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
In the first two parts of this series, we have summarized what constitutes an Organizational Conflict of Interest (“OCI”) in government procurements, and discussed OCIs’ importance in the bid protest arena. But lest you think that, having passed the protest hurdle, you are now free from all harm caused by having an OCI, we now address potential post-award liability stemming from undisclosed and unmitigated OCIs. Contractors found to have undisclosed and unmitigated OCIs, that either existed before award or arose thereafter, can face a variety of bad outcomes—contract termination, suspension or debarment, and liability for fraud under the False Claims Act (“FCA”). Recall that OCIs come in three forms:Continue Reading Organizational Conflicts of Interest – Part 3: The Next Target for FCA Enforcement
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
On March 8, 2022, just five months after the creation of the Department of Justice’s (“DOJ”) new Civil Cyber-Fraud Initiative (previously discussed here), the DOJ announced its first settlement of a cyber-related fraud case. Under the settlement agreement, Comprehensive Health Services LLC (“CHS”) will pay $930,000 to resolve whistleblower allegations that it violated the False Claims Act by (among other things) failing to properly store and handle confidential information. This likely is just the start for increased cyber-related enforcement actions.
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
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
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)—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
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