Christopher A. Myers William Pannier Holland & Knight LLP. Copyright 2011 All Rights Reserved

Transcription

1 Federal and State False Claims Acts: Recent Changes Mean Increased Enforcement Risks ACC Compliance and Ethics Committee March 20, 2012 Kevin Mann ServiceMaster Copyright 2011 All Rights Reserved Christopher A. Myers William Pannier Holland & Knight LLP

2 Today s Agenda Overview of the Federal False Claims Act Statutory Amendments Recent Cases and Issues State Law Issues Strategies for Response Questions 2

3 INTRODUCTION False Claims Act (FCA) The primary weapon against fraud in government programs Major risk factor for all companies which receive state or federal funding Recent Changes in FCA make it more available to whistleblowers and their lawyers Hundreds of cases under investigation at any one time Cases often take several years to investigate 3

4 INTRODUCTION Over $30 Billion recovered under federal FCA from Vast majority on cases in which DOJ threatens or actually intervenes DOJ intervenes in about 20% of qui tam cases 2012 estimates of recoveries as high as $9 Billion 4

5 INTRODUCTION 2008 FCA statistics $1.36 Billion in settlements and judgments $1.045 Billion from qui tam (whistleblower) actions 161 DOJ initiated cases 379 qui tam cases 2010 FCA statistics $3.08 Billion in settlements and judgments $2.45 Billion from qui tam actions 138 DOJ initiated cases 574 qui tam cases 5

6 Introduction Where there s money, there are trial lawyers... Under a Civil War Era law known as the False Claims Act, the federal government can sue contractors or other groups it thinks have defrauded it. Used properly, the law can serve a good purpose, protecting against waste and misuse of taxpayer dollars. Used improperly, it can become a flamethrower in the hands of plaintiffs lawyers filing frivolous suits in hopes of a big payday. WSJ Editorial 9/12/2011 6

7 DOJ POLICY CHANGE: PROSECUTE INDIVIDUALS 7

8 CURRENT TRENDS/PREDICTIONS Increasing numbers of cases against individuals Responsible Corporate Officer Doctrine Suspension/debarment of executives and other responsible for violations Comprehensive Audits of compliance and ethics programs Pressure from courts and relators to unseal cases before DOJ intervention decisions 8

9 False Claims Act Overview Qui Tam Case --Procedure Private attorney (for whistleblower) files case under seal Private attorney gives government all information about the case DOJ (and enforcement agencies) review and investigate Demand documents Interview witnesses Take testimony Search warrants possible if parallel criminal investigation Intervene (take over case) Decline intervention (whistleblower then free to pursue) 9

10 False Claims Act Overview Substantive violations of the FCA: Submitting a false or fraudulent claim for payment or approval Making or using a false record or statement material to a false or fraudulent claim Conspiracy to violate the FCA Keeping government money or avoiding an obligation owed to the government (reverse false claim) Overpayments are obligations to the government 10

11 False Claims Act Overview Intent element of FCA Violations must be committed Knowingly Knowingly has several meanings Actual knowledge of falsity Reckless disregard of truth or falsity Deliberate Ignorance of truth or falsity ( what I don t know can t hurt me ) 11

12 False Claims Act Overview Damages and Penalties Successful FCA Actions expose contractors to treble damages Plus: Penalties of up to $12,000 per false claim, and Attorney s Fees Potential suspension/debarment of company, and Individuals responsible for violations False statements/certifications can lead to claim that entire amount of contract is result of false claim 12

13 STATUTORY CHANGES Fraud Enforcement and Recovery Act of 2009 ( FERA ) Major substantive changes -- effective May 20, 2009 Eliminated "presentment" requirement can now trace funds through subcontractors, grants, state programs, etc. Eliminated purpose language for false statements; violation exists where statement or record is material to a false claim 13

14 STATUTORY CHANGES FERA, con t. Enlarged the scope of reverse false claims provision Provided for sharing of information with states and relators Expanded whistleblower protections Relation back of new claims added by DOJ 14

15 STATUTORY CHANGES PATIENT PROTECTION AND AFFORDABLE CARE ACT ( PPACA ), adopted in 2010, further expanded FCA liability Amended public disclosure bar Made "original source exception easier to satisfy requires only being independent of and materially adds to publicly disclosed allegations... Created 60-day deadline for reporting and returning overpayments Established that an overpayment is "an obligation under FCA Made violations of the anti-kickback act a clear FCA violation 15

16 RECENT CASES AND ISSUES Kickbacks 2010: Yonkers Contracting Company VP built in kickbacks on pricing of Fed. Highway Admin. Funded project 2011: Serono Pharmaceuticals -- $44.3 million FCA inducements to MD s; Medtronic -- $23.5 million FCA inducements through studies Failure to Conform to Specifications 2011: Frederick Precast Concrete, Inc. Director of QC false statements and certifications of compliance with rebar specifications and concrete mix testing on precast structures for Wilson Bridge and interstate highway project 16

17 RECENT CASES AND ISSUES DBE Compliance 2011: Minnesota Transit Constructors -- $4.6 million FCA settlement re Fed. Transit Admin. Light rail project in MN 2011: Environmental Energy Associates officers criminal plea related to NY City Transit and MTA projects 2010: Schiavone Construction Co. -- $20 million FCA settlement on NY MTA projects 2010: John Carlo, Inc., and Iafrate Construction Co. -- $1.4 million FCA settlement re Detroit airport runway project. 2009: Schuylkill Products, Inc. and Marikina Construction owners and executives plead guilty re $136 million in Pa. highway projects fraud 17

18 RECENT CASES AND ISSUES Tainted Products 2010: GlaxoSmithKline -- $750 Million adulterated drugs paid for by federal health care programs Regulatory Violations 2011: Oracle -- $199 Million failure to provide current, accurate and complete information about discounts to commercial customers 2011: Education Mgmt Corp DOJ intervenes in claims of false certification of compliance with prohibition of incentive payments to recruiters 2011: Merck Pharma --$950 Million FCA and criminal plea off-label marketing of Vioxx, plus false statements re safety of drug 18

19 RECENT CASES AND ISSUES Bond Reimbursement Claims Morse Diesel/AMEC Construction Management, Inc. -- $19 million False Claims Act settlement re false bond reimbursement claims and premium kickbacks re building of federal courthouse in St. Louis In addition to penalties (criminal and civil) also forfeited $53 million in claims 19

20 Recent Cases and Issues False Certification of Equitable Adjustment Claim 2010: Daewoo Engineering -- $51 million settlement of FCA counterclaim in Court of Federal Claims litigation re Army Corps of Engineers highway construction project in Palau Request for Equitable Adjustment of $50.6 million based on site conditions denied Daewoo sued in Court of Federal Claims seeking same damages as REA Claim certified as made in good faith 20

21 State Law Issues Many states have False Claims Acts Most state FCAs "closely track" the federal FCA Read similarly and are substantively the same as the FCA - Often track word for word Extend liability in situations virtually identical to those in the federal FCA Case law interpreting individual state FCAs is scant. California's authority is the most developed, but pales compared to federal law. Because of strong parallel between the federal FCA and state FCAs, courts routinely turn to interpretations of the federal FCA when interpreting a state FCA 21

22 State Law Issues In some cases a defendant's exposure under a state FCA could exceed exposure under the federal FCA. Consequential Damages: Massachusetts' FCA expressly allows consequential damages, which are unrecoverable under the federal FCA. (Mass. Gen. Laws ch. 12 5(B)(9)). Joint and several liability: where a violation is found to have been committed by two or more defendants. (CA, DC, NV, NM, TN) State FCAs may also impose liability on the beneficiary of a false claim who subsequently discovers the false claim and fails to disclose it within a reasonable time. (CA, DC, MA, NV, NM, TN) Indiana's statute sets forth a minimum penalty of $5,000, but does not establish a maximum penalty amount. (Ind. Code Ann (b)). 22

23 State Law Issues State Attorneys General are increasingly using FCA enforcement actions to regulate business conduct. Civil actions Criminal actions Consumer fraud investigations Attorneys General are effectively teaming with plaintiff s law firms to pursue FCA remedies. 23

24 STRATEGIES FOR RESPONSE TO FCA RISKS "If you don't know where you are going, you might wind up somewhere else. Yogi Berra 24

25 STRATEGIES FOR RESPONSE TO FCA RISKS Key Internal Considerations False Claims Act implications of invoices, statements, records Involving outside counsel Disclosure issues Mandatory or Voluntary Take appropriate actions at appropriate times Respond to employee complaints (See SAIC -- $500 million to NYC) Investigation Disclosure Taking corrective actions 25

26 STRATEGIES FOR RESPONSE TO FCA RISKS Key Internal Considerations Employment Law issues Wrongdoers: discipline, termination, etc. Whistleblower(s): no retaliation Preventing disaster Strong compliance programs Commitment and communication from top officials Integration of compliance and business operations Training 26

27 I m from the Federal Government and I m here to help you. Planning for disasters helps Plan for responding to investigations Train employees Avoid Obstruction of Justice Don t Panic 27

28 THINGS TO AVOID 28

29 FINAL THOUGHTS Good governance matters, if for no other reason than bad governance is so costly. Buy the Board, Morgan Stanley US Investment Strategy 29

30 QUESTIONS? Kevin Mann ServiceMaster (901) Christopher A. Myers Holland & Knight LLP William M. Pannier Holland & Knight LLP (213)