Rob Sneckenberg

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Rob Sneckenberg is an associate in Crowell & Moring LLP’s Washington, D.C. office, where he practices in the Government Contracts and Product Liability & Torts groups. He represents government contractors and other companies in both litigation and counseling matters, including litigating bid protests before the Government Accountability Office and Court of Federal Claims (COFC), pursuing contract claims before the Boards of Contract Appeals and COFC, and conducting ethics and compliance reviews and civil and criminal fraud investigations under the False Claims Act. Rob received his J.D. from The George Washington University Law School, where his studies focused on government procurement law and he served as an editor of the Federal Circuit Bar Journal. While at GW, Rob interned at the Court of Federal Claims for the Honorable Susan G. Braden and at the National Courts Section of the Department of Justice’s Commercial Litigation Branch, which litigates before the COFC and the United States Court of Appeals for the Federal Circuit. Rob received his undergraduate degree from Harvard College.

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In-Sourcing Notification Requirements

Rob Sneckenberg

On January 29th, the Office of the Assistant Secretary of Defense issued a memorandum requiring agencies to “determine and document final decisions to in-source” and requiring contracting officers to notify their affected incumbent contractors within 20 days of receipt of such in-sourcing decisions.

The memorandum, titled “Private Sector Notification Requirements in Support of In-Sourcing Actions,” comes amidst a series of Court of Federal Claims (COFC) decisions dismissing and denying contractor protests of agency in-sourcing decisions. Most recently, in December, Judge Christine Miller held that a protester had standing to pursue an in-sourcing protest but failed to demonstrate entitlement to injunctive relief. See Dellew Corp. v. United States, -- Fed. Cl. -- , No. 12-627C, 2012 WL 6690092, (Dec. 20, 2012). Prior COFC decisions had held that an incumbent contractor lacks standing to protest an agency in-sourcing decision where the incumbent’s contract has expired and agency personnel have already assumed performance. See, e.g., Elmendorf Support Servs. Joint Venture v. United States (Elmendorf II), -- Fed. Cl. -- , No. 12-346C, 2012 WL 3932774 (Sept. 10, 2012) (dismissing protest for lack of standing even though incumbent contract expired after contractor filed protest). One decision went so far as to hold that an incumbent contractor challenging an agency in-sourcing decision lacked “prudential standing” because the personnel regulations alleged to be violated, 10 U.S.C. § 129a and 10 U.S.C. § 2463, were not intended to protect contractors adversely affected by in-sourcing decisions and had too tenuous a relationship to 28 U.S.C. § 1491(b)’s “in connection with a procurement or proposed procurement.” See Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011); but see Elmendorf Support Servs. Joint Venture v. United States (Elmendorf I), 105 Fed. Cl. 203 (2012) (explicitly disagreeing with Hallmark-Phoenix and holding that incumbent contractor challenges to agency in-sourcing decisions do not fail for lack of prudential standing).

The new memorandum may aid contractors in their challenges to agency in-sourcing decisions. The memorandum provides that “No formal hiring or contract related actions may be initiated prior to such notification, except for preliminary internal actions associated with hiring or contract modification.” Additionally, it explains that “Notifications . . . may summarize . . . the requiring official’s final determination as to why the service is being in-sourced and shall be coordinated with the Component’s in-sourcing program official.” The memorandum will be incorporated into the Defense Federal Acquisition Regulation Supplement (DFAR), will be incorporated into a future DoD issuance on in-sourcing, and may spur supplemental agency guidance on in-sourcing and/or related notification requirements.

Delaying agency assumption of performance and notifying contractors of the rationale behind in-sourcing decisions may provide contractors more solid grounds for protests before the COFC. To the extent that the memorandum requires agencies to delay transitioning to their own personnel, affected incumbent contractors may have more time to pursue a COFC protest before the issue is moot. And added transparency regarding the reasoning behind the in-sourcing decision may provide contractors more specific and concrete bases for challenging agency decisions.

Additionally, the memorandum’s incorporation into the DFAR should eliminate any debate over whether incumbent contractors maintain “prudential standing” to challenge agency in-sourcing decisions. 28 U.S.C. § 1491(b)(1) grants the COFC jurisdiction over “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement” (emphasis added). Whether in-sourcing protests are founded on the memorandum’s DFAR provision itself or still pursued under agency personnel statutes, the existence of the new provision should alleviate any potential concerns regarding the viability and reviewability of such protests. Nevertheless, it remains to be seen exactly how agencies will implement the new memorandum and whether it will provide any actual assistance in light of the COFC’s thus far burdensome requirements for in-sourcing protests.

What will they think of next? Qui tam relator alleges False Claims Act violation for "fraud-on-the-FDA"

Rob Sneckenberg

Both Jonathan Cone and Rob Sneckenberg contributed to this blog post.

A recent case from the District of Massachusetts illustrates how the False Claims Act may be stretched to cover companies that do not even submit claims to the government. In U.S. ex rel. Ge v. Takeda Pharmaceutical Co., Nos. 10-11043-FDS, 11-10343-FDS (D. Mass. Nov. 1, 2012), the relator alleged that Takeda Pharmaceuticals violated the FCA not by submitting false claims for payment, but by failing to report to the FDA adverse events associated with four of its drugs.

How is this a false claim?

The FCA imposes liability on any person who "knowingly presents to the government, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). Under the "implied certification" theory of liability, as recognized by the First Circuit, a claim may be found false if submission of the claim impliedly represents compliance with a requirement that is a material precondition of payment. See U.S. ex rel. Hutcheson v. Blackstone Med., Inc., 647 F.3d 377, 387 (1st Cir. 2011). Here, the relator's basic argument was that every claim submitted by a medical provider to the federal government for reimbursement for the four Takeda drugs at issue impliedly certified Takeda's continuing compliance with FDA reporting requirements. Takeda's failure to properly report to the FDA a number of post-marketing adverse events rendered every one of those claims "false," she alleged, because the FDA might have withdrawn approval for the drugs.

Dismissal under Rules 9(b) and 12(b)(6)

Despite the relator's assertion that there were billions of dollars in false claims, for one drug alone, the district court dismissed the allegations both for failure to plead with particularity and failure to state a claim. First, the Court noted that while the relator had sufficiently alleged "fraud-on-the-FDA"-i.e., that Takeda allegedly underreported adverse events-she had failed to allege the specific details of any claims that were allegedly rendered "false" as a result. The relator provided only aggregate data regarding one of the four drugs, and she failed to identify any specific claimants or government program payors. As such, she could not meet Rule 9(b)'s heightened pleading requirement.

Second, the Court held that the allegations failed to state a claim under Rule 12(b)(6). The Court found that the relator adequately alleged that Takeda knowingly caused the claims at issue to be submitted, and it generously assumed that medical providers' claims for reimbursement impliedly certified Takeda's continuing compliance with FDA reporting requirements. Even after gifting the relator that much, though, the Court still held that compliance with the FDA reporting requirements was not a material precondition of payment. The Court noted the FDA's discretion to take a variety of actions to combat reporting violations and highlighted that the FDA is in no way required to, nor does it often, impose its harshest penalty of withdrawing drug approval. The relator simply could not establish that compliance with the FDA reporting requirements was a material precondition of payment, and therefore did not state a claim upon which relief could be granted.

Causing false claims

Takeda illustrates how qui tam relators may use the FCA to reach companies that do not even submit claims to the government, so long as their actions may cause others to do so. To survive dismissal, however, relators alleging FCA violations by parties that do not directly submit claims will have to plead specific details identifying claimants and government program payors. And basic fraud-on-the-agency allegations will not suffice where agencies enjoy discretion to enforce their regulations and where those regulations do not directly condition the government's obligation to pay on compliance.

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