Senator Grassley and Senior DOJ Official Discuss Potential False Claims Act Changes and Enforcement Priorities

On February 17, 2021, Senator Chuck Grassley (R-IA) and Brian Boynton, Acting Attorney General for the Department of Justice’s Civil Division, provided opening remarks at the Federal Bar Association’s annual Qui Tam Conference. Both emphasized the key role of the FCA in combating fraud against the Government, and noted an anticipated increase in FCA enforcement actions in the coming years, particularly related to the Government’s pandemic response. In addition, Senator Grassley offered a preview of potential legislative changes to the False Claims Act, and Boynton outlined DOJ’s enforcement priorities for the coming year.

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New FAR Rule Continues Shake-Up of LPTA Procurements

Federal civilian agencies will now face new restrictions on when and how they can use Lowest Price Technically Acceptable source selection procedures. A new rule in the Federal Acquisition Regulation is the latest in a series of measures aimed at regulating the use of LPTA source selection procedures. The new rule implements an October 2019 proposed rule and takes effect on February 16, 2021. Continue Reading

President Biden Orders Tightening of Made in America Laws: What Contractors Need to Know

On January 25, 2021, President Biden issued a much-anticipated Executive Order announcing plans to strengthen the U.S. Government’s preference for domestically-sourced goods and services, including a proposal to tighten longstanding exceptions to domestic preference requirements.

Executive Order 14005 on Ensuring the Future Is Made in All of America by All of America’s Workers (“EO”) aims to “maximize” the U.S. Government’s purchasing of goods and services produced in the United States. In its key provisions, the EO:

  • Proposes to increase the domestic content threshold for determining whether a product qualifies as domestic, potentially exceeding the 55% threshold, which was increased to that number only last week by the Trump administration.
  • Directs the Federal Acquisition Regulatory Council (“FAR Council”) to replace the Buy American Act’s (“BAA”) longstanding domestic cost-of-components test with a domestic value-added test, using as-yet undetermined metrics.
  • Calls for new procedures that would increase the level of review required to obtain a waiver of domestic preference laws and the scrutiny that would apply to such waivers.
  • Contemplates leveraging trade remedies used to combat unfair trade as a means of enforcing federal procurement policies.
  • Establishes a new Made in America Office to oversee and administer domestic preference requirements in federal procurements.

This EO is the latest in a line of recent proclamations from the White House aimed at strengthening domestic preference requirements in federal contracting. Notably, the EO revokes certain earlier Trump administration executive orders, but it leaves in place—at least for now—the Final Rule issued on January 19, 2021 that increased the BAA’s Eisenhower-era domestic content requirements and price preferences in accordance with President Trump’s July 2019 Executive Order. The EO also left untouched the domestic procurement preferences for essential medicines, medical countermeasures, and critical inputs established in a separate order issued by President Trump in August 2020.

Ultimately, the effect of this latest EO will depend on the details of its implementation. While it largely avoids prescriptive details, the EO requires the FAR Council to consider proposing new implementing regulations within 180 days, and the Office of Management and Budget (“OMB”) and General Services Administration (“GSA”) likewise are directed to establish oversight and reporting mechanisms related to BAA compliance. Notably, the EO is unclear about whether and how it applies to the Trade Agreements Act of 1979 (“TAA”), and contractors will need to await guidance from the FAR Council to better understand this issue.

For our full analysis, the full client alert is available here.  We will continue to closely track these developments as they unfold. For now, however, the EO offers a clear indication that the Biden administration intends to maintain—if not increase—the U.S. Government’s recent emphasis on promoting and enforcing domestic sourcing requirements.

 

Paycheck Protection Program Expands and Offers Opportunity for Second Draw Loans

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act opened up the Paycheck Protection Program (“PPP”) to additional organizations and authorized a second draw of PPP loans.  The U.S. Small Business Administration (“SBA”) has issued guidance on changes to the original Program and new second draw loans, and the Program has been partially reopened for both first and second draw loans as of January 13, 2021.  Loans will initially only be available through community financial institutions, but SBA has indicated that additional lenders will once again be able to participate in the Program on January 15, 2021, with a full reopening scheduled for January 19, 2021.

Similar to the Program’s original rollout, a number of questions remain with respect to SBA’s implementation of the Act.  SBA is also delaying guidance on changes to loan forgiveness, which may once again place borrowers in the position of taking out loans without knowing whether they will be fully forgiven.  However, SBA has now been managing the Program for almost ten months, and borrowers will hopefully not be subject to the same level of policy shifts and reversals that was experienced during the Program’s original rollout.

The Act makes first and second draw loans available until March 31, 2021, but there is a good chance that all available funds will be allocated before that date.

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Cybersecurity and Government Contracting: False Claims Act Considerations

As the recent SolarWinds Orion attack makes clear, cybersecurity will be a focus in the coming years for both governmental and non-governmental entities alike.  In the federal contracting community, it has long been predicted that the government’s increased cybersecurity requirements will eventually lead to a corresponding increase in False Claims Act (FCA) litigation involving cybersecurity compliance.  This prediction may soon be proven true, as a December 2020 speech from Deputy Assistant Attorney General Michael Granston specifically identified “cybersecurity related fraud” as an “area where we could see enhanced False Claims Act activity.”  This post discusses recent efforts to use the FCA to enforce cybersecurity compliance — and, based on those efforts, what government contractors may expect to see in the future. Continue Reading

Technically Still Yours: Court Holds that Contractors May Mark Unlimited Rights Data with a Proprietary Legend

If your company delivers technical data to the Department of Defense, you should take a close look at the Federal Circuit’s decision issued yesterday in The Boeing Co. v. Secretary of the Air Force.

The Court acknowledged that contractors may retain ownership and other interests in unlimited rights data, and it held that they may take steps to put third parties on notice of those rights.  In particular, the Court held that, in addition to the standard legends required by the Defense Federal Acquisition Regulation Supplement (“DFARS”), contractors may also include a legend notifying third parties of the contractor’s retained rights.

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Expansion of the Procurement Collusion Strike Force

Just over a year after launching the Procurement Collusion Strike Force (“PCSF”), the U.S. Department of Justice’s Antitrust Division (“DOJ”) announced new measures to further its pursuit of antitrust and related crimes in government procurement, grant, and program funding.  These changes expand the PCSF’s enforcement capacity and signal DOJ’s enduring—and intensifying—commitment to the PCSF’s mission.

The PCSF has added 11 new national partners: the Department of Homeland Security Office of the Inspector General, the Air Force Office of Special Investigations, and nine new U.S. Attorneys.  As a result, the growing PCSF coalition now includes 29 agencies and offices, including U.S. Attorneys in 22 federal judicial districts; the Federal Bureau of Investigation; and Offices of Inspectors General at six federal agencies.  The PCSF also named the Antitrust Division’s Daniel Glad as the Strike Force’s first permanent director, solidifying the PCSF’s institutional role at DOJ.  Glad previously served as an Assistant Chief at the Antitrust Division’s Chicago Office. Continue Reading

How is DoD Planning to Use the Supplier Performance Risk System (SPRS)?

As described in an earlier blog post, the Department of Defense (DoD) released an Interim Rule on September 29, 2020 that address DoD’s increased requirements for assessing whether contractors are compliant with the 110 security controls in National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171 (NIST 800-171).[1]  Under this new Interim Rule, DoD offerors must have a current assessment on file with DoD to document their compliance with NIST 800-171 before they can be eligible to be considered for award.  The Interim Rule specifically requires contractors to ensure that a summary score from an assessment conducted under DoD’s NIST 800-171 Assessment Methodology is submitted into a DoD enterprise application called the Supplier Performance Risk System (SPRS).[2]  We evaluate below how DoD may use the NIST 800-171 assessment scores in SPRS, as well as how updates to SPRS more generally are likely to impact contractors.

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Department of Labor Requesting Information on Federal Contractor Workplace Diversity Training

On October 21, 2020 the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) published a Request for Information (“RFI”) seeking voluntary submissions of workplace diversity and inclusion training information and materials from federal contractors, federal subcontractors, and their employees. The RFI was published pursuant to Executive Order 13950, Combating Race and Sex Stereotyping (“EO”) issued on September 22, 2020, which prohibited certain “divisive concepts” in workplace trainings and instructed OFCCP to solicit information from federal agencies and contractors about the content of their training programs.  The EO also directed OFCCP to establish a hotline to investigate complaints received under the EO, as well as Executive Order 11246. The hotline, and a corresponding email address, were established on September 28, 2020. We provided a full description and explanation of the requirements of the EO here.

Under the new RFI, contractors may submit comments and other information to OFCCP by December 1, 2020, but any submission of information is strictly voluntary.  As discussed below, prior to making any submission, contractors should consider carefully the nuances of the EO and RFI and the potential implications of making a voluntary submission.

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Third Circuit Addresses the Scope of the FCA’s First-to-File Bar

Under the False Claims Act’s (“FCA”) first-to-file bar, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  But can a relator amend her complaint to add, remove, or substitute relators without violating the first-to-file bar?  Recently, the Third Circuit in In re Plavix answered “yes,” and concluded that the first-to-file bar does not preclude adding another relator through joinder, substitution, or an amendment.  Instead, the first-to-file bar applies when a private party attempts to intervene in an FCA case under Federal Rule of Civil Procedure 24 or when a private party attempts to bring a new action on the same facts underlying the pending action.

The Third Circuit’s decision in In re Plavix raises numerous questions for practitioners.  Below, we summarize the court’s decision, and highlight potential arguments that do not rely on the first-to-file bar as a basis for dismissal.

Factual Background of In Re Plavix

Three individuals formed a limited liability partnership in order to bring an FCA suit against two pharmaceutical companies.  While the litigation was underway, one individual left the partnership, and another individual joined the partnership in his stead.  The partnership amended the complaint, retaining the partnership as the sole relator, but reflecting the change in the partnership’s membership.

The defendants moved to dismiss, invoking the first-to-file bar.  The defendants argued that the partnership that filed the initial complaint (“original partnership”) was a distinct entity from the partnership that filed the amended complaint (“new partnership”) due to the change in the partnership’s membership.  Because the new partnership was the relator in the operative complaint, the defendants contended that the new partnership intervened in violation of the first-to-file bar.

The district court granted the motion to dismiss.  In ruling for the defendants, the court viewed the original partnership as a distinct entity from the new partnership.  Because the new partnership was the relator in the operative complaint, the district court held that the new partnership impermissibly “intervened” within the meaning of the first-to-file bar.

Third Circuit’s Interpretation of the First-to-File Bar

The Third Circuit vacated and remanded in a unanimous opinion.

Before delving into the merits of the case, the court addressed a procedural issue — whether the first-to-file bar is jurisdictional.  The court answered that question in the negative, holding that the first-to-file bar is not jurisdictional.

Turning to the merits, the Third Circuit certified several threshold questions relating to partnership law to the Delaware Supreme Court.  After receiving input from the Delaware Supreme Court, the Third Circuit agreed with the district court’s premise that the original partnership was a distinct entity from the new partnership.  The Third Circuit, however, disagreed with the district court’s conclusion, and held that dismissal was not warranted under the first-to-file bar.  In reaching its holding, the Third Circuit distinguished intervention from other methods of joining an existing case — e.g., joinder, impleader, interpleader, and substitution.  The court explained that parties to a case take action to bring third parties into the case through methods other than “intervention,” such as joinder, impleader, and interpleader.  By contrast, “a third party intervenes when he injects himself between two existing sides . . . .  The choice to intervene is made not by the existing parties, but by the intervenor,” under Rule 24.   Given that distinction, the Third Circuit held that the first-to-file bar prohibits intervention under Rule 24, but does not preclude parties from adding, removing, or substituting a relator through an amendment.  Therefore, the first-to-file bar did not prohibit the new partnership from replacing the original partnership by way of an amended complaint

Key Takeaways for FCA Defendants

Based on the Third Circuit’s ruling in In re Plavix, defendants should keep the following considerations in mind when asserting a first-to-file challenge.

  • Timing of a first-to-file challenge: The Third Circuit is the latest circuit to address whether the first-to-file bar is jurisdictional.  Currently, the circuits are divided on whether the first-to-file bar is jurisdictional — the First, Second, and D.C. Circuits share the Third Circuit’s view, but the Fourth, Fifth, Sixth, Ninth, and Eleventh Circuits have reached the opposite view.  Whether the first-to-file bar is jurisdictional affects the timing of a first-to-file challenge, which party carries the burden on a first-to-file challenge, and the type of evidence that can be submitted during a first-to-file challenge.  Because the first-to-file bar is not jurisdictional in the Third Circuit, a defendant litigating in the Third Circuit must raise the first-to-file bar in a Rule 12(b)(6) motion, has the burden to prove that the first-to-file bar precludes a relator’s entry into the suit, and must follow Rule 12(b)(6)’s standard for submitting evidence that is extrinsic to the complaint.  Defendants litigating in other circuits, however, might not follow the same approach.  Thus, a defendant should consider whether the first-to-file bar is jurisdictional under binding circuit precedent before asserting a first-to-file challenge.  If the first-to-file bar is jurisdictional under binding precedent, the defendant may challenge jurisdiction at any time; the relator bears the burden of persuasion in establishing jurisdiction; and the defendant may submit evidence in connection with its jurisdictional challenge.
  • Potential arguments under Rule 15: As the Third Circuit alluded in In re Plavix, an amendment that is permissible under the first-to-file bar might “exceed the bounds of Rule 15.”  Therefore, if a new relator is added, removed, or substituted in an amended complaint, a defendant should consider if it has colorable grounds for opposing leave to amend under Rule 15.  Courts may deny leave to amend in cases of undue delay, bad faith, dilatory motive, unfair prejudice, or futility.
  • Potential arguments under the original source provision: When a new relator is added to an FCA case, the defendant should consider assessing whether the relator is “an original source of the information.”  As the Third Circuit acknowledged, the original source provision “limit[s] who can be a proper plaintiff,” and is distinct from the first-to-file bar.  The original source provision comes into play only if there has been a qualifying public disclosure before the case is filed.  Therefore, assuming the defendant can identify a qualifying public disclosure, the original source provision might be another means of seeking dismissal of an FCA suit brought by a new relator.
  • Potential counterarguments to the Third Circuit’s interpretation of the scope of the first-to-file bar: If the scope of the first-to-file bar is litigated in other circuits, relators may rely on the Third Circuit’s reasoning, and claim that the first-to-file bar applies only to Rule 24 motions.  There are several counterarguments that defendants may consider including in their response.  For example, the In re Plavix defendants emphasized the difference in language between the first-to-file bar and other provisions of the FCA:  While other provisions of the FCA expressly refer to specific Federal Rules of Civil Procedure, the first-to-file bar does not reference any Rule, much less Rule 24.  That distinction suggests that the first-to-file bar’s reach is not limited to Rule 24 or to any other Federal Rule of Civil Procedure.  While the Third Circuit did not address that argument in its opinion, the argument may gain traction in other courts.
  • This blogpost does not constitute legal advice, nor does it establish an attorney-client relationship. Please consult with an attorney if you have any questions relating to any topics discussed in this blogpost.
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