required certifications. Id. at 162. Because of these past enforcement actions, the Court held that the relators here had created a reasonable inference that the government would have denied payment had it known of the defendants’ violations. Id. The Court found additional support for this conclusion in the Sixth Circuit’s holding in United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018) (previously discussed here and here). There, the Sixth Circuit concluded that Escobar does not require relators to allege specific previous government prosecutions for claims similar to the relator’s. Id. Third, the Fifth Circuit analyzed whether the noncompliance was substantial or minor. Id. at 163. Citing Escobar, the court noted that a violation is material either when a reasonable person would “attach importance” to the noncompliance or when the defendant knew or had reason to know that the false representation’s recipient would attach importance to it, even though a reasonable person would not. Id. Because the court had determined in its government enforcement analysis that the government would have denied payment had it known of the defendants’ violations, the court therefore held that government would have attached importance to the violations. Id. Thus, the relators had also satisfied the third factor, showing that the noncompliance was substantial. Id. Given that all three factors were satisfied, the court held that the relators had sufficiently alleged material violations to survive the motion to dismiss. Id.

2.  The Third Circuit Analyzes Post-Escobar Materiality Standards on Summary Judgment

In United States ex rel. Doe v. Heart Solutions, PC, 923 F.3d 308 (3d Cir. 2019), the Third Circuit explored materiality and causation in light of Escobar. There, the government filed an FCA claim alleging that the defendants, an individual and her health care company, had violated Medicare regulations requiring all diagnostic testing to be performed under the proper level of physician supervision. Id. at 311. Specifically, the government alleged that the defendants had falsely represented that a licensed neurologist performed all their company’s neurological testing as required by regulation, when their testing allegedly was not supervised by a neurologist in reality. Id. Applying Escobar to the government’s motion for summary judgment, the Third Circuit found that the government met its initial summary judgment burden to show materiality by submitting evidence that Medicare would not have paid the testing claims without a supervising neurologist’s certification, per regulation. Id. 318. When the defendants failed to introduce any evidence to rebut this, the court held that the government had met its materiality burden. Id. Notably, the court also held that by establishing materiality, the government also had adequately demonstrated causation. Id. According to the court, “because these misrepresentations were material, they caused damage to Medicare,” and therefore “but for the misrepresentations, Medicare would never have paid the claims.” Id. This ruling, which appears to conflate the separate elements of causation and materiality by hinging causation entirely on materiality, will be one to watch in future decisions.

C.  Courts Continue to Analyze Rule 9(b)’s Particularity Requirement in FCA Claims

In last year’s year-end update, we noted that the circuit courts continue to struggle with how to apply Rule 9(b)’s particularity requirement in FCA cases. Rule 9(b) heightens the pleading standard required in fraud claims, stating that a party alleging fraud “must state with particularity the circumstances constituting fraud or mistake.” This year, several circuits further analyzed Rule 9(b)’s application to FCA cases.

1.  The Ninth Circuit Discusses the Relationship between Rule 9(b)’s Particularity Standard and the FCA’s Materiality Requirement

In United States ex rel. Mateski v. Raytheon Co., 745 F. App’x 49 (9th Cir. 2018), cert. denied sub nom. Mateski v. Raytheon Co., No. 18-1312, 2019 WL 1643040 (U.S. May 13, 2019), the Ninth Circuit elaborated on Rule 9(b)’s particularity standard and, in particular, the effect of a lack of particularity on meeting the materiality requirement. In Mateski, the relator filed a qui tam action against his employer, a defense contractor, alleging that it falsely claimed compliance with contract requirements for a satellite system sensor. Id. at *50. The case had been to the Ninth Circuit once before, under the public disclosure bar, at which point the Ninth Circuit reversed the district court’s dismissal of the complaint. Id. This time, however, the Ninth Circuit affirmed dismissal of the case. Id. First, the court held that the complaint failed to meet Rule 9(b)’s particularity requirement with regard “to the ‘what,’ ‘when,’ and ‘how’ of the allegedly false claims.” Id. For example, the relator alleged the defendant failed to comply with its contractual requirements to complete tests and retests on component parts, but never specified which parts, which tests, whether the tests were never done or whether they were instead done incompletely, as well as failing to name approximate dates of these tests. Id. Without these details, the court held that the defendant did not have enough information to defend against the claims, and so the complaint failed to meet Rule 9(b)’s particularity requirement. Id. The Ninth Circuit also concluded that because of this lack of particularity regarding the false claims, the complaint also inadequately pleaded the materiality requirement. Id. Noting that the materiality requirement is a “demanding” standard pursuant to Escobar, the court found itself unable to assess whether the noncompliance was material or minor because of the lack of particularity regarding the false claims. Id.

2.  The Eighth Circuit Provides Further Guidance on Rule 9(b)’s Particularity Requirement

In United States ex rel. Strubbe v. Crawford County Memorial Hospital, 915 F.3d 1158 (8th Cir. 2019), the Eighth Circuit elaborated on its prior holding in United States ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 918 (8th Cir. 2014), in which the court concluded that relators in FCA cases can meet Rule 9(b)’s particularity requirement either by: (1) pleading representative examples of false claims; or (2) pleading the “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Strubbe, 915 F.3d at 1163 (quoting Thayer, 765 F.3d at 918). In Strubbe, the relators, emergency medical technicians and paramedics, filed an FCA qui tam action against a hospital, alleging that it submitted false claims for Medicare reimbursement, made false statements to get false claims paid, and conspired to violate the AKS. Id. at 1162. The district court dismissed the claims for failure to plead with the required particularity, finding that the complaint did not allege facts showing any false claims were submitted or show how the relators acquired their information. Id. Over a dissent, the Eighth Circuit affirmed, holding that the complaint did not plead the fraud with the particularity required by Rule 9(b). Id. at 1166. First addressing the relator’s allegation that the hospital submitted false claims, the court found that the relators had not met Thayer’s first prong of submitting representative examples of false claims. Id. at 1164. For example, while they had alleged that the hospital made a false claim for an unnecessary treatment, they failed to include the requisite particularity because they did not identify the date of this incident, the provider, any specific information about the patient, what money was obtained, and crucially, whether the hospital actually submitted a claim for this specific patient. Id. Nor had relators met Thayer’s second prong, according to the court. Id. The court held that the complaint lacked sufficient indicia of reliability to create a strong inference that claims were actually submitted, because the complaint did not provide any details about the hospital’s billing practices. Id. at 1164-65. Moreover, the relators did not identify the basis for their allegations regarding billing; this was especially problematic given the relators lack of personal knowledge about the hospital’s billing due to their lack of access to the hospital’s billing department as EMTs and paramedics. Id. at 1165-66. The relators’ second claim that the hospital made false statements failed to meet Rule 9(b)’s particularity requirement for similar reasons as their first—namely, the complaint did not connect the false statements to claims submitted to the government and did not provide the basis on which the relators’ assertions were founded. Id. at 1166. Finally, their third claim, that the hospital conspired to violate the AKS, failed because they did not provide any details about the conspiracy, and so failed to plead with particularity. Id. Therefore, the court affirmed the complaint’s dismissal. Id. at 1170.

3.  Under Rule 9(b), the Fourth Circuit Requires Allegations Regarding a Sub-Contractor’s Billing and Payment Structure

In United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190 (4th Cir. 2018), the Fourth Circuit held that a relator failed to meet Rule 9(b)’s particularity requirement where his complaint alleged a fraudulent scheme without detailing the billing and payment structure. Because of this omission, the court found that relator’s allegations did not foreclose the possibility that the government was never billed or that the alleged fraud was remedied before billing or payment. The case involved allegations by a relator against his former employer, an airline, alleging that the airline violated the FCA by certifying airplane repairs that did not comply with various aviation regulations and contract requirements in the airline’s work as a sub-sub-contractor for the U.S. Air Force. Id. at 194. Specifically, the relator alleged that the defendant: (1) certified uncompleted work as completed; (2) certified repairs performed by uncalibrated and uncertified tools, in violation of the subcontract’s requirements; and (3) allowed inspectors to continue certifying repairs after their training and eye exams had expired. Id. at 194-95. Affirming dismissal of the claims, the Fourth Circuit held that Rule 9(b)’s “stringent” pleading standard requires the complaint to “provide ‘some indicia of reliability’ to support the allegation that an actual false claim was presented to the government.” Id. (quoting United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013)). Relators can meet this standard either by: (1) alleging with particularity that specific false claims were actually submitted to the government or (2) alleging “a pattern of conduct that would ‘necessarily have led[ ] to submission of false claims’ to the government for payment.” Id. (quoting Nathan, 707 F.3d at 457). Over a dissent, the court concluded that the relator had not pleaded specific claims, and also failed to allege a pattern of conduct that would necessarily have led to the submission of false claims, because he had only particularly alleged that the defendant engaged in fraudulent conduct without connecting the fraudulent conduct to the necessary presentment of false claims to the government. Id. The court reasoned that the complaint failed “to allege how, or even whether, the bills for these fraudulent services were presented to the government and how or even whether the government paid [the defendant] for the services.” Id. at 198. Because the complaint alleged only an umbrella payment without describing the billing or payment structure, the court held that the complaint left open the possibility that no payments were ever made. The court held that alleging a link between the false claims and government payment is especially necessary to meet Rule 9(b)’s requirements where, as here, the defendant is several levels removed from the government because it is a sub-sub-contractor. Id. at 199.

D.  Estoppel and the FCA

As DOJ increasingly pursues parallel criminal and civil investigations in cases involving fraud on the government, the interplay between criminal and FCA charges becomes increasingly important. Several decisions during the first half of the year discussed issues relevant to this interplay.

1.  The Third Circuit Finds That a Company Is Not Estopped by an Individual Employee’s Criminal Conviction

In United States ex rel. Doe v. Heart Solution, PC, 923 F.3d 308 (3d Cir. 2019) (discussed previously in relation to materiality), the Third Circuit held that, although an individual defendant was collaterally estopped from denying the falsity and knowledge elements of a civil FCA claim by her criminal conviction and plea colloquy regarding the same conduct, her employer was not. Id. at 316-17. The case involved an individual defendant who was convicted criminally of defrauding Medicare after having admitted at her plea colloquy that Medicare paid her company for diagnostic neurological testing that she falsely represented was supervised by a licensed neurologist. Id. at 312. After her conviction, the government intervened in a civil qui tam FCA case against her and her health care company regarding the same fraudulent neurologist certifications. Id. In granting summary judgment against the defendant company, the district court had relied on the individual defendant’s criminal conviction and plea colloquy. Id. at 313. But the Third Circuit held that the district court erred in finding that the health care company had conceded all of the essential elements of the FCA claim through the individual defendant’s plea. Id. at 316-17. In so holding, the court relied on the fact that collateral estoppel does not apply unless the party against whom the earlier decision is asserted previously had a “full and fair opportunity to litigate that issue.” Id. at 316 (internal quotation marks omitted) (quoting Allen v. McCurry, 449 U.S. 90, 95 (1980)). Here, the defendant company did not have any opportunity, let alone a “full and fair opportunity,” to contest the fraud claim at the individual’s separate criminal proceedings. Heart Sol., 923 F.3d at 317. Additionally, some of the elements of the FCA claim against the company, as opposed to the individual, were neither actually litigated nor determined by a final judgment in the individual’s criminal case, both of which are required for collateral estoppel to apply. Id. at 317.

2.  The Fourth Circuit Holds That Non-Intervened Qui Tam Actions Decided in Favor of the Defendant Do Not Collaterally Estop the Government from Pursuing Criminal Proceedings

In United States v. Whyte, 918 F.3d 339 (4th Cir. 2019), the Fourth Circuit considered whether the government is collaterally estopped from pursuing its own criminal case by a prior qui tam FCA action in which it did not intervene. See id. at 344. There, the defendant, the owner of a company that supplied armored vehicles to multinational forces in Iraq, was indicted for criminal fraud in July 2012. Id. at 342-43. Then, in October 2012, a relator filed a civil FCA suit, in which the government declined to intervene, against the defendant. Id. at 343. The defendant ultimately prevailed at trial in his FCA civil suit, but then, over two years later, a jury convicted the defendant in the criminal case. Id. at 344. The defendant argued that the government was collaterally estopped in its criminal case by the defendant’s victory in the prior qui tam civil case, but the courts were not convinced. The Fourth Circuit affirmed the district court, holding as a matter of first impression that “the Government is not a party to an FCA action in which it has declined to intervene,” and so is not collaterally estopped by a prior FCA action in which it did not intervene. Id. at 345, 350. In so holding, the court first reasoned that collateral estoppel cannot bar a criminal prosecution when the government did not “have a full and fair opportunity to litigate the issue in the prior proceeding.” Id. at 345 (citation and internal quotation marks removed). Whether the government had that opportunity in turn depends on whether the government was a party to that prior proceeding. Id. Citing precedent, the FCA’s language and structure, and the government’s different interests in intervened versus non-intervened cases, the court held that the government is not a party to an FCA action in which it has not intervened. Id. at 345-49. Therefore, the court concluded that “the Government cannot be considered to have been a party with a full and fair opportunity to litigate” in a prior FCA action in which it declined to intervene, and so the government’s criminal prosecution was not collaterally estopped by a prior, nonintervened FCA qui tam action. Id. at 349-50.

E.  The First Circuit Holds That Unsealing an FCA Complaint Begins the Statute of Limitations for Related Claims

As we previously discussed, RICO suits mirroring FCA suits that challenge off-label drug marketing continue to appear. A recent First Circuit case held that the unsealing of an FCA complaint regarding off-label drug marketing begins the running of RICO’s four-year statute of limitations in these kinds of cases. In In re Celexa & Lexapro Marketing & Sales Practices Litigation, 915 F.3d 1 (1st Cir. 2019), the First Circuit addressed the relationship between FCA claims and the statute of limitations for RICO claims (as well as state consumer fraud claims). There, the government intervened in a qui tam FCA claim alleging that the defendant pharmaceutical companies engaged in illegal off-label drug marketing schemes intended to fraudulently induce doctors to prescribe their drugs for off-label uses. Id. at 5-6. The unsealing of the complaint led to more than a dozen consumers and entities that had paid for these drugs filing suit, including the suits in this case, alleging RICO and state consumer fraud violations related to the defendant’s alleged illegal off-label marketing schemes. Id. at 7. The First Circuit held that, as a matter of law, the unsealing of the government’s FCA complaint put the plaintiffs on notice that the defendants allegedly had been promoting off-label uses of their products. Id. at 15. Therefore, the unsealing of the government’s FCA complaint began the running of the four-year statute of limitations on the plaintiffs’ RICO claims related to the off-label marketing schemes alleged in the FCA complaint. Id. at 15-16.

F.  The Ninth Circuit Upholds an FCA Settlement Agreement’s Confidentiality Provisions

For companies involved in negotiations with DOJ about the terms of settlement agreements under the FCA, there was a bit of good news from the Ninth Circuit. In Brunson v. Lambert Firm PLC, 757 F. App’x 563 (9th Cir. 2018), the Ninth Circuit upheld the confidentiality provisions of an FCA settlement agreement, over objection from the relator. See id. at 566. In that case, the relator entered into an FCA settlement agreement with the defendants and the government, but later filed several post-settlement motions that put at issue the settlement agreement’s confidentiality provisions. See id. at 565. The Ninth Circuit held that the settlement agreement’s confidentiality provisions were not void on public policy grounds, because the settlement did not impede any whistleblower’s ability to bring information to the government, and so did not violate the public interest underlying the FCA’s provisions encouraging disclosures of fraud. Id. at 566. Additionally, the court held that the confidentiality provisions did not interfere with the public’s right to information, given that the entire qui tam complaint was still publicly available. Id. Finally, the Ninth Circuit held that the district court had not abused its discretion in maintaining the seal over the settlement agreement, because the settlement agreement was a “private agreement reached without court assistance” and was only in the judicial record through the relator’s efforts to void its confidentiality provisions. Id.

G.  The Public Disclosure Bar and Its Original Source Exception

The public disclosure bar, as amended in 2010 by the Affordable Care Act, requires courts to dismiss a relator’s FCA claims “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed,” unless that relator “is an original source of the information.” § 3730(e)(4)(A). One of the statute’s definitions of an original source is an individual “who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” § 3730(e)(4)(B) (emphasis added). Although the “materially adds” language has been in effect for nearly a decade, the new language did not apply retroactively, and due to the long timeframe for many FCA cases, it is therefore just in recent years getting serious attention from the appellate courts. In April of this year, the Tenth Circuit became the latest court to opine on the meaning of the original source exception’s “materially adds” language. In United States ex rel. Reed v. KeyPoint Government Solutions, 923 F.3d 729 (10th Cir. 2019), the Tenth Circuit explored what a relator must allege to meet the original source exception by materially adding to publicly disclosed information. In defining the “materially adds” language in the original source exception, the Tenth Circuit cited United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016), and held that a relator satisfies the materially-adds requirement when she “discloses new information that is sufficiently significant or important that it would be capable of” influencing the government’s behavior, as contrasted with a relator who provides only background information or details about a previously disclosed fraud. Reed, 923 F.3d at 757. Under this standard, the court noted that a relator who merely identifies a new specific actor engaged in fraud usually would not materially add to public disclosures of alleged widespread fraud in an industry with only a few companies. Id. at 758. Ultimately, however, the court concluded that the relator here had materially added to the public disclosures about a specific program at her company. Id. at 760-63. Thus, the court held she met the original source exception’s materially-adds requirement, but remanded on whether her knowledge was “independent” and whether her claims should otherwise survive scrutiny under Rule 12(b)(6) and Rule 9(b). Id. at 763.

H.  The First Circuit Holds That the First-to-File Bar Is Not Jurisdictional

The First Circuit joined the D.C. and Second Circuits in holding that the FCA’s first-to-file bar is not jurisdictional, such that arguments under the first-to-file bar do not implicate the court’s subject matter jurisdiction, even if they are a cause for dismissal. This distinction can affect how, and when, arguments under the first-to-file bar may be made, and also the standard of review a court applies. In United States v. Millennium Laboratories, Inc., 923 F.3d 240 (1st Cir. 2019), Relator A, who filed first, alleged that the defendant used inexpensive point-of-care tests to induce physicians into excessive testing, including confirmatory testing, which was then billed to the government. Id. at 245-46. Another relator, Relator B, later filed a complaint against the same defendant related to confirmatory testing, not point-of-care testing, allegedly induced through improper custom profiles and standing orders. Id. at 246-47. The government intervened in Relator B’s action (but not Relator A’s) and pursued an FCA case focused on excessive confirmatory testing induced through improper custom profiles and standing orders. Id. at 247-48. The government and the defendant eventually settled for $227 million plus interest, without resolving which relator was entitled to the relator’s share. Id. at 247. The district court dismissed Relator B’s crossclaim for the relator’s share of the settlement, holding that Relator A was the first to file. Id. at 248. As Relator A was the first to file, the district court therefore held that it did not have subject matter jurisdiction over Relator B’s crossclaim, because the first-to-file bar was jurisdictional. Id. On appeal, the First Circuit reversed, and held that the first-to-file bar is not jurisdictional, overturning its prior precedent, for three reasons. Id. at 248-49. First, the First Circuit pointed to Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), in which the Supreme Court addressed a first-to-file issue in an FCA qui tam action on “decidedly non-jurisdictional terms,” implying that the Supreme Court did not consider the first-to-file rule a jurisdictional one. Millennium Labs., 923 F.3d at 249 (internal quotation marks removed) (quoting United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 121 n.4 (D.C. Cir. 2015)). Second, the First Circuit noted that its prior cases all predated Carter and also did not substantively analyze whether the first-to-file rule was jurisdictional, but rather assumed it was. Millennium Labs., 923 F.3d at 250. Third, applying the Supreme Court’s “bright line rule” in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006), which held that provisions are only jurisdictional when Congress clearly states that they are, the First Circuit held that the first-to-file bar’s statutory text, context, and legislative history did not describe the bar in jurisdictional terms. Millennium Labs., 923 F.3d at 250-51. For these reasons, the First Circuit held that the first-to-file bar is not jurisdictional. Id. at 251. Therefore, the court held that it had jurisdiction over Relator B’s crossclaim. Id. Next, the First Circuit turned to the issue of whether Relator A or B was the first to file for purposes of the relator’s share of the government’s settlement. Id. at 252-53. To determine whether Relator A was the first to file in the action in which the government intervened, the court analyzed whether Relator A’s complaint contained “all the essential facts” of the fraud that Relator B alleged, on a claim-by-claim basis, looking at the specific mechanisms of fraud alleged. Id. at 252-53. Because Relator A’s complaint never alleged the specific mechanisms of fraud that Relator B alleged—custom profiles and standing orders in the confirmatory, not point-of-care, stage—Relator A’s complaint did not cover the essential facts of the fraud that Relator B and the government alleged. Id. at 254. Thus, as Relator A alleged a different fraud than the fraud that the government pursued, he was not the first to file in this case; Relator B was. Id.

I.  The Second Circuit Holds That a Relator Who Previously Voluntarily Dismissed His FCA Action Is Not Entitled to the Relator’s Share of the Government’s Subsequent Action

In United States v. L-3 Communications EOTech, Inc., 921 F.3d 11 (2d Cir. 2019), the Second Circuit joined several other circuits in holding that a relator who previously voluntarily dismissed his qui tam action and had no other qui tam actions pending at the time the government pursued its own FCA claim is not entitled to the relator’s share of a later government settlement. Specifically, the court examined the FCA’s provision in section 3730(c)(5), which states that, notwithstanding the section of the FCA allowing qui tam actions, the government may pursue an “alternative remedy,” but if the government pursues an alternative remedy, then “the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” Id. at 24 (quoting § 3730(c)(5)). The court held that section 3730(c)(5) only applied if that relator had a pending qui tam action in which the government could intervene when the government initiated its own FCA action. Id. at 26. Thus, where, as here, the relator had no FCA action pending because the relator had voluntarily dismissed his FCA suit fourteen months before the government commenced its own FCA suit, the relator is not entitled to the relator’s share of the government’s action. Id.

J.  FCA Retaliation Claims

There were also a number of decisions from the courts of appeal that addressed issues under the FCA’s anti-retaliation provision, which protects would-be whistleblowers from retaliation based on certain protected activity undertaken in furtherance of a potential FCA claim. We very briefly summarize these decisions below. In United States ex rel. Reed v. KeyPoint Government Solutions, 923 F.3d 729 (10th Cir. 2019) (previously discussed regarding the public disclosure bar), the Tenth Circuit affirmed the district court’s dismissal of the relator’s retaliation claim, holding that the facts she pleaded were inadequate to show that the defendant was on notice that she was engaged in FCA-protected activity. Id. at 741, 764. Because the relator was a compliance officer, the court explained that she must plead facts to overcome the presumption that she was just doing her job in reporting fraud internally to her employer. That is, she must plead that the actions she took to report the alleged fraud internally went beyond what was required to fulfill her compliance job duties. Id. at 768-69. In that case, the relator did not adequately allege that her employer was on notice she was trying to stop FCA violations, and so the court affirmed the dismissal of her retaliation claim. Id. at 772. In United States ex rel. Strubbe v. Crawford County Memorial Hospital, 915 F.3d 1158 (8th Cir. 2019) (previously discussed regarding Rule 9(b)), the Eighth Circuit limited liability for FCA retaliation claims by affirming the district court’s ruling that relators’ retaliation claim was barred because the complaint did not allege that relators ever told their employer (a hospital) that its practices were fraudulent or potentially violated the FCA. Id. The court found that complaining about the hospital’s finances and changes the hospital made to certain treatments does not provide the hospital notice that the relators are taking action to stop an FCA violation or in furtherance of a qui tam action. Id. In addition, as a matter of first impression for FCA retaliation claims before the Eighth Circuit (but not whistleblower claims more generally), the court held that when there is no direct evidence of retaliation, the McDonnell Douglas framework—from McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973)—applies to FCA retaliation claims. Id. at 1168. Thus, for FCA retaliation claims, the plaintiff must show that: “(1) she engaged in protected conduct, (2) [her employer] knew she engaged in protected conduct, (3) [her employer] retaliated against her, and (4) ‘the retaliation was motivated solely by [the plaintiff’s] protected activity.’” Id. at 1167-68 (quoting Schuhardt v. Washington University, 390 F.3d 563, 566 (8th Cir. 2004)). If the plaintiff establishes a prima facie retaliation claim, then the burden shifts to the employer to “articulate a legitimate reason for the adverse action.” Id. at 1168 (quoting Elkharwily v. Mayo Holding Co., 823 F.3d 462, 470 (8th Cir. 2016)). Then, the burden again shifts back to the plaintiff to show that the employer’s reason was “merely a pretext and that retaliatory animus motivated the adverse action.” Id. (quoting Elkharwily, 823 F.3d at 470). In Guilfoile v. Shields, 913 F.3d 178 (1st Cir. 2019), the First Circuit explored the link between FCA retaliation claims and the AKS. The relator alleged that he was fired in retaliation for internally reporting that his employer, which provides specialty pharmacy services to chronically ill patients, was violating the AKS and making false representations in its contracts with hospitals. Id. at 182-83. The First Circuit affirmed dismissal with respect to his contract violation-based retaliation claim, but vacated the district court’s holding dismissing the plaintiff’s AKS-based retaliation claim, over a dissent. Id. at 195. In so doing, the First Circuit held that for FCA retaliation claims, plaintiffs do not need to meet Rule 9(b)’s particularity requirement, plead the submission of false claims, or plead that compliance with the AKS was material. Id. at 190. Instead, FCA retaliation plaintiffs “need only plead that their actions in reporting or raising concerns about their employer’s conduct ‘reasonably could lead to an FCA action.’” Id. at 189 (quoting United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 59 (1st Cir. 2017)). Under this standard, the court held that the plaintiff had plausibly pleaded that he was engaged in FCA-protected conduct, because by reporting his concerns about paying a consultant to secure contracts at hospitals at which the consultant worked, he was engaging in conduct that could reasonably lead to an FCA action based on the submission of claims resulting from an AKS violation. Id. at 193. Finally, in United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190 (4th Cir. 2018) (discussed previously regarding Rule 9(b)), the Fourth Circuit held that an objective reasonableness standard applies to FCA retaliation claims’ new protected activity category, added in 2010, of “other efforts to stop 1 or more” FCA violations. Prior Fourth Circuit precedent applied a “distinct possibility” standard to evaluate protected activity under § 3730(h), which related to retaliation for actions taken “in furtherance” of an FCA action, meaning employees engage “in protected activity when ‘litigation is a distinct possibility, when the conduct reasonably could lead to a viable FCA action, or when . . . litigation is a reasonable possibility.’” Id. at 200 (quoting Mann v. Heckler & Koch Def., Inc., 630 F.3d 338, 344 (4th Cir. 2010)) (emphasis added). However, the court rejected the “distinct possibility” standard for “other efforts to stop 1 or more” FCA violations, and instead adopted an “objective reasonableness” standard. Id. at 201. Under the second category’s “objective reasonableness” standard, “an act constitutes protected activity where it is motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA.” Id. (emphasis added).

IV.  CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2019 False Claims Act Year-End Update, which we will publish in January 2020. _________________________ [1] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Avanti Hospitals LLC, and Its Owners Agree to Pay $8.1 Million to Settle Allegations of Making Illegal Payments in Exchange for Referrals (Jan. 28, 2019), https://www.justice.gov/opa/pr/avanti-hospitals-llc-and-its-owners-agree-pay-81-million-settle-allegations-making-illegal. [2] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians (Jan. 30, 2019), https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring. [3] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $57.25 Million to Settle False Claims Act Allegations Charges (Feb. 6, 2019), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-5725-million-settle-false-claims-act-allegations. [4] See Press Release, U.S. Atty’s Office for the N. Dist. of GA., Union General Hospital to Pay $5 Million to Resolve Alleged False Claims Act Violations (Feb. 6, 2019), https://www.justice.gov/usao-ndga/pr/union-general-hospital-pay-5-million-resolve-alleged-false-claims-act-violations. [5] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Vanguard Healthcare Agrees to Resolve Federal and State False Claims Act Liability (Feb. 27, 2019), https://www.justice.gov/opa/pr/vanguard-healthcare-agrees-resolve-federal-and-state-false-claims-act-liability. [6] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Covidien to Pay Over $17 Million to The United States for Allegedly Providing Illegal Remuneration in the Form of Practice and Market Development Support to Physicians (Mar. 11, 2019), https://www.justice.gov/opa/pr/covidien-pay-over-17-million-united-states-allegedly-providing-illegal-remuneration-form. [7] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, MedStar Health to Pay U.S. $35 Million to Resolve Allegations that it Paid Kickbacks to a Cardiology Group in Exchange for Referrals (Mar. 21, 2019), https://www.justice.gov/opa/pr/medstar-health-pay-us-35-million-resolve-allegations-it-paid-kickbacks-cardiology-group. [8] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Three Pharmaceutical Companies Agree to Pay a Total of Over $122 Million to Resolve Allegations That They Paid Kickbacks Through Co-Pay Assistance Foundations (Apr. 4, 2019), https://www.justice.gov/opa/pr/three-pharmaceutical-companies-agree-pay-total-over-122-million-resolve-allegations-they-paid. [9] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Agrees to Pay $17.5 Million to Resolve Allegations of Kickbacks to Medicare Patients and Physicians (Apr. 30, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-agrees-pay-175-million-resolve-allegations-kickbacks-medicare-patients. [10] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $30 Million to Settle Alleged Overpayment of Medicare Advantage Funds (Apr. 12, 2019), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-30-million-settle-alleged-overpayment-medicare-advantage. [11] See Press Release, U.S. Atty’s Office for the S. Dist. of W.V., United States Attorney Announces $17 Million Healthcare Fraud Settlement (May 6, 2019), https://www.justice.gov/usao-sdwv/pr/united-states-attorney-announces-17-million-healthcare-fraud-settlement. [12] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Kansas Cardiologist and His Practice Pay $5.8 Million to Resolve Alleged False Billings for Unnecessary Cardiac Procedures (May 30, 2019), https://www.justice.gov/opa/pr/kansas-cardiologist-and-his-practice-pay-58-million-resolve-alleged-false-billings. [13] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Admits to Price Fixing in Violation of Antitrust Law, Resolves Related False Claims Act Violations (May 31, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-admits-price-fixing-violation-antitrust-law-resolves-related-false. [14] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations (Jun. 5, 2019), https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal. [15] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Northrop Grumman Systems Corporation Agrees to Pay $5.2 Million to Settle Allegations of False Labor Charges (Jan. 28, 2019), https://www.justice.gov/opa/pr/northrop-grumman-systems-corporation-agrees-pay-52-million-settle-allegations-false-labor. [16] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Duke University Agrees to Pay U.S. $112.5 Million to Settle False Claims Act Allegations Related to Scientific Research Misconduct (Mar. 25, 2019), https://www.justice.gov/opa/pr/duke-university-agrees-pay-us-1125-million-settle-false-claims-act-allegations-related. [17] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Informatica Agrees to Pay $21.57 Million for Alleged False Claims Caused by Its Commercial Pricing Disclosures (May 13, 2019), https://www.justice.gov/opa/pr/informatica-agrees-pay-2157-million-alleged-false-claims-caused-its-commercial-pricing. [18] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual. [19] Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0. [20] See U.S. Dep’t of Justice, Justice Manual, Section 4-4.112. [21] Id. [22] Id. [23] Id. [24] Id. [25] Id. [26] See Memorandum, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for- Evaluating-Dismissal-Pursuant-to-31-U-S.pdf. [27] Id. at 2–3. [28] See Jeff Overly, DOJ Warns FCA Targets On Discovery Tactics, Law360 (Mar. 2, 2019), https://www.law360.com/articles/1134479/doj-atty-warns-fca-targets-on-discovery-tactics. [29] Id. [30] Id. [31] Id. [32] Press Release, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-2019-advanced-forum-false. [33] Id. [34] Id. [35] Id. [36] Id. [37] Press Release, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Gives Remarks to the Cleveland, Tennessee, Rotary Club (Mar. 12, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-gives-remarks-cleveland-tennessee-rotary. [38] State False Claims Act Reviews, Dep’t of Health & Human Servs.—Office of Inspector Gen., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp. [39] Id. [40] Id. Wisconsin repealed its false claims act in 2015. Assembly Bill 1021 would have reinstated the statute, but failed to pass in March 2018. See Wisconsin State Legislature, Assembly Bill 1021, http://docs.legis.wisconsin.gov/2017/proposals/reg/asm/bill/ab1021. [41] Id. [42] See Cal. Gov’t Code § 12651 (West 2018); Ga. Code Ann. § 49-4-168.1 (2018); Del. Code Ann. tit. 6, § 1201 (2018); N.Y. State Fin. Law §§ 189-190-b; 2018 R.I. Gen. Laws § 9-1.1-3 (2018). [43] Cal. AB-1270, 2019 Leg. Reg. Sess. (Cal. 2019). [44] Escobar, 136 S. Ct. at 2002 (emphasis added) (citation and internal quotation marks removed). [45] Cal. AB-1270, 2019 Leg. Reg. Sess. (Cal. 2019). [46] Id. [47] Id. [48] Id. [49] AB-1270 False Claims Act, California Legislative Information (July 9, 2019), http://leginfo.legislature.ca.gov/faces/billStatusClient.xhtml?bill_id=201920200AB1270. [50] See S. 40, A Bill to Amend Title 15 of the 1976 Code, by Adding Chapter 85, to Enact the “South Carolina False Claims Act” (123d Session), https://www.scstatehouse.gov/sess123_2019-2020/bills/40.htm. [51] See S. 223, A Bill to Amend the South Carolina Code of Laws, 1976, by Adding Chapter 85 to Title 15, so as to Enact the “South Carolina False Claims Act” (121st Session), https://www.scstatehouse.gov/sess121_2015-2016/bills/223.htm. [52] Notably, though, the statute covers claims a defendant “reasonably should have known” were false, thereby creating potential liability for mere negligence (unlike the federal FCA, which requires at least reckless disregard). The West Virginia law also lacks a qui tam provision. See W.Va. Code § 9-7-6 (2018). [53] See 2019 W.Va. Laws S.B. 318 (2019 Regular Session). [54] See id. at § 9-7-6.

The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Charles Stevens, Stuart Delery, Benjamin Wagner, Timothy Hatch, Joseph West, Robert Walters, Robert Blume, Andrew Tulumello, Karen Manos, Monica Loseman, Geoffrey Sigler, Alexander Southwell, Reed Brodsky, Winston Chan, John Partridge, James Zelenay, Jonathan Phillips, Ryan Bergsieker, Sean Twomey, Reid Rector, Allison Chapin, Michael Dziuban, Jillian N. Katterhagen Mills, and summer associate Marie Zoglo.

Gibson Dunn's lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  From U.S. Supreme Court victories, to appellate court wins, to complete success in district courts around the United States, Gibson Dunn believes it is the premier firm in FCA defense.  Among other notable recent victories, Gibson Dunn successfully overturned one of the largest FCA judgments in history in United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017), and the Daily Journal recognized Gibson Dunn’s work in U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center Inc. as a Top Defense Verdict in its annual feature on the top verdicts for 2017.  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has dozens of attorneys with substantive FCA experience, including nearly 30 Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)
Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 14, 2019 |
Cooperation Credit in False Claims Act Cases: Opportunities and Limitations in DOJ’s New Guidance

Click for PDF On May 7, 2019, the U.S. Department of Justice (“DOJ”) released long-awaited guidance on when DOJ will award cooperation credit to targets of False Claims Act (“FCA”) enforcement.  But those familiar with FCA enforcement are unlikely to find any big surprises in the guidance.  Instead, the guidance echoes longstanding DOJ expectations with respect to cooperation and remediation and reaffirms recent DOJ pronouncements regarding how companies may secure credit by identifying individual wrongdoers.  Further, DOJ emphasizes, yet again, that entities seeking maximum cooperation credit should voluntarily self-disclose misconduct.  As to the value of cooperation to defendants, DOJ’s new guidance caps the credit a defendant may receive: under the guidance, the credit may not result in a defendant paying less than single damages.  But DOJ offers little detail on the quantum of cooperation necessary to secure single damages, and the award of cooperation credit remains discretionary.  This discretion creates uncertainty, but may also present FCA defendants with the opportunity to argue for lower settlement payments during settlement negotiations with DOJ.  It remains to be seen which way this discretion cuts in practice.

Background

DOJ’s guidance results from a long-running effort, started after the issuance of the 2015 Yates Memorandum, to describe in more detail the bases for cooperation credit in a variety of civil and criminal enforcement contexts.  As discussed in a previous Gibson Dunn alert, DOJ announced in June 2018 that it was working to promote more fair and consistent enforcement activities under the FCA, and it pledged to promulgate new and potentially expanded policies on cooperation credit.  In November 2018, Deputy Attorney General Rod Rosenstein likewise signaled a retreat from the “all or nothing” approach to cooperation set forth in the Yates Memorandum, announcing, for example, that partial cooperation credit might be available in civil fraud cases, and that companies need not identify all individuals involved in the misconduct at issue, just those “substantially involved.”

Forms of Cooperation

The FCA guidance released on Tuesday, which is codified in Section 4-4.112 of DOJ’s Justice Manual, follows those announcements by allowing more flexibility in terms of what defendants can provide to the government in exchange for cooperation credit. Self-Disclosure.  In a press release issued along with the new guidance, Assistant Attorney General Jody Hunt made clear that voluntary self-disclosure—i.e., proactively approaching the government to report potential violations—is still “the most valuable form of cooperation.”  Under the new guidance, such disclosure should be both “proactive” and “timely”—characteristics the guidance leaves open to interpretation.  Disclosure of misconduct going beyond the scope of concerns known to DOJ will further qualify a defendant for credit. Other Forms of Cooperation.  The new DOJ guidance also includes an illustrative, non-exhaustive list of ten forms of cooperation that may earn a defendant “some cooperation credit.”  In addition to voluntary disclosure, defendants may also earn credit for taking other actions that “meaningfully assist[]” DOJ in its FCA investigation.  Such actions include:
  • identifying individuals “substantially involved in or responsible for” misconduct;
  • disclosing facts or evidence relevant to potential misconduct by third parties (or facts or evidence not already known to the government);
  • preserving and disclosing relevant information beyond existing business practices or legal requirements;
  • identifying and making available individuals with relevant information;
  • attributing facts to specific sources and providing updates on any internal investigation;
  • admitting liability or accepting responsibility for the relevant conduct; and
  • assisting in the determination or recovery of losses.
The guidance emphasizes that defendants are not required to waive attorney-client privilege or work product protection to be eligible for credit. Not surprisingly, actions that do not qualify for cooperation credit under the guidance include disclosure of information that is required by law or is under “imminent threat” of discovery or investigation, as well as “merely” responding to a subpoena or demand for information.  The guidance does not define terms such as “imminent threat,” potentially opening the door to significant DOJ discretion.

The Value of Cooperation

Under the new guidance, the “value” of any cooperation also will impact DOJ’s calculus regarding cooperation credit.  To assess value, DOJ will consider four factors relating to the assistance or information provided by a defendant:  (1) timeliness and voluntariness; (2) truthfulness, completeness, and reliability; (3) nature and extent; and (4) significance and usefulness to the government.  In the new guidance, DOJ also emphasizes the importance of remedial measures, such as implementing or improving a compliance program and acknowledging and accepting responsibility.

Benefits of Cooperation

As noted, one aspect of the new guidance that may be met with disappointment is the general lack of clarification or concrete details regarding the benefits of cooperation. The guidance sets a ceiling for the credit a defendant may receive.  Specifically, cooperation credit may not result in the government receiving less than “full compensation for the losses caused by the defendant’s misconduct,” including damages, interest, the costs of investigation, and any relator’s share.  Further, the guidance lists some non-monetary ways in which DOJ might recognize cooperation, such as notifying another agency of, or publicly acknowledging, the cooperation, or assisting the defendant in qui tam litigation. As members of the FCA defense bar know, double damages are the frequent result when negotiating resolutions of FCA investigations—so the promise of single damages in return for full cooperation has some value.  But the guidance provides no specific information about how much of a benefit defendants might expect for cooperation, nor does it offer a means by which a defendant might quantify, calculate, or estimate the benefit.  This lack of specific information, while contributing to ongoing uncertainty, may also create an opportunity for defendants to advocate for cooperation credit and lower settlement amounts without any fixed set of limitations on what DOJ may agree to provide, aside from the floor of single damages.  Yet, even in the case of single damages, the guidance is silent as to how those single damages must be calculated and whether litigation risk may factor into the calculation.  All of these factors combined create the possibility of robust negotiations over cooperation credit, even under this new framework. DOJ’s silence on the precise benefits of cooperation in the FCA context stands in contrast to cooperation frameworks in other contexts.  For example, under the FCPA Corporate Enforcement Policy (“FCPA Policy”), it is clear that companies that (1) voluntarily disclose, (2) fully cooperate, and (3) timely and appropriately remediate misconduct “will receive a declination” absent aggravating circumstances.  The FCPA Policy defines each of the three elements of cooperation—which are similar in substance to those set out in the new guidance—providing a clearer, albeit not ambiguity-free, roadmap to receiving credit.  Notably, the FCPA Policy also quantifies the value of cooperation, stating, for example, that a defendant that did not initially disclose misconduct but later does can expect to receive “up to a 25% reduction” off the low end of the sentencing guidelines.  DOJ’s guidance in the FCA context is not so explicit.

Cooperation Versus “Outsourced” Investigations

Although DOJ’s new guidance is unabashed in its solicitation of “meaningful[]” investigative assistance, just how prescriptive DOJ may be without risking exclusion of some evidence it gathers remains an open question. Just over a week ago, Chief Judge McMahon of the U.S. District Court for the Southern District of New York issued an opinion (in a criminal, non-FCA case) stating that she was “deeply troubled” by the government in effect “outsourcing” its investigation to its target, which was seeking to cooperate.  See Mem. Decision and Order Den. Def. Gavin Black’s Mot. for Kastigar Relief, United States v. Connolly, No. 16 Cr. 0370 (CM) (S.D.N.Y. May 2, 2019).  Judge McMahon concluded that the target’s lawyers appeared to have done “everything that the Government could, should, and would have done had the Government been doing its own work,” id. at 24, and that the internal investigation was therefore fairly attributable to the government, id. at 29.  As a result, Judge McMahon held that the individual defendant’s statements to a law firm conducting an investigation on behalf the individual’s corporate employer were effectively compelled statements to the government (under the line of cases beginning with Garrity v. New Jersey, 385 U.S. 493 (1967)).  See Connolly, No. 16 Cr. 0370 (CM), at 21, 28–29. As a criminal case, Connolly involves different considerations (and constitutional protections).  Nevertheless, it suggests that courts may play—and potentially embrace—a role in distinguishing “cooperation” from compulsion in future cases (particularly FCA matters with parallel civil and criminal components).

* * * * *

Time will tell whether DOJ’s lack of specificity with respect to the benefits of cooperation will limit the impact of the new guidance on cooperation credit in FCA enforcement.  But, at the very least, defendants will have factors to consider—and single damages to hope for—based on DOJ’s latest addition to the Justice Manual.
The following Gibson Dunn lawyers assisted in preparing this client update:  F. Joseph Warin, Stuart Delery, John Partridge, Jonathan Phillips, Julie Hamilton and Reid Rector. Gibson Dunn's lawyers have handled hundreds of FCA investigations and have a long track record of litigation success. Our lawyers are available to assist in addressing any questions you may have regarding the above developments. For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the any of the following. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Stephen C. Payne (+1 202-887-3693, spayne@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)
Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com)
© 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 14, 2019 |
Looking back and ahead at the False Claims Act

Los Angeles partners Debra Wong Yang, Michael Farhang and James Zelenay, and associate Sean Twomey are the authors of "Looking back and ahead at the False Claims Act" [PDF] published by The Daily Journal on February 14, 2019.

November 6, 2018 |
Recent Developments Related to Regulation and Litigation Involving the Education Sector

Click for PDF This is the latest update of significant developments related to regulatory, administrative, and legal actions involving schools.  This quarter saw the Ninth Circuit issue its long-awaited decision in United States ex rel. Rose v. Stephens Institute, a number of other interesting developments related to the False Claims Act ("FCA"), a flurry of activity from the Department of Education and other federal agencies, and more.

A.   Strict Rules in Name Only?

On August 24, 2018, the United States Court of Appeals for the Ninth Circuit issued its opinion in United States ex rel. Rose v. Stephens Institute, No. 17-1511, 901 F.3d 1124 (9th Cir. 2018).  As discussed in the February alert, the three judges on the panel appeared to be struggling at oral argument with what the Supreme Court held in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016); how the Ninth Circuit had previously interpreted the FCA and Escobar; and how that might apply to the situation of a for-profit school.  That struggle carried over to the opinion. All three judges agreed that a relator in the Ninth Circuit could only establish liability under the so-called implied certification theory—whereby FCA liability can exist for claims for payment that falsely, implicitly represent compliance with a law—if "'first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.'"  Rose, 901 F.3d at 1129–30 (quoting Escobar, 136 S. Ct. at 2001).  The court explained, however, that it did not believe these "two conditions" were actually required by Escobar and instead followed that rule only because the Ninth Circuit's "post-Escobar cases … appear to require Escobar's two conditions."  Id.  The three judges even went so far as to indirectly call for en banc (11-judge) review.  Id. The three judges also agreed, however, that the relator had met both of those requirements.  The Ninth Circuit reasoned that the Federal Stafford Loan Certification form contained the required representation about goods or services provided:  "Defendant specifically represented that the student applying for federal financial aid is an 'eligible borrower' and is 'accepted for enrollment in an eligible program.'"  Id. at 1130.  And the Ninth Circuit believed "those representations could be considered 'misleading half-truths'" because "Defendant failed to disclose its [alleged] noncompliance with the incentive compensation ban."  Id.  This aspect of the decision is troubling.  Compliance with the incentive compensation provision is nowhere in the Federal Stafford Loan Certification form, but the panel found that the representations in the form that the student was an "eligible borrower" and would be attending an "eligible program" were sufficient to impliedly certify compliance with the incentive compensation provision, as such is a condition of participation in the Title IV program. The Ninth Circuit also reached a troubling conclusion on the second issue in the case:  whether the alleged violations of the incentive compensation provision were material—and therefore actionable—under the FCA.  Relying on a pre-Escobar decision on the pleadings in United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006), the Ninth Circuit held that, even on the more demanding summary judgment standard and even after Escobar, the relator in Rose had met the materiality standard because of: (1) the "triple-conditioning of Title IV funds on compliance with the incentive compensation ban" in the statute, regulations, and program participation agreement; (2) "evidence … that [ED] did care about violations of the incentive compensation ban," including evidence it issued fines or corrective actions for such alleged violations; and (3) the "magnitude" of the alleged violation in the case was purportedly "substantial" because the "large monetary awards" for enrollments were in the tens of thousands of dollars.  Id. at 1132–34. Judge Smith dissented on this aspect of the decision, explaining that "caring is not enough to make it material under the Escobar standard."  Id. at 1137.  What is needed, and was missing according to Judge Smith, was evidence "about what the Government would actually do in this case (or even in a similar case)"—i.e., would the alleged improper payments to employees have affected the Government's "payment decision" of financial aid.  Id. at 1137 & n.3. What was perhaps most shocking about the majority's opinion, claiming to enforce the "rigorous" materiality standard from Escobar, is that the panel did not even mention—let alone discuss—the Department of Education's 2002 memorandum from the then Deputy Secretary of Education (William D. Hansen), in which Mr. Hansen explained that the incentive compensation provision generally should not provide the basis for a loss of institutional or student eligibility and should instead be handled by a fine.  That memorandum is strong evidence that the Department did not condition eligibility—including student or institution eligibility—or payment decisions on the incentive compensation provision.  But it was ignored by the Ninth Circuit. Stephens Institute is seeking en banc review.

B.   Other False Claims Act Developments

While the case law on the FCA may not have been particularly positive for schools in the last quarter, the Department of Justice ("DOJ") continued to show a more considered approach to FCA enforcement.  Specifically, on June 14, 2018, acting Associate Attorney General Jesse Panuccio gave a speech about the DOJ's ongoing efforts to promote a fair application of the FCA.  As discussed in our February report, the DOJ issued two memoranda in January that: (i) outlined factors for when the Government should intervene and voluntarily dismiss qui tam FCA lawsuits; and (ii) clarified that the "Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules."  In his speech, Mr. Panuccio discussed those two initiatives and also (1) formalizing cooperation credits, (2) rewarding "companies that invest in strong compliance measures," and (3) promoting coordination within the agency and with other regulatory bodies to prevent "piling on." On the FCA front, a few other developments:
  • The U.S. District Court for the Western District of Pennsylvania ordered the Government to produce to a law clinic at Harvard Law School documents the Government obtained from a 2007 FCA case filed against Education Management Corp.
  • The qui tam lawsuit filed against EduTrek and a number of schools in the United States District Court for the District of Utah was voluntarily dismissed.
  • The U.S. District Court for the District of Utah ordered supplemental briefing in U.S. ex rel. Brooks v. Stevens-Henagar College about whether a relator and the United States are entitled to separately pursue different claims in the same FCA case.

C.   Activity by the Department of Education

As readers of this alert likely know, the Department of Education (ED) has had a busy quarter: Borrower Defense:  On July 31, ED released a notice of proposed rulemaking on the Borrower Defense to Repayment (BDR) regulations.  The proposed regulations are intended to supplant the BDR rule promulgated by the Obama Administration in November 2016.  Some of the proposed changes include (1) establishing a federal standard for review of BDR claims; (2) limiting the basis of a claim to misrepresentation by a school; (3) requiring that such misrepresentation be (i) false, misleading, or deceptive, and (ii) made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth, (iii) clearly related to the making of the loan or provision of educational services; and (iv) requiring the borrower to establish reasonable reliance on the misrepresentation and resulting financial harm. After the notice of rulemaking was published, ED received a large number of comments and has announced that the earliest implementation date would be July 2020. In the meantime, at least for the time being, the old 2016 BDR regulations will remain in effect.  That is because 19 states and the District of Columbia previously sued Secretary DeVos for wrongly delaying implementation of the 2016 BDR regulations.  On September 12, the judge ruled that ED's postponement measures of the 2016 BDR regulations were procedurally improper.  Instead of ordering ED to immediately implement the 2016 BDR rule, the judge issued a temporary suspension to permit ED to remedy deficiencies with the procedures it had followed.  However, ED did not do so before the deadline of October 16, and the 2016 version of the BDR rule is now in effect.  Secretary DeVos has indicated she will implement the 2016 rule, even as she works to rescind it. ED also suffered setbacks in another lawsuit involving the BDR rules.  As reported in our last alert, former Corinthian College students filed a class action lawsuit for declaratory and injunctive relief against Secretary DeVos and ED in December 2017, alleging that after Corinthian closed, ED promised the students complete loan forgiveness but then, in December 2017, announced a plan to award only partial relief using a formula based on students' earnings.  On May 25, a magistrate judge issued a preliminary injunction, blocking enforcement of ED's partial loan relief program.  In June, the magistrate clarified that ED did not presently need to provide the full debt relief the students claimed but that ED must stop collecting loan payments from all former Corinthian students who applied for debt relief—not just the four named plaintiffs in the case.  And on October 15, the judge certified a nationwide class of approximately 110,000 students. Gainful Employment:  On August 14, ED filed a notice of proposed rulemaking that proposed rescinding the Gainful Employment regulations.  Instead of these regulations, ED plans to update the College Scorecard, or a similar web-based tool, to provide program-level outcomes for all higher education programs at all institutions that participate in programs authorized by Title IV.  The public comment period closed on September 13. State Authorization:  On July 3, ED further delayed the effective date of four provisions of the State Authorization rules that had been published in December 2016 and were scheduled to go into effect on July 1, 2018.  The new effective date is now July 1, 2020.  The State Authorization rules would have required institutions that offer distance education to students in states where the institution is not physically located to either meet those states' requirements for offering postsecondary education or to participate in a state authorization reciprocity agreement and then document that there is a state process for review and action on student complaints.  In response to this delay, the National Student Legal Defense Network filed a lawsuit on August 23 in the U.S. District Court for the Northern District of California, arguing that the methods ED used to delay implementation of the rules violated both the Higher Education Act and the Administrative Procedure Act.  The case has been assigned to a magistrate judge. Accreditation:  On July 31, ED announced a new round of rulemaking related to accreditation and proposed negotiation of the following topics:  requirements for accrediting agencies in their oversight of member institutions; requirements for accrediting agencies to honor institutional mission; criteria used by the Secretary to recognize accrediting agencies, emphasizing criteria that focus on educational quality; developing a single definition for purposes of measuring and reporting job placement rates; and simplifying ED's process for recognition and review of accrediting agencies.  Negotiations are expected to begin in January 2019. Speaking of accreditors, in late September, after having tentatively restored its accrediting status in April, ED sent a letter to the Accrediting Council for Independent Colleges and Schools (ACICS), stating that the accreditor was in compliance with all but two of the necessary standards for recognition and that it has 12 months to meet the final two criteria. To round out the news about ED, on June 21, the White House unveiled a plan to merge the Education and Labor departments into a single Cabinet agency:  the Department of Education and the Workforce.  The change would require congressional approval.  The merger reflects the Administration's desire to streamline government and focus on career technical education and skill-building.

D.   Activity by Other Federal Agencies

ED is not the only federal body that has kept busy. The SEC settled its case against two executives of ITT Educational Services, Inc., days before trial was to begin.  The two executives were alleged to have hidden ITT's financial condition from investors.  The settlements include penalties of $200,000 and $100,000 and temporary suspensions from serving on boards of publicly-traded companies.  In the meantime, the bankruptcy trustee representing ITT's debtors filed suit against one of the executives and eight former board directors, alleging that they breached their fiduciary duties by not taking steps that might have kept the company out of bankruptcy.  In September, the bankruptcy trustee also filed suit against ED and lenders who backed ITT's private loan program, alleging that ED failed to adequately protect students. On the CFPB front, CFPB has accused ED of blocking Navient from producing student borrower documents to CFPB in its lawsuit against Navient.  On August 10, the court held that Navient must produce the documents if they are in Navient's possession, regardless of whether they are "owned" by ED. The FTC reached settlements of over $60 million with eight separate parties accused of scamming consumers out of millions of dollars by promising to reduce or eliminate their loan debt.  The settlements are part of a coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams announced by the FTC in October 2017, called Operation Game of Loans. Finally, in July, the FBI concluded an investigation into an alleged "bait-and-switch" scheme that purportedly affected more than 2,500 student veterans.  A company called Ed4Mil allegedly recruited service members and veterans for what they thought were classes taught by a private liberal arts school, but were actually unaccredited correspondence classes.  Ed4Mil allegedly charged the government the university tuition rates and pocketed the difference.  Ed4Mil's founder pleaded guilty to conspiracy to commit wire fraud and was sentenced to five years in prison.  He was also ordered to pay $24 million in restitution.  Two co-conspirators pleaded guilty to conspiracy to commit wire fraud and were sentenced to probation.

E.   State Attorney General Activity

As we've reported, state attorneys general also remain busy in their policing of the education sector.

1.   California Attorney General Gets Mixed Results.

California, one of the busiest state AG offices, has seen mixed results in recent months.  In one win, Attorney General Javier Becerra settled with Balboa Student Loan Trust for $67 million in debt relief for former students of Corinthian College.  The settlement calls for Balboa to immediately halt debt collection, forgive 100 percent of the balances on over 30,000 private student loans, and to refund past payments. The Attorney General next announced a suit against student loan servicer, Navient, alleging Navient violated California's unfair competition and false advertising laws by failing to sufficiently disclose how borrowers could be considered for income-driven repayment plans, thus steering borrowers to more expensive plans.  Navient has stated that the allegations are baseless and that it will "vigorously defend" the suit. In August, a magistrate judge in the U.S. District Court for Northern District of California dismissed California's complaint against ED and Secretary DeVos alleging ED had improperly halted debt relief claims of former Corinthian Colleges students.  The court held that California lacked standing to challenge the Trump administration's actions.  California has filed an amended complaint that seeks to remedy the deficiencies identified by the court. California also suffered another defeat in August when a court issued a temporary restraining order, halting the practice by the California State Approving Agency for Veterans Education (CSAAVE)—which certifies colleges to award federal education aid to veterans—of suspending the eligibility of colleges from other states based on its interpretation of a rule to require "extension" campuses to be operationally dependent on a campus in California.  The college plaintiffs alleged that CSAAVE's interpretation has no basis in governing law and that its implementation of this interpretation violated the California Administrative Procedures Act.  The Agency stated its decisions were based on the inadequacy of the colleges' locations in California, but the colleges' lawsuit alleged that the Agency's own documentation demonstrated that the colleges were compliant with all rules.

2.   Massachusetts Attorney General Sues New England Institute of Art for Fraud.

In July, Massachusetts Attorney General Maura Healy sued the New England Institute of Art (NEIA) and Education Management Corporation (EDMC) for fraud.  Massachusetts's lawsuit alleges NEIA and EDMC targeted and aggressively recruited students by misrepresenting job placement rates, NEIA's job search assistance resources, and the availability of financial aid.  NEIA closed in 2017, and EDMC filed for bankruptcy in June.  Nevertheless, it appears Massachusetts is pursuing its claims.

3.   New York City Department of Consumer Affairs Alleges Berkeley College Violated Consumer and Local Debt Protection Laws.

In New York, it appears other agencies are participating in enforcement as well.  After a two-year investigation of Berkeley College, the New York City Department of Consumer Affairs has sued the for-profit institution, alleging that it employed "predatory marketing tactics," made misrepresentations about financial aid and employment prospects, and attempted to collect debts not actually owed.  The investigation reportedly included undercover investigators who communicated with recruiters and students and the review of over 50,000 pages of documents produced by the college.

4.   Investigations and Press Reports Demonstrate Vulnerability of Schools Beyond the For-Profit Sector.

In July, Pennsylvania Attorney General Josh Shapiro announced his office would investigate claims that Temple University knowingly provided false data to U.S. News & World Reports to boost the rankings of its online MBA program.  And in August, the Commission on Institutions of Higher Education at the New England Association of Schools and Colleges voted to place on probation two independent nonprofit schools—College of St. Joseph and Newbury College.  The accreditor reports that the two schools, both facing declining enrollment, failed to meet a standard on institutional financial resources. Further, at least one news outlet recently reported on alleged disgruntled customers of Woz U, the coding boot camp started by Apple co-founder Steve Wozniak.  In the report, Woz U's President acknowledged errors in the program and stated that a quality control system has been adopted.

F.   Corporate Transactions and For-Profit to Nonprofit Status Changes

There were several notable developments in the area of sales and mergers. Strayer Education, Inc. finalized its merger with Capella Education Company in August.  The new combined entity, called Strategic Education, Inc. (SEI) will continue to operate Strayer University and Capella University as separately accredited institutions. ED has given primary approval to Adtalem Global Education's proposed transfer of DeVry University to Cogswell Capital LLC.  The transfer will still need approval from the Higher Learning Commission.  (Unrelated to the transfer but also notable is a recent class action lawsuit against DeVry, filed by former students who say DeVry falsely advertised employment and graduation rates to induce them to enroll.) Adtalem also finalized a deal to transfer ownership of Carrington College to San Joaquin Valley College, Inc.  The deal will need regulatory and creditor approval and is expected to be finalized in mid-2019. Bridgepoint Education announced in July that its accreditor has given initial approval for a merger of two of Bridgepoint's subsidiary institutions, Ashford University and University of the Rockies.  Ashford University will be the surviving entity of the merger, which will now seek approval from state regulators and ED. This quarter also saw more examples of a trend we've reported previously:  for-profit institutions seeking to become nonprofit entities.  In July, National University System, a nonprofit network of universities, announced it will acquire for-profit Northcentral University to expand its online graduate and doctoral program offerings.  Grand Canyon University, which had tried for several years to convert back to a nonprofit, sold off assets necessary to complete the status change.  This trend has gained so much steam that the National Advisory Committee on Institutional Quality and Integrity (NACIQI) recently held an event on it, hosting 22 panelists to weigh in on the topic of for-profit to nonprofit conversions in higher education.  Most of the panelists cited regulatory and public scrutiny as the major factor driving these conversions. Not all of these deals have been successful.  The proposed acquisition of 31 Art Institute schools by nonprofit Dream Center Education Holdings faces a new hurdle.  The Higher Learning Commission temporarily suspended accreditation of four Art Institute schools.  Senator Dick Durbin (D-Ill.) has called for an investigation of Dream Center, in part because Dream Center's websites allegedly continued to list the schools as accredited.

G.   Other News

The American Bar Association (ABA) has revoked the accreditation of Arizona Summit Law School.  The revocation follows a year-long probation period for allegedly failing to meet academic and admissions standards.  Arizona Summit plans to appeal the decision. During the probationary period, InfiLaw Corp., which owns Arizona Summit, fought back by suing the ABA, alleging it discriminated against for-profit law schools.  In August, the ABA had a setback in that lawsuit when the U.S. Judicial Panel on Multidistrict Litigation rejected the ABA's argument that that three separate lawsuits brought by InfiLaw schools should be consolidated.  The Panel reasoned that the number of suits was small and discovery would be minimal given that the suit would likely turn on questions of law.  The three cases will now proceed independently.

*   *   *

As always, we will continue to monitor all of these developments, and you can look forward to updates in our next report.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding the issues discussed above.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following:
Los Angeles Timothy Hatch (+1 213-229-7368, thatch@gibsondunn.com) Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Julian W. Poon (+1 213-229-7758, jpoon@gibsondunn.com) Eric D. Vandevelde (+1 213-229-7186, evandevelde@gibsondunn.com) James Zelenay (+1 213-229-7449, jzelenay@gibsondunn.com) Jeremy S. Smith (+1 213-229-7973, jssmith@gibsondunn.com) Denver Jeremy S. Ochsenbein (+1 303-298-5773, jochsenbein@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Washington, D.C. Douglas Cox (+1 202-887-3531, dcox@gibsondunn.com) Michael Bopp (+1 202-955-8256, mbopp@gibsondunn.com) Jason J. Mendro (+1 202-887-3726, jmendro@gibsondunn.com) Amir C. Tayrani (+1 202-887-3692, atayrani@gibsondunn.com) Lucas C. Townsend (+1 202-887-3731, ltownsend@gibsondunn.com)

September 10, 2018 |
Webcast: The False Claims Act: 2018 Mid-Year Update for Government Contracting

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. While the U.S. Department of Justice has recently issued statements indicating some new thinking about FCA enforcement, newly filed cases remain at historical peak levels and the DOJ has enjoyed seven straight years of more than $3 billion in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the health care and life sciences, government contracting and financial services sectors—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join Gibson Dunn for a 90-minute discussion of the latest developments in FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation involving your industry sector;
  • Updates on the Trump Administration’s approach to FCA enforcement;
  • Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and
  • The latest developments in FCA case law, including the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides [PDF] https://player.vimeo.com/video/289371961
PANELISTS: John Chesley is a partner in the Washington, D.C. office. He represents corporations, audit committees, and executives in internal investigations and before government agencies in matters involving the FCPA, procurement fraud, environmental crimes, securities violations, antitrust violations, and whistleblower claims. He also litigates government contracts disputes in federal courts and administrative tribunals. Jim Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act. Jonathan Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes. Erin Rankin is an associate in the Washington, D.C. office, where she is a member of the firm’s Litigation Department. She represents clients on government contracts matters relating to contract claims and terminations, suspension and debarment proceedings, internal investigations, and due diligence.

August 29, 2018 |
Webcast: The False Claims Act – 2018 Mid-Year Update: Three Industry-Specific Programs

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. While the U.S. Department of Justice has recently issued statements indicating some new thinking about FCA enforcement, newly filed cases remain at historical peak levels and the DOJ has enjoyed seven straight years of more than $3 billion in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the health care and life sciences, government contracting and financial services sectors—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join Gibson Dunn for a 90-minute discussion of the latest developments in FCA, including:

  • The latest trends in FCA enforcement actions and associated litigation involving your industry sector;
  • Updates on the Trump Administration’s approach to FCA enforcement;
  • Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and
  • The latest developments in FCA case law, including the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision.
View Slides [PDF] https://player.vimeo.com/video/287465636
PANELISTS: Joseph Warin is a partner in the Washington, D.C. office, chair of the office’s Litigation Department, and co-chair of the firm's White Collar Defense and Investigations practice group. His practice focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. Stuart Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ's enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Jim Zelenay is a partner in the Los Angeles office where he practices in the firm's Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act.