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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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Internal Investigation Privileges and federal False Claims Act Litigation

By Zachary Kitts on March 13, 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

 

 

 

 

 

 

Internal Investigation Privileges and federal False Claims Act Litigation

Judge Gwin’s Opinion in Barko v. KBR from the U.S. District Court in D.C. last week is well worth on a read on a number of different levels.  The opinion resulted from a discovery significant discovery dispute in a qui tam action filed against contractor Kellogg Brown & Root.  The discovery dispute was significant because it goes right to the heart of some important changes to the regulatory and statutory framework of the federal False Claims Act.

To my knowledge, this is the first time any District Court has addressed the new framework in such a complete manner.  I am also pleased to report that the significant changes to FAR Subpart 3.100 worked in practice exactly as they were envisioned by the drafters.

The “Revolution” of FAR Subpart 3.100

Regular readers will recall previous discussions of amendments to the Federal Acquisition Regulations, or FAR.  Starting in 2009, new FAR provisions made several important – indeed almost revolutionary – changes.  Contractors are now required to have in place a mandatory ethics compliance program, and they are required to communicate this information to all employees, together with information about an internal reporting process for employees, as well as information about what they employee should do if he or she does not feel that the contractor has adequately addressed his or her concerns.

Logically, the new FAR provisions also require that contractors disclose “credible evidence” of a violation of the FCA or several criminal statutes.  This is obviously directed at the internal investigation process, so that when the process works – i.e., when an employee communicates concerns about fraud or false claims on a government contract via one of the internal reporting mechanisms required by the regulation – the contractor cannot simply bury the information.  Rather, if the information amounts to a credible violation of the federal False Claims Act or a criminal statute, it must be disclosed to the government.

Internal Investigations, Attorney-Client Privilege, and the federal False Claims Act

As a direct and predictable result of the new FAR provisions’ emphasis on internal investigations and voluntary disclosures to the government, significant work was created for hordes of lawyers, both in-house lawyers and those from outside firms.  More or less every major contractor now has in place one or more internal investigation teams, usually led by lawyers and staffed by retired investigators of every ilk, from retired FBI agents to former OIG people.  When an internal report of suspected fraud or false claims comes in, these folks go to work and hopefully “run it to ground” as we say in Virginia.  At some point, some of these investigations will usually go to outside firms as well.

But what ultimately happens to the significant work product generated by these lawyers and investigators?  Is it subject to any particular privilege, such as the attorney-client privilege or the privilege afforded to attorney work product?  Is there an “internal deliberations” privilege that shields this material from discovery in civil litigation?  These are the questions answered by the recent opinion.

Up Next:  BARKO V. KBR and the First Interpretation of the new FAR rules

Stay tuned for the next post which discusses the Court’s opinion in Barko v. KBR…

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

 

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Virginia whistleblower retaliation bill has little or nothing to do with the Virginia Fraud Against Taxpayers Act

By Zachary Kitts on March 1, 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

 

 

 

 

 

Virginia whistleblower retaliation bill has little or nothing to do with the Virginia Fraud Against Taxpayers Act

As some readers know, I have been in Richmond several times in recent weeks for sessions of the General Assembly related to H.B. 731, which  makes important amendments to the anti-retaliation provisions of the Virginia Fraud Against Taxpayers Act.  (FYI, unfortunately, H.B. 731 died in the Senate this week, on a straight party-line vote.)  In the process, however, I learned that there is at least one other whistleblower bill moving through the legislature as well.  This legislation, House Bill 439, is designed to protect government employees and others from retaliation for reporting fraud, waste and abuse.

 

House Bill 439 is sponsored by Del. James LeMunyon.   The bill was the subject of a news piece this week by Investigative Reporter A.J. Lagoe.  As do many commentators — and more than a few lawyers — Lagoe and others talk about “whistleblowers” so I thought I would do a post today on the similarities and differences between this sort of whistleblower law and the Virginia Fraud Against Taxpayers Act…and I will address in a future post what the term “whistleblower” means anyway.

Investigative Reporter A.J. Lagoe and Waste in the Commonwealth’s Government

WRIC Investigative News Reporter A.J Lagoe has been investigating waste and abuse in our state government for some time, and yesterday he had a feature piece on the news.  The gist of Lagoe’s piece is that many Virginia government employees have witnessed waste and abuse of taxpayer dollars in the course of their employment.  I have no trouble believing that.  Lagoe interviews several Virginia government employees who confess to seeing lots and lots of waste and abuse, but not speaking out for fear of losing their jobs; as such the people are interviewed using the old 60 Minutes technique of obscuring their images and voices.   I have no problem believing that these folks are afraid of losing their jobs, and the truth is that they probably would be fired if they spoke out.

Still, while I applaud the work of Mr. Lagoe and Del. LeMunyon, I for one am not at all certain that there is much that can be done about the problem of fraud within the government ( which seems to be the focus of Del. LeMunyon’s bill) as opposed to fraud upon the government, which is the focus of the Virginia Fraud Against Taxpayers Act (and the federal False Claims Act).

Simply put, it is not easy to draft legislation to correct the problem of fraud within the government, and to protect government employees who wish to speak out about waste and abuse.  That is because any and every government employee has seen fraud waste and abuse — any hourly employee of the government, for example, who takes a long lunch and fails to reflect that on his or her time sheet is abusing taxpayers funds, because they are being paid for work they didn’t perform.  And this is just a simple example; other examples abound when it comes to the benefits packages state and local government employees get, and so forth.

The Virginia Fraud Against Taxpayers Act already provides a good remedy for state and local government employees who complained about fraud on the government or made efforts to stop one or more violations of the VFATA…and by tying the concept of “protected activity” (because a person must prove that they engaged in protected activity to trigger the protections of the VFATA anti-retaliation provisions) to an effort to stop a violation of the VFATA we had about as good a proof model as we are going to get.

At the end of the day, while I applaud the work of Mr. Lagoe and Jim LeMunyon, H.B. 439 has nothing to do with the Virginia Fraud Against Taxpayers Act, although it does, thank goodness, state as much in its text.

Stay tuned readers, for a follow-up post on the meaning and history of the term “whistleblower.”

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

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Kentucky State False Claims Act is introduced by House Speaker Greg Stumbo

By Zachary Kitts on February 27, 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

 

 

 

 

 

Kentucky State False Claims Act is Introduced by House Speaker Greg Stumbo

What was that I was saying recently about things being quiet on the legislative front?

Kentucky legislator Greg Stumbo (D-Prestonsburg) introduced H.B. 401 in this legislative session, otherwise known as the Kentucky False Claims Act.  Rep. Stumbo is not only a member of the Kentucky House of Representatives, he is the Speaker of the House, which means he knows how to get things done.  As such, it passed out of the Kentucky House of Representatives by a vote of 91-1 and is now in the Kentucky Senate.  Speaker Stumbo really summed it all up quite well when he said:

“With this one bill, we can improve oversight of critical state-run programs like Medicaid; we can be better stewards of each taxpayer dollar; and we can give pause to those criminals who think they can get away with stealing the tax payers’ money,” he said. “There is only so much our law enforcement and auditing officials can do and a limit to how far they can reach; this will put every citizen on the look-out for fraud.”

He is quite right about that of course — and in my experience with state-level FCA legislation, if you have people in your state legislature that understand how the law works, that is always a good sign.  If the person serves as Speaker of the House, that is even better.  No one should ever assume that state legislators will understand how FCA litigation works.  Years of practicing in this area of law — and years of testimony before many state legislatures — has demonstrated to me clearly that qui tam litigation is, in many ways, counter-intuitive to the trained legal mind.

The above-quote by Speaker Stumbo shows that he clearly “gets it” and understands the importance of qui tam legislation; that is to say, he understands that compliance with any rule or regulation can be determined by looking at five factors.  In no certain order, those factors are:   (1) the likelihood that transgressions of the law will be detected; (2) the likelihood that transgressions will be prosecuted when observed; (3) the substance of the behavior the law forbids; (4) the nature and quality of the evidence required to prove a violation; and (5) the severity of the potential sanctions.

Not only does Speaker Stumbo understand this, he clearly understands that while government has proven very capable of addressing factors three through five, it has proven somewhat less capable with factors one and two, and he understands that qui tam legislation fills the gap…Even better, he has learned from the past, when Kentucky was unable to maximize its recovery for want of a state false claims act.

No word yet from the Kentucky state Senate, but lets keep our fingers crossed.

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

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Proposed changes to federal rules of civil procedure are a bad idea for many reasons

By Zachary Kitts on February 25, 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

 

 

 

 

 

Proposed changes to federal rules of civil procedure are a bad idea…for many reasons

I wanted to make all readers aware of some proposed changes to the federal rules of civil procedure, and explain in a little more detail why I think the proposed rule changes are a bad idea.  Although the time for comments has now officially expired, there may still be an opportunity to encourage the Committee on Rules of Practice and Procedure to reject these changes and I encourage readers to do whatever they can to resist these changes to the rules.

I am not sure what it is about human nature (or maybe lawyer nature) that makes people want to write more rules instead of enforcing the rules we already have, but the rule changes are a bad idea.

Background to the proposed amendments to the Federal Rules of Civil Procedure

In 2010 the Standing Committee on Rules and Procedure met and developed a number of proposed amendments to the federal rules.  According to the Rule Committee, the proposed revisions are designed to expedite civil litigation, and can be grouped into three types:

One set looks to improve early and effective judicial case management. The second seeks to enhance the means of keeping discovery proportional to the action. The third hopes to advance cooperation.

In my humble opinion, the proposed changes will do nothing to accomplish these objectives.  I also think that a number of the changes strike right at the heart of what the judicial process is all about, and some of them even strike a blow at the United States Constitution.  I am aware that those are pretty serious allegations, but I don’t know how else to describe some of these ideas.

For example, one of the proposed changes to Fed. R. Civ. P. 26(b)(1) creates a “proportionality” requirement for civil discovery.  This requirement would mandate that federal courts limit discovery to make sure it is:

proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties’s resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.  (emphasis added).

In my view, this strikes right at the guarantees made by Section 2 of Article III of the Constitution.  That section provides that,

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made …

There is no amount in controversy for federal question jurisdiction, because the Constitution says that when Congress passes a law, it is by definition important enough to merit the attention of a federal court.  And that is fundamental to our system of laws.  Of all of the things I like best about the Eastern District of Virginia I have never observed any judge there berate a litigant or a lawyer for filing an “unimportant” case in federal court — but I have been asked by Judges in federal courts other than the Eastern District of Virginia why an FLSA case for $10,000 or so wasn’t filed “in a small claims court or somewhere less important than my court room.”

I restrained my answer at that time, but I had the overwhelming urge to say:  “Write your Congressman if you don’t like my FLSA case Judge, because it was Congress that told me to file it here.”

But I digress…

Efforts to increase judicial involvement in the discovery process by the proposed rules

Another major goal of the rule changes is to get more judicial involvement in the discovery process.  This one confuses me as well, because what is needed is not more judicial involvement in the discovery process, but rather judicial involvement in the discovery process at the right times and in the right places and in the right amounts.

I do not think the sort of judicial involvement contemplated by the rule changes would prove helpful.  The proposed rule changes seek to require an “informal conference” with a Judge prior to filing a discovery motion.   I fail to see how would be helpful but I do see how it would delay a real discovery motion.  Scheduling such an informal conference would no doubt be difficult in most cases where there is a discovery dispute, because much of the time when a discovery dispute arises one or both parties are engaged in some sort of shenanigans.  If the parties can’t cooperate in discovery they are probably not going to cooperate in setting an informal discovery conference.  This so-called “informal conference” would therefore create a real delay as the parties move from squabbling about discovery to squabbling about scheduling the informal conference.

This requirement would also create significant additional work for the courts who already have quite enough to do as it is; it would also increase a client’s costs.  Any judge would be unable to prepare for these “informal” conferences without some kind of written statement of the issues prior to the informal conference, meaning clients will waste further money for their lawyers to prepare such a written statement.  In complex cases, these conferences would be even more meaningless because judges just would not have time to prepare.

Meanwhile, the underlying dispute would be no closer to being resolved.  Ultimately, many litigants would still need to file a discovery motion, and clients would basically pay twice for the same work product.

The proposed changes to Fed. R. Civ. P. 4(m) are also a bad idea.

Of all of the suggestions in the proposed revisions, shortening the period for service of process (found in Fed. R. Civ. P. 4) from 120 days to 60 days is by far the worst one, and it make little sense, to be blunt.  I do not see how on earth this would make the civil discovery process shorter or cheaper, because we are talking about a period of time before a defendant even knows it has been sued.  Forcing a plaintiff’s attorney to serve a complaint 60 days after filing will only require lawyers to serve lawsuits before they are ready to fully focus on a case. It will also give defendants less time to discuss settlement prior to having to incur the costs of filing an answer and grounds of defense.

Some of the proposed changes are not necessarily bad per se, but experience in other jurisdictions has shown them to be unhelpful

Certain other proposals are not bad per se, but experience in Virginia state courts has demonstrated that they will not be helpful.  for example, the proposal that a party be allowed to submit written discovery along with the complaint is not a bad idea on its face, but requiring an answer as of the initial conference renders it meaningless.  In any event, Virginia state courts have always allowed written discovery to be served alongside the complaint, but the opportunity is rarely taken, because it is better to wait and see the answers and denials of the answer before wasting precious interrogatories and document requests.

If the Federal Rules Committee is serious about speeding up civil litigation, all they need to do is look at the U.S. District Court for the Eastern District of Virginia

Judges and lawyers practicing in the Eastern District of Virginia already know that the formula for moving cases along is very, very simple.  Almost every single ill that the new rule revisions hope to correct could be corrected much more easily by (1) setting an early trial date early in the litigation and then sticking to it; (2) creating a short discovery period and (3) by efficient judicial policing of the discovery process.

Simply put, most cases should be brought to a jury trial within one year of the date of filing, regardless of whether or not the case is served within the 120 day period set forth by Fed. R. Civ. P. 4(m).  That makes it virtually impossible for there to be anything other than a short discover period.  And a short discovery period means that a lawyer on the plaintiff’s side has no choice but to carefully prepare his or her case from the very start, beginning with a focused, carefully prepared complaint.  This is how we do it in Virginia, and it is somewhat unique, in my experience, from what one sees in other places.  In New York and Florida, for example, I have seen long, rambling complaints that have several hundred words per numbered paragraph.  Such allegations do not help to define the issues in a case, and they render the denials of an answer unhelpful.

When lawyers are faced with a short discovery period and an early trial date, you see, they are forced to make every part of civil litigation count.  In too many places, the allegations of a complaint and the denials of an answer (both pursuant to Fed. R. Civ. P. 8) are not regarded as framing the scope of the litigation.  Too many lawyers regard a complaint as something designed to scare a defendant; by the same token, too many lawyers view an answer as something to be prepared without communicating anything about the case.

The proposed rule changes should be rejected, and I encourage my readers to pass it along…I will keep you posted about the proposals as the wind their way through, or not….hopefully.

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

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West Virginia considers a state False Claims Act

By Zachary Kitts on February 22, 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

 

 

 

 

 

West Virginia False Claims Act Advances in the 2014 Legislative Session

As regular readers know, tracking state false claims act legislation is one of the most important things we do here at vaquitamlaw.com.  The power of state false claims act legislation to prevent fraud on state governments and to return money to a state’s public fisc is not in question, and ultimately I believe every state will have a state false claims act.  I was very happy to see that the West Virginia False Claims Act made it out of Committee this week.

State legislative battles seem to have died down a bit in the last couple of years.  In my opinion, this is largely because most states now have some form of FCA.  In fact, the next state to pass a false claims law will become the 30th state to join what I call the “Deficit-Reduction Club.”

There are a couple of states currently considering state FCA legislation this session, but by far the most interesting opportunity is in West Virginia.  This week, H.B. 4001 (also known as the West Virginia False Claims and Taxpayer Protection Act of 2014) was passed out of the House of Delegates Committee on the Judiciary.

The legislative battle also appears to have gotten rather personal.  Del. Stephen Skinner (D-Jefferson County) is the chief sponsor of the bill and has spoken in favor of it.  Del. Paul Espinosa, on the other hand, is against it:

Delegate Paul Espinosa, R-Jefferson, said business organizations have considered the bill “sue and settle” legislation that could lead to frivolous lawsuits, which could cost businesses, Espinosa said.

“While the premise behind the legislation to prevent improper activity by a business is certainly noble, the concern is that the effect of this legislation as it is written would make it very easy for individuals to sue a business,” Espinosa said. “The businesses would have to defend the suit at considerable expense or settle the lawsuit to avoid that expense.”

Sound familiar anyone?  I think it does.  None of these arguments from Del. Espinosa will be any surprise to regular readers of this blog — this is the Chamber of Commerce party line.  When I testify before state legislatures on state FCA laws, I always take special care to tell the state delegates and senators to ask the friendly Chamber lobbyist the questions that the Chamber of Commerce cannot answer.

If state false claims laws are unfriendly to businesses, why do all of the most business-friendly states have these laws?

A few years back, a group called American Legislative Exchange Committee (or ALEC) started the disingenious lobbying strategy of calling state FCAs bad for business.  Other notable lobbyists took note and began using this ruse.  This is baloney folks, I don’t know any other way to put it, but it is baloney that has apparently gained some acceptance in West Virginia.

The simple fact, as documented again and again on this blog, is that all of the most business-friendly states have state false claims laws.  The Commonwealth cherishes her status as one of the top 5 business-friendly states as ranked by Pollina, Forbes and the U.S. Chamber of Commerce.  If West Virginia’s legislators look to the facts they will see this argument for what it is — a brazen cheap-shot aimed at the spot where it will hurt the most.

In the case of West Virginia that would be the state’s consistently poor business ranking.  Unfortunately for West Virginia, the same rankings that consider Virginia to be one of the most business-friendly states almost always rank West Virginia as one of the least business-friendly states.  It is worth noting that anti-FCA lobbyists use this argument if — and only if — the state they are lobbying has a poor business ranking.

That is indeed unfortunate and the legislature is right to be concerned about it, but passing a state false claims law is not going to hurt their business-rankings and it won’t hurt business either.  In fact, as discussed on his blog before, state qui tam laws help to foster a business-friendly climate in a number of different ways.

To be fair, passing a state FCA statute also is not going to drag West Virginia from the bottom of the business rankings to the top, but it is sure as hell not going to hurt either…just ask Virginia, Texas, North Carolina, New Hampshire, and all of the other top states for business.

Before concluding this post, I would be remiss if I didn’t point out that much thanks is owed to Taxpayers Against Fraud Education Fund Director Patrick Burns for his  testimony and hard work on this issue…only a few weeks ago, it looked as if the West Virginia False Claims Act would be tabled and left to wither on the vine…

Stay tuned folks there will hopefully be more news to come.

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

 

 

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After Six Years of Blogging About Qui Tam I Won’t Start Doing Apology Posts Now…

By Zachary Kitts on February 14, 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 apology post is a time-honored tradition in the world of blogging, but its one tradition I won’t be adopting …

The apology post usually goes something like this:

“Gee, I am sorry to disappoint my readers for taking so long in between posts, but I have been so very busy lately … “

I’ve been blogging about qui tam litigation and the Virginia Fraud Against Taxpayers Act for a little over six years now — I have never done an apology post, and I won’t start now.

I am, however, pleased to announce that I am contributing a chapter on qui tam litigation to the 2014 edition of Employment Law in Virginia, published by Virginia CLE.   And I am even more pleased to announce that the chapter is now finished and is in the hands of R.Mark Dare.

There is no question that this two-volume set is a must-read for all Virginia employment lawyers.  When I started doing employment law in 2002 the first thing I did was buy a copy; the second thing I did was attend a replay of Eddie Isler’s “35 Things About Employment Law All Virginia Lawyers Should Know.”

So stay tuned folks…While I was busy writing the chapter, things didn’t sit still in the world of qui tam and I have some catching up to do…

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

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Fourth Circuit Issues Important New Opinion in U. S. ex rel Bunk — Part I

By Zachary Kitts on January 16, 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

 

 

 

 

 

 

Fourth Circuit Issues Important New Opinion on civil penalties in U. S. ex rel Bunk

At the end of December the United States Court of Appeals for the Fourth Circuit issued an important — and much anticipated — new opinion concerning the constitutionality of civil penalties in False Claims Act litigation.  The opinion concerns two cases that were consolidated for trial in the Eastern District of Virginia in 2011 before Judge Anthony Trenga.

The analysis in this case is so nuanced and so important that I will examine it in two different parts, with today marking part one.

The jury trials in these cases took place in 2011.  Because civil penalties are mandatory as a matter of law the jury has only two tasks with regard to civil penalties in an FCA trial. First, the jury determines whether the defendant is indeed liable for submitting false claims to the United States.  If the answer to that question is yes, then jury determines the number of false claims submitted to the United States.  After that determination is made, it is a question of law for the Court to determine whether the civil penalty for each false claim is the minimum of $5,500 or the maximum of $11,000, or somewhere in between.

Folks, this is an intricate area of the law, so fasten your seat belts….

The bookends of civil penalty awards in qui tam cases

Simply put once courts get into determining the amount for each civil penalty, interesting things can happen.  Courts have discretion to determine whether the maximum or minimum penalty should apply; Courts may also award an amount somewhere in the middle of the maximum and minimum penalty.

In some — albeit rare — cases Judges decline to award civil penalties, which of course they have no authority to do.  In other cases, defendants get slammed with millions upon millions of dollars in penalties.  So what factors make the difference?

Just for the sake of clarity, let me state the obvious again — we are talking here simply about where along a continuum a civil penalty falls.  In other words, in all cases discussed below, defendants were liable for civil penalties because defendants had submitted false claims to the United States.  So we are not talking about liability here, only about whether a penalty is $5500 or $11,000 or something in between.

I will mention one case from each extreme to demonstrate the nuances here — the first case, US v. Rogan, 459 F.Supp.2d 692 (N.D. Ill. 2006) demonstrates clearly a set of circumstances under which courts will lower the boom on a defendant.  The second case  McDonnell v. Cardiothoracic & Vascular Surgical Associates, 2004 WL 3733402 (S.D. Ohio 2004) shows a set of circumstances under which courts will allow a defendant a free skate.

In US v. Rogan, 459 F.Supp.2d 692 (N.D. Ill. 2006), the defendant was a manager of a medical center management company, who conspired with six others to defraud the United States through a kickback scheme. Through the submission of kickback-tainted claims, the medical center received approximately $17 million in Medicare subsidies over a five year period. Rogan himself received $9.5 million in compensation over those 5 years. In assessing damages, the District Court trebled that entire amount and added penalties, producing a judgment of $64 million against the defendant.

A very good example is McDonnell v. Cardiothoracic & Vascular Surgical Associates, 2004 WL 3733402 (S.D. Ohio 2004).  In that case, a qui tam relator alleged that CVSA had used physician employment agreements that violate the terms of the Anti-Kickback Statute.  There is a safe-harbor to the AKS for geographic regions certified as Health Professional Shortage Areas (“HPSA”).  There are nine requirements to the HPSA Safe Harbor; the chief one is—rather obviously—that the provider be located in a HPSA.  In McDonnell, the employer/provider was not located in a HPSA.  So, the defendants paid money to physicians in a manner that is only lawful for hospitals in a HPSA, and this was a problem because defendants did not operate in a HPSA.

But the defendants in McDonnell didn’t get a single civil penalty, while the defendants in Rogan got nailed.  So what made the differences between these two cases?

But, although defendants in McDonell did compensate physicians in a manner that would be an unlawful kickback in any place other than a HPSA, and defendants were not within a geographic area certified as an HPSA, the defendants were the only health care providers for many, many miles.  So the Court refused to institute civil penalties.

A good rule of thumb here is to look at the wrongdoing by the defendants.  In a case where a defendant made out like a bandit and put people in jeopardy in the process (such as Rogan, cited above) Courts show less hesitation about really hammering a defendant.  In a case like McDonell (also cited above) where a defendant violated the law but otherwise did not but anyone in danger, the analysis is different.

Now, back to the Bunk case.  At the trial, the jury found that the defendants had indeed knowingly submitted false claims to the United States; the jury then determined that defendants had submitted exactly 9, 136 of these false claims.  So at that point the jury’s work was finished, and it was up to the Judge to determine, at a later hearing, the amount of the penalty for each of the 9, 136 false claims.

U.S. District Judge Anthony Trenga found that the minimum mandated civil penalty of $50,248,000 is grossly disproportional to the harm caused by the defendants.  He continued,

The court therefore concludes that the FCA [False Claims Act] results in the imposition of an excessive fine in violation of the Eighth Amendment,” Trenga wrote. “For that reason, the court refuses to impose that civil penalty.  The court’s task with respect to economic harm is particularly challenging in this case since neither the government nor the relators attempted to prove at trial any damages and there was in fact no evidence during the trial of any cognizable financial harm to the United States as a result of the 2001 … contract.

Judge Trenga ruled, on a post-trial motion that because the civil monetary penalties on these false claims would exceed $50 million, any recovery was prohibited by the prohibition on excessive fines found in the Eighth Amendment to the United States Constitution.  The court ruled that such an assessment would contravene the Excessive Fines Clause of the Eighth Amendment, and it thus awarded nothing. 

In the next part of this post, we will look at the Excessive Fines Clause of the Eighth Amendment and what other Courts have done…stay tuned folks.

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

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