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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First Circuit Rejects FCA Suit On Public Disclosure Grounds

By on Jul 8, 2016
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On June 30, 2016, a three-judge panel of the First Circuit Court of Appeals in Boston issued a ruling in United States ex rel. Winkelman and Martinsen v. CVS Caremark Corp., affirming the district court dismissal of a qui tam suit (in which the United States had declined to intervene) on public disclosure grounds.

The relators had sued CVS in August 2011 under the FCA and several analogous state statutes, claiming CVS’ “Health Savings Pass” program was designed to defraud Medicare and Medicaid by failing to pass along discounts offered to certain customers.  CVS moved to dismiss, arguing that significant publicity in 2010 (during which labor unions and state officials alleged the Health Savings Pass program overcharged the government) was sufficient to bar the suit.

The FCA states, in relevant part, that qui tam actions cannot stand “if substantially the same allegations or transactions as alleged in the action . . . were publicly disclosed.”  31 U.S.C. § 3730(e)(4)(A).  The relators argued that their allegations were not substantially the same as the 2010 allegations because the latter described a “price gouging scheme,” as opposed to fraud.  Characterizing this as “quibbling” and an elevation of “form over substance,” the First Circuit noted that the FCA does not require public disclosures to “specifically label disclosed conduct as fraudulent,” adding that a subsequent qui tam complaint is barred “even if it offers greater detail about the underlying conduct.”  Responding to the relators’ argument that the public disclosure addressed a different state than the ones addressed in their complaint, the court held:

When it is already clear from the public disclosures that a given requirement common to multiple programs is being violated and that the same potentially fraudulent arrangement operates in other states where the defendant does business, memorializing those easily inferable deductions in a complaint does not suffice to distinguish the relators’ action from the public disclosures.

Similarly, in the context of rejecting the relators’ argument that they were original sources, the court held that “asserting a longer duration for the same allegedly fraudulent practice,” “[o]ffering specific examples of that conduct,” or “add[ing] detail about the precise manner” in which a scheme operated were all insufficient to overcome the public disclosure bar.

The takeaway for practitioners attempting to defeat relators’ complaints on the pleadings is that the FCA’s public disclosure bar does not require allegations to be even close to identical.  Because the “ultimate inquiry,” according to the First Circuit, is “whether the government has received fair notice . . . about the potential existence of the fraud,” so long as there has been public disclosure of the general allegation, qui tam FCA suits should fail.



When an FCA Case Just Won’t Go Away: Attorneys’ Fees Remain Contested Even After Settlement

By on Aug 10, 2015
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When settling a False Claims Act (FCA) case, the issue of a relator’s attorneys’ fees seems small compared to the monetary settlement and the breadth of the release. Two recent cases, however, demonstrate that fees can prove a sticking point in wrapping up an FCA case even after settlement. In U.S. ex. rel. Simring v. Rutgers, the U.S. Court of Appeals for the Third Circuit remanded a fee award entered after a settlement, finding that the lower court provided insufficient detail to review the reasonableness of deductions to a fee application. In U.S. ex. rel. Doghramji v. Community Health Systems Inc., the U.S. District Court for the Middle District of Tennessee evaluated whether a settlement agreement carve-out permitting objections to the relators’ attorneys’ fees permitted defendants to argue that the fees were barred by either the FCA’s “first to file” or “public disclosure” bar. The court decided that the carve-out did not protect such objections. The takeaway from these cases is that, in settling an FCA case, the parties should be prepared for the potentially lingering specter of attorneys’ fee issues.

In Simring, the Third Circuit issued a non-precedential opinion that nevertheless offered useful guidance on evaluating reasonableness of attorneys’ fees under the lodestar method. In 2009, one year after the government intervened, and five years after the relator brought the case, the parties settled the FCA claims for $4.45 million. The relator then petitioned the district court for $1.08 million in fees in December 2010. The district court reduced the fee award to around $750,000 based on reductions to the hourly rates and to certain categories of requested time.

The Third Circuit affirmed in part on August 4, 2015, finding that the reduction in one lawyer’s hourly rate from $850 to $625 was reasonable, but vacated and remanded on other issues. First, the Third Circuit found that the lower court had reduced the application for “administrative” tasks performed by lawyers, but failed to specify which entries were subject to the reduced administrative rate.

Second, the Third Circuit faulted the lower court for reducing the relator’s fee application for  communicating with the state Attorney General’s Office, preparing for possible expert testimony, and preparation of a second amended complaint, as the lower court found that these strategies did not ultimately yield success (i.e., the state attorney general did not intervene, the expert did not testify because there was no discovery in the case, and the second amended complaint was ultimately not filed in the case). The Third Circuit stated that such background work could not be categorically rejected simply because the strategy did not yield a recognizable result in the record; the inquiry instead should focus on whether the work is “useful” and “of a type ordinarily necessary” to the litigation.

Finally, the Third Circuit found that the lower court’s 39 percent reduction to one partner’s hourly rate for all days he conducted legal research was arbitrary. The lower court had suggested that legal research is associate-level work and thus reduced [...]

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Recent District of Massachusetts Opinion Explores Post-PPACA Public Disclosure Bar (and Reminds Relators that Pleading a “Scheme” is Not Enough Under Rule 9(b))

By on Apr 7, 2015
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In an opinion last week in U.S. ex rel. Hagerty v. Cybertronics, Inc., No. 13–10214–FDS, 2015 WL 1442497 (D. Mass. Mar. 31, 2015), the U.S. District Court for the District of Massachusetts addressed the status of the False Claims Act’s public disclosure bar after the Patient Protection and Affordable Care Act (PPACA).  Specifically, the district court examined whether the bar continues to be jurisdictional, holding that while the prior version of the bar clearly presented a question of subject matter jurisdiction (“[n]o court shall have jurisdiction over an action” based on publicly disclosed allegations), the post-PPACA version “appears to be non-jurisdictional.”

The district court first determined that the First Circuit Court of Appeals has not directly addressed the issue, notwithstanding the First Circuit’s explicit reference to the post-PPACA public disclosure provision as a “jurisdictional bar.”  See U.S. ex rel. Estate of Cunningham v. Millenium Labs. of Cal., Inc., 713 F.3d 662, 669, n.5 (1st Cir. 2013).  The district court was dismissive of the First Circuit’s statement in Cunningham, finding that it was made in a footnote and was “not part of the holding of that case.”

The district court then concluded that the bar is no longer jurisdictional, citing decisions in the Fourth and Eleventh Circuits.  The district court reasoned that the reference to “jurisdiction” has been removed from the statute, which now states that a court “shall dismiss” an action based on publicly-disclosed allegations.  The district court also pointed out that the government can now elect to allow an action to proceed even if it would otherwise be barred.

For FCA defendants, whether or not the current version of the public disclosure bar is jurisdictional shapes the framework for seeking dismissal.  The Hagerty court held that dismissal on public disclosure grounds in the post-PPACA world should be sought based on failure to state a claim under Fed. R. Civ. P. 12(b)(6), which, among other things, generally precludes reliance on matters outside the complaint in a motion to dismiss.  Historically, public disclosure-based dismissals have been sought pursuant to Fed. R. Civ. P. 12(b)(1) (lack of subject matter jurisdiction), which is not similarly limited.

However, even the Hagerty court recognized that items such as news articles that are susceptible to judicial notice can properly be considered in the context of a Rule 12(b)(6) motion to dismiss.  Given that courts are often willing to take judicial notice of matters that are public in nature, the procedural vehicle for seeking dismissal ultimately may not matter all that much.  Indeed, while the Hagerty court concluded that the public disclosure bar did not bar the relator’s FCA claims, the jurisdictional issue had no real bearing on that outcome, which was driven by the court’s comparison of the substantive content of the prior disclosure to the allegations in the complaint before the court.

Despite holding that the relator’s claims were not precluded by the public disclosure bar, the district court nonetheless dismissed the relator’s FCA claims for failure to plead fraud with particularity in a discussion [...]

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