False Claims Act

Issues

In 1985, the U.S. Navy contracted with two shipyards for the production of a new fleet of destroyers. Each destroyer required an electrical generator set to provide electricity. Several companies became involved in the project to build the generator sets. None of these companies billed the federal government, but rather billed the company directly above them in the chain of production. The company directly above them did not include these bills when submitting for payment from the government. This case began when two whistleblowers sued their former employer and other government subcontractors under the False Claims Act. The U.S. District Court for the Southern District of Ohio dismissed their claim after holding that no FCA violation could occur without evidence that the federal government actually relied on a fraudulent bill. On appeal, the U.S. Court of Appeals for the Sixth Circuit held that the case should continue because the False Claims Act does not categorically require proof that the fraudulent bill was actually presented to the federal government. The ultimate decision by the Supreme Court could have important economic consequences for taxpayers, government contractors, and any party who seeks to file suit under the False Claims Act.

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This case asks whether relators can benefit from the longer of the False Claims Act’s two statutes of limitations. The False Claims Act (“FCA”) contains two statutes of limitations, and circuits are split as to whether both statutes of limitations apply to private individuals. Cochise Consultancy, Inc. and the Parsons Corporation contend that, based on a contextual interpretation of the FCA, only the Act’s six-year statute of limitations, from when the cause of action occurs, should apply to relators. Billy Joe Hunt, the relator in this suit, counters that the plain language of the statute permits relators to benefit from the FCA’s three-year statute of limitations, which begins when an official of the United States learns the materials facts of the action, even when the United States is not a party. This case will likely impact the number and costs of suits brought under the FCA.

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Respondent, the United States ex rel. Karen Wilson ("Wilson"), brought a qui tam action against two North Carolinian counties, Graham and Cherokee (collectively the “Counties”), for allegedly filing fraudulent reimbursement claims with the federal government. The Counties argue that, under the False Claims Act, no court has jurisdiction over Wilson's suit, because the State of North Carolina had previously publicly disclosed the information on which Wilson relies in her suit. Wilson counters that the False Claims Act’s public disclosure bar refers only to federal reports, audits, and investigations. In this case, the Supreme Court will decide whether, under the False Claims Act, a publicly disclosed state audit and investigation may preclude jurisdiction over a qui tam action.

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The federal False Claims Act permits private citizens and company employees, known as relators, to bring suit in the name of the United States (known as a qui tam suit) against a corporation that has committed fraud against the government, and to share in any judgment thereon. James Stone, a former engineer for Rockwell International, brought a qui tam suit against Rockwell for environmental health and safety violations at the Rocky Flats weapons facility. However, Rockwell claimed that Stone was ineligible to bring suit because the knowledge he had was not sufficiently “direct and independent” to qualify him as an “original source” under the statute. The Supreme Court’s decision in this case will resolve a split among the circuit courts regarding precisely what level of “direct and independent knowledge” a potential qui tam plaintiff must have to qualify as an original source. The Court’s decision will ultimately affect any business that contracts with the federal government or participates in government programs, and could make it either substantially easier or more difficult for potential whistleblowers to bring suit under the False Claims Act.

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Daniel Kirk, a Vietnam War veteran, filed a qui tam suit against Schindler Elevator Corporation ("Schindler"), alleging that Schindler violated the False Claims Act ("FCA") through its failure to comply with The Vietnam Era Veterans Readjustments Assistance Act ("VEVRAA"). Section 3730(e)(4) of the FCA expressly states that federal courts do not have jurisdiction over claims based upon “public disclosure of . . . administrative . . . report[s] . . . or investigation[s].” Kirk's FCA claim utilized information requested from the Department of Labor under the Freedom of Information Act ("FOIA"). The United States District Court for the Southern District of New York dismissed the case, holding that information obtained through a FOIA request constitutes a “report” or “investigation” under the FCA, but the United States Court of Appeals for the Second Circuit reversed. In doing so, the Second Circuit rejected the Third Circuit’s method of focusing upon the dictionary definitions of “report” and “investigation” and instead adopted the Ninth Circuit’s method of considering the “nature of the [FOIA] document itself.” Schindler appealed, claiming that FOIA responses, by virtue of being produced by federal agencies, are "reports” or “investigations" and therefore fit the FCA public disclosure bar. The Supreme Court granted certiorari to resolve a circuit split on whether a federal agency's FOIA disclosure is a "report" or "investigation" under Section 3730(e)(4).

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Cori and Kerri Rigsby sued State Farm Fire & Casualty Company under the False Claims Act (“FCA”), alleging that State Farm defrauded the federal government while paying out claims related to the damage caused by Hurricane Katrina. The district court and the Fifth Circuit found that the Rigsbys’ attorney violated the FCA’s seal requirement by distributing documents to several news outlets, but declined to dismiss the Rigsbys’ suit after applying a three-part balancing test to evaluate whether dismissal was warranted. The Supreme Court granted certiorari to resolve the circuit split over what standard governs the decision to dismiss a relator’s claim for violation of the FCA’s seal requirement. The United States, on behalf of the Rigsbys, points to the FCA’s test, structure, legislative history, and purpose, to argue that only discretionary sanctions apply to a violation of the seal requirement. State Farm maintains that a violation of the seal requirement must result in mandatory dismissal of the suit, rather than a discretionary balancing test. This decision may affect the prevalence of qui tam FCA suits and the government’s ability to recover from defrauding parties.

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This case asks the Court to determine whether the False Claims Act (FCA), 31 U.S.C. § 3729, which punishes individuals who “knowingly present[], or cause[] to be presented, a false or fraudulent claim for payment or approval,” applies if, regardless of their subjective belief about the lawfulness of their conduct, defendants’ conduct is consistent with an objectively reasonable reading of an ambiguous statute. The United States argues that, under common law and the FCA’s text, when individuals make arguments that they believe are false, they can be liable even if they did not definitively know they were lying. The United States further argues that individuals receiving government funds have a duty to ask for clarification and determine the proper law, and thus are liable for advancing false claims against the government. In opposition, SuperValu argues that an individual’s subjective belief is irrelevant under the FCA because interpretations of ambiguous statutes cannot be objectively verified; thus, an individual is not liable if the statute is ambiguous, and the individual’s interpretation is objectively reasonable. SuperValu also states that, because the FCA is a punitive statute, the burden is on the government to clarify the statute and give individuals notice. This case touches on issues of efficient government fraud prosecution, separation of powers, and Medicare and Medicaid reimbursement.

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Fifty-four days after the Southern District of New York dismissed Irwin Eisenstein's qui tam action against the City of New York, Eisenstein filed a notice of appeal with the Second Circuit Court of Appeals. The Second Circuit asked the parties to brief whether the notice of appeal was timely filed. According to the Federal Rules of Appellate Procedure, parties only have 30 days to file a notice of appeal, and this will be extended to 60 days when the United States is a party.  Eisenstein claimed that, even though the United States declined to intervene, it was a "real party of interest" and therefore he was entitled to the 60 day limit. The City of New York conceded that, while the United States was a "party of interest", they were not a party for the purpose of measuring the timeline on appeal. The Supreme Court granted certiorari to determine whether the relator in a qui tam action is entitled to the extended 60 day time limit for appeal when the United States chooses not to intervene in the action.

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This case asks the Supreme Court to decide whether the government may dismiss a qui tam action over the objections of the relator when the government chooses not to proceed with the action at the outset. Jesse Polansky argues that the text, structure, history, and purpose of the False Claims Act indicate that when the government chooses not to pursue an action at the outset of a case, the relator has the exclusive right to decide whether to proceed with an action or request its dismissal. Polansky maintains that the government cannot retain its right to dismiss after it declines to proceed at the outset. Executive Health Resources, Inc. counters that the False Claims Act allows the government to dismiss a qui tam action at any time because the Constitution vests executive power in the President. Executive Health Resources contends that delegating executive power to relators, as Polansky suggests, would be unconstitutional. The case has significant policy implications because litigating qui tam actions is costly for all parties involved, and a ruling for unrestricted governmental dismissal authority could chill relators from bringing future qui tam actions, whereas a ruling for limited government dismissal authority could burden the government with meritless qui tam actions.

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The U.S. Supreme Court will consider whether the False Claims Act (“FCA”) applies to fraudulent misrepresentation in payment claims due to violations of staffing regulations for medical centers. Petitioner Universal Health Services argues that the basis for liability stemming from the FCA does not allow for the implied certification theory, under which liability may be based on merely filing for payment, and thus should merit reversal of the judgment below. On the other hand, respondent Escobar contends that UHS knowingly and materially committed fraud under the FCA provisions notwithstanding the absence of an express fraudulent statement. This case will determine whether businesses that provide services to the government will be subject to FCA liability and will establish the range of remedies available to qui tam litigants under the FCA.

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