Previously, I have mentioned that government sources seem to be less shy about recognizing the vital contribution of qui tam relators to the fight against fraud. I am referring specifically to the publicity efforts of law enforcement authorities. The recent announcement of a $57.75 million qui tam settlement in the U.S. District Court for the Eastern District of Virginia continues this trend.
Publicity, of course, is very important to law enforcement, because it puts the public on notice of what transpired in a case. As Professor Charles Nesson described it in a seminal law review article, the judicial process is designed to generate statements about right and wrong, and to draw a line between acceptable and unacceptable behavior.
Certainly, most DOJ press releases announcing a qui tam settlement contained an acknowledgement by government authorities of the role of the whistleblower, or relator. But the vast majority of such press releases didn’t contain language like this:
“Collaboration between the federal government and citizens with knowledge of fraud is important to the successful enforcement of the False Claims Act,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “Whistleblowers like Dr. Oberg are critical to our efforts to recover taxpayer money lost to waste, fraud, and abuse.”
And this, from the United States Attorney for the Eastern District of Virginia:
“The U.S. Attorney’s Office remains committed to assisting ordinary citizens who blow the whistle on wrongdoing by companies that take taxpayer dollars,” said Neil MacBride, U.S. Attorney for the Eastern District of Virginia. “Through the efforts of one citizen and the government, these lenders will be paying millions back to the government.”
Congratulations to Jason Zuckerman, who represented Dr. Oberg in this non-intervened case.
Government recognition of the vital role of the qui tam whistleblower in False Claims Act litigation….
Proving an objective falsehood is the key to success under the FCA
One of the keys to a successful qui tam practice is the ability to sort through potential cases and pick only the winners. This is true of any contingency fee practice, but it is even more important in the FCA context. This is because unlike other types of contingency work, most of the work on a qui tam must be done prior to filing. So what does a qui tam lawyer look for? One crucial element to the success of any case is the need for an “objective falsehood.”
So what do I mean by an objective falsehood? FCA cases are fact intensive, and the accompanying body of law is also extremely complex and nuanced. An examination of some recent cases dealing with the issue of an objective falsehood will will illustrate the point.
For example, the need for an “objective falsehood” is explained nicely by the Fourth Circuit’s opinion in a case arising out of the war in Iraq–U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc. 525 F.3d 370, 376-377 (4th Cir. 2008). This case also demonstrates that there is a difference between breach of contract and a false claim.
The plaintiff’s allegations in Wilson were that the defendant falsely induced its contract with the government by promising to comply with “several general and relatively vague maintenance provisions, such as keeping vehicles ‘in a safe operating condition and good appearance.’ “Specifically, the relator in Wilson alleged that the claims submitted to the Government for vehicle maintenance were false because the defendants had failed to comply with these contractual requirements. For example, plaintiff alleged that by failing to “change the oil or replace the fuel filters and damaged windshields of the convoy trucks” the defendants had failed to keep them “in a safe operating condition and good appearance.” However, as any Virginian can tell you, it is far from certain that every crack in the windshield of a truck contraindicates a “safe operating condition.” As a result, the plaintiff’s allegations failed to show an “objective falsehood” because of the imprecise nature of the contractual requirements.
A recent decision from the Eastern District of Virginia involves a qui tam plaintiff in the health care context who made similar allegations of a non-objective falsehood and received the same result. In U.S. ex rel Martinez v. Virginia Urology Center, P.C., 2010 WL 3023521, 1 (E.D.Va. 2010) the relator alleged that she raised a number of concerns about record keeping and treatment practices at a hospital. She alleged that claims had been submitted to Medicare without the required certification, and that certain doctors had failed to follow an anesthesia procedure known as “the seven steps” that was required for reimbursement of the anesthesia services by Medicare. Further, she alleged that during lithiroscopy procedures, surgeons were neither physically present nor available to lend immediate assistance. The relator also alleged that these types of claims were submitted to Medicare and were paid by Medicare, and that the failures rendered the claims submitted false.
These are not claims that can ultimately be proven to be objectively false. Courts dislike—and for very sound reasons—FCA cases that do not contain an objectively false claim. It is easy to say that an objectively false claim is the first thing a lawyer should look for in sorting through FCA cases, but this can be a difficult rule to apply; moreover, it further supports the need for careful and thorough screening of cases in the first place.
New York Attorney General Andrew Cuomo Settles False Claims Act Case Against School Lunch Providers
Expert bank robber Willie Sutton was once asked “Why do you rob banks?” His answer was profound in its simplicity: “Because that’s where the money is.”
The same might be asked about fraud on the government. Why do people do it? Just ask Willie Sutton.
As such, the recent settlement of a New York False Claims Act case should come as no surprise. In FY 2009, the federal government spent $9.8 billion on the national school lunch program. With that kind of money out there, there is no question someone has thier hand in the cookie jar, no pun intended.
A qui tam whistleblower who worked for Sodexo uncovered the fraudulent scheme at issue. It seems Sodexo, which is one of the biggest players in the food-service market, used its massive size to play hard-ball with its suppliers; as a result, Sodexo received rebates from its suppliers that averaged 14% of the company expenditures.
Nothing untoward in that–in fact, it’s smart business. Sodexo probably thought that what they did next was smart business also–but it wasn’t. Not only did Sodexho not pass along those 14% discounts to New York state, they didn’t even disclose the special prices they were able to get from thier suppliers.
The investigation was sparked by former employees of Sodexo under the New York False Claims Act, which, like the Virginia Fraud Against Taxpayers Act, allows whistleblowers to come take action when they have first-hand information about fraud on the government. Such persons are entitled to hire thier own private counsel and prosecute the case in tandem with the government.
The press release does not disclose how much money the whistleblower recieved, but you can access it here:
https://www.ag.ny.gov/media_center/2010/july/july21a_10.html
We know, however, that the individual would be entitled to recieve somewhere between 15% and 25% of the total recovery.
The total amount of the settlement with Sodexo was $20 million. The settlement was for fraud on 21 New York public school districts as well as the SUNY system. The settlement was unsealed in Federal Court in Massachusetts and is the largest monetary settlement under the New York State False Claims Act that does not involve Medicaid funds.
The next logical question is this–was Sodexo the only food service company doing this? Probably not….
Lynchburg Executive Indicted for 124 Counts of Fraud on the Government
A Lynchburg grand jury indicted Donna Beeler-Hensley, vice president at Sterling Oil Company, with 124 counts of fraud on the government today. You can get the full scoop at the Lynchburg News-Advance here.
She is accused of misusing public assistance programs to enrich herself–namely, Virginia’s Energy Assistance Program, which helps low-income families with heating and air conditioning bills.
Beeler-Hensley’s fraud is a textbook example of fraud on the government. She altered dates on client invoices to make them eligible for payment by the government; she billed the government for heating and air conditioning installation that was never done, and for heating and air conditioning services that were never provided. According to the Lynchburg News-Advance, the losses to the government are still being calculated, but could end up being more than $10,000.
This is not, at this time, a Virginia Fraud Against Taxpayers Act case. Because the fraud was on state money, she could be prosecuted civilly as well. The current damages estimate ($10,000) seems a small amount, but I am certain the final damages calculation will be larger.
This case provides a classic example of why the Virginia Fraud Against Taxpayers Act case creates treble damages, civil penalties, and attorney’s fees for violations. In addition to treble damages of $30,000 that could be obtained from a successful verdict, consider this–each false invoice she prepared would subject her to a fine of between $5,500 and $11,000.
Under Virginia Code 8.01-216.4, the Court cannot waive the penalties–they are mandatory. The Court would, however, have discretion as to the dollar amount of each fine. If the court took the low end (i.e., $5,500) that would still result in a judgment of $682,000 for civil penalties.
Special thanks go to the Virginia Lawyer’s Weekly blog and to the Lynchburg News-Advance for providing such excellent coverage.
Virginia Attorney General Ken Cuccinelli Breaks New Ground Yet Again with the September Issue of the Medicaid Fraud Control Unit Newsletter
I am pleased to announce that Virginia Attorney General Ken Cuccinelli and his award-winning Medicaid Fraud Control Unit have again broken new ground in their efforts to protect Virginia’s taxpayers and root out fraud, waste, and abuse in our state government.
I am referring to the www.usdoj.gov .
I am planning a year-end report to cover the various areas in which General Cuccinelli has broken new ground with the Virginia Fraud Against Taxpayers Act, but it suffices at this point to say that he has done an excellent job so far with these prosecutions. I assure you, all Virginians will benefit from his work.
ACLU Challenge to the federal False Claims Act
Tomorrow, the Fourth Circuit Court of Appeals will hear argument in ACLU v. Mukasey otherwise known as the ACLU’s efforts to challenge the seal provisions of the Federal False Claims Act.
As regular readers know, the Federal False Claims Act allows any “person” with first-hand knowledge of fraud on the government to file suit on behalf of themselves, as well as on behalf of the government. Such persons are known as “relators” or “qui tam relators” and they stand to gain a percentage of the government’s recovery.
Pursuant to the statute, relators are required to hire a lawyer (because the government will stand to recover from the case, a relator is unable to file a case pro se). Next, the relator and his or her lawyer prepare a written disclosure statement and serve it on the government prior to filing the case. The written disclosure statement serves as a roadmap to the entire case.
After service of the disclosure, the relator then prepares and files the a complaint, which is filed under seal in the appropriate court. The relator then serves the government again, but not the defendant. The defendant should not be aware of the case at all at that point.
The seal provisions protect the interests of society, to include the government, the defendants, the individual relator, and everyone else.
The seal provisions protect the government in numerous ways. Sometimes the relator’s allegations will already be under investigation by the government. In those situations, the government will be happy to have the assistance of an insider in its investigation. On the other hand, if the relator simply filed the case like any other civil action, the defendants would be put on notice immediately and the government’s investigation would be compromised.
The seal provisions also protect the interests of defendants. Allegations of fraud are very serious, and they should not be undertaken lightly. The seal period gives the government a chance to investigate and, if appropriate, the government will have the chance to discourage a reasonable qui tam relator if the case is not well-founded.
The seal therefore puts important checks on the relator’s considerable power, by ensuring that every qui tam case gets multiple levels of review prior to be made public.
The ACLU’s case is, in essence, that the seal provisions “gag” (the ACLU just LOVES that word) the relator and deprive individual relators of their first amendment rights. This is ridiculous, because no relator is required to file a qui tam action. If the person wants to, they can simply take their allegations of fraud to the press (or to any other place they want) and not file a qui tam action. They are free to do that, and there is no penalty whatsoever.
While individuals sometimes dream of “going to the press” and having their face on the front page of the Washington Post or the New York Times, this almost never happens. Even when an individual has a news worthy story, convincing a reporter to take the time to study and learn about a case is never easy. Just ask Harry Markopolos.
However, if the person wishes to do the maximum good for society, and does not mind following the rules, they can file a qui tam case. Qui tam cases inevitably get more press than some random person trying to catch a reporter’s attention.
And, because blowing the whistle is neither glamorous nor easy, the individual can also receive a substantial cash reward for following the rules. I think any whistleblower will tell you that the money is going to be needed.
And that is exactly what we are talking about here–if a person wants to be a qui tam relator, they have to follow the rules. If they want to go to the press, they can, and there is nothing to stop them. There is no restriction on a relator’s first amendment right.
Of course, there is more at issue than just the Federal False Claims Act. If the Fourth Circuit were to rule in favor of the ACLU, they would be invalidating the numerous states with state False Claim Act/qui tam statutes….and that would be a tragedy indeed.
Hopefully, the Fourth Circuit will swiftly issue a ruling upholding the District Court, and that will be the last we hear about this particular bit of stupidity from the ACLU.
Overpayments to Government Contractors
Overpayments to Government Contractors
Quick Question: What would you do if you found an extra $1 million in your personal checking account?
The answer to that is easy—you would approach the bank as soon as you saw it and ask them to correct the error. If it was not corrected quickly, you would bring the error to the attention of the bank again.
I think it is pretty safe to say that no law abiding person would try to withdraw the $1 million or try to move it to an off-shore account. A quick google search will tell you that people who try this are headed for disaster.
To be certain, the answer is a little more difficult for a government contractor–or for any commercial entity for that matter. Bookkeeping for even the simplest business is considerably more complicated than personal banking. But that does not give government contractors the right to hold on to an extra $1M in the hopes that they will be able to keep it.
Why are overpayments such a problem?
Overpayments have become a problem for a number of reasons. Cheif among them is that the government is now paying for things that it didn’t just 40 or 50 years ago. Another big reason is the “newness” of electronic payments by the government.
You see, historically FCA liability attached to any person who endorsed and deposited a government check to which they were not entitled, because the act of endorsing and depositing such a check into the person’s bank account constituted the knowing submission of a false claim to the government. For further reading, I suggest U.S. v. Fowler, 282 F.Supp 1 (D.C. N.Y. 1968), which is a classic from this line of cases.
However, for the last eight years or so, executive agencies of the federal government have been required to use electronic commerce to the maximum extent practicable. As a result, most payments from the federal government are now made via wire-transfer. No paper check is ever issued, and no one is required to endorse the instruments and deposit it into a bank account.
As a result, many–and perhaps most–contractors have experienced the phenomenon of receiving random wire-transfers of money from the federal government. Such transfers are usually accompanied by frenzied attempts by the accounts receivables/accounts payable departments to find out what happened.
What else happens when a contractor receives a random, unidentified and unexpected EFT in the amount of $1 million? Simply because the contractor did not expect the money does not mean it is not entitled to the money. It is at least possible that the money was correctly transferred. For example, it is possible that the contractor under-billed the government at some point by mistake, and that the government has in fact paid the company the correct amount.
The issue is complicated by the fact that the wire-transfer in our hypothetical is not connected to an invoice, and bears no delivery-order or task-order number. The contractor will literally need to examine every single invoice it has submitted on all of its contracts.
Certainly, one can forgive the contractor for holding onto the money while it checks its records and double checks to find the error in its system.
What happens when the contractor eventually realizes that it has money in its account to which it was not entitled? Does the contractor have any obligation to return this money to the government? Prior to the May 2009 FERA amendments to the FCA, there were several statutes and rules concerning the obligations of a contractor who has been overpaid, and making a failure to return the money unlawful.
As incredible as it may seem to the uninitiated, government overpayment are commonplace in the healthcare and defense procurement contexts. Since healthcare and defense make up the majority of government expenses, government overpayments are therefore commonplace in most federal spending.
At some point while pondering this extra $1 million bucks, the experienced contractor is going to start doing a little math of its own. In theory, in the procurement context, the government and the contractor will go through a collaborative reconciliation process at some point to ensure that the contractor has not been under or overpaid. In our hypothetical, however, the contractor is clueless (through no fault of his own) as to which contract received the extra $1 million. Therefore, there is no specific contractual reconciliation in which the overpayment should be disclosed.
The experienced contractor will also be aware that the overworked auditors and accountants that supervise this process on the government’s behalf are only able to check the most salient aspects of the reconciliation, and can catch only the most obvious wrongdoing. Certainly, the larger the amount of money at issue, the more likely the government will be to notice the error. But even the most inexperienced contractor knows that agencies like the Defense Contract Audit Association (“DCAA”) find it very difficult to track amounts of money under $50 million in the massive machinery of the federal government.
Our hypothetical contractor also will be keenly aware of the powerful psychological factors at work in government employment: The person or group whose mistake resulted in the overpayment will have a real desire to pretend the whole thing never happened. Indeed, it would be asking too much of human nature to expect a person to bring their own grievous error to the attention of their superiors.
Because the 1986 FCA provided no definition of the word “obligation” it would have been extremely difficult (if not impossible) to prosecute a case under these facts. In the absence of a congressional definition, courts struggled to define the obligations that contractors owed the United States. In American Textile Mfrs. Inst. Inc. v. The Limited, Inc., et al., the Sixth Circuit Court of Appeals held that the term “obligation” included only responsibilities to pay or transmit money to the United States where a party had some form of specific, legal duty to pay the money.
Moreover, the Court held that such a specific requirement must have existed at the time the false statement was made. In other words, the making of a false statement or claim in order to avoid incurring or creating an obligation, was not unlawful. At least one District Court had interpreted the term obligation under the old FCA to mean only overpayments that were “fixed in all particulars.” See United States ex rel. Zelenka v. NFI Industries, Inc., 436 F.Supp.2d. 701 (D.NJ. 2006).
The FERA amendments provide a definition for the word “obligation” and make it clear that an obligation under the FCA includes the retention of an overpayment. This clarity solves the problem from the above hypothetical. An obligation to repay money under the FCA now extends to an overpayment regardless of whether the overpayment is fixed in all particulars.
In 31 U.S.C. 3729(a)(1)(G) the amended FCA creates liability for any person who:
knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.
In 31 U.S.C. 3729(a)(1)(D) the revised FCA also makes it unlawful for any person who
has possession, custody, or control of property or money used or to be used by the Government and knowingly delivers . . . less than all of the money or property.
These legislative fixes clearly address the issues in this blog post.
Pick your own title: “Former UVa Scientist Michael Mann is Proven Correct, and Human Activity Really is Causing the Earth to Warm” or “Virginia Circuit Court Judge Sets Aside Portions of Civil Investigative Demand”
Maybe the dual titles are a lousy attempt at humor–but as I often tell my clients, the jokes are for me, the rest is for you.
Yesterday, the news broke that the Circuit Court for Albemarle County had set aside portions of Attorney General Ken Cuccinelli’s civil investigative demand, which sought certain information related to research grants obtained by former UVa professor Michael Mann.
My dual titles are only slightly exaggerated. At the end of the day, this is not going to go down in history as a major event in Virginia legal or scientific circles, but you would never know that based on the jubilation from the Mann camp.
General Cuccinelli is now allowed to go back to the drawing board, if he wishes, and draft up some new CIDs in line with the directives the Court gave him. Or, if he has reason to believe that there has been a violation of the VFATA, he could just file a lawsuit and go about getting the same information through discovery–as I have said before and said again, it is usually a waste of time to fight civil investigative demands.
In fact, this opinion will probably be remembered by the legal and scientific communities, if it is remembered at all, for its recitation of some clear black letter law: namely, that scientific researchers working on state funded grants are not immune from prosecution under the Virginia Fraud Against Taxpayers Act.
Now, that is hardly a revolutionary proposition, but it is always nice to see Courts embrace a correct read of the law, especially when addressing a subject for the first time. If I were a gambling man, I would also bet that a statement like that is not what Michael Mann et al. had in mind when they challenged this CID.
I haven’t seen the opinion posted anywhere, but I will track it down eventually.
Virginia Qui Tam Law.com blog subscriptions are now available on your Kindle
I am pleased to announce that Virginia Qui Tam Law is now published in a Kindle edition , so the blog feeds are available from Amazon.com for those of you who own a Kindle.
I recently purchased a Kindle myself, and I have found it to be a very useful tool for my practice. For lawyers, I recommend the DX version, as it allows the user to transfer pdfs directly from any source to the Kindle.
Hearing to be held on UVa’s challenge to the OAG’s civil investigative demand this Friday, August 20, 2010, at 2:00 PM
As regular readers know, this Friday, the Circuit Court for Albermarle County is set to hear argument on the University of Virginia’s motion to quash Attorney General Ken Cuccinelli’s civil investigative demand pursuant to Virginia Code 8.01-216.7(D).
The strategy of Mann and UVa has been simple since day one–they have continually sought to turn this into a battle about academic freedom, rather than a simple investigation into whether or not Mann made misrepresentations on several grant applications.
As I have pointed out before, most lawyers representing targets of a CID take advantage of the opportunity to try to convince the government that there has been no wrongdoing, and that the client has nothing to hide.
There are very good reasons for this, because this epic battle over this CID is much ado about nothing. Even if a target “wins” and the CID gets set aside, they haven’t really won anything at all, because a CID is just a preliminary investigative tool.
The manner in which Mann and UVa have attempted to address public opinion strikes me as somewhat interesting for several reasons . The latest maneuver is to have the ACLU and others file amicus briefs in the Circuit Court for Albermarle County. That’s right–an amicus brief in a Virginia Circuit Court.
Of course, the ACLU doesn’t mind this one bit–they really have nothing better to do than file amicus briefs, and it will probably result in some donations for them–but I would be quite surprised if the Circuit Court allowed such a filing. While United States District Courts will occasionally allow amicus filings, they do not always do so.
(As an aside,the brief /files/116785-109034/AG_Mann_file_July_13.pdf”>brief filed by the Attorney General, I must say that a fine job was done. The brief addresses things like–gasp–the burdens required for OAG to issue CIDs and so forth.
Importantly, the brief also make some other important things clear, which, in my opinion, show which side is acting a little more rationally. As one example, OAG mentions in its brief that it has offered UVa the opportunity to share any dispositive evidence that might warrant an end to the investigation.
The brief details other attempts on the part of OAG to cooperate. As another example, apparently a number of FOIA requests were made to UVa in 2009, asking for Mann’s emails. The FOIA requests came up empty handed, and UVa said it did not have any emails of Dr. Mann’s at this late date.
So, OAG asked the University at the outset if that was still a correct answer, because if so, both sides could just skip the issue of the emails. Sounds like an attempt at cooperation if you ask me–but UVa never responded to this commonsense effort to narrow the issues.
Certainly, emotions are running high on both sides of this issue. Stay tuned for more.
Zach
