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
implied certification theory
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Latest District Court Decision Confirms Escobar Two-Part Implied Certification Test

By on Aug 24, 2017
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One of the most litigated issues following the Supreme Court’s Escobar decision is whether the Court created a limited, two-part test to define the implied certification theory under the False Claims Act. In the US Court of Appeals for the Second Circuit, the prevailing view confirms that the proper interpretation of Escobar is that the implied certification theory can only proceed when the defendant made specific representations about the goods or services provided and that those representations were rendered misleading due to its failure to disclose noncompliance with material statutory, regulatory or contractual requirements. On August 10, 2017, federal district judge Deborah Batts in the Southern District of New York joined the majority view of her colleagues in U.S. ex. rel. Forcier v. Computer Sciences Corporation and the City of New York in dismissing part of the government’s complaint.

In this case, the US Department of Justice (DOJ) filed a complaint in intervention alleging the City of New York (City) and its billing contractor, Computer Sciences Corporation (CSC), submitted false claims to the Medicaid program in two ways.

First, DOJ argued that the defendants failed to adhere to Medicaid secondary payor requirements concerning the state’s Early Intervention Program (EIP), which pays for services to children with developmental delays. These requirements obligate municipalities to take “reasonable measures” to determine whether third party insurance coverage was available for the EIP services and seek reimbursement from such available payors. DOJ alleged that CSC and the City did not comply with these requirements by submitting incorrect policy numbers to third party insurers knowing that such claims would be denied and by incorrectly informing Medicaid that no third party coverage existed or such coverage had been rejected. (more…)



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

By on Oct 25, 2016
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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.



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

By on Apr 19, 2016
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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)).

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Recent Appellate Developments in “Implied Certification”

By on Jul 27, 2015
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We have previously written several articles regarding the circuit courts’ application of the so-called “implied certification” theory of liability under the False Claims Act (FCA). That theory is the subject of a petition for certiorari in the case of United States v. Triple Canopy, on which we have previously reported.

Under the implied certification theory, a government contractor submits a false claim to the government by impliedly misrepresenting compliance with a legal obligation, upon which the government conditions payment.  Contractors do not affirmatively represent compliance with said legal obligation, but they are deemed to be aware of all legal obligations that condition payment upon their compliance. In February, the Fourth Circuit formally adopted the implied certification theory for the first time in United States v. Triple Canopy, Inc. It also joined the First and D.C. Circuits in rejecting defendants’ arguments that conditions of payment be “expressly stated.” The Fourth Circuit’s holding has demonstrated the difficulty in evaluating the existence of “implied” conditions of payment through at least one district court decision.

By contrast, in June, the Seventh Circuit decided United States v. Sanford-Brown, Ltd., becoming the first court of appeals to reject implied certification as a viable theory of falsity altogether, concluding that implied certification was inconsistent with the primary purpose of the FCA: curbing fraud against the government.

In the face of these inconsistencies, the losing parties in both Triple Canopy and Sanford-Brown have now sought further appellate review. Triple Canopy petitioned for certiorari on June 8, 2015.  The relator in Sanford-Brown, meanwhile, has petitioned for rehearing en banc, arguing that the panel’s decision should be reversed because no other court has rejected implied certification. The United States has signed onto the relator’s petition, filing an amicus brief in support of rehearing on July 9, 2015. A decision on both petitions is pending.

If the Supreme Court does take up Triple Canopy’s certiorari petition, we could see the Supreme Court speak to the viability and scope of implied certification for the first time. The significance of any Supreme Court pronouncement on this issue is massive. For example, FCA cases are often based upon allegations that health care providers have provided medically unnecessary care to Medicare and Medicaid beneficiaries (a theory of relief rooted in implied certification). Whether an FCA plaintiff can succeed in such a case is dependent on the validity of the implied certification theory – and whether and how courts conclude that a legal obligation is a condition of payment.

A Supreme Court ruling on implied certification could also impact FCA claims arising out of alleged Stark Law and alleged Anti-Kickback Statute (AKS) violations. As we noted last week in our discussion of the Tuomey case, implied certification cases relying on the Stark Law can result in astronomical damages calculations. And as we noted last month in our discussion of the government’s settlement with Hebrew Homes Health Network, Inc., the same is true for cases based upon AKS violations.

We will continue [...]

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The Fourth Circuit Denies Triple Canopy’s Petition for Rehearing En Banc

By on Mar 12, 2015
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We have previously posted about the United States Court of Appeals for the Fourth Circuit’s January 8 panel decision in U.S. ex rel. Badr v. Triple Canopy and its implications for “implied certification” False Claims Act (FCA) claims based on breaches of contract in the Fourth Circuit.  On Monday, March 9, the Fourth  Circuit denied Triple Canopy’s petition for rehearing en banc.  In seeking rehearing, Triple Canopy argued that, among other things, the Fourth Circuit’s decision expands the implied certification theory of FCA liability beyond the bounds recognized in other jurisdictions, rendering the Fourth Circuit an outlier:

Despite this clear and restrained jurisprudence, the panel decision embraced the theory of implied certification and expanded it beyond the bounds ever considered by this Court or applied by those circuits which recognize the theory. Under the panel’s theory, any knowing breach of contract is a violation of the FCA.

Further:

And by not even restricting viable implied certification claims to circumstances where compliance with a statute or contractual provision was an express condition of payment, the panel’s opinion abandoned that safeguard in favor of making every contract breach an FCA violation. This is a striking expansion of FCA liability, especially where this Court has repeatedly rejected such an outcome.

Triple Canopy cited the Western District of Virginia’s decision in Skinner v. Armet Armored Vehicles, Inc., on which we also recently posted, as an example of the potentially overly broad reach of the FCA in the Fourth Circuit after Triple Canopy.  While the arguments advanced in favor of rehearing were consistent with many of the criticisms the Triple Canopy opinion has drawn, the Fourth Circuit was not convinced, declining to revisit its decision.



Skinner v. Armet Armored Vehicles, Inc.: One District Court’s Attempt to Apply Triple Canopy

By and on Feb 19, 2015
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We recently posted about the Fourth Circuit’s decision in United States ex rel. Badr v. Triple Canopy, — F.3d —-, 2015 WL 105374 (4th Cir. Jan. 8, 2015).  In that case, the court explicitly recognized the implied certification theory of liability under the False Claims Act (FCA) and held that some contractual violations can give rise to implied certification claims.  We also noted that the decision failed to provide meaningful guidance for lower courts to determine which types of contractual violations can give rise to such claims.  On February 10, 2015, the U.S. District Court for the Western District of Virginia issued a decision that demonstrates the uncertainty following Triple Canopy.

The district court in Skinner v. Armet Armored Vehicles, Inc., No. 4:12-cv-00045, 2015 WL 540156 (W.D. Va. Feb 10, 2015), granted a motion for reconsideration of its prior dismissal of a relator’s implied certification claims under the FCA, ostensibly as a result of Triple Canopy.  While the district court acknowledged that Triple Canopy was not “a reversal of standing precedent” (in that previously, the viability of implied certification claims had simply been questioned in the Fourth Circuit), the district court determined that Triple Canopy provided sufficient cause to reconsider.  The Skinner court then held:

Following the language in Triple Canopy, Plaintiff alleged that [Defendants] made a request for payment and knowingly “withheld information about its noncompliance with material contractual provisions.”  Plaintiff alleged that [Defendants] knew that the vehicles for which it was billing the government did not meet the ballistic protection requirements of its contracts with the government.  Nevertheless, Defendants billed and collected for vehicles it knew did not meet the contract specifications.  Under the guidance of Triple Canopy, the allegations make out a claim for “implied certification” claims[sic] under the FCA.

The district court also rejected the defendants’ argument that Triple Canopy should be cabined to its facts, instead finding that “the language employed by the Court was inclusive; they set forth the elements of an implied certification claim generally.”

What the Skinner opinion does not do is something the Triple Canopy court did: analyze whether the contractual provisions allegedly breached were sufficient to state a claim under the FCA.  While the “common sense” materiality analysis the Triple Canopy court employed to answer this question imparted little guidance for future courts dealing with other facts, the district court in Skinner did not undertake a similar analysis.  Nor did the Skinner court evaluate whether the alleged contractual breaches were conditions of payment, the essential cornerstone of the falsity analysis in an implied certification case.

Instead, the Skinner court appears to construe Triple Canopy to mean that any knowing contractual violation is sufficient to plead a false claim.  Assuming a complaint makes a conclusory assertion that a contractual term is or was material, evaluating that assertion seems, in the Skinner court’s view, to be a question for another day: “Defendants are free to argue that those specifications were immaterial.  This does not change, for pleading [...]

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The Fourth Circuit’s Triple Canopy Decision: Implied Certification Versus “Garden-Variety” Breaches of Contract (and does the Government’s intervention decision matter to the analysis?)

By on Feb 10, 2015
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The Fourth Circuit’s January 8, 2015 decision in United States ex rel. Badr v. Triple Canopy, Inc. is notable in several respects.  The decision announces the court’s explicit endorsement of the “implied certification” theory of False Claims Act (FCA) liability.  However, it leaves some uncertainty regarding how that theory is to be applied in courts within the Fourth Circuit.  The decision also contains language arguably suggesting that in such cases, Government-intervened FCA claims may have a higher likelihood of survival than FCA claims pursued exclusively by relators.

Triple Canopy contracted to provide security services at a military base in Iraq.  The Government’s complaint in intervention alleged that Triple Canopy’s employees did not possess the weapons qualifications they were required to have under the contract, that supervisors knew they were not qualified, and that they created false documents to hide the deficiencies.  The contract itself did not condition payment on compliance with the weapons qualification requirements.

The Fourth Circuit reversed the district court’s dismissal of the FCA claims.  While the Fourth Circuit acknowledged that the FCA cannot be used to “shoehorn” a breach of contract claim into a claim under the FCA, it held that noncompliance with a contractual term can give rise to an implied false certification claim under the FCA in some instances.  This holding in itself is not remarkable except inasmuch as the Fourth Circuit explicitly endorsed the implied certification theory of FCA liability for the first time.  What is notable, however, is the minimal guidance provided by the court regarding which types of contractual violations can support FCA claims.

Essentially sidestepping the FCA’s element of falsity, the court held that the elements of materiality and scienter are the best gatekeepers with respect to whether a contractual violation can give rise to a cognizable claim.  After finding the Government had easily pled scienter, the court then addressed materiality.  The court held that “common sense strongly suggests that the Government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight.  In addition, Triple Canopy’s actions covering up the guards’ failure to satisfy the marksmanship requirement suggest its materiality.  If Triple Canopy believed that the marksmanship requirement was immaterial to the Government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.”

While the court’s decision may have “common sense” appeal, it falls short of providing a clear standard for determining when a contractual violation can give rise to an FCA claim and when a violation is sufficiently benign that it cannot.  The Triple Canopy court was undoubtedly bothered by the idea of security forces lacking the requisite weapons training (as well as by the associated cover-up), but this begs the question of how the materiality determination should be made in other cases, when and by whom.

Triple Canopy stands in stark contrast to the clarity imparted by the Fourth Circuit’s own decision [...]

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