FCA

Following an 8-2 en banc decision issued by the United States Court of Appeals for the Eighth Circuit earlier this month, potential relators may think twice before bringing their False Claims Act (“FCA”) qui tam suits in the Eighth Circuit.  In Rille v. PricewaterhouseCoopers LLP, No. 11-3514 (8th Cir. Oct. 5, 2015), the Court vacated a district court order awarding two relators a percentage of the Government’s settlement of an FCA qui tam suit in which it had intervened, holding that when the government intervenes in an FCA action brought by a relator, and then settles both the claim brought by the relator and a different claim that does not overlap factually with the relator’s claim, the relator is entitled only to a share of the settlement of the claim that he brought.  The Court remanded the case to the district court to analyze whether there was factual overlap between the claims settled by the Government and the claims brought by the relators.
Continue Reading No Money for Nothing — Eighth Circuit Limits Relators’ Ability to Recover a Share of Government Settlements of Qui Tam Suits

United States ex rel. Hartpence v. Kinetic Concepts, Inc., No. 12-55396 (9th Cir. July 2015) is one of many recent decisions limiting a contractor’s ability to dismiss False Claims Act (“FCA”) lawsuits at an early stage of the litigation.  In Hartpence, the Ninth Circuit resurrected two FCA cases in one sweeping decision by interpreting the public disclosure and first-to-file bars in a relator-friendly manner that further erodes the protections contractors have against potentially parasitic FCA lawsuits filed after the government is aware of the alleged fraud.
Continue Reading Ninth Circuit Narrows Application of the False Claims Act’s Public Disclosure and First to File Bars

In the recently decided U.S. ex rel. Heath v. AT&T Inc., No. 14-7094 (June 23, 2015), the D.C. Circuit rejected the general consensus of the circuit courts and held that the False Claims Act’s (“FCA”) first-to-file rule is not jurisdictional.  This decisions creates a circuit split between the D.C. Circuit and the First, Fourth, Fifth, Sixth, Ninth and Tenth Circuits, which have all characterized the first-to-file rule as a jurisdictional limitation on the FCA.[1]  In doing so, Heath calls into question both the nature and the scope of the protection offered by the rule, which bars copycat relators from bringing suits premised upon the same underlying facts of a previously filed FCA suit.
Continue Reading D.C. Circuit Creates Circuit Split Regarding Jurisdictional Nature of the False Claims Act’s First-to-File Rule

On Wednesday, April 29, the Eighth Circuit issued an opinion holding that evidence of a for-profit college’s falsification of grades and attendance records may support a claim that it “fraudulently induced the Department of Education [“DOE”] to provide [it] funds,” and was thus liable under the False Claims Act (“FCA”).  Specifically, the claim alleged that, in an effort to obtain funds from DOE, the college agreed to accurately maintain certain records, but had no intention of actually doing so.  Finding that the evidence was sufficient to be submitted to a jury on this issue, the court reversed in part the district court’s summary judgment ruling in favor of the defendant, and remanded the case.

In 2009, the college signed a Program Participation Agreement (“PPA”) with DOE under which it could receive funding in the form of federal grants, loans, or scholarships under Title IV of the Higher Education Act of 1965 (“Title IV funding”).  To be eligible for funds, however, a student had to make “satisfactory progress” — a standard measured by cumulative grade point average.  If a student withdrew, the college may have had to submit a refund to DOE “depending on how much of a program the student completed.”  From 2009 to 2012, DOE disbursed over $32 million to the college.
Continue Reading College’s Falsification of Grades and Attendance Records May Trigger FCA Liability

Earlier this month, a medical device company settled allegations that it had violated the False Claims Act (FCA) by improperly certifying that it had complied with the Trade Agreements Act (TAA) when providing the U.S. Government with end products manufactured in Malaysia.  The TAA requires certain end products sold to the U.S. Government to be made in the United States or a country covered by a trade agreement with the United States.  End products manufactured in Malaysia, as well as India and the People’s Republic of China, are not compliant with the TAA.

The settlement resolved litigation that began in 2008 when a former employee alleged that the company sold orthopedic devices on a federal supply schedule administered by the U.S. Department of Veterans Affairs (VA) after purchasing the devices from a third-party manufacturer in Malaysia.  Although the TAA only applies to end products sold to the U.S. Government if the value of the end products meets a specific monetary threshold, the U.S. General Services Administration and the VA have taken the position that all end products sold on a federal supply schedule must comply with the TAA because the orders placed under a federal supply schedule are expected to meet the applicable threshold.  As a result, different country-of-origin requirements may apply to commercial contractors depending on whether they sell their products to the U.S. Government on the open market, through a federal supply schedule, or under a separate federal contract.  The company at issue had used multiple sales mechanisms to provide end products to the U.S. Government.Continue Reading Recent Settlement Highlights Importance of Tracing Country of Origin When Selling Commercial Products to the U.S. Government

When the Supreme Court convenes its “long conference” on Monday to consider pending petitions for certiorari, much of the public focus will be on the various cases about same-sex marriage.   Government contractors, however, should pay closer attention to Gosselin World Wide Moving, N.V. v. United States ex rel. Bunk …
Continue Reading Supreme Court Will Consider Petition on False Claims Act Penalties

The Eighth Circuit recently joined the ranks of four other federal circuits allowing whistleblowers to plead False Claims Act (FCA) violations without identifying specific examples of false claims submitted for reimbursement.  In so doing, the Eighth Circuit concluded that the heightened federal pleading standards required for fraud claims are satisfied…
Continue Reading Eighth Circuit Adopts Flexible Pleading Standard for FCA Whistleblowers

Last month, the U.S. Court of Appeals for the First Circuit affirmed the award of a $50 million tax refund to Fresenius Medical Care Holdings, Inc. The court agreed with Fresenius that certain payments in settlement of alleged False Claims Act violations were tax-deductible. The case is Fresenius Medical Care Holdings, Inc. v. United States, No. 13-2144 (1st Cir. Aug. 13, 2014).

Fresenius operates dialysis centers within the United States and abroad, and in the mid-1990s its predecessor company faced an array of FCA whistleblower suits and related government investigations. Fresenius eventually settled both criminal and civil matters with the Government, agreeing to pay $385,147,334 to resolve the civil matters.

Fresenius claimed a tax refund based on the amount it paid to settle civil FCA claims. Civil FCA violations normally result in treble damages and a statutory penalty per false claim. Although the Government agreed that Fresenius could deduct an amount equal to single damages ($192,550,517) plus that amount owed to the whistleblowers ($65,800,555), Fresenius sued in the District of Massachusetts to seek a tax refund based on the remaining $126,796,262. A jury concluded that $95,000,000 of the remaining $126,796,262 was “compensatory” in nature and hence deductible, which resulted in a $50,420,512.34 tax refund for Fresenius.

The Government appealed, arguing that amounts paid in settlement of civil FCA claims—other than single damages and whistleblower payments—are nondeductible unless the parties enter into a tax characterization agreement indicating a mutual intent that those sums be deductible. The Government relied on a Ninth Circuit case, Talley Industries Inc. v. Commissioner, 116 F.3d 382 (9th Cir. 1997), in support. Because there was no tax characterization agreement in this case, the Government reasoned, Fresenius was owed no refund.

The First Circuit found the Government’s position unpersuasive in light of “generally accepted principles of tax law” to the contrary. Fresenius’s ability to deduct civil FCA settlement payments did not turn exclusively on the presence or absence of a tax characterization agreement. Instead, the district court had correctly instructed the jury to consider what portion of the settlement was compensatory, rather than punitive, “in terms of the economic realities of make-whole remediation.” Under well-settled rules of tax law, the compensatory portion was deductible.
Continue Reading First Circuit Affirms $50 Million Tax Refund for FCA Settlement Payments

On August 29, the U.S. Court of Appeals for the D.C. Circuit upheld the dismissal of a qui tam suit under the False Claims Act (“FCA”) alleging that government contractor Govplace made false statements and false claims by selling to the Government, via its GSA schedule contract, computer and other products not originating in designated countries under the Trade Agreements Act (“TAA”). The decision shows that a contractor may defend against an FCA action by showing that it reasonably relied on a supplier’s certification as to TAA compliance.

The D.C. Circuit Decision: Govplace has been providing information technology (“IT”) integration and product solutions to the Government via a GSA schedule contract since 1999. Products on GSA schedule contracts must comply with the TAA requirement that “only U.S.-made or designated country end products [can] be offered and sold” under such contracts. Govplace acquires many of the products listed in its schedule contract from a distributor, Ingram Micro, which expressly certifies that its products are TAA compliant.

In the Govplace case, the relator alleged that certain products that Govplace acquired from Ingram Micro were manufactured in China, a non-designated country, and that Govplace acted with reckless disregard in relying on Ingram Micro’s certifications.Continue Reading D.C. Circuit Dismisses FCA Suit & Provides Guidance for Contractor Reliance on Supplier Certifications