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Regarding liability under the Federal False Claims Act and the Virginia Fraud Against Taxpayers Act–its the “Sneaking Around” that gets you into trouble

By Zachary Kitts on August 16, 2010 in , ,





The standards for liability under the FCA and the VFATA are quite different from under other causes of action.  This blog post focuses on one of my personal favorite FCA opinions:  Young-Montenay, Inc. v. United States, 15 F.3d 1040 (Fed. Cir. 1994).

If anyone were to assemble a case book of important decisions delineating the principles of the Federal False Claims Act, Young-Montenay would be at the very top of the list.  Why?  Because I do not know of any other case that does such a good job of illustrating (1) the level of wrongdoing necessary to make a claim false and (2) the nature of the differences between damages under the FCA and damages under traditional causes of action. 

The facts of the case are as follows:

Young-Montenay contracted with the government to install boiler equipment at a VA medical center in Tennessee.  The ultimate cost of the boiler equipment Young-Montenay agreed to install was $153,000; however, Young-Montenay’s supplier (a company named Keeler) failed to send all of the equipment Young-Montenay ordered.  The result of that was that in addition to receiving only part of the equipment, Young-Montenay only received a partial invoice.  The specific amount of the partial invoice was $104,000, with the remaining $49,000 due and owing upon delivery of the full order.       

There was no dispute that the government had agreed to reimburse Young-Montenay the amount of $153,000 for the cost of the equipment.  There was also no dispute that Young-Montenay’s supplier made a partial delivery of the equipment and issued an invoice for $104,000.  

What Young-Montenay did next, however, was the gravamen of the case:  a Young-Montenay employee named Eisenhut doctored the invoice received from Keeler by replacing the $104,000 with $153,000 (i.e., the correct amount Young-Montenay would ultimately need to pay to the supplier for the equipment.)     

Why would Mr. Eisenhut and Young-Montenay do such a thing?  The answer is simple.  Young-Montenay hoped to get the money to buy the rest of the equipment without paying it out of pocket.  This is by the way a very common type of false claim.

As the Court said: 

It is immaterial whether Eisenhut believed Young-Montenay would subsequently owe Keeler $153,000.00, for at the time of the submission of the invoice to the government, he knew Young-Montenay then owed Keeler only $104,000.00.

In other words, Eisenhut knew the claim was false at the time he made it, and so it does not matter if it will ultimately be correct.     

The United States obtained summary judgment against Young-Montenay for damages in the amount of $147,000 and a single civil penalty of $5,000.  On appeal, Young-Montenay argued that the government had not sustained any actual damages as a result of the forged invoice, other than the interest it could have earned on the $49,000 had the government not paid the money too early. 

The Court rejected the argument that the government had not sustained damages.  The Court reasoned that the government had lost the use of the overpaid money.  Second, once Young-Montenay was overpaid, the Court concluded, it had less incentive to finish the project in a timely manner.  Indeed, this eventually turned out to be the case, because Young-Montenay was roughly 1,180 days late in finishing the project.

To those two compelling reasons for FCA liability, the Court could have added a third category of damages always incurred by the government, although these damages are somewhat more difficult to quantify–namely, a loss of respect for the government and its institutions.  Arguably, this is the most pernicious type of damage arising out of a false or fraudulent claim.  

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A refreshed look at the pleading standards for Complaints….and Affirmative Defenses

By Zachary Kitts on August 10, 2010 in , , , ,


Everyone knows by now that the U.S. Supreme Court has recently spoken on the topic of the pleading standards of Fed. R. Civ. P. 8 and instituted a “plausibility” pleading standard in the case of Bell Atlantic Corp. v. Twombly, 55 U.S. 544, 127 S.Ct. 1955, 167 L.E.D.2d 929 (2007).  Unfortunately, some lawyers view the Twombly decision (together its counterpart Iqbal) as aimed only at the standards applicable to a Complaint filed by the plaintiff. 

In fact, the opposite is true.  The pleading requirements of Fed. R. Civ. P.  8 (as well as the infamous Rule 11) apply to the Answer filed by a defendant (and the affirmative defenses set forth in Answers) just as they apply to Complaints. 

My favorite examples of evasive Answers are as follows: 

The allegations of paragraph ___ contain a legal conclusion to which no response is necessary. 

Paragraph ___ of the Complaint incorporates a document which speaks for itself, and as such no response is necessary.

Both of the above should, in most circumstances, be sanctionable.  Even worse is the defendant who is inserts a laundry list of affirmative defenses.  Either way, the result is that more work must be performed by the plaintiff to learn basic elements of the defense.  

I am quite happy to report that two Virginia Federal Magistrate Judges have recently confirmed that defendants must comply with Twombly and Iqbal in filing their answers and asserting affirmative defenses.  The opinions are Francisco v. Verizon South and Palmer v. Oakland.  
  
Hopefully, this will result in fewer evasive and/or non-responsive paragraphs in Answers.  

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

By Zachary Kitts on July 6, 2010 in , , ,


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. 

 

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

By Zachary Kitts on June 28, 2010 in , , , , ,



Last Friday evening, the Mixx Delicious Digg Facebook Twitter

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

By Zachary Kitts on June 20, 2010 in , , ,



The latest  Mixx Delicious Digg Facebook Twitter

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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

By Zachary Kitts on June 1, 2010 in , , ,


Lest anyone think that the debate about Attorney General Ken Cuccinelli’s 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  Mixx Delicious Digg Facebook Twitter

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Cuccinelli Investigates Grant Fraud at the University of Virginia

By Zachary Kitts on May 4, 2010 in , ,



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, the purpose of the Virginia Fraud Against Taxpayers Act (Va. Code 8.01-216.1 et seq.) is to protect our public fisc from false claims on our tax dollars.  Anyone who submits a false claim for the government money is damaging the Commonwealth, regardsless of the politics.

Second, 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. 

  


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Senator Grassley Sends a Warning to State Legislatures Across the Country

By Zachary Kitts on May 1, 2010 in , , ,

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 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….

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

By Zachary Kitts on April 28, 2010 in , ,



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 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.  

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

By Zachary Kitts on April 26, 2010 in ,


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.   
 

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