© Husch BlackwellLLP
So You Think the False Claims
Act Does Not Apply to You??
Topics for Discussion
I.
Introduction
II.
Elements of a False Claim
III.
Ways in Which a False Claim Can Arise
IV.
Qui Tam Provisions
V.
Why do I care?
Introduction – History of FCA
Enacted in 1863 to address procurement fraud by
contractors during the Civil War
FCA repeatedly expanded to target every type of fraud
against the Government and to anyone who receives
government money or property
1986 expanded power to private attorneys and to
protect and incentivize whistleblowers (“qui tam”)
FCA strengthened in 2008-2010 by following
legislation:
̶ 2008 Close the Contactor Loop Hole Act
̶ 2009 Fraud Enforcement & Recovery Act (“FERA”)
Introduction
Since 2009, over $22.75 Billion recovered in damages, fines, and
penalties
Qui Tam Lawsuits up 50%
1987 30
2000-2009 300 to 400
2014 -2015 Over 700
$5.59 Billion recovered for fiscal year 2014
̶ Medicare/Medicaid alone $2.3 Billion
Types of Contracts Subject to FCA
4
Healthcare: Medicare and Medicaid, TriCare, etc.
National security
Defense
Veterans benefits
Federally insured loans
Mortgages
Transportation
Research grants
Agriculture grants, stipends
School lunches
Disaster assistance
Construction
Elements of a False Claim
FCA definition of a claim:
̶ [A]ny request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that:
i. is presented to an officer, employee, or agent of the United
States; or
ii. is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the
Government’s behalf or to advance a Government program or interest, and if the United States Government
provides or has provided any portion of the money or property requested or demanded; or
will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded…
Ways in Which a False Claim Can Arise
False Claims under FCA § 3729(a)
̶ False claims can also arise from failure to deliver money or property to the Government, certifying receipt of
government property without actual knowledge of receipt, or conspiring with another to commit FCA violations
Direct False Claim
̶ Under FCA § 3729(a)(1)(A) any person “knowingly
Ways in Which a False Claim Can Arise
False Statement/Record
̶ Under FCA § 3729(a)(1)(B) a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable to the United States Government.”
̶ No requirement that the statement or record be
specifically “certified” in order to constitute a false claim
Ways in Which a False Claim Can Arise
Reverse False Claims
̶ When a contractor “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government or knowingly conceals or knowingly or
Qui Tam
Relators (whistleblowers) can bring a qui tam action and
receive a portion of amount recovered by government
̶ If government intervenes, relator can receive 15%-25% of full amount of government’s recovery.
̶ If the government does not intervene, relator can pursue case on behalf of government and receive 25%-30% of government recovery.
Qui Tam Payments
2013,
over $345 Million to qui tam relators.
2014
$435 Million
1Q 2015
over $110 Million
Relators can also recover:
̶ Reinstatement to employment position that relator would have had but for any discrimination related to the relator’s action
̶ Two times the amount of any back pay
̶ Interest on any back payments
Direct Contract Not Needed
United States v. DRC, Inc.
(2012 WL 1379833 (D.D.C. April 21, 2012)̶
Liability under the FCA does not require a direct
contract between the Contractor and the U.S.
Government
̶
To establish implied false certification in violation of
the FCA, Government only must establish:
Contract requirement was material
Contractor withheld information about its non-compliance
Contractor withheld information on compliance “knowing”
Recent Enforcements
U.S. ex rel. Joshua Harman v. Trinity Industries Inc. et al. (E.D.
Texas.(2015):
̶ 2014 - Jury Verdict for $175 million in damages
̶ June 2015 judge tripled that award to $525 million and then added a civil penalty of $138 million — $8,250 for each of the 16,711 false
certifications Trinity made to the federal government.
̶ Trinity Highway Products, LLC manufactures the ET Plus (highway guard rails) pursuant to exclusive licensing granted by the Texas A&M University System
̶ Trinity modified the guardrails it had sold to the federal government for use on federal highways but did not disclose those modifications, as required by law.
Recent Enforcements
CH2M Hill Hanford Group Inc. (2013):
̶ Settlement for $19 million for false claims under a contract with U.S. Department of Energy for a cleanup project in Hanford, Washington
̶ CH2M admitted that between 1999 and 2008, its hourly employees routinely overstated the number of hours they worked cleaning up the Hanford site.
̶ CH2M also admitted that its management condoned the inflated hours and submitted similarly inflated claims.
The company’s hourly workers would only perform overtime work if the overtime was offered in 8 hour blocks
The hourly workers would falsely claim all 8 hours of overtime even though the job took less than 8 hours and CH2M would be reimbursed by the DOE; Supervisors and upper management failed to discipline these workers and
tried to hide the practice;
Recent Enforcements
Anixter International Inc., Corning Cable Systems, &
American Systems Corporation (2013):
̶ Settlement for $3 Million and Corporate Integrity Agreement.
̶ 2009 CIA contract to provide supplies & services.
̶ Employees of the 3 contractors provided bribes to CIA
employees and consultants to obtain priority assignment of contracts.
15
Date Company Settlement Contract Type
4/9/2015 Sprint Communications Inc. (N.D. Cal.)
$15,500,000 Billed unallowable costs 4/8/2015 Air Ideal Inc. (M.D. Fla.) $250,000 False statements HUBZone 3/12/2015 Hencorp Becstone Capital L.C.
(D.D.C. )
$3,800,000 False statements to obtain grants
2/25/2015 MetLife Home Loans LLC (D. Colo)
$123,500,000 Mortgage loans that did not meet requirements 3/12/2015 Lend Lease Construction, Inc.
(E.D. Va.)
$400,000 Underpaid its workers 3/23/2015 Fireman's Fund Insurance Co.
(W.D.N.C. )
$44,000,000 Ineligible policies 3/31/2015 Robinson Health System, Inc.
(N.D. Ohio)
$10,000,000 Kickbacks, Stark violations 4/9/2015 Health Diagnostics Laboratory
Inc. (D.S.C.)
Why The Concern?
Recent years, DOJ and OIG scrutiny with increased
risks and prosecutions:
̶ Congressional edicts
̶ FCA increased penalties and incentives
̶ State false claims acts
̶ State AG consumer fraud divisions
The costs can be staggering:
̶ Investigation and government costs
̶ Penalties per claim/ Treble Damages
̶ Defense costs and fees
But, I Have Insurance Coverage
̶ Errors and Omissions (professional liability)
̶ Directors & Officers Liability
Definition of Claim
Definition of “Loss” Exclusions
Have You Reviewed These
Insurance Provisions?
̶ Fraud Exclusion
̶ Intentional Acts, Gross Negligence Exclusions
̶ Contractual Liability Exclusion
̶ Exclusion for Illegal Profit/Advantage
̶ Exclusion for Billing
̶ Exclusion for Claims Made by an Insured
̶ Professional Services definition in E&O
̶ Rescission Clause
̶ Allocation Provision
̶ Side C” Coverage Option
Do You Have Indemnity Agreements
with Third Parties to Protect Your
FCA Exposure
Indemnity
– where one has the obligation to pay for a
loss or damage that has been or might be incurred by
another.
Indemnity and the FCA
By statute
– not under the FCA
By common law
– not if just shifting FCA liability;
against public policy
Indemnity and the FCA
Courts do not allow common law indemnity claims if
all they do is seek to shift FCA liability:
Mortgages, Inc. v. US Dist. Ct., 934 F.2d 209 (9th Cir.
1991) (per curium)
U.S. ex rel. v. Puchalski, 906 F.Supp.2d 451 (D. S.C.
2012) (following Mortgages)
But chances improve with damages independent of
FCA liability
Indemnity and the FCA
With contractual indemnity there is a better chance
No court has held that the FCA bars a party from
trying to enforce contractual indemnity
Example
Conclusion
Government increasingly aggressive about contractor
fraud
̶ Congress has taken multiple measures to strengthen FCA
̶ DOJ more aggressive in pursuing enforcement and what constitutes a false claim under FCA
