Category: Conditions of Participation
Seventh Circuit: Implied Certification Claims Remain a Heavy Lift
Posted on October 25, 2016 in Case Analysis, Conditions of Participation, False Certification
Written by: Drew B. Howk
In light of the Supreme Court’s recent decision in Universal Health Services v. Escobar, the Seventh Circuit revisited its prior ruling in United States ex rel. Nelson v. Sanford-Brown, Ltd, a case alleging that a college receiving federal subsidies violated the False Claims Act (“FCA”) by maintaining discriminatory recruiting and retention practices. The Seventh Circuit addressed a narrow issue on review: whether the Relator’s implied certification claim – that the court previously ruled could not survive summary judgment – could be resurrected in light of Universal Health. The court held that the claims could not survive summary judgment and thereby reinforced its long-standing skepticism of FCA liability under an implied certification theory.
Sanford-Brown College (the “College”) received federal subsidies under the Higher Education Act by way of entering into a Program Participation Agreement (“PPA”) with the U.S. Government. The PPA included familiar boilerplate language used across federal agencies that required the College to affirm that as a condition for the subsidies, it would comply with all statutory, regulatory and contractual requirements relating to Title IV.
The Relator alleged that the College’s recruiting and retention practices violated the affirmation it would abide by the requirements under Title IV. Linking these alleged violations to the broad affirmation to abide by the law, the Relator pursued an implied certification theory under the FCA.
In its original decision, the Seventh Circuit affirmed the trial court’s grant of summary judgment in favor of the College. Relying on the distinction between conditions of payment and conditions of participation, the court forcefully rejected the Relator’s argument, characterizing implied certification claims as an imprecise mechanism for “enforcing violations of conditions of participation.” The court reasoned that these claims “lack a discerning limiting principal” and would hold the College implicitly liable for any violation of “thousands of pages of federal statutes and regulations incorporated by reference into the PPA.”
After the Supreme Court’s ruling in Universal Health – discussed in more detail here – the court reviewed its decision in Nelson on remand.
The Seventh Circuit Rejects the Relator’s Implied Certification Claims
The Seventh Circuit revisited the narrow portion of its previous decision and applied the two-part test set forth in Universal Health to evaluate the Relator’s implied certification claims.
- Does the claim at issue request payment and make specific representations regarding the goods or services being provided?
- Was the defendant’s failure to disclose its noncompliance material to the specific statutory, regulatory or contractual requirement allegedly violated?
In Nelson, the Seventh Circuit held that neither requirement was met.
First, the Seventh Circuit held that the Relator put forth no evidence that the College had made any specific representations to the Government regarding its claims for payment, “much less false or misleading representations.” The Relator’s mere speculation that such representations occurred was insufficient.
Second, relying upon the ”’rigorous’ and ‘demanding'” materiality standard under the FCA, the Seventh Circuit held the alleged violations were immaterial to the subsidies the College received. Under the FCA’s materiality requirement, evidence must demonstrate that the government was likely to, or actually did, reject claims for payment based on similar violations. It is insufficient to demonstrate only that “the government would have the option to decline” payment had it known of the violations.
Moreover, the court reiterated its previous position that the government’s actual knowledge of violations, but continued payment for the good or service, continues to be uniquely strong evidence undercutting the materiality requirement. Here, the government had already examined the College’s alleged violations, continued making subsidy payments under the PPA and determined not to impose administrative penalties or terminate the agreement.
Having failed to meet either requirement of the two-part test under Universal Health, the Seventh Circuit reaffirmed the district court’s grant of summary judgment in the College’s favor.
How the Seventh Circuit readdressed FCA implied certification claims is important for health care providers and government contractors. It rebuts expectations that Universal Health would invite a deluge of implied certification claims that could dramatically remake the FCA landscape.
Taken broadly, the court’s decision makes it clear that it remains largely skeptical of implied certification claims. Despite being just three and a half pages long, the decision is a ‘greatest hits’ of Seventh Circuits previous opinions that reiterate its strong apprehension of implied certification FCA claims.
More narrowly, the Seventh Circuit’s application of the Universal Health decision sets a high bar to clear for Relators and the government pursuing FCA cases under an implied certification claims.
In short, the more things change, the more things stay the same – at least in the Seventh Circuit.
If you have any questions, please contact:
Drew B. Howk at firstname.lastname@example.org or (317) 429-3607;
Ritu K. Cooper at email@example.com or (202) 370-9584;
J. Patrick Garcia at firstname.lastname@example.org or (443) 951-7043;
David B. Honig at email@example.com or (317) 977-1477; or
Your regular Hall Render attorney.
New 7th Circuit FCA Case Is a Primer in Whistleblower Cases
Posted on June 18, 2015 in Case Analysis, Conditions of Participation, False Certification, Public Disclosure Bar, Rule 9(b)
Written by: David B. Honig
The Seventh Circuit Court of Appeals just issued its decision in US ex rel. Nelson v. Sanford-Brown, Ltd.. This decision is sure to find its way into briefs and arguments for years to come in False Claims Act (“FCA”) cases. It touched upon many of the different ways a qui tam relator can fail to bring an adequate FCA claim.
Public Disclosure Bar
First, the court noted that the actions alleged to be false began in 2006 and ran through 2012. During that time, the FCA was amended. The court ruled that, for the purpose of the “public disclosure bar,” the 2010 version of the statute controlled. Of particular interest, the court also stated the “public disclosure bar” was a jurisdictional bar. In 2010, the statute was amended to change the language from “No court shall have jurisdiction over an action under this section …” to “The court shall dismiss an action or claim under this section, unless opposed by the Government ….” Nonetheless, the Seventh Circuit applied the “public disclosure bar” as a jurisdictional bar rather than merely a discretionary basis for dismissal.
Many of the problems with Nelson’s case were of his own making. In responses to the Defendants’ motions, Nelson conceded “that his allegations have been ‘publicly disclosed'” and “he does not have direct and independent knowledge of the allegations pled upon information and belief.” The court, relying upon “the well-settled rule that a party is bound by what it states in its pleadings,”¹ rejected his attempts to retreat from those admissions in his briefs.
The court found that jurisdiction existed only for claims based upon events occurring during the few months of his employment, as that would be the only opportunity for him to be an original source of information.
Fraud with Particularity
Nelson’s next failure was his attempt to lump all Defendants together in his Complaint, rather than to provide specific allegations against each. The court affirmed dismissal for failure to plead fraud with particularity.² It also affirmed the trial court’s denial of his motion to file a second amended complaint based upon his 42-day delay in requesting such relief.
Conditions of Participation or Payment
It is well established that regulatory violations only constitute FCA violations of they are conditions of payment, not merely conditions of participation. Nelson, and the Government in an amicus brief, invited the court to do away with this distinction, arguing “under the FCA, payment as participation are one and the same, as a claimant is not entitled to payment unless eligible to participate.” The court flatly rejected the invitation: “Distilled to its core, Nelson and the government’s theory of liability lacks a discerning limiting principle.” Referencing an earlier case in which the Court described such an argument as “absurd,”³ the court said “we conclude that it would be equally unreasonable for us to hold that an institution’s continued compliance with the thousands of pages of federal statutes and regulations incorporated by reference into the PPA are conditions of payment for purposes of liability under the FCA.”
The court again reiterated its rejection of the “so-called doctrine of implied false certification,” stating “The FCA is simply not the proper mechanism for government to enforce violations of conditions of participation” and “evidence that an entity has violated conditions of participation after good‐faith entry into its agreement with the agency is for the agency—not a court—to evaluate and adjudicate.”
The Seventh Circuit Court of Appeals will continue to enforce the public disclosure bar as a jurisdictional bar unless the whistle blower is also an original source of the information. Government contractors who identify errors should take advantage of self-reporting opportunities and should also consider additional steps to make sure that such disclosure trigger the self-disclosure bar. For more on this issue, please read Self-Disclosure, the Public Disclosure Bar and the FCA – Uncertainty, Circuit by Circuit.
The Seventh Circuit continues to reject the “implied false certification” theory of falsity for FCA cases. Government contractors operating in the Seventh (and Fifth) Circuit may continue to expect the protection offered by Courts that require actual falsity or knowing violations of conditions of payment to state a False Claims Act violation.
¹ Soo Line R. Co. v. St. Louis Southwestern Ry Co., 125 F.3d 481, 483 (7th Cir. 1997)
² Fed.R.Civ.P. 9(b)
³ 9. U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 706 (7th Cir. 2014)
Relator’s Damages and Documentation Theories Rejected in Halifax
Posted on July 4, 2014 in Case Analysis, Conditions of Participation, Damages, Regulatory Noncompliance
Written by: Drew B. Howk
This week a Court in the Middle District of Florida dealt a blow to a whistleblower’s allegations of fraud in U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center ruling that: (1) the Relator is barred from recovering damages even if it can prove its allegations and (2) the Relator is barred from arguing or presenting evidence regarding her principle theory of alleged fraud. Though trial was set to begin July 8, the Court has discontinued the trial until further notice.
Sixth Circuit: Violations of Conditions of Participation Insufficient Basis for FCA Claims
Posted on April 2, 2013 in Case Analysis, Conditions of Participation
Written by: David B. Honig and Andrew B. Howk
By David B. Honig and Andrew B. Howk
In U.S. v. MedQuest, the Sixth Circuit held that violations by a provider of conditions of participation in Medicare were insufficient as a matter of law to “trigger the hefty fines and penalties created by the FCA.” This case was a reaffirmation by the Sixth Circuit that “[t]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations.”