The U.S. Department of Justice, Civil Division has published a substantial amount of data on the historical success of whistleblower cases and investigations. The statistics show that whistleblower litigation under the False Claims Act (often referred to as “quit tam” litigation) continues to be the government’s primary weapon in combating fraud.
When the Coronavirus Aid, Relief, and Economic Security Act (CARES) was adopted on March 27, 2020, businesses welcomed the prospect of receiving COVID-19 financial relief through the Paycheck Protection Program (PPP). The PPP was layered atop the SBA’s existing Section 7(a) loan program, through which the federal government guarantees loans issued by qualified lenders to eligible business borrowers. The PPP program temporarily relaxed several criteria for obtaining an SBA loan, greatly expanding the availability of the lending program to a wider range of businesses. While clearly broader, the criteria for eligibility and the implications of the “necessity” certification weren’t quite so clearly defined, and left open many unanswered questions. But the prospect of “free money” by way of loan “forgiveness” induced countless businesses to submit loan applications at the earliest opportunity, beginning in early April 2020, despite the uncertainties.
Fiscal Year 2019 was another banner year for False Claims Act recoveries, with the DOJ obtaining more than $3 billion in settlements and judgments under the Act. Of that amount, $2.6 billion came from the health care industry, and this is the 10th consecutive year that health care fraud settlements and judgments have exceeded $2 billion.
The United States Supreme Court may be poised to hear another case involving the False Claims Act.
On June 16, 2016 the United States Supreme Court issued a unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ___, No. 15-7 (June 16, 2016), finding the “implied certification” theory of legal falsity under the False Claims Act (“FCA”) viable in some circumstances. This controversial theory, under which courts have allowed liability in circumstances where defendants have failed to disclose noncompliance with relevant statutory, regulatory, or contractual requirements, is now still viable, albeit in more limited form.
A recent decision from the U,S. District Court for the District of Columbia illustrates the power of the government to block False Claims Act settlements between relators and defendants. United States ex rel. Landis v. Tailwind Sports Corp., 2015 U.S. Dist. LEXIS 46140 (D.D.C. April 9, 2015) involves former professional cyclist Floyd Landis, who brought FCA violations against Lance Armstrong and other defendants, including Armstrong’s agents and their company, called Capital Sports and Entertainment. The case was based on Landis’s allegations that defendants submitted claims for sponsorship payments to the U.S. Postal Service while knowing that the team had been using performance-enhancing drugs in violation of the sponsorship agreement.
False Claims Act practitioners at recent gatherings seem to agree that research grant fraud will be a growing area of whistleblower activity. As the government spends more on research grants related to health care, frauds are expected to increase as well. Qui tam relators will follow.
Research grant frauds can take many forms, ranging from failure to comply with regulations and grant conditions to false grant applications and fabricated results and data. The FCA bar expects increased whistleblower activity in this area in coming years.
JPMorgan Chase recently agreed to pay over $600 million in its settlement of a case brought by the federal government, including HUD, FHA, and the VA, according to a February 2014 stipulation and order of settlement and dismissal entered by the Southern District of New York. The case, originally brought by a qui tam whistleblower, alleged that JPMorgan Chase Bank, N.A. engaged in misconduct as to mortgage loans with a connection to HUD, FHA, or VA programs. In particular, the government alleged that JPMorgan Chase Bank approved improper loans, submitted false certifications, entered information into its automated system that lacked integrity, and approved ineligible loans, and, as a result of these items, the government paid claims related to defaulted loans. Among other things, the settlement requires defendants to pay the government $614 million. Defendants obtained a False Claims Act release in the settlement agreement, and the agreement recognized that a relator’s share of the government’s recovery would be forthcoming.
John Sinatra is a partner in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
The Second Circuit Court of Appeals today allowed a False Claims Act case brought by two whistleblower relators, represented by a team of Hodgson Russ attorneys led by me and my colleague Daniel C. Oliverio, and including Reetuparna Dutta, to proceed against DHL. In this case, the relators allege that DHL violated the FCA by improperly applying jet fuel surcharges to government shipments that it transported solely by ground. DHL’s motion to dismiss had been granted by the trial court on the basis of a 180-day “contest” provision in the transportation law. In vacating that dismissal, the Second Circuit ruled that the False Claims Act’s seal requirements and statute of limitations trump the contest provision, stating that “the 180-day rule cannot apply to a qui tam action under the FCA.” The action, United States ex rel. Grupp and Moll v. DHL Express (USA), Inc., will proceed in the Western District of New York.
My colleagues and I look forward to engaging in discovery to quantify DHL’s false claims and the resulting damages.
John Sinatra is a partner in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
In recent years, elected and appointed members of the federal government and others have estimated that seven percent—or as much as 15 percent or 20 percent—of federal spending is consumed by fraud. With the federal government spending $3.8 trillion a year, even seven percent lost to fraud equates to a quarter of a trillion dollars a year. That’s more than $800 per American, per year lost to fraud. As the government spends more and more each year, the False Claims Act and the qui tam whistleblowers it incentivizes become more and more important. In fact, the Justice Department is recovering record amounts under the False Claims Act—$5 billion alone last year. But as the scale of these recoveries demonstrates, there is still a lot of fraud left every year for whistleblowers to uncover and report.
John Sinatra is a partner in the Business Litigation Practice at Hodgson Russ LLP. You can reach him at jsinatra@hodgsonruss.com.
Relators who have claims based on frauds that extend farther than the False Claims Act’s statute of limitations are in for good news—a recent decision regarding the Wartime Suspension of Limitations Act may mean that claims that would have been time-barred under the False Claims Act may still be actionable.
A False Claims Act case can be brought by a whistleblower (relator) to recover funds on behalf of the federal government. The government then has the option to “intervene” and proceed with the action. If the government does intervene, it has the primary role in prosecuting the action, although the relator remains entitled to a percentage of any recovery. Even if the government declines to intervene initially, it can later intervene upon a showing of “good cause.”
The Justice Department yesterday reported $4.9 billion in False Claims Act recoveries for fiscal year 2012, which is the largest single-year recovery in history.
The recoveries spanned several sectors of the economy. In the health care arena, the Justice Department reports that, “[e]nforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year.” The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs.” The recoveries from major pharmaceutical companies addressed several drugs allegedly marketed for off-label use. They also addressed cases involving the alleged payment of kickbacks to physicians to prescribe certain drugs. Some of the cases addressed alleged false and misleading statements concerning drug safety and the alleged underpayment of rebates owed under the Medicaid Drug Rebate Program, and they include cases alleging inaccurate, unsupported, or misleading statements about drug safety to increase sales.
While the federal False Claims Act gets the big headlines and the correspondingly big recoveries, it is important not to forget that a number of states have their own false claims acts under which relators can bring claims that also have the potential for significant monetary recoveries. States with these acts tend to fall into two categories: states with generally applicable false claims acts (like the federal law) and states that limit their acts to health care fraud.
In what may be a sign of future whistleblower-driven litigation facing the mortgage industry, the federal government brought a False Claims Act suit on May 3 against Deutsche Bank and a subsidiary it acquired in 2007, MortgageIT, Inc., alleging that they “repeatedly lied to be included in a government program to select mortgages for insurance by the government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments.”
The government’s complaint alleges false certifications made to the Department of Housing and Urban Development (HUD) in connection with MortgageIT’s mortgage origination and sponsorship practices. The FHA has paid insurance claims on more than 3,100 mortgages, totaling $386 million, for mortgages endorsed by MortgageIT.
Recent government tallies reveal a surge in False Claims Act filings. By fall of last year, there were 1,246 qui tam cases under seal at the Department of Justice (DOJ) (i.e., pending investigation into whether the government will intervene). That number has grown by almost 100 cases as of last month. This growing caseload is reflected in the raw number of 2010 qui tam filings—over 500—which represents a dramatic 51 percent jump from the number of whistleblower cases filed just two years earlier.
The recent regulatory reform package known as the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the Securities and Exchange Commission to pay bounties to whistleblowers whose information results in a monetary recovery. In cases involving valuable information concerning securities fraud, the whistleblower payment can be as high as 30 percent of the total recovery. There is good reason to believe that these bounty provisions will extend to cases involving violations of the Foreign Corrupt Practices Act of 1977 (FCPA), which broadly prohibits the payment of bribes to foreign officials for the purpose of obtaining government contracts; securities fraud occurs because the bribes are seldom, if ever, properly accounted for on a company’s books. Recent FCPA cases have resulted in recoveries in the tens of millions of dollars.
The National Law Journal recently published an article about the increase in whistleblower lawsuits that are based on a “false marking” theory of liability in the wake of the recent appellate court decision in The Forest Group Inc. v. Bon Tool Co. The “false marking” theory of liability encompasses labeling products or packaging with an expired patent or one that doesn’t cover the product’s technology. This decision is bad news for companies with patents.