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MelaleucaAlternifoliaEssOil.jpgThe Federal Rules of Civil Procedure (FRCP) require any party claiming fraud to provide specific allegations in their complaint. This includes lawsuits brought under the False Claims Act (FCA), which by definition include allegations of fraud. Last year, the Third Circuit Court of Appeals considered the question of how specific a plaintiff’s allegations must be in a qui tam FCA lawsuit. Foglia v. Renal Ventures Mgt., LLC, 754 F.3d 153 (3rd Cir. 2014). The court held that the plaintiff met the FRCP’s requirement of “particularity.”

The plaintiff is a registered nurse who worked for the defendant, a dialysis care services company, from March 2007 until his termination in November 2008. He filed a qui tam FCA complaint in April 2009. After the United States declined to intervene, the plaintiff filed an amended complaint, followed by a second amended complaint. He alleged that the defendant falsely certified compliance with state quality-of-care regulations, submitted fraudulent reimbursement claims for the drug Zemplar, and reused Zemplar vials intended for single use. He also claimed retaliation, although that claim was not addressed by the appellate court.

The defendant moved the district court to dismiss the second amended complaint under FRCP 12(b)(6), arguing that the plaintiff had not met FRCP 9(b)‘s heightened pleading requirements for fraud claims. The district court granted the motion and dismissed the lawsuit with prejudice. It found that the plaintiff had failed to provide a “representative sample” of false claims submitted by the defendant. Foglia, 754 F.3d at 155. The plaintiff appealed the dismissal of the claim related to overbilling for Zemplar.
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files-313733_640.jpgIn order to bring a whistleblower claim under the False Claims Act (FCA), someone has to take the risk of reporting information they have obtained from their employer regarding fraud. The law protects people from various forms of retaliation for making a report, but it is still a difficult process that takes courage and resolve. In many cases, the act of reporting may put a whistleblower at risk of a counterclaim by a qui tam defendant for breaching a confidentiality agreement or violating their trade secret rights. Businesses need the ability to maintain some amount of confidentiality and protect their trade secrets, but what happens when that interest conflicts with an FCA claim? A Pennsylvania federal court recently considered a qui tam plaintiff’s argument that counterclaims against her went against public policy. United States, ex rel. Notofransesco v. Surgical Monitoring Assoc. Inc., et al, No. 09-1703, memorandum (E.D. Pa., Dec. 12, 2014). The court discussed the limits on a qui tam defendant’s ability to counterclaim against a whistleblower, but it found that it was too early in this particular proceeding to make a ruling on the issue.

The plaintiff worked for the defendant, a healthcare services company, from 2006 to 2008, first as a Billing and Collections Specialist and later as a Billing Manager. In June 2008, she signed a written confidentiality agreement that described a wide range of materials deemed confidential. The defendant claimed that the plaintiff removed confidential information from its premises, in violation of the confidentiality agreement, at some point during the time it employed her.

In April 2009, the plaintiff filed a qui tam complaint, under seal, alleging that the defendant had submitted false claims for federal healthcare reimbursements. The federal government declined to intervene in March 2014, almost five years after the plaintiff filed the lawsuit. She filed an amended complaint the following month, which was no longer under seal. The defendant filed an amended answer in October, along with counterclaims for breach of contract, breach of implied contract, and promissory estoppel. It argued that the plaintiff violated the confidentiality agreement by filing the amended complaint and placing confidential information into the public record.
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whistleblower.jpgAs anyone who has ever seen an episode of Law & Order knows, prosecutors must often rely upon information and testimony provided by informants, whistleblowers, and even accomplices to help prosecute the most dangerous criminals. After all, who better knows the inner workings of a crime than one of the perpetrators? While using one thief to catch another is seen as distasteful by some, most people realize that this is the only way to secure convictions for the most dangerous criminals; for example, using a small-time drug dealer to help convict the kingpin, or the co-conspiring accountant to testify against the CEO’s embezzlement.

However, the situation becomes much more complicated when the whistleblower is a federal employee and they are blowing the whistle on the federal government. Federal employees work for the government, and parts of their job might require them to keep information about dangerous, unethical, or even illegal activity by the federal government away from the general public. This creates a difficult balancing act: when should a federal employee maintain the secrecy of such information, and when should they provide leaks to the press? Does it matter whether the federal employee is in a position of power? Are their motives relevant?
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Seal_for_the_Special_Inspector_General_for_Afghanistan_Reconstruction.gifThere are nearly infinite possibilities when it comes to defrauding the federal government. You can bill for things never done, or you do something and bill for it twice. You can submit a fake invoice, or you can cause a third party to submit a fake invoice on your behalf. If the government is paying for something, you can be certain that someone is trying to find a way to cheat the government and stick the taxpayer with the bill. That said, the Qesmatullah Nasrat Construction Company (QNCC) found a new way to cheat the U.S. Government: they were hired to build a police station in Afghanistan–instead, they built a sand castle.

The Office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) just released a report, providing a rare and insightful look at how a boldly fraudulent effort resulted in the theft of half a million dollars. Wardak Province is located in central Afghanistan near Kabul, and has served as the location for several clashes between encroaching Taliban fighters and the U.S. and Afghan troops who serve to protect it. In 2012, to better secure the area and to provide an improved training ground for Afghan police officers, the Federal Government awarded QNCC a $456,669 contract to build a dry fire range, allowing police recruits to take part in advanced training exercises. QNCC claimed to have finished construction several months later, and were paid in full for its supposed efforts. After all, a contracting officer had conducted seven on-site inspections and reported that the project was “100 percent complete, with no deficiencies or missing items noted.”
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clipphotosct.pngDavid Stone, of Stone & Magnanini LLP, argued an important civil war fraud False Claims Act case on behalf of whistleblowers in the United States Supreme Court on January 13, 2015. The Solicitor General joined the argument with Stone & Magnanini and supported ruling in favor of the whistleblower. Kellogg Brown & Root Services, Inc. v. United States, ex rel. Carter, No. 12-1497, is the first case in which the Supreme Court will consider how the first-to-file bar should be applied. It is also the first case to consider whether civil FCA actions are tolled during wartime.

The False Claims Act may appear to be relatively simple as it is only a few pages long, but in practice the law is extremely complex. When Congress passed (and subsequently updated) the False Claims Act, the goal was to strike a balance between encouraging whistleblowers with knowledge of fraud to come forward and partner with the government, while discouraging so-called “parasitic” lawsuits which added nothing.
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whitedialysis3.jpgDaVita Kidney Care is known for two things: first, for it’s “Core Values” which include aspirational terms such as “Service…Excellence…Integrity…[and] Accountability,” and second, for engaging in a sophisticated kickback scheme designed to pay doctors for patient referrals. As healthcare has become an increasingly lucrative market, certain types of patients and illnesses are more valuable than others because they allow providers to freely bill insurance companies and Medicare/Medicaid for treatment. It turns out that patients suffering from kidney disease or failure provide such an opportunity, because they require frequent rounds of kidney dialysis.

DaVita recognized this business opportunity, and for nearly 10 years paid doctors for referring patients to their dialysis clinics. First, DaVita would search out doctors or practices who treated large number of patients with renal disease, preferring health care providers who were young or in debt. Next, DaVita would make an impossibly good offer for the doctors to either buy a share of a DaVita dialysis clinic, or else DaVita would offer to buy a share of an existing clinic. Once a deal had been struck, DaVita would then sign non-compete agreements with the doctors, ensuring that all of their patients would be referred to their clinics. This guaranteed DaVita easy profits. Unfortunately, this kickback scheme was also highly illegal.
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red 2014 desk calendar dimensionalcanstock17590196.jpgAs a new year begins, it’s worth taking a look back at 2014 to see how the False Claims Act (FCA) has performed. Thanks to the brave actions of whistleblowers, the Justice Department was able to recover nearly $6 billion this year from FCA cases. This amazing sum was due largely to settlements with Bank of America and JPMorgan Chase, who were finally held accountable for selling mortgage-backed securities designed to blow up in investors’ faces–one of the primary causes of the 2008 financial crisis. Each action resulted in settlements of $17 billion and $13 billion, respectively, which never would have been recovered without the aid of whistleblowers capable of providing the Department of Justice with insider knowledge of the fraud.

While mortgage and housing fraud represented lion’s share of settlements this year at $3.1 billion, the Department of Justice also recovered $2.3 billion in health care fraud, which has remained a persistent issue over the past decade. Despite aggressive efforts to combat Medicaid and Medicare fraud, experts believe that approximately $6 billion in fraud and overcharging occurs annually. However, as the False Claims Act has become more effective at prosecuting such illegal practices, more whistleblowers have stepped forward, leading to record numbers of qui tam lawsuits, with approximately 700 having been filed this year alone.
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170px-Seal_of_New_Jersey_svg.pngOn December 11, 2014, New Jersey State Senator Nicholas P. Scutari introduced S. 2645, a bill that would make the provisions of the New Jersey False Claims Act, N.J.S.A. 2A:32C-1 to -15 and N.J.S.A. 2A:32C-17 to -18 (“NJ FCA” or the “Act”), retroactive under certain circumstances (available at http://www.njleg.state.nj.us/). Senator Scutari introduced the bill to amend the NJ FCA in response to the New Jersey Superior Court, Appellate Division’s October 2011 opinion finding that the NJ FCA did not apply retroactively. State ex rel. Hayling v. Correctional Medical Services, Inc., 422 N.J. Super. 363 (App. Div. 2011). Provided S. 2645 is enacted, the State and private individuals will have a greater ability to hold accountable those who defraud the State and to recover additional funds for New Jersey taxpayers.

Governor Jon Corzine signed the NJ FCA into law on January 13, 2008, with an effective date of March 13, 2008. P.L. 2007, c. 265. Similar to False Claims Act statutes in other states, the Act was modeled after the Federal False Claims Act and has a “remedial and deterrent purpose,” N.J.S.A. 2A:32C-17, aimed at fighting and reducing fraud perpetrated against the State. In order to accomplish its goal of reducing fraud, the NJ FCA provides for civil penalties and treble damages. N.J.S.A. 2A:32C-3. Additionally, similar to the Federal False Claims Act, the NJ FCA contains a qui tam provision to encourage private individuals, known as “relators,” to report fraud and to bring actions on behalf of the State. N.J.S.A. 2A:32C-5. If the State “proceeds with and prevails in an action brought by a person” under the Act, the relator shall receive between 15% and 25% “of the proceeds recovered under any judgment obtained by the Attorney General under this act or of the proceeds of any settlement of the claim . . . .” N.J.S.A. 2A:32C-7(a). In cases in which the Attorney General does not intervene and the relator prosecutes the action, “the person bringing the action or settling the claim shall receive” between 25% and 30% “of the proceeds of the action or settlement of a claim under th[e] act.” N.J.S.A. 2A:32C-7(d). Provided that a fraud was perpetrated against both the State and Federal governments, a relator may bring an action under both the Federal False Claims Act and the NJ FCA and recover a relator’s share under both statutes.
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seclogo.bmpThe U.S. Securities and Exchange Commission recently issued its 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program. (Available at: http://www.sec.gov/about/offices/owb/annual-report-2014.pdf). According to the report, the Commission authorized an award of more than $30 million to a whistleblower, its largest to date. The Commission paid awards to nine whistleblowers in 2014, and since its inception, in 2011, it has authorized awards to a total of fourteen whistleblowers.

The SEC opened a separate office (the Office of the Whistleblower) within the Division of Enforcement to administer the Dodd-Frank Whistleblower Program. Its mission is to identify and fight fraud early and quickly to minimize losses to investors. The program requires OWB to report annually to Congress on its activities, and to specifically address how much money has been paid to whistleblowers during the preceding year. To increase awareness and the transparency of its program, OWB created a website where all Final Orders issued by the Commission either awarding or denying a claim for an award are posted. (http://www.sec.gov/about/offices/owb/owb-final-orders.shtml).
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seclogo.bmpCongress established the SEC whistleblower program through the 2010 Dodd-Frank Act, pursuant to which tipsters can receive between 10% and 30% of any amounts collected by the SEC as a result of the whistleblower’s information. Since the whistleblower program’s passage, the SEC has strongly encouraged international whistleblowers to come forward with information about fraud in the United States securities markets, and exercised its authority to substantially reward international whistleblowers for doing so.

According to SEC fiscal year-end reports, overseas whistleblowers account for approximately 12 percent of its tips. Indeed, since the beginning of the whistleblower program, the SEC has received whistleblower tips from individuals in 83 countries outside the United States. In Fiscal Year 2014 alone, the Commission received whistleblower submissions from individuals in 60 foreign countries. As depicted in the following chart, the SEC received the highest number of international whistleblower tips in Fiscal Year 2014 from individuals in the United Kingdom, India, Canada, the People’s Republic of China, and Australia.
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