Supreme Court to Resolve Circuit Split, Decide Viability of Plaintiff-Friendly Implied Certification Theory for FCA Liability

Daniel Broderick

With the filing of relators’ brief in United Health Services, the Supreme Court is one step closer to resolving one of the most controversial issues in False Claims Act (“FCA”) jurisprudence:  whether “implied certification” is a valid liability theory under the FCA.

Under the implied certification theory, the plaintiff may allege that, by submitting any claim for payment to the government, a contractor impliedly certifies compliance with all applicable statutory, regulatory, and contractual requirements.  Thus, under this theory, even where the contractor provided all of the goods and services for which it seeks payment, the government is allegedly wronged because it would not have paid for the items or service if it was aware of the contractor’s noncompliance with these other requirements.

Because the FCA makes it unlawful to knowingly submit a false or fraudulent claim for payment to the government—and imposes treble damages plus civil penalties ranging from $5,500 to $11,000 per claim—plaintiffs  are strongly incentivized to assert the “implied certification” theory, which does not require the more difficult showing of an express false statement.  Not surprisingly, the aggressive use of the implied certification theory has contributed to much of the recent increase in government enforcement actions and billions of dollars in recovery, including by settlements designed to avoid the legal uncertainty and the potentially significant damages and penalties under the FCA.  The Supreme Court agreed in December to hear the case to resolve a circuit split as to whether implied certification is viable. Continue reading “Supreme Court to Resolve Circuit Split, Decide Viability of Plaintiff-Friendly Implied Certification Theory for FCA Liability”

Sixth Circuit Brings False Claims Act Damages Back Down to Earth

Heather L. Petrovich

In a welcomed decision, the Sixth Circuit placed sensible parameters on damages in False Claims Act (“FCA”) cases, which will significantly reduce exposure for contractors.  In United States ex rel. Wall v. Circle C Construction, LLC No. 14-6150, 2016 WL 423750 (6th Cir. Feb. 4, 2016), the Sixth Circuit rejected the government’s argument that where the contractor’s alleged fraud or false certification induced the government to enter into the contract or was a condition for participation or eligibility, damages should be treble the full contract value, even if the work has been performed to the government’s satisfaction.

Under the FCA, while the government may recover “3 times the amount of damages which the Government sustains because of the act,” 31 U.S.C. § 3729(a), damages are not defined and have thus led to varying formulations among the circuits.  Wall involved a construction contract for Army warehouses and required the contractor to certify compliance with certain minimum wage requirements, but a subcontractor paid its employees less than the required minimum. Even though there were no performance issues with the work itself, and instead of seeking damages based on the subcontractor’s compensatory shortfall, the government argued, and the district court agreed, that damages should be treble the full contract value.  This resulted in assessed damages that were approximately 76 times more than the subcontractor’s wage deficit, which was the actual harm to the government. Continue reading “Sixth Circuit Brings False Claims Act Damages Back Down to Earth”

The Justice Department’s Yates Memorandum and Three Tips for Government Contractors to Manage the Risks

Justin A. Chiarodo and Christian N. Curran

The Department of Justice (DOJ) is setting its sights on individual accountability for corporate wrongdoing. That is the message that DOJ has been promoting following the recent internal memorandum issued by Deputy Attorney General Sally Quillian Yates titled “Individual Accountability for Corporate Wrongdoing” (the Yates Memo), which relates to DOJ’s practices in conducting corporate investigations. Although the idea of holding individuals accountable for corporate wrongdoing is not new, the Yates Memo’s relative focus on individuals as part of corporate investigations suggests more scrutiny of individuals in civil and criminal investigations. This focus complements a well-documented increase in the suspension and debarment of individuals in recent years, and reinforces the heightened risks that business owners, executives, managers, and employees face throughout the government contracting community.

The Yates Memo presents a good opportunity for government contractors to review their compliance programs in the new year—and in particular their practices for conducting internal investigations—to ensure that they are actively managing the risks presented by this professed focus on individuals. This alert summarizes the Yates Memo and offers three tips to government contractors to consider in response. Continue reading “The Justice Department’s Yates Memorandum and Three Tips for Government Contractors to Manage the Risks”

What DoD Contractors Need to Know: New Changes to Cybersecurity and Cloud Computing Regulations

Justin A. Chiarodo and Philip E. Beshara

As the federal government and contracting community near the end of a year filled with headline-grabbing cyber incidents, the Department of Defense (DoD) has recently issued interim cybersecurity and cloud computing regulations that amend the DFARS and impose important new information safeguarding, reporting, and cloud computing requirements. These are major changes that impact all DoD contractors, and if your company holds DoD contracts you should carefully review these new requirements and assess them as part of your broader corporate cybersecurity strategy.

This alert highlights the key requirements in the Interim Rule (available here).

Information Safeguarding and Cybersecurity Reporting

The Interim Rule expands DoD’s cybersecurity safeguarding and reporting requirements, including the types of information covered by the requirements, governing standards, and triggering events. Up until now, many of DoD’s cybersecurity requirements applied to select groups of defense contractors—those deemed “operationally critical” under the 2015 NDAA or “cleared defense contractors” under the 2013 NDAA, and contractors handling “unclassified controlled technical information,” or “UCTI,” under the DFARS. Continue reading “What DoD Contractors Need to Know: New Changes to Cybersecurity and Cloud Computing Regulations”

Déjà Vu All Over Again: Six Tips to Prepare for a Government Shutdown

Justin A. Chiarodo and Heather L. Petrovich

With Congress quickly approaching a September 30 funding deadline with no adequate spending measures in place, and the Office of Management and Budget now directing agencies to prepare contingency plans, the possibility of a government shutdown is becoming increasingly likely. Unfortunately, government contractors faced these challenges just two short years ago during a 16-day shutdown. Among other challenges, contractors may face a lack of incremental funding; the inability to enter into new contracts or contract modifications; closed government facilities; furloughed government employees; delayed payments; increased indirect costs; and unexercised and deferred contract options. This alert highlights steps government contractors can take to protect their business interests in the event of a shutdown.

Review Your Contracts 

Reviewing your contracts is good advice in all times, but particularly so when facing a shutdown. Several key areas are worth reviewing before a shutdown. First, contractors should consider the amount and type of contract funding for each contract. A shutdown will affect incrementally funded contracts more than fully funded contracts. Though exceptions may apply, the funding for incrementally funded contracts may lapse in the event of a shutdown, which could cause the contract work to come to a halt. Fully funded contracts may be impacted by furloughed employees, facility closures, or other unexpected costs. Second, the place of contract performance may affect the ongoing work on a contract if the contractor is performing at a government facility. Many government facilities will close during a shutdown and furloughed employees or limited hours may affect those government facilities that do remain open. Third, the period of contract performance may affect a contract in that the government cannot exercise options and contract extensions during a shutdown. Fourth, the statement of work could also affect how the shutdown applies to a contract. For instance, national security and emergency preparedness contracts are much more likely to be funded during a shutdown than facility maintenance work. Nonetheless, even those exempt contracts may still be affected if the statement of work requires contractors or projects to interact with furloughed employees. Continue reading “Déjà Vu All Over Again: Six Tips to Prepare for a Government Shutdown”

New Legal Landmines for Government Contractors

Deborah P. Kelly

Buckle up: In his last term, President Obama has unleashed a flurry of Executive Orders and Presidential Memoranda that promise sweeping changes for government contractors and their employees. Below, we outline some of the major recent workplace initiatives that create new restrictions and requirements for government contractors, describe their effects, and suggest what to do about them.

  1. The “Blacklisting” Order

What’s New?

On July 31, 2014, President Obama signed Executive Order (E.O. 13673) “Fair Pay and Safe Workplaces,” known as the “Blacklisting” Order, which instructs contracting officers to make responsibility determinations for procurements over $500,000 based on a subjective review of federal contractors’ compliance with 14 federal and equivalent state labor, employment, and safety laws. The Department of Labor’s proposed guidance and the FAR Council’s proposed regulations would create an online database for agencies to track contractors’ violations, which could provide a basis for suspension and debarment procedures. Continue reading “New Legal Landmines for Government Contractors”

We Just Received a Government Subpoena. Now What?

Merle M. DeLancey Jr., Steven J. Roman, James R. Murray, and Christian N. Curran

If you are a multi-million dollar company and receive a subpoena for your documents and records, you simply send it to the legal department. But what if you are a smaller healthcare provider? Responding to a government subpoena can be daunting, especially if it is your first one, and you may not have the personnel or resources to respond without a significant disruption to your business. Does the subpoena mean you or your company is about to be charged with a crime? Do you have to submit original records? Will the government insist on the production of all documents within the often broadly worded scope of a subpoena? How do you deal with electronic information on your computer system? How do you protect patient confidentiality? Will your insurance help with the costs of complying with the subpoena? What can you do to ensure the company is prepared ahead of time?

Step One: Issue a Document Hold Notice and Consult Counsel

The first thing you should do when you receive a government subpoena is issue a written notice to your employees to protect and maintain any documents and records that may be encompassed by the subpoena. As part of that process, you will also need to suspend any records destruction practices that you currently have in place. The failure to produce or preserve potentially relevant documents and information can result in significant exposure. Courts have regularly penalized companies and individuals who fail to produce or preserve potentially relevant materials. It is important to send the notice out as soon as possible and to thoroughly document its distribution. You should also simultaneously consult with counsel to review the subpoena and ensure that you are taking all necessary steps to preserve information. Continue reading “We Just Received a Government Subpoena. Now What?”

Medicare Advantage Program Enforcement: Increased Publicity May Lead to Increased Scrutiny

Merle M. DeLancey Jr. and Lyndsay A. Gorton

On May 19, 2015, the chairman of the Senate Judiciary Committee, Senator Charles E. Grassley (R-IA), requested information from United States Attorney General Loretta Lynch and Andrew M. Slavitt, Acting Administrator for Centers for Medicare and Medicaid Services (CMS) regarding how the agencies are working together and separately to prevent Medicare Advantage fraud. Senator Grassley’s letters rely on April 2015 investigative findings issued by the Center for Public Integrity for his assertion that there is “an increasing number of lawsuits against insurance companies” for Medicare Advantage fraud, and the Government Accountability Office’s (GAO) 2015 Annual Report, which suggests that CMS “could save billions of dollars by improving the accuracy of its payments to Medicare Advantage programs. . . .” To ensure that CMS has the appropriate “safeguards” in place to prevent fraud, Senator Grassley requested answers to the following questions by June 3, 2015:

  1. What steps has the Department of Justice (DOJ) taken, and is currently taking, to ensure that insurance companies are not fraudulently altering risk scores?
  2. Is DOJ working in conjunction with CMS to investigate risk score fraud? If not, why not?
  3. In the past five years, how many Medicare Advantage risk score fraud investigations has DOJ conducted? Of the investigations, how many have resulted in criminal and/or civil sanction?

Senator Grassley’s letters were sent only weeks after CMS issued its 2016 Rate Announcement and Call Letter on April 6, 2015. After accepting and reviewing comments on its Advance Notice and Draft Call Letter, which estimated a 0.95 percent decrease in revenue for plan providers, the April 6 announcement estimated a 3.25 percent increase in revenue based on finalized 2016 rates. Neither the Attorney General nor CMS has responded to Senator Grassley’s requests. Continue reading “Medicare Advantage Program Enforcement: Increased Publicity May Lead to Increased Scrutiny”

The Supreme Court Issues Landmark Ruling That Limits When a False Claims Act Case May Be Filed

David M. Nadler

Last week the U.S. Supreme Court answered two critical questions regarding when a case may be filed under the False Claims Act (FCA). Kellogg Brown & Root Serv., Inc., et al. v. U.S. ex rel. Carter, No. 12-1497 (May 26, 2015). In KBR, the Court unanimously held that the Wartime Suspension of Limitations Act (WSLA) applies only to criminal fraud cases, and thus does not suspend the civil FCA’s statute of limitations. The Court also held that the FCA’s first-to-file bar only applies while previously-filed related claims are undecided and still active on the court’s docket. Once a case is dismissed or settled, however, it is no longer a “pending action” and a second case alleging the same misconduct can be filed.

The KBR case found itself at the High Court after a long and arduous procedural history. The relator, Carter, worked for KBR in Iraq as a water purification unit operator. He filed a qui tam complaint (Carter I), alleging that KBR had fraudulently billed the government for water purification services that were not performed or not performed properly. The district court dismissed Carter I without prejudice due to an earlier-filed pending qui tam suit (Thorpe) which alleged similar claims. Carter appealed, and while his appeal was pending the Thorpe suit was dismissed. Carter immediately filed a new qui tam complaint (Carter II), which the district court dismissed without prejudice because Carter I was still pending. Finally, Carter dismissed his Carter I appeal and filed his third complaint—the complaint at issue in this case—Carter III, more than six years after the alleged fraud. The district court dismissed Carter III with prejudice due to another earlier-filed pending case, noting that all but one of Carter’s claims were untimely filed given the FCA’s six-year statute of limitations. Continue reading “The Supreme Court Issues Landmark Ruling That Limits When a False Claims Act Case May Be Filed”

Responding to a Warrant—What to Do if Your Company Is Subject to a Fraud Investigation

Merle M. DeLancey Jr., Steven J. Roman, and Philip E. Beshara

This is the scenario: you are an executive or manager at a government contractor. It’s Friday morning. You are hoping to leave early and get a jump on the weekend. Then, the receptionist buzzes you and says, “There are men and women out here wearing FBI windbreakers and they want to execute a search warrant.” You wonder, “Can I tell the agents they cannot come in?” Your company does not have in-house counsel. You can call your attorney, but his or her office is across town and the FBI agents say they are not going to wait. “What should I do?”

This may sound like an unlikely scenario, but such government investigations happen all of the time around the country and are rarely expected. In recent years, prosecutors and agents from the Department of Justice (DOJ) and Inspector General Offices have brought charges of procurement fraud and corruption against over 100 defendants, including officers and employees of companies of all sizes. In September 2014, DOJ’s Criminal Division announced that it would be “stepping up” its investigation and prosecution of criminal violations of the False Claims Act, using a team of senior federal prosecutors dedicated exclusively to procurement fraud. DOJ’s announcement cited the use of search warrants as one of the significant investigative tools at prosecutors’ disposal. In addition to their increased exposure to law enforcement authorities, small businesses should expect greater scrutiny of their contracting dollars, an initiative that has received bipartisan support in Congress. In March, the House Small Business Committee approved a measure calling for a sweeping examination into abuses in small business contracting, and the Small Business Administration recently proposed a rule for harsher penalties relating to small business subcontracting limitations. Continue reading “Responding to a Warrant—What to Do if Your Company Is Subject to a Fraud Investigation”

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