Archive for July, 2018

Crime Can Pay if You Blow the Whistle

Wednesday, July 18th, 2018

The Commodity Futures Trading Commission (“CFTC”) is an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The CFTC’s Whistleblower Program was created by the Dodd-Frank Act, adding a section called “Commodity Whistleblower Incentives and Protection” to the Commodity Exchange Act. Whistleblowers are eligible for 10-30% of the monetary award the regulator collects if the information leads to an SEC enforcement action with sanctions over $1 million.

On July 12, 2018, the CFTC’s Whistleblower Program announced its largest award yet – $30 million to a J.P. Morgan Chase whistleblower – triple its previous largest award which was awarded in March 2016 and the fifth award under the Program. This $30 million award ties the third-highest award under the U.S. Securities and Exchange Commission’s (SEC) whistleblower program, awarded in September 2014. The $30 million CFTC award announcement comes just weeks after regulators moved to limit the size of these awards.

J. Christopher Giancarlo, Chairman of the CFTC, said that he “hopes that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act.”

Christopher Ehrman, Director of the CFTC’s Whistleblower Office, said “the number of leads the office receives continues to grow each year by the hundreds. We hope that this award will continue to facilitate the upward momentum and success of the CFTC’s Whistleblower Program by attracting those with knowledge of wrongdoing to come forward.” Time will tell how effective this program will be in the future.

Tenth Circuit Holds Medical Judgment Not Always an Ironclad Defense in FCA Cases

Monday, July 16th, 2018

On July 9, 2018, the Tenth Circuit Court of Appeals, in U.S. ex rel. Polukoff v. St. Mark’s Hosp., 17-4014, — F. 3d —, 2018 WL 3340513 (10th Cir. July 9, 2018), was faced with an interesting question: whether a physician’s certification of medical necessity could be deemed “false” for purposes of the False Claims Act where no national or local governmental guidelines addressed the propriety or necessity of the physician’s specific services.

The case before the Court of Appeals involved allegations that a defendant physician, who had worked at two defendant hospitals, had systematically performed thousands of unnecessary heart surgeries for patients suffering from Patent Foramen Ovale (“PFO”), a heart condition. There was no specific guidance from Medicare addressing the physician’s practices. The District Court had granted the defendants motion to dismiss and concluded that the necessity of the doctor’s services was a matter of medical “opinion” or judgment and accordingly could not be “objectively false” under the FCA absent some regulation on point.  Id. at *5.  Relator’s appeal followed.

While there were no regulations addressing the practice at issue, the Complaint, and the Circuit Court in reviewing the sufficiency of the Complaint, looked to the American Heart Association’s and American Stroke Association’s guidelines addressing the appropriate surgical criteria for patients suffering from PFO. Both associations set forth that surgery should only be employed in certain cases of PFO. The physician was alleged to have routinely performed surgery on patient’s suffering from PFO in contravention of the AHA and ASA standards.

The Tenth Circuit recognized that “[o]ne factor that contractors consider when deciding whether a service is appropriate is whether it is [f]urnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition or to improve the function of a malformed body member.” Id. at *2 (internal quotation marks omitted). The Court determined that even absent a federal regulation or guideline addressing the specific medical decision, the claims could be deemed false.

The Court set forth three reasons for its holding: “First, we read the FCA broadly. Second, the fact that an allegedly false statement constitutes the speaker’s opinion does not disqualify it from forming the basis of FCA liability. Third, claims for medically unnecessary treatment are actionable under the FCA.” Id. at *8 (internal quotation marks and citations omitted). The Court noted that the Medicare Program Integrity Manual sets forth a definition for “reasonable and necessary,” even if it does not address any particular medical service. Id. at *9. Accordingly, “a doctor’s certification to the government that a procedure is ‘reasonable and necessary’ is ‘false’ under the FCA if the procedure was not reasonable and necessary under the government’s definition of the phrase.” Id.

As to fears that the Court’s decision would needlessly expand liability among medical professions, the Court explained that while the Program Integrity Manual’s definition is broad, the Escobar decision made clear that the materiality and scienter requirements of the FCA will prevent liability from ballooning. The Tenth Circuit recognized that the District Court’s holding would have created an FCA loophole by permitting bad actors to run up medical bills by performing unnecessary services whenever the specific medical service’s necessity is not addressed by federal regulation.

Where Does Supreme Court Nominee Brett Kavanaugh Stand on the False Claims Act?

Tuesday, July 10th, 2018

On Monday night, D.C. Circuit Judge Brett Kavanaugh was selected by President Donald J. Trump to succeed Justice Anthony Kennedy on the United States Supreme Court.  The 53-year-old Kavanaugh has spent the last 12 years as a federal judge on the D.C. Circuit Court of Appeals where he authored over 300 opinions.

While many are rightfully concerned with the implications this appointment may have on the Second Amendment, abortion rights, the future of healthcare, and executive branch authority, this potential Supreme Court Justice may also make critical decisions related to the Federal False Claims Act.  To that end, I decided to review all of the FCA cases where Kavanaugh was a presiding Circuit Judge in the D.C. Circuit Court of Appeals over the last 12 years.

Since Kavanaugh’s appointment by President Bush, there have been 18 decisions related to the False Claims Act by D.C. Circuit Court of Appeals panels that included Kavanaugh.  Some of these decisions only make passing references or comparisons to the FCA statutes and a few were unpublished decisions related to legal affirmations that Relators may not proceed with FCA cases pro se.

You might be interested to know that of all the FCA-specific cases that I reviewed, all of the decisions by panels where Kavanaugh presided were either per curiam or unanimous decisions. This would imply that Kavanaugh did not have serious differences of opinion with his fellow Circuit Judges when it came to interpreting the False Claims Act.  Also of note, Kavanaugh has authored the opinion for only one of these FCA-specific cases.

Judge Kavanaugh authored In re Kellogg Brown & Root, Inc.,  410 U.S. App. D.C. 382, 756 F.3d 754 (2014), an opinion well-known for its application of the attorney-client privilege.  That case stemmed from United States ex rel. Barko v. Halliburton Co., where a Relator alleged that his employer, Kellogg Brown & Root (“KBR”) and certain subcontractors defrauded the U.S. Government by inflating costs and accepting kickbacks while administering military contracts in wartime Iraq.  During discovery, the Relator sought documents related to KBR’s prior internal investigation into the alleged fraud.  The District Court ruled that the attorney-client privilege did not apply, but KBR petitioned for a writ of mandamus and asked to vacate the production order.

The D.C. Circuit Court of Appeals and Kavanaugh granted mandamus relief.  Writing for the court, Kavanaugh held that the district court had erred and that KBR’s internal investigation was protected by the attorney-client privilege.  Kavanaugh further held that the Relator was able to pursue the facts underlying KBR’s investigation, but he was not entitled to KBR’s own investigative files.

Of interest, while that case dealt primarily with the attorney-client privilege in a qui tam action, Kavanaugh also sat on the panel that unanimously decided United States ex rel. Purcell v. MWI Corp., 420 U.S. App. D.C. 176, 807 F.3d 281 (2015).  The outcome of this case was considered to be a significant setback for the U.S. Department of Justice.

In United States ex rel. Purcell v. MWI Corp., the court reversed a multimillion-dollar jury verdict for the government and remanded the action to the district court with instructions to enter final judgment for MWI.  The Court of Appeals ruled that the Defendant manufacturer’s failure to report its sales agent’s commission did not violate the FCA.  In coming to this result, the court held there was not sufficient evidence that the manufacturer was “warned away” from its interpretation of the regulations.  In other words, the court held that the manufacturer could not have knowingly submitted false claims because it relied on a reasonable interpretation of an ambiguous term that the government left undefined.  The court also rejected a number of FCA arguments the Justice Department routinely makes in response to “ambiguous regulation” defenses.  This decision undoubtedly limited FCA liability.

Judge Kavanaugh is certainly familiar with the False Claims Act and the above cases may provide some insight as to his view on future cases that are brought before him.