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Announcing a new podcast feature – Ask Us Anything! Have questions you’d like answered anonymously? Want our thoughts in general on a particular topic? Send in questions and we’ll do our best to feature them in a future podcast. Email your questions to David at drobbins@crowell.com. Disclaimer: we cannot give legal advice unless and until we have an engagement letter in place.

This week’s episode covers a report from DIUx, bid protests, qui tam policy development, and other updates, and is hosted by partners David Robbins and Peter Eyre. 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.

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The government has reiterated in no uncertain terms its proposed standard for particularity under the FCA: “a qui tam complaint satisfie[s] Rule 9(b) if it contains detailed allegations supporting a plausible inference that false claims were submitted to the government, even if the complaint does not identify specific requests for payment.”  Brief for United States as Amicus Curiae, United States ex rel. Nathan v. Takeda Pharmaceuticals, Petition for Certiorari No. 12-1349 (U.S. 2013).  While opining at some length about the state of case law in the lower courts, the Solicitor General ultimately asked the Supreme Court not to hear the case.

Many of us thought that Nathan was a good opportunity for the Supreme Court to resolve an apparent split among the circuits (an issue we discussed in posts from February and March of last year).  The point of contention is the particularity required in an FCA complaint under Rule 9(b): is it enough to allege a fraudulent scheme, or must a plaintiff also furnish details about the claims themselves?  The government finds concerns about this circuit split to be somewhat overstated.  See Br. at 10 (“[T]hose circuits that initially endorsed the per se rule [requiring identification of specific claims] have issued subsequent decisions that appear to adopt a more nuanced approach.”).  The government thus finds the extent of inter-circuit disagreement to be “uncertain,” suggesting that it “may be capable of resolution without the Court’s intervention.”  Id. at 10, 14. Continue Reading Solicitor General Addresses Standard for Rule 9(b) in FCA Cases, Asks Supreme Court Not to

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Just last week, the Department of Justice announced another large False Claims Act settlement with a GSA Schedule contractor – for $60.9 million. A review of the underlying qui tam complaint, filed by a former vice president of the contractor, reveals multiple alleged failures by Tremco Inc. and RPM International to comply with the basic – yet often very challenging – requirements of the contract: disclosure of commercial pricing and compliance with the Price Reduction Clause. Among a number of allegations, the complaint alleges that the roofing supplies and services contractor failed to disclose to GSA that it offered better pricing to its commercial customers than identified on its published price list. As a result, the complaint states that the government was disadvantaged by negotiating higher pricing than it would have, had it known about the contractor’s actual commercial pricing practices. The complaint also alleges that, during the course of performing the GSA Schedule contract, the contractor failed to provide price reductions to government customers when it provided discounted pricing to its commercial customers. Continue Reading GSA Schedule Contracting: Does Your Company Have Sufficient Internal Controls to Minimize Noncompliance Risks?

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In March, we published an article entitled “New Questions Regarding The Jurisdictionality Of The FCA’s Public Disclosure Bar: Potential Hurdles And Increased Costs In Defending Against Parasitic Qui Tam Actions,” The Government Contractor, Vol. 55, No. 12 (Mar. 27, 2013). We explored whether, given the 2010 amendments to the civil False Claims Act (FCA) under the Patient Protection and Affordable Care Act (PPACA), the public disclosure bar1 still implicated a federal court’s subject matter jurisdiction. See P.L. 111-148, title X, § 10104(j)(2), 124 Stat. 119 (2010); 31 USCA § 3729 et seq. (2012). Surveying the few cases to have addressed the issue, we concluded that it was largely an open question. The only opinion to have substantially analyzed the question at that time had concluded that the bar was still jurisdictional. See United States ex rel. Beauchamp v. Academi Training Ctr., No. 1:11-cv-371, 2013 WL 1189707, at *9 (E.D. Va. Mar. 21, 2013).2

Since then, several courts have reached the opposite conclusion. Two have made passing reference to the point in footnotes. See United States v. Chattanooga-Hamilton Cnty. Hosp. Auth., No. 1:10-cv-322, 2013 WL 3912571, at *7 n.6 (E.D. Tenn. July 29, 2013); United States ex rel. Fox Rx, Inc. v. Omnicare, Inc., No. 1:11-cv-962, 2013 WL 2303768, at *8 n.15 (N.D. Ga. May 17, 2013). Another has been more direct, comparing the two versions of the public disclosure bar and concluding that “[a]fter the 2010 amendment, the bar does is [sic] not described as jurisdictional in nature; instead, the statute simply directs that the action or claim be dismissed . . . .” United States ex rel. Paulos v. Stryker Corp., No. 11-0041-cv, 2013 WL 2666346, at *3 (W.D. Mo. June 12, 2013). Continue Reading The Growing Split Over Whether the FCA’s Public Disclosure Bar is Still a Jurisdictional Limitation

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Crowell & Moring recently achieved two substantial victories for its client, Academi Training Center LLC (“ACADEMI”) in a qui tam False Claims Act case in the Eastern District of Virginia . The qui tam relators accused ACADEMI of billing for personnel who did not serve in the labor categories in which they were billed and for personnel who had not been qualified on belt-fed weapons as required under its contract. They also alleged that ACADEMI retaliated against them in violation of the FCA’s whistleblower protections, and sought to advance their claim in federal court instead of in arbitration. The court dismissed the false claim counts and referred the retaliation claims to arbitration.

The court dismissed the false labor billing allegations on two alternative grounds. First, the court held that the FCA’s first-to-file provision barred these allegations. That provision generally precludes a qui tam relator from bringing an action based on the facts underlying a pending case. Because the labor billing allegations had already been made in United States ex rel. Davis v. U.S. Training Ctr., No. 11-2180, 2012 WL 6052051 (4th Cir. Dec. 6, 2012), the court held that the first to file bar applied. Crowell & Moring won a jury verdict in the Davis case in 2011 and that outcome was recently affirmed by the Fourth Circuit. Second, the court also held that the FCA’s public disclosure bar precluded these claims. The court held that the public disclosure bar remained a jurisdictional one and found that the Davis complaint qualified as a public disclosure under the FCA, as did a witness declaration filed in that case. The court ruled that the relators’ knowledge did not materially add to the already disclosed allegations and that therefore they did not qualify under the “original source” exception to the public disclosure bar. The court dismissed the labor billing claims under both the first to file and public disclosure bars.

Continue Reading Crowell & Moring Secures Two-Part Victory in Major False Claims Act Case

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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.

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In a series of posts (Part 1), I’m examining the Department of Justice’s annual Summary of False Claims Act cases and recoveries to see what these statistics might reveal about FCA enforcement trends.  In the first post, we looked at the rising number of new FCA matters that were filed last year.  But who gets the credit?  Let’s find out. Rise of the Relator Only looking at the number of new matters is misleading:  Although more investigations and cases are initiated each year, the credit (some might say blame) goes to qui tam relators-otherwise known as whistleblowers. The following illustration shows the total number of new matters (in black) between 2000-2012, as well as the new matters that were initiated by the government (in red).   Though the number of new matters ballooned between 2000-2012, those attributed to the government did not.  The number of government-initiated new matters has remained relatively flat for the past 12 years, rising to a high of 162 in 2008 and sinking to a low of 61 in 2002. The rise in new FCA matters is mostly a result of more whistleblower cases being filed each year.  A look back at the number of government-initiated matters, as opposed to qui tam matters, bears this out.  The most matters the government initiated was in 1987, the first year it began publishing statistics. But after that, the number of government-initiated matters steeply declined until 2000, since when it has remained flat. This illustration might suggest that the government is less focused on bringing new FCA cases or opening new investigations.  The more likely explanation, however, is that the government is devoting more resources and effort to investigating and litigating the allegations of fraud that are being brought by relators as those numbers have ballooned.

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Less than a week before most people departed for December holidays, the Department of Justice posted to its website its annual summary of False Claims Act matters and recoveries.  Among other data points, the FY 2012 summary reports the number of new FCA “matters” that were filed or opened, both by qui tam relators and the government, the amount of money that the government recovered through settlements and judgment during the year, and the amount of money recovered that went to qui tam relators.  In a series of posts, I’m going to examine what these statistics reveal about FCA enforcement trends. The FCA–Better Than Apple, Inc. Stock Lawyers love to talk about the “exponential growth” in FCA cases-especially plaintiff and defense lawyers.  But a look at the number of new cases filed each year shows that this is more than just malarkey: the number of new FCA cases is rising, and rising fast.  This illustration maps the number of new FCA matters, defined as “newly received referrals, investigations, and qui tam actions” since 2000.   As shown, the number of new matters has doubled in the past ten years (2002 to 2012).  FCA enforcement is trending up.  But what industries are being targeted?  The DOJ summary further breaks-down these statistics by industry. As the following illustration shows, new FCA matters are predominately being initiated in the healthcare and non-Department of Defense (DoD) contexts.  This is not to say that there is less of a focus of DoD procurements, which seems to have remained consistent over the past decade, but that the government and qui tam relators are using the FCA to target new industries. Although the DOJ summary does not indicate what federal agency procurements are covered by the “Other” category, it would include GSA Schedule contracts and contracts with various executive agencies, such as the Department of Homeland Security, the Department of Labor, Department of State, and the Department of Housing and Urban Development, among others.  This should be a red flag for companies receiving federal funds that do not consider themselves to be a ‘traditional’ government contractor – educational institutions and other grant recipients, for example – that the FCA is no longer focused solely on defense contractors and healthcare fraud.

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A relator filing a qui tam complaint under the False Claims Act must file it under seal, see 31 U.S.C. 3739(b)(2), giving the government an opportunity to investigate the allegations.  While the initial sealing period lasts 60 days, the government routinely receives extensions, which means that FCA cases often stay under seal for months, if not years.  During this time, the government is free to interview witnesses and collect key documents, slowly building a case against the contractor, who is oftentimes unaware of the investigation or, more commonly, unaware of the government’s allegations or evidence.  By the time the complaint is unsealed, the contractor is at a disadvantage: The government may have had years to investigate and get ready for trial, while the contractor is just beginning.

For contractors, this raises a question: When does the government have a duty to preserve evidence in FCA cases?

This question was answered by a magistrate judge in United States ex rel. Baker v. Community Health Sys., Inc, Civ. No. 05-279 (D. NM. Aug. 31, 2012). In Baker, a relator filed a qui tam complaint in 2005. Although the government soon instructed defendants and a New Mexico state agency to preserve documents, the government did not issue a similar preservation notice to the relevant federal agency until 2009— more than three years later. By the time it did, key emails had been lost. The government defended its approach by arguing that it was “DOJ policy to issue litigation holds when intervention was ‘reasonably foreseeable,’” which the government claimed was triggered when it received permission to intervene.

The magistrate judge disagreed. He concluded that litigation was reasonably foreseeable as soon as the government received a letter from defendants “unequivocally” rejecting settlement. At the very least, he believed that litigation was foreseeable as soon as the government requested authority to intervene. The magistrate judge highlighted an inconsistency in the government’s approach: While it required defendants and New Mexico to preserve documents shortly after the case was filed, the government “did not impose a similar obligation on itself.”

In practical terms, what does Baker mean?

  1. The government may now be more likely to issue document preservation notices before it intervenes, perhaps even months before it does so, leading to more documents being available for trial.
  2. Courts may be willing to impose sanctions on the government for failing to issue preservation notices as soon as litigation becomes reasonably foreseeable, regardless of whether it has decided to intervene.
  3. Contractors litigating FCA cases should ensure the government issued timely preservation notices to relevant agencies and key individuals in those agencies.
  4. Contractors in pending FCA cases that are under seal may be able to trigger the government’s duty to issue preservation notices by, as the magistrate judge found, “unequivocally” rejecting settlement in a written letter.

Although the Government has since acknowledged that its preservation efforts were not “perfectly implemented,” it has opposed the magistrate judge’s report and recommendation on other grounds.

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The U.S. Department of Justice reported this week that it recovered $5.6 billion in criminal and civil fraud payments in fiscal year 2011, including more than $3 billion under the civil False Claims Act.  The fraud recoveries set a one-year record for DOJ; the FCA recoveries capped a record-setting three-year period during which DOJ recovered $8.7 billion. The figures underscore the Obama administration’s aggressive pursuit of fraud and false claims.

DOJ said its fraud recoveries were primarily driven by investigations into Medicare, mortgage, grant and contracting frauds. Officials said the recoveries were much-needed revenue generators for the federal government in a time of record debt and deficits.

“These recoveries far exceed the cost of the agents and prosecutors who secured them,” said Deputy Attorney General James M. Cole at a press conference alongside Vice President Joe Biden. “For every dollar Congress has provided for health care enforcement over the past there years, we have recovered nearly seven.”

Health care fraud –including Medicare, Medicaid, and Tricare—accounted for $2.4 billion of the FCA recoveries in fiscal year 2011. Procurement fraud cases accounted for $422 million in fiscal year 2011.

Qui tam relators filed 638 suits FCA suits in 2011, far exceeding the average annual rate for the past decade. For contractors, these statistics make clear that—now more than ever—timely government contracts counseling is necessary to ensure compliance and avoid becoming a casualty in the government’s escalating war on fraud and false claims.