By Louis Victorino and Jonathan Aronie (originally published in the San Diego Business Journal)
It has been noted, the more things change, the more they stay the same. In the world of Government Contracts Law, however, the more things change, the more the phone rings. And while we’re only a few weeks into 2013, the phone has been ringing off the hook. Here are a few of the reasons why.
Continue Reading...By John Hynes
On November 2, 2012, the Sixth Circuit held that a 2009 amendment Congress made to the liability provisions of the False Claims Act ("FCA") applies retroactively to civil FCA cases pending as of June 7, 2008. U.S. ex rel. Sanders v. Allison Engine Co., Nos. 10-3818/10-3821, at *17-20 (6th Cir. Nov. 2, 2012).
Continue Reading...In 1995, the U.S. Air Force awarded Lockheed Martin the RSA II Contract (the “Contract”) for the provision of software and hardware used to support space launch operations at Vandenberg Air Force Base and Cape Kennedy. Importantly, the Contract is a cost-reimbursement type contract whereby a contractor is paid for the allowable expenses it incurs plus an additional payment to allow for a profit.
Continue Reading...By Christopher Loveland and Jonathan Aronie
While the False Claims Act (“FCA”) generally is understood to be a “whistleblower” statute, it has been a tool of choice in recent years for opportunistic qui tam relators who lack any inside information regarding the very companies they sue. Not surprisingly, this lack of inside information has resulted in many qui tam cases being dismissed either because they merely mimic the allegations of a previously-filed case or do not plead their allegations of fraud with sufficient particularity.
Continue Reading...On May 2, 2012, Federal agents with the Department of Justice's (“DOJ”) special task force made the biggest Medicare bust in U.S. history, and a splash in the media, when it cracked down on a number of unrelated Medicare fraud schemes across the country that resulted in an alleged $450 million in false claims being submitted to Medicare over the past six years. A total of 107 people were arrested, including doctors, nurses, social workers, office managers, and patient recruiters. Charges ranged from submitting false billing for home healthcare, mental health services, HIV infusions, and physical therapy, to money laundering and receiving kickbacks.
Continue Reading...By: Anne Perry
We often cover social media aspects pertinent to government contracting here on the blog. Recently, however, Michelle Sherman of Sheppard Mullin’s Los Angeles office posted an article that may be relevant to contractors on the Social Media Law Update blog. In her posting, Michelle discusses how companies may be able to use the widespread and immediate dissemination of corporate news online to defeat the “original source” prong of a whistleblower action. For a comprehensive analysis of the issue, please click here.
If you have any questions, Michelle can be reached at msherman@sheppardmullin.com or (213) 617-5405.
By Robert M. P. Hurwitz
The Supreme Court recently heard oral argument in a case testing the scope of the False Claims Act’s public disclosure bar. The False Claims Act (“FCA”) is the government’s primary weapon against waste, fraud, and abuse in government contracting. Penalties for FCA violations are harsh: actual damages are trebled, and each false claim (such as an individual invoice) triggers a penalty of up to $11,000. Under the FCA’s qui tam provisions, whistleblowers (formally called relators) can bring lawsuits on behalf of the government. Whistleblowers receive a significant bounty for acting as private prosecutors: they are entitled to between 15 and 30 percent of the government’s proceeds from the litigation. This is a substantial sum, as the trebling and penalty provisions catapult many modest matters into multimillion dollar actions.
By Robert M. P. Hurwitz
A good internal investigation gives equal scrutiny to people and processes. It may be easier to replace or reprimand the “bad apple” employee than to overhaul a system with which employees are familiar and has become ingrained in the operational culture. Nevertheless, it is increasingly vital that companies take a hard look at systems, structures, and processes. A recent opinion from the D.C. Circuit indicates that these organizational elements will be the next battleground in False Claims Act (“FCA”) litigation.
By Charles L. Kreindler and Barbara E. Taylor
Are you a parent corporation with a subsidiary that does business with a state or local government? Are you a manufacturer or supplier whose products end up down the distribution chain with a state or local government? If so, you could be the “beneficiary” of a false claim and could be liable for penalties and treble damages.
By David S. Gallacher
On September 27, 2010, President Obama signed into law the Small Business Jobs and Credit Act of 2010 (Pub. L. No. 111-240). The Act is intended to free up capital by providing tax cuts for small businesses (some of which are temporary) and to promote exports of U.S. products, all with a view to stimulating the small business sector as an engine of job creation. But, as usual, the Administration’s efforts to improve the economy through stimulus measures also give rise to new risks for companies doing business with the federal Government – whether as a prime or a subcontractor, as a large or a small business.
By Robert M.P. Hurwitz
Last month, the U.S. Court of Appeals for the Ninth Circuit extended the breadth of the False Claims Act for actions brought within that Circuit by accepting the implied false certification theory of liability. This is a significant development that increases the risk of doing business with the government and enhances the Government's leverage in negotiations with contractors.
By Robert M.P. Hurwitz
The U.S. Court of Appeals for the Ninth Circuit recently weakened the impact of Federal Rule of Civil Procedure 9(b) in False Claims Act (“FCA”) cases. The FCA allows whistleblowers (called “relators”) to bring lawsuits against contractors on behalf of the federal government. Relators can receive up to 30 percent of the government’s ultimate recovery. This bounty incentivizes relators to bring FCA lawsuits. It also causes some relators to see the FCA as a retirement-advancing lottery, and their complaints often characterize innocent business challenges as fraudulent schemes.
By Christopher E. Hale
This article continues discussion of Rule 9(b) in False Claims Act litigation from Ninth Circuit Weakens Rule 9(b) in False Claims Act Litigation, also published today.
While the Ninth Circuit has joined the minority position on fraudulent scheme complaints, the Sixth Circuit has reiterated the standard adopted in Bledsoe II, requiring False Claims Act (“FCA”) relators to plead actual, representative examples of false claims to meet the particularity requirements of Rule 9(b) when alleging a fraudulent scheme. In a September 1, 2010 decision in U.S. ex rel. SNAPP v. Ford Motor Co., the Sixth Circuit again considered and affirmed dismissal of a qui tam suit on Rule 9(b) grounds. The Sixth Circuit had previously considered the case in 2008, but had remanded to the district court to decide whether the dismissal was warranted in light of Bledsoe II.
Where is the line between a legitimate False Claims Act whistleblower and an opportunistic parasite? How detailed do a whistleblower’s allegations have to be to survive a motion to dismiss and subject a defendant to expensive discovery? These questions have split the federal courts. The Supreme Court recently invited the Solicitor General to offer the government’s opinions on a petition for certiorari raising these questions. This is a strong signal that the Supreme Court will address these issues and hopefully bring more clarity to False Claims Act litigation.
With its recent decision in Cell Therapeutics Inc. v. Lash Group Inc., 9th Cir., No. 08-35619, Nov. 18, 2009, the United States Court of Appeals for the Ninth Circuit took a dramatic step towards preserving the rights of False Claims Act (FCA) defendants. The court's ruling permits FCA qui tam defendants to seek recovery against third parties vis-à-vis contractual indemnity and independent claims after settling an FCA action with the government and an employee whistleblower (known as a "relator").
Stimulus projects are likely to come with a thick string of transparency and accountability requirements, along with potentially severe financial penalties and, in some cases, possible prison time. These conditions may be extended not only to U.S. government contractors, but to companies undertaking federally funded projects for state and local governments.
Companies that plan to accept money from the 2009 American Recovery and Reinvestment Act (ARRA) should consider acting now to prepare for an especially demanding environment. Investing time, effort, and resources today to establish and improve risk management and compliance processes and controls can help companies mitigate potentially catastrophic problems later.
Learn more by reading the complete paper authored by Deloitte Financial Advisory Services partner, Donna Epps, and Sheppard Mullin Government Contracts partner, John Chierichella, available through the following link.
The civil False Claims Act (FCA) prohibits using false statements related to a false claim. (Other types of FCA liability include presenting a false claim, concealing an obligation to pay money to the government, and conspiring to violate the FCA.) In the recent FCA amendments, Congress explicitly added materiality as an element of FCA false statement liability. Not surprisingly, it also adopted a weak, pro-plaintiff definition: materiality means “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
Congress recently expanded contractors’ liability under the civil False Claims Act (FCA). The substantive changes include eliminating the presentment requirement, adding liability for claims seeking non-United States funds, expanding the scope of reverse false claims and conspiracy liability, and eliminating the intent requirement for conspiring to violate the FCA and for using false statements material to a false claim.
I. INTRODUCTION
Without a doubt, the False Claims Act ("FCA") has been dramatically changed in the last few months. As will be discussed in more detail herein, it certainly appears that the FCA has been retooled so that the playing field is now stacked in favor of the government and qui tam plaintiffs. There is also every indication that lenders who have federally insured mortgages, redevelopment funding, or other financial support from the government, are at risk of being sued for false claims unless they take certain precautions to educate and protect themselves.
In fact, it is a good idea for all companies who receive government funding (e.g., defense contractors, health care providers, academic institutions) to look closely at their internal compliance programs, and modify them to reflect the recent changes in the FCA. This article is intended to offer some specific suggestions, and also encourage companies to have their programs amended, and implemented by legal counsel who are receptive to flexible billing arrangements including flat fee schedules.
On May 29, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 ("FERA").[1] FERA implements a number of sweeping changes to the False Claims Act ("FCA"), including a provision that expands significantly the circumstances under which a contractor may be held liable under the so called "reverse false claims" theory.
On March 31, 2009, the FAR Councils issued several new interim rules (effective March 31, 2009) implementing the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (also known as ARRA, The Recovery Act, or the Stimulus Act). See Federal Acquisition Circular (FAC) 2005-32, published at 74 Federal Register 14621-14652. The FAC issued new interim rules on a number of areas required under the Stimulus Act, including:
This blog focuses on the final three sets of rules – those relating to Auditor access; Whistleblower protections; and Buy American requirements. The first set of rules is discussed separately here.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Tax Act of 2009 ("the Act" or "the Stimulus Bill") (P.L. 111-5) (H.R. 1). As widely reported in the media, the Stimulus Bill includes approximately $787 Billion in government spending and tax cuts. With regard to the government spending provisions (Division A of the Act, which appropriates approximately $520 Billion), the U.S. Government (as well as the State and local governments receiving this money) will disburse the funds through a number of different vehicles – namely government contracts, grants, cooperative agreements, and other transactions. The legislation is intended to deal with, on an expedited basis, economic conditions that many Americans have not experienced in their lifetimes and for which they want an accelerated cure. Those familiar with the federal acquisition and grant processes, however, know that immediacy is not built into those processes. Moreover, to the extent that the “need for speed” overtakes process, recipients of the funds will almost assuredly find themselves downrange from one of the most rigorous oversight regimes ever enacted. Companies, and even States and localities – should familiarize themselves with the full terms of the Faustian bargain they will be striking.
As previously discussed in this blog, there is a pending FAR rule relating to "Contractor Compliance and Integrity Reporting" pursuant to which a contractor could be suspended or debarred for failure to disclose to the agency IG and contracting officer that it has reasonable grounds to believe that there has been a violation of federal criminal law, or that it has received a significant overpayment, in connection with a contract or subcontract valued at $5 million or more. Finding this disclosure overly narrow, DOJ recommended broadening the proposed rule to include mandatory disclosure of FCA violations as well.
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