Photo of Emre N. Ilter

Emre N. Ilter focuses his practice on complex commercial and antitrust litigation. Emre frequently represents clients involved in antitrust price fixing and conspiracy class action litigation. He also has experience representing clients in domestic and international arbitration disputes, qui tam actions, congressional and grand jury inquiries, and mass tort litigation. In addition, Emre regularly represents clients in responding to investigative and third-party subpoenas. Read Emre N. Ilter's full bio.

On November 8, 2017, the US District Court for the Middle District of Florida dismissed a relator’s non-intervened claims in United States ex rel. Stepe v. RS Compounding LLC for failure to satisfy the particularity requirement of Federal Rule of Civil Procedure 9(b). Relator originally filed her complaint under seal on December 16, 2013, under the federal False Claims Act (FCA) and Florida’s analogous statute. Over three years after the complaint was filed, the government elected to partially intervene as to fraudulent pricing allegations relating to TRICARE. Relator amended her complaint in July 2017 and added state false claims counts under the laws of 16 additional states. All 17 states declined to intervene in the case in September 2017.

The complaint alleges that Relator, through her work as a sales representative for defendant RS Compounding, became aware of Defendants’ purported schemes to defraud the government on prescription compound and gel products. The relator alleged that prescription pads were prepopulated for physicians, with RS Compounding’s most expensive compounds pre-checked on the pads and six refills listed by default. Relator further alleged that this scheme involved sales representatives “coaching” physicians to number three different products on the pads, with priority given to products containing ketamine because those products had a higher reimbursement rate from the government. Continue Reading Dismissed in Florida: Former Compounding Pharmacy Sales Representative’s FCA Whistleblower Suit

In an unusual ruling on August 18, 2017, the US Court of Appeals for the Sixth Circuit reversed the Middle District of Tennessee’s denial of the defendant’s motion for attorneys’ fees, and remanded the case for an award of legal fees and expenses related to defending against the government’s “excessive” damages demand, as well as fees incurred during the appeal and remand process.  The case is United States ex rel. Wall v. Circle C Construction, LLC, and as we have previously reported, last year the government suffered a major loss when the Sixth Circuit dramatically reduced the damage award in this False Claims Act (FCA) litigation by over 95 percent (from $762,894.54 to $14,748), which resulted in damages of less than 1 percent of the $1.66 million originally claimed by the government.  At the time, the Sixth Circuit called the government’s so-called “tainted goods” damage calculation “fairyland rather than actual.” Continue Reading Sixth Circuit Hits Federal Government with $450,000+ in Legal Fees to be Paid to FCA Defendant Under the Equal Access to Justice Act

On February 27, 2017, the US District Court for the Southern District of Mississippi granted a defense motion to dismiss False Claims Act (FCA) claims in United States ex rel. Dale v. Lincare Holdings, Inc., on the grounds that the claims were precluded by the FCA’s first-to-file bar.

The defendant, Lincare Holdings, Inc., is a national respiratory care provider that serves Medicare Part B patients via the sale and rental of medical oxygen supplies. The relator, a former salesperson for a Lincare subsidiary, filed his complaint on February 23, 2015, under seal, alleging that Lincare implemented a scheme to falsify and manipulate medical necessity testing in order to generate false reports that would allow it to sell oxygen and other Medicare-covered services to patients who were not medically qualified for coverage. The relator alleged that an office manager and nurse instructed employees to direct patients to take a variety of steps, such as raising their arms while attached to an oxygen sensor, in order to generate falsely low arterial oxygen saturation levels. The relator further claimed retaliatory discharge under the FCA. The United States declined to intervene on August 17, 2015, and the complaint was unsealed on August 24, 2015.

Granting a nearly year-old motion to dismiss, the court held that the relator’s FCA claims were precluded by the FCA’s first-to-file bar, finding that the “fraudulent scheme depicted in Relator’s complaint is largely based on the same underlying facts as the [United States ex rel. Robins v. Lincare, Inc.] scheme.”  The first-to-file bar prohibits plaintiffs from being a “related action based on the facts underlying [a] pending action.” 31 U.S.C. § 3730(b)(5).  The Robins suit was filed first in the US District Court for the District of Massachusetts and the court found that there was a “substantial overlap in material facts” underlying the schemes alleged in each case such that the complaints are sufficiently related for purposes of the first-to-file bar. Continue Reading Medicare Part B Provider Secures Dismissal of FCA Claims Under First-to-File Bar

On September 30, 2016, the US District Court for the Southern District of Indiana issued an opinion in United States ex rel. Conroy v. Select Medical Corp., et al. (Case No. 12-cv-000051) regarding the 2010 False Claims Act (FCA) Amendments to the public disclosure bar (31 U.S.C. § 3730(e)(4)(A)) and the government’s associated right to veto  a public disclosure-based dismissal.

The opinion addresses a motion to dismiss a non-intervened FCA suit based on several grounds, including the public disclosure bar.  Complicating matters was that the allegations involved claims that arose both prior to and after March 23, 2010 – the effective date of the amendments to the public disclosure bar.  In addition, the government, despite not intervening with respect to the FCA claims, filed its own brief opposing a public disclosure bar-based dismissal.  Continue Reading District Court Opinion Analyzes the Impact of the 2010 FCA Amendments on the Public Disclosure Bar

On July 7, 2016, the US Court of Appeals for the Seventh Circuit affirmed the US District Court for the Southern District of Indiana’s grant of summary judgment in favor of a federal subcontractor defendant facing False Claims Act (FCA) allegations. Notably, the Seventh Circuit rejected the district court’s original grounds for summary judgment, an “advice-of-accountant” defense, instead finding that applicable regulations and the trial record created ambiguity making it impossible to demonstrate the defendant’s knowing submission of false claims.

The relator’s FCA claims were premised on alleged violations of the Davis-Bacon Act, which requires that federal construction contractors pay their workers the “prevailing wage.” 40 U.S.C. § 3142(a). US Department of Labor regulations provide further specifics on base wage rates and fringe benefits (i.e., life, dental, vision and health insurance) for varied types of workers. The relator, a union comprised of workers who performed work for the defendant, alleged that its workers had not been paid the prevailing wage under Davis-Bacon due to the defendant’s deduction of $5.00 per hour from each employee to cover fringe benefits. These withholdings were deposited into a trust created by the defendant for its employee insurance benefits, and were withheld from employees whether or not they were eligible for fringe benefits. In the lawsuit, the defendant subcontractor was alleged to have submitted false Certified Payroll Reports to the government including statements attesting compliance with the Davis-Bacon Act, despite the $5.00/per hour withholding which allegedly resulted in payments to workers below the “prevailing wage.”

While upholding the grant of summary judgment for the defendant, the Seventh Circuit based its ruling on different grounds than the district court. The district court had ruled that the defendant’s reliance on the advice of its accountants with respect to withholdings negated any potential showing of knowing submission of false statements. The Seventh Circuit rejected this conclusion, finding that the defendant had failed to demonstrate the facts necessary to provide a basis for an “advice-of-accountant” defense, noting “[w]e do not know precisely what it told its accountants, whether they provided all necessary details, or what exactly the accountants recommended.”

Rather, the Seventh Circuit affirmed the grant of summary judgment for defendant subcontractor on the basis of the “ambiguity” surrounding regulations regarding employer accounting of fringe benefit contributions and absence of evidence as to any withholding requirements contained in the contract. Walking through applicable DoL regulations, the Seventh Circuit found that it was unclear whether the withholdings made by the defendant necessarily violated the Davis-Bacon Act and, further, that the record was unclear as to whether the defendant was contractually obligated to make contributions to the fringe benefit trust for ineligible employees. The Court held, therefore, that it could not be inferred that the defendant “either knew or must have known that it was violating the Davis-Bacon Act.”

In short, the Seventh Circuit embraced the logical premise that contractors cannot reasonably be subjected to multiple damages and penalties under the FCA – which the Supreme Court has characterized as an essentially punitive statute – where the claim is based on alleged violation of an ambiguous statute or regulation.

Yet another federal court has rejected a False Claims Act (FCA) lawsuit brought under an implied certification theory, finding that non-compliance with federal laws and regulations that are not express conditions of payment cannot form the grounds for a FCA suit. On March 31, 2016, the suit brought by two former employees of MD Helicopters, Inc. against their former employer, a retired Army Colonel was dismissed by the U.S. District Court for the Northern District of Alabama. In reaching this ruling, the court found that an implied certification FCA claim could not be premised on the violation of either a provision of the Federal Acquisition Regulation (FAR) titled ‘Contractor Code of Business Ethics and Conduct’ (48 C.F.R. § 52.203-13) or the Truth in Negotiations Act (10 U.S.C. § 2306(a)).

Continue Reading Implied Certification FCA Suit Against Defense Contractors and Retired Army Colonel Dismissed

The United States Court of Appeals for the Sixth Circuit issued a dramatic reduction to an False Claims Act (FCA) damages award on February 4, 2016, reducing the award from  $762,894.54 to a mere $14,748, and labeling the government’s “tainted goods” damage calculation as “fairyland rather than actual.” The Sixth Circuit’s ruling in United States ex rel. Wall v. Circle C Construction, LLC highlights the importance of evaluating the actual value of goods received by the government in calculating FCA damages, and presents a forceful rejection of “tainted goods” damage theories in cases where the value of the injury to the public interest is precisely ascertainable.

The suit alleged that government contractor Circle C Construction, LLC had violated the FCA by knowingly submitting payroll certifications to the United States Army, falsely stating that the company had met the minimum wage requirements of the Davis-Bacon Act while building military warehouses.  Specifically, it was alleged that Circle C’s subcontractor, Phase Tech, paid its electricians a total of $9,916 less than required by the Davis-Bacon wages specified in the government contract. The district court litigation resulted in a bench trial and a ruling that the government was entitled to treble damages on the full amount paid by the government for the electrical work performed on the warehouses: $259,298.18, trebled to $777,894.54. (This award was reduced by $15,000 to $762,894.54 as a result of a settlement payment made to the government by Phase Tech.) The district court held that Circle C’s fraud tainted all electrical work performed under the contract, and that therefore the $9,916 underpayment rendered all electrical work valueless as the government “would not have paid for that work had it known the truth.”

The Sixth Circuit wholly rejected this ruling on appeal, reiterating that the FCA provides for trebling of “actual damages”—namely the difference in value between what the government bargained for and what it received. The circuit court found that the actual damages were $9,916, the underpayment amount, and differentiated this case from ones where a contractor delivers defective goods or goods imbued with “some unalterable moral taint” such as products manufactured by child labor or purchased from a country the United States has embargoed.  Here, the court noted that there was no evidence that there were any defects with the electrical work performed, noting that the government uses the warehouses Circle C built and turns on the lights.

The Court of Appeals further pilloried the government’s argument that it would have withheld all payments to Circle C had it known about the underpayments, finding that applicable regulations require the government to withhold “an amount equal to the estimated wage underpayment and estimated liquidated damages”—nothing more. Underscoring this point, the court wrote:  “Actual damages by definition are damages grounded in reality. And in the real world the government could not forever withhold all payments to a contractor for work on several dozen warehouses, and yet have the work continue to completion and the government continue to use the warehouses to this day. The damages the government seeks to recover here are fairyland rather than actual.” With that, the court held that the district court’s award of damages was an abuse of discretion and directed that damages be entered in the amount of $14,748 ($9,916 trebled, minus Phase Tech’s $15,000 settlement payment).

This ruling provides an important guidepost for future FCA cases involving “tainted goods” theories, and establishes a strong precedent for rejection of overreaching damage calculations, particularly where actual damages can be determined with a precise dollar value.

 

 

 

In what is sure to be a frequently cited ruling, the D.C. Circuit has reversed a jury’s verdict against a False Claims Act (FCA) defendant, finding that there was insufficient evidence for the jury to find that the defendant “knowingly” made a false claim where the defendant relied upon a facially reasonable interpretation of an undefined and ambiguous term upon which the government had offered no pre-litigation guidance.

In the early 1990s, in connection with a financed foreign purchase of irrigation pumps and equipment by Nigeria, appellant-defendant MWI Corporation certified to a U.S. government agency, the Export-Import Bank, that in accord with regulatory requirements it had not paid “any discount, allowance, rebate, commission, fee or other payment in connection with the sale” except for “[r]egular commissions or fees paid or to be paid in the ordinary course of business to [its] regular sales agents.”  In 1998, a relator filed suit alleging that these express certifications were false as MWI had paid a sales agent large commissions that allegedly were payments other than “regular commissions”.  The government subsequently intervened in 2002.  During the litigation, the government asserted that “regular commissions” were those consistent with industry-wide benchmarks, but prior to the litigation, the government had issued no written guidance on the meaning of the term “regular commissions.”  Indeed, during trial Bank officials acknowledged that the Bank preferred to keep this standard flexible in order to improve efficiency in the loan approval process.  MWI argued that the unsettled meaning of the ambiguous term “regular commissions” precluded the government, as a matter of law, from establishing the FCA elements of falsity and knowledge.

A jury found that MWI had violated the FCA 58 times.  In reversing the jury’s verdict, the court focused in on the ambiguity of the undefined term “regular commissions,” finding that “[a]bsent evidence that the Bank, or other government entity, had officially warned MWI away from its otherwise facially reasonable interpretation of that undefined and ambiguous term, the FCA’s objective knowledge standard . . . did not permit a jury to find that MWI ‘knowingly’ made a false claim.”  The court further noted the “potential due process problems posed by ‘penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule,’” due to the fact that the first actual notice of the meaning of “regular commissions” was not provided by the government until “long after the conduct giving rise to this litigation took place.”  Additionally, the court noted that the government had not pointed to any guidance from the courts of appeals or the relevant agency that might have contradicted MWI’s interpretation of the ambiguous term.

In sum, the court held that MWI could not have knowingly submitted false claims because it relied on a reasonable interpretation of an ambiguous term that the government left undefined.  Of particular note for future and current FCA defendants facing false certification charges on the basis of ambiguous, undefined regulatory terminology is the following admonition from the court to the government:

That MWI’s interpretation may not be the best interpretation does not demonstrate that MWI’s interpretation was necessarily unreasonable. Absent evidence that the negative consequences of an interpretation render it unreasonable, such consequences can play no role in evaluating whether an FCA defendant acted knowingly. . . . Had the government wanted to avoid such consequences, it could have defined its regulatory term to preclude them. Of course, the government may instead determine that its goals are better served by not doing so, much as the Bank officials’ testimony implied. This may be the government’s choice, but then the FCA may cease to be an available remedy if the government concludes after the fact that a particular commission is not “regular” because it is too high.

Other courts have expressed similar sentiments, holding that ambiguous terms cannot form the basis for an FCA claim if the defendant’s interpretation of the regulation was reasonable (see here). The D.C. Circuit’s decision strongly reinforces this point, and is important authority for any defendant facing FCA claims premised on previously undefined regulatory, statutory or contractual language that is subject to more than one interpretation.

On the heels of the recent Omnicare summary judgment ruling (covered in this blog) comes another scienter-based summary judgment victory for a False Claims Act (FCA) defendant in United States ex rel. Kirk v. Schindler Elevator Corp. On September 10, 2015, the U.S. District Court for the Southern District of New York granted summary judgment in favor of Schindler Elevator following over a decade of litigation, including a 2011 Supreme Court ruling regarding the FCA’s public disclosure bar (http://www.supremecourt.gov/opinions/10pdf/10-188.pdf).

The relator’s FCA case was based on the alleged failure of Schindler, his former employer, to comply with the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA), 38 U.S.C. § 4212, and associated regulations. VEVRAA requires certain government contractors to submit annual reports, called “VETS-100” reports, providing information about the number of veterans employed by the contractor, based on data known to the contractor. The relator alleged that Schindler’s VETS-100 reports were false and that the company was reckless because it had no mechanism for counting veterans. While much of the court’s opinion discusses issues that are specific to contractors subject to VEVRAA, in rejecting the relator’s attempt to raise a genuine issue of material fact on scienter, the court made a number of determinations that are important for any FCA defendant:

First, the court rejected the relator’s argument that the alleged lack of a written procedure for tracking veteran status raised an issue of fact on recklessness. The court observed that the lack of a written process, particularly where none was required by the statute, was not proof of recklessness where the evidence demonstrated Schindler’s attempts to comply with VEVRAA in numerous ways. Thus, the lack of a written procedure for statutory or regulatory compliance cannot, on its own, establish scienter.

Second, in response to an expert opinion proffered by the relator concerning the inaccuracy of Schindler’s VETS-100 reports due to alleged underreporting of veterans, Schindler argued that certain veterans did not need to be included on the reports, relying upon a regulation providing guidance on which types of employees’ veteran status needed to be reported. While the relator disagreed with Schindler’s interpretation of the regulation, the court held that where there is legitimate disagreement over a regulation and the contractor acts in good faith, the contractor does not knowingly present a false claim. The court noted that the relator offered “not a single piece of evidence that Schindler knew its interpretation of the regulation was wrong and then knowingly submitted false VETS-100 reports.”

Third, the court held that e-mails in which employees remarked about inaccuracies in data and the need to correct it did not establish scienter. “[I]dentifying errors in data collection or recognizing the need for better quality control does not constitute ‘reckless disregard’ within the meaning of the FCA.”

Fourth, the relator’s use of two Schindler employees’ declarations (one of which was relator’s own declaration) testifying that they had never been asked by Schindler to identify their veteran status was insufficient to survive summary judgment, given the countervailing evidence and Schindler’s thousands of employees. “[T]estimony from two of Schindler’s thousands of employees is ultimately immaterial and cannot support a finding by a rational factfinder that Schindler knowingly or recklessly submitted false VETS-100 reports.”

The court concluded by noting that there was no evidence that Schindler was out to “cheat the federal government out of its money,” and it further observed:

At bottom, [relator] fundamentally misapprehends the very purpose of the FCA—the FCA is not a mechanism to police regulatory compliance with VEVRAA; it is a mechanism to hold liable contractors who defraud the federal government.

Of the important lessons of this case, the most fundamental is that flimsy evidence of scienter will increasingly be scrutinized by the courts at summary judgment. Relators who fall short on evidence backing their claims of knowledge and recklessness will pay the ultimate price of dismissal.

Companies internally investigating potential false claims issues recently received another reminder of the care that must be taken to maintain attorney-client privilege over internal investigation files and reports. In particular, companies must be very cautious with internal dissemination of any internal investigation files and reports. On June 25, in the midst of trial, a federal judge in the Eastern District of Texas ordered the production of a report from Kellogg Brown & Root, Inc.’s (KBR) internal investigation regarding alleged kickbacks, finding that attorney-client privilege had been waived. While the precise grounds for waiver have not been spelled out in an order as of the publication of this post, one notable waiver argument raised in the parties’ briefing was that the report was transmitted internally from a KBR supervisor to a KBR employee.

The court’s order highlights the treacherous terrain companies must navigate from the get-go when faced with the possibility of internally investigating potential False Claims Act (FCA) violations. As recently discussed by MWE in this Health Care Compliance and Defense Resource Center Newsletter, KBR continues to be embroiled in separate but related ongoing litigation in D.C. federal court — and in that case, too, KBR was ordered to turn over internal investigation files. The primary basis for waiver of privilege over the files at issue in the D.C. case was that KBR affirmatively placed the investigation at issue in the litigation. This basis for waiver was also asserted by the government in the Texas case as well, with the government arguing that KBR elicited testimony from an employee, who then testified as to the existence of the investigation and the subsequent resignation of the investigated employee.

Though the ultimate impact of the Texas court’s recent ruling remains to be seen, the grounds for waiver recognized by the court should give pause to companies conducting internal investigations. Company personnel involved in an investigation must take care to ensure investigation materials are not transmitted internally outside of the circle of those “who have a need to know in the scope of their corporate responsibilities,” as the Eastern District of Louisiana held in In re Vioxx Products Liab. Litig., 501 F. Supp. 2d 789, 796 (E.D. La. 2007).

A best practice for in-house counsel and management is to maintain control over materials generated over the course of an internal investigation. Dissemination of investigation materials internally can jeopardize a company’s control over deciding down the line whether to affirmatively rely on the investigation, or rather to fight to preserve privilege. While there can never be any guarantees that a privilege claim will be upheld as to investigation files, keeping those materials in as few ‘need to know’ hands as possible is an important early step towards a robust privilege defense.

Case: United States of America v. Kellogg Brown & Root, Inc., Civ. Action No. 1:04-CV-00042 (E.D. Tex.).