Archive for June, 2015

Vermont Governor Signs State False Claims Act into Law

Wednesday, June 10th, 2015

On May 19, 2015, Vermont Governor Peter Shumlin signed into law a state false claims act that largely mirrors the federal False Claims Act, including the ability of a qui tam relator to bring an action on behalf of the state. Whistleblowers will be enticed to report fraud in companies doing work for state and local governments through the new Vermont False Claims Act, rewarding them with a portion of the reclaimed funds as reward for their honesty, while also providing protection from on-the-job retaliation.

Vermont joins 33 states and the District of Columbia that have enacted False Claims Acts to date. This trend is partially driven by the significant recoveries that the federal government is obtaining in fraud cases related to the health care industry and other sectors. According to the Department of Justice (DOJ), it recovered nearly $6 billion in civil false claims cases in FY2014, nearly half of which was a result of whistleblower suits. A state false claims act is critical for the state to maximize its recoveries in these fraud cases. A state with a false claims act that meets the requirements of the Deficit Reduction Act of 2005, as determined by the Health and Human Services Office of Inspector General (OIG), receives a 10% increase in its share of any amounts recovered under these laws.

The Vermont False Claims Act can be found here.

United States ex rel. Carter v. KBR, Inc.: Some Good News and A Little Bad News for Whistleblowers

Monday, June 1st, 2015

Last Tuesday, the United States Supreme Court issued its long-awaited ruling in United States ex rel. Carter v. KBR, Inc. The case dealt with two significant procedural issues related to the False Claims Act (“FCA”): (1) whether the tolling provisions of the Wartime Suspension of Limitations Act (“WSLA”) applied to civil as well as criminal claims; and (2) whether the FCA’s “first-to-file” rule only bars new claims while related claims are still “live”, i.e., have not been adjudicated. In unanimously answering “no” to the first question but “yes” to the second, the Court took from relators with one hand while giving with the other.

The FCA’s statute of limitations provision, states that a qui tam action must be brought within six years of a viola¬tion or within three years of the date by which the United States should have known about a violation. However, the WSLA provides that “[w]hen the United States is at war … the running of any statute of limitations applicable to any offense … involving fraud or attempted fraud against the United States … shall be suspended until 5 years after the termination of hostilities.” 18 U.S.C. § 3287. The FCA provides for the recovery of treble damages against any person who, among other things, knowingly presents a false or fraudulent claim to the United States government for payment or approval. 31 U.S.C. § 3729(a)(1)(A). From the perspective of potential FCA defendants, the KBR case threatened to establish indefinite tolling of the FCA limitations period as a result of United States military engagement, including in Afghanistan and Iraq.

The FCA’s first-to-file rule, meanwhile, precludes a qui tam suit “based on the facts underlying [a] pending action.” §3730(b)(5) (emphasis added).

The Supreme Court, in determining that the WSLA’s tolling provision did not reach civil claims, looked at the text and history of the statute. Essentially, the Court did not buy Relator’s argument that the 2008 amendment to the statute – which referenced only “offenses” rather than “indictable” offenses, as it had previously – marked a dramatic revision to the law to thereafter reach civil as well as criminal claims involving fraud related to the prosecution of a war.

However, the case was by no means a total loss for whistleblowers, as the Court handed them a significant victory as well. Citing a split 2014 decision from the District of Columbia U.S. Circuit Court of Appeals in U.S. ex rel Shea v. Cellco, KBR had argued that Congress meant “first filed” when it used the word “pending” in the FCA statute. The Court roundly rejected this argument. In determining the meaning of the word “pending”, the Court – following the dictionary definition of the term – interpreted the rule to mean that: “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Labeling KBR’s interpretation of “pending” as “peculiar,” the Court held that such an interpretation:

does not comport with any known usage of the term “pending.” Under this interpretation, Marbury v. Madison, 1 Crunch 137 (1803), is still “pend¬ing.” So is the trial of Socrates.

To KBR’s argument that the “narrower” reading of “pending” would create problems, particularly regarding a defendant’s willingness to settle, the Court, while acknowledging the possible merit of the argument, replied that ensuring the smooth operation of the FCA’s many procedural rules was beyond the power of a single ruling.

The Court’s holding has closed the door on Relators hoping to use the WSLA to bring civil claims otherwise barred as untimely under the FCA. However, by rejecting KBR’s expansive reading of “pending”, the Court has ensured that Relators will not be barred from bringing meritorious actions simply because a related case had previously been filed.

Major Drug Company Not Immune From FCA Liability For False Claims Submitted by Pharmacists

Monday, June 1st, 2015

On Tuesday, in United States ex rel. Nevyas v. Allergan, Inc., an Eastern District of Pennsylvania district court denied pharmaceutical giant Allergan’s motion to dismiss False Claims Act (“FCA”) allegations brought against it by Relator eye doctors in the Philadelphia area. In so doing, the Court rejected Allergan’s novel argument that, since the allegedly false claims were submitted by unknowing third-party pharmacists, Allergan could not be liable under the FCA.

Relators allege that Allergan engaged in an elaborate kickback scheme to increase prescriptions for its eye care products. Allergan would allegedly target large eye care practices and provide eye care providers with a suite of professional and financial advisory services, access to a valuable Internet site, and admittance to its Speakers Bureau – all with the explicit quid pro quo that the providers would reciprocate by writing prescriptions for Allergan’s drugs.

Among its arguments in its Motion to Dismiss, Allergan claimed that under the framework for evaluating FCA claims adopted by the Third Circuit in United States ex rel. Wilkins v. United Health Care Group, Inc., 659 F.3d 295 (3d Cir. 2011), it could not be liable for the false claims its alleged kickbacks generated because those claims were not submitted by the company but rather by pharmacists unaware of the underlying scheme. While the plain language of the FCA encompasses those who knowingly “cause” the submission of false claims, Allergan argued that the statute’s scienter requirement applied to both the individual causing the submission as well as the submitter. In rejecting this argument, the Court pointed to recent cases in several circuits holding that non-submitting entities that cause the submission of false claims can be liable under the FCA.