Government Enforcement & Corporate Investigations

Yesterday, the Seventh Circuit Court of Appeals affirmed a summary judgment decision dismissing a former employee’s False Claims Act (“FCA”) retaliation suit. Lam v. Springs Window Fashions, LLC, No. 21-2665, 2022 U.S. App. LEXIS 16633 (7th Cir. June 16, 2022). The appellate court agreed that the employer’s conduct fell short of “harassment” under the statute, and that the employee failed to establish a causal connection linking her protected reports and her termination. The employee, Jennifer Lam, began working at Springs Window Fashions, LLC (“Springs”), a window covering manufacturer, as its senior manager of global trade in January 2019. In that role, she came to believe the fabric blankets the company used to make window shades originated in China and not in Taiwan and Malaysia, as the supplier stated. Fabrics originating in China are subject to a higher 25 percent tariff. Between June and September 2019, the employee informed her supervisor—the company’s chief executive officer (“CEO”)—that Springs would need to pay higher tariffs on the fabric. She claimed the CEO was “frustrated and visibly irritated” with her conclusions about the tariffs and “angrily berated” her in a senior leadership meeting. The employee also claimed two other executives “scolded” her for disagreeing with the CEO on the issue. The employee raised no further reports on the tariff issue. In late September 2019, the employee began reporting to the company’s chief financial officer (“CFO”). The CFO wanted Lam to focus on an inventory problem with three manufacturing facilities in Mexico. Displeased with her lack of progress on the inventory issue, the CFO put her on a performance improvement plan (“PIP”) in December 2019. In February 2020, the CFO fired the employee for failing to adequately address the inventory problem, which resulted in an audit by the Mexican government. The employee sued Springs for FCA whistleblower retaliation in April 2020. She claimed her supervisors harassed and then terminated her for her reports about violations of trade law. The district court granted the employer’s motion for summary judgment, ruling that Springs did not retaliate by reacting angrily to the employee’s reports about the Chinese tariff issue. The court also concluded the employee had not established a causal connection between her last report in September 2019 and her termination in February 2020. On appeal, the parties asked the Seventh Circuit to define what constitutes “harassment” under the FCA. The employee pushed for the “harassment” standard used in Title VII retaliation claims: “whether the conduct here would have dissuaded a reasonable worker from complaining to management about its obligation to pay the tariffs.” Lam-Quang-Vinh, 2022 U.S. App. LEXIS 16633, at *10 (citing Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 57 (2006)). Springs argued for the more stringent test used to analyze hostile-work-environment discrimination claims under Title VII: whether the “retaliatory acts were severe or pervasive enough to affect the terms and conditions of her employment.” Id. (citing Vance v. Ball State Univ., 570 U.S. 421, 427 (2013)). The court concluded the employee could not meet either test and declined to decide which standard applies. The employee’s claims that the CEO appeared “frustrated and visibly irritated,” that he “berated” her, and that two other executives “scolded” her did not rise to the level of harassment even under the more lenient test. The court relied on its own Title VII precedent, which requires more than generic descriptions of yelling and “unspecified harassment” to prove a reasonable worker would be dissuaded from reporting violations of the law. Id. at *11-12 (citing Stephens v. Erickson, 569 F.3d 779, 790 (7th Cir. 2009); Henry v. Milwaukee Cty., 539 F.3d 573, 587 (7th Cir. 2008)). The court also rejected the employee’s claim that her termination was retaliation. First, the court concluded there was not sufficient temporal proximity between Lam’s last conversation about tariffs in September 2019 and her termination in February 2020. Likewise, there was no evidence that the CFO—who made the termination decision—was influenced by the CEO’s disagreement with Lam about the tariffs. Second, there was no evidence that the CFO’s vague statement months before the employee’s termination that she “wouldn’t be here in five years” was connected to the tariff issue. Third, there was nothing suspicious about the timing of the employee’s PIP and subsequent termination; rather, the PIP was designed to address  legitimate performance concerns. Further, the CFO implemented the PIP in response to a directive that all leaders review their employees and implement PIPs if needed. Finally, the court concluded that Springs offered a legitimate reason for the employee’s termination, and the employee failed to present evidence that the CFO did not honestly believe his reasons for firing her. The CFO testified that he terminated the employee because of her failure to address the inventory problem in Mexico. Although the PIP also stated the CFO was unhappy with the way the tariff issue had been communicated, his concerns related to the employee failure to provide necessary context and propose solutions. The Seventh Circuit agreed with the district court that re was no evidence Springs terminated the employee because she reported violations of trade law. Id. at *16-18. Although the Springs opinion leaves open the question of what, exactly, constitutes “harassment” for purposes of FCA retaliation outside of the Ninth and Fifth Circuits, the Seventh Circuit’s reasoning is consistent with the FCA retaliation analysis in those Circuits. The Springs decision is also consistent with employment retaliation cases arising under state and federal civil rights statutes, which generally set a high bar for establishing causation. To stay up-to-date on False Claims Act news, subscribe to Dorsey’s FCA Now Blog today.

On Friday, May 13, 2022, the Department of Justice announced that it reached a settlement with Hensel Phelps Construction Company (“Hensel Phelps”) over allegations that the company had, in violation of the False Claims Act, circumvented subcontract set-asides for service-disabled veteran owned small businesses (“SDVOSB”). The case concerned a multi-million dollar prime contract awarded in 2011 to Hensel Phelps by the General Services Administration to construct the Armed Forces Retirement Home’s New Commons/Health Care Building in Washington, D.C.  As part of the contract, the government required Hensel Phelps to create and implement a small business subcontracting plan to provide contracting opportunities for SDVOSBs and other types of small businesses. Although the entity relator, Fox Unlimited Enterprises, LLP (“Relator”), filed the action relatively recently in April 2022, the parties were presumably able to expeditiously settle the matter because this case relates to DOJ’s settlement with TriMark USA, LLC earlier this year, involving the same relator.  In TriMark’s settlement agreement, TriMark agreed to pay $48.5 million to resolve allegations that it manipulated SDVOSB set aside regulations by using other small businesses to obtain set-aside subcontracts but nevertheless performing most of the set-aside work itself.  TriMark admitted that it, through one of its subsidiaries, identified small businesses with which it could partner, instructed them on preparing their bids and pricing, and even ghostwrote emails for the small businesses to make it appear that they, not TriMark, were doing the work. Here, the Relator alleged that Hensel Phelps had credited its compliance with set-asides to an entity that the company should have known was merely a “pass-through” for a large, non-qualifying company—i.e., TriMark.  Pursuant to Hensel Phelps’ settlement agreement, Hensel Phelps agreed to pay $2.8 million to resolve the allegations.  Notably, the large settlement amounts in both the TriMark and Hensel Phelps cases may reflect the government’s use of the presumption of loss rule in 15 U.S.C. § 632(w).  Under the rule, when a government contractor willfully seeks and receives an award by misrepresenting its size or status, there is a presumption of loss to the United States equal to the entire value of the contract, subcontract, cooperative agreement, or grant that is set aside for small business concerns.  This presumption, coupled with the FCA’s treble damages provision, makes enforcement actions for small business contracting fraud more enticing to both the government and relators.  The potential liability under the rule—and these settlements—highlights the risks to contractors in failing to comply with the subcontracting set-aside regulations.

The Department of Justice (“DOJ”) last month announced a new blockbuster settlement agreement under the False Claims Act, 31 U.S.C. § 3729 et seq (“FCA”), involving alleged violations of the Stark law and other efforts to defraud federal and state healthcare programs. The agreement also resolved the government’s allegations that the defendants—having allegedly engaged in healthcare fraud—further violated the FCA by obtaining a loan through the Paycheck Protection Program (“PPP” or “Program”) while certifying they were not engaged in illegal activities. Although this settlement appears principally to address allegations of healthcare fraud, the resolution of FCA claims involving alleged PPP fraud highlights the government’s efforts to root out those who attempt to defraud COVID-19 relief programs. In the settlement agreement, the U.S. government (“government”), the State of Florida (“Florida”), and several relators contend that Physician Partners of America, LLC (“PPOA, LLC”), an entity owned by Dr. Rodolfo Gari that manages or indirectly owns several other entities, Dr. Gari, and Dr. Abraham Rivera, the medical director of these entities (collectively, “PPOA”), committed various FCA violations. Regarding the PPP FCA claim, the government alleges in the settlement agreement that PPOA, LLC obtained a PPP loan[1] from Centennial Bank in April 2020. Under Program rules, a borrower had to certify that it was not engaged in any illegal activities under federal, state, or local law. The government contends that PPOA’s certification was false because PPOA, at the time it applied for PPP funds, pursued a scheme to overbill and defraud federal healthcare programs. Specifically, the government alleged (i) that PPOA violated the Stark Law, the physician self-referral law, by paying kickbacks to physicians working at PPOA-managed entities who referred patients to PPOA for reimbursable services; (ii) that PPOA submitted false claims to federal healthcare programs by billing for services and medical testing at the highest rate available despite these services or tests not being medically necessary or reasonable for each individual patient; and (iii) that PPOA improperly billed Medicare at a higher rate for “monitored anesthesia care” when PPOA in fact provided only local anesthesia. Furthermore, the government and Florida alleged that PPOA submitted false claims to federal and state healthcare programs for scheduling unnecessary biweekly telemedicine appointments for Florida patients after Florida paused non-emergency medical procedures in the wake of the pandemic. PPOA has not admitted liability regarding any of the settlement agreement’s allegations. However, under the terms of the agreement, PPOA will pay the government and Florida the sum of $24,500,000, with 1.625% interest accruing as of November 8, 2021. The terms of the settlement schedule payments so that PPOA shall pay the government $10,000,000 plus interest within seven (7) days after the agreement’s effective date and pay the remaining $14,500,000 plus interest to the government within ninety (90) days of the agreement’s effective date. Further, the terms allocate the funds so that the government will receive $24,491,213.80 plus interest, of which $11,550.692.58 is restitution, and Florida will receive $8,786.20 plus interest, of which $4,393.10 is restitution. Unlike previous settlement agreements, the terms of this agreement do not state what specific allocation of the settlement funds apply to settle the FCA allegation involving the false certification on the PPP loan application. Past agreements have required the borrower to reimburse the Small Business Administration for paying a processing fee to the lender as well as the full balance of the loan. See, e.g., Zen Solutions, Inc., discussed further here. This settlement agreement also states that the government and the numerous relators involved have not yet reached an agreement as to each relator’s share of the recovery. Moreover, while the settlement agreement’s terms contain typical release language, the terms state that two of the relator’s claims against a non-party entity are reserved. Thus, there could be further developments unfolding in the future. To stay updated on these developing topics, check out Dorsey’s FCA Now blog and FCA Case Tracker for the latest FCA and PPP fraud news. [1] Although not stated in the Settlement Agreement, publicly available data shows that PPOA, LLC obtained a first draw PPP loan of $5,978,709.00 on April 13, 2020.

The Department of Justice (“DOJ”) continues rolling out new settlement agreements related to COVID-19 fraud—highlighting the government’s and a common relator’s efforts to crack down on those alleged to have improperly received monies through the Paycheck Protection Program (“PPP” or “Program”). A new settlement agreement once again showcases these trends and illustrates the civil liability that businesses and individuals may face under the False Claims Act, 31 U.S.C. § 3729 et seq (“FCA”) for double-dipping into PPP loan funds made available in 2020 during the height of the pandemic. On April 21, 2022, the DOJ announced a settlement agreement between the U.S. government, Bryan Quesenberry (“Relator”), and Daniel Markus, Inc. (“DMI”) and Margarita Risis, DMI’s sole shareholder (collectively, “DMI” or “Defendants”). Prior to the execution of this settlement agreement, on September 12, 2020, Relator filed a qui tam suit against DMI under the FCA in the U.S. District Court for the District of New Jersey. Relator alleged that DMI “unlawfully applied for and received two loans under the [PPP]” and certified falsely that it would receive only one PPP loan. To settle these allegations, DMI, which operated several pawn shops in New Jersey, executed the settlement agreement, which explained these allegations further. Specifically, the government alleges in the settlement agreement that in April 2020 DMI obtained a first draw PPP loan of $242,849 from “Lender 1,” a bank based in Salt Lake City, Utah. The government contends that DMI certified to the following statement: “During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant [DMI] has not and will not receive another loan under the [PPP].” Yet, the government further alleges in the settlement agreement that DMI, again in April 2020, obtained a second first draw PPP loan of $268,300 from “Lender 2,” a bank based in McLean, Virginia. Based on its receipt of this second loan, the government alleges, according to the settlement agreement, that DMI’s certifications on the first draw loan were false. In settling these allegations, in addition to those the government contends it has under the Financial Institutions Reform, Recovery and Enforcement Act, 12 U.S.C. § 1833(a) (“FIRREA”), the terms of the settlement agreement state that DMI shall pay the government $50,000 within two weeks of the date of the settlement agreement. The terms further state that DMI agrees not to seek forgiveness of the first loan from Lender 1 but shall instead repay Lender 1 within a year of the date of the settlement agreement. Finally, the terms state that Relator shall be entitled to recover $3,541.05 following DMI’s payment of $50,000. As reported previously, Relator Brian Quesenberry is no stranger to qui tam litigation, as he has brought numerous other FCA actions recently, including the Sextant Marine settlement and the Zen Solutions settlement.  To stay updated on these developing topics, check out Dorsey’s FCA Now blog and FCA Case Tracker for the latest FCA and PPP fraud news.

On April 21, 2022, the Northern District of Georgia granted a motion to dismiss a False Claims Act (“FCA”) suit brought against ERMI LLC (“ERMI”), a medical device manufacturer, describing the complaint as a “shotgun pleading.” This action was brought by Relator Elizabeth Cooley, ERMI’s former chief compliance officer. Cooley alleged that ERMI, its CEO Dr. Thomas P. Branch, and other defendants defrauded federal insurance programs in violation of the FCA by overbilling tens of millions of dollars. Specifically, Cooley’s complaint alleged that ERMI billed the Government for equipment that was not medically necessary, was priced above market rates, or otherwise did not conform to government standards across five different fraud schemes. In addition, Cooley alleged that ERMI regularly provided cash and free equipment to clinicians who agreed to prescribe ERMI products to patients covered by federal health care programs, in violation of federal anti-kickback statutes. Cooley alleged ERMI fired her in retaliation for her attempts to resolve these compliance issues. Cooley filed her initial complaint in October 2020, and the government declined to intervene in July 2021. Subsequently Cooley filed the amended complaint at issue in September 2021. Defendants in the case moved to dismiss on the basis that Cooley’s complaint had impermissibly bundled “multiple claims for relief and multiple theories of liability into single counts, and its allegations lump together multiple Defendants without distinguishing which ones engaged in what specific conduct.” Judge Thomas W. Thrash Jr. agreed, reasoning that Cooley’s amended complaint had all the cornerstones of a “shotgun pleading” making it “unclear which factual allegations are meant to support which legal theories, and which legal theories are meant to support which claims for relief.” Citing the higher pleadings standard for FCA claims found in Rule 9(b), the Court reasoned that to survive a motion to dismiss under the FCA, a plaintiff “must state with particularity the circumstances constituting fraud or mistake,” and instead of doing that, Cooley’s complaint “muddies the waters further by reciting the same conclusory, formulaic theories of liability” on at least eight counts. The court went on to add that “the shortcomings . . . do not end here. The Relator asserts all of her claims against multiple defendants but in some instances fails to differentiate the acts and omissions giving rise to each one’s liability.” The court’s order emphasized that in the Eleventh Circuit these types of pleadings are ineffective because they are an “undue burden not only on defendants but also on courts,” wasting resources, unnecessarily broadening discovery, and clogging court dockets and harming the “public’s respect for the courts.” Given this view, the Court went on to explain “there is thus little tolerance for shotgun pleadings in this circuit.” Despite this, the Court ruled that parties have a right to amend and ultimately gave Cooley 30 days from the April 21 order to cure the pleading deficiencies. The Court’s opinion reminds plaintiffs that FCA pleadings should make sure to explain claims with specificity, and defendants of such claims that they can object to such muddy causes of actions and allegations.

The Department of Justice (“DOJ”) continues racking up more settlement agreements under the False Claims Act, 31 U.S.C. § 3729 et seq (“FCA”) with companies and individuals alleged to have improperly used funds received through the Paycheck Protection Program (“PPP” or “Program”). The latest PPP fraud settlement illustrates that attempts to fraudulently obtain forgiveness of PPP loans used for ineligible expenses invites potential liability under the FCA in addition to liability under its criminal counterpart, 18 U.S.C. § 287. On March 25, 2022, the U.S. Attorney’s Office for the Eastern District of Washington announced a global criminal and civil settlement between the U.S. government and HPM Corporation (“HPMC’), Grover C. Mooers (“Mr. Mooers”), and Hollie P. Mooers (“Ms. Mooers”) (collectively, “Defendants”). This global criminal and civil settlement included a criminal Deferred Prosecution Agreement (“DPA”) and a civil FCA Settlement Agreement (“Settlement Agreement”) (collectively, “Agreements”). Under the Agreements, the government alleged that Defendants knowingly submitted false statements and certifications to the Small Business Administration (“SBA”) when seeking forgiveness of a PPP loan. Specifically, the Defendants admitted the following facts in the Agreements: On April 3, 2020, HPMC, through Mr. Mooers, applied for a PPP loan, which required him to certify that the funds would be used for Program-eligible purposes, like payroll or certain mortgage interest payments. The SBA approved the loan, and HPMC received $1,344,700 on April 17, 2020. Upon receipt of these funds, HPMC held the funds in a checking account for over a year, unused. On April 6, 2021, while the loan proceeds still sat idle in HPMC’s checking account, HPMC applied for forgiveness. Mr. Mooers certified on the loan forgiveness application that (i) the money HPMC received a year ago had been used for Program-eligible expenses, (ii) that Mr. Mooers had verified that the funds sought to be forgiven were used for Program-eligible expenses, (iii) that all statements made in the application were true and correct, and (iv) that Mr. Mooers understood the government could recover the loan amounts and civil or criminal penalties for knowingly using these funds for unauthorized purposes. The SBA then forgave the full loan amount—both principal and interest totaling $1,358,184.35—on April 13, 2021, thereby transferring this amount to HPMC’s lender (who also received a lender fee of $40,341.00 from the government). However, according to the admitted facts in the Agreements, HPMC did not use its PPP loan for Program-eligible purposes. In fact, after receiving forgiveness of the loan, on July 1, 2021, the sum of $1,344,700 was transferred from HPMC to Mr. and Ms. Mooers’ personal checking account at Community Bank, where they later distributed the funds to various charities. The Agreements also recognize that HPMC was a government contractor for the Department of Energy (“DOE”), and that DOE had continued making contract payments to HPMC from April 3, 2020 through April 6, 2021—the date HPMC applied for PPP funds and the date that HPMC applied for forgiveness of those funds. Based on these admitted facts, the Settlement Agreement’s terms require HPMC to pay a total of $2,939,400, which accounts for $1,344,700 as restitution for the original loan amount and another $1,344,700 as a penalty to the U.S. government. Further, the Settlement Agreement’s terms require Mr. and Ms. Mooers to pay $250,000 as a penalty to the United States, and that Mr. Mooers steps down from his current role at HPMC and that he shall not serve any other role in managing or advising HPMC for at least three years. Under the DPA, HPMC waived indictment and consented to the filing of a one-count information alleging a violation of 18 U.S.C. § 287 for submitting false and fraudulent claims to the United States.  The government agreed to defer prosecution of the charge for three years, contingent upon, inter alia, HPMC acknowledging responsibility for its conduct, making the payments required under the Settlement Agreement, undertaking an independent audit of HPMC’s financial practices, preventing Mr. Mooers from serving in any managerial capacity, and cooperating fully with the government.  If HPMC complies with its obligations, the government will dismiss the charge at the end of the three-year deferral period. The Agreements showcase the civil and criminal consequences that businesses and individuals may face if seeking forgiveness of PPP loans where those funds have been used improperly. To stay updated on these developing topics, check out Dorsey’s FCA Now blog and FCA Case Tracker for the latest FCA and PPP fraud news.

Following a record year for False Claims Act (“FCA”) settlements and judgments in 2021, the Department of Justice (”DOJ”) continues to aggressively pursue the prosecution of not only corporations, but also the individuals connected to corporate criminal cases. Within the first quarter of 2022, the DOJ has already announced numerous False Claims Act violations involving corporate defendants, including a $260 million settlement with pharmaceutical company Mallinckrod, a $48.5 million settlement with TriMark USA, LLC, and a $20 million settlement with BayCare Health System Inc. A notable theme emerging from the DOJ’s stream of FCA prosecution press releases, however, is its focus on holding individual defendants accountable for crimes committed in connection with their corporate activity. For instance, as part of TriMark USA’s $48.5 million settlement to resolve allegations that its subsidiaries manipulated federal contracts set-aside for small businesses, TriMark’s former executive in charge of the company’s government business, Kimberley Rimsza, agreed to pay an additional $100,000 as an individual civil penalty for her conduct in connection with the scheme. Likewise, the DOJ announced that a Philadelphia-based psychiatrist and his wife, Dr. Harry Doyle and Sonya Doyle, agreed to pay a total of $3 million to resolve alleged violations of the FCA, including the submission of false billing to the U.S. Department of Labor Office of Worker’s Compensation Programs (“OWCP”), as well as upcoding and double-billing patient claims. And, earlier this month, the DOJ announced it has filed a complaint against two laboratory CEOs, one hospital CEO, and other individuals, alleging FCA violations in connection with patient referrals in violation of the Anti-Kickback Statute and the Stark Law. This activity aligns with Attorney General Merrick Garland’s pronouncement at the ABA Institute on White Collar Crime in March that “prosecution of corporate crime is a Justice Department priority” and that the DOJ’s “first priority in corporate criminal cases is to prosecute the individuals who commit and profit from corporate malfeasance.”  President Biden’s FY22 budget supports these efforts with proposed increases in funding for both the DOJ’s criminal enforcement divisions, as well as the FBI’s White Collar-Crime Program.  With more resources and human capital on hand to support its prosecutorial goals, we can expect another busy and productive year from the DOJ in connection with its FCA enforcement initiatives.

In October 2021, the Department of Justice (“DOJ”) announced its new Civil Cyber-Fraud Initiative, led by the Civil Division’s Fraud Section, to enhance its ongoing efforts to address cybersecurity threats.  The initiative utilizes the False Claims Act (“FCA”) to prosecute cybersecurity fraud by federal contractors and grant recipients who put government information or systems at risk through deficient cybersecurity standards.  Cybersecurity risks that the initiative will pursue include knowingly providing deficient cybersecurity products or services, knowingly misrepresenting cybersecurity practices or protocols, and failure to monitor and report cybersecurity incidents and breaches. This month, DOJ settled its first case under the new initiative. Florida-based Comprehensive Health Services (“CHS”) agreed to pay $930,000, in part to resolve FCA allegations related to cyber fraud.  The settlement also resolved FCA claims that alleged CHS provided medical supplies that were not approved by the U.S. Food and Drug Administration (“FDA”) or the European Medicines Agency (“EMA”) as required by their federal contracts. CHS is a medical services provider that has contracts to provide medical support services at State Department and Air Force facilities in Iraq and Afghanistan.  Pursuant to these contracts, CHS submitted claims to the State Department for the cost of a secure electronic medical record (“EMR”) system, which was used to store patient medical records in an agency run medical facility in Iraq. This EMR system housed patient records containing confidential identifying information of U.S. service members, U.S. diplomats, government officials, and contractors.  The DOJ alleged that CHS did not exclusively retain these confidential medical records on the EMR system, however, as they were required to under their contract.  Instead, the DOJ alleged that the company left copies of the patient records on an internal network drive, which could be accessed by non-facility staff, between 2012 and 2019.  This practice allegedly continued even after facility staff raised concerns about the breach in 2017, with CHS failing to disclose to the government this non-exclusive storage of patient records on a secure EMR system.  The government was alerted to the alleged practices by a relator prior to filing its complaint in 2019. A key takeaway here is that government contractors and grant recipients must ensure that their cybersecurity practices are up to the standards required under their federal contracts.  They should ensure not only that their products and systems are up to date and proper policies are in place to address cyber security risks, but also that those policies are followed in practice, and any breach must be promptly disclosed to the government.  The Civil Cyber-Fraud Initiative is yet another avenue for FCA enforcement, and for the government to ensure those receiving its funds are appropriately securing its data.

The Department of Justice recently announced that a home-health services company has agreed to pay over $45,000 to resolve alleged False Claims Act (“FCA”) violations.  Professional Family Care Services, Inc. (“PFCS”), a North Carolina corporation, faced allegations of fraudulent billing for work by an employee that was convicted of wire fraud and sentenced to prison for her role in the alleged scheme. For two years starting in 2015, PFCS billed the Department of Veterans Affairs (the “VA”) for home-health services related to the medical care of an Army veteran identified by the initials W.R.  While PFCS was billing the VA for home-health services, W.R. was actually residing with a Certified Nursing Aide.  Relevant evidence indicated that PFCS was billing the VA based on falsified timesheets provided by the aide, for example, timesheets showing her providing services to W.R. and another patient simultaneously.  As a result, VA alleged that PFCS failed to provide W.R. with the time and quality of care required under the VA program. W.R. was eventually admitted to the hospital, where it was discovered that W.R. was extremely malnourished and died shortly after.  Following the death of W.R., PFCS submitted 15 separate claim forms seeking payment from the VA for the services provided by the aide totaling $11,273.92. Under 31 U.S.C. § 3729(a)(1), civil FCA claims may lead to treble damages in addition to other penalties for false or fraudulent claims.  As a result, PFCS agreed to pay $45,486.76 to settle the dispute and avoid litigation.  The aide was sentenced to twelve months and one day in federal prison for wire fraud related to the charging of home services for W.R. and ordered to pay over $90,000 in restitution. The primary takeaway here is that businesses that bill services to the government must closely review their invoices.  PFCS’s employee was double-charging the government for services, which could have been identified by internal review protocols.  Regardless of whether PFCS was aware of or condoned the actions, they were ultimately liable for monetary penalties.  Healthcare is one of the largest drivers of FCA liability, and this case serves to highlight the importance of internal controls when billing the government for healthcare services.

Fresh off the new year, the Department of Justice (“DOJ”) continues to announce new settlements under the False Claims Act, 31 U.S.C. § 3729 et seq (“FCA”)—further cementing the trend of private parties suing borrowers for violating requirements of the Paycheck Protection Program (“PPP” or the “Program”). Two new FCA settlements were announced earlier this month involving relators’ allegations that borrowers made false statements when applying for PPP loans in violation of Program rules. The first settlement, coming from the U.S. Attorney’s Office for the District of New Jersey, was announced on February 7, 2022. According to the settlement agreement, on June 19, 2020, relator Pat L. Christopher filed a qui tam action in the United States District Court for the District of New Jersey against Christopher Construction Company, Inc. (“CCC”) and Dennis Christopher. Relator alleged that CCC and Dennis Christopher violated Program rules by causing the submission of a false claim for payment. Specifically, according to the settlement agreement, the government then contends that around April 27, 2020, CCC and Dennis Christopher falsely stated on an application for PPP funds that no individual owner of CCC holding at least 20% of the company’s stock was then indicted or subject to criminal charges. The government further alleged that CCC and Dennis Christopher, at the time of submitting the application, knew that relator owned more than 20% of CCC’s stock and knew that relator had been indicted for theft, embezzlement, and tax fraud. Based on this false statement, the government asserts CCC—which received $255,507 in PPP funds—knowingly caused its lender to submit a false claim to the Small Business Administration (“SBA”) for $12,775 in loan processing fees. The settlement agreement states that CCC and Dennis Christopher have returned the value of the PPP loan to the lender as part of the settlement. Further, the terms of the settlement agreement require CCC and Christopher to pay the government a total of $53,325 in civil penalties and damages under the FCA—$12,755 of which represents restitution to the SBA for paying the processing fee to the lender. The settlement agreement also notes that CCC and Dennis Christopher will be responsible for the relator’s attorney fees. A few days later, on February, 11, 2022, the DOJ announced another FCA settlement involving PPP fraud. According to this settlement agreement, relator Bryan Quesenberry filed a qui tam action in the United States District Court for the Eastern District of Virginia against Zen Solutions, Inc. (“Zen”), a technology company based in Arlington, Virginia, alleging Zen violated Program rules by receiving two PPP loans before December 31, 2020. The PPP required loan applicants to certify they would apply for only one first draw PPP loan before December 31, 2020. According to the settlement agreement, Zen received a first draw loan of $181,055 on April 13, 2020, and then received a second, first draw loan of $192,727 on April 28, 2020. In connection with this second PPP loan, says the settlement agreement, the SBA paid the second lender $9,636.25 in processing fees. The government asserts in the settlement agreement that Zen falsely certified on the second loan that it would not receive a second, first draw loan before December 31, 2020. The terms of the settlement agreement require Zen to pay the United States $31,226.53 in civil damages and penalties under the FCA, of which $9,636.35 constitutes restitution to the SBA for its payment of processing fees to the second lender. Notably, this second settlement is one of several settlements based on PPP-related qui tams filed by relator Quesenberry, such as the Sextant settlement previously reported on Dorsey’s FCA Now blog. As reported elsewhere, the ability to mine public data allows relators to discern whether borrowers have violated Program rules by taking multiple, first-draw loans. To stay updated on these developing topics, check out Dorsey’s FCA Now blog and FCA Case Tracker for the latest FCA and PPP fraud news.

The trend of private parties suing businesses under the False Claims Act, 31 U.S.C. § 3729 et seq (“FCA”) for violating requirements of the Paycheck Protection Program (“PPP” or the “Program”) continues. Just recently, the Department of Justice (“DOJ”) issued a press release announcing its latest settlement in an FCA case involving Sextant Marine Consulting, LLC (“Sextant”) and a whistleblower named J. Bryan Quesenberry (“Relator”). According to the settlement agreement (“Agreement”), Sextant is a Miami, Florida-based limited liability company providing duct cleaning services that sought PPP funds during the height of the pandemic. The PPP required borrowers to certify they would receive only one first draw loan before December 31, 2020. However, according to the Agreement, Sextant received two PPP loans in 2020 despite certifying it would receive only one: it received its first loan of $150,000.00 on May 8, 2020 and its second loan of nearly $170,000.00 on May 22, 2020. Learning this, on September 18, 2020, the Relator filed suit under the qui tam provisions of the FCA, 31 U.S.C. § 3730(b). The government’s ensuing investigation led to the issuance of a civil investigative demand on May 12, 2021, which prompted Sextant to repay the second loan the same day. Ultimately, the parties signed the Agreement on September 29, 2021. Per the Agreement, Sextant will pay the government $30,000, which represents civil penalties and damages under the FCA and includes $8,490.55 in restitution for fees the Small Business Administration (“SBA”) paid to Wells Fargo bank for processing the second loan. The Agreement also stipulates that the Relator will receive 15%, or $4,500.00, of the settlement amount as his portion of the recovery for initiating the lawsuit. Notably, the DOJ’s press release explains that this “matter remains under seal as to allegations against entities other than Sextant.” Thus, more news may be coming soon. Dorsey’s FCA Now blog will continue monitoring for new developments on this and other FCA cases involving alleged PPP fraud, so be sure to check out the FCA Now blog and Dorsey’s FCA Case Tracker to stay current on the latest news involving these issues.

On August 30, 2021, the Department of Justice (“DOJ”) announced that Sutter Health and several of its affiliated entities (“Sutter”) agreed to pay a total of $90 million to settle allegations that Sutter violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733, by “knowingly submitting inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage Plans.”  Sutter Health and Affiliates to Pay $90 Million to Settle False Claims Act Allegations of Mischarging the Medicare Advantage Program, Department of Justice (Aug. 30, 2021), https://www.justice.gov/opa/pr/sutter-health-and-affiliates-pay-90-million-settle-false-claims-act-allegations-mischarging.  As a part of its settlement, Sutter also entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services to implement a centralized risk assessment program.  Id. The central allegation from qui tam Plaintiff Kathy Ormsby (“Ormsby”) was that Sutter had submitted inaccurate and unsupported medical information that artificially inflated Medicare reimbursement for Sutter’s Medicare Advantage patients.  United States ex rel. Kathy Ormsby v. Sutter Health, No. 3:15-cv-01062-LB, 444 F. Supp. 3d 1010 (N.D. Cal. 2020). In December of 2018, the United States formally intervened in the case and took primary responsibility for prosecuting the action.  Shortly thereafter, Sutter agreed to pay $30 million to settle some of the allegations in April of 2019, but explicitly denied any liability related to the allegations.  In so doing, Sutter argued that the United States had taken a mistaken approach to the case by applying an analysis involving traditional Medicare programs (using a fee-for-service model) as opposed to focusing on the unique nature of Medicare Advantage, which Sutter argued “is a fundamentally different program with its own unique standards for establishing overpayments” and thus the United States was relying on an inapplicable FCA theory of liability.  Sutter argued the United States had not, and indeed could not, prove that Sutter had knowingly submitted false claims or received overpayments for submitted claims that they failed to return. Ultimately, Sutter returned to the table to discuss settling the Medicare Advantage claims following recent FCA decisions holding that the overpayment rule did not improperly hold private insurers to higher standards on the basis that nothing in the FCA renders actuarial equivalence a defense against the obligation to refund any individual, known overpayment.  This is expected to buttress FCA enforcement by rejecting the idea that Medicare Advantage insurers receive apples-to-apples reimbursement with traditional Medicare. Sutter eventually settled the remaining claims for $60 million, bringing the total amount of the settlement to $90 million in addition to implementing further oversight and compliance mandates. The settlement between Sutter and the United States makes clear that defendants claiming protection against FCA enforcement should be careful when relying on rapidly changing FCA precedent.  Though defendants may be tempted to highlight and defend their actions under novel legal theories, the attention brought by said action may invite unwanted scrutiny, and ultimately, harsher penalties as opposed to settling and adjusting internal procedures early in the dispute.

Civil litigation by private parties alleging False Claims Act (“FCA”) violations related to Paycheck Protection Program (“PPP”) fraud appears to be heating up.  On September 22, 2021, a former restaurant manager filed a complaint in the Eastern District of New York alleging he was unlawfully terminated from his employment in retaliation for complaining to his employer that it had unlawfully spent its PPP loan proceeds.  The case, Eric Bieber v. Cayuga Capital Management, LLC, Sea Wolf Services, LLC, Jacob Sacks, & James Wiseman, No. 1:21-cv-05268 (E.D.N.Y.), demonstrates not only the substantive FCA risks facing PPP loan borrowers in obtaining and using a PPP loan, but the related retaliation risks under the FCA’s anti-retaliation provisions in 31 U.S.C. § 3730(h) when employees raise concerns about a borrower’s eligibility for or use of a PPP loan. According to the publicly available complaint, defendants owned and operated several trendy New York restaurants and a motel that plaintiff helped manage for several years until the summer of 2021 when he was terminated.  Plaintiff alleges that one of the defendants—defendant Sea Wolf Services, LLC (“Sea Wolf”), a company created to employ the staff working at a related “Sea Wolf – Bushwick” restaurant in Brooklyn—obtained a PPP loan between $350,000 and $1 million to help weather the pandemic.  (Although not alleged in the complaint, the publicly available information online shows that Sea Wolf received a “first draw” loan of $411,217 in 2020 and a “second draw” loan of $575,704 in 2021.[1])  Plaintiff further alleges that approximately one month after receiving the PPP loan, the employee roster for Sea Wolf “included eight individuals who did not work at any of the related Sea Wolf restaurants, but had personal connections to [defendants], including business partners and relatives.”  In sum, plaintiff alleges that defendant Sea Wolf unlawfully spent its PPP loan proceeds to pay the defendants’ friends, family and business associates, rather than on legitimate payroll expenses. Plaintiff’s complaint does not, however, assert substantive FCA violations against defendants for filing false claims against the government for allegedly misusing the PPP loan proceeds.  Instead, Plaintiff’s unique complaint alleges a single violation under the FCA’s anti-retaliation provision in 31 U.S.C. § 3730(h) against defendants for allegedly taking adverse employment action against plaintiff (ultimately terminating his employment) after plaintiff had allegedly engaged in protected activity by complaining about defendant Sea Wolf’s alleged misuse of the PPP loan proceeds.  As part of his requested relief, plaintiff demands damages for front pay, two times the amount of back pay, emotional distress damages, and attorneys’ fees and costs.  Although the available damages under the FCA for anti-retaliation violations is often less than the potential damages for substantive FCA violations (substantive violations allow for civil penalties for each false claim in addition to damages representing three-times the amount of the government’s loss), anti-retaliation claims nevertheless create significant risk.  This is particularly true when emotional distress damages are sought, which can be quite high depending on the conduct involved and the alleged severity of a plaintiff’s emotional distress.  PPP borrowers therefore must be diligent in complying with all of the rules on eligibility, use, and forgiveness of PPP loans to avoid allegations that they presented false claims to the government related to such loans, and, as this new case shows, diligent in responding to employee complaints that they violated the rules of the PPP. [1] See Tracking PPP, Pro Publica, available at https://projects.propublica.org/coronavirus/bailouts/ (last searched September 27, 2021).

On May 28, 2021, a District of Maine judge granted a joint motion for stipulated judgment in favor of the United States, ending the False Claims Act suit against a Coast Guard contractor hired to assist with the excavation of a World War II-era airplane crash site.  United States of America v. Luciano A. Sapienza, et al., No. 2:21-cv-00073-NT (Me.). As alleged in the amended complaint, the United States Coast Guard and North South Polar, Inc. (“NSP”) entered into a contract for NSP to provide support services for the validation, excavation, and extrication of a World War II-era airplane at a suspected crash site in July 2013.  Under the contract, NSP was required to furnish all materials, equipment, and services necessary to complete the excavation and extrication of the crash site in Greenland.  In turn, the government would reimburse NSP for all purchased equipment, with title of any reimbursed equipment passing to the government.  NSP’s president and chief executive officer, Luciano Sapienza, signed the contract on behalf of NSP. The government alleged that the Defendants purchased and obtained reimbursement from the government for four pieces of equipment for a total of $14,702: two hot water pressure washers ($8,030); an underwater metal detector ($3,299); and a heater ($3,373).  Although the amended complaint alleged that the defendants knew the contract required the return any equipment for which it was reimbursed, the government alleged that Sapienza refused to return the equipment. Instead, Sapienza allegedly sold the equipment on eBay. The government filed suit against NSP and Sapienza in March 2021, asserting an FCA claim for conversion of government property in violation 31 U.S.C. §§ 3729(a)(1)(D), 3730(a), as well as a common law unjust enrichment claim.  Shortly thereafter, the parties jointly motioned for entry of stipulated judgment against the defendants in May 2021.  Under the stipulated judgment, the parties agreed NSP and Sapienza would pay the government $40,585, representing $29,404 in double damages for the four FCA violations and one statutory penalty in the amount of $11,181.  The court granted the motion on May 28, 2021. This case serves as an important reminder to government contractors to pay close attention to all contractual obligations, including those that come into play after substantial completion of performance. The relatively low dollar amount at issue also stands out amongst the much-higher FCA resolutions that frequently make headlines, and should remind all contractors that no FCA violation is too small to escape government scrutiny.

On June 28, 2021, the United States Supreme Court denied review of a Seventh Circuit decision affirming the Department of Justice (“DOJ”)-requested dismissal of a False Claims Act (“FCA”) suit alleging a drug kickback scheme.  Cimznhca LLC v. United States, No. 20-1138, 2021 U.S. LEXIS 3404 (June 28, 2021).  As a result, the circuit split regarding the standard that applies to a Government’s motion to dismiss an FCA action remains unresolved. In the underlying case, relator Cimznhca, LLC filed an action against four defendants, UCB, Inc. RXC Acquisition Company, Omnicare Inc., and CVS Health Corporation, in July 2017.  United States ex rel. Cimznhca, LLC v. UCB, Inc., 970 F.3d 835, 839-40 (7th Cir. 2020).  Relator alleged that the defendants were engaged in a kickback scheme by providing physicians with incentives for prescribing a brand-name drug over other competitors.  Id.  The Government declined to intervene in December 2017, and Relator continued to prosecute the case.  Id.  However, the Government moved to dismiss under 31 U.S.C. § 3730(c)(2)(A) in December 2018.  Id. at 840; see also Granston Memo (Jan. 10, 2018) (encouraging the DOJ to use its power to dismiss relators' claims more often).  Relator objected to the dismissal. The district court held a hearing on the petition and applied the Sequoia Orange rational-basis test from the Ninth Circuit.  Id.  Under Sequoia Orange, when the government identifies a valid governmental purpose and a relationship between the purpose and dismissal, the court will dismiss unless the Relator can demonstrate that the dismissal is arbitrary and capricious.  United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998).  The district court determined the Government’s motion was arbitrary and capricious and denied it.  Cimznhca, 970 F.3d at 840.  The Government appealed the order.  Id. The competing dismissal standard is the unfettered-right standard from Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003).  Under the Swift standard, the Government may dismiss an action without judicial review in virtually all cases.  Id. at 253.  The Tenth Circuit has followed the Ninth, adopting the Sequoia Orange standard.  See, e.g., Ridenour v. Kaiser-Hill Co., Ltd. Liab. Co., 397 F.3d 925 (10th Cir. 2005).  The Second and Third Circuits have noted the split but declined to adopt either standard.  See, e.g., Chang v. Children’s Advocacy Ctr., 938 F.3d 384 (3d Cir. 2019); United States ex rel. Borzilleri v. Abbvie, Inc., 837 F. App’x 813, 816 (2d. Cir. 2020). In this case, the Seventh Circuit reversed and directed the district court to dismiss.  970 F.3d at 854.  The Seventh Circuit declined to decide whether Sequoia Orange or Swift was the proper standard, but suggested that something closer to Swift would apply in almost all cases, excepting, for example, a fraud on the court.  Id. at 851-52.  Relator petitioned for a writ of certiorari, noting the circuit split on the dismissal standard. With the Supreme Court’s denial of Relator’s petition for a writ of certiorari, the circuit split remains.  Defendants embroiled in FCA cases should thus remain cognizant of the opportunity, under the right circumstances, for an early exit with the support of the DOJ, but note that the applicable standard will vary depending upon the circuit in which the case is filed.

Walmart successfully ended eight years of protracted litigation under the False Claims Act (“FCA”) on June 4, 2021, when the Sixth Circuit affirmed dismissal of Medicare and Medicaid fraud allegations against the major retailer.  The case was first filed in February 2013.  See United States ex rel. Sheoran v. Wal-Mart Stores E., No. 13-10568, 2019 U.S. Dist. LEXIS 140710, at *2 (E.D. Mich. Aug. 20, 2019). The case was originally filed by Ashwani Sheoran, a former Walmart pharmacist.  See United States v. Wal-Mart Stores E., LP, No. 20-2128, 2021 U.S. App. LEXIS 16763, at *2 (6th Cir. June 4, 2021).  The basis for Sheoran’s allegations stemmed from observing a Michigan physician (and co-defendant) writing what Sheoran believed were improper prescriptions for high doses of opioid pain medications.  Id. at *3.  Sheoran alleged that filling those prescriptions violated the FCA and the Michigan Medicaid False Claims Act due to their purportedly excessive doses.  Id.  The case was finally unsealed in September 2018 after the United States government and the state of Michigan declined to intervene.  In August 2019, Walmart’s motions to dismiss were granted.  Wal-Mart, 2019 U.S. Dist. LEXIS 140710 at *14.  Sheoran moved for reconsideration, which was denied.  United States v. Wal-Mart Stores E., LP, No. 13-10568, 2020 U.S. Dist. LEXIS 177251, at *9 (E.D. Mich. Sep. 28, 2020).  Sheoran then appealed. On appeal, Sheoran argued that the district court granted the motions to dismiss in error; that it was error for the lower court to exclude his Medicaid False Claims Act claims in its summary of claims; and that the court abused its discretion by waiving oral argument on the motions.  Wal-Mart, 2021 U.S. App. LEXIS 16763 at *4. To establish a claim under the FCA, Sheoran was required to allege that “(i) the defendant presented a claim of payment to the government, (ii) the claim was false or fraudulent, (iii) the defendant knew it was false or fraudulent, and (iv) the false claim was material to the government’s payment.”  Id. at *5.  Because FCA claims necessarily involve allegations of fraud, a plaintiff must also meet the particularity requirements under Federal Rule of Civil Procedure 9(b) by alleging the “time, place, and content of the alleged misrepresentation . . . [;] the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Id. at *4–5 (internal quotations and citations omitted). Focusing on particularity, the Sixth Circuit determined that Sheoran failed to sufficiently plead each of the four elements of an FCA violation. First, the Court held Sheoran failed to allege that a claim for payment was presented to the government.  Id. at *5.  To support the claim, Sheoran submitted a document that listed all opioid payments with a $1-2 copay.  Id. at *6.  Based on the low copay value, Sheoran argued that the government must have provided reimbursement through Medicaid or Medicare.  Id.  The Court rejected that assumption, noting that many other reasons could explain a low copay.  Id. The Court concluded that alleging presentment effectively requires more than “mere speculation.”  Id. Second, the Court held Sheoran was unable to effectively plead that any of the alleged claims were “false or fraudulent.”  Id.  See 31 U.S.C. § 3729(a)(1)(A), (B).  Although Sheoran had alleged the prescriptions were written for “high doses” of opioid pain medications that “would kill the person” if taken as prescribed, Sheoran provided no information about the patient’s medical history or needs to help the Court evaluate whether the doses were too high.  Id. *7.  Accordingly, the Court could not accept that falsity was supported. Third, the Court held the pleadings failed to allege that Walmart “knowingly” presented false claims to the government.  Id.  In order to establish knowledge, a defendant must “know[] of, or ‘act[] in deliberate ignorance’ or ‘reckless disregard’ of, the fact that he is involved in conduct that violates a legal obligation to the United States.”  Id. (internal quotations and citations omitted).  The Court determined that Sheoran’s mere assumption that payment was submitted to the government was insufficient, and that the pleadings lacked allegations indicating that Walmart even suspected the claims were illegal, false, or fraudulent.  Id. Finally, the Court concluded that materiality was also insufficiently alleged.  To meet this “demanding” standard, the alleged misrepresentation must have been “material” to the government’s decision to reimburse the claim.  Id. at *8.  The Court reasoned that if all of the claims had indeed been submitted to the government, the government had the same knowledge about the allegedly “high doses” and yet still paid those claims.  Id.  This evidence of payment was considered to be “very strong evidence that the requirements were not material.”  Id. (citing Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2001 (2016)). The Sixth Circuit summarily dismissed Sheoran’s remaining arguments.  In regards to the denial of oral argument, the Court reasoned that “this was a straightforward FCA case that was properly decided on the briefs.”  Id. at *12.  Unfortunately for Walmart and its co-defendants, this “straightforward” case required eight years of protracted litigation and expense that finally concluded due to the FCA’s exacting pleading standard.

On April 30, 2021, a Northern District of Texas judge denied a motion to dismiss an FCA qui tam action alleging “a fraudulent scheme to obtain Government subcontracting opportunities reserved for eligible small businesses under the Small Business Act.” United States ex rel. Haight v. RRSA (Commer. Div), LLC, 3:16-CV-1975-S, 2021 U.S. Dist. LEXIS 82894, at *1-4 (N.D. Tex. Apr. 30, 2021). In the complaint, the relator alleged that one or more of the defendants received several lucrative government construction subcontracts by falsely claiming small business eligibility. Id. at *4. According to the relator, Defendant RRSA Residential, a large, national roofing company, and its related entities “devised a scheme to obtain subcontracting opportunities that are reserved for small businesses under the Small Business Act.” United States ex rel Haight v. RRSA (Commer. Div.), 3:16-CV-1975-S, 2020 U.S. Dist. LEXIS 195267, at *4-5 (N.D. Tex. Oct. 20, 2020) (hereinafter “Haight I”). Certain government contracts are reserved, or set aside, for business that qualify as “small” under the SBA size standards set forth in 13 CFR 121. The relator alleged that RRSA Defendants falsely certified that an affiliated entity, RRSA Commercial, was an eligible small business, and calculated that it would have an advantage over legitimate small businesses due to the “combined resources, materials, industry connections, and ‘bondability’ that most legitimate small businesses do not have.” Id. at *6. After certifying that RRSA Commercial was an eligible small business on the System for Award Management (“SAM”) database, RRSA Commercial received “dozens” of small business subcontracts. Id. at *7. The relator also alleged that prime contractor defendants were aware that RRSA Commercial was in reality a large business and variously participated in and enabled the scheme. Id. at *7-8. Accordingly, the relator alleged that these false representations caused false claims for payment to be submitted to the government under an implied false certification theory. United States ex rel. Haight v. RRSA (Commer. Div), LLC, 3:16-CV-1975-S, 2021 U.S. Dist. LEXIS 82894, at *4 (hereinafter “Haight II”). Defendants moved to dismiss, arguing that the relator failed to satisfy the pleading standards of Federal Rule of Civil Procedure Rules 8(a), 12(b)(6), and 9(b). Haight I, 2020 U.S. Dist. LEXIS 195267, at *11. The court granted the motion in part and denied the motion in part, granting the relator an opportunity to replead dismissed claims. Id. at *24. Plaintiff filed an amended complaint in 2020. Dkt. 104. Defendants again moved to dismiss, this time arguing the relator lacked standing under Federal Rule of Civil Procedure 12(b)(1) because she had allegedly signed a settlement agreement that contained a broad release provision of “any and all claims” prior to the filing of the present qui tam action. Haight II, 2021 U.S. Dist. LEXIS 82894, at *5-6 (internal quotation omitted). The court rejected Defendants’ standing argument and denied the motion to dismiss. In discussing Defendants’ standing argument, the court first noted the plain language of the FCA provides that “a qui tam relator may not unilaterally enter into an enforceable settlement agreement or release after filing an FCA action.” Id. at *11. Although the Fifth Circuit has not directly considered enforceability of pre-filing releases, the court noted that several circuits apply the balancing test articulated by the Ninth Circuit in United States ex rel. Green v. Northrop Corp., 59 F.3d 953, 956 (9th Cir. 1995) when assessing enforceability. Id. at *11-17. Under the balancing test, courts must determine “whether the interest in enforcing the release was outweighed in the circumstances by a public policy harmed by enforcing the release.” Id. at *12 (citing Green, 59 F.3d at 958, 962). Applying the balancing test to the facts alleged, the court found dispositive the factor that the government did not know of the alleged fraud at the time of the alleged signing of the release. Because qui tam suits serve a valuable role in notifying the government of instances of fraud and a contrary holding would incentivize defendants to settle cases of fraud pre-filing without ever informing the government, the court refused to enforce the release as “contrary to well-established public policy.” See id. at *13, 17. The court noted the case’s similarity to Green, where the Ninth Circuit likewise “concluded that enforcement of the prefiling release would ‘impair a substantial public interest’ because the release ‘would threaten to nullify’ the ‘central purpose of the qui tam provisions of the FCA’—to incentivize insiders privy to fraud on the Government to ‘blow the whistle on crime.’” Id. at *12-13 (quoting Green, 59 F.3d at 963). The case serves as a reminder of the underlying policy justifications for the qui tam provision of the FCA, and, moreover, as a cautionary tale of the skepticism that courts will apply to pre-filing releases.

A federal judge recently ruled that submission of electronic data to the government can, under appropriate circumstances, give rise to liability under the False Claims Act. In U.S. ex rel. Marc Silver et al. v. Omnicare Inc. et al., 1:11-cv-01326 (D.N.J. Apr. 13, 2021), U.S. District Court Judge Noel C. Hillman granted a relator’s motion to amend his complaint to assert FCA claims premised on the submission of patient prescription data to state and federal agencies administering Medicaid and Medicare reimbursements. Order, ECF No. 544. According to the amendments, the lawsuit arose out of an alleged “swapping” scheme. See generally Fourth Amend. Compl. (“Amended Complaint”), ECF No. 548. Defendants, providers of pharmacy services to nursing homes, allegedly offered commercially unreasonable prices to nursing homes for their Medicare Part A patients’ prescription drugs in exchange for the opportunity to provide the same drugs—at significantly higher cost—to the nursing homes’ Medicaid and Medicare Part D patients. Id. ¶¶ 4-8. Relator alleged that defendants’ conduct was an illegal “swapping” arrangement prohibited by the Anti-Kickback Statute, among other laws. Id. The “swapping” scheme framed the alleged false claims. The Amended Complaint alleged that when defendants dispensed drugs to Medicare Part D beneficiaries, they submitted claims to those beneficiaries’ Part D Plan Sponsors. Id. ¶¶ 59-87. Defendants also certified that (1) they knew their claims would be used to seek federal funds and (2) they had complied with applicable laws. Id. The Part D Plan Sponsors then allegedly used defendants’ claims to notify CMS that prescriptions had been dispensed by submitting a document known as a “prescription drug event” (“PDE”). Id. CMS relied on those PDEs to reimburse the Part D Plan Sponsors, which reimbursed the defendants. Id. Medicaid has a similar reimbursement structure involving state agencies. Id. ¶ 244. Against that alleged factual backdrop, the defendants argued Relator’s amendments were futile and his motion to amend should be denied because Relator could not prove that defendants presented a claim, let alone a false claim. The court disagreed, issuing an Opinion that found the PDEs were “claims for payment” under the False Claims Act. Order at 17-20. The court began by observing that other courts had concluded that PDEs “clearly” were claims for payment because they were the “only record . . . that triggers CMS’s payment obligation” for reimbursement of Medicare Part D patients’ prescriptions drugs. Id. at 18 (citations omitted). The court concluded that the same analysis applied to data submissions to state agencies in connection with Medicaid reimbursement. Id. at 19-20. Next, the court ruled that PDEs allegedly tainted by kickbacks were “false” claims that could give rise to liability under the False Claims Act. Id. at 20-23. The court rejected the defendants’ argument that the PDEs were not “false” because they contained accurate information regarding the underlying drug prescriptions. Id. at 22-23. The court observed that “[a] claim is ‘legally false’ when the claimant misrepresents that he or she has complied with ‘statutory, regulatory, or contractual requirement[s].’” Id. at 20 (citation omitted). Since Relator alleged that the defendants had made that representation—while simultaneously participating in an allegedly illegal “swapping” scheme—Relator sufficiently alleged the PDEs were “false” claims under the FCA. Id. at 23. The case serves as a reminder of the often contentious battles between parties in FCA litigation over whether claims for payment have truly been presented and, if so, whether such claims are indeed false.  Moreover, the Opinion emphasizes that the submission of records and data—like PDEs—may constitute claims even if they are not labeled as such, and, according to the court, claims tainted by kickback schemes can be false.

Over a vigorous dissent last week, a panel of the U.S. Court of Appeals for the Sixth Circuit vacated a ruling from the U.S. District Court for the Eastern District of Michigan and held the False Claims Act’s anti-retaliation provision protects former employees alleging post-termination retaliation. United States ex rel. Felten v. William Beaumont Hosp., No. 20-1002, 2021 U.S. App. LEXIS 9387 (6th Cir. Mar. 31, 2021). The decision creates a circuit split with the Tenth Circuit. See Potts v. Center for Excellence in Higher Education, Inc., 908 F.3d 610 (10th Cir. 2018) (“We conclude that the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.”). Relator David Felten alleged that William Beaumont Hospital violated the anti-retaliation provision of the FCA for retaliation during and after his employment with the hospital. Felten alleged the hospital retaliated against him by terminating his employment after he filed a qui tam complaint alleging the hospital paid illegal kickbacks to physicians and physicians’ groups in exchange for referrals of Medicare, Medicaid, and TRICARE patients. Felten amended his complaint and further alleged the hospital retaliated against him post-termination by undermining his employment applications to other institutions. In granting the hospital’s partial motion to dismiss the allegations in the relator’s amended complaint, the district court held that the FCA’s anti-retaliation provision does not extend to retaliatory conduct that occurs after termination. In so deciding, the district court relied on the statute’s “terms and conditions of employment” qualifier and concluded the provision applies only to alleged retaliatory conduct that occurs during employment. The district court also certified the question of whether the FCA applies to allegations of post-employment retaliatory conduct for interlocutory appeal. The Sixth Circuit granted the relator’s petition for permission to appeal, and on interlocutory appeal considered the temporal meaning of the word “employee” in the context of the FCA’s anti-retaliation provision. See 31 U.S.C. § 3730(h)(1). The court relied heavily on Robinson v. Shell Oil, 519 U.S. 337, 345 (1997), in which the Supreme Court analyzed the term “employees” in the context of § 704(a) of Title VII of the Civil Rights Act of 1964. The court applied the Robinson framework and concluded the term “employee” in the FCA is ambiguous. Specifically, the court reasoned that the FCA’s anti-retaliation provision has no temporal qualifier accompanying the term “employee,” that the dictionary definition of “employee” can include current and former employees, and that other aspects of the statutory framework—including the remedies and special damages provisions—support a reading that the FCA covers former employees. Because the definition of “employee” is ambiguous, the court continued with an analysis of the broader context and primary purpose of the statute. Analogizing to Robinson, the Sixth Circuit reasoned that the purpose of the statute is to encourage the reporting of fraud and facilitate the government’s ability to stymie crime by protecting those who report it. The court determined: “If employers can simply threaten, harass, and discriminate against employees without repercussion as long as they fire them first, potential whistleblowers could be dissuaded from reporting fraud against the government.” Felten, 2021 U.S. App. LEXIS 9387 at *14. For this reason, the court held that the anti-retaliation provision of the FCA protects former employees from post-termination retaliation. Judge Griffin dissented and voiced frustration at the majority’s creation of a circuit split and divergence from other district courts’ interpretations of the FCA’s anti-retaliation provision. In his dissent, Judge Griffin thoroughly analyzed the statute and considered the Robinson factors, but determined none were present. Finally, Judge Griffin concluded that nothing in the other sections of the FCA indicates the anti-retaliation provision extends to conduct against former employees. Rather, Judge Griffin concluded the statutory remedies are only available to former employees who experienced retaliation during their employment. Based on his analysis of precedent, specifically Vander Boegh v. EnergySolutions, Inc., 772 F.3d 1056, 1060 (6th Cir. 2014), and the statute’s plain meaning, Judge Griffin determined the term “employee” in the FCA is unambiguous and applies only to current employees. The majority decision represents a significant extension of employee—that is, current and former employee—protections under the FCA. As with any circuit split, this is an issue worth monitoring for further developments. To stay up-to-date on False Claims Act news, subscribe to Dorsey’s FCA Now Blog today.

On March 19, 2021, a Southern District of New York judge denied a motion to dismiss a False Claims Act (“FCA”) suit alleging that Omnicare—a subsidiary of CVS Health Corp.—“dispensed drugs based on invalid prescriptions to potentially tens of thousands of individuals living at more than 3,000 residential facilities.” See United States ex rel. Bassan v. Omnicare, Inc., No. 1:15-cv-4179 (CM), 2021 U.S. Dist. LEXIS 52323 *3 (S.D.N.Y. Mar. 19, 2021).  The long-pending suit, which was originally brought by qui tam relator Uri Bassan in 2015, alleges that Omnicare consistently issued prescriptions to individuals in long-term care facilities that were not supported by valid prescriptions between 2010 and 2018. The Court explained that the defendants’ motion “present[ed] what can only be described as a novel reason why the Government’s pleading is insufficiently particular.”  Id. at *27.  The “novel” argument was that the regulation upon which the Government relied to demonstrate that filling invalid prescriptions was illegal took effect on January 1, 2013, rendering the prior alleged conduct of dispensing prescription drugs without a prescription legal.  The Court denied the motion on three bases. First, the Court explained that the Government’s pre-2013 claims arose under three different government insurance programs and the regulation at the core of the defendants’ argument only concerned one.  As a result, the Court determined that the allegations related to the two other programs precluded dismissal of the pre-2013 claims. Second, the court reasoned that because the Government was able to show in detail that Omnicare’s Medicare reimbursements after January 1, 2013 were also the product of alleged false claims, the claim could not be dismissed in full. Third, the Court, relying on several regulations and guidance materials, “reject[ed] Omnicare's suggestion that it was perfectly legal to dispense drugs paid for by Medicare without a valid prescription prior to 2013.” Id. at *28-29.  To do so, the Court first cited to Centers for Medicare and Medicaid Services regulatory guidance pre-dating 2013 which provided that "we have consistently maintained that drugs cannot be eligible for [Medicare] coverage unless they are dispensed upon prescriptions that are valid under applicable State law."  Id. at 28-29 (citing 76 Fed. Reg. 63,018, 63,059 (Oct. 11, 2011).  The Court also relied on other federal statutory schemes such as the Federal Food Drug and Cosmetic Act, which described a prescription drug as one that can only be dispensed upon a valid prescription.  See 21 U.S.C. § 353(b)(1). This case is a reminder that the litigation of alleged false claims spanning several years can often be impacted by the different statutory schemes and regulations that are in effect, or not in effect, over the course of the alleged false claims.

A former employee of Great Dane Petroleum Contractors, Inc. a full-service Pollutant Control and General Contractor based in Florida, alleged in a recently-filed lawsuit that the company misused nearly $3 million in Paycheck Protection Program (“PPP”) funds.  See Rucker v. Great Dane Petroleum Contractors, Inc., No. 21-cv-207 (M.D. Fla. Mar. 10, 2021).  As another wave of applications for PPP funds come in, employers must remain vigilant to ensure that PPP funds are used appropriately or risk similar lawsuits. Amber Rucker, who was the personal assistant to Great Dane’s CFO, filed the complaint in United States District Court for the Middle District of Florida on March 10, 2021, under the federal False Claims Act (“FCA”), Florida's Private Whistleblower Act, and Florida’s Public Whistleblower Act.  Her PPP-specific allegations include misuse by approving employee leaves of absence while “keeping them on the books” and altering payroll records to reflect time not worked by employees.  She also alleged that Great Dane paid bribes to procure contracts, allowed its principals to use the company credit card for personal expenses, misrepresented to its worker’s compensation insurance carrier that is was a drug-free workplace, illegally deducted inflated job costs to evade taxes, and allowed certain employees a grossly inflated per diem. According to Rucker’s lawsuit, she repeatedly complained of the alleged illegal acts to Great Dane’s CFO and the President both verbally and in writing.  She also claimed to object to such practices and refused to process fraudulent charges.  Rucker claims that instead of investigating her allegations, Great Dane placed her on paid administrative leave shortly after her last complaint and terminated her in January 2021. Rucker’s suit relies on the FCA’s anti-retaliation clause, which provides that: Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter. 13 U.S.C. § 3730(h).  According to Rucker’s Complaint, this provision prohibited Great Dane’s decision to place her on paid administrative leave.  Rucker is seeking to be reinstated, restitution for her lost wages, front pay, and compensatory damages. Rucker’s allegations are the latest—and surely not the last—in the increasing number of litigation and enforcement actions that have followed the Federal Government’s response to the COVID-19 pandemic.  For example, in December 2020, the Justice Department charged 57 people with trying to steal more than $175 million in PPP funding.  See Katie Benner, Justice Dept. Announces Dozens of Fraud Charges in Small-Business Aid Program, The New York Times (originally published Sept. 10, 2020, updated Dec. 9, 2020), https://www.nytimes.com/2020/09/10/us/politics/ppp-fraud-coronavirus.html. And just a month later, the Department of Justice charged six individuals with fraudulently obtaining approximately $1.5 million in PPP loans on behalf of businesses based in Georgia and South Carolina.  See Justice News (Jan. 28, 2021), https://www.justice.gov/opa/pr/six-charged-connection-3-million-paycheck-protection-program-fraud-scheme.  As the Department of Justice continues to investigate allegations of misuse of PPP loans, companies that accepted PPP funds should ensure that those funds are used for the proper purposes and that any allegations of misuse are investigated without any retaliation.

On February 22, 2021, the United States Supreme Court declined to resolve a circuit split regarding the proper standard under which False Claims Act (“FCA”) claims in the medical context should be reviewed. See Care Alternatives v. United States, No. 20-371, 2021 U.S. LEXIS 915 (Feb. 22, 2021). The Court’s decision leaves open the question of what constitutes “falsity” under the FCA and opens the door to further expansion of the circuit split as additional appeals reach jurisdictions that have not yet determined this question of law. In United States ex rel. Druding v. Druding, the Third Circuit Court of Appeals considered whether the district court properly concluded relators were required to demonstrate “objective falsity” in order to satisfy the falsity element of an FCA claim. 952 F.3d 89 (3d Cir. 2020). There, relators alleged that Care Alternatives, a palliative care provider, submitted false hospice-reimbursement claims to Medicare and Medicaid for care provided to patients that were not sufficiently ill to qualify for hospice care. Id. at 93. The relators’ case relied heavily upon the expert report of a geriatric care physician, who examined the records of dozens of hospice-admitted patients and opined that 35 percent (35%) of the patients did not qualify for hospice care under the federal guidelines. Id. at 94. Care Alternatives’ expert, also a physician, concluded the opposite, finding that a physician could have reasonably determined that each patient was near the end of life and appropriately admitted to hospice care. Id. After extensive discovery, including the dueling expert opinions, Case Alternatives moved for summary judgment, arguing inter alia that relators had not produced sufficient evidence of falsity. Id. The district court agreed with Case Alternatives, holding that the “mere difference of opinion between physicians, without more, is not enough to show falsity” because “medical opinions are subjective and cannot be false.” Id. In so holding, the district court embraced the “objective falsehood” standard for falsity under the FCA articulated by the Eleventh Circuit Court of Appeals in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). On appeal, the Third Circuit reversed, finding that the district court’s reliance upon an “objective falsity” standard “improperly conflates the elements of falsity and scienter, inconsistent with the application of the FCA.” Druding, 952 F.3d at 95. Turning to the text of the statute, the court noted the FCA provides that “any person who ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval’ is liable to the United States…” Id. (emphasis in original). Based on that statutory text, and the lack of a definition within the statute for the terms “false” or “fraudulent,” the court determined that, under common law principles, an “opinion can be considered ‘false’ for purposes of liability” and therefore medical opinions may supply a basis for finding falsity under the FCA. Id. The court further noted that the scienter element of an FCA claim, distinct and separate from the falsity element, served to limit the possibility that hospice providers would be “exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” Id. at 96. Thus, “[b]y requiring ‘factual evidence that Defendant's certifying doctor was making a knowingly false determination,” the court determined the lower court’s “‘objective’ falsity standard conflates scienter and falsity” by “incorporat[ing] a scienter element into its analysis regarding falsity.” Id. at 96. The court explained that the correct standard for falsity under the FCA “simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.” Id. at 97. Following its defeat at the Third Circuit Court of Appeals, Care Alternatives sought to appeal the decision to the Supreme Court. In its petition, Care Alternatives noted the need for the Court to resolve the “square circuit split” between the Third and Eleventh Circuits which “creates the untenable prospect that hospices in New Jersey will face treble damages for the same difficult medical judgments that cannot be second-guessed in Florida.”  Care Alternatives also emphasized the importance of the legal issue, contending that “the Third Circuit’s decision opens up hospices and physicians to crushing financial liability and reputational harm, notwithstanding near universal acknowledgment that determinations about life expectancy are notoriously difficult and inexact.” On February 22, 2020, the Supreme Court declined to hear Care Alternatives’ appeal without comment, leaving unresolved a growing circuit split between the Fourth, Seventh, Tenth, and Eleventh Circuits, which have adopted the objective falsity standard, and the Third and Ninth Circuits, which have embraced the more lenient standard for falsity. Given the prevalence of FCA claims premised upon medical reimbursements, the circuit split is likely to expand. Although the Third and Ninth Circuits have established a lower bar for relators to establish the falsity element for a claim—perhaps eliminating a pathway for defendants to resolve FCA claims at the summary judgement stage—both courts have stressed that the scienter requirement under the FCA, i.e., the requirement that Defendant knows “the treatment was not medically necessary,” Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc., 953 F.3d 1108, 1114 (9th Cir. 2020), should serve to appropriately limit liability. Whether and to what extent this circuit split bears on the outcomes of FCA cases is an issue for FCA practitioners and their clients to monitor.

On February 3, 2020, the U.S. District Court for the District of Utah granted a motion for attorneys’ fees against Plaintiff Kelly Sorenson (“Sorenson”), finding that the claims Sorenson asserted against his former employer under the False Claims Act (“FCA”) were “clearly frivolous” and compensable under 31 U.S.C. § 3730(d)(4). United States ex rel. Sorenson v. Wadsworth Bros. Constr. Co., No. 2:16-cv-875, 2021 U.S. Dist. LEXIS 21561 (D. Utah Feb. 3, 2021). In its decision, the Court emphasized that Sorenson’s claims were “conclusory, unsupported, and/or baseless,” entitling Defendant Wadsworth Brothers Construction Company, Inc. (“Wadsworth”) to “reasonable attorneys’ fees and expenses” incurred over the course of the four-year litigation, including both motion to dismiss and summary judgment briefing. Id. at *3-5. Although courts have long been reticent to deem FCA claims frivolous, this decision may indicate a shift in judicial decision-making with respect to the FCA. In August 2016, Sorenson filed a qui tam complaint alleging that Wadsworth violated the FCA by failing to comply with the Davis-Bacon Act—which requires employers to pay certain wages to laborers on government contracts—when paying his wages on a federally-funded project for the Salt Lake International Airport. Sorenson further alleged that Wadsworth violated the FCA’s retaliation provisions by cutting his hours and terminating him when he raised wage-related concerns to his supervisors. The government declined to intervene. Wadsworth moved to dismiss the complaint in its entirety, arguing that Sorenson had already litigated his wage claims in state court and that the FCA claims lacked the factual allegations necessary to satisfy the Rule 12(b)(6) and heightened Rule 9 pleading standards for fraud claims. The Court largely granted Wadsworth’s motion, dismissing the fraud, false record, false receipt, and conspiracy to defraud claims brought under the FCA. Emphasizing the need for “knowingly” presenting a false or fraudulent claim for approval under the FCA, the Court concluded that a certification of compliance with the Davis-Bacon Act alone was not a material misrepresentation. In so doing, the Court recognized that the FCA is not an “all-purpose antifraud statute” or a statute to be used to punish garden-variety contract or regulatory violations. Similarly, the Court dismissed Sorenson’s claim for conspiracy to defraud because Sorenson did not establish that Wadsworth had made fraudulent misrepresentations under the FCA, and therefore could not establish that Wadsworth had acted with other actors to defraud the government. Sorenson continued to pursue the sole surviving claim—retaliation—and Wadsworth filed a motion for summary judgment in May 28, 2020. The Court granted Wadsworth’s motion, concluding that Sorenson never put Wadsworth on notice of his protected activity and was laid off for normal business reasons. Wadsworth did not stop there, however. Instead, Wadsworth also filed a motion for attorneys’ fees in December 2020 as allowed under Section 3730(d)(4) of the FCA, which provides: If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment. 31 U.S.C. § 3730(d)(4) (emphasis added); see also Docket No. 45 at 4. Although this bar is high, the Court concluded that Sorenson’s suit was “clearly frivolous” because of Sorenson’s failure to fulfill basic elements of an FCA claim, including alleging more than conclusory statements, presenting evidence that Sorenson communicated to Wadsworth that he was accusing them of violating the FCA, and showing some form of retaliation.  On those grounds, the Court granted Wadsworth’s motion and ordered that Sorenson pay “reasonable attorneys’ fees and expenses” under Section 3730(d)(4). This decision illustrates that if the claim does not fit within the specific parameters established under the FCA, a court will not hesitate to dismiss the action as insufficient and unsupported. And if the relator has clearly failed to fulfill basic requirements for an allegation of fraud under the FCA, the relator runs the risk of paying defense fees if the Court finds the claims to be either frivolous or harassing. As made clear in Sorenson, the consequences can be expensive.

On January 14, 2021, the United States Department of Justice (“DOJ”) issued its annual press release highlighting its recoveries from False Claims Act (“FCA”) enforcement over the last fiscal year.  Total recoveries in FY2020 exceeded $2.2 billion, with the majority—$1.8 billion—of those recoveries coming from the healthcare industry.  These totals are down substantially from FY2019, in which total recoveries exceeded $3 billion with $2.6 billion relating to matters involving the health care industry. As was the case last year, recoveries from qui tam actions—lawsuits brought by whistleblowers or “relators” suing on behalf of the government—continued to fall, with only $1.6 billion in recoveries coming in qui tam actions following $2.2 billion in FY2019.  As we noted last year, this is unsurprising given former Attorney General Barr’s well-documented distaste for the qui tam provisions of the FCA, calling them “patently unconstitutional” in a memo he wrote as an Assistant Attorney General in 1989.  It also highlights the continuing effect of the “Granston Memo” on qui tam enforcement.  The Granston Memo, issued in 2018, instructed DOJ prosecutors to dismiss qui tam cases that lack substantial merit on the grounds that meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.”  But the most likely factor for the lower recoveries in FY2020 is, of course, COVID-19, which has slowed judicial proceedings around the country and undoubtedly affected the progression of qui tam suits—an issue quickly identified by the DOJ in qualifying its reduced recoveries. The COVID-19 factor that led to a decrease in recoveries in FY2020, however, is likely to be responsible for what is expected to be a substantial increase in FCA recoveries and enforcement in 2021.  First, the government’s response to the pandemic by injecting trillions into the economy has created massive FCA exposure.  The risk of civil enforcement actions to combat fraud relative to the government’s expenditures are just starting to be seen now, with the recent announcement of the first civil FCA settlement based on a Paycheck Protection Program (“PPP”) loan.  Many more settlements and actions are likely to follow, given the congressional authorization of nearly $1 trillion of PPP funding since March 2020.  The rate of these enforcement actions is likely to increase, too, as the vaccine rollout continues and courts resume normal activities. Moreover, the government will be able to more effectively investigate and resolve FCA matters as the pandemic subsides, including addressing not only the new cases filed in 2021, but also, the still-pending 2020 matters.  Notably, although the total recoveries and total qui tam recoveries for FY2020 were down as compared to FY2019 ($2.2/1.6 billion compared to $3/2.2 billion), the total number of new FCA matters increased.  In FY2019, there were a total of 786 new FCA matters (148 non-qui tam and 638 qui tam).  This number increased by nearly 17% in FY2020, with 922 new FCA matters reported (250 non-qui tam and 672 qui tam).  Thus, as the government is able to better investigate these lingering 2020 matters in FY2021, the recoveries that may have otherwise been realized in FY2020 are now more likely to be realized in FY2021. Second, COVID-related expenditures—and the associated FCA exposure—are only expected to increase after President-Elect Biden proposed a $1.9 trillion relief plan on January 14, 2021.  Although a large percentage of that sum will go to individuals and the vaccine program, hundreds of billions are likely to go to businesses, opening the door for more fraud. Finally, the Biden administration may be more willing to pursue qui tam suits than the Trump administration, leading to an increased number of qui tam actions and a corresponding increase in overall recoveries.  President-Elect Biden stated plans to nominate Merrick Garland as Attorney General, who does not appear to have taken the same strong position against qui tam suits as seen with former Attorney General Barr. In short, while FY2020 was a down year for FCA recoveries, the number of total new FCA matters increased, and the conditions are ripe for a rise in FCA enforcement actions and recoveries throughout 2021.

On January 12, 2021, the Eastern District of California entered into a civil settlement with a Paycheck Protection Program (“PPP”) borrower and its CEO to resolve allegations of fraud.  The settlement stemmed from a $350,000 PPP loan that SlideBelts Inc., an internet retail company, received even though it was a prohibited borrower as a debtor in bankruptcy.  This is the first civil settlement for PPP-related fraud and is a harbinger of what the New Year will bring for some of the five million PPP loan recipients to date. The Settlement According to the settlement agreement, SlideBelts submitted three applications for PPP loans to three different lenders on April 3, 8, and 14 of 2020.  The application forms (SBA Form 2483) provide that loans will not be approved for any applicant that provides an affirmative answer to the very first question on the form, which asks: 1.  Is the Applicant . .  . presently involved in any bankruptcy? Even though it was a debtor in a Chapter 11 bankruptcy at the time, SlideBelts answered “no” to this question in each of its three applications. The settlement agreement provides the first lender rejected SlideBelts’ application on April 10, 2020.  At that time, the first lender sent an email advising SlideBelts’ CEO, Brigham Taylor, that Question 1 had been answered incorrectly because the lender knew SlideBelts was presently in bankruptcy.  Taylor responded that the answer was an “oversight,” but asserted that the question regarding bankruptcy was “an overreach” by the Small Business Administration (“SBA”).  On April 14, 2020, Taylor wrote the first lender again and reiterated that the term “bankruptcy” should not be included in Question 1, and that the lender should approve the loan.  The lender rejected Taylor’s request and repeated that SlideBelts was not eligible for a PPP loan because it was in bankruptcy.  Three hours later, SlideBelts submitted the third application, signed by Taylor, to a different lender. Shortly thereafter, the second lender approved SlideBelts’ second application.  Taylor signed the loan note with the second lender and, according to the settlement agreement, again “stated falsely that SlideBelts was not in bankruptcy to influence [the second lender] to execute the note and disburse the [$350,000] loan proceeds to SlideBelts.”  As a result of the note and the false statements by Taylor and SlideBelts, the second lender not only disbursed the loan proceeds to SlideBelts on April 21, 2020, but also submitted a false claim to the SBA for $17,500 in loan processing fees, which the SBA paid. One day after the loan was disbursed, Taylor wrote an email to the second lender stating that SlideBelts “just realized that we may not have answered [Question 1] correctly since we filled out the application quickly and wanted to bring it to your attention.”  Instead of returning the loan, however, SlideBelts sought retroactive approval of the PPP loan from the bankruptcy court.  In doing so, SlideBelts did not disclose to the bankruptcy court that it had obtained the loan by making a false statement to the second lender regarding its status as a debtor in bankruptcy.  The SBA and the second lender opposed SlideBelts’ motion and requested that the bankruptcy court order SlideBelts to return the loan.  SlideBelts did not return the money voluntarily but instead asked the bankruptcy court to dismiss the case so that it could refile for bankruptcy later and apply for a PPP loan while the case was dismissed. On June 30, 2020, the bankruptcy court granted SlideBelts’ motion to dismiss the bankruptcy case.  After repeated demands from the SBA to return the proceeds, SlideBelts finally returned the $350,000 to the second lender on July 8, 2020. Based on these actions, the United States contends in the settlement agreement that SlideBelts and Taylor are liable to the government for damages and penalties totaling $4,196,992 for violations of the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) and the False Claims Act (“FCA”).  Pursuant to the terms of the settlement agreement, SlideBelts and Taylor agree to pay $100,000 to resolve these claims, with nearly half to be paid within fourteen days and the remaining amount due over the course of five years.  Notably, the settlement amount “represents the amount the United States is willing to accept in compromise of its civil claims arising from the [alleged violations] due solely to the [Taylor and SlideBelts’] financial condition.”  SlideBelts also agreed that if it failed to make its required payment under the settlement agreement, SlideBelts would consent to the entry of judgment against it for $2,098,496 (representing its half of the $4,196,992 in total alleged damages and penalties). The Takeaway When Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act to quickly authorize up to $349 billion in forgivable loans to small businesses on March 29, 2020, it was inevitable that fraud would follow.  Enforcement followed, too, with federal prosecutors pursuing dozens of criminal prosecutions for various PPP-related fraud throughout 2020.  Those criminal charges often represented the most blatant of crimes and the easiest of targets.  All the while civil lawsuits were quiet, or at least not yet public. But not anymore.  This first-of-its-kind civil settlement demonstrates that civil enforcement actions are alive and well and that the government is aggressively pursuing recoveries against companies and individuals, and even against insolvent borrowers.  (Indeed, even under pandemic circumstances, the DOJ reported recovering more than $2.2 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2020.) Moreover, the settlement paves the way for private relators looking to take advantage of the qui tam provisions of the FCA to target PPP fraud.  In fact, relator-driven qui tam cases—many of which are likely currently pending but under seal while under investigation by the government—may in fact dominate the enforcement scene related to PPP fraud in the New Year.  Only time will tell, but at the least the SlideBelts settlement marks the beginning of a new chapter related to combatting pandemic-related fraud with civil enforcement actions and the FCA. To stay up-to-date on False Claims Act news, subscribe to Dorsey’s FCA Now Blog today.

On January 8, 2021, in the first appellate decision of the year addressing a False Claims Act case, the Fourth Circuit affirmed the summary judgment dismissal of relators’ claims that a manufacturer of allergenic extracts violated the FCA.  Skibo v. Greer Labs., 2021 U.S. App. LEXIS 508 (Jan. 8, 2021) (per curiam). Like most FCA cases that arrive in the United States Courts of Appeals, this one started many years ago.  In August 2013, two former employees filed a retaliation claim under the FCA against Greer Laboratories, Inc. (“Greer Labs”) for terminating them after they raised concerns that Greer Labs’ “custom mix” allergenic extracts did not comply with Federal Drug Administration (“FDA”) regulations.  In addition to their retaliation claim, the relators alleged a substantive FCA claim against Greer Labs for selling the custom mixes as licensed allergenic extracts to physicians, who then received reimbursement from the government for administering the custom mixes to patients.  Relators contended the physicians’ claims for reimbursement—allegedly caused by Greer Labs—were false because the custom mixes were not licensed allergens and Medicare and Medicaid would not provide reimbursement for unlicensed drugs. The custom mixes at issue in the case were mixes of individual allergen extracts for general use by a physician, rather than patient-specific mixes made pursuant to patient prescriptions.  To sell their products, manufacturers of allergenic extracts are required to obtain licenses from the FDA.  Greer Labs had a general license, but did not seek separate licenses for its custom mixes because it believed the mixes fell under its general license.  Before they were terminated in 2012, relators alleged they had complained to Greer Labs that the custom mixes were violating FDA regulations. The district court granted defendants’ motion for summary judgment and dismissed relators’ claims.  The district court held that relators could not prove that Greer Labs knew that a separate license was required for the custom mixes.  The district court further held that relators had not engaged in protected activity to support their retaliation claim. The Fourth Circuit affirmed, noting that the FDA did not issue formal guidance recognizing that custom mixes required separate licenses under existing regulations until 2015, and that the industry practice prior the guidance was to allow custom mixes without separate licenses.  Because Greer Labs openly acted in accordance with industry practice and the common understanding of the regulatory requirements, the Fourth Circuit agreed that the relators could not show that Greer Labs acted with the requisite scienter.  In addition, the Fourth Circuit held that the concerns relators raised about regulatory compliance—part of their job description—were insufficient to show that relators engaged in protected activity under the FCA because “[a]llegations of regulatory violations are not enough ‘in the absence of actual fraudulent conduct.’”  Skibo, 2021 U.S. App. LEXIS at 19 (emphasis in original) (quoting United States ex rel Rostholder v. Omnicare, Inc., 745 F.3d 694, 702 (4th Cir. 2014)).  The Court found that “[t]he fatal flaw in [relators’] claim is that they never allege that they raised an issue of false or fraudulent conduct beyond a regulatory violation that would constitute an FCA violation.”  Id. at 21. In addition to emphasizing that regulatory violations alone are not FCA violations, the case is an important first-of-the-year reminder of the importance of a defendant’s mental state when evaluating FCA claims.  Since the landmark decision in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), a lot of attention has focused on the FCA’s materiality requirement.  It must be remembered, however, that Escobar recognized that both of “[t]hose requirements [the FCA’s materiality and scienter requirements] are rigorous.”  136 S. Ct. at 2002.  Rigorous enough, in fact, that cases lacking sufficient evidence of scienter will be dismissed on summary judgment, as in Skibo.

The Department of Justice’s (“DOJ”) most recent settlement with Indivior Solutions, Inc., Indivior Inc., and Indivior plc (together, “Indivior”) demonstrates not only that the DOJ is continuing its pursuit of claims and settlements related to the opioid crisis, but also that the DOJ is searching for creative penalties beyond large monetary payouts. In a July 24, 2020 press release, the DOJ announced a $600 million civil and criminal settlement against Indivior related to marketing the opioid-addiction-treatment drug Suboxone. This settlement follows a larger, $1.4 billion settlement with Rickeitt Benckiser Group PLC, Indivior’s former parent company, inked in 2019. The DOJ touts the combined $2 billion value of the 2019 and 2020 settlements as the largest-ever resolution in a case brought by the DOJ involving opioid drugs. The civil settlement resolves claims from six qui tam lawsuits brought against various combinations of the Indivior entities under the False Claims Act (“FCA”). United States ex rel. Finkelstein v. Reckitt Benckiser Pharms., Inc., No. 14-cv-00059 (W.D. Va.); United States ex rel. Williams v. Reckitt Benckiser, Inc., No. 13-cv-00036 (W.D. Va.); United States ex rel. Lemons v. Reckitt Benckiser Pharms., No. 15-cv-00016 (W.D. Va.); United States ex rel. Kruszewski v. Reckitt Benckiser Pharms., Inc., No. XX-cv-XXXX [UNDER SEAL] (D.N.J.); United States ex rel. Scott v. Reckitt Benckiser Pharms, Inc., No. XX-cv-XXXX [UNDER SEAL] (N.D.J.); United States ex rel. Greene v. Indivior PLC, No. XX-cv-XXXX [UNDER SEAL] (D.N.J.). Under the civil settlement, Indivior Inc. and Indivior plc agreed to pay $300 million, with $209.3 million going to the federal government and $90.7 million going to certain participating states. The amount awarded to the individual whistleblowers has yet to be determined. While Indivior did not admit fault in its civil settlement, the settlement resolves three main allegations. First, the DOJ alleged Indivior knowingly promoted the sale and use of Suboxone to physicians who were writing prescriptions not for a medically-accepted indication, lacked a legitimate medical purpose, were issued without counseling or psychosocial support, were for unsafe, ineffective, and medically-unnecessary uses, or were often diverted. Second, the DOJ alleged that Indivior knowingly promoted the sale or use of Suboxone Film to physicians and state Medicaid agencies using false and misleading claims that Suboxone Film was less susceptible to accidental pediatric exposure than Suboxone Tablets. And third, the DOJ alleged that Indivior tried to delay the entry of generic competition to control the price of Suboxone—including pricing to federal healthcare programs. Such actions allegedly included the improper submission of a petition to the Food and Drug Administration (“FDA”) claiming that Suboxone Tablet had been discontinued “due to safety concerns” about the tablet formulation of the drug. As part of the criminal resolution, Indivior Solutions pleaded guilty to a one-count felony criminal information charging false statements related to health care matters, in violation of 18 U.S.C. § 1035. See United States v. Indivior Solutions, Inc., 19-cr-00016-JPJ-PMS (W.D. Va.). The plea included an admission that Indivior Solutions made false statements to promote the film version of Suboxone to the Massachusetts Medicaid programs regarding the safety of Suboxone Film around children. The settlement includes a criminal fine, forfeiture, and restitution in the combined amount of $289 million. The criminal resolution also includes novel, non-monetary components, requiring that Indivior Inc. permanently disband its entire Suboxone sales force and a prohibition from using data obtained from surveys of health care providers for marketing, sales, or proposal purposes. Indivior’s CEO will also be required to annually certify—under penalty of perjury—either that: (1) Indivior was complaint with the Food, Drug, and Cosmetic Act and did not commit health care fraud; or (2) list all of Indivior’s non-compliant activity and the steps taken to remedy it. Finally, Indivior Inc. is also required to remove health care providers from its promotion programs at high risk of inappropriate prescribing. Neither the press release nor settlement materials explain how Indivior is supposed to identify high-risk providers. Failure to meet the above requirements will cause contempt sanctions and a reinstatement of the dismissed charges. Besides the civil and criminal settlements, Indivior also agreed to a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General, under which Indivior will implement numerous accountability and auditing provisions, including a yearly compliance certification by Indivior executives and Board of Directors, annual risk assessments and other monitoring, and multi-faceted audits conducted by an independent review organization. These cases serve as a reminder that the DOJ continues to aggressively pursue both civil and criminal claims related to the opioid crisis and provides insight into the non-monetary, compliance-based penalties the DOJ may pursue as part of global civil and criminal resolutions. As the stated by Elton Malone, Assistant Inspector General for Investigations with the Office of Inspector General of the U.S. Department of Health and Human Services, “[t]his resolution, along with our law enforcement partners’ work, should serve as a warning that large companies will face prosecution if they break the law.”

Last week, the U.S. District Court for the District of New Jersey dismissed a qui tam action against Defendants Pioneer Education, LLC, Pioneer Education Manager, Inc., Jolie Health & Beauty Academy, and Joseph Visconti (collectively, “the Academy”) alleging violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729-33. United States ex rel. Lampkin v. Pioneer Educ., LLC, No. 16-cv-1817, 2020 U.S. Dist. LEXIS 136022 (D.N.J. July 31, 2020). In doing so, the Court reiterated that the “rigorous” and “demanding” materiality principle post-Escobar that requires specific allegations of deception which, had the government been made aware of the misrepresentations, influenced the payment of allocated funds. See Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). According to Relator’s Amended Complaint, there were several instances of improper administration practices occurring at the Academy, which specializes in cosmetology education and training. Relator alleged, for example, misrepresentations or “half-truths” about student attendance violations, various code of conduct infractions, and lack of satisfactory academic performance. Relator also alleged that the Academy’s failure to disclose this information established an FCA claim because the Academy was required, as an express condition of payment, to ensure adequate and efficient administration of the funds it received from the Department of Education. These misrepresentations, Relator contended, had “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property”—triggering a FCA violation. 31 U.S.C. § 3729(b)(4). The Court disagreed. Reiterating that the FCA is “not meant to be a vehicle for punishing garden-variety breach of contract or regulatory violations,” the Court concluded the Amended Complaint failed to demonstrate how, if at all, the Academy’s purported misrepresentations were material. In particular, the Court noted that the Relator’s Complaint was completely devoid of any, much less sufficient, allegations from which a fact finder could infer that the Department of Education would have ceased payment of Title IV funds as a result of the Academy’s conduct. Nor was it enough, the Court said, that the Relator’s complaint broadly alleged that the Academy’s conduct caused the Department of Education to pay claims under Title IV that it would not have paid but for the Academy’s fraud. Instead, the Court explained, the materiality standard demands specific allegations demonstrating the alleged misrepresentations had a tendency to influence the Department of Education’s disbursement of funds. Broad, conclusory declarations without substantive details demonstrating materiality will not do. This decision once again serves as a reminder that a conclusory declaration of materiality will not suffice for purposes of stating a FCA claim. Instead, Courts will look for particular factual allegations demonstrating that a purported misrepresentation did, or was likely to, affect the recipient’s actual behavior. Moreover, the potential increase in FCA actions as a result of the billions of dollars disbursed by the government in COVID-19 relief (and often based on certifications or representations from an individual or business that they are entitled to such relief), means that courts will likely continue to regularly confront questions of materiality in the future to determine whether any alleged misrepresentations actually affected the government’s payment decisions.

As has been emphasized with the disclosure of the “Granston Memo” in January 2018 and several cases since, the government may request dismissal of a qui tam action filed under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., in certain circumstances, and even over the relator’s objection and when the government has declined to intervene. Recently, the Southern District of New York evaluated the underlying merits of such a request. At issue was the Government’s motion to dismiss whistleblower claims alleging that Standard Chartered Bank engaged in banking practices that violated U.S. sanctions against Iran. United States ex rel. Brutus Trading, LLC v. Std. Chartered PLC, No. 18 Civ. 11117 (PAE), 2020 U.S. Dist. LEXIS 116728 (S.D.N.Y. July 2, 2020). The court decided in favor of the government and dismissed the suit. Id. at *13. Review of the decision is helpful to better understand (1) some of the factors that support dismissal of qui tam claims filed under the FCA, and (2) the two approaches relating to the appropriate standard of review courts should apply when evaluating the government’s request to dismiss qui tam actions. The FCA allows a private party (also known as a relator or whistleblower) to bring a civil suit on behalf of the government in order to enforce the law against entities submitting fraudulent claims to the government. 31 U.S.C.at § 3730(b)(1). The FCA not only imparts significant control to the Government over such suits, but also permits the Government to intervene (or not) and move to dismiss (or not). Id. at § 3730(b)–(c). Historically, the government’s power to dismiss qui tam actions has been exercised sparingly, largely because the statute expressly provides that “relators can proceed with certain qui tam actions following the government’s declination.” See Granston Memo (Jan. 10, 2018). The initial DOJ guidance related to dismissal cautioned that: [A] decision not to intervene in a particular case may be based on factors other than merit, particularly in light of the government’s limited resources. Accordingly, [the government has been] circumspect with the use of this tool to avoid precluding relators from pursing potentially worthwhile matters, and to ensure that dismissal is utilized only where truly warranted. Id. at 1–2. The Granston Memo, however, encouraged DOJ trial attorneys to use its power to dismiss relator’s claims more often. We have previously reported on the Granston Memo, and readers can learn more about it here. Government motions to dismiss have been scrutinized under two different standards. The first approach articulated by the Ninth Circuit requires the government to identify “a valid government purpose” and “a rational relation between dismissal and accomplishment of the purpose.” United States ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). Next, the burden shifts to the whistleblower “to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. The D.C. Circuit, however, has articulated a more deferential test, recognizing that dismissal is the government’s “unfettered right” and is unreviewable by the court absent fraud. Swift v. United States, 318 F.3d 250, 252–53 (D.C. Cir. 2003). Here, the court declined to definitively adopt either standard, recognizing that the government had already met the more rigorous standard set forth in the Ninth Circuit. Brutus Trading, 2020 U.S. Dist. LEXIS 116728 at *8. The court reasoned that the whistleblower was not responsible for uncovering the fraud in the earlier investigation (dating back to 2013), and furthermore, had not aided the government in discovery of any new FCA violations since. Secondly, the court accepted the “well-established basis” set forth by the government: that were the case to proceed to discovery, the Government would be “required to expend resources on a matter that it has found meritless.” Id. at *10. The court also found particularly compelling that the government had already recovered hundreds of millions of dollars from the defendants over the previous decade without relator’s help. Id. The Government’s asserted reasoning not to spend additional resources was accepted as a “valid government purpose.” The whistleblower was then unable to meet its burden that dismissal would nonetheless be “fraudulent, arbitrary and capricious, or illegal.” Id. at *10–11 (internal quotations omitted). The court dismissed the relator’s “subjective disagreement with the Government’s investigative strategy and ultimate decision” as ineffectual reasoning and rejected relator’s characterization of the investigation as wasteful simply “because it did not reach the conclusion that relator deems correct.” Id. at *11–12. Because the government had met either standard, the claims against defendants were dismissed. The final takeaway here for parties to qui tams: the government continues to exercise its priorities under the Granston Memo to dismiss qui tams, and whether such a case is dismissed can depend on the approach taken by the particular circuit.

Shortly before COVID-19 halted jury proceedings across the United States, a Mississippi jury sided with the Government to return a $10.8 million verdict against Stone County Hospital and several affiliates for what the jury found were false Medicare claims submitted in violation of the False Claims Act (“FCA”). United States ex rel. Aldridge v. Corporate Management, Inc., et al., Case No. 1:16cv369-HTW-LRA (S.D. Miss.). In May 2007, James Aldridge, the former Chief Operating Officer of Stone County Hospital, filed a qui tam action against the hospital and several defendants involved in its management and operation, including Ted Cain, Julie Cain, Tommy Kuluz, and Corporate Management, Inc. (the “Defendants”). The complaint alleged the Defendants submitted false records to secure payment under Medicare for services not actually performed and otherwise conspired to submit false claims in violation of the FCA. The Government investigated for nearly eight years before intervening in the lawsuit in 2015. The intervening complaint contained detailed allegations that the Defendants and others abused the special Medicare rules for Critical Access Hospitals from 2004 through 2015 by improperly claiming expenses for work not performed. Such false claims allegedly included the excessive and unwarranted compensation of Mr. Cain—who owned both Stone County Hospital and Corporate Management—as well as claims submitted for Mr. Cain’s personal luxury automobiles. The Government further alleged that Stone County Hospital’s Medicare cost reports misallocated expenses of Corporate Management to the hospital and contained inflated, unnecessary, and duplicative costs purportedly incurred by Corporate Management and related businesses owned by Mr. Cain. The Government alleged the Defendants submitted false records and statements to Medicare seeking reimbursement for these false and fraudulent expenses. After a nine-week trial, a Mississippi jury returned a $10.8 million guilty verdict against Ted Cain, Julie Cain, Stone County Hospital, Corporate Management, and Tommy Kuluz on March 12, 2020. The jury found the sixth defendant—Starann Lamier, the Chief Operating Officer of Corporate Management—not guilty. The 33-page verdict allocated the majority of the damages—$9.6 million—to Mr. Cain’s salary billed to Medicare through Stone County Hospital and Corporate Management. Under special reimbursement policies for critical access hospitals that service rural, underserved areas, Corporate Management passed on the vast majority of Mr. Cain’s multi-million dollar compensation to Stone County Hospital, which Medicare had reimbursed at 101% from 2004 to 2013 and 90% from 2013 to 2015. In addition, the jury awarded the Government over $850,000 in damages for fraudulent compensation paid to Julie Cain, who allegedly received compensation both for her work at Stone County Hospital and Corporate Management, although the jury found she rarely worked at the hospital and could not provide evidence of any consulting work performed for the hospital. The jury also awarded the Government over $380,000 for home office costs improperly submitted to Medicare. The Court scheduled oral argument on the imposition of penalties for March 26, 2020, but postponed the argument to May 6, 2020 due to the COVID-19 pandemic. In light of this delay—and the Government’s desire to quickly attach a judgment to the Defendants’ assets to secure future payment—the Government moved for immediate entry of judgment consistent with the jury’s verdict, seeking to apply the mandatory treble damages under the FCA to each Defendant, and recommended that the Court impose the minimum penalty permitted by law for the 12 claims at issue. On May 10, 2020, the Court entered judgment and calculated damages and penalties consistent with the jury verdict, the FCA, and the Government’s requested relief, applying the mandatory treble damages under FCA and the minimum penalty for each false claim found by the jury. Once trebled, the judgment held each Defendant jointly and severally liable for the amounts up to their respective liability, ranging from $27 to $32 million, as well as statutory penalties ranging from $66,000 to $71,000. The Court’s judgment also continued its prior order forbidding the Defendants from transferring, dissipating, selling or disposing of any of their assets. This case is noteworthy for several reasons. First, FCA cases rarely proceed to trial—or, at least, last the length of a trial to verdict. This case, however, resulted in a verdict after nine weeks. This case also exemplifies the criminal prosecution of individuals under the FCA. Although the Yates memorandum has placed an emphasis on individuals in FCA investigations and prosecutions since 2015, the majority of FCA prosecutions remain directed at corporate defendants. Next, this case demonstrates the significant duration of many FCA investigations. Although the relator originally filed his sealed complaint in 2007, the Government did not intervene until 2015. In the interim, Defendants were found to have continued submitting false claims for which they were ultimately held liable. Finally, this case is an important reminder about joint and several liability under the FCA and the significant and mandatory statutory penalties and damages in FCA cases. As exemplified by the verdict form in this case, juries are asked only to find the number and monetary amount of each false claim. Only after receiving the jury verdict does the court treble the amount of false claims to represent total damages and add statutory penalties based on the number of false claims. This two-step process emphasizes the risk of significant monetary liability under the FCA for both individual and corporate defendants, which, of course, is likely one reason most FCA cases resolve prior to jury verdict.