DC Circuit Ruling Confirms Reasonableness Of Resellers Relying On TAA Certifications From Suppliers

The U.S. Court of Appeals for the District of Columbia Circuit has issued a ruling bringing to an end the long-running False Claims Act (“FCA”) case filed by relator Brady Folliard and providing useful guidance to resellers servicing the Federal government through the GSA Multiple Award Schedule program.[1]  In affirming the district court’s decision to grant Govplace’s motion for summary judgment and dismiss the case, the Court of Appeals found that Govplace did not knowingly violate the FCA because it reasonably relied on Trade Agreements Act (“TAA”) certifications from its distributor.  The holding of the Court of Appeals that “a contractor like Govplace is ordinarily entitled to rely on a supplier’s certification that the product meets TAA requirements” has broader implications than just the claims asserted against Govplace: it ratifies the long-standing industry practice of small business resellers leveraging the resources of their suppliers to comply with the requirements of their GSA Schedule Contracts.

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Recent Remarks By Officials Reinforce DOJ’s Focus On Criminal Fraud Investigations And Prosecutions Of Culpable Individuals

In a trio of speeches given at separate events on September 17, 2014, Department of Justice (“DOJ”) officials announced new initiatives and points of emphasis in the Government’s ongoing efforts to hold corporations and corporate officers criminally liable in the aftermath of the 2008 financial crisis.  Among the issues addressed by Assistant Attorney General Leslie Caldwell, Principal Deputy Assistant Attorney General Marshall Miller, and Attorney General Eric Holder were increased coordination between the Civil and Criminal Divisions on qui tam False Claims Act (“FCA”) cases, an emphasis on corporations’ cooperation in prosecuting culpable individuals, and the importance of whistleblowers and cooperating witnesses in the government’s investigations.

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What’s New Out There? Highlights from the Federal Register

SBA Proposes to Increase Small Business Size Standards (79 Fed. Reg. 54145; 79 Fed. Reg. 53646)

The U.S. Small Business Administration (“SBA”) proposes to increase small business size standards for: (1) 209 industries in North American Industry Classification System (NAICS) in the manufacturing sector; and (2) industries with employee based size standards not part of manufacturing, wholesale trade, or retail trade.  These proposed rules are parts of a series of proposed rules that will review the size standards of industries.

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DOJ’s FCPA Enforcement Power Gets A Big Boost

In 2011, the Department of Justice (“DOJ”) stated that “[i]t’s not necessarily the wisest move for a company” to challenge the definition of “foreign official” under the Foreign Corrupt Practices Act (“FCPA”), and that “[q]uibbling over the percentage ownership or control of a company is not going to be particularly helpful as a defense.”[1] The DOJ’s prophecy rang true in the Eleventh Circuit’s recent decision in U.S. v. Esquenazi, 2014 U.S. App. LEXIS 9096 (11th Cir. 2014).

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Attorney-Client Privilege Protection in Internal Investigations Upheld by D.C. Circuit: Good News for Corporate Counsel

This article was originally published by Bloomberg Law.

In a much-anticipated decision, the D.C. Circuit clarified the general test for the applicability of the attorney-client privilege in internal investigations. In re Kellogg Brown & Root, Inc., 14-5505, 2014 WL 2895939 (D.C. Cir. June 27, 2014). The court unanimously rejected the district court’s holding that a communication is privileged only if it would not have been made “but for” the purpose of seeking legal advice. Although a few district courts have followed this narrow “but for” test, corporate counsel rightfully feared that other courts would follow suit and narrow the protection generally afforded to internal investigations that are often done to comply with regulatory or business requirements and to seek legal advice. In rejecting the “but for” test, the D.C. Circuit looked to the lessons learned from Upjohn Co. v. United States, 449 U.S. 383, 392 (1981) and broadly held that communications in internal investigations are privileged not only where the single primary purpose of an investigation is to provide legal advice, but also if that is “one of the significant purposes” of the investigation.

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Federal Register Round Up – June/July 2014

DOD Proposed Rules Seeking Contractor Business System Rule Self Assessments

The Department of Defense issued a proposed rule on July 15th that would revise the DFARS Business Systems Rule by requiring contractors with estimating, accounting, material management, and accounting systems that are currently subject to the existing Business Systems Rule to perform self-assessment reports on their business systems compliance.  The proposed rule would have contractors assuming responsibility for annual self-assessments of those systems and for overseeing a triennial audit of the contractor’s compliance by an independent contractor-selected Certified Public Accountant.  As drafted, the proposed rule would only apply to the contractor’s accounting, estimating, material management, and accounting systems used for DOD CAS-covered contracts. Government auditors would examine the results of the self-evaluations.  Contractors will be offered no favorable credit or “safe harbor” for disclosures made in the contractor’s report.

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Shedding Light on CFIUS: Appeals Court Holds That CFIUS Review Lacks Constitutional Due Process

In a stunning ruling issued on July 15, 2014, the U.S. Court of Appeals for the D.C. Circuit held that review by the Committee on Foreign Investment in the United States (“CFIUS”) and the subsequent unwinding of the investment deprived the foreign investor of due process under the 5th Amendment to the U.S. Constitution.  Ralls Corp. v. Comm. on Foreign Investment in the United States, No. 12-cv-01513 (D.C. Cir. Jul. 15, 2014) (a copy of the opinion is here).  If upheld, the ruling may require fundamental changes in how CFIUS conducts its reviews and may enhance foreign investors’ ability to influence or challenge the outcome of a review.

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Cloudy Skies Ahead for Providers? CMS’ Release of Medicare Billing Data Combined with Physician Payment Sunshine Act Data May Boost Fraud Litigation

In February 2013, we reported (on our Healthcare Law Blog) that the Centers for Medicare and Medicaid Services (CMS) announced the final rule for the Physician Payments Sunshine Act.  In the interest of providing more transparency for patients, the final rule requires pharmaceutical and medical device manufacturers and group purchasing organizations to report payments or transfers of value provided to physicians or teaching hospitals and to report physician ownership and investment interests.  The deadline for submission of aggregate data was March 31, 2014, and the deadline for submission of detailed data is June 30, 2014.  CMS has already established a website to display that data beginning in September 2014.  In the meantime, also in the interest of transparency, on April 9, 2014 CMS touted the “historic” release of data showing utilization, payments, and submitted charges for services and procedures provided by physicians and other health care professionals to Medicare beneficiaries.  As claimed by CMS, this data covers “880,000 distinct health care providers who collectively received $77 billion in Medicare payments in 2012, under the Medicare Part B Fee-For-Service program” and will enable “a wide range of analyses that compare 6,000 different types of services and procedures provided, as well as payments received by individual health care providers.” (See press release. The data is available here.)  The consequences of such unprecedented releases of payment/investment interest and Medicare billing data are significant.

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OFCCP Implements Enforcement Moratorium with Respect to TRICARE Subcontractors

On May 7, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a directive establishing a five-year moratorium on enforcement of certain affirmative obligations of TRICARE subcontractors—specifically, obligations related to affirmative action programs and recordkeeping under Executive Order (“E.O.”) 11246, as amended, Section 503 of the Rehabilitation Act of 1973 (“Section 503”), as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended.

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What’s New Out There? Highlights from the Federal Register

Amended SDN Designations Under New Sanctions Programs

On May 23, the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) published additional identifying information for persons whose property has been blocked for their activities related to the conflict in the Central African Republic.  See 79 Fed. Reg. 29,842 (May 23, 2014).  On May 12, President Obama issued an Executive Order that authorizes the blocking of all property in the United States of persons for activities including actions that threaten the peace or stability of the Central African Republic, actions or policies that undermine transitional institutions or democratic institutions, targeting women for acts of violence, the recruitment of child soldiers, and other human rights abuses.  See Exec. Order 13,667 (May 12, 2014).  The Executive Order provides authority for persons to be added to OFAC’s Specially Designated National (“SDN”) List.  Once a person is added to that list, that person’s property under U.S. jurisdiction is blocked, and U.S. persons are prohibited from transacting with that person.  The Central African Republic sanctions are the most recent example of sanctions programs targeting human rights violators, and a discussion of previous sanctions can be found in our Global Trade Blog.

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