Virginia Qui Tam Law

Is UVa Allowing a Political Bias to Inhibit Cooperation with the Virginia Attorney General?

zkitts@cookkitts.com (Zachary Kitts) — Tue, 06 Jul 2010 19:56:00 GMT

First, let me say that this is not a political blog. This is a blog dealing with the Virginia Fraud Against Taxpayers Act and with litigation under the Federal False Claims Act in Virginia Courts.

Let me also say that I have no thoughts whatsoever on the issue of global warming (sometimes also called climate change, depending on whether you believe in it or not). I'm not a scientist, and I haven't ever really given it any thought. In fact, I just learned about two weeks ago that there are two different names for this particular concept, depending on the side of the argument one believes.

Let me also disclose that I think the University of Virginia is a great University, and even if the allegations of research fraud are true, I will still hold UVa in high regard.

So, with all of those caveats out of the way, I am going to do my best to call 'em as I see 'em.

As most of you are aware, Attorney General Ken Cuccinelli used his powers under the VFATA to serve a civil investigative demand on the University of Virginia. He seeks records and other information related to work of a guy named Michael Mann (who is a leading scientist studying climate change a/k/a global warming) while he was a professor at UVa.

The CID was issued based on information from the "Climategate" incident last fall. Climategate involved thousands of emails from Dr. Mann being leaked to the public. The emails allegedly show Dr. Mann conspiring to rig research results; apparently, reasonable people can disagree about what is said in these emails.

It is also a fact that if Mann's emails do in fact contain evidence of Mann falsifying research results, he has liability to the Commonwealth under the Virginia Fraud Against Taxpayers Act. This is so because he received hundreds of thousands of dollars worth of state and/or federal grants to continue his research while he was at UVa.

So far, so good. It is certainly true that a certain small segment of the scientific
community--regardless of political agendas and scientific beliefs, and regardless of race, color or creed--is willing to fudge a little on research results, or on grant applications, or very often on the two things together.

For instance, last week the Baltimore Sun announced that a Columbia, Maryland biotech company paid $934,000 to settle a false claims act lawsuit alleging that it falsified research results and omitted critical data from its research in order to get extended funding for a federal grant.

It is also true that recipients of a CID (like UVa) have nothing to gain and much to lose by pushing back on a CID. A CID is a preliminary tool used by the OAG to determine whether a violation of the law has occurred. The OAG issues these requests prior to filing a lawsuit--it is really an excellent opportunity for a defendant to convince the OAG that there has been no wrongdoing.

I think most defense lawyers will tell you that the opportunity to talk someone out of filing a lawsuit is a great opportunity, and one that does not come everyday and in every kind of case. It is not an opportunity to be wasted. Moreover, it also makes absolutely no sense to waste money by escalating a CID into full-scale litigation.

And here is the real kicker--even if a party fighting a CID wins and successfully quashes the CID, guess what? They may not have to respond to the CID, but they have spent thousands and thousands of dollars, and the winning prize is normally a freshly-filed lawsuit by the OAG. And then, as soon as discovery begins in the case, the OAG will ask for exactly the same materials they requested in the CID. At that point, the defendant will have no choice but to produce the material.

In Virginia state courts, the irony is even thicker, because litigants can serve interrogatories, document requests, deposition notices, and other discovery with the complaint itself.

So, all of this leads me to wonder if UVa isn't playing politics. This is not the first time they have clashed with the OAG this year.  While it is beyond the scope of this blog, earlier this year, General Cuccinelli irritated a great many people at UVa and other state universities by advising them as to the current state of discrimination law. He issued the same proclamation that five other AG's have issued confirming that sexual orientation is not a protected class, but for some reason he really touched off a nerve.

Whatever the reason, we have ourselves a full-blown lawsuit down in Albemarle County now folks--stay tuned for more.

The June 2010 Issue of Virginia's Medicaid Fraud Control Unit Newsletter

zkitts@cookkitts.com (Zachary Kitts) — Tue, 29 Jun 2010 20:23:00 GMT

The latest newsletter from Virginia's Medicaid Fraud Control Unit is out, and it includes a rundown of the Unit's latest big win. I am referring to the Fourth Circuit's decision in United States v. Abdelshafi, 592 F.3d 602 (4th Cir. 2010), in which the Court of Appeals upheld the conviction of Abdelshafi for aggravated identity theft for his use of Medicaid patient information.

Congratulations to the entire Virginia Medicaid Fraud Control Unit on yet another groundbreaking victory!

Breaking News: The Dodd-Frank Conference Report on Amendments to the anti-retaliation provisions of the Federal False Claims Act

zkitts@cookkitts.com (Zachary Kitts) — Mon, 28 Jun 2010 11:12:00 GMT

Last Friday evening, the Dodd-Frank Conference Report was issued, which contains the agreement on the language of the new Financial Reform Bill (I'm not sure of the actual name of the legislation, because everyone has been calling it "the Financial Reform Bill.")

The bill makes two changes to the anti-retaliation provisions of the Federal False Claims Act found at 31 U.S.C. §3730(h). First, it clarifies the language of the protective scope of the anti-retaliation provisions found in the first paragraph.

The second change, which is more important, creates a standardized statute of limitations of three years for anti-retaliation actions under §3730(h). Previously, the statute of limitations for wrongful termination and discrimination had not been standardized. As a result, the limitations period for bringing a wrongful termination or discrimination action under 3730(h) had been a question of state law, with courts applying the most similar cause of action from each particular state's law.

The Financial Reform Bill also contains important provisions sharpening the whistleblower cause of action for financial fraud, and increasing the rights of whistleblowers in that context.

Truly, there is nothing new under the sun....including the reasons UVa seeks to quash the Civil Investigative Demand issued by Attorney General Ken Cuccinelli

zkitts@cookkitts.com (Zachary Kitts) — Tue, 01 Jun 2010 16:09:00 GMT

Lest anyone think that the debate about Attorney General Ken Cuccinelli's civil investigative demand to the University of Virginia is something new, I am here to confirm that there is nothing new under the sun.

In fact, it is rather common for targets of lawsuits (or the recipient of a CID) pursuant to the Federal False Claims Act or the Virginia Fraud Against Taxpayers Act to claim that they are being targeted for political reasons. It is also very common for the people who support such targets to think that they are being targeted for political reasons.

The broad outlines of the facts of the case are as follows: Prof. Mann was formerly at UVa, where he performed research into his global warming theories (or climate change theories, depending on which view of this matter you believe).

Some recent revelations about Dr. Mann's research indicates that he falsified research results in order to obtain various grants from state and federal government sources. I am referring, specifically, to the "climate-gate" scandal that broke last fall in which several thousand emails to and from Dr. Mann somehow ended up in the public realm.

Many of those emails purport to show Dr. Mann conspiring with others to hide certain evidence showing various flaws in his theories. Mann and his supporters reply that those emails are taken out of context, etc.

I have previously discussed the phenomenon of people not being able to believe that a certain person would knowingly submit a false claim to the government based on pure emotion. For example, in an old post about fraud on the federal government by a hearing-impaired business man, we heard things like: "I don't think he would commit fraud on the government--he has always been very supportive of the hearing-impaired community."

Huh? How is it that being a supporter of a good cause automatically makes a person honest?

Anyway, UVa has resisted General Cuccinelli's civil investigative demand, and has filed a motion to quash and/or set aside the CIDs in the Circuit Court for the County of Albemarle, Virginia. This is shaping up to be an interesting fight, because this is the very first time to my knowledge that a party has filed a motion to quash a CID served under VFATA ( Va. Code 8.01-216.10 ).

Generally speaking, unless a party to whom a CID was issued can show some good grounds--such as the Constitutional protections of the First or Fifth Amendments, for example--why the CID should be quashed, CIDs are very much enforceable.

On the facts of this specific case, the CID issued to UVa for records related to Michael Mann's research seems to be supported by the facts and the law. Many of the arguments raised by UVa (for example, that certain of the contracts at issue were awarded before FATA took effect) are red-herrings.  On the facts of this case, the date a contract was awarded is not relevant, because the allegations are that false claims were made on the contract after the VFATA took effect on January 1, 2003.

Similarly, the argument that federally funded research grants cannot be the subject of a FATA case is probably also a red-herring, although it would depend on many specifics that I do not have at this point. Moreover, while UVa was the recipient of the CID, they are not a "target" as that term is traditionally defined in this context. Michael Mann is the target, and not UVa, although UVa does seem to have a number of records.

Despite its status as a non-target, UVa has decided to stand and fight. I believe most defense lawyers will tell you that targets of a CID have nothing to gain and everything to lose by failing to comply with a CID; again, however, UVa is not a target here.

It will be interesting to see how this pans out--stay tuned

Cuccinelli Investigates Grant Fraud at the University of Virginia

zkitts@cookkitts.com (Zachary Kitts) — Tue, 04 May 2010 14:27:00 GMT

The D.C. Examiner has a story today about Virginia Attorney General Ken Cuccinelli issuing a Civil Investigative Demand ("CID") to the University of Virginia as part of an investigation into grant fraud. You can read Bill Flook's excellent story here.

The story also has a quote from state Sen. Chap Peterson (D-Fairfax) about the CID, which he called "very grasping." Peterson goes on to say:

"He has a constitutional duty to represent the state, [to] represent the taxpayer. A lot of this just seems to me agenda-driven."

First of all, Chap has no clue--absolutely no clue--about civil investigative demands in general. I am sure he has even less clue of a clue about the purposes, scope, and utility of the Virginia Fraud Against Taxpayers Act (Va. Code 8.01-216.1 et seq.)

Third, Chap is clearly out of touch with what "representing the taxpayers" entails. Believe it or not Chap, there are a great many of us taxpayers that feel like policing the use of state grant money IS representing the taxpayer. A certain percentage of scientists and other researchers--brace yourself, folks--do make false statements and false records in association with government grant money.

Such false claims can arise in any number of ways, including a good many of which Dr. Michael Mann is suspected. This is not a novel use of a federal or state False Claims Act--much to the contrary, false claims and fraud in association with government grants is very much a bread and butter false claims act case.

There is absolutely, positively, nothing controversial about issuing a CID to a researcher who is suspected of making false statements and/or false records in order to get government grants. This is a very, very common type of False Claims Act violation, and General Cuccinelli can--and should--be investigating the use of the Commonwealth's grant money.

General Cuccinelli, in his official capacity as Attorney General of the Commonwealth, issued this CID when he believed that a researcher was making (or had made) false claims and/or false records in association with state grant money.

But he is not the only with the power to take action--under the qui tam provisions of the Virginia Fraud Against Taxpayers Act, any individual with first-hand, personal knowledge of false claims or fraud in relation to a state (or for that matter federal) grant also has the power to hire a private attorney (that is, one with experience in this area of law) and initiate a case.

The law sets forth a very specific procedure, and also creates potentially very lucrative rewards--the damages to the state are multiplied times three, and the individual (in these cases, the individual is usually called a "relator") can collect anywhere from 15% to 30% of the total damages to the state.

Senator Grassley Sends a Warning to State Legislatures Across the Country

zkitts@cookkitts.com (Zachary Kitts) — Sat, 01 May 2010 19:05:02 GMT

As more states struggle to pass state-level false claims act legislation, I have mentioned recently that PhRMA and other health care lobbyists seem to have switched their tactics. Simply put, as more and more states come on board and reap fantastic rewards from having a state FCA, it has become impossible for the paid health care lobbyists to make states believe that the world will end if their state has an FCA.

The new strategy seems to be to suggest "helpful" changes to the state's FCA that will make it "better" than the federal FCA. What the changes really do is to make the state FCA non-compliant with section 6031 of the Deficit Reduction Act of 2005. The result of that, of course, is to make the statute pretty much useless.

Several times in the last few months, the hazards of this strategy have become apparent. This past week, Sen, Grassley sent a letter to Attorney General Eric Holder and HHS-OIG Daniel Levinson, asking for help.

I think that everyone familiar with Senator Grassley is familiar with his straight and to the point style--he is not one to mix his words, and he never leaves a doubt in anyone's mind about what he wants to say.

Grassley asked the Inspector General for the Department of Health and Human Services and the Attorney General to review existing state False Claims Acts for compliance with recent changes to the federal False Claims Act and to issue appropriate guidance for any state interested in the federal incentive, which allows states to increase their shares of Medicaid recoveries by 10 percent by allowing whistleblower lawsuits.

As of this writing, 27 states have some form of false claims-style statute, but only 20 of those have submitted their false claims act to the feds for approval under DRA. Of those 20 states, only 14 have qualified for the 10% incentive. In order to qualify, the state FCA must be at least as effective as the federal False Claims Act in establishing liability to the state for false claims, and must also be at least as effective as the federal FCA in rewarding qui tam whistleblowers.

Additionally, the state law must contain civil penalties that are not less than the amount of the civil penalty created by the federal FCA and must provide for filing an action under seal for 60 days.

Not all of these conditions are literal word-for-word requirements--for example, the Virginia Fraud Against Taxpayers Act contains a seal period of 120 days, but it was approved by the HHS-OIG in 2007.

Grassley was aiming at two things with this letter. First and foremost, I believe he is taking aim at those legislators who adopt the oh-so-helpful suggestions of the health care lobbyists, and making it clear to them that they need to get on the winning team. He mentions in particular the new development of the "first to file bar" that is being added in some states.

Second, in light of the recent changes to the federal False Claims Act (which has been amended twice in the last 12 months) Grassley is also sending a message to states like Virginia that qualified years ago.

The Virginia statute mirrors the old FCA word for word--but since May of 2009, there is no question that Virginia's Fraud Against Taxpayers Act has not been as protective as the federal False Claims Act. So Grassley is also telling Virginia and her 13 sister states that they need to start looking at some legislative fixes, or they could find themselves in a whole bunch of pain.

In defense of the Commonwealth, I will say this: coming in to this legislative session, we all thought about suggesting that the VFATA be amended to match the new federal FCA, but decided to refrain because of the possibility of further amendments.  As it turns out, those further amendments did come true this year, just a few weeks ago.

But in the 2011 legislative session, we are going to need some amendments....

New Opinion on Reasonable Attorney's Fees in the U.S. District Court for the Eastern District of Virginia

zkitts@cookkitts.com (Zachary Kitts) — Wed, 28 Apr 2010 16:44:00 GMT

Today Judge Cacheris issued a favorable opinion on my petition for attorney's fees in a Fair Labor Standards Act case.   Although the case was an FLSA case and not a False Claims Act case, the same concepts apply to any prevailing plaintiff in an action brought under a fee-shifting statute in the Fourth Circuit. The opinion is attached here.

A reasonable attorney's fee in a fee-shifting case is determined by multiplying a reasonable hourly rate for the attorney by his or her reasonable time expenditures. This approach is generally known as the lodestar method, and it seems simple enough. However, the attorney needs to establish the reasonable hourly rate and the reasonable nature of the time entries.

I think the opinion is interesting for several reasons. First, a number of Fourth Circuit opinions over the last couple of years have rejected the use of the "Laffey Matrix" to set reasonable rates for an attorney's hourly fee. However, the Fourth Circuit has merely stated the obvious--the Laffey Matrix is not enough standing alone to establish a reasonable hourly rate; rather, the Laffey Matrix can be considered as evidence of a reasonable hourly rate, but only in conjunction with other evidence. Judge Cacheris' opinion takes this approach.

Second, this opinion shows that you prove your reasonable attorney's fees the same way you prove anything else in Court--you introduce relevant and admissible evidence. How do you get relevant evidence to be admissible, and thus get it in the record? You call witnesses, of course, and in this particular context, you do it in the form of written declarations. My petition was supported by my own testimony, as well as the testimony of a few other lawyers who supported the reasonable nature of my fees.

The third thing I think this opinion shows is the need for attorneys to track their time as they perform their work, and to send regular invoices to clients, even when the case is taken on a contingency fee basis. Courts almost universally disfavor "block entries" of time--i.e., a large chunk of time without a clear description of what work was performed. An example of a block-entry would be something like "Reviewed File; Drafted Memo--8.0 Hours" or "Drafted Motion in Limine and Researched Precedent--11.0 Hours."

If I were a client, I would hit the roof if an attorney sent me such a bill. Large blocks of time without clear descriptions do not enable Courts--or clients, for that matter--to determine what work was performed, and why it took so long. Without those two pieces of information, the client is at a real disadvantage in trying to discern how productive their lawyers are and how much value they are getting for their money.

And, provided that a lawyer bills his or her own clients honestly, that is perhaps the best rule of thumb I can think of--a lawyer should never try to get a Court to make a defendant pay a bill that that lawyer would not send to his or her own client.

My apologies for posting this important news so late.....

zkitts@cookkitts.com (Zachary Kitts) — Mon, 26 Apr 2010 13:19:00 GMT

In the middle of everything else that is going on, I neglected to mention yet another amendment to the federal False Claims Act. As you are all no doubt aware, on March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (PPACA), popularly known as "the health care bill."

To say the very least, the bill was the most debated and discussed law passed by Congress in many years. However, falling outside the mainstream discussion and debate were several important amendments to the federal False Claims Act.

An in-depth discussion of these issues would be beyond the scope of this blog post, (and indeed one of the things that has kept me from blogging in recent weeks has been my work on a detailed law review article for George Mason University's Journal of Law Economics and Policy that does discuss many of these developments in detail).  In broad outlines the most significant changes (at least in my humble opinion) were as follows.

(1)     The power to dismiss a case based on the public disclosure bar (found at 31 U.S.C. 3730(e)(4)(A))is back in the hands of the Department of Justice, which is where it belonged all along. The new public disclosure bar reads "the Court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions alleged in the action or claim were publicly disclosed." The underlined portion is new, and gives the DOJ the power to decide if the relator beings something to the table such that he or she should be allowed to share in the recovery.

(2)      The "original source" exception to the public disclosure bar is expanded by the PPACA to include any relator who can add "knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions ... "

(3)        PPACA makes it clear that retention of overpayments by health care providers is unlawful, and lays down strict new guidelines for the return of overpayments. I will have quite a bit to say about this in my law review article, so stay tuned for that.

In addition to the above changes, there are a number of other significant changes. For example, the recent Supreme Court decision in Graham County v. U.S. ex rel Wilson, No. 08-304, Slip Opinion issued on March 30, 2010) is legislatively overruled, and now relators can, in some instances, bring cases based on information disclosed in state and local government publications.

The last year has seen big changes indeed for the FCA--all of them for the better.

Govenor O'Malley Signs The Maryland False Claims Act Into Law!

zkitts@cookkitts.com (Zachary Kitts) — Tue, 13 Apr 2010 18:53:00 GMT

Today Maryland Governor Martin O'Malley signed the Maryland False Health Claims Act into law, bringing to a close one of the most heated legislative battles over a state false claims act in recent memory.

Of the nearly two-hundred bills signed into law today, Governor O'Malley signed the Maryland False Health Claims Act first--a symbolic gesture which showed the importance of this law for Maryland's future fiscal health in these financial hard times.

And now, the battle shifts elsewhere. As readers of this blog are aware, a number of changes were made to the Maryland False Health Claims Act during the legislative process. These changes do things like create new affirmative defenses, make the assessment of double or treble damages discretionary, and so forth.

In short, each of these changes takes the Maryland statute a step further away from the federal False Claims Act. I have previously discussed my suspicions behind the current trend of lobbyist-suggested changes on this blog, but time will tell how this pans out.

In terms of whether the Maryland statute will be successful, the state does have a number of factors in its favor. First, they have a real lawyer at the helm in the form of Attorney General Doug Gansler. General Gansler has federal and state prosecution experience, including prosecution of consumer fraud cases and complex financial criminal matters--and these two areas of practice are excellent training for False Claims Act prosecutions.

Second, but not less important, is that General Gansler will have the support of Department of Health and Mental Hygiene Secretary John Colmers. Secretary Colmers (and his Inspector General Tom Russell) were both on the front lines of the Maryland FCA fight, and he will no doubt make sure his agency cooperates with General Gansler fully.

Although it may seem strange at first, in some states the state agency responsible for Medicaid administration actually pushes back on efforts to enforce the law by state Attorney General. Inter-agency rivalries and jealousy are a fact of life in government work--moreover, in some situations, government agencies will be slow to cooperate in situations where the prosecution could show part of the agency in a negative light. This problem can be minimized when the top leadership of an agency is in favor of vigorous enforcement. Secretary Colmers is definitely in favor of vigorous prosecution, so General Gansler will not have this problem to deal with.

The law becomes effective on October 1, 2010.

The travails of Colorado, and perhaps an interesting new change in strategy from the enemies of fiscal responsibility.....

zkitts@cookkitts.com (Zachary Kitts) — Tue, 30 Mar 2010 13:28:00 GMT

Breaking news from the front lines in Colorado has that state's proposed false claims act (I believe it is SB 187) being amended to include the following language:

WHEN A RELATOR BRINGS AN ACTION UNDER THIS SUBSECTION (2), THE FEDERAL FALSE CLAIMS ACT, OR ANY SIMILAR PROVISION OF THE LAWS OF ANY OTHER STATE, NO PERSON OTHER THAN THE STATE MAY INTERVENE OR BRING A RELATED ACTION BASED ON THE FACTS UNDERLYING THE PENDING ACTION.

This follows on the heels of my earlier posts about Maryland's struggles to keep frivolous detritus out of their FCA. The proposed language above seems, at first glance, similar to the language of the federal False Claims Act, except it is not. By adding the language
"or any similar provision of the laws of any state"  Colorado prohibits a relator from filing a pendent state claim on behalf of Colorado as part of a nation-wide FCA case.

Needless to say, this will prevent Colorado from getting invited to many cases.

By way of background, the importance of having a state FCA goes beyond the treble damages, civil penalties, and attorney's fees. By adding a state FCA with a qui tam provision, the state is allowed to participate in nation-wide cases alleging healthcare fraud from the early stages of the case.

It is no secret that the most lucrative healthcare fraud cases in recent years have all been brought by a qui tam relator. Such cases are normally filed in federal court, because one or more claims are brought under the federal False Claims Act. The initial sealed complaint also includes pendent state claims for each state to suffer a loss under the statute.

Once the case is sealed, an investigation begins on behalf of the federal governments, and at some point those states with qui tam statutes are brought into the mix.  Only the states with qui tam statutes can be brought into the mix, however, because any disclosure to a non-qui tam state would constitute a breach of the seal.

It is these "sealed meetings" so to speak, to which states want to get an invitation. It is one of the main reasons for passing an FCA to begin with--the state then gets to participate in the process of forming the case almost from square one.

All states except Colorado, that is. The state of Colorado has seen fit to exclude itself from this process, however, because no qui tam relator in her right mind would include a pendent claim for the state of Colorado in her sealed federal complaint. Why? Because she would be providing the state with all of the information at her disposal, which is required by the statute, and she would be excluding herself from any recovery if Colorado declines to intervene.

Actually, as I now understand it, this is part of the healthcare industry's new strategy against state false claims legislation--and it may very well signal an important shift in the battle over state FCAs.

In the past, the battle was to prevent a state from passing an FCA at all. This is a strategy that has failed of late--as more states pass state false claims acts and do not suffer any untoward effects, it becomes more difficult for the lobbyists to argue that it will be the end of the world if the legislature passes an FCA.

So, it appears that the paid guns for hire who lobby on behalf of their industry clients have adopted the strategy and tactics. Because they can no longer argue that a state FCA will be the end of the state's economy, that it will bankrupt every hospital in the state, and so forth, they have amended their strategy.

Now, it seems, the focus of industry lobbyists is on making a number of "helpful suggestions" to the state about how they can tweak their state false claims legislation. But I am certain that this is not the end of the story.

Rather, I suspect the usual gang of industry lobbyists are making these suggestions because they know that everything they suggest will make the state's false claims act less "user-friendly." That is, less attractive to the lawyers who represent relators, and less attractive to the individual whistleblower who uncovers fraud. Perhaps most important, all of the changes suggested by the industry lobbyists will, without exception, preclude DRA approval. Without DRA approval of the state's false claims act, the state is going to lose tens of millions of dollars of free money.

So here is what I am predicting--in two or three years, every single state that changes its false claims act away from the model of the federal false claims act will be visited by these same lobbyists. The pitch this time will be something like this: "We told you this false claims act statute was a bad idea. Now you tried it, and your statute hasn't returned any money to your state treasury AND you have this annoying cumbersome law on your books. So, lets just get rid of this statute, shall we?"

We shall see.