Monthly Archives: July 2014

Response to FCA Alert Blog Entry about United States ex rel. Nelson v. Sanford-Brown, Ltd.

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As I mentioned in my very first post, one of the many reasons that I decided to invest time and energy into writing about the False Claims Act in this blog was to examine the issues of the day in a more moderate and balanced way than the approach taken by many commentators in this area. While there are many sources of information, including blogs, about recent developments under the False Claims Act, they typically fall into one of two camps—either pro-defendant or pro-relator. It is very difficult to find voices that seek a reasonable middle ground. This blog strives to stake out that middle ground, and I believe that the blog has achieved that goal so far.

This entry shares an experience that, I believe, highlights the source of the problem. Lawyers and commentators on either side of the False Claims Act are simply unwilling to engage in a thoughtful dialogue about the issues and instead entrench themselves in their own camps, unwilling to have their assumptions and beliefs challenged. The purpose of telling the story that follows is not to suggest that one side is right and the other is wrong, but merely to raise the question of whether healthy debate and dialogue is even possible.

Last week, the FCA Alert blog ran a story about the district court’s recent decision in United States ex rel. Nelson v. Sanford-Brown, Ltd., a False Claims Act case involving a for-profit college. The FCA Alert’s discussion of the case made broad, sweeping generalizations about the court’s decision, failed to acknowledge significant contrary statements in the opinion, and generally failed to capture accurately the state of the law in this area. (In the interest of full disclosure, the author of this post is currently involved in a False Claims Act suit involving for-profit colleges, is familiar with every FCA decision involving for-profit colleges, and is familiar with the factual and procedural background in the Nelson case, having studied the decision and case extensively.)

While the FCA Alert blog ostensibly invites readers to provide comments to its blog posts, when this author attempted to point out that that the post at issue may have contained some inaccuracies, the FCA Alert refused to publish the comments. Since this blog appears to be the only uncensored forum available to publish those comments, here they are:

This case is likely an aberration and outlier because of the uniquely limited facts available to the relator. This case was unique from others against for-profit colleges because the court had previously ruled that the relator could only pursue claims relating to one campus of the school, not the school generally. See Slip. Op. at 7, 9. This meant the relator had to show that the specific campus had falsely certified compliance with the regulations at issue.

Other circuit court decisions have recognized that the schools—rather than the individual campuses—submit numerous certifications of compliance that are conditions of payment. (Hendow in the Ninth Circuit; Main in the Seventh Circuit.) The court’s prior ruling under the public disclosure bar, which was unique to this relator, excluded a lot of evidence generally available in cases against for-profit colleges.

Additionally, the court recognized that the fraudulent inducement theory is available in these types of cases, Slip Op. at 8-9, but determined merely that the relator failed to adduce evidence to support this theory. That type of evidence is also generally available in other cases against for-profit colleges.”

As you can see, the proposed comment was respectful in its tenor, provided specific legal authority and citations to support its contentions, and was directly responsive to the post at issue. Even so, the authors/editors of FCA Alert refused to even acknowledge them or allow others to weigh in on the issues. Although I typically avoid rhetorical questions, what does it say about our profession and the False Claims Act bar in general when discussions of this nature are not permitted to happen?

District of New Mexico: Government-Knowledge Defense Survives Summary Judgment, But Not the Good-Faith Reliance Defense

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United States ex rel. Baker v. Community Health Systems, Inc. (D.N.M. January 3, 2014) is a False Claims Act case in which the government has intervened against defendant hospitals accused of making donations to New Mexico counties in order to obtain additional Medicaid funding. A key fact is that the operative Medicaid reimbursement claims were actually made by the state of New Mexico to the Medicaid program, not by the hospitals themselves.

 As an affirmative defense, the defendant hospitals contended that the state was aware of the donations and nevertheless made the claims to the federal government. The defendants argued that the relevant government officials thus knew all of the material facts at the time the claims were made. The defendants contended that government’s knowledge precluded their own liability.

 Additionally, the defendants argued that they took their actions in good-faith reliance upon the statements and assurances of various government officials. They asserted that such good-faith reliance constituted an affirmative defense to liability under the False Claims Act.

 On plaintiffs’ summary judgment motion on the two affirmative defenses, the district court ruled that the government-knowledge defense survived, while the reliance defense did not.

 Though the government’s knowledge of the material facts can absolve a defendant of liability under the False Claims Act by negating the intent element, the government’s knowledge of the relevant facts must be “so extensive that the contractor could not as a matter of law possess the requisite state of mind to be liable under the FCA.” Shaw v. AAA Engineering & Drafting, Inc., 213 F.3d 519, 534 (10th Cir. 2000).

 In Baker, the court found that the evidence created a genuine dispute of material fact about the extent of the government’s prior knowledge of the hospitals’ donations at the time the state submitted its Medicaid claims. Thus, the court denied the summary judgment motion on this affirmative defense.

 As for the second defense, the district court observed that “[t]o invoke a defense of good faith reliance, a defendant must establish two elements: (a) full disclosure of all pertinent facts to an expert, and (b) good faith reliance on the expert’s advice” (internal quotation marks omitted). Under this standard, the defendants argued that they made the donations in reliance upon the advice of the New Mexico state employee responsible for the administration of the relevant program. The government and relators countered that the state employee was not told about the purpose of the donations, particularly that the donations were intended to increase the amount of money paid to the hospitals.

 Notwithstanding some evidence that the defendants did in fact seek the advice of the state employee in question, the court ruled that the evidence established beyond dispute that the defendants “did not act in complete good faith in asserting reliance” on the employee’s advice. That evidence included internal communications among the defendants’ key decision-makers discussing the correct interpretation of the applicable regulations and a warning from one of the relators to key personnel that the defendants’ actions were fraudulent. Moreover, advice that defendants received from other relevant state representatives contradicted the advice they purported to rely upon.

 While the court permitted the defendants to use the advice they received at trial to negate the elements of falsity and intent, the court ruled that such advice did not constitute an absolute defense.