Head on Collision: 5th Circuit Crashes Into Massive $663M Guard Rail Jury Verdict on Materiality Grounds

The story behind the Trinity Industries False Claims Act (FCA) litigation is one that is becoming too familiar for companies that do business with federal and state governments. Luckily, that story now has some silver lining, after the Fifth Circuit recently overturned a massive $663 million jury verdict against the company. Continue Reading

Materiality Part I: Distinguishing Important Representations from the Minor or Insubstantial

Editor’s Note: This is the first in a five-part series on how U.S. district courts and courts of appeal have applied the materiality standard set forth in Universal Health Services, Inc. v. U.S. ex rel. Escobar.

In Escobar, the Supreme Court described several factors that a district court should consider in assessing whether a particular contractual, regulatory, or statutory violation was material to a government’s decision to pay. One of those factors was whether a “reasonable man [acting on the Government’s behalf] would attach importance to [the representation] in determining his choice of action in the transaction.” at 2003.  It follows that a reasonable person would not attach importance to a violation that is “minor or insubstantial.” Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989, 2003 (2016) (emphasis added). So how have the district courts handled this “reasonable man” objective standard? And what types of violations are minor or insubstantial? This article explores the answers to those questions. Continue Reading

Another One Bites The Dust – False Claims Act Complaint Based On The Trade Agreements Act Is Dismissed With Prejudice For Relator’s Failure To Allege Fraud With Particularity

Opportunistic relators have made a cottage industry of filing claims under the False Claims Act (FCA) alleging that contractors are violating the Trade Agreements Act (TAA) by misrepresenting the country of origin of products being sold to the government. Many of these relators are not company insiders and, as a result, lack detailed information regarding the sales practices of their targets. Instead, these relators cobble together publicly available information and often base their claims of fraud on inferences and innuendo. Courts, however, have steadfastly required relators to allege their claims of fraud with particularity – i.e., pleading details regarding the who, what, when, where and how of the alleged fraudulent conduct. As a result, many unsupported FCA claims have been dismissed. The most recent example is the FCA lawsuit filed by Jeffrey Berkowitz against nine government contractors in the U.S. District Court for the Northern District of Illinois in U.S. ex rel. Berkowitz v. Automation Aids, et al., No. 13-C-08185.[1]  Continue Reading

Straight Shooter: The Fourth Circuit Stands By Its Earlier Decision In Case About Iraqi Security Guards Whose Inability To Shoot Straight Gave Rise to FCA Liability

They say bad facts make bad law. And in the world of the False Claims Act (“FCA”) 31 U.S.C. § 3729, et seq., where much law is made at the dismissal stage, bad allegations can be just as dangerous. When the Triple Canopy case (U.S. ex rel. Badr v. Triple Canopy, Inc.) was on appeal before the Fourth Circuit for the first time in 2015, it seemed like it was the epitome of such a case. In 2015, courts were still wrestling with the viability of the implied certification theory under the FCA. So a case involving Ugandan mercenaries with falsified marksmanship scorecards hired to protect U.S. and Iraqi facilities in Iraq was exactly the type of case that seemed likely to cement the Fourth Circuit as a favorable jurisdiction for FCA cases brought under the implied certification theory. Recently, the Fourth Circuit ruled (again) on the case—this time taking into consideration the Supreme Court’s decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). Although the FCA defense bar hoped this might result in a different decision, the Fourth Circuit appears to be standing by its 2015 decision in which it held that the government had adequately stated a claim for relief under the FCA’s implied certification theory. Continue Reading

No Contractor Liability For False Statement Gov’t Didn’t See

Note: This article was originally published on April 25, 2017, on Law360’s White Collar Legal News and Analysis website.

What happens when an employee of a government contractor falsifies a record that is entered into an internal database that is subject to government review, but the contractor discovers the record and rectifies the situation before the record is actually reviewed or otherwise presented to the government? Could an aggressive prosecutor pursue the contractor for a criminal false statement? Continue Reading

DOJ Issues New Guidance on the Evaluation of Corporate Compliance Programs in Federal Fraud Investigations

On February 8th, the U.S. Department of Justice (DOJ) quietly issued new guidance on how the agency evaluates corporate compliance programs during fraud investigations. The guidance, published on the agency’s website as the “Evaluation of Corporate Compliance Programs,” lists 119 “sample questions” that the DOJ’s Fraud Section has frequently found relevant in determining whether to bring charges or negotiate plea and other agreements. The February 8th issuance is the agency’s first formal guidance under the new presidential administration, and the latest effort by the DOJ’s “compliance initiative,” which launched at the hiring of compliance counsel expert Hui Chen in November 2015. The new guidance is particularly valuable for healthcare organizations in light of the agency’s heightened efforts to prosecute Medicare Advantage plans for fraudulent reporting under the False Claims Act.

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DC Circuit Finds Government Failure to Seek Repayment is “Very Strong Evidence” of Non-Materiality In False Claims Act Case

The DC Circuit recently issued a decision in U.S. ex rel. McBride v. Halliburton — F.3d —-, 2017 WL 655439 (D.C. Cir. Feb. 17, 2017), in which it applied Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) to a government contracts False Claims Act matter.  It found that the government’s failure to seek repayment after investigating a relator’s claim was “very strong evidence” that the false statement or claim was not material.

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Justice Department Joins Whistleblower Suit Accusing UnitedHealth Group of Overcharging Medicare by “Hundreds of Millions”

The U.S. Department of Justice (DOJ) has joined a whistleblower lawsuit, United States of America ex rel Benjamin Poehling v. Unitedhealth Group Inc., No. 16-08697 (Cent. Dist. Cal. Sep. 17, 2010), ECF No. 79, against UnitedHealth Group (United) and its subsidiary, UnitedHealthcare Medicare & Retirement—the nation’s largest provider of Medicare Advantage (MA) plans. The suit accuses United of operating an “up-coding” scheme to receive higher payments under MA’s risk adjustment program called the HCC-RAF Program (see below). The complaint alleges that United fraudulently collected “hundreds of millions—and likely billions—of dollars” by claiming patients were sicker than they really were. The suit was originally filed in 2011 by a former United finance director under the False Claims Act (FCA), which allows private citizens to sue those that commit fraud against government programs. Pursuant to the FCA, the case was sealed for five years while the DOJ investigated the claims.

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Fourth Circuit Punts at Rare Opportunity to Rule on Statistical Sampling

Statistical sampling is always a hot topic in False Claims Act (FCA) litigation.  Courts have allowed statistical extrapolation from samples of claims to determine damages in cases where FCA liability was already established.[1]  But courts are reluctant to allow the use of sampling for determining liability in the first instance.[2]  Since the FCA’s monetary penalty per “violation” has been held to apply to each individual claim submitted for reimbursement, it seems only natural that relators and the government be required to prove the FCA’s various elements for each individual claim.[3] But, in a series of recent rulings, some district courts have acquiesced to – or at least been open to – the idea of using statistical sampling to establish liability.[4]  Other courts have rejected statistical sampling to prove liability, especially when all the claims alleged to contain falsehoods remain available for a full review.[5]

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