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The Final Countdown: How Long will these 28 States Continue to Pay the Penalty for Not Having a State False Claims Act?



We begin our countdown with a list:  Maryland, Oregon, Washington, Wyoming, Utah, Arizona, Colorado, Maine, Pennsylvania, North Carolina, South Carolina, Arkansas, Missouri, Iowa, Minnesota, South Dakota, Nebraska, Kansas, Alabama, Mississippi, Ohio, West Virginia, Connecticut, Vermont, Rhode Island.

Between January 1, 2009 and February 15, 2009, all 28 of these state legislatures will convene and begin to grapple with the fallout from the looming economic crisis. 
 
A study announced this week by the National Conference of State Legislatures finds that the states collectively face a $32 billion budget gap after already closing a $40 billion gap since the current fiscal year began. The projections for the next fiscal year, which begins July 1 for most states, reveal another $65 billion gap. 

An excellent interactive map accompanies the report, and makes it plain that state governments are facing a perfect storm of declining tax revenues and ballooning expenses that threaten the viability of essential state programs and services.  Among the hardest hit programs will be Medicaid.

Most of you can probably see where I am going with this

The Deficit Reduction Act of 2005 gave each of the 50 states a strong incentive to pass a state false claims act–specifically, any state that has a statute complying with the terms of the DRA is entitled to an enhanced federal medical assistance percentage (FMAP) for all cases settled through the state FCA.       

To date, 22 states and the District of Columbia have passed statutes that comply with the terms set forth by the DRA, with the vast majority of those states coming on board in the last three years. The benefits reaped by those states have been in the hundreds of millions of dollars. 

Apparently, this is money that Maryland, Oregon, Washington, Wyoming, Utah, Arizona, Colorado, Maine, Pennsylvania, North Carolina, South Carolina, Arkansas, Missouri, Iowa, Minnesota, South Dakota, Nebraska, Kansas, Alabama, Mississippi, Ohio, West Virginia, Connecticut, Vermont, and Rhode Island have not needed up until now.   

In the current economic crises, however, I think the incentive fees offered for passing a state FCA will be too strong to ignore; thus, I am predicting that no less than 10 new state false claims act will be passed during the 2009 legislative session.  I would not be surprised if the number were higher.  I am also predicting that all 50 states will comply by the end of the 2012 legislative session.  

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Q & A: Is It Necessary for the Virginia Attorney General to File A Complaint Under Seal?



Q:  Is It Necessary for the Virginia Attorney General to File A Complaint Under Seal when the Office initiates a case on its own, without a relator?

A:  In a word, no.  The answer to this question raises a larger issue, however–namely,  why is a seal provision included in the statute for a private relator and his or her counsel?  The sound reasons behind this statutory requirement is the topic of today’s post.      

Like the federal False Claims Act, the Virginia Fraud Against Taxpayers Act authorizes an individual with non-public, first-hand knowledge of fraud on the Government to retain a private lawyer and file a claim on behalf of the Commonwealth.  The statute requires that individuals bringing a claim file their Complaint under seal prior to serving it on the Attorney General of Virginia. 

The Complaint then remains under seal for at least 120 days while the Attorney General does his or her statutory duty to investigate the claim and make a decision on whether to intervene in the case.  During the seal period, it is critical that the relator and relator’s counsel maintain absolute secrecy about the fact that the case has been filed. 

As I have often said, the term qui tam gets misused quite a bit.  On this blog, I make a real effort to make sure the words qui tam are used only in their correct context, but I am quite certain I must have misspoken somewhere along the line. 

In case there was ever any doubt to a reader, the words qui tam should only be used to refer to a case initiated by a private relator and his or her private counsel.  The Attorney General also has authority to bring an action without a relator, but such cases are not, strictly speaking, qui tam cases; rather, they are what the United States Department of Justice calls affirmative civil enforcement of the False Claims Act. 

There are many differences between affirmative civil enforcement of the VFATA by the Attorney General and a qui tam claim.  Among them is the lack of seal requirement for OAG-initiated cases. 

The seal requirement is intended primarily to protect the Government’s interests.  If private relators and their lawyers were permitted to file civil claims under the VFATA without a seal requirement, there are many ways the Government’s interests could be harmed. 

First, there could be parallel investigations or proceedings that the Government wishes to keep secret.  The seal period gives the Government a chance to protect its investigations, and at the same time, enhance its investigations by using the relator as a source.  Additionally, there is considerable authority for the proposition that the Government may only issue civil investigative demands prior to making its intervention decision. 

This is perhaps the most important reason.    

Second, the statute could be misused and abused by counsel and relators who did not have the experience necessary to handle a case or who misunderstood the statute.  It is also in the interests of defendants, who should not have to answer ill-advised cases, that there be a seal period.  

This, indeed, was the experience of Virginia immediately after the VFATA became law in January of 2003, when a number of cases filed under seal were dismissed on the motion of the Commonwealth.  In those cases, the 120 day seal period gave the OAG time to consider carefully the claims made in the case, and convince relator’s counsel that the cases did not have merit, or did not fit within the statute.

Like its federal counterpart, the seal requirement of the VFATA is procedural, and not jurisdictional.  Thus, in those unfortunate cases where relators have committed a breach of the seal, Courts tend to examine whether there was actual harm to the Government’s position in the case, and whether the ultimate aim of the statute would be harmed by the breach of the seal.

       

 

 

  


    



         
 

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Senator Grassley Urges Federal Government to Utilize “Lincoln’s Law” to Help Protect and Recover Taxpayer Dollars Lost to Fraud in Economic Stabilization Programs



In the midst of the current financial crisis, which has seen the Federal Government committing the taxpayers to hundreds of millions of dollars in obligations to bail out an ever-larger sector of the economy, we have seen comparatively little talk about protecting this enormous expenditure of taxpayer funds.  

That is, until this week.  Senator Charles Grassley (R-IA) sent the below correspondence this week, encouraging the Departments of Justice and Treasury to ensure that legitimate claims of fraud, waste, and abuse are rooted out and prosecuted to the fullest extent of the law.  An important step towards that goal is the strengthening of whistleblower protections, which could become even more critical given the lack of real oversight noted by many commentators.    

“The False Claims Act is the most effective tool that the federal government has in recovering taxpayer money that would otherwise be lost to fraud,” Grassley said.  “With a special inspector general only now getting consideration before the Senate, seven weeks after legislation was signed into law, whistleblowers could be even more critical as they may offer insight to help piece together fraud that might otherwise have been pushed aside.” 

Sen. Grassley is, of course, the author, along with Rep. Howard Berman of California, of the 1986 amendments to strengthen the False Claims Act. The 1986 Grassley-Berman “qui tam” amendments empowered whistleblowers to file suit on behalf of the United States against those who fraudulently claim federal funds, including Medicare, Medicaid, contract payments, disaster assistance and other benefits, subsidies, grants and loans. 

The full text of Grassley’s letter is included below.




_________________________________________________________

November 17, 2008

Via Electronic Transmission
 
The Honorable Henry M. Paulson, Jr.                         The Honorable Michael B. Mukasey
Secretary of the Treasury                                            Attorney General
U.S. Department of the Treasury                                U.S. Department of Justice
1500 Pennsylvania Avenue, NW                                950 Pennsylvania Ave, NW               
Washington, D.C. 20220                                            Washington, D.C. 20535
 
Dear Secretary Paulson and Attorney General Mukasey;
 
      The Emergency Economic Stabilization Act of 2008 (the “Act”) signed into law October 3, 2008, authorized the President to grant Treasury the authority to purchase, or commit to purchase, troubled assets up to the limit of $700 billion.  Through the Troubled Asset Recovery Program (TARP) and the Capital Purchase Program (CPP), Treasury is using the broad authorities of the Act to stabilize the economy.  While Congress gave the Treasury the authority to use taxpayer funds, Congress also outlined strict oversight provisions to ensure that taxpayer dollars would be used efficiently, effectively, and would not be subject to waste, fraud, or abuse. 
 
      Nearly seven weeks since the passage of the Act, effective oversight of the TARP and CPP is still lacking.   To date, many of the oversight provisions have been overlooked or ignored—in fact, the first nomination hearing for the role of the Special Inspector General for the TARP was just held this afternoon.  At least one other hearing will follow.  According to The Washington Post, some even fear that, “bureaucratic logjams” could delay oversight work for months.[1]  American taxpayers deserve better than bureaucratic logjams and I look forward to the expedited review of Mr. Neil Barofsky’s nomination for the position of Special Inspector General. 
 
      In the meantime, taxpayer dollars are at risk and I believe it is important to discuss alternative procedures and measures that can be taken to ensure taxpayers aren’t taken to the cleaners by unscrupulous individuals.  One proven and effective method of overseeing taxpayer funds has been to support courageous whistleblowers who risk their jobs and livelihoods to bring forth allegations of fraud, waste, and abuse of taxpayer monies.  As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government.  With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated.  As such, I believe you should both work to ensure that all entities participating in the TARP and CPP are made aware that any allegations of fraud, waste, or abuse will be treated seriously and properly referred to the Treasury Inspector General or the Attorney General for review until a Special Inspector General for the TARP is appointed. 
 
      Additionally, another effective deterrent to fraud against the Government has been the False Claims Act (FCA) (31 U.S.C. § 3729 et. seq.).  As the Senate author of the 1986 amendments that reinvigorated the qui tam whistleblower provisions of the FCA, I believe the FCA can and will play an important role in preventing, deterring, and prosecuting fraud against the TARP and CPP.  For example, it has been long recognized by Federal Courts across the country that actionable fraud against the government has occurred when:
 
•         An entity seeks payment pursuant to a program they are not eligible for,
•         Fraudulently seeking to obtain a Government contract,
•         Submitting fraudulent applications for a grant of Government funds,
•         Submitting a false application for a Government loan, and
•         Submitting a claim that falsely certifies that the defendant has complied with a law, contract term, or regulation.
 
While these examples are by no means an exhaustive list of FCA liability, these examples do show that entities who receive federal funds under the TARP and CPP are subject to the provisions of the FCA should they use false or fraudulent submissions in order to obtain federal funds.  For instance, any entity that submits false or fraudulent information in an application to Treasury in order to obtain federal funds available through the CPP would be liable to the Government under the FCA.  Further, while it has been reported that the Treasury does not currently plan to utilize authority under the Act to use the TARP to purchase distressed assets either directly or indirectly, sh
ould Treasury exercise its authority to do so, any fraudulent statements or submissions made to induce the Government to purchase those assets would also subject the fraudfeasors to liability.  As a result, these individuals and corporations could be subject to civil penalties and treble damages for committing fraud against the Government. 
 
      It is my sincere hope that in this time of economic difficulty that businesses, corporations, banks and other institutions applying for federal assistance under the TARP and CPP would make only accurate and truthful statements to the Government.  However, many individuals use complex situations to take advantage of the Government and will stop at nothing to obtain government funds, including providing false and misleading information to do so.  To this point, a witness from the Justice Department testified before the Senate Judiciary Committee earlier this year that “[T]here are no government programs that are immune from possible fraud.”[2]  As such, I encourage both of you to ensure that whistleblowers are treated seriously, their concerns are reviewed in an expeditious manner, and that any legitimate claims of fraud, waste, or abuse are aggressively investigated and prosecuted to the fullest extent of the law, including seeking recovery of all funds lost via the FCA. 
 
 
                                                            Sincerely,
 
 
 
                                                            Charles E. Grassley
                                                            United States Senator
 
 
Cc:       The Honorable Eric Thorson
            Inspector General
            U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Room 4436,
Washington, DC 20220
 

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Qui Tam Champion Rep. Dan Lungren Challenges John Boehner for Post of House Minority Leader



House Minority Leader John Boehner of Ohio will face a challenge from his leadership position from California Republican Dan Lungren, according to the official blog of the Wall Street Journal. 

It seems unlikely that Lungren will be able to unseat Boehner in the Republican House leadership elections, which are currently set to take place next Wednesday.   

Lungren, who represents a Sacramento-based district, has long been known as a champion of increased False Claims Act enforcement.  As Attorney General of California, Lungren prosecuted Bank of America to the tune of $187 million dollars for improperly retaining unclaimed municipal bond revenue. 

Lungren has also been a vocal supporter of the False Claims Act Amendments of 2008.  He was given the 2008 “Honest Abe” award from Taxpayers Against Fraud for his dedication to qui tam relators and to the False Claims Act.



  

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The Virginia Fraud Against Taxpayers Act Finally Makes the Front Page of Virginia Lawyers Weekly



At long last, the Virginia Fraud Against Taxpayers Act has finally made the pages of Virginia Lawyers Weekly.  Special thanks for Peter Vieth for this excellent article, and to all of the others who worked on the Siddiqui case, especially Special Assistant Attorney General Guy Horsley and Senior Assistant Attorney General Ellen Coates. 

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UPDATE: Settlement Announced in the first Non-Intervened case under the Virginia Fraud Against Taxpayers Act in Commonwealth of Virginia ex rel. Nisar A. Siddiqui v. Navy Federal Credit Union, et al.




Fairfax, Virginia, November 5, 2008–Navy Federal Credit Union will pay $640,000 dollars to settle allegations that it failed to deliver unclaimed property to the Commonwealth of Virginia as part of a settlement under the Virginia Fraud Against Taxpayers Act.  The Order, entered by the Circuit Court for the County of Fairfax, can be viewed Mixx Delicious Digg Facebook Twitter

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October 27, 2008 Marks the Anniversary of the Rebirth of the Federal False Claims Act


    It was 22 years ago today that President Reagan signed into law the 1986 Amendments to the Federal False Claims Act.  For all intents and purposes, the 1986 amendments breathed new life into what had otherwise become a stale and lifeless statute.  The main changes, of course, include the following: 



  • The establishment of defendant liability for “deliberate ignorance” and “reckless disregard” of the truth;

  • Restoration of the “preponderance of the evidence” standard for all elements of the claim including damages;

  • Imposition of treble damages and civil fines of $5,000 to $10,000 per false claim;

  • Increased rewards for qui tam plaintiffs of between 15-30 percent of the funds recovered from the defendant if the Government chooses not to intervene;

  • Defendant payment of the successful plaintiff’s expenses and attorney’s fees;  

  • Employment protection for whistleblowers including reinstatement with seniority status, special damages, and double back pay.

    With the benefit of hindsight, we can see the importance of this event.  More than $25 billion dollars has been recovered in the 22 years since the FCA was amended.  That is not the only benefit, of course, but the $25 billion has been the easiest to quantify.  What we cannot quantify is the deterrent effect of FCA enforcement. 

    Additionally, the amended FCA served to inspire states to pass their own False Claims Acts, starting with California in 1987.  Our own Virginia Fraud Against Taxpayers Act was passed in 2002 and became law in 2003. 

    
Zachary Kitts 
Cook & Kitts, PLLC 

      

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New Opinion from the U.S. District Court for the Western District of Virginia interprets the public disclosure bar and release agreements



    In the ongoing saga of Purdue Pharma, an Cook & Kitts, PLLC 

         
 

    

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New Opinion from the Eastern District of Virginia regarding the False Claims Act’s anti-retaliation provisions



The U.S District Court for the Eastern District of Virginia issued a ruling this week interpreting the anti-retaliation provisions of 3730(h).  The case is  Mann v. Heckler & Koch Defense, Inc., 1:08cv0611 (Cacheris, J.)  You can read the opinion Jason Zuckerman of the Employment Law Group for this win.


Zachary A. Kitts
Cook & Kitts, PLLC
  

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First Annual Virginia Fraud Against Taxpayers Act CLE is a success!



First Annual Virginia Fraud Against Taxpayers Act CLE is a success!

I am pleased to report that the Virginia Fraud Against Taxpayers Act CLE seminar at the Office of the Attorney General was an overwhelming success, with more than 78 attendees coming from virtually every agency of Virginia state government, from the OAG, and from the private bar as well.   

The speakers were Special Assistant Attorney General Guy Horsley, Assistant Attorney General Tracey D. Stith, Jeb White from TAF, and myself.  Deputy Attorney General Bill Mims gave some introductory remarks, and we also heard from Randy Clouse, who serves as Director the Medicaid Fraud Control Unit.  

Aubrey Ford, from CantorArkema was also there.  Aubrey, for those of you who don’t know, was the architect behind the Virginia Fraud Against Taxpayers Act’s passage back in 2002.  As I have mentioned several times lately, getting the statute passed without a single dissenting vote in both houses of the Virginia legislature is a truly monumental achievement, and we all owe a debt of gratitude to Aubrey. 

Many thanks to all of the attendees and especially to Guy Horsley for taking the initiative and setting up the seminar.  Hopefully, this will become an annual event! 

Zachary A. Kitts
Cook & Kitts, PLLC