Photo of Mana Elihu Lombardo

Are we experiencing a shift towards a higher bar for pursuing False Claims Act Cases?  Department of Justice guidelines may signal a new direction from the last two decades of DOJ FCA enforcement history through policies that reign in relators and articulate some boundaries for cases pursued by DOJ.  Meanwhile, Escobar progeny continues to develop  and refine the materiality requirement under the FCA.  Join us on May 17, 2018, at 8:30 AM Eastern, as Crowell & Moring attorneys Brian Tully McLaughlin, Mana Lombardo, Jason Crawford, and Nkechi Kanu lead a discussion highlighting recent developments impacting FCA investigation, enforcement, and litigation under the False Claims Act.  Specific topics include:

  • DOJ Enforcement Trends and Developments: What They Mean for Investigation and Litigation Strategy
  • The Continuing Emphasis on Materiality in the Wake of Escobar
  • Case developments and impacts

For more information and to register for OOPS, please click here.

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.

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.

On May 15-16, 2013, Crowell & Moring is hosting its annual Ounce of Prevention Seminar (OOPS). This year’s program, entitled Weathering the Rough Seas of Regulation, will once again provide the government contract community with a comprehensive review of the latest developments in federal contracting.

In the morning session on May 16, attorneys Andy Liu, Robert Rhoad, Mana Elihu Lombardo, and Brian McLaughlin will discuss recent developments under the federal False Claims Act, the government’s principal anti-fraud weapon of choice, as evidenced by last year’s nearly $5 billion in recoveries under the Act.  The presentation panel will cover recent FCA and qui tam enforcement statistics, FCA-related regulatory and legislative developments, the latest FCA enforcement trends, and recent cases and settlements and their impact on compliance and enforcement.

This presentation is geared towards government contractors, and is not limited to legal professionals.  The shared perspectives on current industry topics will be of interest to anyone doing business with the government.

The OOPS agenda, registration information, and additional details are available here: http://www.crowell.com/oops.

The Freedom of Information Act (“FOIA”), 5 U.S.C. §552, is intended to uphold the principles of transparency and open government, so that citizens can assess government accountability and actions. Since its enactment in 1966, FOIA has also been used by companies to obtain information about their competitors’ prices and contract performance, as well as by watchdog organizations, qui tam plaintiffs and others who have used the fruits of FOIA requests to support their litigation goals. Kirk Schindler, the relator in a qui tam suit recently heard by the United States Supreme Court, is an example of someone who worked for a company, suspected that the company violated certain laws, and before proceeding with allegations against his employer, used FOIA as a tool to obtain documentation to support his case. As discussed in C&M’s recently published article in the BNA Federal Contracts Report, the use of a response to a FOIA request to support qui tam allegations may bar one’s ability to maintain the suit.

The article discusses the U.S. Supreme Court’s decision holding that a federal agency’s written response to a FOIA request for records constitutes a “report” within the meaning of the public disclosure bar in the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. (See Schindler Elevator Corp. v. United States ex rel Kirk). The article provides background on the role of the public disclosure bar under the False Claims Act, describes the facts and procedural posture of the Schindler case, recounts various Circuit Court’s previous decisions with regard to FOIA requests and the public disclosure bar, analyzes the future of the public disclosure bar as a defense to the FCA, and discusses the practical effect of the new law for procurement contractors.

Click here to view article.

On Monday, May 16 the U.S. Supreme Court held that a federal agency’s written response to a FOIA request for records constitutes a “report” within the meaning of the public disclosure bar in the False Claims Act (“FCA”), 31 U.S.C.  § 3729 et seq.  (See Schindler Elevator Corp. v. United States ex rel Kirk).  Reversing a decision of the Second Circuit, and resolving some discord between various circuit courts of appeal, the Court’s decision strengthened the public disclosure bar and characterized the case as “a classic example of the ‘opportunistic’ litigation that the public disclosure bar is designed to discourage.”  In its 5-3 decision,[1] the Court found that the words congressional, administrative or GAO, which precede the word report, “tell us nothing more than that a ‘report’ must be governmental.”

The FCA’s public disclosure bar precludes private parties from bringing qui tam suits to recover falsely or fraudulently obtained federal payments where those suits are “based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media.”  31 U.S.C. § 3730(e)(4)(A).  In Schindler, the qui tam relator brought such a suit, alleging that his former employer had submitted hundreds of false claims for payments to the federal government.  The relator alleged that the company’s claims for payment were false because the company had falsely certified its compliance with the Vietnam Era Veteran’s Readjustment Assistance Act of 1972 (VEVRAA).  VEVRAA requires the company to submit to the government certain information, including how many of its employees are “qualified covered veterans,” on “VETS-100” forms on a yearly basis.  In support of his allegations, the relator relied on information regarding the company’s VETS-100 submissions that he obtained via three records requests his wife filed under the Freedom of Information Act (FOIA), 5 U.S.C. § 552.

The district court granted the company’s motion to dismiss, concluding that the FCA’s public disclosure bar prohibited its jurisdiction over relator’s allegations that were based on information disclosed in a Government “report” or “investigation.”  The Second Circuit vacated and remanded the district court’s decision, effectively holding that an agency’s response to a FOIA request is neither a “report” nor an “investigation.”  The Supreme Court then reversed and remanded the Second Circuit’s decision, holding that a response to a FOIA request is a report for purposes of the FCA’s public disclosure bar.[2]  The Court reasoned that the word “report” in this context carries its ordinary, dictionary-defined meaning, and there is no textual basis for adopting a narrower definition of “report.” 

This Supreme Court decision resolves some discrepancy within the circuit courts of appeal with regard to this issue.  Although most circuits addressing the issue have already come to the conclusion that a response to a FOIA request constitutes a public disclosure, that conclusion was not uniform.  See e.g. United States v. Cath. Heatlhcare W., 445 F.3d 1147, 1153 (9th Cir. 2006) (response to FOIA request triggers public disclosure bar only if the underlying document itself emanates from an enumerated source in section 3730(e)(4)(A)); United States ex rel Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1347-48 (4th Cir. 1994) (requiring proof that relator’s allegations are actually derived from the publicly disclosed information). 

Notwithstanding the Supreme Court’s determination of this matter, however, the scope and applicability of the public disclosure bar may not be a closed issue.   The majority issued a strongly-worded opinion that derided the relator’s conduct as the very type of “opportunistic” conduct “that the public disclosure bar is designed to discourage.”  It further reasoned that a different interpretation of the public disclosure bar would allow anyone to “identify a few regulatory filing and certification requirements, submit FOIA requests until he discovers a federal contractor who is out of compliance, and potentially reap a windfall in a qui tam action under the FCA.”  The dissent, on the other hand, lamented that the Court “weaken[ed] the force of the FCA as a weapon against fraud on the part of Government contractors” by “severely   limit[ing] whistleblowers’ ability to substantiate their allegations before commencing suit.”  Accordingly, the dissent effectively invited Congress to turn its attention to the matter.  Of late, there has been much Congressional attention to strengthening anti-fraud laws, including recent amendments to the FCA through the Fraud Enforcement and Recovery of 2009, as well as the Patient Protection and Affordable Care Act.  Following this trend, it appears that further such legislation would not be out of the question.

 

 


[1] Justice Kagan took no part in the consideration or decision of the case.

[2] The Court did not address whether an agency’s search in response to a FOIA request also qualifies as an “investigation.”

Recent Changes to the Small Business Administration’s 8(a) Program took effect on March 14, 2011. This is the First major revision to the 8(a) program since 1998. Per the SBA, the goal of the rule changes were to better ensure that the benefits of the SBA flow to the intended recipients and to help prevent waste, fraud, and abuse. Read below for highlights of some of the key changes!

The new changes include additional restrictions on Joint Ventures. The 8(a) partner of the Joint Venture must now perform at least 40% of the work, including those awarded through a mentor-protégé agreement. The previous requirement was only that the small business perform a “significant portion of the work.” In addition, Joint Ventures awarded to an 8(a) firm will not be allowed to win more than 3 contracts during a 2-year period, and cannot subcontract work to a non-8(a) Joint Venture partner. The new rules also hold mentor firms more accountable: mentors who do not provide assistance to their protégés could face consequences ranging from stop-work orders to debarment. New record-keeping provisions will require the protégé firm to submit information reflecting the work breakdown within the Joint Venture.

The new rules also clarify the income & asset determination needed for 8(a) eligibility. For instance, the new rules exclude individual retirement accounts from the strict net worth calculations that are used to determine eligibility for the program. With regard to income requirements, the new rules raise the adjusted gross income to enter into the program from $200,000 to $250,000, and increase the adjusted gross income for continued eligibility for the program from $300,000 to $350,000. The total value of the participant’s assets necessary to enter the program has been raised from $3 million to $4 million, and the total assets necessary for continued eligibility has increased from $4 million to $6 million.

The rule changes limit the type and amount of fees an agent or representative can charge for assisting an 8(a) firm. Specifically, the language of this part of the new rule prohibits unreasonable fees as well as arrangements in which the fees are a percentage of the contract award or revenue.

The new rules also enhance SBA opportunities for military personnel, allowing owners of 8(a) firms called to active military status to elect to be temporarily suspended rather than lose any of their nine-year term in the program.

In addition to some of the items listed above, the new rules primarily focus on reforming and enhancing the transparency of Alaska Native Corporations (ANCs), 8(a) sub-entities that can win sole-source contracts of any size. For the first time, firms owned by ANCs or by Indian tribes, native Hawaiian organizations and community development corporations will be required to report financial benefits flowing back to their communities.  Firms must now submit information relating to: funding of cultural programs, employment assistance, jobs, scholarships, internships, and subsistence activities. (The Final Rule, published in the Federal Register on February 11, 2011, provides an additional six months for the SBA to work with the ANCs to implement these particular provisions.)

The Small Business Administration provides a number of additional resources regarding the rule changes, including the text of the final rule. These are available at:http://www.sba.gov/content/revised-8a-regulations.

Winning government contracts and grants is vital to the survival of many organizations. It is not surprising then that contractors and grantees sometimes include embellishments and small misstatements in their proposals for government funds. A little puffery never hurt anyone, right? Wrong. Making even a minor factual misstatement or neglecting to provide complete information in a contract or grant proposal may, in some situations, lead the government to allege that it was defrauded and seek to recover three-times the value of the agreement using the civil False Claims Act. Such a significant recovery seems inconsistent with the FCA, which was intended to remedy the government’s actual— not consequential— financial harm. The statute has a separate penalty provision that serves a punitive function and provides remuneration over and above making the government whole. While damages in the amount of the entire value of the contract may exceed the government’s actual financial loss, the government has obtained that sort of windfall recovery in two recent cases.  Click here to link to read full article, published in BNA’s Federal Contract Report, Oct. 5, 2010, 94 FCR 345.