According to a recent decision in United States ex rel. Scollick v. Narula, Case No. 14-cv-1339 (D.D.C. Nov. 6, 2020), the fraudulent inducement theory of False Claims Act (“FCA”) liability does not require plaintiffs to satisfy the “demanding” materiality standard set forth in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  Though that may sound like good news for plaintiffs, it is not.  The fraudulent inducement theory holds that fraud in a contractor’s proposal can taint every claim for payment it submits under the resulting contract, making them all “false claims” under the FCA.  This bears hefty consequences if proven: the defendant could be liable for civil penalties on every single claim for payment submitted over the life of the contract, in addition to treble damages the government may have suffered as a result of the fraud.  Perhaps in recognition of these severe consequences, the U.S. District Court for District of Columbia held that a plaintiff must plead and prove an even higher standard than Escobar materiality to establish fraudulent inducement liability—actual causation.  Rather than alleging that misrepresentation by the defendant merely was material to the government’s decision to award the contract to defendant, the Scollick decision concludes that “a misrepresentation in the defendant’s bid must have caused the government to award the defendant the contract.”  If the FCA materiality standard is “demanding,” then the actual causation standard is formidable.
Continue Reading “Would You Rather…” – Escobar’s Demanding Materiality Standard or Actual Causation?

Whistleblowers are a common character in investigations into governmental abuse.  They famously have exposed covert government surveillance programs, political corruption scandals, and even led to the impeachment of the president of the United States.  Some statutes also empower whistleblowers to bring claims against private businesses on behalf of the government for financial misconduct involving fraud, waste, and abuse.  In the wake of the COVID-19 pandemic, we expect to see a surge of new whistleblower claims alleging misconduct under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).  Whistleblower claims could be detrimental or even fatal for businesses already struggling to recover from the economic impact of COVID-19.  Now more than ever, businesses must understand the risks and prepare for the inevitable emergence of whistleblowers to protect themselves from future claims.  
Continue Reading Prepare for a Perfect Storm of COVID-19 Whistleblower Claims

With the Department of Justice’s (DOJ) decision to drop charges against Michael Flynn, materiality has come to the forefront of popular legal discourse.  At the same time, prosecutors and whistleblowers will carefully consider enforcement/false claims actions against entities who may have wrongfully received relief funds under the Coronavirus Aid, Recovery, and Economic Stability Act (CARES Act).  Such actions likely will turn on whether alleged misrepresentations were materially false.  Those applying for CARES Act funds, such as those under the Paycheck Protection Program (PPP), must ensure all of their representations and certifications are truthful.  However, those accused of making misrepresentations in order to receive government funds may find refuge in a more narrow view of the materiality requirement.
Continue Reading Materiality Concerns For CARES Act Enforcement Cases

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

By memorandum dated June 7, 2018, Shay Assad, DoD’s Director, Defense Pricing/Defense Procurement and Acquisition Policy, has reversed decades of procurement practice that has been embraced by industry and the government alike in attempting to manage the often unmanageable process of providing the government with cost or pricing data that is current, accurate and complete as of the date of agreement on price. Recognizing that inherent “lag time” often makes it impossible for contractors to provide “up to the minute” data in real time at the point when the parties “shake hands,” contractors have customarily performed immediate post-handshake “sweeps” of their databases to provide the government with any data that may have escaped the pre-handshake dragnet. The government, in turn, has customarily accepted the data, evaluated its impact on the price, and negotiated, if and as appropriate, adjustments to the price. The net result was that the government had all the data, its impact on price was addressed, and the contractor avoided liability under the Truth in Negotiations Act and, possibly, under the False Claims Act. Everyone was happy.

Not anymore.
Continue Reading OSD Issues Policy Guidance Rejecting “Sweeps” Data

On January 25, 2018, Associate Attorney General Rachel Brand issued a memorandum (the “Brand Memo”) limiting the use of agency guidance documents in affirmative civil enforcement cases. The memorandum builds on Attorney General Jeff Sessions’ November 16, 2017 memorandum prohibiting DOJ from promulgating guidance documents that create rights or obligations that are binding on regulated parties. When DOJ issues a guidance document with voluntary standards, it must also contain a statement that noncompliance is not subject to future DOJ enforcement actions. The Brand Memo makes clear that this principle also applies to other agencies’ guidance documents. In other words, agency guidance, in and of itself, cannot create new binding legal requirements.
Continue Reading “Brand Memo” Prohibits US DOJ From Converting Agency Guidance Into Binding Legal Obligations In Civil Enforcement Actions

Note: This post was originally published in the October 2017 issue of the National Defense Industrial Association’s National Defense magazine.

Recent studies show that the percentage of overall research and development spending sponsored by the government has dropped sharply over the last 50 years.

Whereas government funding accounted for 67 percent of R&D in 1964, it accounted for 23 percent in 2015, a 44 percent reduction. For the government, this is not a salutary development. Increasingly, “state of the art” is being defined by the commercial marketplace, without government participation and often without its access to the resulting technological advances.
Continue Reading Industry Struggles With Ever Changing Acquisition Rules

2016 was a big year for the False Claims Act (FCA).  Total government recoveries were up; total new matters filed were up; and total new government-led FCA matters were up.  The Supreme Court issued multiple decisions relating to the FCA, including one—Universal Health Services, Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016)—which will have dramatic ramifications for litigation relating to the FCA’s materiality standard.  The Supreme Court also denied certiorari in an important FCA case—U.S. ex rel. Purcell v. MWI, Inc., 807 F.3d 281 (D.C. Cir. 2015), reh’g en banc denied, cert. denied, 580 U.S. ___ (2017)[1]—in which the D.C. Circuit held that when a defendant adopts an objectively reasonable or plausible interpretation of an ambiguous regulatory term and the agency has not warned the defendant away from its interpretation via authoritative guidance, the FCA’s scienter element cannot be established.  (Note: We previously covered the Purcell decision on our FCA blog.  You can view our article, here.)  Although some of these developments may seem concerning, there is plenty of silver lining here for government contractors.
Continue Reading What’s Past is Prologue: How The FCA’s Eventful Year in 2016 Will Affect Government Contractors

Effective August 1, 2016, the False Claims Act’s (FCA) civil penalty will double.  As it currently stands, the FCA’s civil penalty ranges from $5,500 to $11,000 per violation.  But as of August 1, the FCA’s civil penalty range will almost double to a minimum of $10,781 and a maximum of $21,563.

The increase is the result of an interim final rule issued yesterday by the Department of Justice.  81 Fed. Reg. 42491 (June 30, 2016).  Although the increase was expected, it still reflects a dramatic increase in risk to those doing business with the federal government.  Health care providers are uniquely at risk, because those entities are often sending thousands of claims to the federal government for reimbursement.  When thousands of claims are at issue, the civil penalty can easily add up.


Continue Reading DOJ Rule Increases FCA Penalties to Over $20,000 Per Claim

We previously reported on the viability of the “implied certification” theory of FCA liability based on oral argument before the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar.  We concluded that the theory—under which a claim for payment can be false without an express certification, but because the government contractor has not complied with an applicable statute, regulation, or contractual provision—did not appear to be headed for extinction.  It turns out we were right.
Continue Reading FCA’s “Implied Certification” Theory Survives