Monthly Archives: June 2014

10th National Institute on the Civil False Claims Act – American Bar Association, Day 2 – June 5, 2014

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Panel Topic: Investigation of an FCA Case

Editor’s Note: The rest of the posts about the FCA Institute will divide the comments on the topics into three categories: the defense view; the relators’ view; and the government’s view (recognizing that none of the government lawyers who attended had any authority to speak on behalf of the government).

Relators’ View:

• Relators must be careful about privilege and work-product protection issues—especially in sharing information with the government. Exposing government lawyers to possibly privileged documents can result in ethical and disqualification issues for the government lawyers they hope to work with.
• Relators’ and their counsels’ credibility is vitally important. Counsel should evaluate the following,  among other issues:
o What is the relator’s motivation?
o Did the relator attempt to report it internally?
o Does the relator have a personal axe to grind?
o What was the relator’s participation in the scheme?
o What would the relator’s personnel file show?
o What is the relator’s employment and criminal history?
o Does the relator have any psychiatric issues?
• Collection of documents by relators: relators should be allowed to share documents that come to them in the ordinary course of their jobs—but having them search for or take documents from sources they don’t normally have access to is not a good idea.
• Relators’ counsel must understand that their credibility is at stake when they file a complaint. Improper screening of the case will damage their credibility. Think about the next case—maintaining credibility is critical to fostering a good reputation with government lawyers.

Government’s View:

• The qui tam complaint is key to the government’s investigation—it should include a clear description of the scheme and an identification of what evidence exists and where it might be found.
• Civil Investigative Demands (CID): the FERA amendments expanded their usefulness. CID examinations fell like depositions, but they are different. Overly aggressive defense tactics at CID investigations are counterproductive. The investigator is going to make the first-line decision about whether to go forward, so attempting to prevent them from obtaining information signals a problem. “Needless antagonism” at the CID stage does not help the defendant’s position.
• Government’s decision about which discovery mechanism to use depends on lots of factors. CIDs are easier for US Attorneys to enforce, but some OIG subpoena procedures are very favorable to the government.
• Early discussions about the scope of the government’s discovery requests between the defendant’s counsel and the government attorney can be helpful when the scope seems too broad. The government does not know the defendant’s system as well as the defendant, so a dialogue about what information the government is after can help narrow the request for information.
• Sealing and Relator Activities: It is important to stress to relators that they cannot talk about the lawsuit when it is under seal, regardless of what the defendant has said or done in public. The DOJ is often willing to discuss the requirements with the relator if having government lawyers amplify the message will help control a client’s activities.
• Government lawyers want to get to the heart of the matter, which requires production of requested information by defendants openly and forthrightly. Such practices will accelerate the government’s investigation and decision-making.
• Partial lift of the seal: While it can be helpful, defendants can get too focused on the relators’ complaint. Instead, the defendant should care about what the government thinks.
• Defendants often focus too much on the identity of the relator—it doesn’t usually matter, it can be a distraction for the defendants and their investigation, and it can lead to improper retaliation problems.
• Government does not want relators to undertake any investigation beyond what they would do in the ordinary course of their jobs—they shouldn’t go look for documents, interview witnesses, etc. Sharing information that the relator has access to by virtue of their positions in the defendant company is perfectly fine, but going beyond that raises concerns, particularly when the information could implicate privilege issues.

Defense View:

• Is there a release that might cover the claims? Are releases in FCA cases enforceable?  It used to be that releases that purported to cover FCA cases were not enforceable, but the law is evolving on this topic. The Fourth Circuit has found one to be enforceable.
• Defendants take a different view of what documents a relator may share with counsel and the government. Confidentiality agreements and policies are key to such arguments.
• The type of subpoena a defendant receives can shed light on the type of case the government is pursuing: HIPAA subpoenas are only available in criminal cases; CIDs can be used in both civil and criminal investigations. CID responses require broad certifications of compliance, but many defense lawyers refuse to provide them because they are far too broad.
• CIDs have been litigated on privilege and other issues. There aren’t many decisions on these issues, but they do exist.
• There are lots of ethical traps for defense counsel during the investigation stage.
o Does the defendant’s employee need independent counsel?
o Who is the target?
o Should the 5th Amendment be invoked?
o Similar issues for voluntary self-disclosure: does disclosing voluntarily expose employees to criminal liability? Was the employee told that during internal interview?
• Sharing of information by government with relator raises lots of practical and legal questions.
• Allowing the government to maintain the seal while conducting massive investigations implicates the defendants’ rights.
• Understanding the scope of exposure is very important for defendants—it will determine strategy and tactics. The quality of the internal investigation triggered by the first notice of a government investigation is crucial to determining exposure scope.
• While clients often focus on the identity of the relator—which is often an emotional reaction—it is more often than not a disservice to the development of a defense strategy.

Opening Session – 10th National Institute on the Civil False Claims Act-American Bar Association

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The ABA National Institute began this evening with a primer session led by some titans in the field: Jack Boese (which I learned tonight is pronounced “Bay-zee”), Jeb White, a relators’ counsel who has presented extensively on the subject, and Daniel Anderson, a deputy at the Department of Justice.

Jack Boese, who literally wrote the definitive treatise (at least from the defendants’ perspective) on the subject, explained the categories of False Claims Act cases. He explained the defense bar’s perspective that claims can be either factually or legally false.

Jeb White explained the unique qui tam provision under the False Claims Act. He explained that this is massively growing area of the law. Of the qui tam actions filed since 1986, 33% were filed in the last 5 years.

Dan Anderson explained that of the $4 billion recovered last year by the government, $3 billion was the result of qui tam cases brought by a relator. He explained that the government only intervenes in about 20 to 22% of all cases and that only 4% of the recoveries under the act have come from declined cases. Cases under $5 million are handled largely by the US Attorneys in the districts, but once the amount in controversy grows beyond that, the Department of Justice plays a more central role. The DOJ works very closely with the government agencies whose substantive law is implicated by the case. The DOJ asks the agencies, such as HHS, whether the allegations actually violate their rules or laws at the outset of the case. If so, then the investigation continues. The average time for the government’s investigations have been about 14 months.

FERA amendments: The government believes the addition of the “materiality” provision under the FERA amendments was very important addition because it relieves the government of the obligation to actually present a witness from the government.

Boese: Falsity, knowledge, and damages are the three big issues in False Claims Act cases. Falsity can be of two types: legal or factual. 9 of the 11 circuit courts have adopted the legal vs. factual falsity framework. For years, most courts held that that falsity requires a violation of a “condition of payment” or a “prerequisite to payment” for legal falsity cases. As Dan Anderson and Jeb White explained, this trend is changing.

White: Explained that courts are starting to avoid this construct of factual versus legal falsity. The First Circuit recently explained that this construct leads to results that are at odds with the basic purpose and language of the FCA.

Anderson: Reverse false claims cases can be difficult because of determination of whether an obligation exists.

White: Anywhere there is government money, there can be a False Claims Act case. Recent trends include violations of the Higher Education Act and “worthless services” cases in all fields.

Boese: The “causes to be presented” language of the statute is critical–perhaps most of the cases are now brought under that language, including all of the Pharma and Medicare/Medicaid cases.

Anderson: The scienter standard, particularly the reckless disregard prong, will vary from case to case.

Boese: Most of time spent in settlement discussions involves scienter issue.

Boese: Every violation of the FCA is a criminal act. (Maybe not under new amendments to 3729(a)(1)(G).)

Anderson: The word “improperly” was added to the reverse false claims provision to address situation of ongoing contracts over many years where money flows back and forth–an acknowledgment that merely retaining money is not actionable.

Rule 9(b) motions only really effective when the government declines to intervene. This question more broadly relates to whether it is enough to plead a false scheme or actually identify specific claims. Courts are starting to understand that sometimes relators have ample information about a false scheme in a situation where false claims to the government had to have occurred but don’t have information about a specific false claim submitted because of the nature of their position. Courts are starting to relax their positions on Rule 9(b) as an acknowledgment of the practical difficulties even when clear evidence of fraud is presented by the relator.

The Wartime Suspension of Limitations of Act issue has been briefed to the US Supreme Court recently. It has been applied in cases outside of Iraq and Afghanistan contract cases–such as mortgage and healthcare cases.

The validity of using sampling to prove scope of liability in FCA cases is under consideration in a case in Tennessee. (A future post will explore this issue in more depth—so watch this space.)

Damages is a issue where lawyers creativity can really come into play. There is lots of play in the damages arena in FCA cases. Legally false cases are very difficult to value from a damages case. Boese says that in the SAIC case, the judge required a damages value similar to a factual falsity case, even though the case is a legally false case.

US v. Rogan: Legally false case where the entire amount of payment was determined to be damages, even though government received what it paid for. The case involved Anti-Kickback Act violations.

False claims act cases implicate tax, securities, and bankruptcy law–consult an expert.

Barko v. Halliburton: Recent case involving internal investigations–investigations done pursuant to internal reporting hotline procedures are not privileged or protected.

Touhy case: government agencies have the right to control the disclosure of government information–subpoenas are not generally sufficient. Must look at Touhy regulations–don’t forget these issues because they can take a lot of time to work through.

Settlement issues: often the defendant will make a presentation, sometimes the government will also make a presentation. Sometimes the relator will be asked to be present, but that is the government’s call.

Statements of Interest/amicus briefs: government will only issue SOIs when there are misrepresentations of the law or key issues–the government will also respond to direct requests for comments from courts.