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Maryland False Claims Act Referendum, Part Two

By Zachary Kitts on July 12, 2014 in

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Maryland False Claims Act Referendum, Part Two

This is the second of a two-part post on the mini-referendum that took place on the Maryland False Claims Act recently.

In the 2014 legislative session, Brinkley prevented passage of the Maryland False Claims Act of 2014 by using a procedural maneuver to avoid a vote before the full Maryland Senate, where it would have certainly passed.  His opponent in this primary — a current member of the Maryland House of Delegates named Michael Hough — had supported the Maryland FCA of 2014 in the House of Delegates.

At the conclusion of the first post, I left off by saying that it seemed to me that now-former state Sen. Brinkley was digging his own grave when he decided to make the Maryland FCA a center-piece of his campaign strategy.  I say this because FCA legislation is common-sense stuff that has proved wildly popular with Republicans and Democrats, not to mention their constituents.  And lets not forget the federal False Claims Act was amended in the late-1980s in response to wide-spread public outrage over $600 toilet seats and $3,000 coffee makers.  So the first sign that Brinkley was in trouble was the fact that he was not running from his anti-FCA agenda but appeared to be running on his anti-FCA agenda.

But when Brinkley started trotting out the think-tanker wing of the Republican party in an effort to connect with Republican voters, it was pretty clear to me that he was in finished.  Specifically, Brinkley made an op-ed piece by a Cato Institute think-tanker named Walter Olson a centerpiece of his campaign strategy.  Long story short, Brinkley lost.  Badly.

But today, I want to take a look at Walter Olson’s anti-FCA op-ed in the Baltimore Business Journal entitled “Anti-fraud legislation in Maryland could have unintended side effects.”

A Look At Olson’s main argument — if false claims act laws are so “controversial” why do all of the most business-friendly states have them?

There are in fact no real arguments in Olson’s piece, so we will take a look at the half-truth around which his article is based.  I am talking about his reference to the false claims act laws as “controversial.”  I call this a half-truth because strictly speaking it is true if he is talking only about Maryland which has struggled every year since 2010 to pass a simple piece of legislation that will return millions of dollars to its public fisc.

But if we look at the national picture, we see that that FCA legislation is quite uncontroversial on the federal and state levels nearly everywhere else, and it enjoys broad bipartisan support. It was masterminded by the likes of Sen. Charles Grassley (R-IA) and signed into law by President Ronald Reagan. Perhaps most important for our topic here, we would not be having this conversation at all had President George W. Bush not signed the Deficit Reduction Act of 2005.  That is because the DRA of 2005 created important (and considerable) financial incentives for states to pass state-level false claims laws that match the federal false claims act.

False claims legislation may be controversial in Maryland, but it should be left to the reader whether that says more about Maryland than it does about false claims legislation.  A list of states where such laws have not been controversial, by the way, reads just like a list of business-friendly states, and legislators in states like Virginia, Texas, Florida, New Hampshire, North Carolina, and Delaware (to name just a few) had little or no trouble passing a law that would put millions of dollars more into their budget.

I have traveled to Annapolis to testify in favor of false claims legislation every year since 2010 when the O’Malley administration made it a priority.  And every year, I have asked those legislators and lobbyists opposed to FCA laws to respond to one simple question – if false claims laws are such a bad idea, why do all of the most business-friendly states have them?  I am still waiting for an answer.

If, on the other hand, we turn this analysis on its head and look at a list of states that, like Maryland, have struggled with this basic legislation year after year, we see that Maryland find herself in a curious group, and one to which she surely does not belong.  Her companions would be states like Ohio and West Virginia – in other words, states plagued by chronic dysfunction, corruption and mismanagement at every level.

In any event, I hope this example of the mini-referendum that took place on false claims act legislation will catch the attention of other legislators in other places who might be tempted to listen to the messages of anti-FCA advocates like the Chamber of Commerce and various think-tankers….

And congratulations once against to Del. Michael Hough — soon to be Sen. Michael Hough!

K&G Law Group PLLC

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The mini-referendum on the Maryland False Claims Act in Legislative District 4

By Zachary Kitts on July 5, 2014 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

 

The mini-referendum on the Maryland False Claims Act in Legislative District 4 — Part 1 of 2

Today is the first of a two-part post revisiting a frequent topic here at Vaquitamlaw.com – the Maryland False Claims Act and, more specifically, the battle that has raged for the last four years in Maryland over this legislation.

Regular readers of this blog have followed past events in Maryland, but last month, this on-going fight took an interesting — and novel — turn.  Until June of 2014, the Maryland FCA battle was fought in legislative Committees of the House of Delegates and the state Senate, but this summer the fight spilled over into a Republican primary in Senate District 4.  And, because the two men running in this district primary each played major roles in the 2014 fight – with one guy being pro-Maryland FCA and the other guy being anti-FCA — the primary race became a mini-referendum on the Maryland False Claims Act.

And the good guys – or rather, the good guy, in the form of Del. Michael Hough – won.

The mini-referendum on the Maryland False Claims Act in Legislative District 4

Here’s what happened.  In the 2014 legislative session we came closer than ever before to passing a real Maryland False Claims Act.  Only one hurdle stood in the way – a committee of the Maryland state Senate.  As a result of Del. Sam Arora’s tireless efforts, supporters of the Maryland FCA had enough votes to pass the bill in a full Senate vote, and it looked like that was exactly what was going to happen.  Then, on the last day of the 2014 legislative session, Republican state Sen. David Brinkley used what is politely called a “procedural maneuver” to kill the Maryland False Claims Act of 2014 in committee so that it never reached a full vote on the Senate floor.

Had Brinkley not subverted the democratic process by killing an important piece of legislation that had already passed the House of Delegates for the umpteenth time, the law would have passed the full Senate and, since it had already been passed by the House of Delegates, it would have landed on Gov. O’Malley’s desk, where it would have certainly been signed.

Those of us who have spent a great deal of time and effort on the Maryland FCA were, to say the least, irked by Sen. Brinkley’s end-run around the bill.  Among the individuals upset by this was one Maryland Republican Del. Michael Hough, who had done the proper and brave thing and voted in favor of the Maryland FCA of 2014.

So, when Hough (which is pronounced “Huff”) announced that he was challenging Brinkley in the state Senate primary, it was a pretty safe bet that the Maryland FCA would become an issue.

The voters of Legislative District 4 Get to Vote on the Maryland False Claims Act

Throughout the primary, Brinkley kept swinging – spurred on, no doubt, by the Chamber of Commerce and the “think-tanker” wing of the Republican Party – by trying to turn Del. Hough’s support of the Maryland False Claims Act into a political liability.

This, it turns out, was a serious miscalculation by Brinkley, but that should hardly be surprising.  It has always seemed to me that when a sitting incumbent is challenged in a primary it is always, at least in part, because the electorate feels the incumbent has gotten out of touch and no longer understands them.   As part of that, the electorate very often feels that the incumbent spends too much time listening to lobbyists and think-tankers and not enough time listening to constituents.

And there is a fair amount of evidence that that is what happened here.  For example, Brinkley trotted out nothing less than a bona fide inside-the-beltway think-tanker in the form of Walter Olson of the Cato Institute.  Olson published an oped piece in the Baltimore Business Journal entitled “Anti-fraud legislation in Maryland could have unintended side effects.”

I will deal with Olson’s piece — which is long on long on emotion and short on fact — in the next part of this post, but in closing I will just say this:  I don’t know how long Brinkley represented the 4th legislative district, but he was obviously out of touch if the best he can do to reach the voters of Frederick County Maryland is to bring in a think-tanker like Walter Olson.

Stay tuned for Part 2 of 2 on Maryland’s mini-referendum on the FCA.

K&G Law Group PLLC

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HUBzone certifications and federal false claims act violations

By Zachary Kitts on July 2, 2014 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

Today we will take a look at HUBzone certifications and federal false claims act violations — that is to say, fraud and false claims against the Historically Underutilized Business Zones Empowerment Contracting Program, more commonly known as the HUBzone program.

The HUBzone program – created by the Small Business Reauthorization Act of 1997 and administered by the United States Small Business Administration – aims to stimulate economic growth in certain areas of the country.  The program is no doubt worthwhile, and has done much good in the last 17 years. The basic requirements and goals of the HUBzone program are set-forth in 13 C.F.R. §126.100.

As regular readers know, to find the false claims in government procurement, you just need to follow the money. Wherever and whenever the government commits large amounts of money to a specific goal, fraudfeasors are sure to follow. By that measure, the HUBzone program is indeed a most tempting target because the federal government has set a goal of awarding 3% of all dollars for federal prime contracts to HUBZone-certified small business concerns.  In order to qualify for a piece of this lucrative HUBzone action, a business must be certified by the SBA as meeting all of the following criteria:

(1) the business must be a small business by SBA standards;

(2) it must be owned and controlled at least 51% by U.S. citizens, or a Community Development Corporation, an agricultural cooperative, or an Indian tribe;

(3) the principal office of the business must be located within a “Historically Underutilized Business Zone; and,

(4) at least 35% of its employees must reside in a HUBZone.

Parenthetically, a number of counties in Virginia qualify as HUBzone locations.  These locations are, as indicated in the map below, mostly in Southwest Virginia and Southside Virginia with a smattering in Northern Neck and even a bit up next to the West Virginia line, but I digress.

Virginia HUBzone map

 

Once a business is certified as a HUBzone business, it must be re-certified every three years. In addition, a HUBzone business is required by law to report any “material change” to its HUBzone status. A “material  change” includes, but is not limited to: changes in the ownership, Changes in business structure, changes in principal office and failure to meet the 35% HUBZone residency requirement.
So what happens if a business plays fast and loose with these requirements?

You guessed it readers – if, at any time after becoming certified, a certified entity fails to maintain its eligibility for HUBZone certification, such entity and its principals are required to “immediately notify the SBA” of its lack of eligibility (See 13 C.F.R. §126.501). Stated another way, there is an affirmative obligation on the part of any certified HUBzone small business to notify the SBA if they suddenly, for whatever reason, become ineligible to participate in HUBzone contracts.

The penalties for failure to comply with such requirement explicitly include, among other things, liability under the federal False Claims Act. See 13 C.F.R. § 126.900(b).
And, in addition to the obvious false claims and fraud arising from the original certification process (or, after initial certification, a failure to immeditately notify the SBA of any changes) there are numerous other ways businesses can run afoul of the law. In order for such a violation to rise to the level of a false claims act violation, it would be necessary for the businesses actions to be taken “knowingly.”

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Attorney fee awards after McAfee v. Boczar

By Zachary Kitts on June 7, 2014 in , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

Attorney Fee Awards After McAfee v. Boczar in the Fourth Circuit

Today we will take a look at attorney fee awards after McAfee v. Boczar and the important guidance this opinion provides for Courts awarding attorney’s fees.  Although the McAfee opinion represents only a slight clarification of the law, in my view it is an important one for reasons that go straight to the heart of our system of laws and jurisprudence.  But first, a few basics.

The Twelve Factor “Johnson Test” in the Fourth Circuit

To begin at the beginning, when a statute or contract provides that a prevailing party is entitled to recover its reasonable attorney’s fees, federal courts more or less without exception utilize the lodestar method. The lodestar method consists of determining a reasonable hourly rate for the services of the lawyers and determining whether the hours sought are reasonable. Once those two elements are in place, the court simply multiplies the reasonable rate by the hours reasonably expended.

Once a petitioner has made this prima facie showing of reasonable hourly rates and a reasonable number of hours worked, any adjustment upward or downward must be based on objective criteria and tied to specific evidence.
Of course, a great deal of ink has been spilled hashing out the specifics of this two-pronged test, and there is a great deal of guidance for courts faced with an attorney’s fee petition. For almost 40 years (since Barber v. Kimbrell’s Inc., 577 F. 2d 216, 226-28 (4th Cir. 1978)) Courts in the Fourth Circuit have applied the factors set forth in Johnson v. Georgia Highway Express, 488 F. 2d 714, 717-19 (5th Cir. 1974) when determining whether a petitioner has met his or her burden.

Most of the twelve Johnson factors are intuitive enough in my opinion. In no specific order, they are: (1) time and labor required; (2) novelty and difficulty of the questions in the case; (3) skill required for the legal work; (4) whether the lawyers were precluded from other work; (5) the fee customary for similar legal work; (6) whether the fee is fixed or contingency; (7) experience, reputation and skill of the lawyers; (8) limitations on time imposed by the case; (9) amount involved and the result obtained; (10) awards in similar cases; (11) the desirability or undesirability of the case; (12) the nature and length of the lawyer’s relationship with the client.
As regular readers know, I have an interest in this particular area of law.  In addition to litigating my own attorney’s fee petitions, I am often asked to serve as an expert witness for other lawyers’ fee petitions, in attorney’s fee disputes, legal malpractice claims, and other types of claims, and every time I wound up thinking that a few of the Johnson factors were somewhat mystifying.  For example, in my fee petitions I am never quite sure what I am supposed to say in analyzing factor number 6 (whether the fee is fixed or contingency) or how that should or could figure into the Court’s lodestar analysis.  Nor was I ever certain how factor number 12 (the nature and length of the lawyer’s relationship with the client) or factor 11 (the desirability or undesirability of the case) play a role in determining a reasonable hourly rate or a reasonable number of hours.

So I welcomed the recent clarification issued by the Fourth Circuit in McAfee v. Boczar, 738 F.3d 81 (4th Cir. 2013). The McAfee opinion provides at least one important clarification of the law; specifically, the Court emphasized that factor 9 – the amount at issue in the case and the amount of the relief obtained – is not relevant to an attorney’s fee award when considered alone; rather, what is relevant is the amount of the relief obtained in comparison with the amount of the relief sought. McAfee, 738 F.3d at 92-93.
And, I submit, the view that would be contrary to this would by necessity posit that Courts and lawyers deem certain cases “worthy” or “unworthy” based on something other than what the plain letter of the law provides…and that is about as antithetical to the notice of equal justice under the law as anything I can think of.

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

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Pretrial Motions Practice in Virginia Fraud Against Taxpayers Act cases

By Zachary Kitts on May 30, 2014 in , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

Pretrial Motions Practice in Virginia Fraud Against Taxpayers Act cases

Today’s post takes a look at pretrial motions practice in Virginia Fraud Against Taxpayers Act cases.  Specifically, we will take a look at a specific motion in limine that will need to be filed in almost every VFATA case — a motion to preclude the defendants from informing the jury about the treble damages provision of the statute (or, if the case is a stand-alone anti-retaliation case, the double damages provision).

Needless to say, a lawyer should consult with opposing counsel prior to filing the motion.  This is exactly the sort of thing that can — and should — be done by way of a consent order, but that depends to a large degree on the quality of the lawyering being done on the other side.  Some lawyers will demand to see a published opinion for anything and everything before they will accept it as a principle of law.  In that regard, a person is bound to be disappointed, because there is no published opinion, to my knowledge, confirming that a jury should not be informed that a plaintiff will receive treble damages in a federal False Claims Act case or in a Virginia Fraud Against Taxpayers Act case.

Instead, it is necessary to look at (1) the function of a jury in civil litigation, (2) the rules of evidence and (3) case law from other statutes with similar liquidated damages provisions.

The function of a jury in civil litigation

A jury’s function in a VFATA case is to determine liability and, if the defendant is liable, to calculate the damages in a case.  This is a distinct and different issue than the actual judgment ultimately awarded to a plaintiff.  Determining the amount of the actual judgment is work for the Court and, by way of the legislation, the Virginia General Assembly.  The Virginia General Assembly’s purpose in doubling the damages award under the Virginia Fraud Against Taxpayers Act was (obviously) to ensure that plaintiffs recover twice the amount they have lost.  If a jury were to be told about the double damages provision, it might adjust the amount of the judgment downward, thereby thwarting the legislature’s intent.

The rules of evidence prohibit the use of irrelevant or prejudicial evidence

Under Virginia Rule of Evidence 2:401, only relevant evidence may be presented to a jury; pursuant to Rule 2:402, irrelevant evidence may not be presented to a jury. “Relevant evidence” means evidence having any tendency to make the existence of any fact in issue more probable or less probable than it would be without the evidence.  Without question, the fact that the Virginia General Assembly created a liquidated damages provision (whether we are talking about double damages for wrongful termination or treble damages under the VFATA’s main provisions) is not relevant because it does not pertain even remotely to whether the defendant broke the law or, if so, the amount of the plaintiff’s damages, and such evidence is therefore irrelevant.

Even worse, evidence of a liquidated damages provision may even be prejudicial to the plaintiff.  The Virginia Rules of Evidence provide that even relevant evidence “may be excluded if … the probative value of the evidence is substantially outweighed by … the danger of unfair prejudice, or … its likelihood of confusing or misleading the trier of fact ….” Va. Sup. Ct. R. 2:403.

Finally, case law interpreting similar statutes makes it clear that a jury is not to be informed about the presence of a liquidated damages provision in a statute

While there may not be a case exactly on point from false claims act litigation, this exact issue has been extensively discussed in the context of antitrust suits brought under the Clayton Act.  (15 U.S.C.A. § 12 et seq.) Under the Clayton Act, plaintiffs are entitled to treble damages. Courts have consistently held that the jury should not be informed of this treble damages provision. The courts’ reasoning is that “[t]he justifiable fear of plaintiffs is that the juries will adjust the damage award downward or find no liability, therefore thwarting Congress’s purpose, because of some notions of a windfall to the plaintiff. One court has even suggested that a jury might take the revelation of the treble damage provision as an intimation from the court to restrict the amount of damages.” Pollock & Riley, Inc. v. Pearl Brewing Co., 498 F.2d 1240, 1243 (5th Cir. 1974).

Conclusion

In many different types of civil litigation, pretrial motions in limine are an important part of the trial strategy, but this is especially true in VFATA cases or in other types of cases with a liquidated damages provision.  The plaintiff should ask the Court to enter an Order estopping the defense from making any reference at any time during the trial, during argument, or in the jury instructions, as to the double damages (or treble damages) provisions of the statute.

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Qui Tam Complaints shall be filed in camera and placed under seal

By Zachary Kitts on May 3, 2014 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

Qui Tam Complaints shall be filed in camera and placed under seal

I have received questions from several readers over the past year or so about the seal requirements of the federal False Claims Act and, more specifically, what is required by the seal provisions found in 31 U.S.C. § 3730(b)(2).  Several readers have informed me that some U.S. District Court Case Managers believe that qui tam cases filed under the federal FCA are automatically placed under seal by virtue of the language of the statute, and that no motion to seal or proposed order sealing the case until further notice is needed.

This exchange usually happens when a lawyer files a new qui tam action in a U.S. District Court.  The unique procedural requirements of the law require that several other items be filed along with the Complaint.  First, the lawyer also needs to file a Motion to Withhold Issue of Summons, and second, the lawyer needs to a Motion to File In Camera and Place Under Seal (or at least, that is what I call my motions) together with a draft Order to be entered by the Court.

Talk about a sticky wicket — generally speaking, I am of the opinion that wise lawyers treat Case Managers, Court Room Deputies, and other court officials with the exact same respect that would be shown to a Judge.  The administrative staff of a Court knows a great deal about how the Court works.  They are certainly worth listening to, and they are usually willing to share their knowledge freely.  So what is a wise lawyer to do when a Case Manager says that a Motion to File Under Seal isn’t needed, because that particular Court simply files qui tam Complaints under seal automatically?

If a Case Manager takes this position, it is not as off-base as one might think initially.

Back to the basics — the language of 31 U.S.C. § 3730(b)(2)

31 U.S.C. § 3730(b)(2) provides that when filing a qui tam Complaint:

The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.

So, the language of the statute itself does not mention a Court Order.  But, I am of the firm opinion that a Seal Order is a vital element to be filed with the Court, and I think there is plenty of support for that idea in the above-language.  Here is why:  first, to file something with a Court in camera means, according to every legal dictionary, to file it in a non-public manner for a Judge — and only a Judge — to review.  Certainly the Judge as this stage of the proceedings is not required by law to read the Complaint; I therefore think that the need for a seal order is implied by virtue of a second principle, which is that Courts speak through their Orders.

So as to how I would handle this situation (i.e., the situation where a Case Manager says a seal order isn’t necessary) I would suggest politely asking them to humor you and submit the Order to the Judge anyhow…

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

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When do qui tam whistleblowers qualify as an original source?

By Zachary Kitts on April 19, 2014 in , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 

When do qui tam whistleblowers qualify as an original source?

An interesting opinion came out a few weeks ago from the U.S. District Court for the Eastern District of Wisconsin, and I thought it well worth a post.  The opinion is important because it discusses in a detailed and comprehensive way when qui tam whistleblowers qualify as an “original source” for purposes of bringing a case.  The case cite  is U.S. ex rel. Nelson v. Sanford-Brown, Ltd.

In Sanford-Brown the relator filed a qui tam suit against two educational institutions, alleging violations of the False Claims Act.  The defendants moved to dismiss the fraud allegations, arguing that the FCA’s public disclosure provision barred the relator’s claims, because the alleged fraud had been previously publicly disclosed in various news reports, lawsuits, and government investigation.  A few words about the nature of the original source requirement will most likely prove helpful.

What is the original source requirement and why is it so important?

Pursuant to 31 U.S.C. §3730(e)(4) of the federal False Claims Act only the original source of the information or the Attorney General may bring a case if there has been a public disclosure of the information on which a case is based.  This important limitation is, in the world of qui tam whistleblower litigation, known as the public disclosure bar.

There are two parts to the “original source” exception to the public disclosure bar – a relator must have direct and independent knowledge of the false claims, and the relator must voluntarily disclosure the information he or she has to the government prior to filing the case under seal.  It is important to remember that in the information age, it is literally impossible for a relator’s lawyer to know for sure whether there has been a public disclosure of the information on which a case is based. It is therefore of paramount importance for lawyers representing qui tam whistleblowers to serve a detailed pre-filing disclosure in each and every case.

As an aside, I am not quite certain how this particular case got into this posture.  I say that because the federal FCA was amended by Congress in 2009 and then again in 2010 and 2011, and among the major changes made were changes to the public disclosure bar; more specifically, the public disclosure bar was amended such that it is no longer a jurisdictional affirmative defense that can be raised by defendants…but that is exactly what the defendants in this case did.

Back to the story of the relator in Sanford-Brown.

An examination of the types of pre-filing disclosures and whether they qualify a whistleblower as the original source

Relator asserted that he was the “original source” of the fraud allegations and thus was not prohibited from bringing his case by the public disclosure bar.  The relator here had no trouble satisfying first prong — that is, the “direct and independent knowledge” requirement — of the original source provision; the main focus of the opinion is whether relator voluntarily provided the information on which his fraud claims were based to the government before filing his qui tam suit.  In that regard, relator submitted several different types of documents which, he claimed, were his initial disclosures to the government. The documents submitted consisted of emails and letters that he either sent to or received from (1) two U.S. Congresswomen, (2) a state education approval board, and (3) a United States Attorney. The court examined each item in turn.

With respect to the relator’s emails to the two U.S. Congresswomen, the court interpreted Seventh Circuit precedent to indicate that an original source’s voluntary disclosure to the government must be made to “an enforcing branch of the Government – one that might be able to do something with the information it receives.” The court suggested that an email to a legislator would not satisfy that requirement. But the court also noted that the legislative history of the FCA’s original source provision defines “government” to include Congress, among other entities.  Ultimately, however, the court did not need to decide this issue because it determined that neither email actually discussed the relator’s fraud allegations.  The Court next turned its attention to the relator’s emails to the state education board, which it held could not qualify as a disclosure because for the purposes of the federal FCA, the term “government” means only the federal government.

A letter to the U.S. Attorney does the trick

Finally, the court considered the relator’s letter to the U.S. Attorney. There could be no dispute that this letter was a voluntary disclosure to the government as contemplated by the FCA, so the defendants instead tried a different attack, by arguing that since the letter arrived at the U.S. Attorney’s Office only three days before the qui tam suit was filed, it was insufficient to give the government adequate time to investigate the fraud allegations. The court theorized that the voluntary disclosure provision serves no purpose if a qui tam relator can satisfy the requirement by “submitting a draft complaint to the Government mere days or even hours before formally filing their complaint.”
But the court held that by the FCA’s plain language, the relator would comply with the voluntary disclosure requirement “so long as [he] had gotten his letters to the Government even one minute before filing his complaint.”

In reaching this conclusion, the court distinguished the relator’s letter – which the court held was “purely voluntary” – from relators’ statutorily required disclosures to the government pursuant to the FCA’s procedural provisions that require relators to file their qui tam complaints under seal, but to serve on the government a copy of the complaint and a written disclosure of all relevant information in the relator’s possession.

The court had already determined that the relator had direct and independent knowledge of the information his remaining fraud claims were based on, and because the relator was able to establish that he voluntarily disclosed that information to the government prior to filing his qui tam suit, the court held that the relator was an original source who could overcome the FCA’s public disclosure provision.

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

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Federal false claims act creates liability for any person submitting false claims

By Zachary Kitts on April 3, 2014 in , , , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

The federal false claims act creates liability for any person submitting false claims but does not define the term person

The federal False Claims Act creates a cause of action against any “person” who makes false or fraudulent claims to the government for money, or who engages in other broadly-defined conduct with regard to government funds.  The federal FCA does not however define the term “person.”

A couple of weeks ago the U.S. Court of Appeals for the Fourth Circuit issued an opinion on this point in United States ex rel. Oberg v. Pennsylvania Higher Education Assistance Agency, et al.  I think the opinion should prove interesting to readers.  The opinion addresses the category of “persons” who can be liable for submitting false or fraudulent claims.  Specifically, the opinion addresses whether entities created by state governments can be liable for submitting false or fraudulent claims to the federal government.

This opinion should be of particular interest to those of us with an interest in state false claims act statutes.  Over the last 25 years or so, state governments everywhere have created a vast array of boards, commissions, authorities, etc. to handle the increasingly-complex work of state governments.  As a result, there are many unanswered questions about whether a particular state-created board or authority can be a defendant in either a federal FCA case or even a state FCA case under a statute like the Virginia Fraud Against Taxpayers Act.

Some background will no doubt be helpful.

PERSONS OF INTEREST IN FALSE CLAIMS ACT LITIGATION

Over the 14 years or so, a number of SCOTUS opinions have clarified who is – and who is not – a “person.”

The first SCOTUS opinion to consider whether a state government was a person was Vermont Agency of Natural Resources v. United States, ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).  There, the Supreme Court held that a state or state agency does not constitute a “person” subject to liability under the Act.  The Court also noted that corporations, by contrast, are presumptively covered by the term person.  Three years later, SCOTUS applied the latter presumption and held that municipal corporations – in that case, counties – are ‘persons’ subject to suit under the FCA. Cook County v. U.S. ex rel. Chandler, 538 U.S. 119, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003).

It is against that backdrop that Mr. Oberg’s case must be considered.

 The Fourth Circuit Opinion in US ex rel. Oberg v. Pennsylvania Higher Education, et al.

Oberg brought an action in his official capacity as a qui tam relator against the Pennsylvania Higher Education Assistance Agency, the Vermont Student Assistance Corporation, and the Arkansas Student Loan Authority.  These entities were established by their respective states to improve access to higher education by originating, financing, and guaranteeing student loans.  Oberg alleged that each entity defrauded the U.S. Department of Education and violated the False Claims Act by submitting false claims for a student loan interest subsidy.

Defendants moved to dismiss the relator’s complaint, arguing that they were “arms” of their respective states, and as such, were not “persons” subject to qui tam suits under the False Claims Act.

The Fourth Circuit opinion starts by differentiating between Eleventh Amendment immunity from suit and the statutory framework set forth by the FCA.  While the Eleventh Amendment does make states immune from suit in most circumstances, that is not the appropriate starting point for analyzing whether a state agency is immune from a suit under the federal False Claims Act.  Rather, the appropriate starting point for FCA liability is whether the defendant is a “person” who can be liable under the FCA.

Stated a slightly different way, Eleventh Amendment immunity is not an affirmative defense to be asserted and proved by the defendant; it is a prerequisite to liability and must be alleged and ultimately proved by the relator or by the government.

The Fourth Circuit applied the classic “arm of the state” test, which consists of four nonexclusive factors: (1) “whether any judgment against the entity as defendant will be paid by the State;” (2) “the degree of autonomy exercised by the entity, including such circumstances as who appoints the entity’s directors or officers, who funds the entity, and whether the State retains a veto over the entity’s actions;” (3) “whether the entity is involved with state concerns as distinct from non-state concerns;” and (4) “how the entity is treated under state law, such as whether the entity’s relationship with the State is sufficiently close to make the entity an arm of the State.”

The Court concluded that remand was necessary to permit limited discovery as to whether the Pennsylvania Higher Education Assistance Agency and the Virginia Student Assistance Corporation were proper defendants under FCA; with regard to the Arkansas Student Loan Authority, the Court determined that that entity was indeed an arm of the state, and thus could not be liable for false claims submitted to the United States.

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

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UNDERGROUND GAS STORAGE TANKS AND STATE FALSE CLAIMS ACTS

By Zachary Kitts on March 29, 2014 in , , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

UNDERGROUND GAS STORAGE TANKS AND STATE FALSE CLAIMS ACTS

Today’s post looks at an area unique to state false claims act statutes – namely, qui tam actions alleging false claims and fraud against state governments for the clean-up of underground gas storage tanks.  Several states have brought false claims enforcement actions recently, but first a little background on the law of petroleum tanks and why it is an issue today.

AMERICANS FALL IN LOVE WITH THE CAR — AND, BY NECESSITY, WITH THE UNDERGROUND GAS TANK

It is a well-known bit of American history that after World War II Americans became fascinated with cars.  As Americans became used to driving everywhere, the automobile industry flourished and provided hundreds of thousands of jobs.  The United States government  encouraged (and helped to finance) this love of cars (in part) by making the interest paid on a car loan tax-deductible just like the interest paid on a mortgage note is deductible today.  (In fact, such interest was tax deductible up until the time of the Vietnam War).

With this increased demand for cars came an inevitable increase in demand for gasoline.  Tens of thousands of gas stations opened across the country during the post-war boom.  No main street anywhere was complete without a few gas stations, and ownership of a gas station quickly became an all-American small business, right alongside the family farm.

No one stopped to think about what would happen when some of these gas stations closed – and certainly in that age of limited environmental knowledge, no one stopped to think about the ramifications of tens of thousands of underground tanks leaking petroleum into the soil and into the water supply.  As a result, by the 1980′s, the United States had a nationwide problem with old, leaky, underground petroleum storage tanks. Congress and then the Environmental Protection Agency began taking action, and much legislative and regulatory ink was spilled.

Lots and lots of stuff happened — and much of it was painfully dull so I won’t convey it here.

Instead, I will cut to the chase and say that nowadays, each state administers its own petroleum tank clean-up fund.  Without exception each state’s fund functions as an insurance program; owners and operators of petroleum tanks in Virginia (and other states) must demonstrate that they are able to bear their fair share of the costs of the cleanup if one of their underground petroleum storage tanks leaks.  Once the individual owner’s obligation has been met, the state’s fund will reimburse for the cleanup and for other reasonable, necessary and otherwise eligible corrective actions.

And this fund is where the potential for mischief – and violations of state false claims acts –  arises.  The petroleum tank remediation fund of each state is more or less the same, although some of them have cooler names than others….so we will take a look at Virginia’s.

THE VIRGINIA PETROLEUM STORAGE TANK FUND AND THE VIRGINIA FRAUD AGAINST TAXPAYERS ACT

In Virginia, our state program is called the Virginia Petroleum Storage Tank Fund; the Commonwealth’s primary revenue source for the Fund is a state fee of one-fifth of one cent per gallon on regulated petroleum products, including gasoline, aviation motor fuel, diesel fuel, dyed diesel fuel, kerosene, and heating oil sold.  This fee, which is collected by the Virginia DMV, is monitored and maintained at an appropriate operating level and is increased by the Commissioner of Motor Vehicles to three fifths of one cent when notified by the Comptroller that the Fund has been, or is likely to be, reduced below three million dollars.

Simply stated, if a petroleum seller obtains coverage for the costs of tank remediation from any source other than the state fund, those costs are not eligible for reimbursement.  This is made very clear on the Virginia Petroleum Storage Tank Fund Reimbursement Application, as well as in Virginia Regulations such as 9 VAC 25-590-210 which specifically state that claims paid by an insurance company are not eligible for repayment from the fund.

The possibility of double-dipping is and always will be too much for some unscrupulous folks, however, and in my humble opinion, these cases demonstrate very nicely why every state government needs a state False Claims Act statute.  While I am unaware of any Virginia Fraud Against Taxpayers Act cases alleging violations of these or any other provisions of the Virginia Underground Storage Tank fund, there have been several notable cases in other states recently, and we can be 100% certain that these violations are taking place right here in the Commonwealth.

For example, over the last three years or so, Massachusetts Attorney General Martha Coakley has recovered more than $7.9 million in FCA prosecutions. In April 2012, AG Coakley announced a $2.2 million settlement with Sunoco involving the company’s reimbursement claims to the Massachusetts UST Fund. In December 2012, the AG’s Office announced a $1.7 million settlement with Chevron and Texaco.

Minnesota officials have also used the Minnesota False Claims Act to sue gas wholesalers, including a 2013 settlement with Chevron, ExxonMobil and ConocoPhillips.  Those three companies agreed to repay the state of Minnesota a total of almost $8 million for concealing that insurance companies had already pay the costs associated with leaking tank remediation.

And, in February of this year, the state of Minnesota filed suit against BP PLC alleging that the company filed 1,407 claims for reimbursement through the PetroFund (that is what Minnesota calls it) beginning in 1988.  For each one of those 1,407 claims, BP was paid in full by the Minnesota petrofund; for each of those 1,407 claims, Minnesota alleges, BP/Amoco was also reimbursed through private insurance policies.

And how did Minnesota figure that out?

Because BP filed lawsuits against any insurer with the audacity to deny BP’s insurance claim for the costs associated with petroleum storage tank remediation.   public records show that BP recovered close to $300 million from insurers to denied the claims.

OUCH!  No wonder the petroleum jobbers showed up to lobby against the Maryland False Claims Act last week….

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

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Attorney client privilege, internal investigations and false claims act litigation — Part Two

By Zachary Kitts on March 18, 2014 in

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Attorney client privilege internal investigations and false claims act litigation — Part Two

This is the second of two posts about the recent discovery opinion in United States ex rel. Harry Barko v. Halliburton Company, et al.  The opinion concerns whether the attorney client privilege applies to the work product generated during a contractor’s internal investigation of its own operations.

This opinion is important because the new self-disclosure/self-reporting/code of ethics framework put into place by 2009 changes to the federal False Claims Act and the 2008 changes to the Federal Acquisition Regulations worked exactly as they were supposed to work.

Judge Gwin’s Opinion in US ex rel. Barko

We now turn our attention to the discovery dispute that triggered the opinion.  Harry Barko is a former employee of Halliburton/KBR who alleged, among other things,  that Defendants engaged in a scheme to defraud the United States by inflating the costs of laundry services on American military bases in Iraq.  The case is being litigated on a non-intervened basis; in other words, the United States chose not to intervene in the lawsuit, which means the relator’s lawyers — in this case, Kohn Kohn & Colapinto — are responsible for prosecuting the case on behalf of their client Harry Barko, as well as for the United States.

On November 14, 2013 Barko served a set of Requests for Production of Documents.  Relator specifically asked for documents relating to any internal audits undertaken by Halliburton/KBR in response to the subject matter of the relator’s Complaint.  Specifically, it seems that relator asked for all documents related to KBR’s Code of Business Conduct reviews.  Unsurprisingly, defendants responded that such documents had indeed been created and that such documents still exist.  Defendants asserted, however, that the relevant documents and information were protected by either the attorney-client privilege or the protections afforded to attorney work product, or both.  As such, defendants declined to produce documents responsive to the request.

This, of course, was not something that Mr. Barko’s lawyers intended to let go.  Relator’s counsel filed a Motion to Compel in early February of this year, and ultimately defendants were ordered to produce all such documents and information to the Court for an in camera review.  This in camera review formed the basis of the Court’s written opinion.

Because the internal investigations that generated the documents at issue were mandatory for KBR, the documents were not covered by either the attorney-client privilege or the work product privilege

As a result of the amended FAR provisions, contractors are required to have a Code of Ethics and a business conduct policy; the ethics provisions in FAR require also that contractors communicate this ethics code to employees and train employees on the proper course of action if they encounter an ethical issue.  The proper course of action, in a contractor’s training materials, always includes reporting the ethical concern to a designated point of contact within the company.

Because contractors are also required to report any credible evidence of a violation of the federal False Claims Act or a number of criminal statutes to the government within a certain time frame, every contractor that needs to comply with these FAR provisions has now created an internal investigations team to investigate any and all allegations of fraud or misconduct that flow in from employees.  These internal investigations are supposed to weed out the frivolous complaints (because no doubt, once employees learn how much fun it is to call that anonymous tip-line, there will be some abuse of the system) from the real deal.  If a complaint coming in through the tip line turns out to be credible, the contractor is required to inform the government of the allegation.

And that, dear readers, is why the work product generated by these investigations is not covered by the attorney-client privilege.  Such work product was not generated for purposes of securing legal advice for KBR; rather, this work product was generated so that KBR could meet its obligations as a contractor of the United States.  That is also why the materials were not covered by the privilege afforded to attorney work product — in order to be covered by that privilege, the documents and materials must be generated in anticipation of litigation.  These documents were not generated in anticipation of litigation but rather were generated as part of KBR’s internal efforts to comply with its obligations as a contractor to the United States.

The opinion is well worth a read for anyone interested in qui tam litigation under the Virginia Fraud Against Taxpayers Act and/or the federal False Claims Act, because I predict many more such battles in the not-too-distant future….

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide                                                             


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