On October 11, 2016, a three-judge panel of the Seventh Circuit Court of Appeals issued a ruling in United States ex rel. Uhlig v. Fluor Corp., affirming summary judgment against the relator in an FCA action where the government had declined to intervene. See generally 2016 WL 5905714, No. 14-2815 (7th Cir. Oct. 11, 2016).

The defendant had contracted with the US Army to perform electrical work at bases in Northern Afghanistan. It hired the relator, an electrician, as a foreperson for this work, but subsequently declined to renew his contract because he did not hold an electrician’s license. The relator then emailed the Defense Contract Management Agency, complaining that he was losing his job while other unlicensed electricians, who were Afghan nationals, were not. In a follow-up email, the relator alleged that the defendant company was committing fraud, and copied a website dedicated to “exposing . . . corporate greed among [defense] contractors.” The company then fired him on the grounds that sending his supervisor’s name and contact information violated its computer-use policy.

The relator filed FCA and retaliatory discharge claims, and the company successfully moved for summary judgment. The district court held that because the relator had no objective basis for asserting that the company had committed fraud, his emails did not constitute protected activity under the FCA.

On appeal, the relator argued that the company violated the FCA by “knowingly employing unlicensed electricians in breach of its contract and submitting invoices for the unlicensed services to the government for payment.” The Seventh Circuit disagreed, noting that the contract in question made electrician licenses optional, and the company had “independently decided to phase in a self-imposed requirement” that electricians such as the relator had to hold licenses. Because the company was accordingly in compliance with the contract, the Court reasoned, there was no false certification.

The Court then turned to the relator’s retaliation claim, noting that the determination of whether an employee’s conduct was protected turned in part on whether “a reasonable employee in the same or similar circumstances might believe that the employer is committing fraud against the government.” Citing the fact that he did not have “any firsthand knowledge of Fluor’s contract obligations to the Army,” the Court held that Uhlig had no reasonable basis for such a belief.

The primary lesson for FCA practitioners regarding retaliation claims is that even if a plaintiff subjectively believes a defendant is committing fraud, courts will not recognize protected activity if there is no reasonable basis for such a belief.

The Fifth Circuit Court of Appeals recently affirmed a district court’s dismissal of a retaliation claim under the False Claims Act (FCA) as to several individual defendants.

In Howell v. Town of Ball, a Ball, Louisiana police officer, Howell, sued the town and several town officials for employment retaliation in violation of the FCA (among other claims).  The officials moved to dismiss, arguing that the FCA creates a cause of action only against a plaintiff’s employer.  The district court agreed, citing the subsection of the FCA that creates a cause of action for those “discriminated against in the terms and conditions of employment . . .”  31 U.S.C. § 3730(h) (emphasis added).

On appeal, Howell argued that a 2009 amendment to the FCA (which removed the reference to “employer” in § 3730(h)) “indicate[d] a legislative intent to broaden the class of viable defendants.” In a July 1 decision, a three-judge panel of the Fifth Circuit disagreed with Howell, holding that “the reference to an ‘employer’ was deleted to account for the broadening of the class of FCA plaintiffs to include ‘contractors’ and ‘agents,’ not to provide liability for individual, non-employer defendants.”

In sum, FCA plaintiffs can only bring retaliation actions against their actual employers, notwithstanding the role that other non-employer individuals may have had in allegedly retaliatory activity.

On July 27, 2016, a three-judge panel of the Ninth Circuit Court of Appeals in California issued a ruling in United States ex rel. Hastings v. Wells Fargo Bank, NA, Inc., affirming the district court dismissal of a qui tam suit on the grounds that the relator was not an original source.

The relator had sued Wells Fargo and a number of other lending institutions under the Federal Claims Act (FCA), claiming they had falsely certified to the federal Department of Housing and Urban Development (HUD) that they were in compliance with a regulation requiring borrowers to make a down payment of at least 3%. Federal regulations allow this down payment to be paid via gift, so long as repayment for the gift is not “expected or implied.” See U.S. ex rel. Hastings v. Wells Fargo Bank, Nat. Ass’n (Inc.), 2014 WL 3519129, at *1 (C.D. Cal. July 15, 2014) (summarizing HUD regulations).

The defendants moved to dismiss, arguing that the gravamen of the allegations (that certain charities were, with the tacit approval the defendants, making “gifts” to borrowers that were ultimately repaid) had already been disclosed in various public documents that predated the qui tam suit. Because of these public disclosures, the suit could only proceed if the relator was an “original source” of the information, per 31 U.S.C. § 3730(e)(4)(A). The district court held that the relator, a real estate agent, was not an original source because his knowledge of the charities and their gift programs was secondhand. The court also held the fact that relator had “offered his view to HUD that [the gift programs] violated HUD standards” to be of no moment, because “[i]dentifying the legal consequences of information already in the public domain does not constitute discovery of fraud.” 2014 WL 3519129, at *11.

On appeal, the relator argued that the district court incorrectly applied the 1986 FCA definition of “original source” (someone who has “direct and independent knowledge of the information on which the allegations are based”) instead of the 2010 definition (someone who “(1) prior to a public disclosure … has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions”). Compare 31 U.S.C. § 3730(e)(4)(B) (1986) with 31 USC. § 3730(e)(4)(B) (2010). The Ninth Circuit panel unanimously held that the relator was not an original source under either definition. Regarding the former, it held that his knowledge was not “direct and independent” where it was “assembled from information available to all members of the Multiple State Listing Service.” 2016 WL 4011199, at *1. Regarding the latter, it held that the relator had merely provided the government with information that did not “materially add to [the] public disclosures,” citing the fact that the gift programs in question “were extensively examined in proposed rules, internal audits, a GAO report, and congressional hearings.”  Id. at *2.

In sum, the FCA’s original source requirement represents a high bar for qui tam plaintiffs. Suits brought by relators who are not true insider “whistleblowers” with first-hand knowledge of the alleged fraud are remain highly vulnerable to dismissal on the pleadings.

On June 30, 2016, a three-judge panel of the First Circuit Court of Appeals in Boston issued a ruling in United States ex rel. Winkelman and Martinsen v. CVS Caremark Corp., affirming the district court dismissal of a qui tam suit (in which the United States had declined to intervene) on public disclosure grounds.

The relators had sued CVS in August 2011 under the FCA and several analogous state statutes, claiming CVS’ “Health Savings Pass” program was designed to defraud Medicare and Medicaid by failing to pass along discounts offered to certain customers.  CVS moved to dismiss, arguing that significant publicity in 2010 (during which labor unions and state officials alleged the Health Savings Pass program overcharged the government) was sufficient to bar the suit.

The FCA states, in relevant part, that qui tam actions cannot stand “if substantially the same allegations or transactions as alleged in the action . . . were publicly disclosed.”  31 U.S.C. § 3730(e)(4)(A).  The relators argued that their allegations were not substantially the same as the 2010 allegations because the latter described a “price gouging scheme,” as opposed to fraud.  Characterizing this as “quibbling” and an elevation of “form over substance,” the First Circuit noted that the FCA does not require public disclosures to “specifically label disclosed conduct as fraudulent,” adding that a subsequent qui tam complaint is barred “even if it offers greater detail about the underlying conduct.”  Responding to the relators’ argument that the public disclosure addressed a different state than the ones addressed in their complaint, the court held:

When it is already clear from the public disclosures that a given requirement common to multiple programs is being violated and that the same potentially fraudulent arrangement operates in other states where the defendant does business, memorializing those easily inferable deductions in a complaint does not suffice to distinguish the relators’ action from the public disclosures.

Similarly, in the context of rejecting the relators’ argument that they were original sources, the court held that “asserting a longer duration for the same allegedly fraudulent practice,” “[o]ffering specific examples of that conduct,” or “add[ing] detail about the precise manner” in which a scheme operated were all insufficient to overcome the public disclosure bar.

The takeaway for practitioners attempting to defeat relators’ complaints on the pleadings is that the FCA’s public disclosure bar does not require allegations to be even close to identical.  Because the “ultimate inquiry,” according to the First Circuit, is “whether the government has received fair notice . . . about the potential existence of the fraud,” so long as there has been public disclosure of the general allegation, qui tam FCA suits should fail.

On July 12, 2015, Wisconsin governor Scott Walker signed into law the budget passed by the state legislature the previous week. The budget included a short rider that repeals Wisconsin’s 2007 False Claims for Medical Assistance Act, Wis. Stat. s. 20.931—the state’s version of the federal False Claims Act (FCA). Prior to its repeal, the law allowed relators to claim up to 30 percent of awards, and provided whistleblower protections and triple damages similar to the FCA.

No hearings or public discussions regarding the repeal took place, and the lawmakers who introduced the bill gave no explanation. The Wisconsin attorney general did not take a position on the law’s repeal, but a spokeswoman from his office stated that repeal of the law “will not have much impact—if any—given that there are numerous laws that allow the state to prosecute Medicaid fraud.” However, according to the U.S. Chamber of Commerce, the repeal will save Wisconsin the cost of investigating between 60 and 70 qui tam actions a year, of which it only intervened in a “small minority.”

Wisconsin’s repeal is interesting in that it bucks the trend of states passing their own versions of the federal FCA. We will continue to watch developments, if any, relating to this repeal.

On March 21, 2015, the Maryland state senate passed a revised version of Bill No. 374, which, as previously noted, would create a state version of the federal False Claims Act (FCA) if signed into law.  As amended, however, the proposed statute is somewhat less plaintiff-friendly than before.  For example, it:

  • imposes an absolute 10-year statute of limitations, whereas the original bill allowed actions to be filed up to three years “after the date when facts material to the right of action . . . reasonably should have been known,” regardless of how long after the actual violation this was;
  • limits whistleblower protection, by narrowing the scope of actionable retaliatory conduct to omit the phrase “any other adverse action taken against an employee, contractor, or agent . . . .”; and
  • removes the possibility of the government obtaining attorney’s fees for successful actions.

See generally 2015 Md. Senate Bill No. 374.  The other house of the Maryland state legislature made similar amendments to its version of the bill on April 2, 2015.  See generally 2015 Md. House Bill No. 405.  The combined bills were sent to Governor Larry Hogan—who is expected to sign them into law—on April 8, 2015.  Until the law’s October 1, 2015 effective date, however, Maryland remains one of nine states with false claim laws that are only applicable in the health care context, along with Colorado, Connecticut, Louisiana, Michigan, New Hampshire, Texas, Wisconsin and Washington.

With respect to Washington, it is worth noting that the state’s Medicaid Fraud False Claims Act is set to expire on June 30, 2017.  See Wash. Rev. Code § 43.131.420 (2012).  As of now, the Act imposes civil penalties of $5,500–11,000, plus triple damages, for, inter alia, “[k]nowingly present[ing] . . . a false or fraudulent [Medicaid] claim for payment or approval,” and includes a qui tam provision and whistleblower protections.  See generally Wash. Rev. Code § 74.66 (2012).  Both of the state’s legislative houses have introduced bills to reauthorize and extend the law.  See Jan. 19, 2015 Washington Senate Bill No. 5287; Jan. 22, 2015 Washington House Bill No. 1067.  Legal practitioners, health care providers and other government contractors should keep a close eye on these developments and other legislation designed to add to or modify FCA analogs at the state level.

On February 6, 2015, both houses of the Maryland legislature introduced bills that would add Maryland to the growing list of states with their own version of the False Claims Act (FCA).  If signed into law, Maryland will, effective October 1, 2015, impose a $10,000 civil penalty and triple damages for, inter alia, “knowingly present[ing] or caus[ing] to be presented a false or fraudulent claim for payment or approval.”  Act of Feb. 6, 2015, § 8-102, 2015 Md. Senate Bill No. 374 (establishing Maryland False Claims Act); Act of Feb. 6, 2015, § 8-102, 2015 Md. House Bill No. 405 (same).  Maryland already has a False Health Claims Act, which imposes similar liability only for false claims submitted to Maryland state health plans or programs (including Medicaid).  See Md. Code, Health–Gen. § 2-602 (2010).

At present, 20 states (plus the District of Columbia) have their own versions of the federal FCA: California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee and Virginia.  Note that several of these (e.g., New Mexico and Virginia) style their versions as Fraud Against Taxpayer Acts.  Eight additional states have narrower versions that, like Maryland (for the time being), address only fraud in the health care context: Colorado, Connecticut, Louisiana, Michigan, New Hampshire, Texas, Washington and Wisconsin.

Because of the obvious financial incentives represented by civil penalties and multiple damages, the number of states with their own FCAs is likely to continue growing.  Furthermore, federal law provides other financial incentives for states to establish FCAs.  See 42 U.S.C. § 1396h (2007) (states with FCA-like statutes meeting certain requirements entitled to 10 percent increase with respect to amounts recovered under state action brought pursuant to such a law).  Indeed, state lawmakers have pitched FCAs as effective means for narrowing budget deficits.

State law FCA claims are routinely brought alongside federal FCA claims.  Given that state law claims typically mirror claims under the federal statute, all such claims will usually be subject to dismissal on the same or similar grounds.  However, defense practitioners should familiarize themselves with any differences or nuances that may exist between the federal FCA and the state law analog at issue in a given case, particularly if such differences give rise to additional grounds to dispose of a complaint.  For example, Florida bars actions under its version of the FCA by relators who are former state employees if the action is based in part on information obtained in the course of state employment.  Compare Fla. Stat. 68.087(4)(b) (2013) with 31 U.S.C. § 3730(e) (2010).  Potential, additional grounds such as this for dismissal of state law FCA claims should not be overlooked.