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Importance of Well-Pleaded Complaints in False Claims Act litigation

By Zachary Kitts on July 13, 2015 in , , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Importance of Well-Pleaded Complaints in False Claims Act litigation

Today we will revisit one of my favorite themes on this blog — the importance of a well-pleaded Complaint in qui tam litigation under the federal False Claims Act.  On a related note I am happy to announce that Virginia Beach lawyer David Pearline (who is also a regular reader of this blog) successfully prosecuted a case in the U.S. District Court for the Eastern District of Virginia, and more importantly, he did so on the strength of a very well-pleaded Complaint.

The Continuum of Well-Pleaded Complaints

Certainly, a well-pleaded Complaint is important in any kind of litigation, but in other types of litigation one might get away with a bit less effort.  Indeed, in other types of litigation it might even be beneficial to be a bit vague.  Take, for example, the forms found in Westlaw’s Federal Civil Judicial Procedure and Rules.  In Form 11 we find a sample Complaint for a negligence case:

1.  [Statement of federal Jurisdiction]  

2. On [date] at [place], the defendant negligently drove a motor vehicle against the plaintiff. 

3. As a result, the plaintiff was physically injured, lost wages or income, suffered physical and mental pain and incurred medical expenses of $______.

4. Therefore plaintiff demands judgment against the defendant for $_____ plus costs.

Now that, ladies and gentlemen, is a bare-bones Complaint.  I have no doubt that it would get the job done in most motor tort cases, but it will not suffice in a FCA case.  In fact, if we think of Complaints as arranged along a continuum, this one is at the extremely simple end and FCA Complaints are at the extremely complicated end.  This is partly because the special pleading requirements of Fed. R. Civ. P. 9(b) apply to False Claims Act cases; such a bare-bones Complaint alleging fraud and false claims would be unthinkable under Rule 9(b).  But there are other, equally important reasons as well.

The Factual and Legal Complexity of False Claims Act Litigation

By design, Rule 9(b) makes it trickier to prepare a false claims act complaint, but that is only one of several things complicating these cases.  Another significant complicating factor is the complexity of governmental operations and government contracts.  In addition qui tam/FCA cases will often deal with complex technical topics like healthcare, engineering, accounting, and so forth.  And, of course, the broad remedial nature of the federal False Claims Act means that there are many terms left undefined.  Generally speaking, statutes like the federal FCA and the Virginia Fraud Against Taxpayers Act make seven different types of conduct illegal in relation to government funds, and the ways those broadly-defined types of conduct can be applied to government operations are many and they are varied.

So, it is easy to see how very good lawyers — indeed, some of the very best — sometimes fail to put together a well-pleaded Complaint.

The Complaint is United States ex rel. Greene v. City of Hampton is a Model of Clarity and Efficiency 

So I was happy to see regular reader David Pearline not only successfully prosecute a case, but also put together an excellent Complaint.  It also happens to be a case filed in the U.S. District Court for the Eastern District of Virginia, against the City of Hampton for making false claims to the United States Postal Service.

So what makes this such an excellent Complaint?

For starters, David drafted the numbered allegations as short “factlets” which clearly and unequivocally tell the story.  He then arranged those factlets in a coherent, logical way so that the reader doesn’t have to work too hard to understand what is being alleged.  He also avoided the use of adjectives and adverbs, which as regular readers know, is disfavored in pleadings.

Because of all of these things, the government intervened in the case; moreover, the case settled on the strength of this well-drafted Complaint and Ms. Greene obtained a 17% relator’s share…

So congratulations David, and good work!  I always encourage my readers to not only take an interest in and prosecute these cases, but also to share with my their results…hopefully more will come in the future!

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

 

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Davita Dialysis Centers settle non-intervened qui tam lawsuit for $495 million

By Zachary Kitts on June 26, 2015 in , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Davita Dialysis Centers settle non-intervened qui tam lawsuit for $495 million

Regular readers might recall my post on an epic discovery battle fought in the Northern District of Georgia.  Today, I am happy to announce that a very abnormal discovery battle has ended and Davita Dialysis Centers will settle a non-intervened qui tam lawsuit for $495 million.  The entire case has settled as a result of the aforementioned discovery battle, after it became clear that a federal judge was not going to allow certain very bizarre discovery shenanigans by DaVita to continue.

And when I say that the discovery shenanigans were bizarre, I mean they were bizarre.  In a nutshell, during fact discovery numerous witnesses changed their testimony in the exact same way either during their depositions or after the fact via an errata sheet.  How exactly DaVita and their lawyers thought this ruse would work is beyond comprehension, but in my opinion it worked out exactly like it should have.

That is to say, with U.S. District Judge Charles A. Pannell interviewing the witnesses himself in chambers, DaVita’s lawyers hiring their own lawyers, and with the Judge ultimately declaring the attorney-client privilege between DaVita and its lawyers null and void and ordering discovery re-opened so that relator’s counsel could probe into the exact communications that caused each and every witness to change their testimony on the exact same topic.

And when that happened, the case settled to the tune of $495 million dollars, making it one of the larges non-intervened settlements of all time.  (As regular readers know, when a case is non-intervened it means the relator and his lawyers — in this case, Marlan Wilbanks and L. Lin Wood — prosecute the case themselves, without assistance from the Government.)

That, in and of itself, would be interesting enough to warrant a blog post, but there was one final interesting twist this week with the press releases issued by the United States Department of Justice and the U.S. Attorney’s Office for the Northern District of Georgia.  The use of press releases by DoJ is of course one way the Government wields its power, and it is also one of the ways DoJ and the United States spread the word about the power of the federal False Claims Act; as a result, DoJ always does a press release when it settles a case, or when a criminal indictment is handed down, or when other breaking news takes place.  When a non-intervened case settles, however, the United States does not normally issue a press release.

Moreover, even when Justice does a press release for an intervened qui tam case, they do not include the name of the relator’s private counsel or even disclose the fact that the relator had private counsel.  But yesterday, the U.S. Attorney’s Office for the Northern District of George broke both taboos, at least for a short period.  First, it issued this press release which names Marlan Wilbanks and Lin Wood by name as the relators’ lawyers and gives credit where credit is due for their extraordinary efforts.  The original press release includes the following on page three:

The United States did not intervene in the whistleblowers’ action; counsel for the whistleblowers, L. Lin Wood and Marlan B. Wilbanks, litigated this action, which was monitored by the United States Attorney’s Office for the Northern District of Georgia and the Civil Division of the United States Department of Justice. To bring this case to its successful resolution, whistleblowers Dr. Vanier and Mr. Barbir, along with their attorneys, Lin Wood and Marlan Wilbanks, engaged in extensive and exceptional litigation efforts.

Later that same day, the press release was modified to read as such on the webpage for the Northern District of Georgia USAO.

Oh well — but congrats to Mr. Wilbanks and to Mr. Wood are in order for their historic and hard-fought victory!

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

 

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Use of Outside Counsel for False Claims Act Litigation

By Zachary Kitts on June 19, 2015 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Use of Outside Counsel for False Claims Act Litigation

I have often said on this blog, there is no new thing under the sun.  That age-old wisdom also applies to the various ruses that many defendants try to use when they are sued using the federal False Claims Act or a state False Claims Act.

One of the most common ruses used by defendants — and it is also popular with children of all ages everywhere — is to try to deflect attention from their own untoward conduct by leveling an accusation at the plaintiff.  If the plaintiff  is a qui tam whistleblower acting without the assistance of the government, we are accustomed to seeing counter-claims these days, along with the usual grumbling about a “greedy disgruntled former employee.”  If the plaintiff is the United States, we are accustomed to seeing grumbling about “government overreach.”

And, if the plaintiff is a state government represented by outside counsel, we are accustomed to seeing allegations like those leveled at New Mexico Attorney General Hector Balderas recently.  There, General Balderas hired an outside firm — Cohen Milstein — to handle the heavy lifting of the lawsuit, with his office directing the litigation. Instantly, the defendants started grumbling about “greedy plaintiff’s lawyers” who were supposed to be “driving the litigation.”

The Hiring of Outside Counsel in state False Claims Act Litigation

There is nothing new or novel about the hiring of outside counsel by state governments for FCA litigation, and many state Attorney Generals have used this approach. There are any number of sound reasons why a state AG would use an outside law firm, but chief among them is the fact that the number of states having False Claims Act statutes has grown exponentially at a time of historic state budget shortfalls.

Thus most state governments find themselves with a complex new statute to enforce and little or no money to enforce it with.   Not only do they lack experience with this type of litigation; it also means they lack the budget to hire experienced FCA litigators, if indeed any such experienced FCA litigators were available for hire, which is very unlikely.  And even if such experienced litigators were available to become full-time employees of the state AG’s office, we must keep in mind the expenses of hiring a permanent employee, which is normally what government employees are.

So state governments can either try to make do with what they have — which will often result in disaster, because defendants will always hire capable, expert counsel with a national reputation — or they can  fight fire with fire and hire experienced outside counsel.  By hiring experienced outside counsel, a state government can ensure they also have expert counsel for the case.

And, lets not forget, outside counsel brings two additional advantages to the table.  First, they will normally bear all of the costs of the litigation — and those costs will, without any doubt, be substantial.  Second, they will usually work on a contingency fee basis, which means that the state does pay anything at all unless it wins.

So, General Balderas, I encourage you to not get distracted by the smoke and mirrors and the expensive side show defendants are trying to create.

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Gov. Hogan Signs Maryland False Claims Act

By Zachary Kitts on May 13, 2015 in , ,
Maryland False Claims Act of 2015

pen used by Gov Hogan to sign the Maryland False Claims Act

 

 

 

 

 

Gov. Hogan Signs Maryland False Claims Act

Yesterday Maryland Governor Larry Hogan signed the Maryland False Claims Act of 2015 into law.  The bill was designated Senate Bill 374 and was approved by the General Assembly earlier in the session.

I was honored to be invited to attend the bill signing, pictures of which will follow…for now, a picture of the pen used to sign will have to suffice.

Over the last six years I have written articles and testified before the Maryland legislature at least 10 times that I can recall; this year at last we had the support of the new Attorney General, Brian Frosh, and I think that was critical.

Another critical factor was, I think, the fact that the General Assembly takes an “incrementalist” approach to legislation.  I myself had never heard of this type of approach to legislation, but apparently it works for them.  The incrementalist approach runs approximately thus.  A member of the General Assembly (or the Governor, or the AG) propose a new law.  Other people oppose it for whatever reason.  The General Assembly then passes a modified version of the law in some form other than what the original drafters and supporters desired.  Then, after some time passes and the sky doesn’t fall, the General Assembly gradually amends the law in later sessions and makes changes until it becomes what the original drafters intended.

Seems strange to me, but every state has their own unique style and I guess this works for Maryland. Or perhaps I should say, it has worked so far for Maryland.  Ultimately, the Maryland False Claims Act will need to be amended to make it a true false claims act — as of now, we are still in the incrementalist process, and so the law leaves much to be desired.

In fact, it is not even a true false claims act, but it comes closer than ever before…So, dear readers, I doubt if I have made my last trip to Annapolis and I doubt you have seen the last post on the Maryland legislative process…

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Dodd-Frank Rule 21F-7

By Zachary Kitts on May 9, 2015 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Dodd-Frank Rule 21F-7 is enforced for the very first time

Last time around, we looked at Judge Gwin’s opinion in US ex rel. Barko v. Halliburton, et al., and the importance of that discovery dispute  in the larger framework of the False Claims Act.  The Barko case is significant for another reason as well — in addition to being the first time a court has applied 48 CFR 52.203-13 the Barko case also generated a first-of-its-kind SEC enforcement action under the new Dodd-Frank rules.

On April 1, 2015 the Securities and Exchange Commission announced the enforcement action against Halliburton, who had been charged with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act.

A bit of background may well be in order.

A Very Short History of Dodd-Frank and Rule 21F-7

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, was by any measure a wide-ranging bill covering many aspects of the American economy.  Most important for our purposes, Dodd-Frank amended the Securities and Exchange Act by adding a Whistleblower program and — in section 21F of the law — authorizing the SEC to prepare a set of rules for that program.

The congressional purpose underlying these provisions was clear — Congress wished to replicate the success of the federal False Claims Act by encouraging insiders (i.e., whistleblowers) to report possible violations of securities laws.  The Dodd-Frank Act provided financial incentives to such whistleblowers, prohibited employment-related retaliation, and provided various confidentiality guarantees to whistleblowers who come forward.

The SEC later promulgated a set of rules implementing these provisions of the Dodd-Frank Act, including Rule 21F-17.  The rule states in relevant part that “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement … ”

Now, on to the  enforcement action against Halliburton/KBR…

Halliburton’s Unlawful Conduct…

Halliburton had violated rule 21F-17, the SEC alleged, by requiring employees to sign an agreement with unlawful language.  The relevant language, which was required of everyone who made an internal report of suspected wrong-doing, stated, in relevant part:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

Perhaps most interesting of all, the SEC investigation was triggered by an astute government employee who happened across Judge Gwin’s opinion discussed above.  (It might also have been tipped off by Barko’s top-notch counsel at KK&C).  KBR agreed to pay a $130,000 penalty to settle the matter and the company voluntarily amended its confidentiality statement by adding language making clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.

The SEC may still be a civil enforcement agency without real teeth, but it is good to see that it might  have gotten a little better since the days of Harry Markopolos…

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

 

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48 CFR 52.203-13 and Civil Discovery

By Zachary Kitts on April 18, 2015 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

48 CFR 52.203-13 and Civil Discovery

I wanted to update a two-part prior post on the Barko opinion out of the D.C. Circuit which regular readers may remember.  The two-part prior post concerns 48 CFR 52.203-13 and civil discovery after the implementation of that new rule.

The Revolution of 48 CFR 52.203-13

As regular readers know, beginning in 2009, FAR Subpart 3.100 (which was later codified at 48 CFR 52.203-13) required contractors to disclose “credible evidence” of a violation of the federal False Claims Act – or federal criminal statutes involving bribes or kickbacks – to the United States within a certain time frame.

48 CFR 52.203-13 also mandates that each contractor have in place an ethics compliance program and provide training on ethics reporting for all employees, and requires each contractor to display a poster in a prominent location that informs employees of the internal reporting mechanism and the employee’s options if they feel that their employer is not adequately addressing an ethics concern.

This of course is a tried and true method of educating employees and essentially making them part of the regulatory process — in fact this is exactly how other corrective statutes like the FLSA and Title VII of the Civil Rights Act of 1964 work, with one important difference.  Under the rubric of 48 CFR 52.203-13, when the process works – i.e., when an employee communicates concerns about fraud or false claims via one of the internal reporting mechanisms required by the regulation – the contractor must inform the government if the employee’s concerns turn out to be supported by “credible evidence.”

There is no doubt that much ink was spilled and a great many internal memos were generated in the six years following the institution of 48 CFR 52.203-13.  The fate of all of this incredibly juicy information in civil discovery was left unanswered until the spring of 2014 when a discovery dust-up occurred in the U.S. District Court for the District of Columbia in a qui tam case styled US ex rel. Barko v. Halliburton, Inc., et al.

The discovery dispute in US ex rel. Barko v. Halliburton, Inc., et al.

Harry Barko is a former employee of Halliburton/KBR who alleged, among other things,  that Defendants engaged in a scheme to defraud the United States by inflating the costs of laundry services on American military bases in Iraq.  The case is being litigated on a non-intervened basis; in other words, the United States chose not to intervene in the lawsuit, which means the relator’s lawyers — in this case, Kohn Kohn & Colapinto — are responsible for prosecuting the case on behalf of their client Harry Barko, as well as for the United States.

On November 14, 2013 Barko served a set of Requests for Production of Documents.  Relator specifically asked for documents relating to any internal audits undertaken by Halliburton/KBR in response to the subject matter of the relator’s Complaint.  Specifically, it seems that relator asked for all documents related to KBR’s Code of Business Conduct reviews.

Unsurprisingly, defendants responded that such documents had indeed been created and that such documents still exist.  Defendants asserted, however, that the relevant documents and information were protected by either the attorney-client privilege or the protections afforded to attorney work product, or both.  As such, defendants declined to produce documents responsive to the request.

This, of course, was not something that Mr. Barko’s lawyers intended to let go.  Relator’s counsel filed a Motion to Compel in early February of 2014.  Judge Gwin – sitting in D.C. by designation from the U.S. District Court in Cleveland, Ohio – did an in camera review of the documents, which resulted in his 2014 Opinion granting the motion to compel.

In his opinion, he reasoned that the attorney-client and work-product privileges were inapplicable to the internal KBR materials because the investigations that generated these documents were undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.  The full opinion can be found at United States ex rel. Barko v. Halliburton Co., 37 F.Supp.3d 1 (D.D.C. 2014).

Defendants then appealed to the D.C. Circuit.

The D.C. Circuit’s Review of Judge Gwin’s Order

The D.C. Circuit vacated Judge Gwin’s order, finding that the internal Halliburton reports were in fact protected by the attorney-client privilege because they were generated in order to determine if the information should be disclosed to the government.   In re Kellogg Brown & Root, Inc., 756 F.3d 754, 764 (D.C. Cir. 2014) cert. denied sub nom. U.S. ex rel. Barko v. Kellogg Brown & Root, Inc., 135 S. Ct. 1163, 190 L. Ed. 2d 914 (2015).

However, the D.C. Circuit made it clear that its opinion applied only to the disclosure of communications to attorneys;  the Court was clear that its opinion vacating Judge Gwin’s discovery order did not extend as far as protecting the underlying facts disclosed by the individuals who communicated with the attorney.  Therefore, to the extent that Barko timely asserted other arguments in the district court for why the documents were not covered by the privilege afforded to attorney work-product, the D.C. Circuit made it clear that the district court was free to consider those arguments on remand.

Judge Gwin accepted this invitation and eventually ruled that parts of the internal KBR reports be produced as discoverable fact work product.  Unlike attorney-client communications, attorney work-product is discoverable if a litigant is able to show a substantial need for the information, and show that the information is otherwise unavailable.  Judge Gwin ruled that Barko was able to meet this standard, and thus KBR was ordered to produce portions of the reports, with redactions as explained in the order.  United States ex rel. Barko v. Halliburton Co., 2014 WL 7212881 (D.D.C. Dec. 17, 2014).

So that is the update I wanted to share, but that is not the end of the story…in addition to being the first time a court has applied 48 CFR 52.203-13, the Barko case is also significant because it recently generated a first-of-its-kind SEC enforcement action under the new Dodd-Frank rules.

But that is a different story for a different day.

 

K&G Law Group PLLC

 

 

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FX Analytics whistleblower case settles in New York

By Zachary Kitts on March 28, 2015 in ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

 FX Analytics whistleblower case settles in New York

Regular readers may remember the series of state false claims act cases brought against Bank of New York Mellon that made headlines a few years back; because I was involved in the Virginia case, it was also covered in some detail on this blog.

Although there wasn’t much news for the last two years or so, that all changed late last week when a major settlement — and by far the biggest to date — was announced in the Southern District of New York.  Specifically, New York Attorney General Eric T. Schneiderman and United States Attorney for the Southern District of New York Preet Bharara reached a $714 million settlement with Bank of New York Mellon Corporation.

In the interests of full disclosure, I was local counsel for the Virginia case against Bank of New York Mellon, which ended in a settlement in 2012.  So, having worked with relator and relator’s lead counsel (Mike Lesser and Phil Michael) for several years on these cases, I have first-hand knowledge of what relator and his counsel went through, and what makes this settlement so important.  And, lets not forget that it was Harry Markopolos that initially sniffed out the fraud and got the ball rolling.

Nowadays, when large qui tam/false claims act settlements are announced virtually every single day, it is easy to lose sight of the significance of this particular case and of the foreign exchange series of cases generally.  So, while the amount of this settlement — $714 million — is not a small case by any stretch of the imagination — the dollar amount of this settlements does not tell the whole story — so let us begin, as they say, at the beginning.

Brief History of the State False Claims Act cases brought by relator FX Analytics against Bank of New York Mellon Corp.

To my knowledge, the FX Analytics cases were the first cases to be brought by one relator in multiple states against the same defendant.  That raised a number of sticky and difficult procedural issues right out of the gate.  For example, any lawyer representing whistleblowers in qui tam cases knows very well that the government likes to keep a relator’s identity secret until the very last minute because it gives the government a significant advantage in talking to the defendants.

So the first question faced was how could the relator’s lawyers protect the relator’s identity in the event one state unsealed before any other states?  The solution to this was for the relator to form a Delaware limited liability partnership — which he named “FX Analytics” — to bring the cases.  That way, the relator’s identity could and would remain secret as long as possible.

That turned out to be a wise move, because the first state to unseal was California; then Attorney General Jerry Brown announced his lawsuit on October 20, 2009 against State Street Corp.  Jerry Brown received considerable attention for the case, which the State demanded $200 million in damages against State Street.

In Virginia, we filed the FX Analytics case under seal in October of 2009.  The case was thoroughly investigated by the Office of the Attorney General for a little over a year, and was then intervened and unsealed in January of 2011.  Virginia was the first state to intervene in  a case against BNYM, with New York State following later that same year.

Following some unusual delays — then-General  Cuccinelli wanted to carefully follow the Virginia Public Procurement Act and hire outside counsel, and in his opinion that required publishing the notice of an award — Virginia filed her Complaint-In-Intervention to much fanfare in August 2011.

And that is when the fight began.  BNYM pulled out all the stops in fighting these cases — they really had no other choice.  As the New York Times put it last week:  “The settlement represents an about-face for the bank, which fought the case for years as it attacked what it called “prosecutorial overreach.” That stance eased recently as the bank sought to put the case to rest, years after it resolved similar actions from authorities in Florida and Virginia.”

Relator and his lawyers fought these cases across the country for years now, and my hat is off to them…Congratulations guys!

Perhaps in a later post we will look at why New York’s settlement was so much larger than Virginia’s…

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Qui Tam Partial Unsealing Part II

By Zachary Kitts on March 20, 2015 in , , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Qui Tam Partial Unsealing — Part II of a two part post

Today’s post is part two of a two parter discussing the qui tam partial unsealing by the government.  Last time around we looked at what a partial unsealing means conceptually; today’s post discusses an additional reason or two why the government might seek a partial unsealing, and then focuses on what a partial unsealing means from a purely mechanical point of view.

Additional Reasons for the Government to Partially Unseal

In addition to the reasons I outlined last time, the government will sometimes seek a partial unsealing for other reasons; again, all of these developments are to be welcomed by the relator, but there is one reason that is most important.

The government is not limited to using the evidence and information produced by a relator in a false claims act case; rather the government can do anything within its power, including opening a criminal case.  From time to time the government will find evidence and information so incredibly strong that it will want to begin a criminal investigation.

To that end, the government may find itself in need of a search warrant in a different district court.  When that happens, the government will often seek partial unsealing so that it can share the qui tam complaint with a Judge in a different district.

Enough of the conceptual reasons — what are the specific mechanics of a partial unsealing?

The Mechanics of a Partially Unsealed Qui Tam Complaint

As I mentioned last time around, the seal exists for the protection of the government.  That being said, qui tam/FCA cases are sealed via a court order, and any breach of the seal — even one by the government lawyers — would be contempt of court.  Good lawyers don’t go around violating court orders; moreover, government lawyers would decrease the respect all of us have for the seal if they were to willy-nilly violate it at their leisure.  So, before the government will disclose the existence of the qui tam to another living soul, they will ask for the court’s permission to do so via a motion for a partial unsealing.

It is perhaps easiest to define a partial unsealing by listing the things it is not.  A partial unsealing is not permission for the relator to do whatever he or she wishes.  A partial unsealing is permission for the government to disclose and/or discuss the existence of the qui tam case at specific times and/or specific places and/or with specific entities and/or individuals.

These specific individuals and/or specific places will most likely be outlined in the partial unsealing order the government gets entered.  For example, the order might state “The relator’s Complaint is hereby ordered partially unsealed pursuant to 31 U.S.C. 3730(b)(2)  so that the government can, in its discretion, share a redacted version of the Complaint with [insert here names of parties, etc.]

It is important to note that the government will always seek to keep the relator’s identity secret as long as possible; and they do, in fact, have ways of redacting a complaint such that it is impossible to tell who filed the complaint, even in the most personalized of cases.

And so that is about all there is to it folks…these things always appear more complicated and mysterious than they are in real life.

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

 

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Qui Tam Partial Unsealing

By Zachary Kitts on March 17, 2015 in , ,

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Qui Tam Partial Unsealing Part I

A reader recently asked what it means when the government seeks a partial unsealing of a qui tam Complaint, and I thought other readers might find the answer useful.  Part I of this post shares what it means conceptually when the government asks the court to partially unseal the Complaint, and Part II will look at what it means from a nuts-and-bolts perspective.

What a partial unsealing means conceptually

As regular readers know, when a qui tam relator (or whistleblower) files a qui tam/false claims act case, there are a number of unusual hurdles that are not found elsewhere in the federal rules of civil procedure.  First, a relator is required to serve a disclosure memorandum on the United States Department of Justice and on the United States Attorney’s Office prior to filing in Court.  Then, at some point after the disclosure memorandum has been received by the government, the relator files his or her Complaint with the Court under seal.

It is mandatory that a new qui tam action be filed under seal of the Court.  There are a number of reasons for this, but the long and the short of it is that the seal requirement — like the required disclosure memorandum — exists to make sure the government gets a chance to fully investigate the relator’s allegations prior to the defendant being tipped off.

The government’s investigation begins with the disclosure statement.  Because the government is a party to each and every qui tam case, the government will normally have a great deal of information about the case on hand and, for understandable reasons, the government normally begins its investigation with a review of what the relator has produced combined with what it already has in its possession relating to the defendant.  This will often include things like contracts, invoices, records of payment, interviews with government employees who have interacted with the target of the investigation, and so forth. Obviously, these steps do not involve the defendant (or target) in any way and, indeed, the target will rarely, if ever, learn of the investigation at this stage.

It is important to note that the government’s interest in many qui tam cases both begins and ends at this stage of the case.  That can happen for many reasons, but mostly when the government loses interest at this stage it is because the government has uncovered evidence of which the relator was not aware, or it has concluded that the relator is mistaken, or that the victimized government agency does not agree with the relator’s legal interpretation of the case.

If the case makes it past this hurdle, the government will often serve a civil investigative demand on the target.  Usually, these civil investigative demands will not disclose to the target that there has been a qui tam case filed — indeed, the government does not need any excuse at all to serve a CID.  The government can — and does — serve CIDs all the time just to satisfy its own curiosity.

In performing the investigatory work described above, the government’s goal is simple — it wants to determine if the relator’s claims have merit.  If the government seeks a partial unsealing of the relator’s sealed case, it will more often than not happen because both of the above techniques have been exhausted and the government feels like the defendant/target has some explaining to do.

And that is a development to be welcomed by the relator and his or her lawyers.  Please note that it does not mean that your case is a sure-fire winner — I have personally had a number of cases that were partially unsealed at the request of the government that didn’t go anywhere — but it is most certainly a step in the right direction.

I usually explain it to clients this way — not all partially-unsealed cases will be intervened by the government, but virtually all intervened cases will at some point be partially unsealed.

Stay tuned for part two of this post, which will look at the nuts-and-bolts of a partial unsealing…

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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Washington State False Claims Act Update

By Zachary Kitts on March 11, 2015 in ,

 

Virginia Qui Tam Law.com -- The first blog dedicated to the Virginia Fraud Against Taxpayers Act and to Qui Tam Litigation in Virginia

 

 

 

 

 

 

Washington State False Claims Act Update

In addition to the legislative action in Maryland this year, there is also good news from the Washington State legislature.  At the request of Attorney General Bob Ferguson, Washington state legislators have introduced House Bill 1067, which aims to make the Washington State False Claims Act a permanent law.

Monitoring state FCA legislation is a fascinating way to see the “laboratories of democracy” at work.  I didn’t realize when I previously covered the Washington State FCA that it was a temporary law, set to expire in 2016.  To date, I cannot recall having ever heard of a state passing a temporary state false claims act.  From time to time the feds might pass temporary non-FCA legislation, but I have never seen it in the state context.

Stranger still is that individual portions of the law seem to “sunset” as they call it.  Most relevant for our example here is the fact that the qui tam portion of the law is scheduled to “sunset” in 2016. As regular readers know, is the qui tam provision of any false claims act that gives the law teeth because it is the qui tam provisions that allow an individual to file a claim — on their own behalf as well as on behalf of the state government — and share in the state’s recovery.

It is the qui tam provisions of a false claims act that cause insiders to come forward and share their personal, first-hand knowledge about fraud and false claims on the government.  In addition to their personal, first-hand knowledge about the wrong doing, these folks also bring evidence and the resources and experience of their counsel to the table.

Without a qui tam provision, in other words, you might as well not even have a state FCA…but that is a topic for another day, and Washington State Attorney General Bob Ferguson seems to be savvy to the importance of qui tam whistleblowers.

Washington State Has Experienced Some Success With the FCA

I am happy to see that Washington State has enjoyed some success with their state FCA since it became law — an excellent article by Christopher Brewer reports that the state has recovered more than $5.7 million in the last two years.

That might seem modest at first blush, but think of it this way — the same Chronicle article reports that the Washington State FCA is enforced by a staff of 15 lawyers, which means that those 15 lawyers  returned more than $380,000 each to the state’s treasury.  Moreover, the Washington State FCA has only been law for a little over two years — with any new remedial legislation, it always takes a few years for enforcement to really gear-up.

In Virginia, the Fraud Against Taxpayers Act became law in 2002 but things really didn’t start to heat up until 2005 or so.

A Warning to Washington State — Beware of Lobbyists with Helpful Suggestions

It also seems that the usual suspects — principally the Chamber of Commerce, who are now the primary lobbying tool of the pharmaceutical industry — have surfaced in Washington state and are trying to undermine the state FCA.  The Chronicle article reports that there “has been some blowback from lobbyists for the pharmaceutical industry and other industry lobbyists … who have expressed some concerns about technical details of that portion [i.e., the qui tam provision] of the act. ”

This is the standard approach of anti-FCA lobbyists nowadays.  Once the anti-FCA lobbyists get the feeling the tides have turned and they are no longer fighting a winning fight — and they have clearly felt that way in Washington State this time around — they change their tune and are no longer overtly anti-false claims act.  Instead, they suddenly become very much in favor of false claims act legislation, so long as it is done correctly.

And correctly, in their view, usually means killing the qui tam provisions, because those are the provisions they fear most.  Just look at the testimony submitted by Chamber lobbyist David Ogden to the U.S. House of Representatives hearing Subcommittee on Civil Justice.  He really said things like “I believe in the false claims act” and “The false claims act is the primary tool of the federal government to prevent fraud on the public fisc.”

And then he went on to make helpful suggestions about how to make the law “better” all of which were complete bunk…

So watch out Washington State, this dog-and-pony show is coming your way…

 

K&G Law Group is a boutique-style law firm based in Nothern Virginia and practicing nationwide

 

 

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