False Claims

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A federal district court in the Middle District of Florida issued a decision on Sept. 30th that threatens the federal government’s continued reliance on the False Claims Act (“FCA”) as the most powerful weapon in the Department of Justice’s enforcement arsenal. U.S. District Judge Kathryn Kimball Mizelle threw out a case against a group of Medicare Advantage organizations and providers on the grounds that an individual whistleblower suing on behalf of the federal government under the FCA, often called a “relator” in a “qui tam” lawsuit, violates the U.S. Constitution’s “appointments clause.” The Court concluded that relators, who are acting on behalf of the federal government, must be considered officers of the government and appointed in a manner consistent with Constitutional requirements. See U.S. ex rel Zafirov v. Florida Medical Associates, LLC, No. 8:19-cv-1236, 2024 U.S. Dist. LEXIS 176626, ECF No. 346 (M.D. Fl. Sept. 30, 2024).Continue Reading FCA Whistleblowers – No More?

On June 17, 2024, the Department of Justice (“DOJ”) announced the latest settlement under its Civil Cyber-Fraud Initiative (“CCFI”) (previously discussed here).[1] The settlement resulted in a total of $11,300,000 in payments from two consulting companies (Guidehouse, Inc., the prime contractor, which paid $7,600,000; and Nan Kay and Associates, the subcontractor, which paid $3,700,000) to resolve allegations the two companies violated the False Claims Act by failing to meet cybersecurity requirements in federally-funded contracts.Continue Reading Latest Cyber-Related FCA Settlement Underscores the Breadth of DOJ’s Civil Cyber-Fraud Focus

In recent weeks, there has been an uptick in news of cyber-related False Claims Act (“FCA”) activity. For example, on September 1, 2023, the court unsealed a qui tam lawsuit against Penn State University relating to allegations of non-compliance with Department of Defense (“DoD”) cybersecurity obligations. Separately, on September 5, 2023, the Department of Justice (“DOJ”) announced a multi-million dollar FCA settlement with Verizon under its Civil-Cyber Fraud Initiative (which focuses on leveraging the FCA to pursue cybersecurity related fraud by government contractors and grant recipients, as we previously discussed here). These and other cases suggest—as many had been speculating—that the number of enforcement actions and publicity associated with previously-sealed qui tam cases will continue to increase. They also signal that contractors and universities should brace for additional scrutiny and potential whistleblower claims in this area.Continue Reading Recent Cyber-Related False Claims Act Activity Signals Contractors and Universities Should Examine Their Cybersecurity Practices and Brace for an Uptick in Enforcement

On June 1, 2023, the Supreme Court issued a unanimous decision holding that the scienter element of the False Claims Act (“FCA”) is met if a defendant subjectively knew his or her claims were false and submitted them anyway. See United States ex rel. Schutte v. SuperValu Inc. and United States ex rel. Proctor v. Safeway. The Court’s ruling was narrow and avoided the more challenging—and common—issues raised during oral argument (which we blogged about previously).Continue Reading Supreme Court Clarifies that Subjective (Not Objective) Knowledge of Falsity of Claim Dictates False Claims Act Liability

Companies regularly are required to interpret ambiguous and vague regulatory provisions. Today, the United States Supreme Court heard oral arguments in a pair of consolidated cases to determine whether a defendant’s subjective interpretation of an ambiguous regulation is relevant to determining the knowledge (or scienter) element of the False Claims Act or, as the Seventh Circuit held in the case below, that once a defendant can articulate an objectively reasonable interpretation its contemporaneously held subjective belief is irrelevant to the knowledge inquiry. The issue is a significant one for both the government and relators on one side, and potential defendants on the other, as False Claims Act (FCA) liability imposes treble damages and penalties exceeding $20,000 per claim as well as relators’ attorneys’ fees and costs.Continue Reading Supreme Court Hears Arguments on False Claims Act Scienter Standard

The Centers for Medicare and Medicaid Services (“CMS”) has issued a proposed rule which would amend the existing regulations for reporting and returning identified overpayments (the “Proposed Rule”). Specifically, with respect to the meaning of “identification” of overpayment, CMS proposes to eliminate the “reasonable diligence” (or traditional negligence) standard and replace it with the False Claims Act’s (“FCA’s”) standard of “knowing” and “knowingly” (i.e., reckless disregard or deliberate ignorance of a potential overpayment).Continue Reading CMS Proposes to Amend Overpayment Rule, Remove Potential Overpayment and False Claims Act Liability for Mere Negligence

A federal court filing by a fintech company revealed that it has been under investigation by the Department of Justice (“DOJ”) in relation to its Paycheck Protection Program (“PPP”) loan approval practices for over a year. This rare disclosure of a pre-indictment DOJ investigation warns that the government is refocusing enforcement efforts to the fintechs and financial institutions that administered PPP loans.Continue Reading Court Filing Reveals that DOJ Is Investigating Fintech’s Administration of PPP Loans

On June 21, 2022 the Supreme Court granted certiorari in Polansky v. Exec. Health Res., 17 F.4th 376 (3d Cir. 2021), allowing the Court to review the Department of Justice’s (“DOJ”) authority to dismiss qui tam suits brought under the False Claims Act (“FCA”), over objections by the relators. The case invites the high Court to decide two key issues: (1) whether the DOJ has the authority to dismiss qui tam suits where it declined to intervene, and (2) what standard of review applies to such requests for dismissal. Continue Reading Supreme Court To Review DOJ’s Authority to Dismiss Qui Tam FCA Suits Over Objections From Relators

The devastating economic impact of the COVID-19 pandemic already has set in, with the future of thousands of businesses hanging in the balance.  Big and small businesses alike are finding it difficult to cope with the downturn.  The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provisions related to small business loans provide a glimmer of hope.  Among other forms of economic relief, the CARES Act created the $349 billion Paycheck Protection Program (“PPP”) to provide funding to assist small businesses impacted by the pandemic.  After the initial allocation of PPP funds was exhausted the President signed a bill providing an additional $484 billion in relief, including $310 billion for the PPP, on April 24, 2020[1].  It may turn out for some businesses, however, that these provisions will be nothing more than fool’s gold.  The U.S. Small Business Administration (“SBA”) loan programs, including the PPP under the CARES Act, only are available to qualifying businesses that strictly comply with complex rules related to the size of the business, including its employee count, financial condition, affiliations, control and ownership, and industry classifications.  Businesses that reflexively jumped at the SBA money grab without discipline or compliance are at risk of aggressive government enforcement that surely will follow.
Continue Reading Small Business Money Grab Under the CARES Act Brings Enforcement Risks

Introduction

Federal and state governments are ready to roll out over one trillion dollars in funding in response to the novel coronavirus (COVID-19) pandemic.  As past is often prologue, we expect this new round of massive government spending to someday be subjected to strict government oversight, targeted audits and investigations, and whistleblowers all searching for potential fraud, waste and abuse.  Economic downturns and the unfortunate necessity of layoffs may also lead to an increased risk of whistleblower claims by former employees.  Flooding the healthcare industry and other negatively impacted industry streams with hundreds of billions in aid will no doubt prove too tempting for the ever-present fraudsters in society who are always looking to take advantage.  As we have learned from past crises, however, when government enforcement eventually gets around to casting its False Claims Act (FCA) nets far and wide in search of potential fraud and abuse, many unwary businesses may be ensnared along with the usual fraudsters because of their sloppy or reckless practices. Deficient practices today could trigger an FCA investigation or enforcement action tomorrow along with all of its draconian treble damages and penalties.  This article details the risks businesses face under the FCA when responding to COVID-19, and provides guidance on how to guard against them now.Continue Reading Guard Against False Claims as Massive Government Spending Rolls Out to Combat COVID-19

The United States District Court of the Eastern District of Pennsylvania recently issued a decision unsealing a False Claims Act case over the objections of the government, the relator and the defendant.[1] In United States ex. Rel. Brasher v. Pentec Health, Inc. No. 13-05745, 2018 WL 5003474 (E.D.P.A. Oct. 16, 2018), a case initially filed five years ago, the government filed a motion to continue the seal – which happened to be its eleventh such motion – arguing that additional time was necessary, in part, to finalize its decision whether to intervene in the action, as well as to pursue settlement options. The Court disagreed.
Continue Reading District Court Determines that the Eleventh Time is NOT the Charm