The recent settlement of a False Claims Act case afforded SDNY Judge Ronnie Abrams the opportunity to address the standard for redacting a qui tam Relator’s FCA complaint.  Judge Abrams decided that Relator Devin English had not overcome the public right of access to Court documents and denied the motion to redact. 

Relator brought an FCA qui tam complaint alleging the misappropriation of funding allocated by the National Institutes of Health.  The SDNY U.S. Attorney’s Office intervened in part, settling FCA claims against Hunter College and a Hunter psychology professor, and declining to intervene with respect to other individual defendants.  The Government complaint alleged that the professor improperly invoiced personal expenses, that Hunter used NIH funds to pay the professor undisclosed retention bonuses, and that Hunter and the professor submitted false timekeeping records.  The professor and Hunter agreed to pay $375,000 and $200,000 respectively. 

Relator moved to voluntarily dismiss his complaint against other defendants, but also asked the Court to publicly file only redacted versions of the complaint.  Relator sought to have the Court redact the names of four defendants and the substantive allegations identifying those defendants in the complaint, as well as identifying information about those defendants in the case caption, settlement agreements and related documents. 

In addressing the redaction issue, the Court first highlighted the common law right of access to judicial documents, which is “firmly rooted in our nation’s history.”  The Court then stated the Second Circuit’s three-part test for whether documents can be sealed or redacted.

  • Determine whether the documents are “judicial documents;”
  • Assess the weight of the presumption of public access; and
  • Balance competing considerations such as the danger of impairing law enforcement or judicial efficiency and the privacy interests of the movant.

First, the Court found the complaint was plainly a judicial document, even though it had been sealed and was being voluntarily dismissed.  Second, the presumption of public access was high, as the proposed redactions were contextual information and substantive allegations that could shed light on the Government’s decision to pursue some defendants and not pursue others.  Also, the Court noted that in an FCA case, the taxpaying public is effectively the real party in interest. 

Finally, the Court rejected the countervailing interest advanced, that redaction was needed to protect Relator, an assistant professor at Rutgers University, from potential professional retaliation from named defendants, who he considered “luminaries” in his field that could wield influence over grant funding and professional invitations.  The Court held that “the fear of the loss of professional opportunities” was not sufficient to justify the substantive redaction of judicial documents sought by Relator.  Significantly, the Court stated that Relator took a calculated risk in filing the qui tam complaint, presumably undertaking a cost-benefit analysis in choosing to file, risking the possibility of negative attention in the interest of positive attention and money damages. 

Judge Abrams’ decision is a reminder that once a qui tam FCA complaint is filed, Courts are very reluctant to shield its allegations from the public, even if the Relator chooses to dismiss the case. 

The Supreme Court granted certiorari today in a case that will decide two important questions under the False Claims Act (FCA).  In United States ex rel. Polansky v. Executive Health Resources, Inc., the Relator asks the Court to decide:

  1.   Whether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and

2.  What standard applies if the government has that authority.

Relator Jesse Polansky is a former consultant to Executive Health Resources, Inc. (EHR), a company that assists hospitals and physicians in submitting bills to Medicare and other federal healthcare programs.  Petitioner alleged that EHR filed false claims by billing Medicare for inpatient medical services that should have been billed at lower outpatient rates.

The Petitioner filed his FCA qui tam action in 2012, and the United States declined to intervene in 2014.  In 2019, the government moved to dismiss the FCA action, citing the significant burden on government resources if the case continued, the need to protect privileged information, and the government’s doubts about the Relator’s credibility and his ability to prove any FCA violation.

The Third Circuit first decided that the government may move to dismiss an FCA action after declining to intervene, but held that the government must first intervene in the action before moving to dismiss.  The Court of Appeals nevertheless construed the government’s motion to dismiss as including a motion to intervene.

As to the standard to apply, the Third Circuit followed the Seventh Circuit, holding under Fed. R. Civ. P. 41 that a pre-answer government motion to dismiss should be granted as long as the Relator receives an opportunity to be heard, subject only to the bar on arbitrary government action.  After a responsive pleading, the case may only be dismissed by an order in the discretion of the district court, and dismissal should generally be allowed absent some prejudice to defendant, particularly as the government is dismissing a case brought in its name.  The Third Circuit held that the district court had examined all issues including the interests of all the parties, and had not abused its discretion in ordering a dismissal.

The first issue raised by this case, whether the government has the authority to dismiss an FCA case after initially declining, is not likely to give the Supreme Court much concern.  Other circuit courts have held that a motion to intervene is not necessary, and even the Third Circuit deemed the motion to dismiss as including a motion to intervene rather than hold that the failure to move to intervene required reversal.

The second issue, however, the correct standard to apply, has resulted in several different approaches in various circuit courts,   Even the government’s brief opposing certiorari found three separate approaches in addition to the one adopted by the Third and Seventh Circuits.

  • District of Columbia Circuit – The government has virtually unfettered discretion to dismiss an FCA action brought in the name of the United States.
  • Ninth and Tenth Circuits – The government may dismiss an FCA action as long as there is a rational basis for that disposition.
  • First Circuit – The government motion to dismiss should be granted unless the Relator establishes that the decision to dismiss transgresses Constitutional limitations or that the government is perpetrating a fraud on the Court.

By granting certiorari, the Supreme Court will decide the standard for a government dismissal of a FCA action after it declines to intervene, providing clarity to the lower courts on addressing these motions.  The clarification of this standard is particularly important since the 2018 Granston Memorandum encouraged more aggressive use by DOJ attorneys of motions to dismiss in declined FCA actions.

Last week, the EDNY and the DOJ Consumer Protection Branch brought a civil enforcement action against defendants who manufacture and sell an herbal tea product called B4B Earth Tea Extra Strength (“Earth Tea”).  Earth Tea costs $60 for each 16-ounce bottle.

The Government alleges that since April 2020, defendants have falsely advertised Earth Tea on Facebook, Instagram, Twitter, TikTok, and YouTube as being able to prevent and treat COVID-19, even claiming that it is more effective than the available COVID-19 vaccines.  The postings include:

  • EARTH TEA PROVEN TREATMENT FOR COVID-19 WORKS WITHIN MINUTES GET OUT OF QUARANTINE WITHIN 24HRS GUARANTEED.
  • To this day, Earth Tea is the most effective Treatment against #COVID19 as Treatment and Prevention … Get well in 28-48 Hours. 72 Hours MAX.
  • One Bottle is all it Takes! Earth Tea Covid-19 Stopper.

Defendant Andrew Martin Sinclair allegedly stated on YouTube and TikTok videos:

  • “I understand the skepticism … But I’ll say you don’t have to die, you don’t have to suffer … You get this tea, you drink it, you go to sleep and wake up tomorrow … you’re good to go.”
  • “Pour half the bottle in a cup cold and then you drink the other half hot before you go to sleep, all right? Simple…. And then guess what? COVID-19, gone.”

The complaint alleges that the defendants compound their misrepresentations with unsubstantiated claims that there is supporting competent and reliable scientific research, as well as claims that Earth Tea is more effective than vaccination at preventing or treating COVID-19: “Vaccines trial shows preventing hospitalization is 85%-96% while so far Earth Tea Extra Strength is 100%.”

The Government alleges that defendants’ “use of deceptive advertising and misinformation, exploiting fears in the midst of a pandemic to sell their product to concerned consumers, poses a significant risk to public health and safety.”  The complaint alleges violations of the COVID-19 Consumer Protection Act, the Federal Trade Commission Act, and the Federal Food, Drug, and Cosmetic Act, and seeks a permanent injunction, civil penalties and other relief.

As we approach the two-year anniversary of the COVID pandemic shutdowns, we can expect the Government to continue to aggressively prosecute alleged fraud seeking to exploit the pandemic, including alleged attempts to profit from consumer fears.

Last week, EDNY Chief Judge Margo Brodie certified a False Claims Act (FCA) appeal to the Second Circuit.  In United States ex rel. Quartararo v. Catholic Health System of Long Island Inc., the district court found that defendants met the requirements for an interlocutory appeal of the denial of their motion to dismiss FCA misappropriation claims based on violations of a criminal statute governing conversion of benefits or payments under a Federal health care program.

FCA Relator Michael Quartararo, a nursing home administrator at a Catholic Health Services (CHS) nursing home, alleged that CHS had been improperly diverting the nursing home’s Medicaid funds.  Relator alleged that CHS charged the nursing home for medical, administrative, utility, and other costs that either had not been incurred or were overinflated.  These included laboratory costs, workers’ compensation costs, and salary for various staff members.

After lengthy motion practice, the only claims remaining were Relator’s FCA misappropriation claims and his own personal claim alleging retaliation.  In a July 2020 decision, the district court held that “Relator has articulated a viable implied-false-certification argument based on his allegations that Defendants violated section 1320a-7b(a) during a time they were submitting false Medicaid and Medicare reimbursement claims.”

42 U.S.C. § 1320a-7b(a)(4) is a criminal statute providing that “[w]hoever … having made application to receive any [benefit or payment under a Federal health care program] for the use and benefit of another and having received it, knowingly and willfully converts such benefit or payment or any part thereof to a use other than for the use and benefit of such other person” shall be guilty of a felony or misdemeanor.

The district court held that section 1320a-7b(a)(4) could serve as the basis for Relator’s FCA misappropriation claims.  Defendants argued that that criminal statutory provision could not, as a matter of law, serve as the basis for an FCA claim, and sought an interlocutory appeal.

Interlocutory appeals are disfavored in federal litigation.  To certify an interlocutory appeal, the district court must find that:

  • The order involves a controlling question of law,
  • As to which there is substantial ground for difference of opinion, and
  • An immediate appeal from the order may materially advance the ultimate termination of the litigation.

Judge Brodie first held that whether the misappropriation FCA claims may be pursued under section 1320a-7b(a)(4) is a controlling question of law that can be decided without the need to review a factual record.  The court found that the issue of whether defendants misappropriated funds is fact-driven, but the question of whether misappropriation claims may be pursued under that section in a FCA case is a pure question of law.  The district court concluded that if the Second Circuit held that section 1320a-7(b)(a)(4) cannot serve as a basis for Relator’s misappropriation claims, the FCA part of the case would be terminated.

Judge Brodie next addressed whether there was a substantial ground for a difference of opinion, which can exist when there is conflicting authority on an issue or when the issue is particularly difficult and of first impression in the Second Circuit.  The court noted that its case was the only one on this issue in the Second Circuit, and that substantial difference of opinion may exist as to the statute’s interpretation.  In addition, a resolution of the issue could have “broad-reaching ramifications for heathcare facilities.”

Finally, the court found that an immediate appeal may materially advance the ultimate termination of the litigation.  If the FCA claims were dismissed, Relator would still have his own retaliation claim, and that claim would have to be litigated.  The court concluded, however, that even though there may be overlap between the FCA and retaliation claims, a dismissal of the FCA claims would streamline discovery.  In addition, if the Second Circuit ruled for defendants on appeal, the action would be dismissed in substantial part.

The Second Circuit’s decision on this appeal will be interesting in two ways.  First, a decision that section 1320a-7b(a)(4) may serve as the basis for an FCA claim could lead to additional qui tam cases advancing that theory, and a decision on whether the appeal was properly certified will affect district court decisions on whether non-final FCA rulings, as well as those in other areas, should be the subject of interlocutory appeals.

Novartis Pharmaceuticals Corp. agreed earlier this month to pay $678 million to settle an SDNY False Claims Act case. The SDNY alleged that Novartis violated the False Claims Act and the Anti-Kickback Statute by giving doctors cash payments, exorbitant speaker fees, and expensive dinners to induce them to prescribe Novartis cardiovascular and diabetes drugs. The government alleged that for a ten-year period, between 2002 and 2011, Novartis hosted tens of thousands of speaker programs and other events that were a means of providing bribes to doctors.

Novartis made numerous admissions as part of the False Claims Act settlement, including the following:

  • Novartis representatives selected high-prescribing doctors to become speakers and intended that the honoraria paid to them would induce them to continue to write prescriptions for Novartis products.
  • Novartis paid over $320,000 to a doctor who wrote over 8,000 prescriptions for the drugs at issue; over $220,000 to a doctor who wrote over 9,000 prescriptions; and over $200,000 to a doctor who wrote over 3,600 prescriptions.
  • Novartis representatives hosted speaker programs at expensive restaurants throughout the country, intending to induce doctors attending the dinners to write more Novartis prescriptions.
  • More than 12,000 speaker programs had spending that was considerably in excess of the $125 per person limit set by the Novartis compliance policies. Payments at specific events included payments of $448, $521, and $680 per person on food and alcohol.
  • At many speaker programs, sales representatives did not require the speaker to deliver any presentation, or allowed them to click through their power point in a matter of minutes.
  • Some doctors were paid for speaking at events that never took place, and one sales representative arranged for a restaurant to create fake receipts for dinners and used the budgeted funds to distribute gift cards.

The government alleged that the sham speaker programs were disguised bribes that were designed to induce doctors to prescribe Novartis drugs.

SDNY Judge Gardephe adjourned a May 2019 trial in the case as a settlement appeared close.  The government had asserted that at trial it would prove more than 100,000 sham events across the country over a ten-year period, using 121 witnesses, while Novartis listed 54 trial witnesses in its defense.

As part of the settlement, Novartis also agreed to a corporate integrity agreement that will strictly limit speaker programs and reduce the amount spent on those programs.  Speaker programs may only be conducted in virtual format, so the speakers are not in the same location as any audience member.  Also, speaker programs may not take place in restaurants and alcohol may not be served.

The allegations in this case dated to the ten-year period ending in 2011, and pharmaceutical companies have become considerably more careful in the last decade with respect to speaker program expenditures.  Nevertheless, the Department of Justice will continue to aggressively pursue payments to doctors that are viewed as disguised bribes to induce prescriptions.

Compound prescription drugs have increasingly become a target for DOJ health fraud enforcement activities. In early April, the SDNY U.S. Attorney’s Office entered into a civil settlement with two pharmacies and two individuals for submitting fraudulent claims for reimbursement for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute.

Compounding pharmacies prepare prescription drugs in unique formulations, generally for a specific patient. Compounded drugs are viewed as presenting a significant opportunity for fraud as they are not approved by the Food and Drug Administration, so FDA does not verify the safety or effectiveness of the compounded drugs, and the drugs lack an FDA finding of manufacturing quality.

In U.S. ex rel. Jane Doe v. FPR Specialty Pharmacy LLC, two pharmacies dispensed a compounded prescription analgesic cream called “Focused Pain Relief” from their New York facility. They sold it to mail-order customers around the country. The defendants admitted to and agreed to settle claims alleging violations of both the False Claims Act and the Anti-Kickback Statute. The government accepted an ability-to-pay settlement amount of $426,000 from defendants. The one pharmacy that remained in business also entered into a corporate integrity agreement.  The two settlement agreements are here and here.

False Claims Act Violations Related to Licensing

Federal healthcare programs require pharmacies to be licensed in the state where the services are provided. Defendants admitted to violating the False Claims Act in two ways. First, defendants billed for dispensing Focused Pain Relief in states where they were not licensed. Second, they billed for drugs dispensed in states where they had obtained their state license under false pretenses, including the failure to inform state officials of prior dispensing without a license and of one individual’s criminal history.

Anti-Kickback Statute Violations to Induce Additional Billings

The Anti-Kickback Statute prohibits payments or discounts by healthcare providers to induce referrals. For example, healthcare providers such as pharmacies cannot generally waive or reduce co-payments to beneficiaries of federal healthcare programs, and they cannot pay distributors or sales agents based on the volume of sales or referrals. The submission of a claim that violates the Anti-Kickback Statute constitutes a false or fraudulent claim under the FCA.

Defendants admitted to violating the Anti-Kickback Statute in two ways. First, they induced patients to purchase the expensive compounded medications by waiving co-payments. Second, they induced sales representatives to obtain more prescriptions by paying them commissions on a per-prescription basis.

Settlement Shows Aggressive Action For Licensing And Sales Irregularities

The government’s case did not include any allegations that the compound drugs themselves were harmful or ineffective. Nevertheless, the civil prosecution shows that the government will continue to view licensing irregularities as False Claims Act predicates, and will continue to aggressively police healthcare providers’ payments or discounts for referrals, particularly with respect to compound pharmacies.

The corona virus pandemic has presented new opportunities for fraud, particularly against the elderly and vulnerable, and these fraudulent schemes are often carried out through robocalls.

The EDNY U.S. Attorney’s Office recently obtained civil injunctions against defendants alleged to be facilitating massive volumes of fraudulent robocalls to consumers, through a preliminary injunction decision issued by EDNY District Judge Eric Komitee and consent decrees issued by EDNY District Judge Brian Cogan.

The EDNY filed two civil complaints in January against multiple individuals and companies under 18 U.S.C. § 1345, a statute that permits the government to commence a civil action to enjoin an ongoing fraud. These two cases marked the first time the Department of Justice has sought to enjoin telecommunications companies from participating in robocalling fraud schemes under the fraud injunction statute.

The complaints alleged that defendants were operating as intermediate voice-over-internet-protocol (VoIP) carriers.  As intermediate VoIP carriers, defendants were alleged to have received internet based calls from entities abroad and transmitted those calls to other carriers and then to the phones of individuals.  The fraudulent robocalls carried by defendants included calls impersonating government agencies such as the Social Security Administration and the Internal Revenue Service and businesses such as Apple and Microsoft.

The government alleged that individuals making the foreign-based call center robocalls impersonated government investigators and sent alarming messages such as:

  • the recipient’s social security number or other personal information had been compromised or otherwise connected to criminal activity;
  • the recipient faced imminent arrest;
  • the recipient’s assets were being frozen;
  • the recipient’s bank and credit accounts had suspect activity;
  • the recipient’s benefits were being stopped; and
  • the recipient faced imminent deportation.

Many of these calls were also “spoofed” to appear as if the call were coming from U.S. government or business offices. The government alleged that the calls led to massive financial losses to elderly and other vulnerable victims throughout the United States.

In United States v. Palumbo, Judge Komitee found probable cause to conclude that defendants were engaged in “widespread patterns of telecommunications fraud, intended to deprive call recipients in the Eastern District of New York and elsewhere of money and property,” and that there was “no narrower avenue reasonably available to enjoin the fraudulent call traffic on Defendants’ network.” The Court enjoined defendants from operating as intermediate VoIP carriers during the pendency of the civil action.

In United States v. Kahen, Judge Cogan entered a consent decree that permanently barred certain defendants from operating as intermediate VoIP carriers conveying fraudulent robocalls into the U.S. telephone system. The consent decree permanently barred those defendants from using the U.S. telephone system to:

  • deliver prerecorded messages through automatic means;
  • carry calls to the United States from foreign locations; and
  • provide calling and toll-free services for calls originating in the United States.

In a second consent decree, Judge Cogan barred another defendant from conveying fraudulent telephone calls, fraudulent recordings and unauthorized “spoofed” telephone calls.

While these two cases are the first two DOJ section 1345 civil complaints targeting robocalls, we can expect DOJ to expand its use of the fraud injunction statute for robocalls, particularly in light of fraud concerns presented by the coronavirus pandemic.

Last week, in Washington v. Barr, the Second Circuit addressed a case seeking to strike down the federal government’s classification of marijuana as a Schedule I drug under the Controlled Substances Act (CSA). The Court held that plaintiffs had failed to exhaust their administrative remedies before the Drug Enforcement Administration (DEA). Rather than dismissing the case, however, the Court took the unusual step of holding the case in abeyance and retaining jurisdiction to take “whatever action might become appropriate if the DEA does not act with adequate dispatch.”

The Court majority determined that the case was unusual because the plaintiffs were individuals plausibly alleging a life-or-death threat to their health. Plaintiffs included a businessman seeking to expand his medical marijuana business into whole-plant cannabis products; two children with dreadful medical problems asserting that they had exhausted traditional medical options and marijuana had saved their lives; an Iraq War veteran who had managed his PTSD through medical marijuana; and the Cannabis Cultural Association, an organization focused on the way marijuana convictions have disproportionately affected people of color and prevented minorities from participating in the new state-legal marijuana industry.

Plaintiffs did not first bring their challenge to the Schedule I classification of marijuana to the DEA, the agency that has the authority to reschedule marijuana. Although the CSA does not mandate exhaustion of administrative remedies, the Second Circuit agreed that exhaustion is appropriate and consistent with Congressional intent. Congress intended to implement scheduling decisions under the CSA through an administrative process, and requiring exhaustion is consistent with that intent. The Court determined that the question raised by plaintiffs’ suit—whether developments in medical research and government practice should lead to a reclassification of marijuana—is precisely the sort of question that calls for the application of an agency’s special knowledge. Also, the Court held that none of the recognized exceptions to exhaustion, such as futility, inability to grant adequate relief, or undue prejudice, applied.

The Second Circuit gave credence, however, to plaintiffs’ argument that the administrative process might delay their ordeal intolerably.

But in light of the allegedly precarious situation of several of the Plaintiffs, which at this stage of the proceedings we must accept as true, and their argument that the administrative process may not move quickly enough to afford them adequate relief, we retain jurisdiction of the case in this panel, for the sole purpose of taking whatever action might become appropriate should the DEA not act with adequate dispatch.

Thus, if the plaintiffs seek agency review, and “the agency fails to act with alacrity,” plaintiffs can return to the Court under its retained jurisdiction.

Judge Dennis Jacobs agreed that plaintiffs had failed to exhaust administrative remedies, but dissented from the majority’s decision to hold the case in abeyance in case the DEA failed to act with “adequate dispatch.” He viewed DEA as unlikely to discern the majority’s view of “adequate dispatch” or “alacrity,” and did not anticipate a swift ruling given the need for an assessment of countervailing risks, the pendency of legislation, and the eliciting of opinions on issues of medicine and public health. Judge Jacobs also dismissed the cases the majority had cited in supporting its abeyance determination: “None of these cases supports the idea that a court is permitted to hold a case in abeyance because the court may on contingency gain jurisdiction to hear it, and can bully the agency in the meantime.”

As the New York legislature and other states address the issue of legalization of marijuana, the DEA’s assessment of the scheduling issue-and the speed with which DEA makes or does not make that decision-may come before the Second Circuit again.

The Supreme Court today unanimously decided that a relator may take advantage of the longer ten-year statute of limitations under the False Claims Act in a case in which the United States has declined to intervene, as long as the action is brought within three years of Government knowledge of the alleged fraud.  Cochise Consultancy, Inc. v. United States ex rel. Hunt.

The Timing of the Alleged Fraud, Disclosure to the Government, and the Complaint

In his FCA complaint, Relator Billy Joe Hunt alleged that two defense contractors defrauded the Government by submitting false claims for payment under a subcontract to provide security services in Iraq. Relator alleged that the fraud occurred “from some time prior to January 2006 until early 2007.” Relator filed a False Claims Act complaint on November 27, 2013, more than six years but less than ten years after the date of the alleged fraud.

Relator asserted that he disclosed the alleged fraud to the Government in a November 30, 2010 interview, which was within three years of his filing of the complaint.

The False Claims Act Statute of Limitations Provision

The False Claims Act contains two limitations periods for an action asserting that a defendant has presented false claims to the Government, in two subsections of 31 U.S.C. § 3731(b).

  1. Within six years after the statutory violation occurred, or
  2. Within three years after the responsible United States official knew or should have known the relevant facts, but not more than ten years after the violation.

The Court’s decision on the applicable subsection would determine the fate of the complaint: time-barred under the six year limitation period, but timely under the ten year period. Relator conceded that the six-year period did not apply, so the issue presented for the Supreme Court was whether a relator in case declined by the Government can take advantage of the ten-year statute of limitation in 31 U.S.C. § 3731(b)(2).

A Relator Can Take Advantage of the Ten-Year Limitation Period in a Declined Case

Justice Thomas wrote for the Court, beginning with a textual analysis of the False Claims Act statute. The two limitations periods apply to “civil action[s] under section 3730,” which includes suits initiated by either the Government or a relator. As “the plain text of the statute makes the two limitations periods applicable in both types of suits,” the ten-year period applies to relator-initiated actions, as long as the action is brought within three years of Government knowledge of the alleged fraud.

The Court rejected the defendants’ argument that the ten-year limitation period is a default rule of tolling, and should only apply when the Government has intervened as a party. Justice Thomas wrote that this reading was “at odds with fundamental rules of statutory construction.” He noted that a single use of a statutory phrase must have a fixed meaning, and interpretations that would attribute different meanings to the same phrase should be avoided. “There is no textual basis to base the meaning of ‘[a] civil action under 3730’ on whether the Government has intervened.”

The Relator Is Not the “Official of the United States” Whose Knowledge Triggers the Three-Year Period from Knowledge

The Court also rejected the defendants’ fallback argument, that a relator in a non-intervened case should be considered the responsible “official of the United States” within the meaning of section 3731(b)(2), so that the three-year period for bringing an action starts when the relator—and not the Government—knew or should have known of the fraud. Justice Thomas reasoned that a relator is not an “official of the United States” in the ordinary sense of that phrase; the statute’s use of the definite article “the” referring to “the official” suggests Congress did not intend for all private relators to be that official; and private relators are not “charged with responsibility to act” because they are not required to investigate or prosecute a False Claims Act action.

Here, the action was brought within three years of knowledge by the responsible Government official, and less than ten years after the alleged fraud, so it was timely under 31 U.S.C. § 3731(b)(2).  Under this ruling, a relator commencing an FCA action within three years of Government knowledge will be able to reach back ten years for alleged False Claims Act violations.

Earlier this week, the Department of Justice Civil Division announced guidelines for factors to consider and credit to be given in False Claims Act investigations and prosecutions. The guidelines broadly stressed three forms of conduct that may merit credit, including voluntary self-disclosure of misconduct, meaningful cooperation with an FCA investigation, and implementation of adequate and effective compliance and remedial measures. The policy is set out in Justice Manual Section 4-4.112.

Disclosure, Cooperation, and Remedial Action May Merit DOJ Credit Consideration

The policy starts by emphasizing DOJ’s “strong interest in incentivizing companies and individuals that discover false claims to voluntarily disclose them to the government.” Self-disclosing potential wrongdoing that is unknown to the government remains a significant factor for government consideration of credit, although the self-disclosure should be “proactive, timely, and voluntary.” Assistant Attorney General Jody Hunt called voluntary disclosure “the most valuable form of cooperation.” Self-disclosure may also include additional disclosure of misconduct that goes beyond the scope of the original government investigation.

Cooperation with a government investigation may also merit DOJ credit. Illustrative measures cited by the policy include identifying responsible or knowledgeable individuals; disclosing relevant facts from an independent investigation; making officers and employees available for interviews; preserving documents and information beyond what is legally required; facilitating the review and evaluation of information and losses to the government; and admitting liability or accepting responsibility.

Department attorneys will also consider remedial measures, which may include analyzing and remedying the root cause of the underlying conduct; implementing or improving an effective compliance program; disciplining or replacing responsible individuals; and accepting responsibility for the misconduct.

DOJ Attorneys Have Several Avenues To Credit Disclosure, Cooperation, and Remediation

For maximum credit, an entity or individual should undertake timely self-disclosure, identify the involved and responsible individuals, fully cooperate with the investigation, and take remedial steps to prevent and detect similar wrongdoing. Partial credit may also be available in the case of meaningful assistance that does not merit maximum credit.

Under the policy, credit will usually take the form of DOJ attorneys exercising discretion to reduce the penalties or the damages multiple sought by the government.  The maximum credit afforded, however, “may not exceed an amount that would result in the government receiving less than full compensation for the losses caused by the defendant’s misconduct (including the government’s damages, lost interest, costs of investigation, and relator share).”  Credit may also include DOJ notifying a relevant agency about the disclosure, cooperation or remediation; publicly acknowledging the disclosure, cooperation or remediation; or assisting in the resolution of qui tam litigation with a relator.

Other discretionary factors DOJ considers in resolving FCA matters under the policy include:

  • the nature and seriousness of the violation;
  • the scope of the violation;
  • the extent of any damages;
  • the defendant’s history of recidivism;
  • the harm or risk of harm from the violation;
  • whether the United States’ interests will be adequately served by a compromise;
  • the ability of a wrongdoer to satisfy an eventual judgment; and
  • litigation risks presented if the matter proceeds to trial.

The policy includes a number of caveats. The policy does not change the obligation that entities and individuals have under the law to report to or cooperate with the government, such as by disclosing information pursuant to a subpoena or other compulsory process. Cooperation also does not include disclosing information under an imminent threat of discovery or investigation. DOJ also will not award credit if there is concealment of board or senior management misconduct or some other form of bad faith.

The policy states that entities and individuals are entitled to assert all their legal rights and do not have to cooperate with the government, and that eligibility for credit is not predicated on (and does not require) a waiver of attorney-client privilege or work product protection.

As with other policies DOJ has implemented to guide the exercise of discretion in resolving cases, it will be interesting to follow how this policy on False Claims Act investigations and prosecutions will be implemented in practice.