On January 25, in a 2-1 decision in U.S. ex rel. Sheldon v. Allergan Sales, LLC, 2022 WL 211172, the Fourth Circuit became the most recent federal appellate court to hold that the objective scienter standard in the Supreme Court’s Safeco decision applies to the False Claims Act (FCA). Under the Fourth Circuit’s decision, the FCA’s scienter element cannot be met if the defendant’s interpretation of applicable statutory or regulatory requirements was objectively reasonable and no authoritative guidance from a circuit court or government agency warned the defendant away from its interpretation.

Continue Reading Fourth Circuit Adopts Safeco’s Objective Reasonableness Standard for False Claims Act

The Eleventh Circuit has become the first federal court of appeals to directly address whether the Eighth Amendment’s Excessive Fines Clause applies to the monetary award in a declined False Claims Act (FCA) case. And in an opinion issued December 29, 2021, the court held that it does. See U.S. ex rel. Yates v. Pinellas Hematology & Oncology, P.A., __ F. 4th __, 2021 WL 6133175 (11th Cir. 2021).

Continue Reading Eleventh Circuit Becomes First Appeals Court to Hold that Excessive Fines Clause Applies in Declined FCA Cases

To foster open and honest communications with counsel, it is critically important that those communications are protected from disclosure by the attorney-client privilege.  But, not every communication with counsel is privileged, and knowing when a communication with counsel is protected can sometimes prove difficult.  Given an increasingly complex regulatory landscape, more and more attorneys—particularly in-house attorneys—are wearing dual hats as both lawyers and business advisors.  As a lawyer, communications  may be privileged; but if acting as a business advisor, communications may be subject to disclosure.

Since the corporate setting doesn’t lend itself to bifurcating legal and business communications, what happens when the lines are blurred or when a communication serves both purposes?

The “Primary Purpose” Test

Many courts, like the U.S. Courts of Appeal for the Second, Fifth, Sixth, and D.C. Circuits, require that for a communication to be protected by the attorney-client privilege, the “primary purpose” of the communication must be to give or receive legal advice. Attorney-client privilege does not apply to business, commercial, or tax advice.  Under this method of analysis, courts look to the content of a communication to determine its predominant or primary purpose.

Continue Reading Reminder: When Are Communications with Corporate Counsel Privileged?

The U.S. Court of Appeals for the Seventh Circuit recently joined the ranks of every other circuit court of appeal to have considered the issue in holding that the False Claims Act (FCA) requires an objective scienter standard.  Under this standard, defendants who act under an incorrect interpretation of the relevant statute or regulation do not act “knowingly” under the FCA if both of the following are true:

  1. The interpretation was objectively reasonable.
  2. “Authoritative guidance” did not warn the defendant away from their interpretation.

Background on Objective Scienter Standard

The FCA imposes liability on those who “knowingly” submit false claims to the government. The term “knowingly” is statutorily defined to cover defendants who act with “actual knowledge,” “deliberate ignorance,” or “reckless disregard.”

In construing the scienter requirement of the Fair Credit Reporting Act (FCRA) in Safeco Insurance Co. of Am. v. Burr, which punishes “willful” violations, the Supreme Court analyzed the common-law definition of that term and noted that willfulness as a statutory condition of civil liability has generally been understood to cover both knowing and reckless violations of a standard.  The Court then held that a defendant interpreting an ambiguous statute or regulation did not act with “reckless disregard” where their interpretation was objectively reasonable and no authoritative guidance warned them away from their interpretation.

Continue Reading Seventh Circuit Holds FCA Requires Objective Scienter Standard

How should a court evaluate the FCA’s materiality requirement when the government’s ability to deny claims is constrained? According to a recent decision from the Eleventh Circuit, the court should “broadly” consider the government’s “pattern of behavior as a whole,” and may find evidence of materiality in administrative actions that might not support materiality in other cases.

Background

The case, U.S. ex rel. Donnell v. Mortgage Investors Corporation, was brought by two mortgage brokers who specialized in originating mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). Under the program at issue, VA regulations limited the fees and costs lenders could collect from veterans and required lenders seeking VA guarantees to certify compliance with the fee-and-cost restrictions. The relators alleged that the defendant, Mortgage Investors Corporation (MIC), defrauded the VA by charging veterans prohibited fees and falsely certifying they had not done so.

After originating loans and obtaining VA guarantees, MIC typically sold its loans on the secondary market to holders in due course. This introduced an “important wrinkle,” the appeals court noted, because the VA is statutorily required to honor its guarantee when borrowers default on loans possessed by holders in due course.

Continue Reading Eleventh Circuit Broadens Materiality Analysis for Some Cases

The United States District Court for the Northern District of Alabama recently ordered that a relator’s qui tam lawsuit must be unsealed upon the case’s voluntary dismissal, denying the relator’s request to maintain the action under seal post-dismissal. This ruling in U.S. ex rel. Meythaler v. Encompass Health Corporation serves as an important reminder that public access to court records is vitally important and that whistleblowers’ allegations and identities will almost certainly be made public, even where the case is dismissed without litigation.

FCA Complaint Filed Under Seal

The relator, a physician formerly employed by the defendant, filed suit under the False Claims Act (FCA) against an inpatient rehabilitation facility operator and the CEOs of two of its Alabama facilities. The complaint alleged numerous schemes, including allegations that the defendants sought reimbursement for treatment of patients who were not eligible for rehabilitation benefits, delayed discharges and other orders to increase reimbursement, and made improper referrals to a home health agency. Per the FCA’s procedural requirements, 31 U.S.C. § 3730(b)(2), the relator filed his complaint under seal, giving the government a statutory period of at least 60 days to investigate the allegations and determine whether to intervene in the case.

The government declined to intervene in the action last fall. The relator then filed a notice of voluntary dismissal with prejudice, to which the government later consented. The relator also filed a motion asking the court to maintain the action under seal even after the case was dismissed to prevent the defendants from learning that the relator had filed a qui tam action against them. The government took no position on the relator’s motion.

Continue Reading Relator Cannot Maintain Dismissed Qui Tam Action Under Seal, District Court Rules

For several years, courts have wrestled with the question of whether subjective clinical decisions regarding the type and amount of treatment patients may need can be false for purposes of establishing False Claims Act (FCA) liability.  The question of whether the FCA requires a showing of objective falsity has divided appellate courts in a number of recent high-profile cases.

For their part, practitioners have kept a close eye on whether the Supreme Court might bring much-needed clarity to this issue.  On February 22, the Supreme Court declined to do so, denying a petition for certiorari with respect to the Third Circuit’s opinion in U.S. ex rel. Druding v. Care Alternatives.

In Druding, the relators, who were former employees of a hospice provider, filed a qui tam action alleging that the hospice provider submitted false claims by routinely certifying patients who were not terminally ill for hospice care.  During the litigation, the relators’ expert examined the medical records of nearly 50 patients and concluded that the documentation did not support a certification of terminal illness for approximately 35% of those patients.  The hospice provider produced its own expert who testified a physician could have reasonably concluded that the patients at issue were terminally ill and needed hospice care.

Continue Reading Supreme Court Declines to Weigh in on Key Falsity Question

Two partnerships and infighting between relators recently produced a series of difficult questions addressed by the U.S. Court of Appeals for the Third Circuit in In re Plavix Mktg., Sales Practices & Prod. Liab. Litig. (No. II). Three individuals formed a limited liability partnership, JKJ, to bring a qui tam action against Sanofi-Aventis and Bristol-Myers Squibb, pharmaceutical companies that developed and marketed the anti-clotting drug Plavix.

After JKJ filed its qui tam complaint, however, its members had a falling out. One member left the partnership, and the two remaining members created a new partnership, also named JKJ, with a new third member. The old JKJ partnership was dissolved, and the new JKJ partnership filed an amended qui tam complaint.

The defendants moved to dismiss the amended qui tam complaint based on the False Claims Act’s (FCA) first-to-file bar. The first-to-file bar provides that “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” The defendants argued that filing the amended complaint violated the first-to-file bar because the new JKJ partnership was a new party to the action.
Continue Reading Corporate Maneuvering Leads to Thorny First-to-File Bar Issues

The roller coaster ride of U.S. ex rel. Ruckh v. Genoa Healthcare, LLC continues.  In a previous post, we wrote about the staggering $348 million judgment entered following a jury verdict against a management company and skilled nursing facilities (SNFs) owned by Consulate Health Care.  The jury found the defendants committed False Claims Act (FCA) violations by artificially inflating Resource Utility Group (RUG) levels for Medicare therapy patients and falsely certifying that the SNFs had created timely and adequate patient care plans required by Medicaid.  Following the judgment, defendants filed a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b), and as we noted here, the district court judge took the extraordinary step of overturning the judgment on materiality grounds.

In the latest turn, the Eleventh Circuit reversed the district court’s decision in part and reinstated most of the jury verdict.  While the district court, in applying Escobar’s materiality standard, had found “an entire absence of evidence” of materiality, the Eleventh Circuit reached the opposite conclusion, holding that “plain and obvious” evidence of materiality supported a jury verdict of $85 million in single damages.  The appellate court ordered the district court to enter judgment in treble that amount, plus per-claim statutory penalties under the FCA.  That comes to over $255 million.

Continue Reading Eleventh Circuit Reinstates Massive FCA Judgment in Ruckh

On June 25, the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal with prejudice of a qui tam False Claims Act (FCA) suit alleging certain physician compensation arrangements at Trinity Health violated the Anti-Kickback Statute (AKS) and Stark Law.

The relator, a former surgeon at one of Trinity’s hospitals, alleged the following:

  1. Trinity paid five of its highest-earning physicians above fair market value by compensating them in excess of 90th percentile compensation for their specialties at levels not justified by their personal productivity.
  2. The high compensation generated practice losses for Trinity absent taking into account the physicians’ downstream referrals to the health system.
  3. As a result of the physicians’ compensation methodology, they performed unnecessary surgeries to inflate their compensation.
  4. Trinity opted not to renew the relator’s contract because he complained about these allegedly-unnecessary surgeries.


Continue Reading Eighth Circuit Affirms Dismissal of Kickback Case