Source: http://www.governmentcontractsadvisor.com/category/procurement-fraud-investigations-and-defense
Timestamp: 2019-04-21 06:26:37+00:00

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In US ex rel. Beauchamp v. ACADEMI Training Center, the US Court of Appeals for the Fourth Circuit recently vacated dismissal of a False Claims Act (FCA) qui tam suit on the ground that the trial court improperly applied the Supreme Court’s holding in Rockwell International Corp. v. United States, 549 US 457 (2007). Rockwell held that in qui tam suits where relators allege new claims of fraud in amended complaints, courts should look to the date of the amended complaint to determine the applicability of the public disclosure bar under 31 USC § 3730(e)(4).
This holding is occasionally referred to as the last-pleading rule, because the Rockwell relator’s last amended complaint contained the first instance of an alleged fraud that was being challenged under the public disclosure bar. The Fourth Circuit found in Beauchamp that the trial court’s dismissal misconstrued the Supreme Court’s reasoning and led to an erroneous mechanical application of the Rockwell holding.
More specifically, the Fourth Circuit held that the date of the first pleading that alleges an FCA fraud with particularity (i.e., not necessarily the last amended pleading in the case) is determinative for purposes of a public disclosure bar analysis. The Fourth Circuit’s decision aligns with some other courts’ interpretation of Rockwell in cases involving public disclosure bar timing questions (see US ex rel Jamison v. McKesson Corp., 649 F. 3d 322 (5th Cir. 2011)). In an overall FCA context, this ruling represents a narrowing of options for FCA defendants seeking pretrial dismissal, at least in the Fourth Circuit.
In Rockwell, the relator filed an initial qui tam suit alleging a theory of fraud based on his direct and independent knowledge of the fraud. During discovery, the relator identified a second, unrelated theory of fraud that he did not have knowledge of previously, and included that new theory in subsequent filings. At the suggestion of the trial court, the relator and the government filed a joint amended complaint that ultimately did not include the first theory of fraud.
The defendant argued for dismissal on the ground that the second theory of fraud was based entirely on a qualifying public disclosure under 31 USC § 3730(e)(4), and that the relator had no knowledge of that theory until the public disclosure. Given those facts, the Supreme Court held that it was appropriate to use the complaint as amended to determine whether the second theory of fraud was prohibited by the public disclosure bar.
The Fourth Circuit found the facts in Beauchamp distinguishable from Rockwell, and held that trial court’s rigid application of the Rockwell holding was inconsistent with the Supreme Court’s rationale. The Beauchamp relators’ initial sealed complaint, filed in April 2011, alleged that the defendant, ACADEMI Training Center, submitted false reports and bills to the US State Department. Shortly after the initial complaint, the Beauchamp relators filed their first amended complaint, which included a new allegation that ACADEMI had failed to satisfy its contractual obligations to adequately qualify its employees on two firearms as required by the contract.
While the first amended complaint was pending, an unrelated wrongful termination suit was filed by another employee against ACADEMI, alleging specific facts relating to the failed weapons qualifications of ACADEMI employees. In July 2013, Wired published an article online about the alleged fraudulent weapons qualification scheme. Armed with the additional facts disclosed by this article, the Beauchamp relators further amended their complaint (second amended complaint), which became the operative pleading.
ACADEMI moved to dismiss the qui tam suit on a number of grounds, including the argument that the Wired article preceded the second amended complaint triggering the public disclosure bar. ACADEMI argued that the article qualified as a public disclosure under the FCA, and that the relators’ second amended complaint was the proper pleading for the trial court’s analysis under the Rockwell last-pleading rule. The trial court agreed and dismissed the case.
In vacating the dismissal, the Fourth Circuit found that the Beauchamp trial court erred in applying the last-pleading rule without also conducting a claim-by-claim analysis of the alleged theories of fraud to determine if any predated the Wired article. Specifically, the Fourth Circuit pointed out that the weapons-qualification-related theory of fraud appeared in the relators’ first amended complaint, which predated the Wired article by about a year. As such, the Fourth Circuit found that the public disclosure bar is inapplicable.
In the current compliance environment, all companies must evaluate their internal investigation policies and procedures to ensure that investigations are conducted in a manner that maximizes the protection afforded by the attorney-client privilege. Recent decisions threaten to expose investigation documents to discovery in litigation or to compulsion by government auditors. But these decisions also provide a roadmap on how companies can obtain legal advice beyond the prying eyes of third-parties.
Dentons Partners Lawrence S. Ebner and Christopher W. Myers recently authored the article, entitled “Tips for Conducting Attorney–Client Privileged Internal Investigations” in DRI’s In-House Defense Quarterly, Winter 2016 issue. The article summarizes recent case developments in this area and provides practical tips for conducting internal investigations in a privileged environment. Please feel free to contact the authors with questions.
Yesterday, Sandeep Nandivada published a feature comment in The Government Contractor entitled, “The Public Disclosure And First-To-File Bars: Are They Still Jurisdictional?”. In his article, Sandeep analyzes the “jurisdictional nature of the public disclosure and first-to-file bars” under the 2010 amendments to the civil False Claims Act (31 USCA § 3729, et seq.) through an in-depth discussion of recent Circuit Court of Appeals and District Court decisions. He concludes that “long-standing assumptions” about the jurisdictional nature of these bars are now “in flux” and “may no longer apply.” I encourage you to read this important article on a topic that may one day reach the Supreme Court.
On August 29, 2014, the D.C. Circuit issued its decision in United States ex rel. Folliard v. Gov’t Acquisitions, Inc., No. 13-7049 (D.C. Cir. Apr. 4, 2014), a False Claims Act (FCA) case in which the district court granted summary judgment for the contractor. In a welcome decision for FCA defendants, the D.C. Circuit affirmed. Most significantly, the Court found that the contractor’s reliance on it supplier’s TAA certification was reasonable. More broadly, the case holds that contractors that reasonably rely on supplier’s TAA certifications are protected from liability under the FCA. Partner Jason N. Workmaster and former partner Tim Halloran, with assistance from partner Dan Jarcho, filed an amicus curiae brief on behalf of the Coalition for Government Procurement.
On July 1, the U.S. Supreme Court agreed to hear KBR’s appeal in KBR, Inc. v. United States ex rel. Carter (No. 12-1011). This sets the stage for a high court ruling that will clarify the applicability of the Wartime Suspension of Limitations Act to the False Claims Act’s (“FCA”) six-year statute of limitations and whether the FCA’s “first-to-file” rule will continue to preclude new waves of copycat complaints after original FCA claims with substantially similar allegations are dismissed or settled.
The FCA has a statute of limitations that generally bars all actions brought after six years of the date of the allegedly false claim.1 31 U.S.C. § 3731(b). In United States ex rel. Carter v. Halliburton, 710 F.3d 171 (4th Cir. 2013), a whistleblower (or “relator”) brought an action more than six years after the allegedly “false” claims were submitted, and the Government did not intervene in the case. Nevertheless, the Fourth Circuit cited the 1942 Wartime Suspension of Limitations Act (“WSLA”) and held that the suit was not barred because the WSLA is tolling the FCA statute of limitations during the period of conflict in Iraq.
The WSLA has a long history, dating back to World War I. The WSLA was re-enacted during WWII to toll limitations periods for prosecutors to bring criminal fraud charges during times of war, while the Government focused its resources on war efforts. The Act applied to offenses “indictable” under existing statutes, suggesting an exclusive application to criminal violations. When the phrase “now indictable” was deleted from the text of the WSLA in 1944, some courts held that this expanded the scope of the WSLA to apply to both criminal and civil offenses. The Fourth Circuit adopted this position, notwithstanding the fact that the WSLA is currently codified in Title 18, the U.S. Criminal Code.2 The Fourth Circuit also found that the WSLA applied in the Carter case, even though the Government had not intervened in the case and the qui tam relator did not face the resource limitations during times of war that the WSLA was designed to address. The court thus held, albeit over a strong dissent, that the FCA statute of limitations is tolled whenever the United States is “at war,” which the court held does not require a declared war by Congress, but only authorized military conflict. This includes the current Iraq and Afghanistan conflicts.
Under Carter’s sweeping interpretation, the limitations period has not even begun to run with respect to potential false claims allegedly made between 2002 and the present because neither the President nor Congress have officially terminated hostilities. Such a holding is contrary to the intent behind the WSLA and a significant body of case law interpreting the narrow scope and purpose of the statute. In the words of the certiorari petition, the holding could “fundamentally alter the relationship between the government and those that do business with it.” The case therefore presents the Supreme Court with an opportunity to clarify that the FCA statute of limitations remains intact as intended by Congress, and to appropriately rein in the expansive definition of the WSLA imposed by the Fourth Circuit.
First-to-File Issue – Can Copycat FCA Claims Be Brought After the Original is No Longer “Pending”?
Relators frequently “piggyback” on previously-raised allegations in an attempt to share in potential damages recovered in a previously filed FCA suit. There is no real dispute that the FCA’s first-to-file rule, which bars copycat complaints containing substantially the same allegations as a previous complaint in a “pending action,” exists to prevent these types of “parasitic” claims by opportunistic relators. 31 U.S.C. § 3730(b)(5).
However, the Carter case—in addition to the WSLA issue—presents the issue of whether the first-to-file rule bars a copycat action even if it is filed when the original action is no longer “pending.” In Carter, multiple earlier-filed qui tam complaints contained allegations similar to those raised in the relator’s later complaint, including ones filed by the relator himself. Nevertheless, the court held that the relator’s claims were no longer barred under the first-to-file rule once the earlier complaints were dismissed. The circuit courts are split on this issue. At least four circuits have held that duplicative actions are always barred regardless of timing. These courts have held that an alternative conclusion “cannot be reconciled with [the FCA’s] goal of preventing parasitic [lawsuits].” Nevertheless, three other circuits (including the Fourth Circuit in Carter) have held that the first-to-file bar no longer applies once the original case is settled or is otherwise terminated, based on the “pending action” language included in the statute.
Under Carter, a relator with the same or similar claims could avoid the first-to-file rule simply by waiting to bring his/her allegations until a pending FCA case is settled or otherwise resolved. This interpretation is clearly antithetical to the purpose of the first-to-file rule, as contractors would likely be exposed to multiple rounds of similar and duplicative claims. The contracting community is therefore optimistic that the Supreme Court will resolve the circuit split in accordance with the rule’s intent.
The Court is scheduled to review the case beginning this fall. Dentons will continue to monitor these important issues as they proceed through briefing and oral argument.
1 Specifically, the FCA provides that actions under the statute are barred if brought six years after the alleged violation (i.e., submission of a false claim), or three years after the Government knew or should have known of the violation (whichever is later), and in no event ten years after the alleged violation.
2 Recently, however, the D.C. District Court found that the WSLA does not reach the type of fraud allegations covered by the FCA. In United States ex rel. Landis v. Tailwind Sports Corporation, No. 10-cv-00976,2014 WL 2772907 (D.C. June 19, 2014)(the Lance Armstrong case), the court held that the WSLA applies only to actions involving “fraud as an essential ingredient.” The court reasoned that, ever since the 1986 amendments to the FCA, “no proof of specific intent to defraud is required” under the FCA and the WSLA therefore does not apply.
Don’t walk off the job – Although the project experienced delays and a new completion date was not formally established, Kullman eventually stopped working on the project with no apparent intention of returning to work. As a result, the government terminated the contract for default. Kullman argued that its actions were justified because (i) it was experiencing financial distress and (ii) it would not have been able to complete the project due to the government not providing permanent power to the worksite as of the termination date. The Court summarily rejected these arguments, finding that the “overwhelming evidence that [Kullman] abandoned the project . . . alone trumps any possible shortcomings in contract administration.” A “[t]ermination for default is justified when the contractor abandons the project while there is still work to be completed.” In other words, no matter what the government does, never walk off the job and abandon it.
Understand your written contract – Kullman unsuccessfully argued that it was required to perform certain geotechnical work outside the terms of the contract, and that it was provided an allowance for this work, the price of which would be set at a later date. Dismissing a variety of arguments, the Court’s decision focused on its review of the contract: “a literal reading of the contract plainly supports defendant’s contention that plaintiff assumed the risk for how much the geotechnical and foundation work would cost when it agreed to a fixed price.” The Court also found that Kullman’s apparent understanding was “merely the agency’s recognition that, only if [Kullman] could establish a differing site condition due to unusual soil condition would the agency have to face additional cost.” Contractors must understand the implications of entering into a fixed price contract, and realize that, but for the execution of a modification increasing the contract price, there is no guarantee of payment for work performed over the contract’s firm fixed price. In addition, contractors should carefully review the solicitation, their proposal and the statement of work to ensure the proposed price reflects that actual scope of work.
Carefully review certifications – In its invoices, Kullman certified that “[a]ll payments due to subcontractors and suppliers from previous payments received under the contract have been made, and timely payments will be made from the proceeds of the payment covered by this certification . . . .” The government argued that Kullman violated the False Claims Act (FCA) because Kullman was paid in full for all of one supplier’s work, but Kullman failed to pay in full that supplier. At trial, Kullman explained its interpretation of the certification – that Kullman “had paid its subcontractors and suppliers as much as it could of the amounts due under the subcontract agreements, or, alternatively, that [Kullman] could make the certification so long as it had some understanding with the suppliers about paying amounts due over time.” Although the Court found that Kullman did not “mean to deceive the government” and that Kullman truly believed its interpretation was appropriate, this “nuanced interpretation does not, however, overcome its clear inaccuracy. We remain persuaded that he should have known the statement was inaccurate and should not have signed it.” Although this false certification did not amount to a violation of the Forfeiture of Fraudulent Claims Act, it did violate the FCA. The Court explained: “ [t]he fact that [Kullman] thought [the certification] was accurate under a strained view of the circumstances does not make it any less false in the sense meant by the statute.” The Court also dismissed Kullman’s argument that there was no FCA violation because the government was aware of Kullman’s financial issues and had reasons to know that it could not pay all its suppliers. The Court found that the contracting officer did not “specifically know” or have “first hand knowledge” that the certifications at issue were “not correct.” “[F]or government knowledge to vitiate fraud, it must approach something like specific consent or an agreed-upon interpretation of the terms of the certification such that the parties agree that the certification does not mean what it otherwise appears to mean.” The upshot is that contractors should carefully review all certifications, and when in doubt about an interpretation, contact counsel.
I hope you can join me and Dentons’ Government Contracts Department Chair, Fred Levy for an ABA Committee lunch meeting featuring Dr. Patricia J. Harned, President of the Ethics Resource Center (ERC). She will be speaking to the Committee regarding the results of ERC’s National Business Ethics Survey (NBES). The NBES is a study, conducted every two years, of ethical behavior within corporations. Specifically, it gauges ethics in the workplace and forecasts where corporate America is heading from a cultural standpoint.
This year’s findings are quite interesting. The current NBES reveals a reduction in overall observed workplace misconduct, which the ERC attributes to corporate America’s increased commitment to enhancing ethics and compliance programs. On the other hand, according to the NBES, 60-percent of misconduct is committed by someone within management, 1 out of every 3 people who observe misconduct choose not to report it, and 21-percent of those reporting misconduct believe that they suffer retaliation.
Dr. Harned will discuss these issues and many other interesting findings from ERC’s NBES that we believe will be both informative and valuable.
Suspension, debarment or exclusion from government contracts or other transactions with the federal government can have devastating consequences to companies that rely on the federal government for business as a prime contractor, subcontractor or grantee. Being listed on the government’s “Excluded Parties List” not only renders the company ineli gible for federal government work, but can have collateral consequences such as ineligibility to obtain federal export licenses or debarment from state and local contracts. Companies can be suspended or debarred based on a criminal conviction or finding of civil fraud not directly related to the performance of a government contract, grant or transaction. In addition, a criminal violation of certain laws, such as the Clean Air Act and Clean Water Act, require that a company be debarred.
The federal government has greatly increased its use of suspension and debarment. It is actively pursuing suspension or debarment of federal grantees, of companies that violate federal socio-economic laws and regulations, and even of companies that settle civil false claims allegations without an acknowledgement of wrongdoing. A contractor’s or grantee’s failure to disclose potential wrongdoing related to the award, performance or close-out of a federal transaction now has b een added to the long and growing list of gr! ounds for suspension or debarment.
Todd Canni serves as Counsel in the Washington D.C. office of Dentons and has worked on all sides of the government-contracting process, including in the Executive Branch with the Department of Air Force as Director, Suspension & Debarment Operations, the Judicial Branch at the U.S. Court of Federal Claims as Judicial Law Clerk to the Chief Judge and with Industry as outside counsel.
President Obama announced his 2015 proposed budget last week. The budget shows a renewed focus on combating fraud, waste and abuse in government contracting by increasing the number of compliance and fraud enforcers at several agencies.
The Department of Labor (“DOL”), Department of Defense (“DOD”), Department of Health and Human Services (“HHS”) and the General Services Administration (“GSA”) plan on hiring more personnel specifically to investigate fraud. The President’s budget also increases the funding for HHS’ inspector general from $300 million to $400 million. It appears that HHS will continue to pursue record breaking fraud recoveries, as an additional $325 million was earmarked for the Health Care Fraud Prevention and Enforcement Action Team, along with other program integrity efforts. GSA Office of Inspector General (“OIG”), which has been particularly aggressive in recent years, plans on hiring more special agents in FY2015, which will increase the OIG’s ability to investigate allegations of fraud and misconduct and achieve even higher civil and criminal recoveries than in past years. GSA also expects audit work in the construction arena to increase significantly this year as Recovery Act projects come to completion.
The False Claims Act (“FCA”) will remain an important enforcement tool for agencies to use against government contractors. The government is looking to fraud enforcement as a mechanism to increase revenue. Through a joint effort with DOJ, HHS’ FCA recoveries reached a record $4.3 billion in 2013.
Even in an era of flat and declining budgets, agencies are devoting increased resources to both audits and fraud investigations. Contractors should be prepared for this trend by implementing comprehensive and up-to-date compliance programs, monitoring adherence, and promptly conducting their own investigation of any suspected non-compliances or fraud.

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