Who can kickback?

The issue in United States ex rel. Vavra v. Kellogg Brown & Root, Inc. was whether KBR was liable for kickbacks taken by two employees. The Fifth Circuit held that the answer is fact-specific: “[T]he proper test for imputing knowledge under [the AKA] is that corporations are liable ‘only for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation.'”  As for the effect of the alleged kickback, even though “[i]t is true that the district court did not make any findings as to particular service problems [the employee] intended to influence in an improper manner through his gratuities . . . it is enough to connect the gratuity with the specific kind of treatment sought in a way that establishes impropriety,” which was done here “[b]ecause of the nature of the treatment [the employee] sought.” No. 15-41623 (Feb. 3, 2017).

False claims relator does not skate by.

The relator in a reverse False Claims Act case alleged that DuPont concealed its obligation to pay penalties under the Toxic Substances Control Act. After a careful review of the statute, its history, and policy considerations, the Fifth Circuit reversed the denial of summary judgment to DuPont: “Simoneaux’s position yields an extraordinarily broad construction of the FCA. If his reading . . . were correct, reverse-FCA liability could attach from the violation of any federal statute or regulation that imposes penalties. . . . For example, 45 C.F.R. § 3.42(e) prohibits roller-skating at the National Institutes of Health, and a person violating that regulation “shall be fined under title 18, United States Code, imprisoned for not more than 30 days, or both.” 40 U.S.C. § 1315(c)(A). Under Simoneaux’s reasoning, roller-skating at the NIH results in a penalty ‘of not less than $5,000’ and three times the fine assessed under Title 18. And any private person who saw the roller-skater could bring a qui tam action against him. The statutory definition of ‘obligation’ cannot bear the weight of that interpretation.” United States ex rel. Simoneaux v. duPont, No. 16-30141 (revised Dec. 14, 2016).

If wishes were horses, then the FCA would be violated.

aphorseThe defendant pharmacy in an FCA case provided “PPDs” — prompt payment discounts; the plaintiff alleged that they were intended to induce Medicare and Medicaid referrals. The Fifth Circuit disagreed, holding: “At best, the evidence supports a finding that Omnicare did not want unresolved settlement negotiations to
negatively impact its contract negotiations with TexasBarToday_TopTen_Badge_VectorGraphic[skilled nursing facility] clients and was, likewise, avoiding confrontational collection practices . . . . Although Omnicare may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practice to induce such referrals, Relator cannot show an [anti-kickback statute] violation.” Ruscher v. Omnicare, Inc., No. 15-20629 (Oct. 28, 2016).

How to predetermine

calvins-doctrine-of-predestinationIn a dispute about insurance coverage for a False Claims Act case involving the repair of Coast Guard cutters, the relevant exclusion reached: “[t]he failure of your products to meet any
predetermined level of fitness or performance and/or guarantee of such fitness or level of performance and/or any consequential loss arising therefrom.”  The insured argued that “predetermination” implied a bilateral agreement, while a “requirement” was unilateral and did not implicate the exclusion.  The Fifth Circuit disagreed for several reasons: “But ‘predetermined’ means only ‘established, decided upon, or
decreed beforehand.’ It implies nothing about how a determination comes about, or who has the authority to determine. A single party can ‘determine’ something, and can do so in advance: there is nothing inherently bilateral about predetermination. And even if there were, the complaint lays out straightforwardly that [the insured] failed to meet a requirement that the parties together determined in advance. (citation omitted)”  XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., No. 14-31283 (Aug. 27, 2015).

How Not to Plead “How”

BM-700Plaintiff’s FCA claims about billing for aircraft parts were dismissed for failure to comply with the heightened pleading requirements of Fed. R. Civ. P. 9(b), in that:

  • it is not sufficient to argue that certain federal regulations must have been contained in the relevant contract, because by their terms, they do not automatically apply;
  • neither nondisclosure of a part’s history, nor the subsequent failure of a plane containing that part, establishes that a false claim was made about it; and
  • speculation about a company’s billing practices does not adequately establish when the company actually submitted the allegedly false claims.

United States ex rel Gage v. Davis S.R. Aviation, LLC, No. 14-50704 (July 14, 2015).

False Claims Act Liability Upheld – UPDATED

windThe plaintiffs/relators in United States ex rel Rigsby v. State Farm contended that, in the wake of Hurricane Katrina, State Farm improperly skewed its claims handling process in favor of finding flood damage, as “wind policy claims were paid out of the company’s own pocket while flood policy claims were paid with government funds.”  They won at trial and the Fifth Circuit affirmed, finding that – notwithstanding earlier investigations – they were “paradigmatic . . . whistleblowing insiders” as to this specific claim who qualified as “original sources.”  The Court went on to find sufficient evidence of falsity and scienter, and reversed a discovery ruling that would not have allowed the plaintiffs to investigate the facts of other potentially false claims. ” 794 F.3d 457 (5th Cir. 2015). The Supreme Court granted review and affirmed on an issue about violation of the FCA’s sealing requirement.

False Claims complaint stays afloat

island cutterThe United States sued Bollinger Shipyards, alleging that it submitted false claims in connection with upgrades on the Coast Guard’s 110-foot patrol ships (right).  The gist of the complaint was that “Bollinger eventually submitted the highest of three [strength] calculations (5,232) to the Coast Guard, while employing in its internal documents the middle calculation (3,037).”  As to these strength measurements and their review by an independent agency, an internal email said, “adverse results could cause the entire conversion to be an uneconomical solution” and expressed concern that “we BLOW the program.”  United States v. Bollinger Shipyards, Inc., No. 13-31301 (Dec. 23, 2014).

While the parties disputed the proper interpretation of this evidence, and the district court agreed with the defendants, the Fifth Circuit reversed: “Rule 12(b)(6) does not require the United States to present its best case or even a particularly good case, only to state a plausible case” that Bollinger acted “in reckless disregard of the truthy or falsity” of the measurements.  The Court also held: “The government knowledge defense is not appropriate at the motion to dismiss stage, which requires us to draw all inferences in favor of the United States.  It is more proper at the summary judgment or trial stage as ‘a means by which the defendant can rebut the government’s assertion of the “knowing” presentation of a false claim.'”

“Public disclosure” defeats qui tam case

Relators, displeased with their treatment by the City of Dallas in connection with the redevelopment of a downtown office building, “embarked on a fifteen-month investigation that involved compiling data and performing analyses of DHA properties, Low-Income Housing Tax Credit project locations, and City plans and reports.”  United States ex rel Lockey v. City of Dallas, Nos. 13-10884 & 14-10063 (Aug. After proceedings before HUD, they filed a qui tam lawsuit, alleging that the City and the Dallas Housing Authority submitted false claims that were not in compliance with their obligations under civil rights and fair housing laws.  The Fifth Circuit affirmed dismissal, noting that “[t]he overwhelming majority of the complaint is . . . based, not on the Relators’ personal experiences with the City, but on their research of publicly disclosed information.”  (applying United States ex rel. Reagan v. East Texas Medical Center, 385 F.3d 168, 177-78 (5th Cir. 2004)).

Limit to the FCA’s reach

Characterizing the False Claims Act as “a statute that shadows every aspect of the administrative state,” the Fifth Circuit decided in United States ex rel. Shupe v. Cisco Systems, Inc. this issue: “[W]hen the Government ‘provides any portion of’ requested money” so as to trigger its protections.  No. 13-40807 (July 7, 2014).  After an extensive review of the statute and precedent, the Court concluded: “[That the FCC maintains regulatory supervision over the E-Rate program does not affect the Congress’ decision, embodied in the program’s independent structure, to externalize the cost of administering the program to a private entity.  Because there are not federal funds involved in the program, and USAC [an independent nonprofit charged with its administration] is not itself a government entity, we agree that the Government does not ‘provide[] any portion of’ the requested money under the FCA.”

Bankruptcy disclosure of debtors’ potential (although losing) FCA claim

In United States ex rel Spicer v. Navistar Defense, LLC, the Fifth Circuit found that bankruptcy debtors failed to make adequate disclosure of a potential False Claims Act claim as an estate asset.  No. 12-10858 (May 5, 2014).  Accordingly, the trustee was the real party in interest and was able to take over the administration of the claim, even though he did not learn of it until after the bankruptcy closed and long after suit was filed on the claim.  The review of the debtors’ disclosure is of broad general interest.  As to the merits, the Court affirmed dismissal, reminding that “a false certification of compliance, without more, does not give rise to a false claim for payment unless payment is conditioned on compliance.”