Few areas of law have seen as dramatic recent change as the False Claims Act (FCA). The trend has largely been increased exposure. Whistleblowers are filing FCA cases nonstop, and plaintiffs are fashioning a wider variety of activities into purported false claims against the Government. FCA claims are also being advanced in a growing list of industries. Whereas FCA allegations used to be a risk mostly confined to the medical and procurement industries, now communications companies, commercial lenders, energy providers, international trade companies, and entities in a variety of other nontraditional industries are routinely FCA targets.1 In this rapidly changing environment, any company doing business with the Government needs to understand what conduct can lead to FCA exposure, along with potential defenses to FCA liability.
Indeed, a company has an arsenal of arguments and defenses at its disposal to push back on meritless FCA allegations. The tools in that arsenal are always changing, however, as the contours of FCA liability continue to evolve. The past half-year has already produced important decisions that have altered the scope and shape of FCA liability and defenses, and there are important decisions to watch during the remainder of 2013. These issues will directly affect the types of conduct that could be construed as a FCA violation, as well as the steps to take to avoid a finding of FCA liability.
Nearly halfway through 2013, there have been many important developments that have altered the landscape of FCA lawsuits. These trends touch on a variety of issues:
- Implied Certification. An emerging and expansive theory of FCA liability, “implied certification,” has continued to take shape. The Government has sought to expand its application to new jurisdictions and types of conduct, but courts are articulating limits to the theory.
- Whistleblower Defenses. Most FCA cases pursued each year are brought by whistleblowers rather than the Department of Justice (DOJ). Whistleblowers’ ability to bring suit is not limitless, however, and there are defenses that a company can pursue to knock out a whistleblower FCA suit in its entirety.
- Government Knowledge. It makes sense that an entity’s claim for payment cannot be false when the Government knows what it is paying for. Several courts have recently agreed, over objections from whistleblowers and DOJ.
- The Wartime Suspension of Limitations Act. Two courts have imposed a significant limitation on the FCA statute of limitations defense, concluding that a long-forgotten law enacted during World War II tolls the FCA’s six-year statute of limitations whenever the country is at war.
- Limits on FCA Penalties and Damages. Every company aims to avoid FCA liability. Courts have recently taken steps to limit the devastation associated with ending up on the wrong side of a verdict, however, especially when the actual harm to the Government is minimal.
Each of these issues has the potential to affect a company’s FCA exposure and the defenses that it should consider if faced with a FCA suit. Of course, a robust compliance program is the first step in avoiding conduct that could give rise to FCA liability under any theory. In discussing the important recent FCA developments, we provide specific compliance and remedial recommendations based on theories of liability and potential defenses that are hot right now.
The False Claims Act
The False Claims Act is the federal government’s primary litigation tool to recover losses resulting from fraud. The FCA subjects a company to civil liability for knowingly submitting a false claim for payment to the Government, using a false record or statement in seeking Government payment, or avoiding an obligation to pay the Government. 31 U.S.C. § 3729(a) (2009). The law is expansive by definition: although it applies to acts committed “knowingly,” knowledge encompasses not only acts taken with actual knowledge of falsity but also those taken with “reckless disregard” or “deliberate ignorance” of the truth or falsity of the information. Id. § 3729(b).
FCA Liability Theories – Pulling Back on Implied Certification Claims
One of the most troubling expansions of FCA liability in recent years is the theory of “implied certification” liability. (See article on implied certification.) False certification liability occurs when an entity falsely certifies that it has complied with a statute, regulation or contractual term that is a prerequisite for payment. Implied certification contemplates that when a contractor submits a claim for reimbursement, that claim submission implies compliance with certain contract provisions or regulations even if they are not expressly represented in the claim for payment. If an entity seeks payment despite failing to comply with applicable regulations or contract provisions, the Government may argue that the implied certification constitutes a false statement subjecting the entity to FCA liability. The doctrine of implied certification has received increased traction in recent years. At the same time, courts have acknowledged that there are limits on when a defendant can provide goods or services in accordance with contract requirements yet nonetheless be held liable under the FCA.
Although implied certification liability has become increasingly popular, not all courts have recognized it. One pending appeal will determine whether the theory gains traction in the Fifth Circuit, which has repeatedly declined to adopt it. In United States ex rel. Steury v. Cardinal Health, Inc., the whistleblower alleged that the defendant made false claims by knowingly selling defective pumps to Department of Veterans Affairs hospitals. The district court dismissed the complaint because the Fifth Circuit has not recognized the implied certification theory. On appeal, the whistleblower urged the Fifth Circuit to adopt implied certification. The Government has joined in this effort by filing an amicus brief arguing that the implied certification theory is not a novel expansion of FCA liability but rather merely a “useful way of understanding” how a claim for payment can be false without containing an expressly false statement. As in its amicus brief in United States ex rel. Rost v. Pfizer, Inc., discussed below, the Government is pushing for an expansion of implied certification liability while arguing against a rigid theoretical definition of implied certification, which the Government contends confuses the issue of FCA liability more than it helps resolve it.
Several other pending and recently decided cases test the reach of implied certification claims under the FCA in jurisdictions that have adopted the theory. The Sixth Circuit recently limited implied certification claims based on noncompliance with complex regulatory regimes. In United States ex rel. Hobbs v. MedQuest Assocs., Inc., the district court found the defendants, a medical diagnostic testing company and related entities, liable on summary judgment for submitting nearly 1,300 false claims because they failed to comply with various Medicare regulations. The Sixth Circuit reversed this decision in April, finding that the complex Medicare regulations were conditions of participation in, but not payment from, Medicare and thus could not give rise to false claims. In reaching this decision, the court cited a recent Sixth Circuit case for the proposition that the FCA, with its “hefty fines and penalties,” “is not a vehicle to police technical compliance with complex federal regulations.” Hobbs highlights how implied certification liability can lead to massive penalties for failure to comply with complex and technical regulations, and signals at least one appellate court’s reluctance to levy the FCA’s damages and penalties where the defendant did not engage in fraudulent conduct.
Another pending appeal tests the limits of implied certification liability based on alleged kickbacks. In Rost, the whistleblower appealed a grant of summary judgment for Pfizer on his implied certification claim arising from alleged kickbacks to physicians in return for prescribing a Pfizer drug. The district court concluded that implied certification liability does not apply to a payer of kickbacks where the person who submitted the claim—in this case, pharmacists—had no involvement in the kickbacks, and where there was no express certification of compliance with the Anti-Kickback Act (AKA). The Government has filed an amicus brief in the appeal supporting the whistleblower and arguing that the distinction between express and implied certification should be discarded in favor of a more flexible approach that focuses on the defendant’s culpability rather than applying a rigid test. The Government argues that “an entity that knowingly causes the submission of kickback-tainted claims to Medicare or Medicaid cannot avoid liability under the FCA simply because such claims are submitted by ‘innocent’ third parties,” and that Pfizer is liable because its misconduct “caused” the submission of false claims, regardless of whether its conduct meets the elements of an implied certification claim.
A company can take proactive steps to limit the chances that its payment requests—and accompanying certifications—lead to FCA liability. The company should be mindful that even activities seemingly unrelated to performance of a government contract could give rise to FCA liability. A robust compliance program is crucial for all aspects of the business: anything from an organizational conflict of interest to a failure to adhere to federal wage requirements can give rise to potential FCA exposure. Moreover, documentation of well-drafted and properly implemented policies can bolster defenses to FCA liability. For example, a company’s ability to demonstrate that its compliance program was adequate and that its employees took steps to adhere to it will go a long way in helping demonstrate that the company did not act knowingly or recklessly. Of course, frequent review of policies in place is critical to ensure continuing compliance. A company should also be mindful, as it negotiates contracts with the federal government, to clearly identify which terms of the contract are conditions of payment. Such advanced precaution could help ward off turning a minor breach into a full blown FCA suit, as many courts have found that only violations of contract terms explicitly connected to payment can give rise to FCA liability. If faced with a lawsuit premised on implied certification liability despite best practices, however, a company needs to assess whether any limitations on the theory apply. Further, while a company generally cannot control where a plaintiff will pursue FCA litigation, a change of venue may be an option to explore, assuming appropriate factual basis.
Defenses to Whistleblower FCA Actions – Traditional Defenses Getting Clearer
There are also significant pending developments that will apply to FCA cases brought by whistleblowers. Although FCA suits can be initiated by the Government, the FCA also allows private persons to file suit for violations of the FCA on the Government’s behalf. 31 U.S.C. § 3730(b). Specifically, the FCA’s qui tam provisions allow citizens with original knowledge of false claims for payment made to the Government to file suit against the company that made the claims—often an employer or previous employer of the whistleblower—and obtain a share of the Government’s recovery. In recent years, the lion’s share of FCA cases has been brought by whistleblowers, rather than directly by the Government. Indeed, in the first three quarters of 2012, FCA cases were over five times more likely to be brought by whistleblowers than by the DOJ acting alone. See Department of Justice, Civil Division, Fraud Statistics—Overview (Oct. 24, 2012). However, there are statutory limits on the circumstances under which whistleblowers can bring suit that are meant to prevent individuals from bringing suits duplicative of those of which the Government is or should be aware.
As part of its initial case assessment, a company subject to an FCA suit brought by a qui tam whistleblower should determine whether there are any automatic prohibitions on the whistleblower’s suit. Although there are many such limitations, which should be discussed more fully with counsel, the following are two often-used defenses to qui tam suits undergoing recent developments:
A handful of recent cases implicate the first-to-file bar, which prohibits a qui tam action based on allegations similar to those previously made by a different whistleblower. (See article on first-to-file rule.) In United States ex rel. Heineman-Guta v. Guidant Corp., the First Circuit decided an issue of first impression: whether a first-filed complaint must describe the fraudulent conduct with particularity and meet other pleading requirements in order to bar a later-filed complaint based on similar allegations. The whistleblower appealed the lower court’s dismissal of her qui tam action based on an earlier-filed complaint that was dismissed for failure to plead with particularity. In late May, the First Circuit upheld dismissal, concluding that an insufficiently particular complaint can still give the Government adequate notice of the alleged fraud as long as it provides the “essential facts.”
Appellate circuits are split on whether a first-filed complaint must meet pleading standards to raise the first-to-file bar. In 2009, the Sixth Circuit held in United States ex rel. Poteet v. Medtronic, Inc. that a complaint “must not itself be jurisdictionally or otherwise barred” in order to bar a later-filed complaint based on similar allegations. The District of Columbia Circuit reached the opposite conclusion in 2011, holding in United States ex rel. Batiste v. SLM Corp. that “a complaint may provide the government sufficient information to launch an investigation of a fraudulent scheme” even though it is insufficient to withstand dismissal.
Recent district court cases have further shaped the contours of the first-to-file rule. For instance, in United States ex rel. Shea v. Verizon Bus. Network Servs., the District Court for the District of Columbia held that the whistleblower’s qui tam complaint, which alleged that two phone carriers falsely billed the Government, was barred by his earlier-filed complaint alleging a similar scheme involving a separate set of contracts with different agencies. First-to-file arguments typically involve two separate whistleblowers. Whether a whistleblower’s previous complaint could bar his later complaint was an issue of first impression.
The first-to-file bar presents a potential avenue for a company to proactively eliminate a whistleblower suit without even broaching the merits of the case. A thorough search for earlier-filed complaints raising similar allegations should be an automatic initial step for a company facing a FCA whistleblower suit. The first-to-file rule can bar a case even with differences in the parties, jurisdictions, or allegations, as long as the two cases involve the same essential facts. Vigilance and creativity are critical in the pursuit of this defense. In addition to scouring media reports and public dockets, a defendant can pursue limited unsealing of complaints involving the same defendants, contracts, or other material facts through filing a motion to the court, negotiating with DOJ, or some combination thereof.
A number of recent and pending cases also raise questions about the applicability of the public disclosure bar. The public disclosure bar precludes a whistleblower FCA suit premised on publicly disclosed information unless the plaintiff was the original source of the information.
In United States ex rel. Cunningham v. Millenium Labs. of Cal., Inc., the First Circuit reversed dismissal of a suit alleging that the defendant defrauded the Government by duplicative billing and incentivizing physicians to order unnecessary drug tests that were then billed to Medicare. The court concluded that while the duplicative billing allegations were disclosed in a related suit in California state court, the allegations of unnecessary testing were not described in either the state complaint or emails attached thereto, and thus claims based on those allegations were not barred. In United States ex rel. Leveski v. ITT Educ. Servs., the whistleblower appealed dismissal of her claim based on public disclosure, arguing that while a prior case detailed the university-defendant’s scheme to illegally reward recruiters for sheer enrollment totals, her case alleged a later-devised compensation scheme to feign compliance while still illegally incentivizing recruiters. In United States ex rel. Yarberry v. Sears Holdings Corp., the court denied a motion to dismiss based on the public disclosure bar. The whistleblower alleged that the defendants violated the AKA by providing monetary inducements to beneficiaries of government healthcare programs to fill their prescriptions at the defendants’ pharmacies and violated the FCA by implicitly certifying AKA compliance. The court denied the motion to dismiss, finding that although the defendants’ incentive program was publicly known, its covert practice of ignoring members’ ineligibility to participate in government healthcare programs was not. Similarly, in United States ex rel. Daugherty v. Bostwick Labs., the court denied a motion to dismiss based on the public disclosure bar. The defendants were alleged to have improperly induced physicians to refer business by discounting a service so that physicians would profit after Medicare reimbursement. The public disclosure bar did not apply because although the discounting practice and the regulatory “loophole” that allowed it were subject to news coverage and other public commentary, the disclosures did not identify the defendants and thus did not reveal their alleged scheme. These cases suggest limits to the public disclosure bar where the plaintiff provides greater factual detail about the alleged fraud than has previously been disclosed.
A company faced with a whistleblower FCA lawsuit should evaluate the potential applicability of the public disclosure bar as part of its initial case assessment. A variety of sources—many of which are not intuitively “public”—can trigger the public disclosure bar, including, among others, criminal, civil, or administrative proceedings, congressional testimony, Government Accountability Office reports or audits, or media reports. Of course, the next step would be to determine if the relator is an original source of the publicly disclosed information, as a prior public disclosure will not foreclose a FCA claim if the relator was an original source with direct and independent knowledge of the allegations. 31 U.S.C. § 3730(e)(4)(B). There is often a variety of fact-specific arguments, however, bearing on whether a whistleblower is an original source.
Government Knowledge – A Bulwark against FCA Claims Based on Good-Faith Disputes
A few recent cases reaffirm the potency of “government knowledge” as a defense to FCA liability. Generally, a claim is not false under the FCA if the Government knew about and approved of the purported falsities at the time the claim was submitted. The government knowledge defense is premised on the idea that a party cannot knowingly submit a false claim if it discloses the material facts about the claim—in short, if it tells the truth. This defense provides a powerful shield against FCA claims for companies that can demonstrate full disclosure of the material elements of alleged false claims.
In Ulysses, Inc. v. United States, the court denied the Government’s FCA claims based in part on the government knowledge defense, which the Court of Federal Claims had not previously recognized. Ulysses brought claims against the Government under the Contract Disputes Act (CDA), and the Government asserted counterclaims under the FCA. The Government alleged that Ulysses violated the FCA by, among other things, filing a CDA claim that sought payment under a fraudulently obtained purchase order and falsely asserted that Ulysses was an approved manufacturer of the part at issue. Applying the government knowledge defense, the court found that the Government knew the particulars of Ulysses’ CDA claim before it was submitted. Though the Government alleged that “Ulysses sought payment in its certified claim pursuant to purchase orders to which it knew that it was not entitled” because it “knew that it had obtained [the purchase order] by fraud,” the court found that “the Government was well aware of Ulysses’ view” that it was an approved manufacturer because it had informed the Government of its position numerous times before submitting its CDA claim. In short, Ulysses “told the Government the truth about its status,” and thus could not have submitted a false claim.
Other recent decisions have applied the government knowledge defense. In United States v. Bollinger Shipyards, Inc., the Government alleged that Bollinger submitted false claims in performing a contract to modify U.S. Coast Guard ships by knowingly using incorrect calculations concerning the strength of the modified vessels. In dismissing the case for failure to plead with particularity either scienter or materiality, the court also concluded that the government knowledge defense undercut the Government’s theory of liability. The Coast Guard had continued to accept and pay for modified vessels even after it knew of a miscalculation and that the first modified ship had sustained damage. In United States Dept. of Transp. ex rel. Arnold v. CMC Engineering, Inc., the court granted summary judgment for the defendant on claims that it misrepresented its consultants’ credentials to obtain higher pay rates for work on federally funded state projects. There, the court applied government knowledge as a defense because the state agency administering the programs had previously instructed the defendant to classify specific inspectors at higher levels than their credentials supported.
These decisions mark an encouraging development for companies that do business with the Government. A company facing a FCA allegation may be able to characterize the facts as a good-faith dispute rather than fraud. The level of involvement of a government agency, as well as a showing that the Government knew of, or even better directed, the activity in question, will be critical to this defense.
The Wartime Suspension of Limitations Act Puts a Wrinkle in the FCA Statute of Limitations Defense
Another recent development in FCA case law is less encouraging. In the past year, federal courts at the district and appellate levels have held that the Wartime Suspension of Limitations Act, 18 U.S.C. § 3287 (2008) (WSLA), tolls the FCA’s six-year statute of limitations while the country is at war. This rule could carry vast implications, as these courts have adopted a broad interpretation of when the United States is at war for the purpose of this tolling provision, meaning it could be applied expansively. Indeed, under the courts’ interpretation, the WSLA has tolled the FCA’s statute of limitations since 2002, when Congress authorized military actions in Iraq, and will continue to toll the statute as the country wages two wars. The decisions have already given new hope to plaintiffs bringing FCA claims previously thought to be stale.
The WSLA, which was passed during World War II to combat wartime contracting fraud, had long been understood to not apply to the civil FCA, as no modern court had so applied it. In August of last year, however, the Southern District of Texas held in United States v. BNP Paribas SA that the WSLA tolls the civil FCA’s statute of limitations during war. The defendant in that case was alleged to have fraudulently procured commodity guarantees from the Department of Agriculture and later submitted claims based on the guarantees. Its last claim was submitted in September 2005, more than six years before the Government filed its FCA complaint. The court declined to dismiss the case, holding that the claims were not expired because the country was at war in September 2005 and thus the WSLA tolled the FCA’s statute of limitations.
The BNP Paribas decision was novel until March of this year, when the Fourth Circuit in United States ex rel. Carter v. Halliburton Co. also held that the WSLA suspends the FCA’s statute of limitations during wartime (even in cases brought by qui tam whistleblowers where the Government declines to intervene). In Carter, the defendant allegedly submitted fraudulent bills under a government contract to build water purification systems in Iraq. The Fourth Circuit reversed the lower court’s dismissal based on the statute of limitations, reasoning that the WSLA applies to civil fraud claims even where the Government does not intervene because the statute’s language does not limit its application to only criminal offenses or to claims where the Government intervenes.
Another district court recently adopted an expansive interpretation of the reach of the WSLA. In Paulos v. Stryker Corp., the Eastern District of Missouri found that the WSLA applied to toll the statute of limitations in a qui tam action arising from alleged inappropriate billing for uses of a pain pump not approved by the Food and Drug Administration. In reaching its decision, the court rejected the defendant’s arguments that the WSLA is limited to criminal cases, finding the weight of authority to the contrary. The court also found the defendant’s argument that the WSLA applies only to “war frauds”—i.e., fraud related to the administration of the war—to be unsupported by the language of the statute.
These decisions are sure to lead to more FCA litigation as whistleblowers and the Government seek to bring claims premised on conduct previously thought to be beyond the reach of the statute of limitations. In the short time since the BNP Paribas decision, we have already seen FCA plaintiffs invoke the decision to revive stale claims. In United States v. Wells Fargo Bank, N.A., for example, the Government has argued that claims dating back as far as 2001 are not time-barred because the WSLA has tolled the FCA’s statute of limitations. Wells Fargo, in a briefing filed before the opinion in Carter, argues that the WSLA does not apply to civil claims or to civil claims unrelated to wartime contracting. Because the reach of the WSLA is not clearly defined, a variety of constitutional and statutory construction arguments, including those raised by Wells Fargo, could be advanced in opposition to this series of rulings.
FCA Damages and Penalties – New Limitations Help Avoid Catastrophic Results
Of course, it is every defendant’s goal to avoid a finding of FCA liability. An entity that violates the FCA is liable for actual damages to the Government, which are subject to trebling. 31 U.S.C. § 3729(a)(1). There is also a mandatory civil penalty of $5,500 to $11,000 for each false claim submitted. Id.; 28 C.F.R. 85.3(a)(9). For a company finding itself on the wrong side of a FCA trial verdict, however, courts have provided some recent safeguards against a catastrophic result. While none of these decisions are yet widespread enough to make litigation a surefire bet, they might provide fodder that affects a defendant’s calculus when deciding whether to litigate charges it believes are unfounded.
Proper Method of Trebling Damages:
A recent Seventh Circuit decision offered guidance on how the Government’s actual damages should be calculated in the event that liability is established. In United States v. Anchor Mortg. Corp., the Seventh Circuit held that FCA damages should be trebled after applying any reduction to the Government’s loss, and not before. This approach, called “net trebling,” carries big implications for damages under the FCA, as it can mean substantially lower damages (or no damages at all) in cases where the Government received some value in connection with false claims. (See Wiley Rein article on this case.)
In Anchor Mortgage, the defendant and its CEO were found liable for making false statements in connection with home mortgage loan applications to be insured by the Federal Housing Administration. The district court calculated damages by trebling the amount the Government paid lenders under the mortgage guarantees, then subtracting the amount it recovered by selling the collateral properties. The Seventh Circuit reversed, concluding that damages should be trebled based on the Government’s actual loss, factoring in the monies recovered from selling the properties rather than every dollar it paid based on the false claims. The court noted that the FCA does not dictate either gross or net trebling, that damages in civil litigation are generally based on net loss, and that a Supreme Court case long cited as precedent for gross trebling does not actually require that approach.
The Seventh Circuit’s decision, which continues a trend in which the Second, Sixth, District of Columbia, and Federal Circuits have implicitly endorsed net trebling, could prove to substantially affect FCA litigation. Net trebling can make a major difference in the total amount of damages, and allows contractors to argue that the Government is due no damages because it suffered no loss (though the court could still assess statutory penalties). A lower ceiling on potential damages would also affect settlement negotiations, where plaintiffs have long invoked the possibility of massive damages to compel defendants to settle.
Constitutional Limits on FCA Penalties:
In addition, recent and pending FCA cases suggest that there are situations when damages and penalties assessed in connection with FCA violations are constitutionally excessive under the Eighth Amendment’s prohibition on excessive fines. The FCA provides immense potential for damages and penalties, allowing for treble damages and a penalty up to $11,000 for each “false claim,” which can in some cases be every invoice to the Government. 31 U.S.C. § 3729(a)(1). Defendants can incur huge penalties even where its culpability and the Government’s harm are minimal, and where the number of false claims is unrelated to the defendant’s culpability—for instance, where a hospital bills Medicare for procedures that did not follow complex and detailed Medicare regulations but were otherwise provided in good faith. FCA cases are therefore ripe ground for questions about the constitutionality of damages and penalties awards, which typically turn on whether the award is proportional in light of the defendant’s culpability and the Government’s harm.
In United States ex rel. Bunk v. Birkart Globistics, the Government and whistleblower appealed a district court decision awarding no penalties after a jury found the defendants liable for falsely certifying that their bid on a government contract was not based on a price-fixing agreement. After the trial court found sufficient evidence of 9,000-plus false claims, the whistleblowers sought reduced penalties of $24 million instead of the more than $50 million authorized under the statute. The court, however, held that no penalty could be awarded, concluding that no less than the statutory minimum penalty could be awarded for each claim and that awarding the minimum for each claim would be constitutionally excessive in light of the minimal harm to the Government. On appeal, the Government has argued that the court was obligated to reduce statutory penalties only as far as necessary to make them constitutionally proportional, and that the district court’s holding would allow repeat violators to avoid statutory penalties while more minor violators incur them. An industry group has filed an amicus brief supporting the court’s decision to award no penalties, arguing that the FCA’s penalty provision, by allowing a penalty based on each claim for payment, produces “outsized settlements” and “irrational judgments”—particularly where, as in this case, the Government suffered little or no loss. This case highlights how the FCA’s statutory penalties for each false claim, and the customary way of defining a claim, can lead to immense penalties that might run afoul of the Eighth Amendment. (See Wiley Rein article on this case.)
Another pending case could also test the constitutional bounds of FCA damages and penalties awards. In Hobbs, the lower court ordered the defendant to pay more than $11 million in treble damages and civil penalties. On appeal, the defendant argued that assessing a penalty based on each of the nearly 1,300 claims was constitutionally excessive because the claims concerned technical compliance with complex regulatory and recordkeeping requirements and not outright fraud. As noted above, the Sixth Circuit recently reversed the lower court’s liability finding and thus did not reach the constitutional question. Nevertheless, the issue could arise again if MedQuest is found liable upon remand. More generally, we are likely to see arguments more frequently that FCA penalties are constitutionally excessive, as theories like implied certification and fraudulent inducement create potential for huge penalties despite conduct that falls short of outright fraud and often causes minimal harm to the Government.
Given DOJ’s overwhelming recoveries over the past several years, there is every reason to believe that new FCA cases will be plentiful in years to come. FCA causes of action are popping up in a variety of nontraditional areas, and novel theories of liability are being advanced. We are also seeing companies more frequently consider using whistleblower suits as offensive actions against competitors.
As a result of the increasing scope of FCA activity, it is critical that any company doing business with the Government understand the conduct that can give rise to FCA liability and what to do if a FCA investigation or suit is brought. An effective internal compliance program is a must-have for every company doing business with the Government. The company must also frequently take stock, though, to determine if its compliance program is comprehensive and up-to-date. Even when engaged in best practices, companies sometimes find themselves subject to FCA investigations and lawsuits. In such situations, early case assessment is critical. This should involve an evaluation of all potential theories that disprove liability, including affirmative defenses and whistleblower-specific defenses, where applicable. Given the ever-changing landscape of the FCA, each new FCA investigation or lawsuit warrants its own comprehensive assessment. A company facing a FCA lawsuit should be assured, however, that there is a variety of tools it can employ to minimize or eliminate its exposure to FCA liability.