United States: False Claims Act: 2016 Year-in-Review

INTRODUCTION: HIGHLIGHTS AND TRENDS

In 2016, the Department of Justice (DOJ) continued to give high priority to False Claims Act (FCA) investigations and prosecutions. The government brought in more than $4.76 billion in settlements and judgments, nearly a billion dollars more than the previous year. Healthcare cases, including ones involving drug and device companies, again accounted for the lion's share at roughly $2.6 billion. Department of Defense cases dropped to approximately $122 million, with non-healthcare and non-Defense cases jumping to $2.04 billion. That increase reflected both a continued focus on financial institutions and the mortgage lending industry, with approximately $1.6 billion in recoveries there, and an increase in non-Defense procurement recoveries. In 2016, more than 700 new qui tam cases were filed, up over 2015's 630.1

The Supreme Court Weighs In: Implied Certification, Materiality and the Seal Provision

In Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the Supreme Court unanimously upheld the "implied certification" theory of liability in some circumstances, holding that liability can attach if the defendant submits a claim for payment that makes "specific representations about the goods or services provided, but knowingly fails to disclose the defendant's noncompliance with a statutory, regulatory, or contractual requirement." Id. at 1995, 2001. The Court limited liability, however, to circumstances in which the defendant knows that its non-compliance "is material to the Government's payment decision." Id. at 1996. The Court emphasized that materiality is a "rigorous" and "demanding" standard, one that cannot be met if "noncompliance is minor or insubstantial." Id. at 1994, 1996. The Escobar decision is already having significant effects on FCA litigation in many courts.

In State Farm Fire and Casualty Company v. United States ex rel. Rigsby, 137 S. Ct. 436 (2016), the Supreme Court held that a relator's violation of the FCA's seal requirement, 31 U.S.C. § 3730(b)(2), does not mandate dismissal of the action. Instead, the Court held, it is within the district court's discretion to determine whether a violation of the seal requirement warrants dismissal.

The Courts of Appeals

In 2016, the federal appellate courts continued to deal with the perennial issues of FCA litigation—the public disclosure bar and the original source exception, the level of particularity required for fraud allegations under Federal Rule of Civil Procedure 9(b), the appropriate measure of damages in circumstances where there are disputes over the value of the product or services rendered, and, of course, the FCA's materiality standard in light of Escobar.

The circuit courts also addressed some less-frequently litigated issues this past year— including the question of successor liability for FCA violations, and the level of certainty required to trigger liability for "reverse" false claims (i.e., cases in which the defendant is alleged to have failed to pay on an obligation owed to the government).

Thus, in United States ex rel. Bunk v. Government Logistics N.V., 842 F.3d 261 (4th Cir. 2016), the government intervened in a qui tam suit that sought to impose successor liability on a corporation created after its predecessor had been found criminally liable in a bid-rigging scheme; the Fourth Circuit held that courts should apply traditional common law principles of successor liability, given the FCA's silence on the issue.

With respect to "reverse" false claims, the Fifth Circuit held that there is no FCA liability for contingent penalties that the government has not yet imposed. See United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co., 843 F.3d 1033 (5th Cir. 2016). The Fifth Circuit reasoned that the statutory reference to an "established" duty precluded liability for contingent obligations that the government had not yet asserted.

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