Monthly Archives: August 2014

10th National Institute on the Civil False Claims Act-American Bar Association — Day 3 – June 6, 2014

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Panel Topic: Motions to Dismiss, Discovery, and Other Procedural Issues

 Rule 9(b): While the initial decisions on this issue required strict compliance with Rule 9(b), courts have started to relax that standard, particularly where the complaint pleads sufficient factual detail to infer that false claims were submitted. As the government lawyer on the panel pointed out, Rule 9(b) motions have become an obligatory filing by defendants, but often they are not warranted because the defendant is clearly on notice of the conduct alleged to be a fraud. The government lawyer on the panel also suggested that defendants often do themselves a disservice by bringing motions under Rule 9(b) because they cause the relators to focus on specifics that they might not otherwise catch until too late. The defense bar points out that the False Claims Act is not all-purpose fraud statute and that Rule 9(b) is intended to distinguish between claims that belong under the False Claims Act and run-of-the-mill breach of contract cases.

Discovery: Cases are going every direction, and spoliation and preservation are hot issues. Preservation orders can be included in initial case management orders. While larger firms understand the need to preserve documents, smaller entities are not as sophisticated. The defense bar explained that they often spend lots of time and resources addressing spoliation and preservation issues. The government lawyer explained that his office sees the focus on spoliation issues and the attempts by parties to set up spoliation sanctions for their opposing parties as a tremendous waste of time—discovery about discovery and preservation consumes lots of resources with very little pay off. Relators need to focus their discovery requests on the documents they need to prove the claim. For example, they must ask for the actual claims for payment, reimbursement documents, etc. The government has documents that defendants want to use to prove government knowledge and negate materiality—documents that show the government knew the facts and did nothing about it. The government may also have documents supporting statute of limitations defenses and documents relating to the interpretation of the regulations at issue that are at odds with the position taken by the government in the lawsuit.

Public-Disclosure Bar and Original-Source Exception: The 2010 amendments significantly narrowed the categories of disclosure that constitute a “public disclosure” for purposes of the False Claims Act. Following the amendments, to trigger the public disclosure bar, the disclosure has to be something capable of being brought to the federal government’s attention. The amendments also expanded the original source exception—the relator does not have to have “direct” knowledge of the fraud. The other big change is that the government may object to a motion to dismiss on public disclosure grounds and appears to have veto power over any motion to dismiss on public disclosure grounds. Previously, the public disclosure bar was jurisdictional, but now the government can simply object to the motion. It is not clear that the government even needs to provide a reason for objecting. The defense bar is eager to figure out how the government intends to exercise its authority to object to dismissal based on the public disclosure bar.

First-to-File Bar: There are three basic requirements to the first-to-file bar: the prior suit (1) has to be filed first, (2) has to be pending at the time of the second suit, and (3) must be related to the later suit. Courts are starting to look carefully at what the first case actually alleged to determine relatedness. Questions remains about what “pending” means for the purposes of the statute. The relators bar has raised concerns about defendants encouraging deficient complaints in order to trigger the bar since courts have held that complaints that fail Rule 9(b) can nevertheless trigger the first-to-filr bar.

Statute of Limitations: The hot topic in this area is whether the Wartime Suspension of Limitations Act (18 USC § 3287) applies to toll the statute of limitations under the False Claims Act, even if the case does not relate to military exercises. The Solicitor General recently filed a brief suggesting that WSLA applies to civil cases. (Note: After the Institute, the United States Supreme Court accepted a case that will address this issue.)

Summary Judgment: Starting to play a role in FCA cases similar to its role in other types of litigation.


The Intermountain Round Up – A Periodic Review of Recent Developments in False Claims Act and Whistleblower Cases in the Intermountain West

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1. In Nevada, Representing Yourself is Still Not A Good Idea: Pro Se party waives rights under False Claims Act for failing to adhere to the FCA’s basic procedural requirements (Brandon v. Majestic Behavioral Health).

2. In Colorado, Relators dismiss claims with prejudice against Kasier Permanente after United States declines to intervene.

3. In Utah, Okland Construction Settles False Claims Act Suit Allegedly Abusing of Small Business Status of Subcontractor; Pays Feds Nearly $1 million .

4. In New Mexico, a district judge overrules a magistrate’s recommendation limiting discovery, and allows defendants limited additional discovery (United States ex rel. Baker v. Community Health Systems, Inc., No. 05-279)

5. In Colorado, court allows further discovery against William Koch in case alleging retaliation for attempting to blow the whistle on massive tax fraud scheme (Martensen v. Koch, No. 13-cv-02411)

Tenth Circuit Hints that Rule 9(b) May Not Apply to First-to-File Rule

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In another post, we wrote about the Tenth Circuit’s decision in United States ex rel. Wickliffe v. EMC Corporation (April 4, 2012), affirming the district court’s dismissal of a False Claims Act complaint on the government’s motion.

The Tenth Circuit, by ruling that dismissal was proper under 31 U.S.C. § 3730(c)(2)(A) for motions by the government, avoided the “complicated first-impression issue of the applicability of Rule 9(b) to [the first-to-file rule under] § 3730(b)(5).” The issue is whether a complaint that fails the particularity requirements of Federal Rule of Civil Procedure 9(b) can nonetheless trigger the first-to-file bar under the False Claims Act. The court noted in Wickliffe that the other circuit courts were split on this issue, which can affect the viability of many potential False Claims Act lawsuits.

While the court avoided the issue in Wickliffe, the court may have tipped its hand, or at least that of some of its members, when it wrote: “We admit to being uneasy with the parties’ suggestion that Rule 9(b)’s particularity requirement should be applied to the first-to-file bar.” Perhaps the court was indicating that if given the opportunity, it is inclined to hold that Rule 9(b) does not apply and that complaints that fail the Rule 9(b) test can nevertheless bar a subsequent complaint raising the same issues but with much more specificity.