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The more the merrier — two more Virginia Democrats throw thier hats into the ring in the 2013 Attorney General race

By Zachary Kitts on October 9, 2012 in

In the last several weeks, two more lawyers joined the race for Attorney General in 2013 on the Democratic side of the ball.

The first, Justin Fairfax, currently serves as a federal prosecutor in the U.S. Attorney’s Office for the Eastern District of Virginia and the second, Mike Signer, was previously a candidate for Lieutenant Governor. Neither of the two new candidates has been required to post fundraising information yet.

And of course, Fairfax and Signer join state Sen. Mark Herring, who announced late last year.

One regular theme of this blog has been steps that an Attorney General of the Commonwealth could take to crack down on fraud and false claims on the Commonwealth and stretch our tax dollars further

More news to follow….

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A Recent Washington Post Editorial on Plea Bargains Sheds Light on False Claims Act Settlements …

By Zachary Kitts on October 8, 2012 in , ,

A recent Washington Post editorial concerning plea bargaining in criminal cases came to my attention recently and I think readers will find it interesting for several reasons.

First, many of the arguments in the Post editorial should sound familiar to regular readers of this blog.  Here is a sample:

“In plea bargains, defendants can minimize the risks they face, and prosecutors can save time, effort and money. This keeps the courts from becoming totally overloaded. Yet there’s a risk that those who have reasonable claims to innocence will be unreasonably discouraged from pressing for a trial.”

and

“Prosecutors can load up on charges they can later drop, pressuring defendants to cooperate before trial and plead guilty.”

Sound familiar to anyone?  If you substitute a few key words (i.e., “settlement” instead of “plea bargain” and “greedy plaintiff’s lawyers” instead of “prosecutors”) you have the same exact arguments made against the federal False Claims Act (and against state level false claims act legislation) by health care providers, the U.S. Chamber of Commerce (among others.)  This line of argument continues that the false claims act is a bad idea, because companies and individuals will be so frightened of trial or so burdened by the civil discovery process that they will be inclined to accept a nuisance-value settlement proposal just to be done with a false claims act case.

The WaPo argument begins with an undeniable premise — that there are few criminal trials today.  The same thing holds true for civil trials, of course, and to a much greater extent.  I don’t agree, however, that the mere lack of trials in and of itself means much of anything, and it certainly doesn’t mean that the system is broken. In fact, I think the fact that there are fewer civil and/or criminal trials probably means that they system works better, not worse, for one simple reason.

The simple reason is this — most of the time, when a case goes to trial, it goes to trial because one side or the other has made an error in evaluating the strengths and weaknesses of its case.  About the only other reasons a case would go to trial would be if (1)  there are facts at issue which are irreconcilable (i.e., either the defendant was at the scene of the crime on a given day and time or he or she was someplace else) or  (2) if there is a question about the application of a given set of facts to a particular law and the lawyers can’t agree.

So if you ask me, I am inclined to say that the lack of trials indicates that prosecutors and plaintiff’s lawyers are exercising more discretion in the cases they choose.  Certainly I think this is true for the qui tam lawyers I know — a qui tam case is just too much work and too much risk and too much stress to not pick your cases wisely.

Moreover, as regular readers know, when qui tam cases are litigated, they are by their very nature usually in category number (2) above.  That is because the presence of a qui tam relator usually means that there are very few, if any, facts in dispute in one of the cases….

 

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It must be getting too dangerous to traffick drugs…

By Zachary Kitts on October 5, 2012 in , ,

Yesterday the United States Department of Justice simultaneously unsealed criminal indictments in five districts, arrested 52 criminals and announced arrest warrants for two dozen more in what was billed as the single largest health care fraud bust in history.

It seems traditional criminal activities such as the drug trade, trafficking in illegal arms, extortion and murder are just getting too dangerous — the culprits are alleged to have been an organized crime outfit from Armeniaof all places.  Certainly the defendants made money that would make Don Corleone blush — the total amount of the fraud is thought to have been north of $163 million.

Without question, if a person is inclined towards criminal activity health care fraud in the United States is a tough to beat — $163 million dollars and without the personal risk involved when a person does business with international drug suppliers.

The defendants are charged with engaging in numerous fraud activities, including highly-organized, multi-million-dollar schemes to defraud Medicare and insurance companies by submitting fraudulent bills for medically unnecessary treatments or treatments that were never performed. According to the indictments, the defendants allegedly stole the identities of doctors and thousands of Medicare beneficiaries and operated at least 118 different phony clinics in 25 states for the purposes of submitting Medicare reimbursements.

Organized criminal gangs from Armenia may have an easy gig billing Medicare and Medicaid — it sure beats going head-to-head with the Mexican drug cartels, who are known to play hardball by executing entire villages, dumping the rotting corpses of their adversaries on Mexican highways during rush hour by the dozen and stuff like that — but the criminal sentences these Armenians face are still pretty severe.

The racketeering charges carry a maximum penalty of life in prison and a $250,000 fine. The health care fraud and conspiracy to commit health care fraud charges each carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit bank fraud charges each carry a maximum penalty of 30 years in prison and a fine of $1 million. The conspiracy to commit money laundering charges each carry a maximum penalty of 25 years in prison and a $500,000 fine. The conspiracy to commit money laundering charges each carry maximum penalties of 20 years in prison and a $500,000 fine. The conspiracy to commit fraud in connection with identity theft charges carry a maximum penalty of five years in prison and a $250,000 fine. The aggravated identity theft charges each carry a required two-year consecutive prison sentence to any other sentence imposed, the conspiracy to commit credit card fraud charges carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit immigration fraud charges carry a maximum penalty of five years in prison and a $250,000 fine.

In other words, these guys aren’t getting out of prison alive.

With regard to the technicalities of the federal False Claims Act, this case provides yet another example of what I mean by an “objectively false” FCA claim.  As regular readers know, I am generally not a fan of “failure to render services” type cases.  Generally speaking, unless we are talking about “Houdini claims” (i.e., claims for services in two separate cities at the same time) a relator and/or the government will have the devil’s own time trying to prove that Dr. Smith wasn’t seeing a patient at any given time, or that a physician’s assistant wasn’t properly supervised by a doctor, or something like that.

But notice what these Armenians did — they set up phony clinics, using stolen Medicare billing information…talk about an objectively false claim.

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Discretion is the better part of valor…and it is also a big part of a qui tam practice

By Zachary Kitts on October 2, 2012 in

Discretion is the better part of valor…and it is also a big part of a qui tam practice.

In the last 18 months, there have a been a number of huge recoveries, including several settlements of more than one billion dollars.  As a result, many lawyers have started to take an interest in qui tam practice and in false claims act litigation.  This is a good thing, in my humble opinion (and indeed generating interest in qui tam in the legal community is one of the reasons I started this blog).   Simply put, I think the more lawyers there are with an interest in qui tam (or any other area of practice for that matter) the more business there is out there for all of us, but that is a different topic for a different day.

This uptick in interest in the qui tam provisions of the federal False Claims Act and the Virginia Fraud Against Taxpayers Act (among other state false claims statutes) has caused a great many folks to try thier hand at evaluating qui tam cases.  Today I want to talk about how I size up a potential qui tam case, and the types of things I look for.  I think that proper screening of qui tam cases is crucial, and any government lawyer will tell you that the better you can screen the cases, the more likely you are to make the government interested in your case.

Let me also say that this is not a volume practice, and screening cases is not easy.  As I have discussed in other posts, it is just not possible to devise a shortcut — for example, in the  past  I discussed the idea that state unclaimed property laws could not form the basis of a false claims act case as well as whether the failure to pay Davis-Bacon wages could result in a false claim to the government.

The answer to both is that it depends on many factors.

FIRST RULE OF FALSE CLAIMS ACT PRACTICE — LOOK FOR THE CLAIMS THEN LOOK FOR THE MONEY

It might sound like a no-brainer, but evaluation of a qui tam case should always start by looking for the “claims.”  Much ink has been spilled over the last 26 years about what is and what is not a “claim” and there is more ink yet to be spilled.  There are basically an unlimited number of ways for a wrong-does to submit false claims to the government and a “claim” can be many many things.

An example of a simple case might involve billing the government twice for the same goods — sometimes known as a “double-billing case” for the obvious reasons.  There the false claim could be the invoice submitted to the government for which no goods were recieved.  Another simple example is what I call “The Houdini.”  A defendant submits invoices for the work of one or more employees on the same day, at the same time, in two different cities.  (I nicknamed this scenario “The Houdini” because no person can be in two places at the same time.)

But things can more complicated quickly, and in fact I dare say that more complicated scenarios are more common than the simple examples above.  So you first need to identify clearly and unmistakeably your theory of the claim, and I think you need to to do that before you even think about the amount of money involved.  Note that this aspect of qui tam/false claims act practice is the exact opposite of how other plaintiff cases (for example, personal injury) are evaluated — there, it is smart to look at the damages first, and then look at the rest of the case.

In fact, as I will discuss in future postings in this series, I think looking at the money is the third step — the second step, evaluating whether the claim is an “objective falsehood” has been discussed previously, and will also be the subject of the next post in this series.

 

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BREAKING NEWS – CALIFORNIA ASSEMBLY PASSES AMENDMENTS TO THE CALIFORNIA FALSE CLAIMS ACT

By Zachary Kitts on September 17, 2012 in

BREAKING NEWS – CALIFORNIA ASSEMBLY PASSES AMENDMENTS TO THE CALIFORNIA FALSE CLAIMS ACT

California Assembly Amends the California False Claims Act 2012 

In breaking news this month, Califoria is in the process of amending California’s False Claims Act (Cal. Gov’t Code §§ 12650-12656).  The bill has now gone to the desk of Gov. Jerry Brown where it should be promptly signed.

The amendments largely conform the CA FCA to the federal False Claims Act (“FCA”) by expanding liability under the CA FCA and the rights of qui tam relators.  States have a financial incentive to enact state false claims laws that are at least as effective as the FCA in rewarding and facilitating relator’s lawsuits for false claims to the state Medicaid program.  By doing so, states qualify under the federal Deficit Reduction Act of 2005 (“DRA”) for an additional 10 percent share of the amount recovered using the state law.

As most regular readers know, California was the first state to pass a state false claims act, doing so in 1989.  California’s FCA, however, does not meet the requirements of the DRA, which means California does not qualify for the extra ten percent.  Most of the amendments made by AB 2492 seems aimed at correcting this definciency, but there is still a problem.

The problem is this — there is still no alternate remedy provision in the new California False Claims Act.  As regular readers know, in false claims act litigation, the relator and his or her lawyer are required to serve a disclosure statement on the government prior to filing the qui tam case under seal.  The disclosure statement must fully inform the government on the nature of the relator’s claims.  After serving the disclosure, the relator then files the case under seal and serves it on the government (again) but not on the defendant.   

As should be obvious, the government has a large amount of information in hand through the qui tam case.  The alternate remedy provision protects the relator and his or her lawyer if the government chooses to pursue criminal or administrative remedies based on the information the relator provided instead of pursuing the qui tam claim. 

But California has no such provision and it looks to me like the amended CFCA still doesn’t have one.  So California still will not qualify for the DRA-based 10% incentive payment. 

One is reminded of John Godfrey Saxe and his quote (often incorrectly attributed to Otto Van Bismarck) about laws and sausages….

 

 

 

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I hope my readers will enjoy this new format, and I hope it was worth the wait!

By Zachary Kitts on September 17, 2012 in , ,

I hope my readers will enjoy this new format, and I hope it was worth the wait…

After several years of planning this update to the blog, I hope my readers will enjoy this new format.  In any event the switch to this new format took a little longer than expected, but as of today things are back to normal.

 

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An interesting and unusual conclusion to a qui tam case…

By Zachary Kitts on August 17, 2012 in



An interesting and unusual conclusion to a qui tam case…

As regular readers know, false claims act cases are usually hard-fought battles when they are litigated.  This is true regardless of whether the government intervenes in the case or not.  I attribute this to several factors. 

First, cases involving qui tam relators do not present a level playing field for defendants.  Very few, if any, false claims act cases involving a qui tam relator involve factual disputes.
No big surprise there — that is why the government has a qui tam provision in the false claims act in the first place.  The qui tam relator is an insider who knows where all the bodies are buried, so to speak.  Think of the Henry Hill character in the movie Goodfellas — especially the court scenes at the end of the movie. 

The presence of an insider reduces the opportunity for defendants to weave a story line that incorporates the kinds of facts a civil litigant normally knows prior to initiating litigation but explains those facts in an innocent manner.

Second, while there are usually very few facts in dispute, the subject matter of qui tam cases tends to be extremely technical and complicated.  This means there are lots of technical issues for the lawyers to master and plenty of technical jargon to learn.  Those technical issues present plenty of opportunities for obfuscation, and woe unto the lawyer that doesn’t learn that early on.  

Finally, it is just human nature to pull out all the stops when you get caught with your hand in the cookie jar.  

For these reasons among others, it is rare for a defendant to default in false claims act litigation, but that is exactly what happened this week in the U.S. District Court for the District of Texas.  The judgment is a total of $40.4 million dollars; the case is captioned United States ex rel. Becker v. Tools & Metals Inc. and Todd Loftis.  You can check out the default judgment Beaumont Federal Correctional Facility in Beaumont Texas.  

Congratulations to Phil Benson and his team on this win!  


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The Washington Examiner Reports on Violations of the federal False Claims Act by Fairfax County Schools

By Zachary Kitts on August 16, 2012 in


The Washington Examiner Reports on Violations of the federal False Claims Act by Fairfax County Schools

An interesting article this week in Washington Examiner demonstrates that false claims act violations do in fact come from sources other than the private sector.  Lisa Gartner, who covers education matters for the Examiner, did a top-notch job.

In a nutshell, Fairfax County Schools made false claims to the U.S. Department of Education in connection with a grant to help under-privileged students prepare for college.


The grant application was originally filed in 2000 and Fairfax County was paid a total of $2.7 million over five years.  The money was supposed to be used to fund the “Gear Up” college readiness program at Glasgow Middle School. 


This was a textbook-style false claims act violation (no pun intended).  As with most federal grants, this one came with some conditions; namely Fairfax County was required to certify, on the grant application, that the schools system had been able to raise an amount equal to or greater than the amount of the federal grant in order to qualify.

As with most violators of the federal False Claims Act, this case involved multiple violations in a number of different ways.  Funny how that works… 


First, the responsible FCPS employee apparently felt like the matching funds requirement was an unimportant detail, and so he or she falsely certified that $2.9 million in private funds had been raised.  The same employee also falsified signatures to make the $2.9 million magically appear.

Then, although the money was supposed to be used at Glasgow Middle School (this determination was made based on the percentage of GMS students receiving free lunches) some of the money may have gone to J.E.B. Stuart High School in Falls Church.

To the credit of Fairfax County Public Schools (which consistently rank among the top school systems nationwide both in terms of administration and the results obtained) the violation was self-disclosed in 2004 after it was discovered.  That is a rare step indeed, and one which FCPS deserves much credit for taking.  As further evidence that the school system wanted to make good for the wrongdoing, it immediately suspended the use of $1.6 million of the money and began discussing settlement with the U.S. DOE and DOJ.

I think these two steps were rewarded by DOJ and DOE because FCPS didn’t pay for the violation in multiples of the $2.7 million.  As readers of this blog know, the federal False Claims Act makes treble damages and civil penalties mandatory, and the men and women of the United States Department of Justice are not in the habit of going light on violators.

In fact in this case the DoJ initially wanted a multimillion-dollar fine and other penalties under the federal False Claims Act.  Ultimately the federal government elected to settle for a little over $1 million after almost nine years of discussions.

I am certain that the self-disclosure figured prominently in the decision to settle for $1 million, instead of the full amount of the grant (i.e., $2.7 million) times a multiple.  The simple fact is that self-disclosures are so very rare and take such a high level of organizational integrity that they should be rewarded every time the government gets a chance….and again, the government does not get the chance very often.

I also hope that this fine article will make yet another dent in the editorial opinions at the Washington Examiner which are more or less without exception anti-False Claims Act.  I have addressed this before and I hope that policy will change….


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Important new opinion from the E.D.Va. on the topic of attorney’s fee awards

By Zachary Kitts on August 4, 2012 in ,



As regular readers know, one of the recurring themes on this blog is litigation under fee-shifting statutes (and for that matter, fee-shifting provisions in contracts). 

The federal False Claims Act (and our state version of the FCA, the Virginia Fraud Against Taxpayers Act) are just two such statutes.  All totaled there are more than 200 fee-shifting statutes in the United States Code and I am not quite sure how many there are in the Virginia Code. 

There is a well-developed body of federal jurisprudence on the topic of fee awards, and I have always been of the opinion that every lawyer in private practice who represents client’s on an hourly basis would do well to review it from time to time.   

Far and away the most important opinion to come from SCOTUS in the last twenty years is  Perdue v. Kenny A.  ex rel. Winn, 130 S.Ct. 1662 (2010).  Initially, the opinion received lots of attention as a result of its confirmation of the possibility of a “fee-enhancement” over and above the “lodestar method” for extraordinary work.  (The lodestar method consists of a reasonable hourly rate multiplied by a reasonable amount of hours).  

Although the holding that attorney’s fee enhancements may be possible in rare and exceptional circumstances is the most frequently discussed element of the opinion, there is an additional angle that received much less attention but was, for most intents and purposes, far more important. In Perdue the district court awarded attorney’s fees to a number of plaintiffs who had prevailed in a § 1983 action challenging the state of Georgia’s foster care policies. 

The litigation was grueling by any measure — the case lasted for a number of years (I want to say more than eight years) and for the duration of that time the plaintiff’s lawyers went unpaid. 

Moreover the end result was undoubtedly a benefit to society.  The quality of foster care services in the state of Georgia was improved and who, after all, could be against helping children who have no place to go?  

As a result of these factors, the district court awarded plaintiff’s attorneys an bonus by awarding by 175% of the fees sought. 

The state appealed arguing that the fee increase was arbitrary and capricious, and SCOTUS agreed. 

What seemed to bother the Court was not the fact that the fees were enhanced, but rather the arbitrary and capricious manner in which they were enhanced.  “Why,” Justice Alito wondered, “did the court grant a 75% enhancement instead of the 100% increase that respondents sought? And why 75% rather than 50% or 25% or 10%?”

Indeed, what troubled the majority of the Justices was the fact that the district court “did not employ a methodology that permitted meaningful appellate review.”

And that, I think, is where the Perdue opinion took a turn into greatness.  You see, for many years in Virginia’s U.S. District Courts (and especially in the Commonwealth’s Circuit Courts) Judges have been in the habit of arbitrarily reducing attorney’s fee awards based on a whim.  My reading of the Perdue opinion is that SCOTUS called it like they saw it — and confirmed that a judicial whim is nothing more than an arbitrary and capricious ruling. 

On April 26, 2012, Judge Ellis issued an opinion on an attorney’s fee petition which confirms that random and arbitrary reductions of fee awards are not acceptable.  The opinion is Bradford v. v.
HSBC MORTGAGE CORPORATION, 2012 WL 1481505 —F.Supp.2d. — (E.D.Va. 2012).     

Furthermore, Judge Ellis has laid the groundwork for other courts to follow, and point out two ways in which the Fourth Circuit’s opinion in Grissom must be altered. And that is the most significant part of the Bradford opinion I think.

Judge Ellis points out that an award of attorney’s fees may only be reduced by a fixed percentage in certain circumstances, namely:

“[G]iven the Supreme Court’s admonitions in Perdue with respect to objectivity and reviewability, this alternative—the fixed-percentage approach—may be used only if the record contains insufficient evidence upon which to determine precisely how many hours were reasonably expended litigating the successful claim and any other related claims.”
 

Anyone interested in fee-shifting litigation would do well to read this opinion and I certainly hope state and federal Judges across the Commonwealth take it to heart.



 


 

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Didn’t I tell you there are less things to blog about in the summer?

By Zachary Kitts on July 24, 2012 in , , , ,



Didn’t I tell you there are less things to blog about in the summer?

Last summer I pointed out that there is a trend over the last four years of blogging — there just seem to be fewer things to blog about in the summertime….

This summer there was another contributing factor — my firm K&G Law Group, PLLC re-vamped its web site and our new and improved site is now on display. 

 

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