Recent
False Claims Act Decisions
A. Section 3729(a)(7) Definition of “Obligation”
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Relator brought an FCA and a reverse FCA action against offshore drilling companies, alleging the companies failed to disclose their illegal dumping activity in statutorily required reports, so as to avoid paying civil fines under applicable federal statutes. The Fifth Circuit, in affirming a lower court’s dismissal of the relator’s § 3729(a)(2) claims, found that the defendants’ statutory requirements to report their illegal dumping were not “material” to the defendants’ lease with the federal government, since compliance with those statutory requirements was not a prerequisite to continuation of the lease agreement. The court of appeals, relying on earlier precedent, also affirmed the dismissal of § 3729(a)(7) reverse FCA claims, for the “obligation” to pay the fines or penalties was not a sufficiently “fixed obligation,” but was instead “contingent” upon the government’s prosecutorial discretion.
Relator alleged that his former
employer – a group of offshore drilling companies – instructed him to
illegally dump hazardous materials into the
Section
3729(a)(2) Claim Was Properly Dismissed
The Fifth Circuit affirmed
the lower court’s ruling, dismissing the section 3729(a)(2) claim. The court found that the
defendants, pursuant to a lease contract, did not request or demand
payment from the
Reverse False
Claims Act Claim Was Properly Dismissed
With respect to the reverse False Claims Act claim, the court affirmed the lower court’s dismissal. The 5th Circuit, relying on its precedent in U.S. ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648 (5th Cir. 2004), ruled that any obligation the defendants may have had to pay fine and/or penalties to the U.S. government were potential and contingent, since, even if the government was aware of the illegal dumping, it still would have had to choose whether or not to impose any penalty against the defendants. In addition, the court noted that any potential obligation to pay the government arose from statutory provisions – the lease agreement did not impose upon the defendants any obligations to pay money to the government. Thus, quoting its decision in Bain, the court held that the relator did not state a claim under section 3729(a)(7), since the potential obligation to pay the government did not “arise out of an economic relationship between the government and the defendant (such as a lease or contract or the like) under which the government provides some benefit to the defendant wholly or partially in exchange for an agreed or expected payment or transfer of property (or on behalf of) the defendant to (or for the economic benefit of) the government.” Ultimately, the court held that “[a]ll polluters face the prospect of liability for violations of environmental laws, regardless of whether they contract with the federal government or not. If such violations were enough to create a reverse False Claims Act claim, it would broaden the scope of the Act far beyond present interpretations.”
Relator’s
Motion To Amend His Complaint Was Properly
Denied
The court of appeals also noted that after the district court dismissed the relator’s False Claims Act claims, the relator moved to amend his complaint, in order to add allegations that the Department of Justice would seek indictments against at least one of the defendants after investigating the relator’s allegations and that one of the defendants had agreed to plead guilty to a felony. The district court denied that motion. The Fifth Circuit affirmed that ruling, holding that “[t]he relevant time for evaluating the nature of Defendants’ obligation to pay is when they made or used the false statements. . . The government’s pursuit of charges against individual Defendants occurred well after the false certifications alleged by Marcy in the complaint. Accordingly, the facts Marcy wished to add would not have assisted him in stating a reverse False Claims Act claim.
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The federal government brought an FCA action against a
hospital administrator, alleging the administrator conspired with others
to defraud the Medicare and Medicaid systems by concealing referrals that
violated the Stark and Anti-Kickback Acts. After an The
federal government successfully obtained a $64 million judgment against
Peter Rogan, a former hospital administrator, who conspired with others to
defraud the Medicare and Medicaid systems by concealing patient referrals
that violated the Stark and Anti-Kickback Acts.
Rogan appealed the decision to the Seventh Circuit. Testimony of Government Official Is Not Necessary To
Establish “Materiality” Rogan
argued that the federal government failed to introduce sufficient evidence
that the underlying claims were “materially” false. According to Rogan,
the government could have only satisfied the “materiality element” by
having a federal government employee testify that it would not have paid
the claims if he knew the providers were violating the Stark and
Anti-Kickback Acts. In
rejecting Rogan’s argument, the Seventh Circuit stressed that
“materiality” is established under the FCA by merely showing that the
false claims were “capable” of influencing the government’s decision to
pay. In turn, testimony from a claims-processing officer along the lines
of “I follow the law” is not required. Instead, “materiality” is an
objective standard, which, in this case, is dictated by the language of
the Stark and Anti-Kickback Acts. The fact that “overworked,
harried, or inattentive disbursing officers” failed to reject the claims
has no baring on whether or not the claims were “materially” false. “Reliance Element” Satisfied Rogan
countered that the federal government did not actually “rely” on his
omissions. While seeming to agree for the first time that “reliance” is an
element into the FCA, the Seventh Circuit ruled that this was easy to show
in this case, for the truth would have revealed that the reimbursements
were illegal. Again, the court stressed that a government employee was not
needed to testify that illegal claims would not have been paid. Single Damages Are Entire Amount Paid By The
Government for Stark-Violative Claims Then,
the court turned its attention to damages. Rogan maintained that even
though they may have been violating the Stark Act when they submitted
reimbursement claims to Medicare, the patients still received medical
care, so there were not actual monetary damages to the government. The
court of appeals, in soundly rejecting this limited reading of the Act,
noted that when the government pays Medicare claims, it attaches certain
conditions. The court reduced the inquiry to a simple, pithy statement:
“When the conditions are not satisfied, nothing is due.” Accordingly, the
Seventh Circuit ruled that nothing was due to Rogan for his violative
claims, so he was liable for three times the entire amount paid under the
1,812 false claims. The final calculation came out to $64 million. Court Refuses To Entertain Defendant’s Eighth
Amendment Arguments Rogan
countered that this amount violated the Eighth Amendment’s Excessive Fines
Clause. As an initial matter, the court of appeals stressed that it was
far from clear whether the Excessive Fines Clause even applies to civil
actions under the False Claims Act. Indeed, the U.S. Supreme Court has
recently distanced itself from even considering the Act punitive. For
example, in Hudson v. United States, 522 U.S.
93 (1997), the Court overruled United States v.
Halper, 490 U.S. 435 (1989), and held that penalties under the False
Claims Act are not criminal punishment for the purpose of the Fifth
Amendment’s Double Jeopardy Clause. This reversal alone raised serious
questions for the court of appeals over whether the Excessive Fines Clause
was also inapplicable. However, the Seventh Circuit decided that this issue was not germane in the case at bar, for Rogan had failed to raise an excessive-fines argument in the district court, and there is no general doctrine of plain-error review in civil cases. Moreover, because Rogan persuaded the lower court to exclude certain evidence that was necessary to assess “excessiveness,” the Seventh Circuit determined that the record was unsuitable to even resolve his constitutional argument. Lastly, the final $64 million judgment was less than four times the actual damages, which is well within the single-digit level found acceptable in State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). Indeed, given the egregious facts of this case and the state of the record, the court of appeals ended by stating, “[F]or all we can tell, Rogan’s penalty may be too low.”
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Relator
filed suit against a technology company, alleging that the company
violated the False Claims Act by making false statements and
fraudulently inducing the Department of Defense to accept its contract
proposals. The relator further alleged that every invoice from
the company under those contracts was false. The district court
granted summary judgment in favor of the relator, finding the company
liable. The court then turned to the question of the amount of
damages sustained by the government and held that
the government's actual damages amounted to three times the full
amount paid on each of the contracts. Finally, the court determined
that the defendant's civil penalty amounted to one forfeiture for
each of the four contracts, and assessed the maximum penalty for each
forfeiture.
Alfred Longhi, a relator, filed a
qui tam action in the District Court for
the Southern District of Texas against Lithium Power Technologies,
Inc. and two individual defendants, alleging violations of sections
3729(a)(1) and (a)(2) of the False Claims Act. Longhi's complaint
alleged that the defendants fraudulently induced the Department of
Defense's Small Business Innovation Research Program to accept four
contract proposals to fund the defendants' development of special
batteries that could later be marketed to the government. The
complaint alleged that the defendants accomplished this fraud by
misrepresenting their level of experience and facilities. The
district court granted summary judgment in the relator's favor, finding
that every invoice under the four contracts that the defendants
submitted constituted a false claim. The court was then faced with
the challenge of determining the damages and civil penalty to be assessed
against the defendants. Actual Damages The court first noted that the
False Claims Act provides for the assessment against a liable defendant of
"3 times the amount of damages which the government sustains" because of
the defendant's actions. However, the court stated that it could
not locate any specific standard for calculating damages under
the False Claims Act, and that there appeared to be a dearth of caselaw on
the issue of calculating damages for liability based on a fraudulently
induced grants. The court observed that in U.S. v. Aerodex, Inc., 469 F.2d 1003, 1011 (5th
Cir. 1972), the Fifth Circuit held that damages under the Act are
limited to "the amount that was paid out by reason of the false claim,"
and that in U.S. ex rel. Schwedt v. Planning
Research Corp., 59 F.3d 196, 200 (D.C. Cir. 1995), the D.C. Circuit
held that damages amount to "only those damages that would not have come
about if the defendant's misrepresentations had been true." The
court further noted that the Fifth Circuit requires a direct causal
nexus between the false statement and the damage sustained by the
government. Consequently, the court determined that all of the funds
received under the four contracts were directly linked to the defendants'
misrepresentations. However, no consequential damages were
recoverable. Relying on Aerodex, the
court rejected the defendants' "no harm, no foul" argument that the
government did not sustain any damages, since it received the benefit
of its bargain with the defendants. The court held that the
government did not receive what it bargained for, since the government
would not have accepted the defendants' proposal had the defendants been
truthful. The court determined that the benefit of the government's
bargain was to award funds to eligible and deserving small businesses, and
the defendants were not eligible to receive those funds. Moreover,
the court found that since the contracts at issue were not traditional
procurement contracts, the government never received an end product from
the defendants, and thus, the contracts did not result in any tangible
benefit to the government. Instead, the court held that the
government had been damaged for the entire amount of the contracts, since
all of the funds awarded to the defendants were diverted from other,
deserving small businesses. Therefore, in accordance with the
D.C. Circuit Court's ruling in U.S. v. TDC Mgmt
Corp., Inc., the district court determined that the
entire value of the SBIR program was lost, since the very purpose of
the program -- to make small businesses more competitive -- was
frustrated. As a result, the court held that "the proper amount of
actual damages for the Four Contracts is the amount paid out on the Four
Contracts -- $1,657,455.00 -- multiplied by three for a total of
$4,972,365.00." Civil Penalty The court then turned to the
civil penalty to be assessed against the defendant. The court noted
that the False Claims Act provided for a minimum penalty of 5,500 and a
maximum penalty of $11,000, but observed that one of the four contracts
predated an amendment of the civil penalties provision, and thus, any
civil penalty under that contract was capped at $10,000. In
calculating the civil penalty, the court first considered whether a
penalty should be assessed for each of the 54 vouchers the defendants
submitted under the four contracts. The court, applying the Supreme
Court's rationale in U.S. v. Bornstein, 423
U.S. 303 (1976) and
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C. Section 3730(d)(1) Reasonable Attorneys’ Fees
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After the government intervened and settled a qui tam action, the relators filed Section
3730(d)(1) motions, seeking “reasonable” attorneys’ fees and costs against
the defendant. While a
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D. Section 3730(d)(4) Attorneys’ Fees & Expenses for “Frivolous” Qui Tam Suits
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An animal rights group brought an FCA qui tam action against a medical research
facility, alleging that it made false claims in connection with an NIH
research grant application to fund cancer research involving the use of
dogs. After an An
animal rights group brought an FCA qui tam
action against a medical research facility, alleging that it made
false claims in connection with an NIH research grant application to fund
cancer research involving the use of dogs. While the district court
ultimately dismissed the relator’s action, it concluded that the claims
were not so lacking in legal merit as to be deemed frivolous.
Nevertheless, the defendants subsequently filed a motion seeking
attorneys’ fees and expenses pursuant to 31 U.S.C. § 3730(d)(4), arguing
that even though the claims were not “frivolous,” Section 3730(d)(4) still
applied, for the claims were “brought primarily for purposes of
harassment.” Specifically, the defendants claimed that the relator used
this litigation to advance its social agenda of stopping the use of
animals in medical research. Suit Was Not Brought Primarily
For Purposes Of Harassment Section
3730(d)(4) provides for attorneys fees to a prevailing defendant when a
plaintiff's claims are “clearly frivolous” or “brought primarily for
purposes of harassment.” In parsing the language of the Act, the court
noted that if evidence of an improper motive were the only consideration,
the inquiry would end. However, § 3730(d)(4) provides that not only must
evidence exist that plaintiffs were motivated by an improper purpose, but
also that their claims were brought “primarily” for that purpose. Having
previously concluded that the relator’s claims were not frivolous, the
court was unable to conclude that the promotion of relator’s social agenda
was “paramount over asserting their non-frivolous claims that, if
successful, could have earned them a sizable award.” In turn, because
there was no showing that the claims were brought primarily for purposes
of harassment, the court denied the defendants’ § 3730(d)(4) motion for
attorneys’ fees and non-taxable costs. Prevailing Party Awarded FRCP 54(d)(1) Costs The
court then took up the issue of whether the defendants were allowed costs
under FRCP 54(d)(1). Rule 54(d)(1) provides that costs other than
attorneys’ fees “should be allowed to the prevailing party.” Citing an
earlier Ninth Circuit decision, the court laid out the controlling case
law: “The unsuccessful litigant can overcome this presumption [in favor of
the award of costs under Rule 54(d)] only by pointing to some impropriety
on the part of the prevailing party that would justify a denial of
costs.... A district court therefore must award costs unless the
prevailing party is guilty of some fault, misconduct, or default worthy of
punishment.” U.S. ex rel. Lindenthal v. General
Dynamics Corp., 61 F.3d 1402, 1414 (9th Cir.1995) (applying Rule 54(d)
in a False Claims Act case) (citation omitted). While
the relator did not allege any impropriety or misconduct on the part of
the defendants, the relator claimed that a permissive award of costs would
chill the exercise of rights by qui tam
litigants both in this case and other FCA cases. However, the court
countered that such a blanket exclusion of costs in FCA cases was rejected
in Lindenthal. With no
evidence of “some impropriety on the part of the” defendants, the court
allowed costs in the amount taxed by the clerk of the court.
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After a relator served his unsealed qui tam complaint on the defendant, the defendant
filed an answer in which it denied the relator’s claims and asserted a
counterclaim for attorneys’ fees and expenses under 31 U.S.C. §
3730(d)(4). The relator, in moving to dismiss the counterclaim, argued
that Section 3730(d)(4) does not create an independent cause of action.
While a Florida district court ruled that, as a matter of procedural
technicality, § 3730(d)(4) could not be raised as a counterclaim, the
court did allow the “substance” of the demand, for it placed the relator
on notice that such an award would be sought if the defendant prevailed.
Gregory Chabot brought an FCA qui tam action against Westgate Homes, Inc. When
the government declined to intervene in the suit, Chabot served the
complaint on the defendant. Subsequently, Westgate filed an answer, which
included a counterclaim seeking attorneys’ fees and expenses under 31
U.S.C. 3730(d)(4). Chabot filed a motion to dismiss the counterclaim as
procedurally improper. Chabot
argued that Westgate’s Counterclaim was improper because Section
3730(d)(4) does not create an independent cause of action. Instead, Chabot
maintained, “a claim for fees and costs must be made by motion only if
[Westgate] prevails and can establish that the claims were objectively
frivolous, vexatious or brought for the purpose of harassment.” Section 3730(d)(4) Simply Needs To Be Raised By
Motion, Not As A Cause of Action As an
initial matter, the court noted that it is well established that unless
otherwise specified by statute, a request for an award for attorneys’ fees
is “simply a demand for a particular remedy” rather than an independent
cause of action. E .g., Valcon II, Inc. v. United
States, 26 Cl.Ct. 393, 398 (Cl.Ct. 1992). Moreover, the Eleventh
Circuit has explained that a party’s failure to plead a demand for
attorneys’ fees will not usually bar that party from later seeking
attorneys’ fees. Capital Asset Research Corp. v.
Finnegan, 216 F.3d 1268, 1270-71 (11th Cir. 2000) (citing Engel v. Teleprompter Corp., 732 F.2d 1238, (5th
Cir. 1984)). Thus,
as a matter of procedural technicality, the court agreed that Westgate
erred in labeling its demand for attorneys’ fees as a counterclaim.
However, the court ruled that the substance of the demand was appropriate,
for it puts Chabot on notice that such an award will be sought if it
prevails and the statutory requirements are satisfied. Therefore, the
court did not strike the demand itself.
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After an FCA defendant was successful in using the
recent U.S. Supreme Court Rockwell decision to
dismiss a qui tam suit, it filed a motion with
an Arkansas district court seeking attorneys’ fees and expenses pursuant
to 31 U.S.C. § 3730(d)(4). In denying the defendant’s motion, the court
ruled that it could not deem the suit “frivolous” under § 3730(d)(4),
especially since the deciding Rockwell decision
was not established law when the originally filed his qui tam suit.
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II.
JURISDICTIONAL ISSUES
A. Section 3730(e)(4) Public Disclosure Bar and Original Source
Exception
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After the government declined to intervene in a former
sales representative’s qui tam action against a
pharmaceutical manufacturer, a From
1992 to 1998, Mark Duxbury climbed the corporate ladder at Ortho Biotech
Products, L.P., ultimately becoming a regional key account specialist for
the oncology sales force. In this position, he uncovered a number of
illegal marketing practices. When the company refused to change its
practices, he filed a FCA qui tam suit against
the company in November of 2003. Two
years later, in July 2005, the The
relators alleged three separate FCA violations in their amended complaint.
First, they alleged that beginning in 1992, Ortho undertook a scheme to
give kickbacks to providers and hospitals to induce them to prescribe
Procrit. The kickbacks allegedly included free samples, off-invoice
discounts, rebates, consulting fees, educational grants, payments to
participate in studies or trials and advisory board honoraria. The
relators alleged that the kickbacks caused providers and hospitals to
submit false claims for payment to Medicare. They claim that the time
period of the false claims is from “December 1992 to the present.” Third,
the relators alleged that Ortho promoted off-label dosing of Procrit in
violation of the Food, Drug and Cosmetic Act and used “sham drug trials”
to falsify eligibility for Medicare reimbursement for off-label uses of
the drug. The relators claimed that the time period for this claim was
from January 1998 to the present. Ortho
moved to dismiss the amended complaint in its entirety on the grounds that
the court lacked jurisdiction under the public disclosure bar, that
certain claims were barred by the “first-to-file” rule, and that the
relators had failed satisfy Rule 9(b). Public Disclosure Bar Applied The
court first turned it attention to relators’ kickback allegations, which
Ortho maintained was blocked by the FCA public disclosure bar. Ortho
asserted that the essential elements supporting this claim were publicly
disclosed in prior civil litigation and various government and media
reports prior to Duxbury filing his initial complaint in November 2003.
The prior litigation highlighted by Ortho was the multi-district AWP
litigation taking place in the District of Massachusetts, In re Pharmaceutical Industry Average Wholesale Price
Litigation, MDL No. 1456, Civ. No. 01-12257-PBS (“AWP MDL”). Relators argued that the AWP MDL did not publicly
disclose Ortho’s alleged fraud because (1) “it only revealed the component
of Ortho’s scheme that involved consumers, insurers and third party payers
but not the manipulation of the Medicare reimbursement system,” and (2)
“it did not contain elements of the scheme of having Ortho’s sales force
intentionally cause the submission of false claims to the Government.”
Without
much discussion, the court ruled that a § 3730(e)(4) “public disclosure”
occurred, for the allegations in the AWP MDL predated the relators’
complaint and the allegations were substantially the same as those
detailed in the relators complaint. This led the court to conclude that it
was “inescapable that Relators’ claims [were] based upon the public
disclosures.” Qualified for Original Source Exception for Claims
Submitted During His Employment However, the court determined that Duxbury qualified
for the public disclosure bar’s original source exception, 31 U.S.C. §
3730(e)(4)(B), for his knowledge of the alleged fraud was both independent
and direct. However, the court ruled that his “direct knowledge” of
Ortho’s activities only extended to the time he was employed by the
company. Thus, he only qualified as an original source with regard to
allegations concerning the 1992-1998 time period. Co-Relator Did Not Qualify for Original Source
Exception McClellan, on the other hand, did not qualify for the
original source exception, for he had not “voluntarily provided the
information to the Government before filing an action,” as mandated under
§ 3730(e)(4)(B). Here, because the court found that McClellan was not
asserting any new claims, but was merely adding “supporting facts to the
legal claims previously made” by Duxbury, the court ruled that McClellan
needed to show that he provided the information to the government prior to
Duxbury filing suit in November 2003. First-to-File Bar Would Have Also Prevented
Co-Relator’s Suit Moreover, even if McClellan qualified for the original
source exception, the court stressed that he would have been tripped up by
the Act’s “first-to-file” bar, 31 U.S.C. § 3730(b)(5). The court,
declaring the first-to-file bar to be “exception-free,” ruled that the bar
“cannot be circumvented simply by amending the complaint to add McClellan
as a relator when his claims would have been barred had they been brought
on their own.” Relators’ Initial Allegations Were Not Sufficient To
Qualify As Being “First-Filed” The
court then turned its attention to the relators’ off-label marketing
claims. The court observed that one month after Duxbury filed his original
qui tam complaint, a separate relator filed a
qui tam complaint in the District of Colorado
that also alleged a scheme by Ortho to off-label market Procrit. (Notably,
the District of Colorado qui tam suit was
dismissed prior to the relators filing their amended complaint.) While
Ortho conceded that the relators’ amended complaint included off-label
marketing allegations, Ortho maintained that these allegations were not in
the original complaint, so they were barred under the first-to-file bar.
(Of particular note, neither party raised the issue of whether the
District of While
seeming to credit Duxbury for including the off-label allegations in his
original complaint, the court disregarded their inclusion as being “bare
bones allegations” that were not sufficient “placeholder[s] for the
widespread off-label marketing scheme that relators now wish to allege.”
Likewise, the court ruled that these allegations were not sufficient to
trigger the first-to-file rule when it came to the later-filed District of
Colorado suit. However, without diving into the sufficiency of the
District of Colorado complaint, the court ruled that this later-filed suit
blocked the off-label allegations detailed in the relators’ amended complaint. In turn, the court dismissed
the relators’ off-label allegations under the Act’s first-to-file
bar. Allegations Failed To Satisfy Rule
9(b) Returning its attention to Duxbury’s 1992-1998
kickback allegations, the court then assessed whether these allegations
satisfied the Rule 9(b) pleading requirements. Citing the First Circuit’s
Karvelas decision, the court stressed that “it is not enough
to allege details of the scheme if there are not also particularized
allegations regarding the false claims that were actually submitted to the
federal government.” Here,
while Duxbury did not identify an individual piece of paper that was
submitted to the government, he identified individual providers,
approximate amounts of free samples, discounts, “off-invoice” rebates, and
educational grants involved in the scheme. Perhaps overlooking or
misreading Accordingly, although court concluded that it had
subject matter jurisdiction to hear Duxbury’s claims of alleged kickbacks
which occurred during his employment at Ortho, the court dismissed the
claims with prejudice for failing to satisfy Rule 9(b).
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III.
FALSE CLAIMS ACT RETALIATION CLAIMS
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Relator brought a section 3730(h) anti-retaliation
claim against her former employer. In affirming a Pro se relator Kathryn Erickson filed a False Claims Act suit against her former employer, alleging that she was suspended and later terminated from her general manager job because she exposed her company’s alleged misuse of federal funds. In response, the defendant alleged that Erickson was fired in response to a report prepared by an independent auditor that raised concerns about various payments the company had made, which did not conform to the company’s internal policies. The defendant moved for summary judgment, which the district court granted. The relator appealed. The Tenth Circuit affirmed the district court’s ruling. The court relied on the district court’s finding that the independent audit report provided multiple bases for terminating the relator and refused to consider Erickson’s appellate arguments – arguments that were not raised with the district court – that the defendant failed to follow its procedures when it suspended and then fired her, that the defendant could not have relied on the audit report as a basis for firing her, since that report had not been completed at the time of her termination, and that the defendant should have been required to defend and indemnify her with respect to her subsequent criminal indictment for obstruction of justice for knowingly falsifying documents.
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Hoyte v. American National Red Cross, 2008 WL 564649 (D.C. Cir. Mar. 4, 2008) A panel of the D.C. Circuit, in affirming the D.C.
District Court’s dismissal of an action alleging a reverse False Claims
Act violation,
agreed that it was obliged to defer to the federal government’s
decision to dismiss the reverse false claim count. However, only a
majority of the panel held that the dismissal of the underlying FCA suit
necessitated the dismissal of the relator’s anti-retaliation suit. Michelle Hoyte was formerly employed as the Director of Quality Audits for the American Red Cross. Hoyte alleged that in February 2004, while serving in that capacity, she discovered that the American Red Cross had mishandled over 600 units of blood at one of its facilities, and that officials and staff of the American Red Cross were aware of the mishandled blood but did nothing about it. Prior to this occurring, in April 2003, the D.C. District Court issued a consent decree, which incorporated an agreement between the American Red Cross and the United States, which outlined certain blood handling and reporting requirements that the American Red Cross had agreed to follow. The consent decree further provided that the Food and Drug Administration could asses various penalties against the American Red Cross – up to specified maximums -- should it violate the consent decree. Hoyte alleged that she urged the staff at the American Red Cross to report the mishandled blood to the Food and Drug Administration, as the consent decree required, but they did nothing. She alleged that she scheduled a meeting with the American Red Cross’s Senior Vice President for Quality Assurance and Regulatory Affairs, but was fired by her supervisor by telephone on the day before the meeting was to take place. She then filed a qui tam action, alleging both a reverse false claim count, under section 3729(a)(7), as well as a retaliation count, under section 3729(h). The American Red Cross moved to dismiss both counts and, subsequently, the federal government moved to dismiss the reverse false claim count. The D.C. District Court first granted the government’s motion to dismiss the first count, and later granted the American Red Cross’s motion to dismiss the second count. Hoyte appealed both orders. Reverse False Claims
Act Claim Was Properly Dismissed
The D.C. Circuit affirmed the lower court’s rulings, and held that, the district court properly dismissed the reverse false claims count, since the federal government moved to dismiss that count, and since, absent a showing of fraud on the court – and there was no evidence of fraud on the court in this case – “the Government has what amount to ‘an unfettered right to dismiss’ a qui tam action.” The court rejected the relator’s proposal that the court recognize an exception for federal government motions to dismiss that are “clearly contrary to manifest public interest.” Retaliation Claim Was
Properly Dismissed
With respect to the second count, for retaliation, the D.C. Circuit, relying on its rationale outlined in U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731 (D.C. Cir. 1998), again affirmed the lower court’s ruling concluding that the matters Hoyte was investigating could not have reasonably led to a viable False Claims Act case, since she never alleged that the American Red Cross was under any obligation to transmit any money to the federal government, and thus, could not have violated section 3729(a)(7) of the False Claims Act. The court noted that the consent decree did not impose any such obligation on the American Red Cross. The court determined that Hoyte was simply investigating “mere regulatory noncompliance,” not false or fraudulent claims. The Dissent
Circuit Judge Tatel wrote a separate opinion, concurring in part and dissenting in part. This opinion notes that, although the reverse False Claims Act claim was properly dismissed, Hoyte’s retaliation claim should have not been dismissed, since, pursuant to Yesudian, a relator only needs to show that “they reasonably believed their employer violated the FCA – a standard Hoyte plainly satisfies.”
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Martin v. ARC of D.C., 2008 WL 821044 (D.D.C. Mar. 28, 2008) Plaintiff filed a
False Claims Act suit against her former employer, which received federal
funds from the Department of Health and Human Services, as well as funds
from the Plaintiff Lowry
Martin
filed an action against her former employer, the Arc of the
District of Columbia, alleging that the defendant violated both the False
Claims Act and the District of Columbia Whistleblower Protection Act, when
it allegedly received federal funds from the Department of Health and
Human Services through the Mental Retardation and Development disabilities
Administration, but neglected its duties to assist its mentally retarded
and developmentally disabled clients find jobs by failing to fulfill its
obligations to hire qualified job coaches for its clients – the defendant
was required to hire job coaches with at least one year of experience,
which, the plaintiff alleged, they failed to do. She alleged
that the defendant must have submitted false documents to the federal
government, since the defendant could not obtain annual funding from the
federal government without falsely certifying that it had complied with
its job coach hiring requirements. The plaintiff further alleged that when
she filed a grievance with the defendant regarding this alleged conduct,
she was ignored and then terminated. As a result, she commenced her lawsuit,
alleging, among other things, a substantive violation of the False Claims
Act, a retaliation claim under the False Claims Act and a claim under the
D.C. Whistleblower Protection Act. The defendant moved to dismiss the
action, arguing that the complaint did not state a claim under Rule
12(b)(6). The district court dismissed the False Claims Act and
Whistleblower Protection Act claims. Complaint Did
The court first
noted that “[n]owhere in plaintiff’s complaint does she allege that a
fraudulent claim was submitted to the government for payment, nor does she
allege who submitted such a claim, nor the time frame for when the
fraudulent submissions were made.” The court observed that the plaintiff
requested an opportunity to use discovery as a means to find evidence to
support her allegations that a false statement must have been made to the
federal government, since the federal government gave the defendant money
even though the defendant had not complied with the federal government’s
funding requirements. The court determined that the plaintiff
had not pled fraud with particularity, “because the complaint fails to
identify who, if anyone, made a false representation to the government and
fails to provide any of the purported details such as the time, place, and
contents of the alleged false representation.” Thus, the
substantive False Claims Act claim was dismissed. Complaint Did
The court next dismissed the plaintiff’s False Claims Act retaliation claim. Citing its 4-week old decision in Hoyte v. American National Red Cross, 2008 WL 564649 (D.C. Cir. Mar. 4, 2008), the court noted that in order to bring a retaliation claim under the False Claims Act, “the relator must be investigating matters that reasonably could lead to a viable FCA case. An employee’s investigation of nothing more than his employer’s non-compliance with federal or state regulations does not state a claim under the FCA.” Here, the court opined, the relator failed to produce any false certifications upon which the defendant’s funding was conditioned. Moreover, the court found that the plaintiff did not allege any facts demonstrating that she was investigating a viable FCA claim, merely that she was investigating the defendant’s failure to comply with its funding requirements. Therefore, the court held that her retaliation claim should be dismissed.
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Haka v. A recently terminated county child support
administrator brought a 31 U.S.C. § 3730(h) anti-retaliation suit against
the county and the county board of supervisors. In a motion for summary
judgment, the defendant-board of supervisors argued that the plaintiff had
failed to state an actionable § 3730(h) claim, for he did not show that a
majority of the county board acted with a
retaliatory motive when it voted to eliminate the plaintiff’s position. In
denying the defendant-board’s motion, the court ruled that once the
plaintiff established the unlawful motive of an individual with
significant influence over the board, it became the defendant-board’s
burden to show that the board would have made the same decision even if
the member did not have a retaliatory motive.
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