Source: http://www.falseclaimsactlawblog.com/2012/05/
Timestamp: 2019-04-25 06:04:07+00:00

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Last week, I wrote about U.S. ex rel Davis v. District of Columbia, a False Claims Act case where the D.C. Circuit sustained the District Court's ruling that the relator was not entitled to treble damages because he had failed to allege any actual damages to the government payor. The relator in Davis alleged that the District of Columbia Public Schools submitted false claims for Medicaid reimbursement because its claims did not have adequate documentation to support their payment by the government. The Court, however, ruled that the relator was not entitled to damages because there was "no allegation that what the government received was worth less than what it believed it had purchased . . . The government got what it paid for." Essentially, the government received the benefit of its bargain even though the paperwork was inadequate to support the reimbursement claims.
In their recent article, Civil False Claims Act: D.C. Circuit Reinforces SAIC Decision in False Certification Case, Rejecting FCA Damages Claim in Case Based on Lack of Supporting Documentation, which I commend to you, John Boese and Douglas Baruch at Fried Frank argue that with Davis the D.C. Circuit extended the Court's previous holding on False Claims Act damages announced last year in the case of United States v. Science Applications International Corp., 626 F.3d 1257 (D.C. Cir. 2010) ("SAIC"). The SAIC case was a False Claims Act "false certification" case wherein it was alleged that SAIC violated its contract with the Nuclear Regulatory Commission by falsely certifying that it complied with the regulations forbidding conflicts of interest. As a result of the false certification by SAIC, write Boese and Baruch, the Justice Department argued at trial "and the jury agreed, that the FCA damages were three times the full amount paid under the contract ($1,973,839.61), even though the actual breach of contract damages were only $78." The jury awarded the entire amount of SAIC's contract with the Nuclear Regulatory Commission, which was trebled, based on a jury instruction that required the jury to "limit its calculation of damages to the governments payments" and forbid the jury from "attempt[ing] to account for the value of the services, if any, that SAIC conferred upon the Nuclear Regulatory Commission."
The Court found that calculating FCA damages so as to assume that SAIC's services "had no value" in the face of evidence that SAIC had, in fact, provided valuable services to the NRC was error. Adopting a "benefit-of-the bargain framework,"the Court observed that to "establish damages, the government must show not only that the defendant’s false claims caused the government to make payments that it would have otherwise withheld, but also that the performance the government received was worth less than what it believed it had purchased." (emphasis added). Boese and Baruch argue that "[t]he Davis and SAIC decisions, as well as other recent decisions rejecting claims for astronomical penalties where no damages have been proven, show that courts are aware of the high stakes in FCA allegations, and are focusing on the actual impact of the underlying false claims, rather than imposing grossly disproportionate damages that ignore the actual benefits obtained by the government from the conduct at issue."
Whistleblowers Protection Blog recently wrote about the the District of Columbia Court of Appeals overturning its earlier ruling in U.S. ex rel Findley v. FPC-Boron Employees Club, 105 F.3d 675 (D.C. Cir. 1997). In that case, the D.C. Circuit had held that to be "an 'original source' [in a False Claims Act case] a whistleblower must make his or her disclosure to the government before there is any public disclosure of the same allegation." In U.S. ex rel Davis v. District of Columbia, No. 11-7039, May 15, 2012), the D.C. Circuit relied on the Supreme Court's ruling in Rockwell International Corp. v. United States, 549 U.S. 457 (2007), to reject the view, found in Findley, that a "relator could provide nothing new after a public disclosure." Noting that the False Claims Act has been changed to further clarify who can be an original source (see 31 USC 3730(e)(4)(B)), the Court held "[a]pplying the 1986 version of the Act, we will no longer require a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator's and will instead enforce the text's deadline of 'before filing an action.'"
Davis is a odd case and with an unsympathetic relator. In the other part of the case, the Court sustained the District Court's ruling that the relator, Davis, was not entitled to treble damages and that the relator had failed to allege any actual damage to the United States. Davis had been an accountant to the District of Columbia Public Schools ("DCPS") and his firm prepared Medicaid reimbursement claims made by DCPS to Medicaid for 1995 - 1997. Apparently, DCPS replaced the realtor's firm with another in 1998, and the other firm submitted the DCPS Medicaid reimbursement for 1998. According to Davis, however, DCPS submitted it claims without the required documentation since "only [Davis] had the required documentation supporting the claim and he never gave it back to DCPS." DCPS subsequently received a Medicaid reimbursement of over 10 million , but most of that amount had to be returned to Medicaid after an auditor found that the DCPS 1998 claim had "not been adequately documented." Four years after the Auditor's Report on the 1998 claim, Davis filed a qui tam against DCPS and the District of Columbia alleging that they had improperly submitted the 1998 Medicaid reimbursement claims without proper documentation -- thus the issue about whether he could be an original source.
Davis, the Court observed, did not allege in his suit that any of the claimed services were not provided to the DCPS or that any costs were exaggerated --in short, he did not allege that the government has suffered any damage as a result of the alleged lack of documentation. In fact, "[b]ecause all agree that the services paid for were provided, the maintenance of documents to prove that they were has no independent monetary value. This is the rare case in which there is no allegation that what the government received was worth less than what it believed it had purchased. . . . . The government got what it paid for and there are no damages." The Court noted that Davis may still be entitled to "share" in any statutory penalties assessed against the District.
In view of the lack of damages, this case sounds like a great waste of time for everyone, and it appears to be an strange vehicle for the Court to change it position that a relator can still be an original source even if the relator approaches the government after disclosure. The relator's conduct in Davis certainly does not justify such a change.
Middle District of Florida U.S. District Judge John Antoon II recently held that both False Claims Act ("FCA") retaliation claims, 18 USC 3730(h), and claims brought pursuant to the Florida Whistleblower Act are subject to arbitration where the parties have previously agreed. In United States ex rel Hepburn v. Northrop Grumman Systems Corp., (May 8, 2012) 2012 W: 1631682 (M.D. Fla.), the Court granted a motion to compel arbitration of the FCA and Florida Whistleblower Act claims pursuant to an "arbitration policy" that was contained in the relator's employment agreement.
This is the second case I've featured in the blog on arbitrating such claims: see Court Finds FCA Retaliation Claim Subject to Arbitration. The Court in Hepburn did not cite any FCA specific authority in making its ruling, nor did the prior case, James v. Conceptus, Inc. (S.D. Tex. 2012). A review of the Defendant's Motion to Dismiss and to Compel Arbitration in Hepburn, however, cites several cases that find that arbitration is appropriate for FCA claims, and readers might find those cites to be helpful.
By now, Readers, I am sure you have heard of the announcement this week by the U.S. Department of Justice that Abbott Labs has agreed to pay $1.5 billion in a False Claims Act settlement and a criminal plea regarding its off-label promotion of its drug, Depakote. A number of blogs have covered it including Sidley's Original Source blog as well as MintzLevin's Health Law & Policy Matters blog, both of which I commend to you. The four relators will receive $84 million of the $800 million paid for the False Claims Act portion of the settlement.
I suspect that some Readers may think this settlement --one of many settlements against pharma companies alleging the promotion of off-label drug usages-- may be just another instance in which the government has overreached and used it power to extract a ruinous settlement from the defendant. A review of the facts admitted to by Abbott, however, shows that the company's conduct was reprehensible and that this settlement and the criminal charge against it could have been far worse. The company clearly benefited from great counsel, including former Deputy Attorney General, Mark Filip.
According to the Agreed Statement of Facts for its plea, Abbott's gross sales of Depakote from 1998 - 2008 were roughly $13.8 billion. During an 8 year period, Abbot promoted the sale and use of Depakote primarily for the elderly suffering from dementia and for the treatment of schizophrenia, even though it knew that the drug was not effective for the treatment of such conditions. For example, Abbott conducted a study of the effects of Depakote in 1998-99, but suspended the study due to an "increased incidence of adverse events in the Depakote treatment group," discontinuing it completely in 1999. The study failed to show that Depakote was effective in treating mania in elderly dementia patients. Abbott performed another clinical trial on dementia patients in 2000, but according to Abbott, the trial was "terminated for low enrollment . . . . . [and was] seriously underpowered and definitive conclusions from the data were not possible." Abbott conducted no other studies, but another 153 patient randomized study was done on the use of Depakote for treatment of elderly patients with dementia in 2000 - 2002, and it concluded that "treatment with [Depakote] did not show benefit over placebo in the treatment of agitation associated with possible or probable [Alzheimer's disease] . . . in nursing home residents included in this trial."
The False Claims Act Settlement reflects Abbott's admission that Medicare and Medicaid paid "hundreds of millions of dollars for claims resulting from the use of Depakote for the control of the agitation and aggression of dementia patients" and paid "millions of dollars for claims resulting from the use of Depakote to treat schizophrenia."
The key documents relating to Abbott's plea and settlement can be found here at the Department of Justice's site.
It has been a slow week for Qui Tams and False Claims Act matters.
The government has just announced its most recent settlement against another drug company last week: McKesson Corporation for $190 million. The government alleged that McKesson reported "inflated mark-up percentages" to a publisher of drug prices, First Databank, for a "wide variety of brand name drugs," which in turn caused many state Medicaid programs to overpay for the drugs. Overall, the DOJ proudly announces that more than "$2 billion" has been recovered from other drug manufacturers that were alleged to have engaged in the same type of conduct.
The most interesting qui tam I found this week was the Department of Justice's announcement that it is intervening in US ex rel Dickson v. Toyo Ink Manufacturing Co., Ltd et al. Filed under seal in 2009 in the Western District of North Carolina, the case alleges that "Toyo Ink companies," a leading provider of printing inks, "knowingly misrepresented the country of origin on [import] documents presented to U.S. Customs and Border Protection to avoid paying antidumping and countervailing duties on" what appears to be an imported ink: "the colorant carbazole violet pigment number 23 (CVP-23)." According to DOJ, the Department of Commerce assesses antidumping and countervailing duties, which are collected by U.S. Customs, to protect U.S. businesses by offsetting unfair foreign pricing and government subsidies" for certain imports, such as CVP-23, "from China and India." Toyo is alleged in the suit to have "misrepresented Japan and Mexico as the countries of origin for its CVP-23 imports to avoid these duties." According to the Complaint, which has not yet been released on Pacer, "Toyo’s CVP-23 imports from China and India underwent a finishing process in Japan and Mexico," but that "process was insufficient to change the country of origin."
I find this most recent announcement interesting only because it further shows the breadth of the False Claims Act and the different kind of industries and settings to which it can apply: anywhere there is a payment obligation to the United States, including as shown here, Customs' duties for imports.

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