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Damages Attacks on FCA Ineffective

Yesterday, in U.S. v. Rogan, 2008 U.S. App. Lexis 3508 (7th Cir. Feb. 20, 2008), Chief Judge Easterbrook of the Seventh Circuit wrote a unanimous opinion addressing materiality and three damage issues that FCA defendants have been pushing all over the country.  Coming from a paragon of the University of Chicago with its world renowned economic analysis of the law, the materiality and damage analysis is very persuasive and poignant.

The case involves an FCA action by the U.S. against the manager (and financial beneficiary) of a company involved in illegal kickbacks for referring Medicare and Medicaid patients.  Rogan wanted to expand the materiality aspect of the FCA to require live testimony from a government employee “that the government was sure to enforce the statute.”  The Court rejected the expansion because it undermined the point of the statute, which was to protect against gullible, careless, overworked, harried, or inattentive government employees.

The Court in error next suggested that reliance is an element of an FCA case, but made it indistinguishable from the materiality requirement.

Defendants are wont to argue that while they do not qualify for payment, because services were rendered for which payment would have been made under other circumstances, the government is not damaged in the value of the services.  This issue should have been foreclosed by Peterson v. Weinberger, 508 F.2d 45, 52-53 (5th Cir.), cert. denied, 423 U.S. 830 (1975), but FCA defendants continue to argue some variation of this.  The unanimous panel completely rejected this argument as Medicare and Medicaid are not payments for services, but rather subsidies for patients.  Moreover, when the conditions of payment are not satisfied, the entire amount of money received must be paid back.

The Court also allowed for statistical analysis–rejecting the argument that every element be proven for every claim.  The Court properly saw this as a “formula for paralysis.”

Finally, the Court passes on the issue of excessive fines, but provides some indication of where it will go on the Amerigroup appeal.  The opinion starts properly with the suggestion that the excessive fines clause might well not apply to civil actions under the FCA.  The opinion also properly focuses on the conduct that is penalized.  The third promising part of the analysis is that it indicates that there is a deference to Congress’s assessed penalties (as opposed to ad hoc jury assessments).  Indeed, the Court proposes, in the frame of economic analysis, that because this type of fraud is so hard to detect, the penalty might very well be too low.  However, the Court does seem to get confused by mentioning the Supreme Court’s analysis of proportionality of punitive damages under the Fifth Amendment, since the excessive fines comparative is to the category of bad acts assessed by Congress and not to the individual damages proven at trial (as in a punitive damages case).

Substantive Rule 9(b) Now Per Curiam

Today, an unpublished opinion by the Eleventh Circuit was picked up and electronically circulated by LexisNexis.  In the case, Mitchell v. Beverly Enterprises, Inc., Civil Action N0. 07-12055, 2007 U.S. App. Lexis 21794 (11th Cir. Sept. 7, 2007), there is a very short per curiam affirmance of a lower court’s dismissal on Rule 9(b).

Citing to its own breathtakingly bizarre precedents introducing the substantive Rule 9(b) to the FCA context, Clausen and Corsello, the Eleventh Circuit summarily affirms the lower court’s decision.  Even though the complaint alleges that the Relator observed and participated in the billing process, even though the complaint alleges billing procedures that take the information and pass it thorugh to bills to Medicare without alteration, and even though in Clausenwhere this entire mess began the Court said that this type of indicia of reliability of the claim that bills were submitted would be enough (and specifically mentioned billing policies), this case was summarily dismissed.

The disingenuous nature of the substantive Rule 9(b) cases as applied to the various complaints is found in the final paragraph of the opinion.  “[W]e agree with the district court that Mitchell did not assert that Beverly actually submitted false clalims to Medicare with sufficient particularity and the required reliability to meet the standard under Rule 9(b) for complaints under the False Claims Act.”  (emphasis added).  In other words, because the plaintiff failed to present proof of the “assertion” in the complaint, it wasn’t “specific” enough.  For fifty years, plaintiffs were expressly protected from having to prove their case at the pleading stage.  Now, without proof of the most elusive allegation in the complaint, they are summarily discharged.

Turning the Tide on Rule 9(b)

Our firm recently had a huge victory in the battle to have FCA cases decided on their merits.  Up to this point, courts had been more and more tightly focusing on form over substance and, in our estimation, turning 50 years of American jurisprudence on its head.  Courts are demanding “proof” at the pleading stage and asking for “evidence” of things that whistleblowers usually do not have access to, thus dismissing countless meritorious cases, undermining Congressional intent in amending the FCA in 1986, and letting legions of people and companies who have cheated U.S. taxpayers keep their ill-gotten gains.

The underlying premise of the overreaching Rule 9(b) analysis comes from the Clausen case where the Court boldly stated that the presentment of a claim was the “sine qua non” of an FCA action.  One glaring problem with this analysis is that the submission of a claim is only required for a claim under 31 U.S.C. 3729(a)(1) and there are six other subsections.  In the Sanders case in the Sixth Circuit, this distinction was laid bare.  Therefore, our firm argued that for any claims under 3729(a)(2) or (a)(3), the Rule 9(b) analysis requiring proof of a claim did not apply.

The case is a very substantial case against the largest government contractor in the United States for what was the largest government contract–the Lockheed Martin F-22 fighter jet.  The opinion in U.S. ex rel. Howard v. Lockheed Martin Corp., Civil Action No. 1:99-CV-285 (S.D. Oh. June 28, 2007) can be found at 2007 WL 1893215 and 2007 U.S. Dist. Lexis 47029.  In following our firm’s argument, the Court held that as to the (a)(1) claims, those would be dismissed with the expectation that they would be renewed as soon as discovery provided a claim and as to the (a)(2) and (a) (3) claims, they would not be dismissed.

It is time for courts across the nation to get back to the roots of American jurisprudence in the era of the Federal Rules of Civil Procedure as identified in cases such as Conley v. Gibson, 355 U.S. 41 (1957) and Foman v. Davis, 371 U.S. 178 (1962).  As the Supreme Court said in Rotella v. Wood, 528 U.S. 549, 560 (2000), in interpreting Rule 9(b) on a motion to dismiss, we cannot ignore “the flexibility provided by Rule 11(b)(3), allowing pleadings based on evidence reasonably anticipated  after further investigation or discovery.”  There should be no more FCA cases thrown out on Rule 9(b) grounds if the pleadings are based on evidence reasonably anticipated after discovery, and, the issue of whether or not the defendant actually submitted a claim to the government is easily determined in discovery.  If the defendant did not submit any claims, there will be no (a)(1) liability.  If they did, it does not make sense to dismiss the case simply because the third-party whistleblower did not get a copy before filing the case.

Louisiana 9(b)–Look Where We Have Come

U.S. ex rel. Brinlee v. AECOM Government Services, Inc., Civil Action No. 2:04-cv-310 (W.D. La. Apr. 25, 2007).  The district court required a repleading to meet Rule 9(b) standards.  Plaintiff attached two documents to the SAC and the court dismissed under Rule 9(b) because “[t]hese exhibits do not prove that the first inventory was never conducted or that the government was billed therefore.”  (emphasis added).  We are now proving things or, as in this case, not disproving the affirmative defense that the defendant alluded to in its Rule 9(b) brief (innocent mistake or negligence rather than fraud), but which was probably never pled because no answer was filed.
In my view, taking all inferences in the light most favorable to dismissal, intent does not have to be pled with specificity and is inherently a jury issue.  Look where we have come.

Bledsoe II

Our firm recently completed oral arguments in the Sixth Circuit on the U.S. ex rel. Bledsoe case.  This is the second time the Bledsoe case has been before the Sixth Circuit.  The issues included FRCP Rule 9(b), alternate remedy, statute of limitations and the dismissal of all claims after determinations that certain claims were viable.  In its portion of the argument, the Government stated that it did not like the Bledsoe I decision and asked that it be overturned.  We hope to have the argument uploaded in a week or two.  The opinion could come in the next few months or just before the end of the year.

Over $1.5 billion in Fiscal 2000

According to the DOJ’s official statistics for the fiscal year 2000, False Claims Act lawsuits brought in over $1.5 billion.  Interestingly, the DOJ counted a settlement with Boeing, which it had previously failed to categorize as an FCA settlement.  Interestingly, DOJ failed to include the Shering-Plough settlement, which was itself nearly one-half billion dollars.