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Paul M. Thompson focuses his practice on white-collar criminal defense, congressional investigations and appellate matters. He is a current member of the Firm-wide Management Committee and a former member of the Firm’s Executive Committee. From 2011 to 2015, Paul served as partner-in-charge of the Washington, DC office. Read Paul M. Thompson's full bio.

Earlier this week, the US Department of Justice (DOJ) launched a new front in its effort to combat the opioid crisis and explicitly stated that it will deploy the False Claims Act (FCA) as part of its offensive. In a press release and parallel speech delivered by Attorney General Jeff Sessions on February 28, 2018, DOJ announced the creation of the Prescription Interdiction & Litigation (PIL) Task Force.

According to DOJ, the PIL Task Force will combat the opioid crisis at every level of the distribution system, from manufacturers to distributors (including pharmacies, pain management clinics, drug testing facilities and individual physicians). DOJ will use all available civil and criminal remedies to hold manufacturers accountable, building on its existing coordination with the US Food and Drug Administration (FDA) to ensure proper labeling and marketing.  Likewise, DOJ will use civil and criminal actions to ensure that distributors and pharmacies are following US Drug Enforcement Administration (DEA) rules implemented to prevent diversion and improper prescribing. Finally, DOJ will use the FCA and other enforcement tools to pursue pain-management clinics, drug testing facilities and physicians that make opioid prescriptions. Continue Reading New DOJ Task Force to Take on Opioid Crisis Using the FCA and Other Enforcement Tools

The issue is one that various courts have addressed over the years: what recourse does a corporation have when a relator steals confidential information and discloses it to his or her attorney and to the government?  The answer is . . . it depends.  It depends on the scope of the materials taken, their relationship to the relator’s claim, and the breadth of the disclosure. Continue Reading When Relators Steal Corporate Documents: Northern District of Illinois Dismisses Counterclaim for Breach of Contract

On February 25, 2016, the United States District Court for the Eastern District of Virginia dismissed a False Claims Act (FCA) case alleging that PAE Government Services (PAE) intentionally overcharged the Department of State (DOS) for bottled water supplied to various facilities in Iraq.  United States of America ex rel. Anthony Garzione, 2016 WL 775780 (E.D. Va. 2/25/2016).  Even though PAE allegedly chose the highest bidder when it awarded a subcontract for the water and terminated the relator, Anthony Garzione, when Garzione complained, the court dismissed claims that PAE violated the FCA and retaliated against Garzione.  According to the court, the Federal Acquisition Regulations (FAR) required only that PAE award the subcontract at a “reasonable price.”  Id. at *5-6.  Garzione came forward with nothing in his complaint to show that the highest bid was objectively “unreasonable.”  Id.  For the same reason, Garzione did not engage in protected activity when he raised complaints.  Id. *8.

In 2013, DOS awarded PAE a contract to supply “life support and logistical function” at embassies and consulates throughout Iraq.  The contract included “food and supplies,” among other things.  Id. *1.  For the first year of the contract, PAE supplied very small quantities of bottled water to DOS facilities through a subcontract with Taylors International Services, Inc. (Taylors).  In 2014, however, DOS modified the contract to require PAE to supply much greater quantities of bottled water.  PAE immediately issued a request for bid proposals, which ultimately included the following:  a bid from Taylors for $3.65 per case for Pearl brand water; a bid from Pearl itself for $3.50 per case; and a bid from AWI for $1.18 per case.  Id.

PAE chose Taylors.  Garzione complained and sought to solicit other companies to fill the subcontract. Eventually, the complaint alleges, PAE supervisors began to treat Garzione with hostility, excluded him from meetings and communications, and eventually fired him in February 2015.  Id. *2.  Throughout it all, the subcontract for bottled water remained with Taylors.

Garzione sued, raising three claims. Counts I and II alleged that PAE “falsely certified” that it had complied with the requirements of the FAR to seek the payment of only “reasonable” prices.  As the district court explained, “[t]his claim is based on the legal theory that PAE’s costs for bottled water were necessarily not ‘reasonable’ because it selected Taylors[.]”  Id. *3. Under Count III, Garzione alleged that he engaged in “protected activity” when he questioned PAE’s selection of Taylors and was terminated in retaliation for doing so.  Id.

With little trouble, the district court dismissed all three counts.

First, the court dismissed Counts I and II.  To begin, the court rejected Garzione’s allegations that Taylors’ prices were unreasonable, observing that Garzione did not cite “any authority for the proposition that the highest bid constitutes an ‘unreasonable price’[.]”  Id. at *5.  In addition, the court rejected an argument that PAE had made false statements to the government by impliedly certifying, when it submitted invoices, that the price paid for bottled water was reasonable when, in fact, it was not. Id. at *6.  According to court, there was nothing in the contract requiring PAE to comply with the FAR regulations that the price was “reasonable.”  Id.

Second, the court held that the complaint failed to adequately allege that PAE either had the “specific intent to defraud” the government, or acted with recklessness when it submitted claims for bottled water.  Id. *7.  For these same reasons, the complaint failed to meet Federal Rule of Civil Procedure 9(b)’s heighten pleading standard.  Id.

Finally, the court turned to the retaliation claim and dismissed it. To bring a successful claim for retaliation under the FCA, a plaintiff must allege that he engaged in “protected activity” by acting to prevent a FCA violation at the time of the adverse employment action. Id. at *7.  But “protected activity” requires that the company conduct at issue involve “an objectively reasonable possibility of an FCA action[.]”  Id. *8.  “Here,” the court explained, “plaintiff failed to plead anything more than his subjective belief that PAE” violated the “reasonable” price regulations.  Id. At most, Garzione put PAE on notice that he disagreed with the selection of Taylors, and that he thought the company could get a better price. That was neither enough to state a FCA claim or to act as the foundation for a retaliation claim. Id.

 

In the wake of the U.S. Department of Justice’s (DOJ) recent memorandum regarding increased focus on individual culpability for corporate wrongdoing (on which we previously posted here) comes a district court decision with significant implications for individuals who attempt to assert an advice-of-counsel defense based on consultation with company counsel.

In a September 22, 2015 decision in U.S. v. Wells Fargo Bank, N.A, the U.S. District Court for the Southern District of New York ruled that an employee could not assert the advice-of-counsel defense because his employer, Wells Fargo, refused to waive the attorney-client privilege over the relevant communications between the employee and Wells Fargo counsel.

In Wells Fargo, the United States brought civil claims against Wells Fargo and individual defendant Kurt Lofrano for violation of the False Claims Act (FCA), along with other claims. Lofrano asserted that he had sought advice from Wells Fargo attorneys concerning the legal requirements he is now alleged to have violated, and acted in conformity with such advice. All parties agreed that the advice-of-counsel defense would provide a complete defense to the government’s claims against Lofrano.

But Wells Fargo objected to disclosure of the privileged communications at issue, and sought a protective order prohibiting disclosure. The Southern District engaged in a lengthy analysis of the competing principles that, on the one hand, a person accused of wrongdoing should be able to present “every available defense” and, on the other hand, the broader public interests underlying the sanctity of the attorney-client privilege.

Relying on the Supreme Court precedent (Swidler v. Berlin, 524 U.S. 399 (1998)) concerning the survival of the attorney-client privilege on death (a situation the Southern District conceded was not directly on point), the court rejected the argument that a balancing test should be used under which Lofrano’s need for the privileged evidence would be weighed against Wells Fargo’s need to keep it confidential: “That is, the use of a balancing test to determine whether a company, through no fault of its own, must forfeit its privilege based on an employee’s later assertion of an advice-of-counsel defense would render the privilege no less uncertain that the use of such a test to determine whether the privilege applies in the first instance.”  The court held that the attorney-client privilege is not a qualified privilege and that, because Wells Fargo would not waive its privilege, the advice-of-counsel defense was not “available” to Lofrano.

The court observed that this result “is arguably harsh in this particular case, as it may well deprive Lofrano of his best defense to liability for tens of millions of dollars. It is, however, the price that must be paid for society’s commitment to the values underlying the attorney-client privilege.” The court went on to chronicle the ways in which the result might not be as harsh as it seems including, for example, the “significant number of cases” where the employer will also seek to assert the advice-of-counsel defense alongside the employee, and thus agree to waive. But this was not the case before the court.

The issue in Wells Fargo is likely to surface more frequently in the future given DOJ’s increased focus on individuals. Notably, the court expressly did not decide the applicability of its holding to criminal defendants. Moreover, Wells Fargo does not preclude a defendant from relying on non-privileged evidence that he or she consulted with counsel to negate proof of the requisite state of mind—such as recklessness—regardless of whether a true advice-of counsel defense is available.

In U.S. ex rel Gage v. Davis S.R. Aviation, LLC, the U.S. Court of Appeals for the Fifth Circuit confirmed the high degree of specificity needed to successfully plead a claim under the False Claims Act (FCA). Affirming the lower court’s dismissal on Rule 9(b) grounds, the court held that a plaintiff who alleged that certain government contractors defrauded the government by improperly reselling salvaged aircraft parts failed to plead the “who, what, when, where and how” of the alleged scheme. Specifically, the court held that plaintiffs who assert a false claim based on a failure to meet a contractual provision must allege the exact contractual provision that was breached and set forth the exact nature of that breach.

The plaintiff claimed that the defendants had salvaged certain aircraft parts from a crashed civilian aircraft and resold the allegedly defective parts to the U.S. government for use in military aircraft. As the plaintiff had not alleged that the defendants had expressly certified that the parts sold to the government complied with any statute, regulation or contractual provision, the Fifth Circuit assumed, without deciding, that implied certification is a valid theory of FCA liability. Even under that relaxed standard, however, the court found the plaintiff’s allegations lacking.

The court held that the plaintiff had failed to allege that any implied false certification was material because the plaintiff had not identified any specific contractual provision that the parts sale had violated. The plaintiff alleged that the re-use of salvaged parts violated several provisions of the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). While some courts have held that a violation of federal regulations can form the basis of an FCA claim, here, the Fifth Circuit held that the plaintiff had not sufficiently alleged that these regulations were applicable or that they had been incorporated into the contract under which the government purchased the parts.

The plaintiff argued that, while he had not seen the contract because it was classified, the contract must contain the FAR and DFARS provisions, because such inclusion was mandatory in government contracts. But the court rejected that contention, noting regulatory provisions stating that the inclusion of FAR and DFARS provisions may be waived. Thus, because the plaintiff had no basis to allege with certainty that these provisions were included in the contract, he could not allege that the contract had been breached. Therefore, the court held, the plaintiff had no basis to claim that the alleged violation of the FAR and DFARS provisions were material to the government’s decision to pay. According to the court, the plaintiff’s claim was “necessarily speculative” without “particularized and plausible identification” of the contractual provision allegedly violated.

The court’s holding re-affirms the high level of pleading detail needed to pursue a claim under the implied certification theory of FCA liability.

On May 26, 2015, the Supreme Court issued a unanimous opinion in Kellogg Brown & Root v. United States ex rel. Carter (S. Ct. No. 12-1497), a case addressing several important issues under the False Claims Act (FCA).  In a previous post, we laid out the two issues in this case.  First, when the United States is at war, does the Wartime Suspension of Limitations Act (WSLA) toll the statute of limitations in civil FCA lawsuits?  Second, does the FCA’s so-called “first-to-file” bar prevent all future cases based on the same alleged fraud, or is it a one-case-at-a-time rule, allowing duplicative claims in the future as long as the first action is settled or dismissed?

The Court ruled in favor of Kellogg Brown & Root (KBR) on the first issue, holding that the WSLA only tolls the statute of limitations for criminal offenses, not in civil false claims like the relator filed against KBR.  The WSLA tolls the statute of limitations for “any offense” involving fraud against the government during war.  First, the Court reasoned that the term “offense” usually refers to a crime.  And, in Title 18, where Congress chose to place the WSLA, the term always refers to a crime.  Next, the Court looked to the history of the WLSA.  In doing so, it was most persuaded by Congress’ decision to remove the language “now indictable” from the statute.  According to the Court, this revealed Congress’ intent to apply the WSLA to future fraud as well as past fraud, not—as the government and relator argued—to expand it to civil lawsuits.  Finally, the Court reasoned that it has repeatedly called for a “narrow” construction of the WSLA.  Therefore, even in times of war, relators bringing civil actions against companies like KBR will have to follow the FCA’s statute of limitations provision.  See 31 U.S.C. § 3731(b).

On the second issue, the Court agreed with the government and relator, holding that a previously-filed qui tam lawsuit under the FCA is no longer “pending” under the statute’s first-to-file bar once it is dismissed.  When a relator brings an action under the FCA, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.”  See 31 U.S.C. § 3730(b)(5) (emphasis added).  In finding that a previously-filed lawsuit only qualifies as “pending”—thereby prohibiting subsequent qui tam suits—if the first action is still being litigated when the subsequent action is filed, the Court said it was construing the term “pending” per its usual meaning.  The Court further reasoned that any other interpretation would mean that Congress intended to abandon potentially successful false claims actions even in situations where the first-filed suit is dismissed for reasons that do not involve the merits.

In practice, the decision may permit second, and even third, lawsuits under the FCA on the same set of facts.  Indeed, rather than reduce litigation, it may have the opposite effect: encouraging more qui tam litigation.  The Court acknowledged that there is “some merit” to this point, and noted that claim preclusion “may protect defendants if the first-filed action is decided on the merits.”  Nonetheless, the Court concluded that this was not the issue before it in KBR.

While the KBR decision addresses two significant questions, it raises many more:  When does an earlier decision—dismissing a first-filed case—bar a later suit under the doctrine of claim preclusion?  When settling an FCA case, will the settlement agreement’s terms, including the government’s civil release, limit the possibility of a future FCA action based on the same conduct?  And, after KBR, will relators seek to refile or revive claims dismissed under the reading of the FCA rejected by the Court?  We will continue to monitor these issues.

In a previous post, we discussed the petition for certiorari in Gonzalez v. Planned Parenthood of Los Angeles (S. Ct. No. 14-4080), a False Claims Act (FCA) case in which the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low-income individuals in California.

In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices; thus, the relator could not demonstrate the requisite scienter under the FCA. The relator argued that the issue of government knowledge was worthy of Supreme Court consideration due to a split between the Ninth Circuit and other circuits on this issue.

We opined that Relator’s cert petition did not raise an issue worthy of consideration by the Supreme Court. Consistent with our expectation, the Supreme Court denied the cert petition on May 18, 2015.

The U.S. Supreme Court will decide within the next few weeks whether to hear a False Claims Act (FCA) case that has garnered media attention because it involves alleged wrongdoing by Planned Parenthood.  In Gonzalez v. Planned Parenthood of Los Angeles (No. CV 05-8818, C.D. Cal.), the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low income individuals in California.

The issue in the case turns on the role of government knowledge as a defense to scienter, i.e., the notion that when the government knows about or approves of the billing practices at issue, the defendant does not knowingly or recklessly submit a false claim.  In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices.  These documents included correspondence between Planned Parenthood and the California Department of Health Services, in which Planned Parenthood candidly disclosed its billing practices (to which it received no response or contradiction), as well as a letter from the Department to Planned Parenthood explaining that it would not seek a refund from Planned Parenthood because the key term at issue was not defined, and because the Department was concerned that “conflicting, unclear, or ambiguous representations have been made to providers” with regard to the billing practices at issue.  Accordingly, Planned Parenthood lacked the requisite scienter to establish a “knowing” submission of a false claim.

In seeking certiorari, the relator argued that there is a split between the Ninth Circuit and other circuits on the issue of government knowledge. While the relator did not dispute that a number of circuits held that government knowledge can refute allegations of knowledge or recklessness, the relator argued that the Ninth Circuit deviated from the approach taken by all other circuits by dismissing a case based on government knowledge at the pleadings stage, rather than at summary judgment.

On this issue, Planned Parenthood has the better argument.  As Planned Parenthood noted in its opposition, numerous cases in numerous circuits have found that government knowledge is relevant to scienter under the FCA.  The Ninth Circuit’s decision merely follows a long line of cases standing for this principle.  While it is true that the Ninth Circuit dismissed the case at the pleadings stage, it did so because the complaint (including evidence contained in documents the relator attached to the complaint) permitted such a dismissal.  The Court found that this evidence “fatally undercut” the relator’s allegation that Planned Parenthood “knowingly” submitted false claims.  Accordingly, the relator did not state a “plausible” claim under Federal Rule of Civil Procedure 8(a).

Such compelling evidence is not often available at the pleading stage, so it is unsurprising that in many cases the government knowledge issue is not in play until later stages of the litigation.  Yet the availability of such evidence here—provided by relator himself in connection with his complaint—was sufficient to warrant dismissal.

In sum, while the government knowledge issue arose at a procedurally early point in Gonzalez, it is not an issue worthy of the Supreme Court’s attention.  It is well-established that government knowledge can undermine an FCA claim.  Whether it does so, turns on the specific facts of each case.  In Gonzalez, those facts were set forth in documents that the relator himself attached to his complaint.

We will continue to monitor this case and will provide a further update if the Supreme Court grants cert.

Health care general counsel should review and brief their internal clients on the new Practical Guidance for Health Care Governing Boards on Compliance Oversight (Guidance), released on April 20, 2015.  A joint effort by the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS), the Association of Healthcare Internal Auditors, the American Health Lawyers Association (AHLA) and the Health Care Compliance Association, the Guidance is a useful and timely resource for both the general counsel and the board.

Continue reading.

With a motion to dismiss pending in the United States District Court for the Southern District of New York, United States of America ex rel. Kane v. Continuum Health Partners, Inc., Case No. 11-2325, is the False Claims Act (FCA) case to watch in 2015.  It is the first “reverse false claims” case where the United States intervened, and its only allegation involves a failure to timely report and refund overpayments to the government.

In 2010, the Affordable Care Act (ACA) modified the FCA’s reverse false claims provision (31 U.S.C. § 3729(a)(1)(G)), making a party liable for failing to report and return an overpayment within 60 days of the date it is “identified.”  See 42 U.S.C. § 1320a−7k(d).  Five years after the passage of the ACA, however, it remains unclear what it means for an overpayment to be “identified,” thereby triggering the 60-day clock.  The Centers for Medicare and Medicaid Services (CMS) has not issued any guidance concerning refunding overpayments to Medicaid.  In February 2012, CMS issued proposed regulations on this topic for Medicare Parts A and B, which it has yet to finalize.  In fact, CMS just announced, on February 13, 2015, that it will delay its final guidance until at least February 2016—likely well after the district court issues its decision in Continuum Health.

According to the government’s complaint, filed on June 27, 2014, three hospitals in New York City operated by Continuum Health (which is now part of Mount Sinai Health System) submitted improper claims to Medicaid in 2009 and 2010, as a result of a glitch with its billing software. The New York State Comptroller first notified Continuum Health in September 2010 that it had erroneously billed Medicaid for a small number of claims.  Continuum Health then conducted an internal investigation.  On February 4, 2011, the relator e-mailed a spreadsheet to his superiors at Continuum Health with what he believed to be about 900 improperly-submitted claims resulting from the same software issue.  Four days later, Continuum Health terminated the relator.

Over the next two years, Continuum Health refunded the overpayments associated with the initial list of 900 claims.  The government alleges that Continuum Health made these refunds largely in response to continued inquiries from the NYS Comptroller about additional claims. And, it claims that Continuum Health refunded 300 of the overpayments only after it received a Civil Investigative Demand from the U.S. Department of Justice.  Nonetheless, the government did not intervene in the case until a year after Continuum Health refunded all overpayments to Medicaid.

In its motion to dismiss, Continuum Health makes three arguments:

First, it contends that it had no “obligation” to report and refund the overpayments.  The relator’s February 4, 2011, e-mail did not “identify” any overpayments, thereby triggering the 60-day clock.  Rather, the e-mail was a preliminary list of potential overpayments that, by the relator’s own admission, required “further analysis to corroborate his findings.”  According to Continuum Health, the government’s position that “mere notice of a potential but unconfirmed overpayment” will “identify” that overpayment is untenable.  Indeed, 60 days is not enough time to complete the sort of complex factual investigation and legal analysis that is typically required to determine whether there is an actual overpayment.

Second, Continuum Health argues that, even if an “obligation” existed after the relator sent his e-mail, it did not knowingly “conceal[]” or “avoid[]” that obligation.  Continuum Health argues that concealing and avoiding require affirmative action, not the failure to act.

Finally, Continuum Health claims that it does not have an obligation to repay the federal government, because Medicaid is operated at the state level.  Consequently, any alleged failure to report and refund overpayments does not create liability under the FCA.

The government responds to Continuum Health’s arguments in turn.

First, it argues that when construing the term “identified,” the court should look to CMS guidance concerning refunding overpayments to Medicare Advantage and Part D.  Under that guidance, a healthcare provider “has identified an overpayment” when it “has determined, or should have determined through the exercise of reasonable diligence, that [it] has received an overpayment.”  According to the government, Continuum Health failed to act with reasonable diligence after it received the relator’s e-mail.  The government rejects Continuum Health’s interpretation of “identified”—claiming that it allows the provider to choose when, or even if, to start the 60-day clock, despite how much information it possesses concerning the overpayment.

Second, the government argues that Continuum Health “knowingly avoid[ed]” its repayment obligation because, after it learned that it received overpayments, it “failed to take remotely reasonable steps to return those funds to Medicaid.”

Finally, the government contends that the FCA has always reached Medicaid claims.  Indeed, according to the government, the ACA defines “overpayment” to specifically include overpayments to Medicaid.

Although briefing closed with Continuum Health’s reply on December 8, 2014, for healthcare providers throughout the United States, many issues remain open.  With further CMS guidance on the meaning of “identified” delayed for another year, the decision in Continuum Health will likely provide the first guidance about what the law requires.  We will continue to monitor this case and keep you updated.