by Author | Apr 3, 2015 | Customs Fraud
Customs Fraud Cases present unique challenges to developing and presenting viable False Claims Act Qui Tam Cases.
“What types of Customs Fraud Cases are suitable for qui tam actions?” The three most common are
(1) falsifying country of origin certificates and labels or mismarking goods (either to evade/minimize import taxes, duties, tariffs and anti-dumping penalties or circumvent US import quotas), often done in conjunction with “transshipping” the goods first to a country that can import them into the United States on more favorable terms,
(2) falsely claiming that goods coming into the United States will not formally enter the commerce of the United States but instead will be transshipped in-bond to another country (for example, Mexico), and
(3) under-reporting the declared “total entry value” of imported goods on entry documents, such as the Entry Summary (CPB Form 7501) and Inward Manifest (CBP Form 7533), and presenting false commercial invoices in support of such false statements. “What types of goods are being imported unlawfully into the United States?” Common categories include clothing, apparel and textiles (often from China), fasteners, produce and seafood, grey market prescription drugs and cigarettes, and other consumer products. “Who are potential targets of Customs Fraud?” These would include: manufacturers, licensed customs brokers, shippers, warehouse operators, wholesalers, retailers and other importers.
US Customs Fraud
“What are the greatest challenges to successful Customs Fraud cases?” There are two main ones. First, there has to be a valid legal theory of liability. It needs to be couched in terms of a “reverse false claim” under the False Claims Act. This means there must be a pre-existing obligation owed to the United States at the time the false claim is presented or the false statement is made. Second, if one is going to include US-based defendants (such as brokers, shippers and warehousers, and most importantly, large wholesalers, retailers and other importers), it is imperative to get solid evidence that the targets’ key employees knew about the unlawful Customs Fraud practices while they were occurring. Often it takes an insider –or access to an insider– to get this kind of evidence.
by Author | Apr 1, 2015 | False Claims Act
Because of a series of mishaps, two deserving whistleblowers recently became victims of an FCA Settlement Gone Wrong. In Dora Figueroa, et al. v. United States of America, two co-relators tried to get relief in a negligence lawsuit alleging that the Government had not properly protected its ability to recover an agreed upon settlement amount that was to be paid over time. The underlying FCA case involved healthcare fraud. There, the defendant ended up defaulting on its obligation to the Government and declaring bankruptcy. Turned out the Government did not properly record a real property deed securing the FCA obligation (it was in the wrong person’s name). After the FCA defendant defaulted on the settlement agreement obligation and declared bankruptcy the Government recovered only part of the agreed upon settlement amount. As a result, the co-relators did not receive their expected relator’s share. In response, they brought the negligence action against the US for not properly securing the FCA debt. On March 27, 2015, United States District Judge Philip S. Gutierrez, in the Central District of California, decided the lawsuit against the relators on summary judgment. The reason: the broad release language in the relator’s share agreement amounted to a waiver.
How could this have been prevented? Relator’s counsel could have taken an active role in ensuring that the deed was properly recorded before signing the relator’s share agreement and/or relator’s counsel could have included language in the release provision saying it did not cover a subsequent action premised on the Government’s negligence in recovering the full settlement amount.
See: Dora Figueroa, et al. v. United States of America, CV 14-2255 PSG (MRWx), United States District Court, Central District Of California.
by Author | Feb 2, 2015 | False Claims Act, Qui Tam
What happens when Whistleblowers Violate The Seal in qui tam cases? Recently, two relators in Georgia found out the hard way: they were lucky to get away with paying a penalty of only $1.61 million for their indiscretions.
Frustrated by the Government’s slow investigation of their allegations, the relators contacted Fox News and shared confidential information with the news organization. Once the defendant found out that the relators had broken the seal order of the court, it sought to get the relators dismissed completely from the case. (Such results are rare but not unheard of in False Claims Act cases.). That would have cost them the entire $43,161,500 they were slated to receive for pursuing a successful non-intervention case against Wells Fargo for allegedly defrauding the Veterans’ Administration by overcharging on closing costs for residential mortgages for veterans.
The lesson here is a simple one: do not discuss your case with anyone other than your attorney because loose lips can cost you $ millions.
For more on this case see: United States ex rel. Bibby v. Wells Fargo Bank, N.A., 2015 U.S. Dist. LEXIS 636 (N.D. Ga. Jan. 5, 2015)
by Author | Jan 26, 2015 | False Claims Act, Qui Tam
“Is there Whistleblower Protection from Retaliation?” is a question I am frequently asked as a Qui Tam Attorney.
Tim McInnis Esq.
The answer is “yes” provided you can meet some basic requirements. Here are ten important questions that will help you and your whistleblower lawyer know if you might have a viable whistleblower retaliation case against a current or former employer.
1. Did your current or former employer (or someone you did work for) do something harmful to you at your job? (Were you: fired, suspended, cut in pay, demoted, not promoted, transferred, ostracized or harassed?)
2. Did at least one of these things happen within the last three years?
3. Prior to the first harmful event had you done at least one of the following: (1) Ask questions or look for evidence about possible fraudulent or unlawful conduct that involved financial or business transactions with an agency or department of the U.S. Government? (2) Tell or report to your employer you thought they were committing fraud or doing something illegal? (3) Refuse to go along with something you thought was improper or illegal or tell others not to do so? (4) Contact government authorities? (5) Threaten or actually start a lawsuit alleging your employer had committed fraud or acted unlawfully?
4. Did your employer know or suspect that you had done any of the things listed above before they took the first adverse action against you?
5. Will you be able to rebut your employer’s likely explanation that what they did to you was for legitimate business reasons? (Saying you were part of a RIF or downsizing, or that you were sanctioned for misconduct, incompetency or not getting along with others.)
6. Do you have witnesses or documents (for example emails) or recordings to corroborate your allegations?
7. Are you sure you didn’t sign anything that might prevent you from suing your employer? (For example: an arbitration agreement, employment agreement, severance agreement, litigation/prior lawsuit release or union contract.)
8. Did you suffer financially and/or in some other way because of what your employer did to you? Have you kept records documenting any losses or expenses or medical issues? And, have you tried to mitigate your losses (such as diligently looking for a new job)?
9. Does your current or former employer still exist and have the resources to pay a judgment? (For example, they are not in bankruptcy or dissolved/out of business.)
10. Are you willing to go through a potentially long and stressful process to get legal redress?
Note: This is limited to whistleblower protection under the federal False Claims Act. There are state and city whistleblower protection laws, as well as ones for specific industries, like transportation, banking and finance, healthcare, energy and environmental protection. Each has its own requirements.
by Author | Dec 28, 2014 | False Claims Act
In yet another FCA Counterclaim Case a federal judge in Philadelphia refused to throw out counterclaims against a former employee who took patient health care information to support her False Claims Act case. United States ex rel. Notorfransesco v. Surgical Monitoring Assoc., 2014 U.S. Dist. LEXIS 172044 (E.D. Pa. 12/12/2014). What is particularly troubling about this case is that the defendant was allowed to proceed on a breach of an “implied fiduciary duty” theory. That would seem to apply to just about any employee working in the healthcare field. However, there is one aspect of Notorfransesco that distinguishes it from most other FCA cases: the relator there may have had other ideas in mind when she originally took the confidential information. The defendant alleged (and the judge had to accept for now) that initially she did so to pass the information along to competitors—not her whistleblower attorney or the government.
Also, bear in mind that just because the judge let the counterclaims go forward to the next phase of litigation does not mean the defendant will prevail on them. The judge himself expressed skepticism that the defendant will ever be able to prove damages. Still, no relator likes having even a meritless counterclaim hanging over his or her head. Unfortunately, the bringing of these counterclaims and the courts’ refusal to dismiss them summarily may become increasingly likely in non-intervened cases.
Practice point: careful thought and planning should go into any effort to obtain and use employer and customer or patient information when developing and filing False Claims Act cases. Quite often there is a better approach that can and should be chosen. One that can substantially minimize the risks of counterclaims like those filed in Notorfransesco.
by Author | Dec 10, 2014 | False Claims Act
Recently, a federal judge in Manhattan ordered a Relator To Pay Defense Attorney’s Fees in an FCA case. The case is United States ex rel. Fox Rx, Inc. v. Omnicare, Inc., 2014 U.S. Dist. LEXIS 166493 (S.D.N.Y. Dec. 1, 2014).
What is noteworthy in Fox Rx is that after the government declined to join the case and before the relator amended the complaint, defense counsel made a power point presentation to relator’s attorney showing why the defendant could not possibly be liable under the FCA. Notwithstanding that showing, relator’s attorney went ahead and amended the complaint and then continued to proceed against the defendant. The amended complaint was subsequently dismissed by the judge. Thereafter, the defendant made an attorney fee application under 31 U.S.C. § 3730(d)(4) and the application was granted. The judge concluded that relator’s litigation conduct became “objectively unreasonable” after the defense counsel power point presentation.
Practice tip: Relators and relators counsel should anticipate that it will become increasingly more common for defense lawyers to propose meeting with them following government declinations in order to talk relators out of going forward on a non-intervened basis, presumably using a power point presentation that could well feature as Ex. A in a subsequent motion for attorney’s fees if the case is later dismissed. Such invitations will have to be thoughtfully considered. Relator’s counsel will have to balance the benefit of receiving information from defense counsel against the risk that relators may face an increased risk of liability for defense attorney’s fees under Section 3730(d)(4).
One way to balance these considerations is to make such a meeting conditioned on the parties signing an agreement that covers what the fact of the meeting and the information exchanged thereat can be used or not used for. The agreement should also require the defendants to agree to “open file discovery” on any factual assertions they make and allow relators access to such evidence before formulating a response to the defendant’s request that the relator voluntarily dismiss the lawsuit.
by Author | Dec 4, 2014 | False Claims Act, Qui Tam
A recent First Circuit appellate court decision makes it clear that “first” in the so-called “First To File Bar” of the False Claims Act, 31 U.S.C. § 3730(b)(5), means “first” not “best” or “better.” Section 3730(b)(5) states that, when a private party files a qui tam action under the False Claims Act, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” In the First Circuit case, the court ruled that a prior qui tam suit against Baxter Pharmaceutical, which had already been settled, barred a second law suit against the company by other relators. The court held that the two suits were similar enough to trigger the first to file bar and it did not matter that the second complaint had many more specific details than the first. The court’s reasoning focuses on whether the first complaint gave the Government sufficient information to start an investigation that could have uncovered the misconduct alleged in the second complaint. If it does the analysis ends there and the second suit must be dismissed.
Practice tip: If there was (or is pending) an FCA case against the same defendant that is similar to the one you are considering you may very well have to forego filing or at least go into it knowing that it is highly likely your second to file case will get tossed.
To read the Baxter opinion see UNITED STATES, EX REL. VEN-A-CARE OF THE FLORIDA KEYS, INC., Plaintiff, Appellee, v. BAXTER HEALTHCARE CORPORATION, Defendant, Appellee, v. LINNETTE SUN AND GREG HAMILTON, Appellants. UNITED STATES, EX REL. LINNETTE SUN; UNITED STATES, EX REL. GREG HAMILTON, Plaintiffs, Appellants, v. BAXTER HEALTHCARE CORPORATION, Defendant, Appellee. No. 13-1732, No. 13-2083, UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT, 2014 U.S. App. LEXIS 22564,December 1, 2014, Decided.
by Author | Nov 30, 2014 | False Claims Act
Are Job Applicants who have blown the whistle at a prior job protected under the False Claims Act from hiring discrimination by prospective employers? Not if they file their cases in Kentucky, Michigan, Ohio or Tennessee. On November 18, 2014, in a case of first impression, the United States Court of Appeals for the Sixth Circuit, in Vander Boegh v. Energysolutions, Inc., held that the FCA protects only current or former “employees” and not “applicants” for future employment. The appellate court reached this conclusion after first noting that the FCA’s anti-retaliation provisions contain only the word “employee” and not the term “employment applicant.” The judges then looked up the word “employee” in two dictionaries and saw that the definitions covered only people who work or have worked for someone, not people who are applying for work. Without saying so, the court in effect blamed Congress for not using more comprehensive terms for who gets whistleblower protection under the FCA. The judges noted that even though Congress had earlier said one of the goals of the FCA is to protect whistleblowers from “blacklisting,” they reasoned that this should be interpreted to mean that only former employers are barred from refusing to hire a person for trying to stop fraud against the Government. Prospective employers can do so with complete impunity—at least in the Sixth Circuit.
Practice tip: The conservative majority on the current U.S Supreme Court favors the “plain meaning” analysis used by the judges in the Vander Boegh case generally, and has relied on a similar dictionary-driven way of deciding cases to limit the scope of the False Claims Act in the past. See, e.g., Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-188 (May 16, 2011) (relying on a dictionary to define “report” and “investigation” to preclude FCA cases relying on FOIA requests). One should therefore expect Vander Boegh to become and remain the law of the land. That is, unless and until Congress decides to “fix” the FCA for the third time since 2009 to redress what it regards as wrong-headed Supreme Court decisions, by adding the phrase “job applicants” to the FCA’s list of protected persons.
To read the Boegh decision see Gary Vander Boegh, Plaintiff-Appellant, v. Energysolutions, Inc., Defendant-Appellee, No. 14-5047, (6th Cir., Nov 18, 2014), 2014 U.S. App. LEXIS 21810.
by Author | Nov 25, 2014 | False Claims Act
Justice Department Announces Receiving Nearly $6 Billion in FCA Recoveries in Fiscal Year 2014
On November 20, 2014, the Department of Justice announced it had recovered $5.69 billion dollars in recoveries under the False Claims Act (FCA) during fiscal year 2014, which ended on September 30. The largest categories were Mortgage and Housing Fraud involving federally insured loans ($3.1 billion), Healthcare Fraud involving hospitals and pharmaceutical companies ($2.3 billion), and the remainder arose from Defense Contractor Fraud and other Government Contractor Fraud.
Almost $3 billion of the FCA recoveries came from qui tam suits filed by whistle blowers (known as “relators”). For their assistance in helping the Government recover money on behalf of the American taxpayers, the relators received approximately $435 million.
To read the Government’s press release go to: http://www.justice.gov/opa/pr/justice-department-recovers-nearly-6-billion-false-claims-act-cases-fiscal-year-2014
by Author | Oct 9, 2014 | False Claims Act
Do you have to prove every single false claim in a large, complex qui tam False Claims Act case, or can you simplify your burden of proof by using EXTRAPOLATION EVIDENCE? This is a very important, hotly contested and evolving legal issue that appears to be heading in favor of relators and the Government.
Recently, this question was addressed by a federal district judge in the Eastern District of Tennessee, in US ex rel. Martin v. Life Care Centers of America, Inc., Case No. 1:08-cv-251. There, the Government wanted to use statistical sampling to show that the defendant, which owned 200 skilled nursing facilities (SNFs), was defrauding Medicare, Medicaid and TRICARE on a large scale by keeping patients in its facilities for longer than was medically necessary, and for other forms of billing misconduct. Specifically, the Government wanted to focus on only 400 patient admissions at 82 centers to establish both liability and damages across the board. Defendant Life Care Centers of America opposed the use of statistical sampling and extrapolation for liability purposes.
After reviewing the legal landscape of cases permitting or denying the use of extrapolation methodology, the Tennessee judge sided with the Government. He appears to be have been greatly influenced by the “sheer scale” of the Medicare program in terms of size and complexity, as well as “the large number of claims that can be submitted by a single entity to be reimbursed by Medicare.” According to the judge, it simply “is often not practicable to do a claim-by-claim review of each allegedly false claim in a complex FCA action.”
Practical pointer: In an appropriate case, it may make sense for relator’s counsel to retain an expert who can devise a sound method for obtaining a statistically representative sample of claims and then extrapolate from those samples to establish both liability and damages.
