So You Think the False Claims Act Does Not Apply to You??

Transcription

1 So You Think the False Claims Act Does Not Apply to You?? By: Marilyn Robertson Husch Blackwell LLP

2 Topics for Discussion I. Introduction II. Elements of a False Claim III. Ways in Which a False Claim Can Arise IV. Qui Tam Provisions V. Why do I care? VI. Conclusion

3 Introduction History of FCA Enacted in 1863 to address procurement fraud by contractors during the Civil War FCA repeatedly expanded to target every type of fraud against the Government and to anyone who receives government money or property 1986 expanded power to private attorneys and to protect and incentivize whistleblowers ( qui tam ) FCA strengthened in by following legislation: 2008 Close the Contactor Loop Hole Act 2009 Fraud Enforcement & Recovery Act ( FERA ) 2010 Patient Protection & Affordable Care Act ( PPACA )

4 Introduction Since 2009, over $22.75 Billion recovered in damages, fines, and penalties Qui Tam Lawsuits up 50% to Over 700 $5.59 Billion recovered for fiscal year 2014 Medicare/Medicaid alone $2.3 Billion 3.1 Billion from Banks and other Financial Institutions (mostly faulty mortgages and loans)

5 Types of Contracts Subject to FCA Healthcare: Medicare and Medicaid, TriCare, etc. National security Defense Veterans benefits Federally insured loans Mortgages Transportation Research grants Agriculture grants, stipends School lunches Disaster assistance Construction Procurement 4

6 Elements of a False Claim FCA definition of a claim: [A]ny request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that: i. is presented to an officer, employee, or agent of the United States; or ii. is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government s behalf or to advance a Government program or interest, and if the United States Government provides or has provided any portion of the money or property requested or demanded; or will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded [31 U.S.C. 3729(b)(2(A)]

7 Ways in Which a False Claim Can Arise False Claims under FCA 3729(a) False claims can also arise from failure to deliver money or property to the Government, certifying receipt of government property without actual knowledge of receipt, or conspiring with another to commit FCA violations Direct False Claim Under FCA 3729(a)(1)(A) any person knowingly presents or causes to be presented, a false or fraudulent claim for payment or approval is liable to the United States Government.

8 Ways in Which a False Claim Can Arise False Statement/Record Under FCA 3729(a)(1)(B) a person who knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim... is liable to the United States Government. No requirement that the statement or record be specifically certified in order to constitute a false claim FCA states false statement or record has to be knowingly made or used

9 Ways in Which a False Claim Can Arise Reverse False Claims When a contractor knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government or knowingly conceals or knowingly or improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

10 Qui Tam Relators (whistleblowers) can bring a qui tam action and receive a portion of amount recovered by government If government intervenes, relator can receive 15%-25% of full amount of government s recovery. If the government does not intervene, relator can pursue case on behalf of government and receive 25%-30% of government recovery. Recovery includes treble damages and penalties.

11 Qui Tam Payments 2013, Q 2015 over $345 Million to qui tam relators. $435 Million over $110 Million Relators can also recover: Reinstatement to employment position that relator would have had but for any discrimination related to the relator s action Two times the amount of any back pay Interest on any back payments Compensation for any special damages sustained, including litigation costs and attorney s fees.

12 Direct Contract Not Needed United States v. DRC, Inc. (2012 WL (D.D.C. April 21, 2012) Liability under the FCA does not require a direct contract between the Contractor and the U.S. Government To establish implied false certification in violation of the FCA, Government only must establish: Contract requirement was material Contractor withheld information about its non-compliance Contractor withheld information on compliance knowing that such information was material to the Government s decision to pay for the completed work

13 Recent Enforcements U.S. ex rel. Joshua Harman v. Trinity Industries Inc. et al. (E.D. Texas.(2015): Jury Verdict for $175 million in damages June 2015 judge tripled that award to $525 million and then added a civil penalty of $138 million $8,250 for each of the 16,711 false certifications Trinity made to the federal government. Trinity Highway Products, LLC manufactures the ET Plus (highway guard rails) pursuant to exclusive licensing granted by the Texas A&M University System Trinity modified the guardrails it had sold to the federal government for use on federal highways but did not disclose those modifications, as required by law. Relator awarded $19 million plus $12 million in attorneys fees

14 Recent Enforcements CH2M Hill Hanford Group Inc. (2013): Settlement for $19 million for false claims under a contract with U.S. Department of Energy for a cleanup project in Hanford, Washington CH2M admitted that between 1999 and 2008, its hourly employees routinely overstated the number of hours they worked cleaning up the Hanford site. CH2M also admitted that its management condoned the inflated hours and submitted similarly inflated claims. The company s hourly workers would only perform overtime work if the overtime was offered in 8 hour blocks The hourly workers would falsely claim all 8 hours of overtime even though the job took less than 8 hours and CH2M would be reimbursed by the DOE; Supervisors and upper management failed to discipline these workers and tried to hide the practice; Relator later indicted and convicted due to his involvement in the fraud, so no recovery

15 Recent Enforcements Anixter International Inc., Corning Cable Systems, & American Systems Corporation (2013): Settlement for $3 Million and Corporate Integrity Agreement CIA contract to provide supplies & services. Employees of the 3 contractors provided bribes to CIA employees and consultants to obtain priority assignment of contracts. The qui tam relator, a sales representative, received $585,000 from the government s recovery.

16 Date Company Settlement Contract Type 4/9/2015 Sprint Communications Inc. (N.D. Cal.) $15,500,000 Billed unallowable costs 4/8/2015 Air Ideal Inc. (M.D. Fla.) $250,000 False statements HUBZone 3/12/2015 Hencorp Becstone Capital L.C. (D.D.C. ) 2/25/2015 MetLife Home Loans LLC (D. Colo) 3/12/2015 Lend Lease Construction, Inc. (E.D. Va.) 3/23/2015 Fireman's Fund Insurance Co. (W.D.N.C. ) 3/31/2015 Robinson Health System, Inc. (N.D. Ohio) 4/9/2015 Health Diagnostics Laboratory Inc. (D.S.C.) $3,800,000 False statements to obtain grants $123,500,000 Mortgage loans that did not meet requirements $400,000 Underpaid its workers $44,000,000 Ineligible policies $10,000,000 Kickbacks, Stark violations $47,000,000 Kickbacks; medically unnecessary services 15

17 Why The Concern? Recent years, DOJ and OIG scrutiny with increased risks and prosecutions: Congressional edicts FCA increased penalties and incentives State false claims acts State AG consumer fraud divisions The costs can be staggering: Investigation and government costs Penalties per claim/ Treble Damages Defense costs and fees Relator fees

18 But, I Have Insurance Coverage Errors and Omissions (professional liability) Directors & Officers Liability Definition of Claim Definition of Loss Exclusions Definition of Covered Defense Expenses Employment Practices Liability

19 Have You Reviewed These Insurance Provisions? Fraud Exclusion Intentional Acts, Gross Negligence Exclusions Contractual Liability Exclusion Exclusion for Illegal Profit/Advantage Exclusion for Billing Exclusion for Claims Made by an Insured Professional Services definition in E&O Rescission Clause Allocation Provision Side C Coverage Option Duty to Defend

20 Do You Have Indemnity Agreements with Third Parties to Protect Your FCA Exposure Indemnity where one has the obligation to pay for a loss or damage that has been or might be incurred by another. A cause of action for indemnity can arise by statute, by common law, or more often by written contract.

21 Indemnity and the FCA By statute not under the FCA By common law not if just shifting FCA liability; against public policy By contract chances greatly improve

22 Indemnity and the FCA Courts do not allow common law indemnity claims if all they do is seek to shift FCA liability: Mortgages, Inc. v. US Dist. Ct., 934 F.2d 209 (9th Cir. 1991) (per curium) U.S. ex rel. v. Puchalski, 906 F.Supp.2d 451 (D. S.C. 2012) (following Mortgages) But chances improve with damages independent of FCA liability U.S. ex rel. Madden v. General Dynamics Corp., 4 F.3d 827 (9th Cir. 1993)

23 Indemnity and the FCA With contractual indemnity there is a better chance No court has held that the FCA bars a party from trying to enforce contractual indemnity Example In Cell Therapeutics, Inc. v. Lash Group, Inc., 586 F.3d 1204 (9th Cir. 2009)

24 Conclusion Government increasingly aggressive about contractor fraud Congress has taken multiple measures to strengthen FCA DOJ more aggressive in pursuing enforcement and what constitutes a false claim under FCA Contractors pursuing U.S. Government projects must be extremely diligent in making claims, documenting claims and monitoring payments Damages can be extensive. Insurance and indemnity provisions can mitigate

25 Questions

26 Thank You! Marilyn Robertson Attorney HUSCH BLACKWELL LLP