Wednesday, July 30, 2014

Worth the Read: "Meet the Serial Whistleblowers" by the WSJ

I recommend the Wall Street Journal's recent article, "Meet the Serial Whistleblowers," by Peter Loftus, WSJ, July 24, 2014. The article profiles a serial relator, Dr. William LaCorte, who brought 12 qui tam False Claims Act suits against health care companies. Dr. LaCorte's qui tam suits have obtained recoveries in 5 cases (2 are currently pending), including a $250 million payout from Merck. He has earned $38 million from his suits. Essentially, the article uses the example of Dr. LaCorte to illustrate the tension in False Claims Act cases: whistleblowing and protecting the government and taxpayer against fraud versus being motivated by large payouts to bring claims that may not have merit.

Though generally worth the read, I take issue with the article on two major points. First, the article claims that relators do not have a good track record when the government does not intervene. Citing figures from 1988 to 2010, it states that when the government failed to intervene, 94% of all claims brought by relators were dismissed. This high percentage of relator dismissals is not representative of False Claims Act practice today. Though I do not know the exact figures, based on what I have observed and read about the percentage of dismissed non-intervened cases is far less during the last 4 years. There are fewer dismissals in recent years because relator counsel today are generally engaging in better pre-suit investigations and bringing more well-founded qui tam claims. Moreover, whereas relators used to rarely go forward with suits if the government declined to intervene, this is no longer the general practice. Second, the article fails to appreciate just how draconian False Claims Act penalties can be, especially for health care companies, and the role such enormous penalties can have in inducing settlements in health care cases. With penalties ranging between $5,500 to $11,000 for each alleged false claim --each bill-- submitted for payment to Medicare, penalties in health care cases can easily reach into the millions, even billions, thus making heath care defendants far more likely to settle claims of dubious merit.

A. Brian Albritton
July 30, 2014

Tuesday, July 1, 2014

Worth the Read: The Third Circuit Adopts a Lenient Application of Rule 9(b)

I commend to you the recent blog post, "Third Circuit Adopts More Lenient Application of Rule 9(b) in FCA" by Robert Conlan, Jr. of Sidley Austin's Original Source False Claims Act blog. Rule 9(b) of the Federal Rules of Civil Procedure is crucial for defendants in staving off the numerous False Claims Act suits which lack merit by requiring the relator to plead a defendant's alleged fraud "with particularity." The blog post highlights the Third Circuit's recent case, U.S. ex rel. Foglia v. Renal Ventures Mgmt., LLC, 2014 U.S. App. LEXIS 10549 (3d Cir. June 6, 2014), which addressed the application of Rule 9(b) to False Claims Act cases. Mr. Conlan explains how the Court rejected the more restrictive Rule 9(b) pleading standard of the Fourth, Sixth, Eighth, and Eleventh Circuits and instead sided with the "less restrictive approach" found in the First, Fifth and Ninth Circuits. (I think, however, Foglia is even more lenient than the less restrictive approach.) Indeed, Foglia, Mr. Conlan points out, is no surprise, given that the Court drew its interpretation of Rule 9(b) in part from a "Solicitor General's amicus curiae brief" wherein the government argued that "the more rigid pleading standard is unsupported by Rule 9(b)" because it "undermines the FCA's effectiveness as a tool to combat fraud against the United States." As Mr. Conlan observes, Foglia is further evidence that the Supreme Court needs to resolve this circuit split.

A. Brian Albritton
July 1, 2014

Wednesday, June 25, 2014

Defendant's Breach of Ambiguous Government Contract Prevents Court from Finding the Defendant Knowingly Submitted a False Claim for Payment

Relators frequently bring qui tam cases based in large part on allegations that a defendant violated some obscure government regulation. These alleged regulatory violations become the basis for a False Claim Act qui tam when the defendant "certifies" to the government its compliance with regulations in conjunction with submitting a request for payment to the government. Yet, what if the underlying regulations were ambiguous, unclear, or simply had not been previously applied in the manner urged by the relators? Can the alleged violation of such ambiguous regulations give rise to a False Claims Act case? More often, courts are answering "no" and refusing to permit the False Claims Act to be used to police violations of unclear or ambiguous regulations.

A good example can be found in the recent Third Circuit case, U.S. Department of Transportation ex rel Arnold v. CMC Engineering, Inc., et al., __ Fed. Appx.__, 2014 WL 2442945 (3rd Cir. June 2, 2014). In this qui tam case, the Third Circuit affirmed the entry of summary judgment in favor of the defendant on the grounds that the defendant could not have "knowingly" submitted a false claim because the contractual terms it allegedly violated were so ambigious that no reasonable jury could have found a knowing violation.

In CMC Engineering, the defendant was a contractor who provided inspection services to the Pennsylvania Department of Transportation ("PennDOT") in support of federally funded highway projects. PennDOT contracted with the defendant for several different classes of inspectors, and the PennDOT contract set forth different credential and experience requirements for the inspectors. The relator, a construction engineer for PennDOT, alleged that CMC's inspectors who worked on the project did not have the contractual qualifications that entitled CMC to the pay rates it billed to PennDOT which were ultimately paid by the federal government. The relator contended that defendant "submitted factually and legally false claims by knowingly requesting payments at certain rates for inspectors it knew did not meet credentialing requirements." As to what the acceptable credentials were for the inspectors, the relator argued that those were set forth in the only "reasonable" interpretation of the CMC's contract with PennDOT.

The Court found, however, that the "language of the contracts . . .  undermines [relator's] assertion that the contract is susceptible to only one reading" and that "the contracts themselves are ambiguous concerning the credentials required for particular positions that justify particular pay rates." The Court noted further that PennDOT employees acknowledged that the contract terms were "open to interpretation" and that PennDOT had subsequently taken steps to make them clearer. "As a result of this ambiguity," the Court observed, "there is no evidence from which a reasonable jury could find CMC 'knowingly' made a factually false claim or false certification . . . by requesting reimbursement for inspectors at rates for which [the relator] contends they were unqualified."

In short, given that many government regulations are often as clear as mud, cases like CMC Engineering represent a welcome trend among courts who are skeptical of relators who try to use the False Claims Act either to police technical regulatory violations or to enforce ambiguous and unclear government regulations.

A. Brian Albritton
June 25, 2014

Tuesday, June 10, 2014

Whistleblower's False Claims Act Case Does Not Toll Statute of Limitations If Relator Seeks to Later Add a Retaliation Claim

When a relator files a False Claim Act case and seeks to later add a claim that his or her employer retaliated against them, is the three-year statute of limitations for retaliation claims "tolled" during the time the relator's False Claims Act claims are pending? And, if a relator seeks to amend his or her False Claims Act case to add a retaliation claim, does the retaliation claim "relate back" in time to when the relator originally filed their False Claims Act case? In a thoughtful opinion, the Court in Hayes v. Department of Education of the City of New York, __ F.Supp. 2d__, 2014 WL 2048196 (May 16, 2014 S.D.N.Y.) addressed both of these questions and found that a relator's attempt to amend her False Claims Act complaint long after she had filed it in order to add a retaliation claim was futile and barred by the statute of limitations.

In Hayes, the relator's attorney withdrew from relator's False Claims Act case. After several attempts to obtain new counsel, the Court granted the defendant's motion to dismiss the case on the grounds that the relator could not bring the case without an attorney or pro se. Relator sought to amend her False Claims Act complaint to add a claim of retaliation, a claim for which she did not need an attorney to pursue. Relator's proposed retaliation claim was more than three years after the events in question.

The Court considered the question of "when a relator herself tolls the statute of limitations for her own claim." While the relators' filing of the False Claims Act complaint may toll the statute of limitations for claims pled in that complaint, the Court concluded that the statue is not tolled for relator's claims which are not brought in the original complaint. The statute of limitations for a retaliation claim related to an underlying False Claims Act case would continue to run, the Court found, even if the case were under seal for a period.

Finding the relator's claim to be barred by the statute, the Court next considered whether the relator may be permitted to amend her complaint to add a retaliation claim pursuant to Federal Rule of Civil Procedure 15. After undertaking a lengthy analysis, the Court found that "an amended pleading adding a retaliation claim may not relate back to the original complaint filed here: neither Rule 15(c)(1)(A) nor 15(c)(1)(B) permits it."

This decision prevents relators from trying to belatedly salvage their False Claims Act cases by trying to add a retaliation claim more than three years after the events at issue. It is not clear, however, how much effect this case will have: False Claims Act cases by ex-employees almost invariably contain retaliation claims and such claims are frequently the bases for settlements when relators' False Claims Act cases fail.

A. Brian Albritton
June 10,2014

Monday, May 26, 2014

A Corporate Plaintiff May Not Bring Suit for False Claims Act Retaliation

Retaliation claims are increasingly commonplace in False Claims Act cases. The issues as to who may bring a retaliation claim -- an individual or corporate relator -- and whether they may sue just the employer accused of retaliation or also individual co-workers or supervisors as well have not been definitively determined by the courts.

For example, I recently learned that only people -- not corporations --  can bring retaliation claims under the False Claims Act. In US ex rel Fryberger v. Kiewit Pacific Company, 2014 WL 1997151 (N.D. Cal. 5/14/2014), the Court held that the False Claims Act (FCA), 31 USC 3730(h), does not permit a relator or plaintiff that is a corporation to sue for retaliation: only an individual "employee, contractor, or agent" may bring a claim that he or she was "discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts" done by the individual in furtherance of an FCA action or in an "effort to stop one or more violations of" the FCA.

Prohibiting a corporate relator from bringing a retaliation claim appears to be an issue of first impression as the Court observed that "[n]either party cites any case law on this question, and the Court has not located any." In making its ruling, the Court looked to the language of the FCA's anti-retaliation provision and the legislative history which accompanied its amendment in 2009. First, the Court noted that the relief provided by sec. 3730(h) for retaliation such as reinstatement and back pay "are directed to individual plaintiffs, not entities." The Court explained further that the 2009 legislative history which added the "contractor or agent" references to the prohibition against retaliation against an employee was "in response to court decisions limiting retaliation plaintiffs to employees and not independent contractors . . . .  Nothing suggests it was Congress's intent to broaden the retaliation entitlement to entity plaintiffs as well as individual plaintiffs."

The Fryberger Court also joined the increasing number of district courts that have held that a relator/plaintiff may only bring retaliation claims against an "employer or entity with whom the plaintiff has a contractor or agency relationship." Prior to the 2009 amendment to the retaliation provision, sec 3730(h), the retaliation provision was generally interpreted only to apply to employers and the Court found that the 2009 did nothing to change that. The Court cited a recent Arizona decision Wichansky v. Zowine, 2014 WL 289924, at *3-5 (D. Ariz. Jan. 24, 2014) as a thorough and persuasive decision along with a number of other cases. (See also an interesting article which discusses this issue, J. Tyler Robinson and Roger R. Clayton, "Beware the Whistleblower: Whether Congress’s Omission of the Term 'Employer' from Section 3730(h) of the False Claims Act Was Intended to Extend Liability to a Whistleblower’s Individual Supervisors," IDC Quarterly Volume 24, Number 1).

A. Brian Albritton
May 26, 2014


Monday, April 21, 2014

First to File Bar Based on Comparing Complaints and Not Settlements

Speaking of the first-to-file rule, 31 USC 3730(b)(5), a first-to-file relator in Texas sought to share in the qui tam settlement of a subsequent relator who filed suit against the same defendant as the first realtor but alleged a different scheme. See U.S. ex rel Smart v. Christus Health, et al, 2014 WL 1474282 (5th Cir. April 16 2014). In a case that was not selected for publication, the 5th Circuit, not surprisingly, rebuffed the first relator's attempt, pointing out that the two suits were very different with the exception that they named the same defendant: the first suit alleged that the hospital engaged in a scheme to induce doctors to refer patients to it by renting the doctors office space at below market, and the second suit alleged that the same hospital committed billing fraud by improperly using inpatient codes for outpatient procedures.

What is interesting about this case is that the first relator sought a share of the settlement proceeds because the settlement in the second filed suit released the defendant from any claims the government may have, including Stark/Anti-Kickback type of claims similar to those raised in the first filed suit (though not the same claims). The 5th Circuit noted, however, that "[w]hen deciding whether the first-to-file bar applies, this Court compares the complaints -- not the settlement agreements."

The first-to-file relator had also sought discovery to demonstrate that he was entitled to a share of the proceeds from the second filed suit, but the 5th Circuit was having none of that.

Though the 5th Circuit gave short shrift to the first relator, I think the relator deserves some sort of prize for creative argument.

A. Brian Albritton
April 21, 2014

The False Claims Act and the First to File Bar: DC Circuit Breaks with 10th, 7th, and 4th Circuits

I commend to you the recent post by Scott Stein and Catherine Kim of Sidley's Original Source blog and their article, "DC Circuit Opens Circuit Split on FCA's First-to-File Bar," addressing the D.C. Circuit's recent ruling in United States ex re Shea v. Cellco Partnership d/b/a Verizon Wireless, 2014 WL 1394687 (D.C. Cir. April 11, 2014). As they so ably explain, the Shea case is the first circuit court decision to adopt "the position that the first-to-file bar applies to an earlier-filed related suit, even after the original action is no longer 'pending.'" Applying a common sense construction to the "first-to-file" rule of 31 USC 3730(b)(5), the D.C. Circuit held in a 2-1 decision that the first-to-file rule bars relators from bringing subsequent suits alleging the same scheme as the first filed suit, even if the first filed suit is no longer pending and was not dismissed on the merits. Applying a plain language construction of the first-to-file rule, the 4th, 10th, and 7th Circuits have held that as long as a first filed qui tam suit is no longer pending, a subsequent relator may bring a qui tam on the same scheme as long as the second (or third) relator is an original source for the information contained in the second (or third) qui tam. See  In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).

As Mr. Stein and Ms. Kim point out, "the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims."

A. Brian Albritton
April 21, 2014

Wednesday, March 19, 2014

Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases

Dear Readers:

Joining the growing number of courts that limit or phase discovery in False Claims Act cases ("FCA"), the Southern District of Mississippi recently rejected attempts by the relators to obtain "unfettered discovery" so that they may search for new claims beyond the single claim for which they were an original source and on which they won at trial. See United States ex rel. Rigsby v. State Farm Fire and Casualty Co., 2014 WL 691500 (S.D. Miss., Feb. 21, 2014).

In Rigsby, two relators sued State Farm alleging that it engaged in a massive scheme to defraud the National Flood Insurance Program ("NFIP") in its administration of flood claims arising from Hurricane Katrina and they filed a list of 18 properties in which they asserted that State Farm had defrauded the NFIP. When initially considering case, the Court found that only one of the properties, the "McIntosh claim," was the sole "instance of State Farm's having submitted an allegedly false claim of which either relator had first hand knowledge." Having first hand knowledge of a single claim, the Court initially permitted the relators to obtain discovery about and proceed to trial on the McIntosh claim. The Court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of the McIntosh claim, stating it would "consider [then] whether additional discovery and further proceedings are warranted." The jury found that State Farm had presented a false claim for payment to the NFIP in connection with its processing of the McIntosh flood claim. Relators then asked the court to "initiate expanded discovery into claims on other properties insured by State Farm."

The Court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. Relying on the 5th Circuit's decision in US ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009), the Court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims." Applying Grubbs, the Court observed: "Armed with knowledge of a purported scheme and evidence related to the single Mcintosh claim, Relators seek far-reaching, unfettered discovery in order to search for new claims beyond the Mcintosh claim, the only false claim which they have firsthand knowledge. Grubbs states that even if a complaint survives a Rule 9(b) challenge, discovery should be tailored to the claims alleged, so as to avoid a search for new claims. To allow expanded discovery in the fashion Relators seek would permit improper smuggling of additional claims beyond the single claim to which Relators have personal knowledge."

In short, the Court showed that simply satisfying Rule 9(b) as to one claim does not open the door for relators to go in search of other claims to which they do not have personal knowledge, even if they have broadly described a scheme to defraud for which they have only one example. Since "Relators have not pleaded sufficient details regarding any other claims to survive a Rule 9(b) challenge . . . . . discovery would necessarily be overly broad because the Amended Complaint lacks enough detail to permit the Court to craft reasonable discovery parameters."

A. Brian Albritton
March 19, 2014


Monday, March 3, 2014

The False Claims Act Is Not a Remedy for Technical Regulatory Violations

Dear Readers:

I recently came across another interesting example of a court refusing to permit the False Claims Act ("FCA") to be used as remedy for a technical regulatory violation that was unrelated to a claim for payment submitted to the government: US ex rel. Rostholder et al. v. Omnicare International, et al., (4th Cir., February 21, 2014).

In Omnicare, the 4th Circuit sustained the lower court's dismissal of False Claims Act claims due to the complaint's failure "to allege that the defendants made a false statement or acted with the necessary scienter." The Relator had alleged that the defendant, a drug manufacturer, violated a series of Food and Drug Administration ("FDA") safety regulations relating to the packaging of penicillin together with other drugs, the result of which caused the drugs to be "adulterated." Since federal law prohibits adulterated drugs from being sold in interstate commerce, Relator alleged that such mispacked drugs were no longer eligible for reimbursement by Medicare or Medicaid. For a drug to be eligible for reimbursement by Medicare and Medicaid, the FDA must have "approved [it]for safety and effectiveness" when it was submitted as a new drug.

Essentially, the Court found that the Relator did not state an FCA claim because complying with FDA safety regulations for a previously approved drug is not an express condition of reimbursement by Medicare or Medicaid. That is, defendants did not have to expressly certify compliance with the FDA in order to obtain payment for such a mispacked drug under Medicare and Medicaid. As a result, Relator was unable to identify "any false statement or other fraudulent misrepresentation that Omnicare made to the government," i.e., there was no "false claim" for payment under the FCA. The Court explained: "FCA liability based on a false certification to the government will lie only if compliance with the statues or regulations was a prerequisite to gaining a benefit, and the defendant affirmatively certified such compliance."

The Court observed that the FCA was not meant as a mechanism to promote "regulatory compliance," especially when in the case of the FDA, the government had established a "very remedial process" to enforce FDA regulations. The FDA's "significant remedial powers . . . buttresses our conclusion that Congress did not intend that the FCA be used as regulatory-compliance mechanism in the absence of a false statement or fraudulent conducted directed at the government."

Interestingly, the Court went further and found not only had the Relator not alleged a false statement or fraudulent conduct, but it also found as a matter of law that the Relator had not "plausibly" alleged that Omnicare knowingly submitted a false claim to the government. Since the Medicare and Medicaid statutes did not expressly prohibit reimbursement for "drugs packed in violation" of federal law, the Court essentially found that Omnicare could not have known that it was submitting a false claim.

While a welcome result, the Court made an easy call here. There is simply no connection between a claim for reimbursement under Medicare Part D and these technical FDA violations.

A. Brian Albritton
March 3, 2014




Wednesday, February 5, 2014

State Courts have Concurrent Jurisdiction Over False Claims Act Retaliation Claims

Perhaps everyone knows this, but I didn't: a relator may bring a False Claims Act (FCA) retaliation claim in state court.  

Recently, in Driscoll v. Superior Court of Madera County, 2014 WL 333411 (January 30, 2014, Cal. App. 5 Dist.), the Court addressed whether state courts have concurrent jurisdiction over FCA retaliation claims, 31 U.S.C. 3730(h), and the Court found that they do. Regardless of whether concurrent jurisdiction exists, you normally would not expect to see FCA retaliation claims in state court because you would expect a defendant to remove a FCA retaliation claim to federal court under federal question jurisdiction, 28 U.S.C 1331. In Driscoll, however, the defendant brought the FCA retaliation claim against the plaintiffs as a cross claim. The plaintiffs moved to dismiss the FCA retaliation claim brought against them on the grounds that the California state court did not have subject matter jurisdiction, and though they won in the trial court, the appellate court found that the state court had jurisdiction and could proceed with the defendant's FCA retaliation claim. In so ruling, the California 5th District Court of Appeals acknowledged that section 3730(h)(2) provides that "an action under this subsection may be brought in the appropriate district court of the United States" and that section 31 U.S.C. 3732(a) provides further that "Any action under section 3730 may be brought in any judicial district . . . " Yet, the Court noted that the FCA does not "contain an explicit statutory directive ousting state court jurisdiction" and the "FCA's jurisdiction provision does not mention state courts or their jurisdiction." Consequently, asserted the Court, "we presume state courts share concurrent jurisdiction over FCA claims." The Court explained further that in retaliation claims the federal government is not a party nor are such claims brought in the name of the United States. Rather, "retaliation claims are personal to the individual."

Another FCA fun fact.

A. Brian Albritton
February 5, 2014