Source: https://www.velaw.com/blogs/FCA-Blog/Glossary/
Timestamp: 2020-01-20 23:07:41
Document Index: 437596607

Matched Legal Cases: ['§ 3729', '§ 3730', '§ 3729', '§ 3729', '§ 3729', '§ 3730', '§ 3730', '§ 3731', '§ 3730', '§ 3730', '§ 3729', '§ 3730', '§ 3731', '§ 3732', '§ 3733', '§ 3730', '§ 3729', '§ 3729', '§ 3730', '§ 1320', '§ 3729', '§ 1320', '§ 3730', '§ 3730', '§ 3729', '§ 3729', '§ 3729', '§ 3730', 'art, 136']

FCA Glossary - Lincoln' s Law Blog - Vinson & Elkins LLP
FCA Glossary
Statutory Basis & Text
Defendants found liable for violations of the FCA may face damages equal to three times the government’s damages, plus civil penalties of between $10,957 and $21,916 per false claim for conduct that occurred after November 2, 2015. Penalties of between $5,500 and $11,000 apply to conduct that occurred prior to that date. These penalties are intended to be updated annually for inflation. For a more detailed look at the interaction between 2016 penalties increases from the Department of Justice, Railroad Retirement Board, and Department of Commerce, you can read our take on it here.
In cases of self-disclosure to the government, combined with full cooperation with the government, the court can reduce the damages multiplier to as low as two times the government’s damages. Defendants are also liable for the United States’ costs of litigation. In Qui Tam cases, Relators can recover expenses resulting from the litigation as well as attorneys’ fees and costs.
Damages are measured by the government’s actual damages resulting from the False Claim. In some instances, the government argues that the government’s damages are the full value of the contract because the contract or procurement process was tainted by fraud in the inducement. In others, there are no damages, and the government’s recovery is limited to penalties.
Courts disagree about whether they have discretion to reduce the penalties and what effect the Eighth Amendment’s prohibition on excessive fines has on those penalties. Courts disagree over what constitutes the “violation” in Reverse False Claim cases, where multiple obligations to pay may be reported or withheld in the same document.
Statutory basis (if in the statute): 31 U.S.C. § 3729(a)(1)-(3); 31 U.S.C. § 3730(d)(1)-(2)
(a)LIABILITY FOR CERTAIN ACTS.—
[violates the FCA]
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104–410 [1]), plus 3 times the amount of damages which the Government sustains because of the act of that person.
(1) If the Government proceeds with an action brought by a person under subsection (b), such person shall . . . also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
(2) If the Government does not proceed with an action under this section, the person bringing the action or settling the claim shall receive . . . receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
Courts are moving in the direction of benefit-of-the-bargain damages, but there is disagreement about whether trebling happens before or after the benefit is considered.
United States v. Bornstein, 423 U.S. 303 (1976) (endorsing a benefit-of-the-bargain measure of damages).
United States ex rel. Wall v. Circle C Constr., LLC, No. 14-6150, 2016 WL 423750 (6th Cir. Feb. 4, 2016) (endorsing a benefit-of-the-bargain measure of damages).
United States v. Anchor Mortg. Corp., 711 F.3d 745 (7th Cir. 2013) (endorsing a benefit-of-the-bargain measure of damages and trebling of damages after the benefit of the bargain is accounted for).
United States v. Science Applications Int'l Corp., 626 F.3d 1257 (D.C. Cir. 2010) (endorsing a benefit-of-the-bargain measure of damages).
United States v. Eghbal, 548 F.3d 1281, 1285 (9th Cir. 2008) (trebling damages before subtracting value obtained by the United States).
United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908 (4th Cir. 2003) (endorsing a benefit-of-the-bargain measure of damages).
Courts disagree about how to count the number of Reverse False Claims for purpose of calculating penalties.
United States ex rel. Koch v. Koch Indus., Inc., 57 F. Supp. 2d 1122, 1127 (N.D. Okla. 1999) (penalty assessed on each lease in each aggregating monthly report of flared gas, resulting in multiple penalties per report).
United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corp., No. 04-cv-01224, 2010 WL 3730894 at *5 (D. Colo. Sept. 16, 2010) (penalty assessed on each monthly report aggregating royalties for all leases, resulting in a single penalty per report).
Courts also disagree about whether courts have discretion to reduce penalties, and about how the Eighth Amendment prohibition on excessive fines applies to the FCA.
United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F. 3d 390 (4th Cir. 2013) (district court did not have the discretion to award no penalties, relator had discretion to reduce asked for penalties, and Eight Amendment does apply to the FCA).
United States ex rel. Garibaldi v. Orleans Parish Sch. Bd., 46 F. Supp. 2d 546 (E.D. La. 1999) (courts have discretion to reduce fines disproportionate with the damages sustained by the government).
United States v. Killough, 848 F.2d 1523 (11th Cir. 1988) (penalties are mandatory).
A false claim is a false or fraudulent request for payment to which the recipient is not entitled, which forms the basis for FCA liability. Under the FCA as amended in 2009, a factually or legally false claim violates the FCA either (1) if it is presented to an officer, employee, or agent of the United States government, or (2) if it is presented to a contractor, grantee, or other recipient of federal funds, if the funds were to be used for a government program or interest, and if at least a portion of the funds demanded were provided or would be provided by the federal government.
Case law evolving about which particular government sponsored enterprises (e.g., Fannie Mae and Freddie Mac) and other quasi-governmental entities or private corporations are agents of the United States and under what circumstances funds were "provided" by the United States.
Statutory basis (if in the statute): 31 U.S.C. § 3729(a)(1)(A), (b)(2)
Case law continues to develop about when a false claim is either presented to the government or affects funds provided by the government:
United States ex rel. Adams v. Aurora Loan Servs., Inc., — F.3d —, 2016 WL 697771 (9th Cir. Feb. 22, 2016) (Fannie Mae and Freddie Mac not “officer[s], employee[s], or agent[s]” of the United States under the FCA).
United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379 (5th Cir. 2014) (Universal Service Fund not government funds under the FCA).
United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004) (Amtrak not officer or employee of the government under the pre- FERA FCA)
United States ex rel.Heath v. Wisconsin Bell Inc., No. 08-cv-0724 (E.D. Wis. July 1, 2015) (Universal Service Fund are government funds under the FCA and Universal Service Administrative Company is an agent of the government under the post- FERA FCA).
Under the FCA, a person may be liable for making, using, or causing to be made or used a false record or statement material to a False Claim. Prior to the 2009 amendments, the provision required a False Statement made “to get” a False Claim paid. The provision was amended to reverse the Supreme Court’s holding in Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008), and to liberalize the standard for liability under this section. A False Statement now must have “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” to trigger liability under the FCA.
Statutory basis: 31 U.S.C. § 3729(a)(1)(B)
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim
is liable to the United States Government [under the FCA].
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008) (holding that a false statement must be made with intent of causing the government to pay a False Claim).
United States v. Woodbury, 359 F.2d 370 (9th Cir. 1966) (number of permissible penalties under FCA limited to number of actual demands for payment, i.e., False Claims, even if defendant submits multiple false records in support of False Claim).
Falsity is a necessary element of FCA liability. Notably, “falsity” is not defined in the text of the FCA. Based on evolving case law, the FCA’s Falsity element generally requires that the alleged claim that is the basis of the FCA suit be either factually or legally “false,” meaning that the claim or statement to the government misrepresents some fact that affects the legitimacy of the request for payment.
It is universally accepted that the FCA prohibits the submission of a factually False Claim, i.e., one that facially misrepresents facts material to the payment for the claim (by, for example, falsely claiming for products not delivered or services not rendered). Courts have expanded the concept of falsity, however, to also reach claims that are “legally false,” that is, claims that may be facially accurate but fail to disclose non-compliance with a regulatory or contractual requirement with the underlying services provided (e.g., a claim correctly states that the number of hours worked by a professional but fails to disclose the professional was not properly licensed in a manner required by the underlying contract or program). The concept of “legal falsity” is intertwined with false certifications, which may be either express or implied. An example of an express false certification would be a defense contractor signing a document certifying compliance with a specific regulation that requires contractors to use only American-made materials in constructing a government building, when the defense contractor actually purchased some of the materials used in construction from a foreign company, thus failing to comply with the regulation. In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. __ (June 16, 2016), the Supreme Court held that even if a defendant does not make an express certification of compliance, FCA liability can exist under an “implied certification” theory if the defendant makes specific representations about the goods or services provided in submitting a claim, but omits its violation of statutory, regulatory, or contractual requirements, resulting in misleading “half-truths” about its compliance with such requirements. The Court did not reach the question of whether an implied certification results where the defendant makes no representations at all.
Statutory basis (if in the statute): 31 U.S.C. § 3729(a)(1)(A)-(C) & (G)
Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. __ (June 16, 2016) (holding that falsity may be implied, rather than express, under certain circumstances).
Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (“The juxtaposition of the word ‘false’ with the word ‘fraudulent,’ plus the meanings of the words comprising the phrase ‘false claim,’ suggest an improper claim is aimed at extracting money from the government otherwise would not have paid.”).
United States ex rel. Quinn v. Omnicare Inc., 382 F.3d 432 (3d Cir. 2004) (claim that was true when submitted cannot be retroactively made “false” by the occurrence of “a subsequent fortuitous event”).
United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008) (“[To prove factual falsity, one] must generally show that the government payee has submitted ‘an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.’ [Legal falsity requires one to] demonstrate that the defendant has ‘certifie[d] compliance with a statute or regulation as a condition to government payment,’ yet knowingly failed to comply with such statute or regulation.”).
Under the FCA, the statute of limitations for a violation is either within six years of the violation, or within three years after the material facts were known or should have been known by the “responsible” government official, whichever is longer. In no event can an FCA claim be brought more than ten years after the violation occurred. If the government intervenes in a Qui Tam FCA action, it may file its own complaint including additional non-FCA claims that will relate back to the Relator’s original complaint, to the extent that the government’s claims arise out of the same conduct, transactions, or occurrences.
There remains disagreement as to who is the “responsible official” and whether that is limited to the DOJ Civil Division or is more expansive, whether Relators can take advantage of the three year tolling provision, and whether Relators are the responsible official.
If the action is premised on retaliation pursuant to 31 U.S.C. § 3730(h), the FCA Statute of Limitations is three years after the date of the retaliation.
Statutory basis (if in the statute): 31 U.S.C. § 3730(h)(3); 31 U.S.C. § 3731(b)-(c)
(h)(3) A civil action under this subsection may not be brought more than 3 years after the date when the retaliation occurred.
(c) If the Government elects to intervene and proceed with an action brought under 3730(b), the Government may file its own complaint or amend the complaint of a person who has brought an action under section 3730(b) to clarify or add detail to the claims in which the Government is intervening and to add any additional claims with respect to which the Government contends it is entitled to relief. For statute of limitations purposes, any such Government pleading shall relate back to the filing date of the complaint of the person who originally brought the action to the extent that the claim of the Government arises out of the conduct, transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint of that person.
Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015) (Wartime Suspension of Limitations Act does not suspend the running of the statute of limitations on the civil FCA).
United States v. Kensington Hosp., No. 90-cv-5430, 1993 WL 21446 (E.D. Pa. Jan. 14, 1993) (officials from outside DOJ Civil responsible officials).
United States v. Tech Refrigeration, 143 F. Supp. 2d 1006, 1009-11 (N.D. Ill. 2001) (only DOJ Civil responsible officials).
United States ex rel. Frascella v. Oracle Corp., 751 F. Supp. 2d 842 (E.D. Va. 2010) (recognizing disagreement about what official is a responsible official).
United States ex rel. Salmeron v. Enter. Recovery Sys., Inc., 464 F. Supp. 2d 766 (N.D. Ill. 2006) (Relator’s Knowledge not relevant to tolling provision).
United States ex rel. Helfer v. Associated Anesthesiologists of Springfield, Ltd., No. 10-cv-3076, 2014 WL 4198199 (C.D. Ill. Aug. 25, 2014) (Relator’s Knowledge relevant to tolling provision).
Among several statutory bars to prevent "parasitic" Qui Tam actions, the colloquially known “first-to-file” bar prevents two or more Qui Tam actions on the same subject matter to proceed simultaneously. A Relator is prohibited from bringing a Qui Tam action where another Qui Tam action that is based on the same underlying facts is already pending. An issue definitively resolved by the Supreme Court, once an initially filed Qui Tam case is terminated (either on the merits or otherwise) it no longer remains “pending” and the bar to subsequently-filed cases is lifted (although other doctrines such as the public disclosure bar as well as claim and issue preclusion may prevent the filing of a subsequent case). Because private litigants typically do not know whether there are one or several sealed Qui Tam cases pending on the same subject matter, it is largely incumbent on the Department of Justice to inform courts and parties of cases that may present a “bar.”
Statutory basis (if in the statute): 31 U.S.C. § 3730(b)(5)
31 U.S.C. § 3730 (b) Actions by Private Persons. –
The Supreme Court has interpreted the First-to-File Bar to prohibit successive related actions only while the prior action remains pending.
Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015) (because it relies upon “pending actions”, the FCA’s First-to-File Bar keeps new claims out of court only while the related pending claims are still alive, not in perpetuity).
The First-to-File Bar prohibits “related actions” as opposed to “identical actions”. There is not a uniform test among circuit courts for when the bar is implicated, though most courts having considered first-to-file issues have interpreted the bar to apply when the later-filed suit is based upon the same essential or material elements of fraud.
United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs, 149 F.3d 227 (3d Cir. 1998) (rejecting relator’s position that the First-to-File Bar applies only to actions arising from identical facts and holding that a later allegation is barred if it states all of the “essential facts” of the previously-filed claim, “even if it incorporates somewhat different details.”).
United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214 (D.C. Cir. 2003) (holding that the First-to-File Bar of the FCA bars “any action incorporating the same material elements of fraud as an action filed earlier” and rejecting an alternate test that would bar claims based on “identical facts.”).
United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181 (9th Cir. 2001) (the First-to-File Bar of the FCA “bars later-filed actions alleging the same material elements of fraud described in an earlier suit, regardless of whether the allegations incorporate somewhat different details.”).
The Fraud Enforcement and Recovery Act of 2009 (FERA) was enacted on May 20, 2009, designed to enhance enforcement of federal anti-fraud laws in general, including various criminal statutes as well as the FCA. With respect to the FCA, the FERA amendments affected the following provisions:
31 U.S.C. § 3729:
Removed the “presentment” requirement, meaning that liability may be based upon any False Claim for money or property, even if that claim was not presented to the government. As amended by FERA, a claim may also create liability if the request was made to a contractor, grantee, or other recipient of federal funds.
Clarified that no specific intent to defraud is required for FCA liability.
Expanded the definition of a “claim” to include any request or demand for money or property, whether or not the government has title to that money or property, regardless of whether the request or demand is under a contract or otherwise.
Established the "materiality" standard.
31 U.S.C. § 3730:
Granted protection to Relators against retaliation for lawful acts taken in furtherance of the FCA.
31 U.S.C. § 3731:
Inserted new subsection providing that when the government intervenes, it may file its own complaint-in-intervention to add any additional claims, and that such complaint-in-intervention shall relate back to the filing date of the original complaint to the extent that the claims arise from the same conduct as that alleged in the original complaint.
31 U.S.C. § 3732:
Added provision stating that where state or local governments are named as co-plaintiffs with the United States, those entities or a Relator may serve the complaint, any other pleadings, or written disclosures of substantially all material evidence in support of the complaint on the local law enforcement authorities authorized to investigate and prosecute actions on behalf of the state or local government.
31 U.S.C. § 3733:
Clarified that the Attorney General may exercise its investigative powers through a designee in determining whether to bring suit or to intervene in Qui Tam suit.
Established the government’s ability to share information gained through its investigation with Relators if necessary for the investigation, and removed the government’s obligation to make a showing of substantial need to a district court prior to disclosing information to other agencies.
Statutory basis (if in the statute): Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (2009).
FCA liability premised on Fraudulent Inducement theory (also called “promissory fraud”) holds that all claims submitted under a government contract, grant, or program are false where the award of the original contract, grant, or program was obtained through false statements or fraudulent conduct. False claims made under this theory are false by virtue of how the original contract was obtained and need not be “factually false.” Also, claims under this theory may be false even though the services or products for which claims are submitted were actually provided. For example, a contractor that obtains a “small business” set aside contract but which does not actually meet small business requirements may violate the FCA when billing for goods or services that actually were provided (although there may be little or no resulting damages).
United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943) (Fraudulent Inducement renders all subsequent claims for payment false and actionable under the FCA)
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) (generally accepted elements of Fraudulent Inducement FCA claims are: (1) a false statement or fraudulent course of conduct; (2) made with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or forfeit monies due).
United States ex rel. Longhi v. United States, 575 F.3d 458, 470 (5th Cir. 2009) (holding that where a research grant was obtained as a result of Fraudulent Inducement, and where there is no tangible value delivered to the government and intangible benefit is incalculable, “it is appropriate to value damages in the amount the government actually paid to the Defendants”).
Implied Certification theory is a judicially-created concept under which a claimant is held to have warranted compliance with material legal and contractual requirements when requesting payment from the government, even absent an express certification of such compliance.
Until recently, federal circuit courts were divided about whether implied false certification was a valid FCA theory, and if so, under what circumstances. The Supreme Court granted certiorari to resolve the circuit split, and on June 16, 2016, held in Universal Health Services, Inc. v. United States ex rel. Escobar that implied false certification is a valid FCA theory, but its scope may be narrower than several circuits had concluded. The Court held that implied false certification provides a basis for FCA liability when a defendant makes specific representations about the goods or services provided in submitting a claim, but omits its violation of statutory, regulatory, or contractual requirements, resulting in misleading “half-truths” about its compliance with such requirements. The Court declined to decide whether the implied false certification theory is valid when a defendant makes no representations in submitting a claim.
Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ___, slip op. at 8-11 (June 16, 2016) (implied false certification provides basis for FCA liability where defendant makes specific representations about the goods or services provided in submitting a claim, but omits its violation of statutory, regulatory, or contractual requirements, resulting in misleading “half-truths” about its compliance with such requirements).
When a Qui Tam complaint is filed under seal by a Relator, the FCA requires the Relator both to serve the Department of Justice with that complaint, but also to provide a Relator "disclosure statement" containing substantially all of the evidence the Relator possesses in support of the allegations set forth in the complaint. After receiving the complaint and disclosure statement, the government investigates the allegations to determine whether it will intervene and participate as a plaintiff prosecuting all or part of the pending Qui Tam action. The statute allows the government 60 days in which to make its decision whether or not to intervene; however, the government commonly requests – and is often granted – one or multiple extensions during its investigation period.
Where the government intervenes, it typically files a complaint-in-intervention that serves as an amended complaint, includes additional facts and details, and may include other causes of action only the government itself would have standing to raise (e.g., breach of contract, violations of the Anti-Kickback Act). At this point, the government’s complaint becomes the operative complaint rendering the Relator’s initial complaint largely, if not entirely, irrelevant. If the government only partially intervenes, the Relator may choose to maintain in the same case claims which the government declined, which may result in simultaneous operative complaints. Alternatively, the government may decline to intervene, which will result in the unsealing of the complaint which the Relator may then decide to pursue or to dismiss. The government may also choose to intervene in an action in order to dismiss it (which it may do over the Relator’s objection but subject to court approval), typically in instances involving national security concerns. The government rarely, if ever, exercises this option, more often opting to permit the Relator to carry on with the action should she so choose.
Statutory basis (if in the statute): 31 U.S.C. § 3730(b)
(b) Actions by private persons.-- (1) A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.
(2) A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure.1 The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.
The FCA imposes a scienter requirement for liability – requiring Knowledge of the Falsity of the claim or statement. The FCA defines “knowledge” as (i) actual knowledge; (ii) deliberate ignorance of the truth or falsity of the information, or (iii) reckless disregard of the truth or falsity of the information. The FCA clarifies that the knowledge standard does not, however, require proof of specific intent to defraud.
Statutory basis (if in the statute): 31 U.S.C. §§ 3729(a)(1) & 3729(b)(1)
(b)(1) the terms “knowing” and “knowingly”—
Either actual knowledge, deliberate ignorance of the truth or Falsity, or reckless disregard of the truth or Falsity must be proved. Courts remain divided as to whether the Knowledge requirement may be satisfied by “collective knowledge,” i.e., aggregating the Knowledge of different employees within an entity, or whether a single individual must have the requisite Knowledge to violate the Act.
United States ex rel. Longhi v. United States, 575 F.3d 458, 468 (5th Cir. 2009) (liability under the FCA requires “(1) actual knowledge of falsity, (2) act[ing] with deliberate ignorance of the truth or falsity of the information provided, or (3) act[ing] with reckless disregard of the truth or falsity of the information provided.”);
United States ex rel. K & R Ltd. P'ship v. Massachusetts Hous. Fin. Agency, 530 F.3d 980 (D.C. Cir. 2008) (describing “reckless disregard” under the FCA as “an extreme version of ordinary negligence” and rejecting assertion that defendants acted with reckless disregard where no evidence was identified that “might have warned [the defendant] away from the view it took”).
United States v. Science Applications Int’l Corp., 626 F.3d 1257 (D.C. Cir. 2010) (rejecting the collective knowledge doctrine as inappropriate for FCA cases and stating, that the doctrine “effectively imposes liability, complete with treble damages and substantial civil penalties for a type of loose constructive knowledge that is inconsistent with the Act’s language, structure and purpose.”).
Materiality is a necessary element of FCA liability, meant to screen out claims based on statements that are not “material” to payment. In 2009, the statute was amended explicitly to impose a materiality requirement stated as “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Until recently, courts had interpreted this definition to impose a relatively relaxed materiality requirement, requiring only that a false statement could have affected the government’s payment decision. The Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. __, (June 16, 2016), however, clarified that courts must “look[] to the effect on the likely or actual behavior” of the government in deciding whether to pay a claim. The Court also described the types of evidence that may be relevant to the materiality inquiry. In particular, evidence that the “Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement” is strong evidence of materiality. On the other hand, if the “Government pays a particular claim in full despite its actual knowledge that certain requirements were violated,” or “regularly pays a particular type of claim despite actual knowledge that certain requirements were violated, . . . that is strong evidence that the requirements were not material.”
Statutory basis (if in the statute): 31 U.S.C. § 3729(a)(1)(B), (b)(4)
(a)(1) In general. – Subject to paragraph (2), any person who –
(b)(4) [T]he term “material” means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.
Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. __, slip. op. at 12-16 (June 16, 2016) (FCA imposes “rigorous” and “demanding” materiality standard that “looks to the effect on the likely or actual behavior” of the government in deciding whether to pay a claim)
Universal Health will generate substantial litigation about whether circuits’ existing materiality law remains valid. Important pre-Universal Health materiality decisions include:
Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 791 (4th Cir. 1999) (defining materiality under FCA as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”).
United States ex rel. Longhi v. United States, 575 F.3d 458, 470 (5th Cir. 2009) (“[T]he ‘natural tendency to influence or capable of influencing’ test requires only that the false or fraudulent statements either (1) make the government prone to a particular impression, thereby producing some sort of effect, or (2) have the ability to [a]ffect the government’s actions, even if this is a result of indirect or intangible actions on the part of the Defendants. All that is required under the test for materiality, therefore, is that the false or fraudulent statements have the potential to influence the government’s decisions.”)
The Original Source exception to the Public Disclosure Bar was enacted as part of the 1986 FCA amendments and amended again in 2010. Because of the Public Disclosure Bar, a Relator would ordinarily be barred from bringing a Qui Tam FCA suit based on publicly-disclosed information, unless the Relator qualifies as an Original Source of the allegations. There are two ways to qualify as an Original Source. First, the Relator could show that she disclosed the information to the government prior to that information being disclosed publicly. Second, the Relator could show that her Knowledge of the allegations is independent of the public disclosure, and that she has information that “materially adds” to what has already been disclosed to the public. In either case, the Relator must voluntarily disclose the information to the government before filing her Qui Tam lawsuit. The phrase “materially adds” was added in 2010 through the Affordable Care Act, and its precise meaning has been largely untested to date.
Statutory basis (if in the statute ): 31 U.S.C. § 3730(e)(4)(A)-(B)
(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed
United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, No. 14-4292, 2016 WL 386087 at *10 (3d Cir. Feb. 2, 2016) (information that helps supply the “who, what, when, where and how” of the fraud as required by Federal Rule of Civil Procedure 9(b) constitutes a material addition).
The Patient Protection & Affordable Care Act (ACA) was enacted on March 23, 2010, designed to With respect to the FCA, the ACA amendments affected the following provisions:
Made the Public Disclosure Bar not jurisdictional.
Allowed the government to excuse the Public Disclosure Bar for a Relator.
Limited “publicly disclosed” to federal proceedings where the government or agent is a party, or a federal report, hearing, audit or investigation.”
Expands Original Source exception to the Public Disclosure Bar to excuse the bar where the Relator “materially adds to the publicly disclosed allegations” without a requirement that the Knowledge be “direct[ly]” obtained by the relator.
Relevant to health care providers, the ACA modified the Anti-Kickback Statute to make clear that a violation of the Anti-Kickback Statute is a false or fraudulent claim under the FCA, 42 U.S.C. § 1320a-7b(g), and that retention of a Medicare or Medicaid overpayment is an “obligation” under the 31 U.S.C. § 3729(a)(1)(G), 42 U.S.C. § 1320a-7k(d)(3).
Statutory basis (if in the statute): Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010).
The Public Disclosure Bar prevents a Relator from bringing a FCA case based on publicly disclosed information, such as information reported in newspaper, government audit, or public legal proceeding. This Bar was implemented to thwart parasitic Relators from bringing FCA lawsuits based on information that is equally accessible to any other person, including the government. This is distinct from the First-to-File Bar, which bars Relators from filing suits based on the same underlying facts regardless of whether those facts have been publicly disclosed (i.e., even a case that is hidden under seal may bar a Relator under First-to-File, but would not qualify as a bar under Public Disclosure).
Statutory basis (if in the statute): 31 U.S.C. § 3730(e)(4)
(B) unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(C) For purposes of this paragraph, “original source” means an individual who has either (i) prior to a public disclosure under subsection (e)(4)(A), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
A circuit split exists regarding the degree of “public” disclosure that is necessary to trigger the bar:
United States v. Bank of Farmington, 166 F.3d 853, 860 (7th Cir. 1999), overruled on other grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009) (mere disclosure of information to a public official, rather than the general public, is sufficient)
United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist., 777 F.3d 691, 696 (4th Cir. 2015) (disclosure of government audits or investigations will trigger the Public Disclosure Bar and also noting that the five other circuits to address the issue (the Fifth, Eighth, Tenth, Eleventh, and DC Circuits) have similarly rejected the Seventh Circuit’s holding)
The phrase “qui tam” is shorthand for the legal Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” translated as “he who sues in this matter for the king as well as for himself.” The concept originally stems from Roman law which allowed a private party to institute a criminal proceeding and retain part of any resulting proceeds and was carried forward into English law (Qui Tam statutes appeared in England as early as the Fourteenth Century). A Qui Tam FCA claim is brought by a Relator resulting in a case captioned as “United States ex rel. Doe” as the plaintiff, even should the Department of Justice later choose to intervene. There remains minor disagreement among practitioners as to pronunciation – “key-tam” vs. “kwee-tahm.” This is one issue the Supreme Court is unlikely to resolve.
Relators are individuals and entities that are afforded statutory standing under the FCA’s Qui Tam provision to file suit on behalf of the United States and to share in the United States’ recovery. Most commonly, Relators are current and former employees (often referred to as “insiders”) of the entity against which the FCA suit is brought. The Relator’s share of the government’s recovery depends in significant part on whether the government decides to intervene as well as other factors including the Relator’s contribution to the success of the case and whether the Relator participated in the misconduct giving rise to the claims. If the government intervenes, the Relator will receive between 15 percent and 25 percent of the proceeds of the action. If the government declines to intervene, the Relator will receive between 25 percent and 30 percent of the proceeds. In both circumstances, the Relator also is entitled to recover his or her reasonable attorneys’ fees and costs. A Relator is not barred from recovery unless criminally convicted of the conduct giving rise to the claim.
Statutory basis: 31 U.S.C. § 3730(b)-(d)
(b) Actions by Private Person. –
Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000) (upholding Relator provision as constitutional).
Although a traditional False Claim imposes liability for submitting a false or fraudulent claim for payment, a “reverse” false claim punishes the inverse – where a person submits false information (or knowingly withholds information) in order to avoid an obligation that the person has to pay or transmit property to the United States government. As such, under the current version of the statute, there is potential liability in two distinct circumstances: (1) where a person made or used a false record or statement that was “material to” an obligation to pay the government; or (2) where a person “knowingly conceal[ed] or knowingly and improperly avoid[ed] or decrease[d] an obligation” to pay the government. 31 U.S.C. § 3729(a)(1)(G). The statute further defines “obligation” as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). A common example of a Reverse False Claim is that of a natural resources exploration company that knowingly underpays royalties for extraction of resources on federal lands.
Statutory basis: 31 U.S.C. § 3729(a)(1)(G)
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104–4101), plus 3 times the amount of damages which the Government sustains because of the act of that person.
1. So in original. Probably should read “Public Law 101-410” [Pub. L. No. 101–410, 104 Stat. 890 (1990)].
A sampling of Reverse False Claim cases -
Kane ex. rel. United States v. Healthfirst, Inc., 120 F. Supp. 3d 370 (S.D.N.Y. 2015) (denying motion to dismiss allegations that defendants violated the FCA by failing to timely reimburse the government for Medicaid overpayments within the 60-day period under the ACA after having been notified by an employee of potential claims requiring repayment).
United States ex rel. Booker v. Pfizer, Inc., 9 F. Supp. 3d 34 (D. Mass. 2014) (declining to recognize Reverse False Claim where obligation to pay was too speculative where potential fine was dependent on intervening discretionary government acts).
United States ex rel. Koch v. Koch Indus., Inc., 57 F. Supp. 2d 1122 (N.D. Okla. 1999) (recognizing an “indirect reverse false claim” where a company attempted to reduce its obligation to pay money to various Native American tribes by causing the Minerals Management Service to submit false records understating its royalty obligations to the Department of the Interior by submitting false monthly accountings to the prime contractor).
Federal Rule of Civil Procedure Rule 9(b) imposes a heightened particularity standard on allegations of fraud or mistake, including FCA allegations. The heightened standard under Rule 9(b) requires that pleadings provide more detailed and specific information about the relevant fraud than would typically be required for “notice pleading” under Federal Rule of Civil Procedure 8. Put simply, the government or relator must plead with specificity the “who, what, when, where, and how” of the fraud.
The precise extent to which particularity is required under the FCA varies. Although generally disfavored, some courts have allowed for “information and belief” pleading in the limited circumstance where the information necessary to plead fraud with specificity is peculiarly within the control or knowledge of the defendant. Courts have also reached different conclusions about whether 9(b) requires that the relator identify specific invoices that constitute false claims, or whether the relator need only plead sufficient details of a scheme to submit the false claims and provide other reliable information that suggests that false claims were in fact submitted. Disagreements among courts as to the contours of 9(b) and its application to FCA cases is among the short list of issues likely to be resolved by the Supreme Court.
Statutory basis: Federal Rule of Civil Procedure 9(b): Pleading Special Matters - Fraud or Mistake; Conditions of Mind.
Statutory text: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”
“Information and Belief” Pleading
United States ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d 375 (5th Cir. 2003) (Rule 9(b) standard is relaxed where information about individual false claim is “peculiarly within the perpetrator’s knowledge.”)
United States ex rel. Bledsoe v. Community Health Sys., Inc., 501 F.3d 493 (6th Cir. 2007) (fraud may only be pled on information and belief when facts relating to alleged fraud are peculiarly within the perpetrator’s knowledge)
United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102 (7th Cir. 2014) (“information and belief” only permissible in fraud case where the facts constituting fraud are not accessible to the plaintiff and plaintiff provides “the grounds for his suspicions”)
United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702 (10th Cir. 2006) (allowing that “information and belief” pleading may be permissible where facts are peculiarly within opposing party’s knowledge, but cautioning complaint must still set forth a factual basis for the belief)
Hill v. Morehouse Med. Assoc., Inc., No. 02-14429, 2003 WL 22019936 (11th Cir. Aug. 15, 2003) (“information and belief” only permissible when factual information about the fraud is peculiarly within the defendant’s knowledge or control)
Split Over Identification of Specific Alleged False Claims
United States ex rel. v. Takeda Pharmaceuticals North America, Inc., 707 F.3d 451, 456-57 (4th Cir. 2014) (requiring that relator allege that specific false claims were actually submitted to the government).
United States ex rel. Clausen v. Laboratory Corp. of Amer., Inc., 290 F.3d 1301 (11th Cir. 2002) (failure to allege any actual improper claims is “fatal” to FCA complaint)
United States ex rel. Joshi v. St. Luke’s Hosp., Inc., 441 F.3d 552 (8th Cir. 2006) (requiring relator to provide at least “representative examples” of fraudulent submission to survive)
United States ex rel. Duxbury v. Ortho Biotech Products, L.P., 579 F.3d 13, 30 (1st Cir. 2013) (permitting case to proceed where relator alleged submission of false claims across a large cross-section of providers, even though he did not identify any specific claims).
United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) (plaintiff may pair particular details of a scheme to submit false claims with reliable indicia that lead to strong inference that claims were actually submitted without identifying specific claims)
United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163 (10th Cir. 2010) (plaintiff may allege scheme and provide basis for a reasonable inference that false claims were submitted as part of that scheme
The FCA requires that a relator’s qui tam Complaint and other court filings must be filed under seal and remain under seal for at least 60 days in order to provide the government an opportunity to review the Complaint and make a decision on whether or not it will elect to intervene in the case. Often, the government asks the district court to extend the seal beyond the initial 60 day period, an extension which courts habitually grant, sometimes repeatedly over several years. Relators are prohibited from violating the seal requirement by sharing documents under seal or otherwise alerting the public to the existence of the case. The main purpose of the seal is to protect the government’s interest in investigating the case without tipping off the defendant as the government decides whether to pursue the case on its own.
Statutory basis: 31 U.S.C. § 3730(b)(2).
The Supreme Court currently has a seal requirement case pending before it.
State Farm & Cas. Co. v. United States ex rel. Rigsby (No. 15-513) (set to address whether a relator’s violation of the seal requirement mandates dismissal of the case and if not, how courts should determine the appropriate sanction for a seal violation).
A circuit split exists on the correct standard to be applied in cases involving seal violations – three different tests are currently in use.
United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245-47 (9th Cir. 1995) (holding that three factors are appropriate for determining whether to dismiss an FCA case due to a seal violation: actual harm to the government, the severity of the violation, and the existence of bad faith or willfulness).
United States ex rel. Rigsby v. State Farm Fire & Cas. Co., 794 F.3d 457, 470-71 (5th Cir. 2015), cert. granted in part, 136 S. Ct. 2386 (May 31, 2016) (No. 15-513) (holding that relators violated seal requirement but finding no dismissal warranted after applying Lujan factors).
United States ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 998-99 (2d Cir. 1995) (dismissing case with prejudice where relators “incurably frustrated” Congress’s goals, including protecting the government from a defendant being “tipped off” as to the filing of FCA complaint, preventing reputational harm to a defendant, and protecting a defendant from having to answer complaints before knowing whether the government would pursue the litigation).
United States ex rel. Summers v. LHC Group, Inc., 623 F.3d 287, 296 (6th Cir. 2010) (declining to adopt Lujan’s reasoning and holding that violation of a seal requirement requires dismissal of case).