On October 23, 2017, the US Court of Appeals for the Seventh Circuit reversed itself by determining that proximate cause—and not the “but-for” causation test that the court adopted 25 years ago—is the appropriate standard to determine causation in a claim under the False Claims Act (FCA). United States v. Luce, No. 16-4093 (7th Cir. Oct. 23, 2017).

The United States brought suit against defendant Robert S. Luce under the FCA and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 2011 based upon Fair Housing Act (FHA) certifications included in annual verification reports that Luce and his subordinates signed on behalf of the mortgage company he owned and operated. Although Luce had been indicted in 2005 for an unrelated matter, the mortgage company continued to submit certifications stating that no officers of the company were then subject to criminal proceedings. Only in February 2008, after almost three years had passed since the defendant’s indictment, did the company notify an inspector with the US Department of Housing and Urban Development (HUD) of the indictment. HUD issued a Referral for Suspension/Disbarment of the company shortly thereafter. Continue Reading Seventh Circuit Reevaluates and Adopts More Stringent FCA Causation Standard

We reported back in March on the US District Court for the District of Columbia’s summary judgment decision in the Lance Armstrong/Floyd Landis/US Postal Service (USPS) False Claims Act (FCA) litigation, centered on Lance Armstrong’s use of performance enhancing drugs (PEDs) while he was leading a professional cycling team sponsored by the USPS. A pack of motions in limine (MILs) filed by the parties over the past few weeks suggest that the case may well be headed to trial this fall, and raise some notable legal issues to watch as it continues to unfold, including: Continue Reading Motions in Limine Filed in Lance Armstrong/US Postal Service Litigation Raise FCA Damages, Government Knowledge and Relator Character Issues on Which Court’s Rulings May Have Widespread Impact

In a case of first impression, a federal court found that the federal physician self-referral law’s (Stark Law) requirement that financial arrangements with physicians be memorialized in a signed writing could be material to the government’s payment decision. This case raises troubling questions about applying the False Claims Act (FCA) to what many in the industry consider “technical” Stark issues, especially given the Supreme Court’s description of the materiality test as “demanding” and not satisfied by “minor or insubstantial” regulatory noncompliance.

United States ex rel. Tullio Emanuele v. Medicor Associates (Emanuele), in the US District Court for the Western District of Pennsylvania, involves Medicor Associates, Inc., a private medical group practice (Medicor), and Hamot Medical Center’s (Hamot) exclusive provider of cardiology coverage. Tullio Emanuele, a qui tam relator and former physician member of Medicor, alleged that Hamot, Medicor, and four of Medicor’s shareholder-employee cardiologists (the Physicians) violated the FCA and Stark Law because Hamot’s multiple medical director compensation arrangements with Medicor failed to satisfy the signed writing requirement in the Stark Law’s personal services or fair market value exceptions during various periods of time. The US Department of Justice declined to intervene in the case, but filed a statement of interest in the summary judgment stage supporting the relator’s position. Continue Reading Is the Stark Law’s “Signed Writing” Requirement Material to Payment: One Federal Court Says Yes

On July 7, 2016, the US Court of Appeals for the Seventh Circuit affirmed the US District Court for the Southern District of Indiana’s grant of summary judgment in favor of a federal subcontractor defendant facing False Claims Act (FCA) allegations. Notably, the Seventh Circuit rejected the district court’s original grounds for summary judgment, an “advice-of-accountant” defense, instead finding that applicable regulations and the trial record created ambiguity making it impossible to demonstrate the defendant’s knowing submission of false claims.

The relator’s FCA claims were premised on alleged violations of the Davis-Bacon Act, which requires that federal construction contractors pay their workers the “prevailing wage.” 40 U.S.C. § 3142(a). US Department of Labor regulations provide further specifics on base wage rates and fringe benefits (i.e., life, dental, vision and health insurance) for varied types of workers. The relator, a union comprised of workers who performed work for the defendant, alleged that its workers had not been paid the prevailing wage under Davis-Bacon due to the defendant’s deduction of $5.00 per hour from each employee to cover fringe benefits. These withholdings were deposited into a trust created by the defendant for its employee insurance benefits, and were withheld from employees whether or not they were eligible for fringe benefits. In the lawsuit, the defendant subcontractor was alleged to have submitted false Certified Payroll Reports to the government including statements attesting compliance with the Davis-Bacon Act, despite the $5.00/per hour withholding which allegedly resulted in payments to workers below the “prevailing wage.”

While upholding the grant of summary judgment for the defendant, the Seventh Circuit based its ruling on different grounds than the district court. The district court had ruled that the defendant’s reliance on the advice of its accountants with respect to withholdings negated any potential showing of knowing submission of false statements. The Seventh Circuit rejected this conclusion, finding that the defendant had failed to demonstrate the facts necessary to provide a basis for an “advice-of-accountant” defense, noting “[w]e do not know precisely what it told its accountants, whether they provided all necessary details, or what exactly the accountants recommended.”

Rather, the Seventh Circuit affirmed the grant of summary judgment for defendant subcontractor on the basis of the “ambiguity” surrounding regulations regarding employer accounting of fringe benefit contributions and absence of evidence as to any withholding requirements contained in the contract. Walking through applicable DoL regulations, the Seventh Circuit found that it was unclear whether the withholdings made by the defendant necessarily violated the Davis-Bacon Act and, further, that the record was unclear as to whether the defendant was contractually obligated to make contributions to the fringe benefit trust for ineligible employees. The Court held, therefore, that it could not be inferred that the defendant “either knew or must have known that it was violating the Davis-Bacon Act.”

In short, the Seventh Circuit embraced the logical premise that contractors cannot reasonably be subjected to multiple damages and penalties under the FCA – which the Supreme Court has characterized as an essentially punitive statute – where the claim is based on alleged violation of an ambiguous statute or regulation.

As we previously reported, in the FCA case against hospice-provider AseraCare, U.S. ex rel. Paradies v. AseraCare, Inc., the U.S. District Court for the Northern District of Alabama granted AseraCare’s motion for a new trial based on error in instructing the jury during the falsity phase of the trial (The trial was bifurcated into falsity and scienter phases.)  The court released its written order on the motion this week.

This order is an instructive read for any defense of a false certification case. As the court explains, a false certification case does not rest on allegations that, for example, a defendant forged doctor signatures, billed for unperformed services, or submitted claims for fictitious patients. Rather, such a claim, as in this case, rests on a theory that the underlying medical records do not support the physician’s certifications (here, of hospice eligibility), rendering those certifications false. But, as the court ultimately recognized in reviewing its jury instructions, a mere difference of clinical judgment is not enough to show falsity.  The court stated 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.

But that was not all, in a case that has proved itself a procedural primer. The court also reopened summary judgment.  The court noted at the outset of its order that the law on many key issues under the FCA is still developing, particularly in the hospice realm. Based on its findings regarding the correct legal standard of falsity and the government’s evidence on falsity, the court notified the parties that it will consider summary judgment under Federal Rule of Civil Procedure 56(f)(3), which provides that a court may “consider summary judgment on its own after identifying for the parties the material facts that may not be genuinely in dispute.”  Thus, before setting a new trial date, the court will reconsider summary judgment, giving the government an opportunity to point to objective evidence of falsity offered during the trial.

The government faces a challenging case on summary judgment under the clarified legal standard.  In replying to contention interrogatories, the government represented that it would use only its expert’s testimony and the underlying medical records to try to prove falsity. Because the government’s evidence showed a difference in only clinical judgment about patients’ terminal prognoses, “the court now questions whether the Government, under the correct legal standard, has sufficient admissible evidence of more than just a difference of opinion to show that the claims at issue are objectively false as a matter of law.”  Government witness testimony at trial further undermines the government’s case. As the court noted, the government expert acknowledged that he had changed his opinion regarding the eligibility of patients between his review in 2010 and 2013: “I was not the same physician in 2013 as I was in 2010.” Likewise, another government witness testified that “two doctors using their clinical judgment could come to different conclusions about a patient’s prognosis and neither be right or wrong.”

As a result of its decision to reconsider summary judgment, it may be that the re-trial of the falsity phase will not happen (and so too the scienter phase), or that the hospice claims for consideration are significantly winnowed. FCA practitioners and the federal jury pool in Birmingham alike eagerly await the court’s decision.