Ruckh v. Salus Rehabilitation: Eleventh Circuit Reinstates Most of Huge False Claims Act Verdict

Dear Readers:

Just recently, the Eleventh Circuit largely overturned the District Court’s decision in US and State of Florida ex re Ruckh v. Salus Rehabilitation, LLC, et al. In that non-intervened qui tam, the District Court overturned the jury’s verdict in favor of the relator and with it a $347 million judgement against the defendants. See my Jan. 29, 2018, blog post,“Discerning the True Meaning of Escobar: the remarkable case of US ex rel Ruckh v. Salus Rehabilitation.”

The District Court’s decision was a dramatic one. For lack of a better phrase, it was a legal “bang” to awaken the public and the legal community to the punitive impact of False Claims Act (FCA) verdicts on a vulnerable industry such as Florida nursing homes. Ruckh, as I observed in my previous blog post: 

“does so much more than apply a simplistic Escobar analysis of whether the government would have objected to this or that individual billing practice or paperwork errors--what I would call a retail analysis of disputed practices. Rather, acknowledging the punitive nature of the FCA’s treble damages and penalties, the Court evaluates the materiality of defendants’ disputed practices in light of ‘common sense’ and the impact of an FCA judgment would have on the delivery of nursing home care to a large, vulnerable population. For the Court, the ‘controlling question’ is essentially whether the government would effectively shut down 53 nursing homes on the basis of what appears to be paperwork errors–-what the court calls ‘traps, zaps and zingers’--about which the government ‘has permitted . . . to remain in place for years without complaint or inquiry.’”

Well, that’s all over now. The Eleventh Circuit (the Court) ignored the sweeping language of the District Court and the broader questions it posed about determining materiality. We are back to a “just the facts, ma’am” type of approach. The Court did not look at the larger questions, at least with regard to Medicare and the liability of the management company that did not submit the claims at issue. Instead, it largely focused on whether this or that type of billing practice would have caused Medicare to pay more than it should and, if so, whether there was sufficient evidence for the jury’s verdict.

The Court upheld most of the jury’s verdict. It found that the Defendants, 53 skilled nursing facilities and their management company, violated the FCA by submitting 420 allegedly fraudulent Medicare claims. The fraudulent Medicare claims arose from “upcoding” and “ramping,” which is the “artificial timing of services to coincide with Medicare’s regularly scheduled assessment periods.”  Once the matter is returned to the District Court, we can anticipate the District Court entering a judgment in excess of $255 million in favor of the relator and the government.

The District Court’s Ruling On Medicare and Medicaid Claims

According to the District Court, determining if a defendant’s disputed act or practice is material to the government required a far broader context and circumstance than simply whether the government would object to this or that individual disputed practice.  For both the Medicare and Medicaid clams at issue, the District Court found that the “evidence and the history of this action establish that the federal and state government regard the disputed practices with leniency or tolerance or indifference.” The District Court observed that “relator’s evidence” proved that these “disputed practices” were not material. This is because “Medicaid and Medicare consistently paid ‘in the mine run of cases’ despite Medicare’s routine audits and Medicaid’s knowledge of billing and documentation deficiencies.”

The Eleventh Circuit’s Ruling On Medicare Claims

The Eleventh Circuit, though respectful, was not having any of that. The jury ruled “the evidence at trial permitted a reasonable jury to find that the defendant’s committed Medicare-related fraud . . . through the use of two improper practices: upcoding and ramping.”

As to materiality, the Eleventh Circuit simply declared that “[c]ontrary to the district’s decision, these types of affirmative representations are material.” The Court did not cite any authority to support its statement. Rather, determining materiality was simple: upcoding caused Medicare to pay the defendants “higher amounts than they were truly owed. This plain and obvious materiality went to the heart of the [skilled nursing facilities’] ability to obtain reimbursement from Medicare.” “Ramping,” the Court explained further, “causes Medicare to reimburse at a higher level than it would had the [skilled nursing facilities] reported the appropriate level of services. Like upcoding, ramping is material as it goes to the essence of the parties’ economic relationship.”

The Eleventh Circuit rejected the District Court’s alternative order for a new trial. It sustained the jury’s single damages for $85,137,095 on the Medicare claims. It instructed the District Court to enter judgment on those claims after applying trebling and statutory penalties.  The Court further sustained the jury’s finding that even though the management company did not submit the claims, it was responsible for “causing” false claims to be presented for payment. Having not previously addressed the “appropriate standard to prove causation in FCA ‘cause to be presented’ actions,” the Court held that “proximate causation” was a “useful and appropriate standard by which to determine whether there is a sufficient nexus between the defendant’s conduct and the submission of a false claim.”

The Eleventh Circuit's Ruling on Medicaid Claims

Surprisingly, the Eleventh Circuit found that “no jury could have reasonably concluded that the defendants defrauded Medicaid.” It upheld the District Court’s judgement as a matter of law on those claims. The relator based her Medicaid fraud claim on the defendant’s “failure to prepare and maintain comprehensive care plans” for the nursing home residents. The Court acknowledged that Florida’s Medicaid regulations:

• Require that skilled nursing facilities are “responsible for developing a comprehensive plan of care for each resident”

• Instruct that “Medicaid payments for services that lack required documentation or appropriate signatures will be recouped”

• Caution providers to submit “true and accurate claims” and to certify that billing information is “true, accurate and complete.”

The relator argued at trial that Florida “would or could automatically deny payment if the state were to discover care plans were missing.”

The Eleventh Circuit found that there was “no evidence that the state ever declines payment for, or otherwise enforces, these types of violations.” Citing Escobar, the Court noted that was “very strong evidence that those requirements are not material.” The relator’s “scant evidence,” the Court observed, “supported only the conclusion that care plans are, at most, labeled as conditions of payment under Medicaid regulations” and is “without more…insufficient to establish materiality.” The Court also concluded that the relator’s “implied certification theory of liability” for its Medicaid fraud claims failed as well. “Implied certification claims,” the Court explained, must be founded not only on a request for payment. The claims also must make “specific [false] representations about the goods or services provided.” The relator, however, failed to “connect the absence of care plans to specific representations regarding the services provided” and “without more, the failure to create and maintain plans cannot serve as a basis for FCA liability.”

Why did the Eleventh Circuit Rule Differently on Medicare and Medicaid Claims?

The Eleventh Circuit does not explain how the defendants’ Medicare billing practices were material but defendants’ Medicaid billings were not. I believe the Court’s analysis is based on the difference between how these services were billed at the time. Medicare, the Court observed, reimbursed the skilled nursing facilities services on a “fee-for-service model” in which Medicare pays the skilled nursing facility for providing specific services. The skilled nursing facilities “indicated they had provided more services -in quantity and quality- than they, in fact, provided.” This caused Medicare to pay “higher amounts than they were truly owed.” Basically, it is saying that your bills say you did X, but you really only did Y, and Medicare paid more as a result.

Florida Medicaid, by contrast, only “reimburses SNFs for resident care at a flat daily rate.” That’s the difference, apparently. The Medicaid bill essentially says: residential care provided to patient A on Z date. Now, the requirements for defendants to provide that “care” are contained in the Florida Medicaid regulations. The SNFs must certify generally that they fulfill those requirements. But, I assume the Court’s point is that the relator did not show that Florida Medicaid actually rejected such bills when it discovered or knew that such comprehensive care plans were not provided. Still, there’s something that just does not sit well with that.

And there’s more in the case, such as a lengthy discussion about whether the relator loses standing by entering in an agreement to sell part of her recovering to a litigation funding company – it does not. As to guidance about if a relator can use a sampling to determine liability or if the damages were excessive – readers will have to look other places for that. The Court was not having any of it, finding that defendants either did not raise it or adequately address it.

In sum, the Eleventh Circuit’s decision in US and State of Florida ex re Ruckh v.Salus Rehabilitation, LLC, et al. is rather anti-climactic on the scope of Escobar and how to evaluate materiality of a defendant’s billing practices. Defense counsel will have to look elsewhere for more expansive discussions of materiality and Medicare such as those found in the District Court’s opinion.

A. Brian Albritton

July 15, 2020

Discerning the True Meaning of Escobar: the remarkable case of US ex rel Ruckh v. Salus Rehabilitation

Dear Readers:

I strongly commend to you the recent case, US and State of Florida ex re Ruckh v. Salus Rehabilitation, LLC, et al, 2018 WL 375720 (1/11/2018, M.D. Fla). Applying the Supreme Court’s decision in Universal Health Services, Inc. v. Escobar, 136 S. Ct. 1989 (2016), the Court overturned a $347 million False Claims Act (FCA) trial judgment entered in favor of the Relator after a month long jury trial. The Court granted the Defendants’ motion for judgment as a matter of law and for a new trial on the grounds that the Relator failed to prove that (1) the government regarded the alleged violations of Medicaid and Medicare by a group of 53 nursing homes as material such that they would have refused to pay the Medicaid claims at issue; and that (2) the defendants submitted the Medicaid claims at issue knowing that the government would refuse to pay them if they had known about them. 

Ruckh does so much more than apply a simplistic Escobar analysis of whether the government would have objected to this or that individual billing practice or paperwork errors--what I would call a retail analysis of disputed practices. Rather, acknowledging the punitive nature of the FCA’s treble damages and penalties, the Court evaluates the materiality of defendants’ disputed practices in light of “common sense” and the impact of an FCA judgment would have on the delivery of nursing home care to a large, vulnerable population. For the Court, the “controlling question” is essentially whether the government would effectively shut down 53 nursing homes on the basis of what appears to be paperwork errors–-what the court calls “traps, zaps and zingers”--about which the government “has permitted . . . to remain in place for years without complaint or inquiry.”

I won’t try to capture all of the Court’s discussion, but here are a few highlights:

• The Court appeared to appreciate the complexity and burden of Medicare and Medicaid regulations:  “Federal and state government’s regard the disputed practices with leniency or tolerance or indifference or perhaps with resignation to the colossal difficulty of precise, pervasive, ponderous, and permanent record-keeping in the pertinent clinical environment.” The evidence at trial showed that “Medicaid and Medicare consistently paid in the mine run of cases despite Medicare’s routine audits and Medicaid’s knowledge of billing documentation deficiencies.” 

• The Court explained Escobar’s meaning as follows:  Escobar rejects a system of government traps, zaps, and zingers that permits the government to retain the benefit of a substantially conforming good or service but to recover the price entirely--multiplied by three--become of some immaterial contract or regulatory noncompliance.  A principal mechanism to ensure fairness and to avoid traps, zaps, and zingers is a rigorous standard of materiality and scienter. 

• The Court openly questioned whether the FCA’s “punitive” treble damages and $11,000 fines can be “lawfully imposed on a supplier who delivers substantially compliant goods or services that are received and accepted by the government with knowledge of, or the indifference toward, some material, formalistic, or technical non-compliance.”

• Acknowledging that the defendants “used qualified providers who ably provided services in accord with orders issued by qualified professional but who, for example, could not--years later--identify a ‘comprehensive care plan’ for each patient,” the Court found that  “[c]ommon sense falls far, far short of depicting that . . . a reasonable purchaser would abruptly refuse to pay those providing continuing and sustaining health care to a mass of highly vulnerable and mostly elderly and frail patients.” 

The Court’s key point is that evaluating the materiality of a disputed act or practice must take into account a far broader context and circumstance than simply whether the government would object to this or that individual disputed practice. Escobar, the Court instructed, “demands proof of materiality in the circumstances as they are at the time for which the proof is offered and in the place, in the industry, and in the other regnant circumstances that attend the moment for which materiality is offered.” In the case of the defendants 53 nursing homes, the Court explained:

In other words, the controlling question is not whether on a small scale — a patient or a few patients or a facility or even a few facilities or one physician, on therapy, or one pharmaceutical — but whether on a large scale, on the sale of a major statewide provider of a scarce health care resource in a large and potent state, the federal [or state] government would refuse to pay the provider because of a dispute about the method or accuracy of payment after the government has permitted a practice to remain in place for years without complaint or inquiry. . . . . If a non-compliance is found quickly and remains small, the government might likely demand perfect performance and full accounting. If compliance is larger and lingers longer and the repayment times three becomes a burden that threatens the vitality of the vendor and threatens the public interest, the government might not demand repayment times three.

In my view, Ruckh is a far more important and far reaching application of Escobar than U.S.ex rel Harman v. Trinity Indus., Inc., 872 F.3d 645 (5th Cir. 2017). 

A. Brian Albritton
January 29, 2018

Fifth Circuit Applies Escobar’s “Demanding” Materiality Standard: Abbott v. BP Exploration and Production

The Fifth Circuit recently provided insight into how to apply the Supreme Court’s Escobar materiality standard in False Claims Act (FCA) cases based on a defendant’s alleged false certification of compliance with underlying regulations. Abbott v. BP Exploration and Production, Inc., 2017 WL 992506 (5th Cir. March 14, 2017).

BP, the defendant in Abbott, built and maintained the Atlantis Platform, a semi-submersible oil production facility in the Gulf of Mexico. The Relator worked for BP in Atlantis’s administrative offices. During his employment, Relator grew suspicious that BP had falsely certified compliance with certain safety regulations, and had, therefore, submitted false claims. Relator filed a qui tam complaint against BP and sought over $200 billion in FCA damages. The government declined to intervene.

Prompted by Relator’s FCA complaint, the U.S. Department of the Interior (DOI) launched an investigation into BP’s management of Atlantis. That investigation coincided with the high-profile explosion at BP’s Deepwater Horizon, a similar oil production facility, generating negative press and attention for BP. Nevertheless, the DOI's investigation cleared BP of any wrongdoing in connection with Atlantis, and its detailed report called Relator’s claims “unfounded” and “without merit.”

Despite the DOI’s findings, Relator persisted with his FCA lawsuit. Ultimately, in a scathing 10-page order, the District Court granted BP summary judgment on all counts, calling BP’s alleged errors “paperwork wrinkles,” which could not have influenced the government’s decision to pay. See U.S. ex rel. Abbott v. BP Exploration and Production, Inc., Case No. 4:09-CV-01193 (S.D. Tx. 8/21/14)(ECF 431).

In affirming the District Court's decision, the Fifth Circuit honed in on the materiality issue and the Supreme Court’s Universal Health Servs., Inc. v. Escobar, 136 S. Ct. 1989 (2016) decision. Focusing on the “demanding” materiality standard, the Court highlighted one of Escobar’s central points: a governmental designation of compliance as a condition of payment does not alone prove materiality. Instead, courts must consider evidence to determine whether the government's payment of a claim truly hinges on a contractor's regulatory compliance, such as whether the government paid the claim with knowledge of the regulatory violation. Escobar, the Court noted, "debunked the notion that a Governmental designation of compliance as a condition of payment by itself is sufficient to prove materiality."

Although the Government apparently did not know of BP's alleged regulatory violations when it paid BP’s claims, the DOI’s subsequent report suggested to the Fifth Circuit that compliance with the referenced regulations was not material to the government’s decision to pay. As the Court observed: "As recognized in Escobar, when the DOI decided to allow the Atlantis to continue drilling after a substantial investigation into Plaintiffs' allegations, that decision represents 'strong evidence' that the requirements in those regulations are not material." Having nothing to rebut these "strong facts," the Court affirmed summary judgment for BP.

FCA defendants can use Abbott to defend against allegations that they falsely certified compliance with Government regulations. To show that their alleged noncompliance was not material to the Government's decision to pay claims, a defendant could highlight any post-payment evidence suggesting that the Government would not have deemed the alleged regulatory violations material. For example, a defendant could cite to government audit reports that approved the payment on claims with the same alleged deficiency, or to post-payment correspondence establishing the government’s knowledge of the alleged regulatory issue. The facts and types of evidence will vary, but Abbott’s reliance on post-payment materiality evidence could apply broadly as courts continue to craft materiality case law in Escobar’s wake.

Author: Scott Terry

Editor: A. Brian Albritton

March 29, 2017 

The Supreme Court Resets How False Claims Act Liability Should Be Determined for False Certification Claims: Universal Health Services Inc. v. United States ex rel. Escobar

Dear Readers:

Yesterday the Supreme Court issued its long-awaited opinion in the False Claims Act case, Universal Health Services, Inc., v. United States ex rel. Julio Escobar and Carmen Correa, 579 U.S. __ (2016), often referred to as the "Escobar case." The Court's unanimous opinion resets how False Claims Act ("FCA") liability is determined for legally false claims, i.e., those claims based on false certifications, express or implied, made by a provider or contractor in conjunction with submitting claims for payment to the Government. Essentially, Escobar seeks to anchor the FCA's prohibition against "false or fraudulent" claims in the common law definition of fraud. Common law fraud encompasses either affirmative misrepresentations or misleading omissions. For fraud to occur, however, the Court stressed that misrepresentations or omissions relating to a statutory, regulatory, or contractual requirement must be material to the Government's payment decision. At the same time, the Supreme Court "clarified" that materiality is a "rigorous" requirement, and determining what is or is not material does not "depend on what label the Government attaches to a requirement."  

The Supreme Court initially affirmed that FCA liability can be based on an "implied false certification" based on dramatic facts relating to counseling and medical treatment provided by a mental health care facility to a teenage patient which led to her death. In Escobar, the facility represented in its claims to Medicaid that it had provided specified therapies and other types of treatment to the beneficiary. In reality, the facility had not provided the therapies and treatment it billed for because many of its personnel were neither licensed or qualified to provide these services and in fact had misrepresented their qualifications and licensing status to the government to obtain provider numbers that permitted them to submit claims to Medicaid. The Court found that the facility's Medicaid claims "do more than merely demand payment."  Rather, the claims were "actionable misrepresentations" because they contained "half truths" while "omitting critical qualifying information." Escobar held that the implied certification theory could be a basis for FCA liability "at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths."

In the second half of its opinion, the Supreme Court addressed whether FCA liability can be based only where a defendant fails to disclose that it has violated an "expressly designated condition of payment." Escobar essentially rejected the express condition of payment/condition of participation dichotomy developed by the appellate courts in false certification cases, finding instead that FCA liability arises only if the defendant fails to disclose in submitting a claim that it has violated a material condition of payment. And then it threw a curve ball: "statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment." In fact, the Court noted that if FCA liability depended only on violating express conditions of payment,"[t]he Government might respond by designating every legal requirement an express condition of payment. But billing parties are often subject to thousands of complex statutory and regulatory provisions. Facing [FCA] liability for violating any of them would hardly help would-be-defendants anticipate and prioritize compliance obligations."  

The FCA's "materiality standard," the Supreme Court pointed out, is "demanding." The Court explained further: "[t]he [FCA] is not an all-purpose anti-fraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for finding of materiality that the Government would have the option to decline to pay if it knew of the defendant's noncompliance. Materiality . . . cannot be found where noncompliance is minor or insubstantial." (internal quotes/citations omitted).

Noting that the FCA's definition of materiality "descends from common-law antecedents," the Supreme Court then looked to common-law characterization of materiality to define it. Citing Williston on Contracts, Escobar explained that "[u]nder any understanding of the concept, materiality looks[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation." Looking to the Restatements on Torts and Contracts, the Court identified two key criteria for determining materiality: "(1) if a reasonable man would attach importance to [it] in determining his choice of action in the transaction; or (2) if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter in determining his choice of action, even though a reasonable man would not." (internal quotes/citations omitted). 

In a footnote, Escobar rejected the appellant's assertion that "materiality is too fact intensive for courts to dismiss [FCA] cases on a motion to dismiss or summary judgment." The Court explained further that "[FCA] plaintiffs must also plead their claims with plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b) by, for instance, pleading facts to support allegations of materiality."

The Court's opinion ended with a reminder that the FCA "is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations.  This case centers on allegations of fraud, not medial malpractice."

Overall, Escobar contains something for relators, defendants, and the government. By rooting FCA liability to the common law definition of fraud, the Supreme Court seeks to apply the FCA to serious frauds and effectively prevent it being used as a weapon to police technical violations and contractual disputes. Having given broad guidance and repeated injunctions as to the "rigorous" standard for materiality, it is up to the courts below to further expand and apply these principles.

A. Brian Albritton
June 17, 2016

The Government Should Dismiss Meritless Qui Tam Suits - The Case of US ex rel Thomas v. Black and Veatch Special Projects Corp.

Dear Readers:

Last week the 10th Circuit affirmed the District Court's grant of summary judgment in favor of the defendant in US ex rel Thomas v. Black and Veatch Special Projects Corp., 2016 WL 1612857 (10th Cir.). I previously covered the District Court's decision.

Black and Veatch is a great case that addresses whether and when a defendant's "false certification" of its compliance with a government contract is material to the government's decision to pay on that contract. As the Court explained, "liability [under the False Claims Act (FCA)] does not arise merely because a false statement is included in the claim; rather, the false statement must be material to the government's decision to pay out moneys to the claimant." Here, the Court essentially found that the false certification regarding minor breaches of the contract was not material to the government's decision to continue paying on the contract because the government continued to pay defendant on the contract long after the government knew of and defendant self-reported the violations.

Defendant Black and Veatch was a large construction firm that contracted with the United States Agency for International Development (USAID) to build a huge electrical plant in Afghanistan. The Relators discovered (and the construction firm also self-reported) that some of the employment records for a handful of the defendant's employees had been fraudulently tampered with so that the employees could get visas and work permits in Afghanistan. Such violations, Relators alleged, constituted a "material" violation of the contract and resulted in a false certification to the government that went to the heart of the defendant's government contract.

Looking at the contract as whole and the impact these minor violations had on its performance, the Court found that these violations did not undermine the contract's purpose and that the defendant substantially performed all of its contractual duties and obligations. More importantly, the Court found that these violations were not material because the USAID continued to pay the defendant on the contract long after government officials learned of the defendant's violations and the results of defendant's internal investigation. 

I said it when I reviewed the District Court case but it's worth repeating: the real significance of this case is the government's failure to exercise its authority under the FCA to dismiss the Relators' suit pursuant to 31 U.S.C. 3730(c)(2)(a). What possible justification was there for allowing it to continue?  If the government as the "real party in interest" didn't have a problem with the defendant, why let Relators, acting in the government's name and collecting money for the government, proceed with this matter? Why force a defendant to defend a case like this? 

Apparently, the government never exercises its power to dismiss meritless qui tam cases. I know of only one case where the government dismissed a claim under 3730(c)(2)(a): US ex rel Roach v. Obama, 2014 WL 7240520 (D. DC). In that case, the relator alleged that Barack Obama was not eligible to hold the office of President and that transactions engaged by him as President violated the FCA. Is Roach the bar for when the government will exercise its power to dismiss meritless qui tam suits -- that they have to be brought by a birther? It sure seems like it.

A. Brian Albritton

May 2, 2016

Violation of Government Contract Does Not Give Rise to False Claim Where Government Knows of Violation and Continues to Pay Claims

Dear Readers:

I commend to you the recent False Claims Act case of U.S. ex rel Thomas v. Black and Veatch Special Projects Corp., 2015 WL 3570661 (D. Kan. June 5, 2015). The Court granted summary judgment in favor of the defendant, a government contractor, who contracted with the United States Agency for International Development ("USAID") to provide services and support for power projects in Kandahar, Afghanistan. In a common sense ruling, the Court found that defendant did not falsely certify its compliance with the provisions of the USAID contract because USAID continued to make numerous contract payments to the defendant even after it both learned of the defendant's failure to comply with one of the contract's provisions and was served with a copy of the qui tam complaint together with relators' disclosure of material evidence.

The USAID contract provided for defendant to submit invoices every two weeks to the USAID, which in turn, reviewed and evaluated whether the work was satisfactory, and if it was, authorized periodic payments to the defendant. All work remained subject to USAID's final inspection and acceptance, and the USAID contracting officer was permitted to reduce or suspend payments if he found substantial evidence that the defendant failed to comply with any material requirement of the contract.

Among its many provisions, the USAID contract required the defendant to comply with Afghan law and to obtain work visas and permits for all foreign citizens working for the defendant on the contract in Afghanistan. The relators, employees of the defendant, discovered that forged documents had been submitted to the Afghan government on behalf of seven of the defendant's employees, and they informed the USAID of their discovery. Subsequently, the defendant conducted its own internal investigation and confirmed to USAID that forged educational documents had been provided on behalf of seven employees to the Afghan government in order to obtain work permits for them.  

In their qui tam complaint, Relators alleged that the defendant submitted legally false claims for payment to USAID by impliedly certifying its compliance with Afghan law in its periodic requests for contract payment. Relators cited to a Federal Acquisition Regulation that required defendant and its personnel to comply with all applicable United States and host country laws. Relators asserted that because defendant fraudulently obtained permits and visas in violation of Afghan law, it failed to comply with a contractual prerequisite of payment and as a result falsely certified its compliance with the contract.  

Granting summary judgment in favor of the defendant, the Court found that the realtors had not provided any facts to show that "USAID may have reduced or refused payments" based on alleged false documents and the violation of Afghan law.  The Court found that compliance with Afghan law "was not material to the government's decision to pay defendant's invoices" because "USAID . . . continued to pay defendant, even though it knew about these allegations and even though . . . it could not determine whether defendant had filed the forged documents."

Remarkably, the Court noted further the government continued to pay the contract even after the relators filed their qui tam suit:  

USAID's conduct after relators filed suit also demonstrates that compliance with Afghan law did not matter to the government's payment decision. Relators commenced this action and provided a copy of the Complaint and a statement of all material facts to the government on August 23, 2011. . . .  . Since then, defendant had submitted at least forty-seven invoices for USAID payment. USAID never demanded that defendant refund any amount paid. Nor has it reduced or withheld payment of any invoice submitted after realtors filed suit. Instead, USAID has accepted and paid for all deliverable components completed by defendant under the contact. . . . . USAID's conduct after relators filed this action demonstrates that defendant's compliance with Afghan work permit and visa requirements did not matter to the government's payment decision. 2015 WL  3570661 *13 (citations omitted).

In short, the Court found that the defendant's compliance with Afghan law provision must not be material to the contract's conditions of payment because USAID continued to make payments on its contract even though it was aware of relators' qui tam suit and the defendant's contractual violation. 

The case illustrates two of the maddening aspects of qui tam litigation. First, the government should have dismissed this case when it was filed on the basis that the agency did not believe the defendant's had violated a material provision of the contract.  Instead, as the government so often does, the relator filed a qui tam suit alleging that the defendant violated some government contractual provision or regulation, the government declined to intervene and of course said nothing and the relator prosecuted the matter in the name of the government --all the while as the government agency in question continued to do business with the defendant in the same manner that is alleged to be a FCA violation in the suit.  Almost assuredly, the U.S. Attorney's Office would have inquired of USAID when relators filed their suit and they should have learned then that USAID did not find the contract violation to be material.  Yet, the government permitted the qui tam to proceed even though the government later permitted the defendant to obtain  statements from the USAID contracting representatives who confirmed that they knew "about the defendant's conduct" but continued to direct that USAID pay defendant's invoices.  

Second, the case offers some hope to defendants who are accused by realtors --but not the government-- of violating some obscure or ambiguous regulation or contractual provision. This case permits the defendant to use the government's knowledge of the alleged violation and its continued payment of claims to show that the so called violation must not be material if the government does nothing in the face of these allegations and continues to pay claims.

Defendant's counsel Kathleen Fisher, Nathan F. Garrett, and Todd P. Graves, (the former U.S. Attorney for Kansas City, Missouri) of the Graves Garrett firm should be commended for their excellent work in securing this decision by the Court.

A. Brian Albritton
July 5, 2015