DOJ Officials Reportedly Recommended Intervening in Qui Tam Against Lance Armstrong

The Wall Street Journal reports that U.S. Department of Justice "officials recommended joining" the sealed qui tam False Claims Act filed against former cyclist Lance Armstrong by his former teammate, Floyd Landis. Mr. Landis was the Tour de France winner in 2006, but was stripped of his title due to doping charges.

Though widely discussed in the press, the qui tam suit has not been unsealed, and neither DOJ nor Landis have confirmed its existence. The Wall Street Journal reports that a source who has seen the suit states that Landis alleges that Armstrong and team managers of the U.S. Postal Cycling Team "defrauded the U.S. government when they accepted money from the U.S. Postal Service." From what can be gleaned, the suit appears to be based on a false certification theory because the U.S. Postal Team contract "required that the team refrain from using performance enhancing drugs." Landis and other former team members are alleged to have testified that "Armstrong was at the center of a sophisticated doping ring and knowingly flouted the contract." The Journal reports further that the U.S. Postal Team received $30.6 million in sponsorship funds from the Postal Service, and the contract is reported to have provided that "negative publicity due to alleged possession, use or sale of banned substances by riders or team personnel would constitute an event of default as would a failure to take action if a rider violates a morals or drug clause."

According to the Wall Street Journal, Armstrong's legal team has been in settlement negotiations" with DOJ, but have been unable to reach an agreement thus far. Along with Armstrong, Landis also allegedly sued Johan Bruyneel, the U.S. Postal Team's director, and Thom Weisel, the former chair of the management company that owned the U.S. Postal Cycling Team.

This is an interesting suit. On the one hand, DOJ purportedly alleges that the Postal Service was defrauded because the Team promised not to let cyclists dope and failed to do so, while continuing to collect sponsorship money. On the other hand, the events at issue occurred many years ago -- the Postal Service sponsorship of the team ended in 2004 -- and given the success of the Team at the time, the Postal Service reaped the benefits and good will of its sponsorship during that period. According to U.S. ex rel Davis v. District of Columbia, did the government in fact receive the benefit of its bargain at the time?

A. Brian Albritton
January 17, 2013

False Claims Act Complaint Against Armstrong Unsealed

Kudos to the Pietragallo firm blog that first posted the Landis qui tam/False Claims Act Complaint against Lance Armstrong:  US ex rel Floyd Landis v. Tailwind Sports Corporation, et al, Case 1:0-cv-976 (D. D.C.).  Here is the complaint.  The complaint does not reflect that the U.S. Department of Justice has intervened.    Along with Lance Armstrong, the complaint lists 8 other defendants, including unidentified defendants, "Does 1 -50."

A. Brian Albritton
January 18, 2013

Using the False Claims Act to Enforce Antidiscrimination Laws Against Local Governments

Relator counsel are continuing to find creative applications for the False Claims Act and to expand its reach. A recent Note by University of Texas law student Ralph C. Mayrell, Blowing the Whistle on Civil Rights: Analysing the False Claims Act as an Alternative Enforcement Method for Civil Rights Laws, 91 Tex. L. Rev. 449 (2012), advocates the use of the False Claims Act (FCA) to enhance the enforcement of antidiscrimination laws against local governments. In this thoughtful Note, the author asserts that the "FCA provides civil rights litigators with another avenue for enforcing antidiscrimination laws," and he sets out to "explain the legal theory through which civil rights litigators can effectively litigate claims against local government discriminators using the FCA." The author explains that civil rights laws frequently limit damages from local governments and require that a litigant be injured by a discriminatory practice in order to obtain standing. The FCA, he notes, is not hampered by such limitations.

It should come as no surprise that the article advocates basing FCA liability against local governments on the certifications of compliance with antidiscrimination laws that are commonly found in federal grants to local governments. As a concrete example, the Note focuses on "Community Oriented Policing Services" (COPS) grants that are given by the U.S. Department of Justice to local governments for the hiring of police officers and the creation of crime prevention programs. As is common with most federal grants, the COPS grants require that the grantee will not deny benefits or employment or discriminate against any person based on "race, color, religion, national original, gender, disability, or age" and make compliance with this condition a basis for termination of the grant or suspending funding. The grantee's failure to adhere to these conditions serves as the basis for the false claim, i.e., the relator alleges that the grantee defrauded the federal government of grant funds when it falsely certified that it was in compliance with the grant's antidiscrimination provision. 

The Note observes that in a "few limited situations, litigators have attempted to use the FCA, with varying degress of success" to enforce civil rights and antidiscrimination laws. The largest settlement to date appears to be a $52 million Fair Housing Act case against a local municipality, but that appears to be the high point thus far in these cases. Still, the author argues that "FCA liability based on violations of antidiscrimination laws gives another tool to litigators both for individually injured plaintiffs as well as groups interested in institutional-change litigation."

Overall, the Note rightfully points out that the FCA may be employed in the fight against discrimination by local governments. At the same time, it also illustates the common complaint by the defense bar that the FCA is becoming an heavy handed enforcement mechanism for compelling compliance with governmental regulations.

A. Brian Albritton
January 3, 2013

False Claims Act and Qui Tam DOJ Statistics for 2012

The Civil Division of the U.S. Department of Justice has released the False Claims Act/Qui Tam statistics for FY 2012, which ended September 30, 2012. They can be found here. As in previous years, the overwhelming number of all cases filed pursuant to the False Claims Act were filed by qui tam relators and a great majority of the recoveries came from the health care area.

For 2012 False Claims Act (FCA) and Qui Tam (QT) matters, the DOJ statistics reveal the following:

• 782 FCA/QT new referrals, investigations, and qui tam matters. This number has increased slowly over the last two years as it was 773 in 2011 and 715 in 2010. QT actions continue to drive the overwhelming majority of new matters: almost 83% or 647 of the "new" matters were QT's.

• Total FCA/QT combined recoveries (settlements and judgments) were $4,959,333,498. Of that total:
• Almost $1.605 billion (32%) recovered in FCA cases filed by the government;
• Approximately $3.325 billion (67%) recovered in QT cases where government intervened;
• $29.387 million (.059%) recovered in QT cases where government did not intervene; and
• Total relator share awards: nearly $431 million (8.7% of total recoveries and judgments).

The DOJ divides the FCA/QT new matters and recoveries into three major categories: statistics related to Health and Human Services, Department of Defense, and Other. Not surprisingly, new matters and recoveries relating to health and human services (e.g., Medicare, Medicaid, VA, Tricare) continued to maintain a commanding lead in 2012:

•  436 new health-care related matters, of which 412 were QT cases
• Over $3 billion (61%) in total health care related recoveries, almost $2.5 billion in QT cases; and
• Over $284 million in relator share awards.

• 69 new defense related matters, of which 57 were QTs
• Almost $167 million (3%) in total defense related recoveries, only $2 million were non-QTs; and
• Over $19 million in relator share awards.

A. Brian Albritton
December 27, 2012

Wake Up Call for Those Asserting Broad Privilege Claims: U.S. ex rel Kalid-Kunz v. Halifax Hospital

The Court in the False Claims Act/Qui Tam case of US ex rel Kalid-Kunz v. Halifax Hospital Medical Center, et al., 2012 WL 5415108 (M.D. Fla., November 6, 2012) recently rejected a number of privilege claims made by the defendant in that hotly contested litigation. See previous blog post. The Court’s opinion evaluating Halifax Hospital’s privilege claims is a wake up call both for litigators and in-house counsel, and serves as a refresher on where and when the attorney-client privilege and work product doctrine applies. Though it did not really apply new law as some commentators have claimed, the Court examined Halifax’s privilege claims in a manner and at a level of detail not usually seen in discovery orders. In doing so, the Court emphasized that the attorney-client privilege applies to communications made by or to counsel in the course of obtaining or receiving legal advice and it rejected privilege claims for any email, document, or record that did not exhibit such a clear purpose, regardless of whether a lawyer was copied on the document. The Court’s rulings are quite instructive.  For example: 

·                  The Court rejected the hospital’s attempts to shield as privileged hospital compliance communications that only tangentially involved legal counsel;

·                  In lieu of examining every single document for which defendant claimed a privilege, the Court required that the parties file a “representative samples” for in camera review and based its rulings on review of those samples;

·           Communications by in-house counsel were not entitled to a “presumption” of being privileged, given the mixed role of in-house counsel and their involvement in business decisions; 

·                  Just because a document is labeled “attorney-client privilege” and “funneled through an attorney” does not “automatically encase the document in the privilege.” It has to be related to providing or receiving legal assistance;  

·                  Emails on which both a lawyer and non-lawyer are copied or sent are not considered to have the “primary purpose” of seeking legal advice and thus did not qualify for the privilege; 

·                  You can send “privileged” emails to non-lawyers if you are “apprising “them of the legal advice that was sought and received” -- essentially passing along advice of a lawyer;

·           “A draft of a document is protected by the attorney-client privilege if it was prepared with the assistance of any attorney for the purpose of obtaining legal advice or, after an attorney’s advice, contained information a client considered but decided not to include in the final,” and

·           Each email of an email string must be listed separately in a privilege log and the privilege evaluated for each email in an email string. Email string may not be listed as one message.

Additionally, the Court rejected the Hospital’s privilege claim over its “compliance referral log.” In the face of Hospital’s claim that it was a “factual record about compliance issues that may need to be investigated" and that the log was prepared in anticipation of litigation, the Court found the log was kept in normal course, often just recorded facts, incorporated emails that were not privileged, and did not reflect review by counsel.

The Court rejected privilege log descriptions such as “facilitates the provision of compliance advice”, “facilitates the rendering of compliance advice”, and “reflecting request for compliance advice” on the grounds that you “cannot tell from the descriptions whether privilege is properly asserted.”

The Court rejected the Hospital’s privilege claims for “audit reviews” conducted by the management department, compliance department, and finance department. Again, these audits were not conducted primarily for the purpose of obtaining or receiving legal advice.

Overall, the Court refused to recognize privilege claims that were simply based on the fact that the lawyer may be a recipient of the document or information or on the fact that the subject matter of the report or document (e.g., audits or compliance log) might be of interest to counsel or report matters that might raise a legal concern.  

A. Brian Albritton

December 20, 2012

DOJ Announces Nearly $5 Billion in False Claims Act Recoveries for FY 2012

The U.S. Department of Justice announced yesterday that it had secured $4.9 billion in settlements and judgments in civil cases involving fraud against the federal government for fiscal year 2012. Highlights of DOJ's announcement include:

• $4.9 billion for 2012 is a "record recovery" for a single year, eclipsing the previous record by more than $1.7 billion.
• Total recoveries under the False Claims Act since January 2009, when President Obama took office, is $13.3 billion.
• 647 qui tam actions were filed in 2012.
• Of the $4.9 billion in recoveries, $3.3 billion resulted from suits filed by qui tam relators.
• Of the $4.9 billion, health care fraud recoveries accounted for more than $3 billion and housing and mortgage fraud recoveries accounted for $1.4 billion.
• Enforcement actions against the pharmaceutical and medical device industry were the source of the largest recoveries, such as the $1.5 billion paid by GlaxoSmithKline and $441 million paid by Merck.
• The mortgage fraud recoveries included a $900 million settlement with five mortgage companies to address mortgage loan servicing and foreclosure abuses.
• Procurement fraud recoveries totaled $427 million, bringing the total of procurement fraud recoveries to $1.7 billion since January 2009.
• Nearly 8,500 qui tam suits have been filed since 1986; 2,200 were filed since January 2009.

As Acting Associate Attorney General Tony West stated in announcing these False Claims Act recoveries, the "recovery of taxpayer dollars" is "a high enforcement priority" that has been brought about in part by the "aggressive use of [the False Claims Act]. . . . . The False Claims Act is, quite simply, the most powerful tool that we have to deter and redress fraud." The statements made by Associate Attorney General West and Principal Deputy Assistant Attorney General Delery in announcing these recoveries can be found here and here.

A. Brian Albritton
December 5, 2012

Government May Not Issue Civil Investigative Demand After Underlying False Claims Act Case Dismissed With Leave to Amend

Ben Vernia at False Claims Counsel blog has highlighted a recent False Claims Act case involving a matter of first impression: whether a District Court may quash a Government’s Civil Investigative Demand (CID) that was issued after the underlying case was dismissed without prejudice. United States v. Kernan Hospital, 2012 WL 5879133 (November 20, 2012, D. Md).   

“[B]efore commencing a civil proceeding” pursuant to the False Claims Act, section 3733 of the False Claims Act (31 U.S.C. 3733(a)(1)) permits the Attorney General or his designee to issue a CID to a person and/or entity “who may be in possession of information relevant to a false claims investigation.” The CID may compel the recipient to “produce information that is in the form of documents, answers to interrogatories, or oral testimony.” The question before the Kernan Hospital Court was whether the Court's previous dismissal of a False Claims Act case, though without prejudice to the Government to file an amended complaint, puts the Government “in the same position as though [a] suit had not been filed” -- as if it had not commenced a civil proceeding. 

For three years prior to filing suit, the Government investigated Kernan Hospital for allegedly violating the False Claim Act as well as committing other common law torts. As part of its investigation, the Government obtained thousands of pages of documents from Kernan pursuant to a subpoena issued by the Office of Inspector General and, pursuant to a CID, testimony from Kernan Hospital’s Director of Health Information Management. After filing suit, Kernan Hospital moved to dismiss due to the Government’s failure to plead fraud with particularity pursuant to Fed. R. Civ. P. 9(b) and the Court agreed, dismissing the case, though with leave for the Government to amend to restate its claims. After its suit was dismissed, the Government issued another CID requesting additional documents from Kernan.

The Court found that section 3733 did not permit the Government to serve a CID after the False Claims Act case has been filed, even though it was later dismissed with leave to amend. The Court observed that “the civil investigative demand is a prefiling investigative tool that Congress created to aid the Government in deciding whether to file suit in the first place.”  Additionally, the Court rejected the Government’s argument that quashing its most recent CID “would prevent it from obtaining the information it needs to cure pleading deficiencies.” Essentially, the Court found that the Government had a complete and thorough opportunity to investigate the case before it filed suit, and that the Government had taken “full advantage” of its powers to investigate pre-suit. Hence, while the Government may amend its complaint, the Court noted that “this opportunity does not grant the Government the right to rehash the prefiling investigation that it conducted for over three years.”

 

A. Brian Albritton 

November 26, 2012

Court Rejects Attempt to Stretch Off-Label Marketing Liability to Prescriptions Outside Drug Label Guidelines

In US ex rel. Polansky v. Pfizer, 2012 WL 5595933 (E.D.N.Y., Nov. 15, 2012), U.S District Judge Cogan rejected a relator’s attempt to stretch False Claims Act liability for the “off-label marketing” of drugs to include instances where physicians prescribe prescription drugs to patients outside of the drug label guidelines.

In Polansky, the relator brought a qui tam pursuant to the False Claims Act alleging that Pfizer illegally marketed its cholesterol lowering drug, Lipitor, to patients whose “risk profiles fell outside” the recommended parameters for using cholesterol lowering drugs that are set forth in the National Cholesterol Education Program Guidelines (NCEP Guidelines) and which are referenced in Lipitor’s “label". Simply stated, the relator contended that the label which accompanied Lipitor (which the Court described as the size of a “pamphlet” or “brochure”) “restricts the prescription of Lipitor to patients within the NCEP Guideline range.”

The relator, stated the Court, appeared to be arguing that “any marketing of the drug for patients outside the Guidelines’ range is ‘off-label marketing,’ resulting in the filing of false claims . . .” Applying the relator’s theory, the Court explained:  

Thus, if a Pfizer representative told a doctor that he should prescribe Lipitor to any of his patients who smoke and have a bad family cardiac history (i.e., two risk factors) and LDL levels of 131 mg/dl or more that advice would be proper because that patient falls within the Guideline range. However, change the number in the sales pitch to 125 mg/dl, or even 129 mg/dl, and any prescription issued by a doctor who relied on that advice, and which Medicare or Medicaid subsequently reimbursed, would constitute a false claim. 

Dismissing the relator’s 5th Amended Complaint with prejudice, the Court held that the "False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit. . . . . . Off-guideline does not equate to off-label.” The Court provided three chief reasons in support of its holding. First, the Court noted that the NCEP Guidelines are, in fact, non-compulsory, advisory, guidelines: there is nothing in the drug’s label or the Guidelines themselves which transforms the NCEP Guidelines into a mandatory limit. “[A]s long as Pfizer markets the drug to lower cholesterol,” the Court observed, “it is doing what the label permits.” Second, the Court observed that the FDA could have very easily included restrictive language in its label –as it “commonly requires” -- limiting the use of Lipitor only to those patients who fall within the Guidelines, but it did not. Third, the Court found that other regulatory authorities such as Medicare and state Medicaid programs had not passed any regulations or restrictions that prevented a physician from prescribing statins when he or she finds that a patient would benefit from lowered cholesterol.

As we saw in the Renal Care Group case, the Polansky case is another instance where courts apply a common sense analysis and refuse to permit the False Claims Act to be used as a “back-door regulatory regime.”

 

A. Brian Albritton 

November 22, 2012

Wells Fargo Seeks to Enforce Forclosure Settlement and Stop Government False Claims Act Suit

In October of this year, the U.S. Attorney for the Southern District of New York (SDNY) sued Wells Fargo Bank, N.A. pursuant to the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the suit, the government alleged that for 10 years while participating in the Federal Housing Administration (“FHA”) Direct Endorsement Lender Program, Wells Fargo falsely certified thousands of loans to be eligible for FHA insurance and that as a result of Wells Fargo’s false certifications, “FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.” Specifically, the suit alleges that “between May 2001 and October 2005 . . . . . although Wells Fargo certified to Housing and Urban Development (HUD) that its retail FHA loans met HUD’s requirements for proper origination and underwriting, and were therefore eligible for FHA insurance, the bank knew that a very substantial percentage of those loans – nearly half in certain months – had not been properly underwritten, contained unacceptable risk, did not meet HUD’s requirements, and were ineligible for FHA insurance.  . . . . . The extremely poor quality of Wells Fargo loans was a function of management’s nearly singular focus on increasing the volume of FHA originations – and the bank’s profits – rather than on the quality of the loans being originated." According to the Complaint, the bank further compounded its misconduct by failing to comply with HUD self reporting requirements and reporting only 300 of the 6,558 “seriously deficient loans that it was required to report.” The case is U.S. v. Wells Fargo Bank N.A.,12-cv-7527, U.S. District Court, Southern District of New York, and a copy of the complaint is found here.

In an interesting twist just last week, Wells Fargo sought to forestall the SDNY’s False Claims Act case by filing a Motion to Enforce Consent Judgment in a case previously brought by the Department of Justice and 49 attorneys general against Wells Fargo and other banks alleging abusive foreclosure practices. That case was settled in April of this year, and Wells Fargo reported that it “committed over $5 billion and, in exchange, obtained a broad written release which the court entered as part of its Consent Judgment. According to Wells Fargo, the release provided, among other things, that the government “cannot bring a claim against Wells Fargo based on conduct covered by Wells Fargo’s annual certifications to HUD regarding its FHA program participation, such as conduct related to Wells Fargo’s quality control (including self-reporting), underwriting, and due diligence programs,” which would include the conduct at issue in the New York case. The Motion argues that the government violated the terms of its settlement by filing the False Claims Act suit against it. Wells Fargo filed its Motion in U.S. v. Bank of America Corp., et al., 12- cv-00361 (U.S. District Court, District of Columbia). A copy of the motion and memorandum authored in part by Douglas Baruch of Fried, Frank are found here and here.

 

A. Brian Albritton

November 13, 2012

Whistleblower Counsel Going International: Focus on FCPA and Pharmaceutical Cases

Corporate Crime Reporter recently published an interview with Neil Getnick, a well known and successful plaintiff's attorney whose firm, Getnick and Getnick LLP, specializes in, among other things, federal and state whistleblower (qui tam) cases on behalf of relators and whistleblowers. The interview notes that Mr. Getnick seeks to catch the "next wave" of whistleblower cases: cases arising internationally. Getnick and Getnick is launching a "global anti-fraud and corruption unit focusing on international whistleblower cases."

In part, Mr. Getnick was referring to "Foreign Corrupt Practices Act (FCPA) whistleblower cases." The Foreign Corrupt Practices Act, 15 U.S.C. sec. 78dd-1 et seq, makes it unlawful to bribe or pay foreign officials to obtain or retain business, and according to the U.S. Department of Justice, requires that public companies "(a) make and keep books and records that accurately and fairly reflect the transactions of the corporation, and (b) devise and maintain an adequate system of internal accounting controls." The Securities and Exchange Commission's whistleblower program instituted in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) rewards individuals who assist the SEC in uncovering securities violations including violations of the FCPA. 

Mr. Getnick's anticipated focus on FCPA whistleblower cases should not come as a surprise. For example, in an article discussing the ramifications of the Dodd-Frank Act, the Arent Fox firm predicted that the passage of the Dodd-Frank whistleblower provisions will "likely result in the development of a 'cottage industry' with law firms and consultants stepping up to solicit potential FCPA whistleblowers." "To put this in context," the firm explained, "the fees collected worldwide in the recent Siemens FCPA investigation amounted to approximately $1.6 billion. Accordingly, a qualified whistleblower could have potentially received up to $480 million under this new program. The substantial financial incentives to potential whistleblowers will likely result in a significant increase in FCPA investigations initiated by the government as employees or informants perceive a big pay-off for information."

Along with the FCPA, Mr. Getnick predicted more "international cases targeting pharmaceutical manufacturing practices" such as the 2010 case against GlaxoSmithKline (GSK). In that case, the Getnick firm "successfully targeted [GSK's] largest pharmaceutical plant in the world for violating FDA current good manufacturing practices and selling adulterated drugs." "Pharmaceutical manufacturing companies are moving their plants overseas," Mr. Getnick observed, and if those pharmaceuticals are manufactured in a manner that violates FDA regulations and subsequently sold to the Medicare or Medicaid programs in the U.S., then "there is a sufficient nexus to assert jurisdiction in the United States" pursuant to the False Claims Act.

A. Brian Albritton
November 11, 2012