On September 9, 2015, U.S. Department of Justice, Deputy Attorney General Sally Quillan Yates announced how the Department of Justice (including U.S. Attorneys’ Offices) will investigate and prosecute business entities (the “Yates Memo”). The Yates Memo provides that “attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisk in the long term.” As seen in a recent False Claims Act case, the Yates Memo’s principles are not just limited to criminal cases but potentially apply to False Claims Act cases as well.
Take for example the case of U.S. v. Berkley Heartlab, Inc., et. al., No. 9:14-cv-00230, Docket Entry 75, (Aug. 7, 2015 Dist. S.C.), a qui tam case in which DOJ recently intervened. The United States alleges that the defendants paid $80 million in kickbacks to physicians in the form of improper “process and handling fees” to induce physicians to refer blood samples to three different laboratories, including Health Diagnostics Laboratory (“HDL”). As a result of these improper inducements the subject laboratories allegedly submitted false claims to Medicare and Tricare, which in turn reimbursed which the subject laboratories more than $500 million. The United States alleges that the claims were false because (1) the laboratories were not entitled to reimbursement for claims resulting from illegal kickbacks, and (2) many of the claims were for tests that were medically unnecessary but were ordered as a result of illegal inducements.
Among the defendants being sued in the case is Tonya Mallory, the co-founder and former Chief Executive Officer of HDL. Named the Ernst & Young Entrepreneur of the Year for 2012 and the 2013 Virginia Business Person of the Year by Virginia Business Magazine, and formerly lauded as having “revolutioniz[ed] the practice of medicine,” Ms. Mallory now finds herself a defendant in a federal qui tam lawsuit seeking hundreds of millions of dollars in damages. Importantly, HDL settled with the government in March 2015 for $47 million, but the government continues to pursue Ms. Mallory personally, naming her as a defendant in its August 2015 Complaint in Intervention. The pursuit of Ms. Mallory in her individual capacity, even after her former employer HDL has settled, is an example of the type of cases that are certain to become more prevalent in the wake of the Yates Memo.
The Yates Memo lays out six “key steps” intended to strengthen the DOJ’s pursuit of corporate officials. The fourth key step is of particular relevance to Ms. Mallory’s current plight: “absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.” (emphasis added). Thus, although HDL has settled with the government, and likely cooperated in its investigation, such cooperation did not spare Ms. Mallory. In fact, according to the first key step, HDL’s assistance in building the case against its former CEO appears to have been a pre-condition of the settlement. The first key step provides, “in order to qualify for any cooperation credit, corporations must provide to the department all relevant facts relating to the individuals responsible for the misconduct.” In turn, HDL’s FCA settlement with the government provides just that:
"HDL agrees to cooperate fully and truthfully with the United States' investigation of individuals and entities not released in this Agreement. Upon reasonable notice, HDL shall encourage and agrees not to impair, the cooperation of its directors, officers, and employees and shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. HDL further agrees to furnish to the United States, upon request, complete and unredacted copies of all nonprivileged documents, reports, memoranda of interviews, and records in its possession, custody or control concerning any investigation of the Covered Conduct that it has undertaken or that has been performed by another on its behalf."
Targeted corporation should no longer expect to reach a settlement without providing specific information about the individual corporate officers involved in the alleged corporate misconduct. This emphasis on the prosecution of individuals, coupled with DOJ’s insistence that cooperating corporate defendants provide information regarding individuals involved in corporate wrongdoing, further complicates the decisions of corporate counsel regarding whether, and to what extent, to cooperate with federal investigators. It also creates an increased risk of conflicts of interest between corporate counsel and corporate officers and executives. These risks are compounded by the upward trend in the number of False Claims Act cases being pursued each year by the Department of Justice and/or relators’ counsel.
Author/Guest Blogger: Nathan A. Huff
Editor: A. Brian Albritton
October 27, 2015
Tuesday, October 27, 2015
Wednesday, October 21, 2015
Congress added the “public disclosure bar” to the False Claims Act in 1986. 31 U.S.C. 3730(e)(4). As originally enacted, the public disclosure bar provided that if a relator based their qui tam claims on information that previously had been “publicly disclosed” through designated channels, such as in the press, in an audit, or in a previous lawsuit, then the court lacked subject-matter jurisdiction over the qui tam claims unless the relator could establish his or herself as an "original source" of the information underlying the qui tam complaint.
Congress amended the public disclosure bar, effective March 23, 2010, and while it remained a basis for dismissing a relator’s qui tam claims, Congress omitted any explicit reference to the bar being jurisdictional. As a result, courts have increasingly found that the 2010 amended version of the public disclosure bar is not jurisdictional. See, e.g., U.S. ex rel. Osheroff v. Humana, Inc., et al., 2015 WL 223705 (11th Cir. Jan. 16, 2015); see also False Claims Act Redline, HelmersMartins, www.fcalawfirm.com/blog/false-claims-act-redline/ (redlining the pre- and post-amendment versions of the public disclosure bar, 31 U.S.C. 3730(e)(4)).
Since the 2010 amendment, courts have grappled with whether the amended version of the public disclosure bar applies to “false” claims that arose before the 2010 amendment but which were contained in qui tam complaints filed after the amendment. The Court in United States of America ex rel. Wilhelm v. Molina Healthcare of Florida, Inc., recently addressed this precise issue, finding that the amended statute did not apply to false claims that actually arose before the date of the 2010 amendment. 2015 WL 5562313 (S.D. Fla. Sep. 22, 2015).
In 2012, a relator filed a qui tam complaint against defendant Molina Healthcare of Florida, Inc., and it contained false claims that allegedly arose prior to 2010. Defendant filed a Rule 12(b)(1) motion to dismiss the qui tam action, asserting that the court lacked jurisdiction because the relator based his claims on publicly disclosed information. The relator countered that Congress amended the public disclosure bar in 2010 so that it was no longer jurisdictional in nature, rendering the defendant’s 12(b)(1) motion improper.
The Court held that the relevant conduct for applying the amended public disclosure bar was when the false claims were actually submitted, not the date when the lawsuit was filed. Based on the facts alleged in the relator’s qui tam complaint, the pre-2010, jurisdictional version of the public disclosure bar applied. And, because the jurisdictional version of the public disclosure applied, the court lacked jurisdiction if the relator based his claims on publicly disclosed information, unless he qualified as an original source.
The Court’s ruling supports what increasingly appears to be the majority position among those courts that have considered the issue: that the jurisdictional, pre-2010 version of the public disclosure bar applies if the challenged conduct occurred before March 23, 2010—even if the relator filed suit post amendment. As a practical matter, applying the public disclosure bar in this manner will allow defendants to continue using Rule 12(b)(1) to challenge the validity of older FCA claims on a motion to dismiss. Given that courts can consider information beyond the pleadings in a 12(b)(1) challenge, defendants may continue to pursue this powerful option when the facts permit.
Guest Blogger/Author: Scott Terry
Editor: A. Brian Albritton
October 21, 2015