This week Julian Walker over at The Virginian-Pilot brought us all up to date on an old story–namely the civil investigative demand served by Attorney General Ken Cuccinelli on the University of Virginia.
As readers may recall, Attorney General Cuccinelli, in a routine grant fraud investigation, served a CID University of Virginia seeking records related to Michael Mann’s climate research. (That is, Michael Mann the academic climatologist, not Michael Mann the highly-acclaimed Hollywood director and TV producer.)
UVa pushed back, and tried to turn this case into something other than what it is — that is, they made it into something other than a routine grant fraud investigation under the Virginia Fraud Against Taxpayers Act…which is something defendants often try. Long story short, the case is now with SCOVA, and the news is that it will not he heard this year.
But here is the real news — General Cuccinelli has broken so much new ground since then that the CID is no longer the talk of the town….
Remember the civil investigative demand served on UVa ?
TANSTAAFL: There Ain’t No Such Thing As A Free Lunch, Kentucky. No Kentucky False Claims Act Means No Intervention…
This week the State of Kentucky learned the oldest wisdom in the world — There Ain’t No Such Thing As A Free Lunch….
Kentucky has no state false claims act, and so they don’t get to reap the benefits that come to those states that pass a state false claims act. That includes, of course, all of the health care savings that come to a state via the Deficit Reduction Act of 2005, but it also includes non-health care fraud benefits.
For example, Kentucky can’t join a U.S. lawsuit claiming Education Management Corp., the nation’s second-largest for-profit college chain, used improper recruitment practices to secure more than $11 billion in student aid.
The United States Department of Justice and four states (each of which has a state false claims act of course!) filed a 16-count complaint alleging EMC violated rules for colleges that get U.S. student grants and loans. The case was originally filed by a qui tam whistleblower in U.S. District Court in Pittsburgh.
The Attorney General of Kentucky tried to get in on the action in August of this year, and an opinion issued this week by U.S. District Court Judge McVerry denied their attempt. He stated point blank that “Kentucky has no state false claims act” as one of his chief reasons for not allowing the intervention.
Apparently more than $6 million in Kentucky state money was thus lost…. but the good news is that the legislative session is just right around the corner Kentucky–now do what you have to do.
Introducing a Dynamic New Tool from HHS-OIG
The folks at the Department of Health and Human Services (Office of the Inspector General) unveiled this snazzy new interactive map this week.
Ever wonder how much federal money Kansas or New Mexico get for Medicaid? Well, here is your answer…
Can Violations of the Davis-Bacon Act Trigger Liability Under the False Claims Act?
Today’s post is about the Davis-Bacon Act and whether the failure to pay Davis-Bacon wages triggers liability under the federal False Claims Act. This is in response to a conversation I had recently with a fellow Virginia lawyer who asked me whether (and when) the Davis-Bacon Act could trigger FCA liability. She was rather displeased, I think, with an answer that I felt was quite lawyerly. My lawyerly answer was “It depends.” An examination of the interplay between Davis-Bacon and the FCA serves as yet another opportunity to revisit my theme of FCA liability. When I size up a potential FCA case, I look for an “objective falsehood.” But I am jumping ahead of myself, and a little background will be helpful. As regular readers know, the big-ticket items in the federal budget are healthcare and military spending. I think it is a safe bet however that construction projects would be somewhere in the top five. Construction projects for the government are some of the most regulated projects in the modern world, and that is saying something. Among the more important laws and regulations governing federal construction projects is Davis-Bacon. In a nutshell, the Davis-Bacon Act of 1931 is a federal law requiring payment of prevailing wages on public works projects. All federal government construction contracts (and most contracts for federally assisted construction projects) worth a certain dollar threshold (which I believe is $2,000) must include provisions for paying construction workers on-site no less than the locally prevailing wages and benefits paid on similar projects. Davis-Bacon is an important priority of the United States Government. We know the importance of this statute because payments to construction companies doing federal work are expressly contingent upon a weekly certification of compliance with the Davis-Bacon Act. See, 40 U.S.C. § 3142. In addition to the certification of compliance, contractors and subcontractors must furnish weekly payroll certifications of wages paid to each employee for that week. The certification can either be submitted on a special Wage and Hour Division form known as a THE WILLFUL FALSIFICATION OF ANY OF THE ABOVE STATEMENTS MAY SUBJECT THE CONTRACTOR OR SUBCONTRACTOR TO CIVIL OR CRIMINAL PROSECUTION. SEE SECTION 1001 OF TITLE 18 AND SECTION 231 OF TITLE 31 OF THE UNITED STATES CODE. A further indicia of the importance of this statutory framework is the fact that the requirement “flows-down” in the parlance of government contracting, from the prime to the subs. In other words, the prime contractor is responsible for ensuring that all employees of all subcontractors are paid the applicable wage. Given all of the above, it is obvious that a Davis-Bacon violation can sometimes subject the contractor to liability for making a false claim to the government, but when and under what circumstances? As just two examples, if a contractor misrepresents the wages actually paid to its employees, or lies about the frequency with which they receive paychecks, the contractor has made an objectively false statement or claim and FCA liability will most likely attach. However, qui tam cases alleging that a contractor has misclassified employees under Davis-Bacon, for example, usually go the opposite way. A classic example is U.S. ex rel. Windsor v. DynCorp, Inc., 895 F. Supp. 844, 852-53 (E.D. Va. 1995). There, Windsor claimed that DynCorp’s classification of certain workers was erroneous. To determine that however it was necessary to look at complex Department of Labor regulations and make a determination regarding the application of the regulations. In other words the claim was not objectively false on its face. In order to show the falsity of the claim, it was first necessary to interpret lengthy regulations in a particular way. That is not to say that misclassification cases under DBA will never be viable. I dare say that if a qui tam relator could generate evidence showing that workers on a Davis-Bacon project were misclassified AND the relator could show evidence that the contractor misclassified those workers on purpose in order to avoid paying premium wages, an FCA action might be viable. So my answer to the question is “It depends on the existence of an objective falsehood.” 
The Department of Labor calculates these prevailing wages and benefits on a regular basis, and the specific rate is then included in the contract itself.
We know this because the regulations say: “[t]he prime contractor is responsible for the submission of copies of payrolls by all subcontractors,” 29 C.F.R. § 5.5(a)(3)(ii)(A). The regulations also say that “the prime contractor shall be responsible for the compliance by any subcontractor or lower tier subcontractor with all the contract clauses in 29 C.F.R. 5.5.”
A qui tam case based on a violation of Davis-Bacon is strongest when there is an objective falsehood on the face of the claim or invoice submitted to the Government. In other words, when the “falsity” of the false statement is apparent on the face of the document itself and is not dependent on anything else.
Review of the 2011 Taxpayers Against Fraud Education Fund Conference & Awards Dinner
It was also nice to see so many folks from various states attend. We were honored to have Indiana Attorney General Gregory Zoller in attendance. Also present were representatives of the Attorney Generals of Texas, North Carolina, Florida, New York and others. 
Last week was the Eleventh Annual Taxpayers Against Fraud Education Fund and it was, as usual, quite an /files/116785-109034/25_Years_of_False_Claims_Act1.pdf”>25 Years of the Modern False Claims Act.
It would be difficult to overstate the importance of the changes that occurred 25 years ago in 1986. Joyce Branda, who serves as Director of the Fraud Section of the Commercial Litigation Branch at DOJ, shared with us that about 20 qui tam cases were filed under the federal False Claims Act between 1863 and 1986. From 1986 through the first half of 2011, however, more than 7,200 cases were filed.
U.S. District Court Judge Royce C. Lamberth (U.S. District Court for the District of Columbia) spoke at the luncheon on Wednesday and shared his insights into the FCA. Ronald Machen, who is the newly appointed United States Attorney for the District of Columbia also spoke.
Attorney General Ken Cuccinelli Dedicates Resources to the Fight Against Fraud
At long last, the Virginia Fraud Against Taxpayers Act is starting to get some media attention…
Jim Nolan over the at Richmond Times Dispatch put together an excellent article this week about the Attorney General’s efforts to fight fraud.
Stay tuned folks, more to come…
A Look at the Marine Habitat and Waterways Improvement Fund and the Virginia Fraud Against Taxpayers Act
Today’s example concerns the Marine Habitat and Waterways Improvement Fund, which was established in the year 2000 by an act of the General Assembly. The statute is found at Virginia Code § 28.2-1204.2 et seq. The statute provides that “Moneys in the Fund shall be used solely for the purposes of improving marine habitat and waterways, including the removal of obstructions or hazardous property from state waters.” Interestingly enough, one of the major sources of revenue for this fund is permits for one of two purposes: (1) fees paid to the Treasurer of Virginia for a permit to “recover underwater historic property” and (2) permits to use “state owned bottom lands.” I take example (1) above to mean treasure hunters, archaeologists, etc., looking for old shipwrecks off the Virginia Coast. Example number (2), permits “to use state owned bottom lands” primarily means the mining of sand from the bottom of the Chesapeake Bay. The type of sand found at the bottom of the Chesapeake Bay is very different from the sand found on beaches or in a kid’s sandbox, and it is quite valuable. Among many other commercial applications, this sort of sand is used in the manufacture of concrete. For that reason, Virginia Code § 28.2- 1206(C) specifies that “When the activity or project for which a permit is requested will involve the removal of bottom material, the application shall indicate this fact. If granted, the permit shall specify a royalty of not less than $.20, nor more than $.60, per cubic yard of bottom material removed.” Such royalties for the sand removed are to be paid to the Treasurer of Virginia, and used for the improving Virginia’s marine habitats and waterways–in other words, for the public good and for the preservation of our precious natural resources. Virginia’s part of the Chesapeake Bay is not the only place in the country with this sort of sand–California’s San Francisco Bay also has quite a bit of it. Guess what happened there? You got it–numerous companies submitted false claims to the state by mining sand in areas of the Bay for which they had not been issued a permit, and by mining more sand than they reported to the state of California. I would say the odds of something similar happening here in the Chesapeake Bay are pretty high–if for no other reason that the value of the sand and the inherent weakness of human nature. 
One loyal reader recently pointed out that this blog might have unintentionally drifted from one of its stated goals–namely, to give practice examples of the myriad situations in which Virginia Fraud Against Taxpayers Act might be useful.
Also, both the California statute and Virginia Code § 28.2- 1206(C) set a range of prices to be paid to the state for one cubic yard of sand depending on the purpose for which it is mined. The sand is worth up to $12.50 per cubic yard when mined for commercial purposes, so it is easy to imagine that dishonest companies also lie about the purpose for which they are mining the sand (and in the process submitted false claims and made false records) in order to decrease the price owed to the state for each cubic yard of sand.
News This Week: New York State Applies a New Model to False Claims Act Enforcement
This week WSJ reporter Carrick Mollenkamp authored a first-rate piece on New York Attorney General Eric Schneiderman and his leadership in state false claims act prosecutions. In particular, Schneiderman appears to be leading the pack of state Attorney Generals investigating and/or prosecuting large custodial banks like Bank of New York Mellon and State Street for their foreign exchange practices.
Readers, stay tuned…