Monday, February 27, 2012

Can DOJ Dismiss a Relator's Claim if the Relator Refuses Settlement?

Corporate Counsel at just featured an interesting an article, "Taking the Whistle Out of Her Hand," by Mike Scarcella, wihch highlights the case of Stephani Shweizer, a qui tam relator, who has appealed the District Court's dismissal of her qui tam claims based on the government's motion where she refused to approve the government's settlement with False Claims Act defendant.  The  DC Circuit held oral argument in the case, Stephanie Schweizer v. Oce N.V., (D.C. Cir.  No 11-7030), on January 13, 2012, and a decision is awaited.

In an order found here, the District Court noted that a co-relator and the United States reached a settlement with the defendant for approximately $1.2 million, and the relators were supposed to get 19% of that.  Ms. Schweizer, however, refused the settlement, and the government intervened in the case and moved to dismiss her.  The Court akncowledged that prior appellate rulings held that the government had an "unfettered right" to dismiss a qui tam suit and that the decision to do so is "beyond judicial review."  Neverthless, the District Court noted that the provision of the False Claims Act which permitted the govenment to dismiss a suit, 31 U.S.C. 3730(c)(2)(A), was "somewhat at odds" with the section that "envisions an active role for the Court in approving settlement," 31 U.S.C. 3730(c)(2)(B).  Where the government seeks to settlement, the Court must determine "whether the proposed settlement is fair, adequate, and reasonable under all circumstances. Whether that section of the statute can be reconciled with the Court of Appeals' interepretation . . . is uncertain."   Given the "law of the Circuit," the District Court believed that "there is no doubt that section 3730(c)(2)(B) may be circumvented" by the government dismissing the relator's claims.

At oral arument, the relator's counsel argued that the government does not have "unlimited authority" to dismiss a complaint where a whistleblower has rejected settlement, and he argued that the District Court should have evaluated the reasonableness of the proposed settlement.  The government, Scarcella reports, argued that a settlement hearing is "meant not to convince a judge to keep a case going, but . . . to get the government to change its mind about dismissing a suit."  Stated another way, such a hearing is meant to give the relator an opportunity to complain and voice that complaint, but it does not grant the court or the relator the power to keep the government from dismissing a qui tam claim.

The case is being watched because as Scarcella observed:  "A ruling against the government could erode the Justice Department's control of False Claims Act litigation, encourage plaintiffs to reject settlements, and create a potential separation-of-powers conflict in an area of the law that has seen explosive growth in recent years."

A. Brian Albritton

Sunday, February 26, 2012

2011 Year-End False Claims Act Update

Gibson Dunn has published the "2011 Year-End False Claims Act Update" online, and I commend it to you.  The Update summarizes the Department of Justice statistics on False Claims Act matters and qui tams, which I reference in the the blog, for 2011, and includes several illustrative charts based on those statistics.

The Update provides a good review of "noteworthy settlements" in the "second half" of 2011 (Gibson Dunn had reviewed the first part of 2011 in their mid-year update).  The Update does a good job discussing important case law developments and judicial trends.

DOJ Publishes Summary of Statistics on False Claims Act and Qui Tams

The Civil Division of the U.S. Department of Justice has published a summary of statistics relating to the False Claims Act and qui tams for the period of 1987-2011.  They are quite interesting, and include the following:

1.  A chart showing the False Claims Act matters broken down between non qui tam and qui tam; the totals for each year for settlements and judgments for qui tam/non qui tam; for qui tams, along with a break down of the total amounts where the government intervened in the qui tam and the total settlements where the government declined to intervene; and the non qui tam total settlements; and a yearly summary of the relator share awards, broken down by whether the government intervened and where it declined.

2.  There are three other charts which break out the False Claims Act/Qui Tams numbers, settlement and judgments, and relator share awards by client agent:  (a) a chart for Health and Human Services showing the numbers relating to health care fraud; (b) a chart for Department of Defense; and (c) "other" relating to False Claims Act/Qui Tams unrelated to Health & Human Services and Department of Defense.

As has been reported elsewhere, 2011 was a good year for False Claims Act cases:  there were over 762 new matters (referrals, investigations, and qui tam actions); total settlements of $3,029 billion, of which almost $2.8 billion related to qui tams.  Relators share awards totaled $532 million.

Sunday, February 19, 2012

Court Refuses to Impose FCA Civil Penalty in False Certification Case On Grounds That $50.2 Million Penalty Violates Excessive Fines Clause

The Blog of Legal Times recently featured an interesting case where a District Court Judge refused after the trial of a False Claims Act ("FCA") case to impose the minimum $50.2 million Civil False Claims Act penalty on the grounds that the penalty was unconstitutionally excessive in violation of the 8th Amendment:  United States ex rel Kurt Bunk & Daniel Heuser v. Birkart Globistics GmbH & Co et al., Case No. 1:02 cv 1168 (AJT/TRJ)(E. D. VA.  2/14/12).  As reported in The BLT, Judge Trenga refused to impose the statutorily mandated fine based on the number of invoices submitted to the government on the grounds that the fine was "grossly disproportional" to harm --more precisely, the lack of harm-- caused by the defendant, Gosselin Worldwide Moving N.V. 

The FCA claim against Gosselin was based on a false certification theory.  Gosselin had submitted a bid to the Department of Defense Contracting to pack and move military household goods owned by service personnel and their families between the United States and various countries in Europe. In submitting their bid, Gosselin met with two of its competitors about one subcontracting portion of their overall bid.  They agreed "as to the prices each would charge and the territories they would service as subcontractors to the winning bidder, regardless of who actually was awarded" the contract.  Gosselin was the winning bidder, and in performing its contract with the government it had to submit a "certificate of independent pricing" wherein it falsely affirmed that "the prices in the offer have been arrived at independently, without . . . agreement with any other offferor or competitor."  Gosselin lost at trial, and the relators sought a civil penalty of an amount between $5,500 and $11,000 based on the 9,136 invoices that Gosselin had submitted for payment.  Calculated, the minimum civil penalty provided by the FCA was $50,248,000.

The Court found that the statutory penalty violated the Excessive Fines Clause on the grounds that it was grossly disproportionate to the offense.  The Court identified several factors that demonstrated the lack of proportion between the harm and the offense, including: (1) there was no evidence of any cognizable financial harm to the United States as a result of the bid and neither the Relator nor the government sought to prove any damages at trial; (2) there was no evidence that the fixed price as to the subcontractor resulted in higher prices, and in fact there was evidence that the contract price was less than Gosselin had agreed to in previous years; and  (3) there was no evidence that the government could have obtained a lower bid or obtained the "subcontractor" services at issue at a lower cost absent the subcontractor pricing conspiracy.  The Court pointed out further that there was no evidence that Gosselin's services were deficient in any way, and noting that Gosselin's "profit" for the disputed subcontracting portion of the overall contract was $150,000, the Court observed:  "there is nothing about this level of gain that would justify the minimum mandated civil penalty of over $50 million."

In the end, the Court concluded that having founded the statutorily mandated penalty constitutionally excessive, it could "not substitute its own fashioned penalty due to the language and structure of the FCA itself."  The Court explained suggested an alternative construction of the FCA statute that would avoid the application of an unconstitutional fine: based on the plain language of the statute, an alternative reasonable interpretation is that a civil penalty should be applied for each act that violated the prohibition, ie., "each factually false statement, not each claim paid as a result of that false statement." Gosselin, the Court noted, had only made one false certification, and thus should be subject to a fine of between $5,500 and $11,000.

The incredible fines faced by Gosselin are calculated based on the number of invoices it submitted to the government for payment.  Health care providers facing False Claim Act litigation face this same dilemma: the false claims alleged against them are most often based on the number of bills submitted.  They too can face incredible penalties as there can be thousands of individual bills, and as a result, it is very rare to see health care providers contest liability at trial.  There is just too much exposure if they should lose.

Sunday, February 12, 2012

Contract Interpretation and False Claims Act Cases: Applying the Contra Proferentem Doctrine to the Government

Having an ambiguous contract with the government can give rise to a to False Claims Act allegations  -- that is what the Chapman Law Firm discovered when it sought to sue the U.S. Department of Housing and Urban Development (“HUD”) for failing to perform a contract the firm had with HUD “for the management and marketing of single family homes in Ohio and Michigan.” See Chapman Law Firm v. United States, No. 09-891C,2012 WL 256090 (Fed. Cl. Jan. 18, 2012).  The government responded to the suit alleging that Chapman had violated the False Claims Act by using unlicensed pest inspectors to perform termite inspections instead of “licensed” inspectors as the contract allegedly required. The government sought summary judgment against Chapman on the grounds that the contract called for licensed inspectors; Chapman defended, claiming that the contract was ambiguous and should be construed against the government.   The U.S. Court of Claims denied the government’s summary judgment motion, applied the legal doctrine of contra proferentem, and construed the contractual ambiguity against the government. 

I commend to you the “Fraud Alert” by John Boese and Douglas Baruch of Fried Frank which discusses the Chapman case and the significance of the Court’s application of the contra proferentem doctrine in a False Claims Act case:  CIVIL FALSE CLAIMS ACT: Court Applies Contra Proferentem Doctrine Against the Government in an FCA Case Based on An Ambiguous Contract Provision.  The authors explain that the contra proferentem doctrine is a rule of contract interpretation often applied in insurance contracts and to other commercial contexts, but until Chapman, the rule had not been applied in an False Claims Act ("FCA") case.  Based on the principal that “a party that drafts and imposes an ambiguous term should not benefit from that ambiguity,” they explain that the rule provides that “a latent ambiguity in a contract provision to be construed against the party that drafted the [ambiguous] provision.” 

The authors point out that  the contra proferentem doctrine can be “be significant in a broad spectrum of FCA cases” as so many of such cases are based on allegations that the defendant violated “requirements incorporated into government grants, contracts, and regulations.” For example, the authors cite to the FCA cases where defendants are accused of falsely certifying their compliance with the myriad of contractual requirements frequently found in government contracts.  See 11/30/11 blog entry on “implied false certification.” “These requirements,” they explain, “are drafted by the government, and where they are ambiguous or capable of more than one reasonable interpretation, the rule that ambiguous requirements are construed against the drafter places the burden on the government to draft clear requirements, which is where that burden belongs.”  The authors further observe that a defendant’s “reasonable interpretation” of an ambiguous contract with the government can further support a defendant’s claim that they acted in “good faith” and did not have the requisite intent for FCA liability.

Friday, February 10, 2012

FCA Retaliation Case: First Circuit Adopts Burden Shifting Framework of McDonnell Douglas v. Greene

This week the First Circuit Court of Appeal addressed the issue of the nature and order of proof in a case involving the False Claims Act's anti-retaliation provision, 31 U.S.C. § 3730(h)(1).  That section provides:

Any employee . . . shall be entitled to all relief necessary to make [him] . . . whole, if that employee . . . is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against . . . because of lawful acts done by the employee . . . in furtherance of an action under this section.

In Harrington v. Aggregate Industries Northeast Region Inc., (1st Cir. 2/7/12), the First Circuit overturned a summary judgment granted into favor of an employer against a employee who had been a qui tam relator in a False Claims Act suit against a concrete supplier to the “Big Dig” in Boston.  Though the parties had signed a settlement, the employer dismissed the employee days afterward on the grounds that he refused to take a random drug trust. The employee claimed he was retaliated against given the suspicious timing of the drug test –days after the settlement—and that it did not appear “random” as the employee claimed he was singled out for the test.  Additionally, there appears to have been some question as to whether the employer had followed its own procedures in handling the sample.  In overturning the lower court’s summary judgment and finding that the matter should be subject to a jury trial, the First Circuit observed: 

this is a close case. When looking to the record as a whole, however, we deem summary judgment improvident. [Employer's] adamant insistence on subjecting the appellant to drug testing is pockmarked by irregularities. When this behavior is combined with the appellant's termination immediately following his signing of the settlement agreement, it creates a sufficient foundation for a reasonable inference that the appellant was terminated for retaliatory reasons.

The case is significant because it purports to be the first circuit court to adopt the McDonnell Douglas burden-shifting framework applied in discrimination cases where there is “no direct evidence of retaliation.”  McDonnell Douglas Corp. v. Greene, 411 U.S. 792, 802–05 (1973).  Observing that there “are no published decisions on this point at the federal appellate level,” the Court stated:
In a case such as this, the McDonnell Douglas framework provides a principled mode for analyzing retaliatory intent. . . . . We hold, therefore, that the FCA's anti-retaliation provision is amenable to the use of the McDonnell Douglas framework. . . . . Adapting McDonnell Douglas to the FCA's anti-retaliation provision, a plaintiff first must set forth a prima facie case of retaliation. Once this is accomplished, the burden then shifts to the defendant to articulate a legitimate, nonretaliatory reason for the adverse employment action. This imposes merely a burden of production, not one of proof. . . . . Thus, if the employer produces evidence of a legitimate nonretaliatory reason, the plaintiff must assume the further burden of showing that the proffered reason is a pretext calculated to mask retaliation. (citations omitted)
The Court noted that “[t]his burden-shifting framework is a useful screening device in the summary judgment milieu,” but once a plaintiff reaches the “third step” and shows some evidence of pretext to mask retaliation, then “courts typically put it aside.  “In such circumstances,” the Court explained, “an inquiring court looks to the record as a whole to determine whether there is sufficient evidence of  ‘pretext and retaliatory animus’ to make out a jury question. . . . . This means that to succeed here the appellant must have adduced sufficient evidence to create a genuine issue as to whether retaliation was the real motive underlying his dismissal.” (citations omitted).  As noted above, the Court overturned the lower court’s grant of summary judgment in favor of the employer, explaining:
In retaliation cases, the whole is sometimes greater than the sum of the parts. Here, for example, the bits and pieces of evidence recounted above, taken collectively, have significant probative value. After all, irregularities in an employer's dealings with an employee who has fallen out of favor can support a reasonable inference of pretext.

Thursday, February 9, 2012

2011 Year In Review Health Care Enforcement

I commend to you the 2011 Year In Revew: Trends in Health Care Enforcement recently posted by Mintz Levin on its, Health Law & Policy Matters blog.  The Review, prepared by the firm's Health Care Enforcement Group, is a short though well done summary of civil and criminal health care fraud enforcement trends in 2011.  For example, the Review highlights among other things, the federal government's substantially increased use of wire fraud and other traditional criminal statutes in health care fraud cases.  Additionally, the Review observed that fraud investigations of durbable medical equipment and cardiac devices increased substantially in 2011.  The Review also addressed the 2011 trends in False Claims Act enforcement as well, highlighting major pharmaceutical and other health care related settlements.  The blog promises that the report is the first of a series analyzing 2011's trends in the area.

Largest False Claims Act Settlement Relating to Mortgage Fraud: Bank of America

The $25 billion settlement reached announced today between the federal government and state attorneys general with the five largest mortgage service companies (Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC)) also included a $1 billion False Claims Act settlement.  Specifically, Bank of America and various Counrywide entities agreed to pay $1 billion to resolve a separate investigation relating to the whether these entities "knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers" which, in turn, caused the FHA to incur "hundreds of millions of dollars in damages as a result of this conduct."   Additionally, the False Claims Act investigation also encompassed "allegations that the bank and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals."   That investigation was conducted by the U.S. Attorney’s Office for the Eastern District of New York, with the Civil Division’s Commercial Litigation Branch of the Department of Justice, HUD and HUD-OIG. The U.S. Attorney for the Eastern District of New York, Loretta Lynch, announced that it was "the largest ever False Claims Act settlement relating to mortgage fraud."