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Fourth Circuit Decision in Triple Canopy Sets up Another Implied Certification Circuit Split

On May 16, 2017, the US Court of Appeals for the Fourth Circuit issued a decision in US ex rel. Badr v. Triple Canopy, Inc. In this case, the government had contracted with a private security company to provide guards at a military airbase in Iraq. Although the applicable contract required the guards to have certain marksmanship scores, the defendant (as alleged by the relator and the government) failed to employ guards with the requisite qualifications.

The Fourth Circuit’s recent decision is the continuation of a years-long battle between the plaintiffs and Triple Canopy over whether the operative complaint adequately pleads violations of the False Claims Act. The Fourth Circuit previously held that the complaint had done so, but after Triple Canopy petitioned the Supreme Court for certiorari, the Supreme Court remanded the case back to Fourth Circuit for reconsideration in light of the high court’s recent Escobar decision.

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SDNY Dismisses Sub-Prime Mortgage Crisis Complaint on Materiality Grounds Because Government Paid Claims Despite Notice of Alleged Fraud

On March 2, 2017, the US District Court for the Southern District of New York applied the materiality standard announced by the Supreme Court of the United States in Universal Health Services, Inc. v. United States ex rel. Escobar to dismiss a relator’s complaint because the relator, a former managing director of Moody’s, failed to plead materiality as a matter of law.

In United States ex rel. Kolchinsky v. Moody’s Corp., the district court had previously dismissed with prejudice four of five categories of claims, and dismissed without prejudice the relator’s “Ratings Delivery Service” claim, i.e., that Moody’s provided inaccurate ratings directly to subscribers, including government agencies.  In his Second Amended Complaint, the relator attempted to cure the pleading defects of Ratings Delivery Service claim in a “124-page tome,” but to no avail. (more…)




Sanford-Brown on Remand: Seventh Circuit Jettisons Relator’s Case Under Escobar Standard

We previously reported on the Seventh Circuit’s decision in United States ex rel. Nelson v. Sanford-Brown Ltd.,

in which the court rejected the implied certification theory of FCA liability and granted summary judgment for the defendant.  Following the Supreme Court’s decision in the Escobar case, the Seventh Circuit revisited its decision on October 24, 2016.  Once again, the Seventh Circuit affirmed the district court’s entry of summary judgment in the defendant’s favor, this time pursuant to the standards for implied certification claims announced in Escobar.

In Escobar, the Supreme Court held that implied certification can be a basis for liability when the claim for payment makes specific representations about the goods or services provided and the defendant’s failure to disclose noncompliance with material legal obligations makes those representations “misleading half-truths.”  In Sanford-Brown, the Seventh Circuit concluded that the relator failed to demonstrate any specific representations, never mind those that were misleading.

In addition, the court applied the Escobar court’s holding that FCA plaintiffs must demonstrate materiality, holding that the relator’s claims could not survive on that additional basis.  The Seventh Circuit quoted the Supreme Court’s characterization of the materiality standard as “demanding” and “rigorous.”  The Seventh Circuit observed that, under Escobar, courts must look to the “likely or actual” payment behavior of the government payor.  The Seventh Circuit held:

Here, Nelson has offered no evidence that the government’s decision to pay SBC would likely or actually have been different had it known of SBC’s alleged noncompliance with Title IV regulations.

In fact, the court observed that the government had examined the defendant multiple times.  The court concluded:

At bottom, even assuming Nelson’s allegations are true, the most he has shown is that SBC’s supposed noncompliance and misrepresentations would have entitled the government to decline payment.  Under [Escobar], that is not enough.

This decision is consistent with what the Supreme Court held in Escobar: the government’s mere option to decline to pay claims is insufficient to establish materiality and, thus, insufficient to establish FCA liability.




Sixth Circuit Revives Home Health Qui Tam Based on Pre-Escobar Standards; Dissent Criticizes Majority for Engaging in Rulemaking

On September 30, the US Court of Appeals for the Sixth Circuit reversed dismissal of a relator’s False Claims Act (FCA) claims against providers of home health services in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc. et al. The relator was a utilization review nurse who alleged that physician certifications of patient need for home health care were not signed until well after the care had been provided, in violation of 42 C.F.R. § 424.22(a)(2), which requires that such certifications be completed at the time a plan of care is established or “as soon thereafter as possible.” While the regulation does not define “as soon thereafter as possible,” the Sixth Circuit held that the relator’s allegations that the requisite certifications were not completed for several months were sufficient to allege violations of both the regulation and the FCA.

The Sixth Circuit reasoned that the phrase “as soon thereafter as possible” “suggests plainly that the analysis of whether a certification complies requires that the reason for any delay be examined.” The court went on to announce the following rule: “Certification of need may be completed after the plan of care is established, but only if an analysis of the length of delay, the reasons for it, and the home health agency’s efforts to overcome whatever obstacles arose suggests that the home health agency obtained the certification ‘as soon thereafter as possible.’” The Sixth Circuit held that the relator’s complaint satisfied this standard, because she alleged that the certifications were not completed for months due solely to a backlog of Medicare claims that arose because of the defendants’ allegedly aggressive solicitation of residents for treatment. (more…)




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