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).
Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without, with the latest edition hosted by partners David Robbins and Peter Eyre and including updates on GSA, NASA, and DoD rules, DIUx’s new guidebook, GAO protest dismissals, and a Supreme Court ruling on the False Claims Act. Click on one of the options listed below to listen.
Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without. This latest edition is hosted by partners David Robbins and Peter Eyre and includes updates on defense acquisition, modernizing federal IT systems, and recent False Claims Act cases.
To disclose or not to disclose-that is not the only question.
The Mandatory Disclosure Rule can be challenging for government contractors to work with, and common methods of analyzing disclosure obligations cause contractors to miss potentially significant risks to their enterprise. The requirement to timely disclose credible evidence of a Federal criminal law involving fraud, conflict of interests, bribery or gratuity violations, violations of the civil False Claims Act, or significant overpayments on federal government contracts can be challenging to interpret. The terms “timely disclose,” “credible evidence,” and “significant overpayments” are not defined in the rule, and no authoritative guidance is available about their meaning or their interpretations. As a result, contractors spend significant time and money assessing whether – and when – a disclosure is required, and then crafting their disclosures to help explain their analysis.
“False Claims Act cases have been particularly hot in 2015”—so reads the opening line of an opinion in a FCA decision from the past year. This is an apt description for a year that saw total FCA recoveries exceed $3 billion, a sign that the FCA will continue to be the source of government and whistleblower initiated litigation in 2016. In “The Top FCA Decisions of 2015 For Government Contractors,” a Feature Comment published in The Government Contractor, C&M attorneys highlight the recent decisions that will prove important for contractors in the coming year and beyond on topics such as implied certification, scienter, seal violations, and more.
On September 29, 2015, the Fourth Circuit agreed to hear an interlocutory appeal in U.S. ex rel. Michaels et al. v. Agape Senior Community, Inc. to address whether the statistical method of extrapolation may be used to prove liability, in addition to damages, under the False Claims Act. The Fourth Circuit will be the first appellate court to rule on this controversial issue.
Extrapolation, or statistical sampling, is a method in which a sample of data is used to draw inferences about a larger population. Litigators implement extrapolation in areas of complex litigation, including antitrust, employment discrimination, mass torts, and voting rights cases. In the FCA context, however, litigators have utilized extrapolation solely to prove damages. The use of extrapolation expanded in 2014, when the U.S. District Court for the Eastern District of Tennessee, in U.S. ex rel. Martin v. Life Care Centers, allowed plaintiffs to use statistical sampling not only to calculate damages, but also to establish the underlying FCA liability. Subsequent rulings by federal district courts reach divergent positions.
In “Extrapolation in FCA Litigation: A Statistical Anomaly or a Tactic Here to Stay?”, a Feature Comment published by The Government Contractor, C&M Attorneys outline the origins of extrapolation, examine the divergent federal district court rulings on whether it may be used to prove damages, explain the significance of extrapolation to contractors facing False Claims Act liability, and offer practice tips for litigating cases with statistical sampling.
Last week, in a case that will have a significant impact on the government contracting industry, the Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (FCA) case from the First Circuit. By agreeing to hear the case, the Court appears set to resolve a circuit split over the implied certification theory of legal falsity under the FCA. Specifically, the court will consider whether (1) the implied certification theory of legal falsity under the FCA is viable; and (2) if the theory is viable, a government contractor’s reimbursement claim can be legally false when the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment but is deemed “material” to the government’s decision to pay the claim.
At present, eight of the thirteen circuits have accepted the implied certification theory in some form, with only the Seventh Circuit rejecting the theory outright, but the eight circuits have reached varying conclusions about the appropriate scope of the theory. The Sixth and Second Circuits have held that liability for a legally false reimbursement claim requires that the contract, statute, or regulation expressly state that it is a prerequisite of payment. On the other hand, the Fourth, First, and D.C. Circuits have generally held that a government contractor’s reimbursement claim can still be legally false, and thus subject it to FCA liability, even if the provider failed to comply with a contract, statute, or regulatory provision that does not state that compliance is a prerequisite of payment. Under this theory, a contractor can face liability even if it failed to comply with one of the technical requirements imposed by the contract, so long as that requirement was somehow material to payment. The Court’s decision will have implications for any business that submits claims for payment to the federal government, and will likely eliminate the possibility of different outcomes for attaching FCA liability—under factually identical circumstances—based on where the case is filed.
Partner Mark Troy, in this three-part video series, provides an overview of the trends in False Claims Act litigation that are likely to affect companies in the coming year, including the proper measure of damages and how to deal with whistleblower employees and enforce contractual releases.
All three videos are embedded below for viewing. For a complete transcript, please click here to visit Crowell.com.
Additional video alerts from Crowell & Moring on a range of topics affecting the legal industry can be found on our YouTube channel.
Earlier this year, Crowell & Moring assembled an interdisciplinary team of attorneys to begin reporting on legal developments regarding whistleblowers. The result is the Whistleblower Watch blog (whistleblowerwatch.com), on which more than 15 contributing authors post about everything from the False Claims Act to Sarbanes-Oxley to the SEC. They monitor legislation and case law at the federal and state levels, and keep tabs on agency actions that affect whistleblowers and their employers.
We hope you will find Whistleblower Watch a valuable resource as you navigate the complex areas of whistleblower law. You can also follow the blog’s updates on Twitter: @CMWhistleblower.