CORPORATE CRIME REPORTER

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1 PUBLISHED WEEKLY VOLUME 22 NUMBER 8 MONDAY FEBRUARY 25, 2008 CORPORATE CRIME REPORTER LATHAM S LAUER ON DEFENDING FALSE CLAIMS ACT CASES Katherine Lauer has a full time job defending health care fraud cases. Lauer is a partner at Latham & Watkins in San Diego. Since graduating from Michigan Law School in 1988, Lauer has been a white collar defense attorney at Latham. Does it matter that she was never a prosecutor? I don t think I m disadvantaged in the sense that I don t know how to deal with prosecutors or I don t know how they think, Lauer told Corporate Crime Reporter in an interview last week. I have spent enough time with them on the defense side in many, many hours of negotiated resolutions of really big cases that I probably have as good of a sense of how they approach a case as I would if I were on the prosecution side. But people do wonder how can you be a white-collar defense lawyer if you weren t a prosecutor first? There is an expectation that you were a prosecutor. But substantively I don t think it makes a difference. And from a relationship perspective I know the same people. I just know them in a different context. But let s just say that not being a former prosecutor, there is probably a little more to prove than if you are a former prosecutor, Lauer said. Lauer spends much of her time defending False Claims Act cases and trying to persuade government prosecutors not to bring a case. You try to convince the government not to intervene, Lauer said. You know there is an investigation. You know the government is investigating your client. You may or may not know whether there is a whistleblower that is part of the equation. But in any situation, the strategy is to have a dialogue with the folks whether it is the folks at Main Justice or at the local U.S. Attorneys offices to have a dialogue. And you try to convince the government s attorneys that they don t have a good case, and they don t want to spend their time or their resources pursuing this action, either because the evidence of liability isn t very good, or because it would be a tough and novel legal theory, or because they don t have a very good damages theory, or the damages would be small. There are a lot of different ways that we do it. Next month, Lauer will be in Miami, Florida at the American Bar Association s White Collar Institute. She ll be on a panel discussing health care fraud cases. What comes out of these conferences? In white collar practice, in many of the cases, lawyers are chosen through referrals, Lauer says. Knowing the people who are out there and being known by the people who are out there is one way we get a whole lot of business. It s making relationships with other white collar lawyers. When you have 1,000 lawyers there, it is a pretty good opportunity. Now, that said, there is an awful lot of substantive programming at this thing as well, she said. So, it s more than just going out and going to the parties. KATHERINE LAUER, PARTNER, LATHAM & WATKINS, SAN DIEGO, CALIFORNIA If you are a white-collar defense lawyer, does it matter what city you practice in? Not really, says Katherine Lauer, a partner at Latham & Watkins in San Diego. Lauer has a national white collar defense practice. And she could just as easily be in Boston or New York or Chicago or Washington. But San Diego it is. From there, she handles cases around the country. We interviewed Lauer on February 18, CCR: You graduated from the University of Michigan Law School in What have you been doing since? LAUER: I ve been at Latham & Watkins in San Diego. I summer clerked here after my second year in law school and I ve been here since. CCR: Tell us about the firm and what your practice is at the firm?

2 LAUER: Latham & Watkins is one of the biggest law firms in the world. Latham has more than 2,100 attorneys in 24 offices around the world. It s a full service law firm. We do pretty much absolutely everything that our business clients require. My practice is in the health care and white collar defense area. It s a litigation practice but at the same time it has transactional and compliance features as well. It has a very heavy white-collar emphasis as well. CCR: Is there a white-collar unit at Latham? LAUER: There is a white-collar and government investigations practice group within our litigation department. CCR: Tell us a bit about your own practice? LAUER: I started out as a general litigator, doing all sorts of cases everything from contract disputes, to trademark work, to employment work. About four or five years into my career, I started doing government contracts work with a health care emphasis. This dealt primarily with some large bid protests involving Tricare contracts. From there I got into the False Claims Act cases. And then in 1997, when Columbia/HCA hired Latham to defend it, I started working on that case and never went back. I have done pure health care ever since. CCR: How long did the Columbia/HCA case take? LAUER: Six years. From 1997 to There was a settlement in 2001 of certain parts of the case. But the global settlement was concluded in So, all of my work is now health care. Most of the cases that we work on tend to have both civil and criminal components to them. So, for example, when we had the HCA case, the part of that case that I was primarily responsible for was the kickback piece involving financial arrangements between hospitals and physicians. That piece had a criminal component to it. That was an investigation handled out of the Western District of Texas and also coordinated through Main Justice. In addition to that, the same claims were the subject of qui tam relators who brought lawsuits throughout the country. That is pretty much the typical model for most of the cases that I handle. There is both a civil and criminal component to the same case. CCR: You are in San Diego, but you have a national practice. For an attorney in your position, it really doesn t matter where you are. LAUER: It doesn t matter where I am based. In fact, I have very few local clients. I have a couple. But most of my work is national. And most of the cases I work on are cases like the HCA case. We also handled the Tenet case. Those are the kinds of cases we handle at Latham. CCR: So, if it doesn t matter where you are, why are you in San Diego? Are you from San Diego? LAUER: No. I m from Michigan. I was summer clerking in Phoenix. I went to a hearing in Yuma. And I met co-counsel and we ended up getting engaged. And I married him. He was here. I moved to San Diego and have I have lived here ever since. I was here before I had the practice. It is fair to say that it might be easier to develop a health care practice if you are in a place like Boston or Washington, D.C. where Main Justice is. But especially now, with firms having offices all over the country, and really being able to practice seamlessly between offices, it really doesn t matter where you sit, as long as you are willing to travel when you need to. CCR: Do you come from a family of lawyers? LAUER: No. My dad is an engineer and my mother is a nurse. There was nobody in my family who was a lawyer before I was. My brother is a lawyer now, but he went to law school several years after I did. CCR: What made you want to be a lawyer? LAUER: I debated in high school. And I found that was really fun. And for some reason I thought being a lawyer was going to be like that. Which as we all know, it is not at all. CCR: Do you get to spend time in the courtroom? LAUER: It s been a long time since I ve been in the courtroom. In my first ten years or so of practice, I had five jury trials and a pretty steady motions practice in most of my cases. But since I ve been doing health care and a little ironically, since I ve been doing white-collar, much more of that practice is in the pre-indictment stage, where we are dealing with prosecutors on the side trying to get them reasons not to indict our clients. Or in the False Claims Act cases, where the case is still under seal, we are dealing with an active government investigation, but the case hasn t been unsealed and there is not active litigation going on. So, I don t really get into the courtroom that much any more. CCR: I just picked up Bob Bennett s memoir In the Ring. I guess Bennett hasn t been in the courtroom trying a full case since he joined Skadden 2 CORPORATE CRIM E REPORTER M ONDAY FEBRUARY 25, 2008

3 Arps in And he heads one of the largest whitecollar defense practices in the country. It used to be that the government and defense attorneys butted heads in the courtroom. There were convictions and acquittals and plea agreements. Now, it seems as if everything is being negotiated with deferred and non prosecution agreements. What effect is that having? LAUER: Well, that is generally the case. But sometimes, the big cases in health care get tried. You had the TAP Pharmaceuticals trial against the individuals. And here in San Diego, we had two jury trials a couple of years ago for Alvarado Hospital, another Tenet subsidiary that we defended and for the CEO of that hospital. Those were unusual. CCR: What were the results of those cases? LAUER: They both ended in mistrials. The jury was hung both times. The first case ended in a mistrial. Then the government retried the case. The second trial ended in a mistrial after what we believe was the longest jury deliberation ever in the state of California. The jury deliberated from the middle of November until the middle of April. And it was hung. And the judge finally granted a mistrial. But that is the opposite of the normal way these health care cases are resolved which is through deferred and non-prosecution agreements and sometimes through criminal pleas. On the civil side, you rarely see False Claims Act cases going to trial. Almost always, there is some sort of negotiated civil resolution that is generally accompanied by a corporate integrity agreement with the OIG to avoid the possibility of being excluded from government programs. And that is a big reason why you see those results so often. In health care, if you are convicted of almost anything that relates to federal programs, the OIG either has to or can, depending on the violation, exclude you from government programs. And if you are a health care provider, it is very difficult to stay in business if you can t do business with the government. CCR: But exclusion is not real for big companies. When you are negotiating, you are negotiating a plea for some subsidiary that has nothing to lose. LAUER: That is the practical effect. If there is a criminal plea, smart, big companies and even smart small companies generally have been able to find an entity to take the plea. Even if there is a mandatory exclusion connected with it, the primary business of the company can continue. That is not necessarily the case if you go to trial. Which is why so few companies go to trial. If you go to trial and you are convicted and the entity is convicted, depending on what the offense is, exclusion can be mandatory. And you lose the ability to pick the entity that will be excluded. CCR: You will be appearing on a panel at the American Bar Association s White Collar Institute next month. The title of the panel is Welcome to the Field of Healthcare Fraud Defense, Where Nothing Is Static and Victory Is Hard to Define. What did the person who wrote that mean victory is hard to define? LAUER: Rarely in health care fraud defense do we or our clients walk away with the satisfaction of complete victory. CCR: Well, that s the case for most settlements, right? LAUER: Yes, I would have to agree with that. CCR: Is the False Claims Act a good law? LAUER: I certainly think it has a social utility. Protecting the government fisc is a good thing to do. There are provisions of the False Claims Act I don t know are as useful or socially desirable as others. I m not sure whether the whistleblower provisions are always socially useful. CCR: But the whistleblower provisions are the reason the cases are coming in the door, right? LAUER: Yes. And it is a good thing that they bring these cases in the door. My concern is that in some circumstances, it allows third parties to define enforcement priorities. And I m not always sure that what a whistleblower a whistleblower s counsel decides is a good fiscal decision for that whistleblower is necessarily the best policy or enforcement decision. CCR: The vast majority of False Claims Act cases are driven by whistleblowers. But what part of your caseload is driven by the False Claims Act? LAUER: I m trying to think if I ve had any that aren t. It s a big chunk. Every now and then we ll get a case where there is an investigation where there is no whistleblower involved. And I ve had a couple over the years. But generally, there is a whistleblower involved. CCR: If the government doesn t sign on to relator s case, then generally speaking, the case isn t going anywhere, right? LAUER: I ve had several where the whistleblower M ONDAY FEBRUARY 25, 2008 CORPORATE CRIM E REPORTER 3

4 has gone on without the government. But I ve also had several cases where we ve convinced the government not to intervene and they have convinced the whistleblower not to continue with the case. Generally, though, whistleblowers recover a lot less in cases where the government is not an intervening party. CCR: You can actually lobby the government not to join the case? LAUER: Sure. But not always. I have a case now where the government filed a complaint and intervention on a whistleblower case without first conducting an investigation and without having any kind of contact with the defense or the defense attorney first to talk about it. That s the first I ve seen that at least personally in my career. CCR: Can you say which client that is? LAUER: No. CCR: Is this a case of first impression? LAUER: No. But I would say that it s rare. And I would say that it is much more typical for the government to conduct some sort of investigation before it decides to intervene in the case. Generally, when the government is conducting an investigation, it will do something to let the defendant know that an investigation is going on, whether it issues a search warrant, some sort of subpoena, a voluntary letter request to produce documents something. In most cases, there is an indication that an investigation is going on. The government is not allowed to tell you whether there is a whistleblower case filed. That is the rule under the False Claims Act the case is filed under seal. So, they can t tell you. But generally, as a defense lawyer, you have a pretty good idea as to whether there may be a whistleblower out there or not. CCR: If they can t tell you that a case has been filed, how can you pressure them not to join the case? LAUER: Sometimes, there will be a limited unsealing. That happens on occasion where the government can go in and get permission from the court to tell the defendant that a case has been filed. That has happened on a few occasions. CCR: Well that s rare. So, how do you pressure the government not to intervene if you don t know about the case? LAUER: Pressure is not the right word. You try to convince the government not to intervene, the same way where you would try to convince them if there is not a whistleblower not to file an action against you. You know there is an investigation. You know the government is investigating your client. You may or may not know whether there is a whistleblower that is part of the equation. But in any situation, the strategy is to have a dialogue with the folks whether it is the folks at Main Justice or at the local U.S. Attorneys offices to have a dialogue and to try to convince the government s attorneys that they don t have a good case, and they don t want to spend their time or their resources pursuing this action, either because the evidence of liability isn t very good, or because it would be a tough and novel legal theory, or because they don t have a very good damages theory, or the damages would be small. There are a lot of different ways that we do it. But generally, a lot of that takes place prior to the time that the government makes a decision whether to intervene in the case. CCR: Boston is considered the hub for health care fraud cases because of the active U.S. Attorney s office there. Do you spend a lot of time in Boston? LAUER: I haven t personally spent a lot of time in Boston, which is one of my disappointments in this area. CCR: Are most of your cases coming out of Main Justice? LAUER: Many of my cases are coming out of Main Justice. Some of them are out of California. I have had a number out of Texas over the years. These are all federal cases. I have one up in Idaho now. CCR: I always thought that Boston or Main Justice was driving most of the cases. But you say you have them from all over the country. Does that mean the U.S. Attorneys in those areas are bringing cases on their own outside of Main Justice? Or do all of these cases filter through the Fraud Section? LAUER: They all filter through the Fraud Section. It depends on how a case comes to be. Let s say a whistleblower files a case out here in the Southern District of California. The case would then have an assigned attorney back at the Fraud Section. It also depends on the case. Sometimes the case is handled primarily out of the U.S. Attorney s office. And sometimes the case is handled primarily out of Main Justice. But Main Justice is always involved and is always the entity making the intervention decision. 4 CORPORATE CRIM E REPORTER M ONDAY FEBRUARY 25, 2008

5 And I didn t realize this until recently they actually have the ability to assign the case back to the districts. And I have only seen that happen once. CCR: Why would they do that? LAUER: I m going to speculate that perhaps it is a case that Main Justice didn t think was worthy of its resources, but where a local U.S. Attorney s office, for whatever reason, had a specific local reason for pursuing a case. And I actually have one of those right now. Main Justice is not involved at all in this particular case. And it has been delegated to the local U.S. Attorney s office. CCR: Are there cases where the personality of the prosecutor gets in the way of a settlement? LAUER: It is fair to say that there are cases where the personality of the prosecutors, as well as the defense attorneys, can get in the way of a settlement. Particularly in the health care area, where so little of what we do actually ever gets before a court, personality can matter a lot. And the relationship between the client, the client s attorney and the prosecutors can make a big difference in how quickly things are resolved and ultimately how favorably they are resolved. CCR: You have been a defense attorney for all of your professional life. Are you at some kind of disadvantage because you have never been a prosecutor? LAUER: I don t think I m disadvantaged in the sense that I don t know how to deal with prosecutors or I don t know how they think. I have spent enough time with them on the defense side in many, many hours of negotiated resolutions of really big cases that I probably got as good of a sense of how they approach a case as I would if I were on the prosecution side. People do wonder how can you be a whitecollar defense lawyer if you weren t a prosecutor first? There is an expectation that you were a prosecutor. But substantively I don t think it makes a difference. And from a relationship perspective I know the same people. I just know them in a different context. CCR: Former prosecutors get a touch arrogant about it. Like I m a former prosecutor and you re not. LAUER: Let s just say that not being a former prosecutor, there is probably a little more to prove than if you are a former prosecutor. CCR: Very diplomatic of you. What about trends in health care fraud prosecution? LAUER: We are seeing an increasing number of criminal and False Claims Act cases in different areas of health care. Ten years ago, the government was really interested in hospitals. Five years ago, the government was really interested in big pharma. There is a lot less low hanging fruits in those areas now. Now, we are seeing a lot more action in specialty pharma or medical devices and in particular medical devices. CCR: What is specialty pharma? LAUER: Specialty pharma would be smaller companies that have only a couple of products. They are not as mature as the really large pharmaceutical companies. So, they don t have quite the same level of compliance programs. I don t want to generalize across the board. But to some extent, we are seeing some more companies out there that may have the same types of behavior we saw five or ten years ago. Those smaller companies are now starting get some attention from prosecutors and the qui tam relators. But the device area is probably the biggest area out there. There is still a feeling throughout much of the industry that they are different. They are different from hospitals. They are different from pharmaceutical companies. And they don t necessarily have to follow all of the same rules. And somehow the rules apply differently because they are medical device companies. So, there is still a lot of behavior out there that is not going on in other industries. But it is still going on in the medical device industry. That s probably the biggest area where we will see action in the next year. CCR: Some people believe that if the Fraud Section had more resources, there would be more False Claims Act cases. There is a lot of wrongdoing out there. It s just a question applying the resources. Do you agree? LAUER: I don t think so. That would suggest that the number of cases out there is determined by how many folks you have at Main Justice with time on their hands looking for cases. Much of what is out there is driven more by whistleblowers and the relators and the number of cases brought by those folks. And then the folks at Main Justice have to decide do we intervene or not? I suppose there is an argument that maybe they M ONDAY FEBRUARY 25, 2008 CORPORATE CRIM E REPORTER 5

6 would intervene more if they had more resources. But I don t see them turning down meritorious cases because they don t have the time or resources. CCR: Tell us a bit about the False Claims Act bar? LAUER: The relators bar is dominated by a couple of large firms Phillips & Cohen and Miller Alfano & Raspanti. That s not to say that there aren t a whole lot of very small players as well. We have some lawyers locally one or two man law firms who bring False Claims Act cases. But it is fair to say that overall it is a very sophisticated group of very smart, very good lawyers who know these areas quite well. And they are very good at figuring out what cases are worth pursuing. There is a guy named Mark Kleiman up in Los Angeles who was just part of the Merck settlement. He s just a one man shop. But he s out there a lot and he s very visible. He s out there bringing his cases. CCR: Could you have been a False Claims Act relators attorney? LAUER: No. CCR: Why not? LAUER: Well, partly because my firm won t let me. CCR: Is it a DNA thing? LAUER: Having defended so many of these, it would be hard for me to be a relator s lawyer. I could be a prosecutor, or a Department of Justice Civil Fraud lawyer. But it would be hard to be a whistleblower s lawyer. CCR: Is that because it requires the mindset of a bounty hunter? LAUER: Maybe a little bit. I don t want to suggest that they are all bad or evil. But there would be a part of me that would be questioning motives. And would just wonder is this really the best thing? Is this motivated by the desire to do good? Or do I have somebody who is disgruntled, has a bone to pick, maybe is trying to create problems where there aren t problems? It s hard to say. I never thought about doing it. CCR: There are those cases where someone is trying to put a bum rap on a company. And you would hope that the system would weed those cases out. But of the cases that make it through, where you are the attorney for the defendant and the Justice Department has signed on are there cases where you look at it and say how did this case make it? LAUER: It is fair to say that there are some cases where the government folks are reaching. We have certainly seen some very large cases where the legal theory on which the case is founded is novel and is something that has never been accepted by a court. When you get right down to it and you look at it, and you look at the arguments, you think you have a pretty good chance as a defense counsel of convincing a court that the government really doesn t have a claim there. CCR: Of the cases that you ve handled where the government signs on, have you got any dismissed? LAUER: I ve had several where we ve convinced the government not to intervene and the government convinced the relator not to pursue the case. I ve had several where I ve convinced the government not to file it in the first place. But once the government signs on to a case, those cases are almost always settled. It is really tough to get the cases dismissed when the government is a party. CCR: The ABA White Collar Crime Institute, which will be in Miami next month why does it attract such a crowd? LAUER: In white collar practice, in many of the cases, lawyers are chosen through referrals. Knowing the people who are out there and being known by the people who are out there is the way we get a whole lot of business. It s making relationships with other white collar lawyers. When you have 1,000 lawyers there, it is a pretty good opportunity. Now, that said, there is an awful lot of substantive programming at this thing as well. So, it s more than just going out and going to the parties. CCR: When I started going to these, it was 95 percent men. Has that changed? LAUER: It s probably 80 percent men now. But I will say that there are a lot more younger women that I ve seen attending in the past several years. So, that s a good sign. [Contact: Katherine Lauer, Latham & Watkins, 600 West Broadway, Suite 1800 San Diego CA Telephone: [email protected]] 6 CORPORATE CRIM E REPORTER M ONDAY FEBRUARY 25, 2008