Category: Discovery

Fourth Circuit Says Attorney General Holds “Unreviewable Veto Power” Over Qui Tam Settlements and Sends Statistical Sampling Issue Back to the Trial Court

0

The Attorney General of the United States has an unreviewable veto power over qui tam settlements, according to the Fourth Circuit’s recent published decision in United States ex rel. Michaels v. Agape Senior Community.[1] In the same decision, the court declined to decide an issue raised by the relators over the trial court’s refusal to allow statistical sampling to prove damages, a method of proof that would have cost the relators an estimated $36 million, far more than the value of the case.

In Michaels, the relator brought an action alleging that 24 affiliated elder care facilities defrauded Medicare and other federal health care programs by charging for unnecessary services and services for which the patients were not eligible.[2] The federal government, after receiving an extension, declined to intervene.

According to the relators, it would have cost $36 million to present their proof of damages. They said it would take their experts four to nine hours per patient to review the charts for about 50,000 alleged claims submitted to federal health care programs. The trial court refused to allow statistical sampling under those circumstances because the evidence was available for expert review. It had not been “destroyed or dissipated.”[3]

After that decision was made, the relators and the defendants reached a confidential settlement, but the Department of Justice, after being presented with notice, objected because the amount of the proposed settlement was appreciably less than the $25 million that the government estimated in damages based on its own statistical sampling.[4] When the relators moved to enforce the settlement, the trial court sustained the government’s objection and concluded that the Attorney General’s office had unreviewable veto power over qui tam settlements even, as in this case, where the government had not sought to intervene in the matter.[5] The trial court noted that if it could review that decision, it would have concluded that the government’s position was not reasonable because it would have cost the relators between $16.2 million and $36.5 million for trial preparation alone.[6]

Instead of proceeding first to trial, the court certified both issues for appeal – the “unreviewable veto power” and the use of statistical sampling. Certification is a little-used procedural method of having significant pretrial issues decided by the appellate court before trial.

The Fourth Circuit first addressed the unreviewable veto power issue. It considered decisions from the Fifth, Sixth and Ninth Circuits. The Fifth and Sixth Circuits had concluded that the Attorney General has absolute veto power over voluntary qui tam settlements.[7] The Ninth Circuit, on the other hand, had held years earlier that the government carried unreviewable veto authority only during the limited initial 60-day (or extended) period during which the government was allowed by statute to intervene without court approval.[8] After that period, according to the Ninth Circuit, the government needed “good cause” in order for its objections to be sustained by a court.[9]

In Michaels, the Fourth Circuit agreed with the Fifth and Sixth Circuit because, it said, the “plain language” of 31 U.S.C. 3730(b)(1), that a “qui tam action may be dismissed only if the court and the Attorney General give written consent to the dismissal and the reasons for consenting,” was unambiguous.[10] It rejected the Ninth Circuit’s position based on language in 31 U.S.C. 3730(d)(2) that states that, where the government declines to intervene, “the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages.”

The court then decided not to decide the statistical sampling issue presented by the relators.[11] The Fourth Circuit concluded that the relators had not presented a pure question of law that was appropriate for a pretrial review by the appellate courts.[12] This was because they presented a question about the trial court’s exercise of discretion in refusing to allow such sampling.[13]

The decision in Michaels places the federal government in a strategically strong position in qui tam actions. By vetoing settlements without having intervened in the dispute at all, the government can avoid significant expenditure of money and resources by sitting back and watching the relators litigate with defendants and then saying “no” without that decision being subject to judicial review – regardless of whether the government’s objection is reasonable. That impacts both relators and defendants who may spend months (or years) in litigation with nothing to show for it prior to trial. The trial court’s decision in Michaels with respect to statistical sampling also adds to the bar for relators because, as in that case, it could cost millions to prosecute the issues of damages alone.

If you have any questions, please contact Jon Rabin at jrabin@hallrender.com or (248) 457-7835 or your regular Hall Render attorney.

[1] No. 15-2145 (Feb. 14, 2017).
[2] Id. at 5.
[3] Id. at 10, 13.
[4] Id. at 11.
[5] Id. at 10-11.
[6] Id. at 12-13.
[7] Searcy v. Philips Electronics North America Corp., 117 F.3d 154 (5th Cir. 1997); United States v. Health Possibilities, P.S.C., 207 F.3d 335 (6th Cir. 2000).
[8] United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994).
[9] Id.
[10] Michaels, supra at 21.
[11] Id. at 26-27.
[12] Id.
[13] Id.


Court Strikes Allegations Whistleblower Learned Through Discovery and Dismisses Claims

0

In United States of America and the State of Florida, ex rel. Bingham v. HCA, Inc., the employee of a medical office building management firm filed suit against a national health care system in the U.S. District Court for the Southern District of Florida. The lawsuit included allegations relating to one of the defendant’s hospitals on the campus of which was a medical office building with parking. The whistleblower claimed that physicians who were tenants in the office building received significant financial benefits from a complex arrangement involving the building and its parking. Through the arrangement, the whistleblower claimed, the defendant “purposefully obscured the remuneration it paid to physicians to induce them to refer patients” to its hospitals and that the defendant subsequently submitted fraudulent claims from those referrals to the government. The remuneration, according to the whistleblower, violated both the Stark Statute[1] and the Anti-Kickback Statute.[2]

In a prior order in the case, the district court had dismissed the claims related to the hospital for failure to state a claim on which relief could be granted (but allowing certain claims relating to a separate medical center to proceed). Specifically, at least with respect to the hospital, a prior amended complaint had not identified the specific alleged fraudulent acts, who engaged in them and when they occurred.

But after learning additional information through discovery, the whistleblower amended his complaint with new allegations hoping to resurrect the claims related to the hospital. In a ruling that appears to be a first, the district court concluded that an amended pleading could not include information obtained only through discovery. The court’s conclusion rested principally on a prior decision of the U.S. Court of Appeals for the Eleventh Circuit,[3] which, the district court wrote, “warned of a situation where ‘a plaintiff does not specifically plead the minimum elements of their allegation, [and is able] to learn the complaint’s bare essentials through discovery and may needlessly harm a defendants’ goodwill and reputation by bringing a suit that is, at best, missing some of its core underpinnings and, at worst, are baseless allegations used to extract settlements.’” Quoting again from the Eleventh Circuit decision, the district court added that this is particularly problematic for lawsuits brought under the False Claims Act, which “provide a windfall for the first person to file…” From a policy perspective, this concerned the court because the government’s decision whether to intervene will have already been made, and it would have “been compelled to decide whether or not to intervene absent complete information about the relator’s cause of action.” The court further noted that allowing a whistleblower to amend his pleadings based on information obtained through discovery would use the filing of a False Claims Act case as a “pretext to uncover unknown wrongs,” thereby creating for the whistleblower (who is not required to suffer an actual injury) a potential windfall.

Because the court concluded that information obtained through discovery should be stricken from the amended pleading, the court dismissed the rest of the complaint because it suffered from the “same infirmities” as the prior pleading, i.e., the lack of specific facts supporting his allegations of fraud.

Practical Takeaway

It has long been the case that the False Claims Act required independently obtained knowledge of fraud on the government in order to maintain a claim. The court’s decision in Bingham reflects that requirement, but it extends the principle to impose a higher bar. Together with the requirement that fraud claims be pleaded with particularity, the Bingham decision, if widely followed, would present a significant additional hurdle for future qui tam relators.

If you have any questions, please contact Jonathon A. Rabin at jrabin@hallrender.com or (248) 457-7835 or your regular Hall Render attorney.


Court Awards Prevailing FCA Defendant Costs

with Drew B. Howk

On Monday, February 2, well-respected Federal District Court Judge Jed S. Rakoff awarded costs to the prevailing Defendant in US ex rel. Associates Against Outlier Fraud v. Huron Consulting, Case No. 09 Civ. 1800(JSR).

The case had a long history. The Complaint was originally filed in February 2009. It was unsealed ten months later in December. The Complaint alleged that the Defendants, “motivated by their own greed and corrupt practices,” “turned to Medicare and Medicaid as [their] piggy bank to generate the unwarranted fees.”

Ultimately, these breathless accusations came to naught, and the court granted summary judgment for all Defendants on March 8, 2013.

The relator appealed, and the Second Circuit Court of Appeals affirmed, finding, “as the district court concluded… relator has failed to identify any statute or regulation prohibiting Huron’s claim submission practices.”

At the conclusion of the case, after a bill of costs hearing, the Defendants were awarded costs in the amounts of $7,886.95 and $5,839.80. The relator challenged that award, arguing that, under the explicit language of the FCA, costs were not to be awarded, as the word “costs” should be considered synonymous with the word “expenses.”

The Federal Rules of Civil Procedure, at rule 54(d)(1), state “costs .. should be allowed to the prevailing party … [u]nless a federal statute … provides otherwise.” The FCA states, courts may not award “reasonable attorneys’ fees and expenses” without first finding that the lawsuit was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.” If, as the relator argued, costs and expenses mean the same thing, the FCA would bar recovery of costs by a defendant.

Judge Rakoff disagreed. The FCA, elsewhere in the statute, uses costs and expenses differently. For example, where the government intervenes and the defendant prevails, the defendant is entitled to “fees and other expenses, in addition to any costs awarded pursuant to” Rule 54(d). In order to give each word of the statute meaning, Judge Rakoff concluded, costs and expenses must have different meanings.

Expenses, the court concluded, included expert witness expenses, the cost of studies and other projects “necessary for the preparation of the party’s case.” Costs, on the other hand, referred to “relatively minor, incidental expenses,” and awarded court reporter fees and costs for deposition transcripts.

While imposition of only costs can lead to nominal awards, in some FCA cases those costs can be substantial. Further, this case should put qui tam plaintiffs on notice that they have some risk, starting with costs and escalating, should the lawsuit be frivolous, to include attorneys fees and expenses as well.

Health Care Takeaway

In light of the DOJ’s recent request to double its budget for litigation related to health care FCA actions, this case highlights the importance in selecting knowledgeable FCA litigators who have the ability to guide health care providers through the thickets of defending against FCA actions – including in part – how to recoup costs when possible.

Should you have any questions regarding the False Claims Act or defense against whistleblower actions, please contact:


D.C. Circuit: Compliance Investigations Are Privileged

0

Yesterday, the D.C. Circuit issued a much-anticipated decision regarding whether or not internal compliance investigations were privileged. Two recent lower court decisions had ruled that such compliance investigations were not privileged because they were for business rather than legal purposes. The D.C. Circuit disagreed and found that such compliance investigations are for legal purposes and fall squarely under the attorney-client privilege.

Continue Reading →