Introduction

Three cases are addressed in a review of the False Claims Act decisions of the past month. The first, US v. Anchor Mortage Corp., is a significant Seventh Circuit case addressing the proper treble damages calculation under the statute. The second, US ex rel. Carter v. Halliburton, considers the application of the Wartimes Suspension of Limitations Act (“WSLA”) to the FCA statute of limitations and the ability of a whistleblower to refile a case barred under the first-to-file rule. The third, US ex rel. Keltner v. Lakeshore Medical Clinic, Ltd., is the only District Court case reviewed this month. It provides a stark example of the increased risk to government contractors based upon the new “unrefunded overpayment” reverse false claim definition from FERA and the PPACA.

United States v. Anchor Mortage Corp. ¹

In Anchor Mortgage, the Seventh Circuit held that treble damage calculations under the FCA must be calculated from the net losses, rather than the gross losses, suffered by the Government. For defendants in FCA litigation, this decision affects not only the potential damages for an adverse judgment but also the relative positions of the parties at the settlement table. For a detailed discussion, please see Seventh Circuit: FCA Trebling Based Upon Net Loss, Not Gross Loss to Government.

United States ex rel. Carter v. Halliburton, et al.  ²

In Carter, the Fourth Circuit held that the FCA statute of limitations can be tolled by the WSLA. ³ It also ruled that a case should only be dimissed without prejudice in the face of the FCA’s first-to-file bar and may be refiled if the first case is dismissed. The Court began its analysis by noting the WSLA uses the phrase “at war” rather than “declared war.” This, the Court concluded, was sufficient to find that the WSLA was not limited to declared wars. Given that the last declared war was World War II, and since that time the United States has been involved in extensive military engagements in Vietnam, Korea, Kosovo, Afghanistan and Iraq, “[t]he purpose of the WSLA – to combat fraud at time when the United States may not be able to act quickly because it is engaged in ‘war’ – would be thwarted were we to find that the United States must be involved in a declared war for the Act to apply. ⁴ The Court rejected the defendants’ argument that the WSLA, because it used the words “fraud” and “offense,” applied only to criminal penalties. The Court based the rejection on the 1944 amendment to the WSLA, which struck the words “now indictable” from the 1942 statute, reasoning that was a demonstration of Congress’s specific intent to remove the limitation of the statute’s application to criminal cases only. The Court also rejected the argument that the WSLA did not apply to relator-initiated FCA cases as it applies only to actions brought by the Government.

In a ruling that will have broader implications in FCA cases, the Court ruled that a claim precluded by the first-to-file bar should not be dismissed with prejudice. Further, it determined, if the pending cases that were first filed are dismissed, “the first-to-file bar no longer applies,” ⁵ and Carter could refile his FCA suit.

United States ex rel. Keltner v. Lakeshore Medical Clinic, Ltd. ⁶

One District Court case from March is worth noting. In Keltner, the court refused to dismiss a complaint challenged under Fed.R.Civ.P. 9(b), failing to plead fraud with particularity. The whistleblower alleged that a physician practice discovered, through annual auditing, that two of its physicians had upcoding error rates, billing for a higher level of Evaluation and Management (“E/M”) services than were actually provided, of more than 10%. She further alleged the defendant corrected the claims audited but did not explore other claims and that at one point the practice stopped auditing altogether. The relator argues this leads to the plausible inference that the defendant submitted fraudulent claims for E/M services. The Court found these allegations sufficient to plead a knowing false claim through reckless disregard for truth or falsity. Further, the Court found those same allegations were sufficient to state a claim for relief under the “unrefunded overpayment” provision of the FCA added under FERA ⁷ for overpayments withheld after May 20, 2009. ⁸ The Court further applied the “unrefunded overpayment” amendment to the FCA to determine that claims for services by unsupervised physician assistants, while insufficiently pleaded to survive a Rule 9(b) challenge as actual false claims, were adequately pleaded as unrefunded overpayments, as the relator alleged she notified the defendant of the error and no action was taken. This case is a stark example of the importance of the FERA and PPACA amendments adding the new “unrefunded overpayments” to the definition of reverse false claims. In this case, the Court went farther than any other court has to date, finding that even claims that could not survive a Rule 9(b) challenge because they were pleaded without sufficient particularity could survive as reverse false claims with the whistleblower’s addendum: “I told them about the general problem and they didn’t fix it.” This would effectively remove all “unrefunded overpayment” claims from the long-standing rule that all FCA cases must be pleaded with particularity.