Archive for June, 2018

Court Orders Ex-Postmaster to Pay over $353K for Stealing $9K from the Post Office under the FCA – Not Deemed an Excessive Fine

Wednesday, June 20th, 2018

A postmaster in South Dakota has been ordered to pay a civil judgment of $353,441.42 to the United States for defrauding the United States Postal Service (USPS). In United States v. Christeson, Judge Karen E. Schreier of the United States District Court for the District of South Dakota granted summary judgment in favor of the government, finding that the defendant intentionally and falsely certified that he was issuing refunds when in fact, he was keeping the money for his own purposes. Of note, the court found that under the False Claims Act, a $353K judgment was NOT grossly disproportional to the $8,970.71 that the post master stole from the USPS.

The Underlying Fraud Allegations

From 2010 to 2015, Craig Christeson served as the postmaster in two different South Dakota post offices. The USPS sells postage meters to permit customer to print out their own postage. When an envelope is put through a postage meter, but the resulting postage strip is not used, the resulting postage meter strip is said to be “spoiled.” When this occurs, a customer may bring the spoiled postage meter strip to the post office and receive a refund or credit.

As the postmaster, Christeson was responsible for verifying and issuing refunds to customers. Sometime in 2013, Christeson began falsely certifying that he had received spoiled postage meter strips from customers when he had not. He would then print a money order in the name of the fake customer, cash the money order at the post office, and keep the money. The USPS suffered damages totaling $8,970.71. Christeson pled guilty to the criminal charges against him and was sentenced to probation and to pay restitution. There was then a civil False Claims Act case brought against him.

The Court’s Findings on the Excessive Fines Clause

The court found that Christeson’s guilty plea in his criminal case included admissions that established the essential elements of an FCA cause of action. Accordingly, the court granted summary judgment. Turning to the damages calculation, the judge found that the proper damage award was the statutory treble damage figure ($8,970.71 x 3 = $26,912.13), plus the civil penalties (minimum penalty amount of $5,500 multiplied by 61 claims =$335,500), minus the amount paid in restitution ($8,970.71). Thus, the court found that Christeson must pay the government $353,441.42 under the FCA. Given that the amount calculated was approximately thirty-nine times the actual damages suffered by the USPS, the court performed an Excessive Fines Clause analysis. The court found that the judgment was not excessive, nor grossly disproportional because (1) the intentional fraud lasted for multiple years (2) the judgment sought is the minimum within statutory limits, and (3) each of Christeson’s sixty-one violations was an independent instance of intentional misconduct.

This case illustrates that the damages provisions of the False Claims Act can be onerous. It also serves as an example that it never pays to cheat the post office.

Public Disclosure Bar Does Not Preclude a Qui Tam Suit against Medtronic

Thursday, June 14th, 2018

In United States ex rel. Forney v. Medtronic, Inc., Judge Edward G. Smith of the United States District Court for the Eastern District of Pennsylvania ruled in favor of the Relator by denying medical device manufacturer, Medtronic’s request for summary judgment.  Judge Smith ruled that Relator Forney was not barred by the public disclosure bar because she is an original source that “materially added” to the publically disclosed allegations of fraud against Medtronic.

The Underlying Fraud Allegations

Relator Forney worked at Medtronic for 16 years until she was terminated in 2012.  She alleges that Medtronic routinely provided free services to individuals who made decisions about device purchases for the purposes of inducing these healthcare professionals to purchase Medtronic devices.  Her amended complaint alleges two main categories of inducements: (1) free device checks and device examinations performed on implanted pacemakers and (2) free practice management consulting during which providers were counseled on how to code for maximum reimbursements.  Relator Forney argues that these services are illegal kickbacks.

Medtronic Claims Public Disclosure Bar

In their motion for summary judgment, Medtronic contended that all of the Relator’s allegations were the subject of prior FCA claims and were therefor barred by the public disclosure bar.  Medtronic pointed to five different qui tam cases (Onwezen, Schroeder, Stokes, Doe, and Burns) and argued that they all qualified as valid prior public disclosures that described substantially the same fraud as the Relator’s amended complaint.

The Court’s Findings

After reviewing the five cases, the Court found that only two of them were valid public disclosures.  The Court determined that the other three cases did not qualify because these cases did not satisfy the government-involvement requirement.   According to Judge Smith, when the government declines to intervene in a qui tam case, it cannot be a party for the purposes of the government-involvement requirement.  Next, the Court turned to the issue of whether the two valid prior public disclosures (Onwezen and Schroeder) served as a bar to the relator’s claims.

The court held that while Relator Forney’s allegations were substantially similar to the other cases, she had knowledge that was independent of the disclosures, making her an original source.  The court found that she provided extensive details to the government that materially added to the factual background possessed by the government from the two prior cases.  Accordingly, the Court denied Medtronic’s motion to dismiss.

New York Doctor Sentenced to Four Years in $100 Million Lab Kickback Scheme

Friday, June 1st, 2018

The beat goes on…

According to a May 31, 2018 filing in New Jersey federal court, Dr. Thomas Savino of Staten Island was sentenced to four years imprisonment and three years’ supervised release, and was ordered to pay a $100,000 fine and forfeit $27,500 for his part in the Biodiagnostic Laboratory Services fraud. Evidence produced at trial last fall showed that Dr. Savino received at least $25,000 from the lab in exchange for his referrals, which generated approximately $375,000 for the lab. In October 2017, Savino was convicted of multiple offenses for his role in the kickback scheme, including conspiracy to violate the anti-kickback statute and wire fraud. All told, the scheme resulted in $100 million in false claims to government and private health care programs.

With Dr. Savino’s conviction and sentencing, the case has resulted in 53 convictions, including 38 doctors. Earlier this month, four former Biodiagnostic sales employees also received prison sentences ranging from 21 to 41 months, and a fifth ex-employee received three-years’ probation for their part in the kickback scheme.

Back in June of 2016, Biodiagnostic pled guilty and was required to forfeit its assets. In December 2017, the founder of the lab company, a former nurse, testified during the government’s prosecution. He described how he built a $150 million business from scratch using a marketing plan built primarily on bribing doctors to use his lab. The physicians involved were bribed with luxury automobiles, impossible-to-get concert tickets, and trips to the Caribbean and the Super Bowl in private jets, as well as prostitutes and strippers at high-end gentlemen’s clubs. Although 40 physicians were charged, the lab owner testified that he paid off more than 100 physicians to keep referrals flowing to his lab.

The scheme came to light when one of the doctors receiving kickbacks gave an old iphone to a girlfriend. After their breakup, she discovered texts revealing the bribe scheme and provided them to authorities.