In False Claims Act cases, the United States has advantages that other plaintiffs in civil litigation do not have. A December 9, 2015 ruling on a motion to dismiss by the U.S. District Court for the Eastern District of Virginia illustrates these advantages.United States ex rel. Ribik v. ManorCare Inc. et al., case number 1:09-cv-00013. The Court struck 11 of the affirmative defenses asserted by the defendants: estoppel, laches, waiver, unclean hands, public disclosure, failure to state a claim, failure to plead fraud with specificity, damages too remote or speculative, release, accord and satisfaction, and statute of limitations. This decision serves as a reminder that actions brought under the federal False Claims Act are not subject to the typical affirmative defenses raised in most commercial litigation disputes.
Some of these defenses are simply unavailable against the Government. The Court ruled that “equitable estoppel does not apply against the United States in a suit to recover public funds” and that unclean hands also is unavailable as a defense because the Government is “acting in the public interest.” In addition, as specified in the statute, the public disclosure bar does not apply to the Attorney General. 31 U.S.C. § 3730(e)(4). Accordingly, the Court also struck that defense because the complaint “was brought by the Department of Justice, acting on behalf of the Attorney General, and as such, the public disclosure bar is inapplicable.”
Other defenses were held to fail as a matter of law. First, the Court ruled that laches fails because the United States is not subject to the defense when “enforcing its rights.” Second, the Court held that “[w]aiver fails as a matter of law because violations of the FCA can only be waived by the United States Department of Justice.” Finally, failure to mitigate damages fails “because it is well settled that the United States has no duty to mitigate damages in fraud actions, including an FCA claim.”
Because “[a]ctual damage to the United States is not a necessary element of an FCA cause of action,” the Court also struck the defense of damages too remote or speculative. The statute imposes civil penalties for each false claim, 31 U.S.C. § 3729, and therefore Defendants could be liable even without any actual damages to the United States.
Furthermore, according to the Court, two affirmative defenses – failure to state a claim and failure to plead fraud with specificity – were really pleading standards and thus not appropriate affirmative defenses.
The Court’s ruling serves as an important reminder that False Claims Act cases are unlike typical litigation. Further, many states have enacted their own versions of the FCA, and this ruling and those it follows will likely impact actions brought under the state statutes.