In Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016) (discussion by C&M attorneys here), the Supreme Court held that an implied false certification can be a basis for False Claims Act (FCA) liability, “at least where two conditions are satisfied:” (1) the claim makes specific representations about the goods or services provided and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths. (Emphasis added).
In this episode, hosts Mana Lombardo and Jason Crawford are joined by Tully McLaughlin, co-chair of the firm’s False Claims Act Practice, to discuss some of the unique considerations for trying False Claims Act cases. “Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act.
Recently, in United States ex rel. Hunt v. Cochise Consultancy Inc., the Eleventh Circuit widened a split in authority regarding the applicability of the tolling provision of the False Claims Act’s statute of limitations, holding that it is applicable to qui tam actions even when the government declines to intervene. The court also found that the period is triggered by a government official’s knowledge of the fraud. 887 F.3d 1081 (11th Cir. 2018). In so holding, the Eleventh Circuit disagreed with the Fourth, Ninth, and Tenth Circuits’ interpretation of the statutory language and arguably extended the filing period for relators within its jurisdiction.
On March 1, the President announced his intention to impose tariffs of 25% on all imported steel and 10% on all imported aluminum. A more formal announcement of the tariffs is expected in the coming week and, while many might have been surprised by the timing of the President’s initial statement, it came after a 10-month process of investigation by the U.S. Department of Commerce, culminating with its January 2018 recommendation for tariffs or quotas to protect U.S. producers. The Commerce Department reports are available here and here.
When finalized, these tariffs could have significant impacts on contractors across a range of industries, increasing costs of performance and restricting available supply. Domestic prices are expected to rise, and foreign suppliers may turn their focus to other markets. Supply disruptions are possible, particularly in the short term. To protect themselves, federal contractors who manufacture or use products with steel or aluminum should examine existing contracts, re-evaluate bids being developed, and consider revisions to standard contract terms.
On December 21, 2017, the Department of Justice announced that it recovered more than $3.7 billion in settlements and judgments from civil False Claims Act (FCA) cases in Fiscal Year 2017. The FY 2017 figures reflect the government’s continued trend of annually amassing multi-billion dollar recoveries under the FCA. This recovery is the fourth largest total in thirty years, and the eighth consecutive year that recoveries have exceeded $3 billion.
At the industry level, DOJ reported $2.47 billion in recoveries from the health care sector, and $220 million from defense companies. The largest health care industry recoveries in FY 2017 came from the drug and medical device industry. In the procurement fraud arena, the bulk of the recovery came from two large settlements, one involving charges to the Department of Defense and the other involving charges to the Department of Energy. The government collected approximately $1 billion from the remaining industries, including national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs.
The change in presidential administration appears to have had little effect on FCA activity. DOJ continued its pursuit of individual owners and executives of private corporations under the FCA. It entered into numerous settlements wherein individuals agreed to joint and several liability with their company. DOJ also obtained over $60 million in FCA settlements and judgments with individuals that did not involve joint and several liability with the corporate entity. Also, the number of new FCA actions in FY 2017 remained high with relators bringing 674 new qui tam matters and DOJ initiating 125 matters on its own. Of the $3.7 billion recovery, $3.4 billion related to suits initiated by whistleblowers, and over $3 billion of that came from suits where the government either intervened or otherwise pursued the matter. These numbers are consistent with the prior five years and suggest that the FCA will remain an active area for investigations and litigation in 2018.
On May 16, 2017, the Fourth Circuit issued a decision in United States ex rel. Omar Badr v. Triple Canopy, holding that the Government had properly alleged an implied certification claim under the standard articulated by the Supreme Court in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In the eleven months following the Supreme Court’s landmark ruling on the implied certification theory of liability, Escobar has been cited in nearly 100 court opinions. (Our recent Feature Comment in the Government Contractor highlights some of the key cases and developing trends).
In Badr, the relator alleges that a security contractor responsible for ensuring the safety of an air base in a combat zone employed Ugandan guards who were unable to meet the required marksmanship scores on a U.S. Army qualification course. According to the relator, Triple Canopy knowingly falsified marksmanship scorecards and presented claims to the government for payment for those guards.
On January 26, 2017, the Fourth Circuit heard oral argument in United States ex rel. Omar Badr v. Triple Canopy, one of four False Claims Act decisions that the Supreme Court vacated and remanded for further consideration in light of the Court’s June 2016 holding regarding the implied certification theory in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Triple Canopy, the relator alleges that a security contractor responsible for ensuring the safety of an air base in a combat zone knowingly employed guards who allegedly falsified marksmanship scores, and presented claims to the government for payment for those unqualified guards. The defendant prevailed on a motion to dismiss at the district court after demonstrating that the government failed to plead that it ever reviewed — and therefore ever relied on — the allegedly false scorecards. United States ex rel. Badr v. Triple Canopy, Inc., 950 F. Supp. 2d 888 (E.D. Va. 2013). The Fourth Circuit reversed, explaining: “Common sense strongly suggests that the Government’s decision to pay a contractor for providing base security in an active combat zone would be influenced by knowledge that the guards could not, for lack of a better term, shoot straight … If Triple Canopy believed that the marksmanship requirement was immaterial to the Government’s decision to pay, it was unlikely to orchestrate a scheme to falsify records on multiple occasions.” 775 F.3d 628, 637–38 (4th Cir. 2015).
Congress amended the civil False Claims Act in 1986 to give the statute more teeth as a fraud enforcement tool. Thirty years later, FCA litigation is as active as ever with more than 800 new cases filed in 2016, which is the second highest number of new cases on record. Not only was 2016 a major year for FCA recoveries (the third-highest ever) but the year also saw major developments ranging from a massive increase in civil penalties and a landmark decision on the implied certification theory of liability. In a “Feature Comment” published in The Government Contractor, C&M attorneys highlight some of the most important settlements and decisions from 2016 on key issues—from liability to damages, qui tam provisions, and more.
On November 1, 2016, the Supreme Court heard oral arguments in State Farm and Casualty Co. v. United States ex rel. Rigsby on the question of what standard should govern the decision whether to dismiss a relator’s claim for violation of the False Claims Act’s (“FCA”) seal requirement, which mandates that any FCA action brought by a whistleblower be filed with the court under seal and not publicly disclosed until the government has had an opportunity to investigate the allegations in the complaint and determine whether to intervene. This is the third year in a row that the Court has heard a case involving the FCA and, while Rigsby is not likely to be a blockbuster ruling like last year’s implied certification decision in Escobar (description available here), the case presents an opportunity for the Court to address a three-way circuit split.
When deciding on the standard that should govern, the Court will have to weigh competing policy considerations. On the one hand, relators and their counsel should not be allowed to act with impunity by violating the seal in bad faith in order to gain a tactical advantage in settlement talks. At the same time, the Court during the argument seemed to recognize that the government only has the resources to intervene in select cases and so the government relies heavily on relators to pursue recoveries. As such, the government’s interests could be harmed if a relator is automatically dismissed from a case because of an insignificant or technical violation of the seal. Indeed, the Rigsby case illustrates the tension between these competing policy considerations. Here, relators’ counsel violated the seal in bad faith, but he then withdrew from the case, and the relators went on to win a judgment against State Farm. Should that violation have caused the relators’ action to be dismissed altogether? If not, was any type of sanction warranted? Those questions and others were before the Court at oral argument.
Effective August 1, the penalty range for violations under the civil False Claims Act nearly doubled, pursuant to a Department of Justice interim final rule published on June 30th. In a “Feature Comment” published in The Government Contractor, C&M attorneys analyze how the dramatic increase in FCA penalties impacts the landscape of litigation. The article first explains the background of the recent law and DOJ’s new rule. Next, it assesses how the increased penalties are likely to lead to an increase in FCA suits, including in cases where actual damages may be low or even nonexistent. It then discusses how the increased penalties range provides leverage to the Government (and potentially relators, too) in FCA settlement negotiations where contractors find themselves daunted by potentially gargantuan fines. Finally, it provides an analysis on constitutional challenges to exorbitant FCA penalties under the Eighth Amendment’s Excessive Fines Clause, and assesses how litigation may be prolonged by post-judgment challenges to the heightened penalty amounts.