Monthly Archives: December 2015

Breaking: United States Files False Claims Act Suit for “Overstatement of Services”

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The United States filed a False Claims Act suit on Tuesday (12/29/15) against Pacific Coast Maritime Agency (PCMA) and its president, Paul Sogotis. According to the complaint, the US Transportation Maritime Administration (MARAD) had a contract with “Interocean American Shipping (IAS) which designated IAS as a general agent for MARAD to manage the Pacific Collector and Pacific Tracker (vessels) operated by MARAD.” IAS contracted with PCMA to “serve as a ship agent to obtain tug services for the vessels.” PCMA in turn “retained Shaver Transportation Company (Shaver) to provide services” in Oregon.

The alleged fraud scheme was straightforward: Shaver provided invoices to PCMA, which PCMA padded before submitting to the government. Specifically, PCMA supposedly increased certain charges and deleted discounts that Shaver provided. Those falsified invoices were then provided up the chain–from PCMA to IAS to MARAD–for payment.

Even though the complaint is not a model of clarity or accuracy concerning the legal basis of its claims (it cites to just one provision of the pre-FERA version of the Act in its single count), it appears the government intends to take full advantage the amendments to the False Claims Act by the 2009 Fraud Enforcement and Recovery Act, which made it easier for the government to bring claims against subcontractors. (Strangely, however, the provision of the False Claims Act cited in the single count of the complaint is not the provision that, post-FERA, made it easier to target subcontractors.)

Breaking: SCOTUS to Resolve Central Issue under the False Claims Act

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The Supreme Court announced that it is taking a case to resolve several hot issues fundamental to the False Claims Act. In Universal Health Services v. United States ex rel. Escobar, the Court will tackle whether the implied-certification theory is viable and, if so, the scope of that theory. If the implied-certification theory is viable, the second question is whether only violations of express conditions of payment are actionable under that theory.

Here are the exact questions the court has agreed to hear (it declined on the first):

2. Whether the “implied certification” theory of legal falsity under the FCA–applied by the First Circuit below but recently rejected by the Seventh Circuit–is viable.
3. If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability or a legally “false” reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits.

Notably, the Supreme Court has never adopted the express vs. implied certification framework at the center of the case. Nor does the text of the statute support the framework. That framework, in my opinion (and the First Circuit‘s), makes the task of applying the statute more difficult, does not accurately reflect the statutory text, and should be abandoned.

I agree with the First Circuit on this one: “Judicially-created categories sometimes can help carry out a statute’s requirements, but they can also create artificial barriers that obscure and distort those requirements.” That is what has happened here, as an ad-hoc analytical framework first adopted in 2001 by the Second Circuit for a very narrow application has taken on a life of its own and come to overshadow the text of the statute.

The Supreme Court needs to get back to basics–the text of the statute–which mentions nothing about “certifications,” whether they be “express” or “implied”, and which says nothing about “conditions of payment.” 

We will be following the progress of this very important case as it moves forward. Stay tuned…

Contradictory Government Requirements Do Not Create False Claims Act Liability

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In U.S. ex rel. Blyn v. Triumph Group, Inc., the District of Utah dismissed the relators’ False Claims Act complaint relating to the provision of allegedly nonconforming gears for use in aircraft owned by the government. The relators’ basic theory was puzzling: that because the contract’s technical specifications contradicted themselves, making it impossible for any product to comply with them, the defendants must have falsely certified compliance with the specifications to get paid.

In light of the numerous foundational problems with the complaint, the court had no hesitation dismissing it. For example, the complaint failed even to “specify any cause of action” or “reference any FCA provision that [the defendants] allegedly violated.” It should come as no surprise that a complaint under the False Claims Act that fails to identify the allegedly violated provisions of the Act is subject to dismissal.

Additionally, the complaint failed to “identify a single false claim submitted to the government,” failed to identify when any such claim had been submitted, and failed to allege that the government may not have paid the claim if it had known about the allegedly false statements. In short, the complaint was woefully deficient.

This case highlights the need for counsel to acquaint themselves with the basic requirements of the False Claims Act before filing suit to ensure that the complaint contains the basic information needed to survive a motion to dismiss.

Additionally, counsel should carefully examine their theories of the case to assess whether they really appear to suggest fraud. Even if it was metaphysically impossible for a contractor to deliver a conforming product under the specifications as written, more is needed to establish a False Claims Act suit. At a minimum, a complaint should allege some facts suggesting the contractor’s attempt to reconcile the contradictions was reckless. It’s hard for me, without more, to see a contractor’s reasonable attempt to reconcile the contradictions as fraud.