Seventh Circuit Weighs in on Government Dismissal Authority under the FCA

Sara N. Gerber

The Seventh Circuit’s recent decision in U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc. widens the Circuit split on the standard of review applicable when the government seeks to dismiss a qui tam case under the False Claims Act (“FCA”). The FCA, 31 U.S.C. § 3730(c)(2)(A), provides that the government may dismiss a qui tam case without the relator’s consent if the relator is given notice and an opportunity to be heard. Although the Department of Justice (“DOJ”) has increasingly exercised its dismissal authority since issuance of the “Granston Memo” in January 2018—which encouraged DOJ attorneys to consider seeking dismissal if in the best interests of the government—as the Seventh Circuit noted, the FCA does not indicate “how, if at all,” courts are “to review the government’s decision to dismiss.” Circuit Courts have taken divergent views in answering that question.

Circuit Court Decisions

The D.C. Circuit, in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), decided that the government has an “unfettered right” to dismiss based on the Executive branch’s “historical prerogative” to decline to prosecute a case. The Ninth Circuit, in U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), and the Tenth Circuit in Ridenour v. KaiserHill Co., LLC, 397 F.3d 925 (10th Cir. 2005), imposed a rational-relation test: the government must establish a rational relation between dismissal and the accomplishment of a valid government purpose. If the government satisfies this test, the burden shifts to relator to show that dismissal is fraudulent, arbitrary and capricious, or illegal. So far, the Supreme Court has declined to step in, denying certiorari in April 2020 in United States ex rel. Schneider v. JP Morgan Chase Bank on the question of whether the government’s dismissal decisions constitute an “unreviewable exercise of prosecutorial authority.” Now, however, the Seventh Circuit has articulated a new standard, relying on Federal Rule of Civil Procedure 41(a) governing voluntary dismissals by plaintiffs. Continue reading “Seventh Circuit Weighs in on Government Dismissal Authority under the FCA”

12 Steps for Reducing CARES Act Enforcement Risks

William E. Lawler III, Gregory F. Linsin, Justin A. Chiarodo, Dominique L. Casimir, and Sara N. Gerber

The Coronavirus Aid, Relief and Economic Security, or CARES, Act provides more than a trillion dollars in relief to both small and large businesses in the form of loans, grants and tax credits, designed to quickly stabilize the economy during the ongoing crisis.

But this is not free money: The CARES Act also includes a robust oversight and enforcement regime to enable the government to combat fraud, waste and abuse. Experience shows that when this much government money is being spent, there will be investigations and enforcement actions.

The CARES Act is complex with evolving regulatory guidelines, and this increases the potential for missteps by companies trying to take advantage of the program’s benefits while navigating program requirements. How can companies manage this uncertainty and reduce the risk of becoming an enforcement target?

We offer 12 suggested steps.

To read the full article that was published in Law360 on May 11, 2020, please click here.

Renewed Focus on Contractor Business System Reviews

Sara N. Gerber

According to a recent U.S. Government Accountability Office (“GAO”) report, the Defense Contract Audit Agency (“DCAA”) and the Defense Contract Management Agency (“DCMA”) have taken certain steps to improve the contractor business system (“CBS”) review process and are forecasting that CBS reviews will increase significantly over the next four years. Contractor business systems include a contractor’s accounting, earned value management, estimating, purchasing, material management, and property management systems. These systems require contractors to maintain internal controls that, as GAO noted, “act as the first line of defense against fraud, waste and abuse of federal funding.” Given their importance, the renewed focus on ensuring CBS reviews are conducted in a timely and consistent manner is not surprising, and contractors should prepare for a new wave of audit activity. Continue reading “Renewed Focus on Contractor Business System Reviews”

Supreme Court Grants Cert to Resolve Circuit Split on FCA Statute of Limitations

Sara N. Gerber

The U.S. Supreme Court has granted a writ of certiorari to address a Circuit Court split concerning whether False Claims Act (“FCA”) relators may rely on the statute of limitations in 31 U.S.C. § 3731(b)(2)—a limitations period which is triggered by the government’s knowledge of the fraud—when the government does not intervene. The Supreme Court granted cert on November 16, 2018, to review the Eleventh Circuit’s decision in U.S. ex rel. Hunt v. Cochise Consultancy, Inc. The Eleventh Circuit reversed the Alabama District Court, reviving the relator’s complaint by giving the relator the benefit of the longer limitations period in § 3731(b)(2).

At the center of the matter is the interplay between the two limitations periods in the FCA after which a “civil action under section 3730” is time-barred: (1) “6 years after the date” of an alleged violation, see 31 U.S.C. § 3731(b)(1); or (2) “3 years after the date” when material facts “are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no more than 10 years after the date” of the alleged violation, see 31 U.S.C. § 3731(b)(2). The relator in Cochise Consultancy filed his claim more than six years after the alleged fraud occurred, but within three years of his disclosure of the fraud to FBI agents who had interviewed him about his role in a separate kickback scheme, to which he ultimately pled guilty and served time in federal prison. Continue reading “Supreme Court Grants Cert to Resolve Circuit Split on FCA Statute of Limitations”

Certified Cost and Pricing Data Thresholds to Increase July 1, 2018

Scott Arnold and Sara N. Gerber

On July 1, 2018, the threshold for obtaining certified cost and pricing data increases substantially from $750,000 to two million dollars. The change was authorized by the Department of Defense pursuant to a class deviation, pending official rulemaking and publication in the Federal Acquisition Regulation (“FAR”). The class deviation implements Section 811 of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2018, which raised the certified pricing threshold contained in the Truthful Cost or Pricing Data Act (still commonly referred to as “TINA” based on the former name of the relevant statute, the Truth in Negotiations Act). The Civilian Agency Acquisition Council recently followed suit, advising other federal agencies that they “may authorize a class deviation to implement the threshold change.” In addition to the increase under the NDAA, the TINA threshold is also subject to adjustment every five years to keep pace with inflation. See 41 U.S.C. § 1908. The last adjustment for inflation, made in 2015, raised the threshold by $50,000. Continue reading “Certified Cost and Pricing Data Thresholds to Increase July 1, 2018”

Another Banner Year for False Claims Act Recoveries Signals More of the Same for 2018

Justin A. Chiarodo and Sara N. Gerber

The Department of Justice (“DOJ”) reported $3.7 billion in False Claims Act (“FCA”) settlements and judgments for fiscal year 2017, the 8th straight year of 3-plus-billion-dollar recoveries and 700-plus new cases filed. Healthcare, mortgage, and procurement fraud once again dominated recoveries. This article analyzes DOJ’s FCA statistics, and includes our predictions for continued strong enforcement in 2018. Continue reading “Another Banner Year for False Claims Act Recoveries Signals More of the Same for 2018”