Monday, April 23, 2012

DOJ Cannot Summarily Dismiss a Relator's Claim if the Relator Objects to Settlement: D.C. Circuit Determines U.S. ex rel Schweizer

In my post of February 7, 2012, I discussed a District of Columbia's District Court's opinion in U.S. ex rel Schweizer v. OCE N.V., wherein the District Court found that the Department of Justice ("DOJ") can dismiss a relator's claim pursuant to 31. U.S.C. 3730(c)(2)(A) if the relator refuses the DOJ's settlement with the defendant of the relator's qui tam claims.  Section 3730(c)(2)(A) provides that the "Government may dismiss [a qui tam] action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion  and the court has provided the person with an opportunity for a hearing on the motion."  This provision has been cited as providing the Government with an "unfettered right to dismiss" qui tam cases. Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)

In an important ruling  on April 20, 2012that favors relators, the D.C. Circuit ruled  in U.S. ex rel Schweizer v. OCE N.V., 2012 WL 1372219 (C.A.D.C.) and reversed the District Court, holding (1) that the Government does not have an unfettered right to dismiss a relator's qui tam where there is a settlement pending between the Government and the Defendant as the settlement requires the Court's approval to be finalized if a relator objects; (2) if the relator objects, the Government cannot settle a qui tam with a Defendant unless the Court first determines, in compliance with 31 U.S.C. 3730(c)(2)(B),  "after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances."  Additionally, the Court reversed the District Court's order granting summary judgment in favor of the Defendant on the relator's retaliation claim, holding that although the relator's job was to ensure compliance with government contracts, summary judgment was precluded because the relator acted outside her normal job activities and notified corporate personnel outside her usual chain of command of her protected conduct.

In this case, the relator was a "GSA contracts manager" who was hired to monitor the Defendant's supply contracts to provide copying and printing products to the Government.  These contracts provided that the Goverment was to enjoy the same discounted pricing as the Defendant offered to other private sector purchasers.  Additionally, the contracts required the Defendant to only sell goods made in the United States or in countries designated under the Trade Agreements Act.  The relator discovered that the Defendant was not providing the Government with the agreed discounts and that it was selling the Government products that were not made by countries with the scope of the Trade Agreements Act.  The relator took her concerns that the company was violating the False Claims Act to her immediate supervisor, and after he forbid her from investigating the matter and attempted to obstruct her, to other executives and company counsel.  The company discharged the relator not long after.  The relator sued the Defendant under the False Claims Act, conspiracy to violate the False Claims Act, and for retaliation under 31 U.S.C. 3730(h).

The Government did not intervene, but it eventually "settled" the relator's qui tam case with the Defendant for $ 1.2 million and to set aside 19% of the recovery for the two relators. In turn, the Government's settlement promised to dismiss the two False Claims Act counts and to provide the Defendant with a partial release of liability.  The Government then sought to dismiss the case, which the relator opposed, and for the reasons outlined in my February 27, 2012 blog post, the Court dismissed the case over the relator's objections, pursuant to Section 3730(c)(2)(A) and without a "fairness" hearing as required by Section 3730(c)(2)(B) of the False Claims Act.

In overturning the District Court, the D.C. Circuit observed:  "We reject the government's argument. Section 3730(c)(2)(B) contains no opt-out clause for rare cases or unusual circumstances. It does not permit the Attorney General to decide when there shall be a hearing on the settlement: the statute says that the government 'may' settle a matter over a relator's objection 'if the court" holds a hearing and finds the' proposed settlement" reasonable. The meaning is clear. The government may not settle a case when the relator objects unless the court approves the settlement."

A. Brian Albritton
April 23, 2012

Thursday, April 19, 2012

Unclaimed Property Laws and State False Claims Acts: The Qui Tam Suits Are Coming

The company, Total Asset Recovery Services, Inc., a Michigan "asset recovery" company, appears to have found a valuable niche in state False Claims Act matters:  it has brought qui tam suits under the Illinois and Minnesota False Claims Acts against MetLife, Inc. and Prudential Life Insurance Co. for allegedly failing to turn over unclaimed life insurance funds.  In the Illinois case which was filed in January of this year, Total Asset alleges that these two companies failed to turn over the proceeds from 4,766 unclaimed life insurance policies.  In the Minnesota suit which was filed last month, Total Asset alleges that these same two companies failed to turn over the proceeds from 600 Minnesota unclaimed life insurance policies.  The Minnesota Attorney General declined to intervene but is reported to be investigating according to the Minnesota Star Tribune.

The attorney for Total Asset Recovery in the Minnesota suit is former Southern District of Florida U.S. Attorney Jeffrey Sloman, who has been in private practice for the last three years after a distinguished career as a federal prosecutor.  Sloman is quoted by the Minnesota Star Tribune as saying that the "the magnitude of the life insurance fraud committed on the states is in the billions of dollars . . . the numbers are mind-boggling."

I predict that in the next five years we will see an exponential increase in qui tam suits alleging that business are failing to pay the state unclaimed property.  From my own experience in advising clients about state unclaimed property laws, most businesses, especially retailers and any business that issues gift cards, are simply unaware of the incredible breadth and application of these unclaimed property laws.  Moreover, such laws are frequently written in such a way as to prevent businesses from avoiding their scope.  Though the downturn in the economy has made some states more aggressive in enforcing unclaimed property obligations, most states simply do not have the enforcement resources available to them to promote wide scale compliance and businesses have not had much to worry about.  With the plaintiffs' bar beginning to realize how profitable such qui tam suits can be for unclaimed property claims, lack of resources to enforce these statutes will no longer be a problem.  Businesses would do well to prepare.

For a resource on unclaimed property, see attorney Mike Rato's blog, Escheatable:  The Unclaimed Property Law Blog

A. Brian Albritton
April 19, 2012

Monday, April 9, 2012

Limited Discovery in False Claims Act Cases: One Court's Attempted Solution

When a court denies a defendant's motion to dismiss a False Claims Act or qui tam complaint, does that mean that  that the relator or government should have free reign on obtaining discovery from the defendant?  In many instances it does.  The District Court in U.S. ex rel Minge v. Tect Aerospace, Inc, 2012 WL 1118948 (April 3, 2012 D. Kan), however, sought to only permit the parties limited discovery initially and to subject the relators' weak claims to an initial "litmus test" before allowing the case and discovery to be expanded.  The Magistrate Judgment's opinion shows just how hard it is to contain limited discovery and why some courts might just throw up their hands. 

Tect Aerospace was a qui tam case in which the Court had dismissed the relators' third amended complaint on Rule 9(b) grounds, finding that relators had failed to plead fraud with particularity.  Specifically, the Court found that the relators failed to specify "whether any aircraft were equipped with allegedly defective parts, and if so, which parties and planes."  The relators then obtained permission to file a fourth amended complaint, and the court found that it cured these Rule 9(b) deficiencies. 

Though it permitted the case to proceed, the Court recommended that "discovery be initially limited in this case to determining whether  non-conforming parts were in fact present on the planes identified in the fourth amended complaint and the extent of the false statements provided to the government at the time of the claim for payment."  After that initial discovery period, the Court invited defendants to file a motion for summary judgment, if appropriate.

In implementing the District Court's decision to limit discovery, the Magistrate Judge interpreted the Court as essentially instituting a "litmus test" on the relators' theories, such that the parties were permitted to conduct discovery "limited to determine whether relators can support their claims as to the exemplar aircraft sufficient to survive a summary judgment challenge."  The Magistrate Judge observed further:  "The intent of this initial procedure is to require relators to establish their basic claims concerning the exemplar aircraft before allowing the more extensive discovery which may be required to prove their broader claims  By recommending limited discovery in this initial phase, and by providing defendants an earlier opportunity to file a dispositive motion, the District Court intended to require relators, whose claims had been resuscitated by the fourth amendment . . . to establish that the parts installed on the exemplar aircraft were defective, before allowing broader discovery and litigation covering the entire manufacturing program."

Limiting discovery proved harder than the Magistrate Judge appeared to have anticipated in the Court's scheduling order.  This first phase of discovery was supposed to be limited to 8-10 months with 20 depositions each.  The Magistrate Judge ended up entering a second and then a third scheduling order and extending discovery twice further.  The Magistrate Judge observed that throughout the discovery period, "defendants have maneuvered to limit, and the relators to expand, discovery based" on their interpretation of the Court's initial limitation of discovery.  In turn, the parties filed 14 discovery motions between them.

The Magistrate Judge denied the relators request for 30 more depositions, beyond the initial 20, along with another extension of discovery.  That ruling, however, did not bring discovery to a close due to 7 pending discovery motions.  The final determination as to whether further discovery was to be permitted awaited the resolution of the motions.

This case illustrates that courts do not have to open the floodgates to all discovery in the event that they permit a qui tam complaint to proceed, especially one that just makes it across the threshold.  Subjecting the relator's claims to a litmus test of an early summary judgment and permitting only limited discovery appears to be a very sensible way to proceed.  Yet, permitting only limited discovery appears to have created substantial additional work and supervisory headaches for the Magistrate Judge and spawned a tremendous number of discovery motions.  Once this case is over, it will be interesting to see if the Court finds its attempt to allow only limited discovery to be worthwhile.

A. Brian Albritton
April 9, 2012

Wednesday, April 4, 2012

Wellcare Health Plans Agrees to Pay $137.5 Million to Resolve False Claims Act Case

The U.S. Attorney for the Middle District of Florida and the Civil Division of the U.S. Department of Justice announced yesterday that WellCare Health Plans had agreed to pay $137.5 million to settle a qui tam/ False Claims Act case pending against it, primarily in the Middle District of Florida, that has been pending for years.  You can see the links above for a fuller description of the case and settlement.

Remarkably, WellCare announced the settlement of the qui tam almost two years ago on June 26, 2010 when I was serving as U.S. Attorney for the Middle District of Florida.  See St. Petersburg Times, June 26, 2010, "WellCare Health Plans Strikes $137.5 million settlement, challenged by new whistle-blower disclosures."  

Just as remarkably, in the two years prior to the government's announcement of the settlement, the relator's counsel, a prominent criminal defense attorney who stood to reap millions in fees, had already begun criticizing the not-yet-announced settlement as "grossly inadequate" and claiming that "tax payers" were "unfairly disadvantaged" by the settlement.  Though he acknowledged the "financial benefits" of any settlement to the relator, relator's counsel argued to the St. Petersburg Times that a larger settlement was more important  in order "to deter any effort by companies such as WellCare to take advantage of the health care system or the people who should be served by this system."

The chief relator in the WellCare case, Sean Hellein, is slated to receive $21 million in the settlement.

A. Brian Albritton
April 4, 2012

Sunday, April 1, 2012

Insurance and The False Claims Act: FCA Policies and When to Notify Insurer

In defending clients against False Claims Act matters, I have not yet had an instance where the client had insurance coverage that covered False Claims Act liability.  So I was interested to learn both that insurance companies are offering coverage for False Claims Act liabilities and about some of the issues in obtaining insurance coverage for False Claims Act clams.

First, I came across an announcement  in the Insurance Business Review this week that the Beazley Group was offering a new "Healthcare Regulatory Liability Policy" to protect policy holders against errors & omission claims brought on behalf of government entities.  A spokesman for Beazley stated that clients had been asking for this type of coverage due to "increasing regulatory scrutiny."  The policy covers civil fines and penalties with a limit of up to $10,000,00, and protects providers against a wide range of regulatory violations, including the False Claims Act and Medicare/Medicaid billing investigations. 

Second, in an informative article, "False Claims Act Notice Issues:  To Disclose, or Not to Disclose," attorneys James Murray, John Gibbons, and Omid Safa at the Dickstein Shapiro firm address three insurance issues that arise in the conjunction with False Claims Act ("FCA") claims.  FCA claims, they point out, "can implicate several types of insurance policies, including comprehensive general liability, errors and omissions, professional liability, directors’ and officers’, crime/fidelity insurance, and employment practices liability policies, just to name a few."  They initially address whether insureds must notify their insurers if they receive an FCA civil investigative demand or an  Inspector General subpoena under "claims" or "occurrence" policies. Next, they discusses the whether and when an insured must notify its insurer when the insured has received notice that a qui tam matter pending is pending against but the matter remains under seal.  Finally, the article notes that insueds might encounter problems with obtaining reimbursement for costs they incur in responding to a government's investigation while the matter remains under seal but prior to the matter being "tendered" to the insurer.  They observe:   "Courts have reached differing conclusions on whether an insurer must reimburse defense costs incurred by a policyholder prior to giving notice or formally tendering a claim. Courts denying reimbursement have relied largely on standard policy provisions barring coverage for alleged 'voluntary payments' or mistakenly reasoned that tender is a condition precedent to coverage. Neither rationale appears to be well suited to addressing the unique issues raised by the FCA, however."

A. Brian Albritton
April 1, 2012