Escobar Upends $350 Million FCA Verdict

By on January 17, 2018

On January 11, 2018, a federal court in Florida overturned a $350 million False Claims Act (FCA) jury verdict against a nursing home operator, finding “an entire absence of evidence of the kind a disinterested observer, fully informed and fairly guided by Escobar, would confidently expect on the question of materiality.”

In United States ex. rel. Ruckh v. CMC II LLC et al., the relator claimed that a skilled nursing facility and its management company failed to maintain “comprehensive care plans” ostensibly required by Medicare regulations as well as a “handful of paperwork defects” (for example, unsigned or undated documents). In addition, the relator alleged a corporate-wide scheme to bill Medicare for services that were not provided or needed.

On February 15, 2017, a jury found that the defendants, collectively, had submitted or caused to be submitted more than 200 false claims and, based on statistical sampling and extrapolation, returned a verdict of more than $115 million. Pursuant to the FCA, the court trebled damages and assessed penalties, entering judgments on March 1, 2017 totaling $347,864,285. Defendants moved under Rule 50 for judgment as matter of law and under Rule 56 for new trial, asserting that the evidence submitted was insufficient to support the jury’s verdict.

The January 11, 2018, ruling vacated that award, relying on the US Supreme Court’s Escobar decision. In brief, Escobar held that liability under the FCA for implied false certification requires: (1) defendant’s claim for payment that makes specific representation about the goods or services provided; and (2) defendant’s failure to disclose noncompliance with material statutory, regulatory or contractual requirements that makes those representations misleading half-truths.

The district court in Florida held that the relator failed to meet Escobar’s materiality requirement. Analyzing the history of the action, the court found “that the federal and state government regard the disputed practices with leniency or tolerance or indifference or perhaps with resignation to the colossal difficult of precise, pervasive, ponderous, and permanent record-keeping in the pertinent clinical environment.” Indeed, even though the government knew about the alleged violations, “evidence shows not a single threat of non-payment, not a single complaint or demand, and not a single resort to an administrative remedy or other sanction for the same practices that result in the enormous verdict at issue.” The court also held that, given the lack of evidence that the government viewed the disputed practices as material, “establishing the defendants’ knowledge of materiality seems at least impractical, if not impossible.” The court also held that the relator’s offered evidence of a “corporate scheme” was inadequate to support the jury’s verdict.

The ruling reduces the government’s $3.7 billion in FCA recoveries, which we reported on December 28, 2017, to about $3.4 billion.

The case is Ruckh v. CMC II LLC et al., No. 8:11-cv-01303, in the US District Court for the Middle District of Florida.

Eli Berman
M. Elias (Eli) Berman focuses his practice on complex civil and criminal litigation and government investigations. Read Eli Berman's full bio.