In 2011, Maxim Healthcare entered into a settlement agreement with DOJ under which it paid $121 million plus interest to resolve civil claims arising under the False Claims Act based on allegations that it had fraudulently billed Medicaid and the VA for services not provided or at inflated rates. The company also entered into a deferred prosecution agreement and nine individuals pled guilty to criminal charges related to the same conduct. On October 29, 2012, Maxim filed suit against DOJ under the federal FOIA to obtain the details of how the government apportioned its $121 civil settlement in order to allow Maxim accurately to claim the single damages “compensatory” portion of its settlement payment as a deduction, in accordance with applicable U.S. tax laws. When DOJ enters into FCA settlements it prepares a Civil Fraud Disposition Report, in which it describes how it has calculated single damages and penalties and how it has allocated the settlement funds. As companies that have entered into civil FCA settlements with DOJ know, DOJ routinely refuses to share the specific details of those calculations and allocations with defendants, making it difficult to determine the deductible portion of the settlement for income tax purposes.
Maxim’s complaint alleges that DOJ produced a copy of the Civil Fraud Disposition Report related to its settlement in response to Maxim’s FOIA request that was redacted of the information necessary to determine the amount attributed to compensatory damages, claiming that information was protected by the government’s attorney work product and pre-deliberative process privileges. Maxim argues that the Report was drafted two weeks after the settlement was finalized and is routinely shared with the IRS, preventing the application of the claimed privileges. In response to a separate FOIA request, DOJ produced a copy of a receipt detailing the financial breakdown of one of the 34 separate payments scheduled under the settlement agreement, which Maxim argues further undercuts the government’s privilege claims. If granted, Maxim’s request that DOJ be ordered to disclose the Civil Fraud Disposition Report would significantly assist defendants seeking to fully avail themselves of the tax benefits of future FCA settlements.
The case is pending in the U.S. District Court for the District of Columbia, and the complaint is available here: http://articles.law360.s3.amazonaws.com/0390000/390187//mnt/rails_cache/https-ecf-dcd-uscourts-gov-doc1-04514054877.pdf