FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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Court Dismisses FCA Case against AseraCare, Holding that Difference of Medical Opinion Insufficient to Establish Falsity

By on Apr 4, 2016
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After granting a new trial based on error in a jury instruction and sua sponte re-opening summary judgment, on March 31, 2016, the U.S. District Court for the Northern District of Alabama granted summary judgment to AseraCare on all remaining counts in U.S. ex rel. Paradies v. AseraCare, Inc.  The outcome is significant because it confirms that mere difference of clinical judgment—here, regarding conditions for a medical certification of hospice eligibility—is not enough to show that the claims are objectively false under the False Claims Act (FCA).

The turn of events is a significant win for AseraCare, as a jury had determined last October that 104 of 123 hospice claims submitted by AseraCare for Medicare payment were false.  (The trial was bifurcated into falsity and scienter phases.) However, after that jury verdict, on October 29, 2015, the court granted AseraCare’s motion for a new trial on the issue of falsity after expressing concern that it had “committed major reversible error in the jury instructions.”

As the court explained in a subsequent order, the FCA case was based on a false certification theory: specifically, that the underlying medical records did not support the physicians’ certifications of hospice eligibility, rendering the associated claims false. In reviewing its jury instructions, the court held that it should have advised the jury that the FCA requires proof of an “objective” falsehood. It also added that a proper instruction should have stated that a difference of opinion between doctors, without more, is insufficient to show that a Medicare hospice claim is false. The court sua sponte re-opened summary judgment and invited the government to point to evidence, other than its expert’s clinical opinion, that the certifications for the claims in question were false.

In the March 31 summary judgment, the court made clear that it was not satisfied with the government’s proffer, observing that the government only pointed to its own conclusions about the underlying medical records and its expert’s disagreement with AseraCare’s certification. In granting summary judgment, the court again confirmed that mere differences in clinical judgment are not enough to establish FCA falsity: “If the court were to find that all the Government needed to prove falsity in a hospice provider case was one medical expert who reviewed the medical records and disagreed with the certifying physician, hospice providers would be subject to potential FCA liability any time the Government could find a medical expert who disagreed with the certifying physician’s clinical judgment.  The court refuses to go down that road.”



D.C. Circuit Finds for FCA Defendant Where Liability Premised on Interpretation of Undefined, Ambiguous Term

By on Dec 4, 2015
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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 [...]

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Eastern District of Texas Awards Relator $218 Million Despite Fifth Circuit Caution That Claims Not Likely Material or Based on False Certifications

By on Jun 19, 2015
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The Eastern District of Texas confirmed a jury verdict holding highway-guardrail manufacturer Trinity Industries liable for False Claims Act violations on June 9, 2015, resulting in a judgment of over $680 million against the company.  Out of the $663 million in damages and penalties, the court awarded the relator a 30 percent share of the recovery, citing the government’s decision not to intervene in the case, and awarded almost $19 million in attorneys’ fees and expenses.  All told, the relator was awarded over $218 million.  The case is likely to be appealed based on Trinity’s arguments that the claims were not legally false because of retroactive government approval of the guardrails in question.  The district court’s opinion is notable both due to the interesting appellate issues it presents, and the large recovery awarded to the relator.

The federal government, through the Federal Highway Administration (FHWA), reimburses state transportation departments for certain highway construction expenses.  In order to be eligible for reimbursement, guardrails must be crash-tested and accepted by the FHWA.  Defendant Trinity had obtained such acceptance for its ET-Plus units in 1999.  In 2005, Trinity then modified the design of the ET-Plus units.  The relator alleged, and the jury agreed, that Trinity did not disclose these modifications to the approved guardrails.  The relator, a small competitor of Trinity’s, alleged that the modifications made the guardrails unsafe.

Based on the failure to disclose the modifications, the jury found that Trinity falsely certified that the modified guardrails were FHWA crash-tested and approved.  In its post-trial motion for judgment as a matter of law, Trinity’s primary argument was that the reimbursement claims could not be false because the FHWA determined in 2014 that the modified guardrail was eligible for reimbursement. The FHWA’s June 2014 letter, issued shortly before trial, stated that the modified guardrail complied with safety standards and was therefore fully eligible in the past, present and future for federal reimbursement.  In other words, regardless of whether the changes to the units were disclosed in 2005 or thereafter, the FHWA determined retroactively that the modified guardrails met reimbursement standards.

The Eastern District of Texas, however, found that the FHWA’s June 2014 letter “merely recites Trinity’s representations” that the modified guardrail was crash-tested in 2005, and stated that “Plaintiff introduced substantial and often uncontroverted evidence that … Trinity failed to disclose any of those modifications to the FHWA at any time prior to 2012.”  The court discounted the FHWA letter because “the FHWA did not participate into any investigation into the modification of the ET-Plus or the veracity of Trinity’s claims that the ET-Plus was eligible for federal reimbursement until after the jury rendered its verdict.”  Thus, the court found that the FHWA letter was insufficient to contradict the evidence at trial that “Trinity withheld material information regarding the ET-Plus units, concealed substantial modifications to the standard ET-Plus unit that was tested and originally approved by the FHWA, and falsely certified that the ET-Plus units were compliant.”

In a press release, Trinity announced [...]

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