Monthly Archives: November 2014

When the Government Speaks, Relators Should Listen

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Although the government declines to intervene in False Claims Act cases for a variety of reasons, many of which have more to do with resources (or lack thereof) than the merits of the action, often the government’s reason for not intervening directly bears on the merits of the relator’s allegations. Government lawyers regularly advise relator’s counsel to both inquire about why the government has declined to intervene and, more importantly, to listen carefully to the government’s answer. That information should be the primary basis for the relator’s decision whether to proceed with the case despite the lack of intervention.

United States ex rel. Smith v. Boeing Company, No. 05-1073 (D. Kansas Oct. 8, 2014), is an object lesson in why relators should heed this advice. In Smith, which involved highly technical Federal Aviation Administration regulations relating to manufacturing tolerances, the “relators’ allegations were specifically investigated, reviewed and rejected by the FAA.”

Notwithstanding that the FAA considered and rejected the relators’ interpretation of the regulations at issue, the relator persisted:

Relators clearly disagree with the FAA, but the agency considered their arguments and evidence and reached a conclusion with a rational basis. Relators’ arguments that FAA investigators lacked the proper expertise or that the investigation was otherwise flawed provide no basis for this court to disregard the FAA’s considered conclusion that the parts were acceptable.

Smith demonstrates well that courts are loathe to, in effect, overrule the considered determinations of the impacted agency by allowing False Claims Act cases to proceed when the agency has found the claims lack merit. Not surprisingly, the trial court granted summary judgment in favor of the defendants, finding that the submitted claims were not, in fact, false.

When the agency speaks, relators should listen…carefully.

FERA’s “Nexus Requirement”

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The District of Colorado recently addressed the 2009 Fraud Enforcement Recovery Act’s (FERA) amendments extending liability to false claims made to grantees or contractors receiving federal funds in its ruling in Todd v. Fidelity National Financial, Inc., No. 12-cv-00666 (D. Colo. Aug. 19, 2014). As the court explained,

Under the 2009 amendments, “claim” is defined as “any request or demand” that is “presented to an officer, employee, or agent of the United States,” or “is made to a contractor, grantee, or other recipient if the money is spent or used on the Government’s behalf or to advance a Government program or interest,” and if the government “provides or has provided any portion of the money requests,” or “will reimburse such contractor, grantee, or other recipient” for “any portion of the money” that is requested or demanded.” 31 U.S.C. § 3729(b)(2)(A)(i)-(ii).

But just because an entity receives money from the government does not necessarily mean that every false claim to the entity will result in liability under the False Claims Act. The court determined that the new definition under FERA has a “nexus requirement”–False Claims Act liability attaches only when the false claim to the grantee/contractor has a nexus to the federal funds it receives. (citing Garg v. Covanta Holding Corp., 478 Fed. Appx. 736 (3d Cir. 2012); Lyttle v. AT&T Corp., No. 2:10-1376, 2012 WL 6738242 (W.D. Pa. Nov. 15, 2012).) The language and purpose of the statute, of course, support such an interpretation.

In Todd, the district court determined that the alleged false claims–deficient title insurance policies–did not have a sufficient nexus to the government bailout funds received by Freddie Mac. (The court alternatively determined that the defendant never submitted any false claims in the first place because the title insurance policies were not legally defective.)